I.

Role of RBI
II. Retail Banking - Products/Services
III. Wholesale Banking - Products/Services

The ability to take public deposits and allow for money withdrawals via checks is the core of banking.
Banks accept public deposits and advance those funds to persons in need as loans or investments. "Credit
creation," or the generation of additional funds for lending or investment, is a distinctive characteristic of
banks. The central bank (RBI), which also serves as the primary supervisor of the banking systems, is the
hub of the financial and monetary system.

ROLE OF RBI: RESERVE BANK OF INDIA

The RBI serves as both the primary regulator of the banking system and the brain of the nation's financial
and monetary system. It has been directing, overseeing, regulating, controlling, and advancing the
banking and financial systems as the apex institution. The RBI's primary responsibilities are briefly
described in this section.

The RBI's responsibilities in the Indian banking system include (i) currency issuance.

(ii), bankers' banking (iii), supervision (iv), exchange control (v), and

(vi) A supervisor of credit and money.

Currency Issuer

Since its creation, the RBI has had the exclusive right, authority, and monopoly to issue currency notes
other than notes and coins worth one rupee and coins of lesser denominations. One of its fundamental
duties is the issuance of currency notes.. The RBI's duties include not only adding and removing money
from circulation but also exchanging notes and coins of one denomination for those of different
denominations in response to public demand.

Governments' banker

The Central and State Governments' banker is the RBI. In this position, it offers all banking services to the
government(s), including accepting deposits, allowing check withdrawals, processing payments on their
behalf, transferring cash, managing public debt, and more. It does not receive any compensation for
managing the routine financial affairs of the Government(s) and receives Government deposits free of
interest. The RBI also offers safe-keeping services, handles special funds including the Consolidated
Sinking Fund and the Calamity Relief Fund, produces and oversees Relief Bonds, and oversees programs
for paying out government employee pensions, among other things.

Bankers’s Bank

The RBI does the majority of its business with banks because it is a bankers' bank and has a very unique
connection with them. It regulates the amount of their reserves (SLRs and CRRs) and establishes the
capacity of their deposits to generate credit. The RBI is where the banks keep all or a portion of their
reserves, and they borrow from it when necessary. The RBI effectively serves as the banking system's last-
resort banker and lender. In India, it serves as the primary source of credit and money.

SUPERVISOR AND SUPERVISING AUTHORITY/REGULATOR

The RBI regulates and supervises the financial sector, setting broad guidelines for its operation. According
to the terms of the RBI Act and the Banking Regulation Act, it controls and oversees the Indian banking
system. In accordance with the guidelines in Chapter III-B of the RBI Act, the non-banking financial firms
(NBFCs) are governed by the RBI. The RBI has broad authority to oversee and manage banks to support a
strong/adequate and efficient banking system. These include, among other things: (i) issuing permits for
the opening of new banks or bank branches (ii) to establish minimum standards for paid-up capital,
reserves, transfers to reserve funds, cash reserves, and other liquid assets; (iii) to examine how banks are
operating in terms of their organizational structure, branch expansion, deposit mobilization, portfolio
management of investments and credit, credit appraisal, region-wise performances, profit planning,
manpower planning and training, and so on; and (iv) to conduct ad hoc investigations into complicity in
financial crimes from time to time.

Exchange Control (EC)

The RBI's role as the agency in charge of currency controls is to create and oversee the foreign exchange
market. Within the parameters of the Foreign currency Management Act (FEMA), it is responsible for
facilitating international trade and payments as well as ensuring the orderly growth and maintenance of
the foreign currency market. The nation's foreign exchange reserves are in the care of the RBI. It is
entrusted with the duty of overseeing the best possible investment and utilization of the reserves. With
the implementation of the floating exchange rate system and the convertibility of the rupee on trade and
current accounts, its function as a market stabilizer for foreign exchange has assumed increased
significance. Both for its own account and on behalf of the government, the RBI is permitted to engage in
foreign exchange operations.

Monetary POLICY

The RBI develops and implements monetary policy as the nation's central bank. In order to fulfill the
general goals of (a) maintaining price stability and (b) ensuring sufficient flow of credit to productive
sectors to support growth, monetary policy refers to the application of monetary control tools. By
affecting the cost and accessibility of money and credit, a nation's monetary policy influences the
conditions necessary for growth. It employs tools designed to control the availability and cost of credit in
the economy as well as the money supply.

The RBI uses several crucial monetary control strategies, mechanisms, and tools, including Open Market
Operations (OMOs), the Bank Rate, the Cash Reserve Ratio (CRR), the Statutory Liquidity Ratio (SLR), the
Liquidity Adjustment Facility (LAF), and Repo Rates.

Open Market Operations (OMOs) are the sale and purchase of Treasury-bills (T-bills) and securities issued
by the federal, state, and local governments. The numerous goals of OMOs include, among others: (i)
Controlling the quantity and variations in bank credit and the money supply by regulating the reserve base
of banks in order to (i) improve the efficiency of the bank rate policy (ii) keep the market for government
securities and T-bills stable (iii) (iv) support the government's borrowing program (iv) and (v) smooth out
the seasonal influx of money into the bank credit market. The RBI has control over the amount and cost
of lending as well as the yields on government securities and T-bills through OMOs.
Bank Rate The standard rate at which the RBI purchases/rediscounts bills of exchange and other qualified
commercial paper(s) is known as the bank rate (B/R). Additionally, the pace at which

Advances to banks against certain collateral are subject to RBI fees. The volume of credit would increase
or decrease in response to changes in the B/R. Bank lending rates would rise in response to an increase in
the B/R and vice versa. The cost/availability of financing is thus controlled by the B/R approach, which
also, to some extent, affects the amount of money that are available to banks and other financial
organizations. The B/R has become a signaling rate that captures the direction of monetary policy. The
B/R is now a factor in determining the interest rates for the RBI's various accommodations, including
refinance. Banks set the price of their loans based on the signal of a B/R change. The principal lending
rates of banks have taken the announcement impact of a B/R change into consideration.

Cash Reserve Ratio (CRR) The CRR is the amount of cash that banks are required to keep on hand with
the RBI as a proportion of their time and demand liabilities. The goal is to guarantee the security and
availability of bank savings. TheBanks who fall short of the required CRR may be subject to penal interest
charges from the RBI. The penal interest is added on top of the B/R at a specific rate. Additionally, the RBI
has the authority to deny failing banks new access to its refinancing program and impose additional fees
on any accommodations taken that are equal to the CRR's shortfall in interest over and above the basic
refinance rate. In addition, there is a progressive penalty for CRR default in the form of lost interest on
the cash holdings of the defaulting bank. On all admissible cash balances, the RBI pays interest in an
amount equal to the B/R. The RBI has recently employed the CRR as a tool for monetary policy extremely
actively in the downward direction. It is currently at its lowest point.

STATUTORY LIQUIDITY RATIO (SLR) The RBI can impose secondary and supplementary reserve
requirements on the banking sector in addition to primary reserve requirements, which it can do via the
CRR. The SLR has three main goals: (i) to limit the growth of bank lending; (ii) to increase a bank's
investment in government securities; and (iii) to guarantee bank solvency. The SLR is the ratio of cash on
hand (excluding CRR), balances in current accounts with banks and the RBI, gold, and unencumbered
approved securities (i.e., securities issued by the federal, state, and local governments, as well as
securities guaranteed by the government) to the total demand and time liabilities of the banks. The SLR
defaults have a negative impact on the RBI's ability to refinance and raise refinancing prices. However, an
increase in the SLR does not limit all economic spending; it would merely limit spending in the private
sector while still assisting in raising spending in the public and government sectors. The reverse outcome
would occur if the SLR was reduced. The SLR merely distributes bank reserves in favor of the
government/public sector, therefore in a sense it is not a method of monetary control.

Liquidity adjustment facility (LAF): In recent years, the LAF has become one of the most significant tools
of monetary policy. The RBI offered the banks a variety of general and industry-specific refinancing options
as the lender of last resort. It became necessary to eliminate all discretionary and sector-specific refinance
facilities and transition to a general refinance facility in order to comply with the current policy goal of
switching from direct to indirect ways of monetary control.

A corridor for call money rates and other short-term interest rates is created by the LAF's daily repo
auctions, which involve selling government securities from the RBI portfolio to absorb liquidity, and
reserve repo auctions, which involve purchasing government securities to inject liquidity. Banks are
anticipated to use the LAF funds to cover their daily liquidity imbalances. Repos range in maturity from
one to fourteen days. Both the repo and reverse repo auctions are open to all scheduled banks. The
minimum bid amount for LAF is 5 crore, and all subsequent bids must be in multiples of 5 crore. The repo
and reverse repo markets allow trading of all transferable Government of India dated securities and T-
bills, with the exception of 14-day T-bills.

Repo rate and reverse repo rate

These are two key policy rates set by the Reserve Bank of India (RBI) that influence the broader interest
rate environment and the monetary policy stance in the country. Here's an explanation of both rates:

Repo Rate:

The repo rate, short for the repurchase rate, is the interest rate at which commercial banks can borrow
money from the Reserve Bank of India (RBI) by selling their government securities to the RBI with an
agreement to repurchase them at a later date.
Purpose: The RBI uses the repo rate as a tool to control liquidity in the banking system and to influence
short-term interest rates. An increase in the repo rate makes borrowing from the RBI more expensive,
reducing liquidity in the system, while a decrease in the repo rate has the opposite effect.

Effect on Borrowing Costs: When the repo rate goes up, banks typically raise their lending rates, making
loans more expensive for consumers and businesses. Conversely, when the repo rate is lowered,
borrowing costs tend to decrease.

Reverse Repo Rate:

The reverse repo rate is the interest rate at which commercial banks can park their excess funds with the
RBI by lending their surplus government securities to the RBI. It is the opposite of the repo rate.

Purpose: The reverse repo rate helps the RBI absorb excess liquidity from the banking system. When the
RBI pays higher interest on excess funds through the reverse repo, it incentivizes banks to park their funds
with the RBI rather than lending them to customers or other banks.

Effect on Lending: A higher reverse repo rate can encourage banks to keep more funds with the RBI,
potentially reducing lending to the public. It can also influence short-term interest rates in the market.

In summary, the repo rate is the rate at which banks borrow money from the RBI, while the reverse repo
rate is the rate at which they lend money to the RBI. These rates are essential tools for the RBI to
implement its monetary policy, control liquidity in the banking system, and influence interest rates in the
economy. Adjustments in these rates have a direct impact on borrowing costs, economic activity, and
inflation in the country.

Basis points (bps)

Basis points (bps) are a commonly used unit of measurement in the world of finance and banking to
express changes in interest rates, yields, and other financial percentages. One basis point is equal to one
one-hundredth of a percentage point or 0.01%. Therefore, when you hear that interest rates or bond
yields have increased or decreased by a certain number of basis points, it indicates a very small change in
percentage terms.

Here's how basis points work with examples from both India and the world:
India Example:

Let's say the Reserve Bank of India (RBI) decides to increase the repo rate by 25 basis points. If the previous
repo rate was 5.00%, the new rate would be:

Old Repo Rate: 5.00%

Increase: +25 bps (0.25%)

New Repo Rate: 5.25%

So, the repo rate has increased from 5.00% to 5.25%, which is equivalent to a 25 basis point increase.

BANK DEpOSITS

Deposits are the primary source of money for banks. In a way, deposits are products or services that banks
provide to all of their clientele, including individuals, professionals, self-employed people, businesses, and
so forth. The goal of banks is to develop profitable products and services that meet the needs of their
target clients. The strategy for deposit products is based on the particular liquidity position of the bank(s)
and the time horizon to occasionally meet different obligations. The several types of deposits and
accounts are covered in this section, along with some of the practical facets of deposit accounts.

Deposit and account types

Demand deposits, term/fixed deposits, are the categories into which bank deposits are divided. The
demand and time liabilities that banks must disclose to the RBI are made up of their demand and time
deposits.
Demand Deposits : Demand are repaid to the depositors on demand .These deposits come in two
varieties: current deposits and savings deposits.

Current Accounts The following characteristics apply to current deposits and accounts. First off, both the
quantity and frequency of withdrawals and deposits are unconstrained. Cheques written in your name as
well as the names of other people can be used for withdrawals The main goal of a current account or
deposit is not to encourage depositors to save money. It is designed to make depositors' lives easier by
relieving them of having to deal with money and payments. Such accounts are appropriate for large clients
with a high volume of daily banking transactions.

Savings Deposits Saving bank accounts gather deposits from depositors who save aside a portion of their
current income to cover future expenses as well as generate revenue from them. Savings deposits as a
product encourage saving behaviors among the depositors. Any kind of entity can open one of these
accounts.

Time Deposits : These deposits are repaid at maturity in accordance with the terms set forth by the
depositor(s) and the bank(s). They are divided into two categories: fixed deposits and recurring deposits.

Fixed Deposits These deposits are those held by banks for a set amount of time that is determined at the
time of the deposit. Together with the principal and accumulated interest, they must be paid back on the
specified maturity date.

However, receiving interest on a regular basis may be an alternative at the depositor's option, integrated
in the deposit. The depositors are not permitted to perform any additional actions in relation to their
money. The deposit may be extended after it matures for an additional term at the current interest rate.

Fixed deposits must be made for a minimum of seven days. Banks set the maximum term, band of term
maturities, and interest rate for each band.
Recurring Deposits As a variation on the savings deposit, these deposits instill in depositors a regular and
obligatory saving habit for a variety of future needs, including higher education, children's marriages, the
cost of vehicles, and so on. The depositors make predetermined deposits of a predetermined sum at
certain intervals, typically monthly or quarterly, for a predetermined time period of between 12 and 120
months.

Wholesale Banking:

Wholesale banking primarily serves large corporate clients, financial institutions, government entities, and
other large businesses.

Products and Services: Wholesale banks offer a wide range of financial products and services tailored to
the specific needs of their corporate clients. These may include treasury services, trade finance, cash
management, foreign exchange services, credit facilities, and investment banking services.

Wholesale banking often places a strong emphasis on building and maintaining long-term relationships
with corporate clients. Relationship managers work closely with clients to understand their financial goals
and provide customized solutions.

LOANS AND ADVANCES

Loans and advances are the main ways that bank funds are used. The assets utilized by banks to finance
bank customers are their loan products. Customers regularly employ a few other instruments in banking
transactions as well. This section covers the following topics: (i) credit facilities (loans/advances) offered
by banks to their clients; (ii) methods of security/creating charges on secured advances/loans by banks;
and (iii) tools utilized by clients in banking transactions.

FUND BASED CREDIT AND NON-FUND BASED CREDIT FACILITIES

Banks offer two types of credit to clients/borrowers: (i) fund-based credit, and (ii) non-fund-based credit.

FACILITIES FOR FUND-BASED CREDIT These facilities for fund-based credit give borrowers money for (i)
working capital and (ii) capital expenditure/project financing, including deferred payment guarantees.
WORKING CAPITAL FINANCE These facilities are provided for a brief time—typically up to one year—and
are renewed or rolled over on an annual basis.

based on a recent evaluation of the borrower(s)' requirements. They are made available in the following
ways: (i) cash credit; (ii) overdraft; (iii) demand loan; and (iv) bills bought/discounted.

CASH CREDIT

It is a distinctive credit option provided by Indian banks.

Two elements, including (i) a credit limit or line of credit, are included in this running account for
withdrawing cash. (ii)drawing ability. The stock and receivables that the borrowers have pledged or
hypothecated as security allow the borrower to withdraw money up to the credit limit that the bank has
authorized. The bank allows the borrower(s) to withdraw cash or checks up to the drawing power, which
is equal to the value of the pledged assets minus the specified margin, that the cash credit account may
support. The borrower(s) provide monthly statements of the charged assets. The borrower's actual
inventory and receivables are continuously verified by the bank. Actual withdrawals and daily account
debit balances are subject to interest charges by the borrower. The borrower credits the cash credit
account with the sale proceeds.

Overdraft

A current account overdraft is a withdrawal in excess of the credit balance. An overdraft limit is approved
by banks for a given use or duration. Overdraft generally involve giving security of assets and rate of
interest is normally higher than cash credit.. Drawings are permitted up to a certain limit, and interest is
imposed on the account's daily debit amount.

Demand Loan A demand loan is a one-time facility that must be repaid on a regular basis, in lump sums,
for the principal as well as the interest, which is paid monthly or quarterly. A predetermined sum is initially
granted to the borrower for the purpose of the loan, usually for a period of up to one year. No additional
withdrawals are permitted.
Bills Purchased/Discounted A seller (drawer) issues a bill of exchange (B/E) to the buyer of goods
(drawee), instructing the drawee to pay the stated sum in accordance with the terms of the credit. A bill
may be either a demand bill (payable immediately) or a usage bill (payable at the end of the credit period,
often three months).

The following is the process for purchasing/discounting bills. The seller (drawer) submits the bills to his
bank, which then delivers the documents to the drawee for presentation for payment (demand bill) or
acceptance (usance bill) together with the transportation receipts (such as rail, lorry, air, and bill of lading)
and document of ownership to goods. By crediting the drawer's account with the bill amount less the
interest or discount, the sellers' bank purchases the demand bills and discounts the usance bills. The
drawer would be required to pay the full amount of the bill plus additional interest if they failed to pay
their payments before the due date. The bank makes sure that the banknotes it buys or discounts are real
and reflect a particular exchange of goods between a seller and a buyer.

Term loans and project financing Banks provide term loans for capital expenditures, which include the
purchase of fixed assets for the establishment of a new unit or the modernization, growth, or
diversification of an existing one. They differ from working capital loans in a few key ways. A thorough
project evaluation eBefore approving the loan, the bank does (i) technical/commercial/managerial
viability and (ii) financial viability/debt servicing capability analyses.

The mortgage of either the specific fixed assets that were financed or the borrower's whole block of fixed
assets serves as security for the loan. Over the course of the loan, the borrower repays the loan with equal
monthly or quarterly installments from cash accruals. In order to ensure that the borrower(s) exercise
financial restraint, banks add certain positive or negative covenants/conditions to the loan agreement,
such as minimum working capital requirements, limitations on dividend payments, restrictions on
additional borrowing, and so forth.

Non-fund Based Credit Facilities These facilities are fee-based and do not need the expenditure of
monies. They are referred to as off-balance (liability) items and represent a form of commitment to keep
certain obligations. However, the expenditure of money is dependent on the commitments' devolving
(contingent liability). These facilities also include bank guarantees and letters of credit.

Letter of Credit (L/C) A letter of credit is an agreement wherein a bank (the issuer), at the request of a
customer (the L/C's opener), agrees to pay the stated beneficiary (the seller) the value of the products or
services by a specific date in exchange for the presentation of one or more specific documents. An L/C

involves three parties: the issuing bank, the buyer (opener), and the seller (beneficiary). The seller gives
the buyer products in exchange for the consignment documents, which are then given to the issuing bank
in accordance with the L/C's commitment. The issuing bank pays the bills and collects the money from the
buyer.

Regarding the delivery of the documentation of title to the goods to the buyer so that he may take delivery
of the items, an L/C may be issued on a D/P (deliverable on payment) or DA (deliverable against
acceptance) basis. Both inland and cross-border trading are possible in this case. The bank assesses
commission for the issuing of L/Cs as well as interest on documents used in L/C negotiations.

Bank Guarantees: As a security for the proper performance of a contract by obligors in favor of
beneficiaries, banks offer guarantees on their clients' behalf. The guarantee has a set dollar amount and
a certain window of time within which the beneficiary may enforce it. Depending on the terms of the
agreement between the applicant(s) and the beneficiary(ies), guarantees may be of many types, including
financial, performance, and deferred payment. Depending on the amount and duration of the guarantee,
the issuing bank assesses a commission.

Banks' methods of securing loans (Creation of Charge on Assets)

Secured advances by banks are advances that give a bank security by establishing a charge or right against
the borrower's assets in the bank's favor. The borrower's ability to repay the loan from his income would
be a reflection of the bank's risk exposure. The presence of security in the form of rights or charges over
the borrower's assets would protect the bank's interests in the event that the borrower went into default.
The different ways to create a charge on assets include (i) liens, (ii) pledges, (iii) hypothecations, and (iv)
mortgages.

Lien A lien allows a bank to keep all of the customers' securities and assets in relation to the outstanding
debt. Even if clients are entitled to ownership of securities, the bank has the authority to sell them in the
designated situations. The borrower submits a declaration to the bank stating that the specified assets
are free from any charge or encumbrance, that no charge would be created against them, and/or that
they would not be sold without the bank's consent. Under a negative lien, the bank does not have the
right to retain any asset or be entitled to realize dues from such assets.

PLEDGE A pledge is the transfer of goods from a pledger to a pledgee in order to secure a debt. In a pledge
agreement, the bank is the pledgee and the borrower is the pledger. Only movable items have been
pledged. Even if the pledgee now has possession of the promised items, the pledger still retains ownership
of them. If the pledger fails to pay back the loan within the allotted time, the pledgee-bank has the right
to sell the items. As an alternative, it may bring legal action against the pledger to recoup the amount,
keeping the pledged items as collateral. The banker is required to give the items back to the pledger after
the debt covered by the pledge has been settled. The bank is required to treat the items with the same
level of care as if they were his own while in his possession.

Hypothecation A charge on moveable goods, commodities, receivables, and other items in which
ownership of the securities or other assets charged to the banks is retained by the borrower(s) is referred
to as a hypothecation. He is also permitted to sell or utilize them. By signing a hypothecation deed, the
borrower agrees to transfer ownership of the goods at the bank's request. The borrower is required to
routinely provide to the bank a stock statement of commodities and a book debts hypothecated. The
goods under hypothecation may be inspected by the bank at any moment to verify, among other things,
that they haven't been hypothecated to another bank. In order to maintain priority in the charge in the
event of multiple financing by two or more banks, a hypothecation charge for a company must be
registered with the Registrar of Companies (ROCs) within 30 days of the date of incorporation.

Mortgage A mortgage is the transfer of ownership of a specified immovable property for the purpose of
guaranteeing the repayment of money borrowed, money that will be borrowed in the future, a debt that
is owed now or in the future, or the fulfilment of a contract that may result in a financial obligation. In
other words, a mortgage is a charge placed on real estate that cannot be moved to pay for a loan or
advance (mortgage money). Although a portion of the property's interest is given to the bank/transferee
(mortgagee), ownership and control of the property remain with the borrower (mortgagor). For both
current and potential future debts, mortgages can be formed. The mortgage charge must be recorded
with the ROCs within 30 days of its establishment if the mortgager is a business.

Equitable Mortgage In order to place a charge on movable property, an equitable mortgage requires the
transmission of documentation to a creditor of title. No other paperwork are signed by the mortgagor;
only the original title deeds are provided to the mortgagee. The original deeds are solely in the bank's
custody up until the debt is fully repaid. In addition to keeping a register of attendance where the oral
assent is recorded and the mortgagor's signature confirming that they were present at the bank on that
specific date is obtained, the bank (the mortgagee) also prepares a memorandum of oral assent upon
deposit of the title deeds, noting the date on which the title deeds were deposited. The mortgagee does
not receive ownership of the mortgaged property. In the event of default, court involvement would be
necessary to dispose of the property. The equitable charge for a corporate mortgage must be filed with
the ROCs within 30 days of its formation.

RETAIL BANKING SERVICES

A bank's retail banking division caters to customers who are mostly individuals, professionals, self-
employed people, small businesses, etc. It focuses on developing goods and services that satisfy target
customers' needs while also being profitable for the bank. The strategy is focused on mass production,
where all risks and activities are designed to serve a wider clientele. Corporate (wholesale) banking, in
contrast, places more of an emphasis on large-sized customer accounts than on a vast customer base.
This section covers (i) distribution methods for retail banking services, (ii) some key retail banking items,
and (iii) bank ancillary services.

Services offered through Retail Banking Channels

Due to technological advancements, consumer behavior is changing quickly. Individuality, mobility,
independence of time and place, and flexibility are characteristics of how banking services are used.

The channels included below are online banking, telebanking, and automated teller machine (ATM)
cards.

The benefits of using the internet as a distribution channel for financial services include the ability to (i)
offer complex products to a larger audience at comparable quality and lower prices, and (ii) allow for
contracts to be made from any location at any hour of the day or night. Thus, banks are able to expand
their market without having to construct new offices or field services.

RETAIL BANKING

Retail banking, also known as consumer banking or personal banking, is a crucial segment of the Indian
banking industry. It is primarily focused on providing financial products and services directly to individual
customers, as opposed to corporate or institutional clients.

The retail banking products discussed below are: (i) credit cards/other types of cards (ii) home loans (iii)
auto loans (iv) consumer durable loans (v) personal/unsecured loans and (vi) educational loans.

Credit Cards

A credit card is a plastic card that enables its owner to purchase goods and services from authorized
retailers on credit and to make periodic payments through the bank that issued the card. It guarantees
payment against a sale voucher signed by the credit card holder. There is no interest charge if the full
payment is made by the due date. The interest on payment of the minimum balance is quite high (36–42
per cent). Some banks make a specific annual charge to their cardholders. Credit cards may also be used
for obtaining cash from the branches of the issuing bank.

Debit Card

Debit cards allow for direct withdrawal of funds from a customer’s bank account. It is a special plastic card
connected with electro-magnetic identification that one can use to pay for purchases directly from his
bank account.
Home Loans The salient features of bank home loans are:

(i) types (ii) eligibility norms/terms(iii) pre and post-approval/disbursal stage documentation (iv)
repayment period (v) collaterals (vi)interest calculations (vii) fee/charges and (viii) tax concessions.

Types A variety of home loans from banks are available: (i) Home Purchase Loan: is a basic home loan for
the purchase of a new house (ii) Home Improvement Loan: is given for repairs/ renovation in an existing
house already purchased by the borrower (iii) Construction Loan: is a loan for construction of a house (iv)
Home Extension Loan: is a loan for expansion/extension of an existing house such as adding a room/floor
and so on (v) Home Conversion Loan: allows the borrower to transfer an existing loan to the new home
loan which includes the extra amount required and does away the need to pre-pay the existing loan (vi)
Land Purchase Loan: is provided to purchase land for construction of a house/investment purpose (vii)
Bridge Loan: is given to persons who are looking to sell their existing home and purchase another one. It
helps finance the purchase of a new home until the existing one is sold (viii) Balance Transfer Loan: allows
the borrower to repay an existing loan and avail of another loan at lower rate of interest (ix) Refinance
Loan: is given to repay debts taken from friends/relatives and so on for purchase of a home and (x) Stamp
Duty Loan: is sanctioned to pay the stamp duty on the purchase of a home.

Eligibility The primary eligibility term is the repaying capacity of the borrower. It is determined by the
banks based on factors such as income, age, qualifications, number of dependents, spouse’s income,
assets/liabilities, stability and continuity of occupation, savings history and so on.

Pre/Post-Approval/Disbursal (Stage) Documentation The pre-approval documents along with the

application form required by a bank are: (i) Proof of income, that is, (a) salary/TDS certificate/ slip in case
of salaried employees and (b) track record of business and copy of the audited financial statements of the
last two years in case of self-employed borrowers (ii) Last six months bank account statements (iii) Latest
credit card statement (iv) Passport size photograph (v) Signature verification from the borrower’s bank
and (vi) Proof of residence.

Repayment Period The repayment period range is generally 5–15 years. A 20-year repayment, usually at
a higher rate, is also available. The repayment is usually in EMIs by way of post-dated cheques. The EMI
comprises of both interest payment and principal repayment.
Collateral Securities In addition to mortgage of the house/land being purchased, banks also take collateral
securities to ensure repayment of loan in the event of non-availability of the borrowers normal source of
income. These could be personal guarantees, assignment of insurance policies/ shares/mutual fund
units/bank deposits and so on. The first mortgage of the property normally by way of deposit of title deeds
is the primary security for the loan. However, liquidation of the mortgage is usually the last resort of a
bank for the repayment of the housing loan.

Auto/Car Loans

Types The auto/car loans could be: (i) New Car Loan is a simple loan for purchasing a new car;

(ii) Used Car Loan is a loan facility for purchase of second-hand cars. This involves valuation of the car by
certificated valuers and (iii) Auto Refinance is a loan facility given on an existing car owned by the borrower
if it is not hypothecated to any other financier.

Repayment Period Usually, auto loans are available for 1–5 years. Longer loans upto seven years may be
available in special cases, depending on the brand. The super premium cars generally have a restricted
tenure of three years.

Collateral Securities Typically, no additional collateral is required. The RC book is endorsed for
hypothecation to the bank which by itself is sufficient security.

Consumer Durable Loans Consumer durable loans cover purchases of durables such as refrigerators,
washing machines, air conditioners, microwave ovens, televisions, music systems, DVD players and so on.

The repayment period ranges between 12 and 36 months. No collateral security is required in such loans.
The interest rates vary, depending on the seasonality of the product. Self-employed persons can avail of
tax benefits on depreciation/interest paid if the durables are for professional purposes.

PERSONAL/UNSECURED LOANS A personal loan is an all-purchase loan to meet the personal

requirements of the borrower.

The typical tenure of such loans is up to three years with a 6-month lock-in period. No collateral/
guarantee is taken by the bank. The interest rates are usually very high. The fees/charges include
(i) processing fee (1–3 per cent of the loan) (ii) foreclosure/prepayment penalty (2–3 per cent) and (iii)
commitment fee (1 per cent) in case the sanctioned loan is not availed of within a stipulated time. If the
loan amount is for a professional purpose, self-employed borrowers may avail of tax benefit on interest
paid.

EDUCATIONAL LOANS Educational loans cover a variety of courses to meet the cost of (i) tuition/
mess/examination fee (ii) books/equipment’s/instruments required by the students. For overseas studies,
the air fare is also covered.

The interest on educational loans is computed as per the RBI guidelines. The fee/charges includes
processing/documentation cost/prepayment penalty and penal interest for overdue amount/period.
Under Section 80-E of the Income-tax Act, a deduction is allowed in respect of interest on loan for
educational purposes for a maximum period of 8 years or till interest is paid whichever is earlier.

ANCILLARY SERVICES

In addition to ancillary services such as funds remittances, letter of credit and guarantees, agency services,
banks provide safe custody of valuables and maintain safe deposits/lockers. Safe custody of
valuables/important documents is provided by banks on a fee basis. Customers have faith in banks about
the safety/security/ confidentiality of the valuables kept with them. The duly sealed safe custody boxes
are kept by banks in their strong room/vault and a receipt is issued to the depositor.

Banks also provide safe deposit lockers at their branches. They have reliable locking arrangements. They
are kept in vault of banks to provide double safety. They are operated by dual key system one of which is
with the authorised bank officer and the other with the customer. Customers have to pay yearly rentals
on hiring the lockers.