Summer Internship Project report

ON

COLLATERAL MANAGEMENT

AT HDFC BANK LIMITED

Submitted in partial fulfillment of requirement of Bachelor

of Business Administration (B.B.A) General

BBA Vth Semester (Evening)

Batch 2015-2018

Submitted to Submitted by
Jasleen Rana Gurnam Kaur Namdhari
Assistant Professor 01624501715

JAGANNATH INTERNATIONAL MANAGEMENT

SCHOOL. KALKAJI

1
 ACKNOWLEDGEMENT

I would like to express word of thanks to all those who have provided me with sincere
advice and information during the course of my training period. It was indeed a great
pleasure for me to work in a very cooperative, enthusiastic and learning atmosphere at
HDFC BANK LIMITED.

First of all I would like to express my sincere gratitude to mentor to make this project,
Ms. Jasleen Rana (Assistant Professor, Jagannath International Management
School, Kalkaji) for giving me the opportunity to make this project. I thank her for
her full cooperation for generation of this training report.

My sincere regards to my Project guide Mrs. Googanie Singh (Relationship Quality

Manager at HDFC Bank Ltd.) for her invaluable guidance and encouragement
throughout this project. She gave me highly valuable suggestions, for which I am
eternally indebted.

With all the heartiest thanks, I hope my final project report will be a great success and
a good source of learning and information.

2
 CERTIFICATE OF COMPLETION

This is to certify that the Summer Internship Project titled “Collateral Management” is
an academic work done by Gurnam Kaur Namdhari, Enrolment Number
01624501715 submitted in the partial fulfillment of the requirement for the award of
the degree of Bachelor of Business Administration at Jagannath International
Management School, Kalkaji, New Delhi, under my guidance and direction.

To the best of my knowledge and belief the data & information presented by her in
the project has not been submitted earlier.

Signature :

Project Guide: Ms. Jasleen Rana

Designation : Assistant Professor

3
 CONTENTS

S.NO. PARTICULARS PAGE NO.

1 Acknowledgement 2
2 Certificate Of Completion 3
3 Executive Summary 5-6
4 Introduction 7-9
5 Company Profile 10-41
6 Objective Of The Study 42
7 Literature Review 43-51
8 Research Methodology 52-54
9 Findings 55-66
10 Limitations/Challenges 67-68
11 Conclusion 69-70
12 Bibliography 71-72
13 Questionnaire 73
14 Certificate From Company 74

4
EXECUTIVE SUMMARY

5
The project work is pursued as a part of BBA (Bachelor of Business Administration)
Curriculum at “Jagannath International Management School, Kalkaji, New Delhi”. It
is under taken as an internship at HDFC Bank Limited, New Delhi. The project is
done under expert supervision and guidance of Ms. Jasleen Rana (Assistant Professor)
and Mrs. Googanie Singh (Relationship Quality Manager at HDFC Bank Ltd). The
Project is about Collateral Management.
At HDFC Bank Limited, initially I was imparted process and service knowledge. I
was given sufficient time to know about the services and what the company is doing.
The main aim was to understand how the documentation process for the disbursed
loan carried out and reduce the pendcies.
I was provided with database and had to make cold calls from the data and also ask to
make database for the same. Company’s ongoing activity was also one of the major
sources for getting the pendencies submitted. Main objective was to know the need of
the collateral management documents.
Thus it gave me the opportunity to learn about all the processes, channels and
departments of HDFC Bank Ltd. - Auto Loans (Sales) and how it deals with the
customers and offers services while keeping the earnings of the bank on a safer side.

6
 CHAPTER 1
INTRODUCTION TO THE TOPIC

7
 INTRODUCTION

In lending agreements, collateral is a borrower's pledge of specific property to

a lender, to secure repayment of a loan. The collateral serves as a lender's protection
against a borrower's default—that is, it can be used to offset the loan if the borrower
fails to pay the principal and interest satisfactorily under the terms of the lending
agreement.

The protection that collateral provides generally allows lenders to offer a

lower interest rate on loans that have collateral compared to those that do not, because
the risk of loss to the lender is lower. The reduction in interest rate can be up to
several percentage points, depending on the type and value of the collateral. For
example, the interest rate (APR) on an unsecured loan is often much higher than on
a secured loan or logbook loan, as in this case the risk is increased for the lender.

If a borrower does default on a loan (due to insolvency or other event), that borrower
forfeits (gives up) the property pledged as collateral, with the lender then becoming
the owner of the property. In a typical mortgage loan transaction, for instance, the real
estate being acquired with the help of the loan serves as collateral. Should the buyer
fail to repay the loan according to the mortgage agreement, the lender can use
the legal process of foreclosure to obtain ownership of the real estate.
A pawnbroker is a common example of a business that may accept a wide range of
items as collateral.

The type of the collateral may be restricted based on the type of the loan (as is the
case with auto loans and mortgages); it also can be flexible, like in the case of
collateral-based personal loans.

Concept of collateral

Collateral, especially within banking, traditionally refers to secured lending (also

known as asset-based lending). More-complex collateralization arrangements may be
used to secure trade transactions (also known as capital market collateralization). The
former often presents unilateral obligations secured in the form
of property, surety, guarantee or other collateral (originally denoted by the

8
term security), whereas the latter often presents bilateral obligations secured by more-
liquid assets such as cash or securities, often known as margin.

Marketable collateral

Marketable collateral is the exchange of financial assets, such as stocks and bonds, for
a loan between a financial institution and borrower. To be deemed marketable, assets
must be capable of being sold under normal market conditions with reasonable
promptness at current fair market value. For national banks to accept a borrower's
loan proposal, collateral must be equal to or greater than 100% of the loan or credit
extension amount. In the United States of America, the bank's total outstanding loans
and credit extensions to one borrower may not exceed 15 percent of the bank's capital
and surplus, plus an additional 10 percent of the bank's capital and surplus.

Reduction of collateral value is the primary risk when securing loans with marketable
collateral. Financial institutions closely monitor the market value of any financial
assets held as collateral and take appropriate action if the value subsequently declines
below the predetermined maximum loan-to-value ratio. The permitted actions are
generally specified in a loan agreement or margin agreement.

9
CHAPTER 2

10
 HISTORY OF BANKING

Banking is nearly as old as civilization. The history of banking could be said to have
started with the appearance of money. The first record of minted metal coins was in
Mesopotamia in about 2500B.C. the first European banknotes, which was handwritten
appeared in1661, in Sweden. cheque and printed paper money appeared in the 1700’s
and 1800’s, with many banks created to deal with increasing trade.

The history of banking in each country runs in lines with the development of trade
and industry, and with the level of political confidence and stability. The ancient
Romans developed an advanced banking system to serve their vast trade network,
which extended throughout Europe, Asia and Africa.

Modern banking began in Venice. The word bank comes from the Italian word “ban
co”, meaning bench, because moneylenders worked on benches in market places. The
bank of Venice was established in 1171 to help the government raise finance for a
war.

At the same time, in England merchant started to ask goldsmiths to hold gold and
silver in their safes in return for a fee. Receipts given to the Merchant were sometimes
used to buy or sell, with the metal itself staying under lock and key. The goldsmith
realized that they could lend out some of the gold and silver that they had and charge
interest, as not all of the merchants would ask for the gold and silver back at the same
time. Eventually, instead of charging the merchants, the goldsmiths paid them to
deposit their gold and silver.

The bank of England was formed in 1694 to borrow money from the public for the
government to finance the war of Augsburg against France. By 1709, goldsmith were
using bank of England notes of their own receipts.

New technology transformed the banking industry in the 1900’s round the world,
banks merged into larger and fewer groups and expanded into other country.

11
 BANKING STRUCTURE IN INDIA:

In today’s dynamic world banks are inevitable for the development of a country.
Banks play a pivotal role in enhancing each and every sector. They have helped bring
a draw of development on the world’s horizon and developing country like India is no
exception.

Banks fulfills the role of a financial intermediary. This means that it acts as a vehicle
for moving finance from those who have surplus money to (however temporarily)
those who have deficit. In everyday branch terms the banks channel funds from
depositors whose accounts are in credit to borrowers who are in debit.

Without the intermediary of the banks both their depositors and their borrowers would
have to contact each other directly. This can and does happen of course. This is what
has lead to the very foundation of financial institution like banks.

Before few decades there existed some influential people who used to land money.
But a substantially high rate of interest was charged which made borrowing of money
out of the reach of the majority of the people so there arose a need for a financial
intermediate.

The Bank have developed their roles to such an extent that a direct contact between
the depositors and borrowers in now known as disintermediation.

Banking industry has always revolved around the traditional function of taking
deposits, money transfer and making advances. Those three are closely related to each
other, the objective being to lend money, which is the profitable activity of the three.
Taking deposits generates funds for lending and money transfer services are necessary
for the attention of deposits. The Bank have introduced progressively more
sophisticated versions of these services and have diversified introduction in
numerable areas of activity not directly relating to this traditional trinity

12
 INDIAN BANKING SYSTEM

RESERVE BANK OF INDIA

Schedule Banks Non-Schedule Banks

Central co-op Banks

State co-op Banks Commercial Banks and Primary Cr.
Societies

Indian Foreign Commercial Banks

Public Sector Banks Private Sector Banks

State Bank of India

HDFC,ICICI etc.
and its Subsidiaries

Other Nationalized
Banks

Regional Rural Banks

13
 INDIAN BANKING INDUSTRY ANALYSIS

The banking scenario in India has been changing at fast pace from being just the
borrowers and lenders traditionally, the focus has shifted to more differentiated and
customized product/service provider from regulation to liberalization in the year
1991, from planned economy to market.

Economy, from licensing to integration with Global Economics, the changes have
been swift. All most all the sector operating in the economy was affected and banking
sector is no exception to this. Thus the whole of the banking system in the country has
undergone a radical change. Let us see how banking has evolved in the past 70 years
of independence.

After independence in 1947 and proclamation in 1950 the country set about drawing
its road map for the future public ownership of banks was seen inevitable and SBI
was created in 1955 to spearhead the expansion of banking into rural India and speed
up the process of magnetization.

Political compulsion’s brought about nationalization of bank in 1969 and lobbying by

bank employees and their unions added to the list of nationalized banks a few years
later.

Slowly the unions grew in strength, while bank management stagnated. The casualty
was to the customer service declined, complaints increased and bank management
was unable to item the rot.

In the meantime, technology was becoming a global phenomenon lacking a vision of

the future and the banks erred badly in opposing the technology up gradation of
banks. They mistakenly believed the technology would lead to retrenchment and
eventually the marginalization of unions.

The problem faced by the banking industry soon surfaced in their balance sheets. But
the prevailing accounting practices unable banks to dodge the issue.

14
The rules of the game under which banks operated changed in 1993. Norms or income
Recognition, Assets classification and loan loss provisioning were put in place and
capital adequacy ratio become mandatory. The cumulative impact of all these changes
has been on the concept of state ownership in banks. It is increasingly becoming clear
that the state ownership in bank is no longer sustainable.

The amendment of banking regulation act in 1993 saw the entry of new private sector
banks and foreign banks.

MAJOR PLAYER IN INDIA

1. State Bank of India
2. ICICI Bank
3. Punjab National Bank
4. Bank of Baroda
5. Canara Bank
6. Bank of India
7. HDFC Bank Ltd.
8. Standard Chartered Bank
9. IDBI Bank
10. Axis Bank

15
ABOUT HDFC BANK LIMITED

16
BACKGROUND

The Housing Development Finance Corporation Limited (HDFC) was amongst the
first to receive an ‘in principle’ approval from the Reserve Bank of India (RBI) to set
up a bank in the private sector, as part of RBI’s liberalisation of the Indian Banking
Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC
Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced
operations as a Scheduled Commercial Bank in January 1995.

PROMOTER

HDFC is India’s premier housing finance company and enjoys an impeccable track
record in India as well as in international markets. Since its inception in 1977, the
Corporation has maintained a consistent and healthy growth in its operations to
remain the market leader in mortgages. Its outstanding loan portfolio covers well over
a million dwelling units. HDFC has developed significant expertise in retail mortgage
loans to different market segments and also has a large corporate client base for its
housing related credit facilities. With its experience in the financial markets, strong
market reputation, large shareholder base and unique consumer franchise, HDFC was
ideally positioned to promote a bank in the Indian environment.

BUSINESS FOCUS

HDFC Bank’s mission is to be a World Class Indian Bank. The objective is to build
sound customer franchises across distinct businesses so as to be the preferred provider
of banking services for target retail and wholesale customer segments, and to achieve
healthy growth in profitability, consistent with the bank’s risk appetite. The bank is
committed to maintain the highest level of ethical standards, professional integrity,
corporate governance and regulatory compliance. HDFC Bank’s business philosophy
is based on five core values: Operational Excellence, Customer Focus, Product
Leadership, People and Sustainability.

17
CAPITAL STRUCTURE

As on 31st March, 2015 the authorized share capital of the Bank is Rs. 550 crore. The
paid-up share capital of the Bank as on the said date is Rs501,29,90,634/- (
2506495317 ) equity shares of Rs. 2/- each). The HDFC Group holds 21.67 % of the
Bank's equity and about 18.87 % of the equity is held by the ADS / GDR Depositories
(in respect of the bank's American Depository Shares (ADS) and Global Depository
Receipts (GDR) Issues). 32.57 % of the equity is held by Foreign Institutional
Investors (FIIs) and the Bank has 4,41,457 shareholders.

The shares are listed on the Bombay Stock Exchange Limited and The National Stock
Exchange of India Limited. The Bank's American Depository Shares (ADS) are listed
on the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's
Global Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange under
ISIN No US40415F2002.

AMALGAMATION OF TIMES BANK & CENTURION BANK OF PUNJAB

WITH HDFC BANK

On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank
was formally approved by Reserve Bank of India to complete the statutory and
regulatory approval process. As per the scheme of amalgamation, shareholders of
CBoP received 1 share of HDFC Bank for every 29 shares of CBoP.

The amalgamation added significant value to HDFC Bank in terms of increased

branch network, geographic reach, and customer base, and a bigger pool of skilled
manpower.

In a milestone transaction in the Indian banking industry, Times Bank Limited

(another new private sector bank promoted by Bennett, Coleman & Co. / Times
Group) was merged with HDFC Bank Ltd., effective February 26, 2000. This was the
first merger of two private banks in the New Generation Private Sector Banks. As per
18
the scheme of amalgamation approved by the shareholders of both banks and the
Reserve Bank of India, shareholders of Times Bank received 1 share of HDFC Bank
for every 5.75 shares of Times Bank.

DISTRIBUTION NETWORK

HDFC Bank is headquartered in Mumbai. As of March 31, 2015, the Bank’s

distribution network was at 4,014 branches in 2,464 cities.All branches are linked on
an online real-time basis. Customers across India are also serviced through multiple
delivery channels such as Phone Banking, Net Banking, Mobile Banking and SMS
based banking. The Bank’s expansion plans take into account the need to have a
presence in all major industrial and commercial centres, where its corporate customers
are located, as well as the need to build a strong retail customer base for both deposits
and loan products. Being a clearing / settlement bank to various leading stock
exchanges, the Bank has branches in centres where the NSE / BSE have a strong and
active member base.

The Bank also has a network of 11,766 ATMs across India. HDFC Bank’s ATM
network can be accessed by all domestic and international Visa / MasterCard, Visa
Electron / Maestro, Plus / Cirrus and American Express Credit / Charge cardholders.

MANAGEMENT

Mrs. Shyamala Gopinath holds a Master’s Degree in Commerce and is a CAIIB. Mrs.
Gopinath has 39 years of experience in financial sector policy formulation in different
capacities at RBI. As Deputy Governor of RBI for seven years and member of the
Board. Mrs. Gopinath had been guiding and influencing the national policies in the
diverse areas of financial sector regulation and supervision, development and
regulation of financial markets, capital account management, management of

19
government borrowings, forex reserves management and payment and settlement
systems.

The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25
years and before joining HDFC Bank in 1994 was heading Citibank’s operations in
Malaysia.

The Bank’s Board of Directors is composed of eminent individuals with a wealth of

experience in public policy, administration, industry and commercial banking. Senior
executives representing HDFC are also on the Board.

Senior banking professionals with substantial experience in India and abroad head
various businesses and functions and report to the Managing Director. Given the
professional expertise of the management team and the overall focus on recruiting and
retaining the best talent in the industry, the bank believes that its people are a
significant competitive strength.

TECHNOLOGY

HDFC Bank operates in a highly automated environment in terms of information

technology and communication systems. All the bank’s branches have online
connectivity, which enables the bank to offer speedy funds transfer facilities to its
customers. Multi-branch access is also provided to retail customers through the
branch network and Automated Teller Machines (ATMs).

The Bank has made substantial efforts and investments in acquiring the best
technology available internationally, to build the infrastructure for a world class bank.
In terms of core banking software, the Corporate Banking business is supported by
Flexcube, while the Retail Banking business by Finware, both from i-flex Solutions
Ltd. The systems are open, scaleable and web-enabled.

The Bank has prioritised its engagement in technology and the internet as one of its
key goals and has already made significant progress in web-enabling its core
20
 businesses. In each of its businesses, the Bank has succeeded in leveraging its market
position, expertise and technology to create a competitive advantage and build market
share.

BUSINESS PROFILE

HDFC Bank caters to a wide range of banking services covering commercial and
investment banking on the wholesale side and transactional / branch banking on the
retail side. The bank has three key business segments:

 Wholesale Banking

The Bank’s target market is primarily large, blue-chip manufacturing companies in

the Indian corporate sector and to a lesser extent, small & mid-sized corporates and
agri-based businesses. For these customers, the Bank provides a wide range of
commercial and transactional banking services, including working capital finance,
trade services, transactional services, cash management, etc. The bank is also a
leading provider of structured solutions, which combine cash management services
with vendor and distributor finance for facilitating superior supply chain management
for its corporate customers. Based on its superior product delivery / service levels and
strong customer orientation, the Bank has made significant inroads into the banking
consortia of a number of leading Indian corporates including multinationals,
companies from the domestic business houses and prime public sector companies. It
is recognised as a leading provider of cash management and transactional banking
solutions to corporate customers, mutual funds, stock exchange members and banks.

 Treasury

Within this business, the bank has three main product areas - Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the
liberalisation of the financial markets in India, corporates need more sophisticated risk

21
 management information, advice and product structures. These and fine pricing on
various treasury products are provided through the bank’s Treasury team. To comply
with statutory reserve requirements, the bank is required to hold 25% of its deposits in
government securities. The Treasury business is responsible for managing the returns
and market risk on this investment portfolio.

 Retail Banking

The objective of the Retail Bank is to provide its target market customers a full range
of financial products and banking services, giving the customer a one-stop window
for all his/her banking requirements. The products are backed by world-class service
and delivered to customers through the growing branch network, as well as through
alternative delivery channels like ATMs, Phone Banking, NetBanking and Mobile
Banking.

The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank
Plus and the Investment Advisory Services programs have been designed keeping in
mind needs of customers who seek distinct financial solutions, information and advice
on various investment avenues. The Bank also has a wide array of retail loan products
including Auto Loans, Loans against marketable securities, Personal Loans and Loans
for Two-wheelers. It is also a leading provider of Depository Participant (DP) services
for retail customers, providing customers the facility to hold their investments in
electronic form.

HDFC Bank was the first bank in India to launch an International Debit Card in
association with VISA (VISA Electron) and issues the MasterCard Maestro debit card
as well. The Bank launched its credit card business in late 2001. By March 2015, the
bank had a total card base (debit and credit cards) of over 25 million. The Bank is also
one of the leading players in the “merchant acquiring” business with over 235,000
Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant
establishments. The Bank is well positioned as a leader in various net based B2C
opportunities including a wide range of internet banking services for Fixed Deposits,
Loans, Bill Payments, etc.

22
RATINGS / AWARDS

Credit Rating

HDFC Bank has its deposit programmes rated by two rating agencies - Credit
Analysis & Research Limited. (CARE) and Fitch Ratings India Private Limited. The
bank's Fixed Deposit programme has been rated 'CARE AAA (FD)' [Triple A] by
CARE, which represents instruments considered to be "of the best quality, carrying
negligible investment risk".

CARE has also rated the bank's Certificate of Deposit (CD) programme "PR 1+"
which represents "superior capacity for repayment of short term promissory
obligations". Fitch Ratings India Pvt. Ltd. (100% subsidiary of Fitch Inc.) has
assigned the "tAAA (ind)" rating to the bank's deposit programme, with the outlook
on the rating as "stable". This rating indicates "highest credit quality" where
"protection factors are very high".
HDFC Bank also has its long term unsecured, subordinated (Tier II) Bonds of Rs.4
billion rated by CARE and Fitch Ratings India Private Limited. CARE has assigned
the rating of "CARE AAA" for the Tier II Bonds while Fitch Ratings India Pvt. Ltd.
has assigned the rating "AAA (ind)" with the outlook on the rating as "stable". In each
of the cases referred to above, the ratings awarded were the highest assigned by the
rating agency for those instruments.

Corporate Governance Rating:

The bank was one of the first four companies, which subjected itself to a Corporate
Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating
Information Services of India Limited (CRISIL). The rating provides an independent
assessment of an entity's current performance and an expectation on its "balanced
value creation and corporate governance practices" in future. The bank was assigned a
'CRISIL GVC Level 1' rating in January 2007 which indicates that the bank's
capability with respect to wealth creation for all its stakeholders while adopting sound
corporate governance practices is the highest
23
Awards and Accolades:

HDFC Bank began operations in 1995 with a simple mission: to be a "World-class

Indian Bank". We realized that only a single-minded focus on product quality and
service excellence would help us get there. Today, we are proud to say that we are
well on our way towards that goal.

Over the years, the Bank has received recognition and awards from several leading
organizations and publications, both domestic and international (details are available
on http://www.hdfcbank.com/aboutus/awards/default.htm).

Some important awards that the Bank won:

2015

AIMA Managing India Awards 2015 - Business Leader of the Year - Aditya
Puri
Barron's - World's 30 Best CEOs - Mr Aditya
Puri
Finance Asia poll on Asia's Best - Best Managed Public Company -
Companies 2015 India'
Best CEO- Aditya Puri
Best Corporate Governance- Rank 3
Best Investor Relations- Rank 3
J. P Morgan Quality Recognition - Best in class straight Through
Award Processing Rates

24
2014

Euromoney - HDFC Bank wins Best Private Banking Services for

Super affluent clients for 5 years in a row at Euromoney
Awards
Euromoney Private - Best Private Banking Services award for Net-worth-
Banking and specific services category for Super affluent clients (US$ 1
Wealth million to US$ 5 million).
Management - Best Private Banking Services award Asset Management
Survey 2015
FE Best Bank - Best Bank in the New Private sector
Awards - Winner - Profitability
- Winner - Efficiency
Business Today - - Best Large Bank - Overall
KPMG Study 2014 - Best Large Bank - Growth
Business world- - Best Large Bank
PwC India Best - Fastest Growing Large Bank
Banks Survey 2014
Asiamoney FX - Best Domestic Provider of FX options
Poll 2014 - Best Domestic Provider of FX products & Services
- Best Domestic Provider of FX research & market
coverage
- Best Domestic provider for FX Services
The Asian Banker Strongest Bank in India in the Asian Banker 500 (AB 500)
Strongest Bank by Balance Sheet Ranking 2014
Dun & Bradstreet - - Best Bank - Managing IT Risk (Large Banks)
Polaris Financial - Best Bank - Mobile Banking (Large Banks)
Technology - Best Bank - Best IT Team (Private Sector Banks)
Banking Awards
2014
Forbes Asia Fab 50 Companies List for the 8th year
BrandZ TM Top 50 India's Most Valuable Brand
Most Valuable

25
Indian Brands
study by Millward
Brown
Finance Asia - Best Bank - India
Country Awards - Best CEO- Rank 1
2014 and poll on - Best CSR - Rank 1
India's Top - Best CFO - Rank 2
Companies
Asiamoney Best of Best Domestic Banks - India
Dun & Bradstreet - Best Corporate in Banking Sector
Manappuram
Finance Limited
Corporate Award
2014

26
ORGANISATIONAL STRUCTURE of AUTO LOANS (SALES)
DEPARTMENT

RBM
(REGIONAL BRANCH MANAGER)

RSM
(REGIONAL SALES MANAGER)

ASM
(AREA SALES MANAGER)

SM
(SALES MANAGER)

BDR
(BRANCH DEALER RESOURCE)

27
KEY PERSONNEL OF THE ORGANIZATION

DIRECTORS

Mrs. Shyamala Gopinath

Mrs. Shyamala Gopinath holds a Master's Degree in Commerce and is a CAIIB. Mrs.
Gopinath has over 39 years of experience in financial sector policy formulation in
different capacities at RBI. As Deputy Governor of RBI for seven years and member
of the Board, Mrs. Gopinath had been guiding and influencing the national policies in
the diverse areas of financial sector regulation and supervision, development and
regulation of financial markets, capital account management, management of
government borrowings, forex reserves management and payment and settlement
systems.

During 2001-03, Mrs. Gopinath worked as senior financial sector expert in the then
Monetary Affairs and Exchange Department of the International Monetary Fund
(Financial Institutions Division). She was responsible for preparing the accompanying
document to the Guidelines on Foreign Exchange Reserve Management detailing
country practices. Mrs. Gopinath was a member of the FSAP missions to Tanzania,
Nigeria, Hungary and Poland and the Foreign Exchange and Reserve Management
team to Turkey and Kosovo.

Mrs. Gopinath was actively involved in managing India's balance of payments crisis
in 1991, the fall out of the Asian and the Russian crisis, nuclear sanctions against
India, Kargil war with Pakistan and the transmission of the recent financial crisis to
Indian financial system and the markets.

Mrs. Gopinath is a member of the following Committees of the Board of the Bank:
 Audit Committee
 Nomination and Remuneration Committee
 Risk Policy and Monitoring Committee
 Customer Service Committee (Chairperson)
 Fraud Monitoring Committee (Chairperson)

28
Mr. Partho Datta

Mr. Partho Datta is an Associate Member of the Institute of Chartered Accountants of

India. Mr. Datta joined Indian Aluminum Company Limited (INDAL) and was with
INDAL and its parent company in Canada for 25 years and held positions as
Treasurer, Chief Financial Officer and Director- Finance during his tenure.
Thereafter, Mr. Datta joined the Chennai based Murugappa Group as the head of
Group Finance and was a member of the Management Board of the Group, as well as
Director in several Murugappa Group companies. Post retirement from the
Murugappa Group, Mr. Datta was an advisor to the Central Government-appointed
Board of Directors of Satyam Computers Services Limited during the restoration
process and has also been engaged in providing business / strategic and financial
consultancy on a selective basis.

Mr. Datta has rich and extensive experience in various financial and accounting
matters including financial management.

Mr. Datta is a member on the following Committees of the Board of the Bank:
 Audit Committee
 Nomination and Remuneration Committee
 Corporate Social Responsibility Committee
 Risk Policy and Monitoring Committee
 Fraud Monitoring Committee

Mr. Bobby Parikh

Mr. Bobby Parikh holds a Bachelor's degree in Commerce from the Mumbai
University and has qualified as a Chartered Accountant in 1987. Mr. Parikh is a
Senior Partner with BMR & Associates LLP and leads its financial services practice.
Prior to joining BMR & Associates LLP, Mr. Parikh was the Chief Executive Officer
of Ernst & Young in India and held that responsibility until December 2003. Mr.
Parikh worked with Arthur Andersen for over 17 years and was its Country Managing

29
Partner, until the Andersen practice combined with that of Ernst & Young in June
2002.

Over the years, Mr. Parikh has had extensive experience in advising clients across a
range of industries. India has witnessed significant deregulation and a progressive
transformation of its policy framework. An area of focus for Mr. Parikh has been to
work with businesses, both Indian and multinational, in interpreting the implications
of the deregulation as well as the changes to India's policy framework, to help
businesses better leverage opportunities that have become available and to address
challenges that resulted from such changes.

Mr. Parikh has led teams that have advised clients in the areas of entry strategy
(MNCs into India and Indian companies into overseas markets), business model
identification, structuring a business presence, mergers, acquisitions and other
business reorganizations.

Mr. Parikh works closely with regulators and policy formulators, in providing inputs
to aid in the development of new regulations and policies, and in assessing the
implications and efficacy of these and providing feedback for action. Mr. Parikh led
the Financial Services industry practice at Arthur Andersen and then also at Ernst &
Young, and has advised a number of banking groups, investment banks, brokerage
houses, fund managers and other financial services intermediaries in establishing
operations in India, mergers and acquisitions and in developing structured financial
products, besides providing tax and business advisory and tax reporting services.
Mr. Parikh has been a member of a number of trade and business associations and
their management or other committees, as well as on the advisory or executive boards
of non-Governmental and not-for-profit organizations.

Mr. Parikh is a member on the following Committees of the Board of the Bank:
 Audit Committee (Chairman)
 Nomination and Remuneration Committee (Chairman)
 Corporate Social Responsibility Committee
 Credit Approval Committee

30
Mr. A. N. Roy

Mr. Anami. N. Roy is an M. A., M. Phil and is a distinguished retired civil servant.
During his long career of 38 years in the Indian Police Service (IPS), Mr. Roy held
with great distinction a range of assignments, including some of the most prestigious,
challenging and sensitive ones, both in the state of Maharashtra and Government of
India, including Commissioner of Police, Mumbai and DGP, Maharashtra before
retiring in the year 2010.

Mr. Roy's areas of specialisation include policy planning, budget, recruitment,

training and other finance and administration functions in addition to all operational
matters.

A firm believer in technology in Police for providing solutions to a variety of complex

problems or citizen facilitation and as ‘force-multiplier', Mr. Roy brought in
technology in a very big way in the Police department with full co-operation and
support of the entire IT Industry. Mr. Roy also held the position of Director General
of the Anti-Corruption Bureau, in which capacity Mr. Roy initiated a policy document
on vigilance matters for Government of Maharashtra.

Mr. Roy has wide knowledge and experience of security and intelligence matters at
the state and national level.
Having handled multifarious field and staff assignments, Mr. Roy has a rich and
extensive experience of functioning of the government at various levels and of
problem solving.

Mr. Roy is a member on the following Committees of the Board of the Bank:
 Audit Committee
 Nomination and Remuneration Committee
 Stakeholders' Relationship Committee (Chairman)
 Customer Service Committee
 Fraud Monitoring Committee

31
Mr. Malay Patel

Mr. Malay Patel is a Major in Engineering (Mechanical) from Rutgers University,

Livingston, NJ, USA, and an A.A.B.A. in business from Bergen County College,
Fairlawn, NJ, USA. He is a director on the Board of Eewa Engineering Company
Private Limited, a company in the plastics / packaging industry with exports to more
than 50 countries. He has been involved in varied roles such as export / import,
procurement, sales and marketing, etc in Eewa Engineering Company Private
Limited. Mr. Malay Patel has special knowledge and practical experience in matters
relating to small scale industries in terms of Section 10-A (2 a) of the Banking
Regulation Act, 1949.

Mr. Patel is a member on the following Committees of the Board of the Bank:
 Customer Service Committee
 Fraud Monitoring Committee
 Premises Committee

Mr. Keki Mistry

Mr. Keki Mistry holds a Bachelor's Degree in Commerce from the Mumbai
University. Mr. Mistry is a Fellow Member of the Institute of Chartered Accountants
of India.

Mr. Mistry started his career with The Indian Hotels Company Limited, one of the
largest chains of hotels in India.

In the year 1981, Mr. Mistry joined Housing Development Finance Corporation
Limited (HDFC Ltd). Mr. Mistry was inducted on to the Board of Directors of HDFC
Ltd as an Executive Director in the year 1993 and was elevated to the post of
Managing Director in November 2000. In October 2007, Mr. Mistry was appointed as
Vice Chairman & Managing Director of HDFC Ltd and became the Vice Chairman &
Chief Executive Officer in January 2010.

32
Mr. Mistry is a member of the following Committees of the Board of the Bank:
 Fraud Monitoring Committee
 Customer Service Committee
 Credit Approval Committee (Chairman)

Mrs. Renu Karnad

Mrs. Renu Karnad is a graduate in law from the Mumbai University and also holds a
Master's Degree in Economics from Delhi University. Mrs. Karnad is a Parvin
Fellow-Woodrow Wilson School of International Affairs, Princeton University,
U.S.A.

Mrs. Karnad joined Housing Development Finance Corporation Limited in 1978.

After spending two decades in various positions, Mrs. Karnad was inducted on to the
Board as Executive Director in 2000 and was further elevated to the post of Managing
Director with effect from January 1, 2010.
Over the years, Mrs. Karnad has to her credit, numerous awards and accolades.
Known for her wit and diplomacy, Mrs. Karnad has always had a humane approach
towards solving complex issues.

Mrs. Karnad is a member on the following Committees of the Board of the Bank:
 Stakeholders' Relationship Committee
 Corporate Social Responsibility Committee (Chairperson)
 Risk Policy and Monitoring Committee (Chairperson)
 Premises Committee (Chairperson)

Mr. Aditya Puri

Mr. Aditya Puri holds a Bachelor's degree in Commerce from Punjab University and
is an Associate Member of the Institute of Chartered Accountants of India.

33
Prior to joining the Bank, Mr. Puri was the Chief Executive Officer of Citibank,
Malaysia from 1992 to 1994.

Mr. Puri has been the Managing Director of the Bank since September 1994. Mr. Puri
has nearly 40 years of experience in the banking sector in India and abroad.

Mr. Puri has provided outstanding leadership as the Managing Director and has
contributed significantly to enable the Bank scale phenomenal heights under his
stewardship. The numerous awards won by Mr. Puri and the Bank are a testimony to
the tremendous credibility that Mr. Puri has built for himself and the Bank over the
years.

The Bank has made good and consistent progress on key parameters like balance
sheet size, total deposits, net revenues, earnings per share and net profit during Mr.
Puri's tenure.

The rankings achieved by the Bank amongst all Indian banks with regard to market
capitalization, profit after tax and balance sheet size remain amongst the top 10.

During his tenure Mr. Puri has led the Bank through two major mergers in the Indian
banking industry i.e. merger of Times Bank Limited and Centurion Bank of Punjab
Limited with HDFC Bank Limited. The subsequent integrations have been smooth
and seamless under his inspired leadership. Mr. Puri continues to be the Managing
Director of the Bank.

Mr. Puri is a member of the following Committees of the Board of the Bank:
 Stakeholders' Relationship Committee
 Corporate Social Responsibility Committee
 Risk Policy and Monitoring Committee
 Credit Approval Committee
 Customer Service Committee
 Fraud Monitoring Committee
 Premises Committee

34
Mr. Paresh Sukthankar

Mr. Paresh Sukthankar completed his graduation from Sydenham College, Mumbai
and holds a Bachelor of Commerce (B.Com) degree from University of Mumbai. He
has done his Masters in Management Studies (MMS) from Jamnalal Bajaj Institute
(Mumbai). Mr. Sukthankar has also completed the Advanced Management Program
(AMP) from the Harvard Business School.

Mr. Sukthankar has been associated with the Bank since its inception in 1994 and has
rich experience in areas such as Risk Management, Finance, Human Resources,
Investor Relations, and Corporate Communications etc.
Prior to joining the Bank, Mr. Sukthankar worked in Citibank for around 9 years, in
various departments including corporate banking, risk management, financial control
and credit administration. Mr. Sukthankar has been a member of various Committees
formed by Reserve Bank of India and Indian Banks' Association. At present, Mr.
Sukthankar is the Deputy Managing Director of the Bank.

Mr. Sukthankar is a member on the following Committees of the Board of the Bank:
 Corporate Social Responsibility Committee
 Stakeholders' Relationship Committee
 Risk Policy and Monitoring Committee

Mr. Kaizad Bharucha

Mr. Kaizad Bharucha holds a Bachelor of Commerce degree from University of

Mumbai. He has been associated with the Bank since 1995. In his current position as
Executive Director, he is responsible for Wholesale Banking covering areas of
Corporate Banking, Emerging Corporate Group, Business Banking, Capital Markets
& Commodities Business, Agri Lending, Investment Banking, Financial Institutions
& Government Business and Department for Special Operations.

In his previous position as Group Head - Credit & Market Risk, he was responsible

35
for the Risk Management activities in the Bank viz., Credit Risk, Market Risk, Debt
Management, Risk Intelligence and Control functions.

Mr. Bharucha has been a career banker with over 28 years of banking experience.
Prior to joining the Bank, he worked in SBI Commercial and International Bank in
various areas including Trade Finance and Corporate Banking.

He has represented HDFC Bank as a member of the working group constituted by the
Reserve Bank of India to examine the role of Credit Information Bureau and on the
sub-committee with regard to adoption of the Basel II guidelines.

Mr. Bharucha is a member on the following Committees of the Board of the Bank:
 Credit Approval Committee

Mr. Umesh Chandra Sarangi

Mr. Umesh Chandra Sarangi has been appointed as an Independent Director on the
Board of the Bank with effect from 21st July, 2016 for a period of five (5) years.

Mr. Sarangi holds a Masters degree in Science (Botany) from Utkal University (gold
medallist). Mr. Sarangi has 35 years of experience in Indian Administrative Service
and brought in significant reforms in modernizing of agriculture, focus on agro
processing and export. As the erstwhile Chairman of National Bank for Agricultural
and Rural Development (NABARD) from December 2007 to December 2010, Mr.
Sarangi focused on rural infrastructure, accelerated initiatives such as microfinance,
financial inclusion, watershed development and tribal development.

Mr. Sarangi has been appointed as a Director having specialized knowledge and
experience in agriculture and rural economy pursuant to Section 10-A (2)(a) of the
Banking Regulation Act, 1949.

Mr. Sarangi is a member on the following Committees of the Board of the Bank:
 Audit Committee
 Corporate Social Responsibility Committee

36
Mr. Srikanth Nadhamuni

Mr. Srikanth Nadhamuni has been appointed as an Additional Director on the Board
of the Bank with effect from 20th September, 2016, to hold office till the ensuing
Annual General Meeting of the Bank.

Mr. Nadhamuni holds a Bachelor’s degree in Electronics and Communications from

National Institute of Engineering and a Master’s degree in Electrical Engineering
from Louisiana State University.

Mr. Nadhamuni was the Chief Technology Officer of Aadhaar (UID Authority of
India) during 2009-2012 and is currently the Chairman of Novopay Solutions, a
company involved in the area of mobile payments and banking and is the CEO of
Khosla Labs, a start-up incubator. Mr. Nadhamuni has extensive experience in
Information Technology, particularly in the banking and financial services industry.
Mr. Nadhamuni was instrumental in the development of Aadhaar technology, and has
contributed on several Aadhaar banking products and services.

Mr. Nadhamuni has been appointed as a Director having expertise in the field of
Information Technology.

Mr. Nadhamuni is a member on the following Committees of the Board of the Bank:
 IT Strategy Committee (Chairman)
 Customer Service Committee

37
HDFC Bank Limited (the Bank) is an India-based banking company engaged in
providing a range of banking and financial services, including commercial banking
and treasury operations. The Bank has a network of 4715 branches and 12260
automated teller machines (ATMs) in 2597 cities and total employees are 84325.

BRANCHES (NOS)
4715

4520
4014

2015 2016 2017

BRANCHES (NOS)
4715

4520
4014

2015 2016 2017

38
 Snapshot
Company Background
Industry Finance - Banks - Private Sector.
Business Group HDFC Group
Incorporation Date 31/12/1994
Public Issue Date 31/12/1995
Face Value 10.0000

Company/Business Registration No INE040A01018

Key Officials CEO Aditya puri

39
 HISTORY OF HDFC BANK

HDFC BANK LTD was incorporated in August 1994 in the name of 'HDFC Bank
Limited’, with its registered office in Mumbai, India. HDFC Bank commenced
operations as a Scheduled Commercial Bank in January 1995.

If ever there was a man with a mission it was Hasmukhbhai Parekh, Founder and
Chairman-Emeritus, of HDFC Group. HDFC BANK LTD was amongst the first
to set up a bank in the private sector. The bank was incorporated on 30th August 1994
in the name of ‘HDFC Bank Limited’, with its registered office in Mumbai. It
commenced operations as a Scheduled Commercial Bank on 16th January 1995. The
bank has grown consistently and is now amongst the leading players in the industry
.

HDFC is India's premier housing finance company and enjoys an impeccable track
record in India as well as in international markets. Since its inception in 1977, the
Corporation has maintained a consistent and healthy growth in its operations to
remain the market leader in mortgages. Its outstanding loan portfolio covers well over
a million dwelling units.

HDFC has developed significant expertise in retail mortgage loans to different market
segments and also has a large corporate client base for its housing related credit
facilities. With its experience in the financial markets, a strong market reputation,
large shareholder base and unique consumer franchise, HDFC was ideally positioned
to promote a bank in the Indian environment in a milestone transaction in the Indian
banking industry; Times Bank was merged with HDFC Bank Ltd., effective February
26, 2000.

40
 VISION

To be a customer driven best managed enterprise that enjoys market leadership in

providing housing related finance.

MISSION

HDFC Banks’ mission is to be “a World Class Indian Bank”, benchmarking

themselves against international standards and best practices in terms of product
offerings, technology, service levels, risk management and audit & compliance.

OBJECTIVE

The objective is to build sound customer franchises across distinct businesses as to be

a preferred provider of banking services for target retail and wholesale customer
segments, and to achieve a healthy growth in profitability, cinsistent with the bank’s
risk appetite. we are committed to do this while ensuring the highest levels of ethical
standards, professional integrity, corporate governance and regulatory compliance.

41
 OBJECTIVES

 To understand the working of the Auto Loans (Sales)

 To understand and study the need and importance of the collection of
documents after loan disbursement
 To help the bank in reduction of document pendencies

42
LITERATURE REVIEW

43
Introduction

Collateral Management is now more at the centre-stage than ever before. The 2008
financial crisis and the role derivatives played in it compelled the market regulators to
reassess the risks posed by various derivative instruments and reengineer the way they
ideally should originate, clear and settle tasks. This prompted a sea of global
regulations like EMIR, DFA, Basel III MiFID II amongst many others with a primary
objective of increasing market stability and resiliency, enhancing transparency and
reducing counterparty, operational and liquidity risk.

With the advent of these reforms including “liquidity coverage ratio”, it become more
imperative for firms to manage and hold on to higher quality collateral assets in their
books with business, getting replaced with secured lending.

With such a significant evolution of markets, the financial firms are facing up to the
challenges like managing their existing collateral management landscape with impact
on:
 Collateral optimization to mitigate and reduce financing costs
 Ascertaining collateral availability within the firm in inter-branch, inter-region
and inter-desk landscape
 Prioritizing collateral placements and
 Much needed and enhanced Operating Model required to support the entire
gamut of collateral management functions and diminish fragmentation.

Collateral Optimization is a buzz-phrase in all financial institutions that enables

centralization of collateral functions across business units to arrive at a cost of placing
each collateral. This helps financial institutions manage supply and demand of
collaterals across the firm in an integrated way. It also offers significant cost savings
and improves and liquidity management by helping firms hold onto high quality
assets rather than pledging them. Optimization also enables users to extract maximum
economic value from collateral assets that were previously sitting idle on the balance
sheet.

44
This white paper endeavours to bring out various aspects of collateral management in
the context of ever changing regulations, key challenges the sun setting on the
unsecured lending faced by the industry in managing often scarce collaterals and also
discusses the available solutions to address those challenges.

Definition of Collateral & Collateral Management

A plain English definition of ’Collateral’ is the assets (generally very Liquid)

provided by one party-to-trade to another to mitigate the counter- party risk for any
extension of credit or financial exposure to compensate for payment default. In
financial institutions, especially in the global banks, this could be different in case of
Banking Books as against Trading Books. For Banking Books type of collateral could
be cash, gold, government securities etc. whereas, for Trading Books it is generally
cash and government bonds. The problem has grown in the last few years owing to
the increased risk involved in the exposures of Trading Books, increase in secured
lending in the banking books and thus, creating a huge demand of liquid assets.

‘Collateral Management’ is an aftermath of a conjuncture of process of multiple

functions such as Collateral Inventory Management, Collateral Prioritization,
Collateral Optimization, collateral Transformation and Distribution functioning under
KPIs like optimal allocation, availability, timely delivery and financing cost.

Delving further, effective Collateral Management starts with design, negotiation and
setting up a new collateral legal agreement (ISDA’s CSA) and continues with
operations to collect and return cash and collateral, recall and substitute collateral,
transformation of collateral, valuation of collateral, managing corporate actions on
collateral and lastly by meeting the demands to finance new products.

45
Increasing need of collaterals

The Dodd Frank Act, EMIR and Basel III Capital requirements are three different
pieces of regulations which drive the need for humungous amount of quality
collaterals. the International Swaps and Derivatives Association (ISDA®) calculated
that new initial margin requirements for OTC derivatives could top $10 trillion. More
recently, a committee of the Bank for International Settlement (BIS) estimated that
the combination of new liquidity requirements and derivatives regulation could push
collateral needs to $4 trillion” – Source: a report on Collateral Management by DTCC

TABB group study estimates that “Dodd-Frank and EMIR reforms are expected to
create a shortfall in eligible high-grade collateral of over $2T”

“A September 2012 study by the Bank of England estimated that new collateral
demands could reach as high as $800 billion as a result of new regulatory
requirements. In a different analysis,

The following are the major factors which drives ‘Collateral demand’:

 Mandatory CCP Clearing - The mandate for centralized clearing of all

standardized OTC derivatives contracts which affects all the counterparties
dealing in OTC Derivatives trades
 Clearing Fragmentation - Lack of a single CCP which can clear all the OTC
derivative contracts impedes the possibility of netting the collateral needs
arising out of clearing different asset classes from different clearing houses.
This may even drive individual daily or even intraday margin calls for each
clearinghouse
 Bilateral Collateralization under EMIR – EMIR necessitates Financial
Counterparties (FCs) and Non-Financial Counterparties (NFCs) to have risk
management procedures in place that requires he timely, accurate and
appropriately segregated exchange of collateral with respect to OTC
derivative contracts

46
  Basel III capital requirements - Recent Basel III proposals brought changes to
credit and counterparty risk calculations along with new Liquidity Coverage
Ratio (LCR) requirements. They also call for additional collateral and margin
requirements for banks having exposures to large, complex and illiquid
derivatives.
 UCITS IV directive – The UCITS IV directive which was implemented in late
2010 has made it easier for fund management firms to operate across borders.
Fund managers will now require increased usage of collaterals to contain the
credit risk arising out of the cross border derivatives dealings
 EMIR requirements on segregation of client collaterals
 Contribution to CCP default funds
 Increase in the secured lending business as against unsecured lending
 Restrictions on re-hypothecation of received collaterals – Re-hypothecation
refers to collateral received from one counter-party being reused to meet the
collateral obligation to another.
 FSB recommends that only entities subject to adequate regulation of liquidity
risks should be allowed to engage in the re-hypothecation of client assets
 ESMA has proposed outright ban on re-hypothecation and other re-use of
collaterals as initial margin.

Collateral management challenges

Collaterals now becoming an integral component of trading, liquidity management,

credit risk, and market risk and finance activities.

Key challenges which most banks face:

 Back-office operations function - Collateral is predominantly managed within
the back office, and is totally out of sync with the treasury/finance desk. This
is although changing and slowing being viewed as an essential Front/Mid
office functions in most of the banks. The global derivative pricing models in
the past few years which includes CVA, DVA, FVA is also actually bringing

47
 treasury and collateral management into contact with trading desk and risk
managers

 Working in silo – Many banks still run a silo-based collateral management

environment between departments and products handling individual margin
calls. This does not present an enterprise level view of the available collaterals
and agreements to manage them optimally.

 Tracking which securities have been assigned to be swapped for collateral-

grade securities, which collateral has been posted as margin and understanding
the firm’s intra-liquidity position has become more difficult, mainly due to the
lack of integration of transactional data

 Increase in margin calls – Recent proliferation of regulatory requirements,

multitude of CCPs and ISDA’s new CSA which recommends matching the
currency of the collateral with the currency of the underlying trade is expected
to increase the daily margin calls by minimum 10 times

 Client collateral segregation –Recent regulations mandating the clearing

members to segregate the client collaterals, is expected to drive a surge in the
number of accounts while adding greater complexity to segregation models.
The existing systems may not be able to cope-up with this requirement

 Inability to produce intraday collateral valuations for regulators / front-offices

 Limited
 Cross product netting abilities
 Cross asset collateral views
 Capabilities for adopting emerging central counterparty clearing
infrastructure and computing complex margin calculations

 Paucity of quality collaterals – Inefficient allocation of available collaterals

coupled with high demand drives the scarcity of quality collaterals

48
  Manual intervention - Handling of margin calls (sending and receiving) &
maintaining instrument prices manually create inefficiencies
 Fragmented systems breeding inefficiencies – Receiving consolidated data
from multiple partner systems in batches (and not intra-day) induces
inefficiencies
 Key decisions based on stale data – Most of the collateral management areas
operate with a time-lag, and do not support intraday risk management
 Existing System’s deficiency in grading the collaterals based on its cost &
continuously monitoring and assessing the impact of credit rating downgrades
of any financial institution

Suggested Solutions

While there is no single straight-fit solution to overcome challenges, many IT service

companies have come up with a varied set of solutions, some addressing specific
challenges stated above while others trying to represent elements of larger strategic
initiatives.

For any firm to successfully convert the above challenges to opportunities, the
following are the areas in Collateral Management which need to be looked at.

 Enterprise view of collaterals– An efficient Collateral Management system

should have a firm – wide view of collateral inventory and obligations across
product lines and business lines. The firms should come out the silo-based
approach which was being practiced all these days. Collateral management
should no longer be treated as a back-office function as it requires a front-
office mind set to react to changing market dynamics.

 Real-Time Collateral Valuation – Collateral valuations should be performed

intra-day (near real time) which will help the front office to factor in pricing
and trading decisions. Real-time valuations will also help the firms perform
daily collateral valuations, portfolio reconciliations & dispute management

49
 (EMIR requirement for bilateral trades), margin calculations, forecasting,
exposure calculations and intra-day liquidity management

 Automated Margin Calculations – Margin call calculations should be

automated as much as possible using the configurable margin rule engine to
enable STP. The Margin calls should be transmitted and the counterparty
could agree on or dispute the margin call using the electronic messaging

 Collateral Optimization -Collateral Optimization is just one piece of a large

collateral management activity. It is a process which identifies and addresses
the gap between collateral supply and demand by means of:
 Centralizing the ‘collateral function’ across business& product lines
 Providing a central view of agreements (CSAs)
 Identifying collaterals placed at various locations
 Aggregation of the available collaterals
 Assigning a cost to collateral assets
 Ascertaining the haircut weighted cost of the available collaterals
 Ranking the collaterals based on cost (basically to find out the cheapest
to deliver)
 Automatic allocation of collateral

For each margin call across the business lines - Securities lending, Repos, and
OTC/exchange traded derivatives. Some of the questions which banks need to
retrospect are whether each and every collateral transaction nature is understood, if
they still performing re-hypothecation within prescribed internal limits and whether
they require legal documentation etc.

With the understanding of these gaps, firms shall be able to manage collateral supply
and demand across the firm in an integrated way. It offers considerable cost savings
and improves liquidity management by helping firms to hold onto high quality assets
rather than pledging them out. Optimization also enables users to extract maximum
economic value from collateral assets that were previously sitting idle on the balance
sheet

50
Optimization not only helps the firms identify the ‘cheapest to deliver’ collateral, but
also helps take collateral allocation decisions across the portfolio, based on ‘hardest
(collateral) to place’ and ‘hardest (counterparty) to please’.

Furthermore, it must take into account the ability to dynamically transform, substitute
and reallocate pledged collateral in real time throughout the trade lifecycle, in line
with cheapest to deliver methodology

The diagrammatic representation of how collateral optimization function delivers the

‘cheapest to deliver’ collateral is given below:

 Collateral Transformation – Collateral transformation is another form of

Optimization This is a process which enables the firms to exchange the
available collaterals which have least levels of acceptability with the
collaterals which are widely accepted, for a fee. The most common way of
achieving this will be by means of a repo transaction, for an exchange of fee.

 Effective communication layer to enable STP – Firms should be able to

automate most of the above activities which are part of Collateral
Management Lifecycle starting from the setting up of new collateral legal
agreement till the settlement of collaterals between the counterparties. Firms
should explore the utilization of standardized electronic messages like SWIFT

 Transparency - Firms must adapt to increase the transparency into the key
collateral analyses, metrics and processes, and require increased
communications between the collateral management team and the front office

The above mentioned areas, if integrated and automated leads to a unified collateral
management platform. This could be called as a Future-Ready Collateral Management
solution. The functional architecture of the Future-Ready Collateral Management is
depicted below:

51
RESEARCH METHODOLOGY

52
PRIMARY DATA

The collection of primary data was done mainly by interacting with the employees
within the organization.
This was done to know the internal procedures of the organization to know and
understand it in a better way. Unstructured Interviews were done to identify the
reasons for the pendencies of the documents.

 Unstructured Interviews

An unstructured interview or non-directive interview is an interview in which

questions are not prearranged. These non-directive interviews are considered to be the
opposite of a structured interview which offers a set amount of standardized
questions. The form of the unstructured interview varies widely, with some questions
being prepared in advance in relation to a topic that the researcher or interviewer
wishes to cover. They tend to be more informal and free flowing than a structured
interview, much like an everyday conversation. Probing is seen to be the part of the
research process that differentiates the in-depth, unstructured interview from an
everyday conversation. This nature of conversation allows for spontaneity and for
questions to develop during the course of the interview, which are based on the
interviewees' responses. The chief feature of the unstructured interview is the idea of
probe questions that are designed to be as open as possible. It is a qualitative research
method and accordingly prioritizes validity and the depth of the interviewees'
answers. One of the potential drawbacks is the loss of reliability, thereby making it
more difficult to draw patterns among interviewees' responses in comparison to
structured interviews. Unstructured interviews are used in a variety of fields and
circumstances, ranging from research in social sciences, such as sociology, to college
and job interviews. Fontana and Frey have identified three types of in depth,
ethnographic, unstructured interviews - oral history, creative interviews (an
unconventional interview in that it does not follow the rules of traditional
interviewing), and post-modern interviews.

53
This was done to now the reasons behind the pendencies of the documents by various
employees within the organization at different branches and the Sales personnel of the
various automobiles dealerships.

SECONDARY DATA

The collection of secondary data was done in various ways through

 Websites
 Previous Research Reports
 Office executives
 Company data.

 Office executives
The data collected from the Office Executives was mainly the facts and figures solely
for internal use of the organization therefore cannot be shared outside the
organization.

 Company data.
The company data was collected from the company’s own official website available
for the general public.

54
FINDINGS

55
 POST DISBURSEMENT DOCUMENTATION (PDD)

Post Disbursement Documentation, the backhand department of the Auto Loans

(Sales) division of the bank.

It is the most essential department as it collects the collateral i.e., the required
documents which ensure the safety of the loan for the bank and acts as a security.

The Post Disbursement Documentation department works on the updating and

rejection of the collateral documents. The documents collected are sent through
different departments for verification, identification of fraud and updating the
documents in the banks’ systems.

The documents are either updated or rejected, if they do not meet the required set of
criteria that are set or updating the documents.

The rejected lot of documents is sent to the personnel of the Post Disbursement
Documentation working on the rejected documents. The rejections that can be
rectified at the hands of the PDD personnel are done and validating the rectified
documents using specific stamps making them authorized corrections. The rest of the
rejected documents are returned to the Sales Manager of the respective loan account
customer for the corrections.

The responsibility of the Post Disbursement Documentation department is to collect

the following documents:
1. Invoice of the vehicle.
2. Registration Certificate
3. Insurance

56
 LOAN PROCEDURE FOR OPEN MARKET CHANNEL

SM
(SALES MANAGER)

DDSA
DSA
(DIRECT
(DIRECT SALES
DEALERSHIP SALES
AGENT)
AGENT)

At a DDSA
 The customer goes to the DDSA (showroom) of the selected brand.
 The customer then selects the model and the variant of the desired vehicle.
 The dealer then asks the customer the mode of payment.
 The customer then selects the option of bank loan. The dealer takes the
customer to the sales person of the various banks.
 According to the preference and suitability of the customer the financier is
chosen, and if HDFC Bank Ltd is chosen for financing the car for the
customer the following steps are undertaken for approval and disbursal of
loan
1. The BDR of the bank sitting at the DDSA takes the KYC (Know Your
Customer) and other essential documents which includes:
i. PAN Card
ii. Address Proof
iii. ITR (Income Tax Return) – For Self-Employed
iv. Salary Slip/Form 16 – For Salaried Employees
This is self attested by the customer.
2. The file containing the above mentioned documents is then Logged in
the system software – FINNONE – and then passed on to the Credit
Manager at the bank.
3. The Credit manager after assessing the details and eligibility of
customer either approves or rejects the loan.

57
 4. When the loan is approved the customer is informed the same through
a message.
5. Then the customer finalizes that he/she wants the loan from the same
bank.
6. After the finalization of the loan by the customer the loan is disbursed
within 30 minutes which is the bank policy.
7. The disbursed amount of the loan is then transferred to the DDSA and
the customer is ready to take the automobile from the dealer.
8. The dealer then provides the bank with the following documents
i. Invoice
ii. RTO (Regional Transport Office) Receipt
iii. Margin Money
9. The BDR then goes to the customer to get the Formal Agreement Kit
of the bank singed by the customer along with the required cheques
from the customer.
 The bank gets three types of cheques signed from the customer
 The first EMI cheque is taken since it takes time to
enter the ECS (Electronic Clearing Services)
 EMI x 3 – EMI amount for three months
 EMI x 9 – EMI amount for nine months
 The EMI x3 and EMI x 9 cheques are taken for security
purpose so that if the customer does not pay the EMI the bank
can get the EMI through those cheques.

At DSA
The same procedure takes place with a change i.e., instead of the BDR (the bank
person) the DSA sends their people to do all the paper work.

58
 LOAN PROCEDURE FOR BCS (Branch Cross Sales) CHANNEL

BRANCH

RM PB
(RELATIONSHIP (PERSONAL
MANAGER) BANKER)

SALES STAFF SALES STAFF

SOURCING OF CUSTOMERS:
 PB (PERSONAL BANKER) – CLASSIC CUSTOMER
 PREFFERED RM (RELATIONSHIP MANAGER) – PREFFERED
CUSTOMER
 IMPERIA RM (RELATIONSHIP MANAGER) – IMPERIA CUSTOMER
 BBG (BUSINESS BANKING)
 CSRM/KCM – CORPORATE SALARY RELATIONSHIP MANAGER

The Process:
1. The PB’s and RM’s have portfolios of their respective category of
customers.
2. Through the portfolios the RM’s/PB’s contact the customers for the
requirement of loans.
3. If there is a requirement the RM/PB generates a lead on the software
“CRMNEXT” where the respective Sales Manager of the branches
gets informed.
4. Now the Sales Manager chooses the follow up option on the software
so that he/she is kept updated about the progress.

59
5. While the Sales Manager is kept about the progress through the
CRMNEXT software and the sales staff under them (who assist the
customer in the formalities of the process), of the loan his/her sales
staff carry out the following process
a. The sales staff collects the following documents
i. PAN Card
ii. Address Proof
iii. ITR (Income Tax Return) – For Self-Employed
iv. Salary Slip/Form 16 – For Salaried Employees
This is self attested by the customer.
6. The file containing the above mentioned documents is then Logged in
the system software – FINNONE – and then passed on to the Credit
Manager at the bank.
7. The Credit manager after assessing the details and eligibility of
customer either approves or rejects the loan.
8. When the loan is approved the customer is informed the same through
a message.
9. After the approval of the loan from the ban and confirming with the
customer for moving with the further process of disbursement.
10. Once the customer gives an approval for the disbursement of the loan,
the loan is disbursed within 30 minutes as per the company’s policy.
11. The disbursed amount of the loan is then transferred to the DDSA and
the customer is ready to take the automobile from the dealer.
12. The dealer then provides the bank with the following documents
i. Invoice
ii. RTO (Regional Transport Office) Receipt
iii. Margin Money
13. The BDR then goes to the customer to get the Formal Agreement Kit
of the bank singed by the customer along with the required cheques
from the customer.
 The bank gets three types of cheques signed from the customer
 The first EMI cheque is taken since it takes time to
enter the ECS (Electronic Clearing Services)
 EMI x 3 – EMI amount for three months
60
  EMI x 9 – EMI amount for nine months
 The EMI x3 and EMI x 9 cheques are taken for security
purpose so that if the customer does not pay the EMI the bank
can get the EMI through those cheques.

61
ADC (Alternative Distribution Channel) CHANNEL

Sourcing / Leads on customers

 In-house Outbound Call Center
 Customers with Savings Account, Fixed Deposits at HDFC Bank
 Customers having HDFC Bank Credit Card
 Customers using any other services provided by HDFC Bank
 Online Agents like CarDekho.com, Carwale.com, Etc.
 Chartered Accountants who are partnered with HDFC Bank

62
 OPERATIONS DEPARTMENT

The objective of the operations department is to update the documents of the financed
automobile. The documents are:
 Registration Certificate
 Invoice
 Insurance

The documents submitted to the Operations department are either updated or get
rejected on a number of reasons.

Reasons of rejection of a Registration Certificate:

 Wrong LOS (Loan Account Number)
 Wrong Hypothecation, No Hypothecation
 LOS does not open in the FINNONE Software
 Model Mismatch (I.E., loan applied for Maruti Suzuki Swift and bought
Maruti Suzuki Swift Dezire)
 Name Mismatch (I.E., loan applied on ABC’s name but the registration is on
XYZ’s name)
 Variant Mismatch (I.E., difference in petrol, diesel variant or the difference in
the hierarchy of the variant in the same model of the automobile)
 Dealer Mismatch (I.E., while applying the loan dealer was ‘DEF'’ and the
dealer while buying the car was ‘PQR’)
 Chassis Number Mismatch
 Engine Number Mismatch

63
Reasons of rejection of Invoice:

 TIN Number of the dealer not mentioned

 Wrong Hypothecation, No Hypothecation
 Invoice Number not mentioned
 Invoice Date is wrong or not mentioned
 Chassis Number Mismatch or not mentioned
 Engine Number Mismatch or not mentioned
 Dealer Mismatch (I.E., while applying the loan dealer was ‘DEF'’ and the
dealer while buying the car was ‘PQR’)
 Company Letterhead or company seal not clear or not printed on the invoice

Reasons of rejection of Insurance:

 Wrong Hypothecation, No Hypothecation

 Model Mismatch (I.E., loan applied for Maruti Suzuki Swift and bought
Maruti Suzuki Swift Dezire)
 Name Mismatch (I.E., loan applied on ABC’s name but the registration is on
XYZ’s name)
 Variant Mismatch (I.E., difference in petrol, diesel variant or the difference in
the hierarchy of the variant in the same model of the automobile)

HYPOTHECATION

Hypothecation means that the financier is the owner of the automobile until the
loan is paid off and an NOC (Non Objection Certificate) is provided to the
customer mentioning that the ownership of the automobile has been transferred to
the customer and no dues are left with the bank by the customer.

64
 RIC DEPARTMENT

(RISK INTELLIGENCE & CONTROL UNIT)

RIC Department is the most important department as it checks the authenticity of the
customers and the documents for the safety of the bank.

In relation to PDD, the RIC department checks the authenticity of the documents
provided by the PDD personnel i.e., the Invoice, Registration Certificate and
Insurance.

RIC detects the threats of fraud and prevents them from taking place and takes
corrective measures for solving them.

The documents checked by RIC are divided into 2 categories

RIC

SCREENED SAMPLED

CNV
POSITIVE (COULD NOT NEGATIVE RISK ALERT
VERIFY)

The screened documents are indicated using a green stamp, and the sampled
documents are indicated using a red stamp.

65
How the documents are sent to RIC Department in context to PDD

OPERATIONS
CHANNEL
DEPARTMENT

RIC
DEPATMENT

OK NOT OK

OPERATIONS
OPERATIONS
DEPARTMENT
DEPARTMENT
/ CHANNEL

UPDATE CORRECTION

UPDATE

66
LIMITATIONS / CHALLENGES

67
1. The documents are not complete, and there is a delay or no submission of
documents from the clients.
2. The documents required for submission are not thoroughly checked before their
submission for authentication ad verification with the bank.
3. Documents submitted are either not clear or have defaults.
4. Because of the defaults in the documents, they have to be re-submitted which
create a high pressure on the employees to get the correct documents as fast as
possible to complete the targets.
5. Post Disbursement Documentation is a strenuous and an important process.
6. Due to no Hypothecation or wrong hypothecation which is not rectified in the
documents and updated with the bank, the ban may face losses due to this reason.
7. Duplication can be made for the Registration Certificates, as they can be called up
on the FTP site of the bank through the PDD department on requirement by the
Sales Manager from the head office of the bank, which when submitted further by
the PDD department and the copy of the original Registration Certificate is
submitted by the Sales Manager causes duplication.

68
CONCLUSION

69
Though Collateral Management brings with it challenges to handle, it opens up gates
of opportunities for financial firms, if dealt with efficiently and optimally. ‘Change’ is
inevitable in this challenging environment and continuous influx of new and tighter
regulations. This needs to be addressed strategically rather than looking out for
tactical short-term solutions. Integrating and embedding “Intelligent technology” with
the operating processes. This shall, in turn, provide an ‘enterprise view’ across asset
classes and business lines capable of handling cross border collateral transactions will
be a key enabler. Such technology should also be based on sound architecture which
can handle future changes.

This will also ensure that the Collateral Management is optimized across geographies,
business lines and asset classes, so that an exposure can be covered in the most cost-
effective manner. Optimal Collateral Management also frees up quality collaterals
which can be deployed in avenues yielding higher returns.

70
BIBLIOGRAPHY

71
 https://www.hdfcbank.com/
 https://www.hdfcbank.com/personal/products
 https://www.hdfcbank.com/aboutus/News_Room/hdfc_profile.htm
 https://www.hdfcbank.com/aboutus/general/default.htm
 https://www.hdfcbank.com/aboutus/awards/default.htm
 https://en.wikipedia.org/wiki/Main_Page
 https://www.google.co.in/
 http://www.itcinfotech.com/wp-content/uploads/2016/08/Collateral-
Management.pdf

72