Banks traditionally preferred "productive" employment of credit in the supply segment of the economy. It thus preferred to finance wholesale traders, and Industrialists and service providers like Transporters etc. In a less developed country like India, capital was scarce and available resources had to be channeled to the most deserving segment. The dictum was that the "loan should be self-liquidating". In other words the use of the credit should automatically generate the cash flow for its repayment. Production of goods and services were limited compared to the bulging population of the country. Whatever produced was easily sold in the captive market of the country, irrespective of price and quality in those days. In this environment financing the demand segment could further inflate prices and make availability of such goods scarce to the poorer sections of society. Inflation was soaring sometimes in the double digits in those years. The problem of bank credit pushing prices upwards was actually faced not in industrial goods, but with reference to agricultural produce, like paddy, rice, wheat, other foodgrains like coarse grain & pulses, oil-seeds, cotton etc.. During the Sixties & Seventies RBI imposed credit restrictions termed "selective Credit control" imposing ceiling on bank advances against security of these commodities, fixing a much higher margin and higher rate of interest intended to curb bank advances on such scarce demand goods. In fact immediately after nationalisation financing wholesale traders received the lowest priority.

Other reasons for banks not financing the demand segment or consumer-financing in those years were resource constraints, and lack of assured source of repayment. Salaried people were largely in the low income-bracket comprising a vast segment of clerical cadre upto the Seventies and mid-Eighties with inadequate surplus for repayment after meeting the essential needs of life.

After nationalisation Banks did start financing consumer durables. But the range of credit offered was limited and most of the loans of this type were generally absorbed by banks' own employees. The extent of loan offered was equal to the aggregate of three months salary or Rs.20,000/- (whichever is lower) and it carried an interest of 16% and above. Two wheelers, domestic furniture, kitchen equipment, electrical fittings etc. could be secured through this credit line, but even this was extended to the general public in a very limited extent.

But consumer banking or banking centered on the individual as against business enterprises (i.e. personal banking as distinguished from business or corporate banking) became popular in the western countries nearly two decades back. In India Citi-bank started financing this segment from the late Eighties. Business & Industries in a competitive economy may turn sick and default repayment, but the individual continues to get a steady and assured income. The defaults in personal loans were therefore comparatively negligible. A large company may show temporarily loss in its balance sheet for two or three consecutive years, but its employees would continued to be paid their contracted salaries all the while.

Further supporting consumer spending in a rapidly developing economy was considered the answer to set right recessionary trends, when demand starts slowing down and production had to be consequently curtailed. The need now is to create accelerated demand to market the increasing supplies of goods in a rapidly developing economy. Production of goods depends on marketing thereof and marketing requires creating the demand.

After the economic reforms many of Indian industry and business started growing and reaching global standards. The freeing of imports and lowering of tariffs eased domestic & imported supplies and made a variety of quality goods and services available to the Indian consumer at most competitive prices. Competition resulted in Indian industry accepting quality standards and producing goods at competitive cost. The policy automatically enforced efficiency & quality consciousness amongst our industrialists. Inflation was brought down under control within the lowest limits (generally between 2 to 3%, but mostly within 5%). Purchasing power of the Indian Consumer picked up with the middle income segment growing upwards to 30 million and above. The stage has therefore been set for financing "demand segment" of the economy, which would further boost production, by increasing the demand for goods and services, whose assured production is now abundantly available.

The actual stage for banks entering and financing retail segment in a big way is after the enforcement of norms of prudential banking and asset classification standards by RBI in 1992. Bulk of bank credit to industry and trade turned to be classified as non-productive (NPA), resulting in banks turning lukewarm in further extending loans aggressively to this sector. Banks started playing safe and were looking towards less risk-prone segments of credit dispensation. The available funds with the banks were expanding regularly due to fast growth of deposits in an expanding economy and lowering of SLR/CRR by RBI. The banks were left with a flush of funds and had to park sizeable portion as investments in government securities much over and above SLR requirements. Banks were in the search for profitable avenues for deployment of their ever-growing investible funds. Retail banking in credit dispensation came to be accepted by almost all the banks as the most suitable avenue. The situation now prevailing is aptly brought out by RBI in its publication Trend and Progress of Banking in India for the year 2001, as under:

Developments in Retail Banking

"The retail banking portfolio encompasses deposit and asset-linked products as well as other financial services offered to individuals for personal consumption. Retail banking is increasingly viewed by banks as an attractive market segment with opportunities for growth with profits. The products offered in the retail banking segment are housing loans, consumption loans for purchase of durables, auto loans, credit cards and educational loans. The loan values could typically range between Rs. 20 thousand and Rs.100 lakh. The loans are generally for duration of 5 to 7 years with housing loans granted for a longer duration of 15 years. Credit card is another rapidly growing sub-segment of this product group.

"The growth in retail banking has been facilitated by growth in banking technology and automation of banking processes to enable extension of reach and rationalisation of costs. ATMs have emerged as an alternative banking channel which facilitate low-cost transactions vis-à-vis traditional branches. It also has the advantage of reducing the branch traffic and enables banks with small networks to offset the traditional disadvantages by increasing their reach and spread. The increased use of ATMs by foreign banks and private sector banks has helped these banks to compete with PSBs by enabling them to expand their reach and to contain costs.".

In this context it will be interesting to study the types of consumer finance categorised under "personal Loan" by State Bank of India, the leading Banker in this country.

1. Housing Loan

   Loan available for:

   • Purchase or construction of a new house/ flat.

   • Purchase an existing (old) house/ flat.

   • Extend, repair, renovate or alter a house/ flat.

   • Purchase a plot of land meant for construction of a dwelling unit.

2. Short Term Housing Loan

   If you are constructing / purchasing / extending / renovating a house and intend repaying the same in a short term of up to 5 years, then SBI Short Term Housing Loan is the ideal scheme for you. This scheme for individuals is available at all branches. The Bank specialised housing loan branches and intensive loaning branches also.

   Loan available for:

   • Purchase or construction of a new house/ flat.

   • Purchase an existing (old) house/ flat.

   • Extension, repair, renovation or alteration of a house/ flat.

   • Purchase a plot of land meant for construction of a dwelling unit.

   • Repayment of housing loan availed from other banks/financial institutions to avail of the benefit of low rates of interest offered by SBI.

3. Car Loan

   Loan can be taken to finance

   • A new car, jeep or Multi Utility Vehicles (MUVs)

   • An old car / jeep (not more than 4 years old).

   (Any make or model)

4. Educational Loan

   You can take a loan for pursuing studies in recognised schools/colleges/ institutions to meet:

   • Tuition and other fees

   • Maintenance costs, books & equipments,etc.

   • Cost of passage (for studies abroad)

   • Caution fund/building fund/refundable deposit

5. Personal Loan

   To meet any kind of personal expenses, e.g., marriage, family functions, medical, educational, travel expenses, etc.(Based on regular income of the applicant from salary, profession, business etc.)

6. Property Loan

   A loan against mortgage of immovable property can be obtained for almost ANY PURPOSE WHATSOEVER. These loans are offered at all our Personal Banking Branches and branches having Personal Banking Divisions amongst others

7. Loan to Pensioners

   Applicants, who are Central or State Government pensioners drawing pension through one of SBI branches and are not more than 70 years of age, can avail of a loan from their branch to meet personal expenses. They may have an urgent or unexpected need for funds or a family obligation to be fulfilled. Loan can be availed up to a maximum of 6 months pension, subject to a ceiling of Rs.40,000.

8. Loan against Shares / Debentures

   For meeting contingencies and needs of personal nature. Loan will be permitted for subscribing to rights or new issue of shares / debentures against the security of existing shares / debentures. Loan will not be sanctioned for (i) speculative purposes (ii) inter-corporate investments or (iii) acquiring controlling interest in company / companies.

9. Festival Loans

   To meet any kind of festival related expenses eligible if the applicant is employee of Govt., PSUs, profit making public/private limited companies/ institutions etc with a minimum of 2 years service or self employed person with minimum 3 years standing/experience or a person having regular source of income from verifiable channels like Pensions and interest from TDRs/NSCs/Govt. Securities etc. and has a net monthly income of Rs.3000/- and above.

10. Medi-Plus Scheme

    Loan for individuals to avail specialised expensive medical treatment e.g. coronary by-pass, Hip and Knee replacement surgery, cochlear implants(surgical) for the hearing impaired etc.

The above are not merely schemes approved and published by the Head Office of the Bank. The Branches are engaging marketing officers to aggressively improve their credit portfolio under these categories. Loans are granted normally within a week's time and interest charged is 12% and below, except that for housing loan a lower rate is being charged. Retail credit is now a buyer's market. The customer has a wide choice, as loans everywhere are easily available. Ironically today the retail customer is a more valued client and wooed by banks with attractive schemes than the even depositor.

Complete details of the individual schemes referred above in relation to eligibility criteria, maximum amount of loan eligible and other terms and conditions may be referred from the website of State Bank of India.

Of the several schemes those relating to housing, vehicle and education loans are more popular with larger coverage and allowed universally in almost all the Banks. We will study more in detail about these schemes in the next few articles