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Wednesday, Nov 10, 2004

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Union Bank on reforms mode; redesigns products

Vinson Kurian

Thiruvananthapuram , Nov. 9

UNION Bank of India has kicked off an internal reformation process aimed at "making all customers profitable by suitable charges, balance upgradation or process redesign."

A series of changes has been envisaged in the design of products as advised by Boston Consulting Group. A few redesigned products would be piloted during the current month, banking sources told Business Line.The six-month pilot phase will be launched in three cities — Ernakulam, Indore and Pune. The four initiatives to be covered are savings and current relationship packages, commercial advances redesign, size restriction on term deposits and launch of kids deposit scheme.

. The rest of the design changes are such that they can be incorporated "straightaway" throughout the bank through appropriate circulars.

The relationship package in savings and current accounts, if implemented in metro and urban areas, is expected to yield a total value potential in excess of Rs 40 crore. This value comes from upgradation of balances by customers, cross-sell of other products of the bank, retention of high-end customers, charges on transactions and minimum balance charges.

The package envisages a minimum quarterly average balance of Rs 5,000 for savings account customers and Rs 10,000 for current account customers. Below these levels, the accounts will attract penal charges.

Need for break-even: It is proposed that fee charges associated with savings account be modified in line with the objective of differentiating between customers, making the low balance accounts at least break-even and promoting the use of ATM and Internet channels.

It is observed that 15 per cent of savings accounts make 150 per cent of savings accounts profits while five per cent of current accounts make 200 per cent of current account profits.

It is thus imperative for the bank to look at redesigning features in savings and current accounts to reduce the losses made by low balance accounts.

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