IT AND INDIAN BANKING INDUSTRY

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1 IT AND INDIAN BANKING INDUSTRY Dr. Sivalingam, Ph.D., E. Bhaskaran & J.Mujesh. Reader in Commerce, Research Scholars, Presidency College, Presidency College, Chennai-5. Chennai 5. I IT CONCEPT: IT has produced a vast population able to read but unable to distinguish what is worth reading The above concept is old school of thought. In modern school the IT has grown by leaps & bounds. This phenomenal increase particularly in Banking Industry has put the old school of thoughts in doldrums. The present Banking Industry is a shadow of IT. While it may be appropriate if the IT ministry is not appreciated. The parliament has passed the Securitisation and Reconstruction of Security Bill replacing the month old ordinance. II IT in General In this era of IT revolution, the NET is the future and the value added services are increasingly used in competitive banking world. The Internet has already demonstrated in the West as to how effective it could be in the financial service industry. It has permanently altered the way the customers perceive service, how it is delivered, and the profit it can generate to the service, how it is delivered, and the profit it can generate to the service providers. Financial Sector will be among the industries most profoundly benefited by the Internet Services, since the distribution of financial products doesn t require any physical exchange of goods. However, on account of internal and external constraints, the Indian banks have fallen far behind themselves in this area. The 1

2 accomplishment of this task requires them to urgently and radically restructure their business model and strategies. Analyst predicts that the web would become the primary customer deliver channel in the near future and financial sector should recognize its significance in the coming years. Internet banking may put an end to the usage of calculator and paper-based statements / bulky ledgers, thereby leading to greater savings in paper, postage and time. Internet services enable checking account statements and incorporate add-on features like funds transfer. With their built-in security, accountability, low cost and efficiency, they are all set to replace the money in its conventional sense of trading. Apart from personal banking, there are a variety of organizations providing to the corporate the services such as trade services, cash management, credit services, loans etc. providing these services online would definitely prove to be a boon to corporate, as also cost effective for organization. Internet banking offers the lowest transaction cost among all the conventional electronic delivery channels including ATMs. In Internet banking customer will get all the financial data all the time i.e., 24*7*365. ICICI Bank launched online banking IFINITY in October 1997, that provides remote banking facilities information such as account details, statement of account, allows various deposit options and funds transfer between two accounts. In Citibank, customers who log on to the bank s sit can view / print their accounts balances and statements, order cheque books, transfer of funds and even pay bills for Electricity / Telephone. In IndusInd Bank & IDBI Bank, around 8000 / customers are availing this type of facility. 2

3 III Internet Banking & Strategic Implications: Internet Banking would drive us into a new era. Established practices and procedures have undergone changes drastically. This is bound to change the nature of relationships of banks with their customers: Customers supremacy will be a reality; customers would be no longer dependent on dedicated systems for each banking relationship. There would be increasing access to low cost electronic service and close integration of bank services with web-based E-Commerce services through direct electronic payments (E-Cash). For performing International transactions, Internet is more convenient due to lower switching cost, low prices that eliminate geographic boundaries. IV Hurdles: 1. Many people fear the Technology and would rather let the bankers Teller or assistant do the needful. 2. Low density of telephone lines, power failures and computers in India, the process is slow down. 3. Out of 65,000 branches in India and only 9000 are computerized. 4. Net banking on the assumption that it is more expensive than traditional method. 5. There are people tech-no-haters who do not want to do any thing on the Net. 6. Banks would have to manage different product portfolios, at different yet competitive prices to different corporates across the world. 7. The entry of multiple non-financial institutions and other non-traditional players would just fasten this whole process. 3

4 V Key Aspects: Whatever be the strategy chosen and option adopted, certain key parameters would determine the Banks success on the Web technology: a) Adopting a webs mindset. b) Catching on the First Mover s advantage c) Recognizing the core competencies. d) Ability to deal multiplicity with simplicity. e) Senior Management initiative to transform the organization from inward to outward looking. f) Aligning roles and value propositions with the customer segments. g) Redesigning optimal channel portfolio. h) Acquiring new capabilities through strategic alliances. VI Indian Scenario: Throughout the country, the Internet Banking Market is in the infant stages of development. Only 56 banks are currently offering any kind of Internet Banking Services. In general, these Internet sites offer only the most basic services. 55% are so called entry level sites, offering little more than company information and basic marketing materials. Only 8% offer advanced transactional services, such as online funds transfer, transactions and cash management services. In general, the foreign and private banks are far ahead of Public Sector or Cooperative Banks in terms of the number of sites and their level of development. The private banks, with futuristic management and net-pro mindset seem all prepared to continue the pathfinder role in Indian Internet Banking. While the world has seen corporate banking as the first choice for net-bankers, India seems to be 4

5 reversing the trend and most of the initial developments seem to be in retail banking area. Experts predict that the total number users will touch 18 million in America by the Year Indian Banks are gearing up for retail banking in a big way. With World s second largest population and more than 5 million internet users, the number expected to grow at more than 200%, in next two years, retail banking surely holds the key for India. Both prices and costs should come down as consumers migrate to online services. Operating efficiencies from online account servicing should reduce cost by 15-25% relative to regular accounts, but even greater savings are possible. The customers would no longer be branch customers but rather the bank customers. The unconventional net banks would try to lure the customers away from their current banks by offers like high deposit rates, which will lower overall net revenue for online accounts. Banks have to expand the range of their products and services offerings in Internet. Apart from offering online accounts, the net-banks would have to tailor specific products for the Internet, like online bill submission or credit cards with instant online approval, since today s value-added product could easily be tomorrow s commodity, success would depend more on product innovation than ever before. VII IT & Economic Development IT in Banking Industry has emerged as one of the key ingredient to develop the economy in General and Banks in particular. Right from E-Banking to the Electronic Data Interchange the phase of Bank has changed in Modern World. Be it an Indian Banking or International Banking the scenario of IT is being focused. The Government in the Current Plan has included many facets of IT in the Banks from the colonial rule to the 5

6 present state the banks are given due importance as it is a barometer for economic development. VIII TYPES OF IT RELATED BANKING INDUSTRY 1. E- Banking: This is a type of banking in which code is identified to do the transaction between identical banks. This is not widely followed in all Banks. Since the cost for such installation is too high and net economical for Indian Banks to install such system. 2. Fibre Optic Communication. Fibre Optic Communication International Standard Character is diagnosed and transaction is made. For example in Railway Station this Fibre Optic Communication is followed. But the Banks in India has not yet began the Fibre Optic Communicaton technique. If this is followed processing time of Bank activity is reduced. 3. E-Factoring. E- Factoring is the process by which book debts are bought. For example in Open Cash Credit (OCC) 30% loan will be given by this process. In OC Company Stock is identified and loan is given through E-Factoring process. 4. Electronic Data Interchange: Electronic Data Interchange is the process by which the transaction is done on that particular date. For example in Electronic Clearing Scheme of Telephone Bills the Bill amount generated and the amount is taken from Bank on that particular date. In India most of the Banks is following this process. Electricity Department is also raising their bill through this Electronic Data Interchange and collecting money from all the clients. 6

7 5. Electronic Data Reconciliation. In this process all the accounts, which is to be tallied, is carried out through Electronic Data. For example if State Bank of India wants to tally all their branch accounts, by this Electronic Data Reconciliation process all the transactions carried out will be tallied and by this process time consumption will be reduced. 6. Single Point Reconciliation of FRC (Financial Resource Centre). In Single Point Reconciliation of FRC process all the data s will be concentrated at single point. For example in APJ Complex of Chennai, and Hitech City of Hyderabad, the datas through out world will be carried out at Single Point for quick process. 7. Single Window Clearance. In Single Window Clearance concept all the activities such as getting Demand Draft, Depositing Amount, Withdrawing Amount, Cash Credit etc can be got in the single place and single computer. This is myth as far as India is concerned. Now this is applicable only in Foreign Countries. 8. Instant Banking. Instant banking means over phone or over Internet order is issued for getting DD or Cheque. Example for this is Dial a Draft that was introduced by CITI BANK. 9. Bailout. In the Bailout concept the Sick Unit is analysed and loan is given over On-line. Whenever the Unit get sick the sickness is analysed and the remedy is given based on their Net worth. By finding their Net worth the loan amount sanctioned to the Unit will be identified and increased. 7

8 10. Credit Monitoring Policy. In Credit Monitoring Policy both PLR & SLR can be easily monitored with the help of IT. Whenever the Bank deposit get increased the PLR rate which was fixed by RBI will get increased automatically and Banks deposit more amount in RBI over this Credit Monitoring Policy. 11. ATM Online Web: ATM (Auto Teller Machine), which is famous all over world. Apart from Credit Card Banks, Commercial Banks have also introduced. For example in SBI has introduced SBI Cash Point, where a customer has no need to wait in queue for taking his own cash from Savings Bank Account. Now they have introduced Debit Card where we no need to carry cash to shop for any purchase. There is SBI International Card, which is used, in overseas stay over hotels, buying air tickets in foreign currency and paying it in Indian Currency. The usage of ATM card increases day by day. In future bank can increase the function of ATM by Deposits of Savings and Current Account, Depositing Cheques, so that manpower in this sector get reduced and speed get increases. 12. On-line Trading (Demet Account): On-line Trading is one where shares were sold On-line by staying at place where they are. It is also used to show all the details about share list, company details, selling and buying details of the share etc. IX SWOT ANALAYSIS: 1. STRENGTH: a) Less time consumption for Bankers & Customers. b) Paperless transaction. 8

9 c) Better service to Customers. 2. WEAKNESS: a) Technical fault may occur. b) If virus attacks the Computer all datas will be erased, so backup is needed every hour. 3. OPPORTUNITIES: a) Opportunity for existing bank to increase their customer throughout world. b) Opportunity for Bankers to clear their cheque within minute through E- mail and increase number of customers. c) Opportunity to eradicate the common people s saying Eliminates Services but adds Charges 4. THREATS: a) Threat to employment generation. b) Threat to non-computerised banks. X Conclusion: Technological and market discontinues are combining to generate rapid change and high uncertainty in banking. In such an environment, to apply the strategies of the past as a routine may be the riskiest option of all. The winners may not necessarily be traditional banks and the key to success would be the banks readiness to change or adapt to fast changing customers needs. Recognizing the core competencies and configuring value propositions would determine how well the bank faces this challenge? It is an opportunity for those who can harness the power of this technology to reduce costs and offset the squeeze of spreads by greater volume and new services. Those who would 9

10 choose to ignore, and stay embedded within their old business models, would have bleak days ahead. One must be well aware of the apparent benefits of online business in the banking industry a trend that is fast catching on. Online business is most cost effective and convenient, both to the bank as well as its customers. The need of the hour is to make the customer aware about the numerous benefits of online banking as also providing them the assurance of this being a very secure, trustworthy and satisfactory means of transacting their money. The first thing the organization should do is to build trust and confidence among the customers. A Trust that whatever information is shared by them with your organization during an online transaction would remain secure and confidential will generate confidence in adopting to this new, yet most practical and convenient way of banking. This trust and confidence in turn will lead to customer satisfaction which thereby would result into loyalty and this customer retention, needless to say would add to an increase in the business of the organization. XI Reference: 1. Banking and Financial System by Sundharam & Varshney. 2. Banking & Financial System by Santhanam. 3. Banking Theory Law & Practice by K.P.M. Sundaram. 4. RBI report on Banking A snapshot by C.R.I.Narasimhan in The Hindu dated November 30, Banking / Performance Review in The Hindu Dated November 25, Yojana, June 2002 edition. 7. The Indian & Global Business, Vol-5 No.6, April Central Bank of India Economic Bulletin, October Vinimaya, Vol.XXII. No.3,