Marketing strategies in the Indian banking sector

1. HISTORY OF BANKING IN INDIA

2. BANKING STRUCTURE IN INDIA
3. MAJOR SOURCES AND USES OF FUNDS FOR BANKS

4. THE IMPORTANCE OF MARKETING

5. MARKETING OF BANKING SERVICES
6. IMPORTANCE OF ELEMENTS OF THE MARKETING MIX IN
BANK MARKETING STRATEGIES
7. MARKETING SEGMENTATION
8. MARKETING STRATEGIES UNDERTAKEN IN THE
BANKING SECTOR
HISTORY OF BANKING IN INDIA

Overall View

The banking system in India is significantly different from that of

other Asian nations because of the country’s unique geographic,
social, and economic characteristics. India has a large population and
land size, a diverse culture, and extreme disparities in in-come, which
are marked among its regions. There are high levels of illiteracy
among a large percentage of its population but, at the same time, the
country has a large reservoir of managerial and technologically
advanced talents. Between about 30 and 35 percent of the population
resides in metro and urban cities and the rest is spread in several
semi-urban and rural centers. The country’s economic policy
framework combines socialistic and capitalistic features with a heavy
bias towards public sector investment. India has followed the path of
growth-led exports rather than the “export-led growth” of other Asian
economies, with emphasis on self-reliance through import
substitution. These features are reflected in the structure, size and
diversity of the country’s banking and financial sector. The banking
system has had to serve the goals of economic policies enunciated in
successive five-year development plans, particularly concerning
equitable income distribution, balanced regional economic growth,
and the reduction and elimination of private sector monopolies in
trade and industry. The banking industry to was subjected to various
nationalization schemes in different phases (1955, 1969, and 1980).
As a result, banking remained internationally isolated (few Indian
banks had presence abroad in international financial centers)
because of preoccupations with domestic priorities, especially
massive branch expansion and attracting more people to the system.
Moreover, the sector has been as-signed the role of providing support
to other economic sectors such as agriculture, small-scale industries,
exports, and banking activities in the developed commercial centers
(i.e., metro, urban, and a limited number of semi-urban centers).The
banking system’s international isolation was also due to strict branch
licensing controls on foreign banks already operating in the country
as well as entry restrictions facing new foreign banks.
These features have left the Indian banking sector with
weaknesses and strengths. A big challenge facing Indian banks is
how, under the current ownership structure, to attain operational
efficiency suit-able for modern financial intermediation. On the other
hand, it has been relatively easy for the public sector banks to
recapitalize, given the increases in nonperforming assets (NPAs), as
their Government-dominated ownership structure has reduced the
conflicts of interest that private banks would face.
Early years of the Banking Sector in India

Banking in India originated in the last decades of the 18th

century. The first banks were The General Bank of India which
started in 1786, and the Bank of Hindustan, both of which are now
defunct. The oldest bank in existence in India is the State Bank of
India, which originated in the Bank of Calcutta in June 1806, which
almost immediately became the Bank of Bengal. This was one of the
three presidency banks, the other two being the Bank of Bombay and
the Bank of Madras, all three of which were established under
charters from the British East India Company. For many years the
Presidency banks acted as quasi-central banks, as did their
successors. The three banks merged in 1921 to form the Imperial
Bank of India, which, upon India's independence, became the State
Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but
it failed in 1848 as a consequence of the economic crisis of 1848-49.
The Allahabad Bank, established in 1865 and still functioning today,
is the oldest Joint Stock bank in India. The nationalization of banks in
India took place in 1969 by Mrs. Indira Gandhi the then prime
minister. It nationalized 14 banks then. These banks were mostly
owned by businessmen and even managed by them. In 1991, under
the chairmanship of M Narasimham, a
committee was set up by his name which worked for the liberalisation
of banking practices.
BANKING STRUCTURE IN INDIA

Reserve Bank is the Central Banking Authority in India. All the

activities of banks and non-finance companies are regulated and
controlled by RBI through the credit and monetary policy.
In India the banks are segregated in different groups. Each group
has their own benefits and limitations in operating in India. Each has
their own dedicated target market.
Few work in rural sector while others in both rural as well as urban.
Many even only cater in cities. The Banking Structure is categorized
as below:

PUBLIC SECTOR BANKS

ê ê ê
SBI & Subsidiaries Nationalized Banks Regional Rural
Banks
(8) (19) (196)

Public sector banks

The Indian Banking Industry reached new heights after the
nationalization of banks in 1969. These public sector banks have
helped to build India through the years. They paved way for various
industrialization activities, infrastructure projects and to satisfy the
personal needs of an average Indian citizen. Among the Public
Sector Banks in India, United Bank of India is one of the 14 major
banks which were nationalized on July 19, 1969.
 PRIVATE SECTOR BANKS
ê ê
Old Private Sector Banks (25) New Private Sector
Banks (9)

Private sector banks

Private banking in India was practiced since the beginning of banking
system in India. The first private bank in India to be set up in Private
Sector Banks in India was IndusInd Bank. It is one of the fastest
growing Private Sector Banks in India. IDBI ranks the tenth largest
development bank in the world as Private Banks in India and has
promoted world class institutions in India.
The first Private Bank in India to receive an in principle approval
from the Reserve Bank of India was The Housing
Development Finance Corporation Limited, to set up a bank in the
private sector banks in India as part of the RBI's liberalization policy
of the Indian Banking Industry. It was incorporated in August 1994
as HDFC Bank Limited.
MAJOR SOURCES AND USES OF FUNDS FOR BANKS

SOURCES
1. DEPOSIT ACCOUNTS
 TRANSACTION DEPOSITS
 SAVINGS DEPOSITS
 TIME DEPOSITS
 MONEY MARKET DEPOSITS

2. BORROWED FUNDS
 FEDERAL FUNDS
 FEDERAL RESERVE BORROWINGS
 REPOS
 EURODOLLAR BORROWING

3. LONG-TERM CAPITAL
 BONDS
 BANK CAPITAL

USES
1. CASH
2. LOANS - MAIN USES
 WORKING CAPITAL LOANS
 TERM LOANS
 LINE OF CREDIT
 REVOLVING CREDIT LOAN
 CONSUMER LOANS
  HIGHLY LEVERAGED TRANSACT.
 REAL ESTATE LOANS
 DIRECT LEASE LOANS
 LOAN PARTICIPATIONS

3. SECURITIES INVESTMENTS

 TREASURIES
 AGENCIES
 TAX EXEMPTS
 CORPORATE BONDS

4. FED FUNDS SOLD

5. REPOS

6. EURODOLLAR LOANS

7. FIXED ASSETS
THE IMPORTANCE OF MARKETING

Today, businesses around the world, both large and small, cannot
ignore the impact that the global economy is having on their
performance. Globalization, the internet, and information
transparency have led to an increasingly mobile workforce, ever
more fickle customers, and rapidly changing technologies and
business models. One result of this seemingly inexorable trend
is that companies are less able to predict - let alone control - the
short-term shape of their own markets.
Marketing is a very important aspect in business since it
contributes greatly to the success of the organization. Production and
distribution depend largely on marketing. Many people think that
sales and marketing are basically the same. These two concepts are
different in many aspects. Marketing covers advertising, promotions,
public relations, and sales. It is the process of introducing and
promoting the product or service into the market and encourages
sales from the buying public. Sales refer to the act of buying or the
actual transaction of customers purchasing the product or service.
Since the goal of marketing is to make the product or service widely
known and recognized to the market, marketers must be creative in
their marketing activities. In this competitive nature of many
businesses, getting the product noticed is not that easy.

Strategically, the business must be centered on the customers

more than the products. Although good and quality products are also
essential, the buying public still has their personal preferences. If you
target more of their needs, they will come back again and again and
even bring along recruits. If you push more on the product and
disregard their wants and the benefits they can get, you will lose your
customers in no time.
Getting the product or service recognized by the market is the
primary goal of marketing. No business possibly ever thought of just
letting the people find out about the business themselves, unless you
have already established a reputation in the industry. But if you are a
start-out company, the only means to be made known is to advertise
and promote. Your business may be spending on the advertising and
promotional programs but the important thing is that product and
company information is disseminated to the buying public.

Various types of marketing approaches can be utilized by an

organization. All forms of marketing promote product awareness to
the market at large. Offline and online marketing make it possible for
the people to be educated with the various products and services that
they can take advantage of.
Companies must invest in marketing so as not to miss the opportunity
of being discovered.

Marketing as a tool, aids businesses by:

Boosting Product Sales

Apart from public awareness about a company’s products and
services, marketing helps boost sales and revenue growth. Whatever
your business is selling, it will generate sales once the public learns
about your product through TV advertisements, radio commercials,
newspaper ads, online ads, and other forms of marketing. The more
people hear and see more of your advertisements, the more they will
be interested to buy.
If your company aims to increase the sales percentage and double
the production, the marketing department must be able to come up
with effective and strategic marketing plans.

Building Company Reputation

In order to conquer the general market, marketers aim to create a
brand name recognition or product recall. This is a technique for the
consumers to easily associate the brand name with the images, logo,
or caption that they hear and see in the advertisements.

Thus marketing plays a very essential role in the success of a

company. It educates people on the latest market trends, helps
boost a company’s sales and profit, and develops company
reputation. But marketers must be creative and wise enough to
promote their products with the proper marketing tactics.
Although marketing is important, if it is not conducted and
researched well, the company might just be wasting on
expenses and time on a failed marketing approach.

MARKETING OF BANKING SERVICES

Marketing philosophy, in any context, refers to the need satisfaction

of the institution’s clients. The basic step involves identifying the
needs of the customers and developing products to suit their needs
or modifying the existing products accordingly. It also requires the
need for foreseeing wants of the customers in future and developing
suitable products of their
requirement. Deryk Weyer of Barclay’s Bank attempted a
comprehensive definition for Bank Marketing. According to him, it
consists of “identifying the most profitable markets now and in future;
assessing the present and future needs of customers; setting
business development goals and marketing plans to meet them and
managing the various services and promoting them to achieve the
plans, all in the context of a changing market environment”.
Marketing has four unique features which also apply to the banking
sector:
 Intangibility
 Inseparability
 Perishability
 Variability

Successful marketing in a bank calls for commitment at all levels

to the task defined in this regard. Achieving higher business
standards and operational performance through marketing of banking
services should be one of the directional goals of the organization.
The Indian banking system, by habit and tradition, considered
deposit growth as the business objective and other parameters such
as productivity, profitability, customer satisfaction, etc. were
considered less important. In view of the competitive surroundings in
which a bank is compelled to function, there is need for formulation of
a strategic action plan for its marketing efforts. A marketing strategy,
in general, is a systematic, appropriate and feasible set of concepts
and actions through which the institution strives to achieve its goal of
customer satisfaction and profitable survival. Strategy should be
designed after taking into
account the strengths and weaknesses of the organization. For
example, a bank or branch with clientele from various segments
could think of “market penetration” by offering the existing range of
services to existing customers. On the other hand, a bank which is
having expanding business through new branches or branches which
are not facing acute competition could think of “Market Development”
by offering the existing services to new customers. However, the real
marketing challenges arise from the institution’s capability to design
new product range for their customers of various segments. The
strategy, therefore, lies in increasing the client base and consolidating
the relationship with existing and new clients through existing or
newly developed products.
The operational aspects of strategies for marketing contain
actions such as development of Relationship Banking, designing of
effective delivery system, ensuring customer-oriented services and
modifying the system into a personal selling organization. In western
banking, officials assigned the job of personally contacting the
customers and offering the services at doorsteps had been able to
make a significant impact on the development of business for their
organizations. The importance and role of personal selling and
customer contacts in the marketing efforts of a banking institution
stem from the success of such efforts in many
banking institutions all over the world.
The implementation of the strategies is as crucial as its design in
ensuring successful marketing. The communication of the adopted
strategies to different tiers of the institution and ensuring of its proper
understanding by personnel at all levels, is essential for successful
implementation of the strategies. The communication becomes
difficult in organizations which have substantial branch network
spread over a large geographical area. The field staff at branch levels
should be trained to implement the strategies after modifying them to
suit the environment in which they are operating. The knowledge of
the local environment, demographic features and cultural aspects is
an essential requirement for the field staff involved in marketing
efforts for the organization.
IMPORTANCE OF ELEMENTS OF THE MARKETING MIX IN
BANK MARKETING STRATEGIES:

The elements of marketing popularly known as the Marketing Mix,

play an important role for the success marketing strategy of any
banking organization. Elements of the marketing mix often
referred to as 'the four Ps' are:

 PRODUCT
A product can be defined as a tangible object or an intangible
service that is mass produced or manufactured on a large scale
with a specific volume of units. Bank services are viewed with not
just things that are created with value but are seen in terms of
satisfaction they can deliver.
For example, a bank account is seen in terms of customer
satisfaction such as safety, convenience of paying dues, keeping
records, status, transferring funds, etc. How a bank brings about
changes in the structure of a bank product to transform potential
customers into actual customers is called Product Development
Strategy.
Bank Products are of a wide range. They include:
I) DEPOSITS
Time Deposits
II) ADVANCES
 Advances are of two types:
i ) Fund Oriented:
a) Term Loans
b) Clean Loans
c) Bills Discounting
d) Advances
e) Pre-shipment finance
f) Post-shipment finance
g) Secured and unsecured lines of credit
ii) Non-Fund Oriented:
a) Guarantees
b) Letter of Credit
III) INTERNATIONAL BANKING
a) Letter of Credit
b) Foreign Currency
IV) CONSULTANCY
a) Investment Counselling
b) Project Counselling
c) Merchant Banking
d) Tax Consultancy
V) MISCELLANEOUS
a) Traveller’s Cheques
b) Credit Cards
c) Remittances
d) Collections
e) Sale of Drafts
f) Standing Instruction
g) Trusteeship
  PRICE
The price is the amount a customer pays for the product. It is
determined by a number of factors including market share,
competition, material costs, product identity and the customer's
perceived value of the product.
In banking, pricing relates to interest paid by bankers on
deposits, interest charged on loans, overdraft, cash credit, charges
for various types of services rendered on Standing Instructions
given to the bank and commission charged. The RBI and the
Indian Banking Association are concerned with this respect. While
framing a pricing policy banks consider different pricing methods.
Banks are required to frame two fold strategies:
 Strategies concerned with interest and commission to be
paid to customers.
 Interest or commission to be paid by customer for different
types of services.
Banks also have to take the value satisfaction variable into
consideration while formulating pricing strategies.

 PLACE
Place represents the location where a product can be
purchased. It is often referred to as the distribution channel. It can
include any physical store as well as virtual stores on the Internet.
 Location of a bank at places accessible to the actual and
potential users will bring momentum in the banking activities.
While making a place decision the availability of transport,
communication and other necessary facilities for the smooth
functioning of the bank should be considered. It is essential that
branches are located at points where security arrangements can
be made available easily.

 Promotion
Promotion represents all of the communications that a marketer
may use in the marketplace. Promotion has four distinct elements:
advertising, public relations, personal selling and sales promotion.
Banking services can be promoted in two ways:
 Personal promotion i.e. personal selling.
 Impersonal promotion i.e. advertising, publicity and sales
promotion measures.
With the help of different promotional tools, a manager can
transform a potential customer into an actual customer
Advertising covers any communication that is paid for, from
cinema commercials, radio and Internet adverts through print
media and billboards. Public relations are where the
communication is not directly paid for and includes press releases,
sponsorship deals, exhibitions, conferences, seminars or trade
fairs and events. Word of mouth is any apparently informal
communication about the product by ordinary individuals, satisfied
customers or people specifically engaged to create word of mouth
momentum. Sales staff often plays an important role in word of
mouth and Public Relations.
Extended Marketing Mix (3 Ps)

Now a days three more Ps have been added to the marketing mix
namely People, Process and Physical Evidence. This marketing
mix is known as Extended Marketing Mix.

 People
All people involved with consumption of a service are important. For
example workers, management, consumers etc. Bank products
cannot be separated from the people who market them. Banks should
adopt internal marketing in order to make the entire business
customer oriented. The corporate mission should be communicated
effectively to all employees by the top level management. Recruits
should be conversant with all aspects of banking and also have social
interaction skills.

 Process
The process involves all the activities of banking service from the
product conception stage till its marketing at the branch levels. It also
includes the accounting procedure. Previously, banks were more
activity oriented but due to the technological advances they have
shifted their approach to customer oriented service delivery.

 Physical Evidence
Physical evidence focuses the customer’s attention since banking
products are intangible. Many private and foreign banks portray a
new and welcoming look to the customer. Flashy cheque books,
logos, symbols, attractive brand names, etc. add to the customer’s
perception of service quality. Bank branches represent state of the art
services for the benefits of their clients.
MARKETING SEGMENTATION

In Banking Services, the banks are expected to satisfy rural and

urban customers, high earning and low earning customers, small
scale and large scale entrepreneurs, etc. Hence segmentation of the
market is considered to be important.
According to Philip Kotler, “Market segmentation is the sub-division
of a market into homogenous sub-sets of customers where any sub-
set may be conceivably selected on a market target to be reached
with a distinct marketing mix.”

SEGMENTATION IN BANKS

I) Agricultural Sector
Sub segmented as:
a) 10 acres and above
b) 2 acres and below
c) Landless
II) Household Sector
Sub segmented as:
a) Above Rs. 1 lakh p.a.
b) Rs. 50,000 to Rs. 1,00,000
 c) Rs. 25,000 to rs. 50,000
d) Rs. 25000 and below
e) Above Rs. 5000
f) Rs. 2,000 to Rs. 5,000
g) Below Rs. 2,000
III) Institutional Sector
a) Religious
b) Educational
c) Charitable and clubs
IV) Service Sector
a) Financial Sevices
b) Non-financial Services
V) Trade and Commerce
a) Wholesalers
b) Retailers
c) Merchant Exporters
VI) Industrial Sector
a) Private sector
b) Public sector
c) Co-operative sector
d) Large-scale sector
e) Small-scale sector

IMPORTANCE OF SEGEMENTATION IN BANKING SERVICES

Banking services need segmentation since banks have to deal

with different types of customers in different fields. The purchasing
power of potential customers is different. In India, the emergence of
rural market segment is wider. Hence, it is important that
segmentation should be done in tune with changing socio-economic
conditions of rural users.
Thus market segmentation is important not only from the
viewpoint of expanding the market but also the motto of satisfying
varied customers.

MARKETING STRATEGIES UNDERTAKEN IN THE BANKING

SECTOR

Banks adopt different strategies for the various sectors to whom they
provide their marketing services to. The various strategies under the
various sectors of banking include:

Marketing approach for Urban Areas

The urban areas of India are developed taking into account all
parameters of development. The level of income of the people, the
literacy rate and level of education as well as awareness of the
people about rights of the customer are higher than that of the rural
and even semi urban areas. Thus here, for effective bank marketing a
different approach is necessary than that of rural areas. Here the
marketing strategy should be based on customer service and the use
of modern technology in banking.
 Under competitive environment for the success of the business,
better customer service is of paramount importance. Attracting new
customers and retaining existing customers is possible only with
customer service. Use of modern technology in urban areas will also
go long way for marketing of banking services. Technology based
service like credit card, debit card, ATM, anywhere banking, internet
banking, and mobile banking are necessary for urban areas. This is
because it enables customers to perform banking transactions at their
convenience.
Business hours of a bank are also an important factor for urban
banking. Banking services for long hours, say 12 hours and seven
days a week is preferred by urban customers. It is suitable to urban
life style. In India many private sector banks, especially co-operative
banks and now even some of the public sector banks have also
started this practice and they find it successful. To attract business
and wholesale customers, banks need to adopt technology based
products and services which are suitable to such classes of
customers. For instance RTGS, collection of out station cheques,
issuing the cheques at par at any branch in the country, cash
management facility, DD boutiques etc. are necessary.

Adoption of Universal Banking Strategies

Another strategy for effective marketing is that banks need to
change the focus from the traditional banking to Universal Banking. In
urban areas the extent and variety of economic activities demands
that one institution should meet all financial need of a customer.
Under such an expectation of people universal banking would prove
successful approach for bank marketing. The term ‘universal banking’
in general refers to the combination of commercial banking and
investment banking, i.e., issuing, underwriting, investing and trading
in securities. In a very broad sense, however, the term universal
banks refers to those banks that offer a wide range of financial
services, beyond commercial banking and investment banking, such
as, insurance. The idea is to conduct banking and allied activities
under one roof. Such allied activities may include credit cards, asset
management, housing finance and insurance, all of which are run
concurrently with core banking operations. A universal bank is a
supermarket for financial products. Under one roof, corporate can get
loans and avail of other handy services, while individuals can bank
and borrow. For increasing customer base and retention of the
existing cliental universal banking approach is effective strategy.
Universal banking offers number of benefits to customers as well as
the banks. For instance, economies of scale arise in multi-product
firms because costs of offering various activities by different units are
greater than the costs when they are offered together. The wide
range of financial products and services offered holds a greater
appeal for the customer than specialized banks due to the
comprehensive service provided by a universal bank. This is one of
the major factors which is useful for any bank to face competition
successfully and increase their market share. Modern banking is
heavily depending upon retail banking. To attract retail customer this
approach is ideal. Empirical study clearly shows that all most all
banks are taking retail customers seriously and focusing their
marketing strategy towards them. Universal banking with focus on
retail customers made the ICICI banks to acquire first position in
Indian banking sector. Other banks of India are also adopting ICICI
model for growth.
For banks economies of scale relate to cost-savings through
sharing of overheads and improving technology by jointly providing
generically similar groups of services. Since universal banking
basically provides financial services, the inputs like manpower,
infrastructure is more or less same. Necessary changes in the inputs
can be made easily. For instance training can be given to staff for
providing different financial services to customers. Moreover the most
important benefit for the bank is that it is useful to increase the fee
based income of the bank.
Financial sector passing from lower interest rate regime at
present and added to this the process of disintermediation is affecting
the main and the traditional source of income for the banks i.e.
interest income. All banks are striving hard to increase their fee
based income to improve their bottom line. Universal banking can
help the banks here positively.
Marketing approach for Rural Areas

Prior to nationalization of banks in 1969, the rural areas were virtually

without banking facilities. At that time, unorganized sector was
dominating in the rural finance. After nationalization of banks in 1969
branches of the banks were started gradually in the rural areas also.
Today, more than 50 percent branches of the banks are found in the
rural areas. However, the distribution of banks in the rural areas is
highly uneven. In different state the extent of rural banking is
different. Though some of the states have good performance in the
rural banking but in spite of that unorganized sector is still dominating
in the rural banking. It means here the nature of competition is
different. Here banks have to face competition with the unorganized
sector. Moreover the rural banking is highly regularized activity by the
Government in India. Lending as well as interest rate is regularized.
Thus under such environment different marketing approach is
required.
For effective rural marketing product development, promotion
and communication is important. All these parameters banks have to
balance with socio-economic factors prevailing in the rural areas.
Here bank need to innovate product that could attract the depositors.
Various loan schemes that are suitable for them for getting funds at
right time and also they find convenient to repay. For instance
traditional saving bank account may be given a fixed deposit concept
that once a particular limit of balance is reached the funds from
saving account is automatically converted into fixed deposit attracting
higher interest rate. Same way giving more liquidity status to fixed
deposit account. In some of the states of India there is considerable
amount of NRI deposits. Banks need to develop some scheme which
would attract them to bank with for giving loans and advances and
products which are suitable to farmers, small traders, small scale
agro based rural industries which are in existence. Banks need to see
that how value addition can be made to these existing schemes.
Banks also needs to tie up with Non Government Organizations
and various Self Help Groups for different types of loans, micro
financing etc. This will help the bank for building good image and
reputation in the rural areas over and above the business. Another
potential area which can be explored by the banks in the rural area is
retail banking. With the steady increase in the income of the rural
people there is ample scope for retail loan products like housing
loans and loans for consumer durables.
Marketing through customer services in rural areas is different
from that of urban areas. Here personalized banking is the success
mantra for banks. Because of high level of illiteracy people prefer to
undertake banking transaction themselves. They hesitate to depend
upon technology based service. For effective marketing in rural areas
bank should have staff with right soft skill like concern for customers’
problem, positive attitude, good communication and negotiation skill.
At every level of dealing with the customer bank need to educate
them for banking activities and processes. To attract the customers
from the unorganized sector most important factor is to provide the
borrower the required finance of right amount and at right time.