indian banking system

INDIAN
BANKING SYSTEM
What is bank?
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INDIAN
BANKING SYSTEM
Chapter:- 1
Intro!"tion:
A bank is a financial institution that provides banking and other financial services to their
customers. A bank is generally understood as an institution which provides fundamental banking
services such as accepting deposits and providing loans. There are also nonbanking institutions
that provide certain banking services without meeting the legal definition of a bank. Banks are a
subset of the financial services industry. A banking system also referred as a system provided by
the bank which offers cash management services for customers, reporting the transactions of
their accounts and portfolios, throughout the day. The banking system in India should not only be
hassle free but it should be able to meet the new challenges posed by the technology and any
other external and internal factors. For the past three decades, Indias banking system has several
outstanding achievements to its credit. The Banks are the main participants of the financial
system in India. The Banking sector offers several facilities and opportunities to their customers.
All the banks safeguards the money and valuables and provide loans, credit, and payment
services, such as checking accounts, money orders, and cashiers che!ues. The banks also offer
investment and insurance products. As a variety of models for cooperation and integration among
finance industries have emerged, some of the traditional distinctions between banks, insurance
companies, and securities firms have diminished. In spite of these changes, banks continue to
maintain and perform their primary role"accepting deposits and lending funds from these
deposits.
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INDIAN
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De$nition o% banks
A""orin& to Wa'ter (ea%
#A bank is a person or corporation which holds it out to receive from the public, deposits payable
on demand by che!ue.$ %orace &hite has de'ned a bank, #as a manufacture of credit and a
machine for facilitating exchange.$
A""orin& to )ro%* Kin'e+
#A bank is an establishment which makes to individuals such advances of money as may be
re!uired and safely made, and to which individuals entrust money when not re!uired by them for
use.$
In si,p'e -ors
#Bank is what bank does$
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INDIAN
BANKING SYSTEM
T+pes o% banks
1* Centra' Bank
A central bank functions as the apex controlling institution in the banking and financial system of
the country. It functions as the controller of credit, bankers bank and also en(oys the monopoly
of issuing currency on behalf of the government. A central bank is usually control and !uite often
owned, by the government of a country. The )eserve Bank of India *)BI+ is such a bank within
an India.
#* Co,,er"ia' Banks
It operates for profit. It accepts deposits from the general public and extends loans to the
households, the firms and the government. The essential characteristics of commercial banking
are as follows,
- Acceptance of deposits from public - For the purpose of lending or investment - )epayable on
demand or lending or investment. - &ithdrawal by means of an instrument, whether a che!ue or
otherwise.
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INDIAN
BANKING SYSTEM
Another distinguish feature of commercial bank is that a large part of their deposits are demand
deposits withdraw able and transferable by che!ue.
.* De0e'op,ent Banks
It is considered as a hybrid institution which combines in itself the functions of a finance
corporation and a development corporation. They also act as a catalytic agent in promoting
balanced and viable development by assuming promotional role of discovering pro(ect ideas,
undertaking feasibility studies and also provide technical, financial and managerial assistance for
the implementation of pro(ect. In India .Industrial /evelopment Bank on India *I/BI+ is the
uni!ue example of development bank. It has been designated as the principal institution of the
country for co-coordinating the working of the institutions engaged in financing, promoting or
development of industry.
/* Co-operati0e Banks
The main business of co-operative banks is to provide finance to agriculture. They aim at
developing a system of credit. Agriculture finance is a special field. The co-operative banks play
a useful role in providing cheap exit facilities to the farmers.
In India there are three wings of co-operative credit system namely 0
*i+ 1hort term,
*ii+ 2edium-term,
*iii+ 3ong term credit.
The former has a three tier structure consisting of state
1* Spe"ia'i2e Banks
These banks are established and controlled under the special act of parliament. These banks have
got the special status. 4ne of the ma(or bank is .5ational Bank for Agricultural and )ural
development *5ABA)/+ established in 6789, as an apex institution in the field of agricultural
and other economic activities in rural areas. In 677: a special bank named small industries
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INDIAN
BANKING SYSTEM
development Bank of India *1I/BI+ was established. It was the subsidiary of Industrial
development Bank of India. This bank was established for providing loan facilities, discounting
and rediscounting of bills, direct assistance and leasing facility.
3* Ini&eno!s Bankers
That unorgani;ed unit which provides productive, unproductive, long term, medium term and
short term loan at the higher interest rate are known as indigenous bankers. These banks can be
found everywhere in cities, towns, mandis and villages.
4* 5!ra' Bankin&
A set of financial institution engaged in financing of rural sector is termed as .)ural Banking.
the policy of financing of these banks has been designed in such a way so that these institution
can play catalyst role in the process of rural development.
6* Sa0in& Banks
These banks perform the useful services of collecting small savings commercial banks also run
#saving bank$ to mobili;e the savings of men of small means. /ifferent countries have different
types of savings bank vi;. 2utual savings bank, <ost office saving, commercial saving banks etc.
7* E8port - I,port Bank
These banks have been established for the purpose of financing foreign trade. They concentrate
their working on medium and long-term financing. The =xport-Import Bank of India *=>I2
Bank+ was established on ?anuary 6, 6789 as a statutory corporation wholly owned by the central
government.
19* rei&n E8"han&e Banks
These banks finance mostly to the foreign trade of a country. Their main function is to discount,
accept and collect foreign bulls of exchange. They also buy and self-foreign currencies and help
businessmen to convert their money into any foreign currency they need. 4ver a do;en foreign
exchange banks branches are working in India have their head offices in foreign countries.
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11* Internationa' Banks
The basic list of those International Banks within India which help the banking sector of India to
develop in International market.
T+pes o% bankin&
Banking is described as the business carried on by an individual at a bank. Today, several forms
of banking exist, giving consumers a choice in the way they manage their money most people do
a combination of at least two banking types. %owever, the type of banking a consumer uses
normally based on convenience. These are different types of banking through which consumer
can attach to it-
;A< Wa'k-in-Bankin&
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BANKING SYSTEM
It is still a popular type of banking. As, in the past, it still involves bank tellers and speciali;ed
bank officers. @onsumers must walk into a bank to use this service normally, in order to
withdraw money or deposit itA a person must fill out a slip of paper with the account and specific
monetary amount and show a form of identification to a bank letter. The advantage of walk in
Banking is the face to face connection between the banker and a letter. Also unlike drive thru and
AT2 banking, a person can apply for a loan and invest money during a walk in.
;B< Dri0e thr! Bankin&
It is probably the least popular form of banking today, but is still used enough by consumers to
create a need for it. It allows consumers to stay in their while and drive up to a machine e!uipped
with container, chute and intercom. This machine is connected to a bank and is run by one or two
bank letters. A person can withdraw or deposit money at a drive thru. %e must fill out a slip with
his account and specific monetary amount and put it in the container. The container travels
through the chute to the bank letter, which will complete the bankers re!uest. This is where the
intercom comes into play. The bank teller and banker use it to communicate and discuss the
specific banking re!uest.
;C< ATM Bankin&
It is very popular because it gives a person 9B hour access to his bank account. &alk in and drive
thru banking does not offer this perk. In order to use an AT2, a person must have an AT2 card
with personal identification number *<I5+ and access to an AT2 machine. Any AT2 machine
can be used, but charges apply if the AT2 machine is not affiliated with the bank listed on the
AT2 card. By sliding an AT2 card into an AT2 machine, it is activated and then through
touching buttons on the machine, a consumer is able to withdraw or deposit money.
;D<=n'ine Bankin&
It allows a person to get on the internet and sign into their bank. This process is achieved with
the use of a <I5, different from the one used for the AT2 card. By going website of a bank and
entering it, a consumer can get into his account, withdraw money, deposit money, pay bills,
re!uest loans and invest money. 4nline banking is growing in popularity because of its
convenience.
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BANKING SYSTEM
These different types of banking give a consumer the power of choice and also give them a
comfortable banking system that gives them a convenient choice.
Chapter:-#
:!n"tions o% banks
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BANKING SYSTEM
I* A""eptin& Deposits:
The most important function of commercial banks is to accept deposits from public. This is the
primary functions of a commercial bank. Banks receives the idle savings of people in the form of
deposits and finances the temporary needs of commercial and industrial firms.
A commercial bank accept deposit from public on various account, important deposit account
generally kept by bank are
*i+ Sa0in& Bank Deposits > This type of deposits suit to
those who (ust want to keep their small savings in a bank and might need to
withdraw them occasionally. 4ne or two withdrawals up to a certain limit of total
deposits are allowed in a week. The rate of interest allowed on saving bank
deposits is less than that on fixed deposits. /epositor is given a pass book and a
che!ue book. &ithdrawals are allowed by che!ues and withdrawal form.
;ii< C!rrent Deposits > This type of account are generally kept by
businessmen and industrialists and those people who meet a large number of monetary
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BANKING SYSTEM
transactions in their routine. These deposits are known as short term deposits or demand
deposits. They are payable demand without notice. Csually no interest is paid on these deposits
because the bank cannot utili;e these deposits and keep almost cent per cent reserve against
them. 4verdraft facilities are also available on current account.
;iii< :i8e Deposits > These are also known as time deposits. In this
account a fixed amount is deposited for a fixed period of time. /eposits are payable after the
expiry of the stipulated period. @ustomers keep their money in fixed deposits with the bank in
order of earn interest. The banks pay higher interest on fixed deposits. The rates depend upon the
length of the period and state of money market.
5ormally the withdrawals are not allowed from fixed deposits before the stipulated date. If it
happens, the depositor entails an interest penalty.
; i0 < =ther Deposits > Banks also provide deposit facilities to
different type of customers by opening different account. They also open. .%ome 1afe Account
for housewife or very small savers.
The other a""o!nts are
.Indefinite <eriod /eposit aDc,
.)ecurring /eposit aDc
.)etirement 1cheme etc.
II* A0an"in& o% (oans:
The second main function of the commercial bank is to advance loans. 2oney is lent to
businessmen and trade for short period only. These banks cannot lend money for long period
because they must keep themselves ready to meet the short term deposits. The bank advances
money in any one of the following forms
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BANKING SYSTEM
;i< =0erra%ts: @ustomers of good standings are allowed to overdraw from their
current account. But they have to pay interest on the extra amount they have withdrawn. The
banks allow .overdrafts to their customers (ust to provide temporary accommodation save the
extra amount withdrawn is payable within a period. The amount allowed in .overdraft varies
from customer to customer depending on this financial condition.
;ii< (oans: 3oans are granted by the banks on securities which can be easily
disposed-off in the market, e.g. Eovernment securities or shares of approved concerns. &hen the
bank has satisfied itself regarding the soundness of the party, the loan is advanced. A borrower
seldom wants the whole amount of his loan in cash, so he opens the current account with the
bank *and the loan amount+ and thus a .deposit is created in the books of the name in the bank.
;iii< Cash Creit: It is an arrangement by which a bank allows his customers
to borrow money up to a certain limit against certain tangible securities as Eovernment securities
or shares of approved concerns etc. In this case interest in charged on the actual amount
withdrawn by the customer and not on the limit allowed to him.
;i0< Dis"o!ntin& Bi''s: It is another important way of giving loans.
The banks purchase bills and immediately pay case for these bills after deducting the discount
*interest+. After the maturity of the bills, the banks get back its full value. Thus these bills are
good li!uid assets and moreover this investment is also very safe.
III* A&en"+ Ser0i"es:
2odern Banks render service to the individual or to the business institutions as an agent. Banks
usually charge little commission for doing these services. These services are as follows-
*i+ A bank collects che!ues, bills and promissory notes and receives their payments.
*ii+ A bank collects dividend or interest on stock and shares. It also collects subscriptions and
insurance premium.
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BANKING SYSTEM
*iii+ A bank also buys and sells securities on behalf of its customers. It also not charges anything
from the customers for this but gets some commission from the stock broker.
*iv+ A bank acts as trustee or an executor on behalf of its customers in the administration of a
will or of settlement.
*v+ 3astly a bank helps in the transfer of funds from one bank or branch to another.
I?* =ther Ser0i"es:
A modern bank now a day serves its customers in many other ways,
*i+ A bank issues personal and commercial letters of credit. Through these letters of credit
customers are able to benefit themselves out of the superior credit of the bank.
*ii+ A bank also helps in the transaction of foreign exchange business.
*iii+ A bank has .1afe /eposit Faults. It undertakes the safe custody of valuables and important
documents. The bank acts as bailey of these goods or documents.
I,portan"e o% banks
Banks play an important role in the economic growth of a country. In the modern set up, banks
are not to be considered dealers in money but as the leaders of development. The importance of
bank for a countrys economy can be explained in following ways-
• Banks by playing attractive interest rate on deposits try to promote thrift and savings in
an economy. The investment of these savings in productive channel results in capital
formation.
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BANKING SYSTEM
• The scattered small savings in the country can be put to optimum use by commercial
banks. Banks utili;e this amount by giving loans to industrial houses and the
government. By providing funds to the entrepreneurs, bank help in increasing
productivity of capital.
• Banks help in remitting money from one place to another. The che!ue, bank draft, letter
of credit, bills, hundies enable traders to transfer large sums of money from one place
to another.
• By their ability to create credit, the banks have placed at the disposal of the nation a
large amount of money. The bank can increase the supply of money through credit
creation
• &ith the growth of banking activity, employment opportunity in the country has
increased to a considerable extent.
• The banks help in capital formation in the country. A high rate of saving and investment
promote capital formation.
• 2oney deposited in the bank and other precious items are now absolutely safe. For
keeping valuables, banks are providing locker facilities. 5ow people are free from any
type of risks.
Chapter:- .
INDIAN BANKING SYSTEM
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INDIAN
BANKING SYSTEM
The banking system of a country plays an important role in the economic development of any
country. Banking system comprises of the banking institutions functioning in the country.
Banking system comprises from the central bank to all banking institutions which are
functioning and providing financial facilities to any developmental sector like agriculture,
industries, trade, housing etc.
Cnder the Indian banking structure central bank in the name of the )eserve Bank of India which
regulates, directs and controls the banking institutions. 1eparate institutions are functioning to
meet the financial re!uirement of the different sectors of the economy. Indigenous bankers and
moneylenders do dominant in the unorgani;ed sector. )egional )ural Banks are meeting the
re!uirement of the rural population. @ooperatives are working to meet the re!uirement of
medium, short and long-term credit for agriculture sector. /evelopment banks are meeting the
business and industrial re!uirements. Thus, we can say that the structure of Indian banking
system has an international level banking system which can meet the economic re!uirements of
globali;ed world.
The Indian banking structure has a wide and comprehensive form. Apex institutions in the form
of banking institutions are playing important role in the country. The chief regulator of banking
system in our country is the )eserve bank of India. Industrial /evelopment Bank of India is an
apex body in the industrial sector. 5ational Bank of Agriculture and )ural /evelopment has been
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working as an apex institution for the agriculture and rural development. Import-=xport Bank of
India is an Apex body of international trade. 5ational %ousing Bank is an apex institution in
field of housing construction. Thus these four apex institutions are accelerating the banking
system by providing refinance facilities to commercial banks and other financial institutions
along with other banking services.
*1 5eser0e Bank o% Inia ;5BI<
The Indian Banking structure has a wide and comprehensive form. Apex Institutions in the form
of banking institutions are playing important role in the country. The chief regulator of banking
system in our country is the )eserve Bank of India. The )eserve Bank of India *)BI+ was
established in April 67GH with a share capital of )s. H @rore on the basis of the recommendations
of the %ilton Ioung @ommission. The share capital was divided into shares of )s. 6:: each fully
paid which was entirely owned by private shareholders in the beginning. The Eovernment held
shares of nominal value of )s. 9,9:,:::.
The )eserve Bank of India was set up as a private shareholder bank under the )eserve Bank of
India Act, 67GB and it started functioning as the central bank since 6st April 67GH.
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INDIAN
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=b@e"ti0es o% 5BI:
The following were the ob(ectives of )BI when it was set up,
To manage ade!uate money and credit in the country
To maintain the stability of rupee internally and externally
Balanced and well managed banking development in the country
To develop well organi;ed money market
To provide ade!uate agriculture credit
Ti manage public debt
To seek international monetary co-operation
@entrali;ation of cash reserves of commercial banks
To set up Eovernment banks
To set up Eovernment banks
<ublication of data
:!n"tions o% 5BI:
)BI is an apex banking institution of the country. It carries on several functions as a central
bank. According to )BI Act, 67GB, #the principal function of )BI is to issue notes and maintain
reserves, currency and credit to maintain monetary stability in the general interest of the nation.$
As a central banking authority )BI carries on the following functions,
6. )BI regulates issue of bank notes above one rupee denomination
9. Cndertakes distribution of all currency notes and coins on behalf of the government
G. Acts as the banker to the Eovernment of India and the 1tate governments, @ommercial and
@ooperative banks
B. Formulates and administers the monetary policy
H. 2aintain exchange value of rupee
J. )epresent India at the International 2onetary Fund *I2F+
K. )BI acts as a banker for all the commercial banks. All scheduled banks come under the direct
control of )BI. All commercial as well as schedule bank has to keep a minimum reserve with the
)BI. They have to submit weekly reports to )BI about their transactions. By performing G
functions, the )BI helps the member banks significantly. They are given below such
It acts as the lender of the last resort.
It is the custodian of cash reserves of commercial banks.
It clears, transfers the transaction. It acts as the central clearing house.
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INDIAN
BANKING SYSTEM
8. )egulation of banking system
7. @redit @ontrol
# In!stria' De0e'op,ent Bank o% Inia
;IDBI<
This is an apex institution providing long-term finance to industrial sector. It was set us as a
subsidiary of the )BI in 67JB. In February, 67KJ it was segregated from the )BI. At present its
whole of the share capital is owned by the Eovernment of India. I/BI provides financial
assistance to industrial concerns by way of variety of products and services which include pro(ect
finance, e!uipment finance, asset credit, e!uipment lease, technology up gradation fund scheme,
refinance for medium scale industries and bill finance. It provides as well as for expansion,
diversification and moderni;ation of existing industrial enterprises. In response to the changing
financial needs of industries, I/BI has also designed other products to meet the short term
funding, core working capital and other short term re!uirements of industrial units. It also offers
fee-based services in the area of merchant banking, corporate advisory services, foreign
exchange services etc. I/BI has also set up subsidiaries and associates to offer banking products
L services, capital market and trusteeship services, as also registrar and transfer services
structured to meet customi;ed client re!uirements.
For meeting fund re!uirements thereof as well as towards its various other business operations,
I/BI raises resources directly from the market *at market-related interest rates+ from retail as
well as institutional investors 0 both within India and abroad, through a variety of investor-
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INDIAN
BANKING SYSTEM
friendly instruments. I/BIs resources raising efforts have brought it closer to all sections of
society.
. S,a'' In!stries De0e'op,ent Bank o%
Inia ;SIDBI<
1mall Industries /evelopment Bank of India *1I/BI+ was established in April 677: under an
Indian <arliament wholly-owned subsidiary of Industrial /evelopment Bank of India *I/BI+
1I/BIs stature provides that it should serve as the principal financial institution for,
<romotion ?
Financing ?
/evelopment if industry in the small scale sector and ?
coordinating the functions of other institutions engaged in similar activities ?
The 1mall 1cale industry *11I+ sector, which is vibrant and dynamic sub-sector of the Indias
industrial economy, comprises the area of 1I/BIs business. The contribution of the 11Is in
term of production, employment and export earnings has been significant. The ob(ectives of
Eovernment policy have been to impart vitality and growth impetus to the sector by removing
bottlenecks that affect the growth potential. In the liberali;ed era and emerging economic
scenario, the sector is assured of continued support.
/* Nationa' Bank %or A&ri"!'t!re an 5!ra'
De0e'op,ent ;NABA5D<
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INDIAN
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In order to meet the credit re!uirement of agriculture and rural development the 5ABA)/ was
set up in 6789 with the merger of .Agriculture @redit /epartment and Agriculture M)efinance
and development @orporation of the )BI. The bank provides short term and long term credit to
agriculture and non-agriculture activities namely hand weaving, artisans etc. and coordinate the
activities. It provides refinance facilities on the loan given by commercial banks and cooperative
for the agriculture and rural development.
2ain Function of 5ABA)/
)efinancing to @ooperative Banks Financing to )ural Banks 3oan facilities for ? ? ?
purchase of 1hares )efinance of )ural /evelopment loans ?
3ong term 3oan Facilities Technical Assistance and Advice ? ?
1* E8port-I,port Bank o% Inia ;EAIM<
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The =xport-Import Bank of India *=>I2 Bank+ was set in ?anuary, 6789 with its head!uarters in
2umbai. It <erform the normal banking functions connected with import and export of goods,
and several other functions. These ma(or functions include financing of exports from and imports
to India, financing (oint ventures in foreign countries and financing the export and import of
machinery and e!uipment on lease basis. It also undertakes purchasing, discounting and
negotiating of exports bills and thus encourages the exporters.
3* Nationa' Bo!sin& Bank ;NBB<
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The 5ational %ousing Bank *5%B+ was established on 7th ?uly 6788 under an Act of the
<arliament vi;. the 5ational %ousing Bank Act, 678K to function as a principal agency to
promote %ousing Finance Institutions and to provide financial and other support to such
institutions. The Act, inter alia, empowers 5%B to,
Issue /irections to housing finance institutions to ensure their growth on sound lines 2ake ? ?
a loan and advances and render any other form of financial assistance to scheduled banks and
housing finance institutions or to any authority established be or under any @entral, 1tate of
<rovincial Act and engaged in slum improvement and Formulate schemes for the purpose of ?
mobili;ation of resource and extension of credit for housing
Chapter:- /
E0o'!tion o% Inian bankin&
)re-inepenen"e C post-inepenen"e
Banking in India originated in the last decades of the 68th century. The first banks were The
Eeneral Bank of India which started in 6K8J, and the Bank of %industan, both of which are now
defunct. The oldest bank in existence in India is the 1tate Bank of India, which originated in the
Bank of @alcutta in ?une 68:J, which almost immediately became the Bank of Bengal. This was
one of the three presidency banks, the other two being the Bank of Bombay and the Bank of
2adras, all three of which were established under charters from the British =ast India @ompany.
For many years the <residency banks acted as !uasi-central banks, as did their successors. The
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INDIAN
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three banks merged in 6796 to form the Imperial Bank of India, which, upon IndiaNs
independence, became the 1tate Bank of India.
Indian merchants in @alcutta established the Cnion Bank in 68G7, but it failed in 68B8 as a
conse!uence of the economic crisis of 68B8-B7. The Allahabad Bank, established in 68JH and
still functioning today, is the oldest ?oint 1tock bank in India.*?oint 1tock Bank, A company that
issues stock and re!uires shareholders to be held liable for the companyNs debt+ It was not the
first though. That honor belongs to the Bank of Cpper India, which was established in 68JG, and
which survived until 676G, when it failed, with some of its assets and liabilities being transferred
to the Alliance Bank of 1himla.
&hen the American @ivil &ar stopped the supply of cotton to 3ancashire from the @onfederate
1tates, promoters opened banks to finance trading in Indian cotton. &ith large exposure to
speculative ventures, most of the banks opened in India during that period failed. The depositors
lost money and lost interest in keeping deposits with banks. 1ubse!uently, banking in India
remained the exclusive domain of =uropeans for next several decades until the beginning of the
9:th century. Foreign banks too started to arrive, particularly in @alcutta, in the 68J:s. The
@ompote dN=scompte de <aris opened a branch in @alcutta in 68J:, and another in Bombay in
68J9A branches in 2adras and <ondicherry, then a French colony, followed. %1B@ established
itself in Bengal in 68J7. @alcutta was the most active trading port in India, mainly due to the
trade of the British =mpire, and so became a banking center.
The Bank of Bengal, which later merged with the Bank of Bombay and the Bank of 2adras to
form the Imperial Bank of India in 6796.
The first entirely Indian (oint stock bank was the 4udh @ommercial Bank, established in 6886 in
Fai;abad. It failed in 67H8. The next was the <un(ab 5ational Bank, established in 3ahore in
687H, which has survived to the present and is now one of the largest banks in India.
Around the turn of the 9:th @entury, the Indian economy was passing through a relative period
of stability. Around five decades had elapsed since the Indian 2utiny, and the social, industrial
and other infrastructure had improved. Indians had established small banks, most of which
served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also some exchange banks and
a number of Indian (oint stock banks. All these banks operated in different segments of the
economy. The exchange banks, mostly owned by =uropeans, concentrated on financing foreign
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INDIAN
BANKING SYSTEM
trade. Indian (oint stock banks were generally undercapitali;ed and lacked the experience and
maturity to compete with the presidency and exchange banks. This segmentation let 3ord @ur;on
to observe, OIn respect of banking it seems we are behind the times. &e are like some old
fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome
compartments.O
The period between 67:J and 6766, saw the establishment of banks inspired by the 1wadeshi
movement. The 1wadeshi movement inspired local businessmen and political figures to found
banks of and for the Indian community. A number of banks established then have survived to the
present such as Bank of India, @orporation Bank, Indian Bank, Bank of Baroda, @anara Bank
and @entral Bank of India.
The fervor of 1wadeshi movement lead to establishing of many private banks in /akshina
Pannada and Cdupi district which were unified earlier and known by the name 1outh @anara
* 1outh @anara + district. Four nationali;ed banks started in this district and also a leading private
sector bank. %ence undivided /akshina Pannada district is known as O@radle of Indian
BankingO. /uring the First &orld &ar *676B-6768+ through the end of the 1econd &orld &ar
*67G7-67BH+, and two years thereafter until the independence of India were challenging for
Indian banking. The years of the First &orld &ar were turbulent, and it took its toll with banks
simply collapsing despite the Indian economy gaining indirect boost due to war-related economic
activities. At least 7B banks in India failed between 676G and 6768
)ost-inepenen"e
The partition of India in 67BK adversely impacted the economies of <un(ab and &est Bengal,
paraly;ing banking activities for months. Indias independence marked the end of a regime of the
3aisse;- faire for the Indian banking. The Eovernment of India initiated measures to play an
active role in the economic life of the nation, and the Industrial <olicy )esolution adopted by the
government in 67B8 envisaged a mixed economy. This resulted into greater involvement of the
state in different segments of the economy including banking and finance. The ma(or steps to
regulate banking included,
in 67B8, the )eserve Bank of India, IndiaNs central banking authority, was nationali;ed, and it ?
became an institution owned by the Eovernment of India.
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in 67B7, the Banking )egulation Act was enacted which empowered the )eserve Bank of ?
India *)BI+ Oto regulate, control, and inspect the banks in India.O
The Banking )egulation Act also provided that no new bank or branch of an existing bank ?
could be opened without a license from the )BI, and no two banks could have common
directors.
%owever, despite these provisions, control and regulations, banks in India except the 1tate Bank
of India, continued to be owned and operated by private persons. This changed with the
nationali;ation of ma(or banks in India on 67 ?uly 67J7.
Nationa'i2ation
The )BI was nationali;ed on ?anuary 6, 67B7 in terms of the )eserve Bank of India *Transfer to
<ublic 4wnership+ Act, 67B8
By the 67J:s, the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large employer, and a
debate had ensued about the possibility to nationali;e the banking industry. Indira Eandhi, the-
then <rime 2inister of India expressed the intention of the E4I in the annual conference of the
All India @ongress 2eeting in a paper entitled O1tray thoughts on Bank 5ationali;ation.O The
paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the
E4I issued an ordinance and nationali;ed the 6B largest commercial banks with effect from the
midnight of ?uly 67, 67J7.?ayaprakash 5arayan, a national leader of India, described the step as
a Omasterstroke of political sagacity.O &ithin two weeks of the issue of the ordinance, the
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<arliament passed the Banking @ompanies *Ac!uisition and Transfer of Cndertaking+ Bill, and it
received the presidential approval on 7 August 67J7.
A second dose of nationali;ation of J more commercial banks followed in 678:. The stated
reason for the nationali;ation was to give the government more control of credit delivery. &ith
the second dose of nationali;ation, the E4I controlled around 76Q of the banking business of
India. 3ater on, in the year 677G, the government merged 5ew Bank of India with <un(ab
5ational Bank. It was the only merger between nationali;ed banks and resulted in the reduction
of the number of nationali;ed banks from 9: to 67. After this, until the 677:s, the nationali;ed
banks grew at a pace of around BQ, closer to the average growth rate of the Indian economy.
(ibera'i2ation
In the early 677:s, the then 5arsimha )ao government embarked on a policy of liberali;ation,
licensing a small number of private banks. These came to be known as 5ew Eeneration tech-
savvy banks, and included Elobal Trust Bank *the first of such new generation banks to be set
up+, which later amalgamated with 4riental Bank of @ommerce, Axis Bank*earlier as CTI
Bank+, I@I@I Bank and %/F@ Bank. This move, along with the rapid growth in the economy of
India, revitali;ed the banking sector in India, which has seen rapid growth with strong
contribution from all the three sectors of banks, namely, government banks, private banks and
foreign banks.
The next stage for the Indian banking has been set up with the proposed relaxation in the norms
for Foreign /irect Investment, where all Foreign Investors in banks may be given voting rights
which could exceed the present cap of 6:Q,at present it has gone up to KBQ with some
restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this time, were used
to the B-J-B method *Borrow at BQA3end at JQAEo home at B+ of functioning. The new wave
ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this
led to the retail boom in India. <eople not (ust demanded more from their banks but also received
more.
@urrently *9::K+, banking in India is generally fairly mature in terms of supply, product range
and reach-even though reach in rural India still remains a challenge for the private sector and
foreign banks. In terms of !uality of assets and capital ade!uacy, Indian banks are considered to
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have clean, strong and transparent balance sheets relative to other banks in comparable
economies in its region. The )eserve Bank of India is an autonomous body, with minimal
pressure from the government. The stated policy of the Bank on the Indian )upee is to manage
volatility but without any fixed exchange rate-and this has mostly been true.
&ith the growth in the Indian economy expected to be strong for !uite some time-especially in
its services sector-the demand for banking services, especially retail banking, mortgages and
investment services are expected to be strong. 4ne may also expect , takeovers, and asset sales.
In 2arch 9::J, the )eserve Bank of India allowed &arburg <incus to increase its stake in Podak
2ahindra Bank *a private sector bank+ to 6:Q. This is the first time an investor has been allowed
to hold more than HQ in a private sector bank since the )BI announced norms in 9::H that any
stake exceeding HQ in the private sector banks would need to be vetted by them. In recent years
critics have charged that the non-government owned banks are too aggressive in their loan
recovery efforts in connection with housing, vehicle and personal loans. There are press reports
that the banksN loan recovery efforts have driven defaulting borrowers to suicide.
Chapter:- 1
E?=(DTI=N o% on'ine bankin&
The )angara(an @ommittee report in early 678:s was the first step towards computeri;ation of
banks. Banks started exploring the idea of NTotal Bank Automation *TBA+N. Although titled NTotal
Bank Automation,N TBA was in most cases confined to branch automation. It was only in the
early 677:s that banks started thinking about tying- up disparate branches together to facilitate
information sharing. At the same time, private banks entered the banking arena with radically
different strategies. Eiven the huge IT budgets at their disposal and with almost no legacy IT
e!uipment to worry aboutA private banks hastened the adoption of technology. The philosophy
for private banks was very clear, to provide a whole new range of financial products and services
at minimal costs. And technology made this possible. 1ays P.5.@. 5air, %ead *IT+, Federal
Bank, #The new generation banks showed the way and others had no option but to follow the
tech infusion to retain and attract profitable customers.O The improved connectivity and falling
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costs offered by leased lines and F1ATs provided a booster to inter-branch automation. @onfirms
5aresh &adhwa, Fice <resident-&est, @isco 1ystems *India+, O&ith the improved services and
lowered costs of service providers such as /ot and F153, it became more feasible for banks to
network their branches. This gave banks an impetus to network all the branches and set up
centrali;ed databases. &ith these developments it became possible for operations such as 2I1 to
be truly automated and centrali;ed.O &ith centrali;ed infrastructure and numerous connectivity
options, banks started exploring multiple delivery channels like AT2, 5et-banking, mobile
banking, and Tele-banking thus driving down cost per transaction.
=n'ine bankin&
4nline banking *or Internet banking+ allows customers to conduct financial transactions on a
secure website operated by their retail or virtual bank, credit union or building society.
&e need to be able to manage our finances from anywhere in the world. )ich online banking
services are much more important than a physical location. 1ince I have been doing all of my
banking online with !uite a few different online banks as I looked for the best solution, Ive had
a chance to really experiment with what works and what doesnt work for us.
%ere is a checklist of things to look for in an online bank. 1ome items you may be familiar with.
4thers might be new to you if it isnt something your current bank offers.
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:EATD5ES =: =N(INE BANKING
1. Bill Pay Service - 4ne of the biggest reasons for going with an online
bank is to get really good bill payment services. /ifferent banks handle bill payment different
ways. %ere are some things to think about,
A. %ow many bills are you allowed paying per monthR
B. &hat are the fees for going over the limitR
C. @an the bill payment send physical checks to merchants who arent set up to take electronic
paymentsR
D. /o checks come from your account or from a third party serviceR For privacy reasons, it might
be better to be able to pay someone without giving them your bank account number on the check.
4n the other hand, if the checks actually come from your account, the money doesnt get taken
out until the check is cashed.
E. @an you set up reoccurring paymentsR
2. Electronic Bill Notifcation > &ith electronic bills, your
merchant *@redit @ard @ompany, gas company, electric company, etc.+ sends an electronic bill to
your bank. Iou can set it up to pay automatically or notify you for approval. This can be
particularly good for people who are on the road because it reduces the amount of physical mail
you have to somehow get read or forwarded to you.
3. Online Check Images – 2ost banks will show you an image of
the check, which makes it really easy to balance your account if you cant remember what a
particular payment was for. *Ideally, you should minimi;e the number of physical checks you
write to reduce fraud.+
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. Online !e"osit Sli" Images – 2ost banks (ust record
the total with no image. It will let you see an image of each deposit slip. %aving the images
available can be very helpful if you ever have to prove something for tax purposes or need to
remember where that S9H86 deposit came from.
#. $e"orting %ools – 2ost banks offer basic reporting tools that will let
you see how much you have spent in each category youve created. This may not be an issue if
you use desktop money management software, but it still can be handy if you are traveling and
want to see how much youve paid on your mortgage over the past 69 months.
&. 'inke( )cco*nts – @an you link your bank account with a brokerage
accountR @an you add your minor children as custodial accounts and manage them all centrallyR
If you and your spouse both set them up I)As, is it easy to view them both alongside the rest of
your finances, or do you have to have a separate login for each I)A to keep them on separate
115sR These are small things that many banks dont support, but it starts getting really
complicated when you have to manage a bunch of accounts instead of having a single place to
manage all of your money.
+. Convenient !e"osit ,etho(s - 1ince you may not be
anywhere near the physical location of your bank, make sure you understand how to deposit
money. <ayroll can be set up on direct deposit, but there will be times when you need to deposit
checks. /oes the bank provide postage paid envelopes and deposit slipsR 1ome banks work with
Fed=x or C<1 stores to allow you to send in a deposit overnight for free.
.. 'o/ )%, 0ees an( Convenient
'ocations – I% +o! nee to &et "ashE -i'' the bank re%!n the ATM
%ees? Are there on'+ "ertain ATMs that are %reeE an i% soE are the+ 'o"ate
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near p'a"es +o! nor,a''+ &o? Are the ATMs a0ai'ab'e nation-ie so +o! "an
!se the, on 0a"ation? What are the %ees %or !sin& the ATM internationa''+
an ho- is the e8"han&e rate han'e?
1. Integration /ith !eskto" So2t/are – If you
use 2icrosoft 2oney, Tuicken or something similar, youll want to make sure your bank
supports it. 2ake sure you understand if downloading transactions re!uire you to login and
manually download a file, or if your money management software can directly connect and
download new transactions. If you are using Tuicken on a 2ac, make sure the bank is paying
Tuickens extortion fee so the files will work with 2ac users.
13. ,any )cco*nt %y"es – 1ome banks only offer basic
checking and savings accounts. Ideally you want a bank that makes it easy to open money
market accounts, I)As, health savings accounts, etc. If you have to go to another institution to
open a different type of account, it is more difficult to manage0especially if you are on the road.
Iou want to be able to easily open a @/ to take advantage of a higher interest rate, easily open
an I)A to help reduce your tax liability, etc.
11. 0ree ,oney %rans2ers – Be sure to consider how easy it is
to move money in and out of the account. Iou should be able to set up links with your accounts
from other institutions to transfer money back and forth as necessary. 2ake sure you understand
what type of fees is associated with these transfers. Eood banks should allow a certain number of
transfers per month with no fee.
12. Sec*rity Balance( /ith Convenience-
1ome banks spend so much effort trying to keep things secure that youll find yourself
automatically logged out of their website while you try to balance your account. Iou want
security but you dont want it to get in the way of you doing your banking. Also check into what
type of additional security features are available. For example, some banks will offer you an
)1A keychain with a number that changes every J: seconds. In addition to your password, you
will need the number from that key in order to get access to your account.
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13. Ease o2 4se – This is something that most banks seem to struggle with.
)ight now I have my personal account with one online bank and my business accounts with
another. I dread using the business accounts and I absolutely love using my personal account. At
first I thought I was (ust more familiar with the bank where my personal accounts are, but I
finally reali;e that it comes down to the ease of use. 4ne is ok and the other is superb, but it
makes a big difference.
Advantages of online banking:
Convenience: Cnlike your corner bank, online banking sites never closeA
theyNre available 9B hours a day, seven days a week and theyNre only a mouse click away.
Ubiquity: If youNre out of state or even out of the country when a money
problem arises, you can log on instantly to your online bank and take care of business, 9BDK.
Transaction speed: 4nline bank sites generally execute and
confirm transactions at or !uicker than AT2 processing speeds.
Efciency: Iou can access and manage all of your bank accounts, including
I)As, @/s, even securities, from one secure site.
Efectiveness: 2any online banking sites now offer sophisticated tools,
including account aggregation, stock !uotes, rate alerts and portfolio managing programs to
help you manage all of your assets more effectively. 2ost are also compatible with money
managing programs such as Tuicken and 2icrosoft 2oney.
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Disa0anta&es o% on'ine bankin&:
Start-up ay take tie: In order to register for your
bankNs online program, you will probably have to provide I/ and sign a form at a bank
branch. If you and your spouse wish to view and manage your assets together online, one of
you may have to sign a durable power of attorney before the bank will display all of your
holdings together.
!earning curve: Banking sites can be difficult to navigate at first.
<lan to invest some time andDor read the tutorials in order to become comfortable in your
virtual lobby.
"ank site c#anges: =ven the largest banks periodically
upgrade their online programs, adding new features in unfamiliar places. In some cases, you
may have to re-enter account information.
T#e trust t#ing: For many people, the biggest hurdle to online
banking is learning to trust it. /id my transaction go throughR /id I push the transfer button
once or twiceR Best bet, always print the transaction receipt and keep it with your bank
records until it shows up on your personal site andDor your bank statement.
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Bo- Does =n'ine Bankin& Work?
4nline banking provides many identical services that a traditional bank does with the biggest
difference are in teller availability, %uman tellers leaveA electronic tellers"the websites"are
available virtually all day, every day"weekends and holidays, included.
$nline "anking Structure:
4nline banking mirrors traditional banking procedures in many instances, and in some, actually
improves security and reduces both banks and customers costs.
In electronic form, online banking still allows,
6. /eposits to the account, whether via payroll deposits or funds transfersR
9. Bill payments via automatic payment schedules or individually ordered payments. 2ost bill
pay users opt for the bank-generated checks, but payments can be ordered in a one off situation
or scheduled regularly.
G. 1tatement formats can be electronic or paperA most that prefer online banking choose the
electronic statements for convenience and reduced paper use.
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B. &ire transfers to accounts within and without the banks structure, though some banks charge
additional transaction fees for wire transfers.
H. /iffering services depending on the individual financial institute.
$nline Actions
All online banking transactions are initiated by creating an online account identity.
Account login name and password creation is followed by choosing and answering security
!uestions. Its not recommended that security !uestions and answers be common or known by
othersA they should have uni!ue answers, whether historically true or not.
For example, if a user chooses a security !uestion, #&hat is the name your first elementary
school,$ choose an answer that is not the actual name or the actual elementary school. Cse
instead the name of another school or anything else that is easily remembered.
<rovide an email address that is not tied to an Internet 1ervice <rovider. If the user changes I1<s,
that email address will be lost. Instead, use a free email address that can last for as long as the
user chooses.
4nce the security aspects are in place and verified, look around the banks website and note
important areas, such as,
6. Account activity
9. 1tatement delivery change areas
G. @ustomer 1ervice options
B. Bill pay procedures, if any
H. And any other area provided on the website.
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4nline banking often reduces funds availability delays and hastens resolution to disputes and
in!uiries. &hile some complaints and problems do re!uire human intervention, @ustomer
1ervice Agents are available for longer during a calendar day than local branch personnel are.
4nline banking differs from traditional banking when physical checks or cash is depositedA
human interaction via a drive thru lane or at the counter is re!uired. @ashier checks, traveler
checks, and money orders cannot be purchased from the institution via online banking, but
because all transactions allowed are electronic, tracking and accountability are easily provided.
$%%$&TU'(T(ES (' $'!('E "A')('*:
Is There a :!t!re in =n'ine Bankin&?
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By this point, no one can dismiss online banking as a fad. %owever, it is worth considering
whether the trend towards online financial transactions is going to slow or reverse in the years to
come. There will continue to be people who resist online banking in favor of offline transactions
(ust as there are people who prefer to keep their money in mattresses instead of putting it in
banks. &hether these people will exert serious influence on the movement towards online
banking can be examined by looking at the needs of modern consumers, and the interests of the
banks themselves.
T#e +ove to $nline "usiness
The global connectivity provided by the internet, combined with the fallout from the global
financial crisis has encouraged a growing number of entrepreneurs to start their own businesses
online. As an increasing number of people look to save themselves from unemployment or
augment otherwise insufficient salaries by finding new ways to make money online, they will
re!uire new ways to send, receive, and invest their online funds.
T#e &ise of +obile "anking
As handheld mobile devices become more sophisticated, users are experimenting with more
sophisticated transactions. 2oving beyond ringtone downloadsA consumers can now shop online
and purchase software upgrades and augmentations through app stores. In addition to this buying
and selling, anyone with a web browser on their phone can access their banks online banking
site to move and manage their money in more locations than ever before.
Stafng Solutions
As banks consolidate and grow larger, they are looking for more ways to cut costs, and reducing
the number of full-time employees on their payroll is an attractive option. =ncouraging
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customers to do their banking online allows banks to close smaller branches in outlying locations
and use economies of scale to develop customer assistance centers in locations where the labor
market is more favorable.
%#ysical ,ootprints
4nline banking is also more attractive to banks because a reduced physical footprint means
reduced costs in other areas. In addition to saving the money that would normally be associated
with operating and maintaining physical branches, no longer having to print and mail paper
statements to customers would be a huge savings for banks. As an added bonus, banks have been
able to take advantage of current pro-environment sentiment by marketing online banking as a
#green$ alternative.
By appealing to more mobile customers and more cost-conscious financial service providers
alike, online banking continues to be an attractive option for everyone involved. %owever, when
discussing the internet it is dangerous to assume that everything is going to be moved onlineA
there will always be individuals, industries, and transactions that are grounded in the real world
with no desire to change the way they do business.
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*ro-t# of (nternet
The increase in the growth of internet usage will definitely help the cause of growth of online
banking in India. The following chart shows the growth of internet in India during the past
decade or so
Wh+ Banks En"o!ra&e =n'ine Bankin&?
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=?E5?IEW
4nline banking has en(oyed increased popularity, and some banks actually re!uire it. From
standard, brick-and-mortar institutions to cloud managed institutions, online banking offers
flexibility and convenience for all involved.
BANK AD?ANTAGES:
• =ach visit to a bank costs the institution money, whether in bank teller wages and benefits
to security costs to maintenance costs. 4nline banking reduces those costs and increases
the banks profit margin.
• 4nline banking reduces the need for the number of physical locations and services
offered within each. Because @ustomer 1ervice /epartments are united into fewer
locations, asset sharing within those locations further reduce bank costs.
CDST=ME5 AD?ANTAGES:
• 4nline security of financial data has evolved tremendously since the early days of online
banking, and often transactions can be even more secure than those conducted in a drive
thru lane.
• 4nline banking transactions re!uire not only a secure login but also re!uire secured
password entry. In-person transactions are based on account information and a photo I/,
both of which can be obtained #under the radar. #4nline banking transactions also track
the Internet <rotocol *I<+ address of the computer used in the transaction. The I< can be
traced to the method or mode of Internet access, often through an Internet 1ervice
<rovider who always notes activity, computer, and actions performed under that I<
address assigned to the I1< account holder. &hether a dynamic or changing I< address or
a static or unchanging I< address is used, the I1< always records what I< address is
assigned to what I1< account at any time.
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• @omprehensive %elp sections on banks websites often reduce on-location in!uiries,
further reducing overhead costs for banking institutions. Additional service enrollment or
dis-enrollment, address updates, and account status and verification are all time saving
activities for both the bank and the banking customer.
• 4nline Bill <ay processes reduce stolen or counterfeit checks which cost banks billions of
dollars every month. =ach online bill pay transaction allows for a grace period from the
payment order date to the actual check delivery date, which also allows the account
holder additional time to preview activity and account status.
DE?E(=)MENT:
Increasingly, more and more people are switching to electronic platforms for executing financial
transactions. The wider usage of cell phone and internet certainly seems to be playing a role in
blurring physical boundaries, and unlocking a whole new world of opportunities for banks in
tapping newer customer segments and in recording greater volume of transactions.
If latest )BI data on retail electronic payment systems is anything to go by, electronic banking is
set to become the catalyst for change in the way money moves. <rovisional data show that in
FI:7 to ?anuary, a total of H,H8K.8H lakh transactions were executed through the electronic
channel, a rise of 9GB.KJ lakh transactions over the previous fiscal.
This growth was facilitated by the introduction of real-time gross transfer *)TE1+ and national
electronic funds transfer *5=FT+, which enabled fund transfers among account holders of the
same bank as well as inter-bank transfers.
The growth has also been aided by banksN efforts to offer innovative services and tighten security
measures, and the increase in awareness of services available. )BI outlining guidelines on
mobile banking, setting up of the 5ational <ayments @orporation of India and passage of the
<ayments and 1ettlement Act too have given a positive thrust to the growth in electronic
payments. The impact of all these measures is likely to be felt in the current fiscal, which may
well mean FI6: could become a watershed year for e-banking. &hile opinions of industry
players differ on whether FI6: will indeed prove to be a tipping point, there seems to be
consensus that the year would mark a critical phase in the evolution of the payments and
settlement systems in India. OFI6: will certainly herald an important phase for electronic
banking in India and an upsurge in internet and AT2 transactions,O says Ashvin <arekh, partner
and national industry leader, financial services, =rnst L Ioung. OAt the same time, traditional
fund transfer will continue to hold its own. &e are going to witness a co-existence of these two
systems. In the regulatory space, there will be huge changes. As and when India <ay, which will
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eventually settle credit card and AT2 transactions, comes into the picture, we could witness a
gradual shift away from Fisa and [email protected] The implementation of core banking solutions by
all public sector banks has not only helped banks rationali;e their costs, but has also allowed
them to explore new ways of optimally utili;ing their resources. @ore banking, which facilitates
linking up of a bankNs branches across the country, has enabled banks to improve their efficiency.
O5ow, decisions can be taken remotely and the activities too can be undertaken in a centrali;ed
location. This means that branches need not spend time on processing transactions and other
back office operations, and rather utili;e the time and resources to function as selling outlets.
@entrali;ed operations benefit from economies of scale and help in reducing bank costs,O
explains ?anme(aya 1inha, managing director of India operations, Boston @onsulting Eroup.
=pport!nities in e-bankin&: A5E WE
5EADY?
It has always been a chicken-and-egg dilemma in business. =ither firm waits for the
market to mature until customers are ready for the products and services. 4r, firms can go ahead
and offer the products and services, hoping that their customers will catch on soon.
The same is true for new products and services that have emerged and continue to emerge
in the world of electronic banking *e-banking+. Banking executives interviewed by Business
&orld 4nline have different ways of resolving the issue. 1ome would go ahead with new ideas,
wanting to take the first-mover advantage. 4thers would wait in the sidelines, but armed
nevertheless (ust in the case the market takes up suddenly increases.
&hether first-movers or latecomers, there is one partner in the e-banking game that is not
waiting for the chicken to lay the egg, or wait for the egg to hatch into a chick. Technology
providers are always up on their toes, like chicken ready to catch the early worm.
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Chapter:- 3
CBA((ENGES =: =N(INE BANKING
Information technology analyst firm, the 2eta Eroup, recently reported that Ofinancial
institutions who donNt offer home banking by the year 9::: will become marginali;ed.O By the
year of 9::9, a large sophisticated and highly competitive Internet Banking 2arket will develop
which will be driven by
• /emand side pressure due to increasing access to low cost electronic services.
• =mergence of open standards for banking functionality.
• Erowing customer awareness and need of transparency.
• Elobal players in the fray
• @lose integration of bank services with web based =-commerce or even
disintermediation of services through direct electronic payments *=- @ash+.
• 2ore convenient international transactions due to the fact that the Internet along with
general deregulation trends eliminates geographic boundaries.
• 2ove from one stop shopping to NBanking <ortfolioN i.e. unbundled product purchases.
MAIN C=NCE5NS IN INTE5NET
BANKING:
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In a survey conducted by the 4nline Banking Association, member institutions rated security as
the most important issue of online banking. There is a dual re!uirement to protect customersN
privacy and protect against fraud. Banking 1ecurely, 4nline Banking via the &orld &ide &eb
provides an overview of Internet commerce and how one company handles secure banking for its
financial institution, clients and their customers. 1ome basic information on the transmission of
confidential data is presented in 1ecurity and =ncryption on the &eb. <@ 2aga;ine 4nline also
offers a primer, %ow =ncryption &orks. A multi-layered security architecture comprising
firewalls, filtering routers, encryption and digital certification ensures that your account
information is protected from unauthori;ed access,
• Firewalls and filtering routers ensure that only the legitimate Internet users are allowed to
access the system.
• =ncryption techni!ues used by the bank *including the sophisticated public key
encryption+ would ensure that privacy of data flowing between the browser and the
Infinity system is protected.
• /igital certification procedures provide the assurance that the data you receive is from
the Infinity system.
Se"!rit+ "on"erns:
1ecurity fears have served as deterrents to online growth. 4f particular concern are threats of
pharming and phishing. <hishing is an internet fraud, through which innocent people are enticed
to divulge their personal information like user I/ and passwords, which are later on used by
scammers in unauthori;ed ways.
The most common method of phishing is sending emails claiming to be from your bank or other
financial institutions which are dealing that already has your personal information and you will
be asked to confirm the details by clicking a particular link *C)3+ provided in this fake email.
This C)3 will take you to a fake website which will be similar to your genuine website, and the
information provided by the customer in the forms provided in the fake website will be gathered
//
INDIAN
BANKING SYSTEM
and used for committing fraud in their accounts or withdraw funds unauthori;ed from these
accounts.
<harming is another internet fraud, whereby as many as users as possible are redirected before
they reach the legitimate online banking websites they intend to visit and they are lead to
malicious ones. The bogus sites, to which victims are redirected without their knowledge or
consent, will likely look the same as genuine site. But when users enter their login name or
password, the information is captured by criminals.
,U&T.E& %&$"!E+S &E!AT('* T$
'ET "A')('* (' ('/(A
Eiven that India is the IT and tech services outsourcing hotspot of the world, itNs surprising that
Internet banking has not really taken off. /espite the advent of a very tech-savvy and vast
consumer class in recent years, a mix of industry issues and uni!ue challenges continue to thwart
the expansion of net banking in India. Technology challenges, IT practices, certain cultural
issues, industry lethargy, and workplace constraints have affected widespread acceptance of
Internet banking.
?!o- "roadband (nternet
%enetration
/1
INDIAN
BANKING SYSTEM
India has one of the lowest broadband connectivity penetration rates in Asia as compared to
?apan, Taiwan, Porea and 1ingapore. &hile the bigger cities such as 2umbai, /elhi, @hennai,
and Bangalore have relatively better broadband penetration rates, <@ users in smaller cities and
towns still use dial-up options to connect to the Internet. 1low connectivity speeds often dampen
the online banking experience for many customers eager to use such services.
?"anks0 Abivalent Coitent
!evels
Internet banking did take off in India at the turn of the millennium but soon faltered due to lack
of takers. In the middle of this decade, multinational and domestic private banks started offering
net banking services as a competitive differentiator. 4nly recently, state-owned and public sector
banks have started doing likewise. %owever, banksN ambivalent commitment levels and their
reluctance to allocate huge budgets for net banking branding initiatives, as well as a lack of
industry advocacy efforts, have resulted in poor acceptance levels of Internet banking by
customers.
?C!sto,ersF )re%eren"e %or Traitiona'
Bran"hes
There are thousands of highly active traditional bank branches in IndiaNs crowded cities and
ma(or towns. 4ffice workers take longer lunch breaks to finish banking activities and
transactions at these branches rather than conduct them online. 2ost customers prefer the
personal touch and customi;ed service offered by staff in brick-and-mortar bank branches. 2any
/3
INDIAN
BANKING SYSTEM
Indians are also averse to calling call centers and banksN customer contact lines to address issues
related to online bank accounts.
?,ear of $nline T#reats1Scas
Cbi!uitous and prevalent online threats about hackers, identity theft, stolen passwords, viruses,
worms and spyware tend to make customers wary (ust like in any other country. @onservative
Indian bank customers used to years of saving in an erstwhile mixed-socialist economy are
always fearful of losing hard-earned savings in online scams. These customers are also not sure
about the efficacy of banksN websites and their commitment to allocate funds for reliable
encryption mechanisms and robust back-end technologies and systems.
?$t#er %robles
&orkplace constraints and corporate policies about using external websites or pursing personal
activities such as online banking have affected its expected fast-paced acceptance among the
growing affluent class in India. @ultural issues, such as parents giving priority use of the home
<@ to their children rather than using it themselves, stifle the potential growth of home access to
Internet banking services. <ublic sector banks with vast customer bases also donNt tend to invest
money in training personnel for e-banking initiatives, resulting in poor customer service levels.
(nternet "anking in (ndia 2 *uidelines
)eserve Bank of India had set up a .&orking Eroup on Internet Banking to examine different
aspects of Internet Banking *I-banking+. The Eroup had focused on three ma(or areas of I-
banking, i.e. *i+ technology and security issues, *ii+ legal issues and *iii+ regulatory and
supervisory issues. )BI has accepted the recommendations of the Eroup to be implemented in a
phased manner. Accordingly, the following guidelines are issued for implementation by
/4
INDIAN
BANKING SYSTEM
banks. Banks are also advised that they may be guided by the original report, for a detailed
guidance on different issues.
(3 Tec#nology and Security
Standards:
a. Banks should designate a network and database administrator with clearly defined roles
as indicated in the Eroups report.
b. Banks should have a security policy duly approved by the Board of /irectors. There
should be a segregation of duty of 1ecurity 4fficer D Eroup dealing exclusively with
information systems security and Information Technology /ivision which actually
implements the computer systems. Further, Information 1ystems Auditor will audit the
information systems.
c. Banks should introduce logical access controls to data, systems, application software,
utilities, telecommunication lines, libraries, system software, etc. 3ogical access control
techni!ues may include user-ids, passwords, smart cards or other biometric technologies.
d. At the minimum, banks should use the proxy server type of firewall so that there is no
direct connection between the Internet and the banks system. It facilitates a high level of
control and in-depth monitoring using logging and auditing tools. For sensitive systems, a
state full inspection firewall is recommended which thoroughly inspects all packets of
information, and past and present transactions are compared. These generally include a
real time security alert.
e. All the systems supporting dial up services through modem on the same 3A5 as the
application server should be isolated to prevent intrusions into the network as this may
bypass the proxy server.
f. <PI *<ublic Pey Infrastructure+ is the most favored technology for secure Internet
banking services. %owever, as it is not yet commonly available, banks should use the
following alternative system during the transition, until the <PI is put in place,
6. Csage of 113 *1ecured 1ocket 3ayer+, which ensures server authentication and
use of client side certificates issued by the banks themselves using a @ertificate
1erver.
/6
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BANKING SYSTEM
9. The use of at least 698-bit 113 for securing browser to web server
communications and, in addition, encryption of sensitive data like passwords in
transit within the enterprise itself. *<ara J.B.H+
g. It is also recommended that all unnecessary services on the application server such as
FT< *File Transfer <rotocol+, telnet should be disabled. The application server should be
isolated from the e-mail server. *<ara J.B.J+
h. All computer accesses, including messages received, should be logged. 1ecurity
violations *suspected or attempted+ should be reported and follow up action taken should
be kept in mind while framing future policy. Banks should ac!uire tools for monitoring
systems and the networks against intrusions and attacks. These tools should be used
regularly to avoid security breaches. The banks should review their security infrastructure
and security policies regularly and optimi;e them in the light of their own experiences
and changing technologies. They should educate their security personnel and also the
end-users on a continuous basis.
i. The information security officer and the information system auditor should undertake
periodic penetration tests of the system, which should include,
6. Attempting to guess passwords using password-cracking tools.
9. 1earch for back door traps in the programs.
G. Attempt to overload the system using //o1 */istributed /enial of 1ervice+ L
/o1 */enial of 1ervice+ attacks.
B. @heck if commonly known holes in the software, especially the browser and the
e-mail software exist.
(. The penetration testing may also be carried out by engaging outside experts *often called
.=thical %ackers+.
k. <hysical access controls should be strictly enforced. <hysical security should cover all the
information systems and sites where they are housed, both against internal and external
threats.
l. Banks should have proper infrastructure and schedules for backing up data. The backed-
up data should be periodically tested to ensure recovery without loss of transactions in a
time frame as given out in the banks security policy. Business continuity should be
/7
INDIAN
BANKING SYSTEM
ensured by setting up disaster recovery sites. These facilities should also be tested
periodically.
m. All applications of banks should have proper record keeping facilities for legal purposes.
It may be necessary to keep all received and sent messages both in encrypted and
decrypted form.
n. 1ecurity infrastructure should be properly tested before using the systems and
applications for normal operations. Banks should upgrade the systems by installing
patches released by developers to remove bugs and loopholes, and upgrade to newer
versions which give better security and control.
((3 !egal (ssues
a. @onsidering the legal position prevalent, there is an obligation on the part of banks not
only to establish the identity but also to make en!uiries about integrity and reputation of
the prospective customer. Therefore, even though re!uest for opening account can be
accepted over Internet, accounts should be opened only after proper introduction and
physical verification of the identity of the customer.
b. From a legal perspective, security procedure adopted by banks for authenticating users
needs to be recogni;ed by law as a substitute for signature. In India, the Information
Technology Act, 9:::, in 1ection G*9+ provides for a particular technology *vi;., the
asymmetric crypto system and hash function+ as a means of authenticating electronic
record. Any other method used by banks for authentication should be recogni;ed as a
source of legal risk.
c. Cnder the present regime there is an obligation on banks to maintain secrecy and
confidentiality of customers .accounts. In the Internet banking scenario, the risk of banks
not meeting the above obligation is high on account of several factors. /espite all
reasonable precautions, banks may be exposed to enhanced risk of liability to customers
on account of breach of secrecy, denial of service etc., because of hackingD other
technological failures. The banks should, therefore, institute ade!uate risk control
measures to manage such risks.
d. In Internet banking scenario there is very little scope for the banks to act on stop-payment
instructions from the customers. %ence, banks should clearly notify to the customers the
19
INDIAN
BANKING SYSTEM
timeframe and the circumstances in which any stop-payment instructions could be
accepted.
e. The @onsumer <rotection Act, 678J defines the rights of consumers in India and is
applicable to banking services as well. @urrently, the rights and liabilities of customers
availing of Internet banking services are being determined by bilateral agreements
between the banks and customers. @onsidering the banking practice and rights en(oyed
by customers in traditional banking, banks liability to the customers on account of
unauthori;ed transfer through hacking, denial of service on account of technological
failure etc. needs to be assessed and banks providing Internet banking should insure
themselves against such risks.
(((3 &egulatory and Supervisory
(ssues:
As recommended by the Eroup, the existing regulatory framework over banks will be extended
to Internet banking also. In this regard, it is advised that,
6. 4nly such banks which are licensed and supervised in India and have a physical presence
in India will be permitted to offer Internet banking products to residents of India. Thus,
both banks and virtual banks incorporated outside the country and having no physical
presence in India will not, for the present, be permitted to offer Internet banking services
to Indian residents.
9. The products should be restricted to account holders only and should not be offered in
other (urisdictions.
G. The services should only include local currency products.
B. The .in-out scenario where customers in cross border (urisdictions are offered banking
services by Indian banks *or branches of foreign banks in India+ and the .out-in scenario
where Indian residents are offered banking services by banks operating in cross-border
(urisdictions are generally not permitted and this approach will apply to Internet banking
also. The existing exceptions for limited purposes under F=2A i.e. where resident
11
INDIAN
BANKING SYSTEM
Indians have been permitted to continue to maintain their accounts with overseas banks
etc. will, however, are permitted.
H. 4verseas branches of Indian banks will be permitted to offer Internet banking services to
their overseas customers sub(ect to their satisfying, in addition to the host supervisor, the
home supervisor.
Eiven the regulatory approach as above, banks are advised to follow the following instructions,
a. All banks, who propose to offer transactional services on the Internet, should obtain prior
approval from )BI. Banks application for such permission should indicate its business
plan, analysis of cost and benefit, operational arrangements like technology adopted,
business partners, third party service providers and systems and control procedures the
bank proposes to adopt for managing risks. The bank should also submit a security policy
covering recommendations made in this circular and a certificate from an independent
auditor that the minimum re!uirements prescribed have been met. After the initial
approval the banks will be obliged to inform )BI any material changes in the services D
products offered by them.
b. Banks will report to )BI every breach or failure of security systems and procedure and
the latter, at its discretion, may decide to commission special audit D inspection of such
banks.
c. The guidelines issued by )BI on .)isks and @ontrols in @omputers and
Telecommunications vide circular /[email protected]@.B@. 6 G6.:7.::6D 7K-78 dated
B
th
February 6778 will e!ually apply to Internet banking. The )BI as supervisor will
cover the entire risks associated with electronic banking as a part of its regular
inspections of banks.
d. Banks should develop outsourcing guidelines to manage risks arising out of third party
service providers, such as, disruption in service, defective services and personnel of
service providers gaining intimate knowledge of banks systems and mutuali;ing the
same, etc., effectively.
e. &ith the increasing popularity of e-commerce, it has become necessary to set up .Inter-
bank <ayment Eateways for settlement of such transactions. The protocol for
transactions between the customer, the bank and the portal and the framework for setting
up of payment gateways as recommended by the Eroup should be adopted.
1#
INDIAN
BANKING SYSTEM
f. 4nly institutions who are members of the che!ue clearing system in the country will be
permitted to participate in Inter-bank payment gateways for Internet payment. =ach
gateway must nominate a bank as the clearing bank to settle all transactions. <ayments
affected using credit cards, payments arising out of cross border e-commerce transactions
and all intra-bank payments *i.e., transactions involving only one bank+ should be
excluded for settlement through an inter-bank payment gateway.
g. Inter-bank payment gateways must have capabilities for both net and gross settlement. All
settlement should be intra-day and as far as possible, in real time.
h. @onnectivity between the gateway and the computer system of the member bank should
be achieved using a leased line network *not through Internet+ with appropriate data
encryption standard. All transactions must be authenticated. 4nce, the regulatory
framework is in place, the transactions should be digitally certified by any licensed
certifying agency. 113 D 698 bit encryption must be used as minimum level of security.
)eserve Bank may get the security of the entire infrastructure both at the payment
gateways end and the participating institutions end certified prior to making the facility
available for customers use.
i. Bilateral contracts between the payee and payees bank, the participating banks and
service provider and the banks themselves will form the legal basis for such transactions.
The rights and obligations of each party must be clearly defined and should be valid in a
court of law.
(. Banks must make mandatory disclosures of risks, responsibilities and liabilities of the
customers in doing business through Internet through a disclosure template. The banks
should also provide their latest published financial results over the net.
k. %yperlinks from banks websites often raise the issue of reputational risk. 1uch links
should not mislead the customers into believing that banks sponsor any particular product
or any business unrelated to banking. %yperlinks from banks websites should be
confined to only those portals with which they have a payment arrangement or sites of
their subsidiaries or principals. %yperlinks to banks websites from other portals are
normally meant for passing on information relating to purchases made by banks
customers in the portal. Banks must follow the minimum recommended security
1.
INDIAN
BANKING SYSTEM
precautions while dealing with re!uest received from other websites, relating to
customers purchases.
9. The )eserve Bank of India has decided that the Eroups recommendations as detailed in these
circulars should be adopted by all banks offering Internet banking services, with immediate
effect. =ven though the recommendations have been made in the context of Internet banking,
these are applicable, in general, to all forms of electronic banking and banks offering any form of
electronic banking should adopt the same to the extent relevant.
G. All banks offering Internet banking are advised to make a review of their systems in the light
of this circular and report to )eserve Bank the types of services offered, extent of their
compliance with the recommendations, deviations and their proposal indicating a time frame for
compliance. The first such report must reach us within one month from the date of this circular.
Banks not offering any kind of I-banking may submit a .nil report
S$!UT($'S:
%ere are some simple tips to prevent you from falling into the trap of cyber criminals.
)emember, a simple ignorance or oversight can make a huge dent in your hard- earned savings.
? Securing your account: Avoid online banking on
unsecured wife systems and operate only from <@s at home. 5ever reveal password to
anyone. /o not even write it on a piece of paper on diary. ?ust memories it. It should be
alphanumeric and change it fre!uently.
5ever reply to !ueries from bank online about account or personal details. The personal
information should not be kept in a public computer or in emails.
? %#is#ing: A personNs personal details are obtained by fraudsters posing as
bankers, who float a site similar to that of the personNs bank. They are asked to provide all
personal information about themselves and their account to the bank on the pretext of
database up gradation. The number and password are then used to carry out transactions
on their behalf without their knowledge. <hishing involves using a form of spam to
1/
INDIAN
BANKING SYSTEM
fraudulently gain access to peopleNs online banking details. As well as targeting online
banking customers, phishing emails may target online auction sites or other online
payment facilities. Typically, a phishing email will ask an online banking customer to
follow a link in order to update personal bank account details. If the link is followed, the
victim downloads a program which captures his or her banking login details and sends
them to a third party.
? Spa: 1pam is an electronic N(unk mailN or unwanted messages sent to your
email account or mobile phone. These messages vary, but are essentially commercial and
often annoying in their sheer volume. They may try to persuade you to buy a product or
service, or visit a website where you can make purchasesA or they may attempt to trick
you into divulging your bank account or credit card details.
? 'igerian Sca: 5igerian or Frauds B:7 or B67 are basically the
lottery scam in which some overseas persons are involved to cheat innocent persons or
organi;ations by promising to give a good amount of money at nominal fee charges.
Their intention is to steal money in the form of fee against the lottery pri;e.
? Spy-are: 1pyware such as Tro(an horse is generally considered to be
software that is secretly installed on a computer and takes things from it without the
permission or knowledge of the user. 1pyware may take personal information, business
information, bandwidthA or processing capacity and secretly gives it to someone else.
OTro(an %orseO scheme unfolds when malicious software *malware+ embeds to a consumerNs
computer without the consumer being aware of it. Tro(ans often come in links or as attachments
from unknown email senders. After installation the software detects when a person accesses
online banking sites and records the username and password to transmit to the offender. <eople
using public computers, in places like Internet cafes, are often susceptible to Tro(ans like
malware or spyware.
11
INDIAN
BANKING SYSTEM
? C#eck sites U&!: Always check the C)3 of your bankNs web
site. Fraudsters can lure you to enter your user I/ and password at a fake website that
resembles your bank. If you see anything other than the bankNs genuine C)3, it has to be
fake.
5ever enter your user I/ or password or such sensitive information without ascertaining that you
are on the right website. Always type the &eb address of your bank into the browser address
space. 5ever click on the link in the email.
? ,ool-proof pass-ord: @hange your online banking
password at regular intervals. Also, avoid easy-to-guess passwords, like first names,
birthdays, kidNs or spouseNs name and telephone numbers. Try to have an alpha-numeric
password, one that combines alphabets and numbers.
If you have several bank accounts, never use the same online banking password for all. 5ever
select the option on browser that stores or retains user name and password. As it can easily be
cracked by cyber criminals. Also, never paste your password, always type it in. This little amount
of Ufinger exerciseN will go a long way in safety.
? Al-ays c#eck 0last logged0: 2ost banks have a
Nlast logged inN panel on their websites. If your bank has it, check the panel whenever you
log in. If you notice irregularities *like you are logging in after two days, but the panel
says you logged in that morningV+, report the matter immediately to your bank and
change your password right away.
Always log out when you exit the online banking portal. @lose the browser to ensure that your
secure session is terminated. 5ever exit simply by closing the browser.
? )eep your syste up to date: )egularly
check for security updates for your computer operating system. 2ost security updates are
aimed at reducing risks to your computerA these may be data-related or otherwise. 2ake
13
INDIAN
BANKING SYSTEM
sure that your operating system and browser have the latest security patches installed.
And, always install these only from trusted websites.
Install a personal firewall to prevent hackers from gaining unauthori;ed access to your computer,
especially if you connect to the Internet through a cable or a /13 modem.
? %ublic access can be in4urious: /onNt
leave the <@ unattended after keying in information while transacting on the website.
Avoid accessing your bank online at cyber cafes or on a share or public computer. Also,
avoid locations that offer online connections through wireless networks *&i-Fi+, where
privacy and security are minimal.
? ,ollo- "ank instructions: Banks say that
appropriate up gradations are carried out from time to time by their IT departments for
risk mitigation. They issue instructions to the customers to manage their accounts through
virtual keyboards by way of which the characters typed by them are not identified by
hackers. 121 alerts are also an important tool since any transaction carried out on
account is reported to the account holder through an 121.
? %rotection: 3earn the ways to protect yourself from online banking
fraud schemes. /etect Tro(ans that appear on your <@ in the form of viruses, spyware or
malware through Antivirus 1oftware, anti-1pyware, and Adware. Also, learn to keep
your cards, documents and passwords safe, and monitor your accounts to safeguard
yourself from bank fraud committed through identity theft.
Chapter:- 4
14
INDIAN
BANKING SYSTEM
/ATA A'A!5S(S
A survey was conducted on online banking in India for the primary data among 6::
people. The analysis of this survey or data is as follows,-
63 7#at kind of banking do you
prefer8
#1G
39G
11G
%oll result
traitiona'
on'ine
both
POLL out of 100, 0 traditional 0 6H A 4nline 0 J: A both 0 9H
FINDINGS: This shows us the preference of the people towards the type of banking. They
prefer to use the services of both the online and traditional banking rather than a particular type.
16
INDIAN
BANKING SYSTEM
63 /o you t#ink online banking is
better t#an traditional banking8
11G
16G
#4G
%$!!
YES
N=
CANFT SAY
POLL out of 100, Ies - J7A 5o - 99A @ant 1ay 0 7
FINDINGS: The people understand that online banking is better than the traditional banking
because of its nature. &hile a few of the people are still not fully convinced.
17
INDIAN
BANKING SYSTEM
63 /o you feel your account is
secured in online banking8
YES N= CANT SAY
//
#6 #6
%$!!
Poll out of 100: Ies - BBA 5o - 98A @ant 1ay 0 98
FINDINGS: 2a(ority of the people think that their Account is secured, but not all. Their
security concern should be eradicated. This will attract customers.
39
INDIAN
BANKING SYSTEM
63 .o- frequently do you use
banking services8
#9
//
6
#6
%$!! $, 9::
WEEK(Y
M=NTB(Y
5EGD(A5(Y
5A5E(Y
POLL out of 100, &eekly - 9:A 2onthly - BBA regularly - 6:A rarely 0 98
FINDINGS: 2ost of the people do not need the services of banks regularly or maybe there is no
need. They may transact with the bank on monthly basis for most of the time.
31
INDIAN
BANKING SYSTEM
63 .o- #appy are you -it# services
of online banking provided by your
bank8
17G
.1G
.1G
1#G
%$!! $, 9::
C=M)(ETE(Y
)A5TIA((Y
:AI5(Y
N=T AT A((
POLL out of 100: @ompletely - 9:A partially - GJA fairly - GJA 5ot at all - 69
3#
INDIAN
BANKING SYSTEM
FINDINGS: The satisfaction level of people with the online banking services of their banks has
a mixed review. This may be due to multiple reasons.
63 7#at type of transaction do you
ake in online banking8
3.
INDIAN
BANKING SYSTEM
//G
#6G
6G
#9G
Colun9
CBECK
BA(ANCES
)AYMENTS
T5ANS:E5 =:
NDS
=TBE5
POLL out of 100: @heck balances - BBA <ayments - 98A Transfer of fund - 8A other -9:
FINDINGS: The utility of the online banking is service is not used to the extent is should be and
it is being ma(orly used for the purpose of checking the balance in the account. The reason for
this is the low volume of transaction among the people.
$'!('E "A')('* (' ('/(A
3/
INDIAN
BANKING SYSTEM
T.6 &%I@% BA5P /4 I4C %AF= A5 A@@4C5TR
*6 0 <rivate sector bankA 9 0 <ublic sector bankA G 0 4ther+
T.9 &%AT PI5/ 4F BA5PI5E /4 I4C <)=F=)R
*6 0 TraditionalA 9 0 4nlineA G 0 Both+
T.G /4 I4C T%I5P 453I5= BA5PI5E I1 C1=FC3R
*6 0 IesA 9 0 5oA G 0 @ant say+
T.B %4& F)=TC=5T3I /4 I4C C1= BA5PI5E 1=)FI@=1R
*6 0 &eeklyA 9 0 2onthlyA G 0 )egularlyA B 0 )arely+
T.H %4& F)=TC=5T3I /4 I4C FI1IT I4C) BA5P B)A5@%= <=) 245T%R
*6 0 6 to GA 9 0 G to 8A G 0 8 to 69A B 0 2ore than 69+
T.J /4 I4C T%I5P 453I5= BA5PI5E I1 B=TT=) T%A5 T)A/ITI45A3 BA5PI5ER
*6 0 IesA 9 0 5oA G 0 @ant 1ay+
T.K /4 I4C F==3 453I5= BA5PI5E %A1 A E)4&T% <4T=5TIA3 I5 I5/IAR
*6 0 IesA 9 0 5oA G 0 @ant 1ay+
T.8 &%AT TI<= 4F T)A51A@TI45 /4 I4C 2AP= I5 453I5= BA5PI5ER
*6 0 @heck balancesA 9 0 2ake paymentsA G 0 Transfer fundsA B 0 4ther+
T.7 /4 I4C F==3 I4C) A@@4C5T I1 @42<3=T=3I 1=@C)=/ I5 453I5= BA5PI5ER
*6 0 IesA 9 0 5oA G 0 @ant 1ay+
Q.10 A)= I4C %A<<I &IT% T%= 1=)FI@=1 4F 453I5= BA5PI5E <)4FI/=/ BI I4C)
BA5PR
*6 0 @ompletelyA 9 0 <artiallyA G 0 FairlyA B 0 5ot at all+
Q.11 /4 I4C F==3 24BI3= BA5PI5E I1 B=TT=) T%A5 453I5= BA5PI5ER
*6 - yesA 9 0 5o A G 0 @ant say +
Q.12 F4) 2= 453I5= BA5P I1
5A2=, <%45=,
=2AI3 I/,
C$'C!US($'
31
INDIAN
BANKING SYSTEM
The %a"e o% bankin& is "han&in& rapi'+* Co,petition is &oin& to be to!&h an
-ith $nan"ia' 'ibera'i2ation !ner the WT=E banks in
Inia -i'' ha0e to ben"h,ark the,se'0es a&ainst the best in the -or'*
r a stron& an resi'ient bankin& an $nan"ia' s+ste,E there%oreE banks
nee to &o be+on periphera' iss!es an ta"k'e si&ni$"ant iss!es 'ike
i,pro0e,ents in pro$tabi'it+E eH"ien"+ an te"hno'o&+E -hi'e a"hie0in&
e"ono,ies o% s"a'e thro!&h "onso'iation an e8p'orin& a0ai'ab'e "ost-
eIe"ti0e so'!tions* These are so,e o% the iss!es that nee to be aresse i%
banks are to s!""eeE not @!st s!r0i0eE in the "han&in& ,i'ie!*
=0er the 'ast three e"aes the ro'e o% bankin& in the pro"ess o% $nan"ia'
inter,eiation has been !ner&oin& a pro%o!n trans%or,ationE o-in& to
"han&es in the &'oba' $nan"ia' s+ste,* It is no- "'ear that a thri0in& an
0ibrant bankin& s+ste, reJ!ires a -e''-e0e'ope $nan"ia' str!"t!re -ith
,!'tip'e inter,eiaries operatin& in ,arkets -ith iIerent risk pro$'es*
Takin& the bankin& in!str+ to the hei&hts o% internationa' e8"e''en"e -i''
reJ!ire a "o,bination o% ne- te"hno'o&iesE better pro"esses o% "reit an
risk appraisa'E treas!r+ ,ana&e,entE pro!"t i0ersi$"ationE interna' "ontro'
an e8terna' re&!'ations an not the 'eastE h!,an reso!r"es* rt!nate'+E -e
ha0e a "o,parati0e a0anta&e in a',ost a'' these areas* =!r pro%essiona's
are at the %ore%ront o% te"hno'o&i"a' "han&e an $nan"ia' e0e'op,ents a''
o0er the -or'* It is ti,e to harness these reso!r"es %or e0e'op,ent o%
Inian bankin& in the ne- "ent!r+
33
INDIAN
BANKING SYSTEM
BIB34E)A<%I
W--* Inian bankin& s+ste,*"o,
www.)BI.com
www.services of banks.com
www.problems of online banking.com
www.onlinebanking.net
34

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