NAGINDAS KHANDWALA COLLEGE OF COMMERCE, ARTS AND MANAGEMENT STUDIES

PROJECT REPORT ON “RETAIL BANKING IN INDIA”

SUBMITTED BY NIRAJ M. NISAR SUBMITTED TO UNIVERSITY OF MUMBAI

PROJECT GUIDE Prof. IYER

ACADEMIC YEAR 2011-2012

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ACKNOWLEDGEMENT

I owe a great many thanks to a great many people who helped and supported me during the writing of this book. My deepest thanks to Lecturer. Prof. Iyer, the Guide of the project for guiding and correcting various documents of mine with attention and care. He has taken pain to go through the project and make necessary correction as and when needed. I express my thanks to the Principal of, Nagindas Khandwala College for extending her support. Thanks and appreciation to the helpful people for their support. I would also thank my Institution and my faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.

Niraj Nisar

EXECUTIVE SUMMARY
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1.TITLE OF THE PROJECT REPORT
The title “Retail Banking in India” gives a detailed study about the retail banking business carried on by the banks in India, the projects offered by the retail banks, and the future perspective of retail banking business in India.

2.OBJECTIVES
• To understand the retail banking pattern in India.

To know the various products & services offered by the retail banks and the growth in those products along the years.

• To understand and visualize the future of retail banking in India.

INTRODUCTION
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” The Retail Banking environment today is changing fast. The changing customer demographics demands to create a 3

differentiated application based on scalable technology, 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. 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 as so 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 pace of innovation is accelerating and security threat has become prime of all electronic transactions. High cost structure rendering massmarket servicing is prohibitively expensive. 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. 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. 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. Retail banking is a part of bank that offers product and services primarily to individual customers, professionals, self-employed individuals or small business. The focus is on creating product and services that meet the need of the target customers and are profitable for the bank as well.

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and mortgages. auto. 5 .it refers to the dealing of commercial banks with individual customers.The approach to retail banking products is more on mass production basis where in all risk and operations are based on and geared to cater to a large number of customers. Related ancillary services include credit cards. however. both on liabilities and assets sides of the balance sheet. WHAT IS RETAIL BANKING? Retail banking is. Internet and kiosk). Understanding retail banking will help in servicing your customer better as it would give you a perspective and insight into how such products are structured and specific requirements for each set of product. insurance. and corporate). multiple channels of distribution (call centre. and multiple customer groups (consumer. credit cards. current / savings accounts on the liabilities side. and educational) on the assets side. Fixed. are the more important of the products offered by banks. housing.g. personal. loans (e. branch. Today’s retail banking sector is characterized by three basic characteristics: • • • multiple products (deposits.. quite broad in nature . This is. small business. significantly different from corporate banking or wholesale banking where focus is on large sized customer accounts rather than large number of customers. therefore. or depository services. investments and securities).

“Now People Want To Save Less And Spend More. • 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. 6 . it seems that retail banking is perceived to be the in-thing in today’s world of banking. the IndianEnglish innovative curry available in umpteen numbers of restaurants of London. Considering the fact that vindaloo. Falling interest rates have resulted in a shift.” • Nuclear family concept is gaining much importance which may lead to large savings. is indeed very hot and spicy. The rural areas have the large purchasing power at their disposal and this is an opportunity to market Retail Banking. SCOPE FOR RETAIL BANKING • • All round increase in economic activity Increase in the purchasing power. large number of banking services to be provided are day-by-day increasing.WHAT IS THE NATURE OF RETAIL BANKING? In a recent book. retail banking has been described as 'hotter than vindaloo'. • India has 200 million households and 400 million middleclass population more than 90% of the savings come from the house hold sector.

Effective customer relationship management with the retail customers built a strong customer base. 7 . Retail banking increases the subsidiary business of the banks.ADVANTAGES AND DISADVANTAGES OF RETAIL BANKING ADVANTAGES Retail banking has inherent advantages outweighing certain disadvantages. RESOURCE SIDE • • • • • Retail deposits are stable and constitute core deposits. They constitute low cost funds for the banks. They are interest insensitive and less bargaining for additional interest. Advantages are analyzed from the resource angle and asset angle.

ASSETS 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. Helps economic revival of the nation through increased production activity. Improves lifestyle and fulfils aspirations of the people through affordable credit. Retail banking involves minimum marketing efforts in a demand –driven economy. Diversified portfolio due to huge customer base enables bank to reduce their dependence on few or single borrower Banks can earn good profits by providing non fund based or fee based services without deploying their funds. Retail segment is a good avenue for funds deployment. DISADVANTAGES 8 . Innovative product development credit.

Though banks are investing heavily in technology. • Long term loans like housing loan due to its long repayment term in the absence of proper follow-up. The banks that are slow in introducing technology-based products. they are not able to exploit the same to the full extent. This does not allow banks to to exploit the advantage of earning huge profits from single customer as in case of wholesale banking. • • • Customers are attracted towards other financial products like mutual funds etc. Customers now-a-days prefer net banking to branch banking. 9 . The volume of amount borrowed by a single customer is very low as compared to wholesale banking. can become NPAs. are finding it difficult to retain the customers who wish to opt for net banking. A major disadvantage is monitoring and follows up of huge volume of loan accounts inducing banks to spend heavily in human resource department.• • Designing own and new financial products is very costly and time consuming for the bank.

PRODUCTS OFFERED IN RETAIL BANKING 1. SAVING ACCOUNTS Introduction A Savings bank account is the most common operating account for individuals and others for non-commercial transactions. A Savings account helps people to put through 10 .

Normally a higher minimum balance is stipulated in cheque operated accounts as compared to non-cheque operated accounts.  Advantages of saving account • It encourages savings habit among salary earners and others. Growth 11 . Banks also stipulate certain minimum balance to be maintained in savings accounts. Banks generally put some ceilings on the total number of withdrawals permitted during specific time periods. • It enables the depositor to earn income by way of interest. • It helps the depositor to make payment by way of cheque.day-to-day banking transactions besides earning some return on the savings made.

2. Considering the large number of transactions in the account and volatile nature of balances maintained overnight banks generally levy certain service charges for operating a Current account. Unlike savings bank account no limits are fixed by banks on the number of transactions permitted in the Account. Banks generally insist on a higher minimum balance to be maintained in current account. CURRENT ACCOUNT Introduction Current accounts are cheque operated accounts maintained for mainly business purposes. 12 .

give the share of the external sector in India€™s GDP and brings out the 13 . that to talk of any decoupling was simply unwarranted. I recall vividly the bravado of the Indian corporate leaders in Davos in January when they declared that the Indian economy had decoupled and will not be affected by the global slowdown. • The businessmen can make direct payment to their creditors with the help of cheques. Without the help of this account. • The bank collects money on behalf of its customers and credits the same to their accounts. Advantages of current account • It enables the businessmen to conduct his business transaction smoothly. • This account enables the account holder to obtain overdraft facility. • It facilitates the industrial progress of the country. • The businessmen can withdraw any amount at any time. There are no restrictions on withdrawals. Charts I and II below. businessman would have difficulties in running their business. • It enables liquidity for the businessmen.  Growth 2008 has been a roller coaster year for the Indian economy. • The creditor of account holder can get creditworthiness information of the account holder through inter-bank connections. I had written then. given the fact that external sector transactions (exports and imports of goods and services and remittances) today account for more than 50% of the GDP.

uncanny correlation between global and Indian economic growth rates. Current Account as a % GDP 14 .

GDP Growth: India & World (3-Year Moving Average) 15 .

16 . bank deposits are among the safest modes of investment.  Advantages of Fixed Deposit • Fixed deposits with the banks are nearly 100% safe as all the banks operating in the country. Till recently. Loan / overdraft facility is available against bank fixed deposits.and there is no upper limit. a certain sum of money is deposited in the bank for a specified time period with a fixed rate of interest. half-yearly or annually and varies from bank to bank. private. The interest can be compounded quarterly. Premature withdrawal is permissible but it involves loss of interest. irrespective of whether they are nationalized. It is higher in case of longer maturity period. Minimum deposit amount is Rs 1000/. and give due weight age to the interest of the investor. Nonetheless. There is great flexibility in maturity period and it ranges from 15days to 5 years.3. all bank deposits were insured under the Deposit Insurance & Credit Guarantee Scheme of India. are governed by the RBI's rules and regulations. which has now been made optional. The rate of interest for Bank Fixed Deposits depends on the maturity period. In a Fixed Deposit Account. or foreign. FIXED DEPOSITES  Introduction Fixed Deposits are also known as Term Deposits.

• One can get loans up to 75.  Growth 17 .90% of the deposit amount from banks against fixed deposit receipts. Though the interest charged will be slightly more than the interest earned by the deposit.

Market Share: Retail Loan 18 .

• A given amount of tax is charged. the lender can take possession of your collateral and sell it in the market to get its money back.4. • The rate of interest is very low as compared to other consumer loans or credit cards. Collateral is the real estate property that you keep with the lender as a guarantee that you will pay back the debt.000 and it is taken from the interest or from the equity value of the house whichever bears the minimal value is taken. LOANS(HOME LOANS)  Introduction Home loan is the one in which the borrower borrows the loan money from a financing institution by keeping his home as a collateral against it. 19 . If you by any reason fail to pay back the loan amount you owe to the lender.  Advantages of Home loan • It is the most hassle-free loan and the most preferred one by the borrowers. A tax limit is set up to $100.

 Advantages of personal loan • While making an evaluation of the cost of the loan you need to consider the TAR (Total Amount 20 . you will be required to pay interest on the amount you have borrowed. • Now the borrowers don’t have to wait for so long and for the old fashioned time consuming home equity loan procedures as now the functions and the dealings has become online with the help of the internet. Personal loans can be taken out for a wide variety of reasons such as financing an extension. which means that the total amount you repay will exceed the initial value of the loan. or even paying for private medical treatment. Adding to this it also saves the borrower’s time and the borrower gets the approval without much delay. In exchange for the loan. LOANS(PERSONAL LOANS)  Introduction A personal loan gives you the opportunity to borrow money from a financial institution. 5. going on holiday. such as a bank.• It provides you with the facility to set a particular date to make the refund of the loan and the conditions for the usage of the money are also very lenient. and gradually repay the amount borrowed in installments over an extended period of time.

• The maximum amount that you can borrow ranges up to £25. This makes it easy for you to make a planning for the payments that has to be made. The advantage with the personal loan is that when you take a maximum amount as a loan then you have to pay a lower rate of interest. They have tollfree numbers and they guide and provide you the best deals and offers. • With a dynamic market scenario of loans the rate of interest has seen so many ups and downs. • It is totally different from the terms and conditions for the mortgage. Now to get a loan it has become simpler than ever before. The financial companies offer you loans through their telephone service.000 and the time period for the refund is up to ten years. The refunding amount also remains stagnant all the way through the time period of the loan. • The interest rates for the personal loans are also fixed. 21 . The unsecured personal loans are not protected for your property so if you are not able to refund the loan then you can be rest assured that your house is safe.Repayable) which means that the total amount that you owe towards the bank or a lender which also includes the rate of interest on the loan and the payments need to be made on a monthly basis. A suitable deal is where you get a lower TAR.

you must pay interest to the bank or building society from which you have borrowed the money. LOANS(CAR LOANS)  Introduction A car loan is a special type of personal loan. rather than paying the entire sum all at once. 22 . plus the interest charge: this is referred to as your monthly repayment. Generally. which means that the total amount you repay will be greater than the amount borrowed. In return for this loan.6. which allows you to spread the cost of a car over an extended period of time. you pay back a small percentage of the loan each month.

LOANS(CONSUMER LOANS)  Introduction Money loaned to individuals (usually on non-secured basis) for personal. Consumer loans are monitored by government regulatory agencies for their compliance with consumer protection regulations such as the 'truth in lending' law.Advantages of car loan • The contract for the imbursements for a specific period of time permits the person in deciding the exact resources and it is better option against the dynamic variation in the interest rates. • The person can also generate some stock or ownership in the asset. or household purposes.  Advantages of consumer loan 23 . as opposed to business or commercial lending. • If the person is using the vehicle for the official reasons then the person can probably assert a share of the interest and decreased charges as expenditure against the person’s chargeable profits. family. • The reimbursements might be made straight away from the mentioned bank by the person 7. Also called consumer credit or consumer lending.

• Loans are a relatively fast way to obtain funds for a special purchase or project, and even large amounts can be borrowed for almost any purpose. They are suitable for expensive purchases that require immediate payment, allowing you to spread the cost of the purchase and manage your short term finances more easily, especially if your loan has a fixed interest rate.

There is a high level of competition amongst lenders, which usually makes it possible for you to negotiate a cheaper interest rate than the one which you are initially quoted. It may also be worth investigating whether there is a specialist lender who can provide loans tailored to your specific purpose, for example buying a car, since they may offer you a cheaper or more suitable loan. Personal loans are often more popular than other sources of finance such as credit cards and overdrafts, because the amount you can borrow is typically greater.

Overall growth of loan

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8. DEMAT ACCOUNT

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 Introduction
Demat refers to a dematerialized account. Demat account is just like a bank account where actual money is replaced by shares. Just as a bank account is required if we want to save money or make cheque payments, we need to open a demat account in order to buy or sell shares. A Demat Account holds portfolio of shares in electronic form and obviates the need to hold shares in physical form. The account offers a secure and convenient way to keep track of shares and investments without the hassle of handling physical documents that get mutilated or lost in transit. The Securities and Exchange Board of India (SEBI) mandates a demat account for share trading involving more than 500 shares

 Advantages of

Demat Account

Eliminates risks associated with physical certificates

such as bad delivery, fake securities, delays, forgery, counterfeiting, thefts and loss due to fire. 26

• • • • • •

Reduces brokerage charges Pledging/Hypothecation of shares is easier Enables quick ownership of securities on settlement Reduction in paperwork involved in transfer of Demat account obviates the need to pay stamp duty (in There is no odd lot problem. Even one share can be

thereby resulting in increased liquidity securities case of physical shares, 0.5 per cent stamp duty is payable). bought or sold.

Process of Demat account in diagrammatic form

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The flow chart below describes broadly the working of a mutual fund: 28 . The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. debentures and other securities. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified.9. The money thus collected is then invested in capital market instruments such as shares. professionally managed basket of securities at a relatively low cost. MUTUAL FUNDS  Introduction A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal.

 Advantages of mutual fund • Professional Management • Diversification • Convenient Administration • Return Potential • Low Costs • Liquidity • Transparency • Flexibility • Choice of schemes 29 .

• Tax benefits  Growth 30 .

If the amount is not paid full by the end of the period. It authorizes the holder to change goods or services to his account. one is charged interest. CREDIT CARDS Introduction Credit Card is “post paid” or “pay later” card that draws from a credit line-money made available by the card issuer (bank) and gives one a grace period to pay.10. such as a signature and a small photo. on which he is billed.  Advantages of credit cards 31 . A credit card is nothing but a very small card containing a means of identification. The bank receives the bills from the merchants and pays on behalf of the card holder.

• The cardholder has a period of free credit usually between 30-50 days of purchase. To the bank The system provides opportunity to the bank to attract new potential customers. •  To the cardholder • He can purchase goods and services at a large number of outlets without cash or cheque. • Better network of card holder and increased use of cards means higher popularity and image for the bank. is simply to yield direct profit for the bank. however.  To the Merchant Establishment • This will carry prestigious weight to the outlets. • The risk factor of carrying and storing cash is avoided. The is useful in emergency. There is scope and potential for better profitability out of income/commission earned from trader’s turnover. 32 . • This also provides additional customer service to the existing clients. can save embarrassment. • The more important function of a credit card. It enhances the customer satisfaction. It is convenient for him to carry a credit cards and he has trouble free travel and make purchases without carrying cash or cheque.

AUTOMETIC TELLER MACHINES (ATM) 33 . • He can offer credit without the botheration of cost or book-keeping and bad debts.34 31/3/05 31/3/06 31/3/07 31/3/08 11.• Increase in sales because of increased purchasing power of the cardholder due to unbilled credit available to the cardholder. • Suppliers/sellers no longer have to send reminders of outstanding debts.  Growth Growthof credit cardsissued(In L akh) 90 80 70 60 50 40 30 20 10 0 84.05 60.68 48.69 37.

 Advantages of ATMs  To the Customers • ATM’s provide 24 hrs. • Crowding at bank counters considerably reduced. 34 . 7 days and 365 days a year service. This service helps the customer to withdraw money even when the banks ate closed. This can be done by inserting the card in the ATM and entering the Personal Identification Number and secret Password.  To Banks • Alternative to extend banking hours. The ATM’s are used by banks for making the customers dealing easier. Introduction ATM’s has given the customers the facility of round the clock banking. ATM card is a device that allows customer who has an ATM card to perform routine banking transaction at any time without interacting with human teller. It provides exchange services. • Service is quick and efficient • Privacy in transaction • Wider flexibility in place and time of withdrawals.

• Alternative to new branches and to reduce operating expenses. • Increased market penetration  Growth CHANNELS OF RETAIL BANKING 35 . • Relieves bank employees to focus an more analytical and innovative work.

many banks offer a cash delivery or collection service to certain classes of customers. the bank account number and the T-PIN are asked for. Financial transaction caused by purchases will more and be carried out by non-and near-banks. 36 . independence of place and time and flexibility. Similar to the ATMPIN.Consumer behavior is changing rapidly due to the development of technology and the use of financial services is characterized by individuality. The access to account information as well as transaction is offered through the world wide network of computer s on the internet. Typically. a Telephone PIN (T-PIN) is provided to each account holder. TELE BANKING Tele banking or phone banking is a banking services offered by banks to enable customers to access their accounts for information and transaction. the customers is given access to his account to query or transect on his account. Through cash withdrawal and deposit are not enabling through this service. INTERNET BANKING One of the channels of service delivery to a banking customer is through the internet. Upon the respective numbers matching the computerized system . Every bank has special firewalls and its own security measures to protect the consumers from non-authentic use from unauthorized users. 2. Data are encoded using algorithms with a 128 bit encryption. mobility. The customer can call the executive tele-banking number and provide the detail to identify him /herself to the automated voice. These facts represent big challenges for banks as well as other providers of financial services 1.

Account querying as well as transaction are possible on the internet banking platform. A higher level of security may be reached by electronic figure-print. Through the cash transaction are not possible at present. the transaction is aborted. • Increase customer loyalty. • Easy online application for all accounts.  Benefits of Internet Banking • Reduce the transaction costs of offering several banking services and diminishes the need for longer numbers of expensive brick and mortar branches and staff. since they can conduct many banking transaction 24 hours a day. The access to the account is allowed upon a match of the account detail and PIN entered on the computer system. • Attract new customers. In case of any differences.Each account holder is provided a PIN similar to that of ATM or phone banking PIN. Then both versions are compared. The figure print is taken before and after the transaction. • Improve customer access. the next phase of evaluation in internet banking will allow those as well. including personal loans and mortgages 37 . • Increase convenience for customers.

Housing loan. Banks have to focus on market segmentation to identify Categorization of Retail Bank Services Core Facilitating Supporting Services Services Payment Services Services • Cash • Foreign currency requirement • Travel cheques • DD/Bankers cheque • ATM cards • Standing instruction from customers for making payment • Interbank transfer of funds • Safety vault • Current account • Saving account • Time deposit account • Making payment at door steps • Internet banking • Telephone banking Current account & Saving account • Credit cards • Debit cards • Service to senior citizen • Telephone banking • Internet banking • Conversion of excess balance to time deposits • Delivery of loan at promised time period • Interest rate option: fixed/floating • Flexibility in prepayment of loan Loan product: Consumer loan.MARKET SEGMENTATION The success of retail banking is lies on market segmentation. Housing loan. Personal loan. Education loans 38 . innovation and pricing of good service.

The survey of NCAER shows that rural India is gradually possessing variety of consumer durable goods. which makes the housewife to feel liberated and empowered. The banks philosophy is to have a product ideal for every stage of individual’s life from child hood to retirement and bank has wide product rang. The potential segments which many bank have not explored so far are self employed people and housewives. The ICIC bank in India has adopted ‘Life Stage Segmentation Strategy’. Selfemployed people due to lack of proper identity (i. Banks have to design suitable products to meet 39 . pension schemes • Current account • Saving account • Time deposit • Additional insurance facilities for family members • Counseling on post retirement savings. Similarly. McKinsey has identified four principal segments combining personal attitude to finance and demographic data. This approach aims to minimize overlap between two segments by categorizing customer into various segments based on the stage of life they have reached. salary certificate or PNR Number) are still borrowing at higher rate and banks are not assessing the credit risk premiums properly. a suitable banking product is required. This segmentation is suitable to all emerging Asian market.Insurance product: Life insurance. ICIC bank is also adopting a strategy of creating a liability based product along with an asset based product and vice versa.e. difference between group of potential customers and to decide which product can be served to which groups.

40 . While tangible collateral is invariably insisted upon. They do not strictly conform to the various credit scores of the lending banks for evaluation. Census of 2001 shows that India has 423 towns (Eight Metros. Some banks adopt a “one-size fits all” methodology for financing SME sector.the requirements of rural rich and rural poor. 396 Towns). S m eg entationfor AsianMark et 22% 34% Simplifiers 21% Simplifiers Fickle shoppers Advice seekrs 23% SMEs LENDING (SMALL AND MEDIUM ENTERPRISES) Small and Medium Enterprises (SMEs). do not get timely bank credit in India and many region in the world. It does not work well because each SME case has its own peculiarities. 19 Mini Metros. Old generation privet bank in India have been financing this sector (with significant success rate) not on the basis of mere balance sheet ratio but on valuable relationships developed over a period of time. these banks in few occasions extend unsecured finance as well. and that financial products are very rare for urban poor and low salaries persons.

The experience of many bankers in extending this type of credit does not seem to be good. SME finance is perceived by these banks as an integral part of priority sector credit extended to retail traders. In short.5lakh or more. Absence of reliable financial data and asymmetric information add to the problems of the bank in credit assessment. professional and self-employed ect. outside the purview of priority credit sector. In fact special credit schemes have been devised for this purpose. with accent on provision of adequate of collateral. public sector banks really do not have the skill to evaluate SME credit and they consider it as a potential risk and an unglamorous lending proposition where it is hard to build-up sizeable asset portfolios and transaction costs are estimated to be relatively higher. Credit decisions are based on the value of collateral and with little or no balance sheet study. Many public sector banks have been trying to finance the SME sector. New generation private bank really do not evince any interest in financing SME sector expect in cases where the loan is for significant amounts Rs. With this perception of mandatory lending the consequences of wilful default lax followup. in many case diversion of loan fund has been observed. Mostly traders are accommodated under these schemes. extended to say a doctor or professional for acquisition of infrastructure or a nursing home ect. non-serious credit supervision and eventual write-off happen. SME finance the world over is invariably associated with provision of technical assistance and an element of subsidy to be 41 . small business enterprise.The story is different in public sector banks. These banks are not realizing that entrepreneurship of borrower and bankability of venture are essential rather than availability of collateral. As bank take lenient view on end up principle.

Banks are realizing that SME sector need not remain unglamorous. besides provision of working capital. The latest thinking is that subsidy should be passed on through banking channels but it should not reach the borrowers. It offers SME lending cost effectively as well. ranked among the top 100 banks in the world is a major player in SME banking in Asia pacific region. Through its service called “DPB Enterprise Banking” it extends term finance for acquisition of fixed asset like premises and machinery. Thanks to the onset of technology. in whatever form it comes.successful. New channels like telephone and internet banking are also used to supplement the ‘brick and mortar’ structure. The bank which performs well in extending and recovering SME loans will retain the subsidy as an incentive. it is not insisted upon in all cases. the largest banking group on South –East Asia. the transaction cost need not be high. SME BANKING INITIATIVES IN OTHER PARTS OF THE WORLD The Development Bank of Singapore (DBS). While collateral is accepted. Citibank for example has been successfully financing SME sector particularly in ailing economies like Japan and Germany. Citigroups customer finance lending in Japan is at 1. It is potential to generate national wealth much faster than corporate sector. 42 . There are dedicated funds provided by various governments for this purpose.7tn which includes substantially SME finance as well. Financing SMEs with efficiency could be profitable for the banks.

Banking sector is sourcing the technology from trusted technology service providers. This will make clear as to which customer needs a credit card. Effective segmentation is possible only when detail knowledge of market customers and data sources are combined with appropriate data processing and proper analysis. The 43 . cost-effectively as there are no branch overheads on the borrowers. ect. Royal Bank of Scotland offers small business services in the virtual banking mode. a debt card or a smart card. the small and medium enterprises segment. Loan amount exceed HK $2 mn with reasonable interest rate. BEA assists the borrowers seeking the government’s approval on guarantee. Use of technology can be made to understand the product the customer needs. PSBs may relate transaction history with the customer information. Bank of East-Asia actively participate in the “SME Business Installation and Equipment Loan Guarantee Scheme” to facilitate acquisition of equipment by SME borrowers. In Hong Kong. CUSTOMER SEGMENTATION For introducing specific products. with a tenor up to three years. banks have to depend heavily on technology. Modern banking also concentrates on acquiring of customers through development of new products and distributing them through multiple delivery channels. operating in Singapore also finance actively.OCBC Bank. For making effective inroads.

Thus banks have to be on their toes 44 . the banks break them in to finer segment and then devise for them. banks can tailor new needs based product using this data to cater the requirement of various customer segments. This gives a sound base needed for on-to-one customer interaction by providing well rounded customer understanding instead of designing one campaign for numerous dissimilar customers. demographics.segmentation of customers can be done on the basis of behavior. The concept of customer relationship management (CRM) as gained importance. This being where many players are operating and trying to gain the maximum share. Banks need to have the technologies facilitating proper and consistent communication with the customer the technology should be fully functional.  Diminishes customer loyalty may lead to the erratic and unreliable client base. value and attitudes. Through crucial customer data is available with the bank this helps in customer segmentation as has been already discussed. margins are under pressure. CONSTRAINTS PRESENTELY FACED  Designing their own financial product is very costly for banking involving substantial investment. completely secure at the same time it should be customer friendly also.  Heavy competition. This data can also be utilized for formulating strategies for customer retention and enhancing profitability of the bank.

BENEFITS OF CUSTOMER SEGMENTATION  Customer segmentation is a powerful tool to identify the unfulfilled needs of the client.  Marketing by banks will be pinpointed towards the particular segment for which a product is designed.  The banks rely on it for determining the proper product pricing and designing and optimal distribution strategy.  A proper customer’s segmentation analysis would reveal the level of comfort the customer enjoy with the electronic environment. it is useful for prioritizing new product development efforts.  Customer segmentation helps in identifying customers with greatest life time values. This will save time as well as money.  Customers are getting attracted towards other financial product like mutual funds ect. Thus. especially when the retail product are designed by the banks for wooing the investor.and have up-to-date information about the product of their competitor. COSUMER RELATIONSHIP MANAGEMENT (CRM) 45 ..  It helps the banks in selecting specific product future and developing customized marketing program.

From the customer perspective. From a bank perspective. There is no advantage in forcing customer to deal with a bank’s internal complexity and lack of flexibility. project customer profitability. with goal of maximizing the wallet share of a customers to the organization. predict the likelihood of 46 . predict churn.  Analyzing information from all channels and data source to profile customers. and layers of technology. and more. CRM makes it possible to analyze customer information in order to drive more informed business decision and action. CRM support this by enabling bank to better understand customer requirements. Customers today want to decide how to transact business with their bank and expect to select their preferred channels and not vice versa. CRM provides a mechanism for:  Being proactive in addressing customer need and expectation. often in real time. a bank is in the optimum situation when the customer starts buying from the bank rather than being sold to. Yet this is typically what happens when bank is driven by outdated structures. even as they evolve. Banks adopt CRM strategies in order to forge closer and deeper relationship with customers. To this end. differentiate between customers via market segmentation. CRM makes it easier for customer to do business with you. Economically competitively. legacy system.CRM process and technologies support a retail bank business strategy to build long-term profitable relationship with specific customers.

transact through different channel. methodology. over the lifetime of the relationship. pay higher price. profitability and channel effectiveness. and technology to acquire the maximum value from customer relationship across every channel. If the bank wants a customer to buy more. The great promise of CRM solution is that it can provide the process. and maximize marketing campaign performance. then the bank must make the appropriate investment in the relationship. It is obtained through a value exchange in which the bank makes an investment in a customer interaction in exchange for some desired behavior.customer actions. Measurement determines the value of exchange and the degree of optimization achieved. stay longer. and 47 .  Relation of the most profitable existing customer for the longest possible duration. Customer optimization in addressed along three dimensions:  Acquisition of new customers immediately profitable to the bank. evaluate customer loyalty. CUSTOMER OPTIMISATION Customer optimization lies at the heart of CRM. and so on.

To appreciate the full business implication of true CRM and its potential impact on the bank’s bottom line and future performance. Technology continues to play a critical role as successful enterprise CRM is supported by the application of a 48 . THE PROCESS OF CRM Consumer Relationship Management has been typically viewed by both the retail banking industry and vendor community as asset of function-specific technologies designed to automate banks’ existing sales. Whereas acquisition and retention are fairly well understood. encouraging more purchases while shifting less profitable customers to lower cost delivery channels. marketing and services processes. Because expansion present enormous untapped value. Expansion of the customer relationship with the bank. a CRM strategy must be able to identify the expansion potential for each customer. However the increasing pressure of competition continues to drive bank to more imaginative and effective usage of their greatest asset – the massive volume of customer information scattered throughout the enterprise. a more strategic view is required. CRM is essentially a new process methodology applied to an increasing scope and depth of customer information from across the enterprise and all customer touch points. customer profitability through expansion requires some security.

Information acquisition 3. The application of real time technologies in CRM environment is having a genuinely revolutionary impact. Information distribution CONSUMER RELATIONSHIP MANAGEMENT (CRM) “MUST HAVE” Consumer Relationship management play critical role in retail bank’s long-term competitive strategy. Planning 2. Beyond its all49 . Information compilation . storage. CRM cannot be implemented as a point or single channel solution. Information application 6. CRM solution need not replace legacy system – it only has to provide them with common ground in the form of an integration framework and a single global information repository to which they can all contribute and draw from. Gartner research categorizes key stage of the CRM process as follows: 1. Information analysis 5. To be effective. it is important to understand the robust infrastructure requirements of CRM. and maintenance 4.variety of operational and analytical system. Rather it must be an all encompassing process that integrates information across all bank channels.

and their propensity for certain action.encompassing nature. CRM solution must also possess the ability to deliver the following attributes:  REAL-TIME OPERATION AND VIEWS Today’s customers have high expectation for immediate service and meaningful interactions. and customer interaction driven by. their actions and demands. data mining and other analytic applications. it must do it all with equal efficiency. Hence CRM solution must integrate customer information in real time from across the bank and beyond and unfailingly provide real-time “single truth” view of customers and their actions. exploratory and data warehouses. Most important. and direct queries. regardless of how and when information is accessed.  REAL-TIME DATA AGGREGATION AND CACHING A single global information repository is at the heart of an CRM solution. up-to-thesecond data regarding customers. Pius it must support both the real-time and batch provisioning of specialized data marts. 50 . Bank decisions need to be based on. and the database that support it must be capable of acting as a real-time information cache for massive volume of complex transactions and messages. proclivities. and position.

STRATEGIES FOR INCREASING RETAIL BANKING BUSINESS  CONSTANT PRODUCT INNOVATION TO MATCH THE 51 . SOPHISTICATED WORKFLOW AND CUSTOMER INTERACTION RULES This includes enabling standard processes to be quickly deployed and modified while providing for local variations. fraud detection. and so on) can be easily added and into which newly acquired system (including those from mergers and acquisitions) can be “plugged.”  CONTINUOUS AVAILABILITY CRM solution’s pivotal role in driving decision and actions requires much more than normal system availability.  SCALABILITY AND EXTENSIBLITY CRM solution must scale linearly for cost effectiveness while supporting growth without outages. Ultra high or even continuous availability is required to meet today’s elevated customer expectation for complete and upto-date information and consistent “always on “service. standards based framework on which specialized capabilities and new service (campaign management. It must also provide an extensible.

banks should try to give high quality service across all service channels like branches. The quality of service that banks offer and the experience that clients have.  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. matter the most. to retain the customers. Therefore. Internet. Hence. the customers can easily switchover to the one. 52 . mutual funds and insurance. ATMs. which offers better service at comparatively lower costs. etc. The banks should come out with new products in the area of securities. banks have to come out with competitive products satisfying the desires of the customers at the click of a button.REQUIRMENT OF THE CUSTOMER SEGMENTATION 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.

 INFRASTRUCTURE OUTSOURCING This will help in lowering the cost of service channels combined with quality and quickness. who are now comfortable with the idea of availing loans for their personal needs. The Indian retail banking market still remains largely untapped giving a scope for growth to the banks and financial institutions. TAPPING OF UNEXPLOITED POTENTIAL AND INCREASING THE VOLUME OF BUSINESS This will compensate for the thin margins. 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. With changing psyche of Indian consumers.  DETAIL MARKET RESEARCH 53 . banks have tremendous potential lying in this segment.

 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. Banks can devote more time for marketing. In the present regime of falling 54 . This will save the banks from dealing with the intricacies of technology.Banks may go for detail market research. For example. Management of ATMs can be outsourced.  CROSS-SELLING OF PRODUCTS PSBs have an added advantage of having a wide network of branches. which gives them an opportunity to sell third-party products through these branches. which will help them in knowing what their competitors are offering to their clients. 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. customer service and brand building.  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.

Further. It is the innovative and competitive products coupled with high quality care for clients will only hold the key to success in this area.interest and stiff competition. Retail Credit ensures that the business is widely dispersed among a large customer base unlike in the case of corporate lending.  STRONG CREDIT ASSESSMENT CAPABILITY 55 . where the risk may be concentrated on a selected few plans. banks should make all out efforts to boost the retail banking by recognizing the needs of the customers. It is essential that banks would be imaginative in predicting the customers' expectations in the ever-changing tastes and environments. Hence. It is the survival of the fastest now and not only survival of the fittest. In short. Ability of a bank to administer a large portfolio of retail credit products depends upon such factors. SPECIAL FEATURES OF RETAIL CREDIT One of the prominent features of Retail Banking products is that it is a volume driven business. banks are aware that it is finally the retail banking which will enable them to hold the head above water. bankers have to run very fast even to stay where they are now.

 SOUND DOCUMENTATION A latest system for credit documentation is necessary prerequisite for healthy growth of credit portfolio. follow up for loan repayments should be an ongoing process. 56 . today transactions.  STRONG POSSESSING CAPABILITY Since large volumes of transactions are involved. this will also minimize the need to follow up at future point of time. If the credit assessment itself is qualitative. than the need for follow up in the future reduces considerably. maintenance of backups is required  REGULAR CONSTANT FOLLOW-UP Ideally. as in the case of credit assessment.Because of large volume good infrastructure is required. It should start from customer enquiry and last till the loan is repaid fully.

 TECHNOLOGICAL SUPPORT This is yet another vital requirement. Retail credit is highly technological intensive in nature. Only highly skilled and experienced man power can withstand the river of administrating a diverse and complex retail credit portfolio. etc. because of large volumes of business. faster processing. the need to provide instantaneous service to the customer large. SKILLED HUMAN RESOURCE This is one of the most important pre-requisite for the efficient management of large and diverse retail credit portfolio. 57 . maintaining database.

there spending patterns. In order to that the product lines are targeted at the right customers-present and prospective-it is imperative that an integrated view of customers is available to the banks. Banks face several hurdles in achieving this. Cleansing of existing data is the first step in this direction. PSBs have a long way to go in this regard. The benefits flowing out of cross-selling and up-selling will remain a far cry in the absence of this vital input. etc. if not all. remain far from being enviable. In this regard the customer databases available with most of the public sector banks. can be mined.ISUUES RELATED TO RETAIL BANKING EMERGING ISSUES  KNOWING CUSTOMERS ‘Know your Customer’ is a concept which is easier said than practiced. What needs to be done is setting up of a robust data warehouse where from meaningful data on customers.  TECHNOLOGY ISSUE 58 . their preferences.

. anywhere convenience to the vast number of customers or establishing channel/product/customer profitability. lack of proper decision support systems. it would be well nigh possible to administer the growing retail portfolio without allowing its health to deteriorate. Further. the key to reduction in transaction costs simultaneously with increase in ability to handle huge volumes of business lies only in technology adoption. etc. lack of convergence amongst available channels.Retail banking calls for huge investments in technology. absence of customer profiling. 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. took nearly a decade to make profits in credit cards. are a few deficiencies that are being overcome in a great way. It is pertinent to remember that Citibank. concept of branch customer as against bank customer. technology plays a pivotal role. the initiatives in this regard should include creating flexible computing architecture amenable to changes and having 59 . However. PSBs are on their way to catch up with the technology much required for the success of retail banking efforts. stand alone models. It has also to be added in the same breath that without adequate technology support. known for its deployment of technology. Lack of connectivity. And it is a long haul. Whether it is setting up of a Customer Relationship Management System or Establishing Loan Process Automation or providing anytime.

etc. development of a strong Customer Information Systems (CIS) and adopting Customer Relationship Management (CRM) models for getting a 360 degree view of the customer. As a part of organizational alignment.  ORGANISATIONAL ALIGNMENT It is of utmost importance that the culture and practices of an institution support its stated goals. putting in place a proper incentive scheme. banks need to have a well defined business strategy based on the competitive of the bank and its potential. there is also the need for setting up of an effective Corporate Marketing Division. Most of the public sector banks have only publicity departments and not marketing setup. address the issue of alienation from the upwardly mobile. Creation of a proper organization structure and business operating models which would facilitate easy work flow are the needs of the hour. Having decided to take a plunge into retail banking. a futuristic approach. A fully fledged marketing department or division would help in evolving a brand strategy. This would mean a strong commitment at all levels. The need for building the organizational capacity needed to achieve the desired results cannot be overstated.scalability. networking across channels. intensive training of the rank and file. high net worth customer group and improve the recall value of the 60 .

confusing novelty with innovation (should be avoided). Even though bank after bank is coming out with new products. The days of selling the products available in the shelves are gone.  PRICING OF PRODUCT 61 . test of innovation is that it creates value. not all are successful.institution and its products by arresting the trend of getting receded from public memory. Revisiting the features of the existing products to continue to keep them on demand should not also be lost sight of. The much needed tie-ups with manufacturers/distributors/builders will also facilitated smoothly. novelty creates only amusement”.  PRODUCT INNOVATION Product innovation continues to be yet another major challenge. Banks need to innovate products suiting the needs and requirements of different types of customers. 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.

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 much needed transparency in pricing is also missing. A realization has to drawn that automating the inefficiencies will not help anyone and continuing the old processes with new technology would only make the organization an old expensive one. with each bank wanting to have a larger slice of the cake that is the market. Work flow and document management will be integral part of process changes.The next challenge is to have appropriate policies in place. Simplified processes and aligning them around delivery of customer service impinging on reducing customer touch-points are of essence. This will be one issue that will be gaining importance in the near future. etc. The strategy of each player in the market seems to be: ‘under cutting others and wooing the clients of others’. without much of a scientific study into the cost of funds involved.  PROCESS CHANGES Business Process Re-engineering is yet another key requirement for banks to handle the growing retail portfolio. margins. 62 . The industry today is witnessing a price war. The situation cannot remain his way for long. with many hidden charges. Most of the banks that use rating models for determining the health of the retail portfolio do not use them for pricing the products. There is a tendency. at least on the part of few to camouflage the price.

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. provision of intensive training on products and processes. ISSUE CONCERNING HUMAN RESOURCES While technology and product innovation are vital . say. coaching etiquette. facilitating the 63 . emphasizing. bringing in managerial controlling work place. formulating objective appraisals. By having universal tellers. 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. bringing in transparency. There is an imperative need to create a perception that the banks are market-oriented. the initiatives have to really come from the ‘back end’. putting in place good and acceptable reward and punishment system. The corporate initiatives need to focus on bringing around a frontline revolution. the soft issues concerning the human capital of the banks are more vital. good manners and best behavioral models. The top management of banks must be seen as practicing what preaches. The initiatives should aim at improved delivery time and methods of approach.

keeping the rural customer in mind. as manufacturers and distributors. In particular PSBs. which have a strong rural presence. In this scenario. need to address the needs of rural customers in a big 64 . Multinational Corporations. have already taken the lead in showing the way by coming out with exquisite products. which remains to be trapped. action that is taking place on the retail front is by and large confined two metros and cities. banks cannot lack behind. There is still a vast market available in rural India.  RURAL ORIENTATION As of now. Washing powders and shampoos in Re.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. packaging and promotions.1 sachet made available through an efficient network and testimony to the determination of the MNCs to penetrate the rural market.

While most public sector banks offer the same range of service with similar technology/expertise. the level of customer service 65 . These and only these will propel retail growth that is envisaged as a key strategy for portfolio expansion by most of the banks.way. SOME CRITICAL ISUUES  CUSTOMER SERVICE Customer service is perhaps the most important dimension of retail banking.

For the SIB (Small Industry and Business) sector banks. These banks should try Merchant Banking services en a small scale. etc. etc.. whose ultimate goal is to "own" a customer. banks should try to cater to the credit needs of the people involved in this profession. Front line staffs have to be educated in this regard. Perhaps more than the efficiency of service. TDR maturity advices. advices. the focus should be on identifying efficient units and allocations of loans lo these units. A wide network is absolutely imperative for this sector. common customers. Focused merchandizing through effective market segmentation is the need of the hour. Special facilities for cash tendered in bulk and immediate issue 66 . A first step can be the organization of the various retail branches to enter for different market segments like up market individuals. A customer centered organization has to be built up. Separate branches/divisions should be opened for traders and similar government businesses. /Cr.matters the most in bringing in more business. the approach and attitude towards customers will make the difference. A scheme of entrusting a group of important customers to the care of each employee/officer with a person to person knowledge and intimacy can be implemented all sundry advices/notices such as Dr. whether signed by employees or officers should be identifiable by the name of those signing. With agricultural output growing at a fast rate and mechanization setting in. traders. and inviting customers to contact them for further assistance in the matter.

In the urban areas. private banking to affluent customers can be introduced. Make sure that the officials as well as the staff are fully aware of the rules so that processing is faster. Provision for cash counting machines in these branches will reduce the monotony of cashiers and unnecessary delays. will go a long way in mitigating problems faced by traders who are the major customers for drafts issue.of drafts. In order to improve the speed of service the bank should. through which advisory and execution services could be provided for a fee. Innovative schemes like "paper-gold" schemes can be introduced. thus resulting in better productivity and ultimately in improved customer service.  TECHNOLOGY In the current scenario. Nationalized banks compare very poorly with the foreign banks when it comes to the efficiency in services. The personal segment is however the most important one. With the urban segment moving away because of disintermediation and competition from foreign banks. retail banks should focus on the rural/semi-urban areas that hold the maximum potential. by extending facilities like "guarantee bond" system. the importance of technology cannot be understated for retail banks which entail 67 . Foreign currency denominated accounts can also be introduced for them. Improve the rapport between the controlling offices and the branches to ensure that decisions arc communicated fast.

customers will not be at home in an automated. large queues and paperwork.  PRICE BUNDING 68 . These can be used for quick retrieval and report generation. 60% of India's rural branches can have PCs. Modem technology can make it possible to clear any check anywhere in India within three days. impersonal environment. in the rural and semi-urban areas. Computerization will be of great help in improving back-office operations. instantly. Installation of FAX facilities at all the big branches will facilitate speedy transfer of payment advices. Communication technology is especially needed for money transfer between the same city and also between cities.large volumes. Besides. The objective would be to ensure faster and easier customer service and more usable information. economically and easily to all those who need it -customers as well as employees. At present. But most of the banks are burdened with a large staff strength which cannot be done away with. Proper management information systems can also be implemented to aid in superior decision making. There are inordinate delays in India because of geographical and other factors. This will also drastically reduce the time bank staffs spend in filling and filing returns.

As banks are multiproduct firms this strategy is more applicable to retail banking. Banks have to 69 . Price bundling can be used in order to lengthen the relationship with a customer. It will reduce the need of resources to be put on acquiring new customers and saves time of the bank. If this information is systematically stored. Bank can get the benefits of information and transacting. In the process of extending variety of services. banks can efficiently utilize this information in order to explore new segments and to cross-sell new services to these segments. price bundling may cause less aggressive competition. for example current or savings account and payment services are highly related. In many cases demand for one service affects the demand for another service. Price bundling offers several economic and strategic benefits to a bank. Among the strategic benefits. and here price bundling is a better alternative than individual selling. banks are acquiring enormous amount of customer information. It offers economies of. utilization of the existing capacities and reaching wider population of customers.Price bundling is a selling arrangement where several different products are explicitly marketed together to a price that is dependent on the offer. it differentiates its products compared to rivals in the same market where the products are sold individually or in other kinds of bundles. Retail banking offers many services and it gives an opportunity to the bank to combine different services in different kinds of bundles. Cross-selling opportunities and larger customer base can also be the motive for merger against usually stated advantage of cost savings.

the basic features of all these products are almost one and the same.analyze the customer segment and bundle products before applying the pricing strategies. Among the delivery channels. Almost all banks have 70 . The first step in price bundling decision is to select the customer segment. Although banks have introduced a variety of deposit and loan products. The bundle is targeted to choose a strategic objective. ATMs have emerged as ubiquitous money centers. the comprehensive strategic objectives for the different customer segments are. • Cross-selling to customers that only buy one of the products.  INNOVATION The scope for innovation in financial services is unlimited. • Retaining customers that already buy both of the products. If there are two products (A and B) that are considered to be bundled together. • Acquiring new customers when they buy neither product for the time being.

established their ATMs. etc. sports tickets. are they cash cows? The answer is certainly no. The cost of maintenance of off-premises ATMs is higher in terms of replenishment. Banks can offer ATM screens for slide show advertising also. It is projected that the number of ATMs will reach up to 35. can we help with a loan?" ATMs can be either within the premises of a branch or at a remote place. event tickets. In the US. it provides great opportunity for fee revenue. approximately 23 percent of ATMs are offering sale of postage stamps. but branches can reduce the staff. ATM operation costs are largely fixed in nature the cost of the machine. armed security etc. It is the right time for banks to 71 . Out of this 881 ATMs have Swathing connectivity. which increased to 3. On premises ATMs are highly immune to competition. on installation of ATM. ATMs can guide the customer also.600. India had only 400 ATMs. For most of the banks the overhead costs on these ATMs are far higher than the revenue generated by them. and the satellite (network) connection. its maintenance. For example. replenishment of currency. if a customer's account balance has reached to bare minimum the ATM can give a helpful suggestion that "we notice your balance is low. cash couriers. The question arises is. probably on introduction of these new services customer has to spend more time at a point. However. The scope for wider services through off-premises ATMs is very high. ATMs should allow customers to buy postal and revenue stamps. Banks have to innovate wide range of services in addition to cash withdrawals. There should be a minimum number of transactions to cover these costs. the advantage of the ATM has always been speed and convenience. payment of bills.000 by the end of.

and mobile phones are ideal to utilize Internet banking services without customer accesses to PC. or branding opportunity.question themselves whether ATM is a service channel. Smart card revolution will further change the face of retail banking. India has around 3. [India's industrial sector accounted for about 21. At present. Mobile telephone market is penetrating. where as the services sector accounted for around 56.8% of GDP. channel. Smart cards can store information.1 of 72 . GROWTH DRIVERS OF RETAIL BANKING 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.7 million. carry out local processing on the data stored and can perform complex calculations. sales.4 million smart card users and it is estimated that by the end of 2004 it will reach 14. The future of retail banking lies more in mobile banking. By a tacit acceptance India has around three million mobile phone users and this number is expected to reach to eight million by 2003.

DEMOGRAPHIC / BEHAVIORAL FACTORS 73 .GDP in 2002-03 as per revised estimates released by Central.  Depressed stock and real estate markets as compared to those prevailing in 1992-93 to 1995-96 thereby diverting deposits to the banking sectors. Statistical Organization]. which is considered as the safest within the retail portfolio.  Comparatively stable real estate prices during last 4/5 years have laid to spurt in demand for housing loans. The sector enjoys a privilege of lowest NPAs amongst all categories of banks. as risk is diversified among a large number of individuals across the geographic dimensions.  Inflation continued to be under control. Housing loans and other retail loans are comparatively high yielding in terms of interest spread and safer.specially housing financefor deployment of funds for a longer period.  The lower uptake in the non-retail sector has compelled bans to shift their focus on retail assets .

 Emergence of new sectors such as Information Technology.  Increased number of dual income families resulting in higher income and savings. etc. Social security and status have also contributed to higher demand for housing units.  Awareness and sophistication in urban and semi-urban households for urban convenience. media. In the economy that resulted in higher income opportunities and major impact on change in urban consumption pattern.  Increased demand for dwelling units due to gradual shift of population from rural/semi-urban centre to urban/metro centre for employment. cars. 74 .  Shift in the attitude of the Indian household from "save and buy' theory to a `buy and repay' principle. etc. Growing concept of nuclear families than the joint families necessitating need for housing units as well as other items of consumer durables.  Increased middle-income segment and their income levels.

10 -lakh in case of rural and semi-urban areas now form part of the priority sector advances.FAVORABLE ROLE OF RBI  Inclusion of housing loans within the priority sector.  Deregulation of interest rate with option to quote fixed/ variable interest rate. 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 risk weight age bank's extending loans for acquisition of residential house properties to 50 per cent from 100 per cent. Reduction in Capital Adequacy Ratio requirement has effectively doubled the credit disbursement capacity of banks. 75 .  Continuous reduction in bank rate. Direct finance up to Rs.  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.

 The Government could not ignore the importance of housing sector in overall development of the economy due to the following factors: • Housing construction activities can generate opportunities for employment. CATALYST-ROLE OF GOVERNMENT  Tax exemptions for payment of interest on capital borrowed for purchase/ construction of house property and principle repayment. South ward movement in CRR and SLR ratios increasing lending capacity of banks. [It is important to note that the housing sector has been recipient of a large number of fiscal incentives in the last 6`h budgets].  These exemptions also changed the profile of the retail segment from hitherto cash transactions to book transactions. In the present context of jobless GDP growth. this issue assumes important as the housing construction provides massive job 76 . This made housing finance affordable and within the reach of common man.

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 could afford to quote lower rate of interest.5-9%.opportunities for both unskilled and skilled man power. even below PLR as low cost [saving bank] and no cost [current 77 . • Mass construction of houses will result in the benefits of the nation by the way of healthy standard of leaving. 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. motivation to save more and thereby providing sustainable economic recovery. ATMs have emerged as an alternative banking channels which facilitate low-cost transactions vis-à-vis traditional branches / method of lending.  The interest rates on retail loans have declined from a high of 16-18%in 1995-96 to presently in the band of 7. 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.

stamp duty. society charges and other associated expenditures such as furniture and fixtures in case of housing loans and cost of registration and insurance. As of now.  Continuous waiver of processing fees / administration fees. 3 years and long term ranging term ranging from 15/20 years as compared to their earlier 5-7 years only.  Easy and affordable access to retails loans through a wide range of options / flexibility. the cost of retail lending is restricted to the interest costs. etc.  Making financing attractive by offering free / concessional / value added services like issue of credit card. insurance. Banks even finance cost of registration.account] deposits contribute more than 1/3rd of their funds [deposits]. etc. prepayment charges. by the Banks. in case of auto loans. etc.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. OPPORTUNITIES 78 .  Offering retail loans for short term.

coupled with more liberal attitudes towards personal debt. The younger population not only wields increasing purchasing power. Improving consumer purchasing power. The combination of above factors promises substantial growth in retail sector.Retail banking has immense opportunities in a growing economy like India. consumer protection. they are perhaps more comfortable than previous generations. responsible lending. is contributing to India’s retail banking segment. The rise of Indian middle class is an important contributory factor in this regard. retail banking is going to emerge a major driver. Some of the key policy issues relevant to the retail-banking sector are: financial inclusion. but as far as acquiring personal debt is concerned. CHALLENGES TO RETAIL BANKING IN INDIA 79 . As the growth story gets unfolded in India. The percentage of middle to high-income Indian households is expected to continue rising. the areas of potential conflicts of interest tend to increase in universal banks and financial conglomerates. and access to finance. long-term savings. financial capability. regulation and financial crime prevention. Due to bundling of services and delivery channels. which at present is in the nascent stage.

This compels all the banks to consider seriously all the documents which they accept while approving the loans. Someone has rightly said.  The efficiency of operations would provide the competitive edge for the success in retail banking in coming years.  Customer service should be at the end all in retail banking. refilling) etc.. are being outsourced by Indian banks. strategy of Knowing Your Customer (KYC) is important. maintaining and optimizing the performance of retail banking networks. The issue of money laundering is very important in retail banking.  The dependency on technology has brought IT departments’ additional responsibilities and challenges in managing.” Thus. 80 . entire ATM set up and operation (including cash.  The issue of outsourcing has become very important in recent past because various core activities such as hardware and software maintenance. “It takes months to find a good customer but only seconds to lose one.  Banks are expected to take utmost care to retain the ongoing trust of the public. So the banks are required to adopt innovative strategies to meet customer’s needs and requirements in terms of services/products etc. It is equally important that banks should maintain security to the advance level to keep the faith of the customer.

a modern banking professional. for its customers through ATMs. mobile and internet banking. plastic money (credit and debit cards). so banks need to retain their customer in order to increase the market share. It has also offered services like D-MAT. the retail banking sector in India has also witnessed phenomenal growth.5 per cent growth of the Indian economy over the past few years. anywhere banking.  One of the crucial impediments for the growth of this sector is the acute shortage of manpower talent of this specific nature. as in case of other nations. It has faced up to the need of the hour and introduced anytime.  HIGH –TECH BANKING 81 . online transfers. If all these challenges are faced by the banks with utmost care and deliberation. for a modern banking sector. This has not only helped in reducing operational costs but facilitated greater conveniences to its customers. the retail banking is expected to play a very important role in coming years. etc. RETAIL BOOM Keeping pace with the average 8. The customer retention is of paramount important for the profitability if retail banking business.

9 per cent during 2006-07 from 40. making the whole process simpler and faster. The number of credit cards outstanding at the end. banks have significantly expanded their ATM network over the past three years.088 and 20.ATMs . According to the RBI data as of end-June 2008.314 compared to 27.With growing technological innovations.5 per cent). although the retail portfolio of banks saw a slowdown to 29.9 per cent in 2005-06.267 as at end-March 2007 and 2006. the number of ATMs in the country had climbed to 36.73 per cent during this period. The use of credit cards has been growing significantly over the last few years.  PLASTIC MONEY Credit cards have also played an important role in promoting retail banking. As per the RBI data.39 million in June 2007. the growth was faster than the overall credit portfolio of the banking sector (28. respectively. with usage increasing by 10.June 2008 stood at 27.02 million as against 24. The sector has delivered a growth of around 30 per cent per year over the past 4-5 years. 82 .  LOAN DISBURSEMENT Technology has facilitated the growth in retail loan disbursements.

are many. The number of bank branches providing CBS rose rapidly to 44 per cent at end. although the revolution in retail banking has changed the face of the Indian banking industry as a whole. has come alive during the past four years. The reasons for this shift to retail. particularly the housing finance segment. it has a still mile to go. is likely to grow at a CAGR of 28 per cent till 2010 to Rs 97. according to a report. So.March 2007 from 28.  FUTURE OUTLOOK Indian retail banking. The important among these include— 83 . Electronic fund transfer facilities and mobile banking are expected to provide a further fillip to the retail banking in the coming years. 00 billion. CORE BANKING SOLUTIONS (CBS) The concept of CBS.9 per cent at end March 2006. which allows a customer to fulfill a wide range of banking operation online.

 Risky nature of lending to corporate.  Rising disposable income. changing lifestyles/aspirations and willingness to spend for more luxuries of the higher middle class. leading many highly rated corporate to tap the domestic and/or overseas markets directly for finance. commercial and other business sector because of industrial slowdown. rather than approaching the banks.  Increased government incentives in form of tax rebates etc. given in industry recession and uncertainty prevalent in the economy.  High disintermediation pressure. in the case of certain loans like housing loans. The poor credit off take to the corporate.  Relatively safe nature of some of the retail credit finance with lesser incidence of loan turning bad. 84 .

homes and two-wheelers. The Mumbai-based bank has seen a record lending of Rs 4.ICICI Bank . personal and home loans. the country's second-largest private bank. The loan growth is spread across several segments of retail banking such as automobile loans.000 crore for the month of March. commercial vehicles. which is more than double of what it had disbursed in the month of April 2009. 85 . two-wheeler loans and credit cards. displacing ICICI Bank as the recovery in demand and robust economic growth helped the bank to lend more to customers buying cars.Asia's 2nd best retail bank HDFC Bank. has moved to the top of the pile in the retail banking segment.

India’s largest private sector bank and one stop financial solutions provider with a diversified and de-risked business model • Large capital base • Vast talent pool • Low operating costs • Technology focus • Strong corporate relationships ICICI Bank is well positioned to redefine the banking model by focussing on the untapped potential in the profitable retail business segments and leveraging its superior delivery capabilities and lower operating costs in the under-served corporate banking business • Structured finance • Corporate banking 86 .

As development takes place in the society. The wealth creation and its professional management are yet another distinct advantage the society or nation can derive from Retail Banking. These resources could be channelized for nation building.• Retail banking FUTURE OF RETAIL BANKING Retail banking has significant past and glorious future over the years. the prospects of retail banking are brighter than ever and the bankers have to give continued thrust to this area of banking. The society is made of the individuals and the environment surrounding him. the needs of the people grow faster than ever. with the consumers ever multiplying needs there is definitely a vast scope for the 87 . The depth of the untapped resources in the retail segment is not yet measured. On the whole. 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. Thus. looking ahead. There is definitely a vast scope for the furtherance of the Retail Banking business.

It may prove possible. micro-planning. There is a need for constant innovation in retail banking. the challenges are equally discouraging. there is a possibility that technology go beyond merely reducing the cost & improving the quality of current products. technological up gradation. to combine functions in new ways. prudent pricing. effective risk management and asset liability management techniques. customization. Operationally. are now competing for increasing their retail business. This requires product development and differentiation. Banks therefore. How far the retail 88 . CONCLUSIONS 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.furtherance of the retail banking business. Walk-in business is a thing of past and banks are now on their toes to capture business. home / electronic / mobile banking. even profitable. marketing. Retail banking sector as a whole is facing a lot of competition ever since financial sector reforms were started in the country. While retail banking offers phenomenal opportunities for growth.

com 89 . BIBLIOGRAPHY Retail Banking vol. Furthermore. However. F. in all these customer interest is of chief importance. The banking sector in India is representing this and I do hope they would continue to succeed in this traded path.Google. the kind of technology used and the efficiency of operations would provide the much needed competitive edge for success in retail banking business. K.1. Thomas (PGDBA. College) www.Katuri Nageshwara Rao (ICFAI University) Management of Banks & Financial Institutions-Prof.C.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.

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