Mumbai : Inspired by the advent of demonetisation which kicked off on 8 November, Kotak Mahindra Bank (KMB) recently launched its ‘811’ which is ‘zero balance, zero charge’ account.

The idea was possibly to capitalise on the digitisation and the universal banking movement demonetisation was to spur, KMB must have thought that pushing a no-frills banking concept might work very well both with the government and with the general public. Even a cursory look at the scheme makes it appear more like a private bank’s version of Jan-Dhan Yojana account.

Today, every bank is trying to make digital banking attractive. This is precisely what KMB has tried to do with 811. The bank promises to set up an account for the customer digitally within five minutes.

The most-talked about ‘zero balance, zero charges’ initiative was Jan Dhan –a government initiative. As a political move aimed at social inclusion, it made lot of immense sense.  But the initiative has proved to be expensive for the banking sector. This financial inclusion programme launched in the end of August, 2014 by the government, has cost banks around Rs 2,000 crore (according to 2015 data). Since nationalised banks have always been used to promote government schemes, few banks have even dared to protest against the costs involved.

But when a private sector bank decides to adopt a similar scheme, there are some questions that require answers. For one, how will the bank meet the costs of ‘zero balance, zero charges’ banking. Are there hidden costs that the bank has not talked about?  Or will existing customers bear the costs?

After all, if information available in the media is anything to go by, the cost of maintaining each Jan Dhan account is Rs 140. Meanwhile, for KMB the cost of acquiring a customer through traditional means is in the range of Rs 1,000 to Rs 6, 000. Without revealing the actual cost to acquire customers via 811, Ambuj Chandna, head – retail liabilities, investment and payment products, Kotak Mahindra Bank said, “With 811, the cost of acquisition comes down significantly. In addition, it also brings down the acquisition time from 3-7 days earlier, to under 5-minutes over a smartphone.”

When Motilal Oswal Securities, Research head, Gautam Duggad was quizzed on the stark resemblance of the initiative with Jan Dhan, he said that Kotak Mahindra bank’s 811 is a digital strategy which means it will involve very low costs. However, no costs have been shared with FPJ. Moreover, he refrains from comparing Jan Dhan with 811 as he believes both are in a different league. On the other hand, Chandna stated that there are “limitations to a Jan Dhan account and it is targeted at a particular target segment,” whereas 811 is open to all Indians and “across all 700+ locations from the day of launch.”

Adding further, Duggad said, “It is a digital initiative which will help the bank to acquire customers quickly without having to depend on a physical branch.” In its recent reports, Motilal Oswal stated that demonetisation is likely to strengthen the bank’s digitisation drive (launch of ‘811’ initiative), and an improving liability franchise should help the bank to achieve its target to double its 8 million customer base over next 18 months.

It took the bank 14 years to notch up a customer base of 8 million customers which was partly supported by its 6 per cent interest rate on saving accounts strategy. “From the time that RBI announced deregulation of interest rates on savings account (in 2011), we were amongst the first banks to offer 6 per cent interest rates on savings account balance of Rs 1 lakh and above, and we are the only bank that has not revised this. Since then our SA (savings account) book has grown from approximately Rs 4,000 crore to almost Rs 40,000 crore – 10x growth in a 5-year period, which is significantly faster than the industry average,” stated Chanda. As per March 2011 data, the bank had 245 branches and a customer base of 8 lakh, since that have been growing its numbers.

But post the launch of 811, the bank has set an ambitious target of 16 million over the next 18 months. Customer acquisition will not be an inexpensive proposition — either using conventional banking or even through the 811 route. At the end of March, the bank announced plans to raise capital by the sale of 62 million shares, which could be utilised for digital banking, among many things. “Digital banking is a critical growth driver for us, and we will invest whatever is necessary,” Chandna stressed.

The only catch of 811 is to maintain the transactions digital. “Customers will not pay for anything as long as they maintain this as a digital account,” Chanda added. “It is our intent to keep 811 as a zero balance savings account with zero charges for all digital transactions.”

It is pretty early to make a judgement on this initiative, but it will soon start the ball rolling for the Indian banking sector which can look at strengthening itself digitally to grow or push cashless transactions. Summing the Indian banking sector and its digital initiatives, Saswata Guha, director of Fitch Ratings stated, “Every bank is employing different strategies in the digital scheme of things. The ulterior motive of the banks is to create cashless mode of transactions. However, India is still nascent compared to China.” On the other hand, Duggad feels as time passes every bank will have its own model, to attract more customers on digital.

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