Recent trends, Retail Liabilities, Credit Card business,

1. Future of Retail Banking

2. Recent trends
 Aggressive entry strategies of foreign banks to
Retail Segment
 Customer retention initiatives by PSU Banks
 Aggressive price-war on Retail Credit

3. Recent trends contd…
 Rapid penetration of Personal Computers,
Mobile phones and on-line Trading and
purchase options encouraged increased usage
of technology banking
 Booming economy and continuous per capita
income will further push the living standards of
people

4. Recent trends contd…
 Customers’ preference to more and more
alternate channels for convenience
 Fee based income from remittance is shrinking
due to RTGS and other technology initiatives
 Higher short term interest and flatter yield
curves

5. Recent trends contd…
 Phenomenal rise in nuclear and dual income
families & enhanced spending power
 Increasing literacy levels
 Higher adaptability to technology banking

6. Recent trends contd….
 Growing consumerism
 Fiscal incentives to Housing loans
 Fastest economic growth over the decade

7. Retail Liabilities
 Banks continue to offer valued added Products
and Services for customer acquisition and
retention
 Retail Banking technology is gaining its
importance due to the continued demand
 Customer Relationship Management (CRM) is
going to be a mandatory requirement for
banks to leverage the existing relationship

8. Retail Liabilities contd…..
 Retail Banking customers are demanding more
and more features and product differentiation
 More and more Retail customers in the age
group of 20-35 with high saving potential
 Future of Retail Liabilities would be from Tier II
& Tier III locations

9. Retail Liabilities contd…
 Alternate delivery channels, channel
integration and single sign on expectation from
customers
 Branch Banking channels are going to be
business expansion channel than Transaction
processing centre
 More and more customers are moving out of
the Branch Banking channel to other alternate
delivery channels

10. Retail Liabilities -Future
 Rate of growth of deposit may be affected by
other investment opportunities like Mutual
Funds and Bonds
 Banks may prefer to have sharing
arrangements
 Smart Card/Stored value card would gain
importance

11. Retail Credit
 Retail Credit business shifted from Private
Money lenders to NBFCs and Banks in the last
decade
 Now, the shift is from NBFC s to Banks
 In future, the shift is expected from inefficient
Banks to Banks with set processes and quick
delivery systems

12. Retail Credit contd….
 Loan to GDP ratio is less than 40%, which is
only a fraction, compared to the developed
economy
 Every Bank has enough opportunities to
perform without unhealthy competition
 Business potential in Semi urban and Rural
areas are very high, which is yet to be
explored

13. Retail Credit contd….
 Banks overtake HFCs in Home Loans
 Banks overtake NBFCs in Auto loans
 The same trend would continue for next
few years

14. Retail Credit contd….
 Basel II implementation and necessity to have
stringent Risk Management systems would
exert pressure on Retail lending in future
 Banks with well defined systems and
procedures would emerge as leaders in Retail
Credit

15. Retail Credit contd….
 Home Loan is expected to grow at 30%
 Housing loan as % of GDP will touch 10%
 Used Car finance is growing over 20% rate
and is expected to continue

16. Retail Credit contd….
 Mix of Retail Credit is expected at – Home
Loan 49%, Auto loans 28%, Personal loans
16% and Consumer durables 7%
 Educational loans which are at a low ebb
also expected to grow at 20% in the
coming years

17. Retail Credit contd….
 Housing and Auto loans together, would
continue to contribute to the level of 18%
 Other Retail advances would move from 8
to 13%
 Agricultural segment is expected maintain
the 10% level

18. Retail Credit contd….
 Personal loan segment is also expected to
grow @ 20% with higher yield ranging from
12-16%
 Gross Retail Advances would move to over
40% of total advances in the next 5 years

19. Credit Card business
 Credit Card issuance at 50% growth rate in
2004-05, compared to 36% growth during the
pervious year
 Credit Card growth is estimated at CAGR of
20%
 Draft guidelines on Credit Card operations
would affect the Credit Card growth
 Single overall limit for Credit Cards would
ensure lower delinquency rate under the
segment

20. Retail Credit - Challenges
 Customer tendency to borrow more and repay
less may adversely affect the NPA levels in
future
 Future delinquency rates are not properly
factored in fixing the Retail credit pricing by
few banks
 Increased risk weight of Consumer Credit

21. Retail Credit – Challenges contd….
 Liquidity mismatches may emerge as an issue
 Slight change in economic scenario may affect
the whole system
 Existing Retail scoring models may not predict
impact of mild recession

22. Retail Credit –Challenges contd….
 Lack of Credit information of Retail customers
from the Banking system
 CIBIL is addressing the issue only to a certain
extent
 No system to eliminate multiple finances,
including Personal Loans
 Higher level of NPA from Personal Loans

23. Retail Credit –Challenges
contd….
 Higher Loan-to-value ratio may emerge as a
problem during recession
 Sale of assets without any control from the
bank in the case of Consumer Credit
 Growing incidents of frauds and cyber crimes

24. Future- for the Customer
 Future of Retail Banking is for the CUSTOMER
 Pricing is determined by Customer
 Competition among Banks would ensure him
better service at cheaper rate
 Customer would be able to discount his future
earnings as Retail Credit for his higher standard
of living

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