HOW CAN BANKS DE-RISK THEIR ADVANCES PORTFOLIO BY EXPLOITING INNOVATION-DRIVEN RETAIL PRODUCTS BASKET?

Having been bitten once, banks have now turned twice shy of corporate banking. The 2008 financial crisis convinced the banks that a more inclusive client base could render them more stable in terms of financial stability. Added to that, the economy of the country was increasingly being driven by consumption. Advances in information technology (IT) made it easier for banks to reach out to individual borrowers in a cost-effective manner. As a result, personal banking or retail banking was turning out to be as remunerative as, if not more remunerative than, business banking or corporate banking, for the banks. To put it differently, the development helped banks to de-risk their advances portfolio which had until then focussed on business banking. In the next stage, the banks realised that they could maximise the returns from their retail products / retail services basket by introducing innovation. As a result, bank visits almost became redundant for retail customers for normal banking activities like withdrawal or deposit of money and updating pass-books. They preferred to take the digital route to avail of banking services. To the chagrin of banks, so to speak, the customer activism gained momentum, parallel. Although banks welcomed such activism, they had their own issues to contend with. Customers increasingly felt that banks across the spectrum priced the retail products in an arbitrary manner and were not transparent about the interest rate they applied to loans. On their part, most banks had a rudimentary MIS (management information system) to contend with and hence could not price the retail products / services based on the level of risk involved. The interaction with the bank officers, retail borrowers and consultants has led the researcher to conclude that the banks should price standardised products like vehicle loans consistently, across all customer categories. Banks should price the products How Can Banks De-Risk their Advances Portfolio by Exploiting Innovation-Driven Retail Products Basket? http://www.iaeme.com/IJCIET/index.asp 288 editor@iaeme.com transparently too; nor should the banks exploit information arbitrage. Exploiting technology and innovation, banks should design a cost-effective delivery model for retail customers. In other words, they should invest adequately in innovation, research and product design, for the purpose.