Types of Retail Banks

The following types of retail banks can be categorised under them:

1. Large Bank
These are well-established banks having a national presence. Retail consumers
trust these banks because of their prominence and the variety of services.

2. Community Bank
Community banks offer loans and depository services and mostly operate in a
smaller geographical area.

3. Online Bank
Online banks offer digital-only products and services. You can access their
products via computer or mobile device.

4. Regional Rural Bank

These banks were set up in rural areas to serve the needs of people living in rural
areas. Such banks are mostly present in Tier 2 , Tier 3 and Tier 4 cities.

5. Post Office
Post office offers depository and other savings schemes. People living in the rural
area prefer post office services due the age-old trust built by the institution.

The Barriers to the Development India Banking Sector

1. Customer retention is going to be a major challenge. According to a research by

Reichheld and Sasser in the Harvard Business Review, 5 per cent increase in
customer retention can increase profitability by 35 per cent in banking business, 50
per cent in insurance and brokerage, and 125 per cent in the consumer credit card
market. Thus, banks need to emphasize on retaining customers and increasing
market share.

2. Rising indebtedness could turn out to be a cause for concern in future. India's
position, of course, is not comparable to that of the developed world where
household debt as a proportion of disposable income is much higher. Such a
scenario creates high uncertainty.

3. Information technology poses both opportunities and challenges. Even with

ATM machines and Internet Banking, many consumers still prefer the personal
touch of their neighborhood branch bank. Technology has made it possible to
deliver services throughout the branch bank network, providing instant updates to
checking accounts and rapid movement of money for stock transfers. However,
this dependence on the network has brought IT department's additional
responsibilities and challenges in managing, maintaining and optimizing the
performance of retail banking networks. Illustratively, ensuring that all bank
products and services are available, at all times, and across the entire organization
is essential for today's retails banks to generate revenues and remain competitive.
Besides, there are network management challenges, whereby keeping these
complex, distributed networks and applications operating properly in support of
business objectives becomes essential. Specific challenges include ensuring that
account transaction applications run efficiently between the branch offices and data
centers.

4. KYC issues and money laundering risks in retail banking are yet another
important issue. Retail lending is often regarded as a low risk area for money
laundering because of the perception of the sums involved. However, competition
for clients may also lead to KYC procedures being waived in the bid for new
business. Banks must also consider seriously the type of identification documents
they will accept and other processes to be completed.