Beruflich Dokumente
Kultur Dokumente
Presented by:
Ankit Pawar
Eshaan Chhagotra
Jaideep Singh
Swadesh
Vrinda Sharma
• ‘Save now.. enjoy later’
• ‘Buy now.. Pay later’
• Use of credit by individuals and families for
personal needs
• Vs. Business credit
• ‘Credit purchase’ vs. ‘Loan of money’
Popularity of Consumer Finance
• Dual forces
– Keenness of the consumers
• Indian middle class
• Conscious of standard of living
– Hypothecation contract
• Hypothecation is the practice where a borrower pledges collateral
to secure a debt
• Common feature of consumer contracts involving mortgages – the
borrower legally owns the house, but until the mortgage is paid off
the creditor has the right to take possession in the hypothetical
case that the borrower fails to keep up with repayments
Credit sale contract
• Ownership and possession is transferred on
payment of first installment
Typical Concepts
• Credit potential
• True Interest
– P*R*T/12
II Add on rate or flat rate- Interest is calculated
on the full amount of the original principal.
The interest amount is immediately added to
the original principal and payments are
determined by dividing principal plus such
interest by the number of payments to be
made.
Example1. An amount of Rs. 1000 is borrowed @5% payable in two half
yearly installments. How the interest payable differs in (I) true rate
and (II) add on rate.
Solution.(I) True rate- Since the repayment is to be made in two equal
installments we make calculations as under for simple interest:
Rs. 1000 used@5% for 6 months interest being :Rs 25
Rs.500 used @5% for next 6 months interest being:Rs12.50
Total interest: Rs. 37.50
Equated two installments= (Rs.1000+Rs.37.50)1/2=Rs.518.750
(II) Add on rate
Interest on Rs.1000@5% for one year=Rs.50
Equated two installments=(Rs. 1000+Rs.50)1/2=Rs. 525
• Compound interest- Interest is calculated on
the original principal plus all interest accrued
to that point. Since interest is paid on interest
as well as on the amount borrowed, the
effective interest rate is greater than the
simple interest rate.
D. Interest rebate on repayment
• Many a times, however, a loan may be completely repaid
before it is due.
• When flat rate of interest is charged, pre-payments implies
that the lender obtains some interest that is unearned. The
borrower in such case is actually paying an even higher
effective rate since he does not use the funds for the length
of time of the original loan contact.
• Some consumer finance proposals make provisions for an
interest rebate if loan is prepaid. One of the common
formula used is ‘rule of 78’. Application of the rule of 78
yields the percentage of the total interest amount that is to
be refunded to the borrower in the event of pre-payment.
E. Products under consumer finance
a) Pre-sanction stage-
I. Submission of proposal- On a prescribed format supplied
by a financier. Contents-
Personal profile
Employment credentials
Financial aspects
Product details
Financial requirements
Guarantor profile
Enclosures required
II. Appraisal of proposal-
a) Not done by some hard and fast rules.
b) Credit scoring system may be evolved.
c) Parameters like age, status, salary, type of
security being offered, past payment records,
owned assets are assigned weights for
parameter depends on personal outlook of
the evaluator.
III. Entering the agreement-
• Generally the agreement is in Hire purchase mode.
• This agreement for vehicles needs separate
arrangement since terms are different.
• A memorandum of terms and initial payments is
entered, which contains the different clauses,like
amount advanced, charges, premium, caution
deposit, stamp duties etc.
FINANCING
• The aspects of finance which are important are cost, time and
quantum.
• The cost of funds should be minimum so as to have higher profit
margin. Required finances should be available as and when
required to capture more and more business.
• Further, for debt funds there should be a mix of long term and
short term. At initial stage more funds needed are short term and
gradually long term funds requirement increases. Stability and
growth of business suggest the ability to use a large portion of
permanent sources.
• The quantum of fund needed changes as scale of operation
changes. The quantum should have reasonable mix of debt
and equity funds. Such businesses are permitted to have
higher debt equity ratio. Only those consumer finance
companies can raise higher proportion of debt which have
respectable networth. In india such companies resort to
public deposits i.e. fixed deposits with a time span of one to
five years. Such companies are termed as NBFCs which have
been discussed in earlier chapters.
MARKETING
• Aggressive marketing strategies need to be developed to
attract more and more customers.
• Satisfactory services to existing clients also stimulated future
business. Existing clients act as ambassadors of the business.
Consumer Credit Act 1974
• The Consumer Credit Act and all of the various
regulations and orders which govern consumer
finance services are very strict on what
information must be presented to the consumer,
when it must be presented, and the order and
manner in which it is to be shown. This is so the
consumer is in no doubt as to what they are
committing to, and are able to make like for like
comparisons between various credit providers.
Consumer Credit Act 1974
Disclosures made:
• Nature of the agreement (fixed sum loan, credit card etc)
• Parties to the agreement (the creditor and you)
• Key Financial Information, including amount of credit, credit limit, agreement
duration, total amount repayable, APR, and repayment requirements.
• Other Financial Information, including description of gods or services, cash
price of goods, any advance payments, total charge for credit, rate of interest,
and any variations in this rate.
• Key Information, including cancellation rights (or absence of), early
repayment rights, and all other statutory rights and remedies available to you
• A signature box – if you have not already signed and, where applicable, any
separate boxes indicating the optional purchase of additional products (such
as payment protection insurance)
Consumer Credit Act 1974
Cooling off and your right to cancel
You will benefit from a cooling off period if the credit agreement was made in one of the
following ways:
• For agreements signed away from the creditor’s normal business premises – i.e. at your
home, place of work or at an exhibition stand
• For agreements made at a distance (this also includes banking, insurance, pensions and
investments)
• For financial products and services marketed by an intermediary or broker (even where this is
face to face)
• For agreements which fall under (1), you will have a cooling off period of 5 days, which begins
from the time you receive the second copy of the agreement (containing the cancellation
form). For contracts which fall under (2) and (3), you benefit from a 14 day cooling off period
(30 days for life insurance and personal pensions). Unlike the cooling off period for goods
bought under the Distance Selling Regulations (DSRs), the creditor may make a reasonable
charge for any service (such as insurance cover) which was operating during this time.
• There are specific guidelines on how you should cancel the contract, which must be notified
to you by the creditor before or immediately after the contract is made. If the creditor does
not make this information available to you, then your cooling off period will not begin until
this happens.
Consumer Credit Act 1974
Credit Cards – Section 75
• Section 75 of the Consumer Credit Act imposes equal
liability on the creditor for breaches by the supplier. In
other words, if the company you are buying from goes
bust or disappears, or if the goods turn out to be
faulty and you can’t get recompense from that
company, the credit card company shares
responsibility to refund you for the entire amount.
• More recently, section 75 was also extended to cover
transactions made overseas or to foreign companies.
Consumer Credit Act 1974
• CCA Request – Section 77 – 79
• Under these two sections of the Consumer Credit Act, it is your right to request
a copy of the executed credit agreement from the creditor, along with specific
and current information concerning the debt (s 77 relates to fixed-sum loan
agreements, s 78 refers to running-account credit (credit cards) and s 79 to
hire agreements).
• With regard to loans, the specific information must include:
• The total sum to be paid, as per the agreement
• The sum still outstanding and the due dates for each installment
• The total sum payable, if different from the agreement.
• The creditor has a period of 12 days working days in order to provide the
agreement and the statement. If they cannot provide the information, the debt
cannot be enforced until they do. If the creditor are still unable to provide the
documents after one month, they commit a criminal offence.
Consumer Credit Act 1974
Ending a credit agreement
• The Consumer Credit Act (CCA) gives the consumer the right to settle a fixed-sum credit
(loan) agreement early, by giving notice to the lender and paying the outstanding sum in
full. New regulations prescribe exactly how the outstanding sum should be calculated, so
there should be no concerns of being ripped off by the lender. Furthermore, consumers
have the right to claim a rebate of the charges for credit (less taxes, duties, fees or charges
payable). The amount of the rebate is defined in the Act as:
…the difference between the total amount of the repayments of credit that would fall due
for payment after the settlement date if early settlement did not take place
• The settlement date for the purposes of calculating the rebate will generally be 28 days
after the consumer notifies the lender of their intention to settle the agreement early,
although this can be deferred.
• Similar to s 77-79 of the Consumer Credit Act, s 97 allows the consumer to request a
statement containing information pertaining to early repayment. Failure to do so within
12 working days renders to debt unenforceable until the statement is provided.
Consumer Credit Act 1974
• Terminating an agreement
In the case of conditional sale, the agreement
can be terminated at any time before payment
of the last installment, provided at least one
half of the total price has been paid and
reasonable care of the goods has been taken.
For hire agreements the agreement can only
be terminated after 18 months (unless an
earlier date is mentioned on the contract).
Default and Arrears
Default on payments
• The Consumer Credit Act (CCA) requires certain procedures be followed and
specific documentation be provided in the event that two or more payments are
missed. Within 14 days of the second default payment, the lender must send you a
notice of default to include the following:
• Exact details of the breach – i.e. how much is owed
• How this can be remedied – i.e. what action the consumer must take and by when
• Whether any additional sums of money (default sums) have been incurred as a
result and when they must be paid
• Consequences of further default or inaction
• Restrictions (if any) on the lender’s right to repossession
• The notice of default will not be enforceable if the procedure is not followed in this
way by the lender. Furthermore, the goods cannot be repossessed without first
serving this notice and waiting for the required 14 days to enable you to respond.
Default and Arrears
Applying for a Time Order
• A further consumer protection measure the
Act incorporates is the ability of the consumer
to apply for a ‘time order’ from the courts. If
successful, this will provide you with a longer
amount of time to pay, in the context of your
personal situation. To avoid further action
from the lender in the meantime, you must
write to them advising them of this intention.
Sources of consumer finance
There are various sources
• The cheapest is public sector banks
• Loans ranging from personal loans to auto loans
• There are many advantages for banks of giving consumer
loans
• Examples are consumer installment credit which include
those loans which are repaid by periodic installment
payments.
• Consumer durable loans are provided to individuals for
buying consumer durables with minimum annual gross
income of 50,000.
Consumer credit contracts
• It is a signed contract that documents the
terms and conditions of the loan.
• It has specific details of borrower and lender ,
the amount of loan, length of loan and
interest rate to be charged.
• City bank is pioneer in consumer finance in
the world
Vehicle finance
• Vehicle finance is available to salaries persons
and professionals with adequate paying capacity.
• Its popularity has increased because many
customer can get vehicle of their choice by paying
monthly installments.
• Many banks have tie ups with auto mobile
manufacturers.
• On an avrage 90% of vehicles that are sold are
financed.
Terms and conditions for vehicle finance
At national level
• HUDCO(Housing and Urban Development
Corporation)
• HDFC(Housing Development Finance Corporation)
• NHB(National Housing Bank)
• Insurance Companies like LIC,GIC
• Central and State government housing boards
• Commercial banks
National Housing Bank
• NHB was established in 1988.
• The general supervision, direction and
management of affairs and business of NHB is
carried out by board of directors .
• The BOD consist of one chairman with 13
directors.
• Since its inception the NHB has been pursuing
the objectives of a sound housing finance in
India.
Functions of NHB
• It promotes housing finance companies.
• It conducts various programs to train HFC
employees, banks and other financing agents in
the sector.
• It helps investors confidence in HFC’s through
regular mechanism.
• It lends financial support to various institutions.
• It undertakes direct financing to housing projects
of public agencies and local bodies.
Business activities of NHB
• Promoting , establishing and supporting of
housing finance institutions.
• Grant loans and advances to housing finance
institutions for housing activities.
• Guaranteeing the financial obligations of
housing finance institutions subscribing or
underwriting the stocks , shares or bonds of
these housing finance institutions.
Contd…
• Setting up mutual funds for undertaking housing
finance activities.
• Organizing training programs seminars on matters
related to housing.
• Co –ordinate with LIC,GIC and other financial
institutions.
• Borrow money from the RBI by the way of loans and
advances and generally obtain financial assistance as
specified by the RBI out of the national housing credit
fund established under sec 46-D of RBI act ,1934
HDFC
• Established in 1977 as private housing
institution.
• It is now a public limited company engaged in
business of providing the finance for
construction and purchase of residential houses
in India.
• Managed by board of directors consisting of
eminent persons.
Subsidiaries of HDFC
It has the following subsidiaries
• HDFC developers limited carrying on the business of
real estate development.
• HDFC investments limited and HDFC holdings
limited carrying on the business of investment in
stocks , shares and other securities.
• HDFC trustee company acting as trustee for HDFC
mutual fund.
• HDFC bank limited providing the banking services .
Contd….
• HDFC standard life insurance company is in business
of life insurance
• HDFC chubb general insurance company is in the
business of general insurance
• HDFC asset management company carrying on
business of management of assets for HDFC mutual
fund
• HDFC reality limited engaged in the business of real
estate broking
Personal loans
• The banks now provide funds to the individuals
known as personal loans.
• They are available on net worth of a person
• The amount by which the individual's assets
exceed their liabilities is considered the net
worth of that person.
• Personal loans are generally offered within a
range of 20,000 to 10,00,000 depending upon the
income and repayment capacity of a person.
Features of personal loans
The following are important features
• These are unsecured loans.
• There is no need of any security or collateral.
• Loans amount sanctioned are closely linked to
salary or income earned
• Rate of interest charged is between 17%-21%
Professional loans
• Banks give professional loans to self employed
persons eg doctors to set up a new facility or
improve the existing one with more sophisticated
equipments etc.
• The doctors between age group 23-60 years are
provided with finance upto Rs 10,00,000 for a
period of 5 years.
• The loans are provided on the basis of third party
guarantee and hypothecation of equipment.
How a credit card is processed
• Acquirer: A bank that processes and settles a
merchant's credit card transactions with the
he
• Card network: Visa, MasterCard or other
networks that act as an intermediary between
an acquirer and an issuer to authorize credit
card transactions
• Cardholder: The owner of a card that is used
to make credit card purchases.
• Interchange fee: A charge paid by merchants
to a credit card issuer and a card network as a
fee for accepting credit cards. They generally
range from 1 to 3 percent.
• Issuer: An financial institution, bank, credit
union or company that issues or helps issue
cards to cardholders.
• Discount fee: A processing fee paid by
merchants to acquirers to cover the cost of
processing credit cards.
There are 4 steps
• Authorization
• Batching
• Clearing
• Funding
Step 1, Authorization
1. The cardholder requests a purchase from the
merchant.
2. The merchant submits the request to the acquirer.
3. The acquirer sends a request to the issuer to
authorize the transaction.
4. An authorization code is sent to the acquirer if
there is valid credit available.
5. The acquirer authorizes the transaction.
6. The cardholder receives the product.
Step 2, Batching
• The merchant stores all the day’s authorized
sales in a batch.
• The merchant sends the batch to the acquirer
at the end of the day to receive payment.
Step 3, Clearing
• The batch is sent through the card network to
request payment from the issuer
• The card network distributes each transaction to
the appropriate issuer.
• The issuer subtracts its interchange fees, which
are shared with the card network, and transfers
the amount.
• The card network routes the amount to the
acquirer.
Step 4, Funding
• The acquirer subtracts its discount rate and
pays the merchant the remainder.
• The cardholder is billed.
DEMATERIALISATION
• Dematerialisation is the process by which physical
certificates of an investor are converted to an
equivalent number of securities in electronic form
and credited in the investor's account with his
Depository Participant [DP]. In order to
dematerialise his certificates, an investor first has to
open an account with a Depository Participant. He
then has to request for the dematerialisation of his
certificates by filling up a dematerialisation request
form [DRF], which is available with his DP.
• You can dematerialise only those certificates
that are already registered in your name and
belong to the list of securities admitted for
dematerialisation at NSDL. Shares held in
street name (blank transfers) cannot be
dematerialised. A number of blue-chip
companies have already joined NSDL. This
list is steadily growing and you can get an
updated list of these companies from NSDL.
Demat Advantages
• Elimination of bad deliveries
• Elimination of all risks associated with
physical certificates
• No stamp duty for transfer of equity
instruments & units of mutual funds in the
depository
• Faster settlement cycle
• Lower interest cost and margins
• Faster disbursement of non cash corporate
benefits
ICICI BANK
Personal Banking
LOANS CARDS
• Online Loans • Consumer Cards
• Personal Loans • Credit Card
• Car loan • Travel Card
• Two Wheeler • Debit Cards
BANK@CAMPUS
(Education loan)
Key Benefits Vs Fees & charges
Benefits Costs
• Loan up to 15 lacs • Prepayment of the loan is
• No security/guarantor required possible after 180 days of
• Faster Processing availing the loan.(5% on the
principal outstanding)
• Minimum Documentation
• Foreclosure charges as
• Attractive Interest Rates applicable would be levied on
• 12-60 Months repayment the outstanding loan.
options • Part pre-payment is not allowed.
• Loans available for both salaried • Loan Processing Charges are
& self employed individuals 2* % of loan amount +
• “Loan on Phone” facility Origination Charges of 1.5% of
loan amount
Bank@Campus
Benefits
• Technology-enabled service, through automated channels,
without physical branch access.
Benefits to the student
• Free Internet Banking
• Free Phone Banking (in select cities)
• Free ICICI Bank Ncash Debit Card
• Free Access to any Bank's ATM
• Own a cheque book personalized with your name.
• Receive an annual statement of account
• Interest rates: 3.50%
HDFC BANK
Personal Banking
LOANS CARDS
• Personal Loans • Credit Cards
• Two Wheeler Loans • Debit Cards
• New Car Loans • Prepaid Cards
• Used Car Loans
• Educational Loan
FEATURES & BENEFITS
• Borrow up to Rs 15, 00,000 for any purpose.
• Flexible Repayment options, ranging from 12 to 60
months.
• Repay with easy EMIs.
• Hassle free loans - No guarantor/security/collateral
required.
• Speedy loan approval.
• Convenience of service at thedoorstep.
Customer privileges
– Special rates for HDFC Bank account holder.
FEATURES & BENEFITS
– Hassle free personal loan (without income documentation).
For existing Auto Loan customer with a clear repayment of 12
months or more
– For an existing HDFC Bank Personal Loan customer with a clear
repayment of 12 months or more, Top-Up personal loan.
Credit Shield
In case of death or total permanent disability of the loanee,
the loanee/nominee can avail of the Payment Protection
Insurance (Credit Shield) which insures the principle
outstanding on the loan upto a maximum of the loan amount.
Personal Accident Cover
FEES & CHARGES FOR PERSONAL
LOAN
• Loan Processing Charges
Upto a maximum 2% of the loan amount
• Pre-payment charges
Upto 4% of the Principal Outstanding
• Charges for late payment of EMI
@ 24 % p.a on amount outstanding from date
of default
CONSUMER FINANCE FACILITIES OF AXIS
BANK
• Savings account
• Car loans
• Home Loans
• Car Loans
• Loan against shares
• Education loans
• Personal Loans
FEATURES OF SAVING ACCOUNT
• Free International Debit Card with an Accidental Insurance
cover up to Rs 2 lakhs* (charges for the primary holder are
waived)
• Free mobile banking facility
• Access through more than 905 branches and over 3894 ATMs
(as on 30th September 2009)
• At-Par cheque facility with the clearing limit of Rs 50,000
• 24x7 Telebanking & Internet banking
Fees associated with it
• Initial funding of Rs. 5,500.
• Account maintenance fee of Rs. 500 per annum
Home loan
• Fixed interest of 8.25% p.a. for 24 months &
floating thereafter*
• Balance Transfer facility
• Doorstep service
• Nil Prepayment charges
Education loans
• The quantum of finance under the scheme is capped at
Rs 10.00 lacs for studies in India and Rs 20.00 lacs for studies
abroad
• No margin for loans upto Rs 4 lacs. For loans above Rs 4 lacs,
5% margin for studies within India and 15% for higher studies
overseas.
• Interest rates linked to PLR.
• Third party guarantee and/or collateral security may be asked
for in appropriate cases.
• The loan will be disbursed in full or in suitable installments
• No penalty for early closure
Personal loans
• Loans for salaried individuals of select companies
• Special loans for doctors, chartered accountants, engineers,
architects, CS and ICWA
• Loans are available from Rs 1 lac to Rs 20 lacs
• Repayment tenures from 12 to 60 months
• A balance transfer facility available for those who want to retire any
higher cost debt
• Loans available against repayment track record of any existing auto,
personal or home loan
• Zero balance SB account facility for personal loan customers
• Simple procedure, minimal documentation and quick approval
Loan against shares
• Individuals are only eligible to apply
• Overdraft facility against single and combination of scrips
• Interest charged on actual amount utilised - no EMI or
post dated cheques required
• Shares can be pledged from any Depository Partcipant
across the country
• Special scheme for Axis Bank Priority and Wealth
customers
References
• Merchant Banking and Financial Services- Dr.
Lalit K. Bansal
• http://en.wikipedia.org/wiki/Hypothecation
• http://www.netlawman.co.uk/info/conditional
-sale-agreement.php