Future of Retail Banking

- Bhaskar Ghose, Managing Director, IndusInd Bank

Recent trends

Aggressive entry strategies of foreign banks to Retail Segment Customer retention initiatives by PSU Banks Aggressive price-war on Retail Credit

Recent trends contd…   Rapid penetration of Personal Computers. Mobile phones and on-line Trading and purchase options encouraged increased usage of technology banking Booming economy and continuous per capita income will further push the living standards of people .

Recent trends contd…    Customers’ preference to more and more alternate channels for convenience Fee based income from remittance is shrinking due to RTGS and other technology initiatives Higher short term interest and flatter yield curves .

Recent trends contd…    Phenomenal rise in nuclear and dual income families & enhanced spending power Increasing literacy levels Higher adaptability to technology banking .

   Growing consumerism Fiscal incentives to Housing loans Fastest economic growth over the decade .Recent trends contd….

Retail Liabilities    Banks continue to offer valued added Products and Services for customer acquisition and retention Retail Banking technology is gaining its importance due to the continued demand Customer Relationship Management (CRM) is going to be a mandatory requirement for banks to leverage the existing relationship .

.   Retail Banking customers are demanding more and more features and product differentiation More and more Retail customers in the age group of 20-35 with high saving potential Future of Retail Liabilities would be from Tier II & Tier III locations .Retail Liabilities  contd….

channel integration and single sign on expectation from customers Branch Banking channels are going to be business expansion channel than Transaction processing centre More and more customers are moving out of the Branch Banking channel to other alternate delivery channels .Retail Liabilities contd…    Alternate delivery channels.

Retail Liabilities -Future    Rate of growth of deposit may be affected by other investment opportunities like Mutual Funds and Bonds Banks may prefer to have sharing arrangements Smart Card/Stored value card would gain importance .

Retail Credit    Retail Credit business shifted from Private Money lenders to NBFCs and Banks in the last decade Now. the shift is expected from inefficient Banks to Banks with set processes and quick delivery systems . the shift is from NBFC s to Banks In future.

Retail Credit contd…. which is only a fraction. which is yet to be explored .    Loan to GDP ratio is less than 40%. compared to the developed economy Every Bank has enough opportunities to perform without unhealthy competition Business potential in Semi urban and Rural areas are very high.

   Banks overtake HFCs in Home Loans Banks overtake NBFCs in Auto loans The same trend would continue for next few years .Retail Credit contd….

Retail Credit contd….   Basel II implementation and necessity to have stringent Risk Management systems would exert pressure on Retail lending in future Banks with well defined systems and procedures would emerge as leaders in Retail Credit .

Retail Credit contd….    Home Loan is expected to grow at 30% Housing loan as % of GDP will touch 10% Used Car finance is growing over 20% rate and is expected to continue .

Personal loans 16% and Consumer durables 7% Educational loans which are at a low ebb also expected to grow at 20% in the coming years .   Mix of Retail Credit is expected at – Home Loan 49%.Retail Credit contd…. Auto loans 28%.

   Housing and Auto loans together.Retail Credit contd…. would continue to contribute to the level of 18% Other Retail advances would move from 8 to 13% Agricultural segment is expected maintain the 10% level .

  Personal loan segment is also expected to grow @ 20% with higher yield ranging from 12-16% Gross Retail Advances would move to over 40% of total advances in the next 5 years .Retail Credit contd….

compared to 36% growth during the pervious year Credit Card growth is estimated at CAGR of 20% Draft guidelines on Credit Card operations would affect the Credit Card growth Single overall limit for Credit Cards would ensure lower delinquency rate under the segment .Credit Card business     Credit Card issuance at 50% growth rate in 2004-05.

Challenges    Customer tendency to borrow more and repay less may adversely affect the NPA levels in future Future delinquency rates are not properly factored in fixing the Retail credit pricing by few banks Increased risk weight of Consumer Credit .Retail Credit .

   Liquidity mismatches may emerge as an issue Slight change in economic scenario may affect the whole system Existing Retail scoring models may not predict impact of mild recession .Retail Credit – Challenges contd….

Retail Credit –Challenges contd….     Lack of Credit information of Retail customers from the Banking system CIBIL is addressing the issue only to a certain extent No system to eliminate multiple finances. including Personal Loans Higher level of NPA from Personal Loans .

Retail Credit –Challenges contd….    Higher Loan-to-value ratio may emerge as a problem during recession Sale of assets without any control from the bank in the case of Consumer Credit Growing incidents of frauds and cyber crimes .

for the Customer     Future of Retail Banking is for the CUSTOMER Pricing is determined by Customer Competition among Banks would ensure him better service at cheaper rate Customer would be able to discount his future earnings as Retail Credit for his higher standard of living .Future.

Thank You .

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