Chapter 1

INTRODUCTION

SI. No. CHAPTER CONTENTS PAGE

1.1 An Introductory note on the Research perspective 06

1.2 Concept of Retail Financing- An Introduction 07

1.3 Retail Loans -its Emergence and Evolution - A 08 Brief History

1.4 Retail Financing in Eastern India -A focus on 23 Jharkhand and West Bengal

1.5 Retail Commercial Automobile Financing 30

REFERENCES

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§ 1.1: An Introductory note on the Research perspective

It is a rationale to start writing a Research thesis with the identification of the research

area, rather than the research problem. For a subject like Marketing Management, it is

also prudent to select those areas, which have very much relevance in the modem

business scenario and play a significant role in solving practical problems. It is also

believed that especially research on subjects of Social Sciences like Management

should make some concrete contributions to the real world in addition to literary

contribution. Therefore, in this current thesis, an attempt has been made to identify a

relevant area on a burning issue like Customer Relationship Management (CRM) in

retail financing of assets, and look out for determining the research problem. With this

as the major objective, steps have been taken to probe into the situation and detect a

key issue of concern and try to provide an efficient, effective, feasible and pragmatic

solution for the same. As a matter of fact therefore, the contributors have tried to

analyze the perspective of Retail Financing of Assets, Customer Relationship

Management and their relevance in the modem day business of Retail Commercial

Automobile loans. The following section, hence, attempts at providing a brief overview

on the aforesaid issues and lays the foundation for identifying the research problem.

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§ 1.2 Concept of Retail Financing - An Introduction

Retail financing is one of the most primitive concepts in financing. It actually refers to

"medium to small-ticket size" funding that has been put up for aggressive selling. The

word RET AIL means "put up for aggressive selling". Aggressive marketing of such

small-sized credit in the forms of personal loan, consumer durable loan, auto loan etc

have been a prevalent practice since quite a few centuries now.

Retail financing has evolved through the centuries and has undergone a complete

metamorphosis and has become one of the most lucrative business propositions for the

Financial Institutions of today throughout the world. It's also a fact that the spread of risk

over a huge consumer base, in contrast to corporate funding makes this segment less

risky and consequently an attractive business proposition for the Financial Institutions.

Since the loans are usually of a very small amount if 20 customers fail to repay the dent

in their balance sheet is not of a size to worry much. In contrast, one big industrial loan

turning sour can be nightmare for the Financier.

Through ages the parties have changed, but the business has flourished, and more and

more sophistication has crept into the methods of this form ofbusiness with time, though

the underlying concept has remained the same. In today's deregulated world, members of

financial services industry are continuously forced to seek new ways to gain on their

competitors. They intend to outdo one another in terms of effectively reaching to retail

customers' demands with sophisticated and customized financial products and services.

Retail Financing products are myriad in today' s context like the retail loans which

includes Personal Loans, Housing Loans; asset-based fundings like the Automobile loans,

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Automobile leases, Equipment Leases, Consumer Durable Loans; Credit Cards and so on.

Automobile loans can further be categorized as Commercial Vehicle loans- meaning

loans for trucks and buses, 4-wheeler loans, 2-wheeler loans and so on.

Table la below lists the various portfolios put up by various Financial Institutes for retail

marketing: Table Ia

Asset Ticket Volumes

Rates of Portfolio

Backed Size of

Interest Operational Network

Business

Car Loans Yes Medium Medium Low Dealership

Commercial Marketing Agents, Existing Automobile Yes Medium High Medium

Clients, Dealership loans

Consumer Yes Small High Medium Dealership Durables

Home Loans Yes Big Medium Low Walk- in Customers, Agents and Builders

Credit Cards No Medium High High Marketing Agents, Existing

Clients

Mortgage Yes Medium Low Medium Walk- in Customers,

Loans Existing Clients

Personal No Medium Low High Walk- in Customers,

Loans Existing Clients

Equipment Walk- in Customers,

Yes Medium Medium Low Existing Clients, Marketing Loans Agents

Source : www.indiainfoline/retailfinance.php

§ 1.3 Retail Loans -its Emergence and Evolution- A Brief History

It is very difficult to accurately ascertain the specific date when the concept of Retail

financing or loans first emerged. The practice of credit probably corresponds to when

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man began to communicate. Researchers like John Mussi, founder of Direct Online

Loans, USA and John J. Ruddock, Founder and President of World of Credit, USA,

conform that the earliest of its kinds that can be documented was at least several thousand

years back. Forms of lending were evident in ancient Greek and Roman times, and

monetary loans even find a mention in the Christian Bible.

For our convenience we classify the whole span of time into 3 Phases separately in the

Global and Indian contexts namely

(i) The Pre-Historic and Historic Era

(ii) The Medieval Era and

(iii)The Modem Era

PRE- HISTORIC and HISTORIC ERA:

Global Context:

1950 BC: One of the first recorded evidences of retail credit: The King of Eshnunna

(East bank of Tigris) decreed a limit on amount of interest of 20%. He allowed borrowers

grain and goods for loans made in silver.(Huddock , 2004)

1763 BC: The next recorded evidence in the History that mentions of credit is: ''The

Code of Hammurabi" by Hammurabi , the King and founder of the Babylonian Empire

(1728- 1686 B.C). In the code established by him he too had limited the rate of interest

to 20%. A borrower in his times, could even sell his wife, son or daughter into slavery to

settle debt (Indentured Servitude). However, his clearly written code had a protection for

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those sold indenture ship to 3 years - in the fourth year they would be given freedom.

(Chorafas, 1999).

Indentured Servitude I Indentured Loan : was one of the earliest forms of retail

financing practiced right from the middle ages through the 19th century by land owners

and the wealthy. The option allowed poor individuals to borrow the money for major

expenses such as travel, real estate etc. Once the land owner or the wealthy person had

secured a ship passage or piece of real estate for an individual, that individual would then

have to work off their debt over the course of years. Unfortunately, many times the land

owners were very dishonest and would greatly inflate the debt and continue to add

provisions to the debt long after it had been repaid. In India it took the form of the

Zamindari and Sahukari System during the Feudal era of the later medieval period.

630 BC: IIIrd milestone in the history of finance and financing: Invention of the First

"coins": Lydia, a small kingdom between the Black and the Mediterranean seas was the

first to see the minted coins in the world during the regime of King Gyges. These coins

were made from an alloy of gold and silver , oval minted - stamped with the image of a

"Lion's Head". The Lion's Head image guaranteed that the coins were genuine

(Chorafas, 1992)

269 BC: saw the commercialization and wide spread circulation of silver coins in

Rome for the first time. These coins were called DENARII. They were minted and

circulated to make Rome a wealthy city.

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Indian Context:

There are several evidences of prevalence of the retail financing

1500 B.C: The Mohenjodaro and Harappan Civilizations which were excavated by our

historians gave evidences of metals and coin-like seals. (Dhar , 1980)

1000- 500 B.C: Upanishads, Vedas and the two great epics of this time Ramayana and

Mahabharata by the Aryans do mention of the prevalence of such practices by the Rajahs

and Maharajahs of those times. Indentured Servitude too finds a mention in these works.

Usage of coins "Swarna Mudra" as they put it as a mode of transaction was also

prevalent during this era. Businesses on credit (small installment schemes) too were

mentioned in these works. There were clearly written laws governing the repayment of

such loans in the Vedas. (Rangarajan, 1992)

300 B.C : Kautilya's Arthashastra, by Chanakya, the Prime Minister of Chandragupta

Maurya ( founder of the Maurya Dynasty) , is one of the first works which clearly

specified the code of loans in India. It has a separate section on debts or " rina " as he

put it (section 3.11) in which are laid down rules and regulations governing the rates of

interest , loans with or without mortgage, the recovery of loans, the liability for loans

contracted by others and so on. Another section (3.12) deals with the use and misuse of

pledge (evidence of business on credit), liability to redeem it and so on. (Kangle, 1997).

The Arthashastra, candidly specified the rules on charging interest and also the interest

rates (Rangarajan, 1992) . It has a mention of three types of loans : monetary loans,

loans in forms of grains and , loans in forms of commodity stocks . The lawful interest

rates were stipulated as under :

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For Monetary Loans:

Normal transactions :

Commercial Transactions:

Normal:

Involved Risky travel :

Through Forests:

By sea:

@ 1.25 %per month [ 15 % p. a ]

@ 5 % per month [ 60% p. a ]

@ 10% per month [ 120% p. a]

@ 20% per month [ 240 % p. a ]

For Grain Loans: @ 50% in the form of grains if in crop season or in terms of money

Interest charged accordingly if not in crop season.

For Commodity Stock Loans: @ 50 % p. a [until the loan is repaid] if someone missed

out then the interest rate would be increased to 1 00 % .

There was a separate section for punishments for non recovery of loans too.

THE MEDIEVAL ERA :

Global Context :

1215 AD: Concept of Modern Banking evolved in Italy: The first bankers were the

Italian money lenders, who would set up small benches in the local market place. The

word "BANK" gets its origin from the Italian word for bench "BANCA". The money

lenders would charge interest on their loans at a rate that they set and would sometimes

be quite successful and become very wealthy.

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As an interesting side note to the history of loans, if the money lenders were not

successful though, they would break up their benches and pursue other venues. The Latin

expression for breaking up a bench in this way was " BANCA RUPTA", which

eventually gave way to the English word "Bankrupt" (Which carries a much steeper

connotation than simply a broken bench).

Indian Context :

1200 A.D- 1757 AD : was the period of the Mughal Dynasty in India. Concept of loans

and Indentured servitude was still prevailing. Loans were either in terms of coins

"swarna rnudra" as they put it or in terms of invaluable gems. But no sort of organized

activity was viewed in this context in India compared to its counterparts of the west.

The sophistication graduated through the next era which actually changed the way of

doing business both in the Global and the Indian contexts

MODERN ERA:

Global Context :

1800 A.D: The first U.S. bankruptcy law was adopted in response to losses suffered by

land speculations voluntary bank splay fillings well not allowed until 1841.

1812 A.D : The concept of retail financing I on commercial basis evolves.

New York's Coperthwaite and Sons begins selling furniture on "installment" basis,

allowing consumers to take home the items while paying them off over time, as a

process to augment their product offering. Competitors soon followed suite and came op

with other innovative schemes.

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Gradually through the 1800's the concept of collateral loans, securities and mortgage

loans gained ground in various part of the world.

1856 A.D : I. M Singer and co. launched the installment selling campaign allowing

"suitable" buyers to take home sewing machine for $5.00 down payment, and monthly

installments for the balance plus interest.

1857 A.D : The loan system had flourished quite a lot by then. and it came to the light

that small borrowers were being oppressed. There were numerous scandals and

corruption related incidents that once again called for drastic remedial measure. Societies

were, therefore set up to control the units and extend credit to small borrowers.

1870 A.D: The first ever retail-loan company came into being in Chicago. For the first

time this company provided cash (personal loan) charging extremely high interest. For

the next 40 years the loan company activity grew and so did their interest rates. Once

again it was a major issue of concern to the lawmakers in USA. They passed a legislation

allowing formation "Credit unions".

1889 A.D: Concept of Repossession evolved :The term "Installment Plans"- got listed in

dictionary for the first time. The definition warns that merchants could repossess the

goods sold under this scheme " if the buyer makes default in any installment".

1899- 1900 A.D : Was a land mark in the history of credit- with a series of incidents

that marked the first step towards organizing the credit union in North America.

Catorand Guy Woolford opened retail company in Atlanta, Ga, which later became

Equifax, the first national credit bureau in the United States of the first credit union got

organized in Canada.

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In the meanwhile automobiles sales was gearing up its volumes. And cars were being

purchased with credit.

1903 A.D :Invention of "Credit" cards: On one hand the automobile industry, on the

other hand the consumer durable and luxury Goods industry were both flourishing.

Departmental stores were coming up, and in an effort to augment their offerings from

those of their competitors they introduced the concept of "Charge cards". The evolution

of the "Credit cards " of today started off from this point. The charge cards could be used

by the customers in department stores, for the purchase of items especially luxury goods.

The cards were convenient in the sense, the people did not have to carry large amount of

money.

1919 A.D : A land mark in automobile financing with General Motors launching the

General Motors Acceptance Corporation to help buyers finance car purchases.

1920 A.D : Advent of the concept of "credit" cards in the modem form as they are

today

Oil companies in USA offered "charge cards" which became acceptable Nation-wide.

1924 A.D : A major milestone in the field of automobile financing. Ford came up with

their retail credit plans and 3 out of every four vehicle in US was purchased on credit.

These loans made up mou than half of all retail installment sales.

1945 A.D : World war-II. In Europe US soldiers exchanged cigarettes, chocolates and

chewing gums for money. The world was in an upheaval and it came to an economic

slowdown for a while.

1946 A.D : Formation of "Informative Research" The first step towards an organized

credit industry Headquartered in Garden grove, California, "Informative Research" - the

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privately held information provider- servicing the mortgage lending industry. It is one of

the top credit resellers today.

1949 A.D : "Diner's Club" - credit card came into being. "Charge card" concept

migrated from the automobiles sector to the entertainment and hospitality industry. The

modem day credit card concept evolved with the "DINER'S CLUB" - card being

introduced as a travel, and entertainment card [entertainment included restaurants,

theatres and so on ..... ]

1956 A.D: Invention of CREDIT RATING system

A landmark in the history of credit and lending. FICO- Fair Isaac company -Founded

by Bill Fair and Earl Isaac in USA developed a unique scoring system using a

combination of items: scoring, factoring and segmentation - which can predict an

individuals potential credit default risk "MATHEMATICALLY" the first ever credit

rating system was taking its shape amidst this discovery.

1958- 60 A.D : Commercialization of Credit Cards.

American express - Introduced their charge card on a mass scale. and Bank of America

mailed across the first 60,000 "Bank-Americards" to the residents of Fresno, California.

1966 A.D : Bank of America begins licensing Bank-Americard to other banks. Rival

Banks respond by forming the Master charge group. Which later took form of Master

Card. and Bank Americard became Visa in 1976.

1970 A.D: "Mass mailings of credit cards Banned" in US

The credit cards by them had become a menace for the general public in US. President

Nixon bans mass mailings of unsolicited credit cards, forcing the banks to ask customers

if they actually want a card before delivering one.

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FICO develops the first scoring system its gauge the default risk for a bank credit card of

Connecticut Bank and Trust. This provided a basis for screening the potential customers

of credit cards.

Indian Context :

This era witnessed the maximum reshuffle and organization efforts of this branch of

business. For the convenience of our study let us once again classify the, period into three

sub periods

(i) Pre- independence (Before 1947)

(ii) Post- Independence (1947- 1990)

(iii)Liberalization and Post Liberalization Era (1991 till date)

PRE INDEPENDENCE (Before 1947)

1786 AD: The First Bank of India : The General Bank of India was set up .

1809 A.D: Bank ofBengal, and bank ofHindustan was set up by east India in India.

1840- 1843 A.D: The Presidency Banks of Bombay and Madras came up. These then

later amalgamated in 1920 and become the Industrial Bank of India.

1853 A.D : Mercantile Bank, the predecessor of Honkong Shanghai Banking

Corporation (HSBC) in India came in to being.

1865 A.D: Allahabad Bank, the first bank exclusively by Indians was set up.

In the meanwhile the Indian banking scenario too had undergone a major re-shuffle with

the setting up of various banks of purely Indians origin

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~ 1894 A.D- Punjab National Bank with head quarters in Lahore

~ 1906 A.D- Bank oflndia (Head quarters at Nariman Point, Mumbai)

~ 1907 A.D - Central Bank of India

~ 1907 A.D- Indian Bank

~ 1908 A.D- Bank ofBoroda

~ 1910 A.D -Canara Bank Ltd.

~ 1913 A.D- Bank ofMysore

Banking was getting to be a necessity as well as a lucrative business proposition for the

Indian society. Lending was definitely a major part of the business in these banks.

However, lending was not limited to the banks only, the Sahukari system, the Zamindari

system, were at their peak at this point of time and they were the main lenders in the

society.- Agriculture was the most predominant profession in the Indian society and the

funds for land, and seeds etc were usually financial by the Sahukars and Zamindars at

exorbitant rates. Banks too had high rates of interest.

1920 A.D : The first hire-purchase co. Commercial Credit Corporation came into being

with its head quarters in Madras.

1935 A.D: Was a land mark in the Indian context with the setting up of Reserve Bank

of India.

1945 A.D : World war-11. Lead to the series of set backs with periodic failures of the

banks, which were about 1100 in number by then. Peoples confidence in the banks were

getting to be lesser and lesser by the incidents of bank failures. As a whole there was a

major slump in the economic scenario all over the world. Once again, Sahukars and

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Zamindars (private money lenders) were at the peak in the retail loans segment apart

from the few NBFCs that were mainly family- owned business.

POST INDEPENDENCE (1947 -1969)

1949 A.D : This year was marked by a major transformation in the Indian context soon

after the Independence of the nation from British dominance, the govt. brought in the

banking companies Act (1949) to streamline the functioning and activities of the

commercial banks. Reserve Bank of India was vested with extensive powers for the

supervision of banking in India as the central Banking authority.

1955 A.D : "Nationalization of State Bank Of India "

Prior to 1955, people's confidence levels in the banks were going at an all time low. The

govt. of India was taking a serious note to reorganize the sector, because the visionaries

heal already understood the fact that:- "without a sound and effective banking system in

India it is impossible to have a healthy economy". In an effort to do so the govt. took a

major step by nationalizing the "Imperial Bank of India" with extensive banking facilities

on a large scale specially in rural and semi-urban areas in july,l955. It formed the

"STATE BANK OF INDIA" to act as the principal agent to RBI and to handle the

banking transaction of Union and State governments all over the country.

1958 - 60 A.D : The Indian scenario at that point of time was still staggering for

sustenance in the economic map the world following the 200 years gory British regime.

The govt. was making efforts to organize and rejuvenate the banking sector and

nationalized the seven subsidiaries of SBI in 1960 on 19th July.

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1969 A.D: Was an important year in the credit history oflndia because of the land mark

event of Nationalization of 14 banks. The then prime minister Mrs. Indira Gandhi

initiated the process of nationalizing the banks.

1973 A.D: "Leasing Activity was initiated in India"

The first leasing co. of India, named "First Leasing company of India Ltd." Was set up in

that year by Farouk Irani, with industrialist A.C. Muthia. Leasing had been mostly for

plant and machinery.

1978 A.D : Magma Leasing Ltd. and SREI International Finance Ltd. 2 leading NBFCs

of the present day were set up and they began functioning in the eastern and northern

parts of India.

1980 A.D: Marked the year of2"d phase ofNationalization of Indian Banks with seven

more banks nationalized. This step brought 80% of the banking segment in India under

govt. ownership. After the nationalization of banks, the branches of the public sector

banks lose by 800% and advances took a huge jump of 11000%. The credit procedure

was standardized with strict documentation procedures. Lending was only a subsidiary

business, it took a back seat with high interest rates - But that too did not allow leasing

activities banking in the sunshine of govt. ownership instilled in the public implicit faith

and immense confidence about the sustainability of these institutions.

NBFCs like 20th century Financial Corporation was set up and was the 2"d of it's kind in

leasing business in India.

1981 A.D : The trickle started, leasing being a lucrative business proposition attracted 1st

generation entrepreneurs and companies like Sweety Investment and Finance, Jay Bharat

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credit and Investment, Motor and general Finance, and Sundaram Finance etc. joined the

leasing game.

1982 A.D : The industry entered a growth phase when numerous financial institutions

and commercial banks either started of announced plans to do so.

1983 A.D: ICICI, prominent among the financial institutions entered the industry giving

a boost to the concept of leasing. There after the trickle become flood and leasing become

the new gold mine.

1985 A.D: ALFIN, Ashok Leyland Finance Ltd. was given birth by the Hinduja Group

as a support to their Automobile Manufacturing Company Ashok Leyland, which mainly

offered credit to the purchasers of their own vehicles. It is the znd largest NBFC today

and caters for mainly the Commercial Vehicle loans.

1989 A.D : ANZ Grindlays Bank introduced the first credit card in India ANZ Credit

Cards.

1991 A.D : Liberalization of the economy by the then finance minister Mr. Manmohan

Singh brought in a revolution in the financing sector. Under the chairmanship of

M.Narasimham, a committee was set up by his name which worked for the liberalization

of banking practice. It threw open the gates to foreign banks and private sector banks.

The world class services of the foreign banks, educated the customers and enhanced the

expectations in the Indian customers and hence to sustain themselves in business - the

private sector banks came up with proactive marketing efforts and ramified the remotest

comer of the country.

1999 A.D The Commercial Banking structure in India was reorganized into two

categories:

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• Scheduled Commercial Banks in India

• Unscheduled Banks in India

Scheduled Banks in India constitute those banks which have been included in the Second

Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in

this schedule which satisfy the criteria laid down vide section 42 (6) (a) ofthe Act.

As on 30th June, 1999, there were 300 scheduled banks in India having a total network of

64,918 branches. The scheduled commercial banks in India comprise of State bank of India

and its associates (8), nationalized banks (19), foreign banks (45), private sector banks (32),

co-operative banks and regional rural banks.

"Scheduled banks in India" means the State Bank of India constituted under the State Bank

of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India

(Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under

section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 ( 5

of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of

Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second

Schedule to the Reserve Bank of India Act, 1934 (2 of 1934 ), but does not include a co-

operative bank".

"Non-scheduled bank in India" means a banking company as defined in clause (c) of section

5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank".

The following were the Scheduled Banks in India (Public Sector):

• State Bank of India • State Bank ofBikaner and Jaipur • State Bank ofHyderabad • State Bank of Indore • State Bank of Mysore • State Bank of Patia1a

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• State Bank of Saurashtra • State Bank ofTravancore • AndhraBank • Allahabad Bank • Bank of Baroda • Bank of India • Bank of Maharashtra • Central Bank oflndia • Canara Bank • Corporation Bank • Dena Bank • Indian Overseas Bank • Indian Bank • Oriental Bank of Commerce • Punjab National Bank • Punjab and Sind Bank • Syndicate Bank • Union Bank of India • United Bank of India • UCOBank • VijayaBank

The following were the Scheduled Banks in India (Private Sector):

• Vysya Bank Ltd • UTI Bank Ltd • Indus Ind Bank Ltd • ICICI Banking Corporation Bank Ltd • Global Trust Bank Ltd • HDFC Bank Ltd • Centurion Bank Ltd • Bank of Punjab Ltd • IDBI Bank Ltd

The following were the Scheduled Foreign Banks in India:

• • • • • •

American Express Bank Ltd. ANZ Grindlays Bank Plc. Bank of America NT and SA Bank of Tokyo Ltd. Banquc Nationale de Paris Barclays Bank Pic

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• Citi Bank N.C . • Deutsche Bank At G . • Hongkong and stianghai Banking Corporation

1 • Standard Chartered Bank . I • The Chase Manhattan Bank Ltd . I

• Dresdner Bank AO .

There was a complete restructuring and reorganization phase in the Indian Economy in

the Post Liberalization era. The financial sector, mainly, got a boost. Many NBFCs came

up in a more organized way and they tried to penetrate into the new markets and vistas.

Some of them merged with the Banking Institutions and ventured out into unexplored

markets.

The Financing Business really caught up a pace in the later half of the 1990's. home

loans, automobile loans, credit cards, were getting to be a fashion for the upwardly

mobile Gen X population.

§ 1.4 RET AIL FINANCING IN EASTERN INDIA A FOCUS ON JHARKHAND

AND WEST BENGAL

It was in late nineties and early 2000 that these companies made a headlong charge

towards the Eastern part of the country. West Bengal and Jharkhand were two prime

targets in their list as the region was rich not only in Industries, but also in mining and

agriculture.

1999 - 2001 A.D: ICICI, ALFIN, Tata Finance Ltd., Magma Leasing Ltd, and a few

others ventured out into the West Bengal and Jharkhand belt with their aggressive

schemes and skimmed the cream off at an early stage.

N. Vaghul, Chairman ICICI Bank Ltd., in his message in the 46th Annual Report of

ICICI, 2000- 2001 said "The final decade of the last century unleashed unprecedented

competitive pressures on the Indian Economy, fuelled by the twin forces of economic

deregulation and technology. These forces shaped vast changes in the financial services

sector, creating an era of discontinuous change."

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K. V. Kamath, Managing Director and CEO, ICICI Bank Ltd., was quoted in the same

context saying " The year was marked by dramatic accomplishments in the retail arena,

as ICICI's investments in the technology and human capital catapulted it on a high

growth trajectory. A position of undisputed leadership in the Auto Loan section with a

net 500 % increase over the year , and a 4 fold increase in the Home Loans sector

definitely has put ICICI in the lime light". Not only for ICICI but for all those who were

in the retail business they reaped a huge success in the years 2000-2001.

NBFCs like ALFIN, Tata Finance Ltd., Magma Leasing Ltd. were early starters in the

Auto Loan business in this market all of them had aggressive marketing strategies to the

extent that they completed the formalities of profile checking of the customer later but

issued the Disbursal order before. The IRR rates too were quite high yet they could

close cases because the Public Sector Banks were too thrifty and conservative in loan

sanctioning and further had a lot of stipulation in documentation which most of the time

the customers could not meet up with. And each of them recorded a marked growth rate

of 50-75% over the previous year.

In the Consumer Durable and Two wheeler section Bajaj Auto Finance Ltd. , Centurion

Bank and the Magma CITI tie up were harvesting the benefits of early starters. They did

not go in for any form of Advertisements. They relied absolutely on their strong

marketing network and dealer support.

HDFC (Housing Development Financing corporation) was still an undisputed leader in

the Home Loan segment. Personal loans and Credit Cards were not introduced in the

West Bengal and Jharkhand market.

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2002 - 2003 A.D : was marked by a number of milestones for the West Bengal and

Jharkhand market :

• ICICI Group and ICICI Bank merged and became ICICI Bank Ltd. and

with that it became the Largest Private sector bank in India and opened up

pocket offices in various parts of West Bengal and Jharkhand. Further they

went in for a tie up with the leading NBFC in the region Magma Leasing Ltd.

for a securitization arrangement where the latter would source the cases and

sell out the portfolios to I-Bank.

• HDFC also started its banking operations in the name ofHDFC Bank Ltd.

• SREI International Finance and CITICORP (individually) were two new

entrants in the Auto Loans segment

• CITIFINANCIAL CONSUMER LOANS marched in with their Personal

loans apart from their Two wheeler loans.

The competition grew more and more fierce and that caused a substantial drop in the IRR

rates was the strategy taken up by the players to sustain themselves in the market.

2003 - 2004 A.D : Cholamandalam Finance , Sundaram Finance were two NBFCs who

decided to take the plunge into the waters which was spelling out success for the existing

players. At that time the tycoons in the Automobile manufacturing segment, Tata Motors,

Ashok Leyland etc. too came up with their arms of credit for their prospective customers.

Tata Finance Ltd. (TFL), and Ashok Leyland Finance Ltd. (ALFIN) changed the rules of

business with even lower rates. According to Mr. Partha Dutta, Regional Manager (East),

GE Capital, " The war had begun : with rates, customized product offerings, aggressive

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marketing efforts, sales promotion efforts and so on. The scene was gradually changing ,

previously the customer used to walk into the Financial Institution to ask for a loan. But

now he had to just think of taking a loan I credit and the enthusiastic , young penetrative

army of the Fis (comprising of the executives and DSAs and DMA s) would be there at

his door step detailing out the nitty gritties and "closing the deal" - as they put it .

2004 - 2005 A.D : Marked by the introduction of the concept of Re- Financing old and

second hand vehicles (cars, CVs ). According to Mr. Debnil Chakravorty , the then

Regional Manager, Retail Asset Product Group , ICICI BANK Ltd. , "It is a lucrative

business proposition definitely if carried out cautiously since the IRR rates are as high as

23- 25%."

This year also witnessed the Tie-up of the erstwhile Ashok Leyland Finance Ltd.

(ALFIN) with Indus lnd Bank and their active participation in the efforts. In April 2005,

Tata Finance Ltd. which had a virtual entity until then merged with Tata Motors and Tata

Motor Finance Ltd. (TMF) became a division ofTata Motors.

2005 A.D : Can be earmarked as the year of awakening of the Nationalized Public Sector

Banks in this Jharkhand and Bengal Region :

o Bank of Baroda went for a total face lifting and jumped into the

bandwagon followed by Syndicate Bank and Canara Bank.

e Tie-up of Centurion Bank and Bank of Punjab and their emerging as a

new promising player The "Centurion Bank of Punjab".

• Introduction of Credit Cards by ICICI Bank Ltd. in this market

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2006 A.D : Lending, and asset based financing was getting to be the order of the day.

The scene had completely changed by then. Customers were gradually taking the seat of

the king. And every other day you are bound to confront a young man or a young lady

literally approaching you either with a personal loan, or with a credit card or a car loan .

"Retailing" in the true sense had begun.

The Indian Banks Association (IBA) which was formed on the 26th September, 1946

with 22 members now had more than 156 members comprising of Public Sector banks,

Private Sector banks, Foreign banks having offices in India, Urban Co-operative banks,

Developmental financial institutions, Federations, merchant banks, mutual funds, housing

finance corporations, other NBFCs form the backbone of the industry.

Major Players in the Retail Financing Segments

Portfolio Auto Loans Consumer Home Credit Personal Equipment

(Cars and CVs) Durables Loans Cards Loans Loans

Regions ICICI Bank CITI HDFC Bank CITI Financial, GE HDFC

' GE CITffiANK, CITICORP,

Financial, MONEY, MONEY, ICICI, CITI Financial, GE CAPS,

Standard Chartered ICICI Bank, ICICI Bank HDFC, SBI, GEMONEY,

MAGMA,

Kolkata Bank, Centurion Bajaj Auto Ltd, and ABN ICICI Bank ,

ICICI, HDFC, Bank Of Punjab, Finance, and Nationalized AMRO,

Nationalized SREI,

GE MONEY TFL, Nationalized Banks Standard Banks

CENTURION ALFIN, Mahindra Banks Chartered BANK OF and Nationalized Bank PUNJAB Banks

TFL, ALFIN, CITI ICICI Bank HDFC Financial, GE HDFC GE CITICORP, Bank CITI ' Financial,

MONEY, MONEY, CITI Financial, GE CAPS,

Rest of Centurion Bank Of ICICI Bank, ICICI Bank GEMONEY, MAGMA,

West Punjab, Bajaj Auto Ltd and ICICI,

ICICI Bank ICICI, HDFC,

Finance and Nationalized HDFC, SBI SREI, Bengal GE MONEY

' Nationalized Banks Nationalized

CENTURION Apeejay Finance, Banks Banks BANK OF Mahindra and PUNJAB Nationalized Banks

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TFL, ALFIN, CITI

ICICI Bank HDFC Financial, GE CITICORP,

Bank CITI Financial,

MONEY, HDFC, CITI Financial,

GE CAPS,

Centurion Bank Of ICICI Bank, ICICI Bank

GEMONEY, MAGMA,

Jharkhand Punjab, Bajaj Auto and

ICICI, SBI ICICI Bank, ICICI, HDFC,

Finance and Nationalized SREI, GE MONEY,

Nationalized Banks Nationalized

CENTURION Apeejay Finance,

Banks Banks

BANK OF Mahindra and

PUNJAB Nationalized Banks

2006-2008 (PRE-RECESSION GROWTH PHASE): The RBI has issued guidelines

on securitization of standard assets in February 2006. The guidelines are applicable to

banks and financial institutions, including Non-Banking Financial Companies (NBFCs).

These guidelines provide for a conservative treatment of securitization exposures for

capital adequacy purposes, especially in regard to the credit enhancement and liquidity

facilities. The regulatory framework encourages greater participation by third parties with

a view to ensure better governance in the structuring of Special Purpose Vehicles (SPV s ),

the products, and the provision of support facilities. A unique feature of these guidelines,

which may be at a variance with the accounting standards, is that any profits on sale of

assets to the SPV are not allowed to be recognized immediately on sale but over the life

of the pass through certificates issued by the SPV. Thus, Retail financing was all set to

reach the helm of its activities through the year 2007 and 2008. And it left its impact in

the states of West Bengal and Jharkhand as well.

2008-2009 A.D: The collapse of the housing bubble, which peaked in the U.S. in 2006,

caused the values of securities tied to real estate pricing to plummet thereafter, damaging

financial institutions globally. Questions regarding bank solvency, declines in credit

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availability, and damaged investor confidence had an impact on global stock markets,

where securities suffered large losses during late 2008 and early 2009. Economies

worldwide slowed during this period as credit tightened and international trade declined.

Critics argued that credit rating agencies and investors failed to accurately price the risk

involved with mortgage-related financial products, and that governments did not adjust

their regulatory practices to address 21st century financial markets. The contagion of the

crisis has spread to India through all the channels - the financial channel, the real

channel, and importantly, the confidence channel.

As a consequence of the global liquidity squeeze, Indian banks and corporates found their

overseas financing drying up, forcing corporates to shift their credit demand to the

domestic banking sector. Also, in their frantic search for substitute financing, corporates

withdrew their investments from domestic money market mutual funds putting

redemption pressure on the mutual funds and down the line on Non-Banking Financial

Companies (NBFCs) where the MFs had invested a significant portion of their funds.

This substitution of overseas financing by domestic financing brought both money

markets and credit markets under pressure and in the due course badly hit the retail credit

segment as well. The Financial Institutions concentrated more on consolidation than on

growth of the market share during this period.

In the typical Retail Loan segment several big players, having foreign investments

withdrew their presence from the retail loan segment like the GE, CITI group etc. A few

domestic private players, public sector banks and a few NBFCs could withstand the

pressure. And among these players one thing that was very very common was their strong

customer relationship management and network marketing.

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In the states of Jharkhand and West Bengal, the scene of the aftermath of the recession

was quite similar to what it was for the rest oflndia in the Retail financing segment. Only

the stalwarts who were quite deft with their Customer Relationship Management efforts

could actually withstand the blow, all other players were drowned in losses with very

very high NP A levels.

Plate : 1.4.1

Composition of the Retail Financing Market in West Bengal Jharkhand Belt

Auto loans (Cars & M UV)

20%

Equipment Loans 30%

Source: Pilot Survey Results 2006

Home loans I 7 o/o Consumer

Durables & ______ Two wheelers

8%

Commercial Vehicle Loans

2 s ~.

The distribution of the Retail Financing Market in the Jharkhand -West Bengal Market as

is evident from the plate 1.4.1 depicts that the maximum disbursals in this region are for

Construction equipment financing (which accounts for 30%) and followed by

Commercial Vehicle loans or Commercial Automobile loans, i.e. loan for purchasing

trucks, buses or multi-utility vehicles (25%). The figures thus suggest that Commercial

Automobile loan is a very lucrative business proposition for the financing institutions

both Banking and Non-Banking in this aforesaid region.

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§ 1.5 Retail Commercial Automobile Financing

Retail Commercial Automobile Financing actually refers to the loans are extended for the

purchase of: Commercial Vehicles- Loans for commercial vehicles (this includes buses,

trucks, tempos, tippers), LCVs (light commercial vehicles, HCVs (heavy commercial

vehicles), MCVs (medium commercial vehicles) and Multi-Utility Vehicles.

--J Who can avail the loan?

Any individual I partnership firm I company with more than two years of business

experience, existing owner of commercial vehicles or Captive customers and

transporters. Though different Financial Institutions have different screens fixing the

eligibility criteria.

--J What is the Loan amount?

The loan depends on applicant's requirement, funding can be to the extent of 100% of the

chassis value; body funding can only be extended on special requirement and different

Financial Institutions have several set parameters.

--J How is the repayment of the Loan allowed?

Different Financial Institutions follow different norms however more or less it has been

found that the tenure of the loan may vary from 12 to 60 months, following a

moratorium, depending upon the nature of the deal and the repayment capacity.

Repayment can be made through post-dated cheque (PDCs) or any other mode as

permitted by the Financial Institution.

--J Whether any Collateral security or Guarantee required or not?

The Primary security is Hypothecation of the vehicle, and different Financial Institutions

have different norms for Collateral Security & Guarantee and usually the practices are

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• For loans upto Rs 5.00 Lacs: NIL

• For loans above Rs 5.00 Lac-

o Equitable Mortgage of property, Pledge of Banks deposit, NSC, KVP etc

covering full value of loan. OR

o Equitable Mortgage of property, Pledge of Banks deposit, NSC, KVP etc

covering at least 75% value of loan and Guarantee of two persons with

sufficient means. (Third party security will also be accepted)

o In case of good track record of the borrower Collateral Security and or

third party guarantee may be waived beyond Rs 5.00 Lac but up to Rs

100.00 Lac, where guarantee cover is available from a competent

authority.

~ What are the documents required at the time ofloan application?

The Documents required along with application form are

• Photo Identity Proof( Pan Card, Voter ID Card, Passport)

• Residence Proof (Voter ID Card, Passport, Utility bill)

• Latest passport size photograph.

• Driving license

• Copy of route permit if applicable as per local laws

• Quotation

• CIBIL Report ( which is obtained in all cases irrespective of loan amount for

adjudging the track records of the customer)

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REFERENCES:

1. Chorafas Dimitris N., "The Commercial Banking Handbook - Strategic

Planning for Growth and Survival in the New Decade", Macmillan Press Ltd. ,

UK, 1999 .pp 3-11, 347-369.

2. Rangarajan L.N, "Kautilya - The Arthashastra" - Edited, Rearranged,

Translated and Introduced, Penguin Books, India, 1992, pp 422 - 430

3. Kangle R. P, "The Kautilya Arthashatra - A Study", Part III, Motilal

Banarsidass Publishers Pvt. Ltd., Delhi , 1997. pp 175 - 190

4. Dutt, Ruddar and Sundaram, K.P.M, "Indian Economy" - Golden Jubilee

Edition, S.Chand and Company Ltd., New Delhi , 2004 pp 15 - 29, 838 - 860,

883-908

5. Mussi, John "A Brief History of Loans"@ http://www.directonlineloans.com

6. Huddock John J., "Brief History Of Credit", Joumal of World of Credit, USA.

2004

7. Kothari Vinod, "Indian Leasing", 2005 @http://www. vinodkothari.com

8. Canals Jordi, "Universal Banking- International Comparisons and Theoretical

Perspectives", by, Oxford University Press, 1997,pp 161-239

9. Tela, Kunal and Satish, D., "Banking sector- The Retailing Shift", Chartered

Financial Analyst, © ICFAI University Press, September, 2003.

10. Chattetjee Suchintan , "Banking in India Banking on Retail" , liM, Calcutta

(2004)

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11. Dhar, Sheila "Children's History of India", Publications Division, Ministry of

Information and Broadcasting, Govt. of India, 1980

12. Purwar A.K, "Banker of the Year 2004: Banker to the Nation", Business

Barons, July 2004.

13. Anand C. and Srikanth A., "Retail Banking : Indian Scenario" , The ICFAI

Journal of Services Marketing , Vol. II, No. 4, © ICFAI University Press,

December,2004.

14. Business India- April15, 2002.

15. The Telegraph- Daily News paper (South Bengal Edition)

16. Dainik Bhaskar- Daily News Paper ( Ranchi Edition)

17. The Economic Times- Business Daily

18. Annual Reports of ICICI Bank Ltd., HDFC Bank Ltd., Magma Leasing Ltd., Tata

Motor Finance Ltd., State Bank of India for the Financial Years ending

2001,2002,2003,2004,2005, 2006, 2007,2008 and 2009

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