Good strategy

In general, most of the private sector banks have been reporting Q4 numbers on the expected lines. Axis Bank reported loss solely on account of an extraordinary item arising out of the purchase consideration paid to Citibank for acquiring their retail business that could have been amortised over a longer period but was fully charged to P&L account as a prudent measure.

However, the Bank that has posted extremely strong numbers is none other than IDFC First Bank. And its CEO responded to some hard questions with utmost confidence that ruled out any one time/ short term windfall but sustainable business being built on solid foundations.

My readers would recall that I had very enthusiastically lauded IDFC’s proactive initiative of waiving all kinds of charges for their retail customers. Many pundits were circumspect about the merits of this act, but the Bank seems to have reaped rich dividends from its farsightedness. In fact, to my mind, loss of income due to the aforesaid measure has been more than adequately made up by the Bank by improving its NIM to unexpectedly high levels of more than 6%. As I could make out from what the CEO was explaining, I think the Bank is no longer paying very fancy interest on SA deposits.

On a slightly different note, there was a major disruption when RBI freed interest on Saving deposits in the year 2011. Some of the smaller banks offered rates as high as 7% and beyond, though larger banks held on to the then existing rates. It was opined by the experts that customers were not influenced by interest rates in respect of check accounts ( as saving accounts are also known as) and therefore, over the years savings interest rates have more or less evened out. However, customers, especially the liability customers who place their deposits with banks, are definitely sensitive to whole lot of charges being applied by banks on various services used by them. It’s also true that though customer sign off is obtained on the schedule of charges, many of these are not adequately understood by the customer! IDFC’s strategy could be a way forward for companies that are trying to wean away a portion of the market share in a highly competitive and overcrowded market.

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