Retail Banking

Module-1
Introduction:
Definition and role within the bank operations, Concept of Retail Banking,
Corporate Banking and Wholesale banking, Treasury Management, banking
Sector reforms. Retail Products Overview: Customer requirements, Products
development process, Liability and Assets products, Approval process for retail
loans, Credit scoring.
Retail Strategies:
Tie-up with Institutions for Personal loans / Educational loans/ Authorised
Dealers for Vehicle loans, and with Builders / Developers for Home loans/ Credit
cards.

Supply Channels:
Branch, Extension counters, Internet Banking, M-Banking, ATMs, POS. Selling
Process in retail products-Direct Selling Agents, customer relationship
management process.
Regulations and compliance:
Technology for Retail Banking: Account opening Transaction information from
disbursement till final settlement of the loan amount. Analytics / Alerts. Loan
process and the relevant accounting including EMI Computation.
 A bank is a financial institution which performs the deposit and
lending function. A bank allows a person with excess money
(Saver) to deposit his money in the bank and earns an interest rate.
Similarly, the bank lends to a person who needs money
(investor/borrower) at an interest rate. Thus, the banks act as an
Definition of intermediary between the saver and the borrower.

Bank The bank usually takes a deposit from the public at a much lower
rate called deposit rate and lends the money to the borrower at a
higher interest rate called lending rate.
The difference between the deposit and lending rate is called ‘net
interest spread’, and the interest spread constitutes the banks
income.
  Individual/Firm/Company
 Dealing in money
 Acceptance of deposit
 Giving advance
Features of  Agency and Utility service
Bank  Profit and Service Orientation
 Connecting link
 Banking business
 Name identity
 The major types of bank accounts are:-
Savings Account: The facilities of savings account are only for savings
purposes, and a bank is liable to pay interest on the funds which are deposited
in the account. In India, the rate of interest for savings accounts ranges from
anywhere between 4% to 7%.
Current Account: The current account mainly contains liquid deposits that are
utilized for business purposes and not for savings or investments. No interest is
Types of Bank paid on such an amount, and there are no maturity periods as well due to the
continuous nature of the account.
Accounts Fixed Deposit Account: A particular sum of money is deposited in a fixed
deposit account for a given duration. If a deposit is taken out before the
maturity date, penalties will be imposed. Fixed deposits enjoy higher interest
rates. The interest rate is subjected to variation from bank to bank and also
periodic revisions.
Recurring Deposit Account: In the case of a recurring deposit account, a
deposit will have to be made by the account holder at regular intervals for a
specified period. The bank will have to pay the relevant rate of interest when
the amount is repaid after the fixed period.
 The types of banks in India can be divided into the following categories –
1.Central Bank : The central bank in this country is the Reserve Bank of
India (RBI) which acts as the apex body for regulating and monitoring all
other banks in the country. It also acts as a banker to the government in
certain situations. RBI is instrumental in laying down the repo rate, reverse
repo rate, cash reserve ratio, and statutory liquidity ratio.
2.Commercial Bank: Commercial banks perform the function for the public
in terms of accepting profits or extending loans. These loans act as
investments of the commercial banks intending to earn profit. Examples of
Types of commercial banks in India are the State Bank of India, United Bank of India,
ICICI Bank, HDFC Bank, etc.
Banking
3.Specialized Bank: Specialized banks are formed with the specific goals of
catering to a particular industry or sector. It may focus on export and import
or provide financial services to some specific industries. An example of a
specialized bank in India is Export-Import Bank.
4.Cooperative Bank: Cooperative banks in India are established under the
State Cooperative Societies Act, providing easy credit to the members of the
cooperative banks. One of the core functions of cooperative banks is to
provide financial resources to the rural population at large. Examples of
cooperative banks in India are – New India Cooperative Bank Limited,
Ahmedabad Mercantile Co-operative Bank Ltd.
 1.Public Sector Banks: Commercial banks in India where the government holds
majority stakes in the bank (that is more than 50%) fall under the category of public
sector banks. Examples: Bank of Baroda, Canara Bank, Punjab National Bank, etc.
2.Private Sector Banks: Commercial banks in India in which higher equity stakes are
held by individual shareholders as opposed to the government fall under the category of
private sector banks.
Apart from the shareholding structure, both public sector and private sector banks
offer the same set of services. The aspects on which those are different involve
charges that are imposed as well as the duration and description of the services that are
Types of provided. Examples of such financial institutions: HDFC Bank, Axis Bank, IndusInd
Bank, ICICI Bank, etc.
Commercial 3.Small Finance Banks: The objective of Small Finance Banks in India is to provide
Bank financial inclusion to less privileged sections of the economy, which ordinarily fails to
gain access to financial institutions. Small Finance banks cover small and micro
business units, marginal and small farmers, and various entities in the unorganized
sector. Example: Janalakshmi Small Finance Bank, Equitas Small Finance Bank,
Ujjivan Small Finance Bank, etc.
4.Regional Rural Banks: Regional Rural Banks in India have very specific mandates
such as granting loans to marginal and small farmers cooperative societies, agricultural
labourers along small entrepreneurs and artisans among others.
These banks were established according to the recommendations of the Narsimha
Committee on Rural Credit. Examples of Regional Rural Banks in India – Kerala
Gramin Bank, Pragathi Krishna Gramin Bank, etc.
Payments Banks: A newly introduced form of banking, the
payments bank have been conceptualized by the Reserve Bank of
India. People with an account in the payments bank can only deposit
an amount of up to Rs.1,00,000/- and cannot apply for loans or credit
cards under this account.
Options for online banking, mobile banking, the issue of ATM, and
debit card can be done through payments banks. Given below is a list
of the few payments bank in our country:
Airtel Payments Bank, India Post Payments Bank, Fino Payments
Bank, Jio Payments Bank, Paytm Payments Bank, NSDL Payments
Bank
 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 etc.
Retail banking, also known as consumer banking or personal banking, is
banking that provides financial services to individual consumers rather than
Definition of businesses. Retail banking is a way for individual consumers to manage
Retail Banking their money, have access to credit, and deposit their money in a secure
manner.
Many financial services companies aim to be the one-stop-shop retail
banking destination to their individual consumers. Consumers expect a
range of basic services from retail banks, such as checking accounts,
savings accounts, personal loans, lines of credit, mortgages, debit cards,
credit cards, and CDs.
 Retail banking provides financial services to individual
consumers rather than large institutions.
Services offered include savings and checking accounts,
mortgages, personal loans, debit or credit cards, and certificates
of deposit (CDs).
Retail banks Retail banks deals with individual customers, both
Important of on liabilities and assets sides of the balance sheet.
Retail Banking In the digital age, many fintech companies can provide all of the
same services as retail banks through internet platforms and
smartphone apps.
While retail banking services are provided to individuals in the
general public, corporate banking services are only provided to
small or large companies and corporate bodies.
It is typically mass-market banking.
 Retail Banking is a banking service that is geared primarily toward individual
consumers.
Retail banking is usually made available by commercial banks, as well as
smaller community banks.
Retail banking focuses strictly on consumer markets.
Retail banking is, generally mass-market driven but many retail banking
products may also extend to small and medium sized businesses.
Features of Retail
It is focused towards mass market segment covering a large population of
Banking individuals.
It offers different liability, asset and a plethora of service products to the
individual customers.
The delivery model of retail banking is both physical and virtual i.e. services
are extended through branches and also through technology driven electronic
off site delivery channels like ATMs, Internet Banking and Mobile Banking.
It may be extended to small and medium size businesses.
 Client base will be large and therefore risk is spread over large
customer base.
Customer Loyalty is strong and customers generally do not change
from one bank to another.
Advantages of There are attractive interest spreads, since customers are too
Retail Banking fragmented to bargain effectively;
Credit risk tends to be well diversified; as loan amounts are
relatively small.
There is less volatility in demand compared to large corporates.
Large numbers of clients can facilitate marketing, mass selling and
the ability to categorise/select clients using scoring systems/data
Retail Banking
in the country
characterized
 Constant innovation in products, service to match the
requirements of the customer segment.
Quality service and quickness in delivery.
Introduction of new delivery channels
Retail Banking Tapping of unexploited potential and increasing the
Strategies volume of business.
Detail market research
Cross selling of products
Tie-up arrangements
 Fixed and unfixed deposits, (cluster deposits which can
be broken into smaller units to help meet depositors
overdraft without breaking up entirely).
Centralized database for “any branch banking”.
Retail Banking Room service (whereby the customers are visited at
their residence offices to enable them to open their
Strategies accounts).
Tele banking network
Extended banking time
Courier pickup for cheques and documents.
Corporate
Banking and
Wholesale
banking
 Wholesale banking refers to banking services sold to large
clients, such as corporations, financial institutions, large
corporations and government agencies.
Corporate Wholesale banking services include currency conversion,
working capital financing, large trade transactions, mergers and
Banking and acquisitions, consultancy, and underwriting, among other
Wholesale services.
banking Wholesale banking is the opposite of retail banking, which
services individuals and small businesses.
Most standard banks offer wholesale banking services in
addition to traditional retail banking services.
Wholesale banking also refers to the borrowing and lending
between institutional banks.
Parameters of Wholesale Banking Corporate Banking
Comparison
Definition Discount Banking offers monetary types of Corporate banking offers monetary types of assistance to
assistance to organizations, government just global companies to help their undertakings and
bodies, and other financial foundations in improvement plans.
the discount market.

Features Low functional expense and the high pace of The administrations are given to just restricted clients and
profits just for the sake of the corporate organization and not to
the singular clients.

Services Cash the executives, halfway installment Depository the executives, credit items, advances for
items, present moment and long haul projects, business administrations, exchange money, and
advances, organization loaning, others.
consolidations and acquisitions, and others.

Example SBI is additionally a discount bank that has SBI Corporate Internet Banking is a division that gives
different divisions and channels for various corporate financial administrations to huge clients.
client sections like corporate, dealer, and
business.

Disadvantages High dangers to the clients and the need to It has a Dependency account, high speculation dangers,
store an enormous sum. and hazard of breaks.
 Treasury management refers to the governance of a
corporation's holdings, with the primary goal being to
manage its money while mitigating reputational,
operational and financial risks. Using this system
effectively equips an enterprise or business with the
necessary funds so it can fulfill all of its financial
obligations. Treasury management systems (TM) can vary
Treasury from company to company, but most of them determine the
design process for various policies, operations and
management procedures.
Treasury management is the act of managing a company’s
daily cash flows and larger-scale decisions when it comes to
finances. It can provide governance over a company's
liquidity, establish and maintain credit lines, optimize
investment returns, and strategize the best use of funds. As
a company raises, earns, or uses cash, treasurers or senior
financial officers ensure that there is working capital to
maintain operations and reduce financial risks.
 Improves time efficiency: TM systems can help to reduce the
time that a company spends on initiating and authorizing
payments. They can then use the time they save to handle
other pertinent business operations.

Benefits of Reduces potential risks: All companies have potential

financial risks, but TM systems help to identify those risks and
treasury then protect them. This means that an organization is less likely
to experience extreme financial or asset losses.
management
Monitors and streamlines money flow processes: As money
flows in and out of a company, keeping track of the money may
present challenges. With a TM system, a business can not only
better monitor its money flow, but it can also streamline
processes and create uniformity.
 Improves financial health: The better a company can
manage its money effectively, the more likely it can achieve
greater financial health. Good financial health indicates
financial stability or growth, which is an appealing quality to
corporate stakeholders and investors.
 Encourages financial growth: TM systems are effective tools
for helping a company generate more wealth and increase its
profit margins. Greater financial growth means that
organizations have more money to pay their employees and
make structural improvements.
 Improves problem-solving: Businesses sometimes
encounter financial problems that require quick solutions so
they can continue operating normally. TM systems help
corporations identify those issues and devise meaningful ways
to solve them in a timely manner.
Improves decision-making processes: As businesses change,
they're always going to make important financial decisions. With a
TM system helping the company better manage the money flow, it
can make more informed decisions to improve its financial
condition.
Helps with cost savings: TM systems provide businesses with
access to a wide variety of resources and tools. Being able to use
these resources helps to save organizations a lot of money since
it's unnecessary for them to rely on numerous outside sources to
fulfill one specific operation.
Provides financial forecasting: TM systems often provide
financial forecasting tools, allowing a business to make estimates
about its future financial outcomes. These estimates help the
company determine where to allocate funds, reduce cost
borrowing decisions and pay off more debts.
 In the context of economic liberalisation and growing
trend towards globalisation (external liberalisation),
various banking sector reforms have been introduced in
India to improve the operation efficiency and upgrade the
health and financial soundness of banks so that Indian
Reforms in banks can meet internationally accepted standards of
performance.
the Banking
Reforms in the banking sector were introduced on the
Sector basis of the recommendations of different committees:
(i) The first Narasimhan Committee (1991),
(ii) The Verma Committee (1996),
 1. Establishment of 4 tier hierarchy for banking structure with 3 to 4 large
banks (including SBI) at the top and at bottom rural banks engaged in
agricultural activities.
Banking Sector
2. The supervisory functions over banks and financial institutions can be
Reforms assigned to a quasi-autonomous body sponsored by RBI.
First Narasimhan 3. A phased reduction in statutory liquidity ratio.
Committee Report – 4. Phased achievement of 8% capital adequacy ratio.
1991
5. Abolition of branch licensing policy.
To promote the
6. Proper classification of assets and full disclosure of accounts of banks
healthy development and financial institutions.
of the financial sector,
7. Deregulation of Interest rates.
the Narasimhan
8. Delegation of direct lending activity of IDBI to a separate corporate
committee made body.
recommendations. 9. Competition among financial institutions on participating approach.
10. Setting up Asset Reconstruction fund to take over a portion of the loan
portfolio of banks whose recovery
 1.Strengthening Banks in India : The committee considered the
stronger banking system in the context of the Current Account
Convertibility ‘CAC’. It thought that Indian banks must be capable
of handling problems regarding domestic liquidity and exchange
rate management in the light of CAC. Thus, it recommended the
merger of strong banks which will have ‘multiplier effect’ on the
Narasimham industry.

Committee 2.Narrow Banking : Those days many public sector banks were
facing a problem of the Non-performing assets (NPAs). Some of
Report II – them had NPAs were as high as 20 percent of their assets. Thus for
successful rehabilitation of these banks, it recommended ‘Narrow
1998 Banking Concept’ where weak banks will be allowed to place their
funds only in the short term and risk-free assets.
3. Bank ownership : As it had earlier mentioned the freedom for
banks in its working and bank autonomy, it felt that the government
control over the banks in the form of management and ownership
and bank autonomy does not go hand in hand and thus it
recommended a review of functions of boards and enabled them to
adopt professional corporate strategy.
Nachiket Mor committee
 • The main aim of this committee was to give recommendations on improving
the regulatory compliance mechanism of the bank boards in India.
• This would help to understand the exact needs where important changes need
to be made and also how the current governance mechanism of the bank board
could be improved.
• This committee was also tasked to review the working mechanism of the bank
boards.
• This also included the areas such as risk evaluation and management, the
PJ Nayak growth prospects of the bank boards, and also if enough time was given to the
Committee strategic issues or not.
• To give recommendations to RBI on improving the regulatory rules related to
(Objectives) the ownership of banks and also the concentration of the bank boards.
• To analyse the compensation mechanism of the bank boards.
• To evaluate whether the boards had the necessary involvement of the
capabilities and the needed autonomy to govern effectively and also to look
into the inherent conflict of interest which could arise in the board
representation.
• Also to study and evaluate any other such issue which was directly or
indirectly related to the governance mechanisms of the bank boards in India.
 • The committee recommended the repeal of certain acts like the SBI
subsidiaries Act, the SBI Act and the Bank Nationalisation Act of
1970 and 1980.
• The reasons given for the same was that these acts necessitated the
Recommendatio government to own at least 50% share in the banks which directly
or indirectly hampered the governance mechanism of these banks.
ns of the PJ
• Also, after taking back the above-mentioned acts, the government
Nayak was advised to form a Bank Investment Company (BIC) in the
Committee form of a core investment company or a holding company.
• It was suggested that the government should transfer its shares in
the banks to this newly formed Bank Investment Company (BIC)..
• This would make this newly formed company the parent
organisation holding the shares of all the national banks.
• The Bank Board Bureau (BBB) would also give recommendations
on the appointment of the Bank’s Chairman and other Executive
Directors to the board of that bank.
 Customer needs are defined as the influential factors that trigger
them to buy your product or service. In order to identify customer
needs, it is important to understand the reasons behind their
decision making.
 Here are four simple steps to follow in order to meet customer
needs successfully.
Retail Products • Identify – Follow customer needs analysis via surveys,
interviews, focus groups, or social listening.
Overview
• Distribute – Once identified the needs, you can distribute it
across the right teams and departments.
• Create – Tailor product features, create detailed content that
speaks about customer needs.
• Collect – Obtain customer feedback regularly to learn how your
efforts meet their expectations.
 Theodre Levitt observes that “Products are almost always
combinations of the tangible and the intangible. To the
potential buyer, a product is a complex cluster of value
satisfactions… A customer attaches value to a product in
Products proportion to its perceived ability to help solve his problems
Development or meet his needs. All else is derivate”.
Process A bank product can be defined as “Anything that has the
capacity to provide the satisfaction, use and return desired
by the customer”.
Product Life Cycle
There are various stages in the life of the product. The product
after development goes through different stages in its sales
journey and in each stage, the impact on sales will be different.
• Introduction
• Growth
• Maturity
• Decline
Product Lines of a Banker
To be successful in retail banking, any Bank has to understand
different segments and develop appropriate products to meet these
segments. Though different products cater to different segments,
there are certain products like core products which cater to all
segments.
Products can be broadly classified into following:
• Deposit Products or Liability Products
• Asset Products or Retail Credit Products
• Other Products and Services.
 Term Deposit
Recurring Deposits
 Deposit can be built up on a
monthly basis.
 Term Deposit Interest Rate tor
Current Deposit the relevant period.
Deposit Product  Flexibility with respect of
 Saving Deposit  Basic Current amount payable every month
Fixed Deposits
 Current Deposit Account with  Deposits offered lor a fixed
 Term Deposit
Cheque Book period.
 Option to receive interest at
maturity/monthly/quarterly/half
yearly.
 Interest also reinvested ad
payable on maturity along with
principal
 • Generating new product ideas
• Idea screening
• Concept Testing
• Business analysis and Market analysis
Stages In New • Actual product development, test marketing and
Product commercialisation :
Development Product Management: According to Theodre Levitt, product,
over a period, evolved on the following lines :
• The Generic Product
• The Expected Product
• The Augmented Product
• The Potential Product
 Product policy is one of the main tasks in product management. The marketer
should decide what exactly the products to be offered to different segments are.
Again if the customer base is fairly very large, the product line should be based
on the homogenous needs of the heterogeneous customer base and customer
segments. Otherwise it will result in unwieldy product range. But of course the
marketer has to consider designing product tailored to specific customer base if
the segment is an important segment. For deciding that the marketer should
develop a product policy which involves the following concepts:
Product Policy Appraisal of the product line and individual products
Decisions on product differentiation
Product positioning
Brand decisions
Decisions on packaging
New Product Development
 WHAT DO BANKS BROADLY CHECK?
1. CIBIL Score and Report: It is one of the most important
factor that affects your loan approval. A good credit score and
report is a positive indicator of your credit health.
2. Employment Status: Apart from a good credit history, lenders
also check for your steady income and employment status.
CIBIL SCORE 3.Account Details: Credit Facility statuses and suit filed cases are
carefully examined by lenders.
4. Payment History: Lenders check for any default on payments
or amount overdue cases, which might project a negative
overview of your overall report.
5. EMI to Income Ratio: Banks also consider the proportion of
your existing loans when compared to your salary at the time of
loan application. Your chances of loan approval gets reduced if
your total EMI’s exceed your monthly salary by 50%.
Apart from your CIBIL Score, loan eligibility criteria
differs from lender to lender and across loan types.
However, some of the basic requirements in terms of
documentation are:
Identity Proof: Aadhar Card, Valid Passport, Driving
License, Voters ID or PAN Card
Address Proof: Aadhar Card, Valid Passport, Driving
License, Voters ID or Utility Bills
Proof of Employment: Salary slip, Official ID card or
letter from company
Income Proof: Latest 3 months Bank Statement, salary slip
for last 3 months
3 Passport size photographs
Credit scoring is a statistical analysis performed by lenders and
financial institutions to determine the creditworthiness of a
person or a small, owner-operated business. Credit scoring is
used by lenders to help decide whether to extend or deny credit.
A credit score can impact your ability to qualify for financial
products like mortgages, auto loans, credit cards, and private
loans.
• Credit scores determine a person’s ability to borrow money for
mortgages, auto loans, and personal loans.
• FICO and Vantage Score are both popular credit scoring
models.
• Lenders use credit scoring in risk-based pricing in which the
terms of a loan, including the interest rate, offered to borrowers
are based on the probability of repayment.
• Credit ratings apply to corporations and governments, while
credit scoring applies to individuals and small, owner-operated
businesses.
A FICO credit score is a number between 300 and 850,
with 850 being the highest score possible. Credit scores
for small businesses, such as the FICO Small Business
Scoring Service (SBSS), range from zero to 300.
A credit score is influenced by five categories:
• Payment history (35%)
• Amounts owed (30%)
• Length of credit history (15%)
• New credit (10%)
• Credit mix (10%)