This paper provides a theoretical exploration of the role of loyalty programs in strengthening customer retention in retail banking. While loyalty programs have been widely adopted by banks across the globe, their effectiveness remains mixed due to contextual, structural, and behavioral challenges. In India, where banking competition is intensifying between public and private sector players, loyalty programs present both opportunities and challenges for sustainable customer engagement. Drawing on theories of relationship marketing, the commitment-trust model, and the service-dominant logic, this paper critically analyzes the effectiveness of bank loyalty programs, identifies barriers such as lack of personalization, digital divides, and customer awareness gaps, and proposes future pathways including digital transformation, CSR integration, and sustainable loyalty frameworks. The paper contributes to the theoretical understanding of loyalty programs by positioning them as tools not only for transactional benefits but also for long-term relational and sustainable banking strategies