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

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

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

3. 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

4. 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

5. Recent trends contd… • Phenomenal rise in nuclear and dual income families & enhanced spending power • Increasing literacy levels • Higher adaptability to technology banking

6. Recent trends contd…. • Growing consumerism • Fiscal incentives to Housing loans • Fastest economic growth over the decade

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. Retail Credit contd…. • Banks overtake HFCs in Home Loans • Banks overtake NBFCs in Auto loans • The same trend would continue for next few years

14. 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

15. 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

16. 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

17. 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

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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. Thank You