IIBF JAIIB DBF

Paper IV Retail Banking & Wealth Management

Module A : Unit 1,2 and 3

Unit 1 : Retail Banking : Introduction

Unit 2 : Retail Banking : Role within the Bank Operations
Unit 3 : Applicability of Retail Banking Concepts and Distinction
between Retail and Corporate /Wholesale Banking
 Unit 1
Retail Banking : Introduction
 Retail Banking – Definition /
Characteristics
• Retail Banking- provision of banking products and services to
individual customers – moving from product centric approach to
customer centric – consumer banking/personal banking- providing
services to small account holders
• Services offered include – savings/current accounts/ mortgages/
personal loans / debit or credit cards
• Services are offered through internet platforms and smartphone
apps.
• Characteristics- targeted at individual customers with well diversified
portfolios/ offers all products such as –liability/asset products and
service products / services are offered through physical and virtual
 Retail Banking
Advantages/ Constraints/ Prerequisites for success
• Advantages – Client base is large and therefore risk is spread / scope for cross selling to
customers/ Products are attractive and wide interest spread
• Constraints : Difficulty in managing large volume of customers/ IT complications/ Cost of
maintaining branch networks and handling large volume of low-value transactions /
Higher delinquencies in unsecured loans and credit card receivables/ high competition
• Prerequisites for success :
Presence of an efficient delivery mechanism by leveraging technology / using alternate
channels for delivery
Direct banking through – ATMs/ Call and email centres/ mobile banking devices / web
based models
Providing appropriate products and services to customers
Proper and appropriate pricing for products
Scoring models for assessing the credit worthiness
Offering customer protection environment
 Retail Banking – Challenges
• Consumer protection and Pricing : Various charges such as – charges for non-
maintenance of minimum balance, charges for cheque return being made makes the
customers dissatisfied
• Inadequacy of MIS: Inadequate availability of accurate / consistent and granular
information make the lenders difficult to assess the credit / pricing risk
• Understanding of KYC/AML issues
• Managing Risk : Large number of clients- varied delivery channels/ inadequacy of
technology systems/ lack of customer literacy/ open up new and unknown risk areas
which may be difficult to manage
• Effects of disruptive new technologies – scope for fraudulent transactions through
impersonations/ identity thefts / sim-swap / device control apps.
• Continuing growth: Rapid advances in information technology/evolving macro-
economic environment / financial market reforms/ several micro level demand and
supply side factors/ deployment of scoring models
 Reasons for the growth of Retail Banking segment
• Rise of the young Indian Professionals
• Growth as economic superpower
• Increasing purchasing power of middle class people
• Financial market reforms
• Engine of economic growth
• Mass market banking
• Volume driven business
• Automation of banking process
• Easy and affordable access
• Financial Liquidity
• Economic prosperity
• Changing consumer demographics
• Technological innovations
• Long repayment periods offered
 Scope and future of Retail Banking in
India
• Scope of Retail Banking : Increase in economic activity/ increase in purchasing power
• Future of Retail Banking :
 Use of Application Programming Interface (API)
 End –to –end approach in banking called Banking as a Service (BaaS)
 Growth in Digital Banking
 Adaptation of Block Chain by Retail Bankers which is a powerful and secure technology for
payment (A block chain is a decentralized, distributed and public digital ledger that is used
to record transactions across many computers so that the record cannot be altered
retroactively without the alteration of all subsequent blocks and the consensus of the
network.)
 Artificial Intelligence and Data Science in Banking for Fraud preventions-Anomaly detection-
Customer Analytics-Risk Management-Algorithmic Trading by reducing human errors
 Cyber Security
 Payment Innovations
 Rise of Big Tech in Banking Industry (Big Tech is a term that refers to the most dominant and
largest technology companies in their respective sectors)
 Unit 2
Retail Banking : Role within the Bank Operations
 Different approaches in Retail Banking
• Strategic Business Unit approach: This approach aims at dividing the
business on lines of Strategic Business Unit (SBU)/ SBUs are autonomous
divisions / profit centres / Business units of a large corporation/ business
model is in alignment with private sector and foreign banks / This SBU is set
up to have a clear business focus and to exercise control
• Departmental approach: It is a specialized functional approach within an
Organisation/ functions of the Organisation is segregated into departments
such as- accounting/marketing/finance/planning etc.,/This approach is
adopted mainly in Public sector Banks/This business model is built as a part
of the overall business plan and not as a separate departmental activity
• The Integrated approach: This is usually adopted by smaller businesses/ it
combines all socioeconomic aspects and adopts a cohesive approach/ unified
business model adopted in Banks to reduce risk and increase profitability
 Business Models
• Old Generation Banks – Business model is based on the overall
business plan and in line with their size and scale
• New Generation Banks – Business model is based on adopting latest
technology/ innovative strategies / focusing on customer specific
needs/ with clear focus on business profits as objectives and putting
suitable plan of action to achieve the desired objectives
• Foreign banks - Business model is based purely on business
objectives / it is designed based on customers, business and profit
targets
 Unit 3
Applicability of Retail Banking Concepts and
Distinction between Retail and Corporate
/Wholesale Banking
 Retail Banking Concepts
• Three basic characteristics of Retail Banking:
Multiple products- Deposits/ Loans/Cards/Insurance/Investments/
Securities
Multiple channels of distribution- Call centre /Branch/Internet/Mobile
banking/ Kiosks/
Multiple customer groups- Consumer/Small business/ Corporate
• Applicability of concepts :
• Implementation Models – End-to-end outsourcing/ Predominant
outsourcing/ Partial outsourcing/ in-house sourcing- depends upon
product range-process requirements-technology preparedness-delivery
capabilities including human resources and regulatory prescriptions
 Applicability of Retail Banking Concepts
• Business Process Structure : Four broad classification depending upon the level of
customer information available in the data base side for offering multiple
products/ services across assets, liabilities and other services
Horizontally Organised Model- different process model for different products-
most of the PSBs/ Old generation Private Sector Banks use this model
Vertically Organised Model- functionality across different products with customer
data base orientation having centralized customer data base- Mostly New
generation Private Sector banks use this model
Predominantly Horizontally Organised Model – mostly product oriented with
common customer information for some products
Predominantly Vertically Organised Model-common information for most of the
products- useful for cross selling /up selling – Foreign Banks use this model mostly
 Applicability of Retail Banking Concepts

• Business approach (Domain specific):

Segmented approach – Branches are categorized as – Resource
Centre/ Profit Centres/ Priority Centres/ General Centres based on
business potential and targeted/focused towards the business
potential prevailing
Geography based approach- retail products are designed to suit the
geographies concerned
Classification based approach- Rural / Semi-urban / Urban /
Metropolitan branches
 Applicability of Retail Banking Concepts
• Product Models :
Asset side- Housing loans / Consumer durable Loans / Vehicle Loans/
Credit Cards/ Mortgage Loans/ Personal Loans
Liability side- Savings accounts/ Current accounts/ Term deposit
accounts- add on services through group life insurance policies / built-
in ATM debit cards/ Credit cards / Multi-city cheques
Other Product services – Credit cards/ Debit cards/ ATM Cards/ Gift
cards/ Mobile banking/ Internet banking/Depository services/ Broking
services/ Insurance / mutual funds/ sale of gold coins/ Bill payment
services
 Applicability of Retail Banking Concepts
• Product development : Mostly done by in-house resources incorporating market
dynamics and Corporate expectations / products are developed based on customer
need by in house study and analysis for potential
• Process Models : Mostly done through in-house sources by PSBs- Centralised Retail
asset Processing Centres/ Private Sector Banks –mainly standalone model / New
Generation Private Sector Banks –blended model / Foreign Banks –mostly
outsourcing/ Process time is the key factor- it is business sensitive and customer
sensitive
• Pricing of Products : factors for pricing –Market dynamics/ risk perception/ return
expectations/ tenor-duration/ resources position/asset-liability management position/
Customer profile/ Standalone pricing for different products- Price preferences-Price
rebates-price concessions
• Technology Models : Technology is the backbone for retail banking/ mostly in-house
technology / Partly in-house and partly out-sourced by some banks
• Sustainable Retail Banking: depends on clear customer centric and strong value chain
- product specialization/ process specialisation- meeting B2B ( Business to Business)
 Distinction between Retail and
Corporate / Wholesale Banking
Retail Banking Corporate / Wholesale Banking
 Deals with individual client segment  Deals with Corporate client segment

 Mass marketing model  Small segment marketing model

 B2C ( Business to Customer ) approach  B2B (Business to Business) approach

 Loan ticket size is low  Loan ticket size is high

 Risk is widespread and hence relatively low  Risk is concentrated and hence high

 Returns are more as profit spread is more  As Corporates use to bargain for interest rate, the
profit margin is generally low

 Loan monitoring is laborious / NPA impact is less  Loan monitoring is less laborious / NPA impact is
more
 Cost of retail deposits is less  Cost of Corporate deposits is high
 Summing up
• Subjects discussed :
• Unit 1: Retail Banking – Definition / Characteristics/ Advantages/
Constraints/ Prerequisites for success/Challenges / Reasons for the
growth /Scope and future of Retail Banking in India
• Unit 2 : Retail Banking : Role within the Bank Operations/ Different
approaches in Retail Banking/Business Models
• Unit 3: Retail Banking Concepts/ Applicability of Retail Banking
Concepts/ Distinction between Retail and Corporate / Wholesale
Banking

Thanks