my project of retail banking

8/3/2019 My Project of Retail Banking

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introduction

The issue of retail banking is extremely important and topical. Across

the globe, retail lending has been a spectacular innovation in the

commercial banking sector in recent years. The growth of retaillending, especially, in emerging economies, is attributable to the

rapid advances in information technology, the evolving

macroeconomic environment, financial market reform, and several

micro-level demand and supply side factors

Retail banking refers to banking in whichbanking institutionsexecutetransactions directly with consumers, rather than corporations orother banks. Services offered include:savingsandtransactionalaccounts,mortgages,personal loans,debit cards,credit cards, andso forth. The typical products offered in the Indian retail bankingsegment are housing loans, consumption loans for purchase ofdurables, auto loans, credit cards and educational loans. The loansare marketed under attractive brand names to differentiate theproducts offered by different banks.

Todays retail banking sector is characterized by three basiccharacteristics:

multiple products (deposits, credit cards, insurance, investmentsand securities);

multiple channels of distribution (call centre, branch, Internet andkiosk); and

multiple customer groups (consumer, small business, and

corporate).
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RETAIL BANKING

RETAIL BANKING refers to the dealing of commercial banks with

individual customers, both on liabilities and assets sides of the

balance sheet. Fixed, current / savings accounts on the liabilities

side; and mortgages, loans (e.g., personal, housing, auto, and

educational) on the assets side, are the more important of the

products offered by banks. Related ancillary services include credit

cards, or depository services. In retail banking all the needs of

individual customers are taken care of in a well-integrated manner.


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Traditionally, retailbanks provided banking services to individuals and small businessesdealing in largevolumes of low value transactions. This is in contrast to wholesalebanking whichdeals with large value transactions, generally in small volumes. Wedeal withwholesale banking in the next chapter of this guide.

Retail banking aims to be the one-stop shop for as many financialservices as possible on behalf of retail clients. Some retail bankshave even made a push into investment services such as wealthmanagement, brokerage accounts, private banking and retirementplanning. While some of these ancillary services are outsourced tothird parties (often for regulatory reasons), they often intertwine withcore retail banking accounts like checking and savings to allow foreasier transfers and maintenance.

Retail banking services are a group of financial services that includes

installment loans, residential mortgages, equity credit loans, depositservices, and individual retirement accounts. In contrast with

Wholesale Banking or corporate banking, retail banking is a high

volume business with many service providers competing for market

share. Some retail banking services, for example, credit cards, are

among the most profitable services offered by financial institutions.

Banks offer many different channels to access their banking andother services:

ATM is a machine that dispenses cash and sometimes takes

deposits without the need for a humanbank teller. Some ATMs

provide additional services.
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Abranchis a retail location

Call center

Mail: most banks accept check deposits via mail and use mail to

communicate to their customers, e.g. by sending out statements

Mobile bankingis a method of using one's mobile phone toconduct banking transactions

Online bankingis a term used for performing transactions,

payments etc. over the Internet

Relationship Managers, mostly for private banking or business

banking, often visiting customers at their homes or businesses

Telephone bankingis a service which allows its customers to

perform transactions over the telephone without speaking to a

human Video bankingis a term used for performing banking transactions

or professional banking consultations via a remote video and

audio connection. Video banking can be performed via purpose

built banking transaction machines (similar to an Automated teller

machine), or via avideoconferenceenabled bank

branch.clarification

Retail banking is a banking service that is geared primarily

toward individual consumers. Retail banking is usually made

available by commercial banks, as well as smaller community

banks. Unlikewholesale banking, retail banking focuses strictly

on consumer markets. Retail banking entities provide a widerange of personal banking services, including offering savings

and checking accounts, bill paying services, as well asdebitand

credit cards. Through retail banking, consumers may also obtain

mortgages and personal loans. Although retail banking is, for

the most part, mass-market driven, many retail banking products
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may also extend to small and medium sized businesses. Today

much of retail banking is streamlined electronically via

Automated Teller Machines (ATMs), or through virtual retail

banking known asonline banking.

Retail banking refers toTypical mass-market banking inwhich individual customers use local branches of largercommercial banks. Services offered include savings andchecking accounts, mortgages, personal loans, debit/creditcards and certificates of deposit (CDs).

Banking services offered to the general public. Retail bankingservices are a group of financial services that includesinstallment loans, residential mortgages, equity credit loans,deposit services, and individual retirement accounts. In contrastwithWholesale Bankingor corporate banking, retail banking is ahigh volume business with many service providers competingfor market share. Some retail banking services, for example,

credit cards, are among the most profitable services offered byfinancial institutions. See alsoConsumer Credit;FinancialSupermarket; Installation Credit.

History

Retail banking in India is not a new phenomenon. It has always beenprevalent in India in various forms. For the last few years it hasbecome synonymous with mainstream banking for many banks. In
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recent past retail lending has turned out to be a key profit driver forbanks with retail portfolio constituting 21.5 per cent of totaloutstanding advances as on March 2004. The overall impairment ofthe retail loan portfolio worked out much less then the Gross NPAratio for the entire loan portfolio. It is expected that by 2016 modernretail industry in India will be worth US$ 175- 200

India retail industry is the largest industry in India, with anemployment of around 8% and contributing to over 10% of thecountry's GDP. Retail industry in India is expected to rise 25% yearlybeing driven by strong income growth, changing lifestyles, andfavorable demographic patterns.

India retail industry is one of the fastest growing industries withrevenue expected in 2007 to amount US$ 320 billion and is increasingat a rate of 5% yearly. A further increase of 7-8% is expected in theindustry of retail in India by growth in consumerism in urban areas,rising incomes, and a steep rise in rural consumption. It has furtherbeen predicted that the retailing industry in India will amount to US$21.5 billion by 2010 from the current size of US$ 7.5 billion.Shopping in India has witnessed a revolution with the change in theconsumer buying behavior and the whole format of shopping also

altering. Industry of retail in India which has become modern can beseen from the fact that there are multi- stored malls, huge shoppingcenters, and sprawling complexes which offer food, shopping, andentertainment all under the same roof.

India retail industry is expanding itself most aggressively; as a resulta great demand for real estate is being created. Indian retailerspreferred means of expansion is to expand to other regions and toincrease the number of their outlets in a city. It is expected that by2010, India may have 600 new shopping centers.

In the Indian retailing industry, food is the most dominating sectorand is growing at a rate of 9% annually. The branded food industry istrying to enter the India retail industry and convert Indian consumersto branded food. Since at present 60% of the Indian grocery basketconsists of non- branded items.


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India retail industry is progressing well and for this to continueretailers as well as the Indian government will have to make acombined effort.

Retail banking in India has fast emerged as one of the major drivers of

the overall banking industry and has witnessed enormous growth in

the recent past. The Retail Banking Report encompasses extensive

study & analysis of this rapidly growing sector. It primarily covers

analysis of the present status, current trends, major issues &

challenges in the growth of the retail banking sector. This reporthelps in Banks, financial institutions, MNC Banks, academicians,

consultants and researchers to have a better understanding of the

booming opportunities in retail banking in India.

STRATEGIESFOR I NCREASING RETAIL BANKING BUSINESS

Constant product innovation to match the requirements of the customer.

Quality service and quickness in delivery.

Introducing new delivery channels.

Detailed marketing research.Cross selling of products.

Business process outsourcing.

Tie-up arrangements

CHALLENGES TORETAIL BANKINGININDIA

Money Laundering:

This is one of the major issue in retail banking. This compels all the banks to

consider seriously

all the documents which they accept while approving loans.

Outsourcing:


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The various core banking activities like hardware and software maintenance

,ATM setup and

operation etc are being outsourced by India.

CustomerServices:

Banks are expected to retain the ongoing trust of the public.Customer retention isso important in

retail banking. The strategy ofKnowYourCustomer is mandatory for any banks so

that they

can meet their requirements and needs in terms of services/products etc.

Security:

The dependencies on technologies has brought IT department in managing and

optimizing the

performance of retail banking networks. It is also important that banks shouldmaintain their

security to the advanced level to keep the faith of the customer.

InsufficientManpower:

Though the revolution in technology has made the banking sector modernized,

there is a lack in

modern banking professionals to handle it in an elegant manner.

MERITS AND DEMERITS OF RETAIL BANKING

ADVANTAGESRetail banking has inherent advantages outweighing certain


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disadvantages. Advantages are analyzed from the resource angle andasset angle.

RESOURCE SIDE

o Retail deposits are stable and constitute core deposits.

o They are interest insensitive and less bargaining for additionalinterest.

o They constitute low cost funds for the banks.

o Effective customer relationship management with the retailcustomers built a strong customer base.

o Retail banking increases the subsidiary business of the banks.

ASSETS SIDE

o Retail banking results in better yield and improved bottom line for abank.

o Retail segment is a good avenue for funds deployment.

o Consumer loans are presumed to be of lower risk and NPAperception.

o Helps economic revival of the nation through increased productionactivity.

o Improves lifestyle and fulfils aspirations of the people throughaffordable credit.


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o Innovative product development credit.

o Retail banking involves minimum marketing efforts in a demand driven economy.

o Diversified portfolio due to huge customer base enables bank toreduce their dependence on few or single borrowero Banks can earn good profits by providing non fund based or feebased services without deploying their funds.

DISADVANTAGES

o Designing own and new financial products is very costly and timeconsuming for the bank.

o Customers now-a-days prefer net banking to branch banking. Thebanks that are slow in introducing technology-based products, arefinding it difficult to retain the customers who wish to opt for netbanking.

o Customers are attracted towards other financial products likemutual funds etc.

o Though banks are investing heavily in technology, they are not ableto exploit the same to the full extent.

o A major disadvantage is monitoring and follow up of huge volumeof loan accounts inducing banks to spend heavily in human resourcedepartment.


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o Long term loans like housing loan due to its long repayment term inthe absence of proper follow-up, can become NPAs.

o The volume of amount borrowed by a single customer is very low ascompared to wholesale banking. This does not allow banks to toexploit the advantage of earning huge profits from single customer asin case of wholesale banking

Types of loans

Home loans

Personal loans

Educational loans

Auto / Car loans


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1) Home loans

Home loans are available for:

Purchase of flat, row house, bungalow from developers

Purchase of existing freehold properties


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Purchase of properties in an existing or proposed co-operative housing

society or apartment owner's association

Purchase of first Power of Attorney purchases in Delhi for DDA flats

allotted before 1992.

Construction of own house

HDFC home loans can be applied for either individually or jointly.

Proposedowners of the property will have to be co-applicants. However,

the co-applicants need not be co-owners. Maximum tenure is 20 years

subject toretirement age.

Home Loans : Key Features

Purpose : To purchase, construct or extend new or existing flat / house

Loan to value (LTV) ratio is 85 %. This includes stamp duty, registration charges

and amenities.

Amenities on Stamp paper : We can add Maximum of 20% of Agreement value.

Maximum Tenor : 20 years (15 years for SENP retail & non retail)

Only for first sale builder properties.

Loan amount : From Rs.2 lac to Rs. 3 Crore

Validity of Loan Approvals : 6 months from the date of Sanction Letter.

Types of home loans: -

Housing loans offered by banks are of different types:-

Home Purchase Loan

Home Construction Loans


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Home Improvement LoansHome Extension LoansHome Conversion LoansLand Purchase LoansStamp Duty LoansBridge LoansBalance Transfer Loans

Refinance LoansLoans to NRIs

Home purchase loans:-

This is the basic home loan for the purchase of a new home. If

youwant to buy a flat in some society or some already built house, banks

andHFCs sanction you home purchase loans for this process.

Home construction loans:-This loan is available for the construction of a new home on a

saidproperty. The documents that are required in such a case are

slightlydifferent from the ones you submit for a normal Housing Loan. If you

havepurchased this plot within a period of one year before you

startedconstruction of your house, most HFCs will include the land cost as

acomponent, to value the total cost of the property. In cases where the

periodfrom the date of purchase of land to the date of application has

exceeded ayear, the land cost will not be included in the total cost of

property whilecalculating eligibility.

Home improvement loans:-

These loans are given for implementing repair works and

renovationsin a home that has already been purchased, for external works


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like structuralrepairs, waterproofing or internal work like tiling and flooring,

plumbing,electrical work, painting, etc. One can avail of such a loan facility

of a homeimprovement loan, after obtaining the requisite approvals from

the relevantbuilding authority. the following are coming under the

home

improvement loans:

External repairs

Tiling and flooring

Internal and external painting

Plumbing and electrical work

Waterproofing and roofing

Grills and aluminum windows

Waterproofing on terrace

Construction of underground/overhead water tank

Paving of compound wall (with stone/tile/etc.)

Borewell.

Home extension loans:-

An extension loan is one which helps you to meet the expenses of

anyalteration to the existing building like extension/ modification of an

existinghome; for example addition of an extra room etc. One can avail of

such aloan facility of a home extension loan, after obtaining the requisite

approvalsfrom the relevant municipal corporation.

Home conversion loans:-


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This is available for those who have financed the present home with

ahome loan and wish to purchase and move to another home for which

someextra funds are required. Through a home conversion loan, the

existing loanis transferred to the new home including the extra amount required,

eliminating the need for pre-payment of the previous loan.

Land purchase loans:-

This loan is available for purchase of land for both home construction

or investment purposes.

Stamp duty loans:-

This loan is sanctioned to pay the stamp duty amount that needs to be

paid on the purchase of property.

Bridge loans:-

Bridge Loans are designed for people who wish to sell the

existinghome and purchase another. The bridge loan helps finance the new

home,until a buyer is found for the old home.

Balance- transfer loans:-

Balance Transfer is the transfer of the balance of an existing

homeloan that you availed at a higher rate of interest (ROI) to either the

same HFCor another HFC at the current ROI a lower rate of interest.Refinance loans:-

Refinance loans are taken in case when a loan for your house from

aHFI at a particular ROI you have taken drops over the years and you

stand tolose. In such cases you may opt to swap your loan. This could be

done fromeither the same HFI or another HFI at the current rates of

interest, which is lower.

Table

State Bank of India, Corporation Bank, Punjab National Bank,P ublic Sector Central Bank, Dena Bank, Allahabad Bank, Bank of MaharashtraHousing Bank of Baroda Housing Finance, Can Fin Homes, GIC HousingFinance Finance, LIC Housing Finance, PNB Housing Finance, SBI HomCompanies Finance, Centbank Home Finance, HUDCO, LIC, etc.Financial HDFC, ICICI Ltd, Citibank, HSBC, Standard Chartered- GrindlayInstitutions IDBI Bank, etcState Bank of India, Corporation Bank, Punjab NaP ublic Sector Central Bank, Dena Bank, Allahabad Bank, Bank of MaharashtraHousing Bank of Baroda Housing Finance, Can Fin Homes, GIC HousingFinance Finance, LIC Housing Finance, PNB Housing Finance, SBI HomCompanies Finance, Centbank Home Finance, HUDCO, LIC, etc.Financial HDFC, ICICI Ltd, Citibank, HSBC, Standard Chartered- GrindlayInstitutions IDBI Bank, etcState Bank of India, Corporation Bank, Punjab NaP ublic Sector Central Bank, Dena Bank, Allahabad Bank, Bank of MaharashtraHousing Bank of Baroda Housing Finance, Can Fin Homes, GIC HousingFinance Finance, LIC Housing Finance, PNB Housing Finance, SBI HomCompanies Finance, Centbank Home Finance, HUDCO, LIC, etc.Financial HDFC, ICICI Ltd, Citibank, HSBC, Standard Chartered- GrindlayInstitutions IDBI Bank, etc State Bank of India, Corporation Bank, Punjab NP ublic Sector Central Bank, Dena Bank, Allahabad Bank, Bank of MaharashtraHousing Bank of Baroda Housing Finance, Can Fin Homes, GIC HousingFinance Finance, LIC Housing Finance, PNB Housing Finance, SBI HomCompanies Finance, Centbank Home Finance, HUDCO, LIC, etc.Financial HDFC, ICICI Ltd, Citibank, HSBC, Standard Chartered- GrindlayInstitutions IDBI Bank, etc


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Types of cards

Credit card

a credit card is a smallplasticcard issued to users as a system

ofpayment. It allows its holder to buy goods and services based on

the holder's promise to pay for these goods and services.[1]The

issuer of the card creates arevolving accountand grants aline of

creditto theconsumer(or the user) from which the user can borrow

money for payment to amerchantor as acash advanceto the user.

In contrast, credit cards allow the consumers a continuing balance of

debt, subject tointerestbeing charged. A credit card also differs from

acash card, which can be used like currency by the owner of the

card. Most credit cards are issued bybanksorcredit unions, and are

the shape and size specified by theISO/IEC 7810standard as ID-1.

This is defined as 85.60 53.98 mm (3.370 2.125 in) (33/8 21/8 in) in

size.

Atm cards

an ATM card (also known as a bank card, client card, key card or cashcard) is a card issued by abank,credit unionorbuilding societythat

can be used at anATMfor deposits, withdrawals, account

information, and other types of transactions, often throughinterbank

networks.

Some ATM cards can also be used:

at a branch, as identification for in-person transactions

at merchants, forEFTPOS(point of sale) purchases

ATM cards are typically about 86 54 mm, i.e.ISO/IEC 7810 ID-1size.

Unlike adebit card, in-store purchases or refunds with an ATM card

can generally be made in person only, as they require authentication

through apersonal identification numberor PIN. In other words, ATM

cards cannot be used at merchants that only acceptcredit cards.
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However, other types of transactions throughtelephoneoronline

bankingmay be performed with an ATM card without in-person

authentication. This includes account balance inquiries,electronic bill

paymentsor in some cases, online purchases (seeInterac Online).

In some countries, the two functions of ATM cards and debit cards

are combined into a single card called a debit card or also commonly

called a bank card. These are able to perform banking tasks at ATMs

and also make point-of-sale transactions, both functions using a PIN.

Canada'sInteracand.

Debit cards

A debit card (also known as a bank card or check card) is a plastic

card that provides the cardholder electronic access to his or herbankaccount/s at a financial institution. Some cards have a stored value

with which a payment is made, while most relay a message to the

cardholder's bank to withdraw funds from a designated account in

favor of the payee's designated bank account. The card can be used

as an alternative payment method tocashwhen making purchases. In

some cases, the cards are designed exclusively for use on the

Internet, and so there is no physical card.[1][2]

In many countries the use of debit cards has become so widespread

that their volume of use has overtaken or entirely replaced

thecheckand, in some instances, cash transactions. Likecredit

cards, debit cards are used widely for telephone and Internet

purchases.

However, unlike credit cards, the funds paid using a debit card are

transferred immediately from the bearer's bank account, instead of

having the bearer pay back the money at a later date.

Debit cards usually also allow for instant withdrawal of cash, actingas theATM cardfor withdrawing cash and as acheck guarantee card.

Merchants may also offercashbackfacilities to customers, where a

customer can withdraw cash along with their purchase.
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Charge card

A charge card is a plastic (or occasionally titanium) card that provides

an alternative payment to cash when making purchases in which the

issuer and the cardholder enter into an agreement that the debt

incurred on the charge account will be paid in full and by due date

(usually every thirty days) or be subject to severe late fees and

restrictions on card use.

Though the terms charge cardandcredit cardare sometimes used

interchangeably, they are distinct protocols of financial transactions:

a credit card is arevolving creditinstrument that does not need to be

paid in full; no late fee is charged so long as the minimum payment is

made at specified intervals (usually every thirty days) which carries

thebalanceforward as a loan charging interest. Charge cards aretypically issued without spending limits (although one may be

punitively imposed after a late payment), whereas credit cards always

have a specified line of credit that the user may not exceed for

purchases.

Many charge cards have the option for users to pay for some

purchases over time.American Expresscharge card customers, for

instance, can enroll in the Extended Payment Option (internally

referred to as ExPO) to be able to pay for purchases over $200 overtime,[1]or in Sign & Travel to be able to pay for eligible travel-related

expenses over time.[2]

Most charge cards also have a feature called No Preset Spending

Limit (NPSL). While consumers often take NPSL to mean that their

cards are without limits, NPSL really means that a cards limit

changes, often from month-to-month, based on factors such as

consumer charging and payment history as well overall economic

trends. According to aCardHub.comNPSL study, the way NPSLcharge cards are reported to the major credit bureaus varies by issuer

and can lead to artificial increases in credit utilization, thereby

lowering onesFICO Score[3].

Governmentsand largebusinessesoften use charge cards to pay for

and keep track of expenses related to official business; these are
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often referred to aspurchasing cards. Some high-

endretailerslikeNeiman Marcusissue charge cards to customers.

SomeAmerican ExpressandDiners Clubcards are also charge

cards, rather than credit ordebit cardslikeVISAandMasterCard\

Smart card

A smart card, chip card, orintegrated circuitcard (ICC), is any pocket-

sized card with embedded integrated circuits. A smart card

ormicroprocessorcards contain volatile memory and microprocessor

components. The card is made of plastic, generallypolyvinyl chloride,

but sometimesacrylonitrile butadiene styreneorpolycarbonate.

Smart cards may also provide strong

securityauthenticationforsingle sign-on(SSO) within largeorganizations

A smart card may have the following generic characteristics:

Dimensions similar to those of acredit card. ID-1 of theISO/IEC

7810standard defines cards as nominally 85.60 by 53.98

millimetres (3.370 2.125 in). Another popular size is ID-000 which

is nominally 25 by 15 millimetres (0.984 0.591 in) (commonly used

inSIM cards). Both are 0.76 millimetres (0.030 in) thick. Contains atamper-resistantsecurity system (for example asecure

cryptoprocessorand a securefile system) and provides security

services (e.g., protects in-memory information).

Managed by an administration system which securely

interchanges information and configuration settings with the card,

controlling cardblacklistingand application-data updates.

Communicates with external services via card-reading devices,

such as ticket readers,ATMs, etc.

Smart cards can provide identification, authentication, data storage

and application processing.[1]

The benefits of smart cards are directly related to the volume of

information and applications that are programmed for use on a card.

A single contact/contactless smart card can be programmed with
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multiple banking credentials, medical entitlement, drivers

license/public transport entitlement, loyalty programs and club

memberships to name just a few. Multi-factor and proximity

authentication can and has been embedded into smart cards to

increase the security of all services on the card. For example, a smartcard can be programmed to only allow a contactless transaction if it

is also within range of another device like a uniquely paired mobile

phone. This can significantly increase the security of the smart card.

Governments gain a significant enhancement to the provision of

publicly funded services through the increased security offered by

smart cards. These savings are passed onto society through a

reduction in the necessary funding or enhanced public services.

Individuals gain increased security and convenience when usingsmart cards designed for interoperability between services. For

example, consumers only need to replace one card if their wallet is

lost or stolen. Additionally, the data storage available on a card could

contain medical information that is critical in an emergency should

the card holder allow access to this.

cheque guarantee card

A cheque guarantee card is essentially an abbreviated portableletter

of creditgranted by a bank to a qualified depositor, providing that

when he is paying a business bychequeand the retailer writes the

card number on the back of the cheque, the cheque is signed in the

retailer's presence, and the retailer verifies the signature on the

cheque against the signature on the card, then the cheque cannot be

stopped and payment cannot be refused by the bank. This

arrangement works only for cheques drawn on an account provided

by the bank that issues the card and can result in anoverdraftwith

penalty interest.
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FUTURE OF RETAIL BANKING

Retail banking has significant past and glorious future over the years.Indian retailbanking, according to a report, is likely to grow at a CAGR of 28 per cent till 2010to Rs 97,00 billion. So, although the revolution inretail banking has changed theface of the Indian banking industry as awhole, it has still miles to go. On thewhole, looking ahead, the prospects ofretail banking are brighter than ever and thebankers have to give continuedthrust to this area of banking.Thus, with theconsumers ever multiplyingneeds there is definitely a vast scope for thefurtherance of the retailbanking business. Operationally, there is a possibility that technology gobeyond merely reducing thecost & improving the quality of currentproducts.It may prove possible, evenprofitable, to combine functions in newways. The future of retail banking liesmore in mobile banking.Mobile telephone market is penetrating, and mobilephones are ideal to utilizeInternet banking services without customer accesses toPC. By a tacitacceptance India has around three million mobile phone users andthisnumber is expected to reach to eight million by 2003. Smart cardrevolutionwill further change the face of retail banking. Smart cards can

store information;carry out local processing on the data stored and canperform complex calculations.A

t present, India has around 3.4 million smart card users and it is estimated

that bythe end of 2004 it will reach 14.7 million


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my project of retail banking

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