Technological Innovation in Indian Banking Sector Essay Example for Free

Technological Innovation in Indian Banking Sector Essay scientific INNOVATION IN INDIAN BANKING SECTOR USE OF IT PRODUCTS Dr. Kanhaiya Singh, Professor, Fore School of caution, New Delhi,India Dr. U. S. Pandey, Associate Professor University of Delhi, New Delhi, India Priya Gupta, Asst. Professor, SSCBS, University of Delhi, Research Scholar, BIT(Mesra) RanchiABSTRACT Transformation is pickings in Indian verifys from all verticals, and subtle and non so subtle makeovers in banking products atomic number 18 dynamically altering the face of banking. The research radical focuses on the way transformation is affecting the banking sector and the way use of IT products have replaced the face of banking in India. It reveals current environment of the banking fabrication the factors that have brought changes in the industry and the way these changes have contributed to the development of banking. This paper concludes that financial market has turned into a buyers market. Banks be have now bloomed into wizard-stop Supermarkets. Their focus is alter from mass Banking to Class banking with introduction of value added and customized products.Technology now allows banks to create what looks like a branch in a business buildings lobby without having to hire manpower for manual operations. These branches argon working on the concept of 24 X 7 working made possible repayable to Tele banking, ATMs, Internet Banking, Mobile Banking and E banking. This technology driven delivery channels are used to reach maximum customers at lower represent and in most efficient manner. The beauty of these banking innovations is that it puts both banker and customer in a winwin situation. The need of an hour is to design a system to promote marginal ability of investment in technology and widen the gap between marginal benefits and marginal cost involved in Banking transformation with special reference to proficient up gradation. Keywords CRM, ECS, Skimming, Spoofing, ATMs INTRODUCTION The study presents a broad overview of the current state of thebanking industry in India. It then goes on to identify some important forces for change and some important forces resisting change. Attention is paid finally to growth path of banking sector with technological advancement. It is depicted that banking is going to be intensely competitive and complex. The high hat idea would be for the domestic banks to enhance mutual co-operation in order to create a healthier market order and raise the overall engagement of the industry as a whole. Incorporation of advanced technology and worldwide diary of counselling and dodgingISSN 2231-0703International ledger of Management and Strategy (IJMS) 2011, Vol. No.II, materialisation II, January-June 2011http//www.myresearchpie.com/ ISSN 2231-0703utilization of modern viement techniques are other crucial aspects at which domestic banks should pay keen cloakest. Indian Banking Transformation The Starting Point Since e mancipation Indian banks have chthonicg oneness through four major shifts which crapper categorized as pre reform (before 1991) and post reform plosive speech sound (after 1991) Pre-Reform period A period of consolidation of banks up to 1966 A period of historic expansion in both geographical and functional terms from1966 to mid- 1980s A period of consolidation of branches from mid 1980s to 1991 These changes were policy induced but not driven by market forces. Post- Reform period Entry of technology in the Indian banking sector can be traced back to the Rangarajan Committee report, way back in the 1980s but during nineties, the banking sector witnessed various liberalization measures.New sequestered sector and foreign banks emerged equipped with the latest technology. These banks opted for a different model of having a single centralized database through a network al-Qaida, instead of having twofold databases for all their branches. These changes were market driven, havin g the influence especially of globalization. The crux is Indian banks have no control over developmentsabroad but are subjected to their effects. Hence these changes were not the outcome of internal changes but of external changes.Deregulation has opened up late opportunities for banks to increase revenues by diversifying into investment banking, insurance, credit cards, mortgage financing, depository services, securitization, and so on Now all the banks have started with the concept of multi- channels, like ATMs, credit cards, debit cards, telephone/mobile banking, internet banking, call centers, and so forth The role of banking is redefined from a unspotted financial intermediary to service provider of various financial services under one roof acting like a financial supermarket.International Journal of Management and StrategyISSN 2231-0703International Journal of Management and Strategy (IJMS) 2011, Vol. No.II, Issue II, January-June 2011http//www.myresearchpie.com/ ISSN 2231- 0703Forces for change in Indian Banking Underlying forces for change Developments in communication systems, coupled with blurring of differences between banks and non banks and globalization have aggravated the competitive environment. Technology became a find differentiator for the new private sector banks. The technological transcendency helped these private sector banks to have upper edge over public sector banks. The traditional source of income (Net delight margin = Interest Earned Interest Expended) was compressed overdue to the pressure of competition. As a result commercial banks had to face the challenge of finding out new sources of income and curtailing overhead expenses. The operating conditions are different for private sector and public sector banks in India (wage bill, legacy of non-performing assets and extensive network of Public sector banks) which results in imperfect competition in the market.With increasing competition among banks, customers are also beco ming more discerning and demanding. To dally customer expectations, banks will have to offer a broad trim ofdeposit, investment and credit products through diverse distribution channels including upgraded branches, ATMs, telephone and Internet. The mantra to attract and retain customers lies in efficient customer service including customized and value added products to meet various needs of individual customers as also to meet the need of diverse types of customers.Manifestation of underlying forces Concern Issues Use of technology to be change magnitude substantially in banks to cope with rising volumes and reduce transaction costs and processing time. In Public Sector Banks, legacy systems and interoperability is a major overleap in the integration of all delivery channels. A major problem of banks in India is the availability of excessive data, the relevance and quality of which are both suspect. The inculcation of a proper attitude towards technology adaptation and proper s ecurity systems is an urgent need of the hour.International Journal of Management and StrategyISSN 2231-0703International Journal of Management and Strategy (IJMS) 2011, Vol. No.II, Issue II, January-June 2011http//www.myresearchpie.com/ ISSN 2231-0703Very low level of computer literacy and the existing mind set of some senior bankers are road blocks in the IT implementation in banks to 100% level. It related security issues in Indian banks are also a matter of concern. Suggestions Recommendations Better and cheaper access to basic infrastructure requirements such as power and telecommunications. Creation of customer awareness and education for technology adoption are imperative. The IT Act 2000 needs to implement in join to handle legal issues. Set up an Electronic Banking Group to provide guiding principles for prudent risk management of e- banking activities E-security to be trailer truckd efficiently so as to mitigate all the attendant risks. Convert branches into boutiques c atering to the requirements of clients and re-engineer thefunctions of branch banking using technology and delivery channels.BANKING INNOVATIONS Today we have electronic payment system on with currency notes. Indias financial sector is moving towards a scenario, where it can have new instruments along with liquidity and safety. Important events in the evolution of new age payment systems in India Arrival of card- based payments- debit card, credit card- late 1980s and early 1990s. Introduction of Electronic Clearing Service (ECS) in late 1990s Introduction of Electronic Funds Transfer/ Special EFT (EFT/SEFT) in the early 2000s Real magazine Gross Settlement (RTGS) was introduced in March 2004International Journal of Management and StrategyISSN 2231-0703International Journal of Management and Strategy (IJMS) 2011, Vol. No.II, Issue II, January-June 2011http//www.myresearchpie.com/ ISSN 2231-0703Introduction of NEFT (National Electronic Funds Transfer)as a replacement for EFT/SEFT i n 2005/06 Plan for implementation of substantiation truncation system as a pilot program in New Delhi in 2007. Migration from cash and impediment based payment system, it has become a necessity to electronic fund bump off of training system on account of the following reasons1. Large volumes of transaction,2. High cost of physical handling and storage of paper instruments.3. Delay in realization is a universal feature.4. Finality of payment takes time because the physical movement of instruments in medium-large volumes from branches to and from clearing house, and sorting them according to each bank branch at the center creates problems.RBI has taken two major steps to tackle this problemUse Of Magnetic Ink Character Recognition (MICR) technology was resorted to facilitate and expedite physical sorting of instruments using high-speed MICR sorters. There are about 40 MICR centers in India today. Introduction of Electronic Clearing Service. The ECS was the first version of Electr onic Payments in India. It is a mode of electronic notes transfer from one bank account to another bank account using the implement of clearing house. It is very useful in case of bulk transfers from one account to many accounts or vice- versa. There are two types of ECS (Electronic Clearing Service) 1. ECS credit 2. ECS- debit. International Journal of Management and Strategy ISSN 2231-0703International Journal of Management and Strategy (IJMS) 2011, Vol. No.II, Issue II, January-June 2011http//www.myresearchpie.com/ ISSN 2231-0703ECS facility is available at more than 60 centers in India. The benefactive role has to master(prenominal)tain an account with one of the banks at ECS center in order to avail benefits of ECS. ECS- CREDIT Advantages of ECS to ultimate beneficiary are No need to make frequent visits to bank for depositing physical paper instruments. No hap of loss of instrument and fraudulent encashment No chance of delay or return in realization of proceeds as in th e case of paper instruments. Benefits to Corporate bodies of ECS Save on administrative machinery for printing, dispatch and reconciliation Avoid the chance of loss of instruments in postal transit Avoid the chance of frauds due to fraudulent access to the paper instruments and encashment It can be ensured that the beneficiarys accounts get credited on a designated date.ECS DEBIT It is a scheme under which an account holder with a bank can authorize an ECS user to recover an amount at a prescribed frequency by ski lift a debit in his account. Utility service providers such as telephone companies, electricity boards, credit card collections, collection of loan installments by bank and financial institutions, and investment schemes such as mutual funds are eligible to participate in the ECS debit scheme.Advantages of ECS debit scheme A. To the ultimate beneficiary is Eliminates the need of physical visit and the trouble of standing in long queues for making payment There is no need t o track down payments by last dates.International Journal of Management and StrategyISSN 2231-0703International Journal of Management and Strategy (IJMS) 2011, Vol. No.II, Issue II, January-June 2011http//www.myresearchpie.com/ ISSN 2231-0703B. To the corporate bodies and Institutions are Saves on administrative machinery for appeal the cheques, monitoring their realization and reconciliation Better cash management Avoids chances of fraud Receives payments on a single date These schemes were introduced when Indian banking was in infant percentage point of its computerization hence cost benefits could not be maximized.EFT Electronic Fund transfer EFT scheme targeted one to one payments as an alternative to the use of cheques and drafts for remitting funds between bank accounts located at different centers. EFT encountered the problem of low level of computerization and connectivity in the Indian banking industry. Core Banking Solution CBS is a centralized platform, which creates en vironment where the entire banks operations can be controlled, and run from a centralized hub. This creates a centralized customer database, which makes anytime, anywhere, anyway banking possible. straightaway advantages of CBS are Faster and efficient customer service. Offering multiple delivery channels, like ATMs, Cards, mobile/Telephone Banking, internet Banking, Call centers, etc. Reducing the operable costs, through manpower saving and space saving. Centralizing the back end processes and reporting.International Journal of Management and StrategyISSN 2231-0703International Journal of Management and Strategy (IJMS) 2011, Vol. No.II, Issue II, January-June 2011http//www.myresearchpie.com/ ISSN 2231-0703Creating a customer profile database, it is a powerful tool for gaining competitive advantage through cross selling opportunities. Adoption of Risk management, by taking care of risk-monitoring and risk-reporting requirements.ATMs ATMs are an issue of survival for the banks and a re becoming just another part of everyday life. Falling costs of machines and connectivity is a key factor contributing to the growth of ATM network. Banks have also been cutting costs and gaining synergies through ATM sharing agreements amongst themselves, for exampleCash Tree (Bank of India, essence Bank of India, Indian Bank, Dena Bank and Syndicate Bank)SBI, HDFC Bank, UTI Bank, Indian Bank and Andhra BankICICI Bank, Andhra Bank and Federal BankBanks are now using ATMs for product packaging as banks market broader financial services to their captive audience of ATM users. But these facilities come with added problems when huge amount of money is withdrawn by large number of consumers in a market period (very short period of time). CRM Customer Relationship Management Solution is the set of methodologies and tools that help an enterprise manage customer relationships in an organized way finding, getting, and retaining customers. It helps to provide better customer service, inc rease customer revenues, discover new customers and sell products more effectively.CORPORATE profit BANKINGThe Internet has initiated an electronic revolution in the global bankingsector. Its dynamic and flexible nature as well as its ubiquitous reach has helped in supplement a variety of banking activities. The Internet has emerged as one of the major distribution channels of banking products and services for banks in the U.S and in European countries. Consumers International Journal of Management and Strategy ISSN 2231-0703International Journal of Management and Strategy (IJMS) 2011, Vol. No.II, Issue II, January-June 2011http//www.myresearchpie.com/ ISSN 2231-0703are embracing the many benefits of Internet banking like improved customer access which facilitates the whirl of more services, attract new customers and reduce customer attrition. Advantages of Internet Banking A) Advantages to customers Banking from your desk with e-banking services, one can actually carry out a num ber of transactions session on ones seat with just a few click. Net banking customers view their account balance and also open fixed deposits, transfer funds, pay electricity, telephone or mobile phones bills and much more. Instant cultivation The accounts of the customers are updated as soon as the transaction takes place i.e., the accounts show the information updated to the last second.This means if a cheque issued by you has been debited from your account in the morning, your account status will reflect this when you log in to your accounts in the good afternoon as against the earlier updating at the end of the day. (B) Advantages to the banks Lesser personnel required online banking has encouraged a chunk of people, though a smaller one to carry out most of their transactions from a distance. This has resulted in lesser pressure on the employees in terms of entertaining customers. Easy publicity banks can easily pass on the information about their new avenues/schemes without any wastage of time. Customers interested in the schemes would revert back and can be attended to later. remuneration SYSTEMS BY RBI Inter-bank Clearing System High Value Clearing System MICR Clearing System Government Securities Clearing System and Real Time Gross Settlement SystemInternational Journal of Management and StrategyISSN 2231-0703International Journal of Management and Strategy (IJMS) 2011, Vol. No.II, Issue II, January-June 2011http//www.myresearchpie.com/ ISSN 2231-0703Banks not only write out with corporate and individual but also they need to make payments to each other to settle the accounts arising of the transactions carried out for their customers, and also for borrowing or repayment, investments, barter and purchase of various assets. These payments have to be effected through their accounts maintained with the Reserve Bank of India. Real Time Gross Settlement System The inter Bank Payments handle large amounts of money. The RTGS system is one in which paymen t instructions between banks are processed and settled individually and continuously passim the day. In India currently it covers more than 28,000 branches of banks.The attraction of RTGS is that the payee banks and their customers receive funds with certainty and finality during the same day enabling them to use the funds immediately without exposing themselves to risk. RTGS system, do not create credit risk for the receiving participant because they settle the each payment individually , as soon as it is accepted , liquidity risks remains, as well as the possibility of the risks being shifted outside the system .The security has to ensure that hacking is not possible at the site.RISK FACTORS The latest fraud which is considered as the safest method of crime without making physical injury is the Computer Frauds in Banks. Computerization of banks had started since 1994 in India. Reserve Bank of India has evolved working pattern for Local knowledge base Network and wide area Networ k by instituting different microwave stations so that money transactions could be carried out quickly and safely. The main banking tasks which computers perform are maintaining debit-credit shews of accounts,operating automated teller machines, and carry out electronic fund transfer, print out statements of accounts create periodic balance sheets etc.Internet facilities of computer have revolutionized international banking for fund transfer and for exchanging data of interest relating to banking and to carry out other banking functions and provides certain security to the customers by appointment different pin numbers and passwords. Computer depredations have by some been classified asInternational Journal of Management and StrategyISSN 2231-0703International Journal of Management and Strategy (IJMS) 2011, Vol. No.II, Issue II, January-June 2011http//www.myresearchpie.com/ ISSN 2231-07031. Computer frauds and 2. Computer crimes Computer frauds are those involve embezzlement or defa lcations achieved by tampering with computer data record or programme, etc. whereas computer crimes are those committed with a computer that is where a computer acts as a medium. The difference is however academic only. The tercet most common are 1. Cheque Frauds The resolute growth of paper cheques coupled with the ready availability of latest printing technology has resulted in an frightful rise in cheque frauds in Indian banks. Cheques are widely used instruments across the globe. It is interesting to note that cheques as a payment mechanism are still having a dominant position, both in developed and developing countries. Banks have been working very hard to wean customers from paper cheques.Cheques are expensive to print, mail and process. Other problems associated with cheques are inherent manual handling process, high costs for banks, and high transportation costs between parties. Concept and order of Cheque Frauds There are a variety of ways to categorize cheque frauds. O ne broad distinction is internal and external. Internal cheque fraud refers to schemes devised by insiders employees responsible for creating, authorizing, or processing cheques. External cheque fraud refers to schemescreated by independent operators or by organized gangs. The most common forms of external fraud involves a. Alteration of cheque details b. Creation of counterfeit cheques c. Forgery of cheques Physical Security Controls used are watermarks, high resolution micro printing, reflective holograms, and security inks etc.