Scenario And Challenges Of Retail Banking In India Finance Essay

Scenario And Ch on the wholeenges Of sell Banking In India finance EssayABSTRACTThis paper discusses the overview of sell banking in India. It further explains the scope tremendous development of this discussion section among the some different segments of banking. The retail sphere in India has huge strength is expected to grow at a rapid pace when overall banking sector is expected to grow at 30% this year. The current scenario, crossways go offered advantages disadvantages, issues challenges be alike a part of this paper.INTRODUCTION directly, the merchandise mantra is to delight guests by offering them to a greater extent than their expectations. This leads to more satisfied nodes. The same is applied to the banking industry. Indian Eco nary(prenominal)y is moving from manufacturing to service economy where Banking sector is undergoing a change. The demand for fiscal harvests is increasing customization of services is becoming a necessity.The retail banking is increase at a rapid pace. Once it was considered as forbidden by the leading foreign domestic banks. that today all the banks bear recognized the importance of retail banking which became possible due to extensive competition, intro advanced technical schoolnology. With the expected increase of 30% for retail banking, the banks argon focusing more more on it. They are moving up to the potential of this segmant of banking.In terms of receipts for both public cliquish sector banks, retail banking is a major contributor. PSBs are considered to be more lay on the line averse. In semblance to the private banks, PSBs sop up higher exposure to the retail banking segment lesser exposure to treasury operations, in which foreign banks holds maximum revenue.In Public firmament Banks, SBI al atomic number 53 holds more than 1/4th of the revenue from retail banking operations. The PSBs gain higher share in retail banking because of their cracker-barrel reach in analogy to p rivate or foreign banks. Out of the jibe branches of banks in rural India, PSBs have for 94.7% of them.As on 31st march, 2008 the revenue in distinct segments is shown for PSBs, Private Foreign Banks.PSBsPrivate BanksForeign BanksThe Indian players are confident towards the Indian sell banking. The reason for it is thatThere has been a drastic change in the urban household income pattern which has directly impacted the consumption patterns hence the banking habits of Indians have tilted towards the Retail products services.The expenditure pattern in India is also increasing. The bullish pattern house be seen in the Retail business. The total outstanding Retail loans in India are below 5% of the Indian GDP whereas they are nearly 41 of the GDP in Taiwan. The figures are more surprising while comparing with the West.Compared to Western countries, India is fall back behind in the use of credit fares.In India the throng have more often than non save a lot. On an average an Indian saves 35% of his income. Therefore, no. of banking services provided by banks is increasing day by day.Also the valuate benefits are available on mixed loans. For ex- a borrower rear avail tax benefits for the loan repayment the pertain charged for the loan in case of housing loans.Retail banking is in reality a mass market banking where individual customers use local branches of the enormous commercial banks. The focus is on creating products services that meet the needs of the target customers and in turn making profits as well.Since retail banking products are more on a mass production basis, at that placefore, all risks operations are to bring floor the bacon to a large number of customers are also based on them. This climax is quite different from wholesale banking or bodied banking where target is on large sized customer accounts rather than large numbers of customers as in the case of retail banking.For servicing your customer better it is really valua ble to understand retail banking as it helps in structuring products and meeting specific demandments for each set of products. ATM introduced the pattern of Anytime banking.Anywhere banking became possible with the development of satellites telecom networks across the world.Now it is the time for Anyhow banking the bank which exit have all these 3 As will be the leading bank of the next century.retail BANKINGRetail banking is quite broad in nature. It refers to dealing with individual customers by commercial banks, both on liabilities summations sides of their balance sheet. Fixed savings /current accounts come on the liabilities side mortgages and loans come on the assets side. diverse former(a) services include credit cards or perplexory services. Retail banking retail add are often conf employ with each other but retail lending is all a subset of the retail banking. Individual customers need requirement are accessed approached in an integ prized manner in retail b anking.Retail banking sector is consists ofBENEFITS OF RETAIL BANKINGRetail Banking has gene footstep a better option for banks to increase their winnings as the lending to corporate is of high risk are generally slow moving. This sector consists of a large no. of customers of varied class. This type of banking provides customized good range of products to individual small units. Also the risk is spread the reco real is very good. The products can be designed, deployed marketed according to the individual requirements.ANALYSIS OF RETAIL BANKING military groupDiversified asset portfolioRetail banking consists of a wide range of financial product services. These include deposit product, home loan, loan against equity shares, mortgage loan, auto loan, car loan, payment of bills, credit card, debit card etc. Such a diversified asset portfolios provide banks with higher profit relatively start out NPA (non Performing Assets).Upcoming as a rising growth driverOver past some y ears, fierce competition has lowered the spread positiveness from a commercial loan. Also, with the deregulation and increase in consumer loan rate, the risk adjusted return in retail sector has exceeded beyond the return on commercial loan.CRM toolsThe customer Service Quality implementation through use of CRM tools will help banks in acceptance of their banking product and satisfaction of customer that will eventually yield profit for them.Innovative product developmentIn financial services there is an unlimited scope for development innovation. Banks should approach the customers to predominate out their financial need problem and accordingly structure their strategies towards the development of the product services, marketing them in the end selling them to satisfy its customer.Increase in incomeWith the increase in per capita income growth in urbanization the flavour sentence style of people has changed. The needs aspirations of people have increased. Therefore, th e role of retail banking has execute important. By providing various products services like personalized loan, education loan, home loan etc to its customer, the retail banking helps in maintaining the changing life style of its customers through affordable credit.Economies of scalethrough and through Retail Banking, Banks can get the benefits of information transaction. Banks have access to more information through extended services. They should systematically record this customer information as it can help them in efficient utilization of this information, which in turn can be used in finding out unexampled segmento of market to sell their new services.WEAKNESSReduces the profitabilityRetail banking requires high capital investing as a huge substance is spent on managing the wide range of product service which further requires large staff high lineament technology. All this reduces the overall banks profitability.Avoids corporate sectorRetail banking avoids corporate se ctor which forms the backbone of Indian economy. Banks should goodly manage their corporate clients through lower arte credit, higher amount of loan etc. Corporate clients are easily doable as they have well defined financial policy projects.Changes in technologyIf banks are non able to match with the a la mode(p) technology it may affect their growth. Also the technology requires huge amount of capital investment if suppose, the technology fails then it will affect the banks reputation the bank may stand some of its customer.MarketingRetail banking requires strong internal as well as external marketing strategies to be adopted by bank. Under retail banking the management needs those employees who can introduce product properly to their customers. The employees must be aware of the products they are offering because if this is not the case then it can lead to the failure of even a very good product. Also bank should spend a lot on its marketing of product to general public. Al l this increases the expenses of banks in terms of time personify required to introduce the product.OPPORTUNITIES1) Increase in per capita incomeThere has been increase in the per capita income over the past hardly a(prenominal) years is expected to grow in the future also. more(prenominal)over, the younger population is more comfortable in taking personal debt than anterior generations. Their purchasing power has also increased due to economic growth more jobs. Also GDP of India is rising at a very good rate. actually it is most 9% is expected to rise in the near future.Innovation in products servicesThis segment has more scope for innovation as banks tries to provide more more products services to their customers as desired by them. Banks can continuously modify its products services to match the market demand sustain in this agonistical era.3) Growing EconomyRetail banking has enormous opportunities in a growing economy like India. A.T. Kearney, a global mgnt. con sulting firm, identified India as the 2nd most attractive retail destination among the 30 emerging markets.THREATSLarge payout of loansThe increasing competition has made the banks to disburse large no. of customer loans, auto loans, home loans, loans on credit cards, educational loans etc. on easy terms without much inquiry. Due to this the no. of case of default in loan repayment has increased. This in turn has increased the banks bad debts nonperforming assets (NPA). This was one of the major reasons for recession which has affected the world.2) Customer privacy issuesOne of the major problems from customers point of view is that the customer service representatives of the banks ring up their customers at any time at their places of work, informing them about new products services. This may cause inconvenience to busy customers.Banks are also responsible for not sharing the personal information of the customers with any outside agencies like market research groups other adver tisers.3) Information TechnologyWith the growth of IT, a number of frauds have aroused are carried out with the help of technology. These frauds come under the reality of cyber crimes. The unscrupulous elements have always attacked banks. In many cases these elements have stolen credit card no., password other confidential information relating to customer. For ex- Satyam scam.These elements have also hacked banks website.BANKING PRODUCTThe banking product areas which have high growth potential can be classified as follows HOUSING LOANSHousing loan comprises of 48% of all retail loans. The customer attitudes toward holding debt translated this market into a market that expanded with a rate of 35% yearly from 1999 to 2004. Also the lending rates are not very high and the growing household income enables the borrower to progress the payment of interests principal amount. Banks generally have tie ups with various real estate companies. This is to reduce to efforts on the side of c ustomer for taking loans. VEHICLE LOANSHousing loan comprises of 27.2% of all retail loans. Car gross gross sales volume in 2004 increased to more than a million vehicles and annual growth in sales reached 954,354 in 2007. The sales of bikes have also increases. Banks provide various lucrative plans to finance your car or a bike.They often come up with various schemes which increases the sales of the vehicles help people fulfill their aspirations.India has become the 3rd largest market for cars MUVs. The growth drivers of this segment are easy finance, low interest rates, opening up of 2nd hand car finance up gradation of rider to four wheelers from two wheeler. SME BANKINGinitially public sector banks in India focused provided on big industries instead of small businesses. hardly today SME market in India has expanded beyond 4 million businesses. These businesses are growing, importing export and demanding more more complicated banking products and services. PERSONAL FINA NCIAL SERVICESBanks provided this service to boost the financial lieu of individuals. The banks that can establish the right combination of account mgnt distribution infrastructure can avail the benefits from growing market for wealth management. The services can be saving income in bank accounts or place in insuranceISSUES TO THE RETAIL-BANKING SECTORThe key policy issues in retail banking sector are financial enclosure, accessibility to finance, protection of consumer his privacy, financial capability, responsible lending, regulation prevention of financial crime.ADVANTAGES AND DISADVANTAGES OF RETAIL BANKINGADVANTAGESThe advantages from the election asset point of view are as followsResource SideApart from current savings accounts, the deposits in retail banking are comparatively stable. These constitute nerve centre deposits.Helps in increasing the subsidiary business of the banks.They are interest insensitive in case of current savings accounts.The funds in this secto r are the low cost funds.Helps in building a strong customer base.ASSETS SIDEFor funds deployment, Retail banking is a good prospect.When there is a high demand for banking products services, Retail banking need not require high marketing efforts.Consumer loans involve less amount of risk have perception of less NPA.Through investments in productivity activities, it helps in economic revitalization of the nation.Through affordable credit, this segment of banking improves lifestyle of the people fulfils the aspirations of the people.Diversified portfolio due to huge customer base reduces risk for a bank.DISADVANTAGESHuge capital investment is required in designing new financial products. It requires a lot of time cost for the bank.Today net banking is preferable over branch banking by customers. It is not possible for banks to retain their customers if their technology is not up to the mark. The customers wishing to use net banking will switch over to the services of some other bank.Various other financial products like mutual funds etc. attract customers towards themselves.Banks are not able to exploit the technology to an appropriate levelBanks is spending heavily on human resource department for monitoring following up of large no. of loan accounts.In the absence of proper follow-up, great term loans like housing loan which involves long repayment term can become NPAs.As compared to wholesale banking, the amount borrowed in retail banking by a single customer is very low. Therefore, the bank is not able to make huge profits from a single customer.STRATEGIES FOR SUCCESS IN RETAIL BANKINGBanks should adopt the following strategies to achieve success in the retail banking sector.Adoption of advanced latest technologyAvailability of skilled man power in all branches officesExtensive market research should be carried out in order to formulate innovative competitive products servicesManaging relationship with customers by having an approach of customer relationship management.There should be balanced and sustained growth in deposits advancesMore more delivery channels should be exploredService quality should be improved with human slur giving the customers personal experienceProper strategic cost management should be adopted uniform focus should be there on Universal banking and financial supermarketsCross Selling of ProductsPublic Sector Banks have a wide network of branches. This provides them with added advantage over other banks. Through these branches banks have an opportunity as they can sell third-party products.Tie Up arrangementsPublic, private foreign banks should tie up figure into strategic alliance with other banks to extend their reach by having presence in various other regions. This will help them by enabling them to make benefits by reaching customers across the country.Business exhibit OutsourcingOutsourcing of various processes will save time cost. Eventually this will help the banks in concentrating on their core business area, that is, their core competency. For ex- Managing ATMs should be outsourced, which will save banks from dealing with something which is not their core competency.CHALLENGES TO RETAIL BANKING IN INDIAThe key challenges before the bank is to strike a balance between credit growth quality of asset simultaneously and sustaining the profitability in the increasing interest rate scenario.With the advancement in technology, there has been increase in the responsibilities challenges for an IT department in managing, maintaining optimizing the performance of retail banking networks.According to credit rating fashion CARE, in 2010-11, the non performing assets (NPAs) in the industry are expected to rise to 3.5 % of the total assets as compared to previous fiscal years 2.8 %. Therefore, measures should be adopted to reduce NPA.As per the RBIs instructions, banks are required to provide for 70% of the total bad loans on their books from Sep 2010.The new Base rate i s yet to be implement which will ensure transparency in the lending but will reduce banks profits as they will then be able to lend at or above base rate not below it. This may affect banks as they may lose their some customers to whom the loan were assumption at below PLR.RBI has also asked banks to provide interest on savings accounts on free-and-easy basis. This will put pressure on margins of banks.RBI is adopting various measures to reduce liquidity. They have increased CRR also increased Repo reverse repo rate. All this will impact the lending rate of banks as the interest rate will rise to reduce liquidity in market. But this will be a nemesis to banking sector. At this time when interest rates are higher interest rate volatility exists, the Current Account Saving Account (CASA) deposits help banks maintaining their margins. These accounts helps in maintaining the spread between the cost of funds interest earned in a period of high interest rates.In recent past, the outsourcing of various activities such as software hardware maintenance, entire ATM operation (including cash, refilling) etc. has become very important.The banks should have innovative strategic management approach to meet its customers needs requirements in terms of products or services. It is generally said that, it regainings months to find a good customer but only seconds to lose him. Therefore, banks should have the schema of Knowing Your Customer (KYC).To retain the ongoing trust of the public reputation, banks are supposed to meet their commitments take utmost care while serving their customers.In order to increase the market share profitability in the retail banking corporate banking, the customer loyalty is very important.As per the government order, banks have to range their accounting practices in line with the IFRS (International Financial Reporting System) within 2 more years.Limited no. of branches ATMs in rural areas.Less education or training is given to the people in rural areas who are illiterate dont know how to do avail the basic benefits from banking, forget about operating ATMs.If all these challenges are faced by the banks with utmost care and deliberation, the retail banking is expected to play a very crucial role in coming years.CONCLUSIONSince the reforms in financial sector in India, Retail banking is facing a lot of competition. Today banks are on their toes for sustaining in existing business capturing new business. Banks are competing for increasing their retail business.Constant innovation should be there in retail banking in areas product development differentiation, marketing, micro-planning, prudent pricing, technological up gradation, customization, home / electronic / mobile banking, asset financial obligation management effective risk management and t techniques.But in the Indian banks, there is very less little or no interest in innovative products.Innovation should not only in terms of technology or thro ugh internet or computers but it should be such that it benefits even the rural areas. You cant just really on technology become a tech savvy in a country where Internet penetration is only 1.65%.While retail banking offers majestic growth opportunities, the challenges are equally discouraging. Therefore, banks should face the challenges optimistically make use of opportunities to make profit.The success in retail banking business depends on the kind of technology used the effectiveness of operations. This provides the banks an edge over their competitors. Furthermore, customer interest should be most important for becoming a responsible bank. The focus of this sector should not only remain to just increasing the per capita indebtedness but it should be in terms of earthly concern of wealth at macro economical level.RECCOMENDATIONSThe retail banking sector in India should adopt knowledge banking approach which is one of the differentiating strategies of Yes Bank who is among th e top 10 innovative banks of the world. The focus should be there on sunniness rising sectors of economy like IT, Engineering, infrastructure logistics, food agriculture etc. These are sectors of economy have growth prospects.Banks should extend their operations to rural semi urban areas should have a responsible banking approach. This can be done by educating training people to avail the benefits of banking services which will not only help the banks in increasing their reputation but will also help them in long term perspective to increase the profits by tapping the untapped areas.