drivers and technology_mob

8/10/2019 Drivers and Technology_MOB

1/4

DRIVERS FOR RETAIL BANKING IN INDIA

1.

Changing Consumer Demographics: Population of India provides a vast potential forgrowth of retail both in qualitative and quantitative terms. India is a young nation

with average demographic age of 29 years and close to 70% of the population is

below 35 years of age which means more than 100 million people will be added to

the working class and there is a continuing trend in the urbanization. This

demographic dividend advantage is positive factor for India and provides

opportunities for retail banks to grow and expand. Presently, Private Banks share of

young customers is over 60% whereas in public banks it is only 32%.

2.

Rise in disposable income of middle class:Indias GDP has grown at an average rate

of more than 7% over the last decade, the real household income has more than

doubled since 1985, with the rise in income, consumption pattern has changed and

the purchasing power has increased. The new middle class is comfortable in taking

debts to meet their needs and are more liberal.This has led to a boost in the retail

loans segments. According to a report by NCAER by 2015-16 India will have 53.5

million middle class households translating to 267 million people.

3.

Increase in literacy levels: The literacy levels in India have continued to improve,people are embracing technology and there is demand for new products and

services. It will lead to a more demand in the retail banking activities.

4. Higher adaptability to technology: Technological innovations in the delivery of

services to customer have attracted more number of consumers. With convenience

banking facilities such as Debit/Credit cards, ATMs, Internet banking, mobile

banking available to customers, there has been an increase in the usage of these

facilities which in turn has led to development of retail banking.

5. Housing credit: With the option of EMI available to the customers, more consumers

are now resorting to housing loans to construct their homes; also the interest rates

on loans have declined since 2009-10, Price corrections in real estate sector, tax

incentiveshave further led to a spurt in demand for credit facility. Housing loan is a

safer investment optionfor banks with NPA only in the range of 2-2.5% compare to

other loans.

6. Flexibility: Retail loans in a large number of options are available to customer ;

banks even bear the cost of registration, stamp duty, insurance etc. making it easyand affordable for the end customer to avail the credit facility.


2/4

7. Automation of processes: With the advent of technology banks have optimized the

core operations and this is lead to decrease in the transactions costs and better

maintenance of the records. Mobile/Internet banking and ATMs are emerging as an

alternative channel and have better reach than the traditional banks. With the CBS

system in place all data is stored centrally and can be accessed from anywheremaking it easy and convenient for both banks and customers to avail and provide

service thus helping in establishing relations with the customers.

8. Mass Banking/Alternative Channels: Retail sector is mass market banking and

provides services such as deposit accounts (Savings, current), loans, ODs, lockers,

credit and debit cards and ATMs and many more, all these are essential to tap new

customers and retaining existing customers. The alternative channels of ATM and

mobile banking can be seen as branchless banking as they reduce the cost with no

requirement of physical infrastructure and human resources.

9. Financial Services: Banks have also ventured in other financial services such as

Insurance and asset management, with clear regulations in sight and transparency in

the conduct of the process, the financial services area has added and will add to the

growth momentum of the banking sector.

10.Competition: The increase in competition among banks with the entry of new

players has led banks to rework their business strategy, design new products with

customer in mind and improve efficiency. Customers have large options to choose

from and they cannot differentiate between the banks, so banks need to constantly

innovate and reposition themselves have niche players.

11.Micro, Small and Medium Enterprises: MSMEs sector has been a major growth

driver for Indian economy. They contribute close to 50% to industrial output,

however only one third have access to organized finance. This unmet demand

provides a significant opportunity to banks and RBI has also made it mandatory for

banks to lend to MSME sector under the Priority sector lending quota. Banks can

collaborate with MSME and they can leverage each others strengths. Banks offers

forex services, LCs/guarantees, MSME provide specialized knowledge and local

collection capability.


3/4

TECHNOLOGICAL ADVANCEMENT IN INDIAN BANKING SECTOR

Till the nineties, the customers were made to stand in queue and service manually by the

staff in their brick and mortar outlet, the mechanization and computerization process got

initiated in the Indian banking sector following the recommendations of the Rangarajan

Committee. Since then a large number of technological innovations have been brought

forth in the banks.

Some of the technological innovations that have been introduced in the Banks are discussed

below:

1. ATMs: ATMs were introduced in the early 1990s by foreign banks in India they have

transformed banking by providing access to the banking services anywhere and

anytime to the customer. The banks have greatly saved on the transactions cost as itis a self-service means of delivering service and reduce the overhead in the banks.

The customer is saved from the risk of huge hard cash. They need not visit the

branch for transactions like cash deposits, withdrawals, cheque collection and

balance enquiry etc.

2. Internet Banking: The internet has brought forth an electronic revolution in the

banking sector, and has helped in reaching a wide audience. There are more than

200 million users who have access to internet and the demand for real time

information will continue to grow. Internet has served as an alternate distribution

channel for banking services and products. Internet banking provides instant access

to information for customers and less personnel is required by banks to entertain

customer queries.

3. Mobile Banking: With increase in awareness about technology, the adoption by user

is also getting high. Mobile has become a companion for Gen Y. Banks have

leveraged the mobile platforms to offer banking products and services to customers

via smartphones and have been able to reach areas in rural regions of India which

otherwise they had been unable to do so as there is a high transaction cost

associated with setting up branches.

4. Core Banking Solution: CBS is a centralized platform; it facilitates control of the

banking operations and makes anytime, anywhere, anyway banking possible as it

maintains a centralized customer database. It delivers fast and efficient service to

customers, reduce operational costs. Banks have also adopted business intelligence,

data warehousing and data mining technologies to effectively target customers for

cross selling the products. CBS can be integrated with risk management module and

other enterprise level applications.


4/4

5. CRM: It consists of a set of procedures that RM use to manage customer

relationships, identifying potential customers to sell products and retaining existing

customers and increase their wallet. Banks also resort to cross selling their products

as when a customer enters into a relationship with a bank, the RM persuades thecustomer to avail other financial products.

6. Card Based Delivery Mechanism: These include credit cards, debit cards and smart

cards. The penetration of the cards is increasing every year as it disburse short term

credit to customers who are short of money at a point of time which they can pay

back in the near future. Supported by ATMs and POS terminals, banks have been

able to attract customers to avail the cards facility and have been able to reduce

their costs as well.

7. Electronic Clearing Service: ECS is a mode of transfer of funds electronically from

one bank account to another via a clearing house. ECS has two variants ECS debit

and ECS credit. ECS debit is a service in which the account holder authorises the ECS

user to recover payment at a particular frequency from his account. It is mostly used

by utility service providers such as electricity, telephone for collection of bill

payment. ECS credit is used for transactions like payment of salary, dividend and

interest etc. ECS service reduces paper work and smoothens the flow of transactions.

8.

Electronic Funds Transfer: EFT facilitates fund transfer between two accounts

located at different locations. It is an alternative for cheques and drafts. NEFT was

introduced in 2005 for nationwide fund transfer among the network of bank

branches. It is a deferred net settlement product and the upper limit for funds

transfer id Rs 2 Lacs.

9. Real Time Gross Settlement (RTGS):It was introduced for large retail transactions as

there was settlement risk in NEFT. The minimum amount is Rs 2 Lac to use RTGS

facility. It enables settlement on a gross basis in real time.

10.Cheque Truncation System:Truncation is the process of stopping the movement of

the physical cheque which is to be truncated at some point en-route to the drawee

branch and an electronic image of the cheque would be sent to the drawee branch

along with the relevant information like the MICR fields, date of presentation,

presenting banks etc. Thus, the CTS reduce the probability of frauds, reconciliation

problems, logistics problems and the cost of collection.

drivers and technology_mob

Documents