Module -1

Retail Banking, Wholesale Banking,

International Banking and Internet Banking
Banker Customer Relationship
-Prepared by
Khyati Khokhara
 Retail Banking
• Concept of retail banking
• Retail banking, also known as consumer banking
or personal banking, is banking that provides
financial services to individual consumers rather
than businesses.
• Retail banking is a way for individual consumers
to manage their money, have access to credit,
and deposit their money in a secure manner.
• Services offered by retail banks include checking
and savings accounts, mortgages, personal loans,
credit cards, and certificates of deposit (CDs).
 Retail bank types

• Basis their size, there are many different kinds of retail banks, from small,
locally run local community banks to the retail banking services of large,
global corporate banks like JPMorgan Chase and Citibank.
• Small Banks.
• They work in a small area through branch banking and offer almost all the
same services as the big banks. This makes them well-known among the
public. But compared to them, they have smaller market shares and less
money in the bank.
• Large Banks.
• These big banks are based in big cities and have many branches. They also
have a lot more employees than small banks. Also, many retail customers
buy them because they are so popular.
• Online Banks.
• As the name suggests, online banks do their business over the Internet
and do not have physical offices. Also, they run through an official website
that can be accessed anywhere in the world. Most people now prefer to
do their banking from the comfort of their own homes.
 Retail products and services
• Savings Account
• Also called “interest-bearing accounts,” this is
an excellent example of retail banking for
basic deposit accounts to keep cash safe and
earn a reasonable interest rate. The banks put
the money away for short-term needs and
usually limit cash transfers and withdrawals.
 Retail products and services
• Current Account
• A current account is a retail
banking product designed for
business owners who typically
need to conduct daily
transactions.
• For instance, a shop owner
may want to deposit daily
earnings and withdraw large
sums to manage inventory.
Current account holders enjoy
financial services like limitless
deposits and withdrawals, pay-
orders, cheques, overdraft
facilities etc., to keep their
businesses afloat.
• Term Deposits
• The list of retail banking
products also includes term
deposits. Retail banks offer
fixed deposits and recurring
deposits with competitive
interest rates.
• As a retail banking customer,
you can easily open a term
deposit as most banks offer
this facility. You can also open
tax-saving term deposits that
decrease your taxable income.
 Retail products and services
• Bank Cards
• All retail banks offer debit cards to their retail
customers. Debit cards enable you to access funds in your
account anytime. You can use your debit card to shop
online, pay bills, and withdraw cash from Automated Teller
Machines (ATMs).
• Banks also offer eligible customers credit card facilities as
part of their retail banking products and services.
• Credit Cards.
• Banks give out credit cards so customers can borrow money
for digital transactions with a set line of credit. Cardholders
must pay back the total amount, plus any interest, on or
before the due date to avoid credit risk.
 Retail products and services
• Loans
• Loans are one of the most widely availed retail
banking products. Banks offer an array of
loans, including Personal Loans, Home Loans,
Auto Loans, etc.
• Banks charge interest on the principal amount
loaned. The maximum loan amount you can
get and repayment tenure depends on the
type of loan you choose.
 Drivers of retail business in India
• INCREASINGLY AFFLUENT AND BULGING MIDDLE
CLASS
• About 320 million people will be added in the middle-
income group in a period of 15 years approximately.

• YOUNGEST POPULATION IN THE WORLD

• Changing consumer demographics indicate vast
potential for growth in consumption both qualitatively
and quantitatively, due to increasing affluent with
bulging middle class and youngest people in the world.
70% of Indian population is below 35 years of age
which means that there is tremendous opportunity of
130 million people being added to working population.
 Drivers of retail business in India
• INCREASING LITERACY LEVELS:
• Due to increase in the literacy ratio, people have
developed a taste for latest technology and variety of
products and services. It will lead to greater demand
for retail activities specially retail banking activities.
• HIGHER ADAPTABILITY TO TECHNOLOGY:
• Convenience banking in the form of debit cards,
internet and phone-banking, anywhere and anytime
banking has attracted many new customers into the
banking field.
• Technological innovations relating to increasing use of
credit / debit card, ATMs, direct debits and phone
banking have contributed to the growth of retail
banking in India.
 Drivers of retail business in India
• CONTINUING TREND IN URBANIZATION: Urbanization of
Indian population is also an important feature influencing
the retail banking.
• INCREASING CONSUMPTION MINDSET OF INDIANS:
Economic prosperity and the consequent increase in
purchasing power have given a fillip to a consumer
boom.
• During the 10 years after 1997, India's economy grew at
an average rate of 6.8 percent and continues to grow at
the almost the same rate – not many countries in the
world match this performance. It means that Indian
consumers are now shifting from the tendency of buying
more and better quality to new services and products.
 Wholesale Banking
• Concept of wholesale banking

• Wholesale banking refers to banking services sold to

large clients, such as corporations, other banks, and
government agencies.
• Typical services sold are mergers and acquisitions,
consulting, currency conversion, and underwriting.
• Wholesale banking is the opposite of retail banking,
which services individuals and small businesses.
• Wholesale banking also refers to the borrowing and
lending between institutional banks.
 Products and services
• Wholesale Banking Products
• The various products and services provided by banks are:
• Term Loans
• Short Term Finance
• Working Capital Finance
• Bill Discounting
• Export Credit
• Bank Guarantees
• Letter of Credit
• Bill Collection
• Cash Management Services
• Corporate Salary Accounts
• NEFT/RTGS
• Forex Services
• Money Market Services
• Tax Collection
• Payment Gateway Services
• Corporate Internet Banking
 BASIS FOR COMPARISON RETAIL BANKING WHOLESALE BANKING

Meaning Retail banking indicates that Wholesale Banking implies

division or unit of the bank that division or unit of the
which deals with retail bank which handles large
customers, to provide basic corporate clients to provide
banking services. specialized banking services.

Nature of Products and Standardized Tailor-made

Services offered

Customer/Client base Large Small

Processing cost Low Comparatively High

Loan size Up to 5 crores More than 5 crores
Value of transactions Lower value of transactions High value of transactions

Profitable Less Comparatively more

International Banking
 Needs of Exporters and importers
• Improved Significance for both the Exporter and Importer
• Without commercial banks, the international finance and
import-export industry would not exist. Commercial banks
make possible the reliable transfer of funds and translation of
business practices between different countries and different
customs all over the world.
• The global nature of commercial banking also makes possible
the distribution of valuable economic and business
information among customers and the capital markets of all
countries.
• Commercial banking also serves as a worldwide barometer of
economic health and business trends.
 Foreign Branch Banking and Ease of
Payment
• Some small commercial banks limit their reach to the local
business community; but as business has gone global, so have
commercial banks.
• Large banks such as Citigroup, Bank of America and Chase are
retail (consumer) banks that also maintain full commercial
banking activities in the United States with branches in many
countries.
• These larger banks may act as affiliates of smaller banks that
do not have branch presences in other countries.
• Through foreign branch banking, U.S. based multinational
companies can consolidate their financial business at a single
bank that handles their trade finance, currency transactions,
project loans, payroll, cash management investments and
deposit accounts throughout the world.
 Trade Financing Across
Intercontinental Space
• Commercial banks doing international business are also called
merchant banks because they finance trade between companies
and customers located in different countries.
• This is done by issuing LOCs that indicate the customer has
deposited the full amount due on an order with a company
located in a different country.
• The seller company can then feel assured of being paid if it ships
goods to its offshore customer. The LOC may also be used by the
company to guarantee a manufacturer’s loan, allowing it to
finance the manufacture of the goods to be delivered.
• Without LOCs, companies would face considerable expense in
investigating their foreign customers to make sure they are
legitimate and creditworthy, and complying with laws and
regulations of the different countries in which they do business.
 Corporate Finance and Maintenance
of Corporate Relationship Between
the Both Parties
• Companies always need to borrow money to cover purchases of
raw materials, machinery parts, inventory and/or payroll. Banks
with overseas branches or affiliates can simplify the process of
corporate finance throughout a company’s organization by
consolidating the transaction procedures, reporting and record
keeping.
• It is much easier for a company manager to do business in her
own language with a banker located nearby who handles her
global business finance needs than it would be for her to develop
banking relationships in every country where she does business.
• Here international commercial bank can also provide referrals to
professional service firms in other countries, as well as arrange
introductions to other companies appropriate as customers or for
strategic partnerships.
 Remittance – Meaning Explained

• Remittance refers to the process of transferring

or sending money from one party to the other.
The term remittance is typically used to denote
the transfer of funds overseas. Essentially,
remittance helps you ensure the financial security
of your family in one country while you are based
in another.
• Remittances – Fees and Charges
• Remittance charges are usually zero. But the
remitting or intermediary bank may charge a fee.
You will also have to pay a foreign currency
conversion charge, which is a flat fee. Service tax
is also levied.
 Remittance services
• Remittance means sending
money from one party to
another, usually overseas.
• Remittance is a vital source
of revenue for a country and
plays an integral role in its
economic growth and
development.
• Remittance is of two types –
Inward and Outward.
• Wire transfers are one of the
most popular methods to
send remittances.
• Money transfer apps are also
slowly gaining traction.
 Types of Remittance

• Inward Remittance
• Inward remittance refers to the funds you receive
in your bank account from another account in
India or abroad. So, as an NRI living in Canada, if
you send money to a local account in India, the
fund transfer is called an inward remittance.
• Outward Remittance
• When you transfer funds overseas from your local
account, it is an outward remittance. For
instance, when parents in India transfer funds to
their child, an international student living in
Singapore, the money transfer service becomes
an outward remittance for the parents.
 Payment Methods for Remittance

• Having explained what is remittance in banking, let us now

understand the various payment methods.
• Wire Transfer
• Wire transfer is one of the most popular methods used for
remittances. An international money transfer can easily take
anywhere from 3-5 business days or longer. Wire transfers can be
quite expensive, with some host countries charging high fees for
the service.
• Bank Transfer
• A bank transfer is used for sending money between your bank
accounts. This can be done locally or internationally. A local bank
transfer is a cross-border payment where a deposit is made into a
foreign bank account.
• Money transfer apps
• The proliferation of technology has given rise to several apps that
facilitate faster remittances. Paying through money transfer apps is
easy, secure, and convenient. Processing is almost instant.
 ADR & GDR
• Shares of foreign stocks offered in foreign
markets are comprehensively known as
depositary receipts.
• ADRs are shares of a single foreign company
issued in the U.S.
• GDRs are shares of a single foreign company
issued in more than one country as part of a
GDR program.
 Participatory Notes
• Participatory notes are offshore derivative instruments
with Indian shares as the underlying assets. Because of
the short-term nature of investing, regulators have
fewer guidelines for foreign institutional investors.
• To invest in the Indian stock markets and to avoid the
cumbersome regulatory approval process, these
investors trade participatory notes.
• Brokers and foreign institutional investors registered
with the Securities and Exchange Board of India (SEBI)
issue the participatory notes and invest on behalf of the
foreign investors.
• Each month, brokers must report their participatory
note issuance status to the regulatory board
 Internet Banking: Need, Advantages
Security
• Internet banking, also known as online banking or
e-banking or Net Banking is a facility offered by
banks and financial institutions that allow
customers to use banking services over the
internet. Customers need not visit their bank’s
branch office to avail each and every small
service.
• You have to use the registered customer ID and
password to log into your internet banking
account.
 Advantages of Internet Banking
• Availability: You can avail the banking services round the clock throughout the year.
Most of the services offered are not time-restricted; you can check your account
balance at any time and transfer funds without having to wait for the bank to open.

• Easy to Operate: Using the services offered by online banking is simple and easy.
Many find transacting online a lot easier than visiting the branch for the same.

• Convenience: You need not leave your chores behind and go stand in a queue at
the bank branch. You can complete your transactions from wherever you are. Pay
utility bills, recurring deposit account instalments, and others using online banking.

• Time Efficient: You can complete any transaction in a matter of a few minutes via
internet banking. Funds can be transferred to any account within the country or
open a fixed deposit account within no time on netbanking.

• Activity Tracking: When you make a transaction at the bank branch, you will
receive an acknowledgement receipt. There are possibilities of you losing it. In
contrast, all the transactions you perform on a bank’s internet banking portal will
be recorded. You can show this as proof of the transaction if need be. Details such
as the payee’s name, bank account number, the amount paid, the date and time of
payment, and remarks if any will be recorded as well.
 Need
• Money Transfers
• Direct Deposit
• Bill Pay Management
• Easy to Monitor
• Convenience
 Internet Banking Security to Keep
Fraudsters Away
• Internet banking security is top-of-mind for both
banks and their customers. You'll notice that
banking websites now feature timed log-outs —
deactivation of login details after several incorrect
attempts and various authentication steps.
• Banks are also making sure their websites have
extra layers of encryption these days.
• They must take these preventative steps to protect
all sensitive customer data, simply because too
much is at stake. Any leaks can be extremely
damaging to the business and its reputation
 Banker Customer Relationship
• The relationship between a banker
and a customer comes into existence
when the banker agrees to open an
account in the name of the customer.
• The relationship between a banker
and a customer depends on the
activities, products, or services
provided by the bank to its customers
or availed by the customer.
• Thus the relationship between a
banker and customer is the
transaction relationship.
• Bank’s business depends much on the
strong bondage with the customer.
Trust plays an important role in
building a healthy relationship
between a banker and a customer.
 Debtor – Creditor relationship
• When a ‘customer’ opens an account with a bank, he fills in and
signs the account opening form. By signing the form he
agrees/contracts with the bank.
• When a customer deposits money in his account the bank
becomes a debtor of the customer and the customer a creditor.
• The money so deposited by the customer becomes the bank’s
property and the bank has a right to use the money as it likes. The
bank is not bound to inform the depositor of the manner of
utilization of funds deposited by him.
• Bank does not give any security to the depositor i.e. debtor. The
bank has borrowed money and it is only when the depositor
demands, the banker pays. Bank’s position is quite different from
normal debtors.
• While issuing Demand Draft, Mail / Telegraphic Transfer, the bank
becomes a debtor as it owns money to the payee/ beneficiary.
 Bank as a trustee
• In the case of a trust, a banker customer relationship is
a special contract.
• When a person entrusts valuable items to another
person with the intention that such items would be
returned on demand to the keeper the relationship
becomes of a trustee and trustier.
• Customers keep certain valuables or securities with the
bank for safekeeping or deposits certain money for a
specific purpose the banker in such cases acts as a
trustee. Banks charge fees for safekeeping valuables.
 Bailee-Bailor
• A “bailment” is the delivery of goods by one person to
another for some purpose, upon a contract that they shall,
when the purpose is accomplished, be returned or otherwise
disposed of according to the directions of the person
delivering them.
• The person delivering the goods is called the “bailor”. The
person to whom they are delivered is called, the “bailee”.
• Banks secure their advances by obtaining tangible securities.
In some cases, physical possession of securities goods
(Pledge), valuables, bonds, etc., are taken.
• While taking physical possession of securities the bank
becomes bailee and the customer bailor. Banks also keep
articles, valuables, securities, etc., of their customers in Safe
Custody and act as a Bailee.
• As a bailee, the bank is required to take care of the goods
bailed.
 Agent-principal,
• Banks collect cheques, bills, and makes
payment to various authorities’ viz., rent,
telephone bills, insurance premium, etc., on
behalf of customers.
• Banks also abides by the standing instructions
given by their customers. In all such cases
bank acts as an agent of its customer, and
charges for these services.
 lessor-lessee
• The relationship between the bank and the
customer is that of the lessor and lessee. Banks
lease (hire lockers to their customers) their
immovable property to the customer and give
them the right to enjoy such property during the
specified period i.e. during the office/ banking
hours and charge rentals.
• Bank has the right to break open the locker in
case the locker holder defaults in payment of
rent. Banks do not assume any liability or
responsibility in case of any damage to the
contents kept in the locker.
• Banks do not insure the contents kept in the
lockers by customers.
 Anti Money Laundering: Concept,
Stages, Objectives
• Money laundering is a type of financial crime.
• It involves taking criminally obtained proceeds (dirty
money) and disguising their origins so they’ll appear
to be from a legitimate source.
• Anti-money laundering (AML) refers to the activities
financial institutions perform to achieve compliance
with legal requirements to actively monitor for and
report suspicious activities.
• Anti-Money Laundering (AML) is a set of policies,
procedures, and technologies that prevents money
laundering. It is implemented within government
systems and large financial institutions to monitor
potentially fraudulent activity.
 Objectives
• The main objectives of the Prevention of
Money Laundering Act are :
• To prevent and control money laundering
• To confiscate and seize the property obtained
from the laundered money; and
• To deal with any other issue connected with
money laundering in India.
• The Act also proposes punishment under
sec.4.
 Stages
• Placement
• The placement stage involves placing amounts of illegal money into legal financial
institutions in a way so as not to attract any attention.
• However, the initial sum of money is so large that even if that is divided into
smaller sums, it is still large enough to gain unwanted attention. So it is generally at
the placement stage that money launderers generally get caught.

• Layering
• The layering money laundering stage (also called structuring), which involves the
movement of finances internationally, is generally the most complex. This is
because it involves the layering or structuring of other transactions into the
transaction history, obscuring the audit trail and making it very difficult for law
enforcement officials to track the source of the illegal money.
• In the layering phase, the criminals rely on the fact that the authorities would have
to delay themselves till they have actionable evidence or to acquire a warrant to
take action.
 Stages
• Integration
• In the integration stage, the last of the stages
of money laundering, the laundered money is
returned back to the criminal through a
number of legitimate sources.
• This way the transaction happens without the
risk of the government necessarily inspecting
how the money came to the person, and even
if they do, the complex layering that
happened in the previous stage will keep the
authorities at bay.
 Know-Your Customer
• Know Your Client (KYC) are standards used in the
investment and financial services industry to verify
customers and know their risk and financial profiles.
• Three components of KYC include the customer
identification program (CIP), customer due diligence
(CDD), and enhanced due diligence (EDD).
• The Know Your Client (KYC) rule is an ethical
requirement for those in the securities industry
dealing with customers during the opening and
ongoing maintenance of accounts.
 KYC Verification for individuals,
• Individuals (Documents acceptable as proof
of identity/address)
• Passport
• Voter's Identity Card
• Driving Licence
• Aadhaar Letter/Card
• PAN Card
 For businesses

• Certificates of Incorporation
• CIN / DIN
• Partnership agreements
• Business Licences
 The Key Components of KYC
Verification
• Customer Acceptance Policy
• The first step required to undertake KYC
verification is creating a policy. The customer
acceptance policy outlines how the business or
organization will verify clients, and the rules to be
followed while onboarding a new customer.
• The customer policy mentions the criteria to be
used for verification, which documents are
acceptable, and other requirements to be
adhered to during KYC verification.
 Customer Identification Program (CIP)

• The next component in KYC verification involves collecting identifying

information from a customer and verifying this information to ensure
authenticity. The modes to be used for verification such as OCR, APIs, AI-
powered document verification, etc, are also laid out in the CIP.
• The minimum information businesses would require for CIP include –
Name, Date of Birth, Address, and ID number.
• Customer identification may be performed using three criteria –
• Possession – The customer is verified using something he or she possesses.
This could be a photo ID, Officially Valid Documents (OVDs), an OTP
received on the customer’s Aadhaar-registered number, etc.
• Inherence – The customer is verified using something that he or she is. This
usually refers to a unique biological criterion such as fingerprints, retina,
iris, etc.
• Knowledge – The customer is verified using something he or she knows.
This could be a password, a private key, a pin, etc.
 Customer Due Diligence (CDD)

• The third component of KYC verification involves performing due diligence

procedures for verified customers. Regulated businesses are required to
conduct extensive assessments and scoring to anticipate the level of risk
potentially posed to the business.
• CDD regimes can be classified into three types –
• Simplified Due Diligence
• Simplified CDD is undertaken for low-value accounts where risks of money
laundering are low.
• Basic Due Diligence
• This is the required level of due diligence to be performed when money
laundering risks are not low enough to warrant simplified due diligence.
• Enhanced Due Diligence
• This is conducted when Financial Institutions (FIs) need detailed information
regarding the customer’s transactions and financial activities. Politically
Exposed Persons( PEPs) typically require enhanced due diligence.
Deposit Products and Service

Demand deposits & time deposits

Merchant banking
Lease financing
Plastic money (debit card and credit
card), ATM card.