Retail banking is a key channel to collect deposit funds.

Deposit account types in India are generally of these types – Current Account (CA), Savings Account (SA), Fixed Deposit (FD), and Public Provident Fund (PPF).

Interest on saving account must be calculated on daily balance in the account. It should be credited to account only when it is INR 1 or more at quarterly or longer rests. The minimum balance mandated by the bank in savings account is calculated as the average balance maintained over a quarter.

Fixed Deposit is meant for both individuals & businesses. But Recurrent Deposit (RD) is meant only for individuals. No withdrawals are allowed in both. In RD, the client can avail of a loan against the deposit. Both do not have any means of withdrawal such as cheque books etc.

PPF accounts are fully exempted from income tax for both principal & interest (8% compounded annually) earned. Withdrawals are not allowed till 7th year. They can only be opened in post offices or nationalized banks (PSBs). Only individuals can open PPF & savings accounts, not businesses. Both can however open FD & CA.

Combination Accounts

Bank may structure savings account & FD in such a way that the client gets savings account security as well as high returns of an FD. This happens when the bank books the FD in small pieces. 

NRO (Non-Resident Ordinary) account

They are rupee accounts. Income earned in locally can be deposited. Withdrawals are in rupees only. Income earned overseas can also be deposited. Interest earned after taxes is repatriable but principal amount is not repatriable.

NRE (Non-Resident External) account

They are also designated as rupee accounts. Non-resident Indians can put in funds earned overseas. The funds are fully repatriable. The foreign currency risk in an NRE account is fully borne by the customer. This risk is there only if the customer deposits or withdraws in different currencies.

FCNR (Foreign Currency Non-Residential) account

These are term deposits in foreign currency only. These are non-resident equivalent of a domestic FD. Money is deposited in foreign currency which is also repatriable in that currency only after a fixed maturity.  The customer bears no exchange risk here. 

Liability Processes

  1. Account Opening – identity check & verification.
  2. Relationship Management – ongoing interaction with customer.
  3. Operations/Servicing - These processes are automated.
  4. Monitoring – Anti money laundering compliance to prevent & report any suspected terrorist activity.

Customer is assigned a unique customer ID. If it already exists then the account is opened under the existing ID. Dormant account is something which is not active for the past 6 months or more. A bank can freeze an account if there is a court order or when the account is acting as collateral for a loan.

Loans are categorized as basis security (secured, unsecured), basis interest rates (fixed rate, floating rate) & basis repayment (single payment plan, installment payment plan, open ended loan, close ended loan).

Margin is the buffer value for example, if you take a loan of INR 4 million. The bank will only finance 90% or INR 3.6 million in case the margin is 10% (the money you need to contribute). Margin applies to any secured lending for individual or corporate. Higher the variation in asset price, higher the margin. It also depends on the riskiness of the borrower.

Open ended loan is also called a revolving loan or overdraft. Borrowers are assigned a limit or line of credit upto which they can borrow. They can repay and borrow again upto the limit, hence the name revolving.

ICICI bank uses an internal benchmark called FRR (floating rate of reference) on the basis of which floating interest rates of its home loan products are set. However, banks in US/UK use an external benchmark such as LIBOR. Loans against FD’s can be open ended or close ended. Bank can give 70% of FD amount as line of credit. 

Credit card loans are unsecured revolving loans. Limits are set based on borrower’s repaying capacity. They carry the highest credit risk for the bank hence interest rates on them are also the highest.           

Personal loans are divided into small ticket PLs & large ticket PLs. PLs are unsecured in nature.

Education loans are unsecured fixed rate loans. They have an initial period called Moratorium during which no repayment is necessary. The repayment usually starts 6 months after completion of education. These are medium term loans. For higher value loans, collateral maybe required.

Sale of mutual funds, gold coins & insurance is called Third Party Products as these are not the core offerings of a bank. 

Loan processing steps

  • Origination
  • Credit appraisal
  • Documentation – title papers of any collateral are collected & verified.
  • Loan closing
  • Disbursal
  • Servicing – ensuring principal & interest repayments are in order and that the value/title of collateral remains secure.
  • Collections & Recovery