GROWTH OF BANKING INDUSTRY AND

PAYMENT SYSTEM IN INDIA

SUBMITTED TO - SUBMITTED BY-

Dr.Heramb Nayak Jatin
Khandelwal
Assistant Professor
01521201816
Department of Business Administration

SESSION: 2016-2019

MAHARAJA SURAJMAL INSTITUE

Affiliated to Guru Gobind Singh Indraprastha University
Recognised by UGC U/S2 (F)
C-4 JANAK PURI, NEW DELHI-58
 ACKNOWLEDGEMENT
The success and the final outcome of the assignment required a lot of
assistance and guidance from Dr. Heramb Nayak and I am extremely
fortunate to have been under the light of his supervision during the
completion of the assignment on the topic “Growth of banking industry
and banking services in India”. All the work that has been done is
because of the guidance and I would not forget to thank him.

I respect and thank Dr Heramb Nayak for giving me an opportunity to

this assignment and provide me with complete support due to which I am
able to complete this assignment on time.

Jatin Khandelwal
 INDEX
S.NO PARTICULARS PAGE
NO.
1 Chapter 1 1-6
INTRODUCTION
 History 2
 Market size of banking industry 3
 Employment opportunities 4
 Government initiatives 4

2 Chapter 2 7-14
PROFILE OF THE STUDY
 Payment System Initiatives 8
 Paper-based Payments 9
 Electronic Payments 9-12
 Other Payment Systems 13-14

3 CHAPTER 3 15-25
DATA ANALYSIS AND
INTERPRETATION
 Banking industry
 Evolution of indian banking industry 16
 Credit growth 17
 Growth in deposits 18
 Growing asset base 19
 Rising rural income pushing up demand for 20
banking

 Payment system
 Prepaid instruments 21
 Debit and credit cards 22
 Growth in number of ATMs 23-24
 Mobile Banking 25
4 CHAPTER 4 26-30
RECOMMENDATION AND
CONCLUSION
 Recommendations 27
 Conclusion 28-29
 Bibliography 30
 CHAPTER-1
INTRODUCTION

1
HISTORY
Indian Banking Industry originated in the first decade of 18th century as The General
Bank of India came into existence in the year 1786. And then later Bank of
Hindustan was started. The India's oldest bank which is in existence is the State
Bank of India being established as "The Bank of Bengal in Calcutta in June in the
year 1806. A couple of decades later in the year 1850 the foreign banks like Credit
Lyonnais started their operations in Calcutta. Calcutta was the most active trading
port at that time which was during the British Empire, due to these reasons the
banking activity took roots there and prospered. In the year 1865, the first fully
Indian owned bank was established in Allahabad Punjab National Bank was
established expanding the markets by the 1900s, Bank of India the year in 1895 in
Lahore and the same Bank of India 1906, in Mumbai both were founded under
private ownership. Then later in the year 1935, the Reserve Bank of India formally
took over the responsibility of regulating Indian banking sector. In the year 1947,
after India's independence the Reserve Bank was nationalized and given more
powers The Indian Banking Industry in 1960 became an important tool to facilitate
the financial development of the Indian economy. Simultaneously it emerged as a
large employer and debate prevailed that ensured about the possibility of
nationalization of the banking industry. The then Prime Minister of India, Indira
Gandhi expressed the intention of the GOI in the annual conference of the All India
Congress Meeting. This was received with positive enthusiasm by the whole nation.
Later the GOI was issued an ordinance and nationalized the 14 largest commercial
banks with effect from the midnight of July 19, 1969. In 1980 for the second time
nationalisation of 6 more commercial banks was done. The nationalization was done
to give the government control of credit delivery. With this the GOI controlled around
91% of the banking business of India.

Narasimha Rao government formulated a policy of liberalization in the year 1990 and
gave licenses to a small number of private banks, which was known as the New
Generation tech-savvy banks, some of the banks were like the UTI Bank(now re-
named as Axis Bank).ICICI Bank and HDFC Bank. Liberalization along with the

2
rapid growth in the economy of India boosted the banking sector in India, which has
seen strong contribution from all the three sectors of banks, namely, government
banks, private banks and foreign banks. The next stage for the Indian Banking
Industry was to setup with the proposed relaxation in the norms for Foreign Direct
Investment, where voting rights were given to all the Foreign Investors in banks
which could exceed the present cap of 10%, at present it has gone up to 49% with
some restrictions. Indian Banking Industry was completely shooked with the new
policy. Till this time the Bankers used to the follow the 4-6-4 method (Borrow at 4%,
Lend at 6%, Go home at 4) of functioning. This new wave ushered in a modern
outlook and tech-savvy methods of working for traditional banks which led to the
retail boom in India. People not only just demanded more from their banks but also
received more. Today Banking in India is generally fair and mature in terms of
supply, product range and reach though in rural India still remains a challenge for the
private sector and foreign banks. Banking in terms of quality of assets and capital
adequacy, banks in India are considered to have clean, strong and transparent
balance sheets relative to other banks in comparable other economies. The
Reserve Bank of India is the autonomous body, which has the minimal pressure from
the government.

MARKET SIZE OF BANKING INDUSTRY

The Indian banking industry is very robust and continues to grow by leaps and
bounds with is own share of reforms. 11 payment banks are expected to be
launched in 2016 and 2017. The Indian banking industry consists of nearly 26 public
sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks,
1,589 urban cooperative banks and 93,550 rural cooperative banks. Standard &
Poor's estimates inform that credit growth in India's banking sector would improve to
12-13 per cent in FY16 from than 10 per cent in the second half of CY14.

Positive business sentiments improved consumer confidence and more controlled

inflation are likely to prop-up the country's banking industry growth. Also, the
advancements in technology have brought the mobile and internet banking services
to the fore The banking sector is laying greater emphasis on providing improved
services to their clients and also upgrading their technology infrastructure, in order to

3
enhance the customers overall experience as well as give banks a competitive edge
Time deposits with banks have shown highest average growth of 12.9 per cent
during FY06-16, and stood at US$ 1.44 trillion by the end of October 15.

EMPLOYMENT OPPORTUNITIES
Banking Industry in India is one of the most sought after career choice among the
students. It is a career which is well paid, secure and has good status. Though it
might appear that these jobs are meant for the student of commerce/economics but
the fact is that majority of bank officers are from different streams of education.
Further it also a fact that top positions in Foreign/Multinational Banks are held by
MBA's from Premier Management Institutes. Today Public sector Banks are now
appointing management graduates, CAs and CFAs but bright graduates from any
subject can get entry in the Public sector Banks through an All India Examination
conducted by them. Openings in Banks are available at various levels, from Clerical
to Probationary officers (PO). The opportunities have great job security and along
with good salary, besides the perquisites of loans for employees. It is a lucrative
career where careers exist not only in nationalized banks, but even with
liberalization, a host of private banks have been set up for the opportunities.

GOVERNMENT INITIATIVES

The government and the regulator have undertaken several measures to strengthen
the Indian banking sector.

 In July 2016, the government allocated Rs 22,915 crore (US$ 3.41 billion) as
capital infusion in 13 public sector banks, which is expected to improve their
liquidity and lending operations, and shore up economic growth in the
country.
 The Reserve Bank of India (RBI) has released the Vision 2018 document,
aimed at encouraging greater use of electronic payments by all sections of

4
 society by bringing down paper-based transactions, increasing the usage of
digital channels, and boosting the customer base for mobile banking.
 The Reserve Bank of India (RBI) has issued guidelines for priority sector
lending certificates (PSLCs), according to which banks can issue four
different kinds of PSLCs—those for the shortfall in agriculture lending,
lending to small and marginal farmers, lending to micro enterprises and for
overall lending targets – to meet their priority sector lending targets.
 The Reserve Bank of India (RBI) has allowed additional reserves to be part of
tier-1 or core capital of banks, such as revaluation reserves linked to
property holdings, foreign currency translation reserves and deferred tax
assets, which is expected to shore up the capital of state-run banks and
privately owned banks by up to Rs 35,000 crore (US$ 5.14 billion) and Rs
5,000 crore (US$ 734 million) respectively.
 Scheduled commercial banks can grant non-fund based facilities including
partial credit enhancement (PEC), to those customers, who do not avail any
fund based facility from any bank in India.
 To reduce the burden of loan repayment on farmers, a provision of Rs 15,000
crore (US$ 2.2 billion) has been made in the Union Budget 2016-17 towards
interest subvention.
 Under Pradhan Mantri Jan Dhan Yojna (PMJDY), 250.5 million accounts!
have been opened and 192.2 million RuPay debit cards have been issued as
of October 12, 2016. These new accounts have mustered deposits worth
almost Rs 44,480 crore (US$ 6.67 billion).
 The Government of India is looking to set up a special fund, as a part of
National Investment and Infrastructure Fund (NIIF), to deal with stressed
assets of banks. The special fund will potentially take over assets which are
viable but don’t have additional fresh equity from promoters coming in to
complete the project.
 The Reserve Bank of India (RBI) plans to soon come out with guidelines, such
as common risk-based know-your-customer (KYC) norms, to reinforce
protection for consumers, especially since a large number of Indians have

5
 now been financially included post the government’s massive drive to open a
bank account for each household.
 To provide relief to the state electricity distribution companies, Government of
India has proposed to their lenders that 75 per cent of their loans be
converted to state government bonds in two phases by March 2017. This will
help several banks, especially public sector banks, to offload credit to state
electricity distribution companies from their loan book, thereby improving
their asset quality.
 Government of India aims to extend insurance, pension and credit facilities to
those excluded from these benefits under the Pradhan Mantri Jan Dhan
Yojana (PMJDY).
 To facilitate an easy access to finance by Micro and Small Enterprises
(MSEs), the Government/RBI has launched Credit Guarantee Fund Scheme
to provide guarantee cover for collateral free credit facilities extended to
MSEs upto Rs 1 Crore (US$ 0.15 million). Moreover, Micro Units
Development & Refinance Agency (MUDRA) Ltd. was also established to
refinance all Micro-finance Institutions (MFIs), which are in the business of
lending to micro / small business entities engaged in manufacturing, trading
and services activities up to Rs 10 lakh (US$ 0.015 million).

6
 CHAPTER-2
PROFILE OF THE
STUDY

7
The central bank of any country is usually the driving force in the development of
national payment systems. The Reserve Bank of India as the central bank of India
has been playing this developmental role and has taken several initiatives for Safe,
Secure, Sound, Efficient, Accessible and Authorised payment systems in the
country. The Board for Regulation and Supervision of Payment and Settlement
Systems (BPSS), a sub-committee of the Central Board of the Reserve Bank of India
is the highest policy making body on payment systems in the country. The BPSS is
empowered for authorising, prescribing policies and setting standards for regulating
and supervising all the payment and settlement systems in the country. The
Department of Payment and Settlement Systems of the Reserve Bank of India
serves as the Secretariat to the Board and executes its directions. In India, the
payment and settlement systems are regulated by the Payment and Settlement
Systems Act, 2007 (PSS Act) which was legislated in December 2007. The PSS Act
as well as the Payment and Settlement System Regulations, 2008 framed
thereunder came into effect from August 12, 2008. In terms of Section 4 of the PSS
Act, no person other than the Reserve Bank of India (RBI) can commence or operate
a payment system in India unless authorised by RBI. The Reserve Bank has since
authorised payment system operators of pre-paid payment instruments, card
schemes, cross-border in-bound money transfers, Automated Teller Machine (ATM)
networks and centralised clearing arrangements.

Payment System Initiatives

 The Reserve Bank has taken many initiatives towards introducing and
upgrading safe and efficient modes of payment systems in the country to
meet the requirements of the public at large. The dominant features of large
geographic spread of the country and the vast network of branches of the
Indian banking system require the logistics of collection and delivery of paper

8
 instruments. These aspects of the banking structure in the country have
always been kept in mind while developing the payment systems.
 At present, there are payments in India can be made through paper based
instruments , electronic instruments and other instruments , such as, pre-paid
systems, mobile banking, ATM based, Point-of-sale terminals, online
transactions.

Paper-based Payments
 Use of paper-based instruments (like cheques, drafts, and the like) accounts
for nearly 60% of the volume of total non-cash transactions in the country. In
value terms, the share is presently around 11%. This share has been steadily
decreasing over a period of time and electronic mode gained popularity due to
the concerted efforts of the Reserve Bank of India to popularize the electronic
payment products in preference to cash and cheques.
 Since paper based payments occupy an important place in the country,
Reserve Bank had introduced Magnetic Ink Character Recognition (MICR)
technology for speeding up and bringing in efficiency in processing of
cheques.
 Later, a separate High Value Clearing was introduced for clearing cheques of
value Rupees one lakh and above. This clearing was available at select large
centres in the country (since discontinued). Recent developments in paper-
based instruments include launch of Speed Clearing (for local clearance of
outstation cheques drawn on core-banking enabled branches of banks),
introduction of cheque truncation (CTS) system (to restrict physical movement
of cheques and enable use of images for payment processing), framing CTS-
2010 Standards (for enhancing the security features on cheque forms) and
the like.
 While the overall thrust is to reduce the use of paper for transactions, given
the fact that it would take some time to completely move to the electronic
mode, the intention is to reduce the movement of paper – both for local and
outstation clearance of cheques.

9
Electronic Payments
The initiatives taken by the Reserve Bank in the mid-eighties and early-nineties
focused on technology-based solutions for the improvement of the payment and
settlement system infrastructure, coupled with the introduction of new payment
products by taking advantage of the technological advancements in banks. The
continued increase in the volume of cheques added pressure on the existing set-up,
thus necessitating a cost-effective alternative system.

 Electronic Clearing Service (ECS) Credit

The Reserve Bank introduced the ECS (Credit) scheme during the 1990s to
handle bulk and repetitive payment requirements (like salary, interest,
dividend payments) of corporates and other institutions. ECS (Credit)
facilitates customer accounts to be credited on the specified value date and is
presently available at all major cities in the country.

During September 2008, the Bank launched a new service known as National
Electronic Clearing Service (NECS), at National Clearing Cell (NCC), Mumbai.
NECS (Credit) facilitates multiple credits to beneficiary accounts with
destination branches across the country against a single debit of the account
of the sponsor bank. The system has a pan-India characteristic and leverages
on Core Banking Solutions (CBS) of member banks, facilitating all CBS bank
branches to participate in the system, irrespective of their location across the
country.

 Regional ECS (RECS)

Next to NECS, RECS has been launched during the year 2009.RECS, a
miniature of the NECS is confined to the bank branches within the jurisdiction
of a Regional office of RBI. Under the system, the sponsor bank will upload
the validated data through the Secured Web Server of RBI containing
credit/debit instructions to the customers of CBS enabled bank branches
spread across the Jurisdiction of the Regional office of RBI. The RECS centre

10
 will process the data, arrive at the settlement, generate destination bank wise
data/reports and make available the data/reports through secured web-server
to facilitate the destination bank branches to afford credit/debit to the accounts
of beneficiaries by leveraging the CBS technology put in place by the bank.
Presently RECS is available in Ahmedabad, Bengaluru, Chennai and Kolkata

 Electronic Clearing Service (ECS) Debit

The ECS (Debit) Scheme was introduced by RBI to provide a faster method of
effecting periodic and repetitive collections of utility companies. ECS (Debit)
facilitates consumers / subscribers of utility companies to make routine and
repetitive payments by ‘mandating’ bank branches to debit their accounts and
pass on the money to the companies. This tremendously minimises use of
paper instruments apart from improving process efficiency and customer
satisfaction. There is no limit as to the minimum or maximum amount of
payment. This is also available across major cities in the country.

 Electronic Funds Transfer (EFT)

This retail funds transfer system introduced in the late 1990s enabled an
account holder of a bank to electronically transfer funds to another account
holder with any other participating bank. Available across 15 major centres in
the country, this system is no longer available for use by the general public,
for whose benefit a feature-rich and more efficient system is now in place,
which is the National Electronic Funds Transfer (NEFT) system.

 National Electronic Funds Transfer (NEFT) System

In November 2005, a more secure system was introduced for facilitating one-
to-one funds transfer requirements of individuals / corporates. Available

11
 across a longer time window, the NEFT system provides for batch settlements
at hourly intervals, thus enabling near real-time transfer of funds. Certain
other unique features viz. accepting cash for originating transactions, initiating
transfer requests without any minimum or maximum amount limitations,
facilitating one-way transfers to Nepal, receiving confirmation of the date /
time of credit to the account of the beneficiaries, etc., are available in the
system.

 Real Time Gross Settlement (RTGS) System

RTGS is a funds transfer systems where transfer of money takes place from
one bank to another on a "real time" and on "gross" basis. Settlement in "real
time" means payment transaction is not subjected to any waiting period.
"Gross settlement" means the transaction is settled on one to one basis
without bunching or netting with any other transaction. Once processed,
payments are final and irrevocable. This was introduced in in 2004 and settles
all inter-bank payments and customer transactions above ` 2 lakh.

 Clearing Corporation of India Limited (CCIL)

CCIL was set up in April 2001 by banks, financial institutions and primary
dealers, to function as an industry service organisation for clearing and
settlement of trades in money market, government securities and foreign
exchange markets.

The Clearing Corporation plays the crucial role of a Central Counter Party
(CCP) in the government securities, USD –INR forex exchange (both spot and
forward segments) and Collaterised Borrowing and Lending Obligation
(CBLO) markets. CCIL plays the role of a central counterparty whereby, the
contract between buyer and seller gets replaced by two new contracts -

12
 between CCIL and each of the two parties. This process is known as
‘Novation’. Through novation, the counterparty credit risk between the buyer
and seller is eliminated with CCIL subsuming all counterparty and credit risks.
In order to minimize these risks, that it exposes itself to, CCIL follows specific
risk management practices which are as per international best practices. In
addition to the guaranteed settlement, CCIL also provides non guaranteed
settlement services for National Financial Switch (Inter bank ATM
transactions) and for rupee derivatives such as Interest Rate Swaps.

 CCIL is also providing a reporting platform and acts as a repository for Over
the Counter (OTC) products.

Other Payment Systems

Pre-paid Payment Systems

 Pre-paid instruments are payment instruments that facilitate purchase of

goods and services against the value stored on these instruments. The value
stored on such instruments represents the value paid for by the holders by
cash, by debit to a bank account, or by credit card. The pre-paid payment
instruments can be issued in the form of smart cards, magnetic stripe cards,
internet accounts, internet wallets, mobile accounts, mobile wallets, paper
vouchers, etc.
 Subsequent to the notification of the PSS Act, policy guidelines for issuance
and operation of prepaid instruments in India were issued in the public interest
to regulate the issue of prepaid payment instruments in the country.
 The use of pre-paid payment instruments for cross border transactions has
not been permitted, except for the payment instruments approved under
Foreign Exchange Management Act,1999 (FEMA).

Mobile Banking System

 Mobile phones as a medium for providing banking services have been

attaining increased importance. Reserve Bank brought out a set of operating

13
 guidelines on mobile banking for banks in October 2008, according to which
only banks which are licensed and supervised in India and have a physical
presence in India are permitted to offer mobile banking after obtaining
necessary permission from Reserve Bank. The guidelines focus on systems
for security and inter-bank transfer arrangements through Reserve Bank's
authorized systems. On the technology front the objective is to enable the
development of inter-operable standards so as to facilitate funds transfer from
one account to any other account in the same or any other bank on a real
time basis irrespective of the mobile network a customer has subscribed to.

ATMs / Point of Sale (POS) Terminals / Online Transactions

 Presently, there are over 61,000 ATMs in India. Savings Bank customers can
withdraw cash from any bank terminal up to 5 times in a month without being
charged for the same. To address the customer service issues arising out of
failed ATM transactions where the customer's account gets debited without
actual disbursal of cash, the Reserve Bank has mandated re-crediting of such
failed transactions within 12 working day and mandated compensation for
delays beyond the stipulated period. Furthermore, a standardised template
has been prescribed for displaying at all ATM locations to facilitate lodging of
complaints by customers.
 There are over five lakh POS terminals in the country, which enable
customers to make payments for purchases of goods and services by means
of credit/debit cards. To facilitate customer convenience the Bank has also
permitted cash withdrawal using debit cards issued by the banks at PoS
terminals.
 The PoS for accepting card payments also include online payment gateways.
This facility is used for enabling online payments for goods and services. In
payment transactions involving intermediaries, these intermediaries act as the
initial recipient of payments and distribute the payment to merchants. In such
transactions, the customers are exposed to the uncertainty of payment as

14
 most merchants treat the payments as final on receipt from the intermediaries.
In this regard safeguard the interests of customers and to ensure that the
payments made by them using Electronic/Online Payment modes are duly
accounted for by intermediaries receiving such payments, directions were
issued in November 2009. Directions require that the funds received from
customers for such transactions need to be maintained in an internal account
of a bank and the intermediary should not have access to the same.
 Further, to reduce the risks arising out of the use of credit/debit cards over
internet/IVR (technically referred to as card not present (CNP) transactions),
Reserve Bank mandated that all CNP transactions should be additionally
authenticated based on information not available on the card and an online
alert should be sent to the cardholders for such transactions.

CHAPTER – 3
ANALYSIS AND
INTERPRETATION
OF DATA
15
EVOLUTION OF INDIAN BANKING INDUSTRY

16
CREDIT GROWTH

17
Credit off-take has been surging ahead over the past decade, aided by strong
economic growth, rising disposable incomes, increasing consumerism and easier
access to credit

In March FY16, total credit extended surged to USD1016 billion.Credit to non-food

industries increased by 9.06 per cent reaching to USD1000 billion in March FY16,
from USD983 billion during the previous financial year.

Demand has grown for both corporate and retail loans; particularly the services, real
estate, consumer durables and agriculture allied sectors have led the growth in
credit.

As of September 2016, the outstanding credit to NBFCs stood at USD 55.27 billion,
growing at a rate of 25 per cent on Year on Year basis. Bank credit granted to Non-
banking Finance Companies (NBFCs) has touched the highest in 3 years.

GROWTH IN DEPOSITS

18
During FY06–171, deposits grew at a CAGR of 12.03 per cent and reached 1.54
trillion by FY171. Strong growth in savings amid rising disposable income levels are
the major factors influencing deposit growth. Access to banking system has also
improved over the years due to persistent government efforts to promote banking-
technology and promote expansion in unbanked and non-metropolitan regions. At
the same time India’s banking sector has remained stable despite global upheavals,
thereby retaining public confidence over the years. Deposits under Pradhan Mantri
Jan Dhan Yojana (PMJDY), have also increased. As on November 9, 2016, USD
6,971.68 million were deposited, while 255.1 million accounts were opened.

We can see a significant increase in FY 15 and FY 17. In FY 15 there is a rise in

deposits because of Jan Dhan Yojana which was launched in Aug 2014. A rise in FY
17 is the result of demonetisation which was announced on 8 Nov 2016.

GROWING ASSET BASE

19
Total banking sector assets have increased at a CAGR of 11.71 per cent to USD1.96
billion during FY13–15FY13-15 saw growth in assets of banks across sectors.

Assets of public sector banks, which account for more than 70 per cent of the total
banking assets, grew at a CAGR of 12 per cent. Private sector expanded at a CAGR
of 13 per cent, while foreign banks posted a growth of 9 per cent.

Corporate demand for bank loans have grown due to continued infrastructure
investments, and due to other policy decisions such as reducing oil subsidies,
issuing of telecom spectrum licenses and the proposed abolition of penalty on loan
prepayment.

Total assets of Public Sector Banks amounted to USD1384.31 billion in FY16

RISING RURAL INCOME PUSHING UP DEMAND FOR

BANKING

20
The real annual disposable household income in rural India is forecasted to grow at
a CAGR of 3.6 per cent over the next 15 years.The Indian agriculture, forestry &
fishing sector has grown at a fast pace, clocking a CAGR of 8.13 per cent over
FY09FY161

Rising incomes are expected to enhance the need for banking services in rural areas
and therefore drive growth of the sector. Programmes like MNREGA have helped in
increasing rural income, which was further aided by the recent Jan Dhan Yojana.

Agriculture requires timely credit to enable smooth functioning. However, only one-
eighth of farm households avail bank credit.Local money-lending practices involve
interest rates well above 30 per cent therefore making bank credit a compelling
alternative. Tele-density in rural India soared at a CAGR of nearly 71 per cent during
2007 to 20161.

Banks, telecom providers and RBI are making efforts to make inroads into the un-
banked rural India through mobile banking solutions.

Of the 600,000 village habitations in India only 5 per cent have a commercial bank
branch . Only 40 per cent of the adult population has bank accounts . Debit card
holders constitute only 13 per cent of the population & only 2 per cent have a credit
card .51.4 per cent of nearly 89.3 million farm households do not have access to any
credit either from institutional or non-institutional sources . Only 13 per cent of farm
households are availing loans from the banks in the income bracket of < USD1000.

21
GROWTH OF PAYMENT SYSTEM IN INDIA

Prepaid intruments

Due to greater use of prepaid payment instruments (PPIs) for purchase of goods and
services and for fund transfers, the value of transactions by these instruments has
increased considerably in recent years. Among the prepaid instruments, PPI cards
(which include mobile prepaid instruments, gift cards, social benefit cards, foreign
travel cards and corporate cards) remained the most popular mode followed by
mobile-wallets. During 2015-16, the value of transactions through PPI cards and
mobile-wallets increased significantly to `254 billion and `206 billion respectively,
against `105 billion and `82 billion respectively in the previous year.

These prepaid instruments have offered a great opportunity and a great convenience
to the people. Now as the mobile industry is growing at a very fast rate, this will
directly increase the demand for banking in coming years as more and more people
will have access to new instruments which are available as m-wallets , PPI cards
,Etc .

Debit cards and Credit cards

22
Growth in the number of outstanding debit cards decelerated sharply to 19.6 per cent
in 2015-16 from 40.3 per cent in the previous year. During 201415, the spurt in debit
card growth was attributed to the Pradhan Mantri Jan Dhan Yojana (PMJDY) under
which every account holder under the scheme was issued a RuPay debit card. As
the growth in account opening under PMJDY decelerated, this resulted in a decline
in the growth of debit card issuances. However, credit cards registered increased
growth of 16.1 per cent during the year as against 10.1 per cent during 2014-15
(Chart 2.22). Bank group-wise, PSBs maintained a strong lead in issuance of debit
cards with a share of 82.8 per cent. On the other hand, PVBs had a dominant
position in credit card issuances with a share of 60.1 per cent.

Growth in number of ATMs

23
The wide scope and ease of online banking has led to a paradigm shift from
traditional branch banking to net banking.

Around 44 per cent people are using Net banking, which remains the most favourite
mode of payment among internet users in India.Extensions for facilities such as fund
transfer, account maintenance and bill payment at ATM stations have reduced
branch banking footfall.

The increase in number of ATMs would lead to increase in the number of ATMs per
million population from 205 thousand units1 in 2016 to about 300 thousand units by
2017.

Post the announcement of demonetisation drive by the Central Government on 8th

November 2016, banks all over the country witnessed surge in card usage,
especially debit cards, for purchasing and making payments.

24
The geographic reach of ATMs increased further as the number of ATMs installed
increased to around 0.2 million as at end March 2016, an increase of 9.7 per cent
over the previous year. PSBs maintained more than a 70 per cent share in the total
number of ATMs. FBs, however, continued to post a decline in the number of ATMs.

Regional distribution of ATMs became more balanced with the share of metropolitan,
urban and semi-urban centres in total installed ATMs varying between 26.0 per cent
and 29.0 per cent. However, metropolitan centres witnessed a marginal decline in
the share of ATMs to 26.9 per cent in March 2016 from 27.7 per cent during the
previous year. Semi-urban and urban centres registered a marginal increase in their
share of ATMs.

25
Mobile Banking

Mobile banking allows customers to avail banking services on the move through their
mobile phones. The growth of mobile banking could impact the banking sector
significantly • Mobile banking across the world is still at a primitive stage with
countries like China, India & UAE taking the lead

Mobile banking is especially critical for countries like India, as it promises to provide
an opportunity to provide banking facilities to a previously under-banked market .
RBI has taken several steps to enable mobile payments, which forms an important
part of mobile banking; the central bank has recently removed the transaction limit of
INR50,000 & allowed banks to set their own limits .

In adoption of mobile banking, India holds 4th rank across the globe. Mobile banking
transactions in India will cross 340 million by 2015 & would result in cost savings of
approximately INR11 billion (USD230 million).In the data as we can see there is a
significant rise in the use of mobile banking in the YR 2015-16 .This is largely due to
the fact that now most of the Indians now carry a smartphone in their pockets
,though the number is less in rural areas but still a small number of transactions even
takes place in rural araes as well.

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 CHAPTER – 4
CONCLUSION
AND
RECOMMENDATION

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 RECOMMENDATION
Though the banking industry is consistently improving in every aspect still there is a
huge latent demand which needs to be undertaken by taking required steps so that
the banking industry can reach new heights along with benefitting people especially
from rural areas.

People in rural areas lack financial literacy so the government must undertake more
initiatives in educating the rural people so that they can also reap the benefits which
banks and its services provide to the masses.

Also there is need to change the mentality of the people which stops them from
depositing money in the banks .This can only be done by educationg them. Hence
the government must undertake more campaigns thereby educating people of rural
areas about the benefits of banks and the services a bank provide. In India there are
only 13.5 commercial bank branches per 100,000 adults as per the study of World
Bank in 2015.So clearly India has a huge latent potential in banking sector.

Government must come up with more schemes like Digi Dhan Yoana which will
boost growth of banks in India along with changing the way people transact.This will
also leads to the demolition of parallel economy.

Government must also take some strong measures to protect online transactions as
there is a significant increase in cyber crimes as well .

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 CONCLUSION
Factors which lead to growth :-

Economic and demographic drivers

• Favourable demographics and rising income levels

• Strong GDP growth (CAGR of 7 per cent expected over 2012–17) to facilitate
banking sector expansion

• The sector will benefit from structural economic stability and continued credibility of
Monetary Policy

Policy support

• In October 2016, RBI decided to further cut repo rate by 25 bps to 6.25 per cent
which would reduce the interest rate on home loans.

• Extension of interest subsidy to low cost home buyers

• Simplification of KYC norms, introduction of nofrills accounts and Kisan Credit

Cards to increase rural banking penetration

• RBI is considering giving more licenses to private sector players to increase

banking penetration

Infrastructure financing

• India currently spends 6 per cent of GDP on infrastructure; Planning Commission

expects this fraction to grow going ahead

• Banking sector is expected to finance part of the USD1 trillion infrastructure

investments in the 12th Five Year Plan, opening a huge opportunity for the sector

Technological innovation

• Technological innovation will not only help to improve products and services but
also to reach out to the masses in cost effective way

• Use of alternate channels like ATM, internet & mobile hold significant potential in
India

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• Now cloud technology & analytics also gaining ground.

New schemes by government

Pradhan Mantri Suraksha Bima Yojana

• This scheme is mainly for accidental death insurance cover for up to Rs. 2 lakh.

• Premium: Rs. 12 per annum.

• Risk Coverage: For accidental death and full disability - Rs. 2 lakh and for partial
disability – Rs. 1 lakh.

Pradhan Mantri Jeevan Jyoti Bima Yojana

• This scheme aims to provide life insurance cover.

• Premium: Rs. 330 per annum. It will be autodebited in one instalment.

• Risk Coverage: Rs. 2 lakh in case of death for any reason.

• As of FY16, almost 29.8 million Pradhan Mantri Jeevan Jyoti Bima Policies have
been done in India

Atal Pension Yojana

• Under the scheme subscribers would receive the fixed pension of Rs. 1,000, 2,000,
3,000, 4,000 or 5,000 at the age of 60 years (depending on their contributions).

• The Central Government will also co-contribute 50 per cent of the subscriber's
contribution or Rs. 1,000 per annum, whichever is lower, to each eligible subscriber
account, for a period of 5 years

Pradhan Mantri Jan Dhan Yojana

• As on November 9, 2016, 255.1 million accounts were opened in India.

• Under the scheme, each & every citizen will be enrolled in a bank for opening a
Zero balance account.

• Each person getting into this scheme will get a Rs. 30000 life cover with opening of
the account

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 BIBLIOGRAPHY
 http://www.indianmirror.com/indian-industries/banking.html
 http://www.indianmirror.com/indian-industries/2016/banking-2016.html
 http://www.ibef.org/industry/banking-india.aspx
 https://rbi.org.in/scripts/FS_Overview.aspx?fn=9
 https://dbie.rbi.org.in/DBIE/dbie.rbi?site=home

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