Product Development Process: Caiib Retail banking (Module B),Unit 2

Product Development Process: CAIIB Retail banking (Module B),Unit 2

Dear Bankers,
We all know that CAIIB exams are conducted by the Indian Institute of Banking and Finance (IIBF).  CAIIB is said to be one of the difficult courses to be cleared for the bankers. But we assure you that with the help of our “CAIIB study material”, you will definitely clear the CAIIB exam.
CAIIB exams are conducted twice in a year. Candidates should have completed JAIIB before appearing for CAIIB Exam. Here, we will provide detailed notes of every unit of the CAIIB Exam on the latest pattern of IIBF.
So, here we are providing “Unit 2: Product Development Process of “Module B: Retail Products” from “Optional Paper: Retail Banking”.

The Article is CAIIB Unit 2: Product Development Process

♦Product Development Process

In retail banking, product is the starting point of the marketing process. Product is the fulcrum on which the entire retail banking revolves. Everything is centered on it. The add on and the other value propositions are tagged to the products to offer better value and acceptance to the product. The different definitions for product are discussed below:

Theodre Levitt observes that “Products are almost always combinations of the tangible and the intangible. To the potential buyer, a product is a complex cluster of value satisfactions… A customer attaches value to a product in proportion to its perceived ability to help solve his problems or meet his needs. All else is derivate”.

A bank product can be defined as “Anything that has the capacity to provide the satisfaction, use and return desired by the customer”.

Product Life Cycle

There are various stages in the life of the product. The product after development goes through different stages in its sales journey and in each stage, the impact on sales will be different.

  • Introduction
  • Growth
  • Maturity
  • Decline

Product Lines of a Banker

To be successful in retail banking, any Bank has to understand different segments and develop appropriate products to meet these segments. Though different products cater to different segments, there are certain products like core products which cater to all segments.

Products can be broadly classified into following:

  • Deposit Products or Liability Products
  • Asset Products or Retail Credit Products
  • Other Products and Services.

Deposit Products or Liability Products

In the Deposit Product category, the products can be classified into

  • Saving Deposit
  • Current Deposit
  • Term Deposit
Demand Deposit (CASA Deposit)

Current Accounts (CA)

Core Current Accounts

  • Basic Current Account with Cheque Book

Augmented Current Accounts

  • Basic Current Account with Cheque Book

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  • Value Additions like tagged insurance cover (life and non life)
  • Other concessions like fi remittance etc.

Saving Accounts (SA)

Term Deposit (Fixed Deposits)

Recurring Deposits

  • Deposit can be built up on a monthly basis.
  • Term Deposit Interest Rate tor the relevant period.
  • Flexibility with respect of amount payable every month

Fixed Deposits

  • Deposits offered lor a fixed period.
  • Option to receive interest at maturity/monthly/quarterly/half yearly.
  • Interest also reinvested ad payable on matumy along with principal

Combination Term Deposits

  • Combination of Recurring Deposits and Fixed Deposits.
  • Different combinations are structured.
  • The first part will be in the form of RD and the second part will be on any one type of fixed deposit.

♦Basic Savings Bank Deposit Account (BSBDA)

The Basic Savings Bank Deposit (BSBD) Account has been designed as a savings account which will offer certain minimum facilities, free of charge, to the holders of such accounts.

Minimum Common Facilities
  1. The deposit of cash at bank branch as well as ATMs/CDMs
  2. Receipt/ credit of money through any electronic channel or by means of deposit /collection of cheques drawn by Central/State Government agencies and departments
  3. No limit on number and value of deposits that can be made in a month
  4. Minimum of four withdrawals in a month, including ATM withdrawals
  5. ATM Card or ATM-cum-Debit Card
  • No charge will be levied for non-operation/activation of in-operative ‘Basic Savings Bank Deposit Account’.
  • Banks are free to provide additional value-added services, including issue of cheque book, beyond the above minimum facilities, which may/may not be priced (in non-discriminatory manner) subject to disclosure. The availment of such additional services shall be at the option of the customers. However, while offering such additional services, banks shall not require the customer to maintain a minimum balance. Offering such additional services will not make it a non-BSBD Account, so long as the prescribed minimum services are provided free of charge.
  • The BSBD Account shall be subject to RBI instructions on KYC/AML for opening of bank accounts.
  • Holders of ‘Basic Savings Bank Deposit Account’ will not be eligible for opening any other savings bank deposit account in that bank. If a customer has any other existing savings bank deposit account in that bank, he/she will be required to close it within 30 days from the date of opening a ‘Basic Savings Bank Deposit Account’.
  • The minimum free withdrawals available to the BSBD Account holders can be made at all ATMs (own-bank/other bank ATMs).

Small Account

In terms of Rule 2 clause (fb) of the Notification ‘small account’ means a savings account in a banking company where-

  • The aggregate of all credits in a financial year does not exceed rupees one lakh;
  • The aggregate of all withdrawals and transfers in a month  does not exceed rupees ten thousand; and
  • The balance at any point of time does not exceed rupees  fifty thousand .

Rule (2A) of the Notification lays down the detailed procedure for opening ‘small accounts’. Banks are advised to ensure adherence to the procedure provided in the Rules for opening of small accounts.

Know Your Customer Forms (KYC Forms)

KYC Forms, as said earlier, are required to be obtained from all the account holders while opening the account itself. It is obtained as an Annexure to the Account Opening Form. It throws light on the different dimensions of the customers and helps the banks to deal with them appropriately. The important details which are to be furnished in the KYC Form are discussed below:

  • Name and Address of the Customer and PAN/TIN Number
  • Details of Spouse/Father and also Son(s)/Daughter(s)
  • Type of Account – Savings/Current/Term Deposit/Loan (iv) Age – Age band – < 20, 21 -40,41 -60 and >60.
  • Occupation – Details of Service, Profession, Others
  • Educational Qualifications – Non Graduate, Graduate, Post Graduate, Others
  • Nationality
  • Accomodation – Own/Residential
  • Conveyance – Two Wheeler/Car etc.,
  • Telephone
  • Credit Card – Details of Credit Cards held
  • Details of Deposits/Loans held with other branches/banks
  • Purpose of opening the account.
  • Source of funds – Salary/Business etc.,
  • Annual Income
  • If in business, all business details
  • Details of passport, if any.
  • Details of foreign countries visited during the past three years.
  • Any other relevant information.

♦Credit Products

Credit products offered by the bank, again, can be classified into two broad categories, traditional credit schemes and market oriented new credit schemes.

Traditional credit products are cash credit accounts for business people to fix credit limits and allow them to operate freely within the limits subject to certain stipulations. Overdraft scheme is to allow credit for a short period to be adjusted in a very short time.

Retail Credit Products
  • Home Loans
  • Auto Loans
  • Personal Loans
  • Credit Card Receivables
  • Other Retail Loans
Other Services

In the other services category, all the services offered by the bank other than the Deposit schemes and Credit schemes can be grouped. Again it can be further classified into Remittances and other Fee Based Services.

  • In the remittances services, issue of Drafts, Bank Orders/Bankers Cheques, National Electronic Funds Transfers (NEFT), Real Time Gross Settlements (RTGS) are the types of services offered to the customer. The cost of availing these services will depend on the quantum of transactions and the customer’s business relationship with the bank.
  • In other fee based services, Collection of Cheques, Safe Deposit Lockers, Standing Instructions for carrying out the instructions of the customer on a periodic basis.

‘Other Services’ is the non fund based business of the banks. In these types of services, the bank will be guaranteeing on behalf of the customer for whom they will be offering these products. Two examples of non fund based business for the banks are:

  • Letter of Guarantee
  • Letter of Credit
  • Co-acceptance of bills

♦Stages In New Product Development

  • Generating new product ideas
  • Idea screening
  • Concept Testing
  • Business analysis and Market analysis
  • Actual product development, test marketing and commercialisation :
Product Management

According to Theodre Levitt, product, over a period, evolved on the following lines :

  • The Generic Product
  • The Expected Product
  • The Augmented Product
  • The Potential Product
Product Policy

Product policy is one of the main tasks in product management. The marketer should decide what exactly the products to be offered to different segments are. Again if the customer base is fairly very large, the product line should be based on the homogenous needs of the heterogeneous customer base and customer segments. Otherwise it will result in unwieldy product range. But of course the marketer has to consider designing product tailored to specific customer base if the segment is an important segment. For deciding that the marketer should develop a product policy which involves the following concepts:

  • Appraisal of the product line and individual products
  • Decisions on product differentiation
  • Product positioning
  • Brand decisions
  • Decisions on packaging
  • New Product Development

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