Retail banking

1. RETAIL BANKING
AND OTHER
RELATED
ISSUES
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2. BACKGROUND
The Global Financial Crisis has proved to be landmark event in the
history of finance. The scale of the crisis is unprecedented in the sense
that it has affected all economies of the world in some form or other.
The regulatory reforms unleashed in the wake of the crisis globally have
aimed at making the financial sector a more stable arena. The first and
foremost of these measures have sought to curb the high-risk activities
undertaken by the investment/wholesale banking divisions of the banks
through structural measures for controlling SYSTEMIC RISKS.
The crisis also highlighted a heightened need for INCLUSIVE GROWTH
as a means to ensure FINANCIAL STABILITY.
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3. EVOLUTION OF BANKING
1.Initial Phase:
Provision of saving facilities , credit for productive purposes and also
facilitate payment services including remittances.
2. Intermediate phase:
During this phase, the banks additionally moved into lending for
CONSUMPTION PURPOSES. The banks also started offering certain
PARA BANKING SERVICES like insurance etc. The demand for such
services arises primarily on account of a transition of the economy from
an investment (PRODUCTION) led growth phase to a CONSUMPTION
led growth phase.
At this stage of development of the economy and the society, RETAIL
BANKING becomes relevant.
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4. 3. Advanced Phase:
Banks have started providing additionally
High-end savings and investment products
Wealth Management Products
Structured products to Individuals and Corporates.
Private banking, an advanced version of Retail Banking for
CLASSES becomes relevant at this stage. Even SPECULATIVE
ACTIVITES over and above Production and Consumption
activities are funded by banks.
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EVOLUTION OF BANKING

5. What Exactly is Retail Banking ?
Retail banking refers to Provision of banking products and services
offered to
INDIVIDUAL CUSTOMERS, typically
NON-ENTERPRENEURIAL PURPOSES.
Retail banking involves offering of products both sides of the Balance
Sheet.
Additionally Retail banking also involves offering of credit cards ,
depository services and other para banking products and services viz
Insurance products, capital market products, etc to individuals.
Thus, retail banking services broadly corresponds to the banking
services provided in the INTERMEDIATE PHASE OF Evolution of Banking.
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6. Retail Banking products
Liabilitie
s
Wealth
Management
Assets
Fee Based Income
Home Loan
Educational Loan
Vehicle Loans
Personal Loan
Savings Accounts
Current Account
Time Deposit

7. Bank level Challenges 1
1.Presence of an EFFICIENT DELIVERY MECHANISM:
The banks should be able to deliver the products and services to the
customers in
SAFE, SECURE, PROMPT
AND COST EFFECTIVE MANNER by
leveraging technology.
The banks can bring down their cost of service delivery, if and only if they
are able to improve
OPERATIONAL EFFICIENCY.
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8. 2. Appropriateness of the product and services
for the customers.
Rather than focussing on Net worth of the
customers , the banks would have to inculcate a
habit of listening to their customers and
building analytics based on this interaction
supported by income levels.
.
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Bank Level Challenges 2

9. 3.PRICING Has to be reasonable,
transparent, uniform across a class.
There should not be any discrimination
among the borrowers when the loan
product and its features are common.
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Bank Level Challenges 3

10. Housing Loans:
Lowest Risk Asset Class
• Mortgaged based lending
• Income based credit approach
• The most basic necessity of a Man
• Everyone wants a Roof to secure his
family, so he will not default.
• Sentimental value
• Less litigations
• Easy to Repossess and realise
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11. 1. Enhanced Clientele.
2. Improved Net Interest Margin
3. Subdued volatility
4. Evening out Credit Risk
5. Customer Retention and cross selling
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Housing Loans:
Why do Banks like this ?

12. 1.Shifting social and demographic patterns in
the country
2.The cultural and economic diversity
3.The growing population
4.Urbanisation
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What Drives Housing ?

13. 5.Nuclearisation of families
6.Education
7.Consistent increase in income levels
8.Second income in the Family
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What Drives Housing ?

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15. 1.Detailed Pre-sanction inspection including visit
without giving prior information to the applicant.
2.Pre-sanction inspection report should be prepared
in the format prescribed and kept on record.
3.During Pre-sanction inspection, the branch
official must cross verify the information submitted by
the applicant with respect to his identity, residence,
employment / business and property to be purchased.
Due Diligence
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16. PRESANCTION ACTIVITIES 1/2
1. KYC guidelines should be very meticulously and
should be made on relative documents and kept on
record.
2. Independent enquiries from the employer in
respect of salaried person about employment status
and salary should be made.
3. No middleman should be entertained for any
retail credit proposal
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17. 4. In case of applicants other than salaried persons,
the original taxpayer’s copy of challans of tax
deposited should be verified to ascertain genuineness
of Income Tax Returns and also the assessment orders
for earlier years.
Housing proposals of the persons, who have filled their
income tax returns of last three years in one lot,
should not be entertained.
5. In cases, where the status of the employment as
well as the employer is doubtful, the branches should
discourage considering loans to such persons.
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PRESANCTION ACTIVITIES 2/2

18. EXECUTION OF DOCUMENTS
- POWER OF ATTORNEY
The POA to be executed abroad shall be attested
by the office of embassy of the concerned
country.
❖ On receipt of duly executed POA in India the
same is required to be adequately stamped within
90 days from the date of receipt in India and same
should be got registered with the Registrar of
Assurances to make it enforceable till its
revocation.
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19. ❖Matter should be referred to the Legal advisors along with
copy of POA for examination and authority to get the
documents executed by the POA.
❖ Letter of confirmation from the Donor of POA to be
obtained that power given by him / her is valid and has not
been revoked as on date.
❖Branch to confirm the Donor of POA about the execution of
documents by the POA holder.
❖Signature of the principal to be obtained on all documents on
first available opportunity.
❖The attorney / agent should also be a major and of sound
mind
EXECUTION OF DOCUMENTS
- POWER OF ATTORNEY
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20. Take over of Loans
Ø The disbursement of the loan should be made
directly to the institution and their receipt kept along
with the loan documents.
Ø The amount of loan may include the outstanding
balance, foreclosure fee payable to existing Bank, if any
and stamp duty for creation of equitable
mortgage in your Bank's favour subject to margin,
income and repaying capacity criteria.
Ø All other collaterals charged to the previous
institution from whom the loan is being taken over
should also be made available as security to our Bank.
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21. What is the limit for housing loans under priority sector?
Loans to individuals up to ₹ 35 lakh in metropolitan centres
(with population of ten lakh and above) and loans up to ₹
25 lakh in other centres for purchase/construction of a
dwelling unit per family, are eligible to be considered as
priority sector provided the overall cost of the dwelling unit
in the metropolitan centre and at other centres does not
exceed ₹ 45 lakh and ₹ 30 lakh, respectively. Housing loans
to banks’ own employees are not eligible for classification
under priority sector
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Priority Sector Classification:
as per RBI as on 19th June 2018

22. Priority Sector Classification:
Loans for repairs to damaged houses : Up to Rs.2/-
lac in rural semi urban, urban and up to Rs 5/- lacs
in metropolitan areas.
Loans to any government agency for construction of
houses subject to ceiling of Rs. 10 Lakh per house /
dwelling unit for weaker sections or slum clearing.
Education Loan upto Rs 10 lacs, irrespective of the
sanctioned limits will be covered under Priority
Sector .
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23. High Volume Low Value
A Large number of accounts in a particular branch consumes
lot of time of the entire team in monitoring the portfolio.
Follow up in SMA accounts becomes almost Fulltime job of
the branch manager and his team.
This affects concentration of the team on further business
growth of the branch .
Many times the high volume becomes disincentive for the
branches.
Branch Level Challenges
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24. Staff:: Both number and Experience
Retail borrowers, especially HNIs are sensitive.
Branch should have adequate staff to attend them .
Experienced staff members are able to score better.
Quality of discussion and speed are the real challenge at branch level.
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Branch Level Challenges

25. 1. Large data base to be scrutinised /
monitored.
2. Increased administration costs with narrow
margin
3. Constraint on Staff Recruitment:
Cost versus Profitability
Sensitivity to reputation – may result in Run
on business
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26. GOING AHEAD
1. ONE OF THE FOCUS AREAs OF ALL BANKS
2. FOR CONTINUING RELATIONSIP TO NEXTGEN
3. FOR AUGMENTING FEE BASED INCOME
4. FOR BUSINESS GROWTH UNDER LOW INTENSITY HIGH FREQUENCY MATRIX
5. FOR CONSERVING RISK WEIGHTED CAPITAL
6. SCOPE FOR ITFACILITATED APP, PROCESSING AND MONITORING.
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29. RECAP
1. Evolution of Banking: Three Phases
2. What exactly is Retail Banking
3. Bank Level Challenges
4. Due Deligence/ Presanction Activities
5. Documentation/Builder/POA
6. Take over of loans
7. Priority Sector Norms
8. Branch Level Challenges
9. Merits, Demerits and Constraints
10. Going Ahead
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