1. RETAILBANKING
SYLLABUS
MODULE A: Introduction
Historyand definition.role withinthe bankoperations.Applicabilityof retailingconceptsdistinction
betweenRetailandCorporate/WholesaleBanking
MODULE B: Retail Products
Retail Products Overview - Customerrequirements.Productsdevelopmentprocess.Liabilitiesand
AssetsProducts - Descriptionof Liabilityproducts.Descriptionof AssetProducts,Approval processfor
retail loans.Creditscoring.
ImportantAssetProducts - Home Ioans-Hligibility.Purpose.Amounts.Margin,Security.Disbursement
Moratorium.Prepaymentissues,Repayments/Collection.
Auto/VehicleLoans - Eligibility.Purpose,Amounts.Margin.Security.Disbursement.Moratorium,
Prepaymentissues,Repayments/Collection.
Personal Ixtans - Eligibility,Purpose.Amounts.Security.Disbursement.Moratorium, Prepaymentissues.
Repayments/Collection.
Educational Loans - Eligibility,Purpose,Amounts,Security,Disbursement.Moratorium, Prepayment
Issues.Repayments.
Credit/DebitCards- CreditVsDebitCards,Eligibility,Purpose,Amounts.Margin,Security,Processof
usingthe cards. BillingCycle.CreditPoints.
OtherProducts - Remittances/FundsTransfer
MODULE C: Marketing/Sellingof Retail Products,MISandAccounting

2. Retail Strategies;Tie-upwithInstitutionsforpersonal loans/creditcards/educational loans,with
OEMs/ AuthorisedDealersforauto/vehicleloans,andwithbuilders/developersforhome loans
DeliveryChannels - Branch,Extensioncounters.ATMs.POS.Internet Banking.MBanking.SellingProcess
inretail products-DirectSellingAgents.
CustomerRelationshipManagement - role andimpactof customerrelationshipmanagement.Stagesin
customerrelationshipmanagementprocess.Regulationsandcompliance
XII I SYLLABUS
TechnologyforRetail Banking - Staticinformation.Accountopening,basicloanoriginationdataetc.
Updatedinformationlikeincome detailsatdifferentfrequencies.Transactioninformationfrom
disbursementtill final settlementof the loan amount.Analytics/Alerts.
Accountingentries - Loanprocessandthe relevantaccountingincludingEMIComputation.
MODULE D: OtherissuesrelatedtoRetail Banking
Securilisation.mortgage basedsecurities.
Trendsinretailing - Newproductslike insurance,demutservices,online/phone Banking,property
services,investmentadvisory/wealthmanagement.Reverse Mortgage.Growthof c-banking.Cmss
sellingopportunities.
Recoveryof Retail Loans - Defaults,Rescheduling,recoveryprocess.SARAFAESIAct.DRTAct. use of Lok
Adalat(brum.RecoveryAgents-RBi guidelines.
CONTENTS
Foreword
MODULE A RETAIL BANKING

3. 1. Retail Banking- Introduction
2. Retail Banking- Role withinthe BankOperations
3. Applicabilityof Retail BankingConceptsandDistinctionBetweenRetail andCorporate/Wholesale
Banking
MODULE B RETAIL PRODUCTS
4. CustomerRequirements
5. Product DevelopmentProcess
6. CreditScoring
7. ImportantRetail AssetProducts
8. Creditand DebitCards
9. Remittance Products
MODULE C MARKETING IN RETAIL BANKING
10. MarketinginRetail Banking
11. DeliveryChannelsinRetailBanking
12. DeliveryModels
13. CustomerRelationshipManagementinRetail Banking
14. Service StandardsforRetail Banking
15. TechnologyinRetail Banking
MODULE D
OTHER ISSUES RELATED TO RETAIL BANKING

4. 16. Recoveryof Retail Loans
17. Securitisation
18. OtherIssuesinRetail Banking
XIV I CONTENTS
MODULE E
ADDITIONALREADINGMATERIAL ON HOME LOANS
19. Lender'sAppraisal Procedure
20. Securitisation - Mortgage BackedSecurities
21. HousingFinance andTax Planning
22. Mortgage Advice
23. Valuationof Real Property
Bibiliography
MODULE-A RETAIL BANKING
Units
1. Retail Banking:Introduction
2. Retail Banking:Role withinthe BankOperations
3. Applicability of Retail BankingConceptsandDistinctionBetween
Retail andCorporate/Wholesale Banking
v J
UNIT1 RETAILBANKING: INTRODUCTION

5. STRUCTURE
1.1 Introduction
1.2 Characteristicsof Retail Banking
1.3 Advantagesof Retail Banking
1.4 Constraintsin Retail Banking
1.5 Evolutionof Retail Banking
Terminal QuestionsLetUs SumUp Keywords
1.1 INTRODUCTION
What isRetail Banking?Letus see the differentdefinitionsof retail banking.
"Retail Bankingisa bankingservice thatisgearedprimarilytoward individualconsumers.Retail banking
isusuallymade available bycommercialbanks,aswell assmallercommunitybanks.Unlikewholesale
banking,retail bankingfocusesstrictlyonconsumermarkets.Retail bankingentitiesprovide awide
range of personal bankingservices,includingofferingsavingsandcheckingaccounts,billpayingservices,
as well asdebitandcreditcards. Throughretail banking,consumersmayalsoobtainmortgagesand
personal loans.Althoughretail bankingis,forthe mostpart,mass-marketdriven,manyretail banking
productsmay alsoextendtosmall andmediumsizedbusinesses.Todaymuchof retail bankingis
streamlinedelectronicallyviaAutomatedTellerMachines(ATMs),orthroughvirtual retail banking
knownas online banking."
"Retail Bankingdealswithlendingmoneytoconsumers.Thisincludesawide varietyof loans,including
creditcards, mortgage loansandauto loans,andcan alsobe usedto refertoloanstakenout at either
the prime rate or the subprime rate."
"Retail bankingreferstobankinginwhichbankinginstitutionsexecute transactionsdirectlywith
consumers,ratherthancorporationsor otherentities".
Retail Bankingrefersto"the part of a bank's operationsprovidingservicesatitsbranchesforsmall (in
bankterms) account holders."
"Bankingservicesofferedtoindividual customerssuchassavingsaccounts,personal loans,remittance
servicesetc.,"
"Pure retail bankingisgenerallyconceivedtobe the provisionof massmarketbankingservicesto
private individuals.Ithasbeenexpandedoverthe yearstoinclude inmanycasesservicesprovidedto

6. small- andmediumsizedbusinesses.Some banksmayalsoinclude their"private banking"business(i.e.
servicestohighnetworthindividuals) intheirdefinitionof retail banking".
1.2 CHARACTERISTICS OF RETAIL BANKING
The definitionsof retail bankingasdiscussedabove bringoutthe followingcharacteristics:
1. Bankingfacilitiestargetedatindividual customers.
2. Focussedtowardsmassmarketsegmentcovering alarge populationof individuals.
3. Offerdifferentliability,assetanda plethoraof service productstothe individual customers.
4. The deliverymodel of retail bankingisbothphysical andvirtual i.e.servicesare extendedthrough
branchesand alsothroughtechnologydrivenelectronicoff site deliverychannelslike ATMs,Internet
BankingandMobile Banking.
5. Extendedtosmall andmediumsize businesses.
1.3 ADVANTAGESOFRETAILBANKING
1. Clientbase will be large andthereforeriskisspreadacrossthe customerbase.
2. CustomerLoyaltywill be strongandcustomerstendnotto change from one bankto anothervery
often.
3. Attractive interestspreadssince spreadsare wide,since customersare toofragmentedtobargain
effectively;Creditrisktendstobe well diversified,asloanamountsare relativelysmall.
4. There is lessvolatilityindemandandcreditcycle thanfromlarge corporates.
5. Large numbersof clientscanfacilitate marketing, masssellingandthe abilitytocategorise/select
clientsusingscoringsystems/datamining.
1.4 CONSTRAINTS IN RETAIL BANKING
Thoughretail bankingasa segmenthasa numberof embeddedadvantages,the segmentsuffersfrom
constraintsalso.A fewof the constraintsare listedbelow:
1. Problemsinmanaginglarge numbersof clients,especiallyif I T systemsare notsufficientlyrobust.

7. 2. Rapid evolutionof productscanleadto I T complications.
3. The costs of maintainingbranchnetworksandhandlinglarge numbersof low-value transactionstend
to be relativelyhigh.(Forthisreasonbanksare encouragingclientstouse cheaperdistributionchannels,
such as ATMs, the telephoneorinternetforthese transactionsandreservethe branchesforhigher
addedvalue transactions).
4. Higherdelinquenciesespeciallyinunsecuredretail loansandcreditcardreceivables.
1.5 EVOLUTIONOFRETAILBANKING
Havingunderstoodwhatretail bankingisall about;letussee the evolutionandhistoryof retail banking.
 Retail Bankingasa BusinessModel
Retail Bankingasa businessmodel of bankshadevolvedoverthe yearsfromthe traditional banking
space.Historicallybankinginthe Indianscenariobefore1960s was identifiedwithlendingtobusiness
and corporate clientsforworkingcapital andprojectfinancing.The traditional formsof bankinginthe
above periodwasrestrictedtoclassclientsandsatisfytheirtotal bankingrequirementsinthe formof
financingforrawmaterials,workinprogress,finishedgoodsand billsreceivables.Fordeliveringthese
services,variousproducts,instrumentsandfacilitieswere introducedtoserve the corporate customers.
The operative accountslike currentaccountsforextendingthe above servicesformedanintegral partof
the services.The basicpremisesunderwhichthese serviceswere structuredwerethatthe needsand
requirementswere straightandsimple.Butoveraperiodof time,asthe needsandwantsof the
customersexpandedandmore andmore productsandserviceswere needed,bankshadredesigned
theirproductand service paradigm.There wasanabsolute needbybankstodevelopspecializedand
sophisticatedproductstomeetthe manifoldanddiversegrowthof organizations.The stage hadcome
where the legacyarchitecture of bankswasunable toservice the diverse needsandhence emergence of
bankswithfunctional focuscame intoexistence.Frombeingplainvanillacommercial functions,banks
tooknewavatars like InvestmentBanksandMerchantBanksto carry out the investmentside of banking
and alsocorporate capital raising,fundraisinganddebtstructuringactivities.Investmentfunctionwas
hivedoff asa separate activityandalsostandalone investmentbankshademergedtotake of the multi
dimensional functionsof InvestmentBanking,MergersandAcquisitionsetc.,.MerchantBankswere the
answerforCapital and Debtraisingandotherrelatedactivities.Butthe buckdidnot stopthere,as
bankingwasalwaysonthe explosionmode andthere wasabsolute necessityforbankstoreposition
themselveswithnewerbusinessmodelstosatisfythe everchangingneedsof the existingcustomers
and alsoto cater to the expectationsof the new classof emergingcustomers.Asthe evolutionof
bankingwasa continuousprocesswiththe broadeningof the customerbase andthe character of the
customersbase changedfromhomogenoustoheterogeneousoveraperiodof time,bankswere under
the compulsiontoredesigntheirproductsandservicesmodelstocaterto these customersandfulfill

8. theirvariedneeds.Thuscame corporate bankingandretail banking.Insome banksretail bankingwas
christenedasconsumerbankingasthe focuswas towardsindividual consumers.
Before discussingaboutthe designof retail banking,letushave alookat the evolutionof retail banking
across the globe.Capgemini.INGandthe EuropeanFinancial Management&MarketingAssociation
(EFMA) have studiedthe global Retail Bankingmarketwiththe aimof providinginsightstofinancial
servicescommunitythroughthe WorldRetail BankingReport(WRBR). The studyconductedin2006
covered142 banksin 20 countriescoveringthe geographiesof Europe - eurozone (Austria,Belgium,
France,Germany,Ireland,Italy,Netherlands,Portugal,Spain),Europe-noneurozone(CzechRepublic,
Norway,Poland,Slovakia,Sweden,Switzerland,UK). NorthAmericaandAsiaPacific(Australia,Canada,
China,US).
The WRBR 2006 givesanoverviewof the dynamicsatworkinthisretail bankingindustry. The report
profilesindicatedwhatthe end consumerspayinagivencountryforday to day bankingservicesand
alsothe channel strategies.The gistof findingsinthe pricingfrontisbrieflypresentedbelow:
• The average price of bankingservicesincreasedbyover3% in the countriessurveyed. Howeveritwas
observedthatthese trendmaskeddifferencesbetweenzones,especiallybetweenNorthAmerica,
where priceswentdownandthe eurozone where theyrose.
• Priceswere convergingslowlyinthe eurozone evenasprice differencesbetween countries - including
neighbours - remainedhigh.Thistrendwill continue asaresultof central initiativessuchasthe Single
Euro PaymentsArea(SEPA). The SEPA initiativeaimstocreate a domesticpaymentsmarketacrossthe
eurozone by 2010 and will resultincompetition,price transparencyandhomogeneityandwillaffect
the revenue structure of the banks.
• The pricingindiceswere developedbasedonthree usage patternsviz.,lessactive,active andvery
active users.Usage patternfor particularproductsvary significantlybetweencountries,leadingtomajor
differencesbetweenglobal andlocal prices.
• The average price of basic bankingservicesbasedonthe local active customerprofile was76Euros in
2005.
• Ina givenregion,pricesvariedaccordingtousage pattern,witharatio of up to one to 4.6 between
pricespaidby veryactive andlessactive users.
• Althoughsimilarpriceswere observedwithinagivenregion,theywerethe resultof verydifferent
pricingmodels.
• Fierce competition (US) andevolvingretailbankingmarkets(EasternEurope,China) have prompted
changingprice structures.
• Banksare reducingremote channel pricesinordertodrive greatercustomeruse.
• Pricesof seldom - usedproductshave steadilyincreasedoverthe pasttwoyears.

9. • Bankingservicesfollow the standardindustrialdevelopmentpatterninwhichpricesdeclinewith
maturity.
Accordingto the Report,the emergence of the new remote channelshaschangedthe distribution
paradigmof banks andstrategiesare to be inplace to take onthe multi channel challenges.Traditional
retail banksare counterattackingincorporatingdirectsalesandservice intotheirchannelarchitectures
and continue toinvestinalternative channelstokeepupwithmarketdevelopmentsandcustomer
demand.The challengesare twodimensional inmulti channel management.The firstdimensionisto
bothdevelopremote channelsandrepositionbranchestocreate more value forcustomerengagement.
The seconddimensionishowtoincrease customersatisfactionanddifferentiate themselvesfromthe
competitionwhile alsoimprovingthe productivityof the multi channelmodel.
Capgemini coveredasample of 41 leadingretail banksacrossthe globe whichincluded16banksin the
eurozone,15 inthe noneurozone,five inChinaandfive inNorthAmericatostudyhow the banksare
dealingwiththe challengesinmultichannel management. The importantfindingsof the studyare
summarisedbelow:
• The distributionof salesamongchannelsisan importantfactorin the channel strategies.Selling
throughthe branch channel isthe mainformat butoverthe yearsthe volumeshave dropped.Froma
highof 94% of salesroutedthroughthe branchesin2000,it hascome downto 86% in 2005 and likelyto
go downto 67% in2010. Onthe otherhand,salesthroughthe Webwhichwas low at 2% in2000 moved
up to 5% in2005 and likelytomove upto 17% in 2010. Same isthe case withsalesthroughphone
movingupfroma lowof 4% in2000 to 8% in 2005 andlikelyto move upto 13% in2010. The above
indicatesthe rapidmigrationof salesfromthe directchannelstoremote channelsoverthe pastfive
yearsand the likelymore aggressive movementinthe comingyears.
• The distributionof servicesamongchannelsisanotherimportantfactorinchannel strategies.The
percentage of day-to-daybankingtransactionscarriedoutthroughdifferentchannelsunderwenta
drasticchange overthe years.Froma level of 70% of the transactionsthathappenedthroughbranchin
2000, ithas droppedto42% in2005 andlikelytodropto 30% in2010. Consequently,thetransaction
level hasimprovedfrom19%in2000 to 29% in2005 and likelytotouch28% in 2010. Inthe same way,
the transactionsthroughWebwhichwas verylow at 4% in2000 hasmovedupto 18% in 2005 andlikely
to reach 28% in 2010. Phone Bankingtransactionusage alsomovedupfroma low of 5% in2000 to 9% in
2005 and to reach12% in 2010. It vindicatesthe growthof remote channelsoverdirectchannelsinthe
recentyears and the likelyexplosionof usage of remote channelsinthe comingyears.
• The banksin the sample expecttheirremote channelstodeliver33% of theirsalesin2010 up from 6%
in2000. Thistrend holdsgoodforall kindof productsfromsimple currentaccountsto more complex
mortgagesandinsurance products.
• Amongthe remote channels,thoughATMswere the earlyleader,the Internetisclearlydrivingthe
nextwave of automation.

10. • The rise inusage of remote channelswillnecessitateafreshlookatthe branch format andmove to
advisorysellinginbranchesbysuitablyrepositioningthe branchesforadvisoryselling.Staff will be
trainedas Advisorstohandle the customersacrossmultiple channelsandtheirbusinessenquiries.The
emergingtrendof developmentof advisorswithproactive attitudetoclientslooksverypositive witha
score of 88%.
• Managingmulti channel challengesincludescreationof multi channelcommoncustomerfile tohandle
in-boundcustomersandalsocalls.Only33% of the surveyedbankshave aneffective multichannel
commoncustomerfile.
.Retail BankinginUK
In UK the firstsignificantchangesinretail bankingoccurredafterthe introductionof the telegraphinthe
early1850s whichmade the processof communicationandinformationexchangefasterandreduced
the price differentialsbetweenstockmarkets.Moreover,amore intense levelof communication
inducedfrequentadministrative transactionsbetweenthe headofficesandthe branches.Thislater
resultedinchangesinthe organizational structure sothatperipheral officesbecame ableof performing
operationsthatwere once exclusivelydelegatedtothe central offices.Duringthe lastquarterof the
19th century,bankswere activelyinvolvedinthe consolidationof branch networkssothattheycould
operate ina more integratedmanneratregional level,openingnew officesandcreatingastructure of
financial activitiesfromlendingtoexertingthe control of customers.Banksaccruedalarge-scale
dimensionbymeansof extensive mergersandacquisitions.The declineof Britishbanksovertime was
accompaniedbyan increase inthe numberof bankingoffices.Fromthe beginningof the period,private
banksoperatedjustunderone-half of all bankofficesbutthisfigure faced adecreasingtrendafterthe
1850s. These changesinthe managementof outletsweremainlydue toa greaterwillingnessof joint-
stock banksto operate branchnetworksanda greaterconcentrationof ownershipthroughinter-bank
mergers.The aggressive policyof branchingcontinuedafterthe 1900s whenthe numberof offices
resultedthree timesbigger.Theseconsiderationsleadtothe conclusionthatwhilstdiminishingin
number,banksaccruedhighermarketconcentrationand,mostimportantly,more interoperability.
Financial serviceswere thenmerelyrestrictedtoroutine operationsandthe formal provisionof short
termloans.The necessityof anefficientandreliableinformationmanagementbecame clear,forbanks
couldnot realize fruitful synergieswith the setof industrial activitiesinthe absence of adequate
informationflows.Forthese reasons,acore practice inbankinghasbeen,eversince the creationof
confidentialrecords,tobe validmemorandaof the discontinuousrelationswithcustomers.More
importantly,the activityof recordkeepingopenedwaytothe definitionof standardizedpracticesaimed
at connectingefficientlythe local officestothe central management.The definitionof unofficial
standardsinoperative practiceshasbeenalong term phenomenoninbankinganditisnoteworthyto
notice thatthe groundsof such an argumentstandinthe verynature of the banking,whichisbasedon
trust andconfidence mutuallyestablishedwithcustomersandreinforcedbyinformationmanagement.
In thisperspective,the emergenceof clerksandtypistsseemedparticularlyimportantduringthisphase,
due alsoto the commercial introductionof the typewriterin1873, for these accrueda dynamic

11. dimensiontothe processof divisionof labour.Tomake the systemworkmore efficiently,introduction
of technologyinitiativesinthe bankshadgainedattentionof the banks.The developmentof servicesin
retail bankingisanarticulatedprocesswithinwhichthe technical andthe organizationaldimensions
followeddistinct,yetcomplementary,patternsof growth.
(Source:The evolutionof retail bankingservicesinUnitedKingdom:aRetrospective Analysis.Davide
Consoli,CRICWorkingPaperNo13, September2003, ISBN:184052 0116)
.Retail BankinginUS
The traditional image of bankinginUS featuresastatelyoffice onMainStreetwhere the branch
managerunderstandsthe local marketandhas strongcustomerrelationships.Buttechnologyand
regulatorychangesinthe 1990s challengedthisbricks-and-mortarbusinessmodel.Automatedteller
machines(ATMs) proliferatedafterthe national ATMnetworksdroppedabanon surchargesin1996; by
2002, there were 352,000 machinesinthe UnitedStates.The Internetgave customerselectronicaccess
to theiraccountsand even gave rise to"virtual"bankingorganizations;in2000, forty Internetbanks
were inoperation.Banksalsodevelopedcentralizedcall centerstohandle customerservice issuesand
to initiate transactions,includingdepositsandloans.Inconcertwiththese changes,manyinstitutions
shiftedactivitiesonce carriedoutbybranchbank personnel,suchassmall-businessloanapproval and
management,toregional ornational offices.Allthese developmentsappearedtoreduce the role of the
traditional bankbranchinthe deliveryof retail bankingservices.
These changeswere reinforcedbyderegulationinthe 1990s. Inparticular,the Riegle-NealActof 1994
allowedbankstobranchand merge across state lines,contributingtoanera of bank consolidationthat
focusedonreducingcoststo boostprofits.Asa result,the numberof US banksand Thriftsfell from
about12,500 in1994 to a little more than9,000 at the endof 2003. During the same period,the number
of bankand thriftbranchesactuallyrose.Bankingorganizationsbegantoexpandtheirbranchnetworks
followingthe bankingcrisisof the late 1980s andthe 1990-91 recession;from1993 to 2002, the number
of bankbranchesclimbed8.6percent.The Riegle-NealActcontributedtothisbranchexpansion,asdid
the Gramm-Leach-BlileyActof 1999—the latterbecause branchescouldbe usedtodistribute the
insurance andsecuritiesproductsthatthe legislationpermittedbankstooriginate.Together,the
decliningnumberof banksandrisingnumberof brancheshave resultedingreaterconsolidationof
branchesand depositsinthe nation'slargerbankandthriftorganizations.In1994, midsizedbranch
networks(100 to 500 branches) andlarge branch networks(more than500 branches) accountedfor53
percentof the country's depositsand46 percentof the branches.Bythe middle of 2003, those figures
had risento61 percentof depositsand51 percentof branches.The greatestamountof consolidation
has occurredin a subsetof the large branch networks - specifically, thosewithmore than1,000
branches—whichwe termthe "verylargest"networks.These networkscontainedalmost20,000
branchesinJune 2003, upsharplyfrom9,200 branchesin1994. The verylargestbranchnetworksnow
claimnearly25 percentof all US bank branches.
The consolidationof branchesintolargernetworkshasbeenaccompaniedbyincreasedinterstate
branchingand banking.Between1994 and 2003, the numberof organizationswithbranchesinmore

12. than one state nearlydoubledto538, while the numberof organizationsdecreasedbyone third.More
than a dozenbankand thriftbranchnetworksnow have a presence inatleast20 percentof the country.
The institutionswiththe widestgeographicreachhave branchesinabouthalf the states—afieldof
operationthatisstill shortof trulynationwide banking,butconsiderablymore extensive thanwhat
prevailedtenyearsago.The trendtowardconsolidationof branchesintolarge branchnetworkshas
implicationsforbankcustomersandthe banksthemselves.Traditionally,consumersandsmall
businesseshave reliedmostheavilyonbricks-and-mortarbranchestoaccessbankservices.The
evidence suggeststhatthese customersface somethingof atrade-off inlightof the growthof verylarge
branch networks.Onthe one hand,largerbankingorganizationstendtocharge higherfeesthansmaller
institutions.
Thus,branch-dependentcustomerscouldface additional costsasbranchesare increasinglyconsolidated
intothe largerbranch networks.Onthe otherhand,large branch networksofferthe convenience of
manypointsof contact withthe institutionand,veryoften,the abilitytoavoidATMsurchargesand
otherusage feesbystayingwithinthe bank'snetwork.Academicresearchsuggeststhatdepositors
value geographicreach(branchesinmanystatesandmunicipalities) andlocal branchdensity(many
branchesof an institutioninagivenarea) whenselectingadepositoryinstitution.Marketsurveysalso
suggestthatcustomersplace a premiumonconveniencewhenchoosing abank:39 percentof bank
customerssurveyedin2001 indicatedthattheyselectedtheirbankprimarilybecauseof itslocation.
These findingssuggestthatmanycustomersvalue the scope andscale of large branch networks.Forthe
banksthemselves,the consolidationof brancheswithinlarge branchnetworkshasimplicationsforcost
structure,businessfocus,andprofitability.Full-service branchesentail significantcoststhatbanksmust
coverthroughthe revenuesgeneratedbythese networks,primarilythe implicitandexplicitincome
associatedwithdepositaccounts.
In choosingtocontinue toexpandtheirbranchnetworks,these organizationsseemtohave made the
judgmentthatretail bankingactivitiesremainaneffective channel forgeneratingrevenues, despitethe
associatedcostsand the developmentof alternative distributionchannelssuchascall centers,ATMs,
and online banking.
(Source:The Evolutionof US.Bank Branch Networks:Growth,ConsolidationandStrategy - BeverlyHirtle
and ChristopherMetli- CurrentIssuesinEconomicsandFinance -Federal ReserveBankof NewYork - July
2004 )
.Retail BankinginEurope
Europe'slargesteconomyandthe second-mostpopulousnation,Germanywasonce celebratedas
Europe'seconomicpowerhouse.Butfallingexportscombinedwithhighcostsdue toan inflexible labour
and servicesmarketandthe modernizationandintegrationof EastGermanyhave contributedtomuted

13. economicgrowth.The Germanbankingindustryisdominatedbyuniversal banksthatcombine the
functionsof commercial andinvestmentbanks,includingthe securitiesbusiness.The Associationof
GermanBanks estimates thatuniversalbankscontribute toover75% of the industry'stotal business
volume.A strikingfeature of the country'sbankingindustryisthe highnumberof banksandthe dense
branch network.There are over2,300 banksin Germanywithover46,000 branches.Around1,500 of
the banksare verysmall insize witha businessvolume of lessthan€1 billion.
Germany'sfragmentedbankingsectorstandsapartinthe Europeanbankinglandscape.Itslarge private
banks,the "Big Five" - Deutsche BankAG,HypoVereinsbankAG(HVB),DresdnerBankAG,Commerzbank
AG and Deutsche PostbankAG- account for a significantlysmallershare of the sectorcomparedtoother
economies.There are around400 savingsbankswhile of the 300 odd private banks,around120 are
foreignbankswithbranchesinGermany.Bundesbankdatashowsthatthe topfive bankstogetherhold
12% of the nation's€1 trillionconsumerlendingmarket.
Historically,the country'sbankingsystemhasbeenbasedonaunique three-pillarmodelcomprising
private commercial banks,publicsectorbanksandcooperative banks.A recentpaperfromthe Centre
for EuropeanReformstatesthatsavingsbankscontrol around40% of the bankingmarket,while the
cooperative bankscontrol around30% of the market.Publicsector banksinclude savingsbanksor
"Sparkassen"thatare organizedona regional basisandtheirheadinstitutionsare knownas
"Landesbanken".Theyfocusprimarilyonthe economicdevelopmentsof theirrespective regionsrather
than profitmaximization.This philosophyappealstothe ordinaryconsumer,especiallyduringtimesof
stress.Local mediareportssuggestthatin face of the currentfinancial crises,Germansare turning
towardsthese savingsbankstokeeptheirsavingssafe.Itisestimatedthatdepositsatthe 400-odd
savingsbanksincreasedbymore than€1 billion(SI.4billion) inthe firsttwoweeksof Octoberthisyear.
However,the lackof competitivenessof co-operativebankshaslongbeenacause of concernboth for
the German authoritiesand business.
Accordingto an analysisbyThe Bankerin2007, German banksoverall managedtoincrease profitsasa
percentage of capital,to7.47% in2007 from 4.67% in 2006. But.says The Banker,thisremainsfar
behindthe otherlarge Europeaneconomies,"owingtolow profitabilityinthe Landesbankandsavings
banksectors."Germanystill hoststhe mostnumberof banksin Europe and exhibitsthe most
fragmentedmarketinthe region.Savingsandco-operativebanksaccountformore than 50% of the
country'sdepositbase andclose to 70% of the savingsdeposits.
Competitionisintenseinthe Germanretail bankingsector.Whileonone hand,foreignbankssuchas
Citi and Santandcrhave establishedthemselvesinthe highlycompetitiveconsumerfinance segment,
directplayerssuchas ING DiBa,an online subsidiaryof INGBankof Netherlands,have astrongplayin
depositsandmortgage lending.INGDiBahas verysuccessfullyincreaseditscustomerbase from1
millionin2002 to over6 milliontoday.Anotherkeyplayerinthe retail bankingsegmentisDeutsche
Bank,whichfor longhad focusedonexpandingitsinvestmentbankingoperationsabroad.Itsretail
bankingambitionsare nowobvious.In2006 Deutsche BankpurchasedNorisbank,aconsumerbankand
BerlinerBank, anup-marketretail bank,andnow hasa stake inPostbank.the largestretail bankwith
14.5 millioncustomersinthe country.

14. The directbankingmodel hasprovedhighlysuccessful inGermany.INGDiBaofferssolelyviaphone,
Internet,anda large networkof ATMs and boastsof the thirdlargestnumberof customersinthe
country.The financial servicessubsidiariesof Germancar makerssuchas Volkswagenalsooperate as
directbanks.Volkswagenforinstance,looksafter3millionprivate customersinGermany.Another
bankingbusinessmodel gainingpopularityisthe cooperationof retailersandbanks.BigGermanfashion
retailerC&A foundeditsownbankinthe beginningof 2007 and startedofferingconsumercreditsonline
as well asinits stores.Inaddition,C&A offersmotorinsurance contractsincollaborationwithDA Direkt,
a memberof the Zurich Group.Anotherexample of suchcollaborationisTchibo,abigGerman coffee
bar and shopchain,whichoffersconsumercreditsof RBS,currentand savingsaccountsof Deutsche
Postbank,sightdepositsof Comdirectandinsurance productsof Asstel.Tchibosellsthese productsonly
online orbyphone.
Investmentintechnologyamongbanksisveryhigh,notonlyamongthe toptierplayersbutsmaller
banksas well.Adoptionof technologybycustomersishightoo,asisevidentfromthe popularityof
directbanks.At Postbank,forinstance,over65% of itscustomerbase usesonline banking.The demand
for online bankingservicestodayisfarmore than account balance inquiriesandtransfers.Since the
launchof Postbank'sonlinebrokerage,atthe start of the new millennium, customershave beenableto
buyor sell shares,bondsandinvestmentfundsorsubscribe tonew issues.SMSalertswhensalary
paymentsare receivedorwhenchosenthresholdsare reachedinsafe custodyaccountscomplete the
service offerings.In2007, withiBanking,Postbankwasthe firstbankinGermanyto make itpossible to
use the iPhone forbanking.Analystfirm, Forresterestimatesthat39% of Germansnow bankonline.
Forresterexpectsonline bankingtogrow byabout 4% each yearwith47% of adultsor 32 million
Germansbankingonline by2012. The maindriversof thistrendwill be users'confidence inthe channel,
banks'robust securitymeasures,andstrongcompetitionforretail bankingcustomers.Broadband
connectivitytooplaysakeyrole inencouragingonline bankingusage.Forresterstatesthatbythe endof
2007, there were 16 millionGermanbroadbandhouseholds — more thaninany otherWestern
Europeancountry — butthisequatedtoonly43% of German households.Forresterpredictsafurther
11 millionhouseholdswill have broadbandaccessbythe endof 2013, many of whichhave dial-up
connectionstoday.
(Source .-Article onBankinginEurope - RekhaMenon,ResearchandContributingEditor,
FinacleConnect)
.Retail BankinginRussia
The retail bankingscenarioinRussiahadthrowndifferentbusinessscenariosforbanks.A studyin2007
whichanalysedthe retail markettrends,nonpayment risksandloanportfolioprofitabilityof different

15. banksrevealedthatthe retail bankingmarkethadnotreachedthe saturationlevel andthere wasspace
to accommodate newbanks.Some of the interestingrevelationsare
• The top tenbanksaccountedfor 63% of retail loans.
• Overdue retail loanswereat75.5bn roubles.
• Overdue autoloanswere growingfasterthanthe market.
• Profitabilityof retailportfolioswasbetween23-50%.
• The share of retail loansinthe loanportfoliosincreasedata stable rate andwas over24% inthe first
quarterof 2007.
• Interestmarginsonrouble retail loanshadcome downfromthe beginningof 2006 but remained
higherthanfor otherloans.Thisdecline wasdue tothe highercostof resourcesanda general fall in
interestrates.
• The retail loanmarketgrewby 75% from the beginningof 2006. Autoloans,creditcards and
mortgageswere the fastestgrowingsegments.Amongthe bankswiththe largestloanportfoliosare
those that enteredthe retail loanmarketin2006, whichshowedthe markethada large capacityand
was notsaturated.
• Sberbankwasthe numberone inretail bankingwithamarketshare of 37% followedbyRussian
StandardBank witha marketshare of 8%.The above bankswere the majorbanksin the retail space and
otherbankswere withmarketshare of below 5%.
(Source : Retail BankinginRussia- DifferentLoans-DifferentRisks- June2007- Reportby RusRating)
.Retail BankinginAsiaandSouthPacific
Asianbanksexperiencedenormousgrowthinpersonal bankinginthe recentperiodfuelledby
expansioninhouseholdcredit,online banking,creditcardsetc.In Korea,householdcreditnow accounts
for about

16. half of the total outstandingbankloansandthistrendwas evidentinseveral otherAsianeconomies.In
Chinaas pera recentreportof the LehmanBrothers,mortgage andconsumercreditinChinagrewby 70
percentin2001 and alreadyreached10 percentof the total bankloanoutstanding.Korea,Thailand,
Malaysia,Taiwanand Philippinesexperienced growthincreditcardsin the range of 20 percentin2002
and China'screditcard marketis expectedtogrow by75 percentto 100 percentinthe nextthree years.
In Koreavalue of creditdebt,nowaccountsfor about16 percentof the total householdborrowingand
about11 percentof the total private creditoutstanding.In2002, Value of creditcard debtoutstanding
has registeredagrowthof 47 percentinKorea,34 percentinPhilippines,30percentinThailand,28
percentinTaiwan,21 percentinMalaysiaand as a percentage of total domesticcredit,itrangesfrom3
percentinMalaysiato 11 percentinKorea.Growth inthe householdcredit/personal loanswasfurther
accentuatedbya numberof relief measuresannouncedbythe governmentstopromote housingloans,
use of creditcards andsupplementedbyadditional measuresannouncedbybankssuchas fee waivers,
highercreditlimitsetc.Withgrowthof personal bankingandhouseholdcredit,banksare transforming
fromtransaction-basedactivitiestoprocessbasedactivitiesthatrequiressophisticationinrisk
management.
.Retail BankingScenarioinIndia
The evolutionof retail bankinginIndiacanbe traced back to the entryof foreignbanks.The
conventional bankingbusinessbyPublicSectorBanks(PSBs) wasdone ona more generalizedapproach
and there wasno specificdemarcationasretail andnonretail activities.CustomerandIndustry
segmentationwasadoptedwithinthe overall businessplanof banks.Offeringproductsandservices
basedon specificconsumersegmentswasnotattemptedinafocusedway.Foreignbanksoperatingin
Indiasetthe trendand in the late 1970 and early1980s and came out withtheirconsumerbanking
modelswithhybridliabilityandassetproductsspecificallytargetedatthe personal segment.Standard
CharteredBankand GrindlaysBankwere the pioneersinintroducingthesetypesof products.Citibank
createdwavesinthe early1980s withtheircreditcardproducts andspurredthe retail bankingspace.
State Bank of Indiaand some publicsectorbankslike IndianOverseasBank,Bankof India,Bankof
Baroda and AndhraBankdevelopedandmarketedassetproductsandcard productsto cater to retail
segment.Infact,Bank of Baroda and AndhraBank were twoof the earlyplayersinthe creditcard
businessinthe PSBspace.The entryof new generationprivatesectorbanksinearly1990s hascreateda
newapproachto retail bankingbybanks.Withthe advantage of technologyrightfromstart,these
bankshad a clear positioningforretail bankingandaggressivelystrategisedforcreatingnew marketsfor
the retail segment.Inaddition,the new generationprivatebankshadposedathreatto the retail
businessof foreignbanksthathadbythenwell definedbusinessmodelsforretail banking.Toaddto the
fuel,PSBsalsowithtechnologyinitiativesandredefinedbusinessmodelforretail hadaggressively
enteredthe marketspace,creatingaretail war andcapture theirshare of the pie inthe liberalized
economicenvironmentandthe resultantopportunitiesinretail banking.The retail warisinfull swing

17. nowwitha win - winsituationforall the playersandthe focusis oncapturingand improvingthe market
share and customerbase.
Strongeconomicfundamentals,growingurbanpopulation, higherdisposableincomes,rise inyoung
population,emergence of newcustomersegmentsandrise inthe massaffluentspace,explosionof
service economyinadditiontomanufacturingspace have catapultedthe scope forretail banking
businessinIndia.The segmenthasbecome animportantcomponentinthe businessdesignof the banks
inIndiaand almostall playersinthe foreign,publicandprivate (oldandnew) space are inthisand ithas
become almostafashionstatementforall the players.The retail plansbasicallystemsfromthe
enormousopportunitiesacrossgeographiesandcustomersegmentsandthe huge untappedpotential
for retail bankinginIndia.There isavirtual goldmine tobe unearthedandeventhe toplayerisnot yet
scratchedfully.There isawhole lotof customerpyramidto be tappedandthe presentactivitiestill
recentlywere confinedonlytothe topandhighermiddle endof the customerpyramid.Of late banks,
especiallyforeignbanksandnewgenerationprivate playersare seriously lookingatthe bottomof the
customerpyramidandreengineeringtheirretail strategiestodevelopindependentandexclusive
strategiesforthissegment.Inaddition,the recenttrendisthatNonBankingFinance Companies(NBFCs)
have alsoaggressivelyenteredandactive inthis'Bottomof the Pyramid'segmentandposingabig
threatto the conventionalbankingplayers.
A recentstudypointedoutthatthe retail bankingindustryinIndiagrew bya compoundedannual
growthrate of 30.5% between1999 and 2004 and the figureswill be muchhigherbasedonthe
performance of the banksinthisspace in the subsequentyears.
In Indiatotal assetsize of the retail bankingindustrygrew ata rate of 120% to reach a value of $66
billionin2005. Thisgrowth inretail bankingsectorhashelpedinthe growthof the overall banking
sector.Retail Bankingisexpectedtogrow atabove 30% and retail assetsare expectedtotougha
whooping$300 billionby2010.But evenwiththisgrowthrate,still the potential forthe growthinretail
assetslooksverypromising.The contributionof retail assetstoGrossDomesticProduct(GDP) n Indiais
6% and iscomparativelylesserthanthatof otherAsiancounterpartslike China(15%),Malaysia(33%),
Thailand(24%) and Taiwan(52%).Thisindicatesthe lowerlevel of penetrationof retail bankinginIndia
and strengthenthe viewsandstrategiesof the retail players.
(Source : Retail Banking - Models,Strategies,Performancesandthe Future- The IndianScenario -
UnpublishedResearchReportbyDr.J.SethuramanforIIBF.)
A reportby McKinsey&Companyon 'EmergingChallengestothe IndianFinancial System'(April2007)
has highlightedthe huge potential available forpersonalfinancial servicesandthe differentspaces
available forbankstoencashthispotential.The gistof the observationsisdetailedbelow:
• Three forcesare shapingthe personal financial services(PFS) inAsia:the continuingsurge of new
customersenteringthe bankingsystem,the explosive growthof consumercreditat 30 percentper
annumand the emergingneedforwealthmanagementdue toincreasingaffluence.These forcescan
dramaticallyshiftthe currentfocusof bankingneedsfromtraditional bankingproductsand

18. services(e.g.,deposits,mortgages)toadvancedinvestment,creditandadvisoryproductsand
services(mutual funds,unsecuredpersonal loans).
• Withrisingincome levels,Indiaisbecominganincreasinglyattractivemarketforretail financial
products.India'sconsumerfinance boomwillsee revenuesrisingfrommore than20 to 25 per centper
annumoverthe nextfive years,fromUS$3 billiontodaytoaboutUS $10 billionby2010.
• Inadditiontoconsumercredit,paymentproductssuchas creditanddebitcards will drive growth,
withmore than 50 million creditcardslikelytobe inforce by2()l(),dependingonissuers'abilityto
penetrate secondtiertownsandsegmentssuchasself employed.
• By 2010, the numberof highnetworthindividuals(annual income greaterthanUS $ l million) will
grow to 400,000.
• Currentofferingswill be inadequatetocapture these opportunities,leavingagap forinnovative
playerstofill in.
• Inwealthmanagement,local bankshave primaryrelationshipsandbranchnetworks,butthese may
not be keybuyingfactorsformore sophisticatedconsumers.Successinaffluent/private bankingwill
require anextensive productrange spanningdebt,equities,investmentfunds,alternative assetsanda
range of ancillaryservices,withacomprehensiveexpertadvisoryprocess.
• Global banksare at advantage since theycanalreadyprovide awiderrange of productsand services
and have the talentpool todeliverthemwell.
• To maintainleadershipinthe emergingsectors,Indianbankswillhave todeveloptalent,productand
advisoryskillswithinashorttime.
• Despite creditanddepositsgrowthinIndia,bankingaccessremainslimitedtoafew sectionsof the
populationandthere isgreatdisparityinthe penetrationof bankingproductsamongthe different
classes.While manycustomersare well servedbytraditional financial servicesproviders,the unbanked
segmentrepresentsanunder-penetratedopportunity.
AnotherproprietaryMcKinseyPersonal Financial ServicesSurveyin2004 revealedthe following:
• Inthe "urbanmass"households(income betweenRs.25,()(M) toRs.200,000 perannumcomprising
nearly32 percentof the total householdsinIndia),penetrationof creditcardsisonly4 percentandthat
of autoloansis negligible.
• Ascomparedto the above,the penetrationof creditcardsandauto loansare 22 percent and 5 per
centfor "mass affluent"households(Income betweenRs.2()().(MX) andRs.500, 000 perannum.).
• Incase of "affluenthouseholds"(IncomebetweenRs.500,(MM) andRs. 1000, 000), the penetration
levelsforcredit cardsandauto loansare at 34 per centand 14 per cent.

19. .RBI Data on Retail BankinginIndia
The growth invariouselementsof retail bankingspace overthe yearsare publishedbyReserveBankof
Indiaintheir"Reporton Trendand Progressof Banking inIndia".The growthfiguresundervarious
spacesas detailedbelowreflectthe businessperformanceachievedinthe retail assetsandother
services:
i) Growth Rate of Retail Assetsof the BankingSystem
(v) RTGS Transactions
S.No Transactions March 2008 March 2009
1. Volume inmillions About6
2. Value inRs. Billions About15000 About13 About34000
Source:Reserve Bankof India - Reporton Trends& ProgressinBankinginIndia
(vi) DepositandCASA figures
S.No TermDepositsandCASA March 2008 March 2009
1. Term DepositGrowthRate 23.1%
2. CASA Growth Rate 20.2%
3. % of TermDeposittoTotal Deposits 49.3% 22.4% 13.4% 51.08%
Source:Reserve Bankof India - ReportonTrends& ProgressinBankinginIndia
(vii) Share of InterestIncome toTotal Income
S. No Income Segment 2005-06 2006-07 2007-08 2008-09
1. InterestIncome in% 84 84.3
2. Non InterestIncome in% 16 15.7 83.6 16.4 83.8 16.2
Source:Reserve Bankof India - ReportonTrends& ProgressinBankingin India

20. The above data throwsopenthe followinginterestingrevelationsaboutthe performance of the retail
.bankingsegmentinthe recentpast.
Performance of DifferentSegmentsof Retail Bankingfrom2004 to 2009
l.Retail Bankingingeneral whichhad shownagrowth of more than 30% during2005 to 2008 wasunder
strainduring2009.All the major segmentsof retail bankinghadlessergrowthratesin2009 than the
previousyears.The decelerationof growthismore pronouncedinthe retail assetsegment.
Financial turmoil acrossthe globe wasthe mainreasonforthe slowergrowthinretail bankingandthe
resultantdefaultsinretailloans.
2. The retail assetgrowthwhichwasat about 40% in 2005 and 2006 came downto about 17% in 2008
and furtherslideddownto4%in 2009.In the retail assets,the segmentswhichsufferedmostwere
ConsumerDurable LoansandAutoLoans. The receivablesinCreditCardswere maintainingthe growth
rate till 2008 but came downdrasticallyin2009. SimilarlyinHousingLoansalsothere wasa drastic
reductioningrowth.
3. The percentage of retail asststototal assetswhichwas at 25.5% in2006 had came downto 21.3% in
2009. Againthe growthrate of retail assetshadalsocame downto 19.8% in2009.
4. The numberof ATMs as on March 2009 was at 43651 as againstthe total numberof bank branchesat
64608.The numberof ATMs as a percentage of bankbrancheswasat 67% as on March 2(M)9 indicating
the approach of the banksincustomermigrationfrombranchestoelectronicmode.Toadd.the number
of onsite and off site ATMS reflectthatbanksare seriousinnot onlymakingthe ATMS available inthe
branchesbutalso hadincreasedthe convenience factortoenable the customertouse the ATMs in
away frombranch locationsalsoatdifferentandconvenientpoints.
5. The numberof branchescoveredunderCBSlooksveryattractive.Outof the total 64608 branchesof
scheduledcommercial banks,44304 branches(69%) are coveredunderCBS.i.e.offeringacross
geographybankingsolutionstocustomersandnotrestrictingtothe branch where the accountis held.
Thisgivestremendousopportunitiesforbankstodevise anintegratedapproachtoretail banking.
6. Retail electronicandcardbasedpaymentsregisteredaquantumjumpinthe past twoyearsmainly
due to introductionof RTGS(Real Time Gross Settlement) andNFFT(NationalElectronicFundsTransfer).
The volume andvalue of transactionsthroughRTGS had more than doubled,thoughwholesale
remittancesconstituteamajorproportionof RTGS transactions.The conceptof electronicremittance
mechanismispickingupfastoverthe past twoyearsand thistrendofferspotential topackage a
remittance productasa add onin theirretail bankingpackage tothe customers.

21. 7. The growthrate of Term Depositsof scheduledcommercialbankscame downmarginallyduring
2009.(Growth of only22.4% in2009 as against23.1% in2009).lf we take an average of 60% of the term
depositsare fromthe householdsegments/retailsegment(percentage extrapolatedbased onthe
historical publishedfigure),the core depositgrowthwasunderstressin2009.
8. The mostaffectedsegmentinthe retail liabilitiesspace wasinthe CASA front.CASA referstoCurrent
Accountsand SavingsAccounts.There wasa drasticdegrowthin CASA,withCASA slidingto13.4% in
2009 from20.2% in 20()8.The same is supportedbythe percentage of TermDepositstoTotal Deposits
whichhad improvedto51.08% in 2009 from49.3% in2008.
9. Anotherimportantpointof discussionisaboutthe compositionof income of scheduledcommercial
banks.The share of interestincome hadalmostremainedsteadyatabout84% and the share of non
interestincome alsoisalmoststable ataround16%.Thisindicatesthatthere were noseriouseffortsby
banksto increase the noninterestincome throughfee basedproductandthirdpartydistribution
models.
The differentscenariosinretail bankingindicateddifferentdimensionsof retail bankinganditsimpact
on profitability.Retail Bankingisacritical source of revenue andprofitabilityformostmajorbanks
aroundthe world.Accordingtoa researchstudyby BostonConsultingGroup,retail segmentbringsin
nearly60% of the total bankingrevenuesworldwide.Itisexpectedthatthissituationwillcontinueand
retail bankingwill remainthe dominantsource of revenue forbanksworldwidethrough2015. But the
fact isthat retail banksare facingtoughercompetitionandcontinuouslydecliningmarginsandto
overcome this,bankshave todevelopwinningbusinessmodelsand requisiteskills.
From the performance behaviourof retail bankingspace acrossthe globe itisveryclear that the
segmenthadpickedupmomentumduringthe early2000s and peakedduring2006 and 2007 butwas
affecteddue tothe financial turmoil acrossthe globe from2008.ThoughIndiawas insulatedfromthe
financial turmoil toagreat extentdue toregulatorydiscipline,the retailbankingspace sufferedsome
setbacktakinga hitin creditcard, housingandconsumerloans.The growthrate was lowerandthe
delinquencieshadstartedmovingupcausingconcerntothe bankers.Of course corrective stepswere
put inplace by the Government,Reserve Bankof IndiaandBanksby formulatingandimplementing
suitable restructuringandreschedulingmeasurestoarrestthe eruptingNonPerformingAssetsdue to
defaults.Butthe bottomline isthatretail bankingasa businessmodel isunderstress.
.Retail Banking- PresentStatus
A White PaperpresentedbyBostonConsultingGroupinOctober2009 on the presentstatusof Retail
Bankingissummarizedbelow:

22. 1. Today's retail bankingindustryisincrisis.The symptomscanbe tickedoff like somanyingredientsin
a bad recipe:lackof market growth,shrinkingrevenuepools,uncertainlongtermliquidity,huge loan
losses,tighteningregulationandsluggishvalue creation.
2. The economicfundamentalsof the bankingbusinessare changing.Notonlyare depositmarginsbeing
squeezedbylowrates,butthe abilityof bankstorecoverisbeingcompromisedbyhyper-competition
lor fundingandpressure fromregulatorsonfees.Asaresultthe search forprofitabilityistilting
permanentlytowardthe assetside of the balance sheetwhere more difficultiesarise.
3. Althoughmarginsonthe lendingside are wideninganddebtsare worseningasthe resultsof poor
creditdecisionsmade overthe pastfive totenyears,the availabilityof credithasdropped,and
underwritingandriskmanagementhave become more critical thanever.
4. Establishedbrandswill fare betterthanmonolines ornewer,attackertype companies.Butboth
attackersand incumbentswillhave todramaticallyimprove theirsalesandservice processes.
Global TrendsinRetail Banking
The BCG reporthas furtheropinedthatthe global trendsinretail bankinghave crystallized.The retail
bankingobjectivesof anybankwouldmainlyfocusonthe following:
1. Generatingsuperiorreturnsonassets.
2. Acquiringsufficientfunding
3. Enhancingriskmanagement
4. Understandingcustomersandregainingtheirtrust.
5. Copingwithincreaseddemandsregardingproducttransparencyandoverall service levels.
6. Achievingmulti channelexcellence withfullyintegratedbankingchannels.
7. Moving towardhigherlevelsof industrialization(whichismandatoryforrapidinnovationand
deployment.
Thoughthe general scenarioisunderstress,the above trendsare alsocreatingopportunitiesfor
institutionsthatastutelyadopttheirstrategiesandimplementchangesquickly,efficientlyand
effectivelyandsuchbankswill be the winners inthe market.
(Source:Come outa WinnerinRetail Banking- KillianBerz,VincentChin,andAndyMaguire- BCGWhite
Paper-October2009.)

23. TerminalQuestions
1. Advantagesof retail banking
i) Riskis lessasclientbase islarge
ii) Income isrelatively more asspreadsare more
iii) Stable modelwithlessvolatility
(iv) i and ii
(v) all the above
Ans:iv
2. What are the disadvantagesof retail banking
i) Huge clientele requiresmore effortsformonitoringandtracking.
ii) Costof servicingwill be relativelyhigh.
iii) DelinquenciesrelativelyhigherinunsecuredretailloanslikePersonalLoansandCreditCard
Receivables
(iv) (ii) and(iii)
(v) All the above
Ans:v
Key
1.(iv);2. (v)
Let Us Sum Up
• Bankingservicesofferedtoa large groupof individual customersisreferredtoas'Retail Banking'.
• The deliverymodel of retail bankingisbothphysical andremote - throughbranchesandalsothrough
remote channelslike ATMs,InternetBankingandMobile Banking.
• Retail Bankinghasmanyadvantagesasa businesssegmentforbanks:
• Riskislessas clientbase islarge.
• Income isrelativelymore asspreadsare more.

24. • Customerloyaltywill be strong.
• Stable model withlessvolatilityinbusinessasthe clientbase isverylarge.
• Highercrosssellingpotential.
• But ithas itsown disadvantagesalso:
• Huge clientelerequiresmore effortsformonitoringandtracking.
• Costof servicingwillbe relativelyhigh.
• Delinquenciesrelativelyhigherinunsecuredretail loanslike Personal LoansandCreditCard
Receivables.
• Globallythe retail bankingspace hada greatgrowth trajectoryandthe emergence of the new remote
channelshaschangedthe distributionparadigmof banks.Alternatechannelshave gainedprominence
to meetthe growingcustomerdemands.
• The performance of banksinretail bankingacrossthe globe hada stable growthbut wasunderstress
in2008 and 2009 mainlydue tothe global financial crisis.Butthe potential forretail bankingbasedon
customersegmentsandhouseholdincomeslookshighlypromising.The growthpotentialinAsiaand
SouthPacificisveryattractive and the numbersare expectedtogrow inthe near future.
• Retail Bankingasa conceptin Indiahasbeeninitiatedbythe PSBsand nurturedbythe foreign banks
and newgenerationprivatesectorbanks.Itgrew bya compoundedannual growthrate of 30.5%
between1999 and 2004 and expectedtogrow at above 30% in2010. In 2008 and 2009, as perRBI data,
the retail bankingsegmentsufferedsetbackdue tothe impactof the global economicturmoil butwith
the signsof recoveryalreadyvisible,the industryispoisedforapromisinggrowth.The penetrationlevel
of retail bankinginIndiaisstill verylowascomparedtothe otherAsiancountrieslike China,Malaysia,
Thailandetc..
Keywords
Retail Banking;customerbase,riskdiversification,spread,customerloyalty,database;deliverymodel.
UNIT2 RETAILBANKING: ROLE WITHIN THE BANK OPERATIONS
STRUCTURE

25. 2.1 Introduction
2.2 BusinessModels
Terminal QuestionsLetusSumUp Keywords
2.1 INTRODUCTION
Banksfollowdifferentapproachesfortheirretail bankingactivities.The role andimportance of retail
bankingacrossbanksdifferanddifferentmodelsare adoptedbybanks.The modelsandprocesses
dependuponthe importance attachedtothe retail bankingspace intheiroverall corporate business
strategiesandthe businessprojectionoverthe yearsforretail banking.
The businessmodelsforretail bankingshow interestingrevelationsacrosstypesof banks.The models
adoptedbybanksvary amongthe publicsector,private sectorandforeignbanks.The mainapproaches
are as follows:
a) StrategicBusinessUnit(SBU) Approach,
b) Departmental Approach,
c) IntegratedApproach(partof the overall businessplan).
PublicSectorBanksinIndiagenerallyhave adoptedthe DepartmentalApproachastheirretail banking
businessmodel.The model isuniformlyadoptedbyall the banksimmaterialof theirbalance sheetsize
or geography.Itindicatesthatthe approach ismore a general one withretail bankingasone of the
businessmodelsandnota focusedbusinessmodel.Inaresearchstudyon the modelsfollowedbyabout
10 bankscomprisingof public,private andforeignbanks,the SBUapproachisadoptedby one of the top
five publicsectorbanksbasedinMumbai andtheirbusinessmodel isinalignmentwithprivate sector
banksand foreignbanks.
In oldgenerationprivate sectorbanksthe approachismore conservative.The businessmodelforretail
bankingisbuiltasa part of the overall businessplanandnotdone asa separate departmental activity,
leave alone SBU.
In newgenerationprivatesectorbanks,the businessmodelisveryclear.Theyhadsetup Strategic
BusinessUnits(SBU) tohave clear focusand businessobjectives.
In foreignbanksalso,SBUis the businessmodelfollowedwithdefinedbusinessfocus.The demarcation
as a SBU ismore a ManagementByObjectives(MBO) processwhereinthe businessmodelisdealtasa
modularstrategyforachievingtargetedprofitswithaprovisiontoknockdownthe module,if the retail
plansare nottranslatedas perthe objectives.

26. If we go furtherdeepintothe modelsof retail bankingfollowedbybankswithregardtoproducts,
processes,deliverychannels,technologyetc,the real depthof retail banking,the relevance of each
elementforthe efficiencyof the total model andthe interdependencyof these elementsforthe
successof the modelsare revealed.Letushave a lookintothe revelations.
2.2 BUSINESS MODELS
Banksgenerallystructure theirretail bankingmodelsmainlyonapositioningplatformandtobe the
best/topthree amongthe peergroupplayersoracross players.Strategiesare basedonthe positioning
objectivesandvaryfrombankto bankdependingonthe importance attachedtothe businessmodel.
Amongthe publicsectorbanks,some banksaimfor a place amongthe topthree retail playersacross
banksincludingpeergroupbankswhile someotherpublicsectoraimfora space inthe topthree among
the peergroup.But the strategyadoptedbythese bankswasa part of the overall strategybasedonthe
businessmix projectionsandcorporate objectivesof the bank.
In case of oldgenerationprivate banks,the positioningplatformisveryclear.Itisbasedonthe overall
businessplanandinline withtheirsize andscale.Butwithinthe overall objective,forexample,one
Tamil Nadubasedbankaims to achieve one of the topthree slotsamongthe peergroupbanks.Their
technologyinitiativeswere inline withtheirpositioningobjective.
The newgenerationprivate bankshave clearvisionabouttheirpositioningplatform.Theywanttobe in
the top slotacross all classof banksand justifiablyso.The technology,strategy,customerandbusiness
initiativesandaggressivepositioningare the advantagesthesebanksenjoytoachieve the desired
objectives.Evenrecententrantsinthe private sectorside have clearpositioningstrategiesaboutwhere
theywantto be,goingforward,inthe nexttwo/three yearsandputsuitable actionplantoachieve their
objectives.
Foreignbanksgenerallydonotgo by positioningobjectivesbutpurelyonbusinessobjectives.Theygo
by customer,businessandprofittargets.Theytake acall on the businessmodelitself orone segmentof
the overall model,if the same isnotprofitable andeitherexitthe retail bankingsegmentitself orexita
particularbusinesslinewithinthe model.The classicexample isBNPParibaswhichenteredthe retail
bankingspace veryaggressivelyduringthe late 1990s witha full fledgedbrandbuildingexercisebutquit
the space aftertheyfoundthatit wasnot a profitable segmentforthemwiththe businessthey
generated.Likewise,AmericanExpresscame outof theircreditcard businessaftertakingstockof its
viability.Onthe positiveside,thoughABN AmroBankwasa late entrantinthe retail bankingspace with
theirentryinmid1990s, still theyhada clearpositioningfocusforbuildingupthe retail banking
franchise.ABN AmroBankwas a late entrantinthe creditcard space alsobut theyhad builtupthe card
base aggressivelyandposedathreatto otherestablishedcreditcardplayers.

27. Terminal Questions
1. The businessmodelfollowedbyBanksforretail bankingare
i) StrategicBusinessUnit(SBU) Approach
ii) Departmental Approach
iii) IntegratedApproach
t: iv) Anyone of the above.
2. Foreignbankscitedinthe topic,whichenteredinretail bankingactivities,whennotable toachieve
the businessobjectives,
i) Continuedwiththeirbusinessinspite of notbeingprofitable.
T: ii) Movedout of the business.
iii) Changedtheirfocuswithsome strategicchanges.
iv) None of the above
Let Us SumUp
• The businessmodelsfollowedbybanksforretail bankingactivitiescanbe any one of the following:
• StrategicBusinessUnit(SBU) Approach
• Departmental Approach
• IntegratedApproach(partof the overall businessplan).
• Banksgenerallystructure theirretail bankingmodelsmainlyonapositioningplatformandtobe the
best/topthree amongthe peergroupplayersoracross players.Strategiesare basedonthe positioning
objectivesandvaryfrombankto bankdependingonthe importance attachedtothe businessmodel.
• If the businessobjectivesare notmet,foreignbanksinthe recentpasthave takena call to exitthe
space.BNPParibasand Bank of Americaare classicexamplesinthe late 1990s/early2000s.
Keywords
BusinessModel;StrategicBusinessUnit;BusinessPlan;Positioningplatform:peergroup.

28. UNIT3 APPLICABILITYOF RETAILBANKINGCONCEPTS AND
DISTINCTION BETWEEN RETAILANDCORPORATE/WHOLESALE
BANKING
STRUCTURE
3.1 Applicabilityof Retail BankingConcepts
3.2 Distinction - Retail andCorporate/WholesaleBanking
Terminal QuestionsLetusSumUp Keywords
3.1 APPLICABILITYOF RETAILBANKINGCONCEPTS
Retail Bankingasa concepthas a numberof elementswhichindividuallyandcollectivelycontribute to
the successof the segment.Itspansacross implementationmodels,businessprocessstructure,product
and processmodelsetc.Letushave a lookat the applicabilityof the differentretail bankingconcepts
that shape the successof the space.
 ImplementationModels
Banksadopt differentmodelsforimplementingtheirretail bankinginitiatives.The mostcommon
strategiesare endtoendoutsourcing,predominantoutsourcing,partial outsourcingandinhouse
sourcing.The implementationmodeldependsonthe productrange,processrequirements,technology
preparedness,deliverycapabilitiesincludinghumanresourcesandregulatoryprescriptions.
Most of the PSBsuse onlyin house resourcesforretail banking.Onlyforsome activitieslike ATM/Credit
Cards/DebitCards,the issue partisoutsourceddue tolack of in - house facilities.Regulatory
prescriptionsare one of the majordeterminantsof outsourcingorlackof it inthese banks.
In case of oldprivate sectorbanksalso,the activitiesare carriedoutthroughinhouse resourcesonly.In
case of newgenerationprivate sectorbanks,the modelisabalancedmix of outsourcingandinhouse,
thougha little skewedtowardsoutsourcing.Insome banks,assetside isoutsourcedwhereasliability
side isnot outsourced,thoughcentrallyprocessed.

29. In foreignbanks,the implementationmodel ismostlyoutsourcedbasedonthe businessmodel.Toadd,
insome foreignbanks,bothfrontandback endoperationsare outsourcedandinsome banks,the back
endoperationsare outsourcedwhilethe frontendoperationslikesourcingof HNIclientsare done
throughcaptive resources.
 BusinessProcessStructure in Retail Banking
BostonConsultingGrouphadconducteda studyon the retail bankingprocesses(TransformingRetail
BankingProcesses) anddeducedfourbroadlydelinedprocessmodelsimplementedacrossbanks.These
modelswere definedbasedonthe technology andcustomerinterface capabilitiesof the banksstudied.
The four broadclassificationsare:
i) HorizontallyOrganisedModel
ii) VerticallyOrganisedModel
iii) PredominantlyVerticallyOrganisedModel
iv) PredominantlyHorizontallyOrganisedModel
The horizontal orvertical model dependsonthe level of customerinformationavailableinasingle
platforminthe data base side forofferingmultipleproducts/servicesacrossassets,liabilitiesandother
services.Horizontallyorganisedmodel isamodular structure usingdifferentprocessmodelsfor
differentproductsofferingendtoendsolutionsproductwise.Verticallyorganisedmodel provides
functionalityacrossproductswithcustomerdatabase orientationandcentralisedcustomerdatabase is
usedacross products.Predominantlyhorizontallyorganisedmodel ismostlyproductorientedwith
commoncustomerinformationforsome products.Inpredominantlyverticallyorganisedmodel,
commoninformationisavailable formostof the products.
In mostof the PSBs,horizontallyorganisedmodel isthe standardnorm.Of course,insome banks,
predominantlyhorizontallyorganisedmodeldoexistandreflectthe levelof commoncustomer
informationavailableforsome products.Inone of the PSBs basedinWest,predominantlyvertically
organisedmodel isthe scenarioimplyingthatthe commoncustomerinformationisavailableformostof
the productstherebyenlargingthe scope forcrosssellingandupselling.
The scenarioismixedincase of oldprivate sectorbanks.Inone bank,basedin Karnataka,horizontally
organisedmodel existsandinanotherTamilnadubasedbank,the levelof commoncustomer
informationacrossproductsisrelativelyhighwithablendof predominantlyhorizontallyandvertically
organisedmodels. If we correlate thisinformationwiththe positioningobjectiveof the bank,the bank
had strategisedforaggressiveretail bankinggrowth.

30. Newprivate sectorbanksgenerallyfollow averticallyorganisedmodel.Butsurprisingly,inone bank
whichisvery aggressive inthe retail side,the model isablendof horizontallyandpredominantly
horizontallyorganised.Thisshowsmostlyproductsare soldbasedonstandalone customerinformation
and commoncustomerinformationisnotavailableforall products.
In foreignbanks,itismostlypredominantlyverticallyorganisedmodel whichimpliesthatretail banking
initiativesare attemptedwithcommoncustomerinformationacrossproducts.
 BusinessApproach(DomainSpecific) inRetail Banking
The businessstrategieswithregardtothe domainstargetedare approachedindifferentwaysby
differentbanks.The mostcommonapproachesare as follows:
a) SegmentedApproach - where branchesare classifiedbasedonthe businesspotential withregardto
retail space andbusinesstargetedinthese segmentsof branchesonlywithfocusedmarketing
strategies.These brancheswill be positionedasresource centre branchesandwill formpartof the
overall segmentationgame planof the bank.Branchesare classifiedasResource Centres,ProfitCentres,
PriorityCentresandGeneral Centrestohave aclearbusinessfocus.Thisconceptisaneffective business
model forPSBswithlarge networkanduseful forfocusedstrategiesandalreadygettingimplementedin
some publicsectorbanks.
b) Geographybasedapproach - where retail modelsare builtbasedongeographies.
c) Classificationbasedapproach - where strategiesare designedbasedonthe type of branchviz.,Rural.
Semi Urban.Urban and Metro.Thisstrategyhelpsinbetterproductstructuringforspecifictypesof
branches.
Most of the PSBshave not developedanyspecificbusinessmodel onthe above linesandgenerally
adopta holisticmodel basedonthe corporate objectivesforretail.Insome banks,segmentedapproach
isbeingbuiltinthe corporate model butnota standalone segmentedapproach.Inoldprivate banks
also,the overall corporate objectiveforretail isthe basisforthe model andsegmentationisbuiltinthat
model onlytoa limitedextent.
In newgenerationprivatesectorbanks,amix of segmentedmodelandclassificationbasedmodel is
adoptedtocapture the retail potential inastructuredwayinsegmentswhere itmatters.Inforeign
banks,the model notrestrictedtoany of the above but isbasedon the retail game planof the banks.
 ProductModelsIn Retail Banking
Productportfoliostructuringplayanimportantrole inthe retail bankingstrategiesof banksandextend
across liability,asset,otherservice andthirdpartyproducts.Thoughessentiallyretail assetsandliability
productsconstitute the basicstructure of retail banking,the trendhaschangedinthe recentyearsand

31. marketingof thirdpartyproducts hasemergedasone of the importantconstituentsof retail banking
initiativesof banks.Letus have a lookof the productmodelsof banks.
a) liabilityProducts
Liabilityproductsare offeredtoretail bankingcustomersbasicallyunderthree spaces - Savings
Accounts,CurrentAccountsandTerm DepositAccounts.Productdifferentiationamongthese accounts
isbestachievedbyaddingdifferentvaluepropositions.Attemptsare made bybanksto expandthe
scope of genericproductsfroma plainvanillaaccounttoa value enrichedaccount.The daysof simple,
functional productsare gone.Functionalityisnow perceivedtoinclude changedneeds.A simplepass
bookand cheque booktoa SavingsAccountare passe"now.BuiltinATM/DebitCards/Credit
Cards/Multi CityChequeshave becomegenericfeatures.InternetBanking,Telephone Banking,Mobile
Bankinghave become essential value play.The value game hasextendedtotagginggroupinsurance
productsin the life andnonlife space ata verycompetitive premiumcomponent.GroupLife Policiesas
value additionsandgrouphealthpoliciesonafloaterbasiscoveringthe entire familyare offeredaspart
of the account package.Moniesinaccountsare not allowedtositidle andundertake active travelingby
meansof sweepfacilitiesfromsavingsaccountstofixeddepositaccountsabove acertainspecifiedlevel.
Thisincreasesthe earningpotential of the depositbalancesinSavingsAccounts.Incase of Current
Depositsalsomostof the above featuresare builtin.Inaddition,insome banksanauto overdraft
facilityisstructuredasa part of the package.
In almostall PSBsSavingsBankwithATM/DebitCardsare offeredasa standardentrylevel product.
Sweepfacilitiesandaddon life/healthcoverare offeredonlyinsome banks.SuperSavingsAccounts
withvalue bouquetforhighValue Customersare alsoofferedby some bankswithspecificbrandnames.
In currentaccounts also,the above facilitiesare offered.Inaddition,currentaccountwithfixed
overdraftfacilityisalsoofferedbymostof the banks.
In oldprivate sectorbanks,inadditiontostandardsavings accounts,addon life coverisoffered.In
currentaccounts alsothe facilitiesofferedbyPSBsare offeredbythemalso.Innew generationprivate
sectorbanks,all the above productsare offeredbythemandthe same is the case withforeignbanks
also.
If we scan the productsand servicesacrossbanks,the productdifferentiationamongbanksiswaferthin
and onlyvalue differentiationisthe keyfactoracrossbanksand the technology,processanddelivery
efficienciesseparate menfromboys.
All banksoffertermdepositproductswithprovisionformonthly,quarterlyorcumulative interest
paymentoptions.FixedDepositsbuiltwithunitsof fixedamountare alsoofferedbybanks.Thisis
intendedtoinjectanunfixedcomponentinafixeddepositandenable the depositorstopartially
withdrawwithoutdisturbingthe entire amountandthe resultantlossof interest.Banksalsoofferfixed
depositswithbuiltinoverdraftfacilitiessothatitbecomesmore a currentaccount than a fixeddeposit.

32. These productreengineeringmeasuresare adoptedbybankstoenhance the comfortlevel of the term
depositaccountholdersandofferconvenience asa value proposition.
Almostall banksacrosssectorsofferthe above facilities.Some banksofferaccidental lifecoverforterm
depositsbutthe grouplife coverandhealthcoverare not normallyofferedtotermdepositsastheyare
structuredas a part of demanddepositaccountsdue tooperational reasons.
b) Retail AssetProducts
Retail assetfinancingisamajorcomponentof retail bankingmodel of banks.Infactretail loansare the
backbone of the revenue streamsof banks.Inanycustomerexpansionstrategy,retail loanispackedas
the mainattraction uniformlybyall banks.Product,price,processanddeliveryinnovationsare receiving
constantattentioninthe retail assetside.Crosssellingandproductbundlingopportunitiesare always
structuredand implementedaroundretail assetproducts.The focusissohighthatin some banksretail
assetsconstitute ashighas 40 to 45 percentof the total assetbase.The mainadvantage isthe stability
of the assetbase because of the large customerbase.Otherimportantreasonsare the betterspreadsin
income,riskdiversificationandscope forcapturingadditionalrevenue streamsfromotheravenues.The
standardretail assetproductsofferedbybanksare HousingLoans,ConsumerDurable Loans,CarLoans,
CreditCardsand Personal Loans.Otherretail loansincludeloanagainstrental receivables,salary
overdrafts,loanagainstsecurities,loansfortradersinthe personal segment.Retail Loansare also
structuredbysome banksto target specificprofessional segmentslike doctors,architectsandadvocates
etc,to finance theirprofessional requirements.
Almostall banksextendthe standardretail assetproductstothe customersandprospects.Theyalso
extendmostof the otherretail assetsmentionedabove.Butonlyafew banksextendloansagainst
rental receivablesandsalaryoverdraft.Some bankshave special schemesforsmall tradersinthe
personal segmentandalsoschemesforextendingloan/overdraftfacilityagainstcarsforenhancingtheir
equity.Cars,whichdonot have a loantag alreadywill be consideredforoverdraftfacilityagainstthe
marketvalue.Asalreadystated,retail loansare the breadandbutterof retail bankingspace forbanks
and banksvie withone anotherindesigning,marketingandexpandingthe retail assetspace.
 c) OtherProducts/Services
Otherproductsand servicesbroadlycoverthe beyondproductfacilitiestaggedtothe productsand
services.These enhance the serviceexperiencesof the customersbyprovidingprocessanddelivery
efficienciesbyadditional service toolstothe basicproducts.One setof these productsare CreditCards,
DebitCards.ATM Cards,Telephone Banking.MobileBanking,InternetBanking.DepositoryService and
BrokingServices.Distributionof thirdpartyproductslike life andnonlife policies,mutual funds,retail
sale of goldcoins,bill paymentservices,multicity cheques,paymentgatewayforrail,airticket
bookings,wealthmanagementservices,portfoliomanagementservicesandprivate bankingare some of

33. the otherservicesofferedbybanks.These servicesare offeredwithtwinobjectivesof customer
multiple need satisfactionandalsotoaugmentfee basedincome.The revenuemodelsfromthese fee
basedservicesare quite attractive andsome banksinthe private space generate revenuesof above 50%
of theirtotal revenuesfromfeebasedbusiness.
Notall PSBsare inthe creditcard businesssince itisabigvolume game andneedsprocessefficiencies.
Some PSBsofferthese products,thoughDebitCards,ATMsare offeredbyalmostall PSBs.Mostof the
banksare nowactivelypayingattentiontoInternetBankingandMobile Banking,torealizethe huge
potential available inthisspace.DepositoryServicesare offeredbysome banksbutBrokingServicesare
offeredonlybyveryfewbanks.Corporate AgencyforLife andNonLife anddistributionof mutual funds
are done by almostall PSBswhile sale of goldcoinsare done now by a good numberof banks.Bill
Paymentservicesare attemptedbyafew banksandmulti citycheque facilityisofferedbymostof the
banks.PaymentGatewayfacilityisyettomake a bigimpactand offeredonlybyselectfew banks.
WealthManagement,PortfolioManagementServicesare notofferedbyanyof the PSBs till now butthe
daysare not far off forintroductionof these servicesbyPSBs.While oldprivate sectorbanksoffer
standardservices,theydonotofferCreditCards,Telephone Banking,Mobile Banking,BrokingServices,
GoldCoinsetc.,but some banksofferDepositoryServices,Mutual FundDistribution,LifeandNonLife
policies.WealthManagement,PortfolioManagementandPrivate Bankingare notattemptedbythem.
Newgenerationprivatebanksandforeignbanksofferthe complete bouquetof all the above
products/services.
 ProductDevelopmentinRetail Banking
ProductDevelopmentisattemptedbybanksindifferentways.Inhouse productdevelopment
independentlydevelopingthe productsbasedonresearchandonthe marketdynamicsisone way. In
the process,hybridcrosspollinationincorporatingthe bestfeaturesinthe productsavailable inthe
marketalongwithadditional value engineeringformpartof the productdevelopment.Anotherwayof
productdevelopmentisbasedpurelyonmarketconditionsandcustomersegmentswithoutany
backgroundresearchandalso 'followthe leaderapproach'bydevelopingonthe same linesasthe
leader.The othermostcommonmodel issimplyfollowingthe instructionsof the TopManagement
withoutanybackgroundresearchor analysis.The basisforthese productdevelopments,assaidearlier,
iseitheronthe segmentationapproachorgeographybasedapproachor classificationbasedapproach
or approach basedonspecificcustomersegmentslikeNRI,HNI,MassAffluent,Salaried,Professionals,
Womenetc.,
In mostof the PSBs,productdevelopmentisdone inhouse incorporatingthe marketdynamics.The
marketconditionsandcustomersegmentsof the bankare factoredinthe development.The viewsand
instructionsof the TopManagementare the prime driversof productdevelopmentinPSBs.Inthe
developmentprocess,geographyisnotgivenimportance buttype of branchand centre andbusiness
potential are givendue importance.

34. In private sectorbanks,botholdand new,productdevelopmentisdone inhouse independently,
incorporatingthe marketdynamics,segmentation,classification,customersegments,marketdynamics
and the productpositioningadoptedbyotherplayers.
3.2 RETAIL BANKING
The fundamental approachtoproductdevelopmentstartsfromconductingamarketsurveyaboutthe
needlevelsandgapamong the targetgroup,identifyingthe needs,developingthe product,pilottesting
to a sample universe,gettingfeedback,fine tuningthe productbasedonfeedbackandthenthe final
roll out of the product across targetedsegments.One ormore elementsof thisprocessare sometimes
bypasseddue tovariousfactors and are productrelatedormanagementrelated.Sometimessome part
of the processisoutsourcedandsome throughinhouse resourcesandalsosome part of the processis
skipped.The practicesvaryacrossbanks.
In PSBs,marketsurveyisdone onlythrough inhouse resourcesandnotoutsourced.Insome banks,no
marketsurveyisdone andproducts developedare launchedbasedonindustrypracticesandneedare
expressedbycustomersandwithoutanypilotrunandfeedback.
 ProcessModelsforProductsand Services
Processingof productsandservicesinretail bankingisbasicallyapproachedfromthree dimensionsviz.,
the entire processingisdone throughinhouse resources,some productsprocessedinhouse andfor
some productsoutsourcingisdone forprocessand the thirdapproach isoutsourcingof entire process
subjecttoprescribingprocessstandards.
In PSBsand oldprivate banks,the entire processforproductsandservicesare done throughinhouse
resourcesbutinsome banks,processpart of some productsare outsourced.Butgenerallyno
outsourcingisdone forthe processpart. In new generationprivatesectorbanks,outsourcingis
attemptedpartiallyforsome processareas.Inforeignbanks,the entire processisoutsourcedand
normallyhappensthroughadedicatedbackoffice coveringthe entire gamutof retail bankingservices.
Banksadopt differentprocessmodelsforretail assetproducts.Since retailassetsformthe fulcrumof
retail bankingactivities,banksviewithone anothertoachieve the bestprocessefficienciesforcapturing
the customersand enhance theirretail assetbook.The commonformof processmodelsare Centralised
Retail AssetsProcessingCentreswhere all the retailloanssourcedatthe branchesandmarketingteam
are processedata single pointandassetsare financedthroughthatcentre,or processingalone done at
the centre and financingdone atthe branches.Anothermodel iscentralizedprocessingforsome asset
products(sayHousingLoans) and regional processingcentres orstandalone processingatbranchesfor

35. otherproducts.The third model isnocentralizedprocessingbutonlyregional processinghubstocater
to specificclusterorgeographyof branchesandprocessone or more loans.It will existalongwiththe
standalone processingatthe branch level.Some banksfollow the standalone branchlevel processing
and deliveryof retail assetswithoutresortingtoanycentralizedmodel orregional hubs.The ultimate
aimis to buildabsolute processefficiencies.
Publicsectorbanksare alsoimplementingthe centralizedprocessingmodel forall assetsinaphased
way.Some bankshave centralized/regionalprocessinghubsforsome productsandstandalone model
for otherproductsand inmostof the banks,no centralizedmodel isfollowedbutprocesshappenonly
througheitherregional hubsorbranchesora blendof both.The level of implementationof centralized
retail loanprocessingcentresislowinPSBsandonlylocal processingishappeninginmostof the banks.
In private sectorbanks,incase of oldbanksthe model ismainlystandalone andinnew banks,a
blendedmodelcomprisingof centralizedprocessingforsome productsandregional hubsforsome
otherproductsare followedforeffectivelycontrollingthe leadtime forprocessing.Inforeignbanks,
centralisedprocessingisthe normforretail assetprocessing.
The model forprocessingliabilityproductsdiffersacrossbanks.Some banksfollow the centralized
model forprocessingliabilityproducts.Forexample,the openingof a SavingsAccountinvolvesdifferent
stage of processingfortangibilisingthe service nature intoaproductnature.Openingof account,issue
of PassBook,Cheque Book,ATMCard/DebitCard,PIN Mailersforthe Cards are the stagesinthe
tangibilisationprocess.Incentralisedprocessingall the above activitiesare carriedoutina single point.
In regional processinghubs,the same activitiesare carriedoutgeographywise.Insome banks,some
activitieslikeissueof cheque books,cards,PIN mailersare centralisedordone at regional hubswhile
openingof accountswill be ona stand alone basis.Some banksfollow the conventional modelof stand
alone processingatthe branch level.
In almostall PSBs, standalone processingmodel isthe norm forprocessingliabilityproducts.Openingof
accounts,relatedKYCcompliance andissue of cheque booksare done atthe branchlevel itself.Of
course,issue of ATM/DebitCardsisdone centrallyinalmostall the banks.Inoldprivate banks,insome
bankscentralisedmodelisadoptedwhile inotherbanks,standalone processmodel isimplemented
thoughtheyare aggressive inthe core bankingmodel.Innew private sectorbanks,ajudiciousmix of
centralised,regional andstandalone modelsare implemented forliabilityproductsdependinguponthe
type of products/services.Inforeignbanks,centralisedprocessingisthe normandmostlydone through
outsourcingordedicatedbackoffice.
Processmodelsdifferforproductswhichrequire single stage processandmulti stage process.For
example,openingafixeddepositandissuingreceiptinvolvesonlyasingle stage process.Like wise,
givingcar loanisa single stage process.Butincase of housingloansorSavings/CurrentAccounts,multi
stage processingis involved.Inthisscenario,the processmodel shouldbe standalone orcentralised
dependingonthe productforbetterprocess/deliveryefficiencies.Banksadoptdifferentmodelsinthis
area.In case of PSBs,no watertightprocessmodel isadoptedbuta judiciousmix of the differentmodels
isin place.Insome banks,endto endprocessmodel ata single pointisadopted.Inoldprivate sector
banks,inone bank endto endmodel isadoptedwhileinnew private banks,aholisticmodel

36. encompassingall the modelsisattempted.Inforeignbanks,endtoendmodel forall productsandthat
too outsourcedmodel isthe standardpractice.
Processtime isa major differentiatorinthe efficacyof retail bankingoperations.ProcessTimeis
businesssensitive andcustomersensitive.Itisan importantcomponentof businesspromiseswith
regardto product delivery.Itreflectsthe confidence andprocessefficienciesof the bank.The quicker
the processtime,more the deliveryefficienciesandcustomerrecognition.Banksare implementing
processtime prescriptionsfordifferentretailassetproducts.
Most of the PSBshave prescribedprocesstime fordifferentassetproducts.Interestingly,one south
basedPSBhas implementedthe Six SigmaQualityImplementationModel in whichthe processtime also
findsa place.Inmostof the otherPSBs,the processtime isprescribedandvariesfrom7days to 15 days
dependinguponwhetheritisprocessedatthe branch or regional hubor centralisedprocessing.The
general trendnoticed inPSBsisthatthe processtime isalmostuniformacrossproducts.Inoldprivate
banks,processtime isrelativelylessforretail assetproductsrevealingtheirextracommitmentinretail
assetexpansion.Innewprivate sectorandforeignbanks,the processtimeforvariousassetproductsis
structuredbasedonthe type of assetas centralisedprocessingisthe standardmodel adoptedbythese
banks.The processtime inthese banksare clearlydrawnbetweensanctiontime andactual releaseof
finance.
 Pricingof Productsand Services
Banksdevelopmodelsforpricingof productsandservicesbasedoncertainfundamentalparameters.
Market dynamics,riskperception,returnexpectations,tenor/duration,resourcesposition,assetliability
managementpositionsandcustomerprofile are some of the variableswhichare factoredintothe
pricingmodel bybanks.The balancingof these variousvariablesdynamicallywithchangingmarket
dynamicsisthe keyfunctionforgoodpricingmodel.Inaddition,regulatoryadvices(bothovertand
covert) alsoinfluencethe pricingmodels.The fundamentalconceptof costinginpricinghasnow gelled
withthe assetliabilitymanagementpracticesof banks.
In PSBs,thoughpricingismarketdrivenandcompetitive,inalmostall the banks,pricingismainlydriven
on the basisof the assetliabilitymanagementpracticesof the banks.Of course regulatoryadvicesform
part of the price structuring.Ingeneral,the model isbuiltonthe basisof all the above factors.But some
bankslike State Bankof IndiaandBank of Baroda have startedimplementingaggressivepricing
strategiesinHousingLoansegmenttonotonlycapture freshaccounts butalsofocus onmigrationfrom
otherbanks.Theyfollowastructuredstepuppricingmodel with ainitial low andattractive price and
switchoverto marketrelatedpricingafter3 years.The pricingwill be slightlyaggressivethanPSBsin
orderto capture businessinthe competitive environmentincase of oldprivate sectorbanks.In new
private banksandforeignbanks,thoughthe pricingfundamentalsalmostremainthe same,the pricing

37. of productsare alwaysaggressive andaheadof the marketto seta price race inthe marketfor demand
drivenproductslike termdeposits,creditcards,carloans,housingloansetc.
Price structuringforproductsand servicesisattemptedbybanksinmanyways.Standalone pricingfor
differentproductsandservicesisthe basicstructure.While the general structuringisbasicallyan
outcome of the pricingmodels,fine tuningalwayshappensdue todifferentfactors.Quantumand
volumesare twoimportantdeterminants.Price Preferences/Pricerebatesbasedonthe above alsoform
part of the structuring.Special quotesforhighvalue depositsandconcessionalratesof interestare
examplesof thisstructuring.Structuringalsoinvolvesprice bundlingwhereaholisticpricingisoffered
across a specificbundlingof productsandservicessothatthe total price propositionisattractive than
the stand alone pricingforthe individual productsof the bundle.Thisstructuringisacross selling
strategyto entice the customertoavail more productsso that profitabilitypercustomerisenhanced.
In additiontostandalone pricingstructure,mostof the PSBshave price concessionsaswell asrebates
as a part of the pricingstructure.But the same isapplieddependingonthe volumes,quantumandof
course relationship.Offeringrebatesoncompletingthe repaymentscheduleisalsoattemptedbysome
banks.Price bundlingisnot adoptedina bigwayby PSBs.In new private banksandforeignbanks,
effectiveprice structuringhappensbyactivelyadoptingbothconcessional pricingbasedonthe above
discussedfactorsandalsoaggressive bundledpricingstructure toeffectivelycross sell.
In case of olherproductsandservices,some banksare structuringadditionalmodelsindirectlyasa part
of the pricingstructure.Inadditiontoor inlieuof price rebates/discounts,alternate pricingpropositions
for otherservicesare offeredasadditional facilities.Forexample,freeremittance facilities,issue of
drafts,waiverof service charges,processingchargesare offeredasconcealedprice structuresand
offeredastag onfor quantumand volume business.Almostall banksfollow the above structure bothas
a pricinginitiativeaswell ascrosssellinginitiative.
 TechnologyModelsinRetail Banking
The technologyplatformforretail bankingplaysamajorrole inthe retail bankinginitiativesof banks.In
today'sscenario,technology isthe backbone of the processanddeliveryefficienciesof banks.The
technologymodelsbasicallyadoptedbybanksare InHouse Models,OutsourcedModels,PartiallyIn
House and PartiallyOutsourcedModels.Eachmodel will have advantagesanddisadvantagesandthe
overall businesswill be the deciderof the effectivenessof the model.
Most of the PSBshave primarilyinhouse modelswithpartial outsourcingalso.Again,total inhouse
developmentandimplementationbythe inhouse teamispracticedbysome bankswhereasinsome
otherbanks,the developmentisdone bysome vendorandimplementationistakencare of by the bank.
In case of total,inhouse development,the costfactorwill be favourable whileinthe secondmodel,cost
factor matters.A southbasedPSB has successfullyimplementedthe total inhouse developmentand

38. implementationandmigratedtothe core bankingplatformalsoseamlessly.Some otherbankshave
totallyoutsourcedpackagesbutimplementedinhouse.Almostall oldprivate banksfollow outsourced
model fortechnologybasicallybecauseof the scale tomigrate to Core BankingModel.Incase of new
private banks,the model ispredominantlyoutsourcedwithpartial inhouse model.Inforeignbanks,
outsourcedmodel ismostlyadopted.
TechnologyandRetail Bankingare inseparables.Technologyisthe foundationonwhichthe retail
bankingedificeisbuiltacrossthe globe.Technologyisthe enablerforbuildingandtranslatinga
customerdata base intoretail bankingbusiness.Banksadoptdifferenttechnologyplatformsinlinewith
the global trends.The levelsof technologyimplementationinPSBsstartedfromstandalone Automated
LedgerPostingMachines(ALPMs) inthe earlydaysof computerisationandgraduatedtototal branch
automationand regional networkedhubs.New privatebanksstartedwithtechnologyadvantageof a
single serverenvironmentwhichgave themthe edge overotherbanks.PSBbankshave reengineered
theirtechnologyinitiativesandstartedimplementingcore bankingsolutions networkingthe customers
and accountsin a single platform.Somebankshave almostcompletedthe core bankingsolutions
processwhile inotherbanksthe level of implementationisatvariousstages.The level of
implementationof core bankingwill directly increase the chancesof availabilityof customerdatabase
across productsand will increase the scope forcrosssellingandupselling.Core bankinggivesclues
aboutthe level towhichthe database ishorizontallyorverticallyorganized.Horizontal or vertical
organizedreferstowhetherdataisavailable productwiseona standalone basisordata is available
customerwise onan integratedbasis.
Most of the PSBshave implementedcentpercentcore bankingsolutionandonlyaveryfew banksare
yetto catch up.In those banksthe presenttechnologymodel isamix of Core BankingModel at various
stagesof implementation.Total BranchAutomationandlegacysystems(standalone ALPMs) depending
on the type of branch and business.Toadd,PSBsare more horizontallyorganizedinthe processmodel
withvariouslevelsof vertical positionacrossbanks.Customerdatabase andproductsintegrationhas
not materialisedfullywhichwill be ahindrance toeffective retail business.Innew private banksand
foreignbanks,core bankingisthe technologyandprocessmodel withwhichthe entire businessmodel
isbuilt.Itis a verticallyorganizedmodel withtotal customerproductintegrationandusedeffectivelyto
marketa bouquetof retail productsto a targetedcustomerbase.
3.2 DISTINCTIONBETWEENRETAILAND CORPORATE/WHOLESALE BANKING
Retail BankingandCorporate or Wholesale Bankingdifferintheirbasicapproachtobanking.The major
differencesbetweenthe twosegmentsare discussedasfollows:
1. Retail Bankingtargetsat the individualsegmentwhile corporate bankingdealsmainlywithcorporate
clients.

39. 2. Retail Bankingisa mass marketbankingmodel whereaswholesale/corporatebankinglookata
relativelysmallersegmentof business/corporate clientbase ascomparedtoretail segment.
3. Retail Bankingisa B2C approach(BusinesstoCustomer) whereascorporate bankingisaB2B
approach (BusinesstoBusiness).
4. The ticketsize of loansinretail bankingislow whereasthe ticketsize ishighincorporate loans.
5. Risk iswidespreadinretail bankingascustomerbase ishuge whereasinCorporate Banking,the riskis
more as the ticketsize isbigthoughcustomerbase isrelativelysmall.
6. Returnsare more in retail bankingasthe spreadsare more for differentassetclassesinretail.Butin
corporate banking,the returnswill be low ascorporatesbargainforlowerratesdue to higherloan
amounts.
7. Monitoringand recoveryinretail assetsare more laboriousbecause of the largercustomerbase as
comparedto corporate banking.
8. In the liabilitysidealso,the costof depositsisrelativelylessandmostlygoalongwiththe cardrates
as the ticketsize inretail depositsissmall.Incorporate banking,asthe ticketsizesof depositswill be
large, the cost of depositswill be highdue topressure fromthe corporatesforhigherratesand
competitiveforcestogarnerthe deposits.
9. The impactof NPA will be more pronouncedincorporate bankingthanretail bankingasthe ticket
sizesincorporate loansare higherthanretail loans.
TerminalQuestions
1. The implementationmodelsfollowedbybanksforretail bankingare
i) HorizontallyOrganisedModel
ii) VerticallyOrganisedModel
iii) PredominantlyVerticallyOrganisedModel
iv) PredominantlyHorizontallyOrganisedModel
t: v) Anyone of the above.
2. Price structuringforproducts andservicesisattemptedbybanksinthe followingways.
i) Stand alone pricingfordifferentproductsandservices.
ii) Special quotesforhighvalue depositsandretail assets.
iii) Bundledpricing/Holisticpricingbasedontotal relationship.

40. T: iv) All the above.
Key
1.(v);2. (iv)
Let Us Sum Up
• The implementationmodelsinretail bankingare mainlybuiltunderthe followingbroadclassifications:
• Horizontally OrganisedModel
• VerticallyOrganisedModel
• PredominantlyVerticallyOrganisedModel
• PredominantlyHorizontallyOrganisedModel
• The horizontal orvertical model dependsonthe levelof customerinformationavailable inasingle
platforminthe data base side forofferingmultipleproducts/servicesacrossassets,liabilitiesandother
services.Horizontallyorganisedmodel isamodularstructure usingdifferentprocessmodelsfor
differentproductsofferingendtoendsolutionsproductwise.Verticallyorganisedmodel provides
functionalityacrossproductswithcustomerdatabase orientationandcentralisedcustomerdatabase is
usedacross products.Predominantlyhorizontallyorganisedmodel ismostlyproductorientedwith
commoncustomerinformation forsome products.Inpredominantlyverticallyorganisedmodel,
commoninformationisavailable formostof the products.
• Retail BankingSolutionsare offeredbybanksbyextendingdifferentretailassetproducts,retail
liabilityproductsandplethora of otherservicescoveringthe entirefinancial servicesandinvestment
servicesandrequirementsof customers.Banksimplementthese servicesmainlythroughtheir
technologyinitiatives.Almostall bankshave implementedtheircore bankingsolutionstooffertheir
customersborderlessbankingandendtoendsolutionsfortotal bankingexperience.
• Asdiscussedabove,retail bankingisdifferentfromcorporate banking.Inretail bankingthe impactof
NPA will be well spreadwhereasincorporate banking,the NPA impactwill be higher.Likewise,the cost
of depositswill be relativelylessthancorporate bankingasthe customerbase ishuge inretail banking
and hence pressure forfinerrateswill be less.
Keywords
Horizontallyorganised;Verticallyorganised;standalonepricing;holisticpricing;productmodels;process
models;technologymodel;depositproducts,assetproducts;otherservices.
MODULE A:REFERENCES

41. 1. The Evolutionof Retail BankingServicesinUnitedKingdom:A RetrospectiveAnalysis,Davide Consoli,
CRIC WorkingPaperNo13, September2003, ISBN:184052 0116.
2. The Evolutionof US BankBranch Networks:Growth,ConsolidationandStrategy - BeverlyHirtleand
ChristopherMetli- CurrentIssuesinEconomicsandFinance -Federal Reserve Bankof New York,July
2004.
3. Menon Rekha,Article onBankinginEurope - Researchand ContributingEditor,FinacleConnect.
4. Retail BankinginRussia- DifferentLoans-DifferentRisks,June2007- Reportby RusRating
5. Retail Banking- Models,Strategies,Performancesandthe Future,The IndianScenario,Unpublished
ResearchReportbyDr.J.Sethuraman.IndianOverseasBankforIndianInstitute of Banking&Finance.
6. Reserve Bankof India,Reporton Trendand ProgressinBankinginIndia.
7. Come Out a Winnerin Retail Banking,BerzKillian,ChinVincent,andMaguire Andy,BCGWhite Paper -
October2009.
8. TransformingRetail BankingProcesses,ReportbyBostonConsultingGroup.
MODULE B RETAILPRODUCTS
Units
4. CustomerRequirements
5. Product DevelopmentProcess
6. CreditScoring
7. ImportantRetail AssetProducts
8. Creditand DebitCards
9. Remittance Products
UNIT4 CUSTOMER REQUIREMENTS
STRUCTURE
4.1 Introduction

42. 4.2 Maslow'sTheoryand CustomerRequirementsls
4.3 Service Quality
Terminal QuestionsLet Us SumUp Keywords
4.1 INTRODUCTION
Let usfirsttry to understandthe customersegmentfirstbefore discussingabouttheirrequirements.
Broadlycustomersare segmentedbasedontheirincome levelsastheirneedpyramidwillvarywiththe
rise intheirincome levels.Banksdevelopandmarkettheirproductsbasedonthissegmentationand
target the relevantsegmentformaximumconversionof business.The basicsegmentationof customers
basedon theirincome levelsispresentedbelow.
Income Levels(Rs.Lakhs) CustomerSegment
2-10 Mass Market
10-50 Mass Affluent
50-400 SuperAffluent
400-4,000 HNW
4000-120,000 SuperHNW
Above 120,000 Ultra HNW
HNW - HighNetWorth
(Source : CelentResearch)
If we lookat the customersegmentsabove,the firstthree segmentsnamelyMassMarket,Mass
AffluentandSuperAffluentare the mostimportantsegmentsforbankswithregardtotheirretail
bankinginitiatives.The productsandserviceswill be structuredmostlytomeetthe requirementsof the
above segments.
The fundamental assumptionsaboutcustomersforbuildingretail bankingproductsandservicesare
brieflyexplainedasfollows:
i) Customersare different.
ii) Needsof the customersare different

43. iii) Eachcustomerwill have differentsetsof needforfinancial services.
iv) The needrequirementsof customersforfinancial serviceswill be unique.
v) Customerscan be broadlygroupedtogetherbasedontheirneedpyramids.
vi) Customerscanbe groupedtogetherbasedontheirincome,age,geography,profession,employment,
vocation, genderandfamilysize.
vii) Productandservicescanbe developedforasingle ora combinationof the above elementsto satisfy
mostof the needs.
viii) Productsandservicescanbe structuredona niche basiswithinone orany of the above elements.
The above assumptionsaboutcustomershelpbankstodevelopsuitable productsandservicestocater
to the needspectrumof the customers.Tounderstandthisconcept,a lookintothe 'Maslow'sNeed
HierarchyTheoryof Motivation'isnecessary.The theorywill helpustounderstandhow banksstructure
productsto match the differentstagesof the needpyramidof the customers.
Customersbuythe productsand servicesof the bankprimarilytosatisfytheirneedsandif theirneeds
and banks'productsmatch, there isabsolute synchronyandif the benefitspromisedbythe banktothe
customerare deliveredthentherewill be absolutesatisfactionfromthe customerend.The
requirementsof the customersingeneral canbe relatedwiththe needhierarchytheorybyAbraham
Maslow.
Maslowhas definedfive needsof individualsintheirvariousstagesof life.The needsstartfromthe
basicrequirementsandmove upthe value chainduringthe life stage progression.Obviously,the need
ladderwill alsomove upwiththe change inthe life stage of the customers.If banksstructure products
and servicestomatchthe differentstagesinthe needspectrum, bankswill achieve the twinobjectives
of customersatisfactionandbusinessconversion. Letusdemonstrate the above conceptwiththe
followingillustration:
S.No. NeedLevel MatchingBanking,InvestmentandInsurance Products
1. Physiological Needs •Core SavingsAccounts
• Personal AccidentCover
• HousingLoans
2. Security/SafetyNeeds •Recurring,FixedDepositProducts.
• Life Insurance Products - EndowmentProductswithlow premium, longtenorandhighmaturity
amounts.

44. • Tax PlanningBanking,InsuranceandMutual FundProducts.
3. Social Needs • ConsumerLoans
• Personal Loans
• Home Loans
• Car Loans
• Loans forProfessional DevelopmentforDoctors,Engineers,Lawyers,CharteredAccountants,
ManagementConsultants,Architectsetc.,
• Insurance Covertaggedto above loans.
• Retail GoldCoins.
• HealthPoliciesforself andfamily.
• InvestmentProductslikeMutual FundSchemes.
• SystematicInvestmentPlansof Mutual Funds.
• Unit LinkedInsurance Products.
4. EsteemNeeds •Special TermDepositProducts.
• Term Insurance Products.
• SecondHousingLoans/Home Improvement/Home Decor Loans.
5. Self ActualizationNeeds •PensionersLoans
• RetirementSolutionsinBanking&PensionPlansin Insurance
• SeniorCitizensTermDepositProducts
The above table isonlysuggestive and notabsolute andproductsmaytendto overlapacrossthe need
spectrumandagain the banksmay come across all the stagesrun concurrentlyforthe customerbase
and hence there istremendousopportunityforbankstoconvertthe potential available across needsfor
theirhuge customerbase.
 CustomerRequirementsaboutService Quality
Service qualityiswhatcustomersexpectfromBanksandhas differentdimensions.Followingare some
of the requirements/expectationsformthe customersaboutthe service qualityof banks.

45. a) Tangibles:Appearance of physical facilities, equipment,personnelandcommunicationmaterials
• Are bank'sfacilitiesattractive?
• Ismy creditcard statementeasytounderstand?
b) Reliability:Abilitytoperformthe promisedservice dependablyandaccurately.
• Where anOfficersaysthat the amountwill be sanctionedin2days,doeshe follow upandinformthe
status?
• Ismy creditcard statementaccurate?
c) Responsiveness:Willingnesstohelpcustomersandprovidepromptservice.
• Whenthere isa problemwiththe bankstatement,doesthe bankresolvethe itquickly?
• Are the chargeswhichare debitedwronglyare recreditedtomyaccountproperly,
d) Assurance
• Competence - Possessionof requiredskillsandknowledgetoperformservices.
• Courtesy - Politeness,respect,considerationandfriendlinessof the contactpersonnel.
• Credibility - Trustworthinessaboutthe service provider.
• Security - Freedomfromriskanddoubt.
e) Empathy
• Access - Approachabilityandease of contact.
• Communication - Keepingcustomersinformedinalanguage thattheyunderstand.
• Understandingthe customer- Makingan efforttoknow customersandtheirneeds.
(Source:CompetitivenessinBankingIndustryandMarketingChallenges,AbrahamKoshy, Professor,
MarketingArea,IndianInstitute of Management,Ahmedabad.)
 CustomerRequirementsandSatisfactionLevels
Fulfillmentof the customers'requirementscanbe measuredonlyfromthe satisfactionlevel of the
customers.The satisfactionwill emanateoutof the customers'experiencesof the productsandservices