RETAIL BANKING BANKING

SUBMITTED BY Arup Kalita(10) Anshul Bhave(08) Anurag Singh(09) Sourish Chatterjee(59) Vikas Upadhyay(64) Vaibhav Rai(63) Shashank Gupta(54) SUBMITTED TO - K.K Jindal Sir

What is retail banking?

 It refers to the dealing of commercial banks with individual customers both on liabilities and assets side of the balance sheet.  Transactions takes place directly through customers rather than corporations or other banks.

Retail banking in India

 In a last few years it has become synonymous with the main stream banking of many banks.  In recent past retail lending has turn out to be a key profit driver for banks.  It is expected to grow at 25 % p.a at CAGR(compounded annual growth rate) to touch the figure of 575,000 crores till the end of the financial year.  Today,about 70% of consumer goods purchased through fianancial schemes/loans.

Drivers of retail banking in India

 Economic growth rate-Second fastest growing economy(8.8 %,year 2010 ,Q1)  Changing consumer demographics-70% of population is below 35 yrs of age.  Technological factors-convenience banking in the form of internet banking,debit/credit cards,ATMs etc.  Decline in the interest rates of lending

SCOPE FOR RETAIL BANKING IN INDIA

 All round increase in economic activity.  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.  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.

 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.  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.

Retail banks deal on liability and assets side of balance sheet.

 Liability side- Fixed ,current /savings account.  Assets side - Mortgages, loans such as- Personal. - Housing. - Autoloans-automobile loans. - Educational.

Todays retail banking sector is characterised by three basic characterstics Multiple products-deposits,credit cards,insurance,investment and securities.  Multiple channels of distribution-call centre,branch and internet.  Multiple customer groupsconsumers,small businesses and corporate.

KEY PLAYERS

Key players in retail banking industry in India

 Public sector banks-State bank of India -Canara bank -Punjab national bank -IDBI -Syndicate bank -Oriental bank of Commerce

 Private sector banks in India-ICICI bank -HDFC bank -Citibank -AXIS bank  Foreign banks-Royal bank of Scotland -Deutsche bank

State bank of India

 Largest state owned banking and financial services company in India.  Owner- Government of India.  Founded in 1 july 1955  Chairman -O.P Bhatt  Headquarters -Mumbai  Revenue Indian rupee 85,962.07 crore (US$ 19.51 billion) (2010).  Profit Indian rupee 9,166.05 crore (US$ 2.08 billion) (2010).  Total assets-323.04 billion $  Over 16,000 branches all over india.

ICICI Bank
 Industrial credit and investment corporation of india  Second largest bank in india.  Headquarters-Mumbai.  Chairman- K.V kamath  CEO and MD- Chanda kochhar  Revenue Indian rupee 59,599.77 crore (US$ 13.53 billion) (2009)  Profit Indian rupee 4,843.41 crore (US$ 1.1 billion) (2010)

DEUTSCHE bank
 International bank,operates in more than 72 countries and more than 80,000 employees.  Headquarters-Frankfurt (Germany).  CEO and chairman - Josef Ackermann.  Products-Investment, commercial, retail and private banking, asset management.  Revenue 27.95 billion (2009).  Profit 4.973 billion (2009).  Total assets 1.501 trillion (2009).

 Total equity 36.6 billion (2009).

        

Incorporated in august 1994. Housing Development and finance corporation. Headquarters-Mumbai. Chairman-C.M Vasudev. Revenue Indian rupee20,266.99 crore (US$ 4.6 billion) (2010) Profit Indian rupee3,032.92 crore (US$ 688.47 million) (2010) Total assets -US$ 39.723 billion (2009) First bank to launch international debit card in association with VISA(VISA electron) The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.

HDFC bank

PRESENT SCENARIO
 Indian retail banking sector registered a decline in share by 5.02 per cent during the first quarter of FY 10.  the private banks are performing better than the public banks in terms of their revenue from retail segment.  The private and public banks have registered about 54.27 per cent and 35.47 per cent share in retail banking during Q1 FY 10 respectively

 Revenue wise comparison The public sector banks registered a growth of 28.96 per cent in total income while their income from the retail segment grew only 9.92%.  Private banks registered only 13.52 per cent growth in total income during the period but their income from retail segment registered a minimal decline of 0.16 per cent.

 Share wise comparison  Share of retail banking of public banks declined by 6.14 percentage points during the period from 41.61 per cent in Q1 FY 09 to 35.47 per cent in Q1 FY 10.  The share of retail banking for private banks declined by 7.44 percentage points during the period from 61.71 percent in Q1 FY 09 to 54.27 per cent in Q1 FY 10.

PRODUCTS

Products offered in retail banking

 Deposits  Debit cards  Mortgages  Credit Cards  Retail loans-it includes the following loans:-Automobile loan(auto loan). -Home loan. -Personal loan. -Educational loan.

Deposits
 Deposits include1) Current /savings accounts - type of bank account at a banking institution that allows money to be deposited and withdrawn by the account holder. - These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the bank, and represent the amount owed by the bank to the customer. - Some banks charge a fee for this service, while others may pay th customer interest on the funds deposited.

 Savings account Savings account are meant to promote the habit of saving among the citizens while allowing them to use their funds when required.
 Savings account interest rate is 3.5 % compounded half yearly calculated on daily product basis w.e.f 01.04.2010.

 Current account This type of account is meant for businessmen,firms,companies,public enterprises etc.that have numerous daily banking transactions.  Current accounts are cheque operated accounts meant neither for the purpose of earning interest nor for the purpose of savings but only for convenience of business.  As per RBI directives ,banks are not allowed to pay interest.

2)Term Deposits
 A money deposit at a banking institution that cannot be withdrawn for a preset fixed 'term' or period of time. - When the term is over it can be withdrawn or it can be rolled over for another term. Generally speaking, the longer the term the better the yield on the money. - Customers receives fixed interest rate according to the duration of the deposit. - It varies from 15-45 days to upto 10 years. - state bank of India gives - 4 %interest on 15-45 days deposit - 7.75 % on deposits between 8-10 years. - 7.75 % for 1000 days fixed deposits.

Debit cards
 A debit card (also known as a bank card or check card) is a plastic card that provides an alternative payment method to cash when making purchases.  Functionally, it can be called an electronic check, as the funds are withdrawn directly from either the bank account, or from the remaining balance on the card.  Debit cards are used widely for telephone,cash withdrawl and Internet purchases.  Also called as ATM cards.(automated teller machine).  The debit card transactions are routed through the VISA or MasterCard networks rather than directly via the issuing bank.

Mortgage
 It is a loan secured by real property(land and buildings).  It is done by the use of mortgage note which evidences the existance of a loan.  Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.

Credit card
 A credit card is a small plastic card issued to users as a system of payment  It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services  Credit cards are issued by a credit card issuer, such as a bank or credit union.  SBI credit card,citi bank credit card

SBI platinum card

 With your SBI Card you have instant access at 1 million Visa ATMs worldwide including over 18,000 Visa ATMs in India and more than 10,000 State Bank ATMs spread across more than 100 cities in India.  Fees -Joining Fee (One time) Rs. 2,999 Annual Fee (p.a.) + Rs. 2,999  Extended Credit Interest Free Credit Period 20-50 days (applicable only on retail purchases and if previous months outstanding balance is paid in full) Finance charges-Upto 3.35% p.m. (40.2% p.a.) from the transaction date  Minimum Amount Due 5% of Total Outstanding (Min Rs. 200) + Govt. Service Tax.  In association with VISA.

RETAIL LOANS

AUTOMOBILE LOANS

AUTOMOBILE LOANS
1) Automobile loans(auto loans) - With a bunch of auto loan offers that are available these days, it is now within the reach of many to bring home their dream cars and other vehicles.  ICICI auto loan-it offers upto 90% of the ex-showroom price. -Rate is 13 % p.a.  Allahabad bank - it provides auto loan at the rate of 11 % - Minimum amount is 50,000 Rs. - Maximum amount is 90% of the price of automobile. - Tenure of the repayment is minimum 1 year and maximum is 7 years.  IDBI-rate is 13%  HDFC bank-rate is 11%.

HOME LOANS

2) Home loan- There are different types of home loans available in the market to cater borrowers different needs.  Home Purchase Loan : This is the basic type of a home loan which has the purpose of purchasing a new house. Home Improvement Loan : This type of home loan is for the renovation or repair of the home which is already bought. Home Extension Loan : This type of loan serves the purpose when the borrower wants to extend or expand an existing home, like adding an extra room etc. Home Conversion Loan : It is that loan wherein the borrower has already taken a home loan to finance his current home, but now wants to move to another home. The Conversion Home Loan helps the borrower to transfer the existing loan to the new home which requires extra funds, so the new loan pays the previous loan & fulfills the money required for new home.

 ICICI home loan -one of the leading home loan provider in India. - home loan tenure is upto 20 years. - rate of interest- it is 7.75 % which is minimum in the category - second lowest is for SBI which varies from 8 to 11%.  Allahabad bank-rate is 9.5%. - Minimum amount is Rs 1 lakh and maximum is 20 lakh. - Tenure is 5 years to 10 years.  IDBI home loan-rate is 11.50% - Minimum amount is 1 lakh and maximum is I crore Rs. - Tenure is 10 years to 15 years.  HDFC home loans-rate is 14.25 % - tenure is 10 to 15 years.  SBI-rate is 7.60 % p.a(base rate),floating rate of interst after 3 rd year is 9.35% .Maximum amount is 50 lacs

3)PERSONAL LOAN
Thinking of renovating your house? Yearning to buy a new laptop? Need financial assistance for marriage-related expenses or for your child's higher education? An ICICI Bank Personal Loan is your one-stop-shop for fulfilling all your financial aspirations!
 Allahabad bank-13 % p.a -Minimum amount is 15,000 Rs and Maximum is 75,000 -Minimum for 1 year and for 3 years.  HDFC bank- rate is 15.50 % p.a - 1 year to 5 years. - 25,000 to 1 lakh.

EDUCATIONAL LOAN

4) EDUCATIONAL LOAN
Till some years back higher education and quality education was not affordable to some illustrious students because of the financial constraints.But the boom in the banking sector has led to release of large amount of funds for education loans.  Now, education loans are easily available from various banks in India and this change is encouraging more and more students to take up higher education despite their financial shortcomings.  SBI educational loan- for loans upto Rs 4 lacs, 3.75% above Base rate ,currently it is 11.35 % p.a - for loans above 4 lacs Rs and upto Rs 7. 5 lacs,it is 5.25 % above base rate ,currently it is 12.85 % p.a - above Rs 7.50 lacs it is 4.25 % above base rate,it is now 11.85 % p.a. -Base rate of sbi is 7.60 % p.a.

 ICICI educational loan -study in India ,loan upto Rs 10 lacs. -abroad maximum Rs 20 lacs. - rate is - minimum at 13 % p.a - maximum is 13.75 %p.a  HDFC -education loan at 19 % p.a -1 to 7 years. -50,000 to 15 lacs.

Some services offered by Retail banks Some common services are as 1) Internet banking 2) Transfer of funds 3) CDs 4) Bills payments 5) ATMs 6) International and foreign currency services

ADVANTAGES AND DISADVANTAGES OF RETAIL BANKING

ADVANTAGES
They are interest insensitive and less bargaining for additional interest. Effective customer relationship management with the retail customers built a strong customer base. Retail banking increases the subsidiary business of the banks. Retail segment is a good avenue for funds deployment.

Continued
Retail banking results in better yield and improved bottom line for a bank. 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

DISADVANTAGES
Designing own and new financial products is very costly and time consuming for the bank. 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. Customers are attracted towards other financial products like mutual funds etc. Though banks are investing heavily in technology, they are not able to exploit the same to the full extent

Continued
A major disadvantage is monitoring and follow up of huge volume of loan accounts inducing banks to spend heavily in human resource department. Long term loans like housing loan due to its long repayment term in the absence of proper follow-up, can become NPAs. 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

Special Features Of Retail Credits

prominent features of Retail Banking products is that it is a volume driven business. Retail Credit ensures that the business is widely dispersed among a large customer base unlike in the case of corporate lending.

Continued
     

Strong credit assessment capability. Sound documentation Strong possessing capability Regular constant follow- up Skilled human resource Technological support

Growth of Retail Banking

Retail assets are just 22% of the total banking assets of India. Contribution of retail loans to GDP:  India 6%  China 15 %  Thailand 24%  Taiwan 52%

Market Share: Retail Loan - 2010

Consumer Durables 7%

Auto 28% Home 49%

Other personal Loans 16%

STRATEGIES FOR INCREASING RETAIL BANKING BUSINESS

 Constant product innovation to match the requirements of the customer segments.  Quality service and quickness in delivery.  Introduction of new delivery channels.  Detail market research.

Continued
 Infrastructure outsourcing.  Tapping of unexploited potential and increasing the volume of business.  Cross-selling of products.  Business process outsourcing.  Tie-up arrangement.

Challenges of Retail Banking

1. Sustaining Customer loyalty. 2. Fraud prevention. 3. Avoiding Debt Trap for customers.

Continued
4. 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. The dependency on technology has brought IT departments additional responsibilities and challenges in managing, maintaining and optimizing the performance of retail banking networks. It is equally important that banks should maintain security to the advance level to keep the faith of the customer.

5.

Continued
6. The customer retention is of paramount important for the profitability if 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.

7.