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Special Columns
Arindam Chaudhuri, Editor-in-Chief, 4Ps B&M Chief Consulting Editor's Desk
Rajita Chaudhuri
A.Sandeep Editor’s Desk
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The Resident Non-Indians!
They have carved a niche for themselves in the Indian banking industry; but it just seems that they’re about to break free and takeover the Indian market like never before. by Deepak Ranjan Patra
May 25, 2010 was a landmark day, not only for Indian stock market or banking sector, but also for all foreign companies operating in India. Standard Chartered Plc opened an Indian Depository Receipts (IDRs) for subscription on this day. So what’s the big deal? It’s the first IDR in India by any international company in the history of India’s existence! Before you break into a diplomatic applause, the fact is that Stanchart (if we may) is not spectacularly huge currently. Consider this – the IDR issue is for a bank, which has just 90 offices, 7,825 employees, and a top line of Rs.19 billion in India. And yet, it is aspiring to raise Rs.33.75 billion from the market! But for every critic, there’re ten supporters, and vociferous ones. One obviously being Peter Sands, Group Chief Executive, Standard Chartered, who says, “Standard Chartered was established in India over 150 years ago, and this heritage is vitally important to us as we continue to grow our market visibility and brand presence in one of our largest markets. I am immensely proud that it is Standard Chartered listing the first ever IDR.” Honestly, Stanchart is not the only one in the league. Over the last few years, bosses of many global banking giants operating in India, if not all, have developed a similar business confidence over their Indian operations. After all, despite being paralysed by our regulatory controls and restricted to just 300 branches (March 2009), the 30 foreign banks control 5% market share in terms of deposits as compared to 95% controlled by all other banks through 64,028 branches, showcasing 10 times higher efficiency. However, there too exists a strong line of demarcation, as the top 5 foreign banks – HSBC, Standard Chartered, Citi, Deustche Bank and RBS – control 82.7% of the total market share enjoyed by the foreign banks. Even their profit margins are far better than the industry average for the last few years.

Going by what industry experts have to say, it’s just the three words – technology, innovation and quality service. Prashant Singh from Royal Sundaram shares with us, “As the outreach is enlarged in the India banking industry, with the increased number of banks and wider network, the customer demands convenience, comfort, speed, cost- effective and quality services.”

While HSBC was the first one in India to give its customers the freedom to break the queue in front of the cash counters by opening ATMs, Citibank moved a step ahead by allowing its customers to go cashless by introducing the concept of credit cards in the country. Their offerings in terms of specialised products and services have allowed them to go hard on Indian banks with whatever small perimeter they are allowed to operate in. Farhan Faruqui, Head-Global Banking, Asia Pacific, Citibank, says, “Our global banking structure gives us a single, unified coverage force that can deliver to our clients the best ideas, innovations, products and services in the industry.” Certainly, it’s the synergy with their parents’ global presence that allows these foreign banks to stay ahead of domestic players in terms of introducing innovative concepts, but undoubtedly it’s their efficiency, which has helped them to occupy dominant positions in individual segments like cash management services, sub-custody, dollar clearing and advising for cross border transactions et al. However, the only other area, apart from expansion of their network (thanks to the regulators), where the foreign banks are lagging behind is perhaps in promoting themselves. There is no doubt that they have done wonders in the past whenever they have attempted to communicate their presence. Take Royal Bank of Scotland (RBS) for example. At a time when people were losing confidence in it, the bank after roping in Sachin Tendulkar launched a campaign that said “Make it happen”. During that year 2008, the bank increased its ad-spend from zero to Rs.17.47 crores. As a result, today, consumers perceive it as one of the top 5 foreign banks. Even HSBC, with its “The World’s local bank” campaign, has managed to do tremendously well.

But then, the problem is that they are not consistent. And that has stopped them from surpassing larger domestic banks in the minds of the consumers. In this case, IDBI Bank can be a case study for these foreign banks. What RBS did for a year, IDBI Bank has been doing for the last two years now. As per data available with AdEx India, IDBI Bank was one of the top 5 ad-spenders both in FY’08-09 and FY’09-10. Thanks to the ongoing campaigns, its total score in the ICMR-4Ps B&M survey has moved from 79.73 last year to 86.90 this year. From here, the Indian banking sector is poised to see a spectacular rise in competition, as the government is considering issuing new banking licenses to NBFCs, which will add another line of players in the market. Moreover, the competition in the smaller space available for the foreign banks too is set to go up as the RBI has recently allowed a few more tough global banks like ANZ and Credit Suisse to enter the country.

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