Banking System &

Customer Types
 RETAIL BANKING • WHOLES ALE BANKING • UNIVERS AL
BANKING
 Retail Banking
When a bank executes transactions directly with consumers. Retail Banking deals directly with
individuals and small businesses. It is also known as consumer banking or personal banking.
Products and Services:-
1. Checking and Savings accounts:-Customers are generally Charged a monthly fee for checking
accounts, saving accounts offer higher interest rates than checking account.
2. Mortgages on residential and investment properties.
3. Debit and Credit Cards:- Retail Banks provide the facility of Debit & Credit cards for easy
availability of money.
4. Foreign Currency and Remittance services
5. Personal and Home Equity Loans:- Retail banks also provide personal & home equity loans for
meeting the expenses such as home repairs, medical bills or collage education etc.
 Wholesale Banking
Wholesale Banking deals with larger institutions, where as retail banking would focus more on the individual or
smaller business. In Simple words, wholesale Banking refers to banking, where large companies or large
infrastructure project or government accounts are handled.
Modern wholesale banks are engaged in finance wholesaling, underwriting, market making, consultancy, mergers
and acquisitions, fund management.
Product and Services:-
1. Currency Conversion
2. Working capital financing
3. Large trade transactions
4. Cash Management
5. Loan participation
6. Merchant banking
7. Trust service
 Universal Banking
A banking system in which banks provide a wide variety of financial services, including both commercial and
investment services. These are also called full-service financial firms although there can also be full service
investment banks which provide asset management, trading and underwriting
Products & Services:-
1. Credit
2. Loans
3. Deposits
4. Asset management
5. Investment advisory
6. Payment processing
7. Securities transactions
8. Underwriting and financial analysis
Types of Customers
In the retail industry, customers can be segmented into five main types:
1. Loyal customers: Customers that make up a minority of the customer base but
generates a large portion of sales.
2. Impulse customers: Customers that do not have a specific product in mind and
purchases goods when it seems good at the time.
3. Discount customers: Customers that shops frequently but bases buying decision
primarily on markdowns.
4. Need-based customers: Customers with the intention of buying a specific product.
5. Wandering customers: Customers that are not sure of what they want to buy.
PRINCIPLES OF LENDING
1. Safety
2. Liquidity
3. Profitability
4. Security
5. Diversification of risks
6. Remuneration
1. SAFETY: When a loan or investment is made, the banker will have to ensure that the money
advanced is returned by the borrower along with interest within the predetermined period.
2. LIQUIDITY: The banker while making advances must see that the money he is lending is not
going to be locked up for a long time, which should make his loans & advances less liquid &
more difficult to realize in cases of emergency.
3. SECURITY: The banker should ensure that the borrower has the ability & will to repay the
advances as per agreement.
4. DIVERSIFICATION OF RISKS: The banker should aim at spreading the advances as widely as
possible over different industries & different localities. Dispersal of advances is very
necessary from the point of security as well, because it reduces risk of recovery.
5. Remuneration: The banker need sufficient earnings to meet the following besides others: –
Return payable to money deposited with it – To meet various statutory monitory
requirements under the banking law. – Salaries and benefits payable to staff members. –
Payment of dividends to shareholders.
 Forms of Lending
1. Cash Finance (Cash Credit)
2. Overdraft
3. Loans (Term Finance)
4. Purchase and Discounting of Bills
1. Cash Finance (CASH CREDIT)
A Cash Credit is a very common form of borrowing by commercial and industrial concerns, and it is made
available either against pledge or hypothecation of good. In cash finance, a borrower is allowed to borrow
money upto a certain limit, either at once or as and when required.
2. OVERDRAFTS
A bank overdraft is flexible borrowing facility on a bank current account which is repayable on demand.
A bank overdraft does not actually result in cash flowing into a business.  Instead the business is allowed to
let its bank account become “overdrawn” – i.e. in the red, up to a maximum amount
 Forms of Lending
3. TERM LOAN
Where a loan is granted for a period exceeding one year & is repayable according to a schedule
of repayment, as against on demand & at a time is known as ‘term loan’.
Where the period exceeds one year but not, 5 to 7 years, it is known as ‘medium term loan’.
A loan with longer repayment schedule is known as ‘long term loan’.
4. Purchase and Discounting of bills
a. The banker advances money on the security of bills of exchange after deducting a certain
percentage, technically known as ‘discount’, from the face value of the bill.
b. Documentary bills of exchange – Clean bills of exchange – Demand bills of exchange
c. When discounting , the banks deduct amount at mentioned discount rate and balance is paid
to the party.
Collateral Collateral is an asset or property that an individual offers to a lender whenever he wants to acquire a
loan. It is used as a way to obtain a loan which, at the same time, acts as a protection for the lender .

Pledge Pledge is commonly used for goods or securities such as gold, stocks, certificates etc. The lender
(pledgee) holds the actual possession of such securities till the time the borrower (pledger) has the
borrowed amount with him. Once the borrowed amount has been returned, the securities are
returned as well. 

Mortgage Under a mortgage, the legal ownership of the asset can be transferred to the lender if the borrower
defaults on the loan amount. However, the borrower continues to remain in the possession of the
property. Mortgage is usually used for immovable assets (example: house, land, building or any
property which is permanently fixed to the earth or attached to the land).

Hypothecation Hypothecation is usually when the charge is on movable assets rather than having charge on 
fixed assets. Example of hypothecation is vehicle financing where the lender has the asset that has
been hypothecated against the loan with a bank.

Guarantees the guarantee is when a person assures the other party that he/she will perform the promise or fulfill
the obligation of the third party, in case he/she default.

Indemnity is a contractual promise to accept liability for another's loss. A contract in which one party promises to
another that he will compensate him for any loss suffered by him by the act of the promisor or the
third party.