Pricing of products and services is a key variable in customer retention as well as customer attraction. It is a major challenge for banks on how to infuse the concept of `addition to shareholder value' and it is to be embedded in the cost of their products and services offered.

The developments such as disintermediation, deregulation, globalization and emergence of vibrant capital market have contributed to the expansion of opportunities as also threats in the present-day banking. A threat of uncertainties and dislocations in the banking industry is being apprehended now. The viability and sustained growth of the banking industry are being questioned and doubted. Nonetheless, panic responses in the present-day environment are warranted. Proactive and positive response is the need of the hour and also highly desirable. In particular, the banking industry must concentrate on efficient and effective pricing, costing and capital usage to avoid dislocations. Vigorous attitude to costs, flexibility in pricing policy and efficient use of capital are absolutely necessary to face emerging challenges. The knowledge and skill required in this connection is to be upgraded on an on-going basis.

Uniform costing system was introduced in Indian banks a few decades ago. The system notes the average cost of major activities carried out in banks. In order to facilitate interbank comparison, the cost results are compiled for the industry as a whole. Usually, cost per turnover, cost per voucher or transaction and cost per account are derived through this exercise. However, the uniform costing system has failed to generate vital information on costing which will be used by the decision-makers in formulating long-term policies. The major limitations of this system are

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