It is necessary for every bank to retain its big and good customers. These customers will be a source of regular income for the banks as they will be prompt and regular in repayment of loans and advances. In many cases they may be customers having large deposits with the banks. A bank’s profit to a large extent depends upon retaining such honest borrowers and large depositors.
Similarly, it is also necessary to attract new customers who will be a source of income for the bank. Relationship banking refers to the efforts of a bank to promote personal contacts and to keep continuous touch with customers who are very valuable to the bank.
In order to retain such profitable accounts with the bank or to attract new accounts, it is necessary for the bank to serve their needs by maintaining a close relationship with such customers. This type of banking activity gains momentum in a highly competitive banking world.