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Business Development Strategies Hand Outs

Strategy refers to a Plan of Action designed to achieve a particular Goal. The business strategy of a company provides the big picture that shows how all the individual activities are coordinated to achieve a desired end result. It is through the strategy process that the overall direction of the business is set. This is based on the opportunities and threats in the outside world and the internal strengths and weaknesses of the business. Need for Business Development Strategies 1. Increased competition . If you have a new, big competitor who has just entered your market or is preparing to enter the market and has the potential to be a serious threat, it is the right time to take a good, hard look at your business and the way it should compete in the future. Perhaps the new competitor has taken over one of the existing businesses (or even several in an attempt to consolidate your industry) and it's clear that they have a very different approach to business and different goals. . Perhaps the new competitor has a different business model and has significant advantages to the customer. . Perhaps the competitor has entered the market from overseas and brings with them a major cost advantage. 2. Changes in customer needs, wants and expectations . Customers can be very fickle and what they look for can suddenly change. . If the customer value criteria buyers use to make their buying decisions change either adding or taking away one element, or the weightings between elements change - it is essential that the company reviews its offerings quickly and makes the necessary changes. 3. Poor performance and fear of failure . If the business suddenly starts to perform badly, then you can expect external stakeholders like the bank or third party shareholders to put pressure on the managers to take a detailed review of their business and put together a plan of action to improve future performance.

4. There is a planning advocate . A new senior manager has been recruited who is a big believer in strategic planning. Alternatively one of the influential existing managers becomes aware of the benefits of strategic planning - from reading a book or from talking to other people who have seen the benefits of strategic planning.

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CURRENT ACCOUNT SAVINGS ACCOUNT (CASA)

CASA are also referred as the banks Low Cost Deposits. CASA plays a very important role in banks business as there are wide opportunities for business expansion and revenue enhancement through CASA. CASA accounts are most prominent in middle and Southeast Asia, and are an attempt to combine savings and checking accounts to entice customers to keep their money in the banks. The current account portion pays no interest while the savings portion pays an above average return. They are offered free or for a fee depending on minimum or average balance requirements. Strategies to improve CASA Business References from existing customers. Aggressive marketing through various channels. Tie ups and alliances. Qualitative services. Outsourcing

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TRADE FINANCE Trade finance is related to international trade. While a seller (the exporter) can require the purchaser (an importer) to prepay for goods shipped, the purchaser (importer) may wish to reduce risk by requiring the seller to document the goods that have been shipped. Banks may assist by providing various forms of support. For example, the importer's bank may provide a letter of credit to the exporter (or the exporter's bank) providing for payment upon presentation of certain documents, such as a bill of lading. The exporter's bank may make a loan (by advancing funds) to the exporter on the basis of the export contract. Business Development Strategies Tie Up with District Chamber of Commerce. Aggressive marketing of Credit Products (High Value). References. Database of the International Transactions. Survey Methods.

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PERSONAL LOANS Whenever a person considers taking a loan the first question that comes to mind is about the type of loan that he/she can get. The personal loan can be used for any purpose, such as renovating your house, marriage expenses, medical expenses, holidays, purchasing consumer durables, higher education etc. No clarification is needed while applying for the personal loan. Neither do you require a guarantor or security. You can obtain a personal loan primarily on the basis of your income.

The factors that decide how good an interest rate you can get for your personal loan include your income, your employer's profile, and your repayment track record for other existing loans. Many people, these days, take personal loans to repay their credit card dues, which carry a higher interest rates than personal loan.

Personal loan Features: Loans for salaried & self-employed individuals Special loans for doctors, chartered accountants, engineers, architects, company secretaries, and ICWAI graduates Loans are available from Rs. 20000 to Rs. 20 lakh for any purpose depending on your requirement Flexible repayment options, ranging from 12 to 60 months Hassle-free loans - No security/guarantor/collateral required Repay with easy EMIs Balance transfer facility to retire any higher cost debt Loans available against repayment track record of any existing auto, personal or home loan Loans available against proof of life insurance policy premium receipts Simple procedure, minimal documentation, & quick approval Strategies to reduce NPA in Personal Loan Regular tracking of accounts. Utilization of CIBIL effectively. Ensuring proper documentation (KYC) Clearly understanding the requirements. Auto debit facility from the savings account. Maintain good relationship.

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CREDIT CARD Credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services.[1] The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. Benefits to customers The main benefit to each customer is convenience. Compared to debit cards and cheques, a credit card allows small short-term loans to be quickly made to a customer who need not calculate a balance remaining before every transaction, provided the total charges do not exceed the maximum credit line for the card. Credit cards also provide more fraud protection than debit cards. In the UK for example, the bank is jointly liable with the merchant for purchases of defective products over 10 Many credit cards offer rewards and benefits packages, such as offering enhanced product warranties at no cost, free loss/damage coverage on new purchases, and points which may be redeemed for cash, products, or airline tickets.

Strategies to improve Credit Card Business Effective cross selling to walk in customers. Aggressive marketing of products to existing customers. Outsourcing. Display of product posters in Shopping Centres etc. Free Credit Cards to the HINs. Attractive Bonus and Reward Points. Waive off card charges.

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Current position of Banks retail loans in India Retail lending activity survived despite a number of restrictions imposed on it in the past. With financial sector reforms, the focus has shifted from "priority sector banking" and commercial lending has been reinstated to its rightful place. Today many banks focus on this activity for improving their bottom lines. Fresh and innovative products are being launched to facilitate the corporate customer who forms the core of this business. There is big competition among banks to secure bigger share of this business At present, commercial loans are available for practically any kind of activity and also for both long and short tenures. Based on customer profile, these loans are of two types:

Corporate Loans Retail Loans

India has emerges as one of the largest and fastest growing economies of the world during the last decade. The strengthening of the economy in India has been fuelled by the convergence of several key influences, like growth of the key economy sectors, liberalization policies of the government, well-educated work force and the emergence of a middle class population. India, having the second largest population in the world, is on its way to become the world's fourth largest economy in a span of 2 decades. Due to the restrictive regulatory environment and strict policies of the government of India until the early 1990's the public sector banks and other scheduled banks were the major lenders. Even with the entry of private banks, in the initial phase, there was limited competition between the public sector banks and private banks. Also, the thrust was not on developing the economy consistently through credit growth. Hence, banks did not feel the need to foray into the sectors that were under served. In the current scenario, banks have been thriving on retail lending. The focus of banks now, is to increase the probable profits while limiting possible losses. An increase in market penetration brought about a change in the business environment and in the way banks conducted their business. There was a change in terms of innovation in products as well as

processes to cater to the demands of the new age customer on one hand and to protect the bank from multiple risks on the other. Retail exposure of banks includes various types of retail credit, such as residential mortgages, consumer credit cards, automobile and personal loans, loans against securities, and small business loans. Retail Loans - Characteristics

These are small size loans These loans meet the needs of a large number of customers with well diversified portfolios The target customers are generally individuals or small organizations These loans offer standard products to customers. Very rarely a customer's requirement is customized The operations of retail credit are centralized in most of the banks Bankers can make quick credit related decisions because of decentralization These loans are designed to cover varied segments of risks High volume business High number of transactions

Salient features of retail loans

Types of facilities: Loans are the finance facility of a fixed amount extended to meet a onetime requirement of a customer, for a fixed tenure, to be repaid over a period in installments. To enable customers to meet their emergency requirements, bankers permit them an overdraft [OD]. This means that bankers allow the customer to withdraw more than the credit balance in the customer's current account or give a temporary loan in the current account itself.

Secured/Unsecured facilities: Secured loans are always secured by an underlying asset against which funding is extended. This lending is also known as asset based lending. A specific charge is created against such an asset. This gives the banker/lender the right to take possession of the asset and sell it to recover the loan in case of default. Unsecured loans do not have any underlying security and are purely extended based on the creditworthiness of the borrower. This is also known as non-asset based lending.

Interest: On a loan given at a fixed rate, interest is charged throughout the tenure of the loan at that rate which is fixed at the time of granting the loan. The customer has to pay interest at the contracted rate irrespective of whether the interest rate in the market goes up or down. In case of floating rate of interest, the rate at which the interest is charged on the loan varies from time to time according to the movement of interest rate in the market.

Tenure: The tenure for a loan depends upon the amount of the loan and repayment capacity of the customer. However, the maximum tenure permitted depends upon the period over which the asset financed could depreciate completely.

Loan to Value ratio: Loan to Value ration [LVR] refers to the maximum percentage of the value of the asset that is given as a loan. It varies according to the nature of the asset and also the rate at which the asset is expected to depreciate or reduce in value.

Rising income levels and a greater propensity to consume in India's tier-2 cities has created an attractive opportunity for retail finance players, a CRISIL study has said. The study, retail loan products: opportunities and risks beyond the metros and mini-metros, has detailed the current market opportunity, growth prospects, emerging competitive scenario and key operating parameters such as finance penetration, average ticket size, loan to value ratio and non-performing assets in these cities. The report has considered these parameters for five retail loan products including home loans, loan against property (LAP), car loans, two wheeler loans, and gold loans. The markets it has covered include Bhopal, Coimbatore, Indore, Jaipur, Kanpur, Kozhikode, Lucknow, Ludhianna, Madurai, Mysore, Nagpur, Nashhik, Rajkot, Thiruvananthapuram, and Vishakhapatnam. These markets are significant in terms of size and together account for about 15 per cent of the demand for retail loans in India, the report said. CRISIL Research believes that growth prospects in many of these markets are extremely strong. According to the report car loan disbursements in 10 of the 15 markets assessed are expected to clock a 20 per cent compounded annual growth rate (CAAGR) over the next 2 years as compared to 13 per cent CAGR in the larger cities. In 7 of these tier 2 cities, Loan Against Property (LAP) disbursements would grow faster than the rest of India, the report said.

Gold loans are expected to grow at a much faster pace (more than 50 per cent annually) in five non--southern cities assessed. Stronger growth prospects, lesser competition, higher yields and profitability comparable to the larger cities make tier 2 markets an extremely attractive proposition for lenders. Rising competition has seen over leveraging of customers, which along with rising rates may cause a rise in delinquencies. Even though this market is nascent, its one of the fastestgrowing loan segments. Unlike in the US, there is no sub-prime market in India. The US sub-prime market consisted primarily of people with little or no credit worthiness, most of them charged to sub-prime borrowers being mortgage loans. In India, the lower end of the personal loan market may be considered as a segment carrying some of the risks attached to the sub-prime.

Most customers in India are first-time borrowers from the organized market, and hence, have no credit history. The AEP study found that the big personal loans with an average size of around Rs 90,000 are given to more established individuals at lower rates of 14-28% against the 30-55% level. Competition in the personal loans market has increased with the entry of multinationals, private banks and NBFCs. Citi Financial and GE Money are the oldest players in this market. However, in recent times, companies like ABN Amro, Centurion Bank of Punjab, HDFC Bank, HSBC, ICICI Bank, DBS Cholamandalam, Fullerton India and Religare have been increasingly focusing on the personal loan. In most cases, the sub-prime market for these players constitutes somewhere between 5-20 per cent of the monthly disbursements.

Though some players like Citi Financial and Fullerton go through a personal screening of customers, this is not a practice being followed by everyone. Therefore, even though, India is not exposed to sub-prime lending, the likely recession in the US market may affect entire world economy. Indian stock market is showing a downward trend in line with the global markets as the prices of Indian shares, corporate bonds and real estate are decreasing. Most of the commercial banks have focused on retail lending by registering an increase of about 32 per cent with a subsequent reduction of 13.75 per cent in their NPAs on a y-o-y basis during the financial year 2006-07. It further revealed that among the major commercial banks, Centurion Bank of Punjab (CBOP) topped the list in extending loans in the retail segment. CBOP saw a huge growth of 65 per cent in their retail business in FY 2006-07. Others in the pack doing well in this area of lucrative retail banking included ICICI Bank (38.5 per cent), Bank of India (35 per cent), Dena Bank (33 per cent), Allahabad Bank (29.3 per cent) and HDFC Bank (22.9 per cent) Hit by a liquidity squeeze, a battered stock market, and the recent travails of big institutions such as ICICI Bank Ltd, Indias banks are feeling the impact of the global financial meltdown. But there are also made-in-India problems brewing, caused by the recent surge in unsecured lending. Indian retail lenders see non-performing loans (NPLs) rising across all lending classes, especially in unsecured lending which includes credit cards. NPLs in credit cards are in the 10-15% range while the figure often crosses 20% in small unsecured loans. The magnitude of the risk is worrying. Indian-owned banks made around Rs5 trillion of unsecured loans by Marcha fivefold increase in five years. In just two years through March, banks total NPLs rose by nearly Rs60 billion. Though banks have pulled back on lending in the wake of the global financial crisis, they need to act more firmly and swiftly to prevent the NPL problem from growing to a point where it may undermine confidence in a banking system, already under strain due to a slowing Indian economy and deepening global recession.

The situation Indias lenders face today shares features uncomfortably similar to those that prevailed prior to the Asian financial crisis a decade ago. Lets examine the principal factors that underlie Indian banks bad-loan problems: Aggressive, undisciplined market growth: Lending has been increasing by some 35% a year for the past three years, with loans to new customers accounting for much of the growth. To boost growth, banks relied on direct selling agents and retail partners to offer loans.

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Know Your Customer (KYC)


KYC can hinder the deposit growth of the Bank The regulations require the Banks to adopt KYC procedures (KYC is an acronym for 'Know your Customer', a term commonly used for Client Identification Process). It assists the Banks to know / understand the customers and their financial dealings better to monitor their transactions for identification and prevention of suspicious transactions. The RBI guidelines require the Bank to establish the identity of the customer on the basis of documentary proof at the time entering into any business relationship. By submitting the required information, you help the Bank in discharging its statutory / regulatory obligation. In 2002 the RBI directed all banks and financial institutions to put in place a policy framework to know their customers before opening any account. In November 2004, the RBI again issued a comprehensive guideline reiterating the objective of KYC guidelines to prevent banks from being used for money laundering activities or for the financing of terrorism. KYC has become a focus function due to:

Increased regulatory pressure, with regulators requiring ever-tightening control; Lowered risk appetite, requiring better understanding of counterparties, their taxonomy and corresponding collateral exposure; Business needs requiring faster turnarounds with lower costs in an environment of tightening margins.

However, the documentation hassles involved in KYC implementation have had a negative impact on the growth of number of investors. It becomes frustrating for the customers as well as for the financial organizations to adhere to the complex KYC requirements. For this reason, banks and financial institutions are now looking at implementing a more strategic approach to KYC compliance. Documents needed: The mandatory details required under KYC norms are proof of residence and identity.

A person's ration card, passport, utility bills or a letter from the employer or his housing society is accepted as residence proof. For proof of identity, passport, voter ID card, Permanent Account Number (PAN) card or driving licence too could work. Nowadays, most institutions ask for the customer's PAN too We have seen adverse impact of KYC are duplication of effort; over-diligence due to lack of clarity over requirements; violation of rules due to poor training, poor enforcement, or simply indiscretions on part of front office staff; poor internal and external interfacing resulting from inconsistent standards and ineffective tooling of processes. Given that it is mandatory for banks to follow KYC norms to prevent money laundering and to keep a check on suspicious transactions; this dissuades the lower income group from availing banking services? Its not practically feasible for everyone, like a maid servant or the sweeper in, to provide proof of residence. With a large part of Indias population belonging to the lower income group, strict KYC norms may deprive them even from opening a savings account? Impact: Although the effort towards strengthening identification norms has helped in preventing money laundering and reducing fraud, it has had a negative impact in an unexpected quarter. The growth in investor numbers in various instruments is either stagnating or reducing. Apparently, the KYC norms are proving restrictive because of the hassles of documentation. The KYC requirement sometimes leads to unnecessary and repetitive work, delaying operations. Customers complain about the paperwork involved. Ultimately, it means customers have to run from pillar to post for complying with the KYC norms. Investors complain of being asked to provide details repeatedly or face a freeze on their accounts Impact for service providers: Companies and distributors say, KYC requirements have burdened them with substantial administrative obligations. The verification rules place a financial burden on banks, insurance companies and mutual funds due to the involved costs. Currently, every entity has to individually conduct this verification which results in duplication of effort for customers as well as the institutions. There is a need to simplify KYC requirements . The authorities could opt for centralisation of the KYC norms to make investing easy for those not well versed with paperwork. Mutual funds have done this at an industry level by giving the mandate to a single entity, CDSL Ventures. A uniformity in requirements for KYC prescribed by all authorities would help make the filing easier. One important document that will make life simpler is - 'Aadhar', the unique identification number to be provided to each citizen by Unique Identification Authority of India (UIDAI), a government initiative. But there is still some time before it will be implemented. By making KYC norms simpler, it will make investments simpler. It is especially required if investing is to become more inclusive.

KYC, being a key regulatory requirement for all financial institutions across the globe, can be viewed as an opportunity to minimize business risks. Financial institutions need an appropriate solution to integrate the KYC process with their existing customer on-boarding process, to ensure faster customer on-boarding and minimize business risk by providing a 360 degree view of customer behaviour. An important offshoot of the KYC process is deeper customer understanding through customer analytics, further enabling effective cross-selling and up-selling.

********************************** KYC Need and Importance


It is critical for financial institutions, professionals working within the financial sector, bullion and gambling sectors as well as other regulated entities to know their customers very well. Financial institutions and other reporting entities should have a proper understanding of their customers to satisfy their respective KYC obligations. It is equally important that employees of these organisations are properly trained regarding the importance of KYC and the specific KYC policies or procedures of their organisation. KYC is important for a number of other reasons. For example, if a business knows its customers well, it may be able to prevent damage to its reputation and avoid fraud or excessive risk in financial transactions involving customers. The principal objectives of a KYC policy include: ensuring that only legitimate and bona fide customers are accepted ensuring that customers are properly identified and that they understand the risks they may pose verifying the identity of customers using reliable and independent documentation monitoring customer accounts and transactions to prevent or detect illegal activities implementing processes to effectively manage the risks posed by customers trying to misuse facilities. What risks are mitigated by KYC? Let's take a brief look at the risks that can be mitigated by an effective KYC policy. There are five types of risks that an effective KYC policy can help to mitigate: reputational operational legal financial concentration.

Reputational risk: The reputation of a business is usually at the core of its success. The ability to attract good employees, customers, funding and business is dependant on reputation. Even if a business is otherwise doing all the right things, if customers are permitted to undertake illegal transactions through that business, its reputation could be irreparably damaged. A strong KYC policy helps to prevent a business from being used as a vehicle for illegal activities. Operational risk: This is the risk of direct or indirect loss from faulty or failed internal processes, management and systems. In today's competitive environment, operational excellence is critical for competitive advantage. If a KYC policy is faulty or poorly implemented, then operational resources are wasted, there is an increased chance of being used by criminals for illegal purposes, time and money is then spent on legal and investigative actions and the business will be viewed as operationally unsound. Legal risk: If a business is used as a vehicle for illegal activity by customers, it faces the risk of fines, penalties, injunctions and even forced discontinuance of operations. Apart from regulatory risk, involvement in illegal activities could lead to third-party judgments and unenforceable contracts. In addition, professionals working within many financial and other professional sectors may also personally be subject to legal action or prosecution. Due to the nature of business, these risks can never entirely be eliminated. However, if a business does not have an effective KYC policy, it will be inviting legal risk. By strictly implementing and following a KYC policy, a business can mitigate legal risk to itself and its staff. Financial risk: If a business does not adequately identify and verify customers, it may run the risk of unwittingly allowing a customer to pose as someone they are not. The consequences of this may be far reaching. If a business does not know the true identity of its customers, it will also be difficult to retrieve any money that the customer owes. Concentration risk: This type of risk occurs on the assets side of a business if there is too much exposure to one customer or a group of related customers. It also occurs on the liabilities side if the business holds large concentrations of funds from one customer or group (in which case it faces liquidity risk if these funds are suddenly withdrawn). By implementing an effective KYC policy, a business can identify the entire scope of the asset and liability risk faced in relation to each customer and group of customers.

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LOW COST DEPOSITS


Faced with higher interest outgo on account of migration of deposits from savings bank to term deposits, public sector banks are looking at ways to improve the share of low-cost deposits. They are opening salary accounts, expanding branches, especially in untapped smaller cities, and waiving charges for add-on facilities. Margin protection A higher share of low cost current and savings account (CASA) deposits helps to reduce the interest expenses, thereby protecting margins. While the interest payable on savings bank is 4.5 per cent, the interest rate on one year and above fixed deposits is, on an average, above 8 per cent and going up to 10 per cent and above in case of longer-term deposits. Besides, savings bank deposits are more long term in nature as they are replenished. Therefore, they offer a more reliable source of funds for banks than term deposits, which are by their very nature available for a fixed time period. Bank of Baroda opened 45 branches in the first quarter and plans to add over 500 more this year. Of this, 269 will be in Tier-I and Tier-II cities and 253 in Tier-III to Tier VI cities. The bank added 18 lakh new customers in the first quarter and will focus on adding more, said Mr M. D. Mallya, Chairman and Managing Director. Share of the bank's CASA deposits fell to 33.92 per cent as on June 30, 2011, from 35.23 per cent last year. At 24 per cent, Corporation Bank's CASA deposits to total deposits ratio is one of the lowest in the industry. We are trying to replace high-cost deposits with CASA in order to protect our NIMs, said Mr Ramnath Pradeep, CMD. Corp Mahila Power', a savings bank-cum-loan account for working women and similar other schemes are expected to bring in more lowcost deposits. This year the bank is targeting a CASA share of 30 per cent. Indian Overseas Bank's CASA ratio came down to 27.56 per cent for the quarter ended June from 33.12 per cent in the previous year. We are looking to open 400 branches during this year which will contribute to savings accounts, said Mr M. Narendra, CMD. Our bank is on an account opening spree. We are targeting to open 75 lakh accounts to boost the CASA ratio to 30 per cent, added Nupur Mitra, Executive Director, IOB. Bank of India also plans to focus on customer acquisition for improving its CASA ratio, which as on end-June was at Misra, CMD, BoI.

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