Louder than fire-crackers?
Both handset makers and service operators are dressing up for the ‘festival’ mega-kill. It’s business as usual!

When all you wished for during the year was a ‘change of handset’ to lay your hands on ‘that’ spanking new model… Yes, you’d planned the change all along, but never really got an opportunity to; blaming your shallow pockets for not giving you the liberty to think far enough, not at least when it came to a telecommunication gadget we call the ‘mobile handset’! But now, with the festive mood in, the time seems right. Handset manufacturers & retailers are as excited about clearing out old stocks as they are about introducing newer ones. And there you have it – 20% fl at discount on every ‘X’ branded handset with a free connection, or even40%-50% if you believe in optimism! And why so, you ask? Well, it’s Diwali time – a splurging season. Discounts and bonuses, gift s and self purchases… and no secret this that ‘all’ handset manufacturers realise that this is an ideal time for new product launches in the Indian telecom market, which is currently abuzz with the growth syndrome. Arpita Pal Agarwal, Associate Director, PwC, agrees, “The buying mood is in the air, so if companies launch new phones with added features at the same price points, it could add more to the current festive season.” Even history stands proof to the fact that this is the season to experiment. Don’t believe us? Well, what about the record sales that Nokia slammed across on October 19, 2006 after introduction of two new models – Nokia 1110 & Nokia 1600 – targeted at first time buyers? Right – during the very festival season when the Finnish mobile handset manufacturer sold a record 400,000 handsets – largest ever in the history of mobile telecommunications… all on one day! Th is year too, not surprisingly, Nokia officials disclosed to B&E their intentions to launch four new handset models - N95, N81, 5610 & 5310 – in the forthcoming season.

Then, there are also the lot who have started unveiling newer launches much before the hues of the festive season coloured the air around. Undoubtedly, this is a strategy to grant their products more room-space before the actual fever sets in. LG, which has announced the launch of its metal phone christened ‘Shine‘, is a case in point. Disclosing strategies for the upcoming festive season, V. Ramachandran, Director - Sales & Marketing, LG India, expressed, “In the coming festive season, rather than on promotions, our onus would be on increasing the brand awareness & around our latest offering.” Adding to it, Anil Arora, Business Group Head – GSM & Kitchen Appliances, LG Electronics India, reveals, “There was a 20-25% increase in sales during the 2006 festive season and we are confident that there would be a similar surge in sales this year too.” Also adding to the optimistic short term outlook, Kunal Ahooja, CEO, Spice Mobiles, insists, “Festival time is indeed a very auspicious time and we expect the sales to grow at least by 50-60% this year...” Sure enough, the launch of Motorola RAZR2 V9, as many might have perceived it to be, is just in time for the festive season. Indeed, with the festival season knocking at the doors, the company could well undertake a price-cutting exercise, triggering off a war of volumes as well.

Th en, there are telecom service providers who unleash equally attractive offers during the festive season, with attention grabbing service packs like increased talk-time, validity for ‘x’ months on one recharge, free connection with another paid connection, et al. Increasing Average Revenue Per User (ARPU) streams indeed forms a vital part of their revenue maximising strategies during the festival season. Also, Value Added Service (VAS) offerings most certainly form a part of all operators’ strategies with offerings like Diwali specific wallpapers, ringtones,Yet another interesting initiative undertaken by Reliance Communications (RCom) during Durga Puja festival in 2006 (which it hopes to repeat this year too) was that it had launched a service under the R-World banner for a petty Rs.101 each, wherein interested customers were asked to fill in their names and caste. In return, the participants were sent flowers from the Durga Puja conduted at Kalighat (Kolkata) along with a greeting card and a momento of Maa Durga. The other CDMA major – Tata Indicom, on the other hand, is busy weaving plans for newer launches this year around the festive season. It had recently (jointly) announced the launch of MotoQ with Motorola. A tie-up with Samsung to unveil the dual-SIM handset model range was also announced. The company proposes to unveil festival specific service offerings during mid-September. The GSM space at the moment is not loud with action regarding festival specific offerings. However, what is obvious is that with Hutch undergoing a process of name and identity change – which culminates on October 28, 2007 at the Hutch Marathon 2007 – and Airtel being the leader in the GSM platform, both will surely come up with offerings worth responding to during the festival season. So for all Indian callers – it’s time to wish one and all – Happy Dusherra & Diwali; but with a change; that is through their bright new cell phones as well as discounted call rates! Go on, talk louder than crackers!

This ain’t no silver lining!...

Life has come full circle for Indian bankers and for the affluent Indian consumers. “Banks have to look for survival in this highly competitive scenario”...“We are five months in the fiscal and demand for advances is more or less flat”... The above statements from bankers say it all. Truly, the once profligate banks are now facing the toughest time of the recent times as they begin to question their very own survival. Increased borrowing cost has taken a toll on Indian banks and consequently on Indian consumers. Interest rate hikes, one after the other, have made the life of the common man miserable, as banks were quick to offload the burden. The banks’ prime lending rates (PLRs) increased by 250-300 basis points during the last one year. The weighted average PLRs of public sector banks increased from 10.7% in March 2006 to 12.4% in March 2007 and 13.1% in July 2007, while those of private sector banks increased from 12.4% to 14.1% and 14.9% over the same period. The weighted average PLR of foreign banks rose from 12.7% in March 2007 to 13.9% in July 2007.

The first half of the calendar year has been a rather dry one for banks in terms of lending, especially retail loans. Consider HDFC Bank for that matter. After a meteoric increase in retail lending in 2004, 2005, 2006 and the first half of 2007, it came to a halt. In H1 of the calendar year 2006, HDFC Bank disbursed retail loans worth Rs.32.77 billion, as against Rs.21.66 billion for the same period in the previous year; an increase of 51%. The first half of 2007 saw the retail lending growth dropping from 51% to 25% to Rs.41 billion; courtesy hikes in interest rates. So is there some relief in the coming festival season? Do banks really have the room to provide some kind of relaxation to customers? Well, it appears to be an emergency situation where some big banks are ready to pay from their pockets, as they want their business kicking again.

Banks are concerned that while they have been piling up deposits at high costs, there has been a negligible loan growth in the first five months of 2007-08. A senior Bank of Baroda official commented to B&E, “The bank has to survive in a market which is highly competitive as the home loan demand is elastic. After a series of hikes in 2006- 07, the home loan demand has shown moderation. The rate cut may help to get a better response.” Bank of Baroda has reduced interest rates on home loans by up to 50 basis points to 10-11.50%, especially targeting the coming festival season and expecting the cut to be enough to lure customers. State Bank of India (SBI), the country’s largest lender, too, is considering options for triggering demand for loans, but a review of lending rates is expected some time next month, when the festival season begins. A senior SBI official said, “Banks will have to look at reducing lending rates (for new borrowers) if credit does not pick up till the end of August. We are already five months into the year and advances are more or less fl at, while banks have mobilised huge deposits.” Allahabad Bank also is planning to reduce housing loan rates by 25-50 basis points. “The situation has actually worsened from last year, as this year banks might have to reduce interest rates on deposits, so that they could offer some discounts on the lending side to attract customers in the coming festive season,” says Kashyap Jhaveri, Banking Analyst with Emkay Research. In fact, quite a few banks have reduced the deposit rates,

which include SBI, ICICI, Bank of India,Bank of Baroda & Centurion Bank of Punjab. SBI had recently revised the deposit rates downwards (from 8.25% annually to 8%) on term deposits of more than one year but less than two years. Hence, for depositors too, the year long party is coming to an end. Big banks with big balance sheets can aff ord to take a hit, but not everyone is in a position to do so. However, small private sector & public sector banks (PSBs) are waiting for divine intervention (expecting that RBI might lower CRR or overnight rates in near future, which might give them some room to lower lending rates). But there is light at the end of tunnel. For southern India, festival season actually began with Onam and banks are looking very seriously at this period. Banks, which predominantly have a strong foothold in southern India, have started to market their schemes, especially towards Non Resident Indians (NRIs). For example Federal Bank, which has a strong presence in Kerala, has launched a special scheme for NRIs who could use Federal Bank’s remittance facility (FedFast). Commenting on the new offer, Venugopalan of Retail Banking division of Federal Bank told B&E, “We have about 400,000 NRI customers availing of our facilities and services on offer. Federal Bank has remittance arrangements with about 28 exchange houses throughout the GCC (Gulf Cooperation Council) countries, thus making it convenient for customers to send money.” There is some reprieve for those who wish to avail loans. Many banks are aiming at waiving off documentation, services, upfront fees et al to rope in more customers. Ranjiv Walia, Business Head, Consumer Loans, ING Vysya, told B&E, “ING Vysya Bank has lined up a series of exciting campaigns at many locations during the festive season. The campaigns would be targeted for ‘Home Loan’ & ‘Personal Loan’ customers.” The bank plans to waive 50% off processing fee.

However, the banking fraternity remains silent on the question of any concessions on the lending rate front and not without reason. A senior official at Oriental Bank of Commerce categorically points out that, “In the upcoming season, our bank will only promote its existing schemes to encash on the festive sentiments and there is no scope of any concessions for consumers availing of loans.” PSBs are reeling under shrinking margins (as PSBs’ move to align lending rates to borrowing costs was opposed by Finance Ministry) & sadly, there is little room for gain. Truly, the era of cheap money is over & borrowers will have to dig deeper into their wallets. Wannabe borrowers possibly could wait for the festival season, for they might get ‘some’ relief, but that could prove equally fatal, if RBI further tightens its noose around banks in late October. There’s just this lingering suspicion with us that this current interest rate eclipse does not seem to be going away anywhere... not to soon...?