The Saraf Committee was appointed by the RBI in 1994 to recommend ways to modernize the Indian banking system through new technologies. The committee recommended establishing an Electronic Funds Transfer system and electronic clearing services. It also suggested expanding the use of Magnetic Ink Character Recognition and introducing online inter-bank clearing. The recommendations helped modernize Indian banking and introduce online banking services.

1. Saraf committee on Technological Issue
Group members :
Rahul Kumar (11020241094)
Sanjay Kumar (11020241127)
Ankit chawla (11020241037)

2. Introductiom
 The concept of online banking in India was introduced by
the Saraf Committee which was appointed by the then
Governor of the Reserve Bank of India.
 Realizing the important of modern technology the Governor
of the Reserve Bank formed a Committee under the
leadership of Shri W.S.Saraf.
 The committee was appointed with the aim of finding out
the latest issues relating to the use of modern technology in
the Indian banking industry.
 A Saraf Committee was constituted by RBI in 1994 that
recommended the use of:-
Electronic Fund Transfer System (EFT),
Introduction of electronic clearing services and extension of
Magnetic Ink Character Recognition (MICR) beyond
metropolitan
cities and branches.

3. Indian banking system
 The Indian banking industry was well known for its
stability and also extreme stubbornness.
 The introduction of online banking took banking
services in India to new heights.
 The public banks in India were famous for their
resistance change in their style of working and
maintained a routine work culture.
 But after realizing the fact that India was lagging
behind in banking technology as compared to
foreign countries the government introduced
certain latest banking techniques which all the
banks had to follow.

4. Recommendation of Saraf
committee.
 Establishment of an Electronic Funds Transfer
(EFT) system, with the BANKNET communications
network as its carrier.
 Enactment of suitable legislation on the lines of the
Electronic Funds Transfer Act 1978, USA and Data
Protection Act 1984, UK.
 MICR clearing be introduced at all centres with
more than 100 bank branches.
 Priority should be given to centres such as
Ahmedabad, Bangalore, Hyderabad, Pune and
Surat which have relatively large volumes.

5. Recommendation of Saraf
committee.
 Introduction of a Delivery versus Payment (DvP)
system for SGL transactions.
 With settlement on gross basis both for securities
transactions in PDO and funds transactions in
current accounts at DAD.
 Introduction of Electronic Clearing Service Credit
for low value repetitive transactions such as
interest, dividend, salary, pension payments and
an Electronic Debit Clearing for payments to
utility companies.

6. Recommendation of Saraf
committee.
 A uniform size for MICR instruments.
 Geographical expansion of the
BANKNET network with nodes in all
important branches of banks.
 Modifications in COMET software to
enable dial-up connectivity, file
transfer facility, encryption etc.
 Switch over to on-line inter-bank
clearing on a gross basis.

7. Recommendation of Saraf
committee.
 Introduction of 'Clearing Bank' concept
for decentralised cheque processing.
 Truncation of cheques up to the value
of Rs.5,000/-
 Large scale induction of computers
and communication technology in
service branches.
 Optimal usage of SWIFT.

8. Electronic Funds Transfer
System
 Transfer of money from one account to another,
either within a single financial institution or across
multiple institutions, through computer-based
systems.
 One of the most widely-used EFT programs is
Direct Deposit in which payroll is deposited
straight into an employee's bank account.
 EFT refers to any transfer of funds initiated
through an electronic terminal, including credit
card, ATM, Fedwire and point-of-sale (POS)
transactions.
 It is used for both credit transfers, such as payroll

9. Electronic Clearing Service
 It is a mode of electronic funds transfer from one bank
account to another bank account using the services of a
Clearing House.
2 Types of ECS:
ECS (Credit) : ECS (Credit) is used for affording credit to a
large number of beneficiaries by raising a single debit to an
account, such as dividend, interest or salary payment
ECS (Debit). ECS (Debit) is used for raising debits to a
number of accounts of consumers/ account holders for
crediting a particular institution.

10. Working of ECS Credit system
 The ECS users intending to effect payments have
to submit the data in a specified format to one of
the approved clearing houses.
 The clearing house would debit the account of the
ECS user .
 credit the accounts of the recipient banks.

11. ECS (Debit) scheme
 Any ECS user desirous of participating in the scheme has to register with an
approved clearing house.
 He should also collect the mandate forms from the participating destination
account holders, with bank's acknowledgement.
 A copy of the mandate should be available with the drawee bank.
 The ECS user has to submit the data in specified form through the sponsor bank
to the clearing house.
 The clearing house would pass on the debit to the destination account holder
through the clearing system and credit the sponsor bank's account for onward
crediting the ECS user.
 All the unprocessed debits have to be returned to the sponsor bank within the time
frame specified.
 Banks will treat the electronic instructions received through the clearing system on
par with the physical cheques.

12. The advantages to the banks
 Banks handling ECS get freed of paper handling.
 Paper handling also creates lot of pressure on banks as
they have to encode the instruments, present them in
clearing, monitor their return and follow up with the
concerned bank and customers.
 In ECS banks simply get the mandate particulars
relating to their customers. All they need to do is to
match the account particulars like name, a/c number
and debit the accounts.
 Wherever the details do not match, they have to return
it back, as per the procedure.

13. Magnetic Ink Character Recognition, or
MICR
 MICR, is a character recognition technology used primarily by
the banking industry to facilitate the processing of cheques.
 Unlike barcodes or similar technologies, however, MICR
codes can be easily read by humans.

14. Why this change??
 Online banking was already popular in the
developed countries.
 After liberalization modern banking methods had
to be implemented in India.
 Since a number of foreign players started coming
to India online or internet banking had to be
introduced in Indian system of banking.

15. Flexible banking
 Online banking offers the flexibility of banking from
anywhere.
 It is attracting more and more people.
 Gone are days of standing in long queues for
getting a cheque book or depositing cash.
 Internet Banking is actually fast and hassle free, no
wastage of time and no paperwork.
 With the help of internet banking most of the banks
in India have also tuned into a 24/7 service
provider.

16. Online banking does not only benefit the
user but the bank as well
 Banks can increase their base of high networking
clients.
 Online banking also gives banks an edge in the
global banking scenario and gives them the
opportunity to stand alongside the best banks in
the world.
 Many banks in the country today have numerous
overseas clients and it is only because of online
banking that these banks can take care of the
needs of their currents.

17. References
 http://www.rbi.org.in/scripts/PublicationsVie
w.aspx?id=162.
 http://www.preparegk.com.