Will IDFC fit in to banking attire? Article on Economic Times 22/4/15 and Few ideas for the new bank.

Below is the copy of mail, that I shared with IDFC Chairman on few of my Ideas for the new Bank.

On Thursday, April 23, 2015 8:29 AM, Rajiv Lall <rajiv.lall@idfc.com> wrote:

Thanks!!

Sent from my iPhone

On Apr 22, 2015, at 8:11 PM, “vijay menon” <vijaymenon_2000@yahoo.com> wrote:

Dear Sir,

Post reading the above article, few ideas came to my mind. Which I am sharing with you, in an article form.

For any bank to survive in the present scenario of stiff competition will be first, raise deposit rates to attract depositors or reduce lending rates to attract borrowers. Now this is taken, every bank will go this route sooner than later but then is this enough?

Being associated with banks, I often meet banking customers and the last thing they would like to do now is shift their account unless they are being offered better rate of interest on their business loan, which is under stress now or they are running a major complaint with the bank.

Now if one analyses the typical types of customers, broadly there can be two types of customers, first one being the branch dependent customer and second being non branch dependent customers.

Let’s understand branch dependent customers.

They are the typical, high transactions CA customers who need cash services / trade services /cms etc with a large volume, where interactions with the branch manager /officer are critical.

Similarly there are SA customers, who are basically self employed dealing in real estate or any other profession involving large transactions in cash or customers using investment /broking services attached to a particular Branch Head or Relationship Manager etc.

Now these customers are dependent on branch or its staff and not on brand. They are happy shifting accounts based on the service promises or happy changing banks along with movement of respective RM/BMs. These customers are low hanging fruits, as Bank can poach them along with hiring good Branch Managers or Relationship Managers and then using attractive referral programs can build book of these types of customers.

Now coming to Non branch dependent customers, it is where a new Bank like IDFC will have to think differently to acquire significant casa at tier 1 centers. Now I am listing few ideas which might make the process easier for IDFC or for even for existing Banks in acquiring fresh casa customers as salaried class or as individual customers.

As we know typically HDFC /ICICI or Axis customer who is managed by a RM or PB will have 3 to 4 products attached to him and it is the difficulty in shifting his various hooks that prevents him from not operating his new accounts opened at various banks satisfactorily. Means customers now a day’s use one bank as primary bank where he has maximum hooks on him and other banks he uses product basis. And these customers are happy doing their banking through alternate channels and they don’t like to get trapped while visiting the branches and cross sold.

This has resulted in to banks opening new accounts at a good run rate but failing to bring in much deepening in to these accounts on the casa front. Even salary customers whom Banks hunts along with loans now a days, doesn’t keep money in their salary account if their primary banker is someone else.

How to fix this? This is where, most of the banks are figuring out ways and means to activate customer base now than merely acquiring customers. So in case of IDFC, it will be all about developing a model where it will result in not just numbers but values too and that to happen customer will have to find the accounts relevant for him as well as adding value to him than his present option.

So what is the way out?  The only way out is ability to offer a relationship pricing. Means Banker should be able to tell the customer that today your cost or Income from banking with say HDFC Bank is Rs.45000/ , I can offer IDFC banking relationship at 30000/.

For example: – Customer A has his Casa accounts with HDFC, where his average balance is 100000/- , where he earns 4% i.e. Rs 4000/-, he hold an FD of Rs.1000000/- @ 8 %, assumes interest coming to Rs.80000/. And he has Demat & Trading account where annual fee is Rs.500/- , Monthly EMIs on Home Loans and Car Loans put together coming at Rs.35000/- per month.

Now total credit he is receiving from HDFC is Rs.84000/- and Total Debits happening towards EMIs/Charges is Rs.426500/-. Hence his total cost of banking with HDFC is Rs.342500/- (426500-84000).

Now if any banker goes to Customer A and gives him a solution, where by his cost is reduced by 20% or any %. Will that make him think of shifting his entire business to new bank in a manner whereby he will shift his entire banking deals? Answer should be yes, provided the shifting head ache is borne by the new bank.

This approach makes lot of sense to the customer but the challenge is to have a solution providing ability in real time to customer post understanding his present cost /income status and ability to process his accounts (loans/Deposits/Si etc) shifting requests seamlessly using a channel or vendor.

Now once the customer is in the books, stage 2 starts, which is nothing but service and pure services.

Now a days, customers are afraid of visiting branches due to the cross selling eyes present in the branches. This is one of the main put off reasons for many customers, when they talk about X or Y branch or bank. These needs to change, branches should be purely focusing on service and service delivery and they should be only tasked on service and the most reference as a result of service quality.

This is very important, because unless customer visits the branch regularly, the balance builds up or adding on other products will always be below potential, hence branches should be branded as a great place to walk in for fulfillment of banking requirements and customers should be induced to give references by using various promotional activities than pestering by branch staff.

Branches should be single service point for all types of customers and should be monitored for service efficiency than sales efficiency as seemingly practiced at many bank branches.

Now third idea, which I feel will help the banks to acquire new customers is on the expense management side.

Household expenses are different from home to home, hence if the Bank can develop a solution which can capture all the house hold expenditure like groceries / vegetables etc and before month end can get back to the customer with a solution stating same pattern of monthly expenditure can be now done with 20% discount, if there is an account with the bank, it should make wives curious.

This can be possible if Bank works out with a vendor, who can work along with various super markets offering various discounts weekly/daily on different products. So some smart backend processing can get the cheapest price for the same product at a particular day or week. And if banks solutions can play the bridge between super markets and customer, this product solution can become an instant hit with households and women customers.

Once we women customers in, it won’t take much time for the entire family to be in the same bank.

 4^th idea is about creating an APP, which will be more than banking. Means today I need to use various apps for various services hence given a choice of an App of App concept, I will be keen to see it and use it.

Means using IDFC App, if I can book a taxi / book trip / book a movie ticket / know which is nearest restaurant etc, then my using of Bank App will be more relevant and chances of me hooked on to the App is higher thus using bank for all the linked monetary transactions. This is critical going forward as most of our life is going to be revolved around Apps until something new comes in place.

Further, it is critical for the bank to have an efficient call center, where customers can connect instantly and get resolution on any complaints / requirements as per a prescribed TAT. This is lacking now across banks.

And finally, ability to deliver all the products & services to customers with specific TAT based on categories of customers.

For ex:- A customer maintaining Rs.10 lacs casa should get all the banking products & services within say 30 minutes or A customer maintaining Rs 5 lacs casa should get all the banking products & services within 45 minutes.

This will mean all the deposit /assets & other value added services. If a solution can be developed here then there will be customer delight and casa boom.

Now at the end of it, all the above ideas are possible with a solid process at the bank, hence if IDFC is able to invest good money in technologies and other logistics, all the above process driven business acquisition models will fetch casa the way IDFC is looking at. And one mistake which IDFC should avoid is the people centric model or  investing too much on people instead of process and expecting people to work than a stabilized process, which will always be consistent/predictable than people.

So huge opportunities are awaiting IDFC and wish IDFC all the success in its new avatar as IDFC Bank.

Regards

Vijay Shivram Menon