Retail Banking


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RETAIL BANKING AN INTRODUCTION Retail banking is, however, quite broad in nature - it refers to the dealing of commercial banks with individual customers, both on liabilities and assets sides of the balance sheet. Fixed, current / savings accounts on the liabilities side; and mortgages, loans (e.g., personal, housing, auto, and educational) on the assets side, are the more important of the products offered by banks. Related ancillary services include credit cards, or depository services. Retail
   1 RETAIL BANKING AN INTRODUCTION R etail banking is, however, quite broad in nature - it refers to the dealing ofcommercial banks with individual customers, both on liabilities and assets sides of thebalance sheet. Fixed, current / savings accounts on the liabilities side; and mortgages,loans (e.g., personal, housing, auto, and educational) on the assets side, are the moreimportant of the products offered by banks. Related ancillary services include creditcards, or depository services. Retail banking refers to provision of banking services toindividuals and small business where the financial institutions are dealing with largenumber of low value transactions. This is in contrast to wholesale banking where thecustomers are large, often multinational companies, governments and governmententerprise, and the financial institution deal in small numbers of high valuetransactions.The concept is not new to banks but is now viewed as an important and attractivemarket segment that offers opportunities for growth and profits. Retail banking andretail lending are often used as synonyms but in fact, the later is just the part of retailbanking. In retail banking all the needs of individual customers are taken care of in awell-integrated manner. Today’s retail banking sector is characterized by three basic characteristics:    o   Multiple products (deposits, credit cards, insurance, investments and securities)  o   Multiple channels of distribution (call center, branch, internet)  o   Multiple customer groups (consumer, small business, and corporate).     2 INDUSTRY PROFILE   3 INTRODUCTION Financial Sector Reforms set in motion in 1991 have greatly changed the face of IndianBanking . The banking industry has moved gradually from a regulated environment to aderegulated market economy. The market developments kindled by liberalization andglobalization have resulted in changes in the intermediation role of banks. The pace of transformation has been more significant in recent times with technology acting as a catalyst.While the banking system has done fairly well in adjusting to the new market dynamics,greater challenges lie ahead. Financial sector would be opened up for greater internationalcompetition under WTO. Banks will have to gear up to meet stringent prudential capitaladequacy norms under Basel II. In addition to WTO and Basel II, the Free Trade Agreements(FTAs) such as with Singapore, may have an impact on the shape of the banking industry.Banks will also have to cope with challenges posed by technological innovations in banking. EMERGING ECONOMIC SCENE The financial system is the lifeline of the economy. The changes in the economy get mirroredin the performance of the financial system, more so of the banking industry. The Committee,therefore felt, it would be desirable to look at the direction of growth of the economy whiledrawing the emerging contours of the financ ial system. The “ India Vision 2020 prepared by the Planning Commission, Government of India, is an important document, which is likely toguide the policy makers, in the years to come. The Committee has taken into considerationthe economic profile drawn in India Vision 2020 document while attempting to visualise thefuture landscape of banking Industry.India Vision 2020 envisages improving the ranking of India from the present 11 th to 4 th  among 207 countries given in the World Development Report in terms of the Gross DomesticProduct (GDP). It also envisages moving the country from a low-income nation to an uppermiddle-income country. To achieve this objective, the India Vision aims to have an annualgrowth in the GDP of 8.5 per cent to 9 per cent over the next 20 years. Economicdevelopment of this magnitude would see quadrupling of real per capita income. Whencompared with the average growth in GDP of 4-6% in the recent past, this is an ambitioustarget. This would call for considerable investments in the infrastructure and meeting thefunding requirements of a high magnitude would be a challenge to the banking and financialsystem.   4 India Vision 2020 sees a nation of 1.3 billion people who are better educated, healthier, andmore prosperous. Urban India would encompass 40% of the population as against 28 % now.With more urban conglomerations coming up, only 40% of population would be engaged inagricultural sector as against nearly two thirds of people depending on this sector forlivelihood. Share of agriculture in the GDP will come down to 6% (down from 28%).Services sector would assume greater prominence in our economy. The shift in demographicprofile and composition of GDP are significant for strategy planners in the banking sector. FUTURE LANDSCAPE OF INDIAN BANKING Liberalization and de-regulation process started in 1991-92 has made a sea change in thebanking system. From a totally regulated environment, we have gradually moved into amarket driven competitive system. Our move towards global benchmarks has been, by andlarge, calibrated and regulator driven. The pace of changes gained momentum in the last fewyears. Globalization would gain greater speed in the coming years particularly on account of expected opening up of financial services under WTO. Four trends change the bankingindustry world over, viz. 1) Consolidation of players through mergers and acquisitions, 2)Globalisation of operations, 3) Development of new technology and 4) Universalisation of banking. With technology acting as a catalyst, we expect to see great changes in the bankingscene in the coming years. The Committee has attempted to visualize the financial world 5-10years from now. The picture that emerged is somewhat as discussed below. It entailsemergence of an integrated and diversified financial system. The move towards universalbanking has already begun. This will gather further momentum bringing non-bankingfinancial institutions also, into an integrated financial system.The traditional banking functions would give way to a system geared to meet all the financialneeds of the customer. We could see emergence of highly varied financial products, whichare tailored to meet specific needs of the customers in the retail as well as corporatesegments. The advent of new technologies could see the emergence of new financial playersdoing financial intermediation. For example, we could see utility service providers offeringsay, bill payment services or supermarkets or retailers doing basic lending operations. Theconventional definition of banking might undergo changes.
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