 "Weak governance, frail finances fail to dent Indian banks' global brand appeal")
Mounting bad loans, reduced revenues and low capital adequacy have failed to spoil the global appeal of Indian banks. Local lenders have improved their brand value by 61% in the past one year despite their weak finances, according to a study by brand valuation consultancy Brand Finance.
India now ranks No 13 worldwide, four notches higher than the 17th rank a year ago, as domestic banks grew their brand value at the second fastest pace globally.
The study, Brand Finance Banking 500, showed that Indian banking brands' total value outranked that of Russia, Italy, Sweden and South Korea.
Not surprisingly, the findings have caught experts off-balance.
"I don't know the methodology used to calculate the brand value. In my understanding, for a bank to improve its brand position there should be a visible improvement in the customer service quality. I don't think that has changed drastically between last year and this year to justify a significant change in brand value," Shinjini Kumar, leader – banking and capital markets – at PwC in India, told Business Standard.
| GLOBAL RANK | ||
| BANK NAME | 2014 | 2105 |
| State Bank of India Also Read | 54 | 40 |
| ICICI Bank | 107 | 80 |
| HDFC Bank | 133 | 104 |
| Axis Bank | 178 | 131 |
| Bank of Baroda | 208 | 187 |
| Punjab National Bank | 227 | 197 |
| Bank of India | 275 | 199 |
| Kotak Mahindra Bank | ||
Another banking analyst, who spoke on condition of anonymity, pointed out that governance was still a challenge for many public sector banks.
“It is one of the reasons why some of these banks are finding it difficult to raise capital from the market. Also, non-performing assets continue to haunt Indian banks. The recent earnings performance does not reflect that these problems are behind us," this analyst said.
“It is one of the reasons why some of these banks are finding it difficult to raise capital from the market. Also, non-performing assets continue to haunt Indian banks. The recent earnings performance does not reflect that these problems are behind us," this analyst said.
Criminal wrongdoing has also cast a shadow over the Indian banking industry, particularly public sector banks.
In August last year, the Central Bureau of Investigation (CBI) arrested Syndicate Bank's chairman and managing director Sudhir Kumar Jain for allegedly accepting a bribe from a private company to grant it credit extension despite repayment defaults on existing loans. The top post in the bank has been vacant since then.
But that seems to have made little difference to its brand value on the Brand Finance Banking 500 list– it has increased to $211 million in 2015 from $174 million a year ago. The state-run lender's global rank has also improved to 420 from 451 during this period.
The brand value ranking also seem to have given a wide berth to the weak financial performances of Bank of Baroda (BoB) and Punjab National Bank (PNB) in recent quarters. BoB reported a 68% drop in its third quarter net profit, while PNB's profit after tax growth in October-December period came in at a mere 2.5%. Notwithstanding, both banks have seen an increase in their brand value leading to an improvement in their global rankings.
Bank of Baroda now ranks 187th (compared to 208th in 2014), while PNB is at 197th position (compared to 227th a year ago).
| BRAND VALUE ($ MILLION) | ||
| BANK NAME | 2014 | 2105 |
| State Bank of India | 4,063 | 6,563 |
| ICICI Bank | 1,698 | 2,527 |
| HDFC Bank | 1,223 | 1,925 |
| Axis Bank | 766 | 1,331 |
| Bank of Baroda | 606 | 789 |
| Punjab National Bank | 511 | 748 |
| Bank of India | 397 | 724 |
| Kotak Mahindra Bank | 481 | 697 |
| IDBI Bank | 270 | 483 |
| Canara Bank | 339 | 456 |
Brand Finance, which calculates the brand value by determining the royalties a corporation would have to pay to license its brand if it did not own it (also known as the 'royalty relief' method), offered an explanation. The agency felt that economic reforms, increased infrastructure investment and a greater focus on tackling bureaucracy have boosted economic forecasts and investor confidence, laying the groundwork for India's brand to grow.
Technology has also played a part. "Technological advances are opening up exciting new opportunities for India's banks as swathes of the population begin to bank more formally. Their brand managers may need to forge new brand strategies to reach these customers most effectively while maintaining the trust and loyalty of existing ones," David Haigh, chief executive officer (CEO) of Brand Finance, said in a statement.
The country's largest lender State Bank of India (SBI) had 62 per cent increase in its brand value in 2015 compared to 2014. It added $2.5 billion to reach a total of $6.56 billion in brand value and remains India's most valued banking brand.
Brand Finance credits the bank's pioneering approach to mobile banking for the improved performance. It is estimated that 12.5 million customers used SBI’s mobile banking platform in 2014 compared to 8.57 million in 2013. Average transaction amounts also increased to over Rs 7,000 last year indicating that mobile is fast becoming a significant force in retail banking business.
A few industry experts share Brand Finance’s view but also credit the Reserve Bank of India (RBI) and its Governor Raghuram Rajan for the better-than-expected brand value of local banks.
“Indian banks' adoption and application of technology is unique. I think Indian banks' brand recognition globally has also improved because of the contributions made by the governor and RBI. The efforts made to stem inflation and reduce foreign exchange volatility have been appreciated and probably helped Indian banks to improve their brand value globally," Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services, said.