RETAIL BANKING

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 bank’s
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 of a Bank.
RETAIL BANKING AN 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.

Today’s retail banking sector is characterized by three basic characteristics:

Multiple products (deposits, credit cards, insurance, investments and securities)
Multiple channels of distribution (call center, branch, internet)
Multiple customer groups (consumer, small business, and corporate).

Customers are broadly classified into two:

1.Personal Customers: Individuals having accounts singly or jointly
(including minors)
2. Non Personal Customers: Non individual customers like Proprietary
concerns, Partnerships, Companies, Trusts, Associations, Clubs,
Societies, Institutions, Govt. Departments, NGOs, SHG etc.

Accounts are broadly classified into two:

1. Customer accounts (external accounts): Deposit accounts (Savings
2. Bank, Current Account etc), Loan Accounts (Demand Loan, Term
Loan etc) and Contingent accounts (Bank Guarantee etc)
Office accounts. (Internal accounts): Cash Balance accounts, fixed
assets account, Drafts account, Sundry Deposit account, Interest
account etc.

Basic Deposits Account:

Savings Bank: Running account for saving with restriction in
number of withdrawal
Current Account: Running account without restriction on number of
withdrawals
Term Deposit: Deposit of an amount for a fixed period where
interest is paid monthly/Quarterly
Special Term Deposit: Deposit of an amount for a fixed period
where interest is compounded
(Capitalized) and paid on maturity.
Recurring Deposit: Regular (Monthly) deposit of a fixed amount for a fixed period.

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 19th century.
The first half of the 19th century, 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 India was 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 India out 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
Company’s 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.

General characteristics of retail banking markets :

The supply side of retail banking markets shows common features that are
typical for banking markets in general. The main difference between retail
banking and other banking fields is the fragmented demand side of the first,
comprising individual consumers and small enterprises. In the following, the
characteristics of the supply and demand sides of the market will thus be
discussed separately.
The demand-side of retail banking markets is, as would be expected,
fragmented. Bank customers are often faced with information asymmetry,
27 i.e. lack of full information about the products and services on offer and
hence cannot make meaningful comparisons. Moreover, there are numerous
barriers to customer mobility (e.g. tying and bundling of products, switching
costs such as closure charges, etc.) that result in a certain reluctance to
switch suppliers, hence making price competition less efficient.

Regulation of retail banking :

Across the EEA, competition authorities are increasingly turning their
attention to banking markets. Competition authorities in both Iceland and
Norway have dealt with several cases involving retail banking markets over
the years.14 It is by now firmly established that EEA competition law
applies to the banking sector.
One tool of prudential regulation is entry regulation by means of bank
license requirements. This is explainable by the rules on own funds
adequacy. However, the promotion of stability and the avoidance of a
systemic crisis cannot justify all occurring entry restrictions. Such
restrictions may also be used by governments to prevent foreign entries or
takeovers and thus impede effective competition. Another regulatory issue
that also affects market entry concerns specific rules on the ownership and
activity of certain types of banks such as savings banks and co-operative
banks.
The Authority scrutinizes advantages provided to certain financial
institutions by means of State aid control in order to ensure a level
playing field for all market participants and to enhance undistorted
competition. In particular, the Authority ensures that public and private
institutions operate under similar conditions by removing unlimited
state guarantees or fiscal advantages favoring particular banks and by
applying the so-called Market Economy Investor Principle (MEIP).

Drivers Of Retail Growth :

CHANGING CONSUMER DEMOGRAPHICS
 Growing disposable incomes
 Youngest population in the world
 Increasing literacy levels
 Higher adaptability to technology
 Growing consumerism
 Fiscal incentives for home loans
 Changing mindsets-willingness to borrow/lend
 Desire to improve lifestyles
 Banks vying for higher market share

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 day-by-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 to exploit the advantage of earning huge
profits from single customer as in case of wholesale banking.

Future Of Retail Banking :

 The accelerated retail growth has been on a historically low base
 Penetration continues to be significantly low compared to global
bench marks
 Share of retail credit expected to grow from 22% to 36%
 Retail credit expected to grow to Rs.575,000 crs by 2010 at an annual
growth rate of 25%
 Dramatic changes expected in the credit portfolio of Banks in the next
5 years
 Housing will continue to be the biggest growth segment, followed by
Auto loans
 Banks need to expand and diversify by focussing on non urban
segment as well as varied income and demographic groups
 Rural areas offer tremendous potential too which needs to be exploited

OPPORTUNITIES

Retail banking has immense opportunities in a growing economy like India. As the
growth story gets unfolded in India, retail banking is going to emerge a major driver.
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 India’s 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 retail-banking sector are:
financial inclusion, responsible lending, and access to finance, long-term savings,
financial capability, consumer protection, regulation and financial crime prevention.

CHALLENGES TO RETAIL BANKING IN INDIA

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 customer’s 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. Also it helps in-

• Sustaining Customer loyalty

• NPA reduction & Fraud prevention
• Avoiding Debt Trap for customers
• Bringing Rural masses into mainstream banking

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.

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.

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.

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 21st Century”
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 innovate products 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.

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 - ‘can’t 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 training on products
and processes, emphasizing, coaching etiquette, good manners 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.

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 this information 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.
Retail banking offers many services and it gives an opportunity to the bank to combine
different services in different kinds of bundles. In many cases demand for one service
affects the demand for another service, for example current or savings account and
payment services are highly related, and here price bundling is a better alternative than
individual selling. Banks have to analyze the customer segment and bundle products
before applying the pricing strategies.
The first step in price bundling decision is to select the customer segment. The bundle is
targeted to choose a strategic objective. If there are two products (A and B) that are
considered to be bundled together, the comprehensive strategic objectives for the
different customer segments are:
• Cross-selling to customers that only buy one of the products.
• Retaining customers that already buy both of the products.
• Acquiring new customers when they buy neither product for the time being.

INNOVATION
The scope for innovation in financial services is unlimited. Although banks have
introduced a variety of deposit and loan products, the basic features of all these products
are almost one and the same. Among the delivery channels, ATMs have emerged as
ubiquitous money centers. Almost all banks have established their ATMs. India had only
400 ATMs, which increased to 3,600. Out of this 881 ATMs have Swadhan connectivity.
It is projected that the number of ATMs will reach up to 35,000 by the end of. The
question arises is, are they cash cows? The answer is certainly no. For most of the banks
the overhead costs on these ATMs are far higher than the revenue generated by them.
ATM operation costs are largely fixed in nature - the cost of the machine, its
maintenance, replenishment of currency, and the satellite (network) connection. There
should be a minimum number of transactions to cover these costs. Banks have to
innovate wide range of services in addition to cash withdrawals. ATMs should allow
customers to buy postal and revenue stamps, payment of bills, event tickets, sports
tickets, etc. Banks can offer ATM screens for slide show advertising also. However, the
advantage of the ATM has always been speed and convenience, probably on introduction
of these new services customer has to spend more time at a point. ATMs can guide the
customer also. For example, if a customer's account balance has reached to bare
minimum the ATM can give a helpful suggestion that "we notice your balance is low, can
we help with a loan?" ATMs can be either within the premises of a branch or at a remote
place. On premises ATMs are highly immune to competition, but branches can reduce the
staff, on installation of ATM. The scope for wider services through off-premises ATMs is
very high; it provides great opportunity for fee revenue. The cost of maintenance of off-
premises ATMs is higher in terms of replenishment, cash couriers, armed security etc. In
the US, approximately 23 percent of ATMs are offering sale of postage stamps. It is the
right time for banks to question themselves whether ATM is a service channel, sales
channel, or branding opportunity.
The future of retail banking lies more in mobile banking. Mobile telephone market is
penetrating, and mobile phones are ideal to utilize Internet banking services without
customer accesses to PC. By a tacit acceptance India has around three million mobile
phone users and this number is expected to reach to eight million by 2003.
Smart card revolution will further change the face of retail banking. Smart cards can store
information; carry out local processing on the data stored and can perform complex
calculations. At present, India has around 3.4 million smart card users and it is estimated
that by the end of 2004 it will reach 14.7 million.

GROWTH DRIVERS OF RETAIL BANKING

The growth drivers of retail lending are analyzed as under:

MACRO-ECONOMIC FACTORS

Shift in the pattern of GDP from hitherto agriculture and manufacturing sectors to
services sector with increase per capita income especially that of the younger generation.
[India's industrial sector accounted for about 21.8% of GDP, where as the services sector
accounted for around 56.1 of GDP in 2002-03 as per revised estimates released by
Central. Statistical Organization].

The lower uptake in the non-retail sector has compelled bans to shift their focus on retail
assets - specially housing finance- for deployment of funds for a longer period, which is
considered as the safest within the retail portfolio. Housing loans and other retail loans
are comparatively high yielding in terms of interest spread and safer, as risk is diversified
among a large number of individuals across the geographic dimensions. The sector
enjoys a privilege of lowest NPAs amongst all categories of banks.
Depressed stock and real estate markets as compared to those prevailing in 1992-93 to
1995-96 thereby diverting deposits to the banking sectors.
Comparatively stable real estate prices during last 4/5 years have laid to spurt in demand
for housing loans.
Inflation continued to be under control.
Keenness shown by the consumer goods/ automobile manufacturers to -push up finance
schemes through market tie-up with banks with a view to increasing their marketing
share.

DEMOGRAPHIC / BEHAVIORAL FACTORS

Growing concept of nuclear families than the joint families necessitating need for
housing units as well as other items of consumer durables.
Increased number of dual income families resulting in higher income and savings.
Increased demand for dwelling units due to gradual shift of population from rural/semi-
urban centre to urban/metro centre for employment.
Shift in the attitude of the Indian household from "save and buy' theory to a `buy and
repay' principle.
Increased middle-income segment and their income levels.
Emergence of new sectors such as Information Technology, media, etc. In the economy
that resulted in higher income opportunities and major impact on change in urban
consumption pattern.
Awareness and sophistication in urban and semi-urban households for urban
convenience. Social security and status have also contributed to higher demand for
housing units, cars, etc.

FAVORABLE ROLE OF RBI

Inclusion of housing loans within the priority sector. Direct finance up to Rs.10 -lakhs in
case of rural and semi-urban areas now form part of the priority sector advances. This
promoted banks to go for housing loans in a big way as it helped them to attain their
targets of priority sector lending.
Reduction in risk weight age bank's extending loans for acquisition of residential house
properties to 50 per cent from 100 per cent. Reduction in Capital Adequacy Ratio
requirement has effectively doubled the credit disbursement capacity of banks.
Banks have elongated repayment periods of retail loans years to 50/20 years besides
quoting fixed/ variable rate of interests based on their asset liability management
structure and study of behavioral pattern of demand and time deposits.
Deregulation of interest rate with option to quote fixed/ variable interest rate.
Continuous reduction in bank rate, which resulted in reduction in lending rates as well.
South ward movement in CRR and SLR ratios increasing lending capacity of banks.

CATALYST-ROLE OF GOVERNMENT

Tax exemptions for payment of interest on capital borrowed for purchase/ construction of
house property and principle repayment. This made housing finance affordable and
within the reach of common man. [It is important to note that the housing sector has been
recipient of a large number of fiscal incentives in the last 6`h budgets].
These exemptions also changed the profile of the retail segment from hitherto cash
transactions to book transactions.
The Government could not ignore the importance of housing sector in overall
development of the economy due to the following factors:
Housing construction activities can generate opportunities for employment. In the present
context of jobless GDP growth, this issue assumes important as the housing construction
provides massive job opportunities for both unskilled and skilled man power.
Mass construction of houses will result in the benefits of the nation by the way of healthy
standard of leaving, motivation to save more and thereby providing sustainable economic
recovery.
This would also lead to growth in related industries as well.

INITIATIVES ON THE PART OF BANKS

The growth in retail banking has been facilitated by growth in banking technology and
automation of banking processes to enable extension of reach and rationalization of costs.
ATMs have emerged as an alternative banking channels which facilitate low-cost
transactions vis-à-vis traditional branches / method of lending. It also has the advantage
of reducing the branch traffic and enables banks with small networks to offset the
traditional disadvantages by increasing their reach and spread.
The interest rates on retail loans have declined from a high of 16-18%in 1995-96 to
presently in the band of 7.5-9%. Ample liquidity in the banking system and falling global
interest rates have also compelled the domestic banks to reduce interest rates of retail
lending.
Banks could afford to quote lower rate of interest, even below PLR as low cost [saving
bank] and no cost [current account] deposits contribute more than 1/3rd of their funds
[deposits].The declining cost of incremental deposits has enabled the Banks to reduce
their interest rates on housing loans as well as other retail segments loans.
Easy and affordable access to retails loans through a wide range of options / flexibility.
Banks even finance cost of registration, stamp duty, society charges and other associated
expenditures such as furniture and fixtures in case of housing loans and cost of
registration and insurance, etc. in case of auto loans.
Offering retail loans for short term, 3 years and long term ranging term ranging from
15/20 years as compared to their earlier 5-7 years only.
Making financing attractive by offering free / concessional / value added services like
issue of credit card, insurance, etc.
Continuous waiver of processing fees / administration fees, prepayment charges, etc. by
the Banks. As of now, the cost of retail lending is restricted to the interest costs.
BANKS IN INDIA

In India the banks are being segregated in different groups. Each group has their own
benefits and limitations in operating in India. Each has their own dedicated target market.
Few of them only work in rural sector while others in both rural as well as urban. Many
even are only catering in cities. Some are of Indian origin and some are foreign players.
One more section has been taken note of is the upcoming foreign banks in India. The RBI
has shown certain interest to involve more of foreign banks than the existing one
recently. This step has paved a way for few more foreign banks to start business in India.
This Public Sector Bank India has implemented 14 point action plan for strengthening of
credit delivery to women and has designated 5 branches as specialized branches for
women entrepreneurs.
The following are the list of Public Sector Banks in India
Allahabad Bank
Aadhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank

List of State Bank of India and its subsidiary, a Public Sector Banks
State Bank of India
State Bank of Bikaner & Jaipur
State Bank of Hyderabad
State Bank of Indore
State Bank of Mysore
State Bank of Saurastra
State Bank of Travancore

Banks are the most significant players in the Indian financial market. - They are the
biggest purveyors of credit, and they also attract most of the savings from the population.
Dominated by public sector, the banking industry has so far acted as an efficient partner
in the growth and the development of the country. Driven by the socialist ideologies and
the welfare state concept, public sector banks have long been the supporters of agriculture
and other priority sectors. 'They act as crucial channels of the government in its efforts to
ensure equitable economic development.
The banking sector in India has undergone remarkable changes since the economic
reforms were initiated in 1991-92. The period has been marketed by a slew of reforms in
the sector, which provided the much needed impetus for the growth of the sector as a
whole. One of the remarkable reforms found crucial to study is emphasizes of public
sector banks on retail banking.

RETAIL BOOM

Keeping pace with the average 8.5 per cent growth of the Indian economy over
the past few years, the retail banking sector in India has also witnessed phenomenal
growth. It has faced up to the need of the hour and introduced anytime, anywhere
banking, for its customers through ATMs, mobile and internet banking. It has also
offered services like D-MAT, plastic money (credit and debit cards), online transfers, etc.
This has not only helped in reducing operational costs but facilitated greater
conveniences to its customers.

High-Tech Banking
ATMs - With growing technological innovations, banks have significantly expanded their
ATM network over the past three years. According to the RBI data as of end-June 2008,
the number of ATMs in the country had climbed to 36,314 compared to 27,088 and
20,267 as at end-March 2007 and 2006, respectively.
Loan disbursement
Technology has facilitated the growth in retail loan disbursements, making the whole
process simpler and faster. The sector has delivered a growth of around 30 per cent per
year over the past 4-5 years. As per the RBI data, although the retail portfolio of banks
saw a slowdown to 29.9 per cent during 2006-07 from 40.9 per cent in 2005-06, the
growth was faster than the overall credit portfolio of the banking sector (28.5 per cent).
Plastic Money
Credit cards have also played an important role in promoting retail banking. The use of
credit cards has been growing significantly over the last few years. The number of credit
cards outstanding at the end- June 2008 stood at 27.02 million as against 24.39 million in
June 2007, with usage increasing by 10.73 per cent during this period.
Core Banking Solutions (CBS)
The concept of CBS, which allows a customer to fulfil a wide range of banking operation
online, has come alive during the past four years. The number of bank branches providing
CBS rose rapidly to 44 per cent at end- March 2007 from 28.9 per cent at end March
2006. Electronic fund transfer facilities and mobile banking are expected to provide a
further fillip to the retail banking in the coming years.
Future Outlook
Indian retail banking, according to a report, is likely to grow at a CAGR of 28 per cent till
2010 to Rs 97,00 billion. So, although the revolution in retail banking has changed the
face of the Indian banking industry as a whole, it has still miles to go.

The reasons for this shift to retail, particularly the housing finance segment, are many.
The important among these include-

The poor credit off take to the corporate, commercial and other business sector because
of industrial slowdown.
Risky nature of lending to corporate, given in industry recession and uncertainty
prevalent in the economy.
High disintermediation pressure, leading many highly rated corporates to tap the
domestic and/or overseas markets directly for finance, rather than approaching the banks.
Relatively safe nature of some of the retail credit finance with lesser incidence of loan
turning bad.
Rising disposable income, changing lifestyles/aspirations and willingness to spend for
more luxuries of the higher middle class.
Better availability of loans, because of the consultancy lowering interest rates, as a result
of the low interest regime followed by the regulating authorities, the housing loans
interest rates hailed to almost 7.5 - 8% in last 5 years.
Increased government incentives in form of tax rebates etc. in the case of certain loans
like housing loans.
Banks are aware with abundant reserve requirement by RBI, they are searching revenues
for packing the surplus funds.

FUTURE OF RETAIL BANKING

Retail banking has significant past and glorious future over the years. Retail
banking has proved as an effective tool not only to improve the bottom lines of the banks
concerned but also to significantly contribute to the development of the individual
consumers availing the services or products in particular and to the overall development
of the society in general with the needs of the consumers ever multiplying. There is
definitely a vast scope for the furtherance of the Retail Banking business.
The society is made of the individuals and the environment surrounding him. As
development takes place in the society, the needs of the people grow faster than ever.
The wealth creation and its professional management are yet another distinct advantage
the society or nation can derive from Retail Banking. The depth of the untapped
resources in the retail segment is not yet measured. These resources could be
channelized for nation building.
On the whole, looking ahead, the prospects of retail banking are brighter than ever and
the bankers have to give continued thrust to this area of banking. Thus, with the
consumers ever multiplying needs there is definitely a vast scope for the furtherance of
the retail banking business. Operationally, there is a possibility that technology go
beyond merely reducing the cost & improving the quality of current products. It may
prove possible, even profitable, to combine functions in new ways.

CASE STUDY

INDIAN OVERSEAS BANK

HISTORY OF INDIAN OVERSEAS BANK

Indian Overseas Bank (IOB; established 1937) is a major bank based in Chennai
(Madras), with 2018 domestic branches and six branches overseas. Indian Overseas Bank
has an ISO certified in house Information Technology department, which has developed
the software that 2018 branches use to provide online banking to customers; the bank has
achieved 100% networking status as well as 100% CBS status of branches with a total
number of 2018 CBS branches and Extension Counters. IOB also has a network of about
771 ATMs all over India and IOB's International VISA Debit Card is accepted at all
ATMs belonging to the Cash Tree and NFS networks. IOB offers internet Banking (E-
See Banking) and is one of the banks that the Govt. of India has approved for online
payment of taxes. The bank's business more than doubled in the last four years.
According to "A profile of banks (2009-10)" published by RBI, the bank's deposits
increased from Rs.50529 crore as on 31.03.06 to Rs.110795 crore as on 31.03.10 and
advances from Rs.34756 crore to Rs.79004 crore.

YEAR EVENTS 1937 - Indian overseas bank was founded on 10th February, and had the
distinction of three branches,at Chennai, Karaikudi and Rangoon simultaneously
commencing business on the inaugural day.

- The founder Chairman was M.Ct.Chidambaram Chettiyar.

1969 - When it was nationalised,the bank had 208 branches and business mix of Rs.156
crores.

1990 - The Bank of Tamil Nadu was merged with the Bank .

- The bank has launched credit card in tie up arrangement with Cancard.

1995 - The Bank signed on July 26, a MOU with the three Regional Rural Banks (RRBs)
sponsored by it - Puri Gramya Bank (in Orissa), Pandyan Grama Bank (in Tamil Nadu)
and Dhenkanal Gramya Bank (also in Orissa). Under the MOU, the RRBs committed
themselves to achieve targets under various business parameters for turning the corner
within a span of five years.
1998 - Ms. P. Bolina, Deputy Secretary, Ministry of Finance was appointed director of
the Bank with effect from September 4, in the place of Shri Paramjit Singh. Shri K.
Nagappan was appointed director representing workmen employees with effect from
October 12, in the place of Shri Bhadresh U. Banker.

- The Bank launched its improved version of Kisan Credit Card on November 27. The
Scheme is gaining popularity speedily. Branches distributed 2,369 cards, disbursing a
credit of Rs. 538.0 lakh within the four months of inception of the Scheme.

1999 - The Bank launched a Housing Scheme called `Subha Gruha' with simplified and
borrower friendly features.

- To benefit students undergoing studies in India and abroad, the Bank's `Vidya Jyothi'
educational loan scheme was further modified. Loan amounts for inland and foreign
studies were increased and interest rates were reduced.

- With effect from March 1, a new system was introduced for reconciling high value
demand drafts.

2000 - Indian Overseas Bank has launched its customer care cell in Chennai.

- Chennai-based Indian Overseas Bank is all set to go public on September 25 with an

IPO to raise Rs 111.20 crore. The IPO is for an issue of 11,12,00,000 No. of equity shares
of Rs 10 each at par.

- The public sector Indian Overseas Bank will be setting aside about Rs 75 crore for
offering voluntary retirement scheme package to about 1,500 of its employees.

- Indian Overseas Bank (IOB) has tied up with Dabur-All State Insurance to market the
joint venture's life insurance products.
- Indian Overseas Bank, the first public sector bank to introduce anywhere banking at its
129 branches in the four metros, is extending the connectivity to another 100 branches in
Hyderabad, Bangalore, Ahmedabad and Ludhiana.

- One more public sector bank, Indian Overseas Bank is coming out with a public issue of
11,12,00,000 shares of Rs 10 each for casha t par aggregating Rs 111.20 crore.

- Indian Overseas Bank (IOB) has launched its "gold loan scheme' for exporters taking
advantage of the uniform sales tax on bullion adopted by the states recently.

- Indian Overseas Bank the first public sector bank in the country to introduce mobile
banking services using Wireless Application Protocol (WAP).

- The Bank has launched its Any Branch Banking service in Hyderabad.

2001 - Indian Overseas Bank is set to raise Rs 125 crore through bond issue. Crisil has
given a rating of `AA' for the issue and `P1+' for its certificate of deposit.

- Indian Overseas Bank chairman and managing director R V Shastri is expected to take
over from R J Kamath as the new head of the nationalised Canara Bank.

- S C Gupta, executive director of Indian Overseas Bank will take over as the chairman
and manaing director of the bank.

- Mr R Natarajan has been appointed as executive director of Indian Overseas Bank. 2002

-Indian Overseas Bank has informed that the Government of India has nominated Smt.
Usha Mathur, Joint Secretary, Department of Expenditure, Ministry of Finance,
Government of India, New Delhi in place of Shri Ram Mohan as Government Director in
the Board with effect from March 20, 2002.
-Ananda Kumar nominated as Director in the Board of Indian Overseas Bank.

-Rohit M Desai appointed as a Director on the Board of Indian Overseas Bank.

-Indian Overseas Bank has informed that in the EGM held on December 07, 2002, the 4
candidates were declared elected as Directors of the Bank representing shareholders other
than the Central Government. Mr M N Venkatesan, Mr Christopher Thomas Kurien, Dr
Harsh Mahajan and Mr S K Seghal.

2003

-IOB slapped notices to 70 defaulters and has seized a number of properties.

-Indian Overseas Bank decides not to return any share capital to the government.

-Mr.Sivaram Swamy has been appointed as Compliance Officer in the place of Mr.V
Rajgopalan.

-IOB hands over 'Credence Mercury-fx' inter branch messaging software contract to
Credence Analytics(I) Pvt Ltd.

-Shri Pradeep K Deb has been appointed as the Director of Indian Overseas Bank.

INTERNATIONAL EXPANSION

* 1937-38: As mentioned above, IOB was international from its inception with
branches in Rangoon, Penang, and Singapore.
* 1941: IOB opened a branch in Malaya that presumably closed almost immediately
because of the war.
* 1946: IOB opened a branch in Ceylon.
* 1947: IOB opened a branch in Bangkok and re-opened others.
* 1948: United Commercial Bank (see below) opened a branch in Malaya.
* 1949: IOB opened a branch in Bangkok.
* 1963: The Burmese government nationalized IOB’s branch in Rangoon.
* 1973: IOB, Indian Bank and United Commercial Bank established United Asian
Bank Berhad in Malaysia. (Indian Bank had been operating in Malaysia since 1941 and
United Commercial Bank Limited had been operating there since 1948.) The banks set up
United Asian to comply with the Banking Law in Malaysia, which prohibited foreign
government banks from operating in the country. Also, IOB and six Indian private banks
established Bharat Overseas Bank as a Chennai-based private bank to take over IOB's
Bangkok branch.
* 1977: IOB opened a branch in Seoul.
* 1979: IOB opened a Foreign Currency Banking Unit in Colombo, Sri Lanka.
* 1992: Bank of Commerce (BOC), a Malaysian bank, acquired United Asian Bank
(UAB).
* 2007: IOB took over Bharat Overseas Bank.
* 2009: IOB took over assets and liabilities of Shree Suvarna Sahakari Bank.
* 2010: Malaysia awarded a commercial banking license to a locally incorporated bank
to be jointly owned by Bank of Baroda, Indian Overseas Bank and Andhra Bank. The
new bank, India BIA Bank (Malaysia), will reside in Kuala Lumpur, which has a large
population of Indians. Andhra Bank will hold a 25% stake in the joint-venture, Bank of
Baroda will own 40% and IOB the remaining 35%.

BRANCHES OF INDIAN OVERSEAS BANK

Indian overseas bank has branches in 32 States-

• ANDAMAN & NICOBAR
• ANDHRA PRADESH
• ASSAM
• BIHAR
• CHANDIGARH
• CHHATTISGARH
• DADRA & NAGAR HAVELI
• DELHI
• GOA
• GUJARAT
• HARYANA
• HIMACHAL PRADESH
• JAMMU & KASHMIR
• JHARKHAND
• KARNATAKA
• KERALA
• MADHYA PRADESH
• MAHARASHTRA
• MANIPUR
• MEGHALAYA
• ORISSA
• PONDICHERRY
• PUNJAB
• RAJASTHAN
• SIKKIM
• TAMIL NADU
• THANJAVUR
• TRIPURA
• UTTAR PRADESH
 • UTTARANCHAL
• WEST BENGAL

Type of loan accounts:

 Overdraft
 Demand Loan
 Term Loan
 Cash Credit
Overdraft:
 A Current account when permitted to overdraw (allowing withdrawal
more than deposited or without deposits ) becomes an overdraft
account
 Can be operated by cheque, ATM, INB
 A type of advance of temporary nature/ to valued clients sometimes
against Term Deposit, NSC etc.
 A running account where further withdrawals (debits) can be
permitted as and when deposits (credits) come.
Demand Loan:
 Basically an advance payable on demand.
 Payment in installments also generally allowed.
 Given against Bank deposits, NSCs, Insurance policies
 Gold loans and Pension Loans are given as Demand loans
Only one Debit allowed for disbursement. Cannot be operated by
cheque & ATM.
Term Loan:
 Loan payable as per pre-determined installments over a fixed term.
 Extended for acquisition of assets like house, car, land, building, Plant
& Machinery etc.
 Installments are to be paid out of the income of the person in case of
Personal Segment loans
 Installments are to be paid out of the income of the activity financed
in case of non-personal segment loans.
Cash Credit:
 An advance facility for financing the working capital needs of
commercial activities.
 A running account on the lines of Overdraft.
 An account where all the receipts and payments of the activity on
account of day-to-day operations are expected to be reflected.
 Extended against the stocks and receivables of the unit. (Stocks: raw
materials, semi finished goods, finished goods etc, Receivable means
money to be received towards sales).

Security and Margin:

 The physical or financial asset for / against which the advance is made is referred as
security. A car is a security for which a car loan is given.
 Assets acquired out of bank finance is called primary security. Any
additional security offered by the borrower is called collateral.
However, in CBS parlance all securities are referred as collaterals.
 The amount contributed by the borrower to the project cost / the
percentage value of the assets owned by him is referred as margin.
Charge:
 An asset offered to the creditor (who lends the money) becomes a
security only if a legally enforceable interest is created in his favour.
This process is called the creation of Charge.
Lien, Pledge, Hypothecation and Mortgage are different types of
charges applicable to different types of securities.

Transaction:

There are three types of transactions:

 Cash: Where receipt payment of physical cash is involved.
 Transfer: Where funds are transferred from one account to another account without.
 Clearing: Transfer transactions where funds are exchanged with other banks through
clearing.

PERSONAL BANKING

PRODUCT AT GLANCE
LOANS
Online Loans
Home Loans
Loan against Property
Personal Loans
Car loan
Two Wheeler
Commercial Vehicle
Loans against Securities
Loan against Gold
Educational loans
Construction Equipment
Office Equipment
Medical Equipment
Tourism loans
Loans to NRI
Farmer Finance
Rural Housing Finance
Retail Traders
Business Installment Loans
Agriculture Finance
Horticulture Finance
Working capital assistance

ACCOUNTS
IOB-CD CLASSIC
It is a special status account for medium sized companies and proprietary firms, clubs,
societies etc.

The average daily balance in the current account during last three months should not be
less than Rs.1 lakh.
SPECIAL FEATURES / CONCESSIONS
* Internet banking
* Anywhere banking in CBS Branches
* Transfer of funds through NEFT free
* Personal accident insurance covers of Rs one lakh free of cost
* Waiver of demat account opening charges.
* Name printed cheque books free of cost upto 100 leaves
* Online equity trading facility
* International debit card charges without to all employees and owners
* Online tax payment facility
* Utility bills payment facility
* Issue of demand drafts through at 50% concession.
* PAN and TAN facilitation facility
2. IOB-CD SUPER
IOB-CD Super, a current account just loaded with lot of benefits. One can maintain an
average daily balance of Rs.5.00 lakh over the last 3 months and avail the concessions.
Really super.
The average daily balance in the account over the last three months should not be less
than Rs.5 lakh..
SPECIAL FEATURES AND CONCESSIONS
* Internet banking
* Anywhere banking in CBS Branches
* Transfer of funds through NEFT free
* Personal accident insurance covers of Rs one lakh free of cost
* Waiver of demat account opening charges.
* Name printed cheque books free of cost upto 100 leaves
* Online equity trading facility
* International debit card charges without to all employees and owners
* Online tax payment facility
* Utility bills payment facility
* Issue of demand drafts through at 50% concession.
* PAN and TAN facilitation facility
* Transfer of funds thro' RTGS @ 50% concession.
* Customised Multi city cheques issued at MICR centres free.
* Outstation cheque collection charges @ 50% concession.

IOB’s INTERNATIONAL CREDIT CARD

Waiver of annual/entry fees (life time)
International card affiliated to VISA
Lowest interest @ 24% (annualized) for the roll over credit.
Avail free credit period upto 50 days.
Enhanced insurance coverage such as Personal Accident / Baggage / Purchase protection
etc, by way of value additions.
Facility to draw cash at over 15000 ATMs in India and over 8.7 lakh ATMs worldwide

IOB’s INTERNATIONAL DEBIT CARD

International card affiliated to Visa
Handy for shopping, dining, entertainment,etc..
Cash withdrawal through more than 60,000 ATM’s across India

MUTUAL FUND DISTRIBUTION

It is tied up with 8
Mutual Funds
Franklin Templeton Investments, India
Principal PNB AMC (I) Ltd.
U.T.I Mutual Fund
Sundaram BNP Paribas Mutual Fund
Tata Mutual Fund
Kotak Mutual Fund
L & T Mutual Fund
L.I.C Mutual Fund

INSURANCE
IOB Jeevan
IOB Health care Plus
Vidya Jyothi with Suraksha
Liabilty Insurance
PRODUCTS FOR MSME SECTOR
1.IOB SME ADVANCE TERM LOAN SANCTION SCHEME
A standby credit scheme for existing MSME borrowers.
Meant for unforeseen capital expenditure of next 12 months.
Sanction at the time of annual renewal.
Loan available up to Rs. 25 lakhs.

2.TERM LOANS FOR PURCHASE OF AUTORICKSHAWS AND COMMERCIAL

THREE WHEELERS UNDER TIE-UP ARRANGEMENTS.
For purchase of autorickshaws and commercial three wheelers.
Available under the MOUs with bajaj auto limiterd and tvs motor company limited with
easy terms and conditions.
Margin: 15%of on road price
Security: no collateral security or third party guarantee is required.
Repayment:36-60 monthly installment
Interest: As applicable to Micro/small enterprises
Processing Charges: waived

3.TERM LOANS FOR PURCHASE OF TRUCKS AND COMMERCIAL

TRANSPORT VEHICLES UNDER TIE-UP ARRANGEMENTS.
For purchase of trucks and commercial transport vehicled
Loans are available under our MOUs with TATA Motors Limited,Ashok Leyland
Limited.
Easy hassle free and simplified procedures
MARGIN: 15% of on-road price
SECURITY: No collateral security or third party guarantee is required for loans up to
Rs.100 lakhs.
REPAYMENT:36-60 monthly instalments.
INTEREST: As applicable to Micro/small enterprises.
Processing charges are waived under MOU with Tata Motors Limited and Asia Motor
Works Limited.
50% of one time guarantee fee is waived under MOU with Ashok Leyland Limited.

4.COLLATERAL FREE LOANS TO MICRO AND SMALL ENTERPRISES UNDER

CGTMSE GUARANTEE SCHEME
Borrowers in Micro and Small Enterprises sector are eligible.
For credit requirements
In the form of cash Credit,Term loan etc, upto Rs 100 lakhs
No requirement of collateral security or third party guarantee.
Sanctioned under credit guarantee scheme of CGTMSE.
Available for all activities which are eligible For CGTMSE.

ONLINE SERVICES
Branchfree Banking
Internet banking
Bill Payment
Receive Funds
Funds Transfer
Convert to EMI
Visa bill payment
e-cash payment
Ticket Booking
Online Tax Calculation
Account to Card Transfer
Mobile Banking Funds Transfer
Mobile Banking [iMobile]
Shopping
Utility payment
Money home
Online Loans and Credit Cards
Demand Draft Online
ATM Banking

RETAIL ASSETS
Indian overseas bank has the following retail assets-
a. SUBHA GRUHA- For acquisition/construction of a flat or house.
b. HOME IMPROVEMENT SCHEME - For repairs and renovation or upgradation of
Existing House or Flat.
c. HOME DÉCOR SCHEME - To furnish the house
d. HOME LOAN TO NRI - For purchase or construction or repairs or renovation.
e. SANJEEVINI - loans for doctors.
f. IOB-AKSHAY- Loan against LIC policies.
g. PUSHPAKA - To purchase new/old car/new two wheelers.
h. VIDYA JYOTHI EDUCATIONAL LOAN SCHEME - Loan pursuing higher
education.
i. 9. EASY TRADE FINANCE - Hassle free working capital finance and term loan
to traders.
j. LIQUIRENT - Loan against future rent receivables.
k. CLEAN LOAN - For any domestic purpose including any social/finance
commitments.
l. PENSIONERS’ LOANS SCHEME- Loans to Pensioners for meeting immediate
emergency needs.
m. SAHAYIKA- To meet social financial commitments.
n. COMMERCIAL CASH CREDIT AGAINST JEWELLERY - Instant cash against
jewellery for commercial business purposes.

AGRI LOAN PRODUCTS

1. IOB RBAN HORTICULTURE SCHEME:
For decorative horticultural purpose in urban/semi-urban as well as rural centers.
For individuals upto 1 lakh and institutions upto 10 lakhs.
2. IOB AGRI TRANSPORT:
For purchase of two/ three/ four-wheelers to be used for agricultural purposes.
Loan upto 85% of the cost (maximum Rs.5 lakhs)

3. IOB GREEN CREDIT:

Loan tofarmers owning cultivable land
50% of the value of the farm- land mortgaged to bank, subject to a minimum Rs. 1 lakh
and maximum Rs.10 lakhs.

4. ARTHIAS SCHEME:
Providing loans to commission agents for extending crdit/ supply of inpts to farmers/
SHG/ JLGs or buying produce from farmers/ SHG/ JLGs
Cash credit against book debts.

RATE of INTEREST
For 333 days-
Normal rate: 7.75%
Senior citizens:8.50%
For 555 days-
Normal rate:8.60%
Senior Citizen rate: 9.35% (555 days)

INTEREST RATES
When you open a Fixed deposit with IOB
Your interest is calculated on monthly basis
Interest for re-investment is calculated every month and the principal is increased to
include interest earned during the previous month.
Tax at source is deducted as per the Income Tax regulations prevalent from time to time.
IOB PERSONAL LOANS

IOB personal loan provides with instant cash for a wide range of one’s personal needs
like renovation of home, marriage in the family, holiday with family, child's education,
Medical expenses or any other emergencies.
Key Benefits of IOB Personal Loan
Loan up to certain extent
Security/guarantor required
Faster Processing
Minimum Documentation
Attractive Interest Rates
Self employed individuals
Loan on phone facility
You have to be above 18 years of age

Research Methodology:
The Research and Methodology adopted for the present study has
been systematic and was done in accordance to the objectives set
which has been detailed as below.
Research Definition
Research is a process in which the researcher wishes to find out the
end result for a given problem and thus the solution helps in future
course of action.
According to Redman & Mory, research is defined as a “Systemized
effort to gain new knowledge”.
Research Design:
According to “Claire Seltiz”, a research design is the arrangement of
condition and analysis of data in manner that aims to combine
relevance to the research purpose with economy in procedure.
Nature of Research:
Research is basically of two types.
1. Descriptive research
2. Explorative research
1. Descriptive Research: My research is descriptive as descriptive research-
a) Describes the characteristics, products and services of different banks.
b) Probably helps in making certain specific predictions.

Determining sources of Data:

There are two main sources of data
1. Primary data
2. Secondary data
Primary Data: It consists of original information’s collected for
Specific Purpose. Primary data for this research, data are collected through a direct
source like survey to obtain the first hand information is others
resources are written below.
· Survey.
· Face to face interaction.
Secondary Data: It consists of information that already exists
somewhere and has been collected for some specific purpose in the
study. The secondary data for this study is collected from various
sources like,
· Books.
· Website.
· Newspaper.
· Financial Magazine. (weekly , business world etc)
Questionnaire:
Questionnaire is the most common instrument in collecting primary
data. In order to gather primary data from viewers. The present
questionnaire consists closed ended type of questions.

OBJECTIVES
The main objective of this project is to study the retail products of the Indian overseas
bank and compare the services offered with other banks like Jammu and Kashmir bank
and state bank of India.
During this summer internship program period I have to achieve some thing, which is
helpful for my career, and some value addition to the Banking Company. It gives me
good opportunity to expose and
creating good impression of corporate mind.
1) To find out what are the various products and services being offered by Indian
overseas bank.
2) To compare the products and services of Indian overseas bank with other banks like
J&K and SBI, so that one can conclude which bank offers better services at an attractive
rate of interest.
of SBI retail banking.
SCOPE

Money is the centre of world economy and Bank works as a central point for money.
Banking industry is a very growing industry and among all the banks, particularly I.O.B
is doing very well. In this time of global recession where the other companies are laying
off their staffs but IOB has recruited more than 20000 employees in the year 2008.So
there is a huge potential for getting jobs in IOB.

LIMITATIONS
1) The survey was conducted in the Indian overseas bank, jammu.
2) Target bankers, managers and respondents were too busy persons, so it was difficult to
get their time and view for specific questions.
3) Area covered for the project while doing job also was very large and it was very
difficult to correlate two different banks’ views in one.
4) Every financial customer has his / her own need and according to the requirements of
the customer product customization was not possible.

VISION , MISSION AND VALUES OF IOB

Importance Of Vision, Mission, and Values:
Vision, Mission and Values are the beacon lights by which
organizations world over set their strategies and then align their
everyday priorities.
Together these statements define the essential Organization: its
purpose, its philosophy and its form..
Why Vision, Mission & Values?
• The destination we want to reach is our vision.

We normally have a reason for embarking on a journey. This is

our mission.
• The underlying values that guide the way in which we travel
towards our destination.

What is Mission?
• The mission puts the vision in action.
• It is what you do to actualize your vision: your plans, your
strategies, your targets, your numbers, and your activities.
• It concentrates on the present; it gives us an insight into the
effort and direction required to achieve the desired future.

Why Mission Statement?

Mission statement helps we-

– Prioritize what is important to the organization.
– Provides an inspiring statement of our ideals.
– a shared and compelling picture of the future that
everyone can believe in and work towards achieving as a
team.
What are Values?
• Values are the basis on which you shape your actions so that
your vision can be reached.

CONCLUSIONS
Retail banking is the fastest growing sector of the banking industry with the key success
by attending directly the needs of the end customers is having glorious future in coming
years.
Retail banking sector as a whole is facing a lot of competition ever since financial sector
reforms were started in the country. Walk-in business is a thing of past and banks are
now on their toes to capture business. Banks therefore, are now competing for increasing
their retail business.
There is a need for constant innovation in retail banking. This requires product
development and differentiation, micro-planning, marketing, prudent pricing,
customization, technological upgradation, home / electronic / mobile banking, effective
risk management and asset liability management techniques.
While retail banking offers phenomenal opportunities for growth, the challenges are
equally discouraging. How far the retail banking is able to lead growth of banking
industry in future would depend upon the capacity building of banks to meet the
challenges and make use of 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 customer interest is of chief importance. The banking sector in India is representing
this and I do hope they would continue to succeed in this traded path.