type of banks
Retail Banking: With a jump in the Indian economy from a manufacturing sector,
that never really took off, to a nascent service sector, Banking as a whole is
undergoing a change. A larger option for the consumer is getting translated into a
larger demand for financial products and customization of services is fast becoming
the norm than a competitive advantage. With the Retail banking sector expected to
grow at a rate of 30% players are focusing more and more on the Retail and are
waking up to the potential of this sector of banking. At the same time, the banking
sector as a whole is seeing structural changes in regulatory frameworks and
securitization and stringent NPA norms expected to be in place by 2004 means the
faster one adapts to these changing dynamics, the faster is one expected to gain the
advantage. In this article, we try to study the reasons behind the euphemism regarding
the Retail-focus of the Indian banks and try to assess how much of it is worth the
attention that it is attracting. Retail banking is typical mass-market banking in
which individual customers use local branches of larger commercial banks. Retail
banking is banking that provides direct services to consumers. Many people with
bank accounts have their accounts at a retail bank and banks that offer retail banking
services may also have merchant and commercial branches that work with businesses.
For people with high net worth and special banking needs, private retail banking
services may be pursued. These offer a high level of service with a number of options
that are not available to average members of the public. Services offered include
savings and checking accounts, mortgages, personal loans, debit/credit cards and
certificates of deposit (CDs).The most basic retail banking services include savings
and checking accounts. Most retail banks, however, try to make themselves into a one
stop shop for banking customers. This increases customer retention and loyalty,
ensuring that the bank has a steady supply of customers. Expanding banking services
also provides more opportunities for the bank to turn a profit.
Characteristics of Retail Banking
1. Large Number of Small Customers: Retail banking is characterized by the existence
of a large number of small customers, who consumes personal banking and small
business services. The essential prerequisite of retail banking is its orientation
towards the consumer whether it is in size, price, delivery channels or product profile.
2. Multiple Products: A basket of products including flexi deposits, cards, insurance,
medical expenses, auto loans are offered to the consumers. Besides these, there are a
number of value added services like de-mat accounts, issue of free ATM cards,
portfolio management, payment of water, electricity and telephone bills.
3. Multiple Delivery Channels: To increase penetration and access banks are not
limiting themselves to branches but are making extensive use of internet, call centres,
kiosks, etc.
Origin of Retail Banking: Origin of retail banking in India can be traced to a number of
developments.
1. Financial Sector Reforms and Liberalization: Before opening up of the economy during
the decade of the nineties, corporate banking had been the preferred goal for bankers.
However, after the reforms it no longer remained so. Corporates could now go in for
external commercial borrowings from any internationally recognized bank, export credit
agency, international capital market or supplier of equipment. They could also opt for
7
mergers and acquisitions. So banks had to look for other avenues than the corporate
sector for growth and expansion.
2. Spreading of Risk: Another consequence of liberalization was industrial recession,
economic downturn, industrial sickness which resulted in failure of many big corporates.
Mounting non-performing assets made banks more cautious about lending to business
houses, and diverting their funds into the retail segment, as retail banking has the
advantage of minimizing the risk and maximizing the returns. The returns from retail
segment are three to four percent as compared to one to two percent from the corporate
segment.
3. Growth in Banking Technology and Automation of Banking Processes: Technology has
opened up new vistas for the banking industry and redefined its nature, scope and extent.
State-of-the-art electronic technology has helped to increase penetration through ATMs
without opening more branches. Internet has made possible banking to be done from
home. Telebanking and phone banking are some other new technologies which have
revolutionized banking.
4. Changing profile of Customers: An ever-increasing middle class, with more disposable
income, higher education and a desire for higher standard of living have fuelled the
demand for retail banking services. More and more people seemed to have embraced the
credit culture, and are demanding consumer goods, holidays, education and a host of
other value added banking services.
that never really took off, to a nascent service sector, Banking as a whole is
undergoing a change. A larger option for the consumer is getting translated into a
larger demand for financial products and customization of services is fast becoming
the norm than a competitive advantage. With the Retail banking sector expected to
grow at a rate of 30% players are focusing more and more on the Retail and are
waking up to the potential of this sector of banking. At the same time, the banking
sector as a whole is seeing structural changes in regulatory frameworks and
securitization and stringent NPA norms expected to be in place by 2004 means the
faster one adapts to these changing dynamics, the faster is one expected to gain the
advantage. In this article, we try to study the reasons behind the euphemism regarding
the Retail-focus of the Indian banks and try to assess how much of it is worth the
attention that it is attracting. Retail banking is typical mass-market banking in
which individual customers use local branches of larger commercial banks. Retail
banking is banking that provides direct services to consumers. Many people with
bank accounts have their accounts at a retail bank and banks that offer retail banking
services may also have merchant and commercial branches that work with businesses.
For people with high net worth and special banking needs, private retail banking
services may be pursued. These offer a high level of service with a number of options
that are not available to average members of the public. Services offered include
savings and checking accounts, mortgages, personal loans, debit/credit cards and
certificates of deposit (CDs).The most basic retail banking services include savings
and checking accounts. Most retail banks, however, try to make themselves into a one
stop shop for banking customers. This increases customer retention and loyalty,
ensuring that the bank has a steady supply of customers. Expanding banking services
also provides more opportunities for the bank to turn a profit.
Characteristics of Retail Banking
1. Large Number of Small Customers: Retail banking is characterized by the existence
of a large number of small customers, who consumes personal banking and small
business services. The essential prerequisite of retail banking is its orientation
towards the consumer whether it is in size, price, delivery channels or product profile.
2. Multiple Products: A basket of products including flexi deposits, cards, insurance,
medical expenses, auto loans are offered to the consumers. Besides these, there are a
number of value added services like de-mat accounts, issue of free ATM cards,
portfolio management, payment of water, electricity and telephone bills.
3. Multiple Delivery Channels: To increase penetration and access banks are not
limiting themselves to branches but are making extensive use of internet, call centres,
kiosks, etc.
Origin of Retail Banking: Origin of retail banking in India can be traced to a number of
developments.
1. Financial Sector Reforms and Liberalization: Before opening up of the economy during
the decade of the nineties, corporate banking had been the preferred goal for bankers.
However, after the reforms it no longer remained so. Corporates could now go in for
external commercial borrowings from any internationally recognized bank, export credit
agency, international capital market or supplier of equipment. They could also opt for
7
mergers and acquisitions. So banks had to look for other avenues than the corporate
sector for growth and expansion.
2. Spreading of Risk: Another consequence of liberalization was industrial recession,
economic downturn, industrial sickness which resulted in failure of many big corporates.
Mounting non-performing assets made banks more cautious about lending to business
houses, and diverting their funds into the retail segment, as retail banking has the
advantage of minimizing the risk and maximizing the returns. The returns from retail
segment are three to four percent as compared to one to two percent from the corporate
segment.
3. Growth in Banking Technology and Automation of Banking Processes: Technology has
opened up new vistas for the banking industry and redefined its nature, scope and extent.
State-of-the-art electronic technology has helped to increase penetration through ATMs
without opening more branches. Internet has made possible banking to be done from
home. Telebanking and phone banking are some other new technologies which have
revolutionized banking.
4. Changing profile of Customers: An ever-increasing middle class, with more disposable
income, higher education and a desire for higher standard of living have fuelled the
demand for retail banking services. More and more people seemed to have embraced the
credit culture, and are demanding consumer goods, holidays, education and a host of
other value added banking services.
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