Future of Retail Banking
- Bhaskar Ghose, Managing Director,
IndusInd Bank
Recent trends
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Aggressive entry strategies of foreign
banks to Retail Segment
Customer retention initiatives by PSU
Banks
Aggressive price-war on Retail Credit
Recent trends contd…
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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
Recent trends contd…
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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
Recent trends contd…
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Phenomenal rise in nuclear and dual income
families & enhanced spending power
Increasing literacy levels
Higher adaptability to technology banking
Recent trends contd….
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Growing consumerism
Fiscal incentives to Housing loans
Fastest economic growth over the decade
Retail Liabilities
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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
Retail Liabilities
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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
Retail Liabilities contd…
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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
Retail Liabilities -Future
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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
Retail Credit
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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
Retail Credit contd….
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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
Retail Credit contd….
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Banks overtake HFCs in Home Loans
Banks overtake NBFCs in Auto loans
The same trend would continue for next few
years
Retail Credit contd….
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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
Retail Credit contd….
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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
Retail Credit contd….
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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
Retail Credit contd….
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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
Retail Credit contd….
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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
Credit Card business
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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
Retail Credit - Challenges
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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
Retail Credit – Challenges
contd….
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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
Retail Credit –Challenges
contd….
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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
Retail Credit –Challenges
contd….
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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
Future- for the Customer
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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
Thank You