Source: E-mail dt. 19.3.2013


A Salvaging Tool for the Banks


D.Asokk B.E., M.B.A., M.Phil., M.H.R.M, (Ph.D)

Associate Professor,

Dept of Management Studies,

M.A.M College of Engineering & Technology,

Trichy, Tamilnadu.




††††††††††† The economy is a combination of many significant factors, like inflation, government spending, money circulation in the economy, Foreign Direct Investment, Foreign Institutional Investor and etc. Even a small change in any one of these factors can cause a potential damage to the economic growth. After globalization, the damage caused by these factors increased multifold. Over the past year, a number of events like US debt down grade, Euro zone debt crises, slow down in China have shaken the world economy adversely.Simultaneously, Indian economic momentum slowed down by high inflation, monetary tightening, high interest rates, and etc.


The monetary tightening policy of the RBI to control the inflation led to the increase in the volume of non-performing asset of the banks in India. So the banks are searching for new avenues to expand their profit margin in this tough time. This paper suggests a way to elevate the profit of the banks.


Rough economic weather and its impact:


Due to high inflation prevailing in India, RBI increased interest rate 13 times in the last one and half years. It adversely affected the credit demand of both the consumers as well as the industries. In addition to it, the bad loan problems of the banks worsened significantly in the June- September 2011 with manufacturing output slowing down.


Gross non performing asset (NPA) increased by 20% between June- September 2011 alone. It is one of the highest drops in the last several years. The Rs. 16,132 crores hike in NPA in the June- September 2011 quarter was more than the hike for the entire previous fiscal year.



Profit (in crs) jun- sepí11


(in crs) jun- sepí10


% (growth/



(in crs) apr- sepí11


(in crs) apr- sepí10


% (growth/decline)

Canara Bank







State Bank of India






19 ↓

Oriental Bank of Commerce







State Bank of Hyderabad







Central Bank








Table shows the performance of some of the banks in India which were affected bythe recent economic problems.


A tool to salvage the bank:


†††††††††††††††††††††††††††††† New customer inclusion and increasing the frequency of consumption of service/ product are some of the best options to be chosen. The proportion of rural customers who lack access to basic banking service is nearly 40% in India. This rises to over 60% in Eastern and North-Eastern India.


The major barriers to serve these customers are


(1)   Lack of infrastructure facility

(2)   Lack of transportation

(3)   High transportation cost

(4)   Travelling time


The existing business model does not provide convenience, flexibility as expected by the customers. A Kenyan company called ďSafaricomĒ introduced a new business model to serve the rural customers in Kenya. The new model brought success to the company.


A business model to be admired:


Safaricom is a mobile communication service provider. After several study, it found that 38% Kenyans do not have any form of financial services. Hence, it turned its focus towards these customers for providing convenient, reliable money transactions. Safaricom named its service as M-Pesa. In this service, customers need not have any bank account. But customers have to register with M-Pesa service. If a customer wants to transfer his money, he has to contact local M-Pesa retailer. The retailer will assist the customers to convert his cash into e-cash through mobile. The intended receiver can meet his nearby M-Pesa retailer to collect the money by following company instructions. Within a month of launch Safaricom registered over 20,000 M-Pesa customers well ahead of initial projections.


A suitable business model for India:


A new business model is proposed, based on the M-Pesa concept with suitable modification. In this model, our banks can make a forum or Reserve Bank of India (depends on the Indian law) can monitor and control the whole process. Here, it may be assumed that Reserve Bank of India controls this activity.


1.      The Reserve Bank of India can enter into agreement with the mobile communication service providers.

2.      Then Reserve Bank of India can provide license and unique identification number to the local retailers by collecting some security amount from retailers.

3.      The bank transaction scratch cards can be provided to the authorized retailers by charging some minimum amount.

4.      The person who wants to send money to other person can contact the bank authorized retailers and purchase bank transaction scratch card for some minimum amount.

5.      Then, the sender should type the unique number given in the bank transaction scratch card in his mobile. Along with that, he should add information like indented receiverís name (accountholderís name), bank name, account number, the amount he wants to send him and receiverís mobile number.

6.      For RBIís reference, he should also type the retailerís identification number.

7.      This information should reach the RBI server through Short Message Service (SMS). The mobile communication service provider can charge Rs 2 or Rs 3 for this SMS.

8.      Then the server will inform retailer about the money he should receive from the customer.

9.      Once the retailer collects the money, he should send a SMS to the server as an acknowledgement for the money he has received.

10.  Then, the server will send a password to the sender.

11.  The sender will inform the intended receiver the password.

12.  Meanwhile, the amount will be deposited in the concern personís bank account and a SMS will be sent to the intended receiver about the money transaction by the RBI server.

13.  If the intended receiver wants to get the money he can go to nearby ATM or approach the bank. Because amount is invested in the receiverís bank account.

14.  In case, if the receiver wants to get the amount from local retailer, he has to purchase bank transaction scratch card.

15.  Then, the receiver should type the unique number that he got from the bank transaction scratch card. Then he has to furnish details like password that he has received from the sender, bank account holderís name (receiverís name),bank account number, bank name, the amount to be receivedand retailerís identification number (from whom he wants to collect money)

16.  The server will verify the details. If all the furnished details are correct, it will inform the local retailer to handover the money.

17.  Finally, receiver can collect money from the retailer.

18.  Every day or once in two days, retailers can submit all transaction details (amount collected, amount given) to the nearby bank.


Benefits of this model:


  1. Banks can get new customers from rural as well as urban (as mentioned earlier, there are nearly 40% of rural people still donít have access to basic bank service). Because money transaction is very simple in this method.
  2. Customer satisfaction is one of the main objectives of all banks, This new business model will help the existing customers to transfer the money easily with minimum effort.
  3. Cash transaction duration is minimized as customers need not wait in the bank or ATM center queue.
  4. With the help of new business model, Banks can reach many customers without opening many new branches.
  5. RBI can earn profit by selling bank transaction scratch card.
  6. The total amount charged from customers for sending SMSes can be shared among mobile communication service provider, RBI and retailers.
  7. Customers need not travel long distance for money transaction
  8. Customers need not wait in the bank for cash transaction.
  9. Customers need not wait in front of the Automatic Teller Machine (ATM) during peak time.
  10. Even the illiterate customers can do cash transaction with the help of retailers.


Drawbacks of this model:


1.      If customers lost the password, they cannot collect the money from local retailer.

2.      Customers can collect the transferred amount (through mobile) only from the local retailers. He cannot collect the amount more than what he suppose to receive through mobile transaction from the retailer, Even though he has enough money in his account.

3.      If the sender transfers huge amount, then the retailer whom the receiver approaches for collecting money may not have enough money. This may dissatisfy the customer.


Mobile Subscription Scenario in India


††††††††††† This business model can be adapted by the banks in India with changes according to Indian customers. As mobile usage trend in India is showing a healthy trend. As per TRAIís figures by July 2010 the mobile subscription numbers have crossed 600 million marks.


Almost half of all mobile users (48%) come from rural India. Most of these rural mobile subscribers can act as a platform for banksí growth. As mentioned earlier two main drawbacks in serving the rural customers are


  1. Distance between the village and the bank.
  2. Travelling time to reach the bank.


Mobile subscribers and subscription by distance from nearest town:


By distance from nearest town

% rural mobile subscribers

Less than 5 kms


5-10 kms


More than 10 kms


Source: Business World Marketing White book 2011-2012


By looking at the table, it can be suggested that the banks in India should adapt the new business model. The new business model will help the banks to serve new customers. Moreover, it will reduce the cash transaction duration of the customers.




††††††††††† As always ďadversity brings best out of a manĒ. This tough economic environment should be perceived as a chance to innovate new ideas. The banks can adopt this new model. If they implement, they can come out with blossom.




News paper:


1.      Business line, Dt. 14.11.2011, Pg. 1

2.      Business line, Dt. 10.11.2011, Pg. 6

3.      Business line, Dt. 01.11.2011, Pg. 8

4.      Business line, Dt. 02.11.2011, Pg. 7




1.      Business today, Dt. 22.01.2012, Pg. 76

2.      Business world: Marketing White Book (year 2011-2012), Pg. 422




1.      Financial Management- I.M.Pandey

2.      Financial Management Ė P.V. Kulkarni

3.      Research methodology C.R. Kothari