RETAIL BANKING AND WHOLESALE

BANKING

The concept of retail banking

The retail banking means products and services offered to

individuals and households sector for personal use and
consumption like loans for housing, vehicle, for consumer
durable, loans for enjoying vacations etc.

It not only means lending but also involves whole of the

banking services provided to individuals and household
sector.

The products to tap their savings and other services are

included in retail banking.

The retail banking concept has been expanded to include

services provided to small and medium sized business and
also high net worth individuals .

The concept of wholesale banking

In the whole sale banking the focus is on corporate, i.e.
companies, firms, proprietorship concerns, Public Sector,
Institutions, societies, Trusts, clubs etc.

Why retail banking

Since the year 1991 the process of disintermediation
accelerated. The corporate had easy access to funds from the
savers thus bypassing the banks.

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This led to cut throat competition among the banks to
advance the corporate even at sub PLR and also to attract
them, they started offering value added service at
concessional rates.
Banks experienced pressure on their margins and the
implementation of new stringent norms of income
recognition, assets classification and provisioning made the
task for the banks more difficult.
The corporate loans gave an average return of 0.5 % to 1.5%
but had volumes and less workload but if the other services
are added which were to be given at concessional rates the
yield were still less. If a big loan goes bad, the entire amount
outstanding had to provided for under the provisioning
norms.
The retail lending gave a return of 3 to 4% but with more
work and there was hardly any need for value added services
at concessional rates as the borrowers did not have any
bargaining power and in the beginning there was not much
competition among banks as the concept had not picked up
in a big way.
Before 1991 also the concept of retail lending was there but
was very much limited and restricted to few avenues and
very few banks were interested in this.
While corporate loans and infact their banking was largely
dependent on ups and own of economy but this does not
affect the retail lending to a great extent. Retail banking
gave a lot of stability and public image as compared to
corporate banking.

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Growth of retail banking
Housing loans, which is retail banking, has least NPAs and
also carry a risk weight of 50%.
The market for housing loan is growing @ 50%

Over the years there was a felt need for improving

quality of life.
More consumerism, increase in salaries and income level
and saving potential, change in Indian mind set, small
family norms are some of the factors leading to demand
for loans for consumption leading to thrust on retail
lending.

Now a days people want, good house, good cars, decent

style of living, good clothing, vacations in India and abroad.
Apart from the availability of money, there is competition
among manufacturers and service providers to make these
things within the easy reach of consumers by availability of
goods and tying up with banks and other intermediaries.
The peer pressure and demonstration affect is also pushing
up further demand
Through competitive strategies like product innovations,
differential pricing, banks have attempted to develop
profitable retail business
The retail banking due to its reach, has given opportunities
to banks to cross sell other products like credit cards,
insurance, mutual funds, foreign exchange etc.

Retail banking generally provided is:

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 Housing loans.
 Loan against salary/pension
 Loans for consumer durable.
 Personal loans for consumption.
 Educational loans.
 Auto loans, gold loans, festival loans etc.
 Loans against rent receivable.
 Loans for vacations.
 Loans to doctors for setting up clinic, to chartered
accountants etc.
 Credit cards, debit cards.
 Global cards
 Deposit products like, flexi deposits etc.
 Services like, electricity bill collection, telephone bills,
school fees, insurance premium payment, filing of
Income tax returns etc.
 ATM, Tele banking, Internet banking, 365 days banking,
depository services etc.

Impact of retail banking

 Customers have become king and banking revolves
round him.
 Customer has got wide choice in terms of banks and
services, as the banks are outbidding each other to
provide new services, products with differential rate
structure and utilities.
 Even products are tailor-made to suit a class of
customers. You want to buy a plot of land, you want to

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 apply for an IPO, you can approach a willing bank to
lend you and create money for you.
 Banks have become a financial super market.

Disadvantage of retail banking.

 Servicing a large number of customers become a
problem, for this banks tend to have separate retail
banking or personal banking sections so that corporate
and retail customers do not feel the impact of each other
and do not feel neglected.
 Large number of products with differentiation also poses
a problem.
 Transaction cost increases.

Future of retail banking

 Signs of slow down in consumer growth is seen of late.
 Possibility of deterioration in assets quality.
 Pressure on margins due to entry of large number of
players and aggressive marketing.

BANK ASSURANCE

Bank assurance or bancassurance is a package of banking

and insurance services, which are offered under one roof.

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It is a combination where both services co-exists and add
value to the institution. The customer can avail both banking
and insurance services together at one point.
There is savings in distribution cost; a part of savings is
passed on to the customers.
The introduction of bancassurance products like life and non
life insurance products has broadened the scope of retail
banking. It is expected to give a boost to fee based income
of the banks in the backdrop of thinning margins.
The customers can get the benefit of all their needs being
met under one roof. The banks have a large number of
branches spread through out the country. The insurance
sector gets the benefit of reach and clientele of banking.
Most of the banks in India have since tied up arrangement
with multi national insurance companies for selling their
insurance products in life and non life segment as corporate
agent for a fee.