Finance-1

A study on Retail Finance

GROUP 4
Section-1

Jayant Kejriwal 2010PGP023

Ishant Arora 2010PGP024
Jitesh Patel 2010PGP025
Joybrata Roy 2010PGP026
Amrit Agrawal 2010PGP027
Karthikeyan D 2010PGP028
Kaustubh Rawool 2010PGP029
 ACKNOWLEDGEMENT

It is with deep gratitude that we would like to express our thanks to Prof. Naliniprava Tripathy
who gave us this opportunity in gaining insight into the retail financial services thus enabling us to get a
better understanding of the subject. You encouraged our ideas and helped it evolve from a mere
statement to its current form.

We would also like to express our gratitude to all those who helped us directly or indirectly in
coming up with this project report.
Table of Contents

1. INTRODUCTION TO RETAIL FINANCE:-.....................................................................................................4

1.1 Today’s Key Differentiator.................................................................................................................4
1.2 Challenges in Retail Financial Services Industry.................................................................................5
1.3 Indian Scenario..................................................................................................................................5
1.4 The Opportunity of the 21st Century.................................................................................................6
2. RETAIL BANKING:-....................................................................................................................................7
2.1 Scope of retail banking and the environment....................................................................................7
2.2 Categories..........................................................................................................................................7
2.3 Advantages and Disadvantages of Retail Banking in India.................................................................8
2.4 Opportunities...................................................................................................................................10
2.5 Challenges for Retail Banking in India..............................................................................................10
3. MOBILE BANKING AND PAYMENTS:-.....................................................................................................11
3.1 Mobile Channel Platforms...............................................................................................................11
3.2 Mobile Banking Services..................................................................................................................13
3.2.2 Payments, Deposits, Withdrawals, and Transfers.....................................................................13
3.2.3 Investments..............................................................................................................................13
3.2.4 Support.....................................................................................................................................13
3.2.5 Content Services.......................................................................................................................14
3.3 CHALLENGES....................................................................................................................................14
3.4 Advantages and Disadvantages:......................................................................................................15
3.5 Current State of Mobile Banking in India.........................................................................................16
4. STEPS TO DEALERS WANTING TO SET UP A RETAIL FINANCING PROGRAM:-........................................16
Step 4: Relations with banking and other financial institutions.............................................................17
5. CARDS MARKET:-...................................................................................................................................18
5.1 Credit Card.......................................................................................................................................18
5.2 Debit Card........................................................................................................................................18
5.3 Other electronic cards.....................................................................................................................19
6. SELF SERVICE BANKING:-.......................................................................................................................19
 6.1 ATM.................................................................................................................................................20
6.2 Automated cash handling systems..................................................................................................21
7. FINANCIAL INCLUSION:-.........................................................................................................................21
7.1 Demand side Factors.......................................................................................................................24
7.2 Supply side Factors..........................................................................................................................25
8. CONCLUDING REMARKS:.......................................................................................................................27
9. REFERENCES:.........................................................................................................................................27
1. INTRODUCTION TO RETAIL FINANCE:-

Retail financing is a financing option that allows the purchase of retail goods and services using
credit. Some examples of retail goods and services are furniture, mattresses and bedding, carpets and
flooring, heating and air conditioning, appliances and consumer electronics. Most banks and credit
unions offer traditional retail financing. The various Retail Financial Services available are:

1. Credit Card Solutions

2. Retail Banking
3. Mortgage and Loan Solutions
Retail Financial Services Landscape is as shown in the figure below

1.1 Today’s Key Differentiator

Today customer satisfaction is a key differentiator in today's highly competitive business
environment. There is high requirement of vast experience and in-depth domain expertise for getting
oneself established as customer service experts. The experience and the expertise enables one to:
 1. Understand trends in customer demands and requirements
2. Establish the right staff mix with the right skill sets
3. Optimally schedule staff
4. Continually monitor performance and effectiveness

1.2 Challenges in Retail Financial Services Industry

1. Increasing regulations (accounting, financing and book-keeping) as outsourcing potentially
transfers risk, management and compliance to third parties operating offshore
2. Shorter and more complex product lifecycles
3. Increase in the number of channels for communication
4. Increasing customer demands and expectations
5. High staff turnover in contact centers
6. Rapidly advancing technological innovation
7. Increasing competition
8. Changing business models designed to improve how firms attract,
9. service and interact with their customers

1.3 Indian Scenario

According to the 'Indian Retail Finance' report, India is the next big market for the retail financial
services. The Indian market may have come a long way but things are just getting started. The next 10
years will see more changes.

It’s hard not to get excited at the thought of India as the next big market for retail financial
services. Although Indian consumers have started to feel the affects of high commodity prices and the
fall-out from global economic uncertainty, gross domestic products (GDP) growth remains impressive
and as one of the ’BRIC’ countries, which included Brazil, Russia, India and China, India is set to become
the world’s third-largest economy by 2050. The financial services sector is expected to be a lynchpin of
this growth along with the retail, information technology and telecom industries. The market for
banking products is growing at an even faster rate.

An Economy Transformed -- The Rising Elephant

In 1985, 93 per cent of the nation lived on approximately a dollar per person per day. By 2005,
that proportion had been reduced to 54 per cent, or 431 million people lifted from poverty (more than
the population of the United States or of Western Europe). India’s population is the youngest in the
world. Half of its roughly 1.2 billion people are below the age of 25. Over the next 20 years, the number
of people in their prime working years will continue to grow in India. Unlike in some of the other BRIC
nations, where the population is aging, this again will grow the market for all retail finance products.
Mortgages, in particular, will benefit as this population becomes of home buying age. The mortgage
market is currently under-penetrated, with the value of mortgages representing just six per cent of GDP.
Changing attitudes to debt and consumer finance and rising affluence has altered consumer attitudes
and the approach of the urban consumer has shifted from ‘debt averse’ to ‘spend now, worry later’.
Abundant employment opportunities have increased peoples’ confidence in their future earning power
and with that, an appetite for spending that their parents would have indulged in only after a lifetime of
careful saving. The credit card market in India has seen a rapid boom from less than two million cards in
the market before 2005 to 26 million cards in 2008. India is the second-fastest growing cards market in
the Asia-Pacific region, with an annual growth rate of more than 30 per cent. It is predicted by the Indian
Banks’ Association that the financial cards market will increase threefold within the next five years. The
Indian market may have come a long way but things are just getting started. The next 10 years will see
more changes than the past 25 years, and with just 59 per cent of the Indian population reported to
have a deposit account (compared to an average of over 85 per cent in Western Europe), there is a lot of
territory yet to be staked out for both banks and their suppliers. Many financial services firms have
entered the fray, and there are now close to 300 foreign, public and private sector banks doing business
in India -- compared to only 60 ten years ago.

1.4 The Opportunity of the 21st Century

On almost every metric that matters, India invariably tops it. However, such a considerable
opportunity does not come without risks. As many foreign investors have discovered in recent years,
India is not a business proposition for the fainthearted or the uninformed.

2. RETAIL BANKING:-
Retail banking is typical mass-market banking where individual customers use local branches of
larger commercial banks. Services offered include: savings and checking accounts, mortgages, personal
loans, debit cards, credit cards, and so.

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. Retail banking refers to provision of
banking services to individuals and small business where the financial institutions are dealing with large
number of low value transactions. This is in contrast to wholesale banking where the customers are
large, often multinational companies, governments and government enterprise, and the financial
institution deal in small numbers of high value transactions.

Today’s retail banking sector is characterized by three basic characteristics:=

1. Multiple products (deposits, credit cards, insurance, investments and securities)

2. Multiple channels of distribution (call centre, branch, internet)

2.1 Scope of retail banking and the environment

1. All round increase in economic activity
2. Increase in the purchasing power. The rural areas have the large purchasing power at their
disposal and this is an opportunity to market Retail Banking
3. India has 200 million households and 400 million middleclass population more than 90% of
the savings come from the house hold sector. Falling interest rates have resulted in a shift.
“Now People Want To Save Less And Spend More.”
4. Nuclear family concept is gaining much importance which may lead to large savings, large
number of banking services to be provided are day-by-day increasing
5. Tax benefits are available for example in case of housing loans the borrower can avail tax
benefits for the loan repayment and the interest charged for the loan

2.2 Categories
Banks are broadly classified into 2 groups namely—

• Public Sector Banks (around 26)

• Private Sector Banks (around 22)

• Scheduled banks- Those banks which have been included in the Second Schedule of Reserve
Bank of India(RBI) Act, 1934

• Non-Scheduled banks
Facts & Figures:-

• Indian retail bank is worth $ 300 billion

• Retail Banking is growing at more than a CAGR of 28%

• Reserve ratios: CRR- 6%, SLR- 25%

• Lending & Deposit rates: Base rate- 7.5-8%, deposit rate- 6-7.5%, savings bank rate-3.5%

• Policy rates: bank rate- 6%, repo rate- 6.25, reverse repo-5.25%

Avenues for Development:-

• Constant product innovation to match the customer requirements

• Quality service and quickness in delivery

• Introduction of new delivery channels

• Tapping of unexploited potential and increasing the volume of business

• Infrastructure outsourcing

• Cross-selling of products

2.3 Advantages and Disadvantages of Retail Banking in India

Advantages:-
Retail banking has inherent advantages outweighing certain disadvantages. Advantages are analysed
from the resource angle and asset angle.

RESOURCE SIDE:-

1. Retail deposits are stable and constitute core deposits.

2. They are interest insensitive and less bargaining for additional interest.
3. They constitute low cost funds for the banks.
4. Effective customer relationship management with the retail customers built a strong customer
base.
5. Retail banking increases the subsidiary business of the banks

ASSETS SIDE:-

1. Retail banking results in better yield and improved bottom line for a bank.
 2. Retail segment is a good avenue for funds deployment.
3. Consumer loans are presumed to be of lower risk and NPA perception.
4. Helps economic revival of the nation through increased production activity.
5. Improves lifestyle and fulfils aspirations of the people through affordable credit.
6. Innovative product development credit.
7. Retail banking involves minimum marketing efforts in a demand –driven economy.
8. Diversified portfolio due to huge customer base enables bank to reduce their dependence on
few or single borrower
9. Banks can earn good profits by providing non fund based or fee based services without
deploying their funds.
Disadvantages:-

1. Designing own and new financial products is very costly and time consuming for the bank
2. Customers now-a-days prefer net banking to branch banking. The banks that are slow in
introducing technology-based products, are finding it difficult to retain the customers who wish
to opt for net banking
3. Customers are attracted towards other financial products like mutual funds etc
4. Though banks are investing heavily in technology, they are not able to exploit the same to the
full extent
5. A major disadvantage is monitoring and follows up of huge volume of loan accounts inducing
banks to spend heavily in human resource department
6. Long term loans like housing loan due to its long repayment term in the absence of proper
follow-up, can become NPAs
7. The volume of amount borrowed by a single customer is very low as compared to wholesale
banking. This does not allow banks to to exploit the advantage of earning huge profits from
single customer as in case of wholesale banking

2.4 Opportunities
Retail banking has immense opportunities in a growing economy like India. As the growth story
gets unfolded in India, retail banking is going to emerge a major driver.

The rise of Indian middle class is an important contributory factor in this regard. The percentage of
middle to high-income Indian households is expected to continue rising. The younger population not
only wields increasing purchasing power, but as far as acquiring personal debt is concerned, they are
perhaps more comfortable than previous generations. Improving consumer purchasing power, coupled
with more liberal attitudes towards personal debt, is contributing to India’s retail banking segment.

The combination of above factors promises substantial growth in retail sector, which at present
is in the nascent stage. Due to bundling of services and delivery channels, the areas of potential conflicts
of interest tend to increase in universal banks and financial conglomerates. Some of the key policy issues
relevant to the retail-banking sector are: financial inclusion, responsible lending, and access to finance,
long-term savings, financial capability, consumer protection, regulation and financial crime prevention.

2.5 Challenges for Retail Banking in India

1. The issue of money laundering is very important in retail banking. This compels all the banks to
consider seriously all the documents which they accept while approving the loans
2. The issue of outsourcing has become very important in recent past because various core
activities such as hardware and software maintenance, entire ATM set up and operation
(including cash, refilling) etc., are being outsourced by Indian banks
3. Banks are expected to take utmost care to retain the ongoing trust of the public
4. Customer service should be at the end all in retail banking. Someone has rightly said, “It takes
months to find a good customer but only seconds to lose one.” Thus, strategy of Knowing Your
Customer (KYC) is important
5. The dependency on technology has brought IT departments’ additional responsibilities and
challenges in managing, maintaining and optimizing the performance of retail banking networks.
It is equally important that banks should maintain security to the advance level to keep the faith
of the customer
6. The efficiency of operations would provide the competitive edge for the success in retail banking
in coming years

3. MOBILE BANKING AND PAYMENTS:-

Mobile Banking is a term used for transactions such as balance checks, account transactions,
payments, credit applications etc. via a mobile device such as a mobile phone or Personal Digital
Assistant (PDA). Earlier SMS service was used for such transactions. However with the advent of
technology, now smart phones with WAP support are available for Mobile Web. The total number of
mobile subscribers exceeded 2 billion in 2005 and is now greater than 2.5 billion. The advent of
smartphones and 3G connectivity has further provided the capabilities which were not available before.
Study by Berg Insight forecasts that the number of mobile banking users in the US will grow from 12
million in 2009 to 86 million in 2015. The same study also predicts that the European market will grow
from 7 million mobile banking users in 2009 to 115 million users in 2015. This service is in the growing
stage in Asian countries such as like India, China, Bangladesh, Indonesia and Philippines. Mobile Channel
Platforms

3.1 Mobile Channel Platforms

A variety of mobile media channels including Short Message Service (SMS), mobile web, and
mobile client applications are available for mobile banking. Each mobile media channel has its strengths
and weaknesses, and it is important to identify the delivery mode that is most appropriate for each
banking service. Each bank must decide which and how many delivery modes it wants to offer in its
mobile banking service. Most banks usually start with simple SMS alerts and notifications because these
are very similar to the email alerts that they are already sending to their customers. Then they may
progress to mobile web and mobile client applications.

A comparative study of the different mobile channel platforms is as shown in the figure below

Delivery Type Ubiquity Ease Of use Affordability Security

SMS Very High Very High Very High Low

Mobile Web Medium Medium Medium Medium

Mobile Content Application N/A High Medium Very High

Hybrids

SMS with Mobile Web Medium High Medium Medium

Secure SMS Low High High Very High

The different banks providing the mobile banking services are

1. HDFC BANK
2. PUNJAB NATIONAL
3. BANK OF BARODA
4. UNIT TRUST OF INDIA
 5. DENA BANK
6. KOTAK MAHINDRA
7. STATE BANK OF INDIA
8. HSBC BANK

A comparative analysis of the facilities provided by the different banks is as shown in the figure below

Bank Of ABN
Parameters ICICI Bank HDFC Bank IDBI Bank HSBC America Citi Bank Amro
Balance Inquiry Yes Yes Yes Yes Yes Yes Yes
Last few Transactions Yes Yes Yes Yes Yes Yes Yes
Cheque payment
status No No Yes Yes Yes Yes Yes
Stop payment of
cheques No Yes No No No No No
Statement request No No No No No No No
Cheque book request Yes Yes Yes Yes Yes Yes No
Secure SMS Yes No Yes No No No Yes

3.2 Mobile Banking Services

The various banking services provided by Mobile Banking are as follows:

3.2.1 Account Information: The following services are provided under this category
1. Alerts on account activity or passing of set thresholds
2. Monitoring of term deposits
3. Access to loan statements
4. Access to card statements
5. Mutual funds / equity statements
6. Insurance policy management
7. Pension plan management

3.2.2 Payments, Deposits, Withdrawals, and Transfers

1. Domestic and international fund transfers

2. Micro-payment handling
3. Mobile recharging
4. Commercial payment processing
 5. Bill payment processing

3.2.3 Investments

1. Portfolio management services

2. Real-time stock quotes
3. Personalized alerts and notifications on security prices
4. mobile banking

3.2.4 Support

1. Status of requests for credit, including mortgage approval, and insurance coverage
2. Check (cheque) book and card requests
3. Exchange of data messages and email, including complaint submission and tracking
4. ATM Location

3.2.5 Content Services

1. General information such as weather updates, news

2. Loyalty-related offers
3. Location-based services

3.3 CHALLENGES

Key challenges in developing a sophisticated mobile banking application are:

1. Handset operability
There are a large number of different mobile phone devices and it is a big challenge for banks to
offer mobile banking solution on any type of device. Some of these devices support Java ME and
others support SIM Application Toolkit, a WAP browser, or only SMS.

2. Security
Security of financial transactions, being executed from some remote location and transmission
of financial information over the air, are the most complicated challenges that need to be
 addressed jointly by mobile application developers, wireless network service providers and the
banks' IT departments.
The following aspects need to be addressed to offer a secure infrastructure for financial
transaction over wireless network :

1. Physical part of the hand-held device. If the bank is offering smart-card based security, the
physical security of the device is more important.
2. Security of any thick-client application running on the device. In case the device is stolen, the
hacker should require at least an ID/Password to access the application.
3. Authentication of the device with service provider before initiating a transaction. This would
ensure that unauthorized devices are not connected to perform financial transactions.
4. User ID / Password authentication of bank’s customer.
5. Encryption of the data being transmitted over the air.
6. Encryption of the data that will be stored in device for later / off-line analysis by the customer.

3. Scalability & Reliability

Challenge for the banks is to scale-up the mobile banking infrastructure to handle the high
growth of the customer base. With mobile banking, the customer may be sitting in any part of
the world (true anytime, anywhere banking) and hence banks need to ensure that the systems
are up and running in a true 24 x 7 fashion. As customers will find that the banks are unable to
meet the performance and reliability, the banks may lose customer confidence.

4. Application distribution

Due to the nature of the connectivity between bank and its customers, it would be impractical
to expect customers to regularly visit banks or connect to a web site for regular upgrade of their
mobile banking application. It will be expected that the mobile application itself check the
upgrades and updates and download necessary patches.

5. Personalization

It would be expected from the mobile application to support personalization such as Preferred
Language, Date / Time format, Amount format, Default transactions, Standard Beneficiary list,
Alerts.
3.4 Advantages and Disadvantages:

The advantages of the mobile banking are as follows:

1. Easy-to-use
2. Common messaging tool among consumers
3. Works across all wireless operators
4. Affordable for consumers
5. Requires no software installation
6. Provides real-time information to customers and employees

However in addition to the above advantages we have certain disadvantages because of the challenges
faced

1. Text-only and limited to 140-160 characters per message

2. Does not offer a secure environment

3.5 Current State of Mobile Banking in India

32 banks have been given approval to provide mobile banking facility in the country by the
Reserve Bank of India. 21 banks have started providing these services.. Banks are permitted to offer the
service to their customers subject to a daily cap of Rs.50,000/- per customer for both funds transfer and
transactions involving purchase of goods/ services. Transactions up to Rs.1,000/- can be facilitated by
banks without end-to-end encryption. The risk aspects involved in such transactions are addressed by
the banks through adequate security measures.

4. STEPS TO DEALERS WANTING TO SET UP A RETAIL FINANCING

PROGRAM:-
An increasing number of dealers are offering retail financing, which can and does improve
profitability. Dealers that offer retail financing have the opportunity to not only increase cash flow, but
to create a profit center that is capable of keeping the company afloat when a business cycle hits
bottom. It is said the dealership that controls the financing controls the sale. If dealers are proactive in
controlling financing, they will control more sales in their area, which drives the bottom line.” 
Dealers have a variety of options available to them for providing retail financing to their customers.
While some dealers turn to captive finance companies with the manufacturers they represent, others do
not have that option available to them and leave their retail financing to finance companies. However,
an emerging trend reveals dealers creating retail financing programs of their own. This gives them a very
big advantage and dealers are hoping to break even soon by using retail financing and not depending on
third parties.
Getting Started

The first obstacle the company faces when starting the retail financing program was getting
sales reps on-board. The sales representatives believe that they might end up losing control of the
financial transaction and therefore it was difficult to get them on board.
The credit approval can be run in-house, starting on day one. Rather than sell first and then get the
credit application, the company can do the credit check first and makes sure the potential buyer is
qualified to pay for the equipment. It costs them $4 to $5 to pull a credit report.  
Now, if a financing system is implemented properly, then the company knows within 15 minutes of
submitting the credit application whether the customer is credit worthy or not. If he is, the application is
faxed to whichever bank they know will approve the loan quickest. 
The company can allow customers to fill out credit applications online and print them as pdf documents.
Documents can also be e-mailed to the salesmen who prints them out in their trucks. 
When financing is done by the company, it has more control over the transactions. The timelines for the
deals with customers can get reduced.

Creating a financing program will also improve the cash flow cycle. It can help cut down on the
receivables time therefore making the cash cycle healthier and more manageable
It will help companies maintain a better inventory cycle and also create better profit centers. Companies
can also help out other similar dealers once they have a solid financing program in place. This can
contribute as an additional source of revenue. When dealers get expertise in setting up a retail financing
of their own , they can act as developer for other dealers looking for a similar finance program. This can
add tremendous value to the company and contribute good margins to the revenue stream.

Step 1: Find the best person for the job.

For dealers looking to start their own programs, finding the best possible person is key. And any dealer
that wants to offer retail financing should be big enough that they can justify hiring someone. The main
priority of the finance rep should be to move metal. The person should be able to work with banks and
financial institutions in an effective manner. This is paramount to the success of the Retail Financing
Program. Picking someone who will work well with the sales team is extremely important. The person
should be adaptable and be able to communicate customer needs effectively to the sales team and vice
versa.

Step 2: Your finance manager should devote all his time to financing.  

The major issue would be to make the sales representatives realise how useful a retail financing
program can be. In time, the sales reps will how much more productive they could be if they weren’t
talking to finance companies and doing paperwork, and could use all their time to sell more equipment.  
Once the credit applications are signed, the sales reps are done with the deal. The finance manager
remains in contact with the customer until the deal closes, and the salesmen can go on to the next sale

Step 3: Be patient. Allow time to develop the Business  

Implementation of a Retail Finance program and its benefits cannot be realised overnight. It
should be given sufficient time before evaluating the return on Investment for a retail finance program.
The benefits will be realised only after the system has been in place for a good amount of time. It would
be a mistake to assume that a finance program can succeed overnight.

Step 4: Relations with banking and other financial institutions

This is extremely important for a retail financing program to take shape in your own company.
The data for credit checks comes from banks. A company cannot afford to conduct independent credit
checks on each customer on its own without relying on secondary data with the banking institutions.

The most common mistakes are related to the last two steps in creating a Retail Finance
program of their own. Assuming that business will make overnight profits and transitions is a mistake.
Also, when the dealer makes associations with a company which is not so strong and relies on local
leasing companies, it can be harmful to its image.

5. CARDS MARKET:-
Cards Market consists of mainly two types of card

1. Credit Card
2. Debit Card

5.1 Credit Card

A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy
goods and services based on the holder's promise to pay for these goods and services. The issuer of the
card creates a revolving account and grants a line of credit to the consumer (or the user) from which the
user can borrow money for payment to a merchant or as a cash advance to the user.

A credit card is different from a charge card: a charge card requires the balance to be paid in full each
month. In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest
being charged.

Advantage:

The main benefit to each customer is convenience. Compared to debit cards and cheques, a credit card
allows small short-term loans to be quickly made to a customer who need not calculate a balance
remaining before every transaction, provided the total charges do not exceed the maximum credit line
for the card. Credit cards also provide more fraud protection than debit cards. In the UK for example,
the bank is jointly liable with the merchant for purchases of defective products over £100

5.2 Debit Card

A debit card (also known as a bank card or check card) is a plastic card that provides an alternative
payment method to cash when making purchases. Functionally, it can be called an electronic check, as
the funds are withdrawn directly from either the bank account or from the remaining balance on the
card. In some cases, the cards are designed exclusively for use on the Internet, and so there is no
physical card. Debit cards may also allow for instant withdrawal of cash, acting as the ATM card for
withdrawing cash and as a check guarantee card. Merchants may also offer cash back facilities to
customers, where a customer can withdraw cash along with their purchase.

Advantages

A consumer who is not credit worthy and may find it difficult or impossible to obtain a credit card can
more easily obtain a debit card, allowing him/her to make plastic transactions. For most transactions, a
check card can be used to avoid check writing altogether. Check cards debit funds from the user's
account on the spot, thereby finalizing the transaction at the time of purchase, and bypassing the
requirement to pay a credit card bill at a later date, or to write an insecure check containing the account
holder's personal information.

5.3 Other electronic cards

1. Itz Cash Card: Launched in 2005, Itz Cash Card Ltd., is India's first ever "Multi-Purpose Prepaid
Cash Card company" and the leader in this sector introduced by the highly diversified Essel
Group. ItzCash has innovated the entire paradigm of payment solutions across the web and the
mobile. It can be used to pay Electricity Bills, Telephone Bills, Mobile Recharge, Railway Tickets,
Airline Tickets etc.
2. Vishwayatra Card: 'SBI Vishwa Yatra Card' is one product which travelers going abroad are
guaranteed to find useful. It provides with a safe, secure and convenient way to pay for goods
and services bought overseas. We can shop, dine or visit places abroad without any worries of
carrying or losing cash. In fact, we needn't even worry about running to Moneychangers for
encashing our travelers' cheques. All we have to do is produce our 'SBI Vishwa Yatra Card' and
making payments overseas will be extremely easy.
6. SELF SERVICE BANKING:-
Self-service banking uses technological interfaces that enable customers to produce a service
independent of “direct service employee involvement” i.e. person-to-technology service delivery. Self-
service banking is viable for banks and other financial intermediaries because information processing is
essential to their services. Automation of standard services reduces the need for financial intermediaries
while there is continuous demand for non-standard, differentiated transactions and services. The
technology holds great promise of future simplification and automation. For instance, the next
generation of payment systems (e.g. electronic funds transfer networks) based on smart card
technology (for use in e.g. bank cards, credit cards and electronic purses for use in ATM) with embedded
digital IDs can be expected to simplify use of self-service and cross-border transactions by global
standardization.

6.1 ATM
An automated teller machine (ATM), also known as an automated banking machine (ABM)
or Cash Machine, is a computerised telecommunications device that provides the clients of a financial
institution with access to financial transactions in a public space without the need for a cashier, human
clerk or bank teller. On most modern ATMs, the customer is identified by inserting a plastic ATM
card with a magnetic stripe or a plastic smart card with a chip that contains a unique card number and
some security information such as an expiration date or CVVC (CVV). Authentication is provided by the
customer by entering a personal identification number (PIN). Using an ATM, customers can access their
bank accounts in order to make cash withdrawals, credit card cash advances, and check their account
balances as well as purchase prepaid cell-phone credit. These days some educational institutions also
avail their fees payment through ATM.

ATM’s also provides for currency exchanges. For example if a foreigner in India wants to
withdraw money in Rupees(Rs.) but the bank account is denominated in dollars($), then the ATM
possesses the capacity to change the currency from Dollars($) to Rupees(Rs.) before withdrawal. The
money conversion is done at the wholesale exchange rate. Thus, ATMs often provide the best possible
exchange rate for foreign travellers and are heavily used for this purpose as well.

ATMs are placed not only near or inside the premises of banks, but also in locations such as
shopping centres/malls, airports, grocery stores, petrol/gas stations, restaurants, or any place large
numbers of people may gather. These represent two types of ATM installations: on and off premise. On
premise ATMs are typically more advanced, multi-function machines that complement an actual bank
branch's capabilities and thus more expensive. Off premise machines are deployed by financial
institutions and also ISOs (or Independent Sales Organizations) where there is usually just a straight
need for cash, so they typically are the cheaper mono-function devices.

Till 1st April, 2009 ATM were bank specific. Customers of banks other than those of its partners
had to pay a fee for the type of transaction that they did on the ATM. This limited the use of the ATM by
the customers. For example SBI has one of the best ATM network in the country. However people
associated with other banks could not avail the services of the ATM of SBI without paying a certain
amount as a transaction fee. However this scenario has changed with the ruling given by reserve bank of
India declaring that all ATM of all banks can be used for customers of all the other banks without paying
any extra transaction fees. This ruling is expected to increase the use of the ATM on the overall and in
turn reduce the load on the bank branches for mundane daily transactions that can be easily done by
the ATMs.

While this is a boon for customers, the banks will have to rethink their business strategies.
Although the usage fees are not charged to the customer, the bank would extract the fees from the
bank which maintains the account of the customer. This inter-change fee is not fixed and will be decided
by mutual bilateral agreement between the banks. Thus, the strategies of banks would now revolve
around these inter-change fee rates.

6.2 Automated cash handling systems

Other automated cash handling systems uses the process of dispensing, counting and
tracking cash in a bank, retail, check cashing, payday loan / advance, casino or other business
environment through specially designed hardware and software for the purposes of loss prevention,
theft deterrence and reducing management time for oversight of cash drawer operations. These
systems have become very important because of the functionality that they provide
The hardware consists of one or more of the following devices:

1. Cash dispenser
2. Cash validator (acceptor)
3. Cash recycler
4. Rolled coin dispenser
5. Loose coin validator (counter)
In an automated cash handling environment, a cashier or teller opens a cash drawer (till) at the start
of shift by dispensing cash from the automated cash handling equipment. At the end of the shift, the
cashier or teller deposits cash into the automated cash handling equipment which counts the cash and
deposits it back into the safe. A manager sets permissions for each teller or cashier for dispensing and
counting cash. A few automated cash handling systems allow for networking and remote operation
(dispensing, counting, and reporting). Remote operation of automated cash handling equipment
facilitates cost savings and efficiency by centralizing all cash related activity to one location that can
remotely monitor and control cash operations.

7. FINANCIAL INCLUSION:-
 Financial inclusion may be defined as the process of ensuring access to financial services and
timely and adequate credit where needed by vulnerable groups such as weaker sections and low income
groups at an affordable cost. The above definition gives importance to accessibility of credit at an
affordable cost to the disadvantaged sections of the society. For the purpose of this paper too, the focus
shall be on the credit aspects of inclusion. Financial inclusion is the availability of banking services at an
affordable cost to disadvantaged and low-income groups. In India the basic concept of financial inclusion
is having a saving or current account with any bank. In reality it includes loans, insurance services and
much more.

The first-ever Index of Financial Inclusion to find out the extent of reach of banking services
among 100 countries, India has been ranked 50. Only 34% of Indian individuals have access to or receive
banking services. In order to increase this number the Reserve Bank of India had the Government of
India take innovative steps. One of the reasons for opening new branches of Regional Rural Banks was to
make sure that the banking service is accessible to the poor. With the directive from RBI, our banks are
now offering “No Frill” Accounts to low income groups. These accounts either have a low minimum or nil
balance with some restriction in transactions. The individual bank has the authority to decide whether
the account should have zero or minimum balance. With the combined effort of financial institutions, six
million new ‘No Frill’ accounts were opened in the period between March 2006-2007. Banks are now
considering FI as a business opportunity in an overall environment that facilitates growth.

The main reason for financial exclusion is the lack of a regular or substantial income. In most of
the cases people with low income do not qualify for a loan. The proximity of the financial service is
another fact. The loss is not only the transportation cost but also the loss of daily wages for a low
income individual. Most of the excluded consumers are not aware of the bank’s products, which are
beneficial for them. Getting money for their financial requirements from a local money lender is easier
than getting a loan from the bank. Most of the banks need collateral for their loans. It is very difficult for
a low income individual to find collateral for a bank loan. Moreover, banks give more importance to
meeting their financial targets. So they focus on larger accounts. It is not profitable for banks to provide
small loans and make a profit.

Financial inclusion mainly focuses on the poor who do not have formal financial institutional
support and getting them out of the clutches of local money lenders. As a first step towards this, some
of our banks have now come forward with general purpose credit cards and artisan credit cards which
offer collateral-free small loans. The RBI has simplified the KYC (Know your customer) norms for opening
a ‘No frill’ account. This will help the low income individual to open a ‘No Frill’ account without identity
proof and address proof.

In such cases banks can take the individual’s introduction from an existing customer whose full
KYC norm procedure has been completed. And the introducer must have a satisfactory transaction with
the bank for at least 6 months. This simplified procedure is available to those who intend to keep a
balance not exceeding Rs.50,000 in all accounts taken together. With this facility we can channel the
untapped, considerable amount of money from the low income group to the formal economy. Banks are
now permitted to utilize the service of NGOs, SHGs and other civil society organizations as
intermediaries in providing financial and banking services through the use of business facilitator and
business correspondent models.

Self Help Groups are playing a very important role in the process of financial inclusion. SHGs are
usually groups of women who get together and pool money from their savings and lend money among
them. Usually they are working with the support of an NGO. The SHG is given loans against the group
members’ guarantee. Peer pressure within the group helps in improving recoveries. Through SHGs
nearly 40 million households are linking with the banks. Micro finance is another tool which links low
income groups to the banks.

Yet, banks are fighting to fulfill the Financial Inclusion dream. The main reason is that the
products designed by the banks are not satisfying the low income families. The provision of
uncomplicated, small, affordable products will help to bring the low income families into the formal
financial sector. Banks have limitations to reach directly to the low income consumers. Correspondents
can be considered to be an excellent channel which banks can use to distribute their product
information. Educating the consumers about the financial benefits and products of banks which are
beneficial to low income groups will be a great step to tap their potential.

Banks are now using new technologies like mobile phones to reach low income consumers. It is
possible that the telephone providers themselves will start basic banking services like savings and
payments. Indian telecom consumers have few links to financial institutions. So without much difficulty
telecom providers can win the battle with banks. Banks should therefore be proactive about transferring
this technology into an opportunity.
 The Indian Government has a long history of working to expand financial inclusion.
Nationalization of the major private sector banks in 1969 was a big step. In 1975 GOI established RRBs
with the same aim. It encouraged branch expansion of bank branches especially in rural areas. The RBI
guidelines to banks shows that 40% of their net bank credit should be lent to the priority sector. This
mainly consists of agriculture, small scale industries, retail trade etc. More than 80% of our population
depends directly or indirectly on agriculture. So 18% of net bank credit should go to agriculture lending.
Recent simplification of KYC norms are another milestone.

Financial inclusion is a great step to alleviate poverty in India. But to achieve this, the
government should provide a less perspective environment in which banks are free to pursue the
innovations necessary to reach low income consumers and still make a profit. Financial service providers
should learn more about the consumers and new business models to reach them. In India Financial
inclusion will be good business ground in which the majority of her people will decide the winners and
losers. Future Strategies that will aid in furthering financial inclusion, especially credit inclusion

7.1 Demand side Factors

Grass root Level Organizations: Involvement of grass root level organizations like farmers’ club
and NGOs would lead to inclusion of the disadvantaged as they ensure local participation and help
farmers in gaining access to credit and technology. A vibrant extension machinery would enhance farm
productivity and hence, greater demand for banking activities in rural areas. For example, NABARD has
28,226 Farmers’ Club (as on 31 March 2008) spread over various villages in the country. These clubs
need to be envisaged as touch points by the banks and can be utilized in the task of financial inclusion.
The main advantage in involving such grass root organization is the large multiplier effects they generate
along with the positive ‘demonstration effects’ among the target groups.

Rural Infrastructure:
Infrastructure development is an essential prerequisite for attaining greater inclusive growth.
Adequate rural infrastructure facilities and improvements in terms of availability of electricity, improved
connectivity through provision of rural roads and telecommunications, construction of warehouses and
market infrastructure are expected to lead to efficient supply chain management in agriculture and
hence greater demand for banking activities in rural areas.

Financial Education:
Lack of knowledge is an important reason for financial exclusion. Financial education is required
to ensure that large sections of population in urban and rural areas that do not have access to formal
banking and financial services are educated of the advantages of coming into the fold of such services. It
would help in building informed consumers and would result in a win- win situationfor all. Setting-up of
credit counseling centre by banks, which would advise public on gaining access to the financial system
would help in this regard.

Deceleration in Agricultural Growth:

The yield of most of the agricultural commodities is low leading to less demand and supply of
credit. For instance, the cultivation of commercial crops requires more funds due to increased cost of
production. Similarly, irrigation also enhances the level of production. Hence, increase in area under
commercial crops and increase in irrigated area to gross cropped area is expected to positively
determine the supply of credit. Moreover, large investments in infrastructure are required for increased
agricultural growth, which will also generate employment for semi-skilled workers.

7.2 Supply side Factors

Less Outreach:
Due to insufficient branch networking in rural areas, banks are unable to reach the rural
customers. This declining trend of the bank branches in rural areas has led to marginalisation of the
disadvantaged sections from accessing institutional credit, especially in the underdeveloped regions of
the country. The relatively high transaction cost in dealing with a number of small accounts and small
volumes of loans negatively impacts further expansion. Outreach can be increased through
intermediaries like SHGs, MFIs, civil society organizations, etc., through the use of business facilitators
and business correspondents. Mobile banks need to be promoted to resolve the problem of access to
isolated and remote regions.

Mobile Banking:
 As elaborated in the section on role of technology, banks need to aggressively adopt mobile
banking as a strategy for increasing their outreach in the rural areas. This would offset the decline in
number of rural branches of schedule commercial banks, a trend visible post 1995. In our country where
the majority of the population lives in rural areas, the mobile phone can be converted into a ‘virtual
bank’. To operationalise mobile banking, banks need to negotiate with mobile operators and arrive at a
mutually agreeable solution ( with regard to the technology platform to use, security concerns, etc.).
Further, regulatory mechanism to support mobile banking with cash in/ cash out facilities also need to
be put in place as early as possible.

Human Resource Constraints:

There are human resource constraints also in rural bank branches. The total number of officers
in rural branches of scheduled commercial banks including Regional Rural Banks was 59276, which
means the ratio of population per officer was 12512 in rural areas while the same was 11120 in urban
areas.

Inefficient Financial Sector:

Problems in credit access are routed in institutional weaknesses like absence of good credit
appraisal, risk management tools in banks, etc. An efficient and organized financial sector contributes to
growth by mobilizing savings for capital formation and investment and optimizes the capital allocation,
which results in productive activities in the economy. Technology and computerization can reduce the
operational cost in rural areas for public sector banks and customer friendly bank products can be
developed with the help of technology. Improvements in credit delivery system by extending timely and
adequate credit are also required. There are lots of challenges in reducing the adverse consequences of
exclusion and including large sections of the society. The productivity of the small and marginal farmers,
rural non-farm enterprises and other vulnerable groups is required to be sustained with viable economic
activities. Rural banking needs to be friendly to small and marginal farmers and other vulnerable groups
to make inclusive finance successful. A specific type of organisational ethos, culture and attitude
(Rangarajan, 2005) is required. There is also a need for effective coordination among the various
agencies (banks, NGOs, MFIs, Govt.) participating in inclusive growth.

Technology:
 As elaborated earlier, technology is the key to providing low cost financial services in rural areas.
It can reduce transaction costs sharply and time taken by banks in processing applications, maintaining
accounts and disbursing loans. It has the potential to address the issues of outreach and credit delivery
in rural areas, in a cost effective manner. However, from the standpoint of ‘inclusive banking’, it needs
to be realized that technology per se is not an end in itself. For it to be effective, it has to aid the reform
process, which intends to strengthen the co-operative banks, revitalizing the omnipresent primary co-
operative credit society, addressing the problems of RRBs, etc. The point is that technology should not
be seen as a panacea for all ailments affecting the banking sector

Micro Finance Institutions

Rural Micro Finance Institutions (MFIs), which have emerged as a powerful tool for fighting
poverty, may be made a part of the financial system for effective delivery of rural financial services. The
banks need to gear up their rural branches for facilitating bank linkages of SHGs and JLGs where the
programmes have not shown satisfactory progress. The Business Correspondence models (MFIs, NGOs,
etc.), as recommended by the Internal Group on Micro Finance (Khan Committee), may also be put in
place, which will increase banking outreach.

Other Measures
Monitoring Financial Inclusion: For effectively monitoring the progress in achieving financial
inclusion an index on the lines suggested in this paper may be constructed and progress monitored.
This is essential to enable policy makers to keep a pulse on the --situation with respect to financial
inclusion.

8. CONCLUDING REMARKS:
The ever rising need and appetite for credit and investment have led to the growth of the retail
financial service providers in India. Having witnessed major slowdown during recession, financial service
providers are back into action with lot of developments taking place at their ends. Equity broking firms
are now on their path of stability and are seeing a sturdy growth. This tremendous growth can be
attributed to the introduction of new retail financial products, increase in customer’s asset class and
major segment of customer requirement for advisory and personalised services. The capital markets are
also seeing phenomenal growth as a result of progressive regulatory reforms over the years.  
The better incursions of retail investments in capital market directly through brokerage and indirectly
through mutual funds and insurance, is creating a substantial opportunity in this sector. The increased
awareness of shares and trading in India over the past few years is in turn has led to the creation of
distinct categories of consumers.  There are self-directed consumers who like to take their own decision
and also wish to execute on their own as well. Online trading is best suited to such consumers.
Another category of consumers wish to seek reassurance for their decisions and help in trade through
the broker. This segment of consumers has led to the inception of the sub broker channel.
These financial companies offer a wide array of services that range from wealth management,
commodity brokering, institutional equities, private equities, to a range of financial products and
services, investment banking and venture capital. The introduction of online platform in retail financial
services market over the past one decade has brought a drastic change. It not only helps in making the
investment process convenient for customers but also bring in transparency and accountability to the
system. It reduces overhead costs for the intermediaries, makes transaction easier, and also helps
customers in tracking their portfolio. Retail financial services providers anticipate a substantial
opportunity in asset management, private equity, and brokering. The key drivers of the success of the
financial services industry will be based on online platform which will become more interactive,
responsive to customers’ needs and requirements. Moreover, online platform will make the investment
process more convenient for customers besides bringing in transparency and accountability to the
system, with ample scope for growth.         

9. REFERENCES:

1. http://www.vrl-financial-news.com/retail-banking/retail-banker-intl/reports/retail-financial-
services--an.aspx

2. http://economics.about.com/cs/finance/a/india_banking.htm

3. http://www.bisil.com/Retail%20Finance.html

4. http://www.retailowner.com/RetailFinanceBasics/tabid/374/Default.aspx