A STUDY ON CONSUMER AWARENESS ON RETIAL

BANKING IN INDIA.
A Dissertation submitted to the nexus integrated school of
management, Berhampur, in partial fulfillment of the Degree
of

Master in Finance & Control

Under the Guidance of
V.Ajit Kumar Raju (c.a)
Senior Faculty (N.I.S.M)

SUBMITTED BY

ASISH PATTNAIK
Roll.No:-MF3010

Regd.No:-12467/06

DECLARATION

I ASISH PATTNAIK do hereby declare that the dissertation

Entitled CONSUMER AWARENESS ON RETAIL BANKING IN

INDIA being submitted to the Nexus Integrated School of

Management, Berhampur, for the partial fulfillment of

requirements for the Degree of Master of Finance &

Control in Commerce is of my own and it has not been

submitted earlier to any institution for any Degree.

Date :
Place:

Signature of the Candidate

ACKNWOLEDGEMENT

First of all I thank Mr. Debendra Rath , Director of Nexus

Integrated School of Management and for extending their kind support and
co-operation for the completion of my thesis successfully, and therefore
obliged to them for enlighten me time and again, resulting, successful
completion and submission of this thesis.

My sincere thanks to Mr. V. Ajit Kumar Raju (C.A) senior

faculty members of Nexus Integrated School of Management, Berhampur
for his guidance and supervision by spending his valuable time for
completion of this thesis.

At last, I thank my parents and my friend Amar Kumar Badatiya

and Mrs. Padmalaya Rath (course coordinator) for their continuous
inspiration, encouragement, co-operation and support during preparation of
this thesis.

Date :
Place:

Signature of the Candidate

RETAIL BANKING
INTRODUCTION: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. 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. This is in contrast to wholesale
banking where the customers are large, often multinational
companies, governments and government enterprise, and the
financial institution deal in small numbers of high 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. Retail banking
and retail lending are often used as synonyms but in fact, the later is just the part
of retail banking. In retail banking all the needs of individual customers are taken
care of in a well-integrated manner.
Todays retail banking sector is characterized by three basic
characteristics:
Multiple products (deposits, credit cards, insurance, investments
and
securities)

Multiple channels of distribution (call center, branch, internet)

 Multiple customer groups (consumer, small business, and

corporate).

DEFINITION:
Retail banking is typical mass-market banking where
individual customers use local branches of larger commercial
banks. Services offered include: savings and checking accounts,
mortgages, personal loans, debit cards, credit cards, and so
The Retail Banking environment today is changing fast. The changing
customer demographics demands to create a differentiated
application based on scalable technology, improved service and
banking convenience. Higher penetration of technology and increase
in global literacy levels has set up the expectations of the customer
higher than never before. Increasing use of modern technology has
further enhanced reach and accessibility.
The market today gives us a challenge to provide multiple and innovative
contemporary services to the customer through a consolidated window as so to
ensure that the banks customer gets Uniformity and Consistency of service
delivery across time and at every touch point across all channels. The pace of
innovation is accelerating and security threat has become prime of all electronic
transactions. High cost structure rendering mass-market servicing is prohibitively
expensive.Present day tech-savvy bankers are now more looking at reduction in
their operating costs by adopting scalable and secure technology thereby
reducing the response time to their customers so as to improve their client base
and economies of scale.

The solution lies to market demands and challenges lies in innovation of new
offering with minimum dependence on branches a multi-channel bank and to
eliminate the disadvantage of an inadequate branch network. Generation of leads
to cross sell and creating additional revenues with utmost customer satisfaction
has become focal point worldwide for the success

ORIGIN OF BANKING:Banks are among the main participants of the financial system in India.
Banking offers several facilities and opportunities.
Banks in India were started on the British pattern in the beginning of the
19thcentury. The first half of the 19thcentury, The East India Company
established 3 banks The Bank of Bengal, The Bank of Bombay and The Bank of
Madras. These three banks were known as Presidency Banks. In 1920 these
three banks were amalgamated and The Imperial Bank of Indiawas formed. In
those days, all the banks were joint stock banks and a large number of them
were small and weak. At the time of the 2nd world
war about 1500 joint stock banks were operating in Indiaout of which 1400 were
non- scheduled banks. Bad and dishonest management managed quiet a quiet a
few of them and there were a number of bank failures. Hence the government
had to step in and the Banking Companys Act (subsequently named as the
Banking Regulation Act) was enacted which led to the elimination of the weak
banks that were not in a position to fulfil the various requirements of the Act. In
order to strengthen their weak units and review public confidence in the banking
system, a new section 45 was enacted in the Banking Regulation Act in the year
1960, empowering the Government of India to compulsory amalgamate weak
units with the stronger ones on the recommendation of the RBI. Today banks are
broadly classified into 2 groups namely
(a) Scheduled banks.
(b) Non-Scheduled banks.

BENEFITS OF RETAIL BANKING:-

Traditional lending to the corporate are slow moving along with high
NPA risk, treasure profits are now loosing importance hence Retail Banking is
now an alternative available for the banks for increasing their earnings. Retail
Banking

is

an attractive market segment having a large number of varied classes of

customers. Retail Banking focuses on individual and small units. Customize and
wide ranging products are available. The risk is spread and the recovery is good.
Surplus deployable funds can be put into use by the banks. Products can be
designed, developed and marketed as per individual needs.

SCOPE FOR RETAIL BANKING IN INDIA:

All round increase in economic activity
Increase in the purchasing power. The rural areas have
the large
purchasing power at their disposal and this is an
opportunity to market
Retail Banking.
India has 200 million households and 400 million
middleclass
population more than 90% of the savings come
from the house hold sector. Falling interest rates have resulted in a
shift. Now People Want To Save Less And Spend More.
Nuclear family concept is gaining much importance which
may lead to
large savings, large number of banking services to be
provided are dayby-day increasing.
Tax benefits are available for example in case of housing
loans the
borrower can avail tax benefits for the loan repayment and
the interest
charged for the loan.

ADVANTAGES AND DISADVANTAGES OF RETAIL

BANKING:-

ADVANTAGES :
Retail banking has inherent advantages outweighing certain
disadvantages. Advantages are analyzed from the resource angle
and asset angle.
RESOURCE SIDE
Retail deposits are stable and constitute core deposits.
They are interest insensitive and less bargaining for
additional
interest.
They constitute low cost funds for the banks.
Effective customer relationship management with the
retail customers
built a strong customer base.
Retail banking increases the subsidiary business of the
banks.
ASSETS SIDE
Retail banking results in better yield and improved bottom
line for a
bank.
Retail segment is a good avenue for funds deployment.
Consumer loans are presumed to be of lower risk and
NPA
perception.
Helps economic revival of the nation through increased
production

activity.
Improves lifestyle and fulfils aspirations of the people
through
affordable credit.
Innovative product development credit.
Retail banking involves minimum marketing efforts in a
demand
driven economy.
Diversified portfolio due to huge customer base enables
bank to
reduce their dependence on few or single borrower
Banks can earn good profits by providing non fund based
or fee
based services without deploying their funds.

DISADVANTAGES: Designing own and new financial products is very costly

and time
consuming for the bank.
Customers now-a-days prefer net banking to branch
banking. The
banks that are slow in introducing technology-based products, are
finding it difficult to retain the customers who wish to opt for net
banking.
Customers are attracted towards other financial products
like mutual

funds etc.
Though banks are investing heavily in technology, they
are not able
to exploit the same to the full extent.
A major disadvantage is monitoring and follow up of
huge volume of
loan accounts inducing banks to spend heavily in human
resource
department.
Long term loans like housing loan due to its long
repayment term in
the absence of proper follow-up, can become NPAs.

The volume of amount borrowed by a single customer is

very low as

compared to wholesale banking. This does not allow

banks to toexploit the advantage of earning huge profits from single

customer as in case of wholesale banking.

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

Emergeamajor

driver.

The rise of 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 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
towards personal debt, is contributing to Indias retail banking
segment.
The combination of above factors promises substantial growth in retail
sector, which at present is in the nascent stage. Due to bundling of
services and delivery channels, the areas of potential conflicts of
interest tend to increase in universal banks and financial
conglomerates. Some of the key policy issues relevant to the retailbanking sector are: financial inclusion, responsible lending, and
access to finance, long-term savings, financial capability, consumer
protection, regulation and financial crime prevention.
The issue of money laundering is very important in retail
banking.
This compels all the banks to consider seriously all the
documents
which they accept while approving the loans.

The issue of outsourcing has become very important in

recent past

because various core activities such as hardware and software

maintenance, entire ATM set up and operation (including cash,
refilling) etc., are being outsourced by Indian banks.
Banks are expected to take utmost care to retain the
ongoing trust of
the public.
Customer service should be at the end all in retail
banking. Someone
has rightly said, It takes months to find a good customer but only
seconds to lose one. Thus, strategy of Knowing Your Customer
(KYC) is important. So the banks are required to adopt innovative
strategies to meet customers needs and requirements in terms of
services/products etc.
The dependency on technology has brought IT
departments
additional responsibilities and challenges in managing, maintaining
and optimizing the performance of retail banking networks. It is
equally important that banks should maintain security to the advance
level to keep the faith of the customer.
The efficiency of operations would provide the
competitive edge for
the success in retail banking in coming years.
The customer retention is of paramount important for the
profitability if
retail banking business, so banks need to retain their
customer in
order to increase the market share.
One of the crucial impediments for the growth of this
sector is the

acute shortage of manpower talent of this specific nature, a

modern
banking professional, for a modern banking sector.
If all these challenges are faced by the banks with utmost care and
deliberation, the retail banking is expected to play a very important
role in coming years, as in case of other nations.

STRATEGIES FOR INCREASING RETAIL BANKING

BUSINESS
Constant product innovation to match the requirements
of the customer
segments
The customer database available with the banks 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
product. The banks should come out with new products in the area of
securities, mutual funds and insurance.
Quality service and quickness in delivery
As most of the banks are offering retail products of similar nature, the
customers can easily switchover to the one, which offers better
service at comparatively lower costs. The quality of service that
banks offer and the experience that clients have, matter the most.
Hence, to retain the customers, banks have to come out with
competitive products satisfying the desires of the customers at the
click of a button.
Introduction of new delivery channels
Retail customers 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.

 Tapping of unexploited potential and increasing the

volume of business
This will compensate for the 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.
Infrastructure outsourcing
This will help in lowering the cost of service channels
combined with
quality and quickness.
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.
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 products
through these branches.

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 of ATMs can be
outsourced. This will save the banks from dealing with the intricacies
of technology.

Tie-up arrangements
PSBs with regional concentration can reap the benefit of reaching
customers across the country by entering into strategic alliance with
other such banks with intensive presence in other regions. In the
present regime of falling interest and stiff competition, banks are
aware that it is finally the retail banking which will enable them to hold
the head above water. Hence, banks should make all out efforts to
boost the retail banking by recognizing the needs of the customers. It
is essential that banks would be imaginative in predicting the
customers' expectations in the ever-changing tastes and
environments. It is the innovative and competitive products coupled
with high quality care for clients will only hold the key to success in
this area. In short, bankers have to run very fast even to stay where
they are now. It is the survival of the fastest now and not only survival
of the fittest.

SPECIAL FEATURES OF RETAIL CREDIT:

One of the prominent features of Retail Banking products is
that it is a volume driven business. Further, Retail Credit
ensures that the business is widely dispersed among a large
customer base unlike in the case of corporate lending, where the risk
may be concentrated on a selected few plans. Ability of a bank to

administer a large portfolio of retail credit products depends upon

such factors :
Strong credit assessment capability
Because of large volume good infrastructure is required. If the credit
assessment itself is qualitative, than the need for follow up in the
future reduces considerably. is widely dispersed among a large
customer base unlike in the case of corporate lending, where the risk
may be concentrated on a selected few plans. Ability of a bank to
administer a large portfolio of retail credit products depends upon
such factors :
Strong credit assessment capability
Because of large volume good infrastructure is required. If the credit
assessment itself is qualitative, than the need for follow up in the
future reduces considerably.
Sound documentation
A latest system for credit documentation is necessary pre-requisite for
healthy growth of credit portfolio, as in the case of credit assessment,
this will also minimize the need to follow up at future point of time.
Strong possessing capability
Since large volumes of transactions are involved, today
transactions, maintenance of backups is required
Regular constant follow- up
Ideally, follow up for loan repayments should be an ongoing
process. It should start from customer enquiry and last till
the loan is repaid fully.
Skilled human resource:This is one of the most important pre-requisite for the efficient
management of large and diverse retail credit portfolio. Only highly
skilled and experienced man power can withstand the river of
administrating a diverse and complex retail credit portfolio.

 Technological support
This is yet another vital requirement. Retail credit is highly
technological intensive in nature, because of large volumes of
business, the need to provide instantaneous service to the customer
large, faster processing, maintaining database, etc.

RETAIL BANKING-A COOL OASIS:

To bankers struggling through the shifting sands of corporate credit, retail banking
looks like a cool oasis. Corporate Credit, retail banking looks like a cool oasis.
Corporate customers rely less on commercial banks every day as other fund raising
avenues present themselves. As this disintermediation takes place and competition
shrinks margins, retail banking has gained an irresistible allure for banks because of
its apparently higher margins and potential fir growth.
With their large branch networks, banks have secured sizeable deposits-23 percent of
GDP. On the assets side, however, retail advances account for a mere seven per cent
of total lending. The penetration of products like car loans or credit cards is very low.
With very few focused multi-line banks, non banks are often significant players in
retail lending, as HDFC is in house loans. Yet, many non-banks lack the minimum
size to make the necessary investments and address the challenges of retail banking.
A large number of banks and non-banks have launched or relaunched retail products
and are attempting to grow their share of the personal financial services market. Even
the term lending institutions have decided that they need to go retail to raise funds.
Many organization like ICICI are betting that a large part of their future growth will
come from retail customers.
Retail banking is much more than as opportunity to addressing dwindling margins. It
is an imperative to preserve profits and market positions. Customers now have many
more personal financial options, a growing credit culture, a willingness to switch
between financial services providers, and a demand for lower interest rates. As they
witness these trends, banks realize that they cannot remain passive. The new private
sector banks are making inroads in the markets they serve, while competition from

non-banks is growing. In respect, older institutions need to revamp their distribution

capabilities, customer management capabilities, operating culture, compensation
system and operations processing.

Report on the future of retail banking

A new report by the Boston Consulting Group looks at how the financial crisis will
affect the finance industry. It predicts that retail banking will become more customerfocused.

In its report "Creating value in banking 2009: Living with new realities", the Boston
Consulting Group looks at how the crisis will affect banks' business models.
It summarises the realities that will change the face of the industry:
Reestablishment of the universal-banking models primacy. These banks are built on
strong customer relationships and funded predominantly from their own deposit base.
The competition for deposits has already intensified.
Banks will become more focused. Large banks will still exist but they are likely to be
multilocal institutions rather than wide-ranging, highly complex global titans.

Banks will move forward by emphasizing again old-fashioned products and

practices. This business model will reflect a more cautious, more highly regulated,
and less risk-oriented environment. A complete reversion to the originate-to-hold
model is not expected. However, banks will need to develop prudent business
models.

Banks will focus on their customers and not on products. Advice will need to be more
meaningful and relevant. Operations will need to be more responsive to customers.

In summary, these new realities will force many banks to refocus on core businesses.
As a result of these new realities, the Boston Consulting Group expects financial institutions

to rein in their ambitions and concentrate on the businesses they know best and focusing on
their role as financial intermediaries. Several different business models are expected to
emerge:

Large, integrated banks in developed markets

A group of large, vertically integrated banks will carve out top five positions in multiple
markets. But this will constrain their geographic reach with the majority of their revenues
coming from retail and commercial banking.
Emerging market champions
A few banks will continue to build meaningful positions in emerging markets (e.g. Brazil,
Russia, India, and China as well as Central and Eastern Europe). Their strategy will be
based on a long-term plan for building a competitive presence in these markets.
Global specialists
Some institutions, particularly investment banks, private banks, securities servicers, and
asset managers, will focus on a set of core businesses that give them leading positions in
markets around the world.
According to this report, there will be no room for global banking titans as they existed
before the crisis. Their size was actually a disadvantage as it made them too complex to
manage.
In summary, large banks will still exist but they will be multilocal rather than global
and they will concentrate on a smaller set of activities and probably a more limited
number of markets. Their business models will be consistent from country to country.
The report also looks more closely at different types of financial institutions, including retail
banks.
In the short term, it predicts that the performance of retail banks will suffer dramatically and
margins will shrink. These will face serious funding and profit challenges. To confront these
problems, they must go back to the basics of the business: assets, deposits, and branches.
As a result, it is expected that the battle for deposits will largely determine the winners and
losers in many markets.

WEB IMPACT ON BANKS RETAIL REVENUES:

For all those gurus whove been predicting that the net will end the business of said
banks, heres a shocker.Even in the SILICON valley-driven USA, Internet is not
expected to have a major impact in banks retail revenues.

The reason: the absence of a convenient alternative at present to using cash.

According to a report by moodys Investors service, at least in the intermediate term,
the internet is not expected to impact large US banks core profitability or
competitive position.
This is despite the despite business being the simple-most important profit source for
most American retail banks.
The core retail banking business of deposit taking will be sheltered form web-based
competitors and margin shrinkage on this business.
Need for convenient access to physical locations coupled with the advantages of
multiple delivery channels like branch, ATM, telephone and computers, consumers
need to leave money in transactional accounts; customer inertia and the relatively
limited cost savings available to consumers from net banking, are cited as the main
factors supporting its view.
The moodys report, however, cautions that other consumer business such as
residential mortgages, auto loans and credit cards may be more vulnerable to webbased competitors.
However, most US banks have thin margins or low market shares in these businesses
mitigating this impact, says the report made available to the Economic Times.
The rating agency is skeptical of banks ability to generate substantial incremental
revenues from cross-selling financial products to existing customers via the net.
Banks have to maintain a comprehensive and effective web based capability to
maintain their competitive position, cautions moodys.
The need for customers to take frequent physical receipts, make convenient physical
receipts, make convenient physical delivery of cheques using ATMs, inhibition
towards paying ATM charges for using another banks ATM network by the consumer
and time consuming, difficult and disruptive nature of switching accounts also
contribute to the stickiness of retail deposits.

With low bank fees for individual transactions and relatively small bank deposits, the
opportunity cost in terms of interest income for customers is not material where the
deposits are not large.
Banks offer convenience and choice and the web-based channels of banks have
reported rapid growth in the number of customers by retaining current customers.
According to moodys a survey indicated that 35 per cent of Internet banking
customer disconnect because they dont find it convenient.
Customers prefer to use a variety of channels to conduct their banking which is why
it remains to be seen whether a business model based solely on internet banking will
generate adequate returns and sustain long term competition against conventional
banking systems.
The advent of the internet could, however have a powerful effect on banks
acquisition strategies by creating uncertainty about the value of purchasing large
branch networks, the study says.
For some banks, however, the Internet could facilitate an increase in fee income by
generating fees from Internet service arrangements like bill presentment and clearing.
However, if smart cards or stored value cards or other electronic cash substitute gain
popularity, alternatives could become more attractive to customers.
On the other hand, banks might be able to reduce costs of servicing the retail
customers by moving them over into a paperless environment.
Banks could introduce various incentives to the persuade customers to forego paper
statements for the basic savings account and credit card, says moodys.

THE RULES HAVE CHANGED:

As the 1900s come to their close and we look eagerly towards the new millennium, a
revolution that will change the rules and every thing we have understood of the retail
market, financial products and other services. Economic boundaries are disappearing,

and the global village is a reality where the retail customer will have a choice in a
manner we may have never imagined.
Providers of retail products and services will battle for market and market share. It is
battle that will be fought at different levels and the real winner will be the customer,
who will benefit from increased competition through better products, distribution,
technology, pricing, and post transaction service.
The quality and range of products will expand exponentially convenience of usage,
customization to individual needs, and a host of other user-friendly add-ons will
create a whole new frontier of applications. Companies will have to innovate and
continuously upgrade their products. Anticipation, listening and responding to your
customers needs, will be the buzz-words of this thrust.
Distribution will be the next key benchmark of success. The customer will demand
(and therefore the provider will have to respond) for greater convenience of access to
the product or service and all this at the best cost of delivery. Re-defined methods, the
use of technology specifically the Internet-and realigned strategies will drive this
important criterion of success. Constraints of location, timing, accessibility etc will
all be history. No matter how brilliant the product you have, your distribution
flexibility will be the customers selection parameter.
Again, quality of the product and responsive strategies for distribution will also have
a link to price. Efficiencies on this front will be the next item on your report card.
Through innovation in production and delivery and cost reduction strategies, the price
to the customer will have to be at maximum benefit. The intelligent customer will be
ruthless with any price distortions, which as a consequence of inefficiencies or
market exploitation his cost benefit analysis will not allow for these variables.

Would you prefer a product, which (hopefully) is never expected to need post sale
service or one which offers the best after sale service if required ? Clearly, the
relationship with the customer starts with the transaction, does not and with it.
Organisation we have to give equal importance to cost sale needs of customers as the
pitch made prior to the sale.

Technology will perhaps be the single largest driver of this detail thrust. The entire
strategy will evolve around the absolute ability of the organisation to be at the cutting
as edge of technology. We will have to invest in technology far ahead of immediate
needs and be able to anticipate the future direction at a pace we are perhaps not used
to. Being able to keep abreast, but more importantly, being able to recognize the
immense potential that technology provides at all stages in the retail chain will be of
paramount importance. To leverage, exploit and link technology to your business will
be the greatest challenge of the new millennium and I am convinced that the retail
war will be won and lost on this one aspect, purely because technology increasingly
we influence on the entire chain in a retail business cycle.
Above all these, I would list attitude towards customer as the single point basis on
determining the winner of the race. Attitude to the customer will influence all the
areas we have discussed and will ensure excellence in each one of them. It is an
intangible, it is not prescribed in a manual nor is it a quantifiable item in the balance
sheet, but an organizations attitude to the customer will be the basis determinant of
success for any retail operation.
There are interesting and challenging times ahead the future promises a lot but will
also make extraordinary demands. The customer will be the most important aspect of
your business and ultimately the winner of the retail war.

RISK INVOLVED IN RETAIL BUSINESS:

There are of course, considerable risks in retail banking. They are :
(a)

Databases on credit history are large.

(b)

Collection mechanisms are poor.

(c)

Investments in technology are large.

(d)

Operating efficiency level needs to be very high.

(e)

Unlike corporate banking, retail banking involves a large number

of small accounts.

(f)

Demands on processing capabilities are higher.

(g)

Retail segment is not something you can get into overnight.

(h)

The right systems and the right architecture needs to be put in

place first.

Conference on the Future of Retail Banking:

It is clear from the number of current and saving accounts, of mortgages and other loans, and of
investment products provided by retail banks to their customers, that retail banking is important for
many millions of consumers and has a vitally important role to play in UK financial services.
And it is clear from the wide range of subjects under discussion during the two full days of this
conference that the retail banking sector is looking to move forward on many fronts, from your
branches to the internet; from your brands to business strategies; and from your products to the needs
of your customers.
So I am pleased to have the opportunity this afternoon to set out three challenges for the retail banking
sector from the regulatory perspective.

First, what more could you be doing, and how can we work together most
effectively, to raise the level of financial capability in the UK?

Second, although the senior management of most retail banks have

introduced various initiatives in response to our emphasis on Treating
Customers Fairly, how will they be able to ensure that these are delivered
throughout their businesses, not least in the interactions between branch
and call centre staff and their customers?

Third, as we the FSA move to a more principles-based approach to

regulation, how will you use the flexibility this will offer you to benefit you
and your customers, while meeting our higher level regulatory objectives?

Context
To begin with some context: the FSA retail agenda focuses on delivering an effective and efficient retail
market for financial services and products, and through this a fair deal for consumers. This requires:

capable and confident consumers;

clear, simple and understandable information provided for, and used by,
consumers;

soundly-managed and well-capitalised firms who treat their customers

fairly; and

regulation that is proportionate and risk-based.

These four pillars are closely interrelated. Our work on financial capability is complemented by our
requirements that firms provide clear information so that consumers can engage with your market,
make informed decisions and shop around; by the need for you to treat your customers fairly; and by
our risk-based supervision of individual firms, and our thematic work on particular risks and product
types.

Financial capability
Financial capability is hugely important for society more generally. Consumers are increasingly being
required to take responsibility for important personal financial decisions. These include how to make
provision for their retirement and healthcare, how to budget for day-to-day living, how to save for the
future, and what to do if they end up with high levels of debt. These decisions and money management
are made more challenging in a world of sophisticated marketing, and by the "credit culture" driven by
relatively easy access to credit both secured and unsecured - and the acceptability of high levels of
personal debt from a young age. Gone are the days when you had to make an appointment with your
bank manager to obtain a credit card.
Everyone will benefit from a more financially capable population. A society of more confident and
financially savvy consumers will be able to take better control of their money: by planning ahead,
getting general or more specific expert advice when they need it, buying products that meet their
needs, and being equipped to manage and pay back their debts.
Financially capable consumers are also a necessary element of a more efficient and effective retail
financial services market. Retail banks should benefit from lower costs as you will need to spend less
time and money selling to consumers who have become willing and well-informed buyers.
We at the FSA want to be the catalyst for delivering significant change in these areas, by providing
leadership, direction and momentum, and by coordinating the contributions from the wide range of
partners we rely on.
The major baseline survey we published earlier this year revealed in particular that people from all
sections of society are poor at planning ahead, be it for retirement or for an unexpected event; that in
addition to the half a million people already experiencing severe problems with debt, another four
million either have started to fall behind or are only just coping and could easily tip into debt repayment
problems; that many people are poor at choosing products; and that younger people, by which I mean
18-40 year olds, are less financially capable than their elders but face some of the greatest demands
on their financial capability.
Against this background, we have developed a seven-point plan to focus our efforts for delivering
change. This plan majors on improving financial capability among children and young adults to lay
strong foundations for the future; on providing employees with ready access to information in their
place of work; on targeting resources to people at critical life stages; and on the provision more
generally of relevant, user-friendly and accessible information and generic financial advice.

In schools, we want to build now on the Government's decision to give personal financial education a
prominent role in the revised National Curriculum that is to be implemented in 2008, not least by
including personal finance in the new functional maths part of GCSE Mathematics.
We want to increase the capacity of existing organisations including pfeg (the Personal Finance
Education Group), an independent charity that works with schools in England, and similar partners
elsewhere in the UK to provide teachers with help, support and advice, ahead of the curriculum
changes.
We believe that the benefits from this work will be substantial. Schools will be better able to introduce a
planned programme of personal finance education as they prepare for the revised curriculum.
Teachers will be more confident and competent in teaching personal finance education. And, most
importantly, children will leave school better equipped to manage their financial affairs. Our target is to
reach 1.8 million children in 4,000 schools over the next five years.
For young adults, the next stage of our work includes initiatives both for those in higher and further
education and for those who are not in employment, education, or training.
For those in higher education we want to roll out across the UK a very successful pilot scheme
undertaken with students at Roehampton University. We all know of the difficulties in engaging young
adults in personal finance - but all concerned with this project were encouraged to find that so many
students were willing to take part in the Roehampton 'Money Doctors' scheme, even returning early
from their holidays to attend advice sessions.
For young adults not in employment, education or training, we want to ensure that youth services
providers have appropriate materials and training to help their customers on financial matters. Working
with trusted and credible partners in government agencies and voluntary organisations, we will provide
the tools and training to deliver targeted and appropriate information to this hard to reach group of
more than one million young adults.
In the workplace, our Making the Most of Your Money programme delivers financial education through
financial information packs and seminars on issues that concern everyone, including budgeting,
borrowing, savings and planning for retirement.
Our workplace pilot work has already trialled this approach successfully. The next step is to roll out that
model to substantially more employers and their employees across the UK, beginning with large
employers in both the private and public sectors. This programme will expand during 2006/07 to
deliver materials to 200,000 employees, with 15,000 subsequently attending one-hour seminars
presented by trained personnel, mainly from financial services firms. The pilot work indicates that this
will generate considerable benefits. 90% of attendees in the pilots found the seminars useful, while
employers saw benefits in terms of increased employee satisfaction.
Over the next five years we want to deliver information packs to four million employees, and for half a
million of them to attend a seminar. Several leading banks are already active and committed members
of this programme including Lloyds TSB, HBOS and Bank of America/MBNA. They have provided
secondees to deliver the workplace initiative as well as tireless work and enthusiasm to help drive the
project forward. So many thanks to them and our other partners in these projects.

Moving on to communications, the FSA is already a major source of impartial information on financial
products and services, through our fact sheets and guides, our comparative tables, our calculators,
and a host of other web-based materials. And we have increased substantially our campaigning to
promote these materials.
Two of the most important on-line tools developed recently to assist consumers in managing their
finances are the Financial Healthcheck and the Debt Test. The Healthcheck helps consumers
understand and sort out their financial needs, while the Debt Test allows them to consider whether they
have or are likely to have any problems with their borrowing. Both tools provide useful tips for a
healthier financial lifestyle. Since their launch, the Financial Healthcheck has been used by over half a
million consumers, and the Debt Test by over a quarter of a million.
But what really matters here is not the existence of high quality tools themselves but their effective
distribution to those most in need of them. So we are investigating ways of extending these tests into
many more distribution channels. For example, although outside our remit, and not an area where we
will be making rules, would it not be a good thing if consumers applying for a personal loan or to
extend the limit on their credit card were encouraged to complete the Debt Test first?
I am pleased that HSBC and RBS already feature links to the Healthcheck and Debt Test on their
websites. The RBS Face 2 Face with Finance website has been recently launched and has made a
good start this site has driven over 2,000 extra visitors a week to our on-line tools within the first few
weeks of its launch. We are also talking to several other banks, insurance providers and other
organisations about linking to our healthcheck and debt test tools from their websites.
Helping people to understand in general terms what financial issues they need to tackle is a crucial
part of the seven point plan. We call this generic financial advice, to distinguish it from regulated or
basic advice. There is already a wide range of information and advice available, some of which, in
particular the Money Advice Trust, is heavily funded by the major retail banks. However, much of this
focuses only on those in debt. The issue here is therefore about providing more "preventative", as well
as "crisis" advice, and about encouraging people to make greater use of what is already available.

We need your expertise and support to drive forward the work on financial capability. Part of this will be
through secondees and financial support for the various initiatives that are underway. But I want to
emphasise today what you can contribute directly, through the assistance you offer your actual and
potential customers through your branches and through your websites and other consumer-facing
materials. How effectively can you deliver initiatives to promote financial capability and even to offer
generic financial advice, separately from the selling of specific products?

Treating Customers Fairly

The requirement for firms to treat their customers fairly is rooted in the FSA's Principles for
Businesses. Principle 6 states that a firm must pay due regard to the interests of its customers and
treat them fairly. This is not a new obligation - but we are giving it renewed emphasis to encourage

firms to consider for themselves how they deliver fair treatment to their customers. Ultimately, we want
to measure the success of our Treating Customers Fairly initiative by looking at the difference it makes
to your customers.
We are working towards achieving a number of outcomes for consumers. These outcomes will mean
that they:

can be confident that they are dealing with firms where the fair treatment
of customers is a key part of the corporate culture;

are sold financial services and products that have been designed to be
likely to meet their needs;

are provided with clear information and are kept appropriately informed
before, during and after the point of sale;

are provided with advice which takes account of their circumstances and
attitude to risk;

are provided with the product performance and associated service which
they have been led to expect by the firms with which they deal; and

do not face unreasonable post-sale barriers imposed by firms when they

want to change product, switch provider, submit a claim or make a
complaint.

Since the launch of our Treating Customers Fairly initiative and through our supervision of firms in the
financial services sector, including retail banks, we have seen many encouraging and positive
examples of real progress towards firms implementing a Treating Customers Fairly programme.
Most importantly, and at the highest level, the senior management of firms tell us that they recognise
the need to embed Treating Customers Fairly as a behavioural and cultural change throughout their
business, and that this is very much a senior management responsibility, not simply something to be
passed across to their compliance departments.

In many firms we have seen the establishment of clear senior management responsibilities and
project processes more generally to drive forward a decisive move towards Treating Customers
Fairly. For example, one banking group we spoke to recently has set up a Treating Customers Fairly
forum to oversee all of its Treating Customers Fairly activity. To ensure that key messages are
received at all levels of the organisation, employees are invited to sign a "Treating Customers Fairly
pledge" focused on the principles required by the firm.
In product design, we have seen a number of firms involving customer representatives and making
good use of consumer research to design simpler and better understood products. And we have seen

a general improvement in financial promotions over the last few years. Some firms have also made
good use of the results of our thematic work in areas such as equity release and payment protection
insurance to design products that can more easily be sold and advised upon in line with our
requirements. And we heard from one firm that its improved product design procedures had resulted in
three unsatisfactory new products being dropped, that would otherwise have reached the market.
We have seen more firms carrying out mystery shopping of their sales and advice processes, and
using other techniques, to assess the fair treatment of their customers and to identify areas of
customer concern.
On staff remuneration we have seen an increasing number of firms reducing the emphasis on
commissions and sales targets. They now favour including a larger element of remuneration based on
core salary, on measures of customer satisfaction, and on internal reviews of the quality of the service
provided to customers.
Staff training and internal communications also contain an increasing element of Treating Customers
Fairly. Some time ago now, I was pleased to see, while waiting for a meeting with a major banking and
insurance group, a copy of that groups in-house magazine with Treating Customers Fairly
emblazoned across the front cover. Of course, as a cynical regulator, I wondered whether that was the
only copy, placed there especially for me, and I did not have time to read what was inside. But to be
fair, I have to say that I found the front cover immensely gratifying, proving as it did not only that the
group was trying to embed the Treating Customers Fairly culture into its people, but also that it was
possible to do this using the same words that we have been using.
In the context of mortgage endowments we have seen improvements in complaints handling
procedures. We have also seen more firms analysing complaints to identify and to correct the root
causes, and thus to change procedures so as to reduce the number of complaints received in the first
place.
So there are many examples of good practice, but there is still a long way to go. We recognise the
scale of the challenge firms face in trying to embed the principle of Treating Customers Fairly within all
that they do. But in some firms there is still no clear articulation from senior management of what
Treating Customers Fairly means for the business; no allocation of responsibility within the firm for
implementing any initiatives to meet the Treating Customers Fairly requirement; and little or no staff
understanding of what the principle means in practice.

It is not just in the smaller and medium-sized firms that there is further to go. We recently visited a
major banking group and found a general air of complacency and defensiveness around the firm on
Treating Customers Fairly - even though it had no discernible Management Information to justify this
complacency. Our view of the customer experience at this firm was that it was not at all customerfriendly and less than half of client files reviewed showed clear evidence of product suitability for the
customer. Customer communications were also of a generally low standard.
Some firms have not addressed their product design procedures either, and clearly need further
encouragement before they think about either the information they provide to their distribution

channels, be they in-house or third party, or about customer testing their consumer-facing product
literature. We have found firms where staff remuneration continues to be dominated by commissions
and other volume-related incentives; and where no attempt is being made to collect any management
information on whether customers are being treated fairly or not. And there is still a long way to go
before firms develop convincing management information to show whether they are indeed treating
their customers fairly.
There can also be a disconnect between the good intentions of senior management and the behaviour
of their customer-facing staff. We continue to find a worrying number of practical examples where
customers are not treated fairly. For example, in the course of our thematic work over the last year or
so we have found: financial advisers giving poor quality advice to consumers on equity release
products; a range of issues with both the content and provision of disclosure documentation, for both
mortgage products and for the initial disclosure and menu documents following depolarisation; and
poor selling practices and a lack of proper compliance controls among a sample of firms selling
payment protection insurance, where we found firms selling policies to customers who were not
eligible to claim on them and firms that did not clearly explain the price of the policy or the main
exclusions and limitations of the policy to their customers.
Much of our thematic work and some firms have told us that our findings match the results of their
own compliance and mystery shopping reviews therefore suggests that in many firms the Treating
Customers Fairly initiatives begun by senior management have yet to deliver improvements further
down the organisation, and are therefore yet to deliver benefits to customers.
Even those firms who have made substantial progress in implementing Treating Customers Fairly
within their business would be among the first to agree that it will take time to move from the
implementation stage to the embedding of Treating Customers Fairly throughout all levels of the firm. It
takes a long time to change the culture of a firm. So we and you should be cautious before being
tempted to declare victory too early.
A final thought here. A number of retail banks have announced that they want to simplify and reduce
their product range. That is a challenge in itself! And some have told us that they are keen to explore
the possibility of introducing a more straightforward advice regime linked to simple products that will be
rolled out both in branches and on the internet. It is not for us to determine market structure, but we

are keen to facilitate innovation. And when we consulted on the basic advice regime for stakeholder
products we mentioned the possibility of extending a basic advice type of approach to a wider range of
simpler products. So if you are thinking along these lines please let us know.

More principles-based regulation:

Treating Customers Fairly is just one of our eleven high level principles. Our Principles set overarching
requirements for all financial services firms, articulating the actions and behaviours we expect of them.
They focus on what we are trying to achieve and so are expressed in terms of outcomes rather than

processes or procedures. Indeed, the increasing emphasis we have placed on Treating Customers
Fairly over the last few years has made it one of the forerunners of our move to a more principlesbased approach to regulation.
Equally, the questions asked of our emphasis on the Treating Customers Fairly principle over recent
years reflect the questions asked of our move to a more principles-based approach more generally.
Let me address some of these questions this afternoon.
First, why do we want to be more principles-based? It is because we see real benefits for firms,
markets and consumers in shifting the balance towards a more principles-based approach. We want to
provide firms with more flexibility to decide for themselves how best to run their businesses, while
remaining compliant with our regulatory objectives. Firms who seriously commit to a set of outcome
based principles should be well placed to judge the detail of how best to deliver those outcomes in the
marketplace. We want to align good regulation more closely with good business practice. For example,
firms can deliver fair treatment to their customers in a way which is aligned to their commercial
objectives in terms of customer service and retention. And we want to provide greater clarity about the
outcomes that really matter to us and to engender a shared appreciation of the regulatory outcomes
we are seeking to achieve. So the focus shifts from the means to the end.
This in turn should benefit consumers, if firms focus more on outcomes that are consistent with our
regulatory objectives, and if they use greater flexibility to deliver these good outcomes for consumers
more effectively.
Second, in a more principles-based approach, how do we provide clarity about the minimum standards
to be met? How should firms interpret the Principles? How can we provide sufficient predictability? In
part the answer to this is that detailed rules will not disappear entirely. Some will be necessary to
address the imbalance in the retail market between a firm and a customer, and in particular to ensure
that consumers receive clear, simple and understandable information about financial products and
services. And many detailed rules will remain because we have to implement EU Directives.
Another source of predictability is to supplement the Principles through various forms of guidance to
firms what we call small g guidance sitting outside our Handbook of Rules and (big G) Guidance.
In our work on Treating Customers Fairly, firms have welcomed the statements of good practice and
the case studies we have published to illustrate our interpretation of what the Treating Customers
Fairly Principle means in practice.

We are also looking to make even greater use of industry codes and guidelines, and are revisiting how
far we can accept that a firm following such codes and guidelines meets our minimum standards in
that area. There are significant challenges to making greater use of industry solutions, and we do not
intend simply to replace FSA rules with codes and guidance issued by trade bodies, or to proceed
without input from consumers and other interested parties. However, we do see appropriately
formulated industry codes and guidance as a means to help firms understand how to comply with our
high level rules, and we want to make progress here.

We also accept that as all of this material proliferates we need to do more to bring it together in a
consistent and coherent manner so that our interpretation of the minimum standards implied by our
Principles is clear to all. This material needs to be readily accessible, so that the flexibility we want to
achieve with a more principles-based approach is not at the expense of confusion or a lack of clarity.
Third, what does being more principles-based mean for the relationship between us and those we
supervise? In large part the answer to this is that we all need to exercise more judgement. For us, this
means making informed judgements based on a good understanding of firms, their customers, and of
the markets in which they operate. And in forming judgements about outcomes, it means seeking a
broad degree of consistency in terms of the outcomes that firms deliver in particular with respect to
how they treat their customers rather than consistency in detailed requirements about processes. As
I have already mentioned, in a more principles-based approach firms will be able to adopt different
approaches to an issue but with a reasonably common outcome. We recognise the demands that
making these judgements will place on our people and we fully intend to recruit and develop the
people we require to meet these demands.
For firms, a more principles-based approach requires them to make judgements as well. It means a
greater focus on senior management responsibility to deliver outcomes in line with our Principles,
rather than a compliance department led emphasis on meeting detailed requirements. And it means a
firm being able to demonstrate that these outcomes are being delivered. I have already welcomed the
significant shift in this direction over the last year or two as firms have addressed the Treating
Customers Fairly Principle.
Fourth, what does a more principles-based approach mean for enforcement? Let me say immediately
that we are not looking to take more enforcement actions for their own sake, and we are absolutely not
looking to catch firms out by finding some aspect of their behaviour that falls short of meeting 100% of
every Principle at all times. And I should note that we can and do already take enforcement action on
the basis of our Principles alone. For a firm to be judged as having breached a Principle then, as with
any of our rules, it must be possible to predict, at the time of the action concerned, whether or not it
would be a breach. Where the requirement of predictability is met it is legitimate for consequences to
follow a breach even though the Principle is expressed in general terms.
For example, in the context of Treating Customers Fairly I have stated before that where we find that a
firm is failing to treat its customers fairly, we consider the most suitable course of action. In many
cases, we will agree with the firm a means of addressing shortfalls including, where necessary,

providing redress to consumers. In some cases, failure to treat customers fairly may lead to
enforcement action; in particular where a firm has not responded to indications of a problem, has failed
to identify shortcomings and to develop a strategy to remedy them, and has committed a serious
breach of the Principle. But we do not expect to take enforcement action if we see that firms are
making a genuine attempt to deliver on what Treating Customers Fairly means for them and there has
not been significant risk or actual detriment to consumers.

Time does not allow me to cover all aspects of moving to a more principles-based approach. But let
me assure you that we understand and appreciate your concerns about what a more principles-based
approach means. We recognise that we need to establish an environment that firms find reliable and
predictable; where communications from us are relevant, clear and timely; and where our people have
the experience, expertise and skills to make sensible, informed and proportionate judgements. We are
also clear about the opportunities and challenges for you under a more principles-based approach.

EMERGING ISSUES IN HANDLING RETAIL BANKING :

KNOWING CUSTOMER
Know your Customer is a concept which is easier said than
practiced. Banks face several hurdles in achieving this. In order to
that the product lines are targeted at the right customers-present and
prospective-it is imperative that an integrated view of customers is
available to the banks. The benefits flowing out of cross-selling and
up-selling will remain a far cry in the absence of this vital input. In
this regard the customer databases available with most of the public
sector banks, if not all, remain far from being enviable .
What needs to be done is setting up of a robust data
warehouse where from meaningful data on customers, their
preferences, there spending patterns, etc. can be mined. Cleansing
of existing data is the first step in this direction. PSBs have a long
way to go in this regard.

TECHNOLOGY ISSUES:
Retail banking calls for huge investments in technology. Whether it is
setting up of a Customer Relationship Management System or
Establishing Loan Process Automation or providing anytime,

anywhere convenience to the vast number of customers or

establishing channel/product/customer profitability, technology plays
a pivotal role. And it is a long haul. The Issues involved include
adoption of the right technology at the right time and at the same time
ensuring volumes and margins to sustain the investments.It is
pertinent

to

remember

that

Citibank,

known

for

its

deployment of technology, took nearly a decade to make profits in

credit cards. It has also to be added in the same breath that without
adequate technology support, it would be well nigh possible to
administer the growing retail portfolio without allowing its health to
deteriorate. Further, the key to reduction in transaction costs
simultaneously with increase in ability to handle huge volumes of
business lies only in technology adoption.
PSBs are on their way to catch up with the technology much
required for the success of retail banking efforts. Lack of connectivity,
stand alone models, concept of branch customer as against
bank
customer, lack of convergence amongst available channels, absence
of customer profiling, lack of proper decision support systems, etc.,
are a few deficiencies that are being overcome in a great way.
However, the initiatives in this regard should include creating flexible
computing architecture amenable to changes and having scalability, a
futuristic approach, networking across channels, development of a

strong Customer Information Systems (CIS) and adopting Customer

Relationship Management (CRM) models for getting a 360 degree
view of the customer.

strong Customer Information Systems (CIS) and adopting Customer

Relationship Management (CRM) models for getting a 360 degree
view of the customer.

ORGANIZATIONAL ALIGNMENT
It is of utmost importance that the culture and practices of an
institution support its stated goals. Having decided to take a plunge
into retail banking, banks need to have a well defined business
strategy based on the competitive of the bank and its potential.
Creation of a proper organization structure and business operating
models which would facilitate easy work flow are the needs of the
hour. The need for building the organizational capacity needed to
achieve the desired results cannot be overstated.
This would mean a strong commitment at all levels, intensive
training of the rank and file, putting in place a proper incentive
scheme, etc. As a part of organizational alignment, there is also the
need for setting up of an effective Corporate Marketing Division.
Most of the public sector banks have only publicity departments and
not marketing setup. A fully fledged marketing department or division
would help in evolving a brand strategy, address the issue of
alienation from the upwardly mobile, high net worth customer group
and improve the recall value of the institution and its products by
arresting the trend of getting receded from public memory. The much
needed tie-ups with manufacturers/distributors/builders will also
facilitated smoothly. It is time to break the myth PSBs are not

customer friendly. The attention is to be diverted to vast

databases of
customers lying with the PSBs till unexploited for marketing.

 PRODUCT INNOVATION
Product innovation continues to be yet another major challenge.
Even though bank after bank is coming out with new products, not all
are successful. What is of crucial importance is the need to
understand the difference between novelty and innovation? Peter
Drucker in his path breaking book: Management Challenges for the
21stCentury has in fact sounded a word of caution: innovation that
is
not in tune with the strategic realities will not work; confusing novelty
with innovation (should be avoided), test of innovation is that it
creates value; novelty creates only amusement. The days of selling
the products available in the shelves are gone. Banks need to
innovateproducts suiting the needs and requirements of different
types of customers. Revisiting the features of the existing products to
continue to keep them on demand should not also be lost sight of.
PRICING OF PRODUCT
The next challenge is to have appropriate policies in place. The
industry today is witnessing a price war, with each bank wanting to
have a larger slice of the cake that is the market, without much of a
scientific study into the cost of funds involved, margins, etc. The
customer friendly. The attention is to be diverted to vast
databases of
customers lying with the PSBs till unexploited for marketing.

PRODUCT INNOVATION

Product innovation continues to be yet another major challenge.

Even though bank after bank is coming out with new products, not all
are successful. What is of crucial importance is the need to
understand the difference between novelty and innovation? Peter
Drucker in his path breaking book: Management Challenges for the
21stCentury has in fact sounded a word of caution: innovation that
is
not in tune with the strategic realities will not work; confusing novelty
with innovation (should be avoided), test of innovation is that it
creates value; novelty creates only amusement. The days of selling
the products available in the shelves are gone. Banks need to
innovateproducts suiting the needs and requirements of different
types of customers. Revisiting the features of the existing products to
continue to keep them on demand should not also be lost sight of.

PRICING OF PRODUCT
The next challenge is to have appropriate policies in place. The
industry today is witnessing a price war, with each bank wanting to
have a larger slice of the cake that is the market, without much of a
scientific study into the cost of funds involved, margins, etc. The
strategy of each player in the market seems to be: under cutting
others and wooing the clients of others. Most of the banks that use
rating models for determining the health of the retail portfolio do not
use them for pricing the products. The much needed transparency in
pricing is also missing, with many hidden charges. There is a
tendency, at least on the part of few to camouflage the price. The
situation cannot remain his way for long. This will be one issue that
will be gaining importance in the near future.

There

is

tendency, at least on the part of few to camouflage the price. The

situation cannot remain his way for long. This will be one issue that
will be gaining importance in the near future.

PROCESS CHANGES
Business Process Re-engineering is yet another key requirement for
banks to handle the growing retail portfolio. Simplified processes and
aligning them around delivery of customer service impinging on
reducing customer touch-points are of essence. A realization has to
drawn that automating the inefficiencies will not help anyone and
continuing the old processes with new technology would only make
the organization an old expensive one. Work flow and document
management will be integral part of process changes. The
documentation issues have to remain simple both in terms of
documents to be submitted by the customer at the time of loan
application and those to be executed upon sanction.

ISSUE CONCERNING HUMAN RESOURCES

While technology and product innovation are vital ,the soft issues
concerning the human capital of the banks are more vital. The
corporate initiatives need to focus on bringing around a frontline
revolution. Though the changes envisaged are seen at the frontline,
the initiatives have to really come from the back end. The top
management of banks must be seen as practicing what preaches.
The initiatives should aim at improved delivery time and methods of
approach. There is an imperative need to create a perception
that
the banks are market-oriented.
This would mean a lot of proactive steps on the part of bank
management which would include empowering staff at various levels,

devising appropriate tools for performance measurement bringing

about a transformation cant do to can do mind-set change from
restrictive practices to total flexible work place, say. By having
universal tellers, bringing in managerial controlling work place,
provision

of

intensive

emphasizing,

coaching

training

on

etiquette,

products
good

and

manners

processes,
and

best

behavioural models, formulating objective appraisals, bringing in

transparency, putting in place good and acceptable reward and
punishment system, facilitating the placement of young /youthful staff
in front-line defining a new role for front-line staff by projecting them
as sellers of products rather than clerks at work and changing the
image of the banks from a transaction provider to a solution provider.
approach. There is an imperative need to create a perception
that
the banks are market-oriented.
This would mean a lot of proactive steps on the part of bank
management which would include empowering staff at various levels,
devising appropriate tools for performance measurement bringing
about a transformation cant do to can do mind-set change from
restrictive practices to total flexible work place, say. By having
universal tellers, bringing in managerial controlling work place,
provision

of

intensive

emphasizing,

coaching

training

on

etiquette,

products
good

and

manners

processes,
and

best

behavioural models, formulating objective appraisals, bringing in

transparency, putting in place good and acceptable reward and
punishment system, facilitating the placement of young /youthful staff
in front-line defining a new role for front-line staff by projecting them
as sellers of products rather than clerks at work and changing the
image of the banks from a transaction provider to a solution provider.

 RURAL ORIENTATION
As of now, action that is taking place on the retail front is by and large
confined two metros and cities. There is still a vast market available
in

rural

India,

which

remains

to

be

trapped.

Multinational

Corporations, as manufacturers and distributors, have already taken

the lead in showing the way by coming out with exquisite products,
packaging and promotions, keeping the rural customer in mind.
Washing powders and shampoos in Re.1 sachet made available
through an efficient network and testimony to the determination of the
MNCs to penetrate the rural market. In this scenario, banks
cannot
lack behind.
In particular PSBs, which have a strong rural presence, need to
address the needs of rural customers in a big way. These and only
these will propel retail growth that is envisaged as a key strategy for
portfolio expansion by most of the banks.
MNCs to penetrate the rural market. In this scenario, banks
cannot
lack behind.
In particular PSBs, which have a strong rural presence, need to
address the needs of rural customers in a big way. These and only
these will propel retail growth that is envisaged as a key strategy for
portfolio expansion by most of the banks.

SOME CRITICAL ISSUES :

CUSTOMER SERVICE

Customer service is perhaps the most important dimension

of retail banking. While most public sector banks offer the same
range

of

service with similar technology/expertise, the level of customer

service matters the most in bringing in more business. Perhaps more

than the efficiency of service, the approach and attitude towards
customers

will

make

the

difference.

Front line staffs have to be educated in this regard. A scheme of

entrusting a group of important customers to the care of each
employee/officer with a person to person knowledge and intimacy can
be implemented all sundry advices/notices such as Dr. /Cr. advices.
TDR maturity advices, etc. whether signed by employees or officers
should be identifiable by the name of those signing, and inviting
customers to contact them for further assistance in the matter.
A customer centred organization has to be built up, whose ultimate
goal is to "own" a customer. Focused merchandizing through effective
market segmentation is the need of the hour. A first step can be the
organization of the various retail branches to enter for different
market segments like upmarket individuals, traders, common
customers,

etc..

For the SIB (Small Industry and Business) sector banks, the focus
should be on identifying efficient units and allocations of loans lo
these units. These banks should try Merchant Banking services en a
small

scale.

With agricultural output growing at a fast rate and mechanization

setting in, banks should try to cater to the credit needs of the people
involved in this profession. A wide network is absolutely imperative for
this

sector.

Separate branches/divisions should be opened for traders and similar

government businesses. Special facilities for cash tendered in bulk

and immediate issue of drafts, by extending facilities like "guarantee
bond" system, will go a long way in mitigating problems faced by

traders who are the major customers for drafts issue. Provision for
cash counting machines in these branches will reduce the monotony
of cashiers and unnecessary delays, thus resulting in better
productivity

and

ultimately

in

improved

customer

service.

The personal segment is however the most important one. With the
urban segment moving away because of disintermediation and
competition from foreign banks, retail banks should focus en the
rural/semi-urban areas that hold the maximum potential. Innovative
schemes like "paper-gold" schemes can be introduced. In the urban
areas, private banking to affluent customers can be introduced,
through which advisory and execution services could be provided for
a fee. Foreign currency denominated accounts can also be
introduced

for

them.

Nationalized banks compare very poorly with the foreign banks when
it comes to the efficiency in services. In order to improve the speed of
service the bank should.
Improve the rapport between the controlling offices and
the branches
to ensure that decisions arc communicated fast.
Make sure that the officials as well as the staff are fully
aware of the
rules so that processing is faster.

TECHNOLOGY

In the current scenario, the importance of technology cannot be

understated for retail banks which entail large volumes, large queues
and paperwork. But most of the banks are burdened with a large staff

strength which cannot be done away with. Besides, in the rural and
semi-urban areas, customers will not be at home in an automated,
impersonal

environment.

The objective would be to ensure faster and easier customer service

and more usable information, instantly, economically and easily to all
those who need it -customers as well as employees. Proper
management information systems can also be implemented to aid in
superior

decision

making.

Communication technology is especially needed for money transfer

between the same city and also between cities. There are inordinate
delays in India because of geographical and other factors. Modem
technology can make it possible to clear any check anywhere in India
within three days. Installation of FAX facilities at all the big branches
will facilitate speedy transfer of payment advices. Computerization
will be of great help in improving back-office operations. At present,
60% of India's rural branches can have PCs. These can be used for
quick retrieval and report generation. This will also drastically reduce
the time bank staffs spend in filling and filing returns. Housekeeping
operations can also be speeded up.
PRICE BUNDLING

Price bundling is a selling arrangement where several different

products
are explicitly marketed together to a price that is dependent on the
offer.
As
banks are multi-product firms this strategy is more applicable to retail
banking. Price bundling offers several economic and strategic
benefits to a

bank. It offers economies of, utilization of the existing capacities and

reaching wider population of customers. Bank can get the benefits of
information and transacting. In the process of extending variety of
services,
banks are acquiring enormous amount of customer information. If this
information is systematically stored, banks can efficiently utilize
thisinformation in order to explore new segments and to cross-sell
new
services to these segments. Cross-selling opportunities and larger
customer base can also be the motive for merger against usually
stated
advantage of cost savings. Price bundling can be used in order to
lengthen
the relationship with a customer. It will reduce the need of resources
to

be

put on acquiring new customers and saves time of the bank. Among
the

strategic benefits, price bundling may cause less aggressive

competition;

it

differentiates its products compared to rivals in the same market

where

the

products are sold individually or in other kinds of bundles.

BIBLIOGRAPHY

www.retailbanking.com
www.google.com
www.wikipedia.com