A CPP REPORT TITLED ‘IDBI BANK’ For Fulfilling the requirement of the award of degree of BBA SUBJECT: CPP (IMS-306) UNDER THE SUPERVISION OF Mrs. Sangeeta Submitted to Submitted by The Director Mansi Gupta MBA-5Year (3 rd Sem) Roll No. - 03 Registration No. – 14- UIM-22 Batch – 2014-19 Institute of Management Studies
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A
CPP REPORT
TITLED
‘IDBI BANK’
For Fulfilling the requirement of the award of degree of BBA
SUBJECT: CPP (IMS-306)
UNDER THE SUPERVISION OF
Mrs. Sangeeta
Submitted to Submitted by
The Director Mansi Gupta
MBA-5Year (3rd Sem)
Roll No. - 03
Registration No. – 14-UIM-22
Batch – 2014-19
Institute of Management Studies
Kurukshetra University, Kurukshetra
(September 2015)
Executive Summary
According to evolutionary theories introduced by Charles Darwin and Jean Baptiste Lamarck,
survival in a permanently modified environment takes place through adaptation.
The same is true today in the private banking industry. Whether it is through circumstantial
mutation, embodied by young start-ups, or through the transformation of existing institutions,
only the ones who are willing to accept change and adapt shall prosper. This fundamental law
of nature is more relevant than ever for the financial services industry, and particularly for
private banking. The private bank of the future will have to pick a side. Either it attempts to
resist change to protect its assets over the short term or it embraces change to develop a
sustainable model for profitability. The second alternative is the only viable option. Banks
must rethink their vision and the way they operate. Existing models have been subject to
unbearable levels of stress, putting at risk the very survival of several of these institutions.
India has undergone a radical transformation into one of the world’s most dynamic
economies. The resultant being quantum increases in money available for spending, and the
country’s increased integration with the global economy. Entrepreneurship is clearly the
dominant source of domestic wealth, but fast growing service industries such as technology
and financial services have also captured middle-income group individuals into high net
worth individuals (HNI) bracket. What sets HNIs apart from other classes of individuals in
the country is the sheer value and size of the assets they own. Hence, it has become essential
to understand the regions where the HNI population is on the rise and the specific
characteristics of this segment so that appropriate investment products could be designed to
target them.
DECLARATION
I, MANSI GUPTA hereby declare that I have completed the report entitled
assigned to me by the Institute, to be submitted in the partial fulfillment of the
MBA-5 Year Degree from Kurukshetra University. Further, I declared that this
is original work done by me and the information provided in the study is
authentic to the best of my knowledge and belief.
Signature
(MANSI)
ACKNOWLEDGEMENT
In this project, I have made an honest and dedicated attempt to make the Project
Report so easy to understand for a person who is willing to get knowledge about
the IDBI BANK. I am deeply indebted to my esteemed teacher & our Director
Sir because he gave me opportunity of making project report. I am also thankful
to my lecturer as well as my supervisor (Guide) Mrs. Sangeeta for their kind
support & suggestion for making project report.
Signature
MANSI GUPTA
MBA 5yrs. 3rdsem.
Roll no. 03
CONTENTS
CHAPTER
NO
TITLE OF CHAPTER PAGE NUMBER
1 Profile of IDBI Bank
2 Hierarchy of Strategic Intent
2.1) Corporate Level -
2.1.1) Vision -
2.1.2) Mission
2.2) Business Level
2.2.1) Business Definition
a) Abells Dimensions for defining a business
2.2.2) Business Model
2.3) Goals & Objectives
2.3.1) Goals
2.3.2) Objectives
3 Objects Setting
3.1) How are Objectives Formulated
3.2) Balanced Score Card Approach to Objectives
Setting
3.3) Critical Success Factors’ Approach to Objective
Setting
3.4) Key Performance Indicators
4 Environmental Appraisal
4.1) Concept of Environment
4.2) SWOT Analysis – Steps
5 Porter’s Diamond of Competitive
Advantage of nations
6 6.1) Income Statement of IDBI Bank
6.2) Balance Sheet of IDBI Bank
6.3) Cash Flow Statement of IDBI Bank
6.4) Profit & Loss A/c of IDBI Bank
6.5) Financial Ratios of IDBI Bank
7 Latest News on IDBI Bank
8
CHAPTER 1
IDBI Bank Ltd. is a Universal Bank with its operations driven by a cutting
edge core Banking IT platform. The Bank offers personalized banking and financial solutions
to its clients in the retail and corporate banking arena through its large network of Branches
and ATMs, spread across length and breadth of India. It has also set up an overseas branch at
Dubai and have plans to open representative offices in various other parts of the Globe, for
encashing emerging global opportunities. Their experience of financial markets will help
them to effectively cope with challenges and capitalize on the emerging opportunities by
participating effectively in their country’s growth process.
As a Universal Bank, IDBI Bank, besides its core banking and project finance
domain, has an established presence in associated financial sector businesses like Capital
Market, Investment Banking and Mutual Fund Business. Going forward, IDBI Bank is
strongly committed to work towards emerging as the 'Bank of choice' and 'the most valued
financial conglomerate', besides generating wealth and value to all its stakeholders.
IDBI Bank Ltd. is today one of India's largest commercial Banks. For over 40
years, IDBI Bank has essayed a key nation-building role, first as the apex Development
Financial Institution (DFI) (July 1, 1964 to September 30, 2004) in the realm of industry and
thereafter as a full-service commercial Bank (October 1, 2004 onwards). As a DFI, the
erstwhile IDBI stretched its canvas beyond mere project financing to cover an array of
services that contributed towards balanced geographical spread of industries, development of
identified backward areas, emergence of a new spirit of enterprise and evolution of a deep
and vibrant capital market. On October 1, 2004, the erstwhile IDBI Bank converted into a
Banking company (as Industrial Development Bank of India Limited) to undertake the entire
gamut of Banking activities while continuing to play its secular DFI role. Post the mergers of
the erstwhile IDBI Bank with its parent company (IDBI Ltd.) on April 2, 2005 (appointed
date: October 1, 2004) and the subsequent merger of the erstwhile United Western Bank Ltd.
Profile
of
IDBI
with IDBI Bank on October 3, 2006, the tech-savvy, new generation Bank with majority
Government shareholding today touches the lives of millions of Indians through an array of
corporate, retail, SME and Agri products and services.
Headquartered in Mumbai, IDBI Bank today rides on the back of a robust business strategy, a
highly competent and dedicated workforce and a state-of-the-art information technology
platform, to structure and deliver personalised and innovative Banking services and
customised financial solutions to its clients across various delivery channels.
Products and Services
The products and services of IDBI Bank are offered under five different heads – Personal,
Corporate, MSME, Agri and NRI banking.
IDBI Personal Banking
In the Personal Banking segment, IDBI offers the following products and services:
Preferred Banking
Loans
Savings Account
Cards
Flexi Current Account
24-Hour Banking
Corporate Payroll Account
Trusteeship through ITSL
Fixed Deposit and Lockers
IDBI Corporate Banking
In the Corporate Banking segment, IDBI offers the following products and services:
Fund based Assistance
Trade Finance
Non-Fund based Assistance
Government Business
Cash Management Services
Foreign Currency
Treasury
IDBI MSME Banking
In the MSME Banking segment, IDBI offers the following products and services:
MSME Finance
Vendor Finance Program
Restructuring/Rehabilitation Policy
Laghu Udhyami Credit Card
Finance to Medical Practitioners
Loans to Professionals and Self-Employed
Property Power (Loan against Property)
SME Smart Line of Credit
Loans to Small Road and Water Transport Operators
Funding under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
(Collateral Free Loans)
Sulabh Vyapar Business Solutions
General Credit Card Loan (GCC)
IDBI Agriculture Banking
In the Agriculture Banking segment, IDBI offers the following products and services:
Agriculture Finance (Short-Term Loans)
Allied Activities
Agriculture Finance (Term Loans)
Indirect Finance to Agriculture
IDBI NRI Banking
In the NRI Banking segment, IDBI offers the following products and services:
Accounts
Remitting Funds
Preferred Banking
Rupee Yield Enhancer
2013-14 Financial Performance IDBI Bank had Rs. 3,28,997 crore in its balance sheet
as of 31 March 2014. Its business size – taking into accounts the advances and
deposits – runs up to Rs. 4,33,460 crore.
CHAPTER: 2
Hierarchy of Strategic Intent
2.1 Corporate Level – Vision & Mission
Vision and Mission of the IDBI
The vision and mission statements of IDBI are as follows:
2.1.1 Vision – A dream – Forward Looking
1. To be the most preferred and trusted Bank enhancing value for all stakeholders.
2. The want to capture a 90 % customers in their bank.
Corporate Level - vision and mission
Business Level - business definition and model
Goals and Objectives
a) Charter of core values
Money control is the most important core value of it.
b) Principles of IDBI
IDBI Ltd. believes in the principle of keeping tech-team trim and utilize their services
optimally to their customers.
c) Ultimate Source of Priorities
i) Best Mutual Funds-Mutual Funds is made up of pools of funds collected from many
investors for the purpose of investing insecurities such as stocks, bonds, money
market etc. for capital gain.
ii) Asset Quality Improvement.
d) A puller in to the future not pusher
i) Innovative products with differentiated focus has allowed the banks to improve its
savings account share.
ii) High interest rates on savings account is in itself a big puller in to the future.
iii) Consumers give more preference to factors such as convenience and services.
e) A determination of what makes it unique
i) IDBI Bank presenting, Sabka Basic Savings Account (complete Know Your
Customer)-It is a Saving Bank product that doesn’t require a minimum balance and
Charter of core values
Principles of IDBI
Ultimate Source of Priorities
A puller in to the future not pusher
A declaration of what makes it independent
A Determination of what makes it unique
through which IDBI Bank intends to extend its services to a vast section of
population for financial inclusion.
ii) No charges for Electronic Fund Transfer.
iii) Services like phone banking, SMS banking, Internet banking will allow us to
access our account from anywhere, anytime.
iv) Free International debit cum ATM Card SMS and Email Alerts for any transaction
in our account.
v) This bank offers an additional mark up for senior citizen interest rates i.e. 0.50%
for deposits from 6 months 2 days & above.
f) A declaration of what makes it independent
i) Corporate Social Responsibility – IDBI bank ltd. shall continue to be committed to
be a good corporate citizen not only in compliance with all relevant regulating laws
and regulations but also by actively assisting in the improvement of the quality of the
life of the people in the communities in which it operates with the objectives of
making them self-reliant.
ii) Health, Safety and Environment – It provides a safe and healthy working
Environment at its work place.
2.1.2 Mission
IDBI mission is to satisfied the customer needs and giving them good services.
a) What it is
Delighting customers with their excellent service and comprehensive suite of
best-in- class financial solutions;
Touching more people’s lives with expanding retail footprint while
maintaining the excellence in corporate and infrastructure financing;
b) What it should be
Continuing to act in an ethical, transparent and responsible manner;
Becoming the role model for corporate governance;
Deploying world class technology, systems and processes to improve business
efficiency and exceed customers' expectations;
What it is ?
What it should
be ?
What it will be ?
Encouraging a positive, dynamic and performance-driven work culture to
nurture employees, grow them and build a passionate and committed work
force;
Expanding their global presence;
c) What it will be
Sooner becoming a greener bank;
IDBI Bank are pushing forward green initiatives to spread awareness about environmental
sustainability and help policymakers combat climate change. IDBI Bank is relentlessly
pursuing a ‘green mandate’ in banking operations in line with the Government of India’s
(GOI) policies, initiatives and targets for sustainable economic development and environment
protection.
2.2 Business Level – Business Definition & Model
2.2.1 IDBI Banking Definition
TAGLINE - Bank Aisa, Dost Jaisa
Introduction
Industrial Development Bank of India Ltd. (since renamed as IDBI Bank Ltd.) was
incorporated under Companies Act 1956, as a Limited Company, registered with the
Registrar of Companies, Maharashtra, Mumbai vide Certificate of incorporation dated 27th
September, 2004. In terms of the Articles of Association of the IDBI Bank Ltd., the Central
Government being a shareholder of the company shall, at all times, maintain not less than
51% of the Issued Capital of the company. Considering the shareholding pattern, IDBI Ltd.
has been categorized under a New Sub-Group "Other Public Sector Banks". Reserve Bank
of India has, vide its letter no DBOD. BP. 1630/21.04.152/2004-05 dated April 15, 2005
confirmed that IDBI Ltd. (since renamed as IDBI Bank Ltd.) may be considered as
Government-owned bank.
Vision & Mission Use the Ideas Through the process of Understanding a IDBI Bank
i) They look to induct talent from various reputed business schools/educational institute
across the country. Enthusiastic and talented youth form the backbone of their
banking operations and will become their future leaders.
ii) Continue to be committed in all its actions to benefit the economic development of the
nation and shall not engage in any activity that would adversely affect such objective.
a) ABELL’S DIMENSIONS
Customers Functions –
i) To provide financial assistance to industrial enterprises.
ii) To promote institutions engaged in industrial development.
iii) To provide technical and administrative assistance for promotion
management or expansion of industry.
iv) To undertake market and investment research and surveys in connection
with development of industry.
Alternative Technologies –
It has set up an alternate and Direct distribution channel to further diversify its
Sugar and other sectors. Under Corporate Banking portfolio IDBI Bank provides
specialized advisory services to the corporate in the infrastructure and allied sectors.
2. Environment is complex, dynamic, multifaceted and a far reaching impact-
IDBI Bank has undertaken the pioneering role in the Indian banking sector in the area
of environmental banking and has been active in this field for over 20 years.
3. Internal – strengths
IDBI Bank has created an exclusive group working on climate change and
more specifically on carbon credits advisory services to the clients to deal with
Clean Development Mechanism (CDM) / Carbon Credits of Kyoto Protocol
and Voluntary Emission Reductions (VERs) authorities.
IDBI Bank is presently implementing Ozone Depleting Substances (ODS)
phase-out projects and the India Chiller Energy Efficiency Project (ICEEP) in
association with World Bank and Govt. of India. The carbon credit group is
closely associated with the World Bank in providing a solution for the chiller
users of India in switching over from high carbon chillers to energy efficient
low carbon chillers.
The objectives of the CEEP are two-fold, viz. to reduce greenhouse gas
(GHG) emissions and to support the phase-out of use of Chlorofluoro Carbon
(CFC), an Ozone Depleting Substance, under the Montreal Protocol. The
project provides financial incentives from grant funds provided by the World
Bank through the Global Environment Facility (GEF) and Ozone Trust Fund
(OTF) to India for encouraging all chiller owners to overcome barriers such as
up-front capital costs and perceived technology risks for accelerated
replacement of existing CFC based energy inefficient chillers.
4. External – opportunities
The strong domain knowledge in infrastructure and allied sectors has provided
IDBI Bank a niche in offering the advisory services for the corporate in the
infrastructure sector. The range of advisory services offered by IDBI Bank
include merchant appraisal of projects, acquisition / sale of assets, business
valuation and pre bid advisory for PPP projects in Road sector.
IDBI Bank has been permitted by SEBI to act as the agent for the IPO
monitoring of corporate which come out with public issue of equity shares of
issue size higher than Rs. 500 crores.
4.2 SWOT ANALYSIS OF IDBI BANK
Identifying its swot-
STRENGHTS WEAKNESSES
OPPORTUNITIES THREATS
SWOT ANALYSIS OF IDBI BANK
• Strengths of IDBI Bank
• The banks major strength is it involves latest cutting edge technologies to support its core
• Strengths of IDBI Bank
• The banks major strength is it involves latest cutting edge technologies to support its core
• Weaknesses of IDBI bank
• IDBI has less penetration into the rural market.
• IDBI has very less number of branches and ATM network compared to other major players.
• Weaknesses of IDBI bank
• IDBI has less penetration into the rural market.
• IDBI has very less number of branches and ATM network compared to other major players.
• Opportunities for IDBI bank
• Scope for bagging government schemes are high as IDBI belongs to public sector.
• Global opportunities for IDBI are the rise as the management is keenly focusing on global expansion in next few years.
• They have a good number of financial expertise to face the emerging industrial and economic growth in India.
• It is the only bank in public sector which has enabled social media plug-in in its website. This has increased the brand awareness and better reach to its customers.
• The bank has good opportunities in semi-urban and Tire II cities areas as the industrial growth is taking very rapidly.
• Threats for IDBI Bank
• IDBI faces tough competition in terms of new market development due to competition from both government and private banks.
• FDI in Indian banking has been opened up to 74% by the
How do IDBI maximise their strengths?
a) By Expertise and In-depth knowledge of Industry.
b) By their quality of services.
c) By Quick Processing.
d) By maximise their tax benefits.
e) By Transparency.
f) Loan from anywhere to purchase home anywhere in India.
How do IDBI minimise their weaknesses?
a) Bring down its stake to 49% without having an approach to parliament.
b) Interest charged under home loan is on reducing balance.
c) IDBI Bank has to take a major step in attracting the customers of rural areas by
expanding their branches, ATM’s.
d) It has to concentrate more on individual banking.
e) It has to improve its customer helpdesk so that it can handle customer complaints
efficiently.
• Threats for IDBI Bank
• IDBI faces tough competition in terms of new market development due to competition from both government and private banks.
• FDI in Indian banking has been opened up to 74% by the
f) It has to reduce its servicing charges for customers.
g) The bank has to focus on improving the customer satisfaction in order to sustain the
loyal customers.
How do IDBI capitalize on the opportunities?
Their experience of financial markets will help them to effectively cope with challenges
& capitalise on the emerging opportunities by participating effectively in country’s
growth process.
How do IDBI protects from threats?
a) IDBI Bank considers DDOs attacks to be the most dangerous threat for the sectors. The
bank is closely working with regulators and government agencies like Certain & IDRBT
to identify such attacks & thwart them in time.
b) Bank has to be implemented DLP (Data loss prevention) tool to send alerts in case of
any leakage of information.
c) Bank seeks to protects its computer systems.
CHAPTER: 5
PORTER’S DIAMOND OF COMPETITIVE ADVANTAGE OF
NATIONS OF IDBI BANK
Government
o The Indian economy is on a recovery path. Despite persistent inflation, GDP
grew at 5.7% in the first quarter of FY 2014-15 (CRISIL Research –
September 2014). The recent developmental steps by the Government like
increase in FDI limit in certain sectors accelerate the movement in
infrastructure projects and have been greeted by investors with optimism.
Stock markets are making their forward journey. Mutual Funds are also
witnessing a surge in equity investments.
o The government actions like a marginal increase in the Minimum Support
Prices, open market sales of buffer stocks and RBI continuing monetary policy
measures to combat inflation would yield results in the coming months.
Taking comfort in these measures IDBI Bank expect yields to come down by
about 30-35 basis points in the next 3 to 4 months.
o The Nifty and Sensex ended the month of August with gains of 3.0% & 2.9%
respectively. The market continued the euphoria that it had entered into post
the election of a stable and strong government at the centre.
GovernmentFirm strategy,
structure, rivalry
Demand conditions
Factor conditions
Relating and Supporting industries
Serendipity
Firm strategy, structure
Structure
Demand conditions
In the event of breach of any of these Terms and Conditions by any Card Member;
(i) notwithstanding any other provision of these Terms and Conditions the Card Member
will remain liable for any loss directly or indirectly resulting from such a breach.
(ii) The Card Member will be liable to pay IDBI Bank, upon demand, all amounts
outstanding from the Card Member to IDBI Bank, whether due and payable to IDBI Bank
at the date of such demand or not.
Factor conditions
LOST, STOLEN OR MISUSED CREDIT CARDS
o If a Card is lost or stolen, it must be reported immediately to the IDBI Bank
24- Hour Customer Care Centre.
o In case of loss of Card due to theft, the Card Member must also file
immediately a report with the local police station and should be able to
produce a copy of the same upon request by IDBI Bank. IDBI Bank will, upon
adequate verification, suspend the Card Account and terminate all facilities in
relation thereto and will not be liable for any inconvenience caused to the Card
Member.
o Card Members shall take cognizance of the fact that once a Card is reported
lost, stolen or damaged, the Card cannot be used again, even if found
subsequently. The Card Member declares that if a Card is reported lost,
damaged or stolen, it shall not be used again, even if found or said to be in a
non-damaged condition subsequently. In such cases, the Card Member shall
promptly cut the Card into 4 pieces and return the same to IDBI Bank for
cancellation. The Card Member is responsible for the security of the Card and
shall take all steps to ensure that the Card is not misused.
Relating and Supporting industries
In 1976, the ownership of IDBI was transferred to the Government of India and it was
made the principal financial institution for coordinating the activities of institutions
engaged in financing, promoting and developing industry in India. IDBI provided
financial assistance, both in rupee and foreign currencies, for green-field projects as also
for expansion, modernization and diversification purposes. In the wake of financial sector
reforms unveiled by the government since 1992, IDBI also provided indirect financial
assistance by way of refinancing of loans extended by State-level financial institutions
and banks and by way of rediscounting of bills of exchange arising out of sale of
indigenous machinery on deferred payment terms.
After the public issue of IDBI in July 1995, the Government shareholding in the Bank
came down from 100% to 75%.
IDBI played a pioneering role, particularly in the pre-reform era (1964–91), in catalysing
broad based industrial development in India in keeping with its Government-ordained
‘development banking’ charter.
Some of the institutions built with the support of IDBI are the Securities and Exchange
Board of India(SEBI), National Stock Exchange of India(NSE), the National Securities
Depository Limited(NSDL), the Stock Holding Corporation of India Limited(SHCIL), the
Credit Analysis & Research Ltd, the Exim Bank (India), the Small Industries
Development Bank of India(SIDBI) and the Entrepreneurship Development Institute of
India.
Serendipity
Mumbai, September 15, 2015: IDBI Bank Ltd. has been awarded second prize in
linguistic region `B’ of nationalised banks and financial institutions category of
Rajbhasha Kirti Puraskar for the year 2014-15 for its outstanding performance in
the use of Hindi. The award was presented by Honourable President of India Shri
Pranab Mukherjee to Shri Kishor Kharat, Managing Director and Chief Executive
officer of IDBI Bank at a function held at Vigyan Bhavan, New Delhi on
September 14, 2015. The function was presided over by Honourable Minister of
Home Affairs Shri Rajnath Singh. Shri B. K. Batra, Deputy Managing Director
and Dr. Sunil Kumar Lahoti, General Manager, Rajbhasha of IDBI Bank Ltd.
Credit Deposit Ratio 81.93 85.12 86.12 86.37 84.82
Investment Deposit Ratio 45.35 43.76 41.58 38.73 40.68
Cash Deposit Ratio 5.20 5.02 5.86 8.86 9.61
Total Debt to Owners Fund 11.47 10.75 11.66 11.98 14.24
Financial Charges Coverage Ratio 0.26 0.28 0.28 0.22 0.30
Financial Charges Coverage Ratio Post Tax 1.05 1.06 1.10 1.11 1.12
Leverage Ratios
Current Ratio 0.03 0.03 0.03 0.03 0.02
Quick Ratio 22.95 23.11 24.82 29.08 26.78
Cash Flow Indicator Ratios
Dividend Payout Ratio Net Profit 13.77 14.30 24.78 19.13 20.88
Dividend Payout Ratio Cash Profit 11.90 12.99 23.25 18.09 19.38
Earning Retention Ratio 86.23 85.70 75.22 80.87 79.12
Cash Earning Retention Ratio 88.10 87.01 76.75 81.91 80.62
Adjusted Cash Flow Times 257.18 190.98 113.21 98.01 101.55
Mar '15
Mar '14 Mar '13 Mar '12 Mar '11
Earnings Per Share 5.45 6.99 14.12 15.89 16.76
Book Value 141.24 136.70 146.11 137.46 128.69
CHAPTER: 7
LATEST NEWS ON IDBI BANK
The repeal of IDBI Act and corporatisation of the erstwhile development financier
provide an opportunity to gradually privatise the bank
New Delhi: The government has the opportunity to "transform" IDBI Bank on the lines of
Axis Bank, Minister of State for Finance Jayant Sinha said on Friday sparking speculation of
gradual privatisation of the state-owned lender. Unlike the restriction of the minimum
government holding of 51 per cent in most PSU banks as mandated in the Banking
Regulation Act, the government is not bound to retain a majority stake in IDBI Bank.
"We have an opportunity to transform IDBI Bank like Axis bank," Sinha said at the Global
Business Forum at Goa. The government now holds 76.5 per cent in IDBI Bank.
The present IDBI Bank is a combined entity of erstwhile long-term financial institution
Industrial Development Bank of India and its private lending arm Idbi Bank. IDBI promoted
Idbi Bank after the Reserve Bank of India granted the first batch of licences to private lenders
in 1993.
While state-owned IDBI got into a financial crisis following a pile of bad loans and had to be
bailed out by the government in early 2000, Idbi Bank excelled as a private retail lender.
In 2003, IDBI was corporatized with the repeal of the IDBI Act. Two years later, the
government merged IDBI with Idbi Bank to create IDBI Bank in a 1:1.42 share swap deal--
100 shares of Idbi Bank were exchanged for 142 shares of IDBI.
IDBI Bank: Too early to rejoice
The IDBI Bank scrip has rallied a huge 28 per cent in the past four trading sessions to close at
Rs 73 on Wednesday. This rally was triggered by Finance Minister Arun Jaitley's statement
that public sector banks such as IDBI Bank should be given more operative freedom, possibly
with a structure on the lines of Axis Bank (where government indirectly holds a large stake),
and gradually reduce the government's stake from the 76 per cent prevailing.
Additionally, the Street believes that as there will be resolution to the financial problems of
state electricity boards (SEBs), power generating companies would benefit leading to easing
asset quality pressure for players like IDBI Bank. However, as these are easier said than
done, this rally could soon fizzle, believe analysts. Asset quality is a key concern, which
could also prove a major hurdle for any stake sale.
Suresh Ganapathy, financial analyst at Macquarie Capital, says, "Given the presence of many
murky assets in the books, we believe there might not be many buyers in the system for the
IDBI scrip. The government will find it difficult to reduce its stake in the bank." At the end of
the June quarter, IDBI Bank's stressed loans (gross non-performing assets, along with
restructured assets) formed 16.8 per cent of its overall loans, and were at the higher end
compared to peers.
1. Analysis and Discussions
A. Operational Analysis
a. Routine Operations of Bank
Branch Banking is still an integral part of Indian banking system as most Indians still believe
in cash transactions and prefer to visit banks in person for routine banking operations. Bank
branches are the face of the banks where customers can visit and talk to the officials for
getting better insights into new policies, investment schemes, other banking services etc. On
top of it, the personal touch in every service leaves a great impact on the minds of customers.
However, banking in India has changed its facets and ways of doing business over the years
especially after the onslaught of technology and its manifestations. People have started to
drift towards latest modes of banking like e-banking, mobile-banking etc. but the acceptance
percentage is low as compared to other countries. These innovations hold promising future
and branches have to continually evolve to remain relevant in coming times.
Definition of Branch Banking- Branch Banking has been defined under the provisions of
Section 23 of the Banking Regulation Act, 1949 that banks can either open new branches or
shift the location of existing branches. The banks have to seek a prior approval of RBI to
open a new branch in India or abroad or in the same city or village where a branch already
operates. RBI will grant such permission after it is satisfied about the financial condition of
the demanding bank, robustness of its management, capital structure and general public
interest behind such a move. The Banking Regulations Act, 1949, defines a ‘branch’ or
‘branch office’ of a banking company as a place where bank deposits are received, cheques
cashed, money lent, any or all banking services are carried out. These exclude the bank call
centres as they are typically calling facilities which do not have any customer interaction. A
branch will include a full-fledged specialised branch, a satellite or mobile office, an extension
counter, administrative office, control office, service branch, credit card centre etc.
Relevance of Branch Banking Branch banking has a lot of importance in India as it makes
banking possible for people living in rural and remote areas. This is a true source of inclusive
growth. The success of Pradhan Mantri Jan Dhan Yojana has been possible due to extensive
branch networks of various banks. Branch banking makes management more responsive and
efficient over centralised banking operations. Also, the risk is well spread across the branches
and no single office has to suffer. This helps banks to offer more securities and investment
options to its customers. Also, due to the wide geographic spread, a broader customer base,
deposits used in one branch can be used profitably used as loans or investments in other
branches. This type of banking system can easily reach people in backward areas. There are
some negative points too which branch system faces like delays in decision-making due to
limited powers of branches, influenced by local political leaders or administration etc.
Difference between Branch Banking and Unit Banking
The key difference between branch banking and unit banking is that while branch bank
operates through branches; unit Bank is generally a single branch small bank, which provides
financial services to the local community. In Branch Banking, the Branches in India are set
up under Section 23 of Banking Regulations Act, 1949. A branch should cater to all banking
services and include a specialised branch, a satellite office, an extension counter, an ATM,
administrative office, service branch and a credit card centre for the purpose of branch
authorisation policy. It helps in better management, more inclusion and risk diversification.
On the other hand, Unit banking is a limited way of banking where banks operate only from a
single branch (or a few branches in the same area) taking care of local community. Unit
system of banking originated in the united States. In Unit system, the size of banks is small as
compared to branch banking. Due to small scale of operations and quick decisions, the work
is more efficient. These banks are involved in developmental works in the areas of
operations. The management enjoys more autonomy and thus more discretionary powers.
However, due to single units, the risk is not distributed or diversified. It may however
encourage outside local influences. The following table differentiates between Branch and
Unit Banking. Branch Banking Unit Banking Bank operates through branches connected to
each other. Each branch provides usual banking services but the control is done by the head
office or central office. Unit Bank is generally a single branch small bank, which provides
financial services to the local community in which it operates. There are no branches or small
branches in a limited locality only. Branch Banking is more stable and resilient to ups and
downs in the local economy because of backing by other branches and head office. Unit
banks are vulnerable to failure and are subject to heavy risk in case of failure of local
economy. Branch Banking has less operational freedom. Unit Banking has more operational
freedom. Branch banking has more financial resources at its disposal. The financial resources
in unit banking are concentrated only in one unit. Since decision making is controlled by the
head office, the process is slow in branch banking. Further, Branch banking involves higher
costs of supervision. Decision making is fast due to all decision to be made in one unit. Unit
banking involves lower cost of supervision. Branch banking goes hand in hand with the
division of labour. Some branches may offer specialized services. Since there is one unit,
there is no division of labour and no specialization in service.
b. Other operations
A) Acceptance of deposits
• Fixed deposit account
• Saving bank account
• Current account
B ) Advancing of loan
• Cash credit
• Call loans
• Over draft
• Bills discounting
C) Agency function
• Collecting receipts
• Making payments
• Buy and sell securities
• Trustee and executor
D) General utility function
• Issuing letters of credit, travelers cheque
• Underwriting share and debentures
• Safe custody of valuables
• Providing ATM and credit card facilities
• Providing credit information
B. Financial Analysis
a. Profit/Loss Analysis
. INCOMEInterest Earned 28,153.99Other Income 4,007.63Total Income 32,161.63II. EXPENDITURE 22,406.10
4,027.425,728.11
Interest Expended
PBIDTProvisions and Contingencies 4,440.77Profit Before Tax 1,287.34Taxes 413.95Total 31,288.24III. Profit & LossPAT 873.39Extraordinary Items 0.00Profit brought forward 896.77Adjusted Net Profit 0.00Total Profit & Loss 873.39Appropriations 1,770.16Equity Dividend (%) 7.50Earnings Per Share (in )₹ 5.45Book Value (in )₹ 141.24
Source:ndtv.com
Interest Expended / Interest Earned 79.58
Other Income / Total Income 12.46
Operating Expense / Total Income 12.10
b. Investment Analysis
Dividend Per Share 0.75Operating Profit Per Share (Rs)
11.58
Net Operating Profit Per Share (Rs)
175.53
Free Reserves Per Share (Rs) --Bonus in Equity Capital 15.26
c. Balance Sheet Analysis
d. Debt
Coverage
Ratio
An
aly
sis
e. Leverage Ratio
Current Ratio 0.03
Quick Ratio 22.95
f. Cash Flow Indicator Ratio
Net Profit Before Taxes
Share CapitalShare warrants & Outstandings 0.19Total Reserve 22,712.96Shareholder's Funds 24,317.10Deposits 2,59,835.97Borrowings 61,832.98Other Liabilities & Provisions 10,044.51TOTAL LIABILITIES 3,56,030.57APPLICATION OF FUNDS:Cash and balance with Reserve Bank of India 13,035.77Balances with banks and money at call and short notice
1,489.99
Investments 1,20,963.21Advances 2,08,376.87Gross Block 5,055.59Less : Accumulated Depreciation 2,042.53Less : Impairment of Assets 0.00Net Block 3,013.06Lease Adjustment -1.77Capital Work in Progress 49.20Other Assets 9,104.24TOTAL ASSETS 3,56,030.57Contingent Liability 2,31,608.74Bills for collection 14,464.50
Balance Sheet RatiosCapital Adequacy Ratio 11.76Advances / Loans Funds(%) 67.48
Investment Deposit Ratio 45.35Cash Deposit Ratio 5.20Total Debt to Owners Fund
11.47
Financial Charges Coverage Ratio
0.26
Financial Charges Coverage Ratio Post Tax
Adjustments for Expenses & Provisions 4,632.15Adjustments for Liabilities & Assets -6,142.36Cash Flow from operating activities -1,976.97Cash Flow from investing activities -264.18Cash Flow from financing activities -51.00Effect of exchange fluctuation on translation reserve 0.00Net increase/(decrease) in cash and cash equivalents -2,292.16Opening Cash & Cash Equivalents 16,817.91Cash & Cash Equivalent on Amalgamation / Take over / Merger
0.00
Cash & Cash Equivalent of Subsidiaries under liquidations
0.00
Translation adjustment on reserves / op cash balalces frgn subsidiaries 0.00Effect of Foreign Exchange Fluctuations 0.00Closing Cash & Cash Equivalent 14,525.75
Dividend Payout Ratio Net Profit 13.77
Dividend Payout Ratio Cash Profit 11.90
Earning Retention Ratio 86.23
Cash Earning Retention Ratio 88.10
Adjusted Cash Flow Times 257.18
g. Liquidity Ratio
Loans / Deposits(%) Total Debt / Equity(%) 0.05 Current Ratio(%) 0.47 Quick Ratio(%) 23.80 Total Debt / Mcap(%) 0.00 Net NPA in Rs. Million 0.00
A. Important Achievements
The following table presents a list of awards that the IDBI Bank has won in the last few
years: -
Award Year Awarding Caremony
SKOCH Order of Merit for
CSR
2014 Skoch Financial Inclusion
& Deepening Award
Best Corporate Social
Responsibility Practices in
Banking Category in
2014 Lokmat Banking, Financial
Services & Insurance
Banking Sector (BFSI) Awards
Award for Best Corporate
Social Responsibility
Practices in Banking
Category
2014 Responsible Business
Awards
Golden Peacock Award for
Corporate Social
Responsibility in the
Banking (PSU) Category
2013
Third Annual Greentech
CSR Award in Platinum
Category
2013
Best Corporate Social
Responsibility Practices in
Banking Category
2014 ABP Banking, Financial
Services & Insurance
(BFSI) Awards
Silver Award for
documentary named ‘Taru
Zameen Par’
2014 PRCI Corporate Collateral
Awards
ADFIAP Awards 2014
Second Annual Greentech
CSR Award in Silver
Category
2013
B. Portfolio management
A portfolio refers to a collection of investment tools such as stocks, shares, mutual fund,
bonds, and cash and so on depending on the investors’ income, budget and convenient time
frame. The art of seeking the right investment policy for the individuals in term of minimum
risk and maximum return is called as portfolio management. Portfolio management refers to
managing an individual’s investments in the form of bonds, shares, cash, mutual funds etc. so
that he earns the maximum profits within the stipulated time frame.
Portfolio management refers to managing money of an individual under the expert guidance
of portfolio managers. Portfolio management refers to the management or administration of a
portfolio of securities to protect and enhance the value of the underlying investment. It is the
management of various securities (shares, bonds etc.) and other assets (e.g. Real estates), to
meet specified investment goals for the benefit of the investors. It helps to reduce risk without
sacrificing returns. It involves a proper investment decision with regards to what to buy and
sell. It involves proper money management. It is also known as investment management.
2.1 Need of portfolio and portfolio management
The portfolio is needed for the selections of optimal, portfolio by rational risk adverse
investors i.e. by investors who attempt to maximize their expected return consistent with
individually acceptable portfolio risk. The portfolio is essential for portfolio construction. The
portfolio construction refers to the allocation of funds among a variety of financial assets
open for investments. Portfolio concerns itself with the principles governing such allocation.
The objective of the portfolio theory is to elaborate the principles in which the risk can be
minimized, subject to the desired level of return on the portfolio or maximize the return,
subject to the desired level of return on the portfolio or maximize the return, subject to the
constraints of a tolerable level of risks.
The need for portfolio management arises due to the objectives of the investors. The emphasis
of portfolio management varies from investors to investors. Some want income, some capital
gains and some combination of both. However, the portfolio analysis enables the investors to
identify the potential securities, which will maximize the following objectives:
1. Securities of principal
2. Stability of income
3. Capital growth
4. Marketability
5. Liquidity
6. Diversification.
Thus the basic need of portfolio is maximize yield and minimize yield and minimize the risk.
The other ancillary needs are as follows:
1. Providing regular or stable income.
2. Creating safety of investments and capital appreciation.
3. Providing marketability and liquidity.
4. Minimizing the tax liability
2.2 Objectives of Portfolio Management
The objective of portfolio management is to maximise the return and minimise the risk. These
objectives are-
1. Basic objectives
2. Subsidiary Objectives
1. Basic Objectives
The basic objectives of a portfolio management are further divided into two kind’s i.e.
(a) Maximize yield
(b) Minimise risk
The aim of the portfolio management is to enhance the return for the level of risk to the
portfolio owner. A desired return for a given risk level is being started. The level of risk of a
portfolio depends upon many factors.
The investor, who invests the savings in the financial assets, requires a regular return and
capital appreciation.
2. Subsidiary Objectives
The subsidiary objectives of a portfolio management are expecting a reasonable income,
appreciation of capital at the time of disposal, safety of the investment and liquidity etc. The
objective of investor is to get a reasonable return on his investment without any risk. An
investor desires regularity of income at a consistent rate. However, it may not always be
possible to get such income. Every investor has to dispose his holding after a stipulated
period of time for a capital appreciation. Capital appreciation of a financial asset is highly
influence by a strong brand image, market leadership, guarantee sales, financial strength, and
large pool of reverses, retained earnings and accumulated profits of the company. The idea of
growth stocks is the right issue in the right industry, bought at the right time. A portfolio
management desires the safety of the investment. The portfolio objective is to take the
precautionary measures about the safety of the principal even by the diversification process.
The safety of the investment calls for careful review of economic and industry trends.
Liquidity of the investment is most important, which may not be neglected by any
investor/portfolio manager.
An investment is to be liquid, it must has “termination and marketable” facility any time.
3. Wealth Management
Wealth is basically a person’s net worth. Wealth can be explained as assets minus liabilities.
Wealth Management is a discipline that incorporates financial planning, Investment portfolio
management and a number of financial services. It is a professional service it can also
encompass all parts of a person’s financial life. Investors must have already accumulated a
proper amount of wealth for wealth management strategies to be efficient and effective. Is can
be provided by large company entities, independent financial advisers or multi-licensed
portfolio managers. Their services are designed to focus on high-net worth customers. Wealth
Managers use their experience is estate planning, financial planning, retirement, Estate
planning, tax planning, debt management and cash flow. It is based on the long term
relationship with the customer. It results in deeper customer relationship which leads to
increased profitability and more client referrals. Wealth management offers wealth managers
the opportunity to cross-sell a huge range of services and products to each customer as
appropriate. Wealth management is an emerging sector.
3.1. Features of Wealth Management
Allows customer to review risk profiles.
Track holdings against model portfolios from returns.
Captures Customer’s details and risk profile.
On approval by client they execute financial plans.
Based on the advanced algorithms they provide tax coverage, education and insurance.
Interfaces with banks, portfolio management system, price vendors and other agencies.
Provides dynamic search.
Document Management.
Dynamic user access control.
3.2. Process of Wealth Management
Step 1: Finding Facts
Step 2: Investment Strategies
Step 3: Allocation of Assets
Step 4: Structuring Accounts
Step 5: Structuring Implementations
Step 6: Communications
Step 7: Annual review & Monitoring
Step 8: Refine Strategy
First step to be considered is to create a profile of customer in which personal details, current
financial situation and family circumstances. In personal details they involve income, savings,
investments, retirement, tax status, family. In the second step investment objectives and risk
tolerance is to be undertaken. Then assets are allocated and it’s all about getting the balance
right. After this the wealth management needs to consider the account structure that best suits
the client. To be highly communicative is quiet necessary because it is an important aspect of
client-wealth manager relationship. They organize regular face-to-face meetings. Then after
monitoring, it is essential to refine the strategies.
4. India and Wealth Management
Key Facts
High Gross Domestic
Savings
India’s gross domestic savings (GDS) as a per cent og GDP has
remained above 30 per cent since 2004 and stood at 30.8 per cent in
FY12. RBI estimates domestic savings to reach 39 per cent of the
GDP at the end of 12th Five Year loan(FY13-FY17)
India’s HNWI
population to double by
2020
HNWI population in India is expected to double and total holdings by
HNWI is estimated to reach USD3 trillion in 2020 which presents
considerable growth opportunities for wealth management
Phenomenal Growth in
NBFC Finance
NBFCs managed credit grew at a CAGR of 35 per cent over FY07-
FY12. Retail credit registered 36 per cent growth in FY12
Robust Mutual Fund
Growth
Mutual Fund industry AUM recorded a CAGR of 16.8 per cent over
FY07-FY13. India is considered one of the preferred investment
destinations globally.
4.1 Position of India in Wealth Management
The phenomenal growth in the number of the super-rich has laid the foundation for an
unprecedented expansion of the wealth management industry in India. Inevitably, it is also
driving the entry and growth of luxury brands that cater exclusively to the tastes of the ultra-
high net worth individuals (UHNIs).
For both wealth managers and luxury brand companies, one major hurdle to their effective
functioning and growth is the almost remarkable dearth of information on the earning,
spending and investing trends of the ultra-wealthy.
In this report, by Kotak and CRISIL the first of what will be an annual edition, they have
laid the broad framework and detailed the methodology to define who an ultra HNI is.
Considering the attention that they have been getting in recent times, it was also quite
tempting to focus on what their numbers are and who has how much wealth.
Instead, the spotlight in this inaugural year is on behavioural aspects, such as what drives
these individuals, what their priorities or motives are when it comes to spending or investing,
and whether there is any homogeneity in their actions as a class.
The conclusions are extremely revealing, and a lot of meaningful insights, some even
positively surprising, have emerged from the analysis. We believe that the takeaways gleaned
from this report will be invaluable for people who manage the wealth of the ultra-rich, and
will help niche companies operating in the segment to come up with more innovative
marketing or distribution strategies for their products.
The report was based on two main strands of research.
1) A series of interviews were conducted with senior personnel at major global luxury
brands, art gallery owners, product dealers and industry body representatives.
2) They commissioned a market survey of 150+ ultra HNIs, with conversations lasting up to
one hour. The respondents were spread across the three major metros, namely Mumbai, Delhi
and Bengaluru, as well as Hyderabad, Ahmedabad, Chennai, Pune, and Kolkata (referred to
as other cities in this report). A majority of the respondents (77 per cent) were from the three
major metros. The survey took place between December 2010 and February 2011.
4.2 Seeds of Luxury Revolution
In slightly under two decades, India has undergone a radical transformation from being a
largely agrarian economy with a modest growth rate into one of the world’s most dynamic
economies. Its GDP has grown at an average of over 8 per cent per annum over the past three
years and is estimated to have grown by 8.6 per cent in the most recent fiscal year, making the
country the second-fastest-growing economy in the world, next only to China.
Propelled by this economic boom, there has been an unprecedented level of wealth creation.
Average income levels have raised manifold and many individuals have suddenly become
millionaires. The resultant quantum increase in money available for spending, and the
country’s increased integration with the global economy have widened the population’s
exposure to major global luxury brands and triggered a luxury revolution.
Entrepreneurship is clearly the dominant source of domestic wealth, but fast-growing service
industries such as technology and financial services have also catapulted many hitherto
middle-income group individuals into the ultra-high net worth individual (ultra HNI) bracket.
CRISIL Research has defined an ultra-high net worth household (ultra HNH) as one having a
minimum average net worth of ` 250 million, which, as per our proprietary tool ‘IDeA’
(Income and Demographics Analysis), gets mapped to a minimum income of ` 35-40 million.
The total net worth of Indian ultra HNHs is expected to reach ` 235 trillion in 2015-16 from
an estimated ` 45 trillion in 2010-11.
At present, there are no validated estimates of the number of ultra HNHs in the country.
Kotak Wealth and CRISIL Research estimate that there are around 62,000 ultra HNHs in
India as of 2010-11, with a minimum net worth of ` 250 million. This number represents a
meagre 0.03 per cent of the total households in India, but is poised to more than triple to
219,000 households by 2015-16.
That sets ultra HNIs apart from other classes of individuals in the country is the sheer value
and size of the assets they own. The dramatic increase in personal wealth has also brought
about a change in attitudes towards spending; public displays of opulence, which would have
been unthinkable a few years ago, are now not uncommon.
Although this is creating exciting new opportunities for wealth managers and luxury brands,
their ability to perform effectively is being hindered by the absence of adequate information
on ultra HNIs, in terms of their attitudes to investing and spending.
4.3 Key Trends
They found that today’s ultra HNI is not, in general, a reclusive individual. On the contrary,
he is more likely to be a constant feature on television channels or on Page 3 of newspapers,
and is comfortable in (some might even say seeks) the limelight. They are the cream of
society, know that they are, and seek to maintain a lifestyle in keeping with their social
standing. Consequently, they are highly brand conscious, and in some cases, have strong
brand loyalties. In many cases, therefore, price is not the only consideration guiding a
purchase. In absolute terms, they are very heavy spenders, be it on high quality homes, food,
clothing, or the luxuries of life in entertainment, education, and travel and family vacations.
They are also finding new ways to splurge, such as on buying art and artefacts, yachts, and
islands, or even on underwater weddings, chartering aircraft to go on holidays or watch
sports, entertainment events, and partying.
Contrary to the belief in some quarters that they are highly individualistic, our survey
revealed strong family bonds and dependence, when it comes to decision-making on spending
or investments.
The spending on, and choice of big ticket items such as holiday packages, luxury watches,
diamonds and jewellery, household electronics (which include premium mobiles and high-
end cameras), and home décor is carried out in consultation with the family. The family plays
an important role in, for instance, identifying a holiday location, or choosing a home theatre
brand. Appeal and price are, therefore, important considerations in planned purchases.
It is only on items such as apparel, accessories, or liquor that an ultra HNI’s personal
predilections and impulses come into play. Impulse purchases are usually done at the airport
(duty-free shops) or while travelling, and purchases are made largely on how eye-catching the
product is, in addition to the brand, the newness of the product and exclusivity. The need for
the product is not a factor in impulse purchases; but having cash in hand is.
Likewise, while making investments, ultra HNIs take advice from family, close friends,
trusted advisors and professionals such as chartered accountants and lawyers. Legacy for the
spouse and children, social security and regular income are important factors that guide their
investments. Possibly because of this, they are willing to take far lesser risk on their
investments compared with what they are willing to take in their business.
Most ultra HNIs are distinguished individuals in social networks of power and influence.
Their long-standing network of elite contacts gives them differentiated access to business
opportunities, and they try to put it to good use to further expand their wealth.
Interestingly, today’s ultra HNIs would typically include business people who own
enterprises with a turnover of ` 750 million or above, corporate executives, established
professionals, politicians, traders, builders and agricultural landowners, unlike before
Independence when they were more likely to be the upper classes or the nobility. Based on
the results of the survey, Kotak Wealth and CRISIL Research have classified India’s ultra
HNIs into three groups:
• Inheritors
• Self-made
• Professionals
Inheritors are born with a silver spoon, and have inherited high net worth; Self-made are first
generation entrepreneurs whose success in business turned them wealthy; and Professionals
are qualified, highly skilled professionals who gained wealth because the companies that
employed them grew big. The wealth dynamics and behavioural traits of each of these groups
are unique, and wealth managers and luxury brands will face diverse challenges in their
dealings with them.
Most people agree that barring unforeseen circumstances, the long term India growth story is
intact. As noted earlier, this will result in a significant increase in the number of ultra HNIs in
the country. For wealth managers and luxury brands, this will mean an appreciable increase in
their addressable market. This will necessitate not only an increase in the type and nature of
products that they offer to this segment, but also greater awareness about behavioural trends
with regards to spending and investment by ultra HNIs. This will allow wealth managers and
luxury brands to evolve more innovative marketing strategies and target their products in
better, more effective ways.
It is also evident that the segment of high net worth individuals will spawn the next wave of
ultra HNIs. Wealth managers and luxury brands who are able to engage this segment
productively and establish profitable (in every sense of the term) long-term relationships will
find that they will have a first mover advantage when these people transition from being high
net worth individuals into ultra HNIs. This will entail development of a greater range of
products, consistently high standards of quality of service and, critically, the right pricing.
Here, to avoid familiar pitfalls, some of the new luxury entrants would do well to analyse the
experience of multinational companies in India. Some of the multinational companies that
forayed into India have become successful because they jettisoned pre-conceived notions and
strategies that worked elsewhere and adopted techniques that took into account the local
ethos, culture, and tastes to build lasting brand loyalties.
4.4 What makes the HNI’s a class apart?
5. Indian Banks and Wealth Management Market
While the percentage of wealthy individuals in India is very small compared to developed
markets, forecasted growth figures point toward a very high potential for asset accumulation
over the foreseeable future. India has a large young affluent segment, coupled with the
increase in wealth of global Indians, the Indian government’s push to curb illicit leaks and
more tightly regulate market and an increasing share of the organized market players form
the key ingredients of a high-growth wealth management market.
Overall HNWI liquid assets (when measures as a percentage of Indian GDP) are increasing
at a healthy pace, indicating the expansion of investable wealth in the economy.
Value and size of assets
Social visibility and hierarchy
The power they yield
Networks of influence
Scale and visibility of spends
The outlook looks bright for banks to venture into wealth management business. The wealth
management market in India was earlier dominated by unorganised players, whose share
was 1.5 times that of the organised market (financial institutions, banks, etc.). However, a
structural change is taking place and organized players are drawing clients away from the
unorganised layers.
Wealth management is a way of looking at customers and how you can provide service
to customers. It’s all about approaching it in a holistic manner.
This gives a good opportunity for Indian banks. In fact, some leading public and private
sector banks are already lining up to enter the wealth management market, looking to tap the
huge base of customers (across income groups) that they already have for their banking
operations. However, for all the banks lining up for a pie of the fast growing wealth
management industry in India, it is important for them to understand that the success
mantras required here will be vastly different from what they’ve employed all these years in
their bread-and-butter business of banking.
Wealth management is a knowledge business and deals with customers who have specified
short and long-term investment performance is one of their key expectations. So it is a
critical for banks looking to enter this field to understand not just their clients; risk
disposition, wealth base and funds flow requirements, but also their investment
requirements, and then they arrive at a structured plan tailored to the clients’ needs. Apart
from growing the net worth, banks also need to address unique challenges in dealing with
HNWIs. As established players in the market would vouch for managing an HNWi
relationship requires a different orientation & positioning from standard retail banking. Such
a relationship is primarily driven by personalization, readiness of information, and high
degree of confidentiality, and is based on a long-term relationship with a customer.
Also, each HNWI is unique, and thus requires specialized products, services and treatment.
This would require banks to use tailor-made wealth management solutions, which have
various aspects of the wealth management integrated together
Banking
Brokerage
Financial planning
Estate management
Taxation
Risk management
Reporting
The challenges all institutions will face in developing viable wealth management offerings
can be grouped into three areas, namely-
a) Customer strategy
b) Operational effectiveness
c) Organisational design and technology strategy.
While retail banks will face some of the same core challenges as other players, the following
challenges are particularly pertinent to banks:
Business Customer &
Strategy
Operational Design Operational
Effectiveness
Technology strategy
Identifying attractive
and lucrative
customers from
banking services to
more lucrative wealth
Transition from a
product centric to a
customer centric
organisation
Building or partnering to
offer more complete
assets management,
retirement and estate
planning and protection
capabilities
Improving customer
relationship management
implementation to enable
the identification of
potential wealth
management clients and
provide an integrated
view of customer
information across all
product groups
Overcoming negative
image in advisory
capabilities and ability
to provide best of
breed investment
products
Integrating different
components offering
to provide a single
point
Leveraging physical
footprint
Using technology as a
platform for serving the
main affluent
Assessing the viability Creating an Ensure more rigorous Improving information
of providing a wealth
management offering
to the mass affluent
environment that is
focused on
customer service
adoption of “know your
customer rules”
and data exchange to
share information
Integrating legacy and
new system
The affinities found between the capabilities of each individual company and the needs of
various customer segments suggest one of three strategic alternatives: remaining a
traditional wealth manager provider, becoming an expanded wealth management provider or
refocusing to become a best of breed product manufacturer.