SHWETA Research Report on Impact of Reserve Bank Policies on Retail Banking

8/2/2019 SHWETA Research Report on Impact of Reserve Bank Policies on Retail Banking

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Dissertation Report

Impact of Reserve Bank Policies on Retail

Banking

In partial fulfillment of the requirements of

PGDM program

(Post Graduate Diploma in Management)

IILM- COLLEGE OF MANAGEMENT STUDIES,

GREATER NOIDA

MARCH 2012

Submitted To Submitted By

Prof. Inderpreet Akash Goyal


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IILM COLLEGE OF MANAGEMENT STUDIES

BONAFIDE CERTIFICATE

Certified that this project report Impact of Reserve Bank Policies on

Retail Bankingis the bonafide work of Akash Goyal The work isoriginally completed and the information provided in the study is authentic to the

best of knowledge.

who carried out the project work under my supervision.

SIGNATURE SIGNATURE

Dr.Himanshu Mohan Inderpreet Singh

HEAD OF THE DEPARTMENT SUPERVISOR

Dean IILM CMS Assistant Professor and Faculty Incharge

Placements

Professor (International Business), IILM-College of Management Studies,

17- 18, Knowledge Park-II IILM, Plot No. 17 & 18, Knowledge Park-

Greater Noida 201306 Greater Noida - 201306

2 Impact Of Reserve Bank Policies On RetailBanking.


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ACKNOWLEDGEMENT

This Research Report which is on Impact Of Reserve Bank Policies On Retail Banking is

done by me at the research time, provides details regarding the how various Reserve Bank

policies affect the Retail Banking.

I would like to take this opportunity to thank all the people, who extended their

immense help to complete my project. I would like to thank my Research Report guide Pr.

Inderpreet Singh who spent his valuable time to discuss about the Research and his

continuous co-operation to me and for guiding and helping me to solve all kinds of

queries regarding the Research work.

Last but not the least I would like to thank all the persons, who have directly or

indirectly helped me with their moral support for the completion of my Research Report.

(Akash Goyal)



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CONTENTS

S.N. PARTICULAR PAGE NO.

1. Objectives Of The Study 8

2. Research Methodology 9

3. Scope Of The Project 10

4. Limitation Of Study 11

5. Literature Review 12

6. Introduction 14

7. History Of Banking In India 16

Pre-Nationalization Era 16

Nationalization stage 17

Post Liberalization Era 20

8. Banking Structure In India 22

9. Indian Banking System 23



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10. Broad Classification Of Banks In India 24

11. Role Of Banks 25

12. Reserve Bank Of India 27

History 27

Main Functions 30

RBI Has Various Tools To Control The Banks Credit And

Monetary Regulations

32

Impact Of Monetary Policy 35

13. Retail Banking 37

Introduction 37

Future Of Retail Banking 38

Retail Boom 39

Special Feature Of Retail Credit 40

Product Of Retail banking 41

Opportunities Of Retail Banking 44

Scope Of Retail Banking 44

Advantages And Disadvantages Of Retail Banking 44



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Factors Affecting Customers Choice 45

Strategies To Increasing Retail Banking Business 48

Challenges To Retail Banking 50

14. Various Rates And Observations 51

15. Impact Of Reserve Bank Policies On Retail Banking 58

16. Findings 59

Impact On Saving 59

Impact On Loans 62

Impact On Mutual Fund 65

17. Suggestions 68

18. Bibliography 70



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OBJECTIVES OF THE STUDY

The basic objectives of this study include:

What is the impact of Reserve Bank Policies in Indian Retail Banking?

How Reserve Bank policies affect a common man.

What are the various issue and challenges before this industry?

To draw conclusions based on the figures and data?



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RESEARCH METHODOLOGY

The Methodology followed in this project involved the following Phases:

Collection of Data.

Type of the Research

Analysis of Data.

Conclusion & Recommendation.

Collection of Data

This study is totally based on secondary sources of information.

The other source related to the Research Project are Banking related Journals, Reserve

Bank Magazine, business newspaper, current bank rates and repo rate etc.

Type Of The Research

The project is descriptive and analytical in nature..

AnalysisFor the comparative analysis we use graphs, charts, and necessary diagrams. The current

financial year 2010-11, 2009-10 and 2008-09 has been taken into calculation.



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Interpretation & Recommendation

After completion of the entire analysis, the interpretation & recommendation are made

on the basis of figures and diagrams . tools like percentage , Tables, Charts, Bar graphs

used for representation of data.

SCOPE OF THE PROJECT

It is expected that this study will be of great use in practical applications for the common

men and also for the policy makers.

It is useful for the persons who are doing research and need some help they can see, analyze

the report and get useful information (like different rates, monetary policy) which they want.

It is also helpful for those persons who are working in academic sector. They can use when

they faces problem related to impact of Reserve Bank policies on banking sector and other banking

information.

This report is helpful for persons who want to take loan and want to invest in mutual fund.

After analyzing the report they can understand how Reserve Bank policies affect the loan sector

and mutual fund sector and how can they earn profit in different situations.

This report is also helpful for students because this report can give good idea about Reserve

Bank and its policies, banking sector, retail banking, monetary policy, and banking structure in

India.

.



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LIMITATIONS OF THE STUDY

The study is depends on secondary data. Throughout the whole study secondary data is

considered as primary data.

Time constraint.

The study depends on data which collected from Reserve Bank Journal, different magazines

and newspaper. The data collected from above the source are not of detailed in

nature.

Inadequacy of data.

Number of peoples.

According to Official Secret Act banks not provided important data.



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LITERATURE REVIEW

All around the world retail lending has been an established market; however its rise in

emerging economies like India has been of recent origin. If recent statistics on consumer finance

are any indication, the last few years have been trend setting. The traditional debt-averse, middle-

class Indians who lived within their thrifty means, never to venture beyond their means, seem to

have given way to a new middle-class that is free from all inhibitions regarding conspicuous

consumption. Unlike its predecessors, the middle-class of today has donned a new attitude; it

attaches no social-stigma in taking loans for spending.

Indian retail banking is up and kicking. During 2004-05 retail contributed 42% of overall

credit growth. Growing at the CAGR of 35% over last 5 years the retail asset touched Rs1,89,000

crore. Major product segments of retail credit include housing finance, auto finance, personal loans,

consumer durable loan and credit cards to name a few. Housing constitutes the biggest segment of

48% of the entire retail credit; followed by the auto loans segment which constitutes almost 27.8%.

While the balance retail credit is used by consumer durables at 7.2%, educational and other

personal loans take the remaining 16%.

Banks are increasing their dominance in housing finance and capturing the market share of

the housing finance companies. During 2004-05, the market share of banks stood at 62%, against

the 33% by Housing finance companies; Rs2-5 lakh margins constitutes almost a third of the loan

size. All the players in this market are adopting



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an aggressive attitude and the housing loan availability is playing into the players hands. Despite

this phenomenal growth in India, the housing loan as a percentage of GDP at 4.91% indicates low

penetration when compared to other countries like Malaysia (17%) and Thailand (9%). But again

this coupled with the population growth indicates good future prospects.

The last few years have witnessed a high increase in students aspiring for management

and professional courses, leading to a spurt in educational loans. Banks are now having a direct tie-

up with the educational institutions to cash in on the opportunity. Public sector banks (PSBs) are

more focused on the educational loans segment. In the educational loan segment, disbursement of

domestic banks has surged by 13% to Rs2249 crore in 2004-05; up from Rs1983 crore in 2003-04.

The number of students availing education loans has increased to 1,40,000 from 1,08,000 during

this period.

In India, all the retail banking segments are expected to witness a tremendous growth

owing to the low cost of borrowing, changing customer attitudes towards borrowing and optimism

regarding economic growth. Retail lending constitutes just 12.36% of the Indian banking system.

Given this macroeconomic scenario, the share of

retail banking will grow dramatically and it is expected that about 35% of the incremental growth

in net credit will come from retail banking. This requires expansion and diversification of retail

banking product portfolio, better penetration and faster service mechanism. Hitherto, the growth

had come from metros and tier I cities. While the loan requirement from larger cities will continue

to grow, explosive growth in credit is expected to register in tier II cities, semi-urban and rural

areas.



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INTRODUCTION

The banking scenario in India has been changing at fast pace from being just the borrowersand lenders traditionally, the focus has shifted to more differentiated and customized

product/service provider from regulation to liberalization in the year 1991, from planned economy

to market.

The Indian banking has come a long way from being a sleepy business institution to a highly

proactive and dynamic entity. This transformation has been largely brought about by the large dose

of liberalization and economic reforms that allowed banks to explore new business opportunities

rather than generating revenues from conventional streams (i.e. borrowing and lending). Thestalwarts of India's financial community nodded their heads sagaciously when Prime Minister Dr.

Manmohan Singh said in a speech: "If there is one aspect in which we can confidentially

assert that India is ahead of China, it is in the robustness and soundness of our banking

system." Indian banks have been rated higher than Chinese banks by international rating agency

Standard & Poor's.

The competition heated up with the entry of private and foreign banks deregulation and

globalization resulted in increased competition that refined the traditional way of doing business.

They have realized the importance of a customer centric approach, brand building and IT enabled

solutions. In the fierce battle for market share and mind share, the most potent weapon is a strong,

well recognized and trusted brand name. Brands attract and convince people that they will get what

is promised. Banking today has transformed into a technology intensive and customer friendly



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model with a focus on convenience. The companies have redoubled their efforts to woo the

customers and establish themselves firmly in the market. It is no longer an option for a company to

provide good customer service, it is expected.

Currently overall, banking in India is considered as fairly mature in terms of supply,

product range and reach-even though reach in rural India still remains a challenge for the private

sector and foreign banks. Even in terms of quality of assets and capital adequacy, Indian banks are

considered to have clean, strong and transparent balance sheets-as compared to other banks in

comparable economies in its region. The Indian banking industry is currently in a transition phase.

On the one hand, the public sector banks, which are the mainstay of the Indian banking system, are

in the process of consolidating their position by capitalizing on the strength of their huge networks

and customer bases. On the other, the private sector banks are venturing into a whole new game ofmergers and acquisitions to expand their bases. The use of technology has placed Indian banks at

par with their global peers. It has also changed the way banking is done in India. Anywhere

banking and Anytime bankinghave become a reality. The financial sector now operates in a

more competitive environment than before and intermediates relatively large volume of

international financial flows. The introduction of Basel II norms from 2009 and the fair level

playing field that will be available to foreign banks from 2010 will further enhance the solidarity of

the Indian banking sector and open new avenues.

The entry of banks into the realm of financial services was followed very soon after the

introduction of liberalization in the economy. Since the early 1990s structural changes of profound

magnitude have been witnessed in global banking systems. Large scale mergers, amalgamations

and acquisitions between the banks and financial institutions resulted in the growth in size and

competitive strengths of the merged entities. Thus, emerged new financial conglomerates that could

maximize economies of scale and scope by building the production of financial services

organization called Universal Banking



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HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India it cannot have a healthy economy.

The banking system of India should not only be hassle free but it should be able to meet new

challenges posed by the technology and any other external and internal factors. For the past three

decades India's banking system has several outstanding achievements to its credit. The most

striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in

India. In fact, Indian banking system has reached even to the remote corners of the country. This is

one of the main reasons of India's growth process. The government's regular policy for Indian bank

since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. Not

long ago, an account holder had to wait for hours at the bank counters for

Getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days

when the most efficient bank transferred money from one branch to other in two days. Now it is

simple as instant messaging or dial a pizza. Money has become the order of the day. The first bank

in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian

Banking System can be segregated into three distinct phases.

They are as mentioned below:

1) Pre-Nationalization Era.

2) Nationalization Stage.



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3) Post Liberalization Era.

1) Pre-Nationalization Era

The modern type of banking, however, was developed by the Agency Houses of Calcutta

and Bombay after the establishment of Rule by the East India Company in 18 th and 19th centuries.

During the early part of the 19th Century, ht volume of foreign trade was relatively small.

Later on as the trade expanded, the need for banks of the European type was felt and the

government of the East India Company took interest in having its own bank. The government of

Bengal took the initiative and the first presidency bank, the Bank of Calcutta (Bank of Bengal) was

established. In 1840, the Bank of Bombay and IN 1843, the Bank of Madras was also set up. These

three banks also known as Presidency Bank. The Presidency Banks had their branches in

important trading centers but mostly lacked in uniformity in their operational policies. In 1899, the

Government proposed to amalgamate these three banks in to one so that it could also function as a

Central Bank, but the Presidency Banks did not favor the idea. However, the conditions obtaining

during world war period (1914-1918) emphasized the need for a unified banking institution, as a

result of which the Imperial Bank was set up in1921. The Imperial Bank of India acted like a

Central bank and as a banker for other banks.

The RBI (Reserve Bank of India) was established in 1935 as the Central Bank of the

Country. In 1949, the Banking Regulation act was passed and the RBI was nationalized and

acquired extensive regulatory powers over the commercial banks.

In 1950, the Indian Banking system comprised of the RBI, the Imperial Bank of India,

Cooperative banks, Exchange banks and Indian Joint Stock banks.

2) Nationalization Stages

After Independence, in 1951, the All India Rural Credit survey, committee of Direction

with Shri. A. D. Gorwala as Chairman recommended amalgamation of the Imperial Bank of India

and ten others banks into a newly established bank called the State Bank of India (SBI). The



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Government of India accepted the recommendations of the committee and introduced the State

Bank of India bill in the Lok Sabha on 16th April 1955 and it was passed by Parliament and got the

presidents assent on 8th May 1955. The Act came into force on 1st July 1955, and the Imperial

Bank of India was nationalized in 1955 as the State Bank of India.

The main objective of establishing SBI by nationalizing the Imperial Bank of India

was to extend banking facilities on a large scale more particularly in the rural and semi-urban

areas and to diverse other public purposes.

In 1959, the SBI (Subsidiary Bank) act was proposed and the following eight state-

associated banks were taken over by the SBI as its subsidiaries.

Name of the Bank Subsidiary with effect from

1. State Bank of Hyderabad 1st October 1959

2. State Bank of Bikaner 1st January 1960

3. State Bank of Jaipur 1st January 1960

4. State Bank of Saurashtra 1st May 1960

5. State Bank of Patiala 1st April 1960

6. State Bank of Mysore 1st March 1960

7. State Bank of Indore 1st January 1968

8. State Bank of Travancore 1st January 1960

With effect from 1st January 1963, the State Bank of Bikaner and State Bank of Jaipur

with head office located at Jaipur. Thus, seven subsidiary banks State Bank of India formed the SBI

Group.

The SBI Group under statutory obligations was required to open new offices in rural

and semi-urban areas and modern banking was taken to these unbanked remote areas.



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On 19th July 1969, then the Prime Minister, Mrs. Indira Gandhi announced the

nationalization of 14 major scheduled Commercial Banks each having deposits worth Rs. 50 crore

and above. This was a turning point in the history of commercial banking in India.

Later the Government Nationalized six more commercial private sector banks with

deposit liability of not less than Rs. 200 crores on 15th April 1980, viz.

i) Andhra Bank.

ii) Corporation Bank.

iii) New Bank if India.

iv) Oriental Bank of Commerce.

v) Punjab and Sind Bank.

vi) Vijaya Bank.

In 1969, the Lead Bank Scheme was introduced to extend banking facilities to every

corner of the country. Later in 1975, Regional Rural Banks were set up to supplement the activities

of the commercial banks and to especially meet the credit needs of the weaker sections of the rural

society.

Nationalization of banks paved way for retail banking and as a result there has been an

alt round growth in the branch network, the deposit mobilization, credit disposals and of course

employment.

The first year after nationalization witnessed the total growth in the agricultural loans

and the loans made to SSI by 87% and 48% respectively. The overall growth in the deposits and

the advances indicates the improvement that has taken place in the banking habits of the people in

the rural and semi-urban areas where the branch network has spread. Such credit expansion enabled

the banks to achieve the goals of nationalization, it was however, achieved at the coast ofprofitability of the banks.

Consequences of Nationalization



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The quality of credit assets fell because of liberal credit extension policy.

Political interference has been as additional malady.

Poor appraisal involved during the loan meals conducted for credit disbursals.

The credit facilities extended to the priority sector at concessional rates.

The high level of low yielding SLR investments adversely affected the profitability of the

banks.

There was downward trend in the quality of services and efficiency of the banks.

The rapid branch expansion has been the squeeze on profitability of banks emanating

primarily due to the increase in the fixed costs.

3) Post-Liberalization Era--Thrust on Quality and Profitability

By the beginning of 1990, the social banking goals set for the banking industry made

most of the public sector resulted in the presumption that there was no need to look at the

fundamental financial strength of this bank. Consequently they remained undercapitalized.

Revamping this structure of the banking industry was of extreme importance, as the health of the

financial sector in particular and the economy was a whole would be reflected by its performance.

The need for restructuring the banking industry was felt greater with the initiation of the

real sector reform process in 1992. the reforms have enhanced the opportunities and challenges for

the real sector making them operate in a borderless global market place. However, to harness the

benefits of globalization, there should be an efficient financial sector to support the structural

reforms taking place in the real economy. Hence, along with the reforms of the real sector, the

banking sector reformation was also addressed.

The route causes for the lackluster performance of banks, formed the elements of the

banking sector reforms. Some of the factors that led to the dismal performance of banks were.

Regulated interest rate structure.



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Lack of focus on profitability.

Lack of transparency in the banks balance sheet.

Lack of competition.

Excessive regulation on organization structure and managerial resource.

Excessive support from government.

Against this background, the financial sector reforms were initiated to bring about a

paradigm shift in the banking industry, by addressing the factors for its dismal performance.

In this context, the recommendations made by a high level committee on financial sector,

chaired by M. Narasimham, laid the foundation for the banking sector reforms. These reforms tried

to enhance the viability and efficiency of the banking sector. The Narasimham Committee

suggested that there should be functional autonomy, flexibility in operations, dilution of banking

strangulations, reduction in reserve requirements and adequate financial infrastructure in terms of

supervision, audit and technology. The committee further advocated introduction of prudential

forms, transparency in operations and improvement in productivity, only aimed at liberalizing the

regulatory framework, but also to keep them in time with international standards. The emphasis

shifted to efficient and prudential banking linked to better customer care and customer services.



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BANKING STRUCTURE IN INDIA

In todays dynamic world banks are inevitable for the development of a country. Banks

play a pivotal role in enhancing each and every sector. They have helped bring a draw of

development on the worlds horizon and developing country like India is no exception.

Banks fulfills the role of a financial intermediary. This means that it acts as a vehicle for

moving finance from those who have surplus money to (however temporarily) those who have

deficit. In everyday branch terms the banks channel funds from depositors whose accounts are in

credit to borrowers who are in debit.

Without the intermediary of the banks both their depositors and their borrowers would

have to contact each other directly. This can and does happen of course. This is what has lead to the

very foundation of financial institution like banks.

Before few decades there existed some influential people who used to land money. But a

substantially high rate of interest was charged which made borrowing of money out of the reach of

the majority of the people so there arose a need for a financial intermediate. The Bank have

developed their roles to such an extent that a direct contact between the depositors and borrowers in

now known as disintermediation.



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Banking industry has always revolved around the traditional function of taking deposits,

money transfer and making advances. Those three are closely related to each other, the objective

being to lend money, which is the profitable activity of the three. Taking deposits generates funds

for lending and money transfer services are necessary for the attention of deposits. The Bank have

introduced progressively more sophisticated versions of these services and have diversified

introduction in numerable areas of activity not directly relating to this traditionaltrinity.

INDIAN BANKING SYSTEM


Non-Schedule Banks

State co-op

Banks

Commercial

Banks

Central co-op

Banks and

Primary Cr.

Societies

Commercial Banks

Indian Foreign

Reserve Bank of India

Schedule Banks


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BROAD CLASSIFICATION OF BANKS IN INDIA

The RBI: The RBI is the supreme monetary and banking authority in the country and has the

responsibility to control the banking system in the country. It keeps the reserves of all scheduled

banks and hence is known as the Reserve Bank.

1) Public Sector Banks: State Bank of India and its Associates (8)

Nationalized Banks (19)

Regional Rural Banks Sponsored by Public Sector Banks (196)

(2) Private Sector Banks:

Old Generation Private Banks (22)

Foreign New Generation Private Banks (8)

Banks in India (40)

(3) Co-operative Sector Banks:


Public Sector

BanksPrivate Sector

Banks

HDFC,

State Bank of

India and its

Subsidiaries

Other Nationalized

Banks

Regional Rural

Banks


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State Co-operative Banks

Central Co-operative Banks

Primary Agricultural Credit Societies

Land Development Banks State Land Development Banks

(4) Development Banks: Development Banks mostly provide long term finance for setting

up industries. They also provide short-term finance (for export and import activities)

Industrial Finance Co-operation of India (IFCI)

Industrial Development of India (IDBI)

Industrial Investment Bank of India (IIBI)

Small Industries Development Bank of India (SIDBI)

National Bank for Agriculture and Rural Development (NABARD)

Export-Import Bank of India

Role of Banks

Banks play a positive role in economic development of a country as repositories ofcommunitys savings and as purveyors of credit. Indian Banking has aided the economic

development during the last fifty years in an effective way. The banking sector has shown a

remarkable responsiveness to the needs of planned economy. It has brought about a considerable

progress in its efforts at deposit mobilization and has taken a number of measures in the recent past

for accelerating the rate of growth of deposits. As recourse to this, the commercial banks opened

branches in urban, semi-urban and rural areas and have introduced a number of attractive schemes

to foster economic development.

The activities of commercial banking have growth in multi-directional ways as well as

multi-dimensional manner. Banks have been playing a catalytic role in area development,

backward area development, extended assistance to rural development all along helping agriculture,



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industry, international trade in a significant manner. In a way, commercial banks have emerged as

key financial agencies for rapid economic development.

By pooling the savings together, banks can make available funds to specialized

institutions which finance different sectors of the economy, needing capital for various purposes,

risks and durations. By contributing to government securities, bonds and debentures of term-

lending institutions in the fields of agriculture, industries and now housing, banks are also

providing these institutions with an access to the common pool of savings mobilized by them, to

that extent relieving them of the responsibility of directly approaching the saver. This

intermediation role of banks is particularly important in the early stages of economic development

and financial specification. A country like India, with different regions at different stages of

development, presents an interesting spectrum of the evolving role of banks, in the matter of inter-mediation and beyond.

Mobilization of resources forms an integral part of the development process in India.

In this process of mobilization, banks are at a great advantage, chiefly because of their network of

branches in the country. And banks have to place considerable reliance on the mobilization of

deposits from the public to finance development programs. Further, deposit mobilization by banks

in India acquired greater significance in their new role in economic development.

Commercial banks provide short-term and medium-term financial assistance. The

short-term credit facilities are granted for working capital requirements. The medium-term loans

are for the acquisition of land, construction of factory premises and purchase of machinery and

equipment. These loans are generally granted for periods ranging from five to seven years. They

also establish letters of credit on behalf of their clients favoring suppliers of raw

materials/machinery (both Indian and foreign) which extend the bankers assurance for payment

and thus help their delivery. Certain transaction, particularly those in contracts of sale of

Government Departments, may require guarantees being issued in lieu of security earnest money

deposits for release of advance money, supply of raw materials for processing, full payment of bills

on the assurance of the performance etc. Commercial banks issue such guarantees also.



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RESERVE BANK OF INDIA

The central bank of India, which was established on April 1, 1935, under the Reserve

Bank of India Act 1934. The RBI uses monetary policy to create financial stability in India and is

charged with regulating the country's currency and credit systems.

The Reserve Bank of India was set up on the basis of the recommendations of the Hilton

Young Commission. The Reserve Bank of India Act, 1934 (II of 1934) provides the statutory basis

of the functioning of the Bank, which commenced operations on April 1, 1935.

The Bank was constituted to:

Regulate the issue of bank notes.

Maintain reserves with a view to securing monetary stability. And

To operate the credit and currency system of the country to its advantage.

HISTORY



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The central bank was founded in 1935 to respond to economic troubles after the First

World War. The Reserve Bank of India was set up on the recommendations of the Hilton-Young

Commission. The commission submitted its report in the year 1926, though the bank was not set

up for another nine years. The Preamble of the Reserve Bank of India describes the basic functions

of the Reserve Bank as to regulate the issue of bank notes, to keep reserves with a view to securing

monetary stability in India and generally to operate the currency and credit system in the best

interests of the country. The Central Office of the Reserve Bank was initially established

in Kolkata,Bengal, but was permanently moved to Mumbai in 1937. The Reserve Bank continued

to act as the central bank forMyanmartill Japanese occupation ofBurma and later up to April

1947, though Burma seceded from the Indian Union in 1937. After partition, the Reserve Bank

served as the central bank forPakistan until June 1948 when the State Bank of

Pakistan commenced operations. Though originally set up as a shareholders bank, the RBI has

been fully owned by the government of India since its nationalization in 1949.

19501960

Between 1950 and 1960, the Indian government developed a centrally planned economic

policy and focused on the agricultural sector. The administration nationalized commercial

banks and established, based on theBanking Companies Act, 1949 (later calledBanking Regulation

Act) a central bank regulation as part of the RBI. Furthermore, the central bank was ordered to

support the economic plan with loans.

19601969

As a result of bank crashes, the reserve bank was requested to establish and monitor a

deposit insurance system. It should restore the trust in the national bank system and was initialized

on 7 December 1961. The Indian government founded funds to promote the economy and used the

slogan Developing Banking. The Gandhi administration and their successors restructured the

national bank market and nationalized a lot of institutes. As a result, the RBI had to play the central

part of control and support of this public banking sector.

http://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Bengalhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Myanmarhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Burmahttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/State_Bank_of_Pakistanhttp://en.wikipedia.org/wiki/State_Bank_of_Pakistanhttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Bengalhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Myanmarhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Burmahttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/State_Bank_of_Pakistanhttp://en.wikipedia.org/wiki/State_Bank_of_Pakistanhttp://en.wikipedia.org/wiki/Government_of_India


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19691985

Between 1969 and 1980, the Indian government nationalized 20 banks. The regulation of

the economy and especially the financial sector was reinforced by the Gandhi administration and

their successors in the 1970s and 1980s. The central bank became the central player and increased

its policies for a lot of tasks like interests, reserve ratio and visible deposits .[8] The measures aimed

at better economic development and had a huge effect on the company policy of the institutes. The

banks lent money in selected sectors, like agri-business and small trade companies.

The branch was forced to establish two new offices in the country for every newly

established office in a town. The oil crises in 1973 resulted in increasing inflation, and the RBI

restricted monetary policy to reduce the effects.

19851991

A lot of committees analyzed the Indian economy between 1985 and 1991. Their results

had an effect on the RBI. TheBoard for Industrial and Financial Reconstruction, theIndira

Gandhi Institute of Development Research and the Security & Exchange Board of

India investigated the national economy as a whole, and the security and exchange board proposed

better methods for more effective markets and the protection of investor interests. The Indian

financial market was a leading example for so-called "financial repression" (Mackinnon and Shaw).

TheDiscount and Finance House of India began its operations on the monetary market in April

1988; theNational Housing Bank, founded in July 1988, was forced to invest in the property

market and a new financial law improved the versatility of direct deposit by more security

measures and liberalization.

19912000

The national economy came down in July 1991 and the Indian rupee was devalued. The

currency lost 18% relative to the US dollar, and theNarsimahmam Committee advised restructuring

the financial sector by a temporal reduced reserve ratio as well as the statutory liquidity ratio. New

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guidelines were published in 1993 to establish a private banking sector. This turning point should

reinforce the market and was often called neo-liberal The central bank deregulated bank interests

and some sectors of the financial market like the trust and property markets. This first phase was a

success and the central government forced a diversity liberalization to diversify owner structures in

1998.

TheNational Stock Exchange of India took the trade on in June 1994 and the RBI

allowed nationalized banks in July to interact with the capital market to reinforce their capital base.

The central bank founded a subsidiary companytheBharatiya Reserve Bank Note Mudran

Limitedin February 1995 to produce banknotes.

Since 2000

TheForeign Exchange Management Actfrom 1999 came into force in June 2000. It

should improve the foreign exchange market, international investments in India and transactions.

The RBI promoted the development of the financial market in the last years, allowed online

banking in 2001 and established a new payment system in 2004 - 2005 (National Electronic FundTransfer). The Security Printing & Minting Corporation of India Ltd., a merger of nine institutions,

was founded in 2006 and produces banknotes and coins.

The national economy's growth rate came down to 5.8% in the last quarter of 2008 -

2009 and the central bank promotes the economic development.

MAIN FUNCTIONS

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Monetary authority

The Reserve Bank of India is the main monetary authority of the country and beside

that the central bank acts as the bank of the national and state governments. It formulates,

implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit

to productive sectors. Objectives are maintaining price stability and ensuring adequate flow of

credit to productive sectors. The national economy depends on the public sector and the central

bank promotes an expansive monetary policy to push the private sector since the financial market

reforms of the 1990s.

The institution is also the regulator and supervisor of the financial system and

prescribes broad parameters of banking operations within which the country's banking and financial

system functions. Objectives are to maintain public confidence in the system, protect depositors'interest and provide cost-effective banking services to the public. TheBanking Ombudsman

Scheme has been formulated by the Reserve Bank of India (RBI) for effective addressing of

complaints by bank customers. The RBI controls the monetary supply, monitors economic

indicators like the gross domestic product and has to decide the design of the rupee banknotes as

well as coins.

Manager of exchange control

The central bank manages to reach the goals of the Foreign Exchange Management

Act, 1999. Objective: to facilitate external trade and payment and promote orderly development

and maintenance of foreign exchange market in India.

Issuer of currency

The bank issues and exchanges or destroys currency and coins not fit for circulation.

The objectives are giving the public adequate supply of currency of good quality and to provide

loans to commercial banks to maintain or improve the GDP. The basic objectives of RBI are to

issue bank notes, to maintain the currency and credit system of the country to utilize it in its best

advantage, and to maintain the reserves.

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RBI maintains the economic structure of the country so that it can achieve the objective

of price stability as well as economic development, because both objectives are diverse in

themselves.

Regulator And Supervisor Of The Financial System

Prescribes broad parameters of banking operations within which the countrys banking and

financial system functions.

Objective: maintain public confidence in the system, protect depositors interest and

provide cost-effective banking services to the public. The Banking Ombudsman Scheme

has been formulated by the Reserve Bank of India (RBI) for effective redress of complaintsby bank customers.

Developmental role

The central bank has to perform a wide range of promotional functions to support

national objectives and industries. The RBI faces a lot of inter-sectoral and local inflation-related

problems. Some of these problems are results of the dominant part of the public sector.

Related functions

The RBI is also a banker to the government and performs merchant banking function

for the central and the state governments. It also acts as their banker. TheNational Housing

Bank(NHB) was established in 1988 to promote private real estate acquisition. The institution

maintains banking accounts of all scheduled banks, too.

There is now an international consensus about the need to focus the tasks of a central

bank upon central banking. RBI is far out of touch with such a principle, owing to the sprawling

mandate described above.

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RBI has various tools to control the Banks Credit and

Monetary Regulation

Monetary Policy

Monetary policy is the process by which the monetary authority of a country controls

the supply of money, often targeting a rate of interest for the purpose of

promoting economic growth and stability. The official goals usually include relatively stable prices

and low unemployment.Monetary theory provides insight into how to craft optimal monetary

policy.

Monetary policy is referred to as either being expansionary, or a contractionary,

where an expansionary policy increases the total supply of money in the economy more rapidly

than usual, and a contractionary policy expands the money supply more slowly than usual or even

shrinks it. Expansionary policy is traditionally used to try to combat unemployment in

a recession by lowering interest rates in the hope that easy credit will entice businesses into

expanding. Contractionary policy is intended to slow inflation in hopes of avoiding the resulting

distortions and deterioration of asset values.

Monetary Magnitudes

M0 = currency with public + demand deposits with bank + other deposits with RBI.

M1 = M0 + post office deposits.

M2 = M0 + time deposits with bank.

M3 = M2 + total post office deposits.

Tools Of Monetary Policy

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1- Qualitative tool- The qualitative tools in a central bank or a Treasury Department's monetary

policy are those that affect bank lending through any means other than the expansion or

constriction of the money supply itself. These may include, for example, the direct rationing of

credit, changes in the marginal requirements of loans, moral suasion and publicity.

(a) Bank Rate: RBI (Reserve Bank of India) lends to the commercial banks through its discount

window to help the banks meet depositors demands and reserve requirements. The interest rate the

RBI charges the banks for this purpose is called bank rate. If the RBI wants to increase the liquidity

and money supply in the market, it will decrease the bank rate and if it wants to reduce the liquidity

and money supply in the system, it will increase the bank rate.

Current Bank rate = 6%. (2- Nov- 2010)

(b) Cash Reserve Requirements (CRR): Every commercial bank has to keep certain

minimum cash reserves with RBI. RBI can vary this rate between 3% and 15%. RBI uses this tool

to increase or decrease the reserve requirement depending on whether it wants to affect a decrease

or an increase in the money supply. An increase in CRR will make it mandatory on the part of the

banks to hold a large proportion of their deposits in the form of deposits with the RBI. This will

reduce the size of their deposits and they will lend less. This will in turn decrease the money

supply.

Earlier Reserve bank fixed Bank Rate 3 % to 15%. 3% is lower limit and maximum it

could be 15%, and Reserve Bank 1 % interest in every percent increment, but now Reserve Bank

changed the rule and there is no lower limit and Reserve Bank not giving interest.

Current CRR = 6%. (2- Nov- 2010)

(c) Statutory Liquidity Requirements (SLR): Apart from the CRR, banks are required to

maintain liquid assets in the form of gold, cash and approved securities. RBI has stepped up

liquidity requirements for two reasons: - Higher liquidity ratio forces commercial banks to maintain



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a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans.

Reserve Bank can fix Statutory Liquidity Ratio 25-45 %. 25% is lower limit of Statutory Liquidity

Ratio and 45 % is Statutory Liquidity Ratio.

Current SLR = 25%

(d) Open Market Operations (OMO): is the means of implementing monetary policyby

which a central bankcontrols the short term interest rate and the supply ofbase money in an

economy, and thus indirectly the total money supply. This involves meeting the demand of base

money at the target rate by buying and selling government securities, or otherfinancial instruments.

Monetary targets such as inflation, interest rates orexchange rates are used to guide this

implementation.

Repo Rate is the rate at which the RBI buys government securities from the market to

infuse liquidity in the system.

Current RR = 6.25% (2- Nov- 2010)

Reverse Repo rateis the rate at which the RBI absorbs excess bank funds by selling

government securities in the market.

Current RRR = 5.25% (2- Nov- 2010)

2- Quantitative tool - Quantitative tool is an unconventional monetary policy used by

some central banks to stimulate their economy. The central bank creates money which it uses to

buy government bonds and other financial assets, in order to increase the money supply and the

excess reserves of the banking system; this also raises the prices of the financial assets bought

(which lower theiryield).

IMPACT OF MONETARY POLICY

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Reserve Bank change Monetary Policy time to time. The main motto of Reserve

Bank to change Monetary Policy (Bank Rate, Cash Reserve Ratio, Statutory Liquidity Ratio, Repo

Rate and Reverse Repo Rate) to control the inflation. In inflation the value of rupee decreases and

the flow of money in the market is more. So Reserve Bank changes Bank Rate, Cash Reserve

Ratio, Statutory Liquidity Ratio, Repo Rate and Reverse Repo Rate time to time and sucks the

liquidity from the market. Reserve Bank work to control inflation for last many years.

In last two years the inflation increases day by day so Reserve Bank change Bank Rate,

Cash Reserve Ratio, Statutory Liquidity Ratio, Repo Rate and Reverse Repo Rate time to time to

control the inflation. After remaining in double digit for five successive months inflation declined

to 8.8 %, in Aug. 2010 and further to 7.5 %in Nov. 2010.

Food price inflation crosses 40 % few months ago and food price inflation moderated

from an average of 15.7% in quarter 1 of 2010-11 to 12.3 %in quarter 2 to 10 % in October 2010

and further 6.1 % in November 2010.

Effect Of Inflation

Inflation affect in different ways. It is beneficial for some persons and for some persons it isnot beneficial. Impact of Inflation for different type of persons as following:

Borrower = Benefit.

Lender = Loss.

Business = Benefit.

Agriculture = Benefit.

Investor = Benefit.

Service Industry = Loss.

Consumer = Loss.

Government = Loss.

Employment = Increase.

Tax payee = Benefit.



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Foreign Business

Import = Increase (foreign goods are less costly).

Export = Decrease.

RETAIL BANKING

Introduction

Retail banking refers to banking in which banking institutions execute

transactions directly with consumers, rather than corporations or other banks.

Services offered include: saving and transactional account, mortgages, personal

loans, debit cards, and credit cards etc.

Retail banking aims to be the one-stop shop for as many financial services as possible

on behalf of retail clients. Some retail banks have even made a push into investment services such

as wealth management, brokerage accounts, private banking and retirement planning. While some

of these ancillary services are outsourced to third parties (often for regulatory reasons), they often



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intertwine with core retail banking accounts like checking and savings to allow for easier transfers

and maintenance.

Retail Banking in India has fast emerged as one of the major drivers of the overall

banking industry and has witnessed enormous growth in the recent past. The Retail Banking Report

encompasses extensive study and analysis of the rapidly growing sector. It primarily covers

analysis of the present status, current trends, major issue and challenges in the growth of the retail

banking sector. This report helps in Banks, financial institutions, MNC Banks, academicians,

consultants and researchers to have a better understanding of the booming opportunities in retail

banking in India.

With recession departing away from away global economy, opportunities are slowly

emerging in emerging markets. Since emerging markets, except China, were less depending upon

US for growth; are first to come out of recession eclipse. Growth opportunities in banking,

especially retail segment is set to witness fast growth due to high consumption. The higher growth

of retail lending in emerging economies is attributable to fast growth of personal wealth, favorable

demographic profile, rapid development in information technology, the conducive macro-economic

environment, financial market reforms, and several micro-level supply side factors.

The retail banking strategies of banks are undergoing major transformation, as banks adopt

a mix of strategies like organic growth, acquisitions and alliances. This has resulted in a paradigmshift in the marketing strategies of the banks. Public Sector Banks players are adopting aggressive

strategies, leveraging their rural branch network and their customer vase to earn a larger share of

the retail pie. Banks are also going in for innovative strategies like cross selling, packaged selling

of retail products and technology based banking. At the same time, new foreign players are also

entering this high growth sector.

FUTURE OF RETAIL BANKING

Retail banking has significant past and glorious future over the years. Retail banking

has proved as an effective tool not only to improve the bottom lines of the banks concerned but also

to significantly contribute to the development of the individual consumers availing the services or

products in particular and to the overall development of the society in general with the needs of the



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consumers ever multiplying. There is definitely a vast scope for the furtherance of the Retail

Banking business.

The society is made of the individuals and the environment surrounding him. As development

takes place in the society, the needs of the people grow faster than ever. The wealth creation and

its professional management are yet another distinct advantage the society or nation can derive

from Retail Banking. The depth of the untapped resources in the retail segment is not yet measured.

These resources could be channelized for nation building.

On the whole, looking ahead, the prospects of retail banking are brighter than ever and

the bankers have to give continued thrust to this area of banking. Thus, with the consumers ever

multiplying needs there is definitely a vast scope for the furtherance of the retail banking business.

Operationally, there is a possibility that technology go beyond merely reducing the cost &

improving the quality of current products. It may prove possible, even profitable, to combine

functions in new ways.

RETAIL BOOM

Keeping pace with the average 8.5 per cent growth of the Indian economy over the

past few years, the retail banking sector in India has also witnessed phenomenal growth. It has

faced up to the need of the hour and introduced anytime, anywhere banking, for its customers

through ATMs, mobile and internet banking. It has also offered services like D-MAT, plastic

money (credit and debit cards), online transfers, etc. This has not only helped in reducing

operational costs but facilitated greater conveniences to its customers.

According to quarter 2 result net income rose 31.2 per cent year-on-year over the

quarter despite investment banking revenues dropping 30 per cent.

Huge revenue growth in retail banking and the Investment Solutions business was given as the

main reason for the positive results.



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High - tech Banking

ATMs - With growing technological innovations, banks have significantly expanded

their ATM network over the past three years. According to the RBI inn present more than

4,50,000 ATMs compared to end-June 2008, the number of ATMs in the country had

3,60,314, at end-March 2007ATMs are 2,70,088 and at end-March 2006 ATMs are

approx 2,01,000.

Loan Disbursement

Technology has facilitated the growth in retail loan disbursements, making thewhole process simpler and faster. The sector has delivered a growth of around 30 per cent

per year over the past 4-5 years. As per the RBI data, although the retail portfolio of banks

saw a slowdown to 29.9 per cent during 2006-07 from 40.9 per cent in 2005-06, the growth

was faster than the overall credit portfolio of the banking sector (28.5 per cent).

Core Banking Solutions (CBS)

The concept of CBS, which allows a customer to fulfil a wide range of banking

operation online, has come alive during the past four years. The number of bank branches

providing CBS rose rapidly to 44 per cent at end- March 2007 from 28.9 per cent at end

March 2006. Electronic fund transfer facilities and mobile banking are expected to provide

a further fillip to the retail banking in the coming years.

SPECIAL FEATURES OF RETAIL CREDIT



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One of the prominent features ofRetail Banking products is that it is a volume driven

business. Further, Retail Credit ensures that the business is widely dispersed among a large

customer base unlike in the case of corporate lending, where the risk may be concentrated on a

selected few plans. Ability of a bank to administer a large portfolio of retail credit products

depends upon such factors:

Strong Credit Assessment Capability

Because of large volume good infrastructure is required. If the credit assessment itself is

qualitative, than the need for follow up in the future reduces considerably.

Sound Documentation

A latest system for credit documentation is necessary pre-requisite for healthy growth of credit

portfolio, as in the case of credit assessment, this will also minimize the need to follow up at future

point of time.

Strong Possessing Capability

Since large volumes of transactions are involved, today transactions, maintenance of backups is

required.

Regular Constant Follow- up

Ideally, follow up for loan repayments should be an ongoing process. It should start from customer

enquiry and last till the loan is repaid fully.

Skilled Human Resource

This is one of the most important pre-requisite for the efficient management of large and diverse

retail credit portfolio. Only highly skilled and experienced man power can withstand the river of

administrating a diverse and complex retail credit portfolio.



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Technological Support

This is yet another vital requirement. Retail credit is highly technological intensive in nature,

because of large volumes of business, the need to provide instantaneous service to the customer

large, faster processing, maintaining database, etc.

Products of Retail Banking

There are some main products of Retail Banking which are following.

1. Deposits (Saving Accounts)

2. Loans

3. Mutual Fund

1- Deposit (Savings Accounts)

Saving accounts are accounts maintained by retail financial institutions that

pay interest but cannot be used directly as money (for example, by writing a cheque). These

accounts let customers set aside a portion of their liquid assets while earning a monetary return.

2- Loans

An arrangement in which a lendergives money orproperty to aborrower, and the

borroweragrees to return the property orrepay the money, usually along with interest, at some

futurepoint(s) in time. Usually, there is a predetermined time for repaying a loan, and generally the

lender has tobearthe riskthat the borrower may not repay a loan (though modern capital

markets have developed many ways of managing this risk).

Every bank give most of the loan in two types:

Fixed interest rate loan.

Fluctuating interest rate loan.

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Fixed Interest Rate Loan - A loan in which the interest rate does not change during the

entire term of the loan. For an individual taking out a loan when rates are low, the fixed

rate loan would allow him or her to "lock in" the low rates and not be concerned with

fluctuations.

Fluctuating Interest Rate Loan - A loan in which interest rate change according to the

market conditions, government policies etc. interest rate is not fix during the entire term of

loan. This type of loan isbeneficial and also risky for

borrower, because some time according to the market conditions and government policies

borrower have to pay low interest and other side it can increases and risky for the borrower.

Every bank want to be secure before giving any loan so the bank want some securities

and mortgage from borrower side. A Mortgage Loan is a loan secured by real property through the

use of a mortgage note which evidences the existence of the loan and the encumbrance of that

realty through the granting of a mortgage which secures the loan. However , the word mortgage

alone, in everyday usage, is most often used to mean mortgage loan.

A home buyer or builder can obtain financing (a loan) either to purchase or secure

against the property from a financial institution, such as abank, either directly or indirectly through

intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest

rate, method of paying off the loan, and other characteristics can vary considerably.

In many jurisdictions, though not all (Bali, Indonesiabeing one exception. it is normal

for home purchases to be funded by a mortgage loan. Few individuals have enough savings or

liquid funds to enable them to purchase property outright. In countries where the demand forhome

ownership is highest, strong domestic markets have developed.

The word mortgage is a Law French term meaning "dead pledge," apparently meaning

that the pledge ends (dies) either when the obligation is fulfilled or the property is taken

through foreclosure.

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3- Mutual Fund

A mutual fund is a professionally-managed type ofcollective investment

scheme that pools money from many investors to buy securities (stocks,bonds, short-term money

market instruments, and/or other securities). A mutual fund has a fund managerthat trades (buys

and sells) the fund's investments in accordance with the fund's investment objective.

In the United States, a mutual fund is registered with the Securities and Exchange

Commission (SEC) and is overseen by aboard of directors ortrustees (if the U.S. fund is organized

as a trust as they often are). The board is charged with ensuring that the fund is managed in the best

interests of the fund's investors and with hiring the fund manager and other service providers to the

fund. UnderInternal Revenue Service (IRS) rules, a U.S. mutual fund must distribute effectively all

of its net income and net realized gains from the sale of securities at least annually.

Since 1940 in the U.S., with the passage of the Investment Company Act of

1940 (the '40 Act), there have been three basic types of registered investment companies: open-end

funds (or mutual funds),unit investment trusts (UITs); and closed-end funds. Recently, exchange-

traded funds (ETFs) have gained in popularity. Hedge funds are not considered a type of mutual

fund; they are another type of commingled investment scheme that is not governed by

the Investment Company Act of 1940 and that is not required to register with the Securities and

Exchange Commission.

SCOPE FOR RETAIL BANKING IN INDIA

All round increase in economic activity

Increase in the purchasing power. The rural areas have the large purchasing power at their

disposal and this is an opportunity to market Retail Banking.

http://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Fund_managerhttp://en.wikipedia.org/wiki/Trade_(financial_instrument)http://en.wikipedia.org/wiki/Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Trusteehttp://en.wikipedia.org/wiki/Internal_Revenue_Servicehttp://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/Investment_companyhttp://en.wikipedia.org/wiki/Open-end_fundhttp://en.wikipedia.org/wiki/Open-end_fundhttp://en.wikipedia.org/wiki/Unit_investment_trusthttp://en.wikipedia.org/wiki/Closed-end_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Fund_managerhttp://en.wikipedia.org/wiki/Trade_(financial_instrument)http://en.wikipedia.org/wiki/Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Trusteehttp://en.wikipedia.org/wiki/Internal_Revenue_Servicehttp://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/Investment_companyhttp://en.wikipedia.org/wiki/Open-end_fundhttp://en.wikipedia.org/wiki/Open-end_fundhttp://en.wikipedia.org/wiki/Unit_investment_trusthttp://en.wikipedia.org/wiki/Closed-end_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Securities_and_Exchange_Commission


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India has more than 200 million households and 400 million middleclass population and

more than 90% of the savings come from the house hold sector. Falling interest rates have

resulted in a shift. Now People Want To Save Less And Spend More.

Nuclear family concept is gaining much importance which may lead to large savings, large

number of banking services to be provided are day-by-day increasing.

Tax benefits are available for example in case of housing loans the borrower can avail tax

benefits for the loan repayment and the interest charged for the loan.

ADVANTAGES AND DISADVANTAGES OF

RETAIL BANKING

Traditional lending to the corporate are slow moving along with high NPA risk, treasure

profits are now loosing importance hence Retail Banking is now an alternative available for the

banks for increasing their earnings. Retail Banking is an attractive market segment having a large

number of varied classes of customers. Retail Banking focuses on individual and small units.

Customize and wide ranging products are available. The risk is spread and the recovery is good.

Surplus deployable funds can be put into use by the banks. Products can be designed, developed

and marketed as per individual needs.

ADVANTAGES

Retail banking has inherent advantages outweighing certain disadvantages. Advantages are

analyzed from the resource angle and asset angle.

RESOURCE SIDE



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Retail deposits are stable and constitute core deposits.

They are interest insensitive and less bargaining for additional interest.

They constitute low cost funds for the banks.

Effective customer relationship management with the retail customers built a strong

customer base.

Retail banking increases the subsidiary business of the banks.

ASSETS SIDE

Retail banking results in better yield and improved bottom line for a bank.

Retail segment is a good avenue for funds deployment.

Consumer loans are presumed to be of lower risk and NPA perception.

Helps economic revival of the nation through increased production activity.

Improves lifestyle and fulfils aspirations of the people through affordable credit.

Innovative product development credit.

Retail banking involves minimum marketing efforts in a demand driven economy.

Diversified portfolio due to huge customer base enables bank to reduce their dependence on

few or single borrower

Banks can earn good profits by providing non fund based or fee based services without

deploying their funds.

DISADVANTAGES



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Designing own and new financial products is very costly and time consuming for the bank.

Customers now-a-days prefer net banking to branch banking. The banks that are slow in

introducing technology-based products, are finding it difficult to retain the customers who

wish to opt for net banking.

Customers are attracted towards other financial products like mutual funds etc.

Though banks are investing heavily in technology, they are not able to exploit the same to

the full extent.

A major disadvantage is monitoring and follows up of huge volume of loan accounts

inducing banks to spend heavily in human resource department.

Long term loans like housing loan due to its long repayment term in the absence of proper

follow-up, can become NPAs.

The volume of amount borrowed by a single customer is very low as compared to

wholesale banking. This does not allow banks to exploit the advantage of earning huge

profits from single customer as in case of wholesale banking.

FACTORS AFFECTING CUSTOMERS CHOICE

OF RETAIL BANKING

This paper attempts to analyze the factors that affect the choice of customers in

choosing the retail banks by the customers. The study involves a survey of 1000 bank customers

using questionnaire as the research instrument, augmented with informal interviews of thecustomers and also makes thorough use of the information available on the internet.

In the study, the authors have tried to identify various factors and also analyzed as to which

of these factors exert the greatest, moderate and relatively lower influence as choice criteria. It is an



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attempt to study the consumer behavior with respect to the peoples choice of retail banks. Efforts

are made to dwell deep in the psychology by talking to the customers surveyed, where ever

possible.

The 15 different factors that could be identified, approximately in the order of their

importance, are

Safety of Deposits.

Size and Strength.

Accuracy.

General Service Quality.

Speed of Delivery.

Proximity.

Security of Environment.

Cordiality of Staff.

Price and Service Charges.

Product Packaging.

General Public Impression.

Peer Group Impression.

Face Lift (Structural).

Friendship with Staff.

Advertisement and Publicity.

According to the findings, based on the empirical study, the first six factors exert the

greatest influence, next four have moderate importance, and the rest five have relatively lower

influence. Thus, retail banks must reorganize their activities to achieve their corporate mission

through customer orientation. In the competitive and capitalistic markets consumer is sovereign and

therefore the bankers must reengineer their view and recognize the predilection and tang of the

retail customers.



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STRATEGIES FOR INCREASING RETAIL

BANKING BUSINESS

Constant Product Innovation To Match The Requirements Of The

Customer Segments

The customer database available with the banks is the best source of their

demographic and financial information and can be used by the banks for targeting certain

customer segments for new or modified product. The banks should come out with new

products in the area of securities, mutual funds and insurance.

Quality Service And Quickness In Delivery



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As most of the banks are offering retail products of similar nature, the customers

can easily switchover to the one, which offers better service at comparatively lower costs.

The quality of service that banks offer and the experience that clients have, matter the most.

Hence, to retain the customers, banks have to come out with competitive products

satisfying the desires of the customers at the click of a button.

Introduction Of New Delivery Channels

Retail customers like to interface with their bank through multiple channels.

Therefore, banks should try to give high quality service across all service channels like

branches, Internet, ATMs, etc.

Detail Market Research

Banks may go for detail market research, which will help them in knowing what their

competitors are offering to their clients. This will enable them to have an edge over their

competitors and increase their share in retail banking pie by offering better products and

services.



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Cross-Selling Of Products

PSBs have an added advantage of having a wide network of branches, which gives

them an opportunity to sell third-party products through these branches.

Business Process Outsourcing

Outsourcing of requirements would not only save cost and time but would help the

banks in concentrating on the core business area. Banks can devote more time for

marketing, customer service and brand building. For example, Management of ATMs can

be outsourced. This will save the banks from dealing with the intricacies of technology.

Bank Have To Take Initiatives.

The growth in retail banking has been facilitated by growth in banking technology

and automation of banking processes to enable extension of reach and rationalization of

costs. ATMs have emerged as an alternative banking channels which facilitate low-

cost transactions vis--vis traditional branches / method

Documents

SHWETA Research Report on Impact of Reserve Bank Policies on Retail Banking