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1 CHAPTER- I

RETAIL LENDING 1.1 INTRODUCION Indian Banking Industry has witnessed a dramatic change in the last decade. After the nationalization of 14 major banks in 1969, whole focus was on productive credit only. Bankers were in short of funds even for productive purposes and many times credit squeeze was resorted to take care of statutory requirements of SLR and CRR imposed by Banking Regulation Act and RBI Act. There was ample demand of funds from the business as well as industry and banks never thought of the situation of surplus funds and the low off take of credit. Rate of SLR and CRR were higher than the minimum required under the law due to interventions of RBI for credit controls. Investments in government securities or other approved securities were kept at the minimum acceptable level and some time even less than the minimum required. Credit deposit ratio was high. In 1992-93 economic reforms process started with submission of Narasimham Committee Report on 16.11.1991. The phase of liberalization, privatization and globalisation started. RBI started reducing its interference and slashing of SLR and CRR to bring at the minimum required level, disintermediation also started empowering big corporate to access the market for their funds requirement, non banking finance companies were also encouraged to come in the market, increasing competition for commercial banks. A number of foreign banks and private sector banks also came in the fray. In all 19 foreign banks and 8 private sector banks jumped into the market after 1991-92. Market share of public sector banks started shrinking and customer loyalty started dwindling in the new environment of banking. At the times of half yearly credit policy of RBI fresh liquidity was pumped in every time. Security scam of 1992, shook the faith of general public from the share market and people who burnt their fingers in capital market started keeping their funds in bank deposits thereby increasing the deposits and liquidity of banks. Inflation rate was controlled and lowered and recession started in the industry due to world wide recessionary trends. It affected the industry badly thereby reducing its demand of funds for the productive purposes. Income tax rules started discouraging the savings of the people, so the public started using their own savings for their capital goods requirement thereby lowering the demand of funds from the banks. Bank finance for medium and large scale industries created huge NPAs, creating a block of non performing assets. About 80.5% of the total funds invested in sick units are under M & L Industry category and additional provisioning requirement started eating profitability of the Bank. Priority Sector lending also generated good number of NPA accounts, but being a statutory requirement, the minimum level of credit to this sector is a statutory binding. Lending under government sponsored schemes and lending to weaker section also have high percentage of NPAs, though the amount involved in

Big borrowal accounts under C&I do not provide for diversification of risk and SSI and other priority sector areas are high NPA prone area. PSE. In view of above Retail Lending is an area emerging for absorbing ample amount of bank funds. Investment in shares of corporate in the primary market is also a risky affair.2001. So it can not for deployment of further surplus funds. iv. ii. Researches have shown that high class and low class people are more likely to default in repayment. deployment of funds in investments have been increasing every year. SSI.162 crore as on 31. we find that balances with RBI is only a compulsion and return on the funds is zero or negligible. It has exceeded the minimum required deployment under SLR by Rs. Leasing also have limited scope for deployment of funds. the question arises as to which are the areas. Yield on these assets is also low but in case no avenue is available the funds deployment under this head is better than any other area except advances. Even if.2 absolute terms may be lower. Investment in other approved sections. thereby increasing the demand from the public.3. agriculture. Investment in shares of corporates via primary market up to a certain limit i. Target borrowers under this sector are the middle class people and middle class people are low default area. (b) M & L Scale Industries (c) C&I (d) Retail Lending. Lending to : (a) Priority sector . Balances with RBI or other banks Investment in government securities. Probable areas for deployment of bank funds are as under:i. vii. 5% v. Investment in call money market uncertain and low return area If we go on analyzing the above avenues for deployment of funds. RT. Ultimately credit is the area having ample potential for the deployment of bank funds. It has created a scope of credit absorption for the bank.1. yield on investment has declined substantially and it can not provide sufficient margin of profit on the average cost of deposits. RTO. where the bank can deploy its funds. Investment in commercial paper and call money market or low yield areas. So it can not be resorted to survive in the market. SB. This sector of credit is subject to higher rate of interest providing ample yield to the bank along with .35. there is a cap on the deployment of funds in this sector being sensitive area. Therefore. Investment in commercial papers at a low return. In case of credit there are huge amount of NPAs in the medium and large scale industries as well as priority sector. Leasing of assets to earn lease rentals still upto limited extent vi. viii.e. iii. be treated to be a safe area Now. Presently. Population of middle class people is increasing and break down of joint family system has created the scope of more requirement of household consumer durable goods. it is profitable. Opening of doors for the imported goods under WTO has resulted in flush of good quality consumer durables at reasonable prices. Investment in government securities and other approved securities are compulsion upto some extent through SLR.

Marketing of these schemes is an important factors to encourage the lending under this area. Marketing strategies are required with the help of entire team of branch staff. Special occasions like festivals. A systematic approach is required to tap the customers. in its absence. A survey of the area of operation by the staff members can help in identifying the need of the public. they can find a lot of scope for further financing. In case the branches are able to explore the potential in the existing customers. People from villages getting jobs in nearby cities. to a large From the above discussion. A group of borrowers from the institutions. celebrations.3 diversification of the risk because smaller loans are granted number of people. Each and every staff member should be educated through staff meetings or contests etc to know the schemes so that he can satisfy every customer on their enquiries and the person sitting on the counter should publicise the scheme to the customers visiting the branch. Customer meets and specific requests to the existing customers to provide some names of their friends and relatives can help to identify new borrowers. In the urban as well as metropolitan areas. . Constant touch with the existing customers is very important to proceed. special packages may be given to borrowers availing loans under group financing with group guarantees. Some progressive families in the village can be tapped under the schemes for housing loans. can be ensured. thereby increasing the image of the bank and marketing of the Retail lending products. In case the bank is successful in exploiting this area. students from the reputed educational institutions can be contacted. fairs and similar other functions can be exploited for publicity and marketing of these schemes. a good number of families are emerging as the prospective borrowers with the increase in rural electrification. education and connectivity with the cities. usually commute daily for service and come to village in the evening. Now question arises where to do Retail Lending. school teachers and other staff of the school and dispensary in the village can be prospective borrowers. TV. it is clear that Retail Lending is the need of the hour and survival is very difficult. a lot of scope is available. weekly markets. to build moral pressures on the borrower for proper repayment. clubs and government offices can be mobilized. These are the schemes having potential in every area of the country. societies. In case of rural/ semi urban areas. education loans and other consumer goods items. Fridge and Scooter/ Motor cycle are the articles of daily use for them. Shop keepers and other small business people can also avail the loans under Retail Lending schemes. which can be contacted with a commitment to provide help. the problem of credit off take can be solved and increase in profitability with decrease in NPAs in the future.

I and proforma for Pre-sanction and Postsanction inspection is as per Annexure. Periodicity of inspection is as per Annexure. It will ensure quick and immediate detection of mis-utilisation of Bank’s funds. credentials and antecedents of the applicant. Post. It also ensures the verification of Assets to be purchased from the Bank’s funds and following of the due diligence in appraising the loan application.2 INSPECTION OF SECURITIES Pre-Sanction and Post-Sanction inspection of the securities is of great importance in lending activities.Sanction inspection is carried out to verify the end use of funds and physical verification of the assets created from the Bank’s funds.II & Annexure. Pre-sanction inspection ensures the correctness of various facts and figures submitted by the applicant.4 1.III respectively. .

A. Yearly N. Yes With every disbursement.D. Yearly in March 5 6 7 8 . once in three years.A. N.5 ANNEXURE-I SCHEDULE FOR INSPECTIONS: Sr.A. N. Yearly N. and thereafter.A.C.A. Yes Yes Yes Yes N. if the account is regular. No Product Name Type of Inspection to be Carried out Pre – Post sanction sanction (Asset verification) Yes Yes Periodicity of post Sanction inspection 1 Housing Loan 2 3 4 AAA O. N.A.A. against Property Consumer durable Two Wheeler P.A. Car Loan Baroda Family Loan Baroda Property Loan BOB Vyapar Yes Yes Yes Yes Yes Yes Yes Yes Yes N. Once in 2 years N. N.A.

latest bill) Residence is Owned Rented Leased Provided by Employer Place visited with Identification Landmark . 3. NAME OF THE APPLICANT : : : Pin Code 4.b) 6) 7) PROOF FOR VERIFICATION OF RESIDENTIAL ADDRESS Ration Card No.bill older than 6 months and –1.6 ANNEXURE-II PRE-SANCTION VISIT REPORT FOR RETAIL LOANS 1. Voters No. 5./PAN Card Agreement No.a) PURPOSE OF LOAN : NAME OF THE PRODUCT / ARTICLE TO BE PURCHASED : NAME OF THE SUPPLIER PURCHASE PRICE GENUINESS OF QUOTATION: VERIFIED DATE OF VISIT a) BY PERSONAL VISIT b) NAME OF THE PERSON CONTACTED FATHER’S/HUSBAND’S NAME RESIDENTIAL ADDRESS 5. 2. Whether residing with parents/relatives Electricity/Telephone bill (-1. ID Card Passport Rent No.

10. 16 (for the financial year ended March 200 ) b) Last Salary Slip (for the month of ………………. verified from Cheque returned number of times . PRESENT BANKERS Name of the Bank Type of A/c.7 8) OCCUPATION OF APPLICANT (GIVE DETAILS): A) i) ii) iii) iv) v) vi) SERVICE Name of employer Address Designation Working since Employee No. f) Net annual/monthly income Rs..Y……………….) c) Income Tax Return for A. Office B) BUSINESS Name of the Firm Address Applicants position in the firm Established since Nature of Business vii) Residence Mobile C) i) ii) iii) 9. Details of A/c. 11. Office Residence Mobile EMPLOYMENT DETAILS Details verified by / through Personal visit to Office on Name of person contacted GROSS ANNUAL / MONTHLY INCOME : Details verified from : a) Form No. SELF EMPLOYED & PROFESSIONAL Occupation Address Phone No..(along with original copy of Tax challan period……….. Whether confirmed / probation / or on contract basis Phone No.) d) Number of dependants e) Total annual/monthly deduction Rs.

comments required. Value indicated in the sale deed may also be taken into account. if any Asset classification WITH OUR BANK: WITH OTHER BANK: 13. Area in Sq. LOAN OUTSTANDING Name of the Branch Type of Loan Amount sanctioned Balance Outstanding Amount of Overdue. DETAILS OF THE PROPERTY TO BE PURCHASED (to be filled only in case of Housing Loans) Loan requested for ( Purchase Of Land Ready Flat ) Purchase of Old House Repairs & Renovation Take from Bank Over other Constructio n of House Sale Amount Value as per Valuation Report. Name of the person representing seller Contacted & details verified. In case of wide variation. as per sale agreement Whether owner occupied or rented or Leased out a) b) c) : : : : : Present state of construction Report / Valuation from Architect / Engineer obtained: Nearby land mark for identification : Yes/ No 14 COMMENTS OF VISITING OFFICER Place : Date: Signature of Bank’s Official Name: Designation: .8 12.Ft.

Condition of Vehicle Blank TTO forms obtained Whether Bank’s Lien Noted in RC book with RTO? Was the Vehicle brought to date……… : : : : : : : : Yes/No Yes/No Branch for Inspection – Yes / No If. Dated……………. 5.(with over 6 7 Whether Invoice & Stamp Receipt YES/NO obtained? If yes: Invoice No…………. balance Rs………………. Issued by…………………. 4. Date of sanction Details of last Disbursement made : Date : Amount : Mode By Banker’s cheque / DD No. Receipt No…………. 2. yes give . Engine No. : : : : : Purpose of Loan Amount of Loan Rs. the vehicle Colour of the vehicle Registration No. Date of Visit Sanction details : 3. Dated a Details of Goods / Articles / Furniture purchased & physically verified ) Description : Make/Model No.9 ANNEXURE-III PERIODIC ASSET VERIFICATION REPORT (POST DISBURSEMENT) IN CASE OF RETAIL LOANS 1. …………………… Present outstanding dues if any Rs…………) Favouring ………………………. Name of the Applicant Address of the place Visited : Residence/ Shop/office Phone No. : Colour : Manufactured by : b In case of vehicle : ) Type of Vehicle-Scooter : /Moped/ M-Cycle / Car Make/Model No. To be verified from Chasis No.

10 Insurance : Name of Insurance Co. date………………. In case of Housing Loan : Loan availed for : Purch Ready ( ) ase Flat Of land Location/address of the Property Present status/stage of construction Status of Occupation Value as per valuation report /approx. exp. Valid up to Whether Bank’s clause is appearing in Insurance Policy : Yes / No Under comprehensive : Yes / No Purchas e of old house Repairs & Renova tion Take over From other bank Construc tion of house 8. Incurred on repairs/renovation Date of last Valuation Whether Insurance taken under Uni-Home Care Policy Date of Documents Last LAD obtained on Comment of visiting officer : : : : Self occupied Rented out Vacant : Yes/No : : If Yes. 9 10 Place: Date: Signature of Bank’s Official) Name: Designation: .