BANKING MANAGEMENT IIBMS EXAM ANSWER SHEET
CASE I : BANKING ON RELATIONSHIP
The birth of ABC Bank took place after the RBI issued
guidelines for the entry of new private sector banks in January 1993.
Subsequently, the promoter of ABC Bank sought permission to establish a
commercial bank and retained KPMG, a management consultant of international
repute, to prepare the groundwork for establishing a commercial bank. The
Reserve Bank of India conveyed its approval in principle to establish ABC Bank on
February 11, 1994. Thereafter, the Bank was incorporated under The Companies
Act in September 1994. The bank started its operations in November 1995. The
ABC Bank was promoted by the tenth largest development bank in the world, which
had a magnificent record of promoting world-class institutions in India. The
promoter was a strategic investor in a plethora of institutions, which had
revolutionized the Indian financial markets.
Keeping in line with its policy of leveraging
technology to drive its business, ABC Bank deployed Finacle, the e-age banking
solution from Infosys to consolidate its position, meet challenges and quickly
seize new business opportunities. The entire Finacle rollout was remarkable,
considering the fact that it was implemented across all branches in a record
timeframe of 5 months. Finacle provided the critical technology platform to
propel the bank’s operations with new thrust and direction. The bank also
implemented Kondor – a treasury front office software from Reuters and ITMS – treasury
back office software from Synergy Login. The achievement of these significant
milestones was consistent with ABC Bank’s continued focus to create customer
and shareholder value through deployment of superior technology. Investments in
technology were a part of the plan to put in place building blocks for creating
the right organizational infrastructure. In future, it would help ABC Bank to
consistently deliver superior products, convenient access channels and
efficient service to its retail and corporate customers. Large investments had
been made in back-end technology to strengthen processes, systems and control.
This, in the long run, propelled by a top quality management team, clearly set
ABC Bank apart from its competitors.
ABC Bank was a pioneer and an innovator in bringing
state-of-the-art services to its customers. It was the first private bank to
enter and capture new markets. It was the first Indian Bank to provide – ATM
Next (an information portal on ATMs); Instant Account Opening; Talking ATMs;
GiftCard (Prepaid Gift Card); EasyFill (Instant Mobile Refill Service) – along
with other services. The Bank introduced a SMS alert service, which gave the
customers, updated information on any transaction. The Bank had collaboration
with other organizations rendering related services –Insurance, National Saving
Certificates and Post office Service –providing a platform to interact with
potential customers as well as offering other services to its existing
customers. It also tried to tap potential rural market segments, which had not
been explored by any other private bank. A key achievement for the Bank was
that it emerged as the highest distributor for two top Mutual Fund Schemes
consistently in the past, thereby demonstrating the strength of the Bank’s
distribution channel of TPD business. It had registered huge success as a
collecting bank to several market IPOs that consequently leveraged the IPO
financing business. It launched a strategic B2B E-Commerce platform with BPCL
to facilitate online payments from BPCL to its dealers, thereby enhancing
corporate business through new-age technology and offering Supply Chain
Financing Solutions. Corporate banking relationships were offered at 20
locations across the country and total Banking Solutions to its corporate
customers (Annexure).
The Value Chain Management Group also offered Supply
Chain Finance Solutions to various Corporates and special products like loan
against credit card receivables. The lifeline of ABC Bank were its people,
growing at a very fast pace. The average age of the employee at ABC Bank was 31
years. Approximately 83% of the employee strength was in the junior management
category (which included trainees and probationers), while 14% made up the
middle level management. The remaining constituted the senior and top
management. The various business units comprised of 75%, while support
functions made up for 12%, and operations for the remaining 13% of the total
manpower strength of the Bank. The bank had rolled-out broad based grant of stock
options covering 75% of the employees to align their interests with those of
its shareholders. The bank had a stats-of-the-art training centre at Mumbai and
every employee received on an average 40 hours of training, annually.
ABC Bank entered Nagpur market in two phases. In the
first phase, it started with corporate banking and established itself as the
best service provider. Afterwards, it leveraged its strengths by entering into
retail banking. Although, relatively a late entrant in the retail banking
sector, it acquired easy access in the new segment due to its brand image in
corporate banking. In retail banking, ABC Bank opted for selective penetration
based on two main factors – volume of business and credibility of the account.
This enabled them to create greater satisfaction in the customers’ mind.
Initially, it started with the criteria of an average quarterly cash balance of
Rs 25,000 focusing on premium segment. Later on, to further penetrate the
market, it reduced the average quarterly cash balance to Rs 5,000 and segmented
the market on the basis of nature of business, volume and number of
transactions per month. In this phase, by reducing the minimum available
balance, it tapped other individual customer accounts during the course of its
expansion.
ABC had always been particular about the specific needs
of the customer and maintaining consistency in the quality of products and
services provided. The bank emphasized on dealing with them on a one-to-one
basis and providing tailor-made products. In course of penetrating this
segment, ABC bank achieved great success due to its deep understanding of the
needs and expectations of local customers. On the other hand, some of the
competitors who displayed grand success in the beginning could not sustain it
because of a mismatch between expectations of the customers and delivery of
services. As promotion was mainly through word-of-mouth, the bank operated on
the philosophy that 5 satisfied customers bring 5 new customers whereas 5
dissatisfied customers break 25 existing customers. Therefore, they focused
about maintaining quality of services and customer satisfaction. The bank was
very particular about reducing the turnaround time in extending its services to
the customers. It also acted as an investment consultant for their individual
customers.
Apart from offering ‘tailor-made’ products, the bank
maintained a continuous personal relationship with each of its existing
customer, based on their business potentials. They took regular feedbacks from
the customers and responded sincerely to their suggestions or complaints. They
used to call up their premium customers once a week, asking for their views on
the services offered by the bank and suggestions to improve the same. To enable
an impartial communication system, the bank created a dedicated e-mail ID for
customers’ queries and complaints, which established a direct link between them
and corporate office. The complaints and queries received from the customers
were then forwarded to the concerned branch offices for immediate redressal and
branch heads were asked to confirm the same. These complaint redressals formed
an important component in performance evaluation of the branch as well as the
concerned employee.
Even though a large group promoted ABC Bank, its
independent asset base was limited, which posed a problem to finance large
organizations. The limited asset base of the bank created hurdles in the
expansion of its business. In view of having just two branches, RBI guidelines
did not permit ABC to have its own currency chest at Nagpur, thereby affecting
smooth management of hard cash. The bank had an insurance cover for a given
amount of cash it could hold. When the cash inflow increased over the given
limit, keeping additional hard cash with the bank increased risk. Therefore, it
became necessary to transfer it to the right place. In the city of Nagpur, ABC
had only two branches, though its customer base was very large and continuously
increasing. The changing economic scenario was expanding business opportunities
for the Bank. Butibori, a place 30 kms from Nagpur, was expected to be declared
as a Special Economic Zone, which would attract more industries and accelerate
the related business activities in the region.
An increasing number of private and
foreign banks had begun entering Nagpur. The promotional activities of these
multinational banks increased awareness about private banking amongst the
people in the region. ABC Bank also planned to expand its services in credit
cards and other value added services. With the entry of foreign and private
banks in Nagpur, the scenario was becoming more competitive and complex. As the
new players tried to grab experienced employees at higher salaries, the
employee turnover at ABC Bank increased. Looking at the changing business
scenario, the Branch Head, Nagpur, was wondering about the strategies and
measures to be taken for sustenance and growth of the bank.
QUESTIONS FOR DISCUSSION
1.
Analyze the case, using
SWOT.
Strength
-The ABC Bank was promoted by the tenth largest development bank in
the world.
-ABC Bank deployed Finacle, the e-age banking solution from Infosys
to consolidate its position, meet challenges and quickly seize new business
opportunities. The entire Finacle rollout was remarkable, considering the fact
that it was implemented across all branches in a record timeframe of 5 months.
-ABC Bank was a pioneer and an innovator in bringing
state-of-the-art services to its customers.
-It was the first Indian Bank to provide – ATM Next (an information
portal on ATMs); Instant Account Opening; Talking ATMs; GiftCard (Prepaid Gift
Card); EasyFill (Instant Mobile Refill Service) – along with other services.
-These complaint redressals formed an important component in
performance evaluation of the branch as well as the concerned employee.
Weakness
-The bank had a stats-of-the-art training centre at Mumbai and every
employee received on an average 40 hours of training, annually.
- The bank was very particular about reducing the turnaround time in
extending its services to the customers. It also acted as an investment
consultant for their individual customers.
Opportunity
- The promoter of ABC Bank sought permission to establish a commercial
bank and retained KPMG, a management consultant of international repute, to
prepare the groundwork for establishing a commercial bank. The Reserve Bank of
India conveyed its approval in principle to establish ABC Bank on February 11,
1994.
- Large investments had been made in back-end technology to strengthen
processes, systems and control. This, in the long run, propelled by a top
quality management team, clearly set ABC Bank apart from its competitors.
- It was the first private bank to enter and capture new markets
- A key achievement for the Bank was that it emerged as the highest
distributor for two top Mutual Fund Schemes consistently in the past, thereby
demonstrating the strength of the Bank’s distribution channel of TPD business.
- ABC had always been particular about the specific needs of the
customer and maintaining consistency in the quality of products and services
provided.
- Apart from offering ‘tailor-made’ products, the bank maintained a
continuous personal relationship with each of its existing customer, based on
their business potentials.
- Butibori, a place 30 kms from Nagpur, was expected to be declared as
a Special Economic Zone, which would attract more industries and accelerate the
related business activities in the region.
Threat
- The lifeline of ABC Bank were its people, growing at a very fast pace.
The average age of the employee at ABC Bank was 31 years. Approximately 83% of
the employee strength was in the junior management category (which included
trainees and probationers), while 14% made up the middle level management.
- In Nagpur by reducing the minimum available balance, it tapped other
individual customer accounts during the course of its expansion.
- In course of penetrating this segment, ABC bank achieved great
success due to its deep understanding of the needs and expectations of local
customers. On the other hand, some of the competitors who displayed grand
success in the beginning could not sustain it because of a mismatch between
expectations of the customers and delivery of services.
- Even though a large group promoted ABC Bank, its independent asset
base was limited, which posed a problem to finance large organizations.
- In the city of Nagpur, ABC had only two branches, though its
customer base was very large and continuously increasing. The changing economic
scenario was expanding business opportunities for the Bank.
- An increasing number of private and foreign banks had begun entering
Nagpur
- With the entry of foreign and private banks in Nagpur, the scenario
was becoming more competitive and complex.
2.
Comment on the strategies
used by the bank for penetrating the Nagpur market.
ABC
Bank entered Nagpur market in two phases. In the first phase, it started with
corporate banking and established itself as the best service provider.
Afterwards, it leveraged its strengths by entering into retail banking.
Although, relatively a late entrant in the retail banking sector, it acquired
easy access in the new segment due to its brand image in corporate banking. In
retail banking, ABC Bank opted for selective penetration based on two main
factors – volume of business and credibility of the account. This enabled them
to create greater satisfaction in the customers’ mind. Initially, it started
with the criteria of an average quarterly cash balance of Rs 25,000 focusing on
premium segment. Later on, to further penetrate the market, it reduced the
average quarterly cash balance to Rs 5,000 and segmented the market on the
basis of nature of business, volume and number of transactions per month. In
this phase, by reducing the minimum available balance, it tapped other
individual customer accounts during the course of its expansion.
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