Case Analysis - “Down to Earth”

The Indian Mercantile Bank (IMB) had a pan-India presence, with 1,065 branches majorly focused in the West and the South. Recently, the bank had slipped from 4th position to 10th place among nationalized banks and market share also declined. The urban branches performed far below standards. The peers of IMB had adjusted to the changes in India’s growth with their market share outperforming IMB & IMB officers were resisting to change. To acclimatise to this new environment & reaching to the position again, the CEO of the company drew up the ‘Reach for the Sky’ program for IMB to be the leader among PSUs in the next ten years. It involved technology upgradation, increasing the branch network to 2500, deposit mobilization, introduction of Internet banking services, reduction of NPAs and most importantly stopping the decline and increasing the CASAs. CBH’s Mid-Term Review of the policy announced new directive on Financial Inclusion. meaning “The process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players.” In country like India where nearly half the country is unbanked; The nation has the highest number of households (200million) excluded from banking; & Only 56% of the population has deposit accounts and 12% has credit accounts with banks: Financial Inclusion opens doors for Banks to improve their Loan portfolio & maintain sustenance. It includes access to financial products and services like Bank accounts, Immediate Credit, Savings products, financial advisory services, Entrepreneurial credit. Financial Inclusion had not been taken up in big way because of Absence of Technology, reach and coverage, Delivery Mechanism & Not having a Business model. Challenges in Financial Inclusion are Dispersed client base with poor access, AML, KYC norms include parameters for rural banking, Limited electricity supply and telecom connectivity, ATMs not be viable and maintainable in erratic power situations, No Fixed Cash collection points, Manual Banking services, Access to account in nearby cities, Financial education, awareness & trust In the light of above requirements the Pre-requisites for Success are Appropriate Technology, Appropriate and Efficient Delivery model, Mainstream banks’ determination and involvement, Strong Collaboration among Banks, Technical Service Provider, BC Services Turnaround in IMB’s Rural Business In the era of Global Meltdown, Financial Inclusion is an Opportunity which can be unleashed by each bank to get ready for future. The ‘Reach for the Sky’ program involved technology upgradation, increasing the branch network to 2500, deposit mobilization, introduction of Internet banking services can be blended with the Financial Inclusion Plan as for development of IMB’s Business. IMB should use state of art Infrastructure for reducing transaction costs of dealing with the poor, develop institutions to act as intermediaries between existing institutions and the excluded, Build a technology platform on which these issues can be tackled, Legal environment necessary to support an innovative use of technology. The Key technologies that may help IMB would be Smart Cards, Personal Digital Assistants, Low cost ATMs, SMS Banking, Public Call Office (PCO) connectivity, Post office IT infrastructure. The Risk & Cost of IMB can be mitigated through technology like Mobile branches covering select geographies, Self-generated power - diesel, solar, battery, UID as common identification mechanism Online/Offline and Pseudo online data capture and updating system, Leverage Mobile networks, Cash deposit & dispensing partners, Developing rural-banking infrastructure, Information dissemination through partners, Internet kiosk enabled , toll free call center in local language, ATM cards for such customer.

Submitted by: Pooja Kalyanker, IIM Lucknow

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