Retail Banking

RETAIL BANKING

Introduction The banking sector has under gone turbulent changes in the past few years. The financial sector reforms have brought in the entry of new private sector and foreign banks in the country. The conventional banking as outlined above has given way for professional and high-tech banking. There has been a paradigm shift from the monopolies of public sector banks to competitive banking. Public sector banks can no longer remain complacent with their conventional products and services. With walk in business virtually being ruled out, banks are now scouting for quality consumers both for building their resources and assets There were times when the corporate clientele occupied the centre stage and the retail ones were pushed to the back seat. The slow down of the economy, sluggish industrial growth and slump in agricultural activities have pushed the commercial banks to look to the retail customers. Retail banking has both pros and cons. In a situation like today, the bankers have very little option, but to chant the “Retail Mantra”

RETAIL BANKING IN INDIA Retail credit outstanding as on March 22, 2003, amounted to Rs 1,60,000 crore. According to one estimate, the retail segment is expected to grow at 30-40% in the coming years. Major Players: State Bank of India, HDFC Bank, UTI Bank, IDBI Bank and ICICI Bank The ratio of retail credit to net credit in the global level is around 5%. In India, it is interesting to note that this ratio is over 10% as on March 31, 2002 (Source: RBI, Annual report). With the economic reforms set in motion, the country is already rated as a major hub for economic development. Increase in per capita, change in lifestyle and growing urbanization has made the Indian population rise

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RETAIL BANKING from oblivion and resurges in a modern era. Traditionally against incurring a debt, the policy of save and spend is gradually giving way to spend and save concept.

WHAT IS RETAIL BANKING? Retail banking can be crudely defined as the antonym of wholesale or bulk banking. It is nothing, but shared business. A deposit of Rs.1 lakh from single customer vs. small deposits of Rs. 10,000 each from 10 different customers. The corporate and retail divide is nothing but internal segmentations and the customer remains always a customer. Retail banking generally refers to offering financial services, products related to deposits and assets to individual customers for personal consumption. Banks concentrate on various segments like professionals, housewives, pensioners, children, salaried class etc. Different types of products like recurring deposits, savings bank deposits, fixed deposits, credit cards, housing and consumer loans and educational loans are offered by banks to the above mentioned marked segments. The domain of retail banking market has tremendous growth potential for banks and finance companies, as at present it is largely untapped. The penetration level is 2.5 to 3 % and is in a scenario when the requirements of the consumers are growing. In the past, people never believed in buying consumer goods on credit. But today the attitude is changing. The demand for consumer products has increased. Today, about 70% of consumer goods purchased are through finance schemes/loans as against 40% about 1 to 6 years ago. The home loans alone account for nearly two-third of the total retail portfolio of the bank

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RETAIL BANKING

ADVANTANGES OF RETAIL BANKING Retail banking has inherent advantages outweighing certain disadvantages. Advantages are analyzed both from the resource angle and asset angle. RESOURCE

ASSET SIDE

Stable and constitute core deposits.

Better yield and improved bottom line.

Less bargaining for additional interest.

Good Avenue for funds deployment.

Low cost funds.

Lowe risk and NPA perception.

Builds customer base.

Helps economic revival of the nation through

Increases subsidiary business

increased production activity. Improves lifestyle and fulfills aspirations of the

A safe and convenient saving avenue.

people through affordable credit. Innovative product development. Minimum marketing efforts in a demand-driven economy. Risk weight in certain segments like housing loan.

Current scenario N.L.D.I.M.S.R

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RETAIL BANKING According to the Reserve Bank of India annual report for 2001-02, as on March 22, 2003, retail credit outstanding amounted to Rs 1,60,000 crore, including housing loans, loans for consumer Net Bank Credit

durables, loans to individuals

14.1%

against shares and bonds, other non-priority sector personal loans and advances against fixed deposits. That's 14.1 per cent of

85.9% Retail credit

net bank credit outstanding, and

Others

15.6 per cent of non-food gross bank credit. Incremental retail credit in FY02, at Rs 14,114 crore, was 20.8 per cent of incremental net bank credit, and 26.3 per cent of non-food bank gross credit. Retail credit increased by only Rs 7,026 crore in FY01, and accounted for merely 13 per cent of incremental non-food gross bank credit. The sharp acceleration in the rate of growth of retail credit is clear. The fastest growing business segments are housing loans, incremental growth in which was Rs 6,203 crore in FY02, compared with Rs 2,043 crore in the preceding year; and the category "other non-priority sector personal loans", the outstanding of which increased by Rs 5,338 crore in FY2002 compared with Rs 2,655 crore in the previous year. The higher exposure to retail lending has come at the cost of credit to industry. Compare the 32.6 per cent of incremental non-food gross bank credit that went to medium and large scale industry five years ago, in 1996-97, WITH the 17.7 per cent that went into the segment last year. Or consider the 13.8 per cent of incremental non-food gross bank credit that went to small scale industries in 1996-97 with the measly 2.2 per cent that went into the segment last year to realize how lending has changed in the last five years. COMPOSITION OF RETAIL CREDIT (Figures in brackets indicate percentage to the total) Rs. In crores

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RETAIL BANKING Sr. No

Type

Mar-00

Mar-01

Mar-02

1

Housing

14100

16143

22346

(3.52)

(3.44)

(4.16)

3855

5566

7015

(0.96)

(1.19)

(1.31)

2146

1697

1520

(0.54)

(0.36)

(0.28)

15409

18064

23402

(3.84)

(3.85)

(4.36)

35510

41470

54283

(8.86)

(8.84)

(10.11)

400818

469153

536727

(100)

(100)

(100)

2

3

4

5

6

Consumer durables

loans to individuals against shares/bonds

other non-priority sector personal loans

sub-total

Gross bank credit

Source: Report on Trend and progress of Banking in India 2001-02,RBI

Banks With Large Network Actuals Bank April 01 ICICI Bank 510 UTI Bank 303 HDFC Bank 207 IDBI Bank 77 GTB 101 Total 1234 Source: Annual Report and websites of respective banks

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March 02 1000 480 410 225 200 2313

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RETAIL BANKING

Retail Banking Functions available in India A banks retail offering can be broadly categorized into Core service, facilitating service, and supporting service. Core service is the reason for being in the market, facilitating services are needed so that the core service can be used, and supporting services exactly discriminates the service package from the services of competitors.

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RETAIL BANKING

Categorization of retail bank services: Core services Payment services

Facilitating services Cash

Supporting services Making payments at door step

Foreign Currency Requirement

Internet banking

Traveler Charges DD/ Bankers Cheque

Telephone banking

IT Current account and savings

EFT ATM card

account

Standing instructions from customers for making

Credit cards Debit cards

payments Inter branch/interbank transfer

Services to senior citizens

of funds Safety vault

Telephone banking Internet banking Conversion of excess balance

Loan products: Consumer

Current account

to Time deposits Delivery of loan at promised

loans, personal loans, housing

Savings account

time period

loans, educational loans

Time deposit account

Interest rate option: Fixed/floating Flexibility in pre-payment of loan Counseling on Real-estate markets Legal services for documentation ECS for payment of loan installments

Insurance products: Life

Current account

Additional insurance facility for

insurance, pension schemes

Savings account

family members

Time deposits

Counseling on post retirement

Safety vaults

savings

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RETAIL BANKING

OVERVIEW OF MAJOR CATEGORIES OF RETAIL OFFERING Auto Finance CUSTOMER PROFILE Average customer age is less than 30 yrs. Target customers can be classified into the following income groups: Vehicle Category

Income Group

Profile

Two Wheelers

(Rs.) 3000 – 8000

Young, ambitious, newly employed or low

Cars & other

10000- 20000

salaried and Parents of young adults. People with families, settled job, higher middle

MPV’s ( Personal Use) Cars, Three

class, office going or businessman. -

Self-Employed, Small businessmen to enhance

Wheelers & other

their services, to start new business.

MPV’s ( Business Use) Heavy Vehicles

-

Businessman & Self-Employed



Major Influencers – Dealers, DSA



Newly employed people are more attracted towards this loan as people like to have more in very short time.



More influence is amongst the people who aspire to buy a two or four wheeler for improving their social status.

Sector Analysis 

Market size is Rs. 7500 crore next only to housing segment

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RETAIL BANKING 

About 75% of the vehicles especially the cars sold in the country are through consumer loans schemes.



The factors that propel growth are :  Low interest rates.  Poor urban transport in many areas, increasing income levels .  Even for second hand cars finance is available.  Increase in GDP growth.  Increased income levels and changing lifestyles.



Nearly 3 lacs second hand cars have been financed.



Default rate for car loans is around 1 %.

Infact on account of liberal financing by banks, production of passenger cars, motorcycles and scooters has registered good growth It will also provide a boost to the auto manufacturing sector.

Competition The sector offers intense competition among players. Major competitors in the sector include ICICI, SBI, HSBC, HDFC etc. Banks and NBFCs have tie up arrangements with the automobile dealers for making available vehicle finance. This has proved to be advantageous for customers also. They can complete all the formalities with less paper work at the auto dealers’ showroom itself without going to bank.

Market Leader

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RETAIL BANKING The auto finance market is led by ICICI. ICICI bank funds about 15 % of cars that are rolled out. ICICI banks retail portfolio as on September 30, 2002 was over Rs. 134.61 billion, as compared to combined retail portfolio of ICICI and ICICI bank of about Rs. 77.35 bn on March 31, 2002. Every bank has its unique segmentation and targeting strategy. Similarly ICICI also follows a segmentation strategy to divide its market into strata’s. This helps them to decide upon their target audience and what are their wants and needs.

ICICI’s Segmentation Strategy The ICICI bank in India has adopted ‘Life Stage Segmentation Strategy’. This approach aims to minimize overlaps between two segments by categorizing customers into various segments based on the stage of life they have reached. The banks philosophy is to have product idea for every stage of an individual’s life from childhood to retirement and the bank has a wide product range. ICICI is also adopting a strategy of creating a liability based product along with a asset based product and vice-versa. Market Targeting Strategy: Based on the Life Stage Segmentation Strategy ICICI has divided its market into various segments constituting people from different age group and income class. This has helped them to decide which segment is to be targeted for which retail offering. For eg: The target market for auto finance are people belonging to the age group of 28-35 yrs., having a settled job or business and belonging to middle class.

Consumer Credit

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RETAIL BANKING



Consumer credit sector is growing at 15%



Easy credit terms



Consumer credit encompasses extension of loans for white goods, educational loans, finance for meeting travel, medical expenses etc.



Demand for loans for acquisition of TV, cell phones, AC’s, dish-washer, washing machine, fridge etc. is on the rise.



There are nearly 12 lakh outlets contributing to Rs.14000 Cr to the GDP (about 1.2% of GDP)



Further investments of Rs. 35000 Cr are in the pipeline.



Banks also offer loans through tie-ups with corporates.



Default rate is a bit high at 3%-4%. This explains the relatively higher rate of interest.



Basic understanding of middle class drivers is a must.

For unsecured loans, return is high and at the same time competition is low.

Customer Profile Customers in the income bracket of Rs. 3000 - 10000 p.m. Usually availed by young married couples but with the change in people’s perception about loans every strata of the society is getting attracted to Customers normally belong to middle class families. People aspiring to improve their standard of living are normally attracted towards this loan. Consumer loans are normally taken by people buying new houses, so the target customers are mostly those people who take housing loans.

Credit Cards:

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RETAIL BANKING

Mention cards and most people will think of credit cards. Yet, popular as they are, credit cards, which are accepted as a payment device at over 20 million shops worldwide, really represent just one type of card. Other cards include debit cards, smart cards and charge cards.



A smart card is used to store cash in an electronic form.



A charge card carries all the features of credit cards except that you cannot defer your payment to the card company.



A debit card is simply used as substitute for cash or check payments

Consumer profile 

Credit card users generally belong to the income bracket of Rs. 90,000 p.a. and above.



There is a large middle class segment who are prospective cardholders and cannot satisfy the normal criteria for issuance of cards.



Most of the middle class people do not go for credit cards because they do not want to fall in the debit trap in view of their low income levels.



There are about 5.5 bn cardholders in India but the average amount spent is very low.



However, slowly people in India are getting acquainted with the plastic money culture.



Traditionally used by rich people to avoid carrying heavy cash.

Sector Analysis: Card industry has migrated from paper-based to terminal-based as a part of risk administration. Tier-I cities are highly targeted by multiple issuers and acquirers. Many big players of the market are averse towards cities other than tier-I,

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RETAIL BANKING although tier-II cities have a potential of being a promising markets for credit cards. 

There are 6 million cards in use.



The potential is anticipated at 40 million.



Credit card culture pioneered by foreign banks initially like Citibank, StanChart etc. in our country.



Payment habits have undergone a change.



Credit cards have increased from 5 lacs in 1992 to 60 lacs in 2002 (avg. growth at 20-25 % p.a.)



The average annual spending through credit cards is around Rs.18000 Cr. (which is less than 1% of total personal consumption spending in India, as compared to 30% in US. SBI, ICICI Bank has a card base of 9 lacs and 6 lacs respectively.)



Credit cards in India are used more as a transactional investment rather than as a medium of servicing credit.



It offers an attractive interest of 30% to 36%.



Card business is popular on account of its wider acceptability



Credit card usage also entitles holders for attractive bonus, incentives, loyalty points etc.



The debit cards usage is also becoming popular with a card base of one million.

Competition Banks in India have realized that the credit card business need not remain an exclusive preserve of foreign banks like Citibank or Standard Chartered Bank. Card business is a very potential and fast growing market is no where near the market potential. State Bank of India, a late entrant has already issued 9 lakh cards. HDFC Bank, another late entrant has reached a card base of over 70,000. Citibank Suvidha credit card is also turning out to be a great success story. Other important players in the sector are HSBC, SBI, ICICI, UTI etc.

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RETAIL BANKING There is a case for reduction in the rate of interest on debit balances from present level of over 30% p.a. Interestingly, Andhra bank and HDFC bank rather than any other foreign banks have taken positive steps in this regard. The network of branches does not seem to be effectively utilized for marketing by Indian banks in credit card business. If only these banks becomes market savvy and exploit branches to the hilt in issuance of credit cards, there could be great success awaiting them.

CREDIT CARDS MARKET SHARE (in lakhs) 15.77

16

CITIBANK STAN CHART SBI HSBC

5.88 9.03

14

ALL OTHERS

Segmentation. The potential segments which many banks have not explored so far are selfemployed people and housewives. Self-employed people due to lack of proper identity (i.e. either salary certificate of PNR number) are still borrowing at a higher rate and banks are no t assessing the credit risk premiums properly. Similarly, a suitable banking product is required, which makes the housewife to feel liberated and empowered. The survey of NCAER shows that rural India is gradually possessing variety of consumer durables and electronic goods. Banks have to design suitable products to meet the requirements of rural rich and rural poor. Census of 2001 shows that India has 423 towns (Eight Metros, 19 Mini Metros, 396 Towns), and that financial products are very rare for urban poor and low salaried persons.

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RETAIL BANKING

Housing Loan - Nesting becomes a lucrative business

If one were to study the sector-wise performance over the last five years, the housing finance industry has outperformed everyone’s expectations. Loan disbursals have grown at a CAGR of over 35% in the last five years. But the industry is still fragmented with a large number of players spread across different parts of the country. There are nearly 383 HFCs or housing finance companies in the country currently. This is apart from the numerous banks that have entered in to the fray. In this article we look at the nature of this industry, its trends, the major players involved and the prospects of the industry going forward. The housing finance industry is estimated to be worth nearly Rs 330 bn (FY02) and is estimated to have grown by nearly 28% compared to FY01. A huge deficit of nearly 40 m (FY02E) dwelling units is likely to ensure that the robust growth rates in this sector will continue in the future.

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RETAIL BANKING

CONSUMER PROFILE 

Customers normally belong to age group of 25-35. The average consumer age is 31 years.



These customers generally are in the income bracket of Rs. 8000/- p.m. and above.



Normally availed by :  Newly married couples  Families breaking up into nuclear families  People aspiring to acquire higher status and improved standard of living.



DINK - ‘double income no kids’ i.e. both the husband and spouse earning.



Indian middle class forms the major chunk of the customer portfolio.



Primary influencers in a housing loan decision are

Tangible Factors: 

Builders



Housing Estate agents



Banks



Friends & Relatives

Intangible Factors: 

In India, owning a house has a high social regard.



Insecurity of staying in rental houses.



Sense of Belongingness.

Industry in Transition Demand for this category is picking up due to N.L.D.I.M.S.R

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RETAIL BANKING 

Steady fall in interest rates.



Increased start-up salaries.



Aspirational changes in lifestyle.



More hassle-free.



Offer of free insurance cover for various risks.



Offer of various incentives in the form of low or no charges for pre-closure of loan-lower processing / administrative/ documentation charges; interest on reducing balance method; choice or option for fixed/floating interest rates etc.



Income tax shelters on interest paid.



Fall in interest rates has changed the way the salaried class view housing loans. The interest rates on housing loans have declined from average 1718% in 1994 to 7.25-8.5% now, thereby making loans cheaper.



Earlier, houses would cost on an average 20 years of salary, which has now come down to just 8-10 years' salary.



Changing demographics of the Indian populace has also played an important role in the development of this industry. The emergence of a new class of families called DINK or ‘double income no kids’ has played its part.

Competition 

The key players are HDFC, LICHF, Canfin Home, SBI, ICICI, Bank of Baroda etc.



There is very stiff competition in the matter of interest rates- rate cuts are announced at very frequent intervals.



The market size is expected to grow to Rs.40, 000 Cr.



Size of the loan varies from Rs. 2 lakhs to Rs. 1 Cr. Average tenure of housing loans is 15 years



Lower default rate is a big attraction for banks to take-up to housing finance (default rate is just 0.5%).

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RETAIL BANKING 

It provides a big impetus for housing construction activities also-growth in infrastructure industry.



Transaction cost is also low.



It is easier for banks to appraise/assess as they look into fewer aspects like background, employment, experience, number of dependants, previous track record, proof for pay, copy of IT returns, property documents and age of the property etc.

Market Fragmentation Before going any further, a brief view at the level of fragmentation in the industry is of significance. The graph above gives us the breakup of market share based on outstanding housing loans as on March 31, 2002. The split up pie of the market share indicates that HDFC is still the market leader followed by SBI. But in terms of the housing loan assets, LIC Housing Finance limited (LICHF) occupies second spot next to HDFC. What is significant is the fact that banks have stepped in to the domain of these HFCs and are capturing market share of the incremental loans disbursed. Currently, banks have garnered close to 35% share of the housing finance market by offering competitive rates of interest. Among banks, SBI and ICICI Bank have been the most aggressive as far as loan disbursals are concerned.

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RETAIL BANKING We expect the trend to continue with banks gaining a larger share in incremental loan disbursals.

Performance of HFCs Particulars

FY98

FY99

FY00

FY01

Growth in income

15.1%

17.0%

14.2%

21.4%

Growth in net profits

16.6%

3.4%

17.1%

17.9%

Source: NHB % change compared to corresponding previous period

New dynamics An important development in the housing finance business has been the entry of new players. The relatively low risk in a housing portfolio has spurred new entrants in the last few years. Arguably, the most significant entrant has been ICICI Home Finance. Among non-banking finance companies, Sundaram Finance and Tata Finance launched housing finance subsidiaries in the recent past, while banks have shown increased interest in acquiring housing assets. Banks have always had subsidiaries handling housing finance, but in the recent past they seem to have taken a greater interest in building retail assets. Banks have a clear advantage in the field simply because they access the lowest cost funds in India. As things stand, a loan from a bank is less expensive than one from a housing finance company. Despite the overwhelming advantage that banks have, HFCs are unperturbed. The reasons range from a feeling that banks will lose interest in retail finance after a point to a belief that banks are not geared to servicing a big thrust into housing finance. In short, the HFCs believe banks cannot match them in a critical area — service.

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RETAIL BANKING Access to resources: Another differentiator Dewan Housing and LIC Housing Finance both run operations with a profitability level of about 20 per cent. Despite that, Dewan is unlikely to grow at LIC Housing's pace in the current environment. LIC's superior pedigree and access to resources appears to have played a critical role in larger disbursements. For example, between 2000 and 2002, Dewan's housing loan disbursement grew from Rs 163 crore to Rs 200 crore. On the other hand, between 1999 and 2001, LIC Housing's disbursements to individuals grew from Rs 945 crore to Rs 1,597 crore.

Changing Contours The fast-changing environment has had a telling impact on HFCs. Following heightened competition, spreads (difference between interest income and expenditure) have declined over the last couple of years. HDFC feels that its current spread, of 1.8-2 per cent, is likely to hold firm. Competition has whittled down high margins and changed housing finance into a low margin, low-risk business. With their geographical spread and customer knowledge, the HFCs are trying to tap new opportunities that have come up. Using their existing infrastructure to sell other financial products to retail customers has caught the fancy of the HFCs. The opening up of the insurance industry, in particular, seems to have triggered a determined move to diversify income stream. Even here, the bigger players are in a different league. For instance, a HDFC has the resource base to promote subsidiaries in most other areas of financial intermediation — be it asset management, insurance or commercial banking. Smaller HFCs that have wide distribution networks can only hope to leverage their reach for a commission.

Why Is It a safe Bet?

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RETAIL BANKING A house is generally the single largest investment an individual makes in a lifetime. Moreover, the emotional dimension of a house makes it intrinsically safer for a lender. Another factor that adds to the safety of the loan is that most borrowers have a significant level of personal money invested in a house. If they lose possession of a house, it would mean a lot of personal wealth slipping out. None of the factors that have thus far made home loans one of the safest deployment avenues is likely to change in the near future, thereby ensuring that the business remains one of the financial sector's safest. THE relatively negligible risk in housing finance is best illustrated through an example. HDFC, the market leader in housing finance, had aggregate bad loans of 0.81 per cent of its portfolio on March 31, 2001. At the other end of the spectrum, a much smaller company, Dewan Housing Finance, had aggregate bad loans of about 0.5 per cent in March 2002. Corporation Bank, one of the soundest banks in the country, had an aggregate bad loan of 5.4 per cent of gross advances in March 2001. Among non-banking financial companies (NBFCs), a tightly run company such as Cholamandalam Finance reported in June 2001 that 1.5 per cent of assets had problems. Thus, a portfolio of housing assets seems safer than a mixed portfolio that other financial intermediaries have.

Kya Hoga Next?? Prospects of the housing finance industry look encouraging mainly due to the fact that the gap in demand and supply has not been corrected adequately. At the end of the ninth five-year plan period i.e. FY02, the shortfall in dwelling units was in the region of 40 m. In terms of dwelling units the Urban Affairs and Employment Ministry has stated that cumulatively India will have to add a minimum of 6.5 m houses per year to add 33 m houses in order to bridge the current gap. At present the supply of houses stands at close to 2.5 m per year.

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RETAIL BANKING Apart from that the Indian economy may have reached a stage where interest rates may continue to remain soft over the long-term. This is likely to ensure a steady demand for housing loans.

Housing shortage continues (million units)

FY71

FY81

FY91

FY01E

Rural

11.6

16.3

14.7

12.8

Urban

3.0

7.0

8.2

6.6

Total

14.6

23.3

22.9

19.4

Source: NHB

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RETAIL BANKING

SWOT ANALYSIS ICICI BANK STRENGTHS



WEAKNESSES

Retail banking supermarket with the ability



Efforts are concentrated more towards the

to cross-sell entire range of credit products.

urban consumers thus ignoring the rural



Innovative products

counterpart.



Technological superiority



Wide distribution



High top of mind awareness due to



Number and spread of branches is very low as compared to PSU banks.

aggressive advertising



Excessive focus on non-branch distribution channel reducing the scope of personal interaction needed for the sale of retail



Strong Credit controls



High Customer Service Standards



Economies of scale through growing

products.

volumes.



24x7 service levels

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RETAIL BANKING OPPORTUNITY



THREAT

Changing consumer outlook towards loans



and related products

segment from HDFC, LIC Housing etc.



Rising consumer income levels



Increasing banking habits among Indian



Of late, lots of Non Banking Financial

Being No.1 in the auto finance segment

Institutions have emerged and have eaten

paves the way to consolidate its market

up the banks’ market share.

leadership across all the segments.



In the Credit card segment, competition from Citibank, StanChart etc.



consumers



Stiff competition in the housing loans



Educating people by way of

Rapid increase in the retail loan market

advertisements might help competitors to

size to the tune of 30 – 40 %

reap the benefits.

LATEST HAPPENINGS Of late banks are coming up with innovative product offerings and promotion schemes to tie up old customers and attract new customers. Some of the innovative offerings are listed below:

Standard Chartered ANZ has launched the Home Saver Account. Along with the Home Loan, your will get a FREE savings bank account into which you may deposit your monthly salary. The EMI for the loan will be automatically reduced from your account. The excess balance in your savings account will earn interest that will be adjusted against your future EMI payments. The bank claims that the effective interest rate gets reduced by upto 45% because of this scheme.



Citibank N.L.D.I.M.S.R

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RETAIL BANKING

 Offer loans with no guarantors. Most banks require that you present a guarantor who will back you up if you default on your loan repayment. It can often be embarrassing to ask friends to stand guarantor as most banks do not accept relatives as guarantors.  Citibank gives home loans upto 90% of the property value, the highest from any bank (only Tata Hsg Fin. matched this offer)  Citibank offers a flexi-savings account to reduce your cost of borrowing. The bank will automatically open a Saving Account from which you can give standing instructions to deduct the EMI payments for the loan. You can then prepay the loan at any point in time and be given instant credit for the same, in case you get a large lump-sum annual bonus from your employer. Should you require money in an emergency at any point you can avail of a over draft on this savings account at an interest rate that is the same as that on your Home loan. This works out much cheaper than taking an over draft on a normal savings account 

Dewan Housing Finance and LIC Housing Finance Ltd. offers consumer loans to their existing Home Loan customers at a discount to market rates. The customer has to be a housing loan borrower for the period not less than 6 month with a good repayment record FREE DOUBLE PROTECTION PLAN in the form of Personal Accident Risk Cover and Property Insurance



GIC Housing Fin.  Gives a free personal accident cover along with the loan. Oriental Bank of Commerce has started to offer a free property insurance cover of the value of property and a free accident cover of upto Rs. 5 lacs.  GICHFL gives Consumer loans for purchase of home equipment at the same interest rate as the home loan to customers at rates of interest that

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RETAIL BANKING are the lower than other consumer loans. The total loan amount including the housing loan can be upto 90% of the value of the home. The tenure of the consumer loan is restricted to 5 years. 

HDFC  Offer Flexible (Customized) Repayment Schemes, keeping in mind the fact that each individual has a unique problem requiring unique solutions, HDFC has developed various repayment options like Step Up Repayment Facility, Flexible Loan Installment and Balloon Payment Scheme  Pari Passu/ Second Mortgage Arrangements: HDFC has a tie-up with a large number of Public Sector Organizations and banks which enable us to offer loans to your employees with the flexibility of their spouse also availing a loan from his/her own employer  Safe Document Storage Facilities: HDFC has state of art storage facilities, which are theft and fire proof, at various locations where loan and property documents are stored. In this way valuable documents are stored safely over the period of the loan and are released almost immediately after a customer repays his loan  A customer, after availing of a loan can approach HDFC anytime thereafter to increase the Equated Monthly Installment which will help him repay the loan faster.  Home Conversion Loan offered to its existing customers who are interested in moving to a new house. Through this scheme customers can apply to have their existing loan transferred towards the purchase of the new home. Customers may also apply for an additional loan amount for the purchase of the new house. This gives the customer the option of selling their existing house, if they wish to, without having to repay their old loan

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RETAIL BANKING The fixed rate loan can be converted to floating without any penalty charges. However, you will be charged 2% if you refinance the loan from another company 

Hudco  Will waive the last 2 EMI payments on the loan if the customer has a perfect repayment record with no bounced cheques. The loan amount initially taken must exceed Rs. 5 lacs and no prepayments where to have been made during the tenure of the loan. This is not available for the Floating rate loan.  There is a discounted start-up fee for Government employees. The Administrating fees stand reduced from0.7% to 0.5% only.  Free triple insurance - property cover, earthquake cover and personal accident cover. given free along with the loan ( not available for the Floating rate loan)  You can prepay the entire loan in any year without any prepayment penalty. Each prepayment has to be at least 10% of the outstanding loan. However, the floating rate loan has a 1% prepayment penalty.



HSBC  Offers flexible interest rate loans that can be reset every year depending on the prevailing interest rates at that point. The new interest rate will be applicable for the rolling one year  Guarantor is required only for loans more than Rs. 10 lacs. Else no guarantor  You can prepay up to 25% of the outstanding loan in any year without paying a penalty. For amounts over that, 2% penalty levied. N.L.D.I.M.S.R

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RETAIL BANKING



ICICI  Launches a 30 year tenure home loan, the longest available  ICICI also launches a variable rate loan with a monthly rest basis versus the regular fixed rate loan that is on an annual rest basis  No guarantors are required for loans up to 20 years in most cases  No pre payment fees for any part payment as long as the loan is not fully retired, else 2% charge on pre paid amount. You can repay up to 33% of the outstanding loan in any year without paying penalty.  Free accident death cover for the owner  Special 100% funding for select properties  Higher eligibility for self-employed professionals through segment-specific schemes



LIC Hsg Finance Ltd. will lower quoted interest rate by 0.5% for loans covered by a life insurance cover that is taken from LIC. The life cover must be taken for a minimum period that covers the tenure of the Home Loan



SBI  Offers Home Loans with no start-up costs. Most banks charge as high as 2% as processing and administrative fees  Prepayment is 2% if the entire loan is pre paid else it is 0%. Avoid this penalty by prepaying up to 99% of your loan if need be



Tata Hsg Finance  Offers Home Loans up to 90% of the value of the property and 100% in some new projects.

N.L.D.I.M.S.R

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RETAIL BANKING  Prepayment penalty of 0% for up to 4 prepayments in each year. The entire loan can be retired without incurring any penalty.  Free accident and property insurance. The premium payable for a Tata AIG Single Premium Life Cover can also be included in the loan amount sanctioned.



IDBI Bank offers balance transfer scheme. If you have taken a fixed rate loan at a high rate of interest a few years back, then you can enter into an arrangement with IDBI bank to transfer the loan to them at the current lower rate of interest. You will also get free gifts to compensate you for the difference as the old and new EMI. The original EMI cheques will be used by IDBI to recover the loan amount from you over the remaining tenure of the loan. You will not get the benefits of any further fall in interest rates in this product.

Advertising: Private Indian Banks have managed to create a greater awareness about themselves over the last 2 years, according to the findings of the latest round of INVESTRACK (V), the fifth round of a syndicated study by ORG-MARG on the investment and banking habits and preference of the Indian investor. The sharp rise in the unaided recall of Private Indian banks is testament to the aggressive advertising and marketing drive of these players over the past one year A reading of the list of top 10 banks in terms of recall shows a doubling of the number of Indian investors who are now aware of the Indian private banks like

N.L.D.I.M.S.R

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RETAIL BANKING ICICI Bank and HDFC Bank compared to two years ago. While recall for the other banks that are part of the top 10 remains largely unchanged, 51% of Indians are now aware of ICICI Bank and 42% are aware of HDFC Bank compared to 27% and 26% respectively when the last round of INVESTRACK was conducted. Unaided Recall of Banking Brands

Bank Brands SBI

2000 82 %

2002 83 %

Canara Bank

53 %

54 %

ICICI Bank

27 %

51 %

PNB

47 %

49 %

BoB

48 %

49 %

BoI

44 %

44 %

HDFC Bank

26 %

42 %

Citibank

37 %

36 %

Central Bank

42 %

36 %

Advertising, in the retail banking industry, is an important medium of making the prospective consumers aware of the various products as also the players offering them. Although it has only a 6% influence (based on our primary research findings) in the purchase decision it plays a major role in induce a customer to include the advertised bank in his consideration list. Advertising by banks has been a recent phenomenon. Realizing that product advantages are not any more sustainable, banks are opting for advertising to gain strategic differentiation. An analysis of banks’ advertising brings out the following features:  A major chunk of total advertising spend belongs to the private & International banks.

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RETAIL BANKING  Another observation reveals that banks with less penetration have higher advertising spends.  ICICI and HDFC head the fleet of banks in terms of their advertising spends.  The advertisements have both factual as well as emotional appeal. The private banks focus on cashing upon emotional needs of a consumer whereas public banks stick to traditional advertising focusing only on the product features.  Television and hoardings seem to be the preferred mode of advertisement across all banks.  The international banks are striving to achieve a local appeal in a bid to woo consumers The following is the summary of a few banks’ advertising strategies:

ICICI  Positioning: 

The bank’s initial positioning was mainly on service factor and now this has changed to a customer’s interest focused and a friendly bank.

 Message: 

With the shift in positioning there has also been change in the message conveyed from service focused to customer interest focused.



It is the first to sign up a celebrity ‘Amitabh bachchan’ for its advertising. This conveyed a message of the bank being as popular and famous as the celebrity.

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RETAIL BANKING 

Mr. Easy life – the fictional character in the ICICI ads is the first brand icon associated with any bank.



It is also the first bank to address the emotional appeal and attach it to the physical appeal.

 Media : 

The general preference is for television, hoardings, newspapers, magazines, radio etc.



ATMs also form an effective advertising tool as their mere presence makes the consumer aware of the bank. Besides this, ATM machines are also effectively utilized to cross-sell the bank’s retail offerings to its already existing customers.

HSBC  Positioning: The bank’s positioning conveys an international appeal to the local consumer.

 Message: The bank is trying to promote its global expertise to the Indian customers, i.e. service levels at par with international standards, anticipating customers growing needs and designing products accordingly.  Media :

N.L.D.I.M.S.R

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RETAIL BANKING As far as media is concerned HSBC has more concentration on print media as compared to other mediums.

HDFC  Positioning: Positioning of the bank conveys

Expertise service.



It tries to address the financial needs of the consumers.

 Message: 

The bank’s presence in the housing sector for a fairly long period is portrayed in its advertisements.



They also focus on promoting the simplicity in work procedure, superior service. Their ads also strive to bring the bank out of the ‘only housing’ image.

 Media : 

The most preferred medium by the bank are hoardings and print media.



They rely on word of mouth and goodwill which they have created through 25 years of service.

The following table shows PUNCHLINES of some banks:-

BANKS

PUNCH LINE

CANARA BANK

“Service to grow, grow to service.”

INDIAN BANK

”Poised for higher growth “

N.L.D.I.M.S.R

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RETAIL BANKING SBI BANK

”With you- all the way “

HDFC BANK

“We understand your world”

HSBC BANK

“The world’s local bank”

INDIAN OVERSEAS BANK

“Good people to grow with”

DENA BANK

“The trusted family bank”

ICICI BANK

“May I help you”

VIJAYA BANK

“A friend you can bank with”

FEDERAL BANK

“Your perfect banking partner”

IDBI

“Plan ahead. Get ahead”

ORIENTAL BANK OF COMMERCE

“Where every individual is

DHFL

committed” “The friendly housing loan people”

CONSUMER SURVEY

 RESEARCH OBJECTIVE 

Top of mind awareness of consumers for banks offering various retail products.



Factors influencing their purchase decision.



To study the comparative influence of various mediums of advertisements in creating awareness amongst the consumers.

N.L.D.I.M.S.R

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RETAIL BANKING 

To find the immediate competitors in the minds of consumer for every retail product.

 RESEARCH METHODOLOGY An exploratory research was conducted in order the study the consumer perception about various banks offering retail products and the banks they opt for.  Sample Size A random sample of 100 were administered with the questionnaire and responses collected.  Research Area The research was carried out at Borivali, Mira road, Churchgate and Andheri regions in Mumbai.

Respondents’ profile Data was collected from respondents across all age and income groups.

Data

relating to age was collected. This segmentation helped us to gain insights into the perception and preferences across all age groups. Based on the nature of retail banking products age groups were identified and classified as follows:

N.L.D.I.M.S.R

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RETAIL BANKING



Majority of the respondents belonged to the age group of 25 – 40

15%

17%

18-25 yrs

years.

25-40 yrs

23%



40-55 yrs

45%

The reason associated with it is that this group is

55 yrs & above

the highest user of retail offerings.



Respondents earning Rs. 8000-

Income Profile

15000 constitute the major chunk of the respondents using retail

13%

product. 

15% 15%

This income group qualifies almost all eligibility criteria of

30%

<5000 5000-8000 8000-15000 >15000

retail offerings.

27%



Proffessional Profile 9

Non- earning

Retail products being also designed for students and retired people, they were

7 Students Salaried Businessmen Retired

15

considered for the survey.

29

N.L.D.I.M.S.R

36

RETAIL BANKING 

Salaried and businessmen being the major users of retail users of retail products.

Data Collection Tools 

Data was collected using Questionnaires. The Questionnaire consisted of suitable combination of Rating Scale, Ranking Scale and open ended Questions in the level of importance.



An in depth interview was also conducted while administering the questionnaire.

Sources of Data 

Questionnaires were administered to people with experience of any retail offering, currently using or used in the past.



Secondary Sources: Data was collected from the various websites from the internet as well as Journals of Marketing.

DATA INFLUENCING FACTORS

35

37



N.L.D.I.M.S.R

Factors

Advertisement

6 Word of mouth

Goodwill

time

Processing

7

The respondents were asked to rank

15

Interest rates

40 35 30 25 % 20 15 10 5 0

ANALYSIS

the following factors

37

RETAIL BANKING according to their preferences in the extent to which they influence their purchase decision. 

Majority of the respondents considered processing time to be the major influencing factor for making purchase decision while interest rate forms a close second.



Time is the most valuable factor in today’s world of hectic schedules, that’s the reason why processing time is considered as most valuable factor in consideration list.



Retail Products Availed

In our survey majority of the respondents

Others 11%

Housing loan 21%

credit cards 25%

had availed Vehicle loan followed by credit cards. 

Personal loan 10%

Education loan 6%

Vehicle loan 27%

In our survey majority of the respondents belong to the age group of 25-40 and majority of them are

salaried people. This is the stage where people try to bring alive their aspirations of having their own home and vehicle and hence these loan constitute major chunk of retail product availed by the respondents.

BANKS CONSIDERED FOR RETIAL OFFERINGS Respondents were asked which banks they considered for purchasing a retail offering before selecting a specific bank. The responses for different retail products were as follows-

N.L.D.I.M.S.R

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RETAIL BANKING

Banks Considered For Housing Loan



respondents

ICICI 23%

OTHERS 28%

Majority of the considered HDFC and ICICI for availing housing loan.

SBI 12%

HDFC 37%



25 years of superior service has helped HDFC in creating goodwill in the mind

of people and has helped the bank for consideration. 

Banks Considered For Vehicle Loans

ICICI has created a place of its own in the mind of customers by

OTHERS 16%

its heavy

ICICI 35%

CITI BANK 15%

advertisement and superior service in every category of

HDFC 25%

retail offering.

SBI 9%



ICICI forms the major chunk in the

consideration list for vehicle loan followed by HDFC. 

Through aggressive advertisements and superior service ICICI has created a major place in the consideration list.

Banks Considered For Credit Cards OTHERS 11%

ICICI 16% STAN CHART 20%

CITI BANK 35%

N.L.D.I.M.S.R HSBC 18%

39

RETAIL BANKING 

Majority of the respondents considered CITI BANK for credit cards followed by STAN CHART and HSBC.



Being the first bank to launch credit cards and through aggressive advertisements in the past CITI BANK has created awareness amongst the customers and by providing superior service it CITI BANK still acquire major share in the consideration list.

Banks Considered For Educational Loan DENA BANK 8% OTHERS 21%



the major chunk for

CORP ORATIO N BANK 5%

consideration in this category followed by

HSBC 9%

SBI. 

SBI 35%

HDFC 22%

SBI and HDFC form

Interest rates being the major factor for educational loan PSUs have the

competitive edge due to low interest rate.

Banks Considered For Educational Loan DENA BANK 8% OTHERS 21%

CORP ORATIO N BANK 5%

HSBC 9%

HDFC 22%

SBI 35%

N.L.D.I.M.S.R

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RETAIL BANKING 

SBI outrages other banks in the consideration list for educational loan.



Low interest rates and an extensive presence in varied locations seem to be the primary reason for this.

AWARENESS OF BANKS THROUGH VARIOUS ADVERTISING MEDIUMS

Awareness Of ICICI Through Various Mediums



a high level of

Television 35%

Billboards / Hoardings 17%

ICICI in general has awareness among the people owing to its extensive

Word Of Mouth 18% Radio 3%

New spapers & Magazines 27%

advertising. 

Among these, awareness through

television is the highest level followed by newspapers.

Awarness Of SBI Through Various Medium



Customer’s awareness of SBI through various

Billboards / Hoardings 17% Word Of Mouth 26%

media was

Television 19%

measured. 

Radio 3%

New spapers & Magazines 35%

SBI, being an old and experienced player, has immense

awareness through the word of mouth media.

N.L.D.I.M.S.R

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RETAIL BANKING

Awareness Of HDFC Through Various Medium Billboards / Hoardings 22%

Television 13%



HDFC being a private and an aggressive player,

New spapers & Magazines 39%

especially in the home finance arena, has taken

Word Of Mouth 21%

the print media as

Radio 5%

its stalwart for awareness. 

The reason for the largest pie is that a large chunk of the TG is also an avid reader of newspapers and magazines.

Top Of Mind Awareness For Car Loan

OTHERS 10%

The graph reveals that close to fifty percent of

ICICI 24%

the awareness is about

CITI BANK 19%

KOTAK 13%



ICICI and HDFC. SBI 10% HDFC 21%

HSBC 3%

N.L.D.I.M.S.R

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RETAIL BANKING 

Customers do not seem to regard HSBC as a bank offering car loan owing to its limited advertising about this product.

Top Of Mind Awareness For Personal Loan OTHERS 13%



market is a

ICICI 27%

CITI BANK 13%

The personal loan relatively fragmented market

GE CAPITAL 15%

HDFC 14%

HSBC 6%

Top Of Mind Awareness For Housing Loan OTHERS 12%

with respect to

SBI 12%

awareness.



According to our survey HDFC is the

ICICI 24%

clear market leader in

CITI BANK 13%

the awareness paradigm.

HDFC 31%

SBI 20%

N.L.D.I.M.S.R



This area is also being aggressively

43

RETAIL BANKING invaded by many other players owing to the increased requirement for homes.

Top Of Mind Awareness For Credit Cards



OTHERS 21%

perceived to be a

ICICI 19%

market leader, besides SBI 12%

CITI BANK 24%

HDFC 8%

CITIBANK is also

HSBC 16%

being one. 

A quarter share of the awareness pie of ‘Others’ can be attributed to a gamut of

the recent new launches as also the varied co-branded credit cards.

Relation between basic-banking and retail-banking choices The survey also tried to study, analyze and correlate respondents’ decision in selecting a bank for general banking purposes and for availing retail products. The findings revealed that people generally prefer PSU banks close to their locality to bank with whereas private banks and foreign banks have higher preference on the retail banking front. The reason associated with this behavior is the close proximity and long existence of PSU banks making them safe and trustworthy. Also people have had accounts with the PSU banks as private banks were non-existent earlier, and hence are reluctant to change their banks. However due to efficient service, short processing time, competitive rates and a caring attitude people have started to prefer private banks for meeting their retail needs.

N.L.D.I.M.S.R

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RETAIL BANKING

Conclusion •

The scenario is becoming highly competitive in every sphere of banking activity- more so u n respect of retail lending.

•

Proceesing time and interest rates are major influencing factor for making purchase decision.

•

As per survey ICICI and HDFC are to major brand name considered for housing, auto and personal loans. N.L.D.I.M.S.R

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RETAIL BANKING •

Awareness through television is the highest level followed by newspapers.

•

The future of banking is dependent on technology, marketing, logistics.

•

Banks have to prepare themselves for facing a soft interest regime.

•

New kind of management skills are required to manage the retail lending portfolio.

•

True to Infosys cult, bankers do need to understand that: -

Growth comes from repeat business

-

Repeat business from relationships

-

Relationship from customers

-

Customers relationship based on trust

-

Trust emanates from customers faiths/beliefs and,

-

Lastly maintaining harmony with the environment.

Bibliography •

Professional Banker

•

Websites of Banks

•

www.indiainfoline.com

•

www.rbi.org

•

Economic times N.L.D.I.M.S.R

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RETAIL BANKING

QUESTIONNAIRE 1. Which bank(s) do you bank with presently? ____________________________________ 2. Rank the following factors according to their weightage in your purchase decision. Cost Processing time Goodwill Word of mouth

_______ _______ _______ _______ N.L.D.I.M.S.R

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RETAIL BANKING Advertisement

________

3. Which retail banking product have you availed? ‫ ڤ‬Housing Loan ‫ ڤ‬Personal Loan _________________

‫ ڤ‬Car Loan ‫ ڤ‬Education Loan ‫ ڤ‬Others, Please specify

4. Which banks did you consider in your decision making before buying this product? a) b) c) d)

_______________________ _______________________ _______________________ _______________________

5. How did you become aware of them? (tick relevant) Banks => Television Newspapers & Magazines Radio Word of mouth Billboards/Hoardings

a)

b)

c)

d)

6. Which bank did you choose and why? _____________________ Reason:_________________________________________________ ________________________________________________________ ________________________________________________________ __________________ 7. Are you satisfied with the bank’s service? Yes No 8. Would you suggest any improvement? ________________________________________________________ ________________________________________________________ ____________ 9. Which bank comes to mind when thinking about car loan ____________________________________

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RETAIL BANKING

10. Which bank comes to mind when thinking about personal loan ____________________________________ 11. Which bank comes to mind when thinking about housing loan. ____________________________________ 12. Would you recommend your bank to someone else for the same product or any other product that your bank offers?  Yes  No 13. Please recommend a retail product, not currently available, which if offered, will be readily availed by you. _____________________________________

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