RETAIL BANKING A PROJECT REPORT ON “RETAIL BANKING” BACHELOR OF COMMERCE BANKING & INSURANCE SEMESTER V Submitted In Partial Fulfillment of the requirements For the Award of the Degree of Bachelor of Commerce – Banking & Insurance By HARPREET SINGH JAGGI ROLL NO. 17 1
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RETAIL BANKING
A PROJECT REPORT ON“RETAIL BANKING”
BACHELOR OF COMMERCEBANKING & INSURANCE
SEMESTER V
Submitted
In Partial Fulfillment of the requirementsFor the Award of the Degree of
Bachelor of Commerce – Banking & Insurance
By HARPREET SINGH JAGGI
ROLL NO. 17
G.N.KHALSA COLLEGE OF ARTS, SCIENCE & COMMERCE,
MATUNGA, MUMBAI – 400019
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RETAIL BANKING
C E R T I F I C A T E
This is to certify that Mr. HARPREET SINGH JAGGI of B.Com – Banking & Insurance – Semester V (2008-09) has successfully completed the project on “RETAIL BANKING”
Under the guidance of SIR ALLAN D’SOUZA .
Course Coordinator Principal
Project Guide/ Internal Examiner
External Examiner
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DECLARATION
I, HARPREET SINGH JAGGI, the student of B.Com – Banking & Insurance – Semester V (2008-09) hereby
declare that I have completed this project on “RETAIL BANKING” Submitted is true & original to the best of
my knowledge.
Student’s Signature
HARPREET SINGH JAGGI
ROLL.NO 17
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Acknowledgement
On the Event of completion of my project “Retail
Banking”. I take the opportunity to express my
deep sense of gratitude towards all those people
without whose guidance, inspiration and timely help,
this project would have never seen the light of day.
Any accomplishment requires the effort of many
people and this project is not different. I find great
pleasure in expressing my deepest sense of
gratitude towards my Project guide Prof. Allan
D’souza whose guidance and inspiration right from
the conceptualization to the finishing stages proved
to be very essential and valuable in the completion
of the project.
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CONTENTS
SR.NO TOPIC PAGE NO1. INTRODUCTION 7
2 WHAT IS RETAIL BANKING? 8
3 ANALYSIS OF RETAIL BANKING 9
STRENGTH 9
WEAKNESS 11
OPPORTUNITIES 13
THREATS 14
4. RETAIL BANKING IN INDIA 16
5. ADVANTAGES OF RETAIL BANKING 18
6. PRESENT SENARIO 19
7. WHAT ARE VARIOUS RETAIL
BANKING SERVICES?
20
8. VARIOUS PRODUCT OF RETAIL
BANKING
22
Home Loans 22
Auto Loans 27
Two wheeler & consumer durable loan 30
Personal/Unsecured Loans 32
Educational loan 34
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Plastic money 37
9. RETAIL LENDING 42
10. ROLE OF IT IN RETAIL BANKING 43
11. MARKETING STRATEGIES 46
12. CRM IN RETAIL BANKING 48
13. CONCLUSION 49
14. BIBLIOGRAPHY 50
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INTRODUCTION
“We don’t want satisfied customers…we want delighted customers.” It is the new
marketing mantra today. The same applies to banking as well. Retail banking and Rural
banking were once considered as taboos by the leading foreign and domestic banks. But
cut-throat competition, innovation and advanced technology have altogether changed the
faced of banking sector. Now all banks have recognized the importance of retail banking.
Retail banking is that part of a bank that offers products and services primarily to
individual customers, professional, self-employed individuals or small businesses. The
focus is on creating products and services that meet the needs of the target customers and
are profitable for the bank as well.
The approach to retail banking products is more is more on a mass production
basis wherein all risk and operations are based on and geared to cater to a large number
of customers. This is therefore, significantly different from corporate banking or
wholesale banking where focus is on large sized customer accounts rather than large
numbers of customers.
Understanding retail banking will help in servicing your customer better as it
would give you a perspective and insight into how such products are structured and
specific requirements for each set of products. This would help you advice your customer
in a more informed manner besides making you a more informed consumer.
With the advent of ATMs, ‘Anytime banking’ has come into picture. Satellites
and telecom networks across the world have made ‘Anywhere banking’ possible. Now it
is the turn of ‘Anyhow banking’, and the leading bank of the next century will be the one
which has all these three A’s.
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WHAT IS RETAIL BANKING?
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.
Today’s retail banking sector is characterized by three basic characteristics.
Multiple products (deposits, credit card, insurance, investments and
securities).
Multiple channels of distribution (call center, branch, internet and kiosk);
and
Multiple customer groups (consumer, small business, and corporate)
DEFINITION:
Retail Banking Services:-
Banking services provided to individual members of the public as opposed to those
provided to businesses and institutions.
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ANALYSIS OF RETAIL BANKING
STRENGTH:-
1) Emerging as a new growth driver:
For several years banks viewed consumer loan with skepticism. Commercial
loans denominated the loan portfolio as they generated high net yield with low
credit risk. Consumer loans on the other hand involved smaller amount, large staff
to handle account and high default rates. Even regulators across the glob have not
encouraged retail banking until now till very recently. However , over past few
years, fierce competition among the lowered the spread and profitability an
commercial loan with deregulation and increase in consumer loan rate, the risk
adjusted return in retail sector have exceed the return on consumer loan.
2) Provides diversified asset portfolio:
Retail banking includes comprehensive range of financial product and services
i.e. deposit product, auto loan, car loan, home loan, loan against equity shares,
mortgage loan, payment of bills, debit card, credit card, etc. These product
provide an opportunity for banks to diversify the asset portfolio with higher profit
and relatively lower NPA.
3) Improves standard of living:
Due to major economic reforms in Indian economy there has been an increase in
per capita income which has led to change in life style and growing urbanization
have made the Indian population rise from oblivion and resurge in modern era on
this front role of retail banking arises. Retail banking provide all such product and
services(home loan, car loan, personal loan, etc) to its customer which are
required by them to maintain change in there life style in short it helps in
fulfilling aspiration of people through affordable credit.
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4) CRM tool:
The individual customer is deity of bank in retail banking segment. All product
and services are designed to satisfy need and wants of its customer. As customer
in retail banking belong to different economic, cultural, educational, and social
background there demand is also varied. It is acceptance of the banking product
and satisfaction of customer that yield profit in this segment. Hence customer
Service and Quality implementation through use of CRM tools will help banks
Success in this competitive world of retail banking.
5) Innovative product development :
The scope for development in financial services is unlimited. In retail banking
ball is in the court of bankers where they approach the customer finds out there
financial need and problem, designs the product and services, market them and
finally sells them to satisfy its customer.
6) Economies of scale:
Retail banking enables banks to utilize existing capacities and reaching wider
population of customer. Banks can get the benefits of information and transaction.
In process of extending variety of services, banks are acquiring enormous amount
of customer information .if this information is systematically recorded , banks can
efficiently utilize this information in order to explore new segment and to cross
sell new services.
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WEAKNESS:-
1) Avoids corporate sector :
Retail banking avoids corporate sector totally which is the backbone of Indian
economy. Main reason put forth or this is decline in corporate borrowing.
However bank can take certain step to manage there corporate clients such as
lower arte credit, higher amount of loan etc. Managing corporate client is more
easier as they have well defined financial policy and project and they concentrate
on product and services offered rather than on CRM of bank unlike individual
clients.
2) Marketing (Internal and External):
Retail banking requires strong marketing strategies to be adopted by bank both
internal and external. under retail banking segment top level management need
employees to introduce product properly to its employees because if the
employees are not aware regarding the product they are offering that product will
fail however effective the product is also bank require to spend lot on its
marketing of product to general public because if public is not aware regarding
the product and service how will they opt for it. All this increases the cost and
time required to introduce the product in the market which can reduce or make the
product out dated immediately on its arrival.
3) Changes in technology:
Future of retail banking lies in the hand of IT. Various It solution used by banks
such as E-banking, phone banking, ATM leverage the retail banking product and
service offered by banks. But this has weekend the segment some how. If banks
are not able to adopt the latest technology it may pull back the growth of bank
also this technology requires lot of capital investment and if at all the technology
fails then it may shake the customer’s confidence on bank and bank may land up
in loosing its customer.
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4) Reduces the profitability:
It is claimed that retail banking increases overall profitability of the bank but in
reality this is not the case because managing wide range of product and service
requires high quality technology , large number of staff and all this requires high
capital investment which reduces banks profitability.
5) Co-ordination among various department:
Success of retail banking is not the result of one department but is result of
various departments together. If there is lack of co-ordination among various
department of the bank then however strong and effective the may be the product
it will fail. Suppose if the front office is successful in attracting the customer but
back office is not able to execute the delivery of product or service on time then
bank may land up loosing the customer although its CRM was effective.
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OPPORTUNITIES:-
1) Scope for innovation:
Under retail banking as banks try to provide all those product and services
which are desired by its customer this segment has more scope for innovation
banks can keep on modifying its products as per the market demand which helps
them from not being out dated .
2) Rise in per capita income:
The rise of the Indian middle class is an important contributory factor in this
segment. The percentage of middle to high-income Indian households is expected
to continue rising. The younger population not only wields increasing purchasing
power, but as far as acquiring personal debt is concerned, they are perhaps more
comfortable than previous generations. Improving consumer purchasing power,
coupled with more liberal attitudes toward personal debt, is contributing to India's
retail banking segment.
3) Economic growth:
Retail banking has immense opportunities in a growing economy like India. In the
BRIC Report India is stated as an economic superpower. According to A. T.
Kearney, a global management-consulting firm, recently identified India as the
'second most attractive retail destination' of 30 emergent markets. Hence retail
banking has high opportunities in India.
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THREATS:
1) Large disbursement of loans:
The boom in the field of retail banking and the intense composition among the
to increases the customer base has resulted in the large disbursement of
customer loans, loans on credit cards, auto loans, educational loans etc. on easy
terms without much scrutiny this has brought with in an increase in the number
of cases of default in loan repayment thus increasing the bank’s NPAs.
2) Issue of customers dignity:
Banks have been adopting carrot and stick policy by renegotiating loan terms
where the default is genuine and handing over recovery to third parties where
default is willful. Most of the time, the third parties or external agents are not
trained to handle the loan repayment process. Hence, they restore to strong arms
tactics with defaulting customers. Many cases of harassment and invasion of
privacy have been reported by the affected parties. Such instances may hamper
the image and corporate vision of the bank in near future.
3) Issue of customer privacy:
Customer privacy is also affected in another way wherein customer service
representatives of the banks ring up customers at any times at their places of
work, informing them about new products and services. This may cause
inconvenience to busy customers. It is also obligation on part of the banks not to
share the private information from the records of the customers with outside
agencies like market research groups and other advertisers.
4) IT:
The growth of IT has brought with it a number of frauds perpetrated with the
help of technology and which come under the domain of cyber crimes. Banks
are the victims of unscrupulous elements who have in many instance hacked
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banks website and stolen credit card number, pass word and other confidential
information relating to customer.
NEED FOR RETAIL BANKING
(The Ultimate Service Provider)
Until now banks were relying on financing, production based activities. Retail
finance was not favored by Indian banks, But they have to tune to it now with the demand
for loans from industrial sector is coming downing the past because of the economic
slowdown. As a result banks have become selective in there lending activities. Further
changing demographics, a rapidly growing ,middle-class, rise in disposable income
changing life style and increasing ability of people to take credit risk are providing banks
with an opportunity to shift there lending operation to retail finance. Hence bankers have
been increasingly shifting to retail to increase profitability and reduce delinquency rates.
Customer shifting, cost pressure and increasing competition are some of the other reasons
Retailing is now favored because of the better returns lesser asset quality
problem and low NPA. Further it provides many opportunities for credit expansion. It
helps banks in risk diversification and is important for low-cost resources mobilization by
banks.
For Banks, retail segment is the principal growth driver as they are slowly
gaining market share in the retail space. Foreign banks are securitizing vehicle loans to
raise off-balance sheet resources and to reduce overall cost of funding. For example,
Bank of Muscat is taking over auto loans and personal loans from other banks signaling a
softer interest rate regime for consumer finance and giving indication to the intensifying
competition in business.
The objective of the Retail Bank is to provide its target market customers a full
range of financial products and banking services, giving the customer a one-stop window
for all his/her banking requirements. The products are backed by world-class service and
delivered to the customers through the growing branch network, as well as through
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alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile
Banking.
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RETAIL BANKING IN INDIA
The Indian players are bullish on the Retail business and this is not totally
unfounded. There are two main reasons behind this. Firstly, it is now undeniable that the
face of the Indian consumer is changing. This is reflected in a change in the urban
household income pattern. The direct fallout of such a change will be the consumption
patterns and hence the banking habits of Indians, which will now be skewed towards
Retail products. At the same time, India compares pretty poorly with the other economies
of the world that are now becoming comparable in terms of spending patterns with the
opening up of our economy. For instance, while the total outstanding Retail loans in
Taiwan is around 41% of GDP, the figure in India stands at less than 5%. The
comparison with the West is even more staggering. Another comparison that is natural
when comparing Retail sectors is the use of credit cards. Here also, the potential lies in
the fact that of all the consumer expenditure in India in 2001, less than 1% was through
plastic, the corresponding US figure standing at 18%.
Retail banking in India is not a new phenomenon. It has always been prevalent in
India in various forms. For the last few years it has become synonymous with mainstream
banking for many banks.
The typical products offered in the Indian retail banking segment are housing
loans, consumption loans for purchase of durables, auto loans, credit cards and
educational loans. The loans are marketed under attractive brand names to differentiate
the products offered by different banks. As the has shown that the loan values of these
retail lending typically range between Rs.20, 000 to Rs.100 lakh. The loans are generally
for duration of five to seven years with housing loans granted for a longer duration of 15
years. Credit card is another rapidly growing sub-segment of this product group.
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In recent past retail lending has turned out to be a key profit driver for banks with retail
portfolio constituting 21.5 per cent of total outstanding advances as on March 2004. The
overall impairment of the retail loan portfolio worked out much less then the Gross NPA
ratio for the entire loan portfolio. Within the retail segment, the housing loans had the
least gross asset impairment. In fact, retailing make ample business sense in the banking
sector.
While new generation private sector banks have been able to create a niche in
this regard, the public sector banks have not lagged behind. Leveraging their vast branch
network and outreach, public sector banks have aggressively forayed to garner a larger
slice of the retail pie. By international standards, however, there is still much scope for
retail banking in India. After all, retail loans constitute less than seven per cent of GDP in
India vis-à-vis about 35 per cent for other Asian economies — South Korea (55 per cent),
Taiwan (52 per cent), Malaysia (33 per cent) and Thailand (18 per cent). As retail
banking in India is still growing from modest base, there is a likelihood that the growth
numbers seem to get somewhat exaggerated. One, thus, has to exercise caution is
interpreting the growth of retail banking in India.
The HDFC Bank Preferred program for high net worth individuals, the HDFC
Bank Plus and the Investment Advisory Services programs have been designed keeping
in mind needs of customers who seek distinct financial solutions, information and advice
on various investment avenues. The Bank also has a wide array of retail loan products
including Auto Loans, Loans against marketable securities, Personal Loans and Loans for
Two-wheelers. It is also a leading provider of Depository Participant (DP) services for
retail customers, providing customers the facility to hold their investments in electronic
form.
HDFC Bank was the first bank in India to launch an International Debit Card in
association with VISA (VISA Electron) and issues the Master debit card as well. The
Bank launched its credit card business in late 2001. By March 2005, the bank had a total
card base (debit and credit cards) of 4.2 million cards. The Bank is also one of the leading
players in the “merchant acquiring” business with over 42,000 Point-of-sale (POS)
terminals for debit / credit cards acceptance at merchant establishments. The Bank is well
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positioned as a leader in various net based B2C opportunities including a wide range of
internet banking services for Fixed Deposits, Loans, Bill Payments, etc.
ADVANTAGES OF RETAIL BANKING
Retail Banking has inherent advantages outweighing certain disadvantages.
RESOURCES SIDE:
Retail deposit are stable and constitute core deposit
They are interest insensitive and less bargaining for additional interest
They constitute the low cost for banks
Effective CRM with the retail customer builds a strong customer base.
Retail banking increases the subsidiary business of a bank.
ASSETS SIDE:
Retail banking results in better yield and improve bottom line of a bank.
Retail segment is a good avenue for funds deployment.
The consumer loan are presumed to be of lower risk and NPA perception.
Help economic revival of the nation through increased production activities.
Improves lifestyle and fulfills aspiration of people through affordable credit.
Innovative product development.
Retail segment involves minimum marketing efforts in a demand driven
economy.
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PRESENT SENARIO
There has been a considerable growth in the retail-banking sector in India, which
makes up for about 1/5th of the overall bank credit. Typically, the retail banking industry
encompasses the services such as credit cards, Housing loans, Education loans, Auto
loan, etc
Retail banking has brought in a drastic makeover in the overall banking scenario
in India. The exceptional improvement in the banking system in India is a result of strong
initiatives taken up by both the government and private companies
A recent market research report named, “Indian Retail Banking Sector Analysis (2006)”
published by RNCOS provides an exclusive tour to the entire retail-banking industry of
India. As per the report, “Mainstream banking and retail banking have become one and
the same thing for the past several years now. Approximately, 22% of the total
outstanding advances were derived from the retail portfolios of the banks in India till
March 2004”.
“The contribution of retail banking to the overall banking sector has been
outstanding. Growing at a rate of 122%, the retail-banking sector of India managed to
reach a worth of $67 billion in the year 2005”, as per experts at RNCOS. “The retail
banking sector in India should reach a worth of $310 billion by the year 2010”, anticipate
the experts. Profiles of key players along with the strategies and plans adopted by them
for the growth of the industry are also talked about in it. Besides discussing the present
scenario of the financial system in India the report offers a reliable prediction of the
market in the years to come.
The ratio of retail credit to net credit at the global level is around 5%. In India, it
is interesting to note that this ratio is over 10% as on March31, 2002 (Source : RBI,
Annual Report ). With the economy reforms set in motion , the country is already rated as
a major hub for economic development. Increase in per capita income , change in life
style and growing urbanization have made the Indian population rise from oblivion and
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resurge in modern era. The policy of and spent is gradually giving way to spend and save
concept.
WHAT ARE VARIOUS RETAIL BANKING
SERVICES?
Retail banking includes comprehensive range of financial product and services i.e.
deposit product, auto loan, car loan, home loan, loan against equity shares, mortgage
loan, payment of bills, debit card, credit card, etc. These product provide an opportunity
for banks to diversify the asset portfolio with higher profit and relatively lower NPA.
Today the most proactive banks have entered the retail banking segment and have