74 banking services in india


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74 banking services in india

  1. 1. BANKING SERVICES IN INDIA I. HISTORY OF BANKING IN INDIAThere are three different phases in the history of banking in India.1) Pre-Nationalization Era.2) Nationalization Stage.3) Post Liberalization Era.1) Pre-Nationalization Era: In India the business of banking and credit was practices even in veryearly times. The remittance of money through Hundies, an indigenous creditinstrument, was very popular. The hundies were issued by bankers known as Shroffs,Sahukars, Shahus or Mahajans in different parts of the country. The modern type of banking, however, was developed by the AgencyHouses of Calcutta and Bombay after the establishment of Rule by the East IndiaCompany in 18th and 19th centuries. During the early part of the 19th Century, ht volume of foreign trade wasrelatively small. Later on as the trade expanded, the need for banks of the Europeantype was felt and the government of the East India Company took interest in having itsown bank. The government of Bengal took the initiative and the first presidency bank,the Bank of Calcutta (Bank of Bengal) was established in 180. In 1840, the Bank ofBombay and IN 1843, the Bank of Madras was also set up. 1
  2. 2. BANKING SERVICES IN INDIA These three banks also known as “Presidency Bank”. The PresidencyBanks had their branches in important trading centers but mostly lacked in uniformityin their operational policies. In 1899, the Government proposed to amalgamate thesethree banks in to one so that it could also function as a Central Bank, but the PresidencyBanks did not favor the idea. However, the conditions obtaining during world warperiod (1914-1918) emphasized the need for a unified banking institution, as a result ofwhich the Imperial Bank was set up in1921. The Imperial Bank of India acted like aCentral bank and as a banker for other banks. The RBI (Reserve Bank of India) was established in 1935 as the CentralBank of the Country. In 1949, the Banking Regulation act was passed and the RBI wasnationalized and acquired extensive regulatory powers over the commercial banks. In 1950, the Indian Banking system comprised of the RBI, the ImperialBank of India, Cooperative banks, Exchange banks and Indian Joint Stock banks. 2) Nationalization Stages: After Independence, in 1951, the All India Rural Credit survey,committee of Direction with Shri. A. D. Gorwala as Chairman recommendedamalgamation of the Imperial Bank of India and ten others banks into a newlyestablished bank called the State Bank of India (SBI). The Government of Indiaaccepted the recommendations of the committee and introduced the State Bank of Indiabill in the Lok Sabha on 16th April 1955 and it was passed by Parliament and got thepresident’s assent on 8th May 1955. The Act came into force on 1st July 1955, and theImperial Bank of India was nationalized in 1955 as the State Bank of India. 2
  3. 3. BANKING SERVICES IN INDIAThe main objective of establishing SBI by nationalizing the Imperial Bank of India was“to extend banking facilities on a large scale more particularly in the rural and semi-urban areas and to diverse other public purposes.” In 1959, the SBI (Subsidiary Bank) act was proposed and the followingeight state-associated banks were taken over by the SBI as its subsidiaries. Name of the Bank Subsidiary with effect from1. State Bank of Hyderabad 1st October 19592. State Bank of Bikaner 1st January 19603. State Bank of Jaipur 1st January 19604. State Bank of Saurashtra 1st May 19605. State Bank of Patiala 1st April 19606. State Bank of Mysore 1st March 19607. State Bank of Indore 1st January 19688. State Bank of Travancore 1st January 1960 With effect from 1st January 1963, the State Bank of Bikaner and StateBank of Jaipur with head office located at Jaipur. Thus, seven subsidiary banks StateBank of India formed the SBI Group. The SBI Group under statutory obligations was required to open newoffices in rural and semi-urban areas and modern banking was taken to these unbankedremote areas. 3
  4. 4. BANKING SERVICES IN INDIA On 19th July 1969, then the Prime Minister, Mrs. Indira Gandhi announced the nationalization of 14 major scheduled Commercial Banks each having deposits worth Rs. 50 crore and above. This was a turning point in the history of commercial banking in India. Later the Government Nationalized six more commercial private sector banks with deposit liability of not less than Rs. 200 crores on 15th April 1980, viz. i) Andhra Bank. ii) Corporation Bank. iii) New Bank if India. iv) Oriental Bank of Commerce. v) Punjab and Sind Bank. vi) Vijaya Bank. In 1969, the Lead Bank Scheme was introduced to extend bankingfacilities to every corner of the country. Later in 1975, Regional Rural Banks were setup to supplement the activities of the commercial banks and to especially meet thecredit needs of the weaker sections of the rural society. Nationalization of banks paved way for retail banking and as a resultthere has been an alt round growth in the branch network, the deposit mobilization,credit disposals and of course employment. 4
  5. 5. BANKING SERVICES IN INDIA The first year after nationalization witnessed the total growth in theagricultural loans and the loans made to SSI by 87% and 48% respectively. The overallgrowth in the deposits and the advances indicates the improvement that has taken placein the banking habits of the people in the rural and semi-urban areas where the branchnetwork has spread. Such credit expansion enabled the banks to achieve the goals ofnationalization, it was however, achieved at the coast of profitability of the banks.Consequences of Nationalization:  The quality of credit assets fell because of liberal credit extension policy.  Political interference has been as additional malady.  Poor appraisal involved during the loan meals conducted for credit disbursals.  The credit facilities extended to the priority sector at concessional rates.  The high level of low yielding SLR investments adversely affected the profitability of the banks.  The rapid branch expansion has been the squeeze on profitability of banks emanating primarily due to the increase in the fixed costs.  There was downward trend in the quality of services and efficiency of the banks. 5
  6. 6. BANKING SERVICES IN INDIA3) Post-Liberalization Era---Thrust on Quality and Profitability: By the beginning of 1990, the social banking goals set for the bankingindustry made most of the public sector resulted in the presumption that there was noneed to look at the fundamental financial strength of this bank. Consequently theyremained undercapitalized. Revamping this structure of the banking industry was ofextreme importance, as the health of the financial sector in particular and the economywas a whole would be reflected by its performance. The need for restructuring the banking industry was felt greater with theinitiation of the real sector reform process in 1992. the reforms have enhanced theopportunities and challenges for the real sector making them operate in a borderlessglobal market place. However, to harness the benefits of globalization, there should bean efficient financial sector to support the structural reforms taking place in the realeconomy. Hence, along with the reforms of the real sector, the banking sectorreformation was also addressed. The route causes for the lackluster performance of banks, formed theelements of the banking sector reforms. Some of the factors that led to the dismalperformance of banks were.  Regulated interest rate structure.  Lack of focus on profitability.  Lack of transparency in the bank’s balance sheet.  Lack of competition.  Excessive regulation on organization structure and managerial resource.  Excessive support from government. 6
  7. 7. BANKING SERVICES IN INDIA Against this background, the financial sector reforms were initiated tobring about a paradigm shift in the banking industry, by addressing the factors for itsdismal performance. In this context, the recommendations made by a high level committeeon financial sector, chaired by M. Narasimham, laid the foundation for the bankingsector reforms. These reforms tried to enhance the viability and efficiency of thebanking sector. The Narasimham Committee suggested that there should be functionalautonomy, flexibility in operations, dilution of banking strangulations, reduction inreserve requirements and adequate financial infrastructure in terms of supervision, auditand technology. The committee further advocated introduction of prudential forms,transparency in operations and improvement in productivity, only aimed at liberalizingthe regulatory framework, but also to keep them in time with international standards.The emphasis shifted to efficient and prudential banking linked to better customer careand customer services. 7
  8. 8. BANKING SERVICES IN INDIA Private Sector Banks Private banking in India was practiced since the begining of bankingsystem in India. The first private bank in India to be set up in Private Sector Banks inIndia was Indus Ind Bank. It is one of the fastest growing Bank Private Sector Banks inIndia. IDBI ranks the tenth largest development bank in the world as Private Banks inIndia and has promoted a world class institutions in India. The first Private Bank in India to receive an in principle approval fromthe Reserve Bank of India was Housing Development Finance Corporation Limited, toset up a bank in the private sector banks in India as part of the RBIs liberalization ofthe Indian Banking Industry. It was incorporated in August 1994 as HDFC BankLimited with registered office in Mumbai and commenced operations as ScheduledCommercial Bank in January 1995. ING Vaysya, yet another Private Bank of India was incorporated in theyear 1930. Bangalore has a pride of place for having the first branch inception in theyear 1934. With successive years of patronage and constantly setting new standards inbanking, ING Vaysya Bank has many credits to its account.Entry of Private Sector Banks: There has been a paradigm shift in mindsets both at the Governmentlevel in the banking industry over the years since Nationalization of Banks in 1969,particularly during the last decade (1990-2000). Having achieved the objectives ofNationalization, the most important issue before the industry at present is survival andgrowth in the environment generated by the economic liberalization greater competitionwith a view to achieving higher productivity and efficiency in January 1993 for theentry of Private Sector banks based on the Nationalization Committee report of 1991,which envisaged a larger role for Private Sector Banks. 8
  9. 9. BANKING SERVICES IN INDIAThe RBI prescribed a minimum paid up capital of Rs. 100 crores for the new bank andthe shares are to be listed at stock exchange. Also the new bank after being grantedlicense under the Banking Regulation Act shall be registered as a public limitedcompany under the companies Act, 1956. Private Sector Banks Old Pvt. Sector Banks (25) New Pvt. Sector Banks (9) Subsequently 9 new commercial banks have been granted license to startbanking operations. The new private sector banks have been very aggressive inbusiness expansion and is also reporting higher profile levels taking the advantage oftechnology and skilled manpower. In certain areas, these banks have even our crossedthe other group of banks including foreign banks. 9
  10. 10. BANKING SERVICES IN INDIACurrent scenario Currently (2007), overall, banking in India is considered as fairly maturein terms of supply, product range and reach-even though reach in rural India stillremains a challenge for the private sector and foreign banks. Even in terms of quality ofassets and capital adequacy, Indian banks are considered to have clean, strong andtransparent balance sheets-as compared to other banks in comparable economies in itsregion. The Reserve Bank of India is an autonomous body, with minimal pressure fromthe government. The stated policy of the Bank on the Indian Rupee is to managevolatility-without any stated exchange rate-and this has mostly been true. With thegrowth in the Indian economy expected to be strong for quite some time-especially inits services sector, the demand for banking services-especially retail banking,mortgages and investment services are expected to be strong. M&As, takeovers, assetsales and much more action (as it is unraveling in China) will happen on this front inIndia. In March 2006, the Reserve Bank of India allowed Warburg Pincus toincrease its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is thefirst time an investor has been allowed to hold more than 5% in a private sector banksince the RBI announced norms in 2005 that any stake exceeding 5% in the privatesector banks would need to be vetted by them. Currently, India has 88 scheduledcommercial banks (SCBs) - 28 public sector banks (that is with the Government ofIndia holding a stake), 29 private banks (these do not have government stake; they maybe publicly listed and traded on stock exchanges) and 31 foreign banks. 10
  11. 11. BANKING SERVICES IN INDIA They have a combined network of over 53,000 branches and 17,000ATMs. According to a report by ICRA Limited, a rating agency, the public sectorbanks hold over 75 percent of total assets of the banking industry, with the private andforeign banks holding 18.2% and 6.5% respectively. 11
  12. 12. BANKING SERVICES IN INDIA II. BANKING IN INDIAOverview of Banking: Banking Regulation Act of India, 1949 defines Banking as “accepting,for the purpose of lending or of investment of deposits of money from the public,repayable on demand or otherwise or withdrawable by cheque, draft order orotherwise.” The Reserve Bank of India Act, 1934 and the Banking Regulation Act,1949, govern the banking operations in India.Organizational Structure of Banks in India: In India banks are classified in various categories according to differrent criteria. The following charts indicate the banking structure: Reserve Bank of India Commercial Banks Co-operative Banks Development BanksNationalized Private Short-term Long-term credit creditAgricultural Urban EXIM Industrial AgriculturalCredit Credit 12
  13. 13. BANKING SERVICES IN INDIABroad Classification of Banks in India: 1) The RBI: The RBI is the supreme monetary and banking authority in the country and has the responsibility to control the banking system in the country. It keeps the reserves of all scheduled banks and hence is known as the “Reserve Bank”. 2) Public Sector Banks: • State Bank of India and its Associates (8) • Nationalized Banks (19) • Regional Rural Banks Sponsored by Public Sector Banks (196) (3) Private Sector Banks: • Old Generation Private Banks (22) • Foreign New Generation Private Banks (8) • Banks in India (40) (4) Co-operative Sector Banks: • State Co-operative Banks • Central Co-operative Banks • Primary Agricultural Credit Societies • Land Development Banks • State Land Development Banks 13
  14. 14. BANKING SERVICES IN INDIA (5) Development Banks: Development Banks mostly provide long term finance forsetting up industries. They also provide short-term finance (for export and importactivities) • Industrial Finance Co-operation of India (IFCI) • Industrial Development of India (IDBI) • Industrial Investment Bank of India (IIBI) • Small Industries Development Bank of India (SIDBI) • National Bank for Agriculture and Rural Development (NABARD) • Export-Import Bank of IndiaRole of Banks: Banks play a positive role in economic development of a country asrepositories of community’s savings and as purveyors of credit. Indian Banking hasaided the economic development during the last fifty years in an effective way. Thebanking sector has shown a remarkable responsiveness to the needs of plannedeconomy. It has brought about a considerable progress in its efforts at depositmobilization and has taken a number of measures in the recent past for accelerating therate of growth of deposits. As recourse to this, the commercial banks opened branchesin urban, semi-urban and rural areas and have introduced a number of attractiveschemes to foster economic development. The activities of commercial banking have growth in multi-directionalways as well as multi-dimensional manner. Banks have been playing a catalytic role inarea development, backward area development, extended assistance to ruraldevelopment all along helping agriculture, industry, international trade in a significantmanner. In a way, commercial banks have emerged as key financial agencies for rapideconomic development. 14
  15. 15. BANKING SERVICES IN INDIA By pooling the savings together, banks can make available funds tospecialized institutions which finance different sectors of the economy, needing capitalfor various purposes, risks and durations. By contributing to government securities,bonds and debentures of term-lending institutions in the fields of agriculture, industriesand now housing, banks are also providing these institutions with an access to thecommon pool of savings mobilized by them, to that extent relieving them of theresponsibility of directly approaching the saver. This intermediation role of banks isparticularly important in the early stages of economic development and financialspecification. A country like India, with different regions at different stages ofdevelopment, presents an interesting spectrum of the evolving role of banks, in thematter of inter-mediation and beyond. Mobilization of resources forms an integral part of the developmentprocess in India. In this process of mobilization, banks are at a great advantage, chieflybecause of their network of branches in the country. And banks have to placeconsiderable reliance on the mobilization of deposits from the public to financedevelopment programmes. Further, deposit mobalization by banks in India acquiredgreater significance in their new role in economic development. Commercial banks provide short-term and medium-term financialassistance. The short-term credit facilities are granted for working capital requirements.The medium-term loans are for the acquisition of land, construction of factory premisesand purchase of machinery and equipment. These loans are generally granted forperiods ranging from five to seven years. They also establish letters of credit on behalfof their clients favouring suppliers of raw materials/machinery (both Indian andforeign) which extend the banker’s assurance for payment and thus help their delivery.Certain transaction, particularly those in contracts of sale of Government Departments,may require guarantees being issued in lieu of security earnest money deposits for 15
  16. 16. BANKING SERVICES IN INDIArelease of advance money, supply of raw materials for processing, full payment of billson the assurance of the performance etc. Commercial banks issue such guarantees also.The Role of Reserve Bank of India (RBI) – Banker’s Bank: The Reserve Bank of India (RBI) is the central bank of India, and wasestablished on April 1, 1935 in accordance with the provisions of the Reserve Bank ofIndia Act, 1934. Since its inception, it has been headquartered in Mumbai. Thoughoriginally privately owned, RBI has been fully owned by the Government of India sincenationalization in 1949. RBI is governed by a central board (headed by a Governor) appointed bythe Central Government. The current governor of RBI is Dr.Y.Venugopal Reddy(who succeeded Dr. Bimal Jalan on September 6, 2003). RBI has 22 regional officesacross India.The Reserve Bank of India was set up on the recommendations of theHilton Young Commission. The commission submitted its report in the year 1926,though the bank was not set up for nine years. 16
  17. 17. BANKING SERVICES IN INDIAMain Objective: Monetary Authority • Formulates, implements and monitors the monetary policy. • Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors. Regulator and supervisor of the financial system • Prescribes broad parameters of banking operations within which the country’s banking and financial system functions. • Objective: maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective redressal of complaints by bank customers Manager of Exchange Control • Manages the Foreign Exchange Management Act, 1999. • Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. Issuer of currency • Issues and exchanges or destroys currency and coins not fit for circulation. • Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality. Developmental role • Performs a wide range of promotional functions to support national objectives. 17
  18. 18. BANKING SERVICES IN INDIA Related Functions • Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. • Banker to banks: maintains banking accounts of all scheduled banks. • Owner and operator of the depository (SGL) and exchange (NDS) for government bonds.There is now an international consensus about the need to focus the tasks of a centralbank upon central banking. RBI is far out of touch with such a principle, owing to thesprawling mandate described above.Supervisory Functions: In addition to its traditional central functions, the Reserve bank hascertain non-monetary functions of the nature of supervision of banks and promotion ofsound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act,1949 have given the RBI wide powers of supervision and control over commercial andcooperative banks, relating to licensing and establishments, branch expansion, liquidityof their assets, management and methods of working, amalgamation, reconstruction andliquidation. The RBI is authorized to carry out periodical inspections of the banks andto call for returns and necessary information from them. The nationalization of 14major Indian scheduled banks in July 1969 has imposed new responsibilities on theRBI for directing the growth of banking and credit policies towards more rapiddevelopment of the economy and realization of certain desired social objectives. Thesupervisory functions of the RBI have helped a great deal in improving the standard ofbanking in India to develop on sound lines and to improve the methods of theiroperation. 18
  19. 19. BANKING SERVICES IN INDIAPromotional Functions: With economic growth assuming a new urgency since Independence, therange of the Reserve Bank’s functions have steadily widened. The Bank now performsa variety of developmental and promotional functions, which, at one time, wereregarded as outside the normal scope of central banking. The Reserve Bank was askedto promote banking habit, extend banking facilities to rural and semi-urban areas, andestablish and promote new specialized financing agencies. Accordingly, the Reservebank has helped in the setting up of the IFCI and the SFC: it set up the DepositInsurance Corporation of India in 1963 and the Industrial Reconstruction Corporationof India in 1972. These institutions were set up directly or indirectly by the ReserveBank to promote saving habit and to mobilize savings, and to provide industrial financeas well as agricultural finance. As far back as 1935, the RBI set up the AgriculturalCredit Department to provide agricultural credit. But only since 1951 the Bank’s role inthis field has become extremely important. The Bank has developed the co-operativecredit movement to encourage saving, to eliminate money-lenders from the villages andto route its short term credit to agriculture. The RBI has set up the AgriculturalRefinance and Development Corporation to provide long-term finance to farmers. 19
  20. 20. BANKING SERVICES IN INDIACo-operative Banks: The Co-operative bank has a history of almost 100 years. The Co-operative banks are an important constituent of the Indian Financial System, judging bythe role assigned to them, the expectations they are supposed to fulfill, their number,and the number of offices they operate. The co-operative movement originated in theWest, but the importance that such banks have assumed in India is rarely paralleledanywhere else in the world. Their role in rural financing continues to be important eventoday, and their business in the urban areas also has increased phenomenally in recentyears mainly due to the sharp increase in the number of co-operative banks. While the co-operative banks in rural areas mainly finance agriculturalbased activities including farming, cattle, milk, hatchery, personal finance etc. alongwith some small scale industries and self-employment driven activities, the co-operative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units, home finance, consumer finance, personalfinance, etc. Some of the co-operative banks are quite forward looking and havedeveloped sufficient core competencies to challenge state and private sector banks. According to NAFCUB the total deposits & lendings of Co-operativeBanks is much more than Old Private Sector Banks & also the New Private SectorBanks. This exponential growth of Co-operative Banks is attributed mainly to theirmuch better local reach, personal interaction with customers, their ability to catch thenerve of the local clientele. Though registered under the Co-operative Societies Act ofthe Respective States (where formed originally) the banking related activities of the co-operative banks are also regulated by the Reserve Bank of India. They are governed bythe Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act,1965. 20
  21. 21. BANKING SERVICES IN INDIAThere are two main categories of the co-operative banks.(a) Short term lending oriented co-operative Banks – within this category there arethree sub categories of banks viz state co-operative banks, District co-operative banksand Primary Agricultural co-operative societies.(b) Long term lending oriented co-operative Banks – within the second categorythere are land development banks at three levels state level, district level and villagelevel.Features of Cooperative BanksCo-operative Banks are organized and managed on the principal of co-operation, self-help, and mutual help. They function with the rule of “one member, one vote”.Function on “no profit, no loss” basis. Co-operative banks, as a principle, do not pursuethe goal of profit maximization. Co-operative bank performs all the main bankingfunctions of deposit mobilization, supply of credit and provision of remittancefacilities. Co-operative Banks provide limited banking products and are functionallyspecialists in agriculture related products. However, co-operative banks now providehousing loans also.UCBs provide working capital loans and term loan as well.The State Co-operative Banks (SCBs), Central Co-operative Banks (CCBs) and UrbanCo-operative Banks (UCBs) can normally extend housing loans upto Rs 1 lakh to anindividual. The scheduled UCBs, however, can lend upto Rs 3 lakh for housingpurposes. 21
  22. 22. BANKING SERVICES IN INDIA The UCBs can provide advances against shares and debentures also. Co-operative bank do banking business mainly in the agriculture and rural sector.However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitanareas also. The urban and non-agricultural business of these banks has grown overthe years. The co-operative banks demonstrate a shift from rural to urban, while thecommercial banks, from urban to rural. Co-operative banks are perhaps the firstgovernment sponsored, government-supported, and government-subsidized financialagency in India. They get financial and other help from the Reserve Bank of IndiaNABARD, central government and state governments. They constitute the “mostfavoured” banking sector with risk of nationalization. For commercial banks, theReserve Bank of India is lender of last resort, but co-operative banks it is the lender offirst resort which provides financial resources in the form of contribution to the initialcapital (through state government), working capital, refinance. Co-operative Banks belong to the money market as well as to the capitalmarket. Primary agricultural credit societies provide short term and medium term loans.Land Development Banks (LDBs) provide long-term loans. SCBs and CCBs alsoprovide both short term and term loans. Co-operative banks are financial intermediariesonly partially. The sources of their funds (resources) are (a) central and stategovernment, (b) the Reserve Bank of India and NABARD, (c) other co-operativeinstitutions, (d) ownership funds and, (e) deposits or debenture issues. It is interestingto note that intra-sectoral flows of funds are much greater in co-operative banking thanin commercial banking. Inter-bank deposits, borrowings, and credit from a significantpart of assets and liabilities of co-operative banks. This means that intra-sectoralcompetition is absent and intra-sectoral integration is high for co-operative bank. 22
  23. 23. BANKING SERVICES IN INDIA Some co-operative banks are scheduled banks, while others are non-scheduled banks. For instance, SCBs and some UCBs are scheduled banks but other co-operative bank are non-scheduled banks. At present, 28 SCBs and 11 UCBs withDemand and Time Liabilities over Rs 50 crore each included in the Second Schedule ofthe Reserve Bank of India Act.Co-operative Banks are subject to CRR and liquidity requirements as other scheduledand non-scheduled banks are. However, their requirements are less than commercialbanks. Since 1966 the lending and deposit rate of commercial banks have been directlyregulated by the Reserve Bank of India. Although the Reserve Bank of India had powerto regulate the rate co-operative bank but this have been exercised only after 1979 inrespect of non-agricultural advances they were free to charge any rates at theirdiscretion. Although the main aim of the co-operative bank is to provide cheaper creditto their members and not to maximize profits, they may access the money market toimprove their income so as to remain viable. 23
  24. 24. BANKING SERVICES IN INDIA III. PRODUCTS AND SERVICES OFFERED BY BANKSBroad Classification of Products in a bank:The different products in a bank can be broadly classified into: • Retail Banking. • Trade Finance. • Treasury Operations.Retail Banking and Trade finance operations are conducted at the branch level whilethe wholesale banking operations, which cover treasury operations, are at the handoffice or a designated branch.Retail Banking: • Deposits • Loans, Cash Credit and Overdraft • Negotiating for Loans and advances • Remittances • Book-Keeping (maintaining all accounting records) • Receiving all kinds of bonds valuable for safe keepingTrade Finance: • Issuing and confirming of letter of credit. • Drawing, accepting, discounting, buying, selling, collecting of bills of exchange, promissory notes, drafts, bill of lading and other securities. 24
  25. 25. BANKING SERVICES IN INDIATreasury Operations: • Buying and selling of bullion. Foreign exchange • Acquiring, holding, underwriting and dealing in shares, debentures, etc. • Purchasing and selling of bonds and securities on behalf of constituents. The banks can also act as an agent of the Government or local authority.They insure, guarantee, underwrite, participate in managing and carrying out issue ofshares, debentures, etc. Apart from the above-mentioned functions of the bank, the bankprovides a whole lot of other services like investment counseling for individuals, short-term funds management and portfolio management for individuals and companies. Itundertakes the inward and outward remittances with reference to foreign exchange andcollection of varied types for the Government.Common Banking Products Available: Some of common available banking products are explained below:1) Credit Card: Credit Card is “post paid” or “pay later” card that draws from a credit line-money made available by the card issuer (bank) and gives one a grace period to pay. If the amount is not paid full by the end of the period, one is charged interest. A credit card is nothing but a very small card containing a means ofidentification, such as a signature and a small photo. It authorizes the holder to changegoods or services to his account, on which he is billed. The bank receives the bills fromthe merchants and pays on behalf of the card holder. 25
  26. 26. BANKING SERVICES IN INDIAThese bills are assembled in the bank and the amount is paid to the bank by the cardholder totally or by installments. The bank charges the customer a small amount forthese services. The card holder need not have to carry money/cash with him when hetravels or goes for purchasing. Credit cards have found wide spread acceptance in the ‘metros’ and bigcities. Credit cards are joining popularity for online payments. The major players in theCredit Card market are the foreign banks and some big public sector banks like SBI andBank of Baroda. India at present has about 3 million credit cards in circulation.2) Debit Cards: Debit Card is a “prepaid” or “pay now” card with some stored value. Debit Cards quickly debit or subtract money from one’s savings account, or if one were taking out cash. Every time a person uses the card, the merchant who in turn can get themoney transferred to his account from the bank of the buyers, by debiting an exactamount of purchase from the card. To get a debit card along with a PersonalIdentification Number (PIN). When he makes a purchase, he enters this number on the shop’s PINpad. When the card is swiped through the electronic terminal, it dials the acquiringbank system – either Master Card or Visa that validates the PIN and finds out from theissuing bank whether to accept or decline the transaction. The customer neveroverspread because the amount spent is debited immediately from the customersaccount. So, for the debit card to work, one must already have the money in the accountto cover the transaction. There is no grace period for a debit card purchase. Some debitcards have monthly or per transaction fees. 26
  27. 27. BANKING SERVICES IN INDIA Debit Card holder need not carry a bulky checkbook or large sums ofcash when he/she goes at for shopping. This is a fast and easy way of payment one canget debit card facility as debit cards use one’s own money at the time of sale, so theyare often easier than credit cards to obtain. The major limitation of Debit Card is that currently only some3000-4000 shops country wide accepts it. Also, a person can’t operate it in case thetelephone lines are down.3) Automatic Teller Machine: The introduction of ATM’s has given thecustomers the facility of round the clock banking. The ATM’s are used by banks formaking the customers dealing easier. ATM card is a device that allows customer whohas an ATM card to perform routine banking transaction at any time without interactingwith human teller. It provides exchange services. This service helps the customer towithdraw money even when the banks ate closed. This can be done by inserting thecard in the ATM and entering the Personal Identification Number and secret Password. ATM’s are currently becoming popular in India that enables thecustomer to withdraw their money 24 hours a day and 365 days. It provides thecustomers with the ability to withdraw or deposit funds, check account balances,transfer funds and check statement information. The advantages of ATM’s are many. Itincreases existing business and generates new business. It allows the customers. • To transfer money to and from accounts. • To view account information. • To order cash. • To receive cash. 27
  28. 28. BANKING SERVICES IN INDIAAdvantages of ATM’s:To the Customers • ATM’s provide 24 hrs., 7 days and 365 days a year service. • Service is quick and efficient • Privacy in transaction • Wider flexibility in place and time of withdrawals. • The transaction is completely secure – you need to key in Personal Identification Number (Unique number for every customer).To Banks • Alternative to extend banking hours. • Crowding at bank counters considerably reduced. • Alternative to new branches and to reduce operating expenses. • Relieves bank employees to focus an more analytical and innovative work. • Increased market penetration. ATM’s can be installed anywhere like Airports, Railway Stations, PetrolPumps, Big Business arcades, markets, etc. Hence, it gives easy access to thecustomers, for obtaining cash. The ATM services provided first by the foreign banks like Citibank,Grind lays bank and now by many private and public sector banks in India like ICICIBank, HDFC Bank, SBI, UTI Bank etc. The ICICI has launched ATM Services to itscustomers in all the Metropolitan Cities in India. By the end of 1990 Indian PrivateBanks and public sector banks have come up with their own ATM Network in the formof “SWADHAN”. Over the past year upto 44 banks in Mumbai, Vashi and Thane, havebecame a part of “SWADHAN” a system of shared payments networks, introduced bythe Indian Bank Association (IBA). 28
  29. 29. BANKING SERVICES IN INDIA4) E-Cheaques: The e-cheaques consists five primary facts. They are theconsumers, the merchant, consumer’s bank the merchant’s bank and the e-mint and theclearing process. This cheaquring system uses the network services to issue and processpayment that emulates real world chaquing. The payer issue a digital cheaques to thepayee ant the entire transactions are done through internet. Electronic version ofcheaques are issued, received and processed. A typical electronic cheque transactiontakes place in the following manner: • The customer accesses the merchant server and the merchant server presents its goods to the customer. • The consumer selects the goods and purchases them by sending an e-cheque to the merchant. • The merchant validates the e-cheque with its bank for payment authorisation. • The merchant electronically forwards the e-cheque to its bank. • The merchant’s bank forwards the e-cheque to the clearing house for cashing. • The clearing house jointly works with the consumer’s bank clears the cheque and transfers the money to the merchant’s banks. • The merchant’s bank updates the merchant’s account. • The consumer’s bank updates the consumer’s account with the withdrawal information. The e-chequing is a great boon to big corporate as well as small retailers.Most major banks accept e-cheques. Thus this system offers secure means of collectingpayments, transferring value and managing cash flows. 29
  30. 30. BANKING SERVICES IN INDIA5) Electronic Funds Transfer (EFT): Many modern banks have computerised their cheque handling process with computer networks and other electronic equipments. These banks are dispensing with the use of paper cheques. The system called electronic fund transfer (EFT) automatically transfers money from one account to another. This system facilitates speedier transfer of funds electronically from any branch to any other branch. In this system the sender and the receiver of funds may be located in different cities and may even bank with different banks. Funds transfer within the same city is also permitted. The scheme has been in operation since February 7, 1996, in India. The other important type of facility in the EFT system is automatedclearing houses. These are the computer centers that handle the bills meant for depositsand the bills meant for payment. In big companies pay is not disbursed by issuedcheques or issuing cash. The payment office directs the computer to credit anemployee’s account with the person’s pay.6) Telebanking: Telebanking refers to banking on phone services.. a customer can access information about his/her account through a telephone call and by giving the coded Personal Identification Number (PIN) to the bank. Telebanking is extensively user friendly and effective in nature. • To get a particular work done through the bank, the users may leave his instructions in the form of message with bank. • Facility to stop payment on request. One can easily know about the cheque status. • Information on the current interest rates. • Information with regard to foreign exchange rates. • Request for a DD or pay order. • D-Mat Account related services. • And other similar services. 30
  31. 31. BANKING SERVICES IN INDIA7) Mobile Banking: A new revolution in the realm of e-banking is the emergence of mobile banking. On-line banking is now moving to the mobile world, giving everybody with a mobile phone access to real-time banking services, regardless of their location. But there is much more to mobile banking from just on-lie banking. It provides a new way to pick up information and interact with the banks to carry out the relevant banking business. The potential of mobile banking is limitless and is expected to be a big success. Booking and paying for travel and even tickets is also expected to be a growth area. According to this system, customer can access account details on mobileusing the Short Messaging System (SMS) technology6 where select data is pushed tothe mobile device. The wireless application protocol (WAP) technology, which willallow user to surf the net on their mobiles to access anything and everything. This is avery flexible way of transacting banking business. Already ICICI and HDFC banks have tied up cellular service providessuch as Airtel, Orange, Sky Cell, etc. in Delhi and Mumbai to offer these mobilebanking services to their customers.8) Internet Banking: Internet banking involves use of internet for delivery of banking products and services. With internet banking is now no longer confirmed to the branches where one has to approach the branch in person, to withdraw cash or deposits a cheque or request a statement of accounts. In internet banking, any inquiry or transaction is processed online without any reference to the branch (anywhere banking) at any time. The Internet Banking now is more of a normal rather than an exceptiondue to the fact that it is the cheapest way of providing banking services. As indicated byMcKinsey Quarterly research, presently traditional banking costs the banks, more than 31
  32. 32. a dollar per person, ATM banking costs 27 cents and internet banking costs below 4cents approximately. ICICI bank was the first one to offer Internet Banking in India. BANKING SERVICES IN INDIABenefits of Internet Banking: • Reduce the transaction costs of offering several banking services and diminishes the need for longer numbers of expensive brick and mortar branches and staff. • Increase convenience for customers, since they can conduct many banking transaction 24 hours a day. • Increase customer loyalty. • Improve customer access. • Attract new customers. • Easy online application for all accounts, including personal loans and mortgagesFinancial Transaction on the Internet:Electronic Cash: Companies are developing electronic replicas of all existing paymentsystem: cash, cheque, credit cards and coins.Automatic Payments: Utility companies, loans payments, and other businesses use onautomatic payment system with bills paid through direct withdrawal from a bankaccount.Direct Deposits: Earnings (or Government payments) automatically deposited intobank accounts, saving time, effort and money.Stored Value Cards: Prepaid cards for telephone service, transit fares, highway tolls,laundry service, library fees and school lunches.Point of Sale transactions: Acceptance of ATM/Cheque at retail stores and restaurantsfor payment of goods and services. This system has made functioning of the stockMarket very smooth and efficient. 32
  33. 33. BANKING SERVICES IN INDIACyber Banking: It refers to banking through online services. Banks with web site“Cyber” branches allowed customers to check balances, pay bills, transfer funds, andapply for loans on the Internet.9) Demat: Demat is short for de-materialisation of shares. In short, Demat is a process where at the customer’s request the physical stock is converted into electronic entries in the depository system. In January 1998 SEBI (Securities and Exchange Board of India) initiatedDEMAT ACCOUNTANCY System to regulate and to improve stock investing. As ondate, to trade on shares it has become compulsory to have a share demat account and alltrades take place through demat.How to Operate DEMAT ACCOUNT? One needs to open a Demat Account with any of the branches of thebank. After opening an account with any bank, by filling the demat request form onecan handover the securities. The rest will be taken care by the bank and the customerwill receive credit of shares as soon as it is confirmed by the Company/Register andTransfer Agent. There is no physical movement of share certification any more. Anybuying or selling of shares is done via electronic transfers. 1) If the investor wants to sell his shares, he has to place an order with his broker and give a “Delivery Instruction” to his DP (Depository Participant). The DP will debit hi s account with the number of shares sold by him. 2) If one wants to buy shares, he has to inform his broker about his Depository Account Number so that the shares bought by him are credited in to his account. 33
  34. 34. 3) Payment for the electronic shares bought or sold is to be made in the same way as in the case of physical securities. BANKING SERVICES IN INDIA IV. BANKING SERVICES Banking covers so many services that it is difficult to define it.However, these basic services have always been recognized as the hallmark of thegenuine banker. These are… • The receipt of the customer’s deposits • The collection of his cheques drawn on other banks • The payment of the customer’s cheques drawn on himselfThere are other various types of banking services like: 1) Advances – Overdraft, Cash Credit, etc. 2) Deposits – Saving Account, Current Account, etc. 3) Financial Services – Bill discounting etc. 4) Foreign Services – Providing foreign currency, travelers cheques, etc. 5) Money Transmission – Funds transfer etc. 6) Savings – Fixed deposits, etc. 7) Services of place or time – ATM Services. 8) Status – Debit Cards, Credit Cards, etc. 34
  35. 35. BANKING SERVICES IN INDIACustomer Services in Commercial Banks: Customer service is the service provided in support of a bank’s coreproducts. Customer service often includes answering questions; handling complaints.Customer service can occur on site (as when an onstage employee helps a customer oranswers a question) or it can occur over the phone or the Internet. Quality customerservice is essential to building cordial customer relationship. Banking being a service industry, a lot depends on efficient and promptcustomer service. Customer service is the most important duty of the bankingoperations. Prompt and efficient service with smile will develop good public relationsreduce complaints and increase business.Why is Customer Service Important?  Changing customer expectations: Today the customer is more demanding and more sophisticated than he or she was thirty years ago.  The increased importance of customer service: With changing customer expectations, competitors are seeing customer service as a competitive weapon with which they differentiate their products and services.  The need for a relationship strategy: To ensure that a customer service strategy that will create a value preposition for customers should be formulated implemented and controlled. It is necessary to give it a central role and not one that is subsumed in the various elements of the marketing mix. The customer is the kingpim in growth organizations like commercialbanks. Only those institutions which work according to his dictates will flourish.Quality, Consistency and Durability at low price are the final expectations of acustomer. Quality will have to be unambiguous, of world class quality. Quality cannot 35
  36. 36. be of minimum acceptable standards. Customer responsiveness must be quick and alsocompetent. Speed, performance and cost will be the new values “mantra” for success. BANKING SERVICES IN INDIA The ten key areas of customer’s services to be attended timely andregularly are: i. Submission of statement of A/Cs to customers ii. Updating of savings pass books. iii. Teller system efficiency. iv. Cleanliness and Upkeep of premises. v. Intermediate Credit for institution cheques/land bills. vi. Advance intimation to customers for rewards of Term Deposits Receipts on maturity.vii. Advance for Debit/credit to accounts.viii. Punctuality of staff. ix. Handling of complaint register. x. Maintain a complaint register. Customer’s dissatisfaction in the banking industry is neither recent norunknown. This is mainly due to delays in handling transactions across the counter incollections, update of passbooks supply of statements of accounts, etc. Failure to provide prompt and efficient customer service is likely to leadto reduction in the number of customers and they may have to face closure. To eventsuch situation the following improvements in the customer services may be carried out: 1) Personal relations of the bank employee with customers will improve customer satisfaction. 1 service with smile should be the motto of every bank employee. 2) Rapid customer services should be provided through automation of work and simplification of procedures. 36
  37. 37. 3) ATM’s may be introduced in all the branches of the banks, based upon the volume of transactions. This shall facilitate non-stop banking. BANKING SERVICES IN INDIA4) Credit Cards Services, Debit Card Services, which should be provided to the customers, must a link service with all the banks and branches if possible to facilitate the customer and the business organizations.5) E-mail service made freely available at all banking centers.6) Foreign Exchange transactions are to be extended to all the branches to facilitate trade and industries.7) All the customers are not homogenous in their needs. Hence need based schemes may be introduced.8) Totally deregulated interest rate structure should be there.9) The banking staff must be trained to understand the customer’s psychology, so they may provide customer service in a qualified manner.10) Educating the customers will increases better utilisation of banking services. 37
  38. 38. BANKING SERVICES IN INDIA V. BANK MARKETING: The banking business is essentially other people’s money and banker’sbrain. The secret of its success lies in satisfying customer needs for which the bankshave to rediscover the marketing cmocept. It is right to mention that bank marketing is a managerial process bywhich services are matched with markets. The matching of services with market ismeant formulation of overall marketing strategies which suit the taste, temperament,needs and requitements of customers. In view of the above, marketing of banking services is concerned withproduct, promotion, pricing, and place. In addition, it is also concerned with people,process and physical appearance.Objectives of Bank Marketing:  Profitability  Providing high return on investment  Achieving certain market share/growth  Development of an image  Developing new products to meet emerging customer requirements.  Increase in deposits and loans  Directing customers to certain products  Increasing awareness  Increasing customer base through greater customer satisfaction. 38
  39. 39. BANKING SERVICES IN INDIA VI. ROLE OF INFORMATION TECHNOLOGY (IT) IN THE BANKING SECTOR Banking environment has become highly competitive today. To be ableto survive and grow in the changing market environment banks are going for the latesttechnologies, which is being perceived as an ‘enabling resource’ that can help indeveloping learner and more flexible structure that can respond quickly to the dynamicsof a fast changing market scenario. It is also viewed as an instrument of cost reductionand effective communication eith people and institutions associated with the bankingbusiness. The Software Packages for Banking Applications in India had theirbeginnings in the middle of 80s, when the Banks started computerising the branches ina limited manner. The early 90s saw the plummeting hardware prices and advent ofcheap and inexpensive but high powered PC’s and Services and banks went in for whatwas called Total Branch Automation (TBA) packages. The middle and late 90switnessed the tornado of financial reforms, deregulation globalisation etc. coupled eithrapid revolution in communication technologies and evolution of novel concept ofconvergence of communication technologies, like internet, mobile/cell phones etc.Technology has continuously played on important role in the working of bankinginstitutions and the services provided by them. Safekeeping of public money, transferof money, issuing drafts, exploring investment opportunities and lending drafts,exploring investment being provided. 39
  40. 40. BANKING SERVICES IN INDIA Information Technology enables sophisticated product development,better market infrastructure, implementation of reliable techniques for control of risksand helps the financial intermediaries to reach geographically distant and diversifiedmarkets. Internet has significantly influenced delivery channels of the banks. Internethas emerged as an important medium for delivery of banking products and services. The customers can view the accounts; get account statements, transferfunds and purchase drafts by just punching on few keys. The smart card’s i.e., cardswith micro processor chip have added new dimension to the scenario. An introductionof ‘Cyber Cash’ the exchange of cash takes place entirely through ‘Cyber-books’.Collection of Electricity bills and telephone bills has become easy. The upgradeabilityand flexibility of internet technology after unprecedented opportunities for the banks toreach out to its customers. No doubt banking services have undergone drastic changesand so also the expectation of customers from the banks has increased greater. IT is increasingly moving from a back office function to a primeassistant in increasing the value of a bank over time. IT does so by maximizing banksof pro-active measures such as strengthening and standardising banks infrastructure inrespect of security, communication and networking, achieving inter branchconnectivity, moving towards Real Time gross settlement (RTGS) environment theforecasting of liquidity by building real time databases, use of Magnetic Ink CharacterRecognition and Imaging technology for cheque clearing to name a few. Indian banksare going for the retail banking in a big way 40
  41. 41. The key driver to charge has largely been the increasing sophisticationin technology and the growing popularity of the Internet. The shift from traditionalbanking to e-banking is changing customer’s expectations. BANKING SERVICES IN INDIAE-Banking: E-banking made its debut in UK and USA 1920s. It becomesprominently popular during 1960, through electronic funds transfer and credit cards.The concept of web-based baking came into existence in Eutope and USA in thebeginning of 1980. In India e-banking is of recent origin. The traditional model for growthhas been through branch banking. Only in the early 1990s has there been a start in thenon-branch banking services. The new pribate sector banks and the foreign banks arehandicapped by the lack of a strong branch network in comparison with the publicsector banks. In the absence of such networks, the market place has been the emergenceof a lot of innovative services by these players through direct distribution strategies ofnon-branch delivery. All these banks are using home banking as a key “pull’ factor toremove customers away from the well entered public sector banks. Many banks have modernized their services with the facilities ofcomputer and electronic equipments. The electronics revolution has made it possible toprovide ease and flexibility in banking operations to the benefit of the customer. Thee-banking has made the customer say good-bye to huge account registers and largepaper bank accounts. The e-banks, which may call as easy bank offers the followingservices to its customers:  Credit Cards – Debit Cards 41
  42. 42.  ATM  E-Cheques  EFT (Electronic Funds Transfer)  D-MAT Accounts BANKING SERVICES IN INDIA  Mobile Banking  Telephone Banking  Internet Banking  EDI (Electronic Data Interchange)Benefits of E-banking:  To the Customer:  Anywhere Banking no matter wherever the customer is in the world. Balance enquiry, request for services, issuing instructions etc., from anywhere in the world is possible.  Anytime Banking – Managing funds in real time and most importantly, 24 hours a day, 7days a week.  Convenience acts as a tremendous psychological benefit all the time.  Brings down “Cost of Banking” to the customer over a period a period of time.  Cash withdrawal from any branch / ATM  On-line purchase of goods and services including online payment for the same.  To the Bank: 42
  43. 43.  Innovative, scheme, addresses competition and present the bank as technology driven in the banking sector market  Reduces customer visits to the branch and thereby human intervention  Inter-branch reconciliation is immediate thereby reducing chances of fraud and misappropriation  On-line banking is an effective medium of promotion of various schemes of the bank, a marketing tool indeed.  Integrated customer data paves way for individualised and customised services. BANKING SERVICES IN INDIAImpact of IT on the Service Quality: The most visible impact of technology is reflected in the way the banksrespond strategically for making its effective use for efficient service delivery. Thisimpact on service quality can be summed up as below:  With automation, service no longer remains a marketing edge with the large banks only. Small and relatively new banks with limited network of branches become better placed to compete with the established banks, by integrating IT in their operations.  The technology has commoditising some of the financial services. Therefore the banks cannot take a lifetime relationship with the customers as granted and they have to work continuously to foster this relationship and retain customer loyalty.  The technology on one hand serves as a powerful tool for customer servicing, on the other hand, it itself results in depersonalising of the banking services. This has an adverse effect on relationship banking. A decade of computerization can probably never substitute a simple or a warm handshake.  In order to reduce service delivery cost, banks need to automate routine customer inquiries through self-service channels. To do this they need to invest 43
  44. 44. in call centers, kiosks, ATM’s and Internet Banking today require IT infrastructure integrated with their business strategy to be customer centric. BANKING SERVICES IN INDIAImpact of IT on Banking System: The banking system is slowly shifting from the Traditional Bankingtowards relationship banking. Traditionally the relationship between the bank and itscustomers has been on a one-to-one level via the branch network. This was put intooperation with clearing and decision making responsibilities concentrated at theindividual branch level. The head office had responsibility for the overall clearingnetwork, the size of the branch network and the training of staff in the branch network.The bank monitored the organisation’s performance and set the decision makingparameters, but the information available to both branch staff and their customers waslimited to one geographical location. Traditional Banking Sector 44
  45. 45. CUSTOMER CUSTOMER CUSTOMER BANK BRANCH BANK BRANCH BANK BRANCH CLEARING DECISION CLEARING DECISION CLEARING DECISION CENTRAL CLEARING HEAD OFFICE BANKING SERVICES IN INDIA The modern bank cannot rely on its branch network alone. Customersare now demanding new, more convenient, delivery systems, and services such asInternet banking have a dual role to the customer. They provide traditional bankingservices, but additionally offer much greater access to information on their accountstatus and on the bank’s many other services. To do this banks have to create accountinformation layers, which can be accessed both by the bank staff as well as by thcustomers themselves. The use of interactive electronic links via the Internet could go a lingway in providing the customers with greater level of information about both their ownfinancial situation and about the services offered by the bank. The New Relationship Oriented Bank 45
  46. 46. CUSTOMER TELEPHONE, BRANCH, ELECTRONIC BANKING, etc SHARED INFORMATION CLEARING SYSTEM HEAD OFFICE RISK MONITOIRING BANKING SERVICES IN INDIAImpact of IT on Privacy and Confidentiality of Data: Data being stored in the computers, is now being displayed whenrequired on through internet banking mobile banking, ATM’s etc. all this has given riseto the issues of privacy and confidentially of data are:  The data processing capabilities of the computer, particularly the rapid throughput, integration, and retrieval capabilities, give rise to doubts in the minds of individuals as to whether the privacy of the individuals is being eroded.  So long as the individual data items are available only to those directly concerned, everything seems to be in proper place, but the incidence of data 46
  47. 47. being cross referenced to create detailed individual dossiers gives rise to privacy problems.  Customers feel threatened about the inadequacy of privacy being maintained by the banks with regard to their transactions and link at computerised systems with suspicion. Aside from any constitutional aspect, many nations deem privacy to be asubject of human right and consider it to be the responsibility of those who concernedwith computer data processing for ensuring that the computer use does not revolve tothe stage where different data about people can be collected, integrated and retrievedquickly. Another important responsibility is to ensure the data is used only for thepurpose intended. BANKING SERVICES IN INDIA VII. RECENT TRENDS IN BANKING Today, we are having a fairly well developed banking system withdifferent classes of banks – public sector banks, foreign banks, private sector banks –both old and new generation, regional rural banks and co-operative banks with theReserve Bank of India as the fountain Head of the system. In the banking field, there has been an unprecedented growth anddiversification of banking industry has been so stupendous that it has no parallel in theannals of banking anywhere in the world. 47
  48. 48. During the last 39 years since 1969, tremendous changes have takenplace in the banking industry. The banks have shed their traditional functions and havebeen innovating, improving and coming out with new types of the services to cater tothe emerging needs of their customers. Massive branch expansion in the rural and underdeveloped areas,mobilisation of savings and diversification of credit facilities to the either to neglectedareas like small scale industrial sector, agricultural and other preferred areas like exportsector etc. have resulted in the widening and deepening of the financial infrastructureand transferred the fundamental character of class banking into mass banking. There has been considerable innovation and diversification in thebusiness of major commercial banks. Some of them have engaged in the areas ofconsumer credit, credit cards, merchant banking, leasing, mutual funds etc. A fewbanks have already set up subsidiaries for merchant banking, leasing and mutual fundsand many more are in the process of doing so. Some banks have commenced factoringbusiness. BANKING SERVICES IN INDIA The major challenges faced by banks today are as to how to cope withcompetitive forces and strengthen their balance sheet. Today, banks are groaning withburden of NPA’s. It is rightly felt that these contaminated debts, if not recovered, willeat into the very vitals of the banks. Another major anxiety before the banking industryis the high transaction cost of carrying Non Performing Assets in their books. Theresolution of the NPA problem requires greater accountability on the part of thecorporate, greater disclosure in the case of defaults, an efficient credit informationsharing system and an appropriate legal framework pertaining to the banking system sothat court procedures can be streamlined and actual recoveries made within an 48
  49. 49. acceptable time frame. The banking industry cannot afford to sustain itself with suchhigh levels of NPA’s thus, “lend, but lent for a purpose and with a purpose ought to bethe slogan for salvation.” The Indian banks are subject to tremendous pressures to perform asotherwise their very survival would be at stake. IT plays an important role in thebanking sector as it would not only ensure smooth passage of interrelated transactionsover the electric medium but will also facilitate complex financial product innovationand product development. The application of IT and e-banking is becoming the order ofthe day with the banking system heading towards virtual banking. As an extreme case of e-banking World Wide Banking (WWB) on thepattern of World Wide Web (WWW) can be visualised. That means all banks would beinterlinked and individual bank identity, as far as the customer is concerned, does notexist. There is no need to have large number of physical bank branches, extensioncounters. There is no need of person-to-person physical interaction or dealings.Customers would be able to do all their banking operations sitting in their offices orhomes and operating through internet. This would be the case of banking reaching thecustomers. BANKING SERVICES IN INDIA Banking landscape is changing very fast. Many new players withdifferent muscle powers will enter the market. The Reserve Bank in its bid to movetowards the best international banking practices will further sharpen the prudentialnorms and strengthen its supervisor mechanism. There will be more transparency anddisclosures. In the days to come, banks are expected to play a very useful role in theeconomic development and the emerging market will provide ample businessopportunities to harness. Human Resources Management is assuming to be of greater 49
  50. 50. importance. As banking in India will become more and more knowledge supported,human capital will emerge as the finest assets of the banking system. Ultimatelybanking is people and not just figures. BANKING SERVICES IN INDIA VIII. STRAINS AND CHALLNGES Liberalisation process has increasingly exposed Indian Industry tointernational competition and banking being a service industry is also not an exception.Banking Sector in India too faces same strains and challenges at local, national andinternational level. 50
  51. 51. Indian Banks, functionally diverse and geographically widespread, haveplayed a crucial role in the socio-economic progress of the country after independence.However, the growth led to strains in the operational efficiency of banks and theaccumulation of non-performing assets (NPA’s) in their loan portfolios. Banks face increasing pressure to stand out from the crowd. On theInternet, this means offering your target customers an increasingly broader range ofservices than your competitors and that too in unique way. All this has resulted in a challenge to managers of banks to develop theright mix of acquired and internally grown IT applications which suits customer’sexpectations. Banking sector reforms and liberalisation process raised manychallenges before Indian Banks and for sustainable development it has becomenecessary to face these challenges effectively:  Intense Competition: The RBI and Government of India kept banking industry open for the participants of private sector banks and foreign banks. The foreign banks were also permitted to set up shop on India either as branches or as subsidiaries. Due to this lowered entry barriers many new players have entered the market such as private banks, foreign banks, non-banking finance companies, etc. The foreign banks and new private sector banks have spearheaded the hi-tech revolution. Heavy weight foreign banks with huge BANKING SERVICES IN INDIA base, latest technology innovative and globally tested products are spreading their wings and wooing away customers form other banks. For survival and growth in highly competitive environment banks have to follow the new “Guru Mantra” of prompt and efficient customer service, which calls for appropriate customer centric policies and customer friendly procedures. 51
  52. 52.  Technological Up gradation: Already electronic transfers, clearings, settlements have reduced translation times. To face competition it is necessary for banks to absorb the technology and upgrade their services. However use of High-Tech sophisticated technology leaves the predominantly rural, poor and even illiterate mans in the lurch to which the level of automation and efficiency of services are immaterial. Privacy and Safety: Among the most important aspects, of savings, i.e., safety liquidity and profitability, safety has to be accorded top most priority. The safety aspect assumes more significance in the emerging scenario as the economic loss caused internationally by these types of crimes might risk area and any lacunae is safety would result in erosion of confidence and the same might possibly paralyse the entire network. The areas among other things, which might endanger security in e-banking can be:  Changes in input data such as changing the amount in ledges, increasing the limits in accounts or face value of cheaques. Though these trends could be detected consequently, prevention is a major problem with these types of crimes.  Use of stolen or falsified cards in ATM machines. BANKING SERVICES IN INDIA  Computer forgery could be committed by way of gaining access to other account, deliberate damage through viruses on data stored in computers. In this case, same criminals might gain entry into the computers and cause damage to the system. This apart, another through which security and privacy are maintained. If a hacker has found out the password, he 52
  53. 53. can cause havoc to the entire network. Also, if the password is stolen money could be transferred from one account to another.  Software privacy is another area of potential danger faced by the banking industry. In this the entire software could be stolen. If this is done, the hackers could operate a parallel network. Human Resources Management: In the recent past the human resource Policies in banks were mainly guided by the comcept of permanent employment and its necessary concomitants of creating career paths, terminal benfits, etc. for the employees. In today’s fast-changing world of employee mobility both horizontally and vertically and value systems, the public sector banks need to hire the right talent at market related compensation and to shed surplus manpower/staff. Thus many banks are going for URS schemes to reduce the burden of excessive staff. Schemes like VRS are going to change the nature of workforce with many senior and experienced persons opting for it. The key elements that shall provide a competitive edge to banking sector will not be physical assets but knowledge assets and information. Therefore, banks must understand how to retain knowledge based employees and prevent them to migrating to some other organisation. Banks must believe in people, customer orientation, and continuous improvement of excellence. Therefore it becomes necessary for banks to encourage all employees to take risks and work towards continuous improvements and breakthroughs. BANKING SERVICES IN INDIA Successful banks overcoming the challenges will be those that harness technology in a customer friendly yet cost effective way. This requires enormous internal and external management and the crux of the solution lies in blending human resources with information technology. 53
  55. 55. The Bank has a very humble but a very inspiring beginning. On 14thSeptember 1918, "The Saraswat Co-operative Banking Society" was founded. Mr. J.K.Parulkar became its first Chairman, Mr. N.B. Thakur, the first Vice-Chairman, Mr. P.N.Warde, the first Secretary and Mr. Shivram Gopal Rajadhyaksha, the first Treasurer.These were the people with deep and abiding ideals, faith, vision, optimism andentrepreneurial skills. These dedicated men in charge of the Society had acommendable sense of service and duty imbibed in them. Even today, our honourablefounders inspire a sense of awe and respect in the Bank and amongst the shareholders. The Society was initially set up to help families in distress. Its objectivewas to provide temporary accommodation to its members in eventualities such asweddings of dependent members of the family, repayment of debt and expenses ofmedical treatment etc. The Society was converted into a full-fledged Urban Co-operative Bank in the year 1933. The Bank has the unique distinction of being a witness to History. TheBank, which was originally founded in 1918, i.e. close on the heels of the RussianRevolution, also witnessed as a Society and as Bank-the First World War, the SecondWorld War, Indias freedom Movement and the glorious chapter of post-independenceIndia. During this cataclysmic cavalcade of history, the Bank as a financial institutionand its members could not of course remain unaffected by the economic consequencesof the major events. The two wars in particular brought in their wake, paucities of allkinds and realities and stand by its members in distress as a solid bulwark of strength. BANKING SERVICES IN INDIA The Founder Members and the later-day managements of the Bankcontinued to demonstrate their unwavering faith in the destiny of the common man andthe co-operative movement and they encouraged the shareholder to save despite allodds. 55
  56. 56. MISSION STATEMENT "To emerge as one of the premier and most preferred banks in thecountry by adopting highest standards of professionalism and excellence in all the areasof working.”MILESTONES Thanks to these sustained and assiduous efforts over 25 years after itsinception, the Bank had gained Strong foundation in terms of its membership,resources, assets and profits. By 1942, the Bank was fulfilling all the banking needs ofits customers. During the late fifties, the Bank grew from strength to strength. TheBank had established five branches within the city of Mumbai and one each at Puneand Belgaum. In its 50th year, the Bank chose a bee motif to symbolise the Banksemblem - a fitting and appropriate characteristics of a Bank that believed in hard work,a search for all that is good, a team spirit to achieve its objectives and a selfless serviceto its members and customers. The Bank has grown in stature, progressed in its socialand economic objectives and produced an image of what an ideal bank should be.Resultantly, in the year 1977-78, the Banks gross income crossed the Rs.3.00 croremark for the first time. BANKING SERVICES IN INDIA Last two decades the bank has witnessed a steady growth in thebusiness. The bank has a network of 86 fully computerised branches covering fivestates viz. Maharashtra, Gujarat, Madhya Pradesh, Karnataka and Goa. The Bank isproviding 24- hour service through ATM at 41 locations. 56
  57. 57. In 1988 the bank was conferred with "Scheduled" status by ReserveBank of India.The bank is the first co-operative bank to provide Merchant Bankingservices. The bank got a permanent license to deal in foreign exchange in 1978.Presently the Bank is having correspondent relationship in 45 countries covering 9currencies with over 125 banksSERVICES PROVIDED Saraswat Co-operative Bank being the No.1 co-operative bank in Asia,our efforts are always directed towards developing and offering competitive andinnovative products and services. In the wholesale banking business, the Saraswat Co-operative Bank Ltd. provides a wide range of products from a traditional term loans toshort term products like Bills discounting under Letter of Credit etc.The Bank also offers a bouquet of Retail Loan Products such as Vastu Siddhi HomeLoan, Saraswati Education Loan, Car Loan etc. and wide array of Deposit schemeswith customer friendly features and attractive Rate of Interest. With a view of fulfillingall the needs of the customers under one roof Bank has entered into tie-ups with variouspremium institutions, through which we are offering third party products like Life andnon-Life Insurance, Mutual Funds and Demat Services. BANKING SERVICES IN INDIAFollowing are the Services Provided by the Saraswat BankPERSONAL  Deposits Scheme  Personal Loans 57
  58. 58. 1. Deposits Scheme Saraswat Bank provides information of its various deposit schemes customerscan avail of with the bank.  CUBS Deposit  Current Deposit  Elite Savings  Janhit Account (No frills account)  Savings Deposit  Co-operative Societies BANKING SERVICES IN INDIA  Savings for Kids (CUBS)Features: a) You should be a minor/student (upto the age of 21 years) to become CUBS account holder. 58
  59. 59. b) Initial deposit of Cubs account is Rs 50/- and subsequent deposits in multiples of Rs 10/- no periodic compulsion for subsequent Deposit. c) Starting with a small amount of Rs. 50/-, a CUB Account holder has to save Rs. 500 /- over a period of one year. d) Facility to deposit cash in school premises on predetermined days. e) After completion of 14 years of age minor/student can operate the account Cheque book facility not available. f) No charges for non-maintenance of minimum balance for first year.Benefits"Free Gift" for all account holders.Earn Interest @ 3.5 p.a. every quarter possess specially designed passbook.Minimum Balance:Account opening - Rs. 50/- with further deposit of Rs. 10/- Rs. 500/- after one year ofopening account. BANKING SERVICES IN INDIA  Current DepositsFeatures: Minimum Average Balance. Eligibility - Individual, Businessmen, Organizations. Minimum Balance of Rs 5000/- . 59
  60. 60. Free ATM cards. Non-Maintenance of minimum average quarterly balance require to pay service charges of Rs. 200/- per month. If account is closed within 6 months Rs. 30/- plus Rs. 2/- per unused cheaques.  Elite SavingsEligibility: Individuals, Minor by guardian, Organisations, Co-operative Societies.Minimum Balance: Rs. 5000/- (Average Quarterly Balance)Rate of Interest: 3.50% p.a.Penalty for Non-maintenance of minimum balance:Minimum quarterly average balance:Below Rs. 4000/- to Rs. 4999/- - Rs. 50 per quarter.Below Rs. 4000/- - Rs. 100 per quarter. BANKING SERVICES IN INDIASpecial features / facilities: • Free Personal Accident Insurance Cover of Rs. 2.00 Lakhs for one year. • Free Utility Bills Payment facility. • Free Issue of Demand Draft / Pay Order (one occasion per month without ceiling on maximum amount) 60
  61. 61. • Free ATM Card.  Janhit Account (No Frills Account)Eligibility: 1) Persons whose balances do not exceed Rs 50,000/- in all the accounts taken together. 2) Total credits to the Janhit account should not exceed Rs 1 lakh in a year. 3) Once a customer opens a Janhit Account with the Bank, he/she will have to close all other transaction accounts with any other bank within a period of 60 days from the date of opening the Janhit Account with our bank. 4) The initial deposit amount required to open account would be Rs.250/-. Minimum Balance: Minimum Balance required to be maintained would be Rs.100/-. BANKING SERVICES IN INDIA  Savings DepositsMinimum Average BalanceRs. 1000 /- with or without Cheque BookFree ATM card 61
  62. 62. Interest3.5% p.a. with quarterly restPenalty / Service ChargesNon-Maintenance of minimum average quarterly balance of Rs 1000/- require to payRs 50/- per monthIf account is closed within 6 monthsWithout cheque book - Rs. 10 /-With cheque book - Rs. 15 /- plus Rs. 2 per unused cheque  Co-operative SocietiesEligibilityCo-operative societiesMinimum AmountMinimum quarterly average balance of Rs. 15000/- in Saving/Current AccountMinimum Rs. 3.00 lacs in Term DepositRate Of Interest0.5% extra interest as compared to General Public for Term Deposit.For Saving Account 3.5%For Current Account – Nil BANKING SERVICES IN INDIASpecial Features/Facilities • Free Affinity Card • Free Cheque Collection Service. • Free delivery of Statement of Account (once in a month) • Free Utility Bill Payment (Easy Pay Scheme) 62
  63. 63. • Free transfer of Funds from the account of member of the Society to Society’s account for monthly maintenance • Free issue of D.D./P.O. upto Rs. 25000/- each. IX. Personal LoansSaraswat Co-operative Bank offers various loans to its customers, one can opt for anyof the below listed loans for their assortment of needs.  Medical LoanPurposeTerm Loan for acquiring Nucleus Cochlear ImplantBanking RelationPrevious banking relations are not compulsory.Applicant should be residing in the city where the branch is located.EligibilityHearing Impaired individual OR their Parents BANKING SERVICES IN INDIALimit of LoanRs. 10.00 Lakhs100% of the cost of equipment and hospitalisation and allied charges 70% of theMarket value based on valuation by approved valuer of the commercial or residential 63
  64. 64. propertyEMIFixed Monthly Installments: ( For Rs 1.00 Lakh )Year 1 2 3 4 5Amount 8839 4661 3274 2585 2175Repayment PeriodMaximum 5 YearsSecurityEquitable mortgage of residential / commercial premises Pledge of tangible securitiesviz. NSCs, KVPs.LIC policies, FDRs, Gold or any other approved securities 2Guarantors of well placed means BANKING SERVICES IN INDIA  Property Loan 64