A REPO RT O N

IMPACT OF 6 % RATE OF INTEREST ON SAVING ACCOUNTS

BY KAPIL SHARMA (11BSP0437)

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KOTAK MAHINDRA BANK LTD

A REPORT ON
IMPACT OF 6 % RATE OF INTEREST ON SAVING ACCOUNTS

BY KAPIL SHARMA (11BSP0437)

A report submitted in partial fulfillment of the requirements of PGPM program of IBS GURGAON : Batch -2011-13

KOTAK MAHINDRA BANK LTD

Faculty Guide: Company Guide:
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Prof. Anupama Rao Bhupesh Bhardwaj (Faculty Guide) (Company Guide)

Mr.

.
Date of Submission: 11 June 2012

AUTHORIZATION

This is to certify that the project entitled Impact Of 6 % Rate of Interest on Saving Accounts captured in entirety in the following pages is submitted in partial fulfillment of the requirement of PGPM Program of IBS Gurgaon and is a record of the bonafide work carried out by Kapil Sharma of IBS, Gurgaon at Kotak Mahindra Bank LTD, Dwarka, New Delhi under my supervision and has not been submitted anywhere else for any other purpose. The information given herein is after the due consent of the officials working for KOTAK MAHINDRA BANK LTD. and is not available for the usage of any third party whatsoever.

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Prof. Anupama Rao Bhupesh Bhardwaj (Faculty, IBS Gurgaon) (Branch Manager)

Mr.

ACKNOWLEDGEMENT
This summer internship project has been a colossal opportunity for learning and self-development coupled with in depth knowledge extraction process from the very ground amidst an environment of real time Retail banking. . It has been a very special project, brought to fruition through the efforts of some very special people whom I thank from the bottom of my heart. At the outset i am deeply grateful to the entire management of IBSGurgaon for giving me an opportunity to learn the practical aspects and nuances of retail banking through real life experience. .

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It would have been quite impossible without the immense help and conducive environment offered at KOTAK MAHINDRA BANK LTD. The project I had undertaken required a lot of information gathering and guidance which had been provided by various people at various stages of the project. I would like to express my deep sense of gratitude to the following :

To Prof. Anupama Rao, Faculty Guide for not only being a guide but also a mentor and her tireless support and guidance in the course of my project and its completion.

To Mr. Bhupesh Bhardwaj, Branch Manager. for giving me an opportunity to work on this project in their organization. He took additional efforts to bring my report to its fulfillment and completion. His continuous encouragement through collaborative freedom immensely helped me in understanding the concepts practically , and to try out new things perennially during this internship program.

To Mr. Shakti Singh and Mr. Mohit , Company Guide, for keeping the continuous track of my work and performance and guiding me on my project and teaching me many new things.

To all my fellow colleagues and seniors too, for being an immense help to me in this project.

Kapil Sharma 11BSP0437 IBS, Gurgaon

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TABLE OF CONTENTS

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EXECUTIVE SUMMARY
Raising Interest rates post deregulation unleashes the opportunity of Customer acquisition as well as increasing portfolios in existing customers. With this it triggers a price sensitive war within the already matured Urban Retail banking space on the opportunity of increasing market share. With it it also brings the question on profitability in CASA spreads and interest income because merely acquiring customers through an interest war will have an adverse and may impact on Cost of Funds as well as shrink the wallet size of responding banks like Kotak Mahindra on controlling asset pricing and further generating interest income through differential of asset liability spreads. The following pages will traverse through a path of in depth analysis and learning derived by customer interface in the target segment . The structure and the final culmination will take route plans on customer awareness on the Savings account interest rate upward changes post Deregulation at Kotak Mahindra bank, the market responsiveness to this change both in terms of New Customer acquisition and balance buildup in existing Savings account portfolio base. It will throw adequate light on willingness to change purely basis an upward movement of interest vis--vis host of other products, facilities, branding and so on.. It will allow the organization to take valid inputs from the derived market study to Reframe strategies at a branch level/ market level in future to increment the ultimate goal of Kotak Mahindra bank in increasing both market share on the Savings account portfolio

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Chapter : 1 INTRODUCTION

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Understanding & Dissecting the Topic Impact of 6% Rate of Interest on Savings Accounts
1.1

With the Reserve Bank Deregulation of interest rate on savings deposits, the mid-size private lender Kotak Mahindra Bank was amongst the First to announce that it will be offering 6 percent interest on savings deposits above Rs. 1 lakh and 5.5 percent those below Rs. 1 lakh effective from 1 Nov 2011. Kotak Mahindra Bank had been operating as a primal force in Pvt Sector retail banks with 31% CASA Ratios as the RBI announced de-regulation of Savings Bank account interest rate. As analysts had mixed responses to this announcement there was no questions on a complete win win situation as a choice of a consumer could be. One could clearly visualize two distinct paths emerging. The increased interest rate being used as a hook strategy by some banks like Kotak Mahindra and Yes through various marketing methods to increase and widen customer base and CASA ratios as well as deepening wallet sizes by giving the right customer only the right rates of interest. There was also another school of thought which questioned the impact on positive acquisition and wallet size deepening through increasing cost of Funds by higher payouts ( Especially as a couple of months earlier the daily interest calculation ) proposed by RBI had already seen income crunching in banks. With the difference of interest spreads in assets and liabilities becoming slimmer the banks were wondering whether to take a plunge of interest increment as a proposition to woo customers at the time when Demand of assets especially Corporate lending was declining.

1.2

History of Deregulation in Banking In india

The process of deregulation, which began in the early 1990s, was largely completed by 1997. A few categories of interest rates that continued to be regulated were small loans up to ` 2 lakh and rupee export credit on the lending side, and savings deposit interest rate on the deposit side. The small loans up to ` 2 lakh and rupee export credit were deregulated in July 2010 when the Reserve 10 | P a g e

Bank replaced the benchmark prime lending rate (BPLR) system with the Base Rate system. The only interest rate that continues to be regulated now is the savings deposit interest rate. Deregulation of interest rates in India since the early 1990s has improved the competitive environment in the financial system, imparted greater efficiency in resource allocation and strengthened the transmission mechanism of monetary policy. Savings deposit interest rate had not been deregulated for the reason that a large portion of such deposits is held by low income households in rural and semi-urban areas. It is more than 13 years when the deposit interest rates, other than savings deposits, were deregulated. The issue, therefore, is how relevant are these concerns in todays context and what will be the implications if savings deposit interest rate is deregulated. Regulation of savings deposit interest rate had imparted rigidity as savings deposit interest rate has not been changed since March 1, 2003 although other interest rates have moved in either direction. Interest rate paid on savings deposits was lower than those on term deposits of all maturities, other than for term deposits at very short end for a brief period. Thus, it was the saver who has been affected adversely because rate of return on savings deposit has generally been negative and unattractive vis--vis short term deposits. The empirical evidence suggests that unlike metropolitan areas, savings deposits in rural, semi-urban and urban areas are responsive to interest rate changes in savings deposits. Therefore, market-based interest rate may be beneficial to savers. Since savings deposit is a hybrid product which combines the features of both current account and term deposit, a market based rate of interest on this product has the potential to attract large savings from low income households. Deregulation will also allow banks to introduce product innovations which could also benefit the depositors. Deregulation will have another major advantage in that it will help improve the monetary transmission. Since savings deposits constitute a significant portion of aggregate deposits, regulation of interest rate on such deposits has impeded the transmission of monetary policy impulses.

1.3 India

History of Interest Rates of Savings deposits in

One of the important functions of the Bank is to accept deposits from the public for the purpose of lending. In fact, depositors are the major stakeholders of the Banking System. The depositors and their interests form the key area of the regulatory framework for banking in India and this has been enshrined in the Banking Regulation Act, 1949. The Reserve Bank of India is empowered to issue 11 | P a g e

directives / advices on interest rates on deposits and other aspects regarding conduct of deposit accounts from time to time. Rate of Interest on Saving Deposits Effective From 1-Mar-78 13-Sep-79 24-Apr-92 1-Jul-93 1-Nov-94 1-Apr-00 2-Mar-03 1-Apr-10 3-May-11 1-Nov-11 Rate Per Annum % 4.5 5 6 5 4.5 4 3.5 3.5 4 Deregulated

Accordingly, the Reserve Bank, with effect from July 1, 1977, fixed the interest rate on savings deposits with cheque facilities, considered as transactionsoriented accounts, at 3.0 per cent and the interest rate on savings deposits without cheque facilities, considered as pure savings accounts, at 5.0 per cent However, the Credit Policy of March 2, 1978 merged these two accounts into a single savings account, on account of many depositors opening multiple accounts. Accordingly, the Credit Policy fixed the interest rate on savings deposit at 4.5 per cent. In April 24, 1992, the interest rate on savings deposit was fixed highest at 6.0 per cent per annum. The restrictions imposed by the Reserve Bank on the operation of savings bank account were withdrawn and banks were given the flexibility to stipulate such restrictions.

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The SB interest rate was decreased in March 2003, from 4% to 3.5%, when inflation was around 3%. In April 2010, after RBI changed the method of calculating interest on SB accounts the depositors saw an increase in their returns on savings and finally RBI decided to completely deregulate the rate of interest effective from 25 oct 2011.

1.4 MEANING OF DEREGULATION OF RATE OF INTEREST ON SAVING DEPOSITS

Deregulation of interest rates on deposits was announced by the Reserve Bank Of India (RBI) on Oct 25th 2011, Before the announcement was made, all banks in India used to payout the same interest rate on your savings account. That was 4% and was fixed by RBI. This regulation now meant that RBI allowed banks, effective November 1st - 2011, to fix their own interest rates on deposits or savings account. OR That there is no restriction on fixing the rate of interest on the savings account, the banks would be able to freely decide the interest rates that suit them and their customers.

Details of the RBI Order followed some guidelines. There would be 2 categories of deposits: Less than Rs. 1 Lakh and Rs. 1 Lakhs and above The banks would have to offer a single rate of interest to all deposits below Rs. 1 Lakhs the banks would decide this rate (say, 5% per year), but it would need to be the same for ALL deposits lower than Rs. 1 Lakh. For the deposits in the other category (Rs. 1 Lakh and above), it becomes interesting. The banks would be able to come up with various slabs based on the deposit amount, ad can offer a different interest rate for each slab.

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Some natural questions which comes to mind

EFFECT OF SAVING A/C DEREGULATION Was this going to be a gloomy, but hectic Diwali for most banks. The sucker punch is not the 13th policy rate hike. For the past 20 months, the rate hike has become rather like an occupational hazard for most Indian bankers. The deregulation of interest rate on savings accounts, however, is like a bolt, though perhaps not entirely out of the blue. PROGRESSIVE STEP, BUT ARE BANKS AS COLLATERAL DAMAGE Reform measures aimed at increasing the role of market forces in economic decision-making are generally beneficial. However, some of the stakeholders often lose out. Hence, while deregulation would be remembered as a landmark reform, listed banks may be adversely affected. FALLOUTS ON BANK EARNINGS, ASSET-LIABILITY AND VALUATIONS The step can have three major implications for banks reduce average earnings growth, enhance asset-liability mismatch (ALM) and increase earnings volatility, thereby reducing the valuation multiples. The anticipation of sovereign debt restructuring /default in the euro area is already inflicting collateral damages on bank stocks globally. On the domestic front, concerns are rising about accelerated growth in NPAs of banks. The timing of the policy change, therefore, could not perhaps be much worse for most banks. RISE IN COST Savings deposits account for about 22% of the overall liabilities and 25% of overall deposits in the banking system. While the blended cost of funds is currently around 6%, savings deposits till date command 4% interest rate. Therefore, if due to deregulation, the cost of funds on savings account rises close to the system average, it would mean nearly a 55 bps rise in the overall cost of funds. Such an increase is likely to happen because competition among banks may raise the interest rate until the cost of savings deposits reaches the system average.
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FALL IN EARNINGS, RETURN RATIOS This would reduce the interest spread by 55bps, or 25%, and return on assets (RoA) and return on equity (RoE) by 32bps and 450bps, respectively, ceteris paribus. This, however, is the worst-case impact on bank earnings, as we are assuming no change in income. Moreover, the extent or even the direction of impact on individual banks would depend on the initial proportion of savings accounts in overall liabilities and the proactive nature with which the bank acts.

ALM TO WIDEN Over time, the average maturity of bank deposits is reducing. With the sharp rise in the share of infrastructure in bank credit, the average maturity of bank liabilities is on the rise. While banking is the business of maturity transformation, large asset-liability mismatches can destabilise the system. With increase in savings account rates, the difference between interest rate on fixed and savings deposits would reduce. Given the greater liquidity of the latter, the share of savings may rise at the cost of FDs. This is likely to further the asset-liability mismatch.

1.5 Pros & Cons of Deregulation of rate of interest

Pros
May Lead to Enhance Attractiveness of Savings Deposits
Regulation of interest rates imparts rigidity of instrument/product and as interest rates are not changed in response to changing market conditions the product loses it sheen.This has primarily affected the saving bank deposits.So deregulating the interest rates would help in enhancing the attractiveness of this product.

Savings bank deposits, its interest rate has remained unchanged at 3.5 per cent since March 1, 2003 even as the Reserve Banks policy rates and call rates (representing a proxy for operative policy rate as at a time, only
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one rate either the repo rate or the reverse repo rate is operative depending on liquidity conditions) moved significantly in either direction refer chart 1 Chart 1 : Movement of Policy Rates, Call Money Rate and SB Rate

A comparison of interest rate on savings deposit and term deposit with maturity up to one year during December 2004 to December 2010 reveals some interesting patterns (Chart 2). First, during most of the period since December 2004, the interest rate on savings deposits has been equivalent to interest rate on term deposit of 7 - 14 days maturity, barring two brief periods (December 2004 - June 2006 and March 2009 December 2010) when it was marginally higher. Second, interest rate on savings deposit were lower than those on term deposit of all other maturities up to one year, barring a brief period (June 2009 - September 2010) when the interest rate on savings deposits was higher than that of term deposit with maturity of 30-45 days. Chart 2 : Interest Rates for Savings Bank Deposit vis--vis Select Term Deposits

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Note : Data pertain to 5 major public sector banks.

An analysis of real deposit interest rates shows that the real savings deposit rate was persistently negative during the period December 2004 December 2010, barring a brief period of March - September 2009 when WPI inflation itself turned negative. However, more or less, the same pattern was observed in respect of term deposits up to one year maturity as well (Chart 3).

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Chart 3 : Real Interest Rates for Select Deposits

Empirical evidence suggests that widening of interest rate differential between term deposits and savings deposits leads to reduction in the share of savings bank deposits in total deposits. This trend is also clearly discernible in respect of population groups (rural, semi urban, urban) other than metropolitan areas, where savings deposits are not responsive to the interest rate differential. This perhaps suggests that savings deposits in metropolitan areas are held less for savings purposes and more for transaction purposes and hence, are less responsive to interest rate changes. Deregulation of the interest rate on savings deposit will make the rate flexible along with other interest rates depending on the market conditions. Since savings bank deposits in rural, semi-urban areas and urban areas are held largely for savings purposes, deregulation of interest rate is likely to enhance its attractiveness in these areas.

Will Improve Transmission of Monetary Policy

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Regulation of savings deposits interest rate has not only reduced its relative attractiveness but has also adversely affected the transmission of monetary policy. For transmission of monetary policy to be effective, it is necessary that all rates move in tandem with the policy rates. This process, however, is impeded if the interest rate in any segment is regulated. Savings deposit constitutes a sizeable portion (about 22 per cent) of total deposits. The fact that the savings deposit interest rate has not been changed since March 1, 2003, prima facie implied that changes in policy rates did not transmit to savings bank deposits. However, before arriving at a firm conclusion in this regard, it is necessary to consider two possibilities here. One, even though the savings deposit interest rate is fixed, what matters for banks is the overall cost of deposits and not cost of any particular component. And if the overall cost of deposits moves in tandem with the policy rates, then monetary transmission is not adversely affected. The other possibility, however, is that banks independently decide interest rates on freely determined components, disregarding the cost of savings deposits, in which case the overall cost of deposits does not move in sync with changes in the policy rates, thereby affecting the monetary transmission. This is a behavioural issue and it is difficult to find a precise answer to this question. However, the evidence in Table 1 is revealing. The correlation coefficients of savings deposit interest rate with both the call money rate (the operating target) and the lending rate of scheduled commercial banks were much lower than those of term deposits. This suggests that regulation of the interest rate on savings deposits has impeded the monetary transmission and that deregulation of interest rate will help improve the transmission of monetary policy. This is also corroborated by the Hong Kong experience as indicated in Section IV wherein following the deregulation of savings deposit rate, the correlation between retail bank deposit rates and market interest rates improved and their spread also narrowed significantly. Table 1 : Correlations Among Various Rates Pair of Interest Rates Correlation Coefficient 1 2 I. Weighted Term Deposit Rate and Call Rate 0.82 II. Weighted Savings Deposit Rate and Call Rate 0.18 III. Weighted Term Deposit Rate and Weighted 0.45 Lending Rate IV. Weighted Savings Deposit Rate and Weighted 0.23 Lending Rate
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May Lead to Product Innovations Savings deposits constitute about 22 per cent of total deposits. However, owing to regulation of interest rate, there is hardly any competition in this segment with both banks and depositors acting passively. This has inhibited product innovations. The requirements of different banks and different depositors are not necessarily the same. Just as each bank may like to tailor the savings product to suit its requirement, each depositor may like to choose a product which suits his requirements. To create competition and encourage banks to introduce innovative products, it is, therefore, necessary to deregulate savings deposit interest rate. Product innovations may include a variety of modes of operations such as branches, web-based channels, ATMs etc. Rates offered may also differ based on the flexibility of operation of savings bank account and the degree of liquidity offered such as notice period for withdrawal, number of deposits and/or withdrawals allowed per month and percentage of amount that can be withdrawn in any given month, among others. It may be noted here that in response to the deregulation of savings deposit interest rate in Hong Kong in 2001, a number of banks launched new products such as combined savings and checking accounts and HIBOR linked savings products. Some also revised fees and charges and minimum balance requirements, and introduced tiered structures of interest rates.

Cons
Possibility of an Unhealthy Competition A major attraction of savings deposits for banks is that it offers a low cost source of funds. This is evident from the fact that bank groups with higher share of CASA (current account and savings account) deposits (of which savings deposit is a major component) enjoy relatively low cost of deposits. However, the distribution of CASA deposits among banks is not uniform (Table 2). Table 2 : Frequency Distribution of CASA Deposits among Bank Groups - March 2010 (Per cent) Share of CASA No. of Average Cost Banks of Deposits
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1 2 3 A . Scheduled Commercial Banks 1-30% 32 5.61 30-40% 23 5.40 40-50% 10 4.39 50% and above 10 2.20 B. Public Sector Banks 1-30% 12 6.19 30-40% 13 5.83 40 - 50% 2 5.41 50% and above 0 NA C. Private Sector Banks 1-30% 12 6.66 30-40% 5 5.59 40-50% 4 5.18 50% and above 1 4.51 D. Foreign Banks* 1-30% 8 4.45 30-40% 5 4.07 40-50% 4 3.10 50% and above 9 2.16 *: Excluding one bank which is an outlier. NA : Not applicable. Note: Cost of Deposits = Interest paid on deposits/average of current and previous years deposits. Source: Reserve Bank of India. It has also been observed that 49 banks, which have below average CASA deposits, constitute about 50 per cent of total asset of the banking sector. Therefore, given the attractiveness of savings deposits, it could be argued that deregulation may lead to unhealthy competition amongst banks. Should it really happen, it will have implications in that it will push up the cost of funds of the banking sector. This, if passed on to the borrower, will raise the cost of borrowings and if not, it will affect the interest margins and profitability of the banking sector. Risk of Asset Liability Mismatches One of the issues often raised by banks in the context of deregulation of savings bank interest rate is that in the event of such deregulation, it would result in an asset-liability mismatch. This is because, although savings bank
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deposits represent short-term savings and withdrawal on demand, a large part of savings deposits is treated as core deposits, which together with term deposits have been used by banks to increase their exposure to long-term loans, including infrastructure loans. This is reflected in the increase in the share of term loans in total loans, barring foreign banks, during the period between 2001 and 2009 (Table 3). Table 3 : Share of Term Loans in Total Advances (Per cent) Bank Group 200200200200200200200200200 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 10 I. State Bank of India & its 32. 35. 39. 45. 52. 53. 54. 55. 52. Associates 9 3 2 2 0 9 9 2 2 37. 37. 39. 45. 51. 52. 54. 55. 56. II. Nationalised Banks 2 3 3 0 2 7 9 6 0 32. 60. 64. 65. 65. 68. 70. 69. 69. III. Private Sector Banks 5 5 0 0 8 4 3 7 4 46. 48. 47. 45. 49. 48. 49. 48. 46. IV. Foreign Banks 1 7 9 0 2 0 3 9 9 V. All Scheduled 36. 42. 44. 49. 54. 55. 57. 58. 57. Commercial Banks 7 2 5 0 1 9 7 0 1 Source: Statistical Tables Relating to Banks in India, RBI, Various Issues.

Significantly, during the same period (2001-2009), the share of long-term deposits (more than 3 years) in total term deposits declined almost steadily (Table 4).

Table 4 : Movements in Key Ratios of SCBs

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(Per cent) EndSavings Bank Term Deposits of Term March Deposits/ More than 3 years Loans/ Aggregate Maturity /Total Total Deposits Term Deposits Advances 1 2 3 4 2001 20.0 31.7 36.7 2002 20.5 28.7 42.2 2003 22.3 23.9 44.5 2004 23.7 27.8 49.0 2005 24.2 26.5 54.1 2006 25.1 24.5 55.9 2007 23.4 22.6 57.7 2008 22.4 23.1 58.0 2009 21.5 20.2 57.1 Note: Data in column 3 are inclusive of RRBs. Source: Statistical Tables Relating to Banks in India, RBI, Various Issues. In particular, public sector banks (which constitute 75 per cent of total assets) with a higher share of CASA deposits have higher exposure to term loans (Table 5). Table 5 : Frequency Distribution of Public Sector Banks CASA Deposits and Term Loans Share of CASA No. of Term Loan/Total Banks* Advances (%) Average Range 1 2 3 4 20-30 per cent 11 52 44-67 30-40 per cent 13 60 44-76 40-50 per cent 2 64 56-72 *: Excludes one bank which is an outlier. Source: Reserve Bank of India. In a scenario when savings deposits are used to finance long-term assets, deregulation of savings bank interest rate, it is argued, would have implications for asset liability management of banks. Any unhealthy competition, arising out of deregulation may have the potential to create asset liability mismatches as some banks with large dependence on savings deposits for financing long-term assets may lose savings deposits to some
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other banks. May Lead to Financial Exclusion Should unhealthy competition result in increase in interest rate and the overall cost of funds, banks might be discouraged from maintaining savings deposits with small amounts due to the associated high transaction costs. This could particularly be the case with public sector banks, which have a large number of savings accounts and which allows depositors to maintain very low balances. Thus, it is likely that banks either increase the minimum balance to be maintained or reduce the number of transactions permitted free of cost and increase the customer service charges too. This will discourage small savers, especially in rural and semi- urban areas from opening savings deposits accounts. The campaign for No Frills Accounts could also suffer a setback. In sum, deregulation of savings bank deposit rate might have adverse implications for the process of financial inclusion. Could Adversely Affect Small Savers/Pensioners Many senior citizens, pensioners, small savers, particularly in rural and semiurban areas, depend on interest as a source of regular income. In the recent period, interest rate on savings deposits has been lower than that on term deposits and deregulation may push up savings deposits higher, in which case small savers/pensioners would benefit. However, there could be occasions, especially when the liquidity is in surplus, when savings deposit interest rates may decline even below the present level. This will affect the income flow to small savers/pensioners. However, considering the fact that such occasions have been few and far between and on most recent occasions, savings interest rate was lower than short-term deposits, concerns about the impact of deregulation of savings deposits on pensioners/small deposits need not be over-emphasised. Possibility of Introduction of Complex and not so Easily Understood Savings Products Although deregulation of savings deposit interest rate may lead to product innovation, which, in general, will benefit savers, it is also possible that banks introduce some complex products, which may not be so easily understood by savers. These strategies may result in increase in the mis-selling of savings bank products, which will also result in increase in the number of customer
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complaints.
Primarily the deregulation is being pushed for by the smaller/newer banks as compared to older/bigger banks. These small banks have small percentage of CASA deposits and in the current scenario attracting Saving bank deposits is not easy. The reason being since the savers don't find any difference to shift to newer banks, they would still continue to their existing bank than shifting to a newer one. With this deregulation they could innovate in this space and attract a higher percentage of Saving bank deposits. Internationally many countries especially developed ones and those having high inflation rates have deregulated interest rates and the experiences have been fairly satisfactory

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1.6

IMPORTANCE TO THE COMPANY

For banks, the major part of their income is generated from the interest rate differences between the lending rate and deposit rate. Hence it benefits banks to keep the deposit rates low and have a healthy share of Low cost funds.. Banks define the term CASA deposits which stands for Total current account + savings account deposit. This is usually known as low interest deposit which banks can lend to borrowers at competitive interest rates purely as the Cost of funds in these deposits is lower. The interest rate on current account is currently zero in India on grounds of highest liquidity it offers. The contribution of CASA Ratios in any bank's profit is very significant. Any increase in the CASA interest rates will reduce the overall holding of Low Cost Funds and may reduce bank's profit on interest spreads. As per an estimate, CASA deposits should be about 40%-50% of the total deposits of a bank.

Casa structure for various banks as on Nov 2011 BANK S HDFC Bank Ltd ICICI Bank Ltd Punjab National Bank State Bank of India Kotak Mahindra Bank Yes Bank Ltd % 53 % 44% 39% 45% 31% 11% CASA RATIO SAVING BANK DEPOSITS AS A % OF TOTAL DEPOSITS 31% 30% 31% 33% 12% 2% NPA TO TOTAL LOAN % 1.04 4.02 1.87 2.58 1.71 0.23

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Post Deregulation of interest rate on saving deposits ,it has been an opportunity identification tool for Kotak Mahindra bank to increase its CASA share in total deposits by offering higher Rate of interest on saving deposits than competition there by also increasing market share by acquiring customers on Savings portfolio of competition through this option.

1.7

LEARNING FROM THE STUDY

For Customers :

Deregulation is a complete win win situation for customers across geographies , because to acquire them internal competition within banks offers a higher income on Liquid and transaction able surplus kept in Savings accounts. On the comparison chart of decision making on which bank to choose for keeping a savings bank account, Deregulation of interest rates offers one more point of positive choice to the customer.

For Banks :

Deregulation of Interest rates which is a working and acceptable scenario in the banking world internationally has both positive and negative impact to Banks. Commercial banks earn profits primarily through interest spread incomes of Assets
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against interest payouts on Deposits. Deregulation brings in Competition which may have a negative impact on % share of Low cost funds taking, may increase cost of Funds if competition hottens and also may change Market share in the long run if not adequately supervised by making better value propositions to existing & new customers

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CHAPTER 2 ORGANIZATION PROFILE

2.1

COMPANY HISTORY-OF KOTAK MAHINDRA BANK

Kotak Mahindra group has been one of India's most reputed financial conglomerates. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship company was given the license to carry on banking business by the 29 | P a g e

Reserve Bank of India (RBI). This approval created banking history since Kotak Mahindra Finance Ltd. is the first non-banking finance company in India to convert itself in to a bank as Kotak Mahindra Bank Ltd. Kotak Mahindra Bank has over 357 branches and 866 ATMs, which are spread all over India, not just in the metros but in Tier II cities and rural India as well.

Some of the important Milestones of Kotak Mahindra Group

Year Milestone

1986

Kotak Mahindra Finance Limited starts the activity of Bill Discounting

1987

Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market

1990

The Auto Finance division is started

1991

The Investment Banking Division is started. Takes over FICOM, one of India's largest financial retail marketing networks

1992

Enters the Funds Syndication sector

1995

Brokerage and Distribution businesses incorporated into a separate company - Kotak Securities. Investment Banking division incorporated into a separate company - Kotak Mahindra Capital Company

1996

The Auto Finance Business is hived off into a separate company -Kotak Mahindra Prime Limited (formerly known as Kotak Mahindra Primus Limited). Kotak Mahindra takes a significant stake in Ford Credit Kotak Mahindra Limited, for financing Ford vehicles. The launch of Matrix

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Information Services Limited marks the Group's entry into information distribution.

1998

Enters the mutual fund market with the launch of Kotak Mahindra Asset Management Company.

2000

Kotak Mahindra ties up with Old Mutual plc. for the Life Insurance business.

2000

Kotak Securities launches its on-line broking site (now www.kotaksecurities.com). Commencement of private equity activity through setting up of Kotak Mahindra Venture Capital Fund.

2001

Matrix sold to Friday Corporation

2001

Launches Insurance Services

2003

Kotak Mahindra Finance Ltd. converts to a commercial bank - the first Indian company to do so.

2004

Launches India Growth Fund, a private equity fund.

2005

Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime (formerly known as Kotak Mahindra Primus Limited) and sells Ford credit Mahindra.

2005

Launches a real estate fund

2006

Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and Securities

2008

Launched a Pension Fund under the New Pension System

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Kotak Mahindra Bank Ltd. Opened a representative office in Dubai 2009 Entered Ahmedabad Commodity Exchange as anchor investor 2010 Ahmedabad Derivatives and Commodities Exchange, a Kotak anchored enterprise, became operational as a national commodity exchange. Kotak Mahindra Bank Ltd entered into a Business Cooperation arrangement with CIMB Group Sdn Bhd, Malaysia.

2011

2.2 PRODUCT SCOPE & RANGE

Kotak Mahindra Bank offers bunch of products and services to meet the every need of the people. The company cares for both, individuals as well as corporate and small and medium enterprises. For individuals, the company has a range of accounts, investment, and pension scheme, different types of loans and cards that assist the customers. The customers can choose the suitable one from array of products which will suit their life-stage and needs. For organizations the company has a host of customized solutions that range frm Funded services, Non Funded based services , Value added services, Mutual 32 | P a g e

fund etc. These affordable plans apart from providing long term value to the customers help enhancing goodwill of the company, market share. The products of the company are categorized into various sections which are as follows: 1) 2) 3) 4) 5) 6) Accounts and Deposits Loans and Borrowings Investment and Insurance Forex and Payments Cards Customer Centers

2.3
(1)

PRODUCT AND SERVICES AT A GLANCE

PERSONAL BANKING : (A) Accounts and Deposits Saving Accounts 1. 2. 3. 4. 5. 6. 7. 8. 1. 2. 3. 4. 5. 6. Ace Savings Account Pro Savings Account Edge Savings Account Nova Savings Account Classic Savings Account Easy Savings Account Corporate Salary Account Silk - The Saving's Programme for Women Term Deposits Term Deposits Regular Term Deposits Senior Citizen Deposits Ace Deposits Tax Saving Deposits Sweep-In Facility 1. 2. 3. 4. 5. Current Accounts Neo Current Account Edge Current Account Pro Current Account Elite Current Account Ace Current Account

Safe Deposit Lockers Financial Inclusion

(B)

Loans

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1. Home Loans 2. Personal Loans 3. Car Loans 4. Loan Against Property 5. Home Improvement Loans 6. Home Loan Balance Transfer 7. Kotak Stock Ace 8. Gold Loans

(C)Cards

1. Credit Cards 2. Global Debit Cards 3. Best Compliment Cards 4. Kotak Netc@rd 5. Kotak World Travel Card

(D)

Investments

Mutual Funds Demat Kotak Gold Eternity 34 | P a g e

New Pension System Insurance ASBA

(E)Convenience Banking

1. Net Banking 2. Kotak Payment Gateway 3. Mobile Banking 4. SMS Banking 5. Alerts 6. Phone Banking 7. ATM Network

(2) BUSINESS BANKING Business Solutions Current Accounts Loans Convenience Banking Trade Finance

(3)EXCLUSIVE BANKING Privy League Wealth Management

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(4)CORPORATE BANKING Product Suite Trade Finance Commercial Finance Transaction Banking Custody Services Accounts

(5)COMMERCIAL BANKING Asset Based Finance Working Capital Finance Term Loans (Strategic Business Loans) Dealer Finance

(6) NRI BANKING Accounts & Deposits Transfers Investments Home Loans Credit Cards Convenience Banking Help Centre

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CHAPTER 3

PROBLEM STATEMENT AND RESEARCH OBJECTIVE

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3.1 PROBLEM DEFINITION

Customer acceptability scenario to the

higher rate of interest offering on saving accounts at KOTAK MAHINDRA BANK post deregulation

V/S

Customer acceptability scenario to other

competition banks Overall Value proposition offering in Savings accounts without a change in interest rates post deregulation

In line with international standards as proposed by Basel Committee For Banking Supervision (BCBS), RBI has deregulated the interest rate on saving bank account on 25/10/2011. RBI has deregulated the savings interest in two categories. Banks will offer the uniform interest rates for all the investors below 1,00,000 and above that it can give differential interest rates. Also, the interest will be calculated on the daily balance method. The main source of profit to banks comes from interest spreads, i.e., interest rate differences between the lending rate and deposit rate. The Average Cost of Deposits (ACD) is taken as the ratio of interest expenses to the average demand and time deposits of the bank..Savings account being low interest bear deposits helps the banks to keep the ACD low. BANKS CASA SAVING BANK DEPOSITS AS A % OF TOTAL DEPOSITS 31% 30% 38 | P a g e

HDFC Bank Ltd ICICI Bank Ltd

53% 44%

Punjab National Bank State Bank of India Kotak Mahindra Bank Yes Bank Ltd

39% 45% 31% 11%

31% 33% 12% 2%

The table above shows the saving deposits to total CASA deposit ratio for the banks listed. Clearly, distribution of savings deposits is uneven among banks with some banks enjoying relatively high share of savings deposits than the others. Mostly banks with higher CASA % have a higher SB ratio This will have broadly two impact, the banks at the lower end of the spectrum will raise the rates in hunt of low cost deposits. This is why Yes Bank and Kotak Mahindra bank were the first two banks that raised the interest rates on saving bank accounts, i.e. 6%-7% and 5.5%-6% p.a. respectively. In addition to this they would also effectively use this Deregulation scenario in onboarding CASA customers from competition there by attempting to increase market Share. But the banks at the higher end of spectrum like SBI, HDFC, PNB etc., cannot afford to raise the interest rates as it will significantly raise their ACD. This will shift the depositors towards those offering higher rates, which will lead to fall in the saving deposits (low cost) of the banks and will increase the ACD.

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3.2

RESEARCH OBJECTIVE

3.2 .1 PRIMARYRESEARCH OBJECTIVE

Impact of 6% interest rate on New to- bank customer acquisition in Kotak Mahindra bank and related acceptability, awareness & responsiveness scenario in the market

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3.2 .2 SECONDARY RESEARCH OBJECTIVE

Impact of 6% interest rate on Existing customers Balance build up and Savings Bank account portfolio movement in Kotak Mahindra bank and related acceptability , awareness & responsiveness by the Existing customers

CHAPTER - 4 RESEARCH METHODOLOGY

Finite data sampling spread across the entire hinterland on the Medium to Higher income group customer class which the brand Kotak Mahindra Bank positions itself in through ground level & marketing activity related promos was the basic methodology used which involved me in the following activities : Developing Sample questionnaire for both New-to-bank & Existing customers
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Interviewing and data collection from the hinterland of designated branch for checking awareness & acceptability

Selling and lead generation activity performed by self in acquiring customers primarily for Savings Bank accounts.

4.1

SAMPLING DESIGN

While it is practically not possible to study whole universe, it becomes necessary to take sample from the universe to know about its characteristics and base our analysis and forecasts on the derivations of the above sampling unit

4.1.1 Sampling Unit : Self Employed professionals, Salaried Class, Service providers, Doctors and housewives of Dwarka (Delhi ) city. 4.1.2 Sampling Technique : Non probability - Convenience Sampling 4.1.3 Research Instrument : Structured Questionnaire 4.1.4 Contact Method : Personal Interview

4.1.5 Sample Size : Have acted and studied a total sample size of 200 respondents ,In which 100 respondents are the Existing customer of KOTAK MAHINDRA BANK and remaining 100 are the account holders of other banks.

4.2

RESEARCH DESIGN

Research design can be defined as the plan and structure of enquiry, formulated in order to obtain relevant answers to research Question on business aspects or

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we can say that it outlines the actual research problem on hand and details the process for solving it. This project report is based on the descriptive as well as causal research because it tries to find out the impact of higher rate of interest on existing as well as on non existing customer of Kotak Mahindra Bank.

Universe of the study : All sectors of Dwarka both residential and commercial (New Delhi) Unit of investigation: Residents of Dwarka who are A/C holder of Kotak Mahindra bank or other banks. Duration of Study : 10 Weeks Research Type : Descriptive & Causal

4.3

RESEARCH LIMITATION

1. Although there has been a finite yet sizeable sample taken , the sample class does not cover entire range of population mix especially pertaining to rural and semi urban population as well as Senior citizens category.
2. While the research methodology has been performed under a

Direct interview at the customer touch point it has limitations on internal database study of the Savings portfolio movements / shifts post deregulation. This would have been possible provided complete section of RM Base or managed RO base would have been shared to see the Month on month movement of Savings balances. This if provided the research would have better and deeper analysis of customer acceptability of 6% interest rate and would have thrown adequate light on pattern of savings and stickiness to the brand purely post deregulation.

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3. The methodology does not throw light on the most accepted way of information flow( Print/ Audio Visual/ Personal call/ Marketing drives ) to customers telling about the rate change and does not fully confirm a standardized and compulsory medium in terms of information flow which would have the highest impact in creating customer inquisitiveness and would be a catalyst for incrementing a beeline of customers to open bank accounts in Savings portfolio post the increase of interest rate. 4. The sample size of analysis done for Dwarka branch may not be fully in line with the entire behavior of the existing customers of the bank as it had only an analysis of a specific branch. Hence the customer awareness made by RMs / ROs may differ and the overall picture may / or may not have exactly similar trends in the bank as a whole.

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CHAPTER - 5

DATA ANALYSIS OF SAMPLING RESEARCH METHODOLOGY

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5.1 : DATA ANALYSIS AND INTERPRETATION FOR NEW ACQUISITION

Q1 Rank the below reasons for choosing your bank account in order of your preference ( Rank 1-10)

Interpretation: The above chart and analysis done on a sample size of 100 Non customers depicts light on a complete array of preferences which is there in a persons mind while choosing a bank account. Interesting enough only 19% of customers have chosen their top most reason amongst the 9 reasons asked to be an interest rate payout which will factor in their decision making. However if we look in detail we will see that 3 distinct reasons namely Product & facilities , Proximity or nearness to Home or office, along with differential interest rate factor in amongst the top 3 decision making parameters. Amongst the above 3 highest index % falls in category of Interest rates & Products and value available wherein 87 people on the choice board put
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Products & facilities as Priority over 82 ranking in Interest being the only option for decision making.

Percentage of total count for choosing bank account in order of first Preference from given reasons.

Interpretation: The above pie chart is a derivative analysis done on THE TOP MOST REASON out of an array of 9 choices done on a sample size of 100 Non customers depicts light on a complete array of preferences which is there in a persons mind while choosing a bank account. Interesting enough only 19% of customers have chosen their top most reason . 43% of customers actually want to decide their bank account shift basis the ultimate value proposition given by a wholesome bouquet of Product & facilities
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Proximity / nearness of branch to home or office becomes a first priority of 26% customers ( mainly housewives/ working people who can also operate lockers ). Going by the analysis 8% think that the solidity and goodwill of the Brand name comes as a priority over anything else.

Q 2 Rank The below Reasons for choosing your bank account in order of your top five Preferences.

Interpretation: The above pie chart is a derivative analysis done on THE 5 TOP REASONS out of an array of 9 choices done on a sample size of 100 Non customers depicts light on a complete array of preferences which is there in a persons mind while choosing a bank account. In the Top 5 club on a weighted average method if we rank 5 points for top most reason & come down to point 1 for the 5th reason in priority it clearly comes as Product & facilities gets the maximum weight age closely followed by Interest rate and Proximity to the bank. On the view point of the customer as we dig
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deep Minimum balance requirements and Brand name start to grow bigger and responsive decision deciders. Hence while acquiring New to bank customers the above 5 reasons must be appropriately blended as benefits to be used as a combined Hook for decision making. All marketing promos and catchment exercises should keep these in mind while designing a promo./ advertisement

Q 3 Are you Aware of Deregulation of Saving Bank interest Rates?

Interpretation: This clearly depicts that 72 % of the sample size taken were aware through various kinds of information flow about the deregulation of interest rates by RBI. It also shows that the analysis was done on a very aware and well informed group of probable customers who were well read or well informed. Q4 How Did you come to know about Deregulation of saving bank interest rates?

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Interpretation: This clearly depicts that 72 % of the sample size taken were aware through various kinds of information flow about the deregulation of interest rates by RBI. It also shows that the analysis was done on a very aware and well informed group of probable customers who were well read or well informed. It also depicts that each audio visual/ Company ads and Newspaper had more or less equal % of involvement. However the television Advertisement had its Hook in place hence was a notch above the other medium.

Q5 Do you think that higher interest alone can be the sole reason to change bank account?

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Interpretation :

This was a singular unique question which was put up in a scenario of Just 1 choice given to the individual. It clearly states that in case of all other factors remaining constant / or if no other choice is given to an individual in decision making of choosing a bank for His/ Her Savings account then in that case 60% individuals accorded a Yes to the reason of choosing or deciding upon a choice of bank purely and singularly basis Higher interest rate. It also depicts that on every Sales pitch made by Banks like Kotak Bank the customer touchpoint should aggresively position this decision making reason for getting a buy in from customers and that this reason should get adequate prominence for earning a decision in Favour of the bank during the acquisition sales cycle.

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5.2 :DATA ANALYSIS AND INTERPRETATION FOR EXISTING CUSTOMERS

Q1 Are you Aware of Deregulation of saving bank interest rates?

Interpretation: This clearly depicts that 84 % of the sample size taken were aware through various kinds of information flow about the deregulation of interest rates by RBI. It also shows that the analysis was done on a very aware and well informed group of existing customers who were well read or well informed. It also depicts that the Existing customers were well educated on the changes in the Banking sector especially related to policies engraved by the Regulator.

Q2 How Did you come to know about Deregulation of saving bank interest rates?
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Interpretation: This clearly depicts that 84 % of the sample size taken were aware through various kinds of information flow about the deregulation of interest rates by RBI. It also shows that the analysis was done on a very aware and well informed group of existing customers who were well read or well informed. It also depicts that each audio visual and Newspaper had more or less equal % of involvement. However the television Advertisement had its Hook in place hence was a notch above the other medium in terms of visibility and acceptance . This also depicted that between the various advertisement campaigns run by the bank during this interface the television medium information flow of News and advertisement gained substantial prominence over the other medium in disseminating information and may be kept as a choice for other changes by the bank in future. Q3 Did the RM/Bank staff inform you through Telephone/Email about the change in savings bank interest rates?

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Interpretation : This clearly depicts that 84 % of the sample size of existing customers taken were made appropriately aware through the RM/ RO of the branch of the increased interest offering started by Kotak Mahindra bank post deregulation. It also shows that the bank was fully equipped and had a process in place of active and accurate information flow to existing customers so that this could immediately have a positive effect on Portfolio movement and deepening of the existing base of Savings account holders in the branch. It also depicts that at a branch level there was a methodical and systematic process in place of call backs on existing customers to increase wallet size.

Q4 Post being informed of higher interest rates have you started keeping more balances in your account? OR started shifting balances from other banks to this account?

Interpretation: This clearly depicts that out of the 84 % of the sample size of existing customers taken which were made appropriately aware through the RM/ RO of the branch of the increased interest offering started by Kotak Mahindra bank post deregulation, and that at a branch level there was a methodical and systematic process in place of call backs on existing customers to increase wallet size had a total of 64% of customers

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responding positively on incrementing wallet size or Savings account balances. It showed that the Bank and the branch were involved in extracting better balances from existing customers post the interest rate hike.

Q5 What are incremental balances post being informed about the higher interest rates?

Interpretation: There was active and positive participation of existing customers post the interest rate hike. Barring 33% of customers who did not increase balances post the rate hike 24% of customers interviewed depicted an average rise of 10 k on a mom basis on the credit balances, 28% showed an upward trending by 30k, 9% by 40 k, 4% by 70 k and 2 % by 100k. 17 % of customers did not show positive movement so this portion of sample could be taken up for further study as to why and on what reasons are they reluctant to increase balances.

5. Note of caution for both questions 4 & 5 : While the research

methodology had been performed under a Direct interview at the customer touch point it has limitations on internal database study of the Savings portfolio movements / shifts post deregulation.
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This may not be a completely accurate data as it does not include validated balance growth on portfolio from the system on a month to- month base from November -2011. The same would have been possible provided complete section of RM Base or managed RO base would have been shared to see the Month on month movement of Savings balances. This if provided the research would have better and deeper analysis of customer acceptability of 6% interest rate and would have thrown adequate light on pattern of savings and stickiness to the brand purely post deregulation.

Q6 Rank the below Reasons for increasing balances in your saving account in order of your preference ( Rank them 1-10)

Interpretation: The above chart and analysis done on a sample size of 100 existing customers depicts light on a complete array of preferences which is there in a customers mind while he tends to increase balances in a given bank account against others and in a way graduates to treating Kotak as a
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primary banker in the SB portfolio. Interestingly 29% of customers have chosen their top most reason amongst the 9 reasons asked to be an interest rate payout which will factor in their decision making. However if we look in detail we will see that 4 distinct reasons namely Product & facilities available in the basket ,Personalized attention by bank staff and Service delivery on operational efficiency and seamless transaction processing to be amongst the top 4 decision making parameters. The above chart can be used as a derivative analysis done on THE 5 TOP REASONS out of an array of 9 choices done on a sample size of 100 Existing customers depicts light on a complete array of preferences which is there in a persons mind while he switches gears in balance buildup. In the Top 5 club on a weighted average method if we rank 5 points for top most reason & come down to point 1 for the 5th reason in priority it clearly comes as Interest paid gets the maximum weight age closely followed by Personalised service and Service delivery .

This analysis can clearly also spell out the retention and deepening strategy for the branch and bank and can throw light on how to tackle customer attention.
6. Note of caution : The cross sell of asset products and linking of

EMIs surprisingly does not account for as a major customer acceptability reason for incrementing balances. The interview mode of analysis may not be a complete fool proof way of looking at this objective as this solely has been accepted worldwide across banking companies to be the single most driver of increasing stickiness, incrementing credit balances and negating attrition . Q7. Percentage of TOPMOST ranking reason for increasing balances in saving accounts.

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Interpretation: The above pie chart is a derivative analysis done on THE TOP MOST REASON out of an array of 7 choices done on a sample size of 100 existing customers depicts light on a complete array of preferences which is there in a persons mind while choosing a bank account. Interesting enough only 19% of customers have chosen their top most reason . 43% of customers actually want to decide their balance build up in Savings accounts purely basis Higher Interest rate which clearly spells out the tangible financial gain to surpass all other reasons as the biggest reason to increment balances. Service delivery on customer sensitivity and operational efficiency takes a major cake @ 13% along with the second most important reason being Personalized attention derived from branch staff gives a 21% weight age . The Combination of Service delivery & personalized attention which actually spells out the core customer centric sensitivity ( both though being different have a customer service approach as a common platform ) Jointly accounts for 34% of reasons for customers attriting or increasing balances

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CHAPTER - 6 6.1 CONCLUSION

CONCLUSION & SUGGESTIONS

"New customers belong to various segments - corporate salary accounts, small-scale enterprises, self-employed professionals and salaried individuals," adds KVS Manian, president, consumer banking at Kotak Mahindra Bank. "The response to the hike in our savings bank rate has been reasonably good, both in terms of new customers and our existing customers. Ever since we increased our rates to 6% on domestic savings deposits, our rate of acquisition has been hovering at around 80%." In the December 2011 quarter, the CASA (current account and savings account) deposits of Kotak Mahindra Bank's CASA rose from 9,355 crore as of September 2011 to 10,615 crore in the December quarter. Now, higher returns act as a huge incentive for customers to switch banks. However, should it be the sole criterion? The natural questions were Is it the right time, is Kotak Mahindra Bank adequately positioned ? The core essence of the entire project had hovered around the factual analysis and interpretation of change in Consumer ( Referred to as Non Customers and Existing customers ) in the above pages in the changed scenario of Interest deregulation in Savings bank account with a study of customer behavior pattern change, acceptability quotient index in retail Savings bank accounts in Kotak Mahindra bank. Raising Interest rates post deregulation has unleashed the opportunity of Customer acquisition as well as increasing portfolios in existing customers. With this it had sprung off a price sensitive war within the
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already matured Urban Retail banking space on the opportunity of increasing market share at least with bottom CASA spread banks. The analysis done also brings certain answers to the question on profitability in CASA spreads and interest income because merely acquiring customers through an interest war will have an adverse and may impact on Cost of Funds as well as shrink the wallet size of responding banks like Kotak Mahindra on controlling asset pricing and further generating interest income through differential of asset liability spreads. The above pages have traversed through a path of in depth analysis and learning derived by customer interface in the target segment. The structure and the final culmination based on data research and sampling have thrown logical light on customer awareness on the Savings account interest rate upward changes post Deregulation at Kotak Mahindra bank, the market responsiveness to this change both in terms of New Customer acquisition and balance buildup in existing Savings account portfolio base. It will throw adequate light on willingness to change purely basis an upward movement of interest vis--vis host of other products, facilities, branding and so on.

6.2 SUGGESTIONS & RECOMMENDATIONS

7. On the strategy of acquisition of New to Bank customers ,

the bank has to recurringly follow a principle of highlighting the Increased interest offering on Savings account recurringly. This could be achieved in the following ways
1. On each Marketing activity the entry point or main activity area to

be completely covered with Banners clearly projecting the 1st invitation to customers through highlighting the same. 2. DMRC stations near Kotak Mahindra Branches and off site ATM outers to be manned with Staff wearing a complete dress depicting the following message If you do not earn 6% on your Savings yet then you havent earned enough with a very big Kotak Logo.
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3. DMRC Train route announcements to be dotted with running ads on this interest rates 4. All off AUS ie all Non Kotak Bank txns done on Kotak Bank ATMs needs to be analysed and in specific slots wherein there are more Non Kotak Transactions, REs may be mapped and should be delivering a sales pitch during those hours/ slots to maximise conversions. 5. Restaurants in all nearby areas where footfalls are high should have the bank furnishing the Feedback card to be filled in by visitors. The Feedback form should have the last point We are sure that you have enjoyed your meal and as you proceed homewards do you think we can have you coming here more often? Only if you believe in the power of 6% from Kotak Bank The data of feedback form needs to be captured by the bank. 6. On all weeks a continuous Morning walker activity can be done in specific residential catchments. This activity should have a complete sales force wearing a complete dress depicting the following message If you do not earn 6% on your Savings yet then you havent earned enough with a very big Kotak Logo. 7. Women clubs, SPAs, healthclub & Dancing clubs which have niche female audience attending.Female staff should be deployed on weekends If you do not earn 6% on your Savings yet then you havent earned enough with a very big Kotak Logo. Or Have you experienced the power of SILK Account if not.. just speak to us

On the strategy of acquisition of Existing customers , the bank has to recurringly follow a principle of highlighting the
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Increased interest offering on Savings account recurringly. This could be achieved in the following ways
1. Each

bank account statement, loan statement, credit card statement to depict the following message If you do not earn 6% on your Savings yet then you havent earned enough So it pays more to keep more money with us with a very big Kotak Logo.

2. Both the Relationship Manager scorecard and the Relationship offer scorecard should have a mandatory calling exercise on 2 calls per customer per month mandated for service queries and updating him/ her about the change of interest. 20% weightage should be given in SB portfolio increment over the base of last month and 20% weightage to be given on cross sell of family accounts within the portfolio across unique groups. 3. The WEB page, Web links, mobile banking platform, SMS alerts should all be centered on repeat information flow to existing customers. 4. The internet banking platform should have Pop up alerts coming to the customer when he does a transactions in his account or accesses it.

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CHAPTER -7 ANNEXURES & ATTACHMENTS

CUSTOMER SURVEY DETAILS- NTB
Name ( Mr./Mrs. ) Occupation Address Mobile # E Mail Address Residence: Vehicle: Spouse Name No of Children Age of Children Primary Banker No of Account Type of Account Other Relationship FD ( Mr./Mrs. ) _____________________________________________ _____________________________________________ _____________________________________________ _____________________________________________ _____________________________________________ OWNED SUV RENTED CAR BIKE

_____________________________________________ ____________________________________________ 1)________ 2)________ 3)_______ _____________________________________________ _____________________________________________ _____________________________________________ KIDS A/C INSURANCE MF

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RANK THE BELOW REASONS FOR CHOOSING YOUR BANK ACCOUNT IN ORDER OF YOUR PREFERENCE (RANK THEM 1 10)

BRAND NAME BRANCH NETWORK PRODUCTS AND FACLITIES AVAILABLE PROXIMITY TO HOME/OFFICE HIGHER INTEREST RATE ATM NETWORK MINIMUM BALANCE REQUIREMENT CHARGES
QUALITY AND ACCESS OF DEBIT CARDS ANY OTHER REASON

ARE YOU AWARE OF DE-REGULATION OF SAVINGS BANK INTEREST RATES? YES NO HOW DID YOU COME TO KNOW ABOUT IT NEWSPAPER ADVERTISEMENT TELEVISION DO YOU THINK THAT HIGHER INTEREST ALONE CAN BE THE SOLE REASON TO CHANGE BANK ACCOUNT YES NO

For official Use only

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S. No. 1. 2.

Product Pitched

Lead No.

Next Follow up DATE

Date: _________________

Name of Staff: _________________

++++++++++++++++++++++++ ++++++++++++++++++++
EXISTING CUSTOMER SURVEY DETAILS
Name ( Mr./Mrs. ) Occupation Account No. Mobile # E Mail Address Residence: Vehicle Owned: Spouse Name No of Children Age of Children ( Mr./Mrs. ) OWNED SUV _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ RENTED CAR BIKE

_______________________________________________

_____________________________________________ 1)________ 2)________ 3)_______ YES YES NO NO

Does your spouse have an account with the Bank already ? Does your children have an account with the Bank already ?

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Other Relationship

FD

KIDS A/C

INSURANCE MF

ARE YOU AWARE OF DE-REGULATION OF SAVINGS BANK INTEREST RATES? YES NO HOW DID YOU COME TO KNOW ABOUT IT NEWSPAPER MAGAZINE ADVERTISEMENT

TELEVISION

DID THE RM/ BANK STAFF INFORM YOU THROUGH TELEPHONE/ EMAIL ABOUT THE CHANGE IN SAVINGS BANK INTEREST RATES? YES NO POST BEING INFORMED OF HIGHER INTEREST RATES HAVE YOU STARTYED KEEPING MORE BALANCES IN YOUR ACCOUNT ? OR STARTED SHIFTING BALANCES FROM OTHER BANKS INTO THIS ACCOUNT ? YES NO IF YES THEN WHAT HAS YOUR INCREMENTAL BALANCES BEEN? GONE UP BY 10,000/- PER MONTH GONE UP BY 20-30000/- PER MONTH GONE UP BY 40-60000/- PER MONTHGONE UP BY 50,000/ - 70,000/- PER MONTH GONE UP BY 1 LAC/- PER MONTH

DO YOU THINK THAT HIGHER INTEREST ALONE CAN BE THE SOLE REASON TO INCREMENT THE ABOVE BALANCES YES NO
RANK THE BELOW REASONS FOR INCREASING BALANCES IN YOUR SB ACCOUNT IN ORDER OF YOUR PREFERENCE (RANK THEM 1 10)

SERVICE DELIVERY BRANCH NETWORK FACLITIES AVAILABLE IN TERMS OF PRODUCT BASKET PROXIMITY TO HOME/OFFICE

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BETTER AND LONGER BANKING HOURS HIGHER INTEREST RATE ATM NETWORK & PROXIMITY YOU HAVE EMIS GOING OUT FROM THIS ACCOUNT PERSONALISED ATTENTION FROM BRANCH STAFF
ANY OTHER REASON

For office Use only S. No. 1. 2. IInd Product Pitched Lead No. Next Follow up DATE

Date: _________________

Name of Staff: ________________________________________

++++++++++++++++++++++++ ++++++++++++++++++++

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Lead Allocator & Conversion details

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CHAPTER -8 REFERENCES & BIBLIOGRAPHY

1. Website of www.rbi.org 2. Website of www. Economic times.org 3. Study of related comparisions of similar banks from Website of www.finacial advisor.com 4. Reference to Kotak Banks official website. 5. Book of Business Research Methods by Rachel Simpson. 6. Other ground information : Marketing activity at Pinnacle mall at Dwarka Morning walker activity at Dwarka

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