BOI Guiding Star

GUIDINGStar

Vol.2 No.4

PLANNING IN MODERN BANKING

Contents

EDITORIAL

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Melwyn Rego

Managing Director & CEO Bank of India

Looking to the New Year with Hope & Confidence

NATION & ECONOMY

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Dr. Raghuram Rajan Governor, Reserve Bank of India

MEET

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Structural Reforms And Productivity Improvements Are Main Impetus For Sustainable Growth.

TOPICAL STORY Prof.S. Mahendra Dev

GUIDINGStar

Vol.2 No.4

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Director and Vice Chancellor, Indira Gandhi Institute of Development Research, Mumbai.

Celebrating India: Economic Impact of the Festive Season

SPECIAL INTERVIEW PLANNING IN MODERN BANKING

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Ravindra P. Marathe

HIGHLIGHT FEATURE

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THOUGHT WINDOW

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MARKETING MIRROR

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Social Media Marketing: Future of Communication

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STAR SHOW

Search For a Business-Centric Vision: Need for a New Profit Strategy for Banks

Photo Feature

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Dr. Soumya Kanti Ghosh Chief Economic Advisor, SBI

G. Padmanabhan Chairman (Non Executive), Bank of India

Banking Landscape Change in The Next 10 Years: Future ‘Tense’?

Executive Director, Bank of India

Systemizing the thought process for effective management Role Of Planning In Modern Banking

N. Sunil Bharti Mittal Chairman Bharti Enterprises Connecting With Future

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Looking to the New Year with Hope & Confidence

t the outset, it is my great pleasure to wish everyone a very happy and fulfilling New Year. The fading 2015 has been a mixed bag as the country witnessed both challenges and achievements in many spheres. We are indeed proud that the Nation has made significant progress in many areas, the most prominent of all it is the global recognition to India as the fastest growing economy in the world. What makes it significant at this juncture is the report that India will achieve a growth of 7.5 per cent in 2016 surpassing China in the growth journey.

We all recognize that growth does not mean much if it fails to benefit the poor and the common man who makes the large social fabric. Hence, it is natural that all efforts of the policy makers are directed towards ensuring a broad social development, covering the various tiers of the society. We, in the banking sector, too are fully committed to the rural India, the poor and the needy and a major part of our business now is directed towards the bottom of the pyramid.

When we discuss the role of banks in the country’s development, what comes to my mind is the need to progressively reduce the burden of NPA which is essential to enhance the health of the banking industry. Needless to emphasis that a new and dynamic mechanism for recovery has to be in place. I also trust that efficient and innovative deployment of technology will also help to tone up organizational competence at all levels.

Vol.2 No.4

BOI

A Corporate Thought Magazine From Bank of India

Shri Melwyn Rego Managing Director & CEO

Executive Directors: Shri B P Sharma Shri Ravindra P Marathe Shri R A Sankara Narayanan

Editorial Board

Shri R N Kar Chief General Manager (HR) Shri R C Baliarsingh Cheif General Manager (Retail Assets & Publicity) Shri B V Upadhye General Manager (RMD)

Editor Shri S M Shakeel

I look to the New Year with hope, trust and confidence. I am sure that we, in Bank of India, will move forward well with a spirit of oneness in our endeavor to serve better. It is imperative that greater sync with customers is a key prelude to make things better in the New Year.

Content Management & Production:

The New Year becomes significant for ‘BOI GUIDING STAR’ as well, as the Corporate Thought Magazine enters into the 3rd year of publication in March 2016.

Editorial Director

The present Issue has an appealing array of features covering Economy, Banking, Planning and Marketing. I am sure that Readers will find the features interesting.

I will be grateful for feedback from the Readers, Once again, my best wishes to all, With Season’s Greetings, Melwyn Rego Managing Director & CEO

BankipediaIndia Research Foundation V Gopalan

Design & Visual Effects la Gopa

Editorial Office: BankipediaIndia Research Foundation, ‘Sri Krishna’ 24/18, Sankarlal Jain Street Nehru Nagar, Chromepet Chennai 600044 Telefax: 044-22235248 Mobile: 9840028716 email: editorguidingstar@gmail.com

NATION & ECONOMY

STRUCTURAL REFORMS AND PRODUCTIVITY IMPROVEMENTS ARE MAIN IMPETUS FOR SUSTAINABLE GROWTH ‘What we have is an economy which is well and truly in recovery but with areas of weakness. Hopefully as we go forward, some of the areas of weakness will turn around’

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he Fifth Bi-Monthly Policy Statement by Reserve Bank of India for 2015-16 underlines that the Indian economy is in the early stages of a recovery, ‘though with some areas of continued weakness’.

Dr. Raghuram Rajan, Governor, Reserve Bank of India revealing the Statement opined that the economy is well poised to pick up and explained the present growth dimension: “we are in the process of a recovery; we are in the midst of a recovery. Now there are areas of weakness, there are places of course where, agriculture for example is growing in weak pace. As a result, rural demand is somewhat weak and you see non-durable consumption, for example, relatively weak. Set against this, capital goods have grown fairly strongly public investment seems to be growing quite strongly. So I think what we have is an economy which is well and truly in recovery but with areas of weakness. Hopefully as we go forward, some of the areas of weakness will turn around.

For example, with the kind of investment that is contemplated, construction may start picking up more strongly and that would be very helpful. Perhaps, with the kinds of measures that the Government is taking as well as for example on low income housing, the capital requirement measures that the RBI has announced will have some boost to housing” The Governor, explaining the Policy Statement further added that “on the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to:  keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.75 per cent;  keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability (NDTL);  continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and  continue with daily variable rate repos and reverse repos to smooth liquidity.

Consequently, the reverse repo rate under the LAF remains unchanged at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 7.75 per cent.

Close-up picture Observations made in the Policy Report present a close-up picture of the trends in the economy. The Report mentions

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Dr. RAGHURAM RAJAN BOI

Governor, Reserve Bank of India

that “on the domestic front, provisional estimates of gross value added (GVA) at basic prices for Q2 of 2015-16 rose on the back of acceleration in industrial activity.

The outlook for agriculture–both rabi and kharif is subdued considering the negative impact of the monsoon vagaries. The Report further highlightst that “while there are areas of robust growth in manufacturing such as capital goods and passenger cars, weak rural and external demand holds back stronger overall growth. Similarly, while prospects for a revival in service sector activity have been boosted by optimism on new business, pockets of lacklustre activity such as construction weigh on the overall outlook. The step-up in public capital spending and the easing stance of monetary policy provide the enabling environment for a revival in private investment demand, supported by easing input prices and improving conditions for doing business. The growth projection for 2015-16 has accordingly been kept unchanged at 7.4 per cent with a mild downside bias” Industrial Growth “The Index of Industrial Production picked up in the second quarter. Early results of the Reserve Bank’s order books, inventories and capacity utilisation survey indicate that there was robust growth in new manufacturing orders in the second quarter, and finished goods inventories declined while raw materials inventories increased. Not all indicators, however, are positive. While urban consumption is showing signs of a pick-up

‘While there are areas of robust growth in manufacturing such as capital goods and passenger cars, weak rural and external demand holds back stronger overall growth’ in some areas such as passenger vehicles sales, rural demand has been weakened by two consecutive deficient monsoons and slowing construction activity.

Lead indicators of services sector are mixed. The services purchasing managers’ index increased in October 2015 on account of improvement in new business orders. Commercial vehicle sales (reflecting transportation demand) and domestic civil aviation passenger traffic accelerated year-on-year”.

Inflation The Reserve Bank in its bi-monthly monetary policy statement of September, assessed that the inflation target for January 2016 at 6 per cent was within reach. Accordingly, it front-loaded its policy action in response to weak domestic and global demand that were holding back investment, while noting that structural reforms and productivity improvements would continue to provide the main impetus for sustainable growth.

The Policy Report adds that “since then, inflation has turned up as anticipated, and is expected to rise further until December before plateauing. Although the seasonal moderation in prices of vegetables and fruits is expected to provide some respite, the El Nino induced shortening of winter may limit this effect. The early indications of rabi sowing together with low reservoir levels suggest that astute supply management by the central government, including close coordination with State governments, is necessary to minimize any shortfall in the rabi crop.

While oil prices, barring geopolitical shocks, are expected to remain benign

for a few quarters more, the uptick of CPI inflation excluding food and fuel for two months in succession warrants vigilance.

Taking all this into consideration, inflation is expected to broadly follow the path set out in the September review with risks slightly to the downside’’.

As anticipated in RBI’s previous policy, retail inflation measured by the consumer price index (CPI) increased for the third successive month in October 2015, pushed up by a surge in the monthly momentum.

Food inflation rose sharply in October, driven especially by pulses.

CPI inflation excluding food, fuel, petrol and diesel also rose for three consecutive months on account of price increases in respect of housing, recreation and amusement, and personal care and effects.

Within this broad category, education and health services contributed most to headline inflation. Households’ inflation expectations remain elevated although they have edged lower recently, perhaps in response to lower prices of petrol and diesel. Rural wage growth, as also corporate staff costs, remain subdued”.

Exports In the external sector, exports contracted for the eleventh month in a row to October, indicative of the persisting weakness in global trade. Excluding petroleum products (PoL), however, the decline in exports was more moderate and early signs of a turnaround are visible in respect of readymade garments, drugs and pharmaceuticals and electronics. With global commodity prices, especially those of crude, softening further, both PoL and non-PoL exports continued to contract,

with the latter shrinking for the fourth consecutive month. The decline in bullion imports despite the festival season helped narrow the trade deficit in October as well as over the financial year so far, moderating the current account deficit further. Net foreign direct investment (FDI), external commercial borrowings and accretions to non-resident deposits have risen in relation to last year; however, portfolio outflows from both debt and equity segments rose in November.

During 2015-16 (up to November 20), there has been an accretion of US$ 10.8 billion to the foreign exchange reserves”.

Global Scenario The global growth continues to be weak.

Global trade has slowed further with waning demand and oversupply in several primary commodities and industrial materials.

Industrial production slumped in October on cutbacks in oil drilling, while exports were undermined by the strengthening US dollar. Consumer confidence was, however, supported by the diminishing slack in the labour market. In the Euro area, high frequency indicators such as retail sales, purchasing managers’ indices and unemployment point to an uptick in a still anemic recovery, with monetary policy expected to be increasingly supportive as risks of undershooting the inflation target persist. In China, slowing nominal GDP growth and high debt continue to raise concerns, especially given the overcapacity in certain sectors. Other emerging market economies (EMEs) continue to face headwinds from domestic structural constraints, shrinking trade volumes and depressed commodity prices.

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TOPICAL STORY

CELEBRATING INDIA:

ECONOMIC IMPACT OF THE FESTIVE SEASON

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‘During festive season, investment in commodity and services sectors leads to higher supply of goods and services.

John Maynard Keynes says increase in expenditures has multiplier effects and leads to higher growth’.

uiding Star: Festivals serve to enrich our cultural and social capital. Now its power to impact Indian economy is also well recognized. As a leading Economist, how do you assess the economic value of festivals and the ‘festive season’ stretching from October to January? Can you quantify the economic and social impact of the festive season in India?

like India is also going through similar phenomenon. Lot of shops also give huge discounts in order to influence the consumer.

Another phenomenon in the last few years relates to huge expansion in e-commerce. India’s internet users are around 350 million. Compared to countries like USA, U.K. etc., the penetration of e-commerce is low in India. But, there is huge potential in the country.

Prof. Mahendra Dev: Festivals are important in India for both cultural and social impact. But, economic impact has also been realized. Generally demand for different sectors–agriculture, industry and services–increases during the festival season in India. We have to see basically the growth of commodities and services during this period.

E-commerce industry is in the range of $22 billion in 2015. E-Travel comprises 70% of the total eCommerce market. E-Tailing, which comprises of online retail and online marketplaces, has become the fastest-growing segment in the larger market. According to Price Waterhouse Coopers the eTailing has grown at a growth of around 56% over 2009-2014. Books, apparels, accessories and electronics are the largest selling products through eTailing.

The increasing use of smartphones, tablets internet broadband, 3G, smart phones and tablets has led to a strong consumer base which is likely to increase further. Advent of international players like Amazon, and Alibaba along with local players has led to much more competition in eCommerce.

India’s festival economy has the potential to rejuvenate many segments of the industry. It brings more money to people through bonus, returns from planned savings and gifts. Most of this income generation is routed to festival spending. Theoretically as well as in practical terms, is spending a key aspect of economic growth? How it works?

Higher consumption and investment in the economy leads to economic growth. During festive season, investment in commodity and services sectors leads to higher supply of goods and services. Demand for goods and services also increase due to higher expenditures of the population. People also have more money due to bonus, gifts and using savings for consumption.

John Maynard Keynes says increase in expenditures has multiplier effects and leads to higher growth.

The festival economy of India has expanded many folds during the past 5 years because of huge inputes given for festivals and festival time sales through the electronic media.

The advent of ecommerce and the new start-up era gives a new dimension. How do you assess the new scenario?

Earlier Western countries used to have impact on the consumers through electronic and print media. Now, developing countries

Prof. S. MAHENDRA DEV 4

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Director and Vice Chancellor, Indira Gandhi Institute of Development Research, Mumbai.

Festival season strategies of corporate houses and financial season appear to be more directed to marketing techniques than on well-tuned economic analysis or proper planning exercises to work out right methodologies and schemes to reach out to people and make business gains. Comment It is true that many corporate houses want to use direct marketing techniques than using analytical economic techniques.

Some corporate houses use forecasting and other techniques to assess the demand. In general, there is no proper planning. Discounts and special offers are the methods used to influence the consumers.

Major segments of the economy– industry, retail, housing, financial sector, capital markets–try to gainfully exploit the festival economy? What sort of economic understanding and action programming they need to match the festival season opportunities?

All these segments can take advantage of festival economy and investment and consumption increases during this period.

First, understanding of macro-economic situation is essential. Second, an assessment of supply and demand for each segment of the economy is needed. Generally the demand for consumer durable and nondurable goods is higher during this period.

Similarly, demand for housing, travel also increases during festival seasons.

Do you think that our financial institutions like banks, credit card houses etc., are well poised to take on the new business opportunities emerging through Indian festival market? Is there a case for more imaginative loan products?

Many public and private sector banks offer various loan products. Imaginative EMIs can lead to higher adoption by consumers.

Particularly fixed income groups want better EMI terms. Innovation in credit cards also will help increase in incentives for consumers. Government is thinking of reducing the cash transactions in the

crease ‘With the in owth, in India’s gr es for more i t i n u t r o p p o ing festive r u d s s e n i s u b ncrease for i ll i w n o s a e s tail sector industry, re ’. and banking economy to reduce black money in the system.

E-Commerce has advantage as compared to conventional brick and mortar retail shops due to several reasons. Factors such as large percentage of population subscribed to broadband Internet, burgeoning 3G internet users, and a recent introduction of 4G across the country, explosive growth of smartphone users have led to preference for e-commerce compared to conventional shopping. E-commerce also offers much wider product range (including long tail and direct Imports) compared to conventional brick and mortar retailers. It also offers competitive prices compared to brick and mortar retail due to disintermediation and reduced inventory and real estate costs.

People utilize the festival holidays to travel to resorts or religious places.

Do you see opportunities to tone up the tourism economy of the country?

How the scenario looks like presently and what needs to be done to exploit the situation?

Tourism in India is growing rapidly. Some estimates show that tourism contributed 6.6% of the nation's GDP in 2012. It also

supported 39.5 million jobs, 7.7% of total employment. The sector is predicted to grow at an average annual rate of 7.9% till 2023 making India the third fastest growing tourism destination over the next decade. Tourism improves during festive season. Many foreign tourists also visit India during this season. For example, they also participate in Ganapati and Durga festivals. They also participate in festivals of all the religions.

India has many tourist places which can attract both domestic and foreign tourists.

But, right now there are many problems with our tourism sector. India built many things but does not maintain properly.

Infrastructure like roads (except the national highways) are not well developed.

Proper connectivity with development of railways, roadways and airlines has to be improved further to attract tourists.

Another important factor is that safety of domestic and foreign tourists particularly those of women should be protected at tourist places. Police protection has to be given at tourist places. More importantly, the mindset of people particularly towards women has to be changed in order to attract tourists.

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The Indian festive season also combines with the ‘marriage season, which is seen as another propeller for economic activities? Analyzing from the economic point of view, what is the economic ‘size’ and ‘status’ of the Indian marriage market and what means for business?

Festive season also coincides with marriage season. One expects lot of demand for goods and services for marriages. This can trigger economic activities. According to some estimates, India has $38 billion wedding industry. Some other estimates show Rs. 100,000 crores. The growth is estimated at 25% to 30% per annum.

There will be demand for gold and jewelry, apparel, durable goods, pandal and venue decorations, bridal decorations, food, etc due to marriages.

Another related one is increase in marriage market in terms of professional marriage brokers and advertisements.

This has nearly $250 billion market in India dominated by professional brokers.

The marriage market is flourishing in India. Particularly, the demographic factors favours young population in India.

This market will boom in the country.

Festive season will create demand for both wedding industry and marriage market.

The gains of the festival economy mainly centers on the metropolitan

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festivals continue to miss the charms of the festival season. Comment.

Festive season also coincides with marriage season.

According to some estimates, India has $38 billion wedding industry. Some other estimates show Rs. 100,000 crores.

The growth is estimated at 25% to 30% per annum. and urban India. Rural India which is a major contributor of various products and services that enrich the

The festival season prevails throughout both urban and rural economy. But, its impact on economy is more dominant in urban areas because of economies of scale, infrastructure including connectivity etc. Rural India contributes to all sectors of the economy viz., agriculture, industry and services. Although rural people also celebrate all the festivals, several segments of the economy concentrate more on urban population.

Rural India was also booming till recently with higher agricultural growth and significant rise in rural real wages. There was lot of demand for vehicles, tractors and FMCG sector. In the last two years, the story of rural India changed with successive unfavourable monsoons. But, things can change and rural India can benefit from high growth. Festive season can also benefit much more if the festive economic activities also increase much more in rural areas. Similarly tourism, particularly agri-tourism, can be promoted in rural areas.

What are your suggestions for a) industry b) retail sector c) banks and financial institutions to become effective participants, contributors and beneficiaries of the country’s celebration mode?

Industry, retail sector and financial institutions have lot of opportunities

to contribute to the country’s festive celebration mood. All these segments should first look at the macro environment.

According to IMF projections, India is likely to grow at 7.5% in 2016 compared to respective China’s growth rates of 6.8% and 6.3%. Similar projections are given by the World Bank. Therefore, India is the fastest emerging economy in the world. It is suggested that China’s loss is India’s gain and it is a great opportunity for Elephant to replace Dragon.

However, China is now $10.4 trillion economy as compared to India’s $2.1 triliion economy. In other words, Chinese economy is five times to that of India. The per capita GDP of China ($7600) is also nearly five times to that of India ($1600).

China has $3.8 trillion foreign exchange reserves as compared to India’s $350 billion reserves. Even if India grows faster than China, Elephant can catch up Dragon only after 25 years or so.

At the same time India has lot of opportunities for ‘Make in India’ although it has to continue its advantage in services.

The space vacated by China could give opportunities for Indian manufacturing.

RBI Governor Raghuram Rajan rightly mentions that India may not be able to follow typical East Asian export led growth as the circumstances now are different compared to the last few decades. Global economy may not absorb exports due to lack of demand and slower income. He says that India should concentrate on domestic economy while not ruling out exports.

Therefore, India can have two pronged strategy of ‘Make in India’: manufacturing for domestic economy and exports.

opportunities. For example, prices of crude declined by 50 per cent in the last one and half years. The savings can be used for infrastructure development. Similarly, other commodity prices like minerals decelerated. The imported component of inflation would be lower and input prices are declining in India. This is being

However, to make use of these opportunities, we need to have policies which enhance manufacturing sector.

Reduction in interest rate by RBI may help in investment revival. But, this alone may not be the main factor for revival.

Infrastructure development, ease of doing business and other reforms are needed. India’s rank in ‘ease of doing business’ has improved recently. Focus on manufacturing does not mean India should neglect services. Both manufacturing and services should be simultaneously developed. Manufacturing development can lead to employment for unskilled workers. At the same time development of ‘Skill India’ is also needed.

With the increase in India’s growth, opportunities for more business during festive season will increase for industry,

Festive season can also benefit much more if the festive economic activities also increase much more in rural areas reflected in the low inflation figures.

There is an opportunity for manufacturing sector. Chinese firms and others can invest in India. World will also look for new growth centres. India can have a bigger pie of global investment including FDI. Thus, increased flow of foreign capital is another opportunity.

retail sector and banking. For this, appropriate policies and products have to be developed particularly during festive season. To achieve this, we need planning and forecasting to assess the demand and supply of goods and services. Banking sector can also reduce its non-performing assets (NPAs) of corporates with focus on retail sector and SMEs.

There are opportunities for India due to slowdown in China. Decline in commodity prices is one of the important

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Special Interview

Systemizing The Thought Process For Effective Management

ROLE OF PLANNING IN MODERN BANKING

Shri RAVINDRA P. MARATHE

"The role of planning in modern banking is more of an innovator and R & D exercise as compared to mere statistical reporting".

Executive Director, Bank of India

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uiding Star: Planning in banking had a vital role in the past and concepts like performance budgeting, business expansion–both geographical and quantum–centered around the strength of planning. With the advent of MIS, EDP, Corporate Communication and so on, the core planning lost its pivotal position in Top Management.

With the emergence of the focus on data (however important it is) planners in banking have become ‘analysts’ and consequently the thought process is lost. How do you analyze the situation?

Shri Ravindra P. Marathe: That’s a great question.I would love to answer that in great detail. Planning per se is an integral part of our lives, be it for individual success or organizational survival. If planning without action is daydreaming, action without planning can be a nightmare. Hence, planning is universal, organization neutral and time invariant; which means it cannot become irrelevant with the changing canvass of banking environment. I would say Planning is more relevant in a dynamic situation as compared to a sheltered monopolistic, administered interest rate regime which the Indian public sector banks enjoyed from 1969 to mid-nineties.

However, as rightly stated by you, planning in the past was mostly identified with concepts like performance budgeting’ business expansion plans, performance review across geographies and verticals. With the interest rates on deposits and advances regulated 8

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by RBI as also the guidance provided on the banking system aggregates like aggregate deposits, net credit and money supply through its “Busy Season” and “Slack Season” Credit Policies, Planning in banks was confined to number crunching.

And in the absence of core banking, Data Warehouse and MS Office tools, a good amount of time, cost and energy was spent in collecting and collating the numbers. Planners and Bank Economists were commanding respect due to the secrecy of numbers which they used to churn out and feed to Top Management.

Analysis of Union Budget, RBI Monetary Policies and participating in Annual Bank Economist Conferences “BECON” were the Planners’ paradise and they used to bask in the glory of ghost writing for their CMDs. You are saying that with the advent of MIS, EDP, corporate communication and so on, core planning has lost its pivotal position in Top Management.

I will say that while planning is still important for Top Management, it is the planner or planning officer who has lost its pivotal position. The advent of MIS, EDP & CC did not spring up in isolation but it also co-emerged with some other very important changes like the banking reforms on capital adequacy and IRAC norms, entry of new generation private sector banks, deregulation of interest rates, implementation of risk management

principles, liberalization of branch licensing policy, introduction of quarterly/ bi-monthly monetary policies and core banking solution.

All these changes in quick succession shook the apple cart of planning. Along with the disappearance of monopolistic position of public sector banks, the exclusivity of planning was also lost. I have seen this disintegration process in one large public sector bank. Once upon a time, Planning was handling policy making, risk management (read ALM & ALCO), investor relations, dealing with rating agencies like Moody’s and S&P, handling Parliamentary Committees and all other sundry jobs veering around MIS, submission of returns etc. Now the Chief Economist is no more a part of Planning, interest rates are decided by ALCO which is managed by Risk Management. Bank Economists’ Conference “BECON” itself has been hijacked by top executives of the banks under its new garb “BANCON”.

The bottom-up planning process is now replaced with top down planning. Planners do not have to burn midnight oil to collect and collate huge amount of data. The yesterday’s business figures are hitting the mailbox before the top executive reaches office. Planning, therefore, has lost its pivotal role in as much as the

planning capability has moved from the hands of planning functionaries (the so called coveted planning department) to the line functionary or the top executives. And this change has been greatly facilitated by technology i.e. Core banking, Data warehouse, 24x7 internet, video conferencing, Dash Boards and continuous feed of economy, industry and financial markets data (directly pushed through the smart phones) to the top functionaries.

I will say that in the new environment, planning assumes a bigger role, much beyond translating numbers into words.

In a dynamic environment, Planning has to focus upon capturing the emerging trends and prepare the organization to face those challenges and this needs the so called think tank to do this job.

Do you think that conventional planning is still important for banks; if ‘yes’ how to put it in the right track considering the challenges faced by the present new era banking?

Since planning is always for the future, there is nothing like conventional planning.

But the process of planning has to be conventional or universal. Vision, Mission, Objectives, targets, budgeting, scheduling, monitoring, review, reporting, analysis, scenario building etc will continue to be the core elements of planning. As I mentioned earlier, in a competitive and ever changing operating environment, planning function cannot remain confined

Planning has to focus upon capturing the emerging trends and prepare the organization to face challenges and this needs the so called think tank to do this job.

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to broad macro level business planning based on trend analysis or market share analysis. Planning has to be more granular and not only focused on top line business numbers. The challenges faced by banks today are multifold including, but not limited to, capital planning, Technology Planning, Manpower Planning, cost benefit analysis of different products, geographies, verticals; planning for physical infrastructure, tax planning, balance sheet management and resource planning. One may say that many banks are in fact doing all these kinds of planning but in my

of new Basel guidelines, the business growth has to be linked to the availability and cost of capital. Banks will need to assess the capital raising options and then move ahead with the business planning. The physical infrastructure, IT platform and outsourcing of noncore functions are the important ingredients of planning.

Branch expansion, ATM expansion and proliferation of alternate delivery channels are going to have a direct impact on the business growth and profitability of banks.

A detailed exercise is required to decide the locations, size and timing of these infrastructure inputs.

Similarly technology is playing a key role in every aspect of banking including transaction processing, service delivery, communications, business analytics, decision support system, compliance, AML etc. Therefore planning for the right technology is very important. The success of new generation banks can be largely

except putting a broad number on income to be generated by these verticals. A more granular analysis of the potential of these income streams can lead to better planning and committing resources to these functions for achieving optimum results.

Thus every component of business needs planning inputs and if it is handled by Planning functionary, it will be easy for synthesizing the entire business plan and carve out the strategy for execution of this plan.

What, in your view, are the major challenges in present day planning exercises in banks?

Major challenges which I see in present day planning exercise are two-fold. One is the availability of clean and consistent data in the desired platform and analysis of the data to draw right inferences. Most of the public sector banks have moved to core banking solution in last 15 years but even today there are challenges in getting very clean and granular data on various aspects of business.

The CBS unfortunately captures only limited aspects of customer information and all the fields are not populated. Customer

Planning need not be restricted to a particular department or wing at the headquarters or Zonal Offices. Even a Branch Head can be a planner. He can map the strategy of competitor banks in his area and adopt strategies accordingly opinion, there is a lack of coordination amongst different areas. Each department is working in a silo. The planning function has to enlarge its scope beyond number crunching. In this sense I think, the conventional planning has to evolve into an all-comprehensive integrated planning.

Planning is vital for every component of business. What, in your view, is the role of planning in modern banking?

As I mentioned earlier, planning is vital for every component of business and it cannot remain confined to only broad business parameters like CASA, total deposits, advances, Priority Sector advances and operating profit. Capital and resource planning is very critical for balance sheet management. In the light 10

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ascribed to their capacity to leverage the information and communication technology. Technology planning cannot be done by IT people alone. Planning has to take care of the business requirements, assessment of opportunity cost etc.

Outsourcing of non-core activities and vendor management is another area where I see lot of scope for planning interventions. Banks will need to clearly define the benefits of outsourcing vis-avis proprietary machinery for handling various non-core activities.

Government business and third party products have emerged as an important source of fee based income. However in traditional planning function, there are areas which did not find any place

Relationship Management, Business Analytics, Predictive Analysis are data dependent tools and unless such detailed information is available, Banks will not be in a position to analyse the potential of various products and business verticals.

The second challenge I see is the lack of analytical skills to derive proper inferences and lessons from the emerging trends.

The planning function as it has evolved over the years in public sector banks has been confined to only data compilation and reporting to higher authorities or external agencies. The data needs to be converted into information which needs deeper insights into customer behavior

While there is no substitute for human thinking process and ideation, technology has emerged as a great enabler and knowledge of emerging market trends. The role of planning in modern banking is more of an innovator and R&D exercise as compared to mere statistical reporting.

It is generally viewed that the planning arm in banks remain self-isolated and stay away from challenges in modern banking like fast development task, competitive strategies, proper ideation process to make forward leap in marketing and imaginative adoption of technology to bring in products and services to reach out to the gen next customers. What in your view should be the ‘new planning pattern’ for large banks?

This is what we discussed in previous question. The banking environment is changing fast. The planning function has to evolve and keep pace with the changing environment. The new trends (disruptive technologies) have to be understood fast and got integrated in the banking model.

The line staff need to be kept abreast of the latest trends and in this area, planning functionaries can play an important role as a facilitator by analysing the new trends, policies and guidelines flowing from different sources and rolling out suitable products or processes for field staff to adopt.

‘Long-term planning’ is often prescribed for organizations to create and maintain a sustainable competitive advantage over the long term. Do you think that large banks would benefit by resorting to long-term planning strategy? What are the major gains of long-term perspective?

Long term planning or strategic planning is very much required for achieving long term strategic goals. Long term planning allows the organization to make structural changes in the business models like moving from a wholesale focus to retail focus or from a niche bank to a universal bank. Subsidiarisation into ventures like Insurance, Mutual Funds, Factoring, Cards etc can be planned through long term plans involving higher capital outlay, developing

suitable manpower cadre, acquiring business partners etc. However long term planning also calls for long term commitment of the Top Management which was not available to public sector banks so far in majority of cases with the tenure of CMD, EDs being less than 3 years.

With the implementation of P J Nayak Committee recommendations and new set of MD & CEOs having at least three years’ time, we can expect the banks to go for long term plans for achieving the critical mass.

Technology is a change propeller.

What kind of changes/ transformations you visualize in planning and strategic management through the channel of technology?

While there is no substitute for human thinking process and ideation, technology has emerged as a great enabler. The computing and processing power of the machine has made it possible to test the hypothesis with huge amount of data in a fast and accurate manner. Planning functionaries should make use of Data Warehouse and business analytics tools extensively.

Experts in strategic management insist that planners should move out of the desk and look beyond research papers to understand the real world.

For example, to understand customer experience in banking it is important to interact than to interpret the data.

Comment.

I fully agree with you. I myself was a desk planner for first 20 years of my career but after soiling my hands in the field as branch manager I gained a 360°

perspective. Any plan or policy has to be actionable and interaction with customers and field staff provide the insights into the total perspective of the issue. The planning functionaries working in banks are mostly drawn from the market having specialization in economics / statistics or Finance etc. However at senior levels, people with knowledge of practical banking make successful planners.

The forward movement in modern business has competition planning and competition management as an essential aspect. Do you see a challenging role for planning experts in banks in this sphere?

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Yes. Competitor analysis is essentially a planning function. The differentiator is how it is done and its results utilized to advice and aid the Top Management. Let me emphasize one aspect here. Planning need not be restricted to a particular department or wing at the headquarters or Zonal Offices. Even a Branch Head can be a planner. He can map the strategy of competitor banks in his area and adopt strategies accordingly. I feel this is a more apt sort of planning and if such practices are ingrained across field functionaries as well, there will be a huge impact. Entry of new and niche players have made the field challenging and now competition management and competitor analysis is an imperative.

One more aspect needs emphasis. Sound competition management is not possible unless we do a SWOT analysis of own institution and the first thing is to understand own institution very well.

Best economists and planning experts coming out of our reputed universities and institutions are not joining banks in big numbers. Is there a case for banks to work out ways and means to attract them?

It is true that banks are unable to attract the best brains in these fields. But the problem is more crucial for PSBs. One obvious issue is the pay structure about which little can be done at present. However, we can think of ways to recruit bright minds to higher cadre at a lateral level. We can also think of devising a steady career path for them. Another reason for many are not joining in big numbers is we do not follow the CTC system of compensation.

Advertisement provides only the salary picture and monetized value of perks are not disclosed. If awareness is created about the fringe benefits, a good number

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Competitor analysis is essentially a planning function.

The differentiator is how it is done and its results utilized to advice and aid the top management. will come to this field. Having said this, there has been a sea change over the years with good candidates joining these streams in PSBs. Actually, if you look at it dispassionately; the scope to do something is huge in PSBs due to the sheer size. Lack of awareness is a problem here. We can begin by offering internships etc and bridge the awareness deficit in this regard.

As an expert in strategic planning, how do you visualize the planning exercises in Indian banks in 5-7 years from now–what kind of transformations are likely to take place to make planning in banks more future-targeting ?

The following probable.

transformations

are

1. Adoption of analytics platform and cloud in a bigger way

2. Increasing stress on bottom-line rather than top line 3. Prominence for sectoral research due to ongoing asset quality problems 4. Planning personnel to consist of experts from fields such as risk management,treasury, project finance etc.

5. Fierce competitor analysis and competition management 6. Long term planning as opposed to short term focus.

The country is poised for a new higher growth era and banks naturally are likely to have a dynamic role in the task. What, in your view, should be the contribution of the planning wings in banks towards this new opportunity?

When the economy is poised for higher growth, banking system will see improvement in asset quality and to that extent the stress on profitability will reduce. However, the banking industry is likely to witness a shake up with public sector banks experiencing pressure for either improving their efficiency or be ready for consolidation. The planning wings in public sector banks can play a pro-active role by suggesting strategies to the Top Management as to how to salvage the sinking ships.Which core functions banks should focus upon? Which noncore assets banks should get rid of?

What strategy be adopted to improve the employee efficiency? How to retain customer? How to improve the cross sell ratio? How to optimize the capital by rebalancing the loan book in favour of lower risk weighted assets? These are some of the areas planning department in PSB will be or should be looking at in the next few years.

Highlight Feature

SEARCH FOR A BUSINESS- CENTRIC VISION:

NEED FOR A NEW PROFIT STRATEGY FOR BANKS

The overall downside in the economy has majorly contributed to the stress with the credit demand slowing down and the loans turning bad due to the weak corporate results. But the banks also have to take the responsibility that they have not been aggressive in pushing the profit centric vision forward uiding Star:The profit status of banks in recent years has been under stress contributed by various factors. How do you look at this issue?

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risk based supervision framework as also to sustain and meet the impending growth in credit demand, going forward have impacted the profit behaviour of banks.

Soumya Kanti Ghosh: The banks have been operating under extremely fragile economic conditions since 2008. The growth prospects had slowed down, demand was at below par level. For banks to function profitably it is important that the economy is prospering. Now that we are seeing recovery in the economic scenario it is expected that banks’ balance sheets will be able to emerge out of the stress.

Looking at the present global economic scenario especially the segments related to banking, finance and markets how the likely impact is going to be on Indian growth and business in the year 2016.Do you think that the scenario will have its shadow on Indian banking as well?

Do you think that apart from individual administrative styles, business composition, slow refashioning of profitcentric initiatives and poor profit vision a contributory factor?

The overall sentiments are clearly despondent regarding global growth outlook in 2016. Interestingly, the overwhelming consensus regarding India is that it remains in a sweet spot.

With the overall outlook remaining stable for India and more than 7 % growth projected in the next fiscal, India will definitely be in a better position among the EMs. Indian Banks as such don’t have much exposure. The impact can be through indirect demand channel.

As I have mentioned before the overall downside in the economy has majorly contributed to the stress with the credit demand slowing down and the loans turning bad due to the weak corporate results. But the banks also have to take the responsibility that they have not been aggressive in pushing the profit centric vision forward. In a developing economy like India, banks have to play the major part in pushing the cause of financial inclusion.While promoting the cause of financial inclusion, the profitability aspect has to be kept at the back-burner at least initially until the customer base is ready. It is only through leveraging technology that financial inclusion can be done at a lower cost and help banks to improve their margins. Banks have started adopting the technology centric model, but a lot has to be done so that banks can tap into the potential of a diversified customer base.

What in your view, should constitute a new profit strategy for banks and how it is going to be different from the conventional approach to profit?

The new profit strategy will be primarily technology driven.

Technology, the great disruptor has made its way across Indian

As a leading Economist, what in your view are the major ‘external factors’ impacting profit behaviour of banks in India in the recent years?

Overall the banks have become cautious in their approach.

Higher level of capital adequacy is needed due to higher provisioning requirements, kicking in of the Basel III Capital norms, capital required to cover additional risk areas under the

Dr. SOUMYA KANTI GHOSH Chief Economic Advisor, State Bank of India

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Highlight Feature banking sector. Its successful leveraging can contribute two way significantly to the bottom line by reducing the costs and at the same time increasing the revenue by helping in customer segmentation and targeting. The conventional approach was that banks accept the deposits and lend these and the spread is what constitutes the margin. But now technology can help in amassing wealth of data which can be utilised through analytics to map the customers and identify their other financial needs and demands. Banks can become the one stop shop for all the customers’ financial needs. Diversifying the customer base and the product base through successful use of information technology will be a game changer for banks` profitability.

Which is going to be the major driver for bank profits in future–management creativity, technology adoption, audit and supervision, marketing skills or any other aspects of management?

All these aspects are important in making any organization, banking included, successful. One cannot ignore any of these factors for the sake of the other.

But technology can provide a significant boost in the various areas of management, audit and supervision and marketing.

The issue of NPA continues to dominate the banking profile and

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“The new profit strategy will be primarily technology driven.

Technology, the great disruptor has made its way across Indian banking sector” there is increased concern from the policy makers and the regulators on this. What sort of re-approach the Indian banks need to take to manage the NPA, looking from the profitability window ?

We have been tackling this problem for a few quarters now and hopefully the resolution rate will pick up pace as expectations of sellers of assets become more realistic and valuations given by buyers also are better, sensing an imminent recovery. Economic recovery remains the key. Meanwhile our efforts

continue with full vigour. With RBI providing banks its support in the form of favourable regulations, banks are all set to take on the defaulting promoters. Still, a proper bankruptcy law will help banks to get orderly resolution of bad assets.

Digitisation of the DRT process, with ensuring time bound resolutions, can also provide succour to the banks.

What sort of refinements and improvements are required in the administration of credit, making it more profit-targeted?

The answer lies in a mass-customized approach, which advances the productivity frontier for small business finance by using technologies that reduce transaction costs while broadening the service offerings and improving the bottom-line contribution per customer. A mass-customized approach will draw on the experiences in consumer finance, particularly the concept of credit scoring and the use of credit information, along with other financial and information technologies that can be used to manage information-intensive flows.

These technologies reduce transaction costs while improving portfolio risk management, thus allowing to move away from relationship lending (that is, big business or traditional corporate lending).

Broadening the financial services offered to a small business will further aim to capture the whole relationship with the

client, including the traditional savings offerings and payment intermediary functions. This in turn allows to make use of the additional captured information to make better business decisions Going by the recent trends, banks prefer segments of retail banking, and new business concepts like e-commerce and start-ups as quick routes to profit enhancement.

Policy makers insist that the rural sector and ‘bottom of the pyramid’ are preferable new mechanism for business. The situation indicates that the corporate lending are not going to be instrumental for the profits.

Comment.

The performance of the banks (ASCB) during the first half of 2015-16 has declined, due to weak economic activity, lower credit demand etc. In the credit market, credit off-take (YoY) remain at 9.5% as on 16 Oct’15, compared to last

to the retail banking or new business activity. The share of credit is well distributed across the sectors and going forward we are seeing credit growth in sectors like power, green energy, hydrocarbon and telecom in the coming quarters. We also expect growth in personal loan segment especially in housing (due to rationalization of risk

view, to increase profitability, banks need to maintain a proper, efficient and robust Recovery Mechanism. Further, certain regulatory changes required to ease NPAs in the system, like: ¡¡Loans

to 100 % Central Govt. owned entities (even without Central Govt. guarantee) also to be treated as “STD Asset” even though they may be NPA,

The overall sentiments are clearly despondent regarding global growth outlook in 2016. Interestingly, the overwhelming consensus regarding India is that it remains in a sweet spot. year growth of 10.6% as on 17 Oct’14.

The retail credit share in Non-food credit is around 20%, while credit to industry (including SME) is around 43%.

So, in my view there is no credit boom

weights and LTV ratios) and in vehicle loan (due to festive season).

What sort of improvements, both conceptual and technological, you would suggest in the internal systems of banks like funds managements, investments, audit, balance sheet exercise, recovery etc to make the system more profit penetrating?

Though, the banking system has remained resilient, asset quality of the banks continued to be poor due to variety of reasons both internal and external. In my

as is being done in case of loans guaranteed by Central Government. ¡¡Claims

for funds lying with Official Liquidators to be settled promptly.

Time limits for settlement of dues lying with OL will result into faster recovery of NPAs for the Banks

¡¡Various

tax authorities should not contest Bank’s priority charge on securities. This will ensure certainty of recovery of Bank’s dues by enforcement of securities

¡¡Property

valuers to be brought under a licensing authority with well-defined responsibilities. This will ensure greater accountability among the valuers

¡¡SICA

Act, 1985 to be repealed immediately, which will make SICA Repeal Act, 2003 effective. Alternative to this, NCLT / NCLAT to be established immediately.

Interview: V. Gopalan

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MEET

SUNIL BHARTI MITTAL: CONNECTING WITH FUTURE

Sunil Bharati Mittal believes that a responsible corporate has a duty to give back to the community in which it operates

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unil Bharti Mittal is now more known as originator of cellular phone revolution in India. Shri Sunil Mittal is the Founder and Chairman of Bharti Enterprises which has interests in telecom, retail, realty, financial services and agri-products. Bharti Airtel, the group’s flagship company, is a global telecommunications company with operations across South Asia and Africa.

Bharti has joint ventures with several global leaders: Singtel, SoftBank, AXA and Del Monte.

Sunil Bharti Mittal's father was an M.P. After graduating from Punjab University in 1970s, he set up a small bicycle business in Ludhiana in partnership with his friend. By 1979, Sunil Mittal realized that his ambitions could not be fulfilled in Ludhiana, so he moved out to Mumbai from Ludhiana.

He spent a few years in Mumbai and in 1982, Sunil Mittal started a full-fledged business selling portable generators being imported from Japan.

In 1986, Sunil Bharti Mittal incorporated Bharti Telecom Limited (BTL) and entered into a technical tie up with Siemens AG of Germany for manufacture of electronic push button phones.

Gradually he expanded his business and by early 1990s, Sunil Mittal was making fax machines, cordless phones and other telecom gear.

Delhi cellular license in collaboration with French telecom group Vivendi. In 1995, Sunil Mittal founded Bharti Cellular Limited (BCL) to offer cellular services under the brand name AirTel. Soon, Bharti became the first telecom company to cross the 2-million mobile subscriber mark. Bharti Cellular Limited also rolled out India's first private national as well as international long-distance service under the brand name IndiaOne. In 2001, BCL entered into a joint venture with Singapore Telecom International for a $650-million submarine cable project, India's first ever undersea cable link connecting Chennai in India and Singapore.

Sunil is currently the Vice Chairman of the International Chamber of Commerce (ICC). He also serves on the Prime Minister of India’s Council on Trade & Industry, World Economic Forum’s International Business Council, Telecom Board of International Telecommunication Union (ITU), Commissioner of the Broadband Commission, and the Singapore Prime Minister’s Research, Innovation and Enterprise Council. He has been appointed by the Prime Minister of India as Co-Chair of the India-Africa Business Council and India-Sri Lanka CEO Forum as well as member of the India-US, India-UK and India-Japan CEO Forums. Earlier, he served as the President of the Confederation of Indian Industry (CII, 2007-08), the premier industry body in India.

The Airtel Journey

Sunil is a recipient of the Padma Bhushan, one of India’s highest

In 1992, when the Indian government was awarding licenses for mobile phone services for the first time, Sunil Mittal clinched

civilian awards. He has also been awarded the INSEAD Business

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Leader for the World Award 2011 and the NDTV Profit Business

I realize that there are numerous people who see me as a success story. My advice to these people is: if you have a dream, chase it.

Leadership Award 2011 for “Corporate Conscience”. Earlier, he received the Global Economy Prize 2009 by The Kiel Institute, Germany and the US-India Business Council also honored him with the ‘Global Vision’ Award 2008. Sunil has received the GSM Association Chairman's Award for 2008. He is also a member of the Academy of Distinguished Entrepreneurs, Babson College, Wellesley, Massachusetts.

An alumnus of Harvard Business School, Sunil is on Harvard

Shri Sunil Mittal believes that a responsible corporate has a duty to give back to the community in which it operates. This belief has resulted in the Bharti Foundation, which operates 254 schools as well as remedial centers and renders quality support to government schools, providing holistic education to over 50,000 under-privileged children in rural India. Sunil was ranked among the Top 25 Philanthropists in the World in 2009 by the Barron’s Magazine.

Endowment for International Peace and a Member of the Board

Shri Sunil Bharti Mittal has won several prestigious Awards and Honours including the Padma Bhushan, Philanthropist of the Year, The Asian GSMA Chairman, GSM Association Chairman Asia Businessman of the Year, Telecom Person of the Year, Frost and Sullivan Asia Pacific ICT Telecom Asia, Best Asian

of Directors of the Qatar Foundation Endowment.

Telecom CEO, Business Leader of The Year.

University’s Global Advisory Council, Board of Dean’s Advisors of Harvard Business School and Executive Board of the Indian School of Business. He is also a Trustee of the Carnegie

‘Everything in life is Possible’ The Telecom route: I was importing portable gensets and I became one of the biggest importers of gensets at that time. In 1983, the government imposed a ban on the import of gensets.

I was out of business overnight. Everything I was doing came to a screeching halt. I was in trouble. The question then was: what should I do next? Then, opportunity came calling. While in Taiwan, I noticed the popularity of the push-button phone–something which India hadn't seen then. We were still using those rotary dials with no speed dials or redials. I sensed my chance and embraced the telecom business.

Airtel Story: I started marketing telephones, answering/fax machines under the brand name Beetel and the company picked up really fast. In 1992, when the telecom sector opened up, I successfully bid for one of the four mobile services. This is how AirTel came into being.

me with a positive spirit and provides encouragement–day after day. I do not visit temples regularly, but I have been to Tirupati and Vaishno Devi.

And Miles to go: Sometimes, I find it difficult to believe the position I have attained. In fact, I often ask myself whether my success is for real or a dream! Business is an ongoing process and I want to take my company to greater heights. My ambition is to provide worldclass services across the globe. I aim to be the leading player in the global telecom market.

You too can: I realize that there are numerous people who see me as a success story. My advice to these people is: if you have a dream, chase it. One should sense opportunity at the beginning of a curve and venture into hitherto unexplored fields. This is what I did with the push-button telephone. Yes, there will be difficulties on the way–but everything in life is possible.

Customer is king: We have made forays into basic telephony, long-distance calls and other state-run services. But if we have achieved anything, it is because we have always kept the customer in mind. It is he who has benefited–and so have we.

Being Fortunate: Everybody nurtures dreams; but few manage to realise them. What started with Rs 20,000 and just me on my own has grown into a Rs 1,500-crore company with 5,000 employees.

Bharti is a pioneer in the private telecom sector and AirTel has its presence in 16 states across India. I have realised my dreams–I consider myself fortunate.

Divine intervention: I have faith in a power which has always guided me through thick and thin. This is the power which infuses

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Thought Window

BANKING LANDSCAPE CHANGE IN THE NEXT 10 YEARS:

FUTURE ‘TENSE’?

‘Can you imagine how different the future might be ten years from now, in the year 2025? What will the world be like? How different will be the things?

What will be the big trends that will cause economic, political, social and global upheaval? What trends will reshape the world of business and banking?’

I

n the next few years, will the traditional banks continue to be present?Many are predicting the fall of the traditional banks as new entrants who are disruptive by nature are trying to usurp their share by offering a better customer experience through new products and channels.

Despite the emergence of new competitors and models, I think and believe that the traditional bank has a future and a bright one provided they get their act right! Banks are and will be the central pillar of economic prosperity and they surely are an institution that customers have long trusted. Their role as a storekeeper of our money and a facilitator of payment transactions is not going to change for a long time. However, much of the landscape will change significantly in response to the evolving forces of customer expectations, regulatory requirements, technology, demographics, new competitors and shifting economics.

At the current rate, the Indian banking industry will be the world’s third–largest by 2025. This increasing significance and

influence comes with a high level of responsibility. To discharge their responsibility towards the real economy, Indian banks have an obligation to stay healthy, to adopt balanced and profitable growth, and to strive for higher levels of efficiency and productivity in every aspect of their operations.

Forces for Change Banks today are facing rapid and irreversible changes across technology, customer behaviour and regulation. As a result, the industry’s current shape and operating models may not be sustainable in the long run. The combined power of these three drivers of change–technology, customers and regulation–is the fact that they are more often than not closely inter-woven.

For example, technological change creates new opportunities for products for customer utility, which in turn gives rise to further technological investment. Similarly, regulatory changes are a precursor to innovations in service and products; and these simultaneously adjust the nature of activities or entities that need regulating.

Role of the regulator In the years to come, the provision of banking services may no longer be restricted to a set of regulated banking institutions, but could be opened up to financial and non-financial service domains. In such a scenario, the scope of the regulatory challenge would widen and become more complicated. In this scenario, the job of ensuring financial stability, protecting customers, maintaining competition and so on would change almost beyond recognition. With that, regulatory bodies would also need to reinvent themselves and adapt smartly.

Future ‘tense’?

Can you imagine how different the future might be ten years from now, in the year 2025? What will the world be like? How different will be the things? What will be the big trends that will cause economic, political, social and global upheaval? What trends will reshape the world of business and banking?

Digitization Journey Research by McKinsey- Retail Distribution 2015–Full Digitization with a human touch highlighted how bank branches are

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Shri G. PADMANABHAN BOI

Chairman (Non Executive), Bank of India

becoming more sales and advice oriented, and suggested that in the light of future customer needs it should be possible to free up 30-50 percent of costs by aligning the design of the branch network, and to increase sales per front-office employee by 20%. The report highlights the Digitization journey: ¡¡1980-2000–Digitization

of payments: In this period ATMs, cards and telebanking replaced paper-based payments as banks sought to capture new cost saving opportunities and reach

and after-sales service combined with continued face-to-face interactions for the more complex products.

Thanks in part to the development of mobile banking, sales of products either transacted online or influenced by online marketing are expected in the medium term to grow to the point where they represent roughly 60% of the total.

Scenario Next ¡¡The

report also highlights how the future of branch banking would be

of all product sales at the moment start with an online enquiry or investigation) ¡¡Call

centers will become a profitable, professional channel in which video technology is increasingly used. As a result 15 percent of service requests will typically be converted into sales.

¡¡Banks

will manage these different channels so that service from the customer’s perspective is seamless and ‘end-to-end’ and from its own perspective it captures sales that are currently being lost.

‘Disseminating personalised offers on customers’ mobile phones, use of home video - conferencing system for personalised connect, leveraging face - detection technology for efficient cross - selling are some of the avenues through which technology will aid branch banking in the future’. customers previously excluded from the mainstream banking system. ¡¡2000-2010–Digitization

of basic banking: Over the first decade of the 21st century most customers started being able to access their banks remotely 24/7 for the bulk of low-value added activities. Benefits included greater convenience for them and further cost efficiencies for the bank.

¡¡2010-2015–Full

Digitization with a human touch: Banks are only just beginning to provide the ultimate client experience, namely digitization of sales

like. The reengineering of the branch activities to transform into relationship management and advisory channel is recommended in the report. It states: ¡¡Branch

networks will be radically transformed into sales and advice outlets—they will be 20 percent more productive than today and their costs will be up to 50 percent lower.

¡¡Digital

channels will be designed to create a “wow” experience for the user, thereby capturing these channels’ full sales potential (more than 20 percent

Scenario –10 Years From Now We, in the banking sector, are in the middle of a multi-wave trend where digital is first focused on optimising current products and services. The second wave, where enhanced data capture and analysis will drive more targeted customer offerings and improved services is underway. Mobile banking will increasingly disrupt distribution models (e.g. instant videoconferences with product experts) and the payments industry (e.g. P2P mobile payments). Technology is making

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it easier for customers to switch banks, making relationships much less sticky. This will drive the third wave, where banks and their partners develop sophisticated profiles of each of their customers.

Given these, how will the banking landscape change in the next 10 years? (a) Every bank will be a direct bank; branch banking will be undergoing a significant transformation. As technology enables every aspect of banking to go online, and as cash usage falls away, traditional branches may not be necessary. Given their high-fixed cost, branches will need to become more productive, or less costly. Banks have already reduced staff levels, closed the most uneconomic branches and started experimenting with new branch concepts. We expect these trends to accelerate, as customer expectations and behaviours evolve. Branches will remain, but may take many forms, from information, advisory and engagement hubs (offering education, financial advice, full-service capabilities and community offerings) to smart kiosks (offering service, sales, cash and video contact with a range of specialists). The successful banks would rapidly improve their footprints, reducing branch size and costs, introducing new models and migrating transactions to low-touch digital channels. Digital capabilities will have to improve, so that branch service officers and bank customers use the same platforms, with the same look and feel. The human touch will

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‘At the current rate, the Indian banking industry will be the world’s 3rd largest by 2025. This increasing significance and influence comes with a high level of responsibility’. always be available, just much more through digital channels. Banks that are behind this trend will struggle, but in the long run if they would continue to develop their physical footprints, using a growing range of points of presence; and they would eventually become successful.

(b) Competitive reach will no longer be determined by branch networks, rather by banking licences, technology and advertising budgets. When every aspect of banking can be done online, a bank’s target market and competitive arena will no longer be defined by its physical footprint, but by its technology, regulatory boundaries and marketing budget. New entrants will no longer have their pace of expansion constrained by the availability of acquisition targets and/or prime retail locations.New entrants could grow rapidly, potentially creating scores of new competitors and re-fragmenting the landscape. (c) The smart devices will grow in importance, and take its place alongside cards as the primary medium for customer payment. The customer will be able to select between account providers (e.g. credit providers, deposit accounts) or locally stored value. Acceptance will be universal (with common cross-network payment protocols) and value-transfer instant. Multi-currency capabilities will become normal. Customers will be able to make contact payments or send funds to any other unique identifier (e.g. email address, phone number, bank account, credit card number, etc.). Transfers of locally stored value may be either traceable or untraceable, depending on service provider, as a result, removing the last powerful incentives to use cash– privacy, tax avoidance, lack of access to banking services. Cards will remain

popular, as they are quick, effective, allow easy means to spend and do not run out of power. (d) Biometrics (fingerprints and / voice recognition) will become commonplace in transaction authorisation, but will remain tied to a replaceable physical device (e.g. smartphone). Biometrics is unique and unchanging, yet can be captured and replicated, so two-factor

10 years, social media will be the media to connect, engage, inform and understand your customers. It will also be the place where the customers will research and compare banks’ offerings. (g) Cyber security is paramount to rebuilding the customer trust–the intelligent banks will have to invest significantly in this area. Recent high-

oversight and cultivation, not checkthe-box management. They may need to be managed outside of the existing corporate structure–with different reporting lines, different measures of performance and even different office space–asking people like this to report to the typical bank IT project manager or embedding them one by one in the business is likely to lead to failure. Many

Banks need a new type of talent and a new way of managing it. They need to attract people who think big and who challenge the status quo, people who are obsessed with the customer and not with the process authentication (fingerprint and phone) will always be required for ensuring completing secured transactions. (e) Banks will organise themselves around customers instead of products or channels. They will work towards offering a seamless customer experience, integrating sales and service across all channels. They will develop the ability to view customers as a ‘segment of one’, recognising their uniqueness, and tailoring their offerings so that customers view banks as ‘meeting their needs’ not ‘pushing products’. (f) Social media will be the media. Today we view traditional media to exist alongside social media. In the next

profile security breaches and media commentary surrounding cyber attacks have generated fear and uncertainty, further eroding stakeholder trust. There are now higher expectations about security of information and privacy among clients, employees, suppliers and regulators. Risks range from internal misuse of social media to organised cyber-crime (e.g. mass information theft, or denial-of-service attacks). (h) Talent: Banks need a new type of talent and a new way of managing it.

They need to attract people who think big and who challenge the status quo, people who are obsessed with the customer and not with the process.

Banks need to enable them to succeed.

These people need inspirational

banks have set up dedicated innovation labs outside of their head offices to accomplish just this.

CONCLUDING In the years to come, innovation and customer expectations have to go hand-in-hand. Banks need to organise and manage differently–protecting and enabling talent, becoming agile in their development processes and being open to partnerships with outside institutions.

The main factor however is the customers behaviour; customer are not only empowered with knowledge, but are also engaged constantly with service providers; more than ever before. Those who adapt quickly will emerge as clear winners.

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Marketing Mirror

SOCIAL MEDIA MARKETING: FUTURE OF COMMUNICATION

“Social Media Marketing is going to be a major arm of bank marketing in the future thanks to the increasing focus on reaching out to customers and the greater recourse to mobile based technological applications”.

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ocial media marketing has now emerged as a preferred tool to reach out a vast section of consumers. It mainly centers around the process of gaining website traffic or attention through social media sites.

Marketing experts insist that social media is the future of communication, a countless array of internet based tools and platforms that increase and enhance the sharing of information.

This new form of media makes the transfer of text, photos, audio, video, and information in general increasingly fluid among internet users. Social Media catches well with not just regular internet users, but almost every aspect of modern business as well.

Well, what is precisely social media marketing? “Social media marketing programs usually center on efforts to create content that attracts attention and encourages readers to share it across their social networks. The resulting electronic word of mouth refers to any statement consumers share via the Internet (e.g., web sites, social networks, instant messages, news feeds) about an event, product, service, brand or company. When the underlying message spreads from user to user and presumably resonates because it appears to come from a trusted, third-party source, as opposed to the brand or company itself, this form of marketing results in earned media rather than paid media.”

Mobile phone usage has also become beneficial for social media marketing. Today, most cell phones have social networking 22

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capabilities: individuals are notified of any happenings on social networking sites through their cell phones, in realtime. This constant connection to social networking sites means products and companies can constantly remind and update followers about their capabilities, uses, importance, etc. WhatsApp, the cross-platform instant messaging client for smartphones added a new dimension to mobile-based communications.

Future of Communication Undoubtedly, social media is the future of communication, a countless array of internet based tools and platforms that increase and enhance the sharing of information. This new form of media makes the transfer of text, photos, audio, video, and information in general increasingly fluid among internet users. Social Media has relevance not only for regular internet users, but business as well.

Platforms like twitter, Facebook, and Linkedin have created online communities where people can share as much or as little personal information as they desire with other members. The result is an enormous amount of information that can be easily shared, searched, promoted, disputed, and created.

Social Bookmarking tools and news sites such as Digg, Delicious, reddit, and countless others make finding specific information, images, or websites increasingly simple by assigning or “tagging” individual sites with searchable key words.

as Twitter, Facebook and Google+ have a larger amount of monthly users, the visual media sharing based mobile platforms however, garner a higher interaction rate in comparison and have registered the fastest growth and have changed the ways in which consumers engage with brand content. Instagram has an interaction rate of 1.46% with an average of 130 million users monthly as opposed to Twitter which has 0.03% interaction rate with an average of 210 million monthly users.

Unlike traditional media that are often cost-prohibitive to many companies, a social media strategy does not require astronomical budgeting. To this end, companies make use of platforms such as Facebook, Twitter, YouTube and Instagram in order to reach audiences much wider than through the use of traditional print/TV/radio advertisements alone at a fraction of the cost, as most social networking sites can be used at no cost. This has changed the ways that enterprises approach interact with customers, as a substantial percentage of consumer interactions are now being carried out over online platforms with much higher visibility. Customers can now post reviews of products and services, rate customer service and ask questions or voice concerns directly to companies through social media platforms”. Thus social media has transformed in to an excellent platform for creative and trendresponsive marketing today. No doubt, it demands excellent skills and innovative

mindset to formulate new and refreshing ideas to flash through the challenging mediums of the social network. Large organizations like banks may have to create social media marketing wings within their public relations department to make things work effectively.

How to Make it?

Precisely social media marketing has many positive implications on business: To pinpoint, these are: 1. Increased Brand Recognition.

2. Improved brand loyalty.

3. Higher Brand Authority.

4. Increased Inbound Traffic.

5. Decreased Marketing Costs.

6. Better Search Engine Rankings.

7. Richer Customer Experiences.

8. Improved Customer Insights.

In India, social media marketing concept is becoming a vital part of marketing strategy in many branches of business and banking is one such. Financial sector marketing gurus view that “Social Media Marketing is going to be a major arm of bank marketing in the future thanks to the increasing focus on reaching out to customers and the greater recourse to mobile based technological applications”.

—laGopa

Gains of Social Media One of the main purposes in employing Social Media in marketing is as a communication tool that makes the enterprises accessible to those interested in their product and make them visible to those who have no knowledge of their products.

Social media marketing brings in a lot of benefits to the enterprises and impressively widens the customer reach.

No surprise it is gaining momentum. Of the top 10 factors that correlate with a strong Google organic search, seven are social media dependent. This means that if brands are less or non active on social media, they tend to show up less on Google searches. “While platforms such

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Star Show Hon’ble Prime Minister Shri Narendra Modi handing over BOI sanction letter to Ms Ankgita Rabha in the presence of Cabinet Minister M/o Skill Development Shri Rajiv Pratap Rudy & Secretary Shri Sunil Arora.

Bank conferred with the Best Bank Award under category “Use of Technology for Financial Inclusion among Large Banks for the year 2014-15”.

GM (Financial Inclusion) Shri S Palanivel receiving award and certificate at the hands of Governer, RBI Shri Raghuram Rajan

Bank’s MUDRA Card was launched at the hands of MD & CEO Shri Melwyn Rego at Head Office in the presence of ED Shri R P Marathe, GM, SME Shri B K Mohanty and other senior officials. It`s Rupay Debit-cum-ATM card for PMMY beneficiaries. PMMY caters to non–farm enterprises whose credit need are below Rs.10 lacs. Bank has already sanctioned Rs.643 Crores covering 127917 beneficiaries.

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Bank Implements Fraud Risk Management Solution on Cards at Head office. (L to R) AGM Shri Pradeep Kumar Bajpai from BOI, Shri Deepak Chandnani from M/s Worldline, ED Shri R P Marathe, GM Anil K. Bhalla and DGM Surinder K. Agrawal.

ED Shri B P Sharma inaugurating NBG (W-2), Pune Office in presence of GM NBG (W-2) Shri R S Chouhan & DGM Shri Milind Vaidya, Smt. Kusum Tiwari, ZM Shri Prasad Joshi and other staff members.

BOI In-House Magazine ‘Taarangan’ Conferred With ‘Best In-House Magazine Award’ By CMO Asia at Singapore CGM (HR) Shri Radha Nath Kar receiving award from Founder, RGF Management Search, India. Dr. Sanjay Muthal, at Singapore.

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Hindi Feature

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BOI

I 27

STARWAY

PERFORMANCE HIGHLIGHTS:

BANK OF INDIA MARCHES AHEAD

Bank of India continues to march ahead in key areas of performance. Key aspects of the Bank’s business results for Q2/HY: FY 2015-16 : PROFITABILITY (Q2 -FY 2015-16):

Capital Adequacy Ratio

¡¡Operating

¡¡Capital

PROFITABILITY (HY: 2015-16):

Branches & ATMs (Domestic):

¡¡Operating

¡¡As

Global Business

Important Ratios (HY: 2015-16):

¡¡Global

¡¡Global

Profit stood at Rs.1,458 Crore * Net Profit stood at Rs. -1,126 Crore * Net Interest Income stood at Rs. 3,020 Crore * Non-Interest Income stood at Rs. 778 Crore.

Profit stood at Rs. 3,162 Crore * Net Profit stood at Rs. -997 Crore * Net Interest Income stood at Rs. 5,932 Crore * Non-Interest Income stood at Rs. 1,619 Crore.

Business increased from Rs.9,17,720 crore in Sep’2014 to Rs.9,20,980 crore in Sep’2015. (YoY growth: 0.36%).* Global Deposits increased from Rs.5,18,432 crore in Sep’2014 to Rs.5,25,195 crore in Sep’2015. (YoY growth: 1.30%).

¡¡Global

Advances declined from Rs.3,99,288 crore in Sep’2014 to Rs.3,95,785 crore in Sep’2015. (YoY growth: -0.88%).

Adequacy Ratio of the Bank under Basel III is 11.21% as on 30.09.2015. * 00Tier I CRAR is 8.65% as on 30.09.15. * Tier II CRAR is 2.56% as on 30.09.15 of September 30, 2015, Bank’s network distributed to 4,963 Branches and 7,716 ATMs, with increase of 71 Branches and 945 ATMs over 31.03.2015.

NIM stood at 2.21% and Domestic NIM stood at 2.66%. * Yield on Advances (Global) stood at 8.45% and Yield on Advances (Domestic) stood at 10.84%. * Cost of Deposits (Global) stood at 5.40% and Cost of Deposits (Domestic) stood at 6.90%.Business per Employee stood at Rs.18.20 crore and Business per Branch at Rs.184.53 crore in Sep’2015.

Domestic Business

Awards & Accolades:

¡¡Domestic Business increased from Rs.6,56,923 crore in Sep’2014

¡¡Bank

to Rs.6,68,421 crore in Sep’2015. (YoY growth: 1.75%). * Domestic Deposits increased from Rs.3,88,377 crore in Sep’2014 to Rs.3,89,864 crore in Sep’15. (YoY growth: 0.38%). * Domestic Advances increased from Rs.2,68,546 crore in Sep’2014 to Rs.2,78,557 crore in Sep’15. (YoY growth: 3.73%).

¡¡Bank

International Business ¡¡International

Business declined from Rs.2,60,797 crore in Sep’2014 to Rs.2,52,559 crore in Sep’2015. (YoY growth: -3.16%). * International Deposits increased from Rs.1,30,055 crore in Sep’2014 to Rs.1,35,331 crore in Sep’2015.

(YoY growth: 4.06%). * International Advances declined from Rs.1,30,742 crore in Sep’2014 to Rs.1,17,228 crore in Sep’2015.

(YoY growth: -10.34%)

CASA ¡¡CASA

Deposits increased from Rs.1,07,587 crore in Sep’2014 to Rs.1,19,513 crore in Sep’2015. (YoY growth: 11.08%). * Savings Deposits increased from Rs.89,162 crore in Sep’2014 to Rs.100,790 crore in Sep’2015. (YoY growth: 13.04%). * Current Deposits increased from Rs.18,425 crore in Sep’2014 to Rs.18,723 crore in Sep’2015. (YoY growth: 1.62%).

Asset Quality ¡¡Gross

NPA ratio stood at 7.55% in Sep’2015 as against 6.80% in Jun’2015. * Net NPA ratio stood at 4.31% in Sep’2015 as against 4.11% in Jun’2015.* Provision Coverage Ratio stood at 55.08%.

28

I

BOI

received “Best MSME Bank” and “Best Bank for operational performance” awards from CIMSME (Chamber of Indian Micro, Small & Medium Enterprises). received “Best Bank” award for “use of Technology for Financial Inclusion” among Large Banks for FY 2014-15 from IDRBT at the hands of Governor, RBI.

¡¡Bank

received “Financial Inclusion & Payment System Award”by Elets Media at New Delhi at the hands of Minister of Rural Development.

¡¡Bank

received “PMJDY Excellence Award” from Honorable Union Minister

¡¡Bank

received IBA Award for “Best Financial Inclusion Technology Initiative” from IDRBT.

¡¡Bank

won IT excellence award by ET NOW and VMW are for effectively implementing Virtualization in the Bank.