Objectives & Functions of Retail Banking


Meaning of Retail Banking

Retail Banking refers to banking services which are provided to individual consumers rather than corporations, companies or large business. It is also termed as consumer banking or personal banking. Retail banking mainly serve the needs of retail customers by offering services such as checking and saving accounts, debit card, credit card, phone banking, e-banking services, insurance, investment services, consumer lending etc. Deposits, credit and money management are three primary functions performed by retail banks.

These are consumer-oriented banks having visible face of banking to general public. Retails banks operates a large number of branches all over the cities for providing easy accessibility of banking services to their customers. Retail banking influences the rate of liquidity by offering credit facilities to customers thereby leading to economy growth. They extend credit facilities to people in the form of home and car loans, credit cards, auto loans and also in the form of mortgages. All credit is provided out of the deposit amount accepted by these banks from their clients.

Objectives of Retail Banking

Various objectives of retail banking are as discussed below: –

Be a one-stop-shop for clients

Retail banking aims at providing a complete range of banking services at one place to their large range of customers. It serves as a one-stop shop that reduces need of shifting from one bank to another one by customers. These services include accepting depositing, lending credit, management of money, online banking services, debit card, credit card and many more. Customer feel more convenient in using all these services at one place. 

Stimulate the economy

This is one of the major roles played by retail banking. It stimulates the economy by increasing the flow of money among people leading to overall growth and development of country. Availability of better financial services enable citizens in creating jobs, developing skills and accessing education facilities. 

Provide tailored services to customers

Retail banking provide maximum satisfaction to customers by offering them services as per their needs. It customizes financial services as per the capability and preferences of individuals. Customers are more happy when they get access to personalized services by their respective bankers.

Improve liquidity

Another important objective of retail banking is that it enhances the overall liquidity in market. It provides credit facilities to people due to which they are able to purchase costly goods easily. This way by improving money flow, it improves liquidity position in market which create more employment opportunities. 

Offer credit at economical cost

Retail banking offers credit facilities at cheaper cost to people as compared to other financial institutions. It adjusts the rate of borrowing in accordance with the situation of economy. Interest rates are increased during the phases of inflation and are brought down when the economy is going through the phase of depression. 

Functions of Retail Banking

Different functions of retail banking can be well-understood from points given below: –

Provide safe place for cash deposit

Retail bank offers a safe place to customers for depositing their money and other valuable financial products. They attract clients for deposits by offering a better rate of return along with security of funds. People are this way motivated to keep their ideal lying funds with banking organizations for the sake of earning interest. 

Give credit for consumer spending

These banks lend credit amount to their customers as per their credit ratings. Retail banks facilitate the consumer spending by providing them various types of loan such as home loan, car loan, mortgages and in many other forms. Availability of credit amount enables people in spending their future earnings now which improve the rate of liquidity in economy. 

Management of money

Retail banking enable customers in managing their money using different type of bank cards and distinct online utility services. They can easily use their money to do transactions at any point of time using online payment services. Customers do not need to visit their branch physically and can have complete access of their account by just sitting at their homes. 

Create money supply in economy

It plays an efficient role in creation of money within the economy. Loan issued to a customer by one bank becomes the deposit in some other bank. This deposit is now used for providing further credit amount to another range of customers. This way the cycle of lending and depositing continues thereby resulting in enough supply of money in an economy. 

Assist in economic revival

Retail bank plays an effective role in promoting the economic revival of nation. It ensures better flow of money in market by extending credit facilities to people at nominal rate of interest. When people have adequate amount of funds then they are easily able to carry out production activities resulting in economic growth.