A Study on Customer Perception Towards the Services Offered in Retail Banking by South Indian Bank, Vennikulam Branch(Kerala)

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This is my report for the partial fullfillment of MBA degree as on 30/10/2009...... Thanx to al those scribd reports from wer i got a lot of help..........
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  1.1 RETAIL BANKING Service with a smile: Today’s finicky banking customers will settle for nothing less. Thecustomer has come to realize somewhat belatedly that he is the king. The customer’s choiceof one entity over another as his principal bank is determined by considerations of servicequality rather than any other factor. He wants competitive loan rates but at the same time alsowants his loan or credit card application processed in double quick time. He insists that he be promptly informed of changes in deposit rates and service charges and he bristles with‘customary rage’ if his bank is slow to redress any grievance he may have. He cherishes theconvenience of impersonal net banking but during his occasional visits to the branch he alsowants the comfort of personalized human interactions and facilities that make his bankingexperience pleasurable. In short he wants financial house that will more than just clear hischeque and updates his passbook: he wants a bank that cares and provides great services. So,do banks meet these heightened expectations? Is there a gap that exists between themanagement perception and the customer perception with reference to the services offered inRetail Banking? 1.1.1What is Retail Banking? Retail banking is, however, quite broad in nature - it refers to the dealing of commercial banks with individual customers, both on liabilities and assets sides of the balance sheet. Fixed, current / savings accounts on the liabilities side; and mortgages, loans(e.g., personal, housing, auto, and educational) on the assets side, are the more important of the products offered by banks. Related ancillary services include credit cards, or depositoryservices. Today’s retail banking sector is characterized by three basic characteristics: ã multiple products (deposits, credit cards, insurance, investments and securities); ã multiple channels of distribution ( branch, internet); and ã multiple customer groups (consumer, small business, and corporate). 1.1.2 Retail Banking in India: Retail banking in India is not a new phenomenon. It has always been prevalent in India invarious forms. For the last few years it has become synonymous with mainstream banking for many banks.1  The typical products offered in the Indian retail banking segment are housing loans,consumption loans for purchase of durables, auto loans, credit cards and educational loans.The loans are marketed under attractive brand names to differentiate the products offered bydifferent banks. As the  Report on Trend and Progress of India, 2003-04 has shown that theloan values of these retail lending typically range between Rs.20,000 to Rs.100 lakh. Theloans are generally for duration of five to seven years with housing loans granted for a longer duration of 15 years. Credit card is another rapidly growing sub-segment of this productgroup.In recent past retail lending has turned out to be a key profit driver for banks with retail portfolio constituting 21.5 per cent of total outstanding advances as on March 2004. Theoverall impairment of the retail loan portfolio worked out much less then the Gross NPA ratiofor the entire loan portfolio. Within the retail segment, the housing loans had the least grossasset impairment. In fact, retailing make ample business sense in the banking sector.While new generation private sector banks have been able to create a niche in this regard, the public sector banks have not lagged behind. Leveraging their vast branch network andoutreach, public sector banks have aggressively forayed to garner a larger slice of the retail pie. By international standards, however, there is still much scope for retail banking in India.After all, retail loans constitute less than seven per cent of GDP in India vis-à-vis about 35 per cent for other Asian economies — South Korea (55 per cent), Taiwan (52 per cent),Malaysia (33 per cent) and Thailand (18 per cent). As retail banking in India is still growingfrom modest base, there is a likelihood that the growth numbers seem to get somewhatexaggerated. One, thus, has to exercise caution in interpreting the growth of retail banking inIndia. 1.1.3 Drivers of retail banking business in India Some of the basic reasons which led to the retail banking growth are as follows:First,   economic prosperity and the consequent increase in purchasing power has givena fillip to a consumer boom. During the 10 years after 1992, India's economy grewat an average rate of 6.8 percent and continues to grow at almost the same rate – not manycountries in the world match this performance.Second, changing consumer demographics indicate vast potential for growth inconsumption both qualitatively and quantitatively. India is one of the countries havinghighest proportion (70%) of the population below 35 years of age (young population). TheBRIC report of the Goldman-Sachs, which predicted a bright future for Brazil, Russia, India2  and China, mentioned Indian demographic advantage as an important positive factor for India.Third, technological factors played a major role. Convenience banking in the form of debit cards, internet and phone-banking, anywhere and anytime banking has attracted manynew customers into the banking field. Technological innovations relating to increasing use of credit / debit cards, ATMs, direct debits and phone banking has contributed to the growth of retail banking in India.Fourth, the treasury income of the banks, which had strengthened the bottom lines of  banks for the past few years, has been on the decline during the last few years. In such ascenario, retail business provides a good vehicle of profit maximization. Considering the factthat retail’s share in impaired assets is far lower than the overall bank loans and advances,retail loans have put comparatively less provisioning burden on banks apart from diversifyingtheir income streams.Fifth, decline in interest rates have also contributed to the growth of retail credit bygenerating the demand for such credit. 1.1.4 Opportunities and Challenges of Retail Banking in India Retail banking has immense opportunities in a growing economy like India. As thegrowth story gets unfolded in India, retail banking is going to emerge a major driver. Howdoes the world view us? As already referred to the BRIC Report, talking India as aneconomic superpower; A. T. Kearney, a global management consulting firm, recentlyidentified India as the second most attractive retail destination of 30 emergent markets.The rise of the Indian middle class is an important contributory factor in this regard.The percentage of middle to high income Indian households is expected to continue rising.The younger population not only wields increasing purchasing power, but as far as acquiring personal debt is concerned, they are perhaps more comfortable than previous generations.Improving consumer purchasing power, coupled with more liberal attitudes toward personaldebt, is contributing to India's retail banking segment.Global investors are attracted to India because of the growing number of well-educated,English-speaking workers who are comfortable working in information technology. India's ITwork force will be augmented by a booming population of engineering students. Furthermore,India's labor pool also serves as an expanding customer base for retail bank products andservices.3  The development of India's economy is boosting overall consumer purchasing power. The percentage of middle to high income Indian households is expected to continue rising. Theyounger, more educated population not only wields increasing purchasing power, but it ismore comfortable than previous generations with acquiring personal debtThe combination of the above factors promises substantial growth in the retail sector, whichat present is in the nascent stage. Due to bundling of services and delivery channels, the areasof potential conflicts of interest tend to increase in universal banks and financialconglomerates. Some of the key policy issues relevant to the retail banking sector are:financial inclusion, responsible lending, access to finance, long-term savings, financialcapability, consumer protection, regulation and financial crime prevention. The challengesfor the industry and its stakeholders are as follows:First, retention of customers is going to be a major challenge. According to a research by Reichheld and Sasser in the Harvard Business Review, 5 per cent increase in customer retention can increase profitability by 35 per cent in banking business, 50 per cent ininsurance and brokerage, and 125 per cent in the consumer credit card market. Thus, banksneed to emphasise on retaining customers and increasing market share.Second, rising indebtedness   could turn out to be a cause for concern in the future.India's position, of course, is not comparable to that of the developed world where householddebt as a proportion of disposable income is much higher. Such a scenario creates highuncertainty. Expressing concerns about the high growth witnessed in the consumer creditsegments, the Reserve Bank has, as a temporary measure, put in place risk containmentmeasures and increased the risk weight from 100 per cent to 125 per cent in the case of consumer credit including personal loans and credit cards (Mid-term Review of AnnualPolicy, 2004-05).Third, information technology poses both opportunities and challenges. Even withATM machines and Internet Banking, many consumers still prefer the personal touch of their neighbourhood branch bank. Technology has made it possible to deliver services throughoutthe branch bank network, providing instant updates to checking accounts and rapidmovement of money for stock transfers. However, this dependency on the network has brought IT departments additional responsibilities and challenges in managing, maintainingand optimizing the performance of retail banking networks. Illustratively, ensuring that all bank products and services are available, at all times, and across the entire organization isessential for today’s retails banks to generate revenues and remain competitive. Besides, there4
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