Two Slab
Income Tax
The Kelkar panel, constituted to reform India's direct taxes, has reopened the tax debate-and at the individual level as well. Should we simplify the thicket of codifications that pass as tax laws? And why should tax calculations be so complicated as to necessitate tax lawyers? Should we move to a two-slab system? A report.

Romesh Sobti, Executive VP & Country Head (India), ABN Amro: Banking on a long-term strategy

Coffee and a delivery model that would do a pizza chain proud-not exactly the kind of stuff you'd expect to go into a winning strategy. Yet these are just two unlikely ingredients-there is a host of likely ones-in the gameplan of ABN Amro Bank, number 1 in this year's BT-KPMG study of India's Best Banks. The coffee is central to Bancafe, a unique alliance between the bank and coffee chain Barista that allows customers to transact business between 7.30 pm and 11 pm over a soothing cup of coffee-as close to a service differentiator as you can get in the commodity business of banking. And the home-delivery service-ABN Amro calls this the non-branch doorstep delivery mechanism-has helped it reach more customers than it otherwise could have. Its Delhi branch, for instance, serves 1,40,000 customers.

Purely in terms of size, ABN Amro is not your regular #1. It is present in nine cities, functions out of all of 12 branches, boasts 51 ATMs and manages deposits of Rs 4,865.25 crore. That makes it a dwarf when compared to new private banks such as HDFC Bank and ICICI Bank, public sector banks such as SBI and Corporation Bank, and foreign banks such as Citibank and Standard Chartered (See How It Stacks Up).

Other numerical parameters, though, show ABN Amro in truer light: a well-oiled banking machine that has grown profits, built assets (make that quality assets), entered new business areas, invested in technology, and kept an eagle eye on the all-important cost to revenues ratio. Thus, the bank's net NPA (Non Performing Asset) growth rate is the lowest in the industry. And it ranks among the top five banks in 11 of the 21 parameters considered in the BT-KPMG study. ''Now,'' says Romesh Sobti, ABN Amro's 51-year-old Executive Vice President and Country Head, India, ''we are driven by ambition to take the bank to the major league.''

An Alternative To Size

Only, Sobti's definition of size is, paradoxically, not about size at all. When someone in ABN Amro says big, it means "big in terms of a meaningful marketshare in a business that makes a meaningful contribution to the sustainable profitability of the bank", or "big in terms of following a full service strategy" (See Full Service Bank). "If you want to be a long-term player," says Sobti, "you have to have a diversified range of revenues."

Tag the philosophy label to that quote: for it is that which has driven the metamorphosis of what was, till the early 1990s, largely a bank catering to the diamond trade into, in that order, wholesale banking in 1995, the securities business and corporate finance advisory services soon after, and consumer banking in 1999 (through the acquisition of Bank of America's retail ops). Next step: the bank, which is one of the largest distributors of mutual funds, will launch a fund of its own soon.

Still, Sobti and ABN Amro do recognise the merits of size (lower transaction costs, enhanced operational efficiencies, lower cost of funds): from 12 branches across nine cities, abn Amro plans to go to 30 in 15 by 2005; it proposes to increase the reach of businesses such as personal loans and auto loans from 29 cities to 50; and it sees its retail customer base increasing by half every year. Sobti is even open to acquisitions. Can ABN Amro retain its edge as it grows?

Any bank trying to grow, especially through non-branch channels will pick up some bad assets. ''On a sustained basis,'' says Ashvin Parekh, Executive Director, Deloitte Haskins & Sells, ''as the bank ramps up, it will have to monitor the quality of its assets.'' That's one area of concern.

Big Or Small, It Rocks

If the competition claims ABN Amro's position is a function of its size it may be missing something. ABN Amro's success (what else would you term being #1) is built upon factors that are size-neutral. Such as an innovative non-branch strategy that, according to Nitin Chopra, Head (Consumer Banking), ABN Amro, helped it ''increase its footprint by changing the way the bank operated''. Buoyed by the success of its doorstep banking service, ABN Amro has lined up a clutch of products that can be delivered through the channel.

Then, there's the unique rewards programme that encourages customers to use electronic access points: the bank's own ATMs, 650 ATMs of UTI Bank with which ABN Amro has an arrangement, the internet, and the telephone. Even debit card usage and paying bills over electronic channels fetch points. "Net banking is a hygiene product today and enhances our customer value proposition," explains Meera Sanyal, COO, ABN Amro Bank and Managing Director, ABN Amro Central Enterprise Services (aces), which serves as a global transaction processing hub. "But it is also essential to get customers to use it.'' Reason? The cost of delivering services electronically is much lower. Largely on the strength of these, the bank's cost of operations have increased only incrementally even as it grew its retail customer base by 50 per cent a year over the past two years to 350,000.

That Customer Engagement Thing

From cards with flexible credit limits to the bank-plus-café model for retail customers to a range of innovative products for corporate ones (think online trade solutions, services, and support). ''ABN Amro,'' says Sobti, is striving to "create extra stickiness in our customer relationships". With corporate credit offtake not showing any signs of growing, the bank is exploring opportunities in advisory services and investment banking. "The proportion of cross-selling between investment banking and commercial banking is rising," says Frank Hancock, Managing Director, ABN Amro Asia Corporate Finance, which recently bagged the government's mandate to sell a 29 per cent stake in public sector aluminum major Nalco.

ABN Amro India may contribute just a minuscule percentage to the bottomline of the parent but it has, Sobti claims, possibilities of becoming the fourth home base for the bank after The Netherlands, Brazil, and the US. While the expected retail pot of gold in India is one reason, aces, the bank's processing hub is another. "This will lower cost of systems and processes and increase efficiencies by between 10 and 15 per cent," says Sanyal. And help the domestic operations scale its business up that much cheaply.

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