Professional Documents
Culture Documents
Banking Sector in India
Banking Sector in India
Banking Sector in India
The Indian banking has come from a long way from being a sleepy business institution to a highly
proactive and dynamic entity. This transformation has been largely brought about by the large
dose of liberalization and economic reforms that allowed banks to explore new business
opportunities rather than generating revenues from conventional streams (i.e. borrowing and
lending). The stalwarts of India's financial community nodded their heads sagaciously when Prime
Minister Manmohan Singh said in a speech: "If there is one aspect in which we can
confidentially assert that India is ahead of China, it is in the robustness and soundness of our
banking system." Indian banks have been rated higher than Chinese banks by international rating
agency Standard & Poor's.
The competition heated up with the entry of private and foreign banks.deregulation and
globalization resulted in increased competition that refined the traditional way of doing business.
They have realized the importance of a customer centric approach, brand building and IT
enabled solutions. In the fierce battle for market share and mind share, the most potent weapon is
a strong, well recognized and trusted brand name. Brands attract and convince people that they will
get what is promised. Banking today has transformed into a technology intensive and customer
friendly model with a focus on convenience. The companies have redoubled their efforts to woo
the customers and establish themselves firmly in the market. It is no longer an option for a
company to provide good customer service, it is expected.
Reforms are continuing as part of the overall structural reforms aimed at improving the
productivity and efficiency of the economy. The sector is set to witness the emergence of financial
supermarkets in the form of universal banks providing a suite of services from retail to corporate
banking and industrial lending to investment banking. The financial services market has become a
battle ground with the marketers with the latest and the most sophisticated weapons.
Currently overall, banking in India is considered as fairly mature in terms of supply, product
range and reach-even though reach in rural India still remains a challenge for the private sector
and foreign banks. Even in terms of quality of assets and capital adequacy, Indian banks are
considered to have clean, strong and transparent balance sheets-as compared to other banks in
comparable economies in its region.
The Indian banking industry is currently in a transition phase. On the one hand, the public sector
banks, which are the mainstay of the Indian banking system, are in the process of consolidating
their position by capitalizing on the strength of their huge networks and customer bases. On the
other, the private sector banks are venturing into a whole new game of mergers and acquisitions to
expand their bases. The use of technology has placed Indian banks at par with their global peers. It
has also changed the way banking is done in India. ‘Anywhere banking’ and ‘Anytime banking’
have become a reality. The financial sector now operates in a more competitive environment than
before and intermediates relatively large volume of international financial flows.
The introduction of Basel II norms from 2009 and the fair level playing field that will be available
to foreign banks from 2010 will further enhance the solidarity of the Indian banking sector and
open new avenues for consolidation and the increased competition will ensure that in the end the
Customer is the king.
The Reserve Bank of India act as a centralized body monitoring any discrepancies and
shortcoming in the system. It is the foremost monitoring body in the Indian financial sector. The
nationalized banks (i.e. government-owned banks) continue to dominate the Indian banking
arena. Industry estimates indicate that out of 274 commercial banks operating in India, 223
banks are in the public sector and 51 are in the private sector. The private sector bank grid also
includes 24 foreign banks that have started their operations here. Under the ambit of the
nationalized banks come the specialized banking institutions. These co-operatives, rural banks
focus on areas of agriculture, rural development etc.,
The Reserve Bank of India is an autonomous body, with minimal pressure from the government.
The stated policy of the Bank on the Indian Rupee is to manage volatility-without any stated
exchange rate-and this has mostly been true.
With the growth in the Indian economy expected to be strong for quite some time-especially in its
services sector, the demand for banking services-especially retail banking, mortgages and
investment services are expected to be strong. M&As, takeovers, asset sales and much more action
(as it is unravelling in China) will happen on this front in India.
With the credibility of the Indian banking system on a high, a number of Indian banks are now
leveraging it to expand overseas. State Bank of India, the country’s largest bank has acquired 76
per cent stake in a Kenyan bank, Giro Commercial Bank, for US$ 7 million. Canara Bank is
helping Chinese banks recover their huge non-performing assets (NPA).
To meet the challenges of going global, the Indian banking sector is implementing internationally
followed prudential accounting norms for classification of assets, income recognition and loan loss
provisioning. The scope of disclosure and transparency has also been raised in accordance with
international practices. India has complied with almost all the Core Principles of Effective Banking
Supervision of the Basel Committee. Some Indian banks are also presenting their accounts as per
the U.S. GAAP. The roadmap for adoption of Basel II is under formulation.
Credit Tree Of A Bank
Bank
the retail segment of the bank forms a major part of its portfolio. All the banks try their best to
penetrate further int o the market to enhance their profitability. With the rise in disposable incomes
in the past few years, there is a huge scope for banks to actually give more credit to the people.
Housing loans constitute a major part of the lending in the retail segment. Banks like ICICI and
HDFC have two third of their retail segment in the housing loans.
Importance Of Bank Credit In A Nation’s Progress
A healthy and sound banking sector is considered as one of the pillars of economic progress. Bank
credit gives impetus to the process of economic development. It helps all the sectors of the
economy namely- manufacturing, services, small and medium enterprises, rural sector, and
agriculture. Budding entrepreneurs, distressed farmers, big corporates, local shopkeepers and
sometimes even the government look towards the banks when it comes to financing needs.bank
credit pushes up the spending capacity of the public by making loans easily available and this
gives a boost to the aggregate demand which in turn leads to a rise in national income This can be
explained with the help of an example:
Final Consumer
We can take the example of a car manufacturer say Maruti Udyog Ltd. MUL will depend on bank
for financing its working capital needs, expansion policy etc. so bank plays an important role in the
manufacturing of cars. Once manufactured, these cars will move to a dealer. There is always a
possibility of that dealer having taken a loan from a bank for setting up his showroom. When the
customer comes to buy a car, the bank also provides loan to that customer for purchasing the car.
So the above example clearly illustrates how a bank helps in creating value in the economy by
advancing loans and circulating money, there are many such examples which will establish the
importance of banks in an economy.
Types Of Loans
There are two types of loans available when you go for taking a loan:
Usually, fixed rate loan have a higher rate of interest than the floating rate of interest. This is
because the bank can not hedge his position with respect to a fixed rate loan in case the rate of
interest rises, whereas floating rate loans are linked to market rate of interest. So, they charge a
lower rate of interest in this case.
The rising interest rates have slowed down the growth in the retail segment . it has led to
increase in EMIs for most of the loans. In some cases EMIs have risen as much as Rs 2000.
one of the reasons for RBI taking stringent measures is because there is a fear of retail
bubble in the real estate market due to easily availability of home loans. RBI has taken a
series of measures, ranging from raising its key policy rates to risk weightage on loans
extended to retail sector, to moderate the credit growth of banks. RBI has been
uncomfortable with banks' excessive lending to retail segment, especially the housing sector.
With increased competition from foreign banks from 2010, the banking sector will see lot of
consolidation through Mergers and acquisitions. The competition will heat up further and the
banks would be vying for market share in the retail segment loans.
CAR LOANS
Almost all the banks- whether public or private offer car loans/loans on two wheelers/loans on
consumer durables. different banks lend on different rates and terms and conditions. To obtain a
loan, a customer first of all has to fill an application form provided by the bank which contains
details regarding the amount of loan required, repayment capacity of the customer etc. The bank
then processes the application form and decides whether the loan should be approved or not and
how much amount should be lent. The amount that is finally lent depends upon the repayment
capacity of the customer.
Appraisal of Loans
1. The loan is given upto a maximum of 85% of the value of the car. Sometimes the loan may
be for the amount of the purchase but this depends upon the policies adopted by different
banks
2. Minimum age for taking a car loan is 21 years and the maximum age is either 60 years or
the retirement age, whichever is earlier
3. While giving the loan, the banker takes into account the repayment capacity of the
applicant. The amount of loan granted depends upon the repayment capacity only. In
arriving at the repayment capacity, the bank takes into account the annual income of the
applicant, his assets and liabilities.
The assets include:
Savings in banks
Accumulated EPF/GPF
Units of UTI/Mf
National savings certificates/LIC Policies
Shares and Debentures
Immovable Property
Other assets
The liabilities may include:
Outstanding loan from bank
Outstanding loan from employer/relatives etc
Outstanding loan from co-operative society
In case the applicant has any outstanding loan from any of the above mentioned sources, this will
affect his repayment capacity.
Clubbing of incomes
In case of an applicant where more than one person is working, their incomes can be clubbed
together to decide the repayment capacity of the applicant.
Suppose an individual’s loan eligibility, based on his income, works out to approximately Rs
1,000,000 for a given set of criteria. But the individual wants a loan worth Rs 2,000,000. Assume
that this individual’s spouse too is earning a similar annual income. In such a case, the individual
can club his spouse’s income alongwith his own income and then opt for a home loan. The
eligibility in this case, will be calculated on the clubbed income of both husband and wife- thereby
enhancing the individual’s eligibility to the extent of the spouse’s income. In our example, the
eligibility will now stand doubled at Rs 2,000,000 from Rs 1,000,000 earlier.
a. Primary security: the asset itself is the primary security. In case of car loans, it is
known as Hypothecation of vehicle. The registration card of the vehicle will
contain the condition that the vehicle has been hypothecated to a bank.
5. Documents required:
o Statement of bank accounts for the last 16 months
o Signature of identification from bankers of borrowers/guarantor
o A copy of voter ID card/passport/pan ID card
o Proof of residence
o Latest salary slip showing all deductions and TDS certificate in case of
salaried persons
o Copy of Income tax Returns for last two financial years
o Proof of official address for non-salaried persons
6. Disbursement
7. Processing Fee
The processing fee varies between 0.5%-2% depending upon different banks. Sometimes there
is a complete waiver of processing fee under special schemes.
8. Pre-Payment charges
Usually, public sector banks don’t charge anything on the pre-payment of loans but private
bank charge a penalty on the pre-payment of loans. The penalty is usually charged as a fixed
percentage on the amount of principal outstanding.
HOME LOANS
DOCUMENTS REQUIRED
1. SALARIED CUSTOMERS
If a company
i. List of directors and shareholding pattern
ii. Annual return of the company
iii. Memorandum/Articles of association
If partnership firm
i. Partnership deed
ii. Audit report of the concern.
Sanction letters of all the term loans along with their repayment schedule.
Guidelines For Analysis
Age Norms
Minimum age of the applicant must be 21 years.
Maximum age of the applicant must be either 65 years or the age of retirement.
Income Norms
For salaried income must be greater than Rs. 9000 per month.
For self employed professionals gross income must be greater than Rs. 60000 per annum.
For self employed non professionals gross income must be greater than
Rs. 60000 per annum (in retail) and
Rs. 100000 per annum (in non retail)
Loan Tenure
For salaried customers 20 years
For self employed professional 20 years
For self employed non professional 15 years
Loan Amount
Minimum loan amount 1 lacs
Maximum loan amount 300 lacs
For salaried
o Income between- 9000-25000, FOIR is taken as 50%
o Income >25000, FOIR is taken as 55%
Rate Of Interest
Bank Statements
Bank statements are analyzed for cheque bounces, minimum balance charges and stop
payments.
Minimum number of cheque bounces permitted is two.
Minimum number of stop payments permitted is three.
The statements are also checked to track the repayment track of the existing loans.
Other than the above mentioned norms the following norms are also kept into consideration while
checking the credentials of the customer and checking for his eligibility :-
Listing out the documents necessary which are not given by the applicant though
essential to determine his/her eligibility for the loan and to ensure the credibility of
the applicant.
Calculating the eligibility of the applicant i.e. the amount of loan which can be given
to them. The eligibility of an applicant depends upon:
The gross income of the individual
Age of the individual
Age at maturity of the loan
Number of dependents
Assets and liabilities of the applicant
Stability of income
Continuity of occupation
Repayment record of existing loans
Repayment capacity of the applicant
Analysis of the bank statements to check the number of cheque bounces and the
number of atop payment charges. Bank statements are also used to track the regular
debits from the accounts by way EMI on loans. This is done to have an overall view
of the repayment track record of the applicant
In case of self employed professionals and self employed non professionals the
financial statements are also analyzed to track the growth rate of profits and sales.
Ratio analysis is done to analyze prospects of the firm/company/concern.
Information about the company is also acquired from the debtors, creditors and
clients.
Disbursement Of Loan
The process of disbursement begins after the loan has been sanctioned in favor of the applicant.
After sanctioning of the loan -
• Loan is called upon for disbursal when required.
• A representative visits the customer and collects legal documents, loan documents and
PDC’s.
• All the legal documents are checked by a lawyer.
• A site engineer visits the property to verify the stage of construction and analyse the market
value of the loan.
• Lastly a disbursement cheque is prepared which is delivered to the client.
1. Credit Appraisal
It contains all the terms of sanction i.e. the amount sanctioned, the tenure of the loan, the
rate of interest, the type of interest, type of EMI, credit appraisal memo detailing out the
eligibility of the applicant.
2. Technical Appraisal
It details out the market value of the property, the stage of construction, the total area of the
property.
3. Legal Appraisal
It contains all the legal documents relating to
• Loan agreement
• Declaration
• Promissory note
• Power of attorney
Fundamentals
1. All properties originate from authorities like:
a. Individuals
b. Societies
c. Builders
d. Pseudo authorities
Major Documents
Pre-Disbursal Documents:
Pre-Disbursal Documents:
Pre-Disbursal Documents
Freehold Property
Leasehold Property:
ü Agreement to sale
ü Agreement for fixtures and fittings /Cost Estimate (if applicable)
ü Transfer memorandum order
ü Empanelled Lawyers Title confirmation report
ü Letter from the purchaser to NOIDA/Greater Noida for recording charge of ICICI on the
property duly acknowledged by the authority concerned
REPAYMENT OF LOAN
1. Post Dated Cheques: they are collected in lots of 36 PDCs and 60 PDCs in case of NRIs.
2. Deduction at source: a certificate of deduction at source must be given.
Funding of loan
Home Loan
In case of direct allotment ICICI funds 85% of the market value subject to conditions.
In case of resale ICICI funds
85% of the market value, if cost of property ≥ market value.
If cost of property < market value, 100% of cost of property subject to 80% of market
whichever is lower.
Land Loan
ICICI funds 75% of cost of property subject to 75% of market value whichever is lower.
Here,
• Cost of property (COP) includes = Agreement value
+Stamp duty
+Furniture and fixtures
• Agreement value or white value refers to the cost of property as per the agreement.
• Stamp duty varies from on the basis of location of the property.
• Furniture and Fixtures generally is up to 20% in case of home loans and if it exceeds 20%
and rages from 20% to 50% then such disbursal is termed as Market Value Lending
(MVL).
• Market value refers to the value of the property assessed in the technical.
Technical requirement
PROCESS OF DISBURSAL
1. Verifying the documents submitted by the applicant.
2. Checking matches of the said property by filling a property dedup.
3. Preparing the following documents are prepared by disbursal executive:
Disbursal memo:
A disbursal memo points out all the loan details including :-
Type of loan
Amount of loan
Processing fees charged
Amount of loan disbursed till date
Details of the property
Mode of payment chosen by the applicant,
Cost of the property,
Market value of the property as estimated by the technical agency
POP sheet
It details out the list of documents required at the time of disbursement, the documents
received and verified, the documents to be demanded at OTC and post disbursal.
OTC
OTC stands for Over The Counter. It lists out the documents which are demanded at the
time the cheque is handed over to the customer.
PERSONAL LOANS
Often in our life needs outweigh our means. So in order to fulfill these needs substantial funds may
be required. Such funds are provided by different banks (both public and private) in the form of
Personal loan schemes at different rate of interest and terms and conditions.
PURPOSE
PROCESS
Personal loans are provided by almost all the banks (public or private) at different rate of interest
and terms and conditions. A customer can obtain a personal loan through the following steps:-
1. First of all the customer needs to fill an application form provided by the bank which
contains details regarding –
• The amount of loan required
• The purpose for which the loan is required
• The monthly/annual income of the person
• The length of his service
• Whether any house is owned by him and other assets owned
• Other liabilities in brief, etc.
2. Certain essential documents listed by the bank should be submitted by the customer along
with the application form.
3. The bank then processes the application form and decides whether the loan should be
approved or not.
4. The bank then calculates the eligibility of the applicant i.e. the amount of loan which can
be given to him. The eligibility of the applicant depends upon:-
• The gross income of the individual
• Age of the individual
• Assets and liabilities of the applicant
• Repayment capacity of the applicant
Appraisal Of Loans
ELIGIBILITY:
2. DOCTORS / DENTIST:
Eligibility Minimum Maximum
Amount (INR) Rs 50,000 Rs 10,00,000
Repayment Months 12 months 60 months
Age 25 yrs 65 yrs (At end of loan)
Requirements Current residence : Either owned or 12 months
Total medicine practice : 24 months
Bank account : 6 months
Phone ownership : Required
Total work experience : 24 months
Minimum required : Rs 90,000 per year
3. PROFESSIONALS:
Repayment Capacity
The bank grants the loan to the applicant depending upon his repayment capacity. The amount of
loan to be given also depends upon the repayment capacity of the applicant. In order to determine
the repayment capacity of an applicant, the bank takes into account the annual income of the
applicant, hid assets and liabilities.
DOCUMENTS REQUIRED:
2. Age proof.
5. Copy of Ration card / Telephone bill / Passport / Voters I – card for proof of residence.
10. Copy of IT return for last two years, duly acknowledged by ITO with computation of
income, for Professionals.
11. Last six months Bank Statement of the account where salary is credited by employers.
SERVICE CHARGES:
SECURITY:
The maximum amount of loan that can be granted without any Collateral security:-
Collateral security –
We need collateral security such as LIC Policy, NSC, KVP, IVP, landed property etc. in case the
loan amount is more than Rs. 50,000.
Rs.1 lacs depending upon different income groups.
ELIGIBILITY:
FEES:
INTEREST RATES:
UNIQUE FEATURES:
In the last year the RBI has exercised considerable control over the interest rates. RBI has
raised CRR and SLR twice which has led to hardening of interest rates in the retail and
corporate sector. Most of the banks have raised their rate of interest on loans from 100 to 200
basis points.
The rising interest rates have slowed down the growth in the retail segment . it has led to
increase in EMIs for most of the loans. In some cases EMIs have risen as much as Rs 2000.
one of the reasons for RBI taking stringent measures is because there is a fear of retail
bubble in the real estate market due to easily availability of home loans. RBI has taken a
series of measures, ranging from raising its key policy rates to risk weightage on loans
extended to retail sector, to moderate the credit growth of banks. RBI has been
uncomfortable with banks' excessive lending to retail segment, especially the housing sector.
With increased competition from foreign banks from 2010, the banking sector will see lot of
consolidation through Mergers and acquisitions. The competition will heat up further and the
banks would be vying for market share in the retail segment loans.