UNIVERSITY OF MUMBAI

PROJECT

FUTURE OF BANKING

Bachelor of Commerce
Banking and Insurance
Semester V

(2017-2018)

SUBMITTED

In partial Fulfillment of the requirement for the Award of Degree of Bachelor of

Commerce - Banking & Insurance

Submitted By,

RUSHIKESH SANJAY PARAB

Roll No. 43

Under the Guidance of,

ASST. PROF. SWAPNIL
SONAWANE

MAHARSHI DAYANAND COLLEGE OF ARTS, SCIENCE &

COMMERCE PAREL, MUMBAI 400 012
 MAHARSHI DAYANAND COLLEGE OF ARTS, SCIENCE &
COMMERCE PAREL, MUMBAI 400 012

CERTIFICATE

This is to certify that Mast. RUSHIKESH SANJAY PARAB of B.Com

Banking & Insurance Semester V (2017-2018) has successfully completed
university project on FUTURE OF BANKING under the guidance of
PROF.SWAPNIL SONAWANE

Course Coordinator Principal

Project Guide/Internal Examiner External Examiner

 DECLARTION

I am MR. RUSHIKESH SANJAY PARAB, the student of B.

com (Banking & Insurance) Semester V (2017-2018) hereby
declares that I have completed the Project on FUTURE OF
BANKING in the academic year 2017- 18.

The information submitted is true and original to the best of

my knowledge.

Signature of student

Name of Student

MR. RUSHIKESH SANJAY PARAB

Roll No. 43
 ACKNOWLEDGEMENT

The college, the faculty, the classmate & the atmosphere, in the college were all
the favorable contributory factors right from the point when the topic was to be
selected till the final copy was prepared. It was a very enriching experience
throughout the contribution from the following individuals in the form in which
arrears today. We feel privileged to take this opportunity to put on record my
gratitude towards them.
PROF . SWAPNIL SONAWANE SIR. made sure that the resource was
made available in time & also for immediate advice & guidance throughout
making

this project. Our Principal DR. MRS. T. P. GHULE &Vice Principal PROF.
SANJIVANI PHATHAK. I also thank myself for financing co-coordinator
MR. KUNAL SONI has always been inspiring & driving force. We
are thankful to MR. SANTOSH SHINDE associated with administration
part of Banking & Insurance section has been very helpful in making th
infrastructure available data entry.
 EXECUTIVE SUMMARY

While preparing this project we can come occurs various phases of banking sector such
as pre nationalization, post nationalization and after new economic policy. Along the future
we may know the important or introduction of technology in banking sector and how it help
to compete with upcoming challenges.
The introduction of technology also helped to grab opportunity. This project also
tell us about introduction of retail banking and its further prospectus. It also tell what are
the major trends which take banking sector in next level by 2020This project also help to
know the guidelines for licensing new banks in private sector . It further also helped to
know various norms prescribed by BASEL committee and also how it helps to do safe
banking activities to bankers. We may come across how Basel 1 and Basel 2 was adopted
in India and what will be the BASEL 3 which is in project of implementation.
 INDEX
CHAPTER CONTENTS PAGE NO.

NO

1 Introduction

2 Banking In India
3 Banking Before Nationalization And After
Nationalization

4 Future Landscape of Indian Banking

5 Technology In Banking

6 Indian Banking 2020: Challenges & Opportunities

Major Trend That Will Shape The Indian
Banking Industry
Banking Vision 2020

Future Outlook of Banking Sector

Retail Banking 2020

7 Impact Of Global
Guidelines For Licensing Of New Banks In The
8 Private Sector An Analysis

9 Recommendation
10 Conclusion

11 Bibliography
 FUTURE OF BANKING

OBJECTIVE OF STUDY

The reason behind preparing this project was to know the growing banking sector
after 1991. How it expanded in India how was the banking sector prior to adoption of new
economic policy and to know the important or innovation in banking industry .Today
banking industry growing at rapid rate which will create huge employment opportunity
in banking sector . This project also helped to know the growing advancement in
technology used by banking industry and also to know the future growth of banking and
how banking sector will be till 2020
Introduction of retail banking in banking industry took banking industry to next level of
banking. Further adoption of Basel norms have strength banking sector at great extent
with help of RBI and will continue to do so.
Hence we can say that banking industry in coming years will be a main strength of Indian
economy.

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 FUTURE OF BANKING

CHAPTER 1

INTRODUCTION

Meaning:

Banking is a financial institution accepts deposit from public and lends funds
to the people or institution it collects the saving of some people and gives the
money to who use to productive. The bank also provide services of money
transfer, bill discounting, credit cards, clearing of chequeetc for which they
gets commission.

Definition of Banking: SEC 5 (b)

Banking companies Act 1949 Defines banks , Investment of deposit of money

from the public repayable demand another otherwise withdraw by cheque,
draft order or otherwise.

Banking company:

Banking company Define as company A company which transact the business

of Banking in India

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 FUTURE OF BANKING

FUNCTIONS OF COMMERCIAL BANKS

COMMERCIAL BANKS

PRIMARY
PRIMARYFUNCATIONS
FUNCATIONS SECONDARY FUNCTIONS

ACCEPTANCE OF DEPOSITS
AGENCY SERVICES

ADVANCING LOANS
GENERAL UTILITY SERVICES

CREATION OF CREDIT

Overdraft
CLEARING OF CHEQUES
Facilities Term Loans
Cash Credit
FINANCING OF FOREIGN TRADE Consumer Credit
Discounting Bills of Exchange
Miscellaneous
REMITTANCE OF FUNDS Money at Call Advances

The main functions of commercial banks are accepting deposits from the
public and advancing them loans.

However, besides these functions there are many other functions which these
banks perform. All these functions can be divided under the following heads:

1. Accepting deposits

2. Giving loans

3. Overdraft

4. Discounting of Bills of Exchange

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 FUTURE OF BANKING

5. Investment of Funds

6. Agency Functions

7. Miscellaneous Functions

1. Accepting Deposits:

The most important function of commercial banks is to accept deposits from

the public. Various sections of society, according to their needs and economic
condition, deposit their savings with the banks.

For example, fixed and low income group people deposit their savings in small
amounts from the points of view of security, income and saving promotion. On
the other hand, traders and businessmen deposit their savings in the banks for
the convenience of payment.

Therefore, keeping the needs and interests of various sections of society, banks
formulate various deposit schemes. Generally, their ire three types of deposits
which are as follows:

(i) Current Deposits:

The depositors of such deposits can withdraw and deposit money whenever
they desire. Since banks have to keep the deposited amount of such accounts in
cash always, they carry either no interest or very low rate of interest. These
deposits are called as Demand Deposits because these can be demanded or
withdrawn by the depositors at any time they want.

Such deposit accounts are highly useful for traders and big business firms
because they have to make payments and accept payments many times in a
day.

(ii) Fixed Deposits:

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 FUTURE OF BANKING

These are the deposits which are deposited for a definite period of time. This
period is generally not less than one year and, therefore, these are called as
long term deposits. These deposits cannot be withdrawn before the expiry of
the stipulated time and, therefore, these are also called as time deposits.

These deposits generally carry a higher rate of interest because banks can use
these deposits for a definite time without having the fear of being withdrawn.

(iii) Saving Deposits:

In such deposits, money up to a certain limit can be deposited and withdrawn

once or twice in a week. On such deposits, the rate of interest is very less. As is
evident from the name of such deposits their main objective is to mobilise
small savings in the form of deposits. These deposits are generally done by
salaried people and the people who have fixed and less income.

Recurring deposit:

Recurring Deposit is a special kind of Term Deposit offered by banks in

India which help people with regular incomes to deposit a fixed amount every
month into their Recurring Deposit account and earn interest at the rate
applicable to Fixed Deposits. It is similar to making FDs of a certain amount in
monthly instalments, for example Rs 1000 every month. This deposit matures
on a specific date in the future along with all the deposits made every month.
Thus, Recurring Deposit schemes allow customers with an opportunity to build
up their savings through regular monthly deposits of fixed sum over a fixed
period of time.

One can avail loans against the collateral of Recurring deposit up to 80 to 90%
of the deposit value.

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 FUTURE OF BANKING

Rate of Interest offered is similar to that in Fixed Deposits. At present it seems

to be one of the best method to save the amount yield after years of deposit
because TDS is not applicable on RDs.

2. Giving Loans:

The second important function of commercial banks is to advance loans to its

customers. Banks charge interest from the borrowers and this is the main
source of their income.

Banks advance loans not only on the basis of the deposits of the public rather
they also advance loans on the basis of depositing the money in the accounts of
borrowers. In other words, they create loans out of deposits and deposits out of
loans. This is called as credit creation by commercial banks.

Modern banks give mostly secured loans for productive purposes. In other
words, at the time of advancing loans, they demand proper security or
collateral. Generally, the value of security or collateral is equal to the amount
of loan. This is done mainly with a view to recover the loan money by selling
the security in the event of non-refund of the loan.

At limes, banks give loan on the basis of personal security also. Therefore,
such loans are called as unsecured loan. Banks generally give following types
of loans and advances:

(i) Cash Credit:

In this type of credit scheme, banks advance loans to its customers on the basis
of bonds, inventories and other approved securities. Under this scheme, banks
enter into an agreement with its customers to which money can be withdrawn
many times during a year. Under this set up banks open accounts of their
customers and deposit the loan money. With this type of loan, credit is created.

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 FUTURE OF BANKING

(iii) Demand loans:

These are such loans that can be recalled on demand by the banks. The entire
loan amount is paid in lump sum by crediting it to the loan account of the
borrower, and thus entire loan becomes chargeable to interest with immediate
effect.

(iv) Short-term loan:

These loans may be given as personal loans, loans to finance working capital
or as priority sector advances. These are made against some security and entire
loan amount is transferred to the loan account of the borrower.

3. Over-Draft:

Banks advance loans to its customers up to a certain amount through over-

drafts, if there are no deposits in the current account. For this banks demand a
security from the customers and charge very high rate of interest.

4. Discounting of Bills of Exchange:

This is the most prevalent and important method of advancing loans to the
traders for short-term purposes. Under this system, banks advance loans to the
traders and business firms by discounting their bills. In this way, businessmen
get loans on the basis of their bills of exchange before the time of their
maturity.

5. Investment of Funds:

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 FUTURE OF BANKING

The banks invest their surplus funds in three types of securitiesGovernment

securities, other approved securities and other securities. Government
securities include both, central and state governments, such as treasury bills,
national savings certificate etc.

Other securities include securities of state associated bodies like electricity

boards, housing boards, debentures of Land Development Banks units of UTI,
shares of Regional Rural banks etc.

6. Agency Functions:

Banks function in the form of agents and representatives of their customers.

Customers give their consent for performing such functions. The important
functions of these types are as follows:

(i) Banks collect cheques, drafts, bills of exchange and dividends of the shares
for their customers.

(ii) Banks make payment for their clients and at times accept the bills of
exchange: of their customers for which payment is made at the fixed time.

(iii) Banks pay insurance premium of their customers. Besides this, they also
deposit loan instalments, income-tax, interest etc. as per directions.

(iv) Banks purchase and sell securities, shares and debentures on behalf of their
customers.

(v) Banks arrange to send money from one place to another for the
convenience of their customers.

s:

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 FUTURE OF BANKING

7. Miscellaneous Functions:

Besides the functions mentioned above, banks perform many other functions of
general utility which are as follows:

(i) Banks make arrangement of lockers for the safe custody of valuable assets
of their customers such as gold, silver, legal documents etc.

(ii) Banks give reference for their customers.

(iii) Banks collect necessary and useful statistics relating to trade and industry.

(iv) For facilitating foreign trade, banks undertake to sell and purchase foreign
exchange.

(v) Banks advise their clients relating to investment decisions as specialist

(vi) Bank does the under-writing of shares and debentures also.

(vii) Banks issue letters of credit.

(viii) During natural calamities, banks are highly useful in mobilizing funds
and donations.

(ix) Banks provide loans for consumer durables like Car, Air-conditioner, and
Fridge etc.

CHAPTER 2

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BANKING IN INDIA

In the modern sense originated in the last decades of the 18th century. The first
banks were bank of Hindustan (1770-1829) and The General Bank ofIndia,
establish 1786 and since defunct.

The largest bank and the oldest still in existence. Is the State Bank of India,
which originated in the Bank of Calcutta in June 1806 which almost
immediately became the Bank OF Bengal? This was one of three presidency
banks the other two being the Bank of Bombay and the Bank of Madras, all
three of which were establish under charters from the British East India
Company. The three banks merged in 1921 to from the Imperial Bank of India
which upon India s independence, became the State Bank of India in 1955. For
many years presidency banks acted as quasi- central banks, as did their
successors, until the Reserve Bank of India Was establish in 1935.

In 1969 the Indian government nationalized all the major banks that it did not
already own and these have remained under government ownership. They are
run under structure known as profit making public sector undertaking (PSU)
and are allowed to compete and operate as commercial banks. The Indian
banking sector is made up four types of bank as well as the PSU and the
STATE BANK they have been joined since the 1990 by new private
commercial banks and number of foreign banks.

Banking in India was generally fairly mature in terms of supply product range
and even though reach in rural India and to the poor still remains a challenge.
The government has developed initiatives to address this through the STATE
BANK OF INDIA expanding its branch network and through the NATIONAL
BANK FOR AGRICULTURE AND RURAL DEVELOPMENT with things
like microfinance.

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 FUTURE OF BANKING

Indian Banking Industry currently employees 1175149 employees and has a

total of 109811 branches in India 171 branches abroad and manages an
aggregate deposit of Rs67504.54billion.

CHAPTER 3

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BANKING BEFORE NATIONALISATION AND AFTER

NATIONALISATION

Introduction:

The world over, banking system is the focal point in the financial set up of any
developing country. Banks are regarded as special in view of their specialized
function in the financial intermediation and payment system. In India too
economic development has evolved around the banking system with the advent
of economic liberalization since the mid-1991, the financial sector in general
and banking sector in particular has undergone phenomenal changes. New
private sector banks with greater technology orientation have emerged.
Automation of banking operations gained in importance. Competition in the
market has increased. The public sector banks also embarked on
computerization of branches networking of branch operation, introduction of
new services, customer terminals and so on. Customer retention and more so,
attracting and retaining high net worth customer has come to occupy the center
stage of banking environment.

Banking before nationalization 1948-1968

It is useful to trace briefly the banking situation in India at the time of

independence of the country in 1947. The country inherited a banking system
that was patterned on the British banking system. There were many joint stock
companies doing banking business, and they were concentrating mostly in
major cities. Even the financing activity of these banks was confined to export
of jute, tea etc: and traditional industries like textiles,sugar. There was no
uniform law governing banking activity An immediate concern after the
partition of the country was about bank branches located i Pakistan and steps
were taken to close some of them as desired by that country . As a result of

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 FUTURE OF BANKING

mushroom like growth of banking companies, banks failure wee very

common in those days. In 1949 as many as 55 banks either went into
liquidation or went out of banking business. Banking did not receive much
attention of the policy makers and disjointed efforts were made towards the
regulation of the banking industry.

Banking after Nationalization 1969-1991

This phase began in a sedate with the appointment in 1969 of the banking
commission which was to recommend changes in structure procedures and
policy for the Indian banking system. However the commission did not have
much time to complete its tasks as it was overtaken by swift politico economic
developments, which culminated in the nationalization, on July 19, 1969 of the
major Indian scheduled commercial banks in private sector. On April 15,1980,
six more private sector banks were nationalized, thus extending further the area
of public control over the Indian banking system.

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CHAPTER 4

FUTURE LANDSCAPE OF INDIAN BANKING

Liberalization and de-regulation process started in 1991-92 has made a sea

change in the banking system. From a totally regulated environment, we have
gradually moved into a market driven competitive system. Our move towards
global benchmarks has been, by and large, calibrated and regulator driven. The
pace of changes gained momentum in the last few years. Globalization would
gain greater speed in the coming years particularly on account of expected
opening up of financial services under WTO. Four trends change the banking
industry world over, viz. 1) Consolidation of players through mergers and
acquisitions, 2) Globalization of operations, 3) Development of new
technology and 4) Universalization of banking. With technology acting as a
catalyst, we expect to see great changes in the banking scene in the coming
years. The Committee has attempted to visualize the financial world 5-10 years
from now. The picture that emerged is somewhat as discussed below. It entails
emergence of an integrated and diversified financial system. The move towards
universal banking has already begun. This will gather further momentum
bringing non-banking financial institutions also, into an integrated financial
system.

The traditional banking functions would give way to a system geared to meet
all the financial needs of the customer. We could see emergence of highly
varied financial products, which are tailored to meet specific needs of the
customers in the retail as well as corporate segments. The advent of new
technologies could see the emergence of new financial players doing financial
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 FUTURE OF BANKING

intermediation. For example, we could see utility service providers offering

say, bill payment services or supermarkets or retailers doing basic lending
operations. The conventional definition of banking might undergo changes.

The competitive environment in the banking sector is likely to result in

individual players working out differentiated strategies based on their strengths
and market niches. For example, some players might emerge as specialists in
mortgage products, credit cards etc. whereas some could choose to concentrate
on particular segments of business system, while outsourcing all other
functions. Some other banks may concentrate on SME segments or high net
worth individuals by providing specially tailored services beyond traditional
banking offerings to satisfy the needs of customers they understand better than
a more generalist competitor.

International trade is an area where Indias presence is expected to show

appreciable increase. Presently, Indian share in the global trade is just about
0.8%. The long term projections for growth in international trade are placed at
an average of 6% per annum. With the growth in IT sector and other IT
Enabled Services, there is tremendous potential for business opportunities.
Keeping in view the GDP growth forecast under India Vision 2020, Indian
exports can be expected to grow at a sustainable rate of 15% per annum in the
period ending with 2010. This again will offer enormous scope to Banks in
India to increase their fore business and international presence. Globalization
would provide opportunities for Indian corporate entities to expand their
business in other countries.
Banks in India wanting to increase their international presence could naturally
be expected to follow these corporate and other trade flows in and out of India.
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 FUTURE OF BANKING

Retail lending will receive greater focus. Banks would compete with one
another to provide full range of financial services to this segment. Banks would
use multiple delivery channels to suit the requirements and tastes of customers.
While some customers might value relationship banking (conventional branch
banking), others might prefer convenience banking (e-banking).

One of the concerns is quality of bank lending. Most significant challenge

before banks is the maintenance of rigorous credit standards, especially in an
environment of increased competition for new and existing clients.

Experience has shown us that the worst loans are often made in the best of
times. Compensation through trading gains is not going to support the banks
forever. Large-scale efforts are needed to upgrade skills in credit risk
measuring, controlling and monitoring as also revamp operating procedures.
Credit evaluation may have to shift from cash flow based analysis to borrower
account behavior, so that the state of readiness of Indian banks for Basle II
regime improves. Corporate lending is already undergoing changes. The
emphasis in future would be towards more of fee based services rather than
lending operations. Banks will compete with each other to provide value added
services to their customers.

Structure and ownership pattern would undergo changes. There would be

greater presence of international players in the Indian financial system.
Similarly, some of the Indian banks would become global players. Government
is taking steps to reduce its holdings in Public sector banks to 33%. However
the indications are that their PSB character may still be retained.

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 FUTURE OF BANKING

Mergers and acquisitions would gather momentum as managements will strive

to meet the expectations of stakeholders. This could see the emergence of 4-5
world class Indian Banks. As Banks seek niche areas, we could see emergence
of some national banks of global scale and a number of regional players.

Corporate governance in banks and financial institutions would assume greater

importance in the coming years and this will be reflected in the composition of
the Boards of Banks.

Concept of social lending would undergo a change. Rather than being seen as
directed lending such lending would be business driven. With SME sector
expected to play a greater role in the economy, Banks will give greater overall
focus in this area. Changes could be expected in the delivery channels used for
lending to small borrowers and agriculturalists and unorganized sectors (micro
credit). Use of intermediaries or franchise agents could emerge as means to
reduce transaction costs.

Technology as an enabler is separately discussed in the report. It would not be

out of place, however, to state that most of the changes in the landscape of
financial sector discussed above would be technology driven. In the ultimate
analysis, successful institutions will be those which continue to leverage the
advancements in technology in re-engineering processes and delivery modes
and offering state-of-the-art products and services providing complete financial
solutions for different types of customers.

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 FUTURE OF BANKING

Human Resources Development would be another key factor defining the

characteristics of a successful banking institution. Employing and retaining
skilled workers and specialists, re-training the existing workforce and
promoting a culture of continuous learning would be a challenge for the
banking institutions.

BASEL3
INTRODUCTION:
Given the important financial intermediation role of banks in an economy
their high degree of sensitivity to potential difficulties arising from ineffective
corporate governance and the need to safeguard depositors funds corporate
governance for banking organization is of great importance to their
international financial system and merits targeted supervisory guidance. The
Basel committee on banking supervision published guidance in 1999 to assist
banking supervision in promoting the adoption of sound corporate
governance practices by banking organization in their countries. This guidance
drew from principles of corporate governance that were published earlier
that year by the organization for economic co-operation and development
with the purpose of assisting governments in their efforts to evaluate and
improve their framework for corporate governance and to provide guidance
for the financial market regulators and participants in financial markets. Since
the publication of those documents issues related to corporate governance
have continued to attract considerable national and international attention in
the light of a number of high profile breakdowns in corporate governance. In
response o requests to assess the OECD. Principle in view of such
developments the OECD published revised corporate governance principle
2004recognising that revised guidance could also assist banking organization

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 FUTURE OF BANKING

and their supervision in the implementation and enforcement of sound

corporate governance and in order to offer practical guidance that is relevant
to the unique characteristics of banking organization the committee is
publishing this revision to its 1999 guidance. A revised version of the 1999
paper was released for public consultation in July 2005.This paper which
broadly retains the structure of the 1999 paper takes into account comments
received during the consultative period. This paper also presents some
consideration for corporate governance related to the activities of banking
organization for that are conducted through structures that may lack
transparency or in jurisdiction that pose impediments to information flows.
The Basel committee is issuing this paper to supervisory authorities and
banking organization worldwide to help ensure the adoption and
implementation of sound corporate governance practices by banking
organization,. This guidance is not intended to establish a new regulatory
framework layered on top of existing national legislation regulation or code
but is rather intended to assist organization is enhancing their corporate
governance framework and two assists supervisors in assessing the quality of
those framework. The implementation of principle set forth in this paper
should be proportionate to the size, complexity structure economic
significance and risk profile of the bank and group to which it belongs. The
application of corporate governance standards in any jurisdiction will depend
on relevant laws regulation codes and supervisory expectation.

Sound practice papers issued by the Basel committee in recent years highlight
the principle described in this paper by describing the roles of the boards of
director and senior management in managing risk and understanding the
need for banks to set strategies for their operations and establish

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 FUTURE OF BANKING

accountability for executing these strategies. These sound practice papers

have highlighted strategies and techniques for managing risk and includes a
number of common elements that are basic to sound corporate governance.
This paper reinforce the key elements widely accepted and long establish
corporate governance principle that guide in action of the directors, managers
and supervisors of diverse range of banks in a number of countries with
varying legal and regulatory system including both Basel committee member
countries and non member countries. Other fundamental issues related to
corporate governance of publicly listed companies, such as effective
shareholders rights are addressed in the OECD principles. The principle set
forth in this paper are fundamental underpinnings of sound corporate
governance for the board range of country and banking legal structure. The
committee recognized that some countries have found it appropriate to
adopt legal framework and standards, as well as accounting and auditing
standards that are more extensive and prescriptive than the principles set
forth in this paper. Such framework and standards are particularly relevant for
large financial institution, where financial difficulties resulting from corporate
governance failures may potentially lead to major widespread problems in the
financial system. This paper is neither intended to comprise a new element of
nor to add additional requirements to, the revised international framework
for bank capital adequacy. The principle set forth in this paper is applicable
regardless of whether or not a country chooses to adopt the Basel2
Framework.

MIGRATION TO BASEL 3

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 FUTURE OF BANKING

Basel 2 was designed because its predecessor i.e. Basel 1 was consider risk
intensive and too preliminary to cope up with the rapid developments in the
financial sector resulting in substantial regulatory arbitrage. The basic purpose
of Basel 2 was to leverage on the risk management system of internationally
active banks and use that for enhanced risk management architecture and in
the process have better measurement of capital requirements. It is ironical
that when the crises took place Basel 2 was either not implemented or just
implemented in the jurisdiction. And yet we have had to leapfrog and go in
for enhancement under Basel 2 and Basel3. Under Basel 3 an assessment of
Indian banks in terms of capital requirements has ,revealed that
notwithstanding issues with a few individual banks the system as whole is
very well capitalized and the transition to the revised capital adequacy. Tier 1
component or equity component would be smooth. The stress point however
would be that banks will be required to adjust the unamortized portion of
pension and gratuity liabilities in the opening balance sheet on 1 April 2013
on transition to IFRS.

Going forward the capital requirement on account of increased coverage of

risk would not be so material for Indian banks as either those activities is not
allowed or their magnitude is quite small.

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 FUTURE OF BANKING

CHAPTER 5

TECHNOLOGY IN BANKING

Modern technology has transformed the functioning of business. It has bridged

the gaps in terms of the reach and the coverage of systems and enabled better
decision making based on latest and accurate information reduced cost and
overall improvement in efficiency. In the Indian context the financial sector
especially the banking sector has been a major beneficiary from the inroads
made by IT .Many new service and product offer by banks and other financial
intermediaries are IT centered. E delivery channels are gift of IT. Now a
days many banks are providing the services of e channels like ATM, Ibank,
M- banking TELE BANKING DEBIT CARD CREDIT CRADS etc. Most of
the initiatives regarding e- channels are aimed at providing better and more
efficient customer service by offering multiple options to the customer. These
e- channels have positive impact on the profitability of the bank groups. With
the rapid improvement in technology and faster growth of e- channels society
has become more sophisticated than in olden days.

ATM:

ATM is a device that allows customer who has an ATM card to perform
routine banking transaction without interfering with a human teller. ATMs are
currently become popular in India that enables the customer to withdraw their
money 24 hours, 7days a week. ATM sharing system through proper
connectivity and switching technology provides the first real opportunity to
serve the customers on a nationwide basis.

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INTERNET BANKING

Internet bank to mean a bank offering its customer the ability to transact
business with bank over the internet.Internet banking refers to the use of the
internet as a remote delivery channel for banking services. Subsequently, dial
up connections, personal computers, Tele banking and ATM became the order
of the day in the most of the developed countries. It is web based service that
allows the banks authorized customer to access their account information.

MOBILE BANKING:

Mobile banking is a system of providing services customer to carry out

banking transaction on the Mobile phone through a cellular service provider,it
is a service of banks to make available the facility as wherever he needs.

SMARD CARDS:

It is a plastic card with chips embedded on them has been globally accepted as
the most effective and secure data storage and payment mechanisms. These
cards have the capability to store data transact using this data. Since data is
stored in the card it can work in an offline mode and does not rely on a back
end or networking for transaction

TELE BANKING

Tele banking is only a relatively new electronic banking product. However it is

fast becoming one of the most popular products. Customer can perform a
number of transaction from the continence of their own home or office,infect
from anywhere they have access to a phone. Customer can check balance and
statement information transfer funds from one account to another and pay
certain bills and other statement or cheque books.

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 FUTURE OF BANKING

CREDIT CARDS

Credit card can be called as an equivalent of a loan sanctioned by the banks to

its customer. Credit card facilitates and makes it possible to use first and pay
later the specified amount of credit as per the agreed terms of sanction. Before
issuing a credit card to a customer the bank would like to know and be sure
about the identification, age, level and source of income and repaying capacity

DEBIT CARDS

Debit card is deposit access product where the card holder uses his own money
in his bank account on the principal of pay first and use later It is the only
passport for the success of banks in the highly competitive and globalized
world.

Tab Banking:

One for customers opening Savings Bank accounts and another for Housing
Loan applicants. Bankers will offer its valued customers the facility of opening
accounts at their door step through Tab Banking. The sales staff of banker will
visit the customers at their home and using the tablets get the formalities
completed for account opening like details of KYC and photographs of
applicant.These will be loaded on the CBS and the account number will be sent
to the customer through SMS/e-mail. This will provide convenience and time
saving to the customer for opening accountsthrough Tab Banking.

Deposit machine:
Cash deposit machine is self-service terminal that enables you to deposit cash
without any manual intervention of to need to fill deposit slips and stand in
long queues at the cash counter. Deposit your cash through the simple and fast
CASH DEPOSIT MACHINE installed in the branch and get instant

24
 FUTURE OF BANKING

Credit in your account. To use the CDM you need to have bank debit card or
know the banks fifteen digit account number in which to deposit the money.

BENEFITS

Instant credit in your account immediate receipt.

No need to fill deposits slips.
No need to stand in long queues.

CHAPTER 6

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 FUTURE OF BANKING

Indian Banking 2020: Opportunities and Challenges

Following are the challenges which are the Indian banks will have to face in
future are as follows:

1) The major challenges would be the shaping up of the banks, internally as

well as externally. Internally it will be with respect to target markets and
customers, business models and risk management. At external level
consolidation with changes in landscape due to mergers and acquisition.

2) Since the dynamics of the rural markets are changing and rural markets are
their forte, the PSP would have to change their strategies to take advantage of
their penetration in rural sector.

3) Consolidation of banks is a necessity to face the international challenge.

India needs to have a small number of large banks rather than large number of
small banks, large in terms of asset volume of business and profit. Hence
mutual discussion among banks will be essential for consolidation.

4) Human resources will play a big role in transformation of the banking

industry ion India in the post 2009 era. Specialization of work and specialized
workforce will rule and show the door to general banking Re-skilling of the
existing staff and recruitment of skilled persons will have to be undertaken.
The total employment of the banking industry will expand and not shrink with
increases in the business.

5) The easy way to learn the best global practice of banking is either by
imparting training to staff by deputation overseas or by hiring top class
management raises money on global financial markets. One more way is that
Indian banks may acquire banks abroad to learn best practice , earn substantial
profits hire top class management , raise money on global financial markets

26
 FUTURE OF BANKING

grow . Presence of foreign competition is one of the ways to improve

performance.

6) With India moving towards full capital convertibility, the banking industry
will have the role of managing foreign exchange risk. Now India has a cushion
of huge fore reserve, which can help in case of sudden withdrawal of funds.
Full rupee convertibility would provide banks an opportunity to increase their
overseas borrowing and expand their potential source of funds.

7) The Indian banks have to reduce the cost of service improve corporate
governance and innovate. The Indian banking would have to give up the
restriction on credit deployment, restrictive labor laws and weak corporate
governance.

8) Technology will have be of prime importance to the Indian banks, as the

foreign banks already technosavy Indian banks needs to have a well
maintained computerized database , with constant up gradation of their
technology to suit the new generation thechnosavvy customers. Data
warehousing and data processing will have to be given due importance.

9) Credit rating framework, credit assessment centers and credit bureaus will
have to be developed.

10) Back office operations and front office work have to be segregated so
as to manage handling large number of customer.

Banks in India will be ending the last year of this decade on a high note.
A spectacular growth rate coupled with an increase in profitability has led to an
impressive performance as illustrated in Exhibit 1a. Financial metrics
witnessed a significant improvement. Bad debts fell dramatically. Starting at
well above 10 percent in the early 2000s, the gross NPA ratio is currently
below 3 percent. The cost to income ratio fell from well above 60 percent to

27
 FUTURE OF BANKING

below 45 percent. The Net Interest Margins (NIM) hovered around 3 percent
with only a slight dip in the last 2 years as illustrated in Exhibit 1b.
Considering the growth prospects of the Indian economy over the coming
decade, the banking industry rightfully looks forward to a decade full of
opportunities.

However, there is no dearth of challenges. The banking industry has to

live up to a range of high expectations from several stakeholders. The Indian
economy stands at a critical juncture of its evolution. Indians look at the next
decade with a lot of hope. There are hopes of rapid

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 FUTURE OF BANKING

MAJOR TRENDS THAT WILL SHAPE THE INDIAN

BANKING INDUSTRY

1. Mortgages to cross Rs 40 trillion by 2020:

Mortgages typify the retail banking opportunity in an economy. The total
mortgages in the books of the banks have grown from 1.5 percent to 10 percent
of the total bank advances, in a period of ten years. The ratio of total
outstanding mortgages, including the Housing Finance Companies (HFCs) to
the GDP is currently 7.7 percent. If by 2020, this ratio were to reach 20
percent, a number similar to that of China, we could expect the mortgage
industry growing at an average rate of over 20 percent during the next decade.
The outstanding mortgages are expected to cross Rs 40 trillion which is higher
than the entire loan book of the banking industry pegged at Rs 30 trillion (as
illustrated in Exhibit 1c).

2. Wealth management will be big business with 10X growth:

Going forward, wealth is expected to get further concentrated in the hands of a
few. As illustrated in Exhibit 1d, the top band of income distribution is
expected to grow most rapidly over the next decade. By The last decade was
impressive for the Indian banking industry Growth with rising
profitability2020, the top 5 percent households, predominantly residing in the
metros and Tier I cities, will account for 30 percent of the total disposable
income. Wealth management services will be demanded by the nouveau rich
and will be an integral part of the product portfolio for both, private as well as
public sector banks.

3. The Next Billion will be the largest segment:

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 FUTURE OF BANKING

Also illustrated in Exhibit 1d is the fact that the income group right below the
middle class in the annual house hold income range of Rs 90,000 to Rs
200,000 per annum will be the largest group of customers. These customers
will be profitably served only with low cost business models having low break
even ticket size of business. The next decade would witness banks
experimenting with different low cost business models, smaller cost effective
branches and new use of technology to serve this segment profitably.

4. The number of branches to grow 2X; ATMs to grow 5X:

India has a very low penetration of branches and ATMs as compared to some
of the other developed and developing nations as illustrated in Exhibit 1e.
Exhibit 1f highlights the usage pattern of various banking channels in terms of
number of visits. It is evident that the bank branches and ATMs are by far the
most popular channels, despite a decade of promotion of alternate channels.
The experience in developed economies also corroborates that branches and
ATMs continue to be the critical channels, although certain transactions have
shifted to alternate channels. As such, there is a requirement of at least 40,000
50,000 additional branches and 160,000190,000 additional ATMs in the
coming decade. This will be 3 times more than the branches and ATMs
launched in the last decade.

5. Mobile banking to see huge growth and will redefine transaction

banking paradigm:
As illustrated in Exhibit 1f, the uptake of internet and call centers is low in
all segments other than foreign banks. Comparing with usage pattern in
US, the significant potential in online and phone channels is apparent.
However, India may evolve differently. The penetration of internet and
broad band access in India has been low so far. However, with the advent

30
 FUTURE OF BANKING

of mobile banking, the access to banking facilities could completely get

revolutionized over the next decade
.
6Customer Relationship Management (CRM) and data warehousing will
drive the next wave of technology in banks:

Exhibit 1h illustrates that the average number of banking products per

customer in India is significantly lesser than the global benchmarks. There is a
significant potential for cross selling amongst all categories of banks in India.
Given that cross selling is highly costeffective as compared to all other means
of customer acquisition, banks will adopt CRM strategies aggressively in
pursuit of costeffective business models described in point 3 above.

7. Banking margins will come under pressure:

The next decade will see a dramatic change in margins as the wholesale debt
markets deepen and corporate customers access the whole sale markets
directly. Further, should the savings bank rate be liberalized, banks will move
to a regime of low margins. Exhibit 1i illustrates the findings of a recent IBA
survey conducted across banks to understand their perception of the future
trends. The public sector banks expect to see their margins squeeze with a
much higher likelihood as compared to the private sector / foreign banks.
Exhibit 1j illustrates the actual NIM of the public sector banks and private
sector banks over the last 5 years. The NIM of the public sector banks has
consistently declined and this perhaps reflects in the pessimistic view on future
margins adopted by the public sector.

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 FUTURE OF BANKING

8. New models to serve the Small and Medium Enterprises (SME):

Exhibit 1k illustrates the results of a survey conducted by FICCI to gauge the
level of satisfaction among large, medium and small business customers with
regard to banking services. The large customers are more satisfied across all
dimensions as compared to the medium and small sized ones. The smallest
businesses are most dissatisfied. Due to higher risk and lower ticket size, the
SME typically get less attention. Banks are yet to create innovative models to
serve SMEs with sufficient and timely credit at the right price. In general, the
level of dissatisfaction is higher on pricing and product range. A further
analysis highlights that the dissatisfaction on pricing is higher for the private

sector banks while dissatisfaction on product range is higher for the public
sector ones. As the yields in large corporate banking falls with further
deepening of wholesale debt markets, the banking industry in India will find
costeffective ways to serve the SME customers where yields are quite high.
Exhibit 1l highlights the top 3 new expectations of business customers in the
next decade, as per our recent survey. The SMEs hope to get the basics
good relationship management, fast credit decisions and a complete product
range all at one place
9. Investment banking will grow over tenfold:
Investment banking will be among the fastest growing segments in the banking
industry rising from 4 percent to 7 percent of the entire corporate banking revenue
pool. The larger corporate customers expect to demand higher support for
international expansion and mergers and acquisitions over next decade as shown
in Exhibit 1l. Further, as the wholesale debt markets deepen, the larger corporate
would avail of advisory and capital market services from banks to access capital
markets. The revenue pool will shift from traditional corporate banking to
investment banking and advisory. Banks with international presence stand to
benefit

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 FUTURE OF BANKING

10. Infrastructure financing to hit over Rs 20 trillion on commercial banks

books:
1m, by 2020 banks would have accumulated infrastructure assets worth Rs 2025
trillion on their books. This would touch 1215 percent of the total advances.
Infrastructure loans coupled with home loans would together account for about
2530 percent of the total advances of the banking industry
. This would be the limit to which banks will be comfortable taking long term
assets on their books. Even as the asset liability mismatch issues are resolved by
IIFCL and the government, the real challenge for banks would be to develop skills
to undertake the risks of long gestation infrastructure projects and manage
concentration risk in infrastructure.

33
 FUTURE OF BANKING

INDIAN BANKING VISION 2020

The Indian Banking industry has become a long way and continuous to evolve in
an area of way. The present paper visualizes vision of Indian banking Industry in
2020 on the basis of certain parameters. These includes profitability productivity
information technology (computerized branches as a percentage of total branches
of total branches, ATM branches as a percentage of total branches, I-banking
branches as a percentage of total branches, M Banking branches as percentage
of total branches ATM customer as a percentage of total customer, I- banking
customer as a percentage of total customer, M-Banking customer as a percentage
of total customer) in the post era.

The study explores that new private sector banks and foreign banks all the
parameters are fore runner as compared to our public sector banks. In the use of
technology these banks have become threat and also motivational factors for the
public sector banks keeping in mind the present position of the Indian Banking
industry the future of Indian banking industry is quite dynamic and bright. Indian
banks will able to compete in the global market, even ready to face internal and
external fierce competition .The paper also draws some strategies for the public
sector bank to enhance their performance.

34
 FUTURE OF BANKING

FUTURE OUTLOOK OF BANKING SECTOR

A decade ago, transferring money from your account to a family member's would
have meant a visit to the nearest bank branch, a long queue and a few days-long
wait. Today, you can use your mobile phone to make the same transaction
instantly

The banking system has to implement Basel III guidelines as per the directive of
the RBI to make it a stronger sector. Some of the key measures of
this include creating firm measures to make it foolproof of systemic risks,
stringent timelines, ongoing improvement of quality and quantity of capital,
liquidity risk management, value-based practices, solid mechanism, disclosures
for total transparency and reduction of systemic risk in derivative another money-
related markets.

The RBI has stipulated a time frame of five years to implement Basel III norms.
But there are economy related hurdles as the government which holds majority
stake in the public sector banks (PSBs) copes with the high fiscal deficit. Once the
government decides to dilute its shares in the PSBs and brings it down to around
51 per cent, the Indian banking sector would see a sea change. Also, a large
number of foreign players and big Indian corporate are awaiting government
clearances for setting up new generation banks. Once there is clarity on this issue
things would change drastically.

Banking In India - Past, Present and Future, 1st Ed.

Banking in India has a long history and it has evolved over the years passing
through various phases. The beginning of modern day banking in India can be
35
 FUTURE OF BANKING

traced to 18th century when English traders came to India. The English
AgencyHouses in Calcutta and Bombay began to conduct banking business
besides their commercial activities. Banking in India during the pre-Independence
period was largely characterised by the existence of private banks organised as
joint stock companies. Most banks were small and had private shareholding of the
closely-held variety. They were largely localised and many of them failed. At the
time of Independence in 1947, the Indian banking system was weak. The entire
banking sector was in the private sector and the credit requirements of agriculture
and other needy sectors were ignored. With a view to better aligning the banking
system to the needs of planning and economic policy, the policy of social control
over the banking sector began in 1967. The year 1969 was a landmark in the
history of commercial banking in India. In July of that year, the Government
nationalised 14 major commercial banks of the country. In April 1980,
Government nationalised 6 more commercial banks. The period beginning from
the early 1990s witnessed the transformation of the banking sector as a result of
financial sector reforms that were introduced as a part of structural reforms
initiated in 1991. This book integrates and brings together the history of modern
banking in India, with focus on recent developments in the context of
liberalization and privatization wave sweeping across world economies.

RETAIL BANKING 2020

A retail bank is a bank that works with consumers, otherwise known as

'retail customers'.

36
 FUTURE OF BANKING

Retail banks provide basic banking services to the general public,

including:

Checking and savings accounts

CDs
Safe deposit boxes
Mortgages and second mortgages
Auto loans
Unsecured and revolving loans such as credit cards
Retail banks are the banks you most often see in cities on crowded
intersections, the ones you probably use for your personal checking
account.
In addition to helping consumers, retail banks often serve businesses as
well - so they can also serve as commercial banks.

However, the pace of change is increasing and banks need to do even more to
ensure they are well-positioned to succeed in the future. Through our proprietary
research and insights from client engagements, we have identified six priorities for
success in 2020. They are:
1 Developing a customer-centric business model
2 Optimizing distribution
Simplifying business and operating models
4 Obtaining an information advantage
5 Enabling innovation, and the capabilities required to foster it
6 Proactively managing risk, regulations and capital
CHAPTER 7

IMPACT OF GLOBAL

Macro-trendson retailbanking to help frame the discussion of what banks should

do (see Section3, Six Priorities for 2020), we first consider the macro-trends that

37
 FUTURE OF BANKING

are shaping the global financial landscape, building upon PwCsubstantial

research effort in this area, Project Blue*. We framed this research around the
following seven trends: global instability, demographic change, technological
change, social and behavioral change, the rise and interconnectivity of the
emerging markets, the rise of state-directed capitalism and the war for natural
resources. Of course, each of the macro-trends has a different impact on the retail
banking industry, as well as on each specific institution. In this section we
consider, in depth, the following four mega-trends
We consider having the greatest impact, although our thinking is informed by
them all:
Rise of state-directed capitalism regulation reshaping the industry and
dictating business models.
Technology will change everything becoming a potent enabler of
increased service and reduced cost; innovation is imperative.
Demographics changing priorities and opportunities for growth.
Social and behavioral change rising customer expectations and the need to
regain public trust.
We also consider potential disruptors to those trends, and their implications

CHAPTER 8

GUIDELINES FOR LICENSING OF NEW BANKS IN THE

PRIVATE SECTOR AN ANALYSIS

Key Features of Eligibility Criteria Comments/Analysis

Guidelines

38
 FUTURE OF BANKING

Eligible promoters NBFCs and entities in The earlier restriction

the public and private on large industrial
sectors are eligible tohouses has been
set up a bank through removed. The
an NOFHC.* financial resources
and management
expertise that such
applicants bring has
been recognized. This
is relevant in light of
the failure of banks
promoted by
individuals and
banking
professionals.
Fit and proper Applicants should RBI has given due
criteria have sound importance to the
credentials and a 10- credentials and
year track record of integrity of
running their business applicants. The 10-
successfully. year track record
criteria should ensure
that only those
applicants with a
sound business model
and those that have
demonstrated the
ability to run a
successful business
are given entry into
this sector. This too
seems to be largely
driven by the
experience from
licenses given earlier,
as well as by recent
media reports on
some banks flouting
AML guidelines.
Corporate structure of The NOFHC should As a holding
the NOFHC be wholly owned by company, the
applicants. NOFHC will hold the
bank and any other
39
 FUTURE OF BANKING

financial service
entities of the bank,
e.g., it will be the
holding company for
activities conducted
through a
subsidiary/JV such
as insurance, broking
and also the holding
company and for
activities conducted
internally or through
subsidiaries/JV such
as credit cards. The
objective of the
holding company is
to separate the
regulated financial
service entities of the
promoter groups from
its other activities.
Through such an
arrangement, the RBI
would be able to
regulate the financial
service activities of
the holding company
on a consolidated
basis.
The NOFHC is to be
registered as an
NBFC with the RBI.
Minimum equity INR 500 cores to be The minimum capital
capital put up by applicants. to be brought in by
Bank to list itself promoters was
within three years capped at Rs 500
from start of cores, considering the
operations. capital outlay that
would be required for
setting up a new
banking business. It
has been raised from
Rs 200 cores from the
40
 FUTURE OF BANKING

earlier cycle, taking

into consideration the
changed economic
conditions.
Additional capital
may be approved if
the promoters
business plans make a
compelling case.
Foreign share-holding Not to exceed 49% The current FDI
for the first five policy
years. notwithstanding, non-
resident shareholding
is to be kept under
49% for the first five
years from the date of
issuance of the
license. This
guideline seeks to
ensure that the new
bank does not
become a takeover
target in the initial
years of its existence
a period when
financials may not be
very strong and
valuations are likely
to be cheap. This
guideline may also
ensure that the new
bank remains
classified as an
Indian bank and is
regulated
accordingly.
Corporate governance At least 50% of Independent directors
of the NOFHC directors should be bring with them
independent objectivity, and are
directors. generally not
susceptible to internal
pressures. They also
bring a different
41
 FUTURE OF BANKING

perspective to any
issue, compared to
the banks own
directors. They are in
a better position to
protect shareholders
interests and also
ensure that the entity
is being run
effectively and
ethically. The RBI
has mandated that
independent directors
should have
experience/knowledg
e of one or more of
the following subject
areas: accounting,
finance, banking,
insurance, law,
MSME, agriculture
and rural economy,
for example.
Exposure norms of NOFHC and the bank This should ensure
the NOFHC will have no exposure that the promoter
to the promoter groups banking
group. The bank business functions
cannot invest in separately, and is
capital instruments of regulated apart from
financial entities held its other businesses.
by the NOFHC.
Rural bank branches Bank to open at least This will ensure that
and priority sector 25% of its branches the new banks get
lending in unbanked rural serious about the
centers, and also RBIs agenda of
comply with PSL financial inclusion
targets and sub- and rural banking.
targets. Unlike earlier, when
the mandate was to
open branches in
rural and semi-urban
areas, this time
around the focus is on
42
 FUTURE OF BANKING

rural banking.

CHAPTER 9
RECOMMENDATION
Increased operational efficiency, profitability & productivity. Superior customer
service.Multi-channel, real-time transaction processing. Better cross-selling
ability. Improved management and accountability. Minimal transaction costs.
Improved financial analyses capabilities.

43
 FUTURE OF BANKING

Any information can be easily available.

All records of A/c & customer are stored in separate file.

Particular a/c information can modify.

Particular a/c information can modified for one or morefields like customer
name address by providing a/c number.

The Proposed system is more efficient, fast, reliable, user friendly.

Over and above the proposed system does not have any possibility of data
loss during the processing.

Mine request to RBI Governor to keep tighten the all ratios like CRR, SLR,
PLR, MSR on banking sector to beaten the inflation in our economy.

Banks also need to follow certain code of conduct and Ethics while
prevailing best services in economy.
Example, Bribery given by Bhushan Steel chairman to Syndicate bank
manager.
CHAPTER 10

CONCLUSION
After preparing this project we can conclude that Indian banking sector has made
vast improvement after 1947 i.e. after independence, with the conversion of
Imperial bank into State Bank of India the nationalization phase stated which
helped to secure the public interest and also to help the nation to grow especially

44
 FUTURE OF BANKING

in priority sector. Introduction of new economic policy lead to entry of private

sector banks and foreign banks and also improved technology which has helped
banking industry to meet with needs of people. The reason behind preparing this
project was to know that how was banking sector prior to adoption of new
economic policy and also to know how it has grown after 1991.

CHAPTER 11
REFRENCE

Bibliography:

Principle of banking-Author by Mooradchoudhary

45
 FUTURE OF BANKING

Indian banking vision 2020 R. k uppal

Modern banking- Author by shelagh Heffernan

New dimension of Indian banking Author by Ramashish Purvey

Webliography:

http://www.rbi.org.in/home.aspx

http://economictimes.indiatimes.com/

http://en.wikipedia.org/wiki/Retail_banking

https://www.sbi.co.in/

46