Scenario And Challenges Of Retail Banking In India Finance Essay


This paper discusses the overview of retail banking in India. It further explains the range & A ; enormous growing of this section among the other sections of banking. The retail sector in India has immense potency & A ; is expected to turn at a rapid gait when overall banking sector is expected to turn at 30 % this twelvemonth. The current scenario, merchandises & A ; services offered advantages ; disadvantages, issues & A ; challenges are besides a portion of this paper.


Today, the selling mantra is to delight clients by offering them more than their outlooks. This leads to more satisfied clients. The same is applied to the banking industry. Indian Economy is traveling from fabricating to serve economic system where Banking sector is undergoing a alteration. The demand for fiscal merchandises is increasing & A ; customization of services is going a necessity.

The retail banking is turning at a rapid gait. Once it was considered as forbidden by the taking foreign & A ; domestic Bankss.

But today all the Bankss have recognized the importance of retail banking which became possible due to extended competition, invention & A ; advanced engineering. With the expected growing of 30 % for retail banking, the Bankss are concentrating more & A ; more on it. They are traveling up to the potency of this segmant of banking.

In footings of gross for both public & A ; private sector Bankss, Retail banking is a major subscriber. PSBs are considered to be more hazard averse. In comparing to the private Bankss, PSBs have higher exposure to the retail banking section & A ; lesser exposure to treasury operations, in which foreign Bankss holds maximal gross.

In Public Sector Banks, SBI entirely holds more than 1/4th of the gross from retail banking operations. The PSBs have higher portion in retail banking because of their rural range in comparing to private or foreign Bankss. Out of the entire subdivisions of Bankss in rural India, PSBs have for 94.7 % of them.

As on 31st March, 2008 the gross in different sections is shown for PSBs, Private & A ; Foreign Banks.


Private Banks

Foreign Banks

The Indian participants are confident towards the Indian Retail banking. The ground for it is that

There has been a drastic alteration in the urban household income form which has straight impacted the ingestion patterns & A ; hence the banking wonts of Indians have tilted towards the Retail merchandises & A ; services.

The disbursement form in India is besides increasing. The bullish form can be seen in the Retail concern. The entire outstanding Retail loans in India are below 5 % of the Indian GDP whereas they are around 41 & A ; of the GDP in Taiwan. The figures are more surprising while comparing with the West.

Compared to Western states, India is dawdling behind in the usage of recognition cards.

In India the people have by and large save a batch. On an norm an Indian saves 35 % of his income. Therefore, no. of banking services provided by Bankss is increasing twenty-four hours by twenty-four hours.

Besides the revenue enhancement benefits are available on assorted loans. For ex- a borrower can avail revenue enhancement benefits for the loan refund & A ; the involvement charged for the loan in instance of lodging loans.

Retail banking is really a “ mass market banking ” where single clients use local subdivisions of the big commercial Bankss. The focal point is on making merchandises & A ; services that meet the demands of the mark clients and in bend doing net incomes every bit good.

Since retail banking merchandises are more on a mass production footing, hence, all hazards & A ; operations are to provide to a big figure of clients & A ; are besides based on them. This attack is rather different from sweeping banking or corporate banking where mark is on big sized client histories instead than big Numberss of clients as in the instance of retail banking.

For serving your client better it is really of import to understand retail banking as it helps in structuring merchandises and run intoing specific demands for each set of merchandises. ATM introduced the construct of Anytime banking.

Anywhere banking became possible with the development of orbiters & A ; telecom webs across the universe.

Now it is the clip for Anyhow banking & A ; the bank which will hold all these 3 A ‘s will be the taking bank of the following century.

RETAIL Banking

Retail banking is rather wide in nature. It refers to covering with single clients by commercial Bankss, both on liabilities & A ; assets sides of their balance sheet. Fixed nest eggs /current accounts come on the liabilities side & amp ; mortgages and loans come on the assets side. Various other services include recognition cards or depositary services. Retail banking & A ; retail loaning are frequently confused with each other but retail loaning is merely a subset of the retail banking. Individual client ‘s demand & A ; demand are accessed & amp ; approached in an incorporate mode in retail banking.

Retail banking sector is consists of:


Retail Banking has become a better option for Bankss to increase their net incomes as the loaning to corporate is of high hazard & A ; are by and large slow traveling. This sector consists of a big no. of clients of varied category. This type of banking provides customized & A ; broad scope of merchandises to single & A ; little units. Besides the hazard is dispersed & A ; the recovery is really good. The merchandises can be designed, deployed & amp ; marketed harmonizing to the single demands.

Analysis OF RETAIL Banking


Diversified plus portfolio

Retail banking consists of a broad scope of fiscal merchandise & A ; services. These include sedimentation merchandise, place loan, loan against equity portions, mortgage loan, car loan, auto loan, payment of measures, recognition card, debit card etc. Such a diversified plus portfolios provide Bankss with higher net income & A ; comparatively lower NPA ( non Performing Assets ) .

Upcoming as a new growing driver

Over past few old ages, fierce competition has lowered the spread & A ; profitableness from a commercial loan. Besides, with the deregulating and addition in consumer loan rate, the hazard adjusted return in retail sector has exceeded beyond the return on commercial loan.

CRM tools

The client Service & A ; Quality execution through usage of CRM tools will assist Bankss in credence of their banking merchandise and satisfaction of client that will finally give net income for them.

Advanced merchandise development

In fiscal services there is an limitless range for development & A ; invention. Banks should near the clients to happen out their fiscal demand & A ; job and consequently construction their schemes towards the development of the merchandise & A ; services, marketing them & A ; eventually selling them to fulfill its client.

Increase in income

With the addition in per capita income & A ; growing in urbanisation the life manner of people has changed. The demands & A ; aspirations of people have increased. Therefore, the function of retail banking has become of import. By supplying assorted merchandises & A ; services like personal loan, instruction loan, place loan etc to its client, the retail banking helps in keeping the altering life manner of its clients through low-cost recognition.

Economies of graduated table

Through Retail Banking, Banks can acquire the benefits of information & A ; dealing. Banks have entree to more information through extended services. They should consistently enter this client information as it can assist them in efficient use of this information, which in bend can be used in happening out new segmento of market & A ; to sell their new services.


Reduces the profitableness

Retail banking requires high capital investing as a immense sum is spent on pull offing the broad scope of merchandise & A ; service which farther requires big staff & A ; high quality engineering. All this reduces the overall Bankss profitableness.

Avoids corporate sector

Retail banking avoids corporate sector which forms the anchor of Indian economic system. Banks should decently pull off their corporate clients through lower arte recognition, higher sum of loan etc. Corporate clients are easy manageable as they have good defined fiscal policy & A ; undertakings.

Changes in engineering

If Bankss are non able to fit with the latest engineering it may impact their growing. Besides the engineering requires immense sum of capital investing & A ; if suppose, the engineering fails so it will impact the bank ‘s repute & A ; the bank may lose some of its client.


Retail banking requires strong internal every bit good as external selling schemes to be adopted by bank. Under retail banking the direction needs those employees who can present merchandise decently to their clients. The employees must be cognizant of the merchandises they are offering because if this is non the instance so it can take to the failure of even a really good merchandise. Besides bank should pass a batch on its selling of merchandise to general public. All this increases the disbursals of Bankss in footings of clip & A ; cost required to present the merchandise.


1 ) Addition in per capita income:

There has been increase in the per capita income over the past few old ages & A ; is expected to turn in the hereafter besides. Furthermore, the younger population is more comfy in taking personal debt than old coevalss. Their buying power has besides increased due to economic growing & A ; more occupations. Besides GDP of India is lifting at a really good rate. Currently it is about 9 % & A ; is expected to lift in the close hereafter.

Invention in merchandises & A ; services

This section has more range for invention as Bankss attempts to supply more & A ; more merchandises & A ; services to their clients as desired by them. Banks can continuously modify its merchandises & A ; services to fit the market demand & A ; sustain in this competitory epoch.

3 ) Turning Economy

Retail banking has tremendous chances in a turning economic system like India. A.T. Kearney, a planetary mgnt. confer withing house, identified India as the ‘2nd most attractive retail finish ‘ among the 30 emergent markets.


Large payout of loans

The increasing competition has made the Bankss to pay out big no. of client loans, car loans, place loans, loans on recognition cards, educational loans etc. on easy footings without much enquiry. Due to this the no. of instance of default in loan refund has increased. This in bend has increased the bank ‘s bad debts & A ; nonperforming assets ( NPA ) . This was one of the major grounds for recession which has affected the universe.

2 ) Customer privateness issues

One of the major jobs from client ‘s point of position is that the client service representatives of the Bankss pealing up their clients at any clip at their topographic points of work, informing them about new merchandises & A ; services. This may do incommodiousness to busy clients.

Banks are besides responsible for non sharing the personal information of the clients with any outside bureaus like market research groups & A ; other advertizers.

3 ) Information Technology

With the growing of IT, a figure of frauds have aroused & amp ; are carried out with the aid of engineering. These frauds semen under the sphere of cyber offenses. The unscrupulous elements have ever attacked Bankss. In many instances these elements have stolen recognition card ordinal number, watchword & A ; other confidential information associating to client. For ex- Satyam cozenage.

These elements have besides hacked Bankss website.

Banking Merchandise

The banking merchandise countries which have high growing potency can be classified as follows:


Housing loan comprises of 48 % of all retail loans. The client attitudes toward keeping debt translated this market into a market that expanded with a rate of 35 % yearly from 1999 to 2004. Besides the loaning rates are non really high and the turning household income enables the borrower to do the payment of involvements & A ; chief sum. Banks by and large have tie ups with assorted existent estate companies. This is to cut down to attempts on the side of client for taking loans.


Housing loan comprises of 27.2 % of all retail loans. Car gross revenues volume in 2004 increased to more than a million vehicles and one-year growing in gross revenues reached 954,354 in 2007. The gross revenues of motorcycles have besides increases. Banks provide assorted moneymaking programs to finance your auto or a motorcycle.

They frequently come up with assorted strategies which increases the gross revenues of the vehicles & A ; aid people fulfill their aspirations.

India has become the 3rd largest market for autos & A ; MUVs. The growing drivers of this section are easy finance, low involvement rates, opening up of 2nd manus auto finance & A ; up step of rider to four Wheelers from two Wheeler.

aˆ? SME Banking

Initially public sector Bankss in India focused merely on large industries alternatively of little concerns. But today SME market in India has expanded beyond 4 million concerns. These concerns are turning, importing & A ; exporting and demanding more & A ; more complicated banking merchandises and services.


Banks provided this service to hike the fiscal position of persons. The Bankss that can set up the right combination of history mgnt & A ; distribution substructure can avail the benefits from turning market for wealth direction. The services can be salvaging income in bank histories or puting in insurance


The cardinal policy issues in retail banking sector are: fiscal enclosure, handiness to finance, protection of consumer & A ; his privateness, fiscal capableness, responsible loaning, ordinance & A ; bar of fiscal offense.



The advantages from the resource & A ; plus point of position are as follows:

Resource Side

Apart from current & A ; nest eggs histories, the sedimentations in retail banking are relatively stable. These constitute nucleus sedimentations.

Helps in increasing the subordinate concern of the Bankss.

They are involvement insensitive in instance of current & A ; nest eggs histories.

The financess in this sector are the low cost financess.

Helps in constructing a strong client base.


For financess deployment, Retail banking is a good chance.

When there is a high demand for banking merchandises & A ; services, Retail banking demand non necessitate high selling attempts.

Consumer loans involve less sum of hazard & A ; have perceptual experience of less NPA.

Through investings in productiveness activities, it helps in economic revival of the state.

Through low-cost recognition, this section of banking improves life style of the people & A ; fulfils the aspirations of the people.

Diversified portfolio due to immense client base reduces hazard for a bank.


Huge capital investing is required in planing new fiscal merchandises. It requires a batch of clip & A ; cost for the bank.

Today net banking is preferred over subdivision banking by clients. It is non possible for Bankss to retain their clients if their engineering is non up to the grade. The clients wishing to utilize net banking will exchange over to the services of some other bank.

Assorted other fiscal merchandises like common financess etc. attract clients towards themselves.

Banks are non able to work the engineering to an appropriate degree

Banks is passing to a great extent on human resource section for supervising & As ; following up of big no. of loan histories.

In the absence of proper follow-up, long term loans like lodging loan which involves long repayment term can go NPAs.

As compared to sweeping banking, the sum borrowed in retail banking by a individual client is really low. Therefore, the bank is non able to do immense net incomes from a individual client.


Banks should follow the undermentioned schemes to accomplish success in the retail banking sector.

Adoption of advanced & A ; latest engineering

Handiness of skilled adult male power in all subdivisions & A ; offices

Extensive market research should be carried out in order to explicate advanced & A ; competitory merchandises & A ; services

Pull offing relationship with clients by holding an attack of client relationship direction.

There should be balanced and sustained growing in sedimentations & A ; progresss

More & A ; more bringing channels should be explored

Service quality should be improved with human touch giving the clients personal experience

Proper strategic cost direction should be adopted

Changeless focal point should be at that place on Universal banking and fiscal supermarkets

Cross Selling of Merchandises

Public Sector Banks have a broad web of subdivisions. This provides them with added advantage over other Bankss. Through these subdivisions Bankss have an chance as they can sell third-party merchandises.

Tie Up agreements

Public, private & A ; foreign Bankss should bind up & A ; enter into strategic confederation with other Bankss to widen their range & A ; by holding presence in assorted other parts. This will assist them by enabling them to do benefits by making clients across the state.

Business Procedure Outsourcing

Outsourcing of assorted procedures will salvage clip & A ; cost. Finally this will assist the Bankss in concentrating on their nucleus concern country, that is, their core competence. For ex- Managing ATMs should be outsourced, which will salvage Bankss from covering with something which is non their nucleus competence.


The cardinal challenges before the bank is to strike a balance between recognition growing & A ; quality of plus at the same time and prolonging the profitableness in the increasing involvement rate scenario.

With the promotion in engineering, there has been increase in the duties & A ; challenges for an IT section in managing, keeping & A ; optimising the public presentation of retail banking webs.

Harmonizing to recognition evaluation bureau CARE, in 2010-11, the non executing assets ( NPAs ) in the industry are expected to lift to 3.5 % of the entire assets as compared to old financial twelvemonth ‘s 2.8 % . Therefore, steps should be adopted to cut down NPA.

As per the RBI ‘s instructions, Bankss are required to supply for 70 % of the entire bad loans on their books from Sep 2010.

The new Base rate is yet to be implemented which will guarantee transparence in the loaning but will cut down bank ‘s net incomes as they will so be able to impart at or above base rate & A ; non below it. This may impact Bankss as they may lose their some clients to whom the loan were given at below PLR.

RBI has besides asked Bankss to supply involvement on nest eggs histories on day-to-day footing. This will set force per unit area on borders of Bankss.

RBI is following assorted steps to cut down liquidness. They have increased CRR & A ; besides increased Repo & A ; reverse repo rate. All this will impact the loaning rate of Bankss as the involvement rate will lift to cut down liquidness in market. But this will be a menace to banking sector. At this clip when involvement rates are higher & A ; involvement rate volatility exists, the Current Account Saving Account ( CASA ) deposits help Bankss keeping their borders. These histories helps in keeping the spread between the cost of financess & A ; involvement earned in a period of high involvement rates.

In recent yesteryear, the outsourcing of assorted activities such as package & A ; hardware care, full ATM operation ( including hard currency, replenishing ) etc. has become really of import.

The Bankss should hold advanced strategic direction attack to run into its client ‘s demands & A ; demands in footings of merchandises or services. It is by and large said that, ‘it takes months to happen a good client but merely seconds to lose him ‘ . Therefore, Bankss should hold the scheme of Knowing Your Customer ( KYC ) .

To retain the on-going trust of the public & A ; repute, Bankss are supposed to run into their committednesss & A ; take utmost attention while functioning their clients.

In order to increase the market portion & A ; profitableness in the retail banking & A ; corporate banking, the client trueness is really of import.

As per the authorities order, Bankss have to aline their accounting patterns in line with the IFRS ( International Financial Reporting System ) within 2 more old ages.

Limited no. of subdivisions & A ; ATMs in rural countries.

Less instruction or preparation is given to the people in rural countries who are illiterate & A ; do n’t cognize how to make avail the basic benefits from banking, bury about operating ATMs.

If all these challenges are faced by the Bankss with extreme attention and deliberation, the retail banking is expected to play a really important function in approaching old ages.


Since the reforms in fiscal sector in India, Retail banking is confronting a batch of competition. Today Bankss are on their toes for prolonging in bing concern & A ; capturing new concern. Banks are viing for increasing their retail concern.

Changeless invention should be at that place in retail banking in countries merchandise development & A ; distinction, selling, micro-planning, prudent pricing, technological up step, customization, place / electronic / Mobile banking, plus liability direction & A ; effectual hazard direction and T techniques.

But in the Indian Bankss, there is really less small or no involvement in advanced merchandises.

Invention should non merely in footings of engineering or through cyberspace or computing machines but it should be such that it benefits even the rural countries. You ca n’t merely truly on engineering & A ; go a tech understanding in a state where Internet incursion is merely 1.65 % .

While retail banking offers exceeding growing chances, the challenges are every bit detering. Therefore, Bankss should confront the challenges optimistically & amp ; do usage of chances to do net income.

The success in retail banking concern depends on the sort of engineering used & A ; the effectivity of operations. This provides the Bankss an border over their rivals. Furthermore, client involvement should be most of import for going a responsible bank. The focal point of this sector should non merely stay to merely increasing the per capita liability but it should be in footings of creative activity of wealth at macro economical degree.


The retail banking sector in India should follow cognition banking attack which is one of the distinguishing schemes of Yes Bank who is among the top 10 advanced Bankss of the universe. The focal point should be at that place on Sun lifting sectors of economic system like IT, Engineering, substructure & A ; logistics, nutrient & A ; agribusiness etc. These are sectors of economic system have growing chances.

Banks should widen their operations to rural & amp ; semi urban countries & A ; should hold a responsible banking attack. This can be done by educating & A ; developing people to avail the benefits of banking services which will non merely assist the Bankss in increasing their repute but will besides assist them in long term position to increase the net incomes by tapping the untapped countries.