The Hindu Business Line : ‘Household savings: Banks trail realty, gold in appeal’

Hyderabad, Dec. 6 Despite their expanding reach, banks still need to tap a larger share of household savings in India and compete with lucrative investment options such as real estate in the process, if the findings of a study by McKinsey & Company are any indications to go by.

According to the study, household savings, as a share of gross national savings in India, are the highest in the world at 69 per cent as against 55 and 44 per cent in France and China respectively. And the banks have a reason to be concerned as only 47 per cent of these savings are accessed by the financial services sector.

The lion’s share of investments is being made in the booming real estate sector and also in gold jewellery, says the study.

The reason for banks’ inability to attract domestic savings should be located in the high geographical fragmentation of banking operations with limited presence in rural areas. About 34 per cent of total bank branches are only in urban areas and there are 19 ATMs per thousand people in India as compared to 246 in Mexico, 193 in Brazil and 51 in China, the study points out.

Concerted strategy

The study called for a concerted strategy from banks to tap household savings, according to Mr Joydeep Sengupta, Director, McKinsey & Company. “Tapping rural household savings through expanding network and upgrading the service and product offerings to urban customers may be of good help in this regard,” Mr Sengupta told Business Line. The banks, on their part, are also seeing the need for a better strategy to deal with household savings pattern. “Tapping household savings has become competitive of late with growing fad for investing in equities/real estate and other wealth management products. There is a clear change in consumer behaviour and banks are now tuning themselves to this,” Mr B. Samba Murthy, Chairman and Managing Director, Corporation Bank, said.The banks should lure high net worth individuals besides augmenting their product baskets, he said adding: “There should be more efforts in augmenting fee-based income and bringing out products in line with the consumer behaviour, even if they are not traditional banking products. Above all, we need to cater to the customer needs.”

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