A new report, ?Indian Banking: Towards Global Best Practices, Insights from Industry Benchmarking Surveys? by McKinsey disclosed that Indian customers are most price sensitive in Asia and are willing to switch easily. Also, the customer satisfaction level with financial institutions in India is the highest in Asia. The survey says that the newer banks have higher revenue per customer, driven by better cross-selling ratios and product mix. The new banks exceed the global benchmarks on multi-channel management and development of new channels.
However, Indian banks lag far behind their global counterparts on customer knowledge, segmentation and service culture. The survey findings suggest that India?s banking sector has performed well against three of its objectives; banks have provided high returns to shareholder over the last few years, contributed over 5% to GDP by creating millions of jobs, improved capital allocation, resulting in lower levels of non-performing assets (NPAs). But two areas-intermediation costs and financial inclusion need attention.
Most importantly, five survey findings highlight a clear divide in the performance of legacy banks and newer banks. While the overall profitability of newer banks and legacy banks is at par (15% and 14% respectively), the latter earn 33% return on equity (ROE) on their retail businesses compared to an average of 16% by the former, a result of their legacy deposit franchises. Similar benefits are being realised by a few of the newer banks that made early investments to build retail franchises. On the other hand, legacy banks earn 9% ROE on their remaining business as compared to 15% ROE by newer banks.
The survey also points out several areas for legacy banks to act upon. These include, augmenting their credit and market risk management practices that are, today, simply conform to regulatory and compliance measures, devising strategies to reap benefits from their substantive IT investments, and more importantly attracting, hiring, developing and retaining new-age leaders and specialists as emphasised by 80% of the respondents.