The Hindu Business Line : Not banking on frills

THE INITIATIVE OF the State Bank of India to launch a `no-frills' account, aimed at the masses, with liberal stipulations on the size of the initial deposit and exemption from the minimum balance requirement needs to spread quickly not only across the SBI group but the entire banking network. Even with a hundred crore population that That the banking system should have a mere10 crore savings bank accounts for a population in excess of 100 crore is an indicator, albeit a crude one, of the level of penetration of the banking habit. While this is bad enough, what is all the more regrettable is that there has been no discernible progress in spreading the banking message, as the sector's growth in the rural areas — where as much as 70 per cent of the population lives — in the last eight years has barely kept pace with the growth in the population.

Much as India is touted as an emerging economic superpower in a few decades, the harsh reality of its current development experience is that vast sections of the population are still to be networked under a banking system. The spread of the banking habit is perhaps a proxy measure of prosperity percolating to the population at the bottom of the pyramid. But from a policy perspective official intervention in instilling the banking habit among the public could also be viewed as a conduit for reaching social security benefits to the disadvantaged, in the normal course and especially during natural calamities. The diffusion of the banking culture, with the socio-economic profile of the account-holder coded in, would offer public authority a competing instrument of delivery of financial relief on such occasions in comparison to that of the provincial/State-level bureaucracy that is often caught under a miasma of corruption and insensitivity. The stampede that took 42 lives in Chennai recently, whether triggered by rumourmongers or not, is not the best advertisement for efficient distribution of calamity relief.

For the banking industry, too, the introduction of a `no-frills' savings account needs to be seen as a concession to the socialistic sensibilities of the authorities. But this could well be a strategic initiative in business development. It is not uncommon among players across diverse product markets to see customer acquisition as an investment decision with future pay-off possibilities. Surely, it is not altruism that drives credit card issuing banks to waive the first year membership and processing fees to the prospective customers. The traditional consumer banking need be no different. Also, it is well-accepted management wisdom that there is profit to be made from those at the bottom of the customer pyramid. And if the banks can re-engineer themselves and provide strategic and business intelligence to these disadvantaged customers, they could even help some of them emerge from the bottom of the pyramid. That gesture may be worth a lot more in securing customer loyalty than the most imaginative `frequent-flier' programme that airlines can come up with.