Many of the banks are becoming big by creating top-heavy bureaucracy with little linkage to the customers. Bank executives presently need retail management experience for expanding retail banking. In an era of explosion of expert knowledge, banks need to have superior knowledge management initiatives.

It is well-known that the banking system all over the world has undergone a significant, strategic and structural transformation in the recent years. It has virtually changed the competitive environment of the existing banks. For quite sometime and perhaps even today, banks consider that the road to high-performance in a fast-changing marketplace is to be cost-effective and close to customers. All over the world, almost all the progressive banks have, therefore, concentrated on the need to spread out and break up their value chains into smaller and flexible units to reach and serve the customers in a flexible and cost-effective manner.

The strategy so far adopted can be summed up as: Practicing customer differentiation on the basis of affluence, offering straight jacket products and services, and encouraging retail banking as corporate banking is becoming less and less rewarding. This strategy prevailed for sometime, but the recent onslaught on the banks due to the subprime lending crisis has brought to the surface the weaknesses of the strategy. Moreover, online banking has made banks realize the need to change their gear to drive at a different speed in order to hit a higher revenue-earning route.

The recent subprime defaults have highlighted the need to rethink and restrategize to counter such happenings. In fact, lending to subprime borrowers (small ticket loans), particularly in the field of real estate, has started biting banks all over the world. The loss ratio of the loans has touched as high as 15%. The rising defaults in the past six months have further increased due to the stagnancy of the loan portfolio. The loan defaults in the subprime segment have increased beyond tolerance limits of banks. Internationally, the toll of big bank losses has gone as high as $18 bn. Merrill Lynch a Financial Management and Advisory Company has suffered a loss of $5 bn, whereas Washington Mutual Fund declared that its profit would plunge to 75%. Further, Merrill had to write off about $4.5 bn net of hedges because of the falling value of subprime mortgages and Collaterized Debt Obligations (CDO) _ pool debts created and sliced into tranches of varying risk and return to suit customers and banks. It is, therefore, apparent that this mortgage-related loans had suffered the biggest blow as all the banks have to write down heavily such loans.

Professional Banker Magazine, Retail Banking, Retail Management, Knowledge Management, Collaterized Debt Obligations, CDO, Subprime Mortgages, Financial Management, Corporate Banking, Customer Relationship Management, South-East Asian Economic Crisis, Automated Teller Machine, Risk Management, Banking Sector, Customer Engagement.