RETAIL BANKING

Introduction

The banking sector has under gone turbulent changes in the past few years. The

financial sector reforms have brought in the entry of new private sector and

foreign banks in the country. The conventional banking as outlined above has

given way for professional and high-tech banking. There has been a paradigm

shift from the monopolies of public sector banks to competitive banking. Public

sector banks can no longer remain complacent with their conventional products

and services. With walk in business virtually being ruled out, banks are now

scouting for quality consumers both for building their resources and assets

There were times when the corporate clientele occupied the centre stage and the

retail ones were pushed to the back seat. The slow down of the economy,

sluggish industrial growth and slump in agricultural activities have pushed the

commercial banks to look to the retail customers.

Retail banking has both pros and cons. In a situation like today, the bankers have

very little option, but to chant the “Retail Mantra”

RETAIL BANKING IN INDIA

Retail credit outstanding as on March 22, 2003, amounted to Rs 1,60,000 crore.

According to one estimate, the retail segment is expected to grow at 30-40% in

the coming years.

Major Players: State Bank of India, HDFC Bank, UTI Bank, IDBI Bank and ICICI

Bank

The ratio of retail credit to net credit in the global level is around 5%. In India, it

is interesting to note that this ratio is over 10% as on March 31, 2002 (Source:

RBI, Annual report). With the economic reforms set in motion, the country is

already rated as a major hub for economic development. Increase in per capita,

change in lifestyle and growing urbanization has made the Indian population rise

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from oblivion and resurges in a modern era. Traditionally against incurring a

debt, the policy of save and spend is gradually giving way to spend and save

concept.

WHAT IS RETAIL BANKING?

Retail banking can be crudely defined as the antonym of wholesale or bulk

banking. It is nothing, but shared business. A deposit of Rs.1 lakh from single

customer vs. small deposits of Rs. 10,000 each from 10 different customers. The

corporate and retail divide is nothing but internal segmentations and the

customer remains always a customer.

Retail banking generally refers to offering financial services, products related to

deposits and assets to individual customers for personal consumption.

Banks concentrate on various segments like professionals, housewives,

pensioners, children, salaried class etc. Different types of products like recurring

deposits, savings bank deposits, fixed deposits, credit cards, housing and

consumer loans and educational loans are offered by banks to the above

mentioned marked segments.

The domain of retail banking market has tremendous growth potential for banks

and finance companies, as at present it is largely untapped. The penetration

level is 2.5 to 3 % and is in a scenario when the requirements of the consumers

are growing. In the past, people never believed in buying consumer goods on

credit. But today the attitude is changing. The demand for consumer products

has increased. Today, about 70% of consumer goods purchased are through

finance schemes/loans as against 40% about 1 to 6 years ago. The home loans

alone account for nearly two-third of the total retail portfolio of the bank

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ADVANTANGES OF RETAIL BANKING

Retail banking has inherent advantages outweighing certain disadvantages.

Advantages are analyzed both from the resource angle and asset angle.

RESOURCE ASSET SIDE

Stable and constitute core deposits. Better yield and improved bottom line.

Less bargaining for additional interest. Good Avenue for funds deployment.

Low cost funds. Lowe risk and NPA perception.

Builds customer base. Helps economic revival of the nation through

increased production activity.

Increases subsidiary business Improves lifestyle and fulfills aspirations of the

people through affordable credit.

A safe and convenient saving avenue. Innovative product development.

Minimum marketing efforts in a demand-driven

economy.

Risk weight in certain segments like housing

loan.

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Current scenario

According to the Reserve Bank of India annual report for 2001-02, as on March

22, 2003, retail credit outstanding amounted to Rs 1,60,000 crore, including

housing loans, loans for consumer

durables, loans to individuals

against shares and bonds, other

non-priority sector personal loans

and advances against fixed

deposits. That's 14.1 per cent of

net bank credit outstanding, and

15.6 per cent of non-food gross

bank credit.

Incremental retail credit in FY02, at Rs 14,114 crore, was 20.8 per cent of

incremental net bank credit, and 26.3 per cent of non-food bank gross credit.

Retail credit increased by only Rs 7,026 crore in FY01, and accounted for merely

13 per cent of incremental non-food gross bank credit.

The sharp acceleration in the rate of growth of retail credit is clear. The fastest

growing business segments are housing loans, incremental growth in which was

Rs 6,203 crore in FY02, compared with Rs 2,043 crore in the preceding year;

and the category "other non-priority sector personal loans", the outstanding of

which increased by Rs 5,338 crore in FY2002 compared with Rs 2,655 crore in

the previous year.

The higher exposure to retail lending has come at the cost of credit to industry.

Compare the 32.6 per cent of incremental non-food gross bank credit that went

to medium and large scale industry five years ago, in 1996-97, WITH the 17.7

per cent that went into the segment last year. Or consider the 13.8 per cent of

incremental non-food gross bank credit that went to small scale industries in

1996-97 with the measly 2.2 per cent that went into the segment last year to

realize how lending has changed in the last five years.

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Net Bank Credit

14.1%

85.9%Retail credit

Others

RETAIL BANKING

COMPOSITION OF RETAIL CREDIT

(Figures in brackets indicate percentage to the total) Rs. In crores

Sr. No Type Mar-00 Mar-01 Mar-02

1 Housing 14100 16143 22346

(3.52) (3.44) (4.16)

2 Consumer durables 3855 5566 7015

(0.96) (1.19) (1.31)

3 loans to individuals against shares/bonds 2146 1697 1520

(0.54) (0.36) (0.28)

4 other non-priority sector personal loans 15409 18064 23402

(3.84) (3.85) (4.36)

5 sub-total 35510 41470 54283

(8.86) (8.84) (10.11)

6 Gross bank credit 400818 469153 536727

(100) (100) (100)

Source: Report on Trend and progress of Banking in India 2001-02,RBI

Banks With Large Network

Actuals

Bank April 01 March 02

ICICI Bank 510 1000

UTI Bank 303 480

HDFC Bank 207 410

IDBI Bank 77 225

GTB 101 200

Total 1234 2313

Source: Annual Report and websites of respective banks

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Retail Banking Functions available in India

A banks retail offering can be broadly categorized into Core service, facilitating

service, and supporting service. Core service is the reason for being in the

market, facilitating services are needed so that the core service can be used, and

supporting services exactly discriminates the service package from the services

of competitors.

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Categorization of retail bank services:

Core services Facilitating services Supporting services

Payment services Cash

Foreign Currency

Requirement

Traveler Charges

DD/ Bankers Cheque

IT

EFT

Making payments at door step

Internet banking

Telephone banking

Current account and savings

account

ATM card

Standing instructions from

customers for making

payments

Inter branch/interbank transfer

of funds

Safety vault

Credit cards

Debit cards

Services to senior citizens

Telephone banking

Internet banking

Conversion of excess balance

to Time deposits

Loan products: Consumer

loans, personal loans, housing

loans, educational loans

Current account

Savings account

Time deposit account

Delivery of loan at promised

time period

Interest rate option:

Fixed/floating

Flexibility in pre-payment of

loan

Counseling on Real-estate

markets

Legal services for

documentation

ECS for payment of loan

installments

Insurance products: Life

insurance, pension schemes

Current account

Savings account

Additional insurance facility for

family members

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Time deposits

Safety vaults

Counseling on post retirement

savings

OVERVIEW OF MAJOR CATEGORIES OF RETAIL OFFERING

Auto Finance

CUSTOMER PROFILE

Average customer age is less than 30 yrs.

Target customers can be classified into the following income groups:

Vehicle Category Income Group

(Rs.)

Profile

Two Wheelers 3000 – 8000 Young, ambitious, newly employed or low

salaried and Parents of young adults.

Cars & other

MPV’s

( Personal Use)

10000- 20000 People with families, settled job, higher middle

class, office going or businessman.

Cars, Three

Wheelers & other

MPV’s

( Business Use)

- Self-Employed, Small businessmen to enhance

their services, to start new business.

Heavy Vehicles - Businessman & Self-Employed

Major Influencers – Dealers, DSA

Newly employed people are more attracted towards this loan

as people like to have more in very short time.

More influence is amongst the people who aspire to buy a

two or four wheeler for improving their social status.

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Sector Analysis

Market size is Rs. 7500 crore next only to housing segment

About 75% of the vehicles especially the cars sold in the country are

through consumer loans schemes.

The factors that propel growth are :

Low interest rates.

Poor urban transport in many areas, increasing income levels .

Even for second hand cars finance is available.

Increase in GDP growth.

Increased income levels and changing lifestyles.

Nearly 3 lacs second hand cars have been financed.

Default rate for car loans is around 1 %.

Infact on account of liberal financing by banks, production of passenger cars,

motorcycles and scooters has registered good growth

It will also provide a boost to the auto manufacturing sector.

Competition

The sector offers intense competition among players. Major competitors in the

sector include ICICI, SBI, HSBC, HDFC etc.

Banks and NBFCs have tie up arrangements with the automobile dealers for

making available vehicle finance.

This has proved to be advantageous for customers also. They can complete all

the formalities with less paper work at the auto dealers’ showroom itself without

going to bank.

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Market Leader

The auto finance market is led by ICICI. ICICI bank funds about 15 % of cars that

are rolled out. ICICI banks retail portfolio as on September 30, 2002 was over

Rs. 134.61 billion, as compared to combined retail portfolio of ICICI and ICICI

bank of about Rs. 77.35 bn on March 31, 2002. Every bank has its unique

segmentation and targeting strategy. Similarly ICICI also follows a segmentation

strategy to divide its market into strata’s. This helps them to decide upon their

target audience and what are their wants and needs.

ICICI’s Segmentation Strategy

The ICICI bank in India has adopted ‘Life Stage Segmentation Strategy’. This

approach aims to minimize overlaps between two segments by categorizing

customers into various segments based on the stage of life they have reached.

The banks philosophy is to have product idea for every stage of an individual’s

life from childhood to retirement and the bank has a wide product range.

ICICI is also adopting a strategy of creating a liability based product along with a

asset based product and vice-versa.

Market Targeting Strategy:

Based on the Life Stage Segmentation Strategy ICICI has divided its market into

various segments constituting people from different age group and income class.

This has helped them to decide which segment is to be targeted for which retail

offering.

For eg: The target market for auto finance are people belonging to the age group

of 28-35 yrs., having a settled job or business and belonging to middle class.

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Consumer Credit

Consumer credit sector is growing at 15%

Easy credit terms

Consumer credit encompasses extension of loans for white goods,

educational loans, finance for meeting travel, medical expenses etc.

Demand for loans for acquisition of TV, cell phones, AC’s, dish-washer,

washing machine, fridge etc. is on the rise.

There are nearly 12 lakh outlets contributing to Rs.14000 Cr to the GDP

(about 1.2% of GDP)

Further investments of Rs. 35000 Cr are in the pipeline.

Banks also offer loans through tie-ups with corporates.

Default rate is a bit high at 3%-4%. This explains the relatively higher rate of

interest.

Basic understanding of middle class drivers is a must.

For unsecured loans, return is high and at the same time competition is low.

Customer Profile

Customers in the income bracket of Rs. 3000 - 10000 p.m.

Usually availed by young married couples but with the change in people’s

perception about loans every strata of the society is getting attracted to

Customers normally belong to middle class families.

People aspiring to improve their standard of living are normally attracted towards

this loan.

Consumer loans are normally taken by people buying new houses, so the target

customers are mostly those people who take housing loans.

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Credit Cards:

Mention cards and most people will think of credit cards. Yet, popular as they

are, credit cards, which are accepted as a payment device at over 20 million

shops worldwide, really represent just one type of card. Other cards include debit

cards, smart cards and charge cards.

A smart card is used to store cash in an electronic form.

A charge card carries all the features of credit cards except that you cannot

defer your payment to the card company.

A debit card is simply used as substitute for cash or check payments

Consumer profile

Credit card users generally belong to the income bracket of Rs. 90,000 p.a.

and above.

There is a large middle class segment who are prospective cardholders and

cannot satisfy the normal criteria for issuance of cards.

Most of the middle class people do not go for credit cards because they do

not want to fall in the debit trap in view of their low income levels.

There are about 5.5 bn cardholders in India but the average amount spent is

very low.

However, slowly people in India are getting acquainted with the plastic money

culture.

Traditionally used by rich people to avoid carrying heavy cash.

Sector Analysis:

Card industry has migrated from paper-based to terminal-based as a part of risk

administration. Tier-I cities are highly targeted by multiple issuers and acquirers.

Many big players of the market are averse towards cities other than tier-I,

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although tier-II cities have a potential of being a promising markets for credit

cards.

There are 6 million cards in use.

The potential is anticipated at 40 million.

Credit card culture pioneered by foreign banks initially like

Citibank, StanChart etc. in our country.

Payment habits have undergone a change.

Credit cards have increased from 5 lacs in 1992 to 60 lacs in

2002 (avg. growth at 20-25 % p.a.)

The average annual spending through credit cards is around

Rs.18000 Cr. (which is less than 1% of total personal consumption spending

in India, as compared to 30% in US. SBI, ICICI Bank has a card base of 9

lacs and 6 lacs respectively.)

Credit cards in India are used more as a transactional

investment rather than as a medium of servicing credit.

It offers an attractive interest of 30% to 36%.

Card business is popular on account of its wider

acceptability

Credit card usage also entitles holders for attractive bonus,

incentives, loyalty points etc.

The debit cards usage is also becoming popular with a card

base of one million.

Competition

Banks in India have realized that the credit card business need not remain an

exclusive preserve of foreign banks like Citibank or Standard Chartered Bank.

Card business is a very potential and fast growing market is no where near the

market potential. State Bank of India, a late entrant has already issued 9 lakh

cards. HDFC Bank, another late entrant has reached a card base of over

70,000. Citibank Suvidha credit card is also turning out to be a great success

story. Other important players in the sector are HSBC, SBI, ICICI, UTI etc.

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There is a case for reduction in the rate of interest on debit balances from

present level of over 30% p.a. Interestingly, Andhra bank and HDFC bank rather

than any other foreign banks have taken positive steps in this regard. The

network of branches does not seem to be effectively utilized for marketing by

Indian banks in credit card business. If only these banks becomes market savvy

and exploit branches to the hilt in issuance of credit cards, there could be great

success awaiting them.

CREDIT CARDS MARKET SHARE (in lakhs)

15.77

9.03 14

16

5.88

CITIBANK

STAN CHART

SBI

HSBC

ALL OTHERS

Segmentation.

The potential segments which many banks have not explored so far are self-

employed people and housewives. Self-employed people due to lack of proper

identity (i.e. either salary certificate of PNR number) are still borrowing at a

higher rate and banks are no t assessing the credit risk premiums properly.

Similarly, a suitable banking product is required, which makes the housewife to

feel liberated and empowered. The survey of NCAER shows that rural India is

gradually possessing variety of consumer durables and electronic goods. Banks

have to design suitable products to meet the requirements of rural rich and rural

poor. Census of 2001 shows that India has 423 towns (Eight Metros, 19 Mini

Metros, 396 Towns), and that financial products are very rare for urban poor and

low salaried persons.

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Housing Loan - Nesting becomes a lucrative business

If one were to study the sector-wise performance over the last five years, the

housing finance industry has outperformed everyone’s expectations. Loan

disbursals have grown at a CAGR of over 35% in the last five years. But the

industry is still fragmented with a large number of players spread across different

parts of the country. There are nearly 383 HFCs or housing finance companies in

the country currently. This is apart from the numerous banks that have entered in

to the fray. In this article we look at the nature of this industry, its trends, the

major players involved and the prospects of the industry going forward.

The housing finance industry is estimated to be worth nearly Rs 330 bn (FY02)

and is estimated to have grown by nearly 28% compared to FY01. A huge deficit

of nearly 40 m (FY02E) dwelling units is likely to ensure that the robust growth

rates in this sector will continue in the future.

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CONSUMER PROFILE

Customers normally belong to age group of 25-35. The average consumer

age is 31 years.

These customers generally are in the income bracket of Rs. 8000/- p.m. and

above.

Normally availed by :

Newly married couples

Families breaking up into nuclear families

People aspiring to acquire higher status and improved standard of living.

DINK - ‘double income no kids’ i.e. both the husband and spouse earning.

Indian middle class forms the major chunk of the customer portfolio.

Primary influencers in a housing loan decision are

Tangible Factors:

Builders

Housing Estate agents

Banks

Friends & Relatives

Intangible Factors:

In India, owning a house has a high social regard.

Insecurity of staying in rental houses.

Sense of Belongingness.

Industry in Transition

Demand for this category is picking up due to -

Steady fall in interest rates.

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Increased start-up salaries.

Aspirational changes in lifestyle.

More hassle-free.

Offer of free insurance cover for various risks.

Offer of various incentives in the form of low or no charges for pre-closure of

loan-lower processing / administrative/ documentation charges; interest on

reducing balance method; choice or option for fixed/floating interest rates etc.

Income tax shelters on interest paid.

Fall in interest rates has changed the way the salaried class view housing

loans. The interest rates on housing loans have declined from average 17-

18% in 1994 to 7.25-8.5% now, thereby making loans cheaper.

Earlier, houses would cost on an average 20 years of salary, which has now

come down to just 8-10 years' salary.

Changing demographics of the Indian populace has also played an important

role in the development of this industry. The emergence of a new class of

families called DINK or ‘double income no kids’ has played its part.

Competition

The key players are HDFC, LICHF, Canfin Home, SBI, ICICI, Bank of Baroda

etc.

There is very stiff competition in the matter of interest rates- rate cuts are

announced at very frequent intervals.

The market size is expected to grow to Rs.40, 000 Cr.

Size of the loan varies from Rs. 2 lakhs to Rs. 1 Cr. Average tenure of

housing loans is 15 years

Lower default rate is a big attraction for banks to take-up to housing finance

(default rate is just 0.5%).

It provides a big impetus for housing construction activities also-growth in

infrastructure industry.

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Transaction cost is also low.

It is easier for banks to appraise/assess as they look into fewer aspects like

background, employment, experience, number of dependants, previous track

record, proof for pay, copy of IT returns, property documents and age of the

property etc.

Market Fragmentation

Before going any further, a brief view at the level of fragmentation in the industry

is of significance. The graph above gives us the breakup of market share based

on outstanding housing loans as on March 31, 2002. The split up pie of the

market share indicates that HDFC is still the market leader followed by SBI. But

in terms of the housing loan assets, LIC Housing Finance limited (LICHF)

occupies second spot next to HDFC.

What is significant is the fact that banks have stepped in to the domain of these

HFCs and are capturing market share of the incremental loans disbursed.

Currently, banks have garnered close to 35% share of the housing finance

market by offering competitive rates of interest. Among banks, SBI and ICICI

Bank have been the most aggressive as far as loan disbursals are concerned.

We expect the trend to continue with banks gaining a larger share in incremental

loan disbursals.

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Performance of HFCs

Particulars FY98 FY99 FY00 FY01

Growth in income 15.1% 17.0% 14.2% 21.4%

Growth in net profits 16.6% 3.4% 17.1% 17.9%

Source: NHB % change compared to corresponding previous period

New dynamics

An important development in the housing finance business has been the entry of

new players. The relatively low risk in a housing portfolio has spurred new

entrants in the last few years. Arguably, the most significant entrant has been

ICICI Home Finance. Among non-banking finance companies, Sundaram

Finance and Tata Finance launched housing finance subsidiaries in the recent

past, while banks have shown increased interest in acquiring housing assets.

Banks have always had subsidiaries handling housing finance, but in the recent

past they seem to have taken a greater interest in building retail assets. Banks

have a clear advantage in the field simply because they access the lowest cost

funds in India. As things stand, a loan from a bank is less expensive than one

from a housing finance company.

Despite the overwhelming advantage that banks have, HFCs are unperturbed.

The reasons range from a feeling that banks will lose interest in retail finance

after a point to a belief that banks are not geared to servicing a big thrust into

housing finance. In short, the HFCs believe banks cannot match them in a critical

area — service.

Access to resources: Another differentiator

Dewan Housing and LIC Housing Finance both run operations with a profitability

level of about 20 per cent. Despite that, Dewan is unlikely to grow at LIC

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Housing's pace in the current environment. LIC's superior pedigree and access

to resources appears to have played a critical role in larger disbursements. For

example, between 2000 and 2002, Dewan's housing loan disbursement grew

from Rs 163 crore to Rs 200 crore. On the other hand, between 1999 and 2001,

LIC Housing's disbursements to individuals grew from Rs 945 crore to Rs 1,597

crore.

Changing Contours

The fast-changing environment has had a telling impact on HFCs. Following

heightened competition, spreads (difference between interest income and

expenditure) have declined over the last couple of years. HDFC feels that its

current spread, of 1.8-2 per cent, is likely to hold firm. Competition has whittled

down high margins and changed housing finance into a low margin, low-risk

business.

With their geographical spread and customer knowledge, the HFCs are trying to

tap new opportunities that have come up. Using their existing infrastructure to

sell other financial products to retail customers has caught the fancy of the HFCs.

The opening up of the insurance industry, in particular, seems to have triggered a

determined move to diversify income stream.

Even here, the bigger players are in a different league. For instance, a HDFC has

the resource base to promote subsidiaries in most other areas of financial

intermediation — be it asset management, insurance or commercial banking.

Smaller HFCs that have wide distribution networks can only hope to leverage

their reach for a commission.

Why Is It a safe Bet?

A house is generally the single largest investment an individual makes in a

lifetime.

Moreover, the emotional dimension of a house makes it intrinsically safer for a

lender.

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Another factor that adds to the safety of the loan is that most borrowers have a

significant level of personal money invested in a house. If they lose possession of

a house, it would mean a lot of personal wealth slipping out.

None of the factors that have thus far made home loans one of the safest

deployment avenues is likely to change in the near future, thereby ensuring that

the business remains one of the financial sector's safest.

THE relatively negligible risk in housing finance is best illustrated through an

example. HDFC, the market leader in housing finance, had aggregate bad loans

of 0.81 per cent of its portfolio on March 31, 2001. At the other end of the

spectrum, a much smaller company, Dewan Housing Finance, had aggregate

bad loans of about 0.5 per cent in March 2002.

Corporation Bank, one of the soundest banks in the country, had an aggregate

bad loan of 5.4 per cent of gross advances in March 2001. Among non-banking

financial companies (NBFCs), a tightly run company such as Cholamandalam

Finance reported in June 2001 that 1.5 per cent of assets had problems. Thus, a

portfolio of housing assets seems safer than a mixed portfolio that other financial

intermediaries have.

Kya Hoga Next??

Prospects of the housing finance industry look encouraging mainly due to the fact

that the gap in demand and supply has not been corrected adequately. At the

end of the ninth five-year plan period i.e. FY02, the shortfall in dwelling units was

in the region of 40 m. In terms of dwelling units the Urban Affairs and

Employment Ministry has stated that cumulatively India will have to add a

minimum of 6.5 m houses per year to add 33 m houses in order to bridge the

current gap. At present the supply of houses stands at close to 2.5 m per year.

Apart from that the Indian economy may have reached a stage where interest

rates may continue to remain soft over the long-term. This is likely to ensure a

steady demand for housing loans.

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Housing shortage continues

(million units) FY71 FY81 FY91 FY01E

Rural 11.6 16.3 14.7 12.8

Urban 3.0 7.0 8.2 6.6

Total 14.6 23.3 22.9 19.4

Source: NHB

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SWOT ANALYSIS

ICICI BANK

STRENGTHS

Retail banking supermarket with the ability to

cross-sell entire range of credit products.

Innovative products

Technological superiority

Wide distribution

High top of mind awareness due to

aggressive advertising

Strong Credit controls

High Customer Service Standards

Economies of scale through growing

volumes.

24x7 service levels

WEAKNESSES

Efforts are concentrated more towards the

urban consumers thus ignoring the rural

counterpart.

Number and spread of branches is very low

as compared to PSU banks.

Excessive focus on non-branch distribution

channel reducing the scope of personal

interaction needed for the sale of retail

products.

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OPPORTUNITY

Changing consumer outlook towards loans

and related products

Rising consumer income levels

Increasing banking habits among Indian

consumers

Being No.1 in the auto finance segment

paves the way to consolidate its market

leadership across all the segments.

Rapid increase in the retail loan market size

to the tune of 30 – 40 %

THREAT

Stiff competition in the housing loans

segment from HDFC, LIC Housing etc.

In the Credit card segment, competition from

Citibank, StanChart etc.

Of late, lots of Non Banking Financial

Institutions have emerged and have eaten

up the banks’ market share.

Educating people by way of advertisements

might help competitors to reap the benefits.

LATEST HAPPENINGS

Of late banks are coming up with innovative product offerings and promotion

schemes to tie up old customers and attract new customers. Some of the

innovative offerings are listed below:-

Standard Chartered ANZ has launched the Home Saver Account. Along with

the Home Loan, your will get a FREE savings bank account into which you

may deposit your monthly salary. The EMI for the loan will be automatically

reduced from your account. The excess balance in your savings account will

earn interest that will be adjusted against your future EMI payments. The

bank claims that the effective interest rate gets reduced by upto 45% because

of this scheme.

Citibank

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Offer loans with no guarantors. Most banks require that you present a

guarantor who will back you up if you default on your loan repayment. It

can often be embarrassing to ask friends to stand guarantor as most

banks do not accept relatives as guarantors.

Citibank gives home loans upto 90% of the property value, the highest

from any bank (only Tata Hsg Fin. matched this offer)

Citibank offers a flexi-savings account to reduce your cost of borrowing.

The bank will automatically open a Saving Account from which you can

give standing instructions to deduct the EMI payments for the loan. You

can then prepay the loan at any point in time and be given instant credit

for the same, in case you get a large lump-sum annual bonus from your

employer. Should you require money in an emergency at any point you

can avail of a over draft on this savings account at an interest rate that is

the same as that on your Home loan. This works out much cheaper than

taking an over draft on a normal savings account

Dewan Housing Finance and LIC Housing Finance Ltd.

offers consumer loans to their existing Home Loan customers at a discount to

market rates. The customer has to be a housing loan borrower for the period

not less than 6 month with a good repayment record

FREE DOUBLE PROTECTION PLAN in the form of Personal Accident Risk

Cover and Property Insurance

GIC Housing Fin.

Gives a free personal accident cover along with the loan. Oriental Bank of

Commerce has started to offer a free property insurance cover of the

value of property and a free accident cover of upto Rs. 5 lacs.

GICHFL gives Consumer loans for purchase of home equipment at the

same interest rate as the home loan to customers at rates of interest that

are the lower than other consumer loans. The total loan amount including

N.L.D.I.M.S.R 25

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the housing loan can be upto 90% of the value of the home. The tenure of

the consumer loan is restricted to 5 years.

HDFC

Offer Flexible (Customized) Repayment Schemes, keeping in mind the

fact that each individual has a unique problem requiring unique solutions,

HDFC has developed various repayment options like Step Up Repayment

Facility, Flexible Loan Installment and Balloon Payment Scheme

Pari Passu/ Second Mortgage Arrangements: HDFC has a tie-up with a

large number of Public Sector Organizations and banks which enable us

to offer loans to your employees with the flexibility of their spouse also

availing a loan from his/her own employer

Safe Document Storage Facilities: HDFC has state of art storage

facilities, which are theft and fire proof, at various locations where loan and

property documents are stored. In this way valuable documents are stored

safely over the period of the loan and are released almost immediately after

a customer repays his loan

A customer, after availing of a loan can approach HDFC anytime thereafter

to increase the Equated Monthly Installment which will help him repay the

loan faster.

Home Conversion Loan offered to its existing customers who are

interested in moving to a new house. Through this scheme customers can

apply to have their existing loan transferred towards the purchase of the

new home. Customers may also apply for an additional loan amount for the

purchase of the new house. This gives the customer the option of selling

their existing house, if they wish to, without having to repay their old loan

The fixed rate loan can be converted to floating without any penalty

charges. However, you will be charged 2% if you refinance the loan from

another company

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Hudco

Will waive the last 2 EMI payments on the loan if the customer has a

perfect repayment record with no bounced cheques. The loan amount

initially taken must exceed Rs. 5 lacs and no prepayments where to have

been made during the tenure of the loan. This is not available for the

Floating rate loan.

There is a discounted start-up fee for Government employees. The

Administrating fees stand reduced from0.7% to 0.5% only.

Free triple insurance - property cover, earthquake cover and personal

accident cover. given free along with the loan ( not available for the

Floating rate loan)

You can prepay the entire loan in any year without any prepayment

penalty. Each prepayment has to be at least 10% of the outstanding loan.

However, the floating rate loan has a 1% prepayment penalty.

HSBC

Offers flexible interest rate loans that can be reset every year depending

on the prevailing interest rates at that point. The new interest rate will be

applicable for the rolling one year

Guarantor is required only for loans more than Rs. 10 lacs. Else no

guarantor

You can prepay up to 25% of the outstanding loan in any year without

paying a penalty. For amounts over that, 2% penalty levied.

ICICI

Launches a 30 year tenure home loan, the longest available

N.L.D.I.M.S.R 27

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ICICI also launches a variable rate loan with a monthly rest basis versus

the regular fixed rate loan that is on an annual rest basis

No guarantors are required for loans up to 20 years in most cases

No pre payment fees for any part payment as long as the loan is not fully

retired, else 2% charge on pre paid amount. You can repay up to 33% of

the outstanding loan in any year without paying penalty.

Free accident death cover for the owner

Special 100% funding for select properties

Higher eligibility for self-employed professionals through segment-specific

schemes

LIC Hsg Finance Ltd. will lower quoted interest rate by 0.5% for loans

covered by a life insurance cover that is taken from LIC. The life cover must

be taken for a minimum period that covers the tenure of the Home Loan

SBI

Offers Home Loans with no start-up costs. Most banks charge as high as

2% as processing and administrative fees

Prepayment is 2% if the entire loan is pre paid else it is 0%. Avoid this

penalty by prepaying up to 99% of your loan if need be

Tata Hsg Finance

Offers Home Loans up to 90% of the value of the property and 100% in

some new projects.

Prepayment penalty of 0% for up to 4 prepayments in each year. The

entire loan can be retired without incurring any penalty.

Free accident and property insurance. The premium payable for a Tata

AIG Single Premium Life Cover can also be included in the loan amount

sanctioned.

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IDBI Bank offers balance transfer scheme.

If you have taken a fixed rate loan at a high rate of interest a few years back,

then you can enter into an arrangement with IDBI bank to transfer the loan to

them at the current lower rate of interest. You will also get free gifts to

compensate you for the difference as the old and new EMI. The original EMI

cheques will be used by IDBI to recover the loan amount from you over the

remaining tenure of the loan. You will not get the benefits of any further fall in

interest rates in this product.

Advertising:

Private Indian Banks have managed to create a greater awareness about

themselves over the last 2 years, according to the findings of the latest round of

INVESTRACK (V), the fifth round of a syndicated study by ORG-MARG on the

investment and banking habits and preference of the Indian investor.

The sharp rise in the unaided recall of Private Indian banks is testament to

the aggressive advertising and marketing drive of these players over the

past one year

A reading of the list of top 10 banks in terms of recall shows a doubling of the number of Indian

investors who are now aware of the Indian private banks like ICICI Bank and HDFC Bank

compared to two years ago. While recall for the other banks that are part of the top 10 remains

largely unchanged, 51% of Indians are now aware of ICICI Bank and 42% are aware of HDFC

Bank compared to 27% and 26% respectively when the last round of INVESTRACK was

conducted.

N.L.D.I.M.S.R 29

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Unaided Recall of Banking Brands

Bank Brands 2000 2002

SBI 82 % 83 %

Canara Bank 53 % 54 %

ICICI Bank 27 % 51 %

PNB 47 % 49 %

BoB 48 % 49 %

BoI 44 % 44 %

HDFC Bank 26 % 42 %

Citibank 37 % 36 %

Central Bank 42 % 36 %

Advertising, in the retail banking industry, is an important medium of making the

prospective consumers aware of the various products as also the players offering

them. Although it has only a 6% influence (based on our primary research

findings) in the purchase decision it plays a major role in induce a customer to

include the advertised bank in his consideration list.

Advertising by banks has been a recent phenomenon. Realizing that product

advantages are not any more sustainable, banks are opting for advertising to

gain strategic differentiation.

An analysis of banks’ advertising brings out the following features:

A major chunk of total advertising spend belongs to the private &

International banks.

Another observation reveals that banks with less penetration have higher

advertising spends.

ICICI and HDFC head the fleet of banks in terms of their advertising

spends.

The advertisements have both factual as well as emotional appeal. The

private banks focus on cashing upon emotional needs of a consumer

N.L.D.I.M.S.R 30

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whereas public banks stick to traditional advertising focusing only on the

product features.

Television and hoardings seem to be the preferred mode of advertisement

across all banks.

The international banks are striving to achieve a local appeal in a bid to

woo consumers

The following is the summary of a few banks’ advertising strategies:

ICICI

Positioning:

The bank’s initial positioning was mainly on service factor and now this

has changed to a customer’s interest focused and a friendly bank.

Message:

With the shift in positioning there has also been change in the message

conveyed from service focused to customer interest focused.

It is the first to sign up a celebrity ‘Amitabh bachchan’ for its advertising.

This conveyed a message of the bank being as popular and famous as

the celebrity.

Mr. Easy life – the fictional character in the ICICI ads is the first brand icon

associated with any bank.

It is also the first bank to address the emotional appeal and attach it to the

physical appeal.

Media :

N.L.D.I.M.S.R 31

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The general preference is for television, hoardings, newspapers,

magazines, radio etc.

ATMs also form an effective advertising tool as their mere presence

makes the consumer aware of the bank. Besides this, ATM machines are

also effectively utilized to cross-sell the bank’s retail offerings to its already

existing customers.

HSBC

Positioning: The bank’s positioning conveys an international appeal to the

local consumer.

Message: The bank is trying to promote its global expertise to the Indian

customers, i.e. service levels at par with international standards, anticipating

customers growing needs and designing products accordingly.

Media :

As far as media is concerned HSBC has more concentration on print media

as compared to other mediums.

HDFC

Positioning:

N.L.D.I.M.S.R 32

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Positioning of the bank conveys-

Expertise service.

It tries to address the financial needs of the consumers.

Message:

The bank’s presence in the housing sector for a fairly long period is

portrayed in its advertisements.

They also focus on promoting the simplicity in work procedure, superior

service. Their ads also strive to bring the bank out of the ‘only housing’

image.

Media :

The most preferred medium by the bank are hoardings and print media.

They rely on word of mouth and goodwill which they have created through

25 years of service.

The following table shows PUNCHLINES of some banks:-

BANKS PUNCH LINE

CANARA BANK “Service to grow, grow to service.”

INDIAN BANK “Poised for higher growth”

SBI BANK “With you- all the way”

HDFC BANK “We understand your world”

HSBC BANK “The world’s local bank”

INDIAN OVERSEAS BANK “Good people to grow with”

DENA BANK “The trusted family bank”

ICICI BANK “May I help you”

VIJAYA BANK “A friend you can bank with”

N.L.D.I.M.S.R 33

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FEDERAL BANK “Your perfect banking partner”

IDBI “Plan ahead. Get ahead”

ORIENTAL BANK OF COMMERCE “Where every individual is

committed”

DHFL “The friendly housing loan people”

CONSUMER SURVEY

RESEARCH OBJECTIVE

Top of mind awareness of consumers for banks offering various retail

products.

Factors influencing their purchase decision.

To study the comparative influence of various mediums of advertisements

in creating awareness amongst the consumers.

To find the immediate competitors in the minds of consumer for every

retail product.

RESEARCH METHODOLOGY

An exploratory research was conducted in order the study the consumer

perception about various banks offering retail products and the banks they

opt for.

N.L.D.I.M.S.R 34

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Sample Size

A random sample of 100 were administered with the questionnaire and

responses collected.

Research Area

The research was carried out at Borivali, Mira road, Churchgate and

Andheri regions in Mumbai.

Respondents’ profile

Data was collected from respondents across all age and income groups. Data

relating to age was collected. This segmentation helped us to gain insights into

the perception and preferences across all age groups. Based on the nature of

retail banking products age groups were identified and classified as follows:

Majority of the

respondents belonged to

the age group of 25 – 40

years.

The reason associated

with it is that this group is

the highest user of retail

offerings.

N.L.D.I.M.S.R 35

Age Profile

15%

45%

23%

17%18-25 yrs

25-40 yrs

40-55 yrs

55 yrs & above

RETAIL BANKING

Respondents earning Rs. 8000-

15000 constitute the major chunk

of the respondents using retail

product.

This income group qualifies

almost all eligibility criteria of

retail offerings.

Retail products being also

designed for students and

retired people, they were

considered for the survey.

Salaried and businessmen

being the major users of

retail users of retail

products.

Data Collection Tools

Data was collected using Questionnaires. The Questionnaire consisted of

suitable combination of Rating Scale, Ranking Scale and open ended

Questions in the level of importance.

N.L.D.I.M.S.R 36

Income Profile

15%

15%

27%

30%

13% Non- earning

< 5000

5000-80008000-15000

> 15000

Proffessional Profile

7

29

15

9StudentsSalariedBusinessmenRetired

RETAIL BANKING

An in depth interview was also conducted while administering the

questionnaire.

Sources of Data

Questionnaires were administered to people with experience of any retail

offering, currently using or used in the past.

Secondary Sources: Data was collected from the various websites from the

internet as well as Journals of Marketing.

DATA ANALYSIS

The respondents

were asked to rank

the following factors

according to their

preferences in the

extent to which they

influence their

purchase decision.

Majority of the

respondents

considered

processing time to be the major influencing factor for making purchase

decision while interest rate forms a close second.

N.L.D.I.M.S.R 37

INFLUENCING FACTORS

35

7

15

6

37

05

10152025303540

Inte

rest

rate

s

Pro

cessin

g

tim

e

Go

od

will

Wo

rd o

f m

ou

th

Ad

vert

isem

en

t

Factors

%

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Time is the most valuable factor in today’s world of hectic schedules, that’s

the reason why processing time is considered as most valuable factor in

consideration list.

In our survey majority

of the respondents

had availed Vehicle

loan followed by

credit cards.

In our survey majority

of the respondents

belong to the age

group of 25-40 and

majority of them are

salaried people. This is the stage where people try to bring alive their

aspirations of having their own home and vehicle and hence these loan

constitute major chunk of retail product availed by the respondents.

BANKS CONSIDERED FOR RETIAL OFFERINGS

Respondents were asked which banks they considered for purchasing a retail

offering before selecting a specific bank. The responses for different retail

products were as follows-

Majority of the

respondents

considered HDFC and

ICICI for availing

housing loan.

N.L.D.I.M.S.R 38

Banks Considered For Housing Loan

OTHERS28%

HDFC37%

SBI12%

ICICI23%

Retail Products Availed

Vehicle loan27%Education

loan6%

Personal loan10%

credit cards25%

Others11%

Housing loan21%

RETAIL BANKING

25 years of superior service has helped HDFC in creating goodwill in the mind

of people and has helped the bank for consideration.

ICICI has created a

place of its own in the

mind of customers by

its heavy

advertisement and

superior service in

every category of retail

offering.

ICICI forms the major

chunk in the

consideration list for vehicle loan followed by HDFC.

Through aggressive advertisements and superior

service ICICI has created a major place in the consideration list.

Majority of the

respondents

considered CITI BANK

for credit cards

followed by STAN

CHART and HSBC.

Being the first bank to

launch credit cards and

through aggressive

advertisements in the past CITI BANK has created awareness amongst the

customers and by providing superior service it CITI BANK still acquire major

share in the consideration list.

N.L.D.I.M.S.R 39

Banks Considered For Vehicle Loans

SBI9%

OTHERS16%

HDFC25%

CITI BANK15%

ICICI35%

Banks Considered For Credit Cards

OTHERS11%

ICICI16%

STAN CHART20%

HSBC18%

CITI BANK35%

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SBI and HDFC form

the major chunk for

consideration in this

category followed by

SBI.

Interest rates being the

major factor for

educational loan PSUs

have the competitive

edge due to low interest rate.

SBI outrages other banks in the consideration list for educational loan.

Low interest rates and an extensive presence in varied locations seem to be

the primary reason for this.

N.L.D.I.M.S.R 40

Banks Considered For Educational Loan

SBI35%HDFC

22%

OTHERS21%

DENA BANK8%

HSBC9%

CORP ORATION BANK

5%

Banks Considered For Educational Loan

SBI35%HDFC

22%

OTHERS21%

DENA BANK8%

HSBC9%

CORP ORATION BANK

5%

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AWARENESS OF BANKS THROUGH VARIOUS ADVERTISING MEDIUMS

ICICI in general has

a high level of

awareness among

the people owing to

its extensive

advertising.

Among these,

awareness through

television is the highest level followed by newspapers.

Customer’s

awareness of SBI

through various

media was

measured.

SBI, being an old and

experienced player,

has immense

awareness through

the word of mouth media.

HDFC being a private

and an aggressive

N.L.D.I.M.S.R 41

Awarness Of SBI Through Various Medium

Radio 3%

Word Of Mouth 26%

Billboards / Hoardings 17%

New spapers & Magazines

35%

Television 19%

Awareness Of ICICI Through Various Mediums

New spapers & Magazines

27%Radio 3%

Billboards / Hoardings

17%

Word Of Mouth 18%

Television 35%

Awareness Of HDFC Through Various Medium

Billboards / Hoardings

22%

Word Of Mouth 21%

New spapers & Magazines

39%

Radio 5%

Television 13%

RETAIL BANKING

player, especially in the home finance arena, has taken the print media as its

stalwart for awareness.

The reason for the largest pie is that a large chunk of the TG is also an avid

reader of newspapers and magazines.

The graph reveals that

close to fifty percent of

the awareness is about

ICICI and HDFC.

Customers do not seem

to regard HSBC as a

bank offering car loan

owing to its limited

advertising about this

product.

N.L.D.I.M.S.R 42

Top Of Mind Awareness For Car Loan

OTHERS10%

HDFC21%

KOTAK 13% HSBC

3%

CITI BANK19%

ICICI24%

SBI10%

Top Of Mind Awareness For Personal LoanOTHERS

13%

CITI BANK13%

GE CAPITAL15%

HDFC14%

HSBC6%

SBI12%

ICICI27%

RETAIL BANKING

The personal loan market is a relatively fragmented market with respect to

awareness.

According to our

survey HDFC is the

clear market leader in

the awareness

paradigm.

This area is also

being aggressively

invaded by many

other players owing

to the increased requirement for homes.

CITIBANK is also

perceived to be a market

leader, besides being

one.

N.L.D.I.M.S.R 43

Top Of Mind Awareness For Housing Loan

OTHERS12%

CITI BANK13%

HDFC31%

SBI20%

ICICI24%

Top Of Mind Awareness For Credit Cards

HSBC16%

SBI12%

HDFC8%

CITI BANK24%

OTHERS21% ICICI

19%

RETAIL BANKING

A quarter share of the awareness pie of ‘Others’ can be attributed to a gamut of

the recent new launches as also the varied co-branded credit cards.

Relation between basic-banking and retail-banking choices

The survey also tried to study, analyze and correlate respondents’ decision in

selecting a bank for general banking purposes and for availing retail products.

The findings revealed that people generally prefer PSU banks close to their

locality to bank with whereas private banks and foreign banks have higher

preference on the retail banking front.

The reason associated with this behavior is the close proximity and long

existence of PSU banks making them safe and trustworthy. Also people have

had accounts with the PSU banks as private banks were non-existent earlier, and

hence are reluctant to change their banks. However due to efficient service, short

processing time, competitive rates and a caring attitude people have started to

prefer private banks for meeting their retail needs.

N.L.D.I.M.S.R 44

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Conclusion

The scenario is becoming highly competitive in every sphere of banking

activity- more so u n respect of retail lending.

Proceesing time and interest rates are major influencing factor for making

purchase decision.

As per survey ICICI and HDFC are to major brand name considered for

housing, auto and personal loans.

Awareness through television is the highest level followed by newspapers.

The future of banking is dependent on technology, marketing, logistics.

Banks have to prepare themselves for facing a soft interest regime.

New kind of management skills are required to manage the retail lending

portfolio.

True to Infosys cult, bankers do need to understand that:

- Growth comes from repeat business

- Repeat business from relationships

- Relationship from customers

- Customers relationship based on trust

- Trust emanates from customers faiths/beliefs and,

- Lastly maintaining harmony with the environment.

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Bibliography

Professional Banker

Websites of Banks

www.indiainfoline.com

www.rbi.org

Economic times

N.L.D.I.M.S.R 46

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QUESTIONNAIRE

1. Which bank(s) do you bank with presently?____________________________________

2. Rank the following factors according to their weightage in your purchase decision.

Cost _______ Processing time _______ Goodwill _______ Word of mouth _______ Advertisement ________

3. Which retail banking product have you availed?

Car Loan ڤ Housing Loan ڤ Education Loan ڤPersonal Loan ڤ Others, Please specify ڤ_________________

4. Which banks did you consider in your decision making before buying

this product?

a) _______________________ b) _______________________ c) _______________________ d) _______________________

5. How did you become aware of them? (tick relevant)

Banks => a) b) c) d)TelevisionNewspapers &

N.L.D.I.M.S.R 47

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MagazinesRadioWord of mouthBillboards/Hoardings

6. Which bank did you choose and why?_____________________Reason:___________________________________________________________________________________________________________________________________________________________________________________

7. Are you satisfied with the bank’s service? Yes No

8. Would you suggest any improvement?____________________________________________________________________________________________________________________________

9. Which bank comes to mind when thinking about car loan____________________________________

10.Which bank comes to mind when thinking about personal loan____________________________________

11.Which bank comes to mind when thinking about housing loan.____________________________________

12.Would you recommend your bank to someone else for the same product or any other product that your bank offers?

Yes No

13.Please recommend a retail product, not currently available, which if offered, will be readily availed by you.

_____________________________________

N.L.D.I.M.S.R 48