Customer service, higher interest rates to drive pvt banks' deposit growth

Banks are turning their focus towards customer service, convenience and brand trust, and not merely on the interest rates to boost deposit growth. At the Business Standard BFSI Insight Summit on the ‘Bank deposits sahi hai?’  heads of private sector banks —  Rakesh Sharma, MD & CEO, IDBI Bank;  V Vaidyanathan, MD & CEO, IDFC First Bank; R Subramaniakumar, MD & CEO, RBL Bank; and Prashant Kumar, MD & CEO, Yes Bank, discussed challenges in mobilising deposits in a panel discussion with Tamal Bandyopadhyay, Business Standard consulting editor. Edited excerpts: 

How serious is the challenge of mobilising deposits, is it a real issue, raising liability? 

Rakesh Sharma:  We have to see the saving habits of the people also. Earlier in 2011-12, the saving rate was quite high, around 38-39 per cent. Now it has come down to 28-29 per cent. So, the consumption is increasing. The bank deposits have their own strong points. Deposits should have liquidity, should be less risky, and also have to be remunerative. Deposits coming down is a challenge. But at the same time ultimately, all of us will have to come out with some new products like digital banking. Otherwise, if we are not able to raise deposits, we will not be able to lend. So that will affect the economy. So deposits will come in maybe slightly lower form and we will continue to raise. 

V Vaidyanathan: Now the use case of savings accounts is different from investments and mutual funds. So I think we should not mix the two. Both are required. There are only so many use cases of a savings account that are different from mutual funds. They have completely different purposes. Therefore, the way to look at this, in my opinion, is not that mutual funds are pulling away money from banks. We should also remember that if a customer is debiting a bank account and investing in equity, the counterparty may also be selling some stock. That money is coming back to the banking system. So only the colour of money is changing from a retail deposit to a corporate deposit to an extent.  

R Subramaniakumar: If you ask me the fundamental question, is mobilisation of deposit difficult? My answer is no. Deposit is no longer confined to that realm as it was a decade ago. If you look at some of the private sector banks, the Current Account Savings Account (CASA) or the SA rate and the term deposit (TD) rate are a little blurred. The surplus (money) previously used to move into a fixed deposit. Now, the surplus is moving to alternative assets. Has it removed the cash from the system? No. 

Prashant Kumar: It is very clear that the deposits were coming into public sector banks on their own. Right from the beginning, private sector banks were fully aware that they needed to mobilise deposits for their survival. Second thing, over a period of time, there has been a huge improvement in the efficiency of the system. Both on the government side as well as on the corporate side. So, a lot of money that was sitting in the system because of the inefficiencies is not available. 

Though, there is a viewpoint that fundamentally money is coming back to the bank. We need to make a distinction; we are taking deposits to lend money. If we are getting deposits from financial institutions, it is either a Liquidity Coverage Ratio (LCR) negative or there is a higher outflow of those deposits, which means you don't have the lendable deposits available. So, it is becoming tougher to mobilise lendable deposits. The issue is more in terms of how you are going to do it, whether by offering higher pricing. Our experience is if you are able to take care of the customer and also give convenience to the customer, you would be able to mobilise deposits. 

What actually is the hook for getting more deposits? Is it the customer service versus interest rates? 

Vaidyanathan: The solution is service. So, we have gone crazy about service and about technology. It is not just giving customers their statement of account or even a mobile app. But to give continuous solutions, investment solutions, financial planning solutions, customer service, and video banking. 

Subramaniakumar: I have a slightly different take on this. There is always a base level deposit and above the base level deposit. The base level deposit is on service, usability, on the ease of doing a transaction which is going to meet my activities, be it an investment, be it a mutual fund. That base level may vary from customer to customer, group to group, cohort to cohort, and bank to bank. Up to that, the interest (rate) cannot be a differentiator. But beyond the base level, if you want to have an average balance, naturally the differentiation has to come in the form of interest (rate). 

Sharma: More important is customer service, like these days, digital banking, mobile banking, our internet banking, how these are synchronised. 

Are there any structural changes in the way banking is done? Should RBI re-look the reserve requirements? 

Vaidyanathan: Large corporates with the ability to move to markets, will move and should move because the sum total of credit available historically was given to the large corporate. Small people never got the credit. Now, the larger corporates have bigger balance sheets, and credit ratings, they should raise funds from the market. 

Kumar: It is bound to happen. There is already a regulation, which talks about large corporates moving towards the bond market. Now, with the money sitting with other mutual funds, pension funds, and other financial institutions, they are definitely going to invest in the bond market. There will be a shift where banks have to take care of their Asset Liability Management (ALM) and would lend to only those customers where there is a proper ALM and the risk is also not very high. 

Sharma: We are talking about Viksit Bharat, and by that, we mean that our capital markets and money markets must be developed. In our country, the bond market is not that developed. Some changes will be there. The regulator is concerned about the liquidity of banks and the responsibility towards depositors. But certainly, going with the time, and percentage-wise there can be some tweaks in the Statutory Liquidity Ratio and Cash Reserve Ratio, LCR.