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The issue of retail banking is extremely important and topical.

Across the globe, retail banking has seen spectacular uprising in
the commercial banking sector in recent years.

The reason for fast growth of retail market, especially, in

emerging economies, is attributable to:

a. Rapid advances in Information Technology

b. Evolving macroeconomic environment,
c. Financial market reforms ( Naarasimham committee) and
d. Several micro-level demand and supply side factors.


Retail Market has decisively got transformed from a sellers

market to a buyers market. Gone are the days when getting a
retail loan was difficult and cumbersome. All this emphasizes the
momentum that retail banking is experiencing in the Indian
Economy in recent years.

Retail banking is, however, quite broad in nature it

generally refers to dealings of commercial banks with individual
customers, both on liabilities and assets sides of Balance
Sheet. Fixed, Current and Savings Accounts on the liabilities side;
and loans personal, housing, auto and educational on the assets
side are more important products offered by banks.

Additionally, related ancillary services including Credit Cards,

Depository Services, Alternate Delivery Channels, Share-broking.
Online Trading, sale of gold coins, and third party products like
Mutual Funds, Life Insurance, and Non-life Insurance are also
offered by Banks under Retail Segment.

Globally, Retail Banking is characterized by three basic


Multiple Products (deposits, credit cards, insurance,

investments and securities).
Multiple channels of distribution (Branch, Internet, Kiosk, Call
Centre), and
Multiple customer groups (consumer individuals, small
business, Corporates)


We can list out the characteristics of Retail Banking as under:

Banking facilities targeted at individual customer

The thrust is on mass market segment encompassing large
population of individuals
On offer is plethora of products from liability, asset and
service products
Services as mentioned above are provided through various
channels i.e. both physical and virtual channels.
Retail Banking is extended to small and medium business
houses whose average annual turnover in the last 3 years is
less than Rs. 50 crores.

Retail Banking in India is perceived to be the in-thing in todays

banking. In recent past, retail segment has turned out to be a key
profit driver for banks with retail portfolio constituting around 22%
of outstanding business. The proportion of NPA in retail segment
is also lower than in other segments.


Economic prosperity and consequential increase in purchasing

Changing consumer demographics. India is having highest
proportion (70%) of the population below 35 years of age
(young population).
Technological Innovation like Debit cards, ATMs, Phone banking,
online banking etc.
Diversification of Risk
Opportunities to expand customer base by cross sell and up
Rise of Indian middle class
Financial Inclusion


Retention of customers 5 per cent increase in customer

retention can increase profitability by 35 per cent, as per a
Rising indebtedness could turn out to be a cause of concern.
Information Technology on one hand provides opportunities and
on the other hand poses challenge because many customers
still prefer Branch banking and personal touch.
KYC issues and Money Laundering Risk is very high in view of
competition among banks, as KYC norms may be compromised
by Banks in a bid for new business.
Need to provide end-to-end solution to customers.
Sharing information about the credit history of households.
Need for constant Innovation in products, systems and
Need for Credit Counselling to prospective and existing

The issue of outsourcing has become very important in recent

past because various core activities such as hardware and
software maintenance, entire ATM set up and operation (including
cash, refilling) etc., are being outsourced by Indian banks.
Banks are expected to take utmost care to retain the on-going
trust of the public.

Customer service should be at the end all in retail

banking. Someone has rightly said, It takes months to find a
good customer but only seconds to lose one.

Thus, strategy of Knowing Your Customer (KYC) is

important. So the banks are required to adopt innovative
strategies to meet customers needs and requirements in terms of
services/products etc.

The dependency on technology has imposed additional

responsibilities and challenges on IT departments in
managing, maintaining and optimizing the performance of
retail banking networks. It is equally important that banks
should maintain security to the advance level to keep the faith of
the customer.

The efficiency of operations would provide the competitive edge

for the success in retail banking in coming years.

One of the crucial impediments for the growth of this sector is the
acute shortage of manpower talent of this specific nature, a
modern banking professional, for a modern banking sector.



Liability Side
All Individuals (including staff), HUF, NRIs, Sole proprietorship
firms and Institutions permitted by RBI to open S.B. a/cs (except
Clubs & Trusts).

Asset Side

Consumptions/ Personal loans to all individuals including NRIs,

irrespective of credit limit.
Small Business Loans to individuals and sole proprietorship
firms engaged in small business, retail trade, self-employed,
professionals rendering services (other than agriculture &
manufacturing ) with limit up to Rs.5 crore.


Retail banking has inherent advantages outweighing certain

disadvantages. Advantages are analyzed from the resource angle
and asset angle.

Resource (or Liability) Side

Retail deposits are stable and constitute core deposits.

They are interest insensitive and less bargaining for additional
They constitute low cost funds for the banks. (Eg. Deregulation
of SB interest rate)
Effective customer relationship management with the retail
customers built a strong customer base.
Retail banking increases the subsidiary business of the banks.

Assets Side

Retail banking results in better yield and improved bottom line

for a bank.
Retail segment is a good avenue for funds deployment.
Consumer loans are presumed to be of lower risk and NPA
Helps economic revival of the nation through increased
production activity.
Improves lifestyle and fulfills aspirations of the people through
affordable credit.
Innovative product development credit.
Retail banking involves minimum marketing efforts in a
demanddriven economy.
Diversified portfolio due to huge customer base enables bank
to reduce their dependence on few or single borrower.
Banks can earn good profits by providing non fund based or fee
based services without deploying their funds.

In addition to above, the following are the other

advantages of Retail Banking:

Large customer base

Risk diversification
Strong customer loyalty and tend to stick to one bank.
Movement from one bank to another by customers is not
frequent. ( City bank Ex.CEO Vikram pandit)
Attractive interest spreads as the range of interest is wide.
Customers do not have much bargaining power.
Well diversified credit risks backed up by smaller quantum of
loan sizes.
Less volatility in demand and credit cycle as compared to large
corporates ensures stability in retail banking.
Large number of customer helps in marketing, mass selling and
ability to categorize and select customers through the effective
use of scoring systems and data mining.


Designing own and new financial products is very costly and

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


Problems in managing large number of customers more

pronounced, if robust and compatible IT systems are not
Continuous and rapid change / evolution of products can result
in IT complications.
High cost of maintaining branch networks and large number of
low-value transactions results in high cost of operations.
Higher delinquencies in retail loans portfolio - especially in
unsecured retail loans and credit card receivables.


Focus area will be CASA deposits. Consistent growth in CASA

will continue to be hallmark of our growth strategy.
Rural and Semi-urban branches to focus on Savings Bank
Deposits and Urban and Metro branches to focus on Current as
well as Savings Bank Deposits.
Branches in Residential areas to take challenging targets in
Savings Bank deposits due to their locational advantage and
similarly market area branches to canvass current accounts.
Customers having sizeable balance in Current Accounts i.e.
>Rs. 2.50 lakhs to be contacted frequently for additional
business through cross-selling, upselling and non-fund bases
Savings Bank Customers maintaining > Rs.5/- lakhs to be
monitored personally by Branch Heads.
Branches to adopt sales and marketing as a regular activity for
client acquisition.
Alternate Delivery Channels i.e. e-channel products to be
Campaigns for Savings Bank and Current Accounts should be
organized on regular basis.
Customers Meet should be regularly conducted by inviting new
customers in every meeting.
Branches should seek referrals for new clients from existing
good customers.
Customer Satisfaction Survey to be carried out from time to
Retail Festival Campaigns should be launched to increase Retail
Loan portfolio.


From the above, it can be said that there is lot of scope of Retail
Business in India. However, there are many challenges as well.
Hence, observance of KYC norms, fulfilling due diligence
guidelines and cautious approach in canvassing Retail Business is
considered prudent.