Retail banking- Retail banking refers to banking in which banking institutions execute transactions directly with consumers, rather than corporations or other banks. Services offered include: Savings and transactional accounts Mortgages Personal loans Debit cards Credit cards…………etc………….
Today’s retail banking sector is characterized by 3 basic characteristics: multiple products (deposits, credit cards, insurance, investments and securities); multiple channels of distribution (call centre, branch, Internet); and multiple customer groups (consumer, small business, and corporate).
The typical products offered in the Indian retail banking segment are housing loans, consumption loans for purchase of durables, auto loans, credit cards and educational loans. Rs 20,000-100 lakh Duration 5 to 7 years with housing loan up to 15 years.
Economy prosperity and increase in purchasing power which led to consumer boom Changing consumer demographics Technological factors Lowering of treasury income of banks Decline in interest rates
1) CREDIT CARDS: A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holders promise to pay for these goods and services. The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user.
Interest charges on credit card: Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid.
2) DEBIT CARDS: Debit cards are similar to credit cards, except debit cards pull money out of your checking or brokerage account. Debit cards do not create or increase a loan like credit cards do. Debit Cards and the ATM For some people, the main reason to have a debit card is to use it at an ATM. For a while, banks issued "ATM Cards" which were only useful if you were standing in front of an ATM trying to take out cash. Eventually, banks started to add more features so that a debit card can now be used at almost any location.
SIMILARITIES: Both cards offer special rewards, such as points and cash back on purchases made through the card. Debit cards and credit cards can be used to make online payments with the help of the Pin number assigned to them. They can be used to withdraw money from ATMs, depending on the cash limit available on these cards.
In the case of a credit card, the issuer offers credit and overdraft facilities. This facility is not available with a debit card, which will only debit payments from existing and available funds within the cardholders account. A credit cardholder therefore has a monthly bill to pay in every month that the card is used. If they don’t pay that bill, high interest charges are applied. A debit card holder is free from the hassle of paying those bills, and from the risk of building up large debts to credit card companies.
CREDIT CARDS: Usage increased since early 1990s Total number of cards increased from 2.69 crores in December 2003 to 4.33 crore in December 2004. Working group was set up for regulatory mechanism of the credit cards RBI received many complaints regarding various undesirable practices by credit card issuing institutions and their agents.
The working group has given recommendations regarding the terms and conditions to be highlighted and advertised to the customers These recommendations are being processed within RBI guidelines for healthy growth in the development of plastic money in India.
Impact on the economy:— one of the top employment generator— forward and backward linkages with over 250 industries like cement, steel, timber, ceramics, tiles etc…— a small initiative can boost multiplier effects in the economy through generation of demand— the most preferred avenue of investment in recession prone economy
Scheduled commercial banks (SCBs) Scheduled co-operative banks Regional rural banks Agriculture and Rural development banks Housing finance companies National co-operative housing federation of India
Home-equity loans Home extension loans Home improvement loans Home purchase loans Land purchase loans Home loans to self help groups/ Micro finance institutions Loan to NRIs
the loan amount and interest rates depends on:― Loan tenure― Purpose of loan― Repayment capacity of borrowers― Estimated value of property― Clear title deeds of the borrower― Cost of the fund to the financier The repayment of loan is done through equated monthly installments(EMIs)
The below mentioned rates are as on 1st February, 2011 for loan amount of Rs. 30 lacs and a tenure of 15 years. Banks Name Interest rates (in % pa) Axis Bank 9.5 Bank of Baroda 9.75 Bank of India 10.25 Central Bank of India 10 HDFC Ltd 9.75 ICICI Bank 9.5 LIC Housing Finance 9.95 Punjab National Bank 10.25 SBI 8.5 Union Bank of India 9.75
HDFC housing finance SBI housing loan PNB housing finance HUDCO niwas ICICI home loan LIC housing finance BOB housing finance ltd. IND bank housing ltd. DHFL Vysya housing finance ltd. Sundarm finance group etc….
established on July 9, 1988 Wholly owned subsidiary of RBI Functions: Promotion and development of HFIs Regulation and supervision of HFCs Refinancing Project lending Development of secondary mortgage market
The Indian players are bullish on the Retail business. 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. Retail loans in Taiwan is around 41% of GDP, the figure in India stands at less than 5%.
Retail banking has immense opportunities in a growing economy like India. The rise of Indian middle class Increasing purchasing power The above factors promises substantial growth to retail banking sector which is in the nascent stage
All round increase in economic activity Increase in the purchasing power. The rural areas have the large purchasing power at their disposal and this is an opportunity to market Retail Banking. India has 200 million households and 400 million middleclass population more than 90% of the savings come from the house hold sector. Falling interest rates have resulted in a shift. “Now People Want To Save Less And Spend More.” Nuclear family concept is gaining much importance which may lead to large savings, large number of banking services to be provided are day- by-day increasing. Tax benefits are 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.
Retention of customers Rising indebtness Information technology poses both opportunities and challenges KYC issues and money laundering risks.
Customer service should be the be-all and end-all of the retail banking. Sharing of information about the credit history of the households. Outsourcing.
There is need for constant innovation in retail banking This requires product development and differentiation, innovation and business process reengineering, micro-planning, marketing, prudent pricing, customization, technological up gradation, home / electronic / mobile banking, cost reduction and cross-selling Furthermore, in all these customers’ interest is of paramount importance.