Global banking system

Overview Of Global Banking System

 Against the backdrop of the slowdown in global growth and trade, the
global banking system has continued to grapple with several challenges in
recent years.
 The wait for a widespread revival in global banking activity has continued
as concerns about low profitability and weakening asset quality mar the
performance of the banking systems in some advanced economies and
most emerging economies, including India.
 Notwithstanding these concerns, emerging economies have continued to
consolidate their positions in the global banking system.
 On the positive side, various regulatory/supervisory reforms being
undertaken since the global financial crisis have helped in strengthening
the capital positions of global banks.
 1. Omnichannel strategy for a 360-
degree customer view
 Digital platforms help provide a 360-degree
view of customers and their interactions. The
centralized and synchronized orchestration
of all customer interactions across multiple
touch points must be device agnostic as
well.
 Digital platforms bring in omnichannel
interactions and significant cost savings. This
can be achieved by integrating channels,
products, processes, peripheral applications,
and underlying data and infrastructures,
while decreasing the dependence on the
core banking systems.
 These platforms allow banks to deliver
seamless end-to-end digital banking
experiences and are scalable and enable
banks to capture a 360-degree view of
customer behavior across multiple channels.
2. Digital Customer Onboarding

 Banks increasingly want to address the Digital

Signature
limitations in legacy onboarding processes. and
And regulators are on-board as well. They have Verification
reacted positively and are approving the AI -based
Data
extraction
increased use of digitization in customer straight
from
onboarding. through
process
document
image-OCR
 But banks should start thinking ahead too. They Digital
need a plan to introduce digital customer Customer
onboarding using a combination of technology Onboarding
through transformational programs by aligning Real-time
with accelerators such as inhouse custom built data fetch Video-Based
patches and fintech solutions. using open KYC
API
 Developing a digital identity framework with an Face match,
identity accreditation process built around biometrics
digital customer onboarding planning will make and v oice to
text
them more competitive.

Fig: Key Components of Digital Customer Onboarding

 3. Open Banking
 Open-banking adoption can help banks monetize data, develop and
cross-sell offerings and gain market share. The biggest disadvantage that
banks currently have in providing a seamless customer experience is that
they do not have a full view of a client’s data outside their boundary —
customers can use more than one bank for their savings and investments.
To also succeed as a banking aggregator, they must collabo rate with
competitors.


4. AI-driven decision making
Embracing AI in decision-making will result in significant time savings as
decisions will be made in real time, especially on retail loans, auto
financing and credit cards — areas where the volume of transactions
is distinctly high. The base of AI-driven decision-making is digitization
and APIfication. AI models rely on data to make real-time decisions.
Hence, it is important for banks to connect with external parties using
APIs.
5. Innovation Through Fintech
Collaboration
 Many factors today are driving banks
to rethink and partner with potential
Fintechs in their area of business.
Millennial customers demand seamless
and real-time experiences. But banks
need to shift quickly from their
conventional mode of innovation to a
partnership-based innovation.
Collaboration with Fintechs will speed
up bank’s execution in digital
transformation and meet customer
expectations.
Fig : Fintech Ecosystem
6. Drive Operational Efficiencies Through
Digitization
A flexible and agile technology framework can help banks enhance operational
efficiency and fight against volatility or business stress. To achieve this, a strategy
for process optimization, digitization and automation must be formulated.

7. Manage Compliance Costs in an

Increasing Regulatory Environment
Banks should consider compliance-as-a-service model that will reduce
associated costs and will help banks to speed up with the frequent
regulatory tractions. Often regulatory specifications and standards are
interpreted in different ways by different intermediately parties. This has
created fragmented environment within banking industry and will further
require legislation to balance the arena. Hence, banks should work closely
with the regulators to get clarity and standardize the regulations globally or
8. Cloud for Infrastructure Resiliency and
Efficiency
 Financial institutions are facing challenges presented by new dimensions,
including ever-changing customer expectations, emerging technologies
and new business models, and all of these agenda items see regulatory
compliance loom in the background.
 Cloud technology helps face these challenges. It changes banks’ logic
and approach in finding solutions to problems. Cloud is comparatively less
expensive, faster and a more elastic alternative to an on-premises data
storage and compute option.
 Changing Scenario of Indian Banking
The history of Banking can be mainly categorized into 3 stages –
 I Phase Pre Independence Stage – Before 1947
 II Phase – 1947 to 1991
 III Phase – 1991 & beyond

I Phase Pre Independence Stage – Before 1947

The Pre Independence stage has seen some important events. This phase marked the presence of more than 600
banks . The Banking system in India began with the establishment of the Bank of Hindustan in 1770, but it ceased to
operate by 1832.
The phase also witnessed the alliance of 3 major banks – Bank of Bengal, Bank of Bombay & Bank of Madras. They
were amalgamated and called Imperial Bank, which was taken over by SBI in 1955.
A few of the banks were established in this period as listed below –
Bank Name Established in
 Allahabad Bank 1865
 Punjab National Bank 1894
 Bank of India 1906
 Bank of Baroda 1908
 Central Bank of India 1911
II Phase – 1947 to 1991
 One of the main features of the period was the nationalization of the bank. In the year
1949, the Reserve Bank of India was nationalized. In two decades, fourteen commercial
banks were nationalized in July 1969 during the reign of Smt. Indira Gandhi.
 In 1975, based on the recommendation of the Narasimham committee, Regional Rural
Banks (RRBs) were constituted with an objective of serving the unserved. The primary goal
was to reach masses and promote financial inclusion.
 Some other specialized banks were also set up to promote the activities that were required
for the economy.
 For example, NABARD was established in 1982 to support agriculture-related work.
Similarly, EXIM bank was built in 1982 for export and import.
 National Housing Bank was set up in 1988 for the Housing sector, and SIDBI was established
in 1990 for small-scale industries.

III Phase – 1991 & beyond

 The LPG (1991) Era and Beyond - 1991 saw a remarkable change in the Indian economy.
 The government opened up the economy and invited foreign and private investors to
invest in India. This move marked the entry of private players in the banking sector.
 The RBI provided banking license to ten private entities of which some of the notable ones
survived such as ICICI, HDFC, Axis Bank, IndusInd Bank, and DCB.
 Direct banking Channels
 Direct Banking channels or alternate banking channels can be utilized by banks for acquiring,
tracking and serving customers through multiple channels. An entire range of services
including account opening, fund transfers third party transfers, utility payments, Cash deposits
can be done through using direct banking channels. Anywhere any time banking privilege
can best be utilized by customer as per their preferences.
 Direct Banking channels eliminate the middlemen between banks and the customer resulting
into direct involvement of customer with bank.
 The first experience for the customer of direct banking was the usage of ATM, where in
customer does not require a teller to withdraw or deposit money and further visiting the
branch. This first step has been followed by introduction of Internet banking, mobile banking,
RTGS, NEFT and CTS.
 Transaction through direct banking channel is always a cheaper alternative compared to
transaction done involving branch channel. Further if banks can successfully migrate
customer from traditional channel to direct banking channel they can utilize their man power
for cross selling of other products as well as Third party products wherein they can generate
additional income.
 Direct banking channels attach the customer to the bank directly; carry out transactions on
the customers command and in real time. This saves customer’s time as well. Further for
carrying out these transactions customers are not required to visit the bank but simultaneously
having greater degree of satisfaction by doing the error free fast secure transaction.
 E-Banking
Online banking also known as internet banking, e-banking, or virtual banking, is an electronic
payment system that enables customers of a bank or other financial institution to conduct a
range of financial transactions through the financial institution's website. Internet banking is a
term used to describe the process whereby a client executes banking transactions via
electronic means. This type of banking uses the internet as the chief medium of delivery by
which banking activities are executed. The activities clients are able to carry out are can be
classified to as transactional and non transactional.
Advantages of E-banking or Internet banking
1. Convenience: Banks that offer internet banking are open for business transactions
anywhere a client might be as long as there is internet connection. Apart from periods of
website maintenance, services are available 24 hours a day and 365 days round the year.
In a scenario where internet connection is unavailable, customer services are provided
round the clock via telephone.
2. Low cost banking service: E-banking helps in reducing the operational costs of banking
services. Better quality services can be ensured at low cost.
3. Higher interest rate: Lower operating cost results in higher interest rates on savings and
lower rates on mortgages and loans offers from the banks. Some banks offer high yield
certificate of deposits and don’t penalize withdrawals on certificate of deposits, opening
of accounts without minimum deposits and no minimum balance.
4. Transfer services: Online banking allows automatic funding of accounts from long
established bank accounts via electronic funds transfers.
5. Ease of monitoring: A client can monitor his/her spending via a virtual wallet through
certain banks and applications and enable payments.
Disadvantages of E-banking Internet banking
1. High start-up cost: E-banking requires high initial start up cost. It includes internet
installation cost, cost of advanced hardware and software, modem, computers
and cost of maintenance of all computers.
2. Security Concerns: One of the biggest disadvantages of doing e-banking is the
question of security. People worry that their bank accounts can be hacked and
accessed without their knowledge or that the funds they transfer may not reach
the intended recipients.
3. Training and Maintenance: E-banking requires 24 hours supportive environment,
support of qualified staff. Bank has to spend a lot on training to its employees.
Shortage of trained and qualified staff is a major obstacle in e-banking
activities.
4. Transaction problems: Face to face meeting is better in handling complex
transactions and problems. Banks may call for meetings and seek expert advice
to solve issues.
5. Lack of personal contact between customer and banker: Customary banking
allows creation of a personal touch between a bank and its clients. A personal
touch with a bank manager can enable the manager to change terms in our
account since he/she has some discretion in case of any personal
circumstantial change. It can include reversal of an undeserved service charge
Mobile Banking (Smart Apps)

 Mobile banking is a technology which helps to operate our account

through the help of a mobile.
 It is easy and efficient for a customer to transfer funds from his account to
other, pay utility bills, and many more such services through mobile
banking.
 Mobile banking refers to provision and availing of banking and financial
services with the help of mobile telecommunication devices. The scope of
offered services may include facilities to conduct bank and stock market
transactions, to administer accounts and to access customized information.
The Introduction of Smart App

 Wireless Application Protocol (WAP) is a technical standard for accessing

information over a mobile wireless network.
 The app allows services like fund transfers, balance enquiry, searching
ATM’s and branches around, and many more.

Benefits of Smart Apps

 Cutting Operational Costs
 Additional Revenue Streams
 Better Customer Experience
 Power of Mobile Analytics
 Better Communication with push and in-app notifications
Customer Relationship Management
(CRM)
 Customer Relationship Management
may be described as a process
companies utilize to understand and
react to customers’ ev olving desires,
utilizing detailed customer behavior and
transaction information, to drive
customer acquisition, loyalty,
satisfaction and profitability.
 It has been defined as an enterprise
approach to dev eloping full knowledge
about customer behavior and
preferences and to developing
programs and strategies that
encourage customers to continually
enhance their business relationship with
the company.
 Importance of CRM
 Making enduring relationship- Every bank is trying for making enduring relationship. For this purpose
banks are dedicating for serve customer anywhere. In global banking era, it’s most topical subject
that generates enduring relationship with facing global competition. In Indian banking context,
many elements effects at this topic, but most popular element is CRM. It’s one of them and with
iron faith to own customer and another side customer have iron faith with own bank.
 Global banking developmental engine- In global banking marketing concept, CRM is
developmental engine because through using effective and customer centric nimble policy can
grow banking environment under global umbrella. Banking is not fetter limitation of country by
using CRM global banking market is on the stage of progression.
 Gaining maximize profit through satisfaction- CRM focuses on serve customer through better way.
Customers want full satisfaction about any banking product with safe way. Through CRM, banks
are presenting own service toward customers with secure and customer adoptable mode.
Customers fell better and find own self satisfied thus banks can gain maximize profit through
satisfaction of customer.
 Well Informed Customers- Customers in Banking Industry today are well informed. With the
introduction of new technology, the world has become like a small village. Thus, if a Bank wants to
have more customers so it should develop a good relationship with its present customers and try to
maintain the same in the future also.
 Improved Customer Retention- In the intensely competitive banking industry, retention of existing
customers is vital role which can be achieved through the process of CRM. Customer retention for
intensifying business is the most important factor. CRM is emphasizing on retaining customer forever
with expectation of profitable customer.
 CRM in Banking: Indian scenario
Although significance of Relationship Marketing practices and optimizing and maintaining customer
relationships across diverse customer segments has been realized and practiced by all banks in
India, the technology enabled CRM is still at a developing stage. Different Banks are at different
levels of CRM adoption and implementation and majority of them can be considered to be at
preliminary stages. Operational CRM is the most wide spread, but collaborative CRM is most evident
in internet banking, mobile banking, ATM functions, POS devices and initiatives like availability of
pass book printing machines to enable customers to update their passbooks themselves. Also
SMS alerts at various significant customer service events are proliferating. Analytical CRM is being
utilized but not by all banks. Here also a few illustrations of Indian banks using CRM will define a
clearer picture of CRM in Indian banking.
 Yes Bank has developed YCCRM (Yes Bank Collaborative CRM), the prominent
features of which are ‘discussion boards’ and ‘templates’. These enable sharing of relevant
customer information to all concerned staff members to design new products, provide
proactive service, and informed customer handling leading better service. It enables
collaboration among staff and customers to create higher customer value through use of CRM
software.
 Punjab National Bank deployed CRM software with modules of Prospect Management, Lead
Management, Activity Management, Product Management, Complaint Management and
Business Intelligence Reporting. The payoffs are in terms of increased customer base, cross-
selling, sales force optimization, efficient lead management and higher productivity.
 Bank of Maharashtra has developed in-house software which generates and updates a variety
of reports on detailed customer information and sends to branches. These reports are utilized for
Recent Trends Of CRM

In the past, producers did not take their customers for granted because at
that time customers were not demanding nor had many alternative sources of
supply or suppliers. Since he was a passive customer, the producer dictated
terms and had little customer commitment.
But today there is a radical transformation. The changing business
environment is characterized by economic liberalization, increasing
competition, high consumer choice, enlightened and demanding customer,
more emphasis on quality and value of purchase and the form of CRM is also
change with development of technology. Now few forms of developed CRM,
which are using by banking sector in India as under.
 1. Mobile CRM. (M-CRM)
 2. Electronic CRM. ( E-CRM)
 3. Social CRM. (S-CRM)
Introduction to Payment Banks

 To widen the reach of the banking services in India and in order to achieve
central government’s goal of financial inclusion, the Reserve Bank of India (RBI)
has taken a Strategic move.
 The RBI has given in-principal approval to 11 entities to be set-up as payment
banks. These payment banks are aiming to provide basic banking facilities,
especially to low-income groups and small businesses.
 In simple terms, a payment bank is generally a non-full service niche bank in
India.
 It is distinguished bank that will undertake only limited banking functions which
are allowed as per the Banking Regulation Act of 1949.
 The licensed entities as payment banks could only receive deposits and offer
remittances.
 They cannot undertake lending activities.
 These banks can offer banking functions such as payments, deposits,
remittances, internet banking, and would initially be allowed to take cash
deposits of maximum Rs. 1 lakh per individual.
Payment banks - Journey

 On 23 September 2013, the RBI formed a Committee on Comprehensive

Financial Services for Small Businesses and Low Income Households headed by
Nachiket Mor.
 On 17 July 2014, the RBI issued the draft guidelines for payment banks, inviting
suggestions and comments from interested entities and general public.
 On 27 November 2014, final guidelines for payments banks were released by
the RBI.
 On 4 February 2015, the RBI released the list of the entities which have applied
for the payment banks.
 On 28 February 2015, during the announcement of the Annual Budget, it was
declared that India Post will run a payment bank through its large network in the
country.
 On 19 August 2015, the RBI gave an in-principle approval to 11 entities to set up
payment banks.
Objectives of Payment Banks

The main objectives of the Payment Banks are :

 Increase financial inclusion by offering small saving accounts and payment

remittance services to low-income households, migrant labor workforce,
small businesses and other unorganized sector entities and other similar
users.

 IT will also enable high volume-low value transactions in deposit and

payment/remittance services in a technology-driven environment.
Payment Banks (Do’s & Don'ts)

Do’s Don’ts
 Accept demand deposits from  Lend loans
individuals, small business or other similar
entities.  Issue credit cards
 Take cash deposits to the limit of Rs. 1  Accept NRI deposits
lakh (this might be raised later by the RBI  Set up subsidiaries for non-banking
depending upon the performance of the financial services.
bank).
 Offer other financial/non-financial
 Set up branches, ATMs and services of promoter.
correspondents.
 Issue debit cards and offer internet
banking facility.
 Sell mutual funds, insurance and pension
products .
 Accept remittance to be sent to multiple
banks and receive remittances from
them too.
 Undertake utility bill payments.
Payment Banks- RBI Guidelines

 Minimum capital required should be Rs.100 crore.

 For the first five years, the promoter will not be allowed to have shareholding of
more than 10%.
 Any acquisition of more than 5% will need approval from the RBI.
 The majority of bank’s board of directors should include independent directors
who will be appointed as per the guidelines of the RBI. It should also have to
comply with the ‘fit and proper’ criteria meant for Directors as issued by the RBI.
 The payment bank has to be fully networked and technology driven from the
time of its commencement.
 25% of its branches have to be in the unbanked rural areas.
 They must use the term “payment bank” so as to differentiate it from other type
of banks.
How Payment Banks Will Affect Existing
Banking Sector?
 The payment banks will help reach out to the people in rural areas where
banking system is not very effective.
 This way they will bring the unbanked masses under the ambit of general
banking.
 They will also ensure that more money comes into the banking system and
hence will expedite financial inclusion.
 They will also be helpful in making the poor more financially literate.
 With the advert of these new set of banks the existing top-notch banks will
not be affected much as payment banks will operate in specific areas only.
 Also, the major banks in India could use these banks to improve their reach
in every part of the country, as the payment banks can also function as
business correspondents.
Payment Banks- List

The RBI had received 41 applications for payment banks; however, it offered
license to only 11 of them; and as of now, only 6 banks are working namely;
 Airtel Payments Banks Limited
 India Post Payments Bank Limited
 Fino Payments Bank Limited
 Paytm Payments Bank Limited
 NSDL Payments Bank Limited
 Jio Payments Bank Limited
 Small Finance Banks
 Small finance banks are a type of niche banks common in India. These small finance banks with the
approved licenses can prov ide basic banking serv ices such as acceptance of deposits and lending to
those sections of the Indian economy not serv iced by mainstream nationalized banks. These sections
include small business units, small and marginal farmers, micro and small industries and unorganized
sector entities.
Criteria for setting up SFBs
 Minimum Paid-up equity capital: Rs 200 crore
 Eligibility Criteria: Individuals/ professionals with 10 years of experience in finance, Non-
Banking Financial Companies (NBFCs), micro finance companies, local area banks are
eligible to establish Small Finance Banks. The initial contribution of promoter to the paid-up
equity capital of a small finance bank shall be at least 40% and gradually brought down to
26% within 12 years from the date of commencement of business of the bank.
 Foreign Shareholdings: The small finance bank’s foreign shareholding would be as per the
Foreign Direct Investment (FDI) policy for private sector banks subject to amendment from
time to time.
 Adjusted Net Bank Credit: The small finance banks will have to extend 75% of its Adjusted
Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending
(PSL) by the Reserve Bank.
 CRR and SLR: Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) as per RBI norms
is to be maintained. At least 50 per cent of its loan portfolio should constitute loans and
advances of up to Rs 25 lakh.
Small Finance Banks: Key Features
Small Finance Banks to deal with the
following products:
 Deposits- All Small Finance Banks provide Fixed and Recurring Deposits.
Interest rates charged by these banks on Fixed Deposit and Recurring
Deposit is comparatively higher than that of regular banks. Thus, a Fixed
Deposit by Small Finance Bank can earn you more revenue.
 Loans- All Small Finance Banks deal with retail loan products like Personal,
Housing, and Auto loans. These Banks are required to extend 75% of their
Adjusted Net profit for the priority sector. In addition to that, 50% of the
loans lent must be up to ₹ 25 Lakh.
 Other Products- Small Finance Banks deal in other products as well such as
Distribution of Mutual Funds, Pension Products, Insurance Products, Foreign
Exchange, Debit Cards, Savings and Current Account Deposits.
Payments Bank Vs Small Finance Bank
References
 https://bankingblog.accenture.com/top-10-trends-banks-2020
 https://www2.deloitte.com/us/en/insights/industry/financial-
services/financial-services-industry-outlooks/banking-industry-outlook.html
 https://www.moneythor.com/2020/01/22/top-banking-trends-2020/
 Lockett, A. and Littler, D. (1997). The adoption of direct banking services ,
Journal of Marketing
 management ,13(8),791-81McKinsey Report (2010). Banking on Multi
Channel, www.mckinsey.com/clientservice.Deloitte report. (2008). Evolving
Models of Retail Banking Distribution, www.
 Deloitte.com/US/banking solutions
 https://www.slideshare.net/mobile/avastava7/small-finance-bank
Thank You !