The development of the Indian banking system can be divided into three phases: Phase I from 1786 to 1969 saw slow growth and periodic bank failures. Phase II from 1969 to 1991 included nationalization of banks and reforms. Phase III from 1991 onward introduced many new banking products and facilities as part of liberalization reforms. Technological developments like ATMs, internet banking, and real-time payment systems have modernized the system but full implementation remains a work in progress, especially in rural areas, due to infrastructure challenges. Innovation in areas like biometric authentication, mobile payments, and virtual banking promise further advances.

1. EMERGING BANKING TRENDS
Presented by: Deepika Tripathi
Reg No: 2K13016
PGDBM IInd Year
2013-2015

2. DEVELOPMENT OF INDIAN
BANKING SYSTEM

3. Different stages of developments
• From 1786 till today, the journey of Indian Banking System can be segregated into three distinct
phases. They are as mentioned below:
• Early phase from 1786 to 1969 of Indian Banks.Phase-I
• Nationalization of Indian Banks and up to 1991
prior to Indian banking sector Reforms.Phase-II
• New phase of Indian Banking System with the
arrival of Indian Financial & Banking Sector
Reforms after 1991.
Phase-III

4. Phase-I
• During the first phase the growth was very slow and banks also experienced
periodic failures between 1913 and 1948.
• There were approximately 1100 banks, mostly small.
• To streamline the functioning and activities of commercial banks, the
Government of India came up with The Banking Companies Act, 1949 
Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of
1965).
• Reserve Bank of India was vested with extensive powers for the supervision
of banking in India as the Central Banking Authority.

5. Phase-II
• There were major reforms in the Indian Banking Sector after Independence.
• In 1955, the Govt. nationalized Imperial Bank of India with extensive banking facilities on a large scale
specially in rural and semi-urban areas
• The following are the steps taken by the Government of India to Regulate Banking Institutions in the
Country:
• 1949 : Enactment of Banking Regulation Act.
• 1955 : Nationalization of State Bank of India.
• 1959 : Nationalization of SBI subsidiaries.
• 1961 : Insurance cover extended to deposits.
• 1969 : Nationalization of 14 major banks.
• 1971 : Creation of credit guarantee corporation.
• 1975 : Creation of regional rural banks.
• 1980 : Nationalization of seven banks with deposits over 200 crore.

6. Phase-III
• This phase has introduced many more products and facilities in the banking
sector in its reforms measure.
• In 1991, under the chairmanship of M Narasimham, a committee was
setup(Narasimham Committee on Banking Sector Reforms) which worked for
the liberalization of banking practices.

7. Technological developments in
Indian Banking Industry

8. • Information technology is one of the most important facilitators for the
transformation of the Indian banking industry in terms of its transactions
processing as well as for various other internal systems and processes.
• The technological evolution of the Indian banking industry has been largely
directed by the various committees set up by the RBI and the government of
India to review the implementation of technological change. No major
breakthrough in technology implementation was achieved by the industry till the
early 80s.
• The early 1980s were instrumental in the introduction of mechanization and
computerization in Indian banks. This was the period when banks as well as the
RBI went very slow on mechanization, carefully avoiding the use of ‘computers’
to avoid resistance from employee unions. However, this was the critical period
acting as the icebreaker, which led to the slow and steady move towards large
scale technology adoption.

9. IMPLICATION OF IT IN BANKING
ANYWHERE , ANYPLACE AND ANYTIME BANKING
TIMELESS AD PLACELESS BANKING
CONVENIENCE BANKING
DISMANTLING OF PHYSICAL STRUCTURE
GOODBYE TO TRADITIONAL INSTRUMENTS AND INVITATION TO NEW INSTRUMENTS
DISAPPEARANCE OF CONVENTIONAL RISK AND ARRIVAL OF NEW RISKS
LEADING TO CURRENCY-LESS MONETARY SYSTEM

10. Computerization
• The process of computerization marked the beginning of all technological initiatives in the
banking industry. Computerization of bank branches had started with installation of simple
computers to automate the functioning of branches, especially at high traffic branches. Thereafter,
Total Branch Automation was in use, which did not involve bank level branch networking, and did
not mean much to the customer.
• Networking of branches are now undertaken to ensure better customer service. Core Banking
Solutions (CBS) is the networking of the branches of a bank, so as to enable the customers to
operate their accounts from any bank branch, regardless of which branch he opened the account
with. The networking of branches under CBS enables centralized data management and aids in
the implementation of internet and mobile banking. Besides, CBS helps in bringing the complete
operations of banks under a single technological platform.
• CBS implementation in the Indian banking industry is still underway. The vast geographical
spread of the branches in the country is the primary reason for the inability of banks to attain
complete CBS implementation.

11. Satellite Banking
• Satellite banking is an upcoming technological innovation in the Indian banking industry,
which is expected to help in solving the problem of weak terrestrial communication links in
many parts of the country.
• The use of satellites for establishing connectivity between branches will help banks to reach
rural and hilly areas in a better way, and offer better facilities, particularly in relation to
electronic funds transfers. However, this involves very high costs to the banks

12. Ease of Payments
• Automated Teller Machines(ATMs)
• Electronic Clearance Service (ECS)
• Core Banking Solution(CBS)
• Electronic Banking(E-Banking)
• Electronic money(E-money)
• Electronic Cheque(E-cheque)
• Debit Card, Credit Card
• Mobile Banking
• Tele Banking
• Internet Banking
• EFT, NEFT, RTGS

13. COMPONENTS OF NEW PAYMENT SYSTEMS:

14. Automatic Teller Machines
• ATMs were introduced to the Indian banking industry in the early 1990s initiated by foreign
banks. Most foreign banks and some private sector players suffered from a serious handicap
at that time- lack of a strong branch network.
• ATM technology was used as a means to partially overcome this handicap by reaching out to
the customers at a lower initial and transaction costs and offering hassle free services. Since
then, innovations in ATM technology have come a long way and customer receptiveness has
also increased manifold.

15. • Electronic telecommunications device that enables the clients of a financial institution to perform
financial transactions without the need for a cashier, human clerk or bank teller.
TECHNOLOGIES USED WITH ATM:
(1) Video Conferencing
(2) Biometrics
(3) Cheque/ Cash Acceptance
(4) Bar Code Scanning
(5) On Demand Printing of items
(6) Dispensing additional media
(7) Coordinating mobile phones
(8) Customer Specific Advertising
(9) Integrated non-banking equipments
Related Devices:
(1) Interactive kiosk
(2) Talking ATM
(3) Scrip Cash Dispenser
(4) Teller Assist Unit
Related Issues:
(1) Physical Security
(2) Transactional secrecy and integrity
(3) Customer Identity integrity
(4) Device operation integrity
(5) Customer Security

16. ATM:

17. Internet Banking
• Internet banking in India began taking roots only from the early 2000s. Internet banking services
are offered in three levels. The first level is of a bank’s informational website, wherein only queries
are handled; the second level includes Simple Transactional Websites, which enables customers to
give instructions, online applications and balance enquiries. Under Simple Transactional Websites,
no fund based transactions are allowed to be conducted. Internet banking in India has reached
level three, offering Fully Transactional Websites, which allow for fund transfers and various value
added services.
• Internet banking poses high operational, security and legal risks. This has restrained the
development of internet banking in India. The guidelines governing internet banking operations in
India covers a number of technological, security related and legal issues to be addressed in
relation to internet banking

18. ECS-Electronic Clearance Service
• An alternative method of effecting bulk payment transactions
Managed by RBI(15 centers) and other banks on behalf of RBI(21 by SBI and 29 by
others)
Advantages: (1) Timely Payment
(2) Be sure of refund
General Concept:
•Facilitates automatic money
transfer from user’s bank account to
a third party.
•After the ECS is authorized by the
user ,the banks pays directly to the
third party on his behalf.
Products where you can use it for
Systematic Investment Plans in mutual Funds
Premium payment of insurance policies
Payment of home loan
Income Tax Refund
Utility bill payment

19. E-payment Services: E-Cheque
• E-cheques are another form of electronic tokens
• To accommodate multiple entities that prefer to pay on credit or through some mechanism other
than cash.
ADVANTAGES:
(1) Eliminates the need for customer education
(2) Electronic cheques are much faster.
(3) Guarantee that the cheque would be honored.
--No offline entering of accounts to get account head statements.
--Consumers able to keep track of all their expenses.

20. POS (Point Of Sale)
POS is a computer terminal for transaction.
Contains costumer information in a bank database.
During transaction customer account debited and retailer credited.

21. TELE BANKING
Facilitates customer to do non-cash related banking on telephone.
Automatic voice recorder used for simpler queries and transaction.
Manned phone terminal for complicated queries.
Easy for customer to operate from their place.

22. EDI (ELECTRONIC DATA INTERCHANGE)
EDI is the electronics exchange of business document.
Universally accepted format between trading partners.
Transmission of financial information and payment in electronic format.

23. Indian Financial System Code(IFSC)
• IFSC Code is 11 digit code for identifying the bank and branch
• Used by both RTGS and NEFT finance transfer systems
• code consists of 11 characters-
first 4 characters – entity
fifth position - ‘0’
last 6 characters – branch number
• E.g. (ICIC0000021) is an IFSC code of one of the branches of ICICI
Bank.

24. Phone Banking and Mobile Banking
• Phone and mobile banking are a fairly recent phenomenon for the Indian
banking industry. Phone banking channels function through an Interactive Voice
Response System (IVRS) or tele-banking executives of the banks.
• The transactions are limited to balance enquiries, transaction enquiries, stop
payment instructions on cheques and funds transfers of small amounts (per
transaction limit of Rs 2500, overall cap of Rs 5000 per day per customer).
• With the rapidly growing mobile penetration in the country, mobile banking has
the potential to become a mass banking channel, with very minimum
investment required by the banks. However, more security issues need to be
addressed before banking can be conducted more freely via this channel.

25. Electronic Funds Transfer Systems
• The EFT System was operationalised in 1995 covering 15 centers where the Reserve Bank
managed the clearing houses.
• Special EFT (SEFT) scheme was introduced with effect from April 1, 2003, in order to increase the
coverage of the scheme and to provide for quicker funds transfers.
• A new variant of the EFT called the National EFT (NEFT) was a nation wide retail electronic funds
transfer mechanism between the networked branches of banks. NEFT provided for integration
with the Structured Financial Messaging Solution (SFMS) of the Indian Financial Network
(INFINET). As the NEFT system stabilized over time, the number of settlements in NEFT was
increased from the initial two to six. NEFT now provides six settlement cycles a day and enables
funds transfer to the beneficiaries account on T+0 basis, bringing it closer to real time settlement.
• The commencement of NEFT led to discontinuation of SEFT, and EFT is now available only for
government payments. Using the NEFT infrastructure, a one-way remittance facility from India to
Nepal has also been implemented by the RBI since 15th May 2008.

26. NEFT (National Electronic Fund
Transfer)
In order to increase the coverage of NEFT to a wider section of bank customers in semi-urban and
rural areas, an enhancement of the NEFT called the NEFT-X [National EFT (Extended)] is also
proposed for phase wise implementation. This would facilitate non-networked branches of banks
to transfer funds electronically by accessing NEFT-enabled branches for transfer of funds. NEFT
(Extended) would work on a T+1 basis and would ensure wide rural coverage of the electronic
funds transfer system.
Transfer of fund from own account to receiver account.
Complete details of customer is needed.
RBI is the service provider of EFT.

27. How does NEFT system operate?
Step 1: First of all, the remitter has to provide the requisite information like
• Beneficiary’s Name.
• Beneficiary’s Account number.
• Beneficiary’s Account type ( cash credit, loan account, etc)
• Bank name, location & base branch in which the beneficiary account is held.
• IFSC code of beneficiary bank etc in order to start the process of NEFT.
Step 2: The bank branch at which the fund transfer request originated, prepares a
message and sends it to its pooling centre (also called the NEFT Service Centre).

28. Step 3: The pooling centre forwards the message to the NEFT Clearing Centre (operated
by the National Clearing Cell, RBI, Mumbai) to be included in the next available batch.
Step 4: The RBI at the clearing centre sorts the transactions bank- wise and prepares
accounting entries to receive funds from (debit) the originating banks and give the funds to
(credit) the destination banks. Thereafter, bank-wise remittance messages are forwarded
to the destination banks through their pooling centre (the NEFT Service Centre).
Step 5: The destination banks receive the remittance messages from the Clearing Centre
and pass on the credit to the beneficiary accounts.

29. Real Time Gross Settlement (RTGS)
• Started in October 2004
• Transactions of a value of greater than “Rupees Two Lac “ is processed and no upper
limit
• RTGS is a large value funds transfer system
• Transfer of money takes place from one bank to another on a “real time” and on “gross
basis”
• Money can be transferred to only those branches of banks where RTGS facility is enabled

30. RTGS-Real Time Gross Settlement System
FEATURES:
1. No bundling up of transactions,
2. No netting
3. No deferral of final settlement
BENEFITS:
1. full value of individual transaction
2. Real time immediate value transfer

31. RTGS Transaction Flow
Customer fills up the
RTGS funds transfer
request form.
Remittance Amount
and Charges are paid
as per desired mode
Data entry and its
authorization in CBS
System.
Data transmitted to
Intra-day Liquidity
Management.
Data flows through
to the RBI’s IFTP
and RTGS server
Recipient Bank gets
confirmation and
credits Customer a/c.

32. Criteria NEFT RTGS
Settlement Done in batches (Slower) Real time (Faster)
Minimum amount of money transfer
limit
No Minimum 2 lacs
Maximum amount of money transfer
limit
No Limit No Limit
When does the Credit Happen in
beneficiary account
Happens in the hourly batch Between
Banks
Real time between Banks
Maximum Charges as per RBI
Upto 10,000 – Rs 2.5
from 10,001 – 1 lac – Rs 5
from 1 – 2 lacs – Rs 15
Above 2 lacs – Rs 25
Rs 25-30 (Upto 2 – 5 lacs)
Rs 50-55 (Above 5 lacs)
(Lower charges for first half of day)
Suitable for Small Money Transfer Large Money Transfer

33. Benefits
• Faster – It’s faster and more convenient than sending Demand Drafts /
Cheques / Telegraphic Transfers.
• Easier – Forget long queues and time-consuming DDs, cheques and pay
orders! No need to visit the bank branch and search for a courier.
• Reach – No Geographical limitations within India as long as it is a
participating bank in the RBI's RTGS/NEFT system.

34. Innovation in the Banking Industry
Biometric ATM’s
• These ATMs use the finger print of the card holder or eye retina scan as a PIN for verification purpose
• Banks are more focused to put these ATMs in rural areas because biometrics makes it possible for the low
literacy population to use banks
M-Pesa
• M-pesa is a mobile-phone based money transfer and micro financing service, which allows users with a
national ID to use their money easily with a mobile
• Vodafone is expected to launch M-pesa in India, in association with ICICI & HDFC bank
Plastic Money
• Plastic money, cash cards, credit/debit cards and polymer notes will boom as the e-commerce space boom in
India and people get used to the idea of carrying less cash
• Many cards have a micro chip embedded in them which makes it a transit card also
Virtual Banking
• This technology will have a deep impact on the lives of professionals who believe in the life-on-the-go approach
• A user can have access to his/her bank accounts at a nominal cost and at a fast speed from anywhere in the
world

35. CHALLENGES IN IMPLEMENTATION
• Choice of right channel
• IT investment on ROI
• Penetration of IT in rural areas
• Technological Obsolescence
• Security concerns

36. The Banking Outlook In 2014
 With the Banking laws (Amendment) Bill cleared on 20th December 2012 in RajyaSabha, it is
likely that the RBI may issue 3-4 licenses within the next 12 months
 NBFCs like PFC, L&T finance, Shriram group as well as some corporate group (Reliance, Tata
etc.) have applied for the banking licenses
 New Entrants in the space may result in price based competition on deposits, loans and human
resources and some M&A among the small private banks
 In order to scale up operations rapidly, smaller private banks with larger distribution networks
might be the possible targets of the new banks for e.g. Federal Bank, Karur Bank, Dhanalaxmi
Bank

37. IN NEWS…
• The Reserve Bank of India (RBI) granted "in-principle" approval to two
applicants IDFC Limited and Bandhan Financial Services, to set up banks
under the Guidelines on Licensing of New Banks.
• India Post may also be given permission to diversify to banking.
• Banks like Karur Vysya Bank, CUB (City Union Bank), BOI (Bank Of India)
are building their technologies by setting up Kiosks, ATMs with Cash
Acceptance Facility, Contact Centre, RTGS, NEFT Services, etc
-Business Standard, 31 July 2014

39. Thank You