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The banking sector has under gone turbulent changes in the past few years. The
financial sector reforms have brought in the entry of new private sector and
foreign banks in the country. The conventional banking as outlined above has
given way for professional and high-tech banking. There has been a paradigm
shift from the monopolies of public sector banks to competitive banking. Public
sector banks can no longer remain complacent with their conventional products
and services. With walk in business virtually being ruled out, banks are now
scouting for quality consumers both for building their resources and assets

There were times when the corporate clientele occupied the centre stage and the
retail ones were pushed to the back seat. The slow down of the economy,
sluggish industrial growth and slump in agricultural activities have pushed the
commercial banks to look to the retail customers.

Retail banking has both pros and cons. In a situation like today, the bankers have
very little option, but to chant the “Retail Mantra”


Retail credit outstanding as on March 22, 2003, amounted to Rs 1,60,000 crore.

According to one estimate, the retail segment is expected to grow at 30-40% in
the coming years.
Major Players: State Bank of India, HDFC Bank, UTI Bank, IDBI Bank and ICICI
The ratio of retail credit to net credit in the global level is around 5%. In India, it
is interesting to note that this ratio is over 10% as on March 31, 2002 (Source:
RBI, Annual report). With the economic reforms set in motion, the country is
already rated as a major hub for economic development. Increase in per capita,
change in lifestyle and growing urbanization has made the Indian population rise

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from oblivion and resurges in a modern era. Traditionally against incurring a

debt, the policy of save and spend is gradually giving way to spend and save


Retail banking can be crudely defined as the antonym of wholesale or bulk

banking. It is nothing, but shared business. A deposit of Rs.1 lakh from single
customer vs. small deposits of Rs. 10,000 each from 10 different customers. The
corporate and retail divide is nothing but internal segmentations and the
customer remains always a customer.

Retail banking generally refers to offering financial services, products related to

deposits and assets to individual customers for personal consumption.

Banks concentrate on various segments like professionals, housewives,

pensioners, children, salaried class etc. Different types of products like recurring
deposits, savings bank deposits, fixed deposits, credit cards, housing and
consumer loans and educational loans are offered by banks to the above
mentioned marked segments.

The domain of retail banking market has tremendous growth potential for banks
and finance companies, as at present it is largely untapped. The penetration
level is 2.5 to 3 % and is in a scenario when the requirements of the consumers
are growing. In the past, people never believed in buying consumer goods on
credit. But today the attitude is changing. The demand for consumer products
has increased. Today, about 70% of consumer goods purchased are through
finance schemes/loans as against 40% about 1 to 6 years ago. The home loans
alone account for nearly two-third of the total retail portfolio of the bank

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Retail banking has inherent advantages outweighing certain disadvantages.

Advantages are analyzed both from the resource angle and asset angle.


Stable and constitute core deposits. Better yield and improved bottom line.

Less bargaining for additional interest. Good Avenue for funds deployment.

Low cost funds. Lowe risk and NPA perception.

Builds customer base. Helps economic revival of the nation through

increased production activity.
Increases subsidiary business Improves lifestyle and fulfills aspirations of the
people through affordable credit.
A safe and convenient saving avenue. Innovative product development.

Minimum marketing efforts in a demand-driven


Risk weight in certain segments like housing


Current scenario

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According to the Reserve Bank of India annual report for 2001-02, as on March
22, 2003, retail credit outstanding amounted to Rs 1,60,000 crore, including
housing loans, loans for consumer
Net Bank Credit
durables, loans to individuals
against shares and bonds, other
non-priority sector personal loans
and advances against fixed
85.9% deposits. That's 14.1 per cent of
Retail credit
net bank credit outstanding, and
15.6 per cent of non-food gross
bank credit.
Incremental retail credit in FY02, at Rs 14,114 crore, was 20.8 per cent of
incremental net bank credit, and 26.3 per cent of non-food bank gross credit.
Retail credit increased by only Rs 7,026 crore in FY01, and accounted for merely
13 per cent of incremental non-food gross bank credit.
The sharp acceleration in the rate of growth of retail credit is clear. The fastest
growing business segments are housing loans, incremental growth in which was
Rs 6,203 crore in FY02, compared with Rs 2,043 crore in the preceding year;
and the category "other non-priority sector personal loans", the outstanding of
which increased by Rs 5,338 crore in FY2002 compared with Rs 2,655 crore in
the previous year.
The higher exposure to retail lending has come at the cost of credit to industry.
Compare the 32.6 per cent of incremental non-food gross bank credit that went
to medium and large scale industry five years ago, in 1996-97, WITH the 17.7
per cent that went into the segment last year. Or consider the 13.8 per cent of
incremental non-food gross bank credit that went to small scale industries in
1996-97 with the measly 2.2 per cent that went into the segment last year to
realize how lending has changed in the last five years.


(Figures in brackets indicate percentage to the total) Rs. In crores

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Sr. No Type Mar-00 Mar-01 Mar-02

1 Housing 14100 16143 22346
(3.52) (3.44) (4.16)
2 Consumer durables 3855 5566 7015
(0.96) (1.19) (1.31)
3 loans to individuals against shares/bonds 2146 1697 1520
(0.54) (0.36) (0.28)
4 other non-priority sector personal loans 15409 18064 23402
(3.84) (3.85) (4.36)
5 sub-total 35510 41470 54283
(8.86) (8.84) (10.11)
6 Gross bank credit 400818 469153 536727
(100) (100) (100)
Source: Report on Trend and progress of Banking in India 2001-02,RBI

Banks With Large Network

Bank April 01 March 02
ICICI Bank 510 1000
UTI Bank 303 480
HDFC Bank 207 410
IDBI Bank 77 225
GTB 101 200
Total 1234 2313
Source: Annual Report and websites of respective banks

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Retail Banking Functions available in India

A banks retail offering can be broadly categorized into Core service, facilitating
service, and supporting service. Core service is the reason for being in the
market, facilitating services are needed so that the core service can be used, and
supporting services exactly discriminates the service package from the services
of competitors.

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Categorization of retail bank services:

Core services Facilitating services Supporting services

Payment services Cash Making payments at door step

Foreign Currency
Requirement Internet banking
Traveler Charges
DD/ Bankers Cheque Telephone banking
Current account and savings ATM card Credit cards
account Standing instructions from
customers for making Debit cards
Inter branch/interbank transfer Services to senior citizens
of funds
Safety vault Telephone banking

Internet banking

Conversion of excess balance

to Time deposits
Loan products: Consumer Current account Delivery of loan at promised
loans, personal loans, housing Savings account time period
loans, educational loans Time deposit account Interest rate option:
Flexibility in pre-payment of
Counseling on Real-estate
Legal services for
ECS for payment of loan

Insurance products: Life Current account Additional insurance facility for

insurance, pension schemes Savings account family members
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Time deposits Counseling on post retirement
Safety vaults savings


Auto Finance


Average customer age is less than 30 yrs.

Target customers can be classified into the following income groups:

Vehicle Category Income Group Profile

Two Wheelers 3000 – 8000 Young, ambitious, newly employed or low
salaried and Parents of young adults.
Cars & other 10000- 20000 People with families, settled job, higher middle
MPV’s class, office going or businessman.
( Personal Use)
Cars, Three - Self-Employed, Small businessmen to enhance
Wheelers & other their services, to start new business.
( Business Use)
Heavy Vehicles - Businessman & Self-Employed

 Major Influencers – Dealers, DSA

 Newly employed people are more attracted towards this loan as people like to
have more in very short time.
 More influence is amongst the people who aspire to buy a two or four wheeler
for improving their social status.

Sector Analysis

 Market size is Rs. 7500 crore next only to housing segment

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 About 75% of the vehicles especially the cars sold in the country are through
consumer loans schemes.
 The factors that propel growth are :
 Low interest rates.
 Poor urban transport in many areas, increasing income levels .
 Even for second hand cars finance is available.
 Increase in GDP growth.
 Increased income levels and changing lifestyles.
 Nearly 3 lacs second hand cars have been financed.
 Default rate for car loans is around 1 %.
Infact on account of liberal financing by banks, production of passenger cars,
motorcycles and scooters has registered good growth
It will also provide a boost to the auto manufacturing sector.


The sector offers intense competition among players. Major competitors in the
sector include ICICI, SBI, HSBC, HDFC etc.
Banks and NBFCs have tie up arrangements with the automobile dealers for
making available vehicle finance.
This has proved to be advantageous for customers also. They can complete all
the formalities with less paper work at the auto dealers’ showroom itself without
going to bank.

Market Leader

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The auto finance market is led by ICICI. ICICI bank funds about 15 % of cars that
are rolled out. ICICI banks retail portfolio as on September 30, 2002 was over
Rs. 134.61 billion, as compared to combined retail portfolio of ICICI and ICICI
bank of about Rs. 77.35 bn on March 31, 2002. Every bank has its unique
segmentation and targeting strategy. Similarly ICICI also follows a segmentation
strategy to divide its market into strata’s. This helps them to decide upon their
target audience and what are their wants and needs.

ICICI’s Segmentation Strategy

The ICICI bank in India has adopted ‘Life Stage Segmentation Strategy’. This
approach aims to minimize overlaps between two segments by categorizing
customers into various segments based on the stage of life they have reached.
The banks philosophy is to have product idea for every stage of an individual’s
life from childhood to retirement and the bank has a wide product range.
ICICI is also adopting a strategy of creating a liability based product along with a
asset based product and vice-versa.

Market Targeting Strategy:

Based on the Life Stage Segmentation Strategy ICICI has divided its market into
various segments constituting people from different age group and income class.
This has helped them to decide which segment is to be targeted for which retail
For eg: The target market for auto finance are people belonging to the age group
of 28-35 yrs., having a settled job or business and belonging to middle class.

Consumer Credit

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 Consumer credit sector is growing at 15%

 Easy credit terms
 Consumer credit encompasses extension of loans for white goods,
educational loans, finance for meeting travel, medical expenses etc.
 Demand for loans for acquisition of TV, cell phones, AC’s, dish-washer,
washing machine, fridge etc. is on the rise.
 There are nearly 12 lakh outlets contributing to Rs.14000 Cr to the GDP
(about 1.2% of GDP)
 Further investments of Rs. 35000 Cr are in the pipeline.
 Banks also offer loans through tie-ups with corporates.
 Default rate is a bit high at 3%-4%. This explains the relatively higher rate of
 Basic understanding of middle class drivers is a must.
For unsecured loans, return is high and at the same time competition is low.

Customer Profile

Customers in the income bracket of Rs. 3000 - 10000 p.m.

Usually availed by young married couples but with the change in people’s
perception about loans every strata of the society is getting attracted to
Customers normally belong to middle class families.
People aspiring to improve their standard of living are normally attracted towards
this loan.
Consumer loans are normally taken by people buying new houses, so the target
customers are mostly those people who take housing loans.

Credit Cards:

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Mention cards and most people will think of credit cards. Yet, popular as they are,
credit cards, which are accepted as a payment device at over 20 million shops
worldwide, really represent just one type of card. Other cards include debit cards,
smart cards and charge cards.

 A smart card is used to store cash in an electronic form.

 A charge card carries all the features of credit cards except that you cannot
defer your payment to the card company.
 A debit card is simply used as substitute for cash or check payments

Consumer profile
 Credit card users generally belong to the income bracket of Rs. 90,000 p.a.
and above.
 There is a large middle class segment who are prospective cardholders and
cannot satisfy the normal criteria for issuance of cards.
 Most of the middle class people do not go for credit cards because they do
not want to fall in the debit trap in view of their low income levels.
 There are about 5.5 bn cardholders in India but the average amount spent is
very low.
 However, slowly people in India are getting acquainted with the plastic money
 Traditionally used by rich people to avoid carrying heavy cash.

Sector Analysis:
Card industry has migrated from paper-based to terminal-based as a part of risk
administration. Tier-I cities are highly targeted by multiple issuers and acquirers.
Many big players of the market are averse towards cities other than tier-I,

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although tier-II cities have a potential of being a promising markets for credit
 There are 6 million cards in use.
 The potential is anticipated at 40 million.
 Credit card culture pioneered by foreign banks initially like Citibank,
StanChart etc. in our country.
 Payment habits have undergone a change.
 Credit cards have increased from 5 lacs in 1992 to 60 lacs in 2002 (avg.
growth at 20-25 % p.a.)
 The average annual spending through credit cards is around Rs.18000 Cr.
(which is less than 1% of total personal consumption spending in India, as
compared to 30% in US. SBI, ICICI Bank has a card base of 9 lacs and 6 lacs
 Credit cards in India are used more as a transactional investment rather than
as a medium of servicing credit.
 It offers an attractive interest of 30% to 36%.
 Card business is popular on account of its wider acceptability
 Credit card usage also entitles holders for attractive bonus, incentives, loyalty
points etc.
 The debit cards usage is also becoming popular with a card base of one

Banks in India have realized that the credit card business need not remain an
exclusive preserve of foreign banks like Citibank or Standard Chartered Bank.
Card business is a very potential and fast growing market is no where near the
market potential. State Bank of India, a late entrant has already issued 9 lakh
cards. HDFC Bank, another late entrant has reached a card base of over
70,000. Citibank Suvidha credit card is also turning out to be a great success
story. Other important players in the sector are HSBC, SBI, ICICI, UTI etc.

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There is a case for reduction in the rate of interest on debit balances from
present level of over 30% p.a. Interestingly, Andhra bank and HDFC bank rather
than any other foreign banks have taken positive steps in this regard. The
network of branches does not seem to be effectively utilized for marketing by
Indian banks in credit card business. If only these banks becomes market savvy
and exploit branches to the hilt in issuance of credit cards, there could be great
success awaiting them.


(in lakhs)

15.77 16 CITIBANK
5.88 HSBC

9.03 14 ALL OTHERS

The potential segments which many banks have not explored so far are self-
employed people and housewives. Self-employed people due to lack of proper
identity (i.e. either salary certificate of PNR number) are still borrowing at a
higher rate and banks are no t assessing the credit risk premiums properly.
Similarly, a suitable banking product is required, which makes the housewife to
feel liberated and empowered. The survey of NCAER shows that rural India is
gradually possessing variety of consumer durables and electronic goods. Banks
have to design suitable products to meet the requirements of rural rich and rural
poor. Census of 2001 shows that India has 423 towns (Eight Metros, 19 Mini
Metros, 396 Towns), and that financial products are very rare for urban poor and
low salaried persons.

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Housing Loan - Nesting becomes a lucrative business

If one were to study the sector-wise performance over the last five years, the
housing finance industry has outperformed everyone’s expectations. Loan
disbursals have grown at a CAGR of over 35% in the last five years. But the
industry is still fragmented with a large number of players spread across different
parts of the country. There are nearly 383 HFCs or housing finance companies in
the country currently. This is apart from the numerous banks that have entered in
to the fray. In this article we look at the nature of this industry, its trends, the
major players involved and the prospects of the industry going forward.
The housing finance industry is estimated to be worth nearly Rs 330 bn (FY02)
and is estimated to have grown by nearly 28% compared to FY01. A huge deficit
of nearly 40 m (FY02E) dwelling units is likely to ensure that the robust growth
rates in this sector will continue in the future.

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 Customers normally belong to age group of 25-35. The average consumer

age is 31 years.
 These customers generally are in the income bracket of Rs. 8000/- p.m. and
 Normally availed by :
 Newly married couples
 Families breaking up into nuclear families
 People aspiring to acquire higher status and improved standard of living.
 DINK - ‘double income no kids’ i.e. both the husband and spouse earning.
 Indian middle class forms the major chunk of the customer portfolio.
 Primary influencers in a housing loan decision are

Tangible Factors:
 Builders
 Housing Estate agents
 Banks
 Friends & Relatives

Intangible Factors:
 In India, owning a house has a high social regard.
 Insecurity of staying in rental houses.
 Sense of Belongingness.

Industry in Transition

Demand for this category is picking up due to -

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 Steady fall in interest rates.

 Increased start-up salaries.
 Aspirational changes in lifestyle.
 More hassle-free.
 Offer of free insurance cover for various risks.
 Offer of various incentives in the form of low or no charges for pre-closure of
loan-lower processing / administrative/ documentation charges; interest on
reducing balance method; choice or option for fixed/floating interest rates etc.
 Income tax shelters on interest paid.
 Fall in interest rates has changed the way the salaried class view housing
loans. The interest rates on housing loans have declined from average 17-
18% in 1994 to 7.25-8.5% now, thereby making loans cheaper.
 Earlier, houses would cost on an average 20 years of salary, which has now
come down to just 8-10 years' salary.
 Changing demographics of the Indian populace has also played an important
role in the development of this industry. The emergence of a new class of
families called DINK or ‘double income no kids’ has played its part.

 The key players are HDFC, LICHF, Canfin Home, SBI, ICICI, Bank of Baroda
 There is very stiff competition in the matter of interest rates- rate cuts are
announced at very frequent intervals.
 The market size is expected to grow to Rs.40, 000 Cr.
 Size of the loan varies from Rs. 2 lakhs to Rs. 1 Cr. Average tenure of
housing loans is 15 years
 Lower default rate is a big attraction for banks to take-up to housing finance
(default rate is just 0.5%).

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 It provides a big impetus for housing construction activities also-growth in

infrastructure industry.
 Transaction cost is also low.
 It is easier for banks to appraise/assess as they look into fewer aspects like
background, employment, experience, number of dependants, previous track
record, proof for pay, copy of IT returns, property documents and age of the
property etc.

Market Fragmentation
Before going any further, a brief view at the level of fragmentation in the industry
is of significance. The graph above gives us the breakup of market share based
on outstanding housing loans as on March 31, 2002. The split up pie of the
market share indicates that HDFC is still the market leader followed by SBI. But
in terms of the housing loan assets, LIC Housing Finance limited (LICHF)
occupies second spot next to HDFC.
What is significant is the fact that banks have stepped in to the domain of these
HFCs and are capturing market share of the incremental loans disbursed.
Currently, banks have garnered close to 35% share of the housing finance
market by offering competitive rates of interest. Among banks, SBI and ICICI
Bank have been the most aggressive as far as loan disbursals are concerned.

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We expect the trend to continue with banks gaining a larger share in incremental
loan disbursals.

Performance of HFCs
Particulars FY98 FY99 FY00 FY01

Growth in income 15.1% 17.0% 14.2% 21.4%

Growth in net profits 16.6% 3.4% 17.1% 17.9%

Source: NHB % change compared to corresponding previous period

New dynamics
An important development in the housing finance business has been the entry of
new players. The relatively low risk in a housing portfolio has spurred new
entrants in the last few years. Arguably, the most significant entrant has been
ICICI Home Finance. Among non-banking finance companies, Sundaram
Finance and Tata Finance launched housing finance subsidiaries in the recent
past, while banks have shown increased interest in acquiring housing assets.
Banks have always had subsidiaries handling housing finance, but in the recent
past they seem to have taken a greater interest in building retail assets. Banks
have a clear advantage in the field simply because they access the lowest cost
funds in India. As things stand, a loan from a bank is less expensive than one
from a housing finance company.
Despite the overwhelming advantage that banks have, HFCs are unperturbed.
The reasons range from a feeling that banks will lose interest in retail finance
after a point to a belief that banks are not geared to servicing a big thrust into
housing finance. In short, the HFCs believe banks cannot match them in a critical
area — service.

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Access to resources: Another differentiator

Dewan Housing and LIC Housing Finance both run operations with a profitability
level of about 20 per cent. Despite that, Dewan is unlikely to grow at LIC
Housing's pace in the current environment. LIC's superior pedigree and access
to resources appears to have played a critical role in larger disbursements. For
example, between 2000 and 2002, Dewan's housing loan disbursement grew
from Rs 163 crore to Rs 200 crore. On the other hand, between 1999 and 2001,
LIC Housing's disbursements to individuals grew from Rs 945 crore to Rs 1,597

Changing Contours
The fast-changing environment has had a telling impact on HFCs. Following
heightened competition, spreads (difference between interest income and
expenditure) have declined over the last couple of years. HDFC feels that its
current spread, of 1.8-2 per cent, is likely to hold firm. Competition has whittled
down high margins and changed housing finance into a low margin, low-risk
With their geographical spread and customer knowledge, the HFCs are trying to
tap new opportunities that have come up. Using their existing infrastructure to
sell other financial products to retail customers has caught the fancy of the HFCs.
The opening up of the insurance industry, in particular, seems to have triggered a
determined move to diversify income stream.
Even here, the bigger players are in a different league. For instance, a HDFC has
the resource base to promote subsidiaries in most other areas of financial
intermediation — be it asset management, insurance or commercial banking.
Smaller HFCs that have wide distribution networks can only hope to leverage
their reach for a commission.

Why Is It a safe Bet?

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A house is generally the single largest investment an individual makes in a

Moreover, the emotional dimension of a house makes it intrinsically safer for a
Another factor that adds to the safety of the loan is that most borrowers have a
significant level of personal money invested in a house. If they lose possession of
a house, it would mean a lot of personal wealth slipping out.
None of the factors that have thus far made home loans one of the safest
deployment avenues is likely to change in the near future, thereby ensuring that
the business remains one of the financial sector's safest.
THE relatively negligible risk in housing finance is best illustrated through an
example. HDFC, the market leader in housing finance, had aggregate bad loans
of 0.81 per cent of its portfolio on March 31, 2001. At the other end of the
spectrum, a much smaller company, Dewan Housing Finance, had aggregate
bad loans of about 0.5 per cent in March 2002.
Corporation Bank, one of the soundest banks in the country, had an aggregate
bad loan of 5.4 per cent of gross advances in March 2001. Among non-banking
financial companies (NBFCs), a tightly run company such as Cholamandalam
Finance reported in June 2001 that 1.5 per cent of assets had problems. Thus, a
portfolio of housing assets seems safer than a mixed portfolio that other financial
intermediaries have.

Kya Hoga Next??

Prospects of the housing finance industry look encouraging mainly due to the fact
that the gap in demand and supply has not been corrected adequately. At the
end of the ninth five-year plan period i.e. FY02, the shortfall in dwelling units was
in the region of 40 m. In terms of dwelling units the Urban Affairs and
Employment Ministry has stated that cumulatively India will have to add a
minimum of 6.5 m houses per year to add 33 m houses in order to bridge the
current gap. At present the supply of houses stands at close to 2.5 m per year.

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Apart from that the Indian economy may have reached a stage where interest
rates may continue to remain soft over the long-term. This is likely to ensure a
steady demand for housing loans.

Housing shortage continues

(million units) FY71 FY81 FY91 FY01E

Rural 11.6 16.3 14.7 12.8

Urban 3.0 7.0 8.2 6.6

Total 14.6 23.3 22.9 19.4

Source: NHB

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 Retail banking supermarket with the ability  Efforts are concentrated more towards the
to cross-sell entire range of credit products. urban consumers thus ignoring the rural

 Innovative products counterpart.

 Technological superiority  Number and spread of branches is very low

as compared to PSU banks.
 Wide distribution
 Excessive focus on non-branch distribution
 High top of mind awareness due to
channel reducing the scope of personal
aggressive advertising
interaction needed for the sale of retail
 Strong Credit controls products.
 High Customer Service Standards

 Economies of scale through growing


 24x7 service levels

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 Changing consumer outlook towards loans  Stiff competition in the housing loans
and related products segment from HDFC, LIC Housing etc.

 Rising consumer income levels  In the Credit card segment, competition

 Increasing banking habits among Indian from Citibank, StanChart etc.

consumers  Of late, lots of Non Banking Financial

 Being No.1 in the auto finance segment Institutions have emerged and have eaten

paves the way to consolidate its market up the banks’ market share.

leadership across all the segments.  Educating people by way of

 Rapid increase in the retail loan market advertisements might help competitors to

size to the tune of 30 – 40 % reap the benefits.


Of late banks are coming up with innovative product offerings and promotion
schemes to tie up old customers and attract new customers. Some of the
innovative offerings are listed below:-

 Standard Chartered ANZ has launched the Home Saver Account. Along with
the Home Loan, your will get a FREE savings bank account into which you
may deposit your monthly salary. The EMI for the loan will be automatically
reduced from your account. The excess balance in your savings account will
earn interest that will be adjusted against your future EMI payments. The
bank claims that the effective interest rate gets reduced by upto 45% because
of this scheme.

 Citibank

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 Offer loans with no guarantors. Most banks require that you present a
guarantor who will back you up if you default on your loan repayment. It
can often be embarrassing to ask friends to stand guarantor as most
banks do not accept relatives as guarantors.
 Citibank gives home loans upto 90% of the property value, the highest
from any bank (only Tata Hsg Fin. matched this offer)
 Citibank offers a flexi-savings account to reduce your cost of borrowing.
The bank will automatically open a Saving Account from which you can
give standing instructions to deduct the EMI payments for the loan. You
can then prepay the loan at any point in time and be given instant credit
for the same, in case you get a large lump-sum annual bonus from your
employer. Should you require money in an emergency at any point you
can avail of a over draft on this savings account at an interest rate that is
the same as that on your Home loan. This works out much cheaper than
taking an over draft on a normal savings account

 Dewan Housing Finance and LIC Housing Finance Ltd. offers consumer
loans to their existing Home Loan customers at a discount to market rates.
The customer has to be a housing loan borrower for the period not less than 6
month with a good repayment record
FREE DOUBLE PROTECTION PLAN in the form of Personal Accident Risk
Cover and Property Insurance

 GIC Housing Fin.

 Gives a free personal accident cover along with the loan. Oriental Bank of
Commerce has started to offer a free property insurance cover of the
value of property and a free accident cover of upto Rs. 5 lacs.
 GICHFL gives Consumer loans for purchase of home equipment at the
same interest rate as the home loan to customers at rates of interest that

N.L.D.I.M.S.R 25

are the lower than other consumer loans. The total loan amount including
the housing loan can be upto 90% of the value of the home. The tenure of
the consumer loan is restricted to 5 years.


 Offer Flexible (Customized) Repayment Schemes, keeping in mind the

fact that each individual has a unique problem requiring unique solutions,
HDFC has developed various repayment options like Step Up Repayment
Facility, Flexible Loan Installment and Balloon Payment Scheme
 Pari Passu/ Second Mortgage Arrangements: HDFC has a tie-up with a
large number of Public Sector Organizations and banks which enable us
to offer loans to your employees with the flexibility of their spouse also
availing a loan from his/her own employer
 Safe Document Storage Facilities: HDFC has state of art storage
facilities, which are theft and fire proof, at various locations where loan and
property documents are stored. In this way valuable documents are stored
safely over the period of the loan and are released almost immediately after
a customer repays his loan
 A customer, after availing of a loan can approach HDFC anytime thereafter
to increase the Equated Monthly Installment which will help him repay the
loan faster.
 Home Conversion Loan offered to its existing customers who are
interested in moving to a new house. Through this scheme customers can
apply to have their existing loan transferred towards the purchase of the
new home. Customers may also apply for an additional loan amount for the
purchase of the new house. This gives the customer the option of selling
their existing house, if they wish to, without having to repay their old loan

N.L.D.I.M.S.R 26

The fixed rate loan can be converted to floating without any penalty
charges. However, you will be charged 2% if you refinance the loan from
another company

 Hudco

 Will waive the last 2 EMI payments on the loan if the customer has a
perfect repayment record with no bounced cheques. The loan amount
initially taken must exceed Rs. 5 lacs and no prepayments where to have
been made during the tenure of the loan. This is not available for the
Floating rate loan.
 There is a discounted start-up fee for Government employees. The
Administrating fees stand reduced from0.7% to 0.5% only.
 Free triple insurance - property cover, earthquake cover and personal
accident cover. given free along with the loan ( not available for the
Floating rate loan)
 You can prepay the entire loan in any year without any prepayment
penalty. Each prepayment has to be at least 10% of the outstanding loan.
However, the floating rate loan has a 1% prepayment penalty.


 Offers flexible interest rate loans that can be reset every year depending
on the prevailing interest rates at that point. The new interest rate will be
applicable for the rolling one year
 Guarantor is required only for loans more than Rs. 10 lacs. Else no
 You can prepay up to 25% of the outstanding loan in any year without
paying a penalty. For amounts over that, 2% penalty levied.

N.L.D.I.M.S.R 27


 Launches a 30 year tenure home loan, the longest available

 ICICI also launches a variable rate loan with a monthly rest basis versus
the regular fixed rate loan that is on an annual rest basis
 No guarantors are required for loans up to 20 years in most cases
 No pre payment fees for any part payment as long as the loan is not fully
retired, else 2% charge on pre paid amount. You can repay up to 33% of
the outstanding loan in any year without paying penalty.
 Free accident death cover for the owner
 Special 100% funding for select properties
 Higher eligibility for self-employed professionals through segment-specific

 LIC Hsg Finance Ltd. will lower quoted interest rate by 0.5% for loans
covered by a life insurance cover that is taken from LIC. The life cover must
be taken for a minimum period that covers the tenure of the Home Loan


 Offers Home Loans with no start-up costs. Most banks charge as high as
2% as processing and administrative fees
 Prepayment is 2% if the entire loan is pre paid else it is 0%. Avoid this
penalty by prepaying up to 99% of your loan if need be

 Tata Hsg Finance

 Offers Home Loans up to 90% of the value of the property and 100% in
some new projects.

N.L.D.I.M.S.R 28

 Prepayment penalty of 0% for up to 4 prepayments in each year. The

entire loan can be retired without incurring any penalty.
 Free accident and property insurance. The premium payable for a Tata
AIG Single Premium Life Cover can also be included in the loan amount

 IDBI Bank offers balance transfer scheme.

If you have taken a fixed rate loan at a high rate of interest a few years back,
then you can enter into an arrangement with IDBI bank to transfer the loan to
them at the current lower rate of interest. You will also get free gifts to
compensate you for the difference as the old and new EMI. The original EMI
cheques will be used by IDBI to recover the loan amount from you over the
remaining tenure of the loan. You will not get the benefits of any further fall in
interest rates in this product.


Private Indian Banks have managed to create a greater awareness about

themselves over the last 2 years, according to the findings of the latest round of
INVESTRACK (V), the fifth round of a syndicated study by ORG-MARG on the
investment and banking habits and preference of the Indian investor.

The sharp rise in the unaided recall of Private Indian banks is testament to
the aggressive advertising and marketing drive of these players over the
past one year

A reading of the list of top 10 banks in terms of recall shows a doubling of the
number of Indian investors who are now aware of the Indian private banks like

N.L.D.I.M.S.R 29

ICICI Bank and HDFC Bank compared to two years ago. While recall for the
other banks that are part of the top 10 remains largely unchanged, 51% of
Indians are now aware of ICICI Bank and 42% are aware of HDFC Bank
compared to 27% and 26% respectively when the last round of INVESTRACK
was conducted.

Unaided Recall of Banking Brands

Bank Brands 2000 2002

SBI 82 % 83 %
Canara Bank 53 % 54 %
ICICI Bank 27 % 51 %
PNB 47 % 49 %
BoB 48 % 49 %
BoI 44 % 44 %
HDFC Bank 26 % 42 %
Citibank 37 % 36 %
Central Bank 42 % 36 %

Advertising, in the retail banking industry, is an important medium of making the

prospective consumers aware of the various products as also the players offering
them. Although it has only a 6% influence (based on our primary research
findings) in the purchase decision it plays a major role in induce a customer to
include the advertised bank in his consideration list.

Advertising by banks has been a recent phenomenon. Realizing that product

advantages are not any more sustainable, banks are opting for advertising to
gain strategic differentiation.

An analysis of banks’ advertising brings out the following features:

 A major chunk of total advertising spend belongs to the private &
International banks.

N.L.D.I.M.S.R 30

 Another observation reveals that banks with less penetration have higher
advertising spends.
 ICICI and HDFC head the fleet of banks in terms of their advertising
 The advertisements have both factual as well as emotional appeal. The
private banks focus on cashing upon emotional needs of a consumer
whereas public banks stick to traditional advertising focusing only on the
product features.
 Television and hoardings seem to be the preferred mode of advertisement
across all banks.
 The international banks are striving to achieve a local appeal in a bid to
woo consumers
The following is the summary of a few banks’ advertising strategies:


 Positioning:
 The bank’s initial positioning was mainly on service factor and now this
has changed to a customer’s interest focused and a friendly bank.

 Message:
 With the shift in positioning there has also been change in the message
conveyed from service focused to customer interest focused.
 It is the first to sign up a celebrity ‘Amitabh bachchan’ for its advertising.
This conveyed a message of the bank being as popular and famous as
the celebrity.

N.L.D.I.M.S.R 31

 Mr. Easy life – the fictional character in the ICICI ads is the first brand icon
associated with any bank.
 It is also the first bank to address the emotional appeal and attach it to the
physical appeal.

 Media :
 The general preference is for television, hoardings, newspapers,
magazines, radio etc.
 ATMs also form an effective advertising tool as their mere presence
makes the consumer aware of the bank. Besides this, ATM machines are
also effectively utilized to cross-sell the bank’s retail offerings to its already
existing customers.


 Positioning: The bank’s positioning conveys an international appeal to the

local consumer.

 Message: The bank is trying to promote its global expertise to the Indian
customers, i.e. service levels at par with international standards, anticipating
customers growing needs and designing products accordingly.

 Media :

N.L.D.I.M.S.R 32

As far as media is concerned HSBC has more concentration on print media

as compared to other mediums.


 Positioning:
Positioning of the bank conveys-
 Expertise service.
 It tries to address the financial needs of the consumers.

 Message:
 The bank’s presence in the housing sector for a fairly long period is
portrayed in its advertisements.
 They also focus on promoting the simplicity in work procedure, superior
service. Their ads also strive to bring the bank out of the ‘only housing’

 Media :
 The most preferred medium by the bank are hoardings and print media.
 They rely on word of mouth and goodwill which they have created through
25 years of service.

The following table shows PUNCHLINES of some banks:-


CANARA BANK “Service to grow, grow to service.”

INDIAN BANK ”Poised for higher growth “

N.L.D.I.M.S.R 33

SBI BANK ”With you- all the way “

HDFC BANK “We understand your world”
HSBC BANK “The world’s local bank”
INDIAN OVERSEAS BANK “Good people to grow with”
DENA BANK “The trusted family bank”
ICICI BANK “May I help you”
VIJAYA BANK “A friend you can bank with”
FEDERAL BANK “Your perfect banking partner”
IDBI “Plan ahead. Get ahead”
ORIENTAL BANK OF COMMERCE “Where every individual is
DHFL “The friendly housing loan people”


 Top of mind awareness of consumers for banks offering various retail
 Factors influencing their purchase decision.
 To study the comparative influence of various mediums of advertisements
in creating awareness amongst the consumers.

N.L.D.I.M.S.R 34

 To find the immediate competitors in the minds of consumer for every

retail product.

An exploratory research was conducted in order the study the consumer
perception about various banks offering retail products and the banks they
opt for.

 Sample Size
A random sample of 100 were administered with the questionnaire and
responses collected.

 Research Area
The research was carried out at Borivali, Mira road, Churchgate and
Andheri regions in Mumbai.

Respondents’ profile
Data was collected from respondents across all age and income groups. Data
relating to age was collected. This segmentation helped us to gain insights into
the perception and preferences across all age groups. Based on the nature of
retail banking products age groups were identified and classified as follows:

N.L.D.I.M.S.R 35

 Majority of the
respondents belonged to
17% 15% the age group of 25 – 40
18-25 yrs
25-40 yrs
 The reason associated
23% 40-55 yrs
with it is that this group is
45% 55 yrs & above
the highest user of retail

 Respondents earning Rs. 8000- Income Profile

15000 constitute the major chunk
of the respondents using retail
13% 15% Non- earning
product. <5000
 This income group qualifies 5000-8000
almost all eligibility criteria of 30%
retail offerings. 27%

 Retail products being also

Proffessional Profile
designed for students and

9 7 retired people, they were

Students considered for the survey.

N.L.D.I.M.S.R 36

 Salaried and businessmen being the major users of retail users of retail

Data Collection Tools

 Data was collected using Questionnaires. The Questionnaire consisted of
suitable combination of Rating Scale, Ranking Scale and open ended
Questions in the level of importance.

 An in depth interview was also conducted while administering the


Sources of Data
 Questionnaires were administered to people with experience of any retail
offering, currently using or used in the past.

 Secondary Sources: Data was collected from the various websites from the
internet as well as Journals of Marketing.

40 35 37
30  The respondents
% 20 15 were asked to rank
10 7 6 the following factors
Word of mouth

Interest rates


N.L.D.I.M.S.R 37


according to their preferences in the extent to which they influence their

purchase decision.
 Majority of the respondents considered processing time to be the major
influencing factor for making purchase decision while interest rate forms a
close second.
 Time is the most valuable factor in today’s world of hectic schedules, that’s
the reason why processing time is considered as most valuable factor in
consideration list.

Retail Products Availed  In our survey majority

of the respondents
Others Housing
11% had availed Vehicle
21% loan followed by
credit cards
25% credit cards.
 In our survey majority
Vehicle loan
of the respondents
Personal Education 27%
loan loan belong to the age
10% 6% group of 25-40 and
majority of them are
salaried people. This is the stage where people try to bring alive their
aspirations of having their own home and vehicle and hence these loan
constitute major chunk of retail product availed by the respondents.


Respondents were asked which banks they considered for purchasing a retail
offering before selecting a specific bank. The responses for different retail
products were as follows-

N.L.D.I.M.S.R 38

Banks Considered For Housing Loan  Majority of the

OTHERS 23% considered HDFC
and ICICI for availing
housing loan.

SBI  25 years of superior

12% service has helped
37% HDFC in creating
goodwill in the mind
of people and has helped the bank for consideration.
 ICICI has created a
Banks Considered For Vehicle Loans place of its own in the
OTHERS mind of customers by
15% 35% advertisement and
superior service in
every category of
SBI retail offering.
25%  ICICI forms the major
chunk in the
consideration list for vehicle loan followed by HDFC.
 Through aggressive advertisements and superior service ICICI has created a
major place in the consideration list.

Banks Considered For Credit Cards

11% 16%



 Majority of the respondents considered CITI BANK for credit cards followed
 Being the first bank to launch credit cards and through aggressive
advertisements in the past CITI BANK has created awareness amongst the
customers and by providing superior service it CITI BANK still acquire major
share in the consideration list.

Banks Considered For Educational  SBI and HDFC form

Loan the major chunk for
8% consideration in this
OTHERS 5% category followed by
21% HSBC
9% SBI.
 Interest rates being
SBI the major factor for
HDFC 35%
22% educational loan
PSUs have the
competitive edge due to low interest rate.

Banks Considered For Educational

21% HSBC

HDFC 35%
N.L.D.I.M.S.R 40

 SBI outrages other banks in the consideration list for educational loan.
 Low interest rates and an extensive presence in varied locations seem to be
the primary reason for this.


Awareness Of ICICI Through Various

 ICICI in general has
a high level of
Billboards / 35% awareness among
17% the people owing to
its extensive

Word Of advertising.
New spapers
Mouth 18%
& Magazines  Among these,
Radio 3% 27%
awareness through
television is the highest level followed by newspapers.

 Customer’s
Awarness Of SBI Through Various Medium
awareness of SBI
through various
Billboards / Television 19% media was
Hoardings 17%
Word Of Mouth  SBI, being an old
New spapers & and experienced
Radio 3% Magazines
35% player, has
awareness through the word of mouth media.

N.L.D.I.M.S.R 41

Awareness Of HDFC Through Various

 HDFC being a
private and an
Billboards / Television
Hoardings 13% aggressive player,
22% New spapers
& Magazines
especially in the
39% home finance
Word Of arena, has taken
Mouth 21%
Radio 5%
the print media as
its stalwart for
 The reason for the largest pie is that a large chunk of the TG is also an avid
reader of newspapers and magazines.

Top Of Mind Awareness For Car Loan

 The graph reveals that
OTHERS ICICI close to fifty percent of
10% 24%
the awareness is about
19% ICICI and HDFC.

21% 3%

N.L.D.I.M.S.R 42

 Customers do not seem to regard HSBC as a bank offering car loan owing to
its limited advertising about this product.

Top Of Mind Awareness For Personal Loan

OTHERS  The personal loan
CITI BANK ICICI market is a
13% 27%
fragmented market
SBI with respect to
HDFC HSBC awareness.
14% 6%

Top Of Mind Awareness For Housing Loan  According to our

OTHERS survey HDFC is the
clear market leader in
13% the awareness
 This area is also
20% being aggressively

N.L.D.I.M.S.R 43

invaded by many other players owing to the increased requirement for


Top Of Mind Awareness For Credit Cards


21% ICICI perceived to be a
market leader, besides
SBI being one.
 A quarter share of the
24% HDFC awareness pie of
‘Others’ can be
attributed to a gamut of
the recent new launches as also the varied co-branded credit cards.
Relation between basic-banking and retail-banking choices
The survey also tried to study, analyze and correlate respondents’ decision in
selecting a bank for general banking purposes and for availing retail products.
The findings revealed that people generally prefer PSU banks close to their
locality to bank with whereas private banks and foreign banks have higher
preference on the retail banking front.

The reason associated with this behavior is the close proximity and long
existence of PSU banks making them safe and trustworthy. Also people have had
accounts with the PSU banks as private banks were non-existent earlier, and
hence are reluctant to change their banks. However due to efficient service, short
processing time, competitive rates and a caring attitude people have started to
prefer private banks for meeting their retail needs.

N.L.D.I.M.S.R 44


• The scenario is becoming highly competitive in every sphere of banking

activity- more so u n respect of retail lending.
• Proceesing time and interest rates are major influencing factor for making
purchase decision.
• As per survey ICICI and HDFC are to major brand name considered for
housing, auto and personal loans.

N.L.D.I.M.S.R 45

• Awareness through television is the highest level followed by newspapers.

• The future of banking is dependent on technology, marketing, logistics.
• Banks have to prepare themselves for facing a soft interest regime.
• New kind of management skills are required to manage the retail lending
• True to Infosys cult, bankers do need to understand that:
- Growth comes from repeat business
- Repeat business from relationships
- Relationship from customers
- Customers relationship based on trust
- Trust emanates from customers faiths/beliefs and,
- Lastly maintaining harmony with the environment.


• Professional Banker
• Websites of Banks
• Economic times

N.L.D.I.M.S.R 46


1. Which bank(s) do you bank with presently?


2. Rank the following factors according to their weightage in your

purchase decision.

Cost _______
Processing time _______
Goodwill _______
Word of mouth _______

N.L.D.I.M.S.R 47

Advertisement ________

3. Which retail banking product have you availed?

‫ ڤ‬Housing Loan ‫ ڤ‬Car Loan ‫ ڤ‬Education Loan

‫ ڤ‬Personal Loan ‫ ڤ‬Others, Please specify

4. Which banks did you consider in your decision making before buying
this product?

a) _______________________
b) _______________________
c) _______________________
d) _______________________

5. How did you become aware of them? (tick relevant)

Banks => a) b) c) d)
Newspapers &
Word of mouth

6. Which bank did you choose and why?


7. Are you satisfied with the bank’s service?


8. Would you suggest any improvement?


9. Which bank comes to mind when thinking about car loan


N.L.D.I.M.S.R 48

10. Which bank comes to mind when thinking about personal loan

11. Which bank comes to mind when thinking about housing loan.

12. Would you recommend your bank to someone else for the same
product or any other product that your bank offers?
 Yes  No

13. Please recommend a retail product, not currently available, which if

offered, will be readily availed by you.


N.L.D.I.M.S.R 49