BANKING SERVICES IN INDIA
PROJECT REPORT
ON
Banking Sector in IndiaProject submitted to the Department of
Commerce
Shaheed Bhagat Singh College, University of Delhi,
in fulfillment of the requirement of
B.Com (H) - IIIrd Year.
Submitted to:
Submitted by: Dr. T.K. Nagpal Vaibhav Kumar
Project Mentor B.Com (H) -IIIrd Year
Roll No.-86, Section -C DECLARATIONI hereby declare that the
project report named Banking Sector in India is based on my
understanding of the subject and has not been copied from some
published source or website. My indebtedness to other works on the
subject has been duly acknowledged at the relevant places.
Signature of Mentor
Signature of StudentDr. T.K. NAGPAL
VAIBHAV KUMAR B.Com (H) IIIrd Year Roll No. 86
ACKNOWLEDGEMENT
The present work is an effort to throw some light on the Banking
Sector in India. The work would not have been possible to come to
the present shape without the able guidance, supervision and help
to me by number of people.
With deep sense of gratitude I acknowledge the encouragement and
guidance received from my mentor Dr. T.K. Nagpal who helped and
supported me during the course of completion of my project. His
supervision, logical insight and patient encouragement enabled me
to complete the present work. The association has been a very great
opportunity.
VAIBHAV KUMAR CERTIFICATE
This is to certify that Vaibhav Kumar ,Roll No. 86 has submitted
this literature review entitled Banking Sector in India towards
partial fulfillment of the requirement for awarding the degree of
Bachelor of Commerce in Shaheed Bhagat Singh College under
University of Delhi(South campus) during the academic year
2011-2012.
The literature review is the result of own work and no part of
it has earlier comprised any other report or book. The project was
carried out under overall supervision.
Date:
Dr. T.K. Nagpal(Project Mentor)
CONTENTSTopic 1. History of Banking in India Pre Nationalization
Era
Nationalization stages
Post Liberalisation Era
2. Banking in India
Overview of Banking
Organisational Structure of Banks in India
Role of Banks
Private Sector Banks
Reserve Bank of India (RBI)
Cooperative Banks
3. Products offered by Banks Classification of products in Banks
Common Banking Services4. Banking Services
5. Bank Marketing
6. Role of IT in the Banking sector
E- banking Impact of IT on the Service Quality Impact of IT on
the Banking System 7. Recent Trends in Banking HRD in Banking
Sector
I. HISTORY OF BANKING IN INDIAThere are three different phases
in the history of banking in India -1) Pre-Nationalization Era:In
India the business of banking and credit was practices even in very
early times. The remittance of money through Hundies, an indigenous
credit instrument, was very popular. The hundies were issued by
bankers known as Shroffs, Sahukars, Shahus or Mahajans in different
parts of the country. The government of Bengal took the initiative
and the first presidency bank, the Bank of Calcutta (Bank of
Bengal) was established in 180. In 1840, the Bank of Bombay and IN
1843, the Bank of Madras was also set up. These three banks are
also known as Presidency Bank. The Presidency Banks had their
branches in important trading centers but mostly lacked in
uniformity in their operational policies. In 1899, the Government
proposed to amalgamate these three banks in to one so that it could
also function as a Central Bank, but the Presidency Banks did not
favor the idea. However, the conditions obtaining during world war
period (1914-1918) emphasized the need for a unified banking
institution, as a result of which the Imperial Bank was set up
in1921. The Imperial Bank of India acted like a Central bank and as
a banker for other banks.The RBI (Reserve Bank of India) was
established in 1935 as the Central Bank of the Country. In 1949,
the Banking Regulation act was passed and the RBI was nationalized
and acquired extensive regulatory powers over the commercial banks.
In 1950, the Indian Banking system comprised of the RBI, the
Imperial Bank of India, Cooperative banks, Exchange banks and
Indian Joint Stock banks. 2) Nationalization Stages: After
Independence, in 1951, the All India Rural Credit survey, committee
of Direction with Shri. A. D. Gorwala as Chairman recommended
amalgamation of the Imperial Bank of India and ten others banks
into a newly established bank called the State Bank of India (SBI).
The Government of India accepted the recommendations of the
committee and introduced the State Bank of India bill in the Lok
Sabha on 16th April 1955 and it was passed by Parliament and got
the presidents assent on 8th May 1955. The Act came into force on
1st July 1955, and the Imperial Bank of India was nationalized in
1955 as the State Bank of India. The main objective of establishing
SBI by nationalizing the Imperial Bank of India was to extend
banking facilities on a large scale more particularly in the rural
and semi-urban areas and to diverse other public purposes. In 1959,
the SBI (Subsidiary Bank) act was proposed and the following eight
state-associated banks were taken over by the SBI as its
subsidiaries. Name of the Bank
Subsidiary with effect from 2. State Bank of Bikaner
1st January 1960
4. State Bank of Saurashtra
1st May 1960
6. State Bank of Mysore
1st March 1960
8. State Bank of Travancore
1st January 1960
On 19th July 1969, then the Prime Minister, Mrs. Indira Gandhi
announced the nationalization of 14 major scheduled Commercial
Banks each having deposits worth Rs. 50 crore and above. This was a
turning point in the history of commercial banking in India.
In 1969, the Lead Bank Scheme was introduced to extend banking
facilities to every corner of the country. Later in 1975, Regional
Rural Banks were set up to supplement the activities of the
commercial banks and to especially meet the credit needs of the
weaker sections of the rural society.The first year after
nationalization witnessed the total growth in the agricultural
loans and the loans made to SSI by 87% and 48% respectively. The
overall growth in the deposits and the advances indicates the
improvement that has taken place in the banking habits of the
people in the rural and semi-urban areas where the branch network
has spread. Such credit expansion enabled the banks to achieve the
goals of nationalization, it was however, achieved at the coast of
profitability of the banks.Consequences of Nationalization:
The quality of credit assets fell because of liberal credit
extension policy.
Political interference has been as additional malady.
Poor appraisal involved during the loan meals conducted for
credit disbursals.
The credit facilities extended to the priority sector at
concessional rates.
The high level of low yielding SLR investments adversely
affected the profitability of the banks.
The rapid branch expansion has been the squeeze on profitability
of banks emanating primarily due to the increase in the fixed
costs.
There was downward trend in the quality of services and
efficiency of the banks.3) Post-Liberalization Era-Thrust on
Quality and Profitability:The need for restructuring the banking
industry was felt greater with the initiation of the real sector
reform process in 1992. The reforms have enhanced the opportunities
and challenges for the real sector making them operate in
borderless global market place. However, to harness the benefits of
globalization, there should be an efficient financial sector to
support the structural reforms taking place in the real economy.
Hence, along with the reforms of the real sector, the banking
sector reformation was also addressed.
In this context, the recommendations made by a high level
committee on financial sector, chaired by M. Narasimham, laid the
foundation for the banking sector reforms. These reforms tried to
enhance the viability and efficiency of the banking sector. The
Narasimham Committee suggested that there should be functional
autonomy, flexibility in operations, dilution of banking
strangulations, reduction in reserve requirements and adequate
financial infrastructure in terms of supervision, audit and
technology. The committee further advocated introduction of
prudential forms, transparency in operations and improvement in
productivity, only aimed at liberalizing the regulatory framework,
but also to keep them in time with international standards. The
emphasis shifted to efficient and prudential banking linked to
better customer care and customer services.
Banking Regulation Act of India, 1949 defines Banking as
accepting, for the purpose of lending or of investment of deposits
of money from the public, repayable on demand or otherwise or
withdrawable by cheque, draft order or otherwise. The Reserve Bank
of India Act, 1934 and the Banking Regulation Act, 1949, govern the
banking operations in India.In India banks are classified in
various categories according to differ rent criteria. The following
charts indicate the banking structure:Broad Classification of Banks
in India: (2) Public Sector Banks: Nationalized Banks (19)(3)
Private Sector Banks:
Foreign New Generation Private Banks (8)(4) Co-operative Sector
Banks:
Central Co-operative Banks
Land Development Banks
(5) Development Banks: Development Banks mostly provide long
term finance for setting up industries. They also provide
short-term finance (for export and import activities)
Industrial Development of India (IDBI)
Small Industries Development Bank of India (SIDBI) Export-Import
Bank of IndiaBanks play a positive role in economic development of
a country as repositories of communitys savings and as purveyors of
credit. Indian Banking has aided the economic development during
the last fifty years in an effective way. The banking sector has
shown a remarkable responsiveness to the needs of planned economy.
It has brought about a considerable progress in its efforts at
deposit mobilization and has taken a number of measures in the
recent past for accelerating the rate of growth of deposits. As
recourse to this, the commercial banks opened branches in urban,
semi-urban and rural areas and have introduced a number of
attractive schemes to foster economic development. By pooling the
savings together, banks can make available funds to specialized
institutions which finance different sectors of the economy,
needing capital for various purposes, risks and durations. By
contributing to government securities, bonds and debentures of
term-lending institutions in the fields of agriculture, industries
and now housing, banks are also providing these institutions with
an access to the common pool of savings mobilized by them, to that
extent relieving them of the responsibility of directly approaching
the saver. This intermediation role of banks is particularly
important in the early stages of economic development and financial
specification. A country like India, with different regions at
different stages of development, presents an interesting spectrum
of the evolving role of banks, in the matter of inter-mediation and
beyond.Commercial banks provide short-term and medium-term
financial assistance. The short-term credit facilities are granted
for working capital requirements. The medium-term loans are for the
acquisition of land, construction of factory premises and purchase
of machinery and equipment. These loans are generally granted for
periods ranging from five to seven years. They also establish
letters of credit on behalf of their clients favouring suppliers of
raw materials/machinery (both Indian and foreign) which extend the
bankers assurance for payment and thus help their delivery. Certain
transaction, particularly those in contracts of sale of Government
Departments, may require guarantees being issued in lieu of
security earnest money deposits for release of advance money,
supply of raw materials for processing, full payment of bills on
the assurance of the performance etc. Commercial banks issue such
guarantees also.PRIVATE SECTOR BANKS
The first Private Bank in India to receive an in principle
approval from the Reserve Bank of India was Housing Development
Finance Corporation Limited, to set up a bank in the private sector
banks in India as part of the RBI's liberalization of the Indian
Banking Industry. It was incorporated in August 1994 as HDFC Bank
Limited with registered office in Mumbai and commenced operations
as Scheduled Commercial Bank in January 1995.
There has been a paradigm shift in mindsets both at the
Government level in the banking industry over the years since
Nationalization of Banks in 1969, particularly during the last
decade (1990-2000). Having achieved the objectives of
Nationalization, the most important issue before the industry at
present is survival and growth in the environment generated by the
economic liberalization greater competition with a view to
achieving higher productivity and efficiency in January 1993 for
the entry of Private Sector banks based on the Nationalization
Committee report of 1991, which envisaged a larger role for Private
Sector Banks.
Subsequently 9 new commercial banks have been granted license to
start banking operations. The new private sector banks have been
very aggressive in business expansion and is also reporting higher
profile levels taking the advantage of technology and skilled
manpower. In certain areas, these banks have even our crossed the
other group of banks including foreign banks.
ROLE OF RESERVE BANK OF INDIA (RBI) The Bankers Bank The Reserve
Bank of India (RBI) is the Central Bank of India, and was
established on April 1, 1935 in accordance with the provisions of
the Reserve Bank of India Act, 1934. Since its inception, it has
been headquartered in Mumbai. Though originally privately owned,
RBI has been fully owned by the Government of India since
nationalization in 1949.Main Objective:
Monetary Authority
Formulates, implements and monitors the monetary policy.
Objective: maintaining price stability and ensuring adequate
flow of credit to productive sectors.
Regulator and supervisor of the financial system
Prescribes broad parameters of banking operations within which
the countrys banking and financial system functions.
Objective: maintain public confidence in the system, protect
depositors interest and provide cost-effective banking services to
the public. The Banking Ombudsman Scheme has been formulated by the
Reserve Bank of India (RBI) for effective redressal of complaints
by bank customers
Manager of Exchange Control
Manages the Foreign Exchange Management Act, 1999.
Objective: to facilitate external trade and payment and promote
orderly development and maintenance of foreign exchange market in
India.
Issuer of currency
Issues and exchanges or destroys currency and coins not fit for
circulation.
Objective: to give the public adequate quantity of supplies of
currency notes and coins and in good quality.
Developmental role
Performs a wide range of promotional functions to support
national objectives.
Related Functions
Banker to the Government: performs merchant banking function for
the central and the state governments; also acts as their
banker.
Banker to banks: maintains banking accounts of all scheduled
banks.
Owner and operator of the depository (SGL) and exchange (NDS)
for government bonds.
There is now an international consensus about the need to focus
the tasks of a central bank upon central banking. RBI is far out of
touch with such a principle, owing to the sprawling mandate
described above.
In addition to its traditional central functions, the Reserve
bank has certain non-monetary functions of the nature of
supervision of banks and promotion of sound banking in India. The
Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have
given the RBI wide powers of supervision and control over
commercial and cooperative banks, relating to licensing and
establishments, branch expansion, liquidity of their assets,
management and methods of working, amalgamation, reconstruction and
liquidation. The RBI is authorized to carry out periodical
inspections of the banks and to call for returns and necessary
information from them. The nationalization of 14 major Indian
scheduled banks in July 1969 has imposed new responsibilities on
the RBI for directing the growth of banking and credit policies
towards more rapid development of the economy and realization of
certain desired social objectives. The supervisory functions of the
RBI have helped a great deal in improving the standard of banking
in India to develop on sound lines and to improve the methods of
their operation.With economic growth assuming a new urgency since
Independence, the range of the Reserve Banks functions have
steadily widened. The Bank now performs a variety of developmental
and promotional functions, which, at one time, were regarded as
outside the normal scope of central banking. The Reserve Bank was
asked to promote banking habit, extend banking facilities to rural
and semi-urban areas, and establish and promote new specialized
financing agencies. Accordingly, the Reserve bank has helped in the
setting up of the IFCI and the SFC: it set up the Deposit Insurance
Corporation of India in 1963 and the Industrial Reconstruction
Corporation of India in 1972. These institutions were set up
directly or indirectly by the Reserve Bank to promote saving habit
and to mobilize savings, and to provide industrial finance as well
as agricultural finance. As far back as 1935, the RBI set up the
Agricultural Credit Department to provide agricultural credit. But
only since 1951 the Banks role in this field has become extremely
important. The Bank has developed the co-operative credit movement
to encourage saving, to eliminate money-lenders from the villages
and to route its short term credit to agriculture. The RBI has set
up the Agricultural Refinance and Development Corporation to
provide long-term finance to farmers.The Co-operative bank has a
history of almost 100 years. The Co-operative banks are an
important constituent of the Indian Financial System, judging by
the role assigned to them, the expectations they are supposed to
fulfill, their number, and the number of offices they operate. The
co-operative movement originated in the West, but the importance
that such banks have assumed in India is rarely paralleled anywhere
else in the world. Their role in rural financing continues to be
important even today, and their business in the urban areas also
has increased phenomenally in recent years mainly due to the sharp
increase in the number of co-operative banks.
According to NAFCUB the total deposits & lendings of
Co-operative Banks is much more than Old Private Sector Banks &
also the New Private Sector Banks. This exponential growth of
Co-operative Banks is attributed mainly to their much better local
reach, personal interaction with customers, and their ability to
catch the nerve of the local clientele. Though registered under the
Co-operative Societies Act of the Respective States (where formed
originally) the banking related activities of the co-operative
banks are also regulated by the Reserve Bank of India. They are
governed by the Banking Regulations Act 1949 and Banking Laws
(Co-operative Societies) Act, 1965. Short term lending oriented
co-operative Banks within this category there are three sub
categories of banks viz state co-operative banks, District
co-operative banks and Primary Agricultural co-operative
societies.Features of Cooperative Banks
The State Co-operative Banks (SCBs), Central Co-operative Banks
(CCBs) and Urban Co-operative Banks (UCBs) can normally extend
housing loans upto Rs 1 lakh to an individual. The scheduled UCBs,
however, can lend upto Rs 3 lakh for housing purposes. The urban
and non-agricultural business of these banks has grown over the
years. The co-operative banks demonstrate a shift from rural to
urban, while the commercial banks, from urban to rural.
Co-operative banks are perhaps the first government sponsored,
government-supported, and government-subsidized financial agency in
India. They get financial and other help from the Reserve Bank of
India NABARD, central government and state governments. They
constitute the most favoured banking sector with risk of
nationalization. For commercial banks, the Reserve Bank of India is
lender of last resort, but co-operative banks it is the lender of
first resort which provides financial resources in the form of
contribution to the initial capital (through state government),
working capital, refinance.
Some co-operative banks are scheduled banks, while others are
non-scheduled banks. For instance, SCBs and some UCBs are scheduled
banks but other co-operative banks are non-scheduled banks. At
present, 28 SCBs and 11 UCBs with Demand and Time Liabilities over
Rs 50 crore each included in the Second Schedule of the Reserve
Bank of India Act.
III. PRODUCTS AND SERVICES OFFERED BY BANKS
The different products in a bank can be broadly classified
into:
2. Trade Finance.
Retail Banking and Trade finance operations are conducted at the
branch level while the wholesale banking operations, which cover
treasury operations, are at the hand office or a designated
branch.
Deposits
Negotiating for Loans and advances
Book-Keeping (maintaining all accounting records)
Trade Finance:
Drawing, accepting, discounting, buying, selling, collecting of
bills of exchange, promissory notes, drafts, bill of lading and
other securities. Buying and selling of bullion. Foreign
exchange
Purchasing and selling of bonds and securities on behalf of
constituents.
Apart from the above-mentioned functions of the bank, the bank
provides a whole lot of other services like investment counseling
for individuals, short-term funds management and portfolio
management for individuals and companies. It undertakes the inward
and outward remittances with reference to foreign exchange and
collection of varied types for the Government.
Some of common available banking products are explained
below:
A credit card is nothing but a very small card containing a
means of identification, such as a signature and a small photo. It
authorizes the holder to change goods or services to his account,
on which he is billed. The bank receives the bills from the
merchants and pays on behalf of the card holder. These bills are
assembled in the bank and the amount is paid to the bank by the
card holder totally or by installments. The bank charges the
customer a small amount for these services. The cardholder need not
have to carry money/cash with him when he travels or goes for
purchasing.
b) Debit Cards: Debit Card is a prepaid or pay now card with
some storedvalue. Debit Cards quickly debit or subtract money from
ones savings account, or if one were taking out cash.When he makes
a purchase, he enters this number on the shops PIN pad. When the
card is swiped through the electronic terminal, it dials the
acquiring bank system either Master Card or Visa that validates the
PIN and finds out from the issuing bank whether to accept or
decline the transaction. The customer never overspread because the
amount spent is debited immediately from the customers account. So,
for the debit card to work, one must already have the money in the
account to cover the transaction. There is no grace period for a
debit card purchase. Some debit cards have monthly or per
transaction fees. The major limitation of Debit Card is that
currently only some 3000-4000 shops country wide accepts it. Also,
a person cant operate it in case the telephone lines are down.ATMs
are currently becoming popular in India that enables the customer
to withdraw their money 24 hours a day and 365 days. It provides
the customers with the ability to withdraw or deposit funds, check
account balances, transfer funds and check statement information.
The advantages of ATMs are many. It increases existing business and
generates new business. It allows the customers.
To view account information. To receive cash.
To the Customers Service is quick and efficient Wider
flexibility in place and time of withdrawals.To Banks
Crowding at bank counters considerably reduced. Relieves bank
employees to focus on more analytical and innovative work.ATMs can
be installed anywhere like Airports, Railway Stations, Petrol
Pumps, Big Business arcades, markets, etc. Hence, it gives easy
access to the customers, for obtaining cash.
d) E-Cheques: The e-cheques consists five primary facts. They
are the consumers, the merchant, consumers bank the merchants bank
and the e-mint and the clearing process. This cheaquring system
uses the network services to issue and process payment that
emulates real world chaquing. The payer issues a digital cheque to
the payee and all transactions are done through the internet.
Electronic version of cheaques are issued, received and processed.
A typical electronic cheque transaction takes place in the
following manner:
The consumer selects the goods and purchases them by sending an
e-cheque to the merchant.
The merchant electronically forwards the e-cheque to its
bank.
The clearing house jointly works with the consumers bank clears
the cheque and transfers the money to the merchants banks.
The consumers bank updates the consumers account with the
withdrawal information.
e) Electronic Funds Transfer (EFT): Many modern banks have
computerised their cheque handling process with computer networks
and other electronic equipments. These banks are dispensing with
the use of paper cheques. The system called electronic fund
transfer (EFT) automatically transfers money from one account to
another. This system facilitates speedier transfer of funds
electronically from any branch to any other branch. In this system
the sender and the receiver of funds may be located in different
cities and may even bank with different banks. Funds transfer
within the same city is also permitted. The scheme has been in
operation since February 7, 1996, in India.f) Telebanking:
Telebanking refers to banking on phone services. A customer can
access information about his/her account through a telephone call
and by giving the coded Personal Identification Number (PIN) to the
bank. Telebanking is extensively user friendly and effective in
nature. To get a particular work done through the bank, the users
may leave his instructions in the form of message with bank.
Information on the current interest rates. Request for a DD or pay
order. And other similar services.
According to this system, customer can access account details on
mobile using the Short Messaging System (SMS) technology where
select data is pushed to the mobile device. The wireless
application protocol (WAP) technology, which will allow user to
surf the net on their mobiles to access anything and everything.
This is a very flexible way of transacting banking business.h)
Internet Banking: Internet banking involves use of internet for
delivery of banking products and services. With internet, banking
is now no longer confirmed to the branches where one has to
approach the branch in person, to withdraw cash or deposits a
cheque or to request a statement of accounts. In internet banking,
any inquiry or transaction is processed online without any
reference to the branch (anywhere banking) at any time.Benefits of
Internet Banking:
Increase convenience for customers, since they can conduct many
banking transaction 24 hours a day. Improve customer access. Easy
online application for all accounts, including personal loans and
mortgages Electronic Cash: Companies are developing electronic
replicas of all existing payment system: cash, cheque, credit cards
and coins.
Direct Deposits: Earnings (or Government payments) automatically
deposited into bank accounts, saving time, effort and money. Point
of Sale transactions: Acceptance of ATM/Cheque at retail stores and
restaurants for payment of goods and services. This system has made
functioning of the stock Market very smooth and efficient.
i) DEMAT: Demat is short for de-materialisation of shares. In
short, Demat is a process where at the customers request the
physical stock is converted into electronic entries in the
depository system.How to Operate DEMAT ACCOUNT?
If the investor wants to sell his shares, he has to place an
order with his broker and give a Delivery Instruction to his DP
(Depository Participant). The DP will debit his account with the
number of shares sold by him. Payment for the electronic shares
bought or sold is to be made in the same way as in the case of
physical securities. Banking covers so many services that it is
difficult to define it. However, these basic services have always
been recognized as the hallmark of the genuine banker. These are:
The collection of his cheques drawn on other banks
There are other various types of banking services like:
Deposits Saving Account, Current Account, etc.
Foreign Services Providing foreign currency, travelers cheques,
etc.
Savings Fixed deposits, etc.
Status Debit Cards, Credit Cards, etc.
Customer service is the service provided in support of a banks
core products. It often includes answering questions; handling
complaints. Customer service can occur on site (as when an onstage
employee helps a customer or answers a question) or it can occur
over the phone or the Internet. Quality customer service is
essential for building cordial relations with customers.
Why is Customer Service Important?
The increased importance of customer service: With changing
customer expectations, competitors are seeing customer service as a
competitive weapon with which they differentiate their products and
services. The customer is the kingpin in growth organizations like
commercial banks. Only those institutions which work according to
his dictates will flourish. Quality, Consistency and Durability at
low price are the final expectations of a customer. Quality will
have to be unambiguous, of world class quality. Quality cannot be
of minimum acceptable standards. Customer responsiveness must be
quick and also competent. Speed, performance and cost will be the
new values mantra for success.
Submission of statement of A/Cs to customers
Teller system efficiency. Intermediate Credit for institution
cheques/land bills. Advance for Debit/credit to accounts. Handling
of complaint register.Customers dissatisfaction in the banking
industry is neither recent nor unknown. This is mainly due to
delays in handling transactions across the counter in collections,
update of passbooks supply of statements of accounts, etc.
Personal relations of the bank employee with customers will
improve customer satisfaction. 1 service with smile should be the
motto of every bank employee. ATMs may be introduced in all the
branches of the banks, based upon the volume of transactions. This
shall facilitate non-stop banking. E-mail service made freely
available at all banking centers. All the customers are not
homogenous in their needs. Hence need based schemes may be
introduced. The banking staff must be trained to understand the
customers psychology, so they may provide customer service in a
qualified manner.v.Bank MarketingIt is right to mention that bank
marketing is a managerial process by which services are matched
with markets. The matching of services with market is meant
formulation of overall marketing strategies which suit the taste,
temperament, needs and requirements of customers.
Objectives of Bank Marketing: Providing high return on
investment Development of an image Increase in deposits and loans
Increasing awarenessVI. ROLE OF INFORMATION TECHNOLOGY (IT) IN THE
BANKING SECTOR
E-BankingIn India e-banking is of recent origin. The traditional
model for growth has been through branch banking. Only in the early
1990s has there been a start in the non-branch banking services.
The new private sector banks and the foreign banks are handicapped
by the lack of a strong branch network in comparison with the
public sector banks. In the absence of such networks, the market
place has been the emergence of a lot of innovative services by
these players through direct distribution strategies of non-branch
delivery. All these banks are using home banking as a key pull
factor to remove customers away from the well entered public sector
banks.
Credit Cards Debit Cards
E-Cheques D-MAT Accounts Telephone Banking EDI (Electronic Data
Interchange) To the Customer:
Anytime Banking Managing funds in real time and most
importantly, 24 hours a day, 7days a week. Brings down Cost of
Banking to the customer over a period a period of time. On-line
purchase of goods and services including online payment for the
same. Innovative, scheme, addresses competition and present the
bank as technology driven in the banking sector market Inter-branch
reconciliation is immediate thereby reducing chances of fraud and
misappropriation Integrated customer data paves way for
individualised and customised services.The most visible impact of
technology is reflected in the way the banks respond strategically
for making its effective use for efficient service delivery. This
impact on service quality can be summed up as below: The technology
has commoditising some of the financial services. Therefore the
banks cannot take a lifetime relationship with the customers as
granted and they have to work continuously to foster this
relationship and retain customer loyalty. In order to reduce
service delivery cost, banks need to automate routine customer
inquiries through self-service channels. To do this they need to
invest in call centers, kiosks, ATMs and Internet Banking today
require IT infrastructure integrated with their business strategy
to be customer centric.The banking system is slowly shifting from
the Traditional Banking towards relationship banking. Traditionally
the relationship between the bank and its customers has been on a
one-to-one level via the branch network. This was put into
operation with clearing and decision making responsibilities
concentrated at the individual branch level. The head office had
responsibility for the overall clearing network, the size of the
branch network and the training of staff in the branch network. The
bank monitored the organisations performance and set the decision
making parameters, but the information available to both branch
staff and their customers was limited to one geographical
location.
The use of interactive electronic links via the Internet could
go a long way in providing the customers with greater level of
information about both their own financial situation and about the
services offered by the bank.
Data being stored in the computers is now being displayed when
required on through internet banking mobile banking, ATMs etc. all
this has given rise to the issues of privacy and confidentially of
data are:
So long as the individual data items are available only to those
directly concerned, everything seems to be in proper place, but the
incidence of data being cross referenced to create detailed
individual dossiers gives rise to privacy problems.
Aside from any constitutional aspect, many nations deem privacy
to be a subject of human right and consider it to be the
responsibility of those who concerned with computer data processing
for ensuring that the computer use does not revolve to the stage
where different data about people can be collected, integrated and
retrieved quickly. Another important responsibility is to ensure
the data is used only for the purpose intended.
Today, we are having a fairly well developed banking system with
different classes of banks public sector banks, foreign banks,
private sector banks both old and new generation, regional rural
banks and co-operative banks with the Reserve Bank of India as the
fountain Head of the system.In the banking field, there has been an
unprecedented growth and diversification of banking industry has
been so stupendous that it has no parallel in the annals of banking
anywhere in the world.
There has been considerable innovation and diversification in
the business of major commercial banks. Some of them have engaged
in the areas of consumer credit, credit cards, merchant banking,
leasing, mutual funds etc. A few banks have already set up
subsidiaries for merchant banking, leasing and mutual funds and
many more are in the process of doing so. Some banks have commenced
factoring business.
The Indian banks are subject to tremendous pressures to perform
as otherwise their very survival would be at stake. The application
of IT and e-banking is becoming the order of the day with the
banking system heading towards virtual banking. As an extreme case
of e-banking, World Wide Banking (WWB) on the pattern of World Wide
Web (WWW) can be visualised. That means all banks would be
interlinked and individual bank identity, as far as the customer is
concerned, does not exist. There is no need to have large number of
physical bank branches, extension counters. There is no need of
person-to-person physical interaction or dealings. Customers would
be able to do all their banking operations sitting in their offices
or homes and operating through internet. This would be the case of
banking reaching the customers.In the days to come, banks are
expected to play a very useful role in the economic development and
the emerging market will provide ample business opportunities to
harness. Human Resources Management is assuming to be of greater
importance. As banking in India will become more and more knowledge
supported, human capital will emerge as the finest assets of the
banking system. Ultimately banking is people and not just
figures.UNIVERSAL BANKINGSince the early 1990s, banking systems
worldwide have been going through a rapid transformation. Mergers,
amalgamations and acquisitions have been undertaken on a large
scale in order to gain size and to focus more sharply on
competitive strengths. This consolidation has produced financial
conglomerates that are expected to maximize economies of scale and
scope by bundling the production of financial services. The general
trend has been towards downstream universal banking where banks
have undertaken traditionally non-banking activities such as
investment banking, insurance, mortgage financing, securitization,
and particularly, insurance. Upstream linkages, where non-banks
undertake banking business, are also on the increase. The global
experience can be segregated into broadly three models. There is
the Swedish or Hong Kong type model in which the banking corporate
engages in in-house activities associated with banking. In Germany
and the UK, certain types of activities are required to be carried
out by separate subsidiaries. In the US type model, there is a
holding company structure and separately capitalized subsidiaries
In India, the first impulses for a more diversified financial
intermediation were witnessed in the 1980s and 1990s when banks
were allowed to undertake leasing, investment banking, mutual
funds, factoring, hire-purchase activities through separate
subsidiaries. By the mid-1990s, all restrictions on project
financing were removed and banks were allowed to undertake several
activities in-house. In the recent period, the focus is on
Development Financial Institutions (DFIs), which have been allowed
to set up banking subsidiaries and to enter the insurance business
along with banks. DFIs were also allowed to undertake working
capital financing and to raise short-term funds within limits. It
was the Narasimhan Committee II Report (1998) which suggested that
the DFIs should convert themselves into banks or non-bank financial
companies, and this conversion was endorsed by the Khan Working
Group (1998). The Reserve Banks Discussion Paper (1999) and the
feedback thereon indicated the desirability of universal banking
from the point of view of efficiency of resource use, but it also
emphasized the need to take into account factors such as the status
of reforms, the state of preparedness of the institutions, and a
viable transition path while moving in the desired direction.
Accordingly, the mid-term review of monetary and credit policy,
October 1999and the annual policy statements of April 2000 and
April 2001 enunciated the broad approach to universal banking and
the Reserve Banks circular of April 2001 set out the operational
and regulatory aspects of conversion of DFIs into universal banks.
The need to proceed with planning and foresight is necessary for
several reasons. The move towards universal banking would not
provide a panacea for the endemic weaknesses of a DFI or its
liquidity and solvency problems and/or operational difficulties
arising from undercapitalization, non-performing assets, and asset
liability mismatches, etc. The overriding consideration should be
the objectives and strategic interests of the financial institution
concerned in the context of meeting the varied needs of customers,
subject to normal prudential norms applicable to banks. From the
point of view of the regulatory framework, the movement towards
universal banking should entrench stability of the financial
system, preserve the safety of public deposits, improve efficiency
in financial intermediation, ensure healthy competition and impart
transparent and equitable regulation.A recurring theme in the
Annual BECON conference, has been the need to focus on developing
human resources to deal with rapidly changing scenario, The core
function of HRD in the Banking Industry is to facilitate
performance improvement, measured not only in terms of financial
indicators of operational efficiency, but also in terms of the
quality of financial services provided. Factors such as skills,
attitudes and knowledge of personnel play a critical role in
determining the competitiveness of the financial sector. The
quality of human resources indicates the ability of banks to
deliver value to customers. Capital and technology are replicable,
but not human capital which needs to be viewed as a valuable
resource for the achievement of competitive advantage. The primary
emphasis needs to be on integrating human resource management (HRM)
strategies with the business strategy. HRM strategies include
managing change, creating commitment, achieving flexibility and
improving teamwork. Theseprocesses underlie the complementary
processes that represent the overt aspects of HRM, such as
recruitment , placement, performance management, reward management,
and employee relations. A forward looking approach would involve
moving towards self-assessment of competency and developmental
needs as a part of a continuous learning cycle. The Indian banking
industry has been an important driving force behind the nations
economic development. The emerging environment poses both
opportunities and threats, in particular, to the public sector
banks. How well these are met will mainly depend on the extent to
which the banks leverage their primary asset i.e. human resources
in the context of the changing economic and business environment.
It is obvious that the public sector banks hierarchical structure,
which gives preference to seniority over performance, is not the
best environment for attracting the best talent from among the
young in a competitive environment. A radical transformation of the
existing personnel structure in public sector banks is unlikely to
be practical, at least in the foreseeable future. However, certain
improvements can be made in the recruitment practices as well as in
on-the-job training and redeployment of those who are already
employed. There are several institutions in the country which cater
exclusively to the needs of human resource development in the
banking industry. It is worthwhile to consider broad-basing the
courses conducted in these institutions among other higher-level
educational institutions so that specialization in the area of
banking and financial services becomes an option in higher
education curriculums. In the area of information technology,
Indian professionals are world leaders and building synergies
between the IT and banking industries will sharpen the competitive
edge of our banks.VIII. CONCLUSION
The banking scenario has changed drastically. The changes which
have taken place in the last ten years are more than the changes
took place in last fifty years because of the institutionalisation,
liberalisation, globalisation and automation in the banking
industry.
Indian banking system has several outstanding achievements to
its credit, the most striking of which is its reach. Indian banks
are now spread out into the remote corners of our country. In terms
of the number of branches, Indias banking system is one of the
largest in the world. According to the Banker 2004, India has 20
banks within the worlds top 1000 out of which only 6 are within the
top 500 banks.Today banking sector is marked by high customer
expectations and technological innovations. Technology is playing a
crucial role in the day to day functioning of the banks. These
banks that have harnessed and leveraged technology best have a
strategic advantage. To face competition it is necessary for banks
to absorb the technology and upgrade their services.
In todays context banks are following the strategy of
relationship banking than mass banking which is need of the hour.
The customer services are playing a very significant role in
banking business. In India major events leading to deregulation,
liberalisation and privatisation have unleashed forces of
competition, making the banks run for their business, not only to
create the customer, but more difficult to run for their business,
not only to create the customer, but more difficult to retain the
customer. Prompt and efficient customer service, thus, has become
very significant. Relationship banking is the new paradigm for
survival and success, embracing a share of customer approach to
growth by identifying, protecting and expanding customer
relations.Reserve Bank of India
Commercial Banks
Co-operative Banks
Development Banks
Nationalized
Private
Short-term credit
Long-term credit
Agricultural Credit
Urban Credit
EXIM
Industrial
Agricultural
Private Sector Banks
Old Pvt. Sector Banks (25)
New Pvt. Sector Banks (9)
CUSTOMER
CUSTOMER
CUSTOMER
BANK BRANCH
BANK BRANCH
BANK BRANCH
CLEARING DECISION
CLEARING DECISION
CLEARING DECISION
CENTRAL CLEARING
HEAD OFFICE
CUSTOMER
TELEPHONE, BRANCH, ELECTRONIC BANKING, etc
SHARED INFORMATION
CLEARING SYSTEM
HEAD OFFICE RISK MONITORING
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