Future of Retail Banking

- Bhaskar Ghose, Managing Director,

IndusInd Bank

Recent trends

Aggressive entry strategies of foreign banks to Retail Segment

Customer retention initiatives by PSU Banks

Aggressive price-war on Retail Credit

Recent trends contd…

Rapid penetration of Personal Computers, Mobile phones and on-line Trading and purchase options encouraged increased usage of technology banking

Booming economy and continuous per capita income will further push the living standards of people

Recent trends contd…

Customers’ preference to more and more alternate channels for convenience

Fee based income from remittance is shrinking due to RTGS and other technology initiatives

Higher short term interest and flatter yield curves

Recent trends contd…

Phenomenal rise in nuclear and dual income families & enhanced spending power

Increasing literacy levels Higher adaptability to technology

banking

Recent trends contd….

Growing consumerism Fiscal incentives to Housing loans Fastest economic growth over the

decade

Retail Liabilities Banks continue to offer valued added

Products and Services for customer acquisition and retention

Retail Banking technology is gaining its importance due to the continued demand

Customer Relationship Management (CRM) is going to be a mandatory requirement for banks to leverage the existing relationship

Retail Liabilities contd…..

Retail Banking customers are demanding more and more features and product differentiation

More and more Retail customers in the age group of 20-35 with high saving potential

Future of Retail Liabilities would be from Tier II & Tier III locations

Retail Liabilities contd… Alternate delivery channels, channel

integration and single sign on expectation from customers

Branch Banking channels are going to be business expansion channel than Transaction processing centre

More and more customers are moving out of the Branch Banking channel to other alternate delivery channels

Retail Liabilities -Future Rate of growth of deposit may be

affected by other investment opportunities like Mutual Funds and Bonds

Banks may prefer to have sharing arrangements

Smart Card/Stored value card would gain importance

Retail Credit Retail Credit business shifted from

Private Money lenders to NBFCs and Banks in the last decade

Now, the shift is from NBFC s to Banks

In future, the shift is expected from inefficient Banks to Banks with set processes and quick delivery systems

Retail Credit contd…. Loan to GDP ratio is less than 40%,

which is only a fraction, compared to the developed economy

Every Bank has enough opportunities to perform without unhealthy competition

Business potential in Semi urban and Rural areas are very high, which is yet to be explored

Retail Credit contd….

Banks overtake HFCs in Home Loans

Banks overtake NBFCs in Auto loans

The same trend would continue for next few years

Retail Credit contd…. Basel II implementation and

necessity to have stringent Risk Management systems would exert pressure on Retail lending in future

Banks with well defined systems and procedures would emerge as leaders in Retail Credit

Retail Credit contd….

Home Loan is expected to grow at 30%

Housing loan as % of GDP will touch 10%

Used Car finance is growing over 20% rate and is expected to continue

Retail Credit contd…. Mix of Retail Credit is expected

at – Home Loan 49%, Auto loans 28%, Personal loans 16% and Consumer durables 7%

Educational loans which are at a low ebb also expected to grow at 20% in the coming years

Retail Credit contd….

Housing and Auto loans together, would continue to contribute to the level of 18%

Other Retail advances would move from 8 to 13%

Agricultural segment is expected maintain the 10% level

Retail Credit contd…. Personal loan segment is also

expected to grow @ 20% with higher yield ranging from 12-16%

Gross Retail Advances would move to over 40% of total advances in the next 5 years

Credit Card business Credit Card issuance at 50% growth rate

in 2004-05, compared to 36% growth during the pervious year

Credit Card growth is estimated at CAGR of 20%

Draft guidelines on Credit Card operations would affect the Credit Card growth

Single overall limit for Credit Cards would ensure lower delinquency rate under the segment

Retail Credit - Challenges Customer tendency to borrow more

and repay less may adversely affect the NPA levels in future

Future delinquency rates are not properly factored in fixing the Retail credit pricing by few banks

Increased risk weight of Consumer Credit

Retail Credit – Challenges contd….

Liquidity mismatches may emerge as an issue

Slight change in economic scenario may affect the whole system

Existing Retail scoring models may not predict impact of mild recession

Retail Credit –Challenges contd….

Lack of Credit information of Retail customers from the Banking system

CIBIL is addressing the issue only to a certain extent

No system to eliminate multiple finances, including Personal Loans

Higher level of NPA from Personal Loans

Retail Credit –Challenges contd….

Higher Loan-to-value ratio may emerge as a problem during recession

Sale of assets without any control from the bank in the case of Consumer Credit

Growing incidents of frauds and cyber crimes

Future- for the Customer

Future of Retail Banking is for the CUSTOMER

Pricing is determined by Customer Competition among Banks would

ensure him better service at cheaper rate

Customer would be able to discount his future earnings as Retail Credit for his higher standard of living

Thank You