New Trends in Banking Submitted To University of Mumbai

NEW TRENDS IN BANKING
NEW TRENDS IN BANKING SUBMITTED TO UNIVERSITY OF MUMBAI
BY VIRENDRA M JHA GUIDED BY PROF. BHAVANA CHAUHAN VIDYAVARDHINIS K.M. COLLEGE OF COMMERCE AND VASAI ROAD 401 202
T.Y BANKING & INSURANCE SEMESTER FIFTH 20010-11
TYBCOM (BANKING & INSURANCE)
Page 1
ACKNOWLEDGEMENT
I would like to take this opportunity to thank everybody who helped through the successful completion of this project. Many people have contributed to my achievements during the project and take this opportunity to thank each one of them at end of the project durations. First I would like to thank the UNIVERSITY OF MUMBAI to include this project in the curriculum which brings out our observant analyzing and interpreting skills to the maximum. I extend my sincere gratitude to the honorable principal Dr.Sushil.S.kelkar for the work that I am able to present would just not have been possible without her guidelines. I would also like to thank the project guide Mrs. Bhavna Chauhan Lad for their constant encouragement, intellectual solution and valuable suggestions throughout the making of this project. I thank him for spending his valuable time and efforts towards my cause. I would like to thank to my friends and colleagues, librarians for providing some valuable tips. I would also like
TYBCOM (BANKING & INSURANCE) Page 2
to thank all those whose name may not have appeared here but whose contributions have not gone unnoticed. Last but not the list, I would like to thank my parents for helping me in the completion of this project.
Page 3
SR. NO. 1. 1.1 1.2 1.3 1.4 1.5 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 3 4 NEW TRENDS IN BANK Introduction History Banking Banking before Modernization Banking after Modernization
TOPIC NAME
PAGE NO.
Components of new Trends in Bank
Bancassurance Mutual Banking Investment Banking Universal banking International Banking Retail Banking Demate Accounting
Challenges faced by Banks in Modernization services
Questionnaire
Conclusions
Page 4
INTRODUCTION
New Trends in Banking in this decade has come across many products in the Banking sector which in turn got a bright surrounding in the banking world. The products have been developed to meet all the customer needs of their choice. And since last two decades the new products have been launching to fulfill all the needs of the customer. New trends in Banking cover many points which are generally in use in todays world. It covers the points related to how the banking sector has reformed itself from old procedure of taking a deposit and lending the money to many other activities such as internet banking, mobile banking, tele-banking, overseas banking, etc. The reason for this change includes the growth of banking technology that has changed the face of this industry with a decreasing emphasis on human intervention. In todays banking transaction the customers can easily seat in their home and transact their account operation without personally visiting to the Bank through the new and recent trends in the Banking world. And this has really motivated each and every Banks and Customers. Customers can send SMS messages to banks to get information and Banks can also make choice for self-regulation by voluntarily adopting a code of conduct that has been laid down by the Banking codes and Standards Board of India (BCSBI).
HISTORY
Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factor. For the past three decades Indias banking system has several outstanding achievement to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote areas of the country. This is one of the main reasons of Indias growth process. The governments regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. No long ago, an account holder had to wait for hours in the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to another in two days. Now it is simple as instant messaging or dials a pizza. Money has become the order of the money. Some of the basic points of History of Banking and Finance were as follows :a) In the 18th century Bank notes were the greater part of the money supply, being issued by the private banks.
Page 6
b) In the 19th century, the note issue was taken over by the Bank of England, but bank deposits became the greater part of the money supply. Joint-stock banks became overwhelmingly important and private banks declined. c) Last century saw the number of banks fall to a low point, but then an influx of foreign banks swelled the numbers operating in the new wholesale markets after about 1958. However, in the retail market, competition came largely from building societies and other new (British) entrants. In the late 1980s, two retail banks were floated on the Stock Exchange TSB and the Abbey National. d) Building societies have grown in importance but fallen in numbers this century. Today, most are minor banks, although they often do not seek business accounts. e) The Bank of England was nationalized in 1946 bur this hardly changed its manner of operating, although the Banking acts of 1979 and 1987 gave it more detailed statutory powers, most of which have passed to the Financial Services Authority. f) Plastic money began with cheque cards in 1965, followed by Barclaycard in 1966 and Access in 1972. g) Self regulation has been replaced by control by the Financial Services Authority.
Page 7
BANKING
The development of Bank is evolutionary in nature. A Bank performs multitude of functions and services which cannot be crunched into a single definition. A Bank may mean different things to different people. For some it is a store house of money, for others an institution of funding or finance and yet to many others a bank is a depository for their savings. Bank as it is largely understood in English today is an institution that accepts money as a deposit to further lend it out for profit. Indian Banking has evolved in its present form from the days of the British raj. The structure and pattern of banking are based on the British banking system. Section 5 (b) defines Banking as accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque. Draft, order or otherwise.
Page 8
BANKING -BEFORE MODERNIZATION

Banking before Modernization was merely considered as the accepting deposits and lending the loans. Before modernization can be understood by the following points :1. Focus on Expansion :Banking before modernization used to give more focus on their expansion rather than the customers needs. The customers used to just deposit the money to safeguard and earn a interest on it and take loan at the higher rate of interest along with their principle amount. And the Banks also more focused on expanding their banking business. 2. Labour Intensive :At pre-modernized period the Banks were just a labour intensive, for each and every work labours are needed. This is an advantage for the labourers as the people can get their job, but at the same time, it was costly and time consuming. 3. Low use of Technology :There were not much use of Technology as the Banks were not having much knowledge relating to technology. And because of low use of technology the banking transactions were time consuming. 4. Limited Areas :The banking transactions was done in a limited areas, as the scope of Banking at that time was limited and Bank find it very
costly to move ahead. Basically they use to focus more on just agriculture or some other field. They dont use to transact in various fields. 5. More Government Control :Before Modernization of Bank there were lots of Government control in the Bank. There were lots of rules and regulations regarding the transactions of Business. Bank were fully dependent on Government. 6. No Globalization :The banking before was not globalised. They just used to transact their business in their regional or geographical area. As there were lots of rules and regulations of the authority the banks were not able to go beyond its limited area. 7. Monopoly :This was the greatest advantage for the banks before modernization as they had the full power to control the market in the economy. The Banks used to charge high interest from the consumers, the consumer were also manipulated by this and they rule over the customers. 8. Focus on Government Policy :Before modernization the banks used to focus only on the government policy made by the authority. They were not consumer oriented they just wanted to be ruled by the Government. 9. Impact of Socialism :-
Page 10
Due to focus on Government policy there was a impact of socialism in the country before modernization of the Bank. And socialism in the country was beneficial but to the some extent. 10.Queue for every transaction :As there were no technology and it was labour intensive the customers have to make a queue for each and every transactions. And the process was also very slow which was time consuming.
BANKING - AFTER MODERNIZATION

After modernization of Banks many new concepts came into existence which is beneficial for the Banks as well as the customers. The Following points discuss about the modernization of the Bank :1. Focus on Urban areas :After modernization of the banks the bank used to focus more on urban areas rather than just focusing on expansion. The Banks also focus on Expansion but now the first preference is given to the urban areas as their the peoples standard of living will increase and is also beneficial for them. 2. Less Labour :After modernization of the Banks the labours utilized by the Banks is less as compared to pre modernized period as for each and every transactions, the new technology has developed which in turn was beneficial foe the banks but for the people it is low efficacy of the job.
3. Higher use of Technology :There is a great demand of Technology in this world as each and every work is done through technology now so there is a higher use of technology in this era of post modernization period of the world. 4. Venture Funding :Information Technology becoming the new mantra in India, Venture Capital has become more of an institutionalized industry. Financed and managed by successful entrepreneurs and professional, sophisticated investors, this industry are a smooth blend of risk financing and hand holding of entrepreneurs. Apart from financial support, venture capitalists provide networking, management, and marketing support as well. NASSCOM aims to make India as one of the top 5 locations for creation of technology ventures in the world and ensure that the necessary venture capital funds flow in to the country. 5. Insurance Services :After Modernization of the banks, banks also started to give the Insurance services to the customers along with their banking transactions. Many Banks have came forward to tke this services. For e.g. ICICI, HDFC, etc.
Page 12
6. Freedom:Now after modernization the banks are more liberalized and freed as compared to before from the rules and regulations of the concerned authority and Government. 7. Less dependence on Government ;Now the Banks are less dependent on Government, before the banks used to be fully depended on Government as there were lots of rules and regulations. 8. Becoming Global :Banks after modernization is becoming globalized. The banks are now performing their business at international level also. The banks are providing services to each and every possible country. 9. Foreign venture :As the banks are going international, they started dealing with the foreign venture capital fund also, by which the banks are also in profit and as well as customers are also in their well position. 10.Competition :Due to lots of banks in this post modernization period there is lots of competition in the market among the banks themselves. Due to lots of competition the rate of interest differs and customers get a choice of choosing their own banks for the benefit of themselves. 11.Focus on customer service :TYBCOM (BANKING & INSURANCE) Page 13
Before modernization the focus was more given to the Government policy but now after the modernization of the bank the focus is more given to the customer service rather than the government policy. 12.Impact of new economic policy :The banks are giving an impact to the new economic policy as there should also be benefit of the economy as well. Due to this the economy is also at their good position.
Page 14
COMPONENTS OF NEW TRENDS IN BANKING
The components of new trends include many sub topics which are as follows :1. Bancassurance 2. Mutual Banking 3. Investment Banking 4. Universal banking 5. International Banking 6. Retail Banking 7. Demate Accounting The financial services segment has witnessed many trends in recent times and this takes a comprehensive look at some of these trends. The technological changes in the financial services segment have been impressive. Though banking services are the major adopters of high-end technology, other financial services like insurance are also leveraging on technology for delighting customers and gaining a competitive edge. Kiosks are used as a cost-effective tool for product communication, customer management, and brand building. Stored Value Cards (SVC), also called electronic purses, eliminate the need
to carry hard cash. Digital security is a technological endeavor that enables safe and secure digital transactions and has gained legal acceptance. Digital certificates will soon gain prominence with increasing focus on e-governance, online trading, and online transactions. Business intelligence is a widely implemented decision making tool. It includes OLAP, data warehousing, and data mining. Business intelligence systems help the marketer to analyze information and take suitable decisions. Enterprise-wide IT solutions, such as Core Banking Solutions, have helped financial product marketers in streamlining their internal operations and delivering greater value to the customers. These all new trends we are going to discuss in detail below :1. BANCASSURANCE
Bancassurance simply means selling of insurance products by banks. In this arrangement, insurance companies and banks undergo a tie-up, thereby allowing banks to sell the insurance products to its customers. This is a system in which a bank has a corporate agency with one insurance company to sell its products.
By selling insurance policies bank earns a revenue stream apart from interest. It is called as fee-based income. This income is purely risk free for the bank since the bank simply plays the role of an intermediary for sourcing business to the insurance company. Bancassurance has grown at different places and taken shapes and forms in different countries depending upon demography, economic and legislative prescriptions in that country. It is most successful in Europe, especially in France, from where it started, Italy, Belgium and Luxembourg. The concept of bancassurance is relatively new in the USA. As mentioned above bancassurance growth differs due to various reasons in different countries. The Glass-Steagall Act of 1933 prevented the banks of the USA from entering into alliance with different financial services providers, thereby putting a barrier on bancassurance. As a result of this life insurance was primarily sold through individual agents, who focussed on wealthier individuals, leading to a majority of the American middle class households being underinsured. With the US Government repealing the Act in 1999, the concept of bancassurance started gaining grounds in the USA also. Coming to Asia, it has been estimated that bancassurance would contribute almost 16% of the life premium in the Asian markets in the year 2006 primarily due to the growth expected in India and China. Coming to India, bancassurance is a new buzzword in India. It originated in India in the year 2000 when the Government issued notification under Banking Regulation Act which allowed Indian
Banks to do insurance distribution. It started picking up after Insurance Regulatory and Development Authority (IRDA) passed a notification in October 2002 on 'Corporate Agency' regulations. As per the concept of Corporate Agency, banks can act as an agent of one life and one non-life insurer. Currently bancassurance accounts for a share of almost 25-30% of the premium income amongst the private players in India. Bancassurance provides various advantages to banks, insurers and the customers. For the banks, income from bancassurance is the only non interest based income. Interest is market driven and fluctuating and quite narrowing these days. Banks do not get great margins because of the competition This is why more and more banks are getting into bancassurance so as to improve their incomes. Increased competition also makes it difficult for banks to retain their customers. Banassurance comes as a help in this direction also. Providing multiple services at one place to the customers means enhanced customer satisfaction. For example, through bancassurance a customer gets home loans along with insurance at one single place as a combined product. Another important advantage that bancassurance brings about in banks is development of sales culture in their employees. As for the insurance company the advantage that bancassurance provides is evident. The insurance company gets improved geographical reach without additional costs. In India around 67,000 branches are there. If all 67,000 branches sell the
insurance products one can see the reach. This is one method of penetrating the market. There is also another method called 'Bank Referral'. Here the banks do not issue the policies, they only give the database to the insurance companies. The companies issue the policies and pay the commission to them. That is called referral basis. India's rural market has huge potential that is still untapped by the insurance companies. Setting up their own networks entails such a huge cost, that no company would be interested in doing so. Bancassurance again comes as an answer. It helps the insurance companies to tap the market at a much lower cost. As for the customer the competitive nature of the Indian market ensures that the reduction in costs would result in benefits in terms of lower premium rates being passed on to him. The penetration level of life insurance in the Indian market is abysmally low at 2.3% of GDP with only 8% of the total population currently insured. With almost half of the population likely to be in the 'wage earner' bracket by 2010, there is every reason to be optimistic that bancassurance in India will play a long inning. The major contributing factors favouring bancassurance are as follows: Wide Network of branches Existing wide range of Corporate and Retail clients of banks with potential business opportunities.
Wide customer database is an opportunity to study customer spending habits, investment preferences etc if the database is properly utilized Personalized single window service delivery system to expertise in offering quality service by which cross selling becomes easy. Rural Penetration which is important for wide reach of banks in the rural segment which is potential and untapped for insurance business Structure/design customer centric product and services to suit the needs of every segment. Bancassurance in future would be favorable as there will be : Entry of big players in life and non-life segment would immense competition for better deal of the customers. Collaboration of banks and insurance companies would have profound impact on financial services industry which is enhanced for customer satisfaction. There would be a vast potential for banks and insurance companies for partnership and to develop the under insured market in India.
Page 20
2. MUTUAL BANKING
Page 21
Mutual Banking is a new concept which has emerged offering new product and service innovations for the customers who avail of mutual fund products through banks. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. The mutual fund will have a fund manager that trades the pooled money on a regular basis. The net proceeds or losses are then typically distributed to the investors annually. So now this mutual fund business is also done by banks through which customers are benefited. The essential features of a Mutual Bank may be outlined as follows: a. Mutual Banking Associations is formed to do a general banking business and to issue Bank cheques for the use of their members. b. Members of such associations shall, upon admission, bind themselves in due form to receive the cheques issued by the association from all persons, in all payments, at par. c. The associations should issue their currency cheques as loans to their members to circulate as money among them and such other persons as are willing to receive it. These cheques are not a legal tender.
Page 22
d. Any person can become a member of any association and can borrow the money issued by the association, by giving his promissory note. e. Loans can be made for an amount not exceeding one-half the assessed value of the improvements situated upon the real estate pledged, or in an amount not exceeding one-half the value of goods, chattels, implements and machinery used in productive enterprises, or upon shares of stock of such enterprises, and upon warehouse receipts. The period for which loans would run shall be determined by the marketability and possible depreciation of the security offered. f. Loans can also be discounted by the association, for those who have no property to pledge, upon the payment of a sufficient premium to insure the risk with an authorized insurance company. g. The rate of interest should always be zero. The charges for which said money should be loaned and can be determined by and can just meet and cover the losses sustained and the expenses of the association. h. Members, by paying their debts to the association, should have their property released from pledge, and themselves released from all obligations to association and to the holders of its money. j. Wage workers who are willing to receive the money of the association in the payment of their wages should deposit the same with the association subject to check.
Page 23
k. The money of the association shall be issued in denominations of one, two, five, ten and twenty rupee bills; at least one-half of the issue shall be in the first three denominations. l. The cheque, draft, bill of exchange and travelers' cheques may be adopted to facilitate exchanges between the various members of the associations and between the associations themselves in specific part of India only. m. Associations may form clearing houses in a city where there is a branch near the center of population. Advantages of Mutual Bank are as follows:a. Mutual Bank cheques being secured credit, will take the place of unsecured credit, and, in consequence, credit losses will be practically eliminated. Interest will cease, and only the costs of issuing, securing, and carrying Mutual Bank notes will be charged, amounting to less than one percent. b. Mutual Bank cheques, by their very nature, cannot depreciate. On this account, and because there will always be enough Mutual Money for all industrial and commercial needs (due to the flexibility of the issue), there will be no more money panics. c. As money will be easy to get under the Mutual Banking system, sound enterprises will have no difficulty in getting financed. This will eventually mean the disintegration of monopoly. It will also mean the creation of many more jobs, and consequently competition among employers for workers,
resulting in increasingly better conditions of work land pay, until at last the worker will receive the full product of his labour
3. INVESTMENT BANKING
An investment bank is a financial institution that helps companies take new bond or stock issues to market, usually acting as the intermediary between the issuer and investors. Investment banks may underwrite the securities by buying all the available shares at a set price and then reselling them to the public. Or the banks may act as agents for the issuer and take a commission on the securities they sell. Investment banks are also responsible for preparing the company prospectus, which presents important data about the company to potential investors.
Page 25
In addition, investment banks handle the sales of large blocks of previously issued securities, including sales to institutional investors, such as mutual fund companies. Unlike a commercial bank or a savings and loan company, an investment bank doesn't usually provide retail banking services to individuals. The one of the trends that has been developing in the past few years in the global nad Indian investment banking arena, is the strong emergence of universal banks ahead of pure investment banks as market leaders. These universal Banks have the additional financial muscle of their banking arms that add to their investment banking strengths. Pure investment banks have found it unmanageable to maintain leadership positions due to difficult market conditions and the economic downturn. The year 2002 has been dubbed as the watershed year in investment banking for over a decade. Globally, universal banks such as the Citigroup, JP Morgan chase and Deutsche bank are emerging against pure investment banks such as Goldmanb Sachs and Morgan Stanley. This trend could probably reappear in India as well with the emergence of SBI, ICICI, idbi and Kotak Mahindra bank as strong universal banks. However, in 2002 pure investment banks such as JM Morgan Stanley and DSP Merrill Lynchstill occupied top positions in the investment banking league tables.
Page 26
Some recent Developments in the investment banking Industry as reported in some financial dailies and other press clippings are listed below :a. During the year 2001, JM Morgan Stanley which acted as adviser to M&A deals worth Rs. 16,022 crore was rated the top investment bank in India. The other players in the big league were ABN Amro (Rs 10460 crore), DSP Merrill Lynch (Rs7130 crore), Rabo India Finance (Rs 833 crore) and Lazard Capital (Rs. 536 crore) - (as reported in The Economic Times). b. In 2002, there was only one Gross Depository Receipt (GDR) /American Depository Receipt (ADR) issue as compared to 6 in2001 and 9 in 2000. This was made by Mason Global which raised $10 Million through issue of 2.5 million GDRs which are listed at Luxemburg Stock Exchange. In this market, Citibank was the leading depository bank according to instanex Capital Consultants. This was followed by bank of New York, Deutsche Bank and JP Morgan. c. In the M&A market; the year2002 saw n increase of around 5% in the value of M&A deals in India. Among these, more than50% were cross-border deals according to a survey conducted by KPMG Corporate Finance. The deals were mostly in the SME segment with average size not exceeding $25 million. The banking, finance and insurance sectors contributed almost one-third of the total volume. Privatization deals also played a significant part.
Page 27
d. DSP-ML de-listed from the stock exchanges since its promoters, Hemendra Kothari and Merrill Lynch together held more than 90% of the shares. DSP was rated The Best Domestic Investment Bank in India for 2000 by Finance Asia. Euro money voted it Best Domestic M&A House in India for 2000 by Finance Asia. Euro money voted it Best Domestic M&A House in India in 2000. This distinction has returned for three year in a row with DSP-ML, being named as the Best Domestic Securities House and Best Domestic Investment Bank for 2002-2003 by Asia money (May 2003 issue) and The Asset (January 2003 issue) magazine respectively. 4. UNIVERSAL BANKING
The term Universal Bank has different meanings, but usually it refers to the combination of commercial banking (collecting deposits and making loans) and investment banking, i.e. issuing, underwriting and trading in securities. This is a narrow definition of Universal banking. In a very broad sense, however the term
Universal Bank refers to those banks that offer a wide range of financial services such as commercial banking and investment banking and other activities, especially insurance. Universal Banking usually takes one of the three forms, i.e., in-house, through separately capitalized subsidiaries, or through a holding company structure. The era of universal banking in India has begun, as what one find is that without being conscious about it, the banking system in India has already started entering into Universal Banking either through the route of subsidiarisation or by expanding the scope existing banking activities. For example, credit card business is being handled both in-house as also through a subsidiary. Recently, India has also followed the practice of Universal Banking in a broad sense by allowing banks and DFIs to undertake insurance Business. An attempt was made to delineate some of the major risks faced by Insurers so as to know as to whether and to what extent such risks are familiar to commercial banks and DFIs. While risks on the asset side of the balance sheet are quite familiar to banks and DFIs risks are on the liability side, especially in the case of nonlife insurance business which are more serious, are not expected to be familiar to banks/DFIs. The most important challenge before universal banking is that of regulatory. The main brake on the liberalization process has been prudential concerns, notably the difficulty of devising appropriate prudential safeguards in the light of the increased freedom. The major issues involved in universal in universal banking are appropriate
allocation of responsibilities among various regulators. To overcome this problem, different countries have followed different approaches. In the 1980s banks were allowed to undertake various non traditional activities through subsidiaries. This trend got momentum in the early 1990s i.e. after initiation of economic reforms where banks were allowed to undertake certain activities, such as, hire-purchase and leasing in-house. Universal Banking - Current position in India In India, the financial system has traditionally been compartmentalized with three main types of financial intermediaries operating being Commercial Banks, DFIs and Investment Institutions (two insurance institutions, viz. LIC, GIC and one mutual fund, viz. UTI). All these institutions were required to confine their operations strictly to their own areas, barring commercial banks which were allowed to undertake some investment/ merchant banking activity and project finance within the prescribed limits. Recently, banks and DFIs have also been allowed to undertake insurance business. It may thus, be seen from the above that the practice of Universal Banking is already prevalent in India. It started with Universal Banking in a narrow sense by allowing downstream linkages later followed by upstream linkages. Recently, the practice of universal banking in a broad sense with downstream linkages has also been allowed. However, upstream linkages under broad universal banking have yet to take place.
The following diagram shows the present position in India related to practice of Universal Banking. By which Universal Banking represents combination of various activities and becoming almost inevitable due to technological changes and competitive forces. 5. INTERNATIONAL BANKING
Banking transactions crossing national boundaries is termed as International Banking. This is also one of the components under the New Trends in Banking. Here transactions of Banks are done at a International level. Corporate explore foreign markets for trade. It is to sell products in wider markets, procure raw material, or even to shift manufacturing base to optimize labor and other costs. As these enterprises travel, they need banking services in foreign markets. This is the basic
motive for Banks to go International. But this is in basic and historical perspective. In the era of globalization, many investment and commercial banks have developed themselves as multinational financial institution. International Banking also includes Letter of Credit :In the world of finance, guarantee or confirmation by a bank has more credibility than a guarantee given by an exporter or importer. For better comfort to the party on the receiving side, bankers issue such letters. Letter of credit is the most common of them. Importer has to guarantee payment to the exporter. Hence LC is usually issued on behalf of importer (applicant), by a bank, to the exporter (beneficiary). A letter of credit is a written commitment by a bank to make payment of a defined amount of money to a beneficiary (exporter) according to the terms and conditioned specified by the importer (applicant
Page 32
6. RETAIL BANKING
Retail Banking plays a very important role in the New Trends in Banking as it provides all the facilities to the customers. Consumers behavior is changing rapidly due to the development of technology and the use of financial services is characterized by individuality, mobility, independence of place and time, and flexibility. Retail Banking is the part of a bank that offers products and services primarily to the individual customers, professionals, selfemployed individuals or small businesses. The focus is on creating products and services that meet the needs of the target customers and are profitable for the banks as well. The approach to retail banking products is more on a mass production basis wherein all risks and operations are based on and geared to provide to a large number of customers. This is, therefore, significantly different from corporate banking or wholesale banking where focus is on large sized customer accounts
Page 33
rather than large numbers of customers.Retail Banking includes following products to the customers :a. AUTOMATED TELLER MACHINE (ATM) :
The Trend in banking has evolved from a cash economy to cheque economy and thereon to a plastic card economy. One of the channels of banking service delivery is the Automated Teller Machine (ATM), whose traditional and primary use is to dispense cash upon insertion of a plastic card and its unique Pin or Personal Identification number. ATM is a user friendly, computer-driven system which operates 24 hours a day, 7 days a week. A totally menu-driven system. It displays easy-to-follow, step-by-step instructions to the customers. Current and Saving Account holders of a bank who hold a certain minimum balance in their accounts are issued an ATM card. The card is the plastic card with a magnetic strip with the account number of the individual. When the card is inserted into
the ATM, the machines sensing equipment identifies the account holder and asks for his/ her identification code number. This is referred to usually as the PIN and is issued by the banks computers. This number is unknown to the banks staff and is secret and unique to that individual Many Banks have opened off-site ATMS at airports, railway stations, petrol pumps, market centers, universities, etc. b. TELE BANKING :
Tele-Banking or Phone Banking is a banking service offered by banks to enable customers to assess their accounts for information or transactions. Similar to the ATM PIN, a Telephone PIN (T-PIN) is provided to each account holder. The customer can call the exclusive Tele-Banking numbers and provide the details to identify himself /herself to the automated voice. Typically, the bank account number and the T-PIN are asked for. Upon verification, the customer is given access to his accounts to query or transact on his account.
Though cash withdrawal and deposit are not enabled through his service to certain classes of customers. c. INTERNET BANKING:
One of the channels of services delivery to a banking customers is through the internet. The access to account information as well as transaction is offered through the world-wide network of computers on the internet. Every bank has a special firewalls and its own security measures to protect the accounts from non-authentic use from unauthorized users. Data are encoded using algorithms with a 128 bit key or, in some cases, with a 1,024 bit encryption . Each account holder is provided a PIN similar to that of the ATM or Phone banking PIN. The access to the account is allowed upon a match of the account details and PIN entered on the computer system. A higher level of security may be reached by an electronic finger-print. The finger-print is taken before and after the transaction. The both
Page 36
versions are compared. In case of any differences, the transaction is aborted. This means that financial institutions may enlarge their market area without building new offices or field services, respectively. Because of its image as an innovative corporation, better interacting possibilities, the usage of rationalization potential, promotion of selfservice ideas, the improvement of its competitive situation by development of core competencies together with the construction of market entry barriers, it may be possible to increase profits and market shares
Page 37
d. CASH CARDS :
Cash card is also known as an ATM Card. A special plastic card is used for getting currency notes from a machine known as Automated Teller Machine. e. DEBIT CARDS :
It is a card given to the customer by the bank that he must show when he writes a cheque which promises that the bank will pay out the money written on the cheque. Under Cheque Cards system, the card-holder is given a card and a cheque book. He has to use the cheques , while purchases are made and the trader gets guaranteed payment . The customer does not get free credit, he has to keep sufficient balance in his account or the bank will provide overdraft up to a specified limit, of course on interest payment basis.
f. CHARGE CARDS :
A small usually plastic card provided by an organization with which one can buy goods from various shops, etc. The full amount owed must then be paid on demand. In credit cards, the card-holders get credit or loan for payment of periodical bills when sufficient balance is not available in their accounts. In a charge card such credit facility is not available. The periodical bill amount is paid off by charging it to customers account. A fee is also payable by the card holder to the card issuing institution. g. SMART CARDS :
With the use of credit cards, we may avail of credit facility on our purchase of goods/services from approved sale outlets. A smart card however, enables the card-holder to perform various other banking functions apart from credit purchases. For example with
smart cards, we can draw cash from ATMs, we can verify entries in oue accounts, seek information pertaining to our accounts, etc. This is possible because the card has an integrated circuit with
microprocessor chip embedded in the card for identification purposes. The card can also perform calculations and maintain records. h. CREDIT CARDS :
Credit cards operate quite differently from cheque cards. A cheque card guarantees payment of a cheque, whereas a credit card guarantees against a sales voucher signed by the Credit Card Holder. Each credit card bears a specimen signature of its holder and is embossed by the issuing bank with the holders name and number. When goods or services are supplied, the holder gives his card to the supplier who has agreed to join the scheme. The supplier places the card in a special imprinter machine, which records the holders name and number on a sales voucher. The particulars of the transaction are added on the voucher. The holder signs the voucher and the supplier compares the signature with that on the card.
Page 40
i. SAFE DEPOSITS AND LOCKER SERVICES :
Safe custody of valuables and important documents has been a traditional service rendered by banks, on a fee basis. The customers have faith in their banks about the safety, security and confidentiality of the valuables kept with them. As these requirements are rarely met elsewhere, banks have been the main repositories of customers valuables. The duly sealed safe custody packets/ boxes are kept by the bank in its strong room/ vault and a receipt is issued to the depositor for presenting while taking delivery. As of now, most of the vaults have been occupied and therefore many banks may have curbed this service. Banks also provide safe deposit lockers at many of its branches which have adequate space and a strong room (other than its currency chest vault). The safe deposit lockers are built of steel and have reliable locking arrangements; these are kept in vaults of banks, to provide double safety. Customers hire lockers by paying yearly rentals. The lockers are operated by dual key system one of which is with the authorized bank officer and the other with the customer. Since the Lockers are very much in demand, presently, many banks
restrict this facility to their valuable customer or ask for certain fixed deposits to be lodged by the customer. Locker rentals have also increased substantially in metros and big cities. j. ELECTRONIC FUNDS TRANSFER :
Traditionally, the funds are transferred by banks from one place to another by mail transfer and telegraphic transfer, the latter being faster than the former. In both kinds of transfer, banks use the post &telegraph departments services and use certain codes to ensure confidentiality and safety in transmission of the messages. DEMATE ACCOUNTING In India, a Demate account, the abbreviation for dematerialized account, is a type of banking account which dematerializes paperbased physical stock shares. The dematerialized account is used to avoid holding physical shares: the shares are bought and sold through a stock broker.
Page 42
This account is popular in India. The Securities and Exchange Board of India (SEBI) mandates a Demate account for share trading above 500 shares. As of April 2006, it became mandatory that any person holding a Demate account should possess a Permanent Account Number (PAN).
Page 43
7. CHALLENGES
FACED
BY
BANKS
IN
MODERNIZED SERVICES
It has been customary for writers on banking to compare a bank with a laundry. This comparison, based on the external outlook, goes as follows: Both have counters, people working behind counters, clients visiting the place and handing their assets over the counters and those people behind the counters to use those assets safely and return them to the clients as promised. Today, this comparison does not do justice to what a bank actually does. The function it performs in the contemporary society is more akin to the divine role played by God Murugan with His multi-head and multi-hand personality. Just like God Murugan is a god for all seasons, for all people and for all purposes, a modern bank should have solutions for all types of problems which their clients are faced with. Such problems usually range from economic to financial and even to personal. Hence, its foremost challenge has been to acquire the capacity to serve its clientele efficiently. Efficiency here means the provision of its services in time, in the demanded quality and in the required volume at competitive prices. A modern bank is, therefore, required to have an adequate outreach capability to serve all those clients in places where they live. The strategy adopted by banks in this connection has been to expand their services both vertically and horizontally. In terms of this strategy, while expanding geographically, it got itself fitted with various
specialized divisions within a bank to tackle different types of problems. This administrative structure, though helpful to meet current challenges, entailed high costs on banks, raising both sustainability and viability issues. It also could not provide a satisfactory solution to the physical limitation problem which has placed an effective barrier to its further expansion. Hence, this banking model is inadequate to meet, in its present form, the new challenges faced by banks.
Page 45
VISIT TO THE INDIA BANK QUESTIONAIRE

Name :-M.V.Champaneri Post:- branch Manager Experience:-30 years
? Which types of services are provided by India bank? 1 ATM 2. Debit Card 3. Credit Card 4. E-Banking 5. M-Banking 6. Gold card 7. Silver card 8. Multicity cheque facility. 9. Safe Deposits & Locker Services
Page 46
? Is there any facility charges? If yes then what? Some services are charged except ATM , Debit card , E-Banking , M-Banking & chargeable services are Gold card & Silver card after two months charged services 11% charged 30 Rs./ per book ?what are the much demanded services of your bank? Debit come ATM card are very demanded services 100% costumer use this services ?who are the competitor of your bank? ICICI and HDFC , Multicity cheque facility
? What are your future plans? To be best bank in the market.
Page 47
8. Conclusions :-
New challenges which bankers have to take require them to be vigilant on the entire banking system. In the past, when banking was purely manually driven, there was no necessity for them to be mindful of the developments in the entire system. In that era, one banks failure did not matter much to the rest of the banking system, except in cases where they had lent to each other. But today, banks are linked electronically to each other and, therefore, they are vulnerable to the shocks that occur in the rest of the financial system.
Banks should also be vigilant over the developments in the global market as well. The current globalization wave has pushed the financial markets toward the establishment of a global single financial market. The business of banking is to be found everywhere in the globe and bankers who confine themselves only to the domestic banking business will have to pay the highest price. This is because even without their knowledge, they would find that they have lost business to other smart operators and are no longer able to survive in this fierce global competition.
Page 48
Page 49

New Trends in Banking Submitted To University of Mumbai

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

New Trends in Banking Submitted To University of Mumbai

Uploaded by

Copyright:

Available Formats

NEW TRENDS IN BANKING