Guess which financial intermediary booked the largest number of Indicas? If you are thinking it was one of the foreign banks or non-bank finance companies, you are way off the mark. It was Saraswat Co-operative Bank.

Surprised?

But it is such tiny banks that are making the most of the retail boom.

You may wonder how?

It is simple. The primary (urban) co-operative banks are the ones that have been closest to consumers. In fact, most of the shareholders of these banks are consumers themselves. So, it makes sense when they decide to focus aggressively on the retail segment.

The aggressiveness with which these banks are operating is evident from their growth figures. Against a 19.7 per cent growth in deposits for the scheduled commercial banks (SCBs) in 1997-98, co-operatives grew at an outstanding rate of 33 per cent. Even on the credit offtake side, co-operatives grew at a rate nearly double that of SCBs at 33 per cent in 1997-98.

Pay-off time
The strategy to concentrate on retail banking has paid off. On almost all financial fronts, co-operatives are way ahead of public sector banks (PSBs). Their spreads are almost a percentage higher than those of most PSBs, despite the fact that they pay higher interest rates on deposits.

In the past, with the bigger banks going for big corporate lending, PCBs were left with small accounts those of retail customers. This, however, translated into an advantage, as it helped them nurture relationship with their retail customers over the years. Not only were they positioned better, regulations have also been on their side. They have simplified recovery proceedings by having separate co-operative courts where judgement is delivered faster, unlike SCBs who have to file civil suits.

Better served
Even otherwise, co-operatives have been better tuned to serve their retail customers. To start with, many of these banks feel the need to have flexible timings morning as well as evening hours so that office-goers can access their accounts conveniently.

In terms of technology too, these banks have been at the forefront. Consider, for instance, the NKGSB Co-operative Bank, which commenced telephone banking several months ago. This, while the largest public sector bank and even some private sector banks have yet to venture anywhere near telephone banking. Moreover, NKGSB has been offering free ATM facility to its account holders with a view to retaining its clientele.

Recently, the bank was able to acquire 5,000 deposit accounts in one of its branch by being proactive. Thanks to the bank's initiative, numerous parents have been saved from the rigours of standing in queues at bank counters in order to pay their children's school fees. The bank first encouraged five schools to open accounts with it. It, then, offered to automatically transfer fees of all the pupils of these five schools to the accounts of the schools with the bank, provided their parents too banked with it.

To lure parents, it offered ATM cards, in the process making withdrawal and deposit of cash and cheques much more convenient. Parents no longer need to wait in queues at bank tellers. The success of the scheme has now prompted the bank to approach other schools.

Saraswat Bank too is banking on technology to drive its earnings. It has embarked on an information technology (IT) project, which will enable it to do ‘anywhere banking’ in the next two years. It also seeks to introduce new specifically targeted schemes and products like ‘pravasi loan’ for travel, ‘saraswati loan’ for education and ‘computer loans’ for personal computers. It even offers demat accounts facility. Other co-operative banks have followed suit. For example, Kapol Bank has introduced counterless banking and is expanding it operations rapidly to other parts of Maharashtra and Gujarat.

Advantage co-ops
The main advantage that co-operative banks like NKGSB Bank and Saraswat Bank enjoy over PSBs is that their running costs are far lower. For instance, 15 branches of NKGSB in Mumbai employ just 380 employees. The bank is opening another branch in Mumbai, which will have four clerks and two officers. The staff will be transferred from other branches. Such strategies adopted in early stages take the effective costs of co-ops much below that of PSBs, allowing the former to quote higher interest rates on deposits and lower rates on loans.

Most co-ops are well entrenched in the housing finance market, offering interest rates around a percentage lower than are housing finance companies. Even in case of car loans, they claim to offer the lowest interest rate at around 15 per cent.

All said and done, they still have limitations. For one, dual authorities regulate them. Being co-operatives, they are governed by state governments under the Co-operatives Societies Act. Also, as they perform banking functions, certain provisions of the Banking Regulations Act are applicable to them. The problem with dual regulations is that most of the times one regulator expects the other to do the job.