It is an acknowledged fact that commercial and institutional credit portfolio which had been providing bread and butter to the banks in India over years would slowly give in to the mounting demands of retail segments. Basel Accord II is a timely enabler to the transformation process.

Retailing is an activity by way of procurement of goods and/or services for onward sale of the same directly to the end-users for their personal/non profit (non-business) use. From the trading angle this may involve locational establishments (shops/markets), door-to-door sale, Internet sale etc. Therefore, retail exposure (retail credit) is to cover financing of such sectors i.e., those who sell and those who buy the goods and/or services.

Basel Accord II has now provided an enlarged view of the retail exposure. In light of the guidelines in the accord, retail exposure (fund-based as well as non fund-based) may be defined as a financial commitment - funded/non-funded.

Individuals (single/joint accounts) vehicle loan, durable consumer loan.Residential mortgages that is/will be occupied by the borrower or that is rented. Small - business (Small and Medium Enterprises - SME).

The portfolio must be sufficiently diversified. Numerical limit such as putting a `cap' that no aggregate exposure (i.e., gross exposure without any reduction of the amount of credit mitigation as may be available) to a borrower should exceed certain percent of bank's overall retail credit portfolio. In this respect the accord has laid down that maximum aggregated retail exposure to one borrower cannot exceed ¤1 mn (Rs. 5.5 cr approximately).

Professional Banker Magazine, Retail Credit Explosion, Indian Banking, Risk Management, Retail Segments, Basel Accord II, Financial Commitments, Small and Medium Enterprises, SMEs, Asset Liability Management, External Commercial Borrowings, Management Information Systems, Retail Credit.