Retail Credit Management Module III PDF

Course: Retail Credit Management NIBM, Pune Module III. Retail Credit Management Chapter 1. Business Development and Account Origination Dr Sarita Bhatnagar Objectives Th...

Course: Retail Credit Management NIBM, Pune Module III. Retail Credit Management Chapter 1. Business Development and Account Origination Dr Sarita Bhatnagar Objectives The chapter intends to provide an outline of the business development and marketing process in general and strategies to implement marketing actions in regards of retail credit products. Structure 1. Business development in retail credit 2. Marketing strategies in retail credit 2.1. Home loan products 2.2. Auto loans 2.3. Credit cards 2.4. Education loans 2.5. Personal Loans 3. Account origination 4. Selection of tie-up partners 5. Hub and spoke model 6. Guidelines on Fair Practices Code for Lenders 5.1 General Guidelines 5.2 Guidelines for credit card marketing and selling 5.3 Guidelines for Telemarketing 1. Business Development in retail credit Business Development refers to activities and strategies to develop and implement growth opportunities by identifying new markets for products and services and cultivating partnerships and other commercial relationships. These are the tasks and processes for creation of long term value for an organization from customers, markets and relationships. Business development is a subset of Strategy Development and Marketing Planning (SDMP) for a bank. According to broader frame work of SDMP, strategy development constitutes establishment of organizational goals, and determining the course of action to achieve these goals. Organizational goals are developed in light of organizational mission, which is Page 1 of 25  Course: Retail Credit Management NIBM, Pune drawn considering the environmental opportunities and threats, organization resources and distinct competencies. Market planning is the planned application of resources to achieve marketing objectives. It is a sequential set of activities that determine the marketing objectives and identify and implement plans to achieve them. The iterative framework consists of following five steps namely: i. Bank Mission and Objectives ii. Situation Analysis iii. Marketing Objectives iv. Marketing Strategy – Segmentation, Targeting and Positioning v. Marketing Mix – Product, Price, Promotion, Place Each of the above steps are briefly described as under: i. Bank Mission and Objectives A Bank’s Mission statement seeks to define its culture, values, ethics, values and goals. It identifies the scope of its operations, defines the kind of products and services it will provide, and determines its customers, markets and geographical region of operations. Through mission statement Bank defines the area of business in which it operates and outlines broadly the ways in which it will achieve those business goals For e.g. One of the bank defines its mission as “To be a top ranking National Bank of International standards committed to augmenting stakeholder’s value through concern, care and competence “ ii. Situation Analysis In order to be effective, a bank needs to be able to use its resources and capabilities in such a manner that there is a match with its environment to create maximum value. Situation analysis enables this by a process of understanding the external environmental factors and internal organizational factors. Based on this the bank develops an overview of upcoming opportunities and threats. Opportunities are external factors that a bank can capitalize on while threats are external factors that can constrain the achievement of desired outcomes. Mainly the Political, Economic, Social and Technological factors are analyzed. In terms of internal analysis, Bank’s strengths and weaknesses are determined. Thus an analysis of Strength, Weakness, Opportunity and Threat, popularly known as SWOT Framework plays a key role in guiding the long-term, i.e. strategic planning and short term i.e. tactical planning of marketing activities of bank. Page 2 of 25  Course: Retail Credit Management NIBM, Pune iii. Marketing Objectives Marketing objectives are intermediate outcomes to be achieved in light of environmental analysis and SWOT analysis. These are well defined and serve as means to achieve banks corporate objectives. Marketing objectives are specific, measurable, and realistic and time bound. For e.g. to achieve a 10 % increase in sales of home loans in the budget year. iv. Marketing Strategy Marketing Strategy elaborates the choice of market and spells out how bank plans to compete in these markets. Segmentation, targeting and positioning are the main components of marketing strategy. Segmentation refers to grouping customers based on similar needs. Targeting consists of assessing the attractiveness of segments and accordingly selecting the specific segments to be catered. Positioning determines and states the value proposition for the target segment. a. Segmentation Segmentation identifies groups of customers who are significant in ways that are relevant to marketing. There are two major approaches to segmenting consumer markets – Customer oriented segmentation and product oriented segmentation. Customer oriented segmentation characterizes the customer and the segments thus obtained are broadly –  Demographic: Age, gender, family, ethnic group, religious affiliations, life stage, and education  Socio-economic: Income, financial assets, social class, occupational status  Geographic: Region, State, rural, urban, semi urban/metro  Psychographic: Personality, attitude, belief, motives  Geo-demographic: A combination of demographic, socio-economic and geographical information. It is based on observation that households within a particular neighborhood exhibit similar purchasing behavior and tend to have similar attitudes and needs. Product oriented segmentation characterizes the utility which customers want from bank’s product, and nature of his interactions with bank, product /service. The product oriented segments are:  Based on core financial need: Saving, investment, remittance, home ownership, retirement planning, vehicle ownership etc. Page 3 of 25  Course: Retail Credit Management NIBM, Pune  Product/service usage characteristic: Frequency of service usage, quantum of purchase, channel of access, timing of access Banks use segmentation approaches which are a blend of product and customer oriented characteristics. b. Targeting Targeting encompasses selection of viable and promising segments to be served. Targeting decisions are manifested in four basic typologies by banks depending upon a variety of considerations. These types are –  Undifferentiated Targeting –Serving the entire market with same marketing mix for all sub segments, due to cost constraints, policy direction, or absence of compelling variable for sub segmentation and differentiation of offering.  Differentiated Targeting – Serving different segments with tailored marketing mix. For e.g. Banks serving large corporates, Micro, small and medium enterprises, and startups with different product suites, channels and pricing. Differentiated targeting is viable on identification of commercially valid basis of market sub segmentation.  Focused Targeting - Serving subsets of segments or only single segment with products, services and facilities especially suited to selected customer group. This is commonly known as Niche marketing, and one of the prominent examples is Private banking for High Net worth Individuals (HNWIs), where banks provide specialized financial products, doorstep services, portfolio management etc. suitable to exclusive needs of the segment. Example: Determining the target segment in Retail Credit market Target segments in Retail credit market are subgroup of people with similar characteristics. The overall intent of target marketing is to identify groups of similar customers, prioritize the groups to address, understand their interests, behaviors, and respond with appropriate marketing strategies that satisfy each segment’s different preferences. Target markets most relevant to retail credit may be demographic, Geographic, psychographic and referral. Former 3 have been explained in earlier section. Referral target markets are groups of people who interact with potential customers in bank’s buyer profile. For e.g. Mortgage Loan officers, Real estate agents and home buyer educators. c. Positioning Positioning aims to develop and communicate a clear value proposition to target segments, providing differentiation from competition. In order to provide the desired commercial gains, positioning should be based on product/ service characteristics that are relevant, Page 4 of 25  Course: Retail Credit Management NIBM, Pune differentiated, communicable and sustainable. For e.g. Bank of Baroda positions itself as “India’s International Bank” to create an image of world class banking facilities to Indian customers. v. Marketing mix – Product, price, Promotion, Place Marketing Mix comprises of a collection of marketing tools i.e. Product, Price, Place, Promotion, People, Processes and Physical Evidence that are utilized in a manner that creates bank’s competitive position in the market in a manner consistent with the overall marketing strategy. Let us briefly describe these tools and their components. a. Product includes range of products, features, terms and conditions. b. Price includes main price, discount, offers, credit terms, payment periods etc. c. Promotion includes advertising, publicity, sales promotion, personal selling etc. d. Place includes location of branches, available channels of distribution and touch points. e. People component determines the quality of personal interactions provided by bank employees during provision of banking services in person, or on phone or in role of enablers to a transaction. f. Physical Evidence includes tangibles associated with banks products and services like services, equipment condition, cheque books and other stationary as well as look and feel of website and apps. g. Process includes policies, procedures, level of customization and work design which determines the manner in which service is delivered. Process influences customer perception of Service quality. At present processes seem to be differentiators because of advance mobile and communication technologies being adopted by banks to speed up and customize banking procedures for ease of customers. 2. Marketing Strategies in Retail Credit The following sub section describes the elements of marketing strategies for various retail credit products. 2.1Home loan products A. Promotional Strategies i. Advertising in print media, Television, cable TV, mobile and digital media ii. Advertising on portals like 99 Acres and MagiBrics which are frequented by interested home buyers iii. Publicity through agents iv. Mail and SMS to prospects Page 5 of 25  Course: Retail Credit Management NIBM, Pune v. Conducting home loan mela vi. Keeping brochures at offices and sites of builders vii. Builder’s meet organized by bank viii. Visits to schools, colleges, govt. departments, private sector firms and making presentations on home loan schemes ix. Telemarketing x. Banners at strategic locations xi. Hoardings at construction sites and project offices xii. Single clearance of loans of stipulated amount xiii. Competitive pricing in terms of lower interest rates and front end charges xiv. Waiver of processing and administrative fees, gift offers and other incentives Other promotional strategies may include: i. Digitization and state of the art technology for attracting young customers ii. Digital kiosks and digital branches where customers can shop for loan products, without interacting with bank officials, only through digital platforms iii. Generation of home loan leads from requirements posted in Sulekha, OLX etc. iv. Co-marketing – Partnerships with real estate agents for referrals, lead exchange etc. Banks can request them to share brochures, pamphlets, contact numbers with their clients and similarly give their contact details to banks prospects and customers. v. Networking with offices, societies , clubs and other communities to reach prospective customers vi. Content marketing: a. Website landing pages, capturing leads through sign –up forms. b. Blog writing to appear higher in searches as well as capture leads through downloadable content c. Social media marketing through content , information, sign up forms etc. on social media pages d. Participating in platforms like Quora, Reddit etc. to reach and interact with prospects vii. Search Ads – a. Google search ads b. Ad sense c. Ads on social networks viii. Display ads a. Ads on other websites b. Ads on editorial of relevant magazines and newspapers online merging with core theme of editorial of magazine article( Native Advertising) ix. Online Marketplaces Page 6 of 25  Course: Retail Credit Management NIBM, Pune Online marketplaces for loans like Bank Bazaar, Paisa Bazaar, Loan circle, Apna paisa. These online market places help customers access to information on loans available from different banks, with complete information and comparison at one place. Banks can reach out to prospects through tracing and approaching visitors on these websites. B. Innovation in processes i. Focusing on efficient delivery mechanism by appointing customer verification agents, catering to multiple retail asset branches. These agents verify credentials like income –tax statement and address of borrower. This frees up branch staff to speed up sanction process. ii. Simplification of processes and use of self-service technologies iii. Close monitoring and follow up with branches /regions for steady sanction and disbursement of retail loans. C. Introduction of innovative products like i. “Flexible home loan scheme “. Under Flexible home loan scheme, the Bank provides 20 % of loan in current account format , where in customer can withdraw money as and when required , and interest will be charged only on reduced daily balance. ii. “Home loan with overdraft facility “ - Overdraft home loan scheme provides Rupees 5 lac overdraft in addition to granted home loan amount, which helps the borrower with additional money for requirements of new home. iii. Introduction of Combo –Loans like home loan and Car loan combined at a lower interest rate. iv. Pre-approved loans for liability customers v. Pre- approved top –up limits for existing customers having satisfactory track record D. Pricing strategies i. Teaser loan prices – Teaser loans are adjustable rate loans in which borrower pays a very low initial interest rate , which increases after a few years ii. Waiver of Final year EMI if all earlier EMIs are paid on time E. Differentiating by quality of service i.Banks offer speedier processes , convenient procedures, door step services, well trained executives providing assurance and guidance etc. to leverage on quality of services to promote the home loan product ii.Some banks rely on in house talent rather than outsourced manpower in call centers, branches and other customer acquisition interface to provide superior experience to prospects. Page 7 of 25  Course: Retail Credit Management NIBM, Pune iii. Personalized services are provided, like assistance from relationship managers in completion of documentation and formalities associated with entire process of obtaining credit. F. Collaborations with other organizations i. Tie up with Builders for specific townships to help sell home loans through these townships, to reach prospects who come to enquire about or purchase a flat/row house in these. G. Customer acquisition i. Lead generation campaigns using both digital and social media to generate home loan leads ii. Focusing on untapped segments like very small enterprises, kirana shops, small business owners and standalone restaurants etc. iii. Take over campaigns for housing loans of existing banks with other providers iv. tapping newer segments like special packages for professionals H. Distribution i. Appointment of Direct Selling Agents (DSA) – DSAs are agents who seek out borrowers on behalf of Banks. They remove inconvenience usually faced by consumers by helping them complete the application process, from customer’s home and may even provide with services of EMI collection each month. They earn commission from bank. Banks are also taking services of digital DSA’s, who perform the same functions, but are enabled by a website. 2. 2 Auto loans A. Alliances and Tie ups i. Tie ups with Auto mobile insurance firms, Mutual fund companies to generate leads ii. Tie up with car manufacturers to provide loans for purchase of car form particular manufacturer at concessional interest rates. e.g. Tie up of SBI with Maruti Udyog Limited iii. Tie up with two wheeler Manufacturers to provide cheaper finance to aspiring customers during festive season. In such a tie up bank finances 90 % of on-road price of vehicle, low processing fee, and lower interest rate. iv. Tie up with auto dealers for loan leads of prospects interested in car / automobile purchase approaching dealers. Page 8 of 25 Course: Retail Credit Management NIBM, Pune v. Tie up with dealers to provide leads of prospective automobile purchasers when customer first approaches bank for finance. In this case bank provides finance and better deals on purchase with selected dealers. B. Product Development Special car finance schemes for cab aggregators like OLA and its “Driver Entrepreneur Program” - By a tie up with cab aggregator, Bank finances the vehicles purchased by driver entrepreneurs identified by aggregator. Driver entrepreneur benefits from lower down payment, easier documentation, and faster loan approval. These loans are covered under Credit Guarantee scheme of Govt. so that bank’s exposure to individual borrowers would be protected to a considerable extent. C. Improvement in process i. Provision of online loan eligibility checks ii. Ability to check status of loan approval on website iii. Instant car loans through net banking D. Extension in repayment tenure of auto loan to reduce monthly debt repayment burden of loan seeker. E. Setting up outbound sales teams to secure new customers F. Data base marketing for approaching large and medium size corporates, government and trade finance customers G. Advertising in Print and TV media 2.3 Credit Cards A. Differentiated product offerings Banks offer cards in different categories, such as Platinum, Gold, Silver and entry level cards with different set of features and benefits to attract different customer segments. They can also develop and offer Credit Cards with innovative features such as: i. Free add on cards – Add on card is a privilege offered to the spouse parent or children of the primary credit card holder. All expenses incurred on add on card are billed to the primary card holder. The fee which is usually between Rupees 125 to 1000 can be waived. ii. Prepaid cards – These are credit cards with a pre- deposited balance, like a score gift card. These are generally used to control spending, for example given to a teenager or student. These are reloadable. Page 9 of 25  Course: Retail Credit Management NIBM, Pune iii. Contact less cards – Contact less cards are secure methods that enable consumers to purchase products or services via credit cards by using RFID (Radio Frequency Identification) technology or Near field communication B. Co- branded cards Co-branding is a strategic marketing and advertising partnership between two brands where in the success of one brand brings success of its partner brand also. Banks leverage this partnership to gain more visibility, usage and reach to customer base of partners. A co-branded card means a credit card associated with a particular firm like airlines, or retail outlet. These cards can be used just like regular credit cards, but they also offer benefits to users of relevant products like frequent travel points and special discounts. i. Cards with travel benefits offered by co- branding with airlines to provide reward points, lounge access and other facilities ii. Banks offer co- branded cards with e-commerce companies like Snapdeal. This enables banks to reach out to customers in fold of e-commerce websites. This helps increase penetration of credit cards in small towns and cities where e commerce customers are rising in numbers iii. Co-branded cards offered with Departmental stores provide customers with additional benefits tailored to consumption habits. Some of these are – Exclusive sales previews, exclusive billing counters in stores, home delivery and alteration facilities. iv. Co-branded fuel cards help earn cash backs at partner fuel stores , surcharge waiver and savings on fuel purchase v. Co- branded cards with travel portals like Yatra.com to reach customers paying for travel and tourism related expenses. Enhance adoption of credit card by offering rewards, complimentary lounge access etc. C. Tie ups i. Cards with air miles redemption with help of tie up with Airlines ii. Tie ups with large retailers and departmental stores iii. Tie up for Petrol Surcharge waiver iv. Tie up with IRCTC (Railways) for charge waivers , zero transaction charges, accident insurance and loyalty points with every ticket purchase v. Tie up with Retailers for 0% interest rate finance schemes , EMI facility and reward points with every purchase vi. Tie up with Airlines and other service providers for additional facilities for credit card users like exclusive ticket counters at cinemas, reserved seats for new movies, special invitation for Premiere shows etc. Page 10 of 25  Course: Retail Credit Management NIBM, Pune Cards with discounts and cashbacks on use often offered at particular organization/service provider. D. Promotions i. Contests and sweepstakes like Lucky draw ii. Personalized mailers to prospects iii. Advertorials in business magazines, sponsoring distribution of magazine in particular region. For e.g. one leading bank tied up with ‘Business Today’ to sponsor 10,000 copies of the magazine in metros. E. Other benefits Zero liability on lost card – bank can offer zero liability in case the card is lost or stolen. This facility ensures that customer will have zero liability for any charges made that he did not initiate and approve. This is subject to reporting immediately to helpline, about the card lost or stolen. F. Customer takeover Banks may offer to transfer credit card balance of certain customers from other banks by offering new credit card at low interest rates. 2.4 Education Loans A. Many banks choose particular educational institutions and courses for offering the educational loans. They may tie ups with universities and educational institutes for reaching students who enroll or even register and enquire for a course B. Others may offer tailored products to cater to education loan needs of promising bright students. For e.g. one bank offers special education loans for students who get admission in list of top 100 institutions. These loans have features like no collateral requirement, low interest rate, etc. C. Banks may offer quick disbursals, easy repayment terms, waive cancellation charges, etc D. Mobilize DSAs, including Digital DSAs, for acquiring prospects for education loan 2.5 Personal Loans A. Banks mostly target salaried individuals having employment in the formal sector for offering personal loans. They may also offer such loans to self-employed or business customers, having audited financials of last two years as income proof. B. Banks often resort to calling prospective customers or send SMS communication for direct marketing C. Many banks provide balance transfer facility of personal loans from other banks Page 11 of 25  Course: Retail Credit Management NIBM, Pune D. Banks are increasingly offering personal loans to their customers by providing online overdraft against fixed deposits through internet banking platform. E. Similarly, they provide loan against shares by an end-to-end digitized process, so that customers can avail the loan without approaching the branch. F. Loan processes include online application, document upload and pick up facility with system based computation of net monthly income. Digitization of pre and post sanction inspection process using tablets. 3. Account Origination Account origination is the process by which a borrower applies for a new loan, and a lender processes that application. Origination includes all steps from taking a loan application up to disbursal of funds. It constitutes of submission of required financial and other information by borrower like bank details, income tax returns, etc. Lender uses this information to assess the eligibility for loan and interest rate etc. Some strategies adopted by banks in context of account origination are: A. Special camps held in housing societies or apartment blocks during weekends, so as to meet the prospective customers B. Adoption of Online Customer Acquisition Solution (OCAS) – This application provides customers an online platform to apply for loans. A customer checks his eligibility by answering a short online questionnaire and get in - principal approval within a few minutes. C. Services of Loan Arrangers – DSAs facilitate the entire loan origination process. They help in completing documentation, submitting documents to banks, collecting and submitting additional documents, and follow up on status of loan. They provide doorstep services. There are two types of Loan Arrangers – (i) Single Tie up and (ii) Multiple Tie ups Single tie up loan arrangers have tie up with a single bank and can only help in securing loan from that bank. Multiple tie up companies have tie up with different banks and don’t rely on just one bank. E.g. Rupeetalk.com, bnkbazaar.com etc. D. Periodic retail loan campaigns which provide additional benefits like concessional interest rates, and combo offers (for e.g. Home loan with furniture fixture loan combo). For example, campaigns are launched in festive seasons with promotional benefits like discounts and cash backs. (For e.g. 100 % waiver on processing fee) E. Offering attractive EMI schemes for various retail loans to enable easy onboarding of the prospective customers F. Pre-approved loans – Banks are now offering pre-approved retail loans in the categories of home loans, auto loans, personal loans and credit cards. Based on customers CIBIL score, past track record, product ownership, and financial details which are traced in real time, Page 12 of 25  Course: Retail Credit Management NIBM, Pune banks are offering pre – approved loans. Relationship managers for managed customers approach clients with pre-approved loans and sell the loans if client is interested. The forms are pre populated with details banks are already having and rest of information is filled. This shortens the process and adds to customer convenience. G. Tie up with online financial marketplaces Online financial marketplaces are loan aggregator websites. They bring together borrowers and lenders, and add value by instant comparison of products and services offered by a variety of lenders. Customers log in to these sites before taking borrowing decision. This helps the bank if it is present and showcases its products, features and USP (Unique Selling Proposition). Millions of prospects visit these sites, so bank gets high online customer visibility and reach. These financial marketplaces offer larger geographic reach as well as cost effective targeting. i. Tie up with Fintechs – Collaboration with financial technology firms to obtain leads of prospective retail loan customers from list of people who approach Fintech website. ii. Collaborating with Transunion CIBIL – CIBIL has tied up with a number of banks to offer retail loans. When a borrower logs on to check his credit score, he/she gets an option to apply for a loan. On submitting income and KYC details, and based on credit score and other criteria, the borrower will get a list of banks that are willing to provide loan. He can choose the Bank and apply for loan. The selected bank will get in touch with borrower to complete the processing of loan. H. Outbound sales force – Banks deploy sales personnel to aid the branch efforts in customer identification and acquisition of retail loans. These sales force are adjunct to branches, and support them in identifying and acquiring customers. In addition to commission based DSAs, banks are deploying surplus staff (e.g. staff surplus in SBI post merger) in sales to market home loan products and provide door-to-door services. These sales teams conduct outbound marketing calls and scout for new leads and referrals to generate business. The activities include: i. Building and retaining a portfolio of retail clients as per assigned targets and service standards. ii. Initiate and conduct professional activities, contacts, to drive business. iii. Track, follow-up and convert all business leads generated and passed on by other business units. iv. Generate new loan originations and cross sell auxiliary loan products. v. Review and ensure client’s documents completeness. vi. Take responsibility for ensuring the overall process of loan disbursement to client. vii. Manage and maintain inter department relationship and coordination so that the service to customers improved. Page 13 of 25  Course: Retail Credit Management NIBM, Pune I. Marketing by branch sales force at point of sales – For e.g. sales teams organize campus loan camps at premiere educational institutes for sourcing education loans and on the spot in- principal approval. J. Cross selling – Sales force is aided by cross selling efforts to existing customers by Branch Frontline staff. Customer facing employees have lead generation responsibility. These leads are forwarded to product specialists/ sales force. There may be lead generation targets for customer facing employees and lead conversion targets for product specialists. K. Relationship Manager -Relationship Manager deals with individual Retail customers and advices them on various financial products and services offered by the bank. His activities range from helping clients with their account details to giving advice on financial investments. He facilitates good relationships with customers /prospects so that bank can maximize revenue opportunities. a. Functions of Relationship manager i. Look after DSA and DST (Direct Sales Teams ), forming DSA teams , training DSAs ii. Develops and expands existing customer relationships iii. Provides customers with desired service support iv. Informs customers on new products v. Cross sells Bank’s products and services on basis of profile and needs vi. Addresses and follows up queries and complaints related to account vii. Maintains contact and follows up with customers viii. Acts as a single point of contact for bank related work ix. Advises on suitable products and services x. Updates changes in customer profile and requirements in bank records xi. Generates leads and convert assigned leads- These leads can be existing customer referrals, or branch staff generated leads, call center generated , databases etc. xii. Deepens relationship and tries get maximum wallet share for the bank – This is done by tracking the overall financial profile of customer, and trying to get in Bank the accounts and products with other banks xiii. Proactively understand and anticipate customer’s needs and approach him with suitable products at different stages of a customer’s life cycle. xiv. Monitors attrition signals and check attrition b. Skills of Relationship Manager i. Excellent Communication Skills ii. Presentation and sales skills iii. Understanding of banking products and market trends iv. Analytical skills v. Leadership and Sales Team Management skills Page 14 of 25  Course: Retail Credit Management NIBM, Pune vi. Networking capabilities 4. Selection of tie up partners 4.1. Criteria for Tie up with individual DSAs for home loans i. Usually, Banks consider candidates who are approved agent for selling NSC s /Life Insurance Policies / mutual funds / Govt. approved valuers / CAs/Tax consultants or real estate brokers with local reputation. ii. Candidates (individual or builder representative) with prior experience in selling retail credit products are taken as DSAs. iii. Age of Minimum 18 years, local language proficiency, English language proficiency, telephone and own set up for functioning are required. iv. DSA are trained by banks and are supposed to follow code of conduct as prescribed by bank in case of tele calling, personal meeting with clients. Similarly codes are to be followed which ensure fair dealing with customers, as laid down by bank. 4.2 Criteria for Tie up with institutional DSAs i. Registered partnership firms or proprietorship firms, and Public /Private Companies are considered eligible. ii. Experience of 3 years. iii. Panel membership of at least two banks or financial institutions iv. Sufficient team of executives to cover all branches in the region/zone 4.3 General Policies followed by Banks for DSAs i. A percentage of Loan amount is paid as commission. Generally it is 0.30% of loan amount inclusive of service tax up to an amount of 50 lacs, and 0.35 % of loan amount for loan above 50 lacs ii. The sourcing of home loan proposals under government sponsored scheme are not entitled for commission iii. Business targets per month are fixed for DSAs. If DSA fails to bring in minimum business, services may be terminated. iv. DSA s are under administrative control of zonal offices and zonal managers decides deployment of their team across branches in the zone. v. DSA s are attached to bank approved builders to source home loan proposals related to their projects vi. Appointment of DSA is for one year. On basis of annual performance review fresh agreement s are signed to continue with the bank. Page 15 of 25  Course: Retail Credit Management NIBM, Pune 4.4 Responsibilities of DSA/ DMA/ Recovery Agents The Reserve Bank of India guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks stipulate the following responsibilities of DSA/DMA/Recovery Agents : i. Code of conduct for Direct Sales Agents formulated by the Indian Banks' Association (IBA) could be used in formulating their own codes for Direct Sales Agents / Direct Marketing Agents/ Recovery Agents. Banks should ensure that the Direct Sales Agents / Direct Marketing Agents/ Recovery Agents are properly trained to handle with care and sensitivity, their responsibilities particularly aspects like soliciting customers, hours of calling, privacy of customer information and conveying the correct terms and conditions of the products on offer etc. ii. Recovery Agents should adhere to extant instructions on Fair Practices Code for lending (Circular DBOD. Leg. No. BC.104 /09.07.007 /2002-03 dated 5th May 2003) as also their own code for collection of dues. If the banks do not have their own code they should, at the minimum, adopt the Indian Banks Association's code for collection of dues and repossession of security. It is essential that the Recovery Agents refrain from action that could damage the integrity and reputation of the bank and that they observe strict customer confidentiality. iii. The bank and their agents should not resort to intimidation or harassment of any kind either verbal or physical against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude the privacy of the debtors’ family members, referees and friends, making threatening and anonymous calls or making false and misleading representations 5. Hub and Spoke Model for Retail Credit Business Development Prior to liberalization, in most of the banks, the retail loan process and disbursal formalities were performed at the respective branches. As part of large number of initiatives taken by banks to compete in the emerging scenario post liberalization Hub and Spoke structures for disbursal of retail loans was adopted by most of the banks. This structure standardizes the loan processing and disbursal activity. Prior to implementation of hub and spoke structure, when the prospective borrowers would approach the branch to apply the loan, branch front desk would conduct the activities of collection of loan application form, supporting documents, and initial scrutiny. Sanctioning authority at branch would perform the functions of second level scrutiny, checking collaterals, and calling addition information in case required. Field visits to verify loan claim details if required were conducted, before loan approval. Page 16 of 25 Course: Retail Credit Management NIBM, Pune Hub and spoke model entails setting up of specialized loan processing, sanctioning and maintenance hubs, which deal with retail loans, of branches in district or zone. Centralization of loan processing, sanctioning and maintenance enables the bank to give better customer service. The branches are relieved by shifting of processing, sanctioning and maintenance job and can focus on marketing the bank’s products and concentrate on business development. Branches can generate leads and pass on to centralized hubs. Marketing officers at hubs will follow up the leads. Lead management systems help in communicating response from prospects when field staff interact to marketing officers, for conversion proceedings. Documentation, credit worthiness assessment, document execution, repayment, follow-up and customer service are carried out by officers in the hub. The functioning of Hub and Spoke can be understood as a series of steps. i. Branches (spoke) employ marketing teams to acquire customers for retail credit products. Marketing teams obtain documents and information from the loan aspirants and forward it to Centralized Retail loan processing center (hub) for processing. ii. Officers at hub scrutinize the documents and run the checks for probable risky accounts. iii. Details of additional information required at this stage are communicated to branch, where marketing team collects the same from customer and sends it to hub. iv. In case the applicant is found ineligible on verification then, formal rejection is done and the concerned branch is informed. v. In case, verification suggests loan eligibility, credit worthiness is assessed by means of software in obtaining evaluation scores. vi. Hub begins the sanction process. Collateral, property documents are collected by branch and provided to Hub. Hub verifies the submitted documents and valuation of collaterals. In case of satisfaction with the details, sanction letter is sent to branch as well as borrower. vii. Branch disburses the loan. 6. Guidelines on Fair Practices Code for Lenders RBI advises Banks to adopt the following broad guidelines to be framed and adopted by banks : 5.1 General Guidelines I. Applications for loans and their processing Page 17 of 25  Course: Retail Credit Management NIBM, Pune (a) Loan application forms in respect of all categories of loans irrespective of the amount of loan sought by the borrower should be comprehensive. Banks must disclose to the borrower all information about fees / charges payable for processing the loan application, the amount of fees refundable if loan amount is not sanctioned / disbursed, pre-payment options and charges, if any, penalty for delayed repayments if any, conversion charges for switching loan from fixed to floating rates or vice versa, existence of any interest reset clause and any other matter which affects the interest of the borrower. Such information should also be displayed on the website of the banks for all categories of loan products. Banks should ensure that all information relating to charges/fees for processing are invariably disclosed in the loan application forms. Further, the banks must inform ‘all-in- cost’ to the customer to enable him to compare the rates charges with other sources of finance. It should also be ensured that such charges / fees are non-discriminatory. (b) Banks should devise a system of giving acknowledgement for receipt of all loan applications. Time frame within which loan applications up to Rupees two lakhs will be disposed of should also be indicated in acknowledgement of such applications. (c) Banks should verify the loan applications within a reasonable period of time. If additional details / documents are required, they should intimate the borrowers immediately. (d) In case of all categories of loans irrespective of any threshold limits, including credit card applications, the lenders should convey in writing, the main reason/reasons which, in the opinion of the bank after due consideration, have led to rejection of the loan applications within II. Disbursement of loans including changes in terms and conditions Lenders should ensure timely disbursement of loans sanctioned in conformity with the terms and conditions governing such sanction. Lenders should give notice of any change in the terms and conditions including interest rates, service charges etc. Lenders should also ensure that changes in interest rates and charges are affected only prospectively. III. Other aspects of protection of consumer rights a. Lenders should restrain from interference in the affairs of the borrowers except for what is provided in the terms and conditions of the loan sanction documents (unless new information, not earlier disclosed by the borrower, has come to the notice of the lender). Page 18 of 25  Course: Retail Credit Management NIBM, Pune b. Lenders must not discriminate on grounds of sex, caste and religion in the matter of lending. However, this does not preclude lenders from participating in credit-linked schemes framed for weaker sections of the society. c. In the matter of recovery of loans, the lenders should not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc. d. In case of receipt of request for transfer of borrowal account, either from the borrower or from a bank/financial institution, which proposes to take- over the account, the consent or otherwise i.e, objection of the lender, if any, should be conveyed within 21 days from the date of receipt of request. 5.2 Guidelines for marketing and selling of credit cards RBI guidelines relating to the major areas of importance in business development of credit card are mentioned in following sections: A. Issue of cards i. Banks should ensure prudence while issuing credit cards and independently assess the credit risk while issuing cards to persons, especially to students and others with no independent financial means. Add-on cards may be issued with the clear understanding that the liability will be that of the principal cardholder. ii. Banks should convey in writing the main reason/reasons which have led to the rejection of the credit card applications. iii. As holding several credit cards enhances the total credit available to any consumer, banks should assess the credit limit for a credit card customer having regard to the limits enjoyed by the cardholder from other banks on the basis of self-declaration/ credit information. iv. The card issuing banks would be solely responsible for fulfillment of all KYC requirements, even where DSAs / DMAs or other agents solicit business on their behalf. v. While issuing cards, the terms and conditions for issue and usage of a credit card should be mentioned in clear and simple language (preferably in English, Hindi and the local language) comprehensible to a card user. The Most Important Terms and Conditions (MITCs) termed as standard set of conditions, should be highlighted and advertised/ sent separately to the prospective customer/ customers at all the stages i.e. during marketing, at the time of application, at the acceptance stage (welcome kit) and in important subsequent communications. Most Important Terms and Conditions (MITCs) are - a. Fees and Charges Page 19 of 25 Course: Retail Credit Management NIBM, Pune b. Joining fees for primary card holder and for add-on card holder c. Annual membership fees for primary and add-on card holder d. Cash advance fee e. Service charges levied for certain transactions f. Interest free (grace) period - illustrated with examples g. Finance charges for both revolving credit and cash advances h. Overdue interest charges - to be given on monthly & annualised basis i. Charges in case of default B. Guidelines relating to interest rates and other charges on credit cards: i. Card issuers should ensure that there is no delay in dispatching bills and the customer has sufficient number of days (at least one fortnight) for making payment before the interest starts getting charged. In order to obviate frequent complaints of delayed billing, the credit card issuing bank may consider providing bills and statements of accounts online, with suitable security built therefore. Banks could also consider putting in place a mechanism to ensure that the customer’s acknowledgement is obtained for receipt of the monthly statement. ii. Card issuers should quote Annualized Percentage Rates (APR) on card products (separately for retail purchase and for cash advance, if different). The method of calculation of APR should be given with a couple of examples for better comprehension. The APR charged and the annual fee should be shown with equal prominence. The late payment charges, including the method of calculation of such charges and the number of days, should be prominently indicated. The manner in which the outstanding unpaid amount will be included for calculation of interest should also be specifically shown with prominence in all monthly statements. Even where the minimum amount indicated to keep the card valid has been paid, it should be indicated in bold letters that the interest will be charged on the amount due after the due date of payment. These aspects may be shown in the Welcome Kit in addition to being shown in the monthly statement. A legend/notice to the effect that “Making only the minimum payment every month would result in the repayment stretching over years with consequent interest payment on your outstanding balance" should be prominently displayed in all the monthly statements so as to caution the customers about the pitfalls in paying only the minimum amount due. iii. Banks should step up their efforts on educating the cardholders of the implications of paying only ‘the minimum amount due’. The “Most Important Terms and Conditions” should specifically explain that the ‘free credit period’ is lost if any balance of the previous month’s bill is outstanding. For this purpose, Page 20 of 25 Course: Retail Credit Management NIBM, Pune banks could work out illustrative examples and include the same in the Welcome Kit sent to the cardholders as also place it on their website. iv. The banks should not levy any charge that was not explicitly indicated to the credit card holder at the time of issue of the card and without getting his / her consent. However, this would not be applicable to charges like service taxes, etc. which may subsequently be levied by the Government or any other statutory authority. v. The terms and conditions for payment of credit card dues, including the minimum payment due, should be stipulated so as to ensure that there is no negative amortization. vi. Changes in charges (other than interest) may be made only with prospective effect giving notice of at least one month. If a credit card holder desires to surrender his credit card on account of any change in credit card charges to his disadvantage, he may be permitted to do so without the bank levying any extra charge for such closure. Any request for a closure of a credit card has to be honoured immediately by the credit card issuer, subject to full settlement of dues by the cardholder. vii. There should be transparency (without any hidden charges) in issuing credit cards free of charge during the first year. C. Wrongful billing The card issuing bank should ensure that wrong bills are not raised and issued to customers. In case, a customer protests any bill, the bank should provide explanation and, if necessary, documentary evidence may also be provided to the customer within a maximum period of sixty days with a spirit to amicably redress the grievances. D. Use of Direct Sales Agent (DSAs) / Direct Marketing Agents (DMAs) and other agents i. When banks outsource the various credit card operations, they have to be extremely careful that the appointment of such service providers does not compromise with the quality of the customer service and the banks' ability to manage credit, liquidity and operational risks. In the choice of the service provider, the banks have to be guided by the need to ensure confidentiality of the customer’s records, respect customer privacy, and adhere to fair practices in debt collection. ii. In terms of the BCSBI’s Code of Bank’s Commitment to Customers, banks which have subscribed to the Code are required to prescribe a Code of Conduct for their DSAs whose services are engaged by banks for marketing their products/services. Banks should ensure that the DSAs engaged by them for marketing their credit card Page 21 of 25 Course: Retail Credit Management NIBM, Pune products scrupulously adhere to the banks ’own Code of Conduct for Credit Card operations which should be displayed on the individual bank’s website and be available easily to any credit card holder. iii. The bank should have a system of random checks and mystery shopping to ensure that their agents have been properly briefed and trained in order to handle with care and caution their responsibilities, particularly in the aspects included in these guidelines like soliciting customers, hours for calling, privacy of customer information, conveying the correct terms and conditions of the product on offer, etc. E. Protection of Customer Rights Customer’s rights in relation to credit card operations primarily relate to personal privacy, clarity relating to rights and obligations, preservation of customer records, maintaining confidentiality of customer information and fair practices in debt collection. The card issuing bank would be responsible as the principal for all acts of omission or commission of their agents (DSAs / DMAs and recovery agents). I. Right to privacy i. Unsolicited cards should not be issued. In case, an unsolicited card is issued and activated without the written consent of the recipient and the latter is billed for the same, the card issuing bank shall not only reverse the charges forthwith, but also pay a penalty without demur to the recipient amounting to twice the value of the charges reversed. ii. In addition, the person in whose name the card is issued can also approach the Banking Ombudsman who would determine the amount of compensation payable by the bank to the recipient of the unsolicited card as per the provisions of the Banking Ombudsman Scheme 2006 i.e., for loss of complainant’s time, expenses incurred, harassment and mental anguish suffered by him. iii. There have been instances where unsolicited cards issued have been misused before reaching the person in whose name these have been issued. It is clarified that any loss arising out of misuse of such unsolicited cards will be the responsibility of the card issuing bank only and the person in whose name the card has been issued cannot be held responsible for the same. iv. The consent for the cards issued or the other products offered along with the card has to be explicit and should not be implied. In other words, the written consent of the applicant would be required before issuing a credit card. v. Unsolicited loans or other credit facilities should not be offered to the credit card customers. In case, an unsolicited credit facility is extended without the consent of the recipient and the latter objects to the same, the credit sanctioning bank shall not Page 22 of 25  Course: Retail Credit Management NIBM, Pune only withdraw the credit limit, but also be liable to pay such penalty as may be considered appropriate. vi. The card issuing bank should not unilaterally upgrade credit cards and enhance credit limits. Prior consent of the borrower should invariably be taken whenever there are any change/s in terms and conditions. vii. The card issuing bank should maintain a Do Not Call Registry (DNCR) containing the phone numbers (both cell phones and land phones) of customers as well as non- customers (non-constituents) who have informed the bank that they do not wish to receive unsolicited calls / SMS for marketing of its credit card products. viii. The intimation for including an individual’s telephone number in the Do Not Call Registry (DNCR) should be facilitated through a website maintained by the bank or on the basis of a letter received from such a person addressed to the bank. ix. The card issuing bank should introduce a system whereby the DSAs/ DMAs as well as its Call Centers have to first submit to the bank a list of numbers they intend to call for marketing purposes. The bank should then refer to the Do Not Call Registry (DNCR) and only those numbers which do not figure in the Registry should be cleared for calling. x. The numbers cleared by the card issuing bank calling should only be accessed. The bank would be held responsible if a Do Not Call Number (DNCN) is called on by its DSAs / DMAs or Call Centre/s. xi. The card issuing bank should ensure that the Do Not Call Registry (DNCR) numbers are not passed on to any unauthorized person/s or misused in any manner. xii. Banks and their agents should not resort to invasion of privacy viz., persistently bothering the card holders at odd hours, etc. II. Customer confidentiality i. The card issuing bank should not reveal any information relating to customers obtained at the time of opening the account or issuing the credit card to any other person or organization without obtaining their specific consent, as regards the purpose/s for which the information will be used and the organizations with whom the information will be shared. Further, in case where the customers gives his consent for the bank sharing the information with other agencies, banks should explicitly state and explain clearly to the customer the full meaning/ implications of the disclosure clause. Banks should satisfy themselves, based on specific legal advice, that the information being sought from them is not of such nature as will violate the provisions of the laws relating to secrecy in the transactions. Banks would be solely responsible for the correctness or otherwise of the data provided for the purpose. Page 23 of 25 Course: Retail Credit Management NIBM, Pune ii. In case of providing information relating to credit history / repayment record of the card holder to a credit information company (specifically authorized by RBI), the bank may explicitly bring to the notice of the customer that such information is being provided. iii. Before reporting default status of a credit card holder to a Credit Information Company, banks should ensure that they adhere to a procedure, duly approved by their Board, including issuing of sufficient notice to such card holder about the intention to report him/ her as defaulter to the Credit Information Company. The procedure should also cover the notice period for such reporting as also the period within which such report will be withdrawn in the event the customer settles his dues after having been reported as defaulter. Banks should be particularly careful in the case of cards where there are pending disputes. The disclosure/ release of information, particularly about the default, should be made only after the dispute is settled as far as possible. In all cases, a well laid down procedure should be transparently followed. These procedures should also be transparently made known as part of MITCs. iv. The disclosure to the DSAs / recovery agents should also be limited to the extent that will enable them to discharge their duties. Personal information provided by the card holder but not required for recovery purposes should not be released by the card issuing bank. The card issuing bank should ensure that the DSAs / DMAs do not transfer or misuse any customer information during marketing of credit card products. 5.3 Guidelines for Telemarketing The Department of Telecommunications (DoT) has issued relevant guidelines for telemarketers. It has also specified that the telemarketers shall comply with the Guidelines and Orders/Directions issued by DoT and Orders/Directions/Regulations issued by TRAI on Unsolicited Commercial Communications (UCC). For the effective implementation of the UCC Regulations, TRAI has mandated that the telemarketers have to register themselves with the DoT, Ministry of Communication and Information Technology, Government of India failing which their telecom services may face disconnection. The Telecom Service Providers have been directed to disconnect the telephone connections provided to the telemarketers in case of violation of the UCC Regulations by them. Keeping in view the above aspects, banks are required to implement the following instructions: i. Banks should not engage Telemarketers (DSAs/DMAs) who do not have a valid registration certificate from DoT, Govt. of India, as telemarketers.Banks should Page 24 of 25 Course: Retail Credit Management NIBM, Pune ensure that all Telemarketers (DSAs/DMAs) presently engaged by them register themselves with DoT as telemarketers. ii. Banks should furnish the list of Telemarketers (DSAs/DMAs) engaged by them along with the registered telephone numbers being used by them for making telemarketing calls to IBA to enable IBA to forward the same to TRAI. iii. The telemarketer (DSAs/DMAs) shall get automatically registered with NDNC Registry while they register themselves with DoT. iv. Further, in addition to DSAs/DMAs, banks/their Call Centres, who make solicitation calls, are also required to be registered as Telemarketers with DoT and banks/their Call Centres, while registering themselves as Telemarketers, will be required to give the details of the telephone numbers used by them for telemarketing. Page 25 of 25