RETAIL: The Focus of Indian Banks

TABLE OF CONTENTS
Sr. No. Topic Page No.

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Executive Summary Retail Banking in India The Paradigm Shift Differences between Retail and Corporate Banking Growth Drivers Retail Boom Scope for Retail Banking in India Marketing Mix Types of Retail Banking Products Pricing Distribution Promotion Cross Selling Special Features of Retail Credit Advantages of Retail Banking Disadvantages of Retail Banking Competition Strategies for increasing Retail Banking Business Challenges to Retail Banking in India Emerging Issues in Handling Retail Banking Latest Happenings Case Study: Comparison of HDFC Bank and ICICI Bank Products Customer Survey Future of Retail Banking in India Annexure

5 6 6 8 8 12 15 15 15 17 17 17 18 18 19 21 22 25 27 28 32 38 45 53 57

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RETAIL: The Focus of Indian Banks

EXECUTIVE SUMMARY

Retail banking refers to provision of banking services to individuals and small business where the financial institutions are dealing with large number of low value transactions. The concept is not new to banks but is now viewed as an important and attractive market segment that offers opportunities for growth and profits. Liberalization, economic growth, changing demographics, and technological advancements have fueled the growth of retail banking in India.

The product range in retail banking includes four broad categories: liability products, asset products, credit cards/debit cards, and investment products.

Retail banking in India has fast emerged as one of the major drivers of the overall banking industry and has witnessed enormous growth in the recent past. The Retail Banking Report would encompass extensive study & analysis of this rapidly growing sector. It would primarily cover the difference between retail banking and core banking, analysis of the present status, current trends, major issues & challenges in the growth of the Indian retail banking sector vis-à-vis global scenario. The report would also include the segments of retail lending, category wise distribution, comparing India with the global peers, major players and their market share, etc. Also a survey would be conducted to study the consumers’ awareness regarding banks offerings (retail products), various factors influencing the purchase decision for the retail products, the comparative influence of various mediums of advertisements in creating awareness, etc. along with case studies on the major players in the market. Retail banking has immense opportunities in a growing economy like India. As the growth story gets unfolded in India, retail banking is going to emerge a major driver. Improving consumer

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RETAIL: The Focus of Indian Banks
purchasing power, coupled with more liberal attitudes towards personal debt, will further contribute to India’s retail banking segments.

RETAIL BANKING “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 on.” It is also known as High Street Banking. A deposit of Rs.1 lakh from single customer v/s small deposits of Rs. 10,000 each from 10 different customers. The corporate and retail divide is nothing but internal segmentations and the customer remains always a customer. Retail banking refers to provision of banking services to individuals and small business where the financial institutions are dealing with large number of low value transactions. This is in contrast to wholesale banking where the customers are large, often multinational companies, governments and government enterprise, and the financial institution deal in small numbers of high value transactions. The concept is not new to banks but is now viewed as an important and attractive market segment that offers opportunities for growth and profits. Retail banking and retail lending are often used as synonyms but in fact, the later is just the part of retail banking. In retail banking all the needs of individual customers are taken care of in a well-integrated manner. RETAIL BANKING IN INDIA The Paradigm Shift There were times when the corporate clientele occupied the centre stage and the retail ones were pushed to the back seat. The slowdown of the economy, sluggish industrial growth and slump in agricultural activities have pushed the commercial banks to look to the retail customers.

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The demand for consumer products has increased. High cost structure rendering mass-market servicing is prohibitively expensive. The pace of innovation is accelerating and security threat has become prime of all electronic transactions. Generation of leads to cross sell and creating additional revenues with utmost customer satisfaction has become focal point worldwide for the success of a Bank. Increasing use of modern technology has further enhanced reach and accessibility. The market today gives us a challenge to provide multiple and innovative contemporary services to the customer through a consolidated window so as to ensure that the bank’s customer gets “Uniformity and Consistency” of service delivery across time and at every touch point across all channels. The domain of retail banking market has tremendous growth potential for banks and finance companies. 4 . In a situation like today. Present day tech-savvy bankers are now more looking at reduction in their operating costs by adopting scalable and secure technology thereby reducing the response time to their customers so as to improve their client base and economies of scale. as at present it is largely untapped.RETAIL: The Focus of Indian Banks Retail banking has both pros and cons. In the past. improved service and banking convenience. Higher penetration of technology and increase in global literacy levels has set up the expectations of the customer higher than never before. Today. The solution lies to market demands and challenges lies in innovation of new offering with minimum dependence on branches – a multi-channel bank and to eliminate the disadvantage of an inadequate branch network. but to chant the “Retail Mantra” The Retail Banking environment today is changing fast. But today the attitude is changing. people never believed in buying consumer goods on credit. The home loans alone account for nearly twothird of the total retail portfolio of the bank. about 70% of consumer goods purchased are through finance schemes/loans as against 40% about 6 years ago. The changing customer demographics demands to create a differentiated application based on scalable technology. the bankers have very little option.

this stability is expected to offset the inherent volatility of revenues/profits from other lines of business.RETAIL: The Focus of Indian Banks The perceived stability of the income stream from the retail business is probably the most important driver of the push into retail. 5 . From a strategic point of view.

Cross-country studies clearly point to such an outcome with increasing urbanisation. though. Banks such as ICICI or HDFC possibly see the physical branch network as a critical requirement in their endeavour to increase the share of retail funding also in their overall funding patterns. It is the costs being incurred in the creation of the retail infrastructure — not only the physical branch network but the concomitant infrastructure which has to go with a branch — which suggests that this retail push is here to stay and is not transitory. will significantly rise as a proportion of the total lending business. In other words. one of the major features of the retail push. all indicating that the demand for retail finance will continue to be very strong well into the future. while credit growth on the retail side is now working well as a business strategy.RETAIL: The Focus of Indian Banks Retail Infrastructure The second half of the 1990s was a period marked by increased emphasis on (then) new concepts such as ATMs/Internet/on-line banking as alternative delivery channels. have seen a clear revival of the brick-and-mortar concept with the expansion of the physical branch network. The past few years. the effort now is to expand the overall retail banking franchise itself — comprising liabilities as well as assets. rising income levels and further development of the financial markets which will provide alternative means of financing for the other major claimant of bank finance (the commercial/corporate sector). which at present accounts for a quarter of the total credit business. The macroeconomic picture also suggests that retail credit business. 6 .

as risk is diversified among a large number of individuals across the geographic dimensions. a costumer can work on his/her account just as the origin branch that he/she registered. that branch still can provide services to its own accounts. every branch has its own portion of accounts and the changes will be synchronized with the center at a certain time (e. The sector enjoys a privilege of lowest NPAs amongst all categories of banks.for deployment of funds for a longer period.specially housing finance. Housing loans and other retail loans are comparatively high yielding in terms of interest spread and safer.g. in case of disconnecting. So. that branch is out of work till the connection be repaired. Corporate entity means if more than one company falls in the same line of business. [India's industrial sector accounted for about 21. Core banking is a centralized system and every data has been kept at the server side. Growth Drivers The growth drivers of retail lending are analyzed as under: Macro-economic Factors • Shift in the pattern of GDP from hitherto agriculture and manufacturing sectors to services sector with increase per capita income especially that of the younger generation. which is considered as the safest within the retail portfolio. • The lower uptake in the non-retail sector has compelled banks to shift their focus on retail assets . whenever the connection between a branch and the core is dismissed. where as the services sector accounted for around 56.8% of GDP. So.1 of GDP in 2002-03 as per revised estimates released by Central. 7 . a costumer can open an account and use it in every branch. financing terms will be same to all the corporate insitution as whole. In a retail banking. at the end of that day). Statistical Organization].RETAIL: The Focus of Indian Banks Differences between Retail and Corporate Banking Corporate Banking means financing to corporate institutions which has been declared as Corporate entity.

Social security and status have also contributed to higher demand for housing units. In the economy that resulted in higher income opportunities and major impact on change in urban consumption pattern. media. etc. cars. Favorable Role of RBI 8 . Demographic / Behavioral Factors • Growing concept of nuclear families than the joint families necessitating need for housing units as well as other items of consumer durables. • Increased demand for dwelling units due to gradual shift of population from rural/semiurban centre to urban/metro centre for employment.RETAIL: The Focus of Indian Banks • Depressed stock and real estate markets as compared to those prevailing in 1992-93 to 1995-96 thereby diverting deposits to the banking sectors. Comparatively stable real estate prices during last 4/5 years have laid to spurt in demand for housing loans. etc. • Keenness shown by the consumer goods/ automobile manufacturers to -push up finance schemes through market tie-up with banks with a view to increasing their marketing share. • Increased number of dual income families resulting in higher income and savings. • Increased middle-income segment and their income levels. • Shift in the attitude of the Indian household from "save and buy' theory to a `buy and repay' principle. • Emergence of new sectors such as Information Technology. • Awareness and sophistication in urban and semi-urban households for urban convenience.

This promoted banks to go for housing loans in a big way as it helped them to attain their targets of priority sector lending. which resulted in reduction in lending rates as well. Reduction in Capital Adequacy Ratio requirement has effectively doubled the credit disbursement capacity of banks.RETAIL: The Focus of Indian Banks • Inclusion of housing loans within the priority sector. • The Government could not ignore the importance of housing sector in overall development of the economy due to the following factors: 9 . Catalyst-Role of Government • Tax exemptions for payment of interest on capital borrowed for purchase/ construction of house property and principle repayment. • These exemptions also changed the profile of the retail segment from hitherto cash transactions to book transactions. [It is important to note that the housing sector has been recipient of a large number of fiscal incentives in the last budgets]. This made housing finance affordable and within the reach of common man. • Deregulation of interest rate with option to quote fixed/ variable interest rate. Direct finance up to Rs.10 -lakhs in case of rural and semi-urban areas now form part of the priority sector advances. • Reduction in risk weight age bank's extending loans for acquisition of residential house properties to 50 per cent from 100 per cent. • Continuous reduction in bank rate. • Southward movement in CRR and SLR ratios increasing lending capacity of banks. • Banks have elongated repayment periods of retail loans years to 50/20 years besides quoting fixed/ variable rate of interests based on their asset liability management structure and study of behavioral pattern of demand and time deposits.

In the present context of jobless GDP growth. motivation to save more and thereby providing sustainable economic recovery.  This would also lead to growth in related industries as well.  Mass construction of houses will result in the benefits of the nation by the way of healthy standard of living. this issue assumes importance as the housing construction provides massive job opportunities for both unskilled and skilled man power.RETAIL: The Focus of Indian Banks  Housing construction activities can generate opportunities for employment. 10 .

• Easy and affordable access to retails loans through a wide range of options / flexibility. It also has the advantage of reducing the branch traffic and enables banks with small networks to offset the traditional disadvantages by increasing their reach and spread. • Offering retail loans for short term. • Banks could afford to quote lower rate of interest. prepayment charges. 3 years and long term ranging term ranging from 15/20 years as compared to their earlier 5-7 years only. • Making financing attractive by offering free / concessional / value added services like issue of credit card. stamp duty. society charges and other associated expenditures such as furniture and fixtures in case of housing loans and cost of registration and insurance.The declining cost of incremental deposits has enabled the Banks to reduce their interest rates on housing loans as well as other retail segments loans. in case of auto loans. etc. • Continuous waiver of processing fees / administration fees. even below PLR as low cost [saving bank] and no cost [current account] deposits contribute more than 1/3rd of their funds [deposits]. ATMs have emerged as an alternative banking channels which facilitate low-cost transactions vis-à-vis traditional branches / method of lending. 11 . etc.RETAIL: The Focus of Indian Banks Initiatives on the part of Banks • The growth in retail banking has been facilitated by growth in banking technology and automation of banking processes to enable extension of reach and rationalization of costs. by the Banks. insurance. As of now. • Ample liquidity in the banking system and falling global interest rates have also compelled the domestic banks to reduce interest rates of retail lending. Banks even finance cost of registration. etc. the cost of retail lending is restricted to the interest costs.

According to the RBI data as of endJune 2008.June 2008 stood at 27. banks have significantly expanded their ATM network over the past three years.314 compared to 27. etc. • High-Tech Banking ATMs . This has not only helped in reducing operational costs but facilitated greater conveniences to its customers. • Plastic Money Credit cards have also played an important role in promoting retail banking.39 million in June 2007. online transfers. As per the RBI data.088 and 20. • Loan disbursement Technology has facilitated the growth in retail loan disbursements.9 per cent in 2005-06. It has also offered services like D-MAT. although the retail portfolio of banks saw a slowdown to 29.9 per cent during 2006-07 from 40. mobile and internet banking.With growing technological innovations. the growth was faster than the overall credit portfolio of the banking sector (28. the retail banking sector in India has also witnessed phenomenal growth.02 million as against 24. 12 .5 per cent). anywhere banking. for its customers through ATMs. the number of ATMs in the country had climbed to 36. respectively. plastic money (credit and debit cards).267 as at end-March 2007 and 2006. The sector has delivered a growth of around 30 per cent per year over the past 4-5 years.RETAIL: The Focus of Indian Banks RETAIL BOOM Keeping pace with the average 8. The use of credit cards has been growing significantly over the last few years. with usage increasing by 10. It has faced up to the need of the hour and introduced anytime.73 per cent during this period.5 per cent growth of the Indian economy over the past few years. The number of credit cards outstanding at the end. making the whole process simpler and faster.

The number of bank branches providing CBS rose rapidly to 44 per cent at end. has come alive during the past four years. 13 . Electronic fund transfer facilities and mobile banking are expected to provide a further fillip to the retail banking in the coming years.RETAIL: The Focus of Indian Banks • Core Banking Solutions (CBS) The concept of CBS. which allows a customer to fulfil a wide range of banking operation online.9 per cent at end March 2006.March 2007 from 28.

rather than approaching the banks. they are searching revenues for packing the surplus funds. The important among these include: . . .5 – 8% in last 5 years. the housing loans interest rates hailed to almost 7.00 billion. .Better availability of loans.Risky nature of lending to corporate.Increased government incentives in form of tax rebates etc. The reasons for this shift to retail. changing lifestyles/aspirations and willingness to spend for more luxuries of the higher middle class.RETAIL: The Focus of Indian Banks • Future Outlook Indian retail banking. . 14 . is likely to grow at a CAGR of 28 per cent till 2010 to Rs 97. . given in industry recession and uncertainty prevalent in the economy.The poor credit off take to the corporate.Banks are aware with abundant reserve requirement by RBI. in the case of certain loans like housing loans. although the revolution in retail banking has changed the face of the Indian banking industry as a whole. are many. because of the consultancy lowering interest rates.High disintermediation pressure.Relatively safe nature of some of the retail credit finance with lesser incidence of loan turning bad. commercial and other business sector because of industrial slowdown. particularly the housing finance segment. it has still miles to go. . leading many highly rated corporates to tap the domestic and/or overseas markets directly for finance. as a result of the low interest regime followed by the regulating authorities.Rising disposable income. according to a report. . So.

auto. large number of banking services to be provided are day-by-day increasing. credit cards. “Now People Want To Save Less And Spend More. quite broad in nature . Today’s retail banking sector is characterized by three basic characteristics: • • Multiple products (deposits. branch. however.RETAIL: The Focus of Indian Banks SCOPE FOR RETAIL BANKING IN INDIA • All round increase in economic activity • Increase in the purchasing power. and educational) on the assets side. Fixed. personal. Falling interest rates have resulted in a shift. • India has 200 million households and 400 million middleclass population. More than 90% of the savings come from the house hold sector. housing. MARKETING MIX • Types of Retail Banking Products Retail banking is.g. both on liabilities and assets sides of the balance sheet.it refers to the dealing of commercial banks with individual customers. insurance. internet) 15 . or depository services. investments and securities) Multiple channels of distribution (call center.. loans (e. Related ancillary services include credit cards. and mortgages. The rural areas have the large purchasing power at their disposal and this is an opportunity to market Retail Banking.” • Nuclear family concept is gaining much importance which may lead to large savings. are the more important of the products offered by banks. • Tax benefits are available for example in case of housing loans the borrower can avail tax benefits for the loan repayment and the interest charged for the loan. current / savings accounts on the liabilities side.

and corporate). 16 . small business.RETAIL: The Focus of Indian Banks • Multiple customer groups (consumer.

it can be called an electronic cheque. or from the remaining balance on the card. The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user.RETAIL: The Focus of Indian Banks . Liability products also give consumers access to cash via checks and ATMs. Functionally. they allow consumers to earn interest on their deposits. . money market accounts and certificates of deposit (CDs). Bank liability products are useful to consumers since they provide a safe place to keep their funds and give them the opportunity to earn interest on cash that they may not immediately need. liability products include checking and savings accounts. Typically. Consumers generally know them as "loan products. These products are known as "liability products" because they represent liabilities of the bank. Asset products earn interest for the bank which is paid by the borrower.Liability Products Commercial banks offer a variety of "liability products" to consumers.Asset Products Asset products are so named because they represent assets of the bank. Credit/Debit Cards A credit card is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services. Consumers generally know them as "deposit" products. cars and merchandise which they otherwise could not immediately afford. homes. personal installment loans and credit card loans. These products allow consumers to purchase. for example. car loans. A debit card provides an alternative payment method to cash when making purchases. and except for most checking accounts. as the funds are withdrawn directly from either the bank account." These include mortgages. Investment Products 17 .

psychic) “Free” banking (no interest). notice for withdrawal of savings Transaction costs OVERT Explicit charging Cost is monetary mostly obvious and Management fees • Promotion The promotion of retail banking products is done through various avenues of promotion. sales promotion. bonds and other fixed income securities. direct selling agents (DSAs). There are some overlaps between the promotional 18 . with the exception of highvalue segments (HNIs and NRIs). banks tend to charge the same price/interest rate for all retail customers. direct sales. brand building. insurance. ATMs. call centres. and mobile banking. Overt pricing and covert pricing are the two different approaches to pricing PRICING METHOD COVERT DEFINITION EXAMPLE Hidden or implicit pricing Cost to consumer may be nonmonetary (eg time. public relations. the Internet. etc. Banks set the price for liability products. without the interference of the RBI. • Distribution The common distribution channels in retail banking are branches. and direct-response advertising. annuities. personal selling. EFTPOS. Maintain minimum balance.RETAIL: The Focus of Indian Banks Investment Products includes mutual funds. Asset products are priced based on the prime lending rates set by banks for each asset category. such as advertising. phone banking. telemarketing. and distribution network of alliance partners. • Pricing As the bargaining power of a retail customer is less than that of a corporate customer.

reduce the cost of customer acquisition. SPECIAL FEATURES OF RETAIL CREDIT One of the prominent features of Retail Banking products is that it is a volume driven business. today transactions. • Sound documentation A latest system for credit documentation is necessary pre-requisite for healthy growth of credit portfolio. For example. If the credit assessment itself is qualitative. and enhance customer lifetime profitability. faster and easier processing and customized products. Cross-selling also helps the customers in terms of reduced prices. • Strong possessing capability Since large volumes of transactions are involved. maintenance of backups is required 19 . • Cross Selling Cross-selling helps the banks to increase their sales by selling different products to existing clients. Ability of a bank to administer a large portfolio of retail credit products depends upon such factors : • Strong credit assessment capability Because of large volume good infrastructure is required. as in the case of credit assessment. Further.RETAIL: The Focus of Indian Banks avenues and distribution channels. than the need for follow up in the future reduces considerably. this will also minimize the need to follow up at future point of time. It helps improve customer retention. However. Retail Credit ensures that the business is widely dispersed among a large customer base unlike in the case of corporate lending. where the risk may be concentrated on a selected few plans. telemarketing and personal selling may be outsourced to DSAs. excessive cross-selling would be viewed by the customer as harassment.

• Technological support This is yet another vital requirement. • Skilled human resource This is one of the most important pre-requisite for the efficient management of large and diverse retail credit portfolio. Resource Side • • • • Retail deposits are stable and constitute core deposits.up Ideally. It should start from customer enquiry and last till the loan is repaid fully. They constitute low cost funds for the banks. etc. faster processing. • Retail banking increases the subsidiary business of the banks. because of large volumes of business. 20 . maintaining database. the need to provide instantaneous service to the customer large. Only highly skilled and experienced man power can withstand the river of administrating a diverse and complex retail credit portfolio.RETAIL: The Focus of Indian Banks • Regular constant follow. ADVANTAGES OF RETAIL BANKING Retail banking has inherent advantages outweighing certain disadvantages. follow up for loan repayments should be an ongoing process. They are interest insensitive and less bargaining for additional interest. Advantages are analyzed from the resource angle and asset angle. Effective customer relationship management with the retail customers built a strong customer base. Retail credit is highly technological intensive in nature.

are exposed to the overall systematic or macroeconomic risk only. Innovative product development credit. This stability basically arises from the widely dispersed nature of the retail assets portfolio. Retail banking involves minimum marketing efforts in a demand –driven economy. Indeed. such as financial markets trading/corporate and commercial banking. The perceived stability of the income stream from the retail business is probably the most important driver of the push into retail.RETAIL: The Focus of Indian Banks Asset Side • • • • • • • • Retail banking results in better yield and improved bottom line for a bank. Consumer loans are presumed to be of lower risk and NPA perception. this stability is expected to offset the inherent volatility of revenues/profits from other lines of business. Improves lifestyle and fulfils aspirations of the people through affordable credit. From a strategic point of view. a study of the earnings profile/balance-sheet structure of banks such as ICICI or HDFC over the past few years does show the stability which has been imparted to the overall revenue stream by the retail business. • Banks can earn good profits by providing non fund based or fee based services without deploying their funds. Diversified portfolio due to huge customer base enables bank to reduce their dependence on few or single borrower. The efforts to make retail banking a high volume and commodity-style business can be better 21 . Helps economic revival of the nation through increased production activity. Retail segment is a good avenue for funds deployment. at the aggregate level. This means that banks are able to significantly diversify away specific-borrower risk and.

RETAIL: The Focus of Indian Banks
understood in this backdrop. Technology plays a big part here in enabling the conduct of the retail business as a high volume game.

DISADVANTAGES OF RETAIL BANKING • Designing own and new financial products is very costly and time consuming for the bank. • Customers now-a-days prefer net banking to branch banking. The banks that are slow in introducing technology-based products, are finding it difficult to retain the customers who wish to opt for net banking. • • Customers are attracted towards other financial products like mutual funds etc. Though banks are investing heavily in technology, they are not able to exploit the same to the full extent. • A major disadvantage is monitoring and follow up of huge volume of loan accounts inducing banks to spend heavily in human resource department. • Long term loans like housing loan due to its long repayment term in the absence of proper follow-up, can become NPAs. • The volume of amount borrowed by a single customer is very low as compared to wholesale banking. This does not allow banks to exploit the advantage of earning huge profits from single customer as in case of wholesale banking. The retail credit explosion - particularly among the private sector banks is well established. But what prevents this phenomenon from being labeled a retail banking expansion is the fact that the growth so far has been restricted to the asset side only for the private sector banks. The differences between the new private banks and public sector banks with respect to the funding profile/retail asset profile stand out. For public sector banks, retail deposits (meaning deposits of individuals) account for as much as 65 per cent of their overall deposit base but
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RETAIL: The Focus of Indian Banks
retail assets form only around 25 per cent of their total credit. For the private banks, retail deposits are much lower at around 35-40 per cent of the total deposit base but retail assets dominate their overall asset portfolios. Significant implications flow from this diversity in funding/asset profiles. For private sector banks, it is imperative to increase the retail share in their funding to sustain and improve the profitability of their retail asset business. For the public sector banks, the high share of retail deposits points to the opportunities ahead.

COMPETITION IN THIS SEGMENT ICICI Bank has a total loan base of around Rs 2,00,000 crore as of March 2007 has 65 per cent or Rs 1,30,000 crore of this under the retail category — comprising housing loans, credit card receivables, auto loans, personal loans and small business loans. The proportion of retail loans is not much lower in the case of HDFC Bank also. The bank’s retail loans have grown by around 35 per cent on average in the past few years and accounted for as much as 57 per cent (Rs 28,000 crore) of its total loans of Rs 49,000 crore as of March 2007. And both the banks have reiterated that retail banking will continue to be a key area of strategic emphasis for them in the ensuing period. The retail credit growth of nationalised banks does pale in comparison with that of the private bank majors. Retail credit increased only from 10 per cent of nationalised banks’ total credit in March 2000 to around 15 per cent of total credit in March 2007. In absolute terms, the group of 20 nationalised banks had around Rs 1,35,000 crore of retail loans in March 2007. The State Bank group had a higher proportion of its total loans under the retail category – around 25 per cent in March 2007 and this share was slightly more than double (10 per cent) of what the group had under this category in March 2000. (The public sector banks — comprising the State Bank group and the nationalised banks — account for around 60 per cent of total banking business.) For the banking sector as a whole, retail credit now forms around 25 per cent of the total credit. Total bank credit as of June 2007 is Rs 19,00,000 crore. This means that just two
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RETAIL: The Focus of Indian Banks
banks, ICICI Bank and HDFC Bank, now account for close to one-third of the total retail credit portfolio of the entire banking sector. And the way these two banks are going about expanding their retail business — investing heavily in expanding their physical branch network, continued emphasis on alternative delivery channels such as ATMs/Internet, the technology initiatives they are undertaking to sustain the retail business as a high volume, commodity-style business, all indicate that they could well account for a much higher share of the total retail business in the ensuing period.

Going by international standards, a large portion of the Indian population is simply not “bankable” – taking profitability into consideration. On the other hand, the financial services market is highly over-leveraged in India. Competition is fierce, particularly from local private banks such as HDFC and ICICI, in the business of home, car and consumer loans. There, precisely lie the pitfalls of such explosive growth. All banks are targeting the fluffiest segment i.e. the upwardly mobile urban salaried class. Over-dependence on this segment is bound to bring in inflexibility in the business. The foreign banks have identified this problem but there are certain systematic risks involved in operating in the Retail market for them. These include regulatory restrictions that prevent them from expanding their branch network. So these banks often take the Direct Selling Agent (DSA) route whereby low-end jobs like sourcing or transaction processing are outsourced to small regional layers. So now on, when you see a loan mela or a road show showcasing the retail bouquet of an elite MNC giant, you know that a significant commission earned out of any such booking gets ploughed back to our own economy. Perhaps, one of the biggest impediments in foreign players leveraging the Indian markets is the absence of positive credit bureaus. In the west the risk profile can be easily mapped to things like SSNs and this information can be publicly traded. PAN is a step in this direction but lot more work need to be done. What has been a positive step towards this is a negative file sharing started by a consortium of 11 banks. However, as a McKinsey study points out actual write-offs on NPAs show a strong negative correlation with sharing of positive information.

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However. HSBC. this is not a practice being followed by everyone. The then CBOP saw a huge growth of 65 per cent in their retail business in FY 25 . and with relatively large retail networks—seem to have no pressing need to acquire a local bank. Germany's Deutsche Bank and Japan's Bank of Tokyo-Mitsubishi. Though the Indian financial sector does not have a sub-prime market. HDFC Bank. 2007. in recent times. companies like ABN Amro. ICICI Bank. DBS Cholamandalam. ICICI Bank’s retail advances increased by 39 per cent at March 31. Retail loans of State Bank of India. It further revealed that among the major commercial banks topped the list in extending loans in the retail segment. Fullerton India and Religare have been increasingly focusing on the personal loan.7 per cent of its net credit. an ASSOCHAM Eco Pulse (AEP) Study has revealed. retail lending has increased by over 30 per cent year on year between March 2006 and March 2007 underscoring need for a caution.RETAIL: The Focus of Indian Banks Citibank. private banks and NBFCs. In most cases. which constituted 65 per cent of advances.50 per cent of its total loan book. HSBC and Standard Chartered—all in India for more than a century. Thus HSBC. Established foreign banks have preferred to take over customers or businesses from other foreign banks that want to leave. has acquired customers from France's BNP. Though some players like Citi Financial and Fullerton go through a personal screening of customers. the sub-prime market for these players constitutes somewhere between 5-20 per cent of the monthly disbursements. Citi Financial and GE Money are the oldest players in this market. one of the largest Banks in India constitutes 21. As per the AEP Study on `Retail Lending’. Most of the commercial banks have focused on retail lending by registering an increase of about 32 per cent with a subsequent reduction of 13. Punjab National Bank’s retail credit constitutes 22. in recent years. Competition in the personal loans market has increased with the entry of multinationals.75 per cent in their NPAs on a y-o-y basis during the financial year 2006-07. ABN Amro took over Bank of America's retail business.

Hence. etc. STRATEGIES FOR INCREASING RETAIL BANKING BUSINESS • Constant product innovation to match the requirements of the customer segments The customer database available with the banks is the best source of their demographic and financial information and can be used by the banks for targeting certain customer segments for new or modified product. who are now comfortable with the idea of availing loans for their personal needs. Therefore.RETAIL: The Focus of Indian Banks 2006-07. Dena Bank (33 per cent). • Tapping of unexploited potential and increasing the volume of business This will compensate for the thin margins. which offers better service at comparatively lower costs. banks should try to give high quality service across all service channels like branches.9 per cent). Others in the pack doing well in this area of lucrative retail banking included ICICI Bank (38. Bank of India (35 per cent). 26 . • Introduction of new delivery channels Retail customers like to interface with their bank through multiple channels. • Quality service and quickness in delivery As most of the banks are offering retail products of similar nature. The banks should come out with new products in the area of securities. Internet. The quality of service that banks offer and the experience that clients have. matter the most. banks have to come out with competitive products satisfying the desires of the customers at the click of a button. ATMs. Allahabad Bank (29. mutual funds and insurance. The Indian retail banking market still remains largely untapped giving a scope for growth to the banks and financial institutions. the customers can easily switchover to the one. banks have tremendous potential lying in this segment. to retain the customers.3 per cent) and HDFC Bank (22.5 per cent). With changing psyche of Indian consumers.

This will enable them to have an edge over their competitors and increase their share in retail banking pie by offering better products and services. This will save the banks from dealing with the intricacies of technology. For example.RETAIL: The Focus of Indian Banks Marketing departments of the banks be geared up and special training be imparted to them so that banks are successful in grabbing more and more of retail business in the market. which will help them in knowing what their competitors are offering to their clients. Banks can devote more time for marketing. customer service and brand building. • Cross-selling of products PSBs have an added advantage of having a wide network of branches. It is essential that banks would be imaginative in predicting the customers' expectations in the ever-changing tastes and environments. which gives them an opportunity to sell third-party products through these branches. • Business process outsourcing Outsourcing of requirements would not only save cost and time but would help the banks in concentrating on the core business area. banks are aware that it is finally the retail banking which will enable them to hold the head above water. • Infrastructure outsourcing This will help in lowering the cost of service channels combined with quality and quickness. It is the innovative and competitive products coupled with high quality care for clients will only hold the key to 27 . banks should make all out efforts to boost the retail banking by recognizing the needs of the customers. Management of ATMs can be outsourced. In the present regime of falling interest and stiff competition. Hence. • Detail market research Banks may go for detail market research. • Tie-up arrangements PSBs with regional concentration can reap the benefit of reaching customers across the country by entering into strategic alliance with other such banks with intensive presence in other regions.

services/products etc. • The issue of outsourcing has become very important in recent past because various core activities such as hardware and software maintenance. • • Banks are expected to take utmost care to retain the ongoing trust of the public. are being outsourced by Indian banks. So the banks are required to adopt innovative strategies to meet customer’s needs and requirements in terms of 28 . It is equally important that banks should maintain security to the advance level to keep the faith of the customer.” Thus.RETAIL: The Focus of Indian Banks success in this area.. “It takes months to find a good customer but only seconds to lose one. so banks need to retain their customer in order to increase the market share. • The efficiency of operations would provide the competitive edge for the success in retail banking in coming years. In short. Customer service should be at the end all in retail banking. bankers have to run very fast even to stay where they are now. entire ATM set up and operation (including cash. It is the survival of the fastest now and not only survival of the fittest. strategy of Knowing Your Customer (KYC) is important. refilling) etc. • The dependency on technology has brought IT departments’ additional responsibilities and challenges in managing. Someone has rightly said. • The customer retention is of paramount important for the profitability if retail banking business. This compels all the banks to consider seriously all the documents which they accept while approving the loans. maintaining and optimizing the performance of retail banking networks. CHALLENGES TO RETAIL BANKING IN INDIA • The issue of money laundering is very important in retail banking.

anywhere convenience to the vast number of customers or establishing channel/product/customer profitability. • Technology Issues Retail banking calls for huge investments in technology. a modern banking professional.RETAIL: The Focus of Indian Banks • One of the crucial impediments for the growth of this sector is the acute shortage of manpower talent of this specific nature. The Issues involved include adoption of the right technology at the right time and at the same time ensuring volumes and margins to sustain the investments. Whether it is setting up of a Customer Relationship Management System or Establishing Loan Process Automation or providing anytime. technology plays a pivotal role. It is pertinent to remember that Citibank. The benefits flowing out of cross-selling and up-selling will remain a far cry in the absence of this vital input. Banks face several hurdles in achieving this. What needs to be done is setting up of a robust data warehouse where from meaningful data on customers. etc. And it is a long haul. In this regard the customer databases available with most of the public sector banks. there spending patterns. their preferences. it would be well nigh possible to administer the growing retail portfolio without allowing its health to deteriorate. PSBs have a long way to go in this regard. Further. EMERGING ISSUES IN HANDLING RETAIL BANKING • Knowing Customer ‘Know your Customer’ is a concept which is easier said than practiced. In order to that the product lines are targeted at the right customerspresent and prospective-it is imperative that an integrated view of customers is available to the banks. if not all. remain far from being enviable. Cleansing of existing data is the first step in this direction. took nearly a decade to make profits in credit cards. for a modern banking sector. It has also to be added in the same breath that without adequate technology support. can be mined. the key to reduction in transaction 29 . known for its deployment of technology.

As a part of organizational alignment. there is also the need for setting up of an effective Corporate Marketing Division. PSBs are on their way to catch up with the technology much required for the success of retail banking efforts. Lack of connectivity. putting in place a proper incentive scheme. It is time to break the myth PSBs are not customer friendly. The need for building the organizational capacity needed to achieve the desired results cannot be overstated.RETAIL: The Focus of Indian Banks costs simultaneously with increase in ability to handle huge volumes of business lies only in technology adoption. concept of branch customer as against bank customer. intensive training of the rank and file. The much needed tie-ups with manufacturers/distributors/builders will also facilitated smoothly. banks need to have a well defined business strategy based on the competitive of the bank and its potential. Creation of a proper organization structure and business operating models which would facilitate easy work flow are the needs of the hour. The attention is to be diverted to vast databases of customers lying with the PSBs till unexploited for marketing. etc. the initiatives in this regard should include creating flexible computing architecture amenable to changes and having scalability. • Organizational Alignment It is of utmost importance that the culture and practices of an institution support its stated goals. A fully fledged marketing department or division would help in evolving a brand strategy. 30 . This would mean a strong commitment at all levels. However. are a few deficiencies that are being overcome in a great way. high net worth customer group and improve the recall value of the institution and its products by arresting the trend of getting receded from public memory. address the issue of alienation from the upwardly mobile. a futuristic approach. lack of convergence amongst available channels. networking across channels.. development of a strong Customer Information Systems (CIS) and adopting Customer Relationship Management (CRM) models for getting a 360 degree view of the customer. etc. Having decided to take a plunge into retail banking. lack of proper decision support systems. stand alone models. Most of the public sector banks have only publicity departments and not marketing setup. absence of customer profiling.

novelty creates only amusement”. confusing novelty with innovation (should be avoided). This will be one issue that will be gaining importance in the near future. not all are successful. Banks need to innovate products suiting the needs and requirements of different types of customers. with many hidden charges. at least on the part of few to camouflage the price. A realization has to drawn that 31 . test of innovation is that it creates value. etc. • Process Changes Business Process Re-engineering is yet another key requirement for banks to handle the growing retail portfolio. Simplified processes and aligning them around delivery of customer service impinging on reducing customer touch-points are of essence. What is of crucial importance is the need to understand the difference between novelty and innovation? Peter Drucker in his path breaking book: “Management Challenges for the 21st Century” has in fact sounded a word of caution: “innovation that is not in tune with the strategic realities will not work. There is a tendency. The much needed transparency in pricing is also missing. The situation cannot remain his way for long. The industry today is witnessing a price war. • Pricing of Product The next challenge is to have appropriate policies in place. Most of the banks that use rating models for determining the health of the retail portfolio do not use them for pricing the products. Even though bank after bank is coming out with new products. Revisiting the features of the existing products to continue to keep them on demand should not also be lost sight of.RETAIL: The Focus of Indian Banks • Product Innovation Product innovation continues to be yet another major challenge. margins. The days of selling the products available in the shelves are gone. with each bank wanting to have a larger slice of the cake that is the market. without much of a scientific study into the cost of funds involved. The strategy of each player in the market seems to be: ‘under cutting others and wooing the clients of others’.

There is an imperative need to create a perception that the banks are market-oriented.RETAIL: The Focus of Indian Banks automating the inefficiencies will not help anyone and continuing the old processes with new technology would only make the organization an old expensive one. By having universal tellers. • Rural Orientation As of now. formulating objective appraisals. provision of intensive training on products and processes. coaching etiquette. good manners and best behavioural models. action that is taking place on the retail front is by and large confined two metros and cities. Work flow and document management will be integral part of process changes. This would mean a lot of proactive steps on the part of bank management which would include empowering staff at various levels. Though the changes envisaged are seen at the frontline. The documentation issues have to remain simple both in terms of documents to be submitted by the customer at the time of loan application and those to be executed upon sanction. the soft issues concerning the human capital of the banks are more vital. say. devising appropriate tools for performance measurement bringing about a transformation – ‘can’t do ‘to’ can do’ mind-set change from restrictive practices to total flexible work place. facilitating the placement of young /youthful staff in front-line defining a new role for front-line staff by projecting them as sellers of products rather than clerks at work and changing the image of the banks from a transaction provider to a solution provider. bringing in managerial controlling work place. The initiatives should aim at improved delivery time and methods of approach. • Issue concerning Human Resources While technology and product innovation are vital . which remains to be trapped. putting in place good and acceptable reward and punishment system. The top management of banks must be seen as practicing what preaches. the initiatives have to really come from the ‘back end’. bringing in transparency. 32 . emphasizing. The corporate initiatives need to focus on bringing around a frontline revolution. There is still a vast market available in rural India.

In this scenario. In particular PSBs.1 sachet made available through an efficient network and testimony to the determination of the MNCs to penetrate the rural market. The bank claims that the effective interest rate gets reduced by upto 45% because of this scheme. • Citibank back you up if you default on your loan repayment. which have a strong rural presence. The EMI for the loan will be automatically reduced from your account. These and only these will propel retail growth that is envisaged as a key strategy for portfolio expansion by most of the banks. keeping the rural customer in mind. as manufacturers and distributors. the highest from any Citibank offers a flexi-savings account to reduce your cost of borrowing. packaging and promotions.  Citibank gives home loans upto 90% of the property value. You can then prepay the loan at any point in 33 . Washing powders and shampoos in Re. matched this offer)   Offer loans with no guarantors. Some of the innovative offerings are listed below:• Standard Chartered ANZ has launched the Home Saver Account. have already taken the lead in showing the way by coming out with exquisite products. The bank bank (only Tata Hsg Fin. banks cannot lack behind. Most banks require that you present a guarantor who will will automatically open a Saving Account from which you can give standing instructions to deduct the EMI payments for the loan. The excess balance in your savings account will earn interest that will be adjusted against your future EMI payments. It can often be embarrassing to ask friends to stand guarantor as most banks do not accept relatives as guarantors. Along with the Home Loan.RETAIL: The Focus of Indian Banks Multinational Corporations. your will get a FREE savings bank account into which you may deposit your monthly salary. LATEST HAPPENINGS Of late banks are coming up with innovative product offerings and promotion schemes to tie up old customers and attract new customers. need to address the needs of rural customers in a big way.

GICHFL gives Consumer loans for purchase of home equipment at the same interest rate as the home loan to customers at rates of interest that are the lower than other consumer loans. The customer has to be a housing loan borrower for the period not less than 6 month with a good repayment record FREE DOUBLE PROTECTION PLAN in the form of Personal Accident Risk Cover and Property Insurance • GIC Housing Finance Ltd. The total loan amount including the housing loan can be upto 90% of the value of the home. This works out much cheaper than taking an over draft on a normal savings account • Dewan Housing Finance and LIC Housing Finance Ltd. at various locations where loan and property 34 . HDFC has developed various repayment options like Step Up Repayment Facility. offers consumer loans to their existing Home Loan customers at a discount to market rates. which are theft and fire proof.   HDFC Bank Ltd Offer Flexible (Customized) Repayment Schemes. Should you require money in an emergency at any point you can avail of an over draft on this savings account at an interest rate that is the same as that on your Home loan. keeping in mind the fact that each individual has a unique problem requiring unique solutions. in case you get a large lump-sum annual bonus from your employer. The tenure of the consumer loan is restricted to 5 years. Flexible Loan Installment and Balloon Payment Scheme  Pari Passu/ Second Mortgage Arrangements: HDFC has a tie-up with a large number of Public Sector Organizations and banks which enable us to offer loans to your employees with the flexibility of their spouse also availing a loan from his/her own employer  Safe Document Storage Facilities: HDFC has state of art storage facilities.RETAIL: The Focus of Indian Banks time and be given instant credit for the same.

 There is a discounted start-up fee for Government employees. The Free triple insurance . • HSBC  Offers flexible interest rate loans that can be reset every year depending on the prevailing interest rates at that point. after availing of a loan can approach HDFC anytime thereafter to increase Home Conversion Loan offered to its existing customers who are interested in the Equated Monthly Installment which will help him repay the loan faster. This gives the customer the option of selling their existing house. 5 lacs and no prepayments where to have been made during the tenure of the loan. Each prepayment has to be at least 10% of the outstanding loan. Through this scheme customers can apply to have their existing loan transferred towards the purchase of the new home.property cover. This is not available for the Floating rate loan.RETAIL: The Focus of Indian Banks documents are stored. However. the floating rate loan has a 1% prepayment penalty. if they wish to.7% to 0. The loan amount initially taken must exceed Rs.  accident cover. However. given free along with the loan ( not available for the Floating rate loan)  penalty. earthquake cover and personal You can prepay the entire loan in any year without any prepayment Administrating fees stand reduced from0. Customers may also apply for an additional loan amount for the purchase of the new house. The new interest rate will be applicable for the rolling one year 35 . you will be charged 2% if you refinance the loan from another company •  HUDCO Will waive the last 2 EMI payments on the loan if the customer has a perfect repayment record with no bounced cheques.5% only. In this way valuable documents are stored safely over the period of the loan and are released almost immediately after a customer repays his loan  A customer. without having to repay their old loan The fixed rate loan can be converted to floating without any penalty charges.  moving to a new house.

   Free accident death cover for the owner Special 100% funding for select properties Higher eligibility for self-employed Launches a 30 year tenure home loan. You can repay up to 33% of the outstanding loan in any year without paying penalty. 2% penalty levied.5% for loans covered by a life insurance cover that is taken from LIC. The life cover must be taken for a minimum period that covers the tenure of the Home Loan • State Bank of India  Offers Home Loans with no start-up costs. Guarantor is required only for loans more than Rs. else 2% charge on pre paid amount. For amounts over that. 10 lacs. the professionals through segment-specific schemes • LIC Housing Finance Ltd.RETAIL: The Focus of Indian Banks  Else no guarantor  You can prepay up to 25% of the outstanding loan in any year without paying a penalty. Most banks charge as high as 2% as processing and administrative fees 36 . will lower quoted interest rate by 0. • ICICI  longest available  ICICI also launches a variable rate loan with No guarantors are required for loans up to 20 No pre payment fees for any part payment as a monthly rest basis versus the regular fixed rate loan that is on an annual rest basis  years in most cases  long as the loan is not fully retired.

Avoid this penalty by prepaying up to 99% of your loan if 37 .RETAIL: The Focus of Indian Banks  need be Prepayment is 2% if the entire loan is pre paid else it is 0%.

 Free accident and property insurance.668 crore to Rs 8. trade. The entire loan can be retired without incurring any penalty.S. Canara Bank.  To achieve this. the bank's focus will be on housing. You will also get free gifts to compensate you for the difference as the old and new EMI. educational and auto loans. purchase of automobiles and educational loans for children. If you have taken a fixed rate loan at a high rate of interest a few years back. Mr Kamath said that the bank has seen a pick-up in 38 . Executive Director.600 crore advances in this segment alone. told Business Line. These three offer immense scope for banks. The premium payable for a Tata AIG Single Premium Life Cover can also be included in the loan amount sanctioned.” he said. The bank recorded a 27 per cent year-on-year growth in the retail segment from Rs 6.  “Keeping the rapid urbanisation and increasing middle-class households in the country in mind. we see opportunities for financing dwelling units. then you can enter into an arrangement with IDBI bank to transfer the loan to them at the current lower rate of interest. The original EMI cheques will be used by IDBI to recover the loan amount from you over the remaining tenure of the loan. and hopes to close the financial year with Rs 24.  Prepayment penalty of 0% for up to 4 prepayments in each year.RETAIL: The Focus of Indian Banks • Tata Housing Finance  Offers Home Loans up to 90% of the value of the property and 100% in some new projects. Upendra Kamath.  “Our intention is to take the retail portfolio from 15 per cent of the total loan book to 20 per cent by March 2012.” Mr H. • IDBI Bank offers balance transfer scheme. You will not get the benefits of any further fall in interest rates in this product.464 crore. • Canara Bank to focus on retail loan segment  Canara Bank is looking at the retail credit segment as a thrust area.

he added. 39 .RETAIL: The Focus of Indian Banks the housing loan segment.  Asset hubs. we will open 15 more retail asset hubs in the country. “During the next financial year. The bank has tied up with all leading builders in each of these 25 cities. where in December 2009 there were about Rs 200 crore disbursements.” said Mr Kamath. This has been largely possible due to the concentrated effort of the retail asset hubs that the bank set up for centralised processing of retail loans. According to Mr Kamath. It has so far set up 25 such centres across India. the bank would also give an “in-principle loan based on the customer's income documents if he/she wants to be sure of a home loan before going in for a home”.

000 crore (Rs 100 billion) of restructured assets for which it had to make provisions. The merger of the erstwhile financial institution ICICI Limited with the bank in April 2002 gave it a ready-made corporate clientele. car loans. The two banks have carried forward their style statement in their approach to business. ICICI Bank thinks big. the bank started building a branch and an ATM network. The flip side was that ICICI Bank had Rs 10. it had moved on to introducing home loans.RETAIL: The Focus of Indian Banks CASE STUDY A Comparative Study As a part of the case study. By January 2000. Realising the need for a bigger retail deposit base. 40 . without taking any undue risks. personal loans and credit cards. many of them in cities where ICICI Bank did not have a presence. HDFC Bank is more conservative and cautious. is all for growth and hungry for market share. an attempt is made to compare the two giants HDFC Bank and ICICI Bank on the retail front. ICICI Bank Overview ICICI Bank began its retail banking venture in mid-1999. The acquisition of Bank of Madura in March 2001 added 263 branches. grows at a measured pace.

" However. We may have grown slower than our peers. HDFC Bank was handicapped because it could not sell home loans (because its parent HDFC was in the business). according to the latest issue of 'Asian Banker Journal'. Hong Kong in the list of top five retail banks in the Asia-Pacific region. it was slow to get off the mark to which it defends itself by saying "Although the asset yields may have been lower. a year before ICICI Bank. but the risks were lower.RETAIL: The Focus of Indian Banks Some of its accolades in the retail field • ICICI Bank edged past foreign banking majors Citibank and Standard Chartered Bank to emerge as the best retail bank in India. Some of its accolades in the field: • HDFC Bank bagged the award for excellence in retail risk management among all the Asian banks Share of Wallet 2009 Branches ATMs Countries Retail loans (% of gross advances) 41 HDFC Bank 1725 4000 18 61% ICICI Bank 1694 4883 18 55% . we were able to cross-sell products so that the overall returns were better. • HDFC Bank Overview HDFC Bank kick started its retail operations in 1998. though it has been originating them in the past one-and-a-half years. But in products like credit cards. • ICICI Bank was second only to HSBC. ICICI Bank's success is attributed to its dynamic executive director Chanda Kochhar who was named the retail banker of the year for 2004.

• funds and Fixed deposit accounts to a single Netbanking ID. Landline and Mobile phone Applying for new Fixed Deposits online. all historic transactions. • • • charges INR 50 whereas HDFC charges INR 30 per statement request. Virtual keyboard asks you to choose the password letters by a mouse. • • • bills. Excel and MS Money formats. • • RC4 128 bit whereas HDFC uses AES-256 bit. Download of Account statements in Text. Current.5 0.RETAIL: The Focus of Indian Banks Retail Deposits (% of total deposits) Home loans (Mkt Share) Credit cards (Mn) Net NPA 47% 40% 4. Gas. Both use High-grade Encryptions for secure login and transactions.7% 25% 7 2. Credit card bills. Mutual Transfer of funds (more on this in subsequent section) Requesting a new demand draft or cheque book at your address. ICICI Viewing status of deposited cheques or stopping the payment of a cheque. current balance. ICICI uses Both have recently enabled Virtual Keyboard logins to stop any software from detailed statements. Insurance premiums. 42 .6% 28. Demat. etc.19% Comparing HDFC Netbanking vis-à-vis ICICI Netbanking The common do-it-from-home facilities that both these Netbankings provide to their customers are: • Viewing of Account summary. Online request for a hard copy of your bank statements at your address. mini and Linking of multiple accounts like Savings. Credit cards. • recording your passwords when you type them. Online payment of utility bills like Electricity.

43 . it is preferred to walk into the HDFC bank and talk to the representative for activation • You can initiate the opening of a variety of accounts online through ICICI Netbanking by submitting an online request with the details. user experiences say that the application is not processed promptly if you deposit the activation form at an ATM. For certain accounts like the Recurring Deposits. For e.by. However. • ICICI Netbanking’s Funds Transfer facility is much more hassle-free. That is. the request gets completed without the need for you to visit the bank. ICICI Netbanking also offers online self-compounding accounts like Recurring Deposits and Money Multiplier Account that HDFC Netbanking doesn’t.RETAIL: The Focus of Indian Banks However. • Though both ICICI and HDFC Netbanking offers the facility of receiving message “Alerts” on your mobile to notify transactions. The facility to transfer funds to yours or someone else’s account. say if you don’t want to receive the alerts for fund credits and need them only for debits. On the other hand. at intra or inter-bank branch. in case for HDFC. and also specify whether you need the alert by an SMS or email. this becomes possible only on visiting the bank branch. you can configure the threshold amounts above which you need an alert for. in case of HDFC Third Party Transfer.feature differences. You can as well toggle on/off the Insta-alerts for one or more services.g. you are required to apply to this service by filling up a hard copy of the Third Party Transfer Application Form and submitting it to any of their Bank branches or ATM. there are some feature. ICICI offers online customisation of the alerts upto the minutest details. Moreover. Hence. comes readily with the ICICI Netbanking subscription. and the newly created account is accessible at your next login upon approval. and may cause further delays upto weeks. the facility is ready to use and you just need to add-in the new beneficiary for making the first transfer.

you need to call up the customer care to request a new Netbanking password and it will be delivered to you (by post!) in about 5 working days. • HDFC also allows re-generation of your IPIN (password) online in case you have forgotten it. However in case of ICICI. ends up overwhelming the user with its plethora of options. • HDFC Netbanking has a slightly simpler and user-friendly interface as compared to ICICI. The ICICI Netbanking interface on the other hand. It requires some practice by a naïve user to master the usage of all the options available on 44 .RETAIL: The Focus of Indian Banks • HDFC Netbanking is lagging behind as it doesn’t allow “Premature liquidation of your Fixed Deposit” and “De-registration of Bill Pay facility “ whereas these are enabled by ICICI Netbanking. though quite appealing aesthetically. also • HDFC offers TDS Enquiry facility by which you can instantly check how much TDS (Tax Deduction at Source) was applicable on your current and previous taxable years.

and the online user is asked to enter 3 random numbers from this grid before the funds transfer can complete. is intuitive to use from Day 1. Comparing HDFC Home and Car Loans vis-à-vis ICICI Home and Car Loans ICICI Bank and HDFC Bank have slashed the interest rates on home and auto loans by 50 basis points. you must possess your debit card at all times for transferring funds (or remember the sequence of the 16 two-digit numbers). rates for loans up to Rs 20 lakh. • ICICI Netbanking is constantly upgrading and is offering more and more to their customers every few months. Earlier.RETAIL: The Focus of Indian Banks ICICI Netbanking. Hence.Though the additional process results in increased security. There has been some improvement recently. The reduction in rates on home and auto loans will apply to new as well as existing customers. People are coming forward to buy homes. There has been a change in sentiments in retail segment. • The ICICI debit cards comes with a “Grid” feature for increased online transaction security. rates for home loans up to Rs 30 lakh from ICICI and HDFC will be 9.25%. more people are availing home loans. whereas HDFC Netbanking. HDFC loans are cheaper than ICICI loans for higher amounts. It currently offers new services like smsNCash. and seems to work hard to retain and grow its customer base. Taking the present rate cut into consideration. Rs 30 45 . Rs 20-30 lakh. though not to the level of last year. Bank@Home and Receive Funds. ICICI Bank had different slabs. The Debit cards have a table of 16 numbers at the back. with its lesser options.

46 . Using this feature. you can set aside a part of your credit limit exclusively for online spends.500. 50% and 100% of credit limit and this is a percentage of your existing limit. ICICI Bank is the largest credit card issuer in the country and has a wide range of credit cards designed to cater the needs of different sections of the society.75%. according to the profile of the customer.RETAIL: The Focus of Indian Banks lakh & above were 9. value for money cards. the rate would be between 10% and 11%. and 11. respectively. 10%. affinity cards and EMI cards. Each credit card offered by ICICI is loaded with special offers and reward points along with bill payment and balance transfer facility. classic cards. The industry reports around 30% of credit card customers as delinquent accounts while HDFC's Cards Division reports it to be half of it. HDFC Bank one of the conservative banks in India which had adopted quite a laid back approach in growing its credit card business is in a better position now. Comparing HDFC Credit Cards vis-à-vis ICICI Credit Cards HDFC Bank has introduced a new feature for all its Credit Card Customers known as NetLimit. The bank also offers specialized services on its special cards. The bank has classified its card segment under different categories such as premium cards. This feature is for your added safety and comes FREE of cost. For loans amounting to more than Rs 30 lakh.5%. co-branded cards. The first two slabs have been merged now. As on Sept-30th the bank had 4. The three options of NetLimit are 25%.5 mn credit card customers with average spending per active card is Rs 9.

ICICI announcement of hike in deposit rates. whenever it sees that there is enough liquidity in the market and some money needs to be sucked back.5%. to attract more customers. as they need funds to park at the RBI. as against 6.25% earlier.5 6 6 7 6 6 .25%.RETAIL: The Focus of Indian Banks Comparing HDFC Deposits vis-à-vis ICICI Deposits ICICI bank has announced increase in the interest rates of long-term deposits by 0.5 6.75%. for two of its slabs.5 7 7.75 6. HDFC’s hiked interest rates shown in table below: Deposit Term One year-one day to One-year15 days One year-16 days One year-17 days to Two years Two years-one day to Two years-15 days Two years-16 days Two years-17 days to Three years For above 3 years to 10 years 47 Hiked interest rate (%) 6. A 390 day deposit will fetch interest of 6.25 7 7.75%. to as high as 1.25-0. follows HDFC’s announcement. This is a portion of deposits that banks are required to park at RBI.5% earlier. as against 6. A 590 day deposit will fetch interest of 6. with immediate effect. Banks are hiking deposit rates.5 Earlier interest rate(%) 6 6. HDFC also hiked interest rates for various slabs over one year. RBI hikes this portion.50%. At ICICI. RBI has hiked the CRR (cash reserve ratio) by 0. by 0.75%.

This segmentation helped perception and 23% 40-55 yrs preferences across all age groups. RESEARCH METHODOLOGY An exploratory research was conducted in order the study the consumer perception about various banks offering retail products and the banks they opt for. • To find the immediate competitors in the minds of consumer for every retail product. Respondents’ profile Data was collected from respondents across all age and income groups. gain insights into the Data relating to 17% 15% 1 8-25 yrs 25-40 yrs Age Profile age was collected. To study the comparative influence of various mediums of advertisements in creating awareness amongst the consumers. Based on the nature of retail banking products age groups were identified and classified as follows: 48 45% 55 yrs & above . Sample Size A random sample of 50 were administered with the questionnaire and responses collected.RETAIL: The Focus of Indian Banks CUSTOMER SURVEY RESEARCH OBJECTIVE • • • Top of mind awareness of consumers for banks offering various retail products. Factors influencing their purchase decision.

The Questionnaire consisted of suitable combination of Rating Scale. • Retail products being also designed for students and retired people. 49 . Income Profile • Respondents earning Rs. 9 Proffessional Profile 7 Students Salaried Businessmen Retired 29 • Salaried and businessmen being the major users of retail users of retail products.RETAIL: The Focus of Indian Banks • • Majority of the respondents belonged to the age group of 25 – 40 years. they were considered for the survey. 30% 27% 13% 15% 15% Non.earning <5000 5000-8000 8000-1 5000 >1 5000 • This income group qualifies almost all eligibility criteria of retail offerings. 800015000 constitute the major chunk of the respondents using retail products. The reason associated with it is that this group is the highest user of retail offerings.  An in depth interview was also conducted while administering the questionnaire. Ranking Scale and open ended Questions in the level of importance. 15 Data Collection Tools  Data was collected using Questionnaires.

that’s the reason why processing time is considered as most valuable factor in consideration list. currently using or used in the past.RETAIL: The Focus of Indian Banks Sources of Data • Questionnaires were administered to people with experience of any retail offering. This is the stage where people try to bring alive their aspirations of having their own home and 50 . Time is the most valuable factor in today’s world of hectic schedules. • In the survey majority of the respondents credit cards. DATA ANALYSIS The respondents were asked to rank the following factors according to their preferences in the extent to which they influence their purchase decision. • 40 35 30 25 %20 15 10 5 0 35 INFLUE CING FACTORS N 37 15 7 Word of mouth 6 Advertisement Interest rates Processing Majority of the respondents considered processing time to be the major influencing factor for making purchase decision while interest rate forms a Factors close second. had availed cr e d it car d s 25% Re ta il P ro d ucts Ava ile d Oth e r s 11% Ho u s in g lo an 21% Vehicle loan followed by Goodwill time Pe r s o n al lo an 10% Ed u catio n lo an 6% V e h icle lo an 27% • Majority of the respondents belong to the age group of 25-40 and majority of them are salaried people.

RETAIL: The Focus of Indian Banks vehicle and hence these loan constitute major chunk of retail product availed by the respondents. • ICICI has created a place of its own HDFC 37% S BI 12% in the mind of customers by its heavy advertisement and superior service in every category of retail offering. The responses for different retail products were as follows- • Majority of the respondents Ba nks Conside re d For Housing Loa n ICICI 23% O THE RS 28% considered HDFC and ICICI for availing housing loan. BANKS CONSIDERED FOR RETIAL OFFERINGS Respondents were asked which banks they considered for purchasing a retail offering before selecting a specific bank. HDFC 25% SBI 9% 51 . • Ba n ks Co n sid e re d F o r V e h icle L o a n s ICICI forms the major chunk in the consideration list for vehicle loan followed by HDFC. CITI BA NK 15% OTHERS 16% ICICI 35% • Through aggressive advertisements and superior service ICICI has created a major place in the consideration list. • 25 years of superior service has helped HDFC in creating goodwill in the mind of people and has helped the bank for consideration.

• Being the first bank to launch credit cards and through aggressive advertisements in the past CITI BANK has created awareness amongst the customers and by providing superior service it CITI BANK still acquire major share in the consideration list. 52 .RETAIL: The Focus of Indian Banks • Majority respondents cards of the Ba nks Co nside re d F or Cre d it Ca rd s OTHERS 11% ICICI 16% STA N CHA RT 20% CITI BA NK 35% considered by CITI BANK for credit followed STANDARD CHARTERED BANK and HSBC BANK. • HDFC 2 2% HSB C 9% SBI 35% Also extensive presence in varied locations seems to be the primary reason for this. HSBC 18% • SBI and HDFC form the major chunk in for the consideration B an ks C o n sid e red F o r E d u ca tio n a l Loan DENA BA NK 8% OTHERS 21% C OR P OR A T IO N BANK 5% educational loan category. • Interest rates being the major factor for educational loan. PSUs have the competitive edge due to low interest rate.

Awareness Of HDFC Through Various Medium Billboards / Hoardings 22% Television 13%  The reason for the largest pie is that a large chunk of the TG is also an avid reader of newspapers and magazines. • Customer’s awareness of SBI through measured. awareness through television is the highest level followed by newspapers. especially in the home finance arena. New spapers & Magazines 39% Word Of Mouth 21% Radio 5% 53 . has immense awareness through the word of mouth media. Awareness Of ICICI Through Various Mediums Billboards / Hoardings 17% Television 35% Word Of Mouth 18% Radio 3% New spapers & Magazines 27% • Among these. various media was Aw a rne ss O f S BI Throug h V a riou s M e dium Billboards / Hoardings 17% Word Of Mouth 26% Radio 3% Televis ion 19% • SBI.  New spapers & Magaz ines 35% HDFC being a player. has taken the print media as its stalwart for awareness. being an old and experienced player.RETAIL: The Focus of Indian Banks AWARENESS OF BANKS THROUGH VARIOUS ADVERTISING MEDIUMS • ICICI in general has a high level of awareness among the people owing to its extensive advertising.

• CITIBANK is also perceived to be a market leader.RETAIL: The Focus of Indian Banks • The graph reveals that close to fifty percent of the awareness is about ICICI and HDFC. CITI BANK 24% requirement for Top Of M ind Aware ne ss For Credit Cards OTHERS 21% ICICI 19% SBI 12% HSBC 16% HDFC 8% 54 . • A quarter share of the awareness pie of ‘Others’ can be attributed to a gamut of the recent new launches as also the varied cobranded credit cards. besides being one. • Customers do not seem to regard HSBC as a bank offering car loan owing to its limited CITI BANK 19% Top Of Mind Awareness For Car Loan OTHERS 10% ICICI 24% advertising about this product. • The personal loan market is a relatively fragmented market with respect to awareness • KOTAK 13% SBI 10% HDFC 21% HSBC 3% According to the survey HDFC is the clear market leader in the awareness paradigm. CITI BA NK 13% Top Of M ind Aw a re ne ss For Housing Loa n OTHERS 12% ICICI 24% • This area is also being HDFC 31% SBI 20% aggressively invaded by many other players owing to the increased homes.

marketing. and hence are reluctant to change their banks. Banks have to prepare themselves for facing a soft interest regime. Awareness through television is the highest level followed by newspapers. logistics. bankers do need to understand that: Growth comes from repeat business Repeat business from relationships Relationship from customers Customers relationship based on trust Trust emanates from customers faiths/beliefs and. Proceesing time and interest rates are major influencing factor for making purchase decision. Also people have had accounts with the PSU banks as private banks were non-existent earlier. short processing time. The reason associated with this behavior is the close proximity and long existence of PSU banks making them safe and trustworthy. auto and personal loans. The findings revealed that people generally prefer PSU banks close to their locality to bank with whereas private banks and foreign banks have higher preference on the retail banking front. Summary of Findings • • The scenario is becoming highly competitive in every sphere of banking activity.RETAIL: The Focus of Indian Banks Relation between basic-banking and retail-banking choices The survey also tried to study. True to Infosys cult. analyze and correlate respondents’ decision in selecting a bank for general banking purposes and for availing retail products. The future of banking is dependent on technology. However due to efficient service.more so in n respect of retail lending. 55 • • • • • • . New kind of management skills are required to manage the retail lending portfolio. competitive rates and a caring attitude people have started to prefer private banks for meeting their retail needs. As per survey ICICI and HDFC are to major brand name considered for housing.

has been a notable success with private banks registering quantum growth in their retail portfolios in the past few years. Retail banking has significant past and glorious future over the years. • A similar model is yet to be tried out generally by public sector banks. is also much more stable for public sector banks giving them a natural advantage on the pricing front. a major shift in business strategy to focus on retail may be optimal for the long term from a returns/risk point of view — provided they can create and improve the infrastructure in terms of technology. retail banking could provide an ideal combination of higher margin businesses (such as credit cards. • The business marketing model. • Overall. though one has noticed a couple of banks beginning to employ such concepts. for instance. the evolving economic environment does point to retail accounting for a much higher proportion of the balance sheets of financial intermediaries. in terms of the higher proportion of retail deposits. The private sector banks seem to be well prepared for this scenario. Retail banking has proved as an effective tool not only to improve the bottom lines of the banks concerned but also to significantly contribute to the development of the individual consumers availing the services or products in particular and to the overall development of the society in general with the needs of the consumers ever multiplying. people. processes and pricing. personal loans) as well as a fair degree of risk diversification on the entire portfolio. where direct marketing agents have been employed in a systematic manner to source retail assets. The funding base.RETAIL: The Focus of Indian Banks Lastly maintaining harmony with the environment FUTURE OF RETAIL BANKING The future for public sector banks. • If the processes and the technology can be harnessed. 56 . There is definitely a vast scope for the furtherance of the Retail Banking business.

It may prove possible. Walk-in business is a thing of past and banks are now on their toes to capture business. to combine functions in new ways. with the consumers ever multiplying needs there is definitely a vast scope for the furtherance of the retail banking business. Operationally. It has also created the perception that overall economic conditions have so changed that a major shift in business strategy (such as the dominant focus on retail banking as against wholesale banking) is quite inevitable and the future lies only in retail banking expansion. looking ahead. Banks therefore. the needs of the people grow faster than ever. Retail banking is the fastest growing sector of the banking industry with the key success by attending directly the needs of the end customers is having glorious future in coming years. even profitable.RETAIL: The Focus of Indian Banks The society is made of the individuals and the environment surrounding him. The depth of the untapped resources in the retail segment is not yet measured. Thus. Retail banking sector as a whole is facing a lot of competition ever since financial sector reforms were started in the country. The wealth creation and its professional management are yet another distinct advantage the society or nation can derive from Retail Banking. there is a possibility that technology go beyond merely reducing the cost & improving the quality of current products. The growth posted by some of the private sector banks has been such (a near doubling of retail credit in around two years which shows an annual rate of growth of around 35 per cent) as to overshadow the more modest attainments on this front by other b anks — particularly the public sector banks. These resources could be channelized for nation building. CONCLUSION One of the most prominent developments in Indian banking in the recent past has been the rapid growth of the retail loan portfolios of private sector commercial banks. 57 . are now competing for increasing their retail business. As development takes place in the society. On the whole. the prospects of retail banking are brighter than ever and the bankers have to give continued thrust to this area of banking.

While retail banking offers phenomenal opportunities for growth. However. This requires product development and differentiation. prudent pricing. in all these customer interest is of chief importance. the challenges are equally discouraging.RETAIL: The Focus of Indian Banks There is a need for constant innovation in retail banking. home / electronic / mobile banking. 58 . micro-planning. How far the retail banking is able to lead growth of banking industry in future would depend upon the capacity building of banks to meet the challenges and make use of opportunities profitably. The banking sector in India is representing this and I do hope they would continue to succeed in this traded path. effective risk management and asset liability management techniques. technological upgradation. the kind of technology used and the efficiency of operations would provide the much needed competitive edge for success in retail banking business. marketing. Furthermore. customization.

com www.com www.rbi.thehindubusinessline.org Economic times • 59 .com www.com www.RETAIL: The Focus of Indian Banks ANNEXURES BIBLIOGRAPHY • • • • • • • Professional Banker www.icicibank.hdfcbank.indiainfoline.rediffnews.com www.

RETAIL: The Focus of Indian Banks QUESTIONNAIRE 1. Which banks did you consider in your decision making before buying this product? a) _______________________ b) _______________________ c) _______________________ d) _______________________ 60 . Please specify ‫ ڤ‬Car Loan ‫ ڤ‬Personal Loan ____________________________ 4. Which bank(s) do you bank with presently? 2. Rank the following factors according to the weight age in your purchase decision. Cost Processing time Goodwill Word of mouth Advertisement _______ _______ _______ _______ ________ 3. Which retail banking product have you availed? ‫ ڤ‬Housing Loan ‫ ڤ‬Education Loan ‫ ڤ‬Others.

Which bank comes to mind when thinking about personal loan ____________________________________ 11. 61 . Which bank did you choose and why? ______________________________________________________________________________ ______________________________________________________________________________ 7. Which bank comes to mind when thinking about housing loan. Would you suggest any improvement? ______________________________________________________________________________ 9.RETAIL: The Focus of Indian Banks 5. Are you satisfied with the bank’s service? Yes No 8. Which bank comes to mind when thinking about car loan ____________________________________ 10. How did you become aware of them? (tick relevant) Banks => Television Newspapers & Magazines Radio Word of mouth Billboards/Hoardings a) b) c) d) 6.

which if offered. Would you recommend your bank to someone else for the same product or any other product that your bank offers?  Yes  No 13. _____________________________________ 62 .RETAIL: The Focus of Indian Banks ____________________________________ 12. not currently available. Please recommend a retail product. will be readily availed by you.