Financial products act as an investment avenue and provide the required financial security to the investors based on the risk-return profile of the financial products. In the past, traditional financial products were offered in India through government initiatives by Public Sector Banks (PSBs) (deposit account, credit account), Life Insurance Corporation (LIC), and postal department (recurring deposit, National Saving Certificate, Kisan Vikas Patra). However, in recent years with the advent of liberalization of financial services industry, diverse financial products have been introduced through participation of private and foreign entities in addition to the public sector enterprises. These include products such as debit and credit cards by banks, open-end and closed-end mutual fund schemes (Exchange Traded Funds (ETFs), Index Funds, Systematic Investment Plans (SIP), sector funds, etc.), life and non-life insurance schemes (Unit Linked Investment Plans (ULIPs), pension plans, children education plans, etc.). It further includes shares and debt securities offered by various entities, investments in which are mainly facilitated by the brokerage houses. This has led to rising competition through introduction of innovative and attractive products, regulatory initiatives and growth in the investor base along with increased marketing activities in the financial sector.
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Channels of distribution used by SBI
State Bank of India enjoys the largest banking franchise in India. Along with its 7 Associate Banks, State Bank Group has the unrivalled strength of over 14,500 branches across the country, arguably the largest in the world.
The distinction of channels in the SBI is:
Personal distribution systems include all channels like agencies of different models and brokerages, bancassurance, and work site marketing.
Direct response distribution systems are the method whereby the client purchases the insurance directly. This segment, which utilizes various media such as the Internet, telemarketing, direct mail, call centers, etc., is just beginning to grow.
Distribution channels – SBI
SBI is using this process for the distribution of services
SBI has 2 main distribution channels i.e Branch banking and Non-branch banking. In branch banking there is 2 more distribution into rural and urban, it means the bank have the branches in rural and urban areas. In non branch banking there is also rural and urban distribution, but the rural area further divided into three channels Business Correspondent Model, Business Facilitator Model and electronic transfer of funds. In Business Correspondent Model the bank use network of NGOs, post offices etc and in Business Facilitator Model the bank use the handheld devices like cash-in and cash-out. In Electronic Transfer of Funds the bank use many tools like internet banking, phone banking, credit card, ATM, smart cards, direct selling agents etc. in urban areas bank is not using Business Correspondent Model, Business Facilitator Model but Electronic Transfer of Funds. Other channels are:
Tap the Kiosks under CSC scheme across the country.
Finger Print device is provided by the bank.
Organizing Campaigns at village level to educate rural customers about various financial offerings of SBI.
Organizing meetings with village residents at Gram Panchayat level along with Village Sarpanch, wherein the Sarpanch introduces the BC (CSPs) & their products to the villagers
Collaborating with the ‘Influential’ people in the villages(teachers, Social workers, NGOs) in educating the rural customers about SBI offerings.
Organizing Road Shows, Skits etc. to create awareness about the advantages of Saving money and using it for better utilities
Announcements on two-wheelers and other vehicles about SBI offerings and informing the customers about the site & schedule of enrolment camps in the village.
The marketing and distribution strategies of SBI are different in urban and rural areas due to diverse demographic and socio-economic nature of these markets. The distribution channels used by such bank include bank branches, ATMs, internet banking, phone banking, direct selling agents, call centres, etc. The distribution networks developed by SBI in urban as well as rural areas are the number of bank branches is higher as compared to private or foreign banks. In addition to the branch and non-branch delivery systems adopted by SBI, the banks also use simple-to-use cash dispensing and collecting machines similar to ATMs which have operating instructions in vernacular languages.
Bank have also initiated “credit plus” services such as setting up of rural training centres for small enterprises, farmers clubs, knowledge centres, credit counseling centres for educating the semi-urban and rural population with respect to minimizing yield risk and price risk in agriculture. This leads to lower lending rates and lower credit risk.
SBI is the leading bank in the public sector and has positioned itself a good brand in the minds of the customers in every area of India, but instead of this SBI is not so developed in the rural and semi-urban areas.
These are the issues and concerns with distribution in the rural market:
The competition among various financial product players is getting fierce over the years through the influx of new financial service providers/vendors in the industry. These providers are under continuous pressure to maintain growth in their top lines as well as bottom lines. This has led these companies to concentrate more on the urban areas than the semi-urban and rural areas since semi-urban/rural areas would require either setting up new branches resulting in high capital outlay or setting advanced technologies for providing non-branching facilities as well as providing educational facilities to the rural population.
2. Scale of investment:
The funds available for investments among rural households are observed to be lower than the urban household due to lower incomes. Rural households could avoid huge investments in risky financial products for longer time period since rural consumption of goods and services are subjected to income irregularities.
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3. Customers scattered over wide areas:
The investors in the rural areas are scattered over a wide geographic area thus creating Accessibility problems for the financial service providers/vendors. The providers would have to Incur huge costs on setting the required infrastructure (branches and non-branches) for providing Financial products among large number of dispersed rural households. Also, the rural investors May not prefer traveling long distances to avail the financial services due to lack of accessibility, Awareness, willingness, etc.
4. Rural infrastructure:
Many villages in India lack infrastructural facilities like roads, electricity, telecommunications and Internet networks. This creates operational hurdles for players to enter into these markets further is encouraging the rural households to reap the benefits provided by the players.
5. Irregularity in payments:
Most financial products require regular investments at defined time intervals by the investors. For example, an insurance policy holder has to make a regular premium payment to the insurance company in order to keep the policy active. A majority of rural households are involved in agricultural activities who occasionally fail to make such regular investments since their incomes are largely dependent on vagaries of monsoon.
6. Operational challenges:
Companies may face operational challenges such as obtaining relevant documents for verification. Some of the most commonly required documents include a PAN card, ration card, birth certificate, etc. (SEBI)
7. Cultural diversity:
Financial service providers find it difficult to penetrate into the rural areas due to the cultural diversity observed in India. Promotion of financial products thus becomes difficult as the sales and marketing personnel are required to understand the local customs, culture and language.
Distribution Channels of SBI for Insurance products
The State Bank group promoted SBI Life Insurance Co to beef up its distribution network. The life insurance company is planning to increase its distribution channels by both increasing its own branches and of the group by which distribute insurance products. At present, about 8000 branches of the group are distributing life products of the group. SBI plan to sell the products from all the 14,000 branches of the group. In addition, They are tying up with co-operative banks in Maharashtra to start with to beef up our distribution network. In addition SBI Life is planning to increase its own branches from 100 to 120 by the end of the current financial year.
SBI Life is doing aggressively with the banassurance model. In this their major product lines is creditor insurance, which covers the liabilities of the creditor in case of death of debtor. SBI Life is also launched a similar product for home loan borrowers of State Bank of India.
SBI Life Insurance took the initiative to launch the products in Orissa as it has one of largest base of the economically weaker population particularly in its rural areas.
SBI launches the micro insurance products across the rural markets in India through State Bank of India India, which has the country’s largest distribution network covering the entire spectrum of rural India. This will help the company deepen life insurance penetration particularly amongst customers in rural areas who will benefit from micro insurance.
SBI Life extensively leverages the SBI Group as a platform for cross-selling insurance products along with its numerous banking product packages such as housing loans and personal loans. SBI’s access to over 100 million accounts across the country provides a vibrant base for insurance penetration across every region and economic strata in the country ensuring true financial inclusion. Agency Channel, comprising of the most productive force of more than 25,000 Insurance Advisors, offers door-to-door insurance solutions to customers.
Distribution of other Services
The SBI group is entered pension sector once the pension bill is passed. The centre is currently discussing the draft (Pension Funds Regulatory and Development Authority) Bill and the investment guidelines for non-government provident funds.
SBI Card has also successfully organized 250 service camps touching 2,10,000 customers in 31 cities in India over the last eight months. SBI Card started this camp to forge better customer relationships and proactively resolve customer queries. This is a first-of-its-kind initiative in the Indian credit card industry.
These camps have given them insight into the needs and preferences of our customers and were also aimed at promoting financial prudence among them.
The services camps have been highly successful customers out-reach. Through these camps their aim was to proactively understand issues faced by our customers and provide on-the-spot and speedy resolution. At the camps, they also disseminated valuable information about credit card usage.