Indian public sector banks have had a rough run in recent years. First, with the rapidly rising NPA problem and now, with the increased competition from the NBFCs in the microfinance industry, the banks are continuously losing ground. Talks of a privatisation drive have been afoot in government circles and the banking sector for some time now. Although the scheme has its detractors, the move might actually help the ailing PSBs, for the real problem lies in the “government owned” status enjoyed by these banks.
The research undertaken by SNGC, Coimbatore, concludes that the public-sector banks have a meagre net profit per branch with a very high number of employees proportionally. Data released by RBI shows that the banks increased their employee base by almost 1.3% per year in the last three years. In the same period, the growth in assets under management has come down from 7.6% to 2.8%.
The PSBs are yet to escape the trappings of their corporate heavy approach in lending. Their sales operations are a mess. Today, when data driven informed decisions and processes have become industry norms in advanced markets, the Indian PSBs are still doing most of their business using the traditional “hit or miss” methods. The banks have simply failed to understand that the problem lies in the productivity of their workforce rather than in numbers.
Furthermore, there are very few products offered by banks to cater the needs of small ticket short-term borrowers, a segment targeted by most NBFCs. Capital Float expects a 20x growth in small ticket lending for this year alone, while Lendingkart and Indifi Technologies are also betting big on B2B lending. In the near future, NBFCs expect to derive almost 25-30% of their profits from B2B lending, which is projected to reach $700 billion annually by 2020. Surprisingly, the banks have no clear strategy for capturing the B2B space.
Businesses are looking beyond metros and tier-I / tier-II cities to meet the rising aspirations of the new India. The increase in small ticket lending is symptomatic of the same. PSBs lack the sales and product innovation required to service this new target segment. It requires an ability to go beyond conventional processes to aggregate, recognise and act upon data. Much of this is de rigueur among Corporate Houses who are increasingly conscious of the stress on their efficiency metrics. The recent case of India’s largest private bank (by market capitalisation) is a shining example.
Sales innovation at India’s largest private bank
HDFC Bank’s Sustainable Livelihood Initiative i.e. SLI business unit is present in towns and villages across 24 states in India. A 3-year vision articulates the plans for 4X growth of reach and for building the path to profitability. The SLI Business noticed that the customer acquisition cost (CAC) was increasing steadily in remote markets, owing to the lack of compliant customer profiles. HDFC recognised that reducing turnaround times (TAT) was integral to solving this problem, which meant increasing the productivity of the field sales team. It is an acknowledged fact that field sales teams do best when they are mobile, i.e., when they are out meeting potential customers instead of remaining rooted in the office. But, that is easier said than done.
Forced to consider an alternative to augment their sales efforts, HDFC SLI team zeroed in on Vymo. Vymo, founded by senior executives from McKinsey and Google, uses Big Data and AI to improve sales force productivity. Vymo’s mobile app helps detect agent activities, predict sales outcomes and also coach salespeople into increasing ROI on their efforts. It also enables Sales Leaders to understand insights from on the ground in real time, helping them make data driven decisions and optimise for better results. Based on the results of a pilot, HDFC Bank moved the entire SLI Business unit to the Vymo platform, automating their customer acquisition, KYC (Know Your Customer), assessment, approval and distribution processes.
The HDFC SLI Business Unit has since been able to doubled the number of customers sourced, reduce time to conversion by 7 times and also, lower turnaround time to less than a day. What is more interesting is that the salespeople adoption rate of Vymo is over 85%. With the data captured in just the first year, Vymo’s business analytics suite has revealed multiple opportunities for the division to drive a more intelligent market penetration strategy. The bank’s experience proves that technological innovation can dramatically shift business economics to build a highly scaled, yet fast growing and profitable.
The way forward for financial institutions
The experience has been similar elsewhere. Adoption of automation and utilisation of readily available unconventional credit data to target customers has increased the operational range of NBFCs. With that, the NBFCs are selling products and services which are expressly tailored for the B2B and B2C segments. Their loan terms are flexible and the turnaround time is way less than that of the banks. By investing more time and money in increasing their existing sales reps’ productivity instead of hiring more people, providing training and tools (digitisation), NBFCs have managed to reduce the performance gap between their rainmakers and average sales guys.
Similarly, PayTM, Capital Float, Lendingkart and Indifi have begun addressing potential customers by utilising big data techniques to assign credit scores and to improve sales and service. Automation and artificial intelligence are helping financial institutions reduce costs, optimise their processes and reach more markets. And in that World, the model of hiring more is only going to encumber the already stretched resources of India Public Sector Banks. Implementing sales technologies like Vymo can monitor performance and increase revenue per employee, and that is the key to the long-term success of the public-sector model of banking in India.
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