Product Development Process

Product Development in Banking

---

1. Product Development Process

Product development in banking refers to the process of creating and launching new financial products or improving existing ones to meet customer needs and regulatory standards.

2. Product Life Cycle (PLC)

The PLC of banking products includes Introduction, Growth, Maturity, and Decline stages. Effective management is crucial to prolong the life of profitable products.

3. Product Lines of a Banker

• Liability Products (Deposit Products)
• Asset Products (Credit Products)
• Fee-Based Services (Third-party distribution, advisory, etc.)

4. Deposit Products (Liability Products)

These include Savings Accounts, Current Accounts, Recurring Deposits, and Fixed Deposits. They generate funds for lending and investment.

5. Credit Products (Asset Products)

Loans and advances like home loans, personal loans, car loans, credit cards, and corporate credit. These generate interest income.

6. Other Products and Services

Examples include lockers, internet banking, mobile banking, demand drafts, NEFT/RTGS services, etc.

7. Other Fee-Based Services

These include distribution of third-party products like insurance, mutual funds, bonds, and wealth management services.

8. New Product Development (NPD)

NPD involves designing and launching innovative banking products. It must align with customer needs, market trends, and compliance requirements.

9. Stages in New Product Development

1. Idea Generation
2. Screening
3. Concept Development
4. Business Analysis
5. Product Development
6. Test Marketing
7. Commercialization

10. Constraints in NPD

Constraints include regulatory restrictions, cost and risk management, technological limitations, and market acceptance.

11. Product Management

Involves monitoring product performance, customer satisfaction, competitive analysis, and making necessary modifications or withdrawals.

12. Product Policy

A framework that defines how products are selected, managed, priced, and withdrawn. It ensures consistency, customer focus, and compliance.

Mathematical Examples

1. Interest Income from Loan:
   Loan Amount = ₹5,00,000, Interest Rate = 10% p.a., Time = 1 year
   Interest = (₹5,00,000 × 10 × 1) / 100 = ₹50,000
2. Recurring Deposit Maturity:
   Monthly Deposit = ₹2,000, Rate = 6% p.a., Time = 2 years
   Maturity = ₹2,000 × (2 × 12) + Interest ≈ ₹48,000 + ₹3,120 = ₹51,120
3. Net Interest Margin (NIM):
   Interest Earned = ₹10,00,000, Interest Paid = ₹6,00,000, Average Earning Assets = ₹80,00,000
   NIM = (₹10,00,000 - ₹6,00,000) / ₹80,00,000 × 100 = 5%
4. Fee-Based Income Contribution:
   Total Income = ₹25,00,000, Fee-Based = ₹5,00,000
   Contribution % = ₹5,00,000 / ₹25,00,000 × 100 = 20%
5. Break-even for New Product:
   Fixed Cost = ₹1,00,000, Selling Price per unit = ₹1,000, Variable Cost = ₹600
   Break-even Units = ₹1,00,000 / (₹1,000 - ₹600) = 250 units

MCQs with Answers

1. Which of the following is not a stage of Product Life Cycle?
   a) Introduction
   b) Expansion
   c) Growth
   d) Decline
   Answer: b
2. Recurring Deposits are classified under:
   a) Asset Products
   b) Fee-Based Services
   c) Liability Products
   d) Investment Services
   Answer: c
3. Which is the correct order of NPD stages?
   a) Screening → Test Marketing → Idea Generation
   b) Idea Generation → Screening → Commercialization
   c) Commercialization → Screening → Development
   d) Development → Idea Generation → Test Marketing
   Answer: b
4. Fee-Based Income is derived from:
   a) Loans
   b) Deposits
   c) Services like insurance and mutual fund distribution
   d) Fixed Deposits
   Answer: c
5. Which of the following is not a constraint in NPD?
   a) Technology
   b) Customer Feedback
   c) Regulation
   d) Cost
   Answer: b
6. Which product is an example of an asset product?
   a) Savings Account
   b) Fixed Deposit
   c) Home Loan
   d) Recurring Deposit
   Answer: c
7. Product Management involves:
   a) Loan Recovery
   b) Monitoring product performance
   c) Deposit Collection
   d) Locker Allocation
   Answer: b
8. Which is a liability product?
   a) Credit Card
   b) Car Loan
   c) Savings Account
   d) Overdraft
   Answer: c
9. What is the aim of Product Policy?
   a) Increase regulations
   b) Ensure product withdrawal
   c) Provide pricing guidelines
   d) Ensure consistent product strategy
   Answer: d
10. New products in banking are launched primarily to:
    a) Avoid regulations
    b) Reduce employees
    c) Meet changing customer needs
    d) Increase paperwork
    Answer: c