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A

Summer Internship Project

On

ANALYZING THE GAP BETWEEN MANAGEMENT

PERCEPTION AND CUSTOMER PERCEPTION WITH

RESPECT TO THE SERVICES OFFERED IN RETAIL

BANKING

Enrollment no.:123456789 Submitted byNaman Shah

Submitted To:

THE NIS ACADEMY

Annamalai University

Masters of business Administrstion (MBA)

2011-2012


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CERTIFICATE

This is to certify that Mr. Naman Shah the students of MBA 2nd

year of NIS Academy,

Ahmedabad have completed their Summer Internship Project ANALYZING THE GAP

BETWEEN MANAGEMENT PERCEPTION AND CUSTOMER PERCEPTION WITH RESPECT TO

THE SERVICES OFFERED IN RETAIL BANKINGin the year 2011-2012.

Mr. ajay shad Mrs. Smita

Director Project Guide

Date:


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DECLARATION

I here by declare that the Summer internship Project titled Analyzing the Gap between

Management Perception and Customer Perception With Respect To the Services

Offered In Retail Banking is our original work and has not been published elsewhere. This

has been undertaken for the purpose of Submited in annamalai University.

Date:

Place: Students Name Signature: -------------


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PREFACE

Retail Banking has always been an integral part of the Banking activities the world over, but

it is only in the recent past that it has gathered special momentum. Though internationally this

revolution started in 80s with the advent of credit cards followed by other products of retail

financial services, yet, as far as India is concerned, the year 1995 marks the starting point of

Retail Banking Revolution with Foreign Banks and new generation Private Banks taking the

lead. Till 90s only foreign Banks were the main players in Retail Banking activities.

The paradigm shift in the Indian Banking Sector brought out by deregulation, liberalization

and globalization of the Indian economy and characterized by intense competition and wafer

thin margins has compelled banks to shift focus from Corporate Banking to Retail Banking

and look upon retail banking as a solution to some of their immediate concerns. Only a few

years ago the Retail Banking was scorned by many specialists as too voluminous, transaction

heavy and unprofitable business. Consumer and personal loans were considered unproductive

and were thus discouraged. But things have changed now. Retail Banking has regained

bankers interest not least because it is the activity where many major banks are making most

of their money but also because of the more recurrent nature of its earnings. Many European

banks that had ventured into wholesale and investment banking activities in a big way had topay a heavy price in the recent times. The economic downturn and gloomy capital market

environment has made investment banking lose mush of its shine making many banks to shift

their focus back to Retail Banking.

We therefore choose to do our project on Retail banking within the Banking Industry, which

has seen tremendous changes in the past years, promising great scope in the years to come.


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ACKNOWLEDGMENT

It is really a matter of pleasure for us to get an opportunity to thank all the persons who

contributed directly or indirectly for the successful completion of the project report,

Analyzing The Gap Between the Management Perception and Customer Perception with

reference to Services offered in Retail Banking.

First of all we are extremely thankful to our college NIS Academy for providing us

with this opportunity and for all its cooperation and contribution. We also express our

gratitude to our director MR.AJAY SHAD,and are highly thankful to him as our

respected project guide for giving us the encouragement and freedom to conduct our

project.

We are also grateful to our Project Guide Mrs. Smita and all our faculty members for

their valuable guidance and suggestions for our entire study.

We would also like to thank the Sales Manager Mr. sailendra chadda for extending their

valuable time.


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CONTENTS

1.

Banking IndustryIntroduction

2. Introduction to Retail Banking

3. Banks Profile

4. Research Methodology

5. Analysis

6. Suggestions

7. Future of Retail Banking

8. Bibliography


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EXECUTIVE SUMMARY

The report Analyzing the Gap between Management Perception and Customer Perception

With Respect To the Services Offered In Retail Banking aims to assimilate data about the

various aspects of Retail banking services, to analyze the perceptions of the management and

the customers regarding the services offered in Retail banking and to find out whether any

gaps do exist between the services offered and the customer expectations. We have taken 6

Banks which represent the Nationalized, Private and Multinational Banks of the Banking

Industry in India-

- SBI

- Corporation Bank

- HDFC Bank

- ICICI Bank

- Citibank

- ING Vyasya Bank

The criteria for selecting these banks were their deposit base. We have limited our Service

Category to the core services in Retail Banking and a few specialized services.The report is a mixture of Secondary and Primary data, with Questionnaires being our

major instrument to collect primary data.

Major topics we have attempted to cover in this project are to: -

- Explore the services and products offered by the banks to individual customers.

- Understand the perception of the management with respect to services offered by

banks.

- Understand the perception of the customers with respect to services offered by banks.

- Analyze whether there is a gap between the customer and management perceptions

about the services offered by the banks.

- Conclude and enumerate the recommendations that might help to reduce the gaps that

exist and foster the relationship of the customer more with the bank.

According to the survey we came to the conclusion that


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The new game requires new strategies with an accent on innovation for organizational

transformation and to achieve world-class competitiveness through improved efficiency and

reduced operational cost.

An organisation-centric agenda, policy, programme and operationalising accelerating

interventions need to strengthen core competencies of Indian banks; while exploring seeding

options for future growth.

Thrust on innovation is important particularly in the present context of consolidation and

convergence both within and across segments of the financial system.


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INTRODUCTION

Service with a smile: Todays finicky banking customers will settle for nothing less. The

customer has come to realize somewhat belatedly that he is the king. The customers choice

of one entity over another as his principal bank is determined by considerations of service

quality rather than any other factor. He wants competitive loan rates but at the same time also

wants his loan or credit card application processed in double quick time. He insists that he be

promptly informed of changes in deposit rates and service charges and he bristles with

customary rage if his bank is slow to redress any grievance he may have. He cherishes the

convenience of impersonal net banking but during his occasional visits to the branch he also

wants the comfort of personalized human interactions and facilities that make his banking

experience pleasurable. In short he wants financial house that will more than just clear his

cheque and updates his passbook: he wants a bank that cares and provides great services.

So do banks meet these heightened expectations? Is there a gap that exists between the

management perception and the customer perception with reference to the services offered in

Retail Banking? To find out answers to these questions we undertook a survey of six banks

selecting two banks from each of the following:

- Private Banks

- Nationalized Banks

- Multinational Banks

A lot of surveys have been done in the past by many agencies to understand the aspect of

customer satisfaction and to find out the customer friendly banks. Our research adds the

dimension of the Gap Analysis between The Management and the customer perceptions

regarding the services being offered.


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INDUSTRY PROFILE

The Banking Regulation Act 1949 defines banking as accepting the purpose of lending or

investment, of deposits of money from the public, repayable on demand or otherwise and

withdrawable by cheque, draft, order otherwise. The essential function of a bank is to provide

services related to the storing of value and the extending credit. The evolution of banking

dates back to the earliest writing, and continues in the present where a bank is a financial

institution that provides banking and other financial services. Currently the term bank is

generally understood an institution that holds a banking license. Banking licenses are granted

by financial supervision authorities and provide rights to conduct the most fundamental

banking services such as accepting deposits and making loans. There are also financialinstitutions that provide certain banking services without meeting the legal definition of a

bank, a so called non-bank. Banks are a subset of the financial services industry.

The word bank is derived from the Italian banca which is derived from German and means

bench. The terms bankrupt and "broke" are similarly derived from banca rotta, which refers

to an out of business bank, having its bench physically broken. Money lenders in Northern

Italy originally did business in open areas, or big open rooms, with each lender working from

his own bench or table.

Typically, a bank generates profits from transaction fees on financial services or the interest

spread on resources it holds in trust for clients while paying them interest on the asset.


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SERVICES TYPICALLY OFFERED BY BANKS

Although the type of services offered by a bank depends upon the type of bank and the

country, services provided usually include:

Directly take deposits from the general public and issue checking and savings

accounts

Lend out money to companies and individuals

Cash checks

Facilitate money transactions such as wire transfers and cashiers checks

Issue credit cards, ATM, and debit cards

online banking

Storage of valuables, particularly in a safe deposit box

TYPES OF BANKS

There are several different types of banks including:

Central banks usually control monetary policy and may be the lender of last resort in

the event of a crisis. They are often charged with controlling the money supply,

including printing paper money. Examples of central banks are the European

Central Bank and the US Federal Reserve Bank.

Investment banks underwrite stock and bond issues and advice on mergers. Examples

of investment banks are Goldman Sachs of the USA or Nomura Securities of Japan.

Merchant banks were traditionally banks which engaged in trade financing. The

modern definition, however, refers to banks which provide capital to firms in the

form of shares rather than loans. Unlike Venture capital firms, they tend not to

invest in new companies.


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Private Banks manage the assets of the very rich. An example of a private bank is the

Union Bank of Switzerland.

Savings banks write mortgages exclusively.

Offshore banks are banks located in jurisdictions with low taxation and regulation,

such as Switzerland or the Channel Islands. Many offshore banks are essentially

private banks.

Commercial banks primarily lend to businesses (corporate banking)

Retail banks primarily lend to individuals. An example of a retail bank is Washington

Mutual of the USA.

Universal banks engage in several of these activities. For example, Citigroup, a large

American bank, is involved in commercial and retail lending; it owns a merchant

bank (Citicorp Merchant Bank Limited) and an investment bank (Salomon Smith

Barney); it operates a private bank (Citigroup Private Bank); finally, its subsidiaries

in tax-havens offer offshore banking services to customers in other countries.

SOME CHARACTERISTICS ASSOCIATED WITH BANKS IN GENERAL:

BANKS ARE PRONE TO CRISIS

The traditional bank has an inherent tendency to crisis. This is because the bank borrows

short term and lends leveraged long term. The sum of deposits and the bank's capital will

never equal more than a modest percentage of the loans the bank has outstanding.

Even if liquidity is not a concern, if there is no run on the bank, banks can simply choose a

bad portfolio of loans, and lose more money than they have. The US Savings and Loan Crisis

in the late 1980s and early 1990s is such an incident.

ROLE IN THE MONEY SUPPLY

A bank raises funds by attracting deposits, borrowing money in the inter-bank market, or

issuing financial instruments in the money market or a securities market. The bank then lends

out most of these funds to borrowers.


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However, it would not be prudent for a bank to lend out all of its balance sheet. It must keep a

certain proportion of its funds in reserve so that it can repay depositors who withdraw their

deposits. Bank reserves are typically kept in the form of a deposit with a central bank. This

behavior is called fractional-reserve banking and it is a central issue of monetary policy.

Some governments (or their central banks) restrict the proportion of a bank's balance sheet

that can be lent out, and use this as a tool for controlling the money supply. Even where the

reserve ratio is not controlled by the government, a minimum figure will still be set by

regulatory authorities as part of banking supervision.

REGULATION

The combination of the instability of banks as well as their important facilitating role in theeconomy led to banking being thoroughly regulated. The amount of capital a bank is required

to hold is a function of the amount and quality of its assets. Major Banks are subject to the

Basel Capital Accord promulgated by the Bank for International Settlements. In addition,

banks are usually required to purchase deposit insurance to make sure smaller investors are

not wiped out in the event of a bank failure.

Another reason banks are thoroughly regulated is that ultimately, no government can allow

the banking system to fail. There is almost always a lender of last resortin the event of a

liquidity crisis (where short term obligations exceed short term assets) some element of

government will step in to lend banks enough money to avoid bankruptcy.

HOW BANKS ARE VIEWED

Banks have a long history of being characterized as heartless, rapacious creditors, hounding

honest folk down on their luck for the last dime.

In United States history, the National Bank was a major political issue during the presidency

of Andrew Jackson. Jackson fought against the bank as a symbol of greed and profit-

mongering, antithetical to the democratic ideals of the United States.


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PROFITABILITY

Large banks in the United States are some of the most profitable corporations, especially

relative to the small market shares they have. This amount is even higher if one counts the

credit divisions of companies like Ford, which are responsible for a large proportion of those

company's profits. For example, the largest bank, Citigroup, which for the past 3 years has

made more profit then any other company in the world, has only a 5 percent market share.

Now if Citigroup were to be as dominant in its industry as a Home Depot, Starbucks, or Wal

Mart in their respective industries, with a 30 percent market share, it would make more

money than the top ten non-banking US industries combined.

In the past 10 years in the United States, banks have taken many measures to ensure that theyremain profitable while responding to ever-changing market conditions. First, this includes

the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and

insurance houses. Merging banking, investment, and insurance functions allows traditional

banks to respond to increasing consumer demands for "one stop shopping" by enabling the

crossing selling of products (which, the banks hope, will also increase profitability). Second,

they have moved toward risk based pricing on loans, which mean charging higher interest

rates for those people who they deem more risky to default on loans. This dramatically helps

to offset the losses from bad loans, lowers the price of loans to those who have better credit

histories, and extends credit products to high risk customers who would have been denied

credit under the previous system. Third, they have sought to increase the methods of payment

processing available to the general public and business clients. These products include debit

cards, pre-paid cards, smart-cards, and credit cards. These products make it easier for

consumers to conveniently make transactions and smooth their consumption over time (in

some countries with under-developed financial systems, it is still common to deal strictly in

cash, including carrying suitcases filled with cash to purchase a home). However, with

convenience there is also increased risk that consumers will mis-manage their financial

resources and accumulate excessive debt. Banks make money from card products through

interest payments and fees charged to consumers and companies that accept the cards. The

banks' main obstacles to increasing profits are existing regulatory burdens, new government

regulation, and increasing competition from non-traditional financial institutions.


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INDIAN BANKING SECTOR

Banking in India has its origin as early as the Vedic period. It is believed that the transition

from money lending to banking must have occurred even before Manu, the great Hindu

Jurist, who has devoted a section of his work to deposits and advances and laid down rules

relating to rates of interest. During the Mogul period, the indigenous bankers played a very

important role in lending money and financing foreign trade and commerce. During the days

of the East India Company, it was the turn of the agency houses to carry on the banking

business. The General Bank of India was the first Joint Stock Bank to be established in the

year 1786. The others which followed were the Bank of Hindustan and the Bengal Bank.

The Bank of Hindustan is reported to have continued till 1906 while the other two failed in

the meantime. In the first half of the 19

th

century the East India Company established threebanks; the Bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in

1843. These three banks also known as Presidency Banks, were independent units and

functioned well. These three banks were amalgamated in 1920 and a new bank, the Imperial

Bank of India was established on 27th

January 1921. With the passing of the State Bank of

India Act in 1955 the undertaking of the Imperial Bank of India was taken over by the newly

constituted State Bank of India. The Reserve Bank which is the Central Bank was created in

1935 by passing Reserve Bank of India Act 1934. In the wake of the Swadeshi Movement, a

number of banks with Indian management were established in the country namely, Punjab

National Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of

Baroda Ltd, the Central Bank of India Ltd. On July 19, 1969, 14 major banks of the country

were nationalized and in 15th

April 1980 six more commercial private sector banks were also

taken over by the government.

Today the commercial banking system in India may be distinguished into:

Public Sector Banks

a. State Bank of India and its associate banks called the State Bank group

b.20 nationalized banks

c. Regional Rural Banks mainly sponsored by Public Sector Banks


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Private Sector Banks

a. Old generation private banks

b.New generation private banks

c.Foreign banks in India

d.Scheduled Co-operative Banks

e. Non-scheduled Banks

Co-Operative Sector

The co-operative banking sector has been developed in the country to the suppliment the

village money lender. The co-operative banking sector in India is divided into 4 components:

1.

State Co-operative Banks

2.Central Co-operative Banks

3.Primary Agriculture Credit Societies

4.Land Development Banks

5.Urban Co-operative Banks

6.Primary Agricultural Development Banks

7.Primary Land Development Banks

8.State Land Development Banks

Development Banks

1.Industrial Finance Corporation of India (IFCI)

2.Industrial Development Bank of India (IDBI)

3.Industrial Credit and Investment Corporation of India (ICICI)

4.Industrial Investment Bank of India (IIBI)

5.Small Industries Development Bank of India (SIDBI)

6.SCICI Ltd.

7.National Bank for Agriculture and Rural Development (NABARD)

8.

Export Import Bank of India


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STATUS OF INDIAN BANKING INDUSTRY

It is useful to note some telling facts about the status of the Indian banking industry

juxtaposed with other countries, recognizing the differences between the developed and

the emerging economies.

First, the structureof the industry: In the worlds top 1000 banks, there are many more

large and medium-sized domestic banks from the developed countries than from the

emerging economies. Illustratively, according to The Banker 2004, out of the top 1000 banks

globally, over 200 are located in USA, just above 100 in Japan, over 80 in Germany, over 40

in Spain and around 40 in the UK. Even China has as many as 16 banks within the top 1000,

out of which, as many as 14 are in the top 500. India, on the other hand, had 20 banks within

the top 1000 out of which only 6 were within the top 500 banks. This is perhaps reflective of

differences in size of economies and of the financial sectors.

Second, the share of bank assets in the aggregate financial sector assets: In most

emerging markets, banking sector assets comprise well over 80 per cent of total financial

sector assets, whereas these figures are much lower in the developed economies.

Furthermore, deposits as a share of total bank liabilities have declined since 1990 in many

developed countries, while in developing countries public deposits continue to be

dominant in banks. In India, the share of banking assets in total financial sector assets is

around 75 per cent, as of end-March 2004. There is, no doubt, merit in recognizing the

importance of diversification in the institutional and instrument-specific aspects of

financial intermediation in the interests of wider choice, competition and stability.However, the dominant role of banks in financial intermediation in emerging economies

and particularly in India will continue in the medium-term; and the banks will continue to

be special for a long time. In this regard, it is useful to emphasize the dominance of

banks in the developing countries in promoting non-bank financial intermediaries and

services including in development of debt-markets. Even where role of banks is apparently

diminishing in emerging markets, substantively, they continue to play a leading role in

non-banking financing activities, including the development of financial markets.

Third, internationalization of banking operations : The foreign controlled banking

assets, as a proportion of total domestic banking assets, increased significantly in several

European countries (Austria, Ireland, Spain, Germany and Nordic countries), but increases

have been fairly small in some others (UK and Switzerland). Amongst the emerging

economies, while there was marked increase of foreign-controlled ownership in several Latin

American economies, the increase has, at best, been modest in the Asian economies.

Available evidence seems to indicate some correlation between the extent of liberalization of

capital account in the emerging markets and the share of assets controlled by foreign banks.

As per the evidence available, the foreign banks in India, which are present in the form ofbranches, seem to enjoy greater freedom in their operations, including retail banking, in the


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country on par with domestic banks, as compared with most of the other developing

countries. Furthermore, the profitability of their operations in India is considerably higher

than that of the domestically-owned banks and, in fact, is higher than the foreign banks

operations in most other developing countries. India continues to grant branch licenses more

liberally than the commitments made to the WTO.

Fourth, the share of state-owned banks in total banking sector assets: Emerging

economies, with predominantly Government-owned banks, tend to have much higher state-

ownership of banks compared to their developed counterparts. While many emerging

countries chose to privatize their public sector banking industry after a process of absorption

of the overhang problems by the Government, we have encouraged state-run banks to

diversify ownership by inducting private share capital through public offerings rather than by

strategic sales and still absorb the overhang problems. The process has helped reduce the

burden on the Government, enhance transparency, encourage market discipline and improve

efficiency as reflected in stock market valuation, promote efficient new private sector banks,

while drastically reducing the share of the wholly government owned public sector banks in a

rapidly growing industry. Our successful reform of public sector banks is a good example of

a dynamic mix of public and private ownership in banks.

BANKING SYSTEM

Introduction

The Reserve Bank of India (RBI) is India's central bank. Though the banking industry is

currently dominated by public sector banks, numerous private and foreign banks exist.

India's government-owned banks dominate the market. Their performance has been mixed,

with a few being consistently profitable. Several public sector banks are being

restructured, and in some the government either already has or will reduce its ownership.

Private and foreign banks

The RBI has granted operating approval to a few privately owned domestic banks; of these

many commenced banking business. Foreign banks operate more than 150 branches in

India. The entry of foreign banks is based on reciprocity, economic and political bilateral

relations. An inter-departmental committee approves applications for entry and expansion.

Capital adequacy norm

Foreign banks were required to achieve an 8 percent capital adequacy norm by March

1993, while Indian banks with overseas branches had until March 1995 to meet that target.All other banks had to do so by March 1996. The banking sector is to be used as a model


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for opening up of India's insurance sector to private domestic and foreign participants,

while keeping the national insurance companies in operation.

Banking

India has an extensive banking network, in both urban and rural areas. All large Indianbanks are nationalized, and all Indian financial institutions are in the public sector.

RBI banking

The Reserve Bank of India is the central banking institution. It is the sole authority for

issuing bank notes and the supervisory body for banking operations in India. It supervises

and administers exchange control and banking regulations, and administers the

government's monetary policy. It is also responsible for granting licenses for new bank

branches. 25 foreign banks operate in India with full banking licenses. Several licenses for

private banks have been approved. Despite fairly broad banking coverage nationwide, the

financial system remains inaccessible to the poorest people in India.

Indian banking system

The banking system has three tiers. These are the scheduled commercial banks; the

regional rural banks which operate in rural areas not covered by the scheduled banks; and

the cooperative and special purpose rural banks.

Scheduled and non scheduled banks

There are approximately 80 scheduled commercial banks, Indian and foreign; almost 200regional rural banks; more than 350 central cooperative banks, 20 land development

banks; and a number of primary agricultural credit societies. In terms of business, the

public sector banks, namely the State Bank of India and the nationalized banks, dominate

the banking sector.

Local financingAll sources of local financing are available to foreign-participation companies

incorporated in India, regardless of the extent of foreign participation. Under foreign

exchange regulations, foreigners and non-residents, including foreign companies, require

the permission of the Reserve Bank of India to borrow from a person or company residentin India.

Regulations on foreign banks

Foreign banks in India are subject to the same regulations as scheduled banks. They are

permitted to accept deposits and provide credit in accordance with the banking laws and

RBI regulations. Currently about 25 foreign banks are licensed to operate in India. Foreign

bank branches in India finance trade through their global networks.


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RBI restrictions

The Reserve Bank of India lays down restrictions on bank lending and other activities with

large companies. These restrictions, popularly known as "consortium guidelines" seem to

have outlived their usefulness, because they hinder the availability of credit to the non-

food sector and at the same time do not foster competition between banks.

Indian vs. foreign banks

Most Indian banks are well behind foreign banks in the areas of customer funds transfer

and clearing systems. They are hugely over-staffed and are unlikely to be able to compete

with the new private banks that are now entering the market. While these new banks and

foreign banks still face restrictions in their activities, they are well-capitalized, use modern

equipment and attract high-caliber employees.

Government and RBI regulations

All commercial banks face stiff restrictions on the use of both their assets and liabilities.

Forty percent of loans must be directed to "priority sectors" and the high liquidity ratio and

cash reserve requirements severely limit the availability of deposits for lending. The RBI

requires that domestic Indian banks make 40 percent of their loans at confessional rates to

priority sectors' selected by the government. These sectors consist largely of agriculture,

exporters, and small businesses. Since July 1993, foreign banks have been required to

make 32 percent of their loans to these priority sector. Within the target of 32 percent, two

sub-targets for loans to the small scale sector (minimum of 10 percent) and exports

(minimum of 12 percent) have been fixed.

INTEREST RATES AND NON-PERFORMING ASSETS:

The best indicator of the health of the banking industry in a country is its level of NPAs.

Given this fact, Indian banks seem to be better placed than they were in the past. A few banks

have even managed to reduce their net NPAs to less than one percent (before the merger of

Global Trust Bank into Oriental Bank of Commerce, OBC was a zero NPA bank). But as the

bond yields start to rise the chances are the net NPAs will also start to go up. This willhappen because the banks have been making huge provisions against the money they made

on their bond portfolios in a scenario where bond yields were falling.

Reduced NPAs generally gives the impression that banks have strengthened their credit

appraisal processes over the years. This does not seem to be the case. With increasing bond

yields, treasury income will come down and if the banks wish to make large provisions, the

money will have to come from their interest income, and this in turn, shall bring down the

profitability of banks.


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RETAIL BANKING

Retail banking is typical mass-market banking where individual customers use local

branches of larger commercial banks. Services offered include: savings and checking

accounts, mortgages, personal loans, debit cards, credit cards, and so forth. This is verydifferent from wholesale banking.

RETAIL BANKING IN INDIA:

India is poised to become the world's fourth largest economy in the span of two decades.

Economic prosperity is providing many in this populous nation with real purchasing power; it

simply is an opportunity that cannot be overlooked by global banks. Despite its appeal, India

remains a developing economy. Thus, global banks seeking a presence or expansion in India

must craft a business strategy that considers the country's attendant challenges: long-

established competitors; rudimentary infrastructure; dynamic political environment;

restrictive regulations; and developing country operational risks.

These challenges should be weighed against the potential gains from entering the

marketplace, as well as the likely cost of doing nothing. Extensive research conducted by the

IBM Institute for Business Value pinpointed four of the most promising product areas for

global banks entering the Indian market: housing loans, automobile loans, small and medium

enterprise (SME) banking and personal financial services. However, recognizing the growth

opportunities is only the beginning. Global banks targeting India as a source of new growth

will have to do much more than just "show up" - success will lie in the details of execution.

With one of the most under penetrated retail lending markets in Asia-Pacific, India offers

great potential. India's mortgage debt in 2002 totaled only 2 percent of gross domestic

product (GDP), compared to 7 percent of Thailand's GDP, 8 percent of GDP in China and

much higher proportions in other parts of the region: Malaysia (28 percent), South Korea (30

percent) and Hong Kong (52 percent). While India remains characterized by extreme wealth

and poverty, a middle class is beginning to emerge, with absolute demand for products and

services on the rise. To seize this opportunity, new market entrants must exploit specific

market niches and leverage best-in-class capabilities while addressing the unique challengesof the Indian banking environment.


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During the last decade, India has emerged as one of the biggest and fastest growing

economies in the world. The strengthening economy in India has been fueled by the

convergence of several key influences: liberalization policies of the government, growth of

key economic sectors, development of an English-speaking, well-educated work force and

the emergence of a middle class population.

REASONS FOR THE CHANGE OVER FROM CORPORATE BANKING TO

RETAIL BANKING:

The financial sector reforms undertaken by the Government since the year 1991 have

accelerated the process of disintermediation which has encouraged blue chip

corporate to access cheaper funds to meet their working capital requirements directly

from investors in India and abroad through capital market instruments and external

Commercial Borrowings route thus by-passing Banks in the process. The deregulation

of markets and interest rates has lead to cut throat competition among Banks for

corporate loans making them to lend even at PLR or sub PLR and offer other valued

services at comparatively cheaper rates to big and high value corporates. In the

process, most of the banks have experienced substantial reduction in interest spreads

and drain on their profitability.

The introduction of stringent Asset Classification, Income Recognition and

provisioning norms has resulted in growing menace of NPAs in corporate loans which

has affected the asset quality, profitability and capital adequacy of banks adversely.

The risks involved in corporate loans are very high as corporates have to keep all their

eggs in one basket. The risks involved in retail Banking advances are comparatively

less and well diversified as loan amounts are relatively small ranging from Rs. 5000

to Rs. 100 lac and repayable normally in short period of 3-5 years except housing

loans (where repayment period is long up to 15 years in some cases) and from fixed

source of income like salaries.

Whereas corporate loans give average return of just 0.5 to 1.5 percent only, the retail

advances offer attractive interest spread of 3to 4 percent, because retail borrowers are

less interest rate sensitive than the Corporates. Another reason for large interest


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spreads on retail advances is that the retail customers are too fragmented to bargain

effectively.

While corporate loans are subject to ups and downs in trade frequently, retail loans

are comparatively independent of recession and continue to deliver even during the

sluggish phase of economy.

Retail Banking gives a lot of stability and public image to banks as compared to

corporate banking.

The housing loans, which form the major chunk of retail lending and where NPAs are

the least, carry risk weight of just 50% for capital adequacy purposes. This is likely to

come down further as new Basel Capital Accord or (Basel II) norms are put in place

from the year 2006. This offers added incentive to banks for lending to this retail

segment as against corporate lending where capital consumption is higher.

The greater amount of consumerism in the country with upswing in income levels of

burgeoning middle class, which has propensity to consume to raise their standard of

living, is enlarging the retail markets. This market is growing 2 50 percent per year

and boosting the demand for credit from households. The potential is huge as present

penetration level is just over 2 percent in the country. Given the easy liquidity

scenario in the country the growth rate in this sector is likely to go up manifold in the

years come. This offers great potential for banks to enlarge their loan books.

The Indian mindset is also changing and consumers prefer to improve their quality

of life even if it means borrowing for facilities like housing, consumer goods vehicles

and vacationing etc. Borrowing and lending is no longer considered a taboo. The peer

pressure and demonstration effect is further pushing up demand for housing loans,

consumer products and automobiles. The profiles of customers are fast changing from

conservative dodos to fashionable peacocks. All these developments give big push to

Retail Banking activities.

Retail Banking clients are generally loyal and tend not to change from one Bank to

another very often.

Large numbers of Retail clients facilitate marketing, mass selling and ability to

categorize/select clients using scoring system and data mining. Banks can cut costs

and achieve economies of scale and improve their bottom-line by robust growth in

retail business volume.


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Through product innovations and competitive pricing strategies Banks can foster

business relationship with customers to retain the existing clients and attract new

ones.

Innovative products like asset securitization can open new vistas in sustaining optimalcapital adequacy and asset liability management for banks.

Retail Banking offers opportunities to banks to cross sell other retail products like

credit card, insurance, mutual fund products and demat facilities etc. to depositors and

investors.

RETAIL BANKING PRODUCTS AND SERVICES

Contrary to plain vanilla mass Banking products that the Banks offered in the pre reform era,which the customer had either to take or leave, banks, since last couple of years are offering

well researched, tech savvy, borrower friendly, attractive, value added, make your own

Sunday type customized products at most competitive rates through a host of most modern

delivery channels viz., ATM, internet, telebanking to enhance the comfort of diverse type of

customers. Wide range of products that the bank snow offer, cover both the deposits and

advances. The core banking products of deposits i.e. Saving bank, recurring deposits and

short term deposits and advances i.e. short or medium term loans are packaged with several

value additions in different permutations and combinations and attractive brand names. They

are released in the market with adequate publicity and ad., support banks products cater to

various segments of customers like salaried persons, traders, business men, professionals,

technocrats, pensioners, housewives, children, labourers, artisans and craftsmen etc. Banks

keep on constantly reviewing their products and services portfolio to cater to the ever

escalating expectations of customers.

Retail Lending products

Major retail lending products offered by banks are the following:

- Housing loans

- Loan for consumer goods

- Personal loans for marriage, honeymoon, medical treatment and holidaying etc.

- Education loans

- Auto loans

-

Gold loans


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- Event loans

- Festival loans

- Insurance products

- Loan against rent receivables

- Loan against pension receivables to senior citizens

- Debit and credit cards

- Global and international cards

- Loan to doctors to set up their own clinics or for purchase of medical equipments

- Loan for women empowerment

- Loan for purchase of acoustic enclosures for diesel Gen. sets etc.

Retail banking products for depositors:

This is in various segments of customers like ; children, salaried persons, senior citizens,

professionals, technocrats, businessmen, retail traders and farmers etc. and it includes:

- Flexi Deposit Accounts

- Savings Bank Accounts

- Recurring Bank Accounts

- Short Term deposits

-

Deferred Pension Linked Deposit Schemes

Today pure deposit type products are giving way to multi- benefit, multi access generes of

banking products. Most of the innovation is taking place in savings bank accounts to make

the meager return of 3.55p.a. that they earn more attractive. Most of the banks now offer

sweep in and sweep out accounts, called 2-in-1 accounts or value added savings bank

accounts. This account is a combination of savings bank and term deposit accounts and offers

twin benefit of liquidity of a savings bank account and higher interest earning of term deposit

accounts.

Add-ons and Freebies

To make their products an services more attractive so as to woo maximum number of

customers, the banks are vying with each other with whole lot off frills, goodies, freebies, and

add-ons. A few of these add-ons. A few of these add-ons and freebies are as under:

- Free collection of specified number of outstation instruments.

-

Instant credit of outstanding cheques upto Rs. 15000/-


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- Concession in exchange on demand drafts and pay-orders and commission on bills of

exchange

- Issuance of free personalized cheque books

- Free accident insurance covers

- Free doorsteps opening of accounts

- Free issuance of ATM, Debit, Credit and Add-on Cards

- Free investment advisory services

- Grant of redeemable reward points on use of credit cards

- Free internet banking, phone banking and anywhere banking facilities

- Issuance of discount coupons for purchase of various products like computer

accessories, music CDs, cassettes, books, toys, garments etc.

- Issuance of free PVR, trade fair tickets etc.

- Concession in rate of interest on Group advances

- Exemption in upfront fees.

These concessions, freebies and add-ons are based on the True relationship Value (TRV) of

the customers and is calculated by the return on various products and services of the banks

availed by them. These concessions and freebies are usually offered for purchase of consumer

goods but now they have become an integral part of Retail banking products and services

also.

New delivery channels for retail banking Products and Services:

The advent of new delivery channels viz. ATM, Internet and Telebanking have

revolutionalised the retail banking activities. These channels enable Banks to deliver Retail

banking products and services in an efficient and cost effective manner. Now-a-days the

banks are under great pressure to attract new and retain old customers, as margins are turning

wafer thin. In these circumstances reducing administrative and transaction costs has become

crucial. Banks are making special offerings to customers through these channels retail

banking has been immensely benefited with the revolution in IT and communication

technology. The automation of the banking processes is facilitating extension of their reach

and rationalization of their costs as well. They are the engine for growth of retail banking

business of Banks. The networking of branches has extended the scope of banking to

anywhere and anytime 24x 7 days a week banking. It has enabled customers to be the

customer of a bank rather than the customers of a particular branch only. Customers can


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transact Retail Banking transactions at any of the networked branches without any extra cost.

As a matter of fact the Retail Banking per se has taken off because of the advent of multiple

banking channels. These channels have enabled banks to go on a massive customer

acquisition mode since transaction volumes spread over multiple channels lessen the load on

the brick and mortar bank branches.

SOME ASPECTS OF RETAIL BANKING

Impact of Retail Banking:

The major impact of retail Banking is that, the customers have become the Emperors

the fulcrum of all Banking activities, both on the asset side and the liabilities front.

The hitherto sellers market has transformed into buyers market the customers have

multiple of choices before them now for cherry picking products and services, which

suit their lifestyles and tastes and financial requirements as well. Banks now go to

their customers more often than the customers go to their banks.

The Non-Banking finance companies which have hitherto been thriving on retail

business due to high risk and high returns thereon have been dislodged from their

profit munching citadel

Retail Banking is transforming banks into one stop financial super markets.

The share of retail loans is fast increasing in the loan books of banks.

Banks can foster lasting business relationship with customers and retain the existing

customers and attract new ones. There is a rise in their service as well.

Banks can cut costs and achieve economies of scale and improve their revenues and

profits by robust growth in retail business. Reduction in costs offers a win win

situation both for banks and the customers.

It has affected the interface of banking system through different delivery mechanism

It is not that banks are sharing the same pie of retail business, the pie itself is growing

exponentially. Retail Banking has fuelled a considerable quantum of purchasing

power through a slew of retail products.

Banks can diversify risks in their credit portfolio and contain the menace of NPAs.

Retail banking allows bank to cross sell other products and services as it is far more

easier to sell other products to the same customer rather than search for absolutely

new ones. Cross selling is one of the best avenues for relationship


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Banking and retention of customers. Banks can thus increase their business volume

and improve their bottom-line substantially.

Re-engineering of business with sophisticated technology based products will lead tobusiness creation, reduction in transaction costs and enhancement in efficiency of

operations.

Problems faced in Retail Banking:

Retail Banking has all its attendant risks. It is highly sensitive .Banks got to move

cautiously. It is easy to enter, but difficult to get out. A systematic and a calculated

approach is the pre-requisite for success in the long run.

Retail Banking is being introduced with the concept of serving customer with better

and innovative products with the latest technology and easy availability. It becomes

so popular and widely acceptable that more and more customers had started to use it.

Now it becomes a mass product. Customer database have tremendously increased and

it becomes difficult to manage them.

To match the customer inflows and current customers requirement as well as service

standards banks have to set up more branches, distribution channels and new trained

staff as well as improvement in back office operations also in very near future. This

itself a time bounded problem and banks have to do it as early as possible.

Todays competitive market customer has more than one options for his retail banking

needs. Every bank is providing more or less similar kind of products. So an

unsatisfied customer can easily switch over to the another competitors bank. So

banks need to be very careful in handling the customers. They have to continually

improve their service standards.

Retail Banking is so wide accepted by the customer as well as very aggressively

promoted by the bankers that if the bankers do not take adequate care in distributing

and recovering advances, there are chances of increasing in NPAs in coming feature.

And that would be an alarming situation.


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CORE SERVICES FACILITATING

SERVICES

SUPPORTING

SERVICES

Payment services Cash

Foreign currencyrequirements

Travelers cheques DD/Bankers cheque

TT

EFT

Making payments

at doorsteps

Internet banking

Telephone banking

Current a/c & savings a/c ATM Card

Standing instruction

from customers for

making payments

Inter branch/inter

banks transfer offunds

Safety vault

Credit cards

Debit cards

Services to seniorcitizens

Telephone banking

Internet banking Conversion of

excess balance to

time deposit

Loan product: consumer

loans, personal loans,

housing loans, educational

loans

Current a/c

Savings a/c

Time deposit a/c

Delivery of time atpromised time

period

Interest rate option:fixed/floating

Flexibility in

prepayment of loan

Counseling on real

estate markets

Legal services for

documentation

ECS for paymentof loan installments

Insurance products : life

insurance Pension schemes Current a/c

Savings a/c

Time deposits

Safety vaults

Additionalinsurance facility

for family members

Counseling on post

retirement savings


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BANKING PRODUCTS PORTFOLIO

A. Deposits:

There are many products in retail banking like F.D., Savings A/c, Current A/c, Recurring

A/c, NRI A/c, Corporate Salary A/c, Free Demat A/c, Kids A/c, Senior Citizen Scheme,

Cheque Facilities, Overdraft Facilities, Free Demand Draft Facilities, Locker Facilities,

Cash Credit Facilities, etc. They are listed and explained as follows:

1. Fixed Deposit:

The deposit with the bank for a period, which is specified at the time of making the

deposit is known as fixed deposit. Such deposits are also known as F.D or term

deposit .A F.D is repayable on the expiry of a specified period. The rate of interest

and other terms and conditions on which the banks accepted F.D were regulated by

the R.B.I. in section 21 and 35A of the Banking Regulation Act 1949.

Each bank has prescribed their own rate of interest and has also permitted higher

rates on deposits above a specified amount. R.B.I has also permitted the banks to

formulate F.D. schemes specially meant for senior citizen with higher interest than

normal.

2. Savings A/c:

Saving bank A/c is meant for the people who wish to save a part of their current

income to meet their future needs and they can also earn in interest on their savings. The

rate of interest payable on by the banks on deposits maintained in savings account isprescribed by R.B.I. The bank should not poen a saving account in the name of :

1. Govt. Department.

2. Municipal Corporation

3. Panchayat Samities

4. State housing Boards

5. Water and Sewerage Boards

Now a days the fixed deposit is also linked with saving account. Whenever there

is excess of balance in saving a/c it will automatically transfer into Fixed deposit

and if there is shortfall of funds in savings a/c , by issuing cheque the money is

transferred from fixed deposit to saving a/c. Different banks give different nameto this product.

3. Current A/c:

A current A/c is an active and running account, which may be operated upon any

number of times during a working day. There is no restriction on the number and the

amount of withdrawals from a current account. Current account suit the requirements of a

big businessmen, joint stock companies, institutions, public authorities and public

corporation etc.


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4. Recurring Deposit:

A variant of the saving bank a/c is the recurring deposit or cumulative deposit a/c

introduced by banks in recent years. Here, a depositor is required to deposit an amount

chosen by him. The rate of interest on the recurring deposit account is higher than as

compared to the interest on the saving a/c. Banks open such accounts for periods ranging

from 1 to 10 years. TDS is not applicable to this type of deposit. The recurring depositaccount can be opened by any number of persons, more than one person jointly or

severally, by a guardian in the name of a minor and even by a minor.

5. NRI Account:

NRI accounts are maintained by banks in rupees as well as in foreign currency.

Four types of Rupee account can be open in the names of NRI.

1.Non Resident Rupee Ordinary Account (NRO)

2.Non Resident External Account (NRE)

3.Non Resident ( Non Repatriable Deposit Scheme ) ( NRNR)

4.Non Resident ( special)Rupee Account Scheme ( NRSR)

Apart from this, foreign currency account is the account in foreign currency. The account

can be open normally in US dollar , Pound Sterling , Euro. The accounts of NRIs are

Indian millenium deposit, Resident foreign currency, housing finance scheme for NRI

investment schemes.

6. Corporate Salary Account:

Corporate Salary a/c is a new product by certain private sector banks, foreign

banks and recently by some public sector banks also. Under this account salary is

deposited in the account of the employees by debiting the account of employer. The only

thing required is the account number of the employees and the amount to be paid them as

salary. In certain cases the minimum balance required is zero. All other facilities available

in savings a/c is also available in corporate salary a/c.

7. Demat Account:

Dematerialization is a process by which physical share certificates / securities are

taking back by the company or registrar and destroyed ultimately. An equivalent number of

shares are credited electronically to customers depository account. Just like saving/current

account with a bank one can open a securities account with the depository through adepository participant (DP).

8. Kids Account: ( Minor Account )

Children are invited as customer by certain banks. Under this, Account is opened

in the name of kids by parents or guardians. The features of kids account are free

personalized cheque book which can be used as a gift cheque , internet banking ,

investment services etc.


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9. Senior Citizenship Scheme :

Senior citizens can open an account and on that account they can get interest rate

somewhat more than the normal rate of interest. This is due to some social responsibilities

of banks towards aged persons whose earning are mainly on the interest rate.

B. Loans and Advances:

The main business of the banking company is lending of funds to the constituents,

mainly traders, business and industrial enterprises. The major portion of a banks funds is

employed by way of loans and advances, which is the most profitable employment of its

funds.

There are three main principles of bank lending that have been followed by the

commercial banks and they are safety , liquidity, and profitability.

Banks grant loans for different periods like short term, medium term, long term andalso for different purpose.

1. Personal Loans:

This is one of the major loans provided by the banks to the individuals. There the

borrower can use for his/her personal purpose. This may be related to his/her business

purpose. The amount of loan is depended on the income of the borrower and his/her

capacity to repay the loan.

2. Housing Loans:

NHB is the wholly own subsidiary of the RBI which control and regulate whole

industry as per the guidance and information , home loans rates is going to be cheaper so

that infrastructure sector gets motivation for development home loans rate is decline up to

7.5% EMI at declining rate so that it becomes cheaper. The purpose of loan to purchase,

extension , renovation, and land development.

3. Education Loans:

Loans are given for education in country as well as abroad.

4. Vehicle Loans:Loans are given for purchase of scooter, auto-rickshaw, car, bikes etc.. The market

size of auto finance is RS 7500 cr. Low interest rates, increasing income levels of people

are the factors for growth in this sector. Even for second hand car finance is available.

5.Professional Loans:

Loans are given to doctor, C.A, Architect, Engineer or Management Consultant.

Here the loan repayment is normally done in the form of equated monthly.

6. Consumer Durable Loans:

Under this,loans are given for acquisition of T.V,Cellphones,A.C,Washing

Machines,Fridge and other items.


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7.Loans against Shares and Securities:

Finance against shares are given by banks for different uses. Now a days finance

against shares are given mostly in demat shares. A margin of 50% is normally accepted by

the bank on market value. For these loans the documents required are normally DP notes,

letter of continuing security, pledge form, power of attorney. This loan can be used for

business or personal purpose.

Services Provided By the Banks-

1. Credit Cards:

A credit card is an instrument, which provides immediate credit facilities to its holder to

avail a variety of goods and services at the merchant outlets. It is made of plastic and

hence popularly called as Plastic Money.

Such cards are issued by bank to persons with minimum income ranging between RS

50000 and RS 100000 per annum. And are accepted by a variety of business

establishments which are notified by the card issuing bank.

Some banks insist on the cardholder being their customers while others do not.

Few banks do not charge any fee for issuing credit cards while others impose an initial

enrollment fee and annual fee also.

If the amount is not paid within the time duration the bank charges a flat interest of 2.5%

Leading Indian Banks such as : SBI, BOB, Canara Bank, ICICI, HDFC and a few foreign

banks like CITIBANK, Standard Chartered etc are the important issuers of credit card in

India.

2. DEBIT CARDS:

It is a new product introduced in India by Citibank a few years ago in association with

MasterCard.

A debit card facilitates purchases or payments by the cardholder .

It debits money from the a/c of the cardholder during a transaction. This implies that the

cardholder can spend only if his account permits.

3. NET BANKING:

This facilitates the customers to do all their banking operations from their home by using

the internet facility.

With Net Banking one can carry out all banking and shopping transactions safely and

with total confidentiality.


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With Net Banking one can easily perform various functions:

1. Check Account Balance

2.

Download Account Statement3. Request for a stop payment of a cheque.

4. Request for a new cheque book.

5. Make a FD/TDS enquiry.

6. Access DEMAT a/c

7. Transfer funds.

8. Facilitate bill Payments.

9. Open a FD

10.Pay Credit Card dues instantly.

4.

Mobile Banking:To avail the mobile banking, one needs to have a savings, current and FD a/c and mobile

connection.

Using mobile banking facility one can

1. Check Balance

2. Check last three transactions.

3. Request for a statement

4. Request for a cheque book.

5. Enquire on a cheque status.

6. Instruct stock cheque payment.

7.

View FD details.

8. Transfer funds.

9. Pay Utility Bills.

5. Phone Banking:

It helps to conduct a wide range of banking transactions from the comfort of ones home

or office.

Using phone banking facility one can

1. Check Balance

2.

Check last three transactions.3. Request for a cheque book.

4. Transfer funds.

5. Enquire on a cheque status, and much more.

6. Anywhere Banking:

One can operate his roaming current a/c at one centre at any other designated of a

particular across any other centre.

One can deposit or withdraw cash from any branch of a particular bank all over the

country up to a prescribed limit.

One can also transfer funds.


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7.Automated Teller Machines ( ATM) :

ATMs features user-friendly graphic screens with easy to follow instructions. The ATMs

interact with customers in their local language for increased convenience.

ATMs are generally located in commercial areas, residential localities, major petrol pumps,airports, near railway stations and other places, which are conveniently accessible to

customers.

ICICI Banks ATM network is one of the largest and most widespread ATM network in

India.

Following are the features available on ATMs which can be accessed from anywhere at

anytime :

1. Cash Withdrawal

2.

Cash Deposit3. Balance Enquiry

4. Mini A/c Statements

5. Cheque Book Request

6. Transaction at various merchant establishments.

9. Smart Card:

The smart card, a latest additional to the world of banking and information technology

has emerged as the largest volume driven end-product in the world due to its data

portability, security and convenience. Smart Card is similar in size to todays plastic

payment card, it has a memory chip embedded in it. The chip stores electronic data and

programmes that are protected by advanced security features. When coupled with a

reader, the smart card has the processing power to serve many different applications. As

an access-control device, smart cards make personal and business data available only to

appropriate users.

To ensure the confidentiality of all banking service, smart cards have mechanisms

offering a high degree of security. These mechanisms are based on private and public key

cryptography combined with a digital certificate, one of the most advanced security

techniques currently available. Infact , it is possible to connect to the web banking service

without a smart card.


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Banking on Retail

With a jump in the Indian economy from a manufacturing sector, that never really took off, to

a nascent service sector, Banking as a whole is undergoing a change. A larger option for the

consumer is getting translated into a larger demand for financial products and customization

of services is fast becoming the norm than a competitive advantage. With the Retail banking

sector expected to grow at a rate of 30% [Chanda Kochhar, ED, ICICI Bank] players are

focusing more and more on the Retail and are waking up to the potential of this sector of

banking. At the same time, the banking sector as a whole is seeing structural changes in

regulatory frameworks and securitization and stringent NPA norms expected to be in place by

2004 means the faster one adapts to these changing dynamics, the faster is one expected to

gain the advantage.

The reasons behind the euphemism regarding the Retail-focus of the Indian banks and how

much of it is worth the attention that it is attracting are the question here..

Potential for Retail in India: Is sky the 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 also,

the potential lies in the fact that of all the consumer expenditure in India in 2001, less than

1% was through plastic, the corresponding US figure standing at 18%.


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But how competitive are the players?

The fact that the statistics reveal a huge potential also brings with it a 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 theshoes of the foreign banks. In other words, how do they see us? Are we good takeover

targets?

Going by international standards, a large portion of the Indian population is simply not

bankable taking profitability into consideration. On the other hand, the financial services

market is highly over-leveraged in India. Competition is fierce, particularly from local private

banks such as HDFC and ICICI, in the business of home, car and consumer loans. There,

precisely lie the pitfalls of such explosive growth. All banks are targeting the fluffiest

segment i.e. the upwardly mobile urban salaried class. 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 form the most profitable segment. Over-dependence on

this segment is bound to bring in inflexibility in the business.

What about the 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 giant, you know that a significant commission

earned out of any such booking gets ploughed back to our own economy. Perhaps, one of the

biggest impediments in foreign players leveraging the Indian markets is the absence of

positive credit bureaus. In the west the risk profile can be easily mapped to things like SSNs

and this information can be publicly traded.

PAN is a step in this direction but lot more work need to be done. What has been a positive

step towards this is a negative file sharing started by a consortium of 11 banks. However, as a

McKinsey study points out actual write-offs on NPAs show a strong negative correlation with

sharing of positive information. On top of this, the spend-now-pay-later credit culture in

India is just not picking up. A swift legal procedure against consumers creating bad debt is

virtually non-existent. Finally, the vast geographical and cultural diversity of the countrymakes credit policy formulation a tough job and it simply cannot be dictated from a Wall


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Street or a Singapore boardroom! All these add up to the unattractiveness of the Indian retail

market to the foreign players.

So over the past few years, in spite of the entry of MNCs in many industries, Retail Banking

has seen a flurry of panicky exits. 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 Citibank, HSBC and Standard Charteredall in India for more than a

century, and with relatively large retail networksseem 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 France's BNP, Germany's Deutsche Bank and Japan's Bank of Tokyo-

Mitsubishi. ABN Amro took over Bank of America's retail business.

So all for the keeping then?

This will perhaps be the most wrongful

inference that can be drawn from the above. We just cannot afford to look inwards and repeat

the mistakes that were the side effects of the Nationalization of the Banking System. A

growing market can never be an alibi for lack of innovation. Indian banks have shown little

or no interest in innovative tailor-made products. They have often tried to copy process

designs that have been tested, albeit successfully, in the West. Each economic culture has its

own traits and one who successfully adapts those to the business is the eventual winner. A

case in point is the successful implementation of micro-credit networks in Bangladesh.

Positioning a bank as a tech-savvy financial vendor in a country where Internet penetration is

an abysmal 1.65% can only add to the over-leveraging as pointed out earlier. The focus of the

sector should remain in macroeconomic wealth creation and not increasing the per capita

indebtedness that will do little but add to the NPA burden. Retail Banking in India has to be

developed in the Indian way, notwithstanding the long queues in front of the teller counters in

the Public sector banks.


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Company Profile

ING group originated in 1990 from the merger between Nationale Nederlanden the largest

Dutch Insurance Company and NMB Post Bank Group. Combining roots and ambitions,

the newly formed company called Internationale Nederlanden Group . Market circles soon

abbreviated the name to I-N-G. The company followed suit by changing the statutory name to

ING Group. ING is a global financial services company providing banking, investments, life

insurance and retirement services and operates in more than 50 countries.

ING is a global financial institution of Dutch origin offering banking, investments, life

insurance and retirement services. ING serve more than 85 million private, corporate and

institutional customers in Europe, North and Latin America, Asia and Australia. They draw

on their experience and expertise, their commitment to

excellent service and their global scale to meet the needs of a broad customer base,

comprising individuals, families, small businesses, large corporations, institutions and

governments

ING Vysya FOUNDATION (INGCSR)

World over ING has strengthened its name as a good corporate citizen. The ING Chances for

Children initiative (CFC) a global program in partnership with UNICEF is to educate 50,000

underprivileged children in three countries, Ethiopia, India and Brazil by 2008. In India the

focus is primarily in the districts of Dharampuri and Krishnagiri in Tamil Nadu. Through the

national Child labor Elimination (NCLP) bridge schools, ING provides much needed support

to UNICEF, to fund, monitor, and provide children with quality primary education

The Indian arm of the Chances for Children programs is run by the support of ING business

units in India (ING, ING Life Insurance and ING Investment Management) through the ING

Vysya Foundation.

The Foundation was set up almost 3 year ago and was actively involved in the post Tsunami

rehabilitation of the victims. ING Group set up a dedicated Tsunami Support account. In

India, the Foundation partnered with five NGO providing much needed financial support,

from rebuilding of schools to providing fishing boats, giving much needed hope to destroyed

lives.

The Indian chapter of CFC involves the partnership of the Foundation with 7 NGO working

in primary education. Not only does the Foundation provide much needed financial support to


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these organizations but also runs strong voluntary programs giving the employees a chance to

meet the children, work with them and take ownership and responsibility for the vision of its

partners. The Foundation creates systems that ensure CSR activities within the organization.

Various programs are initiated with the employees, whether it is taking 100 children for a day

out to the planetarium or watching a film with them. It collectively influences the culture of

the organization; and also provides the employees with an opportunity to contribute to the

vision of the organizations CSR.

Recently ING Vysya Foundation launched its initiative Run Ricky Run. In this initiative,

for every run Ricky makes the Foundation will sponsor one child to go to school through its

association with its NGO partner in Bangalore, SUKRUPA.

Addressing health care, poverty or human rights issues, there is no better way than through

the corridors of education. The main focus of the Foundation in India is to support not for

profit organizations working in the area of education.

STRATEGY

INGs overall mission is to help customers manage their financial future. Capitalizing on

changing customer preferences and building on our solid business capabilities, INGs

strategic focus is on banking, investments, life insurance and retirement services. They

provide retail customers with the products they need during their lives to grow savings,

manage investments and prepare for retirement with confidence. With wide range of

products, innovative distribution models and strong footprints in both mature and developing

markets, ING has the long-run economic, technological and demographic trends on their side.

ING aligns its business strategy around a universal customer ideal: saving and investing for

the future should be easier. While steering the business through turbulent times, ING will

execute efforts across all its business lines to strengthen customer confidence and meet their

needs, preserve a strong capital position, further mitigate risks and bring its costs in line with

revenue expectations.


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Product of bank

Types of saving accounts offered by ING Vysya Bank

A)ORANGE SAVINGS ACCOUNT:

This account is the basic product of ING Vysya Bank. In this account minimum cash balance

required to open an account & the Quarterly Average Balance requirement is Rs5000. Some

of the major features and benefits of this account are:

FREE

Free issue of International Debit Card.

Unlimited ATM transactions at over 25,000 (Cirrus/Cashnet) ATMs in India, where

QAB is maintained.

Shopping convenience at over 2 Lakh merchant locations, with the ING Vysya

International Debit card.

Unlimited ATM transactions at over 196 ING Vysya ATMs.

2 Demand Drafts with a value not exceeding Rs.50,000 per annum, where QAB is

maintained.

Unlimited usage of payable at par (PAP) Cheques.

Transfer of funds across all branches.

National Electronic Funds Transfer (NEFT) through the internet banking channel.

Electronic Bill Payment service.

Smartserv - Personal Assistance Service.

Statement of Account through E-mail.

Mi-b@nk - Internet banking facility.

RTGS (Real Time Gross Settlement) transactions at all branches.

AAA Cash deposit (Customers) Free up to 2 transactions per month and a value

limit of Rs. 50,000/-

BENEFITS

Free unlimited access to 25,000 + other bank ATMs- enhanced accessibility.

Free multi branch, Multi-city banking convenience.

Payable at par Cheques.

Smart serv- Personal Concierge Services.


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B)ING FORMULA SAVINGS ACCOUNT:

This is the product of ING Vysya Bank which is targeted towards the upper middle class

segment of the society. Basically the targeted segment is the age group between 18-40 yrs.This product has its significance particularly in Metropolitan/A grade cities. This product is

also useful for people who travel frequently particularly to Metropolitan/A grade cities.

Minimum cash balance required to open this account and Quarterly Average Balance

requirement is Rs. 25000/-

Some of the major features and benefits of this account are :

Maximum withdrawal limit from INGs ATM or any other banks ATM is Rs.

50,000.

Maximum shopping limit through INGs ATM/Debit card is Rs. 75,000.

Free Payable at Par cheques.

Exclusive F1 themed, Internet Banking services.

Formula 1 International Debit card.

Free sms alerts on transactions above Rs. 1500.

SPECIAL BENEFITS CARDFUEL GAUGE

Fill fuel across any petrol pump in India and get the 2.5% surcharge waived.

SPEED LAP

Shop using your ING Formula savings account and get Formula One merchandise.

RACE DAY

Whenever there is a Formula 1 race anywhere in the world, there is a race for u as

well. Shop using your ING Formula debit card on the day of the race and top 25

spenders for the race day wins vouchers from ING.

3 winnersGift vouchers worth Rs. 5000/-

10 runner ups- Gift vouchers worth Rs. 2000/-

12 second runner ups- Gift vouchers worth Rs. 1000/-


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B)PLATINA ACCOUNTS

This product (account) of ING Vysya Bank is a special product for special class of customers.

This can also be termed as Preferred Platina Banking. This product is designed to reduce the

efforts put in handling banking and financial needs. This product has special features whichare mainly meant for business class people who have to make large payments and have

regular transactions. The Platina account holder becomes the preferred customer of the bank.

The average quarterly balance (QAB) is Rs. 100,000

Features:

Dedicated Relationship Manager

Our dedicated relationship managers can help you manage your money; while you pursue

your passion, be it business or pleasure.

Wealth Management Service

Our preferred banking services offer you customized financial strategies on how to invest

and where to invest based on simple financial risk profiling.

ING Platina Debit Card

Use your ING Platina Gold Debit Card and withdraw cash up to Rs1 lac per day

from any ATM, Avail a 1% cash back on shopping with your Debit Card.

Account Representative Services

Now when you are out building a business empire or taking that well deserved

vacation, just nominate someone else to do your routine banking enquires.

Preferential rates on ING products

Get more out of the Platina relationship. Avail preferential rates on Demat, Bank

Lockers, Personal and Home loans.

CORPORATE RESPOSIBILITY

ING wants to pursue profit on the basis of sound business ethics and respect for its

stakeholders. Corporate responsibility is therefore a fundamental part of INGs strategy:

ethical, social and environmental factors play an integral role in business decisions.


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Finanicial BalanceSheet

The ING Vysya BANK Ltd.

ING Vysya Bank Ltd., is an entity formed with the coming together of erstwhile, Vysya Bank

Ltd, a premier bank in the Indian Private Sector and a global financial powerhouse, ING of

Dutch origin, during Oct 2002.

The origin of the erstwhile Vysya Bank was pretty humble. It was in the year 1930 that a

team of visionaries came together to form a bank that would extend a helping hand to those

who weren't privileged enough to enjoy banking services.

ING and ING Vysya Life Insurance are headquartered at Bangalore, while the corporate

office of ING Investment Management is situated at Mumbai. The synergies arising out of

the three distinct but complimentary businesses are bound to be an asset to the group in the

changing market dynamics of the future. The first such signs are already visible on the

horizon with combined products being successfully launched by the different entities of the

group in conjunction with each other

It's been a long journey since then and the Bank has grown in size and stature to encompass

every area of present-day banking activity and has carved a distinct identity of being India's

Premier Private Sector Bank.

In 1980, the Bank completed fifty years of service to the nation and post 1985; the Bank

made rapid strides to reach the coveted position of being the number one private sector bank.

In 1990, the bank completed its Diamond Jubilee year. At the Diamond Jubilee Celebrations,

the then Finance Minister Prof. Madhu Dandavate, had termed the performance of the bank

stupendous. The 75th anniversary, the Platinum Jubilee of the bank was celebrated during

2005. The long journey of seventy-five years has had several milestones

1930 Set up in Bangalore

1948 Scheduled Bank

1985 Largest Private Sector Bank

1987 The Vysya Bank Leasing Ltd. Commenced

1988 Pioneered the concept of Co branding of Credit Cards

1990 Promoted Vysya Bank Housing Finance Ltd.

1992 Deposits cross Rs.1000 crores

1993 Number of Branches crossed 300

1996 Signs Strategic Alliance with BBL., Belgium. Two National Awards by Gem & Jewellery Export


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Promotion Council for excellent performance in Export Promotion

1998

Cash Management Services, & commissioning of VSAT. Golden Peacock Award - for the best HR

Practices by Institute of Directors. Rated as Best Domestic Bank in India by Global Finance

(International Financial Journal - June 1998)

2000 State -of - the -art Date Centre at ITPL, Bangalore.RBI clears setting up of ING Vysya Life Insurance Company

2001 ING-Vysya commenced life insurance business.

2002

The Bank launched a range of products & services like the Vys Vyapar Plus, the range of loan

schemes for traders, ATM services, Smartserv, personal assistant service, Save & Secure, an

account that provides accident hospitalization and insurance cover, Sambandh, the International

Debit Card and the mi-b@nk net banking service.

2002 ING takes over the Management of the Bank from October 7th , 2002

2002 RBI clears the new name of the Bank as ING Vysya Bank Ltd, vide their letter of 17.12.02

2003 Introduced customer friendly products like Orange Savings, Orange Current and Protected HomeLoans .

2004 Introduced Protected Home Loans - a housing loan product

2005Introduced Solo - My Own Account for youth and Customer Service Line Phone Banking

Service

2006Bank has networked all the branches to facilitate AAA transactions i.e. Anywhere, Anytime &

Anyhow

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