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Retail Banking

Essay by   •  July 23, 2011  •  525 Words (3 Pages)  •  2,244 Views

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Banks are awash with liquidity. Prime corporates do not borrow from banks except at sub-PLR rates. Banks do not favor other corporates. Suddenly there is a great change in attitude of banks. The name of the game is no longer �Lending to big corporates, huge amounts to create loan assets’. Banks invest their resources in government paper to the hilt and then scout for hitherto neglected retail borrowers for lending. Retail credit is now welcomed even from RBI’s perspective. There are no longer any regulatory hurdles. Consumer credit is no longer considered as unproductive, as it triggers demand for consumer products, which in turn help manufacturers in a period of economic slowdown. Retail to project credit stands to a ratio of 3: 1. While the rates of interest on consumer credit have still fallen, there is a scope for further reduction. Perhaps, competition will further bring down the interest rates.

Fixed interest rates on housing loan have sharply fallen, but not the floating rates, which are linked to medium and long-term PLRs. Banks, refuse to reduce these rates, which appears rather unfair. But then the consumers still needs innovative products like graduated payment mortgages etc., in place of stand alone EMI structures.

SME sector borrowers still appear to be suffering from inadequate and delayed credit delivery this sector has immense potential for growth and banks have to devise innovative strategies to fund their ventures on the principle of entrepreneurship and bankabilty rather than mere collateral securities.

Micro finance, another area of retail credit, has unfortunately become a so-called priority sector credit. Perhaps it will be a great idea if it is delinked from the obnoxious priority tag and thereby allow banks to display creativity in financing the sector, especially in rural and semi-urban areas where its potential for positive transformation of socio-economic conditions is immense. Banks are gradually appreciating the virtue of spreading the credit risk by

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