CONTENTSSL. NO CHAPTER PAGE NO

CHAPTER.1 INTRODUCTION

1.1 Meaning of Retail Banking 2

1.2 Characteristics of Retail Banking 2

1.3 Types of Retail Banking 3

1.4 Objective of study 6

1.5 Drivers of Retail Banking 6

1.6 Strategies attributes to Retail Banking 6

1.7 Challenges in Retail Banking 6

1.8 Future prospects of Retail Banking 7

1.9 Research Methodology 7

1.10 Limitation 7

CHAPTER.2 RETAIL BANKING IN INDIA

2.1 Introduction 8

2.2 Retail Banking – An Indian Scenario 9

2.3 Objectives of Retail Banking 10

2.4 Growth of Retail Banking in India 11

2.5 Challenges to Retail Banking in India 18

CHAPTER.3 RETAIL BANKING BULES 20

CHAPTER.4 The Distribution system in Retail Banking 27

CHAPTER.5 Potential for Retail Banking- Is the sky limit? 285.1 Competitors of the players 28

5.2 Emergence of foreign Giants 29

5.3 A snap report of call centre in Retail Banking 30

CHAPTER.6 THE GLOBAL INDUSTRY GUIDE 31

CHAPTER.7 EXECUTIVE SUMMARY 33

CHAPTER.8 CONCLUSION 35

CHAPTER.9 BIBLIOGRAPHY 36

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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, investmentand securities)

Multiple channels of distribution (call centre, branch, internet) Multiple customer group ( consumer, small business and

corporate)

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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.

Nowadays, 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 at

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 perspectives and future business models and to

provide information on e-banking, competitors and future market

directions.

1.5 Driver of Retail banking:

(a) Economic prosperity

(b) Changing consumer demographics

(c) Technological innovation

(d) Decline in interest rates

1.6 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.

1.7 Challenges in Retail banking:

Customer retention

Operational risk

Reputational risk

Legal risk

Dependency on information technology

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1.8 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

1.9 RESEARCH METHODOLODY

The data collected is mainly from secondary sources but will also

including primary source. Collection of primary data by means of

interviewing concerned authorities of ICICI bank (Puri), and secondary

data from sources such as journals, websites, books and magazines.

1.10 Limitation:

Information regarding cost advantage and benefits derived by bank will

be divulged. Time is a major constraint

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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-à-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 uni 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. Retail

Banking, on the other hand, 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 mobile-banking, 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 2004-05 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 2004-05, 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 2004-05; up from Rs1983 crore in 2003-04. 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 Banking3

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.

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

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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

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 2009) (Rs. In bn)

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Bank’s Name Amount Growth RatePNB 372.50 7.53

SBI (All Associate) 3863.00 20.00ICICI 2623.00 62.00HDFC 1344.00 26.00IDBI 742.00 18.00

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 2009) (Rs. In Bn)

Bank’s Name Retail Loan % of the total Portfolio

ICICI 1347.54 100SBI (All Associate) 956 56HDFC 921 43PNB 658 21IDBI 314 16All India (Excluding Foreign Banks)

3654 68

There is still much scope for retail lending in India, after all, retail loan

constitutes less than 25% of GDP in India vis-à-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 Retail Loan as a % of GDP

India 16Thailand 18Singapore 49Korea 50Taiwan 52Malaysia 55Hong Kong 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 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 Private Sector (ICICI, HDFC, UTI and IDBI)

Public Sector (SBI, PNB, Canara Bank, BOB and BOI)

Home Loan 58.00 50.44Consumer Durables 7.72 - Personal Loan 67.00 26.84Overall Retail loans 62.00 36.00

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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 bank’s network also whom they have got mutual understanding for sharing ATM’s of other banks where they have no account. (Table-5)

Table 5: Number of ATMs of Different Banks in India

(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, Avery 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

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.

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Name Number of ATMsDena Bank 390HSBC 142Bank of India 404IDBI 232Syndicate Bank 1087Andhra Bank 492Corporation Bank 1012UTI / Axis Bank 2922HDFC Bank 1386ICICI Bank 2813SBI & Associates 8600PNB 4250

(c)Internet Banking:-ICICI Bank was the pioneer to introduce internet

banking. Later on, HDFC Bank, Citi 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 pat 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 1980’s, it is only since early

1990’s 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 2009. 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 merchant’s

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 Mauritius 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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Banc 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, Banc 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 et al (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 comples 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

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5) Management, etc being outsourced by Indian Banks. That’s why

before taking any decision on outsourcing; banks are expected to take

utmost 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 customer’s needs and requirements in

terms of services/ products etc.

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 nations.

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3. 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

customer’s 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 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 and services. The transaction simplicity through these channels is

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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.

3.2 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 per se. 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.

3.3 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 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 don’t 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.

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3.4 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 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.

3.5 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 3

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.

3.6 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 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. What’s 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.

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3.7 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 don’t, specialist providers are likely to pick apart their best

business.

3.8 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. Now that they tend to cooperate more with

external partners, banks have to rethink those old soils 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.

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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

product’s 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).

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4 . 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.

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5. 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 mow

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 2001, less than 1% was through plastic, the corresponding US

figure standing at 18%.

5.1 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,

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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 from the

most profitable segment. Over-dependence on this segment is bound to

bring in inflexibility in the business.

5.2 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.

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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.

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 Citibank,

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 France’s BNP, Germany’s Deutsche Bank and Japan’s

Bank of Tokyo-Mitsubishi. ABN Amro took over bank of America’s retail

business.

5.3 A snapshot of call centres 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.

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6. 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.

‘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

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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.

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7. 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 client’s 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

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banking 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.

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8. 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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9. BIBLIOGRAPHY

Executive summary “The Revenue Growth Challenge in Retail

Banking”- Bank Administration Institute

Retail Banking Presentation at IIM KOLKATA-(www.google.com)

Press Release 28th may 2005 & 2007 ASIAN BANKER

EXCELLENCE in RETAIL FINANCIAL SERVICES AWARDS

Deputy Governor RBI at 25th Bank Economist Conference.

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