Unit I

Introduction to Retail Banking

• Definition and scope - customers, products,

services; New Products & Services - Financial

Planning and Advisory Services, Bank Assurance,

Mutual Funds, Portfolio Management Services.

 Evolution of Retail Bank Management

Traditional Banking
(Pre-1970s)

Emergence of Technology
(1970s-1980s)

Digital Transformation Begins

(1990s-2000s)

Regulatory and Risk Management Focus

(2000s-Present)

Fintech Disruption and Innovation

(2010s-Present)
• Retail Banking is a form of commercial banking
wherein service is provided to the retail (individual)
customers for non-entrepreneurial purposes.
• In banking, the term ‘retail’ signifies, that the
consumer avails banking products for personal use,
wherein the consumer is the customer of the bank
and the products are the services that a bank offers
to its customers.
• It is also known as Consumer banking or
Personal banking.
• It is that part of the bank which is visible to all. The
products and services are provided through physical
brick-and-mortar branches and through ATMs which can
be found everywhere.
• Moreover, the delivery model of retail banking is not
confined to the traditional branches and ATMs, rather it
expands to the internet and mobile too.
• Retail banking is when the bank performs transactions
by directly dealing with customers. Cross-selling of a
broad spectrum of credit and investment products and
banking services amounts to their primary retail
strategy
Characteristics of Retail Banking

Multiple Products

Multiple Customer
Group

Multiple Channels of
Distribution
• Multiple Products: In retail banking, commercial banks
offer products like deposits, credit/debit cards,
insurance, investments, and securities to the customers.
• Multiple Channels of Distribution: With the
emergence of technology, a range of channels of
distribution has come into being like 24/7 customer care,
kiosk, bank branch, internet/mobile banking, etc.
• Multiple Customer Groups: Retail banking has a huge
customer base that includes various groups of
customers, including consumers, small businesses, and
corporates. Hence, a large number of transactions take
place on a daily basis.
Key Dimensions of Retail Banking

• Customer Focus
• Prudent Risk Management
• Convenience of Customer
• Widespread distribution network
• Variety of Products
• Strong Processes
Retail Banking Products

Retail Deposit
Product

Retail Loan
Products

Other
Products
Retail Deposit Products
1. Savings Account (2.5%-7%)
2. Current Account
3. Term Deposit
1. Fixed Deposit (3%-7%)
2. Recurring Deposit (2.5%-6.5%)

4. Foreign Currency Accounts (FCNR) (4%-5%)

5. Non-Resident External (NRE) accounts for Indian
citizens settled in foreign countries (6%-8%)
6. Zero Balance account for salaried class people
7. Basic Saving Bank Deposit account
8. Senior Citizen Deposit accounts (6.5%-8.75%)
 Retail Loan Products
1. Home Loan for buying land and constructing a house for
residential purposes (8.4%-11%)
2. Auto Loan for buying new or used two or four-wheelers.
(8.7%-13%)
3. Education Loan for furthering education. (7%-11%)
4. Personal Loan/Consumer loan for varied purposes like
a holiday, medical treatment, buying electronic goods for
domestic use like air conditioner, refrigerator, television,
etc and so forth. (10.5% to 17.45%)
5. Crop Loan for buying improved seeds, machinery, and
fertilizers for farming. (7% to 24.55%)
6. Credit Card (8.28% to 47.88%)
 Other Products
1. Safe deposit lockers/ Depository services
2. Remittance services like NEFT, RTGS, IMPS, etc
3. Bank assurance
4. Investment advisory services/ Wealth management services
5. Debit Card
6. Issue of draft
7. Collection of Cheques
8. Collection of Taxes from customers on the central
government’s behalf.
9. Purchase and sale of securities in the stock market on the
customer’s behalf.
10. Internet banking and mobile banking
11. Purchase and sale of foreign currencies to/from customers
when they return from or go back to a foreign country
 Advantages of Retail banking
1. The deposits from retail customers are stable and
form core deposits. Such deposits are interest
insensitive with less bargaining for additional
interest. Also, they constitute low-cost funds for
the banks.
2. An effective customer relationship management
helps in developing a vast and strong customer
base.
3. Retail banking also assists in increasing subsidiary
businesses of the banks like insurance, etc.
4. It amounts to better yield and profitability.
• It contributes to the economic development and
economic revival of the country, through
increased production.
• Helps in improving the lifestyle of consumers by
providing loans at affordable rate of interest.
• Involves minimum marketing efforts.
• Due to its large customer base, they have a
diversified portfolio, which reduces the bank’s
dependence on a single borrower.
 Disadvantages of Retail Banking
• Monitoring and follow-up of a large number of
loan accounts induce banks to spend heavily on
manpower.
• Banks invest heavily in technology for better
services however, they are not utilized to that
extent.
• Nowadays, most customers are interested in other
financial products such as mutual funds.
• Long-term loans may turn into Non-Performing
Asset (NPA) if they are not monitored and
followed up properly.
Bank Assurance
• Bancassurance is an arrangement
between a bank and an insurance
company allowing the insurance
company to sell its products to the
bank's client base.
• This partnership arrangement can
be profitable for both companies.
Banks earn additional revenue by
selling insurance products, and
insurance companies expand their
customer bases without
increasing their sales force.
• In 2023, the
bancassurance market
in India was valued at
US$99.1 billion.
• The market is expected
to grow at a compound
annual growth rate
(CAGR) of 6.2% from
2024–2032.
• Bancassurance arrangements are common in Europe,
where the practice has a long history. European banks,
such as Crédit Agricole (France), ABN AMRO
(Netherlands), BNP Paribas (France), and ING
(Netherlands), dominate the global bancassurance
market.
• Advocates, meanwhile, maintained that both banks and
insurance companies would profit from the arrangement,
that it would also be a convenience for consumers, and
that the added competition might lead to lower insurance
prices.
• From a consumer point of view, bancassurance offers
both advantages and disadvantages. On the plus side,
buying insurance at the bank is convenient. That's
especially true in small towns where insurance agents
may be scarce, although less so now that insurance is
widely available online.
• On the negative side, the ease of buying at the bank may
discourage consumers from shopping around and getting
a competitive price on their insurance. There is also some
question as to how qualified bank employees are to
advise customers on their insurance needs, compared
with insurance agents and brokers who specialize in the
field.
 Financial Planning and Advisory
Services
• Several reforms have been introduced to liberalize, regulate,
and grow the finance sector such as commercial banks, brokers,
financial companies without profit, cooperatives, retirement
funds, mutual funds, and more provide financial services.
• Financial advisors offer clients global advisory services. The
focus is entirely on the strategic direction of business success
and advancement.
• A financial advisor addresses numerous investment options:
Bonds, tax legislation, obligations, and insurance. An
organization can always take advantage of professional advice
to help show strength, overcome weakness, and make a
difference in the company's success.
 Financial Advisory services are provided in the
following business areas:
 Marketing: The services work with the client in the development and

implementation of marketing strategies and ensure the best results for

businesses.

 Business Management: The services work together with companies

and are structured to resolve challenges through financial advice, profit-

enhancing, strategic advancement, and an effective business strategy

and market growth (M & A).

 Research, Technological Development & Innovation: The services

work with the company and provide data, technological assistance,

training, mentoring, and other resources to support companies in

introducing and implementing new technology and developments in the

industry.
• Business Start-up: Such services work with the client to
evaluate and execute the business plan, align it with the
target, recommend ways to improve performance by
saving money, time and deterioration, and provide
tremendous benefit for startups.
• Operations: Such services work with organizations and
advise on changes to internal operations of the company
including organizational design, project management,
operational development, and growth opportunities
acquisition, and modification to strengthen the company's
internal operations.
• M&A Advisory, IPO/FPO preparation, Sale of
Business, Leasing of Assets.
 Types of Financial Advisors

• Investment advisors
Different Kinds Financial • Financial Consultant
Services • Financial coach
• Investment management • Robo-advisor
• Wealth advisors
• Risk management • Financial therapist
• Retirement planning • Insurance adviser
• Asset manager
• Estate planning
• Underwriter
• Financial planning • Customer service
• Enrolled agent (Tax Planners)
• Tax advisory

Source: https://iimskills.com/financial-advisory-services-guide/
Importance of Financial advisory services

Risk Management

Strategic Decision Making

Limitations of Financial Advisory Services

Costs

Inefficient Advisor

Uncertain Risk

Less Control
 Fund based financial services
• It involves provision of funds against assets, bank
deposits, etc. Fund based income comes mainly form
interest spread, lease rentals, income from investments in
capital market and real estate.
 Fee Based Financial Services
• Fee based income does not involve much risk. but
it requires a lot of expertise/advice on the part of a
financial company to offer such fee-based
services.
 Mutual Funds

• A mutual fund is a mechanism for pooling

the resources by issuing units to the
investors and investing funds in securities
as per the objectives as disclosed in the
offer document of mutual
funds. Investments in securities are spread
across a wide cross-section of industries and
sectors and thus the risk is reduced. A mutual
fund is required to be registered with SEBI
before it can collect funds from the public.
 Why Mutual Funds
• Capital Growth

• Professional Management

• Diversification

• Convenient Administration

• Return Potential

• Liquidity

• Transparency

• Tax Saving

Source: https://www.legalmantra.net/blog-detail/Mutual-Funds-In-India
NAV Calculation: The Net Asset Value (NAV) is the value of one share or unit of the mutual
fund. It is calculated by dividing the total value of the fund’s assets minus any liabilities by the
number of outstanding shares or units. NAV changes daily based on the performance of the
fund’s investments.

Source: https://www.geeksforgeeks.org/types-of-mutual-funds/
Portfolio management is the art of selecting and overseeing a group of
investments that meet the long-term financial objectives and risk tolerance of a
client, a company, or an institution.
Portfolio Types With Different Expected Portfolio Returns
 It involves the following tasks:

1. Understanding the client’s investment

objectives and availability of funds.

2. Matching investment to these objectives.

Process in 3. Recommending an investment policy.
Portfolio 4. Balancing risk and studying the portfolio
Management performance from time to time.

5. Make a decision on the portfolio investment

strategy based on discussions with the
client.

6. Changing asset allocation from time to time

based on portfolio performance
 Portfolio Management Service?
• Portfolio Management Service (PMS) is a facility offered
by a portfolio manager with the intent to achieve the
required rate of return within the desired level of risk.
• An investment portfolio can be a mix of stocks, fixed
income, commodities, real estate, other structured
products, and cash. A portfolio manager is a licensed
investment professional who specializes in analyzing
the investment objectives of the investor and has a
vast knowledge of the various instruments in the
market.
• PMS is a customized service offered to High Net-worth
Individuals (HNI) clients. The service is tailored as per
the investor’s return requirements and the ability and
willingness to assume the risk.

• An Investment Policy Statement (IPS) is drafted by a

PMS to understand the financial position and needs of
the client. The portfolio manager ensures that the
return requirements coincide with the risk profile.

• Before executing the optimum portfolio, PMS also

studies the various constraints such as time horizon,
tax applicability, liquidity, and other unique
considerations of the client.
 Types of Portfolio Management
Services?
Active Portfolio Management.

Passive Portfolio Management

Discretionary Portfolio Management

Non-Discretionary Portfolio Management.