Significance & Role of Banking Strategy

© Copyright IBM Corporation 2008Private & Confidential

Significance & Role of Banking Strategy

Mr. V Seshadri


• Banking in India originated in the last decades of the 18th century.• The first banks were The General Bank of India, which started in

1786, and Bank of Hindustan, which started in 1790; both are now defunct.

• The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal

• This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company.

• The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955.

2

Origins of Banking in India


• Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49

• The Allahabad Bank, established in 1865 and still functioning today, is the oldest bank in India

• Foreign banks started from Calcutta, in the 1860s.• From 1906 to 1911, Swadeshi movement inspired local businessmen and

political figures started banks for the Indian community. Many of the PSUs were started during this period.

• 94 banks in India failed between 1913 and 1918.

3

Pre-Independence Banking in India


• The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance.

• RBI established in April 1934 as private institution & nationalised in 1949• RBI regulates, controls, and inspects the banks in India besides licencing of

new bank/branches.

4

Post-Independence Banking in India


Phases of Evolution of the Indian Banking Industry


Phases of Evolution of the Indian Banking Industry - continued


Structure of the Organised Banking Industry


Business Segmentation


Products & Services


• Credit Policy• Collection Policy• Investment Policy• Interest Rate Management Policy• Asset Liability Management (ALM) policy• Accounting policy• HRM policy• KYC policy• Compliance policies• Corporate Governance policy• Premises policy• Customer Service Policy• Information Technology (IT) policy

11

Types of policies


Policy StrategyPolicy is a guide to the thinking and action of those who make decisions

Strategy concerns the direction in which human and physical resources will be deployed and applied

Policy is contingent decision Strategy is a rule for making decision

Implementation of policy can be delegated downward in the organisation

Strategy cannot be delegated downward

Policy of an organization is prepared to deal with the internal affairs generally

Strategy generally deals with the affairs and events that are external to the firm

Strategy produces the policies Policies do not produce strategy

A policy is framed for recurring activities

Strategy is not formulated for recurring activities. It is formulated to meet the events that may arise in near future and also in the long run

Policy is an outcome of strategy Strategy of a company can be known if we analyse the policy followed by a company

12

Difference between Policy & Strategy


Policy StrategyPolicy implements strategy Strategy does not implement policy

Examples of policies are product policy, sales policy, credit policy, IT policy, HR policy, collection policy

Examples of strategy are stability strategy, growth strategy retrenchment strategy and combination strategy

Policy is a blueprint of the organizational activities which are repetitive/routine in nature

Strategy is concerned with those organizational decisions which have not been dealt/faced before in same form

Policy formulation is responsibility of top level management

Strategy formulation is basically done by middle level management

Policy deals with routine/daily activities essential for effective and efficient running of an organization

Strategy deals with strategic decisions

Policy is concerned with both thought and actions

Strategy is concerned mostly with action

13

Difference between Policy & Strategy.. continued


Relationship between strategy & structure

• An organisation's strategy is its plan for the whole business that sets out how the organisation will use its major resources. An organisation's structure is the way the pieces of the organisation fit together internally. It also covers the links with external organisations such as partners

• For the organisation to deliver its plans, the strategy and the structure must be woven together seamlessly

• Organisational structures need to be designed to meet aims. They involve combining flexibility of decision making, and the sharing of best ideas across the organisation, with appropriate levels of management and control from the centre


• There are many ways to structure an organisation. For example, a structure may be built around– Function: reflecting main specialisms e.g. marketing,

finance, production, distribution– Product: reflecting product categories e.g. bread,

pies, cakes, biscuits– Process: reflecting different processes e.g. storage,

manufacturing, packing, delivery

15

Structure of organisation


Evolution of bank marketing in India


• Period is known as Pre-nationalisation period• Strong accounting orientation of bankers down the time• Investment of banks funds is based on liquidity principles• More importance to quality of security & requirement of customer

gets least importance• Customer was presented with readymade banking products with an

option to take it or leave it• Limited banking network• Period is popularly known as period of class banking

17

Traditional Banking Period


• Period is known as Post-nationalisation period• Phenomenal branch expansion during the 70’s• Financial assistance on very large scale was made available to

economically weaker sections of the society• Large number of deposit & loan schemes were developed during

this period• Banks adopted selling stance• Discipline of bank marketing did travel some distance in as much as

marketing tools like market segmentation, product diversification and expansion were experimented with

• Example, SBI came out with innovative loan products like IRDP, Differential Interest Rate Scheme, Crop Loans etc.

18

Development Banking Period


• Period is known as Modern period• Financial disintermediation is the most important factor which has

given momentum to bank marketing• Basic job of a banker is to accept deposits from depositors & after

providing funds for SLR/CRR, bank extends loan to borrowers.• Difference between deposit interest rate & loan interest rate is the

banker’s “spread”• Bank acts as an interlinking factor & this is called financial

intermediation

• With opening of new avenues for both deployment of surplus funds & also for securing funds, meeting of depositor & borrower via banks are now meeting without mediation of banks which is known as process of financial disintermediation

19

Bank Marketing period


Concept of Marketing Orientation in Banking


Do Banks need Marketing?

• In the current environment– Bank’s are operating in a buyer’s market– Customer looks for a bank which can meet all his requirements

at an affordable competitive cost– Customers are increasingly quality conscious– Customer likely to feel that the given marketing package has

been specially designed for a person like him only– Results in greater satisfaction of customer needs which will in

turn result in higher return for every rupee spent on marketing• Marketing material to be targeted for following segments

– Household– Institutional– Rural


7 P’s of Bank Marketing

• Product• Price• Place• Promotion• Process• People• Physical evidence


7 P’s of Bank Marketing - Product

• Product mix- stands for both goods & service combination offered to public to satisfy their needs

• Bank products can be categorised in three groups– Core Products– Formal Products– Augmented Products

• Evolution of Banking Products



• Core Product features– Define the business of a commercial bank that is whatever

banking service was extended these core products are there– They do not have strong marketing content– Used as basic tools of commercial banking & serve the full range

of customer segments– Core products are indispensable to any business

• Core products – Savings Bank account– Current account– Term Deposits– Recurring Deposit– Cash Credit– Term Loan– Overdraft etc.



• Formal Product features– Formal product is usually a combination of two or more core

products– They have strong marketing content as they cater to some

specific customer needs• Formal product examples

– Sulabha, overdraft of Canara Bank– Vijayasree unit of Vijaya Bank– Smart Money of Hong Kong Bank– Two-in-one of Standard Chartered Bank– Unfixed deposit of Citibank



• Augmented Product features– Further Modification of Formal product with value addition– Main advantage of an augmented product stems from its strong

marketing content

• Formal product examples– Smart Money account with Hong Kong Bank


7 P’s of Bank Marketing - Price

• In banking industry, price is the amount of money that will determine the exchange rate of Bank product or services between the Bank & customers

• Unique feature of Bank price is that products are mostly designed by the banker while price is determined by RBI & GOI. Due to this, there is uniformity in the price of bank products throughout India. Hence, the chance of competition on basis of price is almost NIL

• As a part of economic liberalisation programme of Govt. pricing in Indian banking is steadily being deregulated

• Even though complete deregulation of the price regime is still to materialise, price is fast becoming a strategic tool for bankers for marketing of their products


7 P’s of Bank Marketing - Place

• The place where the banking products or service are delivered is an important element in bank marketing

• Prior sanction from RBI & responsibility of banks towards development of banking habit in remote unbanked areas have been some of the important given parameters

• From the marketing standpoint, place strategy is not fully positive to Indian Banks.


7 P’s of Bank Marketing – Promotion

• Promotion is a demand stimulating aid through communication

• Promotion is to remind individuals & persuade them to accept, recommend or use of product service or idea

• Marketing promotion campaign has two objectives– To Inform the prospective customer – Persuade him to use the product service or idea

• Marketing strategy should be designed to suit not only the present market but also the potential future market


7 P’s of Bank Marketing - Process

• Process is crucial to bank marketing strategy• It gives value to the buyer and an element of uniqueness

to the product• It provides competitive advantage to the bank• Importance of process in bank marketing strategy is

based on “value chain concept”


7 P’s of Bank Marketing - People

• Like any other service industry, banking is a labour intensive industry

• People are crucial to the success of any business• Each employee in a bank irrespective of his position in

the bank hierarchy is both a recipient & provider of service

• In other words to satisfy a customer, people who participate this must be right and apt ones


7 P’s of Bank Marketing – Physical evidence

• Physical evidence is the strategic tool for the bank marketer

• Upkeep of branch premises & interior décor• Imaginative designing of bank stationery used by

customers• Product packaging in banking industry

– Attractively designed product brochure– Catchy brand name


Thank You

Significance & Role of Banking Strategy

Documents

Transcript of Significance & Role of Banking Strategy