RETAIL BANKING IN INDIA

INTRODUCTION

         To keep in pace with the ever changing customer needs and preferences, banking sector is undergoing a rapid revolution in the recent past. New financial products are being innovated day by day. The bankers being aware of the fact that the plain vanilla products cannot satisfy the demanding customers. Several creamy layers have developed .One such nourishing layer is the introduction of retail banking services. Retail banking segment is continuously undergoing innovations, product re-engineering, adjustments and alignments.

RETAIL BANKING – ESSENCE AND LATITUDE

       Retail banking is made available by commercial banks, as well as smaller community banks. 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 forth.

Retail banking is that part of bank’s operations providing services at its branches for small account holders. In short, retail banking is the banking services for individual customers.

       The term ‘Retail Banking’ encompasses various financial products viz., different types of deposit accounts, housing, consumer, auto and other types of loan accounts, demat facilities, insurance, mutual funds, Credit and Debit Cards, ATM and other technology-based services, stock-broking, payment of utility bills, reservation of railway tickets, etc., catering to diverse customer groups, offering a host of financial services, mostly to individuals. It takes care of the diverse banking needs of an individual.

   Retail banking can be outlined as, the dealing of commercial banks with individual customers, both on liabilities and assets sides of the balance sheet with fixed, current / savings accounts on the liabilities side; and mortgages, loans (e.g., personal, housing, auto, and educational) on the assets side.

UNIVERSAL GAINS OF A RETAIL FRANCHISE TO THE BANKS

       Retail banking clients are generally loyal and tend not to change from one bank to another very often.

 Interest spreads are wide, since customers are too fragmented to bargain effectively; Credit risk tends to be well diversified, as loan amounts are relatively small. There is less volatility in demand and credit cycle than from large corporate organizations. Large number of clients can facilitate marketing, mass selling and the ability to categorise/select clients using scoring systems/ data mining. Relative safety implied by the mortgage loans.

RETAIL BANKING IN INDIA

        A remarkable shift in the Indian economy from the manufacturing sector to a budding service sector (Banking) can be witnessed in recent years.  The banking scenario in India is at the crossroads and is continuously evolving, but the progress has been remarkable over the past decade. With the retail banking sector expected to grow at a rate of 30%, players are focusing more and more on the retail and are walking up to the potential of this sector of banking. In future the retail banking industry in India is likely to reach a value of $300 billion by 2010.

INDIA’S RETAIL-BANKING CUSTOMERS

Indian customers are hidden behind an impenetrable wall of loyalty to local banks. They have a general aversion to credit. The most profitable and fastest-growing segments—the young and the relatively affluent—are quite willing to give foreign entrants a chance.

          By delivering quality service and a sophisticated portfolio of financial products the Multinational banks may create an opening in this wall of loyalty and capture a share of India’s fast-growing retail-banking market.

DOOMS OF INDIAN RETAIL BANKING INDUSTRY

1. Rural/Agricultural credit: Organized Banking has failed to focus on the provision of Rural Credit or Agricultural Credit as it is very costly to finance micro units in remote areas. Technology can change all this by reducing the costs of low unit financing.

2. Technology crisis:  Even though technology lends a supportive hand to the overall development of the banking sector through internet banking, phone banking, ATMs, Credit and Debit cards etc, there is increasing menace of hacking, phasing and farming through which scanners are creating havoc indulging in cyber crimes on a large scale, which is difficult to be checked. 

3. Lack of apt product strategy: Indian banks have shown little or no interest in innovative tailor-made products, which is the need of the hour.  The products of the West will not work out in our diversified economy anymore.

4. Absence of positive credit bureau: One of the biggest impediments in foreign players leveraging the Indian markets is the absence of positive credit bureau. In the west the risk profile can be easily mapped to things and this information can be publicly traded.

5. Credit card issues: Various undesirable practices are exercised by credit card issuing institutions and their agents, which troubles the customers. Some of them are

Unsolicited calls to members of the public by card issuing banks/ direct selling agents pressurising them to apply for credit card. Charging very high interest rates /service charges. Lack of transparency in disclosing fees/charges/penalties. Non-disclosure of detailed billing procedure.

6. Deficiency in legal framework: A swift legal procedure against consumers creating bad debt is virtually non existent.

7. Unpopularity of credit culture: The spend-now-pay-later “credit culture” in India is just not picking up among rural population.

8. Rural exposure: lack of proper infrastructure facilities in the rural area hinders the interest of private banks to access rural areas.

9. Absence of prompt loan repayment culture: Prompt loan repayment culture has not yet set in many sectors of society.

10. Thrust on the fluffiest segment: All banks are targeting the fluffiest segment i.e. the upwardly mobile urban salaried class. Although the players are spreading their operations into segments like self-employed and the semi-urban rich, major thrust is given only to this segment. Over-dependence on this segment is bound to bring in inflexibility in the business.

SUGGESTIONS TO EXPAND THE INDIAN RETAIL MARKET

   To enlist the “unbanked” segment of the society by the service providers is a method to expand the retail market. It is this underserved segment that is now becoming the focus for some of the large financial institutions. Rural Credit or Agricultural Credit is a segment to be explored.  It can be considered as an unbanked segment. It has always been looked upon as a    charitable activity rather than a profitable activity. Now, the time has come for the Customer to demand a product that is not currently available in the Banker’s kitty and the Bank has to literally create customer-specific products. Here comes the Banker in the role of a Financial Engineer. Lowering the minimum deposit requirement for opening new accounts as announced by RBI. To achieve greater financial inclusion, all banks need to make available a basic banking ‘no frills’ account either with ‘nil’ or very low minimum balances as well as charges that would make such accounts accessible to vast sections of population. Banks should allow the earlier facilities to sink into the culture of the customers before any new facilities are launched. Also, the earlier facilities should be embedded with services so that customers not only appreciate new technology, but are also in a position to operate. With the effective usage of the cell phone technology, coupled with web developments service providers can innovate and offer feature-rich, user-friendly mobile banking applications.

CONCLUSION

         With much scope in the avenues for operations, the true challenge for the banks in the current scenario is to stand out in the midst of hard-hitting regulations of the apex body. Globalization, consolidation and want of expertise are drastically redefining the banking taxonomy. Thus the participants, be it a Indian financial player or a foreign entrant in the retail sector have to adopt  a different approach in everything viz., products, services to hold the Indian market share, as a popular saying goes as variety is the spice of life.

REFERENCES:

1. Investopedia.com

2. www.gbc.hu/english/bszotare4.htm

3. Ms Shyamala Gopinath, Deputy Governor of the Reserve Bank of India

        at a seminar at  MDI, Gurgaon on December 3, 2005.

   4. Sunny  Banerjea, Cormac Petit dit de la Roche  and John  Raposo, “Retail

    Banking in India: Considerations   for entering high growth

    Product areas”, http://www ibm.com.

5. The report ‘Indian Retail Banking Sector Analysis (2006)

 6. Dr.K.S.Jaiswal &Neetu Singh, “Retail Banking: Indian Scenario”, Indian Journal of                                                            Marketing, January 2007, p-34