RETAIL BANKING

Retail Banking
• One of the spectacular innovations in the
commercial banking sector is the retail
banking. It refers to banking in which banks
undergo transactions directly with consumers
rather than with corporates or other banks.
Consumer credit is the heart of retail banking.
• Banks provide services to individuals and small
business concerns
• Retail banking is a system of providing soft loans to
the general public like family loans, house loans,
personal loans, loans against property, car loans, auto
loans etc.
• The products are backed by world-class service
standards and delivered to the customers through the
growing branch network, as well as through
alternative delivery channels like ATMs, Phone
Banking, Net Banking and Mobile Banking.
• Today’s retail banking sector is characterised by three
basic features; viz: -(i) Multiple products-deposits,
credit cards, insurance, investment and securities –(ii)
Multiple channels of distribution- call centre, branch,
internet –(iii) Multiple customer groups- consumer,
 Features of retail banking
• Retail banking aims at doing banking business in large volume of
transactions involving low value.
• The retail banking portfolio includes deposits and assets linked
products as well as other financial services provided to individuals
for personal consumption.
• Retail banking business is an attractive market segment with
opportunities for growth and profits.
• It provides an opportunity to banks to diversify their asset portfolio.
Since loans are given to a large number of consumers and
transactions have very low value, the risk of NPA is reduced
because all the consumers do not make default in making loan
repayment at a time.
• Retail banking is based on the maxim “do not keep all the eggs in
one basket”
Drivers of retail banking in India

1. The retail banking products are customer

oriented. Transactions with small value may
be cost ineffective in a highly competitive
environment. But retail banking eliminates
market risk.
[Link] India the demand for consumer durables
has increased owing to the economic growth
and prosperity and the consequent increase in
the purchasing power of the people.
• There is continuous rise in the percentage of
middle and the high income households in
India. Indian retail banking is facilitated by
improved purchasing power of consumers and
liberal attitude towards personal debt.
• [Link] has the highest proportion of the
population below 35 years of age (young
population). This is a positive factor for the
growth of retail banking in India. Changing
consumer demographic indicates a vast
potential for growth in consumption, both
quantitatively and qualitatively.
• 4. Another important factor which facilitated the
growth and development of retail banking is the
development of technology. Technological
innovations relating to increasing use of credit/debit
cards, ATMs, internet and phone banking etc. are
attracting many new customers to the banking field.
• 5. The lower levels of NPA in retail lending and
decrease in interest spread in the corporate sector
have encouraged the banks to shift towards retail
sector. Besides, fall in interest rates, availability of
consumer goods at competitive and reasonable
prices and income tax benefits, especially in case of
housing sector, have also contributed to the growth
of retail banking.
 UNIVERSAL BANKING
• Universal banking is a nomenclature given to a
new kind of banking function whereby a bank
can afford all kinds of loans for all purposes for
all kinds of customers. Customers can avail
credit from a bank for any purpose.
CONCEPT OF UNIVERSAL BANKING

• Universal banking is 'one-stop shop' and is a

combination of commercial banking and
investment banking. It seeks to provide the entire
gamut of financial products under one roof and
reflects the global convergence between
commercial banks, investment banking and
insurance companies. Universal Banking even
extends to overseas as regards its operations.
 Universal Banking covers:-
• formal banking of receipt of deposits,
• advances,
• merchant banking,
• underwriting,
• investing and trading in all types of securities,
• advisory services on mergers and acquisitions
by the corporate sector and so on.
• insurance. By entering into insurance sector,
the concept of Universal Banking has been
further broadened.
 Advantage and Limitations:
• It results in economy, efficiency, lower cost
and higher output. But there is a fear that
because of their sheer size they might gain a
monopoly, which is undesirable for the
economy. Also there can be conflict of interest
because of the combination of all types of
financial activities.
 UNIVERSAL BANKING IN INDIA

• The Narasimham Committee's Report (1998)

recommended the conversion of Development
Financial Institutions (DFIs), into Universal
Banks. ICICI an DFI took the lead and became
a Universal Bank by merging itself with its own
subsidiary ICICI Bank Ltd in 2002. IDBI also
decided to become Universal Bank and
merged with its own subsidiary IDBI Bank Ltd.
 The following Development Financial
Institutions have started converting
themselves into universal banks.
• Industrial Credit and Investment Corporation
of India (ICICI)
• Industrial Development Bank of India (IDBI)
• Export Import Bank (EXIM Bank)
• Industrial Finance Corporation of India (IFCI)
• Industrial Investment Bank of India (IIBI)
NBFCs – Types and Roles
 What is a NBFC?
• A Non-Banking Financial Corporation is a
company which is registered under the
Companies Act, 1956 or the Companies Act,
2013 and is involved in the lending business,
hire-purchase, leasing, insurance business,
receiving deposits in some cases, chit funds,
stocks and shares acquisition, etc. The
functions of the NBFCs are managed by both
the Ministry of Corporate Affairs and the
Reserve Bank of India.
Difference between NBFCs and Bank
 Financial Organisations which do not need a NBFC license
• Insurance Companies which are regulated by Insurance Regulatory and
Development Authority of India (IRDA)
• Housing Finance Companies which are regulated by the National Housing
Bank
• Stock Broking Companies which are regulated by Securities and Exchange
Board of India
• Merchant Banking Companies which are regulated by Securities and Exchange
Board of India
• Mutual Funds which are regulated by Securities and Exchange Board of India
• Venture Capital Companies which are regulated by Securities and Exchange
Board of India
• Companies that run Collective Investment Schemes which are regulated by
Securities and Exchange Board of India
• Chit Fund Companies which are regulated by the respective State
Governments
• Nidhi Companies which are regulated by the Ministry of Corporate Affairs
(MCA)
 The different types of NBFCs:
• On the nature of their activity:
– Asset Finance Company
– Loan Company
– Mortgage Guarantee Company
– Investment Company
– Core Investment Company
– Infrastructure Finance Company
– Micro Finance Company
– Housing Finance Company
• On the basis of deposits:
– Deposit accepting Non-Banking Financial Corporations
– Non-deposit accepting Non-Banking Financial
Corporations
 Requirements to be fulfilled in order to
obtain NBFC license:
• The fundamental requirements which are to
be fulfilled in order to apply for NBFC license
are as follows:
• The company has to be registered under the
Companies Act. That is the company should
either be a Limited Company or a Private
Limited Company (PLC).
• The minimum Net Owned Fund of the
company must be Rs.2 crore.
• The Top 10 NBFCs in India, 2018
• Power Finance Corporation Limited. ...
• Shriram Transport Finance Company Limited. ...
• Bajaj Finance Limited. ...
• Mahindra & Mahindra Financial Services Limited. ...
• Muthoot Finance Ltd. ...
• HDB Finance Services. ...
• Cholamandalam. ...
• Tata Capital Financial Services Ltd
• L & T Finance Limited
• Aditya Birla Finance Ltd