A PRESENTATION ON ASSET-BASED RETAIL FINANCIAL SERVICES

Personal Finance

Personal Finance represents the credit facilities provided by banks and financial institutions to the individual customers. The coverage under personal finance differs from bank to bank. Examples: Employees Stock Option Scheme

Housing Loan
Holiday Travel Loan Car Loan Education Loan

Personal Loan
Property Loan etc..

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The amount of loan falls within the range of Rs.20000 to Rs. 1500000 depending on the salary or income of the borrower. The personal loans are granted to any customer or non-customer if the bank is satisfied with the repayment capacity of the borrower. Installments can be paid by depositing post dated cheques, Authorisation to debit the amount to the borrowers savings/current account, Authorisation to transfer interest on term deposits to the loan account, Authorisation to deduct the installment from the salary by the employer and remit to the bank etc. The interest varies from bank to bank, Normally, banks allow 12 months to 60 months for repayment. Apart from interest, banks also charge one time processing fee ranging from 1% to 3% of the amount of loan.

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If the post dated cheques bounce, banks charge 2% to 3% interest per month as penalty. Generally, Personal loans are unsecured as in most cases there is no primary security. Therefore, many banks demand some security in the form of property, gold ornaments, third party guarantee etc. Some banks instead of third party guarantee, insist that another person should join as co-obligant. The documentation is simple as it contains only a promissory note, a loan agreement and a guarantee deed signed by the guarantors, if any.

Consumer Finance

Consumer Finance is provided by banks to acquire consumer durables such as refrigerator, Television, furniture etc. The primary security is the item purchased out of the loan. Banks do not lend the full value of the assets, but they deduct a margin varying from 10% to 25% which the borrower has to remit in advance. Generally, the payment is made directly to the supplier. The supplier will send the receipt with a copy of the invoice to the bank. The borrower has to execute an agreement on stamp paper of required value and a demand promissory note. The bank may demand for some security also, other than primary security. If there are guarantors to the loan a letter of guarantee is also obtained from the guarantors.

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Instead of guarantors, if the bank is taking co-obligants, they will sign the documents with the borrower. The payment may take place by post dated cheques, deducting the installment amount from salary of the customers by entering into contracts with their employers. Different banks offer different rates of interest depending on their cost of funds and operating expenses.

Housing Finance

In India, Housing finance received major focus among the banking activities with the establishment of the National Housing Bank (NHB) in 1988 under the National Housing Bank Act 1987. RBI transfers the right of financing housing loans to NHB which was previously done by Rural Planning and Credit Department (RPCD). Housing Finance received national attention in 1979 with RBIs Housing Finance Scheme. Thereafter, RBI revised the guidelines and it gives instructions to Commercial Banks for providing Housing Finance. Housing Loans can be provided as Direct Loans Indirect Loans

1. 2.

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The housing loan of different financing agencies differs with regard to the quantum, interest rate, margin requirements etc. Some of the common features are: Eligibility Amount of Loan Period of Loan

1. 2. 3. 4. 5.

Repayment
Purposes of providing Housing Finance: For buying or constructing second house for self occupation For buying or constructing the house to give it on rent. To buy the house in which he/she is residing as tenant. For the purpose of repair and renovation. To purchase the house which is taken under hire purchase scheme, etc.

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6. 7. 8. 9.

Security Cost of Borrowing

Documentation
Financial Institutions providing Housing Finance: Canfina of Canara Bank SBI Housing of SBI

PNB Housing of PNB

HUDCO(Housing & Urban Development Corporation) HDFC (Housing Development and Finance Corporation) Insurance Companies like LIC, GIC etc.

Residential Mortgage Backed Securities (RMBS)

Mortgage backed securities market is getting more response due to its ability to provide immediate cash flow and thereby increase the return. In India, the mortgage backed securities got entry into the Housing Finance sector thanks to the initiative of National Housing Bank. The transactions in the Housing Finance sector can be classified into Primary residential mortgage market and Secondary residential mortgage market. The primary residential mortgage market comprises of the primary lenders who provide housing loans to borrowers. They are in direct contact with the borrower and hold the security by way of mortgage of the house property. The secondary residential mortgage market is securitisation of housing loan installments.