retail banking

“Retail Banking-An Overview Of HDFC Bank”

RETAIL BANKING

Concept of Retail Banking

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. 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 centre, branch,

Internet and kiosk); and Multiple customer groups

(consumer, small business, and corporate).

1

“Retail Banking-An Overview Of HDFC Bank”There are various banks providing the retail services to theconsenter all over India namely HDFC Bank, ICICI Bank, SBI,HSBC Bank, Axis Bank etc

ASHWITH .J. PUTHRAN A14006

EXECUTIVE SUMMARY

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. 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. Excess of

liquidity, increased dependence of corporate on capital

markets, the rising income of middle class with increase in

purchasing power and ability to handle debts, the increasing

amount of NPA’s from corporate portfolio and the growth and

future growth potential of the credit card business has

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“Retail Banking-An Overview Of HDFC Bank”induced banks to shift from wholesale banking to 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.

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.

Retail lending is becoming an important segment of bank

credit. A paradigm shift from corporate lending and

disintermediation are reasons responsible for resurgence.

Banks are facing fierce competition not only amongst

themselves but also from aggressive NBFC's. As a result,

interest rates on retail lending too have come down.

Retention of consumers is going to be a major challenge.

Second, rising indebtedness could turn out to be a cause for

concern in the future. Third, information technology poses

both opportunities and challenges. Even with ATM machines

and Internet Banking, many of the customers still prefer the

personal touch of their neighborhood branch bank. Fourth, KYC

Issues and money laundering risks in retail banking is yet

another important issue.

3

“Retail Banking-An Overview Of HDFC Bank”Customer service is perhaps the most important dimension of

retail banking followed by constant product innovation.

Quality and pace in delivery, introduction of new channels

of delivery, cross selling of products, price bundling, and

most important of all by become technology savvy.

Growth drivers in retail banking The growth drivers of retail lending are

analyzed as under:

Macro economic factors The lower uptake in the non retail sector has

compelled banks 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.

Depressed stock and real estate markets as

compared to those prevailing in 1992-1993 to 1995-

96, therby diverting deposits to the banking

sectors.

Comparatively stable real estate prices during

last 4 to 5 years have lead to spurt in demand for

housing loans

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Behavioral factors

Growing concept of nuclear families than the joint

families necessitating a need for housing units as well

other item 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.

Favorable role of RBI

Inclusion of housing loans within priority sector.

Direct finance up to rupees 10 lakhs in case of rural and

semi urban areas now from part of the priority sector

advances. This promoted banks to go for housing loans in a

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“Retail Banking-An Overview Of HDFC Bank”big way as it helped them to attain their targets of

priority sector lending.

Reduction in risk weight age banks extending loans for

acquisition of residential house property to 50% from 100%.

Reduction in capital adequacy ratio requirement has

effectively doubled the credit disbursement capacity of

banks.

Banks have elongated repayment periods of retail loans

years to 50/20 years besides quoting fixed/variable rate of

interest based on their asset liability management structure

and study of behavioral pattern of demand and time deposits.

Deregulation of interest rate with option to quote

fixed/variable interest rate.

Continuous reduction in bank rate, which resulted in

reduction in lending rates as well.

Southward movement in CRR and SLR ratios increasing

lending capacity of bank.

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5) Risks involving in retail banking in India

1) Customer focusThe retail banks in India will try to aggressively market

their products .to market these products their will be

innovative modes to reach customer like SMS, interest, and

mobile phones. Some banks are also engaging the services of

direct selling agents (DSAs), franchisees, etc for sourcing

and appraisal of loan proposal, issue of credit cards,

selling of insurance and mutual funds products etc.such

methods may sometimes displease/disturb the customer.

Moreover, banks generally pitch on higher levels of services

but if the banks do not match up to what they have claimed,

this may lead to unsatisfied customer and higher customer

attrition rates.

2) Product focusThe challenge here will be to design and innovate the

financial products which cater to the target segment needs.

In future, retail banking scenario sees a huge proliferation

of products. This will in turn require devising product

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“Retail Banking-An Overview Of HDFC Bank”which is easy to understand and the same time meet the

financial goals of the customer .the problem that lies ahead

is to gain a mind share for ones products given a wide range

of products.

3) Technology focusTechnology in India has been in India for over 7 yrs now,

but its penetration in the industry in general and that in

the financial services market has been rather uninspiring

despite its professed advantages.

4) Employee focus In a service based industry the value can be delivered at

the moment of interaction with the customers. It is vivid

from the above chart there needs to b focus on the employees

and upgrading their skills as they at the front end would be

the face of the bank. Hence, trading requirement factor

figures prominently in the case of banks due to the fact

that these banks generally do with just the required amount

of manpower and it is very difficult for them to spare them.

That will immediately start effecting their operations.

Banks, in a drive to carry on with the tremendous expansion

in terms of customer base, needs to have requirements of the

employees who are well employed about the products as well

as the necessary soft skills to deal and satisfy the 8

“Retail Banking-An Overview Of HDFC Bank”customers. In future there may be a problem of getting

manpower or in specific customer care executives with

enhanced skills, knowledge and attitude.

Strategies for success in retail banking

Banks can formulate the following strategies in order to

achieve success in the retail banking segment.

1) Constant product innovation to match the requirements of the customer segments

The customer data base available with the bank 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 products. The bank should come

out with new products in the areas of securities, mutual

funds and insurance

2) Quality services and quickness in deliver As most the banks are offering retail products of similar

nature, the customer can easily switchover to the one, which

offers better services that banks offer and the experiences

9

“Retail Banking-An Overview Of HDFC Bank”that clients have, matter the most. Hence, to retain the

customer, banks have to come out with competitive products

satisfying the desire of the customers at the click of a

button.

3) Introduction of new delivery channelsRetail customer 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.

4) Tapping of unexploited potential and increasing the

volume of business

This will compensate for 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

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“Retail Banking-An Overview Of HDFC Bank”5) Infrastructure outsourcing

This will help in lowering the cost of service channels

combined with quality and quickness.

6) Detail market research

Banks may go for detail market research, which will help

them in 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.

7) 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 produces through these branches.

For HDFC bank ,a lending private sector bank, as much as 30%

of its retail banking income is generated by cross sales

both in terms of own products, as well as that of parent

HDFC.

8) 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

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“Retail Banking-An Overview Of HDFC Bank”of ATMs can be outsourced. This will save the banks from

dealing with the intricacies of technology.

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PROFILE OF THE COMPANY

About HDFC BankThe Housing Development Finance Corporation Limited (HDFC)

was amongst the first to receive an ‘in principle’ approval

from the Reserve Bank of India (RBI) to set up a bank in the

private sector, as part of the RBI’s liberalization of the

Indian Banking Industry in 1994. The bank was incorporated

in August 1994 in the name of ‘HDFC Bank Limited’, with its

registered office in Mumbai, India. HDFC Bank commenced

operations as a Scheduled Commercial Bank in January 1995.

HDFC is India’s premier housing finance company and enjoys

an impeccable track record in India as well as in

international markets. Since its inception in 1977, the

Corporation has maintained a consistent and healthy growth

in its operations to remain the market leader in mortgages.

Its outstanding loan portfolio covers well over a million

dwelling units. HDFC has developed significant expertise in

retail mortgage loans to different market segments and also

has a large corporate client base for its housing related

credit facilities. With its experience in the financial

markets, a strong market reputation, large shareholder base

13

“Retail Banking-An Overview Of HDFC Bank”and unique consumer franchise, HDFC was ideally positioned

to promote a bank in the Indian environment.

Retail Banking Services

The objective of the Retail Bank is to provide its target

market customers a full range of financial products and

banking services, giving the customer a one-stop window for

all his/her banking requirements. The products are backed by

world-class service 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.

The HDFC Bank Preferred program for high net worth

individuals, the HDFC Bank Plus and the Investment Advisory

Services programs have been designed keeping in mind needs

of customers who seek distinct financial solutions,

information and advice on various investment avenues. The

Bank also has a wide array of retail loan products including

Auto Loans, Loans against marketable securities, Personal

Loans and Loans for Two-wheelers. It is also a leading

provider of Depository Participant (DP) services for retail

customers, providing customers the facility to hold their

investments in electronic form.

14

“Retail Banking-An Overview Of HDFC Bank”HDFC Bank was the first bank in India to launch an

International Debit Card in association with VISA (VISA

Electron) and issues the MasterCard Maestro debit card as

well. The Bank launched its credit card business in late

2001. By September 30, 2005, the bank had a total card base

(Debit and credit cards) of 5.2 million cards. The Bank is

also one of the leading players in the “merchant acquiring”

business with over 50,000 Point-of –sale (POS) terminals for

debit / credit cards acceptance at merchant establishments.

Awards

HDFC Bank has won many awards for its excellent service.

Major among them are “Best Bank in India” by Hong Kong based

Finance Asia Magazine in 2005.

“Company of the Year” Award for Corporate Excellence 2004-

05.

Asian Banker Best Retail Bank in India Award 2007 for

outstanding performance.

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Study of Retail Banking Products and Services by

HDFC Bank

Wide range of retail banking products and services are

offered by the banks, which cover both Depository and

Advances to suit various segments of customer like salaried

persons, businessmen, traders, professionals, pensioners

etc. are as follows:-

Housing loan.

Personal loan.

Vehicle or automobile loan.

Loan for consumer goods.

Credit and Debit cards-Global and international.

Loan for holidays.

Insurance products.

Gold loans.

Event loans.

Overdraft.

Mutual funds etc.

Leasing, hire purchase and factoring services

16

“Retail Banking-An Overview Of HDFC Bank”Retail banking depositories in various segments like

children, housewives, salaried class, professionals etc.

include the following: -

Flexi deposit accounts.

Savings bank accounts.

Recurring deposit account.

Fixed deposit

Lockers.

Other short-term deposits.

Banks are coming out with more features to add value to

retail banking products and services. These are called VALUE

ADDED PRODUCTS AND SERVICES. These include the following: -

Free collection of specified number of outstation

instruments per month.

Instant credit of outstation cheque.

Concession in commission, exchange for issuance of pay

orders and demand drafts.

Issuance of free chequebooks.

Issuance of free ATM cards.

Interest rate options (fixed or floating)

Waiver of credit card issuance fees.

Free issuance of Add On cards to the members of the

cardholders.

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Accident insurance cover.

Arranging for insurance cover on the lockers in the

bank.

Reducing the fees charged on locker facilities.

Free execution of standing instructions of customers.

Free investment advisory services.

Legal services for documentation

Services to senior citizens

Other services include

Payment of utility bills like electricity bills,

telephone bills and water bills etc. on due date.

Payment of monthly or quarterly education fee for

children.

Payment of insurance premium on or before due dates.

Demating of shares, debentures and bonds.

Telephone banking.

Internet banking.

Making payments at doorsteps.

Mobile banking.

NRI ACCOUNTS

The present menu of bank accounts for Non-Resident Indians

(NRIs) has three categories:18


1. Non-Resident (External) Rupee Accounts (NRE)

2. Non-Resident (Ordinary) Rupee Accounts (NRO)

3. Foreign Currency Non-Resident (Banks) Accounts FCNR (B)

Opportunities and Challenges of Retail

Banking in India

Opportunities

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,

recently identified India as the "second most attractive

retail destination" of 30 emergent markets.

The rise of the 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

19

“Retail Banking-An Overview Of HDFC Bank”purchasing power, but as far as acquiring personal debt is

concerned, they are perhaps more comfortable than previous

generations. Improving consumer purchasing power, coupled

with more liberal attitudes toward personal debt, is

contributing to India’s retail banking segment.

The combination of the above factors promises substantial

growth in the retail sector, which at present is in the

nascent stage. Due to bundling of services and delivery

channels, the areas 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. What are the challenges for the industry and its

stakeholders?

Challenges

What are the challenges for the industry and its

stakeholders?

1. Retention of customers is going to be a major challenge.

According to a research by Reichheld and Sasser in the

Harvard Business Review, 5 per cent increase in customer

20

“Retail Banking-An Overview Of HDFC Bank”retention can increase profitability by 35 per cent in

banking business, 50 per cent in insurance and brokerage,

and 125 per cent in the consumer credit card market. Thus,

banks need to emphasize retaining customers and increasing

market share.

2. Rising indebtedness could turn out to be a cause for

concern in the future. India’s position, of course, is not

comparable to that of the developed world where household

debt as a proportion of disposable income is much higher.

Such a scenario creates high uncertainty.

Expressing concerns about the high growth witnessed in the

consumer credit segments the Reserve Bank has, as a

temporary measure, put in place risk containment measures

and increased the risk weight from 100 per cent to 125 per

cent in the case of consumer credit including personal loans

and credit cards (Mid-term Review of Annual Policy, 2004-

05).

3. Information technology poses both opportunities and

challenges. Even with ATM machines and Internet Banking,

many consumers still prefer the personal touch of their

neighborhood branch bank. Technology has made it possible to

deliver services throughout the branch bank network,

providing instant updates to checking accounts and rapid

movement of money for stock transfers.

21

“Retail Banking-An Overview Of HDFC Bank” However, this dependency on the network has brought IT

department’s additional responsibilities and challenges in

managing, maintaining and optimizing the performance of

retail banking networks. Illustratively, ensuring that all

bank products and services are available, at all times, and

across the entire organization is essential for today's

retails banks to generate revenues and remain competitive.

Besides, there are network management challenges, whereby

keeping these complex, distributed networks and applications

operating properly in support of business objectives becomes

essential. Specific challenges include ensuring that account

transaction applications run efficiently between the branch

offices and data centre.

4. KYC Issues and money laundering risks in retail banking

is yet another important issue. Retail lending is often

regarded as a low risk area for money laundering because of

the perception of the sums involved. However, competition

for clients may also lead to KYC procedures being waived in

the bid for new business. Banks must also consider seriously

the type of identification documents they will accept and

other processes to be completed. The Reserve Bank has issued

details guidelines on application of KYC norms in November

2004.

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11) CASE STUDY

The HDFC Bank face the problem on E-Remittance flows comes

from foreign country for this they prepaid case study for

this to solve the problem on e-remittance the case study are

follow.

Challenge

There are large sums remitted into the country by the NRI

community. A large quantum of the flows comes in from the

Gulf (Middle East) region. Most of these inward remittances

come through the ' Rupee Drawing / Draft Drawing'

arrangements the Exchange Houses have with Indian Banks,

Solution

India Link System seeks to offer a compelling value

proposition to the large high net worth NRI Customer

segment. The Service is to allow the NRI community to remit

funds to India efficiently, safely and speedily

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Conclusion

The banking industry has a very important role to play in

the common man’s life. The middle class in India is big in

number and ever growing. Therefore, in order to satisfy the

requirements of this growing middle class, banks have to

offer the best of financial products and services, and that

too at an attractive cost. Doing this project was a great

experience and in the deal I learnt quite a bit about the

banking sector, specially the retail segment. In finding out

more about this sector, I have collected invaluable

information about the banking industry. What I have tried to

do here is to gain an understanding of banks, particularly

focusing my attention on the retail segment, which is such

an important part of each one’s life today.

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As a very famous saying goes

“Degrees Can Be Put On Display, But Knowledge Can’t”, what I

have presented here is just a project but what I have earned

in the meanwhile is something which is much more precious

that anything in this world i.e. knowledge. So doing this

project has definitely added to my knowledge.

Bibliography

HDFC Bank brochures

www.hdfcbank.com

The Times of India

The Economics Times

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http://www.hdfcbank.com/

retail banking

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