BANKING IN INDIA – BANKING IN INDIA – THE CHANGING THE CHANGING

LANDSCAPELANDSCAPE

BANKING TODAY-

REDEFINED AND RE-ENGINEERED

Presented ByPresented By

S.DHARMARAJ S.DHARMARAJ

FACULTY - ICMKFACULTY - ICMK

AGENDA FOR THE SESSIONAGENDA FOR THE SESSION

o To Sensitize the Participants to the

Latest Changes in Banking Industry

o What is the Response to the Current

Trends from Bankers and Customers?

INDUSTRY PROFILEINDUSTRY PROFILE

Public Sector banks

Private Indian Banks New Generation

Banks

Private Foreign Banks –

Cooperative Banks

Non Banking Financial Institutions

Banking Sector Reforms – Banking Sector Reforms – Post-LiberalizationPost-Liberalization … …

1st Narasimham Committee Report on Financial Sector Reform – 1991

Introduction of Capital Adequacy Norms and Prudential Norms - 1992

Deregulation of Interest Rates, Prudential Norms for Maximum NPA – 1993

Introduction of Banking Ombudsman Scheme – 1994

Banking Sector Reforms – Banking Sector Reforms – Post-LiberalizationPost-Liberalization

Concept of Local Area Banks Introduced – 1995

1st Shared Payment Network System & conditional autonomy to PSU’s – 1996

2nd Narasimham Committee Report of Banking Sector Reforms – 1997

Guidelines on Risk Management – 1998

RECENT TRENDS IN BANKSRECENT TRENDS IN BANKS Entry of New Generation Banks Change in the Process, Methods & Techniques New Products and Services Collaboration between Banking & Insurance

Companies. Improvement in Service Quality Increasing focus on Retail Banking Shift Towards Branchless Banking Change in Customer Expectations Outsourcing of Resources [Human & Non-Human]

Steady Reduction in Interest Rates

RECENT TRENDS IN BANKSRECENT TRENDS IN BANKS

Change in Customer Expectations Outsourcing of Resources [Human&Non-

human] Steady Reduction in Interest Rates Increasing Non- Interest and Fee Based

Income Corporate governance and Business

Transformation Mergers and Consolidations

WHAT CHANGES ?WHAT CHANGES ? Electronic Fund Transfer (EFT) Electronic Clearing System (ECS) Automated Teller Machines (ATM) Shared Payment Network System (SPNS) Credit Cards/ Debit Cards Point of Sale Terminal Tele-banking Mobile Banking Net Banking Electronic Data Interchange Corporate Banking Terminals

WHERE ARE WE GOING?WHERE ARE WE GOING?

Anywhere Anytime Anyplace Banking Timeless and Placeless Banking Banking at Convenience Good by to Traditional Instruments

(Cheques &DD) & Invitation to new Instruments

Disappearance of Conventional Risk and Arrival of New Risks

Leading to currency-less monetary system Dismantling of Physical Structure

WHAT IS THE TRIGGER?WHAT IS THE TRIGGER?

Hyper Competition Shrinking Margins Need to Reduce Cost Take Advantage of Technology Changing Customer Expectations Simplify the Procedure and Process Reduce Traditional Risk Offer Better / Improved Service Some Constraints

[Policy/Resources/Physical/Structure]

Author for Change – Author for Change – Players in the Banking BusinessPlayers in the Banking Business

Eco-System Eco-System Shareholders Management Depositors Borrowers Employees Government Regulatory Authorities – RBI Competitors

PHASE OF TECH BANKINGPHASE OF TECH BANKING

PSB

PIB

PFB

CB

NBFI

SBI, SBT ETC.

ICICI,IDBI,HDFC,UTI BANK ETC..

CITI BANK,SC BANK, ETC..

SCB,UCB,DCBs/SCBs

INDUSTRY

SOME EARLY ADOPTERSSOME EARLY ADOPTERSBANK

____________CHANNEL

HSBC

BankHDFCBank

UTI Ban

k

CITI BANK ICICI Bank

ATM (No.) 250 500 550 174 1000

ATM Share(%)

40 50 NA 80 45

Other Channel[%] (mobile, phone, net)

35 15 NA 15 15

Branch Banking[%]

25 35  NA 5 40

STRATEGIES OF BANKSSTRATEGIES OF BANKS

Citibank: Parallel Banking

HSBC : Leveraging branches to grow C’

ICICI B : Reducing importance of branch

HDFC B: Conservative migration

UTI B : ATM’s as a force multiplier

Issues and ChallengesIssues and Challenges

What will happen to the traditional rural credit institutions like, Cooperative Banks, RRB’s and Low performing Public Sector Banks?

What are all the options for the Public Sector Banks?

Issues and ChallengesIssues and Challenges

Can the machines establish a strong connecting link with customers?

Is the Convenience Banking good for all segment and all seasons?

Is it not challenges the conventional wisdoms (keeping close contact with the customers)?

Issues and ChallengesIssues and Challenges

Does IT confer Competitive advantage or is it just the cost of staying in business?

How do we dispose the existing human resource?

What are the new security issues? Is this changes a customer demanded/bank

wanted? Are the customers happy and comfortable with the shift?

FOR YOUR COOPERATIVE LISTENING

AND USEFUL INTERACTION

THANK YOUTHANK YOU

Electronic Fund TransferElectronic Fund Transfer

Transfer of funds between banks located in different cities in place of DD/MT/Telegraphic transfer.

Electronic Clearing Electronic Clearing SystemSystem

Facilitates inter-bank settlements - both Debit & Credit clearances through INFINET.

CC: Companies who have to make bulk payments to a large number of beneficiaries prepare the credit instructions on the magnetic media and submit the same to RBI for payment.

DC: Payment to utility companies by banks on behalf of the customers.

Tele-bankingTele-banking

Using automatic voice recorder it facilitates both cash & non-cash transactions for the bank and customers.

Automated Teller Automated Teller MachinesMachines

Device used for withdrawal of money, depositing of money and balance enquiry and verification for 24 hours of a day.

Shared Payment Shared Payment Network SystemNetwork System

Facilitates Use of ATM cards across participating banks at ATM centers using Master/Visa Cards. In case of using other banks ATM – one may have to pay service charges.

Credit Cards/ Debit Credit Cards/ Debit CardsCards

CREDIT CARD: It is a card that empowers the Customer to spend up to the fixed value of money limit fixed - A prepaid card.

DEBIT CARD: It is a post paid card and money is transferred after the spending.

Corporate Banking Corporate Banking TerminalsTerminals

Facilitates the Corporate customers to log on into the banks data base and have access to their account for balance verification etc. with defined powers.

Point of Sale TerminalPoint of Sale Terminal

Computer terminal that is linked online to computerised customer information files that facilitates purchase from retail shops as it credits the retailer account online.

Electronic Data Electronic Data InterchangeInterchange

Transmit financial information and payments in electronic form.- reduces transmitting cost and risk.

JAMMU

CHANDIGARH

DELHI

JAIPUR

AHMEDABAD

MUMBAI

PUNE

BANGALORE

THIRUVANANTHAPURAM

CHENNAI

HYDERABAD

BHUBANESHWAR

CALCUTTA

PATNAKANPUR

GUWAHATI

BHOPAL

Back up NMS at Mumbai

NMS at Hyderabad

Integration of VSAT network with Terrestrial network

DESIGN OF TERRESTRIAL NETWORK AND INTEGRATION WITH VSAT NETWORK

2 mbps leased line

64/128 kbps leased line

VSAT Network

NAGPUR

KOCHI

GOA

LUCKNOW

INFINET - INDIAN FINANCIAL NETWORK (LEASED LINE CONNECTIVITY AND INTEGRATION WITH IDRBT VSAT

NETWORK)

INTRA BANK COMMUNCATION THROUGH THE INFINET

INTRA BANK COMMUNCATION THROUGH THE INFINET

BR 1 BR 2 BR3 BR4 BR5

BANK’S GATE WAY

HUB

BR 1 BR 2 BR 3

HUB

INTER BANK COMMUNCATION THROUGH THE INFINET

BR 1 BR 2 BR 3

BANK 1 GATE WAY

BANK 2 GATE WAY

ArchitectureArchitecture

INFINET IP Network (IIPN)

Gateway 1

Bank SiteBank Site Bank Site

Gateway 2

Bank SiteBank Site Bank Site

Gateway N

Bank SiteBank Site Bank Site

….

Central HUB•Safe storage

•Direct Routing to intra-bank sites•Routing to ‘others’ Bank sites via Central HUB

•Safe storage of inter-bank messages•Direct Routing to destination Bank Gateway•Access Validation

•Common IIPN access point•Safe storage

Corporate Institution

Corporate Institution’s Bank

Clearing House

Destination Bank

ECS - How it works

Destination Bank Destination Bank

Branches of destination banks

Investors

11

How ECS Works - Process flowHow ECS Works - Process flow

User InstitutionBeneficiaries’

A/Cs

Destination banks’service branches

Destination branches

Clearing House

Sponsor Bank

Data on Day-1 Reports on Day-2

Reports on Day-3

Credit on Day-4

Enc

rypt

ed

Dat

a on

Day

-1

ECS - Processing of Uncredited ECS - Processing of Uncredited Payment Instructions Payment Instructions contd...contd...

User Institution

Destination banks’service branches

Destination branches

Clearing HouseSponsor Bank

Encrypted Output Data on Post Settlement

Day-2

Return Data submitted on Post Settlement

Day-1

Return Advice on Post Settlement Day-1

Enc

rypt

ed O

utpu

t D

ata

on

Pos

t Set

tlem

ent

Day

-2

How to Participate in ECS - How to Participate in ECS -

Registration ProcedureRegistration Procedure

Corporate Institution

Sponsor Bank

Clearing House

Agreement

Collect a copy of the ECS brochure and ECS

Procedural Guidelines

Identify your Sponsor Bank ( a member of the Clearing House)

Submit an Application -Form annexed to the ECS brochure/Guidelines

Obtain the Unique User Registration number from Sponsor Bank

Good Bye Paper Warrants

and...

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