YES BANK- Business world Transformation Series: 2010

Seizing Opportunity in Adversity

Case Study: The Professional Bank of India

Institute: I IM Indore

Address: Prabandh Shikhar, Rau-Pithampur Road, Indore-453331

Team Name: Financial Fundamentalists

Members:

Aastha Kumar Syed Mohd Raza

Vankadara NVD Manohar

PGPM, 1st year PGPM, 1st year PGPM, 1st

year

P09aasthak@iimidr.ac.in p09syedm@iimidr.ac.in
p09vankadaram@iimidr.ac.in

1
(09907665857) (09179621022)
(09301034891)

Executive Summary

India is poised to become fourth largest economy in the world by 2025.If key
enabling factors are put in place then GDP growth rates of 7-8 percent is
sustainable. One of the chief enabler for a robust economy is banking and
financial sector. With changing dynamics of the business and growing market
competitiveness, it is safe to conclude that cost of inaction or insufficient
action would be high. Therefore TPBoI is right in deciding to expand. Its
current strong performance puts it into right footing to think long term.

We have tried to build a strategy for:

A. Building World class human capital

C. Allied businesses

The Expansion in allied businesses is considered in a phased manner with

initially expanding into retail while carrying forward the professional culture
of bank down to this segment also. A strong loan portfolio is suggested to
attract customers.

After the retail banking reaches a critical mass TPBoI can launch other
services like mutual funds and retail broking services. We have also tried to
put forward an innovative approach to identify a market which is subserviced
till now. Finally in the last phase we recommend expansion into other
services like Bancassurance.

2
Introduction

Post financial crisis industry is facing new challenges like market is seeing
discontinuous growth in new areas like credit cards, consumer finance and
wealth management on retail side and in fee based income and investment
banking on the wholesale side. We have factored this into our suggestions
and thus have come up with a phase wise approach in expansion with
feasible targets for TPBoI. To achieve this target it is imperative to attract
best human capital as well.

3
Part A - Building World Class Human Capital

For TPBoI the culture of professionalism is not only going to be a

differentiating factor from its competitors but also deliver sustainable
competitive advantage in the long run. They have to extend this culture in
retail banking as well. Initially it may be costly to give professional service to
small individual clients, but this helps in long run. They can promote their
retail banking by a campaign named “Professionalism redefined”. This
culture can create a proud feeling among the employees thus making it a
brand for recruitment, attracting and retaining good talent. For a growing
company when strength has to be increased from 2700 to 10,000 the culture
management is an important issue. To achieve this following should be done:

Steps for Culture Management

1.) Doing a culture audit through culture interviews, culture surveys and
organizational development surveys. Sometimes the culture of the
organization is different than what managers think. It is important to
understand what the real culture is.

2.) Discussing the changes that are required to promote professionalism

and implement the changes. It can be a structural change as well.

3.) The most important part of “socialization” of a new employee is his

initial days in the company. The induction training should also contain
culture workshops.

4.) The role models of the company, star performer and top managers
should find time to speak with every batch of new recruits.

4
 5.) People are motivated by the job relevance so videos/lectures should be
shown to them on how the professionalism of TPBoI had made a
difference to its customers.

To attract and groom human capital

The HR of TPBoI should try to build itself as a brand for recruitment. If Bank
wants to attract best talent then bank should need to identify what
parameter is ranked highest by the workers and try to encourage it. Great
place to work puts the trust between company and employee as the most
important one. Trust comes through transparency in almost all the processes
that company does right from recruitment, appraisal etc. The various
functions that an HR function can do in this regard are:

1.) Selection – The bank should maintain long term relationships with
good colleges and be popular among students. Best practices in
recruiting talent should be followed.

2.) Reward criteria – Company should build a stable and reasonably

good reward system to attract best brains. Since more than 70% of the
costs in retail banking are the salaries given to employees there is no
need to follow the mad rush to attract talent by increasing the
compensation because sustainability of such high manpower cost is
poor.

3.) Brand - Employees are more attuned to brand especially when brand
is associated with leadership, the kind that challenges employees to
develop themselves as leaders and to help build a great company that
plays a big role.

4.) New roles of HR – HR has to think in terms of revenue targets and

cutting cost. An analytical model can be developed using a strong ERP

5
 system. The HR function should do this inherently and few number
crunchers should be there inside the department. This usage of
Analytical model with data helps in getting HR functions like
performance evaluation transparent and unbiased. Forecasting
methods using this data can also save costs.

Part C - Allied Businesses

We figured out that growth can become faster if bank goes into a
nontraditional path as well where it can simultaneously look out for hitherto
subserviced segments. We have given one such idea in phases one and two.
The following diagram explains all

6
Phase One for Medium term (2 Years)

• The main focus in this phase will be in expansion in Retail and

Corporate / HNI Customers. We understood that giving loans is the best
way to attract retail clients. Once they became regular clients they
bank can capitalize on its strength of being a true professional bank

7
 and make TPBoI their preferred bank. That is why the first phase of
expansion concentrates on giving to the customers.

Expanding into Retail

The following points are the characteristics of this phase:

• Important geographies - Expansion requires capital investment

hence it should be done in a phased manner starting with important
geographies in the country mainly increasing presence in Tier-1 cities
first. The thrust will be to increase the number of deposits and loan
accounts.

• Healthy Retail loan portfolio - Housing loans form an important part

of retail loan portfolio and no bank can ignore it but since these loans
are long in tenure it can be introduced at a later stage. However, other
retail loans like personal loans, car loans and education loans are
required to lure the retail customers. Though bank is giving loans
aggressively it needs to maintain decent NPAs which will otherwise eat
into profits.

• Credit Cards - Bank should have a debit and credit card portfolio for
luring customers as well. Though bank may not be able to offer
something very unique to the customers that others don’t have but it
is more of a hygiene factor than extra benefit now. Even if bank comes
with something new it will not take too long for competitors to
duplicate it.

The projected financials are taken after studying the growth of the
retail banking sector and the growth of a similar bank.

8
 Source: Capitaline

Expanding into Corporate/HNI segment

TPBoI has a good reputation of serving with customized solution. This should
be taken further in exploring new segments like:

• Islamic/Gulf Investment Opportunity – Throughout past decades

oil owners of gulf earned good returns investing in Europe and USA.
With the market saturating in these geographies Asia and particularly
India can attract a lot of such investments. However bank needs to
customize a solution for this segment i.e. To Invest in the companies
whose activities do not include liquor, pork, casino, gambling, cinema,
music and interest earning financial industry. But it still leaves us with
a lot of scope. A recent report mentioned that out of 6000 BSE listed
companies 4200, with 61% market cap, are fit to invest by Islamic
investors. TPBoI, coupled with its high quality service can well be a
leader by attracting these investors and exploiting a first mover
advantage in the country.

Phase Two (2-4 years)

After reaching critical mass in the retail segment TPBoI now have enough
foot hold in the retail segment to venture into next phase of expansion.

9
• Mutual Fund: Factors affecting the success of mutual funds are trust,
customer servicing including multiple and accessible service points,
good infrastructure, including IT support, the comfort factor &
exclusivity. A mutual fund targeting the retail Islamic investors is also a
good option which will attract Islamic retail investors into this. If the
bank is present in NRI services then it can attract more than 5 million
Indian Islamic investors also.

Benefits of Mutual Fund Business to Banks:

• Use of existing infrastructure.

• Proximity to customers & large database.

• Additional channel for generation of fee based revenue.

• Optimising manpower utilization.

• Retail Broking: Bank can either form a joint venture with an already
existing trading platform or build its own platform exclusive for existing
customers. This business is synergetic with the overall retail strategy.

Source: Capitaline

Present Indu
10
Phase Three (5+ years)

The next step for the bank should ideally be insurance sector, because in the
retail segment competition is high leading to reduction in interest spread.
The retail network that the bank already has will help it in going into the
insurance sector. Though insurance organizations take 6-7 years to break
even, TPBoI now has the potential to provide this service to the retail
customer. India has a low insurance penetration and density. This is because
of low consumer preference, largely untapped rural markets and constrained
distribution channels. Thus there is huge potential for growth in this
segment.

• Insurance: Diversification towards new areas such as Bancassurance,

promises further enhancements in stable earnings with no menace of
increase in NPAs and no further increase in infrastructure. Regulation
in India is supportive of the banks going into insurance sector and
many reforms and amendments have been made to encourage the
same. They can either go for a tie up with an insurance company
where the bank acts as their corporate agents if the bank remained
mid-sized or they can have insurance as fully integrated financial
service or joint venture.

Present Premium 11