Retail Banking in India

S.C.
S (A) College, Puri
Retail Banking in India
1. INTRODUCTION
1.1 Meaning of Retail Banking:
Retail banking is typical mass- market banking where individual
customers use local branches of larger commercial bank. Services offered
include: savings and checking accounts, mortgages, personal loans, credit cards,
and so forth.
Retail banking aims to be the one-stop shop for as many financial services
as possible on behalf of retail clients. Some retail banks have even made a push
into investment services such as wealth management, brokerage accounts, private
banking and retirement planning. While some of these ancillary services are
outsourced to third parties (often for regulatory reasons), they often intertwine
with core retail banking accounts like checking and savings to allow for easier
transfers and maintenance.
1.2 Characteristics
of Retail Banking
Multiple products ( deposits, credit card, insurance, investment

and securities)
Multiple channels of distribution (call centre, branch, internet)
Multiple customer group ( consumer, small business and
corporate)
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S.C.S (A) College, Puri
1.3 Types
of Retail Banks
1.3.1Commercial bank:A commercial bank is a type of financial intermediary and a type of bank.
It raises funds by collecting deposits from businesses and consumers via
checkable deposits, savings deposits, and time (or term) deposits. It makes loans
to businesses and consumers. It also buys corporate bonds and government
bonds. Its primary liabilities are deposits and primary assets are loans and bonds.
This is what people normally call a bank the term
Commercial Bank was used to distinguish it from an investment bank. Since
the two types of bank no longer have to be separate companies, some have used
the term commercial bank to refer to bank which focus mainly on companies.
In some English speaking countries outside North America, the term trading
bank was and is used to denote a commercial bank .
1.3.2 Community Development Bank. :Community development banks (CDBs) are a special kind of bank
designed to serve the residence of and spur economic development in low to
moderate income (LMI) areas. When CDBs provide retail banking services, they
usually target customers from financially underserved demographics.
Community development banks can apply for formal certification as a
community. Development Financial institution (CDFI) from the community
Development. Financial institutions fund of the U.S Department of the Treasury.
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1.3.3 Private bank

Private bank are banks which are not incorporated and hence the entirety
of their assets is available to meet the liabilities of the bank. These banks have a
long tradition in Switzerland, dating bank to at least the revocation of the Edict of
Nantes (1685). However most have now become incorporated companies, so the
term is rarely true anymore. Although not termed banks privately- owned
digital gold currency providers, such as e- gold and gold Money be used as a
substitute for a private bank.
The word private also alludes to bank secrecy and minimizing taxes via
careful allocation of assets. An offshore bank account may be used for this
purpose.
1.3.4 Offshore Bank
An offshore bank is a bank located outside the country of residence of the
depositor, typically in a low tax jurisdiction (or tax haven) that provides financial
and legal advantages. These advantages typically include some or all of
Strong privacy (see also bank secrecy, a principle born with the 1934
Swiss banking Act)
Less restrictive legal regulation
Low or no taxation (i.e. tax haven)
Easy access to deposits (at least in terms of regulation)
Protection against local political or financial instability
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1.3.5 Saving Bank:A saving bank is a financial institution whose primary purpose is accepting
saving deposits. It may also perform some other functions. In Europe, savings
bank original objective was to provide easily accessible savings products to all
strata of the population. In some countries, savings banks were created on public
initiative, while in others socially committed individuals created foundation to
put in place the necessary infrastructure.
Now-a-days, European savings banks have kept their focus on retail
banking: payments, savings products, credits and insurances for individuals or
small and medium-sized enterprises. Apart from this retail focus, they also differ
from commercial banks by their broadly decentralized distribution network,
providing local and regional outreach and by their socially responsible approach
to business and society.
1.4 Objectives
The purpose of this panel is to contribute to the knowledge and
understanding of the future of retail banking as it is being shaped by the
current forces on the financial markets.
The panel is addressed to people interested in the financial industry. It will
give an overview of the banking market structure by providing a vision of
the status of the banking scenario and of the distribution structure in
Germany, Italy and Switzerland.
It will discuss key concept of retail banking such as strategy, resources and
technology adopted by the banking sectors and how they are strongly
interrelated with defining the success of the banks. The panel aims at
giving a vision of the actual situation and providing future direction and
forecast of the banking structure in the next years.
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Specifically it is aimed
Better understanding the change of the market of retail banking- past,
present and future-in order to improve the definitions of relevant
research directions.
Evaluating the direction of the ongoing market, with regard to actual
and foreseen changes in the banking environment and in other
conditions which affect the banking function;
Defining future prospective and future business models and to provide
information on e-banking, competitors and future market directions.
1.5 -Scope
All round increase in economic activity
Increase in the purchasing power. The rural areas have the large
purchasing power at their disposal and this is an opportunity to market
Retail Banking.
Indiahas 200 million households and 400 million middleclass population
more than 90% of the savings come from the house hold sector. Falling
interest rates have resulted in a shift. Now People Want To Save Less And
Spend More.
Nuclear family concept is gaining much importance which may lead to
large savings, large number of banking services to be provided are day- byday increasing.
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.
1.6 Research Methodology
The data collected is mainly from secondary sources. Collection of secondary
data from sources such as journals, websites, books and magazine.
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1.7 Limitation:
Information regarding cost advantage and benefits derived by bank will be
divulged. Time is a major constraint.
1. 8 Chapter Planning
CHAPTER -1
INTRODUCTION ( Retail Banking in India )
CHAPTER. 2
RETAIL BANKING IN INDIA
CHAPTER.3
RETAIL BANKING BLUES
CHAPTER. 4
POTENTIAL FOR RETAIL BANKING- IS THE SKY LIMIT

CHAPTER.5
CONCLUSION &EXECUTIVE SUMMARY
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2. RETAIL BANKING IN INDIA

Abstract:
The growth of Retail Banking is an important milestone in Indian Banking
Sector Developments, and the private sector banks are performing much better
than the counter parts. However, the retail banking in India is very small by
world standards. The retail loan constitutes less than 6-7% of the GDP vis-vis 18% to 60% for Asian Economies and the housing loans are just 2.5% of
the GDP vis-a-vis 25% to 60% in other nations. This is because of the retail
banking in India has not reached in its full potential.
2.1 Introduction
The operations of any banking unitary are divided into two broad
categories viz., wholesale banking or corporate banking and Retail Banking.
The wholesale banking covers the financial needs of corporate houses,
financial institutions, trust etc. and the size of the account is quite large. On
the other hand, Retail banking is not a new phenomenon; it has always been
prevalence in various forms. But for the last few years, it has become
synonymous with main stream banking for many banks. Typically, it refers to
dealing with individual consumers both on the liabilities and asset side of the
balance sheet. On the liabilities side, in the form of deposits such as fixed,
current, saving account. Whereas on the asset side in the form of various loans
such as personal loans, housing loan, auto loan, educational loans etc. Beside
this, the retail banking also provides various ancillary services such as mobilebanking, phone banking, internet banking, depository services etc.
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2.2 Retail Banking - An Indian Scenario

Indian retail banking is up and kicking. During 2009-10 retail
contributed 42% of overall credit growth. Growing at the CAGR of 35% over
last 5 years the retail asset touched Rs1, 89,000 crore. Major product segments
of retail credit include housing finance, auto finance, personal loans,
consumer durable loan and credit cards to name a few. Housing constitutes
the biggest segment of 48% of the entire retail credit; followed by the auto
loans segment which constitutes almost 27.8%. While the balance retail credit
is used by consumer durables at 7.2%, educational and other personal loans
take the remaining 16%. Banks are increasing their dominance in housing
finance and capturing the market share of the housing finance companies.
During 2009-10, the market share of banks stood at 62%, against the 33% by
Housing finance companies; Rs2-5 lakh margins constitutes almost a third of
the loan size. The consumer durable loan follows the auto loan market in the
third position, constituting approximately 7% of total credit. Metro centers
continue to dominate the market with 29% of total retail credit, closely
followed by the rural market at 27% of total retail market. Urban and Semi
Urban centers contribute around 22% each. In the educational loan segment,
disbursement of domestic banks has surged by 13% to Rs2249 crore in 200910; up from Rs1983 crore in 2006-07. The number of students availing
education loans has increased to 1, 40,000 from 1, and 08,000 during this
period.
2.3 Objectives of Retail Banking

2.3.1 General objectives
i. It aimed at measure the impact of all the pricing variables on credit growth
ii. To finding relationship between growth of Deposits with banks and the
loans given out.
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iii. Relationships between interest rates offered on deposit and the interest
rates charged on loans and other pricing variables such as Repo rate, SLR,
CRR, Benchmark rate
iv. Aimed to find out the seasonality patterns in credit growth
2.3.2 Specific objectives
1. Predicting the Losses arising out of account charge-offs in the next months.
2. Predicting the Probability of Default for every account on the books and
developing some sort of a score to explain the risk in giving out new loans to
existing customers
3. Developing some sort of an Application score to foretell the future risk of
charge-off for prospective customers if booked and hence help in the decision of
booking the account.
4. Developing a score to indicate the future profitability of a booked
account/prospect
5. Developing a score to identify the ease of collecting outstanding balances from
an account so that the collection resources can be properly utilized
6. Developing a Score to improve the chances of a prospective account
responding to your tele -marketing call positively
7. Identifying which of the other banking products can be cross-sold to your
existing customer.
8. Segmenting the customer base to identify the segments which will help in
improving ROE
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9. In the case of a home loan portfolio / auto loan portfolio, develop a model to
calculate a probability that an existing account can actually refinance his
mortgage with another bank.
2.4 Growth of Retail Banking In India
Growth of Retail Deposits
Growth of Retail Lending
Growth of Ancillary Retail Banking Services
Emergence of Banc Assurance
Growth of Retail Deposits
The Indian Banks have witnessed a quantum jump in their retail deposits,
as presented in Table 1.
Retail Deposit of Banks in India (as on 31st December 2010) (Rs. In bn)
Banks Name
Amount
Growth Rate
PNB
372.50
7.53
SBI (All Associate)
3863.00
20.00
ICICI
2623.00
62.00
HDFC
1344.00
26.00
IDBI
742.00
18.00
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Growth of Retail Lending

The emergence of retail lending has more to do with economic prosperity
(after 1992, Indian economy grew at an average rate of 6.8 percent), improving
consumer purchasing power coupled with more liberal attitude towards personal
debt., increasing penetration of middle to high income households, changing
consumer demographics (India is one of the country having 70% of the
population below 35 years of age), technology advancements, developments of
the software industry, increase in treasury income of the banks, decline in interest
rates, etc. India has witnessed a shift from wholesale lending to retail lending
especially private sector banks, as shown in Table 2.
Table 2: Size of retail loan portfolio of Indian Banks (As on 31 st March 2010)
( Rs. In Bn )
Banks Name
ICICI
SBI (All Associate)
HDFC
PNB
IDBI
All India (Excluding
Foreign Banks)
Retail Loan
1347.54
956
921
658
314
3654
% of the total
Portfolio
100
56
43
21
16
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There is still much scope for retail lending in India, after all, retail loan
constitutes less than 25% of GDP in India vis--vis 18% to 60% for other Asian
economies (table -3)
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Table 3: Retail Loan (as a percentage of GDP) of Asian Economies

Name of the Country
India
Thailand
Singapore
Korea
Taiwan
Malaysia
Hong Kong
Retail Loan as a
% of GDP
16
18
49
50
52
55
60
Further, the RBI report on trends and progress of India, has shown that the loan
value of these retail lending typically range between Rs.20, 000 to Rs 100 lakh.
The loans are generally for duration of 5 to 7 years with housing loan granted for
a longer duration of 15 years.
Public Vs Private Bank :
A comparative Analysis of retail banking:As we know that both the public and private banks have been trying their best to
create a niche in this regard, but the private sector banks are much better than
their counterparts (Table-4). This is because of the fact that private sector has laid
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more stress on virtual banking and very keen in applying IT in their banks. But
now the public sector has also realized the potential of IT, and also moving
towards the state of the art virtual banking system.
Table 4:- Retail Banking Growth Rate: Public Sector Vs Private Sector
Banks
Area
Home Loan
Consumer Durables
Personal Loan
Overall Retail loans
Private Sector (ICICI, Public Sector (SBI,

HDFC, UTI and IDBI) PNB, Canara Bank,
BOB and BOI)
58.00
50.44
7.72
67.00
26.84
62.00
36.00
Growth of Ancillary Retail Banking Services in India

The growth of related ancillary services is given below:
(a) ATMs : The entry of foreign and private sector banks such as HDFC Bank,
ICICI Bank, City Bank, Standard Chartered Bank, etc. led to the growth of ATMs
not with their own networks but their partners banks network also whom they
have got mutual understanding for sharing ATMs of other banks where they have
no account. (Table-5)
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Table 5: Number of ATMs of Different Banks in India

Name
Dena Bank
HSBC
Bank of India
IDBI
Syndicate Bank
Andhra Bank
Corporation Bank
UTI / Axis Bank
HDFC Bank
ICICI Bank
SBI & Associates
PNB
Number of ATMs
390
142
404
232
1087
492
1012
2922
1386
2813
8600
4250
(b) Mobile Banking :- All over the world, mobile phones have become one of
the convenient means of carrying out of banking transaction. In Korea, there are
12million mobile phones users. But in India, A very few people use mobile even
for simple banking queries inspite of having 47 million mobile users based with
nearly two million being added every month. This was due to low level of
awareness, frauds and security problems, complex process etc. however, the
various banks have entered into strategies tie ups with mobile companies so that
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customers can avail banking services. For e.g. ICICI has signed MOU with
Reliance India Services of mobile banking free of cost to those clients who have
Reliance hand sets.
(c)Internet Banking:-ICICI Bank was the pioneer to introduce internet banking.
Later on, HDFC Bank, City Bank, IDBI and other banks followed the suits. As
per the industry estimates, there is just 0.1 per cent of the total banking
population who use the internet banking where as in Korea and Singapore nearly
40-50% of their population is banking over the internet. The biggest drawback
for the use of internet banking in India is the lack of infrastructure facilities. But
now the IT Ministry is keen of expanding the internet penetration, the day is not
too far when greater part of our population would be using the internet banking.
Further, the banks also in the process of setting up strategic alliance with other
groups of improving the banking scenes. On November 14, 2005, SBI and Tata
Consultancy Services (TCS) have performed a joint venture called C-Edge
Technology Ltd. Which will offer technology & consultancy services in the field
of banking industry.
(d)
Credit / Debit Cards:
While the usage of cards by customer of the
banks in India has been in vague since the mid 1980s, it is only since early
1990s that the market has witnessed a quantum jump. The total numbers of cards
issued by 42 banks have been increased from 4.89 crore in July 2005 to 39.23
crore since December 2010. SBI has more than 15 million of card base users and
it has established 60000 POS (Point of Sale) through out the country. The ICICI
bank has about 5 million credit card users where as HDFC bank has 2 million
credit card users and growing at a rate of 5000 per month. However, when
comparison is made internationally, the consumer expenditure through plastic
bags is less than 2% in India where as in the USA; this figure is standing at 74%.
Further, in Korea there is 4.7 credit card per bankable population where as in the
India this figure stands only 0.5. The various factors responsible for this trend
are:
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1.
Lack of awareness
2.
Most of POS are located at big super markets, shopping malls.
3.
Most of merchants insist on minimum amount of buying in order to use the

credit card.
4.
People have also unaccounted money, that why prefer to do shopping on

cash basis.
It is very important to mention that the debit cards are more popular than
credit cards, because the money drawn from ATMs of used at merchants outlets
is limited to the balance held in their account. On the other hand, credit cards are
issued on case to case basis based on the credit worthiness age, job and annual
income of the account holders. Presently, the total number of debit cards in
circulation is more than 60 million whereas credit cards in circulation are
20million. The HDFC bank has a debit card more than 2.5 million and growing at
the rate of 8000 per month.
(e)
Depository Services:
ICICI Bank, Indusind Bank, Bank of Rajasthan
Ltd. Etc provide depository services to their clients.

(f)
International Presence: Public as well as private sector banks are now in

the process of setting up retail banks in other nations. For e.g. SBI has,
launched retail banks in Maturities by acquiring India Ocean International
Bank Ltd. in that country. It has also set up retail bank in China, and other
banks that are in the process of setting up retail banks in China are ICICI,
HDFC, SBI have already established their retail banks in Dubai and other
nations.
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Bank Assurance
Due to all the movements, the boundaries that have kept various financial
services separate from each other have vanished. The coming together of
different financial services has provided synergies in operations and development
of new concepts. One of these is Banc Assurance.
Banc Assurance simply means selling of insurance products by banks. In this
arrangement, insurance companies and banks undergo a tie-up, thereby allowing
banks to sell the insurance products to its customers. This is a system in which a
bank has a corporate agency with one insurance company to sell its products. By
selling insurance policies bank earns a revenue stream apart from interest. It is
called as fee-based income. This income is purely risk free for the bank since the
bank simply plays the role of an intermediary for sourcing business to the
insurance company.
Coming to India, Bank
Assurance is a new buzzword in India. It
originated in India in the year 2000 when the Government issued notification
under Banking Regulation Act which allowed Indian Banks to do insurance
distribution. It started picking up after Insurance Regulatory and Development
Authority (IRDA) passed a notification in October 2002 on 'Corporate Agency'
regulations. As per the concept of Corporate Agency, banks can act as an agent
of one life and one non-life insurer. Currently Banc Assurance accounts for a
share of almost 25-30% of the premium income amongst the private players in
India
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2.5 Challenges to Retail Banking in India

Although, the retail banking offers phenomenal opportunities for growth, the
challenges are equally daunting as explained below:
1)
A study conducted by Reichheld etal (published in Harward Business

Review), which identified that, 5% increase in customer retention can
increase profitability by 35% in banking business, 50% in Insurance and
Brokerage & 125% in credit card market. Thus the customer retention is
of paramount important for the profitability of retail banking business, so
banks need to retain their customer in order to increase the market share.
2)
The issue of money laundering is very important in retail banking. This

compiles all the banks to consider seriously all the documents which they
accept while approving the loans.
3)
The dependency on the technology has brought IT departments additional

responsibilities and challenges in managing, maintaining and optimizing
the performance of retail banking networks. It is equally important that
banks should maintain security to the level to keep faith of the customer.
4)
The issue of outsourcing has become very important in recent past because
various core activities such as hardware and software maintenance, entire
ATM setup and operation, MIS and data centre
5)
Management, etc being outsourced by Indian Banks. Thats why before

taking any decision on outsourcing; banks are expected to take all-most
care to retain the ongoing trust of public.
6)
Customer service should be all and end all of retail banking. Someone has
rightly said, It takes months to find a good customer but only seconds lo
lose one. Thus, strategy of Knowing Your Customer (KYC) is paramount
important. So the banks are required to adopt innovative strategic to meet
customers needs and requirements in terms of services/ products etc.
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7)
Last but not least, the efficiency of operative ness would provide the
competitive edge for the success in retail banking in coming years.
If all these challenges are faced by the banks with utmost care and
deliberation, the retail banking is expected to play a very important role in
coming years, as in case of other nation
2.6
Drivers of Retail banking:

(a) Economic prosperity
(b) Changing consumer demographics
(c) Technological innovation
(d) Decline in interest rates
2.7
Strategies Attributes to Retail Banking:

Lowest price
Superior convenience
High Service quality
Personalised and tailor products and services
Provide advice and acknowledge importance of their customer.
2.8
Future Prospects of Retail Banking:

Customer centric banking
CRM in Business transformation
Branch Banking
Shift from routine banking transactions to electronic channels
Focusing more on providing value added services through branches
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3.1 RETAIL BANKING BLUES

The banking scenario in India is at the crossroads and is continuously evolving,
but the progress has been remarkable over the past decade.
IT HAPPENED to me and it could have happened to you. The moment one enters
a bank, one looks for some assistance in our transaction. One expects to be served
immediately or at the earliest. Quite contrary to this, when one enters any bank,
one would try to catch the eye of an employee. Depending on the size of the
bank, there will be any number of employees working unmindful of a customers
entry. With the exponential growth of touch points and sophistication, the
frontline sales force is assuming the role of a relationship person and is
constantly under the microscopic observation of the customer. At a time when
channel innovation has become the order of the day to encourage effective
banking habits among customers, a vital component of the supply chain, namely,
customer interface is totally missing.
With the advent of liberalization, the banking industry had made a head start
towards the best banking practices at each interaction point of the supply chain.
However, the Indian landscape is not a replica of the west and is in fact unique.
Here is a look at the flipside of some of the common practices of Indian banks.
3.1-1 Multi Channel Distribution:
The technological aggregation has resulted in new modes of distribution
of banking products. Today consumers have various options to choose from.
Banks are trying their best to acclimatize customers to the new products and
facilities in anticipation of reduced cost and ease of operation and flexibility for
the customers (a transaction costs Rs. 35-45 if done with physical presence of the
customer at a branch, Rs.7 through a cheque and Rs.2 on the internet). These new
creations have resulted in different channels of distribution of banking products
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and services. The transaction simplicity through these channels is drawing people
to these banks, not just for banking products but for other ancillary products such
as payment of utility bills and insurance premium.
In India there are around 4500 ATMs and if they continue to grow at the current
pace, there will be around 35000 by the end of the year 2005. The cash
movements through ATMs are between Rs. 35000 and Rs. 45000 cores each year.
So will the other channels grow along with ATMs? The main question remains to
be answered, if they are managing interactions among channels as
rigorously as they manage each channel in isolation. [We should congrats GTB
(multi channel integration) and ICICI bank (migrating customer transactions to
low cost remote channels) for winning the micro banker award]. Whenever new
channels are introduced, such offerings should be integrated, indicating strategic
use of channels to enhance customer information and value.
Hence for mere survival, banks need to think in terms of integrating the
different channels that are bound to grow with time.
3.1-2 Call Centre (Support Services):
Banks have picked up the nuances of getting closure to the ultimate customer and
separated the sales and service function. With call centers, services are being
offered by stimulating customer interaction. The initiation of such call centers
services was much appreciated but very few changes have been effected since
then and they are losing their efficacy. The model since inception being the same,
data are increasingly built around it. With such use data base, calls are being
queued up, causing irritation to customers due to high waiting time. Banks have
two options before them.
(a) Change the model and develop call centers around customers (accessing
different accounts of a particular customer) instead of products present the
objective then would be to dig up the information across products and service
them in a jiffy without much waiting time.
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(b) With the help of technology banks can redefine the acceptable waiting time of
callers (customers) before they terminate the call for want of service from tele
executives, towards improving the service levels of the banks.
3.1-3 Technology:
Technology under lies the above two features this is taken to be the cutting edged
among banks and for the real product differentiation the public and private
players are becoming tech savvy. With increasing emphasis on technology, banks
try to leverage the good aspects of it and venture into new areas of cross selling
their products through various channels. The cost of savings and the ease of
effecting a transaction through technology are increasingly recognized and are
compelling bans to carry the same to almost all the dimensions of banking
incidentally, the more advance the technology, the higher the cost savings
generated with much wider coverage resulting in quicker, cheaper and reliable
service. However one should not get lost in the maze of new technologies as
statistics dont support the proposition of technology aggression. ( The number
of people accessing internet is 7 per 1000 people, personal computers in use are
6 per 1000, cellular subscribers 6 per every 1000, urban population 27.9 percent
of total population and this will grow to 32.2 percent by 2015). This reminds one
of better channel synchronization and integration but not proliferation. Banks
should allow the earlier facilities to sink into the culture of the customers before
any new facilities are launched. Also, the earlier facilities should be embedded
with services so that customers not only appreciate new technology, but are also
in a position to operate.
3.1-4 Rural Exposure:
What is happening on the rural front? Why is there a reduction in the number of
the new bank branches? Is it because the rural areas suddenly lacked in potential
or they lacked in infrastructure for banking in such area. Looking at the statistics,
the scenario seems to have changed drastically after the Larisimhan committee
proposal in 1991. it has forced to the philosophy of free markets and could
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successfully circumvent the intentions of the Government about building a stable

financial system unique to the Indian economy.
The following matrix depicts the rural banking scenario on different parameters.
Between March 1994 and March 2000, the number of bank offices in rural areas
(population between 10000 to 100000) rose from 11890 to 14723. The figures
have been going up in urban (population between one lakh and 10 lakhs ) from
8745 to 10447 and 5839 to 8557 respectively. However, around 98.5 percent at
the rural borrowers still look to informal financing with credit limits below Rs. 2
lakhs. Today agricultural lending by commercial banks has almost equaled the
outstanding personal loans of rural consumers.
3.1-5 Road Ahead
The branding of banks in India is not popular atleast for now. Sooner or later it
will assume importance and it will be a pertinent question for banks to identify
themselves in an otherwise messy market where the products are pretty much the
same. The motto will be to get more and more people involved in their banking
business and such a realationship will be hard to come by with plain vanilla
products and services. the banking scenario in India is at the crossroads and is
continuously evolving, but the progress has been remarkable over the past
decade. Without much leeway in the avenues for operations, the true challenge
for the banks is to stand out in the midest of hard- hitting regulations of the apex
body. Globalization, consolidation and want of expertise are drastically
redefining the banking the taxanomy. Companies will surely be looking forward
to seeking leadership and experienced management talent to deal with these
challenges.
3.1-6 Transforming Retail Banking Process:
The retail banking environment is undergoing major change. Retail Banking
customers are much more active then they were a decade ago. Over the past
decade, third party distribution- such as mortgage brokers and independent
banking customers are demanding more customized products and services. These
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changes impose significant new demands on Retail Banks if they are to stay
competitive. The answer lies in reconfiguring their business process specially,
redesigning, automating, integrating and standardizing. For many banks,
incremental improvements to end to- end processes in silos will be insufficient.
Whats often required a more comprehensive transformation that can be achieved
by turning to modular, standardized process models. This popular modular,
standardized approach is a critical departure from the traditional end-to-end,
product based process and system architecture which encompassed the full value
chain (service, product administration, and customer- data repository tasks) for
each product.
Such a transition is helpful for scalable products such as credit cards, simple
loans, and other vanilla banking products. But it may not be suitable for all
players in all circumstances. It is particularly valuable for retail banks seeking to
drive radical improvements in overall performance. A few leading banks have
already adopted modular, standardized processes and are now enjoying improved
efficiencies and lower costs.
3.1-7 Size of the price:
Banks need more flexible and more integrated processes to provide the
targeted product and service offerings that their customers seek. For instance,
customers now look for more varied mortgage offering- such as mortgages linked
to current accounts ( to reduce interest expenses) and reverse mortgages ( to
provide cash during retirement). To maintain and build competitive advantage,
banks need to improve flexibility and reduce costs. If they dont, specialist
providers are likely to pick apart their best business.
3.1-8 Going Modular:
Traditionally, retail banks have organized their operations by product line such
as loans, deposits and investments in individual business silos, each of which
has used different process models. Retail banking still tends to manage most of
these various processes from customer acquisition to product service-in-house.
38
Now that they tend to cooperate more with external partners, banks have to
rethink those old siols and process. To make the transition to modular structures,
a bank should take its traditional end- to end silo organization back to first
principles and then assemble individual modules. This involves peeling processes
back to individual building blocks and then putting them together in the most
efficient way possible frequently across product lines, in the back office, this
often involves building scale. In the middle office, it means consolidation
separate process into shared utilities.
However, for some players it may be preferable to run a separate platform
for a particular product- such as specialist mortgages or current accounts with
special features when the potential scale benefits of one central platform are
insufficient to warrant the complexities of merging that products business
process into the central platform.
There are two guiding principles in the transaction of modular structure;
Modularity: Grouping similar types of tasks and defining functional
building blocks consistently across different products or channels.
Commonality:
Treating similar modules as one and considering one
common, standard solution.

Applying modularity creates interchangeable process blocks. For instance,
scoring the risk of customer default is a task conducted for multiple products.
Therefore, it is more efficient to treat this task as an integrated module rather than
having it hard- wired into any one particular product or process (such as credit
card organization).
38
3.2 The Distribution System in Retail Banking:

Over the last five years the few information technologies and the new
communication infrastructures have become revolutionary forces changing
business models, cost relation and not least nature of customer relationships.
Cross-border consolidation and expansion, evolving distribution channels and
shareholder pressure show a dramatic impact on the dynamics of retail banking.
Competition from the non-banking sector, fiscal and monetary policies,
globalization of financial markets and systems, incessant introduction of new
products and services to the customers, increased mergers and changing practices
are changing 21st century banking in a remarkable way.
All this has led to a new market place in change and flow: old players
adapting and new players entering every possible segment of the market with
faster, cheaper and more specialized services. The industry of universal banking
is restructuring and the customer has never met a richer supply of information
and services. The old relationship between bank and customer is changing. Faced
with intensifying competition and declining profit margins, institutions are now
looking beyond their existing business models to identify profitable opportunities
for the future.
38
4. Potential for Retail in India: Is the sky limit?

The Indian players are bullish on the Retail business and this is not totally
unfounded. There are two main reasons behind this. Firstly, it is now undeniable
that the face of the Indian consumer is changing. This is reflected in a change in
the urban household income pattern. The direct fallout of such a change will be
the consumption patterns and hence the banking habits of Indians, which will
now be skewed towards Retail products. At the same time, India compares pretty
poorly with the other economies of the world that are now becoming comparable
in terms of spending patterns with the opening up of our economy. For instance,
while the total outstanding Retail loans in Taiwan is around 41% of GDP, the
figure in India stands at less than 5%. The comparison with the west is even more
staggering. Another comparison that is natural when comparing Retail sectors is
the use of credit cards. Here the potential lies in the fact that of all the consumer
expenditure in India in 2010, less than 1% was through plastic, the corresponding
US figure standing at 18%.
4.1 Competitiveness of the players:

The fact that the statistical reveal a huge potential also brings with it as threat that
is true for any sector of a country that is opening up. Just how competitive are our
banks? Is the threat of getting drubbed by foreign competition real? To analyze
this, one needs to get into the shoes of the foreign banks. In other words, how do
they see us? Are we good takeover targets?
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
38
explosive growth. All banks are targeting the fluffiest segment i.e. the
upwardly mobile urban salaried class. Although the players are spreading their
operations into segments like self-employed and the semi-urban rich, it is an
open secret that the big city Indian yuppies from the most profitable segment.
Over-dependence on this segment is bound to bring in inflexibility in the
business.
4.2 Emergence of Foreign Giants:

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 gaint, 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 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. On top of this, the spend-now-pay-later credit culture In India is
just not picking yap. A swift legal procedure against consumers creating bad debt
is virtually nonexistent.
Finally, the vast geographical and cultural diversity of the country makes credit
policy formulation a tough job and it simply cannot be dictated from a Wall
Street or a Singapore boardroom! All these add up to the unattractiveness of the
Indian retail market to the foreign players.
38
So over the past few years, in spite of the entry of MNCs in many industries,
Retail Banking has seen a flurry of panicky exists. Fewer than 40 remain in India
and their share of total bank assets currently 7.2% is falling. Those that remain
might be thought to be likely buyers of Indian banks. Yet City Bank, HSBC and
Standard Chartered all in India for more than a century, and with relatively
large retail networks seem to have no pressing need to acquire a local bank.
Established foreign banks have preferred to take over customers or businesses
from other foreign banks that want to leave. Thus HSBC, in recent years, has
acquired customers from Frances BNP, Germanys Deutsche Bank and Japans
Bank of Tokyo-Mitsubishi. ABN Amro took over bank of Americas retail
business.
4.3 A snapshot of call centre in Retailing Banking:

This structure provides our firms clients with a well-established service in all
their markets.
It gives them access to professional assistance which is characterized by
entrepreneurial flair, commitment to national markets, and an understanding of
the commercial and cultural difference between each country. The result is a
focus on the issue that really matter.
4.4 The Global Industry Guide
Retail Banking:
Global Industry is an essential resource for top level data and
analysis covering the retail banking industry. It includes detailed data market size
& segmentation, textual analysis of the key trends and competitive landscape,
and profiles of the leading companies. This incisive report export analysis on a
global, regional and country basis.
38
Gung ho retail- that is exactly what can be said about the banking
scenario in India. Foreign banks have been early movers. Indian private banks
have also zeroed on the opportunity with vengeance. Public sector banks, though
late entrants are found to be equally aggressive in the market. RBI, the regulator
is watching the market with keen interest and has been actively rolling out a slew
of guidelines and regulatory changes. In a nutshell, to explosive growth for an
extensive study. We have prepared the report of Indian retail banking by taking a
keen insight into the global scenario- the US, the European region and the Asia
pacific region in particular have been analyzed individually. Subsequent to
understanding the emerging trends globally, the report looks at the Indian
scenario. Here, retail has been seen in the backdrop of evolution of Indian
banking system. Analysis has been made of thje various segments of the retail;
their relative size, growth rates, key trends and outlook of each segment is given
separately. An exclusive chapter is dedicated to regulatory watch where in all the
major regulatory changes and impact there have been deliberated.
The report is targeted at banks- both private and public sector; financial
services companies, regulator, research and consulting organization, industry
expert and educational institutions. Marketing departments of various banks will
find the report very useful to formulate the business targets, where as others will
find a huge treasure of information culled and presented very lucidly. The report
has been prepared from numerous sources which include: publication of banks on
international settlements, IMF and RBI, industry interactions annual reports of
the bank, press release by different players, websites and proprietary and
subscribed databases. Due diligence and adequate care has been taken in the
report to check and validate the figures used.
38
5 Conclusion &Executive Summary

After a challenging period over recent years, retail banks have enjoyed a low
interest environment and relatively stable economic indictor over the past years.
The focus for many has now shifted from focusing predominantly on cost cutting
to actively looking for opportunities for growth. However, the regulatory
environment remains a challenging backdrop to any growth strategy with
growing numbers of high net worth individuals and increasing wealth creation,
the private banking and wealth management industry has traditionally been
viewed as an area of great growth potential. However, the sector is also facing
some key challenges including increased regulatory pressure changes in legal and
tax environment and the risk associated with volatile earning streams and a high
fixed cost base. With a few large global players and a large numbers of small
private banks the industry is naturally inclined to compete or consolidate.
Important to success of any retail bank is the key relationship between the
revenue generating clients base and the cost of infrastructure required to service,
satisfy and delight client base and that increase the competition among them.
Retail banks complete on service level, product range, convenience, customer
relationships, reputation and the price. Also consumers often choose a bank based
on family history or habit. Financial intermediary play little part in the
competition process of most markets but there seems to be a role of
intermediaries in the mortgages, personal loans and pensions sectors. Switching
rates are low, across many banking products, as the cost of hassle of switching is
perceived to be high. Customer who do switch banks, light poor service, credit
refusal and better fee interest rate level as the reason for switching. There are
generally been innovation in the area of internet banking, innovation in banking
38
lies more in process and organizational changes than in new product development
in a traditional sense. Liberalized domestic regulation intensified international
competition, rapid innovations in new financial instruments and explosive
growths in information technology fuel this change. With this change has come
increasing pressure on managers and workers to dramatically improve
productivity and financial performance. Competition has created a fast paced
industry where firms must change in order to survive. As a result, new electronic
means of transacting with the banks continue to develop due to their relative cost
of advantage with the paper based banking system.
The mechanicals and structure of payments systems in the various states
inevitably very considerably. Some system use a third party operator other
involve weeks of bilateral agreements between incumbent banks. Some payments
systems have competing payment system providers e.g., visa and master card
many have only one network per century. Instead of viewing the bank as an
assembly like provider of standardized services, the bank can view themselves as
a job shop with flexible production capabilities. At the heart of the bank would be
a comprehensive customer database and a product profit database. The bank
would be able to identify all the services used by any customer; the profit or loss
on these services and the potentially profitable services which may be proposed
to that customer. This movement away from mass marketing, mass production
and mass distribution is widespread throughout the financial services industry.
38
5.1 Findings
From the above analysis it can find that:1. By comparing the public sector with the private sector, the growth rate is
higher in the case of private sector.
2. In retail banking system, two million people use mobile for simple banking
dye to low level of awareness, frauds& security
problems, complex
process etc.
3. Lack of infrastructure facilities is the biggest drawback for the use of
internet banking in India.
4. Recently, the total number of debit cards in circulation is more than 60
million where as credit cards in circulation are 20 million.
5. With recession departing away from global economy, opportunities are
slowly increasing in the emerging markets.
6. Emerging markets, except China, were less depending upon US for growth
are the first to come out of recession eclipse.
7. Growth opportunities in banking, especially retail segment is set to witness
fast growth due to high consumption.
8. The higher growth of retail lending in emerging economies is attributable
to fast growth of personal wealth, favorable demographic profile, rapid
development in information technology, the conducive macro economic
environment, financial market reforms, and several micro level supply
side factors.
38
5.2 Suggestions
Emerging Issues In Handling Retail Banking
Knowing Customer
Know your Customer is a concept which is easier said than practiced. Banks
face several hurdles in achieving this. 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. The benefits flowing out
of cross-selling and up-selling will remain a far cry in the absence of this vital
input. In this regard the customer databases available with most of the public
sector banks, if not all, remain far from being enviable. What needs to be done is
setting up of a robust data warehouse where from meaningful data on customers,
their preferences, there spending patterns, etc. can be mined. Cleansing of
existing data is the first step in this direction. PSBs have a long
way to go in this regard.
Technology Issues
Retail banking calls for huge investments in technology. Whether it is setting up
of a Customer Relationship Management System or Establishing Loan Process
Automation or providing anytime, anywhere convenience to the vast number of
customers or establishing channel/product/customer profitability, technology
plays a pivotal role. And it is a long haul. 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.

It is pertinent to remember that Citibank, known for its deployment of
technology, took nearly a decade to make profits in credit cards. It has also to be
added in the same breath that without adequate technology support, it would be
well nigh possible to administer the growing retail portfolio without allowing its
38
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.
PSBs are on their way to catch up with the technology much required for
the success of retail banking efforts. Lack of connectivity, stand alone models,
concept of branch customer as against bank customer, lack of convergence
amongst available channels, absence of customer profiling, lack of proper
decision support systems, etc., are a few deficiencies that are being overcome in a
great way. However, the initiatives in this regard should include creating flexible
computing architecture amenable to changes and having scalability, a futuristic
approach, networking across channels, development of a Customer Information
Systems (CIS) and adopting Customer Relationship Management (CRM) models
for getting a 360 degree view of the customer.
ORGANIZATIONAL ALIGNMENT
It is of utmost importance that the culture and practices of an institution support
its stated goals. Having decided to take a plunge into retail banking, 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 need
for building the organizational capacity needed to achieve the desired results
cannot be overstated.
This would mean a strong commitment at all levels, intensive training of
the rank and file, putting in place a proper incentive scheme, etc. As a part of
organizational alignment, 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. A fully fledged marketing
department or division would help in evolving a brand strategy, address the issue
of alienation from the upwardly mobile, 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. The much needed tie-ups with
38
manufacturers/distributors/builders will also facilitated smoothly. It is time to

break the myth PSBs are not
customer friendly. The attention is to be diverted to vast databases of
customers lying with the PSBs till unexploited for marketing.
PRODUCT INNOVATION
Product innovation continues to be yet another major challenge. Even though
bank after bank is coming out with new products, not all are successful. 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 21stCentury has in fact sounded a word of caution:
innovation that is not in tune with the strategic realities will not work; confusing
novelty with innovation (should be avoided), test of innovation is that it creates
value; novelty creates only amusement. The days of selling the products
available in the shelves are gone. Banks need to innovateproducts suiting the
needs and requirements of different types of customers. Revisiting the features of
the existing products to continue to keep them on demand should not also be lost
sight of.
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5.3 Conclusion
Hence we can conclude that Retail Banking is a banking service that is
geared primarily toward individual consumers. Retail banking entitles provide a
wide range of personal banking services, including offering savings and checking
accounts, bill paying services, as well as debit & credit cards. Through retail
banking , consumers may also obtain mortgages and personal loans. Although
retail banking is , for the most part, mass-market driven, many retail banking
products may also extend to small and medium sized businesses. Today much of
retail banking is streamlined electronically via Automated Teller Machine
(ATMs), or through virtual retail banking known as Online Banking.
Retail banking has been increasing at an attractive rate in India. Major
drives for this growth rate increasing number of BPOs and IT industries. Banks
shrinking profit margin, relatively safe lending and lower risk weights are also
important factors while calculating capital needs of the banks. The potential for
growth is even much higher because compared to other sectors retail lending
level is still very low.
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5.4 BIBLIOGRAPHY
Executive summary The Revenue Growth Challenge in Retail Banking- Bank
Administration Institute
www. google.com
www. retailbanking.com
www. retailbankingindia.com
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S (A) College, Puri