Retail Banking

April 2022 Examination

Q1. Retail Banking is an important arm of banking for building and growing its assets side.
What does this mean and what are Banks doing towards growing its assets side? Name any
4 asset side products that Banks provide and explain their characteristics in terms of
product nature, its classification & cost benefits for Banks (10 Marks)

Ans 1.
Introduction
Retail banking is a phrase used within the banking zone to explain financial offerings to people
instead of organizations. Individuals may also use retail banking to manipulate their price range,
achieve credit, and hold their cash safe. Checking and savings accounts, mortgages, credit score
playing cards, and certificates of deposit all fall under this broad class (CDs). For maximum
clients, local branch banking offerings are the handiest option for meeting all their banking
desires at one location. Monetary representatives provide customer assistance and financial
counseling at local branch places. An economic representative is the primary point of touch for
credit-authorized product underwriting programs. Consumers can deposit cash right into a
checking or financial savings account, even though they don't use all the available retail banking
offerings. That is a standard and secure approach to storing personal finances.

Discussion

Economic assets are held and invested on behalf of others to supply further wealth for
themselves and their clients. Government regulation of banks, insurance, mortgages, investment
offerings, and credit cards also are part of the financial industry. Although it has changed notably
from its beginnings as a method of buying and selling gold cash for promissory notes, the
retention of monetary assets is in the middle of all banking. Whenever a consumer or business
needs money, the bank will hold their aid (deposits) directly as collateral. For the sake of the
complete financial gadget, banks must keep at least eight in line with cent of their ebook value in
actual coins. Banks have traditionally generated money by lending cash to customers and
charging hobby at the loans. Because the tremendous bulk of a bank's real cash is stashed away
in vaults or different secure places, its handiest accurate fee is as a bit of paper. Despite this, the
economic system is powered through this paper's well worth. A surprising default on loan does
not convey the entire organization to financial disaster. For that reason, the banking quarter has
traditionally tried to spread out its danger by way of investing as some distance as possible. This,
on the other hand, may motive exclusive troubles. An investment bank inquisitive about riding
up the fee of aluminum futures may limit the metal's sale to enterprises, thereby driving up its
rate.

Banks have identical significant assets and liabilities as individuals. Asset bills generate sales for
the bank. Cash, authorities' securities, and interest-bearing loans make up a bank's property. A
bank's property can consist of tangibles like device and land, intangibles like interest from
consumer and business loans, imperative financial institution reserves, and vault foreign money,
in addition to equities, which include mutual finances and bond certificates of deposit. The
financial institution's physical assets consist of the construction and land and the furniture and
gadget housed inner. Banks rely closely on debtors' hobby fees on loans like mortgages.
Examples of customer loans consist of mortgages, private loans, auto loans, and examples of
enterprise loans, which include creation loans and capital funding loans.

Professional Advisory

An Indian monetary adviser can help you with funding due diligence, M&A steering, and
valuations, in addition to actual estate consulting. There are numerous suppliers for those
products ranging from the minor nearby consultancy to the vastest international agencies.

Wealth management

Investment alternatives encompass debt and fairness mutual price range, coverage products;
derivatives; structures; commodities; and real property. Those are only a few of the opportunities
offered to clients.

Mutual price range

Investing in mutual price range is less steeply-priced than at once in stocks or debt. Many other
asset sorts, which include debt and fairness-connected securities, can be invested with the aid of
mutual fund service providers. InvestingIt's clear to see why those merchandises are so famous in
India: they've little hazard, are tax-favored, and feature consistent returns. Over the past five
years, mutual fund assets below management have grown double digits as a low-risk wealth
multiplier.

Coverage

Both humans and corporations can also use insurance guidelines to maintain their goods and
belongings. Regulations, time frames, consumer threat checks, premiums, and a slew of different
critical qualitative and quantitative standards all play a role in the payouts for various
merchandise.

Conclusion

They also can get a hold of interest in their savings as a result. The fed price range rate is used to
calculate the interest fee on maximum savings accounts. As a delivered comfort, checking and
savings bills include a debit card that may be used to pay for purchases and make withdrawals.
The boom of consumer credit scores is a vital element of financial growth because it presents a
supply of liquidity for the financial system. Humans depend on retail banks to get entry to credit
scores. They offer credit scores to customers trying to buy big-price ticket gadgets, including
houses and automobiles. Credit score extensions include mortgages, vehicle loans, and credit
playing cards. Cellular and online banking have become increasingly essential in retail banking.
To hold and entice new customers, banks are enhancing their services by imparting capabilities
like the ability to vicinity transient holds on playing cards, check customary fees, or experiment
with a fingerprint to get admission to an account.

Q2. As Retail Banking provides various types of products and services to its customers,
multiple types of ‘Banker–Customer’ relationships emerge. Name any 4 types of Banker-
Customer relationship and explain the fundamentals of the nature of the applicable legal
relationship (10 Marks)
Ans 2.
Introduction
Banking is a relationship founded on consideration. The bank-customer hyperlink can take a
ramification of forms. In different phrases, you need to connect to them to have a customer
account. A contractual connection exists between an account holder and an economic institution.
Depending on the nature of the transaction, a banker's reference to a purchaser can be
extraordinary. A contract has been signed, and the partnership's precise phrases and occasions.
Both the banker and the consumer have obligations and rights due to these partnerships. The
bank's reference to its clients is what subjects most ultimately. A technology-to-generation
banking connection is a claim made using some institutions. Those people often visit a bank
office to use banking services, including shopping a draught or en-cashing an antique test.

Discussion

Debtor and Creditor

An account holder takes at the function of a creditor when they invent an account. As long as his
performance has a credit balance, a depositor is still at risk of his banker. The relationship is off-
limits as soon because the consumer's account is overdrawn. As soon as the purchaser repays the
banker's loan, the banker becomes a creditor of the customer and stays so till the debt is repaid. A
"customer" should fill out and sign the commencing account form to create a bank account. A
prison agreement between him and the bank is shaped when he symptoms the shape. While a
consumer puts money into his bank account, he becomes a creditor, and the bank turns into a
debtor. As quickly as a client deposits cash right into a bank, the bank owns the cash and can use
it any way it sees appropriate. While a client deposits money with the bank, the bank should no
longer explain precisely how the price range will be utilized. As a long way, there may be no
safety for the depositor because the bank is concerned. As long as the banker is obligated to pay
the depositor, they are not required. There's a big difference between the bank's stance and that
of a typical borrower. While a bank issues a call for Draft, Mail, or Telegraphic switch, it
becomes a debtor to the recipient.

Bailee and Bailor

Phase 148 of the Indian contract Act, 1872 provides definitions for the terms "bailment,"
"bailor," and "bailee" (ICA). It's miles agreed upon that the matters could be back or disposed of
using the guidelines of the person who first furnished them beneath a "bailment" arrangement.
The "bailor" is the person who makes the shipping. The "bailee" is the call given to the person
who receives the packages. Advances are safeguarded by using securing them with real-global
assets. Bodily custody of securities (Pledge), such as jewels, bonds, and other assets (together
with money), is from time to time taken. A consumer is a bailor while each is in physical
possession of equal securities. Banks maintain clients' valuables and securities in safe custody,
and the bank serves as a bailee. The bank, as a bailee, is obligated to appearance after the bailed-
out objects.

Lessor and Lessee

Sec.105 of 'transfer of assets Act 1882' defines rent, Lessor, lessee, top rate, and lease. To quote
from that identical paragraph: A rental agreement is a contract among two events whereby one
party grants the opposite party the right to apply the other party's property in trade for regular
payments, inclusive of cash, crops, services, and in addition valuable attention. The other party
accepts the association on the one's terms, and the agreement becomes legally binding.

Trustee and Beneficiary

In keeping with section 3 of the Indian believe Act 1882, "trust" is described as a responsibility
related to assets ownership that originates from agreeing with positioned inside the owner or
accepted through him for the benefit of any other or of some other owner. that is because the
trustee owns property on behalf of the beneficiary, so the trust is a criminal shape. Banker-
customer relationships are extraordinary contracts with an excessive level of belief involved. The
relationship between a person who trusts someone with luxurious objects and expects them to
return them on call turns into a trustee and trustier.

Conclusion

Depending on the character of the transaction, a banker's reference to a purchaser may be one-of-
a-kind. Bankers and customers each have particular responsibilities and rights in this
relationship. There is more significance to the connection between the lender and the consumer
than, without a doubt being a borrower and a borrower. However, there are additional
connections among them. Cheques and payments are collected, and bills are made for various
authorities (such as rent or smartphone bills) on behalf of clients. Banks, too, comply with
clients' set up pointers. While a bank serves as an agent on behalf of a consumer, it collects a
price. In keeping with the Indian Contracts Act, the agent is entitled to repayment for their work.
While clients entrust the bank with their items or cash for a particular motive (an Escrow
account), the banker serves as a trustee. The safeguarding of assets by banks is the situation to a
cost.

3. “Dynamic Bank Limited” is a well-established new generation bank started in India 35

years ago. As of today, it has over 800 branches across the country with over 25 branches
in each of the metro cities (Mumbai, Delhi, Kolkatta and Chennai). It has about 10,000 full
time staff across its branches and administrative offices. In the last 5 years, its personnel
costs, occupancy costs and operational costs have been rising and consequently its profits
were also declining.

a. Analyze the existing situation and identify potential areas that need to be addressed to
bring the bank to growth and profitability (5 Marks)

b. Identify steps and measures that can potentially be deployed to shift product and service
delivery to low cost operating models to enhance bank’s profitability (5 Marks)

Ans 3a.
Introduction
There's a great deal of tension in the monetary area right now. Most large financial institutions
have the sources and benefits to experiment with new business techniques. And they've got a
strong preference to prevail. Uncertainty concerning the pleasant way to build on critical traits to
produce long-term outcomes hinders their increase.
Discussion

Banks have traditionally relied on informing them about new goods and offerings to expand their
client bases. Previously, this strategy was used to offer further economic benefits. Private traces
of credit, domestic improvement loans, and financial institution credit score cards are all options
for clients with checking accounts. Banks may additionally play a wide variety of roles on behalf
of their purchasers if they pay attention totally to their critical adjacencies. Banks might also
connect with their present-day client base and operational skills, enhance engagement, and gather
records that offer an exclusive photo in their customers' demands using increasing past the
conventional core. A few banks have additionally considered Non-banking adjacencies. For
example, post bank is Italy's biggest cellular telephone company. Numerous other financial
institutions have fashioned alliances with scientific provider providers and fitness insurers to
provide their customers with a streamlined method of deciding to buy medical bills. Clients can
get the offerings they desire at cheaper charges and with greater ease while banks expand past
their middle skills. They'll expand their own "ecosystems" of value that span numerous sectors
by using doing so.

It's worth thinking about banks with a widespread market share in a single or more excellent
essential product category. It could be challenging for banks to amplify their market percentage
in current segments. Expanding into adjacent economic and non-financial markets can capitalize
on their current client bases and offer additional products and services. As some of the bigger
digital establishments have completed, banks can also supply a chosen and properly-examined
mix of internal and third-party answers. Clients advantage from this aggregation method because
it streamlines the procedure of finding and using a variety of financial items into a single,
integrated channel.

Conclusion

Some monetary supermarkets depend upon recommendation engines, which leverage

transaction, service provider, and client statistics accumulated with the aid of the platform to
make tailor-made thoughts and offers to set up privileged connections with customers.
Disintermediation hazards can be reduced through presenting friendly, concierge-style service.
Ans 3.b.

Introduction

To increase performance, many companies have plenty of one-of-a-kind activities coinciding.

Smaller devices can also benefit from this, but the total effect is frequently disappointing and
tough to preserve. Hand-offs between teams can lack tangible benefits to customers and shorter
turnaround instances or improved customer support.

Discussion

Multiple back-and-forth tiers and giant delays are traditional in these conditions, meaning
individual capabilities frequently document massive operational profits even as patron pleasure
and general charges live equal. As opposed to specializing in personal initiatives within
organizational gadgets, organizations have to consider how their operations can turn into a
splendid client reveal from a holistic angle. Client journeys and the company methods that aid
them are the maximum substantial ways to acquire this. As a result, they must take cognizance
instead of completely redesigning the patron enjoy, which usually suggests possibilities to
simplify or streamline trips and techniques that generate significant value. Behavioral economics
principles may be used inside the design procedure in novel methods. Clients may be much less
probably to desert a buy-in case you use clever default settings on forms, restrict their options to
save them from being crushed, and pay unique interest to the last touchpoint in a chain. There is
a lot of exchange within the monetary services business right now. The focus of monetary
government global has shifted to financial restoration after the worldwide economic stoop of the
preceding decade. To remain applicable in the future, many traditional gamers have to decide
whether or not to allow them to be disintermediated or proactively disrupt their enterprise
fashions. Banks and capital markets corporations aggressively take part in this new environment
of disruption, that's commendable given the limitations posed by using converting laws in a
publish-crisis climate. Banks manage diminishing profitability, more significant opposition, and
more annoying customers. For the duration of the arena, banks are using wide-based value-
cutting techniques to boom profitability. Nowadays, most banks and financial institutions
attempt to reduce operationally and IT fees by optimizing their banking channels and
streamlining processes.
Conclusion

Banks ought to also make sure that reducing costs do now not come at the expense of expansion.
Instead of focusing entirely on reducing charges, banks must intention to enhance efficiency with
the aid of removing the paper, automating extra strategies, decommissioning unused physical
infrastructure, and promoting instantly-through processing, self-service channels, and primary-
time resolution.