CHAPTER – I

ROLE OF TECHNOLOGY IN BANKING SECTOR

1.1 Introduction & Meaning

The origin of banking, in the modern era, is traced in Italy The word

bank also seems to have originated from Italy The word bank is

supposed to have been derived from the German language

‘banck’, meaning a mound or heap from which Italians adopted ‘banco’

which means a bench at which the money changers used to change one

kind of money into another and transact their banking business The bank

of Venice, founded in 1157, was the first public banking institution The

bank of Barcelona and the bank of genoa were established in1401 and

1407 respectively Banking is a business like any other business An

indication of the financial position of a business concern may

be obtained by examing its statement of liabilities and assets, called the

‘balance sheet’Technology has brought a complete paradigm shift in the

functioning of banks and delivery of banking services

Gone are the days when every banking transaction required a visit to

the bank branch Today, most of the transactions can be done from the

home and customers need not visit the bank branch for anything

Technology is no longer an enabler, but a business driver The growth

of the internet, mobiles and communication technology has added a

different dimension to banking The information technology (IT) available

today is being leveraged in customer acquisitions, driving automation and

process efficiency, delivering ease and efficiency to customers The increased

penetration and impact on the scale of business can be judged from

metrics such as deposit and credit per account which according to the

RBI data was INR 6,412 and INR 20, 757 in 1992 and INR19, 898

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and INR84, 618 in 2000 — these metrics increased to INR59, 217 and

INR258, 751 in 2009, respectively,approximately thrice the levels in 2000

and 10 times the levels in 1992Many of the IT initiatives of banks

started in the late 1990s or early 2000 with an emphasis on the

adoption of core banking solutions (CBS), automation of branches and

centralization of operations in the CBS Over the last decade, most of

the bank completed the transformation to technology-driven organizations

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Moving from a manual, scale-constrained environment to a global presence

with automated systems and processes, it is difficult to envisage the

adverse scenario, the sector was in the era before the reforms, when a

simple deposit or withdrawal of cash would require a day ATMs, mobile

banking and online bill payments facilities to vendors and utility service

providers have almost obviated the need for customers to visit a branch

Branches are also transforming from operating as transaction processing

points into relationship management hubs

The change has been very productive for banks bringing in an increase

in productivity and operational efficiency to be more competitive Better

risk management due to centralization of information and real time

availability of critical data for decision making With most of the banks

being technology-enabled, the focus is shifting to computerizing regional

rural banks (RRBs) In addition,banks are moving toward decision making

and business intelligence software and trying to optimize the IT

infrastructure createdWith the globalization trends world over it is difficult

for any nation big or small, developed or developing, to remain isolated

from what is happening around For a country like India, which is one

of the most promising emerging markets, such isolation is nearly

impossible More particularly in the area of Information technology, where

India has definitely an edge over its competitors, remaining away or

uniformity of the world trends is untenable Financial sector in general

and banking industry in particular is the largest spender and beneficiary

from information technology This endeavours to relate the international

trends in it with the Indian banking industry The last lot includes

possibly all foreign banks and newly established Private sector banks,

which have fully computerized all the operations With these variations in

the level of information technology in Indian banks, it is useful to take

account of the trends in Information technology internationally as also to

see the comparative position with Indian banks The present article starts

with the banks perception when they get into IT up gradation All the

3

trends in IT sector are then discussed to see their relevance to the

status of Indian banks

1.2.A Evolution Of Banking Technology In India

The usage of information technology (IT), broadly referring to computers

and peripheral equipment, has seen tremendous growth in service industries

in the recent past The most obvious example is perhaps the banking

industry, where through the introduction of IT related products in internet

banking, electronic payments, security investments, information exchanges

(Berger, 2003), banks now can provide more diverse services to customers

with less manpower

1.2.B Phases of Banking Technology in India

Technological innovation in general and information technology (IT)

applications in particular, have had a major effect in banking and finance

Outstanding IT-based innovations are considered and grouped into four

distinct periods: early adoption, specific application, emergence and diffusion

and their periods based on Indian scenarios are

• Early adoption (1960-1980),

• Specific application (1980-1990),

• Emergence (1990-2000) and

• Diffusion (2000-till date)

12.C Technology Based Banking Services and their

characteristics in India

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1. 3 Literature Review

The following studies on technology in banking sector, related directly or

indirectly have been reviewed in this chapter Dr Satish Tanaji Bhosale,

5

Dr BS Sawant, “Technological Developments in Indian Banking Sector”

: This paper talks about the role of banking sector in the development

of Indian Economy So banks need to optionally leverage technology to

increase penetration, improve their productivity and efficiency, deliver cost-

effective products and services, provide faster Efficient and convenient

customer service and thereby, contribute to overall growth and development

of the country It highlights that 62 technology allows transactions to take

place faster and offer unparallel convenience through various delivery

channels This paper also talks about various technologies like MICR,

Cheque transaction system, RTGS, NEFT etc Dr VS Mangnale, Ms JV

Chavan, Mr AD Randive, “ E-CRM in Indian Banking Sector, Golden

Research Thoughts : This paper highlights that technology, people and

customer are the three elements on which hinges the success of banking

in the fast changing economic environment

The ultimate performance of a bank depends upon the satisfaction of its

customers In the emerging competitive and technological driven era, banks

have to strive hard for retaining and enlarging their customer base E-

CRM is the latest buzzword in the corporate sector and is perceived as

one of the effective tool in this direction by banks This paper analyzes

the concept of e-CRM in Indian banks from its various dimensions

covering specifically its need, process, present status and future prospects

KPMG,

“Technology enabled transformation in Banking”, The Economic Times

Banking Technology , Conclave 2011: The article has concluded the in

banking is fast evolving From enabling banking services to driving

transformation in the industry, Information technology holds a promise to

change the face of banking in the next few years New entrants are

looking to leverage their existing strengths in the Indian banking arena

The opportunity available to these entrants through leveraging their

understanding of technologies and markets they operate in, promises

innovative business models with a with a focus on delivering customer

value The pace of change aided by regulatory directions, will push banks

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to direct their strategies to a customer centric focus over the next four

years

1.4.A SIGNIFICANCE OF THE STUDY

The use of Technology in all spheres of financial and banking sectors is

a deep reality The sector has enabled the banking sector to go beyond

its traditional role and is now playing an increasingly important role in

its key areas of operation as securitization, risks preference and liquidity

among others to which IT helps in a big way It has assumed such

high levels that it is no longer possible for banks to manage their IT

implementations on a standalone basis

With technology revolution, banks are increasingly interconnecting their

computer systems not only across branches in a city but also to other

geographic locations which high-speed network infrastructure and setting up

local areas and networks are now exposed to a growing number The

customers have high expectations and have become more demanding now

as they are also more techno-savvy as compared to their counterparts of

the yesteryears They demand instant, anything and anywhere banking

facilities Though Reserve Bank of India has formulated many policies on

adoption of IT in the overall working of the commercial banks in India,

yet there is an urgent need to address the issues involved in this

respect to compete with the banks at international level As such there is

a great need to focus more on this aspect The present study helps a

lot in this regard

1.4.B Objectives Of The Study

The study has following objectives:

● To find out the progress of computerization in all the public sector

banks of India

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● To analyse the banking innovations after computerization of public

sector banks of India

● To analyse the ATM progress in the public sector banks of India

● To identify challenges in the implementation of IT solutions in the

public sector banks of India

1.5 Awards

The process for the Ninth Edition of IDRBT Awards for Excellence in

Banking Technology was initiated in March 2013 with a jury meeting to

discuss and finalize the award categories The jury for this year was

chaired by Mr KV Kamath, Chairman, ICICI Bank and comprised the

following:

Dr R B Barman, Former Executive Director, RBI (Jury Member)

Dr K Ramakrishnan, CEO, IBA (Jury Member)

Prof G Sivakumar, IIT Mumbai (Jury Member

Dr Santanu Paul, CEO, Talent Sprint and Distinguished Fellow,

IDRBT

The awards categories for the previous year were as follows:

1. Use of Technology for Financial Inclusion

2. Use of Technology in Mobile Banking

3. Electronic Payment Systems

4. Customer Management & Business Intelligence Initiatives

5. Use of IT for Business Optimization

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6. Managing IT Risk

7. IT Innovation

8. Best IT Team

9. Best IT enabled Cooperative Bank (one award)

Three new categories were introduced this year – Use of IT for

Business Optimization, IT Innovation and Best IT Team Additionally to

encourage the cooperative banks one award for Best IT enabled cooperative

bank was also introduced During evaluations the jury felt that banks had

not provided substantial nominations for Use of IT for Business

Optimization category and hence decided to drop the category for this year

CHAPTER – II

NEED & IMPORTANCES OF TECHNOLOGY IN

BANKING SECTOR

9

2.1 Introduction

Technology has been a boon to many industries and especially to the

banking industry With the help of technology banks are able to reach

out to more customers and provide better services to them Also, it

helps them function in an organized and secure way As for us (the

customers) we have ATMs, Cash deposit machines, online banking, phone

banking etc which are all fruits of technological advances which have

made our banking experience much easier Imagine having to run to the

bank everytime you wanted to check your balance or make a deposit or

withdrawal

The following points prove the importance of technology in banking

industry:

The Banking sector in India has experienced a rapid transformation Due

to the advent of technology and automation there is a new trend in the

banking system The advancement in technology and introduction of

information technology played a significant role in improving the services

in the industry.

2.2 Computerisation in banking

The process of computerisation marked the beginning of all technological

initiatives in the banking industry Computerisation 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

1

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 Technology has charged the face of the Indian banking

sector through computation, while new private sector banks and foreign

banks have an edge in this regard Among the total number of public

sector bank branches, 978 percent are fully computerized at end – March

2012.

2. 3 Satellite Banking

Satellite banking is also 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 Hence, under the

proposal made by RBI, it would be bearing a part of the leased

rentals for satellite connectivity, if the banks use it for connecting the

north eastern states and the under banked districts

2.4 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

1

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 Public sector banks have also

now entered the race for expansion of ATM networks Development of

ATM networks is not only leveraged for lowering the transaction costs,

but also as an effective marketing channel resource ATM is an electronic

machine, which is operated by the customer himself to make deposits,

withdrawals and other financial transactions ATM is a step in improvement

in customer service ATM facility is available to the customer 24 hours

a day The customer is issued an ATM card

This is a plastic card, which bears the customer’s name This card is

magnetically coded and can be read by this machine Each cardholder is

provided with a secret personal identification number (PIN) When the

customer wants to use the card, he has to insert his plastic card in

the slot of the machine After the card is a recognized by the machine,

the customer enters his personal identification number After establishing the

authentication of the customers, the ATM follows the customer to enter

the amount to be withdrawn by him After processing that transaction and

finding sufficient balances in his account, the output slot of ATM give

the required cash to him When the transaction is completed, the ATM

ejects the customer’s card An automated teller machine is a computerized

device that provides access for financial transaction in a public place The

customer can have access to his bank account to make cash withdrawals

and check balances Apart from these functions ATM facilitates to transfer

money from one account to another and can request for a cheque book

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2.4.A Introduction of Biometrics

Banks across the country have started the process of setting up ATMs

enabled with biometric technology to tap the potential of rural markets A

large proportion of the population in such centers does not adopt

technology as fast as the urban centers due to the large scale illiteracy

Development of biometric technology has made the use of self service

channels like ATMs viable with respect to the illiterate population Though

expensive to install, the scope of biometrics is expanding rapidly It

provides for better security system, by linking credentials verification to

recognition of the face, fingerprints, eyes or voice Some large banks of

the country have taken their first steps towards large scale introduction of

biometric ATMs, especially for rural banking At the industry level,

however, this technology is yet to be adopted; the high costs involved

largely accounting for the delay in adoption

2.4.B Multilingual ATMs

Installation of multilingual ATMs has also entered pilot implementation

stage for many large banks in the country This technological innovation

is also aimed at the rural banking business believed to have large

untapped potential The language diversity of India has proved to be a

major impediment to the active adoption of new technology, restrained by

the lack of knowledge of English

2.4.C Multifunctional ATMs

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Multifunctional ATMs are yet to be introduced by most banks in India,

but have already been recognized as a very effective means to access

other banking services Multifunctional ATMs are equipped to perform other

functions, besides dispensing cash and providing account information Mobile

recharges, ticketing, bill payment, and advertising are relatively new areas

that are being explored via multifunctional ATMs, which have the

potential to become revenue generators for the banks by effecting sales,

besides acting as delivery channels Most of the service additions to the

ATM route require specific approval from the regulator

2.4.D ATM Network Switches

ATM switches are used to connect the ATMs to the accounting platforms

of the respective banks In order to connect the ATM networks of

different banks, apex level switches are required that connect the various

switches of individual banks Through this technology, ATM cards of one

bank can be used at the ATMs of other banks, facilitating better

customer convenience Under the current mechanism, banks owning the

ATM charge a fee for allowing the customers of some other bank to

access its ATMAmong the various ATM network switches are CashTree,

BANCS, Cashnet Mitr and National Financial Switch Most ATM switches

are also linked to Visa or MasterCard gateways In order to reduce the

cost of operation for banks, IDRBT, which administers the National

Financial Switch, has waived the switching fee with effect from December

3, 2007

2.5 Internet Banking

1

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

According to the earlier guidelines, all internet banking services had to

be denominated in local currency, but now, even foreign exchange

services, for the permitted underlying transactions, can be offered through

internet bankingInternet banking can be offered only by banks licensed and

supervised in India, having a physical presence in India Overseas branches

of Indian banks are allowed to undertake internet banking only after

satisfying the host supervisor in addition to the home supervisor Internet

banking means conducting financial transaction through a website

Internet banking is also known as online banking

In Internet banking consumers have an access to their account through a

serverInternet banking is also known as virtual, cyber, net, interactive, or

web banking It provides various services like online trading, online bill

payment, shop online etc Rapid growth in the number of Internet

connection and user has opened up a large market for internet banking

Consumer can operate their bank account from anywhere in the world

from any personal computer at any time with an internet connection

Internet banking enables a customer to do banking transactions through the

bank’s website on the Internet It is a system of accessing accounts and

general information on bank products and services through a computer while

sitting in its office or home This is also called virtual banking It is more

1

or less bringing the bank to your computer In traditional banking one has

to approach the branch in person, to withdraw cash or deposit a cheque or

request a statement of accounts etc but internet banking has changed the

way of banking Now one can operate all these type of transactions on his

computer through website of bank All such transactions are encrypted; using

sophisticated multi-layered security architecture, including firewalls and filters

One can be rest assured that one’s transactions are secure and confidential

2.6 Phone Banking

Customers can now dial up the bank’s designed telephone number and he

by dialling his ID number will be able to get connectivity to bank’s

designated computer The software provided in the machine interactive with

the computer asking him to dial the code number of service required by

him and suitably answers him By using Automatic voice recorder (AVR)

for simple queries and transactions and manned phone terminals for

complicated queries and transactions, the customer can actually do entire

non-cash relating banking on telephone: Anywhere, Anytime Phone banking

are a fairly recent phenomenon for the Indian banking industry There

exist operative guidelines and restrictions on the type and quantum of

transactions that can be undertaken via this route Phone banking channels

function through an Interactive Voice Response System (IVRS) or

telebanking 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) According to the draft guidelines on mobile banking, only banks

which are licensed and supervised in India and have a physical presence

in India re allowed to offer mobile banking services Besides, only rupee

based services can be offered Telephone banking is a service provided by

a financial institution which allows its customers to perform transactions

over the telephoneMost telephone banking use an automated phone

answering system withphone keypad response or voice recognition capability

To guarantee security, the customer must first authenticate through a

numeric or verbal password or through security questions asked by a live

1

representative With the obvious exception of cash withdrawals and deposits,

it offers virtually all the features of an automated 75 teller machine:

account balance information and list of latest transactions,electronic bill

payments, funds transfers between a customer's accounts, etc

Usually, customers can also speak to a live representative located in a

call centre or a branch, although this feature is not guaranteed to be

offered 24/7 In addition to the self-service transactions listed earlier,

telephone banking representatives are usually trained to do what was

traditionally available only at the branch: loan applications, investment

purchases and redemptions, chequebook orders, debit card replacements,

change of address, etc Banks which operate mostly or exclusively by

telephone are known as phone banks.

2.7 MOBILE BANKING

Mobile banking services are to be restricted to bank account and credit

card account holders which are KYC and AMC compliantWith 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 Mobile banking (also known as M-Banking, mbanking,SMS Banking

etc) is a term used for performing balance checks, account transactions,

payments, credit applicationsetc via a mobile device such as a or

Personal Digital Assistant (PDA) Mobile banking facility is an extension

of internet banking

The bank is in association with the cellular service providers offers this

service For this service, mobile phone should either be SMS or WAP

enabled These facilities are available even to those customers with only

credit card accounts with the bank Mobile banking (also known as M-

Banking, mbanking, SMS Banking etc) is a term used for performing

balance checks, account transactions, payments etcvia a mobile device such

as a mobile phone Mobile banking today (2007) is most often performed

1

via SMS or the Mobile Internet but can also use special programs

called clients downloaded to the mobile devices Below Fig explains the

architecture of mobile banking

Mobile banking can offer services such as the following:

Account Information

Mini-statements and checking of account history

Alerts on account activity or passing of set thresholds

Monitoring of term deposits

Access to loan statements

Access to card statements

Mutual funds / equity statements

Insurance policy management

Pension plan management

Status on cheque, stop payment on cheque 73

Ordering check books

Balance checking in the account

Recent transactions

Due date of payment (functionality for stop, change and deleting of

payments)

PIN provision, Change of PIN and reminder over the Internet

Blocking of (lost, stolen) cards

Payments, Deposits, Withdrawals, and Transfers

Domestic and international fund transfers

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Micro-payment handling

Mobile recharging

Commercial payment processing

Bill payment processing

Peer to Peer payments

Withdrawal at banking agent

Deposit at banking agent

Investments

Portfolio management services

Real-time stock quotes

Personalized alerts and notifications on security prices

Support

Status of requests for credit, including mortgage approval, and

insurance coverage

Check (cheque) book and card requests

Exchange of data messages and email, including complaint submission

and tracking

ATM Location

Content Services

General information such as weather updates, news

Loyalty-related offers

Location-based services 74

Based on a survey conducted by Forrester, mobile banking will be

attractive mainly to the younger, more "tech-savvy" customer segment A

third of mobile phone users say that they may consider performing some

kind of financial transaction through their mobile phone But most of the

users are interested in performing basic transactions such as querying for

account balance and making bill payment

Mobile banking Architecture

1

Despite this rise in m-banking transactions in India, banks are yet to

fully exploit this technologyeven for their existing customers. The current

penetration is low compared to the number of bank accounts and the

vast mobile subscriber base of more than 900 million. Some of the

reasons for which consumers are not adopting mobile banking include the

lack of adoption of mobile as a channel for banking, limitations of

services on mobile banking, non-replication of mobile banking services in

varied languages in India etc.

Most mobile banking applications are designed for smart phones, which

also limits the customer base, but with the introduction of USSD-based

applications,this may change in coming years. Most mobile banking

applications are designed for smart phones, which also limits the customer

base, but with the introduction of USSD-based applications,this may change

in coming years.

Mobile banking can be classified as follows:

2

In an environment which has a paucity of advanced technology and

mobile handset capabilities a one-size-fits-all solution does not work.

Therefore, there is a need for banks to make investments on mobile

banking applications like custom applications, mobile browser, etc to offer

mobile banking services to cater to various mobile / tablet platforms like

iOS, Android etc which are available on high-end phones / tablet

platforms with good processing capabilities while at the same time offer

services like USSD to the low-end segment having java based phones

with limited data processing capabilities

There have been various developments over the past year in the mobile

banking space including new strategic partnership models (like banks and

telcos) and products / services (Inter Bank Mobile Payment System

(IMPS), National Unified USSD Platform (NUUP), etc) emerging in the

Indian markets. M - Banking has lowered some of the key barriers to

financial inclusion in India by reducing start-up costs and service prices.

Eko India Financial Services, as business correspondent provides bank

accounts, deposit, withdrawal and remittance services, micro-insurance, and

micro-finance facilities to its customers (nearly 80% of whom are migrants

unbanked section of the population )through mobile banking.

2

2.8 SMs BANKING

Short Message Service (SMS) is a communication service standardized in

the GSM mobile communication system, using standardized communications

protocols allowing the interchange of short text messages between mobile

telephone devices. SMS text messaging is the most widely used data

application on the planet, with 2.4 billion active users, or 74% of all

mobile phone subscribers sending and receiving text messages on their

phones.

SMS banking is a technology enabled service offering from banks to its

customers, permitting them to operate selected banking services over their

mobile phones using SMS messaging. SMS banking services are operated

using both push and pull messages.The architecture of SMS Banking.

Depending on the selected extent of SMS banking transactions offered by

the bank, a customer can be authorized to carry out either non-financial

transactions, or both and financial and non-financial transactions. SMS

banking solutions offer customers a range of functionality, classified by

push and pull services as outlined below.71

Typical push services would include:

Periodic account balance reporting (say at the end of month);

Reporting of salary and other credits to the bank account;

Successful or un-successful execution of a standing order;

2

Successful payment of a cheque issued on the account;

Insufficient funds;

Large value withdrawals on an account;

Large value withdrawals on the ATM or EFTPOS on a debit card;

Large value payment on a credit card or out of country activity

on a credit card.

One-time password and authentication

Account balance enquiry;

Mini statement request;

Electronic bill payment;

Transfers between customer's own accounts, like moving money from

a savings account to a current account to fund a cheque;

Stop payment instruction on a cheque;

Requesting for an ATM card or credit card to be suspended;

De-activating a credit or debit card when it is lost or the PIN

is known to be compromised;

Foreign currency exchange rates enquiry;

Fixed deposit interest rates enquiry.

SMS banking is a technology-enabled service offered by banks to its

customers. They permit the customers to operate banking services over

mobile phones using SMS messages. SMS banking is more advantageous

than Internet banking because people carry mobile phones everywhere. SMS

banking reduces the distances between banks and the customers.

2.9 Card Based Delivery Systems

Among the card based delivery mechanisms for various banking services,

are credit cards, debit cards, smart cards etc. These have been immensely

successful in India since their launch. Penetration of these card based

systems have increased manifold over the past decade. Aided by expanding

ATM networks and Point of Sale (POS) terminals, banks have been able

to increase the transition of customers towards these channels, thereby

reducing their costs too.

2.10 Paper Based Clearing Systems

2

Among the most important improvement in paper based clearing systems

was the introduction of MICR technology in the mid 1980s. Though

improvements continued to be made in MICR enabled instruments, the

major transition is expected now, with the implementation of the Cheque

Truncation System for the processing of cheques.

2.11 Payment and Settlement Systems

The innovations in technology and communication infrastructure in recent

years have impacted banks in a large way through the development of

payment and settlement systems, which are central to the major portion

of the businesses of banks.In order to strengthen the institutional

framework for the payment and settlement systems in the country, the

RBI constituted, in 2005, a Board for Regulation and Supervision of

Payment and Settlement Systems (BPSS) as a Committee of its Central

Board. The BPSS now lays down policies relating to the regulation and

supervision of all types of payment and settlement systems, sets standards

for existing and future systems, approves criteria for authorisation of

payment and settlement systems, and determines criteria for membership to

these systems, including continuation, termination and rejection of

membership

Thereafter, the government and the RBI felt the need for a legal

framework dedicated to the efficient functioning of the payment and

settlement systems. The Payment and Settlement Systems Act was passed

in December 2007, which empowered the RBI to regulate and supervise

the payment and settlement systems and provided a legal basis for

multilateral netting and settlement.Important technological innovations in

payment and settlement systems introduced by the RBI in recent years

are discussed here. The Indian payment system, which is primarily cash

dominant, is now at a faster pace transforming from paper to electronic.

The share of electronic payments in non-cash payments has shown an

upward trend. The electronic payment system primarily comprises Real

Time Gross Settlement (RTGS), Electronic clearing services (ECS), credit

and debit payments and electronic fund transfers (EFTs) / National

Electronic Funds Transfer (NEFT). India is currently the 13th largest non-

2

cash payments market in the world, but has the potential to grow

significantly.

2.12 Cheque Transaction System (CTS)

Truncation is the process of stopping the movement of the physical

cheque which is to be truncated at some point en-route to the drawee

branch and an electronic image of the cheque would be sent to the

drawee branch along with the relevant information like the MICR fields,

date of presentation, presenting banks etc. Thus, the CTS reduces the

probability of frauds, reconciliation problems, logistics problems and the

cost of collection.

The cheque truncation system was launched on a pilot basis in the

National Capital Region of New Delhi on February 1, 2008, with the

participation of 10 banks. The main advantage of the cheque truncation

system is that it obviates the physical presentation of the cheque to the

clearing house. Instead, the electronic image of the cheque would be

required to be sent to the clearing house. This would provide a more

cost-effective mode of settlement than manual and MICR clearing, enabling

realization of cheques on the same day. Amendments have already been

made in the NI Act to give legal recognition to the electronic image

of the truncated cheque, providing for a sound legal framework for the

introduction of CTS.Currently the effort is on increasing the processing

efficiency with respect to paper based transactions, and as far as possible,

to reduce the burden on paper based clearing. Through the introduction

of advanced electronic funds transfer mechanisms, the RBI has been

successful in diverting a large portion of paper based transactions to the

electronic route.

CHAPTER – III

2

RECENT TRENDS IN TECHNOLOGY IN BANKING

SECTOR

3.1 Introduction

Banking technology as a confluence of several disparate

disciplines such as finance (including risk management),

information technology, computer science, communication

technology, and marketing science. The tremendous influence

of information and communication technologies on banking

and its products, the quintessential role played by

computer science helped in fulfilling banks marketing objective

of servicing customers better at less cost and thereby

reaping more profits. Advanced statistics and computer

science are used to measure, mitigate, and manage

various risks associated with banks’ business with its

customers and other banks. The growing influence of

customer relationship management and data mining in tackling

various marketing-related problems and fraud detection

problems in the banking industry is well documented.

COMPONENTS OF BANKING TECHNOLOGY

BANKING TECHNOLOGY

FINANCE & RISK

MANAGEMENT

MARKETING SCIENCE

COMMUNICATI-ONS

TECHNOLOGYCOMPUTER

SCIENCEINFORMATION TECHNOLOGY

2

Technology is no longer being used simply as a means

for automating processes. Instead it is being used as a

revolutionary means of delivering services to customers. The

adoption of technology has led to the following benefits:

greater productivity, profitability, and efficiency; faster service

and customer satisfaction; convenience and flexibility; 24x7

operations; and space and cost savings (Sivakumaran, 2005)

3.2.A Technology Application in Banks

Indian banking industry adopted various technology applications in

banking. They are classified in to:

1) Data Warehousing

2) Data Mining

3) Electronic Data Interchange

4) Corporate Web Sites

5) Management Information System

6) RTGS

3.2.A.1 Data warehouse

Data warehouse is a repository of an organization's electronically stored

data. Data warehouses are designed to facilitate reporting and analysis.A

data warehouse houses a standardized, consistent, clean and integrated form

of data sourced from various operational systems in use in the

organization, structured in an way to specifically address the reporting and

analytic requirements. This definition of the data warehouse focuses on

data storage.

However, the means to retrieve and analyze data, to extract, transform

and load data, and to manage the data dictionary are also considered

essential components of a data warehousing system. Many references to

data warehousing use this broader context. Thus, an expanded definition

for data warehousing includes business intelligence tools, tools to extract,

transform, and load data into the repository, and tools to manage and

retrieve metadata. Architecture, in the context of an organization's data

2

warehousing efforts, is a conceptualization of how the data warehouse is

built. There is no right or wrong architecture, rather multiple architectures

exist to support various environments and situations. The worthiness of the

architecture can be judged in how the conceptualization aids in the

building, maintenance, and usage of the data warehouse. Fig 3.2.A.1and

Fig 3.2.A.1.ii explains data warehouse architecture and its process

respectively. One possible simple conceptualization of data warehouse

architecture consists of the following interconnected layers:

Operational database layer

The source data for the data warehouse - An organization's Enterprise

Resource Planning systems fall into this layer.

Data access layer

The interface between the operational and informational access layer -

Tools to extract, transform, load data into the warehouse fall into this

layer.

Metadata layer

The data directory - This is usually more detailed than an operational

system data directory. There are dictionaries for the entire warehouse and

sometimes dictionaries for the data that can be accessed by a particular

reporting and analysis tool.

Informational access layer

The data accessed for reporting and analyzing and the tools for reporting

and analyzing data - Business intelligence tools fall into this layer. And

the Inmon- Kimball differences about design methodology, discussed later in

this article, have to do with this layer.

2

FIG.3.2.A.1.i Data warehouse architecture

FIG.3.2.A.1.ii Process of Data warehouse architecture

2

3.2.A.2 Data mining

Data mining is the process of extracting patterns from data. As more

data are gathered, with the amount of data doubling every three years.

data mining is becoming an increasingly important tool to transform these

data into information. It is commonly used in a wide range of profiling

practices, such as marketing, surveillance, fraud detection and scientific

discovery. While data mining can be used to uncover patterns in data

samples, it is important to be aware that the use of non-representative

samples of data may produce results that are not indicative of the

domain. Similarly, data mining will not find patterns that may be present

in the domain, if those patterns are not present in the sample being

"mined".

There is a tendency for insufficiently knowledgeable"consumers" of the

results to attribute "magical abilities" to data mining, treating the technique

as a sort of all-seeing crystal ball. Like any other tool, it only

functions in conjunction with the appropriate raw material: in this case,

indicative and representative data that the user must first collect. Further,

the discovery of a particular pattern in a particular set of data does

not necessarily mean that pattern is representative of the whole population

from which that data was drawn.

An Architecture for Data Mining

To best apply these advanced techniques, they must be fully

integrated with a data warehouse as well as flexible interactive

business analysis tools. Many data mining tools currently operate

outside of the warehouse, requiring extra steps for extracting,

importing, and analyzing the data. Furthermore, when new insights

require operational implementation, integration with the warehouse

simplifies the application of results from data mining. The resulting

analytic data warehouse can be applied to improve business processes

throughout the organization, in areas such as promotional campaign

3

management, fraud detection, new product rollout, and soon.

Fig.3.2.A.2.illustrates an architecture for integrated data mining.

FIG.3.2.A.2 Integrated Data Mining Architecture

The ideal starting point is a data warehouse containing a combination of

internal data tracking all customer contact coupled with external market

data about competitor activity. Background information on potential customers

also provides an excellent basis for prospecting. This warehouse can be

implemented in a variety of relational database systems: Sybase, Oracle,

Redbrick, and so on, and should be optimized for flexible and fast data

access.An OLAP (On-Line Analytical Processing) server enables a more

sophisticated end-user business model to be applied when navigating the

data warehouse.

The multidimensional structures allow the user to analyze the data as

they want to view their business – summarizing by product line, region,

and other key perspectives of their business. The Data Mining Server

must be integrated with the data warehouse and the OLAP server to

embed ROI-focused business analysis directly into this infrastructure. An

advanced, process-centric metadata template defines the data mining

objectives for specific business issues like campaign 61management,

prospecting, and promotion optimization. Integration with the data warehouse

enables operational decisions to be directly implemented and tracked.

3

Fig.3.2.A.2 Steps in Data Mining Architecture

As the warehouse grows with new decisions and results, the organization

can continually mine the best practices and apply them to future

decisions. This design represents a fundamental shift from conventional

decision support systems. Rather than simply delivering data to the end

user through query and reporting software, the Advanced Analysis Server

applies users’ business models directly to the warehouse and returns a

proactive analysis of the most relevant information. These results enhance

the metadata in the OLAP Server by providing a dynamic metadata layer

that represents a distilled view of the data. Reporting, visualization, and

other analysis tools can then be applied to plan future actions and

confirm the impact of those plans. Fig.3.2.A.2.ii explains the steps in data

mining architecture

3.2.A.3 Electronic Data Interchange (EDI)

Electronic Data Interchange (EDI) refers to the structured transmission of

data between organizations by electronic means. It is used to transfer

electronic documents from one computer system to another, i.e. from one

trading partner to another trading partner. It is more than mere E-mail;

for instance, organizations might replace bills of lading and even Cheque

with appropriate EDI message It also refers specifically to a family of

standards, including the X12 series. However,EDI also exhibits its pre-

Internet roots, and the standards tend to focus on ASCII(American

Standard Code for Information Interchange)-formatted single messages rather

than the whole sequence of conditions and exchanges that make up an

3

interorganization business process. Fig 4 and 5 explains the EDI

architecture Electronic Data Interchange is the electronic exchange of

business documents like purchase order, invoices, shipping notices, receiving

advices etc. in a standard, computer processed, universally accepted format

between trading partners. Electronic Data Interchange (EDI) can also be

used to transmit financial information and payments in electronic form.

Fig.3.2.A.3 EDI Architecture

3

3.2.A.4 Corporate Website

A corporate website or corporate site is an informational website operated

by a business or other private enterprise such as a charity or non-profit

foundation. Corporate sites differ from electronic commerce, portal, or sites

in that they provide information to the public about the company rather

than transacting business or providing other services. The phrase is a

term of art referring to the purpose of the site rather than its design

or specific features, or the nature, market sector, or business structure of

the site operator. Nearly every company that interacts with the public has

a corporate site or else integrates the same features into its other

websites. Large companies typically maintain a single umbrella corporate

site for all of their various brands and subsidiaries.

Corporate Website Common Features

Corporate websites usually include the following:

A homepage

A navigation bar or other means for accessing various site sections

A unified look and feel incorporating the company logos, style

sheets, and graphic images.

A summary of company operations, history, and mission statement

3

A list of the company's products and services

A "people" section with biographical information on founders, board

members, and/or key executives. Sometimes provides an overview of

the company's overall workforce.

A "news" section containing press releases, press kits, and/or links

to news articles about the company

An "investor" section describing key owners / investors of the

company

A list of key clients, suppliers, achievements, projects, partners, or

others

Pages of special interest to specific groups. These may include:

An employment section where the company lists open positions

and/or tells job seekers how to apply

Investor pages with the annual report, business plan, current stock

price, financial statements, overview of the company structure, SEC

filing or other regulatory filings

Pages for employees, suppliers, customers, strategic partners, affiliates,

etc.

Contact information. Sometimes includes a feedback form by which

visitors may submit messages

A terms of use document and statement of intellectual property

ownership and policies as they apply to site content

A privacy policy

A splash page as an entry point that directs users to the site's

home page

Embedded search engines allowing users to search pages from within

the website, or external searches of the Web

A site map

A blog with news and commentary about the company, its products

and services

"Community" pages describing the company's environmental /

sustainability, charity, corporate citizenship, and other policies as they

affect the public

3

A "store locator" or similar feature used to find nearby retail

locations of the company or where the company's products or

services can be found

A "downloads" or "media" section for users to obtain web tools,

free or trial software, software patches, company demos, promotional

material, and the like

A calendar or events section

A "links" page with hyperlinks to consumer-oriented or other

websites, or information about specific brands or subsidiaries of the

company

3.2.A.5 Management Information System (MIS)

A management information system (MIS) is a subset of the overall

internal controls of a business covering the application of people,

documents, technologies, and procedures by management accountants to solve

business problems such as costing a product, service or a business-wide

strategy. Management information

systems are distinct from regular information systems in that they are

used to analyze other information systems applied in operational activities

in the organization.Academically, the term is commonly used to refer to

the group of information management methods tied to the automation or

support of human decision making, e.g. Decision Support Systems, Expert

systems, and Executive information systems. It has been described as,

"MIS 'lives' in the space that intersects technology and business. MIS

combines tech with business to get people the information they need to

do their jobs better/faster/smarter. Information is the lifeblood of all

organizations - now more than ever. MIS professionals work as systems

analysts, project managers, systems administrators, etc., communicating directly

with staff and management across the organization.Fig.3.2.A.5 explain the

architecture of MIS and modules of MIS respectively.

3

FIG.3.2.A.5 Architecture of Management Information System (MIS)

Fig.3.2.A.5 ii Modules of MIS

3

3.2.A.6 Real Time Gross Settlement (RTGS)

Real Time Gross Settlement system, introduced in India since March 2004,

is a Interlink Research Analysis system through which electronics

instructions can be given by banks to transfer funds from their account

to the account of another bank. The (RTGS) Real Time Gross Settlement

system is maintained and operated by the RBI and provides a means of

efficient and faster funds transfer among banks facilitating their financial

operations. As the name suggests, funds transfer between banks takes place

on a ‘Real Time’ basis. Therefore, money can reach the beneficiary

instantaneously and the beneficiary’s bank has the responsibility to credit

the beneficiary’s account within two hours.

Real time means payment transaction is not subjected to any waiting

period. In RTGS the transaction are settled as they are processed. Gross

settlement means the transaction is settled on one to one basis without

bunching or netting with any other transaction.“RTGS is funds transfer

system where transfer of money or securities takes place from one bank

to another on a “real time” and on “gross basis”. Once processed,

payment are final and irrevocable. The other payment and settlement

systems deployed were mostly aimed at small value repetitive transactions,

largely for the retail transactions. The introduction of RTGS in 2004 was

instrumental in the development of infrastructure for Systemically Important

Payment Systems (SIPS).

The payment system in India largely followed a deferred net settlement

regime, which meant that the net amount was settled between banks on

a deferred basis. This posed significant settlement risks.RTGS was launched

by RBI, which enabled a real time settlement on a gross basis. To

High systemic risks are posed by high value interbank transfers, so, it is

considered desirable that all major interbank transfers among commercial

3

banks having accounts with RBI be routed only through the RTGS

system. The RTGS system had a membership of 107 participants (96

banks, 8 primary dealers, the Reserve Bank and the Deposit Insurance,

Credit Guarantee Corporation and Clearing Corporation of India Ltd.) as at

end-August 2009. The reach and utilisation of the RTGS has witnessed a

sustained increase since its introduction in 2004. The bank/branch network

coverage of the RTGS system increased to 58,720 branches at more than

10,000 centres facilitating the increased usage of this mode of funds

transfer.

3.2.B.Current Information Technology Tools

Apart from already mentioned technology, banks adopting various

Information Technology Tools. They are:

1) Electronic Clearing And Settlement System

2) Plastic Money

3) Electronic Banking

3.2.B.1.Electronic Clearing And Settlement System

Some of the electronic electronic and settlement system are OCR clearing,

MICR clearing, Debit Clearing,SFMS, and SWIFT.

Optical Character Recognition (OCR)

Optical Character Recognition is the machine recognition of printed

characters. OCR systems can recognize many different OCR fonts, as well

as typewriter and computer-printed characters. Advanced OCR systems can

recognize hand printing. When a text document is scanned into the

computer, it is turned into a bitmap, which is a picture of the text.

OCR software analyzes the light and dark areas of the bitmap in order

to identify each alphabetic letter and numeric digit. When it recognizes a

character, it converts it into ASCII text (see ASCII file). Hand printing

is much more difficult to analyze than machine-printed characters. Old,

worn and smudged documents are also difficult. Scanning documents and

processing them with OCR is sometimes as much an art as it is a

science.

3

Magnetic Ink Character Recognition

Magnetic Ink Character Recognition is the machine recognition of numeric

data printed with magnetically charged ink. It is used on bank checks

and deposit slips. MICR readers detect the characters and convert them

into digital data. Although optical methods (OCR) became as sophisticated

as the early MICR technology, magnetic ink is still used. It serves as

a deterrent to fraud, because aphotocopied check will not be printed with

magnetic ink.

MICR Technology

MICR characters are printed using an ink laden with iron oxide particles.

Iron oxide has magnetic properties and can retain magnetic fields when it

is applied on it. The working of a MICR reader is essentially based

on the concept of moving characters printed with this magnetic ink over

two magnetic heads, one that charge the characters and the second one

that immediately follows the first and reads the magnetic charge. The

pattern of the electrical field is what determines the character being read.

The characteristic shape of the MICR font is designed to give a unique

electrical signature pattern to each character which can be easily

recognized by the machine with minimum ambiguity and maximum

tolerance.

3.2.B.2 Plastic Money

a. Debit Card

b. Credit Card

c. Smart Card

Debit card

A debit card (also known as a bank card or check card) is a plastic

card that provides an alternative payment method to cash when making

purchases. Functionally, it can be called an electronic check, as the funds

are withdrawn directly from either the bank account, or from the

remaining balance on the card. In some cases, the cards are designed

exclusively for use on the Internet, and so there is no physical card.The

4

use of debit cards has become widespread in many countries and has

overtaken the check, and in some instances cash transactions by volume.

Credit card:

Credit card is a plastic card with a magnetic strip authorised to

purchase upto a predetermined amount i.e. a credit limit. Banks issue it

to their customers to enable them to purchase on credit. These cards

store the information relating to customers account.

3.2.C. Electronic Banking

3.2.C.1.Electronic funds transfer (EFT)

Electronic funds transfer or EFT refers to the computer-based systems used

to perform financial transactions electronically. The term is used for a

number of different concepts:

• Cardholder-initiated transactions, where a cardholder makes use of a

payment card

• Direct deposit payroll payments for a business to its employees,

possibly via a payroll services company

• Direct debit payments from customer to business, where the transaction

is initiated by the business with customer permission

• Electronic bill payment in online banking, which may be delivered by

EFT or paper check

• Transactions involving stored value of electronic money, possibly in a

private currency

• Wire transfer via an international banking network (generally carries a

higher fee)

• Electronic Benefit Transfer

Electronic Funds Transfer (EFT) is a system whereby anyone

who wants to make payment to another person/company etc. can approach

his bank and make cash payment or give instructions/ authorization to

transfer funds directly from his own account to the bank account of the

receiver/beneficiary. Complete details such as the receiver’s name, bank

account number, account type (savings or current account), bank name,

city, branch name etc. should be furnished to the bank at the time of

4

requesting for such transfers so that the amount reaches the beneficiaries’

account correctly and faster. RBI (Reserve Bank of India) is the service

provider of Electronic Funds Transfer (EFT)

The launch of the electronic funds transfer mechanisms began with the

Electronic Funds Transfer (EFT) System. The EFT System was

operationalised in 1995 covering 15 centres where the Reserve Bank

managed the clearing houses.Special EFT (SEFT) scheme, a variant of the

EFT system, was introduced with effect from April 1, 2003, in order to

increase the coverage of the scheme and to provide for quicker funds

transfers. SEFT was made available across branches of banks that were

computerised and connected via a network enabling transfer of electronic

messages to the receiving branch in a straight through manner (STP

processing). In the case of EFT, all branches of banks in the 15

locations were part of the scheme, whether they are networked or not.A

new variant of the EFT called the National EFT (NEFT) was decided to

implemented (November 2005) so as to broad base the facilities of EFT.

This 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). The NEFT uses SFMS for EFT message creation and

transmission from the branch to the bank’s gateway and to the NEFT

Centre, thereby considerably enhancing the security in the transfer of

funds. While RTGS is a real time gross settlement funds transfer product,

NEFT is a deferred net settlement funds transfer product. 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.

3.2.C.2 Electronic Funds Transfer at Point of Sale (EFTPOS)

EFTPOS (short for Electronic Funds Transfer at Point of Sale) is an

Australian and New Zealand electronic processing system for credit cards,

debit cards and charge cards. European banks and card companies also

4

sometimes reference "EFTPOS" as the system used for processing card

transactions through terminals on points of sale, though the system is not

the trademarked Australian/New Zealand variant.76

Credit cards EFT may be initiated by a cardholder when a payment

cardsuch as a credit card or debit card is used. This may take place

at an automated teller machine (ATM) or point of sale (POS), or when

the card is not present, which covers cards used for mail order,

telephone order and internet purchases.

A number of transaction types may be performed, including the following:

• Sale: where the cardholder pays for goods or service

• Refund: where a merchant refunds an earlier payment made by a

cardholder

• Withdrawal: the cardholder withdraws funds from their account, e.g.

from an ATM. The term Cash Advance may also be used, typically

when the funds are advanced by a merchant rather than at an ATM

• Deposit: where a cardholder deposits funds to their own account

(typically at an ATM)

• Cashback: where a cardholder withdraws funds from their own account

at the same time as making a purchase

• Inter-account transfer: transferring funds between linked accounts belonging

to the same cardholder

• Payment: transferring funds to a third party account

• Enquiry: a transaction without financial impact, for instance balance

enquiry, available funds enquiry, linked accounts enquiry, or request for a

statement of recent transactions on the account

• E top-up: where a cardholder can use a device (typically POS or

ATM) to add funds (top-up) their pre-pay mobile phone

• Mini-statement: where a cardholder uses a device (typically an ATM)

to obtain details of recent transactions on their account

• Administrative: this covers a variety of non-financial transactions including

PIN change

• The transaction types offered depend on the terminal. An ATM

would offer different transactions from a POS terminal, for instance.

.

4

3.2.C.3 Electronic Clearing Service

The Electronic Clearing Service (ECS) introduced by the RBI in 1995, is

akin to the Automated Clearing House system that is operational in

certain other countries like the US. ECS has two variants- ECS debit

clearing and ECS credit clearing service. ECS credit clearing operates on

the principle of ‘single debit multiple credits’ and is used for transactions

like payment of salary, dividend, pension, interest etc. ECS debit clearing

service operates on the principle of ‘single credit multiple debits’ and is

used by utility service providers for collection of electricity bills, telephone

bills and other charges and also by banks for collections of principal

and interest repayments. Settlement under ECS is undertaken on T+1 basis.

Any ECS user can undertake the transactions by registering themselves

with an approved clearing house.

Operating from 74 different locations, ECS handles an average of 20

million transactions per month. It enables easy payments and collections

for repetitive and bulk transactions. ECS takes off a lot of burden of

paper work from the banks, enabling smooth flow of transactions. The

volume of electronic transactions has increased at an annual average

growth rate of 32.1% during FY05-FY09. The use of ECS (credit) and

ECS (debit), in particular, has witnessed substantial growth in the last

few years.

The RBI has recently launched the National Electronic Clearing Service

(NECS), in September 2008, which is an improvement over the ECS

currently operational. Under NECS, all transactions shall be processed at a

centralized location called the National Clearing Cell, located in Mumbai,

as against the ECS, where processing is currently done at 74 different

locations. ECS system has a decentralised functioning, and requires users

to prepare separate set of ECS data centre-wise. Users are required to

tie-up with local sponsor banks for presenting ECS file to each ECS

Centre. As on September 2008, 25000 branches of 50 banks participate

in the NECS. Leveraging on the core banking system, NECS is expected

to bring more efficiency into the system.

4

CHAPTER – IV

RECENT DEVELOPMENTS IN BANKING SECTOR

(2014)

4.1.Introduction

Developments in the field of technology strongly supports the growth

and inclusiveness of the banking sector by facilitating inclusive economic

growth of technology improves the front end operations with back end

and helps in bringing down the transaction costs for the customers.

4.2. Society for Worldwide Inter-bank Financial

Telecommunications (SWIFT)

SWIFT, as a co-operative society was formed in May 1973 with 239

participating banks from 15 countries with its headquarters at Brussels. It

started functioning in May 1977. RBI and 27 other public sector banks

as well as 8 foreign banks in India have obtained the membership of

the SWIFT. SWIFT provides have rapid, secure, reliable and cost effective

mode of transmitting the financial messages worldwide. At present more

than 3000 banks are the members of the network.This network also

facilitates the transfer of messages relating to fixed deposit, interest

payment, debit-credit statements, foreign exchange

Institute for Development and Research in Banking Technology (IDRBT):

The main purpose of IDRBT is to adopt research and development as

well as consultancy in the application of technology to the banking and

financial sector in the country. Reserve Bank of India (RBI) established

IDRBT in 1996. Structured Financial Messaging Solution (SFMS):Structured

Financial Messaging Solution (SFMS) is helpful for inter-bank and intra-

bank messaging. This messaging is useful for applications like Electronic

Funds Transfer (EFT), Real Time Gross Settlement (RTGS), Delivery verses

4

Payment (DVP), Centralised Funds Management System (CFMS). The SFMS

was launched in India on December 14,2001 by RBI.

4.3 Cash Dispensers

Cash withdrawal is the basic service rendered by the bank branches.

The cash payment is made by the cashier or teller of the cash

dispenses is an alternate to time saving. The operations by this machine

are cheaper than manual operations and this machine is cheaper and fast

than that of ATM. The customer is provided with a plastic card, which

is magnetically coated. After completing the formalities, the machine allows

the machine the transactions for required amount.

4.4 Chip Card

The customer of the bank is provided with a special type of credit

card which bears customer’s name, code etc. The credit amount of the

customer account is written on the card with magnetic methods. The

computer can read these magnetic spots. When the customer uses this

card, the credit amount written on the card starts decreasing. After use

of number of times, at one stage, the balance becomes nil on the card.

At that juncture, the card is of no use. The customer has to deposit

cash in his account for re-use of the card. Again the credit amount is

written on the card by magnetic means.

4.5 Tele-banking

Tele banking is another innovation, which provided the facility of 24

hour banking to the customer. Tele-banking is based on the voice

processing facility available on bank computers. The caller usually a

customer calls the bank anytime and can enquire balance in his account

or other transaction history. In this system, the computers at bank are

connected to a telephone link with the help of a modem. Voice

processing facility provided in the software. This software identifies the

voice of caller and provides him suitable reply. Some banks also use

telephonic answering machine but this is limited to some brief functions.

4

This is only telephone answering system and now Tele-banking. Tele

banking is becoming popular since queries at ATM’s are now becoming

too long. Telephone banking is a service provided by a banks and

financial institution where customer performs their transaction, over the

telephone. Banking carried out over computer network is called telephone

banking.It represents conducting financial transactions using computer and a

telephone. Banking carried out over computer network is called as Tele

banking.

4.6 Bank net

Bank net is a first national level network in India, which was

commissioned in February 1991. It is communication network established by

RBI on the basis of recommendation of the committee appointed by it

under the chairmanship of the executive director T.N.A. Lyre. Bank net

has two phases: Bank net-I and Bank net- II. BANKNET is a internet

based communication network. It provides speed of financial transaction.

BANKNET is set up in 1991 by the RBI, this backbone is meant to

facilitate transfer of inter-bank (and inter-branch) messages within India by

Public Sector banks who are members of this network. Service Centers

- At present, service centers are viz. Mumbai, Delhi, Calcutta, Madras,

Nagpur, Bangalore , Pune, Ahmedabad, Kanpur, Lucknow, Chandigarh,

Kochi, Jaipur, Bhopal, Patna, Bhubaneshwar, Thiruvananthapuram, Guwahati,

Panaji Jammu.

4.7 Any where Banking

With expansion of technology, it is now possible to obtain financial

details from the bank from remote locations. Basic transaction can be

effected from faraway places. Automated Teller Machines are playing an

important role in providing remote services to the customers. Withdrawals

from other stations have been possible due to inter-station connectivity of

ATM’s. The Rangarajan committee had also suggested the installation of

ATM at non-branch locations, airports, hotels, Railway stations, Office

4

Computers, Remote Banking is being further extended to the customer’s

office and home.

4.8 Voice Mail

Talking of answering systems, there are several banks mainly foreign

banks now offering very advanced touch tone telephone answering service

which route the customer call directly to the department concerned and

allow the customer to leave a message for the concerned desk or

department, if the person is not available.

4.9 Internet Banking

Over the last few years, banks in India have come a long way in

using the internet as a channel to market, sell and serve their customers.

From just provisioning static marketing information, banks have moved to

more robust engagement and transaction models for their customers and in

the process have improved the customer experience while lowering cost to

serve.Internet banking today is the biggest focus area in the “Digital

Transformation” agenda of banks.

While mobile and social channels programs are still in their nascent

stages, most banks have prioritized internet banking as a top item on

their business and technology strategy agendas. The shift towards internet

banking is fuelled by the changing dynamics in India. By 2020 the

average age of India will be 29 years and this young consumer base is

internet savvy and wants realtime online information. Customers are looking

for convenience, simplification of process and ease of engagement. Peer

discussion and information gathering has led to increase in awareness

among customers. The rise of the middle class has also increased the

number of households with internet connectivity. The affordability and

penetration of the internet is increasing exponentially across customer

segments in rural and urban areas.

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4.9.i.Driving channel adoption

Based on the results of our survey, we see several clear evidence of

increasing usage of the internet banking channel across all segments of the

Indian banking space. Below are some statistics based on responses

received from participating banks. Internet banking continues to grow in

terms of number of registered users as well as in the number and

value of daily transactions executed as illustrated in Fig it has explain

4.9.B. Leverage enterprise data for marketing campaigns to

drive adoption:

Banks are sitting on a large customer base across retail, SME and

corporate segments of customers who have either not enrolled or do not

have an active internet banking account. This is a treasure trove of

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information and with intelligent analytics and campaign management, banks

can increase adoption significantly across their existing customers.

4.9.C Increase business involvement in internet banking

governance:

In many banks the internet banking channel is run out of the IT

department with the view that it is a technology capability. Banks have

to understand the power of internet technology to fundamentally change

the banking business model in terms of customer segments, revenue impact

and cost to serve. Business should increase its involvement with the

governance of this channel and must integrate this channel with its other

enterprise processes.

4.9.D.Educate customer facing staff

Many banks do not have trained personnel who understand the power

and benefits of the internet channel. Efforts to both educate, and optimize

front office, customer-facing staff is key to be able to drive adoption at

grass root level.

5.Risk Management & Information Security

Over the last few years, after the financial crisis, there has been an

increased thrust on risk management from the Reserve Bank of India

(RBI). A series of guidelines have been issued by the RBI with a

view to improve risk management practices at banks, of which guidelines

to migrate to advanced approaches of Basel II is one of the foremost.

Banks have responded by improving risk management processes and

upgrading their systems and infrastructure; however, a lot still remains to

be done. The maturity of risk systems and infrastructure is still at

nascent stages across the Indian banking landscape. The IBA survey and

EY analysis reveals that Core Banking System (CBS) is widely used

across the banks for transaction management. However, its integration with

risk management and other enterprise level applications is still at

preliminary stages. While banks have embarked on the journey of Basel II

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implementation, covering only credit risk, operational risk and market risk

capital computation engines, most of them are still at an implementation

stage due to ‘various challenges such as data availability and quality, as

well as lack of skilled resources for advanced risk modelling.

6. Financial Inclusion

7. Mobile Banking

The past 10 years have been the mobile decade. Advances in mobile

technology have revolutionized almost every facet of society, from

information to education, granting enhanced access to an ever-growing

number of people in the country. Penetration of mobile phones is one

of the highest across the world in India, and almost 83% of its

population is expected to use mobile phones by 2014. This is projected

to have a dramatic impact on the country’s social evolution. Mobile

banking continues to be a focus area for all banks in India. Our

survey indicates that they are not only looking at this channel as a

way to increase their customer engagement in urban areas, but also to

reach out to new ones in rural regions, and thereby significantly further

their financial inclusion agenda.

They have delivered the following:

a) Multi-platform solutions (iOS, Android, BB, Symbian and Java)

b) Customized online sites for usage on the internet on mobiles

c) The ability to open FD/RD and apply for other product types

d) An exhaustive list of service requests and addition of payees

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e) Views on integrated relationships and transactional capabilities relating to

credit cards, Demat accounts, insurance and mutual funds

Several steps, which need to be undertaken to accomplish this are as

follows:

a) Identify high potential customer segments: Apart from analyzing target

segments in their customer base, banks must also treat their employees as

a service segment. A close look at each of these segments would reveal

multiple sub-segments and their relevant journeys.

b) Understand their needs from the channel: The features that rural

retail customers would leverage (for example remittance) are very different

from those required by urban retail customers (payments, financial tools

and offers) and corporate ones (cash positions, market trackers and

overview of company’s

financial health).

c) Provide differentiated offerings: Banks need to understand the

difference in usage and features, and deliver capability that supports the

financial inclusion needs of the rural segment, provide a seamless shopping

experience to urban customers on the move, approve payments for

corporate customers and provide in-depth information on new products to

their employees.

8.Payments

The payments industry has witnessed significant changes over last few

years due to business requirements and technology innovations. In the last

decade, India has seen a shift from traditional payment methods, i.e.,

cash/paperbased payments to modern electronic payment systems. However,

97% of payment transactions for public sector banks are paper based as

compared to 60% for private sector banks. In the recent past, the RBI

has taken multiple steps to promote electronification of payment instruments

such as framing the Payment & Settlements Systems Act to provide for

the regulation and supervision of payment systems in India, providing robust

RTGS/NEFT platform, establishing National Payments Corporation of India

(NPCI) to act as an umbrella institution for all the retail payment

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systems, regulation and promotion of acceptance channels including ATMs,

POS and payment gateway policy guidelines for issuance and operation of

pre-paid payment instruments etc., issuance guidelines and security measures

for all card transactions.

A snapshot of various payments instruments in India is given here:

There are approximately 374 million debit cards in India as of

October 2013. With more than 49 milliondebit cards issued in

2012–13 and a larger number expected to be issued in 2013–14,

this rapid pace of growth is set to continue.

Credit card spends are back on the upswing after a period of

consolidation. More than 18 million cards are in circulation.

However, banks have adopted a cautious approach to acquire new

customers compared to the ad hoc approach adopted for fast growth

during 2008–09. Credit card usage stands at 0.3% of total electronic

transactions for public sector banks.

Pre-paid cards have grown by almost 50% from FY10to FY13. The

pre-paid card market grew from INR200 billion to INR700 billion

during this period.

Debit cards (43%), credit cards (28%), internet banking (29%) all

comprise a substantial percentage of the overall number of electronic

transactions for private sector banks.

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Acceptance infrastructure such as ATMs grew at a CAGR of 24%

during the period 2011–13 with133,000 ATMs deployed currently. The

presence of POS has also grown at a CAGR of 27% during

FY13, with the deployment of 9.63 lakhs POS.

Below is a snapshot of information on payments transactions from

the industry and various

participating banks.

9. Customer Management

1. Age of the customer

Broadly, the customer ecosystem can be divided into three main eras

or ecosystems in India.

Product-focused ecosystem:

This system was in place from the time of independence till the

so called “license raj” and coincided with the first private banking

licenses in the early nineties.

This was a period when power resided with banks. With little

or no product/services differentiation, customers more often than not

decided on their preferred banks, frequently on the basis of

locational convenience.

Customer expectations were low, and therefore, most of them were

willing to put up with long lines, rude staff and poor service

levels at branches.

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Banking channels were mainly restricted to branches, and in most

cases, it was a purchase economy with no concept of relationship

managers or sales teams.

Information flow was one way from the bank to the customer.

CRM was driven at the individual level rather than as a strategy,

and therefore, customer processes and systems were mainly non-

existent.

Customer-focused ecosystem:

The launch of the initial 10 private banks in 1993–94 ushered in

an era of consumer banking,when product and service differentiation

was thought to be an important element in winning of the market

place.

Customers had begun seeing trends in other industries and expected

the same from their banks.

Private banks changed the rules of the game by trying to

become more customer-centric, but rules were still set by banks.

This increased customers’ awareness that products needed to be

different and not all customers are equal, which led to initial

technology-related investments in CRM.

The internet as a channel began to make its presence felt in the

early part of the century

Considering the quantum of investments needed in setting up new

branches and their own growthrelated aspirations, most private sector

banks put in place “sales organizations” (both in-house and

outsourced) and also began riding on the telecom revolution by

providing toll free contact center numbers to their customers.

The customer ecosystem:

And now we come to the era of the digital customer.

Communication is no longer a one-way street from the bank to

the customer. The customer is now driving the agenda and

discussion.

Key technologies, including the web, mobile, social and cloud, have

ensured that customers are now taking decisions outside “official

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channels” and only approaching the bank once their decisions have

been made. Furthermore, mobility ensures that information is now on

tap and that customerscan compare services, prices, etc., on the

move.

CHAPTER – V

FUTURE TRENDS

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6.1 Beyond Core Banking

Increased adoption of e-payments and mobile banking areclearly the

emerging areas which are bound to strengthen in the near future. In

addition, the focus is shifting towards systems and processes needed in

the maturity phase of the Technology needs curve. Banks will need to

increasingly focus on cost and profitability management, business intelligence,

dashboards/ executive information reports, data warehousing and

analytics.Improving internal effectiveness and efficiency with integrated data

warehouse and real-time access to all customer information will help the

banks’ decision making and ability to deliver appropriate products and

services to the customers. Banks must see beyond applications that provide

solutions to today’s problems. They need to develop a vision of a

comprehensive infrastructure— comprising internal and external networks

instantaneously moving information from data stores to users and back

again.

The importance of the IT-business unit partnership cannot be

overemphasized. The people and processes are just ascritical to success as

hardware and software. Undoubtedly, banks have made great technological

advances in storing information. However, the full power to use that

information to be more productive and make better decisions still goes

unrealized. By continuing to emphasize only technology and the peripheral

business processes it affects, banks have seriously neglected their personal

and enterprise-wide intelligence. The effectiveness of the infrastructure is

measured in the value it brings to the customer. That value is

diminished by business units and individuals that are not networked.

Therefore, banks must provide access and training, to each member of

the bank who directly or indirectly serves customers. To make this

possible,clear standards and expectations must be published, so the

information technology organization can bring individuals online in a

consistent manner.

6.2 Increasing Interconnectivity and Ease of Payments through

Different Form Factors

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The economic role of payment systems is connected intimately to the

economic role of money. Money is a unit of account, a store of value,

and a medium of exchange. Cash, checks, electronic transfers, debit, credit

and charge cards, as well as payment methods relying on mobile phones

and on the internet are based on different systems for exchanging value

between economic entities and on different form factors for engaging in

this exchange.

Anywhere anytime banking is becoming the norm due to the

implementation of core banking solution (CBS), additionally increased efforts

by the regulator in setting up Electronic Clearing Service (ECS), Real

Time Gross Settlement (RTGS) and NEFT systems is leading to

interconnectivity and ease of inter and intra-bank funds transfer.

The increasing usage of credit/debit cards and mobile banking is

facilitating the ease of payments through different factors linked to vendors

and service providers. The trend is likely to strengthen with an increasing

number of transactions moving online.Presently, a technological development

is closely related to computerization in banks branches for adoption of

the core banking solution (CBS). An important development in the

percentage of branches of public sector banks implementing core banking

solution (CBS). The percentages of such branches increased by 79.4 % at

end March 2009 to 90% at the end of March-2010.

Table for Branches under Core Banking (in %)

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CHAPTER – VI

ROLE OF CRM TECHNIQUES

7.1 ROLE OF CRM TECHNIQUES

Customers have grown to expect comprehensive financial services from a

single point of contact. They are attracted by many new products and

services that non-banking institutions have been offering. The challenge for

banks is to package these products and services and deliver them through

convenient, user-friendly channels. Only by integrating people, processes, and

technology across business lines will banks be able to forge a portfolio

of virtual banking services based on the proclivities of specific customer

market segments.Consumer behavior is an important factor that will change

the functioning and business plans of banks in the next decade. The

banking sector will increasingly move towards a CRM banking model

where the banks will have to develop and service products suited/

required at different phases of a consumers life. Banks have already

started moving towards catching the customers young by providing school

and college going students with bank accounts. As the youngster grows

banks will have to track and predict the financial needs using sophisticated

analytical models and deliver focused products and services.

It has always been difficult for large institutions to compile information

on a single customer from multiple points of contact. Customers who

choose services and products from multiple business areas typically are

treated as separate relationships within each area. Because a customer-

centric infrastructure does not exist at most banks, customer service

representatives do not have the infrastructure support or the incentive to

pull the information together. Without clearly understanding the strategic

advantages of using a customer data warehouse, bank customer service

representatives will not change their behavior, and any competitive

advantage will be short-lived. The bank will gain minimal value from the

significant investment required to develop the requisite technologies.

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Knowledge Management treats the behavior of people as an equal and

essential component of effective information-sharing.Knowledge management

also enables knowledge from similar previous situations to inform current

decisions. Both managers and service teams must play a role in building

a knowledge culture.Managers must codify relevant experiences, packaging

them to maximize their relevance and reusing them in new situations that

create value. Once the knowledge has been codified, it needs to be

shared with appropriate individuals.

An integrated approach to knowledge management enables the bank to

group its products to serve specific market segments, such as lawyers,

young professionals, retirees. The product groupings would be based on

customer feedback as to which products are in demand and on the

bank’s assessment of each product’s profitability. Once the bank identifies

the product groupings, it can provide high-quality service, with high-quality

support from front and back offices, cross-functional data bases, and

customer service personnel. For banks, information technology plays an

important role in informed decision-making by creating a means to collect

and codify experiences and solutions from similar decisions in suchareas as

financial management, customer service, or relationship development. The

enabling technologies include client/server technology, distributed computing,

networking, and data warehousing.

Knowledge of what customers need most and are willing to pay a

premium to get, should be frequently updated and shared across the bank.

Technology allows the bank to accomplish this enormously complex task.

Knowledge means more than just having information; it happens when

information is put in proper context and shared. For customers, valuable

knowledge might be reflected in the performance of their financial

portfolio or in the ease and success of making transactions.

CHAPTER – VII

6

CHALLENGES FACED BY THE BANKING

INDUSTRY IN TERMS OF TECHNOLOGY

8.1 Introduction

The Indian banking sector has emerged as one of the

strongest drivers of India’s economic growth. It has a

large geographic and functional coverage. The sector has

undergone significant developments and investments in the

recent past. Here commercial banks cater to short and

medium term financing requirements, while national level

and state level financial institutions meet longer-term

requirements. Banking industry in India has also achieved a

new height with the changing times. Most of banks

provide various services such as Mobile banking, SMS &

Net banking and ATMs to their customers for their

convenience. The use of technology has brought a

revolution in the working style of the banks. Banking

today has transformed into a technology intensive and

customer friendly model with a focus on convenience.

However, changing dynamics of banking business also brings

new kind of risk exposure. In this article an attempt has

been made to identify the major challenges and

opportunities for the Indian Banking Sector. This article is

divided in two major parts. First half includes the

introduction and general scenario of Indian banking sector.

The second half discusses various challenges and

opportunities faced by Indian banking sector.

Some of the challenges that the banks are facing today are:

Changing needs of customers.

Coping with regulatory reforms.

Restructuring and reorganizing banks' setup towards thinner and leaner

administrative offices; Closing down and/or merging of unviable

branches particularly in urban and metropolitan branches;

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Thinning spread.

Maintaining high quality assets.

Management of impaired assets.

Keeping pace with technology up-gradations.

Sustaining healthy bottom lines and increasing shareholder value

8.2 Challenges Ahead

8.2.A Important Business Challenges:

Meet customer expectations on service and facility offered by the

bank.

Customer retention.

Managing the spread and sustain the operating profit.

Retaining the current market share in the industry and the

improving the same.

Completion from other players in the banking industry.

8.2.B.Other Important Operational Challenges

Frequent challenges in technologies used focusing up grades in

hardware and software, attending to that implementation issues and

timely roll out.

Managing technology, security and business risks.

System re-engineering to enable. Defined and implemented efficient

processes to be able to reap benefits off technology to its fullest

potential.

Upgrading the skill of work force spread across the country.

With the opening of economy, deregulation, mergers and acquisition of

banks, implementation of BASLE II norms, disinvestment of government

6

holding in banks, the competition is going to be increased from new

banks and merged entities. This will also open up new opportunities for

introduction of a new products and services. A definite trend is emerging

as to consolidation of the banking system, sharing of ATM networks and

services, tie ups with insurance companies, other billing organizations like

mobile operators, electricity and telephone bills and bank for cross selling

of various products and services.

8.2.C Immediate Focus

To facilitate successful implementation of the above initiative, intensive

efforts are to be undertaken by all of us on following issues:

Completion of correct MIS details in all accounts and SRM’s.

Customer/ Account data completion/correction.

Customer-ID crystallization.

Aggressive marketing of Internet Banking & Debit Card products to

increase share of delivery channels transaction.

Skill up gradation & increase in awareness of all staff member.

Strict compliance of Circular & Guidance available online

(CBSINFO)/ Messages issued through scrolling ticker on login page.

Present slowdown in rollover must be put to full use to have concrete

action on these fronts.

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CHAPTER – VIII

CASE STUDIES

State Bank of India, World's Largest Centralized Core

Processing Implementation

The State Bank of India (SBI), the largest and oldest bank in India,

had computerized its branches in the 1990s, but it was losing market

share to private-sector banks that had implemented more modern centralized

core processing systems.To remain competitive with its private-sector

counterparts, in 2002, SBI began the largest implementation of a

centralized core system ever undertaken in the banking industry.The State

Bank of India selected Tata Consultancy Services to customize the

software, implement the new core system, and provide ongoing operational

support for its centralized information technology.Although SBI initially

planned to convert only 3,300 of its branches, it was so successful that

it expanded the project to include all of the more than 14,600 SBI and

affiliate bank branches. The State Bank of India has achieved its goal of

offering its full range of products and services to all its branches and

customers, spreading economic growth to rural areas and providing financial

inclusion for all of India's citizens.

Report Coverage

The implementation of the Tata Consultancy Services (TCS) BaNCS Core

Banking at the State Bank of India (SBI) and its affiliate banks represents

the largest centralized core system implementaion ever undertaken. The

overall effort included the conversion of approximately 140 million accounts

held at 14,600 domestic branches of SBI and its affiliate banks. This

TowerGroup Research Note is a case study that overviews the history of

the State Bank of India and details the effort to modernize the bank's

core processing systems. It also identifies the drivers to modernization, the

critical success factors, and the conversion methodology.

6

Unlike private-sector banks, SBI has a dual role of earning a profit and

expanding banking services to the population throughout India. Therefore, the

bank built an extensive branch network in India that included many

branches in low-income rural areas that were unprofitable to the bank.

Nonetheless, the branches in these rural areas bought banking services to

tens of millions of Indians who otherwise would have lacked access to

financial services. This tradition of "banking inclusion" recently led India's

Finance Minister P. Chidambaram to comment, "The State Bank of

India is owned by the people of India." A lack of reliable

communications and power (particularly in rural areas) hindered the

implementation of computerization at Indian banks throughout the 1970s and

1980s. During this period, account information was typically maintained at

the local branches with either semiautomated or manual ledger card

processing. During the 1990s, the Indian economy began a

6

period of rapid growth as the country's low labor costs, intellectual

capital, and improving telecommunications technology allowed India to offer

its commercial services on a global basisThis growth was also aided by

the government's decision to allow the creation of private-sector banks

(they had been nationalized in the 1960s). The private-sector banks, such

as ICICI Bank andHDFC Bank, altered the banking landscape in India.

They implemented modern centralized core banking systems and electronic

delivery channels that allowed them to introduce new products andprovide

greater convenience to customers. As a result, the private-sector banks

attracted middle and upper-class customers at the expense of the public-

sector banks. Additionally, foreign banks such as Standard Chartered Bank

and Citigroup used their advanced automation capabilities to gain market

share in the corporate and high-net-worth markets

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CHAPTER – IX

SUMMARY, FINDINGS & CONCLUSIONS

9.1 Conclusions

From enabling banking services to driving transformation in the Industry.

Information Technology course do promise to change the pace of banking

to the next few years. Mobile bank and internet banking are going to

make indoor in the banking sector in the near future. Even though IT

systems are complex and sophisticated but they are “energy guzzlers”.

Hence, the future for banking sector is going to make rapid straights in

near future. Indian public sector banks that hold around 75 % of market

share do have taken initiative in the field of IT. They are moving towards

the centralized database and decentralize decisions making process. They posses

enviable quality manpower. Awareness and appreciation of Technology are very

much there. What is needed is a ‘big push’ the way it was given in the

post nationalization period for expansionary activities. Technology(I.T) and

India have become synonymous. Whether India becomes a destination for

outsourcing or it becomes a development centre is matter of debate. As far

as banking industry in India is concerned it can be said that although the

Indian banks may not be as technologically advanced as their counterparts in

the developed world, they are following the majority of international trends

on the IT front. The strength of Indian banking lie in withering storms

and rising up to the expectations from all the quarters catching up with all

the global trends is a matter of time

Use of technology in expanding banking is one of the key focus

areas of banks. The banks in India are using Technology not only to

improve their own internal processes but also to increase facilities and

services to their customers. Efficient use of technology has facilitated

accurate and timely management of the increased transaction volume of

banks of that comes with larger customer base. By designing and

offering simple, safe and secure technology, banks reach at doorstep of

customer with delight customer satisfaction.

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CHAPTER – X

INTERVEIW ANALYSIS

For better understanding of this project I have visited BANK OF

BARODA were I met P.K Bora(Manager) I asked in certain set of

question to know his views & thoughts on this segments here.I have to

share with you all his experience that he share with The question was

by me and reply were given by the manager P.K Bora are as follows

1) The Reserve Bank of India(RBI) in March 2012 hiked bank rate for

Primary cooperative banks to

1) 10.5 percent

2) 9.5 percent

3) 5.5 percent

4) 8 percent

5) 7 percent

Ans 9.5 percent

2) Which Indian City in March 2012 became the first one to provide

guaranteed land titles by distributing property cards?

1) Hyderabad

2) Mysore

3) Mangalore

4) Ahmedabad

5) Chandigarh

Ans Mysore

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3) IT Company HCL technologies Ltd. in March 2012 signed a five

year information technology outsourcing deal worth ------- with finnish

recyclable product maker UPM.

1) $ 50 million

2) $ 100 million

3) $ 150 million

4) $ 250 million

5) $ 300 million

Ans $ 300 million

4) The department of information technology in March 2012 has been

renamed as ----

1) Department of electronics

2) Department of IT

3) Department of Electronics and IT.

4) All of the above

5) None of these

Ans Department of Electronics and IT

5) PIN’ in Smart Card is called ---

A) Permanent Index Number

B) Personal Identification Number

C) Personal Index Number

D) Permanent Identification Number

Ans Personal Identification Number

6) MICR’ technology used for clearance of cheques by banks refers to --

A) Magnetic Ink Character Recognition

B) Magnetic Intelligence Character Recognition

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C) Magnetic Information Cable Recognition

D) Magnetic Insurance Cases Recognition

Ans Magnetic Ink Character Recognition

7)“Buy Now – Pay Now” is commonly used for ---

A) Debit Cards

B) Vault Cards

C) Credit Cards

D) E-purse

Ans Debit Cards

8) The technique is used to produce a “fingerprint” of a message as a

part of digital signing –

A) Scrambling

B) Extracting

C) Hashing

D) Condensing

Ans Condensing

9) Smart Card is –

A) Special purpose Cards

B) Microprocessor Cards

C) Processing unit contains memory for storing data

D) Processing unit for software handling

Ans Microprocessor Cards

10) Payroll System is essentially –

A) Online

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B) Batch Processing

C) Real Time

D) Transaction processing

Ans Online

CHAPTER – XI

BIBLIOGRAPHY

Mittal R.K, Dhingra Sanjay,"Technology in Banking Sector: Issues and Challenges",

Vinimaya, Vol. XXVII, No. 4, Jan- March, 2007, pp 14-22, 2007.

Narayan Tarun,"Banking on Technology, Indian Management Vol. 43, Issue 8,

August, 2004, pp.18-28, 2004.

Sathish.D, Bala Bharathi. Y,"Indian Banking Industry: Challenging Times Ahead,

Chartered Financial Analyst, February 2007, pp. 68-70.

Pathrose P P (2001), ―Hi Tech. Banking Prospects and Problem‖, IBA Bulletin, Vol.

13, No.7.

“Computerization in Development Financial Institutions (DFIs) IDBI Experience”,

Journal of Development Finance,June 1995, pp. 26.

WEBSITES

www.rbi.org

www.investopedia.com

www.scrib.com

www.theeconomics.com

www.commerce.nic.in

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