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I. HISTORY OF BANKING IN INDIA
There are three different phases in the history of banking in India. 1) 2) 3) Pre-Nationalization Era. Nationalization Stage. Post Liberalization Era.
1) Pre-Nationalization Era: In India the business of banking and credit was practices even in very early times. The remittance of money through Hundies, an indigenous credit instrument, was very popular. The hundies were issued by bankers known as Shroffs, Sahukars, Shahus or Mahajans in different parts of the country. The modern type of banking, however, was developed by the Agency Houses of Calcutta and Bombay after the establishment of Rule by the East India Company in 18th and 19th centuries. During the early part of the 19th Century, ht volume of foreign trade was relatively small. Later on as the trade expanded, the need for banks of the European type was felt and the government of the East India Company took interest in having its own bank. The government of Bengal took the initiative and the first presidency bank, the Bank of Calcutta (Bank of Bengal) was established in 180. In
1840, the Bank of Bombay and IN 1843, the Bank of Madras was also set up. These three banks also known as “Presidency Bank”. The Presidency Banks had their branches in important trading centers but mostly lacked in uniformity in their operational policies. In 1899, the Government proposed to amalgamate these three banks in to one so that it could also function as a Central Bank, but the Presidency Banks did not favor the idea. However, the conditions obtaining during world war period (1914-1918) emphasized the need for a unified banking institution, as a result of which the Imperial Bank was set up in1921. The Imperial Bank of India acted like a Central bank and as a banker for other banks. The RBI (Reserve Bank of India) was established in 1935 as the Central Bank of the Country. In 1949, the Banking Regulation act was passed and the RBI was nationalized and acquired extensive regulatory powers over the commercial banks. In 1950, the Indian Banking system comprised of the RBI, the Imperial Bank of India, Cooperative banks, Exchange banks and Indian Joint Stock banks. 2) Nationalization Stages:
After Independence, in 1951, the All India Rural Credit survey, committee of Direction with Shri. A. D. Gorwala as Chairman recommended amalgamation of the Imperial Bank of India and ten others banks into a newly established bank called the State Bank of
India (SBI). The Government of India accepted the recommendations of the committee and introduced the State Bank of India bill in the Lok Sabha on 16th April 1955 and it was passed by Parliament and got the president’s assent on 8th May 1955. The Act came into force on 1st July 1955, and the Imperial Bank of India was nationalized in 1955 as the State Bank of India. The main objective of establishing SBI by nationalizing the Imperial Bank of India was “to extend banking facilities on a large scale more particularly in the rural and semi-urban areas and to diverse other public purposes.” In 1959, the SBI (Subsidiary Bank) act was proposed and the following eight state-associated banks were taken over by the SBI as its subsidiaries.
Name of the Bank
Subsidiary with effect from
1. State Bank of Hyderabad 2. State Bank of Bikaner 3. State Bank of Jaipur 4. State Bank of Saurashtra 5. State Bank of Patiala 6. State Bank of Mysore 7. State Bank of Indore 8. State Bank of Travancore
1st October 1959 1st January 1960 1st January 1960 1st May 1960 1st April 1960 1st March 1960 1st January 1968 1st January 1960
With effect from 1st January 1963, the State Bank of Bikaner and State Bank of Jaipur with head office located at Jaipur. Thus, seven subsidiary banks State Bank of India formed the SBI Group. The SBI Group under statutory obligations was required to open new offices in rural and semi-urban areas and modern banking was taken to these unbanked remote areas.
On 19th July 1969, then the Prime Minister, Mrs. Indira Gandhi announced the nationalization of 14 major scheduled Commercial Banks each having deposits worth Rs. 50 crore and above. This was a turning point in the history of commercial banking in India. Later the Government Nationalized six more commercial private sector banks with deposit liability of not less than Rs. 200 crores on 15th April 1980, viz. i) ii)
Andhra Bank. Corporation Bank. New Bankof India. Oriental Bank of Commerce. Punjab and Sind Bank. Vijaya Bank.
iv) v) vi)
In 1969, the Lead Bank Scheme was introduced to extend banking facilities to every corner of the country. Later in 1975, Regional Rural Banks were set up to supplement the activities of the
commercial banks and to especially meet the credit needs of the weaker sections of the rural society. Nationalization of banks paved way for retail banking and as a result there has been an alt round growth in the branch network, the deposit mobilization, credit disposals and of course employment. The first year after nationalization witnessed the total growth in the agricultural loans and the loans made to SSI by 87% and 48% respectively. The overall growth in the deposits and the advances indicates the improvement that has taken place in the banking habits of the people in the rural and semi-urban areas where the branch network has spread. Such credit expansion enabled the banks to achieve the goals of nationalization, it was however, achieved at the coast of profitability of the banks. Consequences of Nationalization: The quality of credit assets fell because of liberal credit extension policy. Political interference has been as additional malady. Poor appraisal involved during the loan meals conducted for credit disbursals. The credit facilities extended to the priority sector at concessional rates. The high level of low yielding SLR investments adversely affected the profitability of the banks. The rapid branch expansion has been the squeeze on profitability of banks emanating primarily due to the increase in the fixed costs. There was downward trend in the quality of services and efficiency of the banks.
3) Post-Liberalization Era---Thrust on Quality and Profitability: By the beginning of 1990, the social banking goals set for the banking industry made most of the public sector resulted in the presumption that there was no need to look at the fundamental financial strength of this bank. Consequently they remained undercapitalized. Revamping this structure of the banking industry was of extreme importance, as the health of the financial sector in particular and the economy was a whole would be reflected by its performance. The need for restructuring the banking industry was felt greater with the initiation of the real sector reform process in 1992. the reforms have enhanced the opportunities and challenges for the real sector making them operate in a borderless global market place. However, to harness the benefits of globalization, there should be an efficient financial sector to support the structural reforms taking place in the real economy. Hence, along with the reforms of the real sector, the banking sector reformation was also addressed. The route causes for the lackluster performance of banks, formed the elements of the banking sector reforms. Some of the factors that led to the dismal performance of banks were. Regulated interest rate structure. Lack of focus on profitability. Lack of transparency in the bank’s balance sheet. Lack of competition.
Excessive regulation on organization structure and managerial resource. Excessive support from government. Against this background, the financial sector reforms were initiated to bring about a paradigm shift in the banking industry, by addressing the factors for its dismal performance. In this context, the recommendations made by a high level committee on financial sector, chaired by M. Narasimham, laid the foundation for the banking sector reforms. These reforms tried to enhance the viability and efficiency of the banking sector. The Narasimham Committee suggested that there should be functional autonomy, flexibility in operations, dilution of banking strangulations, reduction in reserve requirements and adequate financial infrastructure in terms of supervision, audit and technology. The committee further advocated introduction of prudential forms, transparency in operations and improvement in productivity, only aimed at liberalizing the regulatory framework, but also to keep them in time with international standards. The emphasis shifted to efficient and prudential banking linked to better customer care and customer services.
Private Sector Banks
Private banking in India was practiced since the begining of banking system in India. The first private bank in India to be set up in Private Sector Banks in India was Indus Ind Bank. It is one of the fastest growing Bank Private Sector Banks in India. IDBI ranks the tenth largest development bank in the world as Private Banks in India and has promoted a world class institutions in India. The first Private Bank in India to receive an in principle approval from the Reserve Bank of India was Housing Development Finance Corporation Limited, to set up a bank in the private sector banks in India as part of the RBI's liberalization of the Indian Banking Industry. It was incorporated in August 1994 as HDFC Bank Limited with registered office in Mumbai and commenced operations as Scheduled Commercial Bank in January 1995. ING Vaysya, yet another Private Bank of India was incorporated in the year 1930. Bangalore has a pride of place for having the first branch inception in the year 1934. With successive years of patronage and constantly setting new standards in banking, ING Vaysya Bank has many credits to its account. Entry of Private Sector Banks: There has been a paradigm shift in mindsets both at the Government level in the banking industry over the years since Nationalization of Banks in 1969, particularly during the last decade (1990-2000). Having achieved the objectives of Nationalization, the
most important issue before the industry at present is survival and growth in the environment generated by the economic liberalization greater competition with a view to achieving higher productivity and efficiency in January 1993 for the entry of Private Sector banks based on the Nationalization Committee report of 1991, which envisaged a larger role for Private Sector Banks. The RBI prescribed a minimum paid up capital of Rs. 100 crores for the new bank and the shares are to be listed at stock exchange. Also the new bank after being granted license under the Banking Regulation Act shall be registered as a public limited company under the companies Act, 1956.
Private Sector Banks
Old Pvt. Sector Banks (25)
New Pvt. Sector Banks (9)
Subsequently 9 new commercial banks have been granted license to start banking operations. The new private sector banks have been very aggressive in business expansion and is also reporting higher profile levels taking the advantage of technology and skilled manpower. In certain areas, these banks have even our crossed the other group of banks including foreign banks.
Currently (2007), overall, banking in India is considered as fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. Even in terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets-as compared to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility-without any stated exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some timeespecially in its services sector, the demand for banking servicesespecially retail banking, mortgages and investment services are expected to be strong. M&As, takeovers, asset sales and much more action (as it is unraveling in China) will happen on this front in India. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. Currently, India has 88 Scheduled Commercial Banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these
do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.
II. BANKING IN INDIA
Overview of Banking: Banking Regulation Act of India, 1949 defines Banking as “accepting, for the purpose of lending or of investment of deposits of money from the public, repayable on demand or otherwise or withdrawable by cheque, draft order or otherwise.” The Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949, govern the banking operations in India. Organizational Structure of Banks in India: In India banks are classified in various categories according to different criteria. The following charts indicate the
Reserve Bank of India
Co-operative Banks Short-term credit
banking structure: Broad Classification of Banks in India:
1) The RBI: The RBI is the supreme monetary and banking authority in the country and has the responsibility to control the banking system in the country. It keeps the reserves of all scheduled banks and hence is known as the “Reserve Bank”. 2) Public Sector Banks: • • • State Bank of India and its Associates (8) Nationalized Banks (19) Regional Rural Banks Sponsored by Public Sector Banks (196) (3) Private Sector Banks: • Old Generation Private Banks (22) • Foreign New Generation Private Banks (8) • Banks in India (40) (4) Co-operative Sector Banks: • State Co-operative Banks • Central Co-operative Banks • Primary Agricultural Credit Societies • Land Development Banks • State Land Development Banks (5) Development Banks: Development Banks mostly provide long term finance for setting up industries. They also provide short-term finance (for export and import activities) • • Industrial Finance Co-operation of India (IFCI) Industrial Development of India (IDBI)
• • • •
Industrial Investment Bank of India (IIBI) Small Industries Development Bank of India (SIDBI) National Bank for Agriculture and Rural Development (NABARD) Export-Import Bank of India
Role of Banks: Banks play a positive role in economic development of a country as repositories of community’s savings and as purveyors of credit. Indian Banking has aided the economic development during the last fifty years in an effective way. The banking sector has shown a remarkable responsiveness to the needs of planned economy. It has brought about a considerable progress in its efforts at deposit mobilization and has taken a number of measures in the recent past for accelerating the rate of growth of deposits. As recourse to this, the commercial banks opened branches in urban, semi-urban and rural areas and have introduced a number of attractive schemes to foster economic development. The activities of commercial banking have growth in multi-directional ways as well as multi-dimensional manner. Banks have been playing a catalytic role in area development, backward area development, extended assistance to rural development all along helping agriculture, industry, international trade in a significant manner. In a way, commercial banks have emerged as key financial agencies for rapid economic development.
By pooling the savings together, banks can make available funds to specialized institutions which finance different sectors of the economy, needing capital for various purposes, risks and durations. By contributing to government securities, bonds and debentures of term-lending institutions in the fields of agriculture, industries and now housing, banks are also providing these institutions with an access to the common pool of savings mobilized by them, to that extent relieving them of the responsibility of directly approaching the saver. This intermediation role of banks is particularly important in the early stages of economic development and financial specification. A country like India, with different regions at different stages of development, presents an interesting spectrum of the evolving role of banks, in the matter of inter-mediation and beyond. Mobilization of resources forms an integral part of the development process in India. In this process of mobilization, banks are at a great advantage, chiefly because of their network of branches in the country. And banks have to place considerable reliance on the mobilization of deposits from the public to finance development programmes. Further, deposit mobalization by banks in India acquired greater significance in their new role in economic development. Commercial banks provide short-term and medium-term financial assistance. The short-term credit facilities are granted for working capital requirements. The medium-term loans are for the
acquisition of land, construction of factory premises and purchase of machinery and equipment. These loans are generally granted for periods ranging from five to seven years. They also establish letters of credit on behalf of their clients favouring suppliers of raw materials/machinery (both Indian and foreign) which extend the banker’s assurance for payment and thus help their delivery. Certain transaction, particularly those in contracts of sale of Government Departments, may require guarantees being issued in lieu of security earnest money deposits for release of advance money, supply of raw materials for processing, full payment of bills on the assurance of the performance etc. Commercial banks issue such guarantees also.
The Role of Reserve Bank of India (RBI) – Banker’s Bank: The Reserve Bank of India (RBI) is the central bank of India, and was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. Since its inception, it has been headquartered in Mumbai. Though originally privately owned, RBI has been fully owned by the Government of India since nationalization in 1949. RBI is governed by a central board (headed by a Governor) appointed by the Central Government. The current governor of RBI is Dr.Y.Venugopal Reddy (who succeeded Dr. Bimal Jalan on September 6, 2003). RBI has 22 regional offices across India.The Reserve Bank of India was set up on the recommendations
of the Hilton Young Commission. The commission submitted its report in the year 1926, though the bank was not set up for nine years.
Main Objective: Monetary Authority Formulates, implements and monitors the monetary policy. Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors. Regulator and supervisor of the financial system
Prescribes broad parameters of banking operations within which the country’s banking and financial system functions. Objective: maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective redressal of complaints by bank customers Manager of Exchange Control
Manages the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
Issuer of currency
Issues and exchanges or destroys currency and coins not fit for circulation. Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality. Developmental role
Performs a wide range of promotional functions to support national objectives.
Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. Banker to banks: maintains banking accounts of all scheduled banks. Owner and operator of the depository (SGL) and exchange (NDS) for government bonds.
There is now an international consensus about the need to focus the tasks of a central bank upon central banking. RBI is far out of touch with such a principle, owing to the sprawling mandate described above.
Supervisory Functions: In addition to its traditional central functions, the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and cooperative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction and liquidation. The RBI is authorized to carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalization of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realization of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation.
Promotional Functions: With economic growth assuming a new urgency since Independence, the range of the Reserve Bank’s functions have steadily widened. The Bank now performs a variety of developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central banking. The Reserve Bank was asked to
promote banking habit, extend banking facilities to rural and semiurban areas, and establish and promote new specialized financing agencies. Accordingly, the Reserve bank has helped in the setting up of the IFCI and the SFC: it set up the Deposit Insurance Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to mobilize savings, and to provide industrial finance as well as agricultural finance. As far back as 1935, the RBI set up the Agricultural Credit Department to provide agricultural credit. But only since 1951 the Bank’s role in this field has become extremely important. The Bank has developed the cooperative credit movement to encourage saving, to eliminate moneylenders from the villages and to route its short term credit to agriculture. The RBI has set up the Agricultural Refinance and Development Corporation to provide long-term finance to farmers. Co-operative Banks: The Co-operative bank has a history of almost 100 years. The Co-operative banks are an important constituent of the Indian Financial System, judging by the role assigned to them, the expectations they are supposed to fulfill, their number, and the number of offices they operate. The co-operative movement originated in the West, but the importance that such banks have assumed in India is rarely paralleled anywhere else in the world. Their role in rural financing continues to be important even today, and their business in the urban areas also has increased phenomenally in recent
years mainly due to the sharp increase in the number of co-operative banks. While the co-operative banks in rural areas mainly finance agricultural based activities including farming, cattle, milk, hatchery, personal finance etc. along with some small scale industries and self-employment driven activities, the co-operative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units, home finance, consumer finance, personal finance, etc. Some of the co-operative banks are quite forward looking and have developed sufficient core competencies to challenge state and private sector banks. According to NAFCUB the total deposits & lendings of Co-operative Banks is much more than Old Private Sector Banks & also the New Private Sector Banks. This exponential growth of Cooperative Banks is attributed mainly to their much better local reach, personal interaction with customers, their ability to catch the nerve of the local clientele. Though registered under the Co-operative Societies Act of the Respective States (where formed originally) the banking related activities of the co-operative banks are also regulated by the Reserve Bank of India. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.
There are two main categories of the co-operative banks. (a) Short term lending oriented co-operative Banks – within this category there are three sub categories of banks viz state co-operative banks, District co-operative banks and Primary Agricultural cooperative societies. (b) Long term lending oriented co-operative Banks – within the second category there are land development banks at three levels state level, district level and village level.
Features of Cooperative Banks Co-operative Banks are organized and managed on the principal of co-operation, self-help, and mutual help. They function with the rule of “one member, one vote”. Function on “no profit, no loss” basis. Cooperative banks, as a principle, do not pursue the goal of profit maximization. Co-operative bank performs all the main banking functions of deposit mobilization, supply of credit and provision of remittance facilities. Co-operative Banks provide limited banking products and are functionally specialists in agriculture related products. However, co-operative banks now provide housing loans also. UCBs provide working capital loans and term loan as well. The State Co-operative Banks (SCBs), Central Co-operative Banks (CCBs) and Urban Co-operative Banks (UCBs) can normally extend
housing loans upto Rs 1 lakh to an individual. The scheduled UCBs, however, can lend upto Rs 3 lakh for housing purposes. The UCBs can provide advances against shares and debentures also. Co-operative bank do banking business mainly in the agriculture and rural sector. However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitan areas also. The urban and non-agricultural business of these banks has grown over the years. The co-operative banks demonstrate a shift from rural to urban, while the commercial banks, from urban to rural. Co-operative banks are perhaps the first government sponsored, government-supported, and government-subsidized financial agency in India. They get financial and other help from the Reserve Bank of India NABARD, central government and state governments. They constitute the “most favoured” banking sector with risk of nationalization. For commercial banks, the Reserve Bank of India is lender of last resort, but co-operative banks it is the lender of first resort which provides financial resources in the form of contribution to the initial capital (through state government), working capital, refinance. Co-operative Banks belong to the money market as well as to the capital market. Primary agricultural credit societies provide short term and medium term loans. Land Development Banks (LDBs) provide long-term loans. SCBs and CCBs also provide both short term and term loans. Co-operative banks are financial intermediaries only partially. The sources of their funds (resources) are (a) central and
state government, (b) the Reserve Bank of India and NABARD, (c) other co-operative institutions, (d) ownership funds and, (e) deposits or debenture issues. It is interesting to note that intra-sectoral flows of funds are much greater in co-operative banking than in commercial banking. Inter-bank deposits, borrowings, and credit from a significant part of assets and liabilities of co-operative banks. This means that intra-sectoral competition is absent and intra-sectoral integration is high for co-operative bank. Some co-operative banks are scheduled banks, while others are nonscheduled banks. For instance, SCBs and some UCBs are scheduled banks but other co-operative bank are non-scheduled banks. At present, 28 SCBs and 11 UCBs with Demand and Time Liabilities over Rs 50 crore each included in the Second Schedule of the Reserve Bank of India Act.
Co-operative Banks are subject to CRR and liquidity requirements as other scheduled and non-scheduled banks are. However, their requirements are less than commercial banks. Since 1966 the lending and deposit rate of commercial banks have been directly regulated by the Reserve Bank of India. Although the Reserve Bank of India had power to regulate the rate co-operative bank but this have been exercised only after 1979 in respect of non-agricultural advances they were free to charge any rates at their discretion. Although the main aim of the co-operative bank is to provide cheaper credit to their members and not to maximize profits, they may access the money market to improve their income so as to remain viable.
III. PRODUCTS AND SERVICES OFFERED BY BANKS
Broad Classification of Products in a bank: The different products in a bank can be broadly classified into: • Retail Banking. • Trade Finance. • Treasury Operations. Retail Banking and Trade finance operations are conducted at the branch level while the wholesale banking operations, which cover treasury operations, are at the hand office or a designated branch. Retail Banking: • Deposits • Loans, Cash Credit and Overdraft • Negotiating for Loans and advances • Remittances • Book-Keeping (maintaining all accounting records) • Receiving all kinds of bonds valuable for safe keeping Trade Finance: • Issuing and confirming of letter of credit.
• Drawing, accepting, discounting, buying, selling, collecting of bills of exchange, promissory notes, drafts, bill of lading and other securities.
Treasury Operations: • Buying and selling of bullion. Foreign exchange • Acquiring, holding, underwriting and dealing in shares, debentures, etc. • Purchasing and selling of bonds and securities on behalf of constituents. The banks can also act as an agent of the Government or local authority. They insure, guarantee, underwrite, participate in managing and carrying out issue of shares, debentures, etc. Apart from the above-mentioned functions of the bank, the bank provides a whole lot of other services like investment counseling for individuals, short-term funds management and portfolio management for individuals and companies. It undertakes the inward and outward remittances with reference to foreign exchange and collection of varied types for the Government. Common Banking Products Available: Some of common available banking products are explained below:
Credit Card: Credit Card is “post paid” or “pay later” card that draws
credit line-money made available by the card issuer is charged interest.
(bank) and gives one a grace period to pay. If the amount is not paid full by the end of the period, one
A credit card is nothing but a very small card containing a means of identification, such as a signature and a small photo. It authorizes the holder to change goods or services to his account, on which he is billed. The bank receives the bills from the merchants and pays on behalf of the card holder.
These bills are assembled in the bank and the amount is paid to the bank by the card holder totally or by installments. The bank charges the customer a small amount for these services. The card holder need not have to carry money/cash with him when he travels or goes for purchasing. Credit cards have found wide spread acceptance in the ‘metros’ and big cities. Credit cards are joining popularity for online payments. The major players in the Credit Card market are the foreign banks and some big public sector banks like SBI and Bank of Baroda. India at present has about 3 million credit cards in circulation.
Debit Cards: Debit Card is a “prepaid” or “pay now” card with some stored out cash. Every time a person uses the card, the merchant who in value. Debit Cards quickly debit or subtract money from one’s savings account, or if one were taking
turn can get the money transferred to his account from the bank of the buyers, by debiting an exact amount of purchase from the card. To get a debit card along with a Personal Identification Number (PIN). When he makes a purchase, he enters this number on the shop’s PIN pad. When the card is swiped through the electronic terminal, it dials the acquiring bank system – either Master Card or Visa that validates the PIN and finds out from the issuing bank whether to accept or decline the transaction. The customer never overspread because the amount spent is debited immediately from the customers account. So, for the debit card to work, one must already have the money in the account to cover the transaction. There is no grace period for a debit card purchase. Some debit cards have monthly or per transaction fees. Debit Card holder need not carry a bulky checkbook or large sums of cash when he/she goes at for shopping. This is a fast and easy way of payment one can get debit card facility as debit cards use one’s own money at the time of sale, so they are often easier than credit cards to obtain.
The major limitation of Debit Card is that currently only some 3000-4000 shops country wide accepts it. Also, a person can’t operate it in case the telephone lines are down. 3) Automatic Teller Machine: The introduction of ATM’s has
given the customers the facility of round the clock banking. The ATM’s are used by banks for making the customers dealing easier. ATM card is a device that allows customer who has an ATM card to perform routine banking transaction at any time without interacting with human teller. It provides exchange services. This service helps the customer to withdraw money even when the banks ate closed. This can be done by inserting the card in the ATM and entering the Personal Identification Number and secret Password. ATM’s are currently becoming popular in India that enables the customer to withdraw their money 24 hours a day and 365 days. It provides the customers with the ability to withdraw or deposit funds, check account balances, transfer funds and check statement information. The advantages of ATM’s are many. It increases existing business and generates new business. It allows the customers. • To transfer money to and from accounts. • To view account information. • To order cash. • To receive cash. Advantages of ATM’s: To the Customers
• ATM’s provide 24 hrs., 7 days and 365 days a year service. • Service is quick and efficient • Privacy in transaction • Wider flexibility in place and time of withdrawals. • The transaction is completely secure – you need to key in Personal Identification Number (Unique number for every customer). To Banks • Alternative to extend banking hours. • Crowding at bank counters considerably reduced. • Alternative to new branches and to reduce operating expenses. • Relieves bank employees to focus an more analytical and innovative work. • Increased market penetration. ATM’s can be installed anywhere like Airports, Railway Stations, Petrol Pumps, Big Business arcades, markets, etc. Hence, it gives easy access to the customers, for obtaining cash. The ATM services provided first by the foreign banks like Citibank, Grind lays bank and now by many private and public sector banks in India like ICICI Bank, HDFC Bank, SBI, UTI Bank etc. The ICICI has launched ATM Services to its customers in all the Metropolitan Cities in India. By the end of 1990 Indian Private Banks and public sector banks have come up with their own ATM Network in the form of “SWADHAN”. Over the past year upto 44 banks in
Mumbai, Vashi and Thane, have became a part of “SWADHAN” a system of shared payments networks, introduced by the Indian Bank Association (IBA). 4) E-Cheaques: The e-cheaques consists five primary facts. They
are the consumers, the merchant, consumer’s bank the merchant’s bank and the e-mint and the clearing process. This cheaquring system uses the network services to issue and process payment that emulates real world cheaquing. The payer issue a digital cheaques to the payee ant the entire transactions are done through internet. Electronic version of cheaques are issued, received and processed. A typical electronic cheque transaction takes place in the following manner: • The customer accesses the merchant server and the merchant server presents its goods to the customer. • The consumer selects the goods and purchases them by sending an e-cheque to the merchant. • The merchant validates the e-cheque with its bank for payment authorisation. • The merchant electronically forwards the e-cheque to its bank. • The merchant’s bank forwards the e-cheque to the clearing house for cashing. • The clearing house jointly works with the consumer’s bank clears the cheque and transfers the money to the merchant’s banks. • The merchant’s bank updates the merchant’s account.
• The consumer’s bank updates the consumer’s account with the withdrawal information. The e-chequing is a great boon to big corporate as well as small retailers. Most major banks accept e-cheques. Thus this system offers secure means of collecting payments, transferring value and managing cash flows. (5) Electronic Funds Transfer (EFT): Many modern banks have computerised their cheque handling process with computer networks and other electronic equipments. These banks are dispensing with the use of paper cheques. The system called electronic fund transfer (EFT) automatically transfers money from one account to another. This system facilitates speedier transfer of funds electronically from any branch to any other branch. In this system the sender and the receiver of funds may be located in different cities and may even bank with different banks. Funds transfer within the same city is also permitted. The scheme has been in operation since February 7, 1996, in India. The other important type of facility in the EFT system is automated clearing houses. These are the computer centers that handle the bills meant for deposits and the bills meant for payment. In big companies pay is not disbursed by issued cheques or issuing cash. The payment office directs the computer to credit an employee’s account with the person’s pay. 6)Telebanking: Telebanking refers to banking on phone services.. a customer can access information about his/her account through a telephone call and by giving the coded Personal Identification Number
(PIN) to the bank. Telebanking is extensively user friendly and effective in nature. • To get a particular work done through the bank, the users may leave his instructions in the form of message with bank. • Facility to stop payment on request. One can easily know about the cheque status. • Information on the current interest rates. • Information with regard to foreign exchange rates. • Request for a DD or pay order. • D-Mat Account related services. • And other similar services. 5)Mobile Banking: A new revolution in the realm of e-banking is the emergence of mobile banking. On-line banking is now moving to the mobile world, giving everybody with a mobile phone access to realtime banking services, regardless of their location. But there is much more to mobile banking from just on-lie banking. It provides a new way to pick up information and interact with the banks to carry out the relevant banking business. The potential of mobile banking is limitless and is expected to be a big success. Booking and paying for travel and even tickets is also expected to be a growth area. According to this system, customer can access account details on mobile using the Short Messaging System (SMS) technology6 where select data is pushed to the mobile device. The wireless application protocol (WAP) technology, which will allow user
to surf the net on their mobiles to access anything and everything. This is a very flexible way of transacting banking business. Already ICICI and HDFC banks have tied up cellular service provides such as Airtel, Orange, Sky Cell, etc. in Delhi and Mumbai to offer these mobile banking services to their customers. 5) Internet Banking: Internet banking involves use of internet for delivery of banking products and services. With internet banking is now no longer confirmed to the branches where one has to approach the branch in person, to withdraw cash or deposits a cheque or request a statement of accounts. In internet banking, any inquiry or transaction is processed online without any reference to the branch (anywhere banking) at any time. The Internet Banking now is more of a normal rather than an exception due to the fact that it is the cheapest way of providing banking services. As indicated by McKinsey Quarterly research, presently traditional banking costs the banks, more than a dollar per person, ATM banking costs 27 cents and internet banking costs below 4 cents approximately. ICICI bank was the first one to offer Internet Banking in India. Benefits of Internet Banking: • Reduce the transaction costs of offering several banking services and diminishes the need for longer numbers of expensive brick and mortar branches and staff.
• Increase convenience for customers, since they can conduct many banking transaction 24 hours a day. • Increase customer loyalty. • Improve customer access. • Attract new customers. • Easy online application for all accounts, including personal loans and mortgages Financial Transaction on the Internet: Electronic Cash: Companies are developing electronic replicas of all existing payment system: cash, cheque, credit cards and coins. Automatic Payments: Utility companies, loans payments, and other businesses use on automatic payment system with bills paid through direct withdrawal from a bank account. Direct Deposits: Earnings (or Government payments) automatically deposited into bank accounts, saving time, effort and money. Stored Value Cards: Prepaid cards for telephone service, transit fares, highway tolls, laundry service, library fees and school lunches. Point of Sale transactions: Acceptance of ATM/Cheque at retail stores and restaurants for payment of goods and services. This system has made functioning of the stock Market very smooth and efficient. Cyber Banking: It refers to banking through online services. Banks with web site “Cyber” branches allowed customers to check balances, pay bills, transfer funds, and apply for loans on the Internet.
9)Demat: Demat is short for de-materialisation of shares. In short, Demat is a process where at the customer’s request the physical stock is converted into electronic entries in the depository system. In January 1998 SEBI (Securities and Exchange Board of India) initiated DEMAT ACCOUNTANCY System to regulate and to improve stock investing. As on date, to trade on shares it has become compulsory to have a share demat account and all trades take place through demat. How to Operate DEMAT ACCOUNT? One needs to open a Demat Account with any of the branches of the bank. After opening an account with any bank, by filling the demat request form one can handover the securities. The rest will be taken care by the bank and the customer will receive credit of shares as soon as it is confirmed by the Company/Register and Transfer Agent. There is no physical movement of share certification any more. Any buying or selling of shares is done via electronic transfers. 1) If the investor wants to sell his shares, he has to place an order with his broker and give a “Delivery Instruction” to his DP (Depository Participant). The DP will debit hi s account with the number of shares sold by him. 2) If one wants to buy shares, he has to inform his broker about his Depository Account Number so that the shares bought by him are credited in to his account.Payment for the electronic shares
bought or sold is to be made in the same way as in the case of physical securities.
IV. BANKING SERVICES
Banking covers so many services that it is difficult to define it. However, these basic services have always been recognized as the hallmark of the genuine banker. These are… • The receipt of the customer’s deposits • The collection of his cheques drawn on other banks • The payment of the customer’s cheques drawn on himself There are other various types of banking services like: 1) Advances – Overdraft, Cash Credit, etc. 2) Deposits – Saving Account, Current Account, etc. 3) Financial Services – Bill discounting etc. 4) Foreign Services – Providing foreign currency, travelers cheques, etc. 5) Money Transmission – Funds transfer etc. 6) Savings – Fixed deposits, etc.
7) Services of place or time – ATM Services. 8) Status – Debit Cards, Credit Cards, etc.
Customer Services in Commercial Banks: Customer service is the service provided in support of a bank’s core products. Customer service often includes answering questions; handling complaints. Customer service can occur on site (as when an onstage employee helps a customer or answers a question) or it can occur over the phone or the Internet. Quality customer service is essential to building cordial customer relationship. Banking being a service industry, a lot depends on efficient and prompt customer service. Customer service is the most important duty of the banking operations. Prompt and efficient service with smile will develop good public relations reduce complaints and increase business. Why is Customer Service Important? Changing customer expectations: Today the customer is more demanding and more sophisticated than he or she was thirty years ago. The increased importance of customer service: With changing customer expectations, competitors are seeing customer service as a competitive weapon with which they differentiate their products and services.
The need for a relationship strategy: To ensure that a customer service strategy that will create a value preposition for customers should be formulated implemented and controlled. It is necessary to give it a central role and not one that is subsumed in the various elements of the marketing mix. The customer is the kingpim in growth organizations like commercial banks. Only those institutions which work according to his dictates will flourish. Quality, Consistency and Durability at low price are the final expectations of a customer. Quality will have to be unambiguous, of world class quality. Quality cannot be of minimum acceptable standards. Customer responsiveness must be quick and also competent. Speed, performance and cost will be the new values “mantra” for success. The ten key areas of customer’s services to be attended timely and regularly are: i. ii. iii. iv. v. vi. vii. viii. ix. Submission of statement of A/Cs to customers Updating of savings pass books. Teller system efficiency. Cleanliness and Upkeep of premises. Intermediate Credit for institution cheques/land bills. Advance intimation to customers for rewards of Term Deposits Receipts on maturity. Advance for Debit/credit to accounts. Punctuality of staff. Handling of complaint register.
Maintain a complaint register. Customer’s dissatisfaction in the banking industry is
neither recent nor unknown. This is mainly due to delays in handling transactions across the counter in collections, update of passbooks supply of statements of accounts, etc. Failure to provide prompt and efficient customer service is likely to lead to reduction in the number of customers and they may have to face closure. To event such situation the following improvements in the customer services may be carried out: 1) Personal relations of the bank employee with customers will improve customer satisfaction. 1 service with smile should be the motto of every bank employee. 2) Rapid customer services should be provided through automation of work and simplification of procedures. 3) ATM’s may be introduced in all the branches of the banks, based upon the volume of transactions. This shall facilitate nonstop banking. 4) Credit Cards Services, Debit Card Services, which should be provided to the customers, must a link service with all the banks and branches if possible to facilitate the customer and the business organizations. 5) E-mail service made freely available at all banking centers. 6) Foreign Exchange transactions are to be extended to all the branches to facilitate trade and industries.
7) All the customers are not homogenous in their needs. Hence need based schemes may be introduced. 8) Totally deregulated interest rate structure should be there. 9) The banking staff must be trained to understand the customer’s psychology, so they may provide customer service in a qualified manner. 10) Educating the customers will increases better utilisation of banking services.
V. BANK MARKETING:
The banking business is essentially other people’s money and banker’s brain. The secret of its success lies in satisfying customer needs for which the banks have to rediscover the marketing cmocept. It is right to mention that bank marketing is a managerial process by which services are matched with markets. The matching of services with market is meant formulation of overall marketing strategies which suit the taste, temperament, needs and requitements of customers. In view of the above, marketing of banking services is concerned with product, promotion, pricing, and place. In addition, it is also concerned with people, process and physical appearance. Objectives of Bank Marketing: Profitability
Providing high return on investment Achieving certain market share/growth Development of an image Developing new products to meet emerging customer requirements. Increase in deposits and loans Directing customers to certain products Increasing awareness
Increasing customer base through greater customer satisfaction.
VI. ROLE OF INFORMATION TECHNOLOGY (IT) IN THE BANKING SECTOR
Banking environment has become highly competitive today. To be able to survive and grow in the changing market environment banks are going for the latest technologies, which is being perceived as an ‘enabling resource’ that can help in developing learner and more flexible structure that can respond quickly to the dynamics of a fast changing market scenario. It is also viewed as an instrument of cost reduction and effective communication eith people and institutions associated with the banking business. The Software Packages for Banking Applications in India had their beginnings in the middle of 80s, when the Banks started computerising the branches in a limited manner. The early 90s saw the plummeting hardware prices and advent of cheap and inexpensive but high powered PC’s and Services and banks went in for what was called Total Branch Automation (TBA) packages. The middle and late
90s witnessed the tornado of financial reforms, deregulation globalisation etc. coupled eith rapid revolution in communication technologies and evolution of novel concept of convergence of communication technologies, like internet, mobile/cell phones etc. Technology has continuously played on important role in the working of banking institutions and the services provided by them. Safekeeping of public money, transfer of money, issuing drafts, exploring investment opportunities and lending drafts, exploring investment being provided. Information Technology enables sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks and helps the financial intermediaries to reach geographically distant and diversified markets. Internet has significantly influenced delivery channels of the banks. Internet has emerged as an important medium for delivery of banking products and services. The customers can view the accounts; get account statements, transfer funds and purchase drafts by just punching on few keys. The smart card’s i.e., cards with micro processor chip have added new dimension to the scenario. An introduction of ‘Cyber Cash’ the exchange of cash takes place entirely through ‘Cyber-books’. Collection of Electricity bills and telephone bills has become easy. The upgradeability and flexibility of internet technology after unprecedented opportunities for the banks to reach out to its customers. No doubt banking services have undergone drastic changes
and so also the expectation of customers from the banks has increased greater. IT is increasingly moving from a back office function to a prime assistant in increasing the value of a bank over time. IT does so by maximizing banks of pro-active measures such as strengthening and standardising banks infrastructure in respect of security, communication and networking, achieving inter branch connectivity, moving towards Real Time gross settlement (RTGS) environment the forecasting of liquidity by building real time databases, use of Magnetic Ink Character Recognition and Imaging technology for cheque clearing to name a few. Indian banks are going for the retail banking in a big way The key driver to charge has largely been the increasing sophistication in technology and the growing popularity of the Internet. The shift from traditional banking to e-banking is changing customer’s expectations.\
E-Banking: E-banking made its debut in UK and USA 1920s. It becomes prominently popular during 1960, through electronic funds transfer and credit cards. The concept of web-based baking came into existence in Eutope and USA in the beginning of 1980.
In India e-banking is of recent origin. The traditional model for growth has been through branch banking. Only in the early 1990s has there been a start in the non-branch banking services. The new pribate sector banks and the foreign banks are handicapped by the lack of a strong branch network in comparison with the public sector banks. In the absence of such networks, the market place has been the emergence of a lot of innovative services by these players through direct distribution strategies of non-branch delivery. All these banks are using home banking as a key “pull’ factor to remove customers away from the well entered public sector banks. Many banks have modernized their services with the facilities of computer and electronic equipments. The electronics revolution has made it possible to provide ease and flexibility in banking operations to the benefit of the customer. The e-banking has made the customer say good-bye to huge account registers and large paper bank accounts. The e-banks, which may call as easy bank offers the following services to its customers: Credit Cards – Debit Cards ATM E-Cheques EFT (Electronic Funds Transfer) D-MAT Accounts Mobile Banking Telephone Banking Internet Banking
EDI (Electronic Data Interchange) Benefits of E-banking: To the Customer: Anywhere Banking no matter wherever the customer is in the world. Balance enquiry, request for services, issuing instructions etc., from anywhere in the world is possible. Anytime Banking – Managing funds in real time and most importantly, 24 hours a day, 7days a week. Convenience acts as a tremendous psychological benefit all the time. Brings down “Cost of Banking” to the customer over a period a period of time. Cash withdrawal from any branch / ATM On-line purchase of goods and services including online payment for the same. To the Bank: Innovative, scheme, addresses competition and present the bank as technology driven in the banking sector market Reduces customer visits to the branch and thereby human intervention Inter-branch reconciliation is immediate thereby reducing chances of fraud and misappropriation On-line banking is an effective medium of promotion of various schemes of the bank, a marketing tool indeed.
Integrated customer data paves way for individualised and customised services.
Impact of IT on the Service Quality: The most visible impact of technology is reflected in the way the banks respond strategically for making its effective use for efficient service delivery. This impact on service quality can be summed up as below: With automation, service no longer remains a marketing edge with the large banks only. Small and relatively new banks with limited network of branches become better placed to compete with the established banks, by integrating IT in their operations. The technology has commoditising some of the financial services. Therefore the banks cannot take a lifetime relationship with the customers as granted and they have to work continuously to foster this relationship and retain customer loyalty. The technology on one hand serves as a powerful tool for customer servicing, on the other hand, it itself results in depersonalising of the banking services. This has an adverse effect on relationship banking. A decade of computerization can probably never substitute a simple or a warm handshake. In order to reduce service delivery cost, banks need to automate routine customer inquiries through self-service channels. To do this they need to invest in call centers, kiosks, ATM’s and
Internet Banking today require IT infrastructure integrated with their business strategy to be customer centric.
Impact of IT on Banking System:
The banking system is slowly shifting from the Traditional Banking towards relationship banking. Traditionally the relationship between the bank and its customers has been on a one-to-one level via the branch network. This was put into operation with clearing and decision making responsibilities concentrated at the individual branch level. The head office had responsibility for the overall clearing network, the size of the branch network and the training of staff in the branch network. The bank monitored the organisation’s performance and set the decision making parameters, but the information available to both branch staff and their customers was limited to one geographical location.
Traditional Banking Sector
The modern bank cannot rely on its branch network alone. Customers are now demanding new, more convenient, delivery systems, and services such as Internet banking have a dual role to the customer. They provide traditional banking services, but additionally offer much greater access to information on their account status and on the bank’s many other services. To do this banks have to create account information layers, which can be accessed both by the bank staff as well as by th customers themselves. The use of interactive electronic links via the Internet could go a ling way in providing the customers with greater level of information about both their own financial situation and about the services offered by the bank. The New Relationship Oriented Bank
TELEPHONE, BRANCH, ELECTRONIC BANKING, etc
HEAD OFFICE RISK MONITOIRING
Impact of IT on Privacy and Confidentiality of Data:
Data being stored in the computers, is now being displayed when required on through internet banking mobile banking, ATM’s etc. all this has given rise to the issues of privacy and confidentially of data are:
The data processing capabilities of the computer, particularly the rapid throughput, integration, and retrieval capabilities, give rise to doubts in the minds of individuals as to whether the privacy of the individuals is being eroded. So long as the individual data items are available only to those directly concerned, everything seems to be in proper place, but the incidence of data being cross referenced to create detailed individual dossiers gives rise to privacy problems. Customers feel threatened about the inadequacy of privacy being maintained by the banks with regard to their transactions and link at computerised systems with suspicion. Aside from any constitutional aspect, many nations deem privacy to be a subject of human right and consider it to be the responsibility of those who concerned with computer data processing for ensuring that the computer use does not revolve to the stage where different data about people can be collected, integrated and retrieved quickly. Another important responsibility is to ensure the data is used only for the purpose intended.
VII. RECENT TRENDS IN BANKING
Today, we are having a fairly well developed banking system with different classes of banks – public sector banks, foreign banks, private sector banks – both old and new generation, regional rural banks and co-operative banks with the Reserve Bank of India as the fountain Head of the system.
In the banking field, there has been an unprecedented growth and diversification of banking industry has been so stupendous that it has no parallel in the annals of banking anywhere in the world. During the last 39 years since 1969, tremendous changes have taken place in the banking industry. The banks have shed their traditional functions and have been innovating, improving and coming out with new types of the services to cater to the emerging needs of their customers. Massive branch expansion in the rural and
underdeveloped areas, mobilisation of savings and diversification of credit facilities to the either to neglected areas like small scale industrial sector, agricultural and other preferred areas like export sector etc. have resulted in the widening and deepening of the financial infrastructure and transferred the fundamental character of class banking into mass banking. There has been considerable innovation and
diversification in the business of major commercial banks. Some of them have engaged in the areas of consumer credit, credit cards, merchant banking, leasing, mutual funds etc. A few banks have already set up subsidiaries for merchant banking, leasing and mutual funds and many more are in the process of doing so. Some banks have commenced factoring business. The major challenges faced by banks today are as to how to cope with competitive forces and strengthen their balance sheet. Today, banks are groaning with burden of NPA’s. It is rightly felt that
these contaminated debts, if not recovered, will eat into the very vitals of the banks. Another major anxiety before the banking industry is the high transaction cost of carrying Non Performing Assets in their books. The resolution of the NPA problem requires greater accountability on the part of the corporate, greater disclosure in the case of defaults, an efficient credit information sharing system and an appropriate legal framework pertaining to the banking system so that court procedures can be streamlined and actual recoveries made within an acceptable time frame. The banking industry cannot afford to sustain itself with such high levels of NPA’s thus, “lend, but lent for a purpose and with a purpose ought to be the slogan for salvation.” The Indian banks are subject to tremendous pressures to perform as otherwise their very survival would be at stake. IT plays an important role in the banking sector as it would not only ensure smooth passage of interrelated transactions over the electric medium but will also facilitate complex financial product innovation and product development. The application of IT and e-banking is becoming the order of the day with the banking system heading towards virtual banking. As an extreme case of e-banking World Wide Banking (WWB) on the pattern of World Wide Web (WWW) can be visualised. That means all banks would be interlinked and individual bank identity, as far as the customer is concerned, does not exist. There is no need to have large number of physical bank branches, extension counters. There is no need of person-to-person physical interaction or dealings. Customers would be able to do all their banking operations
sitting in their offices or homes and operating through internet. This would be the case of banking reaching the customers.
Banking landscape is changing very fast. Many new players with different muscle powers will enter the market. The Reserve Bank in its bid to move towards the best international banking practices will further sharpen the prudential norms and strengthen its supervisor mechanism. There will be more transparency and disclosures. In the days to come, banks are expected to play a very useful role in the economic development and the emerging market will provide ample business opportunities to harness. Human Resources Management is assuming to be of greater importance. As banking in India will become more and more knowledge supported, human capital will emerge as the finest assets of the banking system. Ultimately banking is people and not just figures.
VIII. STRAINS AND CHALLNGES
Liberalisation process has increasingly exposed Indian Industry to international competition and banking being a service industry is also not an exception. Banking Sector in India too faces same strains and challenges at local, national and international level.
Indian Banks, functionally diverse and geographically widespread, have played a crucial role in the socio-economic progress of the country after independence. However, the growth led to strains in the operational efficiency of banks and the accumulation of nonperforming assets (NPA’s) in their loan portfolios. Banks face increasing pressure to stand out from the crowd. On the Internet, this means offering your target customers an increasingly broader range of services than your competitors and that too in unique way. All this has resulted in a challenge to managers of banks to develop the right mix of acquired and internally grown IT applications which suits customer’s expectations. Banking sector reforms and liberalisation process raised many challenges before Indian Banks and for sustainable development it has become necessary to face these challenges effectively: Intense Competition: The RBI and Government of India kept banking industry open for the participants of private sector banks and foreign banks. The foreign banks were also permitted to set up shop on India either as branches or as subsidiaries. Due to this lowered entry barriers many new players have entered the market such as private banks, foreign banks, non-banking finance companies, etc. The foreign banks and new private sector banks have spearheaded the hi-tech revolution. Heavy weight foreign banks with huge
base, latest technology innovative and globally tested products are spreading their wings and wooing away customers form other banks. For survival and growth in highly competitive environment banks have to follow the new “Guru Mantra” of prompt and efficient customer service, which calls for appropriate customer centric policies and customer friendly procedures. Technological Up gradation: Already electronic transfers, clearings, settlements have reduced translation times. To face competition it is necessary for banks to absorb the technology and upgrade their services. However use of High-Tech sophisticated technology leaves the predominantly rural, poor and even illiterate mans in the lurch to which the level of automation and efficiency of services are immaterial. Privacy and Safety: Among the most important aspects, of savings, i.e., safety liquidity and profitability, safety has to be accorded top most priority. The safety aspect assumes more significance in the emerging scenario as the economic loss caused internationally by these types of crimes might risk area and any lacunae is safety would result in erosion of confidence and the same might possibly paralyse the entire network. The areas among other things, which might endanger security in ebanking can be:
Changes in input data such as changing the amount in ledges, increasing the limits in accounts or face value of cheaques. Though these trends could be detected consequently, prevention is a major problem with these types of crimes. Use of stolen or falsified cards in ATM machines. Computer forgery could be committed by way of
gaining access to other account, deliberate damage through viruses on data stored in computers. In this case, same criminals might gain entry into the computers and cause damage to the system. This apart, another through which security and privacy are maintained. If a hacker has found out the password, he can cause havoc to the entire network. Also, if the password is stolen money could be transferred from one account to another. Software privacy is another area of potential danger faced by the banking industry. In this the entire software could be stolen. If this is done, the hackers could operate a parallel network. Human Resources Management: In the recent past the human resource Policies in banks were mainly guided by the comcept of permanent employment and its necessary concomitants of creating career paths, terminal benfits, etc. for the employees. In today’s fast-changing world of employee mobility both horizontally and vertically and value systems, the public sector banks need to hire the right talent at market
related compensation and to shed surplus manpower/staff. Thus many banks are going for URS schemes to reduce the burden of excessive staff. Schemes like VRS are going to change the nature of workforce with many senior and experienced persons opting for it. The key elements that shall provide a competitive edge to banking sector will not be physical assets but knowledge assets and information. Therefore, banks must understand how to retain knowledge based employees and prevent them to migrating to some other organisation. Banks must believe in people, customer orientation, and continuous improvement of excellence. Therefore it becomes necessary for banks to encourage all employees to take risks and work towards continuous improvements and breakthroughs. Successful banks overcoming the challenges will be those that harness technology in a customer friendly yet cost effective way. This requires enormous internal and external management and the crux of the solution lies in blending human resources with information technology.
IX. CASE STUDY
CO-OPERATIVE BANK AND ITS SERVICES SARASWAT CO-OPERATIVE BANK LIMITED
The Bank has a very humble but a very inspiring beginning. On 14th September 1918, "The Saraswat Co-operative Banking Society" was founded. Mr. J.K. Parulkar became its first Chairman, Mr. N.B. Thakur, the first Vice-Chairman, Mr. P.N. Warde, the first Secretary and Mr. Shivram Gopal Rajadhyaksha, the first Treasurer. These were the people with deep and abiding ideals, faith, vision, optimism and entrepreneurial skills. These dedicated men in charge of the Society had a commendable sense of service and duty imbibed in them. Even today, our honourable founders inspire a sense of awe and respect in the Bank and amongst the shareholders. The Society was initially set up to help families in distress. Its objective was to provide temporary accommodation to its members in eventualities such as weddings of dependent members of the family, repayment of debt and expenses of medical treatment etc. The Society was converted into a full-fledged Urban Co-operative Bank in the year 1933. The Bank has the unique distinction of being a witness to History. The Bank, which was originally founded in 1918, i.e. close on the heels of the Russian Revolution, also witnessed as a Society and as Bank-the First World War, the Second World War, India's freedom Movement and the glorious chapter of post-independence India. During this cataclysmic cavalcade of history, the Bank as a financial institution and its members could not of course remain unaffected by the economic consequences of the major events. The two wars in particular brought in their wake, paucities of all kinds and realities and stand by its members in distress as a solid bulwark of strength.
The Founder Members and the later-day management's of the Bank continued to demonstrate their unwavering faith in the destiny of the common man and the co-operative movement and they encouraged the shareholder to save despite all odds. MISSION STATEMENT "To emerge as one of the premier and most preferred banks in the country by adopting highest standards of professionalism and excellence in all the areas of working.” MILESTONES Thanks to these sustained and assiduous efforts over 25 years after its inception, the Bank had gained Strong foundation in terms of its membership, resources, assets and profits. By 1942, the Bank was fulfilling all the banking needs of its customers. During the late fifties, the Bank grew from strength to strength. The Bank had established five branches within the city of Mumbai and one each at Pune and Belgaum. In its 50th year, the Bank chose a bee motif to symbolise the Bank's emblem - a fitting and appropriate characteristics of a Bank that believed in hard work, a search for all that is good, a team spirit to achieve its objectives and a selfless service to its members and customers. The Bank has grown in stature, progressed in its social and economic objectives and produced an image of what an ideal bank should be. Resultantly, in the year
1977-78, the Bank's gross income crossed the Rs.3.00 crore mark for the first time.
Last two decades the bank has witnessed a steady growth in the business. The bank has a network of 86 fully computerised branches covering five states viz. Maharashtra, Gujarat, Madhya Pradesh, Karnataka and Goa. The Bank is providing 24- hour service through ATM at 41 locations. In 1988 the bank was conferred with "Scheduled" status by Reserve Bank of India.The bank is the first co-operative bank to provide Merchant Banking services. The bank got a permanent license to deal in foreign exchange in 1978. Presently the Bank is having correspondent relationship in 45 countries covering 9 currencies with over 125 banks SERVICES PROVIDED Saraswat Co-operative Bank being the No.1 co-operative bank in Asia, our efforts are always directed towards developing and offering competitive and innovative products and services. In the wholesale banking business, the Saraswat Co-operative Bank Ltd. provides a wide range of products from a traditional term loans to short term products like Bills discounting under Letter of Credit etc.
The Bank also offers a bouquet of Retail Loan Products such as Vastu Siddhi Home Loan, Saraswati Education Loan, Car Loan etc. and wide array of Deposit schemes with customer friendly features and attractive Rate of Interest. With a view of fulfilling all the needs of the customers under one roof Bank has entered into tie-ups with various premium institutions, through which we are offering third party products like Life and non-Life Insurance, Mutual Funds and Demat Services.
Following are the Services Provided by the Saraswat Bank PERSONAL Deposits Scheme Personal Loans
Deposits Scheme Saraswat Bank provides information of it's various deposit
schemes customers can avail of with the bank.
CUBS Deposit Current Deposit
Janhit Account (No frills account)
Savings Deposit Co-operative Societies
Savings for Kids (CUBS) Features: a) You should be a minor/student (upto the age of 21 years) to become 'CUBS' account holder. b) Initial deposit of Cubs account is Rs 50/- and subsequent deposits in multiples of Rs 10/- no periodic compulsion for subsequent Deposit. c) Starting with a small amount of Rs. 50/-, a CUB Account holder has to save Rs. 500 /- over a period of one year. d) Facility to deposit cash in school premises on predetermined days. e) After completion of 14 years of age minor/student can operate the account Cheque book facility not available. f) No charges for non-maintenance of minimum balance for first year. Benefits "Free Gift" for all account holders. Earn Interest @ 3.5 p.a. every quarter possess specially designed passbook. Minimum Balance: Account opening - Rs. 50/- with further deposit of Rs. 10/- Rs. 500/after one year of opening account.
Current Deposits Features: Minimum Average Balance. Eligibility - Individual, Businessmen, Organizations. Minimum Balance of Rs 5000/- . Free ATM cards. Non-Maintenance of minimum average quarterly balance require to pay service charges of Rs. 200/- per month. If account is closed within 6 months Rs. 30/- plus Rs. 2/per unused cheaques. Elite Savings Eligibility: Individuals, Minor by guardian, Organisations, Cooperative Minimum Balance: Societies. Rs. 5000/- (Average Quarterly Balance)
Rate of Interest: 3.50% p.a. Penalty for Non-maintenance of minimum balance: Minimum quarterly average balance: Below Rs. 4000/- to Rs. 4999/- - Rs. 50 per quarter.
Below Rs. 4000/- - Rs. 100 per quarter.
Special features / facilities: • Free Personal Accident Insurance Cover of Rs. 2.00 Lakhs for one year. • Free Utility Bills Payment facility. • Free Issue of Demand Draft / Pay Order (one occasion per month without ceiling on maximum amount) • Free ATM Card.
Janhit Account (No Frills Account)
1) Persons whose balances do not exceed Rs 50,000/- in all the accounts taken together. 2) Total credits to the Janhit account should not exceed Rs 1 lakh in a year. 3) Once a customer opens a Janhit Account with the Bank, he/she will have to close all other transaction accounts with any other bank within a period of 60 days from the date of opening the Janhit Account with our bank.
4) The initial deposit amount required to open account would be
Minimum Balance: Minimum Balance required to be maintained would be Rs.100/-.
Savings Deposits Minimum Average Balance Rs. 1000 /- with or without Cheque Book Free ATM card Interest 3.5% p.a. with quarterly rest Penalty / Service Charges Non-Maintenance of minimum average quarterly balance of Rs 1000/require to pay Rs 50/- per month If account is closed within 6 months Without cheque book - Rs. 10 /With cheque book - Rs. 15 /- plus Rs. 2 per unused cheque
Eligibility Co-operative societies Minimum Amount Minimum quarterly average balance of Rs. 15000/- in Saving/Current Account Minimum Rs. 3.00 lacs in Term Deposit Rate Of Interest 0.5% extra interest as compared to General Public for Term Deposit. For Saving Account 3.5% For Current Account – Nil
Special Features/Facilities • Free Affinity Card • Free Cheque Collection Service. • Free delivery of Statement of Account (once in a month) • Free Utility Bill Payment (Easy Pay Scheme) • Free transfer of Funds from the account of member of the Society to Society’s account for monthly maintenance • Free issue of D.D./P.O. upto Rs. 25000/- each.
IX. Personal Loans
Saraswat Co-operative Bank offers various loans to its customers, one can opt for any of the below listed loans for their assortment of needs.
Purpose Term Loan for acquiring Nucleus Cochlear Implant Banking Relation Previous banking relations are not compulsory. Applicant should be residing in the city where the branch is located.
Eligibility Hearing Impaired individual OR their Parents
Limit of Loan Rs. 10.00 Lakhs 100% of the cost of equipment and hospitalisation and allied charges 70% of the Market value based on valuation by approved valuer of the commercial or residential property
EMI Fixed Monthly Installments: ( For Rs 1.00 Lakh ) Year 1 2 3 4 5 Amount 8839 4661 3274 2585 2175
Repayment Period Maximum 5 Years Security Equitable mortgage of residential / commercial premises Pledge of tangible securities viz. NSCs, KVPs.LIC policies, FDRs, Gold or any other approved securities 2 Guarantors of well placed means
Purpose Acquiring another asset, for any other purpose, but end use should be ensured. Limit of Loan Minimum - Rs.2 lakhs Maximum - Rs. 50 Lakhs Basis of Advance a) 25 times of net salary in case of salaried person Or
b) 3 times of net cash accruals.(Net of tax and drawing plus depreciation) Or c) 60% of agreement cost (If the property is less than 3 years old.). In other cases, 60% of value as per valuation report. a,b,c Whichever is lower Eligibility a) Individual who are salaried employees having minimum net salary of Rs.10000/- p.m. (The income of the spouse may be added) b) Professional, Self-Employed and others who are income tax assessee having net annual taxable income of Rs.150000/- for at least 3 years continuously. c) Firm/Company, whose net annual taxable income is Rs.150000/- p.a. and firm/company, is in operation for last 3 years and making cash profit for last 3 years, at the above level. Rate of Interest Term loan - 12.50% on Daily Reducing Balance Cash credit - 13% on Daily Reducing Balance Repayment Period Term Loan - Maximum 5 years Cash Credit - with reducing limit (in 60 monthly installments) subject to Security Equitable Mortgage of Residential, commercial or industrial property.
Guarantor: Need not be obtained however in case of firms, companies, guarantee of partners, directors to be obtained.
Purpose of Loans Purchase of flat / bungalow Limits of Loans Maximum Rs.25.00 lakhs. Basis of Advance/ Eligibility. 95% of cost of land & construction or cost of flat + registration charges + stamp duty. 100% of cost on case to case basis with 10% collateral security in the form of approved liquid securities like Term Deposit, Govt. Securities, NSC, KVP, LIC etc.
Option I(Regular Repayment) - 60 times of net monthly salary (avg. for the last three months)Or 3 times of Net Cash accruals (average for the last 2-3 years net profit after adding back of depreciation) of applicant, spouse and close blood relative Option II (Bullet Repayment) & Option III (Progressive Repayment)65 times of net salary (avg. for the last three months) or 3 times of net
cash accruals (average for the last 2-3 years net profit after adding back of depreciation) of the applicant, spouse, and dependent blood relative, if applicant opts for Bullet payment mode. Repayment Period Maximum 15 years Rate of Interest Flexi Fixed : 11.00% p.a. - Varying every 3 years Floating : 11.50% p.a. Fixed : 12.50% p.a.
CORPORATE “Customer is not an intervention; he is the very reason for our existence.” The Bank realises this. We provide a wide array of commercial and electronic Banking products to corporate/ mid corporate/SME. Despite rapid growth in credit portfolio, Banks asset quality has shown constant improvement. Your Bank has a wide exposure to various industries. We are providing various facilities from funded to none funded from short term to long term ensuring that you get finance as per your needs. Mid Corporate Products Small & Medium Enterprises (SMEs)
Mid Corporate Products.
Bank provides variety of credit facilities to its Corporate Clients as under:
The Bank with a team of technically qualified competent customer driven relationship managers possessing wide industry experience in various segments, the Bank has taken lot of efforts to understand customers & empathizing with their needs. They can offer you working capital finance by way of cash credit or loans suitably structured to your need and risk profile in consortium or as a lead banker. Our working capital solutions are based on financial, quantitative & qualitative evaluation of your business through our technically qualified experts.
The Bank provides term finance/term loans for business expansion, up gradation of existing facilities etc to ease the pressures on margins of the company .The Bank is providing structured term loans to meet your short term as well as long term funding requirements. We offer specific solution so as to match repayment with your cash flows to repay the debt thereby enhancing your profitability.
2) Small & Medium Enterprises (SMEs)
For a business on the growth phase with a wide range of opportunities to explore, timely availability of credit is essential to scale new heights. At Saraswat Bank we see ourselves as partners to Clients business enabling you to focus on your business needs.
The Bank with a team of technically qualified competent customer driven relationship managers possessing wide industry experience in various segments. The Bank has taken lot of efforts to understand customers & empathizing with their needs.
The can offer you working capital finance by way of cash credit or loans suitably structured to your need and risk profile in consortium or as a lead banker. Their working capital solutions are based on financial, quantitative & qualitative evaluation of your business through our technically qualified experts.
Bank is providing import finance to its valuable customers by providing letter of credit facility for its customers to purchase their raw materials. These are generally provided for 90 to 180 days.
SERVICES Saraswat Co-operative Bank provides information of various Value added services that the Bank provides for it's esteemed Customers under this section.
EASY PAY Here is one more exciting facility the Bank has offered to relieve you, its esteemed client, from their valuable time standing in a queue for routine utility bill payments. All they have to do is to walk into any of the branch and register themselves under: “Easy Pay” scheme for all their recurring utility bill payments such as Telephone, Electricity Bills, Cellular Phone Bills, Insurance Premium & many more. Once the customers are registered all their future bills will be paid automatically through their bank account with bank. Any Customer can download the form and submit it to nearby branch.
ATM SERVICES Please do not waste the valuable "Time" for "Money", as the "Time" itself is "Money".
The Saraswat Co-operative Bank issue ATM card to all their clients who open account with the Bank. Being A Saraswat Bank ATM cardholder, the account holder enjoy the privilege and convenience of withdrawing cash at their convenience at time during day and night on all 365 days in a year. They can draw cash from ATMs of Saraswat Bank as well as over 2461 ATMs of 20 members Banks in "BANCS" network. For drawing cash from the ATMs of Consortium banks, no charges are levied. To avail ATM Card, account holder can download the form and submit it to nearby branch.
INSURANCE It is the Bank’s earnest endeavor to offer suite of new and competitive financial products and services. The Bank has for this purpose tied up with various insurance companies. The details of tieup and products offered are given below:
LIFE INURANCE. For Life Insurance products, we have entered into a tie-up with M/s. HDFC Standard Life Insurance Company Limited. We offer following products:
1) Endowment Plan: This being a popular savings plan is useful for meeting all long/ short-term financial needs and also covers the risk of the applicant's life. Tax benefit under Sec 80 C is also available. 2) Children’s Double benefit plan: It is the most popular plan which helps you save and secure your child's future to meet expenses for education, marriage etc. It is also known as double benefit plan as on death of life insured the beneficiary (child) gets the sum assured on death of applicant as well as on maturity of the policy. Tax benefit under Sec 80 C is also available. 3) Term Assurance plan: It is purely life risk cover plan. On death of the life insured the nominee gets the policy amount. Tax benefit under Sec 80 C is available. 4) Regular Personal Pension Plan: It is plan, which provides annuity at the retirement age. This plan is a with profit pension plan suitable for everyone to help provide regular financial security to the family. Plan takes care of retirement age, return on investment, inflation etc. Tax benefit under Sec 80 C available. [B] NON-LIFE INURANCE: For Non-Life Insurance we have a tie-up with M/s. Bajaj
Alliance General Insurance Co Ltd. Under the arrangement we offer following insurance products: 1) Health guard: This plan provides for reimbursement of Hospitalisation expenses incurred for illness/ diseases or injury sustained. The key features are lowest premium, takes care of pre and post hospitalisation expenses, ambulance charges, family discount, cashless facility with network of 600 hospitals across India. Tax benefit under Sec 80 D is available.
2) Travel Companion: It is an Overseas Travel Insurance that covers reimbursement of medical expenses at abroad, along with loss of passport/ baggage during overseas travel. 3) Personal Accident Insurance: It covers risk of death on accident. 4) Vehicle Insurance: It insures your vehicle incase of damage or loss to the vehicle.
The banking scenario has changed drastically. The changes which have taken place in the last ten years are more than the changes took place in last fifty years because of the institutionalisation, liberalisation, globalisation and automation in the banking industry. Indian banking system has several outstanding
achievements to its credit, the most striking of which is its reach. Indian banks are now spread out into the remote corners of our country. In terms of the number of branches, India’s banking system is one of the largest in the world. According to the Banker 2004, India has 20 banks within the world’s top 1000 out of which only 6 are within the top 500 banks. Today banking sector is marked by high customer expectations and technological innovations. Technology is playing a crucial role in the day to day functioning of the banks. These banks that have harnessed and leveraged technology best have a strategic advantage. To face competition it is necessary for banks to absorb the technology and upgrade their services.
In today’s context banks are following the strategy of “relationship banking” than “mass banking” which is need of the hour. The customer services are playing a very significant role in banking business. In India major events leading to deregulation, liberalisation and privatisation have unleashed forces of competition, making the banks run for their business, not only to create the customer, but more difficult to run for their business, not only to create the customer, but more difficult to retain the customer. Prompt and efficient customer service, thus, has become very significant. Relationship banking is the new paradigm for survival and success, embracing a ‘share of customer’ approach to growth by identifying, protecting and expanding customer relationship.
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