Retail Banking – Deposit Products

Retail banking, also called consumer or personal banking, refers to banking services provided directly to individual customers, as opposed to businesses or institutions. Retail banking is the primary interface between banks and the general public. It involves deposits, loans, and payment services for individuals and is defined by high volume, low value transactions, standardized products, and customer-centric delivery.

Scope of Retail Banking

Retail banking covers both:

• Liability side: Accepting deposits from individuals (savings accounts, current accounts, fixed and recurring deposits).
• Asset side: Lending to individuals (personal loans, home loans, auto loans, education loans).

It also includes payment services (debit/credit cards, ATMs, internet banking, UPI), insurance and investment products (via bancassurance and mutual funds), and wealth management for individuals. Services are delivered through bank branches, ATMs, and increasingly via digital channels such as mobile and internet banking.

Key Features of Retail Banking

• Large Customer Base: Deals with a vast number of individual customers, each with relatively small accounts, helping diversify risk.
• High Volume, Low Value Transactions: Numerous daily transactions of modest amounts; aggregate volumes are significant.
• Standardized Products: Products like savings accounts, FDs, and retail loans are largely standardized, enabling scale and efficiency.
• Consumer-Centric Services: Strong focus on convenience, accessibility, and customer service through branches and digital platforms.
• Stable Funding Source: Retail deposits are a major, stable, and low-cost source of funds for banks.
• Relationship Banking & Cross-Selling: Banks aim for long-term relationships and offer multiple products to the same customer, improving loyalty and revenue.

Retail Banking vs. Corporate Banking

Retail banking focuses on individuals and small-ticket loans, with standardized products and automated processes. Credit risk per customer is low and spread across many borrowers.
Corporate banking focuses on companies, offering large loans and customized services. Credit risk per client is high but managed through intensive due diligence.

Deposit Products in Retail Banking

Deposit products form the liability side of retail banking. They allow customers to safely park money and earn interest, while providing banks with a stable source of funds for lending.

Savings Bank Account

A Savings Account is the most common deposit account for individuals, combining interest earnings with high liquidity. Its key features are:

• Opened by individuals (single/joint); variants exist for minors, students, senior citizens, etc.
• Earns interest; rates are bank-determined (deregulated in 2011). Typically, ~3–4% p.a., higher with some small finance/private banks.
• Interest calculated daily and credited quarterly/monthly.
• Demand deposit: funds withdrawable anytime.
• Access via ATM/debit card, cheque, withdrawal slip, and electronic transfers.
• Minimum balance may apply; zero-balance variants exist (salary accounts, BSBDA).
• Ideal for daily expenses, salary credits, and emergency funds.

Current Account

A Current Account is meant mainly for businesses and professionals requiring frequent transactions.

• Generally no interest
• Unlimited deposits and withdrawals.
• Overdraft facility often available to manage cash flows.
• Higher minimum balance and service charges compared to savings accounts.
• Designed for entities like firms, traders, companies, and professionals.

Fixed Deposit (FD) Account

A Fixed Deposit (Term Deposit) locks funds for a fixed period at a predetermined interest rate.

• Fixed tenure: from 7 days up to 10 years.
• Higher interest than savings accounts; senior citizens usually get ~0.5% extra.
• Interest can be cumulative (paid at maturity) or non-cumulative (paid periodically).
• Premature withdrawal allowed with penalty; some special FDs disallow it.
• Very safe; covered by deposit insurance up to ₹5 lakh.
• Can be pledged as collateral for loans/overdrafts (usually up to ~90% of value).

Recurring Deposit (RD) Account

A Recurring Deposit enables regular monthly savings over a fixed period.

• Fixed monthly installment for a fixed tenure.
• Interest rate similar to corresponding FD tenure.
• Maturity amount = total deposits + interest (each installment earns interest for its remaining term).
• Penalty for missed installments; premature closure allowed with adjusted interest.
• Suitable for salaried individuals and goal-based savings.
• Some banks offer Flexi RDs with variable monthly amounts.

Other Deposit Variants

• Basic Savings Bank Deposit Account (BSBDA): No-frills, zero-balance savings account for financial inclusion. Provides basic banking services free, with limited transactions.
• Salary Account: Savings account variant linked to employer salary credit. Usually zero-balance with additional benefits; may convert to regular savings if salary stops.
• Senior Citizen Accounts: Offer higher FD interest rates, priority service, and fee concessions for customers aged 60+.
• Children/Minor Accounts: Accounts for minors operated with guardian oversight, often with relaxed balance requirements.
• Flexi Deposit / Auto-Sweep Accounts: Savings account linked to FDs. Excess balance is swept into FDs; funds are auto-reversed on withdrawal need.
• Goal-Based Deposit Schemes: Specially branded FDs or RDs (festival, holiday, etc.) designed to promote saving for specific purposes.

NRI Deposit Accounts

To help Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) manage money in India, banks offer special deposit accounts. The three main types are NRE, NRO, and FCNR(B) accounts.

Non-Resident External (NRE) Account

An NRE account is a rupee-denominated account used to park an NRI’s foreign earnings in India. Its key features are:

• Can be Savings, Current, or Term Deposit.
• Fully repatriable: Both principal and interest can be freely remitted abroad.
• Tax-free in India: No tax on interest earned.
• Funds must come from abroad or from another NRE/FCNR account (no local Indian income).
• Joint holding allowed only with another NRI or close resident relative (former/survivor basis).
• Commonly used for savings, investments, and asset purchases in India.

Non-Resident Ordinary (NRO) Account

An NRO account is a rupee-denominated account for managing income earned in India by NRIs. Its key features are:

• Can be Savings, Current, or Term Deposit.
• Limited repatriability:
  • Interest is fully repatriable after tax.
  • Principal up to USD 1 million per financial year can be remitted, subject to RBI rules and documentation.
• Taxable in India: Interest taxed at applicable rates (TDS generally at 30%).
• Can be jointly held with Indian residents.
• Accepts both foreign remittances and Indian income.
• Used for local expenses such as rent receipts, pensions, utility payments, etc.

Foreign Currency Non-Resident (Bank) [FCNR(B)] Account

An FCNR(B) account is a foreign-currency-denominated term deposit for NRIs. Its key features are:

• Only term deposits (typically 1–5 years); no savings/current accounts.
• Maintained in permitted foreign currencies (USD, GBP, EUR, JPY, AUD, CAD, etc.).
• Fully repatriable principal and interest.
• No exchange rate risk: Deposits and interest remain in the same foreign currency.
• Tax-free in India.
• Interest rates are linked to international benchmarks and are usually lower than domestic FDs.
• Useful for NRIs who want India exposure without converting funds to INR.

Deposit Insurance and Customer Protection

An important safety feature of deposit products is deposit insurance, which protects depositors in case a bank fails. In India, bank deposits are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the Reserve Bank of India.

Deposit Insurance Coverage

• Each depositor is insured up to ₹5 lakh (₹500,000) per bank, including both principal and interest.
• The coverage is per depositor per bank:
  • Multiple accounts in the same bank → combined insurance limited to ₹5 lakh.
  • Accounts in different banks → each bank covered separately up to ₹5 lakh.
• Covered institutions include all commercial banks (public, private, foreign), Regional Rural Banks (RRBs), and cooperative banks.

Deposit insurance builds public confidence in the banking system and helps prevent panic withdrawals or bank runs during periods of stress.