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 thebanking system using a phone line.

• Stanford federal credit union was the first whooffer online internet banking services to all ofits members in 1994.

• Later on snapped up by other banks like WellFargo, Chase Manhattan and Security FirstBank.

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 differencebetween a credit card and a debit card.

You used your debit card at the ATM with apersonal identification number, and you used yourcredit card for purchases.

But today both types of cards carry familiar creditcompany logos, both can be swiped at the checkoutcounter and both can be used to make onlinepurchases.

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 isaccepted

• 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 accountand Choose from three card designs

• PIN-system security, Change your PIN at any Merchants Bankbranch, 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 everytransaction.

• The debits are reflected in the user’s account immediately.

• The transaction may be additionally secured with the personalidentification number (PIN) authentication system and some onlinecards require such authentication for every transaction, essentiallybecoming enhanced automatic teller machine (ATM) cards.

• One difficulty in using online debit cards is the necessity of anelectronic authorization device at the point of sale (POS) andsometimes also a separate PIN pad to enter the PIN, although thisis becoming common place for all card transactions in manycountries. Banks in some countries, such as Canada and Brazil,only issue online debit cards.

• In the United Kingdom, Solo and Visa Electron are examples ofonline debit cards, which are typically issued by banks tocustomers whom the bank does not want to go overdrawn underany circumstances, for example under-18s.

2. OFFLINE DEBIT CARD

• Offline debit cards have the logos of major credit cards or majordebit 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 amaximum limit equal to the current/checking account balance fromwhich it draws funds. Transactions conducted with offline debitcards 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 smallnumber of banks. They are sometimes called "virtual Visa cards",although they usually do exist in the form of plastic. An example is3V.

• Such a card prevents fraud by a card number thief even if the cardis not blocked, because the customer normally does not store anymoney on the sub-account and fraudulent transactions do not getauthorized by the bank.

ADVANTAGES1. A consumer who is not credit worthy and may find it

difficult or impossible to obtain a credit card can moreeasily obtain a debit card.

2. Use of a debit card is limited to the existing funds in theaccount to which it is linked.

3. For most transactions, a check card can be used to avoidcheck writing altogether.

4. Like credit cards, debit cards are accepted by merchantswith less identification.

5. Unlike a credit card, which charges higher fees andinterest rates when a cash advance is obtained, a debit cardmay be used to obtain cash from an ATM or a PIN-basedtransaction at no extra charge, other than a foreign ATMfee.

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 canbe "taken" from a customer's account after a debit card (ornumber) has been presented.

• In some countries debit cards offer lower levels of securityprotection 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

Tra

nsa

ctio

n

Fee

s

Co

nve

nie

nce

&

pa

ymen

t in

stru

men

t

Card Payment Facility

Purchase goods / services using card

payment instrument

Settlem

ent &

Pa

ymen

t

Services

Merch

an

t Service

Ch

arg

e

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 servicesbased on the holder's promise to pay for these goods andservices.

• The issuer of the card grants a line of credit to the consumer(or the user) from which the user can borrow money forpayment to a merchant or as a cash advance to the user.

• A credit card is different from a charge card, where a chargecard 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 7810standard.

WORKING PROCESS

• When a purchase is made, the credit card user agrees to pay thecard issuer.

• The cardholder indicates his/her consent to pay by signing areceipt with a record of the card details and indicating theamount to be paid or by entering a Personal identificationnumber (PIN).

• Also, many merchants now accept verbal authorizations viatelephone and electronic authorization using the Internet, knownas a 'Card/Cardholder Not Present' (CNP) transaction.

• Electronic verification systems allow merchants to verify that thecard is valid.

• The verification is performed using a credit card paymentterminal or Point of Sale (POS) system with a communicationslink to the merchant's acquiring bank.

• Card is obtained from a magnetic stripe or chip on the card, butis more technically an EMV card (Europay, MasterCard andVISA). i.e. VSDC – VISA, Mchip – MasterCard, AEIPS –American Express, J Smart - JCB

BENEFITS TO CUSTOMER

• due to intense competition in credit card industry, credit cardproviders 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 ofpayment, such as checks, because the issuing bank commits to paythe merchant the moment the transaction is authorized, regardless ofwhether the consumer defaults on the credit card payment.

• More secure than cash, because they discourage theft by themerchant's employees and reduce the amount of cash on thepremises.

• Prior to credit cards, each merchant had to evaluate each customer'scredit history before extending credit.

TYPES OF CREDIT CARDS

Secured Credit Cards: A secured credit card is a typeof credit card secured by a deposit account owned bythe cardholder. Typically, the cardholder must depositbetween 100% and 200% of the total amount of creditdesired. Thus if the cardholder puts down $1000, theywill be given credit in the range of $500–$1000.

Prepaid Credit Cards: A prepaid credit card is not acredit card, since no credit is offered by the cardissuer: the card-holder spends money which has been"stored" via a prior deposit by the card-holder orsomeone else, such as a parent or employer. Prepaidcards can be issued to minors (above 13) since there isno credit line involved.

1. BALANCE TRANSFER CREDIT CARDS:Balance transfer credit cards allow consumers totransfer a high interest credit card balance onto acredit card with a low interest rate. Typical in themarket today are balance transfer credit cards with anintroductory annual percentage rate (APR) of 0percent, with that introductory or "teaser" rate lastingseveral months up to a year.

2. LOW INTEREST CREDIT CARDS: Low interestcredit cards offer either a low introductory APR thatjumps to a higher rate after a certain period, or asingle low fixed-rate APR. Low interest cards can bevery useful when consumers need make a largepurchase because it allows several months to a year topay it off with very low or no interest.

SECURITY

• Credit card security relies on the physical security of theplastic card as well as the privacy of the credit cardnumber.

• Whenever a person other than the card owner has accessto the card or its number, security is potentiallycompromised. i.e. security PIN is required

• Some merchants will accept a credit card number for in-store purchases, where upon access to the numberallows easy fraud, but many require the card itself to bepresent, and require a signature.

• Thus, a stolen card can be cancelled, and if this is donequickly, will greatly limit the fraud that can take placein this way.

• The PCI DSS is the security standard issued by The PCISSC (Payment Card Industry Security StandardsCouncil).

THE FOUR PARTY MODEL

Cardholder Merchant

Issuer Acquirer

Ca

rd F

ees

Co

nve

nie

nce

&

Cre

dit

Card Payment Facility

Purchase goods / services using card

payment instrument

Settlem

ent &

Pa

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t

Services

Merch

an

t Service

Ch

arg

e

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 fundstransfer

– 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 InstitutionBeneficiaries’

A/Cs

Destination banks’

service branches

Destination

branches

Clearing

HouseSponsor Bank

Data on Day-

1

Reports on Day-1

Reports on Day-1

Credit on Day-2

En

cry

pte

d

Da

ta o

n D

ay

-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.,

RTGSIntroduced 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?

Obvious answer – By Cheque

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.

Enter the profile password..

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 CustomerTransactions.

• 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 FundsTransfer (SEFT) facilitate paperless inter and intra-bank settlements;both inter and intra-city.

• There is no Maximum value limit for an individual SEFT/ EFTtransaction.

• EFT is available at 15 locations: Mumbai, Kolkata, New Delhi,Chennai, Bangalore, Hyderabad, Ahmedabad, Chandigarh,Trivandrum, Jaipur, Nagpur, Guwahati, Bhubaneswar, Patna andKanpur.

• SEFT covers approximately 3200 networked branches of 35 banks inover 180 cities (currently). Two Settlements every day fromNovember 2, 2005, 10.30am – 3.00 pm

BENEFITS OF RTGS

• Real-time Payment Settlement: Payments settled in realtime on a transaction-by-transaction basis, as soon as theyare accepted by the system.

• No Credit Risk :- There is no credit and settlement riskinvolved in RTGS system for receiving participant as eachpayment transaction is settled instantly.

• Predictability of Cash Flows:- RTGS facilitatespredictability of cash flows as customers know when theiraccounts will be debited or credited.

• Benefits to Economy : The instant finality of paymentsensures fast, secure and irrevocable settlement of majorbusiness 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 SecuritiesDepository Ltd.]

• CDSIL [Central Depository ofSecurities 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 makepayment 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 hisclearing 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 yourDepository a/c and Credit of your broker’s clearingmember a/c at least 24 hrs i.e.one working day prior tothe pay-in date or before the deadline prescribed byyour DP

– On pay in day your broker gives instruction to his DPfor 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 everyRs.100,000) of the average market value ofsecurities held in a/c

–Settlement charges: 0.02% (Rs.20 for every Rs.100,000)of the market value of the securitiesbeing transferred from selling broker to theclearing corporation of the stock exchange andsame charges from clearing corpo.to buying agent

–Rematerialisation charges of 0.10%(Rs.100 forevery Rs.100,000) of the market value ofsecurities or Rs.10,whichever is higher.

OTHER BENEFITS

• Allotment directly in Demat formpossible,

• Pledge of Demat holdings possible,

• Lending/Borrowing of Demat Securitiesto/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 chipcontaining monetary value)

• When a transaction is made usingthe card, the value is debited &balances comes down.

• It is used for making purchaseswithout the need of any pin.

• It is a powerful card which carriesout functions of ATM card , CreditCard , 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 BANKINGThis 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

CONCLUSIONThe 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."