YES BANK

Aditya S Prakash FTMBA Core, NMIMS 9833692253 aditya.s.prakash@gmail.com Rohit Singh FTMBA Core, NMIMS 9987311107 rohitkumar.singh7885@gmail.com Shraddha Kamat FTMBA Core, NMIMS 9222167824 shraddhakamat1984@gmail.com

Transformation Series: 2011

2010
NMIMS MBA CORE 2009-11 Team Name

Rupye Paise Prabandhak

SVKM's, Narsee Monjee Institute of Management Studies, Vile Parle (W), Mumbai - 400 056, India

EXECUTIVE SUMMARY It is suggested that PBoIs selection of region for its pilot project should be based on two factors: degree of financial exclusion (quantified through CASA accounts per 100 persons) and cost of transaction. Analysis of above factors has led to Rajasthan being chosen as the ideal region for the rollout strategy and that mobile technology is used so as to minimize the cost. The mobile technology must use open standards and architectures to the extent possible. The essential feature in infrastructure to make this option viable should include low cost repository of accounts, a payments interface and PoS (Point of sale) devices operated by bank. The credit & non-credit products are suggested taking into consideration the need for money among rural & semi-urban people, risk profile of bank and returns that can be achieved through those products. These suggested products can bring in ` 30 Cr of income in FY 2011-12 with further profits in subsequent years because of increase in number of branches of PBoI. Help of civil societies, religious association & committees (RACs) and panchayats along with word-of-mouth publicity are the major marketing strategies that PBoI should use to enhance & retain its customer base.

SITUATION ANALYSIS PBoI has emerged as the #1 Mid Sized Bank in the country. PBoI has since inception invested in innovative business processes and technology platforms and has many firsts to its credit. PBoI wants to make a rollout strategy for financial inclusion where it can make use of its strategic capabilities. It needs to develop innovative & profitable means to serve rural and semi-urban segment through low cost business models. The roll out strategy should comprise of pilot location, product offering in terms of credit & non-credit products and marketing strategy. This entire roll out strategy and design of products should ensure that PBoI risk profile is not significantly affected. ROLL-OUT OF THE STRATEGY 1. Selection of Region: Factors to be considered Number of CASA accounts per 100 person (Proxy for penetration of financial inclusion) Number of savings account per 100 persons and number of credit accounts per 100 persons (for rural as well as urban areas) are found to be lowest for north eastern, eastern and western region 1 . Thus, opportunities of financial inclusion in these regions are high as compared to other regions. Costs of Transactions A look at the comparative costs of provision of services through various channels shows that removing the physical presence of the bank is by far the cheapest method of transacting (Graph: 1). So even banking business in general will profit through technological advances and convergence with digital systems of payment. Therefore, we will select those regions where mobile penetration is high (Graph: 2).

Source: Rakesh Mohan, RBI, IDBI Gilts L

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1.5 1 0.5 US $ 0 Call centre Internet BAI ICICI

Branch

Mail

Source: CGAP Focus Note 32, 2006

Graph 1: Costs of Transaction

Selected Region - Rajasthan

Rajasthan is the most promising state with both opportunity and sufficient mobile penetration. Southern states have low scope of growth opportunity .

Graph 2: Circle-wise Mobile Penetration2 Mobile networking is better in this region as compared to other states Southern states have relatively better financial inclusion therefore scope of opportunity is less
2

http://www.icra.in/Files/Articles/2009-March-TelecomInfra.pdf
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ATM

Rajasthan is near to NCR which can very well act as its infrastructure backup

Suggestion for Strategic Advances To set the future of PBoI Ltd. in micro-finance, as per RBI guidelines, the amount of advance to an individual will not be greater than ` 50,000. The rate of interest to be charged would be not less than the open interest rate of 2% p.m.3, as people in the rural areas need very small amount loans (say ` 1000) for very small duration, say about 15-30 days, very frequently. The formalities involved for the issuance of such very short term loans should be minimal. The micro loan process should be fast and simple. Daily collection of interest (` 50-100) should be done.

TECHNOLOGY DRIVEN Mobile Technology would be a critical factor in spreading of our strategy as it would provide the banks with a means of communicating with the customers based in far flung villages. The mobile technology must use open standards, and architectures to the extent possible. The essential pieces of technology infrastructure: 1. Low cost repository of accounts 2. A payments interface among the accounts (G2P and P2P) 3. PoS (Point of sale) devices operated by bank, business correspondents and merchants FINANCIAL PRODUCTS Products Description CREDIT PRODUCTS Risk Mitigation

it comes out to be 24% p.a. for the bank

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Loan-surance

In this product, the insurance premium will be The loan will included in the loan amount itself, which would be insured in ensure that the loan liability is secured. the name. Banks

Mobile Overdraft facility (MOD)

MOD can be availed through short text The messages (SMS) only for business purpose by must the members who have opened an account with credit the bank under micro finance schemes.

member have a

balance

in the account

Mobile can be given to any civil society center in at least once in the village or kept with the BC/BF or it can also 2 months. be available with the traders and merchants.

Credit Loan Certificates

Life 6 months interest 6-7% p.a. for ` 5,000, The 10,000, 20,000 for all customers with loan facility must upon it interest rate 12-13%. fixed

member have deposits

with PBoI DairyBusiness Promotional Loans In India, there is a shift to organic farming, To be approved where the fertilizers, pesticides, etc., which are to only credit obtained from plant and animal products. worthy

Government is willing to take strong actions in customers who promoting the conservation of cows which is have generally taken up by women in rural areas. So, historical with all this in the background, PBoI should try record to get a first mover advantage by introducing such a product. good

Current account with overdraft facility

It is meant for small businessman, self employed Minimum persons, religious associations and committees For example, Ramlila committees, current account

Mandir, balance to be

Maszid, Church and Gurudwara etc., small public maintained schools

Credit Capacity Card

Prepare credit capacity card a of an individual Secured with the help of his / her property and wealth property

by and

once in a year, whenever he / she demand loan wealth of the within the capacity, there will be no paper borrower formalities.

NON CREDIT PRODUCTS MNFB Facility Mobile Non Fund based credit facility up to a Its prescribed limit can be availed through short contingent text messages (SMS) by the members who have based liability a

opened an account with the bank under micro and bank will finance schemes. give this facility only to

customers with good record. track

MARKETING STRATEGY Business correspondents can be trained through training centers, seminars and lectures. Initial training would include the knowledge of the product, its benefits,

documentation and bank norms. Further training would include ways of expanding and branching out further in other villages. Direct marketing through posters describing the various benefits of the product in the regional languages displayed at prominent places such as temples, post office, weekly markets and at village panchayats can be done Credit counseling centers can offer advice as to which PBoI product best suits the needs of the customer and could also provide specialized advice to farmers, small enterprises and self-help groups. Institutions such as temples and local community could also be made part of this credit counseling center which would lend authenticity to the centers. These Financial Counseling Centers (FCC) to be opened in 5 lead districts. Customers can also be encouraged through availing of gifts such as mixers, cookers, bicycle and farm equipment. Festival gifts for FDRs of more than 1 year (gift value 1% of the amount). Word-of-mouth publicity plays through the village panchayat and elders of the village can be tapped in to publicise the products of PBoI. Women folk, who generally have more savings or access to savings in a household, can be made the focus of these marketing strategies. Bank should give more microfinance loans to build faith in the villages that it will not run away taking their money as banks own money is stuck in the village. PROJECTIONS Credit Projections
Sr. Financial Inclusion Products no 1 Core Banking Solution (CBS) a PBoI b RRBs 2 No villages coverage under Total Financial Inclusion Mar-11 Mar-12 Mar-13 Total for 3 years

100.00% 0.00% 10.00% 20.00%

a b c

3 4 5 6 a. b. c. d.

Branches Micro Finance Branches By BC s > 2000 population4 < 2000 population5 No. of No-Frills accounts to be opened (in thousands)6 No of BCs (RACs)7 Individual No. of households to be covered (in lakhs)8 Credit facilities (No. in lakhs )9 Credit Loan Certificates10 Loan-surance11 MOD Dairy Business Promotional Loan12

5 2 100 300 30 500 100 1.221

20 5 400 1200 50 2000 400 4.875

30 8 600 1800 50 3000 600 7.314

55 15 1100 3300 130 5500 1100 13.41

0.317 0.75 1.221 0.061 1.221 1.221 600 500 5 2

1.268 1.25 4.875 0.244 4.875 4.875 2400 2000 20 3

1.902 1.25 7.314 0.366 7.314 7.314 3600 3000 30 4

3.487 3.25 13.41 0.671 13.41 13.41 6600 5500 55 9

e. Credit Capacity Card 7 Non Credit Facilities MNFB 8 Technology Initiatives Mobiles Kiosks ATMs13 9 FCT14 10 Business Volume (Crores) Deposits Advances

125.00 400.00 600.00 249.603 822.125 1170.902

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No of villages covered by BCs is 20 times the no of villages covered by branches No of villages covered by BCs is 60 times the no of villages covered by branches 6 Average accounts 200 per branch per year, Number of branches by Mar 2011 is 157, Number of branches in year subsequent to Mar 11 is 250 with PBoI objective of opening 100 branches 7 Regional Associations and Committees and Individuals, 3 villages are covered between 2 BCs 8 Average population per village = 1500 (http://cee45q.stanford.edu/2003/briefing_book/india.html), Average number of persons per household = 5, Household per village = 1500/5 = 300 9 Minimum 1 earner per household, conservative estimate 10 26% of total household, exhibit 1 of Yes Bank Case Study 11 Assuming 500 loans per branch (76.6million loan taking earners exhibit 3/number of branches in India 150,000) (NABARD) 12 5% of households 13 Assuming one ATM in every village covered by branches 14 Financial Counseling and Training
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Income Projection
Projections for 2011-12 Credit No. of Amt (` Limit Beneficiari In es (in Crores) Lakhs) 5000 0.32 15.87 10000 500 50000 0.75 1.22 0.06 75.00 6.11 30.53 Projections for 2012-13 No. of Amt (` Beneficiari In es (in Crores) Lakhs) 1.27 63.38 1.25 4.88 0.24 125.00 24.38 121.88 Projections for 2013-14 No. of Amt (` Beneficiari In es (in Crores) Lakhs) 1.90 95.08 1.25 7.31 0.37 125.00 36.57 182.85

Credit facilities (No. in lakhs )

Credit Loan Certificates Loan-surance MOD Dairy Business Promotional Loan (Govt Sponsored) Credit Capacity Card Total Credits Interest Income15 Fee Based Income (MNFB) (1% of total Granted) Total Income

10000

1.22

122.10 249.60 29.95 0.12

4.88

487.50 822.13 98.66 0.49

7.31

731.40 1170.90 140.51 0.73

1000

30.07

99.14

141.24

CONCLUSION PBoI should roll out its strategy in semi-urban & rural areas of Rajasthan as a pilot project. Since rural areas of Rajasthan have better mobile connectivity as compared to that of other states and taking into account minimum cost of implementation, PBoI should build communication infrastructure on mobile technology. It can provide

different innovative products (credit & non credit), as suggested. It can rely on word-ofmouth publicity and rural RACs for marketing its products.

15

Base Rate+5% average premium

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