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Abstract
While prospects have been many-fold for such an explosion in banks in India resorting to Retail Banking, they can not do away with problems in such a short span after having been regulated and directed / protected environment for over three decades. Not all the customer groups (like rural population) are fully techno-savvy and could afford to lead new life styles availing consumer, housing or auto-loans. This article on retail banking has attempted to find out and exposed the new paradigms in the growth of Retail Banking In India. As over a decade India has witnessed an exceptional growth in the Retail banking sector by its diversified banking products and services. Consumers in India are on a way to fulfill their dreams by customized services rendered by Retail Banking industry. This article throws light on new paradigms in Retail Banking in India. Retail Banking in India has remarkably gained valuable momentum in the Indian Banking System during last five years. The reasons on the basis of various studies are : (1) Introduction of Technology, (2) increased competition among different types of banks, (3) opening of new generation private banks, (4) inviting of more foreign banks in post WTO era, (5) focus
on productivity and profitability, (6) deregulation of interest rates, (7) drive towards low Non-Performing Assets, (8) tilt towards more consumerism and life style spending by working / middle class, (9) innovation of new products and services, (10) implementation of Prudential Norms, Risk Management and ALM mechanisms, (11) closure / re-locating of loss making branches, (12) Voluntary Retirement of surplus staff, (13) sourcing of cheaper funds by corporate clients from global markets and resultant excess liquidity, (14) revival of mutual fund market, (15) opening up of insurance market, (16) revitalizing of stock market, (17) increase in the life-span expectancy due to modern health care facilities, (18) increasing contribution (over 50 per cent) to GDP from the Services sector, (19) Change in Government policy towards FDI in retail sector, (20) thrust on Infrastructure Development, etc.
1. Introduction:
It is by now well recognized that India is one of the fastest growing economies in the world after over a decade of financial and banking sector reforms as known LPG(Liberalization, Privatization & Globalization) since 1991. Evidence from across the world suggests that a sound and evolved banking system is required for sustained economic development. India has a better banking system in place as compared with other developing countries, but there are several issues that need to be ironed out. The course of banking evolution and growth has gone through innumerable twists and turns in the post independence era. Retail banking segment in the banking industry is continuously undergoing innovations, product reengineering, adjustments and alignments. Given the size advantages, diverse customer base and scope for future expansion, there is a need for evolving a systematic approach to retail banking.
2. Retail banking- Meaning and Scope:
Most of the Indian banks have been retail banks in their business composition. The term Retail Banking' encompasses various financial products (different types of deposit accounts, consumer housing, consumer auto and other types of loan accounts, dematerialization facilities, insurance, mutual funds, Credit and Debit Cards, ATM and other technology-based services, stock-broking, payment of utility bills, reservation of railway tickets, etc ).Frankly speaking, it takes care of the diversified banking needs of an individual consumer.
Factors influencing Retail Banking in India
The number of personal loan accounts with Scheduled Commercial Banks (SCBs) in India went up by almost 50 per cent between March 2000 and March 2007, as per CMIE data. Personal loan outstanding, however, went up by more than 135 per cent during the same period. The result was that the average personal loan outstanding increased from Rs. 24,668 in 2000 to Rs. 47,000 in 2006-07. Housing Loans, which accounted for about 28 per cent of personal loans outstanding in 2000, went up to 48 per cent in 2006-07.
Total personal loans outstanding increased from Rs. 28,000 crores in 2000 to more than Rs. 88,000 crores in 2006-07. On account of these personal loans, as distinct from loans to agriculture, trade, and industry, shot up from a little more than 20 percent in 2000 to over 34.2 per cent in 2006-07. And that too over a period when total SCB outstandings shot up from Rs. 284,000 crore to Rs. Rs. 656,000 crores; an increase of more than 130 per cent. Data on Credit Cards are probably not included, given that there is no evidence that anyone, either in the RBI or in the Ministry of Finance, keeps track of credit
cards. As in India credit cards have been subject for debate for so many known and unknown reasons.
This, if true, is surprising news since credit cards account for a large and rapidly growing share of money supply', which RBI closely monitors in order to keep inflationary pressures in check.
RBI's Report on Trend and Progress of Banking in India, 2006-07 reveals some new trends in growth of credit. There is an upsurge in retail credit as against corporate advances, which may reveal itself in accumulating non-performing assets in banking sector and may accentuate the indebtedness of households in the medium term.
Retail lending has been the key profit driver for banks in recent times with retail portfolio constituting 21.5 per cent of the total outstanding advances as on March 2007. On the other hand, stronger corporates strengthened their balance sheets by resorting to sizeable accruals as well as external commercial borrowings.
Current Scenario in Indian Retail Lending:
Even though non-performing assets in the banking industry fell from 4.4 per cent approximate in 2006 to 2.9 per cent in 2007, a hike in the percentage of retail lending may also pose a risk of poor asset quality of banks given that bad or impaired loans from 2.5 per cent of total loans outstanding. Of the total retail loans, impaired housing loans constituted 1.9 per cent. The highest was in the consumer durable segment at 6.6 per cent.
The retail segment's share in total loans for the period stood at 21.5 per cent, with housing loans constituting 48 per cent of the retail portfolio. The share of the housing loan portfolio out of total loan
book of banks has grown from 4.5 per cent in 2002 to 7 percent 2006-07.
Nowadays, retail lending is the buzzword in banks in India. According to RBI's latest monetary policy, out of the total credit flow between April and August 2007, two-thirds had gone to retail loans. Most banks have retail loans of around 20% of their total lending portfolio and these loans are growing at an unnatural rate of 30 to 35% per annum. Housing loans constitute around 50% of the retail lending portfolio. Despite the fact that the housing loans portfolio grew only at 42% in 2006-07 compared to 55% the previous year, one analyst said "Due to shortage of around 1.9 million housing units, demand for the housing loans may shoot up significantly in the near future". But in housing loans it has witnessed remarkably growth in recent years because earlier owning house used to be dream of older people but no longer now a days even youths in their late twenties are in queue to get housing loans in order to own house.
However, the rate at which the banks are disbursing the housing loans etc., caused concern to the Reserve Bank of India as this might lead to increase of bad loans. In its latest Trend and Progress of Banking in India 2007, RBI mentioned "The rising proportion of retail loans in the total lending portfolio may impair the quality of assets in this segment, thus, increase in the NPAs".
Around 4.6% of the retail loans are bad debts as on March 31, 2006-07 while this average is at 7.4% for all types of loans. It is even less for Housing Loans at 1.9%, and the obvious conclusion is that Retail Loans are safer. But, to maintain this level of quality and avoid any kind of bubble in the making, banks should adopt sufficient risk
management strategies. The following table gives more data on this aspect.
Retail Portfolio of Banks as at the end of March 2007
And expected to grow in many segments , data yet to come in 2008
