In a move towards increasing its wings in the private banking segment, banks are now targeting new clients based in the tier II cities of India. Tier II cities refer to the smaller towns which have a huge wealthy client base. The main aim behind targeting these small town clients is that the market potential in these towns is very high as the penetration level of private banking there is still very low.

In the recent years, banks have started taking their private banking business very seriously. Private banking is a personalized banking service which targets the crème layer of the retail customer segment. The services provided under this arm include investments, wealth management, estate management tax planning and also concierge services.

Different banks have set up different criteria for a customer to qualify for private banking services. On a general note, in order to qualify as a private banking customer, a person has to have investible assets amounting from Rs. 1.5 crore to Rs. 5 crore.

The financial meltdown has acted as a boon to some banks as many competitors in this segment have moved away due to the setback received from the slowdown thereby opening even more potential for the existents. Banks like HDFC and Standard Chartered saw a sharp rise in their assets under management (AUM) while banks like Kotak Mahindra saw a setback during the crisis and thus their AUMs are showing a rise post crisis.

HDFC Bank's AUMs have risen to Rs 27,000 crore from Rs 9,000 crore three years ago, making it one of the largest players in India. Standard Chartered, which entered the business in May 2007 with AUMs of $100 million, has seen its AUM rise sharply to $1.6 billion, while Kotak Mahindra Bank, which started business in 2003, now has AUM of Rs 13,000-14 ,000 crore after facing a fall during the crisis.

HDFC Bank has increased its private banking facility to small towns like Salem and Varanasi too. The number of families receiving advisory services from the bank has also increased from around 3, 500 to 10,000 in three years. According to Euromoney, HDFC has moved from 23rd position to tenth position in private banking category in Asia this year. The bank India has been awarded with the title of ‘Best Private Banking Services overall' by Euromoney this year and also with the award for ‘Best Local Bank in India' for the second consecutive year.

Abhay Aima, group head - equities, private banking, third party products, NRI & International Consumer Business of HDFC Bank says, "In the past three years, we saw a growth of around 200% in larger towns and cities. However, for the same period, the growth in tier-II towns for the same period is at over 900% with some of the towns showing a far higher growth rate - Agra grew at over 3700%, Panipat at over 1400% and Varanasi at over 1100%." He also added, "In absolute numbers, the main centers still continue to be Mumbai, Delhi, Kolkata and Chennai. However, on an overall basis, the percentage of growth has been the highest in tier-II and tier-III cities."

Standard Chartered currently has five of these centers and will be adding two new centers soon. Soumya Rajan, GM and head of Standard Chartered Private Bank says, "We hope to touch AUMs of $5 billion by 2012. We would look at increasing our hub and spoke model over time. Stan Chart globally and in India benefited from the fact that we weathered the global crisis well. There was a flight to safety and quality during the crisis and we benefited from it."

HDFC Bank plans to go in for a hub and spoke model in which wealth managers cover smaller towns and locations from some of the larger towns. Mr. Aima further adds, "Some of the smaller towns may not have enough of potential to keep a high-end banker. Also, in some cases, the income level of customers in smaller towns and cities are cyclical. In some months, they would have surplus liquidity while in other months; they may not have any liquidity. So we are looking at a banker who will be based out of a city and will cover 3-4 other locations in a fixed time span - say some days a week in a particular location."

Other players in this segment like HSBC provide services in seven centers in India as of now while Kotak Mahindra currently has 11 centers in main cities and reaches another 10 smaller towns through hub and spoke model.