1273579 Mukesh Gautam F1 Q49 Emerging strategies of Banking sector

                                    Emerging strategies of Banking sector?

Emerging strategies

Focusing on the emerging India: Banks and regulators alike have woken up to the growing needs of emerging India. While the credit disbursal of all SCBs has doubled from FY08 to FY12 to INR 48,215 bn1, the share of non metro regions in the incremental credit pie has increased from 30 percent in FY09 to 39 percent in FY12, indicating that the Non-metro regions are increasingly gaining share.

Banks are constantly trying to increase their overseas expansion to meet the growing trade demand: Indian Banks have been increasingly growing their International presence in the recent past. In part to cater to the growing Indian Diaspora in foreign countries (estimated at ~ 20 mln persons) and in part to meet the growing demands from cross border trade and economic activity. The Public sector banks (PSBs) are much ahead of the Private banks (PBs) in their overseas presence, constituting over 90% of 171 overseas branches as of March 31st, 2013 . 

Supply Chain Financing (SCF) is gaining traction in India: SCF is rapidly gaining attention in international markets and is growing at a pace of 30 – 40 percent at major international banks. Key elements of SCF include factoring, invoice discounting/reverse factoring, purchase order/invoice data management, and bank assisted open account, open account payment, export/seller finance and buyer side finance. All the products aim at providing better liquidity to the corporate and their entire value chain at lower financing rates. Currently, the growth in this domain comes from US and western European countries, but the future growth is expected to come from emerging economies like India and China.

Focus on improving operating efficiency and outsourcing: With increasing competition, emerging customer demands, regulatory interventions, technology-led, disruptions, higher shareholder expectations, Indian banks are being forced to constantly review and revisit their operating models. Indian banks are constantly optimizing the use of technology and other alternate channels as the change agent, in order to improve operational efficiency and enhance customer experience.  The number of mobile banking transactions doubled to 5.6 mln in January 2013 from 2.8 mln in January 20129. The value of these transactions increased three-fold to INR 625 Cr (USD 105.73 mln) during the month from INR 191 Cr (USD 32.31 mln). Banks have either centralised mid/back office processes through a shared services center or have outsourced their technology requirements to a third party. In addition to focus, this also gives banks a huge cost advantage.

Changing dynamics of fee based income portfolio:  With the rising pressure on cost of funds, it is imperative for banks to look at other avenues to boost their income. The fee income in FY 13 for 67 banks in our sample set (KPMG-BT Best Bank 2012) was INR 64,418 Cr; clocking a three year CAGR of 12 percent and five year CAGR of 15 percent. PSBs have constituted a large part (60 percent) of this basket since the beginning, owing to their reach and size. Banks are now focusing on selling life and general insurance policies, increasing retail fee income, and focusing on income on foreign exchange transactions and remittances.