I.

T IN BANKING SECTOR

CH-1

HISTORY OF BANKING

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1.1 HISTORY OF BANKING:

Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dials a pizza. Money has become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below: Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms. New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.

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To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III.

Phase I
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. During those days public has lesser confidence in the banks. As an aftermath deposit mobilization was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.

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Phase II
Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semiurban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July, 1969, major process of nationalization was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were nationalized. Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country:

1949: Enactment of Banking Regulation Act. 1955: Nationalization of State Bank of India. 1959: Nationalization of SBI subsidiaries. 1961: Insurance cover extended to deposits. 1969: Nationalization of 14 major banks.

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1971: Creation of credit guarantee corporation. 1975: Creation of regional rural banks. 1980: Nationalization of seven banks with deposits over 200 crore. After the nationalization of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%. Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions.

Phase III
This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalization of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered.

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1.2 STRUCTURE OF INDIAN BANKING SYSTEM

Nationalized Commercial Bank

Private

Agricultural Short Term RBI Co-operative Bank Long Term Urban

Exim Development Bank

Indutrial

Agricultural

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1.3 RBI&FUNCTIONS
The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. The Government held shares of nominal value of Rs. 2, 20,000. Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks. The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank. The Bank was constituted for the need of following: To regulate the issue of banknotesTo maintain reserves with a view to securing monetary stability andTo operate the credit and currency system of the country to its advantage.

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1.4 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.

Bank of Issue
Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department. Originally, the assets of the Issue Department were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crores in value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India. Due to the exigencies of the Second World War and the post-was period, these provisions were considerably modified. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115 crores should be in gold. The system as it exists today is known as the minimum reserve system.

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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. The Bank makes ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking matters.

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.

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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.

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. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank. 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. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank.

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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. (d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.

Custodian of Foreign Reserves:

The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at lsh.6d. Though there were periods of extreme pressure in favor of or against the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F. Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast sterling balances were acquired and managed by the Bank.

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Further, the RBI has the responsibility of administering the exchange controls of the country.

Supervisory functions:
In addition to its traditional central banking functions, the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction, and liquidation. The RBI is authorized to carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalization of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realization of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation.

Promotional functions:
with economic growth assuming a new urgency since Independence, the range of the Reserve Bank's functions has steadily widened. The Bank now performs a variety of developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialized financing agencies. Accordingly, the Reserve

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Bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964,

the Industrial Development Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to mobilize savings, and to provide industrial finance as well as agricultural finance. As far back as 1935, the Reserve Bank of India set up the Agricultural Credit Department to provide agricultural credit. But only since 1951 the Bank's role in this field has become extremely important. The Bank has developed the co-operative credit movement to encourage saving, to eliminate moneylenders from the villages and to route its short term credit to agriculture. The RBI has set up the Agricultural Refinance and Development Corporation to provide long-term finance to farmers.

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CH-2 I.T IN BANKING SECTOR

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2.1 INTRODUCTION:
The 21st century will bring about an all-embracing convergence of computing, communications, information and knowledge. This will radically change the way we live, work, and think. The growth of high speed networks, coupled with the falling cost of computing power, is making possible applications undreamed of in the past. Voice, data, images, and video may now be transferred around the world in micro-seconds. This explosion of technology is changing the banking industry from paper and branch banks to' digitized and networked banking services. It has already changed the internal accounting and management systems of banks. It is now fundamentally changing the delivery systems banks use to interact with their customers. All over the world, banks are still struggling to find a technological solution to meet the challenges of a rapidly-changing environment. It is clear that this new technology is changing the banking industry forever. Banks with the ability to invest and integrate information technology will become dominate in the highly competitive global market. Bankers are convinced that investing in IT is critical. Its potential and consequences on the banking industry future is enormous

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One of the most important challenges facing India now is the need to match the urban development with the rural development .the role that information technology(IT)can play needs to be viewed in this context ,just as technology is important for effecting as quantum improvement in farming technique and in increased agricultural production ,it in banking is vital for quick progress in financial intermediation and efficient payment system .At the outset ,the mere usage of computers would not y itself herald IT revolution in the rural sector .there are many other tools of IT which need to be introduced to act as catalysts in the progress of transformation with the geographical spread of banking having penetrated most parts of the country , it is vital that automated teller machine (ATMs)are widely used .ATMs would provide in rural masses with the conveniences associated with retail technology . At present, ATMs are city oriented ATMs with the rural customer as focus points may have to be introduced .ATMs could provide cash drawls as also deposit facilities to the rural common man.

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2.2 An Overview of: IT in Banking

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.

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 technology-based 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.

Indian banking industry, today is in the midst of an IT revolution. A combination of regulatory and competitive reasons have led to increasing importance of total banking automation in the Indian Banking Industry.

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Information Technology has basically been used under two different avenues in Banking. One is Communication and Connectivity and other is Business Process Reengineering. Information technology enables sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks and helps the financial intermediaries to reach geographically distant and diversified markets.

In view of this, technology has changed the contours of three major functions performed by banks, i.e., access to liquidity, transformation of assets and monitoring of risks. Further, Information technology and the communication networking systems have a crucial bearing on the efficiency of money, capital and foreign exchange markets.

The Software Packages for Banking Applications in India had their beginnings in the middle of 80s, when the Banks started computerizing the branches in a limited manner. The early 90s saw the plummeting hardware prices and advent of cheap and inexpensive but high-powered PCs and servers and banks went in for what was called Total Branch Automation (TBA) Packages. The middle and late 90s witnessed the tornado of financial reforms, deregulation, globalization etc coupled with rapid revolution in communication technologies and evolution of novel concept of 'convergence' of computer and communication technologies, like Internet, mobile / cell phones etc.

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In India, banks as well as other financial entities entered the world of information technology and with Indian Financial Net (INFINET). INFINET, a wide area satellite based network (WAN) using VSAT (Very Small Aperture Terminals) technology, was jointly set up by the Reserve Bank and Institute for Development and Research in Banking Technology (IDRBT) in June 1999.

The Indian Financial Network (INFINET) which initially comprised only the public sector banks was opened up for participation by other categories of members The first set of applications that could benefit greatly from the use of technological advances in the computer and communications area relate to the Payment systems which form the lifeline of any banking activity. The process of reforms in payment and settlement systems has gained momentum with the implementation of projects such as NDS ((Negotiated Dealing System), CFMS (Centralized Funds Management System) for better funds management by banks and SFMS (Structured Financial Messaging Solution) for secure message transfer. This would result in funds transfers and funds-related message transfer to be routed electronically across banks using the medium of the INFINET. Negotiated dealing system (NDS), which has become operational since February 2002 and RTGS (Real Time Gross Settlement system) scheduled towards the end of 2003 are other major developments in the area.

Internet has significantly influenced delivery channels of the banks. Internet has emerged as an important medium for delivery of banking products & services. Detailed guidelines of RBI for Internet Banking has prepared the necessary ground for growth of Internet Banking in India.

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The Information Technology Act, 2000 has given legal recognition to creation, trans-mission and retention of an electronic (or magnetic) data to be treated as valid proof in a court of law, except in those areas, which continue to be governed by the provisions of the Negotiable Instruments Act, 1881.

As stated in RBI's Annual Monetary and Credit Policy 20022003: "To reap the full benefits of such electronic message transfers, it is necessary that banks bestow sufficient attention on the computerization and networking of the branches situated at commercially important Centres on a time-bound basis. Intra-city and intra-bank networking would facilitate in addressing the "last mile" problem which would in turn result in quick and efficient funds transfers across the country".

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2.3 Role of IT in banking sector:

Banking environment has become highly competitive today. To be able to survive and grow in the changing market environment banks are going for the latest technologies, which is being perceived as an enabling resource that can help in developing learner and more flexible structure that can respond quickly to the dynamics of a fast changing market scenario. It is also viewed as an instrument of cost reduction and effective communication with people and institutions associated with the banking business.

The Software Packages for Banking Applications in India had their beginnings in the middle of 80s, when the Banks started computerizing the branches in a limited manner. The early 90s saw the plummeting hardware prices and advent of cheap and inexpensive but high powered PCs and Services and banks went in for what was called Total Branch Automation (TBA) packages. The middle and late 90s witnessed the tornado of financial reforms, deregulation globalization etc. coupled with rapid revolution in communication technologies and evolution of novel concept of convergence of communication technologies, like internet, mobile/cell phones etc. Technology has continuously played on important role in the working of banking institutions and the services provided by them. Safekeeping of public money, transfer of money, issuing drafts, exploring investment opportunities and lending drafts, exploring investment being provided.

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Information Technology enables sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks and helps the financial intermediaries to reach geographically distant and diversified markets. Internet has significantly influenced delivery channels of the banks. Internet has emerged as an important medium for delivery of banking products and services.

The customers can view the accounts; get account statements, transfer funds and purchase drafts by just punching on few keys. The smart cards i.e., cards with micro processor chip have added new dimension to the scenario. An introduction of Cyber Cash the exchange of cash takes place entirely through Cyber-books. Collection of Electricity bills and telephone bills has become easy. The upgradeability and flexibility of internet technology after unprecedented opportunities for the banks to reach out to its customers. No doubt banking services have undergone drastic changes and so also the expectation of customers from the banks has increased greater.

IT is increasingly moving from a back office function to a prime assistant in increasing the value of a bank over time. IT does so by maximizing banks of pro-active measures such as strengthening and standardizing banks infrastructure in respect of security, communication and networking, achieving inter branch connectivity, moving towards Real Time gross settlement (RTGS) environment the forecasting of liquidity by building real time databases, use of Magnetic Ink Character Recognition and Imaging technology for cheque clearing to name a few. Indian banks are going for the retail banking in a big way

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2.4 Impact of IT on the Service Quality:

The most visible impact of technology is reflected in the way the banks respond strategically for making its effective use for efficient service delivery. This impact on service quality can be summed up as below: With automation, service no longer remains a marketing edge with the large banks only. Small and relatively new banks with limited network of branches become better placed to compete with the established banks, by integrating IT in their operations. The technology has commoditizing some of the financial services. Therefore the banks cannot take a lifetime relationship with the customers as granted and they have to work continuously to foster this relationship and retain customer loyalty. The technology on one hand serves as a powerful tool for customer servicing, on the other hand, it itself results in depersonalizing of the banking services. This has an adverse effect on relationship banking. A decade of computerization can probably never substitute a simple or a warm handshake. In order to reduce service delivery cost, banks need to automate routine customer inquiries through self-service channels. To do this they need to invest in call centers, kiosks, ATMs and Internet Banking today require IT infrastructure integrated with their business strategy to be customer centric.

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2.5 Impact of IT on Banking System:

The banking system is slowly shifting from the Traditional Banking towards relationship banking. Traditionally the relationship between the bank and its customers has been on a one-to-one level via the branch network. This was put into operation with clearing and decision making responsibilities concentrated at the individual branch level. The head office had responsibility for the overall clearing network, the size of the branch network and the training of staff in the branch network. The bank monitored the organizations performance and set the decision making parameters, but the information available to both branch staff and their customers was limited to one geographical location.

Traditional Banking Sector

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The modern bank cannot rely on its branch network alone. Customers are now demanding new, more convenient, delivery systems, and services such as Internet banking have a dual role to the customer. They provide traditional banking services, but additionally offer much greater access to information on their account status and on the banks many other services. To do this banks have to create account information layers, which can be accessed both by the bank staff as well as by the customers themselves. The use of interactive electronic links via the Internet could go a long way in providing the customers with greater level of information about both their own financial situation and about the services offered by the bank.

The New Relationship Oriented Bank

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2.6 Impact of technology in banking sector

Electronics and information technologies are rapidly changing the banking and financial services industry. Online banking and electronic payment systems are new and this allows customers to check their balance and update and personal information, and the development and diffusion of these technologies by financial institutions is expected to result in a more efficient banking system.

This technology offers institutions an alternative and better delivery channels through which banking products and services can be provided to consumers. The decline in cost and increase in capacity of computers, as well as developments in communications technology, have altered not only the way information is transferred but also the cost of processing and storing information.

To bring services closer to a customer and to guarantee the opportunity to use them anytime a customer wants to, have been the most important targets in banking during the last twenty years. The continuing development of more and more complicated back-office systems would not have been possible without information technology

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2.7 Impact of IT on Customer Service in Rural / Urban Centers:

Improved and effective customer service in the rural and urban centers is a matter of great concern for the Reserve Bank of India. Banking functions have undergone a significant change. Large scale usage of IT by banks has resulted in computerization of many branches and their inter-connectivity by means of safe and reliable networks. While the new private sector banks have all commenced as entities with fully computerized operations, the older banks too have embraced the IT in a big way. Today, all the public sector banks are on the threshold of achieving the status of 100 per cent computerization of their business. In fact, the largest bank in the country has also networked and interconnected more than 3,000 of its branches. This has resulted in three major benefits to the customer: (i) The customer is now treated as a customer of the bank as a whole and he is now capable of enjoying facilities such as 'anywhere banking' as also 'anytime banking', (ii) Costs have come down and with hair thin margins being the order of the day, banks have to look for ways and means to reduce their operating costs and IT has come as a savior in this area, and (iii) There is a great impact on improved customer service and overall efficiency of the banks

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All the above have positioned customers of banks as the most important source of attention by banks, thereby conforming to Mahatma Gandhi's oft-told adage of the customer being the 'King'. In present context, customer is treated as an 'Emperor'. In terms of developing a state-of-the art IT infrastructure for the banking sector, the issue needs to be considered in terms of serving the two major sectors in India that have slightly different priorities, viz., rural and urban. The rural segment, at least as of today, is less mobile and the focus is more on fairness' of the system and adequacy of credit. In urban areas, on the other part, there is a greater mobility of consumers and a relatively higher frequency of use. Thus, access, convenience and time are of the essence. To sum up:

Rural
-Quick Credit -The urban sector has all the needs of the rural -On an objective basis sector plus the following: -At reasonable rates -Easy to access -Sensitive to the vagaries of nature -Of high quality -A friendly supporting system for encouraging -Customized to as narrow a segment of Savings and attracting them into the financial customers as possible mainstream Urban This should not be taken to mean that the two sectors have divergent needs. In fact, the ultimate infrastructural needs for both the sectors are the same. However, the priorities for the two sectors differ somewhat and it would be advisable to keep this in mind in our technological solutions to address their needs.

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CH-3 ADVANTAGES OF

I.T

GLOBALIZATION

NEW JOBS

MORE TIMES

BRIDGING THE CULTURAL GAP

COST EFFECTIVENESS

COMMUNICATION

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Some of the advantages of information technology include:

Globalization
IT has not only brought the world closer together, but it has allowed the world's economy to become a single interdependent system. This means that we can not only share information quickly and efficiently, but we can also bring down barriers of linguistic and geographic boundaries. The world has developed into a global village due to the help of information technology allowing countries like Chile and Japan who are not only separated by distance but also by language to shares ideas and information with each other.

Communication
With the help of information technology, communication has also become cheaper, quicker, and more efficient. We can now communicate with anyone around the globe by simply text messaging them or sending them an email for an almost instantaneous response. The internet has also opened up face to face direct communication from different parts of the world thanks to the helps of video conferencing.

Cost effectiveness
Information technology has helped to computerize the business process thus streamlining businesses to make them extremely cost effective money making machines. This in turn increases productivity which ultimately gives rise to profits that means better pay and less strenuous working conditions.

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I.T IN BANKING SECTOR Bridging the cultural gap

Information technology has helped to bridge the cultural gap by helping people from different cultures to communicate with one another, and allow for the exchange of views and ideas, thus increasing awareness and reducing prejudice.

More time IT has made it possible for businesses to be open 24 x7 all over the globe. This means that a business can be open anytime anywhere, making purchases from different countries easier and more convenient. It also means that you can have your goods delivered right to your doorstep with having to move a single muscle.

Creation of new jobs

Probably the best advantage of information technology is the creation of new and interesting jobs. Computer programmers, Systems analyzers, Hardware and Software developers and Web designers are just some of the many new employment opportunities created with the help of IT.

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CH-4 DISADVANTAGES OF IT

DOMINANT CULTURE LACK OF JOB SECURITY PRIVACY

UNEMPLOYMENT

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Some disadvantages of information technology include:

Unemployment -

While information technology may have streamlined the business process it has also created job redundancies, downsizing and outsourcing. This means that a lot of lower and middle level jobs have been done away with causing more people to become unemployed.

Privacy

Though information technology may have made communication quicker, easier and more convenient, it has also bought along privacy issues. From cell phone signal interceptions to email hacking, people are now worried about their once private information becoming public knowledge.

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Lack of job security

Industry experts believe that the internet has made job security a big issue as since technology keeps on changing with each day. This means that one has to be in a constant learning mode, if he or she wishes for their job to be secure.

Dominant Culture:
While information technology may have made the world a global village, it has also contributed to one culture dominating another weaker one. For example it is now argued that US influences how most young teenagers all over the world now act, dress and behave. Languages too have become overshadowed, with English becoming the primary mode of communication for business and everything else.

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CH-5

INNOVATIVE

SERVICES

ATM

TELEBANKING

INTERNET BANKING

VIRTUAL BANKING

MOBILE BANKING

E-COMMERCE

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ATM:
An automated teller machine (ATM), also known as a Cash Point (which is a trademark of Lloyds TSB), Cash Machine or sometimes a Hole in the Wall in British English, is a computerized telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. ATMs are known by various other names including ATM Machine, automatic banking machine, cash machine, and various regional variants derived from trademarks on ATM systems held by particular banks. Invented by IBM, the first ATM was introduced in December 1972 at Lloyds Bank in the UK. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip, that contains a unique card number and some security information such as an expiration date or CVVC (CVV). Authentication is provided by the customer entering a personal identification number (PIN). Using an ATM, customers can access their bank accounts in order to make cash withdrawals, credit card cash advances, and check their account balances as well as purchase prepaid cell phone credit.

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INTERNET BANKING:
Internet banking is a system of banking that enables customers to perform various financial transactions on a secure website via the Internet. There are many banks and credit union that operate websites for internet banking. Internet Banking is basically conducted via a personal computer connected to Internet. Apart from it, people can also do financial transactions using Internet banking on their cellular phones or personal digital assistants. Internet banking offers large number of benefits for people involved in financial transactions. There is no need to visit your bank every time you need to transfer money. You can do so by internet banking from the comfort of your home. With net banking facility, one can not only transfer money, but also pay bills, check bank statements, check account balance, request for check book and various other financial transactions. Internet banking has become widely popular among the masses because of its wide array of benefits. All banks offer the online banking facility for their customers nowadays. Online banking has made the lives easier for people who are too busy to go to bank for conducting their financial transactions. Net banking offers the flexibility to do financial transaction on any day irrespective of the time. In todays fast paced life, people are too much stressed out because of their work pressure and net banking offers them peace of mind as they can pay their bills, book their tickets, do online shopping, etc. by relaxing on couch in their home. Best part of net banking is that it is very easy to do any transaction over the net and highly secure website takes care of all your worries.

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MOBILE BANKNG :
Mobile banking (also known as M-Banking, mbanking, SMS Banking) is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant (PDA). The earliest mobile banking services were offered over SMS. With the introduction of the first primitive smart phones with WAP support enabling the use of the mobile web in 1999, the first European banks started to offer mobile banking on this platform to their customers. In one academic model, mobile banking is defined as: Mobile Banking refers to provision and an ailment of banking- and financial services with the help of mobile telecommunication devices. The scope of offered services may include facilities to conduct bank and stock market transactions, to administer accounts and to access customized information. According to this model Mobile Banking can be said to consist of three inter-related concepts: Mobile Accounting Mobile Brokerage Mobile Financial Information Services Most services in the categories designated Accounting and Brokerage are transaction-based. The non-transaction-based services of an informational nature are however essential for conducting transactions - for instance, balance inquiries might be needed before committing a money remittance. The accounting and brokerage services are therefore offered invariably in combination with information services. Information services, on the other hand, may be offered as an independent module

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I.T IN BANKING SECTOR E-COMMERCE:

Electronic commerce, commonly known as ecommerce, eCommerce or ecomm, refers to the buying and selling of products or services over electronic systems such as the Internet and other computer networks. However, the term may refer to more than just buying and selling products online. It also includes the entire online process of developing, marketing, selling, delivering, servicing and paying for products and services. The amount of trade conducted electronically has grown extraordinarily with widespread Internet usage. The use of commerce is conducted in this way, spurring and drawing on innovations in electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World Wide Web at least at one point in the transaction's life-cycle, although it may encompass a wider range of technologies such as e-mail, mobile devices and telephones as well.

A large percentage of electronic commerce is conducted entirely in electronic form for virtual items such as access to premium content on a website, but mostly electronic commerce involves the transportation of physical items in some way. Online retailers are sometimes known as etailers and online retail is sometimes known as e-tail. Almost all big retailers are now electronically present on the World Wide Web.

Electronic commerce that takes place between businesses is referred to as business-to-business or B2B. B2B can be open to all interested parties (e.g. commodity exchange) or limited to specific, pre-

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qualified participants (private electronic market). Electronic commerce that takes place between businesses and consumers, on the other hand, is referred to as business-to-consumer or B2C. This is the type of electronic commerce conducted by companies such as Amazon.com. Online shopping is a form of electronic commerce where the buyer is directly online to the seller's computer usually via the internet. There is no intermediary service involved. The sale or purchase transaction is completed electronically and interactively in real-time such as in Amazon.com for new books. However in some cases, an intermediary may be present in a sale or purchase transaction such as the transactions on eBay.com. Electronic commerce is generally considered to be the sales aspect of e-business. It also consists of the exchange of data to facilitate the financing and payment aspects of business transactions.

Virtual Banking:
There is nothing virtual about a virtual bank. There are real customers, real money, real successes, and real failures.Security First Network Bank, which opened in October of 1995, is often cited by industry analysts as being the first virtual bank. This is untrue. Security First may have been the first banking operation to refer to themselves a virtual bankbut they werent the first to offer banking services without branches. Manulife Bank, located in Waterloo, Canada, has been offering banking services without brick and mortar branches for almost 15 years. Manulife Bank shed their retail outlets in 1993 (sold them to Laurentian Bank) and transformed themselves into a bank that provided banking services through advisors, banking consultants, call centre personnel, interactive voice response and, in the mid 1990s, web banking. Not only was Manulife Bank an innovator when it came to virtual banking, they also created the first product of its kind in North America (the Manulife One product). Manulife One is a loan product suitable to more sophisticated consumers who are not highly leveragedING

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DIRECT was another early virtual banking success for Canada. ING DIRECT opened their virtualbanking doors in Canada by 1997, years before they opened for business in Spain, Australia, the United States, France, Germany, UK, and Austria

TELEBANKING:
Telephone banking is a service provided by a financial institution, which allows its customers to perform transactions over the telephone. Most telephone banking services use an automated phone answering system with phone keypad response or voice recognition capability. To guarantee security, the customer must first authenticate through a numeric or verbal password or through security questions asked by a live representative (see below). With the obvious exception of cash withdrawals and deposits, it offers virtually all the features of an automated teller machine: account balance information and list of latest transactions, electronic bill payments, funds transfers between a customer's accounts, etc. Usually, customers can also speak to a live representative located in a call centre or a branch, although this feature is not always guaranteed to be offered 24/7. In addition to the selfservice transactions listed earlier, telephone banking representatives are usually trained to do what was traditionally available only at the branch: loan applications, investment purchases and redemptions, cheque book orders, debit card replacements, change of address, etc. Banks which operate mostly or exclusively by telephone are known as phone banks. They also help modernise the user by using special technology

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CH-6 INNOVATIVE PRODUCTS

CREDIT CARDS SMART CARDS

DEBIT CARDS

CHARGE CARDS

CHEQUE CARDS

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I.T IN BANKING SECTOR CREDIT CARDS :

A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services.[1] The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. A credit card is different from a charge card: a charge card requires the balance to be paid in full each month.[2] In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest being charged. A credit card also differs from a cash card, which can be used like currency by the owner of the card

DEBIT CARDS :
A debit card (also known as a bank card or check card) is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution. Some cards have a stored value with which a payment is made, while most relay a message to the cardholder's bank to withdraw funds from a designated account in favor of the payee's designated bank account. The card can be used as an alternative payment method to cash when making purchases. In some cases, the cards are designed exclusively for use on the Internet, and so there is no physical card. In many countries the use of debit cards has become so widespread that their volume of use has overtaken or entirely replaced the check and, in

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some instances, cash transactions. Like credit cards, debit cards are used widely for telephone and Internet purchases. However, unlike credit cards, the funds paid using a debit card are transferred immediately from the bearer's bank account, instead of having the bearer pay back the money at a later date. Debit cards usually also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash and as a check guarantee card. Merchants may also offer cash back facilities to customers, where a customer can withdraw cash along with their purchase.

CHEQUE CARDS:
A cheque guarantee card is essentially an abbreviated portable letter of credit granted by a bank to a qualified depositor, providing that when he is paying a business by cheque and the retailer writes the card number on the back of the cheque, the cheque is signed in the retailer's presence, and the retailer verifies the signature on the cheque against the signature on the card, then the cheque cannot be stopped and payment cannot be refused by the bank. This arrangement works only for cheques drawn on an account provided by the bank that issues the card and can result in an overdraft with penalty interest.

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SMART CARDS:

A smart card may have the following generic characteristics:

Dimensions similar to those of a credit card. ID-1 of the ISO/IEC 7810 standard defines cards as nominally 85.60 by 53.98 millimetres (3.370 2.125 in). Another popular size is ID-000 which is nominally 25 by 15 millimetres (0.984 0.591 in) (commonly used in SIM cards). Both are 0.76 millimetres (0.030 in) thick. Contains a tamper-resistant security system (for example a secure crypto processor and a secure file system) and provides security services (e.g., protects in-memory information). Managed by an administration system which securely interchanges information and configuration settings with the card, controlling card blacklisting and application-data updates. Communicates with external services via card-reading devices, such as ticket readers, ATMs, etc.

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ATM CARDS :
An ATM card (also known as a bank card, client card, key card or cash card) is a card issued by a bank, credit union or building society that can be used at an ATM for deposits, withdrawals, account information, and other types of transactions, often through interbank networks. Some ATM cards can also be used:

at a branch, as identification for in-person transactions at merchants, for EFTPOS (point of sale) purchases

ATM cards are typically about 86 54 mm, i.e. ISO/IEC 7810 ID-1 size. Unlike a debit card, in-store purchases or refunds with an ATM card can generally be made in person only, as they require authentication through a personal identification number or PIN. In other words, ATM cards cannot be used at merchants that only accept credit cards. However, other types of transactions through telephone or online banking may be performed with an ATM card without in-person authentication. This includes account balance inquiries, electronic bill payments or in some cases, online purchases (see Interact Online). In some countries, the two functions of ATM cards and debit cards are combined into a single card called a debit card or also commonly called a bank card. These are able to perform banking tasks at ATMs and also make point-of-sale transactions, both functions using a PIN. Canada's Interact and Europe's Maestro are examples of networks that link bank accounts with point-of-sale equipment.

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CH-7 SECURITY ISSUES IN IT

HACKING PHARMING PHISHING SKIMMING TROJAN

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HACKING :

The term "hacker" also tends to connote membership in the global community defined by the net (see the network and Internet address). For discussion of some of the basics of this culture, see the How to Become a Hacker FAQ. It also implies that the person described is seen to subscribe to some version of the hacker ethic. It is better to be described as a hacker by others than to describe oneself that way. Hackers consider themselves something of an elite (a meritocracy based on ability), though one to which new members are gladly welcome. There is thus a certain ego satisfaction to be had in identifying yourself as a hacker (but if you claim to be one and are not, you'll quickly be labeled bogus). See also geek, wannabe. This term seems to have been first adopted as a badge in the 1960s by the hacker culture surrounding TMRC and the MIT AI Lab. We have a report that it was used in a sense close to this entry's by teenage radio hams and electronics tinkerers in the mid-1950s. The earliest Stanford revisions of the Jargon file (1975) did not describe the term so positively, including only definitions 4, 5 and 8. The current definition was written in more or less its current form around 1980 at MIT. Definition 8 was "deprecated" in the 1990s by Jargon File editor Eric S. Raymond, a known advocate of the positive usage of "hacker". So, when we call ourselves 'hackers', or we distribute 'hacking' documents, we encourage the propagation of information to the general public, in order to get an idea of what they normally take for granted.

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PHARMING:
Pharming is a hacker's attack aiming to redirect a website's traffic to another, bogus website. Pharming can be conducted either by changing the hosts file on a victims computer or by exploitation of a vulnerability in DNS server software. DNS servers are computers responsible for resolving Internet names into their real addresses they are the "signposts" of the Internet. Compromised DNS servers are sometimes referred to as "poisoned". The term pharming is a neologism based on farming and phishing. Phishing is a type of social engineering attack to obtain access credentials such as user names and passwords. In recent years both pharming and phishing have been used for online identity theft information. Pharming has become of major concern to businesses hosting ecommerce and online banking websites. Sophisticated measures known as antipharming are required to protect against this serious threat. Antivirus software and spyware removal software cannot protect against pharming.

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PHISHING:
Phishing is a way of attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication. This is similar to Fishing, where the fisherman puts a bait at the hook, thus, pretending to be a genuine food for fish. But the hook inside it takes the complete fish out of the lake. Communications purporting to be from popular social web sites, auction sites, online payment processors or IT administrators are commonly used to lure the unsuspecting public. Phishing is typically carried out by e-mail spoofing or instant messaging, and it often directs users to enter details at a fake website whose look and feel are almost identical to the legitimate one. Phishing is an example of social engineering techniques used to deceive users, and exploits the poor usability of current web security technologies. Attempts to deal with the growing number of reported phishing incidents include legislation, user training, public awareness, and technical security measures. A phishing technique was described in detail in 1987, and the first recorded use of the term "phishing" was made in 1996. The term is a variant of fishing, probably influenced by preaching, and alludes to "baits" used in hopes that the potential victim will "bite" by clicking a malicious link or opening a malicious attachment, in which case their financial information and passwords may then be stolen.

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I.T IN BANKING SECTOR TROJAN:

A Trojan horse, or Trojan, is a destructive program that masquerades as an application. The software initially appears to perform a desirable function for the user prior to installation and/or execution, but (perhaps in addition to the expected function) steals information or harms the system. Unlike viruses or worms, Trojan horses do not replicate themselves, but they can be just as destructive. The term is derived from the Greek myth of the Trojan War, in which the Greeks gave a giant wooden horse to their foes, the Trojans, ostensibly as a peace offering. However, after the Trojans dragged the horse inside their city walls, the Greek soldiers sneaked out of the horse's hollow belly to open the city gates and allowed their compatriots to pour in, capturing Troy.

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I.T IN BANKING SECTOR SKIMMING:

Skimming is the theft of credit card information used in an otherwise legitimate transaction. It is typically an "inside job" by a dishonest employee of a legitimate merchant. The thief can procure a victim's credit card number using basic methods such as photocopying receipts or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims credit card numbers. Common scenarios for skimming are restaurants or bars where the skimmer has possession of the victim's credit card out of their immediate view. The thief may also use a small keypad to unobtrusively transcribe the 3 or 4 digits Card Security Code which is not present on the magnetic strip. Call centers are another area where skimming can easily occur. Instances of skimming have been reported where the perpetrator has put a device over the card slot of an ATM (automated teller machine), which reads the magnetic strip as the user unknowingly passes their card through it. These devices are often used in conjunction with a miniature camera (inconspicuously attached to the ATM) to read the user's PIN at the same time.[11] This method is being used very frequently in many parts of the world, including South America, e.g. in Argentina and Europe, e.g. in the Netherlands. Another technique used is a keypad overlay that matches up with the buttons of the legitimate keypad below it and presses them when operated, but records or transmits the key log of the PIN entered by wireless. The device or groups of devices illicitly installed on an ATM are also colloquially known as a "skimmer". Recently-made ATMs now often run a picture of what the slot and keypad are supposed to look like as a background, so that consumers can identify foreign devices attached.

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CH-8 INITIATIVE OF RBI

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Initiatives of: Reserve Bank of India

Implementation of Centralized Funds Management System:

The centralized funds management system (CFMS) provides for a centralized viewing of balance positions of the account holders across different accounts maintained at various locations of RBI. While the first phase of the system covering the centralized funds enquiry system (CFES) has been made available to the users, the second phase comprising the centralized funds transfer system (CFTS) would be made available by the middle of 2003. So far, 54 banks have implemented the system at their treasuries/funds management branches.

Certification and Digital Signatures:

The mid-term Review of October 2002 indicated the need for information security on the network and the use of public key infrastructure (PKI) by banks. The Controller of Certifying Authorities, Government of India, have approved the Institute for Development and Research in Banking Technology (IDRBT) as a Certification Authority (CA) for digital signatures. Consequently, the process of setting up of registration authorities (RA) under the CA has commenced at various banks. In addition to the negotiated dealing system (NDS), the electronic clearing service (ECS) and electronic funds transfer (EFT) are also being enhanced in terms of security by means of implementation of PKI and digital signatures using the facilities offered by the CA.

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I.T IN BANKING SECTOR Committee on Payment Systems:

In order to examine the entire gamut of the process of reforms in payment and settlement systems which would be culminating with the real time gross settlement (RTGS) system, a Committee on Payment Systems (Chairman: Dr. R.H. Patil) was set up in 2002. The Committee, after examining the various aspects relating to payment and settlement systems, submitted its report in September 2002 along with a draft Payment Systems Bill. The draft Bill provides, inter alia, a legal basis for netting, apart from empowering RBI to have regulatory and oversight powers over payment and settlement systems of the country. The report of the Committee was put on the RBI website for wider dissemination. The draft Bill has been forwarded to the Government.

Multi-application Smart Cards:

Recognizing the need for technology based payment products and the growing importance of smart card based payment flows, a pilot project for multi-application smart cards in conjunction with a few banks and vendors, under the aegis of the Ministry of Communications and Information Technology, Government of India, has been initiated. The project is aimed at the formulation of standards for multi-application smart cards on the basis of inter-operable systems and technological components of the entire system.

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I.T IN BANKING SECTOR Special Electronic Funds Transfer:

As indicated in the mid-term Review of October 2002, national EFT (NEFT) is being introduced using the backbone of the structured financial messaging system (SFMS) of the IDRBT. NEFT would provide for movement of electronic transfer of funds in a safe, secure and quick manner across branches of any bank to any other bank through a central gateway of each bank, with the inter-bank settlement being effected in the books of account of banks maintained at RBI. Since this scheme requires connectivity across a large number of branches at many cities, a special EFT (SEFT) was introduced in April 2003 covering about 3000 branches in 500 cities. This has facilitated same day transfer of funds across accounts of constituents at all these branches.

National Settlement System (NSS):

The clearing and settlement activities are dispersed through 1,047 clearing houses managed by RBI, the State Bank of India and its associates, public sector banks and other institutions. In order to facilitate banks to have better control over their funds, it is proposed to introduce national settlement system (NSS) in a phased manner.

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Real Time Gross Settlement System (RTGS):

As indicated in the mid-term Review of October 2002, development of the various software modules for the RTGS system is in progress. The initial set of modules is expected to be delivered by June 2003 for members to conduct tests and familiarization exercises. The live run of RTGS is scheduled towards the end of 2003.

Reporting of Call/Notice Money Market Transactions on NDS Platform:

Negotiated dealing system (NDS), which has become operational since February 2002, enables on-line dealing and dissemination of trade information relating to instruments in money, government securities and foreign exchange markets. Membership in NDS is open to all institutions which are members of INFINET and are maintaining subsidiary general ledger (SGL) Account with RBI. These include banks, financial institutions (FIs), primary dealers (PDs), insurance companies, mutual funds and any other institution as admitted by RBI. At present, all deals in government securities, call/notice/term money, CDs and CP executed among NDS members have to be reported automatically through NDS, if the deal is done on NDS and within 15 minutes of concluding the deal, if done outside NDS. However, it has been observed that a very sizeable proportion of daily call/notice money market deals are not reported by members on NDS as stipulated.

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With a view to improving transparency and strengthening efficiency in the market, it is proposed that:

1. From the fortnight beginning May 3, 2003, it would be mandatory for all NDS members to report all their call/notice money market deals on NDS. Deals done outside NDS should be reported within 15 minutes on NDS, irrespective of the size of the deal or whether the counterparty is a member of the NDS or not.

2. Full compliance with the reporting requirement to NDS will be reviewed in September 2003. In case there is repeated non-reporting of deals by an NDS member, it will be considered whether non-reported deals by that member should be treated as invalid with effect from a future date.

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CH-9 GROWTH OF BANKING

GROWTH OF BANKING:
World economies are seeing it as their potential market. This has been going on since quite some time now, ever since 1991 reforms of liberalization, globalization and privatization. Indian markets in urban areas have grown appreciably and are on the verge of saturation, so corporate have started tapping rural markets, since The worlds second largest populated country, India, is the apple of the eye for the world now. The more than 60 per cent of Indias population lives in rural areas. During this global meltdown and fall of exports, if the Fast Moving Consumer Goods (FMCG) sector has been able to show rising quarterly growths, it is because of the Rural Markets and their rising spending power, which have not been affected by this meltdown. If we look at the strategies followed by Rural Marketers in the FMCG sector, it is to sell many small sachets of Rs. 2 shampoo pouches, Rs. 5 Maggi packs and the Rs. 5 chota Pepsi, because here, the strength lies in volume sale, considering the large consumer base in these rural markets which wont spend altogether at once on buying large family packs of

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500ml shampoo or super saver packs of Maggi or a Pepsi pet bottle of 2 litres.

Therefore, consumption trends followed by the rural Indian are considered to be the driver of future growth of companies. And this trend of tapping rural markets is visible across all sectors now, be it FMCG, IT, Banking, education etc. For example, today, India is in better state than China because our GDP is less dependent on exports as compared to them, where maximum revenues come from exporting to the European and US markets. Thus, tapping the rural markets is most important for us to be a self sustaining economy. India has been considerably shielded from the global recession. Firstly, we are not very dependent on the exports for our GDP and have a good consumer base in India. Secondly, we are a saving prone economy, unlike western economies which are consumption prone. Thirdly, when banks across the world are falling like a pyramid of playing cards; we are safe, steady and strong, with our banks which have acted like a strong backbone of our economy during present turmoil. And just like the FMCG sector, there is tremendous growth potential in the banking sector, because firstly, the rural masses have the habit of saving and spending only when needed. Secondly, their small credit requirements for agriculture, cottage industry and marriages etc. According to researches carried out by the Reserve Bank of India (RBI), on an all India basis, 59 per cent of the adult population in the country has bank accounts and 41 per cent dont. In rural areas, the coverage of banks is 39 per cent, against 60 per cent in urban areas. There is only one bank for a population of13000. Tapping the rural market by banks becomes all the more important, not only for the banking sector, but all other industrial sectors as well. If there is growth in the banking sector, it benefits the other sectors as well. By this, it is meant that in this sector, the trickledown theory of economic growth or top down approach works, if we keep the banks at the apex in India Inc. Reasons being, as banks promote savings in the

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economy, they speed up the capital formation and then become the source of finance of trade and credit for the industry. Then they provide credit to enable entrepreneurs in their ventures, which promotes production and employment. This production and employment generates income and consumption and supply and demand, by increasing the spending power of people. And a sum total of all these reduces poverty and better life styles. But the problem is that banks have not been able to reach a vast majority of the rural population; the rural poor have limited access to organized, affordable and transparent financial services such as savings, loans, remittances and insurance services etc. It is important for them to have access to banking services, especially credit and insurance, to enlarge livelihood opportunities and to empower themselves to take charge of their lives. The unorganized sector of lending is believed to be acting as a problem to the growth impetus in these sectors. In several villages, farmers still go to traditional money lenders like zamindars for meager sums of a few hundred or thousand rupees and get into debt trap for their whole lives. As a result, farmer suicides, bonded labor, naxalism and political and social unrest and on top of it, poor financial management, which if had been done smartly would have helped in economic growth of their own self and economy. Project Financial Literacy of the RBI is one such initiative of dual purpose. First, financial inclusion of the rural poor and second, to tap the growth potential in rural markets by volume growth for banks through edutainment (education +entertainment).Its objective is to disseminate information about the central bank and general banking concepts to various target groups like children, women, self help groups etc., using development communication and increasing the habit of saving in rural poor. Because if in an economy, saving is more than 30% for 7 consecutive years, the GDP doubles and India cant ignore the rural sector to increase our savings An improved rural banking under the umbrella of the RBI by the means of mobile banking, self help groups and microfinance institutions

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is important. The effective use of development communication, using Information and Communication Technology (ICT) will help to create awareness for financial inclusion through banks and make it a success. Here, it is important to use technology as an enabler via mobile banking, because large numbers of Indians are using mobile phones. Using mobile phones for banking operations will cut costs by branchless banking, as there is no need for physical infrastructure and human resources, which are a problem in rural areas and a major constraint in carrying out banking operations. It will also make it convenient, safe, reliable and transparent. With above initiatives and reaching out to women, self help groups, and microfinance institutions, the banks will not only be able to reach out to half of the population of India that is women, but as these changes expand access to financial services for the low income segment and rural masses, the effects can be measured in many ways, not just in the volume of GDP growth, but new jobs and income generations, greater personal safety for women, better education for their children, timelier health care for themselves and their empowerment. Thus, future development

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CH-10 FUTURE INITIATIVES

FUTURE TECHNOLOGY
The banking industry today faces the challenge of rapidly changing customer expectations against a backdrop of liberalization, privatization and globalization, volatile economies and information technology. Retail banking clients today demand more interactive access to their accounts, mobility of investments, better segmentation of products and services, all to be accessed and delivered at their convenience. Commercial banks are diversifying into financial services sector; insurance sector and fee based earnings are gaining prominence over fund based earnings. The mushrooming of multi function, self-service electronic delivery channels are fast replacing the brick and mortar branches in urban areas. These changes necessitate commercial banks to redefine the business model in a bid to optimize in resources and deliver world class customer service.

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CH-11 CONCLUSION

The need of hour is banks' upliftment and survival in the days of stiff competition. All bankers should come together and work as a team. They should set a task force to look into this aspect of making Online Volunteers, and take full advantage of the power of the internet and VRS force, which is available at present.

IIBF/IBA/banks/NGOs can make use of the volunteer force and chalk out their own schemes and methods on the lines of UNITeS. Much as banks envision, the outlook for improved financial services is bright, given the high drive of IT in banking. If India is brought into the mainstream of real time payments system as also penetration of IT in rural/urban centres, the efficiency of Indian banking, in particular and overall growth of Indian economy, in general, would be of top class by any standard.

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CH-12

QUESTIONAIRES

Q.1 Is I.T In Banking Sector Boom Or Crisis? (A) Yes (B) No

Q.2 Which Technology Is Used In Order To Increase The Efficiency Of Banking System In Your Bank? Q.3 Is That Technology Really Useful For Increasing The Efficiency In Banking Sector? (A) Yes (B) No

Q.4 Is Your Customer Satisfied With The Introduction Of New Technology? (A) Yes (B) No

Q.5 Is Every Customer Finding It Easy To Use The Technology Which You Provide? (A) Yes (B) No

Q.6 According To You What Is The Benefit Of I.T In Banking Sector? Q.7According To You What Are Disadvantages Of I.T In Banking Sector? Q.8Are You Providing Any Training To Your Employees In Order To Become Familiar With The New Technology? (A) Yes (B) No

Q.9 Which Type Of Training Are You Providing To Your Employees? Q.10What Is Your Future Prospect To Increase Efficiency In Banking Technology?

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I.T IN BANKING SECTOR

13. BIBLIOGRAPHY

BIBLIOGRAPHY
BOOKS PREFERED:
E- BANKING OF ICFAI ELECTRONIC COMMERCE BANKING TECHNOLOGY

WEBLIOGRAPHY
WWW.BANKNETINDIA .COM WWW.BANKING TECH .COM

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