Money & Banking

Banks on cost-cutting drive as profits come under pressure

Anjana Chandramouly Parvatha Vardhini C. Bangalore | Updated on November 11, 2011

With credit growth moderating and higher provisioning norms impacting profitability, banks are resorting to different ways to controlling cost of operations.

Smaller banks like Vijaya Bank, in the process of expanding, “need to have physical presence without which the catchment area will not grow. So cost control will be a challenge,” Mr H.S. Upendra Kamath, Chairman and Managing Director, Vijaya Bank, told Business Line.

Moving people to alternative channels such as ATMs or Internet will help reduce operational costs over a period of time, he said.

Centralising functions

Banks are also increasingly looking at business process re-engineering to cut down costs.

By opting to centralise functions such as account opening, cheque processing, returns, etc., “we are trying to improve the efficiency of our operations. Thus, branches become sales outlets, as most services are moved to a centralised hub,” said Mr M.D. Mallya, Chairman and Managing Director, Bank of Baroda.

The bank is currently re-branding 1,200 of its branches as “Baroda Next” branches, as part of its business process re-engineering exercise. Thanks to this, these ‘lean' branches will need less space.

Vijaya Bank, too, is looking at reducing its rental costs by giving up excess space at existing branches.

The bank has arrived at yardsticks for metro, urban, semi-urban and rural branches, which vary from 1,000 sq.ft to 2,000 sq.ft.

“If you have less number of people in the branches, you don't require more than 500-1,000 sq.ft,” said Mr Kamath.

Leveraging tech

Banks are also leveraging technology to centralise operations to engage with customers better. This would enhance employee and branch productivity, said Mr M. Narendra, Chairman and Managing Director, Indian Overseas Bank.

“We want to use the managerial power for development work rather than routine operations,” he added.

Such measures would help banks better their cost-to-income ratios too, he pointed out.

Published on November 11, 2011

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