Challenges Facing by Banking Industry


By

Vikas Saraf
MBA, IFDPIIM Indore
Joint Director
The Institute of Cost and Works Accountants of India (ICWAI)

Gargi Naidu
MBA, FDP
Director Incharge
Vidyasagar Institute of Management (VIM)
Vallabh Nagar, BHEL, Bhopal (M.P)462021

Sanjay Payasi
M.Sc., M.D.S.E., FDP
Assistant Professor & Registrar
Vidyasagar Institute of Management (VIM)
Vallabh Nagar, BHEL, Bhopal (M.P)462021
 


INTRODUCTION

The bank marketing is than an approach to market the services profitability. It is a device to maintain commercial viability. The changing perception of bank marketing has made it a social process. The significant properties of the holistic concept of management and marketing has made bank marketing a device to establish a balance between the commercial and social considerations, often considered to the be opposite of each other. A collaboration of two words banks and marketing thus focuses our attention on the following: 

* Bank marketing is a managerial approach to survive in highly competitive market as well as reliable service delivery to target customers.

* It is a social process to sub serve social interests.

* It is a fair way of making profits

* It is an art to make possible performance-orientation.

* It is a professionally tested skill to excel competition.

USERS OF BANKING SERVICES:

The emerging trends in the level of expectation affect the formulation of marketing mix. Innovative efforts become essential the moment it finds a change in the level of expectations. There are two types of customers using the services of banks, such as general customers and the industrial customers.

GENERAL USERS

Persons having an account in the bank and using the banking facilities at the terms and conditions fixed by a bank are known as general users of the banking services. Generally, they are the users having small sized and less frequent transactions or availing very limited services of banks.

INDUSTRIAL USERS

The industrialists, entrepreneurs having an account in the bank and using credit facilities and other services for their numerous operations like establishments and expansion, mergers, acquisitions etc. of their businesses are known as industrial users. Generally, they are found a few but large sized customers.

BANK MARKETING IN THE INDIAN PERSPECTIVE

The formulation of business policies is substantially influenced by the emerging trends in the national and international scenario. The GDP, per capita income, expectation, the rate of literacy, the geographic and demographic considerations, the rural or urban orientation, the margins in economic systems, and the spread of technologies are some of the key factors governing the development plan of an organization, especially banking organization.

In ours developing economy, the formulation of a sound marketing mix is found a difficult task. The nationalization of the Reserve Bank of India (RBI) is a landmark in the development of Indian Banking system that have paved numerous paths for qualitative-cum quantities improvements in true sense. Subsequently, the RBI and the policy makers of the public sector commercial banks think in favor of conceptualizing modern marketing which would bring a radical change in the process of quality up gradation and village to village commercial viability.

BANK MARKETING MIX AND STRATEGIES

The first task before the public sector commercial Banks is to formulate that Bank marketing mix which suits the national socio-economic requirements. Some have 4 P's and some have 7 P's of marketing mix. The common four Ps of Marketing mix are as follows:-

Product

To be more specific the peripheral services need frequent innovations, since this would be helpful in excelling competition. The product portfolio designing is found significant to maintain the commercial viability of the public sector banks. The banks professionals need to assign due weightage to their physical properties. They are supposed to look smart active and attractive.

Price

Price is a critical and important factor of bank marketing mix due numerous players in the industry . Most consumers will only be prepared to invest their money in search of extraordinary or higher returns. They are ready to pay additional value if there is a perception of extra product value. This value may be improved performance, function, services, reliability, promptness for problem solving and of course, higher rate of return 

Promotion

Bank Marketing is actually is the marketing of reliability and faith of the people .It is the responsibility of the banking industry to take people in favor through Word of mouth publicity, reliability showing through long years of establishment and other services.

Place

The choice of where and when to make a product available will have significant impact on the customers. Customers often need to avail banking services fast for this they require the bank braches near to their official area or the place of easy access.

BANK MARKETING STRATEGIES

The marketing research considered being a systematic gathering, recording and analysis of data makes ways for making and innovation the marketing decisions. The information collected from the external sources by conducting surveys helps bank professional in different wants.

In the bank services, the formulation of overall marketing strategies is considered significant with the view point of tapping the potentials, expanding the business and increasing the marketing share. The increasing domination and gaining popularity banks, the popularity banks, the profitable schemes of the non-banking organization mounting craze among the customers for private banks have made the task of influencing the impulse of customers a bit difficult.

The marketing research simplifies the task of studying the magnitude of competition by opinion surveys and the feed back customers, the multi-dimensional changes in the services mix can be made productive if it is based on marketing research.

CHALLENGES AHEAD:

The banking industry in India is undergoing a major change due to the advancement in Indian economy and continuous deregulation. These multiple changes happening in series has a ripple effect on banking industry which is trying to be organized completely, regulated sellers of market to completed deregulated customers market

1. Deregulation:

This continuous deregulation has given rise to extreme competition with greater autonomy, operational flexibility, and decontrolled interest rate and liberalized norms and policies for foreign exchange in banking market. The deregulation of the industry coupled with decontrol in the interest rates has led to entry of a number of players in the banking industry. Thereby reduced corporate credit off which has resulted in large number of competitors battling for the same pie.

2. Modified New rules:  

As a result, the market place has been redefined with new rules of the game. Banks are transforming to universal banking, adding new channels with lucrative pricing and freebees to offer. New channels squeezed spreads, demanding customers better service, marketing skills heightened competition, defined new rules of the game pressure on efficiency. Need for new orientation diffused customer loyalty. Bank has led to a series of innovative product offerings catering to various customer segments, specifically retail credit.

3. Efficiency: 

Excellent efficiencies are required at banker's end to establish a balance between the commercial and social considerations Bank need to access low cost funds and simultaneously improve the efficiency and efficacy. Owing to cut-throat competition in the industry, banks are facing pricing pressure, have to give thrust on retail assets.

4. Diffused customer loyalty:

Attractive offers by MNC and other nationalized banks, customers have become more demanding and the loyalties are diffused. Value added offerings bound customers to change their preferences and perspective. These are multiple choices; the wallet share is reduced per bank with demand on flexibility and customization. Given the relatively low switching costs; customer retention calls for customized service and hassle free, flawless service delivery.

5. Misaligned mindset:

These changes are creating challenges, as employees are made to adapt to changing conditions. The employees are resisting to change and the seller market mindset is yet to be changed. These problems coupled with fear of uncertainty and control orientation. Moreover banking industry is accepting the latest technology but utilization is far below from satisfactory level.

6. Competency gap:

The competency gap needs to be addressed simultaneously otherwise there will be missed opportunities. Placing the right skill at the right place will determine success. The focus of people will be doing work but not providing solutions, on escalating problems rather than solving them and on disposing customers instead of using the opportunity to cross sell.

STRATEGIC OPTIONS TO COPE WITH THE CHALLENGES:

Dominant players in the industry have embarked on a series of strategic and tactical initiatives to sustain leadership. The major initiatives incorporate:

a) Focus on ensuring reliable service delivery through Investing on and implementing right technology..

b) Leveraging the branch networks and sales structure to mobilize low cost current and savings deposits.

c) Making aggressive forays in the retail advances segments of home and personal loans.

d) Implementing initiatives involving people, process and technology to reduce the fixed costs and the cost per transaction.

e) Focusing on fee based
income to compensate foe squeezed spread.

f) Innovating products to capture customer 'mind share' to begin with and later the wallet share.

g) Improving the asset quality as Basel II norms.

CONCLUSION:

The banking environment of today is rapidly changing and the rules of yesterday no longer applicable. The corporate and the legal barriers that separate the various banking, investment and insurance sectors are less well defined and the cross-over are increasing. As a consequence the marketing function is also changing to better support the bank in this dynamic market environment. The key marketing challenge today is to support and advice on the focus positioning and marketing resources needed to deliver performance on the banking products and services. Marketing, as an investment advisor, is about defining 4Ps and implementing key strategic initiatives to Market segments, increasingly redefined, relevant micro-segments to survive and flourish in the highly competitive market

REFERENCES

* Basel Committee on Banking Supervision, (1999), Enhancing Corporate Governance for Banking Organisations, September BIS.

* Bhide, M.G. (2002), Address at NIBM Annual Day on the theme of Corporate Governance in Banks and Financial Institutions, January.

* Jalan, Bimal, (2002), Inaugural Address at NIBM Annual Day on the theme of Corporate a Governance in Banks and Financial Institutions, January.

* Kakani, Ram Kumar, Biswatosh Saha and V.N. Reddy (2001), Determinants of Financial Performance of Indian Corporate Sector in the Post-Liberalization Era: An Exploratory Study, NSE Research Initiative, Paper No. 5, November, NSE.

* Kamesam Vepa, (2002), "Corporate Governance", RBI Bulletin, January Volume LVI No.1.

* Reddy, Y.R.K and Yerram Raju, (2000) "Corporate Governance in Banking and Finance", Tata McGraw-Hill Publishing Company Ltd., New Delhi

* Reddy, Y.V. (1999), "Corporate Governance in Financial Sector", RBI Bulletin, August, Vol. LIII No.8.

* Reddy, Y.V. (2001), "Reviving Confidence in the Indian Economy", BIS Review, No. 78, Bank for International Settlements, Basel.

* Reddy, Y.V. (2002), "Indian Banking Paradigm Shift in Public Policy", BIS Review No.3, Bank for International Settlements, Basel.

* Reserve Bank of India (1991), Report of the Committee on the Financial System (Chairman : Shri M. Narasimham).

* Reserve Bank of India (1997), Report of the Committee on Banking Sector Reform (Chairman : Shri M. Narasimham).

* Reserve Bank of India (2001), Report of the Advisory Group on Corporate Governance, (Chairman: Dr. R.H. Patil), March www.rbi.org.in

* Reserve Bank of India (2001), Report of the Advisory Group on Banking Supervision (Chairman Mr. M.S. Verma), May www.rbi.org.in

* Reserve Bank of India (2002), Report of the Consultative Group of Directors of Banks/ Financial Institutions, April, (Chairman : Dr. A.S. Ganguly).

* Talwar, S.P. (1999), "Banking Regulation and Corporate Governance", RBI Bulletin, July, Vol. LIII No. 7.
 


Vikas Saraf
MBA, IFDPIIM Indore
Joint Director
The Institute of Cost and Works Accountants of India (ICWAI)

Gargi Naidu
MBA, FDP
Director Incharge
Vidyasagar Institute of Management (VIM)
Vallabh Nagar, BHEL, Bhopal (M.P)462021

Sanjay Payasi
M.Sc., M.D.S.E., FDP
Assistant Professor & Registrar
Vidyasagar Institute of Management (VIM)
Vallabh Nagar, BHEL, Bhopal (M.P)462021
 

Source: E-mail October 16, 2010

          

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