Volume : V, Issue : III, March - 2016

BANK’S MISPLACED PRIORITIES HURT RETAIL CUSTOMERS

Anil Kumar V R, Dr. S Ramesh

Abstract :

 The banking industry boasts of five layers now, with the addition of payments banks and small finance banks. Nowhere in the world will one come across banks that accept deposits but do not lend. The main activity of a bank is to lend money and accept deposits. Banks lend at a higher rate of interest and pay interest on the deposits (borrowings) they accept, at a lower rate. The difference between the two rates of interest represents gross interest income for the banks. However, banks provide other services too where they collect a fee and hence such services are called fee–based services. Lately, the profit generated by fee–based services of banks has been rising at a faster pace than the profit generated by their main activity. This is allegedly because the retail borrowers are being sidelined by banks who find it more lucrative to render fee–based activities. Fee–based activities can be rendered cost–effectively since banks do not have to go through the rigmarole associated with lending. Additionally, banks allegedly coax retail customers into buying products and services they do not need by exploiting the customers’ naivety. The researcher’s findings reveal that there is some truth in the allegation. The researcher suggests that the banks do not lose sight of the big picture. Dilution of focus on the core activity may look attractive now but in the long run, it is lending and mobilising deposits that will stand banks in good stead. Banks cannot afford to antagonise the retail customers since they cannot find a more self–sacrificing community of contributors of cheapest capital. Unlike corporates, retail borrowers blindly accept whatever interest rate banks apply to their loans. The ticket size of retail loans is smaller which means that the banker can spread the risk across a larger base of retail borrowers.

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Article: Download PDF   DOI : 10.36106/ijsr  

Cite This Article:

Anil Kumar V R, Dr.S Ramesh BANKÂ¥S MISPLACED PRIORITIES HURT RETAIL CUSTOMERS International Journal of Scientific Research, Vol : 5, Issue : 3 March 2016

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