1. Changing Consumer Demographics: Population of India provides a vast potential for
growth of retail both in qualitative and quantitative terms. India is a young nation with average demographic age of 29 years and close to 70% of the population is below 35 years of age which means more than 100 million people will be added to the working class and there is a continuing trend in the urbanization. This demographic dividend advantage is positive factor for India and provides opportunities for retail banks to grow and expand. Presently, Private Banks share of young customers is over 60% whereas in public banks it is only 32%.
2. Rise in disposable income of middle class: Indias GDP has grown at an average rate of more than 7% over the last decade, the real household income has more than doubled since 1985, with the rise in income, consumption pattern has changed and the purchasing power has increased. The new middle class is comfortable in taking debts to meet their needs and are more liberal. This has led to a boost in the retail loans segments. According to a report by NCAER by 2015-16 India will have 53.5 million middle class households translating to 267 million people.
3. Increase in literacy levels: The literacy levels in India have continued to improve, people are embracing technology and there is demand for new products and services. It will lead to a more demand in the retail banking activities. 4. Higher adaptability to technology: Technological innovations in the delivery of services to customer have attracted more number of consumers. With convenience banking facilities such as Debit/Credit cards, ATMs, Internet banking, mobile banking available to customers, there has been an increase in the usage of these facilities which in turn has led to development of retail banking.
5. Housing credit: With the option of EMI available to the customers, more consumers are now resorting to housing loans to construct their homes; also the interest rates on loans have declined since 2009-10, Price corrections in real estate sector, tax incentives have further led to a spurt in demand for credit facility. Housing loan is a safer investment option for banks with NPA only in the range of 2-2.5% compare to other loans.
6. Flexibility: Retail loans in a large number of options are available to customer; banks even bear the cost of registration, stamp duty, insurance etc. making it easy and affordable for the end customer to avail the credit facility. 7. Automation of processes: With the advent of technology banks have optimized the core operations and this is lead to decrease in the transactions costs and better maintenance of the records. Mobile/Internet banking and ATMs are emerging as an alternative channel and have better reach than the traditional banks. With the CBS system in place all data is stored centrally and can be accessed from anywhere making it easy and convenient for both banks and customers to avail and provide service thus helping in establishing relations with the customers.
8. Mass Banking/Alternative Channels: Retail sector is mass market banking and provides services such as deposit accounts (Savings, current), loans, ODs, lockers, credit and debit cards and ATMs and many more, all these are essential to tap new customers and retaining existing customers. The alternative channels of ATM and mobile banking can be seen as branchless banking as they reduce the cost with no requirement of physical infrastructure and human resources.
9. Financial Services: Banks have also ventured in other financial services such as Insurance and asset management, with clear regulations in sight and transparency in the conduct of the process, the financial services area has added and will add to the growth momentum of the banking sector.
10. Competition: The increase in competition among banks with the entry of new players has led banks to rework their business strategy, design new products with customer in mind and improve efficiency. Customers have large options to choose from and they cannot differentiate between the banks, so banks need to constantly innovate and reposition themselves have niche players.
11. Micro, Small and Medium Enterprises: MSMEs sector has been a major growth driver for Indian economy. They contribute close to 50% to industrial output, however only one third have access to organized finance. This unmet demand provides a significant opportunity to banks and RBI has also made it mandatory for banks to lend to MSME sector under the Priority sector lending quota. Banks can collaborate with MSME and they can leverage each others strengths. Banks offers forex services, LCs/guarantees, MSME provide specialized knowledge and local collection capability.
TECHNOLOGICAL ADVANCEMENT IN INDIAN BANKING SECTOR
Till the nineties, the customers were made to stand in queue and service manually by the staff in their brick and mortar outlet, the mechanization and computerization process got initiated in the Indian banking sector following the recommendations of the Rangarajan Committee. Since then a large number of technological innovations have been brought forth in the banks. Some of the technological innovations that have been introduced in the Banks are discussed below: 1. ATMs: ATMs were introduced in the early 1990s by foreign banks in India they have transformed banking by providing access to the banking services anywhere and anytime to the customer. The banks have greatly saved on the transactions cost as it is a self-service means of delivering service and reduce the overhead in the banks. The customer is saved from the risk of huge hard cash. They need not visit the branch for transactions like cash deposits, withdrawals, cheque collection and balance enquiry etc.
2. Internet Banking: The internet has brought forth an electronic revolution in the banking sector, and has helped in reaching a wide audience. There are more than 200 million users who have access to internet and the demand for real time information will continue to grow. Internet has served as an alternate distribution channel for banking services and products. Internet banking provides instant access to information for customers and less personnel is required by banks to entertain customer queries.
3. Mobile Banking: With increase in awareness about technology, the adoption by user is also getting high. Mobile has become a companion for Gen Y. Banks have leveraged the mobile platforms to offer banking products and services to customers via smartphones and have been able to reach areas in rural regions of India which otherwise they had been unable to do so as there is a high transaction cost associated with setting up branches.
4. Core Banking Solution: CBS is a centralized platform; it facilitates control of the banking operations and makes anytime, anywhere, anyway banking possible as it maintains a centralized customer database. It delivers fast and efficient service to customers, reduce operational costs. Banks have also adopted business intelligence, data warehousing and data mining technologies to effectively target customers for cross selling the products. CBS can be integrated with risk management module and other enterprise level applications.
5. CRM: It consists of a set of procedures that RM use to manage customer relationships, identifying potential customers to sell products and retaining existing customers and increase their wallet. Banks also resort to cross selling their products as when a customer enters into a relationship with a bank, the RM persuades the customer to avail other financial products.
6. Card Based Delivery Mechanism: These include credit cards, debit cards and smart cards. The penetration of the cards is increasing every year as it disburse short term credit to customers who are short of money at a point of time which they can pay back in the near future. Supported by ATMs and POS terminals, banks have been able to attract customers to avail the cards facility and have been able to reduce their costs as well.
7. Electronic Clearing Service: ECS is a mode of transfer of funds electronically from one bank account to another via a clearing house. ECS has two variants ECS debit and ECS credit. ECS debit is a service in which the account holder authorises the ECS user to recover payment at a particular frequency from his account. It is mostly used by utility service providers such as electricity, telephone for collection of bill payment. ECS credit is used for transactions like payment of salary, dividend and interest etc. ECS service reduces paper work and smoothens the flow of transactions.
8. Electronic Funds Transfer: EFT facilitates fund transfer between two accounts located at different locations. It is an alternative for cheques and drafts. NEFT was introduced in 2005 for nationwide fund transfer among the network of bank branches. It is a deferred net settlement product and the upper limit for funds transfer id Rs 2 Lacs.
9. Real Time Gross Settlement (RTGS): It was introduced for large retail transactions as there was settlement risk in NEFT. The minimum amount is Rs 2 Lac to use RTGS facility. It enables settlement on a gross basis in real time.
10. Cheque Truncation System: Truncation is the process of stopping the movement of the physical cheque which is to be truncated at some point en-route to the drawee branch and an electronic image of the cheque would be sent to the drawee branch along with the relevant information like the MICR fields, date of presentation, presenting banks etc. Thus, the CTS reduce the probability of frauds, reconciliation problems, logistics problems and the cost of collection.