What is Retail Banking, Retail Products Portfolio, Unit 3 Short Notes for JAIIB – Commercial Banks deal with different categories of customers like individuals, sole proprietor/ partnership firms, clubs, associations, trusts, schools, private companies, public companies etc. Prior to economic reforms in 1990, Commercial banks were engaged in lending primarily to trade and industry only. The focus of Government and RBI was mainly on production oriented economic activities and financing for consumption purpose was discouraged. However, Banks were liberally financing the individuals for agriculture and allied activities under priority sector.
The scenario changed post economic reforms with gradual deregulation of banking sector, entry of private players and also improvement in liquidity with huge FDI and FII into India. Thus, Liberalization of Indian economy led to increased income, purchasing power, aspiration for a better lifestyle and expectations of higher quality products and services.
Banks also started augmenting their products and lending portfolio to cater to the multiple banking needs of individuals. Banks segmented the individuals as a separate business market and named it as Retail Banking.
What is Retail Banking – Definition
Retail Banking also known as mass banking or consumer banking refers to doing business with individuals or providing banking services to individuals and small business. The main focus in retail banking is on individual consumer.
Commercial Banks deal with individuals both on liabilities and assets sides of the balance sheet.
Liabilities – Fixed, savings/current accounts on the liabilities side
Assets – Personal loans, Housing, Auto loan and Educational Loans on the Asset Side.
Related ancillary services include credit cards, debit cards and depository services.
Retail Banking is characterized by –
- Multiple Products (different deposits accounts,credit/debit cards, loans, insurance, mutual funds etc.)
- Multiple Channels (branch, kiosk, internet, mobile, call centers )
- Multiple Customer Groups (individuals, small business, medium business, corporate)
Retail Banking – Retail Products Portfolio
Retail Deposit Products
- Saving Bank Account
- RD Account
- Current Account
- NRI Account
- Demat Account
- Term Deposit Account
- Salary Account
- BSBDA Account (Basic Savings Bank Deposit Account)
- Senior Citizen Deposit Accounts etc.
Retail Loan Products
- Housing Loan (for purchase of land and construction of residential house, purchase of ready built home, repair or renovation of existing house)
- Home Loans to NRI
- Personal Loan – for meeting personal needs or domestic consumption etc.
- Auto Loan – for purchase of new or used 2-wheelers or 4-wheelers
- Consumer Loans
- Education Loan – for pursuing higher studies in India or abroad.
- Trade related advance to individuals – for setting up business, retail trade etc.
- Crop Loan for farmers – to farmers for meeting their agricultural needs
- Credit Cards etc
- Safe Deposit Lockers
- Depository Services
- Bancassurance Products etc.
Drivers of Retail Banking Business in India
- Economic Prosperity and consequent increase in purchasing power of consumers.
- Changing consumer demographics indicate vast potential for growth in consumption both qualitatively and quantitatively. 70 percent of population of India is below 35 years of age.
- Anywhere and anytime banking in form of debit, credit cards, internet banking, mobile banking has attracted many new customers into banking and contributed to retail banking growth in India.
- Falling Interest rates 2000 onward contributed to retail credit growth. As it generated demand for such low interest credit.
- Indian banks adopted best international practices of accounting and integrated risk management system. Growth in retail loan portfolio provided opportunity to diversify their risks.
- Low NPA – Default rate in case of retail loan was lower as compared to overall bank loan and advances.
Opportunities of Retail Banking in India
- The rise of Indian Middle Class is an important contributory factor in retail banking business. With tremendous growth in Indian industries in particular software industry and retail sector, percentage of middle to high income Indian households in expected to continue rising.
- Retail depositors like retail shopkeepers, pensioners, homemaker, self employed and those in unorganized sector also plays an important role.
- Recently, Financial Inclusion initiatives by Government of India and RBI is an emerging business opportunity as seen by the entire banking industry.
- Introduction of CIBIL (Credit Information Bureau India Limited)