Some of the possibilities for a bank can be appreciated with simple numerical examples.
Assume number of branches = 500
Every branch will have at least 50-60 families that have 2 Cr on an average parked with the bank. For large banks like HDFC Bank, ICICI Bank, Kotak bank one can see some flagship branches that have 1000 customers who fall into the category of affluent/HNI and above. Let us work with conservative numbers here. For a reference ICICI Bank has an MF AUM of ~1,00,000 Cr across privilege banking, wealth management and private banking team at a branch network of ~ 5000+. This is just MF mind you, we aren’t even counting things like Insurance and demat assets yet.
Management decides to focus on fee income through a wealth management vertical which focuses on this customer segment. Investment needed for this is just 1 full time RM in each branch at a fixed salary of 0.15 Cr per year and a product/management team of another 20 employees.
Each such wealth RM in the branch manages to start a relationship with 20 such customers over an 18 month period and manages a wealth book of say 50 Cr. Through a combination of products like Insurance, mutual funds, PMS and other offerings, the RM manages to generate a yield per AUA of around 1%. IIFL Wealth which is a true blue private banking outfit makes 0.7%, hence a mid range wealth management outfit can manage to do 1% through a higher proportion of ULIP and other high margin products.
If one does the math, incremental revenue per branch = 0.5 Cr per annum
Total revenue from the wealth management vertical = 250 Cr at 500 branches
Incremental cost due to this is ~0.20 Cr per branch (accounting for overheads and performance bonus)
Behold! We have PBT of approx 150 Cr generated without incremental risk, incremental cost of capital just by doing cross selling and man management for 18 months. And this is an annuity that grows steadily every year without a cost of capital being attached to it. This is just one of the possibilities for an urban customer centric bank, a Bandhan Bank will have a tough time doing this given the customer base it deals with.
The delta from such operating leverage plays for a financial institution is insanely high. Once you have custody of customer’s money, trust and a decent brand name, making incremental money is unbelievably easy. There aren’t too many sectors where one can execute this so easily.
Which is why an institution that offers a cosmo work culture and can scale offerings over a period of time under a management that knows what they are doing can be interesting. See how Axis Bank has scaled up its wealth management vertical within just 5 years of serious focus, you can see a similar trend in a PSU like SBI too. They are barely scratching the surface, they started investing into a competent wealth team in 2013.
Is IDFC Bank such an institution who can execute these cross sell initiatives well enough? Do your own work and research