Will Retail Help Beat The Economic Downturn?

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: In the wake of a slowdown in corporate credit off-take and treasury operations unlikely to generate the kind of profits it did last year, all banks are still talking about growth in bottomlines. How do they expect to do this? The answer is consumer banking.

All of them are counting that the consumer banking business will be the engine of growth. And further, many bankers feel that growth in consumer banking business will give a fillip to corporate credit off-take in the next couple of years.

Says Standard Chartered Bank’s (StanChart) regional head, consumer banking (India), Vishu Ramachandran on the reasons behind the bullish outlook of banks towards retail banking saying: “There are structural reasons for growth in India’s consumer banking. Experience world-over has shown that at such a stage of economic development, consumer banking grows in a very robust fashion. In addition, increasing incomes, low interest rates, low market penetration are factors that are driving the growth in the consumer banking business,” adding: “At the same time, growing consumer business takes tremendous commitment, expertise, understanding and above all discipline, since it is a long term business and mistakes are very costly.”

Others like HSBC’s country head, personal financial services (India), Vivek Kudva concur: “Consumer debt in India is near the three per cent mark of total lending. For many countries in the west it is close to 70 per cent. So in the years to come, consumer debt will support the essential GDP growth. The share of retail lending is slated to increase in the over all debt portfolio of banks and will be the primary driver of growth for most banks.”

In India, consumer banking is largely limited to ABC cities and out of over 100 crore strong population, only 20 crore is estimated to have bank accounts. And so, the growth potential being five fold.

In addition, there are only 3.6 million estimated card holders accounting for less than one per cent of the total consumer spend in the country. All this gives extensive scope of growth to the industry.

But how useful will this consumer banking focus be in the short run as it is a business that is profitable in the long run?

Most believe that retail is a long-term game and it is stupid to think short-term in this segment. In the medium-term though, it will certainly reap returns for the serious players.