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Retail Financial Services in India

By: Kebbie Sebastian
Published: November 2008

Retail Financial Services in China

Against the backdrop of optimism – and hype – that surrounds India, this report examines the ground realities of operating in the retail financial services market in India. 

The report uses exclusive interviews plus a survey of third party data to present the critical success factors in creating an Indian retail financial operation



To purchase this report, or to request a report summary or list of case studies, call Jeannie on +44 (0) 207 563 5640 or email

Key questions answeres in this report?

  • Who is who among domestic and foreign players?
  • What are they doing?
  • What are their existing and future growth strategies?
  • Plus in-depth case studies of the post office network and the microfinance movement.

Key segments explained and de-mystified, ranging from: the affluent, the female market, the unbanked, consumers in regional and rural markets.
Multi-channel distribution strategies, including: branch, mobile, peer-to-peer, and self-service.
Understanding domestic regulations.
Best practice and market intelligence in: collection strategy, cultural due diligence and talent management.
The size and shape of the deposit, cards (prepaid and credit), wealth management, mortgage lending, personal lending, and remittances markets, where the opportunities lie, how these markets will change, issues to watch and key success strategies

This report is essential business intelligence for anyone seriously considering how to profit from the growing Indian financial services sector.

To purchase this report, or to request a report summary or list of case studies, call Jeannie on +44 (0) 207 563 5640 or email


It’s hard not to get excited at the thought of India as the next big market for retail financial services.

GDP is growing at an impressive 8.6% and as one of the ‘BRIC’ countries, commentators see India becoming the world’s third largest economy by 2050. The financial services sector is expected to be a lynchpin of this growth along with the retail, information technology and telecom industries.

The market for banking products is growing at an even faster rate. Retail banking in particular has experienced an unprecedented boom, with growth rates touching 33% in the past five years and expected to continue at 28%. By 2010 it is expected to become a $245 billion market.

Against the backdrop of optimism – and hype – that surrounds India, this report examines the ground realities of operating in the retail financial services market in India. Clearly, India presents a huge pool of potential profit in retail financial services. It has a middle class population (defined as households with disposable incomes from INR200,000–1 million a year) , that is estimated to grow to 41% of the population or 583 million people by 2025. This segment is seeing its wealth grow dramatically and its current size is estimated at between 325 and 350 million people.

Gross national income per capita increased by 58% between 1995 and 2003 and the financial services and insurance sector nearly doubled their GDP growth rate in the three years from 2003 to 2006 from 5.58% to 11.18%. However, realising India’s great potential is not easy. From its slow and cautious banking regulator, to the fierce competition among its aggressive domestic banks, to its highly price-sensitive consumers, India presents a number of challenges. Finding success in this market requires a patient, long-term commitment, deep pockets and a keen understanding of the local consumer base.

A dynamic and divergent market

According to a study by McKinsey, if India can achieve a 7.3% annual growth rate over the next 20 years, 465 million more people will exit poverty, opening up a huge market for goods and services.  The challenge for Indian banks is therefore diverse. On the one hand, there is a growing population of increasingly rich customers, where they will have to compete for market share with many overseas entrants. On the other, in both urban and rural areas there is a mass market aspiring to a bank account, but of insufficient unit value to be cultivated profitably through the traditional banking model.

Buoyed by optimistic predictions, many financial services firms have entered the fray in an attempt to profit from the promise of the Indian banking market. There are now close to 300 foreign, public sector and private sector banks doing business in India – up from 60 ten years ago. Competition is more severe than ever before.

Three types of banks currently dominate the market:

- Public sector banks (PSBs) – government-controlled banks in which the Indian government is the majority owner;

-Private sector banks which are owned by domestic shareholders and are traded on the stock exchange or have private equity ownership;

- Foreign banks which are subsidiaries of international banking corporations. 

Profiles of the major domestic and foreign players can be found in Chapters 8 and 9.

Consumer lending

Rising affluence has altered consumer attitudes and the psyche of the urban consumer has shifted from ‘debt averse’ to ‘spend now, worry later’. Mortgages and other forms of consumer credit are natural beneficiaries of a young and increasingly affluent population. Consumer lending in India has grown at 23% over the past five years. Auto loans have been growing at 20% and mortgages, which currently account for half of retail loans made by banks in India, have grown at 37% in the past three years. Despite these high rates, there is still room for further growth.

The credit card market in India has seen a rapid boom from less than 2 million cards in the market before 2005 to 26 million cards in 2008, on the back of the rapid rise in disposable incomes. India is the second-fastest growing cards market in the Asia-Pacific region, with an annual growth rate of more than 30%. Indians are becoming more comfortable with the idea of using both debit and credit cards, and merchant acceptance is on the rise. New products, foreign participation and a booming tourism industry are combining to support this growth, helped by product innovation and a supportive regulatory environment. It is predicted by the Indian Banks’ Association that the financial cards market will increase threefold within the next five years.

India was the largest receiver of remittance funds in 2007, with approximately $27 billion flowing into the country from non-resident Indians working abroad. This makes it one of the top destinations for remittances in the world. This has created opportunities for plastic cards and other payment mechanisms. Many of the country’s major banks and financial institutions are actively competing with each other to gain a stronghold in this potentially lucrative market.

Chapter 7 examines the Indian cards markets, including the potential of the prepaid sector.

Product diversification

Retail banks are expanding their product range and moving into areas that typically have been the bastion of traditional private and corporate banks. From the credit cards, mortgages, auto and personal loans which were the mainstay of their profits, they are now moving into asset management and premier banking. This is due to consumers in urban India gaining wealth in a short period of time and requiring knowledge to manage this wealth. They have bought homes and cars with their new earnings and now need mutual funds, stockbroking services and investment advice.

India’s wealth management industry is at an evolutionary phase of its development. With the liberalisation of the economy and subsequent growth and prosperity across sectors, the wealth management industry is poised to gain greater traction in an expanding market, where the underlying economic fundamentals and demographic profile support strong market growth.  The sector is also viewed by the banking industry as under-penetrated. Growing numbers of wealthy individuals means that the segment is attracting is considerable attention from both domestic and foreign players. Providers, products, channels, technology, regulation, and clients are coming together in the wealth management space to capitalise on the growth opportunity at all levels, from the mass affluent to the ultra high net worth individual (UHNWI). Chapter 6 looks at the prospects for the wealth management sector.

Another area which is growing is small business banking and lending. This is a segment that was under-banked in the past. However, the combination of rising confidence and easier access to capital is giving birth to more entrepreneurial ventures than ever before. Retail banks are scaling up their products and services in this area to capitalise on the opportunity.

An ongoing major challenge for the Indian retail banking community is to find cost-effective ways to widen access to its services. High-function self-service can provide such access at fixed locations or through mobile facilities. Self-service will have major role to play in both underpinning the ability of the Indian banks to build a significant and profitable share of their mass market, while much of the new functionality is also designed to meet the increasingly sophisticated demands of the more wealthy, as well as those of the unbanked or underbanked segment. Chapter 3 looks at the ways in which self-service is being leveraged to support and cultivate all segments of the complex Indian marketplace.

Rural banking and financial inclusion

Of Indian households, 64.5% lack access to banking services according to the Federation of Indian Chambers of Commerce and Industry (FICCI) 2006 Annual Banking Survey. The Reserve Bank of India reports that in 2005 5.5% of the urban and 46.1% of the rural adult population over the age of 15 did not have deposit accounts of any kind in commercial banks. These figures were 94.8% and 98.6% for current accounts, 39.8% and 61% for savings accounts, and 70.6% and 86.4% for term deposits. 87.8% of the urban and 90.5% of the rural adult population did not have access to credit.

The Government of India has a long track record of promoting policies and programmes to enhance access to financial services and requires banks as a condition of their licence to open branches in designated unbanked areas – a policy that has had mixed success. In 2005 RBI began pressuring banks to make available a basic or “no-frills” account, with nil or very low minimum balances and charges that would make the accounts accessible to large sections of population. As of March 2006 about 500,000 no-frill accounts had been opened, of which about two-thirds are with the public sector and one-third with the private sector banks, according to the RBI.

The Government has also supported the microfinance sector, beginning in 1992 when the National Bank for Agriculture And Rural Development’ (NABARD) piloted the promotion of 500 self-help groups (SHGs). SHGs are informal groups of 15-20 members (mainly women) who build up and loan savings amongst themselves. The Government’s 2006-07 Budget advised the banking sector to form links with 385,000 SHGs over the course of the forthcoming financial year. Microfinance programmes have rapidly expanded in recent years with annual growth rates for some institutions exceeding 200%.  Chapter 5 examines the various initiatives taken by banks to reach the unbanked population.

Realising that traditional bank branches are not the most effective way to reach this market, a range of alternative distribution channels more suited to serving the rural population have been adopted.

Mobile phones may offer a fast way to gain a foothold in the rural market. There is a great incentive for banks to expand into rural areas through mobile banking channels: it is a cost-effective strategy helping banks comply with central bank regulations stipulating that a proportion of a bank’s business be focused on rural communities. The Reserve Bank of India’s Institute for Development and Research in Banking Technology is working with a consortium of mobile operators and 25 banks on an initiative to make banking services more accessible, especially in remote areas. In April 2008, Indian achieved the milestone of having 300 million mobile phone subscribers, many of whom live in rural areas. This offers a platform to extend a bank’s distribution network into rural areas without having to bear the costs of branch banking. Internet banking is not likely to be as effective because its penetration in India is a mere 2%, while 26% of the population have phones. Chapter 2 looks at the market potential for mobile banking and payments.

India operates one of the world’s largest post office networks, providing another means of rural access to financial services.  A division of India Post, the Post Office Savings Bank is the largest savings banks in the country in terms of number of account holders and deposits held. India Post has historically provided basic financial services including savings, money orders and life insurance as well as the disbursement of pensions. Chapter 4 looks at the role of the post office network.


As challenging and competitive as the Indian market may be, it is possibly one of the most exciting competitive arenas in retail banking in the world. Each year 13 million new jobs are being created and entirely new industries are springing up. The downstream effect of this is seen in new cars, new homes, and spending on consumer durables and luxury goods. Jobs are being created for the tech-savvy youth and they have a lifetime of spending ahead of them. People are suddenly seeing wealth but lack the time to manage it. This combination of high tech sophistication, more money and less time presents a unique opportunity for financial services firms to capitalise on. For customers, things have never been better. With banks old and new tripping over themselves to get their business, they are spoilt for choice. Over time they are likely consolidate their relationships with banks that provide high-quality service, wide distribution channels and products that are tailored to their needs.

The Indian market may have come a long way but things are just getting started. The next ten years will see more change than the past 25 years, and with just 59% of the Indian population reported to have a deposit account compared to 94% in the UK, there is a lot of territory yet to be staked out for both banks and their suppliers.

Executive summary

Chapter 1 The retail banking market

Chapter 2 Mobile banking and payments

Chapter 3 Self-service banking

Chapter 4: Post Office financial services

Chapter 5 Banking the unbanked

Chapter 6 Banking for the wealthy

Chapter 7 The cards market

Chapter 8 Domestic bank profiles

Chapter 9 Foreign bank profiles

View full Summary Report

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Retail Banking and Cards Forum, September 2010, Bahrain (TBC)  
Retail Banking/Payments Innovation, Kuala Lumpur, 11-12 May 2010


Retail Banking/Payments Asia Roundtable, detailed subject matter TBC, Hosted by Titien Ahmad, VRL Asia-Pacific, and Hugh Fasken, Editor, Retail Banker International, August 2010


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