UNIT- I

1.1 INTRODUCTION OF DEMONETISATION.

1.2 OBJECTIVES AND OUTCOMES.
1.3 OTHER EFFECTS.
1.4 REACTIONS.

1.1 INTRODUCTION OF DEMONETISATION

On 8 November 2016, the Government of India announced the demonetisation of all 500
and 1000 banknotes of the Mahatma Gandhi Series. It also announced the issuance of new
500 and 2000 banknotes in exchange for the demonetised banknotes. The government
claimed that the action would curtail the shadow economy and reduce the use of illicit and
counterfeit cash to fund illegal activity and terrorism.

The announcement of demonetisation was followed by prolonged cash shortages in the

weeks that followed, which created significant disruption throughout the economy. People
seeking to exchange their banknotes had to stand in lengthy queues, and several deaths
were linked to the rush to exchange cash.

According to a 2018 report from the Reserve Bank of India, approximately 99.3% of the
demonetised banknotes, or 15.30 lakh crore(15.3 trillion) of the 15.41 lakh crore that had
been demonetised, were deposited with the banking system. The banknotes that were not
deposited were only worth 10,720 crore (107.2 billion), leading analysts to state that the
effort had failed to remove black money from the economy. The BSE
SENSEX and NIFTY 50 stock indices fell over 6 percent on the day after the
announcement. The move reduced the country's industrial production and its GDP growth
rate.

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Initially, the move received support from several bankers as well as from some
international commentators. The move was also criticised as poorly planned and unfair,
and was met with protests, litigation, and strikes against the government in several places
across India. Debates also took place concerning the move in both houses of parliament.

The Indian government had demonetised bank notes on two prior occasions—once in 1946
and once in 1978—and in both cases, the goal was to combat tax evasion via "black money"
held outside the formal economic system. In 1946, the British Raj government removed
notes of 500, 1000, and 10,000 from circulation. In 1978, the Party coalition government
demonetised banknotes of 1000, 5000 and 10,000 rupees, again in the hopes of
curbing counterfeit money and black money.

In 2012, the Central Board of Direct Taxes recommended against demonetisation, saying
in a report that "demonetisation may not be a solution for tackling black money or shadow
economy, which is largely held in the form of benami properties, bullion and
jewellery. According to data from income tax probes, black money holders kept only 6%
or less of their wealth as cash, suggesting that targeting this cash would not be a successful
strategy. The Bhartiya Janata Party (BJP) had previously expressed opposition to
demonetisation. BJP spokesperson Meenakshi Lekhi had said in 2014 that members of the
public who were often illiterate and had no access to banking facilities would be adversely
affected by such a policy.

The plan to demonetise the 500 and 1000 banknotes was initiated between six and ten
months before it was announced, and was kept confidential. In April 2016, a report by
the State Bank of India analysed possible strategies and effects demonetisation. In May
2016, the Reserve Bank of India had started preparing for new banknotes and confirmed
the design of 2000 banknotes in August 2016. The printing of new banknotes started in
October when the news stories of forthcoming new banknotes appeared in the media. On
27 October 2016, the Hindi daily Dainik Jagran published a report quoting RBI sources

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speaking of the forthcoming of 2000 banknotes alongside withdrawal of 500 and 1000
banknotes. On 21 October 2016, The Hindu Business Line had also published a report on
forthcoming 2000 banknote.

The Union cabinet was informed about the plan on 8 November 2016 in a meeting in the
evening called by the Indian Prime Minister Narendra Modi. Soon after the meeting, Modi
announced the demonetisation in an unscheduled live national televised address at
20:15 IST.He declared circulation of all 500 and 1,000 banknotes of the Mahatma Gandhi
Series as invalid effective from the midnight of the same day, and announced the issuance
of new 500 and 2,000 banknotes of the Mahatma Gandhi New Series in exchange for the
demonetised banknotes.

The Reserve Bank of India stipulated that the demonetised banknotes could be deposited
with banks over a period of fifty days until 30 December 2016. The banknotes could also
be exchanged for legal tender over the counter at all banks. The limit for such exchange
was 4,000 per person from 8 to 13 November, was increased to 4,500 from 14 to 17
November, and reduced to 2,000 from 18 to 25 November. The exchange of banknotes was
stopped completely on 25 November, although the government had previously stated that
the volume of exchange would be increased after that date. International airports also
facilitated an exchange of banknotes for foreign tourists and out-bound travellers,
amounting to a total value of 5,000 per person. Fuel pumps, government hospitals, railway
and airline booking counters, state-government recognised dairies and ration stores, and
crematoriums were allowed to accept the demonetised banknotes until 2 December 2016.

Cash withdrawals from bank accounts were restricted to 10,000 per day and 20,000 per
week per account from 10 to 13 November. This limit was increased to 24,000 per week
from 14 November 2016. Limits on cash withdrawals from Current accounts/ Cash credit
accounts/ Overdraft accounts were withdrawn later. RBI increased the withdrawal limit

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from Savings Bank account to 50,000 from the earlier 24,000 on 20 February 2017 and
then on 13 March 2017, it removed all withdrawal limits from Savings Bank Accounts.

A daily limit on withdrawals from ATMs was also imposed varying from 2,000 per day
until 14 November, and 2,500 per day until 31 December. This limit was increased to 4,500
per day from 1 January, and again to 10,000 from 16 January 2017. From 17 November,
families were allowed to withdraw 250,000 for wedding expenses. Farmers were permitted
to withdraw 25,000 per week against crop loans.

The Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 was issued on 28
December 2016, ending the liability of the government for the demonetised banknotes. The
ordinance also imposed fines on people found carrying out transactions with them after 8
November 2016, or holding more than ten of them after 30 December 2016. It provided for
the exchange of the banknotes after 30 December for people who had been outside India
between 9 November and 30 December. The Specified Bank Notes (Cessation of
Liabilities) Act, 2017 was notified on 1 March 2017, replacing the ordinance.

1.2 OBJECTIVES AND OUTCOMES

The government said that the main objective of the exercise was curbing black
money which included income which had not been reported and thus was untaxed; money
gained through corruption, illegal goods sales and illegal activities such as human
trafficking; and counterfeit currency. Other stated objectives included expanding the tax
base and increasing the number of taxpayers; reducing the number of transactions carried
out by cash; reducing the finances available to terrorists and radical groups such as Maoists
and Naxalites; and integrating the formal and informal economies.

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• BLACK MONEY

The government estimated that ₹3 lakh crore, or approximately 20%, of the

demonetised banknotes would be permanently removed from circulation. However,
according to a 2018 report from the RBI, approximately 99.3% of the demonetised
banknotes, or ₹15.30 lakh crore of the ₹15.41 lakh crore that had been demonetised, were
deposited with the banking system. The banknotes that were not deposited were only worth
₹10,720 crore. Commentators concluded that the government failed in its aim of purging
black money from the economy.

EVASION

A jewellery store in a shopping mall with a notice "We accept ₹500 and ₹1000 notes", even
after they were no longer valid banknotes.

There have been reports of people circumventing the restrictions imposed on exchange
transactions by conducting multiple transactions at different bank branches and also
sending hired people, employees and followers in groups to exchange large amounts of
demonetised banknotes at banks. In Gujarat, Delhi and many other major cities, sales of
gold increased post-demonetisation, with an increased 20 to 30% premium surging the
price as much as ₹45,000 (US$630) from the ruling price of ₹31,900 (US$440) per 10
grams (0.35 oz). The Enforcement Directorate raided several forex establishments making
backdated entries. Money laundering using backdated accounting was carried out by co-
operative banks, jewellers, sellers of mobile phones, and several other businesses.

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 Number of counterfeit banknotes detected in banks (April - March)]

Denomination 2015-16 2016-17 2017-18

1 2 3 4

2 and 5 2 80 1

10 134 523 287

20 96 324 437

50 6,453 9,222 23,447

100 2,21,447 1,77,195 2,39,182

200 NA NA 79

500 (old) 2,61,695 3,17,567 1,27,918

500 (new) NA 199 9,892

1000 1,43,099 2,56,324 1,03,611

2000 NA 638 17,929

Total 6,32,926 7,62,027 5,22,783

The cash deposited into hundis, or cash collection boxes in temples and gurudwaras are
exempted from inquiry by the tax department which is sometimes misused to launder
money. After the demonetisation, there was a spike in donations in the form of the
demonetised banknotes in temples. People had booked large number of railway tickets to
dispose of unaccounted cash. It came to notice of the Indian Railways authorities which
imposed restrictions to check evasion.

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 • COUNTERFEIT BANKNOTES

After demonetisation, there was an increase in the counterfeit banknotes in small

denomination of 100 and 50. The counterfeit banknote in denomination of old 500 and
1000 saw increase in 2016-17 and decline in 2017-18 because they were already
demonetised. But in 2017-18, there was an increase in counterfeit banknotes of new 500
and 2000 denomination banknotes than the previous year. There has been no significant
change in the number of detection of counterfeit banknotes detected. In 2017-18, the
number of detection was close to the level before demonetisation levels. Additionally, after
demonetisation, only 0.0035% of the 1000 banknotes were found to be counterfeit.

• TAX-TO-GDP RATIO (%)

The number of income tax returns filing increased from 43.3 million to 52.9 million
between financial year 2016 and 2017 which was not a significant increase compared to
increase between 2015 and 2016. The tax compliance had increased with number of income
tax returns filing increased but majority of them were from salaried and non-business
class.The income tax collections increased in financial year 2017 due to Income Disclosure
Scheme 2016. If adjusted for it, the increase in tax collection was modest. The tax-to-GDP
ratio has increased due to expanding tax base. An analysis of the economic data shows that
there has been no substantial increase in the number of new tax payers or direct tax
collection due to demonetisation.

The use of demonetised banknotes was allowed for the payment of municipal and local
civic body taxes, leading to a jump in their revenue collections. For example, the Greater
Hyderabad Municipal Corporation reported collecting about ₹1.6 billion (US$22 million)
in cash payments of outstanding and advance taxes, within first four days of
demonetisation.

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• DIGITAL PAYMENTS

The push for the digital payments was one of the stated intentions of the demonetisation.
There was immediate and sharp jump in the digital payments in November–December
2016 owing to shortage of cash. The debit card point of sale transactions was twice the size
of value suggested by trend before the demonetisation. The value of credit card increased
but no sharp growth was seen. The mobile wallet transactions picked immediately after the
demonetisation followed by dip in mid-2017 due to easing cash shortage. There was again
sharp rise thereafter. By April 2018, the volume of the digital payments had doubled. After
return of the cash, the growth in digital payment had been modest.

The currency-to-GDP ratio was 12.1% in 2015-16. It declined to 8.8% in 2016-17 due to
demonetisation but increased again to 10.9% in 2017-18. The currency-to-GDP ratio was
only marginally lower compared to level before demonetisation.

• BANKNOTES IN CIRCULATION

On 28 October 2016 the total banknotes in circulation in India were valued at 17.77
trillion (US$250 billion); what proportion of this derived from 500 and 1,000 banknotes
was unknown. In its annual report of March 2016, the Reserve Bank of India (RBI) stated
that total banknotes in circulation valued 16.42 trillion (US$230 billion) of which nearly
86% (around 14.18 trillion (US$200 billion)) derived from 500 and 1,000 banknotes. In
terms of volume, the report stated that 24% (around 22.03 billion) of the total 9026.6 crore
(90.26 billion) banknotes in circulation were 500 and 1,000 banknotes.

Before demonetisation (November 2016), there were banknotes worth 17.97 lakh crore in
the market. The demonetised banknotes constituted 86.4% of it. By March 2018, there were
banknotes worth 18.03 lakh crore in the market; increase of 9.9%. New banknotes of 2000
and 500 constitute 80.6% of it. So there was only 5.8% increase in small domination
banknotes. The volume of banknotes in the market increased by 2.1%. The banknotes in
circulation had increased to 19.5 lakh crore in September 2018.The banknotes in
circulation had reached to the level before demonetisation in 2018.

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• TERRORISM AND INTERNAL SECURITY

Initially there was a decrease in the activities and attacks by Maoist and Naxalite radical
groups which was attributed to lack of finance following demonetisation. The surrender
rate had reached its highest. The activities returned within few months. There was a
decrease in the terror activities in Jammu and Kashmir.

1.3 OTHER EFFECTS

CASH SHORTAGE

The scarcity of cash due to demonetisation led to chaos, and people faced difficulties in
depositing or exchanging the demonetised banknotes due to long queues outside banks and
ATMs across India. The ATMs were short of cash for months after demonetisation.

During the demonetisation, the unaccounted money worth 610 crore were seized by the
police and tax officials across India which included 110 crores in new banknotes. Reports
in the media noted that although the general public faced a severe cash shortage, some
individuals were able to amass crores in new banknotes; they thus described the
demonetisation exercise as being futile. More than 30 politicians belonging to the BJP were
arrested and investigated for having unaccounted money in the new 2000-rupee
denomination.

TRANSPORTATION

The All India Motor Transport Congress claimed that about 800,000 truck drivers and
conductors were affected with shortage of cash, with around 400,000 trucks stranded at
major highways across India. While major highway toll junctions on the Gujarat and Delhi-
Mumbai highways also saw long queues as toll plaza operators refused the demonetised
banknotes. The Ministry of Road Transport and Highways subsequently announced a

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suspension of toll collections on all national highways across the country until 2 December
as well as acceptance of demonetised 500 banknote as a toll from 2 to 15 December.

STOCK MARKET

As a combined effect of demonetisation and US presidential election, the stock market

indices dropped to an around six-month low in the week following the announcement. The
day after the demonetisation announcement, BSE SENSEX crashed nearly 1,689 points
and NIFTY 50 plunged by over 541 points. By the end of the intraday trading section on
15 November 2016, the BSE SENSEX index was lower by 565 points and the NIFTY
50 index was below 8100 intraday. There was a marginal effect on stock market during
November–December 2016. A data study (July 2016 - February 2017) of 54 companies
across 13 sectors listed with the NSE showed that companies in cement, cotton and rubber
sectors showed an increase in total trades while companies in automotive, clothing, foods,
paper, real estate, retail, steel, sugar, tea and textiles sectors showed a decrease in total
trades after demonetisation. Demonetisation had a negative impact on stock market returns
evidenced from NIFTY 50 and other NIFTY sectoral indices.

INDUSTRIAL OUTPUT

There was a reduction in industrial output as industries were hit by the cash shortage.
The Purchasing Managers' Index (PMI) fell to 46.7 in November 2016 from 54.5 in
October 2016, recording its sharpest reduction in three years. A reading above 50 indicates
growth and a reading below shows contraction. This indicates a slowdown in both,
manufacturing and services industries. The PMI report also showed that the reduction in
inflation in November 2016 was due to shortage in money supply.

The growth in eight core sectors such as cement, steel and refinery products, which
constitute 38% of the Index of industrial production (IIP), was only to 4.9 percent in
November 2016 as compared with 6.6 percent a month ago.

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AGRICULTURE

Transactions in the agriculture sector are heavily dependent on cash and were adversely
affected by the demonetisation. Due to scarcity of the new banknotes, many farmers have
insufficient cash to purchase seeds, fertilisers and pesticides needed for the plantation
of rabi crops usually sown around mid-November. Farmers and their unions conducted
protest rallies in Gujarat, Amritsar and Muzaffarnagar against the demonetisation as well
as against restrictions imposed by the Reserve Bank of India on district cooperative central
banks which were ordered not to accept or exchange the demonetised banknotes.

The shortage of cash led to plunge in demand which in turn led to a crash in the prices of
crops. Farmers were unable to recover even the costs of transportation from their fields to
the market from the low prices offered. Some farmers dumped their produce in protest
against the government.

Demonetisation resulted in the relative erosion of agricultural wages and weak bargaining
power of farmers for their produce.

Real GDP growth rate

Global analysts cut their forecasts of India's real GDP growth rate for the financial year
2016-17 by 0.5 to 3% due to demonetisation. India’s GDP in 2016 is estimated to be
US$2.25 trillion, hence, each 1 per cent reduction in growth rate represents a shortfall of
US$22.5 billion (₹ 1.54 lakh crore) for the Indian economy. According to SocieteGenerale,
quarterly GDP growth rates would drop below 7% for an entire year at a stretch for the first
time since June 2011.

The Q4'16-17 rate was 6.1% as against a forecast of 7.1% by economists. The rate for the
financial year 2016-17 was 7.1%, a reduction from the 8% in 2015-16. This drop was
attributed to demonetisation by economists.

The GDP growth rate for Q1'17-18 dropped to 5.7%, compared to 7.9% a year ago, the
lowest since March 2014. This drop was attributed to demonetisation as well as inventory

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drawdown by companies due to the forthcoming implementation of the Tax. The GDP
started to recover from Q2'17-18 and clocked 8.2% in Q2'18-19.

EMPLOYED WORKFORCE

There was a loss of jobs and decline in wages due to demonetisation, particularly in the
unorganised and informal sector and in small enterprises. Migrant workers were adversely
affected by demonetisation.

According to the report prepared by Centre for Monitoring Indian Economy (CMIE), the
number of employed people was 401 million in January–April 2016, 403 million during
May–August 2016, 406.5 million in September–December 2016. After demonetisation in
November 2016, the number fell to 405 million in January–April 2017. So, there was fall
of 1.5 million in number of people employed. MIE also reported that the number of persons
employed was 406.7 million in 2016-17 which fell by 0.1% to 406.2 million in 2017-18.
So the employment had stagnated which resulted in employment rate decline. The
employment rate fell from 42.59% in 2016-17 to 41.45% in 2016-17. The unemployment
rate also declined from 7.51% in 2016-17 to 4.66% in 2017-18 because of the shrinking
employed force. The number of employed force fell from 439.7 million in 2016-17 to 426.1
million in 2017-18. CMIE attributed the impact to demonetisation as well as
implementation of Goods and Services Tax in July 2017.

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COST TO BANKS

Before demonetisation, the RBI had spent ₹3,421 crore to print banknotes in 2015-2016
(July to June). The cost of printing new banknotes escalated to ₹7,965 crore in 2016-17
and ₹4,912 crore in 2017-18. This resulted in a decline in the dividend paid to the
government from ₹65,876 crore in 2015-16 to ₹30,659 crore in 2016-17 and ₹50,000 crore
in 2017-18.It was estimated that this decrease in income for the government could cause

13
the fiscal deficit for the financial year 2016-17 to increase from the targeted 3.2% to
3.4%.To avoid increasing the fiscal deficit, the government would have to reduce spending
on social schemes, or increase revenue through taxes or other means. The Indian Air
Force was paid ₹29.41 crore to move banknotes after demonetisation.

The banks incurred the cost in collection, storage and movement of banknotes across the
country as well as in re-calibrating the ATMs.

LEGAL ISSUES

A Public Interest Litigation (PIL) was filed in Madras High Court by M Seeni Ahamed,
General Secretary of the Indian National League, to scrap the decision of demonetisation.
The High Court dismissed the PIL stating that it could not interfere in monetary policies of
the government.Similar PILs were also filed in the Supreme Court of India. In November
2017, the Supreme Court of India referred all cases related to demonetisation to
constitutional bench to review the legality of the demonetisation, implementation
irregularities and violation of people's rights by limits on cash withdrawals.

The government had initially announced that any person who is unable to deposit the
demonetised banknotes by 31 December 2016 would be given an opportunity to do so until
a later date. However, the government allowed only Non-Resident Indians (NRIs) to
deposit demonetised banknotes after 31 December 2016.As a result, many people were left
stranded with demonetised banknotes. People petitioned the courts to allow deposit of the
demonetised banknotes. In November 2017 the Supreme Court dismissed 14 petitions
related to demonetization, and asked petitioners to file pleas with a constitutional bench
which would deal with cases related to demonetisation.

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 1.4 REACTIONS

• REACTIONS OF ECONOMISTS

Most economists across the ideological spectrum, except some prominent ones, were
broadly critical of the demonetisation as an economic policy.

Indian-American economist Jagdish Bhagwati praised the demonetisation. Nobel

laureate Amartya Sen, severely criticised the demonetisation move calling it a "despotic
action" among other things. Former Senior Vice-President and Chief Economist of the
World Bank, KaushikBasu, called it a 'major mistake' and said that the 'damage' is likely
to be much greater than any possible benefits. PronabSen, former Chief Statistician and
Planning Commission of India member, called it a "hollow move" since it did not really
address any of the purported goals of tackling black money or fake currency.
PrabhatPatnaik, a former professor of economics at the Delhi called the move 'witless' and
'anti-people'. He criticised the simple way in which black money was assumed as "a hoard
of cash", saying that it would have little effect in eliminating "black activities" while
"causing much hardship to common people.

Economist and journalist, T. N. Ninan wrote in the Business Standard that demonetisation
'looks like a bad idea, badly executed on the basis of some half-baked notions'. Steve
Forbes described the move as 'Sickening and Immoral'. He stated that "What India has done
is commit a massive theft of people's property without even the pretence of due process--a
shocking move for a democratically elected government. Nobel laureate Paul
Krugman said that it is difficult to see gains from demonetisation, while there may be
significant costs to it. Economic analyst Vivek Kaul stated in a BBC article that
"demonetisation had been a failure of epic proportions.

• REACTIONS OF INDUSTRIALISTS

The decision met with mixed initial reactions. Several bankers like Arundhati
Bhattacharya (Chairperson of State Bank of India) and ChandaKochhar (MD & CEO
of ICICI Bank) appreciated the move in the sense that it would help curb black
money.[200] Businessmen Anand Mahindra (Mahindra Group), SajjanJindal (JSW

15
 Group), Kunal Bahl (Snapdeal and Free Charge) also supported the move adding that it
would also accelerate e-commerce. Infosys founder N. R. Narayana Murthy praised the
move.

Deepak Parekh (Chairman of HDFC) had initially appreciated the decision of

demonetisation, but later said that the move had derailed the economy, and expressed
scepticism about its outcome. Industrialist Rajiv Bajaj criticised the demonetisation, saying
that not just the execution, but the concept of demonetisation was wrong in itself.

• POLITICAL REACTIONS

The Indian National Congress spokesperson RandeepSurjewala welcomed the move but
remained skeptical on the consequences that would follow. Chief Minister of Bihar Nitish
Kumar supported the move. The demonetisation also got support from Chief Minister of
Andhra Pradesh Naidu. Former Chief Election Commissioner of India S. Y. Quraishi said
demonetisation could lead to long term electoral reforms. Indian social activist Anna
Hazare hailed demonetisation as a revolutionary step. The former President of
India Pranab Mukherjee welcomed the demonetisation move by calling it bold step. Chief
Ministers of several Indian states like Mamata Banerjee , Arvind
Kejriwal and PinarayiVijayanhave criticised and led major protests against the decision in
their states and in parliament. Initially, the move to demonetise and try to hinder black
money was appreciated, but the manner in which it was carried out by causing hardships
to common people was criticised.

Several government ministers had declared before the demonetisation that they were
holding large amounts of cash, including ArunJaitley, who had more than 65 lakh rupees
in cash. This led to questions being raised about whether and when the ministers had
deposited the cash they held.

A Parliamentary panel report in April 2017 stated that rural households and honest
taxpayers were the worst hit by demonetisation. It said that it was not just the poor that
suffered, but the manufacturing sector was impacted too. According to the panel,
demonetisation created significant disruption throughout economy, because it was carried

16
out without prior study or research. A Indian National Congress led opposition which
includes 13 political parties, opposed the government on the issue of demonetisation in the
Winter Session of the Indian Parliament.

On 16 November 2016, Mamta Banerjee led a delegation comprising political parties

of Trinamool Congress, AamAadmi Party, BJP ally ShivSena and National Conference
to Rashtrapati Bhawan to protest against the decision of demonetisation. A memorandum
was submitted to the President of India Pranab Mukherjee demanding rollback of the
decision.

In the demonetisation debate on the first day of the winter session of Parliament at the
Rajya Sabha, Pramod Tiwari from the Indian National Congress compared Narendra
Modi to Benito Mussolini, Adolf Hitler and Muammar Gaddafi.PremChand Gupta, a
member of the Rashtriya JanataDal, questioned a statement of Modi from the unscheduled
TV broadcast on 8 November, "If it was planned 10 months ago, how did RBI
Governor Urjit Patel sign on new note?". Praful Patel, a member of the Nationalist
Congress Party, stated that "the government was not even prepared to recalibrate the ATMs
while announcing the move. People's suffering are unimaginable. Nobody is questioning
the government's intention, but you are unprepared to execute the move". Later, the
former Chief Minister of Uttar Pradesh Mayawati stated the situation to "a financial
emergency", by saying "It looks as if Bharat has shut down."

Also, SitaramYechury from Communist Party of India, questioned the government on the
demonetisation move by stating "only 6% of black money in India is in cash to drive his
point that demonetisation won't curb illicit wealth.

On 17 November 2016, a rally against demonetisation, led by the Chief Minister of

Delhi ArvindKejriwal and his West Bengal counterpart MamataBanerjee at
AzadpurMandi, the biggest vegetable and fruits wholesale market in New Delhi was
organised.

On 24 November 2016, the former prime minister Manmohan Singh said "this scheme will
hurt small industries, the farming sector. The GDP can decline by about 3 per cent due to
this move". He termed the demonetisation as an "organised loot, legalised plunder of the
common people".

17
Strikes were organised across India. Opposition parties like Indian National
Congress, BahujanSamaj Party, Trinamool Congress,DMK, JD(U), AIADMK, Nationalist
Congress Party, Left, RashtriyaJanataDal and the Samajwadi Partydecided to observe
'AkroshDiwas' as, a protest campaign day on 28 November and launch protests in front of
banks, demanding that money be returned to people. In the state of Bihar, 15 trains were
blocked and stranded, while the states of West Bengal, Maharashtra and Uttar Pradesh saw
protest marches and rallies led by opposition parties. In the state of Kerala, shops and
business establishments were shut, with school and colleges closed throughout the state,
while movements of private vehicles were also disrupted in Northern Kerala.

Former Indian Chief Election Commissioner, O. P. Rawat stated that 'the note ban had
absolutely no impact on black money', and that record amounts of money had been seized
in polls held after demonetisation.

• INTERNATIONAL REACTIONS

By and large, initial international response was positive which saw the move as a bold
crackdown on corruption. International Monetary Fund (IMF) issued a statement
supporting Modi's efforts to fight corruption by the demonetisation policy.

Chinese state media Global Times praised the move and termed it as "fierce fight against
black money and corruption. Former Prime Minister of Finland and Vice-President of
European Commission Jyrki Katainen welcomed the demonetisation move stressing that
bringing transparency will strengthen Indian economy. BBC's South Asia
Correspondent Justin Rowlatt in his article praised the move for its secrecy. Tim
Worstall termed the demonetisation as welcome macroeconomic effect in his article in
Forbes magazine. Swedish Minister of Enterprise MikaelDamberg supported the move by
calling it bold decision.

The demonetisation also came in for sharp criticism from media outside India, with
the New York Times saying that the demonetisation was "atrociously planned" and that it
did not appear to have combatted black money, while an article in The Guardian stated that
"Modi has brought havoc to India". The Harvard Business Review called it "a case study

18
in poor policy and even poorer execution The frequent change in the narrative on objectives
of the demonetisation to its visible impact on the poorest of the poor made other critiques
calling government's narrative as spins in view of the "pointless suffering on India's
poorest.

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 UNIT - II

2.1 INTRODUCTION OF INFORMATION TECHNOLOGY IN

BANKING SECTOR
2.2 IMPACT OF IT ON THE SERVICE QUALITY
2.3 IMPACT OF IT ON BANKING SYSTEM
2.4 IMPACT OF IT ON PRIVACY AND CONFIDENTIALITY OF DATA
2.5 NEW TECHNOLOGY IN BANKING SECTOR
2.6 ROLE OF INFORMATION TECHNOLOGY IN BANKING SECTOR
2.7 SOFTWARE USED IN BANKS
2. 8 E-WALLET
2.9 PLASTIC MONEY
2.10 ONLINE CLEARING SYSTEM

2.1 INTRODUCTION OF INFORMATION

TECHNOLOGY IN BANKING SECTOR

The changes after economic liberalization and globalization process, initiated

since 1991, have significant impact on the financial institution. Information Technology
revolution is of entirely changing the way financial business is done and has considerably
widened the range of products and increased the expected demands of the customers.
Financial sector reforms and banking sector reforms are the part and parcel of economic
reforms, which strengthen the economic reforms. IT Act of 2000 gave new dimension to
the Indian financial sector. IT has created transformation in banking sector: banking
structure, business process, work culture and human resource development. It affected the
productivity, profitability and efficiency of the banks to a large extent. Strengthening the
financial sector and improving the functioning of financial market have been the core
objective of the financial sector reforms.

It was in June 1999 that an IT revolution actually appeared in the Indian

financial institutions specially banking sector when the world of IT seemed too wide open

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with introduction of Indian Financial Net. This Indian Financial Net included a wide area
satellite-based network, which used Very Small Aperture Terminals Technology. The
Reserve Bank of India jointly set it up with the Institute for Development and Research
in Banking Technology. The Indian Financial Network initially comprised only the public
sector banks but was later on opened up for participation by other categories of members
including foreign banks as well. It was the payment system, which was the first segment
of banking system, benefited a lot from the introduction of the new technology. This
segment being the lifeline of a bank was later on fully mechanized with the introduction of
Automated Teller Machines (ATM). This facility was further enhanced by the internet
facility, which was an also significantly influenced delivery channel of the banks. Internet
has emerged as an important medium for delivery of banking products and services.
Detailed guideline of RBI for Internet Banking as prepared the necessary ground for growth
of Internet Banking in India. In addition to this the IT Act, 2000 has provided more
enhancement by giving a legal recognition to creation, transmission and retention of an
electronic data.
The IT Act, 2000 also provide for this electronic data to be treated as a valid
proof in a court of law in most of the cases, except those cases, which continue to be
governed by the provisions of the Negotiable Instrument Act, 1881. RBI has also stressed
the implementation of centralized funds management system, which facilitates a
centralized viewing of balance positions of the account holders across different accounts
maintained at various locations of Reserve Bank of India. This process was divided in
two parts. The first part made the centralized funds enquiry system available to the
customers and the second part arranged for a centralized funds transfer system by the
end of 2003.
In order to enhance the information security on network, Government of India
has approved the Institute for Development and Research in Banking Technology as
a Certification Authority for digital signatures. Electronic funds transfer is being
enhanced in terms of security by means of implementation of digital signatures using
the facilities offered by the certification authority. Further recognizing the need for
technology based payment products a pilot project for multi-application smart cards in

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combination with a few banks, under the guidance of the Ministry of Communications
and Information Technology, Government of India, has been initiated.

All this technological advancement has changed the face of Indian Banking
System. As explained above a number of technologically advanced measures are provided
to every single customer of present-day banks. But of a close analysis is made then one
thing will come up that the present day banking is made available to the customer at the
finger tips by the most valuable contribution of information technology is the Automatic
Teller Machine Card of ATM. It will not be wrong if it is asserted that the biggest agent
of change of the face of the banking system today is ATM. Internally, the first ATM was
installed on June, 1974 by Barclay Bank, London. In India, the ATM service was
introduced in 1987. There are about 16, 00,000 ATMs throughout the world. This ATM
card could be used at the ATMs of other banks also.

Banking environment has become highly competitive today. To be able to survive and
grow in the changing market environment banks are going for the latest technologies,
which is being perceived as an ‘enabling resource’ that can help in developing learner and
more flexible structure that can respond quickly to the dynamics of a fast-changing market
scenario. It is also viewed as an instrument of cost reduction and effective communication
with people and institutions associated with the banking business.

The Software Packages for Banking Applications in India had their beginnings in the
middle of 80s, when the Banks started computerising the branches in a limited manner.
The early 90s saw the plummeting hardware prices and advent of cheap and inexpensive
but high-powered PC’s and Services and banks went in for what was called Total Branch
Automation (TBA) packages. The middle and late 90s witnessed the tornado of financial
reforms, deregulation globalisation etc. coupled with rapid revolution in communication
technologies and evolution of novel concept of convergence of communication
technologies, like internet, mobile/cell phones etc. Technology has continuously played on
important role in the working of banking institutions and the services provided by them.
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Safekeeping of public money, transfer of money, issuing drafts, exploring investment
opportunities and lending drafts, exploring investment being provided.

Information Technology enables sophisticated product development, better market

infrastructure, implementation of reliable techniques for control of risks and helps the
financial intermediaries to reach geographically distant and diversified markets. Internet
has significantly influenced delivery channels of the banks. Internet has emerged as an
important medium for delivery of banking products and services.

The customer can view the account; get account statement, transfer fund and purchase draft
by just punching on few keys. The smart card’s i.e. cards with micro processer chip have
added new dimension. An introduction of ‘cyber cash’ the exchange of cash takes place
entirely through ‘Cyber-books’. Collection of Electricity bills and telephone bills has
become easy. The upgradeability and flexibility of internet technology after unprecedented
opportunities for the banks to reach out to its customers. No doubt banking services have
undergone drastic changes and so also the expectation of customers from the banks has
increased greater.

IT is increasingly moving from a back office function to a prime assistant in increasing the
value of a bank over time. IT does so by maximizing banks of pro-active measures such as
strengthening and standardising banks infrastructure in respect of security, communication
and networking, achieving inter branch connectivity, moving towards Real Time gross
settlement (RTGS) environment the forecasting of liquidity by building real time
databases, use of Magnetic Ink Character Recognition and Imaging technology for cheque
clearing to name a few. Indian banks are going for the retail banking in a big way.

The key driver to charge has largely been the increasing sophistication in technology and
the growing popularity of the Internet. The shift from traditional banking to e-banking is
changing customer’s expectations.

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 2.2 IMPACT OF IT ON THE SERVICE QUALITY

The most visible impact of technology is reflected in the way the banks respond
strategically for making its effective use for efficient service delivery. This impact on
service quality can be summed up as below:

• With automation, service no longer remains a marketing edge with the large banks only.
Small and relatively new banks with limited network of branches become better placed to
compete with the established banks, by integrating IT in their operations.

• The technology has commoditising some of the financial services. Therefore the banks
cannot take a lifetime relationship with the customers as granted and they have to work
continuously to foster this relationship and retain customer loyalty.

• The technology on one hand serves as a powerful tool for customer servicing, on the
other hand, it itself results in depersonalising of the banking services. This has an adverse
effect on relationship banking. A decade of computerization can probably never substitute
a simple or a warm handshake.

• In order to reduce service delivery cost, banks need to automate routine customer
inquiries through self-service channels. To do this they need to invest in call centers,
kiosks, ATM’s and Internet Banking today require IT infrastructure integrated with their
business strategy to be customer centric.

2.3 IMPACT OF IT ON BANKING SYSTEM

The banking system is slowly shifting from the Traditional Banking towards
relationship banking. Traditionally the relationship between the bank and its customers has
been on a one-to-one level via the branch network. This was put into operation with
clearing and decision-making responsibilities concentrated at the individual branch level.
The head office had responsibility for the overall clearing network, the size of the branch
network and the training of staff in the branch network. The bank monitored the

24
organisation’s performance and set the decision-making parameters, but the information
available to both branch staff and their customers was limited to one geographical location.

2.4 IMPACT OF IT ON PRIVACY AND

CONFIDENTIALITY OF DATA

Data being stored in the computers, is now being displayed when required on
through internet banking mobile banking, ATM’s etc. all this has given rise to the issues
of privacy and confidentially of data are:

• The data processing capabilities of the computer, particularly the rapid throughput,
integration, and retrieval capabilities, give rise to doubts in the minds of individuals as to
whether the privacy of the individuals is being eroded.

• So long as the individual data items are available only to those directly concerned,
everything seems to be in proper place, but the incidence of data being cross referenced to
create detailed individual dossiers gives rise to privacy problems.

• Customers feel threatened about the inadequacy of privacy being maintained by the banks
with regard to their transactions and link at computerised systems with suspicion.

Aside from any constitutional aspect, many nations deem privacy to be a

subject of human right and consider it to be the responsibility of those who concerned with
computer data processing for ensuring that the computer use does not revolve to the stage
where different data about people can be collected, integrated and retrieved quickly.
Another important responsibility is to ensure the data is used only for the purpose intended.

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 2.5 NEW TECHNOLOGY IN BANKING SECTOR

New technology in banking is already transforming the financial sector, and the traditional
banking landscape is set to rapidly change in the next five years. Safety features, such as
advanced cryptography and biometrics, will help protect against bank scams, and remote
applications will make it easier than ever to do your banking without visiting a branch
— but if you do, the experience is likely to be much more customer-friendly.

Here’s a look at the how banking technology will change data sharing and the way your
money is handled.

1. Blockchain Technology

Blockchain technology is set to fundamentally transform banking and financial services.

It decentralizes financial management from a central authority to a widespread network of
computers. Financial transactions are broken down into encrypted packets, or “blocks,”
which are then added to the “chain” of computer code and encrypted for enhanced
cybersecurity — it’s been compared to “email for money” by blockchain start up CEO
Blythe Masters. Because the technology has the potential to improve numerous facets of
banking — and is the basis for other banking technology trends like bitcoin — it’s no

26
longer a question of if blockchain will change the banking industry, but when, according
to the Wharton School of the University of Pennsylvania.

2. Upgraded ATMs

ATMs transformed the bank tech system when they were first introduced in 1967. The next
revolution in ATMs is likely to involve contactless payments. Much like Apple Pay or
Google Wallet, soon you’ll be able to conduct contactless ATM transactions using a
smartphone.

Some ATM innovations are already available overseas. For example, biometric
authentication is already used in India, and iris recognition is in place at Qatar National
Bank ATMs. These technologies can help overall bank security by protecting against ATM
hacks.

It might take some time to see ATM upgrades in the U.S. financial system because of the
strict regulations governing North American banks, according to Barometric, which is a
leading global provider of biometric security systems.

3. Proliferation of Non-Banks

Banks are hoping that technology will allow them to deliver a faster, more transparent
experience to consumers. A large portion of their resources, however, is necessarily
dedicated to security, compliance and other industry-specific requirements, which has
allowed non-banks — or financial service providers that are not regulated by the banking
industry — to flourish, according to a 2016 report from market intelligence firm Greenwich
Associates. Since these companies can devote a greater percentage of their assets to
cutting-edge financial technology, they might be able to innovate more rapidly than
traditional banks, attracting tech-savvy customers in the process.

4. Apple Store-Style Experience

The in-bank experience of the future might be more like shopping at an Apple store.
Because so many people now can download user-friendly banking apps or easily find an

27
ATM to handle basic banking transactions, the typical in-bank customer today is seeking
help involving a personal interaction. Banks hoping to increase sales in the future are
considering this transformation as a way for customers to engage more directly with the
bank and its products, just like in an Apple store, directing customers to interact with tech
kiosks for some transactions and reserving person-to-person interaction for answering
questions or addressing needs unique to the individual consumer.

5. Automated Financial Services Employees

Vikram Pandit, who ran Citigroup Inc. during the financial crisis, said up to 30 percent of
banking jobs could disappear within the next five years due to developments in technology,
in a 2017 interview with Bloomberg television. Many employees of Wall Street’s largest
firms are already having to adapt or look for other positions due to the use of technologies
such as machine learning and cloud computing, which automate their operations, according
to Bloomberg.

6. Mobile and Digital Banking

The mobile and digital transformation in the banking system has only just begun and
growth is already explosive. Banks are investing heavily in digital banking technology, in
which customers use mobile, web or digital platforms to use banking services. Artificial
intelligence solutions, such as chatbots, often assist customers in simple tasks such as
making payments. In a Forbes survey on banking customer engagement from late 2016, 86
percent of banks indicated that these types of services represent their top technology
investments.

7. Partnerships

Although banks can pour lots of money into technology, the fastest way to deliver financial
innovation in the future is likely going to involve strategic partnerships. Fast-growing
companies that already have new-wave fintech or social media platforms in place could
make excellent partners for traditional banks seeking to enhance customer
experience. Card-linked marketing company Cardlytics, which engages in data analytics,

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is partnering with several financial institutions like Bank of America to leverage secure
purchase data in order to tailor marketing based on consumers’ card use.

8. Wearables

Wearables — such as smartwatches — are poised to become the future of the retail banking
experience, according to Samsung Insights. One example is that banks could use Bluetooth
beacons to push personal greetings to customers’ smartwatches when they enter a banking
location.

Another type of wearable might be smart glasses for bank tellers, according to a report
from Deloitte, which could process customer banking information for the employee as the
employee is simultaneously doing other customer service tasks.

Overall, consumer behavior and smart device trends are steering banking technology
advances in the direction of convenience. An increasing number of remote technologies
will allow you to interact with your bank right from the palm of your hand. And from your
email inbox to visiting an actual branch, you can expect to encounter a whole new customer
experience, perhaps even sooner than you think.

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 2.6 ROLE OF INFORMATION TECHNOLOGY IN

BANKING SECTOR

Technology has opened up new markets, new products, new services and efficient delivery
channels for the banking industry. Online electronics banking, mobile banking and internet
banking are just a few examples. Information Technology has also provided banking
industry with the wherewithal to deal with the challenges the new economy poses.
Information technology has been the cornerstone of recent financial sector reforms aimed
at increasing the speed and reliability of financial operations and of initiatives to strengthen
the banking sector. The IT revolution has set the stage for unprecedented increase in
financial activity across the globe. The progress of technology and the development of
world-wide networks have significantly reduced the cost of global funds transfer. It is
information technology which enables banks in meeting such high expectations of the
customers who are more demanding and are also more techno-savvy compared to their
counterparts of the yesteryears. They demand instant, anytime and anywhere banking
facilities. IT has been providing solutions to banks to take care of their accounting and back
office requirements.

Many banks have modernized their services with the facilities of computer and electronic
equipment’s. The electronics revolution has made it possible to provide ease and flexibility
in banking operations to the benefit of the customer. The e-banking has made the customer
say good-bye to huge account registers and large paper hank accounts. The e-banks, which
may ‘call as easy bank offers the following services to its customers like Credit Cards/Debit
Cards, ATM, E- Cheque, EFT (Electronic Funds Transfer), DEMAT Accounts, Mobile
Banking, Telephone Banking, Internet Banking, EDI (Electronic Data Interchange).

The banking system is slowly shifting from the traditional banking towards relationship
banking. Traditionally the relationship between the bank and its customers has been on a
one-to-one level via the branch network. This was put into operation with clearing and
decision-making responsibilities concentrated at the individual branch level. The head

30
office had responsibility for the overall clearing network, the size of the branch network
and the training of staff in the branch network. The bank monitored the organization’s
performance and set the decision-making parameters, but the information available to both
branch staff and their customers was limited to one geographical location. And it is now
changing the way how banks are delivering services to their customers. However, this
technology comes at a cost, implementing all this technology has been expensive but the
rewards are limitless.

2.7 SOFTWARE USED IN BANKS

➢ TEMENOS GROUP AG

Temenos Group AG, headquartered in Geneva, is a market-leading software

provider that partners with banks and other financial institutions to transform their
businesses and stay ahead of a changing marketplace. Temenos customers significantly
outperform their peers. Over the period of 2008–2014, Temenos clients enjoyed a 31%
higher return on assets on average, a 36% higher return on equity and an 8.6 percentage
point lower cost to income than financial institutions running legacy software. Over 2,000
firms across the globe, including 38 of the top 50 banks, rely on Temenos to process the
daily transactions of more than 500 million banking customers.

➢ STRANDS

STRANDS develops innovative software solutions that enable banks and

retailers to offer personalized customer experiences and create new revenue streams
through digital channels. The Strands Finance Suite includes white-label software solutions
such as PFM, business financial management (BFM) and card-linked offers (CLO), among
others. In 2008, Strands revolutionized online banking by deploying the first PFM in
Europe. The company has many notable clients, among which are Barclays, Deutsche
Bank, BBVA, BNP Paribas, Bank of Montreal (BMO), Carrefour and Panasonic.

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➢ SOFTWARE DEVELOPMENT KIT

Software Development Kit (SDK.finance) is the back-end software for the

quickest technological start of any FinTech products. The company has a mission to aid
FinTech entrepreneurs to focus on clients while SDK.finance takes care of the technology.
➢ RUBIKON IS NEPTUNE
Rubikon is Neptune’s flagship platform designed to deliver an industry-
specific, business-oriented and collaborative framework for banks and financial institutions
of all sizes. Its modern open technology facilitates rapid incremental deployment; either as
a complete universal banking system or as a series of modular applications/services to cater
to the specific needs of a business.

➢ NYMBUS

NYMBUS is transforming the way traditional banks and credit unions support
and interact with their customers offering a modern, holistic SaaS-based platform that
includes core banking functionality, an impressive suite of applications and the hardware
and network infrastructure to power it all. NYMBUS integrates with all third-party
software within a bank, creating one holistic system, automating workflows and providing
one single data set.

➢ NLS

NLS offers a full spectrum of consulting and custom software development

services for banks and financial companies, amongst other companies. The company’s
extensive experience that spans multiple platforms, operating systems and diverse
institutions has empowered it with a substantial base of in-depth knowledge and proven
expertise to deliver cutting-edge, robust, scalable and competitive software solutions. NLS
provides services on design and development of standalone software solutions and support
solutions linking into existing enterprise systems and seamlessly exchanging data with

32
desktop or Web-based systems and external hardware (instrumentation, communications
and measurement systems) as well as handheld application enhancements, migration and
porting.

➢ FISA SYSTEM

The Fisa-System is a modular integrated banking system for retail,

commercial, international and offshore financial institutions. Thanks to its flexible and
parametric architecture, it offers an integrated core banking solution that automates the
business and allows the rapid creation of banking products, reducing operating costs and
increasing profitability.

➢ FINACLE

FINACLE is a core banking product developed by Indian corporation Infosys

that provides universal banking functionality to banks. In August 2015, Finacle became
part of Edge Verve Systems Limited. Finacle is used by banks across 84 countries that
serve over 450 million customers. Finacle's banking software solutions and services help
global banks operationalize core banking transformation by providing a holistic and
integrated approach.

➢ IDEALINVENT

Established in 2005, IDEALINVENT has been providing innovative

solutions for financial institutions over the past 10 years. IDEALINVENT is a technology
products and solutions company with a focus on the consumer financial services sector.
The company offers B-SaaS (banking software as a service), which leverages the
company’s suite of financial technology products. IDEALINVENT targets digitally
focused financial service providers. These providers include innovative retail banking
institutions, marketplace lending platforms, payment institutions, card providers and
alternative financial service providers. The company’s product Connect Core is a suite of

33
three components: service delivery, transaction processing and data management. Connect
Core – Core bank, which handles transaction processing, is based on true SOA architecture
that enables simple implementation, integration and operation; achieving the objective of
“simplifying banking solutions” that the product was founded on. Connect Core –
Channels & Mobility is a truly integrated, customer-centric, service delivery platform for
the bank of the future. Connect Core – Payment Grid is a payments hub for payments value
chain.

➢ CAPITAL BANKING SOLUTIONS

Capital Banking Solutions is a leading provider of end-to-end, integrated banking software

for businesses across Europe, Africa, the Middle East and the Americas. The company
offers a suite of integrated and modular products for retail, corporate and private banks as
well as financial institutions. In 2010, Capital Banking Solutions merged with AdTek
Information Systems, Inc. and IntellEval to form a global organization that offers clients
integrated software products and customized software solutions tailored to the needs of the
financial services industry. The merger has enabled Capital Banking Solutions to extend
its reach to the US and Latin America as well as address the issues of financial security.

➢ EBANQ

Ebanq is a user-friendly online banking software app. It is a turn-key solution for small-
and medium-sized banks, savings & loans, credit unions, trust companies and anyone else
managing client funds. It is also the only mobile-ready, "out-of-the-box" solution in its
market segment.

➢ APEX BANKING SYSTEM

Apex Banking System is a comprehensive solution for the integral

processing of all operations in a financial organization (core banking solutions). In addition

34
to providing functional support for each one of the products and services offered by a
financial institution, Apex Banking System includes an accounting system that complies
with all accounting and compliance reporting standards.

➢ DAIS SOFTWARE
Dais Software is a software development company, focusing on solutions
for electronic channels for the banking and finance industry (Internet banking, mobile
banking, EBPP, call centre). The company has been recognized as a leader in its primary
line of business, being the vendor of choice for online banking solutions for top banks
operating in Central and Eastern Europe. The product portfolio of the company includes
also frameworks for Web content management, security, messaging and system
interoperability.

2. 8 E-WALLET

E-wallet is a type of electronic card which is used for transactions made online through a
computer or a smartphone. Its utility is same as a credit or debit card. An E-wallet needs to
be linked with the individual’s bank account to make payments.

E-wallet is a type of pre-paid account in which a user can store his/her money for any future
online transaction. An E-wallet is protected with a password. With the help of an E-wallet,
one can make payments for groceries, online purchases, and flight tickets, among others.

E-wallet has mainly two components, software and information. The software component
stores personal information and provides security and encryption of the data. The
information component is a database of details provided by the user which includes their
name, shipping address, payment method, amount to be paid, credit or debit card details,
etc.

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1. PAYTM

Paytm is one of the largest mobile commerce platforms in India, offering its customers a
digital wallet to store money and make quick payments. Launched in 2010, Paytm works
on a semi-closed model and has a mobile market, where a customer can load money and
make payments to merchants who have operational tie-ups with the company. Apart from
making e-commerce transactions, Paytm wallet can also be used to make bill payments,
transfer money and avail services from merchants from travel, entertainment and retail
industry. Capitalizing on the scope and growth of India’s education market segment, they
recently partnered with premium
educational institutions in India to
introduce cashless payments for fees, bills
and other expenses.

2. AMAZON PAY

Amazon Pay is an online payment processing service that is owned by Amazon. Launched
in 2007 globally and in India in 2017, Amazon Pay uses the consumer base of Amazon and
focuses on giving users the option to pay with their Amazon accounts on external merchant
websites, including apps like Big Bazaar etc. You also get to Shop on Amazon using
Amazon Pay.

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3. GOOGLE PAY (FORMERLY KNOWN AS TEZ)

As its part of the Google ecosystem they have scaled up their user base really quickly, in
spite of being a late entrant. With Google Pay you can send money to friends, pay bills and
buy online, recharge your phone. Since Google Pay works with your existing bank account,
which means your money is safe with your bank. There's no need to worry about reloading
wallets and you don't need to do additional KYC - which is required for all the other apps.

4. PHONEPE (NOW PART OF FLIPKART)

PhonePe started in 2015 and in just 4 years it has been able to cross the 100 million
download mark. From UPI payments to recharges, money transfers to online bill payments,
you can do it all on PhonePe. Its got a very good user interface and is one of the safest and
fastest online payment experience in India.

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5. MOBIKWIK

MobiKwik is an independent mobile payment network that supposedly connects 25 million

users with 50,000 retailers and more. This mobile wallet lets its users add money using
debit, credit card, net banking and even doorstep cash collection service, which can in turn
be used to recharge, pay utility bills and shop at marketplaces. Owing to the growing need
for convenience, MobiKwik has also recently tied up with large and small-time grocery,
restaurants and other offline merchants. Another unique feature they have is their expense
tracker which allows to set budget for your expenses across all payment instruments and it
uses your SMS data to analyse and control spends.

6. YONO BY SBI

This mobile wallet application was launched by State Bank of India to let users transfer
money to other users and bank accounts, pay bills, recharge, book for movies, hotels,
shopping as well as travel. This semi-closed prepaid wallet offers its services in 13
languages and is available for non-SBI customers as well. This app also allows its
customers to set reminders for dues, money transfers
and view the mini-statement for the transactions carried
out.

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7. CITI MASTERPASS

Citi Bank India and MasterCard recently launched 'Citi MasterPass', India's first global
digital wallet for faster and secure online shopping. By using this, Citi Bank debit and
credit card customers become the first in this country to be able to shop at more than
250,000 e-commerce merchants. It ensures faster checkout with a single click or touch and
stores all your credit, debit, prepaid, loyalty cards and shipping details in one place.

8. ICICI POCKETS

Pockets by ICICI is a digital bank that offers a mobile wallet for its customers. It provides
the convenience of using any bank account in India to fund your mobile wallet and pay for
transactions. With Pockets, one can transfer money, recharge, book tickets, send gifts and
split expenses with friends. This wallet uses a virtual VISA card that enables its users to
transact on any website or mobile application in India and provides exclusive deals or
packages from associated brands.

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9. HDFC PAYZAPP

PayZapp is a complete payment solution giving you the power to pay in just One Click.
PayZapp lets you recharge your mobile, DTH and data card, pay utility bills, compare and
book flight tickets, bus and hotels, shop, buy movie tickets, music and groceries, avail great
offers at Smart Buy, and send money to anyone in your phone book.

10. BHIM AXIS PAY

BHIM Axis Pay is a UPI banking app that lets you transfer money instantly to anyone using
just your smartphone. Make online recharges to your prepaid mobile and DTH set-top
boxes directly from the app.

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 2.9 PLASTIC MONEY

Plastic cards, or what is described as plastic money, happen to be the best-known method
of payment in this day and age. Most of us did not grasp how quickly that little piece
of plastic took its place in our lives. credit cards online will continue to be used for the
multiple advantages they offer us.

We realize all too well that online credit cards work as

a n e x p e d i e n t p a y m e n t option to pay for our many purchases.! imagine
stashing money in all your pockets as against merely a little plastic rectangle.

Additionally, at present going around with a large quantity of cash on you is not a wise
choice in terms of safety. he safety issue assumes even greater significance when you are
visiting someplace far. Money is easy to spot and pick-pockets and thieves are able to use
nicked money equally easily because these funds are not traceable. online credit card
dealings however, are detectable and carry an audit trail as well.

Most times, people find using online credit card their way out of an otherwise
hopeless situation. several people found themselves purchasing airline tickets
on-line, reserving a hotel room, or renting a car. then again, there are times
when you require some more ready money at once. In these kinds of emergency
situations, you can switch to using credit by using your credit cards online.
generally, credit card online give maximum of fifty days of interest free use of
your credit. likewise, some merchants state, in their product promotion, that
you have the ability to get yourself a high-priced article ' e.g. today and pay for it
in a particular number of even instalments.

" c c o r d i n g l y, yo u c a n h a n d l e yo u r f i n a n c e s e f f i c i e n t l y s o a s t o r e m i t
y o u r p e r i o d i c payments and do so without any additional charges for interest." lot of
individuals look at your credit report 'which lists your credit history and is created and
updated using information from banks, merchants and other creditors to
evaluate you, consequently it’s crucial that your credit report is as good as
possible. Potential employers, insurance establishments, mortgage organizations,
and several other institutions will attempt to get an idea of your character by
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going through this factual data. Possessing a credit cards online and availing of it
wisely will help create a positive credit history. Here’s no need to get anxious over whether
you’ve adequate money on your person or w h e t h e r yo u d o n ’ t . o r d o y o u n e e d t o
u s e u p l a r g e c h u n k s o f yo u r t i m e w a i t i n g i n lengthy queues in a bank branch,
or spend time drawing money from an automatic teller machine when instead you can
always take your credit card wherever you go, and that takes care of all your
financial needs. Se v e r a l o n l i n e c r e d i t c a r d s h a v e t r a v e l i n s u r a n c e ' t h a t i s ,
i n s u r a n c e t o c o v e r problems associated with traveling built into them as an inherent
function. /consequently, you are among those that are often on the move, this feature might
be a tangible plus point. 0ven so, you must make sure to confirm if this travel insurance
provides adequate coverage for you. in addition, carefully go over the terms and conditions
that come with such insurance.

42
TYPES OF PLASTIC MONEY

➢ CREDIT CARD

A credit card is a payment card issued to users (cardholders) to enable the

cardholder to pay a merchant for goods and services based on the cardholder's promise to
the card issuer to pay them for the amounts plus the other agreed charges. The card issuer
(usually a bank) creates a revolving account and grants a line of credit to the cardholder,
from which the cardholder can borrow money for payment to a merchant or as a cash
advance. In other words, credit cards combine payment services with extensions of
credit. Complex fee structures in the credit card industry may limit customers' ability
to comparison shop, helping to ensure that the industry is not price-competitive and helping
to maximize industry profits. Due to concerns about this, many legislatures have regulated
credit card fees.

A credit card is different from a charge card, which requires the balance to be
repaid in full each month.[4] In contrast, credit cards allow the consumers a continuing
balance of debt, subject to interest being charged. A credit card also differs from a cash
card, which can be used like currency by the owner of the card. A credit card differs from
a charge card also in that a credit card typically involves a third-party entity that pays the
seller and is reimbursed by the buyer, whereas a charge card simply defers payment by the
buyer until a later date.

Over and above this you need to pay an interest on the cash right from day one,
and this interest cost ranges from 24-46 per cent per annum. Even if you cross your credit
card limit by Rs 1, you bank will charge you a minimum over limit fee of Rs 500 or 2.5
per cent of the over limit amount, whichever is higher.

43
➢ CHARGE CARDS

A charge card is a type of electronic payment card that charges no interest but
requires the user to pay his/her balance in full upon receipt of the statement, usually on a
monthly basis. Charge cards are offered by a limited number of issuers. They can include
an uncapped spending limit with generous reward benefits for the cardholder. These cards
however, typically include a high annual fee that can range from ₹ 10,343.32 to ₹
37,928.82.

A charge card is a branded card that is available for use anywhere the brand is
accepted for electronic payment. These cards have a similar structure and similar features
to a standard credit card however they also have some distinct differences.

Charge cards require a credit application for approval. They are generally only
approved for high quality borrowers with excellent or good credit. These cards may allow
unlimited spending however they must be paid in full each month which limits their use.
Missed payments are reported to credit bureaus and can substantially affect a borrower’s
credit score.

Charge cards are popular because of the rewards and benefits they offer with
each purchase. Cardholders can obtain purchase points and even statement credits with
their purchases, often with double and triple points on dining and travel expenses. Thus,
they can potentially be a good option for business travel. Card issuers offer cardholders
exposure to a wide variety of standard items, luxury brands and travel deals that can be
purchased with points accumulated from a charge card.

➢ DEBIT CARD

A debit card (also known as a bank card, plastic card or check card) is
a plastic payment card that can be used instead of cash when making purchases. It is
similar to a credit card, but unlike a credit card, the money is immediately transferred
directly from the cardholder's bank account when performing a transaction.

44
 Some cards might carry a stored value with which a payment is made,
while most relay a message to the cardholder's bank to withdraw funds from a payer's
designated bank account. In some cases, the primary account number is assigned
exclusively for use on the Internet and there is no physical card.

In many countries, the use of debit cards has become so widespread that
their volume has overtaken or entirely replaced cheques and, in some instances, cash
transactions. The development of debit cards, unlike credit cards and charge cards, has
generally been country specific resulting in a number of different systems around the
world, which were often incompatible. Since the mid-2000s, a number of initiatives have
allowed debit cards issued in one country to be used in other countries and allowed their
use for internet and phone purchases.

Debit cards usually also allow instant withdrawal of cash, acting as

an ATM card for this purpose. Merchants may also offer cashback facilities to customers,
so that a customer can withdraw cash along with their purchase.

STORED VALUE CARD

A stored-value card is a payment card with a monetary value stored on the

card itself, not in an external account maintained by a financial institution. This means no
network access is required by the payment collection terminals as funds can be withdrawn
and deposited straight from the card. Like cash, payment cards can be used anonymously
as the person holding the card can use the funds. They are an electronic development
of token coins and are typically used in low value payment systems or where network
access is difficult or expensive to implement, such as parking machines, public transport
systems, closed payment systems in locations such as ships or within companies.

Stored-value cards differ from debit cards, where money is on deposit with
the issuer, and credit cards which are subject to credit limits set by the issuer and are
connected to accounts at financial institutions. Another difference between stored-value

45
cards and debit and credit cards is that debit and credit cards are usually issued in the name
of individual account holders, while stored-value cards may be anonymous, as in the case
of gift cards. Stored-value cards are prepaid money cards and may be disposed when the
value is used, or the card value may be topped up, as in the case of telephone calling
cards or when used as a fare card.

The term closed-loop means the funds and or data are physically stored on
the token or card in the form of binary-coded data. This is unlike cryptocurrencies or
payment cards where data is maintained on the card issuer's computers. Like payment
cards, value can be accessed using a magnetic stripe, chip or radio-frequency
identification (RFID) embedded in the card; or by entering a code number, printed on the
card, into a telephone or
other numeric keypad.

➢ GIFT CARD

A gift card (also known as gift certificate in North America, or gift

voucher or gift token in the UK) is a prepaid stored-value money card usually issued by
a retailer or bank to be used as an alternative to cash for purchases within a particular store
or related businesses. Gift cards are also given out by retailers and marketers as part of a
promotion strategy, to entice the recipient to come in or return to the store, and at times
such cards are called cash cards. Gift cards are generally redeemable only for purchases at
the relevant retail premises and cannot be cashed out, and in some situations may be subject
to an expiry date or fees. Visa and MasterCard credit cards produce generic gift cards which
need not be redeemed at particular stores, and which are widely used
for cashback marketing strategies. A feature of these cards is that they are generally
anonymous and are disposed of when the stored value on a card is exhausted.

46
From the purchaser's point of view, a gift card is a gift, given in place of an object which
the recipient may not need, when the giving of cash as a present may be regarded as socially
inappropriate. In the United States, gift cards are highly popular, ranking in 2006 as the
second-most given gift by consumers and the most-wanted gift by women, and the third-
most wanted by males. Gift cards have become increasingly popular as they relieve the
donor of selecting a specific gift.

2.10 ONLINE CLEARING SYSTEM

The banking sector is considered to be the back-bone of Indian economy.

The economic reforms and the various e-banking techniques followed by the banks during
the last decade strengthened their financial position. The adoption of IT and
communication made the things easier for the banks. It made the flow of information
smooth. The payment and the settlement system led to greater efficiency and financial
stability. E-banking services benefited the customers also.

In India, implementation of Magnetic Ink Character Recognition (MICR)

based clearing in 1986 and other payment systems like card-based payment systems, ECS,
EFT, NEFT and CTS have offered a variety of services to the customers. The study on the
performance of Indian payment system during the last three years indicates that in India,
all electronic modes of payment have shown better growth than the physical cheque-based

47
system. The Reserve Bank of India is, therefore, taking necessary steps to provide efficient
and integrated payment and settlement system in the country and also taking steps to
mitigate the loss and risk. Development of electronic banking is facilitating the processing
of large volume of transactions in an efficient and reliable manner. The payment and
settlement system is part of basic infrastructure needed for the proper functioning of market
oriented economies.

They are indispensable for the efficient flow of payment for goods,
services and financial assets and their smooth functioning is crucial for the effective
implementation of the central bank’s monetary policy and stability in the economy. So,
Reserve Bank of India has recognized the payment and settlement system to be critically
important for broadening and developing the financial system.

• Electronic Clearing Service

ECS is an electronic mode of funds transfer from one bank account to another. It can be
used by institutions for making payments such as distribution of dividend interest, salary,
pension, among others. It can also be used to pay bills and other charges such as telephone,
electricity, water or for making equated monthly instalments payments on loans as well
as SIP investments. ECS can be used for both credit and debit purposes.

The Reserve Bank of India has deregulated the charges to be levied by sponsor banks from
institutions. Destination bank branches have been directed to afford ECS credit free of
charge to the beneficiary account holders. So, it costs you nothing.

48
 • Electronic funds transfer

Electronic Funds Transfer (EFT) is a system of transferring money from one bank account
directly to another without any paper money changing hands. One of the most widely-used
EFT programs is Direct Deposit, in which payroll is deposited straight into an employee's
bank account, although EFT refers to any transfer of funds initiated through an electronic
terminal, including credit card, ATM, Fedwire and point-of-sale (POS) transactions. It is
used for both credit transfers, such as payroll payments, and for debit transfers, such as
mortgage payments.

Transactions are processed by the bank through the Automated Clearing House (ACH)
network, the secure transfer system that connects all U.S. financial institutions. For
payments, funds are transferred electronically from one bank account to the billing
company's bank, usually less than a day after the scheduled payment date.

The growing popularity of EFT for online bill payment is paving the way for a paperless
universe where checks, stamps, envelopes, and paper bills are obsolete. The benefits of
EFT include reduced administrative costs, increased efficiency, simplified bookkeeping,
and greater security. However, the number of companies who send and receive bills
through the Internet is still relatively small.

49
• REAL-TIME GROSS SETTLEMENT (RTGS)

Real-time gross settlement (RTGS) systems are specialist funds transfer systems where the
transfer of money or securities[1] takes place from one bank to any other bank on a "real
time" and on a "gross" basis. Settlement in "real time" means a payment transaction is not
subjected to any waiting period, with transactions being settled as soon as they are
processed. "Gross settlement" means the transaction is settled on one-to-one basis without
bundling or netting with any other transaction. "Settlement" means that once processed,
payments are final and irrevocable.

RTGS systems are typically used for high-value transactions that require and receive
immediate clearing. In some countries the RTGS systems may be the only way to get same
day cleared funds and so may be used when payments need to be settled urgently. However,
most regular payments would not use a RTGS system, but instead would use a
national payment system or automated clearing house that allows participants to batch and
net payments. RTGS payments typically incur higher transaction costs and usually
operated by a country's central bank.

HISTORY

As of 1985, three central banks had implemented RTGS systems, while by the end of 2005,
RTGS systems had been implemented by 90 central banks.

The first systems that had the attributes of a RTGS system was the US Fedwire system
which was launched in 1970. This was based on a previous method of transferring funds
electronically between US federal reserve banks via telegraph. The United Kingdom and
France both independently developed RTGS type systems in 1984. The UK system was
developed by the Bankers Clearing House in February 1984 and was called CHAPS. The
French system was called SAGITTAIRE. A number of other developed countries launched
systems over the next few years. These systems were diverse in operation and technology,

50
being country specific as they were usually based upon previous processes and procedures
used in each country.

In the 1990s international finance organizations emphasised the importance of large-value

funds transfer systems which banks use to settle interbank transfers for their own account
as well as for their customers as a key part of a country's financial infrastructure. By 1997
a number of countries, inside as well as outside the Group of Ten, had introduced real-time
gross settlement systems for large-value funds transfers. Nearly all G-10 countries had
plans to have RTGS systems in operation in the course of 1997 and many other countries
were also considering introducing such systems.

OPERATION

RTGS systems are usually operated by a country's central bank as it is seen as a critical
infrastructure for a country's economy. Economists believe that an efficient national
payment system reduces the cost of exchanging goods and services, and is indispensable
to the functioning of the interbank, money, and capital markets. A weak payment system
may severely drag on the stability and developmental capacity of a national economy; its
failures can result in inefficient use of financial resources, inequitable risk-sharing among
agents, actual losses for participants, and loss of confidence in the financial system and in
the very use of money.

RTGS system does not require any physical exchange of money; the central bank makes
adjustments in the electronic accounts of Bank A and Bank B, reducing the balance in Bank
A's account by the amount in question and increasing the balance of Bank B's account by
the same amount. The RTGS system is suited for low-volume, high-value transactions. It
lowers settlement risk, besides giving an accurate picture of an institution's account at any
point of time. The objective of RTGS systems by central banks throughout the world is to
minimize risk in high-value electronic payment settlement systems. In an RTGS system,
transactions are settled across accounts held at a central bank on a continuous gross basis.
Settlement is immediate, final and irrevocable. Credit risks due to settlement lags are
eliminated. The best RTGS national payment system cover up to 95% of high-value
transactions within the national monetary market.

51
RTGS systems are an alternative to systems of settling transactions at the end of the day,
also known as the net settlement system, such as the BACS system in the United Kingdom.
In a net settlement system, all the inter-institution transactions during the day are
accumulated, and at the end of the day, the central bank adjusts the accounts of the
institutions by the net amounts of these transactions.

The World Bank has been paying increasing attention to payment system development as
a key component of the financial infrastructure of a country, and has provided various
forms of assistance to over 100 countries. Most of the RTGS systems in place are secure
and have been designed around international standards and best practices.

There are several reasons for central banks to adopt RTGS. First, a decision to adopt is
influenced by competitive pressure from the global financial markets. Second, it is more
beneficial to adopt an RTGS system for central bank when this allows access to a broad
system of other countries' RTGS systems. Third, it is very likely that the knowledge
acquired through experiences with RTGS systems spills over to other central banks and
helps them make their adoption decision. Fourth, central banks do not necessarily have to
install and develop RTGS themselves. The possibility of sharing development with
providers that have built RTGS systems in more than one country (CGI of UK, CMA Small
System of Sweden, JV Perago of South Africa, SIA S.p.A. of Italy and Montran of USA)
has presumably lowered the cost and hence made it feasible for many countries to adopt.

52
 NATIONAL ELECTRONIC FUNDS TRANSFER

National Electronic Funds Transfer (NEFT) is an electronic funds transfer system

maintained by the Reserve Bank of India (RBI). Started in November 2005, the setup was
established and maintained by Institute for Development and Research in Banking
Technology (IDRBT).[1] NEFT is a facility enabling bank customers in India to transfer
funds between any two NEFT-enabled bank accounts on a one-to-one basis. It is done via
electronic messages. Unlike Real-time gross settlement (RTGS), fund transfers through the
NEFT system do not occur in real-time basis. NEFT settles fund transfers in half-hourly
batches with 23 settlements occurring between 8:00 AM and 7:00 PM on week days and
the 1st, 3rd and 5th Saturday of the calendar month. Transfers initiated outside this time
period are settled at the next available window. No settlements are made on the second and
fourth Saturday of the month, or on Sundays, or on public holidays.

NEFT facilities are available at 74,680 branches offices of 101 banks across the country
(out of around 82,400 bank branches) as of January 2011, and well as online through the
website of NEFT-enabled banks and work on a batch mode. NEFT has gained popularity
due to its saving on time and the ease with which the transactions can be concluded, This
reflects from the fact that 42% of all electronic transactions in the 2008 financial year were
NEFT transactions.

PROCESS

1. Customer fills an application form providing details of the beneficiary (like name, bank, branch
name, IFSC, account type and account number) and the amount to be remitted. The remitter
authorizes his/her bank branch to debit his account and remit the specified amount to the
beneficiary. This facility is also available through online banking and some banks offer the NEFT
facility even through the ATMs.
2. The originating bank branch prepares a message and sends the message to its pooling centre (also
called the NEFT Service Centre).

53
3. The pooling centre forwards the message to the NEFT Clearing Centre (operated by National
Clearing Cell, Reserve Bank of India, Mumbai) to be included for the next available batch.

4. The Clearing Centre sorts the funds transfer transactions destination bank-wise and prepares
accounting entries to receive funds from the originating banks (debit) and give the funds to the
destination banks(credit). Thereafter, bank-wise remittance messages are forwarded to the
destination banks through their pooling centre (NEFT Service Centre).

5. The destination banks receive the inward remittance messages from the Clearing Centre and pass
on the credit to the beneficiary customers’ accounts.

• CHEQUE TRUNCATION SYSTEM

Cheque Truncation System (CTS) is a cheque clearing system undertaken by the Reserve
Bank of India (RBI) for faster clearing of cheques. As the name suggests, truncation is
the process of stopping the flow of the physical cheque in its way of clearing. In its place
an electronic image of the cheque is transmitted with key important data.

Cheque truncation thus obviates the need to move physical instruments across branches.
This effectively eliminates the associated cost of movement of physical cheques, reduces
the time required for their collection and brings elegance to the entire activity of cheque
processing. It is a system which is practised worldwide in the banking sector.

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 UNIT- III

3.1 RESARCH METHODLOGY

3.2 HYPOTHESIS
3.3 OBJECTIVES OF STUDY
3.4 SCOPE OF THE STUDY
3.5 LIMITATIONS OF THE STUDY

3.1 RESARCH METHODLOGY

RESEARCH DESIGN:

A research design is a basic plan which guides the researcher in the collection and
analysis of data required for practicing the research. Infant the research design is the
conceptual structure which the research is conducted. It constitutes the ‘Blue Print’ for the
collection, measurement and analysis of the data. The study is carried out to understand the
Consumer Perception about role of information technology in the banking sector after
demonetization for this study the researcher used exploratory research design. This
research covers 100 consumers, belonging to various age groups.

SAMPLE DESIGN:

The process of drawing a sample from a large population is called sampling. Population
refers to the total of items about which information is defined. Well selected samples may
reflect fairly and accurately the characteristics of the population.

• Sampling Unit: The sample unit of this survey was the customers of various banks.

• Sample Size: The sample size was 100 customers of different banks

• Sampling Technique Adopted: Convenient sampling

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SOURCE OF DATA

After identifying and defining the research problem and determining specific Information
required to solve the problem the researcher will look for the type and sources of data which
may yield the desired results, while deciding about the method of data collection to be used
for the study, there are two types of data.

They are as follows

• PRIMARY DATA:

Primary data are those which are collected for the first time. Primary data is collected by
framing questionnaires. The questionnaire contained questions which are both open-ended
and closed-ended. Open-ended questions are questions requiring answers in the
responder’s own words. Closed-ended questions are those wherein the respondent has to
merely check the appropriate answer from a list of options available. Any doubts raised
by the Respondents were clarified to get the perfect answers from the distributors. Open-
ended questions yielded more insightful information, whereas closed- Ended questions
were relatively simple to tabulate and analyse.

• SECONDARY DATA:

Secondary data means data that are already available i.e. they refer to the data which have
been collected and analysed by someone and can save both money and time of the
researcher. Secondary data may be available in the form of company records, trade
publications, libraries etc.

Secondary data sources are as follows:

♦ Various Websites

♦ Standard Textbook

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 3.2 HYPOTHESIS

H0) In banking sector most of the customer don't know about the online services of banks.

H1) In banking sector some of the customers know about the online services of banks.

H0) After the demonization most of customers don't use mobile wallet for payment.

H1) After the demonization customers use mobile wallet for payment.

H0) In rural areas less awareness about the cashless India.

H1) In rural areas most of the awareness camps arguing about cashless India.

H0) Less improvement in software used in banks before demonetization.

H1) Modified software used in banks after demonetization.

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 3.3 OBJECTIVES OF STUDY

1) To study and understand the uses of IT in banking sector.

2) To study and understand technology literacy among banking sectors.

3) To study and understand that how upgraded Indian banking sectors are.

4) To study and understand the behaviour of banking institutions in India after

demonetization.

5) To understand consumer’s preferences.

58
 3.4 SCOPE OF THE STUDY

• The research is conducted in Thane city.

• The primary data base collected through surveying customers of various bank.

• The research is focused on the role of information technology in banking sector after
demonetization

59
 3.5 LIMITATIONS OF THE STUDY

1. The biggest disadvantage of demonetization has been the chaos and frenzy it created
among common people initially. Everyone was rushing to get rid of demonetized notes
while inadequate supply of new notes affected the day to day budgets of citizens. Banks
and ATMs witnessed long queues while small businesses suffered temporary financial
losses. The situation was even worse in rural India where people struggled to exchange and
withdraw cash due to lack of enough number of banks and ATMs in their vicinity.

2. Another disadvantage is that destruction of old currency units and printing of new
currency units involve costs which has to be borne by the government and if the costs are
higher than benefits then there is no use of demonetization.

3. Another problem is that this move was targeted towards black money but many people
who had not kept cash as their black money and rotated or used that money in other asset
classes like real estate, gold and so on were not affected by demonetization.

60
 UNIT-IV

LITERATURE REVIEW

Narasimhan Committee (1991): The banking industry has introduced various new
customer services and products using IT. The banking industry has gone through many
changes as a result of the introduction of IT. In fact, the structure of the industry is
continuously changing because of rapid development of IT . Banks are the backbone
of the economy of the country. Implementation of information technology and
communication networking has brought revolution in the functioning of the banks
and the financial institutions. The status of automation in the banks in India is not
uniform. There are banks functioning for decades, having a sizable number of branch
networks in the rural and semi-urban centres. Compared to this, there are banks which are
generally regional in character and not having a large number of branches in the country.
In the recent past a few private sector banks have been established with the latest
technology. Foreign banks located at major commercial centres of the country
also transact their business in a computerized environment. The level and extent of
automation in the banks are generally vary because of their history, work culture and
policies/strategies adopted by their management in branch expansion and investment in
technology

Rangarajan Committee (1989): IT came into picture as early as in the 1980’s in Banking
Technology through the Rangarajan committee recommendations. It involves many
phases.
First phase : Accounting process and back office functions
Second phase : Automate the front office as well as the back office function
Third phase : Networking concept and centralized operation
Fourth phase : ATM and mobile banking and internet banking
Fifth phase : “inter-bank” connectivity

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Bernardo Bátiz- Lazo and Douglas Wood (2001) argued that outstanding IT-based
innovations are considered and grouped into four distinct periods: early adoption
(1864-1945),specific application (1945-1965), emergence (1965-1980) and diffusion
(1980-1995) and two dimensions of technological progress in retail banking. These
dimensions describe the nature of change brought about by technological innovation
externally (product or service offerings) and internally (operational function) to banking
organizations.

Jarunee Wonglimpiyarat (2006) is concerned with the technological learning and

capabilities of Thai banking. The results show that the use of technology in the mass
automation regime is carried through to the smart automation regime, showing that the
technological change in the banking sector is not revolutionary but evolutionary.

Costas Lapavitsas And Paulo L. Dos Santos (2008), argued technological innovation has
contributed to recent changes in the conduct and character of banking, but its impact has
been contradictory. First, money-dealing transactions have become cheaper, but
investmentcosts have increased and a broader range of services had to be provided. The
cost efficiency of banks has not improved.

Vadlamani Ravi (2007) defines the term “banking technology” refers to the use
of sophisticated information and communication technologies together with computer
science to enable banks to offer better services to its customers in a secure, reliable, and
affordable manner, and sustain competitive advantage over other banks.

Reserve Bank of India (2004): The three categories of IT investment – hardware,

software and IT services - comprise the following investments on:
1. Computer Hardware (HA): which includes spending on commercial systems (including
central processing unit and basic peripherals, such as data storage devices, terminals,
memory, and peripherals), single-user systems (workstations and personal computers),

62
data communications (local area network hardware, wide area network hardware, analogy
modems, digital access);
2. Software (SO): which includes spending on packaged software, application solutions
software, application tools, systems infrastructure software;

Vadlamani Ravi (2007),” Advances in Banking Technology and Management: Impacts

of ICT Services (SE): spending on consulting services, implementation
services, operational services, training and education, support services.

Sivakumaran (2005), believes that adoption of technology has led to the following
benefits: greater productivity, profitability, and efficiency; faster service and customer
satisfaction; convenience and flexibility; 24x7 operations; and space and cost savings.

Berger (2003), the usage of information technology (IT) broadly referring to computers
and peripheral equipment, has seen tremendous growth in service industries in the recent
past. The most obvious example is perhaps the banking industry, where through the
introduction of IT related products in internet banking, electronic payments, security
investments, information exchanges, banks now can provide more diverse services to
customers with less manpower.

Willcocks (1994), Information systems/information technology investment may be

described as any acquisition of software or hardware which is expected to expand or
increase the business benefits of an organization’s information systems and render long-
term benefits.

Mr Brijesh Singh and Dr. N. Babitha Thimmaiah (January 2017) in their research
paper studied the effect of demonetization in terms of “Won or lost”. By using the
secondary data method i.e. articles, they had conducted their study. In the study report they
had tried to explain the concept of cashless economy by taking the reference of Woodford

63
(2003). It is not all about how much money you are having in your wallet, you can pay by
any of the bank card or banking transfer. In the research paper they had show the effect of
demonetization in the areas like, cash rush, stock market, transportation, agriculture,
banking, business, income tax, railways etc. There are no exact proofs of exact black
money holding in cash but studies show that around 8% of black money is held in cash.
According to the Centre for Monitoring the Indian Economy (CMIE), the transaction cost
of demonetization until 30th December, 2016 is estimated around Rs. 1.28 lakh crore. As
per R. Gandhi, Deputy Governor of RBI, speaking on 7th December 2016, Rs. 11.5 lakh
crore has been already deposited at bank out of total 14.5 lakh crore which means still 3
lakh crore are unidentified.

Geeta Rani (November 2016) had presented the research paper to show the effect of
demonetization over the retail outlets. She had done her research work by taking the
primary data. She had used the Questionnaire method. This was filled by the 50
shopkeepers of the area. As a result she had been ready with some out comes likewise 80%
shopkeeper presented their view that from 9th November, 2016 to 10th December, 2016
there was 20% increase in sales due to accepting the old notes. But after that sales had
declined. Shopkeeper started Paytm and cheque system. Shopkeepers had extended credit
period. Top brands like HUL, P&G had affected with only decrease of 20% sales due to
brand name. Moreover on the basis of the study she had identified the effect of
demonetization category wise. Likewise, salty snacks sale decreased by 10%, chocolates
sales had decreased by 50%, biscuits sales had decreased by 20%, juice/fruit drinks sales
decreased by 20%, cigarettes sales decreased by 10%, mobile phones sales decreased by
70% , gold sales increased by 70% and durable goods sales decreased by 70%. She
concluded her paper by giving the views that though demonetization is painful for short
term, but it will surely beneficial for the long run moreover most customers are now
adopting cashless means like paytm, debit card, cheques etc.

Sherline T.I (December 2016) has undertaken the research on “Demonetization as a

prelude to complete financial inclusion “. The main objective of the study was to
understand the importance of demonetization as a measure of financial inclusion. Financial

64
inclusion mainly stands for, the delivery of the financial services at the affordable cost to
the low income segments of society. As per the report financial inclusion can boost the
savings as well as credit availability. The study shows that this move of the Government
has likely to create long term benefits. Moreover, medium to long term Current account
and Saving account (CASA) ratio could improve. Moreover demonetization would reduce
cash transaction the real estates, which may decrease the price of that avenues which make
it affordable to general public. Moreover the near future inflation will decrease due to less
cash transaction.

M. Angel Jasmine Shirley (February, 2017) has studied about the “Impact of
Demonetization in India” in her research paper. In the first part of the paper, the impact
over Indian economy had been explained. As per the research, the BSE SENSEX and
NIFTY 50 stock had been fall near about 6% on the very next day. Moreover on the later
on days, the country felt severe shortage of the cash. Moreover due to lack of cash overall
production had decreased. Banks had not enough new currency for the exchange of the old
notes, which breakdown the overall economic system. Moreover in the paper impact of the
demonetization over world economy also shown. The first thing that happened after
demonetization was decrement in to overall consumption of commodities which results in
to decrease in the export-import. Moreover there was a major impact over the domestic
sectors, reduction in the Government liability, farming and fishing industry, business, drop
in industrial output, black money, impact over counterfeit currency, hawala, bank deposits,
jewellery and International Journal of Marketing & Financial Management, Volume 5,
Issue 3, Mar-2017, pp 21-26 ISSN: 2348 –3954 (Online) ISSN: 2349 –2546 (Print) Contact
Us : info@arseam.com ; submit paper : editor@arseam.com download full paper :
www.arseam.com 23 real estate, IT sector etc. Findings in this sectors says that, though
demonetization is a good concept to grab the black money holders, most of black money
is kept in form of land, gold, real estate etc. “Not all black money is in cash, not all cash is
black money”. People face too much inconveniency due to improper planning about post
demonetization. Moreover for number of days they had spent their time by standing in
queues. To decline over all negative impact of it, ways are to focusing over tax aspect, cash
availability, and elimination of loopholes.

65
Chabi Gupta (December 2016) had studied about the payment banks and demonetization.
To explain her research point, she had firstly explained about the Indian banking sector.
Payment banks are generally niche banking set up by RBI, payment banks provide small
saving accounts and payment services mainly for low income household, small businesses
etc. Then she had explained the overall impact of demonetization move. According to the
Reserve Bank Of India (RBI) figures, as of March 2016 currencies in circulation amounted
to Rs.16,415 billion of this 500 notes were of around 47.8%in value and 1000 were of
38.6% in value. Jointly they had 86% value in the economy. Many banks like HDFC, ICICI
and AXIS are exploring to launch the contact less debit and credit card. It will allow the
customers to use card without swipe. RESEARCH METHODOLOGY: Research
methodology is the activity of collecting the information and data, with the intention of
doing the research. Methodology may include different tools like research objective,
sampling, sampling methods etc. It is a broad area which covers the most aspects of
research.

Manpreet Kaur (2017) conducted a study on demonetization and impact on Cashless

Payment System. He said that the cashless system in the economy has many fruitful
benefits less time-consuming, less cost, paper less transaction etc. and he expected that the
future transaction system in all the sectors is cashless transaction system.

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 UNIT- V

5.1 DATA ANALYSIS & INTERPRETATION

5.2 BANK EMPLOYEE INTERVIEW

5.1 DATA ANALYSIS & INTERPRETATION

DATA INTERPRETATION: - According to above diagram 100% people heard about

the demonetization.

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DATA INTERPRETATION: - According to above diagram 91% people say it’s a good
step,0 % people say it’s a bad step and 9% people can’t say.

68
DATA INTERPRETATION: - According to above diagram 97% people use cash and
19% people also use credit /debit card, 2% people use mobile wallet.

69
DATA INTERPRETATION: - According to above diagram 14% people use cash and
52% people also use credit /debit card, 89% people use mobile wallet.

70
DATA INTERPRETATION: - According to above diagram 69% people say yes, 3%
people says no and 28% people can’t say.

71
DATA INTERPRETATION: - According to above diagram 89% people say yes, 2%
people says no and 9% people can’t say.

72
DATA INTERPRETATION: - According to above diagram 51% people say yes, 16%
people says no and 33% people can’t say.

73
DATA INTERPRETATION: - According to above diagram 62% people say yes, 13%
people says no and 25% people can’t say.

74
DATA INTERPRETATION: - According to above diagram 16% people say increased, 71%
people says decreased and 13% people no impact.

75
10. what suggestion you can give to the development of technology in the
Indian banking sector after demonetization?

• Educate everyone about the use of e-wallet and debit & cards.
• Proper classes about the use of e-wallet and cards should be taken at
each and every office, organization, companies, etc. whether private
or government.
• Camps can be held at village levels and city levels at each and every
corner on how to use the online services of banks.
• Social workers, panchayat members, municipal corporation
members & staff should come forward in explaining the use of
digital media for buying commodities in the market.
• Give every businessman, who has current account with banks, swipe
machine at the earliest possible.
• Proper training should be given to traders about its use.
• Information of how to use should be given to every person.
• Improve internet banking interface.

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 5.2 BANK EMPLOYEE INTERVIEW

Data analysis and interpretation on the basis of bank manager of

The Raigad District Central Cooperative Bank

1. Do you think demonetization helped bank employee?

ANS: YES, it is helpful for employees.

2. How will demonetization impact cash flow in banks?

ANS: Increase the cash flow in banks after demonetization.

3. What is the impact of demonetization on the number of customers in branches?

ANS: Increase the number of customers in branches after demonetization.

4. What percentage of customers is opting for online payment?

ANS: 20%- 30% percentage of customers is opting for online payment.

5. What age group of customers opting online payment?

ANS: 20-30 age group of customers opting online payment.

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6. What challenges did your bank face while adopting the online banking system?

ANS: While adopting the online banking system, server error & installation error are
mostly facing bankers.

7. What kind of training is required for employee for handling online clearing system?

ANS: Most of the time moderate training is required.

8. What is the impact of demonetization on online banking?

ANS: Increase the number of customers use the online banking.

9. What is the impact of demonetization on deposits of the bank?

ANS: Increase the number of deposits in bank.

10. What is the impact of demonetization on the interest rates?

ANS: The impact of demonetization decreases the interest rates.

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 FINDINGS

All people aware about demonetization in India. Most of the people say it's a good step for
Indian economy. Before the demonstration transaction in Cash payment. After the
demonstration transaction in online payment. it is good idea for encouraging digital
transactions. Some kind of black money exists in India after demonetization. All most 62%
people say the after-demonetization rate of corruption is reduced. Most of the people use
the online banking, e-Wallets, etc.

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 RECOMMENDATION & SUGGESTION

1. The present business environment for banking is highly volatile and uncertain. It is highly
competitive and every bank is finding difficult to service grow, stabilize and excel in banking
business. Further, for better performance management must keep watch on the emerging trends in
business environment. The proper and timely strategies are to be adopted to improve efficiency of
the whole organisation.

2. Competition is faced from public, private, foreign and cooperative banks. They have adopted the
strategy for effective workings are use of advance technology and changes in working procedure.
No doubt performance has been improved but manpower is not maintained and utilized properly.
For improvement in human resources, special focus should be given on selection, training, motivate
career opportunities or employees etc.

3. Manpower is considered as the most important resource but it is day to day dealing efforts are
found for the sufficient efforts are not found for improvement of competencies and motivation of
employees. It is suggested that in this direction strong steps are to be taken. 278

4. Bank management is interested for performance of employees on paper. When questions come
for implementation and monetary terms the half-hearted efforts are put. There is need to change the
mind set of management further and tune them as per the need of the hour.

5. Performance management functions are available on papers but actually these functions are not
performed or performed partially. The effectiveness of performance management is below
expectation. Performance management functions should be assigned to a separate cell under HR
Head so that effectiveness of it would improve.

6. The awareness regarding benefits of performance management to banks is not very high. There
is a scope for improvement. The awareness regarding this should be created further through
discussion, circulars and lectures by experts.

7. The employees’ productivity in average is not high in banks. There is a lot of scope for further
improvement and awareness about it should be created through discussion, meeting and guidance
on job among employees working on different jobs and levels.

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8. Management of banks is interested for productivity improvement. This is half of the way. A big
gap is found between actual position and expectations. Willingness to should the responsibility for
productivity improvement is partly missing. Top level management involvement and support can
boost the efforts in right direction.

9. Performance appraisal planning and methods used are rightly available on papers. Regularly
appraisals are not carried out properly. The improper appraisal is creating problems for further
actions. Head of HR Department should look into this, take help of experts and implement the
performance appraisal strongly. A lot of irregularities would be overcome.

10. The bankers are aware about the factors affecting productivity improvement. In private and
foreign banks, the factors affecting are managed properly but in public and cooperative banks the
situation is of average. These factors are to be management without any lapse so that productivity
can be improved.

11. Due to higher productivity the profitability of banks especially private and foreign banks is
increasing whereas public and cooperative banks are lagging behind. No doubt in average total
profit amount has increased but output per employee did not increase. Special efforts 279 should
be taken for training, motivation and guidance on job of employees in and cooperative banks.

12. The time taken for banking transaction is in average is more. More waiting time is involved.
Mainly the waiting time in public banks and ICICI bank out of private banks is more than other
banks. Especially management of public bank should focus on prompt response and reducing
waiting time.

13. After visit to banks the customers feel normal. In public banks its slightly lower than foreign
and private banks. There is a scope for development to make customers happy. The management
should carry out the work study and work measurement to cut down unwanted activities and time
taken for performing banking jobs. The reduction in cost time and efforts should be the objectives.

14. Attention paid to customers and interest taken in jobs by employee is of average level
management should focus to motivate employees to take more interest in jobs and proper attention
to give to customers while dealing particularly public and cooperative banks.

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 CONCLUSION

The mobile and wireless market has been one of the fastest growing
markets in the world. The arrival of technology and the escalating use of mobile and smart
phone devices, has given the banking industry a new platform. Connecting a customer
anytime and anywhere to their money and needs is a must have service that has become an
unstoppable necessity. This worldwide communication is leading a new generation of
strong banking relationships. The banking world can achieve superior interactions with
their public base if they accommodate all their customer needs. They have a unique
challenge to keep their customer alliances and keeping up with the new technologies, and
competitive strategies that other banks also have to offer the public. Conveniences of
services plus outside locations like ATMS are crucial to every bank’s success. Meeting all
challenges including safety and security are perfect examples of good banking strategies.
In order for the financial institutions to effectively grow they must embrace the new
technologies and customize them to suit their economic success and the public’s success.

Online banking is certainly here to stay. Online banking is a necessity for

the bank's that we studied and others in order for them to stay in business. While its
existence doesn't necessary give them a competitive edge because it is so common place,
it is truly a cost of doing business. As a tool of modern living and as a lifestyle aid, it is
absolutely indispensable. The fact is that many services that are now being offered with
online banking are almost impossible to do conveniently with regular banking. As we
venture into the future, the internet will undoubtedly continue to change the banking
industry.

For economists it is a failure. 99.3% of the demonetized currency is back.

This proves that the aim of weeding out black money (primary aim of demonetization) has
not been accomplished. It has damaged the informal economy which employed 90% of
India's workforce. Slowed our growth rate, forced many into unemployment, disrupted the
MSMEs, etc. Do for them the failures account more than the successes.

For the government it is still a success. The government has been constantly
changing goal posts. First it said this will weed out the black money and counterfeit

82
currency. Then they shifted to disrupting terror funding, then it was an exercise to widen
the tax base. This shifting of the goal posts was expected from the government. The leaders
themselves know that it was a failure but can't help it is called modern politics.

For the RBI it was something that made then realize that their advice does
not carry significant weight. Many felt helpless. They knew this was never going to be a
success. For some of them it would have been a moment to think about resigning.

The common citizens or the majority still consider it to be a decision with

good intention. They do not want to focus on the means they had to go through and the
end. Majority of the people are going to forget about the hardships. I mean we Indians are
very forgiving. We talk about getting more rational but we don't do it when such thinking
is most required. We will again come to normal life and once again allow our political
leaders to take such decisions based on whims. This will prove that democracy is a clear
reflection of the society.

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 REFERENCE

Bibliography

• DEMONETISATION AND BLACK MONEY by C. Rammanohar Reddy

• Electronic and Internet Banking by C.N.REDDY

WEBLIOGRAPHY

• https://economictimes.indiatimes.com/definition/e-wallets
• https://www.scribd.com/doc/307531767/Introduction-of-plastic-money
• https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation
• https://www.omicsonline.org/open-access/the-impact-of-electronic-banking-on-
customers--satisfaction-inethiopian-banking-industry-the-case-of-customers-of-dashen-
andwogage-2167-0234-1000174.php?aid=69979

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 ANNEXURE

SURVEY FORM FOR THE

“ROLE OF INFORMATION TECHNOLOGY IN
BANKING SECTOR AFTER DEMONETIZATION”

To Understand the Customer Preference, Expectation and their Needs.

NAME:
AGE:
OCCUPATION:
1. Have you heard about the demonetization in India?

Ο Yes
Ο No
2. What do you think about demonetization?

Ο Its a good step

Ο Its a bad step
Ο Can’t say
3. Which method of payment do you use before demonetization?

Ο Cash
Ο Credit / debit card
Ο Mobile wallets (Paytm, PhonePe , Google pay , etc.)
4. Which method of payment do you use after the demonetization?

Ο Cash
Ο Credit / debit card
Ο Mobile wallets (Paytm, PhonePe , Google pay , etc.)
5. Do you think demonetization has proven beneficial to the general public?

Ο Yes
Ο No
Ο Can’t say

85
6. Is it a good idea for encouraging digital transaction?

Ο Yes
Ο No
Ο Can’t say
7. Do you think that black money is exists in India?

Ο Yes
Ο No
Ο Can’t say
8. Do you think that demonetization has reduced the corruption?

Ο Yes
Ο No
Ο Can’t say
9. What is the impact of demonetization on the use of ATMs?

Ο Increased
Ο Decreased
Ο No impact

10. What suggestion you can give to the development of technology in the Indian banking
Sector after demonetization?

(Thank you for giving response)

86