Types of banks

Banks' activities can be divided into retail banking, dealing directly

with individuals and small businesses; business banking, providing
services to mid-market business; corporate banking, directed at large
business entities; private banking, providing wealth management
services to high net worth individuals and families; and investment
banking, relating to activities on the financial markets. Most banks
are profit-making, private enterprises. However, some are owned by
government, or are non-profit organiations.
!entral banks are normally government-owned and charged with "uasi-
regulatory responsibilities, such as supervising commercial banks, or
controlling the cash interest rate. #hey generally provide li"uidity to
the banking system and act as the lender of last resort in event of a
crisis.
RETAIL BANKING
DEFINITION:
Retail banking is typical mass-market banking where individual
customers use local branches of larger commercial banks. Services
offered include: savings and checking accounts, mortgages, personal
loans, debit cards, credit cards, and so

Benefits of Retail Banking
Traditional lending to the corporate are slow moving along with
high $%& risk, treasure profits are now loosing importance hence
'etail Banking is now an alternative available for the banks for
increasing their earnings. 'etail Banking is an attractive market
segment having a large number of varied classes of customers. 'etail
Banking focuses on individual and small units. !ustomie and wide
ranging products are available. #he risk is spread and the recovery is
good. (urplus deployable funds can be put into use by the banks.
%roducts can be designed, developed and marketed as per individual
needs.
Scope for Retail Banking in India
&ll round increase in economic activity.
)ncrease in the purchasing power. #he rural areas have the
large
purchasing power at their disposal and this is an opportunity to
market 'etail Banking.
)ndia has *++ million households and ,++ million middleclass
population more than -+. of the savings come from the house
hold sector. /alling interest rates have resulted in a shift.
0$ow %eople 1ant #o (ave 2ess &nd (pend More.3
$uclear family concept is gaining much importance which may
lead to large savings, large number of banking services to be
provided are day-by-day increasing.
#a4 benefits are available for e4ample in case of housing loans
the borrower can avail ta4 benefits for the loan repayment
and the interest charged for the loan.
Advantages and Disadvantages of Retail
Banking
Advantages
'etail banking has inherent advantages out weighing certain
disadvantages. &dvantages are analyed from the resource angle and
asset angle.
RESOURSE SIDE
'etail deposits are stable and constitute core deposits.
#hey are interest insensitive and less bargaining for additional
interest.
#hey constitute low cost funds for the banks.
5ffective customer relationship management with the retail
customers built a strong customer base.
'etail banking increases the subsidiary business of the banks.
ASSETS SIDE
'etail banking results in better yield and improved bottom line
for a bank.
'etail segment is a good avenue for funds deployment.
!onsumer loans are presumed to be of lower risk and $%&
perception.
Helps economic revival of the nation through increased
production activity.
)mproves lifestyle and fulfils aspirations of the people through
affordable credit.
)nnovative product development credit.
'etail banking involves minimum marketing efforts in a demand 6
driven economy.
7iversified portfolio due to huge customer base enables bank to
reduce their dependence on few or single borrower
Banks can earn good profits by providing non fund based or fee
based services without deploying their funds.
DISADVANTAGES
7esigning own and new financial products is very costly and time
consuming for the bank.
!ustomers now-a-days prefer net banking to branch banking.
#he banks that are slow in introducing technology-based
products, are finding it difficult to retain the customers who
wish to opt for net banking.
!ustomers are attracted towards other financial products like
mutual funds etc.
#hough banks are investing heavily in technology, they are not
able to e4ploit the same to the full e4tent.
& ma8or disadvantage is monitoring and follows up of huge
volume of loan accounts inducing banks to spend heavily in human
resource department.
2ong term loans like housing loan due to its long repayment term
in the absence of proper follow-up, can become $%&s.
#he volume of amount borrowed by a single customer is very low
as compared to wholesale banking. #his does not allow banks to
to e4ploit the advantage of earning huge profits from single
customer as in case of wholesale banking
Opportnities in Retail Banking
Retail banking has immense opportunities in a growing economy
like )ndia. &s the growth story gets unfolded in )ndia, retail banking
is going to emerge a ma8or driver. #he rise of )ndian middle class is
an important contributory factor in this regard. #he percentage of
middle to high-income )ndian households is e4pected to continue
rising. #he younger population not only wields increasing purchasing
power, but as far as ac"uiring personal debt is concerned, they are
perhaps more comfortable than previous generations. )mproving
consumer purchasing power, coupled with more liberal attitudes
towards personal debt, is contributing to )ndia9s retail banking
segment.
#he combination of above factors promises substantial growth in
retail sector, which at present is in the nascent stage. 7ue to
bundling of services and delivery channels, the areas of potential
conflicts of interest tend to increase in universal banks and financial
conglomerates. (ome of the key policy issues relevant to the retail-
banking sector are: financial inclusion, responsible lending, and access
to finance, long-term savings, financial capability, consumer
protection, regulation and financial crime prevention.
Types of Retail Banks
!ommercial bank: the term used for a normal bank to distinguish
it from an investment bank. &fter the ;reat 7epression, the
<.(. !ongress re"uired that banks only engage in banking
activities, whereas investment banks were limited to capital
market activities. (ince the two no longer have to be under
separate ownership, some use the term =commercial bank= to
refer to a bank or a division of a bank that mostly deals with
deposits and loans from corporations or large businesses.
!ommunity Banks: locally operated financial institutions that
empower employees to make local decisions to serve their
customers and the partners.
!ommunity development banks: regulated banks that provide
financial services and credit to under-served markets or
populations.
%ostal savings banks: savings banks associated with national
postal systems.
%rivate banks: banks that manage the assets of high net worth
individuals.
>ffshore banks: banks located in 8urisdictions with low ta4ation
and regulation. Many offshore banks are essentially private
banks.
(avings bank: in 5urope, savings banks take their roots in the
?-th or sometimes even ?@th century. #heir original ob8ective
was to provide easily accessible savings products to all strata of
the population. )n some countries, savings banks were created
on public initiative; in others, socially committed individuals
created foundations to put in place the necessary
infrastructure. $owadays, 5uropean savings banks have kept
their focus on retail banking: payments, savings products,
credits and insurances for individuals or small and medium-sied
enterprises. &part from this retail focus, they also differ from
commercial banks by their broadly decentralised distribution
network, providing local and regional outreachAand by their
socially responsible approach to business and society.
Building societies and 2andesbanks: institutions that conduct
retail banking.
5thical banks: banks that prioritie the transparency of all
operations and make only what they consider to be socially-
responsible investments.
)slamic banks: Banks that transact according to )slamic
principles.
Retail Banking