Evolution of retail banking in India

Two words buzzing in bank corridors in recent times have been `Retail Banking. In recent past retail lending has turned out to be a key profit driver for banks with retail portfolio constituting 24 per cent of total outstanding advances as on March 2008. Margins in retail banking are higher than corporate banking and the growth too is faster. Several banks that were not very active in retail banking are now eyeing this sector. The higher growth of retail lending is attributable to fast growth of personal wealth, favourable demographic profile, rapid development in information technology, the conducive macro-economic environment, financial market reforms, and several micro-level supply side factors. Collaborating with hardware, software, telecommunications and other companies, banks are introducing new ways for consumers to access their account balances, transfer funds, pay bills, and buy goods and services without using cash, mailing a cheque, or leaving home. The widespread use of automated teller machines and the growth in telephone banking, postal accounts and internet banking has allowed new breed of retail banks to emerge that do not require extensive investment in branches. India presents a huge pool of potential profit in retail financial services. However, realizing this great potential is not easy. From its slow and cautious banking regulator, to the fierce competition among its aggressive domestic banks, to its highly price-sensitive consumers, India presents a number of challenges. Since most products and interest rates tend to be similar, there is a challenge that how differentiated each bank and its retail banking product can be. The competition is more intense than ever before as the new generation private banks and foreign banks compete with existing banks including nationalized ones, smaller institutions including co-operative banks and in some areas with non-banking finance companies too. Finding success in this market requires a patient, long-term commitment, deep pockets and a keen understanding of the local consumer base.