EMERGING TRENDS IN BANKING

Module 5

Traditional Banking Concept
Banking is defined as the acceptance of
deposits of money from the public for the
purpose of lending or investment and
repayable on demand or otherwise and
withdrawable by cheque, draft, order or
otherwise.

Section 5(b), Banking Regulation Act, 1949
EMERGING TRENDS IN BANKING
TECHNOLOGY
BUSINESS PROCESS RE-ENGINEERING
FINANCIAL INCLUSION
CONSUMER CREDIT
SME CREDIT
MICRO FINANCE AND RURAL CREDIT
CROSS SELLING
FACTORING
FORFAITING
HIRE PURCHASE & LEASING
VENTURE CAPITAL
Emerging trends--
Securitisation
Hedge funds
Reverse mortgage

TECHNOLOGY



CORE
BANKING
SOLUTIONS
Multi City
Cheques
Mobile Phone
Banking
Fund Transfer
ATM/Debit Card
/Credit Card
Internet
Banking
BUSINESS PROCESS RE-
ENGINEERING
Critical analysis and radical redesign of
business process to achieve break
through improvements in performance.
Drop box
Grahak Mitra
Currency Administration Cell
Relationship Manager
Central Processing Centers
Objectives of BPR
Provide Quality Products and Services at
competitive prices to customers
Reduces transaction cost
Optimizes Capacity utilization
Ensure meticulous internal control
CORE BANKING SOLUTIONS
Networking of Bank Branches
Centralized Data System.
Data Warehousing & data mining.
Anywhere Anytime Banking.
Instantaneous Transfer of Funds.
Multicity cheques.

Essential Requirements of CBS
Creation of Primary Data Centre : it
houses the central server for online
transaction. It is manned round the
clock to offer 24x7 service.
Disaster Recovery Site: (DRS) it is
done to avoid disruption in the business
activities of CBS branches due to central
system or network failure.
Software : it is to comprise branch
functional modules, delivery channel
needs like ATMs, tele-banking, internet
banking, interface to integrate with
NEFT & RTGS.
Networking: leased lines of WAN to
be used as primary communication
channel .
Advantages of CBS for
customers
Transaction of business from any
branch
ATM offers him anywhere, anytime
banking facility
Lower incidence of errors
Better fund management due to
immediate availability of funds.

Advantages of CBS to Banks
Standardization of process within the bank.
Better customer service leading to retention of
customer.
Availability of accurate data.
Better use of available infrastructure.
Better MIS and reporting to external agencies
such as Govt. RBI etc.
Increased business volume with better Asset-
Liability Management and risk mgmt.
ATM
No Human intervention.
ATM-cum-Debit Card is used.
Personal Identification Number (PIN).
Machines are kept onsite or offsite or mobile.
Cash payment and Transaction Related
Services Cash/ Cheque deposit.
Transfer of funds , Railway ticket booking,
College / University fee remittance etc.
24 X 7 Banking.
Anywhere banking.
Shared Payment Network System.
INTERNET BANKING
Use of IT to make transactions even without
coming to bank.
Anywhere banking Office, home, or abroad
through internet.
Any Time Banking 24 X 7.
Permitted transactions eg: Transfer of funds
from one account to another, payment of a
bill, tax, request for cheque book, demand
drafts etc.
Safe.
Cost of banking will become low.
Mobile Phone Banking
Statement of accounts.
SMS message about debit/credit transaction.
Request for cheque book / draft, transfer of
funds etc.
FINANCIAL INCLUSION
Delivery of financial services, at an affordable
cost, to the vast sections of disadvantaged
/low- income groups who tend to be excluded
from the formal financial system.
A sizable proportion of the households,
especially in rural areas remains outside the
coverage of banking system.
An important step to bring the financially
excluded people within the fold of the formal
financial sector was the promotion of micro
finance.
RBIs broad approach to financial
inclusion is to connect people with the
banking system and not just dispense
credit.
The measures initiated by RBI to bring
the hitherto financially excluded
population into the fold of the formal
financial system include:
- No frill-account
- Promotion of financial literacy and
responsible borrowing
FINANCIAL INCLUSION
No frill accounts eg. Janapriya Special
SB Account.
Zero Balance
Free ATM Card
No cheque books
Internet/Mobile banking not allowed
Immediate credit of outstation cheques
not allowed

INNOVATIVE DEPOSIT
PRODUCTS
Special SB A/C for children eg.CanChamp
Deposits for Senior Citizens Ashraya deposit
Multi option deposit (flexi)scheme
Floating Rate Deposit Scheme (ROI linked to
91 days treasury bill rate)
Tax Saver Deposit Scheme (included under
Sec.80 C of I-T Act)
Automatic reinvestment plan
Unit Deposit Scheme


CONSUMER CREDIT
Housing Loan
Education Loan
Computer Loan
Vehicle Loan
Personal Loan
Mortgage Loan
SME CREDIT
Project finance and Working Capital finance for
Small Scale / Medium / Tiny Industries.
Small Scale Service and Business Enterprises
(SSSBEs).
Flexi SSI Loan.
Laghu Udyami Credit Card.
Retail Traders.
Road Transport Operators.
Professional & Self employed persons.
Tourism House Boat /Mini Restaurants /Hotels.
Swarozgar Credit Card (SCC) Scheme.
IT (industry related) activities.
Gold Card Scheme for Exporters

MICRO FINANCE AND RURAL
CREDIT
The unbanked population in rural
areas is 440 million (96.5 million house
hold).
Rural Credit through SHGs.
Micro finance through NGOs.
Agri. Term Loans.
Kisan Credit Card.
CROSS SELLING
Life Insurance Products.
Non-Life Insurance Products.
Mutual Funds.
Credit Cards.
Move towards Universal Banking:
Financial supermarkets
Diversification of the activities by providing a
length of financial services, thereby
converting themselves into financial services
supermarkets.
- Merchant banking services
- Factoring services
- Asset management services
- Insurance services etc.
-
Specialized Branches
NRI Branches to cater to the needs of
NRI clients
Overseas branch to specifically
concentrate on export -import business.
Industrial Finance Branches- to cater to
the needs of industrial clients
exclusively.
SME Branches
Professional Branches to cater to the needs
of professionals such as engineers, doctors,
chartered accountants, lawyers, contractors
etc.
Agricultural Finance Branches- to cater to the
needs of high-tech agriculture, agro- exports
and corporate clients dealing with agri-
business.
Corporate Finance branches.
Recovery branches to exclusively
concentrate on recovery of NPAs
FACTORING
Collection of receivables
Management of receivables by a
financial intermediary called factor.
Fee based service.
Client gets immediate funds.
FORFAITING
Used in Export finance.
Exporter surrenders rights to claim
payment of goods delivered to an
importer, in return for immediate cash
payment from a forfaiter.
Helps the exporter to concentrate on
export front without bothering about
collection of export bills.
HIRE PURCHASE & LEASING
HP is a contract between owner of a good
and customer who uses it.
Hire for a fixed term and fixed price payable
in instalments.
Ownership continues to vest with the owner
till agreed price is paid in full.
In leasing the user (lessee) uses the
equipment for a rental during the lease
period.
Legal ownership vested with the leasing
company (lessor).
VENTURE CAPITAL FINANCE
Risk Finance.
New and Untried/ Advance technologies.
Expectation of Spectacular return in future.
SECURITISATION
Securitisation involves transfer of loan
assets from the bank (the originator)
through pooling and repackaging by a
SPV into securities that can be sold to
investors.Securitisation benefits banks
by :
providing liquidity to loan portfolios
mitigating credit risk by removing
assets of banks books.
DERIVATIVES
A derivative is a security, financial investment
or a contract designed in such a way that its
price is derived from the price of an
underlying asset.
Help in understanding quantifying and
managing financial risks.
In practice, they are promises to pay cash
according to the performance of an index.
Eg. Forward contract, futures,options etc.
Hedge Funds
A hedge fund is a fund that offers investor
balance or a hedge, against the risks of
operating in a highly volatile market.
Typically, a hedge fund is an investment fund
that takes considerable risks, including heavy
investment in unconventional instruments, in
the hopes of generating positive returns
under all market conditions.
A hedge fund is opened to only a limited
range of investors such as institutions and
HNW individuals.
Reverse Mortgage
Reverse mortgage is a loan scheme to senior
citizens against the mortgage of their house
property.
The borrower gets a monthly installment of a
particular amount and can continue to stay in
the house for life time.
No repayment.
The loan becomes due when the borrower
dies, moves or sells.
The loan amount is calculated in such a
manner not to exceed selling price.

Financial clinics
To push banks retail products and also
mutual funds and insurance policies of other
companies, and various other investment
instruments.
Target elite customers who can spare at least
Rs.1 lac .
Advice is given how to get the maximum
value for their money and better returns.

Credit Counseling Centres
To focus on small scale units and SMEs.
The objective is to help them:
- Their products properly
- Do better financial planning and
- Achieve break even
- To prevent them from slipping to Non-
Performing Assets
THANK YOU