The Hindu Business Line : PSBs must cash in on product innovation

What PSBs usually call product development is basically re-positioning, re-packaging or re-classifying existing products. Real breakthroughs can come only with product innovation.

WHILE process innovation has its importance, as demonstrated by Indian pharmaceutical companies, real breakthroughs can come only with product innovation, which entails huge Research and Development spending.

Public sector banks (PSBs) need to put together creative product innovation teams. They have so far concentrated on process development, of which a good example is the automated teller machine (ATM).

Product development is a hazy notion in public sector banks. What marketing professionals call product re-launch, they understand as product development.

When a product is segmented for different markets with minor variations, it is still the same product. For instance, when an FMCG company promotes a soap, it is basically one product targeted at the premium, middle and economy segments of the market, with variations in the offering.

What PSBs usually call product development is basically re-positioning, re-packaging or re-classifying existing products. Their utility is questionable if they fail the test of commercial value and profit.

When a product that did not exist in a bank before, say, a credit card, is launched, it can be called development, but it is still not a creation if it already exists in the market. Then the `developing bank' is merely getting on to the bandwagon. When it creates a really new product, others will want to follow suit and try to beat it on delivery and pricing.

When two or more companies operating in the same market with similar product offerings want to increase market share, they differentiate their presence in various ways so as to be in tune with customer needs. The company that first came out with shampoo in sachets immediately gained market share.

Similarly, the new generation private banks differentiated their operations, by being highly technology savvy and picked up market share. They were in tune with customer needs. For instance, drawing cash at all hours of the day and without going to the bank.

Or the new tech-savvy professional needed to be able to operate his account from his computer, or the housewife from her telephone. So came the ATM revolution and Internet banking.

What the customer needs is cash, or a draft, or a money transfer. These are products the banks traditionally offer. What differentiates the banks is the mode of delivery. The differentiation is soon lost when others catch up.

So what keeps a bank ahead is new product offerings or the way they are delivered. Internet and tele-banking may soon be supplanted by newer modes with technological advances. The PSBs must keep abreast of these changes.

What are the organisational initiatives needed to stem continual erosion of PSBs' market share? They must get innovative. There is need for a major shift in the management mindset that can invite ideas from the operating staff who are closest to the customer, and implement them. This requires team building, experimenting, learning, and leading.

Equally necessary is process innovation. If toning up the financial performance of PSBs to that of private banks is an objective, they must learn to differentiate their best customers and weed out the parasites.

For the PSBs, the concept of a customer is quite hazy. To them everyone who walks in through their half-shuttered doors is a customer who has to be serviced equally indifferently. They are unfortunately indifferent to sharp practices too.

Modern day bandits run sophisticated operations, that suck banks dry in painless operations lasting a few years. Knowing that PSU banks will do anything to keep the status of their borrowal accounts at `no-default', they employ a variety of stratagems.

The entire strategy is based on bringing in minimal capital; inflating project cost and keeping the bank permanently tied down with a welter of ever-increasing demands to divert attention from money siphoning that is taking place all the while.

The number of such accounts in the banking system is large enough for PSU banks to be reduced to permanent crisis management committees rather than business development teams. The process innovations required here pertain to credit appraisal and audit.

NPA management in PSBs is largely active non-action. PSBs must take steps to build purposeful organisations; mere size will not enhance competitiveness.

(The author works for a public sector bank. The views are personal.)

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