1 RETAIL BANKING IN INDIA INDEX SR.NO TOPIC PG.NO 1 INTRODUCTION TO RETAIL BANKING 2 2 ROLE OF RETAIL BANKING IN INDIAN ECONOMY 11 3 RETAIL BANKING VS. CORPORATE BANKING 18 4 MODELS OF RETAIL BANKING 21 5 STRATEGIES OF RETAIL BANKING 30 6 PERFORMANCE OF RETAIL BANKING 35 S K SOMAIYA OF ARTS ,SCI & COMMERCE.
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RETAIL BANKING IN INDIAINDEXSR.NOTOPICPG.NO
1INTRODUCTION TO RETAIL BANKING2
2ROLE OF RETAIL BANKING IN INDIAN ECONOMY11
3RETAIL BANKING VS. CORPORATE BANKING18
4MODELS OF RETAIL BANKING21
5STRATEGIES OF RETAIL BANKING30
6PERFORMANCE OF RETAIL BANKING35
7SUMMARY OF FINDINGS44
List of Abbreviations
PSBs - Public Sector Banks
OGPVSBs - Old Generation Private Sector Banks
NGPVSBs - New Generation Private Sector Banks
FNBs - Foreign Banks
ATMs - Automated Teller Machines
ECS - Electronic Clearing Service
EFT - Electronic Funds Transfer
SBU - Strategic Business unit
HNI - High Networth Individuals
PIN - Personal Identification Number
KYC - Know Your Customer
ALPM - Automated Ledger Posting Machines
DSA - Direct Selling Associates
CRM - Customer Relationship Management
TPD - Third Party Distribution
CASA - Current Account Savings Account
BCG - Boston Consulting Group
CHP 1 : INTRODUCTION TO RETAIL BANKING
IntroductionRetail Banking as a business model is adopted by all the banks on account of multiple comfort factors for the banks viz. acquisition of a huge customer base, multiple product offerings, better pricing and profitability, scope for cross selling and up selling financial and beyond financial products for increased per customer revenue and of course better risk proposition. With the changing paradigm of technology as the driver for retail banking explosion, banks are embracing different strategies by redesigning their conventional business silos, re-engineering existing products and inventing products, services, channels, relationships to increase the share of the customers' wallet.Retail banking has brought in a drastic make over 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.Retail Banking has been the new focus of the banking industry across the world. The emergence of new economies and their rapid growth has been the most important contributing factor behind this resurgence in Retail Banking. Changing lifestyles, fast improvement in information technology, other service sectors and increasing levels of income have contributed to the growth of retail banking in countries like India that are developing at a good pace. In India the Retail Banking scenario has been the market changing from a sellers market to a buyers market.Retail banks offer services like account opening, credit card, debit card, ATM, internet banking, phone banking, insurance, investment, stock broking and so on.Retail banking refers to the dealing of commercial banks with individual customers, both on liabilities and assets sides of the balance sheet. Fixed/current/saving accounts on the liabilities side, and mortgages loans (e.g, personal, housing, auto and educational on the assets side, are the important products offered by banks. Related ancillary services include credit cards or depository services. Retail banking refers to provision of banking services to individuals and small business where the financial institutions are dealing with large number of low value transactions. This is in contrast to whole sale banking where the customers are large, often multinational companies, governments and government enterprises and the financial institution deal in small number of high value transaction. Retail banking can be defined as---Retail banking is typically 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.The concept of Retail Banking is not new to banks but is now viewed as an important and attractive market segment that offers opportunities for growth and profits. Retail banking and retail lending are often used as synonyms but in fact, the later is just the part of retail banking. In retail banking all the needs of individual customers are taken care of in a well integrated manner.Retail banking in the country is characterized by multiple products, multiple channels and multiple customer groups. This multiplicity of the roles to be played bythe retail bankers adds to the excitement as well as the challenges faced by the bankers.Multiple ProductsThe products included in retail banking are-- Various types of deposits/accounts. Credit and debit cards Loans (Personal, Auto, Housing etc.)Multiple channels of distribution Internet banking Mobile banking Call centersMultiple Customer Groups Individual customers Petty businesses Small and Medium Enterprises (SMEs)The Indian Banks are competing with one another to grab a pie of the retail banking sector, which has tremendous potential as retail loans constitute only 8 % of GDP in India, whereas their percentage is about 35 in other Asian economies.Retail banking environment today is changing fast. The changing customer demographics demands to create a differentiated application based on scalable technology, improved service and banking convenience. Higher penetration of technology and increase in global literacy levels has set up the expectations of thecustomer higher than never before. Increasing use of modern technology has further enhanced reach and accessibility.The market today gives us a challenge to provide multiple and innovative contemporary services to the customer through a consolidated window so as to ensure that the banks customer gets Uniformity and Consistency of service delivery across time and at every touch point across all channels. The pace of innovation is accelerating and security threat has become prime of all electronic transactions. High cost structure rendering mass-market servicing is prohibitively expensive. Present day tech-savvy bankers are now more looking at reduction in their operating costs by adopting scalable and secure technology thereby reducing the response time to their customers so as to improve their client base and economies of scale.The solution lies to market demands and challenges lies in innovation of new offering with minimum dependence on branches a multi-channel bank, and to eliminate the disadvantage of an inadequate branch network. Generation of leads to cross sell and creating additional revenues with utmost customer satisfaction has become focal point worldwide for the success of a Bank. Traditional lending to the corporate are slow moving along with high NPA risk, treasure profits are now losing importance; hence Retail Banking is now an alternative available for the banks for increasing their earnings. Retail Banking is an attractive market segment having a large number of varied classes of customers. Retail Banking focuses on individual and small units. Customized and wide ranging products are available. The risk is spread and the recovery is good. Surplus deployable funds can be put into use by the banks. Products can be designed, developed and marketed as per individual needs.Currently retail banking is helping the banks in boosting their profit. As reported in Financial Express, the banking sector witnesses during the period ended June 2010, with their growth rising at 54.8%. A rise in commercial and retail lending rates, growth in fee-based income and lower provisioning helped banks boost their profits.FEATURES OF RETAIL BANKINGOne of the prominent features of Retail Banking products is that it is a volume driven business. Further, Retail Credit ensures that the business is widely dispersed among a large customer base unlike in the case of corporate lending, where the risk may be concentrated on a selected few plans. Ability of a bank to administer a large portfolio of retail credit products depends upon such factors:Strong credit assessment capabilityBecause of large volume good infrastructure is required. If the credit assessment itself is qualitative, then the need for follow up in the future reduces considerably.Sound documentationA latest system for credit documentation is necessary pre-requisite for healthy growth of credit portfolio, as in the case of credit assessment. This will also minimize the need to follow up at future point of time.Strong possessing capabilitySince large volumes of transactions are involved, today transactions, maintenance of backups is required.Regular constant follow- upIdeally, follow up for loan repayments should be an ongoing process. It should start from customer enquiry and last till the loan is repaid fully.Skilled human resourceThis is one of the most important pre-requisite for the efficient management of large and diverse retail credit portfolio. Only highly skilled and experienced man power can withstand the river of administrating a diverse and complex retail credit portfolio.Technological supportThis is yet another vital requirement. Retail credit is highly technological and intensive in nature. Because of large volumes of business, the need to provide instantaneous service to the customer, faster processing, maintaining database, etc. is imperative.
OPPORTUNITIES IN RETAIL BANKINGRetail banking has immense opportunities in a growing economy like India. As the growth story gets unfolded in India, retail banking is going to emerge a major driver.The rise of Indian middle class is an important contributory factor in this regard. 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 towards personal debt, is contributing to Indias retail banking segment.The combination of above factors promises substantial growth in retail sector, which at present is in the nascent stage. Due to bundling of services and delivery channels, the areas of potential conflicts of interest tend to increase in universal banks and financial conglomerates. Some of the key policy issues relevant to the retail-banking sector are: financial inclusion, responsible lending, and access to finance, long-term savings, financial capability, consumer protection, regulation and financial crime prevention.SCOPE FOR RETAIL BANKING IN INDIA1. All round increase in economic activity.2. Increase in the purchasing power. The rural areas have the large purchasing power at their disposal and this is an opportunity to market Retail Banking.3. India has 200 million households and 400 million middleclass population more than 90% of the savings come from the house hold sector. Falling interest rates have resulted in a shift. Now People Want To Save Less And Spend More.4. Nuclear family concept is gaining much importance which may lead to large savings, large number of banking services to be provided are day-by-day increasing.5. Tax benefits are available, for example, in case of housing loans the borrower can avail tax benefits for the loan repayment and the interest charged for the loan.SIGNIFICANCE OF RETAIL BANKINGRESOURCE SIDE Retail deposits are stable and constitute core deposits. They are interest insensitive and less bargaining for additional interest. They constitute low cost funds for the banks. Effective customer relationship management with the retail customers built a strong customer base. Retail banking increases the subsidiary business of the banks.ASSETS SIDE Retail banking results in better yield and improved bottom line for a bank. Retail segment is good revenue for funds deployment. Consumer loans are presumed to be of lower risk and NPA perception. Helps economic revival of the nation through increased production activity. Improves lifestyle and fulfils aspirations of the people through affordable credit. Innovative product development credit. Retail banking involves minimum marketing efforts in a demand driven economy. Diversified portfolio due to huge customer base enables bank to reduce their dependence on few or single borrower Banks can earn good profits by providing non fund based or fee based services without deploying their funds.RETAIL BANKING ACTIVITIESBanks' activities can be divided into retail banking, dealing directly with individuals; business banking, providing services to mid-size business; corporate banking dealing with large business entities; private banking, providing wealth management services to High Networth Individuals; and investment banking, relates to helping customers raise funds in the Capital Markets and advising on mergers and acquisitions. Banks are now moving towards Universal Banking, which is a combination of commercial banking, investment banking and various other activities including insurance.Technology has brought about strategic transformation in the working of banks. With years, banks are also adding services to their customers. The Indianbanking industry is passing through a phase of customers market. The customers have more choices in choosing their banks. With stiff competition and advancement of technology, the service provided by banks has become more easy and convenient.Internet Banking (E-Banking)Internet banking (or E-banking) means any user with a personal computer and browser can get connected to his banks website to perform any of the virtual banking functions. In internet banking system the bank has a centralized database that is web-enabled. All the services that the bank has permitted on the internet are displayed in menu. Any service can be selected and further interaction is dictated by the nature of service. The traditional branch model of bank is now giving place to an alternative delivery channels with ATM network. Once the branch offices of bank are interconnected through terrestrial or satellite links, there would be no physical identity for any branch. The Reserve Bank of India constituted a working group on Internet Banking. The group divided the internet banking products in India into 3 types based on the levels of access granted. They are:Information Only SystemGeneral purpose information like interest rates, branch location, bank products and their features, loan and deposit calculations are provided in the banks website.Fully Electronic Transactional SystemThe system provides customer- specific information in the form of account balances, transaction details, and statement of accounts. This system allows bi-directional capabilities. Transactions can be submitted by the customer for online update. This system requires high degree of security and control.Automated Teller Machine (ATM)ATM is designed to perform the most important function of bank. It is operated by plastic card with its special features. The plastic card is replacing cheques, personal attendance of the customer, banking hours restrictions and paper based verification.Credit Cards/Debit CardsThe Credit Card holder is empowered to spend wherever and whenever he wants with his Credit Card within the limits fixed by his bank. Credit Card is a post paid card. Debit Card, on the other hand, is a prepaid card with some stored value.Smart CardBanks are adding chips to their current magnetic stripe cards to enhance security and offer new service, called Smart Cards. Smart Cards allow thousands of times of information storable on magnetic stripe cards.Core Banking SolutionsCore Banking Solutions is new jargon frequently used in banking circles. The advancement in technology especially internet and information technology has led to new way of doing business in banking. The technologies have cut down time, working simultaneously on different issues and increased efficiency. The platform where communication technology and information technology are merged to suit core needs of banking is known as Core Banking Solutions. Here computer software is developed to perform core operations of banking like recording of transactions, passbook maintenance, and interest calculations on loans and deposits, customer records, balance of payments and withdrawal are done.Real Time Gross Settlement (RTGS)RTGS is an electronic settlement system of Reserve Bank of India without involvement of papers. To facilitate an Efficient, Secure, Economical, Reliable and Expeditious System of Fund transfer and clearing in the Banking sector throughout India. Real time gross settlement systems (RTGS) are a funds transfer mechanism where transfer of money takes place from one bank to another on a "real time" and on "gross" basis.Electronic Clearing ServiceElectronic Clearing Service is another technology enhancement happened in the banking industry. The customer willing to use this facility is required to fill in the mandate form from the corporate/any utility service institution for ECS mode of credit and debit. The customer needs to prepare the payment date and submit it to the sponsor Bank and after that everything happened electronically. So customers can thereby make payments as well as receive all incomes electronically.Mobile bankingMobile banking (also known as M-Banking, e-banking, SMS Banking etc.) is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone.Challenges to Retail Banking in India The issue of money laundering is very important in retail banking. This compels all the banks to consider seriously all the documents which they accept while approving the loans. The issue of outsourcing has become very important in recent past because various core activities such as hardware and software maintenance, entireATM set up and operation (including cash, refilling) etc., are being outsourced by Indian banks. Banks are expected to take utmost care to retain the ongoing trust of the public. Customer service should be the end-all in retail banking. Someone has rightly said, It takes months to find as good customer but only seconds to lose one. Thus, strategy of Knowing Your Customer (KYC) is important. So the banks are required to adopt innovative strategies to meet customers needs and requirements in terms of services/products etc. The dependency on technology has brought IT departments additional responsibilities and challenges in managing, maintaining and optimizing the performance of retail banking networks. The increasing use of ATMs and e-banking has placed enormous strain on the working of the systems and procedures followed. Banks have been forced to strike a fine balance between speed and security. The enormous amount of data that are to be fed into the systems calls for robust and very modern technologies and qualified professionals to manage the system. There has been a remarkable increase in speed in delivering services and providing facilities across the branch networks. This has also increased the dependency of banking operations on IT and separate departments to keep the systems continuously running have increased additional responsibilities. It is equally important that banks should maintain security to the advance level to keep the faith of the customer. The efficiency of operations would provide the competitive edge for the success in retail banking in coming years. The customer retention is of paramount importance for the profitability of retail banking business, so banks need to retain their customer in order to increase the market share. One of the crucial impediments for the growth of this sector is the acute shortage of manpower talent of this specific nature, a modern banking professional, for a modern banking sector.Retail banking has tremendous potential for growth, even though there are stiff challenges to be met. The banks have to judiciously use the available technological facilities to earn competitive advantage by creating successful products in their area of strength. If this is done successfully along with proper care for customers security and confidence, the potential in retail banking can be definitely realized.
CHP 2 : THE ROLE OF RETAIL BANKING IN INDIAN ECONOMY
The role of Retail Banking 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 Report on Trend and Progress of India, 2003-04 has shown that the loan values of these retail lending typically range between Rs.20, 000 to Rs.100 lack. 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. 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--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 number Seem to get somewhat exaggerated. One, thus, has to exercise caution is interpreting the growth of retail banking in India .The following away the retail Banking Contributing service to development of Indian Economy Credit Cards: While usage of cards by customers of banks in India has been in vogue since the mid-1980s, it is only since the early 1990s that the market had witnessed a quantum jump. The total number of cards issued by 42 banks and outstanding, increased from 2.69 core as on end December 2003 to 4.33 core as on end December 2004. In view of this ever increasing role of credit cards a Working Group was set up for regulatory mechanism for cards. The terms of reference of the Working Group were fairly broad and the Group was to look into the type of regulatory measures that are to be introduced for plastic cards (credit, debit and smart cards) for encouraging their growth in a safe, secure and efficient manner, as also to take care of the best customer practices and grievances redressed mechanism for the card users. The Reserve Bank has been receiving a number of complaints regarding various undesirable practices by credit card issuing institutions and their agents. The RBI and a set of guidelines would be issued which are going to pave the path of a healthy growth in the development of plastic money in India. The RBI is also considering bringing credit card disputes within the ambit of the Banking Ombudsman scheme. While building a regulatory oversight in this regard we need to ensure that neither does it reduce the efficiency of the system nor does it hamper the credit card usage. Housing Credit: Housing credit has increased substantially over last few years, but from a very low base. During the period 1993- 2004, outstanding housing loans by scheduled commercial banks and housing finance companies grew at a trend rate of 23 per cent. The share of housing loans in total non-food credit of scheduled commercial banks has increased from about 3 per cent in 1992-93 to about 7 per cent in 2003-04. Recent data reveal that non-priority sector housing loans outstanding as on February 18, 2005 were around Rs. 74 thousand core, which is, however, only 8.0 per cent of the gross bank credit. As already pointed out, direct housing loans up to Rs. 15 lack irrespective of the location now qualify as priority sector lending; housing loans are understood to form a large component of such lending. Support to Indian middle class People: The rise of the Indian middle class is an important contributory factor in this regard. 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 International Journal of Engineering Research and General Science Volume 2, Issue 2, Feb-Mar 2014 ISSN 2091-2730 generations. Improving consumer purchasing power, coupled with more liberal attitudes toward personal debt, is contributing to India's retail banking segment. Economic superpower. Retail banking has played a role in a growing economy of India. As the growth story gets unfolded in India, retail banking is going to emerge a major driver. How does the world view us? I have already referred to the BRIC Report talking India as an economic superpower. A. T. Kearney, a global management consulting firm, recently identified India as the 'second most attractive retail destination' of 30 emergent markets. Increasing purchasing power of middle class people: The rise of the Indian middle class is an important contributory factor in this regard. 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 contr ibuting to India's retail banking segment. Financial market reforms: The subject matter of retail banking is of prime importance. In recent years, commercial banks have witnessed development in the form of retail lending, all over the world. The growth in the field of retail lending is primarily because of the speedy advancement in the IT sector, evolving macroeconomic environment, numerous micro level demand and supply side factors and financial market reform. This criterion is based on the market research report on retail banking Engine of economic growth: Retail banks play a critical role in their home economies, and their activities have implications for the global economy as well. They offer critical credit functions, which largely fuel the engine of economic growth in their economies. When problems hit the retail banking sector the result is often dire economic circumstances for the economy as a whole. When retail banks are failing, little or no credit is available for credit seekers, and economic activity becomes depressed.Mass-market banking: Retail banks offer a variety of important services to their customers. The retail banking sector is often described as a typical mass-market banking, offering services such as savings and checking accounts and all kinds of personal loans, including auto loans and student loans. Retail banks also offer mortgage services, debit and credit card services and ATM servicesall of which have become essential to today's consumers. Volume driven business. Retail Credit ensures that the business is widely dispersed among a large customer base unlike in the case of corporate lending, where the risk may be concentrated on a selected few plans. Ability of a bank to administer a large portfolio of retail credit products depends upon such factors like; strong credit assessment capability, sound documentation, strong possessing capability, regular constant follow- up, skilled human resource, technological support.Automation of banking process: The growth in retail banking has been facilitated by growth in banking technology and automation of banking processes to enable extension of reach and rationalization of costs. ATMs have emerged as an alternative banking channels which facilitate low-cost transactions vis--vis traditional branches / method of lending. It also has the advantage of reducing the branch traffic and enables banks with small networks to offset the traditional disadvantages by increasing their reach and spread. Easy and affordable access: Retail loans through a wide range of options / flexibility. Banks even finance cost of registration, stamp duty, society charges and other associated expenditures such as furniture and fixtures in case of housing loans and cost of registration and insurance, etc. in case of auto loans.Financial Liquidity: Banks Making financing attractive by offering free / concessional / value added services like issue of credit card, insurance, etc. Continuous waiver of processing fees administration fees, prepayment charges, etc. by the Banks. As of now, the cost of retail lending is restricted to the interest costs.Economic prosperity: The consequent increase in purchasing power has given a fillip to a consumer boom. Note that during the 10 years after 1992, India's economy grew at an average rate of 6.8 percent and continues to grow at the almost the same rate not many countries in the world match this performance. International Journal of Engineering Research and General Science Volume 2, Issue 2, Feb-Mar 2014 ISSN 2091-2730 Changing consumer demographics: The Size of population indicate vast potential for growth in consumption both qualitatively and quantitatively. India is one of the countries having highest proportion (70%) of the population below 35 years of age (young population). The BRIC report of the Goldman-Sachs, which predicted a bright future for Brazil, Russia, India and China, mentioned Indian demographic advantage as an important positive factor for India. Technological innovations: Technological factors played a major role. Convenience banking in the form of debit cards, internet and phone-banking, anywhere and anytime banking has attracted many new customers into the banking field. Technological innovations relating to increasing use of credit / debit cards, ATMs, direct debits and phone banking has contributed to the growth of retail banking in India.Increase the Bank Liquid cash: Treasury income of the banks, which had strengthened the bottom lines of banks for the past years, has been on the decline during the last two years. In such a scenario, retail business provides a good vehicle of profit maximization. Considering the fact that retails share in impaired assets is far lower than the overall bank loans and advances, retail loans have put comparatively less provisioning burden on banks apart from diversifying their income streams.Decline in interest rates: The interest rates were decreased in Indian money market have also contributed to the growth of retail credit by generating the demand for such credit. The interest rates on retail loans have declined from a high of 16-18%in1995-96 to presently in the band of 7.5-9%. Ample liquidity in the banking system and falling global interest rates have also compelled the domestic banks to reduce itDeclining cost of incremental deposits: Banks could afford to quote lower rate of interest, even below PLR as low cost [saving bank] and no cost [current account] deposits contribute more than 1/3rd of their funds [deposits].The declining cost of incremental deposits has enabled the Banks to reduce their interest rates on housing loans as well as other retail segments loans. Change of Terms of Loans: Offering retail loans for short term, 3 years and long term ranging term ranging from 15/20 years as compared to their earlier 5-7 years only.Challenges of Retail Banking in IndiaRetention of customers: According to a research by Reichheld and Sasser in the Harvard Business Review, 5 per cent increase in customer retention can increase profitability by 35 per cent in banking business, 50 per cent in insurance and brokerage, and 125 per cent in the consumer credit card market. Thus, banks need to emphasize retaining customers and increasing market share. Rising indebtedness: India's position, of course, is not comparable to that of the developed world where household debt as a proportion of disposable income is much higher. Such a scenario creates high uncertainty. Expressing concerns about the high growth witnessed in the consumer credit segments the Reserve Bank has, as a temporary measure, put in place risk containment measures and increased the risk weight from 100 per cent to 125 per cent in the case of consumer credit including personal loans and credit cards (Mid-term Review of Annual Policy, 2004-05).Network management challenges: Difficulty in maintaining and optimizing the performance of retail banking networks. Illustratively, ensuring that all bank products and services are available, at all times, and across the entire organization is essential for todays retails banks to generate revenues and remain competitive. Besides, there are network management challenges, whereby keeping these complex, distributed networks and applications operating properly in support of business objectives becomes essential. Specific challenges include ensuring that account transaction applications run efficiently between the branch offices and data centers.Money laundering: KYC Issues and money laundering risks in retail banking is yet another important issue. Retail lending is often regarded as a low risk area for money laundering because of the perception of the sums involved. However, competition for clients may also lead to KYC procedures being waived in the bid for new business. Banks must also consider seriously the type of identification documents they will accept and other processes to be completed. The Reserve Bank has issued details guidelines on application of KYC norms in November 2004.Sub-prime crisis: A major challenge to retail banking surfaced in late 2008. Retail banks as well as commercial banks had provided sub-prime mortgages to consumers who were not qualified for the size of the loans they received. Although this International Journal of Engineering Research and General Science Volume 2, Issue 2, Feb-Mar 2014 ISSN 2091-2730 process generated much of the housing boom of the early 21st century, eventually the loans became too cumbersome for borrowers to pay back. This problem led to loan defaults across the United States and led to many bank failures, not only in the United States but around the world. It produced serious deterioration in the global economy and led to the economic and financial crisis that dominated the political landscape in early 2009.Massive infusion of capital: While retail banks have their share of problems, it is anticipated that with the massive infusion of capital into the banking and financial services sector by the federal government's economic stimulus program, most retail banks will survive, and the smaller retail banks may seek to merge with other banksStrategy Knowing Your Customer: service should be at the end all in retail banking. Someone has rightly said, It takes months to find a good customer but only seconds to lose one. Thus, strategy of Knowing Your Customer (KYC) is important. So the banks are required to adopt innovative strategies to meet customers needs and requirements in terms of services/products etc.Outsourcing activities: The issue of outsourcing has become very important in recent past because various core activities such as hardware and software maintenance, entire ATM set up and operation (including cash, refilling) etc., are being outsourced by Indian banks.
Trends in Retail BankingAccording to the Reports Customer Experience Index, which surveyed over 18,000 bank customers across 35 markets, 10% of retail banking customers is likely to leave their banks in the next six months while an additional 41% say they are unsure if they will stay or go. To re-build the customer-bank relationship, the Report finds banks can become more customer-centric more personal interactions ATM machines and Internet Banking, many consumers still prefer the personal touch of their neighborhood branch bank. Technology has made it possible to deliver services throughout the branch bank network, providing instant updates to checking accounts and rapid movement of money for stock transfer Retail banking now encompasses not just branches, but also anywhere that banking services can be conveniently provided to consumers. Whether it means a service kiosk in a train station, a mini-branch in a grocery store, a premium branch in a central business district, or a bank-on-wheels that visits corporate workplaces, proximity to targeted customers ultimately matters more than having a traditional bank faade. Flexibility and agility will provide a competitive advantage for bank Technology is becoming the centerpiece of retail bank executives will expect their IT departments to identify and implement technology-based solutions to enhance the customer experience. Some banks, are even experimenting with quasi-Internet cafes, International Journal of Engineering Research and General Science Volume 2, Issue 2, Feb-Mar 2014 ISSN 2091-2730 offering high-tech lounge environments with relaxing furnishings and Wi-Fi access along with ATMs, self-service kiosks, areas for plug-in consumer devices, tutorials for mobile and Web banking and videoconferencing for service consultations delivered by call center staff. Furthermore, the move to a cash-light society will trigger still more changes in how branches are deployed. As per the RBI statistical data for year ranging from 1998-2008 the mean personal loan is Rs.12, 463,240 Lakhs against a total bank credit of Rs. 66,899,292 Crores. This average personal loan amount is against a population of 1054 million on other hand housing loans amounts to housing loans Rs. 70, 22,354 Lakhs
CHP 3 : RETAIL BANKING VS. CORPORATE BANKING
Retail bankingRetail banking refers to the division of a bank that deals directly with retail customers. Also known as consumer banking or personal banking, retail banking is the visible face of banking to the general public, with bank branches located in abundance in most major cities. Banks that focus purely on retail clientele are relatively few, and most retail banking is conducted by separate divisions of banks, large and small. Customer deposits garnered by retail banking represent an extremely important source of funding for most banks.Corporate bankingCorporate banking, also known as business banking, refers to the aspect of banking that deals with corporate customers. The term was originally used in the U.S. to distinguish it from investment banking, after the Glass-Steagall Act of 1933 separated the two activities. While the Act was repealed in the 1990s, corporate banking and investment banking services have been offered for many years under the same umbrella by most banks in the U.S. and elsewhere. Corporate banking is a key profit center for most banks; however, as the biggest originator of customer loans, it is also the source of regular write-downs for loans that have soured. Products and Services Retail BankingRetail banking encompasses a wide variety of products and services, including:Checking and savings accounts customers are generally charged a monthly fee for checking accounts; savings accounts offer slightly higher interest rates than checking accounts but generally cannot have checks written on them.Certificates of Deposit and Guaranteed Investment Certificates (in Canada) these are the most popular investment products with conservative investors, and an important funding source for banks since the funds in these products are available to them for defined periods of time.Mortgages on residential and investment properties because of their size, mortgages account for both a substantial part of retail banking profits, as well as the biggest chunk of a banks exposure to its retail client base.Automobile financing banks offer loans for new and used vehicles, as well as refinancing for existing car loans.Credit cards the high interest rates charged on most credit cards makes this a lucrative source of interest income and fees for banks.Lines of credit and personal credit products Home equity lines of credit (HELOC) have diminished significantly in their importance as a profit center for banks after the housing collapse in the U.S. and subsequent tightening of mortgage lending standards.Foreign currency and remittance services The increase in cross-border banking transactions by retail clients, and the higher spreads on currencies paid by them, makes these services a profitable offering for retail banking.Retail banking clients may also be offered the following services, generally through another division or affiliate of the bank:Stock brokerage (discount and full-service)InsuranceWealth managementPrivate bankingThe level of personalized retail banking services offered to a client depends on his or her income level and the extent of the individuals dealings with the bank. While a client of modest means would generally be served by a teller or customer service representative, a high net worth individual who has an extensive relationship with the bank would typically have his or her banking requirements handled by an account manager or private banker.Although brick-and-mortar branches are still necessary to convey the sense of solidity and stability that is crucial to banking, the reality is that retail banking is perhaps one area of banking that has been most impacted by technology, thanks to the proliferation of ATMs and the popularity of online and telephone banking. Products and Services Corporate BankingThe corporate banking segment of banks typically serves a diverse range of clients, ranging from small to mid-sized local businesses with a few millions in revenues to large conglomerates with billions in sales and offices across the country. Commercial banks offer the following products and services to corporations and other financial institutions:Loans and other credit products This is typically the biggest area of business within corporate banking, and as noted earlier, one of the biggest sources of profit and risk for a bank.Treasury and cash management services Used by companies for managing their working capital and currency conversion requirements.Equipment lending Commercial banks structure customized loans and leases for a range of equipment used by companies in diverse sectors such as manufacturing, transportation and information technology.Commercial real estate Services offered by banks in this area include real asset analysis, portfolio evaluation, debt and equity structuring.Trade finance Involves letters of credit, bill collection, and factoring.Employer services Services such as payroll and group retirement plans are typically offered by specialized affiliates of a bank.Through their investment banking arms, commercial banks also offer related services to their corporate clients, such as asset management and securities underwriters.Importance to the EconomyRetail and commercial banks are of critical importance to the domestic and global economies. Retail banking brings in the customer deposits that largely enable banks to make loans to their retail and business customers. Commercial banks, for their part, make the loans that enable businesses to grow and hire people, contributing to expansion of the economy.For proof of the importance of banks to the economy, one needs to look no further than the global credit crisis of 2007-08. The crisis had its roots in the U.S. housing bubble and the excessive exposure of banks and financial institutions around the world to derivatives and securities based on U.S. home prices. As iconic American investment banks and institutions either declared bankruptcy (Lehman Brothers) or were on the verge of it (Bear Stearns, AIG, Fannie Mae, Freddie Mac), banks grew increasingly reluctant to lend money, either to their counterparts or to companies. This resulted in a near-total freeze in the global banking and lending mechanism, causing the most severe recession worldwide since the 1930s Depression. This near-death experience for the global economy led to renewed regulatory focus on the largest banks that are deemed too big to fail because of their importance to the worldwide financial systemRETAIL & CORPORATE BANKINGFor organizations to achieve resounding success, their Business and IT need to bealigned. HCL's Retail andCorporate Banking Servicesprovides you comprehensive and specialized services across varied bankingdomains.The micro-verticalized services focus on: Consumer lending: Convenience, consumer retention, connectivity andfinancial intelligencedo have a greatbearingon the lending process. With an in-depth insight into the consumer lending industry and extensive expertise HCL solutions in areas of Collection and collateral management addresses convenience, connectivity and aids in customer retention. Commercial and Corporatelending: HCL provides a wide range of solutions across the entire spectrum of commercial and corporate lending. The practice is powered by industry experts who bring in a wealth of experience as end users and have been involved in several IT solution implementations across the globe. Cards: HCL's Cards micro-vertical provides services related to issuance, processing and servicing ofcreditand debit cards. At HCL, we have proven experience and strong technical competency in Application Development and Maintenance related toInternet Commerce. Trade Finance: With the changing market dynamics that are unfolding in the Trade Finance area, banks are increasingly recognizing the need to better understand how companies are taking advantage of traditional products along with newtoolsand technology to manage risk, streamline business processes and reduce the costs associated with trade. Multi Channel: The banks are required to adopt themselves to the changingcustomerpreferences and this applies not only to their products and services, but also to multi-channel delivery of such products and services. Treasury:The increased trend towards globalization and centralization necessitatestreasuryprofessionals to conduct business across geographies that involve different and changing regulatory controls. Cash Management: Efficient cash management processes are pre-requisites to execute payments, collect receivables and manage liquidity. Managing the channels of collections, payments and accounting information efficiently becomes imperative withgrowth in businesstransaction volumes. Core Banking: Core Banking and Run the Bank are synonymous for most part. Core Banking is the meeting point of the largestbanking servicessegment namely Retail and Commercial Banking, cutting edge Information Technology and the ever advancing Communication Technology.
CHP 4 : MODELS OF RETAIL BANKING
BUSINESS MODELSThe business models for retail banking shows interesting revelations across types of banks. The models adopted by banks vary among the public sector, private sector and foreign banks. Basically, Strategic Business Unit (SBU) Approach, Departmental Approach, Integrated Approach (part of the overall business plan) are the main approaches for retail banking. Public Sector Banks (PSBs) in the sample uniformly adopt the Departmental Approach as the retail banking business model. The above model is uniformly adopted by all the banks immaterial of their balance sheet size or geography. It indicates that the approach is more a general one with retail banking as one of the business models and not a focused business model. Surprisingly, the SBU approach is adopted by one of the top five public sector banks based in Mumbai and their business model is in alignment with private sector banks and foreign banks. In old generation private sector banks (OGPVSBs), the approach is more conservative. The business model for retail banking is built as a part of the overall business plan and not done as a separate departmental activity, leave alone SBU. In new generation private sector banks (NGPVSBs), the business model is very clear. They have set up Strategic Business Units (SBU) to have clear focus and business objectives. In foreign banks also (FNBs), the business model is only SBU with defined business focus. The demarcation as a SBU is more a Management By Objectives (MBO) process wherein the business model is dealt as a modular strategy for achieving targeted profits with a provision to knockdown the module, if the retail plans are not translated as per the objectives.POSITIONING SPACE IN RETAIL BANKINGRetail Banking Model is structured mainly on positioning platform and to be the best / top three among the peer group players or across players. Strategies are based on the positioning objectives and vary from bank to bank depending on the importance attached to the business model. Among the public sector banks, only one of the West based biggie aims to be among the top three retail players across banks including peer group banks. Other PSBs aim to among the top three among the peer group. But the strategy adopted is a part of the overall strategy based on the business mix, projections and corporate objectives of the bank. lIn case of OGPVSBs, the positioning platform is very clear. It is based on the overall business plan and in line with their size and scale. But within the overall objective, one Tamil Nadu based bank aims to achieve one of the top three slots among the peer group banks. Their technology initiatives definitely justify their positioning objective. The NGPVSB (Mumbai based) has clear visions about their positioning platform. They want to be in the top slot across all class of banks and justifiably so. The technology and strategy and customer and business initiatives and aggressive positioning had already taken the bank to the desired objective. Foreign banks do not go by positioning objective but purely on business objectives. They go by customer, business and profit targets.IMPLEMENTATION MODEL IN RETAILBANKINGBanks adopt different models for implementing their retail banking initiatives. The most common strategies are end to end outsourcing, predominant outsourcing ,partial outsourcing and in house sourcing. The implementation model depends on the product range, process requirements, technology preparedness, delivery capabilities including human resources and regulatory prescriptions .Most of the PSBs use only in house resources for retail banking. Only for some activities like ATM /Credit Cards / Debit Cards, the issue part is outsourced due to lack of facilities. Regulatory prescriptions are one of the major determinants of outsourcing or lack of it in these banks. lIn case of OGPVSBs also, the activities are carried out through in house resources only. lIn case of NGPVSBs, the model is a balanced mix of outsourcing and in house though a little skewed towards outsourcing. In some banks, asset side is outsourced whereas liability side is not outsourced though centrally processed. lIn foreign banks, the implementation model is mostly outsourced based on the business model. To add, in some foreign banks both front and back end operations are outsourced and in some banks, the back end operations are outsourced while the front end operations like sourcing of HNI clients are done through captive resources.
BUSINESS PROCESS STRUCTURE INRETAIL BANKINGBoston Consulting Group has conducted a study on the retail banking processes (Transforming Retail Banking Processes) and deduced four broadly defined process models implemented across banks. These models were defined based on the technology and customer interface capabilities of the banks studied.The four broad classifications are :(i) Horizontally Organised Model(ii) Vertically Organised Model(iii) Predominantly Vertically Organised Model(iv) Predominantly Horizontally Organised ModelThe horizontal or vertical model depends on the level of customer information available in a single platform in the data base side for offering multiple products / services across assets, liabilities and other services. Horizontally organised model is a modular structure using different process models for different products, offering end to end solutions product wise. Vertically organised model provides functionality across products with customer data base orientation and centralised customer data base is used across products. Predominantly horizontally organised model is mostly product oriented with common customer information for some products. In predominantly vertically organized model, common information is available for most of the products. lIn most of the PSBs, horizontally organised model is the standard norm. Of course, in some banks, predominantly horizontally organised model do existand reflect the level of common customer information available for some products. In one of the PSBs based in West, predominantly vertically organised model is the scenario implying that the common customer information is available for most of the products thereby enlarging the scope for cross selling and up selling. lIn one old private sector bank based in Karnataka,horizontally organised model exists and in another Tamilnadu based bank, the level of common customer information across products is relatively high with a blend of predominantly horizontally and vertically organised models. If we correlate this information with the positioning objective of the bank, the bank is going forward to achieve this. lThe surprising revelation is that even in the new generation private sector bank which is very aggressive in the retail side, the model is a blend of horizontally and predominantly horizontally organised. This shows that mostly products are sold based on stand alone customer information and common customer information is not available for all products. lIn foreign banks, it is mostly predominantly vertically organised model which implies that retail banking initiatives are attempted with common customer information across products.
IN RETAIL BANKING
The business strategies with regard to the domains targeted, are approached in different ways by different banks. The most common approaches are as follows :i. Segmented Approach where branches were classified based on the business potential with regard to retail space and business targeted in these segments of branches only with focused marketing strategies. These branches will be positioned as resource centre branches and will form part of the overall segmentation game plan of the bank. Branches are classified as Resource Centres, Profit Centres, Priority Centres 105 and General Centres to have a clear business focus. This concept is an effective business model for PSBs with large network and useful for focused strategies and already getting implemented in some public sector banks.ii. Geography based approach where retail models are built based on geographies.iii. Classification based approach where strategies are designed based on the type of branch viz., Rural, Semi Urban, Urban and Metro. This strategy helps in better product structuring for specific types of branches. Most of the PSBs have not developed any specific business model on the above lines and generally adopt a holistic model based on the corporate objectives for retail. In some banks, segmented approach is being built in the corporate model but not a stand alone segmented approach.In OGPVSBs also, the overall corporate objective for retail is the basis for the model and segmentation is built in that model only to a limited extent.In NGPVSBs, a mix of segmented model and classification based model is adopted to capture the retail potential in a structured way in segments where it matters.In foreign banks, a model not restricted to any of the above but based on the retail game plan is being adopted.
PRODUCT MODELS
DEMAND DEPOSIT PRODUCTS IN RETAILBANKING Liability products are offered to retail banking customers basically under three spaces - Savings Accounts, CurrentAccounts and Term Deposit Accounts. Product differentiation among these accounts is best achieved by adding different value propositions. Attempts are made bybanks to expand the scope of generic products from aplain vanilla account to a value enriched account. The days of simple functional products are gone. Functionality is now perceived to include changed needs. A simple pass book and cheque book to a Savings Account are pass now. Built in ATM / Debit Cards / Credit Cards / Multi City cheques have become generic features.Internet Banking, Telephone Banking, Mobile Banking have become essential value play. The value game has extended to tagging group insurance products in the life and non-life space at a very competitive premium component. Group Life Policies as value additions and group health policies on a floater basis covering the entire family, are offered as part of the account package. Monies in accounts are not allowed to sit idle and undertake active travelling by means of sweep facilities from savings accounts to fixed deposit accounts above a certain specified level. This increases the earning potential of the deposit balances in Savings Accounts. In case of Current Deposits also, most of the above features are built in. In addition, in some banks an auto overdraft facility is structured as a part of the package .In almost all PSBs, Savings Bank with ATM / Debit Cards are offered as a standard entry level product. Sweep facilities and add on life / health cover are offered only in some banks. Super Savings Accounts with value bouquet for high Value Customers are also offered by some banks with specific brand names. In current accounts also, the above facilities are offered. In addition, current account with fixed overdraft facility is also offered by most of the banks .In OGPVSBs also, in addition to standard savings accounts, add-on life cover is offered. In current accounts also, the facilities as offered by PSBs, are offered by them also. In NGPVSBs, all the above products are offered by them and the same is the case with foreign banks also. From the above, the product differentiation in demand deposit products is very thin and only value differentiation is the key factor across banks and the technology, process and delivery efficiencies separate men from boys.
TERM DEPOSIT PRODUCTS IN RETAIL BANKING
All banks offer term deposit products with provision for monthly, quarterly or cumulative interest paymentoptions. Fixed Deposits built with units of fixed amount are also offered by banks. This is intended to inject an unfixed component in a fixed deposit and enable the depositors to partially withdraw without disturbing the entire amount and the resultant loss of interest. Banks also offer fixed deposits with built in overdraft facilities so that it becomes more a current account than a fixed deposit. These product re-engineering measures areadopted by banks to enhance the comfort level of the term deposit account holders and offer convenience as a value proposition. Almost all PSBs, OGPVSBs, NGPVSBs and Foreign Banks offer the above facilities. Some banks offer accidental life cover for term deposits but the group life cover and health cover are not normally offered to term deposits as they are structured as a part of demand deposit accounts due to operational reasons.
PRODUCT DEVELOPMENT IN RETAIL BANKING
Product Development is attempted by banks in different ways. In house product development, independently developing the products based on research and on the market dynamics is one way. In the process, hybrid cross pollination incorporating the best features in the products available in the market along with additional value engineering form part of the product development.Another way of product development is based purely on market conditions and customer segments without any background research and also 'follow the leader approach' by developing on the same lines as the leader. The other most common model is simply following the instructions of the Top Managementwithout any background research or analysis. The basis for these product developments, as saidearlier, is either on the segmentation approach or geography based approach or classification based approach or approach based on specific customer segments like NRI, HNI, Mass Affluent, Salaried,Professionals, Women etc. In most of the PSBs, product development is done in house incorporating the market dynamics. The market conditions and customer segments of the bank are factored in the development. The views and instructions of the Top Management are the prime drivers of productdevelopment in PSBs. In the development process, geography is not given importance but type of branchand centre and business potential are given due importance. In OGPVSBs also, tough products are developed in house independently. Market dynamics and the product positioning adopted by other players are taken cognizance of. Customer segments and market potential are also other prime drivers based on the overall segmentation approach. In NGPVSBs, in house product development incorporating the market dynamics, segmentation, classification and customer segments, are the deciding factors in product development. In Foreign Banks also, the above factors play a key role in product development. The overall product development scenario is based on more than one or all the above factors depending on the retail business positioning of the banks.
BASIS FOR PRODUCT DEVELOPMENT IN RETAIL BANKING
The fundamental approach to product development starts from conducting a market survey about the need levels and gap among the target group, identifying the needs, developing the product, pilot testing toa sample universe, getting feed back, fine tuning the product based on feedback and then the finalroll out of the product across targeted segments. One or more elements of this process are sometimes by passed due to various factors and are product related or management related. Sometimes some part ofthe process is outsourced and some through in-house resources and also some part of the process is skipped. The practices vary across banks. In PSBs, market survey is done only through in house resources and not outsourced. In some banks, no market survey is done and products developed and launched based on industry practices and need expressed by customers and without any pilot run and feedback. In OGPVSBs also, no market surveys are attempted but product development based is done on customer feedback and industry practices without any pilot run and feedback. In NGPVSB, pilot survey is done through in house resources and then the process is followed. In foreign banks, the product development process is followed in letter and spirit.
PROCESS MODELS
PROCESS MODELS FOR PRODUCTS AND SERVICES
Processing of products and services in retail banking is basically approached from three dimensions viz., the entire processing is done through in house resources, some products processed in house and for some products outsourcing is done for process and the third approach is outsourcing of entire process subject to prescribing process standards. In PSBs, the entire process for products and services are done through in-house resources. In one West based mid size PSB, process part of some products are outsourced. But no outsourcing is generally done for the process part. In OGPVSBs also, only in house processing is the norm and no outsourcing is done for the process part. In NGPVSBs, partial outsourcing is attempted and partially by in house process model. In foreign banks, the entire process is outsourced and normally it happens through a dedicated back office covering the entire gamut of banking services.
PROCESS MODELS FOR MULTI STAGE PROCESS REQUIREMENTS
Process models differ for products which require single stage process and multi stage process. For example, opening a fixed deposit and issuing receipt involves only a single stage process. Like wise, giving car loan is a single stage process. But in case of housing loans or Savings / Current Accounts, multi stage processing is involved. In this scenario, the process model may be stand alone or centralized,depending on the product for better process / delivery efficiencies. Banks adopt different models in this area. In case of PSBs, no watertight process model is adopted but a judicious mix of the different models is in place. In some banks, end to end process model at a single point is adopted. In case of OGPVSBs, in one bank end to end model is adopted while in another bank, a holistic model encompassing all the models is attempted. In NGPVSBs, a mix of the above models is the norm. In foreign banks, end to end model for all products and that too outsourced model is the standard practice.
PROCESS TIME FOR PRODUCTS & SERVICES
Process time is a major differentiator in the efficacy of retail banking operations. Process Time is business sensitive and customer sensitive. It is an important component of business promises with regard to product delivery. It reflects the confidence and process efficiencies of the bank. The quicker the process time, more the delivery efficiencies and customer recognition. Banks are implementing process time prescriptions for different retail asset products. Most of the PSBs have prescribed process time for different asset products. In only one PSB out of the sample, no processing time prescriptions were developed. One south based PSB has implemented the Six Sigma Quality Implementation Model in which the process time also finds a place. In another PSB, the process time as prescribed, varies from 7 days to 15 days, depending upon whether it is processed at the branch or regional hub or centralised processing. The general trend noticed in PSBs is that the process time is almost uniform across products.
In case of OGPVSBs also the same model as prevalent in PSBs is being adopted, but process time is relatively less in one bank than the other for various retail asset products revealing their extra commitment in retail asset expansion. In NGPVSBs, the process time for various asset products is structured based on the type of asset as centralised processing is the standard model adopted by these banks. The process time in these banks are clearly drawn between sanction time and actual release of finance. Foreign Banks by adopting centralised processing, clearly spell out the process time for different services including retail assets as done by NGPVSBs.
PRICING MODELS
PRICING OF PRODUCTS & SERVICES
Banks develop models for pricing of products and services based on certain fundamental parameters. Market dynamics, risk perception, return expectations, tenor / duration, resources position, asset liability management positions and customer profile are some of the variables which are factored into the pricing model by banks. The balancing of these various variables dynamically with changing market dynamics is the key function for good pricing model. In addition, regulatory advices (both overt and covert) also influence the pricing models. The fundamental concept of costing in pricing is now linked with the asset liability management practices of banks. Though pricing is market driven and competitive In PSBs, it is mainly driven on the basis of the asset liability management practices of almost all the banks, Of course regulatory advices form part of the price structuring. In general, the model is built on the basis of all the above factors. In OGPVSBs also, the same model as above is adopted except that the pricing will be slightly aggressive than PSBs in order to capture business in the competitive environment. In NGPVSBs, though the pricing fundamentals almost remain the same, the pricing of products are always aggressive and ahead of the market to set a price race in the market for demand driven products like term deposits, credit cards, car loans, housing loans etc., In Foreign banks, the models are almost same as NGPVSBs and they are always aggressive in the price front with process efficiencies.
TECHNOLOGY MODELS
TYPE OF TECHNOLOGY MODEL FOR RETAIL BANKING
The technology platform for retail banking plays a major role in the retail banking initiatives of banks. In today's scenario, technology is the backbone of the process and delivery efficiencies of banks. The technology models basically adopted by banks are In-House Models, Outsourced Models, Partially In House and Partially Outsourced Models. Each model will have certain advantages and disadvantages and the overall business will be the decider of the effectiveness of the model. Most of the PSBs have primarily in house models with partial outsourcing also. Again, total in house development and implementation by the in house team is practiced by some banks whereas in some other banks, the development is done by some vendor and implementation is taken care of by the bank.In total in-house development, the cost factor will be favourable while in the second model, cost factor matters. A south based PSB has successfully implemented the total in-house development and implementation and migrated to the core banking platform also seamlessly. Some other banks have totally outsourced packages but implemented in house. In OGPVSBs, one bank has outsourced model for technology while the other bank has in-house model with outsourced vendor. In NGPVSBs, the model is predominantly outsourced with partial in house model. In foreign banks, outsourced model is mostly adopted.
TECHNOLOGY IMPLEMENTATION MODEL FOR RETAIL BANKING
Technology and Retail Banking are inseparables. Technology is the foundation on which the retail banking edifice is built across the globe. Technology is the enabler for building and translating a customer data base into retail banking business. Banks adopt different technology platforms in line with the global trends. The level of technology implementation in PSBs started from stand-alone Automated Ledger Posting Machines (ALPMs) in the early days of computerization and graduated to total branch automation and regional net worked hubs. NGPVSBs started with technology advantage of a single server environment which gave them advantage over other banks. PSBs have reengineered their technology initiatives and started implementing core banking solutions which resulted networking the customers and accounts in a single platform. Some banks have almost completed the core banking solutions process, while in other banks the level of implementation is at various stages. The level of implementation of core banking will directly increase the chances of availability of customer data base across products and will increase the scope for cross selling and up selling. Core banking gives clues about the level to which the data base is horizontally or vertically organized .Horizontal or vertical organized refers to whether data is available product wise on a stand alone basis or data is available customer wise on an integrated basis. Only one PSB has implemented cent percent core banking solution. Two market-savvy PSBs completed the core banking covering more than 75% of their branches. Another bank covered about 50% of their branches under core banking. In some banks, there is a long road ahead in regard to the core banking implementation as it is still in the startup stage. The present technology model in most of the PSBs is amix of Core Banking Model at various stages of implementation, Total Branch Automation and legacy systems (stand alone ALPMs) depending on the type of branch and business. To add, PSBs are more horizontally organized in the process model with various levels of vertical position across banks. Customer data base and products integration has not materialised fully which will be a hindrance to effective retail business.
CHP 5 : STRATEGIES OF RETAIL BANKING
PRODUCT STRATEGIES
PRODUCT DEVELOPMENT STRATEGIES
Product development strategy is the first step in the product development model. The model and strategy are intertwined. It is like the chicken and the egg. Which comes first is a very difficult question to answer. Building a model and developing strategies in line with the model is adopted by some banks. Developing strategies and building a model around is followed by some other banks. But strategies and models should be in tandem with each other for a coherent implementation programme. Product development strategies in PSBs are mainly based on the different customer segments (existing and prospective), competitors' offerings and also based on the market research / market demand. OGPVSBs also follow the same line of approach. In NGPVSBs, the focus is more on customer segments in addition to the other factors. lIn foreign banks, an integrated approach with profit chain model in built is followed.
CUSTOMER ACQUISITION STRATEGIES
Customer base is the basis on which the business strategies are built in retail banking. Acquisition of customer base (1 million accounts, 2 million accounts) to achieve target volumes is one strategy. Achieving target volumes from the existing and acquired customer base is another strategy. Acquiring customer bases include acquiring target segments (HNI, Mass affluent) in line with the business strategies. Some bank work on business volumes first through customer targets. Some other banks target customer volumes first and business volumes in the process. Some banks adopt both the above in tandem. Most of the PSBs follow the strategy of customer segments and business volumes together though customer acquisition is given more focus to improve the business volumes. In one Kolkata based PSB, the strategy is more skewed towards achieving business volumes. In OGPVSBs, the above is true though in one bank, the focus is on segments and in another bank, the focus is more holistic. In NGPVSBs, a mix of both customer segments and also business volumes are the drivers of the strategies. Foreign banks also adopt the same line of strategies as in NGPVSBs. Banks adopt different strategies to acquire customers. Different models are implemented depending on the business strategy and of course regulatory prescriptions in this regard. The primary mode of acquisition is through the banks' own branch net work or sales teams specially formed for the purpose. Sourcing customers through Direct Selling Agents (DSAs) is another strategy. Tele calling (cold calls) and follow up from an existing data base or outsourced data base and cross selling to the existing customers and prospecting for new business from the outsourced data base is yet another model. lIn PSBs, the branch format is the mostly used model for acquiring customers. Across the counter acquisition through the Branch Head / Other Staff is the primary mode through which customer acquisition happens. There are also regulatory prescriptions for outsourcing for customer acquisition. Of course to obviate this, some banks have developed special sales team / marketing officials based on their retail model to have exclusive and focussed strategies for customer acquisition and business mobilization. In OGPVSBs, also the same strategies as above are implemented. But in the case of NGPVSBs, the strategies extend beyond branches. Branches play only a limited role in customer acquisition. DSAs play a very important role in their strategies. A strategic mix of outsourced and in house model is adopted. For sourcing customers for some products, DSA strategy is used while for others, banks' sales team is used. For example, customers for liability products, card products are acquired through DSAs, while customers for mortgage loan products are acquired through banks' sales team. This is the strategy followed by most of the private sector banks. Foreign banks depend almost entirely on DSAs for customer acquisition for most of their products except some specific segments like HNIs, Wealth Management Clients etc. Branch level customer acquisition is very low among these banks.
CHANNEL STRATEGIES FOR DELIVERY OF PRODUCTS / SERVICES
Delivery Channels make or break retail banking. The initiatives in retail banking across products and beyond products get translated into business only through efficient delivery channels. Channel is the mode through which the offerings reach the customers. Banks offer both direct channels and remote channels as a part of channel strategies and make a judicious mix of these channels as effective delivery models. The brick and mortar format still rules the roast in the direct delivery format. Technology has changed the conventional formats of delivery channels and new technology driven remote channels like ATMs, Mobile Banking, Internet Banking and Telephone Banking have emerged to enhance customer experiences for availing the products and services. The efficacy of these channels plays a vital role in the level of customer engagement to the banks' products and services. In no PSB, only direct branch delivery format is adopted. The question is the level and extent of implementation of remote channels across geographies. ATM is the most common remote channel adopted by almost all PSBs. Telephone Banking, Mobile Banking and Internet Banking are implemented at various levels in different PSBs. Predominantly, brick and mortar is the main delivery channels in all the PSBs sampled. A mix of direct and remote channels are offered by all the PSBs depending on the products and services and in some banks, direct channels for relationship oriented products and remote channels for transaction oriented products. lOGPVSBs also adopt the same strategies. But the level of implementation of remote channels is lower in these banks. This is compensated by tie up arrangements with other banks so that customer expectations are met for a broader access. In NGPVSBs, remote channels play a more vital role than direct channels. These banks encourage use of remote channels than direct channels purely based on the cost of channel delivery. The channels are skewed more towards the remote side than the direct side. These banks also use direct channels for relationship
DELIVERY STRATEGIES FOR PRODUCTS / SERVICES
The delivery of physical evidence for products and services (Cheque Book, Pass Book, ATM, Debit Cards, Credit Cards, and Deposit Receipts) is a vital element in the initiation of account relationship. Effective delivery of these evidences is a pre cursor or a smooth relationship. Different strategies are adopted by banks for this. Some banks complete the delivery process at the point of sale itself (Branch), some other banks follow either a centralized delivery process or a regional level geography oriented process for all or some of the deliverables. To illustrate, for Savings Accounts some banks deliver Pass Books, Cheque Books, ATM / Debit Cards at the branch itself whereas in some other banks the whole or part of it is centralised i.e. Pass Book delivered at the Branch and Cheque Book and ATM / Debit Card are delivered through a centralised hub. Another delivery strategy is to route the entire deliverables through a centralized hub. In almost all PSBs uniformly, the physical evidence related to products / services are delivered at the branch level. In some PSBs, the Debit / ATM / Credit Cards are processed centrally and delivered through the branches. In OGPVSBs, also the same strategies as in PSBs are adopted. The standard strategy is creation of the product/service at the branch level and delivery of physical evidence is done through any or a mix of the above strategies. In NGPVSBs, the strategy adopted is a mix of branch level delivery for some products or part of it and or delivering the full package through a centralised hub. In foreign banks, mostly the delivery of physical evidence is through a centralised hub.
TRAINING STRATEGIES FOR INTERNAL CUSTOMERS (STAFF) FOR DELIVEY OF PRODUCTS / SERVICES
Training is a very important function in the internal customer education process. Internal Customers' knowledge about the products and services is translated to the external customer and converted into sales. Research studies have established the positive correlation between the product knowledge of the internal customers and the external customers. Training elevates both the knowledge and skill sets of the internal customers. Training in most of the banks are developed and administered as an in-house mechanism. It is administered in a two stage process, both centralized and regional / zonal model depending on the type of human resources to be trained. In some private and foreign banks, outsourced training strategy is adopted for sales / marketing and the technology functions and in-house strategy for product training. In PSBs, the training strategies are entirely in-house. Training for sales staff is administered only through in house resources. But for third party products, training is imparted through the training system / outsourced model of the third party. The in house training is supplemented by external training of specialized national level specialized training institutions / management institutions based on the domain related training needs. The same strategies as adopted by PSBs are adopted by OGPVSBs also. The only difference is that the level of outsourced training and external training will beless naturally because of the less human resources numbers in these banks as compared to PSBs.In NGPVSBs, the training strategy is a mix of in house training supplemented by external training from specialized training institutions (instead of total outsourcing) for specific domain related training needs. But the sales training will be skewed more towards outsourcing strategy. Foreign banks mostly follow outsourcing as the training strategy. The scale and size necessitates outsourcing and done through specialized training institutions by structuring in company programs exclusively.
PERFORMANCE INCENTIVE STRATEGIES FOR PRODUCTS / SERVICES
Performance and reward goes together and rewards in turn become motivators for further performance. Incentives for performances are most common forms of rewards and it includes monetary as well as non monetary. Incentivisation strategies are adopted by banks in different forms. It includes direct incentivisation (both monetary as well as non monetary) by the bank and indirect incentivisation by third party partners in the fee-based business segment (Insurance, Mutual Funds). Monetary Incentives are directly given as cash awards for performances / achievements, whereas non monetary awards are in the form of nominations to overseas educational trips, domestic trips to hill stations , attending conferences etc. lIn PSBs, in almost all the banks, non monetary incentivisation by the banks is the standard norm adopted. In most of the banks, performance linked non monetary incentivisation by the partners in the third party distribution, is also additionally adopted. Almost no PSB is allowing direct monetary incentivisation by any partner in third party distribution. Some banks incentivise Staff directly with monetary rewards during special campaigns for top performers and also supplement with overseas educational tours. In case of OGPVSBs, though direct incentivisation by the bank is in a limited way, they allow direct monetary as well as indirect non monetary incentivisation by the partners in third party distribution. This is done perhaps due to limited human resources and the need for focused motivation to augment fee-based business and income. In case of NGPVSBs also in addition to direct monetary and non monetary incentives by the bank, incentivisation by the partners in third party distribution is adopted as a strategy. This is mainly done to boost third party distribution and fee-based income from that segment. Foreign banks also follow the same strategies as adopted by NGPVSBs. The strategy is extended as an additional incentivisation tool to motivate the Staff over and above the internal incentivisation programmes.
CUSTOMER RELATIONSHIP MANAGEMENT (CRM) STRATEGIES FOR RETAIL BANKING
Customer Relationship Management (CRM) is the backbone of retail banking. A vertically organized model with availability of customer information across products will be a sound base for building an effective customer relationship management programme. Integration of customer data base in a single platform will facilitate a smooth CRM programme. It helps the banks not only to implement various CRM initiatives but also to develop cross selling and up selling strategies to mobilize additional business and increasing the per customer profitability. But all these depend on the strength and spread of customer data base available in banks. The data base structure varies across banks. In banks with a single server environment, centralized data base will be available. Depending on the level of technology integration, banks will have multiple layers of customer data base and the CRM strategies are built around those layers. lIn almost all PSBs, stand alone branch level data base is the norm for all retail banking activities and CRM initiatives. Centralised data base does not exist as core banking solutions are not implemented covering all branches and the implementation level is in various stages across banks. In some banks, regional level data base is built up for localised CRM initiatives. In OGPVSBs also, standalone data base is the format available for CRM initiatives at present. The technology advantage over PSBs and OGPVSBs clearly put the NGPVSBs ahead in terms of centralized data base for CRM initiatives. The centralized data base through a single server environment is available in private sector banks to develop multi pronged CRM initiatives. In foreign banks also, the situation with regard to customer data base is the same as in NGPVSBs.
THIRD PARTY DISTRIBUTION STRATEGIES IN RETAIL BANKING
Retail Banking is all about handling a huge volume of customer base and effectively deriving business and profit from them. Maximising per customer profitability is the basic objective and this is best achieved by offering a slew of products to match the entire need spectrum of the customer across financial solutions. To take the product range beyond banking solutions, banks have to look into other financial services providers like insurance, mutual funds, capital market players and bundle the offerings along with the banking products by entering into distribution tie ups. The concept of these Third PartyDistribution (TPD) strategies augurs well for the banks in a number of ways. It effectively satisfies multifarious customer needs across financial spaces, enhances the scope for banks for cross selling and up selling and thus improving brand loyalty, generate new revenue models for the bank by means of fee income for the third party products sold and also expansion of customer base through referrals. TPD has become a highly attractive fee based revenue augmentation strategy across the globe and some banks are deriving more than 50% of their retail banking income through fee based strategies. In the Indian banks also, TPD is emerging as an attractive business strategy for players with retail focus. Almost all PSBs in the sample have in place aggressive third party distribution strategies. These banks have tie ups for distribution of life insurance, non-life insurance policies and also for distribution of mutual fund schemes. OGPVSBs also have distribution tie ups for life, nonlife and insurance space. NGPVSBs have focused third party distribution strategies for augmenting fee based income. They have their own group companies in the life, non-life and mutual fund spaces and are their natural allies in third party distribution. But in the mutual fund space, the tie ups have extended beyond to distribution of other mutual funds to maximize their fee-based income. Foreign banks also follow the same strategies in third party distribution as adopted by NGPVSBs.
CHP 6 : PERFORMANCES OF RETAIL BANKING
CUSTOMER BASE
Customer base is the basis on which the retail banking operations are centered. It definitely depends on the size of the bank and the objective of the banks will be always to systematically expand the customer base so that the retail banking opportunities get manifold. The advantage is that a retail banking opportunity is available from every customer in the customer universe of the bank lMid size PSBs work on a customer base of around 15 million and improve on an average by a million a year. Small PSBs work on a base of about 10 million. In large PSBs, it is above 20 million and around 30 million. OGPVSBs work on a customer base of about 3 million on an average. NGPVSBs work on a base of around 20 million on an average. There is no data available for customer base of foreign banks.
LIABILITY PRODUCTS
CURRENT DEPOSITS
Current Deposits offer huge scope for reducing the cost of retail
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