Mumbai: They are aggressively building scale and going global but when it comes to brand-building, India’s banks and financial services companies remain laggards.
Only nine local banks and financial services firms are among the Top 500 brands in a recent survey conducted by Brand Finance Plc., a London-based firm specializing in brand valuation. And, only two of the nine—State Bank of India (SBI) and ICICI Bank Ltd— make it to the Top 100.
While SBI, the country’s largest bank, ranks 59 in the list of 500, its closest rival ICICI Bank stands four notches lower at 63. HSBC Holdings Plc. of the UK tops the 2007 list, followed by Citigroup Inc. of the US, Bank of America, Banco Santander of Spain and American Express.
This is the second such survey by Brand Finance. The first survey, released in 2006 based on the 2005 performance, had ranked SBI at 61 and ICICI Bank at 66.
“India is unfortunately a less branded market than others,” said Ramesh Thomas, president of Equitor Management Consulting Pvt. Ltd, a brand value management company where he also holds the title of chief knowledge officer.
“Brands or brand-building is considered to be a lower order investment area. Investment in the building of brands is seen as cost. The focus for most banks seems to be lending and borrowing. As a result, the exposure of banks as a category is much lesser than other categories,” Thomas added.
Chinese banks hogged the limelight with three banks, Industrial and Commercial Bank of China, China Construction Bank and Bank of China, making it to Top 25. In the previous survey, Chinese banks could not find a place because of inadequate data, as they were not publicly listed.
Six Asian banks— three each from China and Japan—are ahead of SBI in the list of 500. One reason why Indian brands are poorly placed can be traced to the protectionism that these banks enjoy, said Unni Krishnan, managing director of Brand Finance India, the Indian arm of the agency that conducted the survey.
“Indian financial brands are yet to reach a certain size and scale, as per global standards. Also the environment in which these banks have developed is extremely protected. Banks need to realize that it’s not just risk taking that’s important but also brand building and customer relationship building,” he added.
The other Indian financial services firms in the Top 500 global brands are HDFC Bank Ltd (234), Kotak Mahindra Bank Ltd (314), Housing Development Finance Co. Ltd (340), Axis Bank Ltd (375), IDBI Bank Ltd (391), LIC Housing Finance Ltd (490) and IFCI Ltd (499). The list does not include large banks in India such as Punjab National Bank, Canara Bank, Bank of India, and Bank of Baroda.
The brand value has been calculated based on a so-called discounted cash value technique. The survey discounted estimated future royalties, at a discount rate, to arrive at a net present value— the value of the trademark and associated intellectual property or the brand value. The company analysed every revenue stream including retail and commercial banking, investment banking and asset management.
A July 2007 survey of global banks by the Banker, a Financial Times publication, ranked SBI 70 and ICICI Bank 146. Five Chinese banks were above SBI. The survey took into consideration parameters such as strength of capital, assets, soundness of capital assets ratio and profits.
Although the Brand Finance survey did not take into account a firm’s size, according to Krishnan at Brand Finance India, the likely opening of the financial services market to foreign banks next year would trigger a spate of mergers and acquisitions that would be good for banks as “a lot of sub-optimal financial institutions here do not correspond to international size.”
“Major banks such as Bank of Baroda, Canara Bank, etc. have all gone through re-branding which is a symptom of a larger issue,” he said. “They have begun to realize that if they need to play in a demand-driven economy, the brand would have to be a significant asset.”
Thomas warned that if the financial services sector is thrown open, many smaller brands will end up getting acquired pretty easily. “If the brands fare less in valuation, it would make them easy acquisition targets,” he said.
Retail lenders have fared better than others when it comes to brand-building. “On average, consumer banks display a higher brand value to market capitalization than investment banks. This is the result of the fact that consumer banking involves more emotional and image related factors than business and wholesale banking,” the survey said.