The Indian banks are in the
process of redesigning
their business strategies towards fee-based incomes due
to the rising level of risks and problems associated with
interest-based incomes. The market size of fee-based banking services is
exceeding that of interest-based banking services. In fact, 15
to 30% of the income of the top banks in India is generated from
fee-based services. The intense competition and the risks
associated with interest-based or fund-based services have clearly explicated
the importance of fee-based services and today the banks in India
have been convinced that there is life beyond credit.
Post globalization, liberalization and privatization, bankers
began to focus on both corporate and retail banking activities.
Today, the situation is slightly different and banks are facing wilting
returns and unexpected losses in both retail and corporate
banking arenas.
Entry of private banks and increased use of information
technology in the banking system opened the doors of opportunities
for the retail banks. Retail banks offer a portfolio of banking
services to the retail clients through different channels. One of
the main areas of retail banking is retail credit.
In the initial years, banks expected to gain more returns
by maintaining good relationship with the retail customers.
Contrarily, retail lending has proved to be risky. The main
drawbacks in retail banking are unpredictable consumer behavior, an
increase in the Non-Performing Assets (NPAs), low profit
margins, over valuation of customer's credit worthiness, etc. The
cultural and the vast geographical diversity are the most
important bottlenecks in formulating a unique credit policy, and
this makes the Indian retail banking sector more unattractive. |
