Harvard Case - DBS India: Banking on the Unbanked
"DBS India: Banking on the Unbanked" Harvard business case study is written by Tan Swee Liang, S.N. Venkat, Sarita Mathur. It deals with the challenges in the field of Finance. The case study is 15 page(s) long and it was first published on : Feb 27, 2019
At Fern Fort University, we recommend that DBS India adopt a multifaceted strategy to capitalize on the vast opportunity presented by the unbanked population in India. This strategy should focus on leveraging technology, building strategic partnerships, and tailoring financial products and services to meet the specific needs of this segment.
2. Background
DBS India, a subsidiary of the Singapore-based DBS Bank, is seeking to expand its reach and market share in the Indian banking sector. The company recognizes the immense potential of the unbanked population in India, a segment characterized by limited access to traditional banking services. The case study explores the challenges and opportunities associated with serving this segment and outlines DBS India's strategic considerations.
The main protagonists in the case study are:
- DBS India: The company seeking to expand its reach and market share in India.
- The Unbanked Population: The target segment characterized by limited access to traditional banking services.
- The Indian Banking Sector: The competitive landscape within which DBS India operates.
3. Analysis of the Case Study
This case study can be analyzed through the lens of a strategic framework that considers both internal and external factors impacting DBS India's decision-making.
Internal Factors:
- Core Competencies: DBS India possesses strong technology capabilities, a robust risk management framework, and a proven track record in international banking.
- Financial Resources: The company has the financial resources to invest in expanding its operations and developing new products and services.
- Organizational Structure: DBS India has a flexible organizational structure that allows for rapid adaptation to market changes.
External Factors:
- Market Opportunity: The unbanked population in India presents a significant market opportunity for financial services.
- Competition: The Indian banking sector is highly competitive, with both domestic and international players vying for market share.
- Government Policy: The Indian government is actively promoting financial inclusion through various initiatives and regulations.
- Technology: The rapid adoption of technology, particularly mobile banking, presents opportunities for reaching the unbanked population.
Key Challenges:
- Reaching the Unbanked: Reaching a geographically dispersed and often financially illiterate population requires innovative strategies and targeted outreach programs.
- Developing Relevant Products: Designing financial products and services that cater to the specific needs and financial literacy levels of the unbanked population is crucial.
- Managing Risk: Serving the unbanked population presents unique risk challenges, particularly in terms of credit risk and fraud.
4. Recommendations
To effectively capitalize on the opportunity presented by the unbanked population in India, DBS India should implement the following recommendations:
1. Leverage Technology:
- Develop a Mobile-First Banking Platform: Offer a user-friendly mobile banking app with features tailored to the needs of the unbanked, such as simplified account opening, micro-loans, and micro-insurance.
- Utilize Data Analytics: Leverage data analytics to understand customer behavior, identify potential customers, and tailor product offerings.
- Embrace Fintech Partnerships: Collaborate with fintech startups to access innovative solutions and expand reach through their existing networks.
2. Build Strategic Partnerships:
- Partner with Microfinance Institutions (MFIs): Leverage MFIs' existing networks and expertise in serving the unbanked population.
- Collaborate with Government Agencies: Work with government agencies promoting financial inclusion to access resources and support.
- Engage with Local Communities: Partner with local community organizations to build trust and provide financial literacy training.
3. Tailor Products and Services:
- Offer Micro-Loans and Micro-Insurance: Develop affordable and accessible micro-loan products and micro-insurance schemes to address the specific needs of the unbanked.
- Introduce Savings Products: Provide simple and secure savings products, including mobile wallets, to encourage financial inclusion.
- Provide Financial Literacy Training: Offer financial literacy programs to empower customers with the knowledge and skills to manage their finances effectively.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: Leveraging technology and building partnerships align with DBS India's core competencies in banking and technology.
- External Customers: Tailoring products and services to the specific needs of the unbanked population ensures customer satisfaction and loyalty.
- Competitors: Adopting a proactive and innovative approach will help DBS India stay ahead of the competition in the rapidly evolving Indian banking sector.
- Attractiveness: The recommendations are expected to generate positive returns on investment (ROI) through increased market share, improved customer acquisition, and enhanced brand reputation.
6. Conclusion
DBS India has a significant opportunity to expand its reach and market share by serving the unbanked population in India. By leveraging technology, building strategic partnerships, and tailoring products and services to meet the specific needs of this segment, DBS India can achieve sustainable growth and contribute to the financial inclusion of a large segment of the Indian population.
7. Discussion
Alternative Options:
- Organic Growth: DBS India could focus on organic growth by expanding its branch network and hiring more staff. However, this approach would be slower and more costly than leveraging technology and partnerships.
- Acquisition: DBS India could acquire existing financial institutions serving the unbanked population. However, this approach would require significant capital investment and might not be feasible given the competitive landscape.
Risks and Key Assumptions:
- Technology Adoption: The success of the strategy hinges on the rapid adoption of technology by the unbanked population.
- Regulatory Environment: Changes in government policy and regulations could impact the implementation of the strategy.
- Competition: Increased competition from other financial institutions could erode market share and profitability.
8. Next Steps
To implement the recommendations, DBS India should:
- Develop a detailed implementation plan: Define specific actions, timelines, and resources required for each recommendation.
- Establish key performance indicators (KPIs): Track progress and measure the effectiveness of the strategy.
- Monitor market trends and competitor activity: Continuously adapt the strategy to stay ahead of the curve.
By taking these steps, DBS India can effectively capitalize on the opportunity presented by the unbanked population in India and achieve sustainable growth in the years to come.
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Case Description
The case is set in 2015, when DBS Bank applied to the Reserve Bank of India to operate as a locally incorporated subsidiary under the wholly-owned subsidiary (WOS) scheme. DBS had a presence in India since 1995 and had grown to become the fifth largest foreign bank by assets. Upbeat about the growth prospects, it was the first foreign bank to apply for the conversion from branch operation to WOS. The scheme would extend near-equal treatment to locally-incorporated foreign banks as with national banks, and it aimed to incentivise them to scale up their operations in return for opening new branches in under-banked and unbanked cities and issuing credit to companies categorised under the priority lending sectors. However, the past year had been challenging for DBS India. Its profitability had taken a hit as bad loans rose more than four-fold, climbing to the top of the list among all private banks in India. The bad debts were primarily due to delayed servicing of loans by construction companies, which were granted credit during a previous period of aggressive lending. The case discusses the opportunities and challenges the WOS brings to DBS India, leading to its final decision to apply for the scheme.
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