New perspectives in retail banking

September 15, 2004

Agenda

The Changing Face of Retail Banking

Competitive differentiators

Building the differentiators

In Conclusion

Agenda

The Changing Face of Retail Banking

Competitive differentiators

Building the differentiators

In Conclusion

Changing consumer demographics

     

Increasingly affluent, with bulging middle class The youngest population in the world Increasing literacy levels Higher adaptability to technology Urbanization is a continuing trend Increasing "consumption" mindset in India

Per cent of population, 2003

A Young population . . .

>60 35-59 15-34 0-14

10

23

23

30

36

26

35

35

26

37

35

25

16

29

Highest proportion of population below 35 years (70%) in India Highest proportion of population below 35 years (70%) in India
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. . .which means a bigger opportunity

2003 2009 E 365
391

0-14

15-35

365

449

35-59

240

295

>60
Total Population in million

73 1,044

87

1,221

130 mn plus people get added to working population

Building an affluent middle class

Number of households** (population), millions
Household Income Class Rich: > Rs 0.5 Mn CAGR: 15% Upper Middle: Rs 0.3 0.5 Mn CAGR: 10% Middle Income: Rs 0.1 0.3 Mn CAGR: 2% Lower Income: < Rs 0.1 Mn CAGR (8%) 1995 - 96 2001 - 02 FY2009(E)

1.2 (7)

2.6 (15)

7.0 (40)

32.5 (186)

46.4 (265)

91 (525)

54.1 (312.2)

74.4 (429)

85 (490)

77.0 (444.3)

57.2 (332)

30 (177)

55 million families (320 million people) added in the middle income group
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Changing face of the Indian consumer

Emerging Emerging

Upgradin g Basic Basic

Upgrading

Upgrade to next frontier Buy more & better quality

New services & products Improving life Spend time Socializing

Save Now, Consume Later to Affordable Indulgence

Retail credit growth driven by

Changing demographic profile
Upper income segments in top 24 cities grew at CAGR of over 40%  69% of the population estimated to be under 35 years


Low penetration

Retail credit at 7-8% of GDP  Rapid growth in target segments & under penetration of finance  35%y-o-y growth in home sales; penetration of finance at about 65%


Increasing availability

Entry of banks has led to increased competition and coverage  Increasing use of technology has further enhanced reach and accessibility


Retail credit growing at over 40% per annum

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Agenda

The Changing Face of Retail Banking

Competitive differentiators

Building the differentiators

In Conclusion

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 The  But,

potential is huge

we need to create a sustainable profitable core proposition

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Competitive differentiators
Competitive differentiators to create a sustainable profitable core proposition Operating costs  Credit quality  Customer service


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Agenda

The Changing Face of Retail Banking

Competitive differentiators

Building the differentiators

In Conclusion

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Building the differentiators

Decentralization

 Sales  Service

Centralization

Transaction Processing  Credit policy and monitoring



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Centralization
Reduction in operating costs, using  Economies of scale  Scalable technology  Reduced TATs


Transaction Processing

Credit policy and monitoring

Skill based competencies  Centralized credit policies  Separation of credit from sales  Fraud, valuation of property, legal documentation etc separate


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Learnings from other industries

Banks today cannot restrict their learnings to the best practices followed in the industry but they need to look at other benchmark industries to derive learning on various important business parameters

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Role of back offices

Transaction processing

Role of back offices Backbones for the organizations Manufacturing hubs

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Role of back offices

 Shop

floor concept for greater efficiency and reduced turn around time and consistency in processes economies of scale

Best practices of benchmark industry Manufacturing

 Control

 Leveraging  Quality
 Six

initiatives like

Sigma

 Kaizen

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Role of back offices

 Focused

factory concept for processes like account opening, cheque clearing etc. for improved turn around time economies of scale through centralized operations initiatives

 Leveraging

Learnings for banks

 Quality
 Six

Sigma - Process Improvement  Five S - Work place management

 Shifting

away routine transaction from the most expensive channel i.e. branch

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Role of branches
Transaction Banking

Role of branches Sales and service outlet

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Role of branches
 Managing

footfalls to maximize returns per square foot shopping zone to manage customer needs and effective cross sell space and layout management

Best practices of benchmark industry Retailers

 One-stop

 Shelf  Multi

product packaging- special offers to recognize customers who are giving more business

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Role of branches
 Layout

and space management keeping in view the profitability and turnover of the financial product offered square feet profitability models

 Per

Learnings for banks

 Banks

need not manufacture all the financial products, instead they can leverage their distribution strength a location with customer touch

 Saturating

points

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Service delivery
Multiplicity of channels

Service Delivery Consistency of service delivery across all channels

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Service delivery

 Work

Best practices of benchmark industry Food  Each food item at each outlet tastes the same Retailing
 Customer

practices transplanted throughout a huge network of global outlets and franchises

feels confident walking into any outlet - knows what to expect

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Service delivery
 Development  Uniformity

of customer trust with every transaction with the bank and consistency of service delivery across time and at every touch point and document the best possible work practices service delivery methods

Learnings for banks

 Develop

 Standardizing

Build the brand through customer experience management

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Customer Service
Handling requests

Customer Service Service culture/ethos in the bank

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Customer Service
Uniformly courteous and helpful response from the front line staff
Best practices of benchmark industry Airlines and Hospitality

Ability to identify special customer segments and handle them separately Using regular customer feedback programs for identification of action areas

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Customer Service
 Creating

a service ethos through

 Training

Learnings for banks

of workforce on Products Attitude and speech

 Empowerment

of frontline staff to satisfy

customers

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Customer Service
 Developing

Service standards

 Setting

service standards and TATs

Learnings for banks

 Measuring

and monitoring actuals vis-vis standards and developing processes for further improvement

 Identifying

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Customer Service
 Identifying

differentiated needs of different customer segments regular customer feedback to monitor and improve service levels
Customer Satisfaction Survey Initial Quality Study (IQS) Moments of Truth Study (MOTS) Customer Meets

Learnings for banks

 Using

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Airlines Hospitality

Manufacturin g BANKING Retailer s

Food Retailing Logistics

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Agenda

The Changing Face of Retail Banking

Competitive differentiators

Building the differentiators

In Conclusion

32

In Conclusion
 Changing

retail banking scenario

 Significant

change in demographic profile  Huge market potential  Increasingly challenging business environment  Competitive tools are different need to redefine delivery models and business processes

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In Conclusion
Changing retail banking scenario
 Retail

market growing steadily

Benchmark not only banking and financial  Increasingly challenging business environment services industries but winning companies across a wide range of industries  Competitive tools are different

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In Conclusion

In future, banks need to equip themselves with internal capabilities and build efficient and viable business models to create the advantage of new opportunities available into a long term sustainable competitive advantage

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THANK YOU

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