A comparative study of the borrower perception of retail lending in private and public sector banks in India

ABSTRACT
Indian banking sector is growing rapidly and is expected to enjoy even better growth opportunities in the evolving future. Retail banking has always been prevalent in various forms ever since the evolution of banking. Retail lending in India is becoming an important segment of bank credit. It holds the key to the inclusive, comprehensive and pervasive growth of India. India's retail-banking assets size is expected to grow at the rate of 18% a year over the next four years (2006-2010). Customer service is perhaps the most important dimension of retail banking. While most public sector banks offer the same range of service with similar technology/expertise, the level of customer service matters the most in bringing in more business. Perhaps more than the efficiency of service, the approach and attitude towards customers will make the difference. Customer relationship is the base on which the structure of retail banking will evolve.

The study brings out the perception of the retail borrowers about the two types of banks in India i.e. the private sector banks and public sector banks. It has revealed that all the TWELVE components of the borrower perception on retail lending can be grouped under TWO broad factors namely; Services and Marketing of loan products and Economic value and convenience. Private Banks are found to be comparatively better in Services and Marketing of loan products and Public Banks in Economic value and convenience among the perception of the borrowers of retail lending.

Further, the study elucidates that though there is a positive perception about the retail lending of both the types of banks, these banks need to perk up their services greatly and make conscious effort to meet the customer needs and requirements in the wake of competition and growing expectations of customers.

Introduction
Banking is believed to have a direct nexus with financial and economic development in an economy and hence it can be said as the backbone of any economy. The stronger and efficient the banking sector in an economy the faster is economic development. In the case of emerging economies the importance of banking sector is highly recognised.

Indian banking sector has experienced increased competition since the inception of the financial sector reforms in 1992. Examining the process of banking sector reforms in India, Bhide et al (2001) observe that there has been a beneficial impact on the financial system consequent upon the reforms. In view of the opening of the state controlled banking sector for private players many new generation private sector banks have penetrated into the area of banking more prominently in the domains of corporate banking and retail banking. Many of the new generation private sector banks have made appreciable strides in the area of retail banking. This has infused a sense of intense competition among the major players in the industry. A. Prasad, Saibal Ghosh, (2007) have evaluated the proposition that competition in the Indian banking sector has increased since the inception of the financial sector reforms in 1992 using annual data on scheduled commercial banks for the period 1996–2004.

Retail Lending
Retail banking results in better yield and improved bottom line for a bank and hence retail segment is a good avenue for funds deployment. Consumer loans are presumed to be of lower risk and NPA perception. Diversified portfolio due to huge customer base enables bank to reduce their dependence on few or single borrower. Banks can earn good profits by providing non fund based or fee based services without deploying their funds. Retail lending improves lifestyle and fulfills aspirations of the people through affordable credit. Further, helps economic revival of the nation through increased production activity.

Significance of Retail Lending in India
Retail banking has always been prevalent in various forms ever since the evolution of banking. Retail lending is becoming an important segment of bank credit. It holds the key to the inclusive, comprehensive and pervasive growth of India. India's retail-banking assets size is expected to grow at the rate of 18% a year over the next four years (2006-2010). Retail loans will drive the growth of retail banking in future. There is need to improve the credit off-take by the under banked segments of the society. There is an expanding middle class of 250 to 300 million people in need of varied banking services.