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PROJECT REPORT

ON
Banking Sector in
India
Project submitted to the Department of Commerce
Shaheed Bhagat Singh College, University of Delhi,
in fulllment of the re!uirement of
B"Com #$% & '''rd (ear"
Submitted to: Submitted by:
Dr. T.K. Nagpal
Vaibhav Kumar
Project Mentor
B.Com (H) -IIIrd Year
Roll No.-86,
Section -C

1
DECLARATION
I here! declare that the "roject re"ort named #Ban$in% Sector in
India& i' a'ed on m! (nder'tandin% o) the '(ject and ha' not een
co"ied )rom 'ome "(li'hed 'o(rce or *e'ite. M! indetedne'' to
other *or$' on the '(ject ha' een d(l! ac$no*led%ed at the
rele+ant "lace'.
Si%nat(re o) Mentor Si%nat(re
o) St(dent
Dr. T.K. NAGPAL VAIBHAV
KUAR

B.Com (H) IIIrd Year

Roll No. 86

2
ACKNO!LEDGEENT
,he "re'ent *or$ i' an e-ort to thro* 'ome li%ht on the Ban$in%
Sector in India. ,he *or$ *o(ld not ha+e een "o''ile to come to
the "re'ent 'ha"e *itho(t the ale %(idance, '("er+i'ion and hel" to
me ! n(mer o) "eo"le.
.ith dee" 'en'e o) %ratit(de I ac$no*led%e the enco(ra%ement and
%(idance recei+ed )rom m! mentor /r. ,.0. Na%"al *ho hel"ed and
'(""orted me d(rin% the co(r'e o) com"letion o) m! "roject. Hi'
'("er+i'ion, lo%ical in'i%ht and "atient enco(ra%ement enaled me to
com"lete the "re'ent *or$. ,he a''ociation ha' een a +er! %reat
o""ort(nit!.

VAIBHAV KUAR
3
CERTI"ICATE
,hi' i' to certi)! that 1aiha+ 0(mar ,Roll No. 86 ha'
'(mitted thi' literat(re re+ie* entitled &Banking Sector in
India& to*ard' "artial )(l2llment o) the re3(irement )or
a*ardin% the de%ree o) Bachelor o) Commerce in Shaheed
Bha%at Sin%h Colle%e (nder 4ni+er'it! o) /elhi(So(th cam"(')
d(rin% the academic !ear 5677-5675.
,he literat(re re+ie* i' the re'(lt o) o*n *or$ and no "art o) it
ha' earlier com"ri'ed an! other re"ort or oo$. ,he "roject *a'
carried o(t (nder o+erall '("er+i'ion.
/ate8
/r. ,.0. Na%"al
(Project Mentor)
4
CONTENTS
Topic
1. History of Banking in India
- Pre Nationalization Era
- Nationalization stages
- Post Liberalisation Era
2. Banking in India
- Overview of Banking
- Organisational Structure of Banks in India
- Role of Banks
- Private Sector Banks
- Reserve Bank of India (RBI)
- oo!erative Banks
3. Products offered by Banks
- lassification of !roducts in Banks
- o""on Banking Services
4. Banking Services
5. Bank Marketing
6. o!e of I" in t#e Banking sector
- E# banking
- I"!act of I$ on t%e Service &ualit'
- I"!act of I$ on t%e Banking S'ste"
- I"!act of I$ on Privac' and onfidentialit' of (ata
$. ecent "rends in Banking
- )niversal Banking
- *R( in Banking Sector
%. &onc!usion
5
I. HISTORY OF BANKING IN
INDIA
There are three different phases in the history of banking in India -
1) Pre-Nationalization Era:
In India the business of banking and credit was practices even in very early
times. The remittance of money through Hundies, an indigenous credit
instrument, was very popular. The hundies were issued by bankers known as
Shroffs, Sahukars, Shahus or Mahajans in different parts of the country.
The modern type of banking, however, was developed by the gency !ouses
of "alcutta and #ombay after the establishment of $ule by the %ast India
"ompany in &'
th
and &(
th
centuries. )uring the early part of the &(
th
"entury,
the volume of foreign trade was relatively small. *ater on as the trade
e+panded, the need for banks of the %uropean type was felt and the
government of the %ast India "ompany took interest in having its own bank.
The government of #engal took the initiative and the first presidency bank, the
#ank of "alcutta ,#ank of #engal- was established in &'.. In &'/., the #ank of
#ombay and I0 &'/1, the #ank of Madras was also set up. These three banks
are also known as 23residency #ank4. The 3residency #anks had their
branches in important trading centers but mostly lacked in uniformity in their
operational policies. In &'((, the 5overnment proposed to amalgamate these
three banks in to one so that it could also function as a "entral #ank, but the
3residency #anks did not favor the idea. !owever, the conditions obtaining
during world war period ,&(&/-&(&'- emphasi6ed the need for a unified
banking institution, as a result of which the Imperial #ank was set up in&(7&.
The Imperial #ank of India acted like a "entral bank and as a banker for other
banks.
6
The $#I ,$eserve #ank of India- was established in &(18 as the "entral #ank
of the "ountry. In &(/(, the #anking $egulation act was passed and the $#I
was nationali6ed and ac9uired e+tensive regulatory powers over the
commercial banks. In &(8., the Indian #anking system comprised of the $#I,
the Imperial #ank of India, "ooperative banks, %+change banks and Indian
:oint Stock banks.
2) Nationalization Stages:
fter Independence, in &(8&, the ll India $ural "redit survey, committee of
)irection with Shri. . ). 5orwala as "hairman recommended amalgamation of
the Imperial #ank of India and ten others banks into a newly established bank
called the State #ank of India ,S#I-. The 5overnment of India accepted the
recommendations of the committee and introduced the State #ank of India bill
in the *ok Sabha on &;
th
pril &(88 and it was passed by 3arliament and got
the president<s assent on '
th
May &(88. The ct came into force on &
st
:uly
&(88, and the Imperial #ank of India was nationali6ed in &(88 as the State
#ank of India.
The main objective of establishing S#I by nationali6ing the Imperial #ank of
India was 2to e+tend banking facilities on a large scale more particularly in the
rural and semi-urban areas and to diverse other public purposes.4 In &(8(, the
S#I ,Subsidiary #ank- act was proposed and the following eight state-
associated banks were taken over by the S#I as its subsidiaries.
Name of the Bank Subsidiary with effect from
&. State #ank of !yderabad &
st
=ctober &(8(
7. State #ank of #ikaner &
st
:anuary &(;.
1. State #ank of :aipur &
st
:anuary &(;.
/. State #ank of Saurashtra &
st
May &(;.
8. State #ank of 3atiala &
st
pril &(;.
$
;. State #ank of Mysore &
st
March &(;.
>. State #ank of Indore &
st
:anuary &(;'
'
.
State #ank of Travancore &
st
:anuary &(;.
?ith effect from &st :anuary &(;1, the State #ank of #ikaner and State #ank of
:aipur with head office located at :aipur. Thus, seven subsidiary banks State
#ank of India formed the S#I 5roup. The S#I 5roup under statutory obligations
was re9uired to open new offices in rural and semi-urban areas and modern
banking was taken to these unbanked remote areas.
=n &(
th
:uly &(;(, then the 3rime Minister, Mrs. Indira 5andhi announced the
nationali6ation of &/ major scheduled "ommercial #anks each having deposits
worth $s. 8. crore and above. This was a turning point in the history of
commercial banking in India.
*ater the 5overnment 0ationali6ed si+ more commercial private sector banks
with deposit liability of not less than $s. 7.. crores on &8
th
pril &('., vi6.
i. ndhra #ank.
ii. "orporation #ank.
iii. 0ew #ank if India.
iv. =riental #ank of "ommerce.
v. 3unjab and Sind #ank.
vi. @ijaya #ank.
In &(;(, the *ead #ank Scheme was introduced to e+tend banking facilities to
every corner of the country. *ater in &(>8, $egional $ural #anks were set up to
supplement the activities of the commercial banks and to especially meet the
credit needs of the weaker sections of the rural society.
%
0ationali6ation of banks paved way for retail banking and as a result there has
been an alt round growth in the branch network, the deposit mobili6ation, credit
disposals and of course employment.
The first year after nationali6ation witnessed the total growth in the agricultural
loans and the loans made to SSI by '>A and /'A respectively. The overall
growth in the deposits and the advances indicates the improvement that has
taken place in the banking habits of the people in the rural and semi-urban
areas where the branch network has spread. Such credit e+pansion enabled
the banks to achieve the goals of nationali6ation, it was however, achieved at
the coast of profitability of the banks.
Consequences of Nationalization:
The 9uality of credit assets fell because of liberal credit e+tension policy.
3olitical interference has been as additional malady.
3oor appraisal involved during the loan meals conducted for credit
disbursals.
The credit facilities e+tended to the priority sector at concessional rates.
The high level of low yielding S*$ investments adversely affected the
profitability of the banks.
The rapid branch e+pansion has been the s9uee6e on profitability of
banks emanating primarily due to the increase in the fi+ed costs.
There was downward trend in the 9uality of services and efficiency of the
banks.
3) Post-Liberalization Era-Thrust on Quality and Profitability:
#y the beginning of &((., the social banking goals set for the banking industry
made most of the public sector resulted in the presumption that there was no
need to look at the fundamental financial strength of this bank. "onse9uently
'
they remained undercapitali6ed. $evamping this structure of the banking
industry was of e+treme importance, as the health of the financial sector in
particular and the economy was a whole would be reflected by its performance.
The need for restructuring the banking industry was felt greater with the
initiation of the real sector reform process in &((7. The reforms have enhanced
the opportunities and challenges for the real sector making them operate in
borderless global market place. !owever, to harness the benefits of
globali6ation, there should be an efficient financial sector to support the
structural reforms taking place in the real economy. !ence, along with the
reforms of the real sector, the banking sector reformation was also addressed.
The root causes for the lackluster performance of banks, formed the elements
of the banking sector reforms. Some of the factors that led to the dismal
performance of banks were.
$egulated interest rate structure.
*ack of focus on profitability.
*ack of transparency in the bank<s balance sheet.
*ack of competition.
%+cessive regulation on organi6ation structure and managerial resource.
%+cessive support from government.
gainst this background, the financial sector reforms were initiated to bring
about a paradigm shift in the banking industry, by addressing the factors for its
dismal performance.
In this conte+t, the recommendations made by a high level committee on
financial sector, chaired by M. 0arasimham, laid the foundation for the banking
sector reforms. These reforms tried to enhance the viability and efficiency of the
banking sector. The 0arasimham "ommittee suggested that there should be
functional autonomy, fle+ibility in operations, dilution of banking strangulations,
reduction in reserve re9uirements and ade9uate financial infrastructure in terms
1(
of supervision, audit and technology. The committee further advocated
introduction of prudential forms, transparency in operations and improvement in
productivity, only aimed at liberali6ing the regulatory framework, but also to
keep them in time with international standards. The emphasis shifted to efficient
and prudential banking linked to better customer care and customer services.
II. BANKING IN INDIA
!er!ie" of #an$ing:
#anking $egulation ct of India, &(/( defines #anking as 2accepting, for the
purpose of lending or of investment of deposits of money from the public,
repayable on demand or otherwise or withdrawable by cheque, draft order or
otherwise.4 The $eserve #ank of India ct, &(1/ and the #anking $egulation
ct, &(/(, govern the banking operations in India.
rganizational Stru%ture of #an$s in &ndia:
In India banks are classified in various categories according to differ rent
criteria. The following charts indicate the banking structureB
11
#road 'lassifi%ation of #an$s in &ndia:
(1) The B!: The $#I is the supreme monetary and banking authority in the
country and has the responsibility to control the banking system in the country.
It keeps the reserves of all scheduled banks and hence is known as the
2$eserve #ank4.
(") #ublic Sector Banks:
State #ank of India and its ssociates ,'-
0ationali6ed #anks ,&(-
$egional $ural #anks Sponsored by 3ublic Sector #anks ,&(;-
($) #ri%ate Sector Banks:
=ld 5eneration 3rivate #anks ,77-
Coreign 0ew 5eneration 3rivate #anks ,'-
#anks in India ,/.-
12
eserve Bank of India
o""ercial Banks o#o!erative Banks (evelo!"ent Banks
Nationalized Private S%ort#ter"
credit
Long#ter"
credit
+gricultural
redit
)rban
redit
E,I- Industrial +gricultural
(&) Co'o(erati%e Sector Banks:
State "o-operative #anks
"entral "o-operative #anks
3rimary gricultural "redit Societies
*and )evelopment #anks
State *and )evelopment #anks
()) *e%elo(ment Banks: )evelopment #anks mostly provide long term
finance for setting up industries. They also provide short-term finance ,for
e+port and import activities-
Industrial Cinance "o-operation of India ,IC"I-
Industrial )evelopment of India ,I)#I-
Industrial Investment #ank of India ,II#I-
Small Industries )evelopment #ank of India ,SI)#I-
0ational #ank for griculture and $ural )evelopment
,0#$)-
%+port-Import #ank of India
13
+,- +. B/N0S
#anks play a positive role in economic development of a country as
repositories of community<s savings and as purveyors of credit. Indian #anking
has aided the economic development during the last fifty years in an effective
way. The banking sector has shown a remarkable responsiveness to the needs
of planned economy. It has brought about a considerable progress in its efforts
at deposit mobili6ation and has taken a number of measures in the recent past
for accelerating the rate of growth of deposits. s recourse to this, the
commercial banks opened branches in urban, semi-urban and rural areas and
have introduced a number of attractive schemes to foster economic
development.
14
The activities of commercial banking have growth in multi-directional ways as
well as multi-dimensional manner. #anks have been playing a catalytic role in
area development, backward area development, e+tended assistance to rural
development all along helping agriculture, industry, international trade in a
significant manner. In a way, commercial banks have emerged as key financial
agencies for rapid economic development.
#y pooling the savings together, banks can make available funds to speciali6ed
institutions which finance different sectors of the economy, needing capital for
various purposes, risks and durations. #y contributing to government securities,
bonds and debentures of term-lending institutions in the fields of agriculture,
industries and now housing, banks are also providing these institutions with an
access to the common pool of savings mobili6ed by them, to that e+tent
relieving them of the responsibility of directly approaching the saver. This
intermediation role of banks is particularly important in the early stages of
economic development and financial specification. country like India, with
different regions at different stages of development, presents an interesting
spectrum of the evolving role of banks, in the matter of inter-mediation and
beyond.
Mobili6ation of resources forms an integral part of the development process in
India. In this process of mobili6ation, banks are at a great advantage, chiefly
because of their network of branches in the country. nd banks have to place
considerable reliance on the mobili6ation of deposits from the public to finance
development programmes. Curther, deposit mobali6ation by banks in India
ac9uired greater significance in their new role in economic development.
"ommercial banks provide short-term and medium-term financial assistance.
The short-term credit facilities are granted for working capital re9uirements.
The medium-term loans are for the ac9uisition of land, construction of factory
premises and purchase of machinery and e9uipment. These loans are
generally granted for periods ranging from five to seven years. They also
establish letters of credit on behalf of their clients favouring suppliers of raw
materialsDmachinery ,both Indian and foreign- which e+tend the banker<s
15
assurance for payment and thus help their delivery. "ertain transaction,
particularly those in contracts of sale of 5overnment )epartments, may re9uire
guarantees being issued in lieu of security earnest money deposits for release
of advance money, supply of raw materials for processing, full payment of bills
on the assurance of the performance etc. "ommercial banks issue such
guarantees also.
PRIVATE SECTOR BANKS
3rivate banking in India was practiced since the beginning of banking system in
India. The first private bank in India to be set up as 23rivate Sector4 #anks in
India was Indus Ind #ank. It is one of the fastest growing private sector banks
in India. I)#I is ranked the tenth largest development bank in the world and has
promoted world class institutions in India.
The first 3rivate #ank in India to receive an in principle approval from the
$eserve #ank of India was !ousing )evelopment Cinance "orporation *imited,
to set up a bank in the private sector banks in India as part of the $#IEs
liberali6ation of the Indian #anking Industry. It was incorporated in ugust &((/
16
as !)C" #ank *imited with registered office in Mumbai and commenced
operations as Scheduled "ommercial #ank in :anuary &((8.
I05 @ysya, yet another 3rivate #ank of India was incorporated in the year
&(1.. #angalore has a pride of place for having the first branch inception in the
year &(1/. ?ith successive years of patronage and constantly setting new
standards in banking, I05 @ysya #ank has many credits to its account.
Entry of Pri!ate Se%tor #an$s:
There has been a paradigm shift in mindsets both at the 5overnment level in
the banking industry over the years since 0ationali6ation of #anks in &(;(,
particularly during the last decade ,&((.-7...-. !aving achieved the objectives
of 0ationali6ation, the most important issue before the industry at present is
survival and growth in the environment generated by the economic
liberali6ation greater competition with a view to achieving higher productivity
and efficiency in :anuary &((1 for the entry of 3rivate Sector banks based on
the 0ationali6ation "ommittee report of &((&, which envisaged a larger role for
3rivate Sector #anks.
The $#I prescribed a minimum paid up capital of $s. &.. crores for the new
bank and the shares are to be listed at stock e+change. lso the new bank after
being granted license under the #anking $egulation ct shall be registered as
a public limited company under the companies ct, &(8;.
Private Sector Banks
9ld P+t. Sector
Ban$' (5:)
New Pvt. Sector Banks (/)
1$
Subse9uently ( new commercial banks have been granted license to start
banking operations. The new private sector banks have been very aggressive
in business e+pansion and is also reporting higher profile levels taking the
advantage of technology and skilled manpower. In certain areas, these banks
have even our crossed the other group of banks including foreign banks.
+,- +. -S-1- B/N0 +. !N*!/ (B!)
- The #an$er(s #an$
The $eserve #ank of India ,$#I- is the "entral #ank of India, and was
established on pril &, &(18 in accordance with the provisions of the $eserve
#ank of India ct, &(1/. Since its inception, it has been head9uartered in
Mumbai. Though originally privately owned, $#I has been fully owned by the
5overnment of India since nationali6ation in &(/(.
$#I is governed by a central board ,headed by a 5overnor- appointed by the
"entral 5overnment. The current governor of $#I is )r2 ) Subbarao ,who
succeeded )r. F @enugopal $eddy on September ;, 7..'-. $#I has 77
1%
regional offices across India.The $eserve #ank of India was set up on the
recommendations of the !ilton Foung "ommission. The commission submitted
its report in the year &(7;, though the bank was not set up for nine years.
3ain +b4ecti%e:
)onetary *uthority
Cormulates, implements and monitors the monetary policy.
Objective: maintaining price stability and ensuring ade9uate flow
of credit to productive sectors.
+egulator and su,er!isor of the finan%ial syste-
3rescribes broad parameters of banking operations within which
the country<s banking and financial system functions.
ObjectiveB maintain public confidence in the system, protect
depositors< interest and provide cost-effective banking services to
the public. The #anking =mbudsman Scheme has been
formulated by the $eserve #ank of India ,$#I- for effective
redressal of complaints by bank customers
)anager of E.%hange 'ontrol
Manages the Coreign %+change Management ct, &(((.
ObjectiveB to facilitate e+ternal trade and payment and promote
orderly development and maintenance of foreign e+change
market in India.
&ssuer of %urren%y
Issues and e+changes or destroys currency and coins not fit for
circulation.
ObjectiveB to give the public ade9uate 9uantity of supplies of
currency notes and coins and in good 9uality.
1'
/e!elo,-ental role
3erforms a wide range of promotional functions to support
national objectives.
+elated 0un%tions
Banker to the GovernmentB performs merchant banking function
for the central and the state governmentsG also acts as their
banker.
Banker to banksB maintains banking accounts of all scheduled
banks.
=wner and operator of the depository ,S5*- and e+change ,0)S-
for government bonds.
There is now an international consensus about the need to focus the tasks of a
central bank upon central banking. $#I is far out of touch with such a principle,
owing to the sprawling mandate described above.
Su,er!isory 0un%tions:
In addition to its traditional central functions, the $eserve bank has certain non-
monetary functions of the nature of supervision of banks and promotion of
sound banking in India. The $eserve #ank ct, &(1/, and the #anking
$egulation ct, &(/( have given the $#I wide powers of supervision and
control over commercial and cooperative banks, relating to licensing and
establishments, branch e+pansion, li9uidity of their assets, management and
methods of working, amalgamation, reconstruction and li9uidation. The $#I is
authori6ed to carry out periodical inspections of the banks and to call for returns
and necessary information from them. The nationali6ation of &/ major Indian
scheduled banks in :uly &(;( has imposed new responsibilities on the $#I for
2(
directing the growth of banking and credit policies towards more rapid
development of the economy and reali6ation of certain desired social
objectives. The supervisory functions of the $#I 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.
Pro-otional 0un%tions:
?ith economic growth assuming a new urgency since Independence, the range
of the $eserve #ank<s functions have steadily widened. The #ank now
performs a variety of developmental and promotional functions, which, at one
time, were regarded as outside the normal scope of central banking. The
$eserve #ank was asked to promote banking habit, e+tend banking facilities to
rural and semi-urban areas, and establish and promote new speciali6ed
financing agencies. ccordingly, the $eserve bank has helped in the setting up
of the IC"I and the SC"B it set up the )eposit Insurance "orporation of India in
&(;1 and the Industrial $econstruction "orporation of India in &(>7. These
institutions were set up directly or indirectly by the $eserve #ank to promote
saving habit and to mobili6e savings, and to provide industrial finance as well
as agricultural finance. s far back as &(18, the $#I set up the gricultural
"redit )epartment to provide agricultural credit. #ut only since &(8& the #ank<s
role in this field has become e+tremely important. The #ank has developed the
co-operative credit movement to encourage saving, to eliminate money-lenders
from the villages and to route its short term credit to agriculture. The $#I has
set up the gricultural $efinance and )evelopment "orporation to provide long-
term finance to farmers.
21
C++#-/T!1- B/N0S
The "o-operative bank has a history of almost &.. years. The "o-operative
banks are an important constituent of the Indian Cinancial System, judging by
the role assigned to them, the e+pectations they are supposed to fulfill, their
number, and the number of offices they operate. The co-operative movement
originated in the ?est, but the importance that such banks have assumed in
India is rarely paralleled anywhere else in the world. Their role in rural financing
continues to be important even today, and their business in the urban areas
also has increased phenomenally in recent years mainly due to the sharp
increase in the number of co-operative banks.
22
?hile the co-operative banks in rural areas mainly finance agricultural based
activities including farming, cattle, milk, hatchery, personal finance etc. along
with some small scale industries and self-employment driven activities, the co-
operative banks in urban areas mainly finance various categories of people for
self-employment, industries, small scale units, home finance, consumer
finance, personal finance, etc. Some of the co-operative banks are 9uite
forward looking and have developed sufficient core competencies to challenge
state and private sector banks.
ccording to 0C"H# the total deposits I lendings of "o-operative #anks is
much more than =ld 3rivate Sector #anks I also the 0ew 3rivate Sector
#anks. This e+ponential growth of "o-operative #anks is attributed mainly to
their much better local reach, personal interaction with customers, and their
ability to catch the nerve of the local clientele. Though registered under the "o-
operative Societies ct of the $espective States ,where formed originally- the
banking related activities of the co-operative banks are also regulated by the
$eserve #ank of India. They are governed by the #anking $egulations ct
&(/( and #anking *aws ,"o-operative Societies- ct, &(;8.
'ategories of %o-o,erati!e ban$s
Short term lendin5 oriented co'o(erati%e Banks J within this
category there are three sub categories of banks vi6 state co-operative
banks, )istrict co-operative banks and 3rimary gricultural co-operative
societies.
,on5 term lendin5 oriented co'o(erati%e Banks J within the second
category there are land development banks at three levels state level,
district level and village level.
23
0eatures of 'oo,erati!e #an$s
"o-operative #anks are organi6ed and managed on the principal of co-
operation, self-help, and mutual help. They function with the rule of 2one
member, one vote4. Cunction on 2no profit, no loss4 basis. "o-operative banks,
as a principle, do not pursue the goal of profit ma+imi6ation. "o-operative bank
performs all the main banking functions of deposit mobili6ation, supply of credit
and provision of remittance facilities. "o-operative #anks provide limited
banking products and are functionally specialists in agriculture related products.
!owever, co-operative banks now provide housing loans also. H"#s provide
working capital loans and term loan as well.
The State "o-operative #anks ,S"#s-, "entral "o-operative #anks ,""#s-
and Hrban "o-operative #anks ,H"#s- can normally e+tend housing loans upto
$s & lakh to an individual. The scheduled H"#s, however, can lend upto $s 1
lakh for housing purposes.
The H"#s can provide advances against shares and debentures also. "o-
operative bank do banking business mainly in the agriculture and rural sector.
!owever, H"#s, S"#s, and ""#s operate in semi urban, urban, and
metropolitan areas also.
The urban and non-agricultural business of these banks has grown over the
years. The co-operative banks demonstrate a shift from rural to urban, while
the commercial banks, from urban to rural. "o-operative banks are perhaps the
first government sponsored, government-supported, and government-
subsidi6ed financial agency in India. They get financial and other help from the
$eserve #ank of India 0#$), central government and state governments.
They constitute the 2most favoured4 banking sector with risk of nationali6ation.
Cor commercial banks, the $eserve #ank of India is lender of last resort, but
co-operative banks it is the lender of first resort which provides financial
resources in the form of contribution to the initial capital ,through state
government-, working capital, refinance.
24
"o-operative #anks belong to the money market as well as to the capital
market. 3rimary agricultural credit societies provide short term and medium
term loans. *and )evelopment #anks ,*)#s- provide long-term loans. S"#s
and ""#s also provide both short term and term loans. "o-operative banks are
financial intermediaries only partially. The sources of their funds ,resources- are
,a- central and state government, ,b- the $eserve #ank of India and 0#$),
,c- other co-operative institutions, ,d- ownership funds and, ,e- deposits or
debenture issues. It is interesting to note that intra-sectoral flows of funds are
much greater in co-operative banking than in commercial banking. Inter-bank
deposits, borrowings, and credit from a significant part of assets and liabilities
of co-operative banks. This means that intra-sectoral competition is absent and
intra-sectoral integration is high for co-operative bank.
Some co-operative banks are scheduled banks, while others are non-
scheduled banks. Cor instance, S"#s and some H"#s are scheduled banks
but other co-operative banks are non-scheduled banks. t present, 7' S"#s
and && H"#s with )emand and Time *iabilities over $s 8. crore each included
in the Second Schedule of the $eserve #ank of India ct.
"o-operative #anks are subject to "$$ and li9uidity re9uirements as other
scheduled and non-scheduled banks are. !owever, their re9uirements are less
than commercial banks. Since &(;; the lending and deposit rate of commercial
banks have been directly regulated by the $eserve #ank of India. lthough the
$eserve #ank of India had power to regulate the rate co-operative bank but this
have been e+ercised only after &(>( in respect of non-agricultural advances
they were free to charge any rates at their discretion. lthough the main aim of
the co-operative bank is to provide cheaper credit to their members and not to
ma+imi6e profits, they may access the money market to improve their income
so as to remain viable.
25
III. PRODUCTS AND SERVICES
OFFERED BY BANKS
#road 'lassifi%ation of Produ%ts in a ban$:
The different products in a bank can be broadly classified intoB
&. $etail #anking.
7. Trade Cinance.
1. Treasury =perations.
26
$etail #anking and Trade finance operations are conducted at the branch level
while the wholesale banking operations, which cover treasury operations, are at
the hand office or a designated branch.
+etail #an$ing:
)eposits
*oans, "ash "redit and =verdraft
0egotiating for *oans and advances
$emittances
#ook-Keeping ,maintaining all accounting records-
$eceiving all kinds of bonds valuable for safe keeping
Trade 0inan%e:
Issuing and confirming of letter of credit.
)rawing, accepting, discounting, buying, selling, collecting of bills of
e+change, promissory notes, drafts, bill of lading and other securities.
Treasury ,erations:
#uying and selling of bullion. Coreign e+change
c9uiring, holding, underwriting and dealing in shares, debentures, etc.
3urchasing and selling of bonds and securities on behalf of constituents.
The banks can also act as an agent of the 5overnment or local authority. They
insure, guarantee, underwrite, participate in managing and carrying out issue of
shares, debentures, etc.
2$
part from the above-mentioned functions of the bank, the bank provides a
whole lot of other services like investment counseling for individuals, short-term
funds management and portfolio management for individuals and companies. It
undertakes the inward and outward remittances with reference to foreign
e+change and collection of varied types for the 5overnment.
Common Bankin5 #roducts /%ailable:
Some of common available banking products are e+plained belowB
a- Credit Card: "redit "ard is 2post paid4 or 2pay later4 card that draws
from a credit line-money made available by the card issuer ,bank- and
gives one a grace period to pay. If the amount is not paid full by the end
of the period, one is charged interest.
credit card is nothing but a very small card containing a means of
identification, such as a signature and a small photo. It authori6es the
holder to change goods or services to his account, on which he is billed.
The bank receives the bills from the merchants and pays on behalf of
the card holder. These bills are assembled in the bank and the amount is
paid to the bank by the card holder totally or by installments. The bank
charges the customer a small amount for these services. The cardholder
need not have to carry moneyDcash with him when he travels or goes for
purchasing.
"redit cards have found wide spread acceptance in the Lmetros< and big
cities. "redit cards are joining popularity for online payments. The major
players in the "redit "ard market are the foreign banks and some big
public sector banks like S#I and #ank of #aroda. India at present has
about 1 million credit cards in circulation.
2%
b- *ebit Cards: )ebit "ard is a 2prepaid4 or 2pay now4 card with some
stored value. )ebit "ards 9uickly debit or subtract money from one<s
savings account, or if one were taking out cash.
%very time a person uses the card, the merchant who in turn can get the
money transferred to his account from the bank of the buyers, by
debiting an e+act amount of purchase from the card with a debit card
along with a 3ersonal Identification 0umber ,3I0-.
?hen he makes a purchase, he enters this number on the shop<s 3I0
pad. ?hen the card is swiped through the electronic terminal, it dials the
ac9uiring bank system J either Master "ard or @isa that validates the
3I0 and finds out from the issuing bank whether to accept or decline the
transaction. The customer never overspread because the amount spent
is debited immediately from the customers account. So, for the debit
card to work, one must already have the money in the account to cover
the transaction. There is no grace period for a debit card purchase.
Some debit cards have monthly or per transaction fees.
)ebit "ard holder need not carry a bulky checkbook or large sums of
cash when heDshe goes at for shopping. This is a fast and easy way of
payment one can get debit card facility as debit cards use one<s own
money at the time of sale, so they are often easier than credit cards to
obtain.
The major limitation of )ebit "ard is that currently only some 1...-/...
shops country wide accepts it. lso, a person can<t operate it in case the
telephone lines are down.
c- /utomatic Teller 3achine: The introduction of TM<s has given the
customers the facility of round the clock banking. The TM<s are used by
banks for making the customers dealing easier. TM card is a device
that allows customer who has an TM card to perform routine banking
transaction at any time without interacting with human teller. It provides
2'
e+change services. This service helps the customer to withdraw money
even when the banks ate closed. This can be done by inserting the card
in the TM and entering the 3ersonal Identification 0umber and secret
3assword.
TM<s are currently becoming popular in India that enables the customer
to withdraw their money 7/ hours a day and 1;8 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 TM<s are many. It increases e+isting business and
generates new business. It allows the customers.
To transfer money to and from accounts
To view account information.
To order cash.
To receive cash.
/d%anta5es of /T36s:
To the Customers
TM<s provide 7/ hrs, > days and 1;8 days a year service.
Service is 9uick and efficient
3rivacy in transaction
?ider fle+ibility in place and time of withdrawals.
3(
The transaction is completely secure J you need to key in 3ersonal
Identification 0umber ,Hni9ue number for every customer-.
To Banks
lternative to e+tend banking hours.
"rowding at bank counters considerably reduced.
lternative to new branches and to reduce operating e+penses.
$elieves bank employees to focus on more analytical and innovative
work.
Increased market penetration.
TM<s can be installed anywhere like irports, $ailway Stations, 3etrol 3umps,
#ig #usiness arcades, markets, etc. !ence, it gives easy access to the
customers, for obtaining cash.
The TM services provided first by the foreign banks like "itibank, 5rind lays
bank and now by many private and public sector banks in India like I"I"I #ank,
!)C" #ank, S#I, HTI #ank etc. The I"I"I has launched TM Services to its
customers in all the Metropolitan "ities in India. #y the end of &((. Indian
3rivate #anks and public sector banks have come up with their own TM
0etwork in the form of 2S?)!04. =ver the past year upto // banks in
Mumbai, @ashi and Thane, have became a part of 2S?)!04 a system of
shared payments networks, introduced by the Indian #ank ssociation ,I#-.
d- -'Cheques: The e-che9ues consists five primary facts. They are the
consumers, the merchant, consumer<s bank the merchant<s bank and
the e-mint and the clearing process. This chea9uring system uses the
network services to issue and process payment that emulates real world
cha9uing. The payer issues a digital che9ue to the payee and all
transactions are done through the internet. %lectronic version of
31
chea9ues are issued, received and processed. typical electronic
che9ue transaction takes place in the following mannerB
The customer accesses the merchant server and the merchant server
presents its goods to the customer.
The consumer selects the goods and purchases them by sending an e-
che9ue to the merchant.
The merchant validates the e-che9ue with its bank for payment
authorisation.
The merchant electronically forwards the e-che9ue to its bank.
The merchant<s bank forwards the e-che9ue to the clearing house for
cashing.
The clearing house jointly works with the consumer<s bank clears the
che9ue and transfers the money to the merchant<s banks.
The merchant<s bank updates the merchant<s account.
The consumer<s bank updates the consumer<s account with the
withdrawal information.
The e-che9uing is a great boon to big corporate as well as small retailers. Most
major banks accept e-che9ues. Thus this system offers secure means of
collecting payments, transferring value and managing cash flows.
e- -lectronic .unds Transfer (-.T): Many modern banks have
computerised their che9ue handling process with computer networks
and other electronic e9uipments. These banks are dispensing with the
use of paper che9ues. The system called electronic fund transfer ,%CT-
automatically transfers money from one account to another. This system
facilitates speedier transfer of funds electronically from any branch to
32
any other branch. In this system the sender and the receiver of funds
may be located in different cities and may even bank with different
banks. Cunds transfer within the same city is also permitted. The
scheme has been in operation since Cebruary >, &((;, in India.
The other important type of facility in the %CT system is automated
clearing houses. These are the computer centers that handle the bills
meant for deposits and the bills meant for payment. In big companies
pay is not disbursed by issued che9ues or issuing cash. The payment
office directs the computer to credit an employee<s account with the
person<s pay.
f- Telebankin5: Telebanking refers to banking on phone services.
customer can access information about hisDher account through a
telephone call and by giving the coded 3ersonal Identification 0umber
,3I0- to the bank. Telebanking is e+tensively user friendly and effective
in nature. To get a particular work done through the bank, the users may
leave his instructions in the form of message with bank.
Cacility to stop payment on re9uest. =ne can easily know
about the che9ue status.
Information on the current interest rates.
Information with regard to foreign e+change rates.
$e9uest for a )) or pay order.
)-Mat ccount related services.
nd other similar services.
g- 3obile Bankin5: new revolution in the realm of e-banking is the
emergence of mobile banking. =n-line banking is now moving to the
33
mobile world, giving everybody with a mobile phone access to real-time
banking services, regardless of their location. #ut there is much more to
mobile banking from just on-lie banking. It provides a new way to pick up
information and interact with the banks to carry out the relevant banking
business. The potential of mobile banking is limitless and is e+pected to
be a big success. #ooking and paying for travel and even tickets is also
e+pected to be a growth area.
ccording to this system, customer can access account details on
mobile using the Short Messaging System ,SMS- technology where
select data is pushed to the mobile device. The wireless application
protocol ,?3- technology, which will allow user to surf the net on their
mobiles to access anything and everything. This is a very fle+ible way of
transacting banking business.
lready I"I"I and !)C" banks have tied up cellular service provides
such as irtel, =range, Sky "ell, etc. in )elhi and Mumbai to offer these
mobile banking services to their customers.
h- !nternet Bankin5: Internet banking involves use of internet for
delivery of banking products and services. ?ith internet, banking is now
no longer confirmed to the branches where one has to approach the
branch in person, to withdraw cash or deposits a che9ue or to re9uest a
statement of accounts. In internet banking, any in9uiry or transaction is
processed online without any reference to the branch ,anywhere
banking- at any time.
The Internet #anking now is more of a normal rather than an e+ception
due to the fact that it is the cheapest way of providing banking services.
s indicated by McKinsey Muarterly research, presently traditional
banking costs the banks, more than a dollar per person, TM banking
costs 7> cents and internet banking costs below / cents appro+imately.
I"I"I bank was the first one to offer Internet #anking in India.
34
Benefits of !nternet Bankin5:
$educe the transaction costs of offering several banking services and
diminishes the need for longer numbers of e+pensive brick and mortar
branches and staff.
Increase convenience for customers, since they can conduct many
banking transaction 7/ hours a day.
Increase customer loyalty.
Improve customer access.
ttract new customers.
%asy online application for all accounts, including personal loans and
mortgages
.inancial Transactions on the !nternet:
-lectronic Cash: "ompanies are developing electronic replicas of all
e+isting payment systemB cash, che9ue, credit cards and coins.
/utomatic #ayments: Htility companies, loans payments, and other
businesses use on automatic payment system with bills paid through
direct withdrawal from a bank account.
*irect *e(osits: %arnings ,or 5overnment payments- automatically
deposited into bank accounts, saving time, effort and money.
Stored 1alue Cards: 3repaid cards for telephone service, transit fares,
highway tolls, laundry service, library fees and school lunches.
#oint of Sale transactions: cceptance of TMD"he9ue at retail stores
and restaurants for payment of goods and services. This system has
made functioning of the stock Market very smooth and efficient.
35
Cyber Bankin5: It refers to banking through online services. #anks with
web site 2"yber4 branches allowed customers to check balances, pay
bills, transfer funds, and apply for loans on the Internet.
i- *-3/T: )emat is short for de-materialisation of shares. In short,
)emat is a process where at the customer<s re9uest the physical stock
is converted into electronic entries in the depository system.
In :anuary &((' S%#I ,Securities and %+change #oard of India- initiated
)%MT ""=H0T0"F System to regulate and to improve stock
investing. s on date, to trade on shares it has become compulsory to
have a share demat account and all trades take place through demat.
7ow to +(erate *-3/T /CC+8NT9
=ne needs to open a )emat ccount with any of the branches of the bank.
fter opening an account with any bank, by filling the demat re9uest form one
can handover the securities. The rest will be taken care by the bank and the
customer will receive credit of shares as soon as it is confirmed by the
"ompanyD$egister and Transfer gent. There is no physical movement of
share certification any more. ny buying or selling of shares is done via
electronic transfers.
If the investor wants to sell his shares, he has to place an order
with his broker and give a 2)elivery Instruction4 to his )3
,)epository 3articipant-. The )3 will debit his account with the
number of shares sold by him.
36
If one wants to buy shares, he has to inform his broker about his
)epository ccount 0umber so that the shares bought by him are
credited in to his account.
3ayment for the electronic shares bought or sold is to be made in
the same way as in the case of physical securities.
!12 B/N0!N: S-1!C-S
3$
#anking covers so many services that it is difficult to define it. !owever, these
basic services have always been recogni6ed as the hallmark of the genuine
banker. These areB
The receipt of the customer<s deposits
The collection of his che9ues drawn on other banks
The payment of the customer<s che9ues drawn on himself
There are other %arious ty(es of bankin5 ser%ices like:
dvances J =verdraft, "ash "redit, etc.
!eposits J Saving ccount, "urrent ccount, etc.
"inancial #ervices J #ill discounting etc.
"oreign #ervices J 3roviding foreign currency, travelers che9ues, etc.
$oney %ransmission J Cunds transfer etc.
#avings J Ci+ed deposits, etc.
#ervices of place or time J TM Services.
#tatus J )ebit "ards, "redit "ards, etc.
'usto-er Ser!i%es in 'o--er%ial #an$s:
"ustomer service is the service provided in support of a bank<s core products.
It often includes answering 9uestionsG handling complaints. "ustomer service
can occur on site ,as when an onstage employee helps a customer or answers
a 9uestion- or it can occur over the phone or the Internet. Muality customer
service is essential for building cordial relations with customers.
#anking being a service industry, a lot depends on efficient and prompt
customer service. "ustomer service is the most important duty of the banking
3%
operations. 3rompt and efficient service with smile will develop good public
relations reduce complaints and increase business.
1hy is 'usto-er Ser!i%e &-,ortant2
Chan5in5 customer e;(ectations: Today the customer is more
demanding and more sophisticated than he or she was thirty years ago.
The increased im(ortance of customer ser%ice: ?ith changing
customer e+pectations, competitors are seeing customer service as a
competitive weapon with which they differentiate their products and
services.
The need for a relationshi( strate5y: To ensure that a customer
service strategy that will create a value preposition for customers should
be formulated implemented and controlled. It is necessary to give it a
central role and not one that is subsumed in the various elements of the
marketing mi+.
The customer is the kingpin in growth organi6ations like commercial banks.
=nly those institutions which work according to his dictates will flourish. Muality,
"onsistency and )urability at low price are the final e+pectations of a customer.
Muality will have to be unambiguous, of world class 9uality. Muality cannot be of
minimum acceptable standards. "ustomer responsiveness must be 9uick and
also competent. Speed, performance and cost will be the new values 2mantra4
for success.
The ten key areas of customer<s services to be attended timely and regularly
areB
Submission of statement of D"s to customers
Hpdating of savings pass books.
Teller system efficiency.
"leanliness and Hpkeep of premises.
3'
Intermediate "redit for institution che9uesDland bills.
dvance intimation to customers for rewards of Term )eposits $eceipts
on maturity.
dvance for )ebitDcredit to accounts.
3unctuality of staff.
!andling of complaint register.
Maintain a complaint register.
"ustomer<s dissatisfaction in the banking industry is neither recent nor
unknown. This is mainly due to delays in handling transactions across the
counter in collections, update of passbooks supply of statements of accounts,
etc.
Cailure to provide prompt and efficient customer service is likely to lead to
reduction in the number of customers and they may have to face closure. To
event such situation the following improvements in the customer services may
be carried outB
3ersonal relations of the bank employee with customers will improve
customer satisfaction. & service with smile should be the motto of every
bank employee.
$apid customer services should be provided through automation of work
and simplification of procedures.
TM<s may be introduced in all the branches of the banks, based upon
the volume of transactions. This shall facilitate non-stop banking.
"redit "ards Services, )ebit "ard Services, which should be provided to
the customers, must a link service with all the banks and branches if
possible to facilitate the customer and the business organi6ations.
%-mail service made freely available at all banking centers.
4(
Coreign %+change transactions are to be e+tended to all the branches to
facilitate trade and industries.
ll the customers are not homogenous in their needs. !ence need
based schemes may be introduced.
Totally deregulated interest rate structure should be there.
The banking staff must be trained to understand the customer<s
psychology, so they may provide customer service in a 9ualified manner.
%ducating the customers will increases better utilisation of banking
services.
41
V. BANK MARKETING
The banking business is essentially other people<s money and banker<s brain.
The secret of its success lies in satisfying customer needs for which the banks
have to rediscover the marketing concept.
It is right to mention that bank marketing is a managerial process by which
services are matched with markets. The matching of services with market is
meant formulation of overall marketing strategies which suit the taste,
temperament, needs and re9uirements of customers.
In view of the above, marketing of banking services is concerned with product,
promotion, pricing, and place. In addition, it is also concerned with people,
process and physical appearance.
+b4ecti%es of Bank 3arketin5:
3rofitability
3roviding high return on investment
chieving certain market shareDgrowth
)evelopment of an image
)eveloping new products to meet emerging customer re9uirements.
Increase in deposits and loans
)irecting customers to certain products
Increasing awareness
Increasing customer base through greater customer satisfaction.
42
VI. ROLE OF INFORMATION
TECHNOLOGY (IT) IN THE
BANKING SECTOR
#anking 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 Lenabling resource< that can
help in developing learner and more fle+ible structure that can respond 9uickly
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.
E-#an$ing
%-banking made its debut in HK and HS &(7.s. It becomes prominently
popular during &(;., through electronic funds transfer and credit cards. The
concept of web-based baking came into e+istence in %urope and HS in the
beginning of &('..
In India e-banking is of recent origin. The traditional model for growth has been
through branch banking. =nly in the early &((.s has there been a start in the
non-branch banking services. The new private sector banks and the foreign
banks are handicapped by the lack of a strong branch network in comparison
with the public sector banks. In the absence of such networks, the market place
has been the emergence of a lot of innovative services by these players
through direct distribution strategies of non-branch delivery. ll these banks are
using home banking as a key 2pull< factor to remove customers away from the
well entered public sector banks.
Many banks have moderni6ed their services with the facilities of computer and
electronic e9uipments. The electronics revolution has made it possible to
43
provide ease and fle+ibility in banking operations to the benefit of the customer.
The e-banking has made the customer say good-bye to huge account
registers and large paper bank accounts. The e-banks, which may call as easy
bank offers the following services to its customersB
"redit "ards J )ebit "ards
TM
%-"he9ues
%CT ,%lectronic Cunds Transfer-
)-MT ccounts
Mobile #anking
Telephone #anking
Internet #anking
%)I ,%lectronic )ata Interchange-
#enefits of E-ban$ing:
To the Customer:
nywhere Banking no matter wherever the customer is in the
world. #alance en9uiry, re9uest for services, issuing
instructions etc., from anywhere in the world is possible.
nytime Banking J Managing funds in real time and most
importantly, 7/ hours a day, >days a week.
"onvenience acts as a tremendous psychological benefit all
the time.
#rings down 2"ost of #anking4 to the customer over a period
a period of time.
44
"ash withdrawal from any branch D TM
=n-line purchase of goods and services including online
payment for the same.
To the Bank:
Innovative, scheme, addresses competition and present the
bank as technology driven in the banking sector market
$educes customer visits to the branch and thereby human
intervention
Inter-branch reconciliation is immediate thereby reducing
chances of fraud and misappropriation
=n-line banking is an effective medium of promotion of
various schemes of the bank, a marketing tool indeed.
Integrated customer data paves way for individualised and
customised services.
&-,a%t of &T on the Ser!i%e Quality:
The most visible impact of technology is reflected in the way the banks respond
strategically for making its effective use for efficient service delivery. This
impact on service 9uality can be summed up as belowB
?ith automation, service no longer remains a marketing edge with the
large banks only. Small and relatively new banks with limited network of
branches become better placed to compete with the established banks,
by integrating IT in their operations.
The technology has commoditising some of the financial services.
Therefore the banks cannot take a lifetime relationship with the
customers as granted and they have to work continuously to foster this
relationship and retain customer loyalty.
45
The technology on one hand serves as a powerful tool for customer
servicing, on the other hand, it itself results in depersonalising of the
banking services. This has an adverse effect on relationship banking.
decade of computeri6ation can probably never substitute a simple or a
warm handshake.
In order to reduce service delivery cost, banks need to automate routine
customer in9uiries through self-service channels. To do this they need to
invest in call centers, kiosks, TM<s and Internet #anking today re9uire
IT infrastructure integrated with their business strategy to be customer
centric.
&-,a%t of &T on the #an$ing Syste-
The banking system is slowly shifting from the Traditional #anking 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 si6e of the branch network and the training of staff in the
branch network. The bank monitored the organisation<s performance and set
the decision making parameters, but the information available to both branch
staff and their customers was limited to one geographical location.
46
Traditional #an$ing Se%tor
The modern bank cannot rely on its branch network alone. "ustomers are now
demanding new, more convenient, delivery systems, and services such as
Internet banking have a dual role to the customer. They provide traditional
banking services, but additionally offer much greater access to information on
their account status and on the bank<s many other services. To do this banks
have to create account information layers, which can be accessed both by the
bank staff as well as by the customers themselves.
The use of interactive electronic links via the Internet could go a long way in
providing the customers with greater level of information about both their own
financial situation and about the services offered by the bank.
)S$O-ER )S$O-ER )S$O-ER
B+N0 BR+N* B+N0 BR+N* B+N0 BR+N*
LE+RIN1 (EISION LE+RIN1 (EISION LE+RIN1 (EISION
&)*"+, &,)+I*- H)+. /00I&)
4$
The Ne" +elationshi, riented #an$
&-,a%t of &T on Pri!a%y and 'onfidentiality of /ata:
)ata being stored in the computers is now being displayed when re9uired on
through internet banking mobile banking, TM<s etc. all this has given rise to
the issues of privacy and confidentially of data areB
The data processing capabilities of the computer, particularly the
rapid throughput, integration, and retrieval capabilities, give rise to
doubts in the minds of individuals as to whether the privacy of the
individuals is being eroded.
So long as the individual data items are available only to those
directly concerned, everything seems to be in proper place, but
the incidence of data being cross referenced to create detailed
individual dossiers gives rise to privacy problems.
"ustomers feel threatened about the inade9uacy of privacy being
maintained by the banks with regard to their transactions and link
at computerised systems with suspicion.
)S$O-ER
$ELEP*ONE2 BR+N*2 ELE$RONI B+N0IN12 etc
S*+RE( IN3OR-+$ION
LE+RIN1 S4S$E- *E+( O33IE RIS0 -ONI$ORIN1
4%
side from any constitutional aspect, many nations deem privacy to be a
subject of human right and consider it to be the responsibility of those who
concerned with computer data processing for ensuring that the computer use
does not revolve to the stage where different data about people can be
collected, integrated and retrieved 9uickly. nother important responsibility is to
ensure the data is used only for the purpose intended.
4'
1!!2 -C-NT T-N*S !N B/N0!N:
Today, we are having a fairly well developed banking system with different
classes of banks J public sector banks, foreign banks, private sector banks J
both old and new generation, regional rural banks and co-operative banks with
the $eserve #ank of India as the fountain !ead of the system.In the banking
field, there has been an unprecedented growth and diversification of banking
industry has been so stupendous that it has no parallel in the annals of banking
anywhere in the world.
The banks have shed their traditional functions and have been innovating,
improving and coming out with new types of the services to cater to the
emerging needs of their customers .Massive branch e+pansion in the rural and
underdeveloped areas, mobilisation of savings and diversification of credit
facilities to the either to neglected areas like small scale industrial sector,
agricultural and other preferred areas like e+port sector etc. have resulted in
the widening and deepening of the financial infrastructure and transferred the
fundamental character of class banking into mass banking.
There has been considerable innovation and diversification in the business of
major commercial banks. Some of them have engaged in the areas of
consumer credit, credit cards, merchant banking, leasing, mutual funds etc.
few banks have already set up subsidiaries for merchant banking, leasing and
mutual funds and many more are in the process of doing so. Some banks have
commenced factoring business.
The major challenges faced by banks today are as to how to cope with
competitive forces and strengthen their balance sheet. Today, banks are
groaning with burden of 03<s. It is rightly felt that these contaminated debts, if
not recovered, will eat into the very vitals of the banks. nother major an+iety
before the banking industry is the high transaction cost of carrying 0on
3erforming ssets in their books. The resolution of the 03 problem re9uires
greater accountability on the part of the corporate, greater disclosure in the
case of defaults, an efficient credit information sharing system and an
5(
appropriate legal framework pertaining to the banking system so that court
procedures can be streamlined and actual recoveries made within an
acceptable time frame. The banking industry cannot afford to sustain itself with
such high levels of 03<s thus, 2lend, but lent for a purpose and with a purpose
ought to be the slogan for salvation.4
The Indian banks are subject to tremendous pressures to perform as otherwise
their very survival would be at stake. The application of IT and e-banking is
becoming the order of the day with the banking system heading towards virtual
banking. s an e+treme case of e-banking, ?orld ?ide #anking ,??#- on the
pattern of ?orld ?ide ?eb ,???- can be visualised. That means all banks
would be interlinked and individual bank identity, as far as the customer is
concerned, does not e+ist. There is no need to have large number of physical
bank branches, e+tension counters. There is no need of person-to-person
physical interaction or dealings. "ustomers would be able to do all their
banking operations sitting in their offices or homes and operating through
internet. This would be the case of banking reaching the customers.
#anking landscape is changing very fast. Many new players with different
muscle powers will enter the market. The $eserve #ank in its bid to move
towards the best international banking practices will further sharpen the
prudential norms and strengthen its supervisor mechanism. There will be more
transparency and disclosures.
In the days to come, banks are e+pected to play a very useful role in the
economic development and the emerging market will provide ample business
opportunities to harness. !uman $esources Management is assuming to be of
greater importance. s banking in India will become more and more knowledge
supported, human capital will emerge as the finest assets of the banking
system. Hltimately banking is people and not just figures.


51
8N!1-S/, B/N0!N:
Since the early &((.s, banking systems worldwide have been going through a
rapid transformation. Mergers, amalgamations and ac9uisitions have been
undertaken on a large scale in order to gain si6e and to focus more sharply on
competitive strengths. This consolidation has produced financial conglomerates
that are e+pected to ma+imi6e economies of scale and scope by Lbundling< the
production of financial services. The general trend has been towards
downstream universal banking where banks have undertaken traditionally non-
banking activities such as investment banking, insurance, mortgage financing,
securiti6ation, and particularly, insurance. Hpstream linkages, where non-banks
undertake banking business, are also on the increase. The global e+perience
can be segregated into broadly three models. There is the Swedish or !ong
Kong type model in which the banking corporate engages in in-house activities
associated with banking. In 5ermany and the HK, certain types of activities are
re9uired to be carried out by separate subsidiaries. In the HS type model, there
is a holding company structure and separately capitali6ed subsidiaries In India,
the first impulses for a more diversified financial intermediation were witnessed
in the &('.s and &((.s when banks were allowed to undertake leasing,
investment banking, mutual funds, factoring, hire-purchase activities through
separate subsidiaries. #y the mid-&((.s, all restrictions on project financing
were removed and banks were allowed to undertake several activities in-house.
In the recent period, the focus is on )evelopment Cinancial Institutions ,)CIs-,
which have been allowed to set up banking subsidiaries and to enter the
insurance business along with banks. )CIs were also allowed to undertake
working capital financing and to raise short-term funds within limits. It was the
0arasimhan "ommittee II $eport ,&(('- which suggested that the )CIs should
convert themselves into banks or non-bank financial companies, and this
conversion was endorsed by the Khan ?orking 5roup ,&(('-. The $eserve
#ank<s )iscussion 3aper ,&(((- and the feedback thereon indicated the
desirability of universal banking from the point of view of efficiency of resource
use, but it also emphasi6ed the need to take into account factors such as the
52
status of reforms, the state of preparedness of the institutions, and a viable
transition path while moving in the desired direction. ccordingly, the mid-term
review of monetary and credit policy, =ctober &(((and the annual policy
statements of pril 7... and pril 7..& enunciated the broad approach to
universal banking and the $eserve #ank<s circular of pril 7..& set out the
operational and regulatory aspects of conversion of )CIs into universal banks.
The need to proceed with planning and foresight is necessary for several
reasons. The move towards universal banking would not provide a panacea for
the endemic weaknesses of a )CI or its li9uidity and solvency problems andDor
operational difficulties arising from undercapitali6ation, non-performing assets,
and asset liability mismatches, etc& The overriding consideration should be the
objectives and strategic interests of the financial institution concerned in the
conte+t of meeting the varied needs of customers, subject to normal prudential
norms applicable to banks. Crom the point of view of the regulatory framework,
the movement towards universal banking should entrench stability of the
financial system, preserve the safety of public deposits, improve efficiency in
financial intermediation, ensure healthy competition and impart transparent and
e9uitable regulation.
53
7* !N B/N0!N: !N*8ST<
recurring theme in the nnual #%"=0 conference, has been the need to
focus on developing human resources to deal with rapidly changing scenario,
The core function of !$) in the #anking Industry is to facilitate performance
improvement, measured not only in terms of financial indicators of operational
efficiency, but also in terms of the 9uality of financial services provided. Cactors
such as skills, attitudes and knowledge of personnel play a critical role in
determining the competitiveness of the financial sector. The 9uality of human
resources indicates the ability of banks to deliver value to customers. "apital
and technology are replicable, but not human capital which needs to be viewed
as a valuable resource for the achievement of competitive advantage. The
primary emphasis needs to be on integrating human resource management
,!$M- strategies with the business strategy. !$M strategies include managing
change, creating commitment, achieving fle+ibility and improving teamwork.
These processes underlie the complementary processes that represent the
overt aspects of !$M, such as recruitment , placement, performance
management, reward management, and employee relations. forward looking
approach would involve moving towards self-assessment of competency and
developmental needs as a part of a continuous learning cycle. The Indian
banking industry has been an important driving force behind the nation<s
economic development. The emerging environment poses both opportunities
and threats, in particular, to the public sector banks. !ow well these are met will
mainly depend on the e+tent to which the banks leverage their primary asset
i&e& human resources in the conte+t of the changing economic and business
environment. It is obvious that the public sector banks< hierarchical structure,
which gives preference to seniority over performance, is not the best
environment for attracting the best talent from among the young in a
competitive environment. radical transformation of the e+isting personnel
structure in public sector banks is unlikely to be practical, at least in the
foreseeable future. !owever, certain improvements can be made in the
recruitment practices as well as in on-the-job training and redeployment of
54
those who are already employed. There are several institutions in the country
which cater e+clusively to the needs of human resource development in the
banking industry. It is worthwhile to consider broad-basing the courses
conducted in these institutions among other higher-level educational institutions
so that speciali6ation in the area of banking and financial services becomes an
option in higher education curriculums. In the area of information technology,
Indian professionals are world leaders and building synergies between the IT
and banking industries will sharpen the competitive edge of our banks.
55
1!!!2 C+NC,8S!+N
The banking scenario has changed drastically. The changes which have taken
place in the last ten years are more than the changes took place in last fifty
years because of the institutionalisation, liberalisation, globalisation and
automation in the banking industry.
Indian banking system has several outstanding achievements to its credit, the
most striking of which is its reach. Indian banks are now spread out into the
remote corners of our country. In terms of the number of branches, India<s
banking system is one of the largest in the world. ccording to the #anker
7../, India has 7. banks within the world<s top &... out of which only ; are
within the top 8.. banks.
Today banking sector is marked by high customer e+pectations and
technological innovations. Technology is playing a crucial role in the day to day
functioning of the banks. These banks that have harnessed and leveraged
technology best have a strategic advantage. To face competition it is necessary
for banks to absorb the technology and upgrade their services.
In today<s conte+t banks are following the strategy of 2relationship banking4
than 2mass banking4 which is need of the hour. The customer services are
playing a very significant role in banking business. In India major events
leading to deregulation, liberalisation and privatisation have unleashed forces
of competition, making the banks run for their business, not only to create the
customer, but more difficult to run for their business, not only to create the
customer, but more difficult to retain the customer. 3rompt and efficient
customer service, thus, has become very significant. $elationship banking is
the new paradigm for survival and success, embracing a Lshare of customer<
approach to growth by identifying, protecting and e+panding customer relations.
56