Regulatory Climate will remain Dynamic and Adaptation is only option for Banks

 

World is facing dual challenge of depression hit growth and fragile banking environment in developed economies which are slowly but surely engulfing growth engines of BRICS nations. Banks are facing near perfect storm of challenges and conflicts in an uncertain and volatile environment both locally as well as globally. Since 2008, its strongly felt that financial industry is needed to restore investor's , customer's , economy's and nation's confidence. Internal competition within financial industry as well as external competition from outside is adding to pressures in financial sector across nations. Investment banking units of 'too large to fail' banks have fallen from echelons and has added to the gloom so much that banks such as UBS and Credit Swiss have been restructured drastically. Restructure in Swiss banks with pedigree of several centuries is a strong indicator of competition and macro-environment, drastic steps have added emphasis on operating efficiency as well as on derisking of portfolios. Profile of Risk and compliance functions have grown significantly as banks are driven to re-balance systems, processes and business models to meet stringent policies by central banks and Global financial support system.

While some banks have decided to concentrate on core strength by winding off non-traditional units some other banks target to de-risk the portfolio by expanding further across the globe in developing economies. These Global banks will be needed to adapt their Global models according to central bank's policies of nation in which they expand but adaptation will remain challenging since national policies remain fragmented across continents and nations.

Developed vs Developing Economies

 

In near future, World Banking index (if such index exists) shall lag World Stock indices since banks will bear major expense to adapt for new regulatory environment which will put pressure on RoE as well as RoCE. Though numbers might appear skewed since many private (India) as well as state owned banks (China) in developing economies are showing strong growth and healthy bottom line. However if we consider broad based numbers across the banking industry in India and discount for risk due to  shadow banking system in China then two economies don't stand that far away from global economy.

Wondering if this is right time to quit banking industry for good? What do you think?

Tax Planning Section 80C

 

Mandatory EPF, Voluntary PPF and the lesser know VPF

 

Though all salaried class are well aware of PF or EPF which is mandatorily deducted from their salaries but not many are aware of VPF. Here I list down few points to do a quick comparison between PPF and VPF and why one must put some money in VPF instead of PPF.

PPF

Interest - PPF rates are now market linked, ppf rate will be 0.25% above market rate of 10 year Govt securities. Currently its 8.8% though next year its expected to be lower around 8.5% pa. Interest is compounded annually though its calculated on monthly basis. Hold on to PPF till maturity to maximize compounding effect.
Frequency - Can submit 12 times a year

Always submit premium before 5th of a month to earn interest for that month as interest is applicable on minimum balance in account b/w 5^th and 30^th of that month.
Tax benefit - No tax on interest earned, withdrawls or maturiy Best part of PPF is one can also take a loan against it, but loan cannot exceed 25% of the balance in the preceding year. Interest charged on loan is 2% till 3 years and 6% for longer tenures.

From current fiscal onwards i.e. 2012-2013, one can open PPF account even with ICICI as well as IDBI.

VPF

Voluntary Provident Fund (VPF): One can contribute more than PF ceiling of 12% mandated by Govt. VPF enjoys same benefits as PF except that employer is not liable to contribute towards VPF unlike EPF.
Maximum contribution: VPF + EPF must be less than 100% of basic salary
Interest - Interest rate of VPF is same as EPF and withdrawl is tax free. Interest rate for VPF/EPF is higher than PPF (as of Jan 2013)
Investment Period
VPF - Amout paid at time of leaving the job. Can be transferred from one company to another
PPF - Amount can be withdrawn at maturity i.e. after 15 years
Tax implication:
VPF like PPF eligible under 80 C for Tax benefit. No tax on withdrawal

Additionally one can break investment into VPF across months, so one need not invest same amount every month instead one can invest in single shot or once every month or only for a few months.
VPF savings are deposited as part of PF in PF account itself


If you are salaried and have to decide between the two, Voluntary provident fund is better than PPF due to a) Higher Interest rate (compare rates in financial year in which you need to take decision) b) quick process c) Locking period is less

Customer Experience and value of client Retention

Everyone knows  that customer retention is highly cost efficient compared to new client acquisition still companies end up overlooking basic concepts through which they can convert customers to promoters. Promoters through word of mouth marketing can do for companies more than millions spent on marketing budgets.

Customer experiences or interacts with your company through:
1. Product/Offering – product and service characteristics and how your customers use or experience them
2. Brand – Through advertisement, marketing campaigns etc
3. Touch points – such as sale store, customer service, social media etc

Based on experience through above interaction points, either customer will convert into a promoter or detractor. Importance of above factors varies from industry to industry, for example offering is more important for Apple however brand is more critical for Marlboro while touch point is most important for service sector such as in banking industry.

Human Factor

Though customer will always weigh best possible options in the market before making any purchase but given few choices customer may decide to go with company with presentable product that offers excellent customer service compared to one that offers excellent products but not so great service. Human beings like to be given importance and value trust and honesty shown by a company that offers better customer service.

How to convert clients into promoter?

• Inbuilt ‘Customer Satisfaction’ in company’s and employee DNA

• Design experience for customer that cannot be imitated quickly by competition. Weave your service around this concept

• “Make them feel valued”, “Make them feel important”, “Share their values” – In brief listen to customers and respond to their feedback