CAIIB RB Unit 18 - Other Issues in Retail Banking

CAIIB RB Unit 18 - Other Issues in Retail Banking (Year: 2019)

Third Party Distribution In Retail Banking

  1. customers' needs extend beyond just banking services and encompasses insurance and other investment needs.
  2. Customers have to approach different service providers for their different needs like insurance, investment in mutual funds and other services like broking services, demat services etc..
  3. banks can offer the above services through the relevant service providers through agency arrangements with them.
  4. This concept of selling products other than banking products is called "Para Banking".


Main third party products distributed by Banks are :

  1. Marketing of life insurance products of life insurance companies.
  2. Marketing of non life Insurance products of general insurance companies.
  3. Distribution of mutual fund schemes of various mutual fund houses.
  4. Offering of Demat Services.
  5. Offering of Broking Services.


MF distribution offers good scope for augmenting fee-based income of banks. Upfront Commission, Trail (loyalty) Commission, Mobilisation Incentives, Special Incentives, Collection Charges are the income triggers for New Fund Offers.

Banks selling mutual fund schemes should clearly understand the implications mentioned in the following model called as PROPAGATE Model for distribution. PROPAGATE model refers to :

P - Product
R - Risk
O - Opportunities (Returns)
P - People
A - Appetite
G - Geography (Place)
A - Attributes
T - Training
E - Education

Cross Selling

  1. It is selling one or more additional products to the existing customer base so as to generate more business and profit per customer.
  2. Searching thyself (customer mining) will give definite clues for cross selling.
  3. It is generating new/additional retail asset(s) from a liability.
  4. If the bank is able to sell an asset product (housing/car/educational loan) to a savings/current/ deposit account holder successfully, then it is cross selling.
  5. Cross Sell Ratio (the number of products per client) in retail banking, is 2 for the US and slightly above 2 for the UK and Germany, above 2.5 for France and a high 3 for Scandinavia.
  6. Research study observed that selling three products to a customer who already holds one increases profitability by up to 500 per cent.


Why Cross Selling?

  1. Cost factor
  2. Profit
  3. Fosters brand loyalty
  4. Helps banks to plan, implement and maintain better customer relationship management programmes (CRM)