GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY SECTOR 16-C, DWARKA, NEW DELHI-110078

BANKING ASSIGNMENT

SUBMITTED TO
JAGDISH BUDHIRAJA

SUBMITTED BY
NAME: SRIKANT NAIR COURSE: MBA (WEEKEND) (BANKING AND INSURANCE) SEMESTER: FIRST SEMESTER ENROLL NO. : 00516633513

Q.1

Narrate the functions of commercial banks? What are the latest trends in commercial banking functions? The commercial banks serve as the king pin of the financial system of the country. They render many valuable services. The important functions of the Commercial banks can be explained with the help of the following chart.

Primary Functions The primary functions of the commercial banks include the following: A. Acceptance of Deposits 1. Time Deposits: These are deposits repayable after a certain fixed period. These deposits are not withdrawn able by cheque, draft or by other means. It includes the following. (a) Fixed Deposits:

1. The deposits can be withdrawn only after expiry of certain period say 3 years, 5 years or 10 years. The banker allows a higher rate of interest depending upon the amount and period of time. Previously the rates of interest payable on fixed deposits were determined by Reserve Bank. 2. Presently banks are permitted to offer interest as determined by each bank. However, banks are not permitted to offer different interest rates to different customers for deposits of same maturity period, except in the case of deposits of Rs. 15 lacks and above. 3. These days the banks accept deposits even for 15 days or one month etc. In times of urgent need for money, the bank allows premature closure of fixed deposits by paying interest at reduced rate. Depositors can also avail of loans against Fixed Deposits. The Fixed Deposit Receipt cannot be transferred to other persons.

(b) Recurring Deposits: In recurring deposit, the customer opens an account and deposit a certain sum of money every month. After a certain period, say 1 year or 3 years or 5 years, the accumulated amount along with interest is paid to the customer. It is very helpful to the middle and poor sections of the people. The interest paid on such deposits is generally on cumulative basis. This deposit system is a useful mechanism for regular savers of money. (c) Cash Certificates: Cash certificates are issued to the public for a longer period of time. It attracts the people because its maturity value is in multiples of the sum invested. It is an attractive and high yielding investment for those who can keep the funds for a long time. It is a very useful account for meeting future financial requirements at the occasion of marriage, education of children etc. Cash certificates are generally issued at discount to face value. It means a cash certificate of Rs. 1, 00,000 payable after 10 years can be purchased now, say for Rs. 20,000. 2. Demand Deposits: These are the deposits which may be withdrawn by the depositor at any time without previous notice. It is withdraw able by cheque/draft. It includes the following: (a) Savings Deposits: The savings deposit promotes thrift among people. The savings deposits can only be held by individuals and non-profit institutions. The rate of interest paid on savings deposits is lower than that of time deposits. The savings account holder gets the advantage of liquidity (as in current a/c) and small income in the form of interests. But there are some restrictions on withdrawals. Corporate bodies and business firms are not allowed to open SB Accounts. Presently interest on SB Accounts is determined by RBI. It is 4.5 per cent per annum. Co-operative banks are allowed to pay an extra 0.5 per cent on its savings bank deposits.

(b) Current Account Deposits: These accounts are maintained by the people who need to have a liquid balance. Current account offers high liquidity. No interest is paid on current deposits and there are no restrictions on withdrawals from the current account. These accounts are generally in the case of business firms, institutions and cooperative bodies. Nowadays, banks are designing and offering various investment schemes for deposit of money. These schemes vary from bank to bank. It may be stated that the banks are currently working out with different innovative schemes for deposits. Such deposit accounts offer better interest rate and at the same time withdraw able facility also. These schemes are mostly offered by foreign banks. In USA, Current Accounts are known as 'Checking Accounts' as a cheque is equivalent to check in America. B. Advancing of Loans The commercial banks provide loans and advances in various forms. They are given below: 1. Overdraft: This facility is given to holders of current accounts only. This is an arrangement with the bankers thereby the customer is allowed to draw money over and above the balance in his/her account. This facility of overdrawing his account is generally pre-arranged with the bank up to a certain limit. It is a short-term temporary fund facility from bank and the bank will charge interest over the amount overdrawn. This facility is generally available to business firms and companies. 2. Cash Credit: Cash credit is a form of working capital credit given to the business firms. Under this arrangement, the customer opens an account and the sanctioned amount is credited with that account. The customer can operate that account within the sanctioned limit as and when required.

It is made against security of goods, personal security etc. On the basis of operation, the period of credit facility may be extended further. One advantage under this method is that bank charges interest only on the amount utilized and not on total amount sanctioned or credited to the account. Reserve Bank discourages this type of facility to business firms as it imposes an uncertainty on money supply. Hence this method of lending is slowly phased out from banks and replaced by loan accounts. Cash credit system is not in use in developed countries. 3. Discounting of Bills: Discounting of Bills may be another form of bank credit. The bank may purchase inland and foreign bills before these are due for payment by the drawer debtors, at discounted values, i.e., values a little lower than the face values. The Banker's discount is generally the interest on the full amount for the unexpired period of the bill. The banks reserve the right of debiting the accounts of the customers in case the bills are ultimately not paid, i.e., dishonored. The bill passes to the Banker after endorsement. Discounting of bills by banks provide immediate finance to sellers of goods. This helps them to carry on their business. Banks can discount only genuine commercial bills i.e., those drawn against sale of goods on Credit. Banks will not discount Accommodation Bills. 4. Loans and Advances: It includes both demand and term loans, direct loans and advances given to all type of customers mainly to businessmen and investors against personal security or goods of movable or immovable in nature. The loan amount is paid in cash or by credit to customer account which the customer can draw at any time. The interest is charged for the full amount whether he withdraws the money from his account or not. Short-term loans are granted to meet the working capital requirements where as long-term loans are granted to meet capital expenditure.

Previously interest on loan was also regulated by RBI. Currently, banks can determine the rate themselves. Each bank is, however required to fix a minimum rate known as Prime Lending Rate (PLR). Classification of Loans and Advances Loans and advances given by bankers can be classified broadly into the following categories: (i) Advances which are given on the personal security of the debtor, and for which no tangible or collateral security is taken; this type of advance is given either when the amount of the advance is very small, or when the borrower is known to the Banker and the Banker has complete confidence in him (Clean Advance). (ii) Advances which are covered by tangible or collateral security. In this section of the study we are concerned with this type of advance and with different types of securities which a Banker may accept for such advances (Secured Advance). (iii) Advances which are given against the personal security of the debtor but for which the Banker also holds in addition the guarantee of one or more sureties. This type of advance is often given by Banker to persons who are not known to them but whose surety is known to the Banker. Bankers also often take the personal guarantee of the Directors of a company to whom they agree to advance a clean or unsecured loan. (iv) Loans are also given against the security of Fixed Deposit receipts. 5. Housing Finance: Nowadays the commercial banks are competing among themselves in providing housing finance facilities to their customers. It is mainly to increase the housing facilities in the country. State Bank of India, Indian Bank, Canara Bank, Punjab National Bank, has formed housing subsidiaries to provide housing finance. The other banks are also providing housing finances to the public. Government of India also encourages banks to provide adequate housing finance.

Borrowers of housing finance get tax exemption benefits on interest paid. Further housing finance up to Rs. 5 lacks is treated as priority sector advances for banks. The limit has been raised to Rs. 10 lacks per borrower in cities. 6. Educational Loan Scheme: The Reserve Bank of India, from August, 1999 introduced a new Educational Loan Scheme for students of full time graduate/post-graduate professional courses in private professional colleges. Under the scheme all public sector banks have been directed to provide educational loan up to Rs. 15,000 for free seat and Rs. 50,000 for payment seat student at interest not more than 12 per cent per annum. This loan is on clean basis i.e., without calling for security. This loan is available only for students whose annual family income does not exceed Rs. 1, 00,000. The loan has to be repaid together with interest within five years from the date of completion of the course. Studies in respect of the following subjects/areas are covered under the scheme. (a) Medical and dental course. (b) Engineering course. (c) Chemical Technology. (d) Management courses like MBA. (e) Law studies. (f) Computer Science and Applications. This apart, some of the banks have other educational loan schemes against security etc., one can check up the details with the banks. 7. Loans against Shares/Securities: Commercial banks provide loans against the security of shares/debentures of reputed companies. Loans are usually given only up to 50% value (Market Value) of the shares subject to a maximum amount permissible as per RBI directives. Presently one can obtain a loan up to Rs.10 lacks against the physical shares and up to Rs. 20 lacks against dematerialized shares.

8. Loans against Savings Certificates: Banks are also providing loans up to certain value of savings certificates like National Savings Certificate, Fixed Deposit Receipt, Indira Vikas Patra, etc. The loan may be obtained for personal or business purposes. 9. Consumer Loans and Advances: One of the important areas for bank financing in recent years is towards purchase of consumer durables like TV sets, Washing Machines, Micro Oven, etc. Banks also provide liberal Car finance. These days banks are competing with one another to lend money for these purposes as default of payment is not high in these areas as the borrowers are usually salaried persons having regular income? Further, bank's interest rate is also higher. Hence, banks improve their profit through such profitable loans. 10. Securitization of Loans: Banks are recently trying to securities a part of their part of loan portfolio and sell it to another investor. Under this method, banks will convert their business loans into a security or a document and sell it to some Investment or Fund Manager for cash to enhance their liquidity position. It is a process of transferring credit risk from the banker to the buyer of securitized loans. It involves a cost to the banker but it helps the bank to ensure proper recovery of loan. Accordingly, securitization is the process of changing an illiquid asset into a liquid asset. 11. Others: Commercial banks provide other types of advances such as venture capital advances, jewel loans, etc. 1. Effective October 18, 1994 banks were free to determine their own prime lending rates (PLRs) for credit limit over Rs. 2 lacks. Data relate to public sector banks.

2. The stipulation of minimum maturity period of term deposits was reduced from 30 days to 15 days, effective April 29, 1998. Data relate to public sector banks. 3. The change in the Bank Rate was made effective from the close of business of respective dates of change except April 29, 1998. 4. Effective April 29, 1998. C. Credit Creation Credit creation is one of the primary functions of commercial banks. When a bank sanctions a loan to the customer, it does not give cash to him. But, a deposit account is opened in his name and the amount is credited to his account. He can withdraw the money whenever he needs. Thus, whenever a bank sanctions a loan it creates a deposit. In this way the bank increases the money supply of the economy. Such functions are known as credit creation. Secondary Functions The secondary functions of the banks consist of agency functions and general utility functions. A. Agency Functions Agency functions include the following: (i) Collection of cheques, dividends, and interests: As an agent the bank collects cheques, drafts, promissory notes, interest, dividends etc., on behalf of its customers and credit the amounts to their accounts. Customers may furnish their bank details to corporate where investment is made in shares, debentures, etc. As and when dividend, interest, is due, the companies directly send the warrants/cheques to the bank for credit to customer account.

(ii) Payment of rent, insurance premiums: The bank makes the payments such as rent, insurance premiums, subscriptions, on standing instructions until further notice. Till the order is revoked, the bank will continue to make such payments regularly by debiting the customer's account.

(iii) Dealing in foreign exchange: As an agent the commercial banks purchase and sell foreign exchange as well for customers as per RBI Exchange Control Regulations. (iv) Purchase and sale of securities: Commercial banks undertake the purchase and sale of different securities such as shares, debentures, bonds etc., on behalf of their customers. They run a separate 'Portfolio Management Scheme' for their big customers. (v) Act as trustee, executor, attorney, etc: The banks act as executors of Will, trustees and attorneys. It is safe to appoint a bank as a trustee than to appoint an individual. Acting as attorneys of their customers, they receive payments and sign transfer deeds of the properties of their customers. (vi) Act as correspondent: The commercial banks act as a correspondent of their customers. Small banks even get travel tickets, book vehicles; receive letters etc. on behalf of the customers. (vii) Preparations of Income-Tax returns: They prepare income-tax returns and provide advices on tax matters for their customers. For this purpose, they employ tax experts and make their services, available to their customers.

B. General Utility Services The General utility services include the following: (i) Safety Locker facility: Safe keeping of important documents, valuables like jewels are one of the oldest services provided by commercial banks. 'Lockers' are small receptacles which are fitted in steel racks and kept inside strong rooms known as vaults. These lockers are available on half-yearly or annual rental basis. The bank merely provides lockers and the key but the valuables are always under the control of its users. Any customer cannot have access to vault. Only customers of safety lockers after entering into a register his name account number and time can enter into the vault. Because the vault is holding important valuables of customers in lockers, it is also known as 'Strong Room'. (ii) Payment Mechanism or Money Transfer: Transfer of funds is one of the important functions performed by commercial banks. Cheques and credit cards are two important payment mechanisms through banks. Despite an increase in financial transactions, banks are managing the transfer of funds process very efficiently. Cheques are also cleared through the banking system. Correspondent banking is another method of transferring funds over long distance, usually from one country to another. Banks, these days employ computers to speed up money transfer and to reduce cost of transferring funds. Electronic Transfer of funds is also known as 'Cheque-less banking' where funds are transferred through computers and sophisticated electronic system by using code words. They offer Mail Transfer, Telegraphic Transfer (TT) facility also. (iii) Travelers' cheques: Travelers Cheques are used by domestic travelers as well as by international travelers. However the use of traveler's cheques is more common by interna-

tional travelers because of their safety and convenience. These can be also termed as a modified form of traveler's letter of credit. A bank issuing travelers cheques usually have banking arrangement with many of the foreign banks abroad, known as correspondent banks. The purchaser of traveler's cheques can encase the cheques from all the overseas banks with whom the issuing bank has such an arrangement. Thus traveler's cheques are not drawn on specific bank abroad. The cheques are issued in foreign currency and in convenient denominations of ten, twenty, fifty, one hundred dollar, etc. The signature of the buyer/traveler is written on the face of the cheques at the time of their purchase. The cheques also provide blank space for the signature of the traveler to be signed at the time of encashment of each cheque. A traveler has to sign in the blank space at the time of drawing money and in the presence of the paying banker. The paying banker will pay the money only when the signature of the traveler tallies with the signature already available on the cheque. A traveler should never sign the cheque except in the presence of paying banker and only when the traveler desires to encash the cheque. Otherwise it may be misused. The cheques are also accepted by hotels, restaurants, shops, airlines companies for respectable persons. Encashment of a traveler cheque abroad is tantamount to a foreign exchange transaction as it involves conversion of domestic currency into a foreign currency. When a traveler cheque is lost or stolen, the buyer of the cheques has to give a notice to the issuing bank so that stop order can be issued against such lost/stolen cheques to the banks where they are permitted to be encased. It is also difficult to the finder of the cheque to draw cash against it since the encasher has to sign the cheque in the presence of the paying banker. Unused travellers cheques can be surrendered to the issuing bank and balance of cash obtained.

The issuing bank levies certain commission depending upon the number and value of travellers cheques issued. (iv) Circular Notes or Circular Letters of Credit: Under Circular Letters of Credit, the customer/traveler negotiates the drafts with any of the various branches to which they are addressed. Thus the traveler can obtain funds from many of the branches of banks instead only from a particular branch. Circular Letters of Credit are therefore a more useful method for obtaining funds while travelling to many countries. It may be noted that travellers letter of credit are usually paid for in advance. In other words, the traveler first makes payments to the issuing bank before obtaining the Circular Notes. (v) Issue "Travellers Cheques": Banks issue travellers cheques to help carry money safely while travelling within India or abroad. Thus, the customers can travel without fear, theft or loss of money. (vi) Letters of Credit: Letter of Credit is a payment document provided by the buyer's banker in favor of seller. This document guarantees payment to the seller upon production of document mentioned in the Letter of Credit evidencing dispatch of goods to the buyer. The Letter of Credit is an assurance of payment upon fulfilling conditions mentioned in the Letter of Credit. The letter of credit is an important method of payment in international trade. There are primarily 4 parties to a letter of credit. The buyer or importer, the bank which issues the letter of credit, known as opening bank, the person in whose favor the letter of credit is issued or opened (The seller or exporter, known as 'Beneficiary of Letter of Credit'), and the credit receiving/advising bank. The Letter of Credit is generally advised /sent through the seller's bank, known as Negotiating or Advising bank. This is done because the conditions

mentioned in the Letter of Credit are, in the first instance; have to be verified by the Negotiating Bank. It is mostly used in international trade. (vii) Acting as Referees: The banks act as referees and supply information about the business transactions and financial standing of their customers on enquiries made by third parties. This is done on the acceptance of the customers and help to increase the business activity in general. (viii) Provides Trade Information: The commercial banks collect information on business and financial conditions etc., and make it available to their customers to help plan their strategy. Trade information service is very useful for those customers going for cross-border business. It will help traders to know the exact business conditions, payment rules and buyers' financial status in other countries. (ix) ATM facilities: The banks today have ATM facilities. Under this system the customers can withdraw their money easily and quickly and 24 hours a day. This is also known as 'Any Time Money'. Customers under this system can withdraw funds i.e., currency notes with a help of certain magnetic card issued by the bank and similarly deposit cash/cheque for credit to account. (x) Credit cards: Banks have introduced credit card system. Credit cards enable a customer to purchase goods and services from certain specified retail and service establishments up to a limit without making immediate payment. In other words, purchases can be made on credit basis on the strength of the credit card. The establishments like Hotels, Shops, Airline Companies, Railways etc., which sell the goods or services on credit forward a monthly or fortnightly statements to the bank. The amount is paid to these establishments by the bank. The bank subsequently collects the dues from the customers by debit to their accounts. Usually, the

bank receives certain service charges for every credit card issued. Visa Card, BOB card are some examples of credit cards. (xi) Gift Cheques: The commercial banks offer Gift cheque facilities to the general public. These cheques received a wider acceptance in India. Under this system by paying equivalent amount one can buy gift cheque for presentation on occasions like Wedding, Birthday. (xii) Accepting Bills: On behalf of their customers, the banks accept bills drawn by third parties on its customers. This resembles the letter of credit. While banks accept bills, they provide a better security for payment to seller of goods or drawer of bills. (xiii) Merchant Banking: The commercial banks provide valuable services through their merchant banking divisions or through their subsidiaries to the traders. This is the function of underwriting of securities. They underwrite a portion of the Public issue of shares, Debentures and Bonds of Joint Stock Companies. Such underwriting ensures the expected minimum subscription and also convey to the investing public about the quality of the company issuing the securities. Currently, this type of services can be provided only by separate subsidiaries, known as Merchant Bankers as per SEBI regulations. (xiv) Advice on Financial Matters: The commercial banks also give advice to their customers on financial matters particularly on investment decisions such as expansion, diversification, new ventures, rising of funds etc. (xv) Factoring Service: Today the commercial banks provide factoring service to their customers. It is very much helpful in the development of trade and industry as immediate cash flow and administration of debtors' accounts are taken care of by factors. This service is again provided only by a separate subsidiary as per RBI regulations.

Balance sheet is a statement of assets and liabilities on a given date. In India, banks have to publish their balance sheets according to the preformed i.e., 'Form A' given in the III schedule of the Banking Regulation Act, 1949. The study of the balance sheet along with its profit and loss account reveals its financial soundness. A customer has to carefully study these statements to choose his banks. The combined balance sheet of all banks in the country reveals certain economic trends. A specimen of a Bank's Balance Sheet is given at the end of this chapter.

Emerging Trends in Commercial Banking

Currently, the main focus across banks is on innovative use of technology and in the below three streams: 1. Products, services and markets Develop new products and services, target new markets and audiences. Examples-1.Whitelabelling & in sourcing by the big banks 2. Supplier Finance Programs customization for A/R, A/P, Factoring, Conditional Payments etc. 3. Syndication/risk participation for financing/Guarantees. 2. Business and enterprise models As the demand for banking services continue to surge banks are focusing on greater digital capabilities and information flow by making a paradigm shift and restructuring Examples-Convergence programs to merge the traditional boundary between cash management/payments & trade services. 3. Operations Improve effectiveness and efficiency of core functional areas through consolidation of operations by eliminating duplications: redundancies A growing number of forces are challenging corporate banks and the below are the 4 major areas on which banks have planned their roadmap

1. Industry/ Market 3 Cs Customer Expectations, Competition and Cost Reduction 2. Technology 3 S Standardization, Simplification and Security 3. Product Offering Landscape Convergence and Collaboration 4. Legal Increasing burden of compliance

Q.2 What is E-Banking? Comment on the role of E banking in improving customer service in the banks. Electronic banking, also known as electronic funds transfer (EFT), is simply the use of electronic means to transfer funds directly from one account to another, rather than by check or cash. You can use electronic funds transfer to:

Have your paycheck deposited directly into your bank or credit union checking account. Withdraw money from your checking account from an ATM machine with a personal identification number (PIN), at your convenience, day or night. Instruct your bank or credit union to automatically pay certain monthly bills from your account, such as your auto loan or your mortgage payment. Have the bank or credit union transfer funds each month from your checking account to your mutual fund account. Have your government social security benefits check or your tax refund deposited directly into your checking account. Buy groceries, gasoline and other purchases at the point-of-sale, using a check card rather than cash, credit or a personal check.

 Use a smart card with a prepaid amount of money embedded in it for use instead of cash at a pay phone, expressway road toll, or on college campuses at the library's photocopy machine or bookstores. use your computer and personal finance software to coordinate your total personal financial management process, integrating data and activities related to your income, spending, saving, investing, recordkeeping, billpaying and taxes, along with basic financial analysis and decision making. Automated Teller Machines (ATMs) also called 24-hour tellers are electronic terminals which give consumers the opportunity to bank at almost any time. To withdraw cash, make deposits or transfer funds between accounts, a consumer needs an ATM card and a personal identification number. Some ATMs charge a usage fee for this service, with a higher fee for consumers who do not have an account at their institution. If a fee is charged, it must be revealed on the terminal screen or on a sign next to the screen.

Direct Deposit and Withdrawal Services allow consumers to authorize specific deposits, such as paychecks or social security checks, to their accounts on a regular basis. It is also possible to authorize the bank, for a fee, to withdraw funds from your account to pay your recurring bills, such as mortgage payment, installment loan payments, insurance premiums and utility bills.

Pay by Phone Systems let consumers phone their financial institutions with instructions to pay certain bills or to transfer funds between accounts.

Point-of-Sale Transfer Terminals allow consumers to pay for retail purchase with a check card, a new name for debit card. This card looks like a credit card but with a significant difference the money for the purchase is transferred immediately from your account to the store's account. You no longer have the benefit of the credit card "float", that is the time between the purchase transactions and when you pay the credit card bill. With immediate transfer of funds at the point-of-sale, it is easy to overdraw your checking account and incur additional charges unless you keep careful watch on spending.

Personal Computer Banking Services offer consumers the convenience of conducting many banking transactions electronically using a personal computer. Consumers can view their account balances, request transfers between accounts and pay bills electronically from home.

TYPES OF ELECTRONIC CURRENCY

Check Cards, the new name for debit cards, can be used instead of cash, personal checks or credit cards. As stated, when you use a check card you transfer funds immediately from your account to the store's account. A growing number of consumers use check cards because they eliminate the hassle and risks of writing checks or carrying large amounts of cash. Important facts you need to know are:

You have less bargaining power with a check card than with a credit card. With a credit card you have the right to refuse to pay for the purchase if you are not satisfied. With a debit card you have already paid for the product, so you have less bargaining power with the merchant. A thief with your check card and PIN number can take all the money in your account. The thief can even make point-of-sale purchases without your PIN. Your liability is limited to $50 if you report the check card loss within two days, any longer and your liability can go to $500. After 60 days, you can be responsible for the entire amount. Note: MasterCard and Visa have voluntarily capped the loss liability of check card holders at $50. "As welcome as these voluntary protections are, they are too important to be left to the kindness of bank marketing departments," writes Consumer Reports. The consumer advocacy magazine advocates federal law changes to make consumer liability caps mandatory.

 In an era of increasing bank fees, consumers can expect to pay for the service of using a check card. It is the consumer's responsibility to keep check card receipts and deduct the dollar amounts of the purchase from your bank balance immediately, in order to avoid overdraft changes. Smart Cards, sometimes called stored-value cards, have a specific amount of credit embedded electronically in the card. For example, a $100 smart card that you have purchased in advance can be used to cover expenses such as pay phone charges, bridge or expressway tolls, parking fees or Internet purchases. These cards make the transaction fast, easy and convenient.

Smart card technology is in a period of rapid change. Ultimately consumers should be able to customize their smart cards to suit their financial needs with access from their personal computer or cellular phone. Some important consumer issues are:

Smart cards are the equivalent of cash so must be guarded. Procedures for recovering the value of a malfunctioning smart card are unclear. The computer chip within the card will contain both financial and personal information. Privacy and security issues could be a problem. Smart cards may not be covered by the Electronic Funds Transfer Act in case of loss or misuse of the card.

Digital Cash is designed to allow the consumer to pay cash rather than use a credit card to purchase products on the Internet. One type of digital cash allows consumers to transfer money from a financial institution or a credit card into an "electronic purse". The cash is held in a special bank account that is linked to your computer. Another type of digital cash converts money into digital coins that can be placed on your computer's hard drive.

Digital checks allow consumers to use their personal computers to pay recurring bills. Consumers can use computer software provided by a bank, or they can use personal finance software packages such as Quicken or Microsoft Money and subscribe to an electronic bill-paying service.

The technology of paying bills electronically by home computers is advancing rapidly, but relatively few businesses currently can accept payments made directly by computers. Digital checking is expensive. Fees generally run from $5 to $10 a month for 20 transactions. Privacy and security issues are major consumer concerns. Encryption technology may lessen privacy concerns in the future.

ROLE OF E BANKING IN IMPROVING CUSTOMER SERVICE IN THE BANKS

A. IT in Banking Indian banking industry, today is in the midst of an IT revolution. A combination of regulatory and competitive reasons has led to increasing importance of total banking automation in the Indian Banking Industry. The bank which used the right technology to supply timely information will see productivity increase and thereby gain a competitive edge. To compete in an economy which is opening up, it is imperative for the Indian Banks to observe the latest technology and modify it to suit their environment. Information technology offers a chance for banks to build new systems that address a wide range of customer needs including many that may not be imaginable today. Following are the innovative services offered by the industry in the recent past: B. Electronic Payment Services E Cheques Nowadays we are hearing about e-governance, e-mail, e-commerce, etail etc. In the same manner, a new technology is being developed in US for introduction of E-cheque, which will eventually replace the conventional paper cheque. India, as harbinger to the introduction of e-cheque, the Negotiable Instruments Act has already been amended to include; Truncated cheque and Echeque instruments.

C. Real Time Gross Settlement (RTGS) Real Time Gross Settlement system, introduced in India since March 2004, is a Interlink Research Analysis system through which electronics instructions can be given by banks to transfer funds from their account to the account of another bank. The (RTGS) Real Time Gross Settlement system is maintained and operated by the RBI and provides a means of efficient and faster funds transfer among banks facilitating their financial operations. As the name suggests, funds transfer between banks takes place on a Real Time basis. Therefore, money can reach the beneficiary instantaneously and the beneficiarys bank has the responsibility to credit the beneficiarys account within two hours.

D. Electronic Funds Transfer (EFT) Electronic Funds Transfer (EFT) is a system whereby anyone who wants to make payment to another person/company etc. can approach his bank and make cash payment or give instructions/ authorization to transfer funds directly from his own account to the bank account of the receiver/beneficiary. Complete details such as the receivers name, bank account number, account type (savings or current account), bank name, city, branch name etc. should be furnished to the bank at the time of requesting for such transfers so that the amount reaches the beneficiaries account correctly and faster. RBI (Reserve Bank of India) is the service provider of Electronic Funds Transfer (EFT).

E. Electronic Clearing Service (ECS) Electronic Clearing Service is a retail payment system that can be used to make bulk payments/receipts of a similar nature especially where each individual payment is of a repetitive nature and of relatively smaller amount. This facility is meant for companies and government departments to make/receive large volumes of payments rather than for funds transfers by individuals

F. Automatic Teller Machine (ATM) Automatic Teller Machine is the most popular devise in India, which enables the customers to withdraw their money 24 hours a day 7 days a week. It is a device

that allows customer who has an Automatic Teller Machine (ATM) card to perform routine banking transactions without interacting with a human teller. In addition to cash withdrawal, Automatic Teller Machines (ATMs) can be used for payment of utility bills, funds transfer between accounts, deposit of cheques and cash into accounts, balance enquiry etc. G. Point of Sale Terminal Point of Sale Terminal is a computer terminal that is linked online to the computerized customer information files in a bank and magnetically encoded plastic transaction card that identifies the customer to the computer. During a transaction, the customers account is debited and the retailers account is credited by the computer for the amount of purchase. H. Tele Banking Tele Banking facilitates the customer to do entire non-cash related banking on telephone. Under this devise Automatic Voice Recorder is used for simpler queries and transactions. For complicated queries and transactions, manned phone terminals are used. I. Electronic Data Interchange (EDI) Electronic Data Interchange is the electronic exchange of business documents like purchase order, invoices, shipping notices, receiving advices etc. in a standard, computer processed, universally accepted format between trading partners. Electronic Data Interchange (EDI) can also be used to transmit financial information and payments in electronic form. Q.3 Briefly state the various credit facilities available to the agricultural sector from the banking system. Comment on the over dues in Agricultural advances of banks. Despite Indian Agriculture making rapid strides in Agricultural Sector since Independence, particularly after the Green Revolution of the 1960s and the country achieving an overall food security to its population of more than 1 billion, inadequacies of serious long-term concern are now obvious. The growth has not been inclusive. In a similar vein, the growth in Credit Flow to Agriculture has been

impressive over the years in absolute terms and yet there are many serious issues that need to be addressed. In the context of predominance of agriculture as the largest employer of the countrys population and the financial exclusion as one of the crucial obstacles in ensuring equitable agricultural growth of the nation, an IBA Sub-Committee was formed to examine issues and suggest measures to increase the flow of credit to agriculture sector especially to tenant farmers, agricultural laborers, share croppers. The Sub-committee has prepared the paper after analyzing and deliberating on various issues flagged off by the members of the Sub-Committee Issues in Indian agriculture, Issues in Flow of Credit to Agriculture and Emerging Opportunities and Trends in Indian Agriculture. The Sub-Committee recommendations are presented on the following lines: Increasing the Credit Flow to Tenant farmers Recommendations for enhanced Credit Flow to Agriculture in general. Policy Support and State interventions that can facilitate enhanced Agri Credit flow . Increasing the Credit Flow to Tenant farmers Recognizing tenancy: Tenant farmers face a range of problems, dominantly stemming from the lack of official recognition of tenancy and the fact that their status as actual cultivators is nowhere recorded. This continues despite the fact that in many states the land revenue act stipulates that the names of tenants should be recorded in the revenue records. It is fairly clear that some measures are required urgently to remedy the situation. The names of tenant farmers should be recorded in the revenue records (in the Record of Rights) along with the name of the landowner. A system of issue of tenancy passbooks is introduced through concerned State Governments. The village level revenue officials to be authorized to issue cultivation certificates to the tenant farmers.

A dedicated department for the welfare of these sections of the farmers Identification of Tenant farmers: In most of the cases the tenancy is in disguised form. Hence, Banks are finding it difficult to identify and pursue the tenant farmers to approach for institutional credit. The revenue officials of the State Governments have to play a vital role in this regard as they have required expertise and competency to: Identify the pockets predominated with the Tenant cultivation forms i.e., including sharecroppers and oral lessees. in all its

Build up data and continuously update the data on tenant farmers at district level and provide to all the Banks and Financial Institutions as done in the case of uncovered farmers to achieve saturation under KCCS. Conduct awareness campsin association with the concerned banks to pursue Tenant farmers to approach banks for credit rather than private money lenders at exorbitant interest. The forum of District Consultative Committee (DCC) with the membership consisting of the District Administration, development departments and agencies, Banks and public representatives can facilitate the process of identification and preparation/review of the list of Tenant farmers in the districts. Accepting easier means for establishing tenancy. Certificate by village accountant / revenue authorities/Gram Pradhan. Certificateby Agriculture department Any list provided by Agriculture /Revenue or department on the tenant farmers. any other Government

Certificatefrom active Self Help Groups which have been in active existence for at least three years and wherever they have been rated satisfactorily. Certificatefrom reputed NGOsin active existence in the area wherever they have been rated satisfactorily.

Multiple Financing: In majority of the cases, the landowners are availing the crop production finance from the Banks showing the land records as if they are

cultivating lands. In such cases, financing tenant farmers for cultivation of same piece of land amounts to multiple financing. Some remedy is required to tackle such situation and help Tenant farmers. The suggested remedies are: Record the name of the actual cultivator in the land records. Noting the name of the Tenant in the Record of Rights along with the name of the cultivator would provide comfort level to the Branch Manager besides avoiding cases of double financing. In cases where landlords already availed crop production limits and are providing inputs to the tenants, a provision may be made to extend a limit to cover remaining cost of production and consumption needs. Credit Guarantee Fund: Risk perception is another impediment in extending credit to this segment of cultivators. Tenant farmers not necessarily are from the same village / area where they cultivate land on tenancy basis. Under these circumstances, coupled with the absence of documentary evidence to prove cultivation, bankers perceive financing Tenant farmers more risky. Hence, constitution of Credit Guarantee Risk Fund by contribution from all stakeholders viz., Central Government, State Government, NABARD, Commercial Banks, etc, is essential to remove the risk perceptions and ensure need-based credit to the Tenant farmers. This will facilitate the Banks to finance the Tenant farmers and also agricultural laborers without insisting for third party guarantee and collateral security. 100% credit guarantee cover is extended on the credit facilities to the tenant farmers including share croppers, oral lessees and landless agricultural laborers. The guarantee fee may be subsidized and only a nominal fee may be passed on to the borrowers. Procedure for revoke of guarantee may be simplified and lock-in period may be kept at minimum.

Crop Insurance Scheme: Risk Mitigation and Safety-net is to be provided to save SF and MF and Tenant farmers by creation of awareness for various insurance products, bringing all crops in all areas under insurance cover, low premium rates, simplified procedure for settlement of claims, village to be made as the

base unit for assessment of crop damage, providing cover to farmers for all types of risks including weather insurance is very essential. Tenant farmers are worst affected category of cultivators in case of crop failures. This is more so in fixed lease tenancy contracts. Hence, there is a need to give separate treatment to tenant farmers with the following provisions: Coverage of the crops cultivated by Tenant farmers based on their declarations in the absence of documentary evidence. Low premium rates / subsidized premiums to reduce the burden on tenant farmers. Liberalized settlement procedure and provision to cover individual cases of crop failures. Separate mechanism maybe introduced to confirm genuineness of claims as in case of settlement of Personal accident Insurance Scheme (PAIS) claims. Health Insurance Scheme: Health hazards jeopardize the activities of the tenant farmers, as they are not in a position to bear with the unexpected financial shocks. If the cultivator himself falls ill, the situation not only leads to starvation of the family but also have a negative impact on crop yield. Therefore, in addition to PAIS, health insurance is very essential to protect the tenant farmers and save their families. Separate health insurance scheme may be implemented through GIC: Premium may be subsidized on par with the premium for BPL families. All major and minor illnesses of the cultivator and also all his family members be covered. Scheme shall be user friendly so as to cover the treatment taken at local hospitals, nursing homes and also clinics run by the qualified doctors. A panel of hospitals, nursing homes and clinics may be approved for this purpose. Settlement procedure may be simplified to ensure faster claim settlement. Liaison with the empanelled hospitals / nursing homes /clinics may be established to ensure treatment without having need for payment by the insured.

Scale of Finance: Normally Tenant farmers engage family labor in cultivation. Therefore, there is a need to adopt separate scale finance for extending crop production limits to the tenant farmers to cover components for: Crop Production Consumption Lease amount in case fixed lease contracts with advance payment of lease amount provided there is a record for payment of lease amount