BANKING LAW

TOPIC- RECENT TRENDS IN BANKING: AUTOMATED TELLER

MACHINE AND INTERNET BANKING
A Project Submitted to Fulfilment of Assignment

Submitted by-
Utkarshini Sinha
B.A. LL. B (8th semester)
Enrollment no.- A46011119028

Submitted to-
Deepali Sinha
Amity University, Patna

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 TABLE OF CONTENTS

Sl. No. Topics Page No.

1. ACKNOWLEDGEMENT 03

2. ABSTRACT 04

3. INTRODUCTION 05

4. 06
BANKING SYSTEM IN INDIA
5. PRE INDEPENDENCE-PERIOD 06

6. POST INDEPENDENCE-PERIOD 07

7. IMPACT OF NATIONALISM 08

8. LIBERALIZATION PERIOD 08

9. INDIAN BANKING SECTOR 09

10. ROLE OF BANKING SYSTEM 09

11. PRESENT BANKING SCENARIO 10

12. RECENT TRENDS AND DEVELOPMENT IN 11

BANKING SECTOR
13. DEVELOPMENT IN BANKING SECTOR 11

14. CONCLUSION 13

15. BIBLIOGRAPHY 15

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 ACKNOWLEDGEMENT

Primarily I would thank God for being able to complete this Assignment with success, then I
would like to thank my Banking Law Teacher Ms. Deepali Sinha, whose valuable guidance
has been the one that helped me patch this Assignment and make it full proof success, her
suggestions, and her instructions has served as the major contributor towards the completion
of this Assignment.
Then I would like to thank my parents and friends who have helped me with their valuable
suggestions and guidance which was helpful in various phases of the completion of this
Assignment.
Last but not the least, I would like to thank my classmates who have helped me a lot.

-Utkarshini Sinha

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ABSTRACT

The banking sector plays a vital role in the development of one country’s economy. The growth
of banking sector depends upon the services provided by them to the customers in various
aspects. The growing trend of banking services is found significant after the new economic
reforms in India. Today, India has a fairly well-developed banking system with different classes
of banks – public sector banks, foreign banks, private sector banks – both old and new
generation, regional rural banks and co-operative banks with the Reserve Bank of India as the
fountain Head of the system. Nowadays banking sector acts as a backbone of Indian economy
which reflects as a supporter during the period of boom and recession. From 1991 various
trends and developments in banking sector are credited. It also reflects the various reforms
were caused to improve their services to satisfy the customers.
In recent years, the Indian economic environment has seen a lot of changes because of reforms
and measures taken by the banks. The largest change is seen in the financial sector where the
banking sector is the largest player to notice this change. So, the banking sector is strong enough
to withstand any sort of pressure and competition. Thus, these trends in banking have been very
visible in the last few years.

India, now, has a fairly stable banking sector with different classes of banks contributing to it.
Thus, these include foreign banks, public banks, private sector banks, and others. Reserve Bank
of India is head of all these banks.

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INTRODUCTION

The banking system in India is significantly different from other Asian nations because of
the country’s unique geographic, social, and economic characteristics. India has a large
population and land size, a diverse culture, and extreme disparities in income, which are
marked among its regions. There are high levels of illiteracy among a large percentage of its
population but, at the same time, the country has a large reservoir of managerial and
technologically advanced talents. Between about 30 and 35 percent of the population resides
in metro and urban cities and the rest is spread in several semi-urban and rural centres. The
country’s economic policy framework combines socialistic and capitalistic features with a
heavy bias towards public sector investment. India has followed the path of growth led
exports rather than the “export led growth” of other Asian economies, with emphasis on self-
reliance through import substitution. These features are reflected in the structure, size, and
diversity of the country’s banking and financial sector. The banking system has had to serve
the goals of economic policies enunciated in successive five-year development plans,
particularly concerning equitable income distribution, balanced regional economic growth,
and the reduction and elimination of private sector monopolies in trade and industry. In order
for the banking industry to serve as an instrument of state policy, it was subjected to various
nationalization schemes in different phases (1955, 1969, and 1980). As a result, banking
remained internationally isolated (few Indian banks had presence abroad in international
financial centres) because of preoccupations with domestic priorities, especially massive
branch expansion and attracting more people to the system. 1 Moreover, the sector has been
assigned the role of providing support to other economic sectors such as agriculture, small-
scale industries, exports, and banking activities in the developed commercial centres (i.e.,
metro, urban, and a limited number of semi-urban centres). The banking system’s
international isolation was also due to strict branch licensing controls on foreign banks
already operating in the country as well as entry restrictions facing new foreign banks. A
criterion of reciprocity is required for any Indian bank to open an office abroad. These
features have left the Indian banking sector with weaknesses and strengths. A big challenge
facing Indian banks is how, under the current ownership structure, to attain operational
efficiency suitable for modern financial intermediation. On the other hand, it has been
relatively easy for the public sector banks to recapitalize, given the increases in
nonperforming assets (NPAs), as their government dominated ownership structure has
reduced the conflicts of interest that private banks would face.
Banking sector is the section of economy concerned to holding of financial assets for others,
investing financial assets as authority to create more wealth and the regulation of those
activities by government agencies. In India banking sector is always been one of the most
preferred entrance to employment. In presently banking sector is a resident sector in Indian
economy. Banking sector has the potential to account for over 7.7 of Gross Domestic
Product (GDP) over 7,500 billion in market cap, and to provide over 1.5 million jobs. Now
a day’s banks have diversified their activities and are giving into new products and services
that include opportunities in credit cards, consumer finance, wealth management, life

1
Aditi Mittal and Sumit Gupta “Emerging role of information technology in banking sector’s development
of India” Acme International Journal of Multidisciplinary, Volume – I, Issue – IV April – 2013 ISSN: 2320 –
236X

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insurance, general insurance, investment banking, mutual funds, pensions, fund regulations,
stock broking services, custodian services, private equity, etc. In India banking sector
consists of 26 public sector banks,20 private banks & 43 foreign banks along with 61
regional rural banks (RRB’s) and more than 90,000 credit cooperatives. In currently Indian
banking industry worth is rs.81 trillion. Now-a-days banks are working using of technology
like internet, & mobile devices to carry out truncations and to communicate with customers
directly.

HISTORY OF BANKING SYSTEM IN INDIA

Banking in India forms the base for the economic development of the country. Major changes
in the banking system and management have been seen over the years with the advancement
in technology, considering the needs of people.
The banking sector development can be divided into three phases:
Phase I: The Early Phase which lasted from 1770 to 1969
Phase II: The Nationalisation Phase which lasted from 1969 to 1991
Phase III: The Liberalisation or the Banking Sector Reforms Phase which began in 1991 and
continues to flourish till date

PRE INDEPENDENCE-PERIOD (1786-1947)

The first bank of India was the “Bank of Hindustan”, established in 1770 and located in the
then Indian capital, Calcutta. However, this bank failed to work and ceased operations in 1832.
During the Pre Independence period over 600 banks had been registered in the country, but
only a few managed to survive.
Following the path of Bank of Hindustan, various other banks were established in India. They
were:


The General Bank of India (1786-1791)
 Oudh Commercial Bank (1881-1958)
 Bank of Bengal (1809)
 Bank of Bombay (1840)
 Bank of Madras (1843)
During the British rule in India, The East India Company had established three banks: Bank of
Bengal, Bank of Bombay and Bank of Madras and called them the Presidential Banks. These
three banks were later merged into one single bank in 1921, which was called the “Imperial
Bank of India.”2
The Imperial Bank of India was later nationalised in 1955 and was named The State Bank of
India, which is currently the largest Public sector Bank.

2
https://www.insiderintelligence.com/insights/banking-industry-trends/

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POST INDEPENDENCE PERIOD (1947-1991)
At the time when India got independence, all the major banks of the country were led privately
which was a cause of concern as the people belonging to rural areas were still dependent on
money lenders for financial assistance.
With an aim to solve this problem, the then Government decided to nationalise the Banks.
These banks were nationalised under the Banking Regulation Act, 1949. Whereas, the Reserve
Bank of India was nationalised in 1949.
Candidates can check the list of Banking sector reforms and Acts at the linked article.
Following it was the formation of State Bank of India in 1955 and the other 14 banks were
nationalised between the time duration of 1969 to 1991. These were the banks whose national
deposits were more than 50 crores.
Given below is the list of these 14 Banks nationalised in 1969:

1. Allahabad Bank
2. Bank of India
3. Bank of Baroda
4. Bank of Maharashtra
5. Central Bank of India
6. Canara Bank
7. Dena Bank
8. Indian Overseas Bank
9. Indian Bank
10. Punjab National Bank
11. Syndicate Bank
12. Union Bank of India
13. United Bank
14. UCO Bank

In the year 1980, another 6 banks were nationalised, taking the number to 20 banks. These
banks included:

1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Comm.
5. Punjab & Sind Bank
6. Vijaya Bank

Apart from the above mentioned 20 banks, there were seven subsidiaries of SBI which were
nationalised in 1959:

1. State Bank of Patiala

2. State Bank of Hyderabad
3. State Bank of Bikaner & Jaipur
4. State Bank of Mysore
5. State Bank of Travancore
6. State Bank of Saurashtra

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 7. State Bank of Indore

All these banks were later merged with the State Bank of India in 2017, except for the State
Bank of Saurashtra, which merged in 2008 and State Bank of Indore, which merged in 2010.

IMPACT OF NATIONALISATION
There were various reasons why the Government chose to nationalise the banks. Given below
is the impact of Nationalising Banks in India:

 This lead to an increase in funds and thereby increasing the economic condition of the
country
 Increased efficiency
 Helped in boosting the rural and agricultural sector of the country
 It opened up a major employment opportunity for the people
 The Government used profit gained by Banks for the betterment of the people
 The competition decreased, which resulted in increased work efficiency
This post Independence phase was the one that led to major developments in the banking sector
of India and also in the evolution of the banking sector.

LIBERALISATION PERIOD (1991-TILL DATE)

Once the banks were established in the country, regular monitoring and regulations need to be
followed to continue the profits provided by the banking sector. The last phase or the ongoing
phase of the banking sector development plays a hugely significant role.
To provide stability and profitability to the Nationalised Public sector Banks, the Government
decided to set up a committee under the leadership of Shri. M Narasimham to manage the
various reforms in the Indian banking industry.
The biggest development was the introduction of Private sector banks in India. RBI gave
license to 10 Private sector banks to establish themselves in the country. These banks included:

1. Global Trust Bank

2. ICICI Bank
3. HDFC Bank
4. Axis Bank
5. Bank of Punjab
6. IndusInd Bank
7. Centurion Bank
8. IDBI Bank
9. Times Bank
10. Development Credit Bank

The other measures taken include:

 Setting up of branches of the various Foreign Banks in India

 No more nationalisation of Banks could be done

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  The committee announced that RBI and Government would treat both public and
private sector banks equally
 Any Foreign Bank could start joint ventures with Indian Banks
 Payments banks were introduced with the development in the field of banking and
technology
 Small Finance Banks were allowed to set their branches across India
 A major part of Indian banking moved online with internet banking and apps available
for fund transfer
Thus, the history of banking in India shows that with time and the needs of people, major
developments have been brought about in the banking sector with an aim to prosper it.

INDIAN BANKING SECTOR

Indian banking sector can be majorly divided into three sections.

Phase I – This is from 1786 to 1969 and it was the initial phase of the banking. So, in this phase,
many small banks were set up.

Phase II – This phase can be considered from 1969 to 1991 where regularization,
nationalization, and growth of banks comes into the picture.

Phase III – This phase is from 1991 onwards and it consists of liberalization and it’s after
effects.

ROLE OF BANKING SECTOR

Banks play a very important role in modern economic system. Now a day’s growth of nation
can be done through banking system. The following are some of roles played by banks.

 Banks motivate people to make savings.

 Banks mobilizes savings for the purpose of investment

 For the formation of capital banks play a coordination function between savings and
investment.

 For the enlargement of production purpose banks provide credit facilities.

 Banks provides financial infrastructure and funds for backward region which made
balanced regional development in the country.

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  Banks plays a crucial role for expanding size of market.

 Through banks government fulfil every objective of planned economic development.

PRESENT BANKING SCENARIO

In 2009-10 there was a slowdown in the balance sheet growth of scheduled commercial
banks (SCBs) with some slippages in their asset quality and profitability. Bank credit
posted a lower growth of 16.6 per cent in 2009-10 on a year-on-year basis but showed
signs of recovery from October 2009 with the beginning of economic turnaround. Gross
nonperforming assets (NPAs) as a ratio to gross advances for SCBs, as a whole, increased
from 2.25 per cent in 2008 - 09 to 2.39 percent in 2009 – 10. Notwithstanding some knock-
on effects of the global financial crisis, Indian banks withstood the shock and remained
stable and sound in the post-crisis period. Indian banks now compare favorably with banks
in the region on metrics such as growth, profitability and loan delinquency ratios. In
general, banks have had a track record of innovation, growth and value creation. However
this process of banking development needs to be taken forward to serve the larger need of
financial inclusion through expansion of banking services, given their low penetration as
compared to other markets. During 2010-11, banks were able to improve their profitability
and asset quality. Stress test showed that banking sector remained reasonably resilient to
liquidity and interest rate shocks. Yet, there were emerging concerns about banking sector
stability related to disproportionate growth in credit to sectors such as real estate,
infrastructure, NBFCs and retail segment, persistent asset-liability mismatches, higher
provisioning requirement and reliance on short-term borrowings to fund asset growth.
Today role of banking industry is very important as one of the leading and mostly essential
service sector. India is the largest economy in the world having more than 110 crore
population. Today in India the service sector is contributing half of the Indian GDP and
the banking is most popular service sector in India. The significant role of banking
industry is essential to speed up the social economic development. The present banking
scenario provides a lot of opportunities. In the past few years we observed that there was
lot of down and up trends in banking sector due to the global finance crisis. To improve
major areas of banking sector Govt. of India. RBI, Ministry of finance has made several
notable efforts. Many of leading banks operating in market have made use of the changed
rules and regulations such as CRR, Interest Rates Special offers to the customers such as
to open account in zero balance. The Indian banking system is set to involve into a totally
new level. It will help the banking system to grow in strength going into future. Due to
liberalization banks are operating on reduced spread main focus is highlighted on
consumerism and how to customers linked and remain attached with the bank. Therefore
banks are entered these days in non-banking products such insurance in which area there
are tremendous opportunities. 3

3
https://www.cikitusi.com/gallery/19-june-873.pdf

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RECENT TRENDS AND DEVELOPMENTS IN BANKING SECTOR

Today, we are having a fairly well-developed banking system with different classes of banks –
public sector banks, foreign banks, private sector banks, regional rural banks and co-operative
banks. The Reserve Bank of India (RBI) is at the paramount of all the banks.
The RBI’s most important goal is to maintain monetary stability (moderate and stable inflation)
in India. The RBI uses monetary policy to maintain price stability and an adequate flow of
credit. The rates used by RBI to achieve the bank rate, repo rate, reverse repo rate and the cash
reserve ratio. Reducing inflation has been one of the most important goals for some time.
Growth and diversification in banking sector has transcended limits all over the world. In 1991,
the Government opened the doors for foreign banks to start their operations in India and provide
their wide range of facilities, thereby providing a strong competition to the domestic banks,
and helping the customers in availing the best of the services. The Reserve Bank in its bid to
move towards the best international banking practices will further sharpen the prudential norms
and strengthen its supervisor mechanism.
There has been considerable innovation and diversification in the business of major commercial
banks. Some of them have engaged in the areas of consumer credit, credit cards, merchant
banking, internet and phone banking, leasing, mutual funds etc. A few banks have already set
up subsidiaries for merchant banking, leasing and mutual funds and many more are in the
process of doing so. Some banks have commenced factoring business.

DEVELOPMENT IN BANKING SECTOR

Automated Teller Machine (ATM)

ATM is an electronic machine, which is operated by the customer himself to make deposits,
withdrawals and other financial transactions. ATM is a step-in improvement in customer
service.4 ATM facility is available to the customer 24 hours a day. The customer is issued an
ATM card.5 This is a plastic card, which bears the customer’s name. This card is magnetically
coded and can be read by this machine. Each cardholder is provided with a secret personal
identification number (PIN). When the customer wants to use the card, he has to insert his
plastic card in the slot of the machine. 6 After the card is a recognized by the machine, the
customer enters his personal identification number.7 After establishing the authentication of
the customers, the ATM follows the customer to enter the amount to be withdrawn by him.
After processing that transaction and finding sufficient balances in his account, the output slot
of ATM give the required cash to him. 8 When the transaction is completed, the ATM ejects the
customer’s card.

4
Deolalkar G.H. “The Indian Banking Sector on the Road to Progress”
5
Indian Banking 2010 Special issue 2004, vol. 26 No I, IBA bulletin, IBA Mumbai.
6
Indian banks: performance benchmarking report FY12 results kpmg.com/in.
7
Kapoor N.D. Elements of Mercantile Law – Sultan Chand & Sons, New Delhi, 2006.
8
Reddy, Y.V. (1998) "Financial Sector Reforms: Review and Prospects". RBI Bulletin, December.

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  Internet Banking

Internet banking enables a customer to do banking transactions through the bank’s website on
the Internet.9 It is a system of accessing accounts and general information on bank products
and services through a computer while sitting in its office or home. 10 This is also called virtual
banking. It is more or less bringing the bank to your computer. In traditional banking one has
to approach the branch in person, to withdraw cash or deposit a cheque or request a statement
of accounts etc.11 but internet banking has changed the way of banking. Now everyone can
operate all these type of transactions on his computer through website of bank. All such
transactions are encrypted;12 using sophisticated multi-layered security architecture, including
firewalls and filters. 13 One can be rest assured that one’s transactions are secure and
confidential.

9
Suganthi S., Senthilkumar C.B., A study on stress management of the staff of the co operative banks of Tamil
Nadu, India, International Journal of Pharmacy and Technology, v-6, i-4, pp-7529-7533, 2015.
10
Thooyamani K.P., Udayakumar R., Khanaa V., Cooperative trust management scheme for wireless sensor
networks, World Applied Sciences Journal, v-29, i-14, pp-253-258, 2014.
11
Nivethitha J., Brindha G., Management of Non- Performing Assets in Virudhunagar District Central Co-
Operative Bank-An Overview, Middle - East Journal of Scientific Research, v-20, i-7, pp-851-855, 2014.
12
Mathew S., Brindha G., Medical tourism – An avenue to attract foreign patientsin Indian hospital
industry, a study conducted in Chennai city, International Journal of Applied Engineering Research, v-9, 22, pp-
7508-7513, 2014.
13
Mathew S., Brindha G., An empirical study on competency mapping – A tool for talent management,
International Journal of Applied Engineering Research, v-9, i-22, pp-7348-7354, 2014.

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CONCLUSION

In the days to come, banks are expected to play a very useful role in the economic development
and the emerging market will provide business opportunities to harness. As banking in India
will become more and more knowledge supported, capital will emerge as the finest assets of
the banking system. Ultimately banking is people and not just figures. To conclude it all, the
banking sector in India is progressing with the increased growth in customer base, due to the
newly improved and innovative facilities offered by banks. The economic growth of the
country is an indicator for the growth of the banking sector. The Indian economy is projected
to grow at a rate of 5-6 per cent34 and the country’s banking industry is expected to reflect this
growth. The onus for this lies in the capabilities of the Reserve Bank of India as an able central
regulatory authority, whose policies have shielded Indian banks from excessive leveraging and
making high risk investments. By the government support and a careful re-evaluation of
existing business strategies can set the stage for Indian banks to become bigger and stronger,
thereby setting the stage for expansions into a global consumer base.

An upgradation of technology banks are playing vital role in economic development. Banking
sector in India is resulting with increased growth in customers. By providing innovative
facilities of banks. The changes made by banks are mostly focused on financial inclusion for
expansion into rural areas and bringing stability by boosting credit growth making banking
services near to the customer directly and reducing customer valuable time.

The current trends in banking are building blocks of the “Cashless Economy”. Though there
are few challenges, technology will keep evolving and with collaborative efforts of Banks,
Government and end users, overcoming these challenges will certainly be possible. The
initiative of Government of India will very soon achieve its mission and rural India too would
be “digitally literate”. Banks will have to develop a strategy to bridge the gap of technology in
rural banks and urban banks. Today, Indian banking industry is on the threshold of “next
generation banking”. ICT innovation clubbed with dream of “cashless economy” will certainly
bring about metamorphosis in the banking sector.

The Banking sector is now witnessing a new wave of evolution with innovations in the fintech
space, especially with the proliferation of prepaid wallets. Indian Banking Industry has shown
considerable resilience during the return period. The second generation returns will play a
crucial role in further strengthening the system. Indian banking system will further grow in size
and complexity while acting as an important agent of economic growth and intermingling
different segments of the financial sector. It is sure that the future of banking will offer more
sophisticated services to the customers with the continuous product and process innovations.
Adoption of stringent prudential norms and higher capital standards, better risk management
systems, adoption of internationally accepted accounting practices and increased disclosures
and transparency will ensure the Indian Banking industry keeps pace with other developed
banking systems. Finally the banking sector will need to master a new business model by
building management and customer services. Banks should contribute intensive efforts to
render better services to their customer. Nationalized and commercial banks should follow the
Recent trends and to get advantage of opportunities in changing banking scenario.

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The banking today is re-defined and re-engineered with the use of Information Technology and
it is sure that the future of banking will offer more sophisticated services to the customers with
the continuous product and process innovations. Thus, there is a paradigm shift from the seller's
market to buyer's market in the industry and finally it affected at the bankers level to change
their approach from "conventional banking to convenience banking" and "mass banking to
class banking". The shift has also increased the degree of accessibility of a common man.

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BIBLIOGRAPHY
 https://www.lopol.org/article/banking-system-in-
india#:~:text=The%20banking%20system%20of%20India,core%20of%20India's%20
financial%20sector.
 https://unacademy.com/content/bank-exam/study-material/general-awareness/a-brief-
note-on-indian-banking-system/
 https://byjus.com/bank-exam/history-banking-india/
 https://www.insiderintelligence.com/insights/banking-industry-trends/

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