Retail Banking and Retail Lending

Retail Banking simply refers to the provision of banking services to the general public. It focuses on the needs of the general public rather than companies. It is also known as consumer banking. While Corporate Banking focuses on businesses, Retail banking focuses on individuals.

Retail Banking is different from retail lending. Under Retail banking, the banks have to reach out to customers on both sides of the balance sheet, assets, and liabilities.

When we talk of Assets, we have the credit/loan schemes of the various banks. Bankers today are offering various concessions to attract potential customers. For example, payment of free insurance premium is attached to the vehicle loan. Some banks offer total credit solutions with housing loans. This way, retail banking includes designing of customized products from both sides of the balance sheet. The following channels are effectively utilized by the bankers to activate business from the potential clients:

• Doorstep Banking
• Automated Teller Machines
• Debit Cards and Credit Cards
• Telephone banking
• Internet Banking
• Mobile Banking
• Electronic Funds Transfer/Electronic Clearing System debit

The relationship between the bank and its customers has undergone a big change in recent years. Customers have become more demanding and the banks have to constantly improve their services as well as their products in order to retain customers. The banking market has transformed from a buyers’ market to the sellers’ market. It is the customer who designs the banking products. Banks have to constantly alter their product mix in order to satisfy customer demand.

The product mix offered by banks under retail banking is –

• Savings and Deposit Accounts
• Debit and Credit Cards
• Money Orders
• Wire Transfers
• Personal Loans
• Bank Lockers
• DEMAT Accounts
• Insurance products
• Home Loans, Car Loans, Education Loans, etc.

Customers would not just want to deposit but also gain more by depositing. The age of walk-in deposits is long gone. Rate of interest, time taken to complete processing and the ease of doing business are some of the areas where the banks have to focus more.

Other than savings bank rates, the entire sector of deposits has been deregulated. Products like housing loans, loans on consumer durables which used to be shunned earlier are a haven for profit today.

Retail Lending

Retail lending refers to loans/credit provided by banks to their retail customers.

While the competition has heated up between banks, newer ideas have led to better products. Retail lending offers a higher return, quicker turnaround time, lesser probability of bad loans, and effective monitoring.

Some examples of retail lending are:

• Housing Finance.
• Consumer durable finance.
• Vehicle (for both two-wheelers and four-wheelers) finance
• Personal Loan
• Advance against future lease rentals
• Mortgage Loan
• Pension Loan

The contribution made by the borrower is called the Margin. Margin requirements differ from one type of finance to another and from bank to bank. The interest has been deregulated by the apex bank. Hence, banks have the option to set an interest rate as per their requirements.