`

SUMMER INTERNSHIP REPORT

ON

“TO UNDERSTAND THE RETAIL BANKING BUSINESS AND

NPA MANAGEMENT OF RETAIL LOANS
AT
BANK OF INDIA”

INTERNAL GUIDE EXTERNAL GUIDE

PROF. ANIRBAN GHATAK MR. PRANAB DEY

CUIM OFFICER, CREDIT DEPT.

BANK OF INDIA

BY

SHAMIK ACHARJEE

MBA

0920224

FINANCE DEPT.
 CHAPTER NO-1-

1.1DEFINITION:

Section 5(1) (b) of the Banking Regulation Act of 1949 called the Indian Banking Companies
Act of 1949(called the Indian Banking Act of 1949 defines the term banking as accepting of
deposits of money repayable on demand or otherwise and withdrawable by cheque, draft,
order or otherwise from the public, for the purpose for the purpose of lending or investment.
This Act, besides stating the main banking activities also enumerates, in Section 6, the
various subsidiary services, such as the collection of cheques, drafts and bills, remittance of
funds, acceptance of safe-custody deposits, etc. that are performed by a bank. This Act also
enumerates that banking business should be the main business of a bank. Again, Section 7 of
this Act requires that every banking company should use as part of its name the term ‘bank’,
‘banker’ or ‘banking company’.

According to the definition given by the Indian Banking Regulation Act of 1949, the essential
characteristics of bank are:

1. Acceptance of deposits from public current, fixed and savings bank accounts.

2. Allowing of withdrawals of those deposits by cheques, drafts, orders or otherwise.

3. Utilization of deposits in hand for the purpose of lending or investment in securities

4. Performance or other activities called subsidiary services, in addition to the principal

and lending of funds.

5. Performance of banking business as the main business.

6. Using the term ‘bank’, ‘banker’ or ‘banking company as part of the name.
1.2HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India it cannot have a healthy economy. The
banking system of India should not only be hassle free but it should be able to meet new
challenges posed by the technology and any other external and internal factors.

For the past three decades India's banking system has several outstanding achievements to its
credit. The most striking is its extensive reach. It is no longer confined to only metropolitans
or cosmopolitans in India. In fact, Indian banking system has reached even to the remote
corners of the country. This is one of the main reasons of India's growth process.

The government's regular policy for Indian bank since 1969 has paid rich dividends with the
nationalisation of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank counters for getting a draft
or for withdrawing his own money. Today, he has a choice. Gone are days when the most
efficient bank transferred money from one branch to other in two days. Money has become
the order of the day.

The first bank in India, though conservative, was established in 1786. From 1786 till today,
the journey of Indian Banking System can be segregated into three distinct phases. They are
as mentioned below:

• Early phase from 1786 to 1969 of Indian Banks

• Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector
Reforms.
• New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase
III.

Phase I

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and
Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay
(1840) and Bank of Madras (1843) as independent units and called it Presidency Banks.
These three banks were amalgamated in 1920 and Imperial Bank of India was established
which started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab
National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913,
Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank
of Mysore were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic failures
between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline
the functioning and activities of commercial banks, the Government of India came up with
The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949
as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with
extensive powers for the supervision of banking in India as the Central Banking Authority.

During those days public has lesser confidence in the banks. As an aftermath deposit
mobilisation was slow. Abreast of it the savings bank facility provided by the Postal
department was comparatively safer. Moreover, funds were largely given to traders.

Phase II

Government took major steps in this Indian Banking Sector Reform after independence. In
1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale
especially in rural and semi-urban areas. It formed State Bank of India to act as the principal
agent of RBI and to handle banking transactions of the Union and State Governments all over
the country.

Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th July,
1969, major process of nationalisation was carried out. It was the effort of the then Prime
Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country was
nationalised.

Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with
seven more banks. This step brought 80% of the banking segment in India under Government
ownership.

The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:

• 1949: Enactment of Banking Regulation Act.

• 1955: Nationalisation of State Bank of India.
• 1959: Nationalisation of SBI subsidiaries.
• 1961: Insurance cover extended to deposits.
• 1969: Nationalisation of 14 major banks.
• 1971: Creation of credit guarantee corporation.
• 1975: Creation of regional rural banks.
• 1980: Nationalisation of seven banks with deposits over 200 crore.

After the nationalisation of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.

Banking in the sunshine of Government ownership gave the public implicit faith and
immense confidence about the sustainability of these institutions.

Phase III

This phase has introduced many more products and facilities in the banking sector in its
reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up
by his name which worked for the liberalisation of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being put to
give a satisfactory service to customers. Phone banking and net banking is introduced. The
entire system became more convenient and swift. Time is given more importance than
money.

The financial system of India has shown a great deal of resilience. It is sheltered from any
crisis triggered by any external macroeconomics shock as other East Asian Countries
suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the
capital account is not yet fully convertible, and banks and their customers have limited
foreign exchange exposure.

1.3STRUCTURE OF COMMERCIAL BANKS IN INDIA

1.4INTRODUCTION TO RETAIL BANKING

1.4.1MEANING OF RETAIL

Retail means sale of goods in small quantities, it is concerned with buying of goods in small
quantities from the wholesaler and selling them in small quantities to the ultimate consumers as
per their requirements. The person engaged in this trade is called the “retailer”. He acts as a link
between the wholesaler and the customers. In retail trade goods are sold to the ultimate
consumers for personal use and for the use of the business in small quantities only. The retailer
does not specialize in a particular line or a particular product. Rather he maintains a large variety
of goods. Generally, sales are limited to a local and on a small scale.

1.4.2RETAIL BANKING

Retail banking means mobilizing deposit form individuals and providing loan facilities to them
in the form of home loans, auto loans, credit cards, etc, is becoming popular. This used to be
considered by the banks as a tough proposition because of the volume of operations involved.
But during the last couple of years or so, banks seem to have realized that the only sustainable
way to increase deposits is to look at small and middle class consumer retail deposit and not the
price sensitive corporate depositors. With financial sector reforms gathering momentum, the
banking system is facing increasing competition from non-banks and the capital market. More
and more companies are tapping the capital market directly for finance. This is one of the main
reasons for the banks to focus vigorously on the much ignored retail deposits. Another reason is
the current liquidity the margins are 1 to 2 percent above the prime rate; in retail market they are
3to4 percent.

“Retail banking is typical mass-market banking where individual customers

use local branches of larger commercial banks. Services offered include:
savings and checking accounts, mortgages, personal loans, debit cards, credit
cards, and so”

It is reported that Indian retail market has the potential to be second only to the USA. National
Readership Survey puts Indian households with monthly of over Rs. 5000 at 4.5 million.
According to the survey, the category of households with annual income of Rs. 2 lakhs and
above is growing at the rate of 30 per cent per annum. No wonder, banks with vision and insight
are trying to woo this market through a series of innovative additions to their products, services,
technology and marketing methods. Fixed and unfixed Deposits, (cluster deposits which can be
broken into smaller units to help meet depositors’ overdraft without breaking up entirely),
centralised database for ‘any branch banking’ (whereby the customer can access his account in
any of the branches irrespective of where the account is maintained), room services (whereby the
customers are visited at their residences offices to enable them to open their accounts), automatic
teller machines, tele-banking network, extended banking time, courier pickup for cheques and
documents, etc are some of the privileges extended to the customers by the banks in are
eagerness to cultivate the retail market. In short, in the bold new world of retail banking the
customer is crowned as king.

1.4.3RETAIL BANKING-A THRIVING OPPORTUNITY

Corporate customers rely less on commercial banks every day as other fund raising avenues
present themselves. As this disintermediation takes place and competition shrinks margins, retail
banking has gained an irresistible allure for banks because of its apparently higher margins and
potential for growth.

With their large branch networks, banks have secured sizeable deposits-23 percent of GDP. On
the assets side, however, retail advances account for a mere seven per cent of total lending. The
penetration of products like car loans or credit cards is very low. With very few focused multi-
line banks, non banks are often significant players in retail lending, as HDFC is in house loans.
Yet, many non-banks lack the minimum size to make the necessary investments and address the
challenges of retail banking.

A large number of banks and non-banks have launched or relaunched retail products and are
attempting to grow their share of the personal financial services market. Even the term lending
institutions have decided that they need to go retail to raise funds. Many organization like ICICI
are betting that a large part of their future growth will come from retail customers.

Retail banking is much more than as opportunity to addressing dwindling margins. It is an

imperative to preserve profits and market positions. Customers now have many more personal
financial options, a growing credit culture, a willingness to switch between financial services
providers, and a demand for lower interest rates. As they witness these trends, banks realize that
they cannot remain passive. The new private sector banks are making inroads in the markets they
serve, while competition from non-banks is growing. In respect, older institutions need to revamp
their distribution capabilities, customer management capabilities, operating culture,
compensation system and operations processing.

Today’s retail banking sector is characterized by three basic characteristics:

 Multiple products (deposits, credit cards, insurance, investments and securities)

 Multiple channels of distribution (call center, branch, internet)
 Multiple customer groups (consumer, small business, and corporate).

1.4.4BENEFITS OF RETAIL BANKING

Traditional lending to the corporate are slow moving along with high NPA risk, treasure
profits are now loosing importance hence Retail Banking is now an alternative available for
the banks for increasing their earnings. Retail Banking is an attractive market segment having
a large number of varied classes of customers. Retail Banking focuses on individual and small
units. Customize and wide ranging products are available. The risk is spread and the recovery
is good. Surplus deployable funds can be put into use by the banks. Products can be designed,
developed and marketed as per individual needs.
1.4.5SCOPE FOR RETAIL BANKING IN INDIA

 All round increase in economic activity

 Increase in the purchasing power. The rural areas have the large purchasing power at
their disposal and this is an opportunity to market Retail Banking.
 India has 200 million households and 400 million middleclass population more than
90% of the savings come from the house hold sector. Falling interest rates have
resulted in a shift. “Now People Want To Save Less And Spend More.”
 Nuclear family concept is gaining much importance which may lead to large savings,
large number of banking services to be provided are day-by-day increasing.
 Tax benefits are available for example in case of housing loans
 The borrower can avail tax benefits for the loan repayment and the interest charged
for the loan.

1.4.6ADVANTAGES AND DISADVANTAGES OF RETAIL

BANKING

1.4.6.1ADVANTAGES

Retail banking has inherent advantages outweighing certain disadvantages. Advantages are
analyzed from the resource angle and asset angle.

RESOURCE SIDE

 Retail deposits are stable and constitute core deposits.

 They are interest insensitive and less bargaining for additional interest.
 They constitute low cost funds for the banks.
 Effective customer relationship management with the retail customers built a strong
customer base.
 Retail banking increases the subsidiary business of the banks.
 ASSETS SIDE

 Retail banking results in better yield and improved bottom line for a bank.
 Retail segment is a good avenue for funds deployment.
 Consumer loans are presumed to be of lower risk and NPA perception.
 Helps economic revival of the nation through increased production activity.
 Improves lifestyle and fulfils aspirations of the people through affordable credit.
 Innovative product development credit.
 Retail banking involves minimum marketing efforts in a demand –driven economy.
 Diversified portfolio due to huge customer base enables bank to reduce their
dependence on few or single borrower
 Banks can earn good profits by providing non fund based or fee based services
without deploying their funds.

1.4.6.2DISADVANTAGES

 Designing own and new financial products is very costly and time consuming for the
bank.
 Customers now-a-days prefer net banking to branch banking. The banks that are slow
in introducing technology based products, are finding it difficult to retain the
customers who wish to opt for net banking.
 Customers are attracted towards other financial products like mutual funds etc.
 Though banks are investing heavily in technology, they are not able to exploit the
same to the full extent.
 A major disadvantage is monitoring and follow up of huge volume of loan accounts
inducing banks to spend heavily in human resource department.
 Long term loans like housing loan due to its long repayment term in the absence of
proper follow-up, can become NPAs.
 The volume of amount borrowed by a single customer is very low as compared to
wholesale banking. This does not allow banks to exploit the advantage of earning
huge profits from single customer as in case of wholesale banking.
1.4.7OPPORTUNITIES

Retail banking has immense opportunities in a growing economy like India. As the growth
story gets unfolded in India, retail banking is going to emerge a major driver. The rise of
Indian middle class is an important contributory factor in this regard. The percentage of
middle to high-income Indian households is expected to continue rising. The younger
population not only wields increasing purchasing power, but as far as acquiring personal debt
is concerned, they are perhaps more comfortable than previous generations. Improving
consumer purchasing power, coupled with more liberal attitudes towards personal debt, is
contributing to India’s retail banking segment. The combination of above factors promises
substantial growth in retail sector, which at present is in the nascent stage. Due to bundling of
services and delivery channels, the areas of potential conflicts of interest tend to increase in
universal banks and financial conglomerates. Some of the key policy issues relevant to the
retail-banking sector are: financial inclusion, responsible lending, and access to finance, long-
term savings, financial capability, consumer protection, regulation and financial crime
prevention.

1.4.8CHALLENGES TO RETAIL BANKING IN INDIA

 The issue of money laundering is very important in retail banking. This compels all
the banks to consider seriously all the documents which they accept while approving
the loans.
  The issue of outsourcing has become very important in recent past because various
core activities such as hardware and software maintenance, entire ATM set up and
operation (including cash, refilling) etc., are being outsourced by Indian banks.

 Banks are expected to take utmost care to retain the ongoing trust of the public.
 Customer service should be at the end all in retail banking. Someone has rightly said,
“It takes months to find a good customer but only seconds to lose one.” Thus, strategy
of Knowing Your Customer (KYC) is important. So the banks are required to adopt
innovative strategies to meet customer’s needs and requirements in terms of
services/products etc.
 The dependency on technology has brought IT departments’ additional responsibilities
and challenges in managing, maintaining and optimizing the performance of retail
banking networks. It is equally important that banks should maintain security to the
advance level to keep the faith of the customer.

 The efficiency of operations would provide the competitive edge for the success in
retail banking in coming years.
 The customer retention is of paramount important for the profitability if retail banking
business, so banks need to retain their customer in order to increase the market share.
 One of the crucial impediments for the growth of this sector is the acute shortage of
manpower talent of this specific nature, a modern banking professional, for a modern
banking sector.

If all these challenges are faced by the banks with utmost care and deliberation, the retail
banking is expected to play a very important role in coming years, as in case of other nations.

1.4.9STRATEGIES FOR INCREASING RETAIL BANKING

BUSINESS
 Constant product innovation to match the requirements of the
customer segments

The customer database available with the banks is the best source of their
demographic and financial information and can be used by the banks for targeting
certain customer segments for new or modified product. The banks should come out
with new products in the area of securities, mutual funds and insurance.

 Quality service and quickness in delivery

As most of the banks are offering retail products of similar, the customers can easily
switchover to the one, which offers better service at comparatively lower costs. The
quality of service that banks offer and the experience that clients have, matter the
most. Hence, to retain the customers, banks have to come out with competitive
products satisfying the desires of the customers at the click of a button.

 Introduction of new delivery channels

Retail customers like to interface with their bank through multiple channels.
Therefore, banks should try to give high quality service across all service channels
like branches, Internet, ATMs, etc.

 Tapping of unexploited potential and increasing the volume of

Business

This will compensate for the thin margins. The Indian retail banking market still
remains largely untapped giving a scope for growth to the banks and financial
institutions. With changing psyche of Indian consumers, who are now comfortable
with the idea of availing loans for their personal needs, banks have tremendous
potential lying in this segment. Marketing departments of the banks be geared up and
 special training be imparted to them so that banks are successful in grabbing more and
more of retail business in the market.

 Infrastructure outsourcing

This will help in lowering the cost of service channels combined with quality and
quickness.

 Detail market research

Banks may go for detail market research, which will help them in knowing what their
competitors are offering to their clients. This will enable them to have an edge over
their competitors and increase their share in retail banking pie by offering better
products and services.

 Cross-selling of products

PSBs have an added advantage of having a wide network of branches, which gives
them an opportunity to sell third-party products through these branches.

 Business process outsourcing

Outsourcing of requirements would not only save cost and time but would help the
banks in concentrating on the core business area. Banks can devote more time for
marketing, customer service and brand building. For example, Management of ATMs
can be outsourced. This will save the banks from dealing with the intricacies of
technology.
  Tie-up arrangements

PSBs with regional concentration can reap the benefit of reaching customers across
the country by entering into strategic alliance with other such banks with intensive
presence in other regions. In the present regime of falling interest and stiff
competition, banks are aware that it is finally the retail banking which will enable
them to hold the head above water. Hence, banks should make all out efforts to boost
the retail banking by recognizing the needs of the customers. It is essential that banks
would be imaginative in predicting the customers' expectations in the ever-changing
tastes and environments. It is the innovative and competitive products coupled with
high quality care for clients will only hold the key to success in this area. In short,
bankers have to run very fast even to stay where they are now. It is the survival of the
fastest now and not only survival of the fittest.

1.4.10SPECIAL FEATURES OF RETAIL CREDIT

One of the prominent features of Retail Banking products is that it is a volume driven
business. Further, Retail Credit ensures that the business is widely dispersed among a large
customer base unlike in the case of corporate lending, where the risk may be concentrated on
a selected few plans. Ability of a bank to administer a large portfolio of retail credit products
depends upon such factors:

 Strong credit assessment capability

Because of large volume good infrastructure is required. If the credit assessment itself
is qualitative, than the need for follow up in the future reduces considerably.

 Sound documentation

A latest system for credit documentation is necessary pre-requisite for healthy growth
of credit portfolio, as in the case of credit assessment, this will also minimize the need
to follow up at future point of time.
  Strong possessing capability

Since large volumes of transactions are involved, today transactions, maintenance of

backups is required

 Regular constant follow-up

Ideally, follow up for loan repayments should be an ongoing process. It should start
from customer enquiry and last till the loan is repaid fully.

 Skilled human resource

This is one of the most important pre-requisite for the efficient management of large
and diverse retail credit portfolio. Only highly skilled and experienced man power can
withstand the river of administrating a diverse and complex retail credit portfolio.

 Technological support

This is yet another vital requirement. Retail credit is highly technological intensive in
nature, because of large volumes of business, the need to provide instantaneous
service to the customer large, faster processing, maintaining database, etc.

1.4.11EMERGING ISSUES IN HANDLING RETAIL

BANKING

 KNOWING CUSTOMER
 ‘Know your Customer’ is a concept which is easier said than practiced. Banks face
several hurdles in achieving this. In order to that the product lines are targeted at the
right customers-present and prospective-it is imperative that an integrated view of
customers is available to the banks. The benefits flowing out of cross-selling and up-
selling will remain a far cry in the absence of this vital input. In this regard the customer
databases available with most of the public sector banks, if not all, remain far from
being enviable. What needs to be done is setting up of a robust data warehouse where
from meaningful data on customers, their preferences, there spending patterns, etc. can
be mined. Cleansing of existing data is the first step in this direction. PSBs have a long
way to go in this regard.

 TECHNOLOGY ISSUES

Retail banking calls for huge investments in technology. Whether it is setting up of a

Customer Relationship Management System or establishing Loan Process Automation
or providing anytime, anywhere convenience to the vast number of customers or
establishing channel/product/customer profitability, technology plays a pivotal role.
And it is a long haul. The Issues involved include adoption of the right technology at
the right time and at the same time ensuring volumes and margins to sustain the
investments. It is pertinent to remember that Citibank, known for its deployment of
technology, took nearly a decade to make profits in credit cards. It has also to be
added in the same breath that without adequate technology support, it would be well
nigh possible to administer the growing retail portfolio without allowing its health to
deteriorate. Further, the key to reduction in transaction costs simultaneously with
increase in ability to handle huge volumes of business lies only in technology
adoption. PSBs are on their way to catch up with the technology much required for the
success of retail banking efforts. Lack of connectivity, stand alone models, concept of
branch customer as against bank customer, lack of convergence amongst available
channels, absence of customer profiling, lack of proper decision support systems, etc.,
are a few deficiencies that are being overcome in a great way. However, the initiatives
in this regard should include creating flexible computing architecture amenable to
changes and having scalability, a futuristic approach, networking across channels,
 development of a strong Customer Information Systems (CIS) and adopting Customer
Relationship. Management (CRM) models for getting a 360 degree view of the
customer.

 PRODUCT INNOVATION

Product innovation continues to be yet another major challenge. Even though bank
after bank is coming out with new products, not all are successful. What is of crucial
importance is the need to understand the difference between novelty and innovation?
Peter Drucker in his path breaking book: “Management Challenges for the 21st
Century” has in fact sounded a word of caution: “innovation that is not in tune with
the strategic realities will not work; confusing novelty with innovation (should be
avoided), test of innovation is that it creates value; novelty creates only amusement”.
The days of selling the products available in the shelves are gone. Banks need to
innovate products suiting the needs and requirements of different types of customers.
Revisiting the features of the existing products to continue to keep them on demand
should not also be lost sight of.

 PRICING OF PRODUCT

The next challenge is to have appropriate policies in place. The industry today is
witnessing a price war, with each bank wanting to have a larger slice of the cake that
is the market, without much of a scientific study into the cost of funds involved,
margins, etc. The strategy of each player in the market seems to be: ‘under cutting
others and wooing the clients of others’. Most of the banks that use rating models for
determining the health of the retail portfolio do not use them for pricing the products.
The much needed transparency in pricing is also missing, with many hidden charges.
There is a tendency, at least on the part of few to camouflage the price. The situation
cannot remain his way for long. This will be one issue that will be gaining importance
in the near future.
  PROCESS CHANGES

Business Process Re-engineering is yet another key requirement for banks to handle
the growing retail portfolio. Simplified processes and aligning them around delivery
of customer service impinging on reducing customer touch-points are of essence. A
realization has to drawn that automating the inefficiencies will not help anyone and
continuing the old processes with new technology would only make the organization
an old expensive one. Work flow and document management will be integral part of
process changes. The documentation issues have to remain simple both in terms of
documents to be submitted by the customer

GROWTH DRIVERS OF RETAIL BANKING

The growth drivers of retail lending are analyzed as under:

MACRO-ECONOMIC FACTORS

 Shift in the pattern of GDP from hitherto agriculture and manufacturing sectors to
services sector with increase per capita income especially that of the younger
generation. [India's industrial sector accounted for about 21.8% of GDP, where as the
services sector accounted for around 56.1 of GDP in 2002-03 as per revised estimates
released by Central Statistical Organization].

 The lower uptake in the non-retail sector has compelled bans to shift their focus on
retail assets - specially housing finance for deployment of funds for a longer period,
which is considered as the safest within the retail portfolio. Housing loans and other
retail loans are comparatively high yielding in terms of interest spread and safer, as
risk is diversified among a large number of individuals across the geographic
dimensions. The sector enjoys a privilege of lowest NPAs amongst all categories of
banks.
  Depressed stock and real estate markets as compared to those prevailing in 1992-93 to
1995-96 thereby diverting deposits to the banking sectors.

 Comparatively stable real estate prices during last 4/5 years have laid to spurt in
demand for housing loans.

 Inflation continued to be under control.

 Keenness shown by the consumer goods/ automobile manufacturers to -push up

finance schemes through market tie-up with banks with a view to increasing their
marketing share.

DEMOGRAPHIC / BEHAVIORAL FACTORS

Growing concept of nuclear families than the joint families necessitating need for
housing units as well as other items of consumer durables.
 Increased number of dual income families resulting in higher income and savings.
 Increased demand for dwelling units due to gradual shift of population from
rural/semi-urban centre to urban/metro centre for employment.
 Shift in the attitude of the Indian household from "save and buy' theory to a `buy and
repay' principle.
 Increased middle-income segment and their income levels.
 Emergence of new sectors such as Information Technology, media, etc. In the
economy that resulted in higher income opportunities and major impact on change in
urban consumption pattern.
 Awareness and sophistication in urban and semi-urban households for urban
convenience. Social security and status have also contributed to higher demand for
housing units, cars, etc.

1.5NPA & ITS MANAGEMENT

An asset, including a leased asset, becomes non-performing when it ceases to generate
income for the bank. A ‘non-performing asset’ (NPA) was defined as a credit facility in
respect of which the interest and/ or instalment of principal has remained ‘past due’ for a
specified period of time.

With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt the ‘90 days’ overdue’ norm for identification of
NPAs, from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004,
a non-performing asset (NPA) shall be a loan or an advance where;

 Interest and/ or instalment of principal remain overdue for a period of more than 90
days in respect of a term loan,

 The account remains ‘out of order’ for a period of more than 90 days, in respect of an
Overdraft/Cash Credit (OD/CC),

 The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,

 Interest and/or instalment of principal remains overdue for two harvest seasons but for
a period not exceeding two half years in the case of an advance granted for
agricultural purposes, and

 Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.

As a facilitating measure for smooth transition to 90 days norm, banks have been advised to
move over to charging of interest at monthly rests, by April 1, 2002. However, the date of
classification of an advance as NPA should not be changed on account of charging of interest
at monthly rests. Banks should, therefore, continue to classify an account as NPA only if the
interest charged during any quarter is not serviced fully within 180 days from the end of the
quarter with effect from April 1, 2002 and 90 days from the end of the quarter with effect
from March 31, 2004.
1.5.1FACTORS FOR RISE IN NPAS
The banking sector has been facing the serious problems of the rising NPAs. But the problem
of NPAs is more in public sector banks when compared to private sector banks and foreign
banks. The NPAs in PSB are growing due to external as well as internal factors.

EXTERNAL FACTORS:-

 Ineffective recovery tribunal

The Govt. has set of numbers of recovery tribunals, which works for recovery of loans
and advances. Due to their negligence and ineffectiveness in their work the bank
suffers the consequence of non-recover, thereby reducing their profitability and
liquidity.

 Wilful Defaults
There are borrowers who are able to pay back loans but are intentionally withdrawing
it. These groups of people should be identified and proper measures should be taken in
order to get back the money extended to them as advances and loans.

 Natural calamities
This is the measure factor, which is creating alarming rise in NPAs of the PSBs. every
now and then India is hit by major natural calamities thus making the borrowers
unable to pay back there loans. Thus the bank has to make large amount of provisions
in order to compensate those loans, hence end up the fiscal with a reduced profit.
Mainly ours farmers depends on rain fall for cropping. Due to irregularities of rain fall
the farmers are not to achieve the production level thus they are not repaying the
loans.

 Industrial sickness
Improper project handling, ineffective management, lack of adequate resources , lack
of advance technology , day to day changing govt. Policies give birth to industrial
sickness. Hence the banks that finance those industries ultimately end up with a low
recovery of their loans reducing their profit and liquidity.
  Lack of demand
Entrepreneurs in India could not foresee their product demand and starts production
which ultimately piles up their product thus making them unable to pay back the
money they borrow to operate these activities. The banks recover the amount by
selling of their assets, which covers minimum label. Thus the banks record the non-
recovered part as NPAs and have to make provision for it.

INTERNAL FACTORS:-

 Defective Lending process

There are three cardinal principles of bank lending that have been followed by the
commercial banks since long.

i. Principles of safety
ii. Principle of liquidity
iii. Principles of profitability

i. Principles of safety:-
By safety it means that the borrower is in a position to repay the loan both principal and
interest. The repayment of loan depends upon the borrowers:
a)Capacity to pay b) Willingness to pay

a) Capacity to pay depends upon:

1. Tangible assets
2. Success in business

b) Willingness to pay depends on:

1. Character
2. Honest
3. Reputation of borrower
The banker should, therefore take utmost care in ensuring that the enterprise or business for
which a loan is sought is a sound one and the borrower is capable of carrying it out
successfully .He should be a person of integrity and good character.

 Inappropriate technology
Due to inappropriate technology and management information system, market driven
decisions on real time basis cannot be taken. Proper MIS and financial accounting system is
not implemented in the banks, which leads to poor credit collection, thus NPA. All the
branches of the bank should be computerized.

 Improper SWOT analysis

The improper strength, weakness, opportunity and threat analysis is another reason for rise in
NPAs. While providing unsecured advances the banks depend more on the honesty, integrity,
and financial soundness and credit worthiness of the borrower.
· Banks should consider the borrowers own capital investment.
· it should collect credit information of the borrowers from

a. From bankers.
b. Enquiry from market/segment of trade, industry, business.
c. From external credit rating agencies.

·Analyze the balance sheet.

True picture of business will be revealed on analysis of profit/loss a/c and balance sheet.

Purpose of the loan

When bankers give loan, he should analyze the purpose of the loan. To ensure safety and
liquidity, banks should grant loan for productive purpose only. Bank should analyze the
profitability, viability, long term acceptability of the project while financing.

 Poor credit appraisal system

Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit appraisal the
bank gives advances to those who are not able to repay it back. They should use good credit
appraisal to decrease the NPAs.
  Managerial deficiencies
The banker should always select the borrower very carefully and should take tangible assets
as security to safe guard its interests. When accepting securities banks should consider the

1. Marketability
2. Acceptability
3. Safety
4. Transferability.
The banker should follow the principle of diversification of risk. It means that the banker
should not grant advances to a few big farms only or to concentrate them in few industries or
in a few cities. If a new big customer meets misfortune or certain traders or industries affected
adversely, the overall position of the bank will not be affected.

 Absence of regular industrial visit

The irregularities in spot visit also increases the NPAs. Absence of regularly visit of bank
officials to the customer point decreases the collection of interest and principals on the loan.
The NPAs due to wilful defaulters can be collected by regular visits.

1.5.2PROBLEMS DUE TO NPA

1. Owners do not receive a market return on their capital .in the worst case, if the banks
fails, owners lose their assets. In modern times this may affect a broad pool of
shareholders.
2. Depositors do not receive a market return on saving. In the worst case if the bank
fails, depositors lose their assets or uninsured balance.
3. Banks redistribute losses to other borrowers by charging higher interest rates, lower
deposit rates and higher lending rates repress saving and financial market, which
hamper economic growth.
4. Nonperforming loans epitomize bad investment. They misallocate credit from good
projects, which do not receive funding, to failed projects. Bad investment ends up in
misallocation of capital, and by extension, labour and natural resources.
 5. Nonperforming asset may spill over the banking system and contract the money stock,
which may lead to economic contraction. This spill over effect can channelize through
liquidity or bank insolvency:

a) When many borrowers fail to pay interest, banks may experience liquidity
shortage. This can jam payment across the country.
b) Illiquidity constraints bank in paying depositors
c) Undercapitalized banks exceed the bank’s capital base.

1.5.3TYPES OF NPA

Gross NPA:

Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI
guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made by
banks. It consists of all the non-standard assets like as sub-standard, doubtful, and loss assets.
It can be calculated with the help of following ratio:
Gross NPAs Ratio= Gross NPA/Gross Advances

Net NPA:

Net NPAs are those type of NPAs in which the bank has deducted the provision regarding
NPAs. Net NPA shows the actual burden of banks. Since in India, bank balance sheets
contain a huge amount of NPAs and the process of recovery and write off of loans is very
time consuming, the provisions the banks have to make against the NPAs according to the
central bank guidelines, are quite significant. That is why the difference between gross and
net NPA is quite high. It can be calculated by following
1.5.4Early symptoms by which one can recognize a performing asset
turning into Non-performing asset:-

FOUR CATEGORIES OF EARLY SYMPTOMS:-

(1) Financial:

✔ Non-payment of the very first instalment in case of term loan.

✔ Bouncing of cheque due to insufficient balance in the accounts.
✔ Irregularity in instalment.
✔ Irregularity of operations in the accounts.
✔ Unpaid overdue bills.
✔ Payment which does not cover the interest and principal amount of that instalment.

(2) Operational and Physical:

✔ If information is received that the borrower has either initiated the process of winding up
or are not doing the business.
✔ Overdue receivables.
✔ Stock statement not submitted on time.
✔ External non-controllable factor like natural calamities in the city where borrower conduct
his business.
✔ Frequent changes in plan.
✔ Non-payment of wages
(3) Attitudinal Changes:

✔ Avoidance of contact with bank.

✔ Problem between partners.

(3) Others:

✔ Changes in Government policies.

✔ Death of borrower.
1.5.5Preventive Measurement for NPA

 Early Recognition of the Problem

 Identifying Borrowers with Genuine Intent
 Timeliness and Adequacy of response
 Focus on Cash Flows
 Management Effectiveness
 Multiple Financing

1.5.6TOOLS FOR NPA RECOVERY

 Lok Adalat and Debt Recovery Tribunal

 Securitization Act
 Asset Reconstruction
 CHAPTER NO-2-

RESEARCH STUDY

2.1PROBLEM STATEMENT

Increasing NPA in retail loans coupled with decreasing share of retail loans in the advances
portfolio of Bank of India

2.2 OBJECTIVE OF THE STUDY

 To understand the potential of retail business in Bank of India.

 To study the effect of increasing NPA in retail loans and suggest ways to reduce it

 To study the reasons for decreasing share of retail loans in the advances portfolio and
suggest ways to increase it.
2.3 NEED FOR STUDY

Retail loans are considered to be safe bet loans as compared to other loans with relatively
lower levels of NPA. But inspite of this effect, over the past few years it has been noted that
there has been a decline in retail loan as a part of total advances. It is important to undermine
the reasons of such potential decline in low NPA retail loans. This project will aid bankers
and financial institutions in learning about the upcoming boom in the retail banking and
thereby undertake relevant efforts to tap the potential which retail banking offers.

From the past couple of years it has also been noted that there has been a relative increase in
NPA of retail loans. The project also emphasizes on the ways to reduce the increasing NPA
which will lead to better profitability for the bank. It also presents a detailed study of the
challenges, scope and strategies that need to be adopted to promote retail banking

2.4 SCOPE OF THE STUDY

The above study can be used by bankers, MNC’s, financial institutions, academicians and
students in developing a detail understanding of the retail banking sector in India. It
encompasses

Retail banking and its potential

NPA management in retail banking

Challenges and strategies involved to promote retail banking

2.6 LIMITATIONS

 The sample size of data in the survey is small and may not give appropriate results

 The branch officials may be biased and may reveal favourable figures in the survey

 The study concerns only specific branches of Bank of India in a particular region and
does not cover all branches of Bank of India.

 The project does not present a comparative analysis of retail business of Bank of India
and other banks
2.8DATA SOURCES

The data sources include both primary and secondary data sources.

PRIMARY SOURCES

The primary data sources involve the bank officials of Bank of India. I conducted a survey
among bank officials of Bank of India pertaining to different branches, collected relevant data
and analyzed it and came to relevant conclusions.

SECONDARY SOURCES

The secondary sources include data from industrial journals, Crisil reports, Mckinsey reports
and RBI publications
 CHAPTER NO-3-

3.1 COMPANY PROFILE

BANK OF INDIA

Bank of India was founded on 7th September, 1906 by a group of eminent businessmen from
Mumbai. The Bank was under private ownership and control till July 1969 when it was
nationalised along with 13 other banks.

Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees,
the Bank has made a rapid growth over the years and blossomed into a mighty institution with
a strong national presence and sizable international operations. In business volume, the Bank
occupies a premier position among the nationalised banks.

The Bank has 3101 branches in India spread over all states/ union territories including 141
specialised branches. These branches are controlled through 48 Zonal Offices. There are 29
branches/ offices (including three representative offices) abroad.

The Bank came out with its maiden public issue in 1997 and follow on Qualified Institutions
Placement in February 2008. . Total number of shareholders as on 30/09/2009 is 2,15,790.

While firmly adhering to a policy of prudence and caution, the Bank has been in the forefront
of introducing various innovative services and systems. Business has been conducted with the
successful blend of traditional values and ethics and the most modern infrastructure. The
Bank has been the first among the nationalised banks to establish a fully computerised branch
and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. The Bank is also a
Founder Member of SWIFT in India. It pioneered the introduction of the Health Code System
in 1982, for evaluating/ rating its credit portfolio.

The Bank's association with the capital market goes back to 1921 when it entered into an
agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It is
an association that has blossomed into a joint venture with BSE, called the BOI Shareholding
Ltd. to extend depository services to the stock broking community. Bank of India was the first
Indian Bank to open a branch outside the country, at London, in 1946, and also the first to
open a branch in Europe, Paris in 1974. The Bank has sizable presence abroad, with a
network of 29 branches (including five representative office) at key banking and financial
centres viz. London, Newyork, Paris, Tokyo, Hong-Kong and Singapore. The international
business accounts for around 17.82% of Bank's total business.

MISSION

“To provide superior, proactive banking services to niche markets globally,

while providing cost-effective, responsive services to others in our role as a
development bank, and in so doing meet the requirement of stakeholders”.
VISION

“To become the bank of choice for corporates, medium business and
upmarket retail customers and to provide cost-effective developmental
banking for small business, mass market and rural markets”.

QUALITY POLICY
3.2 The current bank

The earlier holders of the Bank of India name had failed and were no longer in existence by
the time a diverse group of Hindus, Muslims, Parsis, and Jews helped establish the present
Bank of India in 1906. It was the first bank in India promoted by Indian interests to serve all
the communities of India. At the time, banks in India were either owned by Europeans and
served mainly the interests of the European merchant houses, or by different communities and
served the banking needs of their own community.

The promoters incorporated the Bank of India on 7 September 1906 under Act VI of 1882
with an authorized capital of Rs. 1 crore divided into 100,000 shares each of Rs. 100. The
promoters placed 55,000 shares privately, and issued 45,000 to the public by way of IPO on 3
October 1906; the bank commenced operations on 1 November 1906.

The lead promoter of the Bank of India was Sir Sassoon J. David (1849-1926). He was a
member of the community of Baghdadi Jews, which was notable for its history of social
service and included the Sassoons. He was a prudent banker, and remained the Chief
Executive of the bank from its founding in 1906 until his death in 1926.

The first board of directors of the bank consisted of Sir Sassoon David, Sir Cowasjee
Jehangir, J. Cowasjee Jehangir, Sir Frederick Leigh Croft, Ratanjee Dadabhoy Tata,
Gordhandas Khattau, Lalubhai Samaldas, Khetsety Khiasey, Ramnarain Hurnundrai,
Jenarrayen Hindoomull Dani, Noordin Ebrahim Noordin.

 1906: Founded with Head Office in Mumbai.

 1921: Bank of India entered into an agreement with the Bombay Stock Exchange to
manage its clearing house.
 1946: Bank of India opened a branch in London, the first Indian bank to do so. This
was also the first post-WWII overseas branch of any Indian bank.
 1950: Bank of India opened branches in Tokyo and Osaka.
 1951: Bank of India opened a branch in Singapore.
 1953: Bank of India opened a branch in Kenya and another in Uganda.
 1953: Bank of India opened a branch in Aden.
 1955: Bank of India opened a branch in Tanganyika.
 1960: Bank of India opened a branch in Hong Kong.
 1962: Bank of India opened a branch in Nigeria.
 1967: The Government of Tanzania nationalized Bank of India’s operations in
Tanzania and folded them into the government-owned National Commercial Bank,
together with those of Bank of Baroda and several other foreign banks.
 1969: The Government of India nationalized the 14 top banks, including Bank of
India. In the same year, the People's Democratic Republic of Yemen nationalized
Bank of India’s branch in Aden, and the Nigerian and Ugandan governments forced
BoI to incorporate its branches in those countries.
 1970: National Bank of Southern Yemen incorporated Bank of India’s branch in
Yemen, together with those of all the other banks in the country; this is now National
Bank of Yemen. BoI was the only Indian bank in the country.
 1972: Bank of India sold its Uganda operation to Bank of Baroda.
 1973: Bank of India opened a rep in Jakarta.
 1974: Bank of India opened a branch in Paris. This was the first branch of an Indian
bank in Europe.
 1976: The Nigerian government acquired 60% of the shares in Bank of India
(Nigeria).
 1978: Bank of India opened a branch in New York.
 1970s: Bank of India opened an agency in San Francisco.
 1980: Bank of India (Nigeria) Ltd, changed its name to Allied Bank of Nigeria.
 1986: Bank of India acquired Paravur Central Bank (Karur Central Bank or Parur
Central Bank) in Kerala in a rescue.
 1987: Bank of India took over the three UK branches of Central Bank of India (CBI).
CBI had been caught up in the Sethia fraud and default and the Reserve Bank of India
required it to transfer its branches.
 2003: Bank of India opened a representative office in Shenzhen.
 2005: Bank of India opened a representative office in Vietnam.
 2006: Bank of India plans to upgrade the Shenzen and Vietnam representative offices
to branches, and to open representative offices in Beijing, Doha, and Johannesburg. In
addition, Bank of India plans to establish a branch in Antwerp and a subsidiary in
Dar-Es-Salem, marking its return to Tanzania after 37 years.
 2007: Bank of India acquired 76 percent of Indonesia-based PT Bank Swadesi.
3.3PERFORMANCE OF BANK OF INDIA
SECTOR-WISE ADVANCES OF BANK OF INDIA(PERCENTAGE-WISE)

RETAIL LOANS 12
CORPORATE FINANCE 53
SMALL AND MEDIUM ENTERPRISES 22
AGRICULTURE 13

3.3RETAIL PRODUCTS OF BANK OF INDIA

ACCOUNTS & DEPOSITS

Saving Account

- Basic Savings Account

- BOI Savings Plus Account Scheme

- Star Diamond Savings account

- Star Sunidhi Tax Savings Deposit

Salary Account

- Payroll

- Classic

- Defence

- Star Power Salary Accounts scheme with ‘0’ balance

- Pension saving bank account

Current Account

- Star Diamond Current Account

- Star Current Deposit Plus Account

Fixed Deposits

- Regular Fixed Deposit

- Star Flexi Recurring Deposit

- Star Shatabdi Deposit

- Star Retail Floating Rate Deposit

- Star Sunidhi Tax – Saving Deposit

- Recurring Deposit
 - Monthly/Quarterly Interest Certificate

- Double Benefit Deposit Account

- Current

International Debit cum ATM Card

Credit Cards

- Gold Card International

- Gold Card

- India card

- Pensioners’ Credit Card

Online Banking Facilities

- Star Connect Internet Banking

- BOI e-Pay

- Star Insta Remit

- Star Share Trade

- Star e-Remit

- E-Payment of central Excise and Service Tax

- DGFT Online e-payment

- Online Booking of Indian Airlines Ticket

Loans:

1) Star Education Loan

2) Star Home Loans

3) Star Holiday Loans

 4) Star Mortgage Loan

5) Star Auto Fin

6) Star Personal Loan

7) Star IPO Loan

8) Star Pensioner Loan

9) Star Mahila Gold Loan Scheme

STAR HOME LOANS

Eligibility: Salaried Employees/Professionals/Self-Employed/Business Personal/ corporate/

NRI/ Person of Indian origin

Purpose:

- To purchase/construct house/ Flat

- To purchase a plot of land for construction of house

- To renovate/extend/repair existing house/Flat

Quantum of advance:

- For construction/purchase of house/Flat Rs 300 lakhs

- For repair/renovation/extension/addition Rs 20 Lakhs

- For purchase of plot Rs 30 Lakhs

Repayment:

- Maximum 20 yrs – highly Flexible

- Progressive/step-up EMI permitted

Interest:
 - Upto 5yrs – 9.25%, 5-10 yrs – 9.5%, 10-20 yrs – 9.75%

Margin: Upto Rs 10 Lakhs – 15%, Above Rs 10 lakhs – 20%

Security: Mortgage on land/Flat/House of the property to be financed

Additional Incentives:

- Free personal accident insurance cover

- Life insurance cover on optional basis

- Free credit card of our bank for first year on complimentary basis

STAR AUTOFIN LOANS:

Eligibility: salaried employees/ professionals/ self-employed/ high net worth individuals

etc.

Purpose: Purchase of 2/4 wheelers like car, scooter, motorcycles etc.

Quantum of advance:

- Max Rs 25 lakhs

- 24 times of gross monthly emoluments in case of salaried employees

- 2 times of gross average annual income as per last 3 IT returns for others

Interest: 11.25% per annum at monthly rest (concession of 0.25% for women)

Security: Hypothecation of vehicles to be purchased out of banks finance

Repayment:

- Car max 72 EMIs

- Two wheelers max 60 EMIs

STAR MORTGAGE LOANS:

It is an attractive loan to take care of varied requirements against security of non-agricultural
property.

Eligibility: People engaged in trade/commerce/business, professionals, self employees,

corporate, high net worth individuals, agriculturists etc.

Purpose:

- To meet the credit requirements of trade/commercial activities etc.

- To meet marriage/ medical/ educational expenses etc.

- To purchase/ construct house/flat. Purchase of plot etc.

- To purchase 2/4 wheeler vehicles

- For going on tours/excursion/pilgrimage etc

Quantum of Advance:

- Agriculturists - Max Rs 2 lakhs

- For other individuals – Max Rs 50 Lakhs

- For Proprietorship Firms/ partnership firms/companies etc. – max Rs 100 lakhs

Repayment:

- In accounts where regular overdraft is not proposed, max 8 years by way of EMIs

- In case of agriculturists, repayment to be related to generation of farm income etc.

Security: Mortgage over non-agricultural property

Interest: 13.25% (Concession of 0.25% for women)

Margin:

- Salaried employee – 30%

 - Other – 50% of the value of the property

Additional Incentives:

- Interest concession available to women beneficiaries

STAR PERSONAL LOANS

• Star Personal Loan Scheme provides loan to meet various Personal requirements of
customers and their family.

• Bank offers loans for marriage expenses, medical expenses, educational expenses,
purchase of consumer durables etc. Maximum quantum of advance is Rs.10.00 lakhs,
depending upon the income, with very attractive interest rate and easy repayment plan.
Product BOI Star Personal Loan Scheme
Eligibility Salaried employees, Professionals and individuals with high
networth, regular pensioners or family pensioners drawing regular
monthly pension through Branch, Staff members, retired employees
(other than dismissed/compulsorily retired) of our Bank.

Types of advance Demand/Term Loan/Overdraft (reducible as per repayment schedule)

Overdraft limit (not reducible as per repayment schedule) maximum
upto
Rs.1 lac to confirmed permanent employees of Central/State
Govt./Reputed Corporates and PSU's.
Purpose Clean/Unsecured Secured loans
loans
• Repayment of existing
• Marriage expenses of self, housing loans from other
son, banks/Financial
daughter or a dependent near Institutions, etc.
relative. • Education of self, spouse,
• Medical Expenses incurred/to children, near dependent
be incurred for self, spouse, relatives.
children, dependent near
 relative.
• Purchase of consumer
• For education of self/spouse/
durables, computers,
children/ near dependent
professional equipments
relatives.
etc
• Any other personal expenses
of bonafide nature as
approved by the Bank
Max. Loan Rs.2.00 lacs Rs.10.00 lacs

Min. Size of loan Minimum size of loan :-At Metro and

Minimum size of
Urban Centres : Rs.10,000/-
loan :-At Metro and
At Rural and Semi Urban centres: No
Urban Centres : Rs.10,000/-
minimum size of loan.
At Rural and Semi
Urban centres: No
minimum size of loan.
Eligible Amount 10 times of net monthly emoluments 20 times of Gross
in case of salaried employees monthly emoluments in case of
OR salaried
50% of gross annual income as per employees
last Income Tax Return for OR
Professionals/Individuals of high 100% of gross average annual
networth income as
per last three Income Tax Returns
for
Professionals/
Individuals of high
networth
Rate of Interest 0.25% above BPLR 12.25% p.a at At 0.50% below BPLR Min.
(On daily reducing monthly rests. Interest concession to 11.50% p.a. at monthly rests.
balances) women - 0.50% [All borrowers to be Interest concession to women -
women] For Senior Citizens – 0.50% [All borrowers to be
w.e.f.01.04.09 10.75% Financing secured under tie- women]
up arrangement – 11.50%
Repayment 36 Equated monthly instalments Maximum 60 Equated monthly
w.e.f. one month after first instalments w.e.f. one month after
disbursement. Exceptional cases upto first disbursement from loan
60 months account.
Security Equitable/Legal Mortgage of commercial or residential properties.
Hypothecation charge on assets acquired.

Collateral security in the form of pledge of gold/gold ornaments,

NSC/Indira Vikas Patra, Bonds, Assignment of LIC policies, Relief
Bonds etc.
Processing/Handling One time @ 1.10% of loan amount Min. Rs.1000/- and Max. Rs.5000/-
charges Pensioners: One time @ 1.10.% of loan amount, min. Rs. 500/- and max.
Rs. 1,100/-.
No processing charges for Senior Citizens (60 years & above)
Other Charges Stamp charges for documents : At actuals.
Loan Agreement copy charges: As applicable

STAR EDUCATION LOAN

1.OBJECTIVE & PURPOSE:

The Star Educational Loan Scheme aims at providing financial support from the bank to
deserving/ meritorious students for pursuing higher education in India and abroad. The main
emphasis is that every meritorious student is provided with an opportunity to pursue
education with the financial support on affordable terms and conditions.

2. ELIGIBILITY CRITERIA:

a) STUDENT'S ELIGIBILITY:

• Should be an Indian National;

 • Secured admission to professional/technical courses in India or Abroad through
Entrance Test/Merit based selection process.
• Good academic career.
• The student should not have outstanding education loan from any other Institution.
• Father/Mother should be co-borrower.
• Branch nearest to the permanent residence of student will consider the loan.

b) ELIGIBLE COURSE:
(i) Studies in India (Indicative list):

• Graduation courses : BA, B.Com., B.Sc., etc.

• Post Graduation courses : Masters & Phd.
• Professional courses : Engineering, Medical, Agriculture, Veterinary, Law, Dental,
Management, Computer, etc
• Computer certificate courses of reputed institutes accredited to Department of
Electronics or institutes affiliated to university.
• Courses like ICWA, CA, CFA, etc.
• Courses conducted by IIM, IIT, IISc, XLRI, NIFT, NID and other Institutes set up by
Central/State Govt.
• Evening courses of approved institutes.
• Other courses leading to diploma/degree, etc. conducted by colleges/universities
approved by UGC/Govt./AICTE/AIBMS/ ICMR, etc.
• Courses offered by National Institutes and other reputed private institutions with prior
approval of Head Office.
• Courses offered in India by reputed foreign universities with prior approval of Head
Office.

Note: 1. Professional courses not approved by AICTE and conducted by Institutes not
recognised by State Universities is outside the purview of the eligibility under the scheme.
2. Special scheme for students admitted to IITs, at concessional rate of interest.
 (ii) Studies abroad:

• Graduation: For job oriented professional/technical courses offered by reputed

universities.
• Post Graduation: MCA, MBA, MS, etc.
• Courses conducted by CIMA - London, CPA in USA, etc.

3. EXPENSES CONSIDERED FOR LOAN:

• 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.
• Insurance cover for the student.
• Any other expense required to complete the course - like study tours, project work,
thesis, etc..

4. QUANTUM OF FINANCE:

Need based finance subject to repaying capacity of the parents/students with margin and the
following ceilings:

• Studies in India - Maximum Rs.10.00 lakh

• Studies abroad - Maximum Rs.20.00 lakh.

5. MARGIN:

Upto Rs.4 lakh: Nil

Above Rs.4 lakh - Studies in India: 5%
Studies abroad: 15%
· Scholarship could be included in margin.
· Margin to be brought in on year to year basis as and when disbursements are made.

7. SECURITY:

Upto Rs. 4 lakh: No security

Above Rs.4 lakh & upto Rs.7.5 lakh: Collateral security in the form of a suitable third party
guarantee.
Above Rs.7.5 lakh: Collateral security of suitable value or at the discretion of the Bank
suitable third party guarantee along with the assignment of future income of the student for
payment of instalments.
Note: The security can be in the form of land/building/Govt. Securities/Public Sector
Bonds/NSC/KVP/LIP/ Banks Term Deposit etc., in the name of
Student/Parent/Guardian/Guarantor with suitable margin.

7. RATE OF INTEREST: (w.e.f. 01.04.09)

• Upto Rs.4.00 lacs – 2.50% below BPLR, Min. 9.50% p.a.

• Above Rs.4.00 lacs upto Rs.7.50 lacs – 2.00% below BPLR, Min. 10.00% p.a.
• Above Rs.7.50 lacs - 1.25% below BPLR, Min. 10.75% p.a.
• Simple interest during the repayment holiday/moratorium period. Penal interest @2%
for loans above Rs.4 lakh for the overdue amount and overdue period.
• Int. Concession of 0.50%p.a. for woman beneficiaries for limits upto Rs.50,000/- and
1% for limits over Rs.50,000/-
• 1% int. concession if interest is serviced during moratorium period, where repayment
holiday is specified for interest/repayment under the scheme (concession available for
moratorium period)

No processing charges.

One time charges for any deviations from the scheme norms including approval of courses
outside the scheme -

Upto Rs.4.00 lacs - Rs. 500/-

Over Rs.4.00 lacs upto Rs.7.50 lacs - Rs.1000/-
Over Rs.7.50 lacs upto Rs.20.00 lacs - Rs.2000/-

In respect of loans availed by borrowers from rural areas from the Rural Branches – Charges
Nil

8. INSURANCE : All the student borrowers are offered a specially designed Term Insurance
cover and the premium can be included as an item of finance.

9. REPAYMENT:
Repayment holiday/Moratorium : Course period + 1 year or 6 months after getting job,
whichever is earlier.

• The loan is to be repaid in 5-7 years after commencement of repayment.

10. BANK CHARGES:

Processing/upfront charges For Studies in India- NIL.
For Studies Abroad – Rs.1000 for issuance of
sanction letter for
obtention of VISA.
Amount refundable on availing loan.
Document /Stamp Charges At Actuals
Change of Institution Studies in India – Rs.250/-
Studies Abroad- Rs.500/-
Agreement(copy to Loan upto Rs.2 lacs- Rs. 25/-*
borrower) Xerox charges Loan over Rs.2 lacs- Rs.100/-*
Plus copying charge of Rs.1 per page

One time charges for any deviations from the scheme norms including approval of courses
outside the scheme –
Upto Rs.4.00 lacs - Rs.500/-
Above Rs.4.00 lacs to Rs.7.50 lacs - Rs.1,000/-
Over Rs. 7.50 lacs upto Rs.20.00 lacs – Rs.2,000/-

In respect of loans availed by borrowers from rural areas from the Rural Branches – Charges
NIL.
11. OTHER CONDITIONS:
i) Loan to be disbursed in stages as per requirement / demand, directly to the Institution/
Vendors of books/equipments/instruments to the extent possible;
ii) Student to produce mark list of previous term/semester before availing next instalment ;
iii) Student / Parent to provide latest mailing address, in case of any change ;
iv) Student /Parent to inform Branch immediately on change of course /completion of
studies/termination of studies/ any refund of fees by college /institution /successful placement
/obtention of job/change of job etc.,

PROCESSING OF RETAIL LOAN

CHAPTER 4

DATA INTERPRETATION AND ANALYSIS

Average household disposable income

Thousand; Indian rupees;
Source: Mckinsey

ANALYSIS:

The above figure depicts that the compounded annual growth of average household
disposable income will be 3.6%, 5.8% and 5.3% for rural, urban and all India region.

INTERPRETATION:

This reflects the immense opportunity for retail advances which will be availed as home
loans, auto loans and personal loans
Source: MGI India Consumer Demand Model V1.0

ANALYSIS:

 Middle class to swell from just under 50 million today to about 583 million by 2025

 By 2025, India will produce 2 million globals annually

 Share of incomes of the middle class and globals will rise from less than 30% today to
more than 80% by 2025

INTERPRETATION:

A change in shape in India’s income period clearly indicates that India is gearing up for the
retail banking boom and highlights the immense potential of retail banking in India
.
Bank of India, Jamshedpur Branch

FIGURES IN
CRORES

TOTAL CORPORATE AGRICULTU

YEAR ADVANCES RETAIL LOANS LOANS SME RE
2007-
08 460.56 79.25 233.9 108.69 38.72
2008-
09 530.77 90.23 270.16 127.38 43
2009-
10 645.03 97.74 328.96 152.22 66.11

Source: Bank of India, Jamshedpur Region

%SHARE OF
YEAR RETAIL LOANS
2007-
08 17.2
2008-
09 16.99
2009-
10 15.15
ANALYSIS:

The share of retail loans as a percent of total advances has lost its share from 17.2%in 2007-
08 to 15.15% in 2009-10. From the figures provided by Bank of India it is clearly revealed
that though the retail advances have increased from 79.25 crore in 2007-08 to 97.74 crore in
2009-10 but its share has clearly showed a decline to 15.15% in 2009-10 expressed as a
percentage of total advances

INTERPRETATION:

The reasons of decline of retail loans may be due to the following reasons

1. Bank of India does not have a good innovative products to woo retail customers

2. Bank of India is not pushing its retail lending business owing to high processing costs
as and lower profit margins as compared to other loans.
 RETAIL
YEAR LOANS NPA
2007-
08 79.25 0.28
2008-
09 90.23 0.37
2009-
10 97.74 2.16

Source: Bank of India, Jamshedpur Region

FIG: INCREASING NPA IN RETAIL LOANS

ANALYSIS

Analysis of the above data clearly that there has been a dramatic increase in NPA levels of
retail loans from 2007-08 to 2009-10.
Interpretation

This clearly reveals that NPA management is not upto proper standards. It also exposes the
credit appraisal process is not taking place in apppropriate manner leading to increasing NPA
in retail loans.

SURVEY

Q1. What is the name of the Branch you work in?

Q2. What is the type of Branch?

a) Rural

b) Semi-Urban

c) Urban

Q3. What is the quantum of advances of your branch for?

a) Fiscal year 2008-2009

b) Fiscal year 2009-2010

Q4. What is the quantum of retail advances for?

a) Fiscal year 2008-2009

b) Fiscal year 2009-2010

Q5. What is the percent NPA for retail loans for?

a) Fiscal year 2008-2009

b) Fiscal year 2009-2010

Q6. What is the request for new proposal of retail loans in your branch for?

a) Fiscal year 2008-2009

 b) Fiscal year 2009-2010

Based on the above survey we collected data from bank officials of six branches under
the Jamshedpur zone and based on the data

Note: All figures in Crores Rupees unless mentioned

(URBAN
SAKCHI BRANCH )

TOTAL RETAIL %NPA IN RETAIL RETAIL LOANS(IN

ADVANCES ADVANCES LOANS LACS)
2008- 2009- 200 200 2009-
09 10 8-09 9-10 2008-09 10 2008-09 2009-10
9.64 10.78 1.28 1.25 0.54 2.14 59.7 67.5

TELCO TOWN (URBAN

BRANCH )

TOTAL RETAIL %NPA IN RETAIL RETAIL LOANS(IN

ADVANCES ADVANCES LOANS LACS)
2008- 2009- 200 200 2009-
09 10 8-09 9-10 2008-09 10 2008-09 2009-10
7.89 7.68 1.08 1.25 1.08 1.45 44.3 43.2

JUGSALAI (URBAN
BRANCH )

TOTAL RETAIL %NPA IN RETAIL RETAIL LOANS(IN

ADVANCES ADVANCES LOANS LACS)
2008- 2009- 200 200 2009-
09 10 8-09 9-10 2008-09 10 2008-09 2009-10
4.18 4.6 0.55 0.52 0.58 1.89 36.76 41.7

CIRCUIT HOUSE (URBAN

BRANCH )

TOTAL RETAIL %NPA IN RETAIL RETAIL LOANS(IN

ADVANCES ADVANCES LOANS LACS)
2008- 2009- 200 200 2009-
09 10 8-09 9-10 2008-09 10 2008-09 2009-10
4.22 5 0.64 0.88 0.28 1.46 59.7 56.6

ADITYAPUR (URBAN
BRANCH )

TOTAL RETAIL %NPA IN RETAIL RETAIL LOANS(IN

ADVANCES ADVANCES LOANS LACS)
2008- 2009- 200 200 2009-
09 10 8-09 9-10 2008-09 10 2008-09 2009-10
6.45 8.6 0.35 0.45 0.45 0.45 34.45 47.8

DHATKIDIH BRANCH

TOTAL %NPA IN RETAIL RETAIL LOANS(IN

ADVANCES RETAIL ADVANCES LOANS LACS)
2008- 2009- 2008- 2009-
09 10 09 2009-10 2008-09 2009-10 2008-09 10
6.16 6.88 1.09 1.12 0.61 2.21 48.9 49.8
ANALYSIS

INCREASING NPA IN RETAIL LOANS

SAKCHI BRANCH

TELCO TOWN BRANCH

JUGSALAI BRANCH
CIRCUIT HOUSE BRANCH
ADITYAPUR BRANCH

DHATKIDIH BRANCH
INTERPRETATION

Figures clearly shows increasing levels of NPA in Retail loans from 2008-09 to 2009-10.
This may be attributed to various reasons like

Credit appraisal process of retail loans is not being done effectively resulting in NPA

During this period there was a global recession around with India experiencing severe
slowdown with a number of employee retrenchment activities taking place resulting in loss of
jobs. Due to this many people were unable to fulfill their financial commitments resulting in
increased NPA

SHARE OF RETAIL LOANS AS A PERCENT OF TOTAL ADVANCES

SAKCHI BRANCH
TELCO TOWN BRANCH

JUGSALAI BRANCH
CIRCUIT HOUSE BRANCH

ADITYAPUR BRANCH
DHATKIDIH BRANCH

INTERPRETATION:

The above survey shows the declining share of retail loans in 2009-10 as compared to 2008-
09 clearly highlighting the decline share of retail loans. Except for Circuit House branch and
Telco Town Branch all the other branches have recorded a decline in share of retail loans in
total advances. This suggests that there is retail credit growth is not at the same pace as other
advances growth, resulting in declining share of retail credit.
 CHAPTER NO- 5-

5.1FINDINGS

From the above report it is clear that over the next 20 years there will be a change in
demographics of income pyramid of India with the result that the middle class will
swell up to 585million thus creating a huge opportunity in the retail banking segment
which Bank of India needs to tap.

Analysis of six branches of Bank of India, Jamshedpur region reveal that there has been
a dramatic increase in NPA of retail loans which needs to immediately taken care of.

Analysis of these branches further reveal that the share of retail loans in the advances
portfolio has been dwindling. The reason which I undermined is that more number of
persons to process retail loans which are small advances as compared to corporate
loans where bank earns maximum profits. The cost of processing of multiple loans of
smaller levels to retail customers leads to higher processing costs for the bank.This is
the primary reason why bankers donot push retail products particularly loans other
than home and autofin loans.
5.2SUGGESTIONS

Bank of India need to expand and diversify by focussing on non urban segment as well
as varied income and demographic groups

Rural areas offer tremendous potential too which needs to be exploited

 Bank of India should ensure efficient distribution channels, better product innovation
and better process efficiency to tap the booming retail banking potential and thereby
increase the share of retail loan portfolio in the total advances period

Identify loans which are likely to turn NPA and try out various measures like
appropriate restructuring of loans

 By increasing the moratorium period

 Rescheduling of the payment period

With the customer through mutual agreement.

Ensure that the credit appraisal is effective so that loan is not disbursed to wrong
borrowers.
5.3CONCLUSION

Retail Banking provides tremendous opportunity for banks like Bank of India. Banks like
Bank of India needs to innovate new differentiated retail products, customization of its
products to woo new customers and tap the tremendous potential which retail banking offers.
It is the kind of technology used and the efficiency of operations that would the competitive
edge between banks for success in the Indian retail banking sector. This would also result in
better retail growth for Bank of India resulting in retail advances growth keeping pace with
other advances growth.

Also Bank of India needs to reach out in the rural markets and markets in the north eastern
region of the country where it has limited number of branches and unlock the huge potential
in retail banking segment. But while disbursing retails loans the credit appraisal process
should be carried out effectively to ensure that loan is not disbursed to wrong borrower. Also
loans which are likely to turn NPA should be recognized and appropriate steps should be
taken to ensure that they dont turn NPA.

Home loans and autofin loans comprise maximum about 60% of the retail loan portfolio.
These are registering high growth but other retail loans like personal,educational loans have
comparative low growth and needs to be marketed appropriately to unleash the potential of
retail lending.
 ANNEXURE
BIBLIOGRAPGHY

Books
Theory and Practice of Banking