COMMONWEALTH JOURNAL OF COMMERCE & MANAGEMENT RESEARCH

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1 INDIAN BANKING INDUSTRYON PROGRESSION Dr. Shilpa Chandna Assistant Professor of Commerce, Ch. Dheerpal Government College, Badli, District Jhajjar (Haryana) ABSTRACT Indian banking has made a remarkable progress after independence. The technological advancements have contributed a lot towards the progress of Indian banking industry. The operations of banks are not limited to accepting deposits and providing loans only, they are also taking care of the investment needs of customers. Now the customers can operate through online banking and mobile banking along with branches. They can make transactions with the bank by sitting anywhere and at any time. The information technology has enabled banks to provide improved products and services to customers in a secured and reliable manner at very low cost. The RBI as a central bank formed various regulatory committees to suggest banking reforms and played a supervisory role in the progress of Indian Banking Industry. The study shows the progress made by Indian banking industry. The main focus of the study is on the role of information technology in banking and the challenges before the banking industry. Keywords: Information technology, Services, Scheduled Commercial Banks, NPA, Customer Satisfaction INTRODUCTION Indian banking system is the pillar of the Indian economy and plays a significant role in the development of economy. The journey of Indian banking has passed through many difficult phases like nationalization, liberalization, privatization, globalization and global financial crisis. All these phases have strengthened the Indian banking system. The Indian Banks are now adopting practices to compete with international standards. Banks have invested huge amount on information technology. IT has increased the operational efficiency of banks. The operations of 22

2 banks are now not limited to accepting deposits and lending money, now a day s they are playing role of custodian, investment manager, insurance company and a lender. Their role in the customer life does not end here they also provide financial security and reduces the risk of the customer. The development in Information technology has improved the banking system. ATM, Debit Cards, Credit Cards, Forex, NEFT, ECS Debit, ECS Credit, Internet Banking, Mobile Banking has widened the scope of banking services. IT is not only improving the banking services but also enables banks to widen their customer base. Whereas IT has a remarkable place in the progress of banking various government policies have also significant impact on the industry. For the purpose of financial inclusion Prime Minister announced Prime Minister Jan Dhan Yojana in PMJDY aims to provide financial services like saving account, credit, insurance and pension facility to every household. Under this scheme the customers can open bank account with zero balance, after six months of satisfactory operation of the account they are eligible for bank overdraft, Rupay Debit Card, and accidental insurance cover of Rs. 1,00,000. As of 8 th March, 2018, 31.2 crore accounts are opened and Rs crore have been deposited under the scheme (pmjdy.gov.in). The scheme increased the liquidity of Banks. On 8 th Nov. 2016, another announcement was made by Prime Minister to ban the currency notes of Rs. 500 and Rs A limited period was given to public to deposit the old currency notes in to the bank and to convert them in new currency notes. The demonetization was a challenge for the banking industry. It suddenly increased the work load of bank employees. The demonetization not only posed a challenge to the industry but also led the banking industry a step forward to digitalization and less cash economy. CONCEPTUAL FRAMEWORK Indian banking sector has to pass through many ups and surges. Before independence many private banks failed. In 1935, a Central Bank named Reserve Bank of India was established. After independence the government decided to regulate the banking industry and in 1949 Banking Regulation act was passed to regulate, control and inspect the banks in India. This act empowered the RBI. RBI is now the apex bank and regulates the Indian banking sector, which comprises of Scheduled Banks and Non-Scheduled Banks. Scheduled banks are the banks which 23

3 are included in the second list of RBI and are having minimum paid up capital of twenty five lakhs. Non-Scheduled Banks are the banks which are not listed in the second list of RBI. The Scheduled banks can be classified in Commercial Banks and Cooperative Banks. The Scheduled Commercial Banks can further be classified into State Bank of India, Nationalised Banks, Private Sector Banks, Foreign Banks and Regional Rural Banks. On 14 th August 2015, eleven entities were given licences to launch payment banks. At present there are fourpayment banks in India viz. Airtel Payments Bank Ltd., India Post Payments Bank Ltd., Paytm Payment Banks Ltd. and Fino Payments Bank Ltd.Payment banks are new model banks that can accept restricted deposits up to Rs. 100,000. They cannot give loans and issue credit cards. All four payment banks are private sector banks. Role of Information Technology in Indian Banking Industry Information technology has provided substantial growth to the banking industry. The IT has increased the efficiency of banks. With the support of IT, banks can now provide better services to their customers with less cost and less manpower. IT is taking the banks towards cashless economy. In 1980 major changes were initiated in banking by introducing advanced ledger posting machines. This change reduced the work load of employees resulting in improved efficiency of banks. In 1982, with the purpose of technological cheque processing MICR technology was introduced in banks. In 1984, Rangarajan Committee was set up for mechanization on banking. In 1987, with the recommendations of the Committee headed by T.N.A. Iyer, RBI along with public sector banks set up the BANKNET which made possible the inter-bank fund transfers. The committee also suggested signing SWIFT (Society for worldwide Interbank Financial Telecommunication) network for transmission of international financial messages. In 1988, network for ATM was set up and single all bank Credit Card was introduced. In 1994, The committee under the chairmanship of W. S. Saraf was constituted for technological issues relating to payment system and cheque clearing. The committee recommended the ECS Credit for low value repetitive transactions like interest, dividend and pension and ECS Debit for utility payments. 24

4 In 1995, EFT (Electronic Fund Transfer) was adopted. The system made possible the transfer of funds within 24 hours through telephone, without using paper. In 1999, Indian banking sector got a new birth with the establishment of Institution of Development and Research in Banking Technology (IDRBT) and Indian Financial Network (INFINET). This was the period when most of the technological innovations took place. Many services like demand draft, account information, opening of FD account, stop payment of cheque, cheque book replenishment etc. were introduced for customers. Some other developments like Mobile banking, ATM, Debit cards took place along with online banking. All these changes resulted in improved customer services. (Mittal and Dhingra, 2007) In 1999, Real Time Gross Payment System (RTGS) was introduced and started replacing paper instruments. Internet banking gained momentum after this period (Mittal and Dhingra, 2007). In early 2000, Core Banking system was adopted by banks. The banks started anywhere anytime banking along with the localised branch banking. The implementation of core banking system changed the perception of banks regarding their customers. The customers are now the customers of the bank and not only the customers of a particular branch. They can operate through any branch for their transactions. Core banking system is a centralization process. The system has not only improved the information technology and communication network but also has facilitated the external payment system (Subbiah & Jeyakumar, 2008). REVIEW OF LITERATURE Ayachit Madhura highlighted that technology in banking sector has improved customer services and it has also posed major challenges for the banking industry like security, unemployment, digital literacy, voice revolution, and biometrics. Gupta Karuna, Arya Ravinder and Goel Vineet(2017) revealed in their study that recently branch banking is reducing and digital banking consumption is increasing. Information technology has made possible for banks to provide customized services. In future banks will provide more sophisticated services to customers. Indian banking will be able to compete with other banking 25

5 systems only by adopting international accounting principles, more transparent system, better risk management system, higher capital standards and strict prudential norms. Dewlani Om Prakashlal revealed in their study that customer satisfaction, personal services, NPA, Competition and managing technology are major challenges for the banking industry. Rani Ibha (2015) concluded that IT offers various opportunities for banking sector. IT enables banks to serve a large customer base and handles huge transactions with adequate time management and at less cost. Virtual banking is an emerging concept and it reduces the manpower cost and provides products and services at competitive prices. To be competitive in the globalized era Indian banks should also adopt the concept of virtual banking. Sikdar Pallab and Makkad Munish (2013) concluded that Internet banking offers twin benefits on one side and on the other side it reduces the number of routine transactions at individual branches and also offers a way to reach the interior parts of the country. RESEARCH METHODOLOGY The study is descriptive in nature and secondary data have been used in the study. The Data has been collected from various published sources like RBI reports, Journals and websites of Banks through internet. Objectives 1. To study the progress of Scheduled Commercial Banks in India. 2. To analyze the role of information technology in Indian banking industry 3. To assess the challenges being faced by Indian banking industry DATA ANALYSIS Progress of Scheduled Commercial Banks in India On February 2018, the number of Scheduled Commercial banks was 157 comprising of State Bank of India (1), Private Sector Banks (37) including (4)Payment Banks, Nationalized Banks (19), IDBI (1), Foreign Banks (43) and Regional Rural Banks (56). 26

6 Table 1 indicates progress and growth in Commercial Banking Sector in India. The number of Scheduled Commercial Banks includes State Bank of India and its associates (in 2017 the 5 associate banks like, State Bank of Patiala, State Bank of Hyderabad, State Bank of Travancore, State Bank of Bikaner and Jaipur, State Bank of Mysore were merged in SBI), Private Sector Banks, Nationalized Banks, IDBI, Foreign Banks and Regional Rural Banks. The regional rural banks are decreasing while the number of offices of SCBs, deposits and credits are showing tremendous growth. The amalgamation and consolidation of RRBs decreased their number from 96 in 2007 to 56 in The amalgamation took place to improve their financial performance and soundness. Table 1 Progress of Scheduled Commercial Banks in India Important Indicators Number of Scheduled Commercial Banks in India Number of Regional Rural Banks Number of Offices of Scheduled Commercial Banks in India Deposits of Scheduled Commercial Banks in India (in billions) Credits of Scheduled Commercial Banks in India (in billions) Source: RBI Role of IT in Indian Banking Industry The development in technology has improved the efficiency of banks. The technological advancement has reduced the operating cost of banks. The banks are providing services through 27

7 virtual banking. It is not easy for the banks to persist in the industry for a long period with the same services as the customers are more aware and the competition has also increased in banking. Banks need to differentiate their services from their competitors and serve differently to their customers. Om Prakashlal Dewani, Good customer services are the brand ambassador for any bank. IT has contributed a lot towards providing better customer services. Following are some technological services provided by banks: ATM HSBC (Hong Kong and Shanghai Banking Corporation) first introduced the ATM (Automatic Teller Machine)in India in ATM facilitates cash with-drawl, deposit, transfer of funds and obtaining account information anytime without interacting with bank staff. Table 2 is indicating marvelous growth in ATMs installed by scheduled commercial banks. The number of ATMs in 2011 was74505and in 2017 the number of ATMs increased to Table 2 Number of ATMs in Scheduled Commercial Banks Scheduled Commercial Banks Public Sector Banks Private Sector Banks Foreign Banks Total Source: Report on Trends and Progress of Banking in India , , , Debit Card Debit Card is an electronic card which is issued to customers by the bank to facilitate them to make payment for their purchase or withdraw cash from ATM. Table 3 indicates growth in the Debit cards issued by Scheduled Commercial Banks. The number of Debit cards increased from million in 2011 to million in

8 Scheduled Commercial Banks Table 3 Number of Debit Cards in Scheduled Commercial Banks 2011(in millions) 2013(in millions) Public Sector Banks Private Sector Banks Foreign Banks Total Source: Report on Trends and Progress of Banking in India , , Credit Cards 2017(in millions) Credit Card is a card which is issued to customers to provide them the credit facility for a short term period and can be used for the payment of the purchases. Table 4 indicates growth in the Credit Cards issued by Scheduled Commercial Banks. The number of Credit Cards increased from million in 2011 to 29.8 million in Scheduled Commercial Banks Table 4 Number of Credit Cards in Scheduled Commercial Banks 2011(in millions) 2013 (in millions) 2017(in millions) Public Sector Banks Private Sector Banks Foreign Banks Total Source: Report on Trends and Progress of Banking in India , , Internet Banking ICICI bank was the first bank to start internet banking and was followed by HDFC bank. Now most of the banks have adopted internet banking. Internet banking is on rising trend. As per the report of IAMAI and Kantar IMRB 31% Indians use internet. In Oct, 2015 in India 375 million persons were using internet and the estimated figure of internet users in Dec, 17 is expected to range between million. With the increase of internet use e-banking is also increasing. 29

9 The customers feel it more convenient to transact online anytime and anywhere without visiting the branch. It saves the time of the customers. The customers can visit the bank web site and get information about products and services offered by the bank. They can also transfer their funds into their own other bank accounts or make payments to other persons, view balances in their accounts and get statements of their accounts. They can also make payment for their utilities, book movie tickets, railway tickets and air tickets through internet banking. Mobile Banking Mobile banking is like bank in the hands of the customer. It offers the facility of transferring funds, checking balances and receiving messages of debits and credits in the accounts through mobile phones to the account holders. Mobile banking is increasing with the increased usage of mobile phones. Launching of UPI (Unified Payments Interface) in 2016 is a step to boost the mobile banking. USSD facility integrated with UPI allows users to transfer money from bank account to various merchants both online and offline on the basis of virtual address instead of bank account details. Cash Deposit Machines The customers can now deposit cash in their accounts through cash deposit machines without visiting the branch. They can also get updated account balance information from the machine. E-wallets/Digital wallets The E-wallets/digital wallets offers facilities like fund transfer, mobile recharge, bill payment and balance enquiry. E.g. SBI-mobile wallet MobiCash, Paytm, BHIM, Mobikwik, ICICI pocket, Jio money, Vodafone M-Pesaare some digital wallets. As per RBI reports during , the mobile wallets transactions increased to Rs. 206 billion. Wearable Banking Banks are offering wearable banking for smart watches and smart glasses. ICICI bank has launched i-wear for smart watches which can be used by downloading android wear app on the mobiles. It offers informative services for bank account and credit card, balance details and recharge prepaid mobile number. 30

10 Block Chain Block chain is a way to buy, store and transact with digital assets. This is a simple and secure way to buy/sell digital currency. This is un-hackableas it requires the permission of all stakeholders. NITI Ayog is creating India Chain the largest block chain network to reduce fraud and speed up contract enforcement and increase transparency. Next gen Chatbots The chatbots are the combination of technology with the intelligence. They provide accurate decisions, good quality customer interactions and speedy response. HDFC Bank, ICICI Bank and Canara bank have integrated onlinechatbots in to their web sites and mobile apps. The customers can enquire about the status of their service request, manage their funds, receive information of their transactions as quickly as possible. The increased use of technical services like ATM, mobile banking, Debit Cards, Credit Cards, Internet Banking, e-wallets, wearable banking, chatbotsand block chain witnesses the role of technology in the Indian banking sector. Challenges Being Faced By Indian Banking Industry The Indian banking industry is reaping benefits by information technology in terms of increased productivity, better efficiency, low cost, improved customer services and increased customer satisfaction on one side; it is also facing threats from information technology on the other side. The threats of information technology to banking may be strategically managed. Digital illiteracy The digitalization of banks also requires the customers to be digitally aware to make the digitalization fully successful. The old generation and the persons in rural areas are not digitally advanced. They do not know how to do online transactions or how to use the payment apps. As per the report of IAMAI and Kantar IMRB in 2016 in urban areas only 59% persons use internet and in rural areas only 17% persons use internet. The lack of digital awareness is a hurdle for digitalisation. The banks along with government should conduct digital literacy programmes to increase the awareness of digital banking and to teach them how to use digital banking. 31

11 Cyber Security Security is one of the major threats in front of the banking industry. After the demonetization the customers have shifted to digital payment modes. The customers now prefer to do online banking or they make payments through payment apps. The increased use of the digital modes has increased the risk of data theft. The people in rural areas as well as in the urban areas avoid doing online transactions because of the risk attached to the digital banking. The banks along with government should make proper security arrangements to increase the digital banking. The RBI has advised banks to develop a risk based approach to handle the cyber threats through board approved cyber security policy. Reduced job opportunities The information technology in banking has reduced the workload of employees. The automation of banks has reduced the new job opportunities and it is posing threat of unemployment in the industry. The problem of reduced work load/unemployment can be resolved by enhancing banking activities. Customer Satisfaction Customer satisfaction is the main aim of every product/service provider. No organisation can survive without satisfying the customers. This is true for banking also as customer satisfaction brings customer loyalty. Now all banking activities are aimed to attain customer satisfaction but the increased awareness of customers has increased their expectations. The customers are not ready to accept even a small default in the service. Hence there is a big increase in the number of complaints received under the banking ombudsman scheme. As per RBI reports the number of complaints received in 2012 were72889 out of which complaints were addressed. In 2017 the number of complaints increased to out of which complaints (only 92 percent) were addressed. Non-Performing Assets The asset quality of scheduled commercial banks is constantly deteriorating as the non- performing assets of banks are continuously increasing. As per RBI reports the net NPAs of scheduled commercial banks in 2012 were 652 billion and increased to 4331 billion in Banking Frauds 32

12 Banking frauds are set back to the bank and the economy of the country. They also are attack on the trust of the public. CFR (Central Fraud Registry) a web based searchable data base was made operational in 2016 by RBI to timely detect the frauds. Despite all these efforts, PNB fraud done by Nirav Modi gave a huge loss worth Rs. 11,400 crore to the economy. The government should make strict policies and all the concerned parties should implement these policies strictly to further avoid such type of scams. Lack of Efficiency in Public Sector Banks A major share of Indian banking industry is owned by government. The private sector banks outperform the public sector banks. The public sector banks need to increase their efficiency to compete with the private sector banks. Technological up-gradation and management Technology is changing rapidly and it brings enormous changes in every industry. It is essential for banks to upgrade the technology to meet the international banking standards. The technological up-gradation requires infrastructural changes as well as employees development. The banks should conduct training and development programmes to enhance the skills of employees and prepare them to accept the technological change. All the challenges can be encountered with the sincere efforts of government by making strict and well planned policies and their strict implementation. CONCLUSION The future of Indian banking depends upon how well and to what extent they adapt the technology. IT has made possible for banks to meet the specific needs of the customers and achieving the aim of customer satisfaction by providing improved and better services at competitive prices. The banks are now adopting developmental regulatory supervisory measures with long term vision of developing sound, competitive inclusive and customer friendly banking sector. With the financial inclusion programme banks are aiming to reach every door step. Financial literacy is also a part of financial inclusion to increase the demand side. In recent years, there has been amazing upswing in the use of technical services like ATM, mobile banking, Debit Cards, Credit Cards, Internet Banking, e-wallets, wearable banking, block chain and 33

13 Chatbots. The banking industry is also facing challenges of digital illiteracy, less employment opportunities, customer satisfaction, increasing NPAs, banking frauds, cyber security, lack of efficiency in public sector banks and technological up-gradation and management. The banks can reduce the threats posed by the technology by properly managing it. The opportunities for employees can be increased by enhancing banking activities, which may provide various career opportunities to the employees. Digital literacy programmes can increase the use of digitalbanking. The cybercrimes can be reduced by installing high quality anti viruses. The technology itself can provide its solution and suggest way to future progress. It opens path to success, it should never be frightened off. Indian banking industry is on the right path but still it has to cover a long distance to provide universal access of banking services to every person, especially to the weaker sections of society. REFERENCES Om Prakashlal Dewani, Emerging trends in banking and finance. Tactful Management Research Journal, Ayachit Madhura, ICI Innovation in Indian Banking Sector: Trends and Challenges. IOSR Journal of Business and Management, Retrieved from Gupta Karuna, Arya Ravinder and GoelVineet (2017), Emerging Trends in Banking Sector in India (with Special Reference to Digitalisation).International Journal of Science Technology and Management, 6(3), Retrieved from Rani Ibha (2015), A Study of Impact of Information Technology in Indian Banking Industry. Abhinav National Monthly Refereed Journal of Research in Commerce & Management, 4(6), SikdarPallab and MakkadMunish (2013), Internet Banking in India- A perspective on benefits and challenges involved. International Journal of Engineering, Business and Enterprise Applications (IJEBEA), Mittal R. K. and Dhingra Sanjay (2007), Technology in Banking Sector: Issues and Challenges. Vinimaya, XXVII (4),

14 Subbiah A. &Jeyakumar S (2008), Customer Service in Commercial Banks in India: A Study with Reference to Core Banking. Vinimaya, XXIX (3), RBI reports on trend and progress of banking in India , , , and retrieved from Report of IAMAI and KANTAR IMRB on Internet in 2016 retrieved from bestmediainfo.com/wp-content/uploads/2017/03/internet-in-india-2016.pdf Web-sites visited