Financial Performance of Retail Banking in India Essay

Financial Performance of Retail Banking in India - Essay Example According to World Bank report of 2011, the value of the Indian economy is around $1.848 trillion, which can be considered as the tenth- major economy in terms of exchange rates (World Bank, 2013). However, the major challenge that the country faces is poverty. Though the country and its government has been successful in diminishing poverty from 55 percent in the year 1973, to around 27 percent in 2004, but around 1.1 billion citizens of the country are below the poverty line (Nayak, Goldar, and Agarwal, 2010). It has been noticed that 30 percent of the rural population are below the poverty line (Rural Poverty Portal, n. d.). Financial development is an integral factor for the growth of country’s economy. It has been proved through many studies that for any well-functioning fiscal system, mobilizing saving and allocating resources support functions such as risk management, economic growth, etc. This fact proves that financial development can be achieved through savings throug h establishment of proper banking system in the country, which in future would lead to elimination of poverty (Kapoor, 2011). Retail banking is not a fresh phenomenon in the country. It was prevalent in different forms previously, but in the last few years a phenomenal change has been seen and demand towards mainstream banking has increased. Retail banking is mainly facilitating the rural segment of the country and assisting them with loans for durables, educational loans, auto loans, etc. In the recent past it has been seen that the retail credit has been the major source of profit for the banks, which comprises of around 21.5 percent of the total outstandings. There are certain drivers which lead to the growth and development of retail banking in the country. Firstly, consistent increase in the purchasing power of the consumers and for economic prosperity. Secondly, the changing demographics of the consumers and vast potential of quantitative and qualitative consumption of the pop ulation was another reason for the growth of retail banking in the country. Thirdly, the demand for convenience banking increased due to the usage of mobile phones, internet, etc. fourthly, retail business has become good sources for profit maximisation. Lastly, declining level of interest rates is also the cause of growth in the retail credit, though the generation of demand for credit (R. Kapila, and U. Kapila, 2007). Retail banking is however, considered as a new concept because the functions within the banking framework were not segregated as retail, wholesale or corporate banking. Retail banking in modern terms comprises of asset based services and products, financial services that are designed for individual consumption or use. The concept of retail banking has been widespread with the increasing market share of private banks in the banking sector of India. Retail banking caters to the banking needs of the individual customer (Shrivastava,  Pandey,  and Vidyarthi, 2007). T he products that banks consider under retail banking are housing loans, education loans, car loans, personal loans, saving bank accounts, recurring deposit accounts, etc. The Indian retail banking system has seen a dramatic change over the last few years. It has evolved drastically from traditional debt averse, middle class mindset, to modern loan-taking, and risk inclined mind-set. In order to keep up with the latest trend of changing mind-set of the