Leadership

Fo
r

Retail Banking
Pe

Journal: Leadership
er

Manuscript ID: Draft

Manuscript Type: Standard Article

Re

microfinance, micro credit, micro insurance, SHG Bank Linkage

Keywords:
Program, Rural Finance, Retail Banking, Micro Bankng

Today’s banking services are customer oriented. New services and

products are designed and inducted to meet the diversified
vi

customer requirements. Still there are some limitations in

providing the services. In this context, the paper surveys the
needs of the customers vis-à-vis banking segment. There is always
ew

a measurable distinct between requirement and available

services. At present the banking industry introducing new
products to acquire get a good spread. A majority of mass which is
Abstract: still unable to access the available services either by excluded due
to many reasons or banks are not showing enough managerial skills
or risk management skills to get maximum market share by
reaching the target customers. The options would be aggressive
retail banking or reaching the rural poor with much more flexible
financial inclusion methodology. This paper will be touching all
those aspects in concise way involving and changing
its operations to provide better services. It will put a light on issues
of demands and possible provision of core banking solutions.

http://mc.manuscriptcentral.com/leadership
Page 1 of 10 Leadership

1
2
3
4
5 “RETAIL BANKING- NEW BUSINESS PROSPECT”
6
7 *Dr. M.Prasadarao **Dr. Firdos T. Shroff
8 Registrar Director
9 Institute for Technology & Management RKP. Chetna Institute of Management
10
11
12
13 ABSTRACT: Today’s banking services are customer oriented. New services and
14 products are designed and inducted to meet the diversified customer requirements. Still
15 there are some limitations in providing the services. In this context, the paper surveys the
16 needs of the customers vis-à-vis banking segment. There is always a measurable distinct
17 between requirement and available services. At present the banking industry
18
introducing new products to acquire get a good spread. A majority of mass which is still
Fo
19
20 unable to access the available services either by excluded due to many reasons or banks
21 are not showing enough managerial skills or risk management skills to get maximum
22 market share by reaching the target customers. The options would be aggressive retail
r
23 banking or reaching the rural poor with much more flexible financial inclusion
24
methodology. This paper will be touching all those aspects in concise way involving and
Pe

25
26 changing its operations to provide better services. It will put a light on issues of demands
27 and possible provision of core banking solutions.
28
er

29 KEY WORDS: Retail Banking, Products, Exclusion, Customer, Banking Solutions

30
31
32
Objectives of the study:
1) To study the various needs of customers and products and services in retail
Re

33
34 banking sector as on date
35 2) To find the latest trend in retail banking services sector, as on date
36 3) To study nature of retail banking and financial sector in India.
vi

37
4) To analyse the impact of retail Technology on banking and finance
38
39
ew

40 The primary objective of this research is to analyse a key aspect of the commercial
41 banks, i.e., the extraordinary rapid rise of the retail products and services industry and its
42 role in enhancing the competitiveness of these banks. The researchers examines common
43 approaches and identify best practice mechanising for promoting and diffusing retail
44
45
segment and for building a national retail banking and financial infrastructure.
46
47 Design of the Study:
48
49 Methodology: A quantitative approach was used for the study. Visit to customers was
50
carried and interactions held to enable us to know the trend and market in retail banking
51
52 and financial services sector. A survey was conducted to study the need-based products
53 and what customer wants in present day context, in both urban and rural areas.
54
55
56
57
58
59
60
1
http://mc.manuscriptcentral.com/leadership
 Leadership Page 2 of 10

1
2
3
4
5 Introduction:
6
7
8 The face of Indian banking changed irreversibly soon after liberalization in the
9 early nineteen nineties – after the advent of the new private sector banks or the new
10
11
generation banks as they are often called. Till then banking was quite staid due to lack of
12 freedom of diversity. Banking was not segmented and a banker accepted deposits, gave
13 corporate loans and offers investment advice.
14
15 Today’s customers are service-oriented. Products customer demand are plenty,
16
whereas the products offered by banking/financial services sector are limited, as there are
17
18 various risk involved. Customers desire prompt, efficient service and demanding flexible
Fo
19 products to meet requirement. The urban customer usually having access to all the
20 banking products and availing successfully. But the rural customer especially excluded
21 customers due various reasons unable to avail these services. In this context, the paper
22 surveys the needs of the customers vis-à-vis banking segment. The paper covers various
r
23
24
needs of customers, what products and services they require in the retail
banking/financial services sector.
Pe

25
26
27 What is Retail Banking :
28
er

29
The dictionary meaning of Retail is –
30
31 ‘The sale of goods to ultimate consumers, usually in small quantities’
32
Re

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

34 local branches of larger commercial banks. Services offered include: savings and
35 checking accounts, mortgages, personal loans, consumer loans, debit cards, credit cards,
36
and so forth.
vi

37
38
39 Retail Banking is among the fastest growth industries in the country. Major
ew

40 sector of availing customers are at urban due to awareness and affordability. The
41 products are designed as per the requirement and affordability i.e., the raising diversified
42 lifestyles and requirements on basis of the lifestyle and ability to repay the loan.
43
44
45 The important causes for the growth of the retail banking in India, some of which
46 are as follows :
47
48 1) New general banks are customer centric, focused and driven
49
2) They want growth, market share and a dominant presence.
50
51 3) This is being achieved by creating specialist groups and developing expertise
52 4) As a consequence banking has become functionally segmented – retail assets, retail
53 liabilities, corporate banking, trade finance, merchant banking, private banking and
54 treasury.
55
56
57
58 A “Young” population . . .
59
60
2
http://mc.manuscriptcentral.com/leadership
Page 3 of 10 Leadership

1
2
3
Per cent of population, 2003
4
India China Germany Korea
5
6
7 7 10 8
8 23
9 23 30 26
10 36
11 35
12
35 26 37
13 25
14 35 16 29
15
Highest proportion of population below 35 years (70%) in India…
16
( ICICI report on retail banking as on 2004)
17
18
The human capital of India i.e., <35yrs is the major force availing highest
Fo
19
20 percentage of retail loans. The Banks are in operation inducted a number of new
21 products and continue to do so to attract a mass of reliable customers. It is an industry
22 where demand for good bankers far outstrips the supply. Many of the public & private
r
23 sector banks and financial services are not equipped towards introducing many products
24 to suit the customer requirements those below poverty line, thereby the excluded. The
Pe

25
26
main fear of bad debts and NPAs and rigid risk management system. The unfortunate
27 result has been that consequent to this huge demand, those being inducted into banking
28 are not being given adequate training nor do they get adequate time to read and know
er

29 enough about what they need to know. In this paper we will discuss the current status of
30 retail banking segment and need for further diversification with caution and growth for
31
the purpose of nation growth.
32
Re

33
34
35 Drivers of Retail Banking growth:
36
vi

37 CHANGING CONSUMER DEMOGRAPHICS

38
Growing disposable incomes
39
Youngest population in the world
ew

40
Increasing literacy levels

41
42

Higher adaptability to technology
43
Growing consumerism
44
Fiscal incentives for home loans
45
Changing mindsets-willingness to borrow/lend
46
Desire to improve lifestyles
47

Banks vying for higher market share
48
49
50
51 Current status of Economy vs. Retail Banking
52
53 a) Retail assets are just 22% of the total banking assets of India
54
55
b) Contribution of retail loans to GDP:
56 India 9% China 18 %,
57 Thailand 25% Taiwan 54%
58
59
60
3
http://mc.manuscriptcentral.com/leadership
 Leadership Page 4 of 10

1
2
3
c) Indian population below 35 yrs of Age – 70 %
4
5 d) Reach of Formal Banking Channels – 20-25% of Indian population
SBI 2005(Cygnus Industry Insight)
6
7
8
9 Products & Services :
10 Personal Banking
11
a) Deposits
12
13 o Savings
14 o Current
15 o Term
16 o NRE
17
18
b) Advances
Fo
19
20 o Loans for machinery equipments
21 o Vehicle finance
22 o Corporate finance
r
23 o Trade Finance
24
o Housing/Home loans
Pe

25
26 o Personal Loans to salaried employees
27 o Educational loans
28 o Cash credit limits for working capital
er

29 o Overdraft and loans against Demat shares/Govt.Relief Bonds/LIC

30 Policies/NSCs to individuals
31
32
o Mortgage Finance
o Micro Finance/Credit
Re

33
34 o Gold Loans
35 o Event Loans
36 o Festival Loans
vi

37
o Loan against rent receivables
38
39 o Loan to doctors to set up their own clinics or for purchase of medical
ew

40 equipment
41 o Loan for Women Empowerment for setting up –
42  Boutiques
43  Beauty Parlours
44
45
 Creches
46  Flower Shops
47  Making Jaipuri Quilts
48  Preparation and supply of food tiffins, etc
49
50
51
c) Credit Cards
52 o Debit
53 o Credit
54 o International
55 d) e-Banking / Online banking
56 o Electronic Funds Transfer (EFT)
57
58
o Real Time Gross Settlement (RTGS) – money transfer on real time basis
59
60
4
http://mc.manuscriptcentral.com/leadership
Page 5 of 10 Leadership

1
2
3
o Cheque truncation – image capturing – thus eliminating physical
4
5 movement of cheques
6 o Internet banking
7 o Mobile banking
8 o SMS banking
9 o Tax Payment
10
11
o Cash Management
12
13
14
e) Online other retail banking services :
15 Banks also offer following Retail Banking services to its customers and it needs to be
16 fully computerized to take full advantage of technological innovations.
17
18 1. Payment of utility bills like water, electricity, telephone and mobile phone bills
Fo
19 2. Payment of insurance premiums on due dates
20
3. Payment of monthly/quarterly education fee of children to their respective schools
21
22 4. Remittance of funds from one account to another
r
23 5. Demating of shares, bonds, debentures, and mutual funds / Portfolio Management
24 6. Payment of credit card bills on due dates
Pe

25 7. Last but not the least, the Online filing of income tax returns and payment of
26 income tax as also Online Payment of Direct / Indirect Taxes through bank
27
28
accounts.
er

29
30 f) Other Products and Services/Management
31 - Safe Deposit Vault/Lockers
32 - Investment Management
Re

33
- Insurance / Bancassurance Management
34
35 - Wealth Management
36 - SME/Micro Finance Services
vi

37 - Treasury Management
38 - Foreign Exchange Management
39 - Portfolio Management
ew

40
41
- Mutual Funds Management
42 - Core Banking Solutions
43
44 New Delivery Channels for Retail Banking Products and Services
45
46
The advent of new delivery channels, viz., ATM, internet and telebanking has
47
48 revolutionaries the retail banking activities. The channels enable banks to deliver retail
49 banking products and services in an efficient and cost effective manner. Now-a-days the
50 banks are under great pressure to attract new and retain old customers, as margins are
51 turning wafer thin. In these circumstances reducing administrative and transaction cost
52 has become crucial. Banks are making special offerings to customers through these
53
54
channels.
55
56 Retail banking has been immensely benefited with the revolution in IT and
57 communication technology. The automation of banking processes is facilitating
58
59
60
5
http://mc.manuscriptcentral.com/leadership
 Leadership Page 6 of 10

1
2
3
extension of their reach and rationalization of their costs as well. They are the engines for
4
5 growth of retail banking business of banks.
6
7 The networking of branches has extended the scope of banking to anywhere and anytime
8 24 x 7 days a week banking.. It has enabled customers of a bank rather than the
9 customers of a particular branch only. Customers can transact retail banking transactions
10
11
at any of the networked branches without any extra cost.
12
13 As a matter of fact the retail banking per se has taken off because of the advent of
14 multiple banking channels. These channels have enabled banks to go on a massive
15 customer acquisition mod since transaction volumes spread over multiple channels lessen
16
the load on the brick and mortar bank branches.
17
18
Fo
19 Future of Retail Banking :
20
21 Though at present retail banking appears to be the best bet for banks to improve their top
22 and bottom-line, yet the future of retail banking in general, may not be all roses as it
r
23
24
appears to be. There are signs of slowdown in consumer growth in some countries,
which will inevitably have an impact on retail banking business growth and its related
Pe

25
26 technologies.
27
28 Secondly, the possibility of deterioration in asset quality cannot be ruled out. With the
er

29
boom in housing loan market, the signs of overheating has also started surfacing with
30
31 potential caution. Further the pressure on margins is mounting, partly because of fierce
32 competition and partly as a result of falling interest rates environment which has
Re

33 diminished to some extent the endowment effect of substantial deposit base from which
34 most retail banks have been deriving benefits. But banks, which have built a significant
35 retail banking portfolio may fare relatively well in the years to come. Those banks which
36
have dynamic retail strategy and are well diversified in products, services and distribution
vi

37
38 channels and have at the same time managed to achieve a good level of cost efficiency
39 are the ones that are most likely to success in the long run.
ew

40
41 Significance
42
43
44 The retail banking is the most vibrant. Banks, in their desire to be accessible and have
45 the greatest reach, have opened branches with amazing speed.
46
47 The intent of this paper is to share all that authors know on retail banking/financial
48 services sector, with others.
49
50
51 The Impact of Technology on RETAIL BANKING :
52
1. The major impact of technology on Retail Banking is that, the customers have
53
54 become the Emperors – the fulcrum of all Banking activities, both on the asset
55 side and the liabilities front. The hitherto sellers market has transformed into
56 buyers market. The customers have multiple of choices before them now for
57 cherry picking products and services, which suit their lift styles and tasters and
58
59
60
6
http://mc.manuscriptcentral.com/leadership
Page 7 of 10 Leadership

1
2
3
financial requirements as well. Banks now go to their customers more often than
4
5 the customers go to their banks.
6 2. The Non-Banking Finance Companies which have hitherto been thriving on retail
7 business due to high risk and high returns thereon have been dislodged from their
8 profit munching citadel.
9 3. Technology in Retail Banking is transforming banks into one stop financial super
10
11
markets.
12 4. The share of retail loans is fast increasing in the loan books of banks
13 5. Banks can foster lasting business relationship with customers and retain the
14 existing customers and attract new ones. There is a rise in their service levels as
15 well.
16
6. Banks can cut costs and achieve economies of scale and improve their revenues
17
18 and profits by robust growth in retail business. Reduction in costs offers a win-
Fo
19 win situation both for banks and the customers.
20 7. It has affected the interface of banking system through different online delivery
21 mechanism.
22 8. It is not that banks are sharing the same pie of retail business, the pie itself is
r
23
24
growing exponentially. Retail Banking has fueled a considerable quantum of
purchasing power through a slew of retail products.
Pe

25
26 9. Banks can diversity risks in their credit portfolios and contain the menace of Non-
27 Performing Assets (NPAs). Retail Banking allows bank to cross sell other
28 products and services, as it is far more easier to sell other products to the same
er

29
customer rather than search for absolutely new ones. Cross selling Online is one
30
31 of the best avenues for relationship banking and retention of customers. Banks
32 can thus increase their business volume, and improve their bottom-line
Re

33 substantially.
34 10. Re-engineering of business with sophisticated technology-based products will
35 lead to business creation, reduction in transaction costs and enhancement in
36
efficiency of operations.
vi

37
38
39
Draw-backs of Retail Banking :
ew

40
41 Despite the numerous advantage of Retail Banking there are some draw-backs in this
42 business. These are as under :
43
44 1. Management of large number of clients may become a problem if IT
45 systems are not robust.
46 2. Rapid evolution of products can lead to IT complications.
47
48 3. The cost of maintaining large number of small value transactions in
49 branch networks will be relatively high, unless the customers use
50 alternate delivery channels, like ATMs, internet and phone banking,
51 etc., for carrying out banking transactions.
52
53
54
55
56 Retail Banking is not everybody’s Cup of Tea :
57
58
59
60
7
http://mc.manuscriptcentral.com/leadership
 Leadership Page 8 of 10

1
2
3
Retail Banking is not an easy task for every banks. Bank of America had to get out of
4
5 Retail Banking business during 2003. Retail lending is as risky as commercial lending.
6 Banks require some fundamental capabilities for undertaking retail business as it is easy
7 to enter but difficult to get out of this business. It is a serious business. It requires
8 tremendous commitment, expertise, understanding and discipline on one hand and
9 patience, perseverance and pursuit on the other and that too, on an ongoing basis. Banks
10
11
require a careful and methodical approach to entire and expand Retail Banking business.
12 The vital areas needing special attention of bankers are, continuous scouting for potential
13 borrowers, critical and quicker credit appraisal, faster credit dispensation and effective
14 recovery mechanism. Besides, putting an effective risk assessment mechanism for
15 analyzing the behaviour customers as individuals and as a group in place, Banks should
16
turn themselves into marketing organization that have the skills and responsiveness to
17
18 create innovative products, cutting edge services and enduring brands.
Fo
19 To create a place for them, the banks will have to perfect the art of blending the
20
21
fundamentals of expertise, technology, communication and customer care. Banks must
22 put in a place a network of new delivery channels, viz., ATM, internet and telebanking
r
23 for offering triple ‘A’ i.e., Anyhow, Anytime and Anywhere Banking facilities to existing
24 and potential clients round the clock 24 hours and 7 days a week. Besides this, banks
Pe

25 will have to set up ‘BANKING KIOSKS’ or ‘BOUTIQUES’ dedicated exclusively to

26
Retail Banking activities for rendering personalized and professional services to
27
28 customers at their doorsteps.
er

29
30
31 Banks should tread the path of Retail Banking cautiously and carefully. In the absence of
32 al lully integrated and efficient financial automation system, any unbridled expansion of
Re

33 Retail Banking can spoil the broth and land them into deep waters. Retail lending is
34
35
repayment specific in nature and it should be backed by irrevocable mandate at income
36 source such as salaries. Hence, assessment of financial and debt servicing capability of
vi

37 borrowers must be impeccable and fault free. Banks should learn from successful
38 retailers for deepening their understanding of customers and for building lasting
39 relationship with them.
ew

40
41 Scope of the Study :
42
43 The present study contemplates to cover various products and services offered by the
44
45
banking & financial services sector in India.
46
47 (a) identification of areas of retail segment in the field of banking and finance
48 (b) planning for development and delivery of retail sector in India
49
50
The study and scope is restricted to the Indian market trends in retail sector. Therefore,
51
52 data is limited and cannot be accepted as all-India comprehensive survey of the future.
53 The study, therefore can be used only to the extent of the data presented by the
54 researchers.
55
56 Limitations of the Study:
57
58
1. No Primary Data collected from banks at micro level.
59
60
8
http://mc.manuscriptcentral.com/leadership
Page 9 of 10 Leadership

1
2
3
2. Largely results of the Research Study are based on retail sector.
4
5 3. Products and services of banking and financial sector are identified.
6 4. Impact is not quantified. However, an effort is made to programme for retail
7 sector for managerial decision.
8
9 Chapter 2 - REVIEW OF THE RELATED LITERATURE / BIBLIOGRAPHY
10
11
12 Primary Data Collection :
13
14 Primary Data survey on retail segment through means of Questionnaire was conducted
15 and information collected from the clientele of banking and finance sector.
16
17
18 Moreover, periodical discussions were carried out with officials of different strata of
Fo
19 banks, Department of Retail banking staff of various banks/RBI/ financial institutions.
20 Needless to mention, reference to the Heads/ General Managers/ Sr.Executives of
21 different strata of banks were consulted, i.e., those who are executing and operating retail
22 banking and finance operations and growth in India.
r
23
24
Secondary Data Collection:
Pe

25
26
27 The Research Study is largely based on the secondary data collected from publications of
28 the Reserve Bank of India (RBI), such as, RBI Annual Reports after economic reform
er

29
period in India, RBI Report on Trends and Progress of Banking in India 2003-04,
30
31 Statistical Profile of Indian Banks’ Association (IBA) for Public Sector/Nationalised
32 Banks, Old/New Private Sector Banks and Foreign Banks from 1985 till 2008. The
Re

33 periodicals like RBI Occasional Papers, Economic and Political Weekly, Bank
34 Economists’ Conference (BECON) Volumes and individual publications by the authors
35 are consulted.
36
vi

37
38 The literature on retail sector use in banking and financial services sector has been
39 collected from websites and references to publications of Bulletins, Indian Banks’
ew

40 Association (IBA), Mumbai, Bank Quest/ Fin@Quest, Indian Institute of Banking &
41 Finance (IIBF), Mumbai, published records from the Reserve Bank of India (RBI),
42
43
National Institute of Bank Management (NIBM), Pune and Compendium of Papers at
44 Bank Economists’ Conferences (BECON) / Bankers’ Conferences(BanCon).
45
46 - Book on ‘Everything you need to know to work in a Bank – RETAIL BANKING’
47 – Raghu Palat - Cortlandt Rand Consultancy Pvt.Ltd., - 2006
48 - Websites visited -
49
50 o www.bankingrules.com - Portal managed by Shri Raghu Palat
51 o www.rbi.org.in - Reserve Bank of India
52 o www.iba.org.in - Indian Banks’ Association
53 o www.unionbankofindia.co.in
54 o www.bankofindia.com
55
56
o www.centralbankofindia.com
57 o www.hdfcbank.com
58
59
60
9
http://mc.manuscriptcentral.com/leadership
 Leadership Page 10 of 10

1
2
3
4
• www.icicibank.com
5 • www.zoroastrianbank.com
6 • www.psidata.com
7 • www.tcs.com
8
9
10
11 Chapter 5 – SUMMARY AND CONCLUSION
12
13 Keeping in mind the above objectives, it was found that present banking industry do
14 offer in-valuable customer services and products. Still there is much scope to develop the
15
16 business by effective spread of technology and grass root micro level analysis of current
17 functioning and would draw a applicable plan with good products and services offered in
18 retail banking and financial services sector are par excellence at international standards
Fo
19
20 • The paper reports outcome of the Study in the form of general observations,
21
22
conclusions based on factual analysis and findings on analysis of the data and
r
23 thoughtful suggestions for improvement in the quality of service and innovating
24 products and services in the retail banking and financial sector in India.
Pe

25
26
27
28
er

29
30
31
32
Re

33
34
35
36
vi

37
38
39
ew

40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
10
http://mc.manuscriptcentral.com/leadership