Retail and Wholesale Banking
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 sector. 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.
1
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 concessional rates.
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 norms. 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.
Before 1991
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 sector. 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.
1
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 concessional rates.
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 norms. 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.
Before 1991