General Awareness

April 04, 2017 @ 01:15 PM

April 04, 2017 @ 01:15 PM

K. J. Somaiya Institute of Management Studies and Research, Mumbai

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Future of Retail Banking in India

Now, Retail banking sector is also happening industry in India. MBA graduates are being inducted in this industry too. Following general awareness article will help you to understand this industry and may be useful in WAT/Essay/GD and PI also.
 
Read:  Future of Retail Banking in India 
 
Retail banking is a service for two types of individuals: savers and borrowers. Services offered under this include savings and current accounts, mortgages, personal loans, debit cards, and credit cards.
 
It acts as an intermediary between two sets of people in society: preponers and postponers. Preponers are the borrowers who prepone their buying without having money today. On the other hand, postponers are the savers who postpone their buying despite having the money today. 
 
The term is generally used to distinguish these mass-market banking services from investment banking, commercial banking or wholesale banking. 
 
Retail banking is analogous to a one-stop shop for as many financial services as possible on behalf of retail clients. Some retail banks have even made a push into investment services such as wealth management, brokerage accounts, private banking and retirement planning.
 
While some of these ancillary services are outsourced to third parties (often for regulatory reasons), they often intertwine with core retail banking accounts like checking and savings to allow for easier transfers and maintenance.
 
Multiple advantages for the banks are acquisition of a huge customer base, multiple product offerings, better pricing and profitability, scope for cross selling and up selling financial as well as related products for increased per customer revenue and of course better risk proposition. 
 
A report by McKinsey & Company on 'Emerging Challenges to the Indian Financial System' (April 2013) has highlighted the huge potential available for personal financial services and the different spaces available for banks to en-cash this potential.
 
The forces that are shaping the personal financial services (PFS) in Asia are the continuing surge of new customers entering the banking system, the explosive growth of consumer credit at 30 percent per annum and the emerging need for wealth management due to increasing affluence. 
 
These forces will lead to paradigm shift in banking needs from traditional banking products and services (e.g., deposits and mortgages) to advanced investment, credit and advisory products and services (mutual funds, unsecured personal loans).
 
With rising income levels, India is becoming an increasingly attractive market for retail financial products. In addition to consumer credit, payment products such as credit and debit cards will drive growth, depending on issuers' ability to penetrate second tier towns and segments such as self employed.
 
Current offerings will be inadequate to capture these opportunities, leaving a gap for innovative players to fill in. With the Parliament passing the Banking Laws (Amendment) Bill in 2012, the landscape of the sector will change. The bill allows the Reserve Bank of India (RBI) to make final guidelines on issuing new bank licenses to fill in the current gap.
 
RBI had constituted the Jalan committee to examine the fit and proper criteria, business plans, corporate governance practices, etc, of new bank license applicants. Over two-dozen aspirants from the private and public sectors, including Anil Ambani-led Reliance Capital,Aditya Birla Nuvo as well as nonbank financial companies (NBFCs) such as Shriram Finance, Religare, L&T Finance and IDFC, have applied for bank licenses.
 
BimalJalan committee has submitted a report on the eligibility of the candidates. It is expected that RBI may issue 4-5 licences to set up new banks.
 
Financial inclusion remains a key issue as far as retail banking is concerned.  The bottom of the pyramid remains underserved and therefore it represents an attractive opportunity for the bankers to en-cash. But it will require innovative thinking as rural market has thinner revenue potential per customer.
 
While retail banking offers phenomenal opportunities for growth, the challenges are equally daunting. How far the retail banking is able to lead growth of the banking industry in future would depend upon the capacity building of the banks to meet the challenges and make use of the opportunities profitably. 
 
 
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