The world of Banking and Finance is changing very fast and the banks are

transforming and adjusting themselves with the new business challenges being
faced by them in the wake of globalization and financial reforms. The traditional
banking activities like Corporate Finance and Branch Banking are being replaced
by retail banking and technology based delivery channels. The rapid changes in the
financial services markets raise a doubt whether traditional banks in their present
structure would actually survive. A major threat is coming from non banking
financial companies who are providing service to retailers, super markets etc. A
second significant threat comes from international banks offering technology based
financial services across geographic boundaries. They are offering stiff
competition to the traditional banks for their best business. E-Banking holds no
respect for geographical barriers and is being pursued as major delivery channel by
the international banks. The customers can access their accounts by Mobile phone.
Access will soon be made available to a much wider group of users through home
televisions and internet. Historically, banks had been providing the customers with
the services and products that they wish to provide. With increase in wealth
accumulation and sophistication of the people in India on account of growth in
GDP and per capita income, the most profitable customers now dictate what they
want. Such customers determine with whom they will bank, which products they
will use, what pricing they will accept and which delivery channels they choose to
use. In the above scenario, the Indian banks have been rapidly expanding the menu
of the financial services they offer to their customers. The banks have redesigned
their products and entered in the field of retail banking and offering consumer
credit, savings and retirement plans, financial counseling etc. A time has therefore
come to review the whole range of the banks' retail products and delivery channels.
The customers perception and expectations from the banks vis-à-vis the actual
products and services they are getting from the banks are becoming more and more
pronounced and their choice of banks are getting determined on the basis of these
factors.
Last couple of decades has brought about such radical changes in the banking
system that the pace is actually mind boggling.The entire definition of Banking has
undergrone a paradigm shift. The easy going life of a banker has suddenly become
one of the most stressful jobs around. The transparency in the banking system,
brought about by the reforms in the banking system has opened up paradora’s Box.
The reality in the shape of Corparate NPAs is tumbling out of the box one by one.
Added to it is the flautuation in the economy. All this has become the perfect
ingredienrt to a chaotic situation. Today there is a unanimous opinion among all
Bankers that ‘Retail’ is the only road to Revival and growth of this sector.
The largets challenge for the Banking Industry has cropped up in the form of
Payments Banks and the Small Banks and also licensing of private banks.
Bandhan, one of the strongest players in the micro finance sector has already
opended shop. There is a fear that these small players will be usurping the market
share of the bigger players.
Introduction
Retail banking refers to an system where the banks deals directly with the
customers. It is the face of banking that is visible to others. It pertains to mass
marketing of banking services to a large number of private individuals. It is also
known as customer banking or personal banking in some segments of the industry.
Typical banking products are Term Deposite, Savings and other transaction
accounts,mortage loans,personal loans,consumer loan,debit card,credit card etc.
Retail banking basically works on the principle of large number of products,large
number of customers and wide spread distributions channels. The success of retail
banking system in terms of profitability therefore depends wholly on cost per
account,cost per transaction and Pricing risk management.
Retail banking today aims to be the one-stop shop for as many financial services as
possible. It is a framework that allows commercial banks to offer banking products
and services in one place at virtually any of their branch locations. The retail
banking aspect turns commercial banks into a kind of “departmental” store where
clients are able to purchase multiple banking products. In simple words the
banking activity of dealing with multiple products using multiple channels of
delivery catering to multiple customers is what Retail Banking is all about.
The Retail banking can be further classified as Mass Retail Banking and Class
Retail Banking. The ‘Mass Retail Banking’ is an area in which the bank provides
standardized banking products and services to its customers. In ‘Mass Retail
Banking’, banks attempts to build a sufficiently borad customer base which can
serve as a stable use and source of funding. On the other hand ‘class retail banking’
is the area in which the banks offer customized products and services targeted ar a
niche customer segment which is the High Net Worth Individual. Given below is
an image showing the positioning of Mass Retail Banking and Retail Banking vis-
a-vis other segments of Banking.
DEFINATION
A retail bank refers to a bank that deals directly with individual customers,
providing them with basic banking services like checking and savings bank
accounts, mortgages, personal loans, debit cards, credit cards and safe deposit.
Features of retail banking
Retail banking refers to the dealing of commercial banks with individual
consumers, both the liabilities and the asset side of the balance sheet.4 The
important
products offered by banks in retail banking are fixed, current/ savings account on
liabilities side; and personal loans, house loans, auto loans and educational loans
on
the asset side. Today’s retail banking sector is characterised by the following
features:
• Retail banking aims at doing banking business in large volume of
transactions involving low value.
• The retail banking portfolio includes deposits and assets linked products as
well as other financial services provided to individuals for personal
consumption.
• Retail banking business is an attractive market segment with opportunities
for growth and profits.
• It provides an opportunity to banks to diversify their asset portfolio. Since
loans are given to a large number of consumers and transactions have very
low value, the risk of NPA is reduced because all the consumers do not make
default in making loan repayment at a time.
• Retail banking industry is diverse and competitive. There is a large number
of retail banking products that are extremely customer-friendly and are
offered by many banks.
• Banks adopt multiple channels of distribution of retail banking products. The
channels include call centre, branch, internet, mobile phones, ATMs etc
Advantages of retail banking
Retail banking is mass market banking, where individual consumer’s diverse
needs are fulfilled at the local level i.e. by providing multiple products.5 It has
been
facilitated by growth of banking technology and automation of banking process.
Retail banking has the following advantages.6
• Retail deposits are stable and constitute core deposits.
• They are interest insensitive and less bargaining for additional interest.
• Effective customer relationship management with retail customers builds a
strong customer base.
• Retail banking increases the subsidiary business of banks.
• Retail banking results in better yield and improved bottom line for banks.
• Retail segment is a good avenue for funds deployment.
• Consumer loans are presumed to be of lower risk and NPA perception.
• Improves lifestyle and fulfils aspirations of people through affordable credit.
• Retail banking provides an opportunity for banks to innovate banking
products as per the expectations of various classes of customers.
Retail Banking in India- an Overview 102
• Retail banking involves minimum marketing efforts in a demand-driven
economy.
• Diversified portfolio due to huge customer base enables banks to reduce their
dependence on a few or single borrower.
• Banks can earn good profits by providing non-fund based or fee based
services without deploying their funds.
• Credit risk tends to be well diversified as loan amounts are relatively small.

Disadvantages of retail banking

• There can be problems in managing large number of clients, especially if IT
systems are not sufficiently robust.
• The cost of maintaining branch networks and handling large number of low
value transactions tend to be relatively high.
• Designing own and new financial products is very costly and time
consuming for the bank.
• Though banks are investing heavily in technology, they are not able to
exploit it to the maximum.
• Major disadvantages are monitoring and follow-up of huge volume of loan
accounts inducing banks to spend heavily on the human resource department.
• Long term loans like housing loan, due to its long repayment term, can
become NPA in the absence of proper follow-up.
Retail Banking in the World
North America continues to lead the Customer Experience Index with Canada
(81%), and the United States (80%) in the lead. Italy, Saudi Arabia and China
reported the largest relative gains in share of customers with positive experience
this year. Fees, Mobile Capabilities, Quality of Service or Knowledge of
Customers? This is the single most important factor driving customers to switch
banks. The World Retail Banking Report provides insights into customer attitudes
towards retail banking using a comprehensive Voice of the Customer survey which
polled over 18,000 retail banking customers in 35 countries. The survey analyzes
customer experiences across 80 banking touch points that span the products banks
offer, the importance of different channels for obtaining services and the
transactions that occur over the lifecycle of a banking relationship some banks
turned to consolidation as a way of cutting expenses in order to survive difficult
economic conditions. Often consolidation works as intended, but it also has its
limitations. Federal law prohibits any single bank in the United States from holding
more than 10 percent of the U.S. customer market. When banks merge, they also
make gains in their customer base. Several banks in the United States are
approaching the 10-percent mark, so for those banks, further consolidation may not
be a way to solve their problems. Global Retail Banking 2020 study, up to 50
percent of branches in today’s U.S. bank networks may be declared obsolete --
although not necessarily defunct -- by 2020. Given that branches constitute 75
percent of a bank’s total retail distribution costs, according to research from
Capgemini, implementing smart, technologically savvy retail strategies will be
critical to driving shareholder value

Trends in Retail Banking

According to the Report’s Customer Experience Index, which surveyed over
18,000 bank customers across 35 markets, 10% of retail banking customers is
likely to leave their banks in the next six months while an additional 41% say they
are unsure if they will stay or go. To re-build the customer-bank relationship, the
Report finds banks can become more customer-centric more personal interactions
ATM machines and Internet Banking, many consumers still prefer the personal
touch of their neighborhood branch bank. Technology has made it possible to
deliver services throughout the branch bank network, providing instant updates to
checking accounts and rapid movement of money for stock transfer
Retail banking now encompasses not just branches, but also anywhere that banking
services can be conveniently provided to consumers. Whether it means a service
kiosk in a train station, a mini-branch in a grocery store, a premium branch in a
central business district, or a bank-on-wheels that visits corporate workplaces,
proximity to targeted customers ultimately matters more than having a traditional
bank façade. Flexibility and agility will provide a competitive advantage for bank
Technology is becoming the centerpiece of retail bank executives will expect their
IT departments to identify and implement technology-based solutions to enhance
the customer experience. Some banks, are even experimenting with quasi-Internet
cafes
offering high-tech lounge environments with relaxing furnishings and Wi-Fi access
along with ATMs, self-service kiosks, areas for plug-in consumer devices, tutorials
for mobile and Web banking and videoconferencing for service consultations
delivered by call center staff. Furthermore, the move to a cash-light society will
trigger still more changes in how branches are deployed.
As per the RBI statistical data for year ranging from 1998-2008 the mean personal
loan is Rs.12, 463,240 Lakhs against a total bank credit of Rs. 66,899,292 Crores.
This average personal loan amount is against a population of 1054 million on other
hand housing loans amounts to housing loans Rs. 70, 22,354 Lakhs
 Categorization of Retail Banking Services
Core services Facilating services Supporting services
Payment  Cash  Making payments at door step
services  Foreign currency  Internet banking
requirements  Telephone banking
 Traveler cheque
 Demand Draft /
Bankers cheque
 Telegraphic
Transfer
 Electronic Funds
Transfer
Current  Automatic Teller  Credit card
account and Machine card  Debit card
Saving  Standing  Services to senior citizens
account instructions from  Telephone banking
customers for  Internet banking
making payments  Conversion of excess balance to
 Inter branch / Time deposit (Auto Sweep Flexi
Inter bank Deposit)
transfer of funds
 Safety vault
Loan products  Current account  Delivery of loan at promised time
: Consumer  Savings account period
loans,  Time deposite  Interest rate option : Fixed /
Personal loans, account floating
Housing loans,  Flexibility in pre-payment of loan
Educational  Counseling on Real-estate markets
loans  Legal services for documentation
 Electronic Clearing System for
payment of loan installments /
periodical interest
Life insurance,  Current account  Additional insurance facility for
Pension  Savings account family members
schemes,  Time deposite  Counseling on post retirement
Investment  Safety deposite savings
banking accounts  Investment Management
 Demat accounts
Retail Banking in India
Retail banking in India In the post independence era the evolution and growth of
banking sector has gone through innumerable twists and turns. In India banks are
nationalised with the main objective of reaching out to the unbanked masses and so
retail banking is important in India to provide banking services to unbanked
masses. Retail banking in India is not a new phenomenon. It has always been
prevalent in India in various forms ever since banking was first established here.
Cooperative banks that have been in existence in India for over a century have
always had retail thrust. It is only since the mid-nineties that the term “retail
banking” has been used as a means of reinforcing a conscious foray into this
particular line of business. For the last few years it has become synonymous with
mainstream banking for many banks.7 The typical products offered in the Indian
retail banking segment are housing loans, consumption loans for purchase of
durables, auto loans, credit cards and educational loans. These loans are marketed
under attractive brand names to differentiate the products offered by different
banks. Unlike wholesale banking, retail banking has high sized business with many
banks competing for market share. Retail banks focus mainly on consumer
markets. Here the transactions of the banks are directly with consumers and not
with corporations or other banks. It refers to the dealing of commercial banks with
individual customers, both on liabilities and assets side of the balance sheet.
Although retail banking is, for the most part, mass-market determined, many retail
banking products may also extend to small and medium sized business. Nowadays
much of retail banking is streamlined electronically via ATMs, or through virtual
retail banking known as online banking
The retail loan portfolio of Indian private sector banks has been growing speedily
in the recent past. The entry of new generation banks and foreign banks with
innovative technology and technology-driven products has changed the entire
scenario. The retail sector which remained unobserved earlier is now the most
important area of concern for banks. Banks are offering so many products to the
customers and they can choose the one which suits them. As the competition is
growing in retail banking, maintaining service quality in banks is becoming
essential. The Indian retail banking is expected to grow tremendously because of
the changing attitude of customers toward borrowings, low cost of borrowings and
optimism regarding economic growth.
Drivers of Retail banking in India
The growth in banking technology and automation of the banking process
facilitated retail banking. The rapid growth and spread of retail banking is due to
the technological development. The nature of products offered in retail banking is
also expanded. In a growing economy like India retail banking has vast
opportunities and challenges. The basic reasons for which Indian banks have
diversified into retail banking are the following:
1. The retail banking products are customer oriented. Transactions with small value
may be cost ineffective in a highly competitive environment. But retail banking
eliminates market risk.
2. In India the demand for consumer durables has increased owing to the economic
growth and prosperity and the consequent increase in the purchasing power of the
people. Major portion of the household sector in India is middle class people.
There is continuous rise in the percentage of middle and the high income
households in India. Indian retail banking is facilitated by improved purchasing
power of consumers and liberal attitude towards personal debt.
3. India has the highest proportion of the population below 35 years of age (young
population). This is a positive factor for the growth of retail banking in India.
Changing consumer demographic indicates a vast potential for growth in
consumption, both quantitatively and qualitatively.
4. Another important factor which facilitated the growth and development of retail
banking is the development of technology. Technological innovations relating to
increasing use of credit/debit cards, ATMs, internet and phone banking etc. are
attracting many new customers to the banking field.
5. The lower levels of NPA in retail lending and decrease in interest spread in the
corporate sector have encouraged the banks to shift towards retail sector. Besides,
fall in interest rates, availability of consumer goods at competitive and reasonable
prices and income tax benefits, especially in case of housing sector, have also
contributed to the growth of retail banking.
Indian banks have adopted the best international practices of accounting and
integrated risk management systems after the liberalisation of the economy. Banks
have got the opportunity to diversify their risk through the retail loan portfolio.
Besides this, the retail advances have lower defaults in repayment compared to the
overall bank loans. The comparatively lower provisioning burden on banks on
retail loans have compelled them to diversify into retail sector.
There has been dramatic operational transformation in retail banking in the recent
years. The factors which compelled banks to rethink their real strategies are
increased competition, mergers and acquisitions and new regulatory requirements.
The retail banks have adopted latest technology to maximise sales, manage
distribution channels and plan operations necessary to acquire, satisfy and retain
customers.