Govt-run financial brands ’ve upper hand

FINANCIAL brands are built on the bedrock of trust and expertise. But with the US-led global financial meltdown spawning an undercurrent of fear and distrust among millions of investors, employees and consumers alike, brand experts say that government-run Indian financial brands like SBI and LIC seem to have an edge, as they are built on strong relationships and a trust that emanates from an implicit sovereign guarantee rather than a claimed ‘expertise’ that many of the (now failed or failing) marquee global names used to harp on. Says SBI Life Insurance MD Uday Shankar Roy: “Government funded financial institutions have always been criticised for being stringent with the regulations and investments. But, we must understand that ultra-modern risk-monitoring practices adopted in the West have failed miserably. Considering the present scenario, the central banking regulatory authority in India stands the strongest. The traditional monitoring and investment practices will certainly see an upswing now.”The meltdown will hit the sheen of western brands hard and a conscious move towards Indian brands will be
noticed among the Indian consumers. Says Ogilvy & Mather India country head (discovery & planning) Madhukar Sabnavis: “Trust is what business relationships in the East are built upon. Culturally, in India, as long as trust remains consumers are willing to live with business ups and downs and accept that as a part of life. Indians as a race is forgiving and hence the importance of trust.”
Public sector banks riding high on credibility have underscored robust growth in the recent times. According to the recent ET-Brand Finance India’s Top 50 Most Valuable (Company) Brands 2008 study, India’s largest bank State Bank of India emerged as the most valuable financial services brand value at Rs 16,595 crore. While Punjab National Bank’s brand valuation escalated by about Rs 570 crore in 2007-08, Bank of India has shown a growth of over 50% as against the previous year. In comparison, now bankrupt Lehman Brothers had shown a drop in its brand value in 2007 ($4 billion) from $4.4 billion in 2006, according to Brand Finance’s annual report on 500 most valuable global brands.
Given the volatility of global financial market and lessons learnt from the South-Asian crisis, subprime crisis and present meltdown, the ideology of safety and security have superseded the ‘cool image and dynamism’ plank. Brand experts across various sectors have echoed the strong sentiment of building relations as the essence of Indian business practices. Says Publicis Asia regional strategist Partha Sinha: “Indian financial brands are build on relationships whereas multi-national have always been expertise driven. But now this edifice of ‘expertise’ is coming unstuck.”
Even as the US suffers from major financial crisis, Tata AIG Life claims to be well capitalised and is confident of meeting stringent local regulatory and capital requirements. “Since the Tata Group holds major stake (74%) in the company, the credibility earned by the conglomerate shields Tata AIG Life from any immediate material impact,” says the company statement.
Future Brands CEO Santosh Desai feels: “Merrill Lynch, Lehman Brothers and too a certain extent AIG are not too big brands for an average Indian. Moreover, the credibility lend by the brand Tata maintains the faith among the stakeholders.”Financial institutions in India see a silver lining amidst the crisis. For instance, Reliance Money acknowledges this scenario as the right time for expansion in the international markets. Says Reliance Money CEO Sudeep Bandopadhyay: “With a century-old American banks collapsing, I think, it is a wonderful opportunity for Indian banks to go international with their intrinsic values. We also see it as a good time to acquire quality assets.”

Raghuram rajan panel want Smaller banks For India

THIS should sound sage advice in the aftermath of the Lehman collapse. The Raghuram Rajan panel has suggested that the Reserve Bank should consider entry of smaller players into the banking sector as failure of small banks will not have systemic consequence created by failure of a giant banking entity. There is no need to believe that smaller banks would fail and historical evidence is not relevant since the situation has changed.
The panel has suggested that the regulator should prescribe tighter capital adequacy and regulatory norms for smaller banks. The Rajan committee submitted its final report on financial sector reforms to the government this week. The panel urged the regulator to “allow more entry to private wellgoverned deposittaking small finance banks offsetting their higher risk from being geographically focused by requiring higher capital adequacy norms, a strict prohibition on related party transactions, and lower allowable concentration norms”.
This means that these banks, if allowed, would be entitled to advance a lower percentage of their deposits as advances in comparison to larger banks. Such norms would minimise the risk of any of the entities going bust, the panel feels.
The committee has also questioned the honesty of the large banks, saying there is “no necessary link between size and honesty, as the recent experience with large banks suggests”. It has, however, suggested that the regulator should be more selective and find “fit and proper” criteria for giving licenses to the smaller banks.
The intent behind the need of such banks is to bring local knowledge to the bankers so that they are able to take decisions quickly in conformity with their customers whom they would personally know. The entry of such financial entities would also help in achieving the government’s goal of financial inclusion.
The committee has clarified it does not recommend smaller banks based on earlier models where governance structure was poor, political and government interference was excessive, besides unwillingness to take corrective regulatory measures.