18636670 Retail Banking In India

RETAIL BANKING IN INDIA

SUMMER TRAINNING PROJECT REPORT

ON “RETAIL BANKING IN INDIA”

Submitted by:

SUNIL KUMAR Roll No.-0806770065 (MBA-2008-10)

In partial fulfillment of the requirement for MBA Degree Programme of Uttar Pradesh Technical University, Lucknow.

HINDUSTAN INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES, FARAH,MATHURA

Preface 1

RETAIL BANKING IN INDIA

After completing two semester of Master of Business Administration at Hindustan Institute of Management and Computer Studies, Mathura. I worked with Industrial Development Bank of India, Agra for my summer training project for 2 months where I was expected to report Mr. Deepak Mangal who was my project guide from the organization. The title of my project was Retail Banking in India. The Objective of the project was to study retail banking status in the country, its opportunities, challenges, and factors affect its growth.

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RETAIL BANKING IN INDIA

Table of Contents 1. Introduction-Industrial Development Bank of India 2. Retail Banking in India An introduction Origin and Regulation of Banking 3. Benefit & Scope of Retail Banking 4. Advantages & Disadvantages of Retail Banking 5. Opportunities and Challenges to Retail Banking in India 6. Strategies for increasing Retail Banking business in India 7. Emerging issues in retail banking 8. Growth drivers in retail banking 9. Boom in retail banking industry 10.Future of retail banking 11. Industrial Development Bank of India Retail banking products Performance 12.Conclusion

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RETAIL BANKING IN INDIA

Introduction-Industrial Development Bank of India Industrial Development Bank of India Limited is one of India’s largest banks. It has essayed a significant role in the country’s industrial and economic progress for over 40 years – first as a Development Financial Institution and now as a full-service commercial bank. Post the October 2004 merger of the erstwhile IDBI Bank with its parent company, IDBI is now a universal bank. The merger was aimed at consolidating business across the value chain and reaping the benefits of economics of scale , thus enabling it to offer an array of customer – friendly services to its existing and prospective clients , both within the geographical boundaries of India and, in due course ,abroad. The subsequent merger of erstwhile The United western Bank Limited with the Bank in October 2006 has significantly improved its reach and strengthened its customer and product portfolio. IDBI today rides on the back of a robust business strategy, a highly competent and dedicated workforce and a state-of-the-art information technology platform, to structure and deliver personalized and innovative banking services and customized financial solutions to its clients across convenient delivery channels. The bank currently boast of a balance sheet and business size (deposits plus advances of more than Rs. 1, 00,000 crore each and major Government shareholding (around 53%).

Evolution and Changing Role of IDBI Bank 4

RETAIL BANKING IN INDIA For over 40 years, IDBI Bank has essayed a key nation-building role, first as the apex Development Financial Institution in the realm of industry and now as a full-service commercial bank. As a development institution, the erstwhile IDBI stretched its canvas beyond mere project financing to cover an array of services that contributed towards balanced geographical spread of industries, development of identified backward areas, emergence of a new spirit of enterprise and evolution of a deep and vibrant capital markets. Today, IDBI, as a new generation universal Bank, touches the five of millions of Indians through an array of corporate, retail, SME and Agri products & services without diluting its secular development finance charter. 1964 - On july1, IDBI was established by an act of Parliament, as a wholly-owned subsidiary of reserve Bank of India, to catalyze the development of a diversified and efficient industrial structure in the country, in tune with national priorities. 1976 - 100% ownership was transferred from RBI to the Government of India. 1995 – Domestic reduced GOI’s stake, initially to 72% and post-capital restructuring, to 58.1%. The current GOI shareholding is around 53%. 2004 – On October 1, IDBI was converted into a banking company to undertake the entire gamut of banking activities while continuing to play its secular DFI role. 2005 – On April 2, IDBI merged its hitherto banking subsidiary with itself. However, the appointed date of merger was fixed as October 1, 2004. 2006 – On October 3, The United Western Bank ltd, a private sector bank was merged with IDBI. 2006 – IDBI announced its foray into Life Insurance business jointly with Federal Bank and Fortis Insurance International. A Memorandum of Understanding was signed by three partners on July 11, 2006 to this effect, followed by a joint venture agreement on November 23, 2006. 2006 – IDBI Gilts Ltd. Was incorporated as a wholly-owned subsidiary of

the bank on December 13, 2006 to undertake primary dealership business.

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RETAIL BANKING IN INDIA

VISION “To be the trusted the partner in progress by leveraging quality human capital and setting global standard of excellence to build the most valued financials conglomerate.”

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RETAIL BANKING IN INDIA

Management & Organization IDBI Bank is a Board-managed organization. The responsibility for the day-to-day management of operations of the Bank is vested with the Chairman & Managing Director and two Deputy Managing Directors, who draw upon the support and expertise of a cross-disciplinary Top Management Team. As on March 31, 2008, IDBI Bank had combined employee base of 8989 employees.

Board of DirectorsMr. Yogesh Agarwal, Chairman & Managing Director Mr. O.V. Bundellu, Deputy Managing Director Mr. G.C. Chaturvedi Mr. Ajay Shankar 7

RETAIL BANKING IN INDIA Mr. G.C. Chaturvedi Mr. Ajay Shankar Mr. K. Narasimha Murthy Mr. Hiralal Zutshi Mr. A. Sakthivel Mr. Subhash Tuli

Branch Network ○ 561 branches across the country. ○ 1000 ATMs. ○ 256 centers.

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RETAIL BANKING IN INDIA

Subsidiaries IDBI Gilts Limited

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RETAIL BANKING IN INDIA IDBI Gilts Ltd. was set up as a wholly owned subsidiary of IDBI Bank Ltd. to undertake Primary Dealership [PD] Business. In accordance with RBI guidelines, the PD business of IDBI Capital Market Services Ltd. [ICMS] has been de-linked and transferred to IDBI Gilts Ltd. The company was incorporated in December 2006 and became operational from July 24, 2007. The company's business ambit includes Bond trading, underwriting in auctions of primary issuance of Government dated securities and treasury bills. In addition, IDBI Gilts also plans to be a major player in the interest rate and credit derivative market.

IDBI Intech Limited IDBI Intech Ltd. is a wholly owned subsidiary of IDBI Bank Ltd. IDBI has set up IDBI Intech Ltd. (INTECH) in March 2000 to tap the opportunities arising from the IT sector. Intech capitalizes on the banking business knowledge acquired over the years supplemented with experience in Implementation & Management of state-of-the-art IT Infrastructure, Technology applications and Systems for one of the largest universal bank in India and uniquely positions itself, in the Information Technology Service Provider Space, to offer the IT-related products and services to the IDBI Group companies and the other organizations, focusing mainly on the BFSI sector. Intech operates in a multi-dimensional framework and provides IT related services in the area of Consultancy, System Integration, System implementation & support, Applications & Server hosting and other IT related managed services and specialized training.

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RETAIL BANKING IN INDIA IDBI Home Finance Limited IDBI Home finance Ltd. is 100% subsidiary of IDBI Bank Ltd. acquired the entire shareholding of Tata Finance Ltd. in Tata Home finance Ltd. in September 2003. The name of the company was changed to IDBI Home finance Ltd. Over the years, the company has taken steps to enhance its retail reach, strengthen brand image, improve asset quality, thereby achieving business growth finance Ltd. is 100% subsidiary of IDBI Bank Ltd. acquired the entire shareholding of Tata Finance Ltd. in Tata Home finance Ltd. in September 2003. The name of the company was changed to IDBI Home finance Ltd. Over the years, the company has taken steps to enhance its retail reach, strengthen brand image, improve asset quality, thereby achieving business growth

IDBI Capital Market Services Limited

IDBI Capital Market Services Ltd. (head quartered in Mumbai), is a leading provider of financial services and is a 100% subsidiary of IDBI Bank Ltd. The company was set up in 1993 with the objective of catering to specific financial requirements of financial institutions, banks, mutual funds and corporate houses. The company provides a complete range of financial products and services that includes: ○ ○ ○ ○ ○ ○ ○ ○

Stock Broking-Institutional and Retail Derivatives Trading Distribution of Mutual Funds Investment Banking PF/Pension Fund Management Retail Marketing of Bonds and IPOs Depository Services Research Services

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RETAIL BANKING IN INDIA Over the last 5 years, the company has been ranked amongst the leading players in each of these businesses. It has a strong agent network which caters to the investment needs of retail investors in instruments like IPOs, Bonds, etc. The company is a major player in the Equity and Derivatives market and a leading manager of Pension & Provident Funds in the country. The company has executed several mandates on the Issue Management and Corporate Advisory Services. The company offers an online investment portal idbipaisabuilder.in with advanced features and tools for an easy and informed investing experience in Equities, Mutual Funds and IPOs.

Retail Banking 12

RETAIL BANKING IN INDIA

DEFINITION:

“Retail banking is typical mass-market banking where individual customers use local branches of larger commercial banks. Services offered include: savings and checking accounts, mortgages, personal loans, debit cards, credit cards, and so” The Retail Banking environment today is changing fast. The changing customer demographics demands to create a differentiated application based on scalable technology, improved service and banking convenience. Higher penetration of technology and increase in global literacy levels has set up the expectations of the customer higher than never before. Increasing use of modern technology has further enhanced reach and accessibility. The market today gives us a challenge to provide multiple and innovative

contemporary

services

to

the

customer

through

a

consolidated window as so to ensure that the bank’s customer gets “Uniformity and Consistency” of service delivery across time and at every touch point across all channels. The pace of innovation is accelerating and security threat has become prime of all electronic transactions. High cost structure rendering mass-market servicing is prohibitively expensive. Present day tech-savvy bankers are now more looking at reduction in their operating costs by adopting scalable and secure technology thereby reducing the response time to their customers so as to improve their client base and economies of scale. The solution lies to market demands and challenges lies in innovation of new offering with minimum dependence on branches – a multi-channel 13

RETAIL BANKING IN INDIA bank and to eliminate the disadvantage of an inadequate branch network. Generation of leads to cross sell and creating additional revenues with utmost customer satisfaction has become focal point worldwide for the success of a Bank.

Retail Banking an Introduction

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RETAIL BANKING IN INDIA Retail banking is, however, quite broad in nature - it refers to the dealing of commercial banks with individual customers, both on liabilities and assets sides of the balance sheet. Fixed, current / savings accounts on the liabilities side; and mortgages, loans (e.g., personal, housing, auto, and educational) on the assets side, are the more important of the products offered by banks. Related ancillary services include credit cards, or depository services. Retail banking refers to provision of banking services to individuals and small business where the financial institutions are dealing with large number of low value transactions. This is in contrast to wholesale banking where the customers are large, often multinational companies, governments and government enterprise, and the financial institution deal in small numbers of high value transactions. The concept is not new to banks but is now viewed as an important and attractive market segment that offers opportunities for growth and profits. Retail banking and retail lending are often used as synonyms but in fact, the later is just the part of retail banking. In retail banking all the needs of individual customers are taken care of in a well-integrated manner.

Today’s retail banking sector is characterized by three basic characteristics: ○ Multiple products (deposits, credit cards, insurance, investments and securities) ○ Multiple channels of distribution (call center, branch, internet) ○

Multiple customer groups (consumer, small business, and corporate).

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RETAIL BANKING IN INDIA

Origin of Banking Banks are among the main participants of the financial system in India. Banking offers several facilities and opportunities.

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RETAIL BANKING IN INDIA Banks in India were started on the British pattern in the beginning of the 19th century. The first half of the 19th century, The East India Company established 3 banks The Bank of Bengal, The Bank of Bombay and The Bank of Madras. These three banks were known as Presidency Banks. In 1920 these three banks were amalgamated and The Imperial Bank of India was formed. In those days, all the banks were joint stock banks and a large number of them were small and weak. At the time of the 2nd world war about 1500 joint stock banks were operating in India out of which

1400

were

non-

scheduled

banks.

Bad

and

dishonest

management managed quiet a quiet a few of them and there were a number of bank failures. Hence the government had to step in and the Banking Company’s Act (subsequently named as the Banking Regulation Act) was enacted which led to the elimination of the weak banks that were not in a position to fulfil the various requirements of the Act. In order to strengthen their weak units and review public confidence in the banking system, a new section 45 was enacted in the Banking Regulation Act in the year 1960, empowering the Government of India to compulsory amalgamate weak units with the stronger ones on the recommendation of the RBI. Today banks are broadly classified into 2 groups namely— (a) Scheduled banks. (b) Non-Scheduled banks.

Benefits 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. 17

Retail Banking focuses on

RETAIL BANKING IN INDIA 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.

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. ○ India has 200 million households and 400 million middleclass population 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 Advantages Retail

banking

has

inherent

advantages

18

outweighing

certain

RETAIL BANKING IN INDIA disadvantages. Advantages are analyzed from the resource angle and asset angle. RESOURSE SIDE ○ 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. 19

RETAIL BANKING IN INDIA

DISADVANTAGES ○ 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 to exploit the advantage of earning huge profits from single customer as in case of wholesale banking.

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RETAIL BANKING IN INDIA

Opportunities in Retail Banking Retail banking has immense opportunities in a growing economy like India. As the growth story gets unfolded in India, retail banking is going to emerge a major driver. The rise of Indian middle class is an important contributory factor in this regard. The percentage of middle to high-income Indian households is expected to continue rising. The younger population not only wields increasing purchasing power, but as far as acquiring personal debt is 21

RETAIL BANKING IN INDIA concerned, they are perhaps more comfortable than previous generations. Improving consumer purchasing power, coupled with more liberal attitudes towards personal debt, is contributing to India’s retail banking segment. The combination of above factors promises substantial growth in retail sector, which at present is in the nascent stage. Due to bundling of services and delivery channels, the areas of potential conflicts of interest tend to increase in universal banks and financial conglomerates. Some of the key policy issues relevant to the retail-banking sector are: financial inclusion, responsible lending, and access to finance, long-term savings, financial capability, consumer protection, regulation and financial crime prevention.

Challenges to Retail Banking in India ○ The issue of money laundering is very important in retail banking. This compels all the banks to consider seriously all the documents which they accept while approving the loans. ○ The issue of outsourcing has become very important in recent past because various core activities such as hardware and software maintenance, entire ATM set up and operation (including cash, refilling) etc., are being outsourced by Indian banks.

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RETAIL BANKING IN INDIA ○ Banks are expected to take utmost care to retain the ongoing trust of the public. ○ Customer service should be at the end all in retail banking. Someone has rightly said, “It takes months to find a good customer but only seconds to lose one.” Thus, strategy of

Knowing Your

Customer (KYC) is important. So the banks are required to adopt innovative strategies to meet customer’s needs and requirements in terms of services/products etc. ○ The dependency on technology has brought IT departments’ additional responsibilities and challenges in managing, maintaining and optimizing the performance of retail banking networks. It is equally important that banks should maintain security to the advance level to keep the faith of the customer. ○ The efficiency of operations would provide the competitive edge for the success in retail banking in coming years. ○ The customer retention is of paramount important for the profitability if retail banking business, so banks need to retain their customer in order to increase the market share. ○ One of the crucial impediments for the growth of this sector is the acute shortage of manpower talent of this specific nature, a modern banking professional, for a modern banking sector. If all these challenges are faced by the banks with utmost care and deliberation, the retail banking is expected to play a very important role in coming years, as in case of other nations.

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RETAIL BANKING IN INDIA

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 24

RETAIL BANKING IN INDIA 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. ○ Tapping of unexploited potential and increasing the volume of business This will compensate for the thin margins. The Indian retail banking market still remains largely untapped giving a scope for growth to the banks and financial institutions. With changing psyche of Indian consumers, who are now comfortable with the idea of availing loans for their personal needs, banks have tremendous potential lying in this segment. Marketing departments of the banks be geared up and special training be imparted to them so that banks are successful in grabbing more and more of retail business in the market. ○ Infrastructure outsourcing This will help in lowering the cost of service channels combined with quality and quickness. ○ Detail market research Banks may go for detail market research, which will help them in

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RETAIL BANKING IN INDIA 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. ○ 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. ○ Tie-up arrangements PSBs with regional concentration can reap the benefit of reaching customers across the country by entering into strategic alliance with other such banks with intensive presence in other regions. In the present regime of falling interest and stiff competition, banks are aware that it is finally the retail banking which will enable them to hold the head above water. Hence, banks should make all out efforts to boost the retail banking by recognizing the needs of the customers. It is essential that banks would be imaginative in predicting the customers'

expectations

in

the

ever-changing

tastes

and

environments. It is the innovative and competitive products coupled

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RETAIL BANKING IN INDIA with high quality care for clients will only hold the key to success in this area. In short, bankers have to run very fast even to stay where they are now. It is the survival of the fastest now and not only survival of the fittest.

Special Features of Retail Credit One of the prominent features of Retail 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. 27

RETAIL BANKING IN INDIA

○ 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. ○ 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.

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RETAIL BANKING IN INDIA

Emerging Issues in Handling Retail Banking ○ KNOWING CUSTOMER ‘Know your Customer’ is a concept which is easier said than practiced. Banks face several hurdles in achieving this. In order to that the product lines are targeted at the right customers-present and prospective-it is imperative that an integrated view of customers is available to the banks. The benefits flowing out of cross-selling and up-selling will remain a far cry in the absence of this vital input. In this regard the customer databases available with most of the public sector banks, if not all, remain far from being enviable. What needs to be done is setting up of a robust data warehouse where from meaningful data on customers, their preferences, there spending patterns, etc. can be mined. 29

RETAIL BANKING IN INDIA Cleansing of existing data is the first step in this direction. PSBs have a long way to go in this regard. ○ TECHNOLOGY ISSUES Retail banking calls for huge investments in technology. Whether it is setting up of a Customer Relationship Management System or Establishing Loan Process Automation or providing anytime, anywhere convenience to the vast number of customers or establishing channel/product/customer profitability, technology plays a pivotal role. And it is a long haul. The Issues involved include adoption of the right technology at the right time and at the same time ensuring volumes and margins to sustain the investments. It is pertinent to remember that Citibank, known for its deployment of technology, took nearly a decade to make profits in credit cards. It has also to be added in the same breath that without adequate technology support, it would be well nigh possible to administer the growing retail portfolio without allowing its health to deteriorate. Further, the key to reduction in transaction costs simultaneously with increase in ability to handle huge volumes of business lies only in technology adoption. PSBs are on their way to catch up with the technology much required for the success of retail banking efforts. Lack of connectivity, stand alone models, concept of branch customer as against bank customer, lack of convergence amongst available channels, absence of customer profiling, lack of proper decision support systems, etc., are a few deficiencies that are being overcome in a great way. However, the initiatives in this regard should include creating flexible computing architecture amenable

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RETAIL BANKING IN INDIA to changes and having scalability, a futuristic approach, networking across channels, development of a strong Customer Information Systems (CIS) and adopting Customer Relationship Management (CRM) models for getting a 360 degree view of the customer.

○ ORGANIZATIONAL ALIGNMENT It is of utmost importance that the culture and practices of an institution support its stated goals. Having decided to take a plunge into retail banking, banks need to have a well defined business strategy based on the competitive of the bank and its potential. Creation of a proper organization structure and business operating models which would facilitate easy work flow are the needs of the hour. The need for building the organizational capacity needed to achieve the desired results cannot be overstated. This would mean a strong commitment at all levels, intensive training of the rank and file, putting in place a proper incentive scheme, etc. As a part of organizational alignment, there is also the need for setting up of an effective Corporate Marketing Division. Most of the public sector banks have only publicity departments and not marketing setup. A fully fledged marketing department or division would help in evolving a brand strategy, address the issue of alienation from the upwardly mobile, high net worth customer group and improve the recall value of the institution and its products by arresting the trend of getting receded from public memory. The much needed tie-ups with manufacturers/distributors/builders will also facilitated smoothly. It is time to break the myth PSBs are not customer friendly. The

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RETAIL BANKING IN INDIA attention is to be diverted to vast databases of customers lying with the PSBs till unexploited for marketing. ○ PRODUCT INNOVATION Product innovation continues to be yet another major challenge. Even though bank after bank is coming out with new products, not all are successful. What is of crucial importance is the need to understand the difference between novelty and innovation? Peter Drucker in his path breaking book: “Management Challenges for the 21st Century” has in fact sounded a word of caution: “innovation that is not in tune with the strategic realities will not work; confusing novelty with innovation (should be avoided), test of innovation is that it creates value; novelty creates only amusement”. The days of selling the products available in the shelves are gone. Banks need to innovate products suiting the needs and requirements of different types of customers. Revisiting the features of the existing products to continue to keep them on demand should not also be lost sight of. ○ PRICING OF PRODUCT The next challenge is to have appropriate policies in place. The industry today is witnessing a price war, with each bank wanting to have a larger slice of the cake that is the market, without much of a scientific study into the cost of funds involved, margins, etc. The strategy of each player in the market seems to be: ‘under cutting others and wooing the clients of others’. Most of the banks that use rating models for determining the health of the retail portfolio do not use them for pricing the products. The much needed transparency in pricing is also missing, with many hidden charges.

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RETAIL BANKING IN INDIA There is a tendency, at least on the part of few to camouflage the price. The situation cannot remain his way for long. This will be one issue that will be gaining importance in the near future. ○ PROCESS CHANGES Business Process Re-engineering is yet another key requirement for banks to handle the growing retail portfolio. Simplified processes and aligning them around delivery of customer service impinging on reducing customer touch-points are of essence. A realization has to drawn that automating the inefficiencies will not help anyone and continuing the old processes with new technology would only make the organization an old expensive one. Work flow and document management will be integral part of process changes. The documentation issues have to remain simple both in terms of documents to be submitted by the customer at the time of loan application and those to be executed upon sanction. ○ ISSUE CONCERNING HUMAN RESOURCES While technology and product innovation are vital , the soft issues concerning the human capital of the banks are more vital. The corporate initiatives need to focus on bringing around a frontline revolution. Though the changes envisaged are seen at the frontline, the initiatives have to really come from the ‘back end’. The top management of banks must be seen as practicing what preaches. The initiatives should aim at improved delivery time and methods of approach. There is an imperative need to create a perception that the banks are market-oriented. This would mean a lot of proactive steps on the part of bank management which would include empowering staff at various

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RETAIL BANKING IN INDIA levels, devising appropriate tools for performance measurement bringing about a transformation – ‘can’t do ‘to’ can do’ mind-set change from restrictive practices to total flexible work place, say. By having universal tellers, bringing in managerial controlling work place, provision of intensive training on products and processes, emphasizing, coaching etiquette, good manners and best behavioural models, formulating objective appraisals, bringing in transparency, putting in place good and acceptable reward and punishment system, facilitating the placement of young /youthful staff in front-line defining a new role for front-line staff by projecting them as sellers of products rather than clerks at work and changing the image of the banks from a transaction provider to a solution provider. ○ RURAL ORIENTATION As of now, action that is taking place on the retail front is by and large confined two metros and cities. There is still a vast market available in rural India, which remains to be trapped. Multinational Corporations, as manufacturers and distributors, have already taken the lead in showing the way by coming out with exquisite products, packaging and promotions, keeping the rural customer in mind. Washing powders and shampoos in Re.1 sachet made available through an efficient network and testimony to the determination of the MNCs to penetrate the rural market. In this scenario, banks cannot lack behind. In particular PSBs, which have a strong rural presence, need to address the needs of rural customers in a big way. These and only these will propel retail growth that is envisaged as a key strategy for portfolio expansion by most of the banks.

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RETAIL BANKING IN INDIA

Some Critical Issues ○

CUSTOMER SERVICE Customer service is perhaps the most important dimension of retail banking. While most public sector banks offer the same range of service with similar technology/expertise, the level of customer service matters the most in bringing in more business. Perhaps more than the efficiency of service, the approach and attitude towards customers will make the difference. Front line staffs have to be educated in this regard. A scheme of entrusting a group of important customers to the care of each employee/officer with a person to person knowledge and intimacy can be implemented all sundry advices/notices such as Dr. /Cr. advices. TDR maturity advices, etc. whether signed by employees or officers should be identifiable by the name of those signing, and inviting customers to contact them for further assistance in the 35

RETAIL BANKING IN INDIA matter. A customer centered organization has to be built up, whose ultimate goal is to "own" a customer. Focused merchandizing through effective market segmentation is the need of the hour. A first step can be the organization of the various retail branches to enter for different market segments like up market individuals, traders, common customers, etc.. For the SIB (Small Industry and Business) sector banks, the focus should be on identifying efficient units and allocations of loans lo these units. These banks should try Merchant Banking services en a small scale. With agricultural output growing at a fast rate and mechanization setting in, banks should try to cater to the credit needs of the people involved in this profession. A wide network is absolutely imperative for this sector. Separate branches/divisions should be opened for traders and similar government businesses. Special facilities for cash tendered in bulk and immediate issue of drafts, by extending facilities like "guarantee bond" system, will go a long way in mitigating problems faced by traders who are the major customers for drafts issue. Provision for cash counting machines in these branches will reduce the monotony of cashiers and unnecessary delays, thus resulting in better productivity and ultimately in improved customer service. The personal segment is however the most important one. With the urban segment moving away because of disintermediation and competition from foreign banks, retail banks should focus en the rural/semi-urban areas that hold the maximum potential. Innovative schemes like "paper-gold" schemes can be introduced. In the

36

RETAIL BANKING IN INDIA urban areas, private banking to affluent customers can be introduced, through which advisory and execution services could be provided for a fee. Foreign currency denominated accounts can also be introduced for them. Nationalized banks compare very poorly with the foreign banks when it comes to the efficiency in services. In order to improve the speed of service the bank should.  Improve the rapport between the controlling offices and the branches to ensure that decisions arc communicated fast. 

Make sure that the officials as well as the staff are fully aware of the rules so that processing is faster.

○

TECHNOLOGY In the current scenario, the importance of technology cannot be understated for retail banks which entail large volumes, large queues and paperwork. But most of the banks are burdened with a large staff strength which cannot be done away with. Besides, in the rural and semi-urban areas, customers will not be at home in an automated, impersonal environment. The objective would be to ensure faster and easier customer service and more usable information, instantly, economically and easily to all those who need it -customers as well as employees. Proper management information systems can also be implemented to aid in superior decision making. Communication technology is especially needed for money transfer between the same city and also between cities. There are inordinate delays in India because of geographical and other factors. Modem technology can make it possible to clear any check anywhere in India within three days. Installation of FAX facilities at all the big branches will facilitate speedy transfer of 37

RETAIL BANKING IN INDIA payment advices. Computerization will be of great help in improving back-office operations. At present, 60% of India's rural branches can have PCs. These can be used for quick retrieval and report generation. This will also drastically reduce the time bank staffs spend in filling and filing returns. Housekeeping operations can also be speeded up. ○

PRICE BUNDLING Price bundling is a selling arrangement where several different products are explicitly marketed together to a price that is dependent on the offer. As banks are multi-product firms this strategy is more applicable to retail banking. Price bundling offers several economic and strategic benefits to a bank. It offers economies of, utilization of the existing capacities and reaching wider population of customers. Bank can get the benefits of information and transacting. In the process of extending variety of services, banks are acquiring enormous amount of customer information. If this information is systematically stored, banks can efficiently utilize this information in order to explore new segments and to cross-sell new services to these segments. Cross-selling opportunities and larger customer base can also be the motive for merger against usually stated advantage of cost savings. Price bundling can be used in order to lengthen the relationship with a customer. It will reduce the need of resources to be put on acquiring new customers and saves time of the bank. Among the strategic benefits, price bundling may cause less aggressive competition; it differentiates its products compared to rivals in the same market where the products are sold individually or in other kinds of bundles. Retail banking offers many services and it gives an opportunity to 38

RETAIL BANKING IN INDIA the bank to combine different services in different kinds of bundles. In many cases demand for one service affects the demand for another service, for example current or savings account and payment services are highly related, and here price bundling is a better alternative than individual selling. Banks have to analyze the customer segment and bundle products before applying the pricing strategies. The first step in price bundling decision is to select the customer segment. The bundle is targeted to choose a strategic objective. If there are two products (A and B) that are considered to be bundled together, the comprehensive strategic objectives for the different customer segments are: • Cross-selling to customers that only buy one of the products. • Retaining customers that already buy both of the products. • Acquiring new customers when they buy neither product for the time being. ○

INNOVATION The scope for innovation in financial services is unlimited. Although banks have introduced a variety of deposit and loan products, the basic features of all these products are almost one and the same. Among the delivery channels, ATMs have emerged as ubiquitous money centers. Almost all banks have established their ATMs. India had only 400 ATMs, which increased to 3,600. Out of this 881 ATMs have Swadhan connectivity. It is projected that the number of ATMs will reach up to 35,000 by the end of. The question arises is, are they cash cows? The answer is certainly no. For most of the banks the overhead costs on these ATMs are far higher than the revenue generated by them. ATM operation costs

39

RETAIL BANKING IN INDIA are largely fixed in nature - the cost of the machine, its maintenance, replenishment of currency, and the satellite (network) connection. There should be a minimum number of transactions to cover these costs. Banks have to innovate wide range of services in addition to cash withdrawals. ATMs should allow customers to buy postal and revenue stamps, payment of bills, event tickets, sports tickets, etc. Banks can offer ATM screens for slide show advertising also. However, the advantage of the ATM has always been speed and convenience, probably on introduction of these new services customer has to spend more time at a point. ATMs can guide the customer also. For example, if a customer's account balance has reached to bare minimum the ATM can give a helpful suggestion that "we notice your balance is low, can we help with a loan?" ATMs can be either within the premises of a branch or at a remote place. On premises ATMs are highly immune to competition, but branches can reduce the staff, on installation of ATM. The scope for wider services through offpremises ATMs is very high; it provides great opportunity for fee revenue. The cost of maintenance of off-premises ATMs is higher in terms of replenishment, cash couriers, armed security etc. In the US, approximately 23 percent of ATMs are offering sale of postage stamps. It is the right time for banks to question themselves whether ATM is a service channel, sales channel, or branding opportunity. The future of retail banking lies more in mobile banking. Mobile telephone market is penetrating, and mobile phones are ideal to utilize Internet banking services without customer accesses to PC. By a tacit acceptance India has around three million mobile phone users and this number is expected to reach to eight million by

40

RETAIL BANKING IN INDIA 2003. Smart card revolution will further change the face of retail banking. Smart cards can store information; carry out local processing on the data stored and can perform complex calculations. At present, India has around 3.4 million smart card users and it is estimated that by the end of 2004 it will reach 14.7 million.

Drivers of Retail Banking in India MACRO-ECONOMIC FACTORS

○

Shift in the pattern of GDP from hitherto agriculture and manufacturing sectors to services sector with increase per capita income especially that of the younger generation. [India's industrial sector accounted for about 21.8% of GDP, where as the services sector accounted for around 56.1 of GDP in 2002-03 as per revised estimates released by Central. Statistical Organization].

○

The lower uptake in the non-retail sector has compelled bans to shift their focus on retail assets - specially housing finance- for deployment of funds for a longer period, which is considered as the safest within the retail portfolio. Housing loans and other retail loans are comparatively high yielding in terms of interest spread and safer, as risk is diversified among a large number of individuals across the geographic dimensions. The sector enjoys a privilege of lowest NPAs amongst all categories of banks.

○

Depressed stock and real estate markets as compared to those 41

RETAIL BANKING IN INDIA prevailing in 1992-93 to 1995-96 thereby diverting deposits to the banking sectors. ○

Comparatively stable real estate prices during last 4/5 years have laid to spurt in demand for housing loans.

○ Inflation continued to be under control. ○

Keenness

shown

by

the

consumer

goods/

automobile

manufacturers to -push up finance schemes through market tie-up with banks with a view to increasing their marketing share.

DEMOGRAPHIC / BEHAVIORAL FACTORS

○

Growing concept of nuclear families than the joint families necessitating need for housing units as well as other items of consumer durables.

○

Increased number of dual income families resulting in higher income and savings.

○

Increased demand for dwelling units due to gradual shift of population from rural/semi-urban centre to urban/metro centre for employment.

○

Shift in the attitude of the Indian household from "save and buy' theory to a `buy and repay' principle.

○ Increased middle-income segment and their income levels. ○

Emergence of new sectors such as Information Technology, media, etc. In the economy that resulted in higher income opportunities and major impact on change in urban consumption pattern.

○

Awareness

and

sophistication

in

urban

and

semi-urban

households for urban convenience. Social security and status 42

RETAIL BANKING IN INDIA have also contributed to higher demand for housing units, cars, etc.

Boom in Retail Banking 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.

○

High-Tech Banking ATMs - With growing technological innovations, banks have significantly expanded their ATM network over the past three years. According to the RBI data as of end-June 2008, the number of ATMs in the country had climbed to 36,314 compared to 27,088 and 20,267 as at end-March 2007 and 2006, respectively.

○

Loan disbursement Technology has facilitated the growth in retail loan disbursements, making the whole process simpler and faster. The sector has

43

RETAIL BANKING IN INDIA delivered a growth of around 30 per cent per year over the past 45 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). ○

Plastic Money Credit cards have also played an important role in promoting retail banking. The use of credit cards has been growing significantly over the last few years. The number of credit cards outstanding at the end- June 2008 stood at 27.02 million as against 24.39 million in June 2007, with usage increasing by 10.73 per cent during this period.

○

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.

○

Future Outlook Indian retail banking, according to a report, is likely to grow at a CAGR of 28 per cent till 2010 to Rs 97,00 billion. So, although the revolution in retail banking has changed the face of the Indian banking industry as a whole, it has still miles to go.

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RETAIL BANKING IN INDIA ○ The reasons for this shift to retail, particularly the housing finance segment, are many. The important among these include—

○ The poor credit off take to the corporate, commercial and other business sector because of industrial slowdown. ○ Risky nature of lending to corporate, given in industry recession and uncertainty prevalent in the economy. ○ High disintermediation pressure, leading many highly rated corporates to tap the domestic and/or overseas markets directly for finance, rather than approaching the banks. ○ Relatively safe nature of some of the retail credit finance with lesser incidence of loan turning bad. ○ Rising disposable income, changing lifestyles/aspirations and willingness to spend for more luxuries of the higher middle class. ○ Better availability of loans, because of the consultancy lowering interest rates, as a result of the low interest regime followed by the regulating authorities, the housing loans interest rates hailed to almost 7.5 – 8% in last 5 years. ○ Increased government incentives in form of tax rebates etc. in the case of certain loans like housing loans. ○

Banks are aware with abundant reserve requirement by RBI; they are searching revenues for packing the surplus funds.

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RETAIL BANKING IN INDIA

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 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.

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RETAIL BANKING IN INDIA

Retail Banking Products of the IDBI Bank Deposits-Saving accounts

Super Saving Account The Super Savings Account is a complete financial package that provides easy access to customer’s money and complete banking convenience too. It offers a whole range of options for optimal management of the money. Which means, with Super Savings Account not only save the money but also make it grow. Apart from the basic benefits of a savings account, It offers options for faster transfer of funds, options to pay your bills or tax online and options to grow money at attractive interest rates in the savings account. All these features are offered for a minimum balance of Rs 5,000.

Powerkids Saving Account

With the growing focus on the Kids segment and its requirements, IDBI Bank realized the importance of introducing a product specifically catering to this market. Now a days, parents start saving money for their children right from the day they are born and by supporting this thought IDBI has designed the “POWERKIDZ” account, cut for the needs of children. It is a piggy bank for the Kids that will not just keep their money safe but provide an interest on the same, allow them to take out money when required, make smart purchases by way of exclusive debit card, teach 47

RETAIL BANKING IN INDIA them to operate their account in a better and convenient way and also advise them from time to time about better investment options. Kids at a young age can start saving the amount received from parents/guardian into these account which will not just inculcate the habit of saving but also act as an instrument in guiding them into financial sector. Coupled with various training programs and with insight to various other products children can make better investment decisions in future. They can even have the benefit by availing education loan from IDBI bank at a competitive interest rate for funding their higher education in India and Overseas.

Roaming Current Accounts IDBI Bank offers five Roaming Current Accounts – Basic, Special, Bronze, Silver and Gold to suit your business needs. Based on the balance, choosed to maintain in the account, for specific Roaming Current Account accordingly. Roaming Current Account from IDBI Bank comes packed with a host of services and facilities that makes the banking convenient and hasslefree. With services such as multi-city and multi-branch banking, electronic funds transfers, national clearing in selected cities, 24x7 cash withdrawals from ATMs, Internet Banking, Phone Banking and SMS Banking, customers are assured of faster remittances and collection of funds at competitive rates. What’s more, extended IDBI Banking hours and Sunday Banking, all this to simplify banking for you. Features ➢ Make payments to your vendors in different cities without any costs ➢ Receive payments from your customers without any charge deducted from the amount ➢ Do all your banking right from where you are or wherever you travel ➢ Most importantly, maintain better relations with your vendors and customers.

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RETAIL BANKING IN INDIA

Suvidha Fixed Deposits IDBI Bank Suvidha Fixed Deposits have always stood for safety, credibility and attractive rates of interest. Its interest rates are among the highest in the industry that provides the benefit of high rates of return on your savings. These deposits have been further packed with the following features: ➢ Anytime access to the deposits. ➢ Deposits across tenures of 15 days to 10 years. ➢ Various Options to choose accordingly. Range of Suvidha Fixed Deposits ➢ Monthly Quarterly Income Plans-For those who seek regular incomes. ➢ Quarterly Compounding Fixed Deposit-Ideal for those who want a higher rate of return combined with a low risk Fixed Deposit. ➢ Recurring Deposit-Ideal for those who want to save a fixed sum every month. ➢ Sweep in Savings-Earn fixed deposit rate on your savings account. ➢ Overdraft against Fixed Deposit-Tide over your urgent cash requirements without breaking your fixed deposits. ➢ Senior Citizens Fixed Deposits-Earn higher rates Suvidha Tax Saving Tax Fixed Deposit IDBI Suvidha Tax-Saving Fixed Deposit which gives dual benefits of tax exemption u/s 80c of the Income Tax Act and higher returns on your investments with interest rates at 8.5%* p.a. for regular deposits and 9% p.a. for Senior Citizens. Other benefits: ➢ ➢ ➢ ➢

Zero Balance Savings Account Free local Cheque Book International ATM-cum-Debit Card Free Internet Banking facilities.

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RETAIL BANKING IN INDIA

Super Shakti Account for Women IDBI Bank’s Savings Account for Women, along with this account one Zero Balance Savings Account is offered absolutely free for her child below the age of eighteen years. The Account offers a host of features, which include: ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢

Free Transactions at other Bank ATMs. An account opening balance of just Rs.1000 An AQB requirement of Rs. 5000. A Zero balance account for your child below the age of 18 years. Debit Card Free for the first year. A free Personalized/Customized PAP Cheque Book. Quarterly Account Statement Free Demand Draft at Home Branch Free Payorder for payment of School/colleges fees and remitting funds to their parents. Phone Banking Mobile Banking Free Statement by e-mail Demat Account at just Rs.200. Locker services at a concessional rate Investment advisory services. Free local personalized Cheque Book

Jublee Plus Saving Account IDBI has brought to the senior citizens an account which can facilitate banking transactions with hosts of facilities catering to the needs of the customer. This is deal in which customer cannot just save the money but also make it grow. Also get the benefit of getting another account with an AQB of Rs. 1,000.

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RETAIL BANKING IN INDIA ➢ An account with a balance of just Rs. 5,000 (Category A branches) Rs. 2,500 (Category B branches) and Rs. 1,000 (Category C branches) ➢ Free Sponsor’s account with AQB of Rs 1000 with the senior citizen account. ➢ Tax Savings options viz: Fixed Deposit ➢ Relationship Manager to guide about investments. ➢ Exposure to TPD products. ➢ Provide them with various investment options. ➢ Free debit card ➢ Free Personalized / Customized local Cheque Book. ➢ Free PAP cheque book ➢ Higher limit on PAP facility ➢ Higher limit on ATM withdrawal ➢ Free monthly statement of account. ➢ Free Demand Draft at home branch and Free Pay order ➢ Free OCC on non branch location ➢ Phone Banking ➢ Mobile Banking ➢ Free Statement by email ➢ Locker services at a concessional rate ➢ Auto Sweep out/sweep in facility

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RETAIL BANKING IN INDIA

Retail Loan-Home Loans IDBI provides Home Loans for constructing a home, purchasing a ready built house/flat, residential plot and even for re-financing existing loans. Advantages of IDBI Ultra Flexible Home Loans ○ ○ ○ ○ ○ ○ ○ ○ ○

Maximum Funding Flexibility of choosing between Floating or Fixed interest rate Attractive rate of interest EMI on daily reducing balance Personalized doorstep service Simple documentation Legal and technical assistance Balance transfer facility Reassessment and adjustment of applicant's loan eligibility in case of change of income and residence status.

Loan against Property IDBI Bank provides loan against property which can be used for:

○ ○ ○ ○ ○

Education Business Marriage Purchase or improvement of property Medical treatment or any other personal need

Advantages ○ ○ ○ ○ ○ ○

Tenor up to 15 years Attractive Rate of Interest Maximum Funding Interest rate on daily reducing balance Fixed and floating interest rate options Simple documentations 52

RETAIL BANKING IN INDIA Personalized doorstep services ○ Free legal and technical assistance ○

Education Loan

Education loans from IDBI Bank aim at providing financial support to deserving/ meritorious students for pursuing higher education in India and abroad. With an array of courses to choose from and easy repayment options, IDBI Bank makes sure complete financial backing.

Personal Loan

Personal Loans from IDBI comes with an insurance cover. This means when times are tough, customer'll have an insurance cover to take care of the EMI's. ➢ In case of death or disability due to an accident, the principle outstandings will be paid by the insurance company. ➢ In case of loss of job, the insurance company will pay the EMIs for up to 3 months

Loan Against Security Exigencies in life could crop up at the most unexpected time. As an investor one would have invested in Securities with a long-term perspective in mind but are left with no other option than sell the Securities to meet your urgent financial requirements. IDBI offers Loan against Securities, which provides liquidity to the Securities without having to sell them. Loan Against Securities is provided in the form of an overdraft facility Against Securities. It helps to meet the exigencies in life, giving an easy and flexible access to short-term funds without the need to sell your Securities. 53

RETAIL BANKING IN INDIA A pledge is created in favour of the Bank and the Drawing Power (DP) is calculated based on the applicable margins set by the Bank. Facility will be renewed after every 12 months depending on the performance of the account. What makes it more attractive is that customer pay only on the amount utilized.

Reverse Mortgage Loan Senior Citizens are an imperial component of the Indian society. There is significant increase in cost of good health care facilities along with little social security. Senior Citizens require a regular cash flow stream for supplementing pension/other income and addressing their financial needs. Reverse Mortgage seeks to monetize the house as an asset and specifically the owner’s equity in the house. The scheme involves the Senior Citizen borrower(s) mortgaging the house property to IDBI, in return of periodic payments to the borrower(s) during the latter’s lifetime to help them in sustaining themselves. It has following advantages: ➢ ➢ ➢ ➢ ➢ ➢

Maximum Funding Services at doorstep Simple documentation Personalized services Free legal and technical assistance Attractive rate of inter

Consumer Durable Loan Loan scheme to finance purchase of consumer durables such as Television, Electronic Audio System, ACs, Lap Top/ PCs including accessories, Multi Media Kits, Generators, Hand Video Camera and 54

RETAIL BANKING IN INDIA furniture articles to an individual salaried or businessmen for the use of their residential / business premises.

Cards-Gold Debit-cum- ATM The Gold Debit-cum-ATM Card, not only provide withdrawal of cash and make purchases through the card, but also avail of a host of services and facilities that make banking simple and enjoyable. Benefits Petrol surcharge waiver: Currently, there is a surcharge of 2.5% at all petrol pump transactions. This petrol surcharge will be waived off for transactions carried out on the Gold Debit-cum-ATM Card. Insurance cover: It provide insurance cover for lost/stolen cards Daily Limits: You can withdraw cash upto Rs. 75,000/- and make purchases worth Rs. 75,000/- in a day. Discounts at Merchant Establishments: IDBI Bank in association with VISA and MasterCard has tied up with various merchant establishments. You can avail of attractive discounts at these merchant establishments by making purchases through the Gold Debit Card.

IDBI Bank International Debit-cum-ATM Card This card enables access Customer’s IDBI Bank account from anywhere in the world, anytime of the day or night. It not only lets you withdraw money from any of bank’s ATMs (Automated Teller Machines) and associated bank’s ATMs, but also empowers you to shop, dine and travel without the worry of carrying cash with you all the time.

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RETAIL BANKING IN INDIA Benefits of IDBI Bank International Debit-cum-ATM Card

○ Enjoy the following benefits with the IDBI Bank International Debitcum-ATM Card ○ Loyalty points with great rewards ○ Enhanced access to over 10 lakh VISA & MasterCard ATMs worldwide and 14 million VISA merchant establishments & 26 million MasterCard merchant establishments worldwide. ○ Promotional programmers with exciting prizes ○ Zero lost card liability insurance

Payments-Electronic Bill Payment The Electronic Bill Payment facility from IDBI cuts out the hassles of going through each month for paying bills. This bill payment service gives you the flexibility of viewing and paying bills online. All is needed to enter your billing details in our Internet Banking, and, then start paying utility bills, insurance premiums, etc, month on month, absolutely hassle-free. The Electronic Bill Payment contains: Electronic Bill Presentment and Payment: This feature allows viewing and paying off all your bills online. Electronic Bill Payment. This feature allows paying off all those bills appearing physically.

Tax Payment Through IDBI simple tax payment service, taxes can be paid, sitting from the comfort of your home or office in any of the following ways: 1. Direct Taxes Online 2. Central Excise Duty and Service Tax Online 3. Payment at our branches56

RETAIL BANKING IN INDIA ○ Direct Taxes ○ Indirect Taxes ○ State Tax

Online Payment Services The Internet Banking facility at IDBI Bank offers online payment facility linked to merchant websites / e-shops serving as a payment gateway. The Bank offers this facility to any agency requiring online payment services such as online shopping malls, online share trading agency, AMCs selling mutual funds online.

Insurance-Wealthsurance Wealthsurance is a first of its kind combination of comprehensive investment choices, protected by powerful insurance options, all presented with a reasonable charge structure, making it a one stop solution to a customer’s wealth building plans. Wealthsurance offers investment choices such as Guaranteed Return Fund, Equity Funds, and Debt Funds etc. ensuring that the customer would find all his investment requirements satisfied with this one powerful product. The powerful insurance benefits of Wealthsurance ensure that a customer’s wealth plan is not affected by unforeseen events that may strike them. The guiding philosophy behind this product is that wealth will grow better with a protective cover. So, while one’s wealth stays invested, the insurance benefits ensure that life’s uncertainties such as death, terminal illness, 17 major diseases, sickness requiring hospitalization or serious accidental injuries, do not disturb its growth. Wealthsurance is thus designed to also give living benefits to ensure one’s well-being in their lifetime. Customers can opt for a ready plan or build their own plan by

57

RETAIL BANKING IN INDIA choosing their own sum assured investment plan, affordable premium, policy term and the type of insurance cover.

Family Care

The Family Care Policy is a complete health insurance plan that covers insurer, his/her spouse and two dependent children up to the age of 25 years. It enables customer to access the best medical treatment in case of a sudden illness, accidents or an emergency surgery, without any hassles. The Family Care policy covers the hospitalization expenses as a result of any illness and accident. Unlike any other regular policy, wherein a family has to take individual policies for each member, this unique family floater policy gives you the flexibility of taking one policy that covers the entire family under a single sum insured.

Internet Banking In today's digital world, Internet banking assumes a special significance. Realizing that the default access to the banking information in the near future would be only through the Internet, IDBI Bank has made available to a globally benchmarked Internet Banking facility. With IDBI's Internet Banking, your Bank travels with you around the world and you have on-line, real-time access to your accounts.

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RETAIL BANKING IN INDIA

Phone Banking IDBI Bank Phone Banking service enables customers to access authentic, instantaneous information of account balances and transactions. The service is available totally free of cost round the clock, 365 days a year.

SMS Banking Features of SMS Banking ○ ○ ○ ○ ○ ○ ○ ○

Balance enquiry Last three transaction Cheque payment status Cheque book Statement request Demat - free balance holding Demat - last two transactions Bill payment

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RETAIL BANKING IN INDIA

Performance of the IDBI Bank

Profitability: IDBI reported a net profit of Rs.314 crore for the quarter and Rs.859 crore for the year ended March 31, 2009, as against Rs.245 crore and Rs.729 crore in the corresponding quarter and year ended March 31, 2008. This amounts to an increase in net profit by 17.7% for the year and 28.2% for the quarter, compared to corresponding period of last year. Net Interest Income (NII) for the quarter ended March 31, 2009 stood at Rs.481 crore as against Rs.241 crore in the corresponding quarter of the previous year, recording a growth of 100%. NII for the year ended March 31, 2009, stood at Rs.1326 crore as against Rs.676 crore in the previous year, recording a growth of 96%.

Fee based income during the year has shown considerable improvement to Rs.901 Crore as against Rs.504 Crore in the previous year, recording a growth of 79%.

Business: As of March 31, 2009, IDBI’s total business (deposits and advances) stood at Rs.215829 crore as against Rs.155211 crore as of March 31, 2008, registering a growth of 39%.

Deposits increased to Rs.112401 Crore at end-March 2009 from Rs.72998 crore at end-March 2008, with a robust growth of 54%.

Advances also increased by 26% to Rs.103428 crore, as compared to Rs. 82213 crore as at end- March 2008.

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RETAIL BANKING IN INDIA As of March 31, 2009, aggregate assets stood at Rs.172402 crore as against Rs.130694 crore as on March 31, 2008, registering a growth of 32%.

Gross NPAs reduced to Rs.1436 Crore (1.38%) from Rs.1565 Crore (1.87%) in the previous year, despite slowdown in economy.

Net NPAs reduced to Rs.949 Crore (0.92%) from Rs.1083 Crore (1.30%) in the previous year.

CAR: IDBI continued to maintain a sound capital base as indicated by its Capital Adequacy Ratio (CAR). As against the stipulated RBI norm of 9%, the Bank's CAR (post dividend) stood at 11.57% (Tier-I: 6.81%) as of March 31, 2009.

Conclusion 61

RETAIL BANKING IN INDIA Retail banking is the fastest growing sector of the banking industry with the key success by attending directly the needs of the end customers is having glorious future in coming years. Retail banking sector as a whole is facing a lot of competition ever since financial sector reforms were started in the country. Walk-in business is a thing of past and banks are now on their toes to capture business. Banks therefore, are now competing for increasing their retail business. There is a need for constant innovation in retail banking. This requires product development and differentiation, micro-planning, marketing, prudent pricing, customization, technological up gradation, home / electronic / mobile banking, effective risk management and asset liability management techniques. While retail banking offers phenomenal opportunities for growth, the challenges are equally discouraging. How far the retail banking is able to lead growth of banking industry in future would depend upon the capacity building of banks to meet the challenges and make use of opportunities profitably. However, the kind of technology used and the efficiency of operations would provide the much needed competitive edge for success in retail banking business. Furthermore, in all these customer interest is of chief importance. The banking sector in India is representing this and I do hope they would continue to succeed in this traded path.

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RETAIL BANKING IN INDIA

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