Chapter – III

TECHNOLOGY TRENDS IN BANKING OPERATIONS

3.1 Introduction

A strong, healthy and sustainable banking system is very essential for the overall

development of an economy and failure of which may lead to collapse of the economy as

a whole.160 The banking scenario in the country in the post liberalization and deregulated

environment has witnessed sweeping changes. One of the hallmark features of this

transformation has been the immense competition that has pervaded the sector. In the

present day competitive regime, “TIME” is of essence and in this era of rapid

technological obsolescence161, an opportunity lost today is an opportunity lost for

ever.

160
Sandeep Sharma and Manish Didwamia, “Indian Banking System : A Story of Development”, Volume
No.6, Readers Shelf, March, 2010.
161
N. Kantha Kumar, “Technology – The Back Bone of Banking”,Indian banker, March 2006.
92
 Banking system is the backbone of the economy and Information Technology (IT)

in turn has become the backbone of banking activities162. Technology, which was playing

a supportive role in banking, has come to the forefront with the ever-increasing

challenges and requirements. Technology to start with was a business enabler and now

has become a business driver. The Banks cannot think of introducing a financial product

without IT support. Be it customer service, transactions, remittances, audit, marketing,

pricing or any other activity in the Banks, IT plays an important role not only to complete

the activity with high efficiency but also has the potential to innovate and meet the future

requirements.163 The Banking Sector was early adopter of technology and in that way set

an example to the other Industries the need to opt for automation for taking full

advantage in operational efficiency. The automation ensures round the clock service and

162
Khushboo Khandelwal and shwetha Choudhary, “Impact of Information Technology on customer
satisfaction in banking system”, Readers Shelf, March, 2010.
163

93
makes the customer feel comfortable to undertake the financial transactions with plastic

cards and transact from the home.

These days, Banks have been vying not only to expand their clientele base but to

retain the existing customer base as well. The offerings have become much more

customer centric and customer specific than ever before. There has also been an

increasing need for providing products and delivery channels offering.164 Any Time /

Any Where banking facility.165 The advent of Internet, has also brought the world much

closer and with it, the need to keep abreast with international standards has also been

growing. In nutshell, today’s customers do not appreciate being limited by geographical

and time factors for putting through their banking transactions.

The initiatives taken in right earnest and the direction traversed determine the

market leaders and followers. In a scenario dictated by changing environment, Banks

need to clearly define their core competencies and accordingly invest in IT that will

distinguish them from other master players to obtain competitive advantage.166 The onus

is therefore on faster and timely implementation of customer friendly IT based products

and delivery channels.167 The Bank which offers what the customers expect will capture

the market. The ideal strategy to be adopted therefore will be to scout for an opportunity,

seize and deliver promptly to achieve the desired results. Unorganized or piecemeal

implementation of technology, however high the investment may be, will not bring

commensurate benefits to the Banks.

164
Pande.P.D., “The Changing Spectrum of Banking”, The Journal of the Indian Institute of Bankers,
45(2), PP.116-119, April-June, 1974.
165
Chopra.V.K.,” IT and Business Process Re-engineering”, P-17, The Indian Banker, March 2006.
166
Jalan Bimal, “Economic Growth Banking and Information Technology”,Reserve Bank of India Bulletin,
September, 2000.
167
Sourendra Nath Ghosal, “Indian Banking Needs Vision and Innovation”, The Indian Banking Needs
Vision and Innovation, The Indian Banker, Vol.II, No.3, P.15-17, March, 2007.
94
 Information Technology played significant role in business success and survival,

because, it is an important resource, valuable input and powerful tool in the hand of the

business organization to develop business168.

3.2 Need for IT Adoption in Banking

In the present set up, competition and profitability have become key words for

banks in India. Though these are mutually contradictory, banks have to balance the

severity of the competition and continue to be in the reckoning by improving their profits.

Technology has become a very important toll for banks to carve a niche for themselves

and have an edge over competition.169

Information technology has a significant influence on the banking sector. In fact,

it started a new era in the banking operations. The application of IT in banks reduced the

scope of conventional banking with manual operations170.

Therefore, investment in new technology must be made to modernize the existing

banks operations. The adoption of Information Technology also helps them to face

competition and new challenges to meet the customer expectation in the contacts of

168
Dawood Musba, “IMPACT OF EMERGING TECHNOLOGY IN INDIAN BANKING SECTOR”
th
www.scribd.com, published on 16 January 2010.
169
Murthy K.S., “Technology in Banking”, Indian Banking: Paradigm Shift, P.364-366, Banks Economists
Conference, 2001.
170
Seema Kapoor and Deepak Dhingra, “Applications of Information Technology in Banking”, E-Banking
In India, New Century Publications, New Delhi, India, First Published, 2007.
95
globalization.171 Hence technology can be the key to differentiation, competitive edge

and institutional survival.172

Technology introduction by itself will have certain effects on the processes173.

The absorption of technology in Indian Banking scenario has witnessed a gradual but

steady transgression in the last two decades.174 Technology has changes the face of

banking, and it can help catapult Indian banking to newer heights.175

With the advent of time, a segment of techno-savvy customers also emerged who

preferred to bank at their own convenience round the clock without actually venturing

into a branch premises. This demographic change has also been instrumental to a large

extent in the Banks building the capabilities for Any Time Any Where banking by

implementing state of art projects like CBS, WAN, Internet Banking, Tele-Banking and

ATM network.176

The new methods of banking practices on account of IT ensure better service besides reducing cost in banking sector.
Computerization in banking taking place all over the world. The purpose of computerization is to bring technology to counter
and enable the employees to have information on their fingertips. This enables the banks to offer better quality of services to
customers besides ensuring accurate information at a faster rate on banking transaction.

3.3 Trends in Banking Technology

The trends in the technology has brought about a significant change in many aspects in the form of computerization of
transactions and new delivery channels such as internet banking, phone banking ATMs, EFT, ECS and EDI etc.177 With migration
of traditional paper –based funds movements to quicker and more efficient electronic mode, funds transfers have become

171
Sandhu.H.S and Souch, “Impact of Information Technology on the Indian Banking Sector”, Edited
Book, Economic Reforms in India – From First to Second Generation and Beyond, Deep & Deep
Publications, New Delhi, PP.413-422, 2003.
172
Shastri.R.V., “Technology for Banks in India – Challenges”, IBA Bulletin, Vol.XXIII, No.3, PP.23-45,
March, 2001.
173
Chopra.V.K,,” IT and Business Process Re-engineering”, P-17, The Indian Banker, March 2006.
174
Rajesh Sharma and Siddarth Mittal, “Indian Banking System:The Road Ahead”, P-6, Readers Shelf,
March, 2010.
175
Robin Roy, “Indian Banks – Sustaining the Growth Momentum”, Chartered Financial Analyst, P.60-64,
November, 2009.
176
Ashakant and Nit Gupta, “Changing Landscape of Banking Performace Evaluation”, The Journal of the
Indian Institute of Bankers, Vol.47, No.1, January – March, P.29-39, 1976.
177
Suneja H.R., “Innovation in Banking Services, Himalaya Publishing House, Bombay, P.390, 1994.
96
 easy and efficient to perform.178 All these developments are lead to facilities to customers delight as well as operational
efficiency of banks and reducing operational expenses of banking services.

The Technology Architecture

Source: R P Singh, “The Role of Technology in Banking” Some thoughts on the HOW!, Nucleus
Software, 2007.

3.3.1 Computerization Banking

Computers and computerization are not very new to India. In fact the first

computer was installed in the country in the early sixties. Although initially the growth in

the number of computer installations was quite slow, by 1970 there ware 126 such

installations in 114 organizations. And since the early eighties there has virtually been a

178
Chandravathi, “Emerging Trends in the Indian Banking Sector”, Readers Shelf, Volume No.6, Issue
No.6, March, 2010.
97
computer explosion both relating to manufacturers and users179. In India however,

computerizations was slow to take shape in the banking industry essentially on account of

the technological gap, absence of a clear-cut policy, opposition of the labour unions, etc.

The Reserve Bank of India (RBI) installed its first computer in 1968, and a larger

one in 1979. But the United Commercial (UCO) Bank, the Standard Chartered Bank,

Lloyds' Bank, Grindlays, and others had installed accounting and other machines before

1966. Operations such as payrolls had been computerized fairly early on. Some head

offices began to use computers by the beginning of the 1980s180.

3.3.1.1 Need for computerization

The case for computerization in the banking industry was succinctly put forward

by the Indian Banks’ Association (IBA) before the Board of Arbitrators. Banks require

large quantities of information the need to be stored and made available on tap.

Computers help in storing large volumes of data instantly accessible181.

Besides, several clearing houses in the country are breaking down under their own

weight182. Controlling offices get inadequate information on branch operations. Transit

of funds from one place to another takes a very long time. In the meantime the

Government of India, the Reserve Bank of India and the Indian Banks’ Association

179
Sujata Gothoskar, “Computerization and women's employment in India's banking sector”, www.unu
edu/ unup books, 1999.
180
Iyer T.N.A., “Computerisation in Banks in India”, RBI Bulletin, January, 1986.
181
Kelkar, S. A., “Computers in Banking”, Commerce, 30th July, 1983.
182
Surabh Sharma and Thakur.K.S., “A comparative study of public and private sector banks”,
www.scribd.com.
98
started examining computerization and mechanization as a necessary prerequisite for the

smooth and efficient management of the banking industry183.

The Rangarajan Committee was set up in 1983 to study the scope and feasibility

of computerisation/mechanization in banks. The Rangarajan committee envisaged large

scale mechanization/computerization in the banking industry. The settlement signed on

8th September, 1983 at New Delhi specified the areas of computerisation and

mechanization and the number of machines and computers available. And with the

acceptance of its recommendations by the Government of India in 1985, computerization

age finally dawned on banks in India184. It also provided for protection of existing

provisions relating to the computerisation which were in existence at individual bank

levels185.

3.3.1.2 Facilities offered by Banks after Computerization:

Computerization is a step to improve the efficiency and reliability of the banking

sector. The round of bank computerization was, needless to say, unsophisticated and

inflexible.186 Though computerization has been touted as technological improvement, in

the majority of cases achievement has been nothing more than automation of the clerical

functions187. Consequently, though the customers had to pay higher levels of fees and

charges they had to make do with declining levels of service, inefficiency and a

183
Mohan Kumar.S, “Settlement on computerisation and mechanization in banking: Implications”,
“Computrisation and Mechanisation in Indian banks”, Deep and Deep Publications, New Delhi, 1988.
184
Sankarnarayan .P.S., Ashok Singhal “Personal computer in banks: An experience of state bank of
indore”, “Computrisation and Mechanisation in Indian banks”, Deep and Deep Publications, New Delhi,
1988.
185
Bapiraju, C.K., Computrisation, Past Experince or Pitfalls, Commerce (suuple.), 30th JAuly, 1983.
186
Yogeshwar Kumar, “Electronic Banking”, P.6, IBA Bulletin, March, 2006.
187
Shetty V.P., “Electronic Banking”, IBA Bulletin, Special Issue, March, 2000.
99
disdainful attitude to the customer’s needs and preferences. There are many facilities,

which may be offered by banks after computerisation188. These may be summarized as

under:

• Deposit figures are readily available at any point of time.

• Detailed report of account of customer is supplied on demand immediately.

• One can easily know about the number of accounts opened and closed during a
particular point of time.

• Some of the bank branches have started Foreign Exchange Business after
computerization.

• Bank branches have started Internet banking, Any time banking, ATM, Tele-
bank, Mobile banking,

• Centralised Banking Solution is also available.

The process of computerization, which was the starting point of all technological initiatives, is reaching near completion in
most banks. While the new private sector banks, the foreign banks and a few old private sector banks have already put in
place ‘Core Banking Solutions’ all public sector banks have already crossed the 97 percent level of computerization of their
business189. Where as all branches of State Bank of India (SBI) are fully computerised.

3.3.1.3 Computer Applications in Banking:

The main types of the bank computerization are as follows:

• Back office Application

• Total Branch Automation

• Core Banking Solutions

3.3.1.4 Back Office Application:

188
Narender Kumar and Mohan Kumar, “Employees’ Response to Computerisation in Banks”, Banking
Finance, March, 2005.
189
V. Dheenadhayalan, “Automation of Banking Sector in India”, Yojana A Development Monthly,
February, 2010.
100
The first step of RBI towards bank computerisation, was implementation of the Back

office application in the banking sector. The Back office application uses computers only

for data entry operations and a few calculative operations190. It also stores customer’s

data and uses dos base FoxPro to calculate interest and develop the pay roll system to

calculate the employees’ salary.191

3.3.1.5 Total Branch Automation (TBA):

Another step taken by RBI was Total Branch Automation192 in which the bank should

have TBA s/w being used in branches that are covering 80% of the total business of a

bank193. These branches should have a single customer ID concept using which all the

accounts of the customer can be retrieved. The bank should start collecting the customer-

related information for customer information system.

3.3.1.6 Core Banking Solution (CBS)

After the turn of consolidated databases (Back office Application) and networks (Total

Branch Automation) the next term is core banking applications. Core banking

applications (CBA) in Banks provide the complete front-end and backend automation of

banks. These applications also help the banks to achieve centralised processing of each

and every service of the customer. "Core banking applications provide anywhere,

anytime 24 by 7 non-stop services, which is not possible with traditional localized branch

automation systems. These applications also provide automation across multiple delivery

channels. In 21st United states, core banking has become common place. Today 100% of
190
Shashtri. R.V., “Perspectives Banking Technology in India”, Bank Economists Conferences, P.110,
2000.
191
Rajani A. Jadhav, “Problems and prospects of bank computerisation – A study of selected co-operative
banks in pune”, shoudganga.infibnet.ac.in/bit stream.
192
Damle, Y.B., “Branch Automation”, Indian Bank Association Bulletin, July, 1985.
193
Supreena Narayanan and Leela Bhaaskar, “Technology in Modern Banking”, Volume No.6, Readers
shelf, March, 2010.
101
public sector branches and all branches of private and foreign banks are under core

banking solution in India194. The vast geographical spread of the branches in the country

is the primary reason for the inability of banks to attain complete CBS implementation195.

Core banking application implementations have gained considerable momentum

globally in the past few years. Banks are now looking at tighter integration of all their

service channels. Indian IT companies that provide the option of this integration in their

value proposition would be the winners in global markets." Indian IT companies have

already made their presence felt in this market by leveraging their services experience

3.3.1.7 Benefits to customers

Anywhere / anytime branch banking is available to the customers.196

As multiple delivery channels are facilitated, Internet banking, online access to all

ATM network, tele-banking facility, bill payment facility etc are made available to the

customers.

Customer becomes customer of the bank.

Improved customer service at the branches.

No need to visit the branch as the multiple delivery channels enable the customer to

transact basic banking even from the comfort of her home / office.197

3.3.1.8 Benefits to bank

Instant availability of consistent and accurate data.

194
Kumbar V.M. “Alternative Banking: An modern practice in India”, 2008, SSRN-id1473898.
195
file:///D:/BFSI%20Sector%20in%20India.htm.
196
Sushil Kumar, “IT in Banking –Changing Face of Banking in new Millennium”,
www.international.com/computerworld/ article.asp.,2006.
197
Firdos and Shroff. T, “Modern Banking”, Northen Book Centre( Publishers of Scholarly Books), New
Delhi, 2008.
102
 MIS at a central location enhancing the decision support for the top management.

There will be effective control and monitoring by the top management.

Data base and processing are centralized leading to better monitoring of the

business and reduction in data cost and transaction cost198.

Faster introduction of customer centric products from the central location ensuring

uniformity in implementation.

Roll out of new products / Business changes can be implemented immediately. 199

New delivery channels can be integrated easily

The need for reconciliation among the branches is eliminated thereby improving

better house keeping and better operational risk management200

Ease of system administration and thereby reduction in support costs. Information

system security is ensured as the Information processing facility is centralized.

Since the transactional as well as master data of all the branches is available at a

centralized location, it is easy to set up Data-warehousing which will provide a decision

support system.

Critical nation wide payment system products introduced by the regulator such as

RTGS, NDS, CFMS, and SFMS etc can be implemented and integrated with the core

banking at the data centre. 201

198
Priyanka govalkar , Core banking solution, Electronic Banking and Payment System – Reading
Material, www.scribd.com, 21 june , 2009
199
S. Santhanakrishnan, FCA & Others, “ Banking Environment and Technology”, Information System For
Banks, Indian Institute of Banking and Finance, Taxmann Publications (P) Ltd, January, 2005.
200
Nitin Kumar Jain, Pujil Khanna, Pankaj Tiwari, Avinash Jeswani & Robin Choudhary “Indian banking
system”, www.scribd.com, Dec 05, 2009.
201
RHEA THOMAS, Under the guidance of Dr.G V JOSHI, “core banking”,www.scribd.com, 12th June,
2009.
103
 As the benefits outweigh the risks and as other major private sector banks started

off from this platform coupled with competitive pressures and heightened customer

expectations are forcing all banks today to adopt technology in a big way.

3.3.2 E- Banking

Finance function is the backbone of business transactions. Business transactions are undergoing day-by-day technological
change. So, traditional form of finance Function is not enough to cope-up with pace of changing technological scenario. The
comprehensive from of this technological change in finance function202 is e-banking.

The term electronic banking refers to the provision of information or services by a

bank to its customers, via a computer or Internet203. In its very simplest form, electronic

banking can mean the provision of information about the bank and its products via a page

on the World Wide Web (WWW). Generally speaking, E-banking means providing

banking products and services through electronic signals204.

3.3.2.1 The Development of E-banking:

“E-banking involves offering, supplying & delivering banking products and services through various electronic delivery
channels via electronic devices”. Banks are using the electronic technology to meet the ever-increasing competition in banking
205
which has converted the traditional brick and mortar banking into Electronic banking (E-banking) . E-banking as per as
information technology is concerned may be identified with three channels viz., ATM, Internet Banking and Tele Banking206.
These channels can supplement each other in ensuring the convenient way of delivering banking services. With increasing
consumer demand, banks have to constantly think of innovative customized services to remain competitive.207In other words,
it is a process of delivery of banking services and products through electronic channels such as telephone, internet, cell phone
etc. E-banking is an innovative tool for banks that is fast becoming a necessity.208

3.3.2.2 Present Status of Implementation of E-banking Services

202
Allen.F., McAndrews.J and Strahan, P., E-finance: An Introduction, Working Paper No. 01-36,
Financial Institutions Center, Wharton University, Philadelphia, PA,7 October, 2001.
203
Rajakumar.S., “E-banking”, Pg. 20-22, HRD Times, June, 2006.
204
Daniel, E., “Provision of electronic banking in the UK and the Republic of Ireland”, International
Journal of Bank Marketing, Vol. 17 No. 2, pp. 72-82, 1999.
205
Seema Kapoor and Deepak Dhingra, “Applicaation of Information Technology in Banking, E-banking
in india, challenges and opportunities, new century publications, first published, 2007
206
Unnithan, C.R., and Swatman .P., “E-banking Adaption and Dot.com Viability – A, Comparison of
Australia and Indian Experiences in the Banking Sector, Working paper, School of Management
Information Systems, Deakin University, No.14, 2001.
207
Bose Jayshree (2006),”E-Banking in India, The paradigm Shift”, PP. 22-23, The ICFAI Unversity Press,
2006.
208
Sumeet Gupta, “E-banking: A door step for global finance”, e-track business of future, vol. IV No.2
quarterly journal april-june-2008.
104
 Different banks are in different stages of implementation of E-banking. All the

banks can be divided into three stages:

(a) Information websites: these websites provide information on financial services

offered in bank branches and most of banks in India provide such websites

(b) Electronic and Internet banking: customers can do basic banking transactions like

opening an account, payment of utility bills, checking their balance and transactions209.

( c ) E-commerce and E-banking: banks become electronic market place where

customers can buy and sell through banks’ payment gateway.210

The basis advantage of E-banking over traditional is cost saving. A cost

comparison study done by IBM global services consulting group clearly shows the

advantage of using Internet as medium for banking services over other traditional

mediums211. E banking will have two-fold effect, first, it will reach the remote consumer

and second it will create the awareness among consumer about benefits of investment in

different financial products. Investment in-turns boost the financial markets and

economy212.

3.3.2.3 Challenges of E-banking:

209
Shiwani Gupta and Neetu Khanna, “E-banking in India: Dream vs. Reality”, E-banking in India,
challenges and opportunities, New century publications, first published, 2007.
210
C.S. Rayudu, “E-commerece, E-Business”, p- 269-270,Himalaya Publishing House, 2010.
211
Corrocher, N., “Does Interent Banking substitute traditional banking? Empirical Evidence from Italy”,
Working Paper, CESPRI, No.134, November, 2002.
212
Agarwal N, Agarwal R, Sharma P “E- banking for Comprehensive E-democracy: An Indian
Discernment” www.JIBC.com/e-banking, 2000.
105
1. Security: Security is the major requirement of e- banking.213 Security involves verifying the

identity of the customer using user id and passwords. 214

2. Authentication: Authentication is major issue in e-banking. Public key infrastructure (PKI)

offers the authentication. PKI provides electronic identity to a person through the issuance of

digital certificates, digital signatures and public and private cryptographic key.215

3. Digital Signature: Digital signatures are used to verify the identity of the person who sent the

transaction. Digital signatures are stored in the form of binary and a hashing algorithm is

created which is being used to verify the identity216.

4. Digital Certificate: It is a certificate which is used to testify the truth of a customer. It contains

information about the user and it is being used to verify the same. Digital certificate makes the

use of public key cryptography.

5. Standardization of bank’s: Standardization of bank's operating systems, system software and

application software is must for providing high- tech inter-banking services.

6. Heavy Investment Cost: Banks have to invest huge money to provide E-Banking services.

Maintenance cost of E-Banking system is also very high. To provide E-Banking services is still

difficult for regional banks and co-operative banks because it requires huge investment and it

affects their balance-sheet217.

7. Infrastructure: Banks basically require communication infrastructure for E-Banking.

Communication infrastructure basically includes computer network and internet facility

213
Gupta, Ankur, “Data Protection in Consumer E-banking, Journal of Interent Banking and commerce,
Vol.11, No.1, 2006.
214
Mlahothra A.P., “Electronic Banking”, IBA Bulletin, March, 2000.
215
Sumeet Gupta, “E-banking: A door step for global finance”, e-track business of future, vol. IV no.2
quarterly journal april-june-2008.
216
Dawood Musba, “Impact of emerging technology in Indian banking sector”, www.scribd.com,
published on Jan, 2010.
217
Narasaiah P., “E - Banking - Challenges ahead”, Banking Finance, Vol. XIX, No. 10, October 2006.
106
(broadband). Automation of banking services is another required infrastructure for inter-

banking transactions. The major challenge is reliable and cost effective infrastructure218.

8. Legislative and Regulative Issues: Regional, National and international regulation are the

prerequisites for E-Banking. These regulations are basically required for prevention of fraud,

preservation of records, evidence of proof, cheque truncation and liability for loss in case of

fraud etc.

9. Social Challenges: Public trust and confidence is a major challenge for E-Banking. E-Banking

would not be successful unless customers are satisfied with privacy and security aspects of

e-banking219. E-Banking can generate confidence by assuring that it is a convenient and cheaper

mode of banking transactions.

10. Privacy: This issue is increasing importance. This is for the benefit of the Bank as well as

for its customers. Banks are required to maintain the privacy of the transactions by

drafting such a each of the transactions undertaken by the customers would be recorded and

customer identification would be properly checked before undertaking transaction.220

221
Technology in the form of electronic banking has made it possible to find alternate banking practices at lower costs.
People are using electronic banking products and services and because a large section of the banks future customer base will
be made up of computer literate customer, the banks must be able to offer these customers products and services that allow
them to do their banking by electronic means222. If they fail to do this they will, simply, not survive223.

3.3.2.4 The most common e-banking services are:

PC banking

218
Bimil Jalan, “Strengthening Indian Banking and Finance – Progress and Prospects”, The Bank
economist Conference, India, 2002.
219
Rupa Rege Nitsure, “E-banking: challenges & opportunities for india”, in Indian banking – moving
towars globalization, Bank Economics Conferences – 2003.
220
Sumeet Gupta, “E-banking: A door step for global finance”, e-track business of future, vol. IV no.2
quarterly journal april-june-2008
221
Global Vistas,”E-banking Paradigm Shift in the Banking Industry”, Volume 4(3),October – December,
2005.
222
Abrol R.K., “Electronic Banking” (E-BANKING), Indian Bank Association Bulletin, March, 2000.
223
Palsokar .PV., “Electronic Banking”, IBA Bulletin, March, 2000.
107
 Internet banking

Mobile banking

Tele banking

ATM services

Electronic Bill payment.

Online brokerage

Online delivery of financial products

Downloading transaction information

Shared Payment Network Services (SPNS)

Loan applications

Electronic Fund Transfer (EFT)

Credit cards & Debit cards

Electronic clearing services (ECS)

Real Time Gross Settlement (RTGS)

The successful implementation of e-banking depends upon awareness of customer

about e-banking facility224. RBI is required to set- up a network of all banks through

single network. In a growing economy like India E-Banking can prove to be lubricating

oil. Emphasizing the availability of infrastructure would make it possible the viable use

of E- Banking. E Banking now extends to Rural Kiosks also225. Thus E-Banking would

act as a door step for global finance.

3.3.3 Internet Banking

224
Gulati V.P., Ganapathy K.R., and Ashutosh Saxena, “IT security policy of a bank”, IBA Bulletin,
Special Issue, March, 2000.
225
Official website of Ministry of information Technology, Government of
India.http://www.mit.gov.in/eg/home.asp,2003.
108
 The marvelous kinds of innovation in technology and hard line blend of it with

information technology made a paradigm shift in the banking industry. Technology itself

created its world in the globe of human beings226. Advent of Internet banking happened in early

1990. The main electronic delivery channel in banking is the internet, accessed via personal

computer (Karjaluoto et al., 2002). With the popularity of PCs, easy access to Internet and

World Wide Web (WWW), banks increasingly use Internet as a channel for receiving instruction

and delivering their products and services to their customers227. This form of banking is

generally referred to as Internet Banking, It enables a customer to do banking transactions

through the banks’ website on the internet.

According to Michael Karlin, the President and Chief Operation Officer of the world’s

first virtual bank Security First Network Bank228, the idea of Internet Banking is as follows:

1) You do not have to purchase any software, store any data on your computer, and

back up any information, since all transaction occur on the bank server over the

infrastructure of the Internet.

2) You will be able to conduct your banking services anywhere you like but you need to

have a computer and a modem, no matter where you are (e.g., at home, at office,

or in a place outside the country)229.

3) You can use the banking services 24 hours a day, 7 day a week, 365 days a year. You

no longer have to reconcile a bank statement or manually track your ATM and paper

cheques.

226
Rajesh Kumar Srivastava, “Customer’s perception on usage of internet banking”, Innovative Marketing,
Voluame 3, Issue 4, 2007.
227
Poonam Sharma, E-banking: Issues, Challenges and Opportunities”, Banking with technology, New
century publications, New Delhi, India, First Published, 2008.
228
Pooja Malhothra, Dr. Blawinder Singh, “Internet Banking: Indian Banks Moving Towards Innovation”,
The Indian Banker, March 2006.
229
Upendra Rao . S, “Banking Technology”, Information Technology, Data Communication and Electronic
Banking in Banking Technology, the Indian Institute of Bankers, Mumbai, First Edition: October 1998.
109
3.3.3.1 Internet Banking Features

Internet banking is the latest and the cheapest technology introduced in the banking

industry. It is acknowledged that the Internet has already and a profound effect on

delivery of financial services and this likely to bring more radical changes. Internet is a

network of networks. It is not a single network, but a global interconnected network of

networks providing free exchange of information230. At the basic level, internet banking

can mean the setting up of a web-page by a bank to give information about its products

and services231. At an advance level, it involves provision of facilities such as accessing

accounts, fund transfer, and buying financial products or services online. This is called

“Transactional Online Banking”.

In general internet banking refers to the use of internet as a delivery channel for

the banking services, including traditional services, such as opening an account or

transferring funds among different accounts, as well as new banking services such as

electronic bill presentation and payment, which allows the customers to pay and receive

the bills on a bank’s website232. The versatile facilities and opportunities provided by the

Internet and World Wide Web led to the development of electronic commerce. This

became possible when the Internet transformed from the ordinal system providing static

web pages, into interactive two-way system233.

230
International Data Cooperation, “Growth in Internet Banking”, available at epaynews.com.
231
Nikhil Agarwal and Sherry A.M., “The Advent of Internet Banking in India and related legal issues”,
14th annual management education Convention of Association of Indian Management Schools (AIMS), 23rd
to 25th August, 2006.
232
Seema Kapoor and Deepak Dhingra, “Application of Information Technology in Banking”, Banking
With technology, First published, 2008.
233
Mohan Babu.K and George.P, “A study of E- Enabled knowledge management in selected Indian banks,
Hindu Business Line, 2005.
110
3.3.3.2 Development of Internet Banking in India

In India internet was made available to the public from 1996 onwards only. Videsh

Sanchar Nigam Ltd (VSNL) is the sole service provider of the internet in India.234 Apart

from this the internet could be accessed either through the dial-up lines or leased lines.

Department of Telecommunication (DOT) is the sole provider of telephone lines

(carriers) in the country. Private and foreign banks have been the early adopters of i-

banking while the Public sector banks are also beginning to hold on to the competition235.

ICICI Bank and HDFC Bank have taken a lead in introducing i-banking in India.

Reserve Bank of India had set up a “Working Group on Internet Banking”17th

October 2000 to examine different aspects of Internet Banking (I-banking)236. The Group

had focused on three major areas of I-banking, i.e, (i) technology and security issues, (ii)

legal issues and (iii) regulatory and supervisory issues. A copy of the Groups report is

enclosed. RBI has accepted the recommendations of the Group to be implemented in a

phased manner237.

Accordingly, the following guidelines are issued for implementation by banks. The

‘working Group’ has also issued a report on i-banking covering different aspects of i-

234
Mishra A.K., “Internet Banking in India”, available at www.Banknet.com.
235
Government of India, Planning Commission, Ninth Five Year Plan (1997-2002), Vol.I,p.150.
236
Deepshikha Jamwal and Devanand Padha, “Internet Banking Systems in India: Analysis of Security
Issues”, Proceedings of the 3 rd National Conference; INDIACom-2009 Computing For Nation
Development, February 26 – 27, 2009.
237
Singh A.P., “Internet banking – security related issues”, Indian banking: Paradigm shift, p.337, Bank
Economists Conference, 2001.
111
banking238. Banks are also advised that they may be guided by the original report, for a

detailed guidance on different issues. The Internet must be secure to achieve a high level

of confidence with both consumers and businesses. So the issues that will help maintain a

high level of public confidence in an open network environment include: Security,

Authentication, Trust, No repudiation, Privacy, Availabilityction, System Architecture

and Design, Business Continuity Planning , Security awareness, training and education,

Security, breach detection and Incidence Response System239.

ICICI Bank (Industrial Credit Investment Corporation of India) is the first one to

have introduced Internet banking for a limited range of services such as access to account

information; correspondence for the first time in 1996 under the Brand name ‘Infinity’,

and funds transfer between its branches (Rajneesh and Padmanabhan, 2002). ICICI is

also getting into e trading, thus offering a broader range of integrated services to the

customer. Other banks also followed the suit. However, 1996-98 was the period of

Internet banking adoption while the Internet banking usage gained importance only in

1999. After ICICI, Citibank, Indus Ind Bank and HDFC Bank (Housing Development

Finance Corporation Limited) were the early ones to adopt the technology in 1999.240

3.3.3.3 Types of Internet banking

238
.Khan.MS, Mahapatra.S.S and Sreekumar, “ Service quality evaluation in internet banking: an empirical
study in India”, Int. J. Indian Culture and Business Management, Vol 2, No.1, 2009.
239
Reserve Bank of India, “Report on Currency and Finance, p.VI-16, 2001-02.

240Balwinder Singh & Pooja Malhotra, “Adoption of Internet Banking: An Empirical Investigation of
Indian Banking Sector”, Journal of Internet banking of Commerce, July 2004, vol. 9, no. 2.
112
 Internet banking sites offer financial services products to customer in three basic

formats. These are: Informational, Communicative and Transactional241.

Informational (Websites) - This has been identified as the first level of internet banking.

Typically the bank has the marketing information about the bank’s products and services

on a standalone server. The risk is very low as informational systems typically have no

path between the server and the bank’s internal network242.

Communicative/Simple transactional (Websites) – This type of internet banking

allows some interaction between the bank’s systems and the customer. The interaction is

limited to e-mail, account inquiry, loan application or static file updates (name and

address). It does not permit any funds transfers.

Transactional (Websites) - This level of Internet banking allows customers to execute

transactions. Since a path typically exists between the server and the bank or outsourcer’s

internal network, this is the highest risk architecture and must have the strongest

controls243. Customer transactions can include accessing accounts, paying bills,

transferring funds, etc244.

When it was introduced for the first time, internet banking was used mainly as an

information presentation medium in which banks marketed their products and services on

their web sites with the development of asynchronous technologies and secured

241
Rahmath Safeena, Abdullah, and Hema Date, “ Customer Perspectives on E-business Value: Case
Study on Internet Banking”, Journal of Internet Banking and Commerce, April 2010, vol. 15, no.1.
242
Neetu Gupta, “Internet banking Boon or Ban”, E-banking in India, New Century Publications, First
published, 2008
243
Comptroller’s Handbook, Internet Banking, Comptroller of the Currency Administrator of National
Banks, October 1999.
244
Malhotra, Pooja and Singh, Blawinder, “New Revolution in the Indian Banking Industry”, Punjab
Journal of Business Studies, Vol.1, No.1, 2005.
113
electronic transitions technologies, however more banks have come forward to use

internet banking both as a transactional as well as an informational medium.

Popularity which Internet banking has won among customers, owing to its

speed, convenience and round-the-clock access they offer, is likely to increase in the

future245. That’s why Internet banking is a successful strategic weapon for banks to

remain profitable in volatile and competitive marketplace of today. Banks are in a

position to led consumers views, as well as to cater to existing demands. Clearly,

despites of all the threats in banking industry, there is an enormous opportunity for

farsighted banks to reap the rewards available from Internet banking246. Internet banking

is going to develop much faster than most people imagine247. Keeping track of the ever

changing banking industry and the latest update in Internet technology, banks need to

equip themselves for the competition248.

3.3.4 Online Banking

The Online Banking service allows customers to manage their money from any

type of browser device including mobile phones, internet enabled T.V and even small

hand electronic organizers. Using a PC to access are account, transfer funds, pay creditor

and check if payment has been made etc is called online banking249. It allows customer

245
Deepak Kumar, Shashi Kapoor and Neelam Khullar, “Internet Banking: A New Paradigm”, E-banking
in India, challenges and opportunities, new century publications, 2007.
246
Solomon Akhidenor Okhiria, “Internet Banking in Sweden: An Exploratory Study on its Symbiotic
Benefits”, Thesis Study programme in Master of Business Administration in Marketing Management,
2007.
247
Ritu Sehgal, “Internet Banking: Paramount Role”, Banking with technology, New Century Publications,
First published, 2008.
248
Singhal, S., “Intenet Banking The Second Wave: A Banker’s Guide to Interent Strategy in the Post
Dotcom Era”, Tata McGraw – Hill Publications, 2003.
249
Diseertation, “Adiotion of online banking ”, Papers for you, P/F/174., 18, June, 2006.
114
to have constant access to accounts at any time of day or night250. The Bankers

Automated Clearing System (BACS) has been introduced in online banking to reduce

paper cost and the risk of security.

As we are aware information is a vital factor in running a successful business.

Service link is offered by online banking as a solution to problems business may

encounter when dealing with all financial methods251. Service link brings the up-to-date

information about your online bank accounts directly to your desktop. The window

based software links the office PC to the bank so you can have access to your account

information and carry out a range of banking activities by using a private password your

account balance will be shows as the close of business the previous working day252. The

projected cleared balances for the current day are also shown.

3.3.4.1 Online Banking Features and Its Benefits:

Online Banking provides the following benefits to the customers:

• Fund Transfers: Managing the supply-chain network, effectively by using its online

fund transfer mechanism253. Customer can effect fund transfer on a real time basis across

ay bank locations.

• Request : Make any request online instantaneously254.

250
Baskar S. and Ramesh M, “Growth, Finance and Regulation linkage between online banking service
quality and customers”, Perspectives of Innovations, Economics & Business, Volume 6, Issue 3, 2010.
251
Diseertation, “will online business replace the traditional business in the banking industry in UK”,
Papers for you, C/B/93., 17, June, 2006.
252
Uppal .R.K, “Banking Sector Reforms and E-banking in India”, E- Banking in India, Challenges and
Opportunities, New Century Publications, First Published, 2007.
253
.Mohan,Babu.K, George.P and Alexandru Nedelea,”A Study of E-Enabled Knowledge Management in
Selected Indian Banks”, 2005.
254 Guosong Shao, “The Diffusion of Online Banking: Research Trends from 1998 to 2006”, Journal of
Internet Banking and Commerce, Vol. 12, No.2, August 2007.
115
 • Account Information : The complete database that the bank has about customer account

is available to customer at customer terminal. It provides,

Current balance in the account on real time basis.

Day’s transactions in the account.

Details of cash credit limit, drawing power, amount utilized, etc255.

• Downloading of statement of account as an excel or text/document file. The statements

can be integrated with customer’s Enterprise Resource Planning System (ERPS) for auto

reconciliation.256

3.3.5. Mobile Banking

Today, much of the banking industry’s business depends on customer service and

building relationships with a broad client base. New and better ways of providing

customer service are essential to growth257. As people are constantly on the move

wireless technology holds huge potential for developing new business such as m-banking

where customers can use time spent away from the office to carry out banking

transactions. As a result mobile banking or m-banking application is becoming popular

worldwide. M-banking can be used for variety of banking related activities like

performing balance checks, account transactions, payments etc using mobile devices. M-

banking is also performed via SMS or the mobile internet258. The mobile banking

facility is provided through GRPS, GSM, CDMA, EDGE, 3G and CSD enabled

255
Sunayna Khurana, “ Managing Service Quality: An Empirical Study in Internet Banking”, The Icfai
University Journal of marketing management, Vol.VIII, No. 3&4, August & November 2009.
256
K.Mohan,Babu P George and Alexandru Nedelea,”A Study of E-Enabled Knowledge Management in
Selected Indian Banks”, 2005.
257
Nagesh T.R., “Mobile Banking”, Gaining Momentum, Professional Banker, January, 2009.
258
India dials M for money as mobile use takes off, Banking Technology, p- 12, July – August, 2009.
116
mobile phones. The services can be provided to customers directly by the bank or

through a 3rd party vendor259.

3.3.5.1 Development of Mobile Banking in India:

The banks are required to have a system of registration before commencing mobile based

payment services to a customer. To encourage the use of mobile phones as a channel of

payment, India has adopted a bank-led mobile payment model. In October 2008, the RBI

came out with guidelines for mobile payments in India for regulating mobile banking to

ensure appropriate safeguards and security of financial transactions.260 Banks that have

already started offering mobile payment services are required to review their position and

comply with the guidelines within three months of the notification of the guidelines.261

However, mobile alerts for credits and debit, balance enquiries and other services in the

nature of providing information can be continued.

As at end-March 2012, 49 banks with a customer base of Rs. 13 million provided

mobile banking service in India. During the year 2011-12, Rs. 25.6 million mobile

banking transactions valued at Rs.18.2 billion were transacted, thus registering a growth

of 198 per cent and 174 per cent, respectively, over the previous year.262

3.3.5.2 The M-banking services can be broadly categorized as:

• Account Information - Mini-statements and checking of account history, Alerts on

account activity or passing of set thresholds etc.

259
Anshum Srivastava, “The New Revolution in M-commerce: Mobile Banking”, e-track business of
future, vol. IV no.2 quarterly journal april-june-2008.
260
mobile banking in india, www. Pluggd.in, market, report – 297/#.
261
How can Technology Facilitate Financial Inclusion in India- A Discussion Paper, Financial Inclusion-
0901, February 16, 2009.
262
Annual report:2011-2012, RBI Annual Reports, Database of reserve bank of India, www.rbi.org.in,
2012.
117
 • Payments & Transfers - Domestic and international fund transfers, Micro-payment

handling, etc263.

• Investments - Portfolio management services, Real-time stock quotes etc.

• Support - Status of requests for credit, including mortgage approval, and insurance

coverage, cheque book and card requests etc.

• Content Services - General information such as weather updates, news, Loyalty-related

offers etc264.

M-banking is cheaper than ATM banking, and more likely to happen than Net

banking265. A bank source reports these costs per transaction: Rs.150 at a branch, Rs. 30

at an ATM, Rs. 15 with phone banking, and Rs. 10 for Internet and m-banking.266 Union

Bank of India, the first state-owned bank which introduced mobile based banking

services in the market, has so far added only 1,700 customers in mobile banking, SBI has

so far received only 10,000 registrations for mobile banking, while ICICI Bank has 80

lakh customers registered so far for mobile banking while HDFC Bank has 40 lakh

registered clients. Kotak Mahindra Bank has around 52,000 clients under the mobile

banking fold.267

The growing popularity of mobile banking facility, particularly for small-value

transactions, prompted the Reserve Bank to raise the limit for end-to-end encryption from

Rs.1,000 to Rs5,000 and remove the transaction limit of Rs.50,000 per customer per day. Banks

263
Gauri Parab .S., “Mobile Banking – bringing banking to your fingertips”, Advertising Express, p30-33,
july, 2010.
264
Susmi Routray, “ Wireless ATM: A Technological Framework to m-banking”, Journal of Internet
Banking and Commerce, April 2008, vol. 13, no.1 (http://www.arraydev.com/commerce/jibc/)
265
Nair KNC, “Chartered Financial Analyst, October, 2005.
266
“New Age Banking”, The Economic Times, p.13, Nov. 11, 2009.
267
(http://economictimes.indiatimes.com, May 20009)
118
have been advised to prescribe transaction limits based on their own risk perception with the

approval of their respective boards. But there are certain technical challenges in implementing

the m-banking scenario. Wireless technology is an enabler for the m-banking application.

3.3.5.3 Classification of Mobile Banking Services:

Classification of mobile banking services depends on the origin of the service. A mobile

banking session may be of a ‘Push/Pull’ nature268. A ‘Push’ is experienced when the

bank sends our information based upon an agreed set of rules; for example a bank sends

out an alert when the account balance falls below a threshold level269. A ‘Pull’ is when

the customer explicitly requests a service or information from the bank, such as a request

for a statement of the last five transactions270.

3.3.5.4. Taxonomy of banking services:

Description Push-based Pull- based

Transaction based Fund transfer

Bill payment
Other financial service like
Share trading
Enquiry based Credit/debit alerts Account balance enquiry
Minimum balance alerts Account statement enquiry
Bill payment alerts Cheque status enquiry
Cheque book statement
Recent transaction history

268
Parthiban .S and Raja Dharma William .B, “M-Learning: A novel Avenue to Erudition, University
News, 47 (48), November 30 – December 06, pg-33-38, 2009.
269
Bhatt Mayank Vinodhbhai, “ A study of mobile phone usage among the post graduate students, Indian
journal of marketing, pg 13-21, April, 2008.
270
Ashok Singh, “Mobile Banking - Evolution and Business Strategy for Banks”, The Indian Banker, Vol
V, No. 4, April, 2010.
119
 The mobile banking service can also be categorized by the nature of the service

rendered i.e transaction-based or enquiry-based271. A request for a bank statement is an

enquiry-based service and a request for a fund transfer to some other account is a

transaction-based service. Transaction-based services require additional security

features across the channel from the mobile phone to the bank’s data servers272.

3.3.5.5 Benefits of Mobile Banking To Customers and To Bankers

To customers:

• Customers need not stand in the bank counters/front offices for various enquiries about

his account.

• Customer can save his valuable time in banking transactions and save in travel cost

reaching the bank branch etc.

• It is a mobile banking to have information of all the 365 days at anytime anywhere

about his account273.

• Customer can pay his utility bills in time and save paying penalties, since alerts are

received from the bank274.

• Cheque book requests can be made sitting in his work place.

To Bankers:

271
Kamini Shah, Sandip Bhatt and Nirmal Jain, “Awareness and Perceptions of Customers’ about Mobile
Banking”, The Indian Journal of Commerce Vol.64, No. 1, January – March 2011.
272
Aletha Ling, “Mobile Banking – The next big thing”, p.81., Chartered financial analyst, November,
2008.
273
Bruno – Britz Maria, “Financial Crisis will Speed Adoption of Mobile Banking”, Dowloaded from
www. Banktech.com.
274
Anantha Bhaskar, P.V., “Mobile Banking - A Tool for Channel Migration”, Indian Banker, March,
2006.
120
 • M-banking helps banks in saving crores of rupees by way of reduced transaction costs.

Govt. incurs a cost of Rs. 12- 13 for every Rs.100. Mobile banking helps it reduce the

cost to a mere Rs.2.

• Banks can utilize the time saved for expansion of business, marketing and sales activities

by channel migration of customers to mobile banking275.

• Banks can take advantage of profits by way of commission for cellular companies by

selling prepaid talk time through ATMs.

• Banks providing mobile banking service can have competitive advantage on those banks,

which are not providing this service276.

In the end mobile banking not only helps a bank to reduce costs but also helps it to

retain its valuable customers. And as far as customers are concerned, this facility enables the

customer to bank anywhere, at anytime and in any condition, definitely a boon if a customer is

stuck in the middle of nowhere and requires banking services as soon as possible.

Thus mobile banking helps both, the customer as well as the bank, to lighten the

burden of today’s world and to save time, money and energy which is greatly required and

appreciated.277

3.3.6 Tele Banking

Tele banking is another innovative form of electronic banking introduced by

banks through which banking services or products are rendered through telephone to its

275
Divya Budhia, “Banking in New Era of IT”, Banking with technology, New century publications, New
Delhi, India, First published, 2008
276
Uppal.R.K, Emerging issues and strategies to enhance M-banking Services, African Journal of
Marketing Management Vol. 2(2) pp. 029-036, February, 2010.
277
Hundal B.S and Abhay Jain, “Adoption of mobile banking services in India”, ICFAI University press,
p.62, 2006.
121
customers278. Phone Banking is also called Tele Banking. A customer can access

his/her account through the telephone at anytime or at any place throughout the country

with the same Tele banking PIN (Personal Identification Number) they desire.

The potential of Telebanking is limitless and it is often projected as a future

potential growth area. Telebanking came into vogue in USA in the 1970’s. Now many

banks in India provide this facility to their customers to carry on their transactions with

the banks. Tele banking is offered by the banks through a technology known as

Interactive Voice Response Service (IVRS).279 Basically this system, accept only ‘tone’

dialed input from callers telephones instruments and provides suitable voice response

messages and information to the caller. Telebanking service is available 24 hours a day

and 7 days of a week. In other words, it provides “round the clock banking”.

Tele banking services is generally provided by the bank over the telephone on a

special number. The number at the bank is connected to a terminal in the bank which is

either handled manually or is automated by connecting the same to the computer

network. When the customer who wishes to avail the system is given a secret code which

is used to establish the genuineness of the customer280. The code is exchanged in

confidence between the customer and the bank. The service is generally available on an

exclusive telephone number of the bank.

3.3.6.1 Information provided by bank under phone banking:

278
Suneet Gupta, “A door step for global finance”, e-track business of future, vol.iv.no.2, april-june-2008.
279
Rama Chandra Reddy .B, “Some aspects of e-banking”, Banking Finance, May, 2004.
280
Al – Ashban A.A, Burney M.A., “Customer adoption of tele-banking technology: the case of saudi
arabia”, International journal of bank marketing, vol.19, pp.191-200, 2001.
122
 Besides delivering information relating to the customer’s account,281 banks also

provide the following information under phone banking service.

1. Balance in Account: This system is generally automated by most of the banks. Once

the customer establishes contact over a special number he has to give his code

number and account number. The system then gives out the balance in the account282.

2. Status enquiry: The customer can find out the status of his cheques issued by him or

cheque deposit for credit of his account.

3. Request for cheque books: The customer can also request for issue of cheque books

for his account. The bank later send the cheque by courier or requests the customer to

collect the cheque book later, depending upon the relationship with the customer.

4. Request of statement of account: The customer can also request for statement of

account which is generally mailed to the customer. In case the customer has a fax

cum phone the statement can be faxed to him immediately.

5. Cash withdrawal: This facility can be made to the customer on a very selective basis

by few of the banks. This facility is made available on a specific phone number of the

bank. The customer makes a request to the bank for withdrawal of cash and has to

give the amount to be withdrawn along with his identification code. The customer is

also required to issue a cheque for the amount and the cheque number is conveyed

over the phone. Later the bank arranges to deliver the cash through the staff/courier

who obtains the cheque for the amount.

281
Kini M.U., “Information Technology, Data Communication and Electronic Banking in Banking
Technology”, The Indian Institute of Bankers, Mumbai, First Edition: October 1998.
282
Benson KunjuKunju, “ On line and phone banking”, Commercial Banks in India – growth, challenges
and strategies, New century publications, First published, 2007.

123
3.3.7 Home Banking

Home banking offers customers a wide range of financial services to individuals

sitting in their home283. As the customer is served at his residence and there is no need for

the customer to visit the bank’s premises for a number of routine transactions. If the

customer needs some information the same can be got by contacting the bank over the

phone as described in the Tele banking.284 If the customer wants to put through

transaction and wishes to see his account or to get a statement of his account, he may

have use a PC. Customer with simple keyboard/terminal and telephone lines can give

effect to banking transactions sitting at home as also can make balance enquiries, give

instructions for money transfer, etc., without going to the bank.285

Banking services that allow a customer to interact with a financial institution from a

remote location by using a telephone, television set terminal, personal computer, or other

device to access a telecommunication system which links to the institution’s computer

286
center .

3.3.8 E-MAIL
Electronic mail or E-mail is the latest and modern form of communication which

is likely to throw the other messaging devices like fax, telex, post, telegraph and

telephone into the obsolescence. E-Mail is a natural outcome to the growth of computers.

283
Upendra Rao.S, “Banking Technology”, The Indian Institute of Bankers, Mumbai, First Edition:
October 1998.
284
Gulati S.P.S., “Electronic Banking: Are we catching up”, Deep and Deep Publications, New Delhi,
1998.
285
Navdeep Kumar, “Information Technology and Banking sector”, Banking with technology, New
century Publications, First published, 2008.
286
http://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=244
124
Once an organisation had a number of computers the next logical step would be to

interlink them and make them to communicate to one another.287

Apart from the regular communication of general/official nature, some of the

specific applications to which e-mail can be put to use in the Banking environment is

listed below:

Group addressing system can be used to send communication of general interest viz.

interest rates and current conversion rates etc.

Correspondence/advice/statement of accounts etc. to customer having e-mail address

could be sent through E-Mail288.

In case the organization has its own e-mail set up then it is also possible to establish a

Bulletin board which can be used to put up all the circular instructions for browsing by

all the user in the system.

3.3.9 SWIFT

The Society for Worldwide Inter-bank Financial Telecommunication

(SWIFT) provides reliable, cost effective, secured and expeditious telecommunication

facilities for exchange of financial messages all over the world289. The foreign exchange

business which the Banks are conducting today would not have been possible without

SWIFT.

SWIFT, as a co-operative society was formed in May 1973 with 239 participating

from 15 countries with its headquarters at Brussels. It started functioning in May 1977.
287
Upendra Rao.S, “Banking Technology”, the Indian Institute of Bankers, Mumbai, First Edition: October
1998.
288
Tom Jacobs, “Multi- channel banking”, p/49, Provenir, Inc, 2007.
289
Jain..P.M, “e-payments and e-banking”, Indian banker, march 2006
125
The Reserve Bank of India and 27 other public sector banks as well as 8 foreign banks in

India have obtained the membership of the SWIFT on December 2, 1990290. In 1994,

under chairmanship of W.S.Saraf, Executive Director, RBI, a committee was conducted

to the optimal use of SWIFT.

The structured financial messaging solution (SFMS) operated by the

Institute for Development and Research in Banking Technology (IDRBT) is the only

messaging infrastructure that banks are permitted to use for exchange of financial

messages. Recently, permission has been accorded for the domestic use of SWIFT as an

alternate messaging solution. This permission is subject to SWIFT: (i) having a joint

venture in India; (ii) locating a server in India for domestic messages; and (iii) ensuring

fair pricing to users. SWIFT has since agreed to the conditions and the modalities for the

use of SWIFT for domestic funds transfer are being worked out.291

3.3.9.1 Benefits

1. Reduced Cost of Operation: Messaging through SWIFT is very cheap compared to

other modes of communication. On a average the cost per message work to about

Belgium Franc 15 (Rs.15)

2. High Speed reliable communication: The reliability of the system is very high as

the present operational efficiency is about 99.995%. The messages are delivered to

the destination within 5 minutes.

290
Ganapathy .K.R., “challenges and the strategic technological responses by RBI”, P.66-69, IBA Bulletin,
March, 2001.
291
Payment and settlement systems and information technology, “Annual report: 2011-2012”, RBI Annual
Reports, Database of reserve bank of India, www.rbi.org.in, 2012.
126
3. Security and Privacy: Security features incorporated in the SWIFT network ensures

that no unauthorized user can access the system. All the messages are encrypted

before transmission which protects the messages from tapping/ tampering.292

4. Improved customer service: SWIFT network is available for 24 hours a day and 7

days a week.293 Standardised and structured messages totally eliminate

misunderstanding and misinterpretation. As delivery of message is within a time

frame the customer receives the amount promptly.

5. Standardised and machine readable message: This makes it possible to write

interface for the messages and the same can be taken into the accounting system of

the beneficiary bank.

6. No language barrier: Since the messages are highly structured interchange of

message within the five languages doesn’t pose any limitations. Thus

misunderstanding and misinterpretation are totally avoided.

SWIFT is subjected to co-operative oversight by the G-10 central banks with the

National Bank of Belgium as the lead overseer. The SWIFT Co-operative Oversight

Group (OG) has been expanded to include other CPSS member countries, including the

Reserve Bank of India. SWIFT provides have rapid, secure, reliable and cost effective

mode of transmitting the financial messages worldwide.

3.3.10 Single window system:

Single window service in banks is a novel techniques adopted by commercial

banks to attract and retain the customers. Before the introduction of single window

292
Puja Arora, Deepak Kumar and Monika Kansal, “ E- Banking in India Challenges and Opportunities”,
New Century Publications, First Published, 2007.
293
Balasubramanya .S., “IT wave breaks over banking”, The city, Aug-Sep, 2002.
127
service system, there were separate counters for each service of a bank. The customer,

who required more than one, banking service of a bank. The customer, who required

more than one banking service at a time, had to approach different counters294. The

customers used to wait and stand in a queue before each counter when he needed more

than one services in a day.

Under single window system, the banks provide all required banking services

through a single counter. These services are cash and cheque deposits, withdrawal of

money, issuing of demand drafts, transfer of funds, issue of cheque book etc. Under this

scheme, a customer need not approach different counters for these banking services.

3.3.10.1 Customer benefit through SWS:

1. It cuts down the time spent by the customer in the bank for going from counter to

counter as all his needs are met on one counter

2. The transactions are posted in the system on line and the customer gets the balance

updated immediately.

3. The layout of the premises which will be clean and net gives a better aesthetic look

and the customer feel comfortable to transact business.

3.3.10.2 Bank’s Benefit Through SWS

The advantages to the bank on account of the single window system are:

294
Benson Kunjukunju, Commercial banks in India, Growth challenges and strategies, New Century
Publications, First Published, 2008.
128
1. The office lay out is re-organised to suit the work flow which is redesigned. The

banking hall looks better.

2. As all the counters have to provide all the service there will be more staff manning

counters and less of back office support staff. This will reduce the crowed on the

lobbies.

3. Since the system calls for reorganization of the work flow in the banking hall it is

possible to have better operational and efficient management.

4. Better customer service will lead to better business opportunities and the bank will

stand to gain in the long run.

5. Since all the customers are going to be the counter the customer need not move into

the office area and this can give a better security environment.

6. Single window concept through automation eliminates interdependence and each

employee work independently with greater responsibility.

7. Automation also helps the bank on better deployment of staff, improve operational

efficiency and profitability.

The extension of single window concept in the manual system of book keeping is

not possible as all transactions, being financial in nature has to follow the strict

accounting procedures. Therefore the concept of single window concept in manual

system is not practicable295. Computerisation of the Branch is a prerequisite for extension

of the single window concept at the Branches.

3.3.11 ATM or ANYTIME BANKING

295
Information Technology, Data Communication and Electronic Banking in Banking Technology, the
Indian Institute of Bankers, Mumbai, First Edition: October 1998.
129
 Banking service available 24 hours a day and 365 days a year296. Such facility is

made available to the customers through the Automated Teller Machines (ATMs).

Banking being a service industry is primarily driven by customer needs. Any customer is

willing to pay a price for the services provided it is made available to him when he wants

and where he wants. The concept of banking hours have been changed from the fixed 4

hours to 24 hours. This has been made possible through use of ATMs. Where some banks

have not introduced the ATMs, even under the manual service banks have started to

extend the service from the traditional 4 hours to 5 hours and even upto 12 hours say

from 8 AM to 8 PM. Some banks have introduced the practice of Sunday Banking or

Holiday Banking.

ATM means neither “avoids traveling with money” nor “any time money,” but

certainly implies both297. ATMs were the first well-known machines to provide electronic access

to customers298. With advent of Automatic Teller Machines (ATM), banks are able to serve

customers outside the banking hall. ATM is designed to perform the most important function of

bank. It is operated by plastic card with its special features. The plastic card is replacing cheque,

personal attendance of the customer, banking hour’s restrictions and paper based verification.

ATMs have made hard cash just seconds away all throughout the day at every corner of the

globe. The customer can operate the ATM card with a personal identification number issued by

the financial institution.

296
Laxman.G., “ATM services and perceptions of users – a case study of Andhra bank, southern economist,
vol.44, no.5, pp.16-20, 2005.

297 Sultan Singh, Ms. Komal, Impact of ATM On Customer Satisfaction - A Comparative Study of SBI,
ICICI & HDFC bank, Business Intelligence Journal - Vol. 2 No. 2, August, 2009
298
Uppal.R.K, Future Outlook of ATMs in India-Emerging Issues and Possible Solution, Indian Journal of
Finance, ISSN- 0973-8711, Vol.4, No. 12, December 2010, pp. 1-12.
130
3.3.11.1 ATM Banking in INDIA:

First use of ATM magstripe cards started in 1969. Docutel installs its Docuteller

machine at New York’s Chemical Bank. The installation marks the first use of

magnetically encoded plastic. The first IBM-compatible Diebold machine is installed at

a bank in Indianapolis in 1978299. Although the 1st Cash Dispenser machine in

Bangladesh was installed by Agrani Bank at Press-club branch but the modern use of

ATM started in Bangladesh by Standard Chartered Bank in the early 90’s.

When HBSC Bank (Hong Kong and Shanghai Banking Corporation) installed the

first Automated Teller Machine (ATM) in 1987, it was considered the first and most

visible piece of evidence announcing the arrival of electronic banking in India. In the last

decade, ATMs have mushroomed over the urban Indian landscape, becoming today’s

most preferred delivery channel. ATMs were followed by Tele banking and PC banking

in the late 1990s300. In India from a small installed base of 500 ATMs in 1998, it has

grown to nearly 7,500 ATMs. Now almost every commercial bank gives ATM facilities

to its customers. SBI is following the concept of ‘ATM in Quantity’. The corporation

bank has the second largest network of ATMs amongst the public sector bank in India.

ATM is a machine in the nature of a computer in general sense, but is dedicated to do

certain types of specific jobs only. It is a very user friendly system and the customer does not

require any training to use it. It is totally menu driven which displays instruction to the customer

299
Rafiqul Islam.M.D, Samir Kumar Sheel and Pallab Kumar Biswas, “Customer Satisfaction of ATM
Service: A Case Study of HSBC ATM”, Electronic copy available at:http://ssrn.com/abstract=990242.
300
Gulatim.V. Sivakumaran.V.P and Manogna.C, “IT framework for the Indian banking sector”, ASCI
Journal Of Management, 31(1&2), Copyright © 2002.
131
step by step as to how to operate the ATM no time is wasted301. The time limit for customers’

response to each of the operation is fixed. If the customer do not respond with say 4 to 6

seconds the transactions is aborted. This time limit is pre-set by the bank. A smart person no

longer needs to carry a wallet-full of paper money on his person. All he needs to do is fish out an

ATM (automated teller machine) card, insert it in the slot, punch in a few details and go home

with hard cash. It is professional service.

3.3.11.2 Functions of ATM

The functions of ATM differ from Bank to Bank. ATMs allows a number of banking

functions. The following features are available in the ATM of all the banks302.

• Fast cash: when customer want to do the only activity of drawing cash in pre-

determined amounts like Rs.500, Rs. 1,000, Rs. 2,000,Rs.5,000 etc. customer can use

this option.

• Normal cash withdrawal: Every bank has fixed a maximum limit of cash withdrawal per

account per day303. It ranges between Rs. 10,000-15000. While in some banks the

maximum amount may be drawn in one shot (HDFC, ICICI) and in some other banks it

should be drawn in lots (Syndicate Bank, State bank of India).

• Balance Enquiry & PIN change.304

• Mini statement of account: customer can get detail of last 5-10 transactions.

• Cash Deposit: Varied procedures exist. Here special covers are available in the ATM

wherein the client has to fill up the window opens wherein the cover containing the
301
Mete Feridun and Orhan Korhan, “Banking and Technology: Information Flow between the Human and
the Machine through Automated Teller Machines”, Information Technology Journal, Vol. 4, No. 1, pp. 75-
77, 2005.
302
Leena Kakkar, “Economics of ATM”, E-banking in India, challenges and opportunities, New century
publications, first published, 2007.
303
Arti Chandani & Neeraja .B., “Emerging Trends in the service sector: Banking Sector”, p.11, Volume
No.6, Issue No.6, Readers Shelf, March, 2010.
304
ATM transactions pip credit cards, Economic Times, May 31, 2003.
132
 cash has to be dropped. At the end of the day, officials of the branch to which the

ATM is attached, would open the machine, take the difference between the amount

fed and the actual cash in the cover, the decision of the bank is final.

• Transfer transactions: If customer wants to transfer funds with in the bank i.e. from

one account to another at same branch or at different branch, customer can use this

option305.

3.3.11.3 Types of ATM

There are two types of ATMs, one is On-Site and another is Off-Site ATMs.

On-Site ATMs: ATMs which are located within the premises of the Bank’s Branch

which has installed it is referred as On-Site ATMs.306

Off-Site ATMs: ATMs which are located at public places are Off-Site ATMs. ATMs

located at Food Worlds, Railway Stations, Petrol Bunks, Airports are examples of Off-

Site ATMs.307

3.3.11.4. Advantages of ATM to the Customers

• 24 x 7 access availability (anytime).308

• The geographical spread of ATMs soon designed to surpass the branch network

(anywhere)

• Less time for transactions (less queue).309

305
Prasad .P.S.R., “cost benefit analysis – Automated Teller Machine”, The management accountant,
Vol.6, No.8, pp-622-627, 2006.
306
http://money.howstuffworks.com/atm2.htm.
307
Murali.S, “A 2 Z of ATM”, The Indian Banker, P-79, March 2006.
308
Seema Kapoor and Deepak Dhingra, “Applications of Information technology in Banking”, E-banking
in India, challenges and opportunities, New century publications, first published, 2007.
309
Ramnathan.R.N, “ATM – A convenient Banking”, Indian Banker, March, 2006.
133
 • Acceptability of card across multiple bank ATMs, even foreign tourists can access

Maestro/VISA (Virtual Instrument Software Architecture) ATMs.

• Plethora of services available in addition to cash dispensing.

3.3.11.5 Advantages of ATM to the Bank

• Cost of setting up ATMs much lower than the branch310

• Migration of the routine transactions to the ATMs frees the Banks staff for more

productive work

• ATMs serve as the crucial touch points for cross selling of Banks products

• Enables the Bank to display products on the screen and serves as a media for publicity

for the Bank

• Less hassle in handling cash.

3.3.11.6 Difference between an ATM Card and a Debit Card

Most of the Debit Cards issued by the banks are also ATM cards. Hence they are also

sometimes called as ‘ATM-cum-Debit Cards. While ATM cards can only be used to

access cash, debit cards can be used to make purchase at retail shops/merchant

establishments in the same way as the credit cards are used. Debit Cards contain the

symbol or hologram of collaborating company such as VISA, MasterCard, Maestro and

Cirrus etc. Whereas no such symbols are visible on ATM card only without the

characteristic or facility of a Debit Card311.

Today’s all public sector banks are taking the installation of ATMs seriously for

Indian market. They are either setting up their own ATM centers or entering into tie-up’s

310
Andrea Schaechter, “Issues in electronic banking: an over view”, IMF policy discussion paper, no.02/6
Washington: International Monetary Fund, 2002.
311
Bansal.N.K, Plastic Card Currency, A Convenient Mode of Payment, Indian Banker, March, 2006.
134
with other banks. Since April 2009, access in any ATM machine in free of charge it is

the great opportunity to any where banking in India. The number of free transactions

permitted per month (five transactions as on date) at other bank’s ATMs to savings bank

account holders has been modified to include all types of transactions, i.e., both financial

and non-financial by RBI.

With the view of using ATMs as extended delivery channels for branchless

banking in Tier III to Tier VI unbanked/ under-banked areas, the Reserve Bank has

permitted non-banks to set up, own and operate ATMs that are styled White Label ATMs

(WLAs), which would provide ATM services to customers of all banks. Non-bank

entities that have a minimum net-worth of Rs.1 billion need to seek authorisation under

the PSS Act, 2007 and opt for one of the three schemes. A certain percentage of the total

WLA installed by the entities have to be installed in Tier V and Tier VI centers. The

sponsor bank will be responsible for cash management and the customer grievance

redressal.312

Thus the ATM’s would be the ‘Banking of the future’ and the brick and mortar

branches would slowly disappear. Both Banker and the clients, due to its various benefits

have adapted themselves to the ATM culture.

3.3.12 Electronic Fund Transfer (EFT) / National Electronic Fund Transfer

(NEFT):

EFT provides the transfer of funds from any account at any branch of any member bank

in any city to any other account at any bank at any branch of any member bank in any other city.

312
Annual report:2011-2012, RBI Annual Reports, Database of reserve bank of India, www.rbi.org.in,
2012.
135
Centralized fund management system (CFMS) and Centralized funds enquiry system (CFES)

conducted by clearing houses of the RBI using INFINET facilitates EFT. RTGS is the next

extension of EFT.

3.3.12.1 The Development of Electronic Fund Transfer:

The Electronic Fund Transfer was introduced on the basis of the

recommendations of the ’Saraf Committee’ appointed by RBI on ‘Technology Issues’ in

1994. The scheme has been in operation since February 1996313. The Committee made

wide-ranging recommendations based on which the Reserve Bank drew up an Action

Plan for implementation of the recommendations. The EFT system covers all the

branches of public sector banks and scheduled commercial banks. A Special EFT

(SEFT) was introduced in April 2003. This has facilitated same day transfer of funds

across accounts of constituents at all these branches.

EFT System hosted and operated by the RBI, permits transfer of funds, unto Rs. 5 lakh

from any account at any branch of any member bank in any city to any other account at any

branch of any member bank in any other city314. This system utilizes the Service Branches of the

member banks and the nodal offices of RBI. RBI NET is the conduit for the flow of funds. The

Reserve Bank of India acts as the service provider as well as regulator.

3.3.13 National Electronic Fund Transfer (NEFT):

313
Benson Kunjukunju, “Commercial Banks in India – Growth Challenges and strategies, New Century
Publications, New Delhi, 2008.
314
Kumbhar V. M., “Alternative Banking:AnModern Banking Practice in India”, , SSRN- id14738, pdf,
2008.
136
 National Electronic Fund Transfer (NEFT) is an online system for transferring

funds of Indian Financial Institution (especially loans). This facility is used mainly to

transfer funds below Rs. 2,00,000/- . Among the major applications identified for porting

on the INFINET in the initial phase are e-mail, Electronic Clearing Service - Credit and

Debit, Electronic Funds Transfer and transmission of Inter-city Cheque Realisation

advices. Later, other payment system related applications as well as Management

Information System (MIS) applications are proposed to be operationalised.315

3.3.13.1. The Development of NEFT:

Shri. S. P. Talwar, Deputy Governor, Reserve Bank of India, inaugurated the

INFINET on June 19, 1999. All Banks - Public Sector, Private Sector, Cooperative, etc.,

and the premier Financial Institutions in the country are eligible to become members of

the INFINET316. The NEFT system in India lives with effect from 21 November 2005.

NEFT was sent to cover all banks which were participating in the special electronic funds

transfer (NEFT) clearing.

NEFT was made on the structured financial messaging solution (SFMS)

platform. Public key infrastructure (PKI) technique used in NEFT for maintaining

security. The increase in the spread of NEFT to 86,449 branches as at end-May 2012

underscores the success of various policy initiatives.317

3.3.14 Electronic Clearings/Settlement (ECS)

315
National_Payments_Corpor ation_of_India, .http://en.wikipedia.org/wiki/.
316
IDRBT initiatives, Report on Institute for Development and Research in Banking Technology, 2004.
317
Annual report:2011-2012, RBI Annual Reports, Database of reserve bank of India, www.rbi.org.in,
2012.
137
In 1994, RBI appointed a committee to review the mechanization in the banks and also

to review the Electronic Clearing Service.318 The committee recommended the electronic

clearing services of credit clearing and debit clearing. The committee recommended in

its report that electronic clearing service - credit clearing facility should be made

available to all corporate bodies/Government institutions for making repetitive low value

payment like dividend, interest, refund, salary, pension or commission, it was also

recommended by the committee electronic Clearing Service – Debit clearing may be

introduced for pre-authorised debits for payments of utility bills, insurance premium and

installments to leasing and financing companies RBI has been necessary to step to

introduce these schemes, Initially in Chennai, Mumbai, Calcutta and New Delhi.

In November 2005, banks were advised to develop appropriate delivery channels

of electronic payment services using the payment systems developed by the Reserve

Bank such as RTGS, ECS, EFT, and NEFT with no further delay. Emphasis on

widespread usage of Electronic Clearing Services (ECS) is being prescribed by the

Reserve Bank of India to encourage non paper based funds movement.

3.3.14.1 The form of Electronic Clearing Service: Electronic Clearing Service consists

of Electronic Credit Clearing Service and Electronic Debit Clearing Service

3.3.15 Electronic Credit clearing

Electronic Credit Clearing Service is a reliable device used for bulk and repetitive

credit-push payments such as salary, pension, dividend, commission, IPO refunds,

318
Puja Arora, Deepak Kumar and Monika Kanasal, “Role of Information Technology in Banking sector”,
E-Banking in India – Challenges and Opportunities, New Century Publications, First published, 2008
138
interest etc. The maximum limit for ECS credit clearing facility is limited to Rs. 5,00,000

and below. ECS credit facility is largely utilized by the public and private limited

companies and Government departments, which makes bulk and recurring payments.

Electronic Credit Clearing Services brings down administration cost and ensures more

profitability and productivity to the bank.

3.3.15.1 Development of Electronic Credit clearing:

RBI introduced the electronic Credit clearing Services in April 1995. At the time of

introduction, the facility was available only at National Clearing Centre Mumbai and

Chennai and later it was extended to New Delhi and Kolkata319. However, at present this

facility is available across the country. All banks and branches in these locations are

mandatory participants.

3.3.16 Electronic Debit Clearing

ECS (Debit Clearing) Scheme helps utility institutions, insurance companies,

credit card companies and finance companies to collect the proceeds of

telephone/electricity bills, insurance premia or periodical installments etc., on the due

date based on the mandates received from the consumers/subscribers.320The clearing and

319
Benson Kunjukunju, “Payment Settlement System in India, Commercial banks in India, growth,
challenges, strategies, first published, 2008.
320
Dharmarajan.S, “Information Technology in Banking Services – Trends, Issues and Challenges” Paper
Has Been Presented At The National Conference on Recent Trends in Financial Services held By the
Department Of Commerce, Annamalai University held on 12th October, 2007.
139
settlement activities are dispersed through 1,047 clearing houses managed by RBI, the

State Bank of India and its associates, public sector banks and other institutions.

3.3.16.1 Development of Electronic Debit Clearing:

ECS (Debit Clearing) is a mode of payment whereby an institution receives

payments from a large number of consumers/customers. Electronic Debit Clearing

facility was initially introduced by the RBI at Chennai in August 1994 and at Mumbai in

March 1996 and later was extended to New Delhi and Kolkata. At present, this facility is

available across the country and all banks and branches in these locations are mandatory

participants.321

3.3.17 RTGS - A Real Time Gross Settlement System

“RTGS is funds transfer system where transfer of money or securities takes

place from one bank to another on a “real time” and on “gross basis”. Once processed,

payment are final and irrevocable322.

It provides immediate finality of transactions. Gross settlement refers to the

settlement of each transfer individually rather than netting. In short, with RTGS, any one

can make any types of currency payments to any one he likes, by paying few rupees as

service charge/transaction fee. It is also an electronic remittance or clearing system

which facilitates transfer of funds between two branches of same or different Banks

within couple of hours.323

3.3.17.1 The Development of RTGS:

321
Kaza Sudhakar, “Electronification of Payment System in India”, The Indian banker, march, 2006.
322
Sawant.B.S, “Technological Developments in Indian Banking Sector” Indian Streams Research Journal,
Vol.1,Issue.IX, pp.1-4, Sept,2011.
323
Jain.P.M, “e-payments and e-banking”, Indian Banker, March, 2006
140
 RTGS is one such product of innovation in network technology, launched by RBI

on 26th March 04 on State Bank of India, Standard Chartered bank, in Indian Financial

Markets.324 RTGS is a facility available for quick safe and secured mode of electronic

funds transfer. Through RTGS one can affect instant remittance / payment settlement

even to another Bank.

Service charges in the RTGS system were reintroduced from October 1, 2011 to

recover operational costs and to bring further effi ciency in the system. The RTGS

service charges have been introduced with three sub-components: monthly membership

fee, transaction fee, and time varying tariff. Member banks are permitted to pass on only

the time varying tariff to their customers. The increase in the spread RTGS to 84,638

branches as at end-May 2012 underscores the success of various policy initiatives.325

In view of the increasing transactions volumes, as also other business

requirements, the Reserve Bank is in the process of replacing the existing RTGS with

NG-RTGS, which provides more functions and facilities. The NG-RTGS is expected to

adopt the emerging messaging standards.

Since RTGS is liquidity-intensive, the next generation RTGS (NG-RTGS) is

structured to be equipped with liquidity saving features, an advanced gridlock resolution

mechanism, increased security measures, operational reliability, business continuity and

compliant with international standards. It would encourage inter-operability between

alternative systems.326 The new system would endorse (a) the latest technology; (b) high

324
Kalpana.B, “REAL TIME GROSS SETTLEMENT”, Indian Banker, March, 2006.
325
Payment and settlement systems and information technology, “Annual report: 2011-2012”, RBI Annual
Reports, Database of reserve bank of India, www.rbi.org.in, 2012..
326
Payment and settlement systems and information technology, “Annual report: 2011-2012”, RBI Annual
Reports, Database of reserve bank of India, www.rbi.org.in, 2012.
141
scalability and flexibility to adapt to changes in the financial environment and other

requirements; and (c) enhance accessibility to cope with changes in the financial

environment, such as globalisation of financial transactions and networking of settlement

infrastructures.

3.3.18 Magnetic Ink Character Recognition (MICR)

Magnetic Ink Character Recognition (MICR) is also known as Automated

Clearing System (ACS). In India MICR technology is used in clearing of cheques. MICR

characters are printed with a magnetic ink or toner. Magnetic printing is used so that the

characters can be reliably read into a system. MICR cheques contains a lot of

information, which are in the code line and are printed in magnetic ink enabling the

machine to read it instantly. Under this system specific type of paper is used for printing

the cheque. These cheques are processed in a high speed machines and has to withstand

the stress and strains of operations.

The clearing house which are conducted manually the clearing presentation takes

place during the banking hours. Whereas in the MICR clearing it is generally conducted

during night for the reason all the cheques presented during the day could be presented in

clearing on the same day. The payee branch process the payments on the next day all

returns are submitted in the next day clearing. The customer gets credited on the 3rd day.

Speed and accuracy is the basic essence of the automation of the clearing house

operations.327

3.3.18.1 The Development of MICR Technology:

327
Benson Kunjukunju, “Payment Settlement System in India, Commercial banks in India, growth,
challenges, strategies, first published, 2008.
142
MICR (Magnetic Ink Character Recognition) is a character recognition technology

adopted mainly by the banking industry to facilitate the processing of cheque328. The

process was demonstrated to the American Bankers Association in July 1956, and it was

almost universally employed by 1963. The first phase of mechanized cheque clearing

using Magnetic Ink Character Recognition technology has been completed in June 1986

with the introduction of high-speed reader sorter system for processing local as well as

inter city MICR cheques at the clearing house managed by Reserve Bank of India. MICR

cheques clearing facility was introduced by RBI initially in 4 metropolitan cities namely

Mumbai (1986), Chennai, New Delhi (1987) and Kolkata (1989). Speed clearing,

introduced in 2008, operating on the core banking infrastructure of banks has now been

mode available as a part of MICR.

3.3.19 Credit Cards

Credit cards represent a step in the direction of an electronic fund transfer system. It is a

card, which provides right to its holder to use it from making the payment against purchases.

Customer needs not to make immediate cash payment329.

Credit cards are generally issued by banks only to those prompt customers having

either savings or current account. The banks should issue cards to its customers only

328
Kumbhar V. M., Alternative Banking :An Modern Practice In India”, SSRN-id1473898pdf.
329
Shiwani Gupta and Neetu Khanna, “E-banking in India, Dream Vs. Reality”, E-banking in India,
Challenges and opportunities, First Published, 2007.
143
having good financial standing, with satisfactory records of accomplishment. The credit

limit or purchasing power is fixed by the bank issuing the card. 330

3.3.19.1 The Development of Credit Cards:

Credit cards began to be used in USA as early as 1920’s and their use began to increase

after 1950. Diners Club introduced their credit card in 1950 and the American Express Company

in 1958 and Bank of America in 1959. In India, the Central Bank of India was the first bank to

introduce the credit card known as ‘Central Card’ in the middle of 1981. Credit card facility

became immensely popular among customers in India 1990. With the introduction of credit

card system, the concept of every – where and any time banking became a reality. Convenience

and easy acceptability of credit cards and technological advancements have paved the way for

continuous rise in credit card-based of payments and transactions. Credit cards are designed to

reduce the use of either cash or cheque for transactions.

3.3.20 Debit Cards

Debit card is similar to credit card with some important exceptions. While the process is

fast and easy, a debit card purchase transfers money fairly quickly from customers bank account

to the store’s account. So, its important that customers have funds in their account to cover

their purchase331.

330
Benson kunjukunju, “Liberlisation of Banking services”, Commercial banks in India, Growth challenges
and strategies, First published, 2008.
331
Divya Budhia, “Banking in New area of IT”, Banking With technology, New cEntury Publications, First
published, 2008.
144
 The debit card is a plastic card used at the point of sales to make payments

generally for smaller amounts and also for obtaining cash. By using a credit card the

cardholder access his line of credit, whereas in case of debit card the cardholder access

his deposit account. The use of debit card is like use of the cheque. The term ‘debit’ is

generally associated with the deposit account-personal accounts. When the cardholder

makes a purchase he would generally draw a cheque in favour of the merchant or pay

cash. Now the other alternative available to him is the use of the debit card. After use of

the debit card the transaction appears on the cardholder’s account statement. Debit cards

are more secure way of making payments.

3.20.1 Development of Debit Cards:

The debit cards gained attention during late 70s and early 80s. However the

growth during the 90s have been phenomenal. Financial institutions are showing greater

interest in debit cards as they provide new avenue for business and income. From 1st Jan

2011, RBI declared that for every transaction with debit card on ATM user has to enter

password for every transaction. This is done for security purpose332. All cards issuers are

affiliated to two major issuers – VISA and Master Card.333 These are also accepted at all

the locations. Debit cards linked to a bank account, sometimes referred to as check cards,

can be used at ATMs as well as at points of sale and over the Internet334.

332
Sawanth B.S., “Technological Developments in Indian Banking Sector”, ISSN No-2230-7850, Indian
Streams Research Journal , Vol.1,Issue.IX, pp.1-4, September, 2011.
333
Leena Kakkar, “Economics of ATM”, E-Banking in India – challenges and opportunities, New Century
Publicaaitons, First published, 2007.
334
Christopher Calice,U.S. “Consumers and Electronic Banking”, 1995–2003, Federal Reserve Bulletin
Winter 2004.
145
 The card based payment systems cover credit/ debit and prepaid cards. With more

than 250 million cards (debit, credit) issued in the country, a spurt in the usage of these

cards across various delivery channels like Automated Teller Machines (ATMs), Points

of Sale (POS), e-commerce, m-commerce, Interactive Voice Response (IVR), etc.335 has

been observed. On an average, 400 million transactions valuing over a `1,000 billion are

being processed during a month using these cards.

3.3.21 RuPay cards: With a view to introducing a domestic card scheme to ensure

efficient price discovery and healthy competition with other international card payment

networks, NPCI (National Payments Corporation of India) was granted approval under

the PSS Act, 2007 to issue RuPay cards by banks in India under the RuPay domestic card

payment scheme. NPCI launched India’s fi rst domestic card, the RuPay card (ATM and

micro-ATM cards) through banks in India. Subsequently, in March 2012, NPCI was

permitted to launch RuPay debit cards that are accepted at POS terminals in India.336

A working group constituted by the Reserve Bank for securing card present

transactions has submitted its recommendations which are being evaluated for

implementation.

3.3.22 BANKNET:

BANKNET is an internet based communication network. It provides speed of financial

transaction.

3.3.22.1 The Development of BANKNET

335
Annual report of Payment and settlement systems and information technology, “Annual report: 2010-
2011”, RBI Annual Reports, Database of reserve bank of India, www.rbi.org.in, 2011.
336
Payment and settlement systems and information technology, “Annual report: 2011-2012”, RBI Annual
Reports, Database of reserve bank of India, www.rbi.org.in, 2012.

146
BANKNET is set up in 1991 by the RBI, this backbone is meant to facilitate transfer of

inter-bank (and inter-branch) messages within India by Public Sector banks who are

members of this network337. It is a first national level communication network in India

established by RBI on the basis of recommendation of the committee appointed by it

under the chairmanship of the executive director T. N.A. Lyre.

3.3.22.2 Areas of Operation and Application of Banknet:

• The message of banking transaction can be transferred in the form of codes from the

city to the other.

• Quick settlement of transactions and advices.

• Improvement in customer service – withdrawal of funds is possible from any member

branch.

• Easy transfer of data and other statements to RBI.

• Useful in foreign exchange dealings338.

• Access to SWIFT through Banknet is easily possible.

3.3.23 Cheque Truncation System (CTS)

Cheque Truncation means that the physical cheque is scanned at the bank of first deposit

(Presenting Bank), and thereafter the electronic image of the cheque, rather than the

paper cheque itself, is sent to the Clearing House for sorting and then routing onwards to

the Drawee/ Paying Bank339. This system will replace the physical cheques with the

electronic images throughout the clearing cycles. The CTS is online image-based cheque

337
1.http://en.wikipedia.org/wiki/National_Payments_Corporation_of_India.
338
Monika Kansal , Puja Arora and Deepak Kumar, “ Role of Information Technology in Banking sector”,
on E-banking in india, New Century Publications, Frist Published, 2007.
339
Narinder Kumar Bhasin, “Cheque Truncation System:Good Bye to Paper Based Processing of Cheques”
, Indian Banker, March 2006.

147
clearing system, which capture the cheque Magnetic Ink Character Recognition (MICR)

data and the cheque image at the bank of first deposit, the presenting Bank.

3.3.23.1 The Development of Cheque Truncation System

To facilitate fast processing of cheques and prompt settlement, mechanised

cheque processing using Micr Ink Character Recognition (MICR) technology for cheque

processing in clearing was introduced in mid eighties and are in operation over 40 cities

in India. As indicated in the mid-term review of October, 2002 by Reserve Bank of India

a Working Group (Chairman: Dr. R.D.Burman, Exective Director) on Cheque Truncation

and E-cheque was set up to examine various models of cheque truncation and suggest an

appropriate model.340 Cheque Truncation System is to be implemented in New Delhi and

NCR region as a pilot project by June, 2006 and then replicated to other major clearing

centres across India.

As per Negotiable Instrument Act, 1881 (Amendment 2002) a truncated cheque

means a cheque which is truncated during the course of a clearing cycle, either by the

clearing house or by the bank whether paying or receiving the payment, immediately on

generation of an electronic image for transmission, substituting the further physical

movement of the cheque in writing. Customers will be the biggest beneficiaries of Cheque

Truncation because of reduction in time for clearing.

A grid-based CTS was initiated in March 2012 by National Payments Corporation

of India (NPCI). The implementation of grid-based CTS, increased issuance of multi-city

cheques and speed clearing called for standardisation and enhanced security features of

cheques. Accordingly, the CTS 2010 cheque standards were designed to help presenting

340
Bhasin.T.M, “Cheque Truncation System”, Indian Banker, March 2006.
148
banks identify the bonafi des of cheques from drawee banks in an image-based

processing scenario, limit fraud and enable straight-through processing. All banks have

been advised to issue only CTS 2010 standard cheques to their customers on a priority

basis in the northern and southern regions of the country and across the country through a

time bound action plan341.

3.3.24 Shared Payment Network Services (SWADHAN):

SWADHAN provides convenient banking, 24 hours a day and 7 days a week

through the Automated Teller Machines to the participating bank's customers across the

country. With SWADHAN, the bank customers are never far away from an ATM. The

member bank's customer can withdraw money anytime from any of the ATM irrespective

of the bank with which the customer has an account342. A member bank of SWADHAN

can increase its geographical presence without deploying ATMs in all the locations;

instead it can share and use ATMs of other banks, thereby saving a substantial amount.

3.3.24.1 The Development of SWADHAN:

Indian Banking association has developed SWADHAN system in 1997, which

allows its member banks to share their ATMs with other participating banks343. The

largest and only Shared Payment Network System (SPNS) in India, SWADHAN is

posting a very impressive growth rate since its inception. The average transaction per day

in the SWADHAN network is around 2500. In 1997, at the start of the network, the

341
Annual report of Payment and settlement systems and information technology, “Annual report: 2011-
2012”, RBI Annual Reports, Database of reserve bank of India, www.rbi.org.in, 2012.
342
Narendra Kumar and Narendra Kumar, “What Do computers Do in banks”, Banking Finance, p-5, May,
2005.
343
Sumeet Gupta, “E-Banking: A Door Step For Global Finance”, Vol. IV no.2 Quarterly Journal, April-
June-2008.
149
number of ATMs in SWADHAN Network was only around 24, whereas today it is

grown close to 1000 ATMs in and around 64cities.

3.3.24.2 The main features of Swadhan System

No exchange fee charged to change an old ATM card for a Swadhan card.

Rs3,000 fixed as the ceiling on withdrawal.

Exception made for select customers who can withdraw up to Rs.10,000. Still,

This is lower than the average withdrawal of Rs.15,000 by regular ATMs.

It offers services beyond cash withdrawals, like utility bill payment, fund transfer

and deposits.

It has 55 member banks in the network, which includes nationalized, private and

foreign banks. Today, in the country, 25% of the ATMs are networked to SWADHAN.

Everyday brings new ATMs and banks to the network.344

3.3.25 Structural Financial Management System (SFMS)

The SFMS is built on the lines of SWIFT but has many more utilities to offer. The

major advantage of SFMS is that it can be used practically for all purposes of secure

communication within the Bank and between Banks345. The intra-bank part of SFMS can

be used by Banks to take full advantage of the secure messaging facility provided by it.

The inter-bank messaging part would be useful for applications like National Electronic

Funds Transfer, Real Time Gross Settlement System, Delivery Versus Payments,

Currency Chest Reporting, Government Account Transfers, Forex Confirmation and

Settlement, etc.

344
Ashushibli, “Technology in Indian Banking”, http://www.scribd.com/doc/14816893/Technology-in-
Banking-Comp.
345
Deepak Tandon and Neelam Tandon, Edited by R. K. Uppal, “Technology Solutions for Bank
Management”, Banking With technology, New Century Publications, New Delhi, 2008
150
3.3.26 Smart Cards

Smart Cards are plastic cards just the size of a visiting cards.346 It looks like

another any credit card and only difference is it carries a chip embedded it in on the

reverse below the magnetic stripe. This also called ‘Stored Value Cards’. The chip is

loaded with monetary value and each time the cards is utilized to purchase goods or

services, the value is deducted from the chip’s memory and transfer to the merchant’s

account347. The card comes with two variations:

The card is purchased for specific monetary value and after it use it will be

useless348.

The other can be periodically replenished for its value. The replenishment is

generally done through special ATM devices. Smart cards can also can be used for

storing date like loan repayments, frequent air travel etc.

3.4 Growth Parameters

During the study period 2005-06 to 2011-12, the following growth parameters are calculated using Compund Annual Growth
Rate (CARG) and Average Annual Growth rate (AAGR): Computerization, Core Banking, ATMs, EFT/NEFT, ECS-Credit, ECS-Debit,
RTGS, MICR, Credit Card and Debit Card Transactions.

3.4.1. Growth of Computerisation:

Table - 3.4.1 presents the growth of fully computerization in public sector banks

in India during the period 2005-06 to 2009-10. During 2005-06, 77.5 per cent of

branches of bank are fully computerized where as in 2009-10, 97.8 per cent of branches

of bank are fully computerized. In the succeeding years banks attained fully
346
Karthikeyan, “Role and Bemefits of E-banking in India”, Volume No.6, Issue No.4, p/23, Readers Shelf,
January, 2010.
347
Ram S. Bhagwat, “New Technologies in Banking - Banking solutions for the 21st century”, Key
Technical Paper, Bank Economist Conference, 1997.
348
Narasaiah and Sudarshan Murthy, “E-banking – challenges Ahead”, Banking Finance, p/7, October,
2006.
151
computerization of total bank. The Compound annual growth rate of fully

computerization of total bank branches was 4.76 per cent and Annual average growth rate

is 6.68 per cent.

Table 3.4.1: Growth of Computerisation in Public Sector Banks in India during 2005-06 to 2009-2010

Fully
Computerisation of
total bank branches Growth
Years (%) (Percent)

2005-06 77.5 9.15

2006-07 85.6 10.45

2007-08 93.7 9.46

2008-09 95.0 1.39

2009-10 97.8 2.95

(6.68)
CAGR 4.76 AAGR

Note: CAGR – Compound Annual Growth Rate, AAGR – Annual Average Growth Rate.
Source: RBI, Reports on Trend and Progress of Banking in India during 2007-08 to 2009-12

152
3.4.2 Growth of Core Banking

Table – 3.4.2 presents the growth of core banking branches of public sector banks

in India during 2005-06 to 2009-10. During 2005-06, in 28.90 per cent of branches of

bank core banking was introduced where as in 2009-10, 90 per cent of branches of bank

are brought under core banking. The Compound annual growth rate (CAGR) of core

banking of Total bank branches is 25.50 and annual average growth rate is 59.82 per cent.

The analysis thus clearly shows that the implementation of core banking in branches of

public sector banks, considerably increased over the years under reference.

Table 3.4.2: Growth of Core Banking in Public Sector Banks in India during the period 2005-06 to 2009-10

(As at end – March)

Year Core Banking of Total Growth

Bank Branches (%) %
2005-06 28.90 162.72
2006-07 44.40 53.63
2007-08 67.00 50.90
2008-09 79.40 18.51
2009-10 90.00 13.35
59.82
CAGR 25.50 (AAGR)

Note: CAGR – Compound Annual Growth Rate, AAGR – Annual Average Growth Rate.
Source: RBI, Reports on Trend and Progress of Banking in India during 2007-08 to 2009-12

153
 In table 3.4.3 reveals the distribution of ATM’s of the scheduled commercial

banks in India among different categories of banks are broadly public sector, private

sector and foreign banks. As could be observed from the table, out of the total number of

ATM’s of scheduled commercial banks (95,686) as at the end of March 2012, public

sector banks assume a lines share of 60.82 per cent followed by private sector banks

(37.71 per cent) and foreign banks (1.48 per cent). Further, with respect to the onsite and

off-site ATM’s it is the public sector banks that accounted for a major share of 71.54 per

cent and 50.22 per cent respectively. Thus the analysis clearly shows that among the

scheduled commercial banks in India the public sector banks account for a greater share

of ATM’s. It is due to the more number of public sector bank branches and their spread

across country.

Table – 3.4.3: Number of ATMs of Scheduled Commercial Banks in India

(As at end-March 2012)

On-site Off-site Total

Bank Group ATMs ATMs number of
ATMs
1.Public sector banks 34,012 24,181 58,193
(71.54) (50.22) (60.82)
1.1 Nationalised banks 18,277 12,773 31,050
1.2 SBI group 15,735 11,408 27,143
2. Private sector banks 13,249 9,844 36,079
(27.87) (47.42) (37.71)
2.1 Old private sector banks 3,342 2,429 5,771
2.1 New private sector banks 9,907 20,401 30,308
3. Foreign banks 284 1,130 1,414
(0.60) (2.35) (1.48)
All SCBs 47,545 48,141 95,686
Source: RBI Reports - Report on trend and progress of banking in India, 2010.
154
3.4.4. Growth of Electronic Funds Transfer/National Electronic Funds Transfer
(EFT/NEFT) Transactions:

Table 3.4.4 presents the growth of EFT/NEFT transactions of SCB’s in India

during 2006-2010. As evident from the table, during 2007-08 the volume and the value

of transactions of EFT/NEFT was Rs. 13.4 millions and Rs. 1.4 millions respectively

which increase over the years ending with 2011-12 to 226.1 millions and 17.9 millions

respectively. The volume of Transactions of EFT and NEFT registered a CRG rate of

75.97 and an AAGR rate of 119.16 per cent. The value of Transactions of EFT and NEFT

registered a CARG are of 66.47 per cent and an AAGR rate of 72.45 per cent. The

analysis thus clearly shows that the technology orientation of the scheduled commercial

banks, considerably increased over the years under reference.

Table – 3.4.4. Growth of EFT/NEFT Transactions in India during the period

2007-08 to 2011-12

Years Volume of Growth in Value of Growth in

Transactions Volume Transactions Value
(Million) (Percent) (Trillion) (Percent)
2007-08 13.4 179.16 1.4 0
2008-09 32.2 140.29 2.5 78.57
2009-10 66.3 105.90 4.1 64
2010-11 132.3 99.54 9.4 129.26
2011-12 226.1 70.89 17.9 90.42
CARG 75.97 119.16 66.47 72.45
(AAGR) (AAGR)

Note: CAGR – Compound Annual Growth Rate, AAGR – Annual Average Growth Rate.
Source: RBI, Reports on Trend and Progress of Banking in India during 2007-08 to 2009-1

155
3.4.5 Growth of ECS Credit transactions:

Table 3.4.5 shows the trend of growth in ECS credit transactions during 2007-08

to 2011-12. As evident from the table the volume of transaction under ECS credit

increased from Rs 78.4 million (2007-08) to Rs 121.5 million (2011-12) registering

tremendous growth rate of 9.16 per cent and an annual average growth rate of 12.10 per

cent in the volume of ECS credit transactions. The growth in volume is 13.62 per cent

during 2007-08 came down to 3.58 per cent during 2011-12. On other hand in terms of

value of ECS credit transactions were Rs 7.8 trillions during 2007-08 and came down to

Rs 1.8 trillions during 2011-12 experiencing a negative growth rate of 25.41 per cent and

AAGR is 152.30.

Table – 3.4.5 Growth of ECS-Credit Transactions in India During the period

2007-08 to 2011-12

Years Volume of Growth in Value of Growth in

Transactions Volume Transactions Value
(Million) (Percent) (Trillion) (Percent)
2007-08 78.4 13.62 7.8 766.66
2008-09 88.4 12.75 0.9 -88.46
2009-10 98.1 10.972 1.2 33.33
2010-11 117.3 19.57 1.8 50
2011-12 121.5 3.58 1.8 0
CARG 9.16 12.10 -25.41 152.30
(AAGR) (AAGR)

Note: CAGR – Compound Annual Growth Rate, AAGR – Annual Average Growth Rate.
Source: RBI, Reports on Trend and Progress of Banking in India during 2007-08 to 2009-12

156
3.4.6 Growth of ECS – Debit Transactions:

Table 3.4.6 presents the ECS Debit transactions and the trend of growth during

2007-08 to 2011-12. It could be seen from the table that the volume of transactions which

were Rs. 121.2 millions (2007-2008) went up to Rs. 164.7 millions during 2011-12

registering compound annual growth rate of 6.32 percent and an average annual growth

rate of 19.32. On the other hand the value of transactions in this regard which was Rs. 0.4

trillions during 2007-08 went up to Rs. 0.8 trillions (2011-12) with a compound annual

growth rate of 14.86 per cent and an average annual growth rate of 16.19 per cent. Thus

over the year and review of ECS Debit transactions of the scheduled commercial banks

considerably increased.

Table – 3.4.6 Growth of ECS-Debit Transactions in India During the period

2007-08 to 2011-12

Years Volume of Growth in Value of Growth in

Transactions Volume Transactions Value
(Million) (Percent) (Trillion) (Percent)
2007-08 121.2 61.17 0.4 -
2008-09 160.1 32.09 0.6 50
2009-10 149.3 -6.74 0.7 16.66
2010-11 156.7 4.96 0.7 -
2011-12 164.7 5.11 0.8 14.28
CARG 6.32 19.32 14.86 16.19
(AAGR) (AAGR)

Note: CAGR – Compound Annual Growth Rate, AAGR – Annual Average Growth Rate.
Source: RBI, Reports on Trend and Progress of Banking in India during 2007-08 to 2009-12

157
3.4.7 Growth of Real Time Gross Settlement (RTGS) Transactions:

Table 3.4.7 presents the RTGS transactions and the trend of growth during 2007-

08 to 2011-12. It could be seen from the table that the volume of transactions which were

Rs. 5.8 millions (2007-2008) went up to Rs. 55.0 millions during 2011-12 registering

compound annual growth rate of 56.81 percent and an average annual growth rate of

167.59 per cent. On the other hand the value of transactions in this regard which was Rs.

273.1 trillions during 2007-08 went up to Rs. 484.9 trillions (2011-12) with a compound

annual growth rate of 12.16 per cent and an average annual growth rate of 22.20 per cent.

Thus over the year and review the RTGS transactions of the scheduled commercial banks

considerably increased.

Table 3.4.7: Growth of RTGS in India during the period 2007-08 to 2011-12

Years Volume of Growth in Value of Growth in

Transactions Volume Transactions Value
(Million) (Percent) (Trillion) (Percent)
2007-08 5.8 52.63 273.1 47.7
2008-09 13.4 131.03 322.7 18.16
2009-10 33.2 -76.12 322.8 0.0301
2010-11 49.3 48.49 394.5 22.21
2011-12 55.0 11.56 484.9 22.915
CARG 56.81 33.52 12.17 22.20
(AAGR) (AAGR) Note:
CAGR
– Compound Annual Growth Rate, AAGR – Annual Average Growth Rate.
Source: RBI, Reports on Trend and Progress of Banking in India during 2007-08 to 2009-12

158
3.4.8 Growth of Magnetic Ink Characteristic Recognition (MICR) Transactions:

Table 3.4.8 shows the trend of growth in MICR transactions during 2007-08 to

2011-12. As evident from the table the volume of MICR transactions were Rs. 1202

million during 2007-08 and came down to Rs.1114.5 millions during 2011-12

experiencing a negative growth rate of 1.5 per cent. On the other hand the value of MICR

transactions which were Rs. 60.1 trillions (2007-08) went upto Rs. 85.3 trillions (2011-

12) and stood at Rs. 80.2 trillions recording a compound annual growth rate of 5.94 per

cent and average annual growth rate of 1.27 per cent.

Table – 3.4.8.Growth of MICR in India during the period 2007-08 to 2011-12

Years Volume of Growth in Value of Growth in
Transactions Volume Transactions Value
(Million) (Percent) (Trillion) (Percent)
2007-08 1202.0 5.22 60.1 -30.68
2008-09 1142.0 -4.99 58.6 -2.49
2009-10 1149.7 0.674 85.3 45.56
2010-11 1155.1 0.46 83.0 -2.69
2011-12 1114.5 -3.51 80.2 -3.37
CARG -1.50 -0.44 5.94 1.27
(AAGR) (AAGR)

Note: CAGR – Compound Annual Growth Rate, AAGR – Annual Average Growth Rate.
Source: RBI, Reports on Trend and Progress of Banking in India during 2007-08 to 2009-12

159
3.4.9 Growth of Credit Cards Transactions:
Table 3.4.9 shows the growth in credit cards both in terms of volume and value

transactions during 2007-08 to 2011-12. As evident from the table the volume of

transactions through credit cards during which was Rs. 228.2 millions during 2007-08

increased to Rs. 320.0 millions during 2011-12 with a compound annual growth rate of

6.99 per cent. On the other hand the value of transactions through credit cards in India

during the period increased from Rs. 0.4 trillions (2007-08) to Rs. 1.0 trillions (2011-12)

experiencing a compound annual growth rate of 20.11 per cent. Thus the average annual

growth rate as can be seen from table, in volume and value of transactions through credit

cards in India respectively stood at 14.5 per cent and 28.33 per cent over the years under

reference.

Table – 3.4.9 .Growth of transactions through Credit Cards in India During the
period 2007-08 to 2011-12

Years Volume of Growth in Value of Growth in

Transactions Volume Transactions Value
(Million) (Percent) (Trillion) (Percent)
2007-08 228.2 34.63 0.4 33.33
2008-09 259.6 13.75 0.6 50
2009-10 234.2 -9.78 0.6 0
2010-11 265.1 13.19 0.8 33.33
2011-12 320.0 20.709 1.0 25
CARG 6.99 14.5 20.11 28.33
(AAGR) (AAGR)

Note: CAGR – Compound Annual Growth Rate, AAGR – Annual Average Growth Rate.
Source: RBI, Reports on Trend and Progress of Banking in India during 2007-08 to 2009-12

160
3.4.10 Growth of Debit Cards Transactions:
Table 3.4.10 presents the growth scenario of transactions through debit cards in

the country during 2007-08 to 2011-12. As could be seen the table the number of bank

transactions through debit cards which were Rs. 88.3 millions during 2007-08 went up to

Rs. 327.5 trillions (2009-10) with a compound annual growth rate of 29.97 per cent. But

the value of Debit card transactions went up to Rs. 0.5 trillions during 2011-12 from Rs.

0.1 trillions during 2007-08 registering a compound annual growth rate of 37.97 per cent.

Moreover, the average annual growth rate in the value of debit card transactions, during

2007-08 to 2011-12, stood at 26.67 per cent as against 40.40 per cent with regard to the

volume of transactions.

Table – 3.4.10 Growth of transactions through Debit Cards in India During the
period 2007-08 to 2011-12

Years Volume of Growth in Value of Growth in

Transactions Volume Transactions Value
(Million) (Percent) (Trillion) (Percent)
2007-08 88.3 46.67 0.1 25
2008-09 127.7 44.62 0.2 -
2009-10 170.2 33.28 0.3 50
2010-11 237.1 39.30 0.4 33.33
2011-12 327.5 38.12 0.5 25
CARG 29.97 40.40 37.97 26.67
(AAGR) (AAGR)

Note: CAGR – Compound Annual Growth Rate, AAGR – Annual Average Growth Rate.
Source: RBI, Reports on Trend and Progress of Banking in India during 2007-08 to 2009-12

161
3.5 Conclusion:

Information technology has resulted in a major attitudinal change by

revolutionizing the treatment of customers of the banks. Inspite of geographical

distances, the customer can be treated as a customer of the bank and not as a customer of

the branch. This is only possible due to usage of IT on a large scale where database are

possible in a bank with decentralized access. Banks need to constantly look for

innovative services which offer the convenience of transacting from anywhere and at

anytime by using suitable delivery channels for them349. Information technology is the

frontier which would add value to the services of which increases the customer base- a

strong foundation to the super structure

Managing customers is one of the main issues faced by banks. The demands and

expectations of the customers grow at a much faster rate than the banks can equip

themselves to be with them. If the service levels or the product levels are not up to the

customer satisfaction, there is always a danger that the customer might shift his

transactions elsewhere. In banking, as the products can be copied very fast, it is the

customer service levels that really matter. The latest techno-savvy products coupled with

excellent customer relationship will increase the level of customer satisfaction. The CRM

has to updated and upgraded. Techno savvy products will only benefit and respond to the

ever changing demands of the customers. The major challenges stirring the banker in

India relate to the need to introduce innovative, customer – friendly products and services

349
Dawood Musba, “Impact of Emerging Technology in Indian Banking Sector”, www.scribd.com,
published on 01/16/2010.
162
for which newer technologies are needed to be brought in multiple areas to reduce the

overall transaction cost for the benefits of the customers.

Technology has been one of the most important factors for the development of

mankind. Information and communication technology is the major advent in the field of

technology which is used for access, process, storage and dissemination of information

electronically. Banking industry is fast growing with the use of technology in the form of

ATMs. On-line banking, Telephone banking, Mobile banking etc., plastic card is one of

the banking products that cater to the needs of retail segment whose drastic growth is

observed in the geometric progression of recent years. This growth has been strongly

supported by the development of in the field of technology, without which this could not

have been possible. Thus, the technological advancement has transfigured the banking

sector the world over with changing lifestyle of customers.

163