Financial Daily from THE HINDU group of publications
Friday, Nov 28, 2003
Money & Banking - Private Banks
New private banks `weeding out' corporate salary accounts
Mumbai , Nov. 27
LEADING new private banks, aggressive to grow their businesses and build volumes, are in "weeding out" mode as many corporate salary accounts are seen to be "non-remunerative".
IDBI Bank recently closed about 11,000 corporate salary accounts out of a total account base of 2.6 lakh.
This is not a one-time wave of cherry picking; banks insist that non-profitable and non-remunerative individual accounts will be continuously weeded out at regular intervals after gathering accounts en masse.
The corporate salary account, a product that is aggressively marketed due to the lucrative cross-selling opportunities attached, is seeing the first round of shavings. The accounts are sold to companies to route employees' salaries through it and are typically zero balance accounts with plenty of freebies, such as debit cards, personalised cheque books, demat accounts and even facility to e-file one's income-tax returns.
Said a senior IDBI Bank official, "These individuals do not maintain much money in the account and sometimes are seen transacting heavily, adding to the operating costs of the bank. They also do not multiply the number of relationships with the bank by buying any of our other product offerings. The customer then does not make any sense to us."
However, the official declined to part with the names of the companies that have been shown the door and insisted that the relationship with the company/employees had not been soured.
For a private bank to call a customer profitable, he/she must maintain Rs 20,000-25,000 and preferably never even go in the vicinity of a bank branch, since a branch visit leads to high transaction costs as against an ATM transaction. IDBI Bank had initially sent out letters to about 29,000 customers, asking them to either close the account or convert it into a regular account with a minimum balance of Rs 5,000 and sans the freebies. About 18,000 account holders decided to convert the account into a regular savings bank account while the remaining 11,000 walked out possibly to another bank, explained the official.
ICICI Bank and HDFC Bank are also known to conduct weeding out exercises. According to market sources, 10-12 per cent of ICICI Bank's total corporate salary accounts have been closed, leaving a basket of 30 lakh.
Often, salary bank accounts closed by one bank are greedily grabbed by another private bank for lack of information about the customer; this customer could soon find himself jettisoned by the next bank too. Banks in India do not share relevant credit history and behavioural pattern of customers to avoid repeating the sieving exercise, said a bank official.
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