NEW TRENDS IN BANKING

NEW TRENDS IN BANKING SUBMITTED TO UNIVERSITY OF MUMBAI

BY VIRENDRA M JHA GUIDED BY PROF. BHAVANA CHAUHAN VIDYAVARDHINI’S K.M. COLLEGE OF COMMERCE AND VASAI ROAD – 401 202

T.Y BANKING & INSURANCE SEMESTER FIFTH 20010-11

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NEW TRENDS IN BANKING

ACKNOWLEDGEMENT
I would like to take this opportunity to thank everybody who helped through the successful completion of this project. Many people have contributed to my achievements during the project and take this opportunity to thank each one of them at end of the project durations. First I would like to thank the UNIVERSITY OF MUMBAI to include this project in the curriculum which brings out our observant analyzing and interpreting skills to the maximum. I extend my sincere gratitude to the honorable principal Dr.Sushil.S.kelkar for the work that I am able to present would just not have been possible without her guidelines. I would also like to thank the project guide Mrs. Bhavna Chauhan Lad for their constant encouragement, intellectual solution and valuable suggestions throughout the making of this project. I thank him for spending his valuable time and efforts towards my cause. I would like to thank to my friends and colleagues, librarians for providing some valuable tips. I would also like
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NEW TRENDS IN BANKING

to thank all those whose name may not have appeared here but whose contributions have not gone unnoticed. Last but not the list, I would like to thank my parents for helping me in the completion of this project.

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SR. NO. 1. 1.1 1.2 1.3 1.4 1.5 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 3 4 NEW TRENDS IN BANK Introduction History Banking Banking before Modernization Banking after Modernization

TOPIC NAME

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Components of new Trends in Bank

Bancassurance Mutual Banking Investment Banking Universal banking International Banking Retail Banking Demate Accounting
Challenges faced by Banks in Modernization services

Questionnaire

5

Conclusions

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Customers can send SMS messages to banks to get information and Banks can also make choice for self-regulation by voluntarily adopting a code of conduct that has been laid down by the Banking codes and Standards Board of India (BCSBI). It covers the points related to how the banking sector has reformed itself from old procedure of taking a deposit and lending the money to many other activities such as internet banking. mobile banking. The reason for this change includes the growth of banking technology that has changed the face of this industry with a decreasing emphasis on human intervention. etc. And this has really motivated each and every Banks and Customers.NEW TRENDS IN BANKING INTRODUCTION New Trends in Banking in this decade has come across many products in the Banking sector which in turn got a bright surrounding in the banking world. And since last two decades the new products have been launching to fulfill all the needs of the customer. overseas banking. The products have been developed to meet all the customer needs of their choice. New trends in Banking cover many points which are generally in use in today’s world. tele-banking. In today’s banking transaction the customers can easily seat in their home and transact their account operation without personally visiting to the Bank through the new and recent trends in the Banking world. TYBCOM (BANKING & INSURANCE) Page 5 .

Some of the basic points of History of Banking and Finance were as follows :a) In the 18th century Bank notes were the greater part of the money supply. For the past three decades India’s banking system has several outstanding achievement to its credit. an account holder had to wait for hours in the bank counters for getting a draft or for withdrawing his own money. Today.NEW TRENDS IN BANKING HISTORY Without a sound and effective banking system in India it cannot have a healthy economy. Money has become the order of the money. The government’s regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. It is no longer confined to only metropolitans or cosmopolitans in India. Now it is simple as instant messaging or dials a pizza. This is one of the main reasons of India’s growth process. Indian banking system has reached even to the remote areas of the country. No long ago. In fact. Gone are days when the most efficient bank transferred money from one branch to another in two days. The most striking is its extensive reach. TYBCOM (BANKING & INSURANCE) Page 6 . being issued by the private banks. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factor. he has a choice.

d) Building societies have grown in importance but fallen in numbers this century. Joint-stock banks became overwhelmingly important and private banks declined. In the late 1980s. although the Banking acts of 1979 and 1987 gave it more detailed statutory powers. most of which have passed to the Financial Services Authority. competition came largely from building societies and other new (British) entrants. although they often do not seek business accounts. c) Last century saw the number of banks fall to a low point. in the retail market. f) Plastic money began with cheque cards in 1965. Today. However. most are minor banks. g) Self –regulation has been replaced by control by the Financial Services Authority. two retail banks were floated on the Stock Exchange – TSB and the Abbey National. but bank deposits became the greater part of the money supply. followed by Barclaycard in 1966 and Access in 1972.NEW TRENDS IN BANKING b) In the 19th century. the note issue was taken over by the Bank of England. e) The Bank of England was nationalized in 1946 bur this hardly changed its manner of operating. TYBCOM (BANKING & INSURANCE) Page 7 . but then an influx of foreign banks swelled the numbers operating in the new wholesale markets after about 1958.

A Bank performs multitude of functions and services which cannot be crunched into a single definition. For some it is a store house of money. repayable on demand or otherwise and withdrawable by cheque. for others an institution of funding or finance and yet to many others a bank is a depository for their savings. order or otherwise. A Bank may mean different things to different people. The structure and pattern of banking are based on the British banking system. Indian Banking has evolved in its present form from the days of the British raj. Draft. TYBCOM (BANKING & INSURANCE) Page 8 . Bank as it is largely understood in English today is an institution that accepts money as a deposit to further lend it out for profit.NEW TRENDS IN BANKING BANKING The development of Bank is evolutionary in nature. Section 5 (b) defines Banking as accepting for the purpose of lending or investment of deposits of money from the public.

for each and every work labours are needed. 2. And the Banks also more focused on expanding their banking business. The customers used to just deposit the money to safeguard and earn a interest on it and take loan at the higher rate of interest along with their principle amount. Before modernization can be understood by the following points :1. but at the same time. Low use of Technology :There were not much use of Technology as the Banks were not having much knowledge relating to technology. 3. 4. Limited Areas :The banking transactions was done in a limited areas.NEW TRENDS IN BANKING BANKING -BEFORE MODERNIZATION Banking before Modernization was merely considered as the accepting deposits and lending the loans. And because of low use of technology the banking transactions were time consuming. it was costly and time consuming. as the scope of Banking at that time was limited and Bank find it very TYBCOM (BANKING & INSURANCE) Page 9 . Labour Intensive :At pre-modernized period the Banks were just a labour intensive. This is an advantage for the labourers as the people can get their job. Focus on Expansion :Banking before modernization used to give more focus on their expansion rather than the customer’s needs.

The Banks used to charge high interest from the consumers. Basically they use to focus more on just agriculture or some other field. Monopoly :This was the greatest advantage for the banks before modernization as they had the full power to control the market in the economy. More Government Control :Before Modernization of Bank there were lots of Government control in the Bank. 6. They don’t use to transact in various fields. 5. As there were lots of rules and regulations of the authority the banks were not able to go beyond its limited area. Focus on Government Policy :Before modernization the banks used to focus only on the government policy made by the authority. Bank were fully dependent on Government.NEW TRENDS IN BANKING costly to move ahead. 9. They just used to transact their business in their regional or geographical area. 7. They were not consumer oriented they just wanted to be ruled by the Government. There were lots of rules and regulations regarding the transactions of Business. Impact of Socialism :- TYBCOM (BANKING & INSURANCE) Page 10 . No Globalization :The banking before was not globalised. the consumer were also manipulated by this and they rule over the customers. 8.

Less Labour :After modernization of the Banks the labours utilized by the Banks is less as compared to pre modernized period as for each and every transactions. 2.AFTER MODERNIZATION After modernization of Banks many new concepts came into existence which is beneficial for the Banks as well as the customers. The Banks also focus on Expansion but now the first preference is given to the urban areas as their the people’s standard of living will increase and is also beneficial for them.Queue for every transaction :As there were no technology and it was labour intensive the customers have to make a queue for each and every transactions. 10. TYBCOM (BANKING & INSURANCE) Page 11 . Focus on Urban areas :After modernization of the banks the bank used to focus more on urban areas rather than just focusing on expansion. BANKING . And socialism in the country was beneficial but to the some extent. The Following points discuss about the modernization of the Bank :1. And the process was also very slow which was time consuming. the new technology has developed which in turn was beneficial foe the banks but for the people it is low efficacy of the job.NEW TRENDS IN BANKING Due to focus on Government policy there was a impact of socialism in the country before modernization of the Bank.

g. Venture Capital has become more of an institutionalized industry. HDFC. sophisticated investors. ICICI. and marketing support as well. 5. management. Insurance Services :After Modernization of the banks.NEW TRENDS IN BANKING 3. Apart from financial support. Higher use of Technology :There is a great demand of Technology in this world as each and every work is done through technology now so there is a higher use of technology in this era of post modernization period of the world. etc. banks also started to give the Insurance services to the customers along with their banking transactions. NASSCOM aims to make India as one of the top 5 locations for creation of technology ventures in the world and ensure that the necessary venture capital funds flow in to the country. Many Banks have came forward to tke this services. Venture Funding :Information Technology becoming the new mantra in India. venture capitalists provide networking. this industry are a smooth blend of risk financing and hand holding of entrepreneurs. 4. Financed and managed by successful entrepreneurs and professional. TYBCOM (BANKING & INSURANCE) Page 12 . For e.

10. before the banks used to be fully depended on Government as there were lots of rules and regulations.Now the Banks are less dependent on Government. 9. they started dealing with the foreign venture capital fund also. Due to lots of competition the rate of interest differs and customers get a choice of choosing their own banks for the benefit of themselves. The banks are now performing their business at international level also. 7. 8.Competition :Due to lots of banks in this post modernization period there is lots of competition in the market among the banks themselves.NEW TRENDS IN BANKING 6. The banks are providing services to each and every possible country. Freedom:Now after modernization the banks are more liberalized and freed as compared to before from the rules and regulations of the concerned authority and Government. Becoming Global :Banks after modernization is becoming globalized. 11.Focus on customer service :TYBCOM (BANKING & INSURANCE) Page 13 . Foreign venture :As the banks are going international. Less dependence on Government . by which the banks are also in profit and as well as customers are also in their well position.

Impact of new economic policy :The banks are giving an impact to the new economic policy as there should also be benefit of the economy as well. TYBCOM (BANKING & INSURANCE) Page 14 . 12. Due to this the economy is also at their good position.NEW TRENDS IN BANKING Before modernization the focus was more given to the Government policy but now after the modernization of the bank the focus is more given to the customer service rather than the government policy.

and brand building. other financial services like insurance are also leveraging on technology for delighting customers and gaining a competitive edge. Mutual Banking 3.NEW TRENDS IN BANKING COMPONENTS OF NEW TRENDS IN BANKING The components of new trends include many sub topics which are as follows :1. eliminate the need TYBCOM (BANKING & INSURANCE) Page 15 . Though banking services are the major adopters of high-end technology. Retail Banking 7. Stored Value Cards (SVC). also called electronic purses. Kiosks are used as a cost-effective tool for product communication. Bancassurance 2. The technological changes in the financial services segment have been impressive. Demate Accounting The financial services segment has witnessed many trends in recent times and this takes a comprehensive look at some of these trends. customer management. International Banking 6. Investment Banking 4. Universal banking 5.

Enterprise-wide IT solutions. thereby allowing banks to sell the insurance products to its customers. Digital security is a technological endeavor that enables safe and secure digital transactions and has gained legal acceptance. Business intelligence systems help the marketer to analyze information and take suitable decisions.NEW TRENDS IN BANKING to carry hard cash. insurance companies and banks undergo a tie-up. data warehousing. TYBCOM (BANKING & INSURANCE) Page 16 . Business intelligence is a widely implemented decision making tool. This is a system in which a bank has a corporate agency with one insurance company to sell its products. It includes OLAP. In this arrangement. Digital certificates will soon gain prominence with increasing focus on e-governance. online trading. These all new trends we are going to discuss in detail below :1. and online transactions. such as Core Banking Solutions. and data mining. BANCASSURANCE Bancassurance simply means selling of insurance products by banks. have helped financial product marketers in streamlining their internal operations and delivering greater value to the customers.

It is called as fee-based income. As mentioned above bancassurance growth differs due to various reasons in different countries. bancassurance is a new buzzword in India. With the US Government repealing the Act in 1999.NEW TRENDS IN BANKING By selling insurance policies bank earns a revenue stream apart from interest. As a result of this life insurance was primarily sold through individual agents. from where it started. it has been estimated that bancassurance would contribute almost 16% of the life premium in the Asian markets in the year 2006 primarily due to the growth expected in India and China. It originated in India in the year 2000 when the Government issued notification under Banking Regulation Act which allowed Indian TYBCOM (BANKING & INSURANCE) Page 17 . Italy. The Glass-Steagall Act of 1933 prevented the banks of the USA from entering into alliance with different financial services providers. Belgium and Luxembourg. Bancassurance has grown at different places and taken shapes and forms in different countries depending upon demography. who focussed on wealthier individuals. especially in France. The concept of bancassurance is relatively new in the USA. Coming to Asia. leading to a majority of the American middle class households being underinsured. Coming to India. the concept of bancassurance started gaining grounds in the USA also. This income is purely risk free for the bank since the bank simply plays the role of an intermediary for sourcing business to the insurance company. thereby putting a barrier on bancassurance. economic and legislative prescriptions in that country. It is most successful in Europe.

Providing multiple services at one place to the customers means enhanced customer satisfaction. insurers and the customers. As for the insurance company the advantage that bancassurance provides is evident. income from bancassurance is the only non interest based income. It started picking up after Insurance Regulatory and Development Authority (IRDA) passed a notification in October 2002 on 'Corporate Agency' regulations. The insurance company gets improved geographical reach without additional costs. Banks do not get great margins because of the competition This is why more and more banks are getting into bancassurance so as to improve their incomes. banks can act as an agent of one life and one non-life insurer. If all 67. For the banks. Another important advantage that bancassurance brings about in banks is development of sales culture in their employees. As per the concept of Corporate Agency.NEW TRENDS IN BANKING Banks to do insurance distribution. Interest is market driven and fluctuating and quite narrowing these days. In India around 67.000 branches sell the TYBCOM (BANKING & INSURANCE) Page 18 . Increased competition also makes it difficult for banks to retain their customers. For example. Currently bancassurance accounts for a share of almost 25-30% of the premium income amongst the private players in India. Banassurance comes as a help in this direction also. Bancassurance provides various advantages to banks.000 branches are there. through bancassurance a customer gets home loans along with insurance at one single place as a combined product.

Here the banks do not issue the policies. The companies issue the policies and pay the commission to them. The penetration level of life insurance in the Indian market is abysmally low at 2. Bancassurance again comes as an answer. This is one method of penetrating the market. It helps the insurance companies to tap the market at a much lower cost. With almost half of the population likely to be in the 'wage earner' bracket by 2010.NEW TRENDS IN BANKING insurance products one can see the reach. The major contributing factors favouring bancassurance are as follows:• Wide Network of branches • Existing wide range of Corporate and Retail clients of banks with potential business opportunities. Setting up their own networks entails such a huge cost. TYBCOM (BANKING & INSURANCE) Page 19 . India's rural market has huge potential that is still untapped by the insurance companies. As for the customer the competitive nature of the Indian market ensures that the reduction in costs would result in benefits in terms of lower premium rates being passed on to him.3% of GDP with only 8% of the total population currently insured. That is called referral basis. There is also another method called 'Bank Referral'. there is every reason to be optimistic that bancassurance in India will play a long inning. they only give the database to the insurance companies. that no company would be interested in doing so.

TYBCOM (BANKING & INSURANCE) Page 20 . investment preferences etc if the database is properly utilized • Personalized single window service delivery system to expertise in offering quality service by which cross selling becomes easy. • Collaboration of ‘banks’ and ‘insurance companies’ would have profound impact on financial services industry which is enhanced for customer satisfaction. Bancassurance in future would be favorable as there will be :• Entry of big players in life and non-life segment would immense competition for better deal of the customers. • There would be a vast potential for banks and insurance companies for partnership and to develop the ‘under insured’ market in India. • Rural Penetration which is important for wide reach of banks in the rural segment which is potential and untapped for insurance business • Structure/design customer centric product and services to suit the needs of every segment.NEW TRENDS IN BANKING • Wide customer database is an opportunity to study customer spending habits.

MUTUAL BANKING TYBCOM (BANKING & INSURANCE) Page 21 .NEW TRENDS IN BANKING 2.

TYBCOM (BANKING & INSURANCE) Page 22 .NEW TRENDS IN BANKING Mutual Banking is a new concept which has emerged offering new product and service innovations for the customers who avail of mutual fund products through banks. bonds. So now this mutual fund business is also done by banks through which customers are benefited. The associations should issue their currency cheques as loans to their members to circulate as money among them and such other persons as are willing to receive it. The mutual fund will have a fund manager that trades the pooled money on a regular basis. upon admission. c. The net proceeds or losses are then typically distributed to the investors annually. The essential features of a Mutual Bank may be outlined as follows: a. b. and/or other securities. Mutual Banking Associations is formed to do a general banking business and to issue Bank cheques for the use of their members. at par. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks. in all payments. short-term money market instruments. bind themselves in due form to receive the cheques issued by the association from all persons. Members of such associations shall. These cheques are not a legal tender.

Loans can be made for an amount not exceeding one-half the assessed value of the improvements situated upon the real estate pledged. upon the payment of a sufficient premium to insure the risk with an authorized insurance company. The charges for which said money should be loaned and can be determined by and can just meet and cover the losses sustained and the expenses of the association. e. Wage workers who are willing to receive the money of the association in the payment of their wages should deposit the same with the association subject to check. implements and machinery used in productive enterprises. by giving his promissory note. should have their property released from pledge.NEW TRENDS IN BANKING d. The period for which loans would run shall be determined by the marketability and possible depreciation of the security offered. Loans can also be discounted by the association. by paying their debts to the association. The rate of interest should always be zero. TYBCOM (BANKING & INSURANCE) Page 23 . h. Any person can become a member of any association and can borrow the money issued by the association. j. or upon shares of stock of such enterprises. g. f. Members. and themselves released from all obligations to association and to the holders of its money. and upon warehouse receipts. chattels. or in an amount not exceeding one-half the value of goods. for those who have no property to pledge.

and because there will always be enough Mutual Money for all industrial and commercial needs (due to the flexibility of the issue). cannot depreciate. Associations may form clearing houses in a city where there is a branch near the center of population. b. and. As money will be easy to get under the Mutual Banking system. by their very nature. two. securing. Advantages of Mutual Bank are as follows:a. Mutual Bank cheques. sound enterprises will have no difficulty in getting financed. amounting to less than one percent. l. five. and consequently competition among employers for workers. c. This will eventually mean the disintegration of monopoly. ten and twenty rupee bills. at least one-half of the issue shall be in the first three denominations. credit losses will be practically eliminated. The cheque. will take the place of unsecured credit. in consequence.NEW TRENDS IN BANKING k. The money of the association shall be issued in denominations of one. there will be no more money panics. On this account. TYBCOM (BANKING & INSURANCE) Page 24 . bill of exchange and travelers' cheques may be adopted to facilitate exchanges between the various members of the associations and between the associations themselves in specific part of India only. Mutual Bank cheques being secured credit. draft. It will also mean the creation of many more jobs. Interest will cease. and only the costs of issuing. and carrying Mutual Bank notes will be charged. m.

Investment banks are also responsible for preparing the company prospectus. usually acting as the intermediary between the issuer and investors.NEW TRENDS IN BANKING resulting in increasingly better conditions of work land pay. until at last the worker will receive the full product of his labour 3. which presents important data about the company to potential investors. TYBCOM (BANKING & INSURANCE) Page 25 . Or the banks may act as agents for the issuer and take a commission on the securities they sell. Investment banks may underwrite the securities by buying all the available shares at a set price and then reselling them to the public. INVESTMENT BANKING An investment bank is a financial institution that helps companies take new bond or stock issues to market.

ICICI. an investment bank doesn't usually provide retail banking services to individuals. Pure investment banks have found it unmanageable to maintain leadership positions due to difficult market conditions and the economic downturn. in 2002 pure investment banks such as JM Morgan Stanley and DSP Merrill Lynchstill occupied top positions in the investment banking league tables. universal banks such as the – Citigroup. However. is the strong emergence of universal banks ahead of pure investment banks as market leaders. JP Morgan chase and Deutsche bank are emerging against pure investment banks such as Goldmanb Sachs and Morgan Stanley.NEW TRENDS IN BANKING In addition. The one of the trends that has been developing in the past few years in the global nad Indian investment banking arena. This trend could probably reappear in India as well with the emergence of SBI. These universal Banks have the additional financial muscle of their banking arms that add to their investment banking strengths. Unlike a commercial bank or a savings and loan company. idbi and Kotak Mahindra bank as strong universal banks. Globally. investment banks handle the sales of large blocks of previously issued securities. including sales to institutional investors. such as mutual fund companies. TYBCOM (BANKING & INSURANCE) Page 26 . The year 2002 has been dubbed as the watershed year in investment banking for over a decade.

c. there was only one Gross Depository Receipt (GDR) /American Depository Receipt (ADR) issue as compared to 6 in2001 and 9 in 2000. TYBCOM (BANKING & INSURANCE) Page 27 .(as reported in The Economic Times).NEW TRENDS IN BANKING Some recent Developments in the investment banking Industry as reported in some financial dailies and other press clippings are listed below :a. The other players in the big league were – ABN Amro (Rs 10460 crore). In 2002. In this market. finance and insurance sectors contributed almost one-third of the total volume.5 million GDRs which are listed at Luxemburg Stock Exchange. Privatization deals also played a significant part. Rabo India Finance (Rs 833 crore) and Lazard Capital (Rs. DSP Merrill Lynch (Rs7130 crore). 16. In the M&A market. This was followed by bank of New York. This was made by Mason Global which raised $10 Million through issue of 2. 536 crore) . The deals were mostly in the SME segment with average size not exceeding $25 million. the year2002 saw n increase of around 5% in the value of M&A deals in India. b. JM Morgan Stanley which acted as adviser to M&A deals worth Rs. The banking. During the year 2001.022 crore was rated the top investment bank in India. more than50% were cross-border deals according to a survey conducted by KPMG Corporate Finance. Among these. Deutsche Bank and JP Morgan. Citibank was the leading depository bank according to instanex Capital Consultants.

Hemendra Kothari and Merrill Lynch together held more than 90% of the shares. In a very broad sense. issuing. DSP-ML de-listed from the stock exchanges since its promoters. underwriting and trading in securities. i. DSP was rated ‘The Best Domestic Investment Bank’ in India for 2000 by Finance Asia. Euro money voted it ‘Best Domestic M&A House in India’ in 2000. This is a narrow definition of Universal banking. but usually it refers to the combination of commercial banking (collecting deposits and making loans) and investment banking. UNIVERSAL BANKING The term ‘Universal Bank’ has different meanings. being named as the ‘Best Domestic Securities House’ and ‘Best Domestic Investment Bank’ for 2002-2003 by Asia money (May 2003 issue) and The Asset (January 2003 issue) magazine respectively.NEW TRENDS IN BANKING d. Euro money voted it ‘Best Domestic M&A House in India’ for 2000 by Finance Asia. 4. This distinction has returned for three year in a row with DSP-ML.e. however the term TYBCOM (BANKING & INSURANCE) Page 28 .

especially insurance. While risks on the asset side of the balance sheet are quite familiar to banks and DFIs risks are on the liability side.NEW TRENDS IN BANKING ‘Universal Bank’ refers to those banks that offer a wide range of financial services such as commercial banking and investment banking and other activities. in-house. especially in the case of nonlife insurance business which are more serious. the banking system in India has already started entering into Universal Banking either through the route of subsidiarisation or by expanding the scope existing banking activities. The main brake on the liberalization process has been prudential concerns. Recently. or through a holding company structure. For example. Universal Banking usually takes one of the three forms. The major issues involved in universal in universal banking are appropriate TYBCOM (BANKING & INSURANCE) Page 29 . as what one find is that without being conscious about it. India has also followed the practice of Universal Banking in a broad sense by allowing banks and DFIs to undertake insurance Business. The era of universal banking in India has begun. An attempt was made to delineate some of the major risks faced by Insurers so as to know as to whether and to what extent such risks are familiar to commercial banks and DFIs. notably the difficulty of devising appropriate prudential safeguards in the light of the increased freedom.. The most important challenge before universal banking is that of regulatory. through separately capitalized subsidiaries.e. credit card business is being handled both in-house as also through a subsidiary. i. are not expected to be familiar to banks/DFIs.

DFIs and Investment Institutions (two insurance institutions. the practice of universal banking in a broad sense with downstream linkages has also been allowed. banks and DFIs have also been allowed to undertake insurance business.Current position in India In India. different countries have followed different approaches. This trend got momentum in the early 1990’s i.e. viz. viz. All these institutions were required to confine their operations strictly to their own areas. In the 1980’s banks were allowed to undertake various non traditional activities through subsidiaries. Recently. UTI). the financial system has traditionally been compartmentalized with three main types of financial intermediaries operating being Commercial Banks. Universal Banking . It may thus. be seen from the above that the practice of Universal Banking is already prevalent in India. after initiation of economic reforms where banks were allowed to undertake certain activities. LIC. It started with Universal Banking in a narrow sense by allowing downstream linkages later followed by upstream linkages. GIC and one mutual fund. However. barring commercial banks which were allowed to undertake some investment/ merchant banking activity and project finance within the prescribed limits.NEW TRENDS IN BANKING allocation of responsibilities among various regulators. such as. To overcome this problem. hire-purchase and leasing in-house. upstream linkages under broad universal banking have yet to take place. TYBCOM (BANKING & INSURANCE) Page 30 . Recently.

or even to shift manufacturing base to optimize labor and other costs. 5. procure raw material. It is to sell products in wider markets. Corporate explore foreign markets for trade. they need banking services in foreign markets. This is the basic TYBCOM (BANKING & INSURANCE) Page 31 . INTERNATIONAL BANKING Banking transactions crossing national boundaries is termed as International Banking. By which Universal Banking represents combination of various activities and becoming almost inevitable due to technological changes and competitive forces.NEW TRENDS IN BANKING The following diagram shows the present position in India related to practice of Universal Banking. As these enterprises travel. This is also one of the components under the New Trends in Banking. Here transactions of Banks are done at a International level.

In the era of globalization. Importer has to guarantee payment to the exporter. But this is in basic and historical perspective. Letter of credit is the most common of them. For better comfort to the party on the receiving side. to the exporter (beneficiary). A letter of credit is a written commitment by a bank to make payment of a defined amount of money to a beneficiary (exporter) according to the terms and conditioned specified by the importer (applicant TYBCOM (BANKING & INSURANCE) Page 32 . bankers issue such letters. guarantee or confirmation by a bank has more credibility than a guarantee given by an exporter or importer. by a bank. Hence LC is usually issued on behalf of importer (applicant). International Banking also includes Letter of Credit :In the world of finance.NEW TRENDS IN BANKING motive for Banks to go International. many investment and commercial banks have developed themselves as multinational financial institution.

Retail Banking is the part of a bank that offers products and services primarily to the individual customers. This is. professionals. selfemployed individuals or small businesses.NEW TRENDS IN BANKING 6. therefore. significantly different from corporate banking or wholesale banking where focus is on large sized customer accounts TYBCOM (BANKING & INSURANCE) Page 33 . RETAIL BANKING Retail Banking plays a very important role in the New Trends in Banking as it provides all the facilities to the customers. independence of place and time. and flexibility. The approach to retail banking products is more on a mass production basis wherein all risks and operations are based on and geared to provide to a large number of customers. The focus is on creating products and services that meet the needs of the target customers and are profitable for the banks as well. mobility. Consumer’s behavior is changing rapidly due to the development of technology and the use of financial services is characterized by individuality.

It displays easy-to-follow. AUTOMATED TELLER MACHINE (ATM) : The Trend in banking has evolved from a cash economy to cheque economy and thereon to a plastic card economy. The card is the plastic card with a magnetic strip with the account number of the individual. Current and Saving Account holders of a bank who hold a certain minimum balance in their accounts are issued an ATM card. One of the channels of banking service delivery is the Automated Teller Machine (ATM). ATM is a user friendly. When the card is inserted into TYBCOM (BANKING & INSURANCE) Page 34 . step-by-step instructions to the customers. 7 days a week. computer-driven system which operates 24 hours a day. A totally menu-driven system.NEW TRENDS IN BANKING rather than large numbers of customers.Retail Banking includes following products to the customers :a. whose traditional and primary use is to dispense cash upon insertion of a plastic card and its unique Pin or Personal Identification number.

Typically. TELE BANKING : Tele-Banking or Phone Banking is a banking service offered by banks to enable customers to assess their accounts for information or transactions. the bank account number and the T-PIN are asked for. TYBCOM (BANKING & INSURANCE) Page 35 . market centers. etc. petrol pumps. This number is unknown to the bank’s staff and is secret and unique to that individual Many Banks have opened off-site ATMS at airports. Upon verification. a Telephone PIN (T-PIN) is provided to each account holder. The customer can call the exclusive Tele-Banking numbers and provide the details to identify himself /herself to the automated voice. Similar to the ATM PIN. railway stations.NEW TRENDS IN BANKING the ATM. universities. b. the customer is given access to his accounts to query or transact on his account. This is referred to usually as the PIN and is issued by the bank’s computers. the machines sensing equipment identifies the account holder and asks for his/ her identification code number.

The finger-print is taken before and after the transaction. A higher level of security may be reached by an electronic finger-print. c.NEW TRENDS IN BANKING Though cash withdrawal and deposit are not enabled through his service to certain classes of customers. The both TYBCOM (BANKING & INSURANCE) Page 36 . Data are encoded using algorithms with a 128 bit key or. The access to the account is allowed upon a match of the account details and PIN entered on the computer system. The access to account information as well as transaction is offered through the world-wide network of computers on the internet. Each account holder is provided a PIN similar to that of the ATM or Phone banking PIN. in some cases. with a 1. Every bank has a special firewalls and its own security measures to protect the accounts from non-authentic use from unauthorized users.024 bit encryption . INTERNET BANKING: One of the channels of services delivery to a banking customers is through the internet.

better interacting possibilities. In case of any differences. Because of its image as an innovative corporation. the transaction is aborted. it may be possible to increase profits and market shares TYBCOM (BANKING & INSURANCE) Page 37 . promotion of selfservice ideas.NEW TRENDS IN BANKING versions are compared. the usage of rationalization potential. respectively. the improvement of its competitive situation by development of core competencies together with the construction of market entry barriers. This means that financial institutions may enlarge their market area without building new offices or field services.

NEW TRENDS IN BANKING d. CASH CARDS : Cash card is also known as an ATM Card. of course on interest payment basis. He has to use the cheques . while purchases are made and the trader gets guaranteed payment . he has to keep sufficient balance in his account or the bank will provide overdraft up to a specified limit. DEBIT CARDS : It is a card given to the customer by the bank that he must show when he writes a cheque which promises that the bank will pay out the money written on the cheque. e. The customer does not get free credit. the card-holder is given a card and a cheque book. TYBCOM (BANKING & INSURANCE) Page 38 . A special plastic card is used for getting currency notes from a machine known as Automated Teller Machine. Under ‘Cheque Cards’ system.

In a charge card such credit facility is not available. SMART CARDS : With the use of credit cards. A smart card however. In credit cards. For example with TYBCOM (BANKING & INSURANCE) Page 39 . we may avail of credit facility on our purchase of goods/services from approved sale outlets. enables the card-holder to perform various other banking functions apart from credit purchases. The periodical bill amount is paid off by charging it to customer’s account. etc. A fee is also payable by the card holder to the card issuing institution. the card-holders get credit or loan for payment of periodical bills when sufficient balance is not available in their accounts. The full amount owed must then be paid on demand. CHARGE CARDS : A small usually plastic card provided by an organization with which one can buy goods from various shops.NEW TRENDS IN BANKING f. g.

The supplier places the card in a special imprinter machine. seek information pertaining to our accounts. CREDIT CARDS : Credit cards operate quite differently from cheque cards. The card can also perform calculations and maintain records. Each credit card bears a specimen signature of its holder and is embossed by the issuing bank with the holder’s name and number. we can draw cash from ATMs. This is possible because the card has an integrated circuit with microprocessor chip embedded in the card for identification purposes. etc. the holder gives his card to the supplier who has agreed to join the scheme.NEW TRENDS IN BANKING smart cards. When goods or services are supplied. h. which records the holders name and number on a sales voucher. The particulars of the transaction are added on the voucher. TYBCOM (BANKING & INSURANCE) Page 40 . whereas a credit card guarantees against a sales voucher signed by the Credit Card Holder. we can verify entries in oue accounts. The holder signs the voucher and the supplier compares the signature with that on the card. A cheque card guarantees payment of a cheque.

The lockers are operated by dual key system – one of which is with the authorized bank officer and the other with the customer. banks have been the main repositories of customer’s valuables. presently. SAFE DEPOSITS AND LOCKER SERVICES : Safe custody of valuables and important documents has been a traditional service rendered by banks. The duly sealed safe custody packets/ boxes are kept by the bank in its ‘strong room’/ vault and a receipt is issued to the depositor for presenting while taking delivery. most of the vaults have been occupied and therefore many banks may have curbed this service. many banks TYBCOM (BANKING & INSURANCE) Page 41 .NEW TRENDS IN BANKING i. security and confidentiality of the valuables kept with them. Banks also provide safe deposit lockers at many of its branches which have adequate space and a strong room (other than its currency chest vault). The safe deposit lockers are built of steel and have reliable locking arrangements. Customers hire lockers by paying yearly rentals. to provide double safety. Since the Lockers are very much in demand. these are kept in vaults of banks. on a fee basis. The customers have faith in their banks about the safety. As of now. As these requirements are rarely met elsewhere.

NEW TRENDS IN BANKING restrict this facility to their valuable customer or ask for certain fixed deposits to be lodged by the customer. ELECTRONIC FUNDS TRANSFER : Traditionally. Locker rentals have also increased substantially in metros and big cities. the funds are transferred by banks from one place to another by mail transfer and telegraphic transfer. the abbreviation for dematerialized account. DEMATE ACCOUNTING In India. is a type of banking account which dematerializes paperbased physical stock shares. banks use the post &telegraph department’s services and use certain codes to ensure confidentiality and safety in transmission of the messages. j. TYBCOM (BANKING & INSURANCE) Page 42 . the latter being faster than the former. The dematerialized account is used to avoid holding physical shares: the shares are bought and sold through a stock broker. a Demate account. In both kinds of transfer.

NEW TRENDS IN BANKING This account is popular in India. As of April 2006. The Securities and Exchange Board of India (SEBI) mandates a Demate account for share trading above 500 shares. TYBCOM (BANKING & INSURANCE) Page 43 . it became mandatory that any person holding a Demate account should possess a Permanent Account Number (PAN).

clients visiting the place and handing their assets over the counters and those people behind the counters to use those assets safely and return them to the clients as promised. The strategy adopted by banks in this connection has been to expand their services both vertically and horizontally.NEW TRENDS IN BANKING 7. Just like God Murugan is a god for all seasons. for all people and for all purposes. people working behind counters. it got itself fitted with various TYBCOM (BANKING & INSURANCE) Page 44 . Such problems usually range from economic to financial and even to personal. goes as follows: Both have counters. required to have an adequate outreach capability to serve all those clients in places where they live. a modern bank should have solutions for all types of problems which their clients are faced with. this comparison does not do justice to what a bank actually does. In terms of this strategy. while expanding geographically. This comparison. in the demanded quality and in the required volume at competitive prices. CHALLENGES FACED BY BANKS IN MODERNIZED SERVICES It has been customary for writers on banking to compare a bank with a laundry. A modern bank is. The function it performs in the contemporary society is more akin to the divine role played by God Murugan with His multi-head and multi-hand personality. based on the external outlook. its foremost challenge has been to acquire the capacity to serve its clientele efficiently. therefore. Today. Efficiency here means the provision of its services in time. Hence.

raising both sustainability and viability issues.NEW TRENDS IN BANKING specialized divisions within a bank to tackle different types of problems. entailed high costs on banks. in its present form. Hence. This administrative structure. though helpful to meet current challenges. this banking model is inadequate to meet. the new challenges faced by banks. It also could not provide a satisfactory solution to the physical limitation problem which has placed an effective barrier to its further expansion. TYBCOM (BANKING & INSURANCE) Page 45 .

Multicity cheque facility.V. E-Banking 5.Champaneri Post:. M-Banking 6. Silver card 8. Credit Card 4. Debit Card 3.NEW TRENDS IN BANKING VISIT TO THE INDIA BANK QUESTIONAIRE Name :-M.branch Manager Experience:-30 years ? Which types of services are provided by India bank?  1 ATM 2. Gold card 7. Safe Deposits & Locker Services TYBCOM (BANKING & INSURANCE) Page 46 . 9.

E-Banking .NEW TRENDS IN BANKING ? Is there any facility charges? If yes then what?  Some services are charged except ATM . M-Banking & chargeable services are Gold card & Silver card after two months charged services 11% charged 30 Rs. Debit card ./ per book ?what are the much demanded services of your bank?  Debit come ATM card are very demanded services 100% costumer use this services ?who are the competitor of your bank?  ICICI and HDFC . TYBCOM (BANKING & INSURANCE) Page 47 . Multicity cheque facility ? What are your future plans?  To be best bank in the market.

banks are linked electronically to each other and.NEW TRENDS IN BANKING 8. In that era. except in cases where they had lent to each other. Conclusions :- New challenges which bankers have to take require them to be vigilant on the entire banking system. Banks should also be vigilant over the developments in the global market as well. This is because even without their knowledge. TYBCOM (BANKING & INSURANCE) Page 48 . The current globalization wave has pushed the financial markets toward the establishment of a global single financial market. The business of banking is to be found everywhere in the globe and bankers who confine themselves only to the domestic banking business will have to pay the highest price. But today. In the past. they are vulnerable to the shocks that occur in the rest of the financial system. when banking was purely manually driven. they would find that they have lost business to other smart operators and are no longer able to survive in this fierce global competition. therefore. there was no necessity for them to be mindful of the developments in the entire system. one bank’s failure did not matter much to the rest of the banking system.

NEW TRENDS IN BANKING TYBCOM (BANKING & INSURANCE) Page 49 .