Upload
sunil-rawat
View
214
Download
0
Embed Size (px)
Citation preview
8/14/2019 BANKING BUSINESS STRATIGIES.docx
1/25
Introduction
The term relationship banking or relationship-based banking is often usedto mean connection-based banking, which constitutes the core may be seenas nothing more then the banking practices designed to maximize these
advantages of the crony capitalism that many allege brought about theAsian crisis of 1997. The crisis clearly demonstrated the potential traps ofrelationship banking. However, relationship banking has many advantagesas well. First of all, it allows banks to make the best use of their comparativeadvantages versus the public debt market. Banks usually repeattransactions across different financial services, allowing economies of scaleand scope in information production as well as reputation building for bothparties, which can be an essential factor for loan negotiations or ortherfinancial transaction in a world of incomplete contracts. Reationship
banking.
It has been widely belived that the misguided resorce allocation and poorcorporate investment performance were largely responsible for the asiancrisis. It is not surprising that the post-crisis reform package put highpriority on imporving the corporate governance system. Although reformsof the borard of directors, and fostering the market for corporate control.
Relationship Banking: Concept andCharacteristics
Relationship banking is multi-dimensional, and is maintained over cycles of
corporate growth and profitability. It is also supported by various institutions
that provide the concerned parties with incentives to build and foster therelationships, as is clear for Japanese main banks (MBs) and German
universal banks. However, relationship banking involves both promises andperils. The desirability of relationship banking should not be taken for
granted, since it ultimately depends on whether the merits can bemaximized without being caught in traps.
2.1. What Is Relationship Banking?
Relationship banking may be defined as the provision of financial services bya financial intermediary on the basis of long-term investment in obtaining
firm-specific information through multiple interactions with diverse financialservices (Boot, 2000). Banks have advantages in gathering/producinginformation about their clients, thanks mainly to the nature of informationproduction. First, there are economies of scale: the cost of information
8/14/2019 BANKING BUSINESS STRATIGIES.docx
2/25
gathering/production is reduced by learning through repeated transactions.
Second, there may also be economies of scope: banks can utilize theinformation obtained on a type of service for other services (Petersen and
Rajan, 1994). Third, financial contracts are typically incomplete: banks andcustomers can build commitment and reputation through repeated
transactions across services, often allowing the low-cost renegotiation ofdebt contracts (Lehmann and Neuberger, 2001). This characteristic of
information production makes it natural for banks to be interested inrelationship-based banking (see Box 1 for literature on bank debt andequilibrium financing pattern; see also Yoshitomi and Shirai, 2001 for a morecomprehensive discussion of the inherent features of the banking system
compared with those of corporate bond markets).
Intensity of relationship banking
Then, what are the operational aspects of relationship banking? What ismeant by a strong relationship between a bank and its corporate clients? Itis necessary to look at the duration, scope, and extent of multiple banking
(Petersen and Rajan, 1994).
Duration of the bank-borrower relationship.The duration is
important because information is accumulated and sharpened throughrepeated interactions, and is largely non-transferable to those outside
of the relationship. Commitment and reputation are also built andverified over time. Risk-sharing and other compensatory pricing
practices often take place over the cycles of firm growth and
profitability.
8/14/2019 BANKING BUSINESS STRATIGIES.docx
3/25
Box 1. Advantages and Disadvantages of Bank Debt, and Equilibrium Financing Pattern
Some of the advantages and disadvantages of relationship banking derivefrom the very nature of bank debt compared with public debt. Thus, it
would be useful to review the merits and demerits of bank debt beforedealing with relationship banking. Compared with public debt (corporate
bonds), bank debt is supposed to have several advantages.
1. Bank debt is flexible (Bolton and Freixas, 2000; Rajan, 1992;Diamond, 1993). Loan covenants require the borrower to take or
refrain from various actions, giving banks the right to renegotiate or
call loans when covenants are violated, enhancing the flexibility andefficiency of financial contracting (Berlin and Mester, 1992; Magee
and Sridhar, 1994; Park, 1994). Unlike public debt, the recontractingof existing debt is easy since the bank is a monolithic, readily
accessible creditor, which is especially valuable when firms are infinancial distress (Berlin and Loeys, 1988).
2. Bank debt likely reduces agency costs. Bank debt is considered to be"inside debt," giving the debtholder access to information from an
organizations decision process that is not otherwise publicly available(Fama, 1985). Banks usually have repeated transactions with their
corporate clients over many different banking services. Bank loansare typically short-term, forcing banks to make periodic evaluationsof the borrowers creditworthiness. Also, creditor banks are relativelyfew (compared with bond holders), giving them stronger incentives to
engage in information production and monitoring, mitigating the free-
rider problem associated with public debt. Lenders may agree to
divide their monitoring tasks among themselves in a way that avoidsduplication of monitoring (Rajan, 1992; Diamond, 1984, 1993).
3. Creditor banks may exercise control over the investment decisions ofborrowing firms. The control rights specified in loan covenants,together with efficient monitoring and better information, reduce
adverse selection or moral hazard associated with external financing(Smith and Warner, 1979; Diamond, 1984; Berlin and Loeys, 1988).
The finding that a firm's announcement of a new bank loan or a loan
renewal (unlike that of a bond issue) has a significantly positive effect onstock returns indicates the efficiency-enhancing role of banks (James,
1987; Lummer and McConell, 1989). Bank debt, however, does have somedisadvantages compared with public debt.
4. Bank debt usually entails higher intermediation costs. These includemonitoring costs, bank regulatory taxes, and the agency costs of
delegated monitoring (Diamond, 1991; Berlin and Loeys, 1988). Thisis why more credit-worthy firms rely more heavily on public debt
8/14/2019 BANKING BUSINESS STRATIGIES.docx
4/25
financing (Blackwell and Kidwell, 1988). Private debt has loweragency costs but potentially higher transaction costs given the large
economies of scale in issuing public debt. Thus, firms issue publicclaims when the lower transaction costs of public debt offset thehigher agency costs of public debt financing.
5. Control by banks may adversely affect the investment incentives ofthe client firms.
Relying exclusively on short-term private debt can be costly
because decisions about the roll-over or calling of the debt andliquidation will be dominated by banks (Diamond, 1993).
Short-term bank loans (to better known firms) give littleincentive to monitor the borrower, since the bank can liquidate
the firm at any early sign of financial distress. Long-term debtwith covenants may give banks stronger incentives to monitor
(Rajan and Winton, 1995).
More seriously, the information acquired by a bank as part of
an ongoing relationship can create an "information monopoly"
or hold-up problem, in that it is costly for the borrower toswitch lenders (Rajan, 1992: and Sharpe, 1990). Borrowing
from public markets or multiple bank relationships mitigatesthe hold-up problem (Rajan, 1992; Hoshi, Kashyap, and
Scharfstein, 1993; and Bolton and Scharfstein, 1996).
On the basis of these characteristics of bank debt compared with publicdebt, many theoretical and empirical studies investigate equilibrium
corporate financing patterns.
o More risky firms (with a sufficiently high demand for flexiblefinancing) tend to use bank debt; while safer firms tend to financefrom the bond market (avoiding higher cost of financing, Bolton and
Freixas, 2000).
o Firms with large information asymmetries and agency costs for debt
depend more on bank debt: these include smaller firms, firms with ahigher proportion of intangible assets (where it is more difficult to
value assets); and firms with greater growth opportunities.
o Young firms and older firms with poor performance whose ratings are
too low for reputation effects to eliminate moral hazard (but highenough for monitoring to substantially reduce moral hazard) tend to
use more debt (Diamond, 1991).
o Bank debt and public debt are complementary, as bank monitoringcreates a public good that reduces the cost of issuing public debt
(Gorton and Haubrich, 1987; Fama, 1985).
8/14/2019 BANKING BUSINESS STRATIGIES.docx
5/25
Scope of the relationship. The accuracy of information about corporateclients is increased through interactions in other financial services. The fixed
cost of producing information about a firm can be spread over multipleproducts. By handling deposit accounts, the operation of settlement
accounts, and foreign exchange transactions, banks acquire goodinformation about their cash flows, liquidity situations, business partners,
and the nature of their businesses. The scope is also important because the
relationship (and the incentives to produce relationship-specific information)may be continued even when firms no longer rely on bank loans.Extent of multiple-bank relationships. Borrowing from a single lender,
or loan concentration, is considered to represent a strong relationshipbanking compared with multiple-banking. This is so because the level of
mutual commitment is high (smaller freerider problem) and the scope of the
relationship is also likely to be large in a single bank relationship. However,there is a risk that the firm will be informationally captured by the bank. The
firm cannot easily turn to other financing sources because other potentiallenders and investors have little information about it.
Relationship and stages of monitoring
Relationship financing represents an implicit commitment by banks foradditional financing to liquidity-constrained or financially distressed firms
contingent on their viability in expectation of various rents to the banks(Aoki and Din, 1997).1For any corporate client, relationship banking
involves information production through stages of monitoring. And there are
Ariga, Shima, Hutagami, and Kawaguchi (1994), looking at publicly-heldJapanese corporations and banks in the 1980s, find that bank lending
concentrates on companies whose default risk is high with low averagestock return and high volatility. Houston and James (1996), however, findthat firms with smaller size and lower leverage borrowed more among
publicly-traded American firms. They also find that firms with high growthopportunities and intangible assets or with a single bank lender borrowless, indicating the substantial cost of bank information monopolies (even
for larger corporations). For small firms, Petersen and Rajan (1994) findthat borrowing from a single lender increases the availability of credit.
Hosono (1997) finds that bank loan share to total debt had a negativerelationship with R&D expenditure (as well as profitability and size),
suggesting that the problem of information asymmetry is not serious forlisted machinery companies in Japan. Hoshi, Kashyap, and Scharfstein
(1993) find evidence of public financing being a way of insulating firms
from bank monitoring: low Q, owner-managed firms are more prone toissue public debt for publicly-traded Japanese manufacturing firms.
http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#1http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#1http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#1http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#18/14/2019 BANKING BUSINESS STRATIGIES.docx
6/25
strong complementarities among these stages. Aoki (1994) argues that
relational financiers tend to integrate all the stages of monitoring given thedifficulties of information transfer or complementarities among the tasks in
stages. Monitoring by stage includes: ex ante monitoring (evaluating the riskcharacteristics of a borrowers project before the initial financing); interim
monitoring (watching over the borrowing firms after the initial funding toensure that the borrowers can repay their debts); and ex post monitoring
(closely examining the borrowing firms when they show signs of distress andworking out a restructuring plan if necessary).
2.2. Incentives and Institutions in Relationship Banking
Relationship banking may be found anywhere around the world as a practiceby individual banks. Even in the market-oriented system of the United
States, commercial banks tend to practice relationship banking as a form ofcustomer relations, particularly for small and medium-sized firms.Nevertheless, relationship banking is most prevalent in Germany and Japan.Banks typically serve not only as creditors but also as shareholders and are
often represented on the client firms' boards of directors. German universalbanks provide wide-ranging services including proxy voting and securities
businesses, which helps them to maintain relationships with large reputablefirms. Japanese MBs have been known for their commitment and reputation
in delegated monitoring and extending assistances in times of financial
distress.
Proxy voting.German universal banks are rarely blockholders of corporate
shares.2
Most small shareholders designate a bank or a shareholderassociation to be their proxy. Universal banks have a competitive advantagein obtaining proxy voting power, as they provide the vast majority of retail
brokerage services, and custodial services are needed as most equity sharesare in bearer form.
Bank representation on the supervisory board.The supervisory boardof German corporations is in charge of supervising management and
appointing management board members. It consists of representatives ofshareholders and workers in fixed proportions. Having a banker on the
supervisory board may help reduce the problem of asymmetric informationand lead to better credit support in times of financial distress.
There may be a conflict of interest when a bank exercises votes in its
multiple roles as lender, adviser, equity holder, and voting agent (Baums
and Randow, 1995). Even though German universal banks dont seem toactively compete for proxy voting, they may actually be interested in
soliciting proxies for various reasons: to protect the interests of the creditor
http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#2http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#2http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#2http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#28/14/2019 BANKING BUSINESS STRATIGIES.docx
7/25
or the value of their own equity investments; or to secure a share of
corporate demand for financial services.
2.3. Merits and Demerits of Relationship Banking
Relationship banking can add value through its contractual features that,though mostly implicit, facilitate long-term relations (Ferri, Kang and Kim,
2001; Hoshi and Patrick, 2000).5
Monitoring costs are economized through reciprocal delegated
monitoring among credit suppliers, virtually making the loans of arelationship bank subordinate to other banks loans and public debt.
Inefficient closures of distressed but economically solvent firms areprevented, and cases of corporate financial distress are effectively
resolved.
Liquidity constraints are mitigated and business risks shared between
a relationship bank and its corporate clients over their cycles of cashflows and profits, since loans are made from a long-term perspective.
Potential conflicts of interest between the creditor bank and
shareholders are controlled through the holding of corporate shares bya relationship bank, easing the problem of asset substitution
(investment decisions biased towards projects that enrich stockholdersat the expense of debtholders; Prowse, 1990).
However, relationship banking is not without potential perils, which must be
minimized by sound business judgment and discipline (Ferri, Kang and Kim,
2001; Hoshi and Patrick, 2000).
Investment efficiency can be low due to soft-budget constraints. Thatis, given the good chance of loan renegotiations with their banks, firmswith a relationship bank may have weaker ex ante incentives to boosttheir effort (Bolton and Scharfstein, 1996).
A relationship bank might extract rents from its clients in the form ofhigher lending rates and others because they are informationally
captured and have difficulties turning to other financing sources.
Firms with a relationship bank may take too few risks in their
businesses, as the bank will discourage investment projects with bothhigh return and high risk.
The system of relationship banking is often supported by heavygovernment regulation of the financial markets, which delays capital
market (including the market for corporate control) development and
results in inefficiency in the banking sector.
http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#5http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#5http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#5http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#58/14/2019 BANKING BUSINESS STRATIGIES.docx
8/25
Given these merits and demerits, the effects of relationship banking on
borrowing cost, credit availability, and corporate performance cannot bepredicted ex ante. The average borrowing cost of a firm with a relationship
lender will be lower only when the savings on monitoring costs and thepositive effect of risk reduction more than compensate for the negative
effects of the lenders monopoly rent extraction. Credit availability is higheronly when the positive effects of reduced information asymmetry and
reduced risk (as well as soft-budget constraints) outweigh the negativeeffects of discouraged risktaking (lower investment and slower growth) andthe information monopoly by the bank. Likewise, the impact on corporateefficiency and performance will also be determined as a net effect of the
various positive and negative factors. Thus, we have to rely on empirical
studies to answer these and other related questions on relationship banking.
2.4. Banks' Holding of Equity Shares of Client Firms
Relationship banks in Japan and Germany tend to hold equity shares of theircorporate clients as a way of cementing the relationship. As already
mentioned, this alleviates potential conflicts of interest between creditors &equity holders and the associated problems of asset substitution, and under-
or over-investment (Jensen and Meckling, 1976; Myers, 1977). As residualclaimants as well as creditors, the banks have stronger incentives and
capacity to monitor client firms, and their incentives for the premature
liquidation of troubled firms are reduced.
However, some side effects can also be expected from a creditor bank that is
also a shareholder. First, if the client firms of a shareholder-bank facesmaller credit constraints, these soft-budget constraints can lead toinvestment inefficiency. Second, the shareholderbank might use its stronger
voice to distort corporate decisions to protect its own interests as a creditor(by discouraging risky but firm-value-increasing projects). This is a result of
the fact that banks' equity stakes in client firms are usually much smallerthan their stakes as creditors.6Finally, a shareholder-banks power over its
client firms can lead to the extraction of increased rents (Morck, Nakamura,
and Shivdasani, 2000).
Flath (1993) finds that the largest debt holders in Japanese keiretsu firmshold more stock if the firms borrow heavily, have weaker collateral, have
greater prospects of growth, or have high levels of spending on R&D oradvertising. This finding is consistent with the expectation that creditorbanks are more interested in holding the shares of client firms withpotentially high agency problems. These firms include those with relatively
high information asymmetry and temptations for asset substitution. He alsofinds that keiretsu firms in which debt holders hold more stock borrow more.
http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#6http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#6http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#6http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#68/14/2019 BANKING BUSINESS STRATIGIES.docx
9/25
Prowse (1995) also finds that banks' shareholdings are significantly
correlated with their lending to the firm especially for firms operating inrelatively risky environments. This complementarity between equity and
debt holding by banks can be interpreted as a result of banks' attempts toprotect their position as lenders, or the result of mitigated agency
problems.7According to a survey on cross-shareholding with financialinstitutions conducted on Japanese exchange-listed companies, few firms
regard the cross-shareholdings as beneficial in terms of financing (lowerborrowing interest rates or increased availability), but most expect supportduring financial distress and believe the cross-shareholding will be continuedin the future (Wakasugi, Omura, and Miyashita, 1994).
stratergy for banking sector devlopment
In 2006 the Strategy of the banking sector development for the period till the end of 2008 has been
developed and approved by the NBKR Board resolution No.16/4 dated May 31, 2006 and by the Coordination
Council on macro-economic and investment policy of the Kyrgyz Republic Government on August 16, 2006.
The forecast indices of financial intermediation are provided below:
December 31, 2006 December 31, 2007 December 31, 2008
Assets to GDP 24,8% 28,3% 30,6%
Credits to GDP 9,9% 11,8% 13,1%
Deposits to GDP 13,7% 15,7% 17,4%
Forecasted indices of financial intermediation as of the end of 2006 in the Strategy for the banking sector
development were achieved on the index assets to GDP and credits to GDP, whereas the index deposits to
GDP even exceeded the forecast one. As of the end of 2007, these forecast indices were achieved and on all indices
there was an excess of factual data over target one.
As of the end of September 2008, the forecast index of financial intermediation specified for the end of
2008, was already exceeded on the index credits to GDP (herewith by the end of 2008, this index may be
decreased), but the indices assets to GDP and deposits to GDP were behind the forecast ones. This fact
provokes concern and claims attention. Factual indices were as follows:
December 31, 2006 December 31, 2007 September 30,
2008
Assets to GDP 24,8% 30,1% 29,9%
Credits to GDP 9,9% 14,9% 14,9%Deposits to GDP 14,5% 16,3% 14,4%
In general all purposes and objectives, specified in the Strategy for the banking sector development for the
period till the end of 2008, were achieved. In particular, that document included a set of important tasks, aimed at:
Improvement of internal management system in commercial banks, formation of adequate system ofbanking risks management;
http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#7http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#7http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#7http://www.adbi.org/research-paper/2004/08/16/526.relationship.banking.corporate.governance/endnotes/page1.php#78/14/2019 BANKING BUSINESS STRATIGIES.docx
10/25
Improvement of investments security, enhancement of trust to commercial banks of the republic on thepart of the population and other creditors, creation of conditions for healthy competition
development;
Improvement of the banking system transparency, development of corporate governance in commercialbanks;
Prevention of transaction on income legalization (money laundering), received by illegal actions; Creation of favourable conditions for further development of the financial sector of the Kyrgyz
Republic;
Provision of macro-economic stability; Further development of thepayment system; Development of legal framework for banking activity and supervision; Development of new types of financial services.
Activity performed in 2006-2008 was mainly aimed at carrying out of the above mentions measures, which
as a whole contributed to further development of the banking sector and improvement of the financial intermediation
level.
Banking strategy and credit expansion
This paper takes on several questions about strategic behavior and systemic
outcomes in banking: What determines the limits to the asset growth of anindividual bank over the business cycle? Is there any connection between an
individual banks strategy and the behavior of the banking system as awhole and in particular, what are the macroeconomic effects of bank
behavior? And how does the stage of the business cycle affect bankingstrategy? To answer these questions, this paper:
Clarifies and extends a remark by Keynes in his Treatise on Money,concerning the relationship between individual-bank and banking industry
behavior in credit expansion.
Explores how to integrate the micro and macro levels in bank behavior soas to make explicit the mutual causality between banking-firm strategy and
aggregate outcomes. The key micro dimension introduced here is banksloan-making behavior.Examines banks strategic incentives in different
credit-expansion environments, to develop a clearer understanding of how
bank behavior affects business cycle dynamics. This paper shows that thebanks balance sheet is determined not only by its own strategic choices, but
also by the decisions and balance-sheet positions of other banks, as stressedby Keynes (1960, published originally in 1930). Reviving an approach
pioneered by Wallace and Karmel (1962), this paper makes these points by
disaggregating the variables that enter into the simple money multiplier.This opens the way to an integration of the micro and macro levels inKeynesian banking-system analysis, and sheds light on the links between
banking strategy and business-cycle dynamics.
8/14/2019 BANKING BUSINESS STRATIGIES.docx
11/25
2. Keynesian and Post Keynesian ideas about banking:
One of the most fertile fields of analysis opened by Keynes and the PostKeynesian economists is the study of the relations between banks andeconomic activity. From the Treatise on Money, to the General Theory, to
the controversy with Robertson and Ohlin after the publication of theGeneral Theory, Keynes pointed out the importance of the banking system in
supporting investment. Following Keynes, Minsky (1982, 1986) developedhis financial fragility hypothesis. Minskys writings highlight the relation
between the banking system and the trend to financial fragility during theupturn of the business cycle, illustrating how crisis can occur as an
endogenous result of these units own economic dynamics. Minskys writings,
and many others by heterodox and orthodox theorists, assert that banks arespecial, in that their activities are both crucial in the economy and non-
substitutable with other economic units. This suggests that bank behavior isimportant in macroeconomic outcomes; and this in turn poses an analytical
challenge: how to connect micro and macroeconomic analysis. Most studiesin recent years have explored the role of bank behavior in macro outcomes
by investigating the actions of a representative bank. This is analyticallyattractive, as it suggests that insights from microfoundational frameworks
can be generalized to the economy as a whole without taking on the distinctchallenges of aggregate analysis.1
One partial exception involves the recent literature on banking contagioneffects, which has been spurred by recurrent global financial crises. Modeling
contagion effects necessarily requires models with multiple banks. In most of
the heterodox and orthodox work on contagion, multiple banks affect oneanother through linkages that involve either asymmetric information orperceived uncertainty.2
22.1. Keynes ideas about banking
Abstracting from linkages that work through information and confidencechannels, however, banks and bank strategies are linked through the very
structure of credit creation. Keynes himself noted this connection. Keynesnever wrote an extended tract on banking. Nonetheless, his works over the
years are littered with occasional comments and analyses of banksbehavior. One of his later papers contains the comment that banks hold the
key position in the shift of the economic system from a lower to a higherlevel of economic activity (Keynes, 1973). This point had not been developedmuch in the General Theory (GT). The GT presented a schema forunderstanding the extent of economic activity at any point in time, using a
comparative static approach. The GT appreciated the impact of real time anduncertainty on decision-making, but paid little attention to the dynamics of
8/14/2019 BANKING BUSINESS STRATIGIES.docx
12/25
movement through time. Discussions of financial issues in the GT thus focus
on the links between the liquidity role of money, investment decisions, anduncertainty. What Keynes meant by his relatively cryptic post-GT comment
is perhaps revealed in a passage in the Treatise on Money concerning banksfinancing of investment activity. There, Keynes wrote that banks volume of
reserves largely depends on other banks finance policies that is, on thegrowth rate of other banks loans. Consequently, an individual bank can
grow much faster than other banks only if it increases its market share oftotal banking-sector deposits. But this banks rapid-growth strategy will, atthe same time, reduce its reserves and strengthen other banks lendingcapacity by providing them with more available funds (free reserves). As
Keynes (1960, p. 26-7) stated: There can be no doubt that, in the most
convenient use of language, all deposits are created by the bank holdingthem. It is certainly not the case that the banks are limited to thatdepositors should come on their own initiative bringing cash or checks. But it
is equally clear that the rate at which an individual bank creates deposits on
its own initiative is subject to certain rules and limitations;- it must keepstep with the other banks and cannot raise its own deposits relatively to the
total deposits out of proportion to its quota of the banking business of thecountry. Finally, the pace common to all the member banks is governed by
the aggregate of their reserve resources. This analytical point finds an echoin Keynes famous commentthat bankers would rather hang together than
hang separately. These interrelated points were registered well before theGT was 3written; and in any case, Keynes post-GT comment about the role
of banks in determining the level of economic activity does not refer back tothem explicitly.
Post Keynesian ideas about banking
The problem of banking and its impact on economic outcomes has received
substantial attention among post Keynesian economists. Tow lines ofthought have predominated. One concerns banks role in business cycles, the
other banks role in money endogeneity.
The post keyesian approach to banking and financial intermediation in
business-cycle fluctuation views the banking system as a channel throughwhich agents perceptions of risks, and hence business-cycle fluctuation, both
influence the forecasts and confidence of bank and non bank firmsconcerning returen from investment. In a monetary economy, even the best
forecasts of the future provides agents with no degree of certainly aboutwhat decision will best reflect their preferences.
8/14/2019 BANKING BUSINESS STRATIGIES.docx
13/25
The Concept of Branch BankingBank Branch is considered as one of the most important channel of the bank and is generally the most preferred
channel from the customer's point of view. The bank branch is referred to as the face of the bank since the customer
can visit personally and meet and interact with the bank branch officials and avail the various services offered by the
bank.
Branch Banking Concept
In reality, the bank branch is the sales and servicechannel of a bank and the bank branch employees are generally
responsible for both sales and service of bank's products.
Sales in terms of branch bankingcould be of any of the bank's deposits, products, gold, retail or other investment
products of other approved organizations, such as life insurance, general insurance, and mutual fund.
The most common examples of deposit products of a bank branch are savings bankaccount, current accounts, fixed
deposit accounts, and recurring deposit accounts. The customers or the prospects desiring to open any of these
accounts have to fill an Account Opening Form (AOF) and submit the specified documents in order to meet the Know
Your Customer (KYC) guidelines issued by the Reserve Bank of India (RBI)
The examples of a bank's asset products include personal loan, home loan, car loan, and credit card. When acustomer approaches the branch for any of the loan products of the bank, the branch employee takes down the
contact details of the customer and the record of the lead generated are kept with the bank for follow up action.
Sometimes, such leads are escalated to outsourced agencies, such as Direct Sales Agent (DSA) or Direct Marketing
Agent (DMA) of the bank. These agencies, in turn, get in touch with the customers for obtaining the necessary
documents. The credit decision whether to sanction or not the various loans to the customers is taken by the bank
officials in the credit sanctioning department of the bank.
In most of the banks, the front office activities that involve customer interaction are handled at the branches of Banks,
for instance, cash receipts and payments, issue of DD or lockers. The back office activities, such as clearing and
account opening may be centralized at a different location away from the branch. Activities like clearing centralize
payments of drafts and other instruments, which are related to the local area, may be grouped in to one centre.
Certain other activities that are common across centres may be performed at another place for the purpose of
achieving efficiency of operation and controlling costs.
Services provided at the Bank Branches
Several services are offered to customers by the bank branches. The following list only covers the main services
offered by most of the branches:
1. Account opening
2. Cash receipts
3. Cash payments
4. Cheque book issue5. Stop payment of cheques
6. Closure of fixed deposits and premature withdrawals
7. Issue of DDs and banker's cheque
8. Safe deposit lockers
9. Foreign exchange services
10. Gold retail
11. DeMat services
http://www.lopol.org/article/the-concept-and-basic-functions-of-branch-bankinghttp://www.lopol.org/article/the-concept-and-basic-functions-of-branch-banking8/14/2019 BANKING BUSINESS STRATIGIES.docx
14/25
12. Acceptance of clearing cheques
13. Deliverables, such as cheque books, debit cards, PINs and passwords
14. Acceptance of queries and complaints
15. Investment services
16. Standing instructions
17. Retail loan products
Despite the emergence of several other delivery channels external to the bank, branch banking still remains its utility.
This might be due to the advantage of the location of branches enjoyed by the customer. Also, in the current state of
development the alternate channels have limited service capabilities which make a branch an extremely useful
service and delivery outlet. A branch is capable of handling diverse requirements of a customer in addition to
projecting the human feeling arising out of the personal relationship with the branch officials.
Customer relationship management in india
sectors and have emerged as an important business strategy in today'scompetitive environment in companies. It has been viewed as a processaimed at collecting customer data, find profiles of customers and use the
customer knowledge in specific marketing activities. It is a discipline whichenables the companies to identify and target their most profitable
customers. CRM implementation is on way in many Indian banks. However
such implementations are not without hiccups. This paper takes a look at thestatus of CRM in Axis bank operating in Lucknow. CRM involves new and
advance marketing strategies which not only retain the existing customersbut also acquire new customers and also analyzes their efforts in terms of a
strategic framework and points out some of the deviations that haveoccurred in the implementations. It has been invented as a unique technique
capable of remarkable changes in total output of companies. Therefore, thepaper reviews pertinent literature on CRM in the banking sector. Then, the
methodology employed to collect and analyze data is outlined. Then thefindings are discussed, implications are described and the paper further
makes Indian banking sector. Directions for future research are alsoproposed in the arena of customer relationship management and banking
sector. Increasing competition, proliferating customer contact, intensifyingattacks on customer information, rising customer expectations, identifyingnew marketing opportunities etc. have made Banking Sector to face superior
challenges than ever before in executing their Customer managementstrategies. Every organization believes in the significance of knowing thecustomer. The current economic environment and financial crisis has mostprobably led many financial services
Bank competition
This report examines the interplay between banking competition and financial stability, taking into account the
experiences of the recent global crisis and the policy response to date.
8/14/2019 BANKING BUSINESS STRATIGIES.docx
15/25
Policy makersare faced with striking a balance between sometimes conflicting objectives. Banks need to have
sufficient capital and be large and diversified enough to absorb major shocks, whilst remaining sufficiently competitiveto provide consumers with reasonably-priced services.
Pre-crisis financial deregulation allowed banks to change their business models in response to competition in a way
that has proven negative for financial stability.
The policy response to the global financialcrisis to date has not adequately addressed some of the fundamental
problems affecting the banking sector and thus the risks to financial stability.
Part 1: Competition in retail banking and financial stabilityStudies exploring the complex interactions between competition and stability in retail and commercial bankingcome to
the ambiguous conclusion that competition can be both good and bad for stability. Policy measures that strike an
acceptable balance remain elusive.
Part 2: Competition in derivative markets and financial stability
Today, the large banks that encompass the global derivatives business combine retail and commercial banking
with investment bankactivities. Product innovationutilising derivatives and gambling in high-risk trades has become akey driver of profitability within banks but this leaves them exposed to huge risks which in turn pose a threat to
global financial stability. Policy makers urgently need to address this issue.
Part 3: Bank competition and government guarantees
Using government guarantees to avoid systemic fallout from the crisis distorted competition between banks
and further reinforced the perception that systematically important banks enjoy implicit guarantees. To reduce thisperception, policy reforms must include provisions for the orderly failure of financial institutions, whatever their size,
level of interconnectivity and complexity
Product service
Our Bank offers a number of varied products under Deposits, Advances to suit the needs of all types of customers. Details of
products are available in each category under this head. We offer other services for our customers like Cash Management
Services, RTGS,NEFT for electronic fund transfer and speed clearing.
We also have various delivery channels like ATM, Internet Banking, SMS Banking offering specialised products and services at
our branches which have been 100% brought under Centralised Banking Solution.
Introduction of HDFC bank
HDFC Bankwas incorporated in 1994by Housing Development FinanceCorporation Limited(HDFC),
India's largest housing finance company. It was among the first companies to receive an 'in principle'
approval from theReserve Bank of India (RBI)to set up a bank in the private sector. The Bank started
operations as a scheduled commercial bank in January 1995 under the RBI's liberalisation policies.
On 26 February 2000Times BankLimited owned byThe Times Group(Bennett, Coleman & Co.) was
merged with HDFC Bank Ltd. This was the first merger of two private banks in India. Shareholders of
Times Bank received 1 share of HDFC Bank for every 5.75 shares of Times Bank.
http://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/w/index.php?title=Times_Bank&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Times_Bank&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Times_Bank&action=edit&redlink=1http://en.wikipedia.org/wiki/The_Times_Grouphttp://en.wikipedia.org/wiki/The_Times_Grouphttp://en.wikipedia.org/wiki/The_Times_Grouphttp://en.wikipedia.org/wiki/The_Times_Grouphttp://en.wikipedia.org/w/index.php?title=Times_Bank&action=edit&redlink=1http://en.wikipedia.org/wiki/Reserve_Bank_of_India8/14/2019 BANKING BUSINESS STRATIGIES.docx
16/25
On 23 May 2008 HDFC Bank acquiredCenturion Bank of Punjabtaking its total branches to more than
1,000. The amalgamated bank emerged with a base of about Rs. 1,22,000 crore and net advances of
about Rs.89,000 crore. The balance sheet size of the combined entity is more than Rs. 1,63,000 crore
Wholesale banking services
From Blue-chip companies to small & mid-sized corporates and agri-based businesses in India, the Bankprovides a wide range of commercial and transactional banking services, including working capital
finance, trade services, transactional services, cash management, etc. The bank is also a leading
provider of the above services to its corporate customers, mutual funds, stock exchange members and
banks.
Retail banking services
HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA
(Visa Electron)and issues the Master Card Maestro debit card as well. The Bank launched its credit card
business in late 2001. By March 2009, the bank had a total card base (debit and credit cards) of over 13
million. The Bank is also one of the leading players in the "merchant acquiring" business with over 70,000
Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. The Bank ispositioned in various net based B2C opportunities including a wide range of Internet banking services for
Fixed Deposits, Loans, Bill Payments, etc.
Treasury
Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local
Currency Money Market & Debt Securities, and Equities. These services are provided through the bank's
Treasury team. To comply with statutory reserve requirements, the bank is required to hold 25% of its
deposits in government securities. The Treasury business is responsible for managing the returns and
market risk on this investment portfolio.
Distribution network
An HDFC Bank Branch
HDFC Bank is headquartered in Mumbai and the Banks distribution As of June 30, 2013, the Banks
distribution network was at 3,119 branches and 11,088 ATMs in 1,891 cities / towns an increase of 555
branches and 1,379 ATMs over 2,564 branches and 9,709 ATMs in 1,416 cities / towns as of June 30,
2012.
HDFC Bank Limited
HDFC Bank Limited(BSE:500180,NSE:HDFCBANK,NYSE:HDB)is an Indianfinancial
servicescompany based inMumbai, Maharashtrathat was incorporated in August 1994. HDFC Bank is
the fifth largest bank in Indiaby assets and the largest bank bymarket capitalizationas of 1 November
2012. The bank was promoted by theHousing Development Finance Corporation,a premier
housing finance company(set up in 1977) of India. As on August 2013, HDFC Bank has 3,119 branches
and 11,088 ATMs, in 1,891 cities in India, and all branches of the bank are linked on an online real-time
basis.[3]As of December 2012 the bank had balance sheet size of Rs. 3837 billion. For the fiscal year
http://en.wikipedia.org/wiki/Centurion_Bank_of_Punjabhttp://en.wikipedia.org/wiki/Centurion_Bank_of_Punjabhttp://en.wikipedia.org/wiki/Centurion_Bank_of_Punjabhttp://en.wikipedia.org/wiki/Visa_Electronhttp://en.wikipedia.org/wiki/Visa_Electronhttp://en.wikipedia.org/wiki/Visa_Electronhttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=500180http://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=500180http://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=500180http://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=HDFCBANK§ion=7http://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=HDFCBANK§ion=7http://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=HDFCBANK§ion=7http://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://www.nyse.com/about/listed/lcddata.html?ticker=hdbhttp://www.nyse.com/about/listed/lcddata.html?ticker=hdbhttp://www.nyse.com/about/listed/lcddata.html?ticker=hdbhttp://en.wikipedia.org/wiki/Financial_servicehttp://en.wikipedia.org/wiki/Financial_servicehttp://en.wikipedia.org/wiki/Financial_servicehttp://en.wikipedia.org/wiki/Financial_servicehttp://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Housing_Development_Finance_Corporationhttp://en.wikipedia.org/wiki/Housing_Development_Finance_Corporationhttp://en.wikipedia.org/wiki/Housing_Development_Finance_Corporationhttp://en.wikipedia.org/wiki/HDFC_Bank#cite_note-3http://en.wikipedia.org/wiki/HDFC_Bank#cite_note-3http://en.wikipedia.org/wiki/HDFC_Bank#cite_note-3http://en.wikipedia.org/wiki/HDFC_Bank#cite_note-3http://en.wikipedia.org/wiki/Housing_Development_Finance_Corporationhttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Financial_servicehttp://en.wikipedia.org/wiki/Financial_servicehttp://www.nyse.com/about/listed/lcddata.html?ticker=hdbhttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=HDFCBANK§ion=7http://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=500180http://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Visa_Electronhttp://en.wikipedia.org/wiki/Centurion_Bank_of_Punjab8/14/2019 BANKING BUSINESS STRATIGIES.docx
17/25
2011-12, the bank has reported net profit of 5167.07crore(US$790 million), up 31.6% from the
previous fiscal.
On 14 March 2013 an online magazine named Cobrapost.com released video footagefromOperation
Red Spidershowing high ranking officials and some employees of HDFC bank willing to turn black money
into white which is violation ofMoney Laundering Control Act.Following this thegovernment of
IndiaandRBIhave ordered an inquiry.[4][5][6]
The enquiry confirmed violation of KYC (Know YourCustomer) norms by HDFC Bank. A penalty of Rs 45 million was imposed on the bank by RBI .[7]
HDFC merchant services
HDFC Bank Ltd was promoted in the year 1994 by the premier housing finance company ofthe country, HDFC Ltd. The Bank commenced operations as a Scheduled Commercial Bank
in January 1995.
Today the Bank has a nationwide network of over 1725 branches and 4232 ATMs spread
over 779 towns and cities across India
The Bank's American Depository Shares (ADS) are listed on the New York Stock Exchange(NYSE) and the Global Depository Receipts (GDRs) are listed on Luxembourg Stock
Exchange. The Bank has been bestowed with numerous awards and accolades from top
national and international agencies & magazines.
HDFC Bank comprises of a dynamic and enthusiastic team determined to accomplish thevision of becoming a World-class Indian bank. Our business philosophy is based on our four
core values - Customer Focus, Operational Excellence, Product Leadership and People. We
believe that the ultimate identity and success of our bank will reside in the exceptionalquality of our people and their extraordinary efforts. We are committed to hiring,
developing, motivating and retaining the best people in the industry
The Banks objective is to build sound business franchises across distinct businesses so as tobe a preferred provider of banking services for target retail and wholesale customer
segments. We are committed to healthy growth in profitability while ensuring the highest
levels of ethical standards, professional integrity, corporate governance and regulatorycompliance.
Sales Manager (Merchant Aquiring) - Merchant
Services(Delhi)
Responsibilities:
Achieve the targets across multiple metrics like:
Lead a Sales Team
http://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Operation_Red_Spiderhttp://en.wikipedia.org/wiki/Operation_Red_Spiderhttp://en.wikipedia.org/wiki/Operation_Red_Spiderhttp://en.wikipedia.org/wiki/Operation_Red_Spiderhttp://en.wikipedia.org/wiki/Money_Laundering_Control_Acthttp://en.wikipedia.org/wiki/Money_Laundering_Control_Acthttp://en.wikipedia.org/wiki/Money_Laundering_Control_Acthttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/HDFC_Bank#cite_note-Money_laundering_case:_ICICI_bank_suspends_18_employees-4http://en.wikipedia.org/wiki/HDFC_Bank#cite_note-Money_laundering_case:_ICICI_bank_suspends_18_employees-4http://en.wikipedia.org/wiki/HDFC_Bank#cite_note-India.27s_Private_Banks_Under_Scanner:_Is_RBI_to_be_Blamed_for_Money_Laundering.3F-6http://en.wikipedia.org/wiki/HDFC_Bank#cite_note-India.27s_Private_Banks_Under_Scanner:_Is_RBI_to_be_Blamed_for_Money_Laundering.3F-6http://en.wikipedia.org/wiki/HDFC_Bank#cite_note-7http://en.wikipedia.org/wiki/HDFC_Bank#cite_note-7http://en.wikipedia.org/wiki/HDFC_Bank#cite_note-7http://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/HDFC_Bank#cite_note-7http://en.wikipedia.org/wiki/HDFC_Bank#cite_note-India.27s_Private_Banks_Under_Scanner:_Is_RBI_to_be_Blamed_for_Money_Laundering.3F-6http://en.wikipedia.org/wiki/HDFC_Bank#cite_note-Money_laundering_case:_ICICI_bank_suspends_18_employees-4http://en.wikipedia.org/wiki/HDFC_Bank#cite_note-Money_laundering_case:_ICICI_bank_suspends_18_employees-4http://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Money_Laundering_Control_Acthttp://en.wikipedia.org/wiki/Operation_Red_Spiderhttp://en.wikipedia.org/wiki/Operation_Red_Spiderhttp://en.wikipedia.org/wiki/Crore8/14/2019 BANKING BUSINESS STRATIGIES.docx
18/25
Aquiring new Customers for the Credit Cards swipe machines- EDC
Machines
Activating Nil merchants
Reducing Merchant attrition
Cross Sell the EDC - Machines
Managing productivity of the Sales team
Requirements:
Required skill(s): Merchant Services, Credit Cards, Relationship
Management. Merchandisor Management,Rich experience in Banking Industry.
Candidate must possess at least a Master in Business Admin/PostGraduate Diploma in Business Administration/Post Graduate Program
in Management in any field. At least 1 year(s) of working experience in the related field is required
for this position.
Preferably Managers specializing in Marketing/Business Development
or equivalent. Job role in Business Development or BrandManagement.
Features Enjoy a free monthly Cash Deposit limit* at your home branch that is four times the amount swiped at the
HDFC BankEDC Machinelinked to the Merchant Advantage Plus Current Account. Get free Regular and Business Debit Cards with your Merchant Advantage Plus Current Account.
Pay your vendors and suppliers across the country using multipleremittanceoptions like local, at-parcheques, Demand Drafts, Pay Orders,RTGSfor greater convenience and reduced cost.
Enjoy 24-hour access toNetBanking,PhoneBanking,ATMsandMobileBanking.Know moreApply Online
EligibilityEligible for
Resident Individual Hindu Undivided Family
Sole Proprietorship Partnership Limited company
Trust Association/Club/ Society
Limited Liability Partnership Merchant establishment with HDFC bank
Business strategy We aspire to be the world's best international bank, leading the way in
Asia, Africa and the Middle East.
http://www.hdfcbank.com/personal/product/productdetails/merchant-advantage-current-account/gts8mioshttp://www.hdfcbank.com/personal/product/productdetails/merchant-advantage-current-account/gts8mioshttp://www.hdfcbank.com/personal/product/productdetails/merchant-advantage-current-account/gts8mioshttp://www.hdfcbank.com/personal/product/productdetails/merchant-advantage-current-account/gts8mioshttp://www.hdfcbank.com/personal/product/productdetails/merchant-advantage-current-account/gts8mioshttp://www.hdfcbank.com/personal/product/productdetails/merchant-advantage-current-account/gts8mioshttp://www.hdfcbank.com/personal/making-payments/fund-transfer/rtgs-funds-transferhttp://www.hdfcbank.com/personal/making-payments/fund-transfer/rtgs-funds-transferhttp://www.hdfcbank.com/personal/making-payments/fund-transfer/rtgs-funds-transferhttp://www.hdfcbank.com/sme/ways-to-bank/bank-online/netbankinghttp://www.hdfcbank.com/sme/ways-to-bank/bank-online/netbankinghttp://www.hdfcbank.com/sme/ways-to-bank/bank-with-your-phone/phonebankinghttp://www.hdfcbank.com/sme/ways-to-bank/bank-with-your-phone/phonebankinghttp://www.hdfcbank.com/personal/ways-to-bank/bank-in-person/atmshttp://www.hdfcbank.com/personal/ways-to-bank/bank-in-person/atmshttp://www.hdfcbank.com/personal/ways-to-bank/bank-in-person/atmshttp://www.hdfcbank.com/sme/ways-to-bank/bank-with-your-phone/smsbankinghttp://www.hdfcbank.com/sme/ways-to-bank/bank-with-your-phone/smsbankinghttp://www.hdfcbank.com/sme/ways-to-bank/bank-with-your-phone/smsbankinghttp://www.hdfcbank.com/personal/product/productdetails/merchant-advantage-current-account/gts8mioshttp://www.hdfcbank.com/personal/product/productdetails/merchant-advantage-current-account/gts8mioshttp://www.hdfcbank.com/personal/product/productdetails/merchant-advantage-current-account/gts8mioshttp://www.hdfcbank.com/personal/product/productdetails/merchant-advantage-current-account/gts8mioshttp://www.hdfcbank.com/sme/ways-to-bank/bank-with-your-phone/smsbankinghttp://www.hdfcbank.com/personal/ways-to-bank/bank-in-person/atmshttp://www.hdfcbank.com/sme/ways-to-bank/bank-with-your-phone/phonebankinghttp://www.hdfcbank.com/sme/ways-to-bank/bank-online/netbankinghttp://www.hdfcbank.com/personal/making-payments/fund-transfer/rtgs-funds-transferhttp://www.hdfcbank.com/personal/product/productdetails/merchant-advantage-current-account/gts8mioshttp://www.hdfcbank.com/personal/product/productdetails/merchant-advantage-current-account/gts8mios8/14/2019 BANKING BUSINESS STRATIGIES.docx
19/25
We focus on building deep and long-standing relationships with our clientsand customers and constantly look to improve the quality of our productsand services.
Our success In the last ten years we have reported record income and profits. Twenty-
six of our markets now deliver over US$100 million of income. Listed on the London, Hong Kong and Mumbai stock exchanges, we rank
among the top 20 companies in the FTSE-100 by market capitalisation. Our focus on basic banking Our success is a result of being obsessed with the basics of banking -
balancing the pursuit of growth with a disciplined management of costsand risks and keeping a firm grip on liquidity and capital.
Through our international network and expertise, we facilitate trade acrossmarkets, enable multinational clients to conduct complex businesstransactions and service the needs of an increasingly international
consumer base.
Five Successful Bank Business Strategies Banks make money based on the total deposits maintained and loans issued. Consumers have many banks
andcredit unions to choose from, all competing for their checking, savings and lending needs. In highly
competitive markets, banks must utilize strategies for acquiring and retaining assets from new and existing
customers.
Community Marketing
Banks range in size and capabilities. Small banks may only have one or two branch offices whereas
largecommercial banks may have thousands of branches across the nation. Regardless of the size of the
bank, each branch needs to tailor local marketing strategies to serve the immediate community. Consumers
bank in a place where they feel safe and comfortable. This means tellers and account representatives who
speak English as well as any prominent language in the community. By having branch managers look at the
local community needs, the bank can attract a larger percentage of the target market.
Ads by BobyLyricsAd Options
Product Bundling
A successful strategy employed by all banks is product bundling, such as offering a free checking
account for those who open a savings account. Because this has become common practice, successful
strategies implement creative bundling solutions. An automatic home line of credit with a mortgage
refinance might be a solution when interest rates are low or the community has a large percentage of
consumers looking to consolidate debt. Pre-Approved Products
Consumers are more likely to say yes to something when they already know they are approved for it. Banks
can review existing accounts to determine positive banking and credit trends in customers. Those identified
with positive trends and credit history are sent "pre-approval" letters for credit cards, lines of credit or
mortgages.
Teller Referrals
http://lvs.xstreamjs.net/sd/apps/adinfo-1.0/index.html?bj1Cb2J5THlyaWNzJmg9bHZzLnhzdHJlYW1qcy5uZXQmYz1ncmVlbiZvPXdzYXImZD0mdD0xOzI7Mzs0OzU7Njs3Ozg7OTsxMDsxMTsxMjsxMzsxNCZhPTEwNjAmcz0xMDkwJnc9c21hbGxidXNpbmVzcy5jaHJvbi5jb20mYj1iZDImcmQ9JnJpPQ==http://lvs.xstreamjs.net/sd/apps/adinfo-1.0/index.html?bj1Cb2J5THlyaWNzJmg9bHZzLnhzdHJlYW1qcy5uZXQmYz1ncmVlbiZvPXdzYXImZD0mdD0xOzI7Mzs0OzU7Njs3Ozg7OTsxMDsxMTsxMjsxMzsxNCZhPTEwNjAmcz0xMDkwJnc9c21hbGxidXNpbmVzcy5jaHJvbi5jb20mYj1iZDImcmQ9JnJpPQ==http://lvs.xstreamjs.net/sd/apps/adinfo-1.0/index.html?bj1Cb2J5THlyaWNzJmg9bHZzLnhzdHJlYW1qcy5uZXQmYz1ncmVlbiZvPXdzYXImZD0mdD0xOzI7Mzs0OzU7Njs3Ozg7OTsxMDsxMTsxMjsxMzsxNCZhPTEwNjAmcz0xMDkwJnc9c21hbGxidXNpbmVzcy5jaHJvbi5jb20mYj1iZDImcmQ9JnJpPQ==8/14/2019 BANKING BUSINESS STRATIGIES.docx
20/25
Bank tellers interact with the majority of the bank clientele. Tellers perform the day-to-day transactions,
such as cashing checks, making deposits or transferring money. Successful banks consistently train tellers
to look for opportunities to cross-sell bank products and refer customers to the right person. A teller may
see a regular customer cash a dividend check and refer the person to the investment specialist. The teller
may see a high savings balance and suggest a higher -earning time certificate. Smart banks reward top
referring tellers to entice them to take the time to suggest a new product or service.
Premier Services
Premier services are designed to attract high net worth bank clientele. High net worth clients often have
different needs as well as expectations. By offering a select set of private bankers to personally handle all
transactions and account reviews, client trust increases. Service is often better with private bankers able to
focus on finding the best solutions to fit complete financial scenarios.
Product Diversification Strategyby Ian Linton, Demand Media
A product diversification strategy can help your business grow.
Related Articles
Retail Product Strategy
The Purpose of Product Attribute Leadership Strategy
Elements of Product Strategy
How Does a Multinational Company Use the Diversification Strategy in Decision Making?
What Are the Benefits of Concentric Diversification?
The Advantages of a Product Differentiation Strategy
A product diversification strategy is a form of business development. Small businesses that implement the strategy
can diversify their product range by modifying existing products or adding new products to the range. The strategy
provides opportunities to grow the business by increasing sales to existing customers or entering new markets.
Objectives
http://smallbusiness.chron.com/retail-product-strategy-12767.htmlhttp://smallbusiness.chron.com/purpose-product-attribute-leadership-strategy-51048.htmlhttp://smallbusiness.chron.com/elements-product-strategy-11630.htmlhttp://smallbusiness.chron.com/multinational-company-use-diversification-strategy-decision-making-19293.htmlhttp://smallbusiness.chron.com/benefits-concentric-diversification-36784.htmlhttp://smallbusiness.chron.com/advantages-product-differentiation-strategy-17691.htmlhttp://smallbusiness.chron.com/DM-Resize/photos.demandstudios.com/getty/article/18/16/87699721.jpg?w=600&h=600&keep_ratio=1https://plus.google.com/u/0/102305074761221874261/?rel=authorhttp://smallbusiness.chron.com/DM-Resize/photos.demandstudios.com/getty/article/18/16/87699721.jpg?w=600&h=600&keep_ratio=1https://plus.google.com/u/0/102305074761221874261/?rel=authorhttp://smallbusiness.chron.com/advantages-product-differentiation-strategy-17691.htmlhttp://smallbusiness.chron.com/benefits-concentric-diversification-36784.htmlhttp://smallbusiness.chron.com/multinational-company-use-diversification-strategy-decision-making-19293.htmlhttp://smallbusiness.chron.com/elements-product-strategy-11630.htmlhttp://smallbusiness.chron.com/purpose-product-attribute-leadership-strategy-51048.htmlhttp://smallbusiness.chron.com/retail-product-strategy-12767.html8/14/2019 BANKING BUSINESS STRATIGIES.docx
21/25
Set your objectives for product diversification. You can take a defensive approach with the objective to protect your
business if, for example, demand drops for your products or you face strong competition. This might be important
for news companies that have built their business on a single product. Declining market share or revenue could
threaten the survival of your business. Alternatively, you can take an offensive approach where you see a strong
market opportunity but cant take advantage of it with your existing products.
Approach
You can approach product diversification in a number of ways. You can modify your existing products so that the
new version appeals to a different group of customers. If you make tools for building professionals, for example,
consider developing a version that appeals to amateur users. An alternative strategy is to offer new products to your
existing customers. A retailer of fruit and vegetables could introduce a range of health foods that appeal to the same
customer group. Another approach is to add a new product to your range, aimed at a new group of customers.
Source
Product diversification can be an expensive, time-consuming task. Analyze whether you have the resources to
develop new products or modify existing ones. If you dont want to develop products internally, consider other
options such as distributing products from other suppliers, taking out licensing agreements to manufacture or supplyproducts developed by other companies, or setting up alliances or partnerships with other companies to jointly
develop or market products. If your company is in a strong financial position, consider acquisitions to gain access to
products that align with your diversification strategy.
Resources
Assess the resources you need to implement your strategy. Set a budget for the diversification program to cover
development and marketing costs. Consider the supply chain implications of your new products. You may have to
find new suppliers and build effective working relationships with them. Review your sales and marketing resources.
Does your team have the product and market knowledge to achieve your sales targets? If you plan to manufacture
the product yourself, do you have the production capacity or will you need to invest in new plant or hire more staff?
If your new product sells through retail outlets, can you access a suitable distribution network?
Risk
Product diversification is a high risk strategy, so its important to assess both the opportunity a nd the level of risk.
Focus on product diversification that represents an attractive opportunity for your business, such as an instance
where the market is growing and no other company is meeting the demand. Provided the costs of developing and
marketing the new product allow you to earn a profit, this is an opportunity to pursue. Risk increases if the new
product might take sales away from your existing products or if the cost of market entry is very high. In those
scenarios, the benefit to your company may not offset the risk.
Research
Before committing resources to product diversification, carry out research to ensure that you understand the needs ofthe market. Use the Internet to identify potential competitors and find out more about their products and prices.
Carry out a small-scale market test to evaluate the potential of your strategy. Ask for customers feedback on their
experience with the product. Evaluate the results of your sales and marketing activities in the test. Analyze the cost
of taking the product to market so you can prepare an accurate budget for launching the new product.
8/14/2019 BANKING BUSINESS STRATIGIES.docx
22/25
Banking technology in stratergies and organisation
The 21stcentury will bring about an all-embracing convergence of computing,communications, information and knowledge. This will radically change theway we live, work, and think. The growth of high speed networks, coupled with
the falling cost of computing power, is making possible applicationsundreamed of in the past. Voice, data, images, and video may now betransferred around the world in micro-seconds. This explosion of technology ischanging the banking industry from paper and branch banks to' digitized andnetworked banking services. It has already changed the internalaccountingand management systems of banks. It is now fundamentally changing thedelivery systems banks use to interact with their customers. All over the world,banks are still struggling to find a technological solution to meet thechallenges of a rapidly-changing environment. It is clear that this newtechnology is changing the banking industry forever. Banks with the ability toinvest and integrate information technology will become dominate in the highlycompetitive global market. Bankers are convinced that investing in IT iscritical. Its potential and consequences on the banking industry future isenormous.
Technology and Banks Transformation
Computers are getting more sophisticated. They have given banks a potentialthey could only dream about and have given bank customers highexpectations. The changes that new technologies have brought to banking areenormous in their impact on officers, employees, and customers of banks.
Advances in technology are allowing for delivery of banking products andservices more conveniently and effectively than ever before - thus creatingnew bases of competition. Rapid access to critical information and the abilityto act quickly and effectively will distinguish the successful banks of the future.The bank gains a vital competitive advantage by having a directmarketing and accountable customer service environment and new,streamlined business processes. Consistent management and decisionsupport systems provide the bank that competitive edge to forge ahead in thebanking marketplace.
Major applications.The advantages accruing from computerization arethree-directional - to the customer, to the bank and to the employee.
For the customer.Banks are aware of customer's need for newservices and plan to make them available. IT has increased the level ofcompetition and forced them to integrate the new technologies in order
8/14/2019 BANKING BUSINESS STRATIGIES.docx
23/25
to satisfy their customers. They have already developed andimplemented a certain number of solutions among them:
Self-inquiry facility:Facility for logging into specified self-inquiryterminals at the branch to inquire and view the transactions in the
account. Remote banking:Remote terminals at the customer site connected to
the respective branch through a modem, enabling the customer to makeinquiries regarding his accounts, on-line, without having to move fromhis office.
Anytime banking- Anywhere banking:Installation of ATMs which offernon-stop cash withdrawal, remittances and inquiry facilities. Networkingof computerized branches inter-city and intra-city, will permit customersof these branches, when interconnected, to transact from any of thesebranches.
Telebanking:A 24-hour service through which inquiries regardingbalances and transactions in the account can be made over the phone.
Electronic Banking:This enables the bank to provide corporate or highvalue customers with a Graphical User Interface (GUI) software on aPC, to inquire about their financial transactions and accounts, cashtransfers, cheque book issue and inquiry on rates without visiting thebank. Moreover, LC text and details on bills can be sent by thecustomer, and the bank can download the same. The technology usedto provide this service is called electronic data interchange (EDI). It is
used to transmit business transactions in computer-readble formbetween organizations and individuals in a standard format. As information is centralized and updates are available simultaneously
at all places, single-window service becomes possible, leading toeffective reduction in waiting time.
For the bank. During the last decade, banks applied IT to a wide rangeof back and front office tasks in addition to a great number of newproducts. The major advantages for the bank to implement IT are:
Availability of a wide range of inquiry facilities, assisting the bank inbusiness development and follow-up.
Immediate replies to customer queries without reference to ledger-keeper as terminals are provided to Managers and Chief Managers.
Automatic and prompt carrying out of standing instructions on due dateand generation of reports.
Generation of various MIS reports and periodical returns on due dates.
8/14/2019 BANKING BUSINESS STRATIGIES.docx
24/25
Fast and up-to-date information transfer enabling speedier decisions, byinterconnecting computerized branches and controlling offices.
For the employees. IT has increased their productivity through thefollowings:
Accurate computing of cumbersome and time-consuming jobs such asbalancing and interest calculations on due dates.
Automatic printing of covering schedules, deposit receipts, pass book /pass sheet, freeing the staff from performing these time-consuming
jobs, and enabling them to give more attention to the needs of thecustomer.
Signature retrieval facility, assisting in verification of transactions, sittingat their own terminal.
Avoidance of duplication of entries due to existence of single-point data
entry.
Five Successful Bank Business StrategiesBanks make money based on the total deposits maintained and loans issued. Consumers have many banks andcredit
unionsto choose from, all competing for their checking, savings and lending needs. In highly competitive markets,
banks must utilize strategies for acquiring and retaining assets from new and existing customers.
Community Marketing
Banks range in size and capabilities. Small banks may only have one or two branch offices whereas
largecommercial banksmay have thousands of branches across the nation. Regardless of the size of the bank, eachbranch needs to tailor local marketing strategies to serve the immediate community. Consumers bank in a place
where they feel safe and comfortable. This means tellers and account representatives who speak English as well as
any prominent language in the community. By having branch managers look at the local community needs, the bank
can attract a larger percentage of the target market.
Product Bundling
A successful strategy employed by all banks is product bundling, such as offering a free checking accountfor those
who open a savings account. Because this has become common practice, successful strategies implement creative
bundling solutions. An automatic home line of credit with a mortgage refinance might be a solution when interest
rates are low or the community has a large percentage of consumers looking to consolidate debt.
Pre-Approved Products
Consumers are more likely to say yes to something when they already know they are approved for it. Banks can
review existing accounts to determine positive banking and credit trends in customers. Those identified with positive
trends and credit history are sent "pre-approval" letters for credit cards, lines of credit or mortgages.
Teller Referrals
Bank tellers interact with the majority of the bank clientele. Tellers perform the day-to-day transactions, such as
cashing checks, making deposits or transferring money. Successful banks consistently train tellers to look for
opportunities to cross-sell bank products and refer customers to the right person. A teller may see a regular customer
8/14/2019 BANKING BUSINESS STRATIGIES.docx
25/25
cash a dividend check and refer the person to the investment specialist. The teller may see a high savings balance
and suggest a higher -earning time certificate. Smart banks reward top referring tellers to entice them to take the
time to suggest a new product or service.
Premier Services
Premier services are designed to attract high net worth bank clientele. High net worth clients often have differentneeds as well as expectations. By offering a select set of private bankers to personally handle all transactions and
account reviews, client trust increases. Service is often better with private bankers able to focus on finding the best
solutions to fit complete financial scenarios.