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Money and banking

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: Emerging Trends in Banking

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Money and banking

  1. 1. Welcome
  2. 2. Topic: Emerging Trends in Banking
  3. 3. Introduction The banking scene is in for a change. The role of a banking is also changing. Banking has made a shift from being traditional to going online. It is now marked by intense competition, narrowing margins, growing customer and regulatory pressure and technological developments. During the last decade, five powerful forces have created the foundation for a dynamic new environment for banks. They are as follows: I.) Deregulation ii.) Financial innovation iii.) Securitization iv.) Globalization v.) Advances in technology
  4. 4. Basis for Reforms in the Indian Banking Sector Root causes that were behind the dull performance of banks and prompted the initiation of the banking sector reforms are:  Greater emphasis on directed credit  Regulated interest rate structure  Lack of focus on profitability  Lack of transparency in the banks’ balance sheets  Lack of competition
  5. 5. Lowered Entry Barriers The Indian banking industry apparently lacked a competitive environment, thereby affecting efficiency. To induce competitiveness in this sector, the industry was opened up to participation by private sector banks and foreign banks. Deregulation the Interest Rates One of the major reforms measures undertaken is the phased deregulation of interest rates. Directives have been issued for total deregulation of the interest rates on deposits and almost total regulation of the lending rates. With this regulation of interest rates, banks now have gained flexibility in their operations.
  6. 6. Lowered Regulations Branch licensing has been abolished and branch expansion norms have been relaxed enabling the banks to revamp their organizational structures. Banks have been given the freedom to open or close branches to suit their operations/viability.
  7. 7. Regulatory Reforms In the Banking Sector The government has introduced the following norms to take banking international standards: Prudential Norms: Prudential norms were introduced to strengthen the banks’ balance sheet and enhance transparency. These prudential norms which relate to income classification, provisioning for bad doubtful debts and capital adequacy serve three important purposes.
  8. 8. Firstly The income recognition norms reflect a true picture of the income and expenditure of the bank. Secondly The asset classification and provisioning norms help in assessing the quality of the asset portfolio of the bank Thirdly The capital adequacy which is based on the classification of assets suggests whether the bank is in a viable position to meet any adverse situations due to a decline in the decline of its quality of assets.
  9. 9. Consequences of Liberalization of the Banking Sector  Technological revolution  Payment and settlements systems  Indian financial network (INFINET)  Electronic fund transfer (EFT)  Centralized funds management systems (CFMS)  Automated teller machines  Plastic money  Tele banking  Anywhere banking
  10. 10. The Reasons for the development of the Internet Banking The following reasons can be related to as the primary drivers of Internet banking:  Better customer access  Offering more services  Customer loyalty  Attract new customers  Competitiveness  Decrease the erosion of the customer base
  11. 11. Advantages of Internet Banking  Special interest rates on different accounts such as savings, and CDs.  Checking, payment of bills without any monthly fee, and with concessions on ATM surcharges.  Credit cards with lesser charges.  Easy processing and online application procedure for all transactions, accounts, personal loans and mortgages, etc.  Round the clock access to the account.  Service quality and personal care.
  12. 12. Innovative Banking Products Some Innovative banking products by different banks  ‘Revolve’: A personal finance product from American Express banks  ‘Café in a bank’ concept from ABN-Amro Bank  Laghu Udhyami Crdit card from Camara Bank  FlexiFinance from HSBC  “Super Suraksha”, from SBI Life STOCKINVEST: It is a new type of financial instrument where a guaranteed cheque given out by the commercial banks in place of cash, personal cheque, or draft to the investors against their deposits in the bank.
  13. 13. STORED-VALUE CARDS OR SMART CARDS: It is a new mechanism for making electronic payments which would simply change the first step in the purchase sequence. Diversifications Many changes have taken place in the Indian banking sector. Many banks have set up their subsidy companies and asset-liabilities management companies and enters into the related activities apart from the traditional deposits and lending activities. Banc assurance and Film financing are the examples of diversification by the banks in the recent origin.
  14. 14. Security Concerns in the Banking Industry It is important to study the concept of BANK FRAUD which forms the basis for security considerations Meaning of Bank Fraud: It is a part of financial fraud and includes violations of law at bank or using accounts of a financial institution for unlawful purposes. Bank Fraud and India In order to have uniformity in reporting cases of frauds, the RBI of India has classified the frauds on the basis of the provisions of the Indian Penal Code in the following categories. Following are:
  15. 15.  Misappropriation and criminal breach of trust  Negligence and cash forgery  Cheating or forgery  Irregularities in foreign exchange transactions  L/C or Bank Guarantee  Any other type of fraud not covered above
  16. 16. Security Considerations in the Banking Industry  E-Security  Credit Card Security  ATMs and Security  Electronic Fund Transfer Security  IT Audit and Banks  Information Security Audit
  17. 17. Thank You