Retail banking &

Banking arrangements
 Retail & Wholesale banking

 Commercial banking can also be separated into retail and wholesale

banking.

 The difference between retail and wholesale banking is essentially one

of size.

 Retail banks have traditionally provided intermediation and payment

services to individuals and small businesses dealing with a large number
of small value transactions.

 This is in contrast with the wholesale banks, which deal with a smaller
number of larger value transactions.
 Demand Deposits

• Savings deposits
• Current deposits

Retail Deposit Time Deposits

accounts
Recurring Deposits

Multi-Option Deposits
 Loan
Housing
against
loan
property
Retail Loan
accounts Education
Car loan
loan

Personal Auto
loan loan
 Basic Savings Bank Deposit
(BSBD) account

• Primarily aimed towards enhancing financial

inclusion, earlier no-frills accounts also come
under BSBD accounts.
• No minimum balance even at the time of
opening the account.
• ATM-cum-debit card without any fees, not even
the annual maintenance fee.
• Deposit and withdrawal services are free of
cost, and so is the passbook facility. The bank
cannot levy charges for non-operation or
activation of an inoperative account.
• Providing a cheque book is not mandatory for
banks.
• Banks typically provide the same rate on these
accounts as they do on regular savings
accounts.
 Basic Savings Bank Deposit
(BSBD) account
• One cannot have any other savings bank account,
if he/she has a basic savings bank deposit
account, If the customer already has a savings
bank account, the same will have to be closed
within 30 days of opening a BSBD account.
• Maximum 4 withdrawals in a month, including ATM
withdrawals at own and other Bank's ATMs and
transactions through other mode including
RTGS/NEFT/Clearing/Branch cash
withdrawal/transfer/internet debits/standing
instructions/EMI, etc.
• No further customer debits would be allowed
during the month.
• Can’t credit more than ₹1 lakh in a BSBD account
in a year and can’t have more than ₹50,000 in it at
any time.
• Also, the total debits by cash withdrawals and
transfers in a month cannot exceed ₹10,000
 NRI Accounts

1 2 3
Non-Resident Non-Resident Foreign Currency
(External) Rupee (Ordinary) Rupee (Non-Resident)
Account – (NRE) Account – (NRO) Account
[FCNR(B)]
 Non-Resident (External)
Rupee Account – (NRE)
• NRE accounts can be opened and maintained by
NRIs in the form of savings and current account
with checkbook facility.
• Permissible credits are remittances from abroad
by way of TT, checks, drafts, or transfer from
another NRI account, rent, dividend, pension,
interest etc.
• Permissible debits are local disbursements,
remittance outside India, transfer to other
NRE/FCNR(B) accounts and investments in India.
• Full repatriation of deposit amount including
interest is permitted.
• Income by way of interest on balances held in
NRE account is exempted from income tax, wealth
tax and gift tax.
• Residents can operate the account on the basis of
power of attorney.
 Non-Resident (Ordinary)
Rupee Account – (NRO)
• Typically, when a resident becomes a non-
resident, his domestic account is re-designated as
NRO account.
• Domestic account of NRI opened and maintained
prior to his leaving the country.
• NRO accounts can be maintained in the form of
savings, current, recurring and term-deposit
account.
• Most of the regulations for interest rate, tenor etc
are similar to domestic deposit accounts.
• The account can be held jointly with residents on
‘former or survivor basis’.
• NRO account can be opened by a foreign national
of non-Indian origin visiting India.
• An amount up to $1million can be repatriated
subject to payment of income tax.
 Foreign Currency (Non-
Resident) Account [FCNR(B)]
• NRIs and PIOs can open and maintain term
deposit accounts with a minimum period of one
year and maximum period of five years.
• The deposits are in foreign currency and are
repaid in the currency of issue along with interest.
• Joint accounts can be opened by two or more
NRIs and/or PIOs or by an NRI/PIO with a resident
relative on ‘former or survivor’ basis. But the
resident relative can operate the account as a
power of attorney holder.
• Repatriation of principal amount along with interest
is permitted.
• The interest on the deposit shall be paid on the
basis of 360 days to a year, cumulative on half-
yearly intervals.
• Income earned by way of interest is exempted
from income tax.
 Wholesale Banking

 Wholesale banks service other lenders and large corporations and do not take
on any retail accounts or retail loans.

 They are equivalent of investment banks in the west which lend to corporates.

 They cannot accept deposits from public and raise fund through bulk deposits.

 In India, historically the development financial institutions (DFIs) such as IDBI,

IFCI and ICICI performed the role of wholesale banks.

 However, following liberalization they lost access to cheap funds and IDBI and
ICICI were forced to convert into banks.

 They had a model with high cost of funding which drove away customers.

 Tendency for everyone to jump at retail deposit model to remain profitable.

 Under differentiated banking, RBI will allow setting up wholesale banking units.
 Functions of Wholesale Banking

 Wholesale lending & Interbank lending  Corporate finance

 Loan Syndication  M&A, Merchant banking
 Securitization  Recapitalizations

 Capital market access, trading  Investment management & Investor

services
 Equity underwriting
 Asset Management
 Bond underwriting
 Private banking
 Secondary market trading
 Hedge funds
 Hedging & risk management
 Investor services
 Consortium arrangement

 Before the monetary policy of 1997-98, it was mandatory on the part of a

borrowing enterprise to go in for a consortium if the total credit requirement was
more than ₹50 crores from the banking system.

 The consortium selects a leader which is also called the lead bank of the
consortium.

 Lead bank has the highest share of the total exposure to the borrower.

 Lead bank appraises various aspects of credit proposal.

 It convenes the consortium meeting at the stipulated time intervals.

 Lead bank has the responsibility of completing documentation formality for the
entire exposure.
 Multiple Banking Arrangements

 Multiple banking arrangements (MBA) is an arrangement where a borrower avails

of finance independently from more than one bank.

 Thus, there is no contractual relationship between various bankers.

 Also, in such arrangements, each banker is free to do his own credit assessment
and hold security independent of other bankers.

 One of the prime motives behind allowing multiple banking system was to facilitate
improvement in the credit appraisal and credit delivery. This does not seem to be
achieved.

 Recent addition - Obtain a declaration from the borrowers availing sanctioned

limits of ₹5 crore and above about the credit facilities already enjoyed by them
from other banks in the prescribed format.
 Syndication of credit

 Another mode of risk sharing and credit participation by a group of lending

bankers.

 This is preferred mode of credit delivery when the amount of credit is large and
long-term in nature where cross border financing is involved.

 An enterprise intending to raise resources through syndication route mandates a

bank to organize credit on its behalf. The mandated bank is called the ‘Lead
Manager’.

 The mandate contains the commercial terms and conditions of the credit proposed
to be raised by the enterprise and rights and responsibilities of the lead manager.

 The work of maintaining liaison, soliciting participation, and setting terms and
conditions are done by the lead manager.

 Individual banks assess the viability of the proposal and vet it.