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      I, the undersigned URVI B. SHAH a student of
T.Y.B.B.A. hereby declare that the project work presented
in this report is my own and has been carried out under the
supervision of Ms. Darshita Ganatra of CHRIST

Date :

Place : Rajkot                            (Urvi B. Shah)


         Retail banking has emerged as a thrust area of the
Indian Banking in recent years. The reasons for this
phenomenon are well known. Importantly, it denotes a shift in
the official policy, which had been discouraging banks from
venturing in this area until 1990s.

         This new area has presented enormous challenges and
opportunities to India banks. They have risen to the occasion
and have been proving themselves. In this report, I have put
together certain critical aspects along with experiences in retail
banking in India. Indeed, retail banking is a conglomeration of
several     heterogeneous   activities   ranging   from    simple
overdrafts to mortgage loans. However, they all have a
common feature namely individual-base. The discussions in
the report cover virtually most of the aspects.

         The report deal with the overview, current scenario,
problems, prospect of the banking industry and mainly the
trend in retail banking in Indian banking industry and in State
Bank of Saurashtra, which is one of the seven associates of
State Bank of India.

Date :

Place : Rajkot                           (Urvi B. Shah)


         I feel a great sense of pride and pleasure in presenting
my first FINANCE REPORT to the Saurashtra University as a
student of T.Y.B.B.A. on ‘RETAIL BANKING’.

         I convey my heartiest gratitude to Mr. Jayesh
Katrodia and Mr. Kirti Bataviya, without whom this
task would not have been so easy. Also, I am thankful to Mr.
Hemant Vasani and Mr. Y. B. Gosai who gave me
valuable advices and required knowledge for my report. Also,
I am thankful to Mr. Atul Rathod and S.B.S. university
road branch at Rajkot for their co-operation.

         I thank Ms. Darshita Ganatra who guided me
throughout in making the report and giving me motivation.

         I thank all those who have helped me directly or
indirectly in the successful completion of this project.

Date :

Place : Rajkot                                 (Urvi B. Shah)

                   MAIN INDEX

                     Particulars                Pg. No.

   1      Overview

   2      Conceptual framework

   3      Research Methodology

   4      Analysis of data and interpretation




                     Particulars               Pg. No.

   1      Brief history of S.B.S.

   2      Overview of banking industry

   3      Problems faced by banking industry

   4      Prospect of banking industry

   5      Overall conclusion of the chapter


History of S.B.S.

      State Bank of Saurashtra is a growing and progressive
institution, with its roots firmly entrenched in the soil of
Saurashtra. The region of Saurashtra, which at present forms
a part of Gujarat State, comprised of many small, medium
and large princely states, prior to 1948.        The states of
Bhavnagar, Rajkot and Porbandar, which were among the
larger states and the two smaller states, viz. Palitana and
Vadia, had established their own Darbar Banks. Out of these
five, Bhavnagar Darbar Bank had been established in the year
1902, to which we owe our origin. These banks were mainly
catering to the needs of the respective princely states, acting
as the repository for the states’ treasures as also the peoples’
savings. After the princely states were integrated to from
Saurashtra state in 1948, a need was felt to amalgamate these
banks and make them a state-owned bank was felt to serve as
an instrument for developing the economy of the region.
Accordingly, the Bhavnagar Darbar Bank was formed into a
statutory    corporation,    called    STATE      BANK      OF
SAURASHTRA,        under     the   Saurashtra     State   Bank
(Amalgamation) Ordinance, 1950 and the four Darbar Banks
– Rajkot State Bank, Porbandar State Bank, Palitana Darbar

Bank and Vadia State Bank – were merged with it with effect
from 1st July, 1950 as its branches.

         The year 1960 was the most important landmark in the
history of the Bank. Firstly, following the formation of a
separate Gujarat State, the Bank’s main area of operation –
Saurashtra – became a part of Gujarat. Secondly, pursuant
to the recommendations of the All India Rural Credit Survey
Committee, the Bank was taken by the State Bank of India
under its wings along with other major state-owned banks
under the State Bank of India (Subsidiary Banks) Act, 1959.
Thus, in 1960, the State Bank of Saurashtra joined the State
Bank family as one of its fully owned subsidiaries so that its
policies and activities could be directed to achieve the socio-
economic objectives for which the Sate Bank of India itself
was constituted.       These twin events brought about a
significant change in the outlook of the Bank. Apart from
providing the Bank with an opportunity to expand its
operations and enabling use of the network of the State Bank
Group for furthering its business activities, it also enabled
the Bank to grow from a state of infancy into adulthood by
imbibing the rich banking traditions of the State Bank of

         At the close of 1950, the Bank had only 9 branches and
deposits of Rs 7 crores.      A decade later the number of
branches had increased to 24 with aggregate deposits of Rs
13.39 crores, total advances of Rs 7.93 crores and investment

portfolio of Rs 8.04 crores. The paid up capital and reserves
were Rs 1.51 crores. The Bank had 866 people on its payroll,
to take care of its operations.

Their Present

      By 31/03/2005, the total deposits amounted to Rs
12613.04 crores and total advances reached the level of Rs
6714.07 crores. The business of the Bank is now spread over
15 states and Union Territory of Daman and Diu with a
network of 423 branches. The Bank’s paid up capital and
reserves amounted to Rs 794.25 crores as at the end of March
2005. The Bank had Capital Adequacy Ratio of 11.45%.

      All branches are fully computerized and are expected
to be networked to provide “Anywhere Banking” to our
valued customers before December, 2005.

Their Vision

      To be the premier Pubic Sector Bank of Gujarat aiming
at growth and profit with central focus on customer delight
by means of improved technology, product development,
excellence in service, thus harnessing the potential for

growth in alignment with national policies and priorities in a
planned manner geared to meet all challenges of growth.

Their Mission

      State Bank of Saurashtra aims at corporate excellence
and profit maximization with central focus on customer
delight so as to maintain its premier position in the State of
Gujarat by means of excellence in service, product
development,    improvement     in   technology,   harnessing
potential for growth in alignment with national objectives in
a planned manner so as to emerge as a strong bank with
social orientation, geared to meet all the challenges of

      Excellence in man – management and optimal use of
human resources will be the bank’s cornerstone in
establishing a position of eminence for itself in the banking
industry, benchmarking itself against the highest standards
and adopting national and international best practices while
maintaining the traditional strength developed over a
century of banking.

     The bank will derive its strength from its extensive
rural network and reach out to the urban pockets with thrust
on technology and quality service.


            The Indian Banking industry, which is governed
by the Banking Regulation Act of India, 1949 can be broadly
classified into two major categories, non-scheduled banks
and scheduled banks. Scheduled banks comprise commercial
banks and the co-operative banks. In terms of ownership,
commercial banks can be further grouped into nationalized
banks, the State Bank of India and its group banks, regional
rural banks and private sector banks (the old/new domestic
and foreign). These banks have over 67,000 branches.

            The first phase of financial reforms resulted in
the nationalization of 14 major banks in 1969 and resulted in
a shift from Class banking to Mass banking. This in turn
resulted in a significant growth in the geographical coverage
of banks. Every bank had to earmark a minimum percentage
of their loan portfolio to sectors identified as “priority
sectors”. The manufacturing sector also grew during the
1970s in protected environs and the banking sector was a
critical source. The next wave of reforms saw the
nationalization of 6 more commercial banks in 1980. Since
then the number scheduled commercial banks increased four
– fold and the number of banks branches increased eight –

      After the second phase of financial sector reforms and
liberalization of the sector in the early nineties, the Public
Sector Banks (PSBs) found it extremely difficult to compete
with the new private sector banks and the foreign banks. The
new private sector banks first made their appearance after
the guidelines permitting them were issued in January 1993.
Eight new private sector banks are presently in operation.
These banks due to their late start have access to state – of –
the - art technology, which in turn helps them to save on
manpower costs and provide better services.

            During the year 2000, the State Bank of India
(SBI) and its 7 associates accounted for 25 % share in
deposits and 28.1 % share in credit. The 20 nationalized
banks accounted for 53.2 % of the deposits and 47.5 % of
credit during the same period. The share of foreign banks
(numbering 42), regional rural banks and other scheduled
commercial banks accounted for 5.7 %, 3.9 % and 12.2 %
respectively in deposits and 8.41 %, 3.14 % and 12.85 %
respectively in credit during the year 2000.

Current Scenario

            The banking industry is currently in a transition
phase. On the one hand, the PSBs, which are the mainstay of
the Indian Banking System are in the process of shedding
their flab in terms of excessive manpower, excessive Non –

Performing Assets (NPAs) and excessive governmental
equity, while on the other hand the private sector banks are
consolidating themselves through mergers and acquisitions.

            PSBs, which currently account for more than 78
% of total banking industry assets are saddled with NPAs,
falling revenues from traditional sources, lack of modern
technology and a massive workforce while the new private
sector banks are forging ahead and rewriting the traditional
banking business model by way of their sheer innovation and
service. The PSBs are of course currently working out
challenging strategies even as 20 % of their massive
employee strength has dwindled in the wake of the successful
Voluntary Retirement Schemes (VRS).

            The private players however cannot match the
PSB’s great reach, great size and access to low cost deposits.
Therefore, one of the means for them to combat the PSBs has
been through the merger and acquisition (M&A) route. Over
the last 2 years, the industry has witnessed several such
instances. For instance, HDFC Bank’s merger with Times
Bank, ICICI Bank’s acquisition of ITC Classic, Anagram
Finance and Bank of Madura.
      Private sector banks have pioneered internet banking,
phone banking, anywhere banking, mobile banking, debit
cards, Automated Teller Machines (ATMs) and combined
various other services and integrated them into the
mainstream banking arena, while the PSBs are still grappling
with disgruntled employees in the aftermath of successful

VRS. Also, following India’s commitment to the WTO
agreement in respect of the services sector, foreign banks,
including both new and the existing ones, have been
permitted to open up to 12 branches a year with effect from
1998 – 99 as against the earlier stipulation of 8 branches.
Talks of government diluting their equity from 51 % to 33%
have also opened up a new opportunity for the takeover of
even the PSBs.

            Meanwhile the economic and corporate sector
slowdown had led to an increasing number of banks focusing
on the retail segment. Many of them are also entering the
new vistas of Insurance. Banks with their phenomenal reach
and a regular interface with the retail investor are the best
placed to enter into the insurance sector. Banks in India have
been allowed to provide fee – based insurance services
without risk participation, invest in an insurance company
for providing infrastructure and services support and set up
of   a separate   joint   –   venture   insurance with        risk


      The banking industry in India is undergoing a major
transformation due to changes in economic conditions and
continuous deregulation. These multiple changes happening
one after other has a ripple effect on a bank trying to
graduate from completely regulated sellers market to
completed deregulated customers market.

     Deregulation :

      This continuous deregulation has made the Banking
market extremely competitive with greater autonomy,
operational flexibility, and decontrolled interest rate and
liberalized norms for foreign exchange. The deregulation of
the industry coupled with decontrol in interest rates has led
to entry of a number of players in the banking industry. At
the same time reduced corporate credit off take thanks to
sluggish economy      has   resulted     in   large number of
competitors battling for the same pie.

     New rules :

     As a result, the market place has been redefined with
new rules of the game. Banks are transforming to universal

banking, adding new channels with lucrative pricing and
freebees to offer.

     Natural fall out of this has led to a series of innovative
product offerings catering to various customer segments,
specially retail credit.

      Efficiency :

       This in turn has made it necessary to look for
efficiencies in the business. Banks need to access low cost
funds and simultaneously improve the efficiency. The banks
are facing pricing pressure, squeeze on spread and have to
give thrust on retail assets.


                The future banking, which is poised for reaping
    the full benefits of the developments in the field of knowledge
    and information technology, will be knowledge oriented and
    technology driven banking, thus metamorphosing the entire
    Indian banking scenario. The main features of “Banking
    Vision in Prospect” can be briefly summarized as :

*   This will be a paperless banking era dominated by plastic

*   The banks will be slim and trim in their physical size and
    structure and not in business volume, with emphasis on
    automation and outsourcing of different services so that they
    can tackle the increasing volumes of business efficiently and
    effectively and become competitive in relation to foreign and
    private sector banks.

*   Customer banker contact will be reduced to the bare
    minimum to be taken over by electronic banking, telebanking
    and card banking. This can very well be expressed as “365
    Days 24 Hours Anywhere Banking” or alternatively as
    “Anywhere Anytime Banking”.

*   Customer service and product innovation will be the guiding
    principle and the strength of the banks.

*   Integration of financial services, such as insurance, hire
    purchase and leasing, brokering, consultancy and banking,
    will take place thereby making the banks a delivery channel
    for a host of financial products and services.

*   Five to six nationalized banks will dominate Indian Banking
    scenario having global presence and sound capital base with
    a few all India character private sector banks along with the
    small    regional    banks    suiting   and    catering      to    local

*   With thinning of spreads on core banking business of credit
    and deposit, banks have to search for alternative profit
    generating    avenues    in    the   form     of   the     float   fund
    management,         thereby    strengthening       their      treasury
    operations, which will be a thrust area in the emerging
    banking environment.

*   Risk management activities will be more pronounced in
    future banking because of the liberalization, deregulation and
    global integration of financial markets, which will be adding
    depth and dimensions to the banking risks. The risks are
    correlated and exposure to one risk may lead to another risk,
    therefore management of risks in a proactive, efficient and
    integrated manner will be the strength of the successful

           Thus, future banking can be compared with the
hospitality industry thriving on the tailor made products
suiting to the requirements of the individual customers
where volumes will be of primary importance. Accordingly
the perceived theme of “Indian Banking Vision in Prospect”
can best be described as “Technology Driven Enlightened
Employee with Customer Delight” with the service objective
of “Anywhere Anytime Banking”.


                Growth is the innate process and natural
 mechanism of every organisation and system to which Indian
 banking is no exception. A historical glance on the
 development of India Banking Industry reveals that it has
 passed through various phases of growth, which may be
 classified under different phases together with future

                The financial sector reforms have brought about
 significant improvements in the financial strength and the
 competitiveness of the Indian Banking System. The banking
 sector reforms were basically aimed at ensuring the safety
 and soundness of financial institutions and the same time at
 making the baking system strong, efficient, functionally
 diverse and competitive. The reforms included measures for
 arresting   the    decline   in   productivity,   efficiency   and
 profitability of the banking sector. Furthermore, it was
 recognized that the Indian banking system should be in tune
 with international standards of capital adequacy, prudential
 regulations, and accounting and disclosure standards.

       State banks in India have, over the years, played a very
 significant role in the development of the economy and in
 achieving the objectives of reaching the masses and cater to
 the credit needs of all segments, including weaker sections, of
 the economy.

      Technological factors played a major role. Convenience
banking in the form of debit cards, internet and phone –
banking, anywhere and anytime banking has attracted many
new customers into the banking field.




                    Particulars               Pg. No.

   1      Definition of retail banking

   2      Meaning of retail banking

   3      Special features of retail credit

   4      SWOT Analysis

   5      Emerging issues in retail credit

   6      Conclusion of the chapter


            The simplistic definition of the term retail
banking could be catering to the multiple banking
requirements of individuals relating to deposits, advances
and associated services. The retail banking portfolio of a bank
encompasses deposits and asset-linked products as well as
other financial services offered to individuals for personal
consumption. The retail banking on assets side of the balance
sheet now includes a wide range of loan products such as
housing loans, mortgage loans, consumption loans for
purchase      of     durables,     personal      loans      for
specified/unspecified activities/requirements, auto loans,
educational loans, loans against various types of securities,
loans against future rentals in addition to the traditional
products on liability side of the balance sheet such as
acceptance of deposits – savings bank, current account or
term deposits.


      Most of the Indian banks have largely been retail banks
in their business composition.      The term retail banking
encompasses retail deposit schemes, retail loans, credit
cards, debit cards, insurance products, mutual funds,
depository services including demat facilities and a host of
other services catering to the needs of the individual
customers.   It would be seen from the above that retail
banking includes various financial services and products
forming part of the assets as well as the liabilities segment of
the Banks. Simply put, it refers to taking care of the banking
needs of individual customers in an integrated manner. It
has to be viewed as a market segment by itself.


          One of the prominent features of retail banking
    products is that it is a volume driven business. Further, retail
    credit ensures that the business risk is widely dispersed
    among a large customer-base, unlike in the case of corporate
    lending where the risk may be concentrated lending where
    the risk may be concentrated on a select few clients. Ability of
    any bank to administer a large portfolio of retail credit
    products depends on such factors as the following :

»   Strong credit assessment capability : because of the
    large volume good infrastructure is required. If the credit
    assessment itself is qualitative, then the need for follow up in
    the future reduces considerably.

»   Sound Documentation : a robust system for credit
    documentation is a necessary pre-requisite for healthy
    growth of retail credit portfolio – as in the case of credit
    assessment, this will also minimize the need to follow up at a
    future point of time.

»   Strong processing capability : since large volumes of
    transactions are involved, excellent infrastructure for

    processing of day-to-day transactions, maintenance of back-
    ups etc., is required.

»   Regular and Constant Follow-up : ideally, follow up for
    loan repayments should be an ongoing process; it should
    start from the customer enquiry and last till the loan is repaid
    in full.

»   Skilled human resources : this is one of the most
    important pre-requisites for the efficient management of a
    large and diverse retail credit portfolio. Only highly skilled
    and experienced manpower can withstand the rigour of
    administering a diverse and complex retail credit portfolio.

»   Technological support : this is yet another vital
    requirement. Retail credit is highly technological intensive
    nature, because of the large volumes of business, the need to
    provide instantaneous service to the customers at large,
    faster processing, maintaining databases etc.








$   Maximum chunk of low cost (savings bank) and fixed
    deposits, contributed by retail segment, are considered less
    volatile as compared to other deposits. Non – volatile nature
    of these deposits help the banks to draw their ALM strategies
    more particularly for longer tenure comfortably.

$   Low cost of operations in terms of deployment of manpower
    for processing and follow up, as compared to similar sized
    loans in other segments.

$   Low level of NPAs. [Tendency to default on housing loan is
    low as house is considered as the big-ticket deal of an
    individual’s life. However, tendency of default on other sub-
    segments of retail loan is comparatively higher].

$   Retail finance provides a higher and rather consistent risk
    adjusted return to Banks due to low level of NPAs.

$   Safe advances as these are invariably backed by tangible
    security in the form of mortgage of house/flat in case of
    housing loans and tangible security, check off facility, post
    dated cheques, etc. in case of other retail loans.

$   High yield return to retail depositor with safety and liquidity.


•   High manpower cost, low productivity and automation is still
    a cause of concern for the nationalized banks which increases
    intermediation cost for them as compared to private sector
    banks/foreign banks.

•   The scheme with variable deposit rates option with the
    depositors has not gained popularity and as such the cost of
    time deposits for the Banks remain constant even though the
    rates of interest on advances remain fluctuating.

•   Largely, longer tenure of loans, ranging from minimum 3
    years to 15/20 years as against the average deposits of less
    than 3 years.

•   Absence of workable foreclosure laws. [The National Housing
    Banks has initiated steps to set up a Mortgage Credit
    Guarantee Company pursuant to the announcement made by
    the Finance Minister in his budget speech of 2002-03. The
    Company will guarantee housing loans, thus providing
    lenders with protection against default by the borrowers].


   Cross selling of products. [The Banks now prepare database
    of their depositors to study the nature of transactions being
    routed through the deposit accounts with a view to

    ascertaining the lending requirements of their customers and
    do marketing therefore].

   Of late, securitization of retail loan portfolio has been started
    in a big way. Nationalized Banks, being in advantageous
    position in terms of their geographical reach to a large
    number of borrowers, can continue to book fresh business,
    improve their customer base to cross sell their products and
    in due course off load the portfolio through securitization
    route depending upon their ALM position.

   In the medium term, growth in retail lending is expected to
    be outperforming than other segments due to lower interest
    rates regime and increased use of technology by banks
    thereby reduced cost of intermediation.

   The growth in retail lending is expected to continue at much
    higher rates in the time to come as the retail loans to GDP are
    still less than 5% which is lower than               the other
    developed/developing countries.

   Continued preferred mode of savings of the households
    sector due to unattractiveness of other options as compared
    to risk involved. Reduction/gradual withdrawal of tax
    benefits under other Government administered deposit
    schemes also re - routing deposits to Banks.

   Retail lending provides an opportunity to the Banks to offset
    the lower demand of funds from corporate sector.


~   Incidences of concurrent borrowings are on increase in case
    of retail loans through the credit card/other routes. This is a
    cause of concern for the Banks.

~   Switchover/takeover threats loom over the bank.

~   Shrinkage in the kitty of no cost [current account] deposits
    thereby increasing the average cost of deposits for the Bank.

~   The cost of maintaining low cost [saving bank] deposits is
    also increasing due to increased competition. The Banks are
    now compelled to provide free ATM cards with other add-on

~   Retail advances are unproductive in nature. These advances
    do not directly contribute in the economic development of
    the country. Continuous emphasis of the Banks on the retail
    segment has reduced their outlay of funds to other segments
    such as agriculture, industry, etc.


   Knowing the Customer

          ‘Know Your Customer’ is a concept which is easier said
    than practiced. Banks face several hurdles in achieving this.
    In order that the product lines are targeted at the right
    customers – present and prospective – it is imperative that
    an integrated view of the customers is available to the banks.
    The benefits flowing out of cross – selling and up – selling
    will remain a far cry in the absence of this vital input. In this
    regard, the customer data bases available with most of the
    public sector banks, if not all, remain far from being enviable.

                 What needs to be done is setting up of a robust
    data warehouse wherefrom meaningful data on customers,
    their preferences, their spending patterns, etc. can be mined.
    Cleansing of existing data is the first step in this direction.
    PSBs have a long way to go in this regard.

   Technology Issues

          Retail   banking    calls   for   huge   investments   in
    technology. Whether it is setting up of a Customer
    Relationship Management System or Establishing Loan
    Process   Automation     or   providing   anytime,   anywhere
    convenience to the vast number of customers or establishing
    channel/product/customer profitability, technology plays a
    pivotal role. And it is a long haul. The issues involved include
    adoption of the right technology at the right time and at the
    same time ensuring volumes and margins to sustain the
    investments. It is pertinent to remember that Citibank,
    known for its development of technology, took nearly a
    decade to make profits in credit cards. It has also to be added
    in the same breath that without adequate technology
    support, it would be well nigh impossible to administer the
    growing retail portfolio without allowing its health to
    deteriorate. Further, the key to reduction in transaction costs
    simultaneously with increase in ability to handle huge
    volumes of business, lies only in technology adoption.

          PSBs are on their way to catch up with the technology
    much required for the success of retail banking efforts. Lack
    of connectivity, stand alone models, concept of branch
    customer as against bank customer, lack of convergence
    amongst available channels, absence of customer profiling,
    lack of proper MIS and decision support systems, etc., are a
    few deficiencies that are being overcome in a great way.

    However, the initiatives in this regard should include
    creating flexible computing architecture amenable to changes
    and having scalability, a futuristic approach, networking
    across channels, development of a strong Customer
    Information    System     (CIS)   and    adopting    Customer
    Relationship Management (CRM) models for getting a 360
    degree view of the customer.

   Organizational Alignment

          It is of utmost importance that the culture and
    practices of an institution support its stated goals. Having
    decided to take a plunge into retail banking, banks need to
    have a well defined business strategy based on the
    competitive profile of the bank and its potential. Creation of a
    proper organisation structure and business operating models
    which would facilitate easy work flow are the need of the
    hour. The need for building the organizational capacity
    needed to achieve the desired results cannot be over – stated.
    This would mean a strong commitment at all levels, intensive
    training of the rank and file, putting in place a proper
    incentive scheme, etc. As a part of organizational alignment,
    there is also the need for setting up of an effective Corporate
    Marketing Division. Most of the public sector banks have
    only publicity departments and not marketing set - up. A full
    - fledged marketing department or division would help in
    evolving a brand strategy, address the issue of alienation
    from the upwardly mobile, high net worth customer group
    and improve the recall value of the institution and its

    products by arresting the trend of getting receded from
    public memory. The much needed tie               – ups with
    manufacturers / distributors / builders will also be facilitated
    smoothly. It is time to break the myth that PSBs are not
    customer friendly. The attention is to be diverted to vast data
    bases of customers lying with the PSBs still unexploited for

   Product Innovation

          Product innovation continues to be yet another major
    challenge. Even though bank after bank is coming out with
    new products, not all are successful. What is of crucial
    importance is the need to understand the difference between
    novelty and innovation? Peter Drucker in his path breaking
    book : ‘ Management Challenges for the 21st century’ has in
    fact sounded a word of caution : “…innovation that is not in
    tune with the strategic realities will not work; confusing
    novelty with innovation (should be avoided); test of
    innovation is that it creates value; novelty creates only
    amusement.” The days of selling the products available in the
    shelves are gone. Banks need to innovate products suiting the
    needs and requirements of different types of customers.
    Revisiting the features of the existing products to continue to
    keep them on demand, should not also be lost sight of.

   Pricing of Products

          The next challenge is to have appropriate pricing
    policies in place. The industry today is witnessing a price war,
    with each Bank wanting to have a larger slice of the cake, that
    is, the market, without much of a scientific study into the cost
    of funds involved, margins, etc. The strategy of each player in
    the market seems to be: ‘undercutting others and wooing the
    clients of others’. Most of the banks that use rating models
    for determining the health of the retail portfolio do not use
    them for pricing the products. The much – needed
    transparency in pricing is also missing, with many hidden
    charges. There is a tendency, at least on the part of a few to
    camouflage the price. The situation cannot remain this way
    for long. This will be one issue that will be gaining
    importance in the near future.

   Process Changes

          Business Process Re – engineering is yet another key
    requirement for banks to handle the growing retail portfolio.
    Simplified processes and aligning them around delivery of
    customer service impinging on reducing customer touch –
    points are of essence. A realization has to dawn that
    automating the inefficiencies will not help anyone and
    continuing the old processes with new technology would only
    make the organisation an old expensive one. Workflow and
    document management will be integral part of process

    changes. The documentation issues have to remain simple
    both in terms of documents to be submitted by the customer
    at the time of loan application and those to be executed upon

   Issues Concerning Human Resources

          While technology and product innovation are vital, the
    soft issues concerning the human capital of the banks are
    more vital. The corporate initiatives need too focus on
    bringing around a front line revolution. Though the changes
    envisaged are seen at the front line, the initiatives have really
    to come from the ‘bank

    end’. The top management of banks must be seen as
    practicing what it preaches. The initiatives should aim at
    improved delivery time and methods of approach. There is an
    imperative need to create a perception that the banks are
    market – oriented. This would mean a lot of proactive steps
    on the part of bank managements which would include
    empowering staff at various levels, devising appropriate tools
    for   performance      measurement,       bringing    about    a
    transformation – form ‘can’t do’ to ‘can do’ mind – set,
    change from restrictive practices to total flexible work place,
    say, by having universal tellers, bringing in managerial
    control in work place, provision of intensive training on
    products and processes, emphasizing, coaching and ensuring
    etiquette, good manners and best behavioral models,
    formulating objective appraisals, bringing in transparency,

    putting in place good and acceptable reward and punishment
    system, facilitating the placement of young / youthful staff in
    front – line, defining a new role for front – line staff by
    projecting them as sellers of products rather than clerks at
    work and changing the image of the bank from a transaction
    provider to a solution provider.

   Rural Orientation

          As of now, action that is taking place on the retail front
    is by and large confined to metros and big cities. There is still
    a cast market available in rural India, which remains to be
    tapped. Multi National Corporations, as manufacturers and
    distributors, have already taken the lead in showing the way
    by coming out

    with exquisite products, packaging and promotion, keeping
    the rural customer in mind. Washing powders and shampoos
    in Re. 1 sachets made available through an efficient network
    stand testimony to the determination of the MNCs to
    penetrate the rural market. In this scenario, banks cannot lag
    behind. In particular, PSBs, which have a strong rural
    customers in a big way. This and only this will propel a retail
    growth that is envisaged as a key strategy for portfolio
    expansion by most of the banks.


            Retail lending has turned out to be a key profit
driver for banks. In fact, retailing make ample business sense
in the banking sector. While private sector banks have been
able to create a niche in this regard, the public sector banks
have not lagged behind.

            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

            There is a need of constant innovation in retail
banking. In bracing for tomorrow, a paradigm shift in bank
financing through innovative products and mechanisms
involving constant upgradation and revalidation of the banks’
internal systems and processes is called for. Banks now need
to use retail as a growth trigger, this requires product
development and differentiation, innovation and business
process reengineering, micro – planning, marketing, prudent
pricing, customization, technological upgradation, home /
electronic / mobile banking, cost reduction and cross –




                       Particulars                 Pg. No.

   1      Analysis of retail banking

   2      Objective of the study

   3      Data collection and period of study

   4      Hypothesis of study

   5      Tools and techniques used for analysis

   6      Limitation of study

   7      Conclusion


            With the onset of financial sector reforms, banks
had to face stiff competition and they experienced the threat
of disintermediation. Walk - - in business was a thing of the
past and banks were on their toes to capture quality business.
With the slowdown in the economy, corporate credit has
deteriorated in quality. Good corporates demand finer
interest rates under sub – PLR, which means thinning
margins. Banks therefore had to scout in for retail business.
Retail banking has many advantages like stable deposits, low
cost of funds, larger customer base etc. on the resources side.
On the asset side, the advantages are better yields and higher
profitability, larger volumes of credit absorption, well
diversified risk and lower NPAs, economic recovery through
increased production and sales, and innovation product

      With rising income, the life style of the average Indian
Middle Class family had improved considerably. There is a
greater amount of consumerism in the country and raising
debt for the consumer needs is on the increase. Consumer
credit is no longer considered as unproductive, as it triggers
demand for consumer products, which in turn helps
manufacturers in a period of economic slowdown. With
foreign bans coming into the retail sector and offering newer
products, Indian Banks also had to evolve its products and
services to cater to the demands of the aggressive middle
class. Retail Banking became the buzzword in banking and
banks have developed innovative retail banking products
tailored to the customers needs.

     Retail advances portfolio for selected banks

                                   2002            2003

 ICICI Bank                    6,125.00          19,132.00
 HDFC Bank                     1,430.00           3,163.00
 IDBI Bank                      408.00           1,608.00
 Bank of Baroda                 989.80            1,455.00
 Canara Bank                   3,334.00          5,685.00
 Union Bank                    3,975.80           5,213.70
 SBI                          17,705.00         24,300.00

      Retail credit, especially housing and automobile loans,
which account for over 85 % of the retail market, have been
showing strong growth in the last 3 – 4 years. As growth in
corporate advances has slowed, banks have been increasingly
focusing on building up their retail assets portfolio of banks
grew at over 25 %. At present, retail assets constitute 10 – 12
% of the total advances of scheduled commercial banks.


      The following are the objectives for the study of retail

  •   It identifies whether the retail portfolio has achieved
      the targeted budget or not.

  •   It helps in knowing the growth in the specific sector
      such as housing loan, educational loan, etc. before and
      after implementing the new schemes.

  •   It also provides the position in the Retail sector of
      India Banking Industry.

  •   It also provides the ratio of growth in public sector
      banks as well as the private sector.

  •   It helps in improving the service capability.


       There are mainly two types of data :
                                 1] Primary data and
                                 2] Secondary data

              Primary data is that which is published or
 calculated for the first time. Secondary data is such data
 which is available by further calculation of primary data i.e.
 data obtained with the help of primary data is considered as
 secondary data.

              I have selected secondary data for research in
 retail banking. This data is of last 3 years and I have obtained
 from P & SB department from the head office of S.B.S.
 situated at Bhavnagar.

              Also, I have collected other information for my
 report from different magazines like :
                               1] IBA Bulletin,
                              2] Banking Annual
                             3] Bank Quest.

          Moreover, I have surfed the sites like,


             The assumption regarding retail banking that I
have assumed for my research is increasing trend. The
retail banking has increased tremendously in the banking
industry. Moreover, the different schemes put forward by
banks in retail loans have helped to widen the market. The
decrease in the rates of loans has also added its contribution
in increase of retail sector, i.e. the reasonable rates available
in the retail banking has given a push in its increase. The
housing finance has played an important role in the retail

             Considering these all factors, the assumption
should be increasing trend in retail banking.


              There are many tools and techniques used for
analysis of financial data. They are ratio analysis, trend
analysis, statistical analysis, etc.

              I have selected trend analysis as a tool to analyze
the trend in the retail banking sector of State Bank of


The limitation of the study is stated as below :

     We can’t know the position of the bank as a whole.

     The study is made on the secondary data not the
      primary data.

     We can’t know the branch wise contribution in the
      retail portfolio.


      The research on retail banking helps in knowing the
position of the bank in the banking industry due to its retail
credit schemes. The study involves the various aspects and
needs the reliable data sources. Moreover the data collected is
to be analyzed using proper tools and techniques.




                   Particulars                  Pg. No.

   1      Analysis and interpretation of data

   2      Summary and findings

   3      Suggestions

   4      Bibliography


1.     Housing Loan Scheme

     For construction, purchase of new / old house / flat / repair
      and renovation & furnishing of house / flat or purchase of

     All individuals above 21 to 65 years are eligible.

     Loan amount to the extent of 48 to 60 times net monthly
      income or 4 to 5 times net annual income depending upon the

     No maximum amount fixed. However for purchase of land
      alone, the loan amount not to exceed Rs. 10 lacs.

     Spouse income can be included for arriving at the quantum of

     Margin 15 % for construction, 20 % for renovation and 30 %
      for purchase of land.

     Repayment can be upto 20 years for person below 45 years and
      upto 15 years for person above 45 years.

     Processing charges 0.5 % of the loan amount.

                  HOUSING LOAN SCHEME

                          Floating Rate
                                                 Fixed Rate
      Tenor                     w.e.f.
                                              w.e.f. 16/02/2004

   Upto 5 years                 7.50 %             7.75 %

Above 5 years to 15
                                7.75 %             8.00 %

Above 15 years to 20
                                8.25 %             8.50 %

    Particulars        2002 - 03     2003 – 04     2004 – 05
                       227.96        353.03        771.54

         400                 353.03
                                                 Housing Loan
         300     227.96
               2002 - 03   2003 – 04 2004 – 05

Interpretation :

         In the year 2003 – 2004 there has been a little
increase in the housing loan. But in the year 2004 – 2005
there has been an increase of more than double housing

2.    Car Loan Scheme

    To purchase new / old car (not more than 4 years old).

    All permanent employees, professionals and self – employed
     are eligible.

    Loan amount not exceeding 24 times net monthly of 2 times
     net annual income with a maximum of Rs. 12 lacs for new cars
     and Rs. 5lacs for old cars.

    Margin 15 % for loans upto Rs. 4 lacs, 20 % for loans above Rs.
     4 lacs and 30 % for old cars. Repayable in 84 / 60 months for
     new / old car.

    Comprehensive insurance of the vehicle to be obtained.

    No processing charges.

                        CAR LOAN SCHEME

                         Floating Rate
                                                Fixed Rate
    New vehicles             w.e.f.
                                            w.e.f. 01/04/2005

  For premium
  segment cars               7.50 %               8.00 %
  ( 8 lakhs & above)
  For metro & urban
  centre :
                             8.00 %                   8.50 %
      a. upto 3 years
      b. above 3
                             8.25 %                   8.75 %
         years and
         upto 5 years
      c. above 5
                             8.50 %               9.00 %
         years and
         upto 7 years
  For rural & semi
  urban centre :
      a. upto 3 years        8.50 %               9.00 %
      b. above 3
         years and           8.75 %                   9.25 %
         upto 5 years
      c. above 5
         years and           9.00 %                   9.50 %
         upto 7 years
( Cars with repayment period of more than 3 years )

         CAR LOAN DATA OF S.B.S.
Particulars      2002 - 03         2003 – 04      2004 – 05
                 1802              2019           2084

       2050                 2019
       1850     1802                              Car Loan
              2002 - 03   2003 – 04   2004 – 05

Interpretation :

              There was a notable increase in the car loan
during 2003 – 2004 as compared to that of 2002 – 2003. But
not much increase in the year 2004 – 2005.

3.    Education Loan

    To provide financial assistance for higher education in India
     and abroad for those secured admission in recognized /
     reputed institutions.

    Loans depending upon the course requirements, future
     prospects.   Need    based   finance    considered    subject   to
     repayment capacity with a ceiling of Rs. 10 lacs for studies in
     India and Rs. 20 lacs for studies abroad.

    Expenses considered include fees payable to college / school /
     hostel etc. essential for completion of the course.

    No margin, no security for loans upto 4 lacs. For loans above
     Rs. 4 lacs to Rs. 7.50 lacs security only in terms of suitable
     third party guarantee, for loans above Rs. 7.50 lacs suitable
     collateral security equal to 100 % of loan amount and a margin
     of 15 % for studies abroad and 5 % for studies in India.

    No minimum marks criteria.

    Repayment within 5 – 7 years after getting the employment or
     1 year after completion of course.

    Interest charged on simple rate basis during the course period
     (moratorium). 1 % interest remission, if the interest is serviced
     during the moratorium period.

     No processing charges.

                   EDUCATION LOAN SCHEME

                           Floating Rate
                                                  Fixed Rate
        Tenor                    w.e.f.
                                              w.e.f. 16/02/2004

                                              Note : upto
For loans upto Rs. 4
                                 10.50 %      moratorium period
                                              simple interest
For loans above Rs. 4
                                 11.50 %                -

     Particulars       2002 - 03      2003 – 04     2004 – 05
                        2213           3365         3429

                         3365      3429
      2500     2213
      1500                                   Loan
             2002 - 03 2003 – 04 2004 – 05

Interpretation :

             There was a little increase in the year 2003 –
2004 than year 2003 – 2004 but a very minor increase in the
education loan during 2004 – 2005.

4.    Scooter Loan

    To purchase new scooter / motor cycle etc.

    All permanent employees and other income tax assessee with
     minimum net monthly income of Rs. 5,000/- is eligible.

    Loan amount 6 times net monthly income.

    Margin 10 % for loans upto Rs. 50,000/- and 20 % for loans
     above Rs. 50,000/-.

    Repayable in 36 months.

    Processing charges 1 % of the loan amount.

    Security : Hypothecation of vehicle with check – off facility or
     third   party   guarantee   or   tangible    collateral   security.
     Comprehensive insurance to be obtained.

               SCOOTER LOAN SCHEME

                 Floating Rate        Fixed Rate
               w.e.f. 16/02/2004 w.e.f. 16/02/2004

Vehicle             11.00 %               11.25 %

 Particulars     2002 - 03    2003 – 04     2004 – 05
                 523           575           553

    580                  575
    560                              553
    530      523                              Scooter Loan
          2002 - 03   2003 – 04   2004 – 05

Interpretation :

      There was a increase from 523 crores scooter loan in
2002 – 2003 to 575 crores in 2003 – 2004. But it decreased to
553 crores during 2004 – 2005.

5.    Personal Loan

    General purpose loans including for purchase of consumer
     durable like T.V., fridge, washing machine, etc.

    Employees of government, PSUs, profit making public limited
     companies and reputed institutions with minimum 2 years
     service and Rs. 4,000/- net monthly income, self – employed
     engineers, doctors, CAs with minimum 2 years standing and
     Rs. 48,000/- net annual income are eligible.

    VRS optees upto the age of 60 with a minimum net monthly
     income of Rs. 4,000/- are also eligible.

    Loan amount 12 times net monthly income (including spouse
     income) with a maximum of Rs. 5 lacs in metro and Rs. 2.50
     lacs at other centres for salaried and self – employed. Rs. 1.50
     lacs for VRS optees at all centres.

    Security NIL, loan is subject to credit rating model.

    Repayment maximum 48 months ( 36 months for VRS optees).

    Processing charges 1 % of the loan amount.

                    PERSONAL LOAN SCHEME

                       Floating Rate            Fixed Rate
                     w.e.f. 16/02/2004     w.e.f. 16/02/2004

Personal loan &
festival loan for         12.75 %                   -

    Particulars       2002 - 03     2003 – 04      2004 – 05
                      6466          9767           9890

                             9767     9890

                                                Personal Loan


                2002 - 03 2003 – 04 2004 – 05

Interpretation :

               There was a gradual increase during 2003 – 2004
but a little increase in the year 2004 – 2005.

6.   Pensioner Loan

    Pensioners upto the age of 70, drawing pension from SBS are
     eligible for loans to meet personal expenses upto 12 times
     pension or maximum of Rs. 75,000/-.

    Repayable in 24 months.

    No processing charges.

    For family pensioners loan equivalent to 9 months of pension
     with a ceiling of Rs. 50,000/-.


                                              Fixed Rate
                        Floating Rate
      Tenor                                     w.e.f.
                      w.e.f. 16/02/2004

Loan to pensioners          12.25 %               -

     Particulars     2002 - 03    2003 – 04    2004 – 05
                     431          848           864

                         848         864
    500      431
    400                                       Pensioner Loan
          2002 - 03   2003 – 04   2004 – 05

Interpretation :

        Almost an increase is seen in the year 2003 – 2004 than
2002 – 2003. But a bit increase is observed during 2004 –



      The retail credit has been the emerging bubble for the
banking industry. The retail credit has found its way through
the new schemes and new banks being introduced. The
concept of retail banking is not new to the Indian Banks but
only in the recent times it has attracted the special attention
of banks. As opposed to wholesale banking, it focuses
individuals and their personal needs. The retail banking
strategy of banks is a response to the changing banking


      Banks now find themselves in a market where the
customer has more options than ever before and the bank
has therefore been compelled to constantly review his
package of products and services to suit the ever – escalating
expectation of customers. Before the reforms most of the
products offered by banks were plain vanilla – banks had the
products and the customers had to take them or leave them.
Banks in India traditionally offered mass banking products.
With the reforms, massive expansion of products and
services took palce in Indian Banking scene, driven by rapid
advances in technology that had a dramatic impact on the

delivery systems and ability to service a grater number of
products especially retail products. Market focus has shifted
from mass banking products to class banking with value
added and customized products.

About S.B.S.:

      State Bank of India along with its seven associated
branches have not lagged behind in the reforms. They
adopted the new technology, new concepts and came with a
new mask. There was a tremendous increase in retail sector
during the year 2003 – 2004.


          1] IBA Bulletin
          2] Banking Annual
         3] Bank Quest
         4] Policy guideline book



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