Retail Banking – Issues and Prospects

Aditi Sachdev S-3Anand Vijay S-6

Dinesh Kumar S-20VS Arun Kumar S-66Vikram Razdan S-68

What is Retail Banking

Services offered by banks and other financial institutions directly to the consumers constitute retail banking, e.g.

Savings and current accounts Home loans Car and consumer durables loans Personal loans Credit / debit cards Depository services

Present Scenario Indian retail banking has been showing phenomenal growth (30%)

Face of Indian consumer is changing – banking habits that are more skewed towards retail products

Retail loans are approx. 6% of the GDP, figure much lower than developed nations

Market has transformed into a ‘buyer’s market’ from a ‘seller’s market’

Comprises of multiple products, channels of distribution and multiple customer groups

Economy vs. Retail Banking

Retail assets are just 22% of the total banking assets of India

Contribution of retail loans to GDP:

India 6% China 15 %,

Thailand 24% Taiwan 52%

Indian population below 35 yrs of Age – 70 %

Reach of Formal Banking Channels – 20-25% of Indian population

Source: Cygnus Industry Insight

Auto28%

Other personal Loans16%

Home49%

Consumer Durables

7%

Market Share: Retail Loan

Drivers Of Retail Growth

CHANGING CONSUMER DEMOGRAPHICS

Growing disposable incomes Youngest population in the world Increasing literacy levels Higher adaptability to technology Growing consumerism Fiscal incentives for home loans Changing mindsets-willingness to borrow/lend Desire to improve lifestyles Banks vying for higher market share

Industry’s response to the change

“Any where”, “Any time” Banking Improved processes/Bundled product offerings Faster service/Reduced TATs Customer specific products/offerings on a regular basis ‘Bank’ customer has replaced ‘Branch’ customer Focus on understanding customer needs/ preferences Segmentation/Differentiation of customers Customer driven strategies Building relationships

Comparison of IT enablement*

Facility SBI PNB ICICI BankOriental Bank of

Commerce Citibank HSBCFinancial Statistics

Total Income (Rs Crore) 76,479 22,246 15,971 9,928 10,423 9,026Profit After Tax (Rs Crore) 9,121 3,091 3,758 905 2173 949

Centralized Banking Solution100% with 11,448 branches

100% with more than 4000 branches

100% with 1495 branches

100% with 1434 branches

100% with 37 branches in India (100 countries)

100% with 44 Branches (2007)

Anywhere, anytime, anybranch banking All branches All branches All branches All branches All branchesRTGS/Flexi Deposit/NEFT All branches All branches All branches All branches All branches

ATMs 8,581 more than 2400 4,816 863 246 178

Balance Inquiries √ √ √ √ √ √Transaction History √ √ √ √ √ √Statement of Account √ √ √ √ √ √Checque Status √ √ √ √ √Stop Payment √ √ √ √ √Fund Transfers √ √ √ √ √ √Bill Payments √ √ √Demat Account √ √ √ √ √ √

Balance Inquiries √ √ √ √ √ √Transaction History √ √ √ √ √ √Statement of Account √ √ √ √ √ √Checque Status √ √ √ √ √Bill Payments √ √ √Standing Instructions √ √ √ √Update Information √ √ √ √Stop Payment √ √ √ √ √Lost/Replacement Card √ √ √ √

Internet Banking Facilities

Telebanking

* As per data in Sept 2009

Comparison of IT enablement*…contd

Facility SBI PNB ICICI BankOriental Bank of

Commerce Citibank HSBC

Credit/Debit Alerts √ √ √ √ √ √Threshold alerts √Cheque clearing intimation √ √Weekly balance intimation / Inquiries √ √ √ √Bill Payments √ √ √ √ √ChequeBook request √ √ √ √ √Funds Transfer √ √ √ √Promotional alerts √ √ √ √ √Transaction alerts through other channels √ √ √ √ √

eTaxes √ √ √ √Online Tax Accounting System √ √ √Cash Management Product for Corporate √ √ √ √ECS √ √ √ √ √ √MICR Processing Centers √ √ √ √ √ √Wide Area Network √ √ √ √ √ √

Other Features

Mobile Banking

* As per data in Sept 2009

IT and Security

Anti-money laundering Fraud prevention Market surveillance Employee fraud detection

Anti-money laundering software Currency Transaction Reporting (CTR) systems, which deal with

large cash transaction reporting requirements (Rs 10 lacs and above in India, $10,000 and over in the U.S.)

Customer identity management systems which check various negative lists and represent an initial and ongoing part of Know your customer (KYC) requirements

Transaction monitoring systems, which focus on identification of suspicious patterns of transactions which may result in the filing of Suspicious Activity Reports (SARs). Identification of suspicious (as opposed to normal) transactions is part of the KYC requirements.

Fight against AML

The various software packages are capable of name analysis, rule-based systems, statistical and profiling engines, neural networks, link analysis, peer group analysis, and time sequence matching.

There are specific solutions that offer case-based account documentation acceptance and rectification, as well as automatic risk scoring of the customer taking account of country, business, entity, product, transaction risks that can be reviewed intelligently

Portals to share knowledge and e-learning for training and awareness

Unusual activity on an account may trigger a call from the card issuer to make sure it has not been misused.

Fraud prevention

Deposit Fraud - Monitors account activity detecting suspicious deposits; covers multi-channel check deposit monitoring and deposit coverage whether from new or existing accounts;

ATM and Debit Card Fraud - Provides high-performance fraud detection for ATM and debit cards; Monitoring multiple channels including PIN POS swiped, Internet, ATM, Signature POS keyed/swiped;

Payments Fraud - Monitors ACH, wire, and external debit transactions to detect fraudulent activity.

Market Surveillance

Helps financial firms to minimize trading risk and improve transparencies and automate procedures.

Ensures compliance with the regulatory. Deals can be checked near real-time on a

post-trade basis, assuring that no illegal or unwanted transactions pass unnoticed.

Employee fraud detection

High-risk employee – certain employees impose a higher risk than others, for instance employees that have been on the job less than five months.

Unusual employee activity – based on the number of times the Customer Information System (CIS) has been accessed by a single employee to inquire the details of a customer account.

In a call center, the number of account inquiries per employee substantially exceeds the number of customer calls received; The number of account inquiries per employee substantially exceeds the number of transactions entered.

The accelerated retail growth has been on a historically low base

Penetration continues to be significantly low compared to global bench marks

Share of retail credit expected to grow from 22% to 36%

Retail credit expected to grow to Rs.600,000 crs by 2011 at an annual growth rate of 25%

Source: Cygnus industry insight

Future Of Retail Banking

Future of Retail Banking Contd…. Dramatic changes expected in the credit portfolio of

Banks in the next 5 years

Housing will continue to be the biggest growth segment, followed by Auto loans

Banks need to expand and diversify by focussing on non urban segment as well as varied income and demographic groups

Rural areas offer tremendous potential too which needs to be exploited

Strategic prerequisites….

Performance oriented leadership

Sophisticated marketing and sales

Efficient distribution channels

Process efficiency and ease of scalability

Superior credit policy, procedures and skills

Source: Mckinsey

Challenges

Sustaining Customer loyalty

NPA reduction & Fraud prevention

Avoiding Debt Trap for customers

Bringing Rural masses into mainstream banking

Strategies for Future…

Reaching to masses : Need to customize

Customer segmentation/differentiation

Data mining/CRM based campaigns

Products per customer/loyalty

Promoting low risk retail lending products

Offer an array of products and financial advisory.

Strategies for Future… Contd.

Cost effective expansion

Renewed emphasis on superior execution by front-line employees

Grow through Alliances:

Hospitality Education

Retailers Automobiles

Consumer Durables Housing/Construction

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

Y.Y.Chin, OCBC Bank

Winning Strategy

Thank You !