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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

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Imc bhaskar ghosh-indusindppt

  • 1. Future of Retail Banking - Bhaskar Ghose, Managing Director, IndusInd Bank
  • 2. Recent trends  Aggressive entry strategies of foreign banks to Retail Segment  Customer retention initiatives by PSU Banks  Aggressive price-war on Retail Credit
  • 3. 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
  • 4. 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
  • 5. Recent trends contd…  Phenomenal rise in nuclear and dual income families & enhanced spending power  Increasing literacy levels  Higher adaptability to technology banking
  • 6. Recent trends contd….  Growing consumerism  Fiscal incentives to Housing loans  Fastest economic growth over the decade
  • 7. 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
  • 8. 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
  • 9. 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
  • 10. 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
  • 11. 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
  • 12. 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
  • 13. Retail Credit contd….  Banks overtake HFCs in Home Loans  Banks overtake NBFCs in Auto loans  The same trend would continue for next few years
  • 14. 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
  • 15. 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
  • 16. 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
  • 17. 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
  • 18. 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
  • 19. 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
  • 20. 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
  • 21. 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
  • 22. 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
  • 23. 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
  • 24. 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