Answer-1

Introduction to Securitisation
The pooling of assets in order to repackage them as interest-bearing securities is known as
securitization. The investors who purchase the repackaged securities receive the original assets'
principal and interest payments.
In simple terms, when an issuer creates a marketable financial instrument by combining or
pooling various financial assets into one group, such as multiple mortgages, the securitization
process begins. The issuer then sells the repackaged assets to investors. Securitization provides
opportunities for investors while freeing up capital for originators, promoting market liquidity.

History
The securitisation market began in the United States in the 1970s, when government-backed
agencies pooled home mortgages. Asset securitisation is a relatively new phenomenon in India,
having begun just over three decades ago. CRISIL, India's first credit rating agency, rated the
first such transaction in 1991, when Citibank securitized a pool of auto loans. The market was
first regulated in 2006, with new guidelines enacted in 2012 following the global economic
crisis, and again in 2021. Since then, securitisation in India has grown rapidly, with non-
banking financial companies (NBFCs) continuing to be the primary originators of loans to the
sector.

Securitization of Retail Loans

Securitization in India is relatively new, but it has resulted in transactions that demonstrate both
diversity and market maturity. The Indian market has two pillars: Residential Mortgage Backed
Security (RMBS) transactions and Auto-asset Based Security (ABS) transactions.
RMBS is currently a standard and stable market, with several players out with repeat issuance,
either through the apex refinancing body National Housing Bank or directly.
Auto loans have been securitized since 1990, but the resulting paper is not marketable.
However, there have been some interesting transactions, such as future flow securitization,
infrastructure projects, and one CMBS transaction, among others. The Securitisation, Asset
Reconstruction, and Enforcement of Security Interests Act was enacted in 2003, and its point
of convergence is security investment requirements, but it has not been used for Securitization
transactions. In India, a few bottlenecks remain in the form of stamp duty and mortgage
transferred registration.

Securitisation Process
Securitisation is a two-step Process:
Step 1: Packaging
Multiple assets are combined into a single "compound asset" by the bank (or financial
institution). The return on the compound asset is a weighted average of the returns on the
individual assets that comprise the "compound asset."
Step 2: Scale
The "compound asset" is sold by the bank (or financial institution) to global capital market
investors.
How Securitisation Works
Securitization is based on the assumption that the likelihood of multiple assets defaulting is
lower than the likelihood of a single asset defaulting. It is assumed that the default probability
of different assets is distributed independently. An example is the best way to explain the logic
underlying the practise of securitization.
Asset Return Default Probability
A 40% 0.2
B 48% 0.3
C 64% 0.35

Three investors each put $1,000 into one of three different assets: Asset A, Asset B, and Asset
C. The assets are sold to a bank. The investment's expected return is (40%*1000*0.8) +
(48%*1000*0.7) + (64%*1000*0.65) = 320+336+416 = $1072 = 35.73% return. The variance
associated with the aforementioned investments, on the other hand, is extremely high.
Situation Probability Return
None Fail 0.364 +1520
A Fails 0.2 +120
B Fails 0.3 +40
C Fails 0.35 -120
A and B Fail 0.06 -1360
A and C Fail 0.07 -1520
B and C Fail 0.105 -1600
All Fail 0.021 -3000

As a result, the bank wishes to deduct the assets from its balance sheet. By combining Simple
Assets A, B, and C, the bank creates Compound Asset X. Consider an investor who spends
$100 on X. The investor will earn a rate of return of 50.66%. The investor, on the other hand,
faces far less risk than an individual investor who only owns one of the assets A, B, or C.
RBI Norms related to securitisation
The demand for priority sector loans continued to be driving force of the retail asset
securitisation market in India, but the recent RBI circular may reduce the demand for priority
sector assets going forward.

 According to Care Ratings, the RBI Norms circular for changing the treatment of Rural
Infrastructure Development Fund (RIDF) and other funds priority sector guidelines has
come as a relief to banks because it will reduce their reliance on securitisation to meet
shortfalls in FY15, which could have a negative impact on new securitisation issuances
going forward.

 The new credit enhancement norm will protect investors by providing capital relief to
originators, and the guidelines will ensure that the credit enhancement reset is at a level
that preserves the ratings. This will be beneficial to the long-term growth of the Indian
securitisation market.

 There has also been a decline in performance, causing banks to be more cautious when
making new loans. With the expected improvement in the economic scenario, fresh
disbursements are expected to increase in FY15. However, the portfolios would only
achieve the desired seasoning required for securitisation near the end of the year.

Conclusion
The most significant impact of securitisation is the allocation of an asset's various risks and
rights to the most efficient owners. Securitisation provides capital relief, improves market
allocation efficiency, improves FI financial ratios, can generate a plethora of cash flows for
investors, suits the risk profile of a wide range of customers, enables FIs to specialise in a
specific activity, shifts the efficient frontier to the left, completes the markets with expanded
opportunities for risk-sharing and risk-pooling, increases liquidity, facilitates asset-liability
management, and development. Securitisation is becoming recognised as one of the most
innovative and rapidly growing forms of asset financing in today's global capital markets.
Many EM companies have already incorporated securitization into their funding strategies. In
fact, some EM countries have enacted a number of laws in quick succession in order to facilitate
the growth of the securitisation market.
Answer-2

Introduction to Retail Banking

Retail banking is another term for consumer banking. It is, as the name implies, a branch of the
commercial banking system that serves the general public and individual customers. Retail
banking systems aim to provide citizens with banking services such as checking accounts,
opening accounts, savings accounts, loans, debit cards, and more. This system is intended for
the general public and their personal financial needs. It excludes companies, businesses, and
corporations that may require more complex banking solutions.
While retail banking has existed in various forms for a long time, it is a relatively new concept.
It has evolved over time into an important component of both traditional and modern banking
systems, as well as a significant market segment. Simply put, retail banking handles all of the
banking needs of individual customers. Consumer banking has three primary functions. To
begin, banks offer deposits for savings accounts, recurring deposit accounts, fixed deposit
accounts, and other financial services in order to safely secure the general public's capital.
Second, it provides credit in the form of interest earned on savings, loans, and mortgages. Third,
retail banks help consumers manage their money by offering a variety of retail banking
solutions and services. These services assist customers with their financial matters and daily
transactions.
The following are examples of retail banks:
 Commercial Banks
 Regional Rural Banks
 Private Banks
 Post Offices
Primary Services of Retail Banks
The following are a few retail banking solutions and services that banks provide to their
customers.
 Savings Bank Accounts
 Current Accounts
 Debit Card
 Credit Card
 ATM Cards
 Loans

Retail Banking as a Simplification & Diversification tool.

A Simplified bank would provide customers with a leaner, more integrated product portfolio
that is narrowly focused on strategically chosen markets. One retail bank, for example, reduced
its total number of products by approximately 30% as a result of a simplification exercise.
Product innovation would play a central role in a new bank, with product design focusing on
improving the customer journey.
In retail banking, attempts at simplification frequently fail to result in significant performance
improvements. According to McKinsey research, this is due to too narrowly focused
simplification efforts. When simplification efforts are designed, implemented, and sustained
on a large scale, significant benefits flow through.

Diversification is a risk management strategy that combines a diverse portfolio of investments.

In order to limit exposure to any single asset or risk, a diversified portfolio includes a variety
of asset types and investment vehicles.
The theory behind this technique is that a portfolio of various types of assets will, on average,
produce higher long-term returns while lowering the risk of any individual holding or security.

types of diversified risks:

 Credit Risk
Credit risk, one of the most significant financial risks in banking, occurs when borrowers or
counterparties fail to meet their obligations. When calculating the credit risk involved, lenders
must anticipate and forecast the possibility of them repaying the loan, principal, interest, and
all.
 Market Risk
Market risk is defined as the possibility of a bank incurring a loss as a result of changes in
market variables. It is the risk to the bank's earnings and capital caused by changes in market
interest rates or the prices of securities, foreign exchange, and equities. Market risk
management provides a comprehensive and dynamic framework for measuring, monitoring,
and managing a bank's liquidity, interest rate, foreign exchange, equity, and commodity price
risk, which must be closely integrated with the bank's business strategy.
Banks may use scenario analysis and stress testing to identify potential problems in a given
portfolio. Identification of future changes in economic conditions, such as economic/industry
overturns, market risk events, and liquidity conditions, is a prerequisite condition for carrying
out stress testing. The test output should be reviewed on a regular basis because the underlying
assumptions change over time.
 Interest Rate Risk
Interest rate risk is simply the risk to which an institution is exposed due to the uncertainty of
future interest rates. A financial institution's assets and liabilities vary in maturity and liquidity.
Financial institutions generate assets while also incurring liabilities. These loans are invested
by the financial at a certain rate of interest, and the same rate of interest must be paid to deposit
lenders. Interest risks are posed by interest rate mismatches between assets and liabilities.
Types of Interest Rate Risks
  Price Risk
 Reinvestment Risk
 Equity Price Risk
 Commodity Price Risk

 Operational Risk
The most important risk to an organisation is operational risk. Internal processes, people, and
systems that are inadequate or fail, as well as external events, can all cause operational risk. In
general, it is not classified as a market or credit risk, despite the fact that it is linked to both
credit and market risks. A credit or market risk could be triggered by an operational problem
with a business transaction.
In light of the phenomenal increase in transaction volume, high degree of structural changes,
and complex support systems, managing operational risk is becoming an important feature of
sound risk management practises in modern financial markets.

Conclusion
Client deposits in retail banking provide a significant stable source of financial support for
most banks. As a result, it is critical for banks to ensure their survival while also remaining
relevant in the retail banking industry by pushing the boundaries of innovation and
experimenting.
Banks understand their clients' needs and preferences as part of a strong client-bank partnership.
Banks are gradually distancing themselves from face-to-face meetings that provided
knowledge of their customers' needs and preferences. This is largely due to the massive
increase in size and client base, where the touch points are now mostly remote channels.
Answer 3(a)

Introduction to Branchless Banking

In Simple words, Branchless banking is exactly what it sounds like: banking that allows regular
banking services to be provided without the need to visit a physical branch. It means that having
to physically go to a financial institution whenever you need to make a financial transaction is
a thing of the past. Traveling saves both time and money.

Financial Inclusion
Financial inclusion entails making financial services available to everyone at reasonable prices.
The services should be available to disadvantaged people and low-income groups under this
provision.
Thus, the primary goal is to provide basic banking services to the country's unreserved citizens.
This procedure aims to boost the country's economic growth.
Furthermore, the main idea is to bridge the gap between rich and poor people. Furthermore, it
is accomplished by obtaining excess funds and distributing them to the poor. The RBI plays a
critical role in financial inclusion.

Vision of Government
The Government of India has established a clearer vision for electronic payments and agents
and intends to make significant investments to expand these capabilities across India.
The Indian government recently released the report of a task force on a unified payments
infrastructure linked to the biometric Aadhaar number. While there are many unanswered
questions, this report establishes important policy points. It recognises the value of electronic
payments in terms of both cost savings for the government and convenience for end users. It
also sees G2P as a significant flow of capital that can prime the pump, while acknowledging
that much more should flow through branchless banking channels. The Government of India
also proposes charging banks a 3.14% fee for delivering G2P payments, which represents a
significant shift in the business case for banks. Some of the task force report's insights were
based on CGAP's international G2P experiences.
The Reserve Bank of India has removed restrictions on the exclusivity of agents (customer
service points).
Previously, one agent could only transact on behalf of one specific bank, but this restriction
has now been lifted. Customers can now conduct transactions at one bank's customer service
points (CSP) even if their accounts are held at another. By sharing customer service points and
lowering overall costs, the entire banking system can become more efficient. It also raises agent
interoperability to the level of Indian ATMs. Such interoperability is more in line with the
views of the majority of other central banks worldwide.
Conclusion
There is no doubt that virtual banking has transformed the financial industry and will continue
to do so in the future. Branchless does not always imply better, but with the numerous benefits
it provides, we can be confident that there will be numerous opportunities to make good use of
its digital services. Furthermore, the development of mobile banking does not imply that
traditional methods will be phased out. They will, on the contrary, complement each other.
More effective and efficient banking, even in remote areas around the world, is something to
look forward to, and mobile banking is the solution.
Answer – 3(b)

Introduction to Branchless Banking

Branchless banking refers to the delivery of financial services outside of traditional bank
branches, typically through agents, and the transmission of transaction data via information
and communication technologies. Card-reading POS terminals and cell phones are common
examples.
Technologies used in Banking Sector

Technology drives change in all aspects of life. It's certainly true in the financial sector. As
faster, more efficient, and user-friendly methods emerge, the way banks and other types of
financial institutions manage tasks continues to evolve. Consumers are discovering new ways
to manage their banking needs. It's critical to understand bank technology options and how
they can help you. Some are already in action. Others may be on the horizon and may one day
become preferred banking methods.
Here are a few examples of emerging banking technologies that may impact your interactions
with domestic and international financial institutions:
1. Open Banking

Open banking is an important competitive and growth strategy for financial institutions.
Banks integrate their financial solutions into third-party software and create a unified
interface for customers to access their bank's services. Banks that partner with fintech make
their services available to their customers via apps for easy payments. Due to open banking
services, online payments while ordering food from Zomato or digital payments in Uber
are possible.

2. Biometrics

As consumers' reliance on cash decreases, companies such as WhatsApp, Google, and

Amazon are developing payment systems. Biometric payments are changing the way
consumers pay with their mobile devices. Payments are made instantly by scanning their
finger or using facial recognition technology.

3. Cloud Banking

Most banks have begun to shift toward cloud-based banking. The cloud enables banks to
synchronise the enterprise and break down operational and data silos in customer support,
finance, risk management, and other areas. This improves their cost-efficiency and allows
them to provide digital experiences to customers while maintaining their legacy model.
 4. Artificial Intelligence & Machine Learning

Banks are heavily utilising AI and ML to provide just-in-time, personalised services to their
customers. AI and ML automate banking processes and enable better customer service,
credit, and loan services. They also combat fraud.

5. Chatbots

As voice-based interactions become more popular with customers, banks will begin to offer
an increasing number of services via voice interface. Financial chatbots save over four
minutes per transaction. It will also enable banks to easily and affordably receive customer
feedback.

Conclusion

The future of retail banking technology will be heavily focused on improving customer
experience in areas such as contactless payments, data security, and retail services. Banks will
place a greater emphasis on open banking solutions in the coming months in order to provide
better customer service, make data-driven decisions, and improve workflow efficiency.

To prepare your finance company for future innovations and technological trends. Finance
provides white-label software to assist you in developing a strong, scalable, future-proof, and
user-friendly digital retail bank.

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