Suvidha Bank: Changing With Time

This Case was developed by Prof. Nidhi Kothari, Prof. Rashmi Choudhary, Prof. Ankita Jain during 28 – 30 March, 2011 in ‘Case Writing and Case Analysis’ workshop organized at ‘Pioneer Institute of Professional Studies, Indore’, in association with AIMS, Hyderabaad.

The Suvidha Development Finance Corporation Limited (SDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'SDFC Bank Limited', with its registered office in Mumbai, India. SDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995.

SDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite.

SDFC Bank's business philosophy is based on four core values - Operational Excellence, Customer Focus, Product Leadership and People. SDFC Bank operates in a highly automated environment in terms of information technology and communication systems. All the bank's branches have online connectivity, which enables the bank to offer speedy funds transfer facilities to its customers. Multi-branch access is also provided to retail customers through the branch network and Automated Teller Machines (ATMs).

The Bank has made substantial efforts and investments in acquiring the best technology available internationally, to build the infrastructure for a world class bank. The Bank's business is supported by scalable and robust systems which ensure that the clients always get the finest services bank offer.

SDFC Bank has 1,780 branches across the India & 3 branches with 7 ATMs in Indore city. The manager of the bank at Indore branch, Mr. Ajay Sinha, having experience of 14 years in banking industry, successfully leading the branch in the most commercial area, situated in the old part of the city. The traditional part of the city is dominated by the textile businessmen, having the traditional styles of functioning. At the same time, the branch is facing tough competition from other 33 banks situated in the same area. But still the branch manager is happy that his branch is performing consistently well since the past few years of his joining.
His subordinates are highly motivated and are achieving the high targets of current account & savings account (CASA) opening & other product & services offered by the bank. But even after all this; the cost of operating the branch is very high in comparison of other branches of SDFC Bank. Due to this, the profit margin is decreasing, even after the wonderful performance of his branch.
To address this problem Mr. Ajay has undertaken the financial review of income – expenditures of the branch. The typical sources of income of a bank branch are interest income earned over the loan granted, banking service charges & financial service brokerages. The manager found that the income of branch is increasing since last three years and the major source of earnings of the branch are the commission charges, earned by providing various advisory services to the existing base of customers. So he concluded that there is need to control the expenditures, which are resulting in the negative outcome.
The operations of a bank branch involves various expenditures like the setup & infrastructure cost of branch, maintenance charges, human resources cost, interest payments to be made on borrowings & public deposits etc. Costs in regards to infrastructure, maintenance, taxes are difficult to control and hence the branch has little scope to manage the same. At the same time any kind of cost reduction with regards to the banking services provided by the branch may have the negative impression in the mind of customers as well. If Manager thinks to control the Human Resource cost by salary reduction or reduction in the size of staff, again may reduce the efficiency of the employees, producing another threat to the earning potential of the branch.

With the view to address the aforesaid issues, the manager conducted a detailed analysis of his existing customer bases and also his potential customers. He identified that majority of his customers are not using technology rather relying on the manual style of working. He found that businessmen are still completely dependent on their ‘Muneem’ (accountant) for seeking bank account information. The manager was surprised to find that since the evolution of the banking system in India, the system of ‘Muneem’ was prevalent in those days, as well as today. He also came to know that many times these Muneems visits the branch just to enquire the balance amount in the account of their owners.
By linking these two analyses the Manager came to understand that the reason of higher cost of operating his branch is due to the higher number of physical banking transactions. When he compared the data with other branches of same bank he noticed that the cost of a single physical transaction is approximately Rs. 50 in his branch. While other branches have reduced the same cost of Rs. 50 to approximately Rs. 1 or Rs. 2 per transaction as the customers of those branches have started to use the alternative channels of banking such as Mobile Banking ( M – Banking), internet Banking ( I – Banking), Automated teller Machines (ATM) etc.

The alternative banking channels offers various benefits not just to a bank but also to the customers who use these channels of banking. With the help of these channels
•    Customers can withdraw their fund at any time
•    Can Pay routine bills, fees, and taxes (utilities, phone bills, social security, legal fees, taxes, etc.)
•    Can get bank statements printed
•    Update their passbooks
•    Can Purchase
o    Postage stamps.
o    Lottery tickets
o    Train tickets
o    Concert tickets
o    Movie tickets
o    Shopping mall gift certificates.
o    Games and promotional features
•    CRM at the ATM
•    Donations can be made
•    Cheque Processing is easier
Same way the M – Banking & I – Banking facilitates the customers
•    Mini-statements and checking of account history
•    Monitoring of term deposits
•    Access to loan statements & card statements
•    Mutual funds / equity statements
•    Insurance policy management
•    Pension plan management
•    Status on cheque, stop payment on cheque
•    Ordering cheque books
•    Balance checking in the account
•    Recent transactions
•    PIN provision, Change of PIN and reminder over the Internet
•    Blocking of (lost, stolen) cards
The manger was happy to find the solution of his problem but still lots of efforts were to be put in to win the game. He found that the branch is already facilitating the customers by providing the alternative banking services by which he can achieve the target of cost reduction. But now it was the problem in front of manager that why the customers are not taking advantages of alternative banking channels. After a deep diagnosis of the problem he found the following reasons are responsible for the same:
•    Lack of awareness amongst the customers regarding the services offered & benefits derived
•    Illiteracy regarding use of technology
•    Ambiguity regarding authenticity of alternative banking channels
•    Cultural & traditional barrier
•    Technological disparity among the traders of the market
•    Use of ‘Muneems’ for ego satisfaction of owners
•    Resistance to change and lack of acceptance for the use of new technology.
The manager’s actual task have now begun, and it is a challenge in front of him to increase the visibility of his bank & more importantly the visibility of alternative banking channels amongst the customers in order to achieve the target of low operational cost.

1.    According to you is the manager right in selecting the strategy of reducing the cost of operating the branch?
2.    Is the branch manager effective in achieving the Bank's business philosophy?

3.    How technology can be utilized to increase the overall profitability of the branch?
4.    Suggest the various strategies to the branch manager for promoting alternative banking services.

Teaching Notes

Overview of the Case: The case has been developed from the live situations confronted by many branch managers of bank. This case is suitable not only to the banking sector but also helps other sectors which are facing the problem of lack of customer awareness.
Objective: The Case is meant for teaching all management students. The objective of the case is to enhance the analytical skills of the students, As well as to make student aware about the banking industry and the problem faced by the bank in the process of modernizing the industry
Broad guidelines: A group of 4 students will be required to solve this case and Time required to solve the case will be 1 hour. The analysis of the case will aim at finding the solutions of the problem as to how to make the traditional customers ‘Tech Savvy’