Answer to Question #198525 in Management for Peter Masih

Question

Bank Conventional Limited” is a well-established traditional Retail Bank operating in

India and is almost a 75-year-old Bank. It relied very heavily on its strength of physical

distribution of about 1000 branches across in the country. Over the last 10 years this

Bank did not invest much on Technology. On the other hand, a new generation bank

called “Bank Modern Limited” has always been tech savvy with substantial investment

every year on new technology etc., This Bank was started in 2010 and currently has a

branch network of 100 Branches only.

a. Analyze the various challenges that ‘Bank Conventional Limited’ will be facing today

across multiple operational and business parameters (5 Marks)

b. Analyze the various benefits that ‘Bank Modern Limited’ enjoy today across multiple

operational and business parameters

Answer 1

Challenges that bank conventional limited will be facing today

Rising Expectations

Today’s consumer is smarter, savvier, and more informed than ever before and expects a high degree of personalization and convenience out of their banking experience.

Changing Business Models

The cost associated with compliance management is just one of many banking industry challenges forcing financial institutions to change the way they do business. The increasing cost of capital combined with sustained low interest rates, decreasing return on equity, and decreased proprietary trading are all putting pressure on traditional sources of banking profitability.

Increased Regulatory Pressures

Research confirms that the burden of regulation falls disproportionately on regional and local banks. New regulations may inhibit your lending ability in the community or exorbitantly increase the costs of that lending.

A Slow Economy

A sluggish economy and slow real estate market mean weak loan demand and low interest rates – both factors that compress the Net Interest Margin (NIM). When required to keep more capital on hand, the margin decreases even further.

Benefits that Bank Modern Limited enjoy today

Everyone knows that local banks are more responsive to customer needs and offer more personal-touch service, so build on that existing asset.

Local banks have a key advantage over their national competitors in this area: agility. Implement compliance procedures faster than the competition.

The challenge of a compressed NIM is one big banks face too, but lack the local relationship bank conventional limited already have in the community.