INTRODUCTION

Definition
Banking is "accepting, for the purpose of lending or investment of deposits of
money from the public, repayable on demand or otherwise and withdrawable by
cheques, draft, order or otherwise."
Bank is defined as a person who carries on the business of banking. Banks also
perform certain activities which are ancillary to this business of accepting
deposits and lending. Since Banking involves dealing directly with money,
governments in most countries regulate this sector rather stringently.

Banking in India was defined under Section 5(A) as "any company which
transacts banking, business" and the purpose of banking business defined under
Section 5(B),"accepting deposits of money from public for the purpose of
lending or investing, repayable on demand through cheque/draft or otherwise".
In the process of doing the above-mentioned primary functions, they are also
permitted to do other types of business referred to as Utility Services for their
customers (Banking Regulation Act, 1949).

History of Banks
Banking in India originated in the last decades of the 18th century. The first
banks were The General Bank of India which started in 1786, and the Bank of
Hindustan, both of which are now defunct. The oldest bank in existence in India
is the State Bank of India, which originated in the Bank of Calcutta in June
1806, which almost immediately became the Bank of Bengal. This was one of
the three presidency banks, the other two being the Bank of Bombay and the
Bank of Madras, all three of which were established under charters from the
British East India Company. For many years the Presidency banks acted as
quasi-central banks, as did their successors. The three banks merged in 1925 to
form the Imperial Bank of India, which, upon India's independence, became the
State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in
1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank,
established in 1865 and still functioning today, is the oldest Joint Stock bank in
India. It was not the first though. That honor belongs to the Bank of Upper
India, which was established in 1863, and which survived until 1913, when it
failed, with some of its assets and liabilities being transferred to the Alliance
Bank of Simla.
When the American Civil War stopped the supply of cotton to Lancashire from
the Confederate States, promoters opened banks to finance trading in Indian
cotton. With large exposure to speculative ventures, most of the banks opened in
India during that period failed. The depositors lost money and lost interest in
keeping deposits with banks. Subsequently, banking in India remained the
exclusive domain of Europeans for next several decades until the beginning of
the 20th century.

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The
Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and
another in Bombay in 1862; branches in Madras and Pondicherry, then a French
colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the
most active trading port in India, mainly due to the trade of the British Empire,
and so became a banking center. The Bank of Bengal, which later became the
State Bank of India.
The first entirely Indian joint stock bank was the Oudh Commercial Bank,
established in 1881 in Faizabad. It failed in 1958. The next was the Punjab
National Bank, established in Lahore in 1895, which has survived to the present
and is now one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing through a
relative period of stability. Around five decades had elapsed since the Indian
Mutiny, and the social, industrial and other infrastructure had improved. Indians
had established small banks, most of which served particular ethnic and
religious communities.
The presidency banks dominated banking in India but there were also some
exchange banks and a number of Indian joint stock banks. All these banks
operated in different segments of the economy. The exchange banks, mostly
owned by Europeans, concentrated on financing foreign trade. Indian joint stock
banks were generally undercapitalized and lacked the experience and maturity
to compete with the presidency and exchange banks.
The period between 1906 and 1911, saw the establishment of banks inspired by
the Swadeshi movement. The Swadeshi movement inspired local businessmen
and political figures to found banks of and for the Indian community. A number
of banks established then have survived to the present such as Bank of India,

Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central
Bank of India.
The fervour of Swadeshi movement lead to establishing of many private banks
in Dakshina Kannada and Udupi district which were unified earlier and known
by the name South Canara ( South Kanara ) district. Four nationalised banks
started in this district and also a leading private sector bank. Hence undivided
Dakshina Kannada district is known as "Cradle of Indian Banking".

The Reserve Bank of India

The Reserve Bank of India (RBI) was established through the Reserve Bank of
India Act, 1934 and it commenced its operations on April 1, 1935. It was
established as a private shareholders' bank, then it was nationalized in 1949, and
it became fully owned by the Government of India. It draws its powers and
responsibilities through other legislations also such as the Banking Regulation
Act, 1949. The RBI has over the years been responding to changing economic
circumstances and these organizational developments.
Functions of Reserve Bank of India
The Reserve Bank of India Act of 1934 entrust all the important functions of a
central bank the Reserve Bank of India.
1. Bank of Issue
The Bank has the sole right to issue bank notes of all denominations. The
Reserve Bank has a separate Issue Department which is entrusted with the issue
of currency notes.
2. Banker to Government
The second important function of the Reserve Bank of India is to act as
Government banker, agent and adviser. The Reserve Bank is agent of Central
Government and of all State Governments in India excepting that of Jammu and
Kashmir. The Reserve Bank has the obligation to transact Government business,
via. To keep the cash balances as deposits free of interest, to receive and to
make payments on behalf of the Government and to carry out their exchange
remittances and other banking operations. The Reserve Bank of India helps the
Government - both the Union and the States to float new loans and to manage
public debt.

3. Bankers' Bank and Lender of the Last Resort

The Reserve Bank of India acts as the bankers' bank. According to the
provisions of the Banking Companies Act of 1949, every scheduled bank was
required to maintain with the Reserve Bank a cash balance equivalent to 5% of
its demand liabilities and 2 per cent of its time liabilities in India. By an
amendment of 1962, the distinction between demand and time liabilities was
abolished and banks have been asked to keep cash reserves equal to 3 per cent
of their aggregate deposit liabilities. The minimum cash requirements can be
changed by the Reserve Bank of India.
The scheduled banks can borrow from the Reserve Bank of India on the basis of
eligible securities or get financial accommodation in times of need or stringency
by rediscounting bills of exchange. Since commercial banks can always expect
the Reserve Bank of India to come to their help in times of banking crisis the
Reserve Bank becomes not only the banker's bank but also the lender of the last
resort.
4. Controller of Credit
The Reserve Bank of India is the controller of credit i.e. it has the power to
influence the volume of credit created by banks in India. It can do so through
changing the Bank rate or through open market operations.
The Reserve Bank of India is armed with many more powers to control the
Indian money market. Every bank has to get a license from the Reserve Bank of
India to do banking business within India, the license can be cancelled by the
Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will
have to get the permission of the Reserve Bank before it can open a new branch.
Each scheduled bank must send a weekly return to the Reserve Bank showing,
in detail, its assets and liabilities.

As supreme banking authority in the country, the Reserve Bank of India,

therefore, has the following powers:
(a) It holds the cash reserves of all the scheduled banks.
(b) It controls the credit operations of banks through quantitative and
qualitative controls.
(c) It controls the banking system through the system of licensing, inspection
and calling for information.
Nationalization of Banks
The nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi
the then prime minister. It nationalized 14 banks then. Majority of the banks
were mostly owned by businessmen and even managed by them.
Before the steps of nationalization of Indian banks, only State Bank of India
(SBI) was nationalized. It took place in July 1955 under the SBI Act of 1955.
Nationalization of Seven State Banks of India (formed subsidiary) took place on
19th July, 1960. The State Bank of India is India's largest commercial bank and
is ranked one of the top five banks worldwide. It serves 90 million customers
through a network of 9,000 branches and it offers -- either directly or through
subsidiaries a wide range of banking services.
The second phase of nationalization of Indian banks took place in the year
1980. Seven more banks were nationalized with deposits over 200 crores. Till
this year, approximately 80% of the banking segment in India was under
Government ownership.

After the nationalization of banks in India, the

branches of the public sector banks rose to approximately 800% in deposits and
advances took a huge jump by 11,000%.

 1955: Nationalization of State Bank of India.

1959: Nationalization of SBI subsidiaries.
1969: Nationalization of 14 major banks.
1980: Nationalization of seven banks with deposits over 200 crores.
The need for the nationalization was felt mainly because private commercial
banks were not fulfilling the social and developmental goals of banking which
are so essential for any industrializing country. Despite the enactment of the
Banking Regulation Act in 1949 and the nationalization of the largest bank, the
State Bank of India, in 1955, the expansion of commercial banking had largely
excluded rural areas and small-scale borrowers. The stated purpose of bank
nationalization was to ensure that credit allocation occur in accordance with
plan priorities. Currently there are 27 nationalized commercial banks.
Objectives of Nationalization of Banks
To control the commercial heights of the economy
To extend banking facilities to unbanked and under banked centres,
especially in rural areas
To ensure an increased flow of assistance to the neglected sectors
To foster the growth of new and progressive entrepreneurs

Consequences of Nationalization
The quality of credit assets fell because of liberal credit extension
policy.
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 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.
Liberalization of Banks
In the early 1990s, the then Narsimha Rao government embarked on a policy of
liberalization, licensing a small number of private banks. These came to be
known as New Generation tech-savvy banks, and included Global Trust Bank
(the first of such new generation banks to be set up), which later amalgamated
with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank
and HDFC Bank. This move, along with the rapid growth in the economy of
India, revitalized the banking sector in India, which has seen rapid growth with
strong contribution from all the three sectors of banks, namely, government
banks, private banks and foreign banks.
The next stage for the Indian banking has been setup with the proposed
relaxation in the norms for Foreign Direct Investment, where all Foreign
Investors in banks may be given voting rights which could exceed the present
cap of 10%, at present it has gone up to 49% with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this
time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4)
of functioning. The new wave ushered in a modern outlook and tech-savvy
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methods of working for traditional banks. All this led to the retail boom in India.
People not just demanded more from their banks but also received more.
Currently, banking in India is generally fairly mature in terms of supply, product
range and reach-even though reach in rural India still remains a challenge for
the private sector and foreign banks. In terms of quality of assets and capital
adequacy, Indian banks are considered to have clean, strong and transparent
balance sheets relative to other banks in comparable economies in its region.
The Reserve Bank of India is an autonomous body, with minimal pressure from
the government. The stated policy of the Bank on the Indian Rupee is to manage
volatility but without any fixed exchange rate-and this has mostly been true.
With the growth in the Indian economy expected to be strong for quite some
time-especially in its services sector-the demand for banking services,
especially retail banking, mortgages and investment services are expected to be
strong. One may also expect M&As, takeovers, and asset sales.
Privatization of Banks
In many ways, India provides an excellent testing ground for hypotheses about
privatization and its impact, except that so far privatization has not been
attempted on a scale that researchers would like to see. The country has a large,
well diversified public sector. Unlike many of the transition economies, it also
has a long tradition of private enterprise, including big companies in the private
sector, although there are certain sectors in which private sector participation is
quite new, these sectors having been reserved until recently for the public sector.
Privatization in India generally goes by the name of disinvestment or
divestment of equity. This is because privatization has thus far not meant
transfer of control or even of controlling interest from government to anybody
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else. The government has sold stakes ranging from one per cent to 40% in 40
PSUs, but in no company has its stake fallen below the magic figure of 51%
which is seen as conferring controlling interest.
The privatization program is itself relatively new to the country. It is part of an
ambitious process of economic reforms covering industry, trade, the financial
sector and agriculture and also involving a program of macro-economic
stabilization focused on the federal budget, which commenced in 1991.
Privatization is seen necessary in order to enable firms in the public sector to
compete and survive in the new environment.
Disinvestment opens the gate for eventual privatization and this route must be
opposed. Instead, the alternative of issuing of bonds and preference shares
should be encouraged. No individual or institution should be permitted to hold
beyond 5 percent of the shares. Already foreign institutional investors are
holding sizeable shares in public sector banks as also in the major new private
sector Indian banks.
Globalization of Banks
Publicly owned banks handle more than 80% of the banking business in India
and the rest is in the hands of private sector banks. However, banking in both
the government and private sector is being revolutionized by this latest
phenomenon called globalization. Globalization has offered a number of
advantages to the banking sector in India.
Remarkable advancements in communication and information technology have
facilitated the globalization of these domestic banks. Apart from the benefits,
several risks are also associated with the opportunities made available by
globalization.

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Banking Sector Reforms

In the five decades since independence, banking in India has evolved through
four distinct phases. During Fourth phase, also called as Reform Phase,
Recommendations of the Narasimham Committee (1991) paved the way for the
reform phase in the banking. Important initiatives with regard to the reform of
the banking system were taken in this phase. Important among these have been
introduction of new accounting and prudential norms relating to income
recognition, provisioning and capital adequacy, deregulation of interest rates &
easing of norms for entry in the field of banking.
Major Reform Initiatives:
Some of the major reform initiatives in the last decade that have changed the
face of the Indian banking and financial sector are:

Interest rate deregulation. Interest rates on deposits and lending have been
deregulated with banks enjoying greater freedom to determine their rates.
On the deposit side, interest rates on all deposits, except savings accounts,
have been de-regulated. Similarly, on the bank lending, rates to be charged
by the banks on most of the credit facilities have been deregulated except a
small component for lending related to certain segments.

Adoption of prudential norms in terms of capital adequacy, asset

classification, income recognition, provisioning, and exposure limits,
investment fluctuation reserve, etc.

Reduction in pre-emption lowering of reserve requirements (SLR and

CRR), thus releasing more lendable resources which banks can deploy
profitably.

Government equity in banks has been reduced and strong banks have been
allowed to access the capital market for raising additional capital.
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Banks now enjoy greater operational freedom in terms of opening and

swapping of branches, and banks with a good track record of profitability
have greater flexibility in recruitment.

New private sector banks have been set up and foreign banks permitted to
expand their operations in India including through subsidiaries. Banks have
also been allowed to set up Offshore banking Units in Special Economic
Zones.

New areas have been opened up for bank financing: insurance, credit cards,
infrastructure financing, leasing, gold banking besides of course investment
banking asset management, factoring, etc.

New instruments have been introduced for greater flexibility and better risk
management: e.g. interest rate swaps, forward rate agreements, cross
currency forward contracts, forward cover to hedge inflows under foreign
direct investment, liquidity adjustment facility for meeting day-to-day
liquidity mismatch.

Several new institutions have been set up including the National Securities
Depositories Ltd., Central Depositories Services Ltd., Clearing Corporation
of India Ltd., Credit Information Bureau India Ltd.

Limits for investment in overseas markets by banks, mutual funds and

corporate have been liberalised. The overseas investment limit for corporate
has been raised to 100% of net worth and the ceiling of $100 million on
prepayment of external commercial borrowings has been removed. Indians
are allowed to maintain resident foreign currency (domestic) accounts. Full
convertibility for deposit schemes of NRIs introduced.

Universal banking has been introduced. With banks permitted to diversify

into long-term finance and DFIs into working capital, guidelines have been
put in place for the evolution of universal banks.

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Technology infrastructure for the payments and settlement system in the

country has been strengthened with electronic funds transfer, Centralised
Funds Management System, Structured Financial Messaging Solution,
Negotiated Dealing System and move towards Real Time Gross Settlement.

Adoption of global standards. Prudential norms for capital adequacy, asset

classification, income recognition and provisioning are now close to global
standards. RBI has introduced Risk Based Supervision of banks (against the
traditional transaction based approach).

Credit delivery mechanism has been reinforced to increase the flow of credit
to priority sectors through focus on micro credit and Self Help Groups. The
definition of priority sector has been widened to include food processing
and cold storage, software upto Rs 1 crore, housing above Rs. 10 lakh,
selected lending through NBFCs, etc.

RBI guidelines have been issued for putting in place risk management
systems in banks. Risk Management Committees in banks address credit
risk, market risk and operational risk.

The limit for foreign direct investment in private banks has been increased
from 49% to 74% and the 10% cap on voting rights has been removed. In
addition, the limit for foreign institutional investment in private banks is
49%.

Wide ranging reforms have been carried out in the area of capital markets.
Fresh investment in CPs, CDs are allowed only in dematerialised form.

Universal Banking
Universal Banking is a multi-purpose and multi-functional financial
supermarket (a company offering a wide range of financial services e.g. stock,
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insurance and real-estate brokerage) providing both banking and financial

services through a single window.
In a nutshell, a Universal Banking is a superstore for financial products under
one roof. Corporate can get loans and avail of other handy services, while can
deposit and borrow. It includes not only services related to savings and loans but
also investments.
However in practice the term 'universal banking' refers to those banks that offer
a wide range of financial services, beyond the commercial banking functions
like Mutual Funds, Merchant Banking, Factoring, Credit Cards, Retail loans,
Housing Finance, Auto loans, Investment banking, Insurance etc. This is most
common in European countries.
For example, in Germany commercial banks accept time deposits, lend money,
underwrite corporate stocks, and act as investment advisors to large
corporations. In Germany, there has never been any separation between
commercial banks and investment banks, as there is in the United States.
Universal Banking in India
In India Development financial institutions (DFIs) and refinancing institutions
(RFIs) were meeting specific sect oral needs and also providing long-term
resources at concessional terms, while the commercial banks in general, by and
large, confined themselves to the core banking functions of accepting deposits
and providing working capital finance to industry, trade and agriculture.
Consequent to the liberalization and deregulation of financial sector, there has
been blurring of distinction between the commercial banking and investment
banking.

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Reserve Bank of India constituted on December 8, 1997, a Working Group

under the Chairmanship of Shri S.H. Khan to bring about greater clarity in the
respective roles of banks and financial institutions for greater harmonization of
facilities and obligations. Also report of the Committee on Banking Sector
Reforms or Narasimham Committee (NC) has major bearing on the issues
considered by the Khan Working Group.
The issue of universal banking resurfaced in Year 2000, when ICICI gave a
presentation to RBI to discuss the time frame and possible options for
transforming itself into a universal bank. Reserve Bank of India also spelt out to
Parliamentary Standing Committee on Finance, its proposed policy for universal
banking, including a case-by-case approach towards allowing domestic
financial institutions to become universal banks. Now RBI has asked FIs, which
are interested to convert itself into a universal bank, to submit their plans for
transition to a universal bank for consideration and further discussions. FIs need
to formulate a road map for the transition path and strategy for smooth
conversion into a universal bank over a specified time frame. The plan should
specifically provide for full compliance with prudential norms as applicable to
banks over the proposed period.

TECHNOLOGICAL TRENDS IN PUBLIC SECTOR BANKS

2.1 Core Banking Solutions
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Core Banking Solutions (CBS) or Centralised Banking Solutions is the process

which is completed in a centralized environment i.e. under which the
information relating to the customers account (i.e. financial dealings,
profession, income, family members etc.) is stored in the Central Server of the
bank (that is available to all the networked branches) instead of the branch
server. Depending upon the size and needs of a bank, it could be for the all the
operations or for limited operations. This task is carried through advanced
software by making use of the services provided by specialized agencies. Due to
its benefits, a no. of banks in India in recent years have taken steps to
implement the CBS with a view to build relationship with the customer based
on the information captured and offering to the customer, the customised
financial products according to their need.
Advantages for Customer:
Transaction of business from any branch,
Lower incidence of errors. Hence accuracy in transactions.
Better funds management due to immediate availability of funds.
For Banks:
Standardisation of process within the bank.
Better customer service leading to retention of customer and increased
customer traffic.
Availability of accurate data & Better use of available infrastructure.

Following are some of the CORE BANKING SERVICES provided by public

sector banks.
1. Internet Banking

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The total number of registered users for Internet banking in India is over two
million. But this figure needs to be adjusted for dormant users and multiple
accounts (a user having accounts with more than one bank). India has a little
less than a million active Internet banking users. Thus indicating that, the
concept of Internet banking is surely catching on.
India lags behind other countries in Internet banking. In the US, the number of
commercial banks with transactional websites is 1,275 or 12 percent of the total
number of banks. Of these, seven could be called virtual banks.
From the Asian market experience, it is clear that Internet banking is here to
stay and will be a major channel to acquire and service customers. Markets like
Korea and Singapore have nearly 10 percent of their population banking over
the Internet.
2. Automatic Teller Machine
The introduction of ATMs has given the customers the facility of round the
clock banking. The ATMs are used by banks for making the customers dealing
easier. ATM card is a device that allows customer who has an ATM card to
perform routine banking transaction at any time without interacting with human
teller. It provides exchange services. This service helps the customer to
withdraw money even when the banks are closed. This can be done by inserting
the card in the ATM and entering the Personal Identification Number and secret
Password. 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.

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It allows the customers:

To transfer money to and from accounts.
To view account information.
To receive cash.

ADVANTAGES OF ATMS:
To the Customers

ATMs provide 24 hrs. 7 days and 365 days a year service.

Service is quick and efficient
Privacy in transaction
Wider flexibility in place and time of withdrawals.
The transaction is completely secure you need to key in Personal
Identification Number (Unique number for every customer).

To Banks

Alternative to extend banking hours.

Crowding at bank counters considerably reduced.
Alternative to new branches and to reduce operating expenses.
Relieves bank employees to focus on more analytical and innovative work.
Increased market penetration.

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. The ATM services was provided first by the foreign banks
like Citibank, Grind lays bank and now by many private and public sector banks
in India like ICICI Bank, HDFC Bank, SBI, UTI Bank etc. The ICICI has
launched ATM Services to its customers in all the Metropolitan Cities in India.
By the end of 1990 Indian Private Banks and public sector banks have come up
with their own ATM Network in the form of SWADHAN. Over the past year
upto 44 banks in Mumbai, Vashi and Thane, have became a part of
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SWADHAN a system of shared payments networks, introduced by the Indian

Bank Association (IBA).
3. Mobile Banking
Mobile Banking (also known as M-Banking or SMS Banking) is a term used for
performing balance checks, account transactions, payments, etc., via a mobile
device such as a mobile phone. It was Internet Banking, which ushered in a new
era in banking convenience by bringing the entire operations to the computer,
and now mobile banking promises to take it to the next level.
Mobile Banking addresses this fundamental limitation of Internet Banking, as it
reduces the customer requirement to just a mobile phone. Mobile usage has seen
an explosive growth in most of the Asian economies like India, China and
Korea. The main reason that Mobile Banking scores over Internet Banking is
that it enables 'Anywhere Anytime Banking'.
Mobile banking has been at the threshold of a revolution for some time. While
many operators, as well as banks, had introduced mobile banking applications,
it never became popular due to security concerns. The number of people using
mobile banking services has jumped from under 10,000 to 120,000 in two years.
While the trend is growing, lack of awareness of services, apart from perceived
security issues are inhibiting faster take-off.
Reserve Bank of India has set-up the Mobile Payments Forum of India
(MPFI), a 'Working Group on Mobile Banking' to examine different aspects of
Mobile Banking (M-banking).
Various Mobile Banking Services to the Consumers
Banks offering mobile access are mostly supporting some or all of the following
services:

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Account Information
Mini-statements and checking of account history
Alerts on account activity or passing of set thresholds
Monitoring of term deposits
Access to loan statements
Access to card statements
Mutual funds / equity statements
Insurance policy management
Pension plan management

Payments & Transfers

Domestic and international fund transfers
Mobile re-charging
Commercial payment processing
Bill payment processing

Investments
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 Portfolio management services

Real-time stock quotes
Personalized alerts and notifications on security prices
Support
Status of requests for credit, including mortgage approval, and insurance
coverage
Check (cheque) book and card requests
Exchange of data messages and e-mail, including complaint submission and
tracking
Content Services
General information such as weather updates, news
Loyalty-related offers
Location-based services
4. 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.
Telebanking offers the following services to its customers:
To get a particular work done through the bank, the users may leave his
instructions in the form of message with bank.
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 Facility to stop payment on request. One can easily know about the cheque

status.
Information on the current interest rates.
Information with regard to foreign exchange rates.
Request for a DD or pay order.
Demat Account related services.
And other similar services.

5. Multi City Cheque

"Multi City Cheque" or MCC is a facility wherein the customer can issue
cheques drawn at the base branch and payable at any branch at remote centre.
These cheques will be treated as local cheques at the remote branch. There will
be no collection charges and the credit will be given on the same day, as
applicable to local cheques. Even if the cheque is dropped at any other bank
other than the base bank, there will not be any collection charges. For example,
if Mr. A is paid a Multi city cheque by Mr. B at SBI branch in Delhi, Mr. A can
drop the same at any bank in Mumbai where he holds an account, and there will
not be any collection charges.
6. Credit Card
The credit card can be defined as a small plastic card that allows its holder to
buy goods and services on credit and to pay at fixed intervals through card
issuing agency. The credit card releases the customers form botheration of
carrying cash and ensures safety.
A person who earns a salary of Rs 60,000 per annum is eligible for card. A
reference from a banker and the employers of the applicant is insisted upon.

7. Debit Card
Debit cards will offer direct withdrawal of funds from a customers bank account.
The spending limit is determined by the users bank depending upon available
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balance in the account of the user. It is a special plastic card connected with
electromagnetic identification that one can use to pay for things purchased
directly from its bank account. Under the system, cardholders accounts are
immediately debited against purchase or service to the computer network. Hence,
under debit card the card holder must have adequate balance in his account. The
system is intended to replace cheque system of payment. These can be
maintained only for customers maintaining satisfactory accounts and for a
minimum period of 6 months.
8. Demat Account
In India, a demat account, the abbreviation for dematerialised account, is a type
of banking account which dematerializes paper-based physical stock shares. The
dematerialised account is used to avoid holding physical shares: the shares are
bought and sold through a stock broker.
This account is popular in India. The Securities and Exchange Board of India
(SEBI) mandates a demat account for share trading above 500 shares. As of
April 2006, it became mandatory that any person holding a demat account
should possess a Permanent Account Number (PAN),
Payment and Settlement Systems
In recent years, alternate money transmission avenues, especially the
development of electronic money schemes, have been gaining currency. While
electronic money has the potential to take over from cash for making smallvalue payments, making such transactions are becoming easier and cheaper for
both consumers and merchants. This raises policy issues for central banks in its
role as the guardian of the payment network and implementer of the monetary
policy. The emergence of peer-to-peer money transmission mechanisms poses a
challenge to current role of banks as gatekeepers to traditional payment systems.
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Robust payment systems, therefore, are a key requirement in maintaining and

promoting financial stability with technology playing both a facilitating and
disruptive role in them.
Reserve Banks initiatives for electronic payments and banking
As part of its public policy objective of promoting a safe, secure, sound and
efficient payment system, the Reserve Bank has taken several initiatives to
develop and promote electronic payments infrastructure. Towards this end, the
RBI introduced the following:
a.
b.
c.
d.
e.

Electronic Clearing Service (ECS).

Electronic Funds Transfer (EFT) system.
Real Time Gross Settlement (RTGS) system.
National Electronic Funds Transfer (NEFT).
Cheque Truncation System (CTS).

a. Electronic Clearing Service (ECS)

With a view to upgrading our payment system to the international standards, the
Reserve Bank took the initiative and set up Electronic Clearing Service in India,
in the mid 1990s, which is the counterpart of the automated clearing house
(ACH) system in certain other countries. It has two variants
ECS - Credit Clearing and ECS - Debit Clearing.
While the Credit Clearing operates on the principle of single debit-multiple
credits and is used for making payment of salary, pension, dividend and
interest, etc.
The Debit Clearing functions on the principle of single credit-multiple debits
and is used for collecting payments by utility service providers like electricity,

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telephone bills as well by banks for receiving principal / interest repayments for
housing and personal loans from the borrowers.
At present, about 18 million transactions flow through the ECS system every
month. This facility is currently available at 70 centers in the country.
b. Real Time Gross Settlement System
The payment system in the country largely follows the deferred net settlement
regime, under which the net amount is settled between the banks, on a deferred
basis. Such a dispensation entails an element of settlement risk. Hence, as a step
towards risk mitigation in the large value payment systems, the RTGS was
operationalised by the RBI in March 2004, which enables settlement of
transactions in real time, on a gross basis. Almost all the inter-bank transactions
in the country and many time-critical customer transactions are now settled
through this system.
RTGS is fully secured electronic funds transfer system where banks and
customers can receive payments on real time basis. The outreach of RTGS
transactions has also grown geographically. Out of about 75,000 bank branches
in the country, more than 48,300 bank branches now accept requests for
remittance through RTGS system for customer transactions as well as inter-bank
transactions.
A minimum threshold of rupees one lakh has been prescribed for customer
transactions to ensure that RTGS system is used only for large value
transactions and retail transactions take an alternate channel of electronic funds
transfer. The daily average of transactions is over 34,000 by volume and over
Rs.2 lakh crore by value.

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The RBI also provides collateralised Intra-Day-Liquidity (IDL) support to the

member banks for the RTGS operations.

c. National Electronic Fund Transfer:

The NEFT was launched by the RBI in November 2005 as a more secure,
nation-wide retail electronic payment system to facilitate funds transfer by the
bank customers, between the networked bank branches in the country. It has,
however, been observed that the public sector banks are not the most active
users of this product and the majority of NEFT outward transactions are
originated by a few new-generation private sector banks and foreign banks.
For instance, in June 2008, while these banks, as a segment, accounted for a
little over 43 per cent each of the aggregate volume of outward and inward
NEFT transactions, the share of public sector banks in total outward NEFT
transactions was rather low at a little over 12 per cent, of which half the volume
was the contribution of the State Bank of India.
The RBI has been pursuing the matter with the PSBs for increasing their
participation in the NEFT system in terms of the number of NEFT-enabled
branches and the number of NEFT transactions originated by them. I would like
to urge upon the bankers present here to initiate appropriate measures to
stimulate greater usage of this payment medium and thereby, improve their
share in this regard.
In order to popularise the e-payments in the country, the RBI, on its part, has
waived the service charges to be levied on the member banks, till March 31,
2009, in respect of the RTGS and NEFT transactions. The RBI also provides,
free of charge, intra-day liquidity to the banks for the RTGS transactions. The
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service charges to be levied by banks from their customers for RTGS & NEFT
have, however, been deregulated and left to discretion of the individual bank.
While some of the banks have rationalized their service charges and a few have
made it even cost-free to the customers, there are also certain banks that have
fixed multiples slabs or unreasonably high service charges, at times linked to the
amount of the transaction, for providing these services to their customers even
though the RBI provides these services to the banks free of charge.
d. Cheque Truncation System (CTS)
The latest electronic payment product introduced by the RBI is the Cheque
Truncation System, which was launched, on a pilot basis, in the National
Capital Region of New Delhi on February 1, 2008, with the participation of 10
banks. At present all the banks are participating in the system through 53 direct
member banks.
The main objective of the CTS is to improve the efficiency and substantially
reduce the cheque processing time in the system. The traditional clearing system
requiring the physical presentation of cheques in the clearing house for payment
and settlement, inevitably entails consequential inefficiencies in terms of
clearing time and infrastructure required.
In contrast, the main advantage of cheque truncation is that it eliminates the
physical presentation of the cheque to the clearing house; instead, the electronic
image of the cheque would be sent to the clearing house. The CTS would enable
the realisation of cheques on the same day, and provide a more cost-effective
mode of settlement than manual and MICR clearing. Smaller banks, which may
find it unviable to set up the infrastructure, could utilise the services of service
bureaus set up for this purpose by a few larger banks.

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Once the CTS become fully operational, the system would be the largest in the
world and would leapfrog the country from the paper-based instruments to a
fully electronic mode of payment and settlement. Necessary amendments have
been made to the Negotiable Instruments Act, 1881, which provides legal
recognition to the electronic image of the truncated cheque. These amendments
provide a legal basis for the cheque truncation system. .
e. National Electronic Clearing Service (NECS)
The National ECS is a product being developed by the RBI to enable centralised
processing of the ECS transactions, in contrast to the existing ECS system that
has decentralised operations at 70 locations, spread all over the country. Under
the National ECS, the processing of all the ECS transactions would be
centralised at the National Clearing Cell at Nariman Point, Mumbai and sponsor
banks would need to only upload the relative files to a web server, with online
data validation facility.
Destination banks would receive their inward clearing data / file at a central
location, through the web server. The National ECS would leverage the Core
Banking platform of the commercial banks, to enable around 50,000 corebanking-enabled branches of the various banks, to avail of this service. The
system would facilitate end-to-end seamless posting of the NECS transactions
in a straight-through-processing (STP) environment. This would help the users
and member banks to send, receive and process the data files at one centralised
place, thereby improving the efficiency of the payment system.
f. Negotiated Dealing System
The system which became operational during Feb 2002 facilitates the
submission of bids/applications for auctions/floatation of govt. securities
through pooled terminal facility located at Regional Offices of Public Debt
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Offices across the country and through member terminals. The system can be
used for daily Repo and Reverse Repo auctions under Liquidity Adjustment
Facility.
MARKETING TRENDS
The bank of the future has to be essentially a marketing organisation that also
sells banking products. New distribution channels are being used; more & more
banks are outsourcing services like disbursement and servicing of consumer
loans, Credit card business. Direct Selling Agents (DSAs) of various Banks go
out and sell their products. They make house calls to get the application form
filled in properly and also take your passport-sized photo. Home banking has
already become common, where you can order a draft or cash over
phone/internet and have it delivered home. ICICI bank was the first among the
new private banks to launch its net banking service, called Infinity. It allows the
user to access account information over a secure line, request cheque books and
stop payment, and even transfer funds between ICICI Bank accounts. Citibank
has been offering net banking to its Suvidha program to customers. Banks can
no longer confine themselves to selling the traditional way.
Initially the public sector banks were dominating the banking scene so they
never felt the need for marketing. However Post liberalization, several newgeneration private-sector banks changed the face of the industry. Customers no
longer had to stand in long queues or make 10 trips for loans to be sanctioned.
Private-sector banks brought in concepts like customer relations officers,
focused marketing teams and single-window banking. Moreover, with new
technology, private-sector banks like ICICI Bank and HDFC Bank could offer
customer services like ATMs, phone banking, Internet banking, automatic
money transfers and computerised monthly statements.

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Public sector banks have woken up to competition. Industry estimates state that
roughly 12 per cent to 15 per cent of public-sector bank customers shifted to
private-sector banks in the late nineties. Now public-sector banks are finally
getting their act together. Still holding 82 per cent of the lending market, they
are cashing in on their strengths like experience, network, products, and facility.
All it takes is to package it and sell it well.
OTHER TRENDS
4.1 Retail Banking
Retail banking includes a comprehensive range of financial products viz.
deposit products, residential mortgage loans, credit cards auto finance, personal
loans, consumer durable loans , loans against equity shares, loans for
subscribing to initial public offers (IPO), debit cards bill payment service ,
mutual funds and investment advisory services .
The emergence of middle class with substantial purchasing power in India
during the last one decade or so and its desire to spend according to the
changing life style, has offered to the Indian banking system, a ready market,
for mobilization and deployment of their funds. Given the rising purchasing
power of this class, there is huge untapped potential for business.
While new generation private sector banks have been able to create a niche in
this regard, the public sector banks have not lagged behind. Leveraging their
vast branch network and outreach, public sector banks have aggressively
forayed to garner a larger slice of the retail pie. By international standards,
however, there is still much scope for retail banking in India.

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4.2 Customer Relationship Management

Traditionally, banking was personal, where customer knew the bank employee
and vice versa. The main bondage was the relationship the customer enjoys with
the bank- the closer the customer feels to the bank, the more are his chances of
remaining as future customer. Things have changed now. Newer technologies
Sresult in lack of personal touch and a customer can be lured by big financial
institutions at the end of world by providing better services than any local bank.
So banks are turning to Customer Relationship Management (CRM) in search
of effective ways to woo and retain their clients. The satisfied customers always
help in improving the business turnover through referrals and positive publicity.
Offering the right product to the right customer at the right time through the
right delivery channel is basic concept of CRM. Now the banks have realized
that they cannot expect to own their customers. The primary goal is to uncover
cross selling opportunities and provide more customized services to retain
customers. In real terms, CRM can be implemented only if proper infrastructure
is created. The introduction of concepts like customer profiling and
segmentation, target marketing, customers life time value analysis, campaign
analysis, etc. become necessary. The bank will be required to collect continuous
feedback and take necessary steps to improve the brand image.
Customer Relationship Management (CRM) refers to the ability to
understand, anticipate and manage the needs of the customer, interaction and
relationship resulting in increased profitability through revenue and margin
growth and operational efficiencies. Analytical insight into CRM can provide a
clearer picture of the profitability of specific customers. The banks can
distinguish between low income generating customers and highly profitable
customers and offer distinguished service based on this. The banks now offer
internet banking, ATM, phone banking, voice response unit, customer care and
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other services for the convenience of the customer. Only when customer feels
value will he reciprocate the relationship with loyalty. Banks have now adopted
Universal Banking and providing all financial services under one roof.

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4.3 Change of Bank Logos

Logos give a brand its identity. They are a companys most valuable asset. Its
no secret that a whole lot of Fortune 500 companies devote millions of dollars
each year to develop their brands and promote their corporate identity. In fact,
logos are what instantly make a brand recognisable. They make a brand
memorable. Logos are strong symbols that have the power to unite, not just
organisations, but people too.
Competitors & competition makes organisations sit up and take charge. Banks
are all about image & service. With a whole lot of multinationals setting up,
Indian banks realised it was time they changed. A whole lot of them developed
new corporate identities to look younger & trendy.
Public sector banks are going in for a change in logo as a means of re-branding
and re positioning their services to the new age customer in a new market
scenario. As a part of the strategy to face the changed scenario, one finds the
country's public sector banks, one by one, going in for image overhauls. It
begins with a change in logo witness the new Rising Baroda Sun which the
Bank of Baroda has gone in for, as part of its re-branding. Next in line was
Canara Bank. A couple of months ago, Union Bank of India unveiled its new
logo. Banks dont want to be perceived as last-generations banks and a new
logo gives a quick facelift.

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CHALLENGES FACING BY BANKING INDUSTRY:

The bank marketing is than an approach to market the services profitability. It is a
device to maintain commercial viability. The changing perception of bank
marketing has made it a social process. The significant properties of the holistic
concept of management and marketing has made bank marketing a device to
establish a balance between the commercial and social considerations, often
considered to the be opposite of each other.
A collaboration of two words banks and marketing thus focuses our attention on
the following: * Bank marketing is a managerial approach to survive in highly
competitive market as well as reliable service delivery to target customers. * It is
a social process to sub serve social interests. * It is a fair way of making profits *
It is an art to make possible performance-orientation. * It is a professionally
tested skill to excel competition.

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Challenges to Indian Banking:

The banking industry in India is undergoing a major change due to the
advancement in Indian economy and continuous deregulation. These multiple
changes happening in series has a ripple effect on banking industry which is
trying to be organized completely, regulated sellers of market to completed
deregulated customers market 20 1. Deregulation: This continuous deregulation
has given rise to extreme competition with greater autonomy, operational
flexibility, and decontrolled interest rate and liberalized norms and policies for
foreign exchange in banking market. The deregulation of the industry coupled
with decontrol in the interest rates has led to entry of a number of players in the
banking industry. Thereby reduced corporate credit off which has resulted in
large number of competitors battling for the same pie. 2. Modified New rules: As
a result, the market place has been redefined with new rules of the game. Banks
are transforming to universal banking, adding new channels with lucrative
pricing and freebees to offer. New channels squeezed spreads, demanding
customers better service, marketing skills heightened competition, defined new
rules of the game pressure on efficiency. Need for new orientation diffused
customer loyalty. Bank has led to a series of innovative product offerings catering
to various customer segments, specifically retail credit. 3. Efficiency: Excellent
efficiencies are required at banker's end to establish a balance between the
commercial and social considerations Bank need to access low cost funds and
simultaneously improve the efficiency and efficacy. Owing to cutthroat
competition in the industry, banks are facing pricing pressure, have to give thrust
on retail assets. 4. Diffused customer loyalty: Attractive offers by MNC and other
nationalized banks, customers have become more demanding and the loyalties
are diffused. Value added offerings bound customers to change their preferences
and perspective. These are multiple 21 choices; the wallet share is reduced per
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bank with demand on flexibility and customization. Given the relatively low
switching costs; customer retention calls for customized service and hassle free,
flawless service delivery. 5. Misaligned mindset: These changes are creating
challenges, as employees are made to adapt to changing conditions. The
employees are resisting to change and the seller market mindset is yet to be
changed. These problems coupled with fear of uncertainty and control
orientation. Moreover banking industry is accepting the latest technology but
utilization is far below from satisfactory level. 6. Competency gap: The
competency gap needs to be addressed simultaneously otherwise there will be
missed opportunities. Placing the right skill at the right place will determine
success. The focus of people will be doing work but not providing solutions, on
escalating problems rather than solving them and on disposing customers instead
of using the opportunity to cross sell. Strategic options to cope with the
challenges: Dominant players in the industry have embarked on a series of
strategic and tactical initiatives to sustain leadership.
The major initiatives incorporate:
a) Focus on ensuring reliable service delivery through Investing on and
implementing right technology..
b) Leveraging the branch networks and sales structure to mobilize low cost
current and savings deposits.
c) Making aggressive forays in the retail advances segments of home and
personal loans.
d) Implementing initiatives involving people, process and technology to reduce
the fixed costs and the cost per transaction.
e) Focusing on fee based income to compensate foe squeezed spread.

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f) Innovating products to capture customer 'mind share' to begin with and later
the wallet share.
The banking environment of today is rapidly changing and the rules of yesterday
no longer applicable. The corporate and the legal barriers that separate the
various banking, investment and insurance sectors are less well defined and the
cross-over are increasing. As a consequence the marketing function is also
changing to better support the bank in this dynamic market environment. The key
marketing challenge today is to support and advice on the focus positioning and
marketing resources needed to deliver performance on the banking products and
services. Marketing, as an investment advisor, is about defining 4Ps and
implementing key strategic initiatives to Market segments, increasingly
redefined, relevant micro-segments to survive and flourish in the highly
competitive market

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Conclusion
Entry of new banks resulted in a paradigm shift in the ways of banking in India.
The growing competition, growing expectations led to increased awareness
amongst banks on the role and importance of technology in banking. The arrival
of foreign and private banks with their superior state-of-the-art technologybased services pushed Indian Banks also to follow suit by going in for the latest
technologies so as to meet the threat of competition and retain their customer
base. Deregulation and technological change are the two single biggest changes
in the banking environment.
In India, investments in technologies by financial services organizations are
increasing, and new initiatives emerging, albeit at a basic level. However, in the
long run, it is evident that technology investments in transaction and process
automation will cease to be a differentiator.
Technology has enabled banks to overcome the barriers of time and extending
their services to customers. The new technology channels like ATMs, EFT
(Electronic funds transfer), debit and credit cards mobile banking, telebanking,
etc. are accessible to customers on a 24 x 7 basis.
With automation, banks can offer single window service, extend business hours
and provide anywhere anytime banking. It gives bank personnel more time to
devote to business planning and development also facilitates each player in
market to have its unique products and services for competitive advantage. New
technology driven channels help the banks to reduce cost as the cost of
transaction in new channel is a fraction of what it was on branch counter.
For e.g.: A counter transaction in typical branch would cost around Rs 50-60,
while it is around only Rs.15 to 20, if done through ATM. The cost will be
39

further lowered if done through internet. Recently RBI issued a circular stating
that withdrawal from ATM would be free irrespective of the card issuing bank
which will be effect from April 1st, 2009.
In view of this, technology has changed major functions performed by banks:
1. Access to liquidity.
2. Transformation of assets.
3. Monitoring of risks.
4. Information technology and the communication networking systems have a
crucial bearing on the efficiency of money, capital and foreign exchange
markets.

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Recommendation
The banking system has made considerable investment in the related
infrastructure to upgrade the payment system. However, there are several
challenges that need to be effectively addressed if the full benefits of the
achievements so far are to be reaped.
The primary reason for slow pace of adoption of the electronic modes of funds
transfer, particularly in the retail segment, is the lack of education particularly
on the part of the bank staff at the branch level that have interface with the
public.
A survey conducted by one of the Regional Offices of the RBI in the recent past
revealed that in the limited sample covered; there were several bank branches in
the State which were not even aware of the National Electronic Fund Transfer
system. The banks, therefore, need to make concerted efforts to increase the
degree of awareness at the level of the branch staff so that the electronic fund
transfer services percolate down to the level of the public in a significant
manner.
The other side of the coin is the lack of customer education and awareness about
the features and benefits of the EFT, which precludes wider adoption of this
product and leads to carrying on with the traditional modes of payment.

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Bibliography
New Trends in Banking Ravi Kumar VV
4PS Business & Marketing
Innovations in Banking & Insurance Romeo S. Mascarenhas
Financial Service Management Gordon & Natrajan

Webliography
WWW.GOOGLE.COM
WWW.SBI.CO.IN
WWW.IBA.ORG.IN
WWW.RBI.ORG.IN
WWW.PNBINDIA.COM

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