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International Journal of Data & Network Security Volume 2 No. 1, Feb10, 2013, ISSN 2319-1236

RETAIL BANKING ISSUES AND CONCERNS IN INDIA

Madhvi Julka
Department of Management, Swami Sarvanand Group of Institute, Dinanagar, Punjab

ABSTRACT
The paper has been directed towards issues and concerns faced by the banking sector in India due to the growing pace of educated and lenient attitude customers towards the debt services. The variables selected for study are (bank overdraft, personalised contact, credit and debit card, tax payment, quick shopping, higher interest on deposits, saving rewards, general insurance, statement, on line recharge, life insurance, mutual funds). The study is based upon both primary and secondary data where in primary data has been collected from (both private and public sector banks) and secondarydata from (RBI bulletin 2011, www.rbi.org,www.hdfcbank.com,www.icicibank.com,Indian banking journal, Research papers, Articles). Here factor analysis has been used as a tool to analyse the effects that various factors taken under consideration would have on retail banking in India. Based on findings of study appropriate suggestions are made to improvise the retail banking services.

1. OVERVIEW TO BANKING SECTOR

Bank is a financial institution that provides the services of accepting deposits and proving loans. Banking system also offers a set of services as cash management for its customers, reporting transactions of their accounts and portfolios, throughout the day. It also functions through its various services as: Providing security to its customers Controlling supply of money and credit encouraging public confidence in banking sector. setting equal norms and conditions for all History of banking sector and Step by step development of banking sector: 1949: Enactment of Banking Regulation Act. 1955: Nationalisation of State Bank of India. 1959: Nationalization of SBI subsidiaries. 1961: Insurance cover extended to deposits. 1969: Nationalisation of 14 major Banks. 1971: Creation of credit guarantee corporation. 1975: Creation of regional rural banks. 1980: Nationalisation of seven banks with deposits over 200 Crores.

2. Summary of Retail Banking

Meaning: 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 Retail banking industry impinges upon economy and has tremendous affect upon its performance. They play an important role in mobilising economic surpluses from consumers and small business firms. With the coming of era of revolution the retail banking has diversified its field of operation; using the means of internet by introducing various IT related services, telecommunication and electronic data processing. Moreover it is one of the fastest and robustly growing banking services in India contributing (7% to total workforce and 14% to GDP). The chart given below depicts the service wise division of retail banking transactions and their respective contribution to the indian banking sector during the year , 2011.

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International Journal of Data & Network Security Volume 2 No. 1, Feb10, 2013, ISSN 2319-1236

SERIAL NO.

SERVICES

PERCENTAGE

1 2 3 4 5

credit card debit card ecs dr neft/eft necs/ecs

29 27 17 15 12

PERCENTAGE WISE DATA ON RETAIL ELECTRONIC TRANSACTIONS BY VOLUME

1 credit card 2 debit card 3 ecs dr 4 neft/eft 5 necs/ecs

12% 29% 15%

17%

source: RBI Monthly bulletin

27%

Serial no.

Services

Percentage

1 2 3 4 5

credit card debit card ecs dr neft/eft necs/ecs

6 3 5 70 16

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International Journal of Data & Network Security Volume 2 No. 1, Feb10, 2013, ISSN 2319-1236

percentage wise data on retail electronic transactions by value

1 credit card 2 debit card 3 ecs dr 6% 3% 5% 16% 4 neft/eft 5 necs/ecs

70%

source:

3. LITERATURE REVIEW
Lara.de Paul, Damodar Abhijit, Balog Cristin (2012) analysed that innovation in retail banking is booster of banking success worldwide. Increasing the investment in innovation is key priority for banking sector. The study encompasses 300 bankers across Europe, Asia pacific, America, and Middle East. Dhabolkar (1995) and jham & khan (2008) Banking being a service industry is wholly dependent upon the customer satisfaction level, so every effort is directed to meet the customers requirements. Gopinath shyamala (2005) reviewed that retail banking has a very important role in economy. Globally there has been special emphasis upon innovation in retail banking. With the emergence of IT and dynamic environment abreast the financial reforms demand and supply factors have also been impacted. Retail sector growth in India can be seen from the fact that retail loan have one fifth of all bank credits. At the same time the retail loan market is now better known as buyers market instead of sellers market. Financial inclusion taskforce (2010) revealed that ensuring access to a bank account was an important foundation for putting low-income households in a position to manage their money effectively, securely and confidently and to reduce some of the costs of managing in cash, so in order to have every household in a position to access and to benefit from basic banking services to be included in mainstream networks for deposits and payments. The key banking needs of poor household are: An easy way to receive money, particularly non cash payments. A way to keep money safely. An easy way of making payments that is efficient for the receiver.

4. RETAIL BANKING IN INDIA IN GENERAL

India is found to be one of the hot destinations for the banking revolution and banks all around the globe want to have their banking operations to capture this niche market. AT. Kearney a global management consulting firm has opined that India is second most attractive retail destinations in 30 emergent markets. This is due to the persistent rise in the high income earning middle class and growing purchasing power, and lenient attitude towards personal debt. The literate population and their curiosity for retail banking has led to many innovations in retail banking in India through Introduction and adoption of computers in the banking sectors, the nature of the traditional banking substantially changed. The issues of ATM facilities, credit cards, debit cards etc. were the banking services from which we could take money from our account without even approaching the bank. Money can now be transferred in a much faster and easier way. The core banking facility allows us to operate our account by any branch of the same bank. With the help of credit cards, we can purchase anything without carrying money in our pockets. Without computation, this Telebanking facility could not be available. 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

5. FOCUS AREAS UNDER RETAIL BANKING IN INDIA

1. 2. 3. 4. 5. 6. Imagination Emotional connection Functional and technical advantage Personalized contact Testing and improvement Customer relationship management

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7. 8. Market offering and positioning Employees satisfaction

International Journal of Data & Network Security Volume 2 No. 1, Feb10, 2013, ISSN 2319-1236

6. RETAIL BANKING STRATEGIES IN INDIA

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Tie ups Innovation Quality in service Cross selling Business process outsourcing Tapping unexploited resources Centralized database that can be assessed through any branch ATMs Tele banking Courier pickups for cheques and documents

7. STEPS IN MAKING THE RETAIL BANKING MORE POWERFUL

Presence and availability, core banking, quality service, better infra, mobile banking. mergers and acquisition increased services and product range: capital market, mutual funds, card and payment services

8. RESEARCH METHODOLOGY
Research type:the research type used here is ex-post facto research or descriptive research where the field under study already exists but an effort in that direction is made to have some innovation or improvement in present approach. Sources of Data: Data has been collected both from primary and secondary sources primary data was collected from the people from managerial cadre in banks, and customers through the means of questionnaire and secondary data sources include bulletins, journals, books, bank websites, financial results declared by banks and articles from newspapers. The list of the secondary sources of data collection is given as under: RBI bulletin 2011 www.rbi.org www.hdfcbank.com www.icicibank.com Indian banking journal Research papers Articles

Scope of Data: The study has been directed towards private and public sector banks in Batala, Gurdaspur, Dinanagar, and Pathankot areas ofIndia. Importance of study: It is of at most importance to analyse the retail banking challenges and prospects, because of the numerous opportunities. The rising up of high income earning literate young population comfortable with the banking terms and conditions has led the banks to provide customers with innovative services to make them delighted. SAMPLE: The data has been collected from the 50 respondents from the Batala, gurdaspur, Dinanagar and pathankot.

9. RESEARCH TOOL
Here factor analysis principal component method is used in order to know broadly the major factors affecting the Indian retail banking industry.

10. DATA ANALYSIS AND INTREPRETATION

Our study is based upon 50 respondents who are composed of persons from managerial cadre in banking sector and customers they were asked to indicate on seven point scale(1 = completely agree, 7 = completely disagree), there agreement or disagreement with set of 11 attributes.That is bank overdraft, credit and debit card, tax payment, quick shopping, higher interest on shopping, liquidity, general insurance, statement, on line recharge, life insurance, mutual funds.

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International Journal of Data & Network Security Volume 2 No. 1, Feb10, 2013, ISSN 2319-1236
Table 1. Total Variance Explained Extraction Sums of Squared Loadings % of Variance 32.224 18.166 12.443 Cumulati ve % 32.224 50.390 62.833

Initial Eigenvalues Compo nent Total 1 2 3 4 5 6 7 8 9 10 11 3.545 1.998 1.369 .959 .731 .597 .503 .413 .354 .301 .230 % of Cumulative Variance % 32.224 18.166 12.443 8.717 6.647 5.430 4.572 3.753 3.222 2.736 2.090 32.224 50.390 62.833 71.550 78.197 83.627 88.200 91.952 95.174 97.910 100.000

Rotation Sums of Squared Loadings % of Variance 27.880 21.277 13.676

Total 3.545 1.998 1.369

Total 3.067 2.340 1.504

Cumulative % 27.880 49.157 62.833

Extraction Method: Principal Component Analysis. Table2. Component Matrix Component 1 VAR00001( bank overdraft) VAR00002 ( personalised contact) VAR00003( tax payment) VAR00004 ( quick shopping) VAR00005( saving rewards) VAR00006 ( higher interest on deposits) VAR00007 ( general insurance VAR00008 (statement) VAR00009 (mutual funds) VAR00010 ( life insurance) VAR00011 (on-line recharge) -.218 .480 .767 .392 .589 -.241 .724 .769 .510 .479 .718 2 .495 .072 -.232 .347 -.361 .637 .259 -.269 .685 .621 -.204 3 .523 .719 .221 -.662 .141 .197 -.060 .038 -.063 -.095 -.118

Extraction Method: Principal Component Analysis.

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A. 3 components extracted.

International Journal of Data & Network Security Volume 2 No. 1, Feb10, 2013, ISSN 2319-1236

Table 3. Communalities Initial VAR00001 VAR00002 VAR00003 VAR00004 VAR00005 VAR00006 VAR00007 VAR00008 VAR00009 VAR00010 VAR00011 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Extraction .566 .752 .691 .714 .498 .503 .595 .665 .734 .624 .570

Extraction Method: Principal Component Analysis.

a

Table4. Rotated Component Matrix

Component

1 VAR00001 VAR00002 VAR00003 VAR00004 VAR00005 VAR00006 VAR00007 VAR00008 VAR00009 VAR00010 VAR00011 -.259 .577 .817 -.007 .702 -.434 .483 .784 .111 .104 .668

2 .080 .048 .143 .712 -.021 .295 .600 .181 .819 .765 .261

3 .701 .646 .049 -.454 -.071 .477 .024 -.131 .226 .171 -.237

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.

B. Rotation converged in 7 iterations

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International Journal of Data & Network Security Volume 2 No. 1, Feb10, 2013, ISSN 2319-1236

Table5. Component Transformation Matrix

Component 1 2 3

1 .850 -.446 .280

2 .524 .772 -.360

3 -.055 .453 .890

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization

11. INTREPRETATION OF OUTPUT

The output of factor analysis is obtained by requesting principal component analysis and specifying rotation. There are two stages in factor analysis. Stage one being the factor extraction process, wherein the objective is to identify how many factors are to be extracted from the data. The most popular method for this is called principal component analysis. There is also rule of thumb based on the computation of an eigen value, to determine how many factors to extract. The higher the eigen value of factor, the higher the amount of variance explained by the factor. As evident from table 1 three factors extracted together form 62.83 percent of total variance. Hence we have reduced the number of variables to 3 from 11. Looking at table 4 we see that the variables 3, 6, 8 &11are having a loading of .817, .702, .784 & .668 on factor 1. This suggests the factor 1 is a combination of these four variables.Thereforethese factors can be interpreted as convenience or mobile banking. Now for factor 2 we see that variable 4, 7, 9, and 10 are having a loading of .712, .600, .819 & .765 respectively indicating factor 2 is combination of these 4 variables.These are clubbed in to a single factor called on-line facilities done on click of buttons. Factor 3 is having a higher loading on variable 1, 2 and 5 variablesand is combination of these variables.These are termed ascustomer relationship management services.

12. CONCLUSION
Concluding we can say that retail banking is one of the most tremendous areas now days to be looked after by the banking industry as it contributes 7% to our GDP and 14% to employment. Abreastthe rising population and increase in the middle class earning higher incomesand at the same time having appetite to take risk has increased its scope many folds. So need of the hour is to put effortstowards innovation,convenience in services, prestigious services and making banking more mobile to delight customers.

13. REFERENCES
[1]. Mishra, R. and Prabhu, D. (2010) Introduction of Retail Banking in India, 1st Edition, New Delhi, India: Tata McGraw Hill. [2]. Mori, K. and Parikh, N. (2010) Retail Banking: The Basics, 4th Edition, Delhi, India: Pearson. [3]. Mishra and Tandon, (2011), International journal of multidisciplinary research, vol 1. Issue , Zenith [4]. Gopinath shyamala (2005), Retail Banking Opportunities and Challenges, IBA [5]. Ojha.smiksha (2012), growth and development of retail banking in India drivers of retail banking. [6]. Raj janak, rao K.U.B et.al,(2011), Reserve bank of India bulletin, volume LXV number I, Cambridge university press india limited.

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International Journal of Data & Network Security Volume 2 No. 1, Feb10, 2013, ISSN 2319-1236

14. BIBLIOGRAPHY
[1].http://www.theinternationaljournal.org/ojs/index.php?journal=rjebs&page=article&op=view&path[]=1408 [2]. http://www.bis.org/review/r050531f.pdf [3]. http://www.zenithresearch.org.in/images/stories/pdf/2011/Aug/15%20vol-1_issue-4_15_%20KAMINI.pdf [4]. http://www.ro.capgemini.com/m/ro/doc/WRBR_2009.pdf [5]. http://www.assocham.org/arb/afp/2009/AFP_Performance_of_Retail_Banking_in_India_aug2009.pdf [6]. http://www.nicct.nl/file.php?nr=77&code=cfc8d49037a649e2f6fe86b67f03beaf (banking on growth) [7]. http://www.chimc.in/volume3No1/ResearchPaper-2.pdf(gujarat) [8]. http://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/FBULL12112011.pdf. [9]. http://money.sulekha.com/retail-banking-drives-30-6-jump-in-hdfc-bank-rsquo-s-q1-net-at-rs-1-417-39cr_news_91992) [10]. http://www.business-standard.com/india/news/analysis-retail-focus-treasury-gains-drive-icici-banksperformance/193037/on [11]. http://www.rbi.org [12]. http://www.oxbridgewriters.com/essays/finance/internet-banking-in- india.php#ixzz2DWA9UIxs [13]. http://www.ijccr.com/May2012/1.pdf [14]. http://articles.economictimes.indiatimes.com/2011-08-01/news/29838702_1_retail-loans-pralay-mondalcredit-growth

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