The latest entrants in the banking sector are focusing on retail liabilities, which in turn are used for cross-selling products to boost fee income. These are looking to grow their customer base by first offering a savings bank account and then cross-sell loan products.
FirstRand Bank, the second largest bank in South Africa in terms of market capitalisation, is offering 6.25-7.25 per cent interest rate on a savings account balance and is adding 100 customers every month through its single branch in India. It commenced retail banking operations earlier this financial year.
“In March, we will start offering personal loans but only to clients banking with us and having their salary accounts with us. We need to understand our customers better, which includes his habits and how well he conducts his account with the bank. Once we get the appropriate information, which will enable us to build a repository of analytics of the customer, it will give us a very good picture of how the customer behaves. This will enable us to offer products on the lending side,” said Bobby Madhav, CEO, commercial and retail banking, FirstRand Bank India.
Similarly, YES Bank is offering interest rates in the range of six-seven per cent to their savings bank account customers and the bank is adding 30,000-40,000 customers every month through its 400-odd branches across India. After providing the customer a savings bank account, YES Bank is penetrating the loan products to these customers. “We always want new customers. But we want to start a relationship with the liabilities side first,” said Pralay Mondal, senior group president (retail and business banking).
Westpac Banking Corporation, the Australian bank which opened its first branch in India last month, believes in the same strategy. “We will be serving retail customers through liability products, that is, by offering them accounts. At this point, we won’t be offering them products like home loans, etc,” said Vikram Nimkar, chief executive officer, Westpac India, in an interview to Business Standard in November.
This strategy has been followed by most successful lenders worldwide, including America’s multinational diversified financial services company, Wells Fargo.
In India, during the 2008 downturn only one domestic bank was able to follow this strategy successfully. “HDFC Bank was the only bank which had managed to make profits even during the 2008 meltdown when others were making huge losses, said Mondal, who was working with HDFC Bank those days.
This is because banks that made huge losses used to give loans to customers based on their payment history. While HDFC Bank gave more emphasis to their liability customers. About 80-90 per cent of these customers used to be the first liability customers of the bank and none of them were sourced through direct selling agent, said Mondal.
However, after 2008, banks that made losses during the downturn became careful and started following the strategy of first tying the customer with the savings banks account and then providing loans to them.