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NEW TRENDS IN BANKING

TYBCOM (BANKING & INSURANCE) Page 1


SUBMITTED TO

UNIVERSITY OF MUMBAI

BY

VIRENDRA M JHA

GUIDED BY

PROF. BHAVANA CHAUHAN

VIDYAVARDHINIS

K.M. COLLEGE OF COMMERCE AND

VASAI ROAD 401 202

T.Y BANKING & INSURANCE

SEMESTER FIFTH

20010-11

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ACKNOWLEDGEMENT

I would like to take this opportunity to thank

everybody who helped through the successful completion of

this project. Many people have contributed to my

achievements during the project and take this opportunity

to thank each one of them at end of the project durations.

First I would like to thank the UNIVERSITY OF MUMBAI to

include this project in the curriculum which brings out our

observant analyzing and interpreting skills to the maximum.

I extend my sincere gratitude to the honorable

principal Dr.Sushil.S.kelkar for the work that I am able to

present would just not have been possible without her

guidelines.

I would also like to thank the project guide Mrs.

Bhavna Chauhan Lad for their constant encouragement,

intellectual solution and valuable suggestions throughout

the making of this project. I thank him for spending his

valuable time and efforts towards my cause.

I would like to thank to my friends and colleagues,

librarians for providing some valuable tips. I would also like

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to thank all those whose name may not have appeared here

but whose contributions have not gone unnoticed.

Last but not the list, I would like to thank my parents

for helping me in the completion of this project.

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SR. NO. TOPIC NAME PAGE NO

1. NEW TRENDS IN BANK

1.1 Introduction 1

1.2 History

1.3 Banking

1.4 Banking before Modernization

1.5 Banking after Modernization

2 Components of new Trends in Bank

2.1 Bancassurance

2.2 Mutual Banking

2.3Investment Banking

2.4 Universal banking

2.5 International Banking

2.6 Retail Banking

2.7 Demate Accounting

3 Challenges faced by Banks in Modernization services

4 Questionnaire

5 Conclusions

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INTRODUCTION

New Trends in Banking in this decade has come across many

products in the Banking sector which in turn got a bright surrounding

in the banking world. The products have been developed to meet all

the customer needs of their choice. And since last two decades the

new products have been launching to fulfill all the needs of the

customer.

New trends in Banking cover many points which are generally

in use in todays world. It covers the points related to how the banking

sector has reformed itself from old procedure of taking a deposit and

lending the money to many other activities such as internet banking,

mobile banking, tele-banking, overseas banking, etc. The reason for

this change includes the growth of banking technology that has

changed the face of this industry with a decreasing emphasis on

human intervention.

In todays banking transaction the customers can easily seat in

their home and transact their account operation without personally

visiting to the Bank through the new and recent trends in the Banking

world. And this has really motivated each and every Banks and

Customers. Customers can send SMS messages to banks to get

information and Banks can also make choice for self-regulation by

voluntarily adopting a code of conduct that has been laid down by the

Banking codes and Standards Board of India (BCSBI).

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HISTORY

Without a sound and effective banking system in India it cannot

have a healthy economy. The banking system of India should not only

be hassle free but it should be able to meet new challenges posed by

the technology and any other external and internal factor.

For the past three decades Indias banking system has several

outstanding achievement to its credit. The most striking is its

extensive reach. It is no longer confined to only metropolitans or

cosmopolitans in India. In fact, Indian banking system has reached

even to the remote areas of the country. This is one of the main

reasons of Indias growth process. The governments regular policy

for Indian bank since 1969 has paid rich dividends with the

nationalization of 14 major private banks of India.

No long ago, an account holder had to wait for hours in the

bank counters for getting a draft or for withdrawing his own money.

Today, he has a choice. Gone are days when the most efficient bank

transferred money from one branch to another in two days. Now it is

simple as instant messaging or dials a pizza. Money has become the

order of the money. Some of the basic points of History of Banking

and Finance were as follows :-

a) In the 18th century Bank notes were the greater part of themoney supply, being issued by the private banks.

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b) In the 19th century, the note issue was taken over by the Bank ofEngland, but bank deposits became the greater part of the

money supply. Joint-stock banks became overwhelmingly

important and private banks declined.

c) Last century saw the number of banks fall to a low point, butthen an influx of foreign banks swelled the numbers operating

in the new wholesale markets after about 1958. However, in the

retail market, competition came largely from building societies

and other new (British) entrants. In the late 1980s, two retail

banks were floated on the Stock Exchange TSB and the

Abbey National.

d) Building societies have grown in importance but fallen innumbers this century. Today, most are minor banks, although

they often do not seek business accounts.

e) The Bank of England was nationalized in 1946 bur this hardlychanged its manner of operating, although the Banking acts of

1979 and 1987 gave it more detailed statutory powers, most of

which have passed to the Financial Services Authority.

f) Plastic money began with cheque cards in 1965, followed byBarclaycard in 1966 and Access in 1972.

g) Selfregulation has been replaced by control by the FinancialServices Authority.

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BANKING

The development of Bank is evolutionary in nature. A Bank

performs multitude of functions and services which cannot be

crunched into a single definition. A Bank may mean different things

to different people. For some it is a store house of money, for others

an institution of funding or finance and yet to many others a bank is a

depository for their savings.

Bank as it is largely understood in English today is an

institution that accepts money as a deposit to further lend it out for

profit.

Indian Banking has evolved in its present form from the days of

the British raj. The structure and pattern of banking are based on the

British banking system.

Section 5 (b) defines Banking as accepting for the purpose of

lending or investment of deposits of money from the public, repayable

on demand or otherwise and withdrawable by cheque. Draft, order or

otherwise.

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BANKING -BEFORE MODERNIZATION

Banking before Modernization was merely considered as the

accepting deposits and lending the loans. Before modernization can be

understood by the following points :-

1. Focus on Expansion :-Banking before modernization used to give more focus on their

expansion rather than the customers needs. The customers used

to just deposit the money to safeguard and earn a interest on it

and take loan at the higher rate of interest along with their

principle amount. And the Banks also more focused on

expanding their banking business.

2. Labour Intensive :-At pre-modernized period the Banks were just a labour

intensive, for each and every work labours are needed. This is

an advantage for the labourers as the people can get their job,

but at the same time, it was costly and time consuming.

3. Low use of Technology :-There were not much use of Technology as the Banks were not

having much knowledge relating to technology. And because of

low use of technology the banking transactions were time

consuming.

4. Limited Areas :-The banking transactions was done in a limited areas, as the

scope of Banking at that time was limited and Bank find it very

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costly to move ahead. Basically they use to focus more on just

agriculture or some other field. They dont use to transact in

various fields.

5. More Government Control :-Before Modernization of Bank there were lots of Government

control in the Bank. There were lots of rules and regulations

regarding the transactions of Business. Bank were fully

dependent on Government.

6. No Globalization :-The banking before was not globalised. They just used to

transact their business in their regional or geographical area. As

there were lots of rules and regulations of the authority the

banks were not able to go beyond its limited area.

7. Monopoly :-This was the greatest advantage for the banks before

modernization as they had the full power to control the market

in the economy. The Banks used to charge high interest from

the consumers, the consumer were also manipulated by this and

they rule over the customers.

8. Focus on Government Policy :-Before modernization the banks used to focus only on the

government policy made by the authority. They were not

consumer oriented they just wanted to be ruled by the

Government.

9. Impact of Socialism :-

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Due to focus on Government policy there was a impact of

socialism in the country before modernization of the Bank. And

socialism in the country was beneficial but to the some extent.

10.Queue for every transaction :-As there were no technology and it was labour intensive the

customers have to make a queue for each and every

transactions. And the process was also very slow which was

time consuming.

BANKING - AFTER MODERNIZATION

After modernization of Banks many new concepts came into

existence which is beneficial for the Banks as well as the

customers. The Following points discuss about the modernization

of the Bank :-

1. Focus on Urban areas :-After modernization of the banks the bank used to focus more

on urban areas rather than just focusing on expansion. The

Banks also focus on Expansion but now the first preference is

given to the urban areas as their the peoples standard of living

will increase and is also beneficial for them.

2. Less Labour :-After modernization of the Banks the labours utilized by the

Banks is less as compared to pre modernized period as for each

and every transactions, the new technology has developed

which in turn was beneficial foe the banks but for the people it

is low efficacy of the job.

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3. Higher use of Technology :-There is a great demand of Technology in this world as each

and every work is done through technology now so there is a

higher use of technology in this era of post modernization

period of the world.

4. Venture Funding :-Information Technology becoming the new mantra in India,

Venture Capital has become more of an institutionalized

industry. Financed and managed by successful entrepreneurs

and professional, sophisticated investors, this industry are a

smooth blend of risk financing and hand holding of

entrepreneurs. Apart from financial support, venture capitalists

provide networking, management, and marketing support as

well. NASSCOM aims to make India as one of the top 5

locations for creation of technology ventures in the world and

ensure that the necessary venture capital funds flow in to the

country.

5. Insurance Services :-After Modernization of the banks, banks also started to give the

Insurance services to the customers along with their banking

transactions. Many Banks have came forward to tke this

services. For e.g. ICICI, HDFC, etc.

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6. Freedom:-Now after modernization the banks are more liberalized and

freed as compared to before from the rules and regulations of

the concerned authority and Government.

7. Less dependence on Government ;-Now the Banks are less dependent on Government, before the

banks used to be fully depended on Government as there were

lots of rules and regulations.

8. Becoming Global :-Banks after modernization is becoming globalized. The banks

are now performing their business at international level also.

The banks are providing services to each and every possible

country.

9. Foreign venture :-As the banks are going international, they started dealing withthe foreign venture capital fund also, by which the banks are

also in profit and as well as customers are also in their well

position.

10.Competition :-Due to lots of banks in this post modernization period there is

lots of competition in the market among the banks themselves.

Due to lots of competition the rate of interest differs and

customers get a choice of choosing their own banks for the

benefit of themselves.

11.Focus on customer service :-

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COMPONENTS OF NEW TRENDS IN BANKING

The components of new trends include many sub topics which are as

follows :-

1. Bancassurance

2. Mutual Banking

3. Investment Banking

4. Universal banking

5. International Banking

6. Retail Banking

7. Demate Accounting

The financial services segment has witnessed many trends in

recent times and this takes a comprehensive look at some of these

trends. The technological changes in the financial services segment

have been impressive. Though banking services are the major

adopters of high-end technology, other financial services like

insurance are also leveraging on technology for delighting customers

and gaining a competitive edge.

Kiosks are used as a cost-effective tool for product

communication, customer management, and brand building. Stored

Value Cards (SVC), also called electronic purses, eliminate the need

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to carry hard cash. Digital security is a technological endeavor that

enables safe and secure digital transactions and has gained legal

acceptance. Digital certificates will soon gain prominence with

increasing focus on e-governance, online trading, and online

transactions. Business intelligence is a widely implemented decision

making tool. It includes OLAP, data warehousing, and data mining.

Business intelligence systems help the marketer to analyze

information and take suitable decisions.

Enterprise-wide IT solutions, such as Core Banking Solutions,

have helped financial product marketers in streamlining their internal

operations and delivering greater value to the customers.

These all new trends we are going to discuss in detail below :-

1. BANCASSURANCE

Bancassurance simply means selling of insurance products

by banks. In this arrangement, insurance companies and banks

undergo a tie-up, thereby allowing banks to sell the insurance

products to its customers. This is a system in which a bank has a

corporate agency with one insurance company to sell its products.

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By selling insurance policies bank earns a revenue stream apart

from interest. It is called as fee-based income. This income is

purely risk free for the bank since the bank simply plays the role of

an intermediary for sourcing business to the insurance company.

Bancassurance has grown at different places and taken

shapes and forms in different countries depending upon

demography, economic and legislative prescriptions in that

country. It is most successful in Europe, especially in France, from

where it started, Italy, Belgium and Luxembourg. The concept of

bancassurance is relatively new in the USA. As mentioned above

bancassurance growth differs due to various reasons in different

countries. The Glass-Steagall Act of 1933 prevented the banks of

the USA from entering into alliance with different financial

services providers, thereby putting a barrier on bancassurance. As

a result of this life insurance was primarily sold through individual

agents, who focussed on wealthier individuals, leading to amajority of the American middle class households being under-

insured. With the US Government repealing the Act in 1999, the

concept of bancassurance started gaining grounds in the USA also.

Coming to Asia, it has been estimated that bancassurance would

contribute almost 16% of the life premium in the Asian markets in

the year 2006 primarily due to the growth expected in India and

China.

Coming to India, bancassurance is a new buzzword in India.

It originated in India in the year 2000 when the Government issued

notification under Banking Regulation Act which allowed Indian

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Banks to do insurance distribution. It started picking up after

Insurance Regulatory and Development Authority (IRDA) passed

a notification in October 2002 on 'Corporate Agency' regulations.

As per the concept of Corporate Agency, banks can act as an

agent of one life and one non-life insurer. Currently bancassurance

accounts for a share of almost 25-30% of the premium income

amongst the private players in India.

Bancassurance provides various advantages to banks,

insurers and the customers. For the banks, income from

bancassurance is the only non interest based income. Interest is

market driven and fluctuating and quite narrowing these days.

Banks do not get great margins because of the competition This is

why more and more banks are getting into bancassurance so as to

improve their incomes. Increased competition also makes it

difficult for banks to retain their customers. Banassurance comes

as a help in this direction also. Providing multiple services at one

place to the customers means enhanced customer satisfaction. For

example, through bancassurance a customer gets home loans along

with insurance at one single place as a combined product. Another

important advantage that bancassurance brings about in banks is

development of sales culture in their employees.

As for the insurance company the advantage that

bancassurance provides is evident. The insurance company gets

improved geographical reach without additional costs. In India

around 67,000 branches are there. If all 67,000 branches sell the

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insurance products one can see the reach. This is one method of

penetrating the market.

There is also another method called 'Bank Referral'. Here the

banks do not issue the policies, they only give the database to the

insurance companies. The companies issue the policies and pay the

commission to them. That is called referral basis.

India's rural market has huge potential that is still untapped by the

insurance companies. Setting up their own networks entails such a

huge cost, that no company would be interested in doing so.Bancassurance again comes as an answer. It helps the insurance

companies to tap the market at a much lower cost. As for the customer

the competitive nature of the Indian market ensures that the reduction

in costs would result in benefits in terms of lower premium rates being

passed on to him.

The penetration level of life insurance in the Indian market is

abysmally low at 2.3% of GDP with only 8% of the total population

currently insured. With almost half of the population likely to be in

the 'wage earner' bracket by 2010, there is every reason to be

optimistic that bancassurance in India will play a long inning.

The major contributing factors favouring bancassurance are as

follows:-

Wide Network of branches Existing wide range of Corporate and Retail clients of banks

with potential business opportunities.

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Wide customer database is an opportunity to study customerspending habits, investment preferences etc if the database is

properly utilized

Personalized single window service delivery system toexpertise in offering quality service by which cross selling

becomes easy.

Rural Penetration which is important for wide reach of banks inthe rural segment which is potential and untapped for insurance

business

Structure/design customer centric product and services to suitthe needs of every segment.

Bancassurance in future would be favorable as there will be :-

Entry of big players in life and non-life segment wouldimmense competition for better deal of the customers.

Collaboration of banks and insurance companies would haveprofound impact on financial services industry which is

enhanced for customer satisfaction.

There would be a vast potential for banks and insurancecompanies for partnership and to develop the under insured

market in India.

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2. MUTUAL BANKING

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Mutual Banking is a new concept which has emerged offering

new product and service innovations for the customers who avail

of mutual fund products through banks.

A mutual fund is a professionally managed type of collective

investment scheme that pools money from many investors and

invests it in stocks,bonds, short-term money market instruments,

and/or othersecurities. The mutual fund will have a fundmanager

that trades the pooled money on a regular basis. The net proceeds

or losses are then typically distributed to the investors annually. So

now this mutual fund business is also done by banks through

which customers are benefited.

The essential features of a Mutual Bank may be outlined as

follows:

a. Mutual Banking Associations is formed to do a general banking

business and to issue Bank cheques for the use of their members.

b. Members of such associations shall, upon admission, bind

themselves in due form to receive the cheques issued by the

association from all persons, in all payments, at par.

c. The associations should issue their currency cheques as loans to

their members to circulate as money among them and such otherpersons as are willing to receive it. These cheques are not a legal

tender.
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k. The money of the association shall be issued in denominations of

one, two, five, ten and twenty rupee bills; at least one-half of the issue

shall be in the first three denominations.

l. The cheque, draft, bill of exchange and travelers' cheques may be

adopted to facilitate exchanges between the various members of the

associations and between the associations themselves in specific part

of India only.

m. Associations may form clearing houses in a city where there is a

branch near the center of population.

Advantages of Mutual Bank are as follows:-

a. Mutual Bank cheques being secured credit, will take the placeof unsecured credit, and, in consequence, credit losses will be

practically eliminated. Interest will cease, and only the costs of

issuing, securing, and carrying Mutual Bank notes will be

charged, amounting to less than one percent.

b. Mutual Bank cheques, by their very nature, cannot depreciate.On this account, and because there will always be enough

Mutual Money for all industrial and commercial needs (due to

the flexibility of the issue), there will be no more money panics.

c. As money will be easy to get under the Mutual Banking system,sound enterprises will have no difficulty in getting financed.

This will eventually mean the disintegration of monopoly. It

will also mean the creation of many more jobs, and

consequently competition among employers for workers,

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resulting in increasingly better conditions of work land pay,

until at last the worker will receive the full product of his labour

3. INVESTMENT BANKING

An investment bank is a financial institution that helps

companies take new bond or stock issues to market, usually acting as

the intermediary between the issuer and investors.

Investment banks may underwrite the securities by buying all

the available shares at a set price and then reselling them to the public.

Or the banks may act as agents for the issuer and take a commission

on the securities they sell.

Investment banks are also responsible for preparing the

company prospectus, which presents important data about the

company to potential investors.

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In addition, investment banks handle the sales of large blocks of

previously issued securities, including sales to institutional investors,

such as mutual fund companies.

Unlike a commercial bank or a savings and loan company, an

investment bank doesn't usually provide retail banking services to

individuals.

The one of the trends that has been developing in the past few

years in the global nad Indian investment banking arena, is the strong

emergence of universal banks ahead of pure investment banks asmarket leaders. These universal Banks have the additional financial

muscle of their banking arms that add to their investment banking

strengths. Pure investment banks have found it unmanageable to

maintain leadership positions due to difficult market conditions and

the economic downturn.

The year 2002 has been dubbed as the watershed year in

investment banking for over a decade. Globally, universal banks such

as theCitigroup, JP Morgan chase and Deutsche bank are emerging

against pure investment banks such as Goldmanb Sachs and Morgan

Stanley. This trend could probably reappear in India as well with the

emergence of SBI, ICICI, idbi and Kotak Mahindra bank as strong

universal banks. However, in 2002 pure investment banks such as JMMorgan Stanley and DSP Merrill Lynchstill occupied top positions in

the investment banking league tables.

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d. DSP-ML de-listed from the stock exchanges since itspromoters, Hemendra Kothari and Merrill Lynch together held

more than 90% of the shares. DSP was rated The Best

Domestic Investment Bank in India for 2000 by Finance Asia.

Euro money voted it Best Domestic M&A House in India for

2000 by Finance Asia. Euro money voted it Best Domestic

M&A House in India in 2000. This distinction has returned for

three year in a row with DSP-ML, being named as the Best

Domestic Securities House and Best Domestic Investment

Bank for 2002-2003 by Asia money (May 2003 issue) and The

Asset (January 2003 issue) magazine respectively.

4. UNIVERSAL BANKING

The term Universal Bank has different meanings, but usuallyit refers to the combination of commercial banking (collecting

deposits and making loans) and investment banking, i.e. issuing,

underwriting and trading in securities. This is a narrow definition of

Universal banking. In a very broad sense, however the term

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Universal Bank refers to those banks that offer a wide range of

financial services such as commercial banking and investment

banking and other activities, especially insurance. Universal Banking

usually takes one of the three forms, i.e., in-house, through separately

capitalized subsidiaries, or through a holding company structure.

The era of universal banking in India has begun, as what one

find is that without being conscious about it, the banking system in

India has already started entering into Universal Banking either

through the route of subsidiarisation or by expanding the scope

existing banking activities. For example, credit card business is being

handled both in-house as also through a subsidiary.

Recently, India has also followed the practice of Universal

Banking in a broad sense by allowing banks and DFIs to undertake

insurance Business. An attempt was made to delineate some of the

major risks faced by Insurers so as to know as to whether and to what

extent such risks are familiar to commercial banks and DFIs. While

risks on the asset side of the balance sheet are quite familiar to banks

and DFIs risks are on the liability side, especially in the case of non-

life insurance business which are more serious, are not expected to be

familiar to banks/DFIs.

The most important challenge before universal banking is thatof regulatory. The main brake on the liberalization process has been

prudential concerns, notably the difficulty of devising appropriate

prudential safeguards in the light of the increased freedom. The major

issues involved in universal in universal banking are appropriate

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allocation of responsibilities among various regulators. To overcome

this problem, different countries have followed different approaches.

In the 1980s banks were allowed to undertake various non-

traditional activities through subsidiaries. This trend got momentum in

the early 1990s i.e. after initiation of economic reforms where banks

were allowed to undertake certain activities, such as, hire-purchase

and leasing in-house.

Universal Banking - Current position in India

In India, the financial system has traditionally been

compartmentalized with three main types of financial intermediaries

operating being Commercial Banks, DFIs and Investment Institutions

(two insurance institutions, viz. LIC, GIC and one mutual fund, viz.

UTI). All these institutions were required to confine their operations

strictly to their own areas, barring commercial banks which were

allowed to undertake some investment/ merchant banking activity and

project finance within the prescribed limits.

Recently, banks and DFIs have also been allowed to undertake

insurance business. It may thus, be seen from the above that the

practice of Universal Banking is already prevalent in India. It started

with Universal Banking in a narrow sense by allowing downstream

linkages later followed by upstream linkages. Recently, the practice of

universal banking in a broad sense with downstream linkages has also

been allowed. However, upstream linkages under broad universal

banking have yet to take place.

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The following diagram shows the present position in India

related to practice of Universal Banking. By which Universal Banking

represents combination of various activities and becoming almost

inevitable due to technological changes and competitive forces.

5. INTERNATIONAL BANKING

Banking transactions crossing national boundaries is termed as

International Banking. This is also one of the components under the

New Trends in Banking. Here transactions of Banks are done at a

International level.

Corporate explore foreign markets for trade. It is to sell products in

wider markets, procure raw material, or even to shift manufacturing

base to optimize labor and other costs. As these enterprises travel,

they need banking services in foreign markets. This is the basic

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motive for Banks to go International. But this is in basic and historical

perspective. In the era of globalization, many investment and

commercial banks have developed themselves as multinational

financial institution.

International Banking also includes Letter of Credit :-

In the world of finance, guarantee or confirmation by a bank has

more credibility than a guarantee given by an exporter or importer.

For better comfort to the party on the receiving side, bankers issue

such letters. Letter of credit is the most common of them. Importer hasto guarantee payment to the exporter. Hence LC is usually issued on

behalf of importer (applicant), by a bank, to the exporter (beneficiary).

A letter of credit is a written commitment by a bank to make

payment of a defined amount of money to a beneficiary (exporter)

according to the terms and conditioned specified by the importer

(applicant

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6. RETAIL BANKING

Retail Banking plays a very important role in the New Trends

in Banking as it provides all the facilities to the customers.

Consumers behavior is changing rapidly due to the development

of technology and the use of financial services is characterized by

individuality, mobility, independence of place and time, and

flexibility.

Retail Banking is the part of a bank that offers products and

services primarily to the individual customers, professionals, self-

employed individuals or small businesses. The focus is on creating

products and services that meet the needs of the target customers

and are profitable for the banks as well.

The approach to retail banking products is more on a mass

production basis wherein all risks and operations are based on and

geared to provide to a large number of customers. This is,

therefore, significantly different from corporate banking or

wholesale banking where focus is on large sized customer accounts

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rather than large numbers of customers.Retail Banking includes

following products to the customers :-

a. AUTOMATED TELLER MACHINE (ATM) :

The Trend in banking has evolved from a cash economy to

cheque economy and thereon to a plastic card economy. One of the

channels of banking service delivery is the Automated Teller

Machine (ATM), whose traditional and primary use is to dispense

cash upon insertion of a plastic card and its unique Pin or Personal

Identification number.

ATM is a user friendly, computer-driven system which operates

24 hours a day, 7 days a week. A totally menu-driven system. It

displays easy-to-follow, step-by-step instructions to the customers.

Current and Saving Account holders of a bank who hold a

certain minimum balance in their accounts are issued an ATM

card. The card is the plastic card with a magnetic strip with the

account number of the individual. When the card is inserted into

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the ATM, the machines sensing equipment identifies the account

holder and asks for his/ her identification code number. This is

referred to usually as the PIN and is issued by the banks

computers. This number is unknown to the banks staff and is

secret and unique to that individual

Many Banks have opened off-site ATMS at airports, railway

stations, petrol pumps, market centers, universities, etc.

b. TELE BANKING :

Tele-Banking or Phone Banking is a banking service offered by

banks to enable customers to assess their accounts for information

or transactions. Similar to the ATM PIN, a Telephone PIN (T-PIN)

is provided to each account holder.

The customer can call the exclusive Tele-Banking numbers and

provide the details to identify himself /herself to the automated

voice. Typically, the bank account number and the T-PIN are

asked for.

Upon verification, the customer is given access to his accounts

to query or transact on his account.
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Though cash withdrawal and deposit are not enabled through

his service to certain classes of customers.

c. INTERNET BANKING:

One of the channels of services delivery to a banking customers

is through the internet. The access to account information as well as

transaction is offered through the world-wide network of computers

on the internet. Every bank has a special firewalls and its own security

measures to protect the accounts from non-authentic use from

unauthorized users. Data are encoded using algorithms with a 128 bit

key or, in some cases, with a 1,024 bit encryption .

Each account holder is provided a PIN similar to that of the

ATM or Phone banking PIN.

The access to the account is allowed upon a match of the

account details and PIN entered on the computer system. A higher

level of security may be reached by an electronic finger-print. The

finger-print is taken before and after the transaction. The both

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versions are compared. In case of any differences, the transaction is

aborted.

This means that financial institutions may enlarge their market area

without building new offices or field services, respectively. Because

of its image as an innovative corporation, better interacting

possibilities, the usage of rationalization potential, promotion of self-

service ideas, the improvement of its competitive situation by

development of core competencies together with the construction of

market entry barriers, it may be possible to increase profits and market

shares

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d. CASH CARDS :

Cash card is also known as an ATM Card. A special plastic

card is used for getting currency notes from a machine known as

Automated Teller Machine.

e. DEBIT CARDS :

It is a card given to the customer by the bank that he must show

when he writes a cheque which promises that the bank will pay out

the money written on the cheque. Under Cheque Cards system, the

card-holder is given a card and a cheque book. He has to use the

cheques , while purchases are made and the trader gets guaranteed

payment . The customer does not get free credit, he has to keep

sufficient balance in his account or the bank will provide overdraft up

to a specified limit, of course on interest payment basis.
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f. CHARGE CARDS :

A small usually plastic card provided by an organization with

which one can buy goods from various shops, etc. The full amount

owed must then be paid on demand. In credit cards, the card-holders

get credit or loan for payment of periodical bills when sufficient

balance is not available in their accounts. In a charge card such credit

facility is not available. The periodical bill amount is paid off by

charging it to customers account. A fee is also payable by the card-

holder to the card issuing institution.

g. SMART CARDS :

With the use of credit cards, we may avail of credit facility on

our purchase of goods/services from approved sale outlets. A smart

card however, enables the card-holder to perform various other

banking functions apart from credit purchases. For example with
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smart cards, we can draw cash from ATMs, we can verify entries in

oue accounts, seek information pertaining to our accounts, etc. This is

possible because the card has an integrated circuit with

microprocessor chip embedded in the card for identification purposes.

The card can also perform calculations and maintain records.

h. CREDIT CARDS :

Credit cards operate quite differently from cheque cards. A

cheque card guarantees payment of a cheque, whereas a credit card

guarantees against a sales voucher signed by the Credit Card Holder.

Each credit card bears a specimen signature of its holder and is

embossed by the issuing bank with the holders name and number.

When goods or services are supplied, the holder gives his card to the

supplier who has agreed to join the scheme. The supplier places the

card in a special imprinter machine, which records the holders name

and number on a sales voucher. The particulars of the transaction are

added on the voucher. The holder signs the voucher and the supplier

compares the signature with that on the card.
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i. SAFE DEPOSITS AND LOCKER SERVICES :

Safe custody of valuables and important documents has been a

traditional service rendered by banks, on a fee basis. The customers

have faith in their banks about the safety, security and confidentiality

of the valuables kept with them. As these requirements are rarely met

elsewhere, banks have been the main repositories of customers

valuables. The duly sealed safe custody packets/ boxes are kept by the

bank in its strong room/ vault and a receipt is issued to the depositor

for presenting while taking delivery. As of now, most of the vaults

have been occupied and therefore many banks may have curbed this

service.

Banks also provide safe deposit lockers at many of its branches

which have adequate space and a strong room (other than its currency

chest vault). The safe deposit lockers are built of steel and have

reliable locking arrangements; these are kept in vaults of banks, to

provide double safety. Customers hire lockers by paying yearly

rentals. The lockers are operated by dual key systemone of which is

with the authorized bank officer and the other with the customer.

Since the Lockers are very much in demand, presently, many banks
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restrict this facility to their valuable customer or ask for certain fixed

deposits to be lodged by the customer. Locker rentals have also

increased substantially in metros and big cities.

j. ELECTRONIC FUNDS TRANSFER :

Traditionally, the funds are transferred by banks from one place

to another by mail transfer and telegraphic transfer, the latter being

faster than the former. In both kinds of transfer, banks use the post

&telegraph departments services and use certain codes to ensure

confidentiality and safety in transmission of the messages.

DEMATE ACCOUNTING

In India, a Demate account, the abbreviation for dematerialized

account, is a type of banking account which dematerializes paper-

based physical stock shares. The dematerialized account is used toavoid holding physical shares: the shares are bought and sold through

a stock broker.
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This account is popular in India. The Securities and Exchange Board

of India (SEBI) mandates a Demate account for share trading above

500 shares. As of April 2006, it became mandatory that any person

holding a Demate account should possess a Permanent Account

Number(PAN).
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7.CHALLENGES FACED BY BANKS INMODERNIZED SERVICES

It has been customary for writers on banking to compare a bankwith a laundry.

This comparison, based on the external outlook, goes as follows:

Both have counters, people working behind counters, clients

visiting the place and handing their assets over the counters and those

people behind the counters to use those assets safely and return them

to the clients as promised. Today, this comparison does not do justice

to what a bank actually does. The function it performs in the

contemporary society is more akin to the divine role played by God

Murugan with His multi-head and multi-hand personality. Just like

God Murugan is a god for all seasons, for all people and for all

purposes, a modern bank should have solutions for all types of

problems which their clients are faced with. Such problems usuallyrange from economic to financial and even to personal. Hence, its

foremost challenge has been to acquire the capacity to serve its

clientele efficiently. Efficiency here means the provision of its

services in time, in the demanded quality and in the required volume

at competitive prices.

A modern bank is, therefore, required to have an adequate outreach

capability to serve all those clients in places where they live. The

strategy adopted by banks in this connection has been to expand their

services both vertically and horizontally. In terms of this strategy,

while expanding geographically, it got itself fitted with various

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specialized divisions within a bank to tackle different types of

problems. This administrative structure, though helpful to meet

current challenges, entailed high costs on banks, raising both

sustainability and viability issues. It also could not provide a

satisfactory solution to the physical limitation problem which has

placed an effective barrier to its further expansion. Hence, this

banking model is inadequate to meet, in its present form, the new

challenges faced by banks.

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VISIT TO THE INDIA BANK

QUESTIONAIRE

Name :-M.V.Champaneri

Post:- branch Manager

Experience:-30 years

? Which types of services are provided by India bank?

1 ATM2. Debit Card

3. Credit Card

4. E-Banking

5. M-Banking

6. Gold card

7. Silver card

8. Multicity cheque facility.

9.Safe Deposits & Locker Services

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? Is there any facility charges? If yes then what?

Some services are charged except ATM , Debit card , E-Banking ,M-Banking & chargeable services are Gold card & Silver card after

two months charged services 11% , Multicity cheque facility

charged 30 Rs./ per book

?what are the much demanded services of your bank?

Debit come ATM card are very demanded services 100% costumeruse this services

?who are the competitor of your bank?

ICICI and HDFC

? What are your future plans?

To be best bank in the market.

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8.Conclusions :-New challenges which bankers have to take require them to be

vigilant on the entire banking system. In the past, when banking was

purely manually driven, there was no necessity for them to be mindful

of the developments in the entire system. In that era, one banks

failure did not matter much to the rest of the banking system, except

in cases where they had lent to each other. But today, banks are linked

electronically to each other and, therefore, they are vulnerable to the

shocks that occur in the rest of the financial system.

Banks should also be vigilant over the developments in the

global market as well. The current globalization wave has pushed the

financial markets toward the establishment of a global single financial

market. The business of banking is to be found everywhere in the

globe and bankers who confine themselves only to the domestic

banking business will have to pay the highest price. This is because

even without their knowledge, they would find that they have lost

business to other smart operators and are no longer able to survive in

this fierce global competition.

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