Banks collect and use client data for better targeting. They should also reduce operational costs by using technology and pass on the benefit to customers
I recall what Greg Baxter, global head of digital strategy at Citigroup mentioned almost a year back (reported in Financial Times on 1 February 2015) that big data is a big opportunity, making a big difference in how the banks serve their customers in future. Financial health barometer can be read by every customer, not just how much balance one has in the account as much as how much the money is likely to be overdrawn every month.
Indian banks have introduced all the available technologies that make the banks’ life comfortable but not that much for a customer. One can go to a bank branch and update his passbook at the kiosk meant for it. He can draw his deposited money but has to pay a price for it if he draws even the allowable Rs40,000 more than twice in a day because several ATMs allow withdrawal only up to Rs10,000 to Rs20,000 at a time. You use net banking only to pay up for several transactions without separate fees. Use plastic money to buy a rail ticket – you end up paying 10% more than you pay at the counter. Buy an air ticket with credit card – you dish out about Rs350 additionally. After paying up for each transaction through debit or credit card, you pay up for every service, some with notice and some without.
On top, you keep receiving SMS on the real estate road shows, credit camps, loan melas, insurance policies and mutual fund investments, on mobile eating up your mobile space, time and money. Banks are taking advantage of the mobile link to customer’s account to advertise their products freely whether customer requires or not.
Banks have been very good at rolling out mobile applications, at the front-end. It is however doubtful whether they have done equally well on back-office. For example, the banks should know pretty well that after a particular age one is not eligible for insurance cover.
If the know-your-customer (KYC) data is integrated into the system, then, there should be no message relating to life insurance cover for all those who are beyond the eligible group. This would also make the system availability for more useful services rendered by the bank.
No wonder that RBI Report on Trend and Progress 2015 mentions that public sector banks (PSBs) accounted for more than 70% of the complaints received during the year, while the private banks accounted for over 25% of the complaints related with ATMs, debit and credit cards and non-observance of fair practices code.
AMEX Card captures from the use of the card data relating to the consumption pattern and dishes out information to its client on how much he has spent on clothing, utilities, transport, air tickets, rail tickets, electronic goods, groceries and the like once a quarter. This analytical output of card consumption enables the personal budget formulation. This is done at no extra cost. Of course, initially one may have to buy the card at a higher price than others. If each debit card also is enabled to provide such data, the customer would not grudge paying up for the service. The aggregates can help even the tax authorities to tune up their policies and actions.
Coming to loan products, less said the better. The PSBs’ armchair lending to huge corporate enterprises has been continuing to increase corresponding level of non-performing assets (NPAs). Another area is retail lending – auto, real estate and housing loans that do not require supervision. Efficiency in lending operations has declined.
The portfolio that required supervision – like the micro, small and medium enterprises (MSMEs) and agriculture – has been on the decline. Growth in credit to agriculture declined to 12.6% from 30.2% in the previous year 2014. MSMEs’ share in total advances is 7.9%. At the system level, the NPAs in MSME portfolio are 5.1%.
It is a matter for introspection that if the guaranteed advances under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) need not attract provisioning, how this percentage is high and where it is occurring needs more critical examination. My analysis reveals that those SMEs that are suppliers to the NPA corporates became victims at the hands of the banks. Most banks are also averse to introduce corrective action plans and restructure the MSMEs as per the guidelines of the Reserve Bank of India (RBI).
The current and savings account (CASA) deposits have declined. Non-interest income increased. Net interest margins showed a decline. Senior citizen associations have to maintain only current account with a minimum balance of Rs10,000. Most of these associations have small means and by locking up Rs10,000 of their daily operations for small services have become very difficult. With declining interest rates, people started actively moving out of bank deposits in search of more remunerative but certainly more risky investments. Quite a few of them also receive remittances from their non-resident Indian (NRI) wards. This group also would like to chip in their money where they can easily and safely access.
The Finance Minister would do well to increase the cap of tax-free deposits for senior citizens to Rs2.50 lakh in the next budget because it is this group that adds stable deposit flow to the banks.
So, where are the banks performing?
Recently, lenders like State Bank of India (SBI) rolled out wealth management and corporate banking products on a separate platform with their launch at Bengaluru. With 2.5 lakh millionaires in the country, moving to such services could enhance the bank’s profitability. Such initiative required more technology, less number of employees. PSBs like this are making obvious to the small customers they are on their backburner.
In essence, banks need to substantially scale up efficiencies in deposit accretion, customer service, lending operations in all the areas, recovery of NPAs. They should also reduce the cost of their operations by making use of technology more sagaciously to pass on the benefit to the customer, which Dr KC Chakrabarty, former Deputy Governor of RBI has advocated untiringly for five years. All these are possible, when the banks materially collect client data more responsibly and use it more purposefully. The cloud helps but today, banks are in a cloud. Banks should know how to shower rain from their cloud.
(Dr Yerram Raju
Behara is a former senior executive of SBI and an economist and risk management specialist. The views expressed in the article are his personal.)