Introduction:Barclays GRCB business has built a strong franchise in India over the past two-and-a-half-years with over 9 lakh clients and customers.The case deals with the latest initiative taken by Barclays Global Retail and Commercial Bank (GRCB) India in offering their customers of business loans, lowered interest rates during the later part of their repayment if they make regular repayment of their EMIs during the initial repayments. Barclays GRCB India's Consumer Banking Director, Suvrat Saigal is confident that the unique Drop Down Feature would encourage customers to make timely repayment of their EMIs.

Q.1: Will Drop Down feature encourage customers to avail the Barclays business loans? Explain. Drop Down Feature: The Barclays bank offers its customers of business loans a competitive interest rate for the initial year of repayment. Further the customer who is regular in repayment of EMIs will get a fixed percentage reduction in interest rate. A further reduction in interest rates will take place for another 12 months of regular repayment of EMIs. This rate will then become the interest rate for the remaining tenure of the loan. The drop down feature is designed keeping in mind the customer of business loans at Barclays.The drop down feature required that customers make regular repayment of EMIs, which is a good aspect as it is in turn give benefit to them who would get reduced interest rates on gradual basis. Customers would not feel the burden of repayment if they make regular payment of their EMIs. Business customers always look for some added advantage in financial dealings for having an upper hand over their competitors. Through this feature, they would get an added advantage of reduced interest rate. This in turn is helpful to them in availing loans at cheaper rates and thus gains an upper hand over their competitors. With having all other financial service providers offering a fixed rate of interest, Barclays business loans give customers an added advantage of reduced interest rates. Thus, the drop down feature would definitely encourage customers to avail Barclays business loan as compared to any other business loans available in market.Q.2: As the interest rates will go down for regular EMI payer, will this strategy be profitable for the Barclays? Give suitable reasons to support your answer.Now a days, most banks are facing the dilemma of credit risk. Banks provide loan to customers on basic foundation but after initial repayments customers starts delaying their EMIs, which on a continuous basis results into defraud in payment of loan in several cases. If these things happen with more customers, banks face trouble of liquidity risks.The strategy adopted by Barclays would be helpful to minimize credit and liquidity risk, as the customers will be encouraged to repay their EMIs on timely basis. Thus, the bank will be able to have sufficient funds on time.One more interesting reason is that the interest rate which the bank charge is for their security of their loans and the benefit they receive as they are bearing a risk of default from customers. So, if consumers repay the EMIs on time there is no harm in lowering interest rates as it would not affect the profitability of the bank.Also with lowering of interest rates by offering Drop Down Feature will encourage other business loans customers and thus enabling the bank to have greater market share, which ultimately increases the profitability of the bank.

Q.3: Explain the advantages and disadvantages of this 'Drop Down Feature' for Barclays.The advantages and disadvantages of the 'Drop Down Feature' for Barclays are as follows:AdvantagesDisadvantages

Reduce in defaults.

Way out to liquidity risk.

Competitive advantage by having greater market share.

Resolution of credit risks.

Manageable interest rates for different customers profile. Differential structure of interest rates for business loans may create ambiguity in minds of customers.

Having more no. of customers may increase the no. of defaults.

If Barclays will not be able to attract larger market share, it may affect the profitability of the bank.

Q.4: Will this strategy encourage competition in the banking sector? Explain.Banks need to continuously offer innovative products and services in order to survive and differentiate themselves from other banks. Having diversified products in their product portfolio ensures high profitability and relatively low defaults in repayments. The Barclays Drop Down Feature is definitely a strategic move to offer unique service in order to differentiate oneself in the cut-throat competitive scenario in banking sector. This strategy would surely encourage competition in the retail banking sector as other competitors would also come up with other unique service offerings for having lowered interest rates to attract customers.Other banks may also offer Drop Down Feature with slight modifications in order to retain their customer base and attract new business loan customers.By looking at Barclays unique offering, other banks will also trying to differentiate themselves by offering unique services. Thus, the strategy will surely encourage competition in banking sector.

IBS NAGPUR

Retail bankingContinual Evaluation

Written Analysisof the articleBarclay lowers int rates for regular EMI payee

Press Trust of India / MumbaiOctober 14, 2009, 13:41 IST

Submitted By

MUFADDAL HUSSAINIUD Enrollment No: 08PMP02222IBS Enrollment No: 08BS0001799MBA-class of 2010, Semester IV

Submission Date: Friday, October 23, 2009