retail banks

8/11/2019 Retail Banks

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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:
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Acentral bank circulates money on behalf of a government and acts as its

monetary authority by implementing monetary policy, which regulates

themoney 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.

Asavings bank (known as a "building society" in theUnited 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 financialcooperative.

According to section 5(b), of banking regulation act 1949. Bank is

defined as accepting for thepurpose 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
http://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Money_supplyhttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Savings_bankhttp://en.wikipedia.org/wiki/Building_societyhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Savings_and_loan_associationhttp://en.wikipedia.org/wiki/Cooperativehttp://en.wikipedia.org/wiki/Cooperativehttp://en.wikipedia.org/wiki/Savings_and_loan_associationhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Building_societyhttp://en.wikipedia.org/wiki/Savings_bankhttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Money_supplyhttp://en.wikipedia.org/wiki/Monetary_policyhttp://en.wikipedia.org/wiki/Central_bank


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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 depositswhich did not belong to themto 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.


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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 theBank. 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 haveto use credit/debit cards for every type of commercial transaction.


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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).


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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)


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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)


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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).


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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


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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 ownedbanks 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.


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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 thefinancial markets.

Most banks are profit-making, private enterprises. However, some are

owned by government, or arenon-profit organizations.
http://en.wikipedia.org/wiki/Retail_bankinghttp://en.wikipedia.org/wiki/Business_bankinghttp://en.wikipedia.org/wiki/Business_bankinghttp://en.wikipedia.org/wiki/Private_bankinghttp://en.wikipedia.org/wiki/Private_bankinghttp://en.wikipedia.org/wiki/High_net_worth_individualhttp://en.wikipedia.org/wiki/High_net_worth_individualhttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Financial_marketshttp://en.wikipedia.org/wiki/Non-profit_organizationhttp://en.wikipedia.org/wiki/Non-profit_organizationhttp://en.wikipedia.org/wiki/Financial_marketshttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/High_net_worth_individualhttp://en.wikipedia.org/wiki/High_net_worth_individualhttp://en.wikipedia.org/wiki/Private_bankinghttp://en.wikipedia.org/wiki/Business_bankinghttp://en.wikipedia.org/wiki/Retail_banking


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CHAPTER.2

RETAIL BANKS:

DEFINITION:

Retail banking refers to banking in which banking institutions execute

transactions directly with consumers, rather than corporations or otherbanks. Services offered include: savings and checking accounts,

mortgages, personal loans, debit cards, credit cards, and so forth.


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INTRODUCTION:

Retail banks offer a range of services to individual customers andsmall

businesses,rather than to large companies and other banks. The services

can includecurrent 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 physicaloutlets. 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 regardretail

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 usingdebit cards,checks, etc.) mean that

they have to make funds available to customers at very short or
http://www.qfinance.com/dictionary/small-businesshttp://www.qfinance.com/dictionary/small-businesshttp://www.qfinance.com/dictionary/current-accounthttp://www.qfinance.com/dictionary/savings-accounthttp://www.qfinance.com/dictionary/retail-bankinghttp://www.qfinance.com/dictionary/retail-bankinghttp://www.qfinance.com/dictionary/debit-cardhttp://www.qfinance.com/dictionary/debit-cardhttp://www.qfinance.com/dictionary/retail-bankinghttp://www.qfinance.com/dictionary/retail-bankinghttp://www.qfinance.com/dictionary/savings-accounthttp://www.qfinance.com/dictionary/current-accounthttp://www.qfinance.com/dictionary/small-businesshttp://www.qfinance.com/dictionary/small-business


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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 ofliquid assets, maintaining a cushion of capital, lending to

different types of borrower, adjustinginterest 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 andcommercial 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 isdesigned to provide people with banking services for life, from college
http://www.qfinance.com/dictionary/liquid-assetshttp://www.qfinance.com/dictionary/interest-ratehttp://www.qfinance.com/dictionary/credit-scoringhttp://www.wisegeek.com/what-does-a-merchant-do.htmhttp://www.wisegeek.com/what-does-a-merchant-do.htmhttp://www.wisegeek.com/what-is-a-credit-card.htmhttp://www.wisegeek.com/what-is-a-credit-card.htmhttp://www.wisegeek.com/what-is-a-credit-card.htmhttp://www.wisegeek.com/what-does-a-merchant-do.htmhttp://www.qfinance.com/dictionary/credit-scoringhttp://www.qfinance.com/dictionary/interest-ratehttp://www.qfinance.com/dictionary/liquid-assets


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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 topeople 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.
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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


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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 Bankertop 1,000 banks shows that Temenoscustomers 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


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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 investmentbanks 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 providefinancial 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
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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.


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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.


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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.


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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.


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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.


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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.


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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


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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


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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.


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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 isdefinitely 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.


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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. Someonehas 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 inmaintaining 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.


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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 gettingtranslated 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


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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 theother 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 segmentslike 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.


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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.


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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


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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 drovecustomer 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, thecustomers 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


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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


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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


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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.


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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


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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 withoutany charge.


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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 1stmay 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 notbe available for super-saver term deposits.


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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.


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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 accoladesfrom industrywatchers.

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


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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 ofthe 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.


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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 corebankingsolution

e broking

callcentre

CIF

Debt

online

consumere- banking

mobile

micro

payments

corporate

e banking

ATM EFTswitch

OFSA

SMS Alert

BIZ TALK

middleware

GBM

staffware

workflow

engine

credit

cards

data ware

house


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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.

1.93

12

2.4

4.4

1.8

2

2

3

retail customers

Mar-01 Mar-02 Dec-04


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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-01Jan-02

Jan-03Jan-04

INTERNET CUSTOMERS


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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.


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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

ADivanna

The UPI journal of management research, vol.viii. No. 2009
http://www.google.com/http://www.google.com/http://www.n.wikipedia.com/http://www.n.wikipedia.com/http://www.answers.com/http://www.answers.com/http://www.icicibank.com/http://www.icicibank.com/http://www.yahoo.com/http://www.yahoo.com/http://www.yahoo.com/http://www.icicibank.com/http://www.answers.com/http://www.n.wikipedia.com/http://www.google.com/

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