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EXCLUSIVE
BANKS RAISE RS 2.4 LAKH CRORE DEPOSITS AS CREDIT GROWTH NEARS 18%
The credit demand was strong from retail borrowers during the festive season and
from corporates during the second quarter end, forcing banks to raise deposit
rates.
* ETBFSI
* October 24, 2022, 08:00 IST
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Commercial banks raised Rs 2.41 lakh crore in deposits during the fortnight
ended October 7 as they raised deposit rates to meet the bank credit demand that
continued to rise at a scorching pace during the festive season.
The credit demand is strong from retail borrowers during the festive season and
from corporates during the second quarter-end. Corporates are also tapping the
public bond market due to liquidity squeeze in the system
Bank credit rose by 17.94 per cent year on year (YoY) to Rs 128.6 lakh crore as
of October 7, while deposits at banks increased 9.62 per cent YoY to Rs 172.72
lakh crore, according to the RBI data.
Sequentially, the outstanding loan book of scheduled commercial banks grew by
1.82 per cent (Rs 2.31 lakh crore) from Rs 126.29 lakh crore on September 23,
2022. The YoY growth in credit was 16.4 per cent as of September 23, 2002.
Credit offtake grows
Over the last two-years-and-half years, credit offtake has overcome
Covid-induced lag and has grown by around 23 per cent to almost catch up with
Deposit growth of 25.5 per cent over the period. The growth is driven by retail
credit, higher working capital demand amidst high inflation, and lower funds
raised in the capital market. It is expected to remain elevated in the short
term due to the festival season, and in the range of 12-13 per cent for FY23.
Deposits saw a slower growth at 9.2 per cent. Deposits rates are expected to go
up due to rising credit demand, widening credit, slower deposit growth, ongoing
festival season, lower liquidity in the market, and elevated inflation.
Dwindling liquidity
From Rs 8 lakh crore in early April, the banking liquidity has declined to
around Rs 64,000 crore now. In September, the average liquidity surplus was
around Rs 91,000 crore.
With credit demand high during the festive season, banks have borrowed funds
from the RBI at the MSF rate of 6.15 per cent four times, with the average
borrowing at around Rs 7,000 crore.
The weighted average call rate, which is the operating target of the RBI’s
monetary policy, has ended above the repo rate of 5.90 per cent on six of the 12
trading days so far this month.
Deposit rates on the rise
To meet the pressing demand for credit. lenders including State Bank of India,
ICICI Bank, HDFC Bank and Canara Bank have raised deposit rates and face
pressure to raise them further to retain high-value deposits.
For the last few years, deposits had been growing at a fast clip, especially
when compared to credit. However, in the current year, with the reversal of this
trend, the y-o-y change in credit has outpaced deposits, reducing the
availability of cheaper CASA deposits.
Customers are moving their funds to fixed deposits (FDs), shifting from saving
deposits as banks raise FD rates and credit offtake picks steam.
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deposit rates
credit offtake
credit growth
credit demand
commercial banks
banks
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bank deposits
bank credit demand
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* 4 hrs ago
REMOVE WITHDRAWAL RESTRICTIONS ON BASIC SAVINGS BANK DEPOSIT ACCOUNTS FOR
DIGITAL PAYMENTS: REPORT
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* NEOBANKING & CLOUD: THE DIGITAL WAY FORWARD FOR FINTECH
Synopsis: While we are talking about the digital and emerging technologies it
is pertinent to understand what is the importance of digitisation in reviving
the legacy financial services organisations? How useful AI insights are for
Future-Ready Neobanking industry? How Fintech industry are reinventing
themselves and building the digital way forward? On the sidelines at the
ETBFSI CXO Conclave this special session will explore various features on the
future.Moderator: Sneha Jha, Deputy Editor, ETCIO; Nirav Choksi, CEO,
CredAble; Gaurav Jalan, Founder and CEO, mPokket; Yashoraj Tyagi, CTO & CBO,
CASHeNatraj Choudhury, Head of Engineering, Zolve; Adarsh Prabhu, Associate
Director, Niveus Solutions.
* 12 days ago
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EXCLUSIVE
INDIA’S PICK UP IN CAPEX CYCLE POSITIVE FOR BANKING SECTOR
In the last 2 quarters, we have seen that credit growth has started picking up
across the banking sector
* ET CONTRIBUTORS
Click Here to Read This Story
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The global economy has just come out of the Covid danger and so is the Indian
economy. During Covid times, our economy found a new way of functioning with the
help of technology, and we saw the technology sector doing well.
However, during those times the credit growth was dismal and was rather at a
multi-year low, and deposits growth became robust, as more & more people rushed
to banks with deposits.
As a result, the banking sector did not perform well during those times.
However, in the last 2 quarters, we have seen that credit growth has started
picking up across the banking sector.
This also implies that various businesses are having a positive outlook on the
economy going forward & they are comfortable with borrowing money for new
projects as well as for the expansion of capacities.
Moreover, in Budget FY23, the government stepped up the capital expenditure by
35.4% to Rs 7.50 lakh crore for 2022-23 from the previous Rs 5.54 lakh crore.
This makes it 2.9% of the GDP.
This measure was taken to support the development for which heavy capital
expenditure is required.
This has led to kickstarting a new CAPEX cycle in India. This new CAPEX cycle is
also positive from the perspective of future credit growth for India. Robust
credit growth is the key parameter for the banking sector to do well.
Another key factor for the smooth running of the banking sector is controlled
non-performing asset levels in the banking sector.
In the last many quarters, we have seen that all banks in India have taken
conscious efforts to reduce their gross & net NPAs.
In the results announced so far for Q2 FY23, we have seen the trend of NPAs
reducing for large as well as small banks in India.
The third key factor for the success of the banking sector is the use of
efficient technology. During Covid times most Indians learned to use banking
services without visiting bank branches with the help of technology.
This has helped banks offer more and more of their products with online
platforms & control their manpower costs despite a higher volume of
transactions.
India is an agrarian economy. The economy had sufficient rainfall, though
slightly higher than averages. This bodes well for the economy, businesses and
for the banking sector as with better crops, there are less chances of failure
of agri-loans.
With all the above factors, we have seen the banking sector doing well in the
recent past.
However, since we are amid the new capex cycle, and all the other important
ingredients for the growth of the banking sector are still positive, we are
likely to see the positivity in the banking sector to continue.
Investors need to stay put in the sector to reap the benefits of this new cycle.
(The author is Whole Time Director and Head, Institutional Business at Arihant
Capital)
(Disclaimer: Recommendations, suggestions, views and opinions given by the
experts are their own. These do not represent the views of Economic Times)
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banking sector credit growth
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EXCLUSIVE
REMOVE WITHDRAWAL RESTRICTIONS ON BASIC SAVINGS BANK DEPOSIT ACCOUNTS FOR
DIGITAL PAYMENTS: REPORT
On the withdrawal restrictions on BSBD or zero-balance accounts, the report said
"in the current phase of digital payments, RBI has to devise ways and means to
keep the digital payments outside the age-old definition of withdrawal
restrictions in savings deposit."
* PTI
Click Here to Read This Story
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The Reserve Bank needs to keep digital payments outside the purview of
withdrawal restrictions on zero-balance basic savings bank deposit (BSBD)
accounts and let the government allow a uniform fee of 0.3 per cent, in lieu of
the Merchant Discount Rate (MDR), on e-commerce transactions, as per a report.
The IIT Bombay report further said as much as Rs 5,000 crore can be raised per
annum through a 0.3 per cent fee on payments through all electronic modes at
e-commerce platforms, which could be used to maintain and strengthen the UPI
infrastructure.
Such a fee imposed on e-commerce merchants and institutions who cannot transact
in currency notes would be more in line with 'digital payment facilitation fee'.
On the withdrawal restrictions on BSBD or zero-balance accounts, the report said
"in the current phase of digital payments, RBI has to devise ways and means to
keep the digital payments outside the age-old definition of withdrawal
restrictions in savings deposit."
Some banks have imposed restrictions on transactions. For example, a
Mumbai-based bank has restricted the number of withdrawals (debit transactions)
to 10 per month in a BSBD account -- an account type that was especially
introduced by RBI to promote financial inclusion.
A savings account, which is primarily meant for savings and less for
transactions, should be the same in terms of usability for both rich and the
poor, the report released on Sunday said.
Service charges can be different depending on the account categories but
restricting number of transactions within the savings bank deposit account
product for one and not for the other is discriminatory and possibly impinges on
one's right to equality, it added.
As India strides forward to move from paper-based payments to digital payments,
the report said, a crucial aspect that would further acceptability is
affordability of making and receiving digital payments.
With the ultimate stakeholders being the public and providers of the payment
system, the government has to ensure an environment where the stakeholders are
able to make a rational choice to embrace at least one digital means of payment
that can closely substitute for currency, it said.
With UPI being the front runner that is allowing people to happily migrate from
currency usage to digital payments, the government and the RBI must provide full
support to keep UPI on rails, just like they have been supporting the currency
based payment system of the country, it added.
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usability
upi
reserve bank
rbi
merchant discount rate
mdr
bsbd
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EXCLUSIVE
DON'T CLASSIFY ACCOUNTS AS DEFAULT IF REPAYMENT WITHIN 10 DAYS, BANKS ASK RBI
Under the existing stressed asset resolution framework, it is mandatory for
lenders to enter into an inter-creditor agreement (ICA) during the review of the
borrower account within 30 days from the date of the first default to any
lender.
* Dheeraj Tiwari
* ET Bureau
Click Here to Read This Story
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Banks have asked the Reserve Bank of India (RBI) to relax norms on stressed
assets.
They have demanded that accounts resolving repayment issues within 10 working
days of being reported not be categorised as being in default, according to two
executives aware of the development.
Under the existing stressed asset resolution framework, it is mandatory for
lenders to enter into an inter-creditor agreement (ICA) during the review of the
borrower account within 30 days from the date of the first default to any
lender.
If the regulator agrees to review and amend the Prudential Framework for
Resolution of Stressed Assets, lenders will be exempted from setting in motion
the resolution framework for such accounts, which may put an additional burden
on lenders and is not required as the account is still standard, said a senior
bank executive, requesting anonymity. An account becomes non-performing only
after being 90 days overdue.
While some lenders have made individual representations to the regulator in the
past month or so, the issue was also discussed by the banking body, the Indian
Banks' Association (IBA), in September, said another executive.
"It was taken up in one of the meetings on request of a private sector lender,"
he said, adding that IBA will ask RBI to consider excluding all defaults that
are operational or technical in nature or cases where defaults are resolved
within 10 working days from its reporting by each bank in context of entering
into an ICA by lenders.
Currently, the day a borrower defaults, the account is categorised as a 'special
mention' account. Lenders then take a review of the borrower account within 30
days of such default, also known as the 'review period,' during which they may
decide on the resolution strategy, including the nature of the resolution plan
and the approach for implementation. Lenders may also choose to initiate legal
proceedings for insolvency or recovery.
"If RBI allows this dispensation, then there is no need for an ICA, or a
resolution plan. Some banks would prefer if the borrower is able to work out its
own strategy," said an executive director with a state-run bank, adding that
while some lenders may be comfortable with this approach, others may find a
single default as a sign of stress and may vote for an effective resolution
plan, under the ICA.
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EXCLUSIVE
INDIA 'AGREES TO BACK' AFGHANISTAN BANKING SECTOR WITH TECHNICAL SUPPORT
Afghanistan's banking system is reeling under crisis following embezzlement and
freeze of funds. DAB has been barred from the international banking system,
financial community and other countries' domestic banks after the Taliban's
takeover last year. This has barred DAB's access to nearly US$9 billion of
foreign exchange reserves. Afghanistan's economy contracted by about 20% in
2021, according to the World Bank's new Afghanistan Development Update.
* Dipanjan Roy Chaudhury
* ET Bureau
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India has agreed to offer technical support to Afghanistan's crisis-torn banking
sector after officials from Da Afghanistan Bank (DAB) approached New Delhi for
assistance, according to people aware of the matter.
Head of Afghanistan's central bank, DAB, Abdul Qadir Idris, recently held a
meeting with Bharat Kumar, head of the Indian technical team in Kabul, to
discuss the economic situation, banking issues and collaboration, ET has learnt.
DAB's general manager Siddiqullah Khalid stressed the need for continuous
cooperation between Afghanistan and India in the banking sector and said that
technical cooperation would strengthen Afghanistan's banking system.
Afghanistan's banking system is reeling under crisis following embezzlement and
freeze of funds. DAB has been barred from the international banking system,
financial community and other countries' domestic banks after the Taliban's
takeover last year. This has barred DAB's access to nearly US$9 billion of
foreign exchange reserves.
Afghanistan's economy contracted by about 20% in 2021, according to the World
Bank's new Afghanistan Development Update, which stated the economy was
adjusting to a "new normal" following the Taliban takeover in August 2021.
The World Bank report released a few weeks ago pointed to a sharp decline in
public spending, lower household incomes, and reduced consumption causing a fall
in aggregate demand. It also highlighted that disruptions in the payment system
and supply constraints further hampered private sector activities, initially
forcing many businesses to close or scale down their operations.
"Isolation from the international economy is a binding constraint to sustained
stabilisation. The loss of correspondent banking relationships has significantly
impacted international payments, leaving both private firms and aid
organisations reliant on cash shipments and informal, unregulated, and opaque
payment systems for domestic transactions," the report added.
The World Bank report concluded that Afghanistan was a much smaller economy now.
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EXCLUSIVE
WHO ARE THE PROSPECTIVE SUITORS FOR IDBI BANK?
IDBI Bank needs a buyer who can invest in its future growth. Indian private
banks looking for heft, large NBFCs and foreign funds fit the bill.
* ETBFSI Research
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The government has set the ball rolling for the sale of IDBI Bank, which has
improved its metrics.
With the rising credit demand and strong outlook for the banking sector, the
government is looking at a window to sell the bank.
Buyers can be banks, including foreign ones, non-banking financial companies
(NBFCs), alternative investment funds (AIFs) registered with the Securities and
Exchange Board of India (Sebi), or other funds incorporated outside India.
Corporates, however, have been excluded in keeping with rules that restrict them
from ownership of banks.
While the troubles in the sale of YES Bank and Lakshmi Vilas Bank suggest that
there could be fewer takers for distressed assets, the situation is different
with IDBI Bank.
With LIC stabilising its operations and metrics, IDBI Bank now needs an investor
that can put it on a growth path, bring people and technology and set a
long-term vision.
Among Indian banks, Kotak Mahindra Bank can be a prospective buyer. The last
time the bank came close to a big-ticket acquisition was in 2020 when there was
talk of it looking to buy IndusInd Bank.
Two years before that, Kotak Bank was said to be in talks with Axis Bank for a
merger.
While the respective managements of these banks have denied holding any such
talks, Uday Kotak, promoter of Kotak Mahindra Bank, had said in the past that
the bank is "open to looking at inorganic growth as long as it is sensible".
With the economy opening up after the Covid lull, top Indian banks are acquiring
assets as they look to build scale to reach the length and breadth of the
market.
Within a span of days, Axis Bank announced the purchase of Citi's retail assets
and HDFC Bank the merger of HDFC.
With the Indian financial space witnessing a surge in M&A deals, analysts wonder
if Kotak Mahindra Bank will look at buying IDBI Bank.
Can NBFCs buy?
Currently, the large non-banking finance companies have no advantage over banks
now as they have to raise high-cost deposits, while the cost of borrowing of
banks is lower. The finance companies, including housing finance entities, have
to rely on wholesale fund-raising from the market or borrowings from banks, both
of which are relatively costly. It is difficult to rely solely on wholesale
funding or bank borrowings over a certain size. On the other hand, banks enjoy
low-cost deposits. Further competition from banks with low-cost deposits creates
a disadvantage for NBFCs. A merger can bring good cost savings and efficiency
for the merged entity, especially on the infrastructure side, with banks and
NBFCs catering to different segments.
The hurdles
However, with bank licences available on-tap, setting up a bank grounds up
without any legacy issues could also be an enticing proposition, detering
several buyers.
With overseas financial markets tight due to inflation and recession fears,
foreign institutions may not look favourably at acquiring an Indian bank at this
juncture.
Large funds such as Temasek and Warburg Pincus have already invested with DBS
India and IDFC First Bank and may not be interested.
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EXCLUSIVE
CREDIT SUISSE TO SLASH 9,000 JOBS IN A BID TO WRIGGLE OUT OF CRISIS
The Swiss bank plans to raise 4 billion Swiss francs in a bid to strengthen its
balance sheet in the third attempt by successive chiefs to reverse its declining
fortunes over recent years.
* ETBFSI
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Credit Suisse plans to slash 9,000 jobs and hive off its investment banking unit
after posting a £3.5 billion loss in its third quarter.
The Swiss bank plans to raise 4 billion Swiss francs in a bid to strengthen its
balance sheet after being hit by the collapse of Archegos Capital and Greensill
Capital in which it had invested heavily.
The latest overhaul marks the third attempt by successive chiefs to reverse its
declining fortunes over recent years.
A headcount reduction of 2,700 employees is already underway in the fourth
quarter. By the end of 2025, the bank expects to have around 43,000
full-time-equivalent staff, down from around 52,000 at the end of September,
using natural attrition and targeted job cuts.
The restructuring
A spinoff of the dealmaking and underwriting unit would effectively break the
troubled division into three pieces, with Credit Suisse keeping a shrunken
trading unit while hiving off its securitized products group and other assets it
wants to offload. And attracting outside investors would help answer how it will
finance a major restructuring,
Bringing in an outside investor to take a partial stake in the enterprise would
help fund the costs to hire and retain talent.
Credit Suisse’s investment bank sits at the heart of Chief Executive Officer
Ulrich Koerner’s planned restructuring after it racked up huge losses and played
a frontline role in some of its biggest scandals. The bank is trying to reduce
risks and costs associated with the business, while keeping at least some of the
revenues and capabilities to service wealth management clients.
Talks on reviving the First Boston brand for the to-be-spun-out businesses have
advanced as well. Credit Suisse is also looking at other options and
decision-making is ongoing.
Meanwhile, the company is looking to sell its Savoy Hotel in the centre of
Zurich's financial district. The bank routinely reviews its property portfolio.
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EXCLUSIVE
BANDHAN BANK POSTS NET PROFIT OF RS 209CR IN Q2FY23
Private sector lender Bandhan Bank on Friday reported a net profit of Rs 209.30
crore in the quarter ended in September 2022 on the back of a fall in bad loans.
The Kolkata-headquartered bank had posted a net loss of Rs 3,008.60 crore in the
same quarter a year ago.
* PTI
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Private sector lender Bandhan Bank on Friday reported a net profit of Rs 209.30
crore in the quarter ended in September 2022 on the back of a fall in bad loans.
The Kolkata-headquartered bank had posted a net loss of Rs 3,008.60 crore in the
same quarter a year ago.
The bank's total income during the July-September period of 2022-23 grew by 8.5
per cent at Rs 2,669.4 crore as against Rs 2,459.9 crore in the same period of
2021-22, Bandhan Bank said in a regulatory filing.
The lender said its housing finance division achieved its best-ever growth of 32
per cent year-on-year and the retail division grew 112 per cent from a year ago.
Commercial banking division grew 96 per cent yearly.
Among other key parameters, the net interest income, interest earned minus
interest expended, rose by 13.3 per cent in Q2FY23 at Rs 2,193 crore, as against
Rs 1,935.4 crore in Q2FY22, the bank said.
However, the non-interest income fell by 9.2 per cent during the quarter to Rs
476.4 crore from Rs 524.5 crore a year ago.
Also, the operating profit came down by a marginal 2 per cent at Rs 1,552.9
crore. The asset quality of the bank showed improvement as the gross
non-performing assets (GNPA) as on September 30, 2022, fell to 7.19 per cent of
the gross advances as against 10.8 per cent as on September 30, 2021.
Net NPAs too improved to 1.86 per cent against 3.04 per cent.
The provisioning requirement fell to Rs 1,279.7 crore for the quarter as against
Rs 5,613.5 crore in the year-ago quarter.
The net interest margin for the lender stood at 7 per cent for Q2FY23.
Total advances grew by 17.4 per cent to Rs 95,834.9 crore at end of September
2022 against Rs 81,661.2 crore by year ago same period, the lender said. Total
deposits increased by 21.3 per cent to Rs 99,365.8 crore.
"As we enter the H2FY23, the focus shifts on growth, and with pandemic-related
stress phasing out, we look forward to ending the FY23 on a high note," Chandra
Shekhar Ghosh, Managing Director and CEO of Bandhan Bank said. Bandhan Bank
shares closed at Rs 265.20 apiece on BSE, down by 2.12 per cent.
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EXCLUSIVE
BANKS OFFERING HIGHEST INTEREST RATES FOR 3-YEAR FDS
Interest rates on FDs vary depending on the lender. The top 5 banks currently
offering the best interest rates on 3-year fixed deposit terms are shown below
* Sneha Kulkarni
* ET Online
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Indians have always preferred fixed deposits as a means of saving money. People
invest their money in fixed deposits (FDs) in order to get interest payments. In
layman's terms, a fixed deposit is an investment choice that allows you to place
a specific amount of money in a bank for a predetermined amount of time and
collect interest on it. Different lenders offer different interest rates on FDs.
Here are the top 5 banks that are now offering the best interest rates on 3-year
fixed deposit tenure. If a person invest 10,000 for a 3 year period, his returns
quarterly compounded is mentioned below.
Bank Name 3 Year Qly Compound Return AU Small Finance Bank 7.50 12497.16 DCB
Bank 7.50 12497.16 Bandhan Bank 7.00 12314.39 City Union Bank 7.00 12314.39
Indusind Bank 6.75 12223.93
Source: Compiled by ETIG; interest rates as on October 27, 2022
TDS on Fixed Deposits
An FD's interest income are fully taxable. According to your income bracket and
subsequent tax slab, interest from FDs is taxed.
Banks and lenders withhold a tax at a flat rate of 10% when depositing this
interest into your account. It's known as tax deducted at source (TDS).
Only if the interest earned on a fixed deposit in a fiscal year exceeds INR
40,000 is the TDS on fixed deposits applicable. In the case of senior folks,
this threshold value is INR 50,000.
If your annual total income is less than INR 2.5 lakh and you qualify as
tax-exempt, you can request a TDS waiver by filing a Form 15G/15H at the
beginning of the year.
When you file your year-end tax returns, you can still get a TDS refund if you
are unable to submit these papers.
How to apply for an exemption on TDS?
According to the HDFC Bank FAQ, here is how to apply for exemption on TDS “If
your total interest income for the year does not fall within the overall taxable
limits, you should let us know. You can do this by submitting a form as per the
provisions of the Income Tax Act.
A few things to note:
· You can get the 15AA form from the Assessing Officer of the Income Tax
department.
· Even with the 15H/15AA form, the tax that has already been deducted by way of
TDS during the year prior will not be refunded. However, you will get a
certificate, which can be used while filing your tax return.
· 15H/15AA Forms are valid only for the financial year in which they are issued.
· A fresh 15G/H form needs to be completed for each deposit that is placed with
the Bank, and it should be completed within the first week of the financial
year.”
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EXCLUSIVE
HOW BANKS CAN CRACK THE SME CODE DIGITALLY IN THE FINTECH ERA?
SMEs will continue to be a tricky segment for banks to serve—but the
capabilities and technology to engage these clients and profitably meet their
specific needs are broadly available to banks.
* ETBFSI Research
* ETBFSI
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Banks are encountering stiff competition for their retail banking customers, and
are likely to experience the same challenges in the SME arena.
Sophisticated, agile, and well-funded organisations—including fintechs and large
nonbank digital firms—are seeking to engage SME clients, either through
full-service or selective-service models, according to McKinsey. Other players
(for example, accounting software providers) are seeking to disintermediate
banks by migrating upstream and taking control of SME banking selection; payment
platforms are broadening their solutions and locking in their clients with
financial and reporting products.
As alternative banking and financing options multiply for SME business
leaders—and as their other suppliers offer richer, holistic solutions supported
by sophisticated real-time, always-on, digital solutions—the traditional-banking
proposition begins to seem very dated.
A number of banks have been able to achieve a significant uptick in performance
with SME clients. They have also found ways of balancing income streams more
toward fees than interest margins.
At the same time, these leaders have reduced their cost-to-serve by migrating a
high share of customer activities to digital channels. Advanced digital banks in
small-business banking, for instance, have increased the number of clients they
onboard digitally to roughly 80 per cent, while reducing onboarding times by up
to 85 per cent.
Unlike large commercial clients, where decisions are made based on more
established organisational terms, SME decision makers frequently use their
personal experiences to set their professional expectations. So, the challenge
for banks is that they are competing with the fully evolved digital experiences
offered by online retailers, payments platforms, or logistics companies.
Digital tools
Digital tools, such as proactive diary management, automated meeting notes, data
mining with AI-driven prompts, integrative relation manager (RM) work benches,
and digital assistants, can provide parts of a holistic answer to these
challenges. Counterintuitively, advances in banking systems, data analytics, and
customer relationship management capabilities mean that a digitally led service
proposition can be significantly more personal and engaging than an RM-led
approach.
SME decision-making dynamics are also important for banks to understand: the
larger the organisation, the more removed from consumer expectations it becomes.
A hybrid channel
A hybrid channel end-state improves the viability of servicing this segment. Few
banks have yet developed a robust and complete digital proposition for clients.
Analogs from other industries suggest this will take some time, and the
transition will initially involve duplication across channels, customer
journeys, risk models, and service concepts. Building and maintaining these in
parallel is complex and expensive.
Ultimately, however, banks should be aiming for a hybrid channel end-state in
which the most effective channel for a particular product or service becomes the
default. The overall channel approach will run the gamut from digital
self-service for simple, low-value-adding activity, to highly engaged,
expensive, human-led engagements for complex and value-creating services and
sales. As a simple example, checking a bank balance will be an online activity,
whereas restructuring a set of lending products will likely be a remote advisory
session with a product specialist.
Once quality solutions are in place, clients need to be actively steered there.
Only by closing off unnecessary, more expensive omnichannel propositions will
banks be able to capture the financial and operational benefits of digitization.
Frontline cross-selling capabilities
There is a significant value for incumbent banks to capture by tapping into
their existing customer base. Four levers can improve frontline effectiveness
Advanced data analysis can feed a range of tools to equip relationship managers
and enable shared teams and product specialists to ensure they are aware of and
focused on client needs. Artificial-intelligence tools can scan information
about clients and consistently present insights for the bank to act upon. To
ensure continued improvement and effectiveness, banks can set up continuous
feedback between the front line and the analytics team.
Sales routines and tooling
Setting a “gold standard” by codifying the sales routines of the best
relationship managers will help raise the bar for the full sales organization.
Digital tools such as RM workbenches can bring rigour to processes such as
know-your-customer and ensure that access rights to controlled information and
leads are always available to everyone working with clients. The right tooling
also frees up time that relationship managers typically spend on administrative
tasks.
Performance management and capability building
Setting the right cadence of performance dialogues is crucial to ensuring
progress. These dialogues help ensure clarity on customer and product
priorities, alignment on granular input and output KPIs, and clear performance
tracking. A well-designed capability-building program enables the front line to
hone commercial skills (such as cold calling, dealing with resistance) and
product expertise.
Streamlined journeys
Digitization can enable cost-efficient, more regular and persistent engagement
with clients. In retail banking, for example, the number of customer engagements
has grown by more than 10 per cent year on year for the past six years, driven
almost entirely by digital channels.
Overall, shifting the client relationship to the institution and away from the
individual can remove the risks and failings of human error such as poor process
execution, lost paperwork, return calls forgotten, or suboptimal client focus.
Build a compelling proposition
Few banks have the scale and expertise to be best in class in all the
capabilities required to excel in serving SMEs. A more effective approach is to
identify the areas of sustainable differentiation, where investment in internal
development can pay long-term benefits, such as risk modelling, sector depth, or
product expertise or range. In other areas, a bank is better served by sourcing
best-in-class products or capabilities to round out a robust, lower-cost, and
effective solution for clients.
Balance is important
Banks are eikther outsourcing too much or too little. Ideally, the bank owns and
controls the sources of value creation and differentiation and brings in
commodity services that benefit from scale greater than banks can create
individually. A well-balanced mix of in- and outsourcing has the added benefit
of bringing in external insight and best practice, and an openness to challenge
and flexibility that can rejuvenate existing ways of thinking.
Adapt to new types of talent
Successful SME propositions will be highly dependent on digital and data
analytics talent—and via “translators” who harness insights to create client
dialogue and impact. These emergent talent needs for SME banks will inevitably
affect the internal and operating culture of the business. Decentralised and
remote ways of working create challenges around control, organizational culture,
and team dynamic as well as opportunities around reach of product and industry
specialists, flexibility of capacity, and reach.
Frontline client relationship managers will still be an important and valuable
part of the market proposition, but their efforts will be concentrated on those
areas that depend on their skills and sophistication, with tasks less driven by
such skills to be handled by the back office or through automation.
Rethink process excellence
Superior processes are a fundamental requirement for success in banking overall.
But for banks seeking to gain a foothold in a new segment, the bar is
particularly high: simple payments, account management, or product issues are
often the seeds of discontent that germinate into a dissatisfied and ultimately
lost customer. (Mobile access in particular is prone to errors, and banks that
treat the channel as an extension of web, as opposed to a distinct experience,
do so at their peril.)
To avoid missteps, banks need to pay as much attention to the nuts and bolts of
process excellence as they do to the other, more strategic elements of the
effort. With this in mind, banks should challenge themselves to reinvent and
reimagine where possible, rather than tinker at the margins.
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EXCLUSIVE
CREDIT SUISSE TO CUT 9,000 JOBS BY THE END OF 2025
Chairman Axel Lehmann dubbed the plan a "blueprint for success", but it fell
flat with investors after the bank's unexpected 4 billion Swiss franc
third-quarter loss.
* Reuters
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Its stock price, which has hit record lows in the past few weeks, fell as much
as 18.6% by the close of trading, valuing the bank at around 10 billion francs.
Credit Suisse plans to raise 4 billion Swiss francs ($4 billion) from investors,
cut thousands of jobs and shift its focus from investment banking towards rich
clients as the bank attempts to put years of scandals behind it, sending its
shares sliding.
Chairman Axel Lehmann dubbed the plan a "blueprint for success", but it fell
flat with investors after the bank's unexpected 4 billion Swiss franc
third-quarter loss.
Its stock price, which has hit record lows in the past few weeks, fell as much
as 18.6% by the close of trading, valuing the bank at around 10 billion francs.
The cost of insuring the bank's debt against default, as measured by credit
default swaps, rose during the day to 254 basis points versus 232 in the early
morning, although lower than Wednesday's close, according to S&P Global Market
Intelligence.
Analysts said many questions were unanswered.
"You come away with the feeling that they were rushed into issuing (the news)
this morning with a deeply incomplete plan," Goldman Sachs analysts wrote, but
one whose "improbably low" targets will be beaten.
"Resolute execution and no further missteps will be key and it will take time
until results will begin to show," Vontobel analyst Andreas Venditti said.
Credit Suisse said clients pulled funds in recent weeks at a pace that saw the
lender breach some regulatory requirements for liquidity, highlighting the
impact of wild market swings and a social media storm.
The group said it was stable throughout.
The turnaround plan has many elements, from cutting jobs to refocusing on
banking for the wealthy.
It will cut 2,700 jobs, or 5% of its workforce by the end of this year, and
ultimately reduce its workforce by roughly 9,000 to about 43,000 by the end of
2025.
The Swiss bank also aims to separate out its investment bank to create CS First
Boston, focused on advisory work such as mergers and acquisitions and arranging
deals on capital markets.
The bank envisions selling a stake but keeping roughly 50% in the new business,
said one person familiar with the issue. It is also exploring the possibility of
an initial public offering.
SAUDI INFLUENCE
Saudi National Bank (SNB), majority-owned by the government of Saudi Arabia,
said it will invest up to 1.5 billion francs in Credit Suisse to take a stake of
up to 9.9% and may invest in the investment bank.
The move bolsters Saudi influence in one of Switzerland's best-known banks.
Olayan Group, one of the biggest Saudi family-owned conglomerates, with a
multibillion dollar investment portfolio, also owns a 5% stake in the bank.
The Qatar Investment Authority - which owns about 5% of the Swiss bank -
declined to comment on whether it plans to buy any shares.
Proxy adviser Ethos Foundation said it was disappointed it took Credit Suisse so
long to follow a path that rival UBS had taken to increase focus on wealth
management, while pruning back investment banking.
It criticised the bank for letting SNB get a big stake at a bargain-basement
price, adding: "This plan is dramatic for the current shareholders who will
suffer a very significant dilution effect."
However, investment management firm Harris Associates, which has a 10% stake,
said it welcomed the "aggressive" approach the Swiss bank was taking to improve
its performance.
Credit Suisse said it will create a capital release unit to wind down
non-strategic, higher-risk businesses, while announcing plans to sell a large
part of its securitised products business to an investor group led by Apollo.
The bank will also wind down some trading businesses in emerging markets and
equities.
Its heavy third-quarter loss was due in large part to write-offs linked to its
investment banking overhaul, including adjustments for lost tax credits.
JPMorgan analysts said that "question marks remain" over the restructuring of
investment banking, adding that the share sale would also weigh on the stock.
The revamp, aiming to overcome the bank's worst crisis in its history, is the
third attempt in recent years by successive CEOs to turn the group around.
Once a symbol for Swiss reliability, the bank's reputation has been tarnished by
scandals, including an unprecedented prosecution at home involving laundering
money for a criminal gang.
The bank had been pushing to sell assets to raise money and free up capital to
try to limit how much cash it would have to raise from investors to fund its
overhaul, handle its legacy litigation costs and retain a cushion for rough
markets ahead.
Credit Suisse's string of costly and morale-sapping blunders triggered a
wholesale change of management.
Last year, the bank took a $5.5 billion loss from the unravelling of U.S.
investment firm Archegos and had to freeze $10 billion worth of supply chain
finance funds linked to insolvent British financier Greensill, highlighting
risk-management failings.
Its deepening problems even put it on the radar of day traders earlier this
month, when a frenzy of wild speculation about its health sent its stock price
into a tailspin to a record low. ($1 = 0.9858 Swiss francs)
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