Retail Asset products: CAIIB Retail banking (Module B),Unit 4

Retail Asset products: CAIIB Retail banking (Module B),Unit 4

Dear Bankers,
We all know that CAIIB exams are conducted by the Indian Institute of Banking and Finance (IIBF).  CAIIB is said to be one of the difficult courses to be cleared for the bankers. But we assure you that with the help of our “CAIIB study material”, you will definitely clear the CAIIB exam.
CAIIB exams are conducted twice in a year. Candidates should have completed JAIIB before appearing for CAIIB Exam. Here, we will provide detailed notes of every unit of the CAIIB Exam on the latest pattern of IIBF.
So, here we are providing “Unit 4: Retail Asset products of “Module B: Retail Products” from “Optional Paper: Retail Banking”.

The Article is CAIIB Unit 4: Retail Asset products

♦Types of Loans

  • Home loan
  • Vehicles loan
  • Personal loan
  • Education loan

♦HOME LOANS

    Home Loans Scheme
No. Particulars Features
1. Eligibility and Other Conditions
  • Individuals/Group of Individuals/Members of Cooperative Society.
  •   Individuals should have regular income from Agriculture/Profession/Trade, Business/Salary in case of employment.
  • In case of employed persons, minimum three years of confirmed service is necessary.
  •   In case of Self Employed Professionals, Business Persons, minimum three years standing in their respective field is necessary.
  • Applicant should not be enjoying credit facility for the same purpose from any bank/financial institution and should not be a defaulter in the case of any other credit facility from any bank/financial institution.
  • Applicants who own a house in the name of self or spouse or minor children are also eligible.
  • Applicant should not be more than 60 years of age.
2. Purpose
  • For purchase/construction of new/old houses/flats and for extension of already owned houses.
  • In case of old houses/flats, the age of the house/flat should not be more than 15 years.
3. Amount
  •  For construction/ purchase of a house/flat-No upper celling in many banks.
  •   Purchase of a plot-amount varies from bank to bank
4. Margin
  •  Up to 30lacs-10%
  • >Rs. 30lacs and up to Rs. 75lacs-20%
  • >Rs. 75lacs-25%
5. Security
  • First Mortgage of the property to be financed.
  •   The land should be in the name of the applicant or jointly with the spouse who should be a co obligant. The applicant should have a clear and marketable title to the property.
6. Disbursement
  •  In case of construction of house, the disbursement will be in stages based on the progress in construction.
   
  •  In case of purchase of plot and construction, loan will be disbursed first for purchase of flat and then as per the procedure described above for construction.
  • In case of flat, again disbursement will be made based on the progress of construction in case of new flat.
  • In case of already completed flat and old flats, the loan amount will be disbursed in one go based on the Agreement of sale.
7. Moratorium
  • Holiday period – upto 18 months for construction of house and 3 months for purchase of house/flat.
8. Prepayment Issues
  • Some banks levy pre payment charges for pre closure of loans.
  • Generally public sector banks do not charge the customers for pre- closure.
9. Repayments/ Collection
  • Highly flexible- maximum 30 years including moratorium period is considered by bank.
  • Maximum moratorium period of 18months in case of construction and 3 months in case of purchase is allowed generally by banks.
  • Loan to be normally repaid before  of retirement in case of salaried persons and before attaining 65 years of age in case of others.
10. Price and Interest Rate
  • Interest rate depends on the size of the loan and repayment period.
  • Interest also depends on whether it is a fixed rate or floating rate loan.
  • A new pricing model has emerged for Home Loans in the recent past. Step up pricing i.e. lower interest (teaser interest rates to initially attract customers) for the entry years (2 to 3 years) and subsequently hiking to fixed or floating rates prevailing at that time for the remaining tenor.
  • Interest Band – 8 % to 12 % per annum depending on the tenor and also whether the loan is fixed or floating.
  •   In case of floating rates, rate varies with the Bank’s Prime Lending Rate.
  • In case of fixed rates, the rate is reset over every fixed period; say 5 years, indicating that even on fixed rate loans, the price will vary over a long tenor.
  • Most of the banks allow switch over from fixed rate to floating rate and a rewriting fee of 1 % is charged and a lock in period of three years is prescribed.
  • Processing charges varies from 0.5 % to 1 % and some banks waive processing charges during special campaigns to mobilise accounts and as a marketing initiative.

 

♦Housing Loan Under Pradhan Mantri Awas Yojana (PMAY)

    What is PMAY?
  • The Pradhan Mantri Awas Yojana (PMAY) is an initiative of the Government of India which aims at providing affordable housing to the urban poor by the year 2022. The scheme was first launched on 1 June 2015. The interest rate for the PMAY scheme starts at 6.50% p. and can be availed for a tenure of up to 20 years. The deadline for availing the PMAY CLSS scheme for the MIG-I and MIG-II categories has been extended to 31 March 2021. The same has been extended to 31 March 2022 for the LIG and EWS categories.
  Features and Benefits of PMAY Scheme
  • Under PMAY Scheme, subsidy interest rate is provided at 6.50% p.a. on housing loan for the term of 20 years to all the beneficiaries.
  • Differently abled and senior citizens will be given preference in allocation of ground floors.
  • Sustainable and eco-friendly technologies would be used for construction.
  • The scheme covers entire urban areas in the country which includes 4041 statutory towns with the first priority given to 500 Class I cities. This will be done in 3 phases.
  • The credit linked subsidy aspect of the PM Awas Yojana gets implemented in India in all statutory towns from the initial stages itself.
Pradhan Mantri Awas Yojana Beneficiaries

    The beneficiaries under the PMAY scheme can be listed as follows:

Beneficiary Annual Income
Middle Income Group I (MIG I) Rs.6 lakh to Rs.12 lakh
Middle Income Group I (MIG II) Rs.12 lakh to Rs.18 lakh
Lower Income Group (LIG) Rs.3 lakh to Rs.6 lakh
Economically Weaker Section (EWS) Up to Rs.3 lakh

 

Identification and Selection of Beneficiaries under PMAY
  • The Pradhan Mantri Awas Yojana – Urban scheme caters mainly to the housing requirements of the urban poor. The scheme also caters to the housing requirement of slum dwellers residing in confined areas of slums with inadequate infrastructure, poor sanitation and drinking facilities.
  • Beneficiaries of PMAY-U mainly include Middle Income Groups (MIGs), Low-income Groups (LIGs) and Economically Weaker Section (EWS).
  • While the beneficiaries from the EWS category is eligible for complete assistance under the scheme, beneficiaries from LIG and LIG categories are only eligible for the Credit Linked Subsidy Scheme (CLSS) under PMAY.
  • In order to be recognised as a LIG or EWS beneficiary under the Scheme, the applicant is required to submit an affidavit as income proof to the authority.
PMAY Interest Subsidy
Particulars Interest Subsidy Maximum Loan for Subsidy
EWS 6.50% p.a. Rs.6 lakh
LIG 6.50% p.a. Rs.6 lakh
MIG -1 4.00% p.a. Rs.9 lakh
MIG-2 3.00% p.a. Rs.12 lakh

 

Home Improvement Loans

No. Particulars Features
1. Eligibility and Other Conditions •         Individuals/Group ot Individuals/Members of Cooperative Society who owns a house/flat.

•         Individuals should have regular income from Agriculture/Profession/Trade, Business/Salary in case of employment.

•         In case of employed persons, minimum three years of confirmed service is necessary.

•         In case of Self Employed Professionals, Business Persons, minimum three years standing in their respective field is necessary.

2. Purpose •  For repair, renovation, upgradation, painting, and other repairs.
3. Amount •  Maximum of Rs. 5 lacs but some banks give higher amounts upto Rs.10 lacs also.
4. Margin •  20% to 50%
5. Security •  Equitable mortgage of property under repair/ renovation or any other unencumbered

immovable property also accepted by banks.

6. Disbursement •  Depending on the nature of repair/renovation.
7. Moratorium •  3 months.
8. Repayments/Collection •  As allowed by banks

 

Home Decor Loans
No. Particulars Features
1. Eligibility and Other Conditions •         Individuals/Group of Individuals/Members of Cooperative Society who owns a house/flat.

•         Individuals should have regular income from Agriculture/Profession/Trade,

Business/Salary in case of employment.

    •           In case of employed persons, minimum three years of confirmed service is necessary.

•           In case of Self Employed Professionals, Business Persons, minimum three years standing in their respective field is  necessary.

2. Purpose •           For    furnishing    the    house/flat, interior decoration/air conditioners, etc.
3. Amount •   Maximum of Rs. 5 lacs but some banks give higher amounts upto Rs.10 lacs also.
4. Margin •  20% to 50%
5. Security •   Equitable mortgage of property under repair/ renovation or any other unencumbered immovable property also accepted by banks.
6. Disbursement •  Depending on the nature of repair/renovation.
7. Moratorium •  3 months.
8. Repayments/Collection As allowed by banks

 

Note: Different banks offer different variations of the above loans. But the fundamental approaches of the banks will be to address the entire needs of the customers regarding housing loans.

♦Auto/Vehicle Loans

No. Particulars Features
1. Eligibility
  •  Individuals in confirmed service in Government, Public Sector Undertakings, reputed private organisations and institutions.
   
  •  Professional & Self Employed persons ,Business people
  •   In case of employed people, take home pay not less than 50% of gross salary.
 
2 Purpose
  •   To buy new or used car.
  • In cased of used car, the age of the car should not be more than 5 years.
 
3 Margin
  • 10% for new cars.
  • 25/30% for used cars
  • 10% for two wheelers.
  • Margins also may vary with the banks.
 
4 Security  
5 Disbursement
  •  Directly to the Dealer/ Suppliers and invoice/receipts to be obtained for record.
 
6 Moratorium
  • Normally no moratorium.
  • Repayment of the loan commences from the immediate following month.
 
7. Prepayment issues
  • Public sector banks normally do not charge any pre payment penalty.
  • Some Private Sector banks collect pre payment while some don’t.
 
8. Repayments/Collection
  • For Individuals- for new vehicles
  • 4 Wheelers- Max. 7 years, generally
  • 2 Wheelers- Max. 5 to 6 years, generally
  • For Corporate/ Firms, etc- Max. 5 years, generally
  • For Second Hand vehicles- Max. 3 years, generally or a period depend on the age of the vehicle.
 

♦Personal Loans

Personal Loans are basically unsecured in nature and are backed by personal guarantees only. As credit risk and delinquency rates are more in this segment, public sector banks tread cautiously in this segment and private banks do it aggressively.

Eligibility Salaried employees, Professionals and individuals with High net worth, Regular pensioners or family pensioners drawing regular monthly pension through Bank.
Purpose Marriage expense of self, children or a dependent. Medical expense

For education of self/ children

For Repairs, renovation, extension

Any other personal expense

Amount Clean/ Unsecured loans– Amount varies from bank to bank and depend on the schemes developed by each bank and the target group.

Secured Loans– Amount varies from bank to bank and depend on the schemes developed by each bank and the target group.

Security Equitable/legal Mortgage of commercial or residential properties.

Hypothecation charge on assets acquired.

Disbursement Directly to suppliers/ dealers wherever feasible.

Credit to account of borrower in respect of clean loan

Rate of interest As applicable (vary from bank to bank)
Moratorium No moratorium normally
Repayments Clean/Unsecured loans– 36 to 60 EMIs generally

Secured loans– 60 EMIs

 

   ♦ Educational Loans

No. Particulars Features
1. Eligibility
  •  Students studying   Professional/Other Colleges
  • Indian Banks’ Association has brought out a Model Educational Loan Scheme prescribing the modalities to be followed by banks regarding disbursement of educational loans. The objective of IBA is to make the banks to adopt a uniform approach as per the prescribed guidelines.
  • Amount of loan, purposes, approval requirements of colleges, security prescriptions.
  • Loan to be given jointly to the student and their parent.
2. Purpose
  • To pursue professional degree/diploma and other course as prescribed in the IBA guidelines.
  • For studies in India and abroad.
3. Amounts
  • Inland Studies – Upto Rs.10 Lacs.
  • Foreign Studies – Upto Rs.20 Lacs
  • In case the amount required is more, the same can be considered by banks on a case to case basis.
4. Security
  •  Upto Rs.4 Lacs – No security.
  • Above Rs.4 Lacs and upto Rs.7.50 Lacs – Additional Personal Guarantee worth the amount.
  • Above Rs.7.50 Lacs – To be secured by tangible asset to cover the loan in the form of property, Govt. Securities like NSC.KVP etc.,
5. Disbursement
  • To be disbursed in stages – semester wise or annual payments as per the requirements of the institutions
  • Payment to be made direct to the institution.
6. Moratorium
  • One year after completion of the studies or employment which ever is earlier.
7. Prepayment issues
8. Repayments
  • Repayable in 60 monthly instalments (EMIs) after the moratorium period as prescribed above.

 

  ♦Processing Of Retail Loans

The success of retail asset expansion by banks depends on the processing speed of retail loans and making the procedures hassle free for the customers. Banks adopt different models for processing of retail loans. The important models of retail loans processing are explained below:

  • Stand Alone Model and
  • Centralised Model
  • Stand alone Model for Retail Loan Processing: Stand alone model for retail loan processing refers to processing of retail loans independently at the branch level. Based on the discretionary powers given the Branch Head, Branch will market the retail loans and process and sanction the loans based on the eligibility of the applicants. Obtention of the necessary documents, appraisal of the proposal and sanction of the loans will be done independently at the branch level. The valuation, legal opinion etc, are obtained at the branch level through the approved panel valuers/lawyers.
  • Centralised Model for Retail Loans Processing: Centralised Model for retail loans processing refers to processing of loans at a centralised place depending upon the geography of branches. Banks adopt differen centralised models for processing of retail loans. Some of the names. Banks give to these retail loans processing centres are
  1. Retail Loan Factory
  2. Retail Loan Hub
  3. Retail Loan Processing Centres
  4. Retail Asset Processing Centres
  5. Retail Loan Branches
Standalone Model Vs Centralized Model
  Standalone Model

(Brand Level Processing)

Centralized Model

(Retail Loan Processing Hubs/Centres)

1.

2.

3.

 

4.

5.

 

 

6.

 

7.

Better Understanding of the customer requirements.

No standardised approach

Retail Loans are only one part of the multiple activities.

Difference in quality of appraisal based on the branch and its personnel. Processing time may differ based on the priorities of the branches and importance of the customers/proposals.

Compliance of appraisal norms may be biased based on the customer profile.

Documentation standards may not be uniform.

 

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