Retail Banking: Is It The End Of Relationship Manager Role?

When relationship banking emerged in India in the end-1990s, it promised a personalised banking experience, built on trust and the human touch. This new approach took root when the Reserve Bank of India issued universal banking licences, allowing a new generation of private banks such as ICICI Ltd., HDFC Ltd., and UTI to challenge the long-established state-run institutions. Retail banking, which had until then been largely functional and transactional, suddenly saw a wave of innovation and personalisation, aiming to differentiate these new banks from their public-sector counterparts.

Through the early 2000s, this model of relationship banking became a ‘growth strategy’ of the new private banks' strategy. Customers were assigned relationship managers, not just to handle their banking needs but to build a rapport that went beyond mere transactions. Banking was no longer simply about products; it was about making customer feel special to ensure that they felt nice about transacting with the bank. Home loans and car loans crafted to suit cohort-needs.

Yet, as the 2010s unfolded, this promise began to erode. Banks, facing growing demands and pressures, turned to a solution they assumed would fix everything: hiring more people, particularly MBAs, from a wide range of academic institutions. The thinking was that more relationship managers would result in better service. However, merely throwing more people at customers does not solve the problem unless genuine engagement follows. Customers increasingly found themselves dealing with staff who lacked the knowledge, training, or continuity to provide the level of personal service that had originally distinguished relationship banking. This often resulted in inconsistency, with many customers feeling more like targets for sales pitches than valued clients. Added to it has been the volatile and high attrition at RM level.

At the same time, private banks aggressively pursued corporate salary accounts, pitching their services to companies and offering a range of freebies to attract business. This strategy saw companies signing up en masse, with banks assigning relationship managers to each employee, offering lifetime free credit cards, and throwing in additional perks like complimentary airport lounge access. Many of these employees, especially those in junior roles, initially had little use for these privileges. However, as the economy grew and these individuals advanced in their careers, they began to take full advantage of the services on offer. Airport lounges, once a quiet perk for premium customers, became overcrowded. Banks, meanwhile, found themselves paying high costs to maintain these perks, particularly as more and more customers started claiming their relationship privileges. Eventually, this model became unsustainable, and banks quietly began revoking or limiting many of the benefits they had once freely offered.

Service quality also suffered as high attrition rates took their toll. By 2020, employee turnover at private banks in India had climbed to 25-30%. The revolving door of staff meant that customers could rarely develop a lasting relationship with their assigned managers. What was once the hallmark of relationship banking—personal connection and trust—started to fade. Instead of a familiar face to advise on financial matters, customers increasingly found themselves being handled by new and less experienced staff, often with little continuity or understanding of their financial history.

Adding to the challenges were the inefficient cost dynamics of traditional retail banking. Maintaining a large network of branches, training staff, and providing personalised services became an expensive proposition in a highly competitive and price-sensitive market. Digital banking, by contrast, offered an efficient, scalable solution, minimising the need for physical branches and face-to-face interactions. The cost of serving a customer through digital channels is significantly lower—by 40-70%—compared to traditional methods, according to a 2022 consumer research report. This shift was accelerated by the rise of Indian fintech companies which have successfully redefined consumer expectations.

Simultaneously, the digital-native generation, particularly millennials and Gen Z, began to dominate the customer base. For these consumers, personalised service no longer required a human relationship manager at a branch but rather a swift, intuitive digital experience. An industry survey revealed that over 80% of millennials and Gen Z in India prefer managing their finances through mobile apps and online platforms, valuing speed, ease of use, and 24/7 accessibility over the personalised interactions of traditional relationship banking. For them, convenience trumps the human element, with algorithms, AI chatbots, and robo-advisors meeting their financial needs.

This fundamental shift in consumer behaviour challenges the core premise of relationship banking. With algorithms now able to recommend products based on spending behaviour, and AI-driven bots handling queries with greater efficiency than a human could, the need for personal relationships in banking seems increasingly irrelevant to the average consumer. Digital banking, once seen as supplementary to traditional services, is now the mainstay, leaving many to question whether relationship banking still has a place in the future of Indian retail banking.

Banks, in their bid to adjust, have recognised this shift. Many have launched sophisticated digital platforms—like SBI’s YONO, Kotak 811, and ICICI’s iMobile—attempting to blend personalisation with the convenience of digital interactions. Yet, these efforts highlight an inherent tension: digital platforms may be more efficient, but they lack the depth of trust and loyalty that come from face-to-face human interactions.

While fintech companies offer an efficient service, they have not yet built the same level of trust that traditional banks enjoy, especially when it comes to more complex financial needs such as wealth management or retirement planning. Even the most digitally adept customers may prefer human advice when significant financial decisions are at stake. High-net-worth individuals and older generations, in particular, continue to value the expertise and reassurance that a trusted relationship manager provides.

This leads to a critical question: Can relationship banking be reimagined for a digital age? The future may lie in a hybrid model, combining the efficiency of digital channels with the personalised touch of human advisers, albeit in more selective circumstances.

If relationship managers serve any purpose today, it is largely to boost the vanity of the customer. Unless they can outperform AI bots in delivering faster, smarter, and more personalised solutions, the role of the human RM teeters in a grey area—where nostalgia for personal touch meets the reality of digital efficiency.

It is clear that traditional relationship banking cannot survive in its current form. But that does not necessarily mean the end of it altogether. Instead, it requires rethinking how relationships are built and maintained in a world where convenience is king, but trust still matters.

The views expressed here are those of the author, and do not necessarily represent the views of NDTV Profit or its editorial team.

Srinath Sridharan is a policy researcher and corporate advisor.