Leadership

Manuscript ID: Manuscript Type: Keywords:

r Fo
Journal: Draft Abstract:

Retail Banking

Leadership

Standard Article

microfinance, micro credit, micro insurance, SHG Bank Linkage Program, Rural Finance, Retail Banking, Micro Bankng Today’s banking services are customer oriented. New services and products are designed and inducted to meet the diversified customer requirements. Still there are some limitations in providing the services. In this context, the paper surveys the needs of the customers vis-à-vis banking segment. There is always a measurable distinct between requirement and available services. At present the banking industry introducing new products to acquire get a good spread. A majority of mass which is still unable to access the available services either by excluded due to many reasons or banks are not showing enough managerial skills or risk management skills to get maximum market share by reaching the target customers. The options would be aggressive retail banking or reaching the rural poor with much more flexible financial inclusion methodology. This paper will be touching all those aspects in concise way involving and changing its operations to provide better services. It will put a light on issues of demands and possible provision of core banking solutions.

http://mc.manuscriptcentral.com/leadership

Pe er Re vi ew

Page 1 of 10

Leadership

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

“RETAIL BANKING- NEW BUSINESS PROSPECT” *Dr. M.Prasadarao
Registrar
Institute for Technology & Management

**Dr. Firdos T. Shroff
Director
RKP. Chetna Institute of Management

ABSTRACT: Today’s banking services are customer oriented. New services and products are designed and inducted to meet the diversified customer requirements. Still there are some limitations in providing the services. In this context, the paper surveys the needs of the customers vis-à-vis banking segment. There is always a measurable distinct between requirement and available services. At present the banking industry introducing new products to acquire get a good spread. A majority of mass which is still unable to access the available services either by excluded due to many reasons or banks are not showing enough managerial skills or risk management skills to get maximum market share by reaching the target customers. The options would be aggressive retail banking or reaching the rural poor with much more flexible financial inclusion methodology. This paper will be touching all those aspects in concise way involving and changing its operations to provide better services. It will put a light on issues of demands and possible provision of core banking solutions. KEY WORDS: Retail Banking, Products, Exclusion, Customer, Banking Solutions Objectives of the study: 1) To study the various needs of customers and products and services in retail banking sector as on date 2) To find the latest trend in retail banking services sector, as on date 3) To study nature of retail banking and financial sector in India. 4) To analyse the impact of retail Technology on banking and finance The primary objective of this research is to analyse a key aspect of the commercial banks, i.e., the extraordinary rapid rise of the retail products and services industry and its role in enhancing the competitiveness of these banks. The researchers examines common approaches and identify best practice mechanising for promoting and diffusing retail segment and for building a national retail banking and financial infrastructure. Design of the Study: Methodology: A quantitative approach was used for the study. Visit to customers was carried and interactions held to enable us to know the trend and market in retail banking and financial services sector. A survey was conducted to study the need-based products and what customer wants in present day context, in both urban and rural areas.

r Fo

http://mc.manuscriptcentral.com/leadership

Pe

er
1

Re

vi

ew

Leadership

Page 2 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

Introduction:

The face of Indian banking changed irreversibly soon after liberalization in the early nineteen nineties – after the advent of the new private sector banks or the new generation banks as they are often called. Till then banking was quite staid due to lack of freedom of diversity. Banking was not segmented and a banker accepted deposits, gave corporate loans and offers investment advice. Today’s customers are service-oriented. Products customer demand are plenty, whereas the products offered by banking/financial services sector are limited, as there are various risk involved. Customers desire prompt, efficient service and demanding flexible products to meet requirement. The urban customer usually having access to all the banking products and availing successfully. But the rural customer especially excluded customers due various reasons unable to avail these services. In this context, the paper surveys the needs of the customers vis-à-vis banking segment. The paper covers various needs of customers, what products and services they require in the retail banking/financial services sector. What is Retail Banking :

The dictionary meaning of Retail is – ‘The sale of goods to ultimate consumers, usually in small quantities’ 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, consumer loans, debit cards, credit cards, and so forth. Retail Banking is among the fastest growth industries in the country. Major sector of availing customers are at urban due to awareness and affordability. The products are designed as per the requirement and affordability i.e., the raising diversified lifestyles and requirements on basis of the lifestyle and ability to repay the loan. The important causes for the growth of the retail banking in India, some of which are as follows : 1) 2) 3) 4) New general banks are customer centric, focused and driven They want growth, market share and a dominant presence. This is being achieved by creating specialist groups and developing expertise As a consequence banking has become functionally segmented – retail assets, retail liabilities, corporate banking, trade finance, merchant banking, private banking and treasury.

r Fo

http://mc.manuscriptcentral.com/leadership

Pe

A “Young” population . . . 2

er

Re

vi

ew

Page 3 of 10

Leadership

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

Per cent of population, 2003
India China Germany Korea

7 23 35 35

10 30 35 25

23 36 26 16

8 26 37 29

Highest proportion of population below 35 years (70%) in India… ( ICICI report on retail banking as on 2004)

The human capital of India i.e., <35yrs is the major force availing highest percentage of retail loans. The Banks are in operation inducted a number of new products and continue to do so to attract a mass of reliable customers. It is an industry where demand for good bankers far outstrips the supply. Many of the public & private sector banks and financial services are not equipped towards introducing many products to suit the customer requirements those below poverty line, thereby the excluded. The main fear of bad debts and NPAs and rigid risk management system. The unfortunate result has been that consequent to this huge demand, those being inducted into banking are not being given adequate training nor do they get adequate time to read and know enough about what they need to know. In this paper we will discuss the current status of retail banking segment and need for further diversification with caution and growth for the purpose of nation growth. Drivers of Retail Banking growth:
CHANGING CONSUMER DEMOGRAPHICS

Growing disposable incomes Youngest population in the world Increasing literacy levels Higher adaptability to technology Growing consumerism Fiscal incentives for home loans Changing mindsets-willingness to borrow/lend Desire to improve lifestyles Banks vying for higher market share

Current status of Economy vs. Retail Banking a) Retail assets are just 22% of the total banking assets of India b) Contribution of retail loans to GDP: India 9% China 18 %, Thailand 25% Taiwan 54%

r Fo

http://mc.manuscriptcentral.com/leadership

Pe

er
3

Re vi ew

Leadership

Page 4 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

c) Indian population below 35 yrs of Age – 70 % d) Reach of Formal Banking Channels – 20-25% of Indian population
SBI 2005(Cygnus Industry Insight)

Products & Services : Personal Banking a) Deposits o Savings o Current o Term o NRE b) Advances o Loans for machinery equipments o Vehicle finance o Corporate finance o Trade Finance o Housing/Home loans o Personal Loans to salaried employees o Educational loans o Cash credit limits for working capital o Overdraft and loans against Demat shares/Govt.Relief Bonds/LIC Policies/NSCs to individuals o Mortgage Finance o Micro Finance/Credit o Gold Loans o Event Loans o Festival Loans o Loan against rent receivables o Loan to doctors to set up their own clinics or for purchase of medical equipment o Loan for Women Empowerment for setting up – Boutiques Beauty Parlours Creches Flower Shops Making Jaipuri Quilts Preparation and supply of food tiffins, etc c) Credit Cards o Debit o Credit o International d) e-Banking / Online banking o Electronic Funds Transfer (EFT) o Real Time Gross Settlement (RTGS) – money transfer on real time basis 4

r Fo

http://mc.manuscriptcentral.com/leadership

Pe

er

Re

vi

ew

Page 5 of 10

Leadership

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

o Cheque truncation – image capturing – thus eliminating physical movement of cheques o Internet banking o Mobile banking o SMS banking o Tax Payment o Cash Management e) Online other retail banking services : Banks also offer following Retail Banking services to its customers and it needs to be fully computerized to take full advantage of technological innovations. 1. 2. 3. 4. 5. 6. 7. Payment of utility bills like water, electricity, telephone and mobile phone bills Payment of insurance premiums on due dates Payment of monthly/quarterly education fee of children to their respective schools Remittance of funds from one account to another Demating of shares, bonds, debentures, and mutual funds / Portfolio Management Payment of credit card bills on due dates Last but not the least, the Online filing of income tax returns and payment of income tax as also Online Payment of Direct / Indirect Taxes through bank accounts.

f) Other Products and Services/Management - Safe Deposit Vault/Lockers - Investment Management - Insurance / Bancassurance Management - Wealth Management - SME/Micro Finance Services - Treasury Management - Foreign Exchange Management - Portfolio Management - Mutual Funds Management - Core Banking Solutions

New Delivery Channels for Retail Banking Products and Services The advent of new delivery channels, viz., ATM, internet and telebanking has revolutionaries the retail banking activities. The channels enable banks to deliver retail banking products and services in an efficient and cost effective manner. Now-a-days the banks are under great pressure to attract new and retain old customers, as margins are turning wafer thin. In these circumstances reducing administrative and transaction cost has become crucial. Banks are making special offerings to customers through these channels. Retail banking has been immensely benefited with the revolution in IT and communication technology. The automation of banking processes is facilitating

r Fo

http://mc.manuscriptcentral.com/leadership

Pe

er
5

Re vi ew

Leadership

Page 6 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

extension of their reach and rationalization of their costs as well. They are the engines for growth of retail banking business of banks. The networking of branches has extended the scope of banking to anywhere and anytime 24 x 7 days a week banking.. It has enabled customers of a bank rather than the customers of a particular branch only. Customers can transact retail banking transactions at any of the networked branches without any extra cost. As a matter of fact the retail banking per se has taken off because of the advent of multiple banking channels. These channels have enabled banks to go on a massive customer acquisition mod since transaction volumes spread over multiple channels lessen the load on the brick and mortar bank branches. Future of Retail Banking :

Though at present retail banking appears to be the best bet for banks to improve their top and bottom-line, yet the future of retail banking in general, may not be all roses as it appears to be. There are signs of slowdown in consumer growth in some countries, which will inevitably have an impact on retail banking business growth and its related technologies. Secondly, the possibility of deterioration in asset quality cannot be ruled out. With the boom in housing loan market, the signs of overheating has also started surfacing with potential caution. Further the pressure on margins is mounting, partly because of fierce competition and partly as a result of falling interest rates environment which has diminished to some extent the endowment effect of substantial deposit base from which most retail banks have been deriving benefits. But banks, which have built a significant retail banking portfolio may fare relatively well in the years to come. Those banks which have dynamic retail strategy and are well diversified in products, services and distribution channels and have at the same time managed to achieve a good level of cost efficiency are the ones that are most likely to success in the long run.

r Fo

Pe

er
6

Re

vi

ew

Significance

The retail banking is the most vibrant. Banks, in their desire to be accessible and have the greatest reach, have opened branches with amazing speed. The intent of this paper is to share all that authors know on retail banking/financial services sector, with others. The Impact of Technology on RETAIL BANKING : 1. The major impact of technology on Retail Banking is that, the customers have become the Emperors – the fulcrum of all Banking activities, both on the asset side and the liabilities front. The hitherto sellers market has transformed into buyers market. The customers have multiple of choices before them now for cherry picking products and services, which suit their lift styles and tasters and

http://mc.manuscriptcentral.com/leadership

Page 7 of 10

Leadership

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

financial requirements as well. Banks now go to their customers more often than the customers go to their banks. 2. The Non-Banking Finance Companies which have hitherto been thriving on retail business due to high risk and high returns thereon have been dislodged from their profit munching citadel. 3. Technology in Retail Banking is transforming banks into one stop financial super markets. 4. The share of retail loans is fast increasing in the loan books of banks 5. Banks can foster lasting business relationship with customers and retain the existing customers and attract new ones. There is a rise in their service levels as well. 6. Banks can cut costs and achieve economies of scale and improve their revenues and profits by robust growth in retail business. Reduction in costs offers a winwin situation both for banks and the customers. 7. It has affected the interface of banking system through different online delivery mechanism. 8. It is not that banks are sharing the same pie of retail business, the pie itself is growing exponentially. Retail Banking has fueled a considerable quantum of purchasing power through a slew of retail products. 9. Banks can diversity risks in their credit portfolios and contain the menace of NonPerforming Assets (NPAs). Retail Banking allows bank to cross sell other products and services, as it is far more easier to sell other products to the same customer rather than search for absolutely new ones. Cross selling Online is one of the best avenues for relationship banking and retention of customers. Banks can thus increase their business volume, and improve their bottom-line substantially. 10. Re-engineering of business with sophisticated technology-based products will lead to business creation, reduction in transaction costs and enhancement in efficiency of operations. Draw-backs of Retail Banking :

Despite the numerous advantage of Retail Banking there are some draw-backs in this business. These are as under : 1. 2. 3. Management of large number of clients may become a problem if IT systems are not robust. Rapid evolution of products can lead to IT complications. The cost of maintaining large number of small value transactions in branch networks will be relatively high, unless the customers use alternate delivery channels, like ATMs, internet and phone banking, etc., for carrying out banking transactions.

Retail Banking is not everybody’s Cup of Tea :

r Fo

http://mc.manuscriptcentral.com/leadership

Pe

er
7

Re

vi

ew

Leadership

Page 8 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

Retail Banking is not an easy task for every banks. Bank of America had to get out of Retail Banking business during 2003. Retail lending is as risky as commercial lending. Banks require some fundamental capabilities for undertaking retail business as it is easy to enter but difficult to get out of this business. It is a serious business. It requires tremendous commitment, expertise, understanding and discipline on one hand and patience, perseverance and pursuit on the other and that too, on an ongoing basis. Banks require a careful and methodical approach to entire and expand Retail Banking business. The vital areas needing special attention of bankers are, continuous scouting for potential borrowers, critical and quicker credit appraisal, faster credit dispensation and effective recovery mechanism. Besides, putting an effective risk assessment mechanism for analyzing the behaviour customers as individuals and as a group in place, Banks should turn themselves into marketing organization that have the skills and responsiveness to create innovative products, cutting edge services and enduring brands. To create a place for them, the banks will have to perfect the art of blending the fundamentals of expertise, technology, communication and customer care. Banks must put in a place a network of new delivery channels, viz., ATM, internet and telebanking for offering triple ‘A’ i.e., Anyhow, Anytime and Anywhere Banking facilities to existing and potential clients round the clock 24 hours and 7 days a week. Besides this, banks will have to set up ‘BANKING KIOSKS’ or ‘BOUTIQUES’ dedicated exclusively to Retail Banking activities for rendering personalized and professional services to customers at their doorsteps. Banks should tread the path of Retail Banking cautiously and carefully. In the absence of al lully integrated and efficient financial automation system, any unbridled expansion of Retail Banking can spoil the broth and land them into deep waters. Retail lending is repayment specific in nature and it should be backed by irrevocable mandate at income source such as salaries. Hence, assessment of financial and debt servicing capability of borrowers must be impeccable and fault free. Banks should learn from successful retailers for deepening their understanding of customers and for building lasting relationship with them.

Scope of the Study :

The present study contemplates to cover various products and services offered by the banking & financial services sector in India. (a) identification of areas of retail segment in the field of banking and finance (b) planning for development and delivery of retail sector in India The study and scope is restricted to the Indian market trends in retail sector. Therefore, data is limited and cannot be accepted as all-India comprehensive survey of the future. The study, therefore can be used only to the extent of the data presented by the researchers. Limitations of the Study: 1. No Primary Data collected from banks at micro level. 8

r Fo

http://mc.manuscriptcentral.com/leadership

Pe

er

Re

vi

ew

Page 9 of 10

Leadership

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

2. Largely results of the Research Study are based on retail sector. 3. Products and services of banking and financial sector are identified. 4. Impact is not quantified. However, an effort is made to programme for retail sector for managerial decision. Chapter 2 - REVIEW OF THE RELATED LITERATURE / BIBLIOGRAPHY Primary Data Collection : Primary Data survey on retail segment through means of Questionnaire was conducted and information collected from the clientele of banking and finance sector. Moreover, periodical discussions were carried out with officials of different strata of banks, Department of Retail banking staff of various banks/RBI/ financial institutions. Needless to mention, reference to the Heads/ General Managers/ Sr.Executives of different strata of banks were consulted, i.e., those who are executing and operating retail banking and finance operations and growth in India. Secondary Data Collection:

The Research Study is largely based on the secondary data collected from publications of the Reserve Bank of India (RBI), such as, RBI Annual Reports after economic reform period in India, RBI Report on Trends and Progress of Banking in India 2003-04, Statistical Profile of Indian Banks’ Association (IBA) for Public Sector/Nationalised Banks, Old/New Private Sector Banks and Foreign Banks from 1985 till 2008. The periodicals like RBI Occasional Papers, Economic and Political Weekly, Bank Economists’ Conference (BECON) Volumes and individual publications by the authors are consulted. The literature on retail sector use in banking and financial services sector has been collected from websites and references to publications of Bulletins, Indian Banks’ Association (IBA), Mumbai, Bank Quest/ Fin@Quest, Indian Institute of Banking & Finance (IIBF), Mumbai, published records from the Reserve Bank of India (RBI), National Institute of Bank Management (NIBM), Pune and Compendium of Papers at Bank Economists’ Conferences (BECON) / Bankers’ Conferences(BanCon).

r Fo

Pe

er

Re

vi

ew

-

Book on ‘Everything you need to know to work in a Bank – RETAIL BANKING’ – Raghu Palat - Cortlandt Rand Consultancy Pvt.Ltd., - 2006 Websites visited o www.bankingrules.com - Portal managed by Shri Raghu Palat o www.rbi.org.in - Reserve Bank of India o www.iba.org.in - Indian Banks’ Association o www.unionbankofindia.co.in o www.bankofindia.com o www.centralbankofindia.com o www.hdfcbank.com

http://mc.manuscriptcentral.com/leadership

9

Leadership

Page 10 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

• • • •

www.icicibank.com www.zoroastrianbank.com www.psidata.com www.tcs.com

Chapter 5 – SUMMARY AND CONCLUSION Keeping in mind the above objectives, it was found that present banking industry do offer in-valuable customer services and products. Still there is much scope to develop the business by effective spread of technology and grass root micro level analysis of current functioning and would draw a applicable plan with good products and services offered in retail banking and financial services sector are par excellence at international standards • The paper reports outcome of the Study in the form of general observations, conclusions based on factual analysis and findings on analysis of the data and thoughtful suggestions for improvement in the quality of service and innovating products and services in the retail banking and financial sector in India.

r Fo

http://mc.manuscriptcentral.com/leadership

Pe er Re vi ew
10