The Indian financial sector is facing a challenging reality. In addition to Non-Performing Assets (NPA) and debt, the sector now must contend with an alarming dip in deposits rate while the credit growth rate continues to surge. This widening asset liability gap is not only a serious concern for banks in India, but also alternate investment options like mutual funds, pension schemes etc. are weaning away funds out of the bank’s books. At this juncture, banks must think beyond tried and tested formats of customer acquisition and retention.
Understanding the Decline in Deposits
According to a report by the Reserve Bank of India (RBI), in June 2024, bank deposits recorded a growth rate of less than 11 percent, while loans grew at 14 percent. By August 9, 2024, bank deposits showed yearly growth of 11. 7 percent while the loan growth rate stood at 18.4 percent.1 There are multiple reasons for this. Post pandemic, the country’s capital markets witnessed an exponential increase in retail activity by way of direct trading and indirect channels like mutual funds. Indian households moved away from the traditional bank deposits to capital markets, attracted by the promise of higher returns as well as an easier engagement process thanks to better digitization. According to the Economic Survey 2023-24, the number of demat accounts with National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) increased to INR 15.14 crore in FY24 as compared to 11.45 crore the previous financial year. Rising cost of living, increasing taxes, and an unstable employment market also impacted the average Indian household, leading many to dip into their savings. 2
Government Action on Declining Deposits
The RBI has been persistently raising the alarm on declining deposits and the Government of India has taken notice. The Indian Minister of Finance stressed the need to boost deposit collections with innovative products, particularly in rural and semi-urban regions. She also stressed on the importance of customer service and effective customer engagement for long-term deposit growth.
Customer-Centric Bundles to Drive Deposits
Indian banks have launched special retail deposit schemes to address the deposits mobilization issue, but these efforts do not address the root cause of the challenge facing banks – changing customer preferences. The modern banking customer has more choice than ever before, and they are no longer content being passive recipients of banking products and services. They want offerings that make sense for them – hyper personalized, relationship based, and value driven. If banks must tide over this current crisis, they must adjust their strategies to deliver what customers want. And an effective, customer-centric bundling strategy can be a game changer for banks at this point. Bundles may include products, services, better discounts, rates, incentives, or even attractive offers to entice and engage customers. Such an approach can ensure customer satisfaction, drive better cross-selling and upselling, and ultimately improves revenues from deposits.
Bundling is not a new strategy. Sectors like telecommunications and insurance have been using it for decades, and it is, in fact, a tried and tested traditional banking strategy. But today, banks must move beyond the basic bundling strategies they have used for years and leverage technology for better customer segmentation, improved understanding of customer relationships, and better personalization of bundles. Banks must look at enhancing their product bundling capabilities, which can drive new customer acquisitions for funds growth and improve the retention of existing funds through more relevant, customer-centric offerings. Broad segmentation approaches based on geography or customer demographics must be replaced with a more nuanced understanding of customers’ life stages, specific requirements, and relationships with the bank. Hyper-personalized bundles that meet customer needs can be an invaluable asset as banks try to improve deposits.
Leveraging Technology for Better Bundling
The question is, how can banks improve their bundling strategies to meet the demands of the new-age customer? Understanding customer engagement with the bank and then crafting effective personalized bundles calls for a powerful technology foundation. It must be able to cut through organizational silos to present a consolidated view of customer relationship and it must be agile enough to help roll out and manage customized bundles. The good news is that a robust, cloud-native, microservices-based solution can help banks seamlessly drive customer-centric innovation. With such a system in place banks can easily roll out innovative bundles and offers to engage meaningfully with customers and drive deposits growth.
Declining bank deposits is a serious concern for the nation as it strives for economic growth. Just rolling out offers on deposits may not be completely effective at a time when customer expectations from banking are undergoing a sea-change. Banks must move to customer-centric, innovative strategies to engage customers and drive deposit growth. Effective bundling is an excellent means to ensure customer satisfaction and deposit growth. With a powerful technology foundation, banks can easily roll out effective bundling strategies.