JAIIB Notes

Retail Banking and Wealth Management

(RBWM)

Compiled by Sekhar Pariti

Book No 69 from The Banking Tutor

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 To My Wife

Smt. Rama Lakshmi

On her 60th Birthday (29-04-2023)

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 Preface
With a view to help the young Bankers in preparation for Promotion Tests or
Professional Examinations conducted by various Institutes, I am sharing Notes
related to Retail Banking and Wealth Management (RBWM) which is prepared
based on the revised syllabus, 2023 of IIBF.

IIBF Syllabus consists the following 4 Modules –

Module A: Retail Banking

Module B: Retail Products and Recovery

Module C: Support Services- Marketing of Banking Services/Products

Module D: Wealth Management

In this Book I am providing Notes related to all the 4 modules cited.

I will share objective type points related to all the 4 modules shortly.

I hope this Book may be useful to those Bankers who are appearing for Promotion
Tests, Certificate/Diploma Examinations conducted by various Institutes.

While compiling this Book, I made use of a Book on Retail Banking compiled by
Shri Sanjay Kumar Trivedi, Asst General Manager, Canara Bank, Circle Office,
Lucknow. I sincerely express my gratitude to Sri Trivedi through this Preface.

29-04-2023 Sekhar Pariti

+91 94406 41014

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 Syllabus 2023

Retail Banking and Wealth Management (RBWM)

Module A: Retail Banking

Retail Banking: Introduction, Retail Banking: Role within the Bank Operations,
Applicability of Retail Banking Concepts and Distinction between Retail and
Corporate/Wholesale Banking, Branch Profitability.

Module B: Retail Products and Recovery

Customer Requirements, Product Development Process, Credit Scoring, Important

Retail Liability Products, Important Retail Asset Products, Credit and Debit Cards,
Remittance Products, Digitisation of Retail Banking Products, Role of AI and
Technology in Retail Banking, Recovery of Retail Loans, Management Information
Systems, Securitization.

Module C: Support Services- Marketing of Banking Services/Products

Marketing: An Introduction, Delivery Channels in Retail Banking, Delivery Models,

Customer Relationship Management in Retail Banking, Service Standards for
Retail Banking, Marketing Information Systems-A Longitudinal Analysis.

Module D: Wealth Management

Importance of Wealth Management, Investment Management, Tax Planning,

Other Financial Services Provided by Banks.

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 Index
Retail Banking and Wealth Management (RBWM)

Module A: Retail Banking

Chapter No Topics covered

01 Retail Banking: Introduction
02 Retail Banking: Role within the Bank Operations
03 Applicability of Retail Banking Concepts
04 Distinction between Retail and Corporate/Wholesale Banking
05 Retail Banking and Branch Profitability

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 01. Retail Banking: Introduction

Retail banking, also known as consumer banking or personal banking, is banking

that provides financial services to individual consumers rather than businesses.

Retail banking is a way for individual consumers to manage their money, have
access to credit, and deposit their money in a secure manner.

Retail banking is the banking that is for the retail customers of the bank, which
includes the general population and not large or multinational institutions.

Retail banks are for the general public to help them save and invest their money
and handle their regular needs by providing various services like bank accounts,
credit cards, debit cards, fixed deposits, loans, and many more.

Certain services like withdrawals and deposits can also be availed online as well as
in the nearest branch of your bank. Online retail banking has made the transfer of
money and retailing easier for the retail customers. Simply put, it is a consumer-
oriented banking approach.

Objectives of Retail Banking

1. Generating superior returns on assets.

2. Acquiring sufficient funding
3. Enhancing risk management
4. Understanding customers and regaining their trust.
5. Coping with increased demands regarding product transparency and
overall service levels.

6. Achieving multi channel excellence with fully integrated banking channels.

7. Moving toward higher levels of industrialization

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Types of Retail Banks - Small Banks, Large Banks and Online Banks.

Small banks- These banks operate on a small scale with smaller deposits. Their
share in the market is much lesser than the large banks. They operate in many
locations and provide almost all services that can be provided by a large bank.

Large banks- These are the famous banks that operate in large cities. As they
have made a certain name for themselves, many retail customers opt for these
banks.

Online banks- These banks don’t have any physical branches and only operate
online.

Retail Banking Products

01 – Savings Accounts
02 – Checking Accounts
03 – Debit Cards
04 – Certificates Of Deposit (CDs)
05 – Credit Cards
06 – Home Loans
07 – Personal Loans
08 – Safe Deposit Lockers
09 - Education Loans
10 - Investment and Insurance
11 - Other Services

Savings Accounts

Also known as “interest-bearing accounts”, it is a relevant retail banking example

referring to basic deposit accounts to safeguard cash with a decent interest rate.
They stash away the amount for short-term requirements and generally apply
cash transferral and withdrawal limits.

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Checking Accounts

These deposit accounts permit easily accessible (and usually unlimited) cash
withdrawals and deposits for regular payments. Also known as “Transactional
accounts,” they offer debit cards for purchases and online bill payments.
Nonetheless, they render less interest than savings accounts.

Debit Cards

Also called ATM Cards, they are bank-issued payment cards for cashless
transactions through money deduction directly from the checking account.
Furthermore, they link straight to the bank account, and consumers can utilize
them at Automated Teller Machines (ATMs).

Certificates Of Deposit (CDs)

This savings account holds a set capital amount for a predetermined duration and
the issuing bank grants interest in exchange. When cashed in, consumers collect
the actual amount and the interest amount.

Credit Cards

Credit cards are financial tools released by banks to borrow money for digital
transactions with a fixed line of credit. Cardholders must repay the entire amount
with any levied interest either until the payment date or with time to avoid credit
risk
.
Home Loans

They denote a capital amount consumers lent from banks or financial institutions
to buy a home.

Personal Loans

These loans certainly entail money borrowed from banks, online lenders, or credit
unions to meet financial obligations. Moreover, the multi-purpose unsecured loan
is compensated in monthly payments within a few months or years.

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Retail banking meaning certainly implies providing banking solutions to only
individual clients and not enterprises. Therefore, it revolves around the customer
to offer them secure financial services. Furthermore, this includes CDs, credit
cards, and personal and home loans. Moreover, the most common retail banking
example is debit cards.

Safe Deposit Lockers

These are storage spaces that keep small valuables and important documents
within the bank’s walls so they can’t be stolen or destroyed in your home.

Vehicle loans:

These loans help buy a Two Wheeler or Four Wheeler for personal use.

Education Loans

Loans are given to meet education expenses.

Investment and Insurance

Retail banks also offer other investment avenues like mutual funds, NPS, etc.
Similarly, some retail banks also have an insurance arm through which you can
buy a general health insurance policy.

Mortgage / Reverse Mortgage Loans

Loans to meet personal needs (other than for speculative purpose) against the
mortgage / collateral security are given.

Other Services

Other services include money transfer, account balance check, issuing cheque
books, setting up auto debit or standing instruction to pay EMIs, card upgrade
request, utility bill payment, bancassurance, safe deposit lockers, demat account,
demand draft, etc.

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Advantages of Retail Banking

a) Retail banking focuses on small units and individuals for earnings.

b) It has significantly increased earnings and businesses for banks.

c) It has also reduced operational costs and thus helped banks in creating a strong
brand image in the market among the general public.

d) It has enabled banks to develop customer relationships with their clients which
has strengthened the customer base.

e) It also reduces the risk for banks if they depend on loans for their incomes.

f) It provides a safe way to keep one’s savings and capital secure.

Retail banking assists consumers in directly connecting with the bank to manage
their everyday requirements, for example, personal loans and mortgages.
Moreover, they must approach the bank portal or branch to examine its menu of
retail banking services. It helps customers certainly get the desired services at the
concerned portal or branch.

Disadvantages of Retail Banking

a) Banks may offer lower savings rates and charge higher interest rates.
b) Banks are profit making institutions and will expect to profit from transactions.
c) The level of service offered by some banks is very poor.

Tail Notes
Reverse Mortgage Loan (RML) enables a Senior Citizen i.e. above the age of 60
years to avail of periodical payments from a lender against the mortgage of
his/her house while remaining the owner and occupying the house.

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Difference between Neo Bank and Digital Bank

Neo banks are digital-only banks that operate without any physical branches or
legacy systems.

Digital banks are traditional banks that have added digital channels to their
services.

Difference between Neo Banking and Traditional Banking:

While traditional banks come with physical branches and online banking services,
neo banks are entirely digital.

Neo banks have affordable service fees compared to traditional banks' propensity
to overburden consumers with various complex expenses.

Neo banks typically just provide savings and checking accounts, payment and
money transfer services, and a few tools for financial education (e.g. budgeting
apps) as of now. On the other hand, traditional banks provide a much wider range
of services, such as credit lines, financial counsellors, investment services, credit
cards, and more.

While neo banks typically have flexible, short-term contracts and connections,
traditional banks tend to place a higher emphasis on developing strong, long-
lasting ties.

The difference between neo-banking and traditional banking is based on the fact
that neo banks are implementing new technologies and artificial intelligence (AI)
to provide customers with a variety of individualized services.

Traditional banks use an omnichannel strategy, which entails having both a

physical (via branches and ATMs) and a digital banking infrastructure to provide a
wide range of goods and services.

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 02. Retail Banking: Role within the Bank Operations

Business Models in Retail Banking

The business models adopted by banks vary among the public sector, private
sector and foreign banks. The main approaches are as follows:

(a) Strategic Business Unit (SBU) Approach,

(b) Departmental Approach,
(c) Integrated Approach (part of the overall business plan).

Public Sector Banks in India generally have adopted the Departmental Approach
as their retail banking business model. It indicates that the approach is more a
general one with retail banking as one of the business models and not a focused
business model.

The business model for retail banking is built as a part of the overall business plan
and not done as a separate departmental activity.

In new generation private sector banks, the business model is very clear. They had
set up Strategic Business Units (SBU) to have clear focus and business objectives.

The demarcation as a SBU is more a Management By Objectives (MBO) process

wherein the business model is dealt as a modular strategy for achieving targeted
profits with a provision to knockdown the module, if the retail plans are not
translated as per the objectives.

Banks generally structure their retail banking models mainly on a positioning

platform.

The business model of Foreign banks is only Strategic Business Unit with defined
business objectives.

In old generation private sector banks, the approach is more conservative. The
business model for retail banking has built as a part of the overall business plan
and not done as a separate departmental activity.

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But in new generation private sector banks, the business model is very clear. They
have set up Strategic Business Units to have clear focus and business objectives.

Generally, Strategies are based on the positioning objectives which are vary from
bank to bank depending on the importance given to the business model.

In case of Old Generation Private Sector Banks, the positioning platform is very
clear. It is based on the overall business plan and in line with their size and scale.

The New Generation Private Sector Banks have clear visions about their
positioning platform. The technology and strategy and customer and business
initiatives and aggressive positioning had already taken the bank to the desired
objective.

Foreign banks do not go by positioning objective but purely on business

objectives. They go by customer, business and profit targets.

Banks have adopted various models for implementing their retail banking
initiatives.

The most common strategies are end to end outsourcing, predominant

outsourcing, partial outsourcing and in house sourcing.

The implementation model depends on the product range, process requirements,

usage of technological creativity, delivery of capabilities including human
resources and regulatory prescriptions.

Most of the PSBs use only in house resources for retail banking. Only for some
activities like ATM /Credit Cards / Debit Cards, the issue part is outsourced due to
lack of facilities.

Regulatory prescriptions are one of the major determinants of outsourcing or lack

of it in these banks.

The Old Generation Private Sector Banks are also, carrying their activities through
in house resources only.

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In case of New Generation Private Sector Banks, the model is a balanced mix of
outsourcing and in house though a little bias towards outsourcing.

In foreign banks, the implementation of business model is mostly based on

outsource. To the extent in some foreign banks both front and back end
operations are outsourced and in some banks, the back end operations are
outsourced while the front end operations like sourcing of High Net worth
Individual clients are done through captive resources.

Strategies for Retail Banking Segment in India

In order to increase the retail banking business, banks have to develop and follow
aggressive strategies to achieve their targets.

In a competitive environment banks have to adopt policies that generate profits

and stability in banking business.

Various other strategies are implemented by banks to fight the tough competition
prevailing in the market among the big banks. By adapting various strategies
banks can perform in a better way and can give competition to its peer banks.
Offering wide range of tailor-made products and services suited to the
requirements of customers belonging to different segments can help banks to
stand ahead of the rest. This provides convenient banking to customer of all
segments viz. mass market, mass affluent, HNW (High Net Worth), NRI (Non-
Resident Indian) customer.

The differentiation in banks can be established primarily through the quality of

services and promptness in service delivery to customer. Quality of service
provides the competitive edge that help banks to retain customers. Banks should
develop strategies to explore the potential that the retail banking sector has.

The change in the consumption pattern and mind-set of Indian customers, the
possibility of increase in retail loans and the potential lying in lending by banks
have increased tremendously. Thus, banks should plan to target the potential
areas to increase the retail banking business. To reduce the cost of service and
create efficiency in banking performance,

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Business Process and Infrastructure Outsourcing is adopted by the banks to
assure quality and convenient banking to customers. Through this system banks
can concentrate on core business areas such as marketing, customer services and
brand building.

Cross-selling has emerged as a major approach to enhance retail business of

banks. This strategy of selling additional products either of bank’s own products
or products of a different organization as the case of selling insurance policies or
mutual funds to existing customers. Cross-selling has become an integral part of
critical planning of banks. Banks should work on it by carrying it out through
dedicated teams in banks, build up relationships with customers to execute it
properly.

Customer Relationship Management (CRM) solutions, if implemented and

integrated correctly, can help immensely in improving customer satisfaction levels.
Customer relationships have to be managed in the best possible manner. This will
increase and ensure customer confidence towards the bank. In addition to good
customer retention rates, it will also provide better income generation capability.
The reason being that a major chunk of income of most banks comes from
existing customers, rather than from new customers. Hence, Customer
relationships have to be managed in the best possible manner.

Banks should make all out effort to boost the retail banking by recognizing the
needs, preference, desires of the customers. It is essential that banks are
imaginative in predicting the customers' expectations in the ever-changing
preferences, social environment and bank must deploy the market segmentation
technique to cover all class of customer so that they can offer right type of
product to right customer. It is the innovative and competitive products coupled
with high quality care for customers which will hold the key to success in this area.

Role of Retail Banking in India

Retail banking in India is not a new phenomenon. It has always been prevalent in
India in various forms. For the last few years it has become synonymous with
mainstream banking for many banks.

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The typical products offered in the Indian retail banking segment are housing
loans, consumption loans for purchase of durables, auto loans, credit cards and
educational loans.

The loans are marketed under attractive brand names to differentiate the
products offered by different banks.

In recent past retail lending has turned out to be a key profit driver for banks with
retail portfolio. The overall impairment of the retail loan portfolio worked out
much less then the Gross NPA ratio for the entire loan portfolio.

Within the retail segment, the housing loans had the least gross asset impairment.
In fact, retailing make ample business sense in the banking sector.

Credit Cards: While usage of cards by customers of banks in India has been in
vogue since the mid-1980s, it is only since the early 1990s that the market had
witnessed a quantum jump.

Housing Credit: Housing credit has increased substantially over last few years,
but from a very low base.

Support to Indian middle class People: The rise of the Indian middle class is an
important contributory factor in this regard. The percentage of middle to high
income Indian households is expected to continue rising. The younger population
not only wields increasing purchasing power, but as far as acquiring personal debt
is concerned, they are perhaps more comfortable than previous generations.
Improving consumer purchasing power, coupled with more liberal attitudes
toward personal debt, is contributing to India’s retail banking segment.
Economic superpower. Retail banking has played a role in a growing economy of
India. As the growth story gets unfolded in India, retail banking is going to
emerge a major driver.

Increasing purchasing power of middle class people: Improving consumer

purchasing power, coupled with more liberal attitudes toward personal debt, is
contributing to India’s retail banking segment.

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Financial market reforms: The growth in the field of retail lending is primarily
because of the speedy advancement in the IT sector, evolving macroeconomic
environment, numerous micro level demand and supply side factors and financial
market reform.

Mass-market banking: The retail banking sector is often described as a typical

mass-market banking, offering services such as savings and all kinds of personal
loans, including auto loans and student loans. Retail banks also offer mortgage
services, debit and credit card services and ATM services—all of which have
become essential to today’s consumers.

Automation of banking process: The growth in retail banking has been

facilitated by growth in banking technology and automation of banking processes
to enable extension of reach and rationalization of costs. ATMs have emerged as
an alternative banking channels which facilitate low-cost transactions vis-à-vis
traditional branches / method of lending.

Easy and affordable access: Retail loans through a wide range of options /
flexibility. Banks even finance cost of registration, stamp duty, society charges and
other associated expenditures such as furniture and fixtures in case of housing
loans and cost of registration and insurance, etc. in case of auto loans.

Changing consumer demographics: The Size of population indicate vast

potential for growth in consumption both qualitatively and quantitatively.

Increase the Bank Liquid cash: Treasury income of the banks, which had
strengthened the bottom lines of banks for the past few years, has been on the
decline during the last few years. In such a scenario, retail business provides a
good vehicle of profit maximization.
Need for Less Provisions : Considering the fact that retail’s share in impaired
assets is far lower than the overall bank loans and advances, retail loans have put
comparatively less provisioning burden on banks apart from diversifying their
income streams.

Decline in interest rates: The interest rates were decreased in Indian money
market have also contributed to the growth of retail credit by generating the
demand for such credit.

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The declining cost of incremental deposits has enabled the Banks to reduce their
interest rates on housing loans as well as other retail segments loans.

Change of Terms of Loans: Offering retail loans for short term, 3 years and long
term ranging term ranging from 15/20 years as compared to their earlier 5-7
years only

Challenges of Retail Banking in India

Retention of customers: banks need to emphasize retaining customers and

increasing market share.

Network management challenges: Difficulty in maintaining and optimizing the

performance of retail banking networks.

Illustratively, ensuring that all bank products and services are available, at all
times, and across the entire organization is essential for today’s retails banks to
generate revenues and remain competitive. Besides, there are network
management challenges, whereby keeping these complex, distributed networks
and applications operating properly in support of business objectives becomes
essential.

Specific challenges include ensuring that account transaction applications run

efficiently between the branch offices and data centers.

Money laundering: KYC Issues and money laundering risks in retail banking is yet
another important issue. Retail lending is often regarded as a low risk area for
money laundering because of the perception of the sums involved. However,
competition for clients may also lead to KYC procedures being waived in the bid
for new business. Banks must also consider seriously the type of identification
documents they will accept and other processes to be completed.

Outsourcing activities: The issue of outsourcing has become very important in

recent past because various core activities such as hardware and software
maintenance, entire ATM set up and operation (including cash, refilling) etc., are
being outsourced by Indian banks.

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There is a need of constant innovation in retail banking. In bracing for tomorrow,
a paradigm shift in bank financing through innovative products and mechanisms
involving constant up gradation and revalidation of the banks’ internal systems
and processes is called for. Banks now need to use retail as a growth trigger. This
requires product development and differentiation, innovation and business
process reengineering, micro-planning, marketing, prudent pricing, customization,
technological up gradation, home / electronic / mobile banking, cost reduction
and cross-selling. While retail banking offers phenomenal opportunities for
growth, the challenges are equally daunting. How far the retail banking is able to
lead growth of the banking industry in future would depend upon the capacity
building of the banks to meet the challenges and make use of the opportunities
profitably.

Furthermore, in all these customers’ interest is of paramount importance. So, it is

vital for banks to improve their customer services and cut off predatory lending
strategies, particularly in the area of interest on credit cards.

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 03. Applicability of Retail Banking Concepts
The most common strategies are end to end outsourcing, predominant
outsourcing, partial outsourcing and in house sourcing.

Regulatory prescriptions are one of the major determinants of outsourcing or lack

of it in these banks.

In some foreign banks, both front and back end operations are outsourced and in
some banks, the back end operations are outsourced while the front end
operations like sourcing of HNI clients are done through captive resources.

The four broad classifications as envisaged by Boston group were defined based
on the technology and customer interface capabilities of the banks and are

a) Horizontally Organised Model

b) Vertically Organised Model
c) Predominantly Vertically Organised Model
d) Predominantly Horizontally Organised Model

Horizontally organised model is a modular structure using different process

models for different products offering end to end solutions product wise.

The horizontal or vertical model depends on the level of customer information

available in a single platform in the data base side for offering multiple products /
services across assets, liabilities and other services.

Horizontally organised model is a modular structure using different process

models for different products, offering end to end solutions product wise.

Vertically organised model provides functionality across products with customer

data base orientation and centralised customer data base is used across products.
Predominantly horizontally organised model is mostly product oriented with
common customer information for some products. In predominantly vertically
organised model, common information is available for most of the products.

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ln most of the PSBs, horizontally organised model is the standard norm. Of
course, in some banks, predominantly horizontally organised model do exist and
reflect the level of common customer information available for some products.

In foreign banks, it is mostly predominantly vertically organised model which

implies that retail banking initiatives are attempted with common customer
information across products.

In most of the PSBs, horizontally organised model is the standard norm. New
private sector banks generally follow a vertically organised model.

As a part of overall segmentation game plan of the bank, branches are classified
as Resource Centres, Profit Centres, Priority Centres and General Centres to have a
clear business focus.

This concept is an effective business model for PSBs with large network and useful
for focused strategies and already getting implemented in some public sector
banks.

Liability products are offered to retail banking customers basically under three
spaces - Savings Accounts, Current Accounts and Term Deposit Accounts.

Product differentiation among these accounts is best achieved by adding different

value propositions. (from a plain vanilla account to a value enriched account.)

Retail asset financing is a major component of retail banking model of banks.

Not all PSBs are in the credit card business since it is a big volume game and
needs process efficiencies.

Banks adopt different process models for retail asset products.

The common form of process models are Centralised Retail Assets Processing
Centres where all the retail loans sourced at the branches and marketing team are
processed at a single point and assets are financed through that centre or
processing alone done at the centre and financing done at the branches.

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Opening of account, issue of Pass Book, Cheque Book, ATM Card/Debit Card, PIN
Mailers for the Cards are the stages in the tangibilisation process. (Centralized
Processing)

Process time is a major differentiator in the efficacy of retail banking operations.

Process Time is business sensitive and customer sensitive.

Stand alone pricing for different products and services is the basic structure.

Regarding Price Structuring quantum and volumes are two important

determinants. Structuring also involves price bundling where a holistic pricing is
offered across a specific bundling of products and services so that the total price
proposition is attractive than the stand alone pricing for the individual products of
the bundle.

This structuring is a cross selling strategy to entice the customer to avail more
products so that profitability per customer is enhanced.

The technology models basically adopted by banks are In House Models,

Outsourced Models, Partially In House and Partially Outsourced Models.

Tail Notes

Tangibilisation refers to make something abstract more real. Used often in the
advertising field where a lot of abstract concepts are presented. Meeting the
challenge of intangibility and confronting the issue of how best to communicate
the ‘intangible’ qualities to the customers has been one of the biggest challenges
of service-providing firms

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 04. Distinction between Retail and Corporate/
Wholesale Banking
Retail Banking and Corporate or Wholesale Banking differ in their basic approach
to banking. The major differences between the two segments are discussed as
follows:

While retail banking services are provided to individuals in the general public,
corporate banking services are only provided to small or large companies and
corporate bodies.

The scope of the products and services offered is also different: retail banking is
customer-oriented and corporate banking is business-oriented.

The financial worth of transactions is comparably higher in corporate banking

than in retail banking. The ticket size of loans in retail banking is low whereas the
ticket size is high in corporate loans.

The source of profit is also different: the difference between the margin of interest
of borrowers and lenders is the main source of profit in retail banking, while
corporate banking's source of profit is the interest and fees charged on the
services provided.

Retail Banking is a mass market banking model whereas wholesale/corporate

banking look at a relatively smaller segment of business/corporate client base as
compared to retail segment.

Retail Banking is a B2C approach (Business to Customer) whereas corporate

banking is a B2B approach (Business to Business).

Risk is widespread in retail banking as customer base is huge whereas in

Corporate Banking, the risk is more as the ticket size is big though customer base
is relatively small.

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Returns are more in retail banking as the spreads are more for different asset
classes in retail. But in corporate banking, the returns will be low as corporates
bargain for lower rates due to higher loan amounts.

Monitoring and recovery in retail assets are more laborious because of the larger
customer base as compared to corporate banking.

In the liability side also, the cost of deposits is relatively less and mostly go along
with the card rates as the ticket size in retail deposits is small. In corporate
banking, as the ticket sizes of deposits will be large, the cost of deposits will be
high due to pressure from the corporates for higher rates and competitive forces
to garner the deposits.

The impact of NPA will be more pronounced in corporate banking than retail
banking as the ticket sizes in corporate loans are higher than retail loans.

Corporate Banking and Wholesale Banking

Corporate banking is a part of wholesale banking. Wholesale Banking covers

Treasury products.

Wholesale banking is the provision of services by banks to organizations such as

Mortgage Brokers, large corporate clients, mid-sized companies, real estate
developers and investors, international trade finance businesses, institutional
customers (such as pension funds and government entities/agencies), and
services offered to other banks or other financial institutions.

Wholesale finance refers to financial services conducted between financial services

companies and institutions such as banks, insurers, fund managers, and
stockbrokers.

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Modern wholesale banks engage in:

Finance wholesaling
Underwriting
Market making
Consultancy
Mergers and acquisitions
Fund management

Corporate Banking

Corporate Banking refers to financial services specifically offered to corporations,

such as cash management, financing, underwriting, and issuing of stocks, bonds,
or other instruments.

Financial institutions often maintain specific divisions for handling the needs of
corporate clients, separate from consumer or retail banking activities for individual
accounts.

Neo Bank - Best alternative for Retail Banking

The best alternative for retail banking would be online and neo-banks. Online
banking and neo-banks offer the same services without physical branches. Users
can open an account by just signing up online. Their online apps provide the
necessity of a bank that a user would need. Savings and transactions can be
monitored and secured; foreign currency exchange is also available. And just by
using an online app, users can apply for loans without collateral.

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 05. Retail Banking and Branch Profitability
Like other businesses, banks profit by earning more money than what they pay
in expenses.

The major portion of a bank’s profit comes from the interest that it earns on its
assets mainly and fees it charges for its services.

Its major expense is the interest paid on its liabilities.

The major assets of a bank are its loans and advances to individuals,
businesses, and other organizations and the securities that it holds, while its
major liabilities are its deposits and the money that it borrows, either from its
customers or other banks or by selling commercial paper in the money market.

Retail bank is more likely to profit from a large base of individual customers
making many frequent transactions. Commercial banks earn high profits
because their business model involves banking with large organisations that
have high transaction values and services costs.

From a profit perspective , retail lending is much more profitable than

corporate credit.

Two main reasons in retail lending , the rates are high as a percentage but
appear small from a value perspective , so you need scale to ensure that you
make profits.

Scale means infrastructure , people , process etc which all add to the cost.

Corporate lending is not that profitable but allows a bank to deploy a large
chunk of capital quickly and to get interest on it from one source which is the
corporate but the challenges are a corporate will not pay the retail rate and will
negotiate much lower interest , reduction in various fees charged by the banks
etc .. so overall corporate credit is not very profitable while for retail credit is to
be profitable , the bank has to scale quickly and also have very less defaults.

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Retail lending is more profitable for Banks for many reasons, some of which are
as under:

The average ticket size of retail loans is much smaller in comparison to

corporate loans.

As such risk is spread.

Risk Weight allotted to retail loans is much less in comparison to corporate

loans.

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 Module B: Retail Products and Recovery
Index
Chapter No Topics Covered

01 Customer Requirements

02 Product Development Process

03 Credit Scoring

04 Important Retail Liability Products

05 Important Retail Asset Products

06 Credit and Debit Cards

07 Remittance Products

08 Digitisation of Retail Banking Products

09 Role of AI and Technology in Retail Banking

10 Recovery of Retail Loans

11 Management Information Systems

12 Securitization

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 01 Customer Requirements
Income Levels – Customer Segments
The basic segmentation of customers based on their income levels is presented
below.

Income Levels (Rs. Lakhs) Customer Segment

2-10 Mass Market

10-50 Mass Affluent

50-400 Super Affluent

400-4,000 HNW

4000-120,000 Super HNW

Above 120,000 Ultra HNW

Maslow's Theory and Customer Requirements

Maslow's hierarchy of needs is a theory of psychology explaining human
motivation based on the pursuit of different levels of needs. The theory states that
humans are motivated to fulfill their needs in a hierarchical order. This order
begins with the most basic needs before moving on to more advanced needs.

Maslow's hierarchy of needs is a psychological theory that explains human

motivation via the pursuit of several degrees of wants. Humans are driven to meet
their wants in a hierarchical sequence, according to the idea. This list starts with
the most basic necessities and progresses to more sophisticated requirements.

According to this idea, the ultimate objective is to achieve the fifth level of the
hierarchy: self-actualization. One of the most renowned pictures in the history of
management studies is Abraham Maslow's classic pyramid of needs. Physiological
requirements are at the bottom of the pyramid, while self-actualization, or
realizing one's full potential, is at the summit.

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If we arrange Customer’s needs as per Maslow’s hierarchy of needs, the following
is revealed.

Need Level Matching Banking Investment and Insurance Products

Physiological Needs Core Savings Accounts

Personal Accident Cover
Housing Loans
Security/Safety Needs Recurring, Fixed Deposit Products
Life Insurance Products
Mutual Fund Products
Social Needs Consumer Loans
Personal Loans
Home Loans
Car Loans
Loans for Professional Development
Esteem Needs Special Term Deposit Products.
Term Insurance Products.
Second Housing Loans/ Home
Improvement
Self Actualization Needs Pensioners Loans
Retirement Solutions
Senior Citizens Term Deposit Products

Expectations from the customers about the service quality of the bank basically
depend on the following factors:

Tangibility in services- physical side of the service

Reliability- Sticking to agreed terms and promises.

Responsiveness- willingness to help and extend prompt service.

Assurance - Competence, Courtesy, Credibility and Security.

Empathy - Understanding the service expectations from the customers' point of

view.

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 02 Product Development Process
Anything that has the capacity to provide the satisfaction, use and return desired
by the customer is called product. If the bank product is no longer capable of
satisfying customer needs and wants, the product will fade out.

Product Life Cycle

There are various stages in the life of the product. The product after development
goes through different stages in its sales journey and in each stage, the impact on
sales will be different.

There are various stages in the life of the product

1. Introduction

When a product is introduced the sales volume will be low and revenue from the
products will not be sufficient to cover the cost of producing, marketing and
servicing it. In the introduction stage it happens because it takes time for the
product to occupy the minds of the customers.

2. Growth

In this stage, the sales volume of the product picks up and the product is likely to
break even and start generating profits for the organisation. During this period
the consumer awareness of the product will be more and that will result in
growth.

3. Maturity

In this stage there is more growth and sales volume peaks. There is a wide
customer base which will result in maximisation of sales with inflow of business
and profits.

4. Saturation

In this stage, staleness will be visible because of competition and better products
available from the competitors, which will result in saturation of sales. The
business and profits stagnate, customer develop a tendency of indifference to the
product.

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5. Decline

In this stage, the product becomes less attractive for the consumers due to
various reasons and results in drop in sales volume and profits. This stage if not
attended properly will lead to product death. This can be avoided by fine tuning
and value adding to revitalise the product for continued acceptance.

Though different products cater to different segments, there are certain products
like core products which cater to all segments.

Products can be broadly classified into following:

Deposit Products or Liability Products

Asset Products or Retail Credit Products
Other Products and Services.

Deposit Products or Liability Products

In the Deposit Product category, the products can be classified into

Demand Deposit (CASA Deposit)

Saving Deposit
Current Deposit

Term Deposit

Product Policy

Product policy is one of the main tasks in product management. The marketer
should decide what exactly the products to be offered to different segments are.
Again if the customer base is fairly very large, the product line should be based on
the homogenous needs of the heterogeneous customer base and customer
segments. Otherwise it will result in unwieldy product range. But of course the
marketer has to consider designing product tailored to specific customer base if
the segment is an important segment. For deciding that the marketer should
develop a product policy which involves the following concepts:

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Product Development Process– often called new product development (NPD) or
new product management – is the process of creating and launching a new
product or service or relaunching an existing service or product.

It’s an approach that is deliberately structured and aims to sidestep the chaos of
creativity and ensure that you remain on track transforming an idea into a reality.

There’s an entire industry that has sprung up with processes, structures and
frameworks for running a product development process.

While all have merits, it’s possible to use a simple series of steps to help create a
successful product or service.

By working through each step, you’ll be better placed to pick the right idea, do
the right research and create a product development pipeline that can be used
again.

And by sharing your NPD approach with potential investors, you’ll inspire
confidence when seeking funding for your start up.

Depending on what you’re developing, there are around eight steps you can
follow.

These are usually the same no matter what NPD approach or system you adopt:

Idea generation – The process of coming up with potential ideas for a new
product or service, or ideas on how to improve an existing product.

Filtering and screening – How to select the best idea to take forwards into
development.

Concept development – Testing the idea with customers.

Commercial and market analysis – The practicality of launching this idea, costs
involved and the market.

Development – The technical stage that sets the manufacturing or service

delivery process.

Testing – Puts the prototype product or service in the hands of customers to get
feedback and refine the product.

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Marketing and pricing – How you’ll price and market the new or improved
product or service.

Go to market – The strategy and approach you’ll take to put the new product on
sale and into the hands of customers.

Each stage is designed as a go/no-go stage.

By following each stage you’ll limit the risk and lessen the investment you need if
the idea turns out to not be viable.

Not following a production development process risks going to market with a

half-baked business idea that doesn’t appeal to customers, or is challenging to
manufacture and sell.

1. Idea generation

Ideas are the lifeblood of any business and you should use a variety of techniques
to generate lots of ideas for your new product or service.

Ideas can be captured from all sources but the first step is to use tools such as
SWOT (Strengths, Weaknesses, Opportunities, Threats) and PESTLE (Political,
Economic, Social, Technological, Legal and Environmental) to map out what’s
happening in your market and to identify opportunities opens in new window.

Other tools to use to help generate ideas include:u

Brainstorming – There are a variety of techniques and stimulus to help you

brainstorm but the aim is to generate a range of ideas framed by the SWOT and
PESTLE analysis. Capture each idea on a separate piece of paper. Then list what
the idea is, how it would work, what is different about it and what customer need
it addresses.

Competitor analysis – Look at competitors and see what they’re doing. What
have they failed or succeeded with? What would you do differently? What are
customers complaining about? Use these to come up with ideas that exploit a gap
in the market.

Suggestions – Ask your staff and customers what they think. From something as
simple as a suggestion box to a more formal survey or focus group, talking to
your target customers and your staff can generate lots of great ideas.

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Once completed, this stage should have generated lots of ideas for new products
or improvements to existing ones – the challenge is, you may have too many
ideas! The next stage will help narrow down the options.

2. Filtering and screening

You won’t be able to develop every idea you have.

This stage is about filtering out the less viable ideas so you can devote all your
resources to the ones with the most potential. To do this:

Set criteria – Write down a list of criteria that each idea must be assessed with,
such as customer need, potential market size, cost of development, existing
competitors or how it fits with your objectives.

Use traffic lights – Set a red, amber and green colour for how attractive the idea is
in each criteria. For example, low cost might be green, whereas lots of existing
competitors might be coloured red. Ideas with more greens are more attractive to
take to the next stage.

Filter ruthlessly – You should aim to ditch around two thirds of your ideas, ending
up with two or three candidates that you think are viable.

3. Concept development

Write up each of your candidate ideas as if it was a real product, detailing what it
is, what it offers, how much it costs and how it works.

You can use illustrations to bring your ideas to life and into presentable form.

This stage is about asking potential customers how they would rank each of your
candidate ideas.

Get a group of customers together and take them through each concept, asking
them for their feedback.

Would they need it? Would they buy it? How much would they pay for it? Would
they buy it from you? What do they like or dislike about it?

Rank the candidate ideas, making changes based on feedback, and then take one
idea through to the next stage.

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4. Commercial and market analysis

Now the real work begins.

You’ll need to investigate the commercial and business foundations of the idea –
what would it take to manufacturer the product or operate the service.

You’ll need to make assumptions about number of customers, ARPU (average

revenue per user) and how much people will pay, your costs and overheads,
marketing costs and sales assumptions.

Is the product viable? What are the areas for concern, such as pricing or the
volume of customers you’ll need? What demand are you assuming for the
product? What evidence is there for this? What is the breakeven point, and what
will the competition do if you launched it?

Use spreadsheets and conduct some financial modelling showing how the
product or service would sell over the first year, and your costs and assumptions.

Be realistic – Is the idea profitable and can you make it work? If not, then now is
the stage to stop and go back to an earlier stage.

5. Development

If you’ve a viable product idea that has tested well with customers and makes
commercial sense, then you can roll up your sleeves and move into the
development stage.

This is about identifying the specifications and processes you’ll use to either make
a product or set-up and deliver a service.

You’ll need to consider the supply chain – how you’ll source materials – as well as
the manufacturing methods or infrastructure you’ll need to offer a service.

For example, offering a phone-based service might need a call centre and phone
system.

6. Testing

By now, your idea is nearly a ready-to-sell product or service – time to get it back
into the hands of potential customers for further polishing and refinement.

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Use this stage to put prototype products, packaging examples, marketing
materials and service details such as prototype websites into test groups.

Watch how customers interact with these, gather feedback and see how you can
refine your product.

These last-minute changes are invaluable for fine-tuning your offering.

7. Marketing and pricing

You’re now ready for the pre-launch stage. You’ll need to finalise marketing plans
and pricing – creating marketing messages and advertising across channels.
Establish any introductory pricing or discounts to encourage early take up by
customers and put in place performance goals for your marketing.

Set weekly and monthly marketing targets, such as the number of customers you
need to acquire and how much they should spend.

Check this against the expected performance of your business analysis that you
created in step 4.

8. Go to market and launch

The stage is now set for your product launch. Use this final stage to sign off
marketing plans and book advertising space, as well as set up the logistics for
taking orders or handling customers.

Create a detailed launch plan – How will you announce it and start distributing it?
What elements, such as PR opens in new window, need to be in place and what
result should they create? Align all your marketing channels – such as Pay Per
Click advertising and social media – with a launch date for promoting your new
product.

During this phase, monitor progress in detail, checking everything is going to

plan. Finally, create an exit strategy. Even if you’ve completed every step,
sometimes a business idea or new product simply doesn’t work.

Put down some red lines that indicate things are not performing well, and be
prepared to stop a product that looks like it will fail soon after launch before you
incur too many losses.

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 03. Credit Scoring
Every borrower seeks the lowest interest rate, every lender the highest. The return
a lender seeks factors in, apart from his profit, a premium for the risk he feels he
bears of not being paid back. This risk perception is different for different
borrowers and, ideally, should be determined from their credit history.

Credit Score

A credit score takes a ‘snapshot’ of a consumer’s credit report and through

advanced analytics turns the information into a 3-digit number representing the
amount of risk he brings to a particular transaction.

The higher the score, the lesser is the risk of the consumer. The lines of credit
assessed to arrive at this score would mainly be retail products like home loans,
auto loans, personal loans, credit cards and overdrafts.

Good Credit Score

Whether a score is good or not will depend on the bank’s internal policy, its
customer profile and its risk appetite. Some bank may perceive 700 as a good
score and another may not. Thus, in India, different banks will rank different
scores as good. Still, any score over 800 will be considered excellent across the
board.

But credit score is only an indicative tool for managing risk and its effectiveness
depends on the banks’ internal control mechanism. An objective thing like the
credit score will not only help the banks to reduce defaults but also make loan
disbursing faster, improve operational efficiency and bring costs down.

Credit Scoring Model

CICs typically build scores using three historical data files:

Defaults on previous credit transactions

Payment behaviour/ Payment history

Previous searches/inquiries

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Managing the Credit Score

To effectively manage the credit score, the following points are very important.

Credit Utilization: Effective credit utilisation is a very important step in

individual’s credit score. If your safe limit is Rs 10000 and you are using only Rs
5000, then you are a very safe customer. If your limit is Rs 10000 and you are not
only fully using it, but also seeking further credit, you could be overleveraging
yourself and your score could fall.

Payment Defaults: How many past accounts are due, by how many days and by
how much? The fewer, the better.

Trade Attributes: How old are your lines of credit and what type are they? Do
you have a good mix or is it, say, all credit cards? A history of consistent
repayment of various types of credit will improve your score.

Positive Side of Credit Score

A good credit score will indicate the character of the borrower in his financial
matters. The following are some of the indicators of good score.

Evidence of financial discipline.

If the borrower has defaulted once or twice due to reasons beyond their control,
those would show up as clear aberrations in an overall consistent payment history.

The longer the credit history, the better. The lender’s assessment presumably
improves as he gets bigger spans of repayment. One should be judicious about
closing old accounts and opening new ones.

Warning Signs in Credit Score

The behavioural pattern of the borrowers will impact the credit score of the
borrowers. The following are some of the signals.

Craving for credit.

Frequent and unnecessary shopping for credit,

Several new accounts or recent requests for loans can be taken as signs of an
over- hungry borrower.

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 The length of credit history is also important. Older accounts are generally
better, so you should be judicious about closing old accounts and opening
new ones.

Trade attributes – does the customer use a good mix of credit?

Credit Information Companies in India

Presently, the following four CICs have been granted Certificate of Registration by
RBI.

Credit Information Bureau (India) Limited

Equifax Credit Information Services Private Limited
Experian Credit Information Company of India Private Limited
CRIF High Mark Credit Information Services Private Limited

In terms of Section 15 of the Credit Information Companies (Regulation) Act, 2005

(CICRA), every Credit Institution shall become member of at least one CIC. Further,
Section 17 of CICRA stipulates that a CIC may seek and obtain credit information
from its members (Credit Institution / CIC) only.

As a result, when a Specified User, as defined in CICRA and Credit Information

Companies Regulations, 2006, obtains credit information on a particular
borrower/client from a CIC, it gets only such information that has been provided
to the CIC by its members.

Factors lending to favourable credit score

On time loan EMI payments.

Regular payment of credit card bills.

Paying credit card bills in full rather than paying minimum due amount every
time.

Avoiding over-leveraging

Maintaining strong financial records.

Too Many forms of credit (such as unsecured person loans) among family
members.

Proper utilization of approved credit limit.

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Factors leading to negative credit score

Too many credit report enquiries by banks and other institutions.

Cheque bounces/dishonours.

Irregular loan repayment.

Defaulting on credit card bills/making late payments or consistent part

payments.

Too much unsecured credit such as multiple personal loans.

Multiple applications for unsecured loan getting rejected.

Defaulting as a guarantor.

High utilization of approved credit limit or overshooting the limit.

Errors in record by banks and other finance

Issues in credit scoring

Three common credit problems are:

Lack of enough credit history.

Denied credit application.

Fraud and identity theft.

Mistakes In Credit Scoring

Confusion of Names

Human Input Error

Identity Theft

Troubleshooting Credit Score

We have to accept that there are chances of mistake in arriving of credit score or
mistaken identities creating confusion in the scoring process. Errors and
inaccuracies are possible with Credit Information Report. The steps for seeking
clarifications in your credit report are as follows:

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Contact the bank that declined a credit card or loan application on the basis of
your poor credit score. Ask them for a clarification on the poor credit score and
request them to provide the control number for your credit report.

The bank will provide you with the control number of the credit report and also
share the information on the credit report that is responsible for your poor credit
score.

Provisions are available in the website of the CICs for resolving disputes.

The control number is a nine-digit unique number that helps to track an

individual’s credit report from CIC’s database. The control number is generated
when banks pull out your credit report on a requirement basis. The control
number is a unique number, which is generated every time any bank or credit
institution pulls out a credit report on you.

CIC requires this number because it enables them to view the exact details that
the bank has seen when they drew a report on you. Hence, it is important for you
to request the bank to provide you the control number.

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 04 Important Retail Liability Products
Banks accept deposit from public and lend it to the enterprise class engaged in
productive activities. Banks don’t have their own money and so they lend from the
deposited money. Banks normally pay interest on the money deposited by public
which lies with the banks. Therefore, the deposited money is the banks liability as
interest is paid on that sum to the depositor. On the other hand, the money given
out as loan becomes the asset for the bank and earns interest.

Main Retail Liability Products of Banks

Retail Liability Products of Banks constitute various types of Deposit accounts.

Banks accept various types of deposits. These are,

a) Demand deposits: Are payable on demand

b) Term deposits: Are repayable on expiry of the period and also known as
Time deposit/ Fixed deposit

c) Recurring Deposit: Help people with regular income to save a fixed income
every month and at the same time earn interest at the rate applicable to
Fixed Deposit.

CASA (Demand Deposits)

Demand Deposits consists Saving and Current Accounts. These are also known as
CASA Deposits

Saving Bank Deposit

Purpose : A scheme facilitating to keep a portion of surplus of one’s earnings at

reasonably good interest rates to promote the habit of savings and thrift among
people.

Intended for savings for future. No restrictions on number and amount of deposit
can be made on any day.

Savings Bank Deposit is called the “Mother of all Deposits”

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Eligibility •

An account for individuals, non-trading organizations, permitted institutions etc.

Joint accounts: There is no restriction in number of persons.

Interest : The interest calculated on daily product basis is credited on quarterly

basis on 1st of Feb, 1st of May, 1st of August and 1st of November every year (
from 1.05.2016).

Current Deposit Account

Current Deposit account is opened by businessmen who have a higher number of

regular transactions with the bank. It includes deposits, withdrawals, and contra
transactions. In current account, amount can be deposited and withdrawn at any
time without giving any notice.

It is also suitable for making payments to creditors by using cheques and online
banking. Cheques received from customers can be deposited in this account for
collection.

Main Features of Current Deposit Account

• Current deposit accounts are meant to run a business.

• It is a non-interest bearing bank account.

• It needs a higher minimum balance to be maintained as compared to the

savings account.

• Penalty is charged if minimum balance is not maintained in the current account.

• It is of a continuing nature as there is no fixed period to hold a current account.

• Banker requires KYC (Know your Customers) norms to be completed before

opening a current account.

• There is no restriction on the number and amount of deposits and withdrawals

Advantage of Current Deposit Account to Customer

• Since the purpose of the deposit is generally for ‘Trading’ and ’Business’ it differs
from the object of other deposit accounts which are meant to tap/mobilize the
savings of the people.

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• Current account is mainly opened by businessmen such as proprietors,
partnership firms, public and private companies, trust, association of persons, etc.
that has a large number of daily banking transactions, i.e. receipts and/or
payments.

Time Deposit (Also called Term Deposits)

A time deposit is a contract entered into by the Bank with the depositor, to pay on
a fixed or determinable future date, the amount of money deposited plus interest
accrued thereon.

Each time deposit is a separate contract and various deposits in the name of the
same depositor or in the names of members of the same family, should not be
treated as one deposit.

A time deposit receipt is not a negotiable instrument and, therefore, cannot be

transferred by endorsement by a depositor in favour of another.

Periodicity of Time Deposit

Minimum period:

At present, the minimum period for a term deposit for banks is 7 days for deposit
amount of ₹15/- lacs and above & minimum 15 days for amounts less than ₹15/-
lacs. The amounts may vary in different banks.

Maximum period:

Banks accept fixed deposits for a period not exceeding 120 months. Where a
deposit is offered for a period over twelve months, efforts should be made to
accept deposits for periods in multiples of 3 months e.g., 15 months, 18 months,
21 months and so on.

But at the specific request of the customer, branches may accept deposits for any
periods in multiples of complete months or even for a period where the terminal
month is incomplete i.e. 13 months, 37 months, 41 months, 38 months and 12
days.

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Operational Instructions

Term deposit accounts can be opened with instructions as ‘Singly’ or payable to

’Either or Survivor’, payable jointly, payable to any one of the depositors etc.

It can also be opened with instructions payable to “Former or Survivor” or

“Former, Survivors Jointly or Last Survivor” or “Latter or Survivor” in which case
operational/ payment instructions at the time of opening the account or
subsequent variations, if any, in these instructions, should be signed by all the
joint depositors.

Interest on Fixed Deposit

Interest on FDs is paid at quarterly intervals. The customer can choose to have the
interest reinvested in the FD account. In this case, the deposit is called the
Cumulative FD or compound interest deposit.

For such deposits, the interest is paid with the invested amount on maturity of the
deposit at the end of the term. If the customer instructs that the interest to be
paid every quarter/month, it is credited to their Savings Account or sent to them
by cheque. This is called Simple FD.

Auto Sweep Accounts (2 in 1 Account)

The mode of working in such accounts is that money in Savings or Current
account in excess of the stipulated amount is swept into an FD for a particular
period, which carries interest rate higher than Savings/ Current accounts. Such a
sweep is called “Auto Sweep”. Further, if Savings/ current account has insufficient
fund to meet any debit transaction, the FD, up to the short fall amount is
withdrawn and transferred to SB/ CA Account for honouring the debit transaction.
Such a sweep is called Reverse Sweep. The following are the features of the 2 in 1
account:

Auto Sweep Facility: It offers maximum returns. The features of this facility are:

• Balance in excess of the stipulated amount is automatically transferred to an FD

for a particular period. Amount in multiple of ₹1,000/- or any other amount as
stipulated by the respective bank is transferred to FD.

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• FD formed through Auto sweep facility carry the rate of interest as applicable to
FD and other relevant terms applicable on the day of Auto Sweep.

Reverse Sweep Facility: It offers liquidity. The features of this facility are:

• This facility gives access to funds swept in FDs created by Auto sweep.

• In case of shortfall in the SB account to honour any debit transaction or any

other transaction FDs are automatically broken to the extent needed for meeting
the shortfall. The remaining balance in FDs continue to earn higher interest at the
original rate applicable to FD.

• FDs are broken in multiple of ₹1,000/- or any other amount as stipulated by the
respective bank. For maximum benefit of interest to the customers, FDs are
broken on Last in First Out (LIFO) basis. These calculations are all system driven
and no manual intervention is required.

Recurring Deposit (RD)

Recurring deposit (RD) accounts help customers with regular income to save a
fixed amount every month and at the same time earn interest at the rate
applicable to FDs. The contract between the customer and the banker is similar to
the contract related to FD. It is also for a fixed period. It is similar to making FD of
a certain amount every month. Banks allow premature payment of RD on the
same terms and conditions as that of FD.

Banks also provide loan against RD on the same terms and conditions as
applicable to FD. Any person duly introduced to the Bank and fulfilling KYC norms
may open a recurring deposit account.

A recurring deposit account may be opened by the following:

• By a person in his own name.

• By more than one person, in their joint names, the amount being payable to all
of them jointly or to any one or more of them or any one or more of the survivors
amongst them – specific instructions in this regard being required to be given in
writing, at the time of opening the account.

• By a minor of age 10 years and above on terms laid down by the bank. Accounts
can also be opened in the name of minor with their father/mother, as guardian.

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Nomination Facility

Nomination facility is made available to all types of deposit holders, irrespective of

the nomenclature used by the banks.

The Central Government has framed in consultation with the Reserve Bank of
India- the Banking Companies (Nomination) Rules, 1985 which together with the
provision of new Sections 45ZA to 45ZF of the Banking Regulation Act, 1949
regarding nomination facilities were brought into force with effect from 1985.

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 05 Important Retail Asset Products
The following are Retail Assets of Banks in India.

• Home loan

• Vehicles loan

• Personal loan

• Education loan

• Mortgages Loans, etc.

Home Loan
Eligibility - Salaried employees, Professionals, Self-employed persons. Requests
are also considered from NRIs, PIOs, HUF, Proprietorship Firms, Partnership firms,
and corporate for their employees/quarters.

Purpose- To purchase/construct house/flat. To renovate/extend/repair existing

house/flat. To purchase a plot of land for construction of house. To acquire
household articles along with the house/flat - for furnishing the house/flat.

Quantum of Loan For construction/purchase of a house/flat - No upper ceiling in

many banks . Amount varies from Bank to Bank.

Eligible Quantum of Loan/EMI Calculation of quantum of loan is related to

Income/repayment capacity of proponent/borrower.

Margin is subject to RBI stipulated LTV (Loan to Value)

Banks should not include stamp duty, registration and other documentation
charges in the cost of the housing property they finance so that the effectiveness
of LTV norms is not diluted. However, in cases where the cost of the
house/dwelling units does not exceed Rs. 10 lakh, bank may add stamp duty,
registration and other documentation charges to the cost of the house/dwelling
unit for the purpose of calculating LTV ratio.

Interest (Floating ROI – linked bank’s base rate p.a. at monthly rests)

ROI varies from bank to bank. RBI has left ROI to the discretion of individual banks

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Repayment (can be customized) Highly flexible - maximum 30 years including
moratorium period is considered by banks. Maximum moratorium period of 18
months in case of construction and 3 months in case of purchase is allowed
generally by banks. Loan to be normally repaid before date of retirement in case
of salaried persons and before attaining 65 years of age in case of others.

Some banks stipulate health/life insurance of the borrowers as additional terms

and conditions.

Other features

• Interest on Daily Reducing Balance Basis

• No Pre-Payment Charges on Floating Rate Loan

• Repayment allowed up to age of 70 years in select cases

• Facility for step up/step down EMIs available

• Inclusion of Income of Close relatives for enhanced loan

• Tax Benefit on Interest and Instalments repaid in Home Loans

Auto/Vehicle Loans
Eligibility - Individuals in confirmed service in Government, PSU, Reputed Private
Organisations. Professional & Self Employed persons ,Business people

In case of employed people, take home pay not less than 50% of gross salary.

Purpose • To buy new or used car.

In cased of used car, the age of the car should not be more than 5 years.

Margin • 10% for new cars.

• 25/30% for used cars

• 10% for two wheelers.

Margins also may vary with the banks.

Security • Hypothecation of the vehicle to be purchased out of the loan.

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Disbursement • Directly to the Dealer/ Suppliers and invoice/receipts to be
obtained for record.

Moratorium • Normally no moratorium. Repayment of the loan commences from

the immediate following month.

Prepayment issues • Public sector banks normally do not charge any pre
payment penalty. Some Private Sector banks collect pre payment while some
don't.

Repayments/Collection • For Individuals- for new vehicles - 4 Wheelers- Max. 7

years, generally. In case of 2 Wheelers- Max. 5 to 6 years, generally

For Corporate/ Firms, etc- Max. 5 years, generally

For Second Hand vehicles- Max. 3 years, generally or a period depend on the age
of the vehicle.

Personal Loans
Personal Loans are basically unsecured in nature and are backed by personal
guarantees only. As credit risk and delinquency rates are more in this segment,
public sector banks tread cautiously in this segment and private banks do it
aggressively.

Eligibility Salaried employees, Professionals and individuals with High net worth,
Regular pensioners or family pensioners drawing regular monthly pension
through Bank.

Purpose Marriage expense of self, children or a dependent. Medical expense. For

education of self/ children. For Repairs, renovation, extension .Any other personal
expense

Amount Clean/ Unsecured loans- Amount varies from bank to bank and depend
on the schemes developed by each bank and the target group.

Secured Loans- Amount varies from bank to bank and depend on the schemes
developed by each bank and the target group.

Security Equitable/legal Mortgage of commercial or residential properties.

Hypothecation charge on assets acquired.

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Disbursement Directly to suppliers/ dealers wherever feasible.

Credit to account of borrower in respect of clean loan

Rate of interest As applicable (vary from bank to bank)

Moratorium No moratorium normally

Repayments Clean/Unsecured loans- 36 to 60 EMIs generally

Secured loans- 60 EMIs

Educational Loans
No. Particulars Features

Eligibility • Students studying Professional/Other Colleges

Indian Banks' Association has brought out a Model Educational Loan Scheme
prescribing the modalities to be followed by banks regarding disbursement of
educational loans. The objective of IBA is to make the banks to adopt a uniform
approach as per the prescribed guidelines.

Loan to be given jointly to the student and their parent.

Purpose • To pursue professional degree/diploma and other course as prescribed

in the IBA guidelines.

For studies in India and abroad.

Amounts • Inland Studies - Upto Rs.10 Lacs.

• Foreign Studies - Upto Rs.20 Lacs

• In case the amount required is more, the same can be considered by banks
on a case to case basis.

4. Security • Upto Rs.4 Lacs - No security.

Above Rs.4 Lacs and upto Rs.7.50 Lacs Additional Personal Guarantee
worth the amount.

• Above Rs.7.50 Lacs - To be secured by tangible asset to cover the

loan in the form of property, Govt. Securities like NSC.KVP.

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Disbursement • To be disbursed in stages - semester wise or annual payments as
per the requirements of the institutions. Payment to be made direct to the
institution.

Moratorium • One year after completion of the studies or employment which ever
is earlier.

Prepayment issues • No prepayment charges.

But generally pre payment will not happen in Educational Loans as the repayment
is fixed only after completion of the studies and revenue streams for pre payment
will be very rare. But parents have the option to service the interest whenever due
and if interest is serviced, Tax Exemption for interest serviced is available.

Some banks offer Interest Rebate of 1% for prompt repayment of the loan.

Repayments • Repayable in 60 monthly instalments (EMIs) after the moratorium

period as prescribed above.

Processing Of Retail Loans

The success of retail asset expansion by banks depends on the processing speed
of retail loans and making the procedures hassle free for the customers. Banks
adopt different models for processing of retail loans. The important models of
retail loans processing are explained below:

• Stand Alone Model and

• Centralised Model

Stand alone Model for Retail Loan Processing: Stand alone model for retail loan
processing refers to processing of retail loans independently at the branch level.
Based on the discretionary powers given the Branch Head, Branch will market the
retail loans and process and sanction the loans based on the eligibility of the
applicants. Obtention of the necessary documents, appraisal of the proposal and
sanction of the loans will be done independently at the branch level. The
valuation, legal opinion etc, are obtained at the branch level through the
approved panel valuers/lawyers.

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Centralised Model for Retail Loans Processing: Centralised Model for retail loans
processing refers to processing of loans at a centralised place depending upon
the geography of branches. Banks adopt different centralised models for
processing of retail loans.

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 06 Credit and Debit Cards
Credit Card
A credit card is a thin plastic card, that contains identification information such as
a signature, and authorizes the person named on it to charge purchases or
services to his account - charges for which he will be billed periodically.

The information on the card can be read by ATMs, Point Of Sales (POS) Terminals
at different establishments like Textile Stores, Super Markets, Jewellery
Showrooms, Book Shops, Restaurants etc.

The concept behind Credit Card is "Buy Now, Pay Later".

Credit Cards are plastic cards that can be used in lieu of money for payment of
goods/services and also enable withdrawal of cash if needed.

The payments made through the card or cash withdrawn have to be paid after a
certain agreed period of time and also with a payment option spread over a
period. The process starts with the usage of the card and ends with the payment
of card dues.

Evolution of Credit Cards

'Credit Cards had their origin right from 1800s.

The first universal credit card that could be used at a variety of stores and
businesses _ was introduced by Diner's Club Inc., in 1950. With this system, the
credit-card company charged cardholders an annual fee and billed them on a
monthly or yearly basis.

Another major universal card—"Don't leave home without it!" — was established
in 1958 by the American Express Company.

Other major bank cards followed, including Master Card formerly Master Charge.

Citibank and HSBC were the pioneers in the Indian credit card market in the
1980s.

Among the public sector banks, Andhra Bank, Bank of Baroda were the early
starters followed by Bank of India.

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Among the foreign banks, Standard Chartered Bank entered the credit card space
and built volumes steadily.

Foreign banks continued to dominate the credit card market in India till the entry
of two big local players viz., ICICI Bank and subsequently State Bank of India.
HDFC Bank is another major player along with the above two.

7. Citibank, Standard Chartered Bank, State Bank of India, ICICI Bank and HDFC
Bank dominate the credit card market with more than 90% market share.

Type of Credit Cards:

Mainly credit cards are issued by banks in two formats viz., the proprietary format
and the co- branded format. In the proprietary format, banks issue the card in
different brand names like Classic, Silver, Gold, Platinum, Titanium etc., Credit
limits, cash withdrawal limits and other facilities will depend on the type of card.

In the co branded format, banks tie up with service providers like Hotels, Oil
Companies, Airline Companies etc. and offer the cards as a co branded product
with the brand name of the tied up company also embossed in the card. This
enables brand recall and results in better utilization of the products offered by the
tied up product. Special incentives/reward points are offered for using the co
branded card.

Salient features of Credit Cards:

Credit Cards are accepted globally through their affiliation with Visa and Master
Card.

Credit Cards are issued with limits of usage called "Card Limit" which fix the upper
limit up-to which the cards can be used. Within the overall limit, limits on cash
withdrawal through ATMs are fixed which will be equal to or less than the total
card limit. While the overall limit can be used at any point of time without any
charges, for withdrawal of cash finance charges are recovered depending upon
the frequency of withdrawal

Credit cards have a regular billing cycle and billing date and due date of payment
is decided from the billing date. The period after which payment is to be made
after the billing date is called as the free credit period and will be usually between
20 days and 50 days and differ across banks.

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To induce usage of cards, reward points are awarded based on the amount and
type of usage. Reward points vary for different classes like Silver, Gold, Platinum,
Titanium etc., The reward points will be awarded based on the usage and will be a
fixed points per Rs.100 and the total reward points for the usage will be based on
the usage and calculated per Rs.100. The reward points can be redeemed by the
card holders as prescribed by the card issuing bank.

The concept of "Cash Back Offer" is introduced in credit cards to promote more
usage. The incentive is offered from 2% to 10% and adjusted in the payment. Cash
Back Offer always comes with a cap on the total amount.

The payment for the usage of the card after the credit period and on the due date
can be paid in different ways.

The payment can be made in full on or before the due date. Alternatively, a
minimum of 10% of the outstanding amount can be paid every month on due
date. The third option for payment is to convert the outstanding amount into a
loan and repay the same in equated monthly instalments (EMIs).

Charges for late payment beyond the due date is collected as late fees and
generally varies from Rs.200 to Rs.500.

Cards are issued with photos also as add on feature.

Liability for the card holder in case of loss of cards is limited to a small amount in
case of most of the credit card issuers. Usually the liability is restricted to
Rs.1000/- (Rupees One Thousand Only) and the balance liability if any is borne by
the card issuer through an insurance protection. Liability for lost card can be
controlled from the time the loss is reported to the card centers which operate on
a 24 hour basis.

For online purchases using credit cards, additional password protection just like
PIN for ATM transactions can be secured with special security features.

Some banks offer free personal accident insurance cover for the card holders
ranging from Rs. 1 Lac to Rs. 10 Lacs depending on the type of card.

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Credit Scoring for credit cards:

It consists of two parts —

(i) criterion for decision to issue a card;

(ii) scoring for various parameters.

Eligibility criteria may include minimum age, minimum stay at present address,
whether existing customer of the bank, minimum income criteria, whether
salaried, self employed.

Scoring model may include criterion like age, education, nature of organization,
self employed, length of service or years in profession, dependents, house
ownership, vehicle ownership, annual income, spouse income, time for which
account has been with the bank, deposits with the bank, existing credit card,
branch experience.

The score is based on the strength of the parameter. For example, a person with
higher income level, working in public sector, owning a house, employed spouse
will carry a better score. An existing customer of the bank with good account
relationship will earn a better score. A person who already holds a credit card will
get a better score as he had already been rated by another card issuer. More the
number of dependants less will be the score as the expenses will be more in a
bigger family. Higher the type of vehicle, more will be the score as it reflects the
social status and income levels. The sum total of the score calculated for each
parameter will indicate the risk perception for issuing the card. More the score
less will be the risk of default in payment for usage of credit card.

Important Terms in Credit Card Operations

Joining Fees & Annual Fees: Joining and Annual Fees are charged at the time of
issue and at the end of every year respectively and varies with the type of card.

Charges:

Finance Charges is applicable if the card member deposits part of the Total
Payment or the Minimum Amount Due. The balance outstanding amount payable
shall be carried forward to subsequent statements. The amount attracts finance
charges on entire outstanding including fresh purchases and other bank charges
till the date of full and final payment.

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Finance Charges on cash advances are applicable from the date the card holder
incurred the transactions until they are fully paid. Finance charges are calculated
on a daily basis at the end of every day based on the current outstanding balance
of the customer.

Minimum Amount Due - Minimum Amount Due (MAD) is calculated by adding

New Debits for the month, previously unpaid payments and other charges.
Minimum amount also includes the amount by which the card holder exceeded
the card limit.

Maximum Interest Free Period: Maximum Interest Free Period is the period for
which no interest is charged for the card balances subject to the condition that
there are no outstanding previous card dues. The period depends on the type of
card and may vary from 20 days to 50 days depending on the card issuer. This is
applicable only on retail purchases and if previous month's balance is paid in full.
Interest Free Period does not apply for Cash Advances and Revolving Balances.

Annualised Percentage Rate (APR): interest will be charged for the unpaid
balances as on the due date and also subsequent purchases. The interest rate was
expressed as a monthly percentage rate previously to reduce the impact of high
rates when calculated on an annualized basis. But RBI has advised banks to clearly
mention the interest rate on an annualised percentage rate. The monthly interest
is annualized.

Debit Cards
In case of Debit Card, the payment is made directly from their account balances,
at the point of purchase itself,

The details of the account are embedded in the debit card and can be used at
both merchant locations through a POS Machine for purchases made and also in
ATMs for withdrawal of cash.

The technology aspects of credit and debit cards are same with regard to usage,
size, numbering etc., but there are differences with regard to features and
charges.

When debit cards were introduced initially, they were marketed with sub brand
names Electron (Visa), CirruS (Master).

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Debit Cards are issued when account is opened with the bank and had become an
essential value addition for Savings Banks and a part of the core product.

Debit Cards are issued by banks in two ways. At the time of issue, a generic debit
card without embossing the name is issued for immediate operations. The second
way is, after opening account, the account details are incorporated and
embossed/loaded in the debit card and issued within two/three weeks from the
opening of the account.

Like Credit Cards, Debit Card operations are centralized in banks. The card can be
used for any operations like payment of purchases, cash withdrawal (subject to
per day limit) through ATMs, Utility Payments etc.

Other type of cards

Prepaid Cards or Pre Loaded Cards:

These cards are pre loaded with specific amount and offered as bearer cards with
a PIN Number.

The card can be used by the bearer of the card only for purchases upto the
amount loaded in the card. No cash withdrawal is permitted in the card.

It is mainly intended as a Gift Card to be gifted to anybody with a choice to use it

for any purpose except withdrawing of cash for the amount loaded.

The advantage of the card is that it is a bearer card and anyone can gift it to
anybody and the card can be used within the validity period for any purpose.

Prepaid debit cards are issued by corporates to provide their staff with lunch
expense reimbursement up-to a designated amount and which can be topped up
on a monthly basis.

Forex Cards have been introduced by banks to substitute Foreign Currency

Notes/ Travellers Cheques for those travelling abroad. In these cards, a fixed
amount of foreign exchange (Dollars) will be loaded and issued for travel abroad.
Forex Cards facilitate monitoring of overseas spends, regulatory compliance and
have international acceptance.

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 07 Remittance Products
In India, multiple Remittance systems are available. The Reserve Bank of India
regulates these systems. Real-Time Gross Settlements (RTGS), National Electronic
Funds Transfer (NEFT), Electronic Clearing Service (ECS debit and ECS credit),
credit cards, debit cards, Immediate Payment Service and Unified Payment
Interface (UPI) are used for settlements. The main types of systems prevailing are
discussed below.

RTGS

The Real-Time Gross Settlement started in 2004, is a payment network maintained

by the RBI. As its name indicates, this transaction mechanism transfers funds from
one bank account to another on a real-time and gross basis. Such transaction has
no waiting period. It is settled without involving it with any other transaction.
RTGS minimises the risk of credit amount due to lags as the settlement is instant
and irreversible.

“RTGS" stands for Real Time Gross Settlement. RTGS system is a funds transfer
mechanism where transfer of money takes place from one bank to another on a
"real time" and on "gross" basis. This is the fastest possible money transfer system
through the banking channel. Settlement in "real time" means payment
transaction is not subjected to any waiting period. The transactions are settled as
soon as they are processed. "Gross settlement" means the transaction is settled
on one to one basis without bunching with any other transaction. Considering
that money transfer takes place in the books of the Reserve Bank of India, the
payment is taken as final and irrevocable.

NEFT

The National Electronic Funds Transfer system started in 2005 by the RBI, enables
customers in India to make transactions between any two accounts that are NEFT
enabled. It is an electronic fund transfer system in which funds are settled in
hourly batches, i.e. not on real-time bases. As of now, the facility is available both
offline and online. It can be done in banks by filling NEFT form and online through
internet banking. There is no limit on the number of funds that bank customers
can transfer.

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Difference between RTGS and NEFT

NEFT is also an electronic fund transfer system that operate on a deferred net
settlement (DNS) basis which settles transactions in batches.

In DNS, the settlement takes place at a particular point of time. All transactions
are. held up till that time. For example, NEFT settlement takes place 11 times a day
during the week days and 5 times during Saturdays.

Any transaction initiated after a designated settlement time would have to wait till
the next designated settlement time. In RTGS, transactions are processed
continuously throughout the RTGS business hours.

ECS Credit

Electronic Clearing Service credit is a payment method usually performed by an

organisation where there is a need to make mass or repetitive payments to a large
number of recipients. This system eliminates the delay due to the machinery for
printing and rectification.

The ECS users acquire account details of the beneficiaries for engaging in the
transaction. The service is free of charge for both sponsor banks and destination
banks. It is used to pay salaries, surplus or commissions.

ECS Debit

Electronic Clearing Service debit is a debit-pull provision used primarily for small
transfers from individuals to big companies. It enables payments like mobile bills,
insurance and electricity bills. The ECS debit cards make up nearly 3/4th of the
total cards prevailing. Customers do not need to view payment by the last date.

To ease the banking experience, a bank customer can fill out an ECS debit
mandate form. The signed document is the official proof that the beneficiary
account holder has authorised the bank to make ECS debit or credit deductions.
ECS debit mandate will automatically deduct the amount on the due date of
payments. The ECS debit mandate form allows the customer to set a maximum
limit that can be debited automatically. The users can monitor these debits.

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 08 Digitisation of Retail Banking Products
Banking that is done through the digital platform without any paperwork is
referred to as digital banking.

Digital banking means the availability of banking services online.

Digital Banking is the automation of traditional banking services. Digital banking

enables a bank’s customers to access banking products and services via an
electronic/online platform. Digital banking means to digitize all of the banking
operations and substitute the bank’s physical presence with an everlasting online
presence, eliminating a consumer’s need to visit a branch.

Benefits of Digital Banking

Advancing to a more technologically sophisticated way of doing things, it goes

without saying that the benefits long outweigh the costs. Similarly, digital banking
as a technological by-product aims to make life easier for the customers of a
bank. Digital banking has the following benefits:

Digital banking enables consumers to perform banking functions from the

comfort of their homes, be it an elderly person who is tired of waiting in lines or a
working-class professional who is caught up with work, or a regular person who
does not want to visit the bank’s branch to run a single errand. It also offers
convenience.

Elaborating on the convenience offered, digital banking lets a user carry out
banking work around the clock, with 24*7 availability of access to banking
functions.

One of the biggest drawbacks of traditional banking was the overly placed
importance on paper. Banking has become paperless with the development of
digital banking as a service. A user can log into their account at any point in time
to monitor records.

Digital banking allows a user to set up automatic payments for regular utility bills
such as electricity, gas, phone, and credit cards. The customer no longer has to
make a conscious effort of remembering the due dates. The customer can opt for
alerts on upcoming payments and outstanding dues.

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Online shopping has become a cakewalk with payment channels becoming well-
integrated with the online shopping portals. Internet banking has significantly
contributed to online payments.

Digital banking extending services to remote areas is seemingly a step toward

holistic development. With smartphones at affordable prices and internet access
in remote areas, the rural population can make the most out of digital banking
services.

Digital banking-enabled fund transfers reduce the risk of counterfeit currency.

With the help of digital banking, a user can report and block misplaced credit
cards at the click of a button. This benefit greatly strengthens the privacy and
security available to a bank’s customer.

By promoting a cashless society, digital banking restricts the circulation of black

money as the Government can keep a track of fund movements. In the long run,
digital banking is expected to lower the minting demands of a currency.

Digital Banking products

If an individual has access to a stable internet connection and an internet-enabled

smart device, digital banking has a lot to offer.

Digital Product services

Digital Banking Services

Types of Digital banking payments

Banking cards: Cards are not only used to withdraw cash but also enable other
forms of digital payment. Cards can be used for online transactions and on Point
of Sale (PoS) machines. Prepaid cards can also be issued by the banks; such cards
are not linked to the bank account but function through the money loaded onto
them.

Unstructured Supplementary Service Data (USSD): By dialing the number *99#,

mobile transactions can be carried out without an application and internet
connection.

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The number holds nationwide applicability and promotes greater financial
inclusion on the ground level. The service lets the caller surf through an interactive
voice menu and chooses the desired option on the mobile screen. The only catch
is the mobile number of the caller should be the one linked to the particular bank
account.

Aadhaar enabled Payment System (AePS): AePS lets the client initiate banking
instructions following the successful verification of the Aadhaar number.

Unified Payments Interface (UPI): UPI is the most trending form of digital
banking presently. UPI makes use of a virtual payment address (VPA) so the user
can transfer funds without entering bank account details or IFSC code. Another
striking feature of UPI is that the applications let you consolidate all your bank
accounts in one place. Funds can be transferred and received around the clock
with no time restrictions. UPI-based apps in India are BHIM, PhonePe, and Google
Pay. BHIM application, in addition to the transfer of funds to other virtual
addresses and bank accounts, also lets the user transfer funds to another Aadhaar
number. More importantly, UPI-based payments are free of cost.

Mobile Wallets: Mobile wallets have eliminated the need to remember four-digit
card pins or enter CVV details or carry loose cash. Mobile wallets store bank
account and card credentials to easily add funds to the wallet and make payments
to other merchants with similar applications. Popular mobile wallets are Paytm,
Freecharge, Mobiwik, etc. Mobile wallets, however, generally have a limit on how
much can be deposited in the wallet. A small fee may also be charged on
depositing the funds from the mobile wallet back into the bank account.

PoS terminals: Typically, PoS machines are portable devices that read a card to
authorize and complete the payment. Supermarkets and gas stations opt for this
method of payment. However, with digital banking thriving, PoS terminals have
evolved into more than physical PoS devices. Virtual and Mobile PoS terminals
have surfaced, which makes use of the mobile phone’s NFC feature and web-
based applications to initiate payment.

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Internet and Mobile Banking: Commonly known as e-banking, internet banking
refers to obtaining certain banking services over the internet, such as fund
transfers, and opening and closing accounts. Internet banking is a subset of digital
banking because internet banking is only limited to core functions. Similarly,
mobile banking is availing banking services through mobile-based applications.

Difference between Digital Banking and Online banking

More often than not, the terms of digital banking and online banking are used
interchangeably. However, there exists a fine line between the meaning of the
terms.

Online Banking deals with everyday essentials, such as checking balances,

reviewing transactions, and transferring funds. This is the core operation of the
bank, which is shifted to online presence with the help of online banking. Online
banking is a means to an end.

However, digital banking is an end in itself. Digital banking is aimed at digitizing

all the operations of the bank, core, or non-core. Basically, starting from
onboarding of clients to servicing of the accounts, to closure of accounts is digital
banking’s primary objective. Digital banking’s agenda is to make the physical
presence of a bank’s branch redundant for its customers so that the customers
can handle all banking operations from their place of convenience. Therefore,
online banking is a subset of the master set, digital banking.

Disadvantages of Digital Banking

Is digital banking safe? Contrary to popular opinion that digital banking poses
security concerns, most readers will be surprised to know that digital banking is
safer as compared to traditional branch banking. While digital banking forums are
prone to vulnerabilities and hacks such as phishing, pharming, identity theft, and
keylogging, banking institutions are investing a lot in their security systems.
Security is at the forefront when considering a service such as digital banking. If
security were to be compromised, banks would lose a crucial selling factor, and
more so than risking user data and resources, banking institutions cannot afford
negative publicity.

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In a hypothetical scenario where banks do, in fact, lose your money to a hacker,
you will be entitled to receiving the due amount of your bank balance for the sole
reason that your money is protected. Therefore, to avoid massive public liability
and bad publicity, banks are bound to invest heavily in reinforcing the security of
digital banking platforms.

However, a digital banking user must do their part by following certain practices
that act as a safeguard:

Follow prompts to change your passwords regularly and keep your passwords
confidential.

Avoid using public networks and devices to access digital banking – if you must
use a public device, remember to clear cache and browsing data. It is good
practice to not allow the browser to save your username and passwords for bank
details.

Banks never ask for confidential information so refrain from sharing it with anyone
who asks for it.

Anti-virus protected systems offer another layer of security to your systems.

The URL address MUST begin with ‘https’, or a padlock must appear next to the
website address. The padlock is a security certificate. The address bar turns green
when the site is secured with an SSL certificated, which is an additional validation
for the security of the website. Therefore, use the bank’s URL and refrain from
clicking on other links. Banks generally use minimum SSL/128-bit encryption.

Lastly, disconnect from the internet when the system is left idle.

Digital Banking in India

In India, digital banking started taking shape in the late 1990s with ICICI Bank
being the first one to bring the service to their retail clients. Digital banking
became mainstream only in 1999 as internet charges were reduced and there was
increased awareness and trust with respect to the internet. It was only after the
internet further developed and the costs came down, banks started serving a
broader basket of products online.

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For any individual to do digital banking in India, you need to first open a checking
or savings account with the bank. This can be done by visiting the branch in
person, or by using the online account opening options on bank websites where
you just have to upload a few documents from the comfort of your home.

Once you have an account ready with a bank, most banks will provide you with
your digital banking credentials which can be used to do seamless transactions
24*7. If you do not receive your credentials in the welcome kit, you can always
contact your bank to provide net banking free of cost.

To create a digital banking account in India, the individual must:

Be over 18 years of age

Have both PAN and Aadhaar Card

Complete KYC, i.e., paper-based verification of details within twelve months of

opening the digital bank account. Failure to comply with the norm will take away
the individual’s right to open a digital bank account with the same Aadhaar and
PAN in the future

As an improvisation to physical verification for KYC, the market regulator may

allow video-based verification in the future to improve the process from a digital
point of view.

Digital banking comes in handy for recurring banking essential functions.

However, customers prefer human interaction for more important and irregular
decisions, such as while taking a loan or negotiating the terms of the loan.

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 09 Role of AI and Technology in Retail Banking
Artificial Intelligence in Consumer Banking
Like many industries, consumer banks face five primary objectives:

Grow revenue

Enhance customer experience

Manage risk and compliance

Innovate to compete

Reduce operating costs

Artificial intelligence can step in to help banks attain each one of these objectives.

Grow revenue

For decades, banks have used customer data, such as income, credit scores, and
spending patterns to promote, cross-sell, and up-sell their products to grow
revenue. But today's technologies allow banks to access more data and grow
revenue in new ways.

Consider the banking journey of a millennial customer whose onboarding point to

a bank was a college loan six years ago. Since then, his comfort with all things
digital has increased, and his banking needs have evolved. The bank has kept tabs
on his credit behavior through traditional databases and his monthly credit score.
But something has fallen through the cracks – the trail of terabytes of behavioral
and preferential data that he leaves via his digital journeys and payment behavior
across products and services outside his student loan or relationship with the
bank.

This customer may have recently purchased an engagement ring from a jeweler in
the bank's network, a clear signal that he's planning to get married. As a result, he
may be thinking of buying a home soon. Without listening to these digital signals,
his need for a mortgage goes undetected unless he applies for one, putting the
bank in a passive, reactive mode. Using AI and machine learning for faster, more
granular analysis, the bank can proactively address the customer's latent needs by
drawing compelling insights from his digital footprint and payment behavior.

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With AI, a bank can transform its predictive models. In fact, a recent study by
Genpact confirms that senior banking executives believe that AI is generating, and
will continue to generate, the greatest business benefits by leveraging data and
analytics and making better predictions.

When decisioning is required at today's speed and scale, algorithms have to learn
on the fly, which means data has to be instantaneously usable. It is for this reason
that the industry's innovation outlook for the next five years is entirely AI-driven,
from intelligent data platforms that put structure into data, to dynamic algorithms
that continually learn about consumer preferences and intent as they crawl
through data lakes and blockchains.

Enhance customer experience

For banks, enhancing the customer experience is critical. Alexa and Google Home
are now common household companions, allowing consumers to enjoy great
interactions. And people have come to expect the same level of service from their
banks. AI-driven technologies can deliver highly personalized user experiences.
Intelligent voice and chat bots, not available in a pre-AI era, are changing and
reshaping how banks interact and communicate with clients. Like an Alexa for
banking, personal digital assistants help consumers access a wealth of information
on budgeting, saving for retirement, and more, tailored to their banking needs.

That said, a recent study by Genpact suggests that, while most senior executives
believe customers will prefer to be served by a bot than a call center agent by
2021, the consumer perspective is much different. The disconnect may be because
executives are responding to the cost-saving properties of bots, while consumers
are responding to their perceptions or experiences with them.

Therefore, it is important for banks to keep in mind that smart assistants work
best when integrated with other systems, allowing an end-to-end view of the
customer. In a silo, the usefulness of these bots may be quickly exhausted, the
insights they generate may be misleading, and the consumer may not perceive
them as all that helpful or smart. Successful releases of virtual assistants are those
with a rich knowledge and content base. Moving forward, we see these digital
assistants providing not only basic transactional information, but also greater
insight into, and advice to help promote, consumers' financial well-being –
another reason why integration is important.

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Manage Risk and Compliance

In an environment in which tighter compliance regulations challenge financial

institutions, the ability to adapt can mean a distinct competitive advantage.

The variety of payment and investment systems available to consumers today

(such as crypto-currencies, shared economy, and marketplace lending) have
brought about a new era in money laundering. The cases are more complex, not
just because there are now more hidden digital networks but also because there
are so many creative ways laundering can be orchestrated interweaving traditional
and digital means. Also, consumers are more easily used as unwitting
accomplices. Traditional investigative work by operations analysts may no longer
scale. In order to scale, the ability of analysts to gather and integrate data, and
incorporate new data into their models quickly and efficiently, is key. Even then,
there is no guarantee that previous analytics would still work, given everything
that's new. Using a variety of methodologies, AI, by means of deep learning and
computer vision, can explore the data and find patterns quickly, an impossible
feat using traditional approaches.

Innovate to Compete

AI helps banks compete. For example, AI presents an opportunity for consumer

banks to democratize financial advice. Today, financial advice is mostly available in
the form of expensive financial advisors for high-net-worth individuals who,
ironically, may be less in need of such advice than people on more modest
incomes. Meanwhile, everyday consumers leave financial breadcrumbs
everywhere – when they swipe a card or pay a friend. Yet no one is picking up the
crumbs and offering them advice. To differentiate themselves from their
competitors, consumer banks can provide financial advice to everyday consumers.
And with AI, banks can dramatically reduce the cost of offering such advice. In this
respect, AI can help banks move from providing financial services to their
customers to facilitating their financial betterment.

Reduce Operating Costs

Everyone wants to do more with less. Consumer banks are no exception. Banks
can reduce costs by adopting new operating models that are more efficient while
also enabling tighter controls. This is where artificial intelligence can step in to
take on manual work that is routine and repetitive.

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Teller transactions cost about 12 times more than mobile check deposits, and
ATM transactions cost about three times more. Eliminating the need for a bank
teller or ATM to process check deposits drives significant savings for the bank.
When consumers deposit checks through their mobile phones, AI is at play in
computer vision that's used to take the image of a check and process it. While
check-image processing has been around for a while, advances in computer vision
have made this process better than ever, for example, by accurately interpreting
handwriting.

Similarly, AI powers intelligent chat bots that can respond to straightforward

customer inquiries, such as resetting passwords and checking account balances.
This reduces call-center volumes and operating costs.

While it may seem that banks are removing the personal touch, they're actually
increasing the level of personalization and improving consumers' journeys, thanks
to insights captured from their digital footprints. In fact, using personal data for
such customization is increasingly expected by consumers.

AI as the neural wiring

We are reaching the point where AI is no longer just on the fringes of an

organization but at its core – the neural wiring. AI's potential to help banks grow
revenue, manage risk, enhance customer experience, drive innovation, and lower
cost is too large to ignore.

Difference Between Artificial Intelligence (AI) and Automation

AI and automation are two terms that are often used interchangeably, probably
because they serve similar purposes: to help businesses operate smarter and more
efficiently.

However, there are quite a few differences between the two terms.

Automation is about setting up robots to follow a set of pre-defined rules.

AI is about setting up robots to make their own decisions (though still based on
human input).

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Need for Artificial Intelligence (AI) in Banking Industry

• Enormous challenges in the banking sector.

• Thrust for a process-driven operation.

• Initiate self-service in the branches.

• Customer desire to deliver different personalized solutions.

• Build functional efficiencies.

• Escalating the productivity of employees.

• To support focus on productivity and efficiency.

• Visualization to extend human function with the use of robotics tools.

• To minimize the chances of fraud and scam.

• Manage an immense volume of data at record speed and gain valuable

insights.

• To carry out effective decision-making

Benefits of Artificial Intelligence Technology in Banking and Finance

Personalized Financial Services

Personalized connect will reach new heights as automated financial advisors and
planners provide expertise in making financial decisions. They analyse market
temperament against the user‘s financial goals and personal portfolio, and offer
recommendation regarding stocks and bonds.

Smart Wallets

Digital wallets are touted as the future of real-world payment technologies, with
major players like Google, Apple, and others, jumping on the bandwagon and
developing their own payment gateways. This decreases the dependence on
physical cash, thereby expanding the reach of money to greater levels.

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Underwriting

The insurance sector is also coming up with a storm as they are moving towards
congruent automation. By utilizing AI systems that automate the underwriting
process, the organizations come armed with more granular information to
empower their decisions.

Voice Assisted Banking

Physical presence is slowly fading away as technology empowers customers to

use banking services with voice commands and touch screens. The natural
language technology can process queries to answer questions, find information,
and connect users with various banking services, eliminating the language
barriers. This reduces human error, systemizing the efficiency.

Data-driven AI applications for lending decisions

Applications embedded in end-user devices, personal robots, and financial

institution servers are capable of analysing a huge volume of data, providing
customized financial advice, calculations and forecasts. These applications can
also develop financial plans and strategies through research, regarding various
customized investment opportunities, loans, rates, fees, etc and track the
progress.

Customer support

As speech processing and natural language processing technologies mature, we

are drawing closer to the day, when computers could handle most customer
service queries.

This would mark an end to waiting in line and hence result in happier customers.

Digitalization instead of branch lines

Banking is a lengthy process, with past records of long queues and sluggish
response marring the productivity. Even opening a bank account was viewed in
negative terms as stressed consumers would run pillar to post, while getting the
necessary documentation complete. Digitization of documentation eases that
pain and creates a comprehensive platform, where the consumers and providers
connect.

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Blockchain hastening payments

The customer base that banks serve is going through a major shift in terms of
buying behaviours and preferences, driven by the digital revolution, particularly
social media and mobile. An increased demand for more choice and control in
how they interact with a bank is on a rise. Sluggish payment processes will be a
thing of the past as Blockchain is set to inculcate the advantage of real-time
payment process, hastening up the procedure of payment, thereby increasing
support and satisfaction.

Benefits of AI in Retail Banking

Customer Support and Helpdesk: Humanoid Chatbot interfaces can be used to

increase efficiency and reduce cost for customer interactions.

Risk Management: Tailored products can be offered to clients by looking at

historical data, doing risk analysis, and eliminating human errors from handcrafted
models.

Security: Suspicious behaviour, logs analysis, and spurious emails can be tracked
down to prevent and possibly predict security breaches.

Digitization and automation in back-office processing: Capturing documents

data using OCR and then using machine learning/AI to generate insights from the
text data can greatly cut down back-office processing times.

Wealth management for masses: Personalized portfolios can be managed by

Bot Advisors for clients by taking into account lifestyle, appetite for risk, expected
returns on investment, etc.

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 10 Recovery of Retail Loans
The success of any banking initiative is judged only by the profit generated from
that business segment. Banks aggressively build up their retail asset portfolios to
expand business as retail assets are one of the best revenue drivers in banking.

Default

Default is the occurrence of an event which happens due to non payment of

agreed installments. If the repayment schedule is not adhered to as per the
commitments made, then it translates into default. The strength of the default
grades it according to the period of default from a simple overdue to the stage of
NPA.

Reasons for Default in Retail Loans

Default happens mainly due to the following reasons;

• Genuine defaults due to reasons beyond the borrowers' control and

• Willful defaults where the borrowers deliberately default with malafide intention.

Genuine Defaults: In genuine defaults, the customers fail to repay the EMIs due
to personal set backs, job losses, unforeseen medical expenses etc., that tilt the
balance of their monthly pay outs and results in non payment of banks' dues.
Here the intention to pay is intact but the ability to pay is affected and results in
defaults. The approach of the banks for recovery will be one of care and concern
and will be a customer oriented approach because the chances of recovery are
bright.

Willful Defaults: In willful defaults, the customers deliberately fail to pay the EMIs
and the attitude is negative. The intentions of the borrowers are malafide and
there is no attempt from the borrowers' side to service the loans as per the
committed repayments.

In willful defaults the approach of the banks will be on a recovery basis as the
chances of recovery are not so bright. So banks take a systematic and firm
approach for recovery of these loans.

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Penal Measures against Wilful Defaulters

• No additional facilities should be granted by any bank/FI to the listed willful

defaulters.

• In addition, such companies (including their entrepreneurs/promoters) where

banks have identified siphoning/diversion of funds, misrepresentation, falsification
of accounts and fraudulent transaction should be debarred from institutional
finance from the scheduled commercial banks.

• The legal process, wherever warranted against the borrowers/guarantors and

foreclosure for recovery of dues should be initiated expeditiously.

• The lenders may initiate criminal proceedings against willful defaulters, wherever
necessary.

• Wherever possible, the banks and FIs should adopt a proactive approach for a
change of management of the willfully defaulting borrower unit.

• The bank can proceed against the guarantor, if any, along with the principal
debtor also by virtue of the Contract Act.

Diversion of funds

The term ‘diversion of funds' should be construed to include any one of the
undernoted occurrences.

• Utilization of short-term working capital funds for long-term purposes not in

conformity with the terms of sanction.

• Deploying borrowed funds for purposes/activities or creation of assets other

than those for which the loan was sanctioned.

• Transferring borrowed funds to the subsidiaries/Group companies or other

corporates by whatever modalities.

• Routing of funds through any bank other than the lender bank or members of
consortium without prior permission of the lender.

• Investment in other companies by way of acquiring equities/debt instruments

without approval of lenders.

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• Shortfall in deployment of funds vis-à-vis the amounts disbursed/drawn and the
difference not being accounted for.

Siphoning of funds: The siphoning of funds refers to the occurrence of a

situation that the unit has failed in meeting its payment/repayment commitments
to the lender bank and also the funds borrowed from the bank was not utilized
for the specific purpose for which the credit was released.

Monitoring of loan Accounts

Monitoring process is a scientific as well as an essential tool for maintaining the

quality of retail assets. As discussed above it has to de designed in such a way
that it addresses both genuine defaulters as well as wilful defaulters. While
genuine defaulters are to be handled very sensitively as they are otherwise good
customers and default have happened due to circumstances beyond their control.

Recovery Policy of Banks

The recovery policy clauses are clearly spelt out in the recovery policy of the bank.
The fundamental assumptions and approaches to recovery are clearly
communicated to the customers.

Different Clauses of the Recovery Policy.

• The debt collection policy of the bank is built around dignity and respect to
customers.

• The Bank will not follow policies that are unduly coercive in collection of dues.

• The policy is built on courtesy, fair treatment and persuasion.

• The bank believes in following fair practices with regard to collection of dues
and repossession of security and thereby fostering customer confidence and long
term relationship.

• The repayment schedule for any loan sanctioned by the Bank will be fixed taking
into account paying capacity and cash flow pattern of the borrower.

• The Bank will explain to the customer upfront the method of calculation of
interest and how the Equated Monthly Instalments (EMI) or payments through any
other mode of repayment will be appropriated against interest and principal due
from the customers.

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• The Bank would expect the customers to adhere to the repayment schedule
agreed to.

• The Bank Security Repossession Policy aims at recovery of dues in the event of
default and is not aimed at whimsical deprivation of the property.

• The policy recognizes fairness and transparency in repossession, valuation and

realization of security. All the practices adopted by the Bank for follow up and
recovery of dues and repossession of security will be inconsonance with the law.

General Guidelines

All the members of the staff or any person authorized to represent the Bank in
collection or/and security repossession would follow the guidelines set out below:

• The customer would be contacted ordinarily at the place of his/her choice and in
the absence of any specified place, at the place of his/her residence and if
unavailable at his/her residence, at the place of business/occupation.

• Identity and authority of persons authorized to represent the Bank for follow up
and recovery of dues would be made known to the borrowers at the first instance.
Bank staff or any person authorized to represent the Bank in collection of dues
or/and security repossession will identify himself/herself and display the authority
letter issued by the Bank upon request.

• Bank would respect privacy of its borrowers.

• Bank is committed to ensure that all written and verbal communication with its
borrowers will be in simple business language and Bank will adopt civil manners
for interaction with borrowers.

• Normally Bank's representatives will contact the borrower between 0700 hrs and
1900 hrs, unless the special circumstance of his/her business or occupation
requires the Bank to contact at a different time.

• Borrower's requests to avoid calls at a particular time or at a particular place

would be honoured as far as possible.

• Bank will document the efforts made for the recovery of dues and the copies of
communication set to customers, if any, will be kept on record.

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• All assistance will be given to resolve disputes or differences regarding dues in a
mutually acceptable and in an orderly manner.

• Inappropriate occasions such as bereavement in the family or such other

calamitous occasions will be avoided for making calls/visits to collect dues.

Giving Notice to Borrowers

While written communications, telephonic reminders or visits by the Bank's

representatives to the borrowers place or residence will be used as loan follow up
measures, Bank will not initiate any legal or other recovery measures including
repossession of the security without giving due notice in writing. Bank will follow
all such procedures as required under law for recovery/repossession of security.

Risk in retail banking is well diversified because the customer base is large and
heterogeneous in nature. While profits generated from retail portfolio are
attractive, there is also risk of default.

The unsecured nature of retail assets like Personal Loans and Credit Card
Receivables make the portfolio more vulnerable for default.

The aggressive approach of banks towards retail loans has toned down due to the
global financial crisis and its impact across the globe though the same was
relatively lesser in India.

Recovery Process

1. Recovery process is a scientific tool for maintaining the quality of retail assets.

2. It is designed in such a way that it addresses both genuine defaulters as well as

wilful defaulters.

3. For genuine defaulters, the recovery process has to be gentle and professional.
In case of wilful defaulters, the recovery process should be strict and very
professional.

4. 'Public Sector Banks' approach to recovery of loans is different from the

strategies adopted by private sector banks and foreign banks. While PSBs
administer recovery management through their own staff in case of retail loans,
private and foreign banks outsource their recovery process and entrust the same
to Recovery Agents for end to end recovery management when the accounts
become default.

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Recovery Agents

RBI has framed guidelines prescribing the procedures for code of conduct for
Recovery Agents because the agents used coercive methods including threats,
intimidation and forced recovery of assets financed.

Engagement of Recovery Agents:

Banks should ensure that the agents engaged by them in the recovery process
carry out verification of the antecedents of their employees, which may include
pre-employment police verification. Banks may decide the periodicity at which re-
verification of antecedents should be done.

Banks should inform the borrower the details of recovery agency firms /
companies while forwarding default cases to the recovery agency. Further, agent
should also carry a copy of the notice and the authorization letter from the bank
along with the identity card issued to him by the bank or the agency firm /
company. Where the recovery agency is changed by the bank during the recovery
process, the bank should notify the borrower of the change and the new agent
should carry the notice and the authorization letter along with his identity card.

The notice and the authorization letter should, among other details, also include
the telephone numbers of the relevant recovery agency. Banks should ensure that
there is a tape recording of the content I text of the calls made by recovery agents
to the customers, and vice-versa. Banks may take reasonable precaution such as
intimating the customer that the conversation is being recorded, etc.

The up to date details of the recovery agency firms / companies engaged by

banks may also be posted on the bank's website.

Where a grievance/ complaint has been lodged banks should not forward cases to
recovery agencies till they have finally disposed of any grievance / complaint
lodged by the concerned borrower. However, where the bank is convinced, with
appropriate proof, that the borrower is continuously making frivolous / vexatious
complaints, it may continue with the recovery proceedings through the Recovery
Agents even if a grievance / complaint is pending with them. In cases where the
subject matter of the borrower's dues is sub judice, banks should exercise caution,
in referring the matter to the recovery agencies.

Bank should have a mechanism to address borrowers' grievances with regard to

the recovery process.
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The details of the mechanism should be furnished to the borrower while advising
the details of the recovery agency.

Incentives to Recovery Agents: Banks should ensure that the contracts with the
recovery agents do not induce adoption of uncivilized, unlawful and questionable
behaviour or recovery process.

Taking possession of property mortgaged / hypothecated to banks

As per Supreme Court, the recovery of loans or seizure of vehicles could be done
only through legal means.

Banks should rely only on legal remedies available under the relevant statutes
while enforcing security interest without intervention of the Courts.

Where banks have incorporated a re-possession clause in the contract with the
borrower and rely on such repossession clause for enforcing their rights, they
should ensure that the re-possession clause is legally valid, complies with the
provisions of the Indian Contract Act in letter and spirit, and ensure that such
repossession clause is clearly brought to the notice of the borrower at the time of
execution of the contract.

The terms and conditions of the contract should be strictly in terms of the
Recovery Policy and should contain provisions regarding

(a) notice period before taking possession

(b) circumstances under which the notice period can be waived

(c) the procedure for taking possession of the security

(d) a provision regarding final chance to be given to the borrower for

repayment of loan before the sale / auction of the property

(e) the procedure for giving repossession to the borrower and

(f) the procedure for sale / auction of the property.

Use of forum of Lok Adalats:

The Supreme Court has observed that loans, personal loans, credit card loans and
housing loans with less than Rs.10 lakh can be referred to Lok Adalats organized
by Civil Courts for recovery of loans.

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Utilisation of credit counsellors: Banks should utilise the services of the credit
counsellors for providing counselling to the borrowers when the case of a
particular borrower deserves sympathetic consideration.

Complaints against the bank / its recovery agents

1.Banks, as principals, are responsible for the actions of their agents. Banks should
ensure that their agents engaged for recovery of their dues strictly adhere to RBI
guidelines and including the BCSBI Code.

2.If complaints are received by RBI regarding violation of the guidelines, RBI may
consider imposing a ban on a bank from engaging recovery agents in a particular
area, either jurisdictional or functional, for a limited period. In case of persistent
breach of above guidelines, Reserve Bank may consider extending the period of
ban or the area of ban.

Debt Recovery Tribunals (DRT)

DRTs are special types of courts for effecting recovery of dues of banks and
financial institutions.

DRTs are established under the Recovery of Debts due to banks and financial
institutions Act 1993

DRT is headed by a Presiding Officer. He is assisted by a Recovery Officer and one

Registrar.

Type of Cases: Cases involving recoverable dues of banks and Fl of Rs 20 lacs and
above only are filed with DRTs. Such cases can not be filed in the normal civil
courts.

Once the case is decided in favour of the bank or FI, the DRT issues a Recovery
Certificate. Recovery Officer who has powers such as attachment etc. helps in
recovery of dues through execution of the decree passed by DRT.

Appeal against the order of the Recovery Officer can be made to DRT within 30
days of passing the order.

Any appeal against the judgement of DRT can be preferred with Debt Recovery
Appellate Tribunal. The head of DRAT is called Chairperson. The appeal is made
within 45 days of the date of receipt of the order.

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If borrower wants to appeal, 75% of the judgment amount is required to be
deposited which can be waived or reduced by the Chairperson of the DRAT even
to nil.

For being appointed as DRT, a person should qualify to be District Judge and for
being appointed as DRAT, the person should qualify to be a Judge of the High
Court.

The Debts Recovery Tribunals (DRTs) and Debts Recovery Appellate Tribunals
(DRATs) were established under the Recovery of Debts Due to Banks and Financial
Institutions Act (RDDBFI Act), 1993 with the specific objective of providing
expeditious adjudication and recovery of debts due to Banks and Financial
Institution.

DRT jurisdiction covers loans of Banks with outstanding of Rs 20 lacs or more.

Originally, the cut-off limit was Rs 10 lacs. The Central Government, in 2018, raised
the pecuniary limit from Rs 10 lakh to Rs 20 lakh.

The power of the tribunal is restricted to settling down the cases concerning the
recovery of the due amount from non-performing assets as affirmed by the banks
as per the RBI guidelines.

The Tribunal has the powers bestowed with the District Court. The Tribunal shall
have a Recovery officer who would be guiding towards executing the recovery
Certificates as passed through the Presiding Officers. DRT is required to follow the
legal process by stressing on prompt disposal of the matters and fast execution of
the final order.

The Debts Recovery Tribunal (DRT) enforces provisions of the Recovery of Debts
Due to Banks and Financial Institutions (RDDBFI) Act, 1993 and also Securitization
and Reconstruction of Financial Assets and Enforcement of Security Interests
(SARFAESI) Act, 2002.

The Debts Recovery Tribunal (DRT) are fully empowered to pass comprehensive
orders and can travel beyond the Civil procedure Code to render complete justice.

A Debts Recovery Tribunal (DRT) can hear cross suits, counter claims and allow set
offs. However, a Debts Recovery Tribunal (DRT) cannot hear claims of damages or
deficiency of services or breach of contract or criminal negligence on the part of
the lenders. In addition, a Debts Recovery Tribunal (DRT) cannot express an
opinion beyond its domain, or the list pending before it.
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The Debts Recovery Tribunal can appoint Receivers, Commissioners, pass ex-parte
orders, ad-interim orders, interim orders apart from powers to Review its own
decisions and hear appeals against orders passed by the Recovery Officers of the
Tribunal.

No court in the country other than the SC and the HCs and that too, only under
articles 226 and 227 of the Constitution have jurisdiction over this matter.

The Order passed by DRT is appealable , within 45 days from the date of receipt
of Order of DRT, to the Appellate Tribunal. No appeal shall be entertained by the
Appellate Tribunal unless the appellant deposits 75% of the due amount.

The Appellate Authority may, waive or reduce the amount of such deposit. The
Petitions against orders passed through DRT, are to be disposed of by the Debts
Recovery Appellate Tribunal (DRAT) within 6 months from the date of receipt of
the Appeal.

SARFAESI Act
The Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest (SARFAESI) Act, 2002 was framed to address the problem of
NPAs (Non-Performing Assets) or bad assets through different processes and
mechanisms.

The SARFAESI Act gives detailed provisions for the formation and activities of
Asset Securitization Companies (SC) and Asset Reconstruction Companies (ARC).

Following are the main objectives of the SARFAESI Act :

1) The Act provides the legal framework for Securitization Activities in India.

2) It gives the procedures for the transfer of NPAs to Asset Reconstruction

Companies for the reconstruction of the assets.

3) The Act enforces the security interest without Court‘s intervention.

4)The Act give powers to banks and financial institutions to take over the
immovable property that is hypothecated or charged to enforce the recovery of
debt.

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The Act provides following three methods for recovery of NPAs :

a) Securitization;

b) Asset Reconstruction; and

c) Enforcement of Security without the intervention of the Court.

Securitization:

Securitization is the process of pooling and repackaging of financial assets (like

loans given) into marketable securities that can be sold to investors.

In the context of bad asset management, securitization is the process of

conversion of existing less liquid assets (loans) into marketable securities. The
securitization company takes custody of the underlying mortgaged assets of the
loan taker.

Asset Reconstruction :

Asset reconstruction is the activity of converting a bad or non-performing asset

into performing asset.

Enforcement of Security Interests

The Act empowers the lender (banker), when the borrower defaults, to issue
notice to the defaulting borrower and guarantor, calling to repay the debt within
60 days from the date of the notice.

If the borrower fails to comply with the notice, the bank or the financial institution
may enforce security interests (means interest of the bank/creditor) by following
the provisions of the Act:

a) Take possession of the security;

b) Sale or lease or assign the right over the security;

c) Appoint Manager to manage the security;

d) Ask any debtors of the borrower to pay any sum due to the borrower.

Empowers the Banks / FIs to enforce the securities against the borrowers and
realize their dues without intervention of the Court.

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Account Eligible to proceed under SARFAESI Act :

a) Account should be NPA.

b) Security interest should be created (right, title and interest of any kind upon
property such as mortgage, charge, hypothecation and assignment).

c) Amount claimable (including accrued interest) should be above Rs.1.00 lakhs.

d) Amount due should be more than 20% of the Principal and interest thereon.

Securities exempted from SARFAESI Act :

The following are outside purview of the SARFAESI Act.

a) Claim / liability upto Rs.1.00 lakhs.

b) Security interest (mortgage) created in agricultural land.

c) Where the amount due is less than 20% of the principal amount & interest
thereon.

d) Lien on any goods, money or security .

e) Pledge of movables .

f) Creation of any security in any aircraft.

g) Creation of security interest in any vessel.

h) Rights of unpaid seller.

i) Properties not liable to attachment or sale.

Other Provisions :

- Suit to be filed as per procedure and as per the period of limitation.

- Action can be initiated in suit filed account without permission from Court/DRT.

- Action can be initiated pending any other litigation.

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Important Points for a Prudent Banker :

1. Action under SARFAESI Act will not save Limitation.

2. In case of Borrowal Accounts where Simple Mortgage is created, we cannot

proceed under SARFAESI Act. As such, please note to go for EMT with MODTD
wherever possible. However, in case of Agricultural Lands, we may go for Simple
Mortgage, as SARFAESI Act is not applicable

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 11 Management Information Systems
Management Information System is an integrated man machine system that
provides information to support the planning and control functions of managers
in an organisation. Management Information System is a set of combined
procedures that gathers and produces reliable, relevant, and properly organized
data that supports the decision making process of an organization.

Management Information System (MIS) consists of three words - Management

;Information and System

Management is viewed as a function, a process, a profession and a class of

people. It refers to the kind of task and activities that are performed by managers.
The specific nature of the activities is determined by such managerial functions as
planning, organising, directing, leadership and controlling.

Information is the result or product of processing data. Information can be

defined as the data which is organised and presented at a time and place so that
the decision-maker may take necessary act.

System is a group of elements or components joined together to fulfil certain

functions. It is made up of sub-system. The systems are either natural or man
made.

The Main Elements of MIS

• An integrated system to give service to many users.

• The computer system linking some of information software via a database.
• User-machine interface responding to the temporary and immediate
searches.

• Presenting the information to all management level.

• Supporting the operation and decision making.

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Role of Management Information Systems

Two main roles are played by MIS in decision making by the managers.

First it helps the managers to take decision based on the information being
prepared.

Second when the decision making and decisions are fixed and only the input data
change, it acts as a suitable repeat to support different types of managerial
decisions.

MIS helps the managers to understand the problems and find the solutions.

Designing MIS for A Bank

Customer database: The service expectations and perceptions revolve around the
following factors:

• Customer — Individuals, Company, Institutions, etc.

• Operator — Housewife, Employee, The officer of the organization.

• The Range of Service — Savings, Credit checking/ credit history and payment,
other financial services.

• Class of Customers —Income group, Corporate Bodies, etc.

• Working hours —Morning, Afternoon, Evening, etc.

The MIS should give following reports to the management:

• The non-moving account.

• The account was having the balance of more than, say ₹50, 000.

• The account was going down below minimum balance.

• The regular payments not made.

• The routine credits not arrived.

• The defaults on loan repayment.

• The delays on crediting cheque amounts.

• A sudden rise and fall in the account movement.

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Service for business promotions: The bank finances can be utilized in some ways
to increase the banking operations by offering credit to the right kind of
customers.

The index monitoring system: One more feature of the MIS is to monitor the
variety of indices and ratios related to banking operations, which are internal to
the banking business.

Human resource upgrade: There is a lot of human aspect in the banking

operations.

With computerization, the service may become faster or quicker, but still, it
requires a human touch and skill.

Issues related to Management Information System (MIS)

Humanistic factors

• The lack of understanding of the needs of the users by designers (the lack of
correct definition of the needs and their analysis).
• The lack of information of the managers and users as they don’t know exactly
what they want and what their information needs are.

• The lack of participation of the managers and users in system design.

• The lack of understanding of the managers of software and information systems.

• The lack of accuracy in the data collected.

Environmental factors

a) The lack of procedures and methodology and stages of creating the system.

b) The lack of suitable consultants for designing the system and software.

c) The lack of evaluation of environmental aspects in management information

systems.

d) The lack of serious consideration and adequate investment in this regard.

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Organizational factors

a) The lack of good conditions for participation and collaboration of the

managers, users and system directors.

b) The lack of existing systems and methods analysis before the system design.

c) The lack of evaluation of the existing power.

d) Bad condition of educating the specialized forces.

e) Unsuitable implementation of the system.

f) Inadequate education of the users.

g) Inadequate and incomplete documentation.

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 12 Securitization
Securitisation is the financial practice of pooling various types of contractual debt
such as residential mortgage, commercial mortgages, auto loans or credit card
debt obligation (or other non-debt assets which generate receivables) and selling
their related cash flows to third party investors as securities, which may be
described as Bonds, Pass-through Certificates, or Collateralized Debt Obligations
(CDOs).

Securitisation of Assets

Definition of some of the terminologies used in securitisation

Obligor: means a person who is liable, whether under a contract or otherwise, to

pay a debt or receivables in discharge any obligation in respect of a debt or
receivables.

Originator: refers to a bank that transfers from its balance sheet a single asset or
a pool of assets to an SPV as a part of a securitisation transaction and would
include other entities of the consolidated group to which the bank belongs.

Securitisation: means a process by which a single performing asset or a pool of

performing assets are sold to a bankruptcy remote SPV and transferred from the
balance sheet of the originator to the SPV in return for an immediate payment.

Special Purpose Vehicle (SPV): means any company, trust, or other entity
constituted or established for a specific purpose - (a) activities of which are limited
to those for accomplishing the purpose of the company, trust or other entity as
the case may be; and (b) which is structured in a manner intended to isolate the
corporation, trust or entity as the case may be, from the credit risk of an originator
to make it bankruptcy remote.

Sponsor: means any person who establishes or promotes a special purpose

distinct entity.

Securitization Process

The process of securitization begins when the lender (or originator) segregates
loans/lease/ receivables into pools which are relatively homogenous in regard to
types of credit, maturity and interest rate risk. The pools of assets are then
transferred to a Special Purpose Vehicle (SPV).

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Securitization follows a two stage process:

a) In the first stage, there is sale of single asset or pooling and sale of pool of
assets to a Special Purpose Vehicle (SPV)in return for an immediate cash payment.

b) In the second stage repackaging and selling the security interests representing
claims on incoming cash flows from the asset or pool of assets to third party
investors by issuance of tradable debt securities. The securitization can be
diagrammatically represented as follows:

Advantages of Securitization

Securitization is designed to offer a number of advantages to the seller, investor

and debt markets. Advantages of securitization can be summarised as follows:

a) With its support, banks can keep loans off their balance sheet, thus reducing
need for additional capital

b) It is an alternative form to banks and financial institutions of funding risk

transfer and capital market development

c) It helps reduce lending concentration and improve liquidity

d) Supports attainment of funds at lower costs since these are isolated from
potential bankruptcy risk of originator

e) Provides better matching of assets and liabilities and development of long-term

debt market

f) Provides diversified pool of uniform assets to banks and financial institutions

g) Supports converting non-liquid loans or assets into liquid assets or marketable

securities.

h) Facilitates transfer of funds from less efficient debt market to more efficient
capital market through securitization.

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Assets Eligible for Securitisation

In a single securitisation transaction, the underlying assets should represent the

debt obligations of a homogeneous pool of obligors. Subject to this condition, all
on balance sheet standard assets, except the following, will be eligible for
securitisation by the originators:

Revolving credit facilities (e.g., Cash Credit accounts, Credit Card

receivables, etc.)

Assets purchased from other entities

Securitisation exposures (e.g., Mortgage-backed/asset-backed securities)

Loans with bullet repayment of both principal and interest*

Minimum Holding Period (MHP)

Originating banks can securitise loans only after these have been held by them for
a minimum period in their books. The criteria governing the determination of
MHP for assets listed below reflect the need to ensure that:

• The project implementation risk is not passed on to the investors, and

• A minimum recovery performance is demonstrated prior to securitisation to

ensure better underwriting standards.

Minimum Retention Requirement (MRR)

The MRR is primarily designed to ensure that the originating banks have a
continuing stake in the performance of securitised assets so as to ensure that they
carry out proper due diligence of loans to be securitized. The guidelines stipulate
MRR of 5% of the book value of the loans being securitized for Loans with an
original maturity of 24 months or less and 10% of the book value of the loans
being securitized for Loans with an original maturity of more than 24 months. For
Bullet repayment loans! receivables, 10% of the book value of the loans being
securitized.

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 Module C : Support Services
(Marketing of Banking Services/Products)
Chapter No Topics covered

01 Marketing: An Introduction

02 Delivery Channels in Retail Banking

03 Delivery Models

04 Customer Relationship Management in Retail Banking

05 Service Standards for Retail Banking

06 Marketing Information Systems-A Longitudinal Analysis

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 01 Marketing: An Introduction
Retail Banking is primarily driven by number of customers each bank possesses.
To build up the customer base, marketing promises and delivery of products and
services are the top priorities of banks in the retail banking.

Bank Marketing is 'the creation and delivery of customer - satisfying services at a

profit to the bank'.

Bank Marketing is 'the matching of bank's resources with the customer's needs in
the most profitable manner'.

Bank Marketing is a proactive business strategy aimed at organisational

excellence.

In the context of Retail Banking marketing means –

a) Identifying the most profitable markets now and in the future.

b) Assessing the present and future needs of customers.
c) Setting business development goals and making plans to meet them.
d) Adapting to a changing environment in the market place.

Marketing in Retail Banking:

Customer is the centre of attraction in retail banking and marketing and all the
activities have to be focussed towards

(a) Identifying the customers' needs,

(b) Developing appropriate products to satisfy their needs,

(c) Providing them with efficient delivery channels for availing the products.

(d) Making them avail the products continuously.

The ultimate objectives of these initiatives are to achieve the business objectives
of growth and profit.

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Marketing Mix in Retail Banking:

Marketing mix in retail banking refers to the different ingredients to make

customer happy and satisfied. The fundamental ingredients of an effective
marketing mix in retail banking are as follows:

a) Product
b) Price
c) Promotion
d) Place
e) People
f) Process
g) Physical evidence.
h) The above seven Ps play a vital role for the banks in their retail banking
strategies.

1. Product: A bank product can be defined as "Anything that has the capacity to
provide the satisfaction, use, and return desired by the customer". The different
retail banking products like Deposit, Asset and Other Service products.

2. Price: 'Price' in the marketing mix refers to transaction cost to be borne by the
banker or the customer depending upon the product offered or availed. In the
case of deposit products, 'Price' refers to the interest rate offered by the banker to
the customer. In asset products, 'price' refers to the interest the bank is quoting to
the borrower customer for offering the loan product to the customer. In case of
other services, price refers to the fee/charges the bank is charging for offering the
different services.

3. Promotion: 'Promotion' refers to the efforts of the banks to reach the

customers. This includes personal promotional measures and other promotional
measures. The ultimate objective of these promotional measures is only to win the
customer and make him to avail the bank's products & services. The various ways
in which the marketer develops promotion strategies are through Personal Selling,
Advertisement, Sales Promotions, Publicity etc.

4.Place: 'Place' in retail banking generally refers to the place where the Bank is
offering its product. Earlier 'Place' was limited to the location of Branch but
technology has shifted the place from the brick and mortar format to e format
and has reached the customer in his place through internet banking and mobile
banking.
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5.People: Since Retail Banking is basically services marketing addressed to a large
customer base, people play a very essential role in the success of the retail
banking strategy. 'People' concept in marketing refers to the people who are
doing the marketing strategies and also 'people' who are the beneficiaries of the
marketing strategies.

6. Moreover, banking products and people are inseparable. Therefore, the

effectiveness of the product depends on the effectiveness of the process of
delivering the product.

7.Physical Evidence: Physical evidence means adding tangible aspects to even

otherwise intangible nature of banking services. Debit Card, ATM Card,
Personalised Cheque Book are some of the attempts by banks for creating
physical evidence.

Relationship between 7 Ps

1. The seven Ps are both independent as well as interdependent in the marketing

effectiveness. The 7 Ps individually contribute-their part in the effectiveness. But
these P's are interlinked in such a way that one P will be a deciding P for the
effectiveness of the other P. For example, though product is an important
element of the marketing mix, the effectiveness of the product and the strategy
depends on the price. Similarly, price is an important element in the marketing
mix, but the product and price will not matter much if the promotion or the place
aspects are not given due consideration. If the 'process' element is not taken care
of, the other Ps will not be effective.

2. The effectiveness can be measured by the response of the customer to the

marketing strategies. If the customer is responsive, availed the products/services
from the marketer and satisfied about it, then that would result in repeated
purchases/ availing the products/services. If the customer is not satisfied, there is
no reason for him to come again because his needs were not satisfied with our
products/ services. The success of the seven Ps and the marketing strategies are
measured only by the responses from the customers from their point of view of
need satisfaction.

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 02 Delivery Channels in Retail Banking
Customer satisfaction has to happen through different channels and choices are
to be offered to customers to experience the optimum channel mix for maximum
satisfaction.

Multi channel distribution is the practice adopted by almost all banks for total
customer experience.

Each channel either direct or remote has its plusses and minuses and also
depends on the customer segments using the different channels.

Direct channels may be the best fit for a conservative customer whereas young
and tech savvy customers may opt for remote channels.

Physical and Direct Channels:

Branch: Branch is the primary direct channel that drives retail banking. With all
the remote channels available to enhance the customer experience of retail
banking services, the preference for the brick and mortar format has been
maximum. The main reasons for the same are:

1.Branch converts the intangible nature of banking services to tangible. The

transactions carried out in the branch premises infuse a sense of confidence in the
minds of the customers that they are not only physically involved in the
transactions but also feel the service experience at the branch.

2.Personnel at the branch relate with the customer for their transactions.

3. Communication happens directly between the bank staff and customer and
better understanding of the service expectations are achieved from both the
customer and the bank end.

4.Physically seeing the bank staff and effecting the transactions brings in a sense
of bonding with the bank staff and which in turn enhances the loyalty factor.

5.Products and services when explained to the customer directly in the branch by
the Staff create a better understanding than through other channels.

6.A good branch layout and ambience enhances the feel good factor among the
customers and strengthens the relationship with the bank.

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Though customers have accepted the electronic channels of delivery in retail
banking with both hands, they still want to transact personally at the branch for
their banking requirements. They want a human intervention for their services
than simply go through on-line or-mechanical interventions like ATMs, Internet or
Mobile Banking.

Branch Lay Out and Ambience: Layout refers to the arrangement of all physical
components within the available floor space.to provide maximum effectiveness
and coordination of these components into an efficient and attractive unit. Branch
layout may be broadly defined as the system of locating the various service
facilities within the Branch in order to deliver the most convenient service to the
customers. The ambience of the branch should be such that it increases the'
comfort factor' in the minds of the customers.

Advantages of A Good Branch Lay Out:

1. Promotes efficiency as it will ensure smooth flow of services which results in

time benefits.

2. Internal communication effectiveness increases thereby facilitating better

coordination among the staff resulting in better customer service.

3. Provides a comfortable and congenial work environment to the staff which

results in high employee motivation and acts as a morale booster.

4. Serves as an image building tool for the bank because the layout creates as
good impression and generates goodwill in the minds of the customer.

5. Helps in reducing cost as facilities are planned for maximising efficiencies which
results in cost optimisation.

Branch Lay Out and Service Delivery:

1. The advent of technology in banking has changed the concept of counters.

2. Total automation of branches across banks and the implementation of core

banking solutions have changed the concept of service delivery.

3. Single Window Concept has brought the customer close to the service
personnel of the bank. The Counters are individually designed as desks to create a
one to one relationship with the customers and the customer can avail any of his
service requirements from any of the desks.

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4. The traditional branch layout continues in most of the rural and semi urban
branches of public sector banks.

1. Over the years, branch design has moved to specialised branches like Corporate
Branch, SSI Branch, Agri Finance Branch, Personal Banking/Retail Banking Branch
etc.

2. Specialised "Personal Banking Branches" have been opened by almost all the
Banks exclusively for retail customers to meet all their retail banking requirements.

3. Specialised Retail Asset Processing Centres have been opened for professional
and speedy processing and disbursement of retail loans. The objective of opening
these branches is to use the specialised branch as a tool to enhance the delivery
effectiveness of services by prescribing TAT (Turn Around Time) for different retail
loans and to meet the competition in retail banking effectively.

4. For opening of different liability accounts, branches perform only the role of the
marketing function and front office operations. In almost all the private sector
banks as well as in some public sector banks, only the formalities for opening the
accounts are completed at the branch level and opening of accounts, issue of Pass
Book/Cheque Book, Debit Card, PIN etc. are carried out through a centralised
back -office mechanism. This is aimed to achieve standardisation as well as
speedier compliance of bank's requirements and customer expectations.

Extension Counters:

1. Extension Counters are extensions of Branches opened in specified locations for

offering banking services to the specified group within their command area.

2. Extension Counters are basically attached to a Branch and controlled by the

Branch for accounting purposes.

3. They are permitted to offer products mainly in the liability side.

4. The areas of operations of Extension Counters were restricted to a closed group

like Courts, Educational institutions like Schools and College' or a specific
company in their premises.

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5. Extension Counters playa very vital role in the retail resources mobilisation for
banks especially low cost and no cost resources like Savings and Current
Accounts. They bring in core term deposits as well as CASA resources which are
held as operative resources of these institutions.

6. Though the concept of Extension Counters is getting diluted in the recent past,
as a delivery channel these serve in a focused way to a targeted entity/group
mainly with liability products.

Electronic/Remote Delivery Channels (Only a mention is made about various

Remote Delivery channels without furnishing details as the same is
mentioned elsewhere)

Automated Teller Machines (ATMs)

Point Of Sale Terminal (POS)

Mobile Banking

Internet Banking

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 03 Delivery Models
The three important human' interventions in physical channels are

a) Internal Customer - Staff of the Branch

b) Specialised Marketing Personnel
c) Direct Selling Associates (DSAs).

In many of the public sector banks, retail banking is carried on only as a separate
departmental activity and not as a Strategic Business Unit (SBU) whereas in
foreign banks and new generation private banks, retail internal customer, is more
focused in service delivery in new private sector banks.

In public sector banks, even without a strategic focus to retail banking, the service
delivery is generally more personalised and caring because of the loyalty factor of
public sector bank customers and better personal understanding of the
customers' profile by the staff in PSBs. This is more pronounced in semi urban and
rural branches where retail customers are more loyal and value their relationships
with the banks.

Efficient service delivery: The following needs to be given emphasis for efficient
delivery:

01.Understanding the customer, his income level, his financial profile, his needs,
his requirements of financial products and his life stage.

02. Cross selling the right products to match their requirements.

03.Post sales service follow up for customer satisfaction.

04.Customer Empathy - Putting yourself in the shoes of the customer and looking
the service level from customer perspective.

05.Understanding the product features and service prescriptions and conviction

about the bank's products services for right selling and better product and service
delivery.

06.Attitude for customer service and the concept of team in customer delivery.

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Dedicated Marketing Managers

In foreign and private banks, since there was mismatch with their retail banking
objectives and the human resources available to achieve the objectives, private
banks engaged external agencies to carry out marketing and customer
acquisitions.

Public sector banks have appointed specialist officers for marketing and retail
banking initiatives. Separate Marketing Managers were appointed in addition to
existing internal human resources. These specialist Marketing Managers (MBAs in
Marketing) were young and energetic and recruited from the campuses of
management schools.

Customer Relationship Management on a continuous basis for improving the

loyalty factor as well as additional sales.

The effectiveness of delivery to retail customers has improved very well in this
dedicated model.

Direct Selling Agents (DSAs):

1, The concept of Direct Selling Agents (DSAs) was pioneered foreign banks.

2. DSAs are agencies appointed by banks to source business for them on a fee
basis.

3. Banks which do not have a branch penetration and geography, to service a

large section of customers, seek the help of DSAs for sourcing business on behalf
of the bank and also complete the preliminary formalities for acquiring customers.

4. DSAs are primarily engaged in sourcing Credit Cards and Retail Loans. The
appointed DSA appoints field personnel and supplemented by tele callers, start
the marketing process, and follow up to meet the customers and convert them
into sales.

5. But the scrutiny and KYC formalities for the above are basically done by the
banks.

6. Mis-selling by DSAs have been rampant especially in the credit card space
which make the customers fall into a debt trap by—misusing the cards. Similarly,
the pricing for the loans are not explained clearly. Ultimately this will result in
dissatisfaction for the customers and reputation risk for the bank.

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7. With limited branch networks, private sector banks are increasingly depending
on outside agencies to sell their retail products. Despite the lack of loyalty and
accountability associated with direct selling agencies, new generation private
sector banks see this as the only way in which they can grow their scale of
operations in the country.

8. By appointing DSAs, the cost of delivery of service would be considerably

reduced as DSAs are not in their pay rolls. The compensation for the DSAs will
basically depend on the volumes of business sourced.

9. However, there is Reputation Risk in the DSA model as the field personnel
deployed by the DSAs for sourcing business try to make some false promises in
the Turn Around Time (TAT) in retail asset processing and issue of credit cards.

10. DSAs focus on pure selling by pushing the products than effective marketing
after verifying the needs of the customers and their actual requirements.

Sales through Tie-ups:

Bulk sale through tie up is another option to expand retail assets. Banks enter into
tie ups with the following agencies for extending different types of loans.

1. Tie up with Builders as a preferred financier for extending Home Loans to

prospective buyers. Special concessions like waiver of processing charges,
documentation charges, mortgage charges etc., will be offered as additional
attractions for these borrowers. In this type of tie ups, bank will approve the
specific projects of builders and express their interest to finance the individual or
group buyers of the project. Builders in turn will refer their buyer customers to the
Bank for considering home loans. In another type of tie up, banks will finance the
builders for their housing projects and enter into arrangement with the builders
for repaying the loan from the proceeds of sale of flats to different buyers.

2. Tie ups with auto dealers is another method adopted by banks for expanding
retail credit. This model is more prevalent among private sector and foreign
banks. Banks tie up with auto dealers as a preferred financier and set up a
counter/desk in the showroom of the auto dealer for soliciting/ capturing
customers for extending loans.

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When a person visits a tied up car dealer's showroom, on completion of his
choice, the customer is referred to the bank's staff at the showroom and the bank
staff immediately get the details and requirements and start processing the loan
based on merits. There is another type of tie up where the manufacturer, dealer
and banker coming together for offering loans with- maximum concession
through sharing of the concessions by all the three. But this model is under strain
as manufacturers through their financing arms (NBFCs) extend the credit facility
to the ultimate buyers thus making additional profits from the sale of cars.

3. Sanctioning of Personal Loans under tie up with different institutions: Banks tie
up with institutions for extending Personal Loan to group of employees of the
institutions and the repayment of loan will be undertaken by the company. The
institutions will recover from the salary of the employees on a monthly basis and
remit to the bank directly. Thus repayment is assured for the bank.

4. Educational loans are disbursed on a tie up basis. Banks set up special counters
during the admission season in reputed educational institutions and offer
education loans based on merit.

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 04 CRM in Retail Banking
(Customer Relationship Management)
In the context of banks, CRM means managing the customers and their
relationships.

Bank has to manage the customer by offering the right products matching the
needs of the customer.

Relationship with the customer means that

a) the service quality of the bank should match the customer expectations in
total and result in total satisfaction of the customer

b) the total need spectrum of the customers should be addressed

c) service delivery should result in absolute satisfaction for the customer.

Customer Relationship Management (CRM) is having a 360 degree view of the

customers and their profile, dynamically tracking their requirements, offering
matching products and services, cross selling relevant products tohis changing
needs and keeping him happy for ever.

Dynamics of CRM:

1. The objectives of a good CRM are aimed at (i) to build long term profitable
relationships with specific customers through a better understanding of the
customers (ii) develop close relationships (iii) to offer optimal products and
services on a dynamic basis and achieve life time value from customers.

2. CRM can be achieved by systematic and technology oriented processes and

models.

3. The purpose of CRM is to increase the share of wallet of the customer with the
banks' services and increase the per customer profitability of banks.

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4. The stages involved in a CRM initiative are:

a. Capturing the customers' profile through a technology enabled model.

b. Dissecting the profiles into common information buckets. .

c. Designing suitable products and services to cater to the different information

buckets.

d. Offering the products and services to the targeted and segmented customers
from the information buckets with the right pricing.

e. Providing the right sales and service processes to achieve total customer
satisfaction.

f. Tracking the customer information on a dynamic basis to design new

products and services to meet the changing dynamics of the customers.

5. Customer optimisation is the essence of CRM and can be addressed through

three dimensions viz.

a. Acquisition of New Customers who are immediately profitable to the bank.

b. Retention of Existing Customers who are most profitable and valuable to the
Bank for the longest duration.

c. Expansion of the customer relationship with the bank encouraging more

purchases and shifting the less profitable customers to lower - cost delivery
channels.

Implementation Process of CRM in banks:

Business Processes: The evaluation of the current business processes is essential

to determine the nature of products the bank wants to offer and the way it wants
to develop its customer portfolio.

Information Processes :This involves the analysis of the existing information

processes used currently by the bank. The integration of these processes in the
CRM system and suitable restructuring is essential for implementation of the CRM
systems in the bank.

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Information Systems: The existing information infrastructure of the bank needs
to be analysed and the implementation of the CRM infrastructure should be
customized. The focus has to be reinforcement rather than replacement.

Internal Organisational Culture: For effective CRM, the bank's systems should
be in line with the organizational change. The success of the CRM implementation
depends on responsiveness of the organization to it.

Implementation Stages In CRM

There are four stages through which CRM is implemented.

Identification of Customers: The bank need to identify the customers based on

their products availed and focus of the bank so that bank can focus the segment it
wants to target. For achieving this, Banks need to build a repository of data base
about customers who buy different types of products and services..

Classification of Customers: From the data compiled, classification of customers

with different perspectives, focus and attention has to be done. Banks have to use
the large repository of data collected in the previous stage, clean this data and
apply data mining and clustering techniques to classify customers on various
parameters like profitability, product sage rate and cost to serve the customers.
This will help the banks to develop different kinds of strategies to target the
segments and design effective campaigns for generating higher returns from
existing customers.

Interaction With the most Valued Customers: CRM solutions define customer
segments and helps in devising a particular type of strategy for them.

Customisation of Bank's Products and Services for Different Customer

Segments: The mass customized products can be developed for each of the
target segments based on selection of media mix, customer interaction points,
customers past usage data and intention forecasts. This will complete the CRM
implementation process. New customer data will be available from feed back from
the customers which will help in refining the strategy further to target the
segment with profitable product propositions.

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Benefits of CRM

(i) Improves the customer satisfaction and cross selling potential for the banks.

(ii) Helps the banks to derive increased share of wallet from the customer.

(iii) Enhances the operational efficiencies of the banks.

(iv) Helps to take on competition as CRM results in more customer focus and
retention.

(v) Helps to understand Customer Lifetime Value through the structured data base
on a dynamic basis.

(vi) Improves customer service through effective integration of all remote delivery
channels.

(vii) Helps to manage multi delivery channels in a better way to adopt and
maintain uniform service standards across channels.

(viii) Enables to achieve seamless information flow across functions in delivery.

(ix) Results in better relationship marketing as customer segments are better

target based on the data available in CRM.

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 05 Service Standards for Retail Banking
Code for Banking Services

The Banking Codes and Standards Board of India (BCSBI) is an independent

banking industry watchdog that protects consumers of banking services in India.
The board oversee compliance with the "Code of Bank's Commitment to
Customers". It is not a compensation mechanism and looks into an individual
complaint only to the extent it points to any systemic compliance failure. It is an
independent and autonomous body, registered as a separate society under the
Societies Registration Act, 1860 on 18 February 2006. However, on 28 September
2021, the member banks passed resolutions approving BCBSI dissolution.
Accordingly it has stopped its operations and is under dissolution.

Though the BCSBI is not in existence wee see certain points related to it
from academic point of view.

Banking Codes and Standards Board of India: Banking Codes and Standards Board
of India has prescribed various compliance requirements for the promises made
by banks for offering services to retail banking customers and these promises
have been codified into a document. Most of these commitments are applicable
to individual customers availing retail banking services.

1. This is a voluntary Code

2. It sets minimum standards of banking practices for banks to follow when they
are dealing with

individual customers.

3. It provides protection to customers and explains how banks are expected to

deal with customers for day-to-day operations.

4. The Code does not replace or supersede regulatory or supervisory instructions

of the Reserve Bank of India.

5. Provisions of the Code may set higher standards than what is indicated in the
regulatory instructions and such higher standards will prevail as the Code
represents best practices voluntarily agreed to by banks.

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6. In the Code, 'you' denotes the customer and 'we', the bank the customer deals
with.

Objectives of the Code:

1. promote good and fair banking practices by setting minimum standards in

dealing with you

2. increase transparency so that you can have a better understanding of what you
can reasonably expect of the services _

3. encourage market forces, through competition, to achieve higher operating

standards

4. promote a fair and cordial relationship between you and your bank

5. foster confidence in the banking system.

Key Commitments by banks

'Do Not Call' Service : Bank will automatically register customer's name under
'Do Not Call' Service. Bank will not inform/extend to customer through telephone
calls/SMS/e-mails any new product /service unless customer consents in writing
to avail of this information/ service from bank.

Interest Rates: Bank shall inform to customer (1) interest rates on deposit and
loan accounts (ii) in case of loans at fixed rate of interest, details of interest reset
clause, if any, in the loan agreement and the effective date thereof ; (iii) in case of
loans at floating rate of interest, the reference rate to which floating rate will be
linked and the premium or discount applied to the reference rate. (iv) whether the
loan agreement will contain a minimum rate of interest clause.

Changes in interest rates: changes in interest rates and changes in the reference
rate to which the floating rate of interest is linked to be informed through any one
or more of the following means (i) Notice at the branches (ii) Annexure to the
statement of account (iii) Letters (iv) e-mail (v) SMS (vi) Website (vii) Newspaper

Changes in Fees & Charges: If bank increases any of charges or introduce a new
charge, it will be notified one month prior to the revised charges being levied /
becoming effective.

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Privacy and Confidentiality: If bank is asked to give a banker's reference about
customer, bank will need customer's written permission before giving it. Bank will
not use customer's personal information for marketing purposes by anyone
including by bank unless customer specifically authorizes to do so.

Credit Rating Agencies:

(I) Information about credit availed from the bank is reported by bank to the CRA
on a monthly basis.

(ii) If customer's loan account has been in default, and thereafter regularised, bank
will take steps to update this information with the CRA in the next monthly report.

(iii) When customer apply for credit facility from the bank, bank will on request,
and on payment of prescribed fee, furnish customer a copy of the credit
information obtained by the bank from the CRA.

Collection of Dues:

Bank will post details of the recovery agency firms I companies engaged by Bank
on their website and will also make available on request details of the recovery
agency firms/companies at their branches.

The Bank's staff or any person authorized to represent bank in collection of dues
or/and security repossession will identify himself/herself and display the authority
letter issued by the Bank.

Customer would be contacted ordinarily at the place of customer's choice and in

the absence of any specified place at the place of customer's residence and if
unavailable at customer's residence, at the place of business/occupation.

Normally Bank's representatives will contact customer between 0700 hrs and 1900
hrs, unless the special circumstances of customer's business or occupation require
otherwise.

Complaints, Grievances and Feedback:

Acknowledgement of a customer's complaint within a week.

Final response or reason why Bank needs _more time to respond within 30 days of
receipt of customer's complaint.

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Products and Services: Bank will acknowledge the receipt of customer's
nomination details and record the fact of nomination on the passbook/Account
Statement/FDRs. At customer's request, Bank will also indicate the name of the
nominee thereon.

Changing customer's account:

(a) If customer decides to close his current/savings account, Bank will close
account within three working days of receiving customer's instructions.

(b) If customer wants to transfer his account to another branch of the bank, his
account at the new branch will be operationalised within two weeks of receiving
customer's request, subject to customer complying with the required KYC
formalities at the new branch.

Savings/Current Accounts:

The minimum balance to be maintained in the Savings Bank account will be

displayed in the branches.

Bank will inform of any change in minimum balance to be maintained 30 days in

advance.

Dormant/ Inoperative Accounts:

Customer will also be informed three months before customer's account is

classified as dormant /inoperative

Bank will not charge customer for activation of the inoperative account.

Closing Customer's Account: Under normal circumstances, Bank will not close
customer's account without giving customer at least 30 days' notice.

Cash Transactions: Bank will exchange soiled/mutilated notes and/ or small coins
at its branches as per RBI Directives.

ATM: Bank will reimburse amounts wrongly debited in failed ATM transactions
within a maximum period of 7 working days from the date of receipt of
customer's complaint.

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Branch Closure/ Shifting: If Bank plan to close branch or if Bank moves its
branch, Bank will give (i) notice of three months if there is no other branch of any
bank functioning at customer's centre (ii) notice of two months, if there is a
branch of any other bank functioning at customer's centre.

Settlement of Claims in respect of Deceased Account Holders: Bank will settle

the claims in respect of deceased depositors and release payments to survivor(s)/
nominee(s) within a period not exceeding 15 days from the date of receipt of the
claim subject to the production of proof of death of the depositor and suitable
identification of the claim(s).

Loan Products: Bank will invariably provide customer with an acknowledgement

of customer's loan application.

Bank shall make every endeavour to indicate on customer's application the period
within which customer can expect to receive a decision on customer's request for
loan.

Bank will give customer the Most Important Terms and Conditions (MITC)
governing the loan / credit facility customer have availed.

Bank will provide customer the sanction letter detailing particulars of amount
sanctioned, terms and conditions, customer's responsibilities as well as the bank's,
etc.

Bank will compensate customer for any delay in return of securities / documents I
title deeds to mortgaged property beyond 15 days of the repayment of all dues
agreed to or contracted.

Bank will supply authenticated copies of all the loan documents executed by
customer at Bank's cost along with a copy each of all enclosures quoted in the
loan document.

Bank will return to customer all the securities / documents/title deeds to

mortgaged property within 15 days of the repayment of all dues agreed to or
contracted. If any right to set off is to be exercised for any other claim, Bank will
give due notice with full particulars about the other claims and retain the
securities/documents/title to mortgaged property till the relevant claim is
settled/paid.

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Bank will give written receipt for all documents to title taken as security/ collateral
for any loan as well as for dated/undated cheques received from customer.

Bank will compensate customer for any delay in return of securities / documents /
title deeds to mortgaged property beyond 15 days of the repayment of all dues
agreed to or contracted.

Bank will process request for transfer of borrowal account, either from the
borrower or from a bank/financial institution, in the normal course and convey its
concurrence or otherwise within 21 days of receipt of request.

Bank will not offer any unsolicited pre-approved credit facility in any form,
including enhancement of credit card limit and top up of personal loan limits.

In case, Bank offers/approves a credit facility over the telephone, Bank will credit
customer's account with the amount sanctioned only after receiving customer's
acceptance in writing.

In case of securities lodged with the Bank for loans availed by customer, Bank will
not insist on customer's obtaining insurance cover from any particular provider.

Credit Card:

Bank will provide 'Online Alerts' to customer for all 'card not present' transactions
of the value of Rs.5000/- and above.

If customer do not recognize a transaction, which appears on customer's card

statement, Bank will give customer more details if customer ask for the same. In
cases, where Bank do not accept customer's contention, Bank will give evidence
that customer had authorized the transaction, in question.

In case Bank activates the card without customer's consent for which customer
has not given consent, Bank will not only reverse the charges forthwith but will
also pay a penalty amounting to twice the value of the charges reversed.

Bank will extend a loan/credit facility/enhance credit limit on customer's card only
with customer's consent in writing.

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 06 Marketing Information Systems (MKiS)
A Longitudinal Analysis

Any organization is studded with different Systems, Management Information

System (MIS), Computer Information System (CIS), Marketing Information System
(MKIS), all of which aid as a proactive tool for Decision Support System (DSS). In
order to carry out marketing function effectively, firms would need information
and data in respect of various aspects impacting the market of the product or
service.

Functions of MkIS

Marketing information system is a tool for dealing with data pertaining to

marketing management. Hence, its functions are related to the process of
database management. The principal functions of MKIS are briefly discussed
below:

• Collecting and assembling data

• Processing of data
• Analysing the data
• Storage of data
• Dissemination of information

Components Of MkIS

MkIS consists of four subsystems, which facilitate the entire system. These are:

• Internal records system

• Market intelligence system
• Marketing research system
• Marketing management and science system

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Roles of Computer in Information Systems

Information systems are in use from an ancient time. With the development of
computing technology, computers became an important part of today’s modern
information systems which satisfies speed, dependability etc.

Following are the roles of computers in Information Systems

• Data Collection
• Data Verification
• Data Processing
• Data Storing
• Information Supply
• Information Presentation
• Data Updates
• Security of Data
• Information Sharing
• System Automation
Recommendations

The specific patterns of MKIS usage includes:

Computers are needed by marketing managers, for retrieving data and then
storing and processing it.

Internal accounting continues to be the most important source of MKIS

information while the use of marketing intelligence and marketing research, as
information sources, are more balanced.

Most companies collect data about their customers. Collection of data about
competitors and prospective customers is also popular, but this is less
computerized.

The major users of MKIS are the middle-level managers.

Planning and controlling are still the management functions using most MKIS
support.

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Price and product related decisions consume most of the MKIS resources.

However, support for marketing mix ingredients is likely to become more

balanced.

Decision models are used mostly for product and price decisions. Computer
assisted decision models reflect this.

The computer software, being used in an MKIS, includes modelling/ spreadsheets,

conventional/ third-generation programming languages and database
management systems. Statistical analysis software, logic programming languages
and expert system shells are not used very much.

Advantages of MKIS

MKIS gives several advantages in managing information for marketing function.

Some of these are as under.

The MKIS framework provides a set of procedures and methods for regular,
planned, purpose oriented and systematic collection of data, its analysis, storage
and retrieval.

It helps in improving the data capture process, checks for reliability, consistency
and quality of data.

The operation of collecting, processing and transmitting data becomes smooth

and the information flow to the decision-makers takes place in a ready for
decision form.

Provides tailor made information for specific needs.

It facilitates repetitive use of the same information for different purposes.

It also helps in sorting out conflicting information, which otherwise would lead to
confusion and misdirect the decisions.

It results in integration of information obtained from various sources regarding

different aspects. It also helps in providing instant access to company wide
information and cross sharing of data, enabling better service to the customer.

It creates customer insights from routine transactional data. This helps in

developing and delivering customer-oriented offers and building of better
customer relations.

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It serves as a total knowledge-management mechanism. It supports capture of
knowledge, makes the knowledge flow where it is required and ensures its
availability in readily usable form.

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 Module D : Wealth Management
Index
Chapter No Topics Covered

01 Importance of Wealth Management

02 Investment Management

03 Tax Planning

04 Other Financial Services Provided by Banks

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 01 Importance of Wealth Management
Wealth management is an investment advisory service that combines other
financial services to address the needs of affluent clients. Using a consultative
process, the advisor gleans information about the client’s wants and specific
situation, then tailors a personalized strategy that uses a range of financial
products and services.

In brief Wealth Management Services can be summarized in three stages

Wealth management is an investment advisory service that combines other

financial services to address the needs of affluent clients.

A wealth management advisor is a high-level professional who manages an

affluent client’s wealth holistically, typically for one set fee.

This service is usually appropriate for wealthy individuals with a broad array of
diverse needs.

Wealth Management – Broad View

Wealth management is not just investment advice rather more than that. It can
encompass all parts of a person’s financial life. Instead of attempting to integrate
pieces of advice and various products from multiple professionals, high net worth
individuals may be more likely to benefit from an integrated approach. In this
method, a wealth manager coordinates the services needed to manage their
clients’ assets, along with creating a strategic plan for their current and future
needs—whether it is will and trust services or business succession plans.

Following are some of the important aspects of wealth management:

Understanding Investment needs: Clarity of the investment needs should be of
the utmost priority to set the direction.

Products and Services: Knowing the right products and services suitable for you
will enable you to take the right decision to achieve your financial goal.

Advisory Services: Involving the professionals will enable you to take advantage of
their professional experience and expertise.

Estate Planning: Estate Planning is also a very essential part of your wealth
management as it ensures and preserves wealth for a longer term.

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Wealth Management Process

Wealth Management process involves the following steps:

Assessing the current financial situation of the client.

Identifying financial goals.
Designing a customized solution to achieve the goals.
Implementing the financial strategies into the plan.
Monitoring the results and reviewing the plans.

Wealth management provides direct and dynamic Customer Services. Wealth

management deals in Asset Allocation Management, Tactical Management, and
Diversified Management.

Asset Allocation management: The Asset allocation management is an

investment advisory fully dedicated to managing investment portfolios with the
only focus on initiating the income It aims to balance the risk by moving among
investment categories.

Tactical Management: Tactical management helps in selecting the appropriate

ways to achieve financial strategies by choosing the best alternatives and tactics.

Diversified Management: Diversifier management team help its clients in

providing a flexible model which helps in meeting the need of the client.

Wealth Management Products and Services

There are so many wealth products and services in the market. Traditionally,
customers have been investing large amount of money in bank deposits owing to
convenience and safety. The following are a few important and common products
and services which are generally offered by wealth management professionals.

Alternative Asset // Bonds, Corporate Fixed Deposits, Fixed Maturity Plan &
Debentures // Insurance // Mutual Funds // Systematic Investment Plan //
Portfolio Management Services // Real Estate Services // Retirement planning //
Strategic Business Strategy // Will Writing

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Alternative Asset

It is any non-traditional asset with potential economic value that would not be
found in a standard investment portfolio. Due to the unconventional nature of
alternative assets, valuation of some of these assets can be difficult for most
people, examples of alternative assets would include - Art and Antiques; Precious
Metals ; Fine Wines ; Rare Stamps ;Coins ; Sports Cards ; Other Collectibles

Bond

Bonds are fixed-income instruments derived from a loan forwarded by an investor

to a borrower. In case of a bond, the issuer promises to pay a specific interest for
the life of the bond and the principal amount or the face value at maturity to the
investor. Bonds are generally issued by governments, corporations, municipalities
and other sovereign bodies. Just like securities, bonds are tradeable.

Convertible bond

A convertible bond gives the purchaser a right or an obligation to convert the

bond into shares of the issuing company. The quantum of shares and the value of
the shares are usually predetermined by the issuing company. However, an
investor can convert the bond into stock only at certain specified times during the
bond’ tenure. It features a fixed tenure and pays out interest payments
periodically at predetermined intervals.

Convertible bonds can be further classified as:

Regular Convertible Bonds – Regular convertible bonds come with a fixed

maturity date and a predetermined conversion price but they give the investor
merely the right, and not an obligation, to convert. Companies generally prefer to
issue these types of convertible bonds to the public.

Mandatory Convertible Bonds – Unlike regular convertible bonds, these bonds

obligate the investor to convert them into equity shares of the issuing company
upon maturity. Since investors are essentially forced to convert their bonds,
companies usually offer a higher rate of interest on mandatory convertible bonds.
Reverse convertible bonds – With reverse convertible bonds, the issuing company
holds the right to convert them into equity shares upon maturity at a
predetermined conversion price.

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Government Bonds

Bonds are issued by the Central as well as state governments of the country in
order to tide its liquidity crisis which can be used to develop infrastructure.
Serving as long-term investment tools they can be issued for periods that range
from 5 to 40 years.

Types of Government Bonds

Fixed-rate bonds – The interest rate applicable on these government bonds is

fixed for the entire tenure of the investment regardless of fluctuating market rates.
The lock-in period for such bonds is usually one to five years.

Floating rate bonds (FRBs) – These bonds have variable interest rates based on
periodic changes experienced by the rate of returns. The intervals within which
these changes occur are made clear prior to the bonds being issued. These bonds
can also exist with the rate of interest being split into a base rate and a fixed
spread. This spread is determined via auction and remains stable right up to
maturity

Sovereign Gold Bonds (SGBs) – Under this scheme, entities are allowed to invest
in digitized forms of gold for an extended period of time without having to avail
of gold in its physical Interest generated via these bonds is tax-free.

Inflation-Indexed Bonds – the principal and interest earned on such bonds are
in accordance with the inflation. Ordinarily, these bonds are issued for retail
investors and are indexed in accordance with the consumer price index (or CPI) or
wholesale price index (or WPI).

Zero-Coupon Bonds – These bonds don’t earn interest. Instead, investors accrue
returns via the difference that exists between the issuance price and the
redemption value. They aren’t issued via auction but are created via existing
securities.

Municipal Bonds

Municipal bonds are debt instruments that are issued on behalf of municipal
corporations or bodies associated with them across the country aimed at socio-
economic development. Municipal bonds can be purchased with a maturity
period that amounts to three years.

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Types of Municipal Bonds in India

General Obligation Bonds – These bonds generate finance for various projects in
general and therefore their repayments are made from the general revenues of
the municipality.

Revenue Bonds – These bonds are focused on generating funds for specified
projects and the repayment and interest issued to bondholders are processed via
revenue explicitly generated via the projects declared in the bonds. They have
extended maturity periods of up-to 30 years and higher returns than GO bonds.

Retail Bonds

A retail bond offering allows a company to raise additional capital by borrowing

at a fixed rate from an investor for a specific length of time. Companies typically
issue retail bonds to expand their business, pay off debt, or fund a specific project,
as with any capital raising. Retail bonds are typically listed and can thus be bought
and sold during regular market hours, allowing investors more flexibility.

Insurance

Protecting or safeguarding loss is done through Insurance. Insurance is a policy

representing a contract in which an individual or entity receives financial
protection from the insurance company against any losses.

An insurer, or insurance carrier, is a company selling the insurance; the insured, or

policyholder, is the person or entity buying the insurance policy. The amount of
money to be charged for a certain amount of insurance coverage is called the
premium.

The insured receives a contract, called the insurance policy, which details the
conditions and circumstances under which the insured will be financially
compensated.

Types of Insurance Policies:

Life insurance protects our family in unforeseen situations like death or accidental
death.

Term life insurance is one of the types of life insurance for financial safety which
provides a lumpsum benefit to the nominee of the insured person after the death
of the insured.

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Health insurance facilitates a person to insure coverage against surgical and
medical expense.

Disability insurance will insure a person for coverage against physical disability for
longer period with no productive work.

Auto insurance facilities you to cover car or any vehicle against damages or
accidents.

Home insurance will protect one’s house against any damages like structural
damage, fire, earthquake, etc.

Insurance provides protection against the following:

Protecting family from loss of income from premature death.

Ensuring obligation repayment after death.
Covering unforeseen liability losses.
Protecting business against the loss or disability of a critical employee.
Buying out a partner or co-shareholder after his or her demise.
Income protection insure from one’s job, business against unforeseen
business stoppage.
Protecting one against unforeseeable medical, health or hospital expenses.
Protect one’s property from fire, thief, or any other natural calamities like
flood, etc.
Protecting assets against employee lawsuits.
Protecting oneself in the event of disability.
Protecting one’s car against theft or losses incurred because of accidents.
And many more types of risk.

Mutual Fund

Mutual Funds are the funds created with the mutual requirement needs of the
investors. It is a basket created with varieties of investment options. similar to
basket of shares, bonds, money market or a mixture of all instruments or a basket
of shares based on sectors like Bank, IT, Infrastructure, FMCG, etc. or basket of
diversified shares.

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Types of Mutual Funds

In India, Mutual Funds are categorized based on various fundamentals like

investment objectives and structure. Based on investment objectives, mutual
funds are categorized into, Equity

Mutual Fund: It will invest money in the stock markets. The investments under
this category of mutual funds in primarily in stock markets and returns on
investments are purely based on stock performance of the fund. These funds are
off the record best type of mutual fund in long run.

Debt Mutual Funds: It will invest money in debt instruments like Treasury bills,
Government Bonds, etc. These investments ensure you fixed rate of returns.

Balanced Mutual Funds: It will invest money partially into equities and partially
into debts. Investor prefers this sort of investment when they want to minimize
the equity investment risk.

Sectorial Funds: It will invest your money as per selected sector like IT, Banks,
FMCG, Pharma, etc.

ELSS or Equity Linked Savings Schemes: These are commonly known as Tax
saving funds. Investment made towards ELSS funds are exempted from Income
tax under section 80 C. However, ELSS funds have 3 years of lock-in period.
Further, on the basis of structure, mutual funds are classified into,

Open Ended Fund: These are funds that allow you to invest money and redeem
anytime as per one’s needs and one’s strategies regardless of any time
circumstances.

Close ended Funds: These are funds allowing a person to invest with some lock-
in period, mostly within 1 to 3 years; before that one cannot redeem the fund
since there is a time-bound investment horizon involved with it.

Systematic Investment Plan (SIP)

Systematic Investment Plan, most popularly known as SIP is a disciplined way of

investing offered by mutual funds, where one invests a fixed amounts at a regular
frequency (say, every month). It allows an investor to invest a fixed sum of money
in a selected scheme of mutual fund at pre-defined intervals like monthly,
quarterly, etc.

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Systematic Withdrawal Plan (SWP)

A Systematic Withdrawal Plan (SWP) is a facility which allows an investor to

withdraw a fixed amount at pre-determined intervals. One can choose the amount
and frequency of withdrawal also. At the set date, units from the portfolio are sold
and the funds are transferred to your account.

Portfolio Management Services (PMS) It is a tailor-made professional service

offered to cater the investment objectives of different investor classes. The
investment solutions provided by PMS caters to a niche segment of our clients.

Private Banking

Private banking involves providing banking, investment, tax management, and

other financial services to high-net-worth individuals (HNWIs). Unlike mass-
market retail banking, private banking focuses on providing more personalized
financial services to its clients, through banking personnel specifically dedicated
to providing such individual services.

Benefits of Wealth Management

Function on a Relationship-Based Approach

Wealth manager is constantly thinking of our financial well-being which is why,

when the need arises, they level with us like a friend would. They are not
interested in impressing us with financial jargons but rather invest their time to
help us navigate through troubled financial waters. They also help us to make
better investment decisions. Wealth managers use this relationship based
approach through which we can have a healthy exchange of ideas and
perceptions and formulate various financial strategies.

Creation of a Financial Plan:

Wealth management services help investors calculatedly and systematically create

their corpus. Wealth managers come armed with the skills that help them
understand client requirement and financial goals. These are taken into account
when financial strategies are formulated. Wealth manager puts in a lot of time to
comprehend our needs and helps us to meet as many of your financial goals as
possible.

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Elimination of Financial Stress:

Wealth advisors have a deep understanding of financial uncertainties. They have

expertise in the field of taking critical financial decisions for us, should the need
arise. Wealth advisors can help us to manage our finances during the roughest
market conditions, which can often lead to stress. They help us to prioritize our
financial decisions based on a timeline. Wealth advisor takes all our financial
considerations in account while creating our goals and also helps us to organize
our funds from time to time.

Personalized Services:

Wealth managers understand that there is no “one size fits all” formula when it
comes to wealth management. As such, every individual client gets personalized
services of a dedicated wealth manager.

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 02 Investment Management
Difference between Income of people and their expenditure results into saving or
borrowing. When income is more than consumption people incline to save
(surplus money). When Income is less than consumption they tend to borrow.

It can be understood in the form of equation also.

Saving = Income – expenditure.

Element of Investment

The characteristics or elements of investment can be understood in terms of

return, risk, safety and liquidity.

Return: The prime objective of any type of investment is to drive return. The
expected return may be regular income (interest, dividend, rent, etc.) or increase
in the value of investment/ capital appreciation, i.e. difference between the selling
price and buying price of assets. The nature of investment (risky, less risky, non-
risky) is the deciding factor of required return from it.

Risk: Risk is the basic attribute of investment. Risk means variability in return
because of loss of capital or non-payment of income what so ever reason. More
the risk, normally more is the expected return and vice versa.

Safety: Safety rule of investment states that investors get back their original
principal on maturity with no loss in value and hindrance. Liquidity: It means an
investor can sell his investment in market as need arise without incurring much
transaction costs, less energy and time.

Objectives of Investment: The basic objectives of any investment is maximizing

the return and minimizing the risk. In addition to the basic objectives other
objectives of investment are safety, liquidity, hedging against the inflation etc.

Basics of Investment Management

Professional investment management aims to meet particular investment goals

for the benefit of clients whose money they have the responsibility of overseeing.
These clients may be individual investors or institutional investors such as pension
funds, retirement plans, governments, educational institutions, and insurance
companies.

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In short, Investment management may be summarized as follows:

Investment management refers to the handling of financial assets and other

investments by professionals for clients.

Clients of investment managers can be either individual or institutional investors.

Investment management includes devising strategies and executing trades within

a financial portfolio.

Steps in Investment Management

Deciding investment goals

Analysis of Securities

Construction of portfolio

Evaluating performance of Portfolio

Revision of portfolio

Investment Banking

Investment banking is a specific division of banking or financial institution that

serves Governments, corporations, and institutions by providing underwriting
(capital raising) and mergers and acquisitions (M&A) advisory services. Investment
banks act as intermediaries between investors (who have money to invest) and
corporations (who require capital to grow and run their businesses).

Role of Investment Banking

Investment banking deals primarily with the creation of capital for other
companies, governments, and other entities.

Investment banking activities include underwriting new debt and equity securities
for all types of corporations, aiding in the sale of securities, and helping to
facilitate mergers and acquisitions, reorganizations, and broker trades for both
institutions and private investors.

Investment bankers help corporations, governments, and other groups plan and
manage the financial aspects of large projects.

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Broadly speaking, investment banks assist in large, complicated financial
transactions. They may provide advice on how much a company is worth and how
best to structure a deal if the investment banker’s client is considering an
acquisition, merger, or sale.

Services Being Offered By Full-Service Investment Banks

Full Service Investment Bank offer the following services:

Underwriting – Capital raising and underwriting groups work between investors

and companies that want to raise money or go public via the IPO process. This
function serves the primary market or “new capital”.

Mergers & Acquisitions (M&A) – Advisory roles for both buyers and sellers of
businesses, managing the M&A process start to finish.

Sales & Trading – Matching up buyers and sellers of securities in the secondary
market. Sales and trading groups in investment banking act as agents for clients
and also can trade the firm’s own capital.

Equity Research – The equity research group research, or “coverage”, of securities

helps investors make investment decisions and supports trading of stocks.

Asset Management – Managing investments for a wide range of investors

including institutions and individuals, across a wide range of investment styles.

Underwriting Services in Investment Banking

Underwriting is the process of raising capital through selling stocks or bonds to

investors (e.g., an initial public offering IPO) on behalf of corporations or other
entities.

Firm Commitment – The underwriter agrees to buy the entire issue and assume
full financial responsibility for any unsold shares.

Best Efforts – Underwriter commits to selling as much of the issue as possible at

the agreed upon offering price but can return any unsold shares to the issuer
without financial responsibility.

All-or-None – If the entire issue cannot be sold at the offering price, the deal is
called off and the issuing company receives nothing.

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Once the bank has started marketing the offering, the following book-building
steps are taken to price and complete the deal (Book building process):

Prospects with price range

Institutional investor commitment @firm price

Book demand Built

Price is set to ensure clearing

Allocation

Investment Bank Organizational Structure

Investment banks are split up into three main offices – front office, middle office,
and back office.

Front Office – The revenue for an Investment Bank is generated by the front
office. It consists of three primary divisions: investment banking, sales & trading,
and research. Sales and trading department involves Buying and selling products.
The research department comes up with various research reports on the firms or
industry.

Middle Office – The main function of the middle office is to ensure that the
investment bank doesn’t engage in activities that can be detrimental to the bank’s
health. It includes functions like risk management, financial control, corporate
treasury, corporate strategy, and compliance.

Back Office – Back office basically provides supporting activities like operations
and technology to the front office so that it can do the jobs needed to make
money for the investment bank.

Investment Management Vs Investment Banking

Investment managers help clients reach their investment goals by managing their
money. Clients of investment managers can include individual investors as well as
institutional investors such as educational institutions, insurance companies,
pension funds, retirement plans, and governments. Investment managers can
work with equities, bonds, and commodities, including precious metals like gold
and silver.

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Investment managers can have varied roles and responsibilities, depending on the
firm, which can include:

Financial statement analysis

Portfolio allocation such as a proper mix of bonds and stocks

Equity research and buy and sell recommendations

Financial planning and advising

Estate and retirement planning as well as asset distribution

Investment bankers help with corporate finance needs, such as raising funds or
capital. Companies and governments hire investment bankers to facilitate
complicated financial transactions, including:

Debt issuance such as a bond offering

New securities underwriting

Mergers and acquisitions

Initial public offerings (IPOs)

Investment banking can involve equity and security research and making buy, sell,
and hold recommendations.

Investment banking firms are also market makers, which provide liquidity or
connect buyers and sellers to “make” the market.

Portfolio Management

In a layman’s language, the art of managing an individual’s investment is called as

portfolio management. Portfolio management is the art and science of selecting
and overseeing a group of investments that meet the long-term financial
objectives and risk tolerance of a client, a company, or an institution. It is
managing an individual’s investments in the form of bonds, shares, cash, mutual
funds, etc.

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Portfolio Manager

An individual who understands the client’s financial needs and designs a suitable
investment plan as per his income and risk taking abilities is called a portfolio
manager.

Objectives of Portfolio Management

The fundamental objective of portfolio management is to help select best

investment options as per one’s income, age, time horizon and risk appetite.
Some of the core objectives of portfolio management are as follows:

Capital appreciation

Maximising returns on investment

To improve the overall proficiency of the portfolio

Risk optimization

Allocating resources optimally

Ensuring flexibility of portfolio

Protecting earnings against market risks

Portfolio Management can be opted by the following

Investors who intend to invest across different investment avenues like bonds,
stocks, funds, commodities, etc. but do not possess enough knowledge about the
entire process.

Those who have limited knowledge about the investment market.

Investors who do not know how market forces influence returns on investment.

Investors who do not have enough time to track their investments or rebalance
their investment portfolio.

Key Elements of Portfolio Management

Asset Allocation

Diversification

Rebalancing
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Portfolio Management Vs Investment Banking

Portfolio Management refers to the management of the portfolio of assets of the

client whereas, investment banking refers to the various different type of function
performed by the investment banker in the economy by offering different
financial services to their clients by mainly dealing in the purchase and sale of the
stock and helping in raising the capital.

Portfolio Management (Asset management) is all about managing clients’

investments whereas Investment Banking is all about raising the capital for clients.

So, the basic difference between these two is in case of Portfolio Management or
Asset management, clients already have the money which portfolio manager need
to manage whereas, in the case of investment banking, clients don’t have the
money and investment banking professional need to raise capital to support your
clients.

Role of Portfolio Managers

Portfolio managers are investment decision-makers. They devise and implement

investment strategies and processes to meet client goals and constraints,
construct and manage portfolios, make decisions on what and when to buy and
sell investments.

Portfolio Management Service Vs Mutual Funds (MFS)

The following attributes distinguish between PMS and MF:

Customization: PMS offers a higher degree of customization tailored specifically

to the goals of an investor. Mutual funds, on the other hand, offer customization
to the extent of the classification and diversity of the fund.

Engagement: PMS is personalized promoting a dialogue between the portfolio

manager and investor. An investor can convey any changes in the risk profile or
personal situations to maximize returns. MFs offer low engagement with the
investor limited to fact sheets. Portfolio managers for PMS are also directly
accountable to the investors.

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Fee structures: MFs charge a fixed fee attributed to the entry and exit of
investments as well as annual expenses for maintenance (known as the expense
ratio). PMS demands a share in the profit over a particular rate of return (known
as hurdle rate) in addition to the annual maintenance fee. The alignment of
incentives is highly preferred in the case of PMS so that the portfolio manager
takes responsible decisions in an attempt to attain supernormal returns.

Asset ownership: Under PMS, the investor retains direct ownership of shares of
the company. However, MFs offer units in the form of investment.

Investment size: MFs entertain any amount of capital. However, PMS demand a
capital investment which must be over the minimum limit of ₹50/- Lakh as per
Securities and Exchange Board of India (SEBI) guidelines.

Types of Portfolio Management Services

Active Portfolio Management: The aim of the active portfolio manager is to

make better returns than what the market dictates. Those who follow this method
of investing are usually contrarian in their approach. Active managers buy stocks
when they are undervalued and start selling when they climb above the norm

Passive Portfolio Management: At the opposite end of active management

comes the passive investing strategy. Those who subscribe to this theory believe
in the efficient market hypothesis. The claim is that the fundamentals of a
company will always be reflected in the price of the stock. Therefore, the passive
manager prefers to dabble in index funds which have a low turnover, but good
long-term worth.

Discretionary Portfolio Management: A discretionary manager is given full

leeway to make decisions for the investor. While the individual goals and time-
frame are taken into account, the manager adopts whichever strategy he thinks
best.

Non-Discretionary Portfolio Management: The non-discretionary manager is

simply a financial counsel-lor. He advises the investor in which routes are best to
take. While the pros and cons are clearly outlined, it is up to the investor to
choose his own path. Only once the manager has been given the go ahead, does
he make a move on the investor’s behalf.

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Advantages of Portfolio Management

Makes Right Investment Choice: Portfolio management is a tool that helps the
investor in choosing the right portfolio of assets. It enables in making more
informed decisions regarding investment plans in accordance with the goals and
objectives.

Maximizes Return: Maximizing the return is one of the important roles played by
portfolio investment. It provides a structured framework for analyses and selecting
the best class of assets. Investors are able to earn high returns with limited funds.

Avoids Disaster: Portfolio management avoids the disaster of facing huge risks
by investors. It guides in investing among different classes of assets instead of
investing only in one type of asset. If an investor invests in only one type of
security and supposes it fails, then the investor will suffer huge losses which could
be avoided if he might have invested among different assets.

Track Performance: Portfolio management helps management in tracking the

performance of their portfolio of investments. A consolidated investment held
within the portfolio can be evaluated in a better way and any of its failures can be
easily detected.

Manages Liquidity: Portfolio management enables investors in arranging their

investment in a systematic manner. Investors can choose assets in such a pattern
where they can sell some of them easily whenever they need funds.

Avoids Risk: Investment in securities is quite risky due to the volatility of the
security market which increases the chance of losses. Portfolio management helps
in reducing the risk through diversification of risk among large peoples.

Improves Financial Understanding: It helps in improving the financial

knowledge of investors. While managing their portfolio they came across
numerous financial concepts and learn how a financial market works which will
enhance the overall financial understanding.

Disadvantages of Portfolio Management

Risk of Over Diversification: Sometimes portfolio managers invest funds among

large categories of assets whose control becomes impossible. In his efforts to
diversify the risk it goes beyond the limit to manage efficiently. Loss arising in
such situations is quite high and can bring serious repercussions.

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No Downside Protection: Portfolio management only reduces the risk through
diversification but does not provide full protection. At times of market crash, the
concept of portfolio management becomes obsolete.

Faulty Forecasting: Portfolio management uses historical data for evaluating the
returns of securities for investment purposes. Sometimes the historical data
collected is incorrect or unreliable which leads to wrong forecasts.

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 03 Tax Planning
Taxation is the means by which a government or the taxing authority imposes or
levies a tax on its citizens and business entities. From income tax to goods and
services tax (GST), taxation applies to all levels.

Classification of Tax Structure in India

The tax structure in India can be classified into two main categories:

Direct Tax

Indirect Tax

Direct Tax: It is defined as the tax imposed directly on a taxpayer and is required
to be paid to the government. Also, an individual cannot pass or assign another
person to pay the taxes on his behalf.

Indirect Tax: It is defined as the tax levied not on the income, profit or revenue
but the goods and services rendered by the taxpayer. Unlike direct taxes, indirect
taxes can be shifted from one individual to another. Earlier, the list of indirect
taxes imposed on taxpayers included service tax, sales tax, value added tax (VAT),
central excise duty and customs duty. However, with the implementation of goods
and services tax (GST) regime from 01 July 2017, it has replaced all forms of
indirect tax imposed on goods and services by the state and central

Direct Taxes - Income Tax; Wealth Tax; Gift Tax; Capital Gains Tax; Securities
Transaction Tax; Corporate Tax

Indirect Taxes - Sales Tax; Goods & Services Tax (GST); Value Added Tax (VAT);
Custom Duty; Octroi Duty; Service Tax

Other Taxes - Property Tax; Professional Tax; Entertainment Tax; Education Cess;
Toll Tax; Registration Fees

A Financial Year (FY) is the period between 1 April and 31 March – the accounting
year in which you earn an income.

The Assessment Year (AY) is the year that comes after the FY. This is the time in
which the income earned during FY is assessed and taxed. Both FY and AY start on
1 April and end on 31 March. For instance, for FY 2020-21, the assessment year is
AY 2021-22.

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The difference between Financial year and Assessment year

Previous Year

In simple language, for the purpose of income tax or income tax return, terms
financial year and previous year are used interchangeably. So, the financial year
(FY) 2020-21 can also be termed as the preceding (previous) year (PY) 2020-21 &
the income of such year will become taxable in assessment year (AY) 2021-22.

Residential Status for Income Tax

The individual taxability of a person depends upon the residency status as per
Income Tax Act and it is not to be confused with an individual’s citizenship in
India. An individual may be citizen of the country but will be considered at non-
resident as per tax guidelines and vice versa.

For the purpose of income tax in India, the income tax laws in India classifies
taxable persons as:

A resident

A resident not ordinarily resident (RNOR)

A non-resident (NR)

The taxability differs for each of the above categories of taxpayers. Before we get
into taxability, let us first understand how a taxpayer becomes a resident, an
RNOR or an NR.

Resident - A taxpayer would qualify as a resident of India if he satisfies one of the

following 2 conditions:

Stay in India for a year is 182 days or more or Stay in India for the immediately 4
preceding years is 365 days or more and 60 days or more in the relevant financial
year

In the event an individual who is a citizen of India or person of Indian origin leaves
India for employment during an FY, he will qualify as a resident of India only if he
stays in India for 182 days or more. Such individuals are allowed a longer time
greater than 60 days and less than 182 days to stay in India. However, from the
financial year 2020-21, the period is reduced to 120 days or more for such an
individual whose total income (other than foreign sources) exceeds Rs 15 lakh.

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In another significant amendment from FY 2020-21, an individual who is a citizen
of India who is not liable to tax in any other country will be deemed to be a
resident in India. The condition for deemed residential status applies only if the
total income (other than foreign sources) exceeds Rs 15 lakh and nil tax liability in
other countries or territories by reason of his domicile or residence or any other
criteria of similar nature.

Non-resident

An individual satisfying neither of the conditions stated in (a) or (b) above would
be an NR for the year.

Taxability

Resident: A resident will be charged to tax in India on his global income i.e.
income earned in India as well as income earned outside India.

NR and RNOR: Their tax liability in India is restricted to the income they earn in
India. They need not pay any tax in India on their foreign income. Also note that in
a case of double taxation of income where the same income is getting taxed in
India as well as abroad, one may resort to the Double Taxation Avoidance
Agreement (DTAA) that India would have entered into with the other country in
order to eliminate the possibility of paying taxes twice.

Important Terminology related to Income Tax

Assessee: As per Income Tax Act 1961 section 2(7), an assessee is a person who is
liable to pay the taxes under any provision of the Income Tax Act 1961. Assessee
can also be a person with respect to whom any proceedings have been initiated
or whose income has been assessed under the Income Tax Act 1961.Assessee is
any person who is deemed assessee under any of the provisions of this act or an
assessee in default under any provisions of this Act.

TAN Number: TAN refers to Tax Deduction Number which is a 10-digit

alphanumeric number allotted to those who are liable to deduct TDS by the
Income Tax Department.

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 04 Other Financial Services Provided by Banks
Banks are permitted to undertake certain eligible financial services or para
banking activities either departmentally or by setting up subsidiaries. Para
banking activities, including bancassurance, depository service, insurance, MFs,
credit and debit cards, etc, have helped increase the reach of the banks and
brought a vast segment of the population into the fold of basic financial services.

Mutual Fund Business

A mutual fund pools money from many investors and invests the money in stocks,
bonds, short-terms money-market instruments, other securities or assets, or some
combination of these investments. The combined holdings the mutual fund owns
are known as its portfolio. Each unit represents an investor’s proportionate
ownership of the fund’s holdings and the income those holdings generate.

The function of Mutual Fund can be easily understood by the diagram given
below.

Salient Features of Mutual Funds

Professional Management – Money is invested through fund managers.

Diversification – Diversification is an investing strategy that can be neatly

summed up as “Don’t put all your eggs in one basket”. By owning shares in a
mutual fund instead of owning individual or bonds, the risk is spread out.

Economies of Scale – Because a mutual fund buys and sells large amounts of
securities at a time its transaction costs are lower than what an individual would
pay for securities transactions

Liquidity – Just like individual shares, mutual fund units are convertible into
money by way of sale in the market.

Simplicity – Buying a mutual fund unit is simple. Any bank has its own line of
mutual funds, and the minimum investment amount is small.

Investors should examine each of the above features carefully before investing in
mutual funds.

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Types of Mutual Funds

Each fund has a predetermined investment objective that tailors the fund’s assets,
regions of investments and investment strategies. At the fundamental level, there
are three varieties of mutual funds:

Equity funds (stocks)

Fixed-income funds (bonds)
Money market funds
All mutual funds are variants of these three asset classes. For example, while
equity funds that invest in fast-growing companies are known as growth funds,
equity funds that invest only in companies of the same sector or region are known
as specialty funds.

Mutual Funds can also be classified as open-ended or closed-ended, depending

on the maturity date of the fund.

Closed – Ended Funds

Closed-end funds run for a specific period.
On the specified maturity date, all units are redeemed and the scheme comes to a
close.

The units shall be listed on a stock exchange to provide liquidity.

Investors buy and sell the units among themselves, at the price prevailing in the
stock market.

Categorization of mutual fund schemes

In order to bring the desired uniformity in the practice, across Mutual Funds and
to standardize the scheme categories and characteristics of each category, SEBI
advised to categorize the open-ended MF schemes s given below. The Schemes
would be broadly classified into following groups:

Equity Schemes
Debt Schemes
Hybrid Schemes
Solution Oriented Schemes
Other Scheme

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Equity Schemes

Invest in shares and stocks:

Represent the largest category of mutual funds.

Investment objective is long-term capital growth with some income.

Many different types of equity funds because of the different types of investment
objective.

In equity schemes, a company is referred based on its market capitalization.

Market capitalisation is the value of the stock that you arrive at by multiplying the
stock price by the company’s outstanding number of equity shares. There are
three main classifications, viz., Large Cap, Mid Cap and Small Cap.

Large Cap: 1st – 100th company in terms of full market capitalization

Mid Cap: 101st – 250th company in terms of full market capitalization

Small Cap: 251st – company onwards in terms of full market capitalization

Debt Scheme

Invest in debt instrument of different maturities. This ensures regular income.

Hybrid Schemes

Invest in Equity and debt instruments depending on the objectives of the

schemes.

Solution Oriented Schemes

In case of Solution oriented schemes, there will be specified period of lock in.
Examples of fund in the scheme are:

Retirement fund scheme: An open ended retirement solution oriented scheme

having a lock-in of 5 years or till retirement age (whichever is earlier).

Children’s Fund: An open ended fund for investment for children having a lock-in
for at least 5 years or till the child attains age of majority (whichever is earlier).

Other Schemes: Examples of this Schemes are Index fund schemes and ETF.

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RBI guidelines on mutual fund business

Banks shall not undertake mutual fund business with risk participation except
through a subsidiary joint venture set up for the purpose.

Where a sponsoring bank undertaking the mutual fund business lends its name to
the bank sponsored mutual fund, a suitable disclaimer clause shall be inserted
while publicising new schemes to the effect that the bank is not liable or
responsible for any loss or shortfall resulting from the operations of the scheme.

Banks shall undertake agency business of mutual fund companies departmentally

subject compliance of the following additional conditions:

The investors’ applications for purchase/sale of mutual fund units shall be

forwarded to the mutual funds/registrars/transfer agents.

The purchase of units shall be at the customers’ risk without the bank
guaranteeing any assured return.

No mutual fund units shall be acquired from the secondary market or bought
back from a customer for selling it to other customers.

Extension of credit facility to individuals against the security of mutual fund units
shall be in accordance with the Master Directions on Credit Management.

A bank holding custody of mutual fund units on behalf of its customers shall keep
the investments of the customers distinct from its own investments.

Insurance Business

Insurance is a financial risk management tool in which the insured transfer a risk
of potential financial loss to the insurance company that mitigates it in exchange
for monetary compensation known as the premium.

Insurance policies are of different types depending on the risk they mitigate.
Broad categories include:

Health Insurance

Life Insurance

Asset Insurance

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Health Insurance

Health insurance is a contract between the insurance company and the insured
person to cover the medical cost that might arise from illness, accidental injuries,
surgeries and other medical complications. The Liberalization of the insurance
sector as well as the increasing demand for health insurance covers. specially from
the middle class, have given a fillip to the growth of health insurance and today
the sector is emerging as fastest growing segment in the non-life insurance
industry. These insurance companies provide individual as well as floater policies.
Group insurance are also in vogue.

Present players in Health Insurance Industry can be divided into 3 categories.

Standalone health insurance companies

Health Insurance from General insurance companies

Health Insurance from Life Insurance Companies.

Life Insurance Products

There are different Life insurance products offerings catering to the investment
needs and objectives of different kinds of investors. The broad categories of life
insurance products are:

Endowment Policies: An endowment policy is the life insurance agreement that

is mapped out to pay the lump sum after a specified term that is on maturity or
upon death. The typical maturities are 10, 15 or 20 years up to a specified age
limit. Moreover, in the case of any critical illness, the endowment policy also pays
out.

Term Insurance Policy: Term life insurance or term assurance is life insurance
that provides coverage at a fixed rate of payments for a limited period of time, the
relevant term.

Money Back Policies

Pension Plans

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Asset insurance

Many movable and immovable assets can be insured. It is the need of any bank to
protect the assets charged to it. These assets are to be safeguarded by covering
under insurance. Insurance on vehicles, machinery, livestock insurance etc. are
some of the examples. The Insurance Regulatory and Development Authority, an
agency of the Government of India, is the regulatory body for the insurance
sector’s supervision and development in India.

Cross Selling

Cross-selling is the action or practice of selling an additional product or service to

an existing customer. In practice, businesses define cross-selling in many different
ways.

Strategies for Effective Cross Selling

A robust customer database is foremost for effective cross-selling. The database is

the core on which the entire cross-selling strategy is built.

Based on the customer relationship history and the cross-selling model, a broad
mapping of the customer profile and retail products to be cross sold has to be
done.

The mapped data has to be sliced and diced to develop specific asset related
cross-selling information.

The cross-selling information has to be put in place for staff (internal customers)
to view and communicate to the target customer group.

The internal customers should be trained to effectively cross sell and convert the
initiatives into business.

Cross-selling is a team effort and success depends on the attitude and

involvement of all the staff concerned.

The success of cross-selling depends on offering at the right time, the relevant
product to customer. It will be a futile exercise to cross sell a product which is not
needed or relevant for the customer.

The strategy has to percolate from the corporate to the branch level based on
customer database across geographies.

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Dynamic feedback from the line level should be taken cognizance of for fine-
tuning/re-tuning the strategies.

Selecting the target customer group is essential for cross-selling success. Selling
the right product to the right customer improves the relationship.

Cross-selling is more relationship- than transaction-based. At any point of time,

the cross-selling initiative by the line staff should not be an irritant for the
customer.

Depository Services by Banks

With a view to adding value to banking services and making available the
numerous benefits of depository system to clients, some banks have been
offering DEMAT/Depository services through both the Depositories viz., National
Securities Depository Limited (NSDL) and Central Depository Services (India) Ltd.
(CDSL).

A “Depository” is a provider of the facility for holding and/or transacting securities

(like shares, debentures, bonds, government securities, mutual fund units, etc.) in,
book entry form.

Depository Participant

Depository Participant (DP) is an agent of the depository who is authorized to

offer depository services to investors and is registered as a DP with SEBI. Financial
institutions, banks, custodians, stockbrokers and other types of intermediaries
specified under SEBI (Depositories and Participants) Regulations, 1996, complying
with the requirements prescribed by SEBI/Depositories can be registered as DP.
An investor will always interact with a DP for the services and cannot directly
approach the depository for any services except for Redressal of Grievances.

Demat Account

Investing in equity shares in physical form entails a lengthy procedure, lot of

paperwork and risk of getting fake shares. In order to keep the entire experience
easy and streamlined, a demat account is required. While trading online, demat
account is used to hold shares and securities in dematerialised/electronic format.

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Facilities offered by a De-mat Account –

Transfer of shares and Loan facility

Dematerialization & re-materialization

Multiple access options

Corporate actions

Freezing De-mat accounts

Speed E-Facility

A Depository provides following services to investors through a DP:

Opening a de-mat account.

Dematerialization

Re-materialization.

To maintain record of holdings in the electronic form.

Facilitate settlement of trades by exchanges/Clearing corporations by

delivering/receiving underlying securities from/in Beneficial Owner (BO)
accounts.

Facilitate transfer of securities between BOs.

Receiving electronic credit in respect of securities allotted by issuers under

IPO or otherwise.

Receiving non-cash corporate benefits, such as, allotment of bonus and

rights shares or any other non-cash corporate benefits given by the issuers
in electronic.

Facilitate pledging of dematerialized securities.

Freezing of the de-mat account for debits, credits or both.

Subscription/Redemption of mutual fund units in de-mat form.

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Some Social Security Insurance Schemes

PM Jeevan Jyoti Bima Yojana Scheme (PMJJBY)

This scheme is a one-year Insurance Scheme, and it offers life insurance cover for
death due to any reason. The plan would be offered/administered through LIC
(Life Insurance Corporation of India) and other Life Insurance companies willing to
provide the product on similar terms with the required approvals and tie-ups with
Banks for this purpose.

PMJJBY can be availed by the people who fall under the age group of 18 to 50
years ( life covers up to age 55) and have a savings bank account. Interested
people who give their consent to join and enable auto-debit can avail of the
benefits of this scheme.

A life cover of Rs. 2 lakhs is available under the PMJJBY scheme, at a premium of
Rs.330 per annum per member, and is renewable every year. If someone has a
joint account, all the account holders can join the scheme, provided they meet its
eligibility criteria and agree to pay the premium at the rate of Rs.330 per person.

Benefits: ₹2 lakh is payable on member’s death due to any cause.

Premium: ₹ 436/- per annum per member.

Appropriation of Premium:

Insurance Premium to LIC/insurance company: ₹289/- per annum per member

Reimbursement of Expenses to BC/Micro/Corporate/Agent: ₹30/- per annum per

member.

Reimbursement of Administrative expenses to participating Bank: ₹11/- per

annum per member

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Pradhan Mantri Suraksha Bima Yojana (PMSBY)
Pradhan Mantri Suraksha Bima Yojana is a government scheme launched on 9th
May 2015 by PM Narendra Modi. It intends to provide an affordable insurance
scheme for the poor and underprivileged people in the age group of 18 to 70
years with a bank account at a premium of Rs.12 per annum; risk coverage of Rs.2
lakh for accidental death and full disability and Rs.1 lakh for partial disability.

Benefits of Pradhan Mantri Suraksha Bima Yojana

Pradhan Mantri Suraksha Bima Yojana (PMSBY) provides an insurance policy to

the people belonging to the underprivileged sections of society. The scheme is
administered by insurance companies from both the private and public sectors.
Some of the benefits provided by the scheme are mentioned below:

The Pradhan Mantri Suraksha Bima Yojana offers a life cover of Rs. 2 lakhs for one
year to all its account holders. This life cover is provided in case of accidental
death or permanent disability.

A life cover of Rs. 1 lakh is provided to the beneficiary in case of partial disability.

This scheme can be availed by any individual aged between 18 years to 70 years.

In case of the death of the account holder, the benefits of the scheme can be
availed by his/her nominee.

The scheme provides an annual premium of Rs. 12 per annum per member. This
premium is auto-debited in one instalment on or before 1st June of every year.

Eligibility for Pradhan Mantri Suraksha Bima Yojana

Any individual must follow the below-mentioned criteria to be eligible for the
Pradhan Mantri Suraksha Bima Yojana:

Any individual aged between 18 years to 70 years are eligible to apply for the
scheme.

He/she must have a bank account along with their phone number linked to the
account.

The individual should submit their Aadhaar details while applying for the scheme.
This Aadhaar details will be linked with their bank account.

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If any individual has multiple bank accounts of one or different banks, then he/she
will be eligible to join the scheme through one bank account only. In the case of a
joint account, the scheme benefits can be availed by all the bank account holders.

In the case of an NRI beneficiary, the claim benefits will only be provided to the
nominee in Indian currency.

Factoring
Factoring implies a financial arrangement between the factor and client, in which
the firm (client) gets advances in return for receivables, from a financial institution
(factor). It is a financing technique, in which there is an outright selling of trade
debts by a firm to a third party, i.e. factor, at discounted prices.

Type of Factoring

Recourse and Non-recourse Factoring: In this type of arrangement, the financial

institution, can resort to the firm, when the debts are not recoverable. So, the
credit risk associated with the trade debts are not assumed by the factor.

On the other hand, in non-recourse factoring, the factor cannot recourse to the
firm, in case the debt turn out to be irrecoverable.

Disclosed and Undisclosed Factoring: The factoring in which the factor’s name is
indicated in the invoice by the supplier of the goods or services asking the
purchaser to pay the factor, is called disclosed factoring.

Conversely, the form of factoring in which the name of the factor is not
mentioned in the invoice issued by the manufacturer. In such a case, the factor
maintains sales ledger of the client and the debt is realized in the name of the
firm. However, the control is in the hands of the factor.

Domestic and Export Factoring: When the three parties to factoring, i.e.
customer, client, and factor, reside in the same country, then this is called as
domestic factoring.

Export factoring, or otherwise known as cross-border factoring is one in which

there are four parties involved, i.e. exporter (client), the importer (customer),
export factor and import factor. This is also termed as the two-factor system.

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Advance and Maturity Factoring: In advance factoring, the factor gives an
advance to the client, against the uncollected receivables.

In maturity factoring, the factoring agency does not provide any advance to the
firm. Instead, the bank collects the sum from the customer and pays to the firm,
either on the date on which the amount is collected from the customers or on a
guaranteed payment date.

Atal Pension Yojana (APY)

The Government of India has announced a new scheme called Atal Pension
Yojana (APY). APY is a guaranteed pension scheme and is administered by the
Pension Fund Regulatory and Development Authority (PFRDA).

There is an option of getting a fixed pension of Rs 1000, Rs 2000, Rs 3000, Rs

4000, or Rs 5000 on attaining an age of 60. The pension will be determined based
on the individual’s age and the contribution amount. The contributor’s spouse can
claim the pension upon the contributor’s death, and upon the death of both the
contributor and his/her spouse, the nominee will receive the accumulated corpus.
However, if the contributor dies before completing 60 years of age, the spouse
can either exit the scheme and claim the corpus or continue the scheme for the
balance period.

APY Features

Guaranteed monthly pension for subscribers, ranging from Rs. 1,000 to Rs. 5,000
per month.

Government of India (GoI) will also co-contribute 50% of the subscriber’s

contribution or Rs. 1,000 per annum, whichever is lower.

The Government co-contribution is available for those who are not covered by
any Statutory Social Security Schemes and is not an Income Tax payer.

Eligibility

APY is applicable to all citizens of India aged between 18 – 40 years

KYC compliant Bank account is mandatory for this product

@@@

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 List of Books compiled by The Banking Tutor
So far the following Books are compiled by me which can be shared by any one
free of cost, without any permission from me or without any intimation to me.

Book No Title

01 Banking Jargon - Vol 01

02 Alerts - Vol 01

03 Forex - Vol 01

04 Banker and Legal Enactments - Vol 01

05 Banker and Financial Statements

06 Confusables – Vol 01

07 Banking Jargon - Vol 02

08 ABC (Awareness of Basics of Credit)

09 The Can Support_2020

10 The Core Support_2020

11 The Sundries_2020

12 The Soft Support

13 Management of W C Limits

14 The Notes_2021 (for Promotion Test)

15 Confusables - Vol 02

16 Banking Information

17 Banking Jargon - Vol 03

18 Bankers and Court Verdicts - Vol 01

19 Inland Bank Guarantees

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20 The Dirty Dozen

21 SPA (Not related to Banking)

22 Banks - Supporting Agencies - Vol 01

23 Banking Jargon - Volume 4

24 Banks - Supporting Agencies - Vol 2

25 Banks - Supporting Agencies - Vol 3

26 JAIIB Notes - PPB

27 JAIIB Notes - LRB

28 JAIIB Notes – AFB

29 CAIIB Notes – ABM

30 CAIIB Notes – BFM

31 Confusables - Vol 03

32 Banking Jargon - Vol 05

33 The Banking Regulations & Business Laws (BRBL)

34 Accounting & finance for Bankers

35 Bank Financial Management

36 Retail Banking & Wealth Management

37 Concepts for Credit Professional - OT

38 Advance Business Management

39 Principles & Practice of Banking

40 Indian Economy & Indian Financial System - OT

41 Concepts for Credit Professional - Notes

42 Less Known Forex Terminology

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43 KYC & AML – Notes & MCQ

44 Treasury Management - Objective Type

45 Treasury Management - Notes

46 Indian Economy & Indian Financial System - Notes

47 MSME -Notes

48 MSME – Objective Type

49 Banking Jargon – Volume 06

50 50 Essays in Practical Banking

51 Promotion 2022

52 Basics of Bank Audits

53 The Shortens

54 Recap TIN 2022

55 NumLogEx

56 Basic Statistics for Bankers

57 JAIIB IE & IFS - Module A : Indian Economic Architecture

58 JAIIB IE & IFS - Module B : Economic Concepts Related to Banking

59 JAIIB IE & IFS - Module C : Indian Financial Architecture

60 JAIIB IE & IFS - Module D : Financial Products and Services

61 Banking Jargon – Volume 07

62 JAIIB – PPB – Module A - General Banking Operations

63 JAIIB 2023 – IE & IFS – Objective Type

64 JAIIB Notes 2023 - PPB - Mod B - Functions of Banks

65 JAIIB Notes 2023 - PPB - Mod C - Technology and Mod D - Ethics

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66 JAIIB 2023 – PPB – Objective Type

67 JAIIB 2023 – AFM - Notes

68 JAIIB 2023 – AFM – Objective Type

69 JAIIB 2023 – RBWM - Notes

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 My Activity
I am sharing the following in my WhatsApp Groups (The Banking
Tutor), Telegram Group of The Banking Tutor ; TBT Exam Corner
and Blog (The Banking Tutor - TBT).

1. One Point related to Banking & Finance Daily (Daily Point).

Started on 16-09-2019, so far shared 1322 points without any
break.

2. Once 3 days (on 3rd, 6th, 9th ,12th….) one Lesson on Banking
& Finance (Banking Tutor’s Lessons - BTL), started on 06-09-
2018, so far shared 538 lessons.

3. Monthly Last day - TIN - Terms in News (related to Banking &

Finance). Started on 28-02-2021, so far shared 26 issues.

4. Monthly First Day – Recap of Daily Points shared during the

previous month.
5. Sharing lessons for IIB Exams and Promotion tests of various
Banks daily in Telegram Group “TBT- Exam Corner” (earlier Name
of this Group is “TBT JACA”)
My mail id – paritiss@gmail.com ;

WhatsApp +91 94406 41014

Banking Tutor Blog – https://thebankingtutor.blogspot.com/
29-04-2023 Sekhar Pariti

+91 9440641014

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