Mumbai: Indian consumer confidence in private banks has increased in the past three years, helping them gain market share in a retail financial industry that is still transiting from public sector monopolies to a more open and competitive market, research firm IIMS Dataworks says.
IIMS Dataworks, in an analysis based on its Invest India Incomes and Savings Survey of last year, found that between 2004 and 2007, consumer confidence in government-run banks fell.
But there was one sterling exception: State Bank of India, or SBI, the country’s largest lender.
See graphics: Investor confidence and finance brand loyalties
“In the case of retail banks, in locations such as Delhi, Punjab and Tamil Nadu, the rise in confidence in private banks was dramatic, while in others such as Assam, Chhattisgarh and Gujarat, progress has been more muted,” the firm said in a report.
The findings point to a shift in the consumer perception of a financial industry where the public sector accounts for three-fourths of banking assets.
As a pointer to how the consumer mindset is shifting, the findings are important for financial firms that invest in brand building to retain customers and attract new ones.
In the past three years, the cooperative banking sector was the big loser in the public confidence stakes, with its share of the retail customer base almost halving to 16.4% from 31.3%, IIMS Dataworks found. An overwhelming majority of the deserters moved to public-sector commercial banks, it said.
The total public sector customer base grew by 29% between 2004 and 2007, outpaced by a 35% increase in that of lenders operating outside of government control, it said.
But the retail customer share of public sector banks widened to 75.4% from 61.5%; that of private banks grew to 8.3% from 7.2%.
India’s demographics, skewed towards younger wage earners, favour private banks, says Kiran Khalap, founder of Chlorophyll Brand Consultancy. This generation of Indians “do not look for security in either their life, jobs or investments,” Khalap says.
“Naturally, they do not seek the safety of a public sector bank; they prefer the younger private and international brands.”
In the insurance industry, too, private companies enjoyed a lift in public confidence levels between 2004 and 2007, according to the report. But that didn’t translate into a fall in public confidence in state-owned Life Insurance Corp. of India, or LIC.
“Private banks, private insurance players and foreign banks are stressing on brand building and more than that, delivery on ground and professionalism which has worked well for them,” says Mahesh Chauhan, president of the advertising agency Rediffusion DY&R Pvt. Ltd.
SBI and LIC are exceptions in the public sector because they are “larger than life” and have government backing, Chauhan adds.