New Trends In Banks

EXECUTIVE SUMMARY

There has been a tremendous change in the banking sector and these changes include phone

banking, online banking, ATM, bancassurance, mutual funds etc. There was a time when banks

used to perform only the basic functions but today the scenario is not the same. There is an

increasing competition in this field and banks are aiming to offer more and more products and

services to their customers. This change has led to convenience and customers are at ease. This

change is possible because of the trust which the people have in banks.

Indeed technological and regulatory changes have had such an impact on the banking industry that a

good case can be made for saying that they are the most important changes to have occurred in the

industry, apart from ones that are directly due to the changing nature of society itself. The precise

nature of the impact technology has had on the banking industry since the early 1980’s is difficult to

assess, because the intimacy of the relationship between the industry and its technology means that

it is impossible to separate the two. Technology is a much part of the banking industry today as the

ship’s engine is the part of the ship. And, like the ship’s engine, technology drives the whole thing

forward.

New Trends In Banks

BANKS INTRODUCTION

A bank is an institution that provides financial service, particularly taking deposits and extending

credit.

Currently the term bank is generally understood as an institution that holds a banking license.

Banking licenses are granted by bank regulatory authorities and provide rights to conduct the most

fundamental banking services such as accepting deposits and making loans. There are also financial

institutions that provide certain banking services without meeting the legal definition of a bank, a so

called non-banking financial company.

The start of banks – the only banks which appeared earlier: -

• June 2, 1806: The Bank of Calcutta established.

• January 2, 1809: redesignated as Bank of Bengal.

• April 15, 1840: Bank of Bombay established.

• July 1, 1843: Bank of Madras established.

• 1861: Paper Currency Act passed.

• January 27, 1921: all three banks amalgamated to form Imperial Bank of India.

• July 1, 1955: State Bank of India formed; becomes the first Indian bank to be nationalised.

• 1959: State Bank of India (Subsidiary Banks) Act passed, enabling the State Bank of India

to take over eight former State-associated banks as its subsidiaries.

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Banks have a long history, and have influenced economies and politics for centuries.

The word bank is derived from the Italian banca, which is derived from German language and

means bench. The terms bankrupt and "broke" are similarly derived from banca rotta, which refers

to an out-of-business bank, having its bench physically broken. Money lenders in Northern Italy

originally did business in open areas, or big open rooms, with each lender working from his own

bench or table.

Traditionally, a bank generates profits from transaction fees on financial services and from the

interest it charges for lending. In recent history, with historically low interest rates limiting banks'

ability to earn money by lending deposited funds, much of a bank's income is provided by overdraft

fees and riskier investments.

Services typically offered by banks earlier

Although the type of services offered by a bank depends upon the type of bank and the country,

services provided usually include:

Taking deposits from their customers and issuing checking and savings accounts to

individuals and businesses

Extending loans to individuals and businesses

Cashing cheques

Facilitating money transactions such as wire transfers and cashiers checks

Issuing credit cards, ATM, and debit cards

Storing valuables, particularly in a safe deposit box

New Trends In Banks

Trends in banking

India adopted a socialistic model of development with centralized plans for

implementing the objectives of balanced growth. For this purpose, banks were

nationalised to ensure that the flow of credit followed the pattern required for economic

growth.

Nationalisation of banks led to the expansion of the banking network in the

country with the banks recording a multifold growth in the mobilization and deployment

of finance. However, with the growth of the network, there also arose concerns over the

efficacy of such directed credit and the cost of operations in conducting banking in the

public sector.

In line with the liberalization of the Indian economy in the 1990s, the financial sector

was also liberalized in order to allow greater competition leading to efficiency in the

banking system.

This has led to developments such as:

- the entry of new private sector banks.

- greater leeway to foreign banks in operating in the country and

- gradual sale of government equity in PSU Banks

(without ceding government control)

Apart from the increasing competition, the banking sector in the country is currently in the throes of

change being impacted by events such as economic recession leading to rising NPAs and problems

of achieving capital adequacy. This has made banks extremely cautious about lending to industry

(especially to the small and medium enterprises) restricting the growth of a number of these

enterprises.

New Trends In Banks

Latest trends in banking

Banks today have moved towards universal banking. Banks today include investment services in

addition to services related to savings and loans.

1.Universal Banking

The concept of universal banking refers to the provision of most or all financial services under a

single, largely unified banking structure. Financial activities may include:

Intermediation

Trading of financial instruments, foreign exchange, and their derivatives

Underwriting new debt and equity issues

Brokerage

Corporate advisory services, including mergers and acquisitions advice

Investment management

Insurance

Holding equity of non-financial firms in the bank’s portfolio.

Universal banking can be divided in four parts:

1) The fully integrated universal bank: supplies the complete range of financial services from

one institutional entity.

2) The partially integrated financial conglomerate: able to supply the services listed above, but

several of these (for example, mortgage banking, leasing, and insurance) are provided

through wholly –owned or partially owned subsidiaries.

3) The bank subsidiary structure: the bank focuses essentially on commercial banking and

other functions, including investment banking and insurance, which are carried out through

legally separate subsidiaries of the bank.

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4) The bank holding company structure: a financial holding company owns both banking (and

in some countries, non banking) subsidiaries that are legally separate and individually

capitalized, in so far as financial activities other than “banking” are permitted by law. The

holding company often owns non-financial firms, or the holding company itself may be an

industrial concern.

Universal Banking includes not only services related to savings and loans but also investments.

However in practice the term 'universal banks' refers to those banks that offer a wide range of

financial services, beyond commercial banking and investment banking, insurance etc. Universal

banking is a combination of commercial banking, investment banking and various other activities

including insurance. If specialized banking is the one end universal banking is the other. This is

most common in European countries.

Universal banking has some advantages as well as disadvantages. The main advantage of universal

banking is that it results in greater economic efficiency in the form of lower cost, higher output and

better products. However larger the banks, the greater the effects of their failure on the system. Also

there is the fear that such institutions, by virtue of their sheer size, would gain monopoly power in

the market, which can have significant undesirable consequences for economic efficiency.

Universal banking in India

In India Development financial institutions (DFIs) and refinancing institutions (RFIs) were meeting

specific sectoral needs and also providing long-term resources at concessional terms, while the

commercial banks in general, by and large, confined themselves to the core banking functions of

accepting deposits and providing working capital finance to industry, trade and agriculture.

Consequent to the liberalisation and deregulation of financial sector, there has been blurring of

distinction between the commercial banking and investment banking.

Reserve Bank of India constituted on December 8, 1997, a Working Group under the Chairmanship

of Shri S.H. Khan to bring about greater clarity in the respective roles of banks and financial

institutions for greater harmonization of facilities and obligations. Also report of the Committee on

Banking Sector Reforms or Narasimham Committee (NC) has major bearing on the issues

New Trends In Banks

considered by the Khan Working Group.

The issue of universal banking resurfaced in Year 2000, when ICICI gave a presentation to RBI to

discuss the time frame and possible options for transforming itself into an universal bank. Reserve

Bank of India also spelt out to Parliamentary Standing Committee on Finance, its proposed policy

for universal banking, including a case-by-case approach towards allowing domestic financial

institutions to become universal banks.

Now RBI has asked FIs, which are interested to convert itself into a universal bank, to submit their

plans for transition to a universal bank for consideration and further discussions. FIs need to

formulate a road map for the transition path and strategy for smooth conversion into an universal

bank over a specified time frame. The plan should specifically provide for full compliance with

prudential norms as applicable to banks over the proposed period.

2.Electronic banking

In the wake of recent developments in information and communication technologies, majority of

banking operations have been computerized by most of the commercial banks, both in the private

and the public sectors especially in the last ten years and the process s still on for extension and

upgradation of computerization of banks in India. The computerization is done for front-office

operations involving interface with customers as well as back office operations involving internal

house keeping (accounting and books balancing), external accounting and settlement with other

branches and banks/institutions. Electronic banking provides a bouquet of new channels like

internet banking, telephone banking, ATM banking – which are different from the traditional ‘brick

and mortar’ branch banking and which have made possible ‘anywhere and anytime banking’ and

contributed to speed, accuracy and confidentiality of customers’ transactions while enhancing

customers convenience. Funds transfer; cheques clearing and collection of bills of exchange are also

done electronically with accuracy, speed and safety. Internal house keeping is done accurately and

much faster through programmed packages/software at the branch and also at centralized platforms

involving several branches of a region or zone.

3.Globalization of banking

New Trends In Banks

In addition to universal banking and electronic banking, globalization has emerged as a prime

mover in the Indian banking system. This has come about as a result of the policy of liberalization

and opening up of banking and other sectors pursued after 1991 in India. Foreign banks that wish to

set up their offices/branches in India have been granted licenses by RBI on liberal and on reciprocal

basis. Their business in India has increased manifold, due to scores of Multinational Corporations

setting up their manufacturing/trading bases in India and also due to India’s increased foreign trade.

Similarly, Indian banks are also opening their offices/branches abroad, particularly in countries

whose banks have opened offices in India.

Banks have now changed their approach towards technology, products and the services offered by them.

Technology development

Banks have started using the latest technology to keep up with the competition. The advancement in

the technology has helped the banks to reduce the workload. There are so many activities, which are

taken over by machines. Employees are no more loaded with paper work.

With the advancement of technology and the birth of competition, banks are in the race of

becoming the best in the country. With an eye upon customer satisfaction policy they are providing

best of the best services with the minimum hazards.

New Trends In Banks

Banks like ABN AMRO introduced banking with a coffee. It made a tie-up with one of the best

coffee bar in the country, Barista and remained open till late evening for customers with a setup of a

coffee bar in the premises.

Few banks have introduced world ATM card to make travelers across the globe more safe and

secure. What else. Internet and Phone Banking is the call of the day for banks.

Products and services

1.PHONE BANKING

Banking now a days is a phone call away.

Pick up the phone to access a host of Bank services, day or night. You can pay bills and transfer

funds and buy and sell open-end mutual funds.

2.ONLINE BANKING

Online banking (or Internet banking) is a term used for performing transactions, payments etc. over

the Internet through a bank, credit union or building society's secure website. This allows customers

to do their banking outside of bank hours and from anywhere where Internet access is available. In

most cases a web browser such as Internet Explorer or Mozilla Firefox is utilized and any normal

Internet connection is suitable. No special software or hardware is usually needed.

Features

Online banking usually offers such features as:

• Bank statements, with the possibility to import data in a personal finance program such

as Quicken or Microsoft Money

• Electronic bill payment

• Funds transfer between a customer's own checking and savings accounts, or to another

customer's account

• Investment purchase or sale

• Loan applications and transactions, such as repayments

New Trends In Banks

• Account aggregation to allow the customers to monitor all of their accounts in one place

whether they are with their main bank or with other institutions.

There are a growing number of banks that operate exclusively online. Because these online banks

have low costs compared to traditional banks they can offer high interest rates.

Security

Protection through single password authentication, as is the case in most secure Internet shopping

sites, is not considered secure enough for personal online banking applications in some countries.

Online banking user interfaces are secure sites (generally employing the https protocol) and traffic

of all information - including the password - is encrypted, making it next to impossible for a third

party to obtain or modify information after it is sent. However, encryption alone does not rule out

the possibility of hackers gaining access to vulnerable home PCs and intercepting the password as it

is typed in (key logging). There is also the danger of password cracking and physical theft of

passwords written down by careless users.

Many online banking services therefore impose a second layer of security. Strategies vary, but a

common method is the use of transaction numbers, or TANs, which are essentially single use

passwords. Another strategy is the use of two passwords, only random parts of which are entered at

the start of every online banking session. This is however slightly less secure than the TAN

alternative and more inconvenient for the user. A third option, used in many European countries and

currently being trailed in the UK is providing customers with security token devices capable of

generating single use passwords unique to the customer's token (this is called two-factor

authentication or 2FA). Another option is using digital certificates, which digitally sign or

authenticate the transactions, by linking them to the physical device (e.g. computer, mobile phone,

etc). While most online banking in the United States still uses single password protection, the FDIC

has issued regulations requiring that banks implement more secure authentication mechanisms by

the end of the year 2006.

Banks in many European countries (including the Scandinavian countries, The Netherlands, Austria

and Belgium) are offering online banking for e-commerce payments directly from customer to

merchants.

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Fraud

Some customers avoid online banking, as they perceive it as being too vulnerable to fraud. The

security measures employed by most banks are never 100% safe, but in practice the number of

fraud victims due to online banking is very small. Indeed, conventional banking practices may be

more prone to abuse by fraudsters than online banking. Credit card fraud, signature forgery and

identity theft are far more widespread "offline" crimes than malicious hacking. Bank transactions

are generally traceable and criminal penalties for bank fraud are high. Online banking can be more

insecure if users are careless, gullible or computer illiterate.

3.ATM

New Trends In Banks

An automated teller machine or automatic teller machine (ATM) (also called cash machine,

cashpoint, ATM Scrip to Cash machine, "hole in the wall", "bank machine" or "ABM", "autoteller"

or guichet) is an electronic computerized telecommunications device that allows a bank's customers

to directly use a secure method of communication to access their bank accounts, order or make cash

withdrawals and check their account balances without the need for a human bank teller (or cashier

in the UK). Some ATMs allow withdrawals funded by clerical staff in retail merchant locations.

The clerical staff are not considered bank tellers. Many ATMs also allow people to deposit cash or

cheques, transfer money between their bank accounts, top up their mobile phones' pre-paid accounts

or even buy postage stamps.

The ATM industry is an evolving one which has seen radical and business-changing events occur

frequently in its first three decades. Here's our attempt to look into the crystal ball of ATMs of the

future, with the help of some of the most forward-thinking minds involved in ATMs.

4.Credit cards

A credit card system is a type of retail transaction settlement and credit system, named after the

small plastic card issued to users of the system. A credit card is different from a debit card in which,

during every transaction, the money from the users's account is removed. But in case of credit card,

issuer lends money to the consumer (or the user). It is also different from a charge card (though this

name is sometimes used by the public to describe credit cards), that require the balance to be paid in

full each month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost

of having interest charged.

5.Debit cards

A debit card is a card which physically resembles a credit card, and, like a credit card, is used as an

alternative to cash when making purchases. However, when purchases are made with a debit card,

the funds are withdrawn directly from the purchaser's current/checking or savings account at a bank

or credit union.

6. Cheque Cards

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It is a card given to the customer by the bank that he must show when writes a cheque which

promises that a bank will pay out the money written on the cheque. Under ‘cheque cards ‘system,

the card holder is given a card and a cheque book. He has to use the cheques, while purchases are

made and the trader gets guaranteed payment. The customer does not get free credit, he has to keep

sufficient balance in his account or the bank will provide overdraft upto a specified limit, of course

on interest payment basis.

7.Charge Cards

A small usually plastic provided by an organization with which one may buy goods from

various shops, etc. The full amount owed must then be paid on demand. in credit cards , the card

holders get credit or loan for payment of periodical bills when sufficient balance is not available

in their accounts . In a charge card such credit facility is not available .the periodical bill amount is

paid off by charging it to customers’ account. A fee is also payable by the card holder to the card

issuing institution.

8.Smart Cards

With the use of credit cards, we may avail of credit facility on our purchase of goods or services

from approved sales outlets. A smart card enables the cardholder to perform various other banking

functions apart from credit purchases. For an example, with, smart cards, we can draw cash from

ATMs; we can verify entries in our accounts, etc. This is possible because the card has an integrated

circuit with microprocessor chip embedded in the card for identification purposes. The card can also

perform calculations and maintain records. The credit card customers are typically extended an

unsecured credit for at least 30 days. Beyond this period, the bank charges interest on outstanding

bills. However, some cardholders may prefer to pay off their dues before the free credit period.

Such cardholders are called convenience users.

9.BILL PAYMENTS

Save time and money with payment services offered by banks

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It's easy to pay your bills with their help. Some banks have agreements with over 600 companies for

payment services. Payments can be made easily and conveniently over the internet, on the phone, at

any branch or by using an ATM.

What can you pay through a Bank?

1.Bills - access nearly 600 companies with their services.

2.Utilities - an easy way to manage household expenses. 3.Income Tax - pay income tax through a Bank's ATM network.

How do you pay?

Invoices from more than 100 companies can be paid by internet banking. Payments can also be

scheduled for future dates.

At the branch - bills can be paid at the branch counter service or you can take advantage of the

convenient Express Deposit Box service kept by some banks.

Over the phone - just call the Phone Banking Center.

ATM bill payment - all you need to do is select "other services" on the machines and have your

bills handy.

10.INVESTMENTS

Mutual funds

If you want attractive returns and are prepared to take a higher risk - one alternative is to invest in

mutual funds. The banks give you access to the funds 24 hours a day with ATMs and Phone service

and when you choose to sell - you'll get your money the next day.

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Mutual funds can invest in many different kinds of securities. The most common are cash, stock,

and bonds, but there are hundreds of sub-categories. Stock funds, for instance, can invest primarily

in the shares of a particular industry, such as technology or utilities. These are known as sector

funds. Bond funds can vary according to risk (high yield or junk bonds, investment-grade corporate

bonds), type of issuers (government agencies, corporations, or municipalities), or maturity of the

bonds (short or long term). Both stock and bond funds can invest in primarily US securities

(domestic funds), both US and foreign securities (global funds), or primarily foreign securities

(international funds).

Most mutual funds' investment portfolios are continually adjusted under the supervision of a

professional manager, who forecasts the future performance of investments appropriate for the fund

and chooses the ones which he or she believes will most closely match the fund's stated investment

objective. A mutual fund is administered through a parent management company, which may hire

or fire fund managers.

Mutual funds are subject to a special set of regulatory, accounting, and tax rules. Unlike most other

types of business entities, they are not taxed on their income as long as they distribute substantially

all of it to their shareholders. Also, the type of income they earn is often unchanged as it passes

through to the shareholders. Mutual fund distributions of tax-free municipal bond income are also

tax-free to the shareholder. Taxable distributions can either be ordinary income or capital gains,

depending on how the fund earned it.

Investing in Bonds

Government bonds and Corporate debentures provide a regular and reliable source of income and

it's easy to invest through Banks. You can buy and sell government bonds or corporate debentures

through branches.

A government bond is a bond issued by a national government denominated in the country's own

currency. Bonds issued by national governments in foreign currencies are normally referred to as

sovereign bonds. Government bonds are usually referred to as risk-free bonds, because the

government can raise taxes or simply print more money to redeem the bond at maturity.

A corporate debenture is a long-term debt instrument used by governments to obtain funds.

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11.UNDERWRITER

Underwriting refers to the process that a large financial service provider (bank, insurer, investment

house) uses to assess the process of providing access to their product like providing equity capital,

insurance or credit to a customer.

In banking, underwriting is the detailed credit analysis preceding the granting

of a loan, based on credit information furnished by the borrower, such as

employment history, salary, and financial statements; publicly available

information, such as the borrower's credit history, which is detailed in a credit

report; and the lender's evaluation of the borrower's credit needs and ability to

pay. Underwriting can also refer to the purchase of corporate bonds,

commercial paper, Government securities, municipal general obligation

bonds by a commercial bank or dealer bank for its own account, or for resale

to investors. Bank underwriting of corporate securities is carried out through

separate holding company affiliates, called securities affiliates, or Section 20

affiliates.

Guarantee the sale of stock and bond issues, trade for their own accounts,

make markets, and advise corporations on capital markets activities such as

mergers and acquisitions.

12.PROVIDING CAPITAL TO FIRMS

Merchant banks were traditionally banks which engaged in trade financing.

The modern definition, however, refers to banks which provide capital to firms

in the form of shares rather than loans. Unlike Venture capital firms, they tend

not to invest in new companies.

13.BANCASSURANCE

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Bancassurance is the term used to describe the sale of insurance products

in a bank. The word is a combination of "banque or bank" and "assurance"

signifying that both banking and insurance is provided by the same corporate

entity. The usage of the word picked up as banks and insurance companies

merged and banks sought to provide insurance, especially in markets that

have been liberalised recently. It is a controversial idea, and many feel it

gives banks too great a control over the financial industry.

“ Bancassurance” your Trusted Service- insurance provided by banks through their tie ups with insurance companies.

Bancassurance is the term used to describe the sale of insurance products

in a bank. The word is a combination of "banque or bank" and "assurance"

signifying that both banking and insurance is provided by the same corporate

entity. The usage of the word picked up as banks and insurance companies

merged and banks sought to provide insurance, especially in markets that

have been liberalised recently. It is a controversial idea, and many feel it

gives banks too great a control over the financial industry.

Banks gives you peace of mind with Bancassurance. Receive coverage and

save money at the same time.

You can choose the right option which benefits you the most.

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Life Insurance Policies

They are life insurance policies which give your family a financial stability.

They provide both protection from insurance policies and great savings plan

at the same time.

Life insurance policies play a major role for investments.

14.Currency Exchange Services

Great rates, great servicesA customer can now buy or sell notes, travelers’ cheques and drafts in all

major currencies at selected branches. Changing currency is fast and easy

using the currency booths and currency exchange machines.

The banks today have competitive rates with efficient service.

15.Online Government Tax Payment

An online government tax payment and filing service is available seven

days a week, 24 hours a day, using a financial institution's Internet site. It

enables participating financial institution customers to electronically submit

RST return cards and payments via the Internet. This service is currently

offered by many financial institutions to customers who have an account

with them.

Benefits of Online Tax Payments

Convenience and Reliability - available 24 hours/day and 7 days/week.

Avoid late payment of taxes by post-dating your payments.

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Less paperwork - no cheques or remittance forms required.

16.Trust Services

A legal entity that can hold and manage assets for one or more

beneficiaries over time.

A bank can act as an agent for the trustee to invest funds according to

the directions of the trustee.

A bank can handle employee benefit programs, personal trusts and

estates, and corporate trusts. Employee benefit programs include profit

sharing plans, defined benefit plans, and defined contribution plans.

17.INTERNATIONAL BANKING

Indian banks have extended their activities beyond the national boundaries.

The extension may take place in the form of borrowings as well as lending

and it may take place through official or private or commercial channel. In the

process of internationalization, the domestic financial institutions participate in

foreign financial markets and the foreign institutions participate in domestic

market to a significant extent. In other words, the domestic and foreign

financial markets get integrated and interlinked and the supply and demand

curves of funds assume a different character.

In India ,foreign exchange dealings of banks are 6 to 7 times, sometimes, 50

times, their merchant base. Day to day foreign exchange transaction in India

are handled by scheduled commercial banks who are authorized and

licensed dealers in foreign exchange.

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International lending

Syndicated loans

Large loans that enable borrowers to obtain large amounts of funds

and lenders can diversify their credit risk. Lead bank can earn fee income for

management services.

Letters of credit

Import letters of credit are issued by a bank in favor of a firm in most

cases. An export letter of credit is issued by a foreign bank to a firm in the

U.S.

Letters of credit

The letter of credit is a document from a bank that says it will pay the exporter

when the conditions in the letter are met.

In effect, the bank’s credit is substituted for the importer.

The issuing bank pays the seller through the advising (paying) bank.

The importer pays the issuing bank a fee for its services.

Foreign exchange markets

Interbank market of money center banks and major foreign banks.

Foreign exchange brokers facilitate currency trading.

Credit risk associated with the counterparty (bank or broker) failing to

meet its obligations.

Changes in normal sevices

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1.OPENING ACCOUNTS

A savings, current or fixed account now opens up a world of new products

and services - giving the customers access to your funds 24 hours a day, 7

days a week.

With a savings or current account in place you can choose a ATM or Debit

Card for everyday access to your funds.

2.LOANS

No matter what you need, there is a loan or a line of credit to give you the

borrowing power you want.

Home Loans?

You do not need to worry about the huge investments needed to purchase a

new home.

Personal Loans?

Today banks also give personal loans and you can use this to renew your

furniture, finance an education or buy a new car.

Mortgage Work?

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You can be an informed borrower and find out how your mortgage works.

What are the benefits and what are the interest rates.

3.BRANCHES

You don’t have to travel far to enjoy a Bank’s fast and efficient service. With

the most extensive branch networks, officers are always close by to offer you

banking products and services that match your needs.

The branches of a bank are connected to their computer mainframe via our

state-of-the-art electronic network. This means a customer gets consistent

service with fast and efficient transactions at any branch.

Certainly, it is true that, in general, customers use bank branches less and

less. Many customers visit their bank only once a month or, even much less,

while some hardly bother going into the branch at all. Yet, while the demand

for branches is certainly reducing all the time, this does not mean that branch

banking is necessarily fated to disappear entirely, any more than the

increasing proliferation of mobile telephones mean that landline telephone will

disappear completely. It is possible though not certain that, just as there will

always be people who need to use telephone (apart from anything else,

people may have lost or mislaid their mobile telephones or may have left

them at home), there will always be people who need to visit their branch.

Furthermore, branches remain comparatively popular to organizations with

corporate accounts (including small businesses), mainly because businesses

like to be able to discuss things in person with a banker in a branch. Also,

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some older people (including some older, wealthier people) like to be able to

‘pop in’ to their branch. There is a need for some good research about why

this is: if it is simply that older people are less adept with new style technology

than younger ones, then, of course, in time, by a natural process, the need for

branches will start to erode. However, if, as may well be the case, older

people inherently feel more comfortable with being able to do their banking at

a physical branch, this may limit the extent to which banks can afford to get

rid of branches entirely, especially branches that cater to wealthy customers.

A NEW SECURITY DEVICESome banks have started with a new security device. This device brings in

confidence in a customers mind while using internet banking.

How does the Security Device work? To log on to your account on Internet

Banking, you need to enter your existing username and password as usual,

followed by the unique security code generated by the Security Device.

The Security Device provides you an enhanced level of security as access to

your Internet Banking account is now based on a 2-step authentication

process:

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Since the Security Device is in your possession and the username and

password is known only to you, only you can access your account online.

Simple to use and easy to carry, the Security Device ensures you can access

your financial information online, in a completely secure environment.

The Modern Banking System(Where does money come from?)

"If the debt which the banking companies owe be a blessing to anybody, it is

to themselves alone, who are realizing a solid interest of eight or ten per cent

on it. As to the public, these companies have banished all our gold and silver

medium, which, before their institution, we had without interest, which never

could have perished in our hands, and would have been our salvation now in

the hour of war; instead of which they have given us two hundred million of

froth and bubble, on which we are to pay them heavy interest, until it shall

vanish into air... We are warranted, then, in affirming that this parody on the

principle of 'a public debt being a public blessing,' and its mutation into the

blessing of private instead of public debts, is as ridiculous as the original

principle itself. In both cases, the truth is, that capital may be produced by

industry, and accumulated by economy; but jugglers only will propose to

create it by legerdemain tricks with paper."

New Trends In Banks

Bank Systems & TechnologySeptember 20, 2004- an article

The nine-year history of Web-based online banking in the U.S. has witnessed

a number of innovations, from Web-based check imaging to inter-FI transfers

and beyond. But a number of these innovations first arrived in Web banking

earlier than most realize. A gap persists between the introduction of Web

banking features at one bank and the widespread awareness and adoption

among all banks. This gap points to the broader market and consumer trends.

Inter-FI transfers -- the ability for a customer to transfer money to an account

that the customer holds at another institution -- have been a hot topic at large

banks for over a year. But inter-FI transfers have been a staple of many

community banking offerings for more than eight years. The underlying

technology is used routinely in offline transactions, so it is not surprising that

inter-FI transfers appeared so early in the development of Web banking. But

most community and regional banks still don-t offer the feature. Moreover,

there is a gap of at least seven years between its first appearance and the

August 2003 launch of inter-FI transfers at Citibank Online -- its first

appearance in a top 10 retail bank-s consumer offering. What explains this

slow rollout?

One hindrance was the argument offered by a number of traditional banks

that by launching inter-FI transfers, the bank would lose funds, as customers

New Trends In Banks

will move money to other institutions that pay higher interest. This argument,

dubious at first, has over time become essentially moot. Over the last several

years, online brokers and Internet-centric banks such as E*Trade Bank

launched inter-FI transfers. These are institutions whose customers faced the

greatest challenges in depositing money and institutions that are offering

seductive returns on deposits and investments. The customer who wants to

transfer money to an account at one of these institutions has, by construction,

access to inter-FI transfers at these institutions. The bank isn’t stopping the

flow of funds by not offering the service itself.

Another gap persisted between the launch of Web-based check imaging for

consumers at some Internet-centric and community banks and the wider

adoption of this service, especially among large banks. Web-based check

imaging for retail customers first arrived in 1995. But, when the legacy

Wachovia bank, once the 15th largest retail bank, launched check imaging in

2000, it was the largest retail bank at that point to launch check imaging.

Now, check imaging is the rule rather than the exception. All medium-size

and large banks that are currently the exception now are launching check

imaging themselves.

A number of forces combined to take check imaging from a feature confined

for years to Internet-centric banks and select community banks to a necessity

for large banks. First, digital check image capture is required for Web-based

check imaging to be feasible, but many banks did not capture digital images

when Web banking first rolled out. Second, the proportion of customers using

Web banking was small enough at a number of banks that the benefits were

not worth the cost of systems re-engineering needed to bring images to the

Web.

With the natural progression of systems and the growth in the number of

online bankers, check imaging became a popular initiative. The advent of

Check 21 legislation encouraged these developments, but before the law was

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even enacted, let alone in effect, more than half of the top 10 banks offered

consumers online check imaging.

The rise in 2000 of account aggregation and its fall in later years, and the

failure of wireless banking to catch on, confirmed a truth of Web banking:

There is little to no first mover advantage in online banking, even for the

largest banks. Instead, it is often useful to wait for another bank to prove out a

speculative idea, such as the notion that customers will adopt wireless

banking when they have yet to adopt other wireless services.

But the debunking of the first-mover myth would be the wrong lesson to learn

from the slow rollout of inter-FI transfers and check imaging. Banks that

offered check imaging early on received uniformly strong, positive feedback

from customers on the feature. With inter-FI transfers, the benefits to Internet-

centric banks such as E*Trade Bank is clear, but even community banks that

rolled out inter-FI transfers tended to stick with it in the early years, unlike

wireless, aggregation, news tickers and third-party brokerage partnerships.

Yet, other banks were very slow to adopt either service.

Rather, the lesson is that the different technologies, customer bases and

business goals of two banks can result in an innovation that makes sense for

one bank long before it makes sense for another bank. As your banks

systems, customers and goals change, old ideas make new sense. The next

enhancement you should consider for your Web banking offering may not be

the one that all the other banks are considering right now, but an earlier

innovation that you should now reconsider.

Top ten banking groups in the world ranked by assets

Figures in U.S. dollars, and as at end-2004

1. UBS — 1,533 billion

2. Citigroup — 1,484 billion

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3. Mizuho Financial Group — 1,296 billion

4. HSBC Holdings — 1,277 billion

5. Credit Agricole — 1,243 billion

6. BNP Paribas — 1,234 billion

7. JPMorgan Chase & Co. — 1,157 billion

8. Deutsche Bank — 1,144 billion

9. Royal Bank of Scotland — 1,119 billion

10. Bank of America — 1,110 billion

Top ten bank holding companies in the world ranked by profit

Figures in U.S. dollars, and as 2003

1. Citigroup — 21 billion

2. Bank of America — 15 billion

3. HSBC — 10 billion

4. Royal Bank of Scotland — 8 billion

5. Wells Fargo — 7 billion

6. JP Morgan Chase — 7 billion

7. UBS AG — 6 billion

8. Wachovia — 5 billion

9. Morgan Stanley — 5 billion

10. Merrill Lynch — 4 billion

Top ten banks in the world ranked by market capitalisationFigures in U.S. dollars, and as at 26 July 2006

1. Citigroup — 235 billion

2. Bank of America — 230 billion

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3. HSBC — 200 billion

4. JPMorgan Chase — 150 billion

5. Mitsubishi UFJ — 145 billion

6. Wells Fargo — 120 billion

7. UBS — 110 billion

8. Royal Bank of Scotland — 100 billion

9. China Construction Bank — 100 billion

10. Mizuho — 95 billion

Future of banks

Banks will have to change dramatically from today's traditional institutions if

they want to survive in the networked world. They are currently introducing

Internet banking to try to keep customers, but the move to digital electronic

cash, held perhaps by the customer or an independent third party, will mean

that the cash can be quite separate from the transaction agent. Cash does

not need to be stored in a bank if records in secured databases anywhere

can be digitally signed and authenticated. The customer may hold it on his

own computer, or in a cyberspace vault elsewhere. With digital signatures

and high network security, advanced software will put the customer firmly in

control with access to any facility or service anywhere.

In fact, no one need hold cash at all, or even move it around. Cash is just bits

today, already electronic records. In the future, it will be an increasingly

blurred entity, mixing credit, reputation, information, and simply promises into

exchangeable tokens. Any corporation or reputable individual may easily

capture the bank's role of keeping track of the credit. It is just one service

among many that may leave the bank.

As the world becomes increasingly networked, the customer could thus retain

complete control of the cash and its use, and could buy banking services on a

transaction-by-transaction basis.

New Trends In Banks

The key is flexibility; none of these services need be fixed any more. Banks

will not compete on overall package, but on every aspect of service. Worse

still (for the banks), some of their competitors will be just freeware agents.

The whole of the finance industry will fragment. The banks that survive will

almost by definition be very adaptable. Services will continue and be added

to, but not by the rigid structures of today. Surviving banks should be able to

compete for a share of the future market as well as anyone. They certainly

have a head start in many of the required skills, and have the advantage of

customer lethargy when it comes to changing to potentially better suppliers.

Many of their customers will still value tradition and will not wish to use the

better and cheaper facilities available on the network. So as always, it looks

like there will be a balance.

Firstly, with large numbers of customers moving to the network for their

banking services, banks must either cater for this market or become a niche

operator, perhaps specializing in tradition, human service and even nostalgia.

Most banks however will adapt well to network existence and will either be

entirely network based, or maintain a high street presence to complement

their network presence.

Any serious discussion of the future of the retail banking industry eventually

raises a basic question: will future customers still need banks? The answer, it

turns out, depends on banks themselves. With technology and non-bank

businesses providing new options for safeguarding and managing their

finances, customers will continue to depend on banks only as long as banks

can provide service and value that cannot be found anywhere else.

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There are already signs that customers are questioning the ability of banks to

look out for their financial well-being. As a result, banks have begun to rethink

what, where and how they serve an increasingly informed and demanding

customer base. At the same time, a confluence of industry developments,

including consolidation, regulation, industry specialization, changing

workforce needs and new technologies are putting additional pressure on

banks’ operating models and raising questions about traditional strategies for

growth and value creation.

So, what will the future look like? How will banks continue to grow revenues

and remain profitable? What will it take to create and maintain advantage in

this highly competitive industry? The future will require superior efficiency and

operational excellence from all banks, while industry leadership will be

attained by those institutions most adept at harnessing product, service and

process innovation to anticipate and meet customer needs. Ultimately, banks

will have to focus on their core strengths—those activities in which they excel

—and partner with best-in-class specialists for everything else: achieving

more by doing less.

Through market research and interviews with industry executives, the IBM

Institute for Business Value identified five major industry trends that will

impact the retail banking industry:

• Customers redefine the rules of the game

• Universal banks and ultra-focused niche players thrive

• Changing workforce composition dictates new approaches

• Regulatory burdens intensify

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• Technology improves inexorably.

In this emerging environment, innovation will take many forms, including

advances in products and services, markets, operational processes,

customer intimacy, and new channel and diversification strategies. But

innovation will not be possible, nor will it have the desired impact, unless

banks create the requisite conditions for innovation development. There are

four strategic imperatives banks must follow to cultivate innovation and

position themselves for sustainable growth:

• Focus on core strengths and partner for everything else

• Optimize the potential of each customer relationship

• Harness the potential of the workforce through effective performance management

• Recognize that technology will be a critical element of success.

By 2015, the results of two prominent competitive forces will be clearly visible:

a "middle squeeze" of traditional banks, and the emergence of far greater

numbers of industry specialists and non-bank banks—each with distinct

competitive growth strategies.

Winning through specialization

As competitive forces intensify, it is clear that banks will have to become far

more responsive to changing market conditions and emerging competitive

threats, not to mention a more empowered customer base. They will need to

take dramatic steps to redefine their business models to assemble the best

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capabilities in the market – becoming specialized enterprises that focus on

critical, differentiating business components within the firm. Non-core tasks

should be distributed to external specialists that can provide functionality in

open, flexible ways. As the open networked economy allows banks to strike

alliances quickly with nimble service providers, capital will be freed up for

ongoing reinvestment in strategic capabilities. Ultimately, banks can benefit

tremendously from the industry paradox: achieving more by doing less

ANNEXURE

1) What makes your Bank different from the other banks in the market?

2) What are the New trends followed by your Bank?

3) How does your Bank keep up to the latest technology? Does the bank have any

tie ups with software companies?

4) What are the new products and services offered by your Bank?

5) How does the bank maintain customer relationship?

6) Explain –your Mutual funds and the improvements made.

7) How does the trading website of your Bank operate?

8) How is the branch managed?

9) Can you give me some general information about this branch?

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REPORT ON BANKS VISITED

THE COSMOS CO-OPERATIVE BANK LTDMALAD (EAST) BRANCH

There are three types of banks:

Co-operative Bank

Nationalized Bank

Privatised Bank

Cosmos Bank is Co-operative Bank. It is 100 year old Pune based branch.It is a Multi-state

Scheduled Bank. Other banks are having centralized solution that they have taken up. This bank

have taken up new trends such as SMS facility, Internet Banking, Phone Banking, etc. This bank is

having a tie-ups with FINACLE COMPANY (INFOSYS) as an software company. There is no

difficulty to any customer. There is customer friendly relationship with every customer.There is no

Mutual Fund. The branch is managed in two shifts. Staff is managed on Saturday and Sunday also.

Total 9 staff are working. Due to modern technology there are no extra staff required.The Branches

are situated at Maharashtra, Andhra Pradesh, Baroda, Gujarat(Ahemadabad), Karnataka, Madhya

Pradesh and Mumbai.The trading websites of this bank is www.cosmosbank.com

Interviewed by person Mr. Mayuresh

(Manager)

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ABHYUDAYA CO-OPERATIVE BANK LTD

MALAD (EAST) BRANCH

Abhyudaya Bank is dealing with small traders. All their branches are in rural areas and interior

areas. This bank is dealing with mass-banking. The new trends followed by this bank are ATM,

RTGS (Real Time Gross Settlement), Franking Machine (since 1 year), NFT (National Fund

Transfer). The RTGS is above 1,00,00 and NFD is below 1,00,000. This bank has started core

banking from Mumbai to Pune. This bank has tie up with ING Vyasa for Insurance. They had

started a new product called Abhyudaya Gold Growth Scheme for fixed deposit on 15th July, 2007

and which was opened till 1 month in which rate of interest was 10.5%. They achieved a good

feedback from the customers and there was a tremendous response from the customers and they had

achieved lots of deposits. This bank has personalized customer relation. They are giving Phone

banking service to any customer for any clearing cheques. They inform the customer at the same

day for clearance. They attend immediately to customers call. Two managers Mr. Jayant Shetty and

Mr.S.S Rane manage the Branch. There are 40 staff members. The branches are at Dadar Branch

(W), Hill Road Branch (Bandra), Kher Nagar Branch (Bandra) and many more. The trading website

of bank to operate is www.abhyudayabank.com

Interviewed by person Mr.JayantShetty

(Senior Manager)

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PUNJAB NATIONAL BANK

MALAD (EAST) BRANCH

This Branch is empowered to render value added services:

Multicity cheques.

Connected with 2600 net worked branches.

Debit card which can be used over 25,000 ATM.

Banking from your home/ office through Internet Banking.

Facility of Inter bank Transfer through RTGS online.

Earning interest on your current account.

Online trading in stock market with Depository services.

Deposit of your taxes online.

Obtaining life / non-life insurance cover.

This Bank is having tie up with INFOSYS. There are 20 staff members working. The trading

website to operate on this bank is www.pnb.co.in

Intervie

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BIBLIOGRAPHY

BOOKS

1) Banking theory and practice – Srivastava.P.K Himalaya publishing house

2) Banking products and services – Indian trust of banking and finance Taxmann publication Pvt. Ltd.

3) Modern Trends in Global Banking Development - Viatcheslav V.C.

4) Banking and financial services in India – Sobti, Renu

5) Recent Trends In Indian Banking – C. M. Choudary

WEBSITES

1) www.google.com

2) www.wikipedia.org

New Trends In Banks