This article will explain to you what is the meaning of retail banking, what are its characteristics and what are the advantages and disadvantages of retail banking. It will basically cover unit one of the retail banking syllabus which has been prescribed by the IIBF for CAIIB 2022 Exams.

There are also many other helpful notes and materials for CAIIB Exam 2022’s other subjects of Advanced Bank management, Bank financial management and information technology.

What is retail banking? 

Meaning of retail banking: It is the service provided by banks to serve the individual consumers. Retail banking is usually made available by the commercial banks and small community banks. 

Its main focus remains on the consumer markets unlike wholesale banking. Wide range of services falls under retail banking such as personal banking services which includes savings and checking accounts, debit and credit cards and bill paying services.

Without the help of retail banking, people are able to get mortgages and personal loans. Even though for the most part it is driven by the mass market, there are many services of retail banking today which are enjoyed by small and medium-sized businesses too. 

In the present scenario, the services of retail banking are provided electronically through ATMs as well as virtual retail banking which is popularly known as online banking.

Characteristics of Retail Banking

You can understand retail banking by going through its characteristics which are explained below:

  • Retail banking targets individual customers. 
  • Its main focus lies on the mass market segment which covers individuals in large populations. 
  • Services offered under the retail banking ranges from assets & liabilities products for the individual customers. 
  • The retail banking services can be delivered in both physical and virtual forms. In other words, retail banking services can be provided through branches or through Technology such as internet banking, mobile banking and automated teller machines (ATMs) which falls under the category of off-site delivery channel. 
  • Retail banking services are utilised by small and medium sized businesses.

Read Also:-

CAIIB Retail Banking Syllabus 2022 CAIIB Retail Banking Study Material PDF 2022 CAIIB Retail Banking Notes PDF 2022 CAIIB Retail Banking Mock Test PDF 2022


Retail banking offers so many benefits and opportunities to the banks and provides a tool to RBI to control the liquidity in the economy. Some of the benefits advantages of retail banking are mentioned below:

  • Because the client base of retail banking is quite large, therefore, his can be spread across a large customer base. 
  • Retail banking is a kind of personal banking which helps in making the customer loyalty strong through which customers tend not to change the banks very often. 
  • To attract the customers, interest spread is wide because customers are too fragmented to effectively bargain. 
  • Because the loan amount is quite small, credit risk related to them is well diversified. 
  • Unlike large corporations, retail banking has less volatility in demand and its credit cycle. 
  • Because retail banking has a large number of clients it can facilitate the marketing & helps in mass selling. 
  • The deposits made by the retail customers are stable and work as a form of core deposits. These kinds of deposits are insensitive to interest and have to Face less bargaining for any additional interest. 
  • They are the source of low-cost funds to banks. 
  • It provides assistance in increasing the other businesses of banks such as insurance. 
  • Retail banking offers better yield and profitability.
  • Retail banking helps in the economic development of the country because it helps in increasing the production. 
  • It also helps in improving the consumers lifestyle by offering them loans at affordable interest rates. 
  • Retail Banking needs minimum efforts in marketing. 
  • Because they have a diversified portfolio with a large customer base, they are not dependent on a single borrower.
  • This segment of Banking offers a good opportunity for the development of funds. 
  • It is presumed that consumer loans carry a lower risk and the chances of turning into NPA are quite less.

Read Also:-

CAIIB Retail Banking Syllabus 2022 CAIIB Retail Banking Study Material PDF 2022 CAIIB Retail Banking Notes PDF 2022 CAIIB Retail Banking Mock Test PDF 2022
CAIIB Advanced Bank Management Syllabus 2022 CAIIB ABM Study Material PDF 2022 CAIIB ABM Notes PDF 2022 CAIIB ABM Mock Test PDF 2022


Even though retail banking has many benefits to offer, it has some constraints too which are listed below:

  • The biggest constraint to retail banking are the IT systems. If IT systems are not robust enough, it becomes problematic to manage a large number of clients. 
  • Complications can be faced in information technology because of the Rapid evolution of products. 
  • Sometimes, because of the large number of low value transactions and to maintain branch networks for them, they tend to be very high. This is the reason that banks increased clients to use cheaper distribution channels provided by banks such as internet banking, telephone banking and automated teller machines. It is recommended that branches should be reserved only for higher value transactions. 
  • Retail banking suffers from high delinquencies specially in unsecured loans  & credit cards. 
  • Banks have to spend a high cost on manpower to monitor and for the follow-ups of large numbers of loan accounts.
  • Heavy investment needs to be done in technology to provide better services but those services are not utilised to the extent of their capability.
  • Today, many people are interested in other financial products such as mutual funds which have additional costs. 
  • If proper monitoring and follow up are not done, long term loans can turn into non performing assets (NPA). 
  • It is very costly to design specific and new furniture products for the needs of retail customers and if provided it is quite time consuming. 
  • Even though technology is being used to provide detailed meaning services and most of the customers nowadays prefer net banking over branch banking, banks are slow to introduce Technology based products. This becomes a reason for them to face difficulty in retaining the customers who really want to go for net banking.



The success of retail banking in India depends on various factors such as:

  • Appropriate products 
  • Pricing policies & sensitiveness to prices 
  • Availability of an efficient mechanism of delivery 
  • The models to scale for the assessment of creditworthiness of prospective clients 
  • Environment to protect consumers



  • Retail banking faces many challenges in the areas of: 
  • Protection of consumers and pricing of products 
  • Management information system is inadequate to manage all the activities of retail banking 
  • Understanding the issues of KYC/AML 
  • Risk management 
  • Technologies which are the disrupting the banking activities 
  • Continuance of growth



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