Re-told Content:

Your Bank May Dump You, to Become Profitable
By Shiv N. Majumdar

Forget stomaching a refusal on your loan application, your bankers may even refuse to carry your savings bank account with them.

Recent trends in a few private banks point to private banks going about weeding out non- remunerative accounts with them in a business-like manner.

There is a whole new approach to how your bankers view their relationships with you. Having built a critical mass of customer base, savvy bankers now look at your every interface with them through the profitability microscope.

They would look at things somewhat like this. A customer visit to a branch costs the bank Rs 60 or so; once-a-month visits will annually cost Rs 720. This prompts your banker to be more convenient to you by offering you ATMs, phone banking and net banking. Net banking is yet to pick up, phone banking is relatively sparingly used, but ATMs seem to have become popular. Net banking and phone banking cost the bank least. At the ATMs, each transaction costs Rs 10 to Rs 15 depending on the volume at the location. If you visit an ATM 3 times a month, the annual cost would be Rs 360. Each leaf of chequebook costs 50 paise. Sending you four 100-page chequebooks and four quarterly statements sets the bank back by Rs 490 per year. So, even if you keep Rs 10,000 in your savings bank account for the whole year to earn Rs 350 at 3.5%, the bank still makes a loss because it can earn only 1% on your money or Rs 100.

Therefore, the banks are terminating "unwanted accounts" at the first stage. The reasons given out are either non-maintenance of a minimum balance or too many transactions in a savings bank account making it a virtual current account. At a later stage, they would start charging fees for transactions. In most western countries, transactions through ATMs are charged $3 per transaction.

Customers in private banks are already used to high charges for duplicate statements, cheque dishonours, collection charges, courier charges and the like. Profit orientation will drive you out, unless you maintain the stipulated minimum balance in your savings bank account or keep a hefty fixed deposit with them.

There are a lot of other changes also taking place at your bank. Bank branches now also hawk investment products to earn commission on selling RBI bonds, mutual fund schemes and insurance policies. Staff at branches concentrate on these front office jobs rather than reconciling accounts from dusty ledgers - these can be best moved to far off processing centers. Branch spaces, therefore, become smaller to save on money.

With this new profitability orientation and a large growing market, it is no wonder that there is a long line of potential new entrants to retail banking scene. Joining this list soon will be Indian private sector apart from foreign banking companies. However, the scramble is for metro branches since it is here that the cream lies. The PSU banks will have to make do with unremunerative locations.