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Prodding the tiger - Competition in Indian Branch Banking

The Reserve Bank of India (RBI) has a new policy which will let foreign lenders set up branches in India. This represents an unprecedented opening up of the Indian banking industry, which will bring more competition and better services to customers.

Locally incorporated units of international banks will be permitted to open branches “anywhere in the country at par with Indian banks”. Overseas banks will be allowed to set up subsidiaries with minimum capital of 5 billion rupees ($80 million) and a capital adequacy ratio of 10 percent, the Reserve Bank of India said in its statement.

RBI’s new policy to open more branches eases the way for overseas banks to compete in a market where big banks, like Citigroup and HSBC Holdings Plc (HSBA) haven’t opened a branch since 2010. In fact they operate only around 0.1% of India’s 92,000 outlets.

The new policy will create more competition for banks in revenue generation and areas like customer service.

So what does this mean for the big incumbent Indian banks? The top 5 banks – State Bank of India, ICICI, Punjab National Bank, Bank of Baroda and Union Bank, as well as the other 16 public sector banks, 80 regional banks and 18 private sector banks will have to manage competition by innovating new ways of banking. Adopting new technology is one way to achieve this.

Indian banks can start by using technology to ensure that sales happen. Indian banks do have a track record in innovation. Back in 2010, YES Bank introduced a system which used RFID chips to recognize customers as they walked into a branch. Identifying customers and suggesting suitable products to them will be a critical factor in the success of Indian branches. Making use of CRM applications, which will analyze customer data and provide sales and service prompts, is one way to do this. By ensuring that relevant and consistent sales prompt information is provided to the teller/ bank user across different screens and systems while posting transactions or accessing customer accounts, banks can ensure that customer needs are consistently being understood and met.

I hope that the introduction of more competition will encourage Indian banks to innovate harder – this could be just the yank of the tail required to make the tiger roar.




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