Page 40 - Banking Finance December 2022

ARTICLE

along with manipulation in packaging is a respite for While banks have resorted to cost effective measures by
companies now, as this invariably goes unnoticed by the hosting banking transactions on digital medium, further
consumers. shrinkage in physical accessories may improve their bottom
lines. Banks are struggling with their margins more than
Shrinkflation as a concept isn’t unethical but some would before since now the rates are linked to Repo, the revision
liken it to playing a ‘cheeky’ shot in cricket. This concept of of which is in the hands of RBI. Banks will have to maintain
Shrinkflation has gained prominence now and the unversed certain consistency in deposit rates in order to strengthen
are visibly flabbergasted. Butthis is an age old practice. Few their advance base.
notable instances of Shrinkflation related to the past, are
as under: On the other hand lending rates can’t be tweaked much as
a) In 2014, Coca-Cola reduced the size of its large bottle it will impact the lending businesses. This given that the
from 2 liters to 1.75 liters. lending business in India hasn’t really peaked post pandemic.
Banks are therefore left with commission/fee based income
b) In 2010, Kraft slashed the weight of Toblerone bars from
and digitalization to spruce their financials. The residual
200 grams to 170 grams.
portion pertaining to cost shocks can further be absorbed
c) In 2010, Tetley reduced the number of teabags sold in
through shrinkage in tangible products.
one box from 100 to 88.
While the concept of Shrinkflation is yet in its infancy in terms
The major benefits companies visualize through shrinkage
of application in banks, the prevalent and prevailing
is that the demand for their products remain unchanged.
conditions in the country and elsewhere may force or
compel banks to think on similar lines very quickly. What is
Now let’s steer towards the Indian Banking Industry and
to be seen is how banks maneuver through this phase and
super impose the concept of Shrinkflation on it. While the
realign their strategies. Banks in India have to be in all
concept is widely extended to manufacturing companies,
preparedness because after the introduction of Digital
can banks also take a leaf out of it? Will it be viable?
Currency, the deposit base may also take a dent and to
retain physical deposits, banks will have to shell out more.
It can be best decided by the readers, however an attempt
While the expenses will amplify on certain fronts, the
to conjure up the shrinkage possibilities with unchanged cost
reduction of it on certain fronts shall help banks remain
structure is as follows:
favorably poised. This seemingly is the feasible way ahead.
a) Can banks resize the debit and credit cards
b) Can banks resize the cheque books?
The views expressed in this article entirely belongs to the
c) Can banks resize the deposit and withdrawal challans? author and the employer bears no responsibility.

ECB may have to cool growth to control inflation, says Lagarde
The European Central Bank may need to raise interest rates so much that they dampen growth as it fights sky-high
inflation, while any runoff in the ECB's bond holdings must be "measured and predictable", its chief Christine Lagarde
said. The ECB has raised rates by an unprecedented 200 basis points since July and flagged yet more policy tightening via
rate hikes, the reduction of its 5 trillion euro ($5.2 trillion) debt holdings and more expensive bank funding. "We expect
to raise rates further - and withdrawing accommodation may not be enough," Lagarde said in a speech at a conference.
"Interest rates are, and will remain, the main tool for adjusting our policy stance," she said. "Acknowledging that
interest rates remain the most effective tool for shaping our policy stance, it is appropriate that the balance sheet is
normalised in a measured and predictable way."
The comments suggest the euro zone's central bank aims to shrink its 3.3 trillion euro Asset Purchase Programme of
mostly government debt passively, possibly putting it on auto pilot instead of using it to actively manage the ECB's
policy stance.

40 | 2022 | DECEMBER | BANKING FINANCE