INTRODUCTION

Retail banking in India is not a new phenomenon. It has always been prevalent in India in
various forms. For the last few years it has become synonymous with mainstream banking for
many banks.

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

In recent past retail lending has turned out to be a key profit driver for banks with retail portfolio
constituting 21.5 per cent of total outstanding advances as on March 2004. The overall
impairment of the retail loan portfolio worked out much less then the Gross NPA ratio for the
entire loan portfolio. Within the retail segment, the housing loans had the least gross asset
impairment. In fact, retailing make ample business sense in the banking sector.

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

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. 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 centre, branch, Internet and kiosk); and
 Multiple customer groups (consumer, small business, and corporate).
What is the nature of retail banking? In a recent book, retail banking has been described as
"hotter than vindaloo". Considering the fact that vindaloo, the Indian-English innovative curry
available in umpteen numbers of restaurants of London, is indeed very hot and spicy, it seems
that retail banking is perceived to be the in-thing in today’s world of banking.

Banking sector is a buddy of government and status of financial development in the Indian
economy. Government not only sets standards but protects and nourishes Indian banks from all
types of competition, both from internal and external environment right from the establishment
and nationalisation of banks. Through the reforms made from liberalisation, privatisation and
globalisation the banks are merging with the standards and quality measures in the international
accords. The concept of customer satisfaction was majorly limited to studies and
recommendations from the various committees in early eighties. Since banking has undergone
various reforms and drastic changes have taken place, facing intense competition in the market
(Chandhari and Halbrook, 2002). With the emergence of new generation tech-savvy private
banks and the expansion of operations of foreign banks, the banking sector has become too
competitive to ignore “customer satisfaction”. Bedi (2010) mentioned that today's customer is
not ready to settle anything less, than his or her expectations. Therefore, it is evident that banks
must get aware of themselves about what customer need is and in fact provide it with a priority
positioning in their policy planning. In the span of mature and intense competitive pressure, it is
imperative that banks have to maintain a robust and loyal customer base. The augmented internal
and external competition in the area of banking has led to the profit compression compelling
them to work proficiently with the available resources. The customer demand for comfort and
security provided in lieu with cash transactions compared to digital services, making the bank
operations more legible. There has been always positive relationship between the banks and their
technologized services to capture market demographics and customers satisfactions with high
orientation in service improvisation. The study of demographics reveals that the banks are facing
problem in order to capture new customers from the market share where it is, costlier than the
cost of retaining existing customer. Therefore, satisfied services of the accounties i.e., educated
employees, businessman and youngsters who are a customised to technically equipped
infrastructure and get updated with usage of services are assets for the banks who can make a
positive promotion. Public sector banks are also making efforts to stay in the league of modern
tech savvy banks, for example online transactions, ATMs, host of products like special savings
account and sweepin-account, no frills account (merged with the basic savings bank deposits
account in 2010 by RBI) and easy receive accounts, cash back offers in order to promote
digitalisation of transactions etc, Private sector banks may have appeared to be winning the race,
but public-sector banks, with their vast client base and unparalleled treasury of trust, are evolving
their own brand of customer-friendliness. Public sector banks have also understood that in the
era of competition, customer satisfaction is the key to success. Because satisfaction is basically a
psychological state, care should be taken in the effort of quantitative measurement, although a
large quantity of research in this area has recently been developed but yet to build a lot to meet
the customer expectations.
Drivers of retail business in India

What has contributed to this retail growth? Let me briefly highlight some of the basic reasons.

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

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

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

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

Fifth, decline in interest rates have also contributed to the growth of retail credit by generating
the demand for such credit.

In this backdrop let me now come two specific domains of retail lending in India,

 CREDIT CARD
 HOUSING
Credit Cards in India

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

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

 Unsolicited calls to members of the public by card issuing banks/ direct selling agents
pressurising them to apply for credit card.
 Communicating misleading / wrong information regarding credit cards regarding
conditions for issue, amount of service charges/ waiver of fees, gifts/prizes.
 Sending credit cards to persons who have not applied for them / activating unsolicited
cards without the approval of the recipient.
 Charging very high interest rates /service charges.
 Lack of transparency in disclosing fees/charges/penalties. Non-disclosure of detailed
billing procedure.

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

A. TO CUSTOMER GRIEVANCES AND RIGHTS:

i. Transparency and Disclosure

ii. Customer Rights Protection
iii. Code of Conduct.

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

Housing Credit in India

In view of its backward and forward linkages with other sectors of the economy, housing finance
in developing countries is seen as a social good. In India, growth of housing finance segment has
accelerated in recent years. Several supporting policy measures (like tax benefits) and the
supervisory incentives instituted had played a major role in this market.

Housing credit has increased substantially over last few years, but from a very low base. During
the period 1993-2004, outstanding housing loans by scheduled commercial banks and housing
finance companies grew at a trend rate of 23 per cent. The share of housing loans in total non-
food credit of scheduled commercial banks has increased from about 3 per cent in 1992-93 to
about 7 per cent in 2003-04. Recent data reveal that non-priority sector housing loans
outstanding as on February 18, 2005 were around Rs. 74 thousand crore, which is, however, only
8.0 per cent of the gross bank credit. As already pointed out, direct housing loans up to Rs. 15
lakh irrespective of the location now qualify as priority sector lending; housing loans are
understood to form a large component of such lending. In addition, housing credit is also being
provided by housing finance companies, which in turn are also receiving some bank finance.

Thus, from miniscule amounts, the exposure of the banking sector to housing loans has gone up.
Unlike many other countries, asset impairment on account of housing finance constitutes a very
small portion. However, with growing competition in the housing finance market, there has been
a growing concern over its likely impact on the asset quality. While no immediate financial
stability concerns exist, there is a need to put in place appropriate risk management systems,
strengthen internal control procedures and also improve regulatory oversight in this area. Banks
also need to monitor their exposure and the credit quality. In a fiercely competitive market, there
may be some temptation to slacken the loan scrutiny procedures and this needs to be severely
checked.

Having delineated the broad contours of retail banking in India let me now come to its
opportunities and challenges.
RETAIL DEPOSIT PRODUCTS

• Savings bank account

• Recurring deposit account

• Current deposit account

• Term deposit account

• Zero balance account for salaried people

• No frill account for common man

• Senior citizen deposit account, etc.

RETAIL LOAN PRODUCTS

• Home loans to resident Indians for purchase of land and construction of residential house/
purchase of ready built house/ for repairs and renovation of an existing house.

• Auto loans for new/ used four-wheelers and two- wheelers

• Consumer loans for purchase of jewels, for meeting domestic consumption etc.

• Education loans for pursuing higher education both in India and abroad.

• Trade related advances to individuals for setting up business, retail trade etc. • Crop loan to
farmers.

RETAIL SERVICES

• Safe deposit lockers

• Depository services

• Bank assurance products, etc.

SOME OF COMMON AVAILABLE BANKING PRODUCTS ARE EXPLAINED
BELOW:

1) Credit Card: Credit Card is post-paid´ or pay later´ card that draws from a credit line-money
made available by the card issuer (bank) and gives one a grace period to pay. If the amount is not
paid fully by the end of the period, one is charged interest. These bills are assembled in the bank
and the amount is paid to the bank by the card holder totally or by installments. Credit cards are
gaining popularity for online payments. The major players in the Credit Card market are the
foreign banks and some big public sector bans like SBI and Bank of Baroda. India at present has
about 3 million credit cards in circulation.

2) Debit Cards: Debit Card is a prepaid´ or pay now card with some stored value. Debit Cards
quickly debtor subtract money from ones saving account ,or if one were taking out cash .When A
customer makes a purchase, he enters this number on the shops PIN pad. When the card is
swiped through the electronic terminal, it dials the acquiring bank system ± either Master Card or
Visa that validates the PIN and finds out from the issuing bank whether to accept or decline the
transaction. The customer never overspread because the amount spent is debited immediately
from the customer’s account. So, for the debit card to work, one must already have the money in
the account to cover the transaction. There is no grace period for a debit card purchase. The
major limitation of Debit Card is that currently only some 3000-4000shopscountrywideacceptsit

3) Automatic Teller Machine: The introduction of ATMs has given the customers the facility of
round the clock banking. ATM card is a device that allows customer who has an ATM card to
perform routine banking transaction at any time without interacting with human teller.This can
be done by inserting the card in the ATM and entering the Personal Identification Number and
secret Password. ATMs are currently becoming popular in India that enables the customer to
with draw their money 24 hours a day and 365days.It provides the customers with the ability to
withdraw or deposit funds, check account balances, transfer funds and check statement
information.

4) E-Cheques: An electronic version or representation of a paper is cheque. The account holder

writes an E-cheque using a computer or other type of electronic device and transmits the e-
cheque to the payee electronically. Like paper cheques, e-cheques are signed by the payer and
endorsed by the payee. Rather than handwritten or machine-stamped signatures, however, e-
cheques are affixed with digital signatures, using a combination of smart cards and digital
certificates. The payee deposits the e-cheques, receives credit, and the payee's bank clears the e-
cheques to the paying bank. The paying bank validates the e-cheques and then charges the
cheque writer's account for the cheque.

5) Electronic Funds Transfer (EFT): Many modern banks have computerized their cheque
handling process with computer networks and other electronic equipments. These banks are
dispensing with the use of paper cheques. The system called electronic fund transfer(EFT)
automatically transfers money from one account to another. This system facilitates speedier
transfer of funds electronically from any branch to any other branch. In this system the sender
and the receiver of funds may be located in different cities and may even bank with different
banks. Funds transfer within the same city is also permitted. The scheme has been in operation
since February7, 1996, in India.

6) Tele banking: Tele banking refers to banking on phone service a customer can access
information about his/her account through a telephone call and by giving the coded Personal
Identification Number (PIN) to the bank. Tele banking is extensively user friendly and effective
in nature.

7)Mobile Banking: A new revolution in the realm of e-banking is the emergence of mobile
banking .On-line banking is now moving to the mobile world, giving everybody with a mobile
phone access to real-time banking services, regardless of their location. The potential of mobile
banking is limitless and is expected to be a big success. According to this system, customer can
access account details on mobile using the Short Messaging System (SMS) technology where
select data is pushed to the mobile device. The Wireless Application Protocol (WAP) technology
will allow user to surf the net on their mobiles to access anything and everything. This is a very
flexible way of transacting banking business. Already ICICI and HDFC banks have tied up
cellular service provides such as Airtel, Orange, Sky Cell, etc. in Delhi and Mumbai to offer
these mobile banking services to their customers

8) Internet Banking: Internet banking involves use of internet for delivery of banking products
and services. With internet banking is now no longer confirmed to the branches where one has to
approach the branch in person ,to withdraw casher deposits a cheque or request a statement of
accounts. In internet banking, any inquiry or transaction is processed online without any
reference to the branch (anywhere banking) at any time. ICICI bank was the first one to offer
Internet Banking in India.

9) Cyber Banking: It refers to banking through online services. Banks with website Cyber´
branches allowed customers to check balances, pay bills, transfer funds, and apply for loans on
the Internet.

10) Demat: Demat is short for de-materialization of shares. In short, Demat is a process whereat
the customer’s request of physical stock is converted into electronic entries in the depository
system. The following points highlight the nine major problems faced by India’s nationalized
banks.
PUBLIC SECTOR BANKS

Public sector bank is a bank in which the government holds a major portion of the shares. Say for
example, SBI is public sector bank, the government holding in this bank is 58.60%. Similarly
PNB is a public sector bank, the government holds a stake of 58.87%. Usually, in public sector
banks, government holdings are more than 50 per cent.
Public sector banks are classified into two categories further-

1. Nationalized Banks
2. State Bank and its Associates.

In nationalized banks the government control and regulates the functioning of the banking entity.
Some examples are SBI, PNB, BOB, OBC,Allahabad Bank etc. However, the government keeps
reducing the stake in PSU banks as and when they sell shares. So to that extent they can also
become minority shareholders in these banks.Almost all PSB’s share same business model,
organisational structure and human resource policies. Hence, competition can be seen among
these banks, in the market segment they cater.

PRIVATE SECTOR BANKS

In these banks, most of the equity is owned by private bodies, corporations, institutions or
individuals rather than government. These banks are managed and controlled by private
promoters. Post-liberalisation in the 1990s, banks such as ICICI, HDFC which got the license are
the new age Private sector banks. They owing to their improved service offerings give a tough
competition to the players in the public sector.

Of the total banking industry in India, Public sector banks constitute 72.9% share while the rest
is covered by private players. In terms of the number of banks, there are 27 public sector banks
whereas 22 private sector banks. As part of its differentiated banking regime, RBI, the apex
banking body, has given license to Payments Bank and Small Finance Banks or SFBs. This is an
attempt to boost the government's Financial Inclusion drive. As a result Airtel Payments Bank
has come up and Paytm Payments Bank Limited shall commence its operations in May 2017.

The major differences between a private and public sector bank

• SHAREHOLDERS

a) In a public sector bank more than fifty percentage of the stake is held by the Government.

b) In a private sector majority of the stake owned to private shareholders, including corporations
and individuals.
• INTEREST RATE

Deposit interest rates offered by public sector banks are almost the same when compared to
private sector banks. However new-age banks such as the Bandhan Bank, Airtel Bank are
offering marginally better interest rates when compared with their counterparts In case of loans,
interest rates are marginally lower as for example SBI introduced a new home loan offering for
its women customers with an interest rate of 8.35% for a ticket size of upto Rs. 30 lakhs.

• FEES & SERVICE

Private Sector Banks have made names in providing better service, however, they charge for the
extra services provided by them. Public sector banks fees and charges are less such as on balance
maintenance. A lot of public sector banks are still picking up in their service offerings.

• CUSTOMER BASE

Mostly public sector accounts are opened for government employees for their salaries, fixed
deposits, lockers etc. Their customer base is also relatively large when compared with their peers
in the private sector as they have been in the domain for long and have managed to gain
customer's confidence.

Whereas private sector bank in India target company employees,for their salary accounts, credit
cards and net banking.

The Reserve Bank of India is the apex bank and the monetary authority, which regulates the
banking system of the country. It is the banker’s bank, it governs all the banks of the country,
like cooperative banks, commercial banks and development banks. The commercial bank
includes public sector banks, private sector bank, foreign bank, regional rural bank, local area
banks, etc. Before 1969, except eight banks (SBI and seven associate banks), all the banks in
India were private sector banks after which 14 commercial banks got nationalised in July 1969
and 6 in 1980.
 BASIS FOR
PUBLIC SECTOR BANK PRIVATE SECTOR BANK
COMPARISON

Meaning Public Sector Banks are the banks Private Sector Banks refers to the
whose complete or maximum banks whose majority of stake is held
ownership lies with the by the individuals and corporations.
government.

No. of banks 27 22

Share in banking 72.9% 19.7%

industry

Customer Base Large Relatively small

Interest rate on High Marginally lower

deposits

Promotion Based on seniority Based on merit

Growth Low Comparatively high

opportunities

Job security Always present Purely based on performance.

Pension Yes No
SBI VS ICICI

SBI stands for State Bank of India. It is a public sector institution (government owned), with a
huge customer base all over India. It has seven associate banks operating under its SBI name. It
has over thirteen thousand branches across India and in some selected international countries and
a 56,000 ATM network across India.

The Standard Bank of India „inherited‟ the Bank of Calcutta, which was founded in 1806, and
has been in existence for over two hundred years. On the other hand, the ICICI is a private sector
bank (privately owned), with a relatively smaller clientele base. It is one of the major banks in
India (precisely the second largest), but much smaller than the SBI. It has 950 branches, with
3,500 branches across India. The bank has deposits of Rs 1.65 lakh crore compared to SBI‟s Rs
3.8 lakh crore (accumulated in a period of twelve years), racking up a net worth of Rs 22,000
against Rs 27,000 for the State Bank of India. This represents Rs 9 crore business generated by
each ICICI employee per year, compared to Rs 3 crore worth of business per employee of the
ICICI. While the State Bank pays 4.7 percent on deposits, and earns less on advances, the ICICI
pays 0.7 less (4 percent), while earning more on advances, and thus earns 0.4 percent more on
assets than the SBI. This is no surprise, as there’s seemingly limitless access to funds from the
government for the state owned SBI.

On money transfers from overseas accounts, with the SBI, once a transfer transaction is
completed, you will be able to know the exchange rate used, and there are no restrictions on the
amounts you can transfer a day. However, the ICICI transfer is somewhat different. After
completion of a money transfer transaction, the exchange rate can only be known after five days,
and there is a daily limit of $5000 that can be transferred a day.

Although the SBI has generally performed well in the past, in recent years, the ICICI has seen
very good performance, almost edging out the SBI in every aspect, especially financially. The
financial years between 2001-2002 and 2005, and 2006, saw very strong gains for the ICICI
bank. Its deposits grew by 200 percent, five times more than the SBI‟s, and while SBI‟s revenue
grew by 30 percent and the ICICI bank‟s revenue grew by seven times that percentage. This
trend means that ICICI‟s growth will eventually overtake SBI‟s in the future, in terms of
deposits.

 The SBI is a government owned bank (public sector), while ICICI is a privately owned
bank (private sector).
 The SBI is much older (more than 200 years old) and more established than the ICICI,
which is less than 25 years old.
 The SBI does not limit daily international transfer amounts, while the ICICI limits daily
transfers to $5000 a day.
 The SBI bank pays a higher percentage on deposits than the ICICI bank.
SBI Bank

The State Bank of India (SBI) is an Indian multinational, public sector banking and financial
services statutory body. It is a government corporation statutory body headquartered in Mumbai,
Maharashtra. SBI is ranked as 236th in the Fortune Global 500 list of the world's biggest
corporations of 2019. It is the largest bank in India with a 23% market share in assets, besides a
share of one-fourth of the total loan and deposits market.
The bank descends from the Bank of Calcutta, founded in 1806, via the Imperial Bank of India,
making it the oldest commercial bank in the Indian subcontinent. The Bank of Madras merged
into the other two "presidency banks" in British India, the Bank of Calcutta and the Bank of
Bombay, to form the Imperial Bank of India, which in turn became the State Bank of India in
1955. The Government of India took control of the Imperial Bank of India in 1955, with Reserve
Bank of India (India's central bank) taking a 60% stake, renaming it the State Bank of India.
ICICI Bank
ICICI Bank stands for Industrial Credit and Investment Corporation of India, it is an Indian
Multi-national banking and financial service provider headquartered in Mumbai.ICICI Bank
Limited is an Indian multinational banking and financial services company headquartered
in Mumbai, Maharashtra with its registered office in Vadodara, Gujarat. As of 2018, ICICI Bank
is the second largest bank in India in terms of assets and market capitalization. It offers a wide
range of banking products and financial services for corporate and retail customers through a
variety of delivery channels and specialized subsidiaries in the areas of investment
banking, life, non-life insurance, venture capital and asset management. The bank has a network
of 5,275 branches and 15,589 ATMs across India and has a presence in 17 countries including
India.
ICICI Bank is one of the Big Four banks of India. The bank has subsidiaries in the United
Kingdom and Canada; branches in United States, Singapore, Bahrain, Hong Kong, Qatar, Oman,
Dubai International Finance Centre, China and South Africa; and representative offices in
United Arab Emirates, Bangladesh, Malaysia and Indonesia. The company's UK subsidiary has
also established branches in Belgium and Germany.
HISTORY

1. ICICI

ICICI Bank was established by

the Industrial Credit and Investment
Corporation of India (ICICI), an Indian
financial institution, as a wholly-owned
subsidiary in 1994. The parent company
was formed in 1955 as a joint-venture of
the World Bank, India's public-sector
banks and public-sector insurance
companies to provide project financing
to Indian industry. The bank was
founded as the Industrial Credit and Investment Corporation of India Bank, before it changed its
name to the abbreviated ICICI Bank. The parent company was later merged with the bank.
ICICI Bank launched internet banking operations in 1998.
ICICI's shareholding in ICICI Bank was reduced to 46 percent, through a public offering of
shares in India in 1998, followed by an equity offering in the form of American depositary
receipts on the NYSE in 2000. ICICI Bank acquired the Bank of Madura Limited in an all-stock
deal in 2001 and sold additional stakes to institutional investors during 2001–02.
In the 1990s, ICICI transformed its business from a development financial institution offering
only project finance to a diversified financial services group, offering a wide variety of products
and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank.
In 1999, ICICI become the first Indian company and the first bank or a financial institution from
non-Japan Asia to be listed on the NYSE.
In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI
and two of its wholly owned retail finance subsidiaries, ICICI Personal Financial Services
Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by
shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at
Ahmedabad in March 2002 and by the High Court of Judicature at Mumbai and the Reserve
Bank of India in April 2002.
In 2008, following the 2008 financial crisis, customers rushed to ICICI ATMs and branches in
some locations due to rumors of an adverse financial position of ICICI Bank. The Reserve Bank
of India issued a clarification on the financial strength of ICICI Bank to dispel the rumors.
 2. SBI

The roots of the State Bank of India lie in the first decade of the
19th century when the Bank of Calcutta later renamed the Bank
of Bengal, was established on 2 June 1806. The Bank of Bengal
was one of three Presidency banks, the other two being the Bank
of Bombay (incorporated on 15 April 1840) and the Bank of
Madras (incorporated on 1 July 1843). All three Presidency
banks were incorporated as joint stock companies and were the
result of royal charters. These three banks received the exclusive
right to issue paper currency till 1861 when, with the Paper
Currency Act, the right was taken over by the Government of
India. The Presidency banks amalgamated on 27 January 1921,
and the re-organized banking entity took as its name Imperial
Bank of India. The Imperial Bank of India remained a joint stock company but without
Government participation.
Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of India,
which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On 1
July 1955, the Imperial Bank of India became the State Bank of India. In 2008, the Government
of India acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of
interest because the RBI is the country's banking regulatory authority.
In 1959, the government passed the State Bank of India (Subsidiary Banks) Act. This made eight
banks that had belonged to princely states into subsidiaries of SBI. This was at the time of the
first Five Year Plan, which prioritized the development of rural India. The government integrated
these banks into the State Bank of India system to expand its rural outreach. In 1963 SBI merged
State Bank of Jaipur (est. 1943) and State Bank of Bikaner (est.1944).
SBI has acquired local banks in rescues. The first was the Bank of Bihar (est. 1911), which SBI
acquired in 1969, together with its 28 branches. The next year SBI acquired National Bank of
Lahore (est. 1942), which had 24 branches. Five years later, in 1975, SBI acquired Krishnaram
Baldeo Bank, which had been established in 1916 in Gwalior State, under the patronage of
Maharaja Madho Rao Scindia. The bank had been the Dukan Pichadi, a small moneylender,
owned by the Maharaja. The new bank's first manager was Jall N. Broacha, a Parsi. In 1985, SBI
acquired the Bank of Cochin in Kerala, which had 120 branches. SBI was the acquirer as its
affiliate, the State Bank of Travancore, already had an extensive network in Kerala.
There was, even before it actually happened, a proposal to merge all the associate banks into SBI
to create a single very large bank and streamline operations.
DIFFERENCE BETWEEN SBI AND ICICI

SBI ICICI Bank

Public sector
Type of bank private sector
(government owned)

1955; ancestry to British

ICICI formed in 1955;
India, the Imperial Bank
Established in ICICI Bank formed in
of India, and the Bank of
1994
Calcutta founded in 1806

NSE: SBIN BSE: 532174

BSE: 500112 NSE: ICICIBANK

Traded as
LSE: SBID NYSE: IBN

BSE SENSEX BSE SENSEX

Constituent Constituent

Ranking (according to Second largest bank in

Largest bank in India
assets) India

14,119 branches; 21,500

branches including
Branches (in India) 2,768 branches
branches of associate
banks.

Over 21,000 ATMs, over

ATMs (in India) 45,000 including 9,363 ATMs
associate banks

Presence 37 countries 19 countries

CHALLENGES FACED BY INDIAN RETAIL BANKING
A major challenge for retail banks in India is the retention of customers. In this competitive
environment the customer retention is very difficult. Profitability of retail banks is highly
effected by customer retention.
According to a research by Reichheld and Sasser11 in the Harvard Business Review, 5%
increase in customer retention can increase profitability by 35% in banking business, 50% in
insurance and brokerage, and 125% in the consumer credit card market. Thus, banks need to
focus on customer retention.
They are expected to take utmost care to retain the ongoing trust of the public. Banks are
required to adopt innovative strategies to meet customers’ needs and requirements in terms of
service and products. The efficiency of operations would provide the competitive edge for
success in retail banking in coming years.
In future rising indebtedness could turn out to be a cause for concern. In developed countries the
household debt in proportion to disposable income is much higher. India’s condition is not
comparable to that of the developed countries.
There will be high uncertainty in such a scenario. There will be huge risk and high uncertainty if
there is a disproportion between debt/loan and disposable income. The Reserve Bank has been
well aware of this problem.
For example, the Reserve Bank has, as a temporary measure, put in place risk containment
measures and increased the risk weight from 100 per cent to 125 per cent in the case of consumer
credit including personal loans and credit cards (Midterm Review of Annual Policy, 2004-05)13
. Another important issue in retail banking is risks in money laundering and KYC (Know Your
Customer) issues.
Banks should take utmost care to retain the trust of the public in them. Banks have to consider
and verify all the documents seriously which are accepted by them for approving the loans. As
the amount of transactions involved is lower, the risk of money laundering is less in retail
banking.
There is also possibility of waiver of KYC procedures by banks in order to retain customers in
this competitive environment. The core activities in the bank like hardware and software
maintenance, ATM setup and operation including cash refilling etc are usually outsourced by
banks. So the issue of outsourcing has become very important in recent past in Indian retail
banking. Information technology poses both opportunities and challenges. Many customers
prefer the personal touch of their bank even though the bank has ATM and Internet Banking
services.
FUTURE OF RETAIL BANKING IN INDIA

Retail banking in India has exhibited enormous growth in the recent past and has emerged as one
of the major drivers of the overall banking industry. In fact, this growth is attributed to the vast
growth of personal wealth, favorable demographic profile, rapid IT development, financial
market reforms and micro-level supply side factors coupled with the conducive macro- economic
environment.
There are immense opportunities for retail banking in a growing economy like India. One of the
important factors contributing to this is the rise of Indian middle class. There will be a
continuous rise in the percentage of middle to high income Indian households. This may lead to
substantial growth in the retail sector.
Retail lending is only a part of retail banking. Retail depositors play an important role in retail
banking. The retail shopkeepers, the self employee, the pensioners, the home makers, and the
employed need to get a place in the bank.
The Government of India and the Reserve Bank of India are very particular about Financial
Inclusion now-a-days. So the entire banking industry is viewing retail banking as an emerging
business opportunity in tune with financial inclusion. In retail banking credit history information
about the households is extremely important. Banks have a traditional resistance to share credit
information of their clients to uphold the confidentiality of banker-customer relationship. The
credit information is not passed between banks as well as bank sectors.
The Credit Information Bureau (India) Limited (CIBIL) was incorporated in 2000 in India. The
main aim of CIBIL is to provide credit information to credit granting institutions. They collect
and disseminate credit information pertaining to both commercial and consumer borrowers. The
banks must exercise due diligence before declaring a borrower as defaulter. The banks are using
outsourcing as a means for cost reduction and achieving efficiency in operations.
To cope with the increasing market orientation, competition and technological innovations, the
banks are increasingly using outsourcing. Thus outsourcing has become an important element in
retail banking sector. There is a glorious future for retail banking in India. It helps in the
development of individual customers who avail the products or services as well as in the overall
development of the society. Retail banking has proved to be an effective tool to improve the
bottom lines of banks. Thus there is vast scope for retail banking business in India
RETAIL FINANCE
Retail finance or retail lending is that segment of retail banking which offers various loan
products to the customers. Housing loans, loan for the purchase of durables, auto loans, credit
cards and educational loans are the typical products offered in Indian retail finance segment. The
loan values of retail lending ranges between Rs. 20,000 to Rs.100 lakhs. The duration of loans is
generally five to seven years. Housing loans have a longer duration of 15 to 30 years. Retail
banking results in better yield and improved bottom line for the bank and hence retail segment is
a good avenue for funds deployments. It is presumed that consumer loans are of lower risk and
NPA perception. Banks can reduce their dependence on a few or single borrower through
diversified portfolio of huge customer base.
Banks are providing non-fund based or fee-based services and can earn good profits without
deploying their funds. It is possible to improve the lifestyle and fulfill the aspirations of the
people through affordable credit in retail lending. Further, through increased production activity,
the economic revival of the nation can be achieved. Since the evolution of banking, retail
banking has been prevalent in various forms in India. There are vast changes in the Indian retail
finance market during the last few years. Earlier, Indians believed in the concept of saving and
then spending and were against the concept of availing credit for purchases. The overzealous
lenders, who realised the huge latent potential of the Indian consumers, came up with a variety of
customer credit products and they forced them up on consumers. This has changed the
psychology of Indian consumers who no longer consider credit as a social stigma. They are
willing to fulfill their dreams and aspirations through the credit facilities. Penetration of retail
loan products is very low in India. Home loans in India form only about 6% of our GDP, while
the same is about 60% in advanced countries. Of every 1000 Indians, only eight own a car,
whereas this number is nearly 500 in developed countries.15 Combined with rising affluence in
the country and increasing disposable incomes, these low levels of penetration indicate that, for
retail loan providers in India, the growth story is likely to continue for a long time.
In India retail lending is becoming an important segment of bank credit. The inclusive,
comprehensive and pervasive growth of India can be obtained through it. In future the growth of
retail banking will be decided by retail lending. The credit off-take by the under banked
segments of the society needs to be improved. There is expanding middle class persons in need
of varied banking services and India is the second largest consumer market in the world and
consumers in this country are dreaming of purchasing power. Through the growth of consumer
lending at a faster pace and making it available at affordable rates, the aspirations of these
consumers can be fulfilled. Personal loans, also called consumer loans, are now-a-days very
popular in India because of the spurt in the income levels of middle-income segment and the
growth of consumerism. These loans are easy to arrange on the basis of fixed monthly repayment
program. Banks are facing tough competition not only amongst themselves but also from
NBFC’s.
CHARACTERISTICS OF RETAIL LOAN
• Retail loans are small size loans.
• With well diversified portfolios the needs of a large number of customers can be met.
• The target customers are generally individuals or small organisations.
• Standard products are offered to customers.
• Centralized operations of retail credit exist in most of the banks.
• Because of decentralization, banks can make quick credit related decisions.
• These loans are designed to cover varied segments of risks.
• Volume of business is high.
• Number of transactions is large.
Retail exposure of banks include various types of retail credit such as residential
mortgages, credit card, automobile and personal loans etc. Retail loans have the following
features:
• Types of facilities - Retail loans are the finance facility of a fixed amount extended to meet a
one-time requirement of a customer, for a fixed tenure, to be repaid over a period in instalments.
• Secured / Unsecured facilities - Secured loans are always secured by an underlying asset
against which funding is extended. Unsecured loans do not have any underlying security and are
purely extended based on the creditworthiness of the borrower.
• Interest - On a loan given at a fixed rate, interest is charged throughout the tenure of the loan at
that rate which is fixed at the time of granting the loan. In case of floating rate of interest, the rate
of the loan varies from time to time according to the movement of interest rate in the market.
Loans that are fixed in the initial years and become floating later would be considered as teaser
loans.
• Tenure - The tenure depends upon the amount of loan and repayment capacity of the customer.
• Loan to Value ratio - Loan to Value ratio refers to the maximum percentage of the value of the
asset that is given as a loan. It varies according to the nature of the asset and also the rate at
which the asset is expected to depreciate.
Retail lending is a spectacular innovation in the commercial banking in recent years. Rapid
advancement in information technology, financial market reforms, the evolving macroeconomic
environment, and several micro level demand and supply side factors have contributed to the
growth of retail lending in developing countries. In recent past, retail lending has turned out to be
a key profit driver for banks with retail portfolio constituting18.80% of total outstanding
advances as on March 201316. The overall impairment of the retail loan portfolio worked out
much less than the gross NPA ratio for the entire loan portfolio.