1

CHAPTER.1
BANKING SECTOR

What is a Bank?



Introduction:

Finance is the life blood of trade, commerce and industry. Now-a-days,
bank money acts as the backbone of modern business. Development of
any country mainly depends upon the banking system.
The term bank is derived from the French word Banco which means a
Bench or Money exchange table. In olden days, European money lenders
or money changers used to display (show) coins of different countries in
big heaps (quantity) on benches or tables for the purpose of lending or
exchanging. A bank is a financial institution which deals with deposits
and advances and other related services. It receives money from those
who want to save in the form of deposits and it lends money to those who
need it.
A bank is a financial institution that serves as a financial intermediary.
The term "bank" may refer to one of several related types of entities:
2

A central bank circulates money on behalf of a government and acts as its
monetary authority by implementing monetary policy, which regulates
the money supply.
A commercial bank accepts deposits and pools those funds to provide
credit, either directly by lending, or indirectly by investing through the
capital markets. Within the global financial markets, these institutions
connect market participants with capital deficits (borrowers) to market
participants with capital surpluses (investors and lenders) by transferring
funds from those parties who have surplus funds to invest (financial
assets) to those parties who borrow funds to invest in real assets.
A savings bank (known as a "building society" in the United Kingdom) is
similar to a savings and loan association (S&L). They can either be
stockholder owned or mutually owned, in which casethey are permitted to
only borrow from members of the financial cooperative.

According to section 5(b), of banking regulation act 1949. Bank is
defined as accepting for the purpose of lending or investment of deposits
of money from the public, repayable on demand or otherwise & withdraw
able by cheque, draft or order or otherwise




3

HISTORY OF BANK

In the old days there was no paper money. The accepted token of
exchange was precious metal minted into coins by the Church and the
Crown. Because there was only a limited amount of gold and silver
available, the economic life of the nation had certain regularity.
The regulation of usury was to prevent the separation of money from
reality. Money is not a good, it is a measure. It is fraud to pretend
otherwise, and constitutes theft. Usury is making money from lending
money; it is making money from nothing. This is exactly what is
happening today on a colossal scale.
Secondly, gold coins, jewels and other valuables were deposited with
people who held strongboxes. This was usually with goldsmiths and
money-lenders who, more often than not, were one and the same. These
loan-sharks and scriveners realized that, without much chance of being
found out, they could charge people for looking after their deposits and
then use those deposits which did not belong to them to make loans to
other people at interest. They soon became rich and powerful.
Gold coins are heavy and awkward to carry around so the custom arose
whereby the money-lenders would issue credit notes to depositors who
began to trade these notes between themselves in commercial
transactions. Paper money had come into existence.
A new form of usury developed as the swindling money-lenders realized
the immoral benefits that could be obtained from such a situation. It
became apparent to these thieves that they could go one step further than
dishonestly using other peoples money for financial advantage at no cost
to themselves. They could invent money from absolutely nothing. They
could issue credit notes with nothing to back them up and put them into
circulation as interest-bearing debts. No-one would be any the wiser.
4

They calculated that they could safely issue notes for up to ten times
more than the gold deposits they held, because the depositors would
never ask for their deposits back all at the same time.
The principle of modern banking was thus established: invent money
from nothing, put it into circulation as "running cash notes" that have to
be paid back with real wealth that is produced from our labour, sit back
and become unbelievably wealthy and powerful men: hidden rulers of
nations.
Nowadays banking has become extremely sophisticated but the hidden
and usurious mechanism behind it remains the same. After a big enquiry,
hushed up as much as possible, the Bank of England was nationalized in
1946. In theory control of the Bank of England should then have passed
from a group of private individuals to the British Government, but this is
still not the case. Nationalization only added a thin veneer of
respectability.
The Government still has to pay interest on old and new loans from the
Bank. Only a few years ago it was announced that the interest debt on a
loan taken during the Napoleonic War had just been paid off! This is
where much of our tax money goes.
The next stage of development for international finance is to get rid of
cash altogether. Then the token accountability of the bankers will
disappear along with the cash. Their intention is that everyone will have
to use credit/debit cards for every type of commercial transaction.




5

FUNCTIONS OF BANKS:
Issue of money, in the form of banknotes and current accounts subject
to cheque or payment at the customer's order. These claims on banks
can act as money because they are negotiable or repayable on demand,
and hence valued at par. They are effectively transferable by mere
delivery, in the case of banknotes, or by drawing a cheque that the
payee may bank or cash.
Netting and settlement of payments banks act as both collection and
paying agents for customers, participating in interbank clearing and
settlement systems to collect, present, be presented with, and pay
payment instruments. This enables banks to economies on reserves
held for settlement of payments, since inward and outward payments
offset each other. It also enables the offsetting of payment flows
between geographical areas, reducing the cost of settlement between
them.
Credit intermediation banks borrow and lend back-to-back on their
own account as middle men.
Credit quality improvement banks lend money to ordinary
commercial and personal borrowers (ordinary credit quality), but are
high quality borrowers. The improvement comes from diversification
of the bank's assets and capital which provides a buffer to absorb
losses without defaulting on its obligations. However, banknotes and
deposits are generally unsecured; if the bank gets into difficulty and
pledges assets as security, to raise the funding it needs to continue to
operate, this puts the note holders and depositors in an economically
subordinated position.
Maturity transformation banks borrow more on demand debt and
short term debt, but provide more long term loans. In other words,
6

they borrow short and lend long. With a stronger credit quality than
most other borrowers, banks can do this by aggregating issues (e.g.
accepting deposits and issuing banknotes) and redemptions (e.g.
withdrawals and redemptions of banknotes), maintaining reserves of
cash, investing in marketable securities that can be readily converted
to cash if needed, and raising replacement funding as needed from
various sources (e.g. wholesale cash markets and securities markets).



























7

BANKING REGULATIONS ACT 1949
The Banking Regulation Act was passed as the Banking Companies
Act 1949 and came into force wef 16.3.49. Subsequently it was changed
to Banking Regulations Act 1949 wef 01.03.66. Summary of some
important sections is provided hereunder. The section no. is given at the
end of each item. For details, kindly refer the bare Act.
Banking means accepting for the purpose of lending or investment of
deposits of money from public repayable on demand or otherwise and
withdraw able by cheque, drafts order or otherwise (5 (i) (b)).
Banking company means any company which transacts the business of
banking (5(i)(c)
Transact banking business in India (5 (i) (e).
Demand liabilities are the liabilities which must be met on demand
and time liabilities means liabilities which are not demand liabilities
(5(i)(f)
Secured loan or advances means a loan or advance made on the
security of asset the market value of which is not at any time less than
the amount of such loan or advances and unsecured loan or advances
means a loan or advance not secured (5(i)(h).
Defines business a banking company may be engaged in like borrowing,
lockers, letter of credit, traveler cheques, mortgages etc (6(1).
States that no company shall engage in any form of business other than
those referred in Section 6(1) (6(2).
For banking companies carrying on banking business in India to use at
least one word bank, banking, banking company in its name (7).
Restrictions on business of certain kinds such as trading of goods etc.
(8)
8

Prohibits banks from holding any immovable property howsoever
acquired except as acquired for its own use for a period exceeding 7
years from acquisition of the property. RBI may extend this period by
five years (9)
Prohibitions on employments like Chairman, Directors etc (10)
Paid up capital, reserves and rules relating to these (11 & 12)
Banks not to pay any commission, brokerage, discount etc. more than
2.5% of paid up value of one share (13)
Prohibits a banking company from creating a charge upon any unpaid
capital of the company. (14) Section 14(A) prohibits a banking
company from creating a floating charge on the undertaking or any
property of the company without the RBI permission.
Prohibits payment of dividend by any bank until all of its capitalized
expenses have been completely written off (15)
To create reserve fund and 20% of the profits should be transferred to
this fund before any dividend is declared (17 (1))
Cash reserve - Non-scheduled banks to maintain 3% of the demand
and time liabilities by way of cash reserves with itself or by way of
balance in a current account with RBI (18)
Permits banks to form subsidiary company for certain purposes (19)
No banking company shall hold shares in any company, whether as
pledge, mortgagee or absolute owners of any amount exceeding 30%
of its own paid up share capital + reserves or 30% of the paid up share
capital of that company whichever is less. (19(2).
Restrictions on banks to grant loan to person interested in
management of the bank (20)
Power to Reserve Bank to issue directive to banks to determine policy
for advances (21)
9

Every bank to maintain a percentage of its demand and time liabilities
by way of cash, gold, unencumbered securities 25%-40% as on last
Friday of 2nd preceding fortnight (24).
Return of unclaimed deposits (10 years and above) (26)
Every bank has to publish its balance sheet as on March 31st (29).
Balance sheet is to be got audited from qualified auditors (30 (i))
Publish balance sheet and auditors report within 3 months from the end
of period to which they refer. RBI may extend the period by further
three month (31)
Prevents banks from producing any confidential information to any
authority under Indl Disputes Act. (34A)
RBI authorized to undertake inspection of banks (35).
Amendment carried in the Act during 1983 empowers Central Govt to
frame rules specifying the period for which a bank shall preserve its
books (45-y), nomination facilities (45ZA to ZF) and return a paid
instrument to a customer by keeping a true copy (45Z).
Certain returns are also required to be sent to RBI by banks such as
monthly return of liquid assets and liabilities (24-3), quarterly return
of assets and liabilities in India (25), return of unclaimed deposits i.e.
10 years and above (26) and monthly return of assets and liabilities
(27-1).









10

LIBERALIZATION OF BANK

In the early 1990s, the then Narasimha Rao government embarked on a
policy of liberalization, licensing a small number of private banks. These
came to be known as New Generation tech-savvy banks, and included
Global Trust Bank (the first of such new generation banks to be set up),
which later amalgamated with Oriental Bank of Commerce, Axis
Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move,
along with the rapid growth in the economy of India, revitalized the
banking sector in India, which has seen rapid growth with strong
contribution from all the three sectors of banks, namely, government
banks, private banks and foreign banks.
The next stage for the Indian banking has been set up with the proposed
relaxation in the norms for Foreign Direct Investment, where all Foreign
Investors in banks may be given voting rights which could exceed the
present cap of 10%,at present it has gone up to 74% with some
restrictions.
The new policy shook the Banking sector in India completely. Bankers,
till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at
6%;Go home at of functioning. The new wave ushered in a modern
outlook and tech-savvy methods of working for traditional banks. All this
led to the retail boom in India. People not just demanded more from their
banks but also received more.
Currently (2007), banking in India is generally fairly mature in terms of
supply, product range and reach-even though reach in rural India still
remains a challenge for the private sector and foreign banks. In terms of
quality of assets and capital adequacy, Indian banks are considered to
have clean, strong and transparent balance sheets relative to other banks
in comparable economies in its region. The Reserve Bank of India is an
11

autonomous body, with minimal pressure from the government. The
stated policy of the Bank on the Indian Rupee is to manage volatility but
without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite
some time-especially in its services sector-the demand for banking
services, especially retail banking, mortgages and investment services are
expected to be strong. One may also expect M&As, takeovers, and asset
sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to
increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%.
This is the first time an investor has been allowed to hold more than 5%
in a private sector bank since the RBI announced norms in 2005 that any
stake exceeding 5% in the private sector banks would need to be vetted
by them.
In recent years critics have charged that the non-government owned
banks are too aggressive in their loan recovery efforts in connection with
housing, vehicle and personal loans. There are press reports that the
banks' loan recovery efforts have driven defaulting borrowers to suicide.











12

TYPES OF BANKS:
Banks' activities can be divided into:
Retail banking, dealing directly with individuals and small businesses;
Business banking, providing services to mid-market business; corporate
banking, directed at large business entities;
Private banking, providing wealth management services to high net
worth individuals and families; and
Investment banking, relating to activities on the financial markets.
Most banks are profit-making, private enterprises. However, some are
owned by government, or are non-profit organizations.



















13

CHAPTER.2
RETAIL BANKS:



DEFINITION:

Retail banking refers to banking in which banking institutions execute
transactions directly with consumers, rather than corporations or other
banks. Services offered include: savings and checking accounts,
mortgages, personal loans, debit cards, credit cards, and so forth.














14


INTRODUCTION:

Retail banks offer a range of services to individual customers and small
businesses, rather than to large companies and other banks. The services
can include current accounts, savings accounts, investment advice and
broking, and loans and mortgages. Retail banks perform two crucial
functions for customers: firstly, they enable customers to bank their
money securely, access it easily, and conduct transactions; and secondly,
they provide access to additional money to fund large purchases, such as
buying a home. In return for holding customers funds, which they can
then invest, banks pay customers interest.
Traditionally, retail banks have provided these services directly to the
customer via branches. While many still do this, retail banks now offer
their services by telephone and the internet as well. Some operate solely
via the internet and do not have facilities to serve customers at physical
outlets. Other organizations, such as supermarkets, have now entered the
banking sector and also offer a wide range of banking services.
It has become more difficult to identify the traditional retail banka
bank that funds itself through customer deposits and lendingbecause
retail banks now often combine retail and wholesale banking. It is
therefore more relevant to todays banking structure to regard retail
banking as a series of processes rather than as an institution.
The intermediation services offered by retail banks (such as looking after
customers money and making loans) and the payment services (allowing
customers to make transactions using debit cards, checks, etc.) mean that
they have to make funds available to customers at very short or
15

immediate notice. This inevitably means that a retail bank has to manage
the risk that more money will be requested by customers than it has
available and of customers defaulting on loans. Banks do this by holding
stocks of liquid assets, maintaining a cushion of capital, lending to
different types of borrower, adjusting interest rates, and screening
potential borrowers (credit scoring).
Retail banking is banking that provides direct services to consumers.
Many people with bank accounts have their accounts at a retail bank and
banks that offer retail banking services may also have merchant and
commercial branches that work with businesses. For people with high net
worth and special banking needs, private retail banking services may be
pursued. These offer a high level of service with a number of options that
are not available to average members of the public.
The most basic retail banking services include savings and checking
accounts. Most retail banks, however, try to make themselves into a one
stop shop for banking customers. This increases customer retention and
loyalty, ensuring that the bank has a steady supply of customers.
Expanding banking services also provides more opportunities for the
bank to turn a profit.
Other services can include safe deposit boxes, home and car loans,
certificates of deposit, retirement accounts, and investment services. Most
retail banks provide customers with debit and credit cards, as well as
financing options like home equity lines of credit. Depending on banking
regulations, a bank may not be able to offer all of these services at one
location but it can partner with other financial institutions to provide
conveniently linked services for bank customers. Retail banking is
designed to provide people with banking services for life, from college
16

funds opened at the birth of a child to retirement trusts established to pay
for old age.
Retail banking is a highly competitive market. Many people need retail
banking services and they are not afraid to shop around to find the bank
offering the best incentives, rates, and deals. Banks can compete with
interest rates, account perks such as credit monitoring, and other services
designed to entice customers. Some even provide special incentives for
customers switching over from rivals, such as bonuses awarded when
transferring funds from a rival bank to open a new account.
Some retail banks are international corporations with numerous branch
banks all over the world. Others operate on a national level. Smaller retail
banks may be regional or may even have single branches. Smaller
community banks may offer services customized to community members
and sometimes receive government incentives for community
reinvestment, such as offering small business loans and home loans to
people in the community. It is sometimes possible to get more favorable
interest rates on such activities from community banks than it is from
larger establishments.












17

CHARACTERISTICS OF RETAIL BANKING

Retail banking sector is characterized by three basic characteristics:
1. Multiple products (deposits, credit cards, insurance, investments and
securities)
2. Multiple channels of distribution (call center, branch, internet)
3. Multiple customer groups (consumer, small business, and corporate















18

OVERVIEW:
Over recent years the retail banking market has changed dramatically,
with banks today facing growing competition from a diverse range of
brands and service providers.
In order to compete, banks need the ability to adapt and respond to this
ever changing environment and differentiate themselves from the
competition.Many banks continue to support legacy core banking
systems, which are costly to maintain, and provide an inflexible
infrastructure inhibiting the banks ability to innovate.
Tremens understands how technology can be used to create
differentiation, and provide our customers with an environment that
enables innovation and supports business growth.
Tremens customers are proven to be more profitable than their peers:
analysis on data from The Banker top 1,000 banks shows that Temenos
customers enjoy a 62% higher return on capital, a 54% higher return on
assets and a cost/income ratio that is 7.2 points lower than non-Temenos
customers







19

CHAPTER 3
.TYPES OF RETAIL BANKS:

Commercial bank: the term used for a normal bank to distinguish
it from an investment bank. After the Great Depression, the U.S.
Congress required that banks only engage in banking activities,
whereas investment banks were limited to capital market activities.
Since the two no longer have to be under separate ownership, some
use the term "commercial bank" to refer to a bank or a division of a
bank that mostly deals with deposits and loans from corporations
or large businesses.
Community banks: locally operated financial institutions that
empower employees to make local decisions to serve their
customers and the partners.
Community development banks: regulated banks that provide
financial services and credit to under-served markets or
populations.
Postal savings banks: savings banks associated with national
postal systems.
Private banks: banks that manage the assets of high net worth
individuals. Historically a minimum of USD 1 million was
required to open an account, however, over the last years many
private banks have lowered their entry hurdles to USD 250,000 for
private investors.[citation needed]
Offshore banks: banks located in jurisdictions with low taxation
and regulation. Many offshore banks are essentially private banks.
Savings bank: in Europe, savings banks take their roots in the 19th
or sometimes even 18th century. Their original objective was to
20

provide easily accessible savings products to all strata of the
population. In some countries, savings banks were created on
public initiative; in others, socially committed individuals created
foundations to put in place the necessary infrastructure. Nowadays,
European savings banks have kept their focus on retail banking:
payments, savings products, credits and insurances for individuals
or small and medium-sized enterprises. Apart from this retail focus,
they also differ from commercial banks by their broadly
decentralized distribution network, providing local and regional
outreachand by their socially responsible approach to business
and society.
Building societies and Landesbanks: institutions that conduct
retail banking.
Ethical banks: banks that prioritize the transparency of all
operations and make only what they consider to be socially-
responsible investments.
A Direct or Internet-Only bank is a banking operation without
any physical bank branches, conceived and implemented wholly
with networked computers.









21

CHAPTER 4.
ADVANTAGES AND DISADVANTAGES:


ADVANTAGES:

Your money is much more secure than in a box under your bed and you
can buy goods, be paid, and sell things without cash changing hands.
The bank you are familiar with and which knows you can also offer you a
wide range of other services, such as mortgages and insurance. Your bank
may be able to offer you competitive deals in return for your loyalty as a
customer.
Retail banks offer a variety of ways you can access your account and
manage your money, most notably via internet banking. This means that
you can keep a close eye on your finances and avert many potential
problems.
Retail banking has inherent advantages outweighing certain
disadvantages. Advantages are analyzed from the resource angle and
asset angle.

RESOURCE SIDE

1. Retail deposits are stable and constitute core deposits.
2. They are interest insensitive and less bargaining for additional interest.
3. They constitute low cost funds for the banks.
4. Effective customer relationship management with the retail customers
built a strong customer base.
5. Retail banking increases the subsidiary business of the banks.


22

ASSETS SIDE

1. Retail banking results in better yield and improved bottom line for a
bank.
2. Retail segment is a good avenue for funds deployment.
3. Consumer loans are presumed to be of lower risk and NPA perception.
4. Helps economic revival of the nation through increased production
activity.
5. Improves lifestyle and fulfils aspirations of the people through
affordable credit.
6. Innovative product development credit.























23


DISADVANTAGES

Banks are a business, and they need to make money from looking after
yours. If the bank decides to apply charges to your account (within the
terms of the account), you may only find out about it afterwardsfor
example if you accidentally go overdrawn without permission. If you
disagree with a charge, you will need to contest it to recover the money.
1. Designing own and new financial products is very costly and time
consuming for the bank.
2. Customers now-a-days prefer net banking to branch banking. The
banks that are slow in introducing technology-based products, are finding
it difficult to retain the customers who wish to opt for net banking.
3. Customers are attracted towards other financial products like mutual
funds etc.
4. Though banks are investing heavily in technology, they are not able to
exploit the same to the full extent.
5. A major disadvantage is monitoring and follow up of huge volume of
loan accounts inducing banks to spend heavily in human resource
department.
6. Long term loans like housing loan due to its long repayment term in
the absence of proper follow-up, can become NPAs.
7. The volume of amount borrowed by a single customer is very low as
compared to wholesale banking. This does not allow banks to to exploit
the advantage of earning huge profits from single customer as in case of
wholesale banking
8. Advertisement


CHAPTER 5.
24

PRODUCTS AND SERVICES:
Retail Banking solution centre [BSC-1] in Polaris has established itself
as a "One-stop solution for Retail Banking" to cater to the customers
with a aim to create a sustainable profitable core proposition.
Our Major Offerings
Retail Banking solutions and services.
Credit cards
Internet Banking.
Mortgages practice.
Multi-Channel Integration.
Business Rule Engine.
Customer Relationship Management.
ATM Solutions and services
Key Benefits Associated with Polaris Offerings:
On-line, real time processing and cost saving thru Multi channel
Transactions.
Relationship banking enabled through extensive mining of all
customer transactions.
Rapid time-to-market with new product and service offerings.
Rapid Customer Acquisition. Multi-currency and multi-language
support so as to ensure geographic reach across continents.
Multi-layer security, monitoring and reporting.
Seamless integration with advanced delivery systems including
teller and branch automated teller machine (ATM), point-of-sale
(POS), interactive voice response, corporate and home banking
Modular interfaces to other systems with a Plug-in approach.
25

PRODUCT RANGE RETAIL BANKING

New Private sector banks have great resource mobilizing and asset
expansion capabilities which cannot be undermined by the fact these
banks volume. Which have taken decades of option for the old private
sector bank to build. These bank are dominating the market with new
product, service3 and ideas. Information technology has enabled many
private banks are emerging strong in banking and financial services with
the marketing of new product and service based on technological
capabilities.
In the present scenario HDFC bank Ltd. is a fast emerging bank. It has
227branches throughout the India in Rewari city HDFC has one branch
also and one ATMs.
Apart from the HDFC bank, the other bank like PNB, SBI which is
included in study. These both are the public sector bank. SBI is the one
bank in India. These two are also providing the retail banking service.
Now the emergence of the retail concept of the banking customers are
expecting more and better services. To day customer prefer private
banks because they can have personal relationship with the bank
personnel, with lesser hierarchy and It is possible for these banks to
forget closer ties with customers also.








26

HDFC Bank provides the following service:-
1. Current A/C
2. Corporate Salary A/C
3. Loan
4. Phone Banking
5. Online A/C
6. Net Banking
7. Debit Card
8. Intercity/ Inter Branch

BI & PNB Provides following services:-

1. Deposit
2. Demand Deposit
3. Current Deposit
4. Saving Deposit
5. Time Deposit
6. Fixed Deposit











27

CHAPTER 6.
CURRENT SCENARIO

1. According to the reserve bank of India annual report for 2001-02,
as on March 22, 2003, retail credit outstanding amounted to Rs
1,60,000 crore, including housing loans, loans for consumers
durables, loans to individual against shares and bonds, other non-
priority sector personal loans and advances against fixed deposits.
Thats 14.1 percent of net bank credit outstanding, and 15.6 percent
of non- food bank credit.

2. The sharp acceleration in the rate of growth of retail credit is clear.
The fastest growing business segments are housing loans,
incremental growth in which was Rs 6,203 crore in FY02 ,
compared with Rs 2,043 crore in the preceding year; and the
category other non-priority sector personal loans, the
outstanding of which increased by Rs. 2,655 crore in the previous
year.
3. The previous exposure to retail lending has come at the cost of
credit to industry. Compare the 32.6 per cent of incremental non-
food gross bank credit that went to medium and large scale
14%
86%
net bank credit
retail credit
others
28

industry five years ago, in 1996-97, with the 17.7 percent that went
into the segment last year. Or consider the 13.8 percent of
incremental non- food gross bank credit that went to small scale
industries in 1996-97 with the nearly 2.2 percent that went into the
segment last year to realize how lending has changed in the last
five years.














29

CHAPTER 7.
FUTURE OF RETAIL BANKING:

Retail banking has significant past and glorious future over the years.
Retail banking has proved as an effective tool not only to improve the
bottom lines of the banks concerned but also to significantly contribute to
the development of the individual consumers availing the services or
products in particular and to the overall development of the society in
general with the needs of the consumers ever multiplying. There is
definitely a vast scope for furtherance of the retail banking business.
The society is made of the individuals and the environment surrounding
him. As development takes place in the society, the needs of the people
grow faster than ever. The wealth creation and its professional
management are yet another distinct advantage the society or nation can
drive from retail banking. The depth of the untapped resources in the
retail segment is not yet measured. These recourses could be channelized
for nation building.
On the whole, looking ahead, the prospects of retail banking are brighter
than ever and the bankers have to give continued trust to this area of
banking. Thus, with consumers ever multiplying needs there is definitely
a vast scope for the furtherance of the retail banking business.
Operationally, there is a possibility that technology go beyond merely
reducing the cost & and improving the quality of current products. It may
prove possible, even profitable, the combine functions is new ways.




30

CHAPTER 8.
CHALLENGES AND OPPORTUNITIES IN
RETAIL BANKING:

CHALLENGES IN RETAIL BANKING:
1. 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.
2. the issue of outsourcing has become very important in recent past
because various care activities such as hardware and software
maintenance, entire atm set up and operation (including cash,
refilling) etc., are being outsourced by Indian banks.
3. Banks are expected to take utmost care to retain the ongoing trust
of the public.
4. Customer service should be 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, the strategy of knowing your customer
(KYC) is important. So needs and requirement in terms of
services/products etc.
5. The dependency on technology has brought IT departments
additional responsibilities on technology and challenges in
maintaining and optimizing the performance of retail banking
networks. It is equally important the banks should maintain
security to the advance level to keep the faith of customer.
6. The efficiency of operations would provide the competitive edge
for the success in retail banking in coming years.
31

7. Te customer retention is of paramount for the profitability if retail
banking business , so banks need to retain their customer4 in order
to increase the market share
8. 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.

OPPORTUNITIES:

Retail banking has immense opportunities in a growing economy like
India. As the growth history gets unfolded in India, retail banning 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 wilds
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
segments.
The combination of above factors promises substantial growth in retail
sector, which present is in the nascent stage. Due to bundling of services
and delivery channels the areas of potential conflicts of interest trend 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 saving financial capability, consumer protection, regulation and
financial crime prevention.

32




























33

CHAPTER 9.
RETAIL BANKING IN INDIA

BANKING ON RETAIL:

With a jump in the Indian economy from a manufacturing sector, that
never really took off, to a nascent service sector, Banking as a whole is
undergoing a change. A larger option for the consumer is getting
translated into a larger demand for financial products and customization
of services is fast becoming the norm than a competitive advantage. With
the Retail banking sector expected to grow at a rate of 30% [Chanda
Kochhar, ED, ICICI Bank] players are focusing more and more on the
Retail and are waking up to the potential of this sector of banking. At the
same time, the banking sector as a whole is seeing structural changes in
regulatory frameworks and securitization and stringent NPA norms
expected to be in place by 2004 means the faster one adapts to these
changing dynamics, the faster is one expected to gain the advantage.
Potential for Retail in India: Is sky the limit?
The Indian players are bullish on the Retail business and this is not totally
unfounded. There are two main reasons behind this. Firstly, it is now
undeniable that the face of the Indian consumer is changing. This is
34

reflected in a change in the urban household income pattern. The direct
fallout of such a change will be the consumption patterns and hence the
banking habits of Indians, which will now be skewed towards Retail
products. At the same time, India compares pretty poorly with the other
economies of the world that are now becoming comparable in terms of
spending patterns with the opening up of our economy. For instance,
while the total outstanding Retail loans in Taiwan is around 41% of GDP,
the figure in India stands at less than 5%. The comparison with the West
is even more staggering. Another comparison that is natural when
comparing Retail sectors is the use of credit cards. Here also, the potential
lies in the fact that of all the consumer expenditure in India in 2001, less
than 1% was through plastic, the corresponding US figure standing at
18%.
How competitive are the players?
Going by international standards, a large portion of the Indian population
is simply not bankable taking profitability into consideration. On the
other hand, the financial services market is highly over-leveraged in
India. Competition is fierce, particularly from local private banks such as
HDFC and ICICI, in the business of home, car and consumer loans.
There, precisely lie the pitfalls of such explosive growth. All banks are
targeting the fluffiest segment i.e. the upwardly mobile urban salaried
class. Although the players are spreading their operations into segments
like self- employed and the semi-urban rich, it is an open secret that the
big city Indian yuppies form the most profitable segment. Over-
dependence on this segment is bound to gring in inflexibility in the
business.



35


SCOPE FOR RETAIL BANKING IN INDIA

1. All round increase in economic activity
2. Increase in 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 savings come from the household 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 numbers of banking services to be provided are
day -by -day increasing.
5. Tax benefit is 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.












36


CHAPTER 10.
CUSTOMER SATISFACTION AND RETAIL
BANKING:




Retail banking is a service industry which is focused towards the
customers money and its management.
An element that strongly drove the satisfaction of customer in the
banking sector was the conviviality factor related to the features of a bank
and the attributes of its personnel. Satisfaction with perceived product
quality was the prime driver of overall customer satisfaction. The impact
of service delivery factor varies considerably on customer satisfaction.
They became aware of the fact that for customer who traded heavily and
had high investible assets, the effect on an automated telephone service
was elevated than the other drivers of satisfaction.
In another research relating to the relationship between customer
satisfaction and loyalty. The study concludes that satisfaction with the
service and satisfactions with price was elements in the overall
satisfaction measurement. In the above mention study it concludes that all
the elements measured had a bearing on overall satisfaction. The findings
37

of the study emphasized that the service features of branch. Staff and
information to be dominant factors.
The satisfaction or dissatisfactions with the retail banking did not arise
from the same factor. To be more precise, some elements of service
quality, if improved, enhance the satisfaction levels of the customers,
while on the other hand. Other element may not improve satisfaction but
simply function to keep dissatisfaction at bay or at the best, reduce
dissatisfaction alone.
Exhaustively explored the consequences of service quality, service
features and customer complaint handling on customer satisfaction in
retail banking sector based on empirical analysis , they suggested that the
determinants of satisfaction in retail banking are driven by a number of
factors and also include service quality dimensions. The banks features
(e.g. Location) ,the competitiveness of the banks interest rates, to
customer judgment about the banks employees skills and whether the
customer was a borrower, were among a few other factors that drove
customer satisfaction.
The benefits that customer satisfaction provide by retention of customer
of a bank. They advocated they advocated that that the longer a customer
stays with a bank, the more utility the customer generates.
These included a high preliminary cost of introducing an attracting a new
customer, increase in both the value and amount of purchases, the
customers better understanding of the bank, and positive word-of-mouth
promotion.
A study on how satisfaction, image and perceived service quality
determined loyalty in retail banking



38

CHAPTER 11.
RETAIL BANKING AND RISK MANAGEMENT

Considering the aggressive growth strategies in retail banking pursued by
banks aimed intensifying competition, banks may compromise on the
credit quality. Though there is a conflicting interest between risk
management and marketing, volumes and bad debts. The sound credit
scoring models should not be limited to assessing creditworthiness but
also be used for predicting potential bankruptcy, revenue response,
profitability attrition and also fraud. Besides, banks have to move from
mass marketing where one size fits all to targeting specific customers
based on their individual behavior, needs and value. Though the portfolio
of retail is better diversified than a corporate loan portfolio of retail, a
systematic risk arising out of macroeconomic shocks still have negative
impact.
The risk includes the following:
1. Deficiencies in lending policies,
2. Incorrect product structuring,
3. Deficiencies in credit appraisal,
4. Absence of post sanction surveillance and monitoring,
5. Inadequate risk pricing,
6. Inadequately defined lending limits,
7. Weak collection strategy.
Risk return characteristic of consumer loans
Earlier banks were either wholesale or retail institution focusing on
either commercial or individual consumers respectively. However,
this distinction has been blue- red in the past as traditional wholesale
banks have entered into retail segment. The competition for
39

commercial- customers narrowed the commercial loin yields as
return fell relative to potential risks. Secondly developing loan and
deposit relationship with individuals apparently represent a strategic
response to the deregulation. The removal of interest rate ceilings
substantially reduced banks core deposit by making high balance
customer more price sensitive. On an average, individuals hold small
balances and have deposit accounts frequently providing a more
stable deposit base. Thus, liquidity risk declines as a banks deposit
base increases.
Revenue from consumers loan
Banks earn substantial returns from interest on loans and associated fees.
As many usury ceilings have been eliminated the banks can ration credit
via price rather than by altering non-price credit via price terms. This
permits the banks to raise consumer loans at their own conditions. When
conditions permits, banks also cost decline. Most of the consumers loans
are fixed and do not change over period of time. In decline interest rate
scenario consumer loans earn large spreads compared to banks borrowing
cost. When the short-term rates raise the spread narrow until the banks
raise loan rates. With aggressive marketing, the consumers are becoming
more rates sensitive such that credit card loan rates and fees now closely
follow the bank funding cost. In addition to interest income, bank
generates substantial non-interest revenue from consumers loans. For
example, with traditional installment credit, banks often encourage
borrowers to purchase life insurances on which the banks earn premium
in Cr.
Consumer loan losses
Losses on consumer loans are normally the highest among all categories
of bank credit. This is due to the cyclical patterns in personal income as
40

well as extensive fraud. Losses are due to mass marketing efforts pursued
by many lenders particularly with credit cards. Retail banking segment is
increasingly attracting the attention of bankers as there are tremendous
opportunities for them. It has undergone a massive change paradigm
shift over the last few years. Technology has played a Vitol role over a
decade in banking scenario.
Customer can now experience banking without much constrains of time
(service hours) and location of branches unlike yesterday. The idea that
has evolved in the new generation banks unlike with the net and atms in
force is to enable a customer to move along with hi so her banks to an
office, shopping plaza, hospital. Apart from the regular banking product
being sold and service to, the banks have become a one stop financial
shop providing with a basket of other financial products like mutual
funds, government of Indian relief bonds, advisory services to life
insurance. The writing on the wall clearly says, customer first.














41













42

CHAPTER 12
CASE STUDAY


SBIs RETAIL BANKING :
State bank of India offers a wide range of services in the personal
banking segment which are indexed here.:

SBI term deposits
SBI recurring deposits
SBI loan for pensioners
SBI housing loan
Loan against mortgage of property
Loan against shares & debentures
SBI car loan
Rent plus scheme
SBI educational loan
Medi-plus scheme
SBI personal loan
43




SBI TERM DEPOSITS
The bank enables the customers to earn a huge surplus by investing
with them. They also provide security, trust at a competitive rate of
interest. Flexibility in period of term deposit from 7 days to 10 years.
Affordable low minimum deposited amount: i.e a consumer can open
a term deposit with SBI for a nominal amount of rs.1000/- only.
Flexibility in choosing the amount you wish to invest and the
maturity period.
HIGHLIGHTS
SAFETY:
The bank understands the value of their customers hard earned money
and continues to deliver on their promise of safety and security from over
200 years.
Liquidity:
LOAN OVERDRAFT FACILITY:
Customers can avail a loans/overdraft against your deposits provides you
loan/ overdraft up to 90% of your deposit amount at nominal cost. So you
continue to earn interest in your deposit and still can meet your urgent
financial requirements.
PREMATURE WITHDRAWAL:
Interest to be charged on premature withdrawal of term deposit at 0.5 %
below the rate applicable for the period deposit has remained with the
bank.
TRANSFERABILITY:
Transfer of term deposits between our wide networks of branches without
any charge.
44

TAX IMPLICATION:
Tax deductible at source, if the paid/ payable on deposits exceeds
rs,5000/- per customer, per year, per branch.
INTEREST RATE OF TERM DEPOSITS:
Interest rates on domestic term deposits and NRO deposits with effect
from 1
st
may 2006.
Duration Interest rates(%p.a) Annualized yield at
the of the slab (%)
7 days to 14 days 3.00 3.00
15 days & up to 45
days
4.50 4.50
46 days and up to 179
days
5.00 5.00
180 days to less than 1
year
6.00 6.04
1 year to less than 3
years
6.25 6.40
3 years to less than 5
years
6.50 7.11
5 years and up to 10
years
7.00 8.30

The rate of interest for single domestic term deposits (for maturities of 1
year and above) of rs 15 lakhs but less than rs 1 core shall be 25 bp
above card rate and for term deposit of rs.1 core and above shall be 50 bp
above the card rate.
For bulk deposits of rs.10 core and above, please approach branches for
treasury rates.However, these differentiate rates above card rate will not
be available for super-saver term deposits.
45


Premature payment of term deposits:
Interest to be charged on premature withdrawal of term deposits at 0.50%
below the rate applicable for the period deposit has remained with the
bank.



















46


ICICI BANK CASE STUDY

OVERVIEW:
The challenge
Business growth by addressing the more lucrative and growth segment of
middle-class consumer and emerging corporate.
The solution
Strategic adoption of technology to ensure that icici transforms into a
universal bank, which will provide fast and efficient customer service
besides offering the whole gamut of banking and financial services.
The benefits
The banks has benefited in terms of lower Total cost of ownership
(TCO),improved efficiency , easy management of volume growth, greater
responsive to market opportunities and of course, numerous accolades
from industry watchers.

KEY BUSINESS DRIVES:
ICICI BANK was set up when the process of deregulation and
liberalization had just begun in India, and the Reserves bank of India
(Indias central bank) had paved the way for private players in the
banking sector, which at the time was dominated by state-owned and
47

foreign banks. Serving a majority of the countrys populace, state-owned
banks had a large network, with minimal or no automation and had little
focus on service. Foreign banks. On the other hand, developed, had
innovative product offerings, but had a very small branch network that
service only corporate and individual with high net- worth. Sensing an
untapped opportunity, icici bank decide to targets Indians burgeoning
middle class and corporate segment by offering high level of customers
service and efficiency that rivaled the foreign banks, on a mush larger
scale, at a lower cost, crucial aspect of this strategy was the emphasis on
technology-savvy, customer-friendly bank.
To support its technology-focused strategies, icici bank needed a robust
technology platform that would help it achieve its business goals. After
an intense evolution of several global vendors, icici bank indentified
Infosys as its technology partner and selected finacle, the universal
banking solution from Infosys, as its core banking platform. An open
systems approach and low Total cost of ownership (TCO) were some of
the key benefits finacle offered the bank. Unlike most banks of that era,
icici bank was automated from days one, when its first branch opened in
the city of Chennai.










48

SOLUTION OVERVIEW :


CHANNELS SHARE OF
TRANSACTIONS
MARCH 2000
SHARE OF
TRANSACTIONS
MARCH 2004
BRANCHES 94% 25%
ATMS 3% 43%
INTERNET AND
MOBILE
2% 21%
CALL CENTERS 1% 11%
finacle core
banking
solution
e broking
call
centre
CIF
Debt
online
consumer
e- banking
mobile
micro
payments
corporate
e banking
ATM EFT
switch
OFSA
SMS Alert

BIZ TALK
middleware
GBM
staffware
workflow
engine
credit
cards
data ware
house
49


One of the biggest challenges for finacle was ensuring straight through
processing (STP) of most of the financial transactions. With the icici
group having several companies under its umbrella. Finacle needed to
seamlessly integrate with multiple applications such as credit cards,
mutual funds brokerage, call center and data warehouse systems. Another
key challenge was managing transaction volumes. Icici bank underwent a
phase of organic growth, first by acquiring bank with its parent
organization, icici limited. the scalable and open system-based
architecture enabled finacle to successfully manage the resultant increase
in transaction levels from 400.000tranctions a day, in 2000to nearly 2.1
million. By 5.5 times. With finacle the bank currently has the ability to
process 0.27 million checks, per day and manages 7000 concurrent users.
Over the year s, the strategic partnership between icici bank and Infosys
that started in 1994 has stronger and the close collaboration has resulted
in many innovations.



1.9
3
12
2.4
4.4
1.8
2
2
3
retail customers
Mar-01 Mar-02 Dec-04
50




For instance, in 1997, icici bank was the first bank in India to offer
internet banking with the help to offer internet banking with the help of
finacle e-banking with the help of finacle e-banking solution and
established itself as a leader in the internet and e-commerce space. The
bank followed it up with several e-commerce services like bill payments,
fund transfer and corporate banking over the net. The internet is a critical
element of ICICI bank s award winning multi channel strategy and is one
of the main engines of growth for the bank. Between 2000 and 2004 the
bank has successfully been able to move over 70 percent of the routine
banking transaction from the branch to other delivery channels thus
increasing overall efficiency. Currently only 25% transaction take place
through branches and through 75% through other delivery channel. The
reduction of routine transaction through the branch has enabled ICICI
bank to aggressively use its branch network as customer acquisition units.
On an average, ICICI bank adds 300000 customers a month, which is
among the highest in the world
Jan-01
Jan-02
Jan-03
Jan-04
INTERNET CUSTOMERS
51


CONCLUSION:

Retail banking is the fastest growing sector the banking industry with the
key success by attending directly the needs of the end customers is
having glorious future is coming years.
Retail banking sector as a whole is facing a lot of competition ever since
financial sector reforms were started in the country. Walk-in business is a
thing of past and banks are now on their toes to capture business. Banks
therefore, are now competing for increasing their retail business.
There is a need for constant innovation in retail banking. This requires
product development and differentiation, micro-planning, marketing,
prudent pricing, customization, technological up gradation, home /
electronic / mobile banking, effective risk management and asset liability
management techniques.
While retail offers phenomenal opportunities for growth, the challenges
are equally discouraging. How far the retails banking is able to lead
growth of banking industry in future would depend upon the capacity
building of banks to meet the challenge and make use of opportunities
profitably.
However, the kind of technology used and the efficiency of operations
would provide the much needed competitive edge for success in retails
banking business. Furthermore, in all these customers interest is of chief
importance. The banking sectors in India are representing this and I do
hope they would continue to success in this traded path.



52


BIBLIOGRAPHY

WEBSITES

WWW.GOOGLE.COM
WWW.N.WIKIPEDIA.COM
WWW.ANSWERS.COM
WWW.ICICIBANK.COM
WWW.YAHOO.COM

BOOKS

The future of retail banking-delivering value to global customers: joseph
A
Divanna
The UPI journal of management research, vol.viii. No. 2009