c

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A 
 is a financial institution licensed by a government. Its primary

activities include providing financial services to customers while enriching its
investors. Many financial activities were allowed over time. For example
banks are important players in financial markets and offer financial services
such as investment funds. In some countries such as Germany, banks have
historically owned major stakes in industrial corporations while in other
countries such as the United States banks are prohibited from owning non-
financial companies. In Japan, banks are usually the nexus of a cross-share
holding entity known as the zaibatsu. In France, banc assurance is prevalent,
as most banks offer insurance services (and now real estate services) to their
clients.

The level of government regulation of the banking industry varies

widely, with countries such as Iceland, the United Kingdom and the United
States having relatively light regulation of the banking sector, and countries
such as China having relatively heavier regulation (including stricter
regulations regarding the level of reserves).

Origin of the word:

The name !
 derives from the Italian word !
 "desk/bench", used
during the Renaissance by Florentine bankers, who used to make their

  

transactions above a desk covered by a green tablecloth. However, there are

traces of banking activity even in ancient times.

In fact, the word traces its origins back to the Ancient Roman Empire,
where moneylenders would set up their stalls in the middle of enclosed
courtyards called x  on a long bench called a !
, from which the
words !
 and !
 are derived. As a moneychanger, the merchant at the
!
 did not so much invest money as merely convert the foreign currency
into the only legal tender in Rome²that of the Imperial Mint.






!"

?anks act as payment agents by conducting checking or current

accounts for customers, paying cheques drawn by customers on the bank, and
collecting cheques deposited to customers' current accounts. ?anks also
enable customer payments via other payment methods such as telegraphic
transfer, EFTPOS, and ATM.

?anks borrow money by accepting funds deposited on current

accounts, by accepting term deposits, and by issuing debt securities such as
banknotes and bonds. ?anks lend money by making advances to customers on
current accounts, by making installment loans, and by investing in marketable
debt securities and other forms of money lending.

?anks provide almost all payment services, and a bank account is

considered indispensable by most businesses, individuals and governments.
Non-banks that provide payment services such as remittance companies are
not normally considered an adequate substitute for having a bank account.

  

?anks borrow most funds from households and non-financial

businesses, and lend most funds to households and non-financial businesses,
but non-bank lenders provide a significant and in many cases adequate
substitute for bank loans, and money market funds, cash management trusts
and other non-bank financial institutions in many cases provide an adequate
substitute to banks for lending savings to.

#

:

Early history"

?anking in India originated in the last decades of the 18th century. The
first banks were The General ?ank of India which started in 1786, and the
?ank of Hindustan, both of which are now defunct. The oldest bank in
existence in India is the State ?ank of India, which originated in the ?ank of
Calcutta in June 1806, which almost immediately became the ?ank of ?engal.
This was one of the three presidency banks, the other two being the ?ank of
?ombay and the ?ank of Madras, all three of which were established under
charters from the ?ritish East India Company. For many years the Presidency
banks acted as quasi-central banks, as did their successors. The three banks
merged in 1925 to form the Imperial ?ank of India, which, upon India's
independence, became the State ?ank of India.

Indian merchants in Calcutta established the Union ?ank in 1839, but it

failed in 1848 as a consequence of the economic crisis of 1848-49. The
Allahabad ?ank, established in 1865 and still functioning today, is the oldest
Joint Stock bank in India. It was not the first though. That honor belongs to
the ?ank of Upper India, which was established in 1863, and which survived

  

until 1913, when it failed, with some of its assets and liabilities being
transferred to the Alliance ?ank of Simla.

When the American Civil War stopped the supply of cotton to

Lancashire from the Confederate States, promoters opened banks to finance
trading in Indian cotton. With large exposure to speculative ventures, most of
the banks opened in India during that period failed. The depositors lost money
and lost interest in keeping deposits with banks. Subsequently, banking in
India remained the exclusive domain of Europeans for next several decades
until the beginning of the 20th century.

Foreign banks too started to arrive, particularly in Calcutta, in the

1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in
1860, and another in ?ombay in 1862; branches in Madras and Pondichery,
then a French colony, followed. HS?C established itself in ?engal in 1869.
Calcutta was the most active trading port in India, mainly due to the trade of
the ?ritish Empire, and so became a banking center.

The first entirely Indian joint stock bank was the Oudh Commercial
?ank, established in 1881 in Faizabad. It failed in 1958. The next was the
Punjab National ?ank, established in Lahore in 1895, which has survived to
the present and is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing
through a relative period of stability. Around five decades had elapsed since
the Indian Mutiny, and the social, industrial and other infrastructure had
improved. Indians had established small banks, most of which served
particular ethnic and religious communities.

  

The presidency banks dominated banking in India but there were also
some exchange banks and a number of Indian joint stock banks. All these
banks operated in different segments of the economy. The exchange banks,
mostly owned by Europeans, concentrated on financing foreign trade. Indian
joint stock banks were generally under capitalized and lacked the experience
and maturity to compete with the presidency and exchange banks. This
segmentation let Lord Curzon to observe, Ñ
 
 !


x

!
x
 
x




!


! 


 
x!
xx x

Ñ

The period between 1906 and 1911, saw the establishment of banks
inspired by the Swadeshi movement. The Swadeshi movement inspired local
businessmen and political figures to found banks of and for the Indian
community. A number of banks established then have survived to the present
such as ?ank of India, Corporation ?ank, Indian ?ank, ?ank of ?aroda,
Canara ?ank and Central ?ank of India.

The fervour of Swadeshi movement lead to establishing of many

private banks in Dakshina Kannada and Udupi district which were unified
earlier and known by the name $ à


( South Kanara ) district. Four
nationalised banks started in this district and also a leading private sector
bank. Hence undivided Dakshina Kannada district is known as "Cradle of
Indian ?anking".

  

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 $&%






Central banking is the responsibility of the Reserve ?ank of India,

which in 1935 formally took over these responsibilities from the then Imperial
?ank of India, relegating it to commercial banking functions. After India's

  

independence in 1947, the Reserve ?ank was nationalized and given broader
powers. In 1969 the government nationalized the 14 largest commercial
banks; the government nationalized the six next largest in 1980.

Currently, India has 88 scheduled commercial banks (SC?s) - 27 public

sector banks (that is with the Government of India holding a stake), 31 private
banks (these do not have government stake; they may be publicly listed and
traded on stock exchanges) and 38 foreign banks. They have a combined
network of over 53,000 branches and 17,000 ATMs. According to a report by
ICRA Limited, a rating agency, the public sector banks hold over 75 percent
of total assets of the banking industry, with the private and foreign banks
holding 18.2% and 6.5% respectively

½

 






The period during the First World War (1914-1918) through the end of
the Second World War (1939-1945), and two years thereafter until the
independence of India were challenging for Indian banking. The years of the
First World War were turbulent, and it took its toll with banks simply
collapsing despite the Indian economy gaining indirect boost due to war-
related economic activities. At least 94 banks in India failed between 1913
and 1918 as indicated in the following table:

  

$& % $  *
+$

m
 


 à



%
 '(
 ) '(
 )

1913 12 274 35

1914 42 710 109

1915 11 56 5

1916 13 231 4

1917 9 76 25

*+ 

The partition of India in 1947 adversely impacted the economies of Punjab

and West ?engal, paralyzing banking activities for months. India's
independence marked the end of a regime of the Laissez-faire for the Indian
banking. The Government of India initiated measures to play an active role in
the economic life of the nation, and the Industrial Policy Resolution adopted
by the government in 1948 envisaged a mixed economy. This resulted into
greater involvement of the state in different segments of the economy
including banking and finance. The major steps to regulate banking included:

  

J‘ In 1948, the Reserve ?ank of India, India's central banking authority,

was nationalized, and it became an institution owned by the
Government of India.
J‘ In 1949, the ?anking Regulation Act was enacted which empowered
the Reserve ?ank of India (R?I) "to regulate, control, and inspect the
banks in India."
J‘ The ?anking Regulation Act also provided that no new bank or branch
of an existing bank could be opened without a license from the R?I,
and no two banks could have common directors.

However, despite these provisions, control and regulations, banks in India

except the State ?ank of India, continued to be owned and operated by private
persons. This changed with the nationalisation of major banks in India on 19
July, 1969

,


:

?y the 1960s, the Indian banking industry had become an important

tool to facilitate the development of the Indian economy. At the same time, it
had emerged as a large employer, and a debate had ensued about the
possibility to nationalise the banking industry. Indira Gandhi, the-then Prime
Minister of India expressed the intention of the Government Of India in the
annual conference of the All India Congress Meeting in a paper entitled
Ñ
  
 
 
  


Ñ The paper was received with
positive enthusiasm. Thereafter, her move was swift and sudden, and the
GovernmentOf India issued an ordinance and nationalised the 14 largest
commercial banks with effect from the midnight of July 19, 1969.
Jayaprakash Narayan, a national leader of India, described the step as a

  

Ñx

     
 Ñ Within two weeks of the issue of the
ordinance, the Parliament passed the ?anking Companies (Acquisition and
Transfer of Undertaking) ?ill, and it received the presidential approval on 9
August, 1969.

A second dose of nationalization of 6 more commercial banks followed

in 1980. The stated reason for the nationalization was to give the government
more control of credit delivery. With the second dose of nationalization, the
GOI controlled around 91% of the banking business of India. Later on, in the
year 1993, the government merged New ?ank of India with Punjab National
?ank. It was the only merger between nationalized banks and resulted in the
reduction of the number of nationalised banks from 20 to 19. After this, until
the 1990s, the nationalised banks grew at a pace of around 4%, closer to the
average growth rate of the Indian economy.

The nationalised banks were credited by some, including Home

minister P. Chidambaram, to have helped the Indian economy withstand the
global financial crisis of 2007-2009.

-(

"

In the early 1990s, the then Narsimha Rao government embarked on a

policy of liberalization, licensing a small number of private banks. These
came to be known as 
 

!

, and included Global
Trust ?ank (the first of such new generation banks to be set up), which later
amalgamated with Oriental ?ank of Commerce, Axis ?ank(earlier as UTI
?ank), ICICI ?ank and HDFC ?ank. This move, along with the rapid growth
in the economy of India, revitalized the banking sector in India, which has

  

 cc

seen rapid growth with strong contribution from all the three sectors of banks,
namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been setup with the proposed
relaxation in the norms for Foreign Direct Investment, where all Foreign
Investors in banks may be given voting rights which could exceed the present
cap of 10%,at present it has gone up to 49% with some restrictions.

The new policy shook the ?anking sector in India completely. ?ankers,
till this time, were used to the 4-6-4 method (?orrow at 4%;Lend at 6%;Go
home at 4) of functioning. The new wave ushered in a modern outlook and
tech-savvy methods of working for traditional banks.All this led to the retail
boom in India. People not just demanded more from their banks but also
received more.

Currently (2007), banking in India is generally fairly mature in terms of

supply, product range and reach-even though reach in rural India still remains
a challenge for the private sector and foreign banks. In terms of quality of
assets and capital adequacy, Indian banks are considered to have clean, strong
and transparent balance sheets relative to other banks in comparable
economies in its region. The Reserve ?ank of India is an autonomous body,
with minimal pressure from the government. The stated policy of the ?ank on
the Indian Rupee is to manage volatility but without any fixed exchange rate-
and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite
some time-especially in its services sector-the demand for banking services,

  

 cÿ

especially retail banking, mortgages and investment services are expected to

be strong. One may also expect M&As, takeovers, and asset sales.

In March 2006, the Reserve ?ank of India allowed Warburg Pincus to

increase its stake in Kotak Mahindra ?ank (a private sector bank) to 10%.
This is the first time an investor has been allowed to hold more than 5% in a
private sector bank since the R?I announced norms in 2005 that any stake
exceeding 5% in the private sector banks would need to be vetted by them.

In recent years critics have charged that the non-government owned

banks are too aggressive in their loan recovery efforts in connection with
housing, vehicle and personal loans. There are press reports that the banks'
loan recovery efforts have driven defaulting borrowers to suicide.















  

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Retail banking is that part of a bank that offers products and services
primarily to individual customer, professionals, self employed individual or
some business. The focus is on creating products and services that meet the
needs of the target customers and are profitable for the bank as well. Retail
banking is quite broad in nature ± it refers to the dealing of commercial banks
with individual customers, both liabilities and assets sides of the balance
sheet. Fixed, Current/ saving accounts on the liabilities side; and mortgages,
loans(e.g., personal, housing, auto, and educational) on the assets side, are the
more important of the products offered by banks. Related ancillary services
include credit cards, or depository services. Today¶s retail banking sector is
characterized by three basic characteristics:

J‘ Multiple products ( deposits, credit cards, insurance, investments

and securities)
J‘ Multiple channels of distribution ( call centre, branch, internet and
kiosks); and
J‘ Multiple customer groups ( consumer, small business, and
corporate).

The approach to retail banking product is more on a mass production

basis wherein all risks and operations are based on and geared to carter to a
large number of customer. This is therefore, significantly different from
corporate banking or wholesale banking where focus is on large sized
customer accounts rather than large number of customer.

  

 cA

Retail banking aims to be the one-stop shop for as many financial

services as possible on behalf of retail clients. Some retail banks have even
made a push into investment services such as wealth management, brokerage
accounts, private banking and retirement planning

½
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" 

1.‘Retail ?anking is more customer centric and direct to customer.

2.‘Retail ?anking adopts new smart delivery channels like Net- ?anking,
Credit Cards, Debit Cards, ATM, and Mobile ?anking etc.
3.‘Retail ?anking focuses on personal banking rather than corporate/
business finance.
4.‘Retail banking follows a policy of segmenting the market on the basis of
the purpose of the loan/deposit. Product differentiation and the price
differentiation are made based on the purpose of loan. Eg, Educational Loan,
Housing Loan, Car Loan etc.
5.‘Retail ?anking concentrates on enhancing the quantity number of
customer and on number of loans rather than values.
6.‘Retail ?anking implies the provision of different banking products under a
one roof including value added services/ products.
7.‘Retail banking involves adequate attention to each customer i.e. a different
ambience and atmosphere at the ?ranch to attend each customer personally,
sometimes routed through a call center with due care and concern.
8.‘Another prominent feature of retail banking is retail lending/retail credit
with help of franchised agents. They possess the required skills for credit
assessment, documentation counseling and follow up including
customization of loan products.

  

 c*

à
#

.
(    

Retail banking in india is not a new phenomenon. It has always been

prevalent in India in various forms. For the last few years it has become
synonymous with mainstream banking for many banks.

The typical products offered in the Indian retail banking segment are
housing loans, consumption loans for purchase of durables, auto loans, credit
cards and educational loans. The loans are marketed under attractive brand
names to differentiate the products offered by different banks. As the Report
on Trend and Progress of India, 2003-04 has shown that the loan values of
these retail lending typically range between Rs.20,000 to Rs.100 lakh. The
loans are generally for duration of five to seven years with housing loans
granted for longer duration of 15 years. Credit cards are another rapidly
growing sub-segment of this product group.

In recent past retail lending has turned out to be a key profit driver for
banks with retail portfolio constituting21.5 percent of total outstanding
advances as on March 2004. The overall impairment of the retail loan
portfolio worked out much less then the Gross NPA ratio for the entire loan
portfolio.Within the retail segment, the housing loans had the least gross
asset impairment. In fact, retailing make ample business sense in the banking
sector.

  

 cå

While new generation private sector banks have been able to create a
niche in this regard, the public sector banks have not lagged behind.
Leveraging their vast branch network and outreach, public sector banks
have aggressively forayed to garner a larger slice of retail pie. ?y
international standards, however, there is still much scope for retail banking
in India After all, retail loans constitute less than seven percent of GDP in
India vis-à-vis about 35 percent for other Asian economies- South Korea(55
percent), Tiawan(52 percent), Malaysia(33 percent) and Thailand(18
percent). As retail banking in India is still growing from modest base, there
is a likelihood that the growth of retail banking in India.

 
 


There has been a considerable growth in the retail-banking sector in

India, which makes up for about 1/5th of the overall bank credit. Typically,
the retail banking industry encompasses the services such as credit cards,
Housing loansëEducation loans,Auto loan, etc

Retail banking has brought in a drastic makeover in the overall

banking scenario in India. The exceptional improvement in the banking
system in India is a result of strong initiatives taken up by both the
government and private companies. A recent market research report named,
³Indian Retail ?anking Sector Analysis (2006)´ published by RNCOS
provides an exclusive tour to the entire retail-banking industry of India. As
per the report, ³Mainstream banking and retail banking have become one and
the same thing for the past several years now. Approximately, 22% of the
total outstanding advances were derived from the retail portfolios of the banks
in India till March 2004´.

  

 cÎ

³The contribution of retail banking to the overall banking sector has

been outstanding. Growing at a rate of 122%, the retail-banking sector of
India managed to reach a worth of $67 billion in the year 2005´, as per
experts at RNCOS. ³The retail banking sector in India should reach a worth
of $310 billion by the year 2010´, anticipate the experts. Profiles of key
players along with the strategies and plans adopted by them for the growth of
the industry are also talked about in it. ?esides discussing the present scenario
of the financial system in India the report offers a reliable prediction of the
market in the years to come.

The ratio of retail credit to net credit at the global level is around 5%.
In India, it is interesting to note that this ratio is over 10% as on March31,
2002 (Source : R?I, Annual Report ). With the economy reforms set in
motion , the country is already rated as a major hub for economic
development. Increase in per capita income , change in life style and growing
urbanization have made the Indian population rise from oblivion and resurge
in modern era. The policy of and spent is gradually giving way to spend and
save concept.

# !%
$
+
/

What has contributed to this retail growth? Following are some of the basic
reasons.

´‘ First, economic prosperity and the consequent increase in purchasing

power has given a fillip to a consumer boom. Note that during the 10
years after 1992, India's economy grew at an average rate of 6.8 percent
and continues to grow at the almost the same rate ± not many countries
in the world match this performance.

  

 c·

´‘ Second, changing consumer demographics indicate vast potential for

growth in consumption both qualitatively and quantitatively. India is
one of the countries having highest proportion (70%) of the population
below 35 years of age (young population). The ?RIC report of the
Goldman-Sachs, which predicted a bright future for ?razil, Russia,
India and China, mentioned Indian demographic advantage as an
important positive factor for India.

´‘ Third, technological factors played a major role. Convenience banking

in the form of debit cards, internet and phone-banking, anywhere and
anytime banking has attracted many new customers into the banking
field. Technological innovations relating to increasing use of credit /
debit cards, ATMs, direct debits and phone banking has contributed to
the growth of retail banking in India.

´‘ Fourth, the Treasury income of the banks, which had strengthened the
bottom lines of banks for the past few years, has been on the decline
during the last two years. In such a scenario, retail business provides a
good vehicle of profit maximisation. Considering the fact that retail¶s
share in impaired assets is far lower than the overall bank loans and
advances, retail loans have put comparatively less provisioning burden
on banks apart from diversifying their income streams.

´‘ Fifth, decline in interest rates have also contributed to the growth of

retail credit by generating the demand for such credit.

  

 c

The present boom in retail banking is attributed to the following growth

drivers:

1.‘ The LPG fever.

2.‘ The I.T. ?oom.
3.‘ Economy growth with Greater Market Potential.
4.‘ Thinner Margins and Growing NPA.
5.‘ Change in Family System.
6.‘ Security and convenience off take Cost and Income.
7.‘ Failure of N?FCs and frequent crash of Stock Markets.
8.‘ Supportive Role by Government and R?I and,
9.‘ A timely alternative with low default rate.

‘
(*½!"

Globalization has opened the flood gates for a lot of new players in the
market. Indian banking system also witnessed sweeping ramifications
resulting from the economic reform process of Liberalization, Privatization,
and Globalization(LPG). Increased capital mobility, Increased Standard of
Living, Improved Employment Opportunities, Increased Income Levels, and
Growth in Financial sector, Industrial sector, I.T. sector have enhanced
purchasing Power, per Capita consumption and credit appetite in the
economy.

  

2.‘

&:

The recent advances in information technology have enhanced the

opportunities. Increased connectivity, Electronic money Transfer, Electronic
Clearing, Automation of bank products and solution have led to the
unprecedented growth in Retail ?anking. The cost of handling a transaction/
maintaining a customer account has become much cheaper. Speed, Accuracy,
Transparency, Security have created favorable atmosphere for growth in this
sector.

#‘ . &01 1 
2
*
"


The size of the Retail banking market is enormous and the prospects of
the industry are bright. The size of Retail banking market in India of the
order of Rs.50,000crore while there has been impressive growth in the retail
credit during the last few years, the fact is that market is still on its nascent
stage in India. Even today the level of the market penetration in India is just
2 percent of GDP whereas it is above 20 percent of GDP in respect of South
East Asia and 50 percent in the case of US. The annual growth rate of
economy is also quite optimistic with 6-7 percent. Retail Assets Portfolio of
bank has grown at (CAGR of 25 percent. A recent study undertaking CRISIL
has revealed that even a growth rate of 40% in retail credit is sustainable.

  

 ÿc

4.‘
2

1 *:

Sharp decline in interest rates and the slim interest spread forced the
banks to investigate new profitable products and solutions. A significant
proportion of NPAs being from the corporate business, commercial banks
have to think for an alternative business opportunity for deployment of loans.
Retail banking with potential return became a boon for consolidations and
stabilization. Now the balance sheet of any commercial bank include wide
range of loan products such as Housing loans, Mortgage loans, Consumption
loans for the purchase of durables, Personal loan for specified activities like
Auto loans, Educational loan etc. Retail banking has many advantages like
stable deposits, low cost of funds, larger customer base etc., on the resources
side. On the Assets side the advantage are better yields and higher
profitability, larger volume of credit, credit absorption, well diversified risk
and lower NPAs.

-‘ à
½
&00&"

Shift in the pattern, GDP from agriculture and manufacturing sectors
to service sectors with increased per capita income led to increased middle
income segment and there income levels. The attitude and family culture had
also significantly changed resulting increased number of dwelling units with
growing concepts of nuclear families created vast demand for housing loans
and personal loan from this segment.



  

 ÿÿ

å‘  $0
à! 
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There is perceptible shift in the customer preferences from cost and
income to security, convenience and flexibility. This attitude shift has
transformed the banking culture from mere depositing and borrowing to
more flexible and friendly products like credit cards, debit cards. Any time
anywhere banking has virtually increased the value of banking. As a result,
in spite of increase in transaction of costs, decrease in interest rates on
savings deposits, stipulation of AQM?, savings deposits continued torecord
an impressive annual growth rate of 31 to 35 percent.

3‘ ½
$% ½à
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 % 2
"

Large scale scams failure of non banking finance company has

positively contributed for the growth in bank deposits. Depressed stock
market and sudden crash situations have induced the investors to shift their
investment portfolio to bank deposits.

5‘ $!% !&
: 

Housing Loans are included in priority sector for financing. As a

result ?anks have concentrated on housing loan to attain their targets of
priority sector lending. Reduction in risk weight age, capital adequacy ratio
requirement have doubled the credit disbursement capacity of banks.

  

 ÿ 

Tax exemption on Housing Loans removal of Urban Land (Ceiling

and Regulation) Act have further induced the borrowers to avail house loans.
Similarly the aggressive marketing effort put by commercial banks for
selling house loans, personal loans, car loans, followed by incentives have
also resulted the boom in the retail segment.

‘
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!1 (1 %
$
"

The incidence of bad advances is lesser in the case of retail credit

compared to corporate credit. This is particularly true in case of housing
finance where the average default rate on an annualized basis is less 1%.
Housing finance is considered being safer with mortgage and collateral
security and lesser incidence of delinquency. The quantum and tenure of
house loan assure long-term business further the emotional sentiments people
attach to their residential dwellings enhance the security and prospects of
recovery. Corporate, commercial and business sectors are restoring to
alternative source of obtaining cheaper finance both from domestic and
overseas market. This has left the commercial banks with excess liquidity.

## 
½$

1 "

Retail ?anking includes; a very large and comprehensive range of

financial products. ?anks now found themselves in a perfect market
environment with increasing emphasis on winning competition, customer
retention, industry leadership and market penetration and hence all the public
sector banks should adopt an appropriate marketing strategy for attaining
sustainable competitive advantage. Some of the important strategies adopted

  

 ÿA

by the banks for winning the competition in retail banking are discussed as
follows:

1.‘ Product innovation.

2.‘ Pricing of the products.
3.‘ Customer Relationship Management.
4.‘ ?randing the Retail Products.
5.‘ Customer Segmentation and Targeted Marketing.
6.‘ Technology sets a True competitive Edge.
7.‘ Strategic Alliance and
8.‘ Human Resource- The real Assets Of ?anking Sector.

‘ *$ !
"

Product innovation should be a continuous process. Market Research
should bring new solution to the customers¶ problems. ?anks need to
innovate products suiting the need and requirement of different types of
customers. Revising the features of the existing to continue to keep them on
demand should be also given due importance. Improvements in existing
products are possible by adding some new features are removing some
existing clauses or by offering some complementary value added services
along with main product. Product differentiation is the need of the hour to
attract/retain customers.

  

 ÿ*

‘* % $ "

?anking Industry is also witnessing a price war, with each bank

competing for a larger market. In pricing of the products, its importance on
strengthening the bottom line of the banks has to be borne in mind i.e.
enhancing the shareholders returns. In the scenario of shrinking spreads,
banks will have to walk on the edge on meeting the depository demand for
increasing interest and borrowers claim for a lower rate of interest on
advances by cutting the cost of transaction drastically. ?anks should also
encourage multi-product relationship, use of ATM and Debit Cardsto reduce
transaction costs.

Private ?anks, ICICI, HDFC have adopted penetration pricing for

house loans. The reduction in interest rates below PLR level and offering to
fixed or floating rate of interest have made the housing loans attractive.

#‘à$&
 2

&'à2)"

To survive and prosper in today¶s market environment customer

should be the focal point of all marketing strategies. Understanding the
customers total requirements, retaining the customer and maintaining large
pool of loyal customer for lifetime relationship in the essence of CRM. In
addition to cross selling and Up- selling bank should not forget that a
delighted customer is your brand ambassador. The concept should become
part of organization culture. Customer centric approach in the product
development, pricing, delivery channels and documentation will go a long

  

 ÿå

way in the retail marketing. The retail product marketing strategy of banks
should have around the basic principles of improving the bottom line of the
bank by increasing the number of desirable customers and profit per
customer.

,‘ 
 
6*$ "

?randing helps to distinguish the banks products from the

competitors or stand out from the crowd. For e.g. Abhay gold of Andhra
bank. ?randing is a means to communicate unique strength of the product to
the customer. Customers today are looking for convenience. ?randing will
be of immense help in the era of severe competition. Financial products
offered by most banks are not significantly different from that of others,
hence financial products for many years have proved particularly difficult to
create a brand identity. ?ut with increased competition financial products
are no more expectations to branding. Winning brands have three things in
common a product insight, customer insight, and value insight.

-‘ à$&&



2
"

For the purpose of targeted marketing, customer should be
classified on the basis of demographics, value, and attitude. Design a
product that targets a market segment provides opportunity for one to one
customer interaction. After segmenting the customer to various segments
appropriate strategies should be tailored to enhance the share of profitable
segments. Product development efforts can also be focused to that segment.

  

 ÿÎ

Product should be identified with the market segment. That delivery channel
and promotion strategy should be selected i.e. more appropriate to that
segment.

å‘
 0

$à&!.:

Retail ?anking calls for huge investment in technology. Have an I.T.
strategy that helps to reduce cost delivery, and be scalable for future growth.
?e a pioneer by launching mobile banking , online/ net banking, branch
networking, debit-cards, credit-cards(national/ international).

Retail marketing is highly technologically intensive in nature

because of the large volume of business. Retail ?anking needs instant
service, online response, faster processing and maintenance and integration
of complex database. Data warehousing and data mining would come to
play crucial role in the marketing strategy of cross selling which is integral
part of e-CRM. Data mining helps banks to understand and predict client
behaviour and develop appropriate customer strategy. Public sector banks
have to go a long way for maintaining, updating and integrating vast
customers database. Such data base helps in market research and new
product development.

3‘ 
 
 "


Strategic Alliance is the mutually beneficial long-termformal
relationship for supplying, sharing and exchanging business capacities,

  

 ÿ·

strengths between two parties. Alliance in retail banking areoften described

in two ways:

J‘ Alliances with Non-?anking Finance Companies, Insurance

companies, Investment or Equity research organizations.
J‘ Alliances with service providers and outsourcing.

Strategic alliance with other non-banking investment insurance

companies help in reducing the customer defections. ?anks, which offer a
wide range of banking, insurance, D.Mat products can retain the
customers.The loyalty of a bank customercan be increased manifold by
offering diversified products. The use of Internet and web technologies is an
integral part of the process of retail banking. ?anks are entering into strategic
alliance with service provider. Some of the critical functional solutions
offered by service providers are ATM, credit- card management, cash-
management, New Account, Generation, Central office accounts. They also
provide customized services for end to end solution, system integration, back
office automation, call center etc.

5‘ /$&
$ "


The Real assets of banking sector: skilled human resource is one of
the most important prerequisite for handling large diversified retail credit
mix. Technology and product innovation are vital in retail banking but at the
same time human capital of the bank is more vital. Empowering the staff
with requisite skills and leadership qualities, transparency in human resource

  

 ÿ

policy can go a long way in building a professional work culture and

conducive organization climate for managing the change in the public sector
banks. Public sector banks have to go long way for transforming its work
force into truly professional, productive accountable and customer friendly
about all.

The study thus far highlighted on the recent perspective in retail

banking vis- a ±vis strategies for market penetration. In fact retail banking is
not an entirely new phenomenon. It is always there in mainstream banking.
Now the only difference is increased emphasis on customer relationship, use
of technology, multiple products under one roof, housing loans and credit
cards.

#,!



 The concept of mass banking is almost extinct from the Indian banking
scenario as a direct result of the deep & dynamic changes brought about in
the financial sector.

The paradigm shift in business to that of retail banking is the best

suited for Indian banks in the given environment. It has to be emphasized that
retail banking is not an obsolete concept . Its relevance cannot be
discounted.On the contrary, the need & relevance are worthy of giving more
thrust. Whereas retail banking envisages total customer satisfaction, in the
ultimate analysis , the banker stands to gain. In the changed social and
financial backgrounds, retail segment is considered more relevant if one looks

  

from the angles of control and management of risk and maximizing the
profits.

While a host of value-added products and services help to satisfy the

wants of the consumer, the retail banker gets himself reasonably insulated
against the ugly menace of risk. It is as well an excellent means of topping up
the bottom lines. The strengthening of individual consumer may prove to be a
tool for development and wealth creation. In a nutshell, retail banking in India
is all set to live long.

  

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à
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( 

‘ 
!
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Savings accounts are offered by Commercial bank, saving and loan
association, credit unions, building societies and mutual saving banks.
Obtaining funds held in a savings account may not be as convenient as from
a demand account. For example, one may need to visit an ATM or bank
branch, instead of writing a check or using a debit card. However, this
transference is easy enough that savings accounts are often termed "near
money".

Some savings accounts require funds to be kept on deposit for a

minimum length of time, but most permit unlimited access to funds. In the
US, Regulation D, 12 CFR 204.2(d)(2)] limits the withdrawals, payments, and
transfers that a savings account may perform.?anks comply with these
regulations differently; some will immediately prevent the transfer from
happening, while others will allow the transfer to occur but will notify the
account holder upon violation of the regulation. True savings accounts do not
offer cheque-writing privileges, although many institutions will call their
higher-interest demand accounts or money market account "savings
accounts."

  

  ÿ

All savings accounts offer itemized lists of all financial transactions,

traditionally through a passbook, but also through a bank statement. About
65% of people in the United States have savings accounts.

‘ à$ $"

Current Account is primarily meant for businessmen, firms,

companies, public enterprises etc. that have numerous daily banking
transactions. Current Accounts are cheque operated accounts meant neither
for the purpose of earning interest nor for the purpose of savings but only for
convenience of business hence they are non-interest bearing accounts. In a
Current Account, a customer can deposit any amount of money any number
of times. He can also withdraw any amount as many times as he wants, as
long as he has funds to his credit. Generally, a higher minimum balance as
compared to Savings Account is required to be maintained in Current
account.

As per R?I directive banks are not allowed to pay any interest on the
balances maintained in Current accounts. However, in case of death of the
account holder his legal heirs are paid interest at the rates applicable to
Savings bank deposit from the date of death till the date of settlement.
?ecause of the large number of transactions in the account and volatile nature
of balances maintained, banks usually levy certain service charges for
operating a Current account.

  

   

à$ $
0"

J‘ An individual who has attained majority.

J‘ Two or more individuals in their joint names.
J‘ Sole proprietorship concerns.
J‘ Partnership concerns.
J‘ Hindu Undivided Family (HUF).
J‘ Limited Companies.
J‘ Clubs, Societies.
J‘ Trusts, Executors and Administrators.
J‘ Others - Govt. and semi Govt. bodies, local authorities etc.

#‘ ½7 $"


A fixed deposit is a high interest bearing account for one, two, three,
six, nine, twelve, or twenty four months duration. The interest will be paid at
maturity date to the depositor (other durations are subject to negotiation).

Ô

‘
‘
‘

Currencies /   # å   ,

Month(s) 2  2  2  2  2  2  2 

US Dollar 4% 4.5% 5% 6% 6.5% 7% 7.5%

Riel N/A N/A 5% 6% N/A 7% 8%

?aht 3% N/A 4% 4.5% N/A 5.5% 6.5%

Gold NA NA NA NA NA NA NA
‘

  

  A

4.‘ 
 :

Almost all the Indian ?anks provide services to the NRIs. There are
different types of accounts for them. They are:

J‘ Non-Resident (Ordinary) Account - NRO A/c

J‘ Non-Resident (External) Rupee Account - NRE A/c
J‘ Non-Resident (Foreign Currency) Account - FCNR A/c

An Indian resident who is earning forign exchange can also maintain

Foreign Currency account in the country with an authorised dealer bank but
only to the maximum limit of 50% of such foreign exchange earnings under
the Exchange Earners Foreign Currency Account (EEFC) Scheme.

 8 " The funds, credited to this account, cannot be repatriated

outside India in foreign exchange, without prior permission of the Reserve
?ank of India. Interest, earned is eligible for repatriation outside India, net
of Indian taxes. The remittance of interest (net of taxes) will be permitted
by the authorised dealer who maintains the account, if the account holder
makes an application to the authorised dealer, in the prescribed form. No
R?I permission is required for remittance of interest.

. 8 " The funds, standing to the credit of this account, as well as

interest earned thereon, are remittable outside India in free foreign
exchange, without permission of the R?I. The interest income is not
subject to Indian Income-tax. Credits to the accounts should be in the form
of remittance in foreign exchange from outside India, as well as other
funds, which are eligible to be remitted outside India, in free foreign

  

  *

exchange. Funds, emanating from local sources, are not eligible to be

credited to these accounts, unless these funds are otherwise remittable
outside India, in terms of the existing Exchange Control Regulations.

½à 8 "These accounts can be opened in four foreign currencies:

‘ Pounds Sterling;
‘ US Dollars;
‘ Japanese Yen;
‘ Euro.

For the purpose of opening an account, remittance in foreign exchange,

in the same currency, should be received in India. The accounts can be
opened only as fixed deposits, with a minimum maturity of one year and, a
maximum maturity of three years. The principal, as well as interest, earned on
these accounts, is remittable outside India, in the same currency or, in other
convertible currency, as desired by the account holder. The interest, earned on
these deposits, is exempt from Indian Income-tax.

5.‘ *0
:

Priority banking is relatively new in the Indian context. In this form

of banking, the bank identifies its priority customers (often customers with
deposits above 1 lakh-however this is different for each individual bank) and
some special benefits are provided to these first class customers by the bank.
Ex. They do not have to wait in the queue for transactions. They are assigned
client relationship managers to take care of all their banking needs. These

  

  å

customers can use banks premises for holding meetings, can access the
Internet free of cost and several other benefits are also provided. The basic
purpose of this form of banking is to make the experience of banking
haslefree and less time consuming. This is not to be confused with wealth
management where the thrust is on providing first-class customers,
customised services and expert advice on various financial needs. This is
generally carried out by the wealth managers of the bank. However priority
banking as part of its service offerings may include wealth management.











  

  Î

à
-

.
((.  


 Everyone dreams of living a comfortable life and does all one can to

make this dream come true. Today this has become much easier, as with
higher levels of income and multiple earning members in the family, it is easy
to avail loans to fulfill aspirations ?uying a home, car or any small household
item such as TV or a refrigerator using money borrowed from a bank or a
finance company has become the way of life today. This has created a big
business opportunity for finance companies. 

They are offering loans to all types of customers for all types of assets.
Retail lending has thus become one of the key business verticals for finance
companies. This necessitates banks to follow processes for conducting
business profitably. There are two main areas in lending. Loan Origination
and Loan Servicing. The process of validating customers, convincing them
that the finance company is the right source for their loan requirement and
finally offering the loan with terms and conditions that make business sense
to the finance company is Loan Origination and once the loan is disbursed,

  

  ·

the process of managing the repayments from customers and responding to

the customer requests for pre payments, early settlement, rescheduling, etc. is
Loan Servicing.

Lending has become very competitive as customers are in the mode of

shopping for loans. Finance companies have to continuously offer new
financial products to customers and thus two of the important aspects of the
business are time-to-market and flexibility. ?ut as number of customers
increase, the risk of increase in the number of defaulters prevails. Thus
finance companies have to do the balancing act. On one hand they have to
acquire more business by lending to more customers and on the other hand
they have to lend to select customers so that the rate of delinquency is under
control.

-‘ (
"

0%(
"

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"

A person seeking investments for house or a property opts for Home

Loans for a variety of purposes ranging from construction to renovation. The
Housing Finance Companies (HFCs) now offer individuals with various
alternatives to choose from while buying a home loan. And the availability of
Home Loans offered is as varied as their requirements.

>‘ Home Purchase Loans

>‘ Home Construction Loans
>‘ Home Improvement Loans

  

  

>‘ Home Extension Loans

>‘ Home Conversion Loans
>‘ Land Purchase Loans
>‘ Stamp Duty Loans
>‘ ?ridge Loans
>‘ ?alance Transfer Loans
>‘ Refinance Loans
>‘ Loans to NRIs

/& *$
 (
" This is the basic home loan for the purchase of a
new home.

/&à$ (
"This loan is available for the construction of a

new home on a said property. The documents that are required in such a case
are slightly different from the ones you submit for a normal Housing Loan. If
you have purchased this plot within a period of one year before you started
construction of your house, most HFCs will include the land cost as a
component, to value the total cost of the property. In cases where the period
from the date of purchase of land to the date of application has exceeded a
year, the land cost will not be included in the total cost of property while
calculating eligibility.

/&&!&(
" These loans are given for implementing repair

works and renovations in a home that has already been purchased, for external
works like structural repairs, waterproofing or internal work like tiling and
flooring, plumbing, electrical work, painting, etc. One can avail of such a loan
facility of a home improvement loan, after obtaining the requisite approvals
from the relevant building authority.

  

/&.7(
"An extension loan is one which helps you to meet

the expenses of any alteration to the existing building like extension/
modification of an existing home; for example addition of an extra room etc.
One can avail of such a loan facility of a home extension loan, after obtaining
the requisite approvals from the relevant municipal corporation.

/&à!(
"This is available for those who have financed the

present home with a home loan and wish to purchase and move to another
home for which some extra funds are required. Through a home conversion
loan, the existing loan is transferred to the new home including the extra
amount required, eliminating the need for pre-payment of the previous loan. 

(
*$
(
" This loan is available for purchase of land for both
home construction or investment purposes 


& $0 (
" This loan is sanctioned to pay the stamp duty amount
that needs to be paid on the purchase of property. 

 (
" ?ridge Loans are designed for people who wish to sell the
existing home and purchase another. The bridge loan helps finance the new
home, until a buyer is found for the old home.

´‘ *

"

An $ $
 is a loan that is not backed by collateral it is also known

as a signature loan or personal loan.Unsecured loans are based solely upon the
borrower's credit rating. As a result, they are often much more difficult to get
than a secured loan, which also factors in the borrower's income. An
unsecured loan is considered much cheaper and carries less risk to the

  

 Ac

borrower. However, when an $ $ 
 is granted, it does not

necessarily have to be based on a credit score. For example, if your friend
lends you money without any collateral, meaning something of worth that can
be repossessed if the loan isn't repaid, then your credit score has zero to do
with it, but rather the value of your friendship is at stake. Therefore the real
meaning of an unsecured loan is that it is not backed by any object of value
and is lent to you based on your good name. For financial institutional
purposes, they may want to look at your credit score because they are not
your friend and it is strictly a business transaction, therefore your good name
may be associated with your historical payment history on prior debt,
reflecting in your credit score.

0%$ $


There are three types of unsecured loans.

J‘ First there is a personal unsecured loan, meaning a loan that you

individually are responsible for the repayment of.
J‘ Second is an unsecured business loan which leaves the business
responsible for the repayment.
J‘ Finally there is an unsecured business loan with a personal guarantee.
With the latter, although the borrower is the business, you as an
individual will be the payer of last resort if the business defaults on the
loan.

´‘à

"

In today's fast paced world, a vehicle is but a necessity. Yet other

expenses and plans in life take priority and the dream of owning a car takes a

  

 Aÿ

back seat. Whether as a comfortable and dependable means of transport or as

a status symbol in society, we believe you deserve ownership of a vehicle.

The Car Loans are designed to finance the car that suits your need and
matches to your status & taste.

´‘.$
(
"

Education is the most important investment one makes in life. Higher

studies and specialization in certain fields call for additional financial support
from time to time.

Whether you are planning school education (nursery to standard XII) of your
child, pursuing a graduate or post-graduate degree, Education Loans, can
help finance your ambitions and goals.


%!$"

Reimbursement of related expenses such as admission fee, monthly fee,

?oarding and lodging expenses in recognized ?oarding Houses etc. already
incurred by way of loan taken from own sources (to meet the contingency) by
the applicant, if claimed within 3 (three) months of such payment and before
consideration of the loan by the ?ank. Second time Education Loan can be
sanctioned to the same student borrower for completion of next higher course.

  

 A 

-‘
0%à
"

´‘àà
"

A 
 is part of a system of payments named after the small

plastic card issued to users of the system. It is a card entitling its holder to buy
goods and services based on the holder's promise to pay for these goods and
services.[1] The issuer of the card grants a line of credit to the consumer (or
the user) from which the user can borrow money for payment to a merchant
or as a cash advance to the user.

A credit card is different from a charge card, where a charge card

requires the balance to be paid in full each month. In contrast, credit cards
allow the consumers to 'revolve' their balance, at the cost of having interest
charged. Most credit cards are issued by local banks or credit unions, and are
the shape and size specified by the ISO/IEC 7810 standard as ID-1. This is
defined as 85.60 × 53.98 mm in size. Credit cards are issued after an account
has been approved by the credit provider, after which cardholders can use it to
make purchases at merchants accepting that card.

When a purchase is made, the credit card user agrees to pay the card
issuer. The cardholder indicates consent to pay by signing a receipt with a
record of the card details and indicating the amount to be paid or by entering a
personal identification number (PIN). Also, many merchants now accept
verbal authorizations via telephone and electronic authorization using the
Internet, known as a 'Card/Cardholder Not Present' (CNP) transaction.

  

 AA

Electronic verification systems allow merchants to verify that the card

is valid and the credit card customer has sufficient credit to cover the
purchase in a few seconds, allowing the verification to happen at time of
purchase. The verification is performed using a credit card payment terminal
or Point of Sale (POS) system with a communications link to the merchant's
acquiring bank. Data from the card is obtained from a magnetic stripe or chip
on the card; the latter system is in the United Kingdom and Ireland commonly
known as Chip and PIN, but is more technically an EMV card.

Other variations of verification systems are used by eCommerce

merchants to determine if the user's account is valid and able to accept the
charge. These will typically involve the cardholder providing additional
information, such as the security code printed on the back of the card, or the
address of the cardholder.

Each month, the credit card user is sent a statement indicating the
purchases undertaken with the card, any outstanding fees, and the total
amount owed. After receiving the statement, the cardholder may dispute any
charges that he or she thinks are incorrect (see Fair Credit ?illing Act for
details of the US regulations). Otherwise, the cardholder must pay a defined
minimum proportion of the bill by a due date, or may choose to pay a higher
amount up to the entire amount owed. The credit issuer charges interest on the
amount owed if the balance is not paid in full (typically at a much higher rate
than most other forms of debt). Some financial institutions can arrange for
automatic payments to be deducted from the user's bank accounts, thus
avoiding late payment altogether as long as the cardholder has sufficient
funds.

  

 A*

àà

"

While usage of cards by customers of banks in India has been in vogue

since the mid-1980s, it is only since the early 1990s that the market had
witnessed a quantum jump. The total number of cards issued by 42 banks and
outstanding, increased from 2.69 crore as on end December 2003 to 4.33
crore as on end December 2004. The actual usage too has registered increases
both in terms of volume and value. Almost all the categories of banks issue
credit cards. Credit cards have found greater acceptance in terms of usage in
the major cities of the country, with the four major metropolitan cities
accounting for the bulk of the transactions.

In view of this ever increasing role of credit cards a Working Group

was set up for regulatory mechanism for cards. The terms of reference of the
Working Group were fairly broad and the Group was to look into the type of
regulatory measures that are to be introduced for plastic cards (credit, debit
and smart cards) for encouraging their growth in a safe, secure and efficient
manner, as also to take care of the best customer practices and grievances
redressal mechanism for the card users. The Reserve ?ank has been receiving
a number of complaints regarding various undesirable practices by credit card
issuing institutions and their agents. Some of them are:

J‘ Unsolicited calls to members of the public by card issuing banks/ direct

selling agents pressurising them to apply for credit card.

J‘ Communicating misleading / wrong information regarding credit cards

regarding conditions for issue, amount of service charges/ waiver of fees,
gifts/prizes.

  

 Aå

J‘ Sending credit cards to persons who have not applied for them / activating
unsolicited cards without the approval of the recipient.

J‘ Charging very high interest rates /service charges.

J‘ Lack of transparency in disclosing fees/charges/penalties. Non-disclosure

of detailed billing procedure.

The Working Group deliberated a number of major issues relating to: a)

to customer grievances and rights: a) Transparency and Disclosure, b)
Customer Rights Protection, and c) Code of Conduct. The Group
recommended that the Most Important Terms and Conditions should be
highlighted and advertised and sent separately to the prospective customer.
These terms and conditions include various issues relating to: a) fees and
charges, (b) drawal limits, (c) billing, (d) default, (e) termination / revocation
of card membership, (f) loss / theft / misuse of card, and (g) disclosure.

These recommendations are being processed within the R?I and a set
of guidelines would be issued which are going to pave the path of a healthy
growth in the development of plastic money in India. The R?I is also
considering bringing credit card disputes within the ambit of the ?anking
Ombudsman scheme. While building a regulatory oversight in this regard we
need to ensure that neither does it reduce the efficiency of the system nor does
it hamper the credit card usage.

% $&"

The main benefit to each customer is convenience. Compared to debit

cards and checks, a credit card allows small short-term loans to be quickly
made to a customer who need not calculate a balance remaining before every

  

 AÎ

transaction, provided the total charges do not exceed the maximum credit line
for the card. Credit cards also provide of defective products over £100.

Additionally, carrying a credit card may be a convenience to some

customers, as it eliminates the need to carry any cash for most purposes.

%&
"

For merchants, a credit card transaction is often more secure than other
forms of payment, such as checks, because the issuing bank commits to pay
the merchant the moment the transaction is authorized, regardless of whether
the consumer defaults on the credit card payment (except for legitimate
disputes, which are discussed below, and can result in charges back to the
merchant). In most cases, cards are even more secure than cash, because they
discourage theft by the merchant's employees and reduce the amount of cash
on the premises.

%
"

The main benefit to the bank is that it creates a brand name and popular
image for the bank. The system of credit card provides opportunity to bank to
attract new potential customer. It provides additional customer services to the
existing clients and enhances the customer satisfaction. More use by
cardholder and consequently increased turnover improves national business
growth and consequently the growth of banking habits in general. ?etter
network of cardholders and increased use of card means higher popularity and
image of the banks. It also increases the customer base of the banks. Saving
of expenses on cash holding that is stationary, printing, and manpower to
handle clearing transaction will considerably be reduced.

  

 A·

 

)‘ Secured credit cards"

A secured credit card is a type of credit card secured by a deposit account

owned by the cardholder. Typically, the cardholder must deposit between
100% and 200% of the total amount of credit desired. Thus if the cardholder
puts down $1000, they will be given credit in the range of $500±$1000. In
some cases, credit card issuers will offer incentives even on their secured card
portfolios. In these cases, the deposit required may be significantly less than
the required credit limit, and can be as low as 10% of the desired credit limit.
This deposit is held in a special savings account. Credit card issuers offer this
because they have noticed that delinquencies were notably reduced when the
customer perceives something to lose if the balance is not repaid.

b)‘ Prepaid "credit" cards:

A prepaid credit card is not a credit card, since no credit is offered by the card
issuer: the card-holder spends money which has been "stored" via a prior
deposit by the card-holder or someone else, such as a parent or employer.
However, it carries a credit- card brand (Visa, MasterCard, American Express
or Discover) and can be used in similar ways just as though it were a regular
credit card.

 $0&
$"

Credit cardsecurity relies on the physical security of the plastic card as well
as the privacy of the credit card number. Therefore, whenever a person other
than the card owner has access to the card or its number, security is

  

 A

potentially compromised. Once, merchants would often accept credit card

numbers without additional verification for mail order purchases. It's now
common practice to only ship to confirmed addresses as a security measure to
minimise fraudulent purchases. Some merchants will accept a credit card
number for in-store purchases, whereupon access to the number allows easy
fraud, but many require the card itself to be present, and require a signature. A
lost or stolen card can be cancelled, and if this is done quickly, will greatly
limit the fraud that can take place in this way. For internet purchases, there is
sometimes the same level of security as for mail order (number only) hence
requiring only that the fraudster take care about collecting the goods, but
often there are additional measures. European banks can require a
cardholder's security PIN be entered for in-person purchases with the card.

The PCI DSS is the security standard issued by The PCI SSC (Payment Card
Industry Security Standards Council). This data security standard is used by
acquiring banks to impose cardholder data security measures upon their
merchants.

´‘ à
"

‘‘‘‘‘‘‘‘‘‘‘‘‘‘ ‘

Debit cards allow for direct withdrawal of funds from a customer¶s

bank account. The spending limit is determined by the user¶s bank upon
available balance in the account of user. It is a special plastic card connected
with electromagnetic identification hat one can use to pay for things

  

purchased directly from his bank account. Under the system, card holders
account are immediately debited against purchase or services through the
computer network. Hence, under debit card the cardholder must have
adequate balance in his account. This system is intended to replace cheque
system of payment. Debit card & smart card issuance by banks in India
should be approved by the respective bank¶s board as well as by R?I. These
can be issued only for customer maintaining satisfactory accounts & for a
minimum period of six months.

The use of debit cards has become widespread in many countries and
has overtaken the cheque, and in some instances cash transactions by volume.
Like credit cards, debit cards are used widely for telephone and Internet
purchases, and unlike credit cards the funds are transferred from the bearer's
bank account instead of having the bearer to pay back on a later date allows
you to pay off some money you owe the company over a period of time.

Debit cards can also allow for instant withdrawal of cash, acting as the
ATM card for withdrawing cash and as a cheque guarantee card. Merchants
can also offer "cashback"/"cashout" facilities to customers, where a customer
can withdraw cash along with their purchase

There are currently three ways that debit card transactions are
processed: online debit (also known as PIN debit), offline debit (also known
as signature debit) and Electronic Purse Card.

a)‘ Online Debit Card:

Online debit cards require electronic authorization of every transaction

and the debits are reflected in the user¶s account immediately. The transaction

  

 *c

may be additionally secured with the personal identification number (PIN)

authentication system and some online cards require such authentication for
every transaction, essentially becoming enhanced automatic teller machine
(ATM) cards. One difficulty in using online debit cards is the necessity of an
electronic authorization device at the point of sale (POS) and sometimes also
a separate PINpad to enter the PIN, although this is becoming commonplace
for all card transactions in many countries. Overall, the online debit card is
generally viewed as superior to the offline debit card because of its more
secure authentication system and live status, which alleviates problems with
processing lag on transactions that may have been forgotten or not authorized
by the owner of the card. ?anks in some countries, such as Canada and ?razil,
only issue online debit cards(santu)

b)‘ Offline Debit Card:

Offline debit cards have the logos of major credit cards (e.g. Visa or
MasterCard) or major debit cards (e.g. Maestro in the United Kingdom and
other countries, but not the United States) and are used at the point of sale
like a credit card (with payer's signature). This type of debit card may be
subject to a daily limit, and/or a maximum limit equal to the current/checking
account balance from which it draws funds. Transactions conducted with
offline debit cards require 2±3 days to be reflected on users¶ account
balances. In some countries and with some banks and merchant service
organizations, a "credit" or offline debit transaction is without cost to the
purchaser beyond the face value of the transaction, while a small fee may be
charged for a "debit" or online debit transaction (although it is often absorbed
by the retailer). Other differences are that online debit purchasers may opt to
withdraw cash in addition to the amount of the debit purchase (if the

  

 *ÿ

merchant supports that functionality); also, from the merchant's standpoint,

the merchant pays lower fees on online debit transaction as compared to
"credit" (offline) debit transactio

´‘ Electronic Purse Card"

Smart-card-based electronic purse systems (in which value is stored on the

card chip, not in an externally recorded account, so that machines accepting
the card need no network connectivity) are in use throughout Europe since the
mid-1990s, most notably in Germany (Geldkarte), Austria (Quick), ?elgium.
In Austria and Germany, all current bank cards now include electronic purses.

 
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Also known as an ATM card. This has been discussed in detail earlier.
A special plastic card is used for getting currency notes from a machine.
Known as automated teller machine.

  

 * 

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It is a card given to customer by the bank that he must show when he
writes a cheque, which promises that the bank will pay out the money written
on the cheque. Under check card system, the card holder is given a card & a
chequebook. He has to use the cheques, while purchase is made & the traders
gets guaranteed payment. The customer does not get free credit, he has to
keep sufficient balance in his account or the bank will provide overdraft up to
a specific limit, of course on interest payment basis.

à
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"

A small usually plastic card provided by an organization with which

one may buy goods from various shops, etc. The full amount owed must then
be paid on demand. In credit cards, the card holders get credit or loan for
payment of periodical bills when sufficient balance is available in their

  

 *A

accounts. In a charge card such credit facility is not available. The periodical
bill amount is paid off by charging it to customers account. A fee is also
payable by the card holder to the card issuing institution.

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"

With the use of credit cards, we may avail of credit facility on our
purchase of goods/services from approved sales outlets. A smart card
however, enables the cardholder to perform various other banking functions
apart from credit purchases. For examples, with smart cards, we can draw
cash from ATMs, we can verify entries in our accounts, seek information
pertaining to our accounts, etc. This is possible because the card has an
integrated circuit with microprocessor chip embedded in the card for
identification purposes. The card can also perform calculations & maintain
records.

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Credit card customers are typically extended an unsecured credit at

least up to 30 days. ?eyond the period, the bank charges interest on
outstanding bills. However, some cardholders may prefer to pay off their full
dues before the free credit period. Such cardholders are called convenience
users.

  

 **

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 The growth in retail banking has been facilities by the growth in
banking technology and automation in banking process that enables in
extension of reach and rationalization of cost. ATM has emerged as an
alternative channel which has facilitate low cost transaction . It also has the
advantage of reducing the branch traffic and enable bank with small network
to offset traditional disadvantage by increasing there reach and spread.

Indian retail banks have been extensively using Information and

Communication technologies for their operations like central accounting,
customer information management, transaction-processing and importantly,
for numerous customer-facing solutions. ?esides there are supporting or
ancillary solutions such as security and compliance in addition to the
"middleware" that banks use to link their customer-facing applications to their
core systems. The major business focus of the IT savvy retail banks is in
providing products and services to the customers through a diversified base of
channels - bank branches, ATMs, e-banking, e-branch, mobile-banking, SMS-
banking, etc. In India, the business growth is driving technology spending in
the retail banking segment. Indian retail banks are looking to move beyond
their branch-centric distribution models. Extending ATMs networks,
advancing online and phone banking, and rationalizing branch infrastructure
are all on the cards.

  

 *å

Technology provides Retail ?anks with various delivery channel:-

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The trend in banking has evolved from a cash economy to cheque

economy and thereon to the plastic card economy. One of the channels of
banking services delivery is vide the ATM or the Automated Teller
Machines, whose traditional and primary use is to dispense cash upon
insertion of a plastic card and its unique PIN or Personal Identification
Number.

Current and savings account holders of a bank who hold a certain

minimum balance in their accounts (determined by each bank as per their
policy) are issued an ATM card. The card is a plastic card with a magnetic
strip with the account number of the individual. When the card is inserted into
the ATM, the machines sensing equipment identifies the account holder and
asks for his/her identification code number. This is referred to, usually, as the
PIN and is issued by the banks computers. This number is unknown to the
banks staff and is secret and unique to that individual. When the person uses
the ATM and it asks for the PIN, the cardholder identifies himself/herself by
pressing the relevant number buttons on the machine. The machine then

  

 *Î

verifies the account number on the ATM card along with the secret code
number stored in the ATM. When the matches found, the ATM pops a menu
screen, which allows the user to transact almost all types of bank transactions.

The first bank to introduce the ATM concept in India was the
Hongkong and Shanghai ?anking Corporation (HS?C) It was in the year
1987. Now, almost every commercial banks gives ATM facilities to its
customers.

The first bank to cross 1,000 marks in installing ATMs in India is

ICICI. S?I is following the concept of 'ATMs in Quantity'. ?ut Private
Sector ?anks have taken the lead. ICICI, UTI, HDFC and ID?I counts more
than 50% of the total ATMs in India.

Public Sector ?anks are also taking the installation of ATMs seriously
for Indian market. They are either setting up their own ATM centres or
entering into tie-ups with other banks. The Corporation ?ank has the second
largest network of ATMs amongst the Public Sector ?anks in India.

The Indian banks have also come up with a 'Swadhan' scheme. Under
this scheme, the banks can use each other's ATM at a cost, usually Rs. 35
extra from their customers.

  

 *·

å‘

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The account that travels with you". This is needed in today's fast
business environment with unending deadlines for fulfillment and loads of
appointments to meed and meetings to attend. With mobile banking facilities,
one can bank from anywhere, at anytime and in any condition or anyhow. The
system is either through SMS or through WAP. (Check out for SMS ?anking
under different head)

Mobile ?anking is the hottest area of development in the banking

sector and is expected to replace the credit/debit card system in future. In past
two years, mobile banking users has increased three times if we compare the
use of either debit card or credit card. Moveover 85-90% mobile users do not
own credit cards.

Mobile banking uses the same infrastructure like the ATM solution.
?ut it is extremely easy and inexpensive to implement. It reduces the cost of
operation for bankers in comparison to the use of ATMs.

Using compact HTML and WAP technologies, the following

operations can be conducted through advanced mobile phones which can is
further viewed on channels such as the Internet via the Channel Manager.

  

 *

This convenient, fast, and secure service allows you to perform the following
transactions in a matter of minutes:
‡ Check your company's savings and current account balances
‡ Inquire about recent transactions
‡ Inquire about foreign exchange and deposit rates
‡ Make automated transfers between your business accounts
‡ Request statements
‡ Make check status inquires
‡ Request a checkbook
‡ Change or request for your ?usiness Telephone ?anking PIN
Outside of regular office hours, our Commercial ?anking Relationship Team
is complemented by an automated and intuitive customer service system.

In countries like Korea, two SIM Card is used in mobile phones. One for the
telephonic purpose and the other for banking. ?ank account data is encrypted
on a smart-card chip. About 3.3 million transactions were reported by ?ank of
Korea in 2004.

  

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"

Net ?anking is conducting ones banking or bank account online

through a computer and a net connection. The system is updated immediately
after every transaction automatically. In other words it is said that it is
updated 'on-line, real time'. Through netbanking one can check the status of
his/her account, place queries and also can be facilitated with a wide range of
transactions simultaneously.

In India, the regulatory body has not yet sanctioned virtual bank, in
abroad there are banks like EGG ?ank or NET ?ank, which only have a
virtual presence without any physical branches.

Net ?anking has three basic features. They are as follows:

J‘ The banks offer only relevant informations about their products and
services to the mass.

J‘ Few banks provide interaction facility between the banks and its
customers.

J‘ ?anks are coming up with arrangements of utility payments, like

telephone bills, electricity bills, etc.

  

 åc

The current statistics show that hardly 10 per cent of Indian customers
uses the internet for banking. Among all the facilities provided, the maximum
of them uses only for checking balance or requesting for a cheque book. Very
few customers uses the advance interactive services provided by the banks.
According to HDFC and ICICI ?ank, 17 per cent of ICICI customers use the
Internet for banking and 10 per cent of HDFC customers prefer it.

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J‘ Check ?alance
J‘ See Statement
J‘ Inquire about cheque status
J‘ Ask for a Statement
J‘ Ask for a Cheque ?ook
J‘ Inquire about Fixed Deposit
J‘ Inquire about TDS details
J‘ See Demat Account
J‘ Update profile



"

J‘ Stop a Cheque
J‘ Pay ?ills
J‘ Ask for a Demand Draft
J‘ Transfer funds between your accounts
J‘ Transfer funds to a third party
J‘ Request for a new Fixed Deposit

  

 åÿ

J‘ Shop Online
J‘ Pay ?ank Credit Card Dues

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J‘ It removes the traditional geographical barriers as it could reach out to

customers of different countries/legal jurisdiction. This has raised the
question of jurisdiction of law/supervisory system to which such
transactions should be subjected.
J‘ It has added a new dimension to different kinds of risks traditionally
associated with banking, heightening some of them and throwing new
risk control challenges.
J‘ Security of banking transactions, validity of electronic contract,
customers' privacy, etc., which have all along been concerns of both
bankers and supervisors have assumed different dimensions given that
Internet is a public domain, not subject to control by any single
authority or group of users.
J‘ It poses a strategic risk of loss of business to those banks who do not
respond in time to this new technology, being the efficient and cost
effective delivery.

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"

‘?usinesses are in move. So is to be your money. You may have to

thank the banks which are providing banking at the send-of-your-sms. The
technology is at its highest level to move your money while you are on the

  

 å 

move. If you are having non-WAP enabled mobile handset, you can use the
facility of SMS services. The following operations can be easily used by the
service provider:

J‘ ?alance enquiry
J‘ Last three transactions
J‘ Cheque payment status
J‘ Cheque book request
J‘ Statement request
J‘ Demat - Free ?alance Holding
J‘ Demat - Last two Transactions
J‘ ?ill Payment

The SMS facility brings peace of mind to customers and opens doors to
many more technological possibilities and innovative services. It is very
similar to how an ATM works.

To use ATM, a card is necessary and to use SMS service, a mobile

phone is needed. In both the cases, secret number is necessary to access.

SMS banking is also very much safe. First, one authenticates the
mobile number with the authentications key. Second, the customer uses secret
Mobile Personal Identification Number (MPIN).

A new concept has been developed by ?ank of Punjab Ltd. They call it
"Mobile Wallet". With the support of this technology, a customer can make
payment and receive payment of account of buy/sell (merchants) through
SMS.

  

 åA

In this system, a buyer sends a message for buying and the bank in
return sends a message confirming the purchase both to the merchant as well
as to the buyer. Debit card number is the key field which is used for the
authenticity of the customer.

The processes of the service are simplified as under:

J‘ Customer has to send "REG(one space)(Account Number)(one

space)(Debit Card Number)" as an SMS to bank's mobile number
9810999992 for registration. For e.g. "REG 06S?11052122
5047531105000109109" ?ank will confirm the registration with the
return message.

J‘ After that customer will visit nearest branch to collect the service
brochure and get it filled.

J‘ Registration will be a one time process.Once registered, customer

would be able to buy things from any of the registered merchant of the
bank.

J‘ Customer need to send "PAY(one space)(merchant code)(one

space)(amount)(one space)(Debit card number)" as an SMS on bank's
mobile number 9810999992. For e.g for making a payment of Rs.
56.16 to merchant ?OPSTC from card no. 5047531105000109109,
Send the following message "PAY ?OPSTC 56.16
5047531105000109109"

J‘ The transaction will be validated online and immediately funds will be

transferred from customer account to merchant account.

  

 å*

J‘ ?ank would send transaction confirmation as an message to both

merchant and customer(buyer).

J‘ An SMS report will be sent to both merchant & buyer everyday stating
the total number of transaction & total amount of transaction made
during previous one day.

There is obviously a limit to the volume of transactions now.

Some useful tips:

Generally with 3 invalid login attempts, SMS ?anking services are

locked. Immediately contact the branch for unlocking the services. In case
one forgets the password, obtain a new password from the branch. To log out,
choose the "Log out" option in the handset and SMS ?anking session ends.

  

 åå

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Retail banking has immense opportunities in a growing economy like

India. As the growth story gets unfolded in India, retail banking is going to
emerge a major driver. How does the world view us? I have already referred
to the ?RIC Report talking India as an economic superpower. A. T. Kearney,
a global management consulting firm, recently identified India as the "second
most attractive retail destination" of 30 emergent markets.

The rise of the Indian middle class is an important contributory factor

in this regard. The percentage of middle to high income Indian households is
expected to continue rising. The younger population not only wields
increasing purchasing power, but as far as acquiring personal debt is
concerned, they are perhaps more comfortable than previous generations.
Improving consumer purchasing power, coupled with more liberal attitudes
toward personal debt, is contributing to India's retail banking segment.

The combination of the above factors promises substantial growth in

the retail sector, which at present is in the nascent stage. Due to bundling of
services and delivery channels, the areas of potential conflicts of interest tend
to increase in universal banks and financial conglomerates. Some of the key
policy issues relevant to the retail banking sector are: financial inclusion,
responsible lending, access to finance, long-term savings, financial capability,
consumer protection, regulation and financial crime prevention

  

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First, retention of customers is going to be a major challenge.

According to a research by Reichheld and Sasser in the Harvard ?usiness
Review, 5 per cent increase in customer retention can increase profitability by
35 per cent in banking business, 50 per cent in insurance and brokerage, and
125 per cent in the consumer credit card market. Thus, banks need to
emphasis retaining customers and increasing market share.

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

the future. India's position, of course, is not comparable to that of the
developed world where household debt as a proportion of disposable income
is much higher. Such a scenario creates high uncertainty. Expressing concerns
about the high growth witnessed in the consumer credit segments the Reserve
?ank has, as a temporary measure, put in place risk containment measures
and increased the risk weight from 100 per cent to 125 per cent in the case of
consumer credit including personal loans and credit cards (Mid-term Review
of Annual Policy, 2004-05).

Third, information technology poses both opportunities and challenges.

Even with ATM machines and Internet ?anking, many consumers still prefer
the personal touch of their neighbourhood branch bank. Technology has made
it possible to deliver services throughout the branch bank network, providing
instant updates to checking accounts and rapid movement of money for stock
transfers. However, this dependency on the network has brought IT
departments additional responsibilities and challenges in managing,
maintaining and optimizing the performance of retail banking networks.

  

 å·

Illustratively, ensuring that all bank products and services are available, at all
times, and across the entire organization is essential for today¶s retails banks
to generate revenues and remain competitive. ?esides, there are network
management challenges, whereby keeping these complex, distributed
networks and applications operating properly in support of business
objectives becomes essential. Specific challenges include ensuring that
account transaction applications run efficiently between the branch offices
and data centres.

Fourth, KYC Issues and money laundering risks in retail banking is yet
another important issue. Retail lending is often regarded as a low risk area for
money laundering because of the perception of the sums involved. However,
competition for clients may also lead to KYC procedures being waived in the
bid for new business. ?anks must also consider seriously the type of
identification documents they will accept and other processes to be
completed. The Reserve ?ank has issued details guidelines on application of
KYC norms in November 2004.

  

 å

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The Future of Retail ?anking on current trends and technologies

impacting the retail banking industry suggests ways for banks to face the
future. According to Joseph DiVanna, a consultant and author of books on
business and technology, the future of retail banking is neither technological
nor is it simply about embracing customer¶s evolving needs. He describes the
future of retail banking as ³a complex task of transforming traditional banking
institutions into agile organizations that deliver financial services to facilitate
a rising set of emerging lifestyles.´ 

Taking a historical view of banking intermediaries formed to satisfy a

need to exchange goods and services; DiVanna establishes the fundamentals
of retail banking and describes how changing global lifestyles and
technological advances along with regulatory developments are impacting it. 

DiVanna goes on to transpose basic business and marketing concepts

such as strategic vision and core competencies in retail banking stating that to
prepare for the future, banks need to develop cohesive strategic initiatives. A
significant section dwells on the relevance of retail banking technology and
the impact of dot com boom. The key to innovation and creating competitive
differentiation for the next generation of retail banks lies in understanding
how to apply technology to achieve superior product delivery and customer
service. DiVanna identifies operational excellence, customer intimacy and
alliances as other elements essential to a bank¶s success in the future.

The ideas discussed are not new. However, put together, they present a

  

cohesive picture of how retail banks can compete in the future. The liberal use
of examples is the highlight of this book. The script is verbose and repetitious
with ideas lacking clarity. In this well-researched volume, DiVanna has
skillfully woven business concepts with examples to create an interesting,
informative, comprehensive and opportune analysis of the retail banking
industry.

  

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There is a need of constant innovation in retail banking. In bracing for

tomorrow, a paradigm shift in bank financing through innovative products
and mechanisms involving constant upgradation and revalidation of the
banks¶ internal systems and processes is called for. ?anks now need to use
retail as a growth trigger. This requires product development and
differentiation, innovation and business process reengineering, micro-
planning, marketing, prudent pricing, customisation, technological
upgradation, home / electronic / mobile banking, cost reduction and cross-
selling.

While retail banking offers phenomenal opportunities for growth, the

challenges are equally daunting. How far the retail banking is able to lead
growth of the banking industry in future would depend upon the capacity
building of the banks to meet the challenges and make use of the
opportunities profitably. However, the kind of technology used and the
efficiency of operations would provide the much needed competitive edge for
success in retail banking business. Furthermore, in all these customers¶
interest is of paramount importance. The banking sector in India is
demonstrating this and I do hope they would continue to chart in this traded
path.

  

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