INSTITUTE OF MANAGMENT STUDIES, DAVV, INDORE

FINANCE AND ADMINISTRATION – SEMESTER IV

CREDIT MANAGEMENT AND RETAIL BANKING

INTRODUCTION TO RETAIL BANKING

What is Retail Banking

 Retail banking is banking service that is primarily towards individual customers.

 Unlike wholesale banking, retail banking focuses strictly on consumer market.
 Retail Banking provides wide range of personal banking services – savings, investment, bill
payments, remittance, credit and debit cards, various loan products etc.
 Most of the retail banking is streamlined electronically via ATM or virtual banking known as
on line banking.
 Retail banking means in which banking institutions execute transactions directly with
consumers rather than corporations or other entities.
 Retail Banking is part of banking operations providing service to small account holders
(small in bank terms)
 Thus pure banking is generally considered as – mass market banking service to private
individuals including ‘private banking’ to HNI.

Evolution of Retail Banking

 Historically banking in Indian scenario was lending to business and corporate client for
working capital and project financing to class customers. Current account was most suitable
product for them.
 Over a period of time customer need and wants expanded. More products and services
were needed to satisfy these wants.
 From being plain vanilla commercial functions, banks entered into new avtar like merchant
banking, portfolio management etc.
 Customer base was broadening and character changed from homogenous to
heterogeneous groups. Bank redesigned some products to suit these needs and developed
style in delivery of services due to new paradigm shift.
 Thus came retail banking for individual customers, also called consumer banking by some.
 This includes personal banking for HNIs.
 Foreign banks operating in India set the trend in late 70s and 80s providing hybrid liability
and asset products targeted towards personal segment. Standard Chartered Bank and
Grindlays Bank was pioneer for introducing such products. Citi Bank created waves with
their credit card products.
 The entry of new generation Private Sector Banks in early 90’s after financial reforms
(Liberalization Privatization and Globalization) created a new approach to retail banking in
banks. With the advantage of technology these banks aggressively entered in the market of
Retail Banking.
 To add to the fuel, PSBs also with technology initiatives and redefined business model had
now aggressively entered the market space creating a retail war.
 The retail war is now in full swing.
Characteristics of Retail Banking

 Targeted at individual customers

 Focussed towards mass market
 Offer different asset and liability products to individuals.
 Delivery model can be physical (at branch) or virtual (technology driven products like ATM,
Internet banking and Mobile banking)
 Extended to small and medium sized business also.
 Retail banking today encompasses multiple products, multiple customer groups and
multiple channels of distribution.

Advantages of Retail Banking

 Client base is large. There is wide scope for cross selling of products.
 As the Client base is large the risk is spread across customer base.
 Customer loyalty is stronger than other models like corporate banking.
 Attractive interest spread. Deposits are taken at card rate which is comparatively lower than
offered to large corporate. Also interest is charged at the higher rate because customers
are fragmented to bargain effectively.
 Credit risk is diversified, as loan amount sanctioned is comparatively smaller than
corporate.
 Less volatility in demand and credit cycle than large corporate
 Large number of clients can facilitate marketing, mass selling. Technology helps reaching
large client base in remote areas.
 Assessment is now done through scoring system/ data mining.

Constraints in Retail Banking

 Problem in managing large number of client. Accounting aspect and reaching to large
customer base is now taken care of through development of technology.
 Cost of maintaining branch network for handling large client base and transactions is
relatively high. Banks are therefore encouraging clients to use cheaper distribution
channels like ATM, net banking and mobile banking etc.
 Cost of serving particularly to zero balance accounts is increasing
 Higher delinquencies in personal unsecured loans and credit card receivables.

Challenges

 To develop multi channels for delivery.

 Repositioning of branches and remote channels with the help of technology.
 How to increase customer satisfaction.

Prepared by:
Arvind Paranjape, M.Sc. CAIIB
paranjape.arvind@yahoo.com
9425067026