Definition: Retail banking is a financial segment that caters the requirements of individuals as customers, majorly comprising of the low-income groups of the society. It facilitates the common people to make deposits, avail credit and get their funds managed systematically. Personal banking deals in a huge volume of financial transactions although these are of small amounts.
The concept of consumer banking not only simplify the lives of common people, but it is also a positive approach towards economic stability in a country.
Content: Retail Banking
Retail Banking Features
These banks are different from commercial banks in many ways. Let us discuss multiple characteristics of the retail banking system:
- Asset Portfolio Diversification: In retail banking, the fund is allocated to a wide range of consumers which mitigates the risk of non-performing assets (NPA).
- Caters Individual Needs: It offers financial services or facilities to the people right from deposits, withdrawal and credit to savings, money transfer and online transactions.
- Large Volume of Transactions: A retail bank manages bulk transactions simultaneously since there is an excessive number of users or customers.
- Risk Mitigation: Since the assets are spread among a huge consumer base, a low NPA can be expected, thus reducing the chances of loss for the banks.
- Low Transaction Value: The amount of each transaction taking place in retail banking is usually nominal because the majority of consumers belong to a low net worth category.
- Attractive Market Segment: Retail banking is considered to be an alluring sector for investors, managers, shareholders and other associates.
ICICI bank is one of the most renowned personal banks in India.
A highly popular financial product offered by ICICI bank is a ‘Term Life Insurance Plan’ that is quite pocket friendly to the customers while it provides financial security to the family in case of insured person’s demise.
Functions of Retail Banking
When we think of a bank, we memorize multiple utilities offered by these financial institutions.
Personal banking majorly focuses on three key operations, which are explained in detail below:
Accept Deposits: Retail banks act as a secured place for the individual depositors (be it consumers or the business entities) to safe keep their funds. It initiates the accumulation of assets for the banks.
Offer Credit: For the ones who require funds, retail banking provides loans, advances and other forms of credit. It is a form of income creation for these banks through asset allocation.
Money Management: Other banking facilities like credit cards, debit cards, various accounts, lockers, etc. adds to the customer services or offerings. It simplifies online transactions, savings, safekeeping of valuables and many more.
Types of Retail Banks
We have understood that retail banking is a completely different phenomenon when compared to commercial, investment or corporate banking systems.
Let us discover the prominent kinds of retail banks providing extensive financial solutions to individual customers:
- Private Bank: These banks serve the financial needs of the middle class as well as high-class customers located in the cities or urban places.
- Savings Bank: Such retail banks facilitate deposit of funds as savings accumulated by the individuals.
- Community Development Bank: These banks are formed to disseminate credit or other financial services to an underprivileged section of the society.
- Credit Union: It is a non-profit cooperative bank that comprises of many members, who are offered a higher interest rate on their deposits.
- Postal Savings Bank: Indian postal system when linked with the savings banks form a postal savings bank.
- Offshore Bank: The headquarter is in the home country while the bank operates in other countries is categorized as an offshore bank.
Retail Banking Products
While a customer seeks different facilities from a retail bank, it becomes essential for these institutions to offer an immense variety of services.
Consumer banks design products by keeping in mind the customer requirement and potential services other than core banking solutions.
Some of the known personal banking products are as follows:
- Deposit Accounts: The basic necessity for becoming a bank’s client is to open an account with that respective financial institution by depositing the required sum. The type of account opened depends upon the need or purpose of the customer. These accounts include:
- Current Deposit Account
- Savings Bank Account
- Zero Balance Account
- Term Deposit Account
- Recurring Deposit Account
- Senior Citizen Deposit Account
- No Frill Account
- Individual Retirement Account
- Sweep Account
- Money Market Account
- Loans: Any kind of credit offered by the consumer bank to the individuals is considered as a loan. The most common form of retail bank lending include:
- Personal Loan
- Mortgage Loan
- Consumer Loan
- Business Loan
- Auto Loan
- Crop Loan
- Home Equity Loan
- Education Loan
- Plastic Payment Cards: To expedite financial transactions and make things smooth for the consumers, banks have brought forward the concept of compact plastic cards which can be used anywhere and almost everywhere for making payments. The three forms of plastic cards available are:
- Credit Card
- Debit Card
- ATM Card
- Others: The retail banks have gone an extra edge to serve their customers through the following innovative products:
- Traveller’s Cheque
- Certificate of Deposits
- Safe Deposit Locker
Advantages of Retail Banking
We have always wondered that what would the lives of individuals be without the retail banks?
This banking system has streamlined everyday activities. The various objectives of retail banking are as follows:
- Economic Stability: Retail banks are the initiators in attaining a stable economy for any country as they influence the lives of common people.
- Fund Distribution: It facilitates mobilization of money from the investors or misers to the borrowers. This is to ensure better circulation of funds.
- Deposit Facility: The customers can fearlessly keep their funds as deposits with these retail banks being assured of the security and
- Innovative Banking Services or Products: With modernization, retail banks have come up with numerous ingenious products like mobile banking,
- Backs New Ventures: Many small household customers starts a home run business through their savings in retail banks.
- Better Lifestyle and Standard of Living: Since retail banking boosts trade and commerce within a country, the living standards effortlessly improves.
- Facilitates Retail Purchase: Whether it is through m-commerce or physical store, the retail banks ease-out buying of goods along with providing credit facility.
Retail Banking Challenges
When retail banking sounds an intelligible solution for the economy and the people, establishing a robust system is not an easy function. It is prone to the aforementioned hurdles:
- Expensive Affair: Setting up a robust network for managing the high-volume transactions is highly expensive.
- Non-Performing Assets: These banks face bad debts in the form of NPAs where the customers fail to repay the loans.
- Strong IT Setup: Without an impeccable network or IT arrangement, it is impossible to run a retail banking unit.
- Technological Errors: Machines are not always perfect, even the technology keeps on modifying over the period. Thus, spending heavily on an IT system which soon becomes obsolete is in vain.
- Extensive Human Resource Requirement: For handling the hefty task of record-keeping and management of the transactions, it is essential to hire huge manpower.
- Difficult Product Differentiation: It is an extremely analytical task to design creative financial products for consumers.
Retail banking offers many advantages that include:
-Access to a wider variety of products and services than traditional banking institutions.
-Better customer service due to the close relationship between retail bank and its customers.
-Ability to open an account online in minutes, which can be helpful if you have limited time or mobility.
The head of the retail banking group is responsible for directing and developing all aspects of the Group’s retail-banking strategy. This includes overseeing all products, services, marketing initiatives, and infrastructure across all Bank brands.
The law that separated investment banking from retail banking was the Glass-Steagall Act of 1933. This landmark legislation prohibited commercial banks from engaging in activities such as underwriting and selling securities, which is what had previously been done by the investment bankers. The goal of this law was to protect investors by separating these two types of institutions, and it has largely been successful in doing so.
Retail banking is the type of banking that involves providing personal financial services to individuals and small businesses. This includes everything from taking deposits, making loans, and offering other financial products and services. Retail banks are often smaller than traditional banks, which makes them more nimble in reacting to changing trends.
This might be beneficial for you if you’re looking for an alternative way to bank that delivers personalized service. Additionally, retail banks tend not to lend as extensively or offer high-interest rates as larger institutions do. They also tend to have a closer relationship with their customers since they are usually invested in their success.
Corporate and retail banking are two types of banking that are focused on different segments of the population. Corporate banking focuses on companies and their shareholders, while Retail Banking is geared towards consumers.
There are significant differences between the two, including how they operate, their clients base, and the products they offer. Corporate Banking usually offers more complex financial products than Retail Banking does. It also tends to cater to larger businesses with a higher level of sophistication in terms of finances. Retail Banks, on the other hand, typically focus on providing short-term loans (up to six months) to consumers who need money for basic needs like food or furniture purchases. They also provide credit counseling services so that customers can get a better understanding of their borrowing options before making an actual purchase decision.
Retail banking Mcq is a question and answer forum for retail bank employees. It allows you to ask questions about policies, procedures, customer service, and other topics relevant to the role of a retail banker. This forum makes it easy for you to connect with other bank employees and get answers to your questions quickly and easily.
The horizontal model is typically adopted by retail banks when they want to expand their product offerings. This means that the bank no longer specializes in just one type of financial product, but offers a variety of products that are designed to meet the needs and interests of their customers. This can include services such as personal loans, mortgages, credit cards, and insurance.
Retail banking is an extensive approach that focuses on aiding individuals to fulfil their financial motives and carry out day to day monetary transactions with ease. Even the virtual banking system is interlinked with retail banking facilities.