Retail banks cater to the general population and have a clear banking exterior. They usually have many branches spread throughout cities to make banking services more accessible to their consumers. By providing credit facilities to consumers, retail banking impacts the rate of liquidity, resulting in economic growth.
Retail Banks usually provide credit to customers in the form of house loans, credit cards, auto loans, and mortgages, among other things. The deposits that these banks collect from their customers fund all the credit. Know everything about retail banking in this article.
Key Takeaways
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Retail banking offers individualised financial services that focus on promoting individual financial stability.
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Primary services of retail banking includes safely holding their customers’ deposits and offer them credit facilities, such as credit cards, loans, and more.
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These banks earn revenue in two ways - interest income, which is the difference between the interest they offer and receive and the other is non-interest income from investments, insurance, and other financial products.
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Retail banking services are delivered by various institutions, including Large Banks, Community Banks, Online Banks, Regional Rural Banks , and Post Offices.
Understanding the Functions of Retail Banking
Retail banking mainly serves the purpose of enabling the day-to-day financial operations of the customers. These banks allow one to hold deposits safely, offer credit options to finance a personal or business requirement, and have access to financial services that can assist in building wealth, like mutual funds or fixed deposits.
Retail banking helps to provide personal financial stability and overall economic development, as it links people to the necessary banking tools. With online net banking, retail banking has become easier for customers and businesses alike. Customers can transfer money, make credit card payments, or other financial activity within seconds and with a few clicks.
How Retail Banks Earn Revenue?
Retail banks don’t earn revenue the way investing banking firms do. These banks generate revenue from different sources of interest and non-interest income. The interest margin is the difference between the interest they receive on loans and the interest they pay on deposits.
Non-interest income includes the processing fees on loans, account-related fees, and profits on cross-selling financial products. These revenue streams make it financially sustainable and also give customers convenient and holistic banking services.
Types of Retail Banks
The following are the several types of retail banks:
Public Sector Banks (PSBs)
These are government-owned banks where the Government of India holds a majority stake (more than 50%). They are the most familiar names in Indian households and have a massive footprint, with branches located across metropolitan cities as well as remote villages. They are often preferred for their safety and sovereign backing.
Examples: State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda, Canara Bank.
Private Sector Banks
These banks are owned, managed, and controlled by private individuals or corporations rather than the government. While they adhere to the same RBI regulations as public sector banks, they are often known for their superior customer service, quicker loan processing, and advanced digital banking interfaces.
Examples: HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank.
Online/Neobanks
As the name implies, these financial platforms do not have physical branch locations. They operate entirely online and usually partner with traditional banks to provide services. Their primary focus is to offer a seamless, tech-first user experience with minimal fees, expense tracking, and instant account opening features.
Examples: Jupiter (partnered with Federal Bank), Fi Money, Niyo, RazorpayX.
Regional Rural Banks (RRBs)
These banks were created specifically to serve the unbanked and underbanked populations in rural regions. Owned jointly by the Central Government, the State Government, and a Sponsor Bank, they focus on providing credit and banking facilities to farmers, agricultural labourers, and small artisans to support the rural economy.
Examples: Kerala Gramin Bank, Prathama UP Gramin Bank, Andhra Pradesh Grameena Vikas Bank.
Cooperative Banks
These banks operate on a cooperative basis, meaning they are owned and run by their members according to the principle of "one person, one vote." They play a crucial role in financial inclusion, offering retail banking services and loans to small businesses and local communities in both urban and rural areas.
Examples: Saraswat Cooperative Bank, Cosmos Cooperative Bank, Shamrao Vithal Co-operative Bank (SVC).
Objectives of Retail Banking
The following are some of the aims of retail banking.
Provide Consumers With a One-stop Shop Experience
Retail banking attempts to provide a full range of financial services to a wide range of customers in one convenient location.
Accepting deposits, credit card disposal, cash management, online banking, debit card, MasterCard, and a variety of other services are among them. The integration of these services in one location provides added convenience to the client.
Stimulate the Economy
It stimulates the economy by boosting the movement of money between people, resulting in the country's overall growth and development. The availability of greater monetary services has an impact on residents’ capacity to find work, acquire skills, and get access to educational opportunities.
Improve Market Liquidity
Another important goal of retail banking is to increase market liquidity. It gives credit facilities to people, allowing them to acquire expensive items with ease. By increasing cash flow, the market's liquidity situation improves, resulting in more job opportunities.
Provide Credit at a Reasonable Rate
People can get credit at a lower cost through retail banking than they can through other financial institutions. It modifies the rate of borrowing in accordance with economic considerations. Interest rates are increased during periods of inflation and then reduced whenever the economy enters a period of depression.
Functions of Retail Banking
The following will help you understand the many functions of retail banking: –
Providing a Secure Location for Cash Deposits [H3]
Customers can deposit money and other important financial items at a retail bank, which is a secure location. Banks encourage customers to deposit money by promising a higher rate of return and ensuring the safety of their investment.
People are therefore encouraged to deposit their idle cash in banks to earn interest.
Providing Credits for Spending
Banks provide credit to their consumers based on their credit scores. Consumer spending is facilitated by retail banks' provision of various sorts of loans, including house loans, vehicle loans, mortgages, and a variety of other products.
The availability of credit allows consumers to spend their future profits now, increasing the economy's liquidity rate.
Finance Management
Customers may manage their money utilising a variety of bank cards and online utility services through retail banking. They may quickly use their money to do transactions utilising online payment systems at any moment.
Customers do not need to physically visit their branch and may access their accounts from the comfort of their own homes.
Increases Monetary Flow in the Economy
It contributes to the efficient generation of money in the economy. A customer's loan from one bank becomes a deposit at another bank.
This deposit is now being utilised to extend more credit to a new group of clients. In this way, the loan and deposit cycle continues, resulting in a sufficient amount of money in an economy.
Assists with Economic Revitalisation
The retail bank plays an important part in the nation's economic recovery. It enables a better flow of money in the market by providing individuals with loans at a minimal rate of interest. When individuals have enough money, they can easily carry out manufacturing activities, which results in economic growth.
Expanded Offerings: Retail Banking Services Evolve
Retail banking has developed beyond the customary services to adopt digital innovation and customised financial experiences. Banks today are providing online and mobile banking service options, which allow customers to operate their accounts, exchange money and receive loans in real-time.
Robo-advisory, contactless payments and investment management tools are examples of value-added services that have increased ease and affordability. Also, collaborations with investment banking companies are transforming access to credit and wealth solutions for customers.
These collaborations allow retail customers to benefit from the expertise of investment banking companies, bringing sophisticated financial strategies to an individual level. Retail banking development is an indication of a change to become more accessible, efficient, and customer-oriented in the contemporary financial industry.
Comparing Retail and Corporate Banking
Retail and corporate banks are a crucial part of the country’s financial ecosystem. While retail banks focus on individuals, corporate banks provide services to larger businesses and government entities.
Common services offered by retail banks include basic deposit accounts, personal loans, mortgages, and credit cards. On the other hand, corporate banks offer specialised services and include large-scale commercial loans, treasury management, foreign exchange, and structured finance.
Conclusion
Retail banking is one of the aspects on which the country’s financial ecosystem is based. It gives people access to key banking and credit services that can promote personal and economic development.
Retail banking has been continuously providing its customers with a seamless, safe, and personalised experience with technology-based changes. Savings and lending to investment and digital payments, the retail banks enable people to control money effectively and secure the sustainability of their business.
Retail banking is growing its involvement as a result of integrating and ensuring financial literacy through the digital world, and contributing to a more inclusive, dynamic future of consumer finances.