JAYANT K.

OKE

BANKING: INTRODUCTION
BANKING IS AS OLD AS THE AUTHENTIC HISTORY

& ORIGINS OF MODERN COMMERCIAL BANKING IS TRACEABLE TO ANCIENT TIMES. BANKING EXISTED IN ONE FORM OR OTHER FROM TIMES IMMEMORIAL. ACCEPTING DEPOSITS FOR THE PURPOSE OF LENDING WAS BASICALLY TRADITIONAL FUNCTION OF THE BANKS.

BANKING : INTRODUCTION
BANKING IS DIFFERENT FROM MONEYLENDING
BANKING HAS TWO IMPORTANT FUNCTIONS TO

PERFORM: ONE OF ACCEPTING DEPOSITS, & OTHER OF LENDING MONEY AND/OR INVESTMENT OF FUNDS.

BANKING: DEFINITION
ACCORDING TO SIR JOHN PAGET, A WELL-KNOWN AUTHORITY ON BANKING THERE ARE FOUR ESSENTIAL FUNCTIONS WHICH

PERSONS CALLING THEMSELVES AS BANKERS MUST PERFORM: FIRSTLY, THEY MUST TAKE DEPOSIT ACCOUNTS SECONDLY, THEY SHOULD OPEN CURRENT ACCOUNTS, THIRDLY, THEY SHOULD ISSUE & PAY CHEQUES , FOURTHLY, THEY MUST COLLECT CHEQUES FOR THEIR CUSTOMERS.

BANKING: DEFINITION
ACCORDING TO Dr. H.L.HART,
A BANKER IS ONE WHO, IN THE ORDINARY COURSE OF HIS BUSINESS,

HONOURS CHEQUES DRAWN UPON HIM

BY PERSONS FROM & FOR WHOM HE RECEIVES MONEY ON CURRENT ACCOUNTS.

BANKING: DEFINITION
ACCORDING TO SECTION 5 (i)(b) OF THE

BANKING REGULATION ACT, 1949,: BANKING MEANS THE ACCEPTING, FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSITS OF MONEY FROM THE PUBLIC, REPAYABLE ON DEMAND OR OTHERWISE, & WITHDRAWABLE BY CHEQUE, DRAFT, ORDER OR OTHERWISE BANKING COMPANY MEANS ANY COMPANY, WHICH TRANSACTS THE BUSINESS OF BANKING

BANKING : ROLE & FUNCTIONS

MOBILISING RESOURCES BY ACCEPTING SHORT

TERM & LONG TERM DEPOSITS CHANNELISING RESOURCES BY EXTENDING SHORT TERM & LONG TERM ADVANCES / LOANS TO VARIOUS GEOGRAPHIES / SECTORS (SPATIAL & SECTORAL DISTRIBUTION OF FUNDS) CUSTODIAL SERVICES AGENCY SERVICES (COLLECTION OF BILLS / CHEQUES) ACT AS AN ENGINE FOR ECONOMIC DEVELOPMENT

BANKING STRUCTURE IN INDIA

RBI
COMMERCIAL BANKS : PSBs: STATE BANK GROUP & NATIONALISED

PRIVATE: INDIAN & FOREIGN

CO-OPERAVE : STATE / DCCBs/

URBAN CO-OPERATIVE BANKS

NBFCs INVESTMENT INSTITUTIONS

CORE BANKING
CORE BANKING
IS A GENERAL TERM USED TO DESCRIBE THE SERVICES PROVIDED BY A GROUP OF

NETWORKED BANK BRANCHES. BANK CUSTOMERS MAY ACCESS THEIR FUNDS AND OTHER SIMPLE TRANSACTIONS FROM ANY OF THE MEMBER BRANCH OFFICES.

CORE BANKING
CORE BANKING IS NORMALLY DEFINED AS
THE BUSINESS CONDUCTED BY A BANKING

INSTITUTION WITH ITS RETAIL AND SMALL BUSINESS CUSTOMERS. MANY BANKS TREAT THE RETAIL CUSTOMERS AS THEIR CORE BANKING CUSTOMERS, AND HAVE A SEPARATE LINE OF BUSINESS TO MANAGE SMALL BUSINESSES. CORE BANKING BASICALLY IS DEPOSITING AND LENDING OF MONEY.

CORE BANKING
NOWADAYS, MOST BANKS USE
CORE BANKING APPLICATIONS TO SUPPORT THEIR OPERATIONS

WHERE CORE STANDS FOR

"CENTRALIZED ONLINE REAL-TIME EXCHANGE". THIS BASICALLY MEANS THAT ALL THE BANK'S

BRANCHES ACCESS APPLICATIONS FROM CENTRALIZED DATA CENTERS.

CORE BANKING
THIS MEANS THAT THE DEPOSITS MADE ARE

REFLECTED IMMEDIATELY ON THE BANK'S SERVERS AND THE CUSTOMER CAN WITHDRAW THE DEPOSITED MONEY FROM ANY OF THE BANK'S BRANCHES THROUGHOUT THE WORLD. A FEW DECADES AGO IT USED TO TAKE AT LEAST A DAY FOR A TRANSACTION TO REFLECT IN THE ACCOUNT BECAUSE EACH BRANCH HAD THEIR LOCAL SERVERS, AND THE DATA FROM THE SERVER IN EACH BRANCH WAS SENT IN A BATCH TO THE SERVERS IN THE DATA CENTRE ONLY AT THE END OF THE DAY (EOD).

CORE BANKING
NORMAL CORE BANKING FUNCTIONS WILL

INCLUDE DEPOSIT ACCOUNTS, LOANS, MORTGAGES AND PAYMENTS. BANKS MAKE THESE SERVICES AVAILABLE ACROSS MULTIPLE CHANNELS LIKE ATM INTERNET BANKING, AND BRANCHES.

CORE BANKING & CORPORATES

LARGER BUSINESSES USED TO BE MANAGED VIA

THE CORPORATE BANKING DIVISION OF THE BANKING INSTITUTION. CORE BANKING BASICALLY IS DEPOSITING AND LENDING OF MONEY. CORE BANKING APPLICATIONS, HOWEVER, NOW HAVE THE CAPABILITY TO ADDRESS THE NEEDS OF CORPORATE CUSTOMERS ALSO, PROVIDING A COMPREHENSIVE BANKING SOLUTION.

UNIVERSAL BANKING
THE TERM UNIVERSAL BANK HAS DIFFERENT

MEANINGS. HOWEVER, IN A VERY BROAD SENSE, UNIVERSAL BANKING REFERS TO THOSE FINANCIAL SERVICES ACTIVITIES COVERING A WIDE RANGE OF FINANCIAL SERVICES SUCH AS: COMMERCIAL BANKING (COLLECTING DEPOSITS & MAKING LOANS) INVESTMENT BANKING (ISSUING, UNDERWRITING & TRADING IN SECURITIES & OTHER ACTIVITIES LIKE INSURANCE etc. )

UNIVERSAL BANKING
IN UNIVERSAL BANKING,
LINKAGES COULD BE DOWNSTREAM (WHERE A BANK UNDERTAKES NON-BANKING

ACTIVITIES, SUCH AS INVESTMENT BANKING OR INSURANCE), OR, UPSTREAM (WHEN A NON-BANKING FINANCIAL INTERMEDIARY, SUCH AS, AN INVESTMENT BANKER OR AN INSURANCE COMPANY UNDERTAKES BANKING BUSINESS).

UNIVERSAL BANKING
UNIVERSAL BANKING
USUALLY TAKES ONE OF THE THREE FORMS:

1. IN-HOUSE, 2. THROUGH SEPARATELY CAPITALISED

SUBSIDIARIES, OR

3. THROUGH A HOLDING COMPANY STRUCTURE

UNIVERSAL BANKING
UNIVERSAL BANKING IN ITS FULLEST & PUREST

FORM WOULD ALLOW A BANKING CORPORATE TO ENGAGE IN-HOUSE IN ANY ACTIVITY ASSOCIATED WITH BANKING, INSURANCE, SECURITIES etc. UNIVERSAL BANKING IS PREVALENT IN COUNTRIES LIKE GERMANY, SWEDEN, U.K., U.S.A.

UNIVERSAL BANKING IN INDIA

IN INDIA, THE FINANCIAL SYSTEM HAS

TRADITIONALLY BEEN COMPARTMENTALISED AMONG THREE MAIN TYPES OF FINANCIAL INTERMEDIARIES viz. COMMERCIAL BANKS DFIs INVESTMENT INSTITUTIONS ALL THESE INSTITUTIONS WERE REQUIRED TO CONFINE THEIR OPERATIONS STRICTLY TO THEIR OWN AREAS, BARRING COMMERCIAL BANKS, WHICH WERE ALLOWED TO UNDERTAKE SOME INVESTMENT/MERCHANT BANKING ACTIVITIES & PROJECT FINANCE, WITHIN PRESCRIBED LIMITS.

UNIVERSAL BANKING IN INDIA

THE 1980s & 1990s WITNESSED MANY

SIGNIFICANT CHANGES & REFORMS IN THE FINANCIAL SECTOR, WHICH INCREASINGLY BLURRED THE DISTINCTIONS BETWEEN THE COMMERCIAL BANKS & THE DFIs IN 1983, THE BANKING REGULATION ACT WAS AMENDED & BANKS WERE ALLOWED TO UNDERTAKE LEASING ACTIVITY THROUGH SEPARATE SUBSIDIARIES.

UNIVERSAL BANKING IN INDIA

IN THE LATE 1980s, COMMERCIAL BANKS WERE

ALLOWED TO SET UP SUBSIDIARIES FOR UNDERTAKING OTHER NON-TRADITIONAL ACTIVITIES. ACCORDINGLY, MANY COMMERCIAL BANKS SET-UP MANY SUBSIDIARIES EITHER ON THEIR OWN OR JOINTLY WITH OTHER BANKS / DFIs. THESE SUBSIDIARIES WERE SET-UP IN THE FIELD OF INVESTMENT BANKING, MUTUAL FUNDS, FACTORING, HIRE-PURCHASE, etc.

UNIVERSAL BANKING IN INDIA

DURING THE 1990s, ALL RESTRICTIONS ON PROJECT

FINANCE ACTIVITIES BY COMMERCIAL BANKS WERE REMOVED. BANKS WERE ALLOWED TO UNDERTAKE HIREPURCHASE & LEASING ACTIVITIES IN-HOUSE. MAJOR DFIs (LIKE ICICI, IDBI, IFCI) ALSO SET-UP SUBSIDIARIES IN VARIOUS FIELDS, INCLUDING COMMERCIAL BANKING. DFIs, WHICH TRADITIONALLY EXTENDED ONLY LONG TERM PROJECT FINANCE, HAVE STARTED EXTENDING SHORT TERM LOANS, INCLUDING WORKING CAPITAL.

UNIVERSAL BANKING IN INDIA

BANKS & DFIs HAVE ALSO BEEN ALLOWED TO

UNDERTAKE INSURANCE BUSINESS. THUS, THE COMMERCIAL BANKS & DFIs HAVE SINCE BEEN MOVING TOWARDS / INTO UNIVERSAL BANKING, ENGAGING INTO PROVIDING MULTIFARIOUS FINANCIAL SERVICES ACTIVITIES, EFFECTIVELY EMERGING AS ONE STOP FINANCIAL SERVICES SUPERSHOPPE / SUPERMARKETS. ICICI BANK BECAME THE FIRST UNIVERSAL BANK IN INDIA, FOLLOWED CLOSEL BY THE IDBI BANK.

RETAIL BANKING
AS DISCUSSED EARLIER,
THE 1980s& 1990s HAVE WITNESSED SIGNIFICANT

CHANGES / REFORMS IN THE INDIAN BANKING. RETAIL BANKING IS YET ANOTHER OUTCOME OF THESE CHANGES / REFORMS & A MANIFESTATION OF EMERGENCE OF CUSTOMER-CENTRIC, CUSTOMER-DRIVEN, & CUSTOMER-FOCUSSED BANKING.

RETAIL BANKING
BANKERS TODAY HAVE NO CHOICE BUT TO ALTER /

MODIFY THEIR PRODUCT MIX, DELIVERY CHANNELS & CORPORATE STRUCTURE TO SERVE THE NEW EMERGING FINANCIAL MARKET DEMANDS. SOME OF THE PRODUCTS WHICH WERE A PREROGATIVE OF BANK-EMPLOYEES, & SHUNNED BY THE BANKERS FOR THEIR CUSTOMERS, & WERE TREATED AS A TABOO 25-30 YEARS AGO, HAVE NOW BECOME TARGETS OF BANK BUSINESS, INDEED BUSINESS MANTRA, & AREA OF FIERCE COMPETITION.

RETAIL BANKING
DURING THE RECENT YEARS, WITH FINANCIAL

SECTOR REFORMS GATHERING MOMENTUM, THE BANKING SYSTEM IS FACING INCREASING COMPETITION FROM NON-BANKS & THE CAPITAL MARKET. MORE & MORE COMPANIES STARTED TAPPING THE CAPITAL MARKET DIRECTLY FOR RAISING FINANCE, AFFECTING DEMAND FOR FUNDS FROM BANKS ADVERSELY. THE CORPORATES BECAME MORE DEMANDING & THE MARGINS ON CORPORATE LENDINGS STARTED DECLINING

RETAIL BANKING
RETAIL CHARACTER OF BANKING OPERATIONS

HAS HENCE BECOME MORE PREDOMINANT, ESPECIALLY AMONG THE NEW GENERATION PRIVATE SECTOR BANKS. RETAIL BANKING , THEREFORE, HAS NOW EMERGED AS A MAJOR STRATEGY FOR BANKING ORGANISATIONS & IS BECOMING INCREASINGLY POPULAR.

RETAIL BANKING
RETAIL BANKING OPERATIONS / ACTIVITIES

USED TO BE CONSIDERED AS A TOUGH PROPOSITION BECAUSE OF THE VOLUME OF OPERATIONS INVOLVED. HOWEVER, DURING THE LAST FEW YEARS, BANKS SEEM TO HAVE REALISED THAT THE ONLY SUSTAINABLE WAY TO INCREASE BUSINESS (BOTH DEPOSITS & ADVANCES) IS TO LOOK AT SMALL & MIDDLE CLASS CONSUMERS RETAIL BUSINESS RATHER THAN PAMPER CORPORATE ENTITIES ALONE

WHAT IS RETAIL BANKING

RETAIL BANKING
REFERS TO THE EFFORTS OF THE BANKERS

TO REACH UP TO THE CUSTOMERS

ON BOTH FRONTS OF THE BALANCE SHEET i.e.: LIABILITIES SIDE, AS WELL AS ASSETS SIDE.

WHAT IS RETAIL BANKING.

RETAIL BANKING CAN ALSO BE VIEWED AS
DESIGNING DELIVERY OF CUSTOMISED PRODUCTS

FROM BOTH (ASSETS & LIABILITIES) SIDES

OF THE BALANCE SHEET

RETAIL BANKING : LIABILITIES

THE LIABILITY SIDE ENCOMPASSES ALL TYPES OF

DEPOSITS : CURRENT DEPOSITS SAVINGS DEPOSITS RECURRING DEPOSITS NOTICE / TERM / FIXED DEPOSITS CURRENTLY, WHILE THE SAVINGS BANK INTEREST IS REGULATED BY THE RBI, INTEREST RATES ON OTHER TYPES OF DEPOSITS HAVE BEEN DEREGULATED

LIABILITIES SIDE..
UNLESS THE BANKER DESIGNS THE LIABILITY

PRODUCTS ACCORDING TO THE NEEDS OF THE CUSTOMERS & FACILITATE BETTER BARGAIN TO THEM IN TERMS OF RATE OF INTEREST, TIME & DELIVERY CHANNELS, IT IS NOT EASY TO SOLICIT BUSINESS IN THIS SEGMENT. THE AGE OF WALK-IN DEPOSITS IS GONE & MOBILISING DEPOSITS HAS BECOME EXTREMELY COMPETITIVE

LIABILITIES SIDE : PRODUCTS

DEMAND DEPOSITS
MEANS A DEPOSIT RECEIVED BY THE BANK

WHICH IS WITHDRAWABLE ON DEMAND SAVINGS DEPOSITS MEANS A FORM OF DEMAND DEPOSIT WHICH IS SUBJECT TO RESTRICTIONS AS TO THE NUMBER OF WITHDRAWALS AS ALSO THE AMOUNTS OF WITHDRAWALS PERMITTED BY THE BANK DURING ANY SPECIFIED PERIOD

LIABILITIES SIDE : PRODUCTS

TERM DEPOSITS MEANS A DEPOSIT RECEIVED BY THE BANK FOR A FIXED PERIOD WITHDRAWABLE ONLY AFTER THE EXPIRY OF THE FIXED PERIOD. TERM DEPOSITS INCLUDE DEPOSITS SUCH AS RECURRING DEPOSITS / DOUBLE BENEFIT DEPOSITS / SHORT TERM DEPOSITS / FIXED DEPOSITS / MONTHLY INCOME SCHEMES / CERTIFICATES / QUARTERLY INCOME CERTIFICATES etc.

LIABILITIES SIDE : PRODUCTS

NOTICE DEPOSITS
MEANS A FORM OF DEMAND DEPOSIT FOR SPECIFIC PERIOD,

BUT WITHDRAWABLE
ON GIVING AT LEAST ONE COMPLETE BANKING

DAYS NOTICE

LIABILITIES SIDE : PRODUCTS

CURRENT ACCOUNTS
IS A FORM OF DEMAND DEPOSIT WHEREFROM WITHDRAWALS ARE ALLOWED

ANY NUMBER OF TIMES DEPENDING UPON THE BALANCE IN THE ACCOUNT OR UP TO A PARTICULAR AGREED AMOUNT, & WILL ALSO INCLUDE OTHER DEPOSIT ACCOUNTS WHICH ARE NEITHER SAVINGS DEPOSIT NOR TERM DEPOSIT.

HOW TO DESIGN LIABILITIES PRODUCTS?

RATE OF INTEREST OFFERRED
FACILITIES (PERSONALISED CHEQUE BOOK/ FREE

CHEQUE BOOK/COLLECTION OF OUT-STATION CHEQUES/FREE OR CONCESSIONAL REMITTANCES) ATM ANY BANK ATM FACILITY / AMOUNT LIMIT COUPLING WITH TEMPORARY ADVANCE / LOANING FACILITIES (TEMPORARY OVERDRAFT AGAINST PENSION/SALARY ) PREFERRED / PRIVILEGED CUSTOMER STATUS

ASSET SIDE
THE ASSETS SIDE WOULD ENCOMPASS VARIOUS

CREDIT / LOAN SCHEMES. THE ASSET SIDE HAS SEEN A GREAT HEAT OF COMPETITION IN SELLING IDEAS, PRODUCTS & SERVICES ASSET SIDE BASICALLY FOCUSSES UPON RETAIL LENDING, WHICH IS A DEPARTURE FROM THE CONVENTIONAL LENDING/LOANING.

ASSET SIDE..
RETAIL LENDING OFFERS HIGHER YIELD,

QUICKER TURN AROUND OF FUNDS, THE POSSIBILITY OF LESS INCIDENCE OF ACCOUNT GOING BAD OR NON-PERFORMING , IF IT IS MONITORED ON AN ONGOING BASIS. MONITORING OF THE ACCOUNT IS EASIER IN RETAIL LENDING AS COMPARED TO THE CONVENTIONAL ADVANCES.

ASSET SIDE
THANKS TO THE COMPETITION IN THIS

SEGMENT & THE TABOO FOR AVAILING LOAN FOR CONSUMER DURABLES SLOWLY VANISHING, THERE IS A GREAT POTENTIAL FOR BUSINESS UNDER THIS SEGMENT LOTS OF NEW & INNOVATIVE PRODUCTS HAVE SINCE BEEN INTRODUCED

ASSET SIDE PRODUCTS.

HOUSING FINANCE / LOANS
MORTGAGE & REVERSE MORTGAGE LOANS CONSUMER DURABLE FINANCE / LOANS

VEHICLE FINANCE / LOANS

PERSONAL LOANS ADVANCE AGAINST FUTURE RENTALS LOANS FOR FOREIGN TOURS EDUCATION LOANS PENSION LOAN etc.

HOW TO DESIGN ASSET SIDE PRODUCTS..

MARGIN RATE OF INTEREST (PLR/FLOATING / FIXED) REPAYMENT PERIOD MORATORIUM FLEXIBLE TERMS FOR REPAYMENT INCENTIVES FOR TIMELY / EARLY REPAYMENT REVOKING OF COMMITMENT CHARGES AUTO-ROLL-OVER FACILITY QUICK PROCESSING (AT TIMES, WITHOUT PROCESSING FEES!)