Fierce competition, innovative strategies and competitive spirit have satiated banks with palpating activities. Banks are adopting different strategies in an environment of increased competitive pressure. Active strategies with focus on new fields of business and defensive strategy concentrating on cost cutting are embraced together. Flawless service delivery is the target with diffused liabilities and multiple choices available to customers.
Technology has completely changed the nature and pace of delivery of banking services world over. The speed has considerably improved alongwith the quality of the services. Various delivery channels are available with banks for customers. Broadly, the levels of banking services offered through internet can be categorized in to three types namely—Basic Level Service, Simple Transactional Websites and Fully Transactional Websites.
Indian banking was provided an opportunity by the liberalization in 1990s to extend its working para-meters beyond geographical borders. The banking reform has indeed helped to restore semblance of efficiency and stability. Our banking industry enjoys greater autonomy, operational flexibility and liberalized norms allowing it to be more com-petitive.
Technology Driven Indian Banking System
The growing universalisation and internationalisation of banking operations have altered the face of banks from one of mere inter-mediator to one of provider of quick, efficient and consumer centric ser-vices. There has been massive use of technology across many areas of banking business in India, both from the asset and the liability side of a bank’s balance sheet.
Banks pass through phases namely the inception phase, where the technology behind the application is in its infancy and a substantial amount of investment is required so as to make the application widely available commercially; the growth phase, where the application is increasingly available to the custo-mers and the technology behind the application is widely available; and the maturity phase, wherein the application is in widespread use and institutions not offering such applica-tions are likely to be at a competitive disadvantage.
The introduction of MICR based cheque processing—a first for the region, during the years 1986-88 was one of the earliest steps in Indian banking on the march of technology.
1. Technological Changes in Indian Banking System
Core Banking Systems—The introduction of Core Banking Systems (CBS) which was at its nascent stages has become full blown and all banks are at varying stages of implementation of Core Banking Systems in their branches. There are 5 ingredients that form part of the Core Banking system viz. General Ledger Customer, Information System, Deposit System, Loan System and Management Information System.
INFINET—INFINET (Indian Financial Network), is used by a large number of banks for funds and non-funds-based message transfers, and is made available by the Institute for Development and Research in Banking Technology (IDRBT), Hyderabad. INFINET is perhaps among the few networks in the world which uses the latest in technology and security called Public Key Infrastructure—PKI, which is not only state-of-the-art and robust but also well within the legal requirements of the Information Technology Act, 2000.
National Electronic Funds Transfer System—RBI introduced an electronic funds transfer system to facilitate an efficient, secure, econo-mical, reliable and expeditious system of funds transfer and clearing in the banking sector throughout India, and to relieve the stress on the existing paper-based funds transfer and clearing system called National Electronic Funds Transfer System (NEFT System).
The parties to a funds transfer under this NEFT System are the sending bank, the sending Service Centre, the NEFT Clearing Centre, the receiving Service Centre and the beneficiary branch. The EFT scheme enables transfer of funds within and across cities and between branches of a bank and across banks.
National Electronic Clearing Services—The objective of National Electronic Clearing Services (NECS) is to facilitate centralised processing for repetitive and bulk payment instructions. Sponsor banks shall submit NECS data at a single centre viz. at Mumbai. While NECS (Credit) shall facilitate multiple credits to beneficiary accounts at destination branch against a single debit of the account of a User with the sponsor bank, the NECS (Debit) shall facilitate multiple debits to destination account holders against single credit to user account.
Centralized Funds Management System—The Centralized Funds Management System (CFMS), is a system to enable operations on current accounts maintained at various offices of the Bank, through standard message formats in a secure manner. It is set up, operated and maintained by the Reserve Bank of India.
Mobile Banking Services—Mobile payments is defined as infor-mation exchange between a bank and its customers for financial transactions through the use of mobile phones. Mobile payment involves debit/credit to a customer’s account’s on the basis of funds transfer instruc-tion received over the mobile phones.
Only Indian Rupee-based dome-stic services shall be provided. Use of mobile banking services for cross border inward and outward transfers is strictly prohibited. Only banks which have implemented core bank-ing solutions would be permitted to provide mobile banking services. Banks shall file Suspicious Trans-action Report (STR) to Financial Intelligence Unit–India (FIU-IND) for mobile banking transactions as in the case of normal banking transactions. To ensure inter-operability between banks, and between their mobile banking service providers, banks shall adopt the message formats like ISO 8583, with suitable modification to address specific needs. Hence, banks offering mobile banking should notify the customers the timeframe and the circumstances in which any stop-payment instructions could be accepted.
Mobile Banking Transactions | ||
| Applicability period | Per customer for funds transfer | Per customer for transactions involving purchase of goods/services |
| October 08, 2008 till December 24, 2009 | Rs. 5000 | Rs. 10,000 |
| December 24, 2009 till date | Rs. 50,000 | Rs. 50,000 |
Number of ATMs in 2009 and 2010 | ||||||
| Banks | ATMs (As at end-March 2009) | ATMs (As at end-March 2010) | ||||
| On-site | Off-site | Total | On-site | Off-site | Total | |
| Scheduled Commercial Banks | 24,645 | 19,006 | 43,651 | 32,679 | 27,474 | 60,153 |
| Public Sector Banks | 17,379 | 9,898 | 27,277 | 23,797 | 16,883 | 40,680 |
| Nationalised Banks | 9,861 | 5,177 | 15,038 | 12,655 | 7,047 | 19,702 |
| Source : Annual Reports 2009-10, 2010-11, RBI | ||||||
Computerisation in Public Sector Banks | ||||
| As at end-March 2010 (%) | As at end-March 2009(%) | |||
| Banks | Branches under Core Banking Solutions | Branches Fully Com-puterised | Branches under Core Banking Solutions | Branches Fully Com-puterised |
| Public Sector Banks | 90.0 | 7.7 | 81.4 | 14.3 |
| Nationalised Bank | 85.9 | 10.9 | 73.4 | 20.4 |
| Source : Annual Reports 2009-10, 2010-11, RBI. | ||||
Drift Towards Innovative Banking
1. Presence of Women on Boards
Banking in the West has tradi-tionally been a male bastion and continues to be so. Study titled “Women on Corporate Boards in India 2010” ranked the companies listed in the Bombay Stock Exchange (BSE-100) in terms of the gender diversity of their boards, with those with the highest percentage of women on their boards appearing at the top. The BSE-100 comprises 26 industry classifications with the banking industry making up the largest group of companies.
Indian banks, with better gender equality on board than their western counterparts, scraped though the economic slowdown unscathed.
Women on Bank of Boards | |||||
| Rank among 100 companies | % of Women | Size | Women | Bank | Women as Execu-tive Directors |
| 4 | 18.2% | 11 | 2 | AXIS Bank Ltd. | Shikha Sharma |
| 43 | 6.7% | 15 | 1 | ICICI Bank | Chanda Kochhar |
| 43 | 6.7% | 15 | 1 | HDFC Ltd. | Renu Sud |
Kalpana Morparia heads the Indian arm of global financial leviathan J. P. Morgan Chase & Co; Meera Sanyal is the country executive for Royal Bank of Scotland and; Manisha Girotra is the managing director of Union Bank of Switzer-land’s India operations. K. J. Udeshi is the Chairman of Governing Council of BCSBI.
2. Mobile Branches
Domestic scheduled commercial banks (other than RRBs) were granted general permission by RBI, to opera-tionalise Mobile branches in Tier 3 to Tier 6 centres (with population upto 49,999 as per Census 2001) and in rural, semi urban and urban centres in the North Eastern States and Sikkim, subject to reporting.
The mobile branch should be stationed in each village/location for a reasonable time on specified days and specified hours, so that its services could be utilized properly by customers. The business transacted at the mobile branch shall be recorded in the books of the base branch/data centre. The bank may give wide publicity about the mobile branch in the village, including details of ‘specified days and working hours’ at various locations so as to avoid any confusion to local customers; and any change in this regard should also be publicized.
3. Social Responsibility, Sustain-able Development and Non-Financial Reporting
Government infused into bank-ing sector the ‘socialist’ constituent through nationalization of major banks.
CSR entails the integration of social and environmental concerns by companies in their business opera-tions as also in interactions with their stakeholders. SD essentially refers to the process of maintenance of the quality of environmental and social systems in the pursuit of economic development. NFR is basically a system of reporting by organizations on their activities in this context, especially as regards the triple bottom line, that is, the environmental, social and economic accounting.
RBI circular (dated December 20, 2007) on Role of Banks in Cor-porate Social Responsibility, Sustain-able Development and Non-Financial Reporting is appreciable. Stressing the need for Corporate Social Res-ponsibility (CSR), RBI pointed out that these initiatives by the banks are vital for sustainable development. Banks have been directed to start; non-financial reporting will help to audit their initiatives towards the corporate social responsibility (CSR). Such a reporting will cover the work done by the banks towards the social, economic and environmental better-ment of society.
4. Universal Banking
Universal Banking refers to those services offered by banks beyond traditional banking service such as saving accounts and loans and includes Pension Funds Manage-ment, undertaking equipment leas-ing, hire purchase business and factoring services, Primary Dealer-ship (PD) business, insurance busi-ness and mutual fund business.
The issue of universal banking came to limelight in 2000, when ICICI gave a presentation to RBI to discuss the time frame and possible options for transforming itself into an univer-sal bank.
Later on RBI asked financial institutions which are interested to convert them into a universal bank, to submit their plans for transition to a universal bank for consideration and further discussions. FIs need to for-mulate a road map for the transition path and strategy for smooth con-version into an universal bank over a specified time frame. The plan should specifically provide for full com-pliance with prudential norms as applicable to banks over the pro-posed period. Though the DFIs would continue to have a special role in the Indian financial System, until the debt market demonstrates substantial improvements in terms of liquidity and depth, any DFI, which wishes to do so, should have the option to transform into bank (which it can exercise), provided the prudential norms as applicable to banks are fully satisfied. To this end, a DFI would need to prepare a transition path in order to fully comply with the regula-tory requirement of a bank. The DFI concerned may consult RBI for such transition arrangements. Reserve Bank will consider such requests on a case by case basis.
Thus, Indian financial structure is slowly evolving towards a conti-nuum of institutions rather than discrete specialization.
Conclusion
The applicability of various existing laws and banking practices to e-banking is not tested and is still evolving, both in India and abroad. With rapid changes in technology and innovation in the field of e-banking, there is a need for constant review of different laws relating to banking and commerce. A re-orientation of strategy is required in order to accommodate the changes and challenges of the present globa-lised scenario.
Technological developments may become threat but still enable banks to access the global market through the electronic networks. IT usage by banks would continue to exist in substantial scales. Indian Banking is trying to embrace latest technology upgrading its services. Clientele are reveling sophisticated services specific needs, preferences and conveniences by the banks.
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