Project Report on Retail Banking in India
MEANING OF RETAIL
sale of goods in small quantities, it is concerned with buying of goods in
small quantities from the wholesaler and selling them in small quantities to
the ultimate consumers as per their requirements. The person engaged in this
trade is called the “retailer”. He acts as a link between the wholesaler and
the customers. In retail trade goods are sold to the ultimate consumers for
personal use and for the use of the business in small quantities only. The
retailer does not specialize in a particular line or a particular product.
Rather he maintains a large variety of goods. Generally, sales are limited
to a local and on a small scale.
MEANING OF BANKING
Banking has come to occupy a
pivotal position in a nation’s economy. According to the modern concept,
banking is a business which not only deals with borrowings, lending and
remittance of funds, but also an important instrument for fostering economic
The Banking Regulation Act 1949, defines the term banking as “the accepting
for the purpose of lending or investment of deposits of money from the
public or otherwise and withdraw able by cheque, draft, order or otherwise.”
Thus, the essentials of banking are:
There should be acceptance of deposited.
Deposits should be from the public.
Deposits should be repayable on demand or expiry of a term or after a
The purpose of deposits should be lending or investment.
“Bank” is an institution which
deals in money and credit. It buys money from depositors and sell to the
borrowers. It is body of persons whether incorporated or
not who carry on the business of banking. A bank may defined as a
corporation or person which collects deposits from the public, repayable on
demand and which supplies and facilitates all kinds of exchanges.
Retail banking means mobilizing deposit form individuals and providing loan
facilities to them in the form of home loans, auto loans, credit cards, etc,
is becoming popular. This used to be considered by the banks as a tough
proposition because of the volume of operations involved. But during the
last couple of years or so, banks seem to have realized that the only
sustainable way to increase deposits is to look at small and middle class
consumer retail deposit and not the price sensitive corporate depositors.
With financial sector reforms gathering momentum, the banking system is
facing increasing companies from non-banks and the capital market. More and
more companies are tapping the capital market directly for finance. This is
one of the main reasons for the banks to focus vigourously on the much
ignored retail deposits. Another reason is the current liquidity the margins
are 1 to 2 percent above the prime rate; in retail market they are 3to4
It is reported that Indian retail market has the potential to be second only
to the USA. National Readership Survey 5puts Indian households with monthly
of over Rs. 5000 at 4.5 million. According to the survey, the category of
households with annual income of Rs. 2 lakhs and above is growing at the
rate of 30 per cent per annum. No winder, banks with vision and insight are
trying to woo this market through a series of innovative additions to their
products, services, technology and marketing methods. Fixed and unfixed
Deposits, (cluster deposits which can be broken into smaller units to help
meet depositors’ overdraft without breaking up entirely), centralised
database for ‘any branch banking’ (whereby the customer can access his
account in any of the branches irrespective of where the account is
maintained), room services (whereby the customers are visited at their
residences offices to enable them to open their accounts), automatic teller
machines, tele banking network, extended banking time, courier pickup for
cheques and documents, etc are some of the privileges extended to the
customers by the banks in are eagerness to cultivate the retail market. In
short, in the bold new world of retail banking the customer is crowned as
RETAIL BANKING-A COOL OASIS
bankers struggling through the shifting sands of corporate credit, retail
banking looks like a cool oasis. Corporate Credit, retail
banking looks like a cool oasis. Corporate customers rely less on commercial
banks every day as other fund raising avenues present themselves. As this
disintermediation takes place and competition shrinks margins, retail
banking has gained an irresistible allure for banks because of its
apparently higher margins and potential fir growth.
their large branch networks, banks have secured sizeable deposits-23 percent
of GDP. On the assets side, however, retail advances account for a mere
seven per cent of total lending. The penetration of products like car loans
or credit cards is very low. With very few focused multi-line banks, non
banks are often significant players in retail lending, as HDFC is in house
loans. Yet, many non-banks lack the minimum size to make the necessary
investments and address the challenges of retail banking.
A large number of banks and non-banks have launched or relaunched retail
products and are attempting to grow their share of the personal financial
services market. Even the term lending institutions have decided that they
need to go retail to raise funds. Many organization like ICICI are betting
that a large part of their future growth will come from retail customers.
Retail banking is much more than as opportunity to addressing dwindling
margins. It is an imperative to preserve profits and market positions.
Customers now have many more personal financial options, a growing credit
culture, a willingness to switch between financial services providers, and a
demand for lower interest rates. As they witness these trends, banks realize
that they cannot remain passive. The new private sector banks are making
inroads in the markets they serve, while competition from non-banks is
growing. In respect, older institutions need to revamp their distribution
capabilities, customer management capabilities, operating culture,
compensation system and operations processing.
WEB IMPACT ON BANKS RETAIL REVENUES:
For all those gurus who’ve been predicting that the net will end the
business of said banks, here’s a shocker.
Even in the SILICON valley-driven USA, Internet is not expected to have a
major impact in banks’ retail revenues.
The reason: the absence of a convenient alternative at present to using
According to a report by moody’s Investors service, at least in the
intermediate term, the internet is not expected to impact large US banks’
core profitability or competitive position.
This is despite the despite business being the simple-most important profit
source for most American retail banks.
The core retail banking business of deposit taking will be sheltered form
web-based competitors and margin shrinkage on this business.
Need for convenient access to physical locations coupled with the advantages
of multiple delivery channels like branch, ATM, telephone and computers,
consumers need to leave money in transactional accounts; customer inertia
and the relatively limited cost savings available to consumers from net
banking, are cited as the main factors supporting its view.
The moody’s report, however, cautions that other consumer business such as
residential mortgages, auto loans and credit cards may be more vulnerable to
However, most US banks have thin margins or low market shares in these
businesses mitigating this impact, says the report made available to the
The rating agency is skeptical of banks ability to generate substantial
incremental revenues from cross-selling financial products to existing
customers via the net.
Banks have to maintain a comprehensive and effective web based capability to
maintain their competitive position, cautions moody’s.
The need for customers to take frequent physical receipts, make convenient
physical receipts, make convenient physical delivery of cheques using ATMs,
inhibition towards paying ATM charges for using another bank’s ATM network
by the consumer and time consuming, difficult and disruptive nature of
switching accounts also contribute to the ‘stickiness’ of retail deposits.
With low bank fees for individual transactions and
relatively small bank deposits, the opportunity cost in terms of interest
income for customers is not material where the deposits are not large.
Banks offer convenience and choice and the web-based channels of banks have
reported rapid growth in the number of customers by retaining current
According to moody’s a survey indicated that 35 per cent of Internet banking
customer disconnect because they don’t find it convenient.
Customers prefer to use a variety of channels to conduct their banking which
is why it remains to be seen whether a business model based solely on
internet banking will generate adequate returns and sustain long term
competition against conventional banking systems.
The advent of the internet could, however have a powerful effect on banks
acquisition strategies by creating uncertainty about the value of purchasing
large branch networks, the study says.
For some banks, however, the Internet could facilitate an increase in fee
income by generating fees from Internet service arrangements like bill
presentment and clearing.
However, if smart cards or stored value cards or other electronic cash
substitute gain popularity, alternatives could become more attractive to
On the other hand, banks might be able to reduce costs of servicing the
retail customers by moving them over into a paperless environment.
Banks could introduce various incentives to the persuade customers to forego
paper statements for the basic savings account and credit card, says
THE RULES HAVE CHANGED
As the 1900s come to their close and we look eagerly towards the new
millennium, a revolution that will change the rules and every thing we have
understood of the retail market, financial products and other services.
Economic boundaries are disappearing, and the global village is a reality –
where the retail customer will have a choice in a manner we may have never
Providers of retail products and services will battle for market and market
share. It is battle that will be fought at different levels and the real
winner will be the customer, who will benefit from increased competition
through better products, distribution, technology, pricing, and post
The quality and range of products will expand exponentially –convenience of
usage, customization to individual needs, and a host of other user-friendly
add-ons will create a whole new frontier of applications. Companies will
have to innovate and continuously upgrade their products. Anticipation,
listening and responding to your customers needs, will be the buzz-words of
Distribution will be the next key benchmark of success. The customer will
demand (and therefore the provider will have to respond) for greater
convenience of access to the product or service and all this at the best
cost of delivery. Re-defined methods, the use of technology – specifically
the Internet-and realigned strategies will drive this important criterion of
success. Constraints of location, timing, accessibility etc will all be
history. No matter how brilliant the product you have, your distribution
flexibility will be the customers’ selection parameter.
Again, quality of the product and responsive strategies for distribution
will also have a link to price. Efficiencies on this front will be the next
item on your report card. Through innovation in production and delivery and
cost reduction strategies, the price to the customer will have to be at
maximum benefit. The intelligent customer will be ruthless with any price
distortions, which as a consequence of inefficiencies or market exploitation
– his cost benefit analysis will not allow for these variables.
Would you prefer a product, which (hopefully) is never expected to need post
sale service or one which offers the best after sale service if required ?
Clearly, the relationship with the customer starts with the transaction,
does not and with it. Organisation we have to give equal importance to cost
sale needs of customers as the pitch made prior to the sale.
Technology will perhaps be the single largest driver of this detail thrust.
The entire strategy will evolve around the absolute ability of the
organisation to be at the cutting as edge of technology. We will have to
invest in technology far ahead of immediate needs and be able to anticipate
the future direction at a pace we are perhaps not used to. Being able to
keep abreast, but more importantly, being able to recognize the immense
potential that technology provides at all stages in the retail chain will be
of paramount importance. To leverage, exploit and link technology to your
business will be the greatest challenge of the new millennium and I am
convinced that the retail war will be won and lost on this one aspect,
purely because technology increasingly we influence on the entire chain in a
retail business cycle.
Above all these, I would list attitude towards customer as the single point
basis on determining the winner of the race. Attitude to the customer will
influence all the areas we have discussed and will ensure excellence in each
one of them. It is an intangible, it is not prescribed in a manual nor is it
a quantifiable item in the balance sheet, but an organizations attitude to
the customer will be the basis determinant of success for any retail
There are interesting and challenging times ahead – the future promises a
lot but will also make extraordinary demands. The customer will be the most
important aspect of your business and ultimately the winner of the retail
RISK INVOLVED IN RETAIL BUSINESS
There are of course, considerable risks in retail banking. They are :
Databases on credit history are large.
Collection mechanisms are poor.
Investments in technology are large.
Operating efficiency level needs to be very high.
Unlike corporate banking, retail banking involves a large number of
Demands on processing capabilities are higher.
Retail segment is not something you can get into overnight.
(h) The right systems and the right – architecture
needs to be put in place first.
Find the next chapter.................Project Report on Retail Banking Services