Study on the Performance of Retail loans of Federal Bank Ltd for the Last Four Years

Project Report Submitted in partial fulfillment of the requirements For the award of the Degree of MASTER OF BUSINESS ADMINISTRATION of University of Calicut By SREEJITH K Reg.No: HGAHMBA045 Under the guidance of Prof. Subakaran Pathmanaman

HOLY GRACE ACADEMY OF MANAGEMENT STUDIES (Affiliated to University of Calicut & Approved by AICTE, New Delhi) Mala, Thrissur

DECLARATION I hereby declare that this Project Report titled Study on the performance of retails loans of Federal Bank Ltd submitted by me to the Department of Commerce & Management Studies of University of Calicut is based on the project work undertaken by me, under the guidance of Prof. Subakaran Pathmanaman and it is not submitted to any other University or Institution for the award of any degree, diploma, certificate or title earlier.

Sreejith k 3RD SEM, M.B.A

CONTENTS S.no1

Description Introduction Scope of the study Objectives of the study Research methodology-

page no 01-03 02 02 03 04-07 08-11 12-39 24-39 40-51 53 54 55 56-57

2

Review of Literature Industry Profile Company Profile Product Profile

3

4 5 6

Data AnalysisFindings Suggestions Conclusion Bibliography

78

LIST OF CHARTS Chart No: 1 2 3 4 5 6 7 8 9 10 11 Chart name Total retail loan size of federal bank Total composition of retail loans Composition of retail loans - 2005 Composition of retail loans - 2006 Composition of retail loans 2007 Composition of retail loans 2008 Federal housing loan Federal gold loan Federal mortgage loan Rent Securitisation loan Other retail loans50 51 52 53 54

Page No:44 45 46 47 48 49

LIST OF TABLES Table no: 1 2 3 4 5 6 7 8 9 10 TABLE NAME Total retail loan size of federal bank Composition of retail loans - 2005 Composition of retail loans - 2006 Composition of retail loans 2007 Composition of retail loans 2008 Federal housing loan Federal gold loan Federal mortgage loan Rent Securitisation loan Other retail loans Page no:44

46 47 48 49 50 51 52 53 54

INTRODUCTION

INTRODUCTIONRetail finance in terms of loans and advances to individual customers is one among the major services provided by banks. There are several factors economic as well as non-economic like GDP shifts, demographic changes, growing middle class disposable incomes, multiple income families, low NPAs, high returns, low interest rates, growing consumersim, etc., that affects retail advances. Hence the study on the growth of retail finance is very significant in the era of globalisation and liberalization, as it is an indirect indication of the economic position in the country.

The Federal Bank Ltd. is one of the strongest Indian banks in the private sector, and being based in Aluva, Kerala, it is in a leading position to influence the banking habits and needs of the people of Kerala. The Bank has a wide range of retail loan products catering to almost all financial requirements of individual customers. Therefore a study of the retail loan portfolio of the Bank is expected to give an insight into the credit aptitude of the people

SCOPE OF STUDYThe study on the performance of retail loans of federal bank for the years 2005, 2006, 2007& 2008. The scope of the study is limited to four years.

OBJECTIVES OF THE STUDY

This study has been undertaken with the specific objectives in view

To understand the concept of Retail Banking in general and Retail Lending in particular. To study the performance of The Federal bank Ltd in Retail Advances. To study the growth of retail advances in The Federal Bank Ltd.

LIMITATIONS OF THE STUDY

The study is carried out for a short period of four years.

The study was conducted within short period or it is not possible to study all aspects inducted.

RESEARCH METHODOLOGY

Source of dataThe data for the study is secondary data. The secondary data is collected from the financial statements, and other internal records of the company and further clarifications are made through discussion with the officers of the company

Period of studyA period of four years from 2005, 2006, 2007&2008 is taken for the study.

REVIEW OF LITERATURE

INTRODUCTION Finance is the foundation stone of every business in the present day set up. The success of every business depends upon adequate source of finance. Finance management is the managerial activity that is associated with planning and controlling of companies financial resources. The financial resources are always scarce and limited which need proper planning and control in order to achieve the best result out of the complex situation of risk and uncertainty prevailing in the business world. The financial management has to take decisions in various fields involving financial implications such as new financing whether through shares or debentures or temporary borrowing through banks and other sources, inventory management and capital budgeting. These decisions to be correct should be based on some reliable information. Therefore, for analyzing the overall performance of a concern and for studying the past and present position, the financial records are essential in taking various decisions. In short, the technique of financial analysis is typically devoted to evaluate the past, current and projected performance of a financial firm. Broadly the term is applied to almost any kind of detailed enquiry into financial data like evaluate the past performance, present financial position, liquidity situation; enquire into profitability of the firm and to plan for future operations. For all this we need to study the relationship among various financial variable in a business as disclosed in various financial statements. The analysis of financial performance is an attempt to determine the significance and meaning of financial statement data so that the forecast may

be of the future prospect for earnings, ability to pay interest and debt maturities and profitability

RETAIL BANKINGThe issue of retail banking is extremely important and topical. Across the globe, retail lending has been a spectacular innovation in the commercial banking sector in recent years. The growth of retail lending, especially, in emerging economies, is

attributable to the rapid advances in information technology, the evolving macroeconomic environment, financial market reform, and several micro-level demand and supply side factors.

India too experienced a surge in retail banking. There are various pointers towards this. Retail loan is estimated to have accounted for nearly one-fifth of all bank credit. Housing sector is experiencing a boom in its credit. The retail loan market has decisively got transformed from a sellers market to a buyers market. Gone are the days where getting a retail loan was somewhat cumbersome. All these emphasise the momentum that retail banking is experiencing in the Indian economy in recent years.

What is Retail Banking? Retail banking is quite broad in nature - it refers to the dealing of commercial banks with individual customers, both on liabilities and assets sides of the balance sheet. Fixed, current / savings accounts on the liabilities side; and mortgages, loans (e.g., personal, housing, auto, and educational) on the assets side, are the more important of the

products offered by banks. Related ancillary services include credit cards, or depository services. Todays retail banking sector is characterized by three basic characteristics:

multiple products (deposits, credit cards, insurance, investments and securities); multiple channels of distribution (call centre, branch, Internet and kiosk); and multiple customer groups (consumer, small business, and corporate).

INDUSTRY PROFILE

INDUSTRY PROFILEIndia has a well developed banking system. Most of the banks in India were founded by Indian entrepreneurs and visionaries in the pre-independence era to provide financial assistance to traders, agriculturists and budding Indian industrialists. Indian banks have played a significant role in the development of Indian economy by inculcating the habit of saving in Indians and by lending finance to Indian industry. Indias Banking dates back to 1786; the first bank was established in India in that year. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below. . Early phase from 1786 to 1969 of Indian Banks. . Nationalization of Indian Banks and up to 1991 prior to Indian Banking Sector Reforms. . New phase of Indian Banking System with the advent of Indian Financial and Banking Sector Reforms after 1991. The entire banking scenario has been divided as Phase I, Phase II and Phase III. Phase I The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private share holders Banks, mostly Europeans share holders. In 1865, Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd, was set up in 1894 with head quarters at Lahore. Between 1906 and

1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank and Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase, the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with the Banking Companies Act 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. During those days, public has lesser confidence in the banks. As an aftermath deposit mobilization was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders. Phase II Government took major steps in this Indian Banking Sector Reform after Independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and Sate Governments all over the Country. Seven banks forming subsidiary of State Bank of India was nationalized in 1960. On 19th July, 1969, major process of nationalization was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi that 14 major commercial banks in the Country was nationalized. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country. 1949: Enactment of Banking Regulation Act.

1955: Nationalization of State Bank of India. 1959: Nationalization of SBI subsidiaries. 1961: Insurance cover extended to deposits. 1969: Nationalization of 14 major banks. 1971: Creation of credit guarantee corporation. 1975: Creation of regional rural banks. 1980: Nationalization of seven banks with deposits over 200 crores.

Phase III This phase has introduced many more products and facilities in the banking sector on its reforms measure in 1991 under the chairmanship of Mr. Narasimham. A committee was set up by his name which worked for the liberalization of banking practices. The Country today is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking was introduced. The entire system had become more convenient and swift. Time is given more importance than money. The financial system of India has shown a great deal of resilience. It was sheltered from any crises triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.

COMPANY PROFILE

COMPANY PROFILE Federal Banks FounderKulangara Paulo Hormis, the visionary Banker was born on 18th October, 1917 at Mookkannur; a small village in the suburbs of Greater Cochin, in a middle class agricultural family. Educated as a lawyer, Shri Hormis began his career as an Advocate in the Courts of Perumbavoor. But the path breaker soon gravitated to commercial banking and soon took up the reins of Federal Bank in 1945 as its Chief Executive. Fired by a passion for institution building Shri Hormis built out of a One-Branch-Small-Time Bank, a nationwide institution of 285 branches in the 34 years that he remained at the helm. The quintessential banker that he was, a structure for extending finance to agriculture and the weaker sections of society was laid by him much before these areas came into national focus. Social Banking was his passion and the strength of the Bank today in terms of national presence, diversified clientele, skilled and dedicated manpower and profitable operations, owes a great deal to the vision of this great man. The personality of Shri Hormis was multidimensional and there was no field of activity he was associated with where he did not leave his indelible imprint. Shri Hormis has been active as a member of the Legislative Assembly of the erstwhile Travancore-Cochin State during 1954-56 Managing Committee Member of Indian Banks' Association President of Kerala Management Association Faculty Member of Cochin University of Science and Technology Advisor on Banking Commission of Govt. of Kerala

Vice President of Kerala Table Tennis Association Founder President of Kerala Bankers' to mention a few of the areas where he has left his mark. Chamber

The times and deeds of Shri Hormis are an eternal source of inspiration to the young and old, in every walk of life.

Business Philosophy

To keep an organization live and vibrant, growth is an essential phenomenon. And for growth to happen, organizations have to plant its root firmly on the ground of strong business philosophies. It is the propose that drive organizations forward, and a strong philosophy is what fuels this advance. Federal Bank is the leading player in the category - traditional banks, the term tradition denoting that a set of values are followed for quite a few years. The bank envisions all-round prosperity to all its stakeholders; customers, employees, shareholders and associates. Excellence is practised and propagated, in all spheres of activities. Strategic alliances and diversification measures are adopted, making sure that the ultimate aim is achieved, to be a bank of true world class standards. To become a bank respected by customers and competitors alike, there is an asset you can never dare to overlook the employees. Well-trained, wellinformed and happy work force with strong work ethics is sure to result in success with no precedents. An HRD policy aimed at developing a WE attitude among the employees is reaping its results, the people the Bank evolving into an energetic lot who can make all the difference. With prosperity comes responsibility, especially to the society that engulfs you. The bank is keen to fulfill its obligations under social lending and has been lending in the priority sector. Fedbank Hormis Memorial Foundation, a public charitable trust formed by the bank to perpetuate the fond memory of our founder chairman, Late Kulangara Paulo Hormis is striving hard to

inculcate better knowledge and awareness in the field of banking through training programmes, focused seminars, awards and so on. Capitalizing on our core competencies and smart sizing our operations, we are all geared to meet the challenges and take up the opportunities the banking industry proposes in the days to come. And the message that our every action conveys is loud and clear: we are your perfect banking partner. Mr. M Venugopalan was appointed to Board of Directors on 26 April 2005 and was appointed as Chairman and Chief Executive Officer with effect from 1 May 2005. Prior to joining the Bank, he was the Chairman and Managing Director of Bank of India, one of the leading public sector banks in India, from August 2003 to April 2005, and was an executive director of the Union Bank of India immediately prior to joining the Bank of India. With nearly 40 years of banking experience, Mr. Venugopalan has held positions at the Bank of Indias Tokyo branch, and was head of the Bank of Indias overseas branches at New Delhi and Mumbai, Deputy Zonal Manager of Bank of Indias Northern Zone, Deputy General Manager of the Bank of Indias Western Zone, General Manager of Bank of India, Chief Executive of the Bank of Indias European branches, which included six branches in the United Kingdom and one branch each at Paris and in the Channel Islands.

Know your bank Understanding Federal Bank is all about understanding relationships. Knowing how our relationships helped to make us the largest traditional private sector bank in the country. Of how we nurtured our relationships for more than seven decades, gaining us the reputation of being an agile, technology savvy and customer friendly bank. Learning how we built our wide network of branches, reaching out to cover all the major cities of the country, to be accepted as one of the leading private sector banks in the country. And rejoicing on the fact that we are a dominant presence in the state of Kerala.

Pioneers in Enhancing Customer Convinence Federal Bank has played a pioneer role in developing and deploying new technology assisted customer friendly products and services. A few of its early moves are cited below:

First, among the traditional banks in the country to introduce Internet Banking Service through FedNet First among the traditional banks to have all its branches automated. First and only Bank among the traditional Banks in India to have all its branches inter-connected First Electronic Telephone Bill Payment in the country was done through Federal Bank. First and only bank among the older Banks to have an eshopping payment gateway. First traditional Bank to introduce Mobile Alerts and Mobile Banking service. First Bank to implement an Express Remittance Facility from Abroad First in India to provide RTGS facility in all its branches.

The Bank has also the distinction of being one of the first banks in the country to deploy most of these technology enabled services at the smaller branches including rural and semi-urban areas.

AnyTime-AnyWhere-AnyWay Banking

The Bank has the full range of delivery channels including, Internet Banking, Mobile Banking and Alerts, Any Where (Branch) Banking, Interconnected Visa enabled ATM network, E-mail Alerts, Telephone Banking and a Centralized customer Call Centre with toll free number. Customers thus have the ability to avail 24 hour banking

service from the channel of his choice, according to his convenience. Federal Bank already has the largest number of ATMs in Kerala, taking round-the-clock banking convenience to even many rural areas. The Bank's ATM card also doubles as a International Visa Debit Card enabling the Bank's customers to use the card at any of the over 8,40,000 networked ATMs round the world and pay for shopping at over 12 million retail establishments across the state. The Bank has launched its anywhere banking service, enabling customers to bank at any branch of his / her choice regardless of the place where the account is maintained

Financial Super Market

The Bank has now emerged into a financial supermarket giving the customers a range of products and services. Apart from the entire slew of Banking products and delivery channels we also provide the following facilities: Depository Services Credit Cards Life Insurance Products in association with IDBI Fortis General Insurance Products in association with United India Insurance Export Credit Insurance Products in association with ECGC Express Remittance Facility from Abroad - FEDFAST Cash -On- Line Express Cash Remittance Lock Box Service for NRI's in the US Cash Management Services Merchant Banking Services E-shopping Payment gateway BSNL Bill Payment Online LIC Insurance Payment Easy Pay- On-line fee payment system Online Railway Reservation System Online Kiosks for customers

Unique Technology driven services

The Bank's Mobile Banking Services enables customers to access their account details over the mobile phone. The Bank also has the Mobile Alert facility, which enables customers in any part of the world to receive instant alerts on transactions in their account in India on their mobile. A noteworthy feature of the facility is that it is highly flexible and can be personalised according to the needs of the customer at any time. Even while leveraging on technology to improve convenience, we have always strived to ensure that our product and services are simple, easy to use and most affordable.

Prefered Banking Partner of NRI s

Federal Bank continues to be the favourite choice for NRIs as is evidenced from the fact that about 30% of our deposits come from the NRI segment. Our short term deposit has been rated by CRISIL and awarded a high score of P1+ The Bank has correspondent Bank arrangements with Banks in most of the major cities in the world. SWIFT connectivity ensures speedy transfer of funds to accounts maintained with the Bank. In addition, the Bank has an Express Remittance Facility (FEDFAST) enabling Non Resident Indians in the Gulf to effect quick transfer of funds to their accounts. FedFast when combined with the Mobile Alert facility enables the customer to not only receive quick credit of his remittance in the account but also to receive instant confirmation of the credit on their mobile phone anywhere in the world, through SMS. Milestones

1931: The Federal Bank Limited (the erstwhile Travancore Federal Bank Limited) was incorporated with an authorised capital of rupees five thousand at Nedumpuram, a place near Tiruvalla in Central Travancore on 28/4/1931 under the Travancore Company's Act. It started business of auction -chitty and other banking transactions connected with agriculture and industry.The bank though successful in the earlier periods, suffered set backs and was on the verge of liquidation.

1944: Shri K P Hormis ,and his close relatives /friends obtained controlling interest in the Bank.

1945: The paid up capital was increased to Rs.71000.The Board of Directors of the Bank was reconstituted in 1945 and fresh Articles of Association adopted. On 18-5-1945,the Regd.Office of the Bank was shifted to Aluva and the Bank commenced business by opening its first branch at Aluva

1946:The Bank opened its second branch at Angamally on 26-1-1946

1947:In the Board Meeting held on 24-3-1947 ,it was resolved to change the name of the Bank as "The Federal Bank Limited". The third branch of the Bank was opened at Perumbavoor on 18-4-1947.

1959:The Bank was licensed under Sec.22 of the Banking Companies Act,1949 on 11-7-1959. Bank floated several kuries one after another. It also introduced several new deposit schemes.These strategies helped the Bank to grow at a greater pace.

1964:The Bank embarked for a massive take over bids, which accelerated its growth horizontally and vertically. In that process it took over the assets and liabilities of the following banks: 1. The Chalakudy Public Bank Ltd., Chalakudy 2. The Cochin Union Bank Ltd., Trichur 3. The Alleppey Bank Ltd., Alleppey 1965:The St.George Union Bank Ltd. Puthenpally was merged with the Bank. 1968:The Marthandom Commercial Bank Ltd. Trivandrum was amalgamated with the Bank. 1970:The Bank became a Scheduled Commercial Bank in 1970, which also coincided with the Silver Jubilee Year, since the Bank commenced its operation in Aluva. 1972 witnessed expansion beyond the home state.The Bank became an Authorised Dealer in Foreign Exchange in 1972.International Banking Department started functioning from Mumbai in 1973.Since then , the Bank could substantially increase its market share of the NRI business. The International Banking Department was later shifted to Cochin in 1982 as part of consolidation and centralisation of activities. 1973 to 1977: During the period, the bank adopted a massive branch expansion and growth oriented programmes.To reflect the bank's approach towards the Industrial finance it adopted a new emblem -Farmer in action encircled by an industrial wheel.A few hallmarks of the period: In the year 1973,there was a quantum jump in deposits to the tune of 67% and in advances to the tune of 56% over that of the previous year. The deposits grew by 52% while the advances registered an increase of 45% .Increase in Priority sector advances was by 63%. In 1975, the Bank opened 53 branches and in 1976 it opened 42 branches. The total number of branches reached 276 from a position of 114 in 1973 The paid up capital was increased to Rs.100 lacs in 1977 from a position of Rs.10.66 lacs.The aggressive branch expansion

programme also necessitated large scale recruitment of staff at all levels. In 1975,Bank could give direct employment to 456 personnel. In 1977, 381 youngsters were newly employed. The total staff of the Bank reached 5010 in 1986 from a position of 701 in 1971. 1980: Mr.V Verghese took over the reigns of the bank as Chairman and Chief Executive Officer on 2/7/1980.Having worked long years in State Bank of Travancore with well established traditions, systems and methods ,he placed his faith in introducing time tested and well proven methods of organisation into the Bank. 1983:Shri V.K.Syamasundaran after long innings in Reserve Bank of India took over as Chairman and Chief Executive Officer of the Bank as a successor to Mr.V.Verghese on 16/7/83.The foundation stone of the multi-storied Administrative Building was laid by the Founder Shri K.P.Hormis on 26-12-83. 1984:As part of the organisation redesigning recommended by National Institute of Bank Management in November,1984,Agricultural Finance Department was set up in Head Office with technically qualified personnel at central office and field level. Bank's performance in the field of agricultural and priority sector lending improved substantially thereafter. 1985:In tune with the NIBM recommendation, Personnel and Industrial Relations Department was set up in July,1985. With the active assistance of Tata Consultancy Service, bank also set up its computer department.A WIPRO computer was installed at our Head Office on July,1985 paving the way for computerisation of the Bank. Later , a PSI micro computer was installed at our International Banking Department at Cochin. The first Advanced Ledger Posting Machine(ALPM-a Wipro banker)was installed at Br.Aluva-Bank Junction branch. 1987:The long cherished dream of the Federal Family, the multistoried adminstrative building complex was inaugurated by Shri A Ghosh, Dy.Governor,Reserve Bank of India .

1988:Shri M.P.K.Nair , a seasoned commercial banker trained in the Union Bank of India stable assumed the captaincy of the Bank on 17-1988 as its Chairman and Chief Executive Officer. 1989: commenced Merchant Banking Operations. 1992: Deposits crossed Rs.10,000 Million.Adopted profit sector banking as its slogan. 1993:Roped in ICICI group as a shareholder through private placement . 1994: Tapped the Capital Market with a public issue in March,1994. The issue oversubscribed by about 60 times.Started Leasing Business. 1995:Registered 142.44% increase in PAT in registered a GAGR of 78.13% in PAT during the Emerged as a perfect banking partner with diverse reach and focus on automation and HRM. Deposits Million. FY 94-95.Bank period 1991-96. products, global cross Rs.35,000

1996:Shri K Nandan, a veteran banker from State Bank of India took the stewardship on 1-1-1996 .The bank had steady growth.The bank's business crossed Rs.100000 Million mark as on 31/3/98 for the first time. 1997 : Bank's first ATM was inaugurated at Eranakulam North on 2702-97. 1999: On 1-1-1999, Shri K.P.Padmakumar, the Executive Director of the Bank took over the batton from Shri K Nandan.He thus became the first Chairman and Chief Executive Officer of the bank risen from the rank and file. Bank's 400th branch was inaugurated at Calcutta- Shakespear Sarani on 19.2.1999. The total business of the bank exceeded Rs.110000 Million as on 31/3/99. 2000: On 24.1.2000 Bank started Any Where Banking (ABB) at Bangalore connecting all branches located in the Bangalore metro.

Launched Depository Services in association with NSDL on 24.2.2000. The Bank has commenced Internet Banking 'FedNet' on 28th April 2000 with software support from Infosys Technologies Ltd. Federal Millennium CD is released on 18.9.2000 2001: In March 2001, Wide Area Network was launched connecting Regional Offices at Mumbai, Bangalore, Chennai, Ernakulam and Chennai F & I with Head Office 2002 : All the 412 branches of the Bank were fully computerised (using FedSoft) as on 31.03.2002. The Installation of switch for networking all the ATMs, already installed/proposed to be installed, started from 17/08/2002. 2002 : Dec 10 2002 Federal Bank introduces FedAlerts, and FedMobile , another first of its kind service among traditional banks in India. Real time transaction alerts across the globe, and customisable options make the service unique. 2 July 2004 : International Debit Cards launched. Dec 2003 : Bank establishes a Call Centre attached to the Systems and Technology Department . 12 February 2004 : Co-branded credit cards launched in association with ICICI Bank. 7 January 2004 : Federal Bank becomes the first traditional bank to network all its branches and attain 100% connectivity. October 2004 : RTGS is enabled in all branches of the Bank and becomes the first bank in India to implement RTGS facility in all the branches. Online Railway Reservation through FedNet launched. The First Kiosk inaugurated at the Marine Drive ( Kochi) branch. February 2005 : Federal Bank is awarded for Best Use of Information Technology in Retail Banking by IBA and Infosys . The runner up status reveals the strength and innovation in technology initiatives.

June 2005: Federal Bank in association with AMRITA super speciality hospital launches Fed+Amrita, an innovative online system for fixing medical consultation, Health check up, and inpatinet payments from anywhere. January 2006: Federal Bank becomes the first traditional bank to successfully issue GDR. While the issue of 18 million Global Depository Receipts realised $71.46 million, the green shoe option of 2 million GDR was also fully subscribed, bringing in a total of $80 million to the bank. The GDR, each representing an underlying equity share, were priced at $3.97 each working out to approximately Rs 175 per share. The issue was subscribed by major banks and Financial Institutions across the globe. February 2006 : Federal Bank wins two prestigius awards for BEST USE OF IT IN RETAIL BANKING & BEST PAYMENTS INITATIVE from IBA and TFCI. This is the second consecutive time that the Bank has won the award for best use of IT in Retail Banking.

Product profile Total outstanding Retail Loan portfolio of Federal Bank stood at Rs. 4336 Crores as at the end of FY 2007, constituting 29.1% of the total advances of the Bank. On an average, Retail loans constitute about 25% of the total bank advances in India. With close to 30% of its total advances under the retail portfolio, Federal Bank stands one among the best retail bankers in India. The Federal Bank has a wide range of products catering to almost all financial requirements of retail customers, viz. individuals and small businesses. The retail loan portfolio of the Federal Bank comprises of a bouquet of 20 products as follows -

Federal Housing Loan Federal Gold Loan Federal Personal Car Loan Federal Mortgage Loan Federal Personal Loan Federal Agri Mobile Loan Federal Demat Loan Federal Consumer Loan Federal Vidya Loan Federal Rent Securitisation Loan Loan for Medical Practitioners Federal Subha Yatra Loan Federal Vanijya Loan Federal Equity Subscription Loan Loan against Warehouse Receipts Federal Easy Cash Bon Voyage Loan Federal Home Over Draft Federal Aashray Federal Health Credit

Details about Retail Loans offered by THE FEDERAL BANK LTD

1. Federal Housing Loan

Purpose Purchase/Construction of House/flat Reimbursement of cost of house/flat already constructed/purchased Purchase of land and with house Purchase of land for subsequent construction of house Eligibility Residents Age preferably below 55 Non-Residents Age on maturity of the loan must be 55 or below. Proof of income Loan Amount Max. Up to 85% of project cost. Cost of stamp duty, registration charges etc. considered Maximum Rs.3 Crores Period Residents Up to 20 years Non-residents Up to 15 years Interest Rate Floating rates range between 10% - 10.50% Fixed rates (with 2-year reset clause) ranges between 12% - 12.25% House Plot Loan 12.50%

2. Federal Gold LoanPurpose

Business/Personal/Agriculture Eligibility Individuals, Small Business concerns Loan Amount Up to Rs.75 Lacs 75% to 90% of the Gold market value Per gram rate Up to Rs.1000/Period 3 months to 36 months Sub Products General Gold Loan Special Short term Gold Loan Business Gold Loan Agri Gold Loan Gold Equity Loan Own Your Gold Pure Gold Loan Easy Gold Interest Ranges between 9% to 13.75% depending on the gold loan scheme

3. Federal Personal Car Loan

Purpose To purchase all personal vehicles New & Used, including two wheelers Eligibility Individuals, Firms, Companies, Trusts, Educational Institutions & Other organizations Loan amount New vehicles - Up to 90% of vehicle price. Used vehicles Upto 75% of lower of depreciated value/market value Maximum Loan Amount Individuals Rs.50 L, Corporates Rs.200 L Period New Vehicles Up to 84 months Used Vehicles Up to 60 Months Interest Rate New Vehicles - Ranges between 12.50% - 13% Used Vehicles & Two-wheelers 14.75% Security The Vehicle proposed to be purchased.

4. Federal Mortgage LoanPurpose All personal purposes Eligibility Individuals - both Residents & Non-residents

Loan Amount Maximum Loan Rs.1.50 Crores Period Up to 60 Months Interest 15.75% - 16% Security Collateral security valued 200% of the loan amount

5. Federal Personal LoanPurpose All personal purposes Eligibility Individuals - Residents & Non-Residents Loan amount 6 times of monthly salary or 50% of annual income Maximum Rs.2 Lacs Period Up to 60 months Interest Rate 15.75% Security

Co-obligancy / Collateral security

6. Agri-Mobile LoanPurpose For acquiring all types of vehicles / farm machinery for agricultural purpose / allied activities Eligibility Individuals, Firms, Companies, Societies, Trusts, Co-operatives, SHGs, NGOs, etc. satisfying KYC norms Should be engaged and earning income from basic agricultural activities, allied activities or farming-related activities Security Primary - Hypothecation of the vehicle Collateral Mortgage of landed property in case of vehicles like Tractor, Power Tiller, Earth moving equipment, etc. Period Up to Nine years. Interest Rate Ranges between 11.25% - 13.75%

7. Demat LoanPurpose Business/Personal needs

Eligibility Individuals Residents & Non-residents Loan Amount Up to 50% of the share value (Average of last 52 weeks price or current price whichever is lower) Maximum loan amount Rs.20.00 lakhs Minimum loan amount Rs.1.00 lakh Interest 13.75% Type of Loan Overdraft facility

8. Consumer LoanPurpose To purchase consumer items Eligibility Loans to individuals only Loan amount 10 times monthly salary or 60% of annual income Maximum loan Rs. 1 Lakh Period Up to 60 months Security

Co-obligant/Collateral security Interest 14.75%

9. Vidya LoanPurpose Higher Studies in India & Abroad Eligibility Students of Indian Nationality Secured admission through a merit based selection process. Loan Amount Up to Rs. 15 Lakhs Period Maximum 11 years Interest (Model Education Loan Scheme IBA scheme) Loans up to Rs.4 Lacs Loans above Rs. 4 Lacs Security Parents to join as co-borrowers Up to Rs 4 lakhs No collateral security Above Rs 4 Lakhs Third party Guarantee/collateral security. 13.75 (BPLR) 14.75 (BPLR + 1%)

10.Federal Rent Securitisation LoanPurpose

Business/personal purpose of the owner (Lessor) of the buildings Eligibility Lessors receiving rent for their buildings from reputed lessees or a corporate Loan Amount Up to 90% of discounted value of future rent receivable Interest 13.75% Period Up to 84 months Security The property, rent of which is proposed to be securitized

11.Loan for Medical PractitionersEligibility Any professional/Registered Medical Practitioner in any branch of Medical Practice including Ayurvedic, Homeo, Unani etc. Purpose For acquisition of equipments, buildings/houses/flats, vehicles, furniture & fittings, medicines etc. for starting/ smooth operation of the existing practice. For constructing/acquiring additional area or for renovation / alterations. Nature of Limit Cash Credit / Overdraft / Term Loan depending upon the purpose of the loan.

Quantum of Assistance Maximum loan amount - Rs.20 lakhs Minimum Loan amount - Rs. 2 lakhs

Period of loan Term Loan - 10 years Cash credit - 12 months. Interest Rate 13.75%

12.Subha Yatra LoanPurpose To facilitate individual / family members who wish to travel abroad. Eligibility: Resident individuals having adequate income to repay the loan Quantum: Individuals - Minimum Rs.0.50 lakh and maximum Rs.1.50 lakh Group - (Family members) Minimum Rs.0.50 lakh and maximum Rs. 3 lakh Period 12 months to 33 months, with 3 months cushion period Security: Primary : Nil

Collateral - can be in the form of land and buildings, gold ornaments, deposit receipts, NSC, LIC Policy etc. Interest Rate: 15.50%

13.Vanijya LoanPurpose Working capital needs of traders Loan Amount For Retailers Up to Rs.25 Lakhs For Wholesalers Upto Rs.50 Lakhs Period 30 months Interest Rate: Ranging between 11.25% - 13.75% Security Collateral security equal to the loan amount

14.Federal Equity Subscription LoanPurpose For applying for Inital Public Offers of reputed Companies approved by the Bank Eligibility Individuals (Residents only)

Loan amount Up to 50% of application money, Maximum Rs.10 Lacs Period 45 days Security Shares allotted

15.Loan against Warehouse ReceiptsPurpose Business/Personal/Agriculture Eligibility Warehouse receipts issued by Central / State Warehouses Loan Amount Up to 70% of the value noted in warehouse receipt Maximum Rs.2 Crores Period 3 months Interest Ranges between 11.50% - 12.50%, depending on availability of collateral security Security Optional

16.Federal Easy CashPurpose

Loan for personal purpose against the security of liquid securities such as Fixed Deposits, LIC policies, NSC, KVP, etc. Loan Amount Against Term Deposits upto 90% of the present value of the deposits Against LIC policies upto 90% of the surrender value Against NSC/KVP, etc. margin based on the completed tenor of the instrument. Period Max. 72 months Interest rate For loan solely against Fixed Deposits Deposit Rate + 2% For loan against any other type of permitted liquid securities 11.50%

17.Federal Bon Voyage LoanPurpose To meet the initial expenditure involved in going abroad for taking up employment Eligibility Any resident Indian who has got a letter of appointment or a letter from a recognized overseas institution or recruitment agent establishing that a firm offer of employment abroad has been secured Skilled / qualified persons such as, Doctors, Nurses, Engineers, IT professionals, Management consultants etc. Loan Amount Max. Rs.5 Lakhs

Period 60 months Interest Rate 13.75% Security Collateral security 100 to 150% depending on the type of security

18.Federal Home Overdraft SchemePurpose This is a loan against own residential property, to be utilized for personal financial contingencies of the borrower Eligibility Individuals owning unencumbered residential property. Loan Amount Max. Rs.300 Crores Loan amount ranging between 50-75% of the property value, depending on the tenure of the loan Period Max. 10 years Interest Rate 13.75 14.50% Security Collateral Mortgage of house property against which the loan is availed

19.Federal Health CreditPurpose To meet cost of treatment in India Eligibility Existing customer with steady relationship with the Bank/repayment track/new customers maintaining term deposits with the Bank. Loan Amount Rs.1 Lakh Period Repayment in 24 months from the date of withdrawal of amount Interest Rate 18.75% Security Collateral security not mandatory

20.Federal Aashray (Reverse Mortgage Loan)Purpose To supplement the regular income of Senior Citizens Eligibility Mortgage of self-acquired and self-occupied house property The property should be free from any encumbrance and should be saleable Loan Amount

Value of security property less required margin (ranging between 10-25%), such that Minimum payout is Rs.2000/- and Maximum payout is Rs.25000/-. Period Max. 15 years Interest Rate 11.50% Security Mortgage of the house property

DATA ANALYSIS

DATA ANALYSIS AND INTERPRETATION Growth of retail loan portfolio 1. Total Retail Loan size of federal bank

6000 5000 4000 amt in 3000 crores 2000 1000 0 2005 2006 year 2007 2008

YEAR Total retail loans YoY growth(amt) YoY growth(%)

2005 1986 -

2006 2996 1010 51%

2007 4336 1340 45%

2008 5629 1293 30%

Inference The above graph and table indicates the systematic growth achieved by the Bank in absolute figure because of the introduction of market-oriented and innovative products. In % wise there is a decline in the last year. The decline is due to the following reasons:

1. General economic slowdown 2. Rising interest rates. 3. Inflation etc.

Due to which people have by and large put off their investments or asset acquisition plans for the time being.

2. Composition of Retail Loans of federal bank

3500 3000 2500 2000 1500 1000 500 0 2005 2006 2007 2008YEAR

HOUSING LOAN GOLD LOAN

MORTGAGE LOAN RENT SECURITISATI ON OTHER RETAIL LOANS

3. Composition of retail loan 2005

HOUSING LOAN 13% 3% 9% 55% 20% RENT SECURITISATI ON OTHER RETAIL LOANS GOLD LOAN

MORTGAGE LOAN

Composition of retail loan 2005 HOUSING LOAN 1096 55% GOLD LOAN 383 20% MORTGAGE LOAN 174 9% RENT OTHER SECURITISATION LOAN 46 287 3% 13%

4, Composition of retail loan 2006

HOUSING LOAN 17% 3% 10% 14% 56% GOLD LOAN

MORTGAGE LOAN RENT SECURITISATI ON OTHER LOAN

Composition of retail loan 2006 Housing loan 1679(56%) Gold loan 443(14%) Mortgage loan 294(10%) Rent Other retail Securitisation loans 71(3%) 509(17%)

4. Composition of retail loans 2007

HOUSING LOAN 17% 2% 12% 13% 56% MORTGAGE LOAN RENT SECURITISATI ON OTHER LOAN GOLD LOAN

Composition of retail loan 2007 HOUSING GOLD MORTGAGE RENT OTHER LOAN LOAN LOAN SECURITISATION LOAN 2419(56%) 571(13%) 530(12%) 79(2%) 737(17%) 5. Composition of retail loan 2008

HOUSING LOAN 16% 2% 13% 10% 59% MORTGAGE LOAN RENT SECURITISATI ON OTHER RETAIL LOANS GOLD LOAN

Composition of retail loan 2008 HOUSING GOLD LOAN LOAN MORTGAGE RENT OTHER LOAN SECURITISATION RETAIL LOANS 3282(59%) 538(10%) 749(13%) 121(2%) 939(16%)

INFERENCES FOR THE COMPOSITION OF RETAIL LOANS

From the above analysis, it can be derived that the housing loan is having the major share in the retail loan sector. In 2005, it was 55%, gold loan 20%, mortgage loan 9%, rent Securitisation loan 3% and 13% other retail loans. There has been a gradual and study increase in the share of housing loan, in 2008 there is 59% of housing loan, 10% gold loan, 13%mortgage loan, and 2% rent Securitisation and 16% other retail loans.

The reason for decline of other loans: 4. The reverse REPO rate imposed by Reserve Bank 5. Inflation prevailing in the economy 6. High interest rates.

Growth of individual loan products A. FEDERAL HOUSING LOAN

3500 3000 2500 2000 1500 1000 500 0 2005 2006 2007 1096 1679 2419

3282

2008

FEDERAL HOUSING LOAN YEAR Amt in crore YoY growth Growth (%) 2005 1096 2006 1679 583 53% 2007 2419 740 44% 2008 3282 863 36%

INFERENCE In case of individual loans housing loan is having a steady and higher growth in absolute terms. But it is gradually declining in 2006 it was 53% but now it is around 36%. B. FEDERAL GOLD LOAN

600 500 400 AMT IN CRORES 300 200 100 0 2005 2006 383 443

571

538

2007

2008

TABLE GOLD LOAN YEAR Amt in cros YoY growth Growth(%) 2005 383 2006 443 60 16% 2007 571 128 29% 2008 538 -33 -8%

INFERENCE In case of individual loans Gold loan is having a higher growth compared to others. But in 2008 there is a serious decline of around -8% from the previous years. It is because of the intense competition where other credit institutions particularly NBFCs are offering higher per gram rate.

C. FEDERAL MORTGAGE LOAN

800 749 700 600 530 AMOUNT 500 IN 294 CRORES 400 300 174 200 100 0 2005 2006 2007 2008

TABLE FEDERAL MORTGAGE LOAN YEAR 2005 Amt in cros 174 Y o y growth Growth % 2006 294 120 69% 2007 530 236 80% 2008 749 219 41%

INFERENCE In case of individual loans, mortgage loan iss very uncertain. In 2007 there has been a tremendous growth is gradually declining in 2008 it was 63% but now it is around 41%.

D. RENT SECURITISATION

140 120 AMT IN CRORES 100 80 60 40 20 0 2005 2006 2007 46 71 79

121

2008

TABLE - RENT SECURITISATION YEAR Amt in crore YoY growth Growth % 2005 46 2006 71 25 54% 2007 79 8 11% 2008 121 42 53%

INFERENCE In case of individual loans, rent securitisation loan had a decline on 2007 but it recovered during the period of 2008 with a growth of 53%. E. OTHER RETAIL LOANS

1000 900 800 700 AMT IN CRORES 600 500 400 300 200 100 0 2005 2006 2007 287 509 737

939

2008

TABLE OTHER RETAIL LOANS YEAR Rs in crore Y oy growth Growth % 2005 287 2006 509 222 77% 2007 737 228 45% 2008 939 202 28%

INFERENCE In case other retail loan is declining year after year. In 2008 the decline reached to an extend of 28%.

FINDINGS, SUGGESTIONS AND CONCLUSION

FINDINGS

The Concepts of Retail Banking and Retail Lending

Retail Banking refers to the dealing of commercial banks with individual customers, both on the liabilities (Deposits) and assets (Loans and Advances) sides of the Balance Sheet of banks. Retail Lending refers to the credit facilities in the form of loans and advances offered by banks to individual customers. Retail Loan Portfolio of the Federal Bank comprises of a bouquet of about 20 loan products managed under the direct supervision of the Retail Banking Department of the Bank. These loan products are designed to meet the entire range of financial requirements of a retail borrower. Housing Loans (59%) comprise the major share of the retail loan

portfolio of the Bank. Other major loan products in the retail portfolio are Gold Loan (10%),

Rent Securitisation (2%) and Mortgage Loan (13%). Growth of Retail Advances of Federal Bank is mainly due to the market/competition oriented philosophy of the Bank introduction of new products, refinements/updation of existing ones, etc.

Suggestions

A humble effort has been made to provide few suggestions to the Federal Bank, as follows Federal Bank could introduce Credit Cards as it is one of the major products of Retail advances. This will help the bank to increase its business and facilitate an extra avenue of income generation. The introduction of credit cards would help the bank to maintain the

status of financial supermarket by giving the customers a range of products and services. Business opportunities can be exploited for further thorough cross selling of various other products Education is one among the booming sectors. By granting educational loans the banks could make an increase customer base, as the students who avail these educational loans would be banks prospective customers. So more priority or importance should be given to education loans Showing the presence in the industry would help in increasing the brand

image and there by increase the business. So the bank should conduct campaigns and other exhibitions for attracting the public to avail the retail advance facility provided by the Bank

CONCLUSION

As a part of my MBA programme, mini project undergone by me in FEDERAL BANK during the 3rd semester was very fruitful, apart from the theoretical knowledge. During my study I have done overall analysis of the retail loans of organization. There is a need for constant innovation in retail banking. Bank needs to use retail banking as a growth trigger. This requires product development and differentiation, innovation and business process reengineering, micro-planning, marketing, prudent pricing, customization, technological upgradation, home / electronic / mobile banking, cost reduction and cross-selling. While retail banking offers phenomenal opportunities for growth, the challenges are equally daunting. How far the retail banking is able to lead growth of the banking industry in future would depend upon the capacity building of the banks to meet the challenges and make use of the opportunities profitably.

BIBLIOGRAPHY

BIBLIOGRAPHY

BOOKS REFERRED FINANCIAL MANAGEMENT FEDERAL REACH WEBSITES WWW.FEDERALBANK.CO.IN WWW.INDIANBANKS.COM