CLSM-012

Innovations in Indian Banking Sector

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With the Indian Government initiating the liberalization and deregulation process in
the late nineties, the Indian Banking Industry changed completely. Liberalization and
deregulation saw the entry of private sector banks into India. These banks used stateof-the-art technology, had lean organizational structures, focused on specific
customer segments, and set high standards of operations and customer service. They
also adopted global practices, and developed core competencies in the form of
proprietary technologies and processes and brand building to differentiate them. In
the face of such competition, public sector banks had to soon follow suit, and they
increased the range of products offered, computerized most of their operations, and
improved customer service.

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To stay ahead of the competition, service providers have to constantly try and
improve and innovate their services. This was even more so in the case of banking,
with private banks, foreign banks, and public sector banks each trying to grab a larger
share in the market.
The banking industry consisted of 289 scheduled commercial banks (March 31,
2003). The cluttered, competitive environment has made it a Herculean task for banks
to differentiate themselves. The result was that most of the banks adopted similar
strategies to differentiate themselves. These included investing in securities of bluechip companies, entering into the retail banking sector, increasing the customer and
deposit base through value-added services like ATMs and online banking.

This caselet was written by Satya Srinivas Srikanti, under the direction of S. V. Rama Krishna, ICFAI
Center for Management Research. Caselets are intended to be used as a basis for class discussion rather
than to illustrate either effective or ineffective handling of a management situation

2005, ICFAI Center for Management Research. All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any
means electronic or mechanical, without permission.
To order copies, call +91-40-2343-0462/63 or write to ICFAI Center for Management Research,
Plot #49, Nagarjuna Hills, Hyderabad 500 082, India or email icmr@icfai.org. Website:
www.icmrindia.org

Innovations in Indian Banking Sector

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All these strategies were based on technology. The emphasis on technology was
especially formidable in the private banking sector. Most of these banks took the help
of proprietary processes and technology to launch innovative products to woo
customers and differentiate themselves from the competition. Kotak Mahindra Bank,
for example, offered a unique Sweep-in account wherein any amount in excess of
Rs 150,000 was invested in Kotaks liquid mutual fund that earned an average return
higher than the savings account interest. ABN Amro offered home loans at 6.5%
interest rate (the lowest in the country) for the first two years, after which the
consumer paid the market-determined rate. ICICI Bank offered loans to customers
against their cars, provided these were less than five years old.

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The private banks also launched technology-based customer services to increase their
customer base and stave off competition. HDFC Bank offered a unique online card
called NetSafe that minimized the risk arising out of online frauds. NetSafe, a
single usage online card, contained a specified amount debited from the credit or
debit card of the consumer. This card was valid for the day on which it was issued.
Any unspent amount was transferred back to the customers account. HDFC Bank
also offered OneView service. This service enabled customers to access account
related information, including their accounts in other banks like ICICI Bank,
Citibank, HSBC, and Standard Chartered Bank, on the Net. Apart from all this,
private sector banks also offered various services aimed at enhancing banking
convenience to their consumers. For instance, sensing an opportunity to differentiate
itself through the convenience factor, ABN Amro offered consumers who withdrew
cash between Rs 5,000 and Rs 200,000 free secure and timely delivery at their
doorstep. HDFC Bank, in association with Travelex India, provided home delivery of
foreign exchange, including cash and travelers checks. ICICI Bank increased
banking hours from 8 A.M to 8 P.M for customer convenience. Select branches also
remained open throughout the year.
Banks also started using their ATMs as a means of differentiating their services,
making them more accessible and attractive to consumers. They added bill payment
and credit card payment options at the ATMs. Many banks including SBI, ICICI
Bank, and Bank of India operated mobile ATMs that traveled along select busy routes
and stay put at important junctions. This made it convenient for customers like office-

Innovations in Indian Banking Sector

goers and businessmen traveling on these routes, as they were able to save on the time
and bother of going to an ATM located in select areas. Banks also provided access to
ATMs of other banks free of cost. For example, ING Vysya under the Orange savings
account provided free access to 8000 ATMs of other banks. Similarly, relatively new
entrants like Kotak Mahindra Bank offered free access to 4000 ATMs of other banks
to its customers.

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In addition, the banks also tried to differentiate their services through their service
personnel. Kotak Mahindra Bank, for instance, assigned a relationship manager for
every customer to look after customer deposits, give any required advice and in
addition, manage the customers investment portfolio. Similarly, ABN Amro also
assigned relationship managers to manage the investment portfolios of high net-worth
individuals. On the whole, innovative products and technology-based banking
services gave way over the years to technology-based value-added services focused
on customer convenience.

With the banking industry in India already cluttered with 289 scheduled
commercial banks (March 31, 2003), private sector players have resorted to
proprietary processes and technology to differentiate themselves. What are the
different means that banks have adopted to differentiate their services from those
of competitors?

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Banks have begun to lay emphasis on remote service encounters by encouraging

customers to use ATMs and Internet banking services for their banking
transactions. Briefly discuss the pros and cons associated with the usage of
remote service encounters.

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Additional Readings and References:

1. ICICI Bank Starts Mobile ATMs at Four Locations in Mumbai.
www.domainb.com. 13, December, 2002.
2. HDFC Bank Makes Netbanking Easier with New Service. The Hindu
Business Line. 20, March, 2002.

Innovations in Indian Banking Sector

3. HDFC Bank and VISA Launch India's First Virtual Card for E-commerce.
www.domainb.com. 28, January, 2004.
4. Madhan G. ING Vysya Bank's Orange Account. The Hindu Business Line.
22, February, 2004.
5. www.kotak.com
6. www.icicibank.com

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7. www.hdfcbank.com