The concept of retail banking
The retail banking means products and services offered to
individuals and households sector for personal use and
consumption like loans for housing, vehicle, for consumer
durable, loans for enjoying vacations etc.
It not only means lending but also involves whole of the
banking services provided to individuals and household
The products to tap their savings and other services are
included in retail banking.
The retail banking concept has been expanded to include
services provided to small and medium sized business and
also high net worth individuals .
The concept of wholesale banking
In the whole sale banking the focus is on corporate, i.e.
companies, firms, proprietorship concerns, Public Sector,
Institutions, societies, Trusts, clubs etc.
Why retail banking
Since the year 1991 the process of disintermediation
accelerated. The corporate had easy access to funds from the savers thus bypassing the banks.
This led to cut throat competition among the banks to
advance the corporate even at sub PLR and also to attract
them, they started offering value added service at
Banks experienced pressure on their margins and the
implementation of new stringent norms of income
recognition, assets classification and provisioning made the task for the banks more difficult.
The corporate loans gave an average return of 0.5 % to 1.5%
but had volumes and less workload but if the other services
are added which were to be given at concessional rates the
yield were still less. If a big loan goes bad, the entire amount outstanding had to provided for under the provisioning
The retail lending gave a return of 3 to 4% but with more
work and there was hardly any need for value added services
at concessional rates as the borrowers did not have any
bargaining power and in the beginning there was not much
competition among banks as the concept had not picked up
in a big way.
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