Retail banking in India

Essay by bhramara March 2004

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When a Dinosaur finally decides to get moving, it covers the ground at a very high speed. This is similar to what is happening to the course of banking industry in India. For decades, the banks in India have focused on earning big money from corporate clients. However, things have radically changed. Banks are awash with excess liquidity; interest rates and inflation are moving southwards. Corporates do not borrow from banks in a big way due to a variety of reasons like economic slowdown, infrastructural constraints etc. Under this scenario banks are forced to look into the retail segment for lending and therefore the spotlight has now shifted to the retail sector. Banks across the country are tripping over themselves to enter new segments- car loans, consumer loans, housing finance, educational loans, credit cards etc. The big bonus for banks came in the form of the Securitization Bill, which gave banks and institutions muscle to recover bad debts.

Retail banking is the new mantra for all the banks.

Retail banking scenario

Retail banking includes a comprehensive range of financial products viz. deposit products, residential mortgage loans, credit cards, auto finance, personal loan, consumer durable loans, loan against equity shares, loan for Initial Public Offers (IPOs), debit cards, bill payment services, mutual funds, investment advisory services. These products provide an opportunity for banks to diversify the asset portfolio with high profitability and relatively low NPAs. The categorization of retail banking services is shown in figure1. Today the most proactive banks have entered the retail banking segment and have identified it as a principal growth driver. They are slowly gaining market share in the retail space.

For several years banks viewed consumer loans with skepticism. Commercial loans dominated the banks portfolio as they generated high net yields with low credit risk. Consumer...