Q1.

Retail bank has different distribution channels to facilitate customers and give him
different options to use banking services. This choice helps the customer to choose the
channel he deems fit at that point of time. Explain the different channels and also explain
why banks are discouraging customers to visit branch for financial transactions.

Answer: Introduction
Automated Teller Machines (ATMs) or through virtual retail banking known as online banking.
The typical products offered in the Indian retail banking segment are housing loans,
consumption loans for purchase of durables, auto loans, credit cards and educational loans. The
loans are marketed under attractive brand names to differentiate the products offered by
different banks. The loans are generally Retail banking entities provide a wide range of
personal banking services, including offering savings and checking accounts, bill paying
services as well as debit and credit cards. Through retail banking, consumers may also obtain
mortgages and personal loans. Although retail banking is, for the most part, mass market
driven, many retail banking products may also extend to small and medium-sized businesses.
Today much of retail banking is streamlined electronically via for duration of five to seven
years, with housing loans granted for a longer duration of 15 years or more. Credit card is
another rapidly growing sub-segment of this product group.

Concept and application

Multiple channels in retail banking

Branch Office: Highly personalized interaction will most likely lead to more upscale version
of this channel in the banking strategies of the future. One of the main advantages of branch
office that you can meet with your customers for various transactions and transactions would
be more transparent and satisfied. One drawback could be the long waiting time and some
related factors.
This traditional brick and mortar channel was the first channel offered by banks, and many
times the impressively designed building is confused with the bank institution image. It
regularly offers all kinds of transactions, from teller-oriented transactions to more complex
solution-oriented transactions.
ATM: This was also one of the first remote channels offered to customers. It has increased its
importance for banking channel strategy as a channel of basic deliveries with a great part of
customers interested in processing simple account transactions. Therefore, banks are struggling
to implement new applications and technologies like multichannel integration, as a way to
support attendants in offering more complex solutions. This trend also helps to move the basic
transactions to IVR The automatic teller machine (ATM) was one of the first remote channels
to bring customers out of branch offices, offering beyond the branch offices‘ time, convenient
operations. During the last five years, the implementation of new and sophisticated channels,
such as internet and web phone have decreased the volume of transactions through the ATMs,
however currently new redesigned ATM has been implemented, offering full-service
operations in convenient locations. Furthermore, the ATM has the advantage of supplying cash,
which is not yet available in any other remote channel. ATMs were introduced 20 years back
in India and main advantage is withdrawal of money, anytime and anywhere and drawback
could be machine is out of cash or theft cases etc.
Call Centre: (Interactive Voice Response) systems that can handle these
operations without attendants in a very efficient and low cost structure. Advantage is that you
can get solution of various queries regarding banking transactions and drawback could be not
getting expected solution as you are not meeting face to face.
Banks are increasingly encouraging customers to minimize visits to physical branches for
financial transactions due to several reasons, including:
Cost Efficiency: Operating physical branches is expensive, involving costs related to staffing,
maintenance, rent, and utilities. Encouraging digital transactions reduces these costs
significantly.
Time Savings: Digital transactions and online services save time for both customers and banks.
Customers can complete transactions quickly without having to travel to a branch and wait in
queues.
Convenience: Online and mobile banking offer unparalleled convenience, allowing customers
to access their accounts and conduct transactions 24/7 from anywhere, using their smartphones,
tablets, or computers.
Enhanced Services: Banks are investing in online platforms to provide a wide range of
services, often more comprehensive than what's available in a physical branch. Customers can
access detailed transaction history, account statements, and perform complex transactions
online.
Security and Fraud Prevention: Digital platforms can often offer more advanced security
measures, including two-factor authentication, biometrics, and real-time fraud detection
systems, reducing the risks associated with physical transactions.
Eco-Friendly Practices: Reducing paper usage and minimizing the need for customers to
travel to branches align with environmentally friendly practices, contributing to sustainability
goals.

Conclusion
However, maintaining a balance between digital services and the provision of personalized
assistance when needed is crucial for overall customer satisfaction and efficient operations.
it's essential for banks to ensure that customers, especially those less familiar with technology
or those in remote areas, have access to appropriate training and support to comfortably
transition to digital banking.

Q2. Credit appraisal is an important step in doing financial due diligence. If this action is
not carried out properly it may result in bad loan and subsequent NPA. Explain the basic
lending principles and the role of credit scoring and CIBIL score.

Answer: Introduction
Well-functioning banks that extend credit ability from past amassing of wealth and
associations. The bank’s policies are guided by the government’s policies, which seeks to
integrate the credit policy of the banking system as a whole within its framework of growth
with stability. While formulating the credit policy is a crucial step, delivering the credit to the
needy can be affected only through a proper mechanism. Thus, the role of different to those
with the best projects, rather than to the wealthy or to those with familial, political, or corrupt
connections, exert an equalizing effect on the distribution of income and an excessively
positive affect on the poor by de-linking good ideas and types of lending institutions that serve
this purpose has to be given importance. The basic objective of a credit policy aims at avoiding
large concentration of loans and looks for an optimal spread of the loan portfolio.

Concept and application

Basic lending principles

Commercial banks lend deposits collected from public. To avoid risks and to ensure safety of
these funds, banks are required to adhere to the principles of lending. There are basically five
principles of lending which are considered as significant. They are safety, liquidity,
profitability etc.

Safety
Safety regarding return of money advanced is important. Banks are liable to repay the deposits
to public as and when demanded by them. Hence, banks have to safeguard the funds when they
lend or invest it by adhering to sound lending and investing principles. The banker is required
to ascertain the borrower’s background, purpose, capacity to repay and the security available
to cover the money advanced.

Profitability
The purpose of extending credit by banks is to earn interest on deposits received from the
public. The banks have to fulfil certain social obligations, and hence charge a reasonable rate
of interest on loans to meet their expenses and earn profit. Banks have to charge interest on
loans to:
 Pay interest on deposits received from public.
 Pay for rent, electricity, employees’ salary and similar operating expenses.
 Ensure a fair return to investors and to earn goodwill to bank.

To assess the reasonableness of borrower's projections, the following should be kept in

view:
 How have limits, already sanctioned by the bank, been utilised by the borrower in the
past? Has the conduct of the account been as per terms of sanction or these have been
frequently violated?
 While accepting the borrower's projections, it has to be ensured that the projections do
not go beyond the ‘Choking Factor’ (i.e. the level beyond which the operations start
giving negative results), as this will inhibit the further expansion.
 Critical analysis of sales projections – The most important area to be looked into is
sales. All other aspects are directly related to the projected level of sales. Therefore,
determining the projected level of sales is the first step in assessing the working capital
needs of a borrower.

 The branches can use with advantage the past data given by the borrower as well as the
data available with it.
 projected level of sales, can determine the other data in relation to sales.

Role of credit scoring and CIBIL score

CIBIL Score helps the borrower to know his credit status. A person who manages his finances
well will always have a higher CIBIL Score. A lower CIBIL Score signifies that the applicant
has low creditworthiness and banks refrain from giving loans to such applicants. If the person
has a very good CIBIL Score,
CIBIL is a three-digit number which is calculated on the basis of the financial history of the
applicant. The CIBIL Score ranges between 300 to 900 and people having a higher score have
better chances of getting loans approved. As per CIBIL’s own analysis, most of the loans
approved are for those individuals who have a score of 750 or more. Your CIBIL Score is
determined on a number of factors such as your payment history, types of credit and number
of loan accounts, credit history, opening and outstanding loan amount, etc. Different banks and
financial institutions have different benchmarks for issuing loans to applicants.

the institution may grant him a loan at a lower interest rate and with minimum paperwork. If
the CIBIL Score of the candidate is very low, banks either do not approve his loan application
or grant him a loan at higher rates of interest. However, only CIBIL Score is not the only
criterion that decides whether banks would grant the loan to the applicant or not.

Conclusion
Credit management applies to all types of credit and to the entire gamut of related operations.
It comprises of activities under the four areas: Credit Allocation, Credit evaluation, Credit
Discipline and Credit Monitoring
It is of utmost importance that the banker assesses his borrower well. The borrower should not
only have the capacity to repay as per bank’s requirements but should also have the willingness
to repay. There are certain important checkpoints that the banker has to go through to ensure
this..

Q3. Today we are in era of e-banking/digital banking. Brick and mortar banking is
virtually coming to an end. Technology has deeply pervaded banks and is playing an
important role in increasing performance, accuracy and speed. Discuss the importance
of the following in digital banking:
a) Artificial intelligence
b) Multifactor authentication

Answer: a) Introduction
Gone are the days when we use to visit the bank branch even for any small work but now the
scenario has completely changed and now you have the option to call the bank executive at
your place and get the work done. Banks are constantly looking at newer ways to make a
customer's banking experience more convenient India’s banks are transforming. They are
investing heavily in digital technologies to catch up with leading global competitors offering
wide-ranging and sophisticated services., efficient, and effective. They are using new
technology tools and techniques to identify customer needs and are offering tailor-made
products to go with them.

Concept and application

Here are key areas where AI is making a significant impact in banking:
1. Fraud Detection and Security:
 Anomaly Detection: AI systems detect unusual patterns in transactions to
identify potential fraud or suspicious activities, enhancing overall security.
2. Biometric Authentication: AI facilitates secure authentication using biometrics like
fingerprints, facial recognition, or voice recognition
3.
 Chatbots and Virtual Assistants: AI-powered chatbots provide instant
responses to customer queries, assisting with account inquiries, transaction
history, and general banking information.
 .
 .
4. Credit Underwriting and Risk Assessment:
  Credit Scoring: AI evaluates a borrower's creditworthiness using various
parameters, leading to more accurate and timely loan approvals or rejections.
 Risk Assessment: AI models analyze vast amounts of data to assess credit and
market risks, assisting in investment decisions and portfolio management.
5. Process Automation:
 Workflow Automation: AI streamlines complex processes, enhancing
operational efficiency and reducing processing times.
6. Data Analysis and Insights:
 Predictive Analytics: AI algorithms forecast market trends, customer behavior,
and investment opportunities, aiding in strategic decision-making.
 Customer Segmentation: AI categorizes customers based on behavior,
preferences, and financial history, enabling targeted marketing and product
offerings.
7. Anti-Money Laundering (AML) and Compliance:
Transaction Monitoring: AI systems flag potentially fraudulent transactions, aiding
compliance with AML regulations.

Conclusion
. In last few years, technology has made significant changes in banking industry and customers
are really happy with it. Artificial intelligence offers various advantages to the banking industry
but it also has some limitations as well so as per the requirements, it should be adopted by
banks.
Technology is playing the crucial role in retail banking as it made various things really simple
and time saving. Few years back, we had to visit the branch even for small work but now we
can perform even big transactions sitting at home and that too fully secured
b) Introduction
IT is central to banking. This is one of the major reasons why new private and multi-national
banks have been able to survive, thrive, and adapt in an increasingly competitive space.
Technology has changed the contours of three major functions performed by banks, i.e., access
to liquidity, transformation of assets and monitoring of risks.ve.
, we need to use certain authentication factor so that we verify our identity and make the
payment from our bank.

In today’s scenario, usage of online banking has increased a lot and billions of people are using
the same. As we need to share our personal and banking details while making any online
purchase, it is also important to keep our account and related details secure. In this
technological world, we are observing various transformations and when we make online
purchasing or performing any transaction
Authentication factors
 An SMS OTP allows users to verify their identities with a one-time password that is
sent to them via text message. As soon as the code is generated, users are asked to enter
it on the app within a specific period to confirm the transaction. This phone-based OTP
is currently the predominant authentication method in the banking industry due to its
ease of use and convenience.
 Bank PIN is yet another popular method of mobile payment authentication. On the
surface, a PIN looks much like a password. However, PINs are largely shorter than
passwords and usually consist of a string of between 4 and 8 numbers. Similar to SMS
OTP, PIN-based authentication is widely accepted because of its user-friendliness.
  Security questions are identity authentication methods involving what's usually a
confidential secret. Security questions are commonly used by financial institutions,
wireless providers, cable companies and other security-minded organizations to provide
an extra layer of protection.

Conclusion
One of the greatest adoptions in the banking industry is the introduction of multi-factor
authentication (MFA) simple and entertaining experience. However, the competition has
grown tougher. Customers have an increased appetite for engaging digital products that
seamlessly fit into their daily lives. But this also means not neglecting the cyber security threat
that customers are constantly vulnerable to. Multi-factor authentication is one solution to keep
the trust of their customers intact.

and Interactive Voice Response (IVR) systems. Both of them are considered effective ways
that help banks to reduce fraud. Modern technologies have made banking a