1. Prof. B. B. Bhattacharyya
Welingkar Institute of Management Development & Research

2. QUESTIONS
1. What are Liability Products important
for ?
2. An illiterate customer approaches a Bank
Manager for opening a Savings Account
jointly with another illiterate person. What
would be the Bank’s response ?
3. What is a Demand Loan?
4. Name three factors that go into
determination of a retail asset’s tenor.

3. QUESTIONS
7. Can credit card be called a Retail Asset
Product?
8. What are the basic differences between a
retail loan and corporate loan?
9. What is a Term Loan?
10.Any maximum period for which a fixed
deposit account can be opened?

4. Drivers of Growth
• Economic prosperity – increase in
purchasing power
• Changing consumer demographic
• Technological forces
• Retail’s share of impaired assets lower
and hence necessitate lower provision

5. Demand Deposits
• Deposit received by a bank withdrawable
on demand.
Demand Deposits
SB :
Cannot be opened
in the name of any
business concern
except those
specifically
permitted.
CD :
Individual, partnership firm,
companies, associations,
Institutions,Trusts, Societies

6. Time Deposits
• 7 days to 120 months
• Interest rate
• Premature withdrawal
• Loan against deposit

7. Recurring Deposits
• 6 moths to 120 months.

8. Liabilities
• Savings Account
• Current Account
• Term Deposit
• Recurring Deposit
• KYC Requirements
• Non-Resident Deposit
• Deposit Insurance

9. Importance of Liability Products
• Form the largest source of funds for banks
• Low cost funding source
• Large base reduces risk of sudden withdrawal
• Grow customer base
• Get ready data available for customers through
account balances and account conduct
• The CASA ratio of a Bank is a strong indicator of
the cost of funds & stability of deposit base

10. Types of Customers
– Individuals – Illiterate, V.C.P, Mentally
Retarded
– Trust Account
– HUF
– Clubs,Committees,Associations,Co-operative
Societies, Govt. Offices,
Proprietary Concerns
– Partnership Firms
– Company Accounts

11. • Minimum balance criteria
• Interest – on daily product basis
• Withdrawal
• Transfer of Account
• Joint Account
• Minor Account
• A customer Mr. X opens a Savings
Account with a Bank with Rs. 5 lacs and
Bank allows interest @ 7 % p.a. whereas
Mr. Y opens a Savings Account also with
Rs.5 lacs and Bank allows @5% p.a..
What would be your response ?

12. Savings account – Basic Features
• For individuals
• Funds can be transferred to and from
the account – includes cheque book
facility
• Detailed statement of transactions are
issued to savings bank account holders
• Garnishee order

13. Current account – Basic Features
• Can be opened by
– Any individual attaining majority
– Two or more individuals in joint names
– HUFs
– Sole proprietorships
– Partnership firms
– Private / Public limited companies
– Clubs, Societies
– Trusts
– Other Govt bodies, local authorities

14. Current account – Basic Features
• Facilitates regular transactions: Funds
can be transferred to and from the
account – includes cheque book facility
• Does not bear interest
• Detailed statement of transactions are
issued to current account holders

15. Term Deposit Accounts
• Can be opened by anyone who can open a SB or
current a/c.
• Fixed tenure accounts
• Rate of Interest – depends on tenor, for 1 year
and above is usually higher than SB rates
• Tenor ranges from 7 days to max. 10 years
• TD > 20,000 cannot be made by cash deposit.
Requires either a transfer from Current / Savings
account OR by way of Demand Draft
• Premature Withdrawal
– Possible by paying the same rate of interest or 1%
lower than the originally contracted rate

16. Recurring Deposit Accounts
• Fixed amounts deposited on a monthly
basis
• Minimum monthly deposit amount – Rs.
100
• Tenor – 6 months to 10 years
• Rate of interest – similar to FDs for
similar maturities
• Premature withdrawal – possible like for
FDs
• Savings scheme for long term

17. Recurring Deposits
 In case of delay by the depositor to make
monthly instalment, penalty is levied on
the delayed deposit at the rate of Rs. 1.5 /
100 per month for deposits upto 5 years
and Rs. 2 / 100 per month for deposits > 5
years

18. Non Resident Savings / Current A/cs
 Can be opened by Non-resident Indians
 Can be opened jointly with another NRI
 Remittances from abroad in permitted
currencies

19. FCNR Deposits
• Can be opened only by NRIs & kept in term
deposits for fixed periods
• Can be opened jointly with another NRI
• Deposits can be opened in specified foreign
currencies – usually USD, Euro, Pound, Jap
Yen, Aus Dollar, Can. Dollar
• Tenor – 1 to 5 years
• Premature withdrawal possible but with 1%
penalty
• Rupee loans can be taken by the depositor in
India against security of the deposits
• Foreign currency loan can be availed abroad
against security of FCNR deposits

20. CERTIFICATES OF DEPOSIT
 Negotiable
money market
instrument
 Min Rs. 1 lakh
and in multiples
of Rs. 1 lakh,
 Period not less
than 7 days/ not
more than 1 year
 Issued at
discount
 Transferable by
endorsement
and delivery
September 25, 2014 20

21. Assets
• Term Loan
• Demand Loan

22. CHARACTERISTICS OF RETAIL LOAN
 Loans / Credit Facilities to individuals and / or
small business needs
 Small ticket size - Granular
 Usually in the form of EMI repayment / Some
monthly repayment
 Higher spreads as compared to corporate
loans

23. IMPORTANCE OF RETAIL LOANS
• Help service the financing requirements of
individuals for consumption / asset
purchase
• Strengthening relationship with retail
customers who help build balances
• Granular in nature – Bank risk is spread
across large number of accounts
• Facilitate sale of other consumer products

24. REQUIREMENTS FOR RETAIL LOANS
• Regular needs of individuals - Investment
– Consumer durables / electronics
– Two Wheeler / Car
– House
– Shops / Land / Other Assets
– Education for children

25. RETAIL LOANS – UNSECURED
 Based on monthly income / credit history
 Credit Cards
 Personal loans

26. RETAIL ASSET - PRODUCTS
• Daily needs of individuals - Consumption
– Purchase of grocery
– Purchase of garments / accessories
– Purchase of fuel – petrol / diesel
– Payment for tickets for travel – Air / Rail /
Hotel
– Payment of electricity, telephone, water, gas,
etc bills
• Retail Asset Product - Credit Card

27. RETAIL ASSET - PRODUCTS
 Consumer durables /
electronics
 Two Wheeler
 Car
 House
 Education
 Shares / Financial assets
 Gold
• Durable loan /
Personal loan
• Two Wheeler Loan
• Car Loan
• Housing Loan
• Educational loan
• Loan against shares
• Gold loan

28. RETAIL ASSET - PRODUCTS
• Commercial Vehicles
– Trucks
• Other property /
shops
• Contingency
requirements for
individuals / small
businesses
• Commercial Vehicle
loans
• Loan against property
• Personal loans /
Business Loans /
Business Cards

29. RETAIL ASSET – HOW IS TENOR
DETERMINED ?
• Useful life of the asset
• Size of the loans
• Regular Income – repayment capacity
• Credit history / track record

30. RETAIL ASSET – TENOR / AMOUNT
• Tenor of loans – Asset Based
– Asset life
• Consumer Durables – 1-2 years
• Car – 2-5 years
• House – 10-20 years
• Tenor of loan – non-asset based
– Value of loan – repayment ability assessment
– Cost of servicing & income potential for the
bank
– Personal Loan – 2-3 years ;

31. RETAIL ASSET – TENOR / AMOUNT
• Amount of loan – Asset based
– Cost of Asset: Cost of consumer durable or
Two wheeler is very low as compared to Cost
of House
– Immovable / movable asset
– Registration / identification / location of
movable asset
• Amount of loan – non-asset based
– Determination of need
– Credit assessment of individual

32. FACTORS AFFECTING PRICING
Portfolio Size 1,00,00,00,000 1,00,00,00,000
Average Loan size 10,00,000 40,000
# of loans for Rs. 100 crs. 1,000 25,000
Hours of processing / case 24 4
No. of mandays @ 8 / day 3 0.5
Cost / manday 2000 2000
Cost / loan 6000 1000
Total cost for Rs. 100 crs. 60,00,000 2,50,00,000
Avg loan tenor (yrs) 10 2
Amortised approval / disbursement costs 6,00,000 1,25,00,000
Annual Interest income @ 5% NII 5,00,00,000 5,00,00,000
Earnings to Bank 4,94,00,000 3,75,00,000
Profit Margin 4.9% 3.8%
Maintenance / collection costs 0.1% 2.5%
Expected Delinquency 1% 4%
Profit Margin - post losses 3.8% -2.7%

33. FACTORS AFFECTING PRICING
All figures in Rs except where specified Home Loan Two Wheeler loan TW loan - revised
Portfolio Size 1,000,000,000 1,000,000,000 1,000,000,000
Average Loan size 1,000,000 25,000 50,000
# of loans for Rs. 100 crs. 1,000 40,000 20,000
Hours of processing / case 24 4 4
No. of mandays @ 8 / day 3 0.5 0.5
Cost / manday 2000 2000 2000
Cost / loan 6000 1000 1000
Total cost for Rs. 100 crs. 6,000,000 40,000,000 20,000,000
Avg loan tenor (yrs) 10 2 4
Amortised approval / disbursement costs 600,000 20,000,000 5,000,000
Annual Interest income @ 5% NII 50,000,000 50,000,000 50,000,000
Earnings to Bank 49,400,000 30,000,000 45,000,000
Profit Margin 4.9% 3.0% 4.5%
Maintenance / collection costs 0.1% 2.5% 2.0%
Expected Delinquency 1% 2% 2%
Profit Margin - post NPAs 3.8% -1.5% 0.5%

34. Factors Influencing pricing of retail products
• Size of the portfolio – economies of scale
• Average ticket size of loan
• Time / cost for processing a loan
• Average loan tenor
• Maintenance cost of loan
• Loan delinquency levels

35. Comparison of retail asset
products
Retail Asset Prodt Home
Loan
Auto
loan
TW
loan PL
Avg. Ticket Size (Rs. Lacs) 10.0 3.0 0.3 2.0
Average Tenor (yrs.) 10 4 2 3
Loan processing time
/ Cost (H / M/ L) H M M H
Maintenance cost L L M L
Delinquency (%) 0.5-1 1-2 2-3 3-4
Cr.
Cards
0.5
Cont.
L
H
5 +

36. Key Success Factors for Retail Asset Business
• Strong Process Orientation for loan processing
• Large distribution for selling products across
geography – direct or arrangements
• Identification of the right segments to target – e.g.
salaried segment in PL have lower delinquency
• Relevant underwriting skills e.g. for a Home loan
business, the underwriters must have sound
knowledge of property related title documents &
valuation of property

37. Key Success Factors for Retail Asset Business
• Credit Rating models for quick, efficient and
consistent credit dispensation
• Standardization of documentation
• Strong monitoring on delinquencies & feedback
mechanism from monitoring into credit appraisal
parameters
• Strong collections support for managing
delinquencies

38.  Drug smuggling/
trafficking
 Money laundering
 Terrorism
 If you are to build a
relationship you should
know all about the
customer.
Therefore no account
should be opened unless
the customer has been
introduced properly.
September 25, 2014 38

39. A CUSTOMER IS:
 A person or entity that
maintains an account and/
or has a business
relationship with the bank.
 One on whose behalf an
account is maintained.
 Any person/ entity
connected with a financial
transaction which can pose
significant reputational or
other risks
September 25, 2014 39

40. What is KYC?
 KYC exercise is aimed at preventing Banks
from being used for purposes of money
laundering by criminal elements. Banks
undertake this exercise carefully to verify
identity of customers.

41. Are all customers subject to KYC?
• Yes. Every individual willing to have any
business relationship with the bank i.e.
any type of account, locker, benefits on
account of financial transactions,
remittance, loan facility etc. needs to
comply with KYC.

42. What is the Legal Banking for KYC?
• Section 35A of the B.R. Act, 1949 and
Rule 7 of the P.M.L.R., 2005. Any
violation could attract penalty.

43. What if somebody cannot
submit address proof?
• Such person need to submit an identity
proof along with an utility bill of the relative
with whom the willing customer is staying
along with a declaration from the relative
confirming the fact.

44. Under what circumstances can
KYC norms be relaxed?
• Customer belonging to low income group,
under financial inclusion, can open an
account with an introduction from another
account holder who has complied with
KYC procedure. But the total balance in
the account must not exceed Rs.50,000/-
and all credits in the account must not
exceed Rs.1 lakh a year. Introducer’s
account must be 6 months old.

45. THE RBI States:
• KYC must be the key principle for
identification of an individual/
corporate for opening an account. This
would entail verification:
– Thro’ an introductory reference from an
existing account holder
– Thro’ a person known to the bank.
– On the basis of documents provided by the
customer.
September 25, 2014 45

46. INTRODUCTION
• Account to be
introduced by
someone known to
Bank.
• Person must know the
client – Wolfgang
Mueller Case
• No protection if
negligent (section 131
of NI act)
• If introducer does not
come send thank you
letter
September 25, 2014 46

47. Key Elements of KYC
 Customer Acceptance
Policy.
 Customer
identification
Procedures
 Monitoring of
tranactions
 Risk Management
September 25, 2014 47

48. CUSTOMER ACCEPTANCE
POLICY
• RBI states banks must have this and it should
include:
– No account opened in anonymous/ fictitious names
– Parameters of risk perception
– Documentation to be collected
– That account not opened/ closed where bank unable to
apply appropriate customer due diligence.
– Spelling out where a customer may act for another.
– Checks to ensure identity of customer does not match with
that of known criminal.
September 25, 2014 48

49. • HOWEVER:
– Information sought should not be
intrusive.
– Information provided is confidential and
divulging details for cross selling or any
other purpose would be in breach of
customer confidentiality obligations.
September 25, 2014 49

50. CUSTOMER IDENTIFICATION PROCEDURE
• Banks must obtain sufficient information to
satisfy themselves on the person’s identity. This
means banks must be able to satisfy competent
authorities that due diligence was observed.
• For natural person there must be sufficient
identification data to verify identity, address,
location and photo.
• KYC must be done for existing customers too.
September 25, 2014 50

51. TRANSACTION MONITORING
• Ongoing monitoring is an essential.
• Must check transactions that fall outside the
regular pattern of activity.
• Look at complex/ unusually large
transactions.
• Maintain record of all transactions of
suspicious transactions + cash transactions
(deposits and withdrawals) of Rs. 10 lakhs
and above.
• Freeze suspicious accounts.
September 25, 2014 51

52. KYC and RBI
• PAN numbers for Demand Drafts
• DDs, TCs etc of Rs. 50,000 or more not
to be given on cash.
• Photographs of customers must be
procured
• Transactions of suspicious nature to
be reported
September 25, 2014 52

53. KYC Guidelines
• Identity
• Address Proof
• Occupation
• Source of Income
• PAN

54. KYC Norms for opening A/cs
• Documents for customer identity – Passport,
Voter ID, Driving license, PAN Card, any
other identity card to bank’s satisfaction
• Documents for address proof – Bank a/c
statement from another bank, telephone bill,
electricity bill, ration card, letter from existing
employer, letter from recognized public
authority, ST / Service Tax / Professional Tax
certification / registration documents for
proprietor

55. WHAT IS MONEY LAUNDERING?
September 25, 2014 55

56. A broad definition
• Transfer of earnings from illegal
businesses like drug peddling and
extortion into a seemingly legitimate
front company.
• Using legitimate money to fund
terrorism or other such activities
(reverse money laundering)
September 25, 2014 56

57. What is the extent?
• Globally estimated to be:
• Between $590 billion and $1.5 trillion
annually.
• This is 2% to 5% of global GDP
• In India estimated at 40% of GDP but
this includes black money also.
September 25, 2014 57

58. MONEY LAUNDERING
• Activity not consistent with customer’s
business
• Unusual activities
• Attempts to avoid reporting or record
keeping requirements
• Customer who provides insufficient or
suspicious information.
• Certain bank employees
• Changes in Bank transactions
September 25, 2014 58

59. Money Laundering Process
• STRUCTURING
It is a placement of funds in fictitious
accounts.
• LAYERING
It is a process of transferring the same
through series of complex transactions so
as to confuse the audit trail.
• INTEGRATION
It is a mingling of the illegal property with
legitimate property.

60. Provisions of “The Prevention of
Money Laundering Act 2002”
• Sec.2 (p) of the Act defines Money Laundering
as “Whoever has anything to do with the
proceeds of crime and projects such proceeds
as untainted property commits the offence of
money laundering”.
• Sec.12 – very important for the banks. It
provides that the Banks and Fis and all
intermediaries in capital markets associated with
SEBI Act must maintain records of Cash and
Suspicious transactions as may be prescribed
by rules formed under this Act.
Contd..

61. • It also provides that the banks must
maintain the documents of identity proof of
all clients.
• Sec.24 – provides that when the bank or
the person is accused of money
laundering the onus of providing otherwise
shall lie on the person so accused.