Retail Banking Introduction: Caiib Retail banking (Module A),Unit 1

Retail Banking Introduction: CAIIB Retail banking (Module A),Unit 1

Dear Bankers,
We all know that CAIIB exams are conducted by the Indian Institute of Banking and Finance (IIBF).  CAIIB is said to be one of the difficult courses to be cleared for the bankers. But we assure you that with the help of our “CAIIB study material”, you will definitely clear the CAIIB exam.
CAIIB exams are conducted twice in a year. Candidates should have completed JAIIB before appearing for CAIIB Exam. Here, we will provide detailed notes of every unit of the CAIIB Exam on the latest pattern of IIBF.
So, here we are providing “Unit 1: Retail Banking Introduction of “Module A: Retail Banking” from “Optional Paper: Retail Banking”.

The Article is CAIIB Unit 1: Retail Banking Introduction

♦ Retail Banking

  • “Retail Banking is a banking service that is geared primarily toward individual consumers. Retail banking is usually made available by commercial banks, as well as smaller community banks. Unlike wholesale banking, retail banking focuses strictly on consumer markets. Retail banking entities provide a wide range of personal banking services, including offering savings and checking accounts, bill paying services, as well as debit and credit cards.
  • Through retail banking, consumers may also obtain mortgages and personal loans. Although retail banking is, for the most part, mass-market driven, many retail banking products may also extend to small and medium sized businesses. Today much of retail banking is streamlined electronically via Automated Teller Machines (ATMs), or through virtual retail banking known as online banking.”
♦Characteristics of Retail Banking
The definitions of retail banking as discussed above bring out the following characteristics:
  • Banking facilities targeted at individual customers.
  • Focused towards mass market segment covering a large population of individuals.
  • Offer different liability, asset and a plethora of service products to the individual customers.
  • The delivery model of retail banking is both physical and virtual i.e. services are extended through branches and also through technology driven electronic off site delivery channels like ATMs, Internet Banking and Mobile Banking.
  • Extended to small and medium size businesses.
♦Advantages of Retail Banking
  • Client base will be large and therefore risk is spread across the customer base.
  • Customer Loyalty will be strong and customers tend not to change from one bank to another very often.
  • Attractive interest spreads since spreads are wide, since customers are too fragmented to bargain effectively; Credit risk tends to be well diversified, as loan amounts are relatively small.
  • There is less volatility in demand and credit cycle than from large corporates.
  • Large numbers of clients can facilitate marketing, mass selling and the ability to categorize/select clients using scoring systems/data mining.
♦Constraints in Retail Banking

Though retail banking as a segment has a number of embedded advantages, the segment suffers from constraints also. A few of the constraints are listed below:

  • Problems in managing large numbers of clients, especially if IT systems are not sufficiently robust.
  • Rapid evolution of products can lead to IT complications
  • The costs of maintaining branch networks and handling large numbers of low-value transactions tend to be relatively high. (For this reason banks are encouraging clients to use cheaper distribution channels, such as ATMs, the telephone or internet for these transactions and reserve the branches for higher added value transactions).
  • Higher delinquencies especially in unsecured retail loans and credit card receivables.
Prerequisite for Success of Retail Banking

There are various factors that can subscribe to the success of retail banking in India:

  • Presence of an efficient delivery mechanism
  • Product appropriateness
  • Pricing
  • Scoring models for assessing the credit worthiness
  • Consumer protection environment
Challenges for Retail Banking
  • Consumer Protection & Pricing
  • Inadequacy of MIS
  • Understanding of KYC/AML issues
  • Managing Risk
  • Effects of disruptive new technologies
  • Continuing growth
Reason for the Growth of the Retail Banking Segment
  • Rise of the young Indian Professionals
  • Growth as an Economic Superpower
  • Increasing purchasing power of middle class people
  • Financial market reforms
  • Engine of economic growth
  • Mass Market banking
  • Volume driven business
  • Automation of banking process
  • Easy and affordable access
  • Financial liquidity
  • Economic prosperity
  • Changing consumer demographics
  • Technology innovations
  • Increase the Bank Liquid cash
  • Decline in interest rates
  • Declining cost of incremental deposit
  • Changes of terms of loans

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