ASSIGNMENT – RETAIL BANKING

ANS. 1

INTRODUCTION

Securitization is the process of selling cash-generating assets from the institution that owns them to
a different entity that has been created especially for the purpose, and then this second company
issues notes. The cash flows produced by the initial assets sold serve as security for these notes.

A successful example of financial market innovation is securitization. It gives institutions the ability
to turn non-marketable assets into graded securities that can be traded on the secondary market.
These instruments include things like auto loans, credit card receivables, and mortgages on homes.
Additionally, securitization gives investors access to assets they otherwise wouldn't have. The
securitization procedure results in the creation of asset-backed bonds. By combining loan assets and
making fixed or variable interest payments, these debt instruments are produced. The servicing of
new bond issuances is funded by these interest payments.

CONCEPT AND ANALYSIS

Securitization is frequently viewed as a key risk management strategy due to its inherent
differentiation and integration process (also known as "risk restructuring"). This is because by
separating the risk exposure of a particular asset pool, it enables issuers to lower the cost of
investment capital. Complex and sophisticated financial arrangements are required to convert
balance-sheet risk into marketable securitized debt, which affects how credit (or asset) risk, market
risk, liquidity risk, and operational risk coexist in securitized debt.

Securitization Process

The securitization process involves a number of participants. The process typically starts with the
originator. This is the organisation that is in possession of the collection of assets that it plans to
repackage and sell, such as receivables, auto loans, and mortgages. The assets will then be
purchased by an issuer.

Securitization is typically characterised by the following steps:

Identification Process: The "originator" is the lending financial institution—a bank or another
institution—that makes the decision to securitize its assets. Commercial mortgages, lease
receivables, hire purchase receivables, and other receivables may be among the originator's assets.
The originator must choose a relatively homogenous stream of assets while taking into account
maturity, bond yields, reimbursement frequency, and marketability. The process of selecting a group
of loans and receivables from investment portfolios for securitization is referred to as identification.

Transfer Process: After the asset pool has been identified, it is "passed through" to a different
institution that is ready to assist the originator in converting those asset pools into securities. This
organisation is referred to as a trust or a special purpose vehicle (SPV). The pass through transaction
can be either an outright sale between the originator and the SPV or a lease. A transfer is the
process of moving the originator's chosen pool of assets to an SPV, and once completed, the assets
are removed from the originator's balance sheet.

Issue Process: The SPV then begins the difficult task of converting these assets to various types of
different maturities after this process is complete. Investors will receive securities from SPV as a
result. The packages are actually divided by the SPV into smaller-valued individual securities, which
are then offered for sale to the investing public. The sale proceeds are used to reimburse the SPV for
its expenses. Different names for the securities issued by the SPV include "Pay through Certificates"
and "Pass through Certificates." Principal-only and interest-only certificates are both available. The
maturity of the securities may coincide with the maturity of the securitized loans or receivables due
to the way the securities are structured.

Redemption Process: The collections made by the SPV from the securitized assets make it easier for
these securities to be redeemed and interest paid. The originator is usually in charge of collecting
the debt, but a special service agent may also be appointed. This agency received a commission for
providing the collection service. In order to collect the principal and interest payments on assets
pooled when they are due, the servicing agent must pay special attention to past-due accounts. The
service is usually designated as the originator. As a result, when a loan is securitized, the originator's
role is reduced to that of the SPV's collection agent, if he is hired in that capacity. Depending on the
originator, a pass through certificate may be "with recourse" or "without recourse." It is typically
carried out "without recourse." Because of this, the holder of a pass through certificate must turn to
the SPV for payment of the certificate's principal and interest. Therefore, the SPV's main duties are
to structure the transaction, raise money through the sale of pass through certificates, and make
arrangements for the investors' payment of interest and principal.

Credit Rating Process: The passed through certificate must be publicly issued, and in order to make
them more appealing and widely accepted, they needed a credit rating from a reputable credit
rating agency. Therefore, at the conclusion of the securitization process, these certificates are rated
by at least one credit rating agency. The issues could also be backed by external guarantor
organizations, such as merchant bankers, which would increase the certificates' credit worthiness
and make them more appealing to investors. Of course, this rating guarantee assures the investor
that the SPV will make principal and interest payments on time.

CONCLUSION

A crucial financial tool is securitization. Finance is the study and treatment of how people,
companies, and organisations acquire, distribute, and use financial resources over time while taking
associated risks into consideration. Finance is the use of a variety of techniques by people and
organisations to manage their financial affairs, particularly the differences between their income and
expenses and the risks associated with their investments. In order to reduce the cost of capital and
mitigate the agency costs of market impediments to liquidity, structured finance refers to all
sophisticated private and public financial arrangements that serve to efficiently refinance and hedge
any profitable economic activity outside the purview of conventional forms of on-balance-sheet
securities (debt, bonds, and equity). The way that structured finance participants create the asset
pools that are used to create the final financial instruments is through the process of securitization.
The resulting financial instruments help the institutions manage risk and perform better, as well as
increase the amount of available funds.

ANS. 2

INTRODUCTION

Although the concept of retail banking is not new to banks, it is now acknowledged as a sizeable and
alluring market niche that offers opportunities for growth and profits. Retail banking provides
seamless service to each individual customer's needs. The main objective of retail banking is to
provide affordable banking services over the course of a customer's life cycle in accordance with
their changing needs. To this end, standardised products are offered, and the sales process is
streamlined by the availability of multiple delivery channels. Housing loans, consumption loans for
the purchase of durable goods, auto loans, credit cards, and student loans are the typical products
offered in the Indian retail banking segment. From a business standpoint, retail banking makes a
significant contribution to the bank's overall strategy of enhancing profitability, expanding revenue
streams, diversifying the bank's product offerings, and managing risk. The rapid rise in personal
wealth, favourable demographics, the rapid advancement of information technology, the supportive
macroeconomic environment, financial market reforms, etc. are all factors that contribute to the
higher growth of retail lending in emerging economies. The lives of banking customers are
continually changing as a result of technological advancement. Direct channels like mobile and the
internet are becoming more popular in retail banking as a result. Banks are making significant
changes to their retail banking strategies.

CONCEPT AND ANALYSIS

The government prioritised productive industries in the early stages of banking's development, and
as a result, bank credit poured into them. Banks have evolved into a digital marketplace where they
offer a variety of non-banking financial products and services, among other things. For the past eight
to ten years, India's banking system has had a ready market for the mobilisation and use of its funds,
with 79 percent of the population under the age of 35. Has aided India's retail banking industry in
growing. In the wake of the global financial crisis, policymakers have pushed for inclusive growth
with the aim of achieving universal financial inclusion. This has benefited retail banking as well.
Additionally, the expansion of retail banking in India has been facilitated by technological
developments such as the increased use of credit/debit cards, ATMs, direct debits, and phone
banking, among others. Furthermore, by spurring demand for credit, the drop in interest rates has
helped the expansion of retail credit.

After the crisis, banking consumers' purchasing habits have changed. Simpler retail banking
products, ones with more functionality, transparency, and convenience, are becoming more popular.
The customer's willingness to switch service providers for better quality service and effective self-
serving channels demonstrates how high the customer's expectations are of retail banking. It might
be necessary to review some of the long-standing paradigms in banking and financial services.

1) Heightened use of Customer insight.

Improved customer experience is more crucial to keeping and growing the share of retail
banking business in the current competitive banking environment, especially in retail banking.
Deep customer insight is necessary to provide this, so banks will evaluate the same using the
following tools and techniques.
2) Customer Insight and Customer experiences.
Future generations of consumers are fully embracing social, mobile, and digital media as a way
of life, altering interaction expectations. The financial services industry will focus on how to
monetize their expanding digital channels by utilising the massive amount of structured data
they have about the consumer. Because of the abundance of computing resources available in
the form of Cloud, Mobile Devices, Internet of Things (Its), and a variety of data in terms of
interactions on social media channels, Big Data presents opportunities for cross-selling and a
better understanding of customer needs. For the delivery of services and an improved customer
experience, the emphasis is shifting toward a greater use of analytically driven, richer customer
insight. In order to increase customer value and maximise wallet share, banks must utilise
analytics effectively.
3) Digital channels and associated digital services.
 Future retail banking operations will be powered by digital services and delivery channels. If
traditional banks do not act, more customers are expected to switch to new, entirely digital
players. The battle for digital customers will only intensify. Banks' use of innovation in their
digital strategies will increase as the rate of digital technology adoption accelerates.
4) Mobile Banking and Mobile payments.
There are many ways and places to access retail banking services (branch, internet, ATM, Mobile
etc.). In terms of transactions and sales volume over the last ten years, internet banking has
surpassed branches and call centres, becoming the preferred banking method for customers in
most countries. Mobile banking will eventually rule the retail banking market and take over as
the country's main source of retail banking due to constantly changing trends and the constant
introduction of new technologies. This has emerged as one of the most popular channels for
financial interactions, in addition to the traditional methods of checking your balance,
transferring money, and paying friends and bills with your phone. Leading banks are expected to
base all customer interactions on mobile design principles at a time when the expansion of
capabilities will enable digital differentiation.
5) Social Media Banking.
Social media is becoming an increasingly important tool for influence and communication.
Customers can now access banking services via Facebook and Twitter, and banks can consider
the potential of social networking when assessing credit requirements, thanks to new
capabilities.

CONCLUSION

The retail banking sector in India has grown rapidly in recent years, quickly becoming one of the key
drivers of the country's entire banking industry. Over the next ten years, there will be both evolution
and revolution in banking. Technology advancements are transforming the lives of retail banking
customers, and in the coming years, a seamless customer experience through multi-channel service
delivery optimization will become critical. The emphasis will be on providing high-quality branch
banking services in addition to an interactive and consistent online banking experience that
anticipates customer expectations.

ANS. 3 (a)

INTRODUCTION

Branchless banking is simply banking without physically visiting a bank, to put it in layman's terms.
Rural areas are generally inaccessible. For a more thorough explanation, we can say that branchless
banking entails third-party bank outposts, such as your neighbourhood retailer who serves as a
"Human ATM." Customers can conduct banking transactions via their mobile phones and then
physically deposit or withdraw cash at these locations.

Physical presence is the key factor that sets traditional banking apart from branchless banking. It has
regional headquarters and branches spread out among the nations in which it conducts business. On
the other hand, customers can view their balances, make money transfers, open new accounts, and
even submit a mortgage application through branchless banking portals. The best part is that these
features are always accessible.

There may not be enough space to open a branch in every village. Additionally, the level of
education or literacy in these areas is not very encouraging. Branchless banking saves the day in this
situation.
Regarding the definition of branchless banking, it is the process of providing banking services outside
of typical bank branches. This is primarily accomplished with the aid of agency banking. The three
main branchless banking methods are mobile banking, internet banking, and neobanking.

CONCEPT AND ANALYSIS

In the new millennium, India has seen tremendous growth in communication technology. Despite
the recent global financial crisis, this industry has grown dramatically. As a result, communication
has begun to spread into urban and semi-urban areas, and this trend is expected to continue.
Because of this expansion, it has also become more affordable. With this expansion, a brand-new
channel for reaching out to the general public has opened up.
The Indian government has been introducing a number of unique programmes to promote financial
inclusion. The goal of these programmes is to give social security to the less fortunate groups in
society. The government launched programmes with financial inclusion in mind after extensive
planning and research by numerous financial experts and policymakers. Among them are:

 Pradhan Mantri Jan Dhan Yojana (PMJDY)

 Atal Pension Yojana (APY)
 Pradhan Mantri Vaya Vandana Yojana
 Credit Enhancement Guarantee Scheme (CEGS) for Scheduled Castes (SCs)

Government views on branchless banking

 Financial inclusion aims to assist people in obtaining affordable financial services and products
such as deposits, fund transfer services, loans, insurance, and payment services.
 It aims to create suitable financial institutions that can meet the needs of the underprivileged.
These institutions must adhere to strict rules and uphold the high standards already present in
the financial sector.
 The goal of financial inclusion is to establish and maintain financial sustainability so that those
who are less fortunate can count on having the money they need.
 In order to create enough competition and give customers a wide range of options, financial
inclusion also aims to have many institutions that provide affordable financial assistance. The
market offers conventional banking options. However, there are surprisingly few institutions
that provide low-cost financial goods and services.
 The goal of financial inclusion is to raise the benefits of financial services' awareness among
society's economically disadvantaged groups.

CONCLUSION

Regulatory initiatives and relaxations have occurred, such as the use of third-party business
correspondents, mobile payments, and looser Know Your Customer standards. Branchless banking
will be critical to accelerating financial inclusion. With more coverage, we will undoubtedly innovate
and improve so that we can meet our objectives within the time frame set.

ANS. 3 (b)

INTRODCUTION

Emerging technologies have altered consumer expectations of financial institutions, how those
institutions function, and how they interact with their money. Modern processes' simplification,
increased effectiveness, decreased error rates, and improved communication are changing how
consumers view and interact with money.

However, financial institutions stand to gain the most from these technologies. Two cutting-edge
financial services technologies—Chabot’s and automation—reduce labour hours, enhance customer
relationships, and boost profitability. The effect of new technology on financial services will vary
depending on the function.

CONCEPT AND ANALYSIS

Digital Experience Platforms for Banks

Although digital experience platforms are not new, modern technologies are allowing financial
institutions to revolutionise an industry that is still in its early stages. Customers, for example,
benefit from the accessibility and privacy provided by hybrid cloud (cloud/server) solutions.
Furthermore, hybrid platforms allow for the real-time integration of intelligent data for advanced
analytics, personalization, and digitization.
Among the most significant of these changes is the introduction of API platforms, which allow users
to integrate their banking data into other apps and vice versa. Customers can benefit from open
banking in a variety of ways, including sharing information with third-party budgeting apps and using
money-management tools, allowing smaller financial institutions that cannot afford to provide these
services directly to customers to do so.

Block chain

Block chain is a new financial services technology trend that is reshaping the financial world as we
know it, but adoption is slow. Block chain, despite being one of the most recent technologies in the
financial services sector, is not yet widely available. While some organisations develop broader
solutions, the vast majority of banks implement block chain solutions on their own, including
checking, money processing, trade finance, and so on. However, given block chain’s recent rapid
adoption, it will soon outperform other common solutions for things like payments, fraud
prevention, loan processing, smart contracts, and more.

Chabot’s and Artificial Intelligence

The digital transformation of banking is increasingly incorporating Chabot’s and other AI-based tools.
They are used by financial institutions of all sizes, ranging from big banks to tiny credit unions, and
are very popular. Artificial intelligence (AI) affects back-office operations, product delivery, risk
management, marketing, and security, although Chabot’s are it’s most widely known application.

Robotic process automation

The most widely used automation tool, known as robotic process automation (RPA), simply
automates fixed and repetitive processes. Automation, in contrast to AI, produces relatively simple
but reliable results using a limited set of rules. These pre-programmed rules can handle digitization,
approval, risk flagging, and other processes on unstructured data (hand-filled forms) or structured
data (incoming data on interest charts). Many incorporate learning patterns, allowing them to
improve over time as data volumes increase.