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Asset based Retail Financial Services

Asset-based Retail Financial Services


Personal Finance Consumer Finance Residential Mortgage Backed Securities Reverse Mortgage Educational Loan Automobile Loans

Discounting/ Purchase of Cheques


Mortgage Loans Certification Services Cash Management Services Venture Capital Finance

Personal Finance

Banks and financial institutions extend personal loans to individual customers for personal purposes such as:
Purchase of shares of the company under ESOP Scheme,

Housing
Holiday Travel Purchase of car Education Purchase of property Loan to pensioners Loan against shares or debentures, Celebrating festivals Medical treatment

Buying vehicles,
Loan to teachers, Loan to persons working in the armed forces Renovation of house

Marriage in the family

Personal Finance

The scheme differs from bank to bank The amount of loan falls within the range of Rs.20000 to Rs.15

lakhs depending on the salary income of the borrower


The loan has to be repaid by Equated Monthly Installments (EMI). Interest rate varies from bank to bank

The period of loan varies from 12 months to 60 months.


The borrower should have sufficient monthly income to meet the EMI

Generally, personal loans are unsecured except in cases where the loans have been availed for acquisition of assets.

Personal Finance

Banks insist collateral securities in the form of deposits, National Savings Certificates, LIC Policy, land property etc.

Banks also accept third party guarantees


The guarantor/s should have monthly income sufficient to meet the EMI

Many banks now prefer co-obligants instead of guarantors.


Co-obligants are treated as co-borrowers as such have equal liability whereas in the case of guarantors, the liability falls on them only if the borrower defaults. Banks are now availing the services of recovery agents for collection of dues in respect of personal loans.

Consumer Finance

Banks extend finance for purchasing consumer durables such as TV, music system, washing machine etc. The borrower has to provide a margin of 10 to 25 per cent Cost of equipment is paid directly to the suppliers

Repayment of loan in EMI


Period of loan generally varies from 12 months to 48 months. Collateral security is generally in the form of co-obligant/ guarantor

Consumer Finance

Interest rate is quoted as certain percentage above PLR

Interest rate varies from bank to bank


Loans are available at fixed rate as well as floating rate at the option of the borrowers

Some banks collect post-dated cheques to cover the installments.


Generally banks establish a tie up with the employing organisations and extend loans under group guarantee scheme in which case the EMI is deducted from the monthly salary of the employee.

Banks also require the borrower to insure the assets

Housing Finance

Financial assistance is extended to purchase of land, construction of house, purchase of constructed house, flat etc.

Additional loans are given for repairing/ renovation as well as for repayment of finance availed from other sources for construction/ acquisition of house.
Commercial banks, housing finance companies, co-operative banks, housing finance subsidiaries of banks etc. are extending housing finance. Since 1988, National Housing Bank (NHB) is regulating the housing finance in India The financial institutions extending housing finance is required to register with NHB and NHB refinances the housing finance

Housing Finance

NHB also extend housing finance under the Home Loan account scheme through financial institutions registered with them

Under Home Loan account scheme, a borrower has to initially open a savings account with the designated branch of a commercial bank/co- operative bank and continue to remit in this account up to a minimum period of

5 years

The loan amount is fixed as 1.5 times of the amount remitted to the account or Rs.2 lakhs which ever is higher.

The amount remitted in the account constitutes the margin

Housing Finance

The borrower should be above 21 years of age and below 65 years. Some banks permit even up to 70 years Amount of loan depends upon the repaying capacity of the borrower. Generally repayment period is fixed so as to liquidate the loan before the borrower retires. However, if sufficient proof for regular income is produced, period above 60 years is also considered on a case to case basis. Repayment is by EMI. Some banks have entered into agreement with large companies for granting housing loan to their employees under group guarantee scheme in which case the company deducts the EMI

from the salary and remits to the bank

Housing Finance

Security for the loan is the house property/flat purchased out of the loan.

Generally, banks do not insist on collateral securities, but they


insist on the spouse joining as co-obligant. The interest rate can be fixed rate of floating rate at the option of the borrower Banks insist on insuring the house against natural calamities like earthquake, flood, fire etc. Considering the national priority on housing, banks have set apart a portion of their funds to be deployed as housing loan. Banks and financial institutions extend housing finance to the people belonging to poor and weaker sections under priority

sector as a part of their social commitment.

Residential Mortgage Backed Securities (RMBS)

RMBS is a process of securitisation of housing loan installments introduced at the initiative of NHB. The primary lender (Originator) sells the pool of housing loan mortgages to a Special Purpose

Vehicle (SPV).

SPV converts these mortgages into tradable financial instruments known as Residential

Mortgage Backed Securities.


NHB guarantees the RMBS. RMBS is a source for fee based income

Reverse Mortgage

Reverse Mortgage is a facility introduced by the Government of India to extend financial assistance to aged senior citizens who

are in their last leg of their life and do not have dependents to
look after them.

The scheme is offered to persons above 62 years owning residential property and living alone. Under this scheme, the residential property is mortgaged to a bank which releases funds to the borrower monthly. Unlike the mortgage loans, there is no monthly repayments, instead the financial institution will pay the borrower monthly. The borrower and spouse can continue to stay in the house The maximum period of the loan is 15 years.

Reverse Mortgage

If the borrower survives beyond 15 years, the bank will stop the monthly payments, but will permit him/her to continue to stay in the house. The loan can also be availed in lump sum according to the financial needs of the borrower In the event of the demise of the borrower, the bank will allow the spouse to continue to stay in the house and the periodical payments will be made to the spouse till the expiry of the maximum period or death of the spouse whichever is earlier. After the death of the last survivor, the bank will sell the mortgaged house and liquidate the loan. The balance if any will be given to the legal heir. The borrower, if so desired, can prepay the loan without paying any penal interest.

Reverse Mortgage

NHB is extending refinance facility to Housing Finance Companies/banks against the Reverse Mortgage NHB also guarantee the periodical payments to the senior citizens by the banks/HFCs. The loan need be repaid only after the death of the last survivor or sale of the borrower or the borrower moving out of the house permanently. The loan amount depends on the borrowers age, value of the property and the lending institutions interest rate. The valuation of the mortgage property is done based on actuarial calculations and revalued every 5 years. The property should be free from all encumbrances. Borrower can use the loan amount for repair/renovation of the house, medical expenses etc. The borrower has to pay the insurance premium and property taxes.

Educational Loan

The student should be an Indian National

He/she should have secured admission to


professional/ technical courses through entrance test or other selection processes or should have secured admission to foreign universities

He/she should have scored minimum of 60 per cent

mark (50 per cent for SC/ST) for the qualifying


examination.

Educational Loan

Eligible courses in India are School education including plus 2 stages, Graduation courses: BA, B.Com. B.Sc., etc., Post Graduation courses: Masters & Ph.D, Professional courses: Engineering, Medical, Agriculture, Veterinary, Law, Dental, Management, Computer etc., Computer certificate courses of reputed institutes accredited to Dept. Of Electronics or institutes affiliated to university, Courses like ICWA, CA, CFA etc., Courses conducted by IIM, IIT, IISc, XLRI, NIFT etc. The courses should be approved by UGC/ Government/ AICTE/ AIBMS/ICMR etc.

Job oriented professional/technical courses and graduation courses conducted by reputed universities abroad, post graduation like MCA, MBA, MS etc. and courses offered by CIMA in London and CPA in USA are also eligible for financial assistance.

Educational Loan

The expenses considered for financial assistance include:


Fee payable to college/school/hostel Examination /Library/Laboratory fee. Purchase of books/equipments/instruments/uniforms Caution deposit/building fund/refundable deposit supported by institution bills/receipts Travel expenses/passage money for studies abroad Purchase of computers essential for completion of the course. Any other expense required to complete the course like study

Educational Loan

Amount of finance depends on the course requirements and repayment capacity of the parents/students subject to a maximum of Rs.7.5 lakhs for study in India and Rs.15 lakhs for study abroad. Up to Rs. 2 lakhs, no security is insisted whereas 100 per cent collateral security is insisted in the case of loans above Rs. 2 lakhs. Collateral security can be in the form of third party guarantee also.

Banks charge PLR for loans up to Rs.2 lakhs and PLR + 1% for loans above Rs.2 lakhs
No margin for loans up to Rs. 2 lakhs and 15% margin for loans above Rs.2 lakhs for study in India and 25% for

Educational Loan

Loans are sanctioned and disbursed from the branch nearest to the place of domicile of the student Generally payment is made directly to the University/institute by demand draft. The loan has to be repaid within a period of 5 to 7 years. The repayment starts one year after completion of the course or 6 months after getting a job whichever is earlier. Extension of course period up to a maximum of 2 years is permitted in deserving cases.

The simple interest is debited to the loan account during the


moratorium period and penal interest at the rate of 2 per cent is charged if the loan becomes overdue.

Educational Loan

Parents can remit the interest during the moratorium period in which case a concession of 1% to 2% is allowed in the interest rate. The amount outstanding after the moratorium period is divided into equal monthly installments which has to be remitted by the student Banks collect periodical progress reports from the University/institute. No processing fee or charges are levied upfront. Banks also issue solvency certificate based on supporting documentary evidence to the students in the case of study abroad where the University/Institute

Educational Loan

Banks collect an affidavit/declaration in lieu of No

Due Certificate from other banks.

As per the extant guidelines, applications for loans up to Rs.25000 have to be disposed of with in 14 days and those above Rs.25000 have to be disposed of with in a period of 8 to 9 weeks.

Banks are empowered to relax norms regarding eligibility, security, margin etc. in deserving cases.

Automobile Loans

Banks extend loans to purchase of new/ second hand vehicles less than 3 years old

Loans are granted to persons above 18 years and employed in central/state government, public sector undertakings, private companies, reputed organisations, educational institutions etc.
The loan amount depends on the repayment capacity of the borrower, but generally restricted to 3 times of the net income/ net salary or Rs.10 lakhs which ever is lower. A margin of 20 to 25 per cent for new vehicles and 50

Automobile Loans

Loans granted for purchase of two wheelers and four wheelers The repayment is by way of EMI Interest rate varies from bank to bank Banks also levy processing fee The dealer reimburses the processing fee in the case of four wheelers where there is a tie-up arrangement with

the bank.

Primary security is the vehicle. Banks register their hypothecation charges with the licensing authority who

note down the charges the vehicle licence

Automobile Loans

Generally guarantee by the spouse is accepted as collateral security. Where the borrower is unmarried, third party guarantee is accepted. Banks also grant automobile loans against group guarantee scheme under tie-up arrangements with reputed companies. The repayment period is 60 to 84 months in the case of four wheelers and 36 to 60 months in the case of four wheelers.

Many banks have entrusted the follow-up and recovery to agents and there are complaints against these agents due to the unfair practices resorted by them. RBI has now warned the banks against any unfair practices,

Purchase/ Discounting of Cheque

Banks purchase/ discounts outstation cheques deposited by customers and credit the proceeds to the account before the cheque is realised. Generally third party cheques only are discounted/ purchased. Banks discourage discounting/ purchase of cheques drawn from the account of the customer. Banks collect interest for the period from the date of advance to the date of realisation of the cheque and postages Banks extend credit against the uncleared local cheques to known customers.

Purchase/ Discounting of Cheque

In view of the risk involved in purchase/ discounting of cheques, certain precautionary measures are followed by the banks:

This facility is extended to only regular and known customers Generally, banks discourage opening of accounts with the proceeds of cheques discounted unless the customer is well known to them In the case of high value cheques the drawee branch is contacted to confirm balance Discounting of self-cheques are generally discouraged.

Mortgage Loans

Banks provide loan/overdraft facility against mortgage of property at low rate of interest to people engaged in trade, commerce and business and also to professionals and self employed, proprietorship concerns, partnership firm, companies, NRIs and individuals with high net worth including salaried people, agriculturists and staff members. Rate of interest is generally at BPLR with monthly rests and concession of 0.25% per annum is allowed to women beneficiaries. Period of loan is generally 8 years. The repayment starts from the next month of final disbursement of 6 months from the date of first disbursement whichever is earlier

Mortgage Loans

Loans are given to meet the following purposes:

To meet the credit needs of trade, commercial activity, other general business, profession as also for their bonafide requirements, To meet marriage or medical or educational expenses of family members including near relatives, To undertake repairs/renovation/extension to the residence/commercial property, purchase of consumer durables,

To purchase/construct house/flat, purchase of plot,


To purchase 2/4 wheeler vehicles, For going on pilgrimage/tours/excursions, etc,

Repayment of existing loans from other Banks/FIs.

Deposit Schemes

Savings Bank Account Current Account

Term Deposits
Cumulative Term Deposits

Cash key

Recurring
Non-resident External (NRE) Account

Non-resident Indians Accounts


Non-resident Ordinary (NRO) Account


Foreign Currency Non-resident (FCNR) Account Resident Foreign Currency (RFC) Account

Exchange Earners Foreign Currency (EEFC) Account

Deposit Schemes

Foreign Currency Accounts of Airline/ Shipping Companies Foreign Currency Accounts of Overseas Companies

executing Projects in India


Foreign Currency Accounts of Overseas Buyers Foreign Currency Accounts of Foreign

Embassies/Missions/Diplomats

The opening and operations of Non-resident accounts and the foreign currency accounts are subject to the

rules and regulations issued by Reserve Bank of India


from time to time. These rules and regulations are published in the Exchange Control Manual, Volume No. I

which is available in the website of RBI.

Deposits under National Savings Schemes

The governmental initiative in promoting savings was started in 1834 when the first savings bank was established in Calcutta. The Government Savings Act was passed in 1873 The Post office Savings Bank Account came into existence in 1882 The Government District Savings Bank Account was merged with Post office Savings Bank Account in 1886 The National Savings Organisation was created in 1948 The Constitution of India adopted in 1949 contains a list

of Post Office Savings Bank in the Seventh Schedule

Deposits under National Savings Schemes

The Government Savings Certificates Act was passed in 1959

The Public Provident Fund Act was passed in 1958 The National Savings Fund was established in 1999

NSO was subsequently changed into NSI which introduced


savings schemes such as:

National Savings Certificates Kisan Vikas Patra Post Office Monthly Savings Account

15 Year Public Provident Fund Account

Demat Accouts

Banks open Demat accounts in the name of clients holding shares

Only banks who are Depository Participants under the Depositories Act can maintain Demat Accounts
The shares are held with National Securities Depository Limited in electronic form The banks issue a pass book to the client showing the number of shares outstanding in his/her name. The client can draw cheque for transferring the shares to another account upon sale of shares Dematerialisation enables the investors in shares to save the stamp duty payable for transfer of shares

Chitties and Nidhis

Chitties and Nidhis are conducted by Miscellaneous Non-banking Companies.

A chitty is a rural form of pooling the savings of individuals and lending


The institution/ person organising/ promoting the chitty is known as Foreman The period of a chitty ranges from 25 to 50 months. The monthly subscriptions are quoted in fixed denominations ranging from Rs.500 to Rs.10000. High value chitties with subscriptions of Rs.50000, Rs.1000000 etc. are offered very rarely

The members can subscribe to a full ticket or half ticket.

Chitties and Nidhis


The aggregate value of subscriptions is known as Sala The members are known as Chittals

Every month the pooled fund is put for auction or prized subscriber is decided by lot. Some chitty companies have auctions and bids in alternate months If more than one member bids for the same amount, the winner will be decided by lot
A winning subscriber will get the total funds pooled minus the Foremans commission, fixed interest and other incidental expenses. The winning subscriber has to provide securities in the form of deposits, National Savings Certificate, LIC policy, property etc. to cover the future liability

Chitties and Nidhis

Personal guarantees of persons having the stipulated monthly income also are accepted

The subscriber can also deposit an amount equivalent to the future liability out of the prize money and discharge the certificate in favour of the Foreman.
All chitties are to be registered with the Registrar of Chitties and Kuries by filing an application known as Thala Variola and remitting the prescribed fee. Nidhis are also a similar form of savings where individual savings are pooled and the pooled fund is lent to the member who need it through bidding/lot process. While larger firms are registered, small units functions in villages in the unorganized sector and assist their

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