RETAIL BANKING - CAIIB

RETAIL BANKING ROLE WITHIN THE

(MODULE – A) BANK OPERATIONS
 CHAPTER 2 ROLE WITHIN THE BANK OPERATIONS

CONTENTS
1. INTRODUCTION
2. BUSINESS MODELS

2
 CHAPTER 2 ROLE WITHIN THE BANK OPERATIONS

INTRODUCTION
One of the spectacular innovations in the
commercial banking sector is the retail banking. It
refers to banking in which banks undergo
transactions directly with consumers rather than
with corporates or other banks. Consumer credit
is the heart of retail banking. In retail banking the
banks provide services to individuals and small
business concerns and the dealings are in large
volumes and low values. The retail banking
portfolio encompasses deposits and assets linked
products as well as other financial services
offered to individuals for personal consumption.
Retail banking is increasingly viewed by banks as
an attractive market segment with opportunities
for growth and profit. The fastest growing
division in the banking sector is the retail sector.
Retail banking is a system of providing soft loans
to the general public like family loans, house
loans, personal loans, loans against property, car ROLE WITHIN THE
loans, auto loans etc. The products are backed by
world-class service standards and delivered to
the customers through the growing branch BANK OPERATIONS
network, as well as through alternative delivery
3 channels like ATMs, Phone Banking, Net Banking
and Mobile Banking.
 CHAPTER 2 ROLE WITHIN THE BANK OPERATIONS

BUSINESS MODELS
The business models for retail banking adopted by banks vary among the public sector, private sector
and foreign banks. The main approaches are as follows:

(a) Strategic Business Unit (SBU) Approach,

(b) Departmental Approach,

(c) Integrated Approach (part of the overall business plan).

Public Sector Banks in India generally have adopted the Departmental Approach as their retail banking
business model. The model is uniformly adopted by all the banks immaterial of their balance sheet size
or geography. It indicates that retail banking is not a focused business model.

In a research study it was found that the SBU approach is adopted by one of the top five public sector
banks and their business model is in alignment with private sector banks and foreign banks.

In old generation private sector banks the approach is more conservative. The business model for retail
banking is built as a part of the overall business plan and not done as a separate departmental activity,
In new generation private sector banks, they had set up Strategic Business Units (SBU) to have clear
focus and business objectives. In foreign banks also, SBU is the business model followed with defined
business focus. The demarcation as a SBU is more a Management by Objectives (MBO) process
wherein the business model is dealt as a strategy for achieving targeted profits. Banks generally
structure their retail banking models mainly on a positioning platform and to be the best/top three among
the peer group players or across players. Strategies are based on the positioning objectives and vary
4 from bank to bank depending on the importance attached to the business model.
 CHAPTER 2 ROLE WITHIN THE BANK OPERATIONS

Among the public sector banks, some banks aim for a place among the top three retail players across
banks including peer group banks while some other public sector air for a space in the top three among
the peer group.

The strategy adopted by public sector banks was a part of the overall strategy based on the business
mix, projections and corporate objectives of the bank.

In case of old generation private banks, the positioning platform is based on the overall business plan
and in line with their size and scale. The new generation private banks want to be in the top slot across
all class of banks. These banks have advantage of technology, strategy, customer and business
initiatives and aggressive positioning.

Foreign banks generally do not go by positioning objectives but purely on business objectives. They go
by customer, business and profit targets. They take a call on the business model itself or one segment of
the overall model, if the same is not profitable and either exit the retail banking segment itself or exit a
particular business line within the model.

BNP Paribas and American Express exited retail and credit card business when it was found that these
were not viable. ABN Amro Bank had a positioning focus for building up the retail banking franchise but
sold their retail business to RBS.

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