Prospects and Problems in Retail Banking in India
A change will be the consumption patterns and hence the banking habits of Indians, which will now be skewed towards Retail products. Going by international standards, a large portion of the Indian population is simply not "bankable" - taking profitability into consideration. On the other hand, the financial services market is highly over-leveraged in India. Competition is fierce, particularly from local private banks such as HDFC Bank and ICICI Bank, in the business of home, car and consumer loans. There, precisely lie the pitfalls of such explosive growth. All banks are targeting the fluffiest segment i.e. the upwardly mobile urban salaried class. Although the players are spreading their operations into segments like self- employed and the semi-urban rich, it is an open secret that the big city Indian yuppies form the most profitable segment. Overdependence on this segment is bound to bring in inflexibility in the business. Hence the challenge for various banks is to tap the underlying potential of the tapped and specifically the untapped market by developing sophisticated financial behaviour and spreading the scope to all over the country.
Prospects of Retail Banking in India
The conventional scenario of Banks is fast changing. The Banking Institutions have started revisiting their vision should they have thousands of C class Accounts or a few A and B class Accounts? Tidy have come to the conclusion that it is not economical to service the C class Accounts. Even in India, banks are raising the bar on deposits. Some Banks have even increased the minimum balance in Savings accounts so that they are out of reach of the small man.
Why is this so? This is a natural corollary to the competencies that are being built up at a significant speed in all banks. Examining them one by one will help us know where the banks are heading, in the near future.
Customer Focus
All along, the word "Customer" used to denote any person who is having an account with a branch of a Bank or using the services of a Branch. Now, we are seeing a new, customer is no more a customer of the Branch; he is the customer of the BANK. With the advent of anytime, anywhere anyhow banking the new definition of customer has become relevant. Technology enables the customer to "help himself' through Internet Banking, ATM Banking, Telephone Banking, Online Banking, Mobile Banking, or e-Banking, etc. The concept like Know Your Customer (KYC) reinforced when Reserve Bank of India urged banks to improve customer focus as a strategic initiative for effective management of profitability, risk and customer satisfaction as well as customer delight!
Segment focus
Banks are finding that they too need to segment and target High Net worth Individuals (HNIs) and companies if they have to satisfy the needs of their stakeholders. Therefore, Banks are generally moving towards products that are focused on their targeted end customers. And this target is specifically the high end customers; as they do not find any leverage from the small accounts. But there is a strong trend in terms of consolidation in terms of the business segmentation.
The general pattern of the banks is to cater to all segments - from agriculturists to high net worth individual to corporate banking to international banking. An analysis of the current scenario indicates that in future, each bank will decide on its core competency and cater only to selected segment. For example, the Deutsche Bank in India operates only in the corporate banking and it has turned as a market leader in this segment.
Product focus
Banks have been offering various products to satisfy the customers' general need, like fixed amount loans or running Cash Credit / Overdraft accounts or Fixed Deposit or Cumulative Deposit or Recurring Deposit as liability products. The time has come that when the customer demand product that is not currently available in the Banker's kitty and the Bank has to literally create customer-specific product. Here comes the Banker in the role of a Financial Engineer with International Financial Markets as well. RTGS, as a settlement process will minimize settlement risks by settling individual payments in real time in the books of accounts held by the RBI RTGS will be a mode for large value Inter-Bank settlement, to be widely used, for enhancing risk control measures, for faster and efficient settlement of liabilities for better customer services for the ultimate users in the value chain RTGS would eliminate the time lag between the debit to an account of customer and its corresponding credit to another customer in a different b~ RTGS' requires implementation of a 2 Level Gateway- one at the individual bank level and the other at the RBI level. Significant contribution made by Institute for Development and Research in Banking Technology (IDRBT), Hyderabad in this regard is commendable.
Employee focus
Earlier, there were premises where the branch of a Bank is located and there were three categories of staff to attend to the customers' viz., supervisory, clerical and sub-ordinate staff. The role of supervisory staff would increase and not in the sense of controlling the staff working with them but in different areas of delivering-competitive services,awareness about productivity, customer focus, competition, grievance/ complaint redressals, market surveys, etc among the bank staff has gone up very high.
The VRS scheme introduced in the year 2000 by the Banks was to reduce the redundant staff consequent to computerization. It is felt that one more VRS would be needed for the Banks to shed their excess flab and make them fit and trim. Henceforth, the role for clerical staff would have to undergo a sitting under the roof in a branch moving into the field and market various financial services offered by their Bank and attract new customers and retain existing clientele but also retrieve the customers lost to competitors. In a nutshell the trend is towards sophisticated well trained customer orientation.
Future of Retail Banking
Ø The accelerated retail growth has been on a historically low base
Ø Penetration continues to be significantly low compared to global bench marks
Ø Housing will continue to be the biggest growth segment, followed by Auto loans
Ø need to expand and diversify by focusing on non urban segment, varied income and demographic groups
Challenges
- Sustaining Customer loyalty
- Fraud prevention
- Avoiding Debt Trap for customers
- Bringing rural masses into mainstream banking
Strategies for Future
ü Reaching to masses: Need to customize
ü Customer segmentation/differentiation
ü Data mining/ CRM based campaigns
ü Products per customer/loyalty
ü Promoting low risk retail lending products
ü Offer an array of products and financial advisory
Winning Strategy
The bank that best addresses and anticipates customers needs, delivers consistently higher quality service and connects to the customer via their channel of choice wins
Questions and Answers
retail banking equipped with diversified range of products focus high growth and challenging competition from other retail banking products
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