Why Indian banks bet on the rich
Imagine a lazy Saturday morning. You get a call from a soft-spoken representative from one of the well-known private sector banks, explaining how they’ve personalized a compelling offering that includes services, offers and add-ons just for you.
Surprised? Dont be! As the number of wealthy individuals increases in the country, banks are developing services for the well-to-do so that these customers do business with them. Most of those promised goodies will cost you next to nothing. Banking for the rich has names that contain words like wealth, privilege, preferred, class, priority, league and premier etc. and that in itself is a big boost for customers. But remember, underneath the super-smooth glib, the grandeur, and the goodies, there is always a motive for profit. While this is not wrong, you will do well to find out what is at stake before signing up for such services.
A good hook
Broadly speaking, banks generate money from three areas: interest income, financial market income, and commission-based income. With increasing cost pressures and increasing competition, banks are trying to find clients who can individually generate a good amount of income. A high income business client, high paying employee client or business client can help a bank generate more income compared to many savings account holders who only make small deposits in a bank.
Customers are segmented based on Total Relationship Value (TRV). It is an aggregate of the value of the balance of savings, fixed deposits, investments, etc. Depending on this total value, banks will offer you different levels of service. Common bank offerings for wealthy clients are personalized banking services through a dedicated relationship manager (RM), priority service, discounts on many products including lockers and demat accounts, relationship pricing and waivers on a variety of products, including loans and services. The higher the TRV, the wider the range of services and products on offer – a client relationship manager, asset manager / investment advisor, invite-only credit cards, access to exclusive events, etc. . All of these goodies have a direct relationship with the main areas of income of the bank.
It can be easy for the bank with which you have an existing relationship to know the details of your “relationship value”. But in order for other banks to attract you, your details must be dug up. Business Intelligence teams, through the use of Big Data, map potential customers based on your transactions such as credit / debit card payments, purchasing habits, etc.
It is an interesting proposition for a bank to become the primary bank of a rich client. Once on board, there are ways to ensure that such a customer stays with the bank. One solution is to offer loans. Even the rich and high income people need loans, obviously for different purposes than the hoi polloi. Second, it is by selling various investments and insurance products that will result in a sticky relationship. Not only do bank-facilitated investments provide commission income, but once people have a bank account tied to income tax, mutual funds, stocks, or insurance, they hardly change. bank. Third, in the case of a business or a wealthy independent client, offering a checking account gives extra float (money) and maintains the volume of transactions. If employee salaries or supplier payments are paid, cash management services come into play.
Do your homework
From the customer’s point of view, getting top-quality banking services is a feel-good experience. But it is important not to let your guard down. NRI clients, those who play a passive role in decision making and the elderly are often the recipients. While your network may have attracted banks, you need to protect them by doing your homework and not making bad money choices.
New graduates or MBAs are recruited to become RMs and are often given extremely high sales goals and can often sell financial products without fully understanding them. Since customers, even the richest, do not have good financial knowledge, the risks of mis-selling are high. The YES Bank case where perpetual bonds were sold to HNI clients is a classic example. Your RM should advise you with your best interests in mind. On your side, take the time to fully understand the product and carefully weigh each investment decision.
Whether it’s tax, investing, financial planning or estate planning, it’s important to choose a professional whose interests match yours. In an atmosphere of excess liquidity and low interest rates, banks may no longer be excited about your deposits alone. They may want to lend to earn interest income, see you trading, or invest regularly to get a sustainable stream of non-interest income. You can also hire an investment advisor registered with SEBI to guide you.