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“Changing Business Practices in Banking Sector”
TECHNOLOGY AND ITS ADAPTATION DUE TO CULTURE IN
THE BANKING SECTOR
NAME - Megha Agarwal (+919920439904)
COLLEGE - Sydenham Institute of Management Studies,Researchand
Entrepreneurial Education

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INDEX
Acknowledgement
Why did I choose this subject (Introduction)?
Introduction to the banking sectorof India
Present day Banking Sectorof India
Technologyand its adoption in the banking sector
CHANGE
Payment Banks
 What are payment banks
 How did payment banks come into existence
 Objectives of payment banks
 Regulations for payment banks(Financial)
 Regulations for payment banks(General)
 How will Payments Bank earn?
 Recenthappenings in the payment banks sector
 List of the new payment banks
 Threat measurement for existing banks
 Conclusion
Mobile Wallets
 What are mobile wallets
 How did mobile wallets come into existence
 Objectives of mobile wallets
 Types of mobile wallets
 How does a mobile wallet work
 Regulations for mobile wallets
 Benefits of using a mobile wallet
 List of mobile wallets in India

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 Threat measurement for existing banks
 Conclusion
Small Payments Bank
 What are small finance banks
 Regulations for small finance banks (Financial)
 Regulations for small finance banks (General)
 List of the new small finance banks
 Threat measurement for existing banks
Conclusion (general)

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ACKNOWLEDGEMENT
I would like to express my specialthanks of gratitude to Dr.R.K Srivastav
as well as our Principal Mr.Manoj Bhide who gave me the golden
opportunity to do this wonderful research work on the topic “Changing
Business Practices in Banking Sector- Technologyand its adaptation due
to culture in the banking sector”,which helped me in doing research and I
came to know about so many new things.
I am really thankful to them.
Secondly, I would thank my family and friends without whose constant
supportI wouldn’t have been able to do anything.
I am making this projectnot only for acknowledgementand reward but to
increase my knowledge.
THANKS AGAINTO ALL WHO HELPED ME.

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WHY DID I CHOOSE THIS SUBJECT?
Being a student of management and specializing in finance, for me there
was no better field to researchand write about than the changing trends in
the banking sectorand that too in the wake of sudden changes. I have
always had an interest to know about the banking sectorand the way
things worked behind the closed doors and this topic will only give me an
opportunity to learn in depth about it.
The banking sectorhas seen some big and serious changes in the way of
functioning in the past 2 years than it had in the past 22 years and this just
fueled my interest to go in depth of this topic.
I will highlight differentchanges in the banking sectorin India in the past 2
years and how exactly the face of banking has changed since time in India.

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INTRODUCTIONTO THE BANKING SECTOR
Banking system in India had started developing in the last decade of the
18th
century with Bank of Hindustan being the first bank which was formed
in1770.However, India’s first bank could not survive for long and finally
shut shop between 1829-1832.
The Imperial Bank so formed was renamed the State Bank of India in 1955
and is the oldestand the largest bank of India.
Banking sectorin India was not developed and the presidencybanks acted
as quasi-central banks back then. It was only in the year 1935 that the
Reserve Bank of India was formed under the Reserve Bank of India Act
1934 that the whole system became centralized and came under one head.

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A major turn of events for the banking sectorwas in 1969 when the
government of India nationalized 14 major private banks.
A list of those 14 banks are-
 Central Bank of India
 Bank of Maharashtra
 Dena Bank
 Punjab National Bank
 Syndicate Bank
 Canara Bank
 Indian Bank
 Indian Overseas Bank
 Bank of Baroda
 Union Bank
 Allahabad Bank
 United Bank of India
 UCO Bank
 Bank of India
Post this, six banks were nationalized in 1980 and they include-
 Andhra Bank
 Corporation Bank
 New Bank of India
 Oriental Bank of Commerce
 Punjab and Sindh Bank
 Vijaya Bank
Post the liberalization wave in 1990,licenses were given to a number of
small private banks. These included the Global Trust Bank (now Axis
Bank), ICICI Bank and HDFC to name a few.

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PRESENT DAY BANKING SECTOR OF INDIA
This diagram explains the presentday banking sectorof India.
The banking sectoris divided into commercialand co-operative banks,
each handling separate sections of additional banks.

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TECHNOLOGY AND ITS ADOPTION IN THE BANKING
SECTOR
“Digital has becomeextremelyimportant for all financial institutions, as this
is what customers are asking for. Leveraging the digital play is important for
consumerconvenience and that is why it has becomecentral to things”,
says Pralay Mondal, senior group president-retail & business banking, Yes
Bank.
This was a statement given by a biggie from one of the biggest private
sectorbanks in India. Technologyand its need have never been so greatly
felt than today!
As rightly said by Mrs.Chandda Kochhar, MD & CEO, ICICI Bank, that in
today’s day and age, banking gets provided through technology and you
cannot separate the two. That’s the way consumers want it and that’s how
it will be.
Aditya Puri, MD HDFC Bank, “technologyonly changes the way you
manufacture, produce and deliver.”
Following is an attempt to show these changes and its adoption.

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PAYMENT BANKS
The first and the most recent change that I am going to highlight are the
payment banks.
WHAT ARE PAYMENT BANKS?
Payment banks can be defined as a non-full service niche bank. This
means that a payment bank can only receive deposits and provide
remittances but it cannot carry out lending services. Thus, payment banks
can issue ATM or debit cards but cannot issue credit cards as they are not
allowed to carry out lending services.
HOW DID PAYMENT BANKS COME INTO EXISTENCE?
In September 2013, a “Committee on Comprehensive Financial Services
for Small Businesses and Low Income Households”, headed by Nachiket
Mor, was formed by the RBI and the committee submitted a report and one
of its recommendations was the formation of a new category of bank called
payments banks.
OBJECTIVES OF PAYMENT BANKS
Payment banks have beencreated to help India reach its financial inclusion
targets by providing small savings account as India is a country with very
low financial inclusion especially in the rural areas and amongst the poor
population.
Payment banks are contemplated to meet credit and remittance needs of
small businesses, unorganized sector, low income households, farmers
and migrant work force.

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Regulations for Payment Banks (Financial):
 The minimum paid-up equity capital for payments banks shall be
Rs.100 Crore. For the first five years, the stake of the promoter
should be minimum 40%
 The banks must maintain CRR, minimum 75% of demand deposits in
Statutory Liquidity Ratio(SLR)eligible governmentbonds of up to one
year and maximum 25% in current and fixed deposits with other
scheduled commercialbanks for operational purposes and liquidity
management
 The payments bank should have a leverage ratio of not less than 3
per cent, i.e., its outside liabilities should not exceed 33.33 times its
net worth (paid-up capital and reserves)
 When the payments bank reaches the net worth of Rs.500 crore,
diversified ownership and listing will be mandatory within three years
of reaching that net worth. However, payments banks having net
worth of below Rs.500 crore could also get their shares listed
voluntarily
 Initially, the deposits will be capped at Rs.1,00,000 per customer, but
it may be raised by the RBI based on the performance of the bank
 Promoters of the payments bank should hold at least 40% of its paid-
up equity capital for the first five years from the commencementof its
business
 The foreign shareholding in the payments bank would be as per the
Foreign DirectInvestment (FDI) policy for private sectorbanks as
amended from time to time. As per the current FDI policy, the
aggregate foreign investment in a private sectorbank from all
sources will be allowed up to a maximum of 74%of the paid-up capital
of the bank.
 The "in-principle" license is valid for 18 months within which the
entities must fulfill the requirements. They are not allowed to engage
in banking activities within the period

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Regulations for Payment Banks (General):
 Payments Banks need to have “Payments Bank” in its name to
differentiate it from regular banks
 Can handle cross-borderremittances of personal transactions or on
current account.
 Offerremittance services through branches, ATMs, Business
Correspondents and mobile banking. They can also become
business correspondents of other banks.
 25% of its branches must be in the unbanked rural area
 The bank can accept utility bills. It cannot form subsidiaries to
undertake non-banking activities
 Distribution of non-risk sharing simple financial products like mutual
fund units and insurance products,etc.
How will Payments Bank earn:
These payments banks are expected to play on volumes as they are likely
to bring into their fold millions of customers who are currently not within the
fold of the formal financial system.
This would lead to large volumes of transactions fetching the payments
banks fees- a charge of even 1 or 2 per cent on a large volume can be
lucrative on normal cash transfers, which will include government’s direct
benefits transfer programs.
Moreover, new payments banks can also earn 7.0% or so, on their
investments in government securities.
The mobile companies will have limited additional costs and thus they may
even offer payment of more than 4% interest, which is the norm among
banks as they pay mere 4% on savings banks.
With no need for any provisions for losses on NPAs for these payment
banks, they may become fitterbanks than existing banks.

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RECENT HAPPENINGS IN PAYMENTS BANK SECTOR
There are some major changes that has taken place in India’s banking
sector in the recent past and the most recent and famous being that of
granting ‘in principle’approval to 11 applicants(out of 42) to set up payment
banks.
There were a series of procedures that the RI had undertaken before
granting the license to these institutions. The applications were screened
for financial soundness, i.e., five-year track record of the promoter and the
key entities of the promoter group. The assessment also included
governance issues with a focus on 'fit and proper' criteria for promoters
based on due diligence reports and/or any other information indicating
deliberate and repeated violations of law & regulations.
LIST OF THE 11 NEW PAYMENTS BANK
 Reliance Industries Limited
 PayTM
 Dilip Shantilal Shanghvi, Telenorand IDFC
 Fino PayTechLimited
 Airtel M Commerce Services Limited
 Aditya Birla Nuvo Limited
 Vodafone m-pesaLimited
 Department of Posts
 Tech Mahindra Limited
 Cholamandalam Distribution Services Limited
 National Securities DepositoryLimited

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THREAT MEASUREMENT FOR THE EXISTING BANKS
It is very difficult to predict how these new payment banks will impact the
existing banks. However, RBI Governor is of the view that these banks
would complementrather than compete;as he pointed out, universal banks
can do everything that a payments bank can, but the reverse is not true.
However, the bank manager of one of the leading private banks in India,
Karur Vyasa Bank, has a different opinion. He said “The new payment
banks are going to change the scenario of banking in India very soon. The
new payment banks are certainly going to becomegreat competitors forthe
present banking sector as they are more technology savvy and will be able
to provide almost all the services at a faster pace and at lower cost. The
profitability of the present banking sector will be affected in the long run.
However as people in India still believe in brick and mortar banking, it won't
pose a great threat to present banking sector”.
Undoubtedly, the new payment banks are likely to increase competition for
Public Sector Banks and Private Sector banks. However, as these new
banks will be catering to the needs of people who have limited funds at
their disposal, Public Sector banks, with much more resources available,
can focus on high net worth clients.
CONCLUSION
Highlighting one important aspectis that the conceptof payments bank has
not been accepted with open arms all around India. There lie deep doubts
in the functioning of these banks and whether they are genuine enough to
fit in the system.
“The players in this domain are not new and are known names in the
industry, hence they will be accepted more freely and without hesitance
than any other technologylaunched recently”, as said by an employee of
PayTM.

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MOBILE WALLET
Another very important aspect of the change in the banking sector is that of
mobile wallets.
WHAT ARE MOBILE WALLETS?
This is a relatively olderconceptas compared to payment banks and has
been in use in India since a little more than 6 years.
Mobile wallets are essentially digital versions of traditional wallets that
someone would carry in their pocket.
While there are many variations of a mobile wallet, usually a mobile wallet-
 Stores your credit or debit card information securely
 They may also store your loyalty cards, coupons,tickets
HOW DID MOBILE WALLETS COME INTO EXISTENCE?
A form of a mobile wallet was introduced by the bank of Punjab in the year
2002 by which a buyer could send an SMS to place an order and in turn
that would be forwarded to the seller by the bank.
However, the most recent and significant one came with the launch of
PayTM in the year 2014 when mobile wallet was launched.
OBJECTIVES OF MOBILE WALLETS
 Increase financial inclusion in the economy- since almost everybody
has a smart phone today but not a bank account, mobile wallets can
increase financial inclusion by easy money storage and transfer.
They give small savings account and provide remittance service
 To give a hassle free experience to users as it is an anytime-
anywhere use service

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TYPES OF MOBILE WALLETS
There are three types of mobile wallets-
 Closed Wallet- A closed wallet is issued by a company to a customer
to for buying goods and services exclusively from that company. E.g.
Flipkart, Snapdeal
 Semi-ClosedWallet- A semi-closed wallet can be used to buy goods
and services at clearly identified merchant locations which have a
specific contract with the issuer to accept the payment instruments.
E.g. PayTM, Citrus
 Open Wallet- An open wallet can be used to buy goods and services
at clearly identified merchant locations which have a specific contract
with the issuer to accept the payment instruments as well as also
provide cash withdrawals at automated teller machines. This kind of
service is only given by banks. E.g. Payzapp, Batua
HOW DOES A MOBILE WALLET WORK?
A customercan utilize all of their stored information simply by opening an
application on their phone, entering in a PIN, password or fingerprint and
then selecting the information they need to access.The app then utilizes
information transfer technology such as Near-Field Communications (NFC)
to interact with mobile wallet ready payment terminals.
REGULATIONS FOR MOBILE WALLETS
 Entities issuing closed prepaid payment systems are not required to take
the authorization from RBI,they just need to inform the RBI
 Entities issuing semiclosed and open prepaid payment systems are
required to take the authorization from RBI
 A company (that which is not a bank or a NBFC) seeking RBI’s
authorization should have a minimum paid-up capital of INR 5 crores and a
minimum positive net worth of INR 1 crore at all times
 Only those banks which have been permitted to provide Mobile Banking
Transactions by the Reserve Bank of India shall be permitted to launch
mobile based pre-paid payment instruments (mobile wallets & mobile
accounts)

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 Non-Banking Financial Companies (NBFCs) and other persons would be
permitted to issue only closed and semi-closedsystem payment
instruments, including mobile phone based pre-paid payment instruments
 All other persons seeking authorization shall have a minimum paid-up
capital of Rs.500 lakh and minimum positive net worth of Rs.100 lakh at all
the times
 Only companies incorporated in India will be eligible to apply
 The maximum value of any pre-paid payment instruments shall not exceed
Rs 50,000/-
BENEFITS OF USING A MOBILE WALLET
 Reduced fraud - mobile wallets are harder to steal or duplicate than cards
or cash
 Decreased paymenttime as information is stored in the application already
 Lower fees - processing fees are expected to decrease overtime relative to
traditional cards
 Better customerloyalty - built through sales and incentives sent directly to
smartphones
LIST OF THE MOBILE WALLETSIN INDIA
 PayTM
 Momoe
 Mobikwik
 PayUMoney
 Citrus
 State Bank Buddy
 CITI Master Pass
 ICICI Pockets
 HDFC Chillr
 Lime
THREAT MEASUREMENT FOR THE EXISTING BANKS
In 2014-15, the number of transactions via mobile wallets stood at 255
million, compared to 172 million banking transactions on mobile phones.
However, in terms of value mobile banking continues to exceed wallets as
it involves fund transfers and other large value transactions as well.

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“The present banking sector is definitely affected by the growth of mobile
wallets. However, the present banking sector should embrace mobile
wallets and can provide mobile wallets to its clients to remain ahead in the
present techno-savvy world”, as said by the manager of Karur Vyasa Bank
(New Delhi).
CONCLUSION
Though some of the players are known names in this industry, there’s still
little skepticism about how exactly will a mobile wallet work. There are
various issues that a normal investor has with mobile wallets and the most
severe one being that even though you have your money lying in a mobile
wallet there is no interest that you get on that.

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SMALL FINANCE BANKS
What are small finance banks
Small finance banks offerbasic banking services,accepting deposits and
lending to unserved and underserved sections including small business
units, small and marginal farmers,micro and small industries, and entities
in the unorganized sector.They are allowed to lend money as well.
Regulations for small finance banks (Financial)
 Seventy-five percentof the credit advanced by small finance banks
will need to go to sectors that are considered part of the so-called
priority sector,which includes agriculture, small enterprises and low-
income earners
 Small finance banks will also have to ensure that 50% of their loan
portfolio constitutes advances of up to Rs.25 lakh
 The minimum paid-up equity capital for small finance banks was set
at Rs.100 crore and the minimum initial contribution from promoters
fixed at 40%
 75% of its Adjusted Net Bank Credit (ANBC) should be advanced to
the priority sectoras categorized by RBI
 Maximum loan size to a single person cannot exceed 10% of total
capital funds; cannot exceed 15% in the case of a group.
 At least 50% of its loans should constitute loans and advances of up
to 25 lakh
 The promoter's minimum initial contribution to the paid-up equity
capital of such small finance bank shall at least be 40% which can be
gradually brought down to 26% within 12 years from the date of
commencementof operations

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Regulations for small finance banks (General)
 Every small finance bank must have the words “small finance bank”
in its name
 They cannot set up subsidiaries to undertake non-banking financial
service activities
 Small banks can undertake financial services like distribution
of mutual fund units, insurance products,pensionproducts,and so
on, but not without prior approval from the RBI.
 A fundamental requirementis that it must have 25% of its branches
set up in unbanked areas
List of the new small finance banks (10 out of 72)
 Ujjivan Financial Services Pvt. Ltd
 Janalakshmi Financial Services Pvt. Ltd
 Equitas Holdings Ltd
 Au Financiers (India) Ltd
 Capital Local Area Bank Ltd
 Disha Microfin Pvt. Ltd
 ESAF Microfinance and Investments Pvt. Ltd
 RGVN (North East) Microfinance Ltd
 Suryoday Micro Finance Pvt. Ltd
 Utkarsh Micro Finance Pvt. Ltd
THREAT MEASUREMENT FOR THE EXISTING BANKS
“Small finance banks are great way to reach people in remote areas and to
provide basic banking services in villages and credit facilities to small
business units, small farmers, etc. The presentbanking sectoris growing at
a faster pace and these small finance banks are helping the present
banking sector in achieving the goal of financial inclusion through various
tie-ups”, as stated by Mr. Pratik Agarwal- Manager(Karur Vyasa Bank)

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CONCLUSION
Concluding everything keeping in mind, there is high acceptance of the
new technology in the western, northern and middle region of India than in
the southern and eastern region.
People are not very sure of the new technology changes over there and
skepticism lies deep beneath while trying something new.
However, owing to the increasing purchasing power of people and the
ability to take risks, these new banking tools would go a long way in
bringing about change in the banking sector.