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1. Changing Consumer Demographics: Population of India provides a vast potential for

growth of retail both in qualitative and quantitative terms. India is a young nation
with average demographic age of 29 years and close to 70% of the population is
below 35 years of age which means more than 100 million people will be added to
the working class and there is a continuing trend in the urbanization. This
demographic dividend advantage is positive factor for India and provides
opportunities for retail banks to grow and expand. Presently, Private Banks share of
young customers is over 60% whereas in public banks it is only 32%.

2. Rise in disposable income of middle class: Indias GDP has grown at an average rate
of more than 7% over the last decade, the real household income has more than
doubled since 1985, with the rise in income, consumption pattern has changed and
the purchasing power has increased. The new middle class is comfortable in taking
debts to meet their needs and are more liberal. This has led to a boost in the retail
loans segments. According to a report by NCAER by 2015-16 India will have 53.5
million middle class households translating to 267 million people.

3. Increase in literacy levels: The literacy levels in India have continued to improve,
people are embracing technology and there is demand for new products and
services. It will lead to a more demand in the retail banking activities.
4. Higher adaptability to technology: Technological innovations in the delivery of
services to customer have attracted more number of consumers. With convenience
banking facilities such as Debit/Credit cards, ATMs, Internet banking, mobile
banking available to customers, there has been an increase in the usage of these
facilities which in turn has led to development of retail banking.

5. Housing credit: With the option of EMI available to the customers, more consumers
are now resorting to housing loans to construct their homes; also the interest rates
on loans have declined since 2009-10, Price corrections in real estate sector, tax
incentives have further led to a spurt in demand for credit facility. Housing loan is a
safer investment option for banks with NPA only in the range of 2-2.5% compare to
other loans.

6. Flexibility: Retail loans in a large number of options are available to customer;
banks even bear the cost of registration, stamp duty, insurance etc. making it easy
and affordable for the end customer to avail the credit facility.
7. Automation of processes: With the advent of technology banks have optimized the
core operations and this is lead to decrease in the transactions costs and better
maintenance of the records. Mobile/Internet banking and ATMs are emerging as an
alternative channel and have better reach than the traditional banks. With the CBS
system in place all data is stored centrally and can be accessed from anywhere
making it easy and convenient for both banks and customers to avail and provide
service thus helping in establishing relations with the customers.

8. Mass Banking/Alternative Channels: Retail sector is mass market banking and
provides services such as deposit accounts (Savings, current), loans, ODs, lockers,
credit and debit cards and ATMs and many more, all these are essential to tap new
customers and retaining existing customers. The alternative channels of ATM and
mobile banking can be seen as branchless banking as they reduce the cost with no
requirement of physical infrastructure and human resources.

9. Financial Services: Banks have also ventured in other financial services such as
Insurance and asset management, with clear regulations in sight and transparency in
the conduct of the process, the financial services area has added and will add to the
growth momentum of the banking sector.

10. Competition: The increase in competition among banks with the entry of new
players has led banks to rework their business strategy, design new products with
customer in mind and improve efficiency. Customers have large options to choose
from and they cannot differentiate between the banks, so banks need to constantly
innovate and reposition themselves have niche players.

11. Micro, Small and Medium Enterprises: MSMEs sector has been a major growth
driver for Indian economy. They contribute close to 50% to industrial output,
however only one third have access to organized finance. This unmet demand
provides a significant opportunity to banks and RBI has also made it mandatory for
banks to lend to MSME sector under the Priority sector lending quota. Banks can
collaborate with MSME and they can leverage each others strengths. Banks offers
forex services, LCs/guarantees, MSME provide specialized knowledge and local
collection capability.


Till the nineties, the customers were made to stand in queue and service manually by the
staff in their brick and mortar outlet, the mechanization and computerization process got
initiated in the Indian banking sector following the recommendations of the Rangarajan
Committee. Since then a large number of technological innovations have been brought
forth in the banks.
Some of the technological innovations that have been introduced in the Banks are discussed
1. ATMs: ATMs were introduced in the early 1990s by foreign banks in India they have
transformed banking by providing access to the banking services anywhere and
anytime to the customer. The banks have greatly saved on the transactions cost as it
is a self-service means of delivering service and reduce the overhead in the banks.
The customer is saved from the risk of huge hard cash. They need not visit the
branch for transactions like cash deposits, withdrawals, cheque collection and
balance enquiry etc.

2. Internet Banking: The internet has brought forth an electronic revolution in the
banking sector, and has helped in reaching a wide audience. There are more than
200 million users who have access to internet and the demand for real time
information will continue to grow. Internet has served as an alternate distribution
channel for banking services and products. Internet banking provides instant access
to information for customers and less personnel is required by banks to entertain
customer queries.

3. Mobile Banking: With increase in awareness about technology, the adoption by user
is also getting high. Mobile has become a companion for Gen Y. Banks have
leveraged the mobile platforms to offer banking products and services to customers
via smartphones and have been able to reach areas in rural regions of India which
otherwise they had been unable to do so as there is a high transaction cost
associated with setting up branches.

4. Core Banking Solution: CBS is a centralized platform; it facilitates control of the
banking operations and makes anytime, anywhere, anyway banking possible as it
maintains a centralized customer database. It delivers fast and efficient service to
customers, reduce operational costs. Banks have also adopted business intelligence,
data warehousing and data mining technologies to effectively target customers for
cross selling the products. CBS can be integrated with risk management module and
other enterprise level applications.

5. CRM: It consists of a set of procedures that RM use to manage customer
relationships, identifying potential customers to sell products and retaining existing
customers and increase their wallet. Banks also resort to cross selling their products
as when a customer enters into a relationship with a bank, the RM persuades the
customer to avail other financial products.

6. Card Based Delivery Mechanism: These include credit cards, debit cards and smart
cards. The penetration of the cards is increasing every year as it disburse short term
credit to customers who are short of money at a point of time which they can pay
back in the near future. Supported by ATMs and POS terminals, banks have been
able to attract customers to avail the cards facility and have been able to reduce
their costs as well.

7. Electronic Clearing Service: ECS is a mode of transfer of funds electronically from
one bank account to another via a clearing house. ECS has two variants ECS debit
and ECS credit. ECS debit is a service in which the account holder authorises the ECS
user to recover payment at a particular frequency from his account. It is mostly used
by utility service providers such as electricity, telephone for collection of bill
payment. ECS credit is used for transactions like payment of salary, dividend and
interest etc. ECS service reduces paper work and smoothens the flow of transactions.

8. Electronic Funds Transfer: EFT facilitates fund transfer between two accounts
located at different locations. It is an alternative for cheques and drafts. NEFT was
introduced in 2005 for nationwide fund transfer among the network of bank
branches. It is a deferred net settlement product and the upper limit for funds
transfer id Rs 2 Lacs.

9. Real Time Gross Settlement (RTGS): It was introduced for large retail transactions as
there was settlement risk in NEFT. The minimum amount is Rs 2 Lac to use RTGS
facility. It enables settlement on a gross basis in real time.

10. Cheque Truncation System: Truncation is the process of stopping the movement of
the physical cheque which is to be truncated at some point en-route to the drawee
branch and an electronic image of the cheque would be sent to the drawee branch
along with the relevant information like the MICR fields, date of presentation,
presenting banks etc. Thus, the CTS reduce the probability of frauds, reconciliation
problems, logistics problems and the cost of collection.