Answer 1

INTRODUCTION
A tremendous increase in the debt in the Indian market led to a shortage of liquid funds. The debts
though are secured but they lead to the conversion of the liquid funds that are available with the
banks to the illiquid funds in the form of mortgages. This is becoming a big problem for financial
institutions because the liquid assets available to them keep on shrinking with time. In order to
make the situation under control and convert the pool of mortgage assets into liquid assets, the
banking management comes with a smart idea, and that idea is called securitisation.
Securitisation has become a buzzword in the modern banking sector. This technique of modern
retail banking has turned loans into exchangeable securities. The working of securitisation is
complex but it has worked tremendously as a credit risk mitigation tool.

SECURITISATION
The term securitisation has changed the retail banking system and has led to the conversion of
illiquid assets into liquid assets. Securitisation is the process under which the bank can turn
mortgage assets into marketable securities. In India securitisation is new in origin but the scope is
tremendous due to the enormous credit market of India. There have been two main pillars that hold
the securitisation market in India. The two pillars that hold the Indian market is Residential
Mortgage Backed Security (RMBS) deals and Auto-asset Based Security (ABS) deals.
1. RMBS:- Residential Mortgage Backed Securities are securities bonds that are backed by the
mortgage of the housing and the residential. All the residential mortgages are clubbed into one
pool and then they are presented as bonds these bonds are then presented to the market as
residential mortgage-backed bonds.
2. ABS:- Auto-asset Based Security is the bonds that are secured by automobiles that are kept in
the mortgage. It works the same as the RMBS as only the type of backed security changes
from house to automobile. Bonds that are issued and backed by automobile assets are thus
secured.

The law-Securitisation, Asset Reconstruction & Enforcement of Security Interests Act was
developed in 2003 and the law manages the requirement of security investment as its point of
convergence and has not been utilised at all for securitisation transactions.

SECURITISATION PROCESS WITH EXAMPLE

The process of Securitisation is a technical process and it requires effects from the banking
department. When the borrower enters the bank for credit the bank keeps the mortgage and
provides them with liquid funds. If this process keeps on going the bank will soon have a scarcity of
liquid funds. There will be an increase in mortgage assets in the form of illiquid funds. The bank
comes with a technical idea they form an SPV also called a special purpose vehicle. These SPV
evaluate the mortgage on the basis of the term of maturity, percentage of security, etc. Once the
SPV evaluate these mortgage they also take advice from the CRA also called the credit rating
agency. These bodies are independent and work responsibly. The SPV launch these Bonds in the
market these bonds are called mortgage-secured bonds. The CRA also rates these bonds as AAA,
AA, and A category. More the rate more secure they are but the interest goes down and vice versa.
The public buys these bonds according to their risk capacity. The money collected by the sale of
these bonds is collected by SPV and then it is passed to the banks. The bank again gives these
liquid funds to the borrowers. The profit share in this system goes as the rate at which bonds are
sold to the public is less let's say 6% and the SPV gives the liquid assets to the banks at a bit more
raise rate let's say 8% and at last, the bank gives the loans to the borrowers at higher percentage
lets say 10%. The CRA charges the SPV for their services
EXAMPLE
Someone wants to borrow a loan and keep his house as a security deposit. He went to the bank
and the bank give him a credit of 1,00,000 value of the house is 2,00,000. The bank then passes
the mortgage paper to the SPV and the SPV evaluates the value and takes advice from the CRA
before issuing the bonds. The CRA then rates the bonds as AAA, AA, or A. The bonds are then
available for the investors at some interest that is always lower. Then the SPV passes the liquid
assets to the bank at a moderate rate of interest the bank then pass the liquid assets to the new
borrowers at a high rate and the cycle repeats again. The following diagram shows the connection
and the flow of functions in different bodies.

CONCLUSION
Securitisation is a modern method that is used by the banking system to convert illiquid assets to
tradable securities. A bank can take the help of several bodies to perform this task. The first step
done by the bank is to form an SPV i.e. Special Purpose Vehicle which is a separate unit that buys
the mortgage documents that are in the form of fixed assets titles. This SPV issue the bonds to the
public that are backed by the secured mortgage papers. A special CRA also plays an independent
role and rates these bonds as per safety. In the past 10 years, the securitisation field has grown up
at an exponential rate. Securitisation helps banks to create capital even before the repayment of
the loan is done. It is now coming as a tool that works as credit risk mitigation.
 Answer 2

INTRODUCTION
The concept of retail banking in the Indian economy has changed the perception of the banking
sector in India. The introduction of Retail banking led to a crucial role in the day-to-day life of an
individual. The core function of retail banks is to provide services and platforms to small
businesses and individuals. Not the same as big banks that deals with big transaction and
multinational corporation these retail banks deal with a small but large number of transactions.
Retail banking in India not only simplifies but also diversifies the Indian banking system. The
modern population and modern economic growth led to the strengthening of Retail Banking in
India. Yet there are many opportunities left for retail banking to explore and grow exponentially.
There are many challenges that retail banking also has to face in the modern Indian economy.

RETAIL BANKING
Retail banking is a banking system that works at a small level. Retail banking is that part of a bank
that offers products and services primarily to individual customers, professionals, self-employed
individuals, or small businesses. The are several advantages that are provided by retail banking to
the modern economy and young population.

1. The relation-building focus of retail banking provides a much more level of satisfaction to the
modern economy and young population.
2. Retail banks have a diversified portfolio that leads to a huge customer base as the result the
bank reduces their dependence on few or single borrowers.
3. Provide smart technology inclusion that helps the young population to adapt and take
maximum advantage of the system.
4. Retail banking work at multiple levels that increase production activities this increase led to the
economic revival of the nation.
5. Retail banks provide credit at low rates as compared to other financial institutions, this leads to
economical growth and business expansion opportunities for the younger population.

RETAIL BANKING AS SIMPLIFICATION TOOL

Introduction of the new and advanced technology has led to the simplification of the process of
retail banking. The process is now much simpler and can be understood by anyone. The task that
requires a large amount of understanding and steps can now be performed with ease. Some of the
technical tools that help retail banking to be a simplification tool are as follow

1. Automated Teller Machine banking (ATM):- Automated teller machine is a computerised

device that works as a multifunctional device and helps to perform several tasks on one
platform. Tasks such as cash withdrawals, deposits, transfers, etc can be performed at the
machine with a simple click of buttons.

2. Internet banking and Mobile banking:- Introduction of the internet and mobile technology
shifted the perception of financial dealing in India. The simplicity that is provided by the online
platform is unmatched. Mobile banking provides the facilities of the bank branch at one's
pocket and access to the banking facility is just some clicks away from one's reach.

3. E-Commerce:- E-Commerce provides the platform for performing trade transactions on the
digital platform. Retail banking helps in facilitating the process of E-Commerce and helps in
growing the market. Simplification in e-trade can lead to easy excess to the global market.
RETAIL BANKING AS DIVERSIFICATION TOOL
Diversification can be said as a risk management strategy that helps banks to segregate all the
risks into different categories. Retail banking provides a tool that can help diversify the risk and
minimise them. There can be many risks that can require specific tools to overcome. Some of the
financial risks with the tools used by the retail banks are as follow:-

1. Credit Risk:- Credit risk is associated with the loans and advances that are provided by the
banks to the borrowers. Credit risk is always there with the loan and advances Banks have put
in place a “Credit Risk Management Division” to monitor credit portfolios from time to time.
Banks also use securitisation as a credit mitigation tool to secure their credit.

2. Market Risk:-Market risk is associated with the change in the market situation. The market is
dynamic and thus requires a dynamic approach. It never remains the same as ever so the retail
banks must have to be diversified enough so that they can change with the new trends of the
market. The retail market uses its diversification tool so that it can keep on changing with the
market.

3. Operation Risk:-Operation risks are the most important risks that an organisation must have
to deal with. Operational risk is the internal risk that deals with the internal management
functioning and thus need to be carefully examined. Operational risks are associated with the
functioning policies and the internal working procedure of the banks. Retail banking must have
to be diversified enough that it can tackle operational risks.

4. Interest Rate Risk:- Interest rate risks are the risks that are associated with the future
interest value of the interest. There are several risks that can be treated as part of Interest rate
risks such as Price risk, Reinvestment risk, Equity price risk, and Commodity Price Risk. Retail
banks form policies and use the method of diversification to predict future rates.

CONCLUSION
Retail banking is a system that is connecting individuals and small-scale businesses and helps
them to use banking facilities. Individuals and small companies that remain initialised by the big
financial institutions can get facilitated by the help of Retail Banking. With the growing trend of the
modern economy and the millennial young population getting stronger day by day the increase of
retail banking is growing at the same rate. Retail banking can be used as a simplification tool as
well as a risk diversification tool in the Indian economy. Retail banks use many tools that are used
in order to simplify and diversify the risk with banking. Simplification helps market reach and risk
diversification help is minimising the risk.
 Answer 3(a)
INTRODUCTION
The financial market in the Indian economy keeps on changing and the change in the market leads
to a change in the banking sector too. Apart from the traditional form of banking that requires much
more personal connection between the banks and the customers, the new modern approach is
much more different. A surge in the need for 24x7 services by the banks and access to these
services from the comfort of the home is required. This needs to lead to a change in the trend and
raise to the branchless system of the banks. Branchless banking brings the banking system one
step closer to financial inclusion and the government is also setting its vision for this change.

BRANCHLESS BANKING PROMOTE FINANCIAL

INCLUSION
Branchless banking is the process under which the banks are less focused on opening physical
branches and are much more focused on providing services in the digital platform. These services
can be accessible at any time and at any place and just require devices and connection. In India,
there are still many low-income homes that do not have access to financial services. Need for
financial inclusion is required and this can be done by removing the obstacles and by supplying
services at reasonable values. According to the financial inclusion policy, everyone should
contribute towards the financial administration and this can be achieved by branchless banking as
it can cover far more places that cannot be reached by any other means.

GOVERNMENT VISION
The Indian government is much more positive about this financial inclusion with the help of
branchless banking. They are adopting several special programs to promote financial inclusion
with the help of branchless banking. The vision of the Indian government can be enumerated as
follows.

1. To provide affordable financial services that can help achieve financial inclusion and branchless
banking can help in lowering the management cost.

2. To provide a much more easy platform than the physical branch in the form of a digital platform
so that reach can be extended and can help in achieving financial inclusion.

3. Safeguarding the digital platform from digital crimes such as hacking must be focused on as
physical branches are less affected by hacking and trust in the digital platforms can bring more
people to the branchless platform moving one step closer to financial inclusion.

4. Delivering government facilities such as subsidies digitally can help in bringing more people to
the digital platform from branch banking hence leading to financial inclusion.

CONCLUSION
In order to attain financial inclusion in the Indian financial market, the government is performing
several steps. These steps are transforming the financial future of India. Branchless banking
provides a platform for all sectors of the Indian economy and helps in the formation of a connection
that is called financial inclusion. Branchless banking lowers the cost of financial services also and
the coverage of these services can also be increased. This caused the extended reach of the
banking sector and move one step closer to Financial Inclusion.
 Answer 3(b)

INTRODUCTION
The banking sector is growing in the Indian financial market for the past 10 years. One of the
reasons for this growth is technological advancement in the field of banking and finance. As time
changed and some government steps changed the perception of the public towards technical
induction in the field of finance. Initially, there was a mixed reaction from customers toward
technological induction in the field of banking. Today much more people are moved from traditional
banking to technologically advanced banking. There are many technologies used by the banking
sector to bring more people to the banking platforms.

TECHNOLOGIES IN BANKING SECTORS

Banks know the importance of technology for reaching the modern population. Banks now have a
dedicated department that deals with enhancing and creating modern platforms to deliver banking
services. Some of the technology used by the banks are enumerated as follow:-

1. ATM:- Also called automated teller machines are computerised devices that can perform
several banking functions without the requirement of a bank branch. Money can be deposited,
withdrawn, and transferred.

2. Internet banking:- Internet banking is a platform that is provided by banks in which bank
services can be used anywhere with the help of an internet connection. Every individual
account has a unique id and password that give the user access to the banking platform where
services can be availed.

3. Mobile banking:- Just like internet banking but requiring much less effort of login, mobile
banking is a system that provides the whole banking experience on one mobile device with
help of the mobile application.

4. Digital Payment System:- Indian government comes up with a system that helps in
performing digital payments. The national payment company of India (NPCI) comes up with
United Payment Interface (UPI) and Bharat Interface for Money to help send cash between
accounts.

5. Plastic Cards:- Introduction of the plastic cards such as debit and credit cards leads to a
payment system where cash is not required. Payment of the bills can be done without a
physical transfer of cash.

6. E-commerce:- E-commerce helps banks to reach the multilevel of the economy. It helps the
banking system to connect the young population who are much more indulged in modern
technology.

CONCLUSION
To grab the interest of the young population and reach them, the banking sector must have to
advance the technical aspect. The modern population is much faster and is time-bound due to the
fast-moving lifestyle. The solution for this is to provide them with technologically advanced
methods to prevent their time from being lost. The banking sector in India has come up with
several technological instruments to help with the requirements of the young population and
achieve the goal of bringing more people under the banking ambit.