BackRise in Internet transactions helping banks reduce costs
A Citibank official says it costs around 30 times more to do a similar transaction in the branch when compared with online
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Mumbai: Internet-based transactions at ICICI Bank Ltd, India’s second-largest lender, have increased to more than 30% of its total transactions from less than 10% five years ago, reducing the cost of such operations to a tenth, managing director and chief executive Chanda Kochhar said.
Rivals HDFC Bank Ltd and Citibank NA have also increased the number of banking transactions on the Internet.
Just 10% of ICICI’s transactions are done through its branches currently, and 50% are done through automated teller machines, Kochhar said. “There is a cost saving in getting the customers (to) use our Internet channels but we don’t calculate it because we see it as customer convenience," Kochhar said at a press conference on Tuesday.
The numbers are similar for HDFC Bank. “Forty per cent of our bank’s transactions are done through the Internet. These transactions have doubled in the last five years," a bank spokesman said in response to an email. The savings are also similar. “We save 95% of the cost when a customer transacts through Internet banking offering more than 135 different transactions through the Internet."
On Tuesday, ICICI introduced a Facebook application that allows customers to transfer funds among other things using the social networking website.
The rise of transactions through the Internet should not be seen as being at the cost of bank branches, Kochhar said. “Branches have its own place for customer experience. It is not that non-branch products will replace branches, but in fact it will be complementary to branches, allowing a customer to bank in the car or on the phone," Kochhar said.
ICICI is the largest private bank in the country with 3,382 branches; HDFC Bank has 3,119 branches.
For banks like ICICI, expanding online presence has helped reach a larger section of customers but for banks such as US-based Citibank, it’s a necessity.
For foreign banks like Citi, which have few branches in India, it makes sense to have a big online presence, said S. Ranganathan, head of research at LKP Securities Ltd.
Citibank, which has just 43 branches in its 111 years of existence in India, gets 55% of its transactions requests through the Internet. Five years ago, 35% of its transactions were processed through that medium.
“It costs around 30 times more to do a similar transaction in the branch when compared with online," a Citibank spokesman said via email.
According to Ranganathan, the boom in online transactions is an opportunity for state-run banks.
“The cost savings by private banks may possibly help them in building more branches or lend more. If PSU (public sector undertaking) banks can also spruce up, the savings could be enormous," Ranganathan said, adding that legacy issues and resistance to technology among employees have kept state-run banks from aggressively pursuing online banking.
In his first statement after taking over as governor of Reserve Bank of India, Raghuram Rajan said the central bank would shortly issue a circular to allow domestic scheduled commercial banks to open branches without seeking the regulator’s permission.
“No longer will a well-run scheduled domestic commercial bank have to approach the RBI for permission to open a branch. Branching will be free for all scheduled domestic commercial banks except the poorly managed," Rajan said.
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