Monday, March 18, 2013

Banking on Retail to Grow Fast

From a Development Bank IDBI Bank Changed its Course to a Schedu-led Bank in 2004. Since then, its Retail focus has Given it Enough dope to Become India’s 17th Fastest Growing Company.

The genesis of this entity can be owed to the inspiration sought from Industrial Bank for Reconstruction and Development (IBRD) set up in 1945 to reconstruct countries devastated post World War II. It was set up in 1964 as a wholly owned subsidiary of RBI and has to its credit building some of the biggest financial corporations in India today like NSE, the Stock Holding Corporation of India, the Export Import Bank of India and the Small Industries Development bank of India (SIDBI). But for IDBI Bank, which became a full fledged scheduled bank from being a ‘development bank’ in 2004, such laurels did not suffice. An entity which used to generate 70% of its total business from the corporate sector, has achieved one of the most successful transformations in India Inc.’s history to give its retail business an equal footing – not only in terms of products, but marketing and investments too.

During the last fiscal, IDBI Bank registered a mind-boggling 97.9% growth in its operating profit. Net interest income grew to Rs.22.67 billion in FY10 as compared to Rs.12.39 billion in the previous year, translating into a growth of 82.9%. Going deeper, the bank’s net profit grew 46% (year-on-year basis), fee based income increased by 53%, deposits grew 36%, advances grew 38%, aggregate assets rose 29% and the total business of the bank registered a growth of 37%. Interestingly, this happened during a period when most of the Indian banking giants were still recovering from the slowdown blues. The financial year 2010-11 has already witnessed IDBI Bank’s aggression in terms of marketing and promotional activities. The year has been special for IDBI Bank owing to its renewed focus on retail banking as it has realised the powers of numbers well on time, and also about how to survive the cut-throat competition.

In fact, IDBI has been a major ground level innovator and fast mover, quite unlike a government entity. Some of its major initiatives are aimed at taking it on a very long term growth trajectory especially in retail banking. Firstly, to attract more retail business and achieve its goal of lowering cost of deposits, it has gone a step ahead of competitors by waiving charges on many of its current account and savings account (CASA) services including account closure, ATM Interchange, demand draft cancellation et al. Secondly, it has taken the tactical move to install 100,000 point of sale (PoS) machines to get hold of the mass by facilitating higher financial inclusion. Thirdly, it is ramping up its branch-wise penetration. It is setting up around 250 new branches to increase its tally to 1,000 branches and plans to set up between 4,000 to 5,000 ATMs in the next three years. Not just in distribution and marketing, the bank is contemplating major capital raising in the near future to enhance its financial inclusion objective. As per R M Malla, CMD, IDBI Bank, “As part of IDBI Bank’s financial inclusion strategy, the bank may consider raising equity capital, thereby diluting the Government’s stake over the next 12-15 months.”


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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