UNIVERSITY OF MUMBAI

PROJECT ON
COMMERCIAL LENDING BY RBI

BACHELOR OF COMMERCE BANKING & INSURANCE

SEMESTER V
(2017-2018)

SUBMITTED
In partial Fulfillment of the requirement for the
Award of Degree of Bachelor of Commerce – Banking & Insurance.

SUBMITTED BY,
SEEMA DAPKEKAR

ROLL NO. - 16

UNDER GUIDANCE,
Asst. Prof. Priyanka Prasad

MAHARSHI DAYANAND COLLEGE OF ARTS, SCIENCE &

COMMERCE PAREL, MUMBAI – 400 012.
 MAHARSHIDAYANANDCOLLEGE OF ARTS, SCIENCE &
COMMERCE PAREL, MUMBAI – 400 012.

CERTIFICATE

This is to certify that MISS. SEEMA DAPKEKAR of B. Com

(Banking & Insurance) Semester V (2017-2018) has successfully
completed the project on COMMERCIAL LENDING BY RBI under
the guidance of
Asst. Prof. Priyanka Prasad

Course Coordinator Principal

Project Guide/Internal Examiner External Examiner

 DECLARATION

I am MISS. SEEMA DAPKEKAR. The student of B. com (Banking &

Insurance) Semester V (2017-2018) hereby declares that I have
completed the Project on COMMERCIAL LENDING BY RBI. The
information submitted is true and original to the best of my knowledge.

Signature of student

Name of Student
MISS. SEEMA DAPKEKAR
Roll No. 16
 ACKNOWLEDGEMENT

The college, the faculty, the classmates & the atmosphere, in the college
were all the favorable contributory factors right from the point when the
topic was to be selected till the final copy was prepared. It was a very
enriching experience throughout the contribution from the following
individuals in the form in which it appears today. We feel privileged to take
this opportunity to put on record my gratitude towards them.
PROF. KUNAL SONI made sure that the resource was made available in
time & also for immediate advice & guidance throughout making this
project. The principal of our college DR. T.P. GHULE and our Vice-
Principal Mrs. SANJEEVANI PHATAK has always been inspiring &
driving force. We are thankful to Mr. SANTOSH SHINDE associated
with administration part of Financial Markets & Banking & Insurance
section has been very helpful in making the infrastructure available for data
entry.
 EXECUTIVE SUMMARY

Commercial loans are granted to a variety of business entities, usually to

assist with short-term funding needs for operational costs or for the
purchase of equipment to facilitate the operating process. In some instances,
the loan may be extended to help the business meet more basic operational
needs, such as funding for payroll or to purchase smaller supplies that are
used in the production and manufacturing process.

A Small Business Administration (SBA) loan encourages long-term

financing. Short-term loans and revolving credit lines are also available for
assistance with a company’s short-term and cyclical working capital needs.
Maturities for long-term loans vary according to ability to repay, purpose
of loan and useful life of the financed asset. Maximum loan maturities are
seven years for working capital, 10 years for equipment and 25 years for
real estate. A loan is repaid with monthly payments of principal and interest.

The regulatory reforms are driving banks to strategically review and assess
their businesses, and many are making substantial changes to their business
models shifting out of complex products and exiting businesses and
geographies to remain profitable.
 CONTENTS

SR NO TOPIC PAGE NUMBER

1 Introduction 01

2 Objectives of the Study 03

Types of Term Loan 04

3

4 Role of Banks in Indian Economy 12

Difference between Corporate and Commercial

5 13
Banking

Challenges & Opportunities for Retail &

6 15
Commercial Banks

7 Career Information about Commercial Banking 25

8 Commercial Lending 28

9 Conclusion 29

10 Bibliography 31
TYBBI COMMERCIAL LENDING BY RBI MD College

Introduction

Commercial Lending

A commercial loan is a debt-based funding arrangement between a business and

a financial institution, typically used to fund major capital expenditures and or
cover operational costs that the company may otherwise be unable to afford.

Expensive upfront costs and regulatory hurdles often prevent small businesses
from having direct access to debt and equity markets for financing. Similar to
consumer credit, smaller businesses must rely on other lending products, such as
a line of credit, unsecured loans or term loans.

Commercial loans are granted to a variety of business entities, usually to assist

with short-term funding needs for operational costs or for the purchase of
equipment to facilitate the operating process. In some instances, the loan may be
extended to help the business meet more basic operational needs, such as funding
for payroll or to purchase smaller supplies that are used in the production and
manufacturing process.

Renewable Commercial Loans

While a commercial loan is most often thought of as a short-term source of funds

for a business, there are some banks or other financial institutions that offer a
renewable loan. This allows the business to get the funds it needs to maintain
operations and to repay the loan within its specified time period. After this, the
loan may then be rolled into an additional or "renewed" loan period. A business
most often seeks a renewable commercial loan when it must obtain the resources
it needs to handle large seasonal orders from certain customers while still being
able to provide goods to additional clients.

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TYBBI COMMERCIAL LENDING BY RBI MD College

Securing a Commercial Loan

As is true for nearly every type of loan, how creditworthy an applicant is plays a
starring role when a financial institution considers giving out a commercial loan. In
most cases, the business applying for the loan will be required to present
documentation, generally in the form of balance sheets and other similar
documents, that prove the company has a favorable and consistent cash flow. This
assures the lender that the loan can and will be repaid according to the established
terms. If a company is approved for a commercial loan, it can expect to pay a rate
of interest that falls in line with the prime lending rate at the time the loan is issued.
Banks typically require monthly financial statements from the company through
the duration of the loan, and often require the company to take out insurance on
any larger items purchased with funds from the loan.

Term Loan
A term loan is a loan from a bank for a specific amount that has a specified
repayment schedule and a fixed or floating interest rate. For example, many banks
have term-loan programs that can offer small businesses the cash they need to
operate from month to month. Often, a small business uses the cash from a term
loan to purchase fixed assets such as equipment for its production process.

A term loan is for equipment, real estate or working capital paid off between one
and 25 years. The loan carries a fixed or variable interest rate, monthly or quarterly
repayment schedule, and set maturity date. The loan requires collateral and a
rigorous approval process to reduce the risk of repayment. A term loan is
appropriate for an established small business with sound financial statements and a
substantial down payment to minimize payment amounts and total loan cost.

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Objectives of the Study

 To know the RBI’s activity other than supervisory authority.

 To know the Source of Revenue of RBI.
 To know the exact difference between RBI’s lending as compared to another
Banks.
 To understand the difference of Services between commercial banks and RBI.

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TYBBI COMMERCIAL LENDING BY RBI MD College

Types of Term Loans

An intermediate-term loan runs less than three years, is paid in monthly
installments from a company’s cash flow and may have balloon payments.
Repayment is tied to the useful life of the asset financed. A long-term loan runs
for three to 25 years, is collateralized by a company’s assets and requires
monthly or quarterly payments from profits or cash flow. The loan limits other
financial commitments the company may take on, including other debts,
dividends or principals’ salaries, and can require an amount of profit to be set
aside for loan repayment.

Example of Term Loan

A Small Business Administration (SBA) loan encourages long-term financing.

Short-term loans and revolving credit lines are also available for assistance with
a company’s short-term and cyclical working capital needs. Maturities for long-
term loans vary according to ability to repay, purpose of loan and useful life of
the financed asset. Maximum loan maturities are seven years for working capital,
10 years for equipment and 25 years for real estate. A loan is repaid with
monthly payments of principal and interest.

A fixed-rate loan payment remains the same because the interest rate is constant;
a variable-rate loan requires a different payment amount when the interest rate
changes. A lender may establish an SBA loan with interest-only payments during
a company’s startup or expansion phase; the business then has time to generate
income before making full loan payments. Balloon payments are not allowed
on most SBA loans. The SBA charges the borrower a prepayment fee only
if the loan has a maturity of 15 years or more and is prepaid in the first three
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TYBBI COMMERCIAL LENDING BY RBI MD College
years. Every loan is secured by all available business and personal assets until
the recovery value equals the loan amount or until all assets are pledged as
reasonably available Commercial term loans are generally longer-term
instruments best suited, from a capital management perspective, to support
expansion initiatives. From plant expansion to market development, or for
possible acquisitions, your relationship manager will work with you to structure
the financing to help get your plans off the drawing board and into motion.

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TYBBI COMMERCIAL LENDING BY RBI MD College

Short- to Mid-term Commercial Loans:

Working Capital Lines

Short-term instruments to stabilize cash flow or bridge the gap until expected
proceeds from receivables are received.

Asset-based Lines

Short- to mid-term instruments to support growth or seasonal needs. Asset-based

financing is most suited to the company that has built an asset base to support a
line of credit. It can be collateralized by a combination of eligible accounts
receivable and inventory.

Commercial Lines of Credit

• Timely credit approval and flexible payment options on a range of credit lines
• Standby Letter of Credit to support import/export activity
• Suite of credit card products to meet the needs of businesses of every size

Real Estate-secured Financing

Supports the purchase of owner-occupied real estate or allows you to access the
equity in your real estate holdings to finance your growth.
Equipment Financing

To support your need for added capacity, financing facilities can range from a
simple term loan for the purchase of new equipment to a longer-term strategy
that allows you to modernize your existing equipment. We also offer a
comprehensive range of equipment financing programs.

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TYBBI COMMERCIAL LENDING BY RBI MD College
Acquisition Financing

Provide senior debt to support the expansion of your business through

acquisitions. Your relationship manager first takes the time to understand your
business's unique financial structure, as well as your near- and long-term goals.
In this way, we can craft the right structure of short- to long-term credit solutions
to support your business as it progresses from one stage of growth to the next.

Investment banking. Large corporations and public institutions are

financed not only through loans, but through the sale of securities (stocks and
bonds) to the public. The services related to the issuing of securities are called
'investment banking', a business that used to be completely separated from
traditional commercial banking. In recent decades, the distinction between
traditional commercial and investment banks has become blurred, and nowadays
many banks offer both types of services. Investment banks perform
underwriting, that is they assist companies in issuing bonds or shares, and buy
the initial offers at a fixed price. Investment banking also includes providing
advice and financing for mergers and acquisitions (M&A's).

Project finance. For large infrastructure and other projects, banks offer
specific loans which are repaid based on the revenue generated by that project.
For some large and potentially risky projects, the bank can arrange a banking
syndicate, wherein a group of banks each lend a client a portion of a large loan.
Project finance can also include the sale of project-specific bonds.

Insurance. Banks may also sell insurance products, although insurance is

traditionally not a banking activity. Again, consolidation in the financial services
industry has brought together many different financial services. These services
allow corporate clients to access many different services within a single financial
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TYBBI COMMERCIAL LENDING BY RBI MD College
institution. While banks may also offer retail insurance products to individuals,
corporate insurance may cover company activities, staff and management.

Advisory services. Wholesale banking activities also include financial

advising for all kinds of corporate and financial activities, such as mergers and
acquisitions, asset management, and taxation (e.g. the use of tax havens)

Shareholding. Banks can participate in the management of, and own

shares in, companies. A bank can, for example, buy a company's shares to help
to provide the company with some extra liquidity, if the company is in financial
distress.

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3.2 Trends & Critical Issues

Speculative finance / “Ponzi finance”. Recently, there has been a trend

towards more speculative methods of financing. Previously, clients used to pay
back both the principal and the interest on loans through their cash flows;
nowadays many companies' cash flows are only sufficient to service their debt --
that is, cover their interest payments. Adverse circumstances, like small rises in
interest rates or declining company incomes, can result in the company not
being able to service their debt at all. This situation can lead to “Ponzi finance,”
where a company constantly raises new funds, often through hidden or
innovative systems, to pay other creditors. This practice is often facilitated by
banks and other financial firms that seek to make profits from increasingly
complex finance mechanisms. Obviously, an economy dominated by such
speculative 'Ponzi finance' may be fragile and susceptible to crisis, as it becomes
dependent on continuing asset price inflation and larger amounts of debt.
Increasingly, there are cases of companies that get into trouble as a result of
using Ponzi finance, and may go bankrupt. Authorities can intervene, but such
intervention may only encourage more 'Ponzi finance' to a point where the
excessive amount of debt is beyond salvation.

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TYBBI COMMERCIAL LENDING BY RBI MD College

Conflict of interests. As mentioned above, banks offer an increasingly broad

scope of financial services to their corporate clients. One could argue this leads
to a more comprehensive provision of financial services. On the other hand,
however, the danger for conflicts of interest to occur also increases, as banks
and companies become more and more intertwined. For instance, if banks
underwrite bonds for a certain company at a specific price, they may be tempted
to sell these bonds to investors who seek the bank's advice in their asset
management decisions. Another risk that became apparent in recent years stems
from the use of the above- mentioned Ponzi schemes. When a company is
accumulating debt, and is not able to meet its interest obligations, financial firms
may help develop all kinds of 'creative' mechanisms to channel funds to the
company, and hide the company's debt. Banks may become increasingly
involved in fraudulent practices, especially if bank representatives also have a
seat in the company's board or own its shares. This occurred in the collapse of
Parmalat, the Italian dairy producer.

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3.3 CSR Initiatives

Of course, protecting investors from the practices described above is not
really a matter of Corporate Social Responsibility. The practices described, like
false prospectuses and misleading advices, are simply illegal. Following the
corporate scandals in United States and Europe, governments have taken some
steps to reduce these conflicts, but critics argue that the reforms have not gone
far enough.

More traditional sustainability issues are also critical for the corporate banking
sector. Given its role in facilitating all kinds of corporate practices, banks have
a great role and responsibility in advancing sustainability. Currently, CSR
initiatives directed to corporate banking mainly cover only a small part of
company financing by banks. The Equator Principles, for example, offers clear
indicators to what environmental and social conditions projects have to fulfil to
be financed. Several other banks have adopted other environmental standards
around forestry, oil & gas, and mining. However, corporate banks have a long
way to go in addressing sustainability. For example, most investment banks
still do not perform environmental and social screening on the companies for
which they raise funds. Also, the practice of assisting clients with the use of tax
havens and other offshore markets is very dubious. Since September 11,
governments have paid more attention how these offshore centers can be linked
to all kinds of illegal and unsustainable activities. Although some steps have
been made to prevent money laundering, efforts to combat tax havens have
been limited.

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4. Role of Banks in Indian Economy

In India, as in many developing countries, the commercial banking

sector has been the dominant element in the country’s financial system. The
sector has performed the key functions of providing liquidity and payment
services to the real sector and has accounted for the Bulk of the financial
intermediation process. Besides institutionalizing savings, the banking sector
has contributed to the process of economic development by serving as a major
source of credit to households, government, business and to weaker sectors of
the economy like village and small-scale industries and agriculture. Over the
years, over 30-40% of gross household savings, have been in the form of bank
deposits and around 60% of the assets of all financial institutions accounted for
by commercial banks.

An important landmark in the development of banking sector in recent

years has been the initiation if reforms following the recommendations of the
first Narasimha Committee on Financial System. In reviewing the strengths
and weaknesses of these banks, the Committee suggested several measures to
transform the Indian banking sector from a highly regulated to amore market
oriented system and to enable it to compete effectively in an increasingly
globalized environment. Many of the recommendations of the Committee
especially those pertaining to Interest rate, an institution of prudential
regulation and transparent accounting norms were in line with banking policy
reforms implemented by a host of developing countries since 1970‟s.

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5. DIFFERENCE BETWEEN CORPORATE &

COMMERCIAL BANKING

The banking sector has played a major role in the modern economy since its
introduction during the commercial revolution of the 17th century, providing the
basic infrastructure that underlies most economic activity.

While the banking sector may appear at times to be largely homogeneous, this
is far from the truth, with many specializations existing within the industry. The
difference between corporate and commercial banking is largely the difference
between the customers being served.

5.1 Commercial Banking

o Commercial banking usually describes banking that is focused on the

average consumer. These are mostly the services provided by any
local savings and loan bank. Checking and savings accounts, as well
as personal and small business loans, make up the core activities of
commercial banking.

5.2 Corporate Banking

o Corporate banking is generally used to describe those banking

activities that deal with large businesses and corporations. Large-scale
loans to businesses and major investments make up the largest part of
this activity.

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TYBBI COMMERCIAL LENDING BY RBI MD College

o Many large businesses would be unable to operate without the ready

credit supplied by corporate banking. Corporate bankers issue short-
term debt to large businesses in the form of "commercial paper,"
without which many businesses would be unable to operate and
perform day-to-day operations.

5.3 Government

o The federal government has come to play an extensive role in the

activities of both corporate and commercial banking. Through the
Federal Deposit Insurance Corporation, the federal government
directly insures the money placed in every personal banking account.
The federal government has been involved in the large-scale bailout of
many banks to avert economic crisis. A system of regulation exists to
regulate activities in both corporate and commercial banking.

5.4Globalization

5.4.1 As the modern economy has become more global in nature, corporate
banking has followed suit and become a part of an international network of
investment and trade very much.
Commercial banking has been much slower to follow this trend as
consumers continue to prefer their local banks. The average
consumers are much more likely to trust a bank that they are already
familiar when it comes to securing their own personal savings.

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6. CHALLENGES AND OPPORTUNITIES FOR RETAIL

AND COMMERCIAL BANKS IN A FAST CHANGING
AND
GLOBALIZING WORLD
The deep crisis in the banking sector and the fast-changing environment are
forcing retail and corporate banks around the globe to change their business
models, and to look for new profit opportunities.
Banks in mature markets are focusing on deleveraging their balance sheets,
complying with solvency and liquidity requirements, and increasing their
operational efficiency. Return on Equity expectations have been gone back to pre-
2002 levels. At the same time, there are plenty of growth opportunities in the new
economies.
Management Centre Europe sees a big opportunity for banks serving the
growing middle class and the still ‘un-banked’ population in the new world.
Small and Medium Enterprises (SME) are a major driver of economic growth.
Some of the emerging markets are leapfrogging ahead on infrastructure and
taking the lead in the convergence between banking, mobile communication and
retailing.

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TYBBI COMMERCIAL LENDING BY RBI MD College

A. Growth opportunities in emerging markets

1. Fast growth of the middle class

Strong growth in the young urban educated population results in an

important increase of Consumer Lending, both for housing and personal
loans. We observe a fast-growing portfolio with relatively high yields and good
risk indicators in countries like India, Russia, Turkey and selective African
countries. At the same time, the Wealth Management segment is booming in
almost all emerging markets, and especially in new oil- or natural resource-rich
economies. The growing demand for Asset Management products creates a
strong need to improve the quality of service and to develop advisory services
for the wealthy and middle-class population.
The major challenge for banks is to become customer-centric while
increasing the bank’s profitability.

2. SME banking is the driver for economic growth

In emerging economies, Small and Medium Enterprises have even a

higher impact on economic growth compared to the Western world. Moreover,
they develop faster than large corporations. Now they are already responsible
for up to 50% of GDP and over 70% of the workforce. SMEs are critical for
the economic and social development in creating jobs and generating income.
Offering services to SMEs is a key opportunity for economic growth.
Often these companies are too large for micro-financing and too small to obtain
loans from international institutions (funding gap). Creative solutions might
include the development of innovative financial packages with smart
subsidies from local government to sustain SME financing, local-international

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partnerships to mitigate currency and transactional cost risks (local banks with
offshore partners), or the structure of lending to SMEs with the option to
convert credit in to equity at lower interest rates.

To increase customer loyalty, a customer-centric model and a relationship

approach are needed. The creation of a simple value proposition to cover
customer needs (current account with overdraft, simple cash management,
user- friendly electronic banking system, payment cards, number of allowed
transactions within b a s i c p r i c e ) c o m b i n e d w i t h risk-adjusted
relationship pricing and dedicated relationship management will make
the difference. The SME segment (different from Corporate) requires a
standardized and centralized process for up to 90% of its transactions and a
special track for long-term investment loan.

3. Access to financial services for the 'un-banked'

In places like Africa and India, a high percentage of the population lives
in rural areas not meeting the qualifying criteria to open a bank account. In
these countries, the government, together with central banks, are setting up
programmes for regulatory reform, liberalization, and modernization of the
banking industry. The focus is on payment systems, settlement and clearing to
support economic growth. A key success factor of the business model is to
lower the cost of retail banking to service low-income customers with high
efficiency and profitability.

The combination of a high percentage of ‘un-banked ‘(over 70% of

population), the boost in sales of mobile phones (over 400 million), the
partnerships between mobile operators and banks and the governmental
support (regularity reform) allows Africa to lead the way in mobile banking.
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Today already 37% of cell phone owners in Africa use mobile banking services
(compared to 8,5% in leading European markets). By 2015, 238 million
Africans (or 55% of cell phone owners) are expected to be using mobile
financial services. It is the opportunity to reach a new customer segment and
to boost fee revenues while limiting the costs.
One of the success stories is M-PESA in Kenya, in partnership with
Safaricom. M-PESA made the mobile phone ‘the’ ATM, point of sale and
internet banking in one, creating access to financial services for the large un-
banked (poor) population. It has a large network of 17.500 agents compared to
only 840 bank branches to reduce the costs, generating high volumes of daily
transactions with interesting margins at lower costs for the clients. The
financial services include payments (mobile wallet), account management and
mobile micro finance.

India required a different solution to provide safe, fast and easy payments for
the un-banked population. Only 1% of the cell phone owners in India uses it
for banking transactions. Branch penetration is low, while cost of
banking intermediation is high. The Federal Bank of India introduced an
innovative payment strategy to improve access to banking channels and to
boost electronic transactions. A unique 12- digit number linked to basic
demographic and biometric information (photograph and finger print scan)
prevents fraud and makes it possible to offer personal payment service from
person to person, domestic and international, in a few seconds. The same
number can be used for payments with both cards and mobile

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B. Challenges for banks

Given these trends, Management Centre Europe sees fives major
challenges for retail and corporate banks around the globe:
1. Setting up for increased competition and expansion Prepare for new
global players entering local markets. Expand in new geographies with relevant
customer value propositions.
2. Keeping customers loyal in a multi-banking environment Become and
remain the customer’s bank of choice in times of decreasing customer loyalty.
3. Investing in the right technology Invest in technological innovation to
achieve or maintain leadership in a fast-changing market place.
4. Ensuring profitability Adapt the operating model to ensure efficiency
and profitability.
5. Managing risk through the economic cycle Focus on sustainable
growth while managing risk and complying with Basel III requirements and
new regulations.

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C. Strategic directions to future growth in emerging markets

1. Customer centricity to improve customer trust and loyalty

When competition increases in an industry, the best companies stand out
from the rest. Typically, they do this by structuring a customer-needs-based
approach (value proposition and segmentation) combined with a proper right
pricing strategy (relationship pricing and risk based pricing) for each customer
segment. The same principle applies to the banking industry. Because of the
higher customer profitability, a strong focus on the Wealth Management
segment (advisory, different product mix, relationship banking) is needed.

Not too many banks give great customer service. Therefore, it is exactly in-
service excellence that a competitive bank can differentiate itself from rivals.
This is the key to retaining existing customers and gaining new ones. Having
the right profile of front end staff and giving them, the necessary training and
coaching is critical for success.

There are clearly cross-selling opportunities between the corporate,

SME and retail segments if the ‘one’ customer approach for both the private
and company needs gets implemented. A full integration of SME services in
the Retail Branch network makes sense, as well as cross-selling to corporate
businesses (promoting salary domiciliation, unsecured overdraft and loans,
debit and credit cards).

Russian mid-sized private banks, for example, have a tremendous

opportunity to gain market share if they develop a customer centric business
model with focus on service excellence and innovation.

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2. Technological enhancement to support Customer Centricity

To be customer-centric and to be able to do the right segmentation, it is
important to invest in data capture and analytic capabilities. A 360-degree
customer view and CRM tool is needed to understand and develop the needs
of the different customer segments and to create sales and cross-sales
opportunities.

A high-performance core banking platform (automated, real time) is a

competitive advantage. Payments can be a money maker, but high-tech
development is needed to make it safe, fast and easy. Multi concepts,
language, currency, facilitate the transfer to global markets.

Plenty of examples in Africa (mobile banking), India (unique customer

identification) and Brazil (ATM) demonstrate the implementation of high tech
solutions to capture new customer segments and to limit the cost of the branch
network. In Brazil, the Central Bank of Brazil plays a leading role in
technological development creating efficiency and reliability for the whole
Brazilian banking system seen as one of the best in the world.

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3. Efficient operating model to export to global markets

A centralized service with multi-product and multi-segment

capabilities together with lean processes (standardized, automatic, digitized,
paperless and real time) ensure safe, fast and easy service. It’s important to
focus on the core activity and to consider outsourcing of non-core activities.

An industrialized approach for the mass market and SME segments

offering standard packages and relationship pricing ensure cost effective
processes. And with the right pricing strategy, you can drive the customers to
the most efficient channel.

There are attractive opportunities for partnerships with mobile operators

and retailers to capture the high volume business amongst the low income
population, through a low-cost distribution model. There are plenty of
examples in Africa with existing partnerships between banks, mobile operators
and retailers.

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4. Smart branch network expansion or direct mobile banking?

With strong GDP growth in emerging markets, competitive focus is on

expansion and not on cost optimization. The question becomes how to expand
in a profitable and cost-effective way while adjusting to the local business
environment.

The right multi-channel mix between branches, ATM, Mobile Banking,

Internet and Call Centre provides the customer a 24/7 accessibility, while
directing him or her to the most efficient channel. In this mix, we see a clear
trend to move more towards mobile banking, complementing or even replacing
the branch network. For mass affluent and unbanked customers, it is the right
time to introduce Direct Mobile Banking 2.0 with the full range of Retail
Banking services.

Markets, there are still opportunities to expand the branch network. This
is thanks to the high economic growth, fast-growing middle class and still
relatively low branch penetration. The new branch model will be advisory and
service and sales oriented with a customer friendly pro-active approach
towards the most profitable segments (middle class, Wealth Management and
SME) and this way improve cross-sales and customer profitability.

Another possible solution to limit costs of distribution is the use of

mobile branches as Equity Bank in Kenya does. It has a good mix of prestige
branches for affluent customers, regular branches servicing all, with separate
service for each segment, and mobile branches (vans) to serve rural
communities up to twice a week. In Brazil, ATMs are high-performing and
enable the customer to execute all standard retail banking transactions. Banks
in Brazil favor expansion of the ATM network rather than expanding their

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branch network.

5. Managing risk through the cycle

Western banks worry about the negative impact of the new Basel III
requirements on their profitability and economic growth (higher cost of
capital passed to borrowers). Emerging market bank can be more optimistic
thanks to a higher investment appetite (historically good return of banking
stocks), growth potential of their economies, and having escaped much of the
crisis faced by the West.

A major concern for banks is to maintain healthy credit portfolios and

to grow in a controlled way, monitoring all key credit ratios carefully to avoid
too high write offs. Markets, fast economic growth and a boost in consumer
lending during the last decade led to huge losses for banks. However, in Brazil,
the second private bank, Banco Bradesco, grew its market share to 15% and
has become one of the leaders in assets with a very healthy credit portfolio.

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7. CAREER INFORMATION ABOUT COMMERCIAL

BANKING

7.1 Cash Management

A career in Cash Management requires you to provide various solutions to
meet diverse needs of corporate clients in banking transactions and cash flow
management in order to manage their collections and payments efficiently.

7.2 Credit Analysis & Approval

A career in Credit Analysis & Approval requires you to perform
independent analysis on the credit worthiness of corporate clients and loan
structuring as well as recommend and approve credits to achieve the appropriate
balance between risk and return.

7.3 Credit Administration

A career in Credit Administration requires you to perform loan processing,
monitoring and reporting activities including the verification and maintenance of
documentation to ensure the credit facilities are properly administrated in
accordance with the statutory requirements and the bank’s policy.

7.4 Project Financing

A career in Project Financing requires you to structure and arrange
financing for large, complex and long-term infrastructure and industrial projects
that might include, for example, power plants, chemical processing plants, mines,
transportation infrastructure, environment, and telecommunications infrastructure.
Project finance is a method of funding in which the lender looks primarily to the

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revenues generated by a single project, both as the source of repayment and as

security for the exposure
.

7.5 Relationship Management – Enterprise Banking

A career in Relationship Management - Enterprise Banking requires you to
build and manage relationships of small to medium-sized companies to deliver
timely and relevant customized commercial banking products and services.

7.6 Relationship Management – Wholesale Banking

A career in Relationship Management – Wholesale Corporate Banking
requires you to understand the wide range of banking issues facing highly
complex institutions for effective delivery of tailored products and services to
corporations (medium to large corporates), government agencies and public
sector organizations.

7.7 Sales & Marketing – Transaction Services

A career in Sales and Marketing – Transaction Services requires you to sell
and market cash management, trade, treasury and securities services (custody,
clearing, depositary receipts, and agency and trust services) to financial
institutions and corporate clients.

7.8 Structured Financing Advisory

A career in Structured Financing Advisory requires you to understand the
client’s requirements, research market and other relevant conditions to optimize
value and deliver complex, high value-added financing structures to help
customers meet their financing or investment needs. Such financing or investment

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TYBBI COMMERCIAL LENDING BY RBI MD College

needs may include large leasing transactions, leveraged buyouts, mergers and
acquisitions, monetization of assets, equity/debt analysis and recapitalizations.

7.9 Trade Finance

A career in Trade Finance requires you to provide import and export
transactional products, trade guarantees as well as structured trade finance
advisory.

7.10 Transactions Processing, Control & Support

A career in Transactions Processing, Control and Support requires you to
perform a back-office function involving transaction processing activities and
information technology as well as control and support with respect to
compliance with corporate policies and product programs.

7.11 Career Progression

As a new entrant in this field, you will start off your career as an Analyst (Role
IV), in which you will be exposed to the diverse aspects of Corporate Banking.
After 2-3 years in this role, as you gain more experience, you could progress to
the role of an Associate (Role IV) in which you will be expected to take on
greater responsibilities. As you become more conversant in your role as an
Associate, you could progress to take on the role of a Team Leader (Role V) in
which you will supervise a group of analysts/ associates. From a Team Leader,
your further progression will be to a Department Head (Role VI), in which you
will be responsible for formulating products and business strategies, providing
leadership and accounting for business bottom-line. Below is an illustration of
how FICS has been structured according to job roles to see you through your
career advancement.
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TYBBI COMMERCIAL LENDING BY RBI MD College

CHAPTER 8
Commercial Lending Basics

T1. Commercial Lending Skills: This topic will define commercial lending and
offer information about important skills to succeeding as a commercial lender,
such as product knowledge and sales ability.
T2. Commercial Lending Standards: This topic will emphasize the importance of
the commercial lender position, particularly in aspects such as attendance,
professionalism, compliance, accuracy, and service in person or on the phone.
T3. Handling Confidentiality: This topic will encourage the understanding of
confidentiality as part of the professionalism of a commercial lender, with a focus
on the security of customer and co-worker information.
T4. Types of Businesses: This topic will explain the definition of a business, the
various types of businesses, and their applications in the world.
T5. Types of Commercial Loans: This topic will discuss the five types of
commercial loans, including examples and real-world applications for commercial
lenders.
T6. Types of Collateral: This topic will detail the various types of collateral,
including endorser, real estate, savings, and more.
T7. Collateral is Secondary: This topic will explain the four reasons that a
financial institution is reluctant to repossess collateral, with further information
about additional requirements and bankruptcy.
T8. Financial Information Basics: This topic will introduce the learner to the
process of analyzing financial information, including the examination of
information provided on 1040s, personal statements, balance sheets, income
statements, and more.
T9. Commercial Loan Products: This topic will expound upon additional loan
products offered to businesses, such as working Lines of Credit, equipment
financing, leases, and various loans, with examples for each.

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CHAPTER 9
CONCLUSION
The regulatory reforms are driving banks to strategically review and
assess their businesses, and many are making substantial changes to their
business models shifting out of complex products and exiting businesses and
geographies to remain profitable. The liquidity and capital regulations have
pressured banks to increase pricing to reflect their costs of complying with the
new rules. This, in turn, has made corporate credit much more expensive, and
corporate financial executives are exploring bond markets and other alternative
sources of funding to avoid higher costs.
Despite these disruptive influences on corporate and banking
interconnections, the executives interviewed emphasized that the traditional
principles of what makes business relationships work mutual commitment,
dedication and trust are, in fact, more important than ever in today’s turbulent
environment. Corporate financial executives in the study described their
banking relationships as long-term and stable partnerships. They take their
relationship obligations with the banks very seriously and spend considerable
time making certain that work is dispersed equitably across their banks. In
return, they expect what one executive summarized as “dedication, consistency
and commitment” from their core banks.
While executives are pleased overall with their current core team of
banks, there are several performance categories that banks need to assess and
improve to continue to effectively manage relationships with their important
corporate clients. Service and product quality, transparency on key risk
parameters, and innovation and technology are important areas where banks fall
short of performance expectations. The banks that successfully address these
issues will have a distinct
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competitive advantage in today’s challenging market. The bottom line for the
very sophisticated financial executives interviewed is that managing
relationships through good economic times and bad boils down to the basics:
stay close to your customers, listen to what they want and need, and
consistently deliver quality services.

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CHAPTER 10
BIBLIOGRAPHY

All the information was collected from the following:

www.wikipedia.org
https://www.rbi.org.in
timesofindia.indiatimes.com

 Annual Report of the Reserve Bank of India for the Year 2008-09
 Report on Trend and Progress of Banking in India 2008-09
 Reserve Bank of India Master Circulars
 Report on Currency and Finance 2006-08, "The Banking Sector in India:
Emerging

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