After changing its employee incentive plan to meet targets; de-emphasising sales of non-banking products, it has now also done away with a number of fee-based charges for banking products

Eyeing a larger pie of the retail customer base, IDBI Bank today waived all its fee-based charges on savings and current accounts. IDBI customers can now withdraw money from other bank ATMs without any charge, beyond the current number (five per month) which was being charged on withdrawals from other banks' ATMs. It also announced that it is doing away with the minimum balance requirement for its savings and current account holders. "It's free, it's the first in the banking sector and it's for everybody. This will apply to our savings and current account services, starting today. No account holder will have to worry about keeping a minimum balance in his or her account," said RM Malla, the current chairman and managing director of IDBI Bank while announcing the bank's decision.

Although these moves will benefit the bank's current and prospective customers, IDBI Bank will see its bottom-line being hit, especially since it had earlier decided to reduce employee incentives and also de-emphasise the sales of non-banking products like mutual funds, insurance, pension etc.

Earlier, IDBI Bank had announced that it would introduce a variable pay structure, based on performance, a departure from the usual public sector remuneration packages. The bank remained elusive today on this question. When Moneylife asked Mr Malla on the progress on this front, his reply was, "My colleagues are working on it." However, S Ananthakrishnan, executive director of the bank, said that it was revising its incentive structure for its staff across various verticals, according to their performance. 

Mr Malla said that IDBI Bank would try to "offset losses from the new free services by loan advisory services and syndicating large loans." It remains to be seen whether other banks will follow suit, as they will have to forgo their non-interest or fee-based income. IDBI Bank has done away with a total of 21 charges related to savings and current account services - these include charges for chequebooks, account statements and demand draft issuance.

Its low-cost deposits or CASA (current account savings accounts) stand at around 14%, which the bank is planning to increase to 20% this fiscal, through the waiver of the above charges. Dishonoured cheques, however, will attract a penalty.

IDBI Bank's CASA current deposit base is low, compared to other banks. Around 70% of its loan book consists of corporate lending. Small and medium enterprises and the agricultural sector (both called 'priority sectors' for government banks) loans account for less than 10% of IDBI Bank's loan book; the balance caters to retail customers. The bank is looking at expanding its retail base, a clear departure from its past strategy.

Mr Malla said the bank will be considering equity dilution in the next 12-18 months but did not disclose the route it plans to take for stake sale. "(The) government's equity currently stands at 65% and we can take it (down) till 51%," said the CMD.

Currently the bank has a network of 720 branches and 1,210 ATMs across India and plans to set up 300 more branches during FY2010-11. The bank reported a net profit of Rs251 crore in the first quarter of FY11 compared to Rs172 crore in the corresponding period last year. Its net interest income stood at Rs851 crore compared to Rs315 crore in the corresponding period last year. IDBI currently has around 40 to 50 lakh retail customers.

"The move is aimed at increasing the bank's below industry-average CASA deposits and the bank expects to double its retail accounts to 1 crore in the next 12 months, IDBI Bank's executive director and group head-retail banking, RK Bansal, told reporters. 

"We will like to continue with it for long. All I can say now is that this is going to stay," said Mr Malla.

IDBI Bank also plans a few international forays. A senior official told Moneylife that the bank would set up branches in China and Singapore after it gets the required regulatory approvals.

It remains to be seen if the bank manages to woo retail customers with this across-the-board waiver of service charges. Specifically, moves like waiving the stipulated quarterly minimum balance in a savings account (which can start from Rs5,000 and can go up all the way to Rs1,00,000) can be potentially game-changing. But does IDBI Bank have the marketing chutzpah to back its ambitious plans?