Rebrand Or Perish
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Of those 100 new branches, 45 have been opened outside the southern states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu: across the country, from West Bengal to Rajasthan and from Punjab to Chhattisgarh.
Federal Bank is not alone. Another Kerala-based lender, Catholic Syrian Bank (CSB), is also planning to venture out of its home state and open 50 branches this financial year (2012-13) in Bihar, Uttar Pradesh, Himachal Pradesh, Rajasthan, Maharashtra, Karnataka, Gujarat and Madhya Pradesh. The south of India, it seems, is going north — and west and east too.
And there are more ‘old' private sector banks — not just from Kerala, but also from Tamil Nadu — that are thinking of spreading their networks beyond the confines of their own states. Go around Mumbai or New Delhi, and you will see banners and advertisements of banks such as the South Indian Bank, for example. Or take Dhanlaxmi Bank, which about a year ago made a huge splash with its ‘rebranding' exercise.
What is driving this desire for rebranding? Let's face it: it involves more than a change of logo or increased presence. It involves strategic change, a fair amount of investment in creating a new identity, and even a rejig of the business model. There are also questions of timing: is this the right time to undertake the exercise?
"We don't open offices just to be able to say, hey, I am here also," says V.P. Ishwardas, managing director and CEO of CSB. "Our branch expansion philosophy is a tried and tested one." The bank launched its rebranding campaign in 2003, starting with a new logo; while that may have seemed just a cosmetic change, it is thinking of taking that several steps further.
There is little doubt that the competitive landscape has changed dramatically; most old private sector banks were largely regional players, but increasingly, the need for a minimal national, or a larger geographical, presence is becoming crucial. "But a bank looking at a massive branching out should clearly think about whether it wants to be a king in the south or a prince of India," says Robin Roy, associate director of financial services at global consulting and advisory company PricewaterhouseCoopers .
Many of the older banks have been merged with newer and larger players, seven of them in the last decade: Lord Krishna Bank, which acquired three Kerala-based banks in the 1960s, was acquired by the Centurion Bank of Punjab, which itself was a result of a merger of Centurion Bank and the Bank of Punjab — two of the first new private sector banks. Later, the Centurion Bank of Punjab was swallowed up by HDFC Bank. Then, Ganesh Bank in Maharashtra was merged with Federal Bank in 2006.
Also consider this: between 1996 and 2011, old private sector banks have lost market share to both their new brethren and public sector banks. From accounting for a market share of 6.6 per cent in deposits and 6.9 per cent in advances in 1996, old private sector banks grew to 7.4 per cent in deposits and 7.5 per cent in advances in 2001. But in the next 10 years — 2001-2011 — their market share dropped to 5.1 per cent in deposits and 4.6 per cent in advances. Given the desire for expansion, what should old private sector banks do?
"As these banks venture out into new geographies, it will be crucial to build their businesses around existing strengths," says Monish Shah, senior director, Deloitte (India), another consultancy. "But they also have to remember that past experience in building networks may not be easily replicable in new regions."
The implications are simple: investments have to be made, in people, in processes and systems and the service offerings have to be context-specific. Besides, the nature of banking channels is changing too. So should these banks look at newer pools of customers that are not region-centric? Their survival may depend on how well they manage rebranding objectives.
"Sustainable change is not a one-time exercise," says Roy. "That may increase short-term visibility, but new positioning requires continuous reinforcement of initiatives and measures." An aggressive expansion strategy needs capital. First, there is the choice of location: where do they want to be? Then comes technology upgrade. And another important factor is hiring local talent.
|45 the number of branches that Federal Bank set up outside the southern states in 2012|
|5.1% has been the old private sector banks' market share in deposits between 2001 and 2011|
Bringing in management talent can be expensive. Getting people from the new private sector banks — one of the places banks going in for rebranding look for good senior people — implies giving them salaries that old private sector bankers have never dreamed of. "Attracting successful talent from foreign banks, for example, comes at a high cost," says Naresh Makhijani, partner at consulting firm KPMG. And in many cases, the talent brought in to change the bank's image has exited, often abruptly. Former Development Credit Bank CEO Gauram Vir was one example; T.T. Jagannathan of Tamilnad Mercantile Bank also resigned recently. Departure of Amitabh Chaturvedi as head of Dhanlaxmi Bank grabbed headlines, jeopardising the bank's rebranding efforts.
Bang For The Buck?
Some analysts have estimated the cost of Dhanlaxmi Bank's rebranding exercise as being more than the profits of a quarter or two. But former bank officials see it as an investment. "There were little or no systems and processes that would be necessary to generate growth," says one, requesting anonymity. "There was almost no technology platform that is essential for expansion. The rebranding exercise brought that."
Vaibhav Agrawal, vice-president, research, at Angel Broking, a Mumbai-based securities firm, says, "The overall strategy did not pan out as planned. It hired too many people too quickly and the existing business was inadequate to absorb the high operating costs." The staff strength more than doubled as a result of the rebranding exercise. Now, the bank is talking about cutting costs.
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Expansion as part of a rebranding exercise is complex; managing growth across credit cycles while preserving credit quality and profitability is hard. "Key business risks have to be considered and managed properly to minimise unexpected shocks," says Makhijani.
Says Sharda Agarwal, director of MarketGate Consulting, "To make rebranding successful, banks have to have, besides the right business model, a customer acquisition strategy. Apart from the cultural profile of customers in new markets, assessing the strength of other bank brands will be key to customer acquisition."
Rebrand, Expand Or...
Axis Bank, formerly UTI Bank, reaped huge benefits from its rebranding; Bank of Baroda and Union Bank of India are among other ‘stodgy' public sectors banks that underwent considerable change in customer perception after their respective rebranding exercises.
In the case of Dhanlaxmi Bank the timing seems to have gone wrong. The rebranding occurred in the aftermath of the global credit crisis, and that could have worried some of Dhanlaxmi's key depositors such as the Sabarimala temple board. Such aggression at a time when caution was warranted created doubts about the efficacy of such an exercise. The jury, however, is still out on Dhanlaxmi.
But can the old private sector banks still grow while sticking to their knitting? Former Reserve Bank of India (RBI) deputy governor and head of the RBI-sponsored Centre for Advanced Financial Research and Learning, Usha Thorat, thinks they can. Recently, she said that data shows that "as long as old private sector banks cater to their niche segments in their traditional areas, they have been able to survive and grow at a steady and healthy pace".
But is survival enough? Not many seem to think so; anecdotal information suggests that reinventing — and rebranding — is almost not an option for the old private sector banks anymore. The proliferating non-bank financial companies, the bigger new private sector banks and some aggressive public sector banks are muscling in on their territory.
True, many of them are growing at almost 30 per cent in business terms (credit plus deposits), but the business of new private sector banks is growing at over twice that rate. Some of them are good acquisition candidates too. For those who want to retain their identities, the choice is stark: rebrand, expand or die.
(This story was published in Businessworld Issue Dated 09-07-2012)