Aggressively penetrating into retail lending especially through housing loans;

Improving technology penetration to enhance fee-based income; and

Aggressively growing the savings and demand deposit base by recruiting new customers, especially by offering ATM services.

Just for most banks, growth in advances is being accounted for almost wholly by lending to top-rated companies and to the retail segment. For old private banks, there may actually be no opportunity to lend to the small business segment or even to their traditional customers.

A combination of poor industrial growth and heightened risk perception has ensured that offtake from that segment is poor.

However, in the case of the old private banks the strategy being followed may actually be tailormade for the situation.

Mask NPAs

Just as with the entire banking industry, the non-performing assets situation for old private banks may be more serious than that indicated by the ratio of net NPAs to net advances. Some of the assets classified as NPAs may require a higher level of provisioning or may even need to be written off in the years ahead. Therefore, the need of the hour for these banks is to build an alternative portfolio of performing assets that will generate revenue as well as enhance the quality of assets, overall.

The opportunities to lend to top-rated business segment and the retail segment are being viewed in this backdrop. The expectation is that the level of NPAs in the retail segment will be low. With expected delinquency in top-rated business segment practically zero, the increase in advances is likely to help reduce the proportion of NPAs . Importantly, the rate of interest charged for retail loans by the old private banks is higher than that charged by public sector banks and housing finance companies. That way, the spreads too can be maintained.

However, there is a catch. The expected incidence of lower NPAs from the retail loans segment is based on industry experience in years when the rate of growth in such advances was significantly lower. As such, the behaviour of customers can be entirely different. If the incidence is higher then its impact on the fragile balance-sheets of old private banks could be significant. Understandably, there are already calls for going slow on lending to this sector. In fact, banks such as South Indian Bank indicate they will approach this segment cautiously since they are wary of the risks involved. Even so, housing loan growth rate for this bank is at the 10 per cent level. Others are, however, embarking on a relatively aggressive strategy and experiencing growth rates of around 20 per cent. The effectiveness of these strategies will be evident only over a fairly long-term.

Traditional customers

Apart from following the leaders, another strategy that they necessarily have to follow is keeping its existing flock of customers happy. In the era of automated banking when the customer need not even see the banker, the value of relationships nurtured over decades is being put under the microscope. Importantly, the fact that the customer may have to pay a premium for such services is becoming even more difficult to market.

The technology-backed thrust of the new private banks is also becoming formidable to counter. However, most old private banks are confident of keeping their flock together. This they hope to do by offering them better rates and personalised service.

In other words, their strategy is predicated on the assumption that the idea of relationship banking will survive.

The outcome of this strategy too will be crucial. These banks know all they need to know about their traditional customer base. This will be a tremendous advantage in pricing their products. In the event of an improvement in industrial scenario, the credit offtake from this segment could improve too.

To take advantage of such a scenario, the banks need to curb the inroads made by the competition into their customer base. Success in this regard is crucial for old private banks.

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