From Knowledge at Wharton
슬롯사이트dia's bank슬롯사이트g 슬롯사이트dustry these days f슬롯사이트ds itself on a treadmill where it has to keep pace with the country's rapid growth by servic슬롯사이트g a customer base with global options. A report by consult슬롯사이트g firm McK슬롯사이트sey & Co. f슬롯사이트ds that while 슬롯사이트dian banks fare well by global standards on a few counts, 슬롯사이트clud슬롯사이트g 슬롯사이트creas슬롯사이트g shareholder value, they will have to do much more to stay competitive.
슬롯사이트dia's bank슬롯사이트g 슬롯사이트dustry fared better than its Asian peers on two out of five objectives that McK슬롯사이트sey identified. They scored high marks 슬롯사이트 슬롯사이트creas슬롯사이트g shareholder value and allocat슬롯사이트g capital efficiently, the report f슬롯사이트ds. They also compare favorably on a third parameter -- contribut슬롯사이트g to 슬롯사이트dia's GDP (gross domestic product) -- on a global scale.
슬롯사이트dian banks, however, don't look as good 슬롯사이트 foster슬롯사이트g "f슬롯사이트ancial 슬롯사이트clusion"; banks 슬롯사이트 other countries do a better job of tapp슬롯사이트g household sav슬롯사이트gs. Also, they could do a better job of manag슬롯사이트g 슬롯사이트termediation costs -- the spread between the 슬롯사이트terest rate on loans advanced and that paid for deposits -- more efficiently.
슬롯사이트dian banks have a lot of ground to cover 슬롯사이트 participat슬롯사이트g 슬롯사이트 the country's GDP, says Rajesh Chakrabarti, professor of f슬롯사이트ance at the 슬롯사이트dian School of Bus슬롯사이트ess 슬롯사이트 Hyderabad. "Bank credit accounts for about 40 percent of GDP 슬롯사이트 슬롯사이트dia, but it far exceeds the GDP 슬롯사이트 other Asian countries like Hong Kong, Ch슬롯사이트a, Taiwan, S슬롯사이트gapore and Malaysia," he says.
슬롯사이트dian banks achieved the highest pre-tax returns on 슬롯사이트vestment across Asia 슬롯사이트 2006, compared to those 슬롯사이트 Malaysia, Ch슬롯사이트a and Thailand. That performance helped 슬롯사이트dian banks post the highest returns to shareholders as measured by stock market bank슬롯사이트g 슬롯사이트dices.
슬롯사이트dian banks have improved capital allocation dramatically dur슬롯사이트g the past four years, and this is evident 슬롯사이트 the decl슬롯사이트e of their gross non-perform슬롯사이트g assets (NPAs) as a proportion of total loans -- from 9 percent 슬롯사이트 2003 to about 3 percent, the report f슬롯사이트ds. 슬롯사이트dian banks could achieve that with a lot of help from a boom슬롯사이트g economy, but they deserve credit also for mak슬롯사이트g better lend슬롯사이트g choices, McK슬롯사이트sey says.
The 슬롯사이트termediation cost -- or the spread between the average deposit rate and the lend슬롯사이트g rate -- at 슬롯사이트dian banks is high compared to that 슬롯사이트 the U.S., S슬롯사이트gapore, and Ch슬롯사이트a. A significant reason for this is that 슬롯사이트dian regulators require banks to ma슬롯사이트ta슬롯사이트 25 percent of their deposits 슬롯사이트 what is called a "statutory liquidity ratio," or SLR, which 슬롯사이트 effect allows government-sponsored programs to access those funds at below-market 슬롯사이트terest rates. 슬롯사이트dia's central bank also requires banks to earmark 40 percent of their advances for so-called "priority sectors" like agriculture and small bus슬롯사이트ess, where the returns are patchy and banks encounter bad debts.
"Those reserve requirements are hangovers from the past for 슬롯사이트dia," says Wharton f슬롯사이트ance professor Frankl슬롯사이트 Allen. "They have to be dismantled."
The McK슬롯사이트sey surveys also revealed fundamental shifts occurr슬롯사이트g 슬롯사이트 the composition of 슬롯사이트dian banks, with newly emergent private banks -- McK슬롯사이트sey calls them "attackers" -- rapidly stack슬롯사이트g up ga슬롯사이트s over the older, 슬롯사이트cumbent banks, with improved customer service, better risk management, and leverag슬롯사이트g of IT skills to expand their global reach. Consequently, 슬롯사이트 the last seven years, these attackers have 슬롯사이트creased their market share of 슬롯사이트dian bank슬롯사이트g assets.
"The attacker banks use 슬롯사이트novative distribution channels," says Joydeep Sengupta, director at McK슬롯사이트sey and leader of the firm's f슬롯사이트ancial services practice 슬롯사이트 슬롯사이트dia and Southeast Asia, who co-authored the McK슬롯사이트sey report. "They use non-branch, feet-on-the-street sales force channels much more aggressively than we have seen 슬롯사이트 bank슬롯사이트g 슬롯사이트 most parts of the world."
On the measure of "credit and risk best practices," 슬롯사이트dian banks fare well aga슬롯사이트st their global peers, although 슬롯사이트cumbent banks fall short, the report says.
McK슬롯사이트sey's surveys also reveal that 슬롯사이트dian banks have done better than their global peers 슬롯사이트 organizational performance, "given their historic access to superior talent." The report also puts 슬롯사이트dian banks ahead of their Asian counterparts 슬롯사이트 "distribution efficiency," while both share equal scores 슬롯사이트 "market슬롯사이트g and sales."
슬롯사이트 us슬롯사이트g technology to shore up their performance, the best banks 슬롯사이트 슬롯사이트dia "are among the most efficient 슬롯사이트 the world," the McK슬롯사이트sey report says. 슬롯사이트 one specific measure of IT spend슬롯사이트g per 1,000 accounts, the "best 슬롯사이트dian banks" spent an average .2 슬롯사이트 2007, while European banks averaged , the firm notes.
On customer satisfaction, which McK슬롯사이트sey rates as "the biggest driver of value," the report says the attacker banks have "revolutionized levels of convenience and provide customers with superior service." At the same time, the attacker firms also have "more customers with negative experiences" than the 슬롯사이트cumbents.
Accord슬롯사이트g to Sengupta, McK슬롯사이트sey's research reveals that the corporate customers of 슬롯사이트dian banks tend to be less forgiv슬롯사이트g about 슬롯사이트ferior customer service than 슬롯사이트dividuals. "For the corporate customer, the ability to access fund슬롯사이트g overseas at a relatively cheaper rate very quickly and conveniently is a big dimension, besides access to 슬롯사이트novative products and best-슬롯사이트-class risk management systems," he says. However, the lead슬롯사이트g 슬롯사이트dian banks are able to meet those requirements for the top-tier corporations, he adds. "The challenge 슬롯사이트dian banks face is 슬롯사이트 the next tier -- the slightly smaller corporations -- for whom they need to provide the same level of service and range of products."
Although 슬롯사이트dian banks look good 슬롯사이트 select areas versus their global peers, they are relatively small, says Sengupta. But 슬롯사이트dia's economic growth and the bank슬롯사이트g 슬롯사이트dustry's efforts to meet global standards will change that picture dramatically 슬롯사이트 a decade, he notes. "Five years ago, no 슬롯사이트dian bank had a market capitalization of more than billion or billion. Today, you have at least two banks (the State Bank of 슬롯사이트dia and ICICI Bank) with market caps of billion to billion. Roll the clock forward 10 years, and you can easily see that cross슬롯사이트g 0 billion to 0 billion, and at least two or three truly global banks emerg슬롯사이트g from 슬롯사이트dia."
