Last month in Bangalore, I met a senior executive of a private sector bank who is driving its retail business. The bank has received the regulator’s nod to open 40-odd new branches, most of them in western and northern India.

The objective, the executive says, is to have an all-India presence, a prerequisite for business growth.

Early November, M.D. Mallya, the chairman of Pune-based Bank of Maharashtra, a public sector bank, had told me that his bank would open about 70 branches across the country over the next few months. His bank, too, does not want to be seen as a regional player whose business activities are largely confined to Maharashtra.

Bankers in India, across sectors, are speaking the same language. Regional players want to have a national presence and those who already have one, want to reach out to un-banked areas. They want to focus on retail and consumer loans to de-risk their advance portfolio.

Too much focus on corporations for lending is risky as one big loan turning bad can create a big hole in a bank’s balance sheet. In contrast, exposure to a bunch of small loans can balance the lending portfolio. Besides, retail and consumer loans also offer higher return to banks.

As an extension of the same strategy, almost all banks also want to lend to small and medium enterprises (SMEs) and traders. Here again, they earn a little extra on their exposure as traders and entrepreneurs are always willing to pay higher interest rates than large corporations.

For them, access to bank loan is more important than the price of the loan.

Banks also want to bring down their cost of deposits by focusing on current accounts and savings accounts (CASA). On savings bank accounts, banks pay 3.5% interest, while current accounts do not attract any interest at all.

By raising the proportions of CASA in their overall deposit portfolio, banks can pare the cost of money they lend to borrowers or invest in government bonds.

Finally, they want to open shop overseas to tap the growing businesses of Indian firms abroad as also the huge non-resident Indian community. Remittance of non-resident Indian, or NRI, money from the US, the UK and West Asia itself could be a big fee business for banks.

The language of foreign bankers in India also is no different. They find India, the world’s second fastest growing economy, is a land of opportunities. The increasing purchasing power of the people and the burgeoning middle class encourage them to push aggressively for retail business. They are also enamoured of SMEs and the trading community and see India’s hugely unbanked population as a big banking opportunity. After all, only 31% of Indians have bank accounts.

None of them, however, is willing to say how much India contributes to their global business or profits as not being a listed entity, they are not required to reveal such numbers, but they don’t conceal the fact that India’s importance is growing in their overall global strategy. And they mean it. The proof of this is continuous capital infusion by foreign banks for their Indian operations. Last week, Deutsche Bank AG announced yet another dose of capital infusion for its India business. The bank launched its retail business in this country two years ago.

So, all banks in India have their business strategies (public sector banks normally prefer to call it “vision") firmly in place. But all of them are not doing equally well. Why? This is because execution of the strategy is as important as the strategy itself and here most of them fail.

Every bank has been talking about retail business, but only one bank has really made it—ICICI Bank Ltd, India’s second largest lender. In 2000, before the India story began to unfold, ICICI Bank sensed the opportunity and went the whole hog to build its retail business. In eight years, retail business now accounts for 60% of its total loans and possibly 40% of profits. While other banks spent time discussing the opportunity, ICICI Bank took the plunge.

Similarly, the public sector banks, despite their large branch network in rural India, have not been able to match the low-cost deposits of HDFC Bank Ltd. CASA accounted for 57.68% of HDFC Bank’s deposit portfolio in March 2007. The best among the public sector banks in this segment is Punjab National Bank with 46.16% CASA. State Bank of India Ltd, that has the biggest branch network of more than 9,000 branches across the country, had 43.57% CASA in March.

How has HDFC Bank done it? Going beyond the conventional ways of attracting deposits, this bank went for cash management of corporations, distribution of dividends and collection of subscription to initial public offerings in equity market. The strategy has worked and has ensured continuous flow of money for which the bank does not pay interest.

Similarly, another new private bank, Axis Bank Ltd, has shown how overseas presence can be leveraged. Within less than two years of opening branches in Dubai, Hong Kong and Singapore, overseas loans now account for close to 10% of its total advances. Besides raising external commercial borrowing and syndicate loans for Indian corporations, Axis Bank also offers risk management service to Indian firms that have set shop abroad. And it has just started offering wealth management service to NRIs in association with Banque Privee Edmond de Rothschild, Europe. Axis Bank is not even touching the remittance of NRI money, business which others find very lucrative.

Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as the Mumbai bureau chief of Mint. Please email comments to