1. Indian Banking System And Its Emerging Trends - 2020.ppt

INNOVATION IN INDIAN BANKING SECTOR

INTRODUCTION The term “Innovation” means ‘to make something new’. Banks no longer restricted themselves to traditional banking activities, but explored newer avenues to increase business and capture new market.  Today, we are having a fairly well developed banking system with different classes of banks.  Some of them have engaged in the areas of consumer credit, credit cards, merchant banking, internet and phone banking, leasing, mutual funds etc.  A few banks have already set up subsidiaries for merchant banking, leasing and mutual funds and many more are in the process of doing so.

BANKING IN INDIA

 Started in the year 1786 with “ The General Bank of India ” being the first.  From the time bank of Bengal (1806), qualitative and quantitative changes taken place.  Reserve Bank of India came in 1935. Became the central banking authority in 1965.  Banking Companies Act passed in 1949.  Formation of State Bank of India in 1955.  Nationalization of 14 major banks in 1969. 7 more in 1980.  In the 1990s, greater emphasis being placed on technology and innovation.  Opening up of economy, implementations of recommendations of the Narsimham committee.  New concept like personal banking, retail banking, total branch automation, etc. were introduced.

June 2, 1806: The Bank of Calcutta

April 15, 1840: Bank of Bombay

1861: Paper Currency Act passed.

July 1, 1843: Bank of Madras

January 27, 1921

1955 • TAKEN OVER BY SBI

Structure: •

Components of Indian Financial System

Financial Institutions

Financial Markets

Banking Non-Banking Institutions Institutions

Commercial Cooperative Banks Banks Public Sector Pvt. Sector RRBs Foreign Banks DFIs a) Developments Banks -All India - State Level b)Invt Institutions (LIC,GIC,UTI) c) Specialized Institution

Financial Instruments

Money Market Capital Market

-Call Money Market -Treasury Bills -Commercial Bills -Commercial Papers -CDs Primary Market

Non-Banking Financial Entities a) NBFCs - Equipment Leasing - Hire-Purchase - Investment - Loan

Term -Short term -Medium Term -Long Term

Secondary Market

Financial Services

Asset/Fund Based -Leasing -Hire Purchase -Consumer Credit -Bill Discounting -Venture Capital -Housing Finance -Insurance -Factoring

Type -Primary Securities -Secondary Securities (Equity,Pref,Debt) -Innovative Instruments

Fee Based - Merchant Banking -Credit Rating -Stock Broking -Mergers

BASIS FOR COMPARISON

SCHEDULED BANKS

NON-SCHEDULED BANKS

Meaning

Scheduled banks is a banking corporation whose minimum paid up capital is Rs. 5 lakhs and does not harm the interest of the depositors.

Non-scheduled banks are the banks which do not comply with the rules specified by the Reserve Bank of India, or say the banks which do not come under the category of scheduled banks.

Second Schedule

Listed in the second schedule.

Not-listed in the second schedule.

Cash Reserve Ratio

Maintained with RBI.

Maintained with themselves.

Borrowing

Scheduled banks are allowed to Non-Scheduled banks are not allowed to borrow money from RBI for regular borrow money from RBI for regular banking purposes. banking purposes.

Returns

To be submitted periodically.

No such provision periodic returns.

of

submitting

Members of It can become a member of clearing It cannot become member of clearing clearing house. house. house

FUNCTIONS OF BANKING

FUNCTIONS OF BANKS

LATEST TRENDS IN BANKING

UNIVERSAL BANKING

ELECTRONIC BANKING

•

GLOBALISATION OF BANKING Globalization has emerged as a prime mover in

the Indian banking system. • This has come about as a result of the policy of liberalization and opening up of banking and other sectors pursued after 1991 in India. • Foreign banks that wish to set up their offices/branches in India have been granted licenses by RBI on liberal and on reciprocal basis. • Similarly, Indian banks are also opening their offices/branches abroad, particularly in countries whose banks have opened offices in India

SATELLITE BANKING • Satellite banking is an upcoming technological innovation in the Indian banking industry. • It 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.

TECHNOLOGICAL DEVELOPMENT • With the advancement of technology and the birth of competition, banks are in the race of becoming the best in the country. • The advancement in the technology has helped the banks to reduce the workload. • There are so many activities, which are taken over by machines. Employees are no more loaded with paper work.

PHONE BANKING • Pick up the phone to access a host of Bank services, day or night. • Phone and mobile banking are a fairly recent phenomenon for the Indian banking industry. • Phone banking channels function through an Interactive Voice Response System (IVRS) or tele-banking executives of the banks.

E-BANKING • E-Banking or Electronic Banking is a major innovation in the field of Banking. • Earlier Banking was conducted in a very traditional manner, there were no such innovations. • Information revolution led to the evolution of internet, which lead to E-Commerce continued by evolution of E-Banking.

ELECTRONIC FUND 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. RBI is the service provider of EFT.  ELECTRONIC CLEARING SYSTEM(ECS): is a retail payment system that can be used to make bulk payments/receipts of a similar nature especially where each individual payment is of a repetitive nature and of relatively smaller amount. facility is meant for companies and government departments to make/receive large volumes of payments rather than for funds transfers by individuals Credit Card payments  Utilities payments - Telephone, Cell phones, Electricity bills  Equated Monthly Installment payments of personal loans  Monthly payments to Suppliers etc.,

RTGS  Introduced in India since March 2004.  It stands for ‘Real Time Gross Settlement System.  It is a fund transfer mechanism where transfer of money takes place from one bank to another on a ‘real time’ and on ‘gross basis’.  This is the fastest possible money transfer system through the banking channel. It runs on ‘Real Time basis’.  It is different from EFT and NEFT  It is primarily for large volume transaction.  The time taken for effecting funds transfer from one account to another is normally 2 hours.

BENEFITS OF RTGS • Real-time Payment Settlement: Payments settled in real time on a transaction-by-transaction basis, as soon as they are accepted by the system. • No Credit Risk :- There is no credit and settlement risk involved in RTGS system for receiving participant as each payment transaction is settled instantly. • Predictability of Cash Flows:- RTGS facilitates predictability of cash flows as customers know when their accounts will be debited or credited. • Benefits to Economy : The instant finality of payments ensures fast, secure and irrevocable settlement of major business and financial market transactions

International banking • Indian banks have extended their activities beyond the national boundaries. • The extension may take place in the form of borrowings as well as lending and it may take place through official or private or commercial channel. • In the process of internationalization, the domestic financial institutions participate in foreign financial markets and the foreign institutions participate in domestic market to a significant extent.

International lending • Syndicated loans • Large loans that enable borrowers to obtain large amounts of funds and lenders can diversify their credit risk. Lead bank can earn fee income for management services. • Letters of credit • Import letters of credit are issued by a bank in favor of a firm in most cases. An export letter of credit is issued by a foreign bank to a firm in the U.S.

Letters of credit • The letter of credit is a document from a bank that says it will pay the exporter when the conditions in the letter are met. • In effect, the bank’s credit is substituted for the importer. • The issuing bank pays the seller through the advising (paying) bank. • The importer pays the issuing bank a fee for its services.

FOREIGN DIRECT INVESTMENT (FDI)  Transfer of technology from overseas countries to the domestic market  Ensure better and improved risk management in the banking sector  Assures better capitalization  Offers financial stability in the banking sector in India. MICRO FINANCE: It refers to a movement that envisions a world in which low income households have permanent access to a range of high quality financial service to finance their income producing activities, build assets, stabilize consumption and protect against risks.

CORE BANKING Depositing and lending of money Core banking solution Knowing customers needs

CORPORATE BANKING: Financial services to large corporate & MNCs Services:  Overdraft facility  Domestic and international payments  Funding & Channel financing  Letters of guarantee  Working capital facility for domestic & international trade.

INVESTMENT BANKING   • • 

Creating funds and wealth of clients Fund creating in two ways : Corporate Finance M & As Professional sales person providing advice on stock trading

RURAL BANKING: It provides & regulates credit services for the promotion & development of rural sector mainly agriculture, SSI, cottage and village industries, handicrafts and many more. Examples of Regional Rural Banks are NABARD, HARYANA STATE COPERATIVE APEX BANK LIMITED, SYNDICATE BANK, UNITED BANK OF INDIA.

KIOSK BANKING

NRI BANKING This facility is designed for diverse banking requirements of the vast NRI population spread across the globe.  NRE (Non Resident External Account)  NRO (Non Resident Ordinary Account)  FCNR (Foreign Currency Non Resident Account)

7.RETAIL BANKING: It refers to banking in which banks execute transaction directly with individual , rather than corporate banks. It is also known as ‘One stop shop’. Services:        

Saving and checking accounts Mortgage Housing Finance Auto Finance Consumer Durable Loans Personal Loans Educational Loans Credit Cards

Impact of Demonetization on Banking •Promotion of Cashless Transaction •Usage of Paytm, SBI Buddy, BHIM App by GoI, and other such E-Wallate •Swipe Machine at Merchant, Shops, Mall & Mart

CONCLUSION

The BANKING sector in India has become stronger in terms of capital and the number of customers. It has become globally competitive and diverse aiming, at higher productivity and efficiency. Exposure to worldwide competition and deregulation in Indian financial sector has led to the emergence of better quality products and services. Reforms have changed the face of Indian banking and finance. The banking sector has improved manifolds in terms of Technology, Deregulation, Product & Services, Information Systems, etc. “With new opportunities unfolding Banking Sector, India is emerging as a global power in banking services in the next two decade."