Sunday, 15 January 2012

Indian Banking Industry : Emerging Trends

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

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