Future of Retail Banking - Bhaskar Ghose, Managing Director, IndusInd Bank

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Future of Retail Banking- Bhaskar Ghose,
Managing Director,IndusInd Bank
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Recent trends

• Aggressive entry strategies of foreign banks to
  Retail Segment
• Customer retention initiatives by PSU Banks
• Aggressive price-war on Retail Credit

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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

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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

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Recent trends contd

• Phenomenal rise in nuclear and dual income
  families enhanced spending power
• Increasing literacy levels
• Higher adaptability to technology banking

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Recent trends contd.

• Growing consumerism
• Fiscal incentives to Housing loans
• Fastest economic growth over the decade

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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

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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

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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

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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

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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

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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

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Retail Credit contd.

• Banks overtake HFCs in Home Loans
• Banks overtake NBFCs in Auto loans
• The same trend would continue for next few years

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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

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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

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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

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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

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Retail Credit contd.

• Personal loan segment is also expected to grow _at_
  20 with higher yield ranging from 12-16
• Gross Retail Advances would move to over 40 of
  total advances in the next 5 years

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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

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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

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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

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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

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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

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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

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Thank You