Universal Banking

CONSUMER FINANCE

GROUP MEMBERS

Manali Jain Sneha Gohil Pooja Bhatia

(02) (11) (22)

Abbas Zaidy
Foram Shah

(35)
(46)

Khushboo Jain (60)

INTRODUCTION

Consumer finance has been acknowledged as a growth sector by banks. Aggressive marketing and establishing a client relationship, is the key to success in consumer financing. Non-banking finance companies are big players in consumer credit. Citibank is pioneer in consumer credit and retail banking.

MEANING

Consumer finance in the most basic sense of the word refers to any kind of lending to consumers. In the United States financial services industry, the term "consumer finance" often refers to a particular type of business, sub prime branch lending. Consumer Finance Companies attempted to lend to everyone who would accept their high rates of interest. branch lending because Banks made it difficult to obtain personal credit. Many people simply didn't like to deal with bank employees and branches Consumer finance companies focused on lowering the required monthly payment for their customer's debts.

DEFINITION

Consumer Finance The division of retail banking that deals with lending money to consumers. This includes a wide variety of loans, including credit cards, mortgage loans, and auto loans, and can also be used to refer to loans taken out at either the prime rate or the subprime rate. Consumer finance Company A financial institution that specializes in providing loans directly to consumers who are unable to secure bank loans is called as Consumer Finance Companies. A consumer finance company generally charges a higher interest rates than a bank. Examples of these companies include American General Finance, Inc., Duvera Financial, Inc., Lendmark Financial Services, Inc., HSBC Finance, CIT, CitiFinancial, and Wells Fargo Financial

EVOLUTION OF THE CONSUMER FINANCE MARKET

From colonial times through the early twentieth century, most people had quite limited access to credit, and even when credit was available, it was quite expensive. More-intense industrialization and urbanization during the late nineteenth and early twentieth centuries dramatically changed the market for small consumer loans. Early in the twentieth century, many new organizations that focused exclusively on the needs of consumers entered the field, and the structure of consumer finance began to change dramatically. By the 1930s, a wide array of lenders served consumers, including credit unions, small local savings banks, and a nationwide network of state-licensed consumer finance companies.

Market demand and growing competition among this wider variety of lenders spawned further innovation, which started the era of Credit Cards As early as 1900, some hotels began offering credit cards to their regular customers. By 1914, gasoline companies and large retail department stores were also issuing credit cards to their most-valued patrons. In the 1950s, commercial banks entered into the credit card business. After the creation of the Federal Housing Administration a new type of mortgage loan--the long-term, fixed-rate, self-amortizing mortgage--grew up around this one product.

NEED FOR CONSUMER FINANCE

Need for consumerism Fast growing in India, offering excellent scope for lending. To purchase necessities like television, refrigerator, scooter, etc. To increase the profit margins of consumer finance companies and banks To expand credit in the market For smooth asset liability management

GROWTH IN CONSUMER FINANCE

The opportunities and challenges posed by the consumer finance market in India are enormous as the it is worlds second most populous nation. Six years ago, 40 per cent of consumer durables were financed; this has gone up to 70 per cent today. Yet, consumer finance is just 2.6 per cent of GDP. There are many factors contributing to this change - rising literacy, exposure to global trends and lifestyles. Due to shift in consumer attitude towards taking a loan they can benefit from the range of finance schemes offered by financiers, tax benefits, higher loan eligibility and availability of a wide range of products at different price points. e.g. Personal loans i) Loan amount from Rs. 25,000 to Rs. 5,00,000 ii) Easy availability and low interest rates

ADVANTAGES

Convenient
Emergencies Large Purchases Builds Credit

DISADVANTAGES

Temptation
Unrealistic Lifestyle More Expensive

CONCLUSION

Consumer financing business in India has been on an uptrend recently and is expected to remain so in the future. Till now most of the growth has come from traditional channels of financing. But going forward, banks and NBFC alike need to search for other avenues for sustaining the momentum. This growth can come from areas like developments in rural finance, widened gamut of credit card offerings, education, partnerships with Multi Brand Outlets etc. In Asia Pacific, India has emerged as the third largest market for cars and MUVs i.e. only after Japan and China. The last few years have witnessed a high increase in students aspiring for management and professional courses, leading to a spurt in educational loans.

The number of students availing education loans has increased to 1,40,000 from 1,08,000 during this period. the loan requirement from larger cities will continue to grow, explosive growth in credit is expected to register in tier II cities, semi-urban and rural areas. The last few years have witnessed a high increase in students aspiring for management and professional courses, leading to a spurt in educational loans. The number of students availing education loans has increased to 1,40,000 from 1,08,000 during this period. the loan requirement from larger cities will continue to grow, explosive growth in credit is expected to register in tier II cities, semi-urban and rural areas.