2.

0 Introduction to 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”

The Retail Banking environment today is changing fast. The changing

customer demographics demands to create a differentiated application based on
scalable technology, improved service and banking convenience. Higher
penetration of technology and increase in global literacy levels has set up the
expectations of the customer higher than never before. Increasing use of modern
technology has further enhanced reach and accessibility.

The market today gives us a challenge to provide multiple and innovative

contemporary services to the customer through a consolidated window as so to
ensure that the bank’s customer gets “Uniformity and Consistency” of service
delivery across time and at every touch point across all channels. The pace of
innovation is accelerating and security threat has become prime of all electronic
transactions. High cost structure rendering mass-market servicing is prohibitively
expensive.

Present day tech-savvy bankers are now more looking at reduction in their
operating costs by adopting scalable and secure technology thereby reducing the
response time to their customers so as to improve their client base and
economies of scale.

The solution lies to market demands and challenges lies in innovation of new
offering with minimum dependence on branches – a multi-channel bank and to
eliminate the disadvantage of an inadequate branch network. Generation of
leads to cross sell and creating additional revenues with utmost customer
satisfaction has become focal point worldwide for the success of a Bank.
 Retail banking is, however, quite broad in nature - it refers to the dealing
of commercial banks with individual customers, both on liabilities and assets
sides of the balance sheet. Fixed, current / savings accounts on the liabilities
side; and mortgages, loans (e.g., personal, housing, auto, and educational) on
the assets side, are the more important of the products offered by banks. Related
ancillary services include credit cards, or depository services. Retail banking
refers to provision of banking services to individuals and small business where
the financial institutions are dealing with large number of low value transactions.
This is in contrast to wholesale banking where the customers are large, often
multinational companies, governments and government enterprise, and the
financial institution deal in small numbers of high value transactions.
The concept is not new to banks but is now viewed as an important and
attractive market segment that offers opportunities for growth and profits. Retail
banking and retail lending are often used as synonyms but in fact, the later is just
the part of retail banking. In retail banking all the needs of individual customers
are taken care of in a well-integrated manner.

Today’s retail banking sector is characterized by three basic characteristics:

o Multiple products (deposits, credit cards, insurance, investments and

securities)

o Multiple channels of distribution (call center, branch, internet)

o Multiple customer groups (consumer, small business, and corporate).

ORIGIN OF BANKING
 Banks are among the main participants of the financial system in India.
Banking offers several facilities and opportunities.
Banks in India were started on the British pattern in the beginning of the 19 th
century. The first half of the 19th century, The East India Company established 3
banks The Bank of Bengal, The Bank of Bombay and The Bank of Madras.
These three banks were known as Presidency Banks. In 1920 these three banks
were amalgamated and The Imperial Bank of India was formed. In those days,
all the banks were joint stock banks and a large number of them were small and
weak. At the time of the 2nd world war about 1500 joint stock banks were
operating in India out of which 1400 were non- scheduled banks. Bad and
dishonest management managed quiet a quiet a few of them and there were a
number of bank failures. Hence the government had to step in and the Banking
Company’s Act (subsequently named as the Banking Regulation Act) was
enacted which led to the elimination of the weak banks that were not in a position
to fulfil the various requirements of the Act. In order to strengthen their weak
units and review public confidence in the banking system, a new section 45 was
enacted in the Banking Regulation Act in the year 1960, empowering the
Government of India to compulsory amalgamate weak units with the stronger
ones on the recommendation of the RBI. Today banks are broadly classified into
2 groups namely—
(a) Scheduled banks.
(b) Non-Scheduled banks.

BENEFITS OF RETAIL BANKING

Traditional lending to the corporate are slow moving along with high NPA
risk, treasure profits are now loosing importance hence Retail Banking is now an
alternative available for the banks for increasing their earnings. Retail Banking is
an attractive market segment having a large number of varied classes of
customers. Retail Banking focuses on individual and small units. Customize and
wide ranging products are available. The risk is spread and the recovery is good.
Surplus deployable funds can be put into use by the banks. Products can be
designed, developed and marketed as per individual needs.

SCOPE FOR RETAIL BANKING IN INDIA

o All round increase in economic activity

o Increase in the purchasing power. The rural areas have the large purchasing
power at their disposal and this is an opportunity to market Retail Banking.

o India has 200 million households and 400 million middleclass population more
than 90% of the savings come from the house hold sector. Falling interest
rates have resulted in a shift. “Now People Want To Save Less And Spend
More.”

o Nuclear family concept is gaining much importance which may lead to large
savings, large number of banking services to be provided are day-by-day
increasing.

o Tax benefits are available for example in case of housing loans the borrower
can avail tax benefits for the loan repayment and the interest charged for the
loan.

ADVANTAGES AND DISADVANTAGES OF RETAIL BANKING

ADVANTAGES
Retail banking has inherent advantages outweighing certain disadvantages.
Advantages are analyzed from the resource angle and asset angle.
RESOURCE SIDE

o Retail deposits are stable and constitute core deposits.

o They are interest insensitive and less bargaining for additional interest.

o They constitute low cost funds for the banks.

o Effective customer relationship management with the retail customers built

a strong customer base.

o Retail banking increases the subsidiary business of the banks.

ASSETS SIDE
o Retail banking results in better yield and improved bottom line for a bank.

o Retail segment is a good avenue for funds deployment.

o Consumer loans are presumed to be of lower risk and NPA perception.

o Helps economic revival of the nation through increased production activity.

o Improves lifestyle and fulfils aspirations of the people through affordable

credit.

o Innovative product development credit.

o Retail banking involves minimum marketing efforts in a demand –driven

economy.

o Diversified portfolio due to huge customer base enables bank to reduce

their dependence on few or single borrower
 o Banks can earn good profits by providing non fund based or fee based
services without deploying their funds.

DISADVANTAGES

o Designing own and new financial products is very costly and time
consuming for the bank.

o 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.

o Customers are attracted towards other financial products like mutual funds
etc.

o Though banks are investing heavily in technology, they are not able to
exploit the same to the full extent.

o A major disadvantage is monitoring and follow up of huge volume of loan

accounts inducing banks to spend heavily in human resource department.

o Long term loans like housing loan due to its long repayment term in the
absence of proper follow-up, can become NPAs.

o The volume of amount borrowed by a single customer is very low as

compared to wholesale banking. This does not allow banks to to exploit
the advantage of earning huge profits from single customer as in case of
wholesale banking.

OPPORTUNITIES
 Retail banking has immense opportunities in a growing economy like
India. As the growth story gets unfolded in India, retail banking is going to
emerge a major driver.
The rise of Indian middle class is an important contributory factor in this regard.
The percentage of middle to high-income Indian households is expected to
continue rising. The younger population not only wields increasing purchasing
power, but as far as acquiring personal debt is concerned, they are perhaps
more comfortable than previous generations. Improving consumer purchasing
power, coupled with more liberal attitudes towards personal debt, is contributing
to India’s retail banking segment.
The combination of above factors promises substantial growth in retail sector,
which at present is in the nascent stage. Due to bundling of services and delivery
channels, the areas of potential conflicts of interest tend to increase in universal
banks and financial conglomerates. Some of the key policy issues relevant to the
retail-banking sector are: financial inclusion, responsible lending, and access to
finance, long-term savings, financial capability, consumer protection, regulation
and financial crime prevention.

3.0 CHALLENGES TO RETAIL BANKING

o , “It takes The issue of money laundering is very important in retail

banking. This compels all the banks to consider seriously all the
documents which they accept while approving the loans.

o 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.
 o Banks are expected to take utmost care to retain the ongoing trust of the
public.

o Customer service should be at the end all in retail banking. Someone has
rightly saidmonths 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 customer’s
needs and requirements in terms of services/products etc.

o The dependency on 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 advance level to keep the faith of
the customer.

o The efficiency of operations would provide the competitive edge for the
success in retail banking in coming years.

o The customer retention is of paramount important for the profitability if

retail banking business, so banks need to retain their customer in order to
increase the market share.

o 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.

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.
 4.0SPECIAL FEATURES TO RETAIL CREDIT

One of the prominent features of Retail Banking products is that it is a

volume driven business. Further, Retail Credit ensures that the business is
widely dispersed among a large customer base unlike in the case of corporate
lending, where the risk may be concentrated on a selected few plans. Ability of a
bank to administer a large portfolio of retail credit products depends upon such
factors :

o Strong credit assessment capability

Because of large volume good infrastructure is required. If the credit assessment

itself is qualitative, than the need for follow up in the future reduces considerably.

o Sound documentation

A latest system for credit documentation is necessary pre-requisite for healthy

growth of credit portfolio, as in the case of credit assessment, this will also
minimize the need to follow up at future point of time.

o Strong possessing capability

Since large volumes of transactions are involved, today transactions,

maintenance of backups is required

o Regular constant follow- up

Ideally, follow up for loan repayments should be an ongoing process. It should

start from customer enquiry and last till the loan is repaid fully.
 o Skilled human resource

This is one of the most important pre-requisite for the efficient management of
large and diverse retail credit portfolio. Only highly skilled and experienced man
power can withstand the river of administrating a diverse and complex retail
credit portfolio.

o Technological support

This is yet another vital requirement. Retail credit is highly technological intensive
in nature, because of large volumes of business, the need to provide
instantaneous service to the customer large, faster processing, maintaining
database, etc.

EMERGING ISSUES IN HANDLING RETAIL BANKING

O KNOWING CUSTOMER
‘Know your Customer’ is a concept which is easier said than practiced.
Banks face several hurdles in achieving this. In order to that the product
lines are targeted at the right customers-present and prospective-it is
imperative that an integrated view of customers is available to the banks.
The benefits flowing out of cross-selling and up-selling will remain a far cry
in the absence of this vital input. In this regard the customer databases
available with most of the public sector banks, if not all, remain far from
being enviable.
What needs to be done is setting up of a robust data warehouse
where from meaningful data on customers, their preferences, there
spending patterns, etc. can be mined. Cleansing of existing data is the
first step in this direction. PSBs have a long way to go in this regard.

O TECHNOLOGY ISSUES
 Retail banking calls for huge investments in technology. Whether it is
setting up of a Customer Relationship Management System or
Establishing Loan Process Automation or providing anytime, anywhere
convenience to the vast number of customers or establishing
channel/product/customer profitability, technology plays a pivotal role.
And it is a long haul. The Issues involved include adoption of the right
technology at the right time and at the same time ensuring volumes and
margins to sustain the investments.
It is pertinent to remember that Citibank, known for its deployment
of technology, took nearly a decade to make profits in credit cards. It has
also to be added in the same breath that without adequate technology
support, it would be well nigh possible to administer the growing retail
portfolio without allowing its health to deteriorate. Further, the key to
reduction in transaction costs simultaneously with increase in ability to
handle huge volumes of business lies only in technology adoption.
PSBs are on their way to catch up with the technology much
required for the success of retail banking efforts. Lack of connectivity,
stand alone models, concept of branch customer as against bank
customer, lack of convergence amongst available channels, absence of
customer profiling, lack of proper decision support systems, etc., are a few
deficiencies that are being overcome in a great way. However, the
initiatives in this regard should include creating flexible computing
architecture amenable to changes and having scalability, a futuristic
approach, networking across channels, development of a strong Customer
Information Systems (CIS) and adopting Customer Relationship
Management (CRM) models for getting a 360 degree view of the
customer.

O ORGANIZATIONAL ALIGNMENT
 It is of utmost importance that the culture and practices of an institution
support its stated goals. Having decided to take a plunge into retail
banking, banks need to have a well defined business strategy based on
the competitive of the bank and its potential. Creation of a proper
organization structure and business operating models which would
facilitate easy work flow are the needs of the hour. The need for building
the organizational capacity needed to achieve the desired results cannot
be overstated.
This would mean a strong commitment at all levels, intensive
training of the rank and file, putting in place a proper incentive scheme,
etc. As a part of organizational alignment, there is also the need for
setting up of an effective Corporate Marketing Division. Most of the public
sector banks have only publicity departments and not marketing setup. A
fully fledged marketing department or division would help in evolving a
brand strategy, address the issue of alienation from the upwardly mobile,
high net worth customer group and improve the recall value of the
institution and its products by arresting the trend of getting receded from
public memory. The much needed tie-ups with
manufacturers/distributors/builders will also facilitated smoothly. It is time
to break the myth PSBs are not customer friendly. The attention is to be
diverted to vast databases of customers lying with the PSBs till
unexploited for marketing.

O PRODUCT INNOVATION
Product innovation continues to be yet another major challenge. Even
though bank after bank is coming out with new products, not all are
successful. What is of crucial importance is the need to understand the
difference between novelty and innovation? Peter Drucker in his path
breaking book: “Management Challenges for the 21st Century” has in fact
sounded a word of caution: “innovation that is not in tune with the strategic
 realities will not work; confusing novelty with innovation (should be
avoided), test of innovation is that it creates value; novelty creates only
amusement”. The days of selling the products available in the shelves are
gone. Banks need to innovate products suiting the needs and
requirements of different types of customers. Revisiting the features of
the existing products to continue to keep them on demand should not also
be lost sight of.

O PRICING OF PRODUCT
The next challenge is to have appropriate policies in place. The industry
today is witnessing a price war, with each bank wanting to have a larger
slice of the cake that is the market, without much of a scientific study into
the cost of funds involved, margins, etc. The strategy of each player in the
market seems to be: ‘under cutting others and wooing the clients of
others’. Most of the banks that use rating models for determining the
health of the retail portfolio do not use them for pricing the products. The
much needed transparency in pricing is also missing, with many hidden
charges. There is a tendency, at least on the part of few to camouflage
the price. The situation cannot remain his way for long. This will be one
issue that will be gaining importance in the near future.

O PROCESS CHANGES
Business Process Re-engineering is yet another key requirement for
banks to handle the growing retail portfolio. Simplified processes and
aligning them around delivery of customer service impinging on reducing
customer touch-points are of essence. A realization has to drawn that
automating the inefficiencies will not help anyone and continuing the old
processes with new technology would only make the organization an old
expensive one. Work flow and document management will be integral
 part of process changes. The documentation issues have to remain
simple both in terms of documents to be submitted by the customer at the
time of loan application and those to be executed upon sanction.

O ISSUE CONCERNING HUMAN RESOURCES

While technology and product innovation are vital , the soft issues
concerning the human capital of the banks are more vital. The corporate
initiatives need to focus on bringing around a frontline revolution. Though
the changes envisaged are seen at the frontline, the initiatives have to
really come from the ‘back end’. The top management of banks must be
seen as practicing what preaches. The initiatives should aim at improved
delivery time and methods of approach. There is an imperative need to
create a perception that the banks are market-oriented.
This would mean a lot of proactive steps on the part of bank
management which would include empowering staff at various levels,
devising appropriate tools for performance measurement bringing about a
transformation – ‘can’t do ‘to’ can do’ mind-set change from restrictive
practices to total flexible work place, say. By having universal tellers,
bringing in managerial controlling work place, provision of intensive
training on products and processes, emphasizing, coaching etiquette,
good manners and best behavioural models, formulating objective
appraisals, bringing in transparency, putting in place good and acceptable
reward and punishment system, facilitating the placement of young
/youthful staff in front-line defining a new role for front-line staff by
projecting them as sellers of products rather than clerks at work and
changing the image of the banks from a transaction provider to a solution
provider.

O RURAL ORIENTATION
 As of now, action that is taking place on the retail front is by and large
confined two metros and cities. There is still a vast market available in
rural India, which remains to be trapped. Multinational Corporations, as
manufacturers and distributors, have already taken the lead in showing
the way by coming out with exquisite products, packaging and promotions,
keeping the rural customer in mind. Washing powders and shampoos in
Re.1 sachet made available through an efficient network and testimony to
the determination of the MNCs to penetrate the rural market. In this
scenario, banks cannot lack behind.
In particular PSBs, which have a strong rural presence, need to
address the needs of rural customers in a big way. These and only these
will propel retail growth that is envisaged as a key strategy for portfolio
expansion by most of the banks.

SOME CRITICAL ISSUES

o CUSTOMER SERVICE
Customer service is perhaps the most important dimension of retail
banking. While most public sector banks offer the same range of service
with similar technology/expertise, the level of customer service matters the
most in bringing in more business. Perhaps more than the efficiency of
service, the approach and attitude towards customers will make the
difference.
Front line staffs have to be educated in this regard. A scheme of
entrusting a group of important customers to the care of each
employee/officer with a person to person knowledge and intimacy can be
implemented all sundry advices/notices such as Dr. /Cr. advices. TDR
maturity advices, etc. whether signed by employees or officers should be
identifiable by the name of those signing, and inviting customers to contact
them for further assistance in the matter.
A customer centred organization has to be built up, whose ultimate goal is
to "own" a customer. Focused merchandizing through effective market
segmentation is the need of the hour. A first step can be the organization
of the various retail branches to enter for different market segments like
upmarket individuals, traders, common customers, etc..
For the SIB (Small Industry and Business) sector banks, the focus should
be on identifying efficient units and allocations of loans lo these units.
These banks should try Merchant Banking services en a small scale.
With agricultural output growing at a fast rate and mechanization setting
in, banks should try to cater to the credit needs of the people involved in
this profession. A wide network is absolutely imperative for this sector.
Separate branches/divisions should be opened for traders and similar
government businesses. Special facilities for cash tendered in bulk and
immediate issue of drafts, by extending facilities like "guarantee bond"
system, will go a long way in mitigating problems faced by traders who are
the major customers for drafts issue. Provision for cash counting
machines in these branches will reduce the monotony of cashiers and
unnecessary delays, thus resulting in better productivity and ultimately in
improved customer service.
The personal segment is however the most important one. With the urban
segment moving away because of disintermediation and competition from
foreign banks, retail banks should focus en the rural/semi-urban areas that
hold the maximum potential. Innovative schemes like "paper-gold"
schemes can be introduced. In the urban areas, private banking to affluent
customers can be introduced, through which advisory and execution
services could be provided for a fee. Foreign currency denominated
 accounts can also be introduced for them.
Nationalized banks compare very poorly with the foreign banks when it
comes to the efficiency in services. In order to improve the speed of
service the bank should.

 Improve the rapport between the controlling offices and the branches to
ensure that decisions arc communicated fast.

 Make sure that the officials as well as the staff are fully aware of the rules
so that processing is faster.

o TECHNOLOGY
In the current scenario, the importance of technology cannot be
understated for retail banks which entail large volumes, large queues and
paperwork. But most of the banks are burdened with a large staff strength
which cannot be done away with. Besides, in the rural and semi-urban
areas, customers will not be at home in an automated, impersonal
environment.
The objective would be to ensure faster and easier customer service and
more usable information, instantly, economically and easily to all those
who need it -customers as well as employees. Proper management
information systems can also be implemented to aid in superior decision
making.
Communication technology is especially needed for money transfer
between the same city and also between cities. There are inordinate
delays in India because of geographical and other factors. Modem
technology can make it possible to clear any check anywhere in India
within three days. Installation of FAX facilities at all the big branches will
facilitate speedy transfer of payment advices. Computerization will be of
great help in improving back-office operations. At present, 60% of India's
rural branches can have PCs. These can be used for quick retrieval and
 report generation. This will also drastically reduce the time bank staffs
spend in filling and filing returns. Housekeeping operations can also be
speeded up.

o PRICE BUNDLING
Price bundling is a selling arrangement where several different products
are explicitly marketed together to a price that is dependent on the offer.
As banks are multi-product firms this strategy is more applicable to retail
banking. Price bundling offers several economic and strategic benefits to a
bank. It offers economies of, utilization of the existing capacities and
reaching wider population of customers. Bank can get the benefits of
information and transacting. In the process of extending variety of
services, banks are acquiring enormous amount of customer information.
If this information is systematically stored, banks can efficiently utilize this
information in order to explore new segments and to cross-sell new
services to these segments. Cross-selling opportunities and larger
customer base can also be the motive for merger against usually stated
advantage of cost savings. Price bundling can be used in order to
lengthen the relationship with a customer. It will reduce the need of
resources to be put on acquiring new customers and saves time of the
bank. Among the strategic benefits, price bundling may cause less
aggressive competition; it differentiates its products compared to rivals in
the same market where the products are sold individually or in other kinds
of bundles.
Retail banking offers many services and it gives an opportunity to the bank
to combine different services in different kinds of bundles. In many cases
demand for one service affects the demand for another service, for
example current or savings account and payment services are highly
related, and here price bundling is a better alternative than individual
selling. Banks have to analyze the customer segment and bundle products
 before applying the pricing strategies.
The first step in price bundling decision is to select the customer segment.
The bundle is targeted to choose a strategic objective. If there are two
products (A and B) that are considered to be bundled together, the
comprehensive strategic objectives for the different customer segments
are:
• Cross-selling to customers that only buy one of the products.
• Retaining customers that already buy both of the products.
• Acquiring new customers when they buy neither product for the time
being.

o INNOVATION
The scope for innovation in financial services is unlimited. Although banks
have introduced a variety of deposit and loan products, the basic features
of all these products are almost one and the same. Among the delivery
channels, ATMs have emerged as ubiquitous money centers. Almost all
banks have established their ATMs. India had only 400 ATMs, which
increased to 3,600. Out of this 881 ATMs have Swadhan connectivity. It is
projected that the number of ATMs will reach up to 35,000 by the end of.
The question arises is, are they cash cows? The answer is certainly no.
For most of the banks the overhead costs on these ATMs are far higher
than the revenue generated by them. ATM operation costs are largely
fixed in nature - the cost of the machine, its maintenance, replenishment
of currency, and the satellite (network) connection. There should be a
minimum number of transactions to cover these costs. Banks have to
innovate wide range of services in addition to cash withdrawals. ATMs
should allow customers to buy postal and revenue stamps, payment of
bills, event tickets, sports tickets, etc. Banks can offer ATM screens for
slide show advertising also. However, the advantage of the ATM has
 always been speed and convenience, probably on introduction of these
new services customer has to spend more time at a point. ATMs can
guide the customer also. For example, if a customer's account balance
has reached to bare minimum the ATM can give a helpful suggestion that
"we notice your balance is low, can we help with a loan?" ATMs can be
either within the premises of a branch or at a remote place. On premises
ATMs are highly immune to competition, but branches can reduce the
staff, on installation of ATM. The scope for wider services through off-
premises ATMs is very high; it provides great opportunity for fee revenue.
The cost of maintenance of off-premises ATMs is higher in terms of
replenishment, cash couriers, armed security etc. In the US,
approximately 23 percent of ATMs are offering sale of postage stamps. It
is the right time for banks to question themselves whether ATM is a
service channel, sales channel, or branding opportunity.
The future of retail banking lies more in mobile banking. Mobile telephone
market is penetrating, and mobile phones are ideal to utilize Internet
banking services without customer accesses to PC. By a tacit acceptance
India has around three million mobile phone users and this number is
expected to reach to eight million by 2003.
Smart card revolution will further change the face of retail banking. Smart
cards can store information; carry out local processing on the data stored
and can perform complex calculations. At present, India has around 3.4
million smart card users and it is estimated that by the end of 2004 it will
reach 14.7 million.

5.0 GROWTH DRIVERS TO RETAIL BANKING

The growth drivers of retail lending are analyzed as under:

MACRO-ECONOMIC FACTORS
 o Shift in the pattern of GDP from hitherto agriculture and manufacturing
sectors to services sector with increase per capita income especially that of
the younger generation. [India's industrial sector accounted for about
21.8% of GDP, where as the services sector accounted for around 56.1
of GDP in 2002-03 as per revised estimates released by Central. Statistical
Organization].

o The lower uptake in the non-retail sector has compelled bans to shift their
focus on retail assets - specially housing finance- for deployment of funds
for a longer period, which is considered as the safest within the retail
portfolio. Housing loans and other retail loans are comparatively high
yielding in terms of interest spread and safer, as risk is diversified among a
large number of individuals across the geographic dimensions. The
sector enjoys a privilege of lowest NPAs amongst all categories of banks.

o Depressed stock and real estate markets as compared to those prevailing

in 1992-93 to 1995-96 thereby diverting deposits to the banking sectors.

o Comparatively stable real estate prices during last 4/5 years have laid to
spurt in demand for housing loans.

o Inflation continued to be under control.

o Keenness shown by the consumer goods/ automobile manufacturers to

-push up finance schemes through market tie-up with banks with a view to
increasing their marketing share.

DEMOGRAPHIC / BEHAVIORAL FACTORS

o Growing concept of nuclear families than the joint families necessitating

need for housing units as well as other items of consumer durables.
 o Increased number of dual income families resulting in higher income and
savings.

o Increased demand for dwelling units due to gradual shift of population

from rural/semi-urban centre to urban/metro centre for employment.

o Shift in the attitude of the Indian household from "save and buy' theory
to a `buy and repay' principle.

o Increased middle-income segment and their income levels.

o Emergence of new sectors such as Information Technology, media, etc.

In the economy that resulted in higher income opportunities and major
impact on change in urban consumption pattern.

o Awareness and sophistication in urban and semi-urban households for

urban convenience. Social security and status have also contributed to
higher demand for housing units, cars, etc.

FAVORABLE ROLE OF RBI

o Inclusion of housing loans within the priority sector. Direct finance up to

Rs.10 -lakhs in case of rural and semi-urban areas now form part of the
priority sector advances. This promoted banks to go for housing loans in a
big way as it helped them to attain their targets of priority sector lending.

o Reduction in risk weight age bank's extending loans for acquisition of

residential house properties to 50 per cent from 100 per cent. Reduction
in Capital Adequacy Ratio requirement has effectively doubled the credit
disbursement capacity of banks.

o Banks have elongated repayment periods of retail loans years to 50/20

years besides quoting fixed/ variable rate of interests based on their asset
liability management structure and study of behavioral pattern of demand
and time deposits.
 o Deregulation of interest rate with option to quote fixed/ variable interest
rate.

o Continuous reduction in bank rate, which resulted in reduction in lending

rates as well.

o South ward movement in CRR and SLR ratios increasing lending capacity
of banks.

CATALYST-ROLE OF GOVERNMENT

o Tax exemptions for payment of interest on capital borrowed for

purchase/ construction of house property and principle repayment.
This made housing finance affordable and within the reach of
common man. [It is important to note that the housing sector has
been recipient of a large number of fiscal incentives in the last 6`h
budgets].

o These exemptions also changed the profile of the retail segment from
hitherto cash transactions to book transactions.

o The Government could not ignore the importance of housing sector in

overall development of the economy due to the following factors:
• Housing construction activities can generate opportunities for
employment. In the present context of jobless GDP growth, this
issue assumes important as the housing construction provides
massive job opportunities for both unskilled and skilled man power.
• Mass construction of houses will result in the benefits of the nation
by the way of healthy standard of leaving, motivation to save more
and thereby providing sustainable economic recovery.
• This would also lead to growth in related industries as well.

INITIATIVES ON THE PART OF BANKS

o The growth in retail banking has been facilitated by growth in banking
technology and automation of banking processes to enable extension of
reach and rationalization of costs. ATMs have emerged as an alternative
banking channels which facilitate low-cost transactions vis-à-vis
traditional branches / method of lending. It also has the advantage of
reducing the branch traffic and enables banks with small networks to
offset the traditional disadvantages by increasing their reach and spread.

o The interest rates on retail loans have declined from a high of 16-18%in
1995-96 to presently in the band of 7.5-9%. Ample liquidity in the banking
system and falling global interest rates have also compelled the domestic
banks to reduce interest rates of retail lending.

o Banks could afford to quote lower rate of interest, even below PLR as
low cost [saving bank] and no cost [current account] deposits contribute
more than 1/3rd of their funds [deposits].The declining cost of incremental
deposits has enabled the Banks to reduce their interest rates on housing
loans as well as other retail segments loans.

o Easy and affordable access to retails loans through a wide range of

options / flexibility. Banks even finance cost of registration, stamp duty,
society charges and other associated expenditures such as furniture and
fixtures in case of housing loans and cost of registration and insurance,
etc. in case of auto loans.

o Offering retail loans for short term, 3 years and long term ranging term
ranging from 15/20 years as compared to their earlier 5-7 years only.

o Making financing attractive by offering free / concessional / value added

services like issue of credit card, insurance, etc.

o Continuous waiver of processing fees / administration fees, prepayment

charges, etc. by the Banks. As of now, the cost of retail lending is
restricted to the interest costs.
 BANKS IN INDIA

In India the banks are being segregated in different groups. Each group
has their own benefits and limitations in operating in India. Each has their own
dedicated target market. Few of them only work in rural sector while others in
both rural as well as urban. Many even are only catering in cities. Some are of
Indian origin and some are foreign players.
One more section has been taken note of is the upcoming foreign banks in
India. The RBI has shown certain interest to involve more of foreign banks
than the existing one recently. This step has paved a way for few more foreign
banks to start business in India.

This Public Sector Bank India has implemented 14 point action plan for
strengthening of credit delivery to women and has designated 5 branches as
specialized branches for women entrepreneurs.

The following are the list of Public Sector Banks in India

Allahabad Bank
Aadhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank

List of State Bank of India and its subsidiary, a Public Sector Banks

State Bank of India

State Bank of Bikaner & Jaipur
State Bank of Hyderabad
State Bank of Indore
State Bank of Mysore
State Bank of Saurastra
State Bank of Travancore

Banks are the most significant players in the Indian financial market. -
They are the biggest purveyors of credit, and they also attract most of the
savings from the population. Dominated by public sector, the banking industry
has so far acted as an efficient partner in the growth and the development of the
country. Driven by the socialist ideologies and the welfare state concept, public
sector banks have long been the supporters of agriculture and other priority
sectors. 'They act as crucial channels of the government in its efforts to ensure
equitable economic development.
The banking sector in India has undergone remarkable changes since the
economic reforms were initiated in 1991-92. The period has been marketed by a
slew of reforms in the sector, which provided the much needed impetus for the
growth of the sector as a whole. One of the remarkable reforms found crucial to
study is emphasizes of public sector banks on retail banking.

RETAIL BOOM

Keeping pace with the average 8.5 per cent growth of the Indian
economy over the past few years, the retail banking sector in India has also
witnessed phenomenal growth. It has faced up to the need of the hour and
introduced anytime, anywhere banking, for its customers through ATMs, mobile
and internet banking. It has also offered services like D-MAT, plastic money
(credit and debit cards), online transfers, etc. This has not only helped in
reducing operational costs but facilitated greater conveniences to its customers.

o High-Tech Banking
ATMs - With growing technological innovations, banks have significantly
expanded their ATM network over the past three years. According to the
RBI data as of end-June 2008, the number of ATMs in the country had
climbed to 36,314 compared to 27,088 and 20,267 as at end-March 2007
and 2006, respectively.

o Loan disbursement
Technology has facilitated the growth in retail loan disbursements, making
 the whole process simpler and faster. The sector has delivered a growth
of around 30 per cent per year over the past 4-5 years. As per the RBI
data, although the retail portfolio of banks saw a slowdown to 29.9 per
cent during 2006-07 from 40.9 per cent in 2005-06, the growth was faster
than the overall credit portfolio of the banking sector (28.5 per cent).

o Plastic Money
Credit cards have also played an important role in promoting retail
banking. The use of credit cards has been growing significantly over the
last few years. The number of credit cards outstanding at the end- June
2008 stood at 27.02 million as against 24.39 million in June 2007, with
usage increasing by 10.73 per cent during this period.

o Core Banking Solutions (CBS)

The concept of CBS, which allows a customer to fulfil a wide range of
banking operation online, has come alive during the past four years. The
number of bank branches providing CBS rose rapidly to 44 per cent at
end- March 2007 from 28.9 per cent at end March 2006. Electronic fund
transfer facilities and mobile banking are expected to provide a further fillip
to the retail banking in the coming years.

o Future Outlook
Indian retail banking, according to a report, is likely to grow at a CAGR of
28 per cent till 2010 to Rs 97,00 billion. So, although the revolution in retail
banking has changed the face of the Indian banking industry as a whole, it
has still miles to go.

The reasons for this shift to retail, particularly the housing finance segment, are
many. The important among these include—
 The poor credit off take to the corporate, commercial and other business
sector because of industrial slowdown.
 Risky nature of lending to corporate, given in industry recession and
uncertainty prevalent in the economy.
 High disintermediation pressure, leading many highly rated corporates to tap
the domestic and/or overseas markets directly for finance, rather than
approaching the banks.
 Relatively safe nature of some of the retail credit finance with lesser incidence
of loan turning bad.
 Rising disposable income, changing lifestyles/aspirations and willingness to
spend for more luxuries of the higher middle class.
 Better availability of loans, because of the consultancy lowering interest rates,
as a result of the low interest regime followed by the regulating authorities,
the housing loans interest rates hailed to almost 7.5 – 8% in last 5 years.
 Increased government incentives in form of tax rebates etc. in the case of
certain loans like housing loans.
 Banks are aware with abundant reserve requirement by RBI, they are
searching revenues for packing the surplus funds.

FUTURE OF RETAIL BANKING

Retail banking has significant past and glorious future over the years.
Retail banking has proved as an effective tool not only to improve the bottom
lines of the banks concerned but also to significantly contribute to the
development of the individual consumers availing the services or products in
particular and to the overall development of the society in general with the needs
of the consumers ever multiplying. There is definitely a vast scope for the
furtherance of the Retail Banking business.
The society is made of the individuals and the environment surrounding him. As
development takes place in the society, the needs of the people grow faster than
ever. The wealth creation and its professional management are yet another
distinct advantage the society or nation can derive from Retail Banking. The
depth of the untapped resources in the retail segment is not yet measured.
These resources could be channelized for nation building.
On the whole, looking ahead, the prospects of retail banking are brighter than
ever and the bankers have to give continued thrust to this area of banking. Thus,
with the consumers ever multiplying needs there is definitely a vast scope for the
furtherance of the retail banking business. Operationally, there is a possibility that
technology go beyond merely reducing the cost & improving the quality of current
products. It may prove possible, even profitable, to combine functions in new
ways.
 STRATEGIES FOR INCREASING RETAIL BANKING BUSINESS

o Constant product innovation to match the requirements of the customer

segments

The customer database available with the banks is the best source of their
demographic and financial information and can be used by the banks for
targeting certain customer segments for new or modified product. The banks
should come out with new products in the area of securities, mutual funds
and insurance.

o Quality service and quickness in delivery

As most of the banks are offering retail products of similar nature, the
customers can easily switchover to the one, which offers better service at
comparatively lower costs. The quality of service that banks offer and the
experience that clients have, matter the most. Hence, to retain the
customers, banks have to come out with competitive products satisfying the
desires of the customers at the click of a button.

o Introduction of new delivery channels

 Retail customers like to interface with their bank through multiple channels.
Therefore, banks should try to give high quality service across all service
channels like branches, Internet, ATMs, etc.

o Tapping of unexploited potential and increasing the volume of business

This will compensate for the thin margins. The Indian retail banking market
still remains largely untapped giving a scope for growth to the banks and
financial institutions. With changing psyche of Indian consumers, who are
now comfortable with the idea of availing loans for their personal needs,
banks have tremendous potential lying in this segment. This will help in
lowering the cost of service channels combined with quality and quickness.

Detail market research

Banks may go for detail market research, which will help them in knowing
what their competitors are offering to their clients. This will enable them to
have an edge over their competitors and increase their share in retail banking
pie by offering better products and services.

o Cross-selling of products

PSBs have an added advantage of having a wide network of branches, which

gives them an opportunity to sell third-party products through these branches.
o Business process outsourcing

Outsourcing of requirements would not only save cost and time but would
help the banks in concentrating on the core business area. Banks can devote
more time for marketing, customer service and brand building. For example,
Management of ATMs can be outsourced. This will save the banks from
dealing with the intricacies of technology.

o Tie-up arrangements

PSBs with regional concentration can reap the benefit of reaching customers
across the country by entering into strategic alliance with other such banks
with intensive presence in other regions. In the present regime of falling
interest and stiff competition, banks are aware that it is finally the retail
banking which will enable them to hold the head above water. Hence, banks
should make all out efforts to boost the retail banking by recognizing the
needs of the customers. It is essential that banks would be imaginative in
predicting the customers' expectations in the ever-changing tastes and
environments

CASE STUDY

ICICI BANK
PERSONAL BANKING
PRODUCT AT GLANCE
LOANS
Online Loans
Home Loans
Loan Against Property
Personal Loans
Car loan
Two Wheeler
Commercial Vehicle
Loans against Securities
Loan Against Gold
Farm Equipment
Construction Equipment
Office Equipment
Medical Equipment
Pre-approved Loans
Retail Assets Branches
FlexiCash
Farmer Finance
Rural Housing Finance
Retail Warehouse Receipt Based Finance
Business Instalment Loans
Aquaculture Finance
Horticulture Finance
Self Help Group Finance
Channels Terminated

ACCOUNTS & DEPOSITS

Savings Account
Special Savings Account
Life Plus Senior Citizens Savings Account
Fixed Deposits
Security Deposits
Recurring Deposits
Tax-Saver Fixed Deposit
Young Stars Savings Account
Child Education Plan
Bank@Campus
Salary Account
Advantage Woman Savings Account
EEFC Account
Resident Foreign Currency (Domestic) Account
Privilege Banking
No Frills Account
Rural Savings Account
People's Savings Account
Self Help Group Accounts
Outward Remittance
Freedom Savings Account
Common Service Charges

CARDS
Consumer Cards
Credit Card
Travel Card
Debit Cards
Commercial Cards
Corporate Cards
Prepaid Cards
Purchase Card
Distribution Cards
Business Card

INVESTMENT [Tax Saving]

ICICI Bank Bonds [ICICI Bank Tax Saving Bonds]
GOI Bonds [Government of India Bonds]
Mutual Funds [Investment in Mutual Funds]
IPO [Initial Public Offers by Corporates]
ICICI Bank Pure Gold [Investment in "Pure Gold"]
Forex Services [Foreign Exchange Services]
Senior Citizens Savings Scheme, 2004

INSURANCE
Health Insurance
Overseas Travel Insurance
Student Medical Insurance
Motor Insurance
Home Insurance
Life Insurance

DEMAT
Overview
Account Opening
ISIN Lookup
Settlement Calendar
Charges
Digitally Signed Statement
Mobile Banking
Service Request Forms
Access Account Online
Membership Guide
Demat Branches
FAQs and Basic Concepts
Guidance Procedure for Transmission of Shares

ONLINE SERVICES
Branchfree Banking
smsNcash
Bill Payment (New Billers Added)
Receive Funds
Funds Transfer
Convert to EMI
Smart Money Order
Prepaid Mobile Recharge
Ticket Booking
Online Tax Calculation
Account to Card Transfer
Mobile Banking Funds Transfer
Mobile Banking [iMobile]
Shopping
Share Trading
Special Promotions & offers
Online Loans and Credit Cards
Demand Draft Online
Mumbai Suburban Season Ticket
Instant Voice Response (IVR) Banking
ATM Banking
 ICICI BANK PERSONAL LOANS

ICICI Bank Personal Loan provides with instant money

for a wide range of your personal needs like, renovation of home, marriage in the
family, a holiday with family, child's education, Medical expenses or any other
emergencies.

Key Benefits of ICICI Bank Personal Loan

• Loan up to 15 lacs
• No security/guarantor required
• Faster Processing
• Minimum Documentation
• Attractive Interest Rates
• 12-60 Months repayment options
• Loans available for both salaried & self employed individuals
• Loan on Phone" facility

ELIGIBILITY

Criteria Salaried Self - Employed

Age 25 yrs. - 58 yrs. 25 yrs. - 65 yrs.

Net Salary Net annual income - Rs. 96,000 Net Profit after tax - Rs.
p.a 150000 p.a
Eligibility Employees of Public Ltd. Doctors, MBA's, Architects,
companies, Private Ltd. CA's, Engineers, Traders &
companies, Government Manufacturers
companies or MNCs.
Years in 1 Year 3 Years
current job /
profession
Years in 1 Year 1 Year
current
residence

DOCUMENTATION

Documents (Pre Sanction) Salaried Self Employed

Latest 3 months Bank Statement (where

Yes Yes
salary/income is credited)
3 Latest salary slips
Yes

Last 2 years ITR with computation of

Yes
income / Certified Financials
Proof of Turnover (Latest Sales / Service
tax returns) Yes
Proof of Continuity current job (Form 16 /
Yes
Company appointment letter )
Proof of Continuity current profession (IT
Returns / Certificate of business Yes
continuity issued by the bank)
Proof of Identity (any one) Passport /
Driving License / Voters ID / PAN card / Yes Yes
Photo Credit Card / Employee ID card
Proof of Residence (any one) Ration
Card / Utility bill / LIC Policy Receipt Yes Yes
Proof of Office (any one) Lease deed /
Utility bill / Municipal Tax receipt / title Yes
deed
Proof of Qualification Highest Degree
(for Professionals / Govt employees
Yes Yes

CHANGING MODE OF REPAYMENT

If you wish to change the mode of repayment of the ICICI personal loan, this
needs to be done with the permission of ICICI bank. Stopping payments on post-
dated cheques or otherwise cancelling or revoking mandates would be
considered 'committed with a criminal intent' according to the ICICI terms and
conditions.

SERVICE CHARGES

• Prepayment of the loan is possible after 180 days of availing the loan.
 • Foreclosure charges as applicable would be levied on the outstanding
loan.
• Part pre-payment is not allowed.
• No other fees or commitment charges are levied.

Description of Charges Personal Loans

Loan Processing Charges / Origination 2* % of loan amount + Origination
Charges Charges of 1.5% of loan amount
Prepayment Charges 5% on the principal outstanding
Charges for late payment (loans) 2% per month

Cheque Swap Charges Rs. 500/-

Cheque bounce charges Rs. 200/-

BANK@CAMPUS

BENEFITS

Technology-enabled service, through automated channels, without physical

branch access.

Benefits to the student

• Free Internet Banking

• Free Phone Banking (in select cities*)
• Free ICICI Bank Ncash Debit Card
• Free Access to any Bank's ATM
• Other Benefits

Free Internet Banking

• Enquire about balance

 • Download detailed statement of accounts
• View details of all accounts maintained with ICICI Bank
• Transfer funds between your account and any other ICICI Bank account
• Pay your utility bills-mobile, electricity and telephone bills
• Request a cheque book and demand drafts
• Request to stop payment of cheque
• Report your lost Debit cards
• Open Fixed and Recurring deposits online
• Access information on personal finance, computing & the Internet, e-
commerce, lifestyle etc.
• Liaise with your Account Manager
• Invest in mutual funds

Free Phone Banking

• Enquire about balance

• Request a tele-draft
• Obtain mini-statements
• Request a cheque book
• Request to stop payment of cheque
• Intimate lost Debit card
• Transfer funds between ICICI Bank accounts

Other Benefits

• Own a chequebook personalised with your name.

• Receive an annual statement of account

ELIGIBILITY

• You must be a student.

 • You have to be above 18 years of age.

DOCUMENTATION

Documentation guidelines for student accounts

• Verified True Copy of college identification documents with photograph of

the applicant.

(Such college shall be one of the colleges recognized by an Indian

University / Technical Body or a deemed University.)

Mandatory information to be provided in account opening form includes

• Basic details like name, current address, permanent address, phone

numbers, date of birth, nationality, residential status should be captured in
Account Opening Form.
• College and course particulars including end date for the course.
• Details of parents / guardian - name, address, phone numbers, nationality,
residential status.
• Photograph and signature
• Expected international transfer of funds in the case of foreign students.

INTEREST RATES: 3.50%

SERVICE CHARGES AND FEES

Bank@Campus
Available to All cities
Students pursuing pre-approved
Eligibility courses only and b/w 18-27 yrs of
age
Minimum average quarterly balance Rs 500
Charges for non maintenance of
minimum quarterly average Rs.250 per quarter
balance
Cash transactions at base branch
No Branch Access for cash transactions
(branches in same city)
ATM Interchange (Transactions at Rs.18 per cash withdrawal and balance
Non ICICI Bank ATMs) enquiry - Free.
Rs.50 per D.D. up to Rs.10, 000; Rs.3
per thousand rupees or part thereof
Issue of DD drawn on ICICI Bank by
for DD of more than Rs.10,000,
cheque/transfer
subject to a minimum of Rs.75 and
maximum of Rs. 15,000
Free Annual statement
Statement Free monthly e-mail statement on
request
Debit Card Fees for first Account
Free
Holder
Debit Card Fees for joint Account
Free
Holder
 Daily spending/withdrawal limit:
Debit Card Cash withdrawal limit
25,000/25,000
Internet Banking Free
Phone Banking Free
Mobile Banking Free
Cheque Books Free, Order & A/c payee only
ATM Transaction Unlimited Free of Cost
Cheque collection charges from
upcountry locations (I-Bank Free
branch)
Cheque collection charges from
upcountry locations (Non I-Bank
branch) Free

10.0 CONCLUSIONS
Retail banking is the fastest growing sector of the banking industry with
the key success by attending directly the needs of the end customers is having
glorious future in coming years.
Retail banking sector as a whole is facing a lot of competition ever since
financial sector reforms were started in the country. Walk-in business is a thing
of past and banks are now on their toes to capture business. Banks therefore,
are now competing for increasing their retail business.
There is a need for constant innovation in retail banking. This requires
product development and differentiation, micro-planning, marketing, prudent
pricing, customization, technological upgradation, home / electronic / mobile
banking, effective risk management and asset liability management techniques.
While retail banking offers phenomenal opportunities for growth, the challenges
are equally discouraging. How far the retail