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Retail Banking & its (non) importance in the country’s economy Aniruddha Paul Head – IT Change Delivery, ING Vysya Bank, March 4, 2011
History of Banking in India External shocks have undermined under capitalized Indian owned banks GoI direction imposed on banking Liberalization of the economy and the industry leads to the rapid growth of banking, especially retail banking as we know it. Demise of the 4-6-4 method!
What is Retail Banking and what makes it different? In a world of parity products, how do you gain leverage?
Definition - Banking in which banking institutions execute transactions directly with customers
Typical products: savings and transaction accounts; mortgages; personal loans; debit and credit cards, etc
Working principle: Law of Large Numbers; probabilistic modeling
Critical success factors:
Distribution – Branch, channels
Unit costs – cost per account, cost per transaction
Retail Banking: What’s been good for Indian banks hasn’t been good enough for the country
Scorching pace of growth since liberalization: CAGR of around 30% to touch a figure of INR 9700 Billion. Bankable households are growing at a CAGR of 28% (2007-11)
What’s powering this growth?
Economic prosperity and growth rate
Young population (70%<35 years)
Technology channels: ATM, POS, Web, Mobile
Retail loans constitute 7% of our economy versus 35% in other Asian countries
Retail assets are at only 25% of total banking assets
41% of India’s adult population is un-banked
Number of loan accounts: 14% of adult population
73% of farm households have no access to institutional credit
Share of money lenders in rural debt has moved from 17% in 1991 to 30% in 2002
This imbalance is caused by banks chasing the low hanging fruit that constitutes the urban savvy consumer
Purely from a profitability perspective, a large portion of the Indian population is perceived to be “unbankable”
The costs of servicing the remote rural sector using traditional business models (KYC; branch centric model; incremental cost of infrastructure) makes profitable banking unviable
Therefore, all banks tend to target the upwardly mobile urban salaried class
Banks are even creating “financial exclusion” barriers by increasing minimum balance requirements and average deposit sizes
Technology has lowered the cost of servicing this target segment
“ Today, if you look at financial systems around the globe, more than half the population of the world - out of six billion people, more than three billion - do not qualify to take out a loan from a bank. This is a shame…. The poor themselves can create a poverty-free world.. all we have to do is to free them from the chains that we have put around them ”