A SEMINAR REPORT

ON
RECENT DEVELOPMENT OF BANKING INDUSTRY
Submitted in partial fulfillment of the requirement
of Bachelor of Business Administration

JODHPUR

JAI NARIAN VYAS UNIVERSITY,

Report Submitted to
Submitted by
Mr. Harish Prajapat

Name:

Asst. Professor

Enrollment No:
Session 2014-15

Aishwarya College of Education, Jodhpur

A-9 1st Extension, Kamala Nehru Nagar
Jodhpur
1

INDEX
S.NO.

PARTICULAR

PAGE NO.

1.

INTRODUCTION

4-5

2.

PHASEI,II,III

6-9

3.

BANKING INDUSTRY VISION

10-22

4.

RECENT DEVELOPMENT OF BANKING 23-28

5.

INDUSTRY
ACTION POINTS ARISING OUT OF

29-30

6.

VISION REPORT
CONCLUSION

31

7.

BIBLIOGRAPHY

32

ACKNOWLEGDGEMENET
I would like express over quality to the people whose contribution
and effect hare made this seminar report on

Recent development of banking industry

I would like to think the honourable faculties of aishwarya college for
helping us for and showing their support to us and clearing our queries
guiding our thoughtful this seminar report.
I would thank my parent who must their supports financially and
morally and guided me throughout this seminar.

INTRODUCTION:Without a sound and effective banking system in India it cannot have a

healthy economy. The banking system of India should not only be hassle
free but it should be able to meet new challenges posed by the
technology and any other external and internal factors.

For the past three decades India's banking system has several
outstanding achievements to its credit. The most striking is its extensive
reach. It is no longer confined to only metropolitans or cosmopolitans in
India. In fact, Indian banking system has reached even to the remote
corners of the country. This is one of the main reason of India's growth
process.
The government's regular policy for Indian bank since 1969 has paid
rich dividends with the nationalization of 14 major private banks of
India.
Not long ago, an account holder had to wait for hours at the bank
counters for getting a draft or for withdrawing his own money. Today, he
has a choice. Gone are days when the most efficient bank transferred
money from one branch to other in two days. Now it is simple as instant
messaging or dials a pizza. Money has become the order of the day.
The first bank in India, though conservative, was established in 1786.
From 1786 till today, the journey of Indian Banking System can be
segregated into three distinct phases.

They are as mentioned below :Early phase from 1786 to 1969 of Indian Banks.
Nationalisation of Indian Banks and up to 1991 prior to Indian banking
sector Reforms.

New phase of Indian Banking System with the advent of

Indian Financial & Banking Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as Phase I,
Phase II and Phase III.

PHASEI
The General Bank of India was set up in the year 1786. Next came Bank
of Hindustan and Bengal Bank. The East India Company established
Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras
(1843) as independent units and called it Presidency Banks. These three
banks were amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders banks, mostly
Europeans shareholders.
In 1865 Allahabad Bank was established and first time exclusively by
5

Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters
at Lahore. Between 1906 and 1913, Bank of India, Central Bank of
India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore
were set up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also
experienced periodic failures between 1913 and 1948. There were
approximately 1100 banks, mostly small. To streamline the functioning
and activities of commercial banks, the Government of India came up
with The Banking Companies Act, 1949 which was later changed to
Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23
of 1965). Reserve Bank of India was vested with extensive powers for
the supervision of banking in india as the Central Banking Authority.
During those days public has lesser confidence in the banks. As an
aftermath deposit mobilisation was slow. Abreast of it the savings bank
facility provided by the Postal department was comparatively safer.
Moreover, funds werelargely given to traders.
PHASEII
Government took major steps in this Indian Banking Sector Reform after
independence. In 1955, it nationalised Imperial Bank of India with
extensive banking facilities on a large scale specially in rural and semiurban areas. It formed State Bank of india to act as the principal agent of
RBI and to handle banking transactions of the Union and State
Governments all over the country.
Seven banks forming subsidiary of State Bank of India was nationalised
in 1960 on 19th July, 1969, major process of nationalisation was carried
6

out. It was the effort of the then Prime Minister of India, Mrs. Indira
Gandhi. 14 major commercial banks in the country was nationalised.
Second phase of nationalisation Indian Banking Sector Reform was
carried out in 1980 with seven more banks. This step brought 80% of the
banking segment in India under Government ownership.
The following are the steps taken by the Government of India to
Regulate Banking Institutions in the Country:
1949: Enactment of Banking Regulation Act.
1955: Nationalisation of State Bank of India.
1959: Nationalisation of SBI subsidiaries.
1961: Insurance cover extended to deposits.
1969: Nationalisation of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalisation of seven banks with deposits over 200 crore.
After the nationalisation of banks, the branches of the public sector bank
India rose to approximately 800% in deposits and advances took a huge
jump by 11,000%.
Banking in the sunshine of Government ownership gave the public
implicit faith and immense confidence about the sustainability of these
institutions.
PHASEIII
This phase has introduced many more products and facilities in the
banking sector in its reforms measure. In 1991, under the chairmanship
of M Narasimham, a committee was set up by his name which worked
for the liberalisation of banking practices.
7

The country is flooded with foreign banks and their ATM stations.
Efforts are being put to give a satisfactory service to customers. Phone
banking and net banking is introduced. The entire system became more
convenient and swift. Time is given more importance than money.
The financial system of India has shown a great deal of resilience. It is
sheltered from any crisis triggered by any external macroeconomics
shock as other East Asian Countries suffered. This is all due to a
flexible exchange rate regime, the foreign reserves are high, the
capital account is not yet fully convertible, and banks and their
customers have limited foreign exchange exposure.
Bank of India was founded on September 7, 1906 by a group of eminent
businessmen from Mumbai. In July 1969 Bank of India was nationalized
along with 13 other banks.

Beginning with a paid-up capital of Rs.50 lakh and 50 employees, the

Bank has made a rapid growth over the years. It has evolved into a
mighty institution with a strong national presence and sizable
international operations. In business volume, Bank of India occupies a
premier position among the nationalized banks.
Presently, Bank of India has 2609 branches in India spread over all
states/ union territories including 93 specialized branches. These
branches are controlled through 48 Zonal Offices.
Bank of India has several firsts to its credit. The Bank has been the first
among the nationalised banks to establish a fully computerised branch
and ATM facility at the Mahalaxmi Branch at Mumbai way back in
8

1989. It pioneered the introduction of the Health Code System in 1982,

for evaluating/ rating its credit portfolio. Bank of India was the first
Indian Bank to open a branch outside the country, at London, in 1946,
and also the first to open a branch in Europe, Paris in 1974. The Bank
has sizable presence abroad, with a network of 23 branches (including
three representative office ) at key banking and financial centres viz.
London, New York, Paris, Tokyo, Hong-Kong, and Singapore.

BANKING INDUSTRY VISION

EMERGING ECONOMIC SCENE
The financial system is the lifeline of the economy. The changes in the
economy get mirrored in the performance of the financial system, more
so of the banking industry. The Committee, therefore felt, it would be
desirable to look at the direction of growth of the economy while
drawing the emerging contours of the financial system. The India
Vision 2020" prepared by the Planning Commission, Government of
India, is an important document, which is likely to guide the policy
makers, in the years to come. The Committee has taken into
consideration the economic profile drawn in India Vision 2020
document while attempting to visualize the future landscape of banking
9

Industry.
India Vision 2020 envisages improving the ranking of India from the
present 11th to 4th among 207 countries given in the World Development
Report in terms of the Gross Domestic Product (GDP). It also envisages
moving the country from a low-income nation to an upper middleincome country. To achieve this objective, the India Vision aims to have
an annual growth in the GDP of 8.5 per cent to 9 per cent over the next
20 years. Economic development of this magnitude would see
quadrupling of real per capita income. When compared with the average
growth in GDP of 4-6% in the recent past, this is an ambitious target.
This would call for considerable investments in the infrastructure and
meeting the funding requirements of a high magnitude would be a
challenge to the banking and financial system.
India Vision 2020 sees a nation of 1.3 billion people who are better
educated, healthier, and more prosperous. Urban India would encompass
40% of the population as against 28 % now. With more urban
conglomerations coming up, only 40% of population would be engaged
in agricultural sector as against nearly two thirds of people depending on
this sector for livelihood. Share of agriculture in the GDP will come
down to 6% (down from 28%). Services sector would assume greater
prominence in our economy. The shift in demographic profile and
composition of GDP are significant for strategy planners in the banking
sector.
Small and Medium Enterprises (SME) sector would emerge as a major
contributor to employment generation in the country. Small Scale sector
had received policy support from the Government in the past
considering the employment generation and favorable capital-output
ratio. This segment had, however, remained vulnerable in many ways.
10

Globalization and opening up of the economy to international

competition has added to the woes of this sector making bankers wary of
supporting the sector. It is expected that the SME sector will emerge as a
vibrant sector, contributing significantly to the GDP growth and exports.
Indias share in International trade has remained well below 1%. Being
not an export led economy (exports remaining below 15% of the GDP),
we have remained rather insulated from global economic shocks. This
profile will undergo a change, as we plan for 8-9% growth in GDP.
Planning Commission report visualizes a more globalised economy. Our
international trade is expected to constitute 35% of the GDP.
In short, the Vision of India in 2020 is of a nation bustling with energy,
entrepreneurship and innovation. In other words, we hope to see a
market-driven, productive and highly competitive economy. To realize
the above objective, we need a financial system, which is inherently
strong, functionally diverse and displays efficiency and flexibility. The
banking system is, by far, the most dominant segment of the financial
sector, accounting for as it does, over 80% of the funds flowing through
the financial sector. It should, therefore, be our endeavor to develop a
more resilient, competitive and dynamic financial system with best
practices that supports and contributes positively to the growth of the
economy.

FUTURE LANDSCAPE OF INDIAN BANKING

Liberalization and de-regulation process started in 1991-92 has made a
sea change in the banking system. From a totally regulated environment,
we have gradually moved into a market driven competitive system. Our
move towards global benchmarks has been, by and large, calibrated and
regulator driven. The pace of changes gained momentum in the last few
11

years. Globalization would gain greater speed in the coming years

particularly on account of expected opening up of financial services
under WTO. Four trends change the banking industry world over, viz. 1)
Consolidation of players through mergers and acquisitions, 2)
Globalization of operations, 3) Development of new technology and 4)
Universalisation of banking. With technology acting as a catalyst, we
expect to see great changes in the banking scene in the coming years.
The Committee has attempted to visualize the financial world 5-10 years
from now. The picture that emerged is somewhat as discussed below. It
entails emergence of an integrated and diversified financial system. The
move towards universal banking has already begun. This will gather
further momentum bringing non-banking financial institutions also, into
an integrated financial system.

The traditional banking functions would give way to a system geared to

meet all the financial needs of the customer. We could see emergence of
highly varied financial products, which are tailored to meet specific
needs of the customers in the retail as well as corporate segments. The
advent of new technologies could see the emergence of new financial
players doing financial intermediation. For example, we could see utility
service providers offering say, bill payment services or supermarkets or
retailers doing basic lending operations. The conventional definition of
banking might undergo changes.
The competitive environment in the banking sector is likely to result in
individual players working out differentiated strategies based on their
strengths and market niches. For example, some players might emerge as
specialists in mortgage products, credit cards etc. whereas some could
choose to concentrate on particular segments of business system, while
outsourcing all other functions. Some other banks may concentrate on
12

SME segments or high net worth individuals by providing specially

tailored services beyond traditional banking offerings to satisfy the
needs of customers they understand better than a more generalist
competitor.
Retail lending will receive greater focus. Banks would compete with one
another to provide full range of financial services to this segment. Banks
would use multiple delivery channels to suit the requirements and tastes
of customers. While some customers might value relationship banking
(conventional branch banking), others might prefer convenience banking
(e-banking).
Corporate governance in banks and financial institutions would assume
greater importance in the coming years and this will be reflected in the
composition of the Boards of Banks.

CHANGES IN THE STRUCTURE OF BANKS

The financial sector reforms ushered in the year 1991 have been well
calibrated and timed to ensure a smooth transition of the system from a
highly regulated regime to a market economy. The first phase of reforms
focused on modification in the policy framework, improvement in
financial health through introduction of various prudential norms and
creation of a competitive environment. The second phase of reforms
started in the latter half of 90s, targeted strengthening the foundation of
banking system, streamlining procedures, upgrading technology and
human resources development and further structural changes. The
financial sector reforms carried out so far have made the balance sheets
of banks look healthier and helped them move towards achieving global
benchmarks in terms of prudential norms and best practices.
Under the existing Basel Capital Accord, allocation of capital
follows a one-size-fit-all approach. This would be replaced by a risk
13

based approach to capital allocation. While regulatory minimum capital

requirements would still continue to be relevant and an integral part of
the three pillar approach under Basel II, the emphasis is on risk based
approach relying on external ratings as well as internal rating of each
asset and capital charge accordingly. The internal risk based approach
would need substantial investments in technology and development of
MIS tools. For a rating tool for internal assessment to be effective, past
data for 3 to 5 years would be required and as such, Indian banking
system will have to build up the capabilities for a smooth migration to
the new method.
Another aspect which is included in Basel II accord is a provision for
capital allocation for operational risk. This is a new parameter and even
internationally evaluation tools are not yet fully developed. This would
be another area where banking system will have to reckon additional
capital needs and functioning of its processes.
The financial sector reforms have brought in the much needed
competition in the market place. The competition to the existing banks
came mainly from the techno-savvy private sector banks. In the coming
years, we expect to see greater flow of foreign capital to come into the
Indian banking sector. Opening up of banking sector to global players
would see banks facing global competition.
Technology is expected to be the main facilitator of change in the
financial sector. Implementation of technology solutions involves huge
capital outlay .Besides the heavy investment costs, technology
applications also have a high degree of obsolescence. Banks will need
to look for ways to optimize resources for technology applications. In
this regard, global partnerships on technology and skills sharing may
help As we move along, the concept of branch banking will undergo
14

changes. Banks will find that many of the functions could be outsourced
more profitably without compromising on the quality of service.
Specialized agencies could come forward to undertake Marketing and
delivery functions on behalf of banks. This could see banking products
being sold outside the four walls of a branch. Banks would then
concentrate on developing new products and earning fee based income.
Management structure of banks will also undergo drastic changes in the
coming years. Instead of the present pyramid structure, the banks will
move towards reduction in tiers to ultimately settle for a flat structure.
Product-wise segmentation will facilitate speedier decision-making.

PRODUCT INNOVATION AND PROCESS REENGINEERING

With increased competition in the banking Industry, the net interest
margin of banks has come down over the last one decade. Liberalization
with Globalization will see the spreads narrowing further to 1-1.5% as in
the case of banks operating in developed countries. Banks will look for
fee-based income to fill the gap in interest income. Product innovations
and process re-engineering will be the order of the day. The changes will
be motivated by the desire to meet the customer requirements and to
reduce the cost and improve the efficiency of service. All banks will
therefore go for rejuvenating their costing and pricing to segregate
profitable and non-profitable business. Service charges will be decided
taking into account the costing and what the traffic can bear. From the
earlier revenue = cost + profit equation i.e., customers are charged to
cover the costs incurred and the profits expected, most banks have
already moved into the profit =revenue - cost equation. This has been
15

reflected in the fact that with cost of services staying nearly equal across
banks, the banks with better cost control are able to achieve higher
profits whereas the banks with high overheads due to under-utilisation of
resources, un-remunerative branch network etc., either incurred losses or
made profits not commensurate with the capital employed. The new
paradigm in the coming years will be cost = revenue - profit.
As banks strive to provide value added services to customers, the market
will see the emergence of strong investment and merchant banking
entities. Product innovation and creating brand equity for specialized
products will decide the market share and volumes. New products on
the liabilities side such as forex linked deposits, investment-linked
deposits, etc. are likely to be introduced, as investors with varied risk
profiles will look for better yields. There will be more and more of tieups between banks, corporate clients and their retail outlets to share a
common platform to shore up revenue through increased volumes.
Banks will take on competition in the front end and seek co-operation in
the back end, as in the case of networking of ATMs. This type of coopetition will become the order of the day as Banks seek to enlarge their
customer base and at the same time to realize cost reduction and greater
efficiency.

TECHNOLOGY IN BANKING
Technology will bring fundamental shift in the functioning of banks. It
would not only help them bring improvements in their internal
functioning but also enable them to provide better customer service.
Technology will break all boundaries and encourage cross border
banking business. Banks would have to undertake extensive Business
Process Re-Engineering and tackle issues like a) how best to deliver
16

products and services to customers b) designing an appropriate

organizational model to fully capture the benefits of technology and
business process changes brought about. c) how to exploit technology
for deriving economies of scale and how to create cost efficiencies, and
d) how to create a customer - centric operation model.
Entry of ATMs has changed the profile of front offices in bank branches.
Customers no longer need to visit branches for their day to day banking
transactions like cash deposits, withdrawals, cheque collection, balance
enquiry etc. E-banking and Internet banking have opened new avenues
in convenience banking. Internet banking has also led to reduction in
transaction costs for banks to about a tenth of branch banking.
Technology solutions would make flow of information much faster,
more accurate and enable quicker analysis of data received. This would
make the decision making process faster and more efficient. For the
Banks, this would also enable development of appraisal and monitoring
tools which would make credit management much more effective. The
result would be a definite reduction in transaction costs, the benefits of
which would be shared between banks and customers.
While application of technology would help banks reduce their operating
costs in the long run, the initial investments would be sizeable. IT spent
by banking and financial services industry in USA is approximately 7%
of the revenue as against around 1% by Indian Banks. With greater use
of technology solutions, we expect IT spending of Indian banking
system to go up significantly.

RISK MANAGEMENT
17

Risk is inherent in any commercial activity and banking is no exception

to this rule. Rising global competition, increasing deregulation,
introduction of innovative products and delivery channels have pushed
risk management to the forefront of todays financial landscape. Ability
to gauge the risks and take appropriate position will be the key to
success. It can be said that risk takers will survive, effective risk
managers will prosper and risk averse are likely to perish. In the
regulated banking environment, banks had to primarily deal with credit
or default risk. As we move into a perfect market economy, we have to
deal with a whole range of market related risks like exchange risks,
interest rate risk, etc. Operational risk, which had always existed in the
system, would become more pronounced in the coming days as we have
technology as a new factor in todays banking.
Traditional risk
management techniques become obsolete with the growth of derivatives
and off-balance sheet operations, coupled with diversifications. The
expansion in E-banking will lead to continuous vigilance and revisions
of regulations.
Building up a proper risk management structure would be crucial for the
banks in the future. Banks would find the need to develop technology
based risk management tools. The complex mathematical models
programmed into risk engines would provide the foundation of limit
management, risk analysis, computation of risk-adjusted return on
capital and active management of banks risk portfolio. Measurement of
risk exposure is essential for implementing hedging strategies.
Under Basel II accord, capital allocation will be based on the risk
inherent in the asset. The implementation of Basel II accord will also
strengthen the regulatory review process and, with passage of time, the
review process will be more and more sophisticated.
Besides
regulatory requirements, capital allocation would also be determined by
18

the market forces. External users of financial information will demand

better inputs to make investment decisions. More detailed and more
frequent reporting of risk positions to banks shareholders will be the
order of the day. There will be an increase in the growth of consulting
services such as data providers, risk advisory bureaus and risk reviewers.
These reviews will be intended to provide comfort to the bank
managements and regulators as to the soundness of internal risk
management system Banks will also have to deal with issues relating to
Reputational Risk as they will need to maintain a high degree of public
confidence for raising capital and other resources. Risks to reputation
could arise on account of operational lapses, opaqueness in operations
and shortcomings in services. Systems and internal controls would be
crucial to ensure that this risk is managed well.
The legal environment is likely to be more complex in the years to
come. Innovative financial products implemented on computers, new
risk management software, user interfaces etc., may become patentable.
For some banks, this could offer the potential for realizing commercial
gains through licensing.

REGULATORY AND LEGAL ENVIRONMENT

The advent of liberalization and globalization has seen a lot of changes
in the focus of Reserve Bank of India as a regulator of the banking
industry. De-regulation of interest rates and moving away from issuing
operational prescriptions have been important changes. The focus has
clearly shifted from micro monitoring to macro management.
Supervisory role is also shifting more towards off-site surveillance rather
than on-site inspections. The focus of inspection is also shifting from
19

transaction-based exercise to risk-based supervision. In a totally deregulated and globalised banking scenario, a strong regulatory
framework would be needed. The role of regulator would be critical
for:
a) ensuring soundness of the system by fixing benchmark
standards for capital adequacy and prudential norms for key
performance parameters.
b) adoption of best practices especially in areas like riskmanagement, provisioning, disclosures, credit delivery, etc.
c) adoption of good corporate governance practices.
d) creation of an institutional framework to protect the interest of
depositors.
e) regulating the entry and exit of banks including cross-border
institutions.
Further, the expected integration of various intermediaries in the
financial system would add a new dimension to the role of regulators.
Also as the co-operative banks are expected to come under the direct
regulatory control of RBI as against the dual control system in vogue,
regulation and supervision of these institutions will get a new direction.
Some of these issues are addressed in the recent amendment Bill to the
Banking Regulation Act introduced in the Parliament.

RURAL AND SOCIAL BANKING ISSUES

Since the second half of 1960s, commercial banks have been playing an
important role in the socio-economic transformation of rural India.
Besides actively implementing Government sponsored lending schemes,
Banks have been providing direct and indirect finance to support
20

economic activities. Mandatory lending to the priority sectors has been

an important feature of Indian banking. The Narasimham committee
had recommended for doing away with the present system of directed
lending to priority sectors in line with liberalization in the financial
system. The recommendations were, however, not accepted by the
Government. In the prevailing political climate in the country any drastic
change in the policy in this regard appears unlikely.
The banking system is expected to reorient its approach to rural lending.
Going Rural could be the new market mantra. Rural market
comprises 74% of the population, 41% of Middle class and 58% of
disposable income. Consumer growth is taking place at a fast pace in
17113 villages with a population of more than 5000. Of these, 9989
villages are in 7 States, namely Andhra Pradesh, Bihar, Kerala,
Maharashtra, Tamilnadu, Uttar Pradesh and West Bengal. Banks
approach to the rural lending will be guided mainly by commercial
considerations in future.
Commercial Banks, Co-operatives and Regional Rural Banks are the
three major segments of rural financial sector in India. Rural financial
system, in future has a challenging task of facing the drastic changes
taking place in the banking sector, especially in the wake of economic
liberalization. There is an urgent need for rural financial system to
enlarge their role functions and range of services offered so as to emerge
as "one stop destination for all types of credit requirements of people in
rural/semi-urban centres.
Barring commercial banks, the other rural financial institutions have a
weak structural base and the issue of their strengthening requires to be
taken up on priority. Co-operatives will have to be made viable by
infusion of capital. Bringing all cooperative institutions under the
regulatory control of RBI would help in better control and supervision
21

over the functioning of these institutions. Similarly Regional Rural

banks (RRBs) as a group need to be made structurally stronger. It would
be desirable if NABARD takes the initiative to consolidate all the RRBs
into a strong rural development entity.
Small Scale Industries have, over the last five decades, emerged as a
major contributor to the economy, both in terms of employment
generation and share in manufactured output and exports. SSIs account
for 95% of the industrial units and contribute about 40% of the value
addition in the manufacturing sector. There are more than 32 lac units
spread all over the country producing over 7500 items and providing
employment to more than 178 lack persons. The employment generation
potential and favourable capital-output ratio would make small scale
sector remain important for policy planners.

RECENT DEVELOPMENT OF BANKING INDUSTRY

In these we see that the recent development of banking industry.
That is:-

1) Universal Banking
2) E-Banking
3) Mobile banking

1) Universal Banking
As per the World Bank, "In Universal Banking, large banks
operate extensive network of branches, provide many different
22

services, hold several claims on firms(including equity and

debt) and participate directly in the Corporate Governance of
firms that rely on the banks for funding or as insurance
underwriters".
Universal Banking includes not only services related to savings
and loans but also investments. However in practice the term
'universal banks' refers to those banks that offer a wide range of
financial services, beyond commercial banking and investment
banking, insurance etc.
Universal banking is a combination of commercial banking,
investment banking and various other activities including
insurance.
UNIVERSAL BANKING PROS AND CONS
The solution of Universal Banking was having many factors to
deal with, which can be further analyzed by the pros and cons.

Advantages of universal banking

Economies of Scale. The main advantage of Universal Banking is

that it results in greater economic efficiency in the form of lower
cost, higher output and better products. Many Committees and
reports by Reserve Bank of India are in favour of Universal
banking as it enables banks to explit economies of scale and scope.
Profitable Diversions. By diversifying the activities, the bank can
use its existing expertise in one type of financial service in
providing other types. So, it entails less cost in performing all the
functions by one entity instead of separate bodies.

23

Resource Utilization. A bank possesses the information on the

risk characteristics of the clients, which can be used to pursue other
activities with the same clients. A data collection about the market
trends, risk and returns associated with portfolios of Mutual Funds,
diversifiable and non diversifiable risk analysis, etc, is useful for
other clients and information seekers. Automatically, a bank will
get the benefit of being involved in the researching

Easy Marketing on the Foundation of a Brand Name. A bank's

existing branches can act as shops of selling for selling financial
products like Insurance, Mutual Funds without spending much
efforts on marketing, as the branch will act here as a parent
company or source. In this way, a bank can reach the client even in
the remotest area without having to take resource to an agent.

One-stop shopping. The idea of 'one-stop shopping' saves a lot of

transaction costs and increases the speed of economic activities. It
is beneficial for the bank as well as its customers.

Investor Friendly Activities. Another manifestation of Universal

Banking is bank holding stakes in a form : a bank's equity holding
in a borrower firm, acts as a signal for other investor on to the
health of the firm since the lending bank is in a better position to
monitor the firm's activities

Disadvantages of universal banking

Grey Area of Universal Bank. The path of universal banking for

DFIs is strewn with obstacles. The biggest one is overcoming the
differences in regulatory requirement for a bank and DFI. Unlike
banks, DFIs are not required to keep a portion of their deposits as
cash reserves.
24

No Expertise in Long term lending. In the case of traditional

project finance, an area where DFIs tread carefully, becoming a
bank may not make a big difference to a DFI. Project finance and
Infrastructure finance are generally long- gestation projects and
would require DFIs to borrow long- term. Therefore, the
transformation into a bank may not be of great assistance in
lending long-term.

NPA Problem Remained Intact. The most serious problem that

the DFIs have had to encounter is bad loans or Non-Performing
Assets (NPAs). For the DFIs and Universal Banking or installation
of cutting-edge-technology in operations are unlikely to improve
the situation concerning NPAs.

2) E-BANKING
Internet banking (or E-banking) means any user with a personal
computer and a browser can get connected to his bank -s website to
perform any of the virtual banking functions.
In internet banking system the bank has a centralized database that
is web-enabled. All the services that the bank has permitted on the
internet are displayed in menu.
The traditional branch model of bank is now giving place to an
alternative delivery channels with ATM network. It would a
borderless entity permitting anytime, anywhere and anyhow
banking.
SERVICES THROUGH E BANKING
Bill payment service,
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 Fund transfer,
Credit card customers,
Railway pass,

Investing through Internet banking ,

Recharging your prepaid phone,

Shopping

ADVANTAGES OF E BANKING
It is convenient, it isn't bound by operational timings, there are no
geographical barriers and the services can be offered at a miniscale
cost.
Through Internet banking, you can check your transactions at any
time of the day, and as many times as you want to.
If the fund transfer has to be made outstation, where the bank does
not have a branch, the bank would demand outstation charges.
Whereas with the help of online banking, it will be absolutely free
for you.

3) MOBILE BANKING
Mobile banking is a term used for performing balance checks,
account transactions, payments etc. via a mobile device such as a
mobile phone. Mobile banking today (2007) is most often
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performed via SMS or the Mobile Internet but can also use special
programs called clients downloaded to the mobile device.
Mobile Banking is a service that allows you to do banking
transactions on your mobile phone without making a call , using
the SMS facility.

How its works

Mobile Banking works on the 'Text Messaging Facility' also called
the SMS that is available on mobile phones. This facility allows
you to send a short text message from your mobile phone instead
of making a phone call.
All you need to do is type out a short text message on your mobile
phone and send it out to 5676712 .The response is sent to you as an
SMS message, all in the matter of a few seconds.
This message travels from your mobile phone to the SMS Centre
of the Cellular Service Provider, and from there it travels to the
Bank's systems.

Services available through mobile banking

You can get your Balance details
Get last 3 Transaction details
Request for a Cheque Book
Stop a Cheque payment
Inquire about a cheque status
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 Request an account statement

Get Fixed Deposit details
Get Bill payment details for Electricity, Mobile phone and
Telephone services
Pay your bills

Mobile banking through sms

Mobile Banking with SMS is conducted through SMS codes sent
to a particular number as directed by your bank. You will receive
the response in the form of a text message on your mobile phone
screen within a few seconds. For example to get details of your
HDFC bank account you will use codes like HDFCBAL,
HDFCTXN, HDFCSTM, HDFCSTP<6 digit cheque no.>, etc. for
balance enquiry, last transaction details, account statement, stop
cheque payment etc. respectively.

Mobile banking through wap

Once you log onto your Bank's WAP site through your WAP/GPRS
enabled mobile phone, all you need to do is enter your Cust ID and
Net Banking IPIN. Then go to the Transactions Menu after
selecting your account. Select any one of the Transactions like
Balance Inquiry, Mini Statement, Statement Request Stop
Payment, Cheque Status Inquiry Fixed Deposit Inquiry( can get
information on account number, principal amount, rate of interest,
maturity date and maturity amount) etc.

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ACTION POINTS ARISING OUT OF VISION REPORT

1.

Banks will have to adopt global standards in capital adequacy,

income recognition and provisioning norms.

2.

Risk management setup in Banks will need to be strengthened.

Benchmark standards could be evolved.

3.

Payment and settlement system will have to be strengthened to

ensure transfer of funds on real time basis eliminating risks
associated with transactions and settlement process.

4.

Regulatory set-up will have to be strengthened, in line with the

requirements of a market-led integrated financial system

5.

Banks will have to adopt best global practices, systems and

procedures.

6.

Banks may have to evaluate on an ongoing basis, internally, the

need to effect structural changes in the organization. This will
include capital restructuring through mergers / acquisitions and
other measures in the best business interests. IBA and
NABARD may have to play a suitable role in this regard.

7.

There should be constant and continual upgradation of

technology in the Banks, benefiting both the customer and the
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bank. Banks may enter into partnership among themselves for

reaping maximum benefits, through consultations and
coordination with reputed IT companies.
8.

The skills of bank staff should be upgraded continuously

through training. In this regard, the banks may have to relook at
the existing training modules and effect necessary changes,
wherever required. Seminars and conferences on all relevant
and emerging issues should be encouraged.

9.

Banks will have to set up Research and Market Intelligence

units within the organization, so as to remain innovative, to
ensure customer satisfaction and to keep abreast of market
developments. Banks will have to interact constantly with the
industry bodies, trade associations, farming community,
academic / research institutions and initiate studies, pilot
projects, etc. for evolving better financial models.

CONCLUSION

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Universal banks are financial institutions that may offer the entire
range of financial services. They may sell insurance, underwrite
securities, and carry out securities transactions on behalf of others.
They may own equity interests in firms, including nonfinancial
firms. And so in conclusion e-banking creates issues for banks and
regulators alike. For our part we will continue our work, both
national and international, to identify and remove any unnecessary
barriers to e-banking Mobile Banking came on to mobile phones
with a promise of convenience and comfort for banking
transactions and it did serve the purpose. A study by IBM finds that
the mobile banking is widely being used by youth these days.
According to the top consulting firms, the growth of Indian banks,
especially in the public sector, can be optimized through increasing
productivity and efficient human resource management. Banks
need to hire employees with both core and specialist skills, while
simultaneously working to control attrition. Further, banks need to
optimize the time and cost of performing non consumer activities
with the help of special tools and revamping existing knowledge
processes. Sustained government support and a careful reevaluation of existing business strategies can help the Indian banks
achieve strong growth.
Sustained government support and a careful re-evaluation of
existing business strategies can set the stage for Indian banks to
become bigger and stronger, thereby setting the stage for
expansions into a global consumer base.

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BIBLIOGRAPHY

www.scribd.com/indianbankingsystem
www.modern banking.com
www.universal banking.com
www.e-banking.com
www.mobile banking.com

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