New Paradigms in Retail Banking



The concept of Retail Banking is not new to banks but is now viewed as an important and attractive market segment that offers opportunities for growth and profits. Retail Banking is a concept which allows households sector to meet their financial needs for various purposes  through banking system. Retail banking encompasses retail lending and retail deposits. Retail banking and retail lending are often used as synonyms but in fact, the later is just the part of retail banking. In retail banking all the needs of individual customers are taken care of in a well integrated manner. The main objective of retail banking is   to provide low cost banking services across customer’s life cycle , in line with their changing needs , by offering standardized products, simplifying sales process through provision of multiple delivery channels. The typical products offered  in Indian  retail banking segment  are housing loans , consumption loans for purchase of durable  , auto loans , credit cards  and  educational loans. From business perspective, retail banking  contributes  significantly to the bank’s overall strategy of improving product mix , expanding revenue streams , enhancing profitability ,ensuring better liquidity ,and risk management. The higher growth of retail lending in emerging economies can be attributed to the rapid growth of personal wealth, favorable demographic profile, rapid development in information technology, the conducive macroeconomic environment, financial market reforms etc. The next decade in banking will see both evolution and revolution. The industry has historically changed slowly — evolutionary, incremental change. While the changes envisioned are less, the pace of change is intensifying rapidly. Advancement in technology  continue  to transform  the lives  of banking customers .As a result , direct  channels  such as mobile and  the internet  are becoming  increasingly important  in retail banking. The digital disruption and the ensuing change in customer behavior is causing paradigm shift in the way banking itself is thought about. The retail banking strategies of banks are undergoing a major transformation. Powerful forces are reshaping the banking industry. Customer expectations, technological capabilities, regulatory requirements, demographics and economics are creating an imperative to change. This article discusses about the emerging trend in Retail banking and the imperative need for the banks  to respond dynamically and to adjust themselves  in the emerging  digital banking paradigm  to drive more productive businesses and relationships.

Transformation of Retail Banking in India

The banking industry had undergone a lot of transformation over the last three decades. In the initial phase of evolution of banking, the government focused on productive sectors   and hence   bank  credit   had flown to  these sectors . But over time, due to the  emergence of middle class   having substantial  purchasing power in India , the regulators have become more accommodating in allowing the banks to lend even  for consumption purposes. The banks have become a virtual marketplace offering among others, various non-banking financial products and services to the customers.  The  high proportion  of  79 %  of the population below  35 years  of age , has offered to the Indian banking system, a ready market, for mobilization and deployment of their funds  in the last one decade or  so . Besides, the technological innovations relating to increasing use of credit / debit cards, ATMs, direct debits and phone banking, etc  has contributed to the growth of retail banking in India. In addition, the decline in interest rates has also augmented the growth of retail credit by generating demand for such credit. Retail banking has also received a thrust from the policymakers’ push for inclusive growth in the wake of the global financial crisis, towards achievement of universal financial inclusion. Retail banking business has also met the bank’s quest  for new sources of revenue and new channels for profit. Across  the globe ,retail lending  has been a spectacular innovation in the commercial banking sector in recent years .India too  experience a surge and a paradigm shift in retail banking .Retail  banking received momentum nearly a decade ago  when a few Indian Banks replicated the retail banking model  of developed countries .In the course of time other banks also fell in line . Retail loan is estimated  to have accounted   for nearly one-fifth of  all bank credit .The retail loan market  has decisively  got transformed from seller’s market to a buyer’s market .All these emphasize the momentum that retail lending is experiencing  in the Indian economy in recent years . Retail Banking as a business model is adopted by all the banks in India on account of multiple comfort factors for the banks viz. acquisition of a huge customer base, multiple product offerings, better pricing and profitability. The retail banking , where customer value  is at the core operations , creating and nurturing  long term relationships  with the customer is the key to maximizing  wallet share. The Indian  government’s  ambitious vision for a digitally  savvy  Indian consumer ,is  emerging  across urban  as well as rural  markets .As depicted , by 2020 , the number of smart  phone  users to equal  the number of active  bank accounts in the country and cover 70-80 % of the eligible  population. It is possible  to envisage  that almost  all eligible  customers  will  be on boarded  on to the mobile  phone-based  digital  payment  and saving platform in next five years .A similar revolution is conceivable on the lending side .

Retail Banking  Business Trend   

Bank deposits on April 3, 2015 stood at Rs 91.5 trillions, which is  12.6 % over the deposit base of Rs 81.2 trillions  as on April 4, 2014  .As per the ICE360 Survey 2014  , gross  savings of the Indian household constitutes 29.27 %  of the gross  household income in the year 2013-14. Of the total gross savings , 51.8 %  emanated from  rural areas comprising  179.5 million households with a share of  55.4 % of total income of Indian households. Rising levels of mean savings  and income  witnessed in households with improved education status . Growth in  total retail loans  has picked up  after slowing in 2009 to 2011 .While certain  segment such as  credit card  loans  have remained stagnant , some other categories  like housing loans  have grown  steadily(Table- 1 & Graph -1).


Table- 1 : Growth in Retail Lending   and Changing Mix

(Rs Billion )

Year Total Retail loan Housing Loan Consumer Durable loan Vehicle loan Educational loan Credit card loan Other Personal loan
2010 5588.9 3063.1 57.6 446.3 383.8 218.1 1420.0
2011 6701.3 3459.3 65.6 657.2 469.9 206.8 1842.6
2012 7501.5 3787.4 73.5 703.7 520.0 221.8 2195.1
2013 8712.9 4647.1 82.1 816.2 550.4 254.5 2362.6
2014 10171.0 5306.1 127.5 979.9 541.1 300.5 2915.9
2015 11663.4 6285.3 153.2 1246.1 633.2 304.6 3041.0
2016 13922.2 7467.8 177.5 1529.1 682.3 376.8 3688.7

(Source : RBI)

Growth in Retail Lending   and Changing Mix

The bank credit  as on  March 2016  stood at Rs 65.47 trillions  up from Rs 60.03 trillions  as of previous year .The growth in bank credit  has been largely  on the back of retail lending. Retail lending has risen from 5 %of bank advances in FY90  to 21.3% in FY16 and is expected to rise because of the growing economy, urbanization and favourable  demography. As per data available ,the fastest  growing segment  was consumer durables at about 17 %,followed by vehicle loans at 14.7% and housing loans at 14.5%.Credit to industry , which accounts  for bulk of bank lending , grew by 3.5 % while personal loans ( home, auto and consumer loans among others )  grew by over 13.5 % .By  registering one of the highest growth rate  in two years  , reinforcing the belief that    consumer sentiment is stronger than corporate investment outlook. Indian savers have  more confident  in India today than  the Private  Indian Producer . According  to Credit Information Bureau ( India ) , retail NPAs have dipped  to their historical  lows with delinquencies on home loans and other retail loans  showing as significant fall. The delinquency in home loans  dropped to 0.5 %  of total advances  at the end of December 2014 , down from 1.06 %  at the end of 2010.Defaults on the unsecured  portfolios such as credit  cards  were also down to 1.19 % from a peak of 3.27 %, while defaults on the personal loans dropped  to 1.01 % from a peak of 2.65 % of total advances earlier .Coupled with  low delinquency rate  in retail lending , the  more demand for  consumer products from on line channel  which are fast picking up ,  will drive  the  retail lending  sector  at  a faster pace . The  digital revolution is upon us in its full glory .Technology is advancing  by the day. Affordable an smart phones  and high  bandwidth   access will reach  an unprecedented  number of Indian consumers  in the coming years . Digital credit  is  the next step  towards a cash-lite economy. E-commerce firms such as  Flipkart, Snapdeal, Paytm  are aggressively  looking to provide  credit digitally to its vendors . The retail banking industry will be driven by increasing consumer demands combined with continued competition from outside the industry.

New  Paradigm in Indian Retail Banking  

Post crisis, the buying pattern  of a banking consumer has changed. There is growing  affinity  towards  simpler retail banking products , greater functionality, transparency and convenience. So much so, that the customer  is willing to  change the  service provider  for better quality service  and  efficient self serving  channels .The expectations of customers  from Retail Banking  are bound to increase . Some of the long standing paradigms in banking and financial services may need to be revisited.


Current Paradigms Emerging Paradigms
“Brick and Mortar”  presence is core to building trust and confidence “Click and Mortar” presence .Positive customer experience and excellent service quality builds trust and confidence
Multi-channel delivery-interfacing -inconsistent service experience Omni-channel –integration -consistent service experience
Financial services is a serious business and needs direct contact and documentation Financial services are a virtual product and can be offered remotely
E-Banking ( Electronic banking ) M-Banking ( Mobile  banking)
“Mass” Banking “Class”  Banking
Meeting customer requirements Assessing and  meeting  the customer needs  through data analytics on real time basis
Get the customer to come to the bank (defined channels) for what they need Be available wherever the customer is
Focus on the “stock” of deposit and loan balances Focus on the “flow” of transactions and payments
All products – savings, credit, investments, payment services, should be offered by a single provider Each provider may choose to effectively focus on certain products and services only
Bank Participants Bank and  Non Bank Participants
Anytime/Any where banking Everywhere  banking


It is a challenge for the financial service industry  to accelerate  their share in Retail banking  by adopting customer focused strategies. As predicted by experts ,two of the most omnipresent trends in Retail banking  will be  1) the heightened use of customer insight for the delivery of services and an enhanced customer experience, and 2) the continued development of digital channels and associated digital services


1)Heightened use of Customer insight

In the present  competitive  banking world particularly in retail banking  business , enhanced customer experience  is more important to retain  and increase the share of  retail banking business. To  offer this , deep customer insight is required and therefore , banks  will  use various  following  tools/techniques   to assess the same.


Customer Analytics(Big data Analytics),Customer Insight and Customer experiences   

According to Capgemini’s 2014 World Retail Banking Report (WRBR), less than 40% of customers globally reported positive customer experiences with their financial institution. With upcoming generations of consumers fully embedded in mobile, digital, and social media as a way of life, interaction expectations are changing. To monetize their growing digital channels, financial service industry   will focus on how to use the immense amount of structured data they have about the consumer. With the large amount of computing resources available in the form of Cloud, Mobile Devices, Internet of Things (IoTs) and variety of the data in terms of interactions on social media channels, transactions, Big Data has opportunities for cross selling and understanding customer needs better. The focus moves towards  heightened use of  richer analytic driven  customer insight for the delivery of services and an enhanced customer experience. Banks have to effectively use analytics to enhance  customer value  and maximize wallet share. Trend will emerge to  use of predictive data to drive demand and understand the marketplace in a more timely manner . By using real-time analytics and current customer information, banks will  offer new products and services to their customers.


Digital channels and associated digital services

The  retail banking future business  will be driven   by  digital delivery  channels  and associated digital services. It is believed   that more customers of traditional banks will move to new and completely digital players if they do not react . The battle for the digital customer will only increase in intensity. The increasing pace of digital adoption will see more innovation from  banks in their digital strategy .


Mobile Banking  and Mobile payments /commerce

Retail banking products are offered across multiple channels and at multiple places (branch, internet, ATM, Mobile etc). Over the past decade, internet banking has grown to become the preferred method of banking for consumers in most countries, taking both transactions and sales volume from branches and call centers. In future , Mobile  banking  will  capture  the retail banking space  and  will drive  the  retail banking  business in the country with ever changing trends and constant introduction of new technologies. This has  emerged as dominant channels for financial interactions beyond the traditional  checking of balance, transfer of funds, or paying bills and friends through your phone. It is believed  that  leading banks will use mobile design strategies as the foundation for all customer touch points, and when expansion of capabilities will provide digital differentiation.The growth of mobile banking in the last couple of years has been exponential with smart phones and data getting cheaper. Mobility is already transforming e-commerce by enabling comparison shopping in stores and delivery of personalized offers based on shoppers’ location and preferences. In India, there are 881 million mobile subscriptions,450 million bank accounts and only 67 million mobile connections are linked to bank accounts and an even smaller percent of that are active users. The mobile banking transactions  has gone up from  95 million to 172 million during  2014-15.

Mobile Banking Transactions

The rapid growth of mobile usage , combined with advancement of technology and facilitative regulation for expanding the reach of financial services have created   tremendous opportunity for transformational innovation through mobile and agent networks to reach out to underserved customers, introduce new products, deepen customer relationships, explore new sources of revenue, rationalise costs and most importantly digitize the economy.

Social  Media Banking

Social media  is  becoming an increasingly  an  important mode of communication  and influence. New capabilities are allowing customers to access banking services through  Facebook, Twitter , enabling person-to-person lending schemes, with the bank acting as custodian and permitting banks to take  social networking potential into account when evaluating credit requirement .

Concluding Remarks  

Retail Banking  in India  has fast emerged  as one of the major drivers of the overall  banking industry  and has witnessed  enormous growth  in the recent past. The next decade in banking will see both evolution and revolution . Advancement in technology  continue  to transform  the lives  of retail banking customers and in coming years , seamless  customer experience through  multi-channel optimization  of service delivery  will become imperative. There will be shift  to anticipate customer expectations as well in advance and offer an  interactive  and consistent  online banking  experience  coupled with  high-quality  branch banking service.  The number of customers  who prefer  to perform daily banking  activities on  an anytime/anywhere basis will be on increasing trend towards banks  and banks  will be looking for scenarios, options and intelligence to drive more productive businesses and relationships. Given the country’s demography, the bulk of customers in retail banking business  in coming years  will be  from among the upwardly mobile, tech savvy young. To win their  attention and as also to improve  operational efficiency,  there will be  a  “big push” towards   increased digitization, installing state-of–the–art technology and intensification of digital banking features and usage, digital payments, usage of data and analytics to drive engagement and an improved customer experience, competitive disruption, and increased branch/channel rationalization. Banks will also recognize that technology only is not sufficient to singularly drive revenue growth and real customer engagement . In today’s retail banking world , growth , customer loyalty ,cost , disruptive new technologies  and risk are challenges and  banks will focus more on these challenges  to manage simultaneously. Lastly ,Mobile banking will  be the very face of banking in future .Mobile banking will outpace  net banking because of the spread of  smart phones and the cheque book will not find too many fans . Cheque books may soon become  redundant and  “cheque”  will “check out”. Mobile will  drive the retail banking  business .In sum , in a volatile and uncertain  world , customers need a  sense of permanency and security and hence the opportunities  for banks remain bright if they  keep pace with the  dynamic environment ,adopt quickly the emerging  trends in retail banking   and  adjust  themselves to the  digital banking  paradigm  to  offer the experience of  “Lifestyle  Banking”   to the customers , by  integrating  the banking services seamlessly in to customer’s lives.



  • What, Why and How of Retail (Mass) Banking: Issues and Challenges (Inaugural address by Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of  India at the Bank CEOs Roundtable organised by CAFRAL in Udaipur on October 2, 2013)


  • CAFRAL – Mobile and Agency Banking Round Table – October 17-18, 2014 Hyderabad, India


  • Top 10 Retail Banking Trends and predictions for 2015-The Financial Brand dated December  2015


  • Omni-Channel Banking , A win-win Proposition –Anjani  Kumar , Infosys , 2014


  • RBI – Handbook of Statistics on Indian Economy

About the Author

BE( Mechanical), CAIIB , MBA ( Banking &Finance ) , F.I.V Senior Manager ( Faculty)
Union Bank of India ,Staff College  , Bannerghatta Road, Bangalore-560083
9739638517 | [email protected]



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