Innovations in Banking - Recent Developments

INNOVATION
IN
INDIAN
BANKING SECTOR
By - Swaminath S

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

1. Banks and financial services firms will revolve
around customers’ choices: As you develop and start
saving money, you will have the instant and personal
choice to delegate your money management to a
number of providers, or you can manage it yourself.
You will be able to set criteria that auto update your
portfolio with your preferences, for example, investing
only in environmentally sustainable businesses or the
country where you were born.
2. The banks of the future will be on mobile phones.
For example, your phone will be learning of
investment opportunities on an instantaneous and
ongoing basis and presenting them to you.

3. There will be robot advisers that stop you from
making unsound financial choices, in real time. For
example, if you try to buy too many shares in a
company, an automated Know Your Customer and
Suitability Tool will prevent you from doing so. If you
make an impulse buy of, say, a jacket that you don’t
really need [the tool knows what jackets you already
have], it will tell you what you’re trading off in terms
of future savings for your pension or your children’s
education.
4. Powerful algorithms will monitor the behavior of
a bank’s data to identify external and insider security
threats.

5. Banks could become identity brokers, analyzing and
using the information they know about their clients, and
giving that insight over to customers or other vendors for
specific products and services, like insurance, and
creditworthiness.
6. Banks will be replaced by platforms that are run
almost entirely by algorithms and robots – they will
essentially become technology companies that mediate
information and analysis about customers, products, and
markets.
7. Block chain technology will be widely used to
distribute, verify & record a wide-range of financial
services, making the financial system more decentralized.
Some risks will be eliminated, while some new risks will
be introduced.

8. The bank account of the future will be bank-agnostic:
an open ecosystem where you manage all of your current
and future financial needs. Bank accounts will be like your
cell phone number, it’s still your account even though you
can move it from one bank to another. The account will
represent your identity and you will be able to keep it
regardless of who is providing the service, be it a bank, a
large tech firm or a young company.
9. Social trading will become widespread, with lending,
borrowing, and trading on social network platforms.
10. Decentralized and crowd sourced loans, mortgages,
and risk management products will become the
norm. Traditional middlemen will be cut out, with
institutional investors providing funds to consumers or
businesses directly through online platforms.

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

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

• E-Banking History dates back to 1980s.
• The term online became popular in the late
'80s and referred to the use of a terminal,
keyboard and TV (or monitor) to access the
banking system using a phone line.
• Stanford federal credit union was the first who
offer online internet banking services to all of
its members in 1994.
• Later on snapped up by other banks like Well
Fargo, Chase Manhattan and Security First
Bank.
HISTORY OF E-BANKING

E BANKING IN INDIA
 Opening up of economy in 1991 marked the entry of
foreign banks. They brought new technology with them.
 Banking products became more and more competitive.
Need for differentiation of products and services was felt.
 The ICICI Bank kicked off online banking in 1996.
Currently 78% of its customer base is registered for online
banking.
 1996 to 1998 marked the adoption phase, while usage
increased only in 1999, owing to lower ISP online charges,
increased PC penetration and a tech-friendly atmosphere.
Ex: Answering routine queries, Bill payment service,
Electronic Fund transfer (ETF), Electronic Clearing System
(ECS), Credit card customers, Railway Pass, Investing
through internet banking, Recharging, Shopping, etc..

WHAT IS AN E-BANK?
– Internet
– WAP based mobile network
– Automated telephone
– ATM network
– SMS and FAX messaging
– Multipurpose information
kiosks
– Web TV and others …
 E-channels enable financial transactions from
anywhere and allow non-stop working time.

Advantages
 Faster & more convenient transaction
 No longer required to wait in long queues
 Opening of account simple & easy
 Apply for bank loan
 Cost effective for banker side
 Fund transfer become faster & convenient
 Stock trading, exchanging bonds & other investment.
Modern banking is virtual banking. Virtual Banking means a
customer cannot see the bank but with the help of technology
he can conduct the banking activities anywhere in the world.
The major types of virtual banking services includes:
Automated Teller Machines (ATMs), Smart Cards, Phone
banking, Home banking, Internet banking, Tele banking,
ATMs, Smart Cards, etc.

DEBIT CARD & CREDIT CARD
INTRODUCTION
 A few years ago it was easy to tell the difference
between a credit card and a debit card.
 You used your debit card at the ATM with a
personal identification number, and you used your
credit card for purchases.
 But today both types of cards carry familiar credit
company logos, both can be swiped at the checkout
counter and both can be used to make online
purchases.

DEBIT CARD
• Debit card is a plastic card which provides a
alternative payment method to cash for purchases.
• Functionally, it can be called an electronic check, as
the funds are withdrawn directly from either the bank
account, or from the remaining balance on the card.
• It is also known as BANK CARD or CHECK CARD.
• Debit cards can also allow for instant withdrawal of
cash, acting as the ATM card for withdrawing cash
and as a cheque guarantee card. Merchants can also
offer "cash back"/"cash out" facilities to customers,
where a customer can withdraw cash along with their
purchase.

I4 MAESTRO DEBIT CARD
FIRST DEBIT GOLD CARD

DEBIT CARD
• It is used instead of a check to make purchases, anywhere Visa is
accepted
• It is used instead of a credit card to pay bills such as utilities,
insurance and car payments
• Point-of-sale funds are drawn from primary checking account
and Choose from three card designs
• PIN-system security, Change your PIN at any Merchants Bank
branch, No annual fee
1. ONLINE DEBIT CARD
2. OFFLINE DEBIT CARD
3. PREPAID DEBIT CARD
4. ELECTRONIC PURSE CARD
5. CARDS FOR MAIL, TELEPHONE & INTERNET USE ONLY
TYPES OF DEBIT CARD

1. ONLINE DEBIT CARD
• Online debit cards require electronic authorization of every
transaction.
• The debits are reflected in the user’s account immediately.
• The transaction may be additionally secured with the personal
identification number (PIN) authentication system and some online
cards require such authentication for every transaction, essentially
becoming enhanced automatic teller machine (ATM) cards.
• One difficulty in using online debit cards is the necessity of an
electronic authorization device at the point of sale (POS) and
sometimes also a separate PIN pad to enter the PIN, although this
is becoming common place for all card transactions in many
countries. Banks in some countries, such as Canada and Brazil,
only issue online debit cards.
• In the United Kingdom, Solo and Visa Electron are examples of
online debit cards, which are typically issued by banks to
customers whom the bank does not want to go overdrawn under
any circumstances, for example under-18s.

2. OFFLINE DEBIT CARD
• Offline debit cards have the logos of major credit cards or major
debit cards and are used at the point of sale like a credit card.
• This type of debit card may be subject to a daily limit, and/or a
maximum limit equal to the current/checking account balance from
which it draws funds. Transactions conducted with offline debit
cards require 2–3 days to be reflected on users’ account balances.
• In the United Kingdom, Maestro (formerly Switch) and Visa Debit
(formerly Delta) are examples of offline debit cards.
3. PREPAID DEBIT CARD
• Prepaid debit cards, also called reloadable debit cards or reloadable
prepaid cards, are often used for recurring payments.
• The payer loads funds to the cardholder's card account.
• Particularly for US-based companies with a large number of
payment recipients abroad, prepaid debit cards allow the delivery
of international payments without the delays and fees associated
with international checks and bank transfers.

4. ELECTRONIC PURSE CARD
• Smart-card-based electronic purse systems (in which value is
stored on the card chip, not in an externally recorded account, so
that machines accepting the card need no network connectivity)
were tried throughout Europe from the mid-1990s, most notably in
Germany.
5. CARDS FOR MAIL, TELEPHONE & INTERNET USE ONLY
• Special pre-paid Visa cards for Mail Order/Telephone Order
(MOTO) and Internet use only are made available by a small
number of banks. They are sometimes called "virtual Visa cards",
although they usually do exist in the form of plastic. An example is
3V.
• Such a card prevents fraud by a card number thief even if the card
is not blocked, because the customer normally does not store any
money on the sub-account and fraudulent transactions do not get
authorized by the bank.

ADVANTAGES
1. A consumer who is not credit worthy and may find it
difficult or impossible to obtain a credit card can more
easily obtain a debit card.
2. Use of a debit card is limited to the existing funds in the
account to which it is linked.
3. For most transactions, a check card can be used to avoid
check writing altogether.
4. Like credit cards, debit cards are accepted by merchants
with less identification.
5. Unlike a credit card, which charges higher fees and
interest rates when a cash advance is obtained, a debit card
may be used to obtain cash from an ATM or a PIN-based
transaction at no extra charge, other than a foreign ATM
fee.

DISADVANTAGES
• Some banks are now charging over-limit fees or non-
sufficient funds fees based upon pre-authorizations.
• Many merchants mistakenly believe that amounts owed can
be "taken" from a customer's account after a debit card (or
number) has been presented.
• In some countries debit cards offer lower levels of security
protection than credit cards.

23
THE THREE PARTY MODEL
Cardholder Merchant
Processor
Issuer / Acquirer
Card Payment Facility
Purchase goods / services using card
payment instrument
Carriage Fee

THE FOUR PARTY MODEL
Cardholder Merchant
Issuer Acquirer
Transaction
Fees
Convenience&
paymentinstrument
payment instrument
Settlement&Payment
Services
MerchantService
Charge
Settlement & Risk
Bearing
Interchange Fee

CREDIT CARD
• A credit card is part of a system of payments named after
the small plastic card issued to users of the system.
• It is a card entitling its holder to buy goods and services
based on the holder's promise to pay for these goods and
services.
• The issuer of the card grants a line of credit to the consumer
(or the user) from which the user can borrow money for
payment to a merchant or as a cash advance to the user.
• A credit card is different from a charge card, where a charge
card requires the balance to be paid in full each month.
• In contrast, credit cards allow the consumers to 'revolve'
their balance, at the cost of having interest charged.
• Most credit cards are issued by local banks or credit unions,
and are the shape and size specified by the ISO 7810
standard.

WORKING PROCESS
• When a purchase is made, the credit card user agrees to pay the
card issuer.
• The cardholder indicates his/her consent to pay by signing a
receipt with a record of the card details and indicating the
amount to be paid or by entering a Personal identification
number (PIN).
• Also, many merchants now accept verbal authorizations via
telephone and electronic authorization using the Internet, known
as a 'Card/Cardholder Not Present' (CNP) transaction.
• Electronic verification systems allow merchants to verify that the
card is valid.
• The verification is performed using a credit card payment
terminal or Point of Sale (POS) system with a communications
link to the merchant's acquiring bank.
• Card is obtained from a magnetic stripe or chip on the card, but
is more technically an EMV card (Europay, MasterCard and
VISA). i.e. VSDC – VISA, Mchip – MasterCard, AEIPS –
American Express, J Smart - JCB

BENEFITS TO CUSTOMER
• due to intense competition in credit card industry, credit card
providers offer incentives such as
• frequent flyer points
• gift certificates
• cash back
• low interest credit cards
• even 0% interest credit cards are available
BENEFITS TO MERCHANTS
• A credit card transaction is often more secure than other forms of
payment, such as checks, because the issuing bank commits to pay
the merchant the moment the transaction is authorized, regardless of
whether the consumer defaults on the credit card payment.
• More secure than cash, because they discourage theft by the
merchant's employees and reduce the amount of cash on the
premises.
• Prior to credit cards, each merchant had to evaluate each customer's
credit history before extending credit.

TYPES OF CREDIT CARDS
Secured Credit Cards: A secured credit card is a type
of credit card secured by a deposit account owned by
the cardholder. Typically, the cardholder must deposit
between 100% and 200% of the total amount of credit
desired. Thus if the cardholder puts down $1000, they
will be given credit in the range of $500–$1000.
Prepaid Credit Cards: A prepaid credit card is not a
credit card, since no credit is offered by the card
issuer: the card-holder spends money which has been
"stored" via a prior deposit by the card-holder or
someone else, such as a parent or employer. Prepaid
cards can be issued to minors (above 13) since there is
no credit line involved.

1. BALANCE TRANSFER CREDIT CARDS:
Balance transfer credit cards allow consumers to
transfer a high interest credit card balance onto a
credit card with a low interest rate. Typical in the
market today are balance transfer credit cards with an
introductory annual percentage rate (APR) of 0
percent, with that introductory or "teaser" rate lasting
several months up to a year.
2. LOW INTEREST CREDIT CARDS: Low interest
credit cards offer either a low introductory APR that
jumps to a higher rate after a certain period, or a
single low fixed-rate APR. Low interest cards can be
very useful when consumers need make a large
purchase because it allows several months to a year to
pay it off with very low or no interest.

SECURITY
• Credit card security relies on the physical security of the
plastic card as well as the privacy of the credit card
number.
• Whenever a person other than the card owner has access
to the card or its number, security is potentially
compromised. i.e. security PIN is required
• Some merchants will accept a credit card number for in-
store purchases, where upon access to the number
allows easy fraud, but many require the card itself to be
present, and require a signature.
• Thus, a stolen card can be cancelled, and if this is done
quickly, will greatly limit the fraud that can take place
in this way.
• The PCI DSS is the security standard issued by The PCI
SSC (Payment Card Industry Security Standards
Council).

THE FOUR PARTY MODEL
Cardholder Merchant
Issuer Acquirer
CardFees
Convenience&
Credit
payment instrument
Settlement&Payment
Services
MerchantService
Charge
Settlement & Credit Risk Bearing
Interchange Fee

TOPIC: INTERNET
BANKING
MEANING
o Internet Banking allows you to
conduct bank transactions
online, instead of finding a
bank and interacting with a
teller.
o In a broad sense, it is the use of
electronic means to transfer
funds directly from one
account to another, rather than
by cheque or cash.
DEFINITION:
 A system of banking in which
customers can view their
account details, pay bills, and
transfer money by means of
the internet.
 The remote delivery of new
and traditional banking
products and services
through electronic delivery
channels.

HISTORY
Online services started in New York in 1981 when four of the city’s
major banks :
 Citibank
 Chase Manhattan
 Chemical
 Manufacturers Hanover
offered home banking services using the videotext system.
TYPES
 PC Banking
 Digital TV Banking
 Text Phone Banking
 Internet Banking
SERVICES
 Bill Payment
 Credit Card
 Insurance
 Customer services
 Recharging your prepaid phone
 Shopping

DEVELOPMENT OF E-BANKING
 The concept of Internet banking has been simultaneously evolving with the
development of the world wide web.
 Programmers working on banking data bases came up with ideas for online
banking transactions, some time during the 1980's.
 The online shopping promoted the use of credit cards through Internet.
 The first online banking service in United States was introduced, in Oct 1994.
 The service was developed by Stanford Federal Credit Union, which is a
financial institution.
 In May 1995 : Wells Fargo - the first bank in the world to offer customer
access to their accounts over the internet(allows customer to see their accounts
online)

DEVELOPMENT OF E-BANKING IN INDIA
 ICICI was the first bank to initiate the
Internet banking revolution in India as
early as 1997under the brand name
'Infinity‘.
 ICICI Bank kicked off online banking way
back in 1996 . But even for the Internet as
a whole, 1996 to 1998 marked the
adoption phase, while usage increased only
in 1999- due to lower ISP online charges,
increased PC penetration and a tech-
friendly atmosphere.

RBI & E-BANKING
 The Reserve Bank of India constituted a working group on
Internet Banking.
 The group divided the internet banking products in India into 3
types based on the levels of access granted.
 They are:- i) Information Only System: ii) Electronic
Information Transfer System: iii) Fully Electronic Transactional
System:

INFORMATION ONLY SYSTEM
 General purpose information like interest rates, branch location, bank
products and their features, loan and deposit calculations are provided
in the banks website.
 There exist facilities for downloading various types of application
forms.
 The communication is normally done through e-mail.
 There is no interaction between the customer and bank's application
system.
 No identification of the customer is done. In this system, there is no
possibility of any unauthorized person getting into production systems
of the bank through internet.

ELECTRONIC INFORMATION TRANSFER SYSTEM
 The system provides customer- specific information in the
form of account balances, transaction details, and statement of
accounts.
 The information is still largely of the 'read only' format.
Identification and authentication of the customer is through
password.
 The information is fetched from the bank's application system
either in batch mode or off-line.
 The application systems cannot directly access through the
internet.

 Cost less
 Transaction speed
 Efficiency
 Speed banking
 Vast coverage
ADVANTAGES
INTERNET BANKING
 Security
 Learning difficulties
 Lack of skilled
personnel
 Technical breakdowns
 Long start up time
 inexpensive
 Increasing number of
fraudulent websites
 Fake emails purporting to be
sent from banks
 Use of Trojan horse programs
to capture user ids and
password

Service Provided By SBI
 Self-account funds transfer across India.
 Third party transfers in the same branch
 New account opening, New Cheque-
book request, Railway tickets booking
 Utility bill payments
 LIC and other insurance premium
payments
 Credit card dues payments
 Deposit your taxes
 Donations to Red Cross and such other
organisations
Service Provided By ICICI
 BILL PAYMENT
 FUND TRANSFER
 ACCOUNT INFORMATION
 SMART MONEY ORDER SERVICE
REQUEST
 CONVERT TO EMI A/C TO CARD
TRANSFER
 PREPAID MOBILE RECHARGE
 ACCOUNT TRANSFER

B Larger customer coverage Reducing the costs of operations
 Promoting their services and products internationally
 Increasing the customer satisfaction and providing a
personalized relationship with customers
BENEFITS FOR BANKS
BENEFITS FOR SMALL TO MEDIUM
BUSINESSES
 To run its operations more effectively
 Lower cost than traditional financial management
mechanisms

BENEFITS FOR CUSTOMERS
 Convenience 24 hours a day, seven days a week
 Cost Reducing transfer fees
 Speed Faster circulation of assets
 Competitiveness - Fostering competition in financial market
 Communicate easily
 Abolishing the uses of paper
 Offering one-stop-shop solutions

DISADVANTAGES OF E-BANKING
 A need for customer skill to deal with computers and browsers.
 Many people who are not comfortable with computers and the
Internet, often find it difficult to use internet banking
 For beginners, internet banking is really time consuming
 In many instances, a simple mistake, like clicking a wrong button,
may create a big problem.

SECURITY RISK
 Increasing number of fraudulent bank websites
 For Eg. A suspicious bank website: www.sbionline.com Original
bank websitewww.onlinesbi.com
 Fake emails purporting to be sent from banks
 Email send from Fraudulent bank
 Verify the personal information
 Guide customer enter the fraud link
 Disclosing their ATM card numbers and their passwords

AUTOMATED TELLER MACHINES (ATMs)
• ATMs are widely used electronic channels in banking. It is
operated by plastic card with its special features. It stands for
‘Automatic teller machine’
• It is a computer controlled device at which the customers can
make withdrawals, check balance without involving any
individuals.
• To use this system customers are given a plastic card which
contains the customer’s name & account no.
• Customer is given a pin number. Whenever he wants to use it
he needs to enter pin number.
• Mostly ATMs are near to branches but nowadays ATMs are
available at places like malls, theaters, stations etc.
• In simple words, it is simple to use self service solution, Value
added services like pay the utility bills, recharge, etc.

PAYMENT SYSTEM DEVELOPMENTS
• Initiatives driven by the Reserve Bank of India
– Increase in the number of centers offering MICR clearing
– Introduction of High Value Clearing at additional centers
– Electronic Clearing Services - debits and credits
– Electronic Funds Transfers and Special Electronics funds
transfer
– Real Time Gross Settlement System (RTGS)
– Cheque Truncation
– NEFT

ELECTRONIC FUND TRANSFER(EFT): Is a system
whereby anyone who wants to make payment to another
person/company etc. can approach his bank and make cash
payment or give instructions/authorization to transfer funds
directly from his own account to the bank account of the
receiver/beneficiary. RBI is the service provider of EFT.
ELECTRONIC CLEARING SYSTEM(ECS): is a retail
payment system that can be used to make bulk
payments/receipts of a similar nature especially where each
individual payment is of a repetitive nature and of relatively
smaller amount. facility is meant for companies and
government departments to make/receive large volumes of
payments rather than for funds transfers by individuals

5111
How ECS Works - Process flow
User Institution
Beneficiaries’
A/Cs
Destination banks’
service branches
Destination
branches
Clearing
House
Sponsor Bank
Data on Day-
1
Reports on Day-1
Reports on Day-1
Credit on Day-2
Encrypted
DataonDay-1

Available at the 44 Clearing Centre.
(15 RBI Centres, 23 SBI Centres, 2 PNB, 1 Union Bank, 1
Corp Bank, 1 Andhra Bank and 1 SB of Indore)
Funds transfer on T+2 basis..
Available for Credit as well as Debit.
Credit Card payments
Utilities payments - Telephone, Cell phones, Electricity bills
Equated Monthly Installment payments of personal loans
School fees
Monthly payments to Suppliers etc.,
Merchant Establishments for Credit Cards, Smart Cards and
Point of Sale debit cards.
Pension Payments of big Govt. Depts. like Defence,
Railways etc.,

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

Money transfer happens
in real time and directly
through the banking
system

Money is aggregated in
clusters for
reconciliation and
settlement

Understanding ‘NEFT & RTGS
How does one transfer
money from one bank to
another?

How long does it
take for money to
move into your
account after
depositing the
Cheque?

Probably a day or
two
In essence it does take
some time?

Is there no other option for
money transfer which quickly
transfers money from one
bank account to another bank
account?
NEFT and RTGS are
two convenient modes
of money transfer
between banks in India

RTGS stands for “Real Time Gross
Settlement” – It enables transfer of
money in real time.
NEFT stands for “National
Electronic Funds Transfer” which
is an online system of transferring
funds between financial
institutions

Under normal circumstances
the transactions are settled as
soon as they are processed by
remitting bank. The transaction
is settled on one to one basis.
Once processed the
transactions are irrevocable as
the money transfer occurs in
RBI records
RTGS payment transaction will
not involve any waiting period
which is the true meaning of
“real” time settlement

NEFT functions on a deferred net
settlement basis where
transactions are completed in
batches at specific times.
These settlement takes place at
a particular point of time and
all transactions are held up till
that time

RTGS is for amounts equal or
greater than Rs. 2 lacs while NEFT
is used for transactions below Rs. 2
lacs. However there is no upper
limit for either RTGS or NEFT

In RTGS the beneficiary bank credits the
beneficiary’s account in a span of two
hours after receiving the funds transfer
message. RTGS transactions are
processed throughout the working hours
of the system.
NEFT is done on a net basis where the
bank clubs transactions together and only
the net amount is transferred. This
settlement usually takes place 7 times a
day on weekdays and 3 times on
Saturdays. NEFT takes place within the
same day if it is within the cut off time
and the next working day if it is beyond
the cut-off time.

Majority of commercial banks
have employed RTGS and it is
available in over 30472 branches
NEFT facility is available in
32407 brunches of banks.
These branches may be in
remote corner of the country
also

Instructions to do RTGS/ NEFT transactions through Internet Banking: You
should be an active Internet Banking user with transaction rights. Log on to
www.onlinesbm.com by using your SBM Internet Banking User Name and
Password.

Click on the ‘Profile’ tab.

Select the ‘Manage Beneficiary’ option.

You can either select “ Third Party” or “ Inter Bank Payee” option

If “Inter Bank Payee” option is chosen, add all the details of the Inter Bank
Beneficiary, like, Name, Account Number, Address, Fund Transfer Limit etc.,

Select the IFSC code option if you know the IFSC code. Click the IFSC Code
option and a textbox is displayed where you can enter the 11 digit IFSC Code of
the Beneficiary Bank. Else, Click on the “Location” option

If you choose “Location” option, the dropdown menus, Beneficiary Bank Name, State
and Branch are displayed. Choose the respective Bank Name, State, Branch and
Submit.

The Submit button will be enabled only after checking the
button, I accept the Terms and Conditions. After providing
all the details, the beneficiary is added. It is displayed
whether the added beneficiary bank is RTGS or NEFT
enabled. After adding the Beneficiary, you will receive a
high security password in your mobile number. This is done
to double check your identity. Provide the password to
authorize the Beneficiary. After a Beneficiary is authorized
you can start transferring funds. You can proceed to make
payments by clicking the ‘Inter bank Transfer’ link in the
‘Payments/Transfers tab. According to the transaction type
selected (RTGS/NEFT), the credit account details will be
displayed depending upon whether the branch is RTGS or
NEFT enabled or both. Select the Beneficiary from the list
of registered Beneficiaries. You can either confirm or cancel
the transaction.

If “Third Party” option is chosen, fill in the details as shown in the screen shot,
like, Name, Account Number, Transfer limit, Mobile number and Submit

• 11300 Branches of 95 Banks…covering 508 Clearing Centres.
Nearly 800 cities/towns covered, 79 Banks offering Customer
Transactions.
• Delivery Channels to reach the different categories…
-- Website, ATMs, Kiosks
• RTGS should be extended to all the CBS / AWB branches.
• Customers desire RTGS facility at an affordable price.
• Electronic Funds Transfer (EFT) and Special Electronic Funds
Transfer (SEFT) facilitate paperless inter and intra-bank settlements;
both inter and intra-city.
• There is no Maximum value limit for an individual SEFT/ EFT
transaction.
• EFT is available at 15 locations: Mumbai, Kolkata, New Delhi,
Chennai, Bangalore, Hyderabad, Ahmedabad, Chandigarh,
Trivandrum, Jaipur, Nagpur, Guwahati, Bhubaneswar, Patna and
Kanpur.
• SEFT covers approximately 3200 networked branches of 35 banks in
over 180 cities (currently). Two Settlements every day from
November 2, 2005, 10.30am – 3.00 pm

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

FULLY ELECTRONIC TRANSACTIONAL
SYSTEM
 This system allows bi-directional capabilities.
 Transactions can be submitted by the customer for online
update.
 This system requires high degree of security and control. In
this environment, web server and application systems are
linked over secure infrastructure.
 It comprises technology covering computerization,
networking and security, inter-bank payment gateway and
legal infrastructure .

DEFINITION: DEMATERIALIZATION
Dematerialization is the process of converting physical
shares (share certificates) into an electronic form. Shares once
converted into dematerialized form are held in a Demat
account.
INTRODUCTION:
Demat account is like a bank account for holding securities
just like funds . It is safe and convenient for trading for storing
shares in electronic form.
Today, practically 99.9% settlement (of shares) takes place on
demat mode only. Thus, it is advisable to have a Beneficiary
Owner (BO) account to trade at the exchanges.

DEMATERIALISATION
• Introduced in India through the enactment of
the Depositories Act, 1996.
• It is not mandatory.
• One may keep its holding partly in physical
form and partly in Demat form.
• A select list of securities announced by SEBI
can be delivered only in demat form in the stock
exchanges connected to NSDL or CSDIL.
• Conversion of physical securities into
electronic form.

DEMAT-PARTICIPANTS
• Participants:
– Investors
– The Depository
• NSDL [National Securities
Depository Ltd.]
• CDSIL [Central Depository of
Securities India Ltd.]
– The Depository Participants
– The Issuing Company

INVESTORS [BENEFICIAL OWNER]
• Individual
• Partnership Firm
• HUF
• Company
“Beneficial Owner” is a person in whose name a
demat account is opened with Depository for
the purpose of holding securities in the
electronic form

DEPOSITORY
• A depository is an organization, which
holds the beneficial owner's securities in
electronic form, through a registered
Depository Participant (DP).
• A depository functions somewhat similar
to a commercial bank.
• To avail of the services offered by a
depository, the investor has to open an
account with it through a registered DP.

DEPOSITORY PARTICIPANT
A DEPOSITORY PARTICIPANT (DP) IS AN
AGENT OF THE DEPOSITORY WHO IS
AUTHORISED TO OFFER DEPOSITORY
SERVICES TO INVESTORS.
FINANCIAL INSTITUTIONS, BANKS,
CUSTODIANS AND STOCKBROKERS
COMPLYING WITH THE REQUIREMENTS
PRESCRIBED BY SEBI/ DEPOSITORIES CAN
BE REGISTERED AS DP.

DEMAT-NEED ?
• Bad deliveries due to signature difference
• Mistakes in completion of transfer deeds
• Tearing and mutilation of securities
• Fake certificates
• Fraudulent interception of certificate in transit
• Transfer stamp duty
• Extra consumption of time by the Companies
• Postal delays and charges etc.

NATIONAL SECURITIES DEPOSITORY
LIMITED (NSDL)
1.Established in August 1996 as the first depository in
India.
2.This depository promoted by institutions of national
stature responsible for economic development of the
country has since established a national infrastructure of
international standards that handles most of the
securities held and settled in dematerialized form in the
Indian capital market.
3.NSDL has around 1,23,84,644 investors associated with
it currently and has 14,336 service centers all over India

CENTRAL DEPOSITORY OF SERVICES
LIMITED (CDSL)
• CDSL received the certificate of commencement of
business from SEBI in February, 1999.
• All leading stock exchanges like the National Stock
Exchange, Calcutta Stock Exchange, Delhi Stock
Exchange, The Stock Exchange, Ahmedabad, etc. have
established connectivity with CDSL.
• Currently around 81 lakh investors and 12000
companies have admitted their securities (equities,
bonds, debentures, commercial papers), units of mutual
funds, certificate of deposits etc. into the CDSL system.
• CDSL has around 568 Depository Participants (DPs) in
around 13000 different locations all over India.

BENEFITS OF DEMAT ACCOUNT
There are a lot of benefits that a trader will have while opening
a demat account and they are as follows:-
• In your demat account your dematerialized shares will be held in
a secure electronic environment.
• The pace at which your shares and securities will be transferred
is going to be faster and more convenient than the physical form.
• If you have a demat account then there are no charges on stamp
duty while your securities are transferred
• There has been a significant reduction in paper work involved
while opening a demat account.
• The best thing is that you can even buy or sell a single share
when you have a demat account.
• In a dematerialized account the risks involving physical shares
like loss of certificates in transit or fire is negated.

IS IT MANDATORY FOR TRADING?
• Yes, Demat Account is mandatory for trading in
Indian share market. The Securities and Exchanges
Board of India made it compulsory for buying and
selling of shares.
• Because of SEBI guidelines, all physical certificates
must be converted into demat form by investor.
THE TIME INVOLVED IN THE PROCESS
• Dematerialization is normally completed within 15
days after the share certificates have reached the
issuer/their R&T agent. Thus it will take only a
month from the date one hands over shares, to
receive Demat Credit.

Trading & Settlement in Dematerialized Securities
• If you are a buyer:
– Purchase securities in any of the S.E.s(connected to
NSDL) through a broker of your choice and make
payment to your broker
– Broker arranges payment to clearing corporation /
clearing house of the stock exchange
– Broker receives cr. in his clearing a/c
– Broker can directly transfer these securities to your a/c
– Broker gives instructions to your DP to debit his
clearing a/c and credit your depository a/c.
– You give instructions to your DP for receiving Cr.
– If instructions match your a/c with your DP is credited

Trading & Settlement in Dematerialized Securities
• If you are a seller
– Sell your demat securities in any of the Stock
Exchanges linked to NSDL through a broker
– You give instructions to your DP for Debit of your
Depository a/c and Credit of your broker’s clearing
member a/c at least 24 hrs i.e.one working day prior to
the pay-in date or before the deadline prescribed by
your DP
– On pay in day your broker gives instruction to his DP
for delivery to clearing corporation.
– Broker receives payment from the clearing corporation.
– You receive the payment accordingly.

CHARGES
• Charges are paid through DPs
–Custody charges: 0.01% p.a.(Rs.10 for every
Rs.100,000) of the average market value of
securities held in a/c
–Settlement charges: 0.02% (Rs.20 for every Rs.
100,000)of the market value of the securities
being transferred from selling broker to the
clearing corporation of the stock exchange and
same charges from clearing corpo.to buying agent
–Rematerialisation charges of 0.10%(Rs.100 for
every Rs.100,000) of the market value of
securities or Rs.10,whichever is higher.

OTHER BENEFITS
• Allotment directly in Demat form
possible,
• Pledge of Demat holdings possible,
• Lending/Borrowing of Demat Securities
to/from an Authorized intermediary,
• Freezing of a/c possible
• Transmission of holdings,
• Nomination facility

DEFINITION:
REMATERIALIZATION
The process of getting
the securities in an electronic
form, converted back into the
physical form is known as
Rematerialization. An investor
can rematerialize his shares by
filling in a Remat Request
Form (RRF).

TELE-BANKING
• It means banking over phone.
• Mainly used for marketing banking services.
• A customer can do entire Non-Cash related
banking over phone anywhere at anytime
• With fall in mobile phone rates mobile
banking will emerge as one of the most cost
effective delivery channel.

SMART CARDS
• It is a chip based card (micro chip
containing monetary value)
• When a transaction is made using
the card, the value is debited &
balances comes down.
• It is used for making purchases
without the need of any pin.
• It is a powerful card which carries
out functions of ATM card , Credit
Card , Debit Card.

 POINT OF SALE TERMINAL: Computer terminal
that is linked online to the computerized customer
information files in a bank and magnetically
encoded plastic transaction card that identifies the
customer to the computer.
 ELECTRONIC DATA INTERCHANGE (EDI):
Electronic exchange of business documents like
purchase order, invoices, shipping notices, receiving
advices etc. in a standard, computer processed,
universally accepted format between trading
partners. EDI can also be used to transmit financial
information and payments in electronic form.

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

CORE BANKING
Depositing and lending of money
Core banking solution
Knowing customers needs
CORPORATE BANKING: Financial services to large
corporate & MNCs
Services:
 Overdraft facility
 Domestic and international payments
 Funding & Channel financing
 Letters of guarantee
 Working capital facility for domestic & international trade.

INVESTMENT BANKING
 Creating funds and wealth of clients
 Fund creating in two ways :
• Corporate Finance
• M & As
 Professional sales person providing advice on stock trading
RURAL BANKING: It provides & regulates credit
services for the promotion & development of rural sector
mainly agriculture, SSI, cottage and village industries,
handicrafts and many more.
Examples Of Regional Rural Banks are NABARD, HARYANA
STATE COPERATIVE APEX BANK LIMITED, SYNDICATE BANK,
UNITED BANK OF INDIA.
KIOSK BANKING

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

7.RETAIL BANKING: It refers to banking in which
banks execute transaction directly with individual , rather than
corporate banks. It is also known as ‘One stop shop’.
Services:
 Saving and checking accounts
 Mortgage
 Housing Finance
 Auto Finance
 Consumer Durable Loans
 Personal Loans
 Educational Loans
 Credit Cards

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

Innovations in Banking - Recent Developments

Innovations in Banking - Recent Developments

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Ähnlich wie Innovations in Banking - Recent Developments

Ähnlich wie Innovations in Banking - Recent Developments (20)

Mehr von Swaminath Sam

Mehr von Swaminath Sam (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Innovations in Banking - Recent Developments