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 Purchase of laptop, computer or other electronic equipments etc.

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 acquired out of the borrowings.

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 extended by them

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

towards the loan.

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 borrower’s age, value of the property and the

lending institution’s 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.

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 Dep’t.

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

tours, project work, thesis, etc.

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 study abroad.

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 stipulates such requirement.

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.

Educational Loan

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 per cent

for secondhand vehicles is insisted

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, harassment or use of muscle power for recovery.

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 Indian’s Accounts Non-resident External (NRE) Account Non-resident Ordinary (NRO) Account Foreign Currency Non-resident (FCNR) Account Resident Foreign Currency (RFC) Account Exchange Earners’ Foreign Currency (EEFC) Account Escrow 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

Dematerialisation also eliminates bad deliveries.

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 Foreman’s 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 members to meet their financial requirements.