Tuesday, September 04, 2012

The old Indian rope trick... Mastered!

Better late than later, IDBI Bank has finally understood the power of numbers – or rather, of Indian masses. With their renewed focus towards retail banking, the bank seems to be re-mastering age-old strategies… and quite efficiently. B&E does a snapshot insider of what’s up! by Mona Mehta

Firstly, one has to accept IDBI was never one of the early birds. What till the late 90s was simply the metaphor for a huge building in an area called Scope Complex in New Delhi, has today metamorphosed and managed to carve a niche for itself in the Indian banking arena by surviving the cut-throat competition. Today, when all public sector banks have risen to the challenge – put forward by the private and the foreign banks – to meet the global benchmarks in terms of service quality and product innovation, IDBI Bank has emerged on its own way as a trendsetter despite not being one of the big daddies of the industry. A quick strategic review was of the order; and yes, we did it pronto!

Galloping Ahead
If one were to simply go by numbers, IDBI Bank seems certainly set for a real show. Beating even the best of the forecasts, the bank registered a mind-boggling 97.9% growth in its operating profit in the last fiscal. Net interest income of the bank too grew to `22.67 billion in 2009-10 as compared to `12.39 billion in the previous year, translating into a growth of 82.9%. IDBI Bank’s operations during the first quarter ended June, 2010 resulted in a net interest income of `8.51 billion, registering an extraordinary 172% growth over the `3.15 billion posted by the company in the same quarter of the previous financial year. Interestingly, this happened during a period when most of the Indian banking giants were still recovering from the slowdown blues.

Going deeper, while IDBI Bank’s net profit grew 46% (on year-on-year basis), fee based income increased by 53%, deposits grew 36%, advances grew 38%, aggregate assets rose 29% and the total business of the bank registered a growth of 37%. Analysts from firms like Jainam Research tell B&E how given specific fundamental performance factors, the bank’s bottomline is set for some serious growth in the coming quarters.

The Trick… The Old Indian Rope Trick
So how’d they do it? Well, it’s just by a little change in focus; or rather, going back to the focus that should have been originally there. We term it IDBI Bank’s ‘middle of the pyramid’ theory. IDBI Bank, which used to be highly focussed on the corporate sector generating 70% of its total business from the same, finally did one of their most transformational strategic focus changes to decide to give its retail business an equal importance – not only in terms of products, but marketing and investments too. The aggression comes quite clear, when B&E talked to R. M. Malla, c, IDBI Bank, “We have charted out new plans to enhance the bank’s branch network, which will help the bank expand its retail business. For the purpose, IDBI Bank plans to set up between 1,500 to 3,000 branches, 4,000 to 5,000 ATMs and 100,000 point of sale (PoS) machines with shopkeepers, in the next three years.” That translates into mammoth investments. Tactically, at ground level too, the bank has already started attempting a more consumer friendly face – and it’s not just about its advertisement. For example, to attract more retail business and achieve their goal of lowering cost of deposits, IDBI Bank has gone a step ahead of its competitors by waiving charges on many of its current account and savings account (CASA) services including account closure, ATM Interchange, demand draft cancellation et al (although industry players like Pankaj Pandey, Head – Research, ICICI Direct, while talking to B&E, warn that such a waiver of charges by IDBI Bank on the CASA account will drag down the fee based growth of the bank).


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