CHAPTER II IT ENABLED SERVICES IN BANKS

Transcription

1 CHAPTER II IT ENABLED SERVICES IN BANKS 2.1) Introduction: There has been a tremendous and dynamic change in the financial services arena across the world since the last few years. The changed scenario integrating the Indian economy with global economy due to the rapid technological advancements, globalization and deregulation. Western Maharashtra has initiated liberalization which opened up the banking sector to the private sector to provide better coverage of long term financial resources to the customers. Several types of facilities provided by banks to customers, these facilities are: I) Types of safe custody services, valuables in shield covers or boxes are accepted for safe keeping. II) Besides that safe custody saving accounts like safe keeping of shares and stocks with the saving account, III) Collection of dividends, IV) Bonus shares V) Right shares and other activities in connection with shares is also under taken by banks. Banks provides innovative schemes and services to attract customers and to generate income through fee based services to improve the profitability of banks. Banks have many schemes like pension scheme, super saving package scheme, recurring deposit scheme and fixed deposit schemes. The schedule commercial banks have adopted innovative banking practices as a new strategy of banking business for some years. Innovative banking refers to using new method, new technician, and novel scheme in deposit mobilization, bank management and credit development. Due to great advancement in information technology it is possible to provide these services to through IT setup. 41

2 2.2) Important services performed by banks in Western Maharashtra are as follows: Following are the different servces that can be provided by banks through IT setup to their customers: a) Safe deposit lockers b) Safe custody of article c) Remittance of funds d) Standing instruction and e) Other banking services 2.3) Safe Deposit Lockers Transactions related to safe deposit lockers can be mentained using computers. Normally banks located in metropolitan cities and town provides safe deposit locker facility to their customers. Customers have to pay the rent or have a safe de0osit for these lockers. Customers are given a specially built locker cabinet placed in the bank s safe deposit vault room. The things like documents, Jewels, bonds and securities of the customers are kept in lockers which are more convenient repositories. Each locker of bank has two locks. One key is being kept by the bankers for safety and other key is with the customer. Types of Renters Individuals can operate safe deposit lockers on rental basis with certain instructions and conditions. The rent introduced properly and requested to open either a savings bank account or current account in which rental charges can debited under the standing instructions of the renters. A bank with locker facility has to maintain the following records. All these information can be stored on computers which are used in the banks: 1) Memorandum of letting 2) Specimen signature book 3) Rent receipt book 4) Renters attendance registers 5) Code words to be used by the customers for identification 6) Safe deposit vault register 7) Rent register 42

3 8) Due date dairy 9) Overdue rent register and 10) Key register Precautions and safeguards A custodian of safe deposit vault should take certain precautions to safe guard the interest of the renter and the bank, which are as under: 1. The locker key should be tested to ensure before handed over to the renter 2. The banker should not retain the key once the key is handed over to the renter 3) The authorized officials or the custodian of the bank only have access to the stock of keys in hand or the records used for identifying the customers 4) The banker should explain the condition of lockers, importance of code word and safety keeping the key of the locker etc to the renter ) Safe Custody of articles Safe custody of services is provided to the customers. Banks are well equipped with a safe and strong rooms with excellent security arrangements. The valuable documents such as Government securities, bonds share, and debentures may lodge by the customers. Customers can keep deeds of property wills, Unit Trust certificates, insurance policies, and other valuables with the banks for safe custody. In banks the documents may be lodged with the bank as open safe custody or a locked box or a sealed parcel or envelope. Bank will collect interest charge on securities or any documents lodged for safe custody. The legal position regarding safe custody, a contract a bailment arises and a bank becomes a bailee and the person depositing the goods is called the bailor as per legal situation of safe custody. 43

4 2.5) Remittance of Funds: There is a large network base of branches all over India of the private sector banks and public sector commercial banks. This network base of branches is useful for remittance of funds from one place to another place. Instruments used to transfer the fund through banks are: 1) Banks drafts 2) Mail transfer 3) Telegraphic transfer 4) Travelers cheques. These tools are being used for overseas remittance in foreign currency and euro dollar. This can be done by overseas branches network through their specialized services and functions. Records of these tools can be stored and retrived using advaced IT setup ) Bank Drafts: Demand drafts come under the bank drafts. It can be used as an important instrument for remitting money from one place to another bank. Bank draft is issued on request to a customer who has to make a guaranteed payment section 85(A) of the Negotiable instruments at It can be defined as a bank drafts as an order to money drawn by one office of a bank upon another office of the same bank for a some of money payable to order on demand a bank draft is issued for consideration received in advance. An application for a bank draft is ordinarily made by the customer indenting to remit money. This is to be filled up in the prescribed format of that bank. It is mandatory to mention the particulars of the draft like Payee s name, amount in words and figures, bank commission, signature and full name and address of the applicants ) Mail transfer: A request from one branch of a bank to another branch to pay a stated amount to the named party is called Mail transfer. A mail transfer is an arrangement between to two bank offices. The remitter has to deposit the amount along with the bank commission for the service rendered. The receiving branch will either issue its own pay order in favour of the beneficiary, on receipt of the mail transfer. 44

5 Other transactions like transferring a deposit amount from one office to another office are used for performing purpose. It also includes payment to third parties, remittance of proceeds of bills, reimbursement of expenses etc and international remittance. Mail transfer is confined to small amount of transactions by mail. Normally mail transfer is dispatched by air. All banks that the customer should get a credit for remittance of money through the facility of a bank mail transfer within 10 days it can be done as per the instructions issued by RBI ) Telegraphic Transfers: An arrangement between two bank offices is a Telegraphic transfer. It includes payment of foreign funds on the same day as the receipt of local money at the local office. A telegraphic transfer is affected by telegram, telephone or telex. This method is very convenient. It helps to transfer funds very fast from one place to another place. The telegraph transfer change is expensive as a compared to other forms of remittance ) Travelers cheques: A printed form of cheques of different denominations is called Traveler s cheque. A banker may issue it on the request of the customer after obtaining his specimen signature of the same may be counter signed by the banks authorities. There are two types of Travels cheques viz, a) In the form of a pay order drawn by the issuing bank and b) An order from the purchaser to the issuing bank. Travelers cheque in Indian rupees and internationally accepted currencies such as (US $, pound sterling, Yen and Euro etc) can be used big banks. The travelers cheque in foreign currency can be purchased for their face value at a small commission as per the Exchange Control Regulation. The advantages of travelers cheques are as under: I) Greater safety than currency, II) A safe way of carrying money while traveling from one destination and also in foreign country. The travelers cheques are negotiable instruments and are valid indefinitely, unless they bear restrictive endorsement- prohibiting negotiation. The travelers cheques are issued in India in rupees and in other countries in the form of US 45

6 dollars, British pounds, etc. As per the instructions issued by the RBI the bankers can issue the travelers cheque to the non resident Indian or persons traveling abroad ) International payment: Now a day, the banking system envisages several means of international money transfers. The increasing activities of banks Society of World Wide Inner Bank Financial Telecommunications (SWIFT), which is a computer based system to permit banks to transmit messages very fast. It has become an important international transfer by creating standardized message formats. 2.6) Standing Instructions Many subsidiary services to their customers as per the customers standing instructions bankers are performed by bankers. In this, the bank will debit payments or crediting receipts to the customer s account on behalf of their customers. The banker should make record in the standing instructions register and ledgers folio of the account holder clearly the details of the standing instructions. Normally, the standing instructions received by the banks from their customers are: I) Transfer of funds from one account to another account, II) Payment of insurance premiums to insurance companies, III) Membership subscriptions of clubs, libraries, professional associations and institutions, IV) Periodic remittance on customer s account to another account at the same branch or another bank or by money order, V) Collections of dividends on behalf of customers, VI) Collections of interest on GP notes held in safe custody and VII) Collection of pensions on behalf account holders. Payment system in India is paper based. Here paper instruments are commonly used methods of settling payments. These paper instruments are cheque, draft, dividend and interest warrant, refund orders, gift cheques, travelers cheuques etc. Sometimes to perform payments system through computer or communication technology as per the expectation/ standing instruction of customer 46

7 is difficult. One of popular mode of paperless funds transfer in payment system is the telegraphic transfer of funds. Now day s banks provide electronic money (E-Money), electronic purses and electronic payment systems by using modern technology. E-money creates liabilities on the balance sheet of an issuer are repayable at face value to the customer. The technology savvy delivery channels of banks to deal their customers are Automated teller machines, Telephone banking, PC banking mobile and Internet banking. 2.7) Other Banking Services To meet both financial and non-financial requirements of the customers, banks provide a wide range of services. All these services of the banks can be classified into four categories which are given as under: I) Financial Intermediation II) Payment mechanism and III) Ancillary services IV) Portfolio management services All theses services and information about it can be manipulated using computers and information technology ) Financial Intermediation One of the main functions of banks is to act as financial intermediaries between savers (lenders) and investors (Borrowers) by accepting deposits of money from many customers and lending the accumulated money. Banks are the most important financial Intermediaries. While performing these activities IT plays very important role ) Payment mechanism Bank deposit by cheque transfer of current account,, standing order or credit transfer etc is the most important method of debt settlement. The current account withdrawal by cheques distinguishes banks from other financial institutions. It is possible to store and retrieve the information by making use of Information Technology (IT). 47

8 2.7-3) Ancillary Services Banks generally lie outside the traditional mainstream banking services like ancillary services. Such ancillary services offered by banks cover a wide range of financial and advisory services that are suit to the needs of the customers. The advantages of providing the ancillary services are given as under: a) Banks are mainly to improve profitability through fee based services, b) Maintain high degree of staff customer contract, c) Offsetting the problems in business, d) Developing new business opportunities etc. It seems banks having IT setup; reputation and profit of such banks have been increased. These services can be divided which are given as under: 1) Traditional services The traditional services like collection, remittance, safe deposit vaults, letters of credit and guarantees etc are bring provided by banks for the past few decades. 2) Non traditional and innovative services In the 1980 s banks entered into new arena of the non traditional and innovative services. In these days banks started providing IT enabled services to their customers. 3) Portfolio Management Services Portfolio Management services is a new and innovative financial services offered by investment advisors to their clients. They guide and assist the individual investors and manage their portfolios. SBI personal banking centers and Vysya batik s investors clubs. These services are mentioned diagrammatically in following diagram: 48

9 Ancillary Services Traditional services Non traditional and innovative Portfolio Management Services Fig. 1 : Ancillary services 2.8) BANK CREDIT CARDS: When credit card was introduced in India by the Diners club in 1960,it was the prerogative for upper strata of the population to meet their travel and entertainment requirements. The central bank of India was the first Indian public secto2 bank introduced its central credit card with master card affiliation in 1980 followed by Andhra Bank which introduced its Andhra Bank card in 1985 the bank of Baroda and Canara Bank in 1987 have launched cards without any affiliation of international organizations. Subsequently, many foreign banks and Indian banks have entered into the Indian credit card market. There is a great potential for credit card business for banks. In India, Till 1995, 22 banks have been issued credit cards but eleven of them were issued as principal members of international credit card organisation and others are affiliates of the principal banks. The total credit card holders were 12.5 million accounted for 20 percent of the market penetration. Besides the India s major nationalized banks that issue credit cards, multinational banks such as Anz Grindlays bank, Citibank, Hong Kong bank, American Express Bank and Grindlays standand charted Bank also issues credit card. Credit card (plastic money) is a convent instrument its usage has been attributed by card issuers are issuing credit cards both directly and their associate ventures and tapping the burgeoning middle income and high income groups. The pitfalls of credit cards and the problems of using credit card are mainly the interest 49

10 rates charged on card outstanding is 30 to 36 percent annually. The card holders bear compound interest if the credit amount is not settled in due date. In India there are many banks provides credit cards. The features of these cards may vary from bank to bank. You can select credit cards of your own choice. Credit card holders have to check the terms and conditions of their banks and use this card accordingly ) MICR clearing (MICR cheque/draft) Basically it is a character recognition technique used by banking industry to facilitate the processing of cheques. Mechanized cheque processing system by using the Magnetic ink character Recognition (MICR) technology is introduced by the RBI. This modern cheque processing system speeds up the cheque clearing process was introduced in metropolitan cities in India. Under this system, cheques are processed at high speed on machines. The commercial banks issue cheques, drafts and other payment instructions in the MICR format. A code line is given at the bottom of the MICR. This instruments having information printed in magnetic ink for mechanical processing. In the code line, the first six numbers indicate the cheque number, next three numbers show city code, next three numbers show the code number of the bank and next three numbers show branch code and thereafter transaction code number is seen. MICR cheque should not stapled and fold. Signature of drawer, rubber stamp should be affixed above the code line of the MICR instrument. No writing is permissible and the MICR cheque book provides record slips at the end can be used for recording the details of the cheques issued. Debits to individual banks were raised on the basis of the data captured mechanically during the cheques sorting process under the MICR clearing. Drawee banks are provided with the cheque as well as the print outs indicating the details of the cheques and the amount debited. In the case of MICR cheques, the sorting of cheques is done by computer in the clearing houses on the basis of magnetic ink recognition and computer do not take cognizance of any endorsements on the cheques. 50

11 In MICR clearing, the mainframe systems for MICR cheque processing were replaced with modern and state of art system. The new systems are operational at the national clearing cells at major part of Western Maharashtra. New MICR centers were set up at Ahmedabad, Kanpur, Baroda, Amrister, Indore and Coimbatore. So far the RBI has introduced MICR clearing at four metropolitan cities and plans to extend it shortly to 26 new centers. The MICR device is the one of the catagaory of art banking automation devices. The MICR machine combine all the task like inward, outward and related cleaning etc. The MICR helps banks as deterrent to fraud because a photocopied cheque will not be printed with Magnetic Ink and can not process. Salient features of the MICR Based Clearing Machine are: I) Multi-user system II) Compatible with Oracle III) Open-ended system IV) Compatible with PC based encoding machine or with power encoding machine V) Post dated Cheque Processing VI) As per RBI guidelines- Report generation 2.9-1) Banker Automated Clearing System In the late 1960s to transfer of funds by electronic means the system called bankers automated clearing system (BACS) was set up. This system is flexible to accept input on magnetic tape, cassette, floppy disk or telecommunication link thereby automatically debiting the customer s account and simultaneously crediting the recipient accounts. In the United Kingdom this system of money transfer was developed 2.9-2) Electronic credit clearing The RBI has launched Electronic clearing service in April Under this scheme, payment data is presented on magnetic media by a corporate body to its banks who in turn forwards the same to the clearing house with n authorization to 51

12 debit its account and credit the accounts of the beneficiaries as recorded on the magnetic media. Electronic credit clearing is simple, reliable and cost effective solution for bulk and repetitive payment transactions like salary, pension, interest, commission, dividend etc by public and private companies and Government departments through banks. Since 1996, the electronic clearing services debit and credit for repetitive bulk and repetitive payment is in operation. All regional offices have been equipped for bank credit scheme so that they could extend the facility to all member banks and their corporate customers. The individual limit on ECS transactions has been raised from Rs. One lakh to Rs. 5 lakh. The ECS debit was introduced at many centers for collection of telephone bills. The Citibank began the scheme in 1996 for collection of credit card dues ) Electronic Debits Clearing The basic principle of Electronic debit clearing system is authorized debit. Telephone department of the government of India collects telephone bills of some telephone subscribes of one of the telephone exchanges at Channai. The telephone subscribers willing to participate in the scheme give a mandate to their banks to debit their accounts when they would receive debit advice from the debit clearing system. The telephone department submits the debit clearing data on magnetic media and the inter banks funds settlement is effected by debiting various banks and crediting the account to telephone department ) Floppy Input Clearing Another clearing system is called the Electronic clearing system. Floppy input clearing system evolves wherein data preparation was shifted to the banks away from the clearing houses and was made the sole responsibility of the participating banks. The banks are supposed to submit the data on electronic format and clearing house would consolidate the data and generate the settlement statement. This system has been implemented since 1955 in 14 centers, where the RBI manages the clearing houses. 52

13 2.9-5) Society for World wide Inter Bank Fast Transfer (SWIFT) The society for world wide inter bank fast transfers (SWIFT) is not a payment system but it helps in the transmission of international payment messages. The society for world wide inter bank fast transfers (SWIFT) is a computerized message system which links banks around the world. This system is quite useful for multinational companies, which run their own treasury functions. This system is very useful for the banking transaction done at international level ) Bank Net Bank net is introduced in Bank net is a communication network which connects the metropolitan centres of Mumbai, Chennai, Delhi and Kolkotta, Banglore, Hydrabad and Nagpur. Following are the net banking activities: 1) View Account Balances & Statements 2) Transfer Funds between accounts 3) Create Fixed Deposits Online 4) Request a Demand Draft 5) Pay Bills 6) Order a Cheque Book 7) Request Stop Payment on a Cheque Following are the advantages of net banking: 1) Internet Banking is the most convenient and powerful way to manage your account: 2) Net Banking is Real Time, giving you up-to-the-second details on your account 3) It can be accessed anytime, from anywhere, giving you complete control over your finances 4) There are no queues to stand in, or turns to wait for. With Net Banking you are in control 53

14 5) HDFC Bank's Net Banking service is secure. Using industry-standard technologies and infrastructures, our service gives you peace of mind ) Electronic Automated Trading System (EATS) There are many banks that have their own systems of internet trading for foreign exchange. The increase in usage of the new products and delivery channels can create potential for new risks. These risks are theft of cards, threat to privacy, manipulation of security systems on the internet with the intention to commit fraud, bankruptcy of the issue of may have large scale break down of electronic systems for different players in the markets. The use of technological advances for money laundering and tax evasion and the threat of cyber-terrorism are the risks to society. A V-SAT network INFINET (Indian financial network) launched by the RBI. It facilitates electronic communication between banks, nation wide networking of ATMs, e-commerce and in the long run retail e-payment system working e-money. As a result of semiconductor technology, spectacular expansion of automation, computing and telecommunication processing, storage and transmission of information are the very essence of banking and financial services. In banking new depository products such as discount brokerage, automated teller machines (ATM) computerized banking and shopping at home is being created. 2.11) Clearing House Automated payments Systems (CHAPS) All transactions are transmitted in code to help to reduce risk of fraud. This is an electronic messaging system. It is fast system which allows solving payments between banks and branches. Under this system the local transfer of funds would be cleared on the same day and transactions from other parts of the country may take several days to transfer funds. Due to advancement in computer network the system switches over payments directly between the banks own computers providing instantaneous services. For example in USA, using CHAPS one can affect an electronic fund transfer from coast to coast in less than 5 minutes. Retail banking and wholesale banking have also been benefited by the new technology. 54

15 The devices which have modernized retail banking are: a) Point of sale terminals b) Automated Teller machines (ATMs) c) Credit cards/cheques d) Home and office banking For the wholesale banking, the devices responsible for bringing about moderation are: a) Bank Automated Clearing Services (BACS) b) Clearing House Inter Bank Payment System (CHIPS) c) Society for World Wide Inter Banks Financial Telecommunication (SWIFT) ) Electronic fund transfer at point of sale (KFTPOS) Electronic fund transfer at point of sale is a payment system. This system enables for the payment of goods or services by transmitting over a communication network without the use of paper vouchers. It is an electronic clearing system which can accept credit card entries and transaction cards or debit cards, ATM cards and charge cards. It provides a wide range of equipment for handling payment by cards. The card holder is identified by checking his /personal identification number after the card is verified for its validity. The funds are transferred from the card holders account to the retailers account. Following are the advantages of KFTPOS: 1) It offers multiple facilities to the customers, retailers and banks. 2) The banks are able to acquire and maintain an effective customer base customers and retailers 3) Retailers are benefited because of the benefits arising due to the reduced cash handling costs and reduced risks. 4) Time is greatly reduced and prompt credit is afforded to the retailers account. There is a wide variety of methods of payments. It is only f/rm of payment in which the recipient is obliged to accept. It is an amount in legal tender in coins 55

16 and notes. However, law will have to provide the default rule about the finality of payment ) Electronic Fund Transfer The electronic fund transfer has been defined as any transfer of funds other than a transaction originated by a cheques, draft or similar paper instrument. This is initiated through an electronic terminal, telephone instrument or computer or magnetic tape, so as to order instant or authorize a financial institution to debit and credit an account. The Jack committee on banking services defined electronic fund transfer is a fund transfer effected through the banking system by electronic techniques with input and output methods being largely or completely in electronic form. The united nations commission on international trade law (UNCICTRAL) model law defined electronic fund transfer (EFT) as the funds transfer in which one or more of the steps in the process that were previously done by paper based technique. There are three types of transactions performed by the electronic means 1) Debiting or crediting one s own account 2) Transferring funds between two accounts by issuing a credit instruction to one s own institutions and 3) Transferring funds between two accounts by authorizing a debit authorization to another party ) Credit transfers and debit transfers Credit transfer is a transaction where the instructions are given by the person making the payment. Credit transfer system enables a person to make payments through person receiving payment. Credit transfer system enables a person to make payments through his or either to other customers of the same bank or those of other banks. This system can also be used by a person without having a bank account. Debit transfer is a transaction in which the instruction is given by the person receiving pay credit transfer system enables a person to make payments through person receiving payment. Consumer payments by cheque are a type of debit transfer. A transfer of funds in which the payer issues a payment order to the 56

17 payee, the payee takes the order to the payee's bank and the order is passed back to the payer's bank in exchange for the actual funds. 14 In a debit transfer the sequence begins with the payer authorizing its bank to pay, but actual payment is initiated when the payee presents a debit instrument (e.g. a cheque) or debit instruction (e.g. under a direct debit) to the payer s bank. Typically this will be through the payee's bank. For example, with non-paperbased systems the payee's bank will send a debit message to the payor's bank. All the transactions mentioned above can be mentained using computers and IT ) High Value and low value transfers Credit transfers are splits into two parts 1) bulk transfers (High volume to low value transfers) and 2) high value transfers (wire transfers) depending upon the value of payment order. The transfer instructions are executed through an automated clearing house while the wire transfer or high value transfers are executed on real time basis ) Cheque Transaction A process in which the image or relevant date of cheque is electronically captured and transmitted to enable payment of that cheque to the payees account and simultaneously debiting the account of the drawer without the physical movement of the cheques itself is called cheque transaction. The project called Cheque Truncation System (CTS) or Image-based Clearing System (ICS) is undertaken by Central banks of many countries such as India (Reserve Bank of India RBI), UAE (Central bank), Saudi Arabia (Saudi Arabia Monitoring Agency SAMA), etc. for faster clearing of cheques. Benefits of Cheque Transaction System (CTS): I) CTS / ICS promises to bring multiple benefits to customers by substantially reducing the time taken to clear the cheques as well as to the banks by enabling them to offer better customer services and increasing operational efficiency by cutting down on overheads in physical clearing. 57

18 II) In addition, CTS / ICS also offer better reconciliation and fraud prevention. CTS / ICS uses the cheque image, instead of the physical cheque itself, for clearing of the cheque. The cheque image is truncated at the presenting bank. Subsequently, the cheque image moves through various steps in the cheque-clearing process and transactions are settled on the basis of images and electronic data. 16 Following are the advantages of Cheque Transaction system: 1) Realisation of proceeds of cheque possible within the same day. 2) Data storage and retrieval becomes easy. 3) Minimizes risks and introduce a secured cheque clearing system. 4) Will result in cost savings due to lower cost in physical movement of cheques. 5) Minimizing bottlenecks and delays between presentation and realization time. 6) Provides shorter clearing cycles and a centralized image archival system ) Personal Computer Banking: Personal computer banking or PC Banking is a fast growing area in electronic banking. It provides customers access of information on their accounts through a dial up connection with their bank. They perform all transactions that are available with the tele banking. A personal computer is connected by a network service provider directly to a host computer system of a bank. In this connection, customer service requests can be processed automatically. A personal computer banking system and method in which without need for intervention by customer service representatives. The system is capable of distinguishing between those customer service requests which are capable of automated fulfillment and those requests which require handling by a customer service representative. The system is integrated with the host computer system of the bank so that the remote banking customer can access other automated services of the bank. The method of the invention includes the steps of I] Inputting a customer banking request from among a menu of banking requests at a remote personnel computer; transmitting the banking requests to a host computer over a network. II] Receiving the request at the host computer; III] Identifying the type of customer 58

19 banking request received; automatic logging of the service request, IV]Comparing the received request to a stored table of request types.v] each of the request types having an attribute to indicate whether the request type is capable of being fulfilled by a customer service representative or by an automated system; and, VI] Depending upon the attribute, directing the request either to a queue for handling by a customer service representative or to a queue for processing by an automated system. Following are the advantages of online banking: 1) Convenience: Unlike your normal physical bank, online banking sites never close. They're available 24 hours a day, seven days a week, 365 days a year and they're only just a mouse click away 2) Ubiquity: If you are out of station or even out of the country on a tour or on an official trip, when you re facing a money problem, all you have to do is log on to the internet and transfer funds from one account to another and take care of your needs and business 24 /7 way. 3) Transaction speed: Online banking initiates speedy transactions and they are very cost effective and is generally quicker than the transactions conducted at the ATM s or at the bank 4) Efficiency: It gives free access, It manage and control all customers bank accounts, including Individual Retirement Accounts, CDs, even securities, from one secure site 5) Effectiveness: It is possible to manage customers money, investment, bank accounts without even going to the bank. Get and wireless alerts on customer transactions. It is also possible to get your statements online and making of customer bill payments online and transfer funds, all for free ) Cash Management Services: A banks offer many sophisticated services to larger clients to help to manage their funds world wide, cash management services can "e made available to the corporate clients, have many subsidiaries around the world each with their 59

20 own bank account in local currencies. Banks with the cash management services quickly bring information about the balances across the world and transfer funds from one part of the world to another to cover shortages or to invest surplus amount. Cash Management helps the organisation in following way: 1) Eliminating idle cash balances 2) Monitoring exposure and reducing risks 3) Ensuring timely deposit of collections. 4) Properly timing the disbursements ) Cheque Handling: Cheque handling is a very important skill at the time of banking transactions. All cheques are marked with magnetic ink character to allow them to be sorted at high speed. Local cheques may be processed there and input to the main computer using the branch terminal. This saves a great deal of movement of papers and once the information is captured it can be used to provide information produced under the present system. Many customers are frequently use cheque banks to pay for all kinds of things. It is essential to know the method to read a cheque beyond those first six digits, known as the cheque number ) Electronic Data Interchange: Electronic data interchange is defined as the exchange of documents in standardized electronic form between organizations, in automated manners directly from a computer application in one organization to an application in another. Business data exchange and electronic data interchange is an automated system of business to business data exchange. It is used to exchange of business information including purchase order and invoices between computers used by companies. Features of electronic data Interchange are given below: I) Faster transfer of data II) It is cost effective for short term interactions 60

21 III) Useful for inventory management, transport and distribution, administration and cash management IV) Easy and cheap communication of structured information ) Digital Payment System Getting a payment from a customer to a merchant is the main focus of digital payment system. There are different digital payment systems. Cyber cash offers a digital payment mechanism that uses modern cryptographic technologies including public and private key encryption and digital signatures, implemented through special client and server software. Features of Digital payment system are given below: 1) Software publishes offering world wide web servers earn profit by selling of software 2) Focuses on getting payments from customer to merchant 3) Digital Payment system (DPS) is a service provider, can earn profit on each sale 4) Digital Payment system (DPS) based products are cyber cash, virtual payment system and Digicash ) Virtual Payment System Now a day Internet is very useful technology for payment system in banks. The internet payment system is used for the sale of information over the internet rather than for products and services. By using the automated telephone system to collect payment information about the participants by virtual eschews cryptographic methods digital signature. The first virtual offers facilities to sell information online at minimum cost. The first virtual internet payment system is basically governed by the electronic information merchants can produce many copies of information without incremental cost, information buyers examine products before they buy, and selling information is very simple and inexpensive. The founders of the first virtual created the green commerce model people pay for valuable. 61

22 It is necessary to implement virtual payment system first by sellers and used by customers. They can use this system on World Wide Web servers, on file transfer servers and ) Electronic Banking Electronic banking is defined as delivery of a bank s services to a customer at his office or home by using electronic technology. Electronic technology is being used following purposes: I) Banking to handle wide customer base, II) Reduce the cost of handling payments, III) Introduce new products and services and liberate the banks from traditional barriers etc. Electronic banking services delivered online or through other mechanisms have spread widely. E-banking has offered many new business opportunities. E-banking implies provision of banking products and services through electronic delivery channels in the form of automatic teller machines (ATM) and telephone transactions. It has been transformed by the internet a new delivery channel that has facilitated banking transactions for both customers and banks. The internet offers faster access, more convenient and available in 24 hours irrespective of the customers location. It is more efficient and cost saving channel for banks. In the era of globalization Internet banking is the need of customers. This need is completed by providing required security. Internet banking is wide spread in all over the western Maharashtra where averagely more than 50% of all types banks offer such services. The impact of e-banking is not limited to industrial and advanced economics. E banking is not only cutting down the cost of delivery and transaction but also provides many benefits to customer and banks minimize traditional banking risks. Many new challenges for bank management and regulatory authorities are created by E-banking. It has increased potential for cross border transaction and lack of adequate cross border supervision. The small and medium scale enterprises 62

23 continue to have generic problems like: 1) Inadequate data 2) Quality data 3) Asset covers etc. With the emergence of a digital divide, poor people are excluded from the internet and from the clutches of a financial system. The lacks of adequate investors protection are the important challenges of the banking. Risks in E-banking Risk involved in e-banking are mentioned as below: 1) Operational risk due to changes in procedures 2) Legal risk due to uncertainty about legislation applies to e-banking 3) Other risk such as business risk and credit risk 4) Reputation risk due to failure to deliver, secure accurate and timely service It is essential that the risk management principles recommended by the Bank for international settlement (BIS) should be implemented by PSBs. Delivery channels are devised focusing mainly on time and place advantage to the customers. Successful adoption of wireless technology would helps bank to offer not only any time anywhere banking but also any device banking. An appropriate system should be developed in such a manner that customer can use his ATM card and his own ATM personnel Identification number (ATM PIN) for customer authentication in web transaction. Bank should have a comprehensive system to allow to delivering end to end customer service that can reshape the customer base, maximize cross selling opportunities and generate a positive return on investment in banking business ) Automated Teller Machine (ATM) Now in modern banking, ATM is the modern banking facility for the bank customers to withdraw cash from the machine by using the credit and debit card at any time. The ATM is one of the earliest electronic banking products. The first ATM was introduced in the mid 1970s. The ATM system is operated through an electronic device and is used to withdraw cash, deposit cash and cheques and connected operations like transfer of funds from one account to another account. The relation between the bank and its customer determined by an agreement. It is 63

24 provided customer with the ability to withdraw or deposit fund cheque account balances transfer funds and check statement information. The account holder can not withdraw more than the amount held in his account. The main purpose is to allow customers to draw cash at any time and to provide banking services. To obtain money from the ATM unit, the customer need a special ATM card and is notified of a Personal Identification Number which is not shown on the face of the card. The card number must be inserted into the machine and the personl number typed in. The machine will validate the code number and if it is correct, it will allow access to the bank s computers boot to check the account balance to see if there are sufficient funds to withdraw cash. Following are the advantages of ATM banking facility: ATMs provide the customer to access to cash round the clock without a bank branch to its functioning ATMs enable access to large clients by offering a minimum account balance requirement with lowering the transaction costs. I) ATM facility is quicker than using normal casher service. II) ATM card holder can draw cash outside the normal banking hours. III) Two separate cards can be issued to joint account holder IV) ATM will retain the card when an incorrect PIN is used V) ATM card holder only know the secret PIN number VI) ATMs have been extensive use in other countries as alternate delivery channels for bank products have caught up in India only recently. The numbers of ATMs in India per million people work out to 1:2 only. VII) ATMs still remain the most successful delivery channel followed by telephone banking and internet banking. With about 9000 off site and on site ATMs installed, banks are effectively reaching out to a large customer base at a substantially lower cost. In order to reduce the cost of transaction, banks have started out scoring and sharing of ATM service. Banks have already started dispensing railway tickets, movie tickets through their ATMs. In future, the bank s ATM would function like a kiosk delivery more of non cash transactions, thereby reducing the fix and operating cost of ATM. In 64

25 India, there are around 4500 ATMs. The cash transactions through ATMs are between Rs. 3, 5000 and Rs crore each year ) Internet Banking There system can be set up by banks as same as PC banking and this system is accessible to Internet banking. Internet banking is an improvement over PC banking. Few advantages of Internet banking are: I) Internet banking is easy to use and is cost effective. II) Internet transaction is the cheapest for the banks. III) It provides banks with the ability to deliver products and service to consumer at a cost that is lower than any existing method of delivery. Internet banking is useful to the customers in many ways. Internet banking system allow customer to open accounts, pay bill, view account balance, complete loans application, calculate interest, view and print copies of cheque and deposit, exception reporting on overdrawn account, funds transfer, stop payments reorder cheque books and statements, receive banking news and send and receive messages through . The banks have ability to make use of a new range of revenue raising opportunity like credit card, small loan and other credit facility. Internet banking is new and useful technology for customers of rural banks. Internet banking is an emerging delivery channel that offers cost advantages to bank. A net based transition cost around Rs. 4 and cost per transaction is even lower than those of an ATM. This is to saving prohibitive real estate cost. Internet banking has failed to take due of the combination of psychological, legal, technological and socio economic factors. The impediments in the adoption of internet banking in India are lack of strong trust environment. It seems slow rate in adoption of the Internet, low penetration of PCs and access to Internet etc in rural banking. Internet bank offers following facilities: 1) An internet banking account is simple to open and use. 2) Internet banking costs less. 3) High rate on deposit. 4) 24 hours and 7 days access. 5) Free checking and bill payment facility credit card with low rates. 65

26 6) Simple and easy online application for all accounts including personnel loans. 7) Innovative products. 8) High quality customer service. 9) Customer can keep their account balanced using computer and monthly statement. 10) Bouncing a check (accidentally) should be a thing of the past because customer can monitor their account online any time, day or night. Internet banking has gained acceptance internationally for both the medium of delivery of banking services and as a strategic tool for a business development. The facility of accessing their account from anywhere in the world by using a home computer with internet connection is particularly fascinating to non residence Indians and high net worth individuals having multiple bank accounts. Internet banking is very popular and easy to use. It is possible to the customers from rural area to use this facility by having training of IT. Banks offering internet banking services have been entering into agreement with their customers setting out the terms and conditions of the services. The terms and conditions include information on the access through user id and secret password, minimum balance and charges, authority to the bank for carrying out transactions performed through the services, liability of the user and the bank, disclosure o& personnel information for a statistical analysis and credit scoring also non transferability of the facility notices and termination etc. Due to advance communication technology the internet banks expand fast across border of rural market. A search for the cheapest available home loan offered by any bank in the market can he accomplished in seconds on the internet. The bank will try to provide more products through their delivery channels. 66

27 RBI Guidelines for internet banking The RBI has set upon executive group to examine various issues of internet banking and recommended technology security, legal standards and operational standards keeping in view of the best practice. The following are some of the RBI guidelines: 1) Banks licensed under the banking regulation act are permitted to offer internet banking services 2) Internet banking is only in Indian currency products ) Mobile Banking Presently due to cut throat competition technology banks are adapting advanced technology. Banks have been compelled to complete with latest technology in bid to capture new markets and customers. Banks have tie up with cellular companies to launch mobile banking services. Hence mobile banking minimizes the need to visit a bank branch and the customers can scan their accounts. Mobile banking is an effective branch delivery channel. Mobile banking is a one of the cost effective delivery channels in future with the drastic fail in cell phone tariff and emergence of seamless connectivity between fixed and mobile lines. Toll free numbers would also gain popularity as an important delivery channel and call centre is using as a delivery channel. In Western Maharashtra many banks have begun mobile services. The bank should have a comprehensive system to deliver dynamic customer services. Through this system it is possible to reshape customer base, maximize cross selling opportunities and generate a positive return on investment. Mobile Banking provides banking and financial services with the help of mobile telecommunication devices. Mobile banking services may include facilities to conduct bank and stock market transactions, to access customized information and to administer accounts. 67

28 Fig.2: Mobile banking Making progress using science and technology at every second, it is only possible to accept that technology after successful implementation. Now a day s Mobile banking is a reality. Due to cut throat competition and globalization, foreign banks are entered in this race. So banks in Western Maharashtra also started providing advanced services like mobile banking. Hence customers are better equipped with all the systems and process. The advantage of this technology is that customers can carry out the transactions quickly, can check their balance and newly available schemes from mobile web itself. Banks make avail this service to their account holders. The impact of this is that the other customers get attracted due to this facility. This is really a facility/technology that helps the clients of banks; hence the dependency on the banks is decreased. 7 68

29 ) Home Banking Home banking means extending banking services from banks premises to customers premises. Banks provide up to date information about their accounts and also to initiate payments electronically from their own terminals. Rural banks with the development of home banking has been introduced to minimize the time and cost. The bank customer is provided a secret code number for operating his account at his residence, instead of visiting the bank for withdrawal or deposit cheques. The personal computers of the customer should be networked with the bank computer. Naturally home banking minimize the usage of different documents asked for dealing banking business. Home banking enabling users to perform many routine functions at home by telephone or cable modem connection. It is possible to perform all the banking transactions through advanced network like Local Ara Network (LAN), Wide Area Network (WAN), and Internet etc. Here it is capability of this technology to conduct wide range of financial transactions that require the interaction with banks, while a person is in a distant location or at home customer can perform various transactions like checking balances on existing accounts, transferring money between person s accounts and to the accounts of others Following are the benefits of home banking: 1) Convenience to handle the banking transactions 2) Due to getting banking services at home, one can save time and money 3) Getting high speed for banking transactions 4) It is possible to make bill payment online ) Tele Banking The bank provides specified services in tele banking on phone gives passwords to the customer and after telling pass word, the customer is required to push the desired buttons as the voice from the bank s machine gives him the option. The voice from the bank s machine is computer generated voice which is generated by a voice embedded in a card. This card allows the reading the data over the phone. 69

30 Customers can access their accounts through telebanking system. This system provides variety of banking services by telephone 24 hours a day. In tele banking banks provide facility to their customer to know their accounting information such as account balance clear balance and total balance, date of issue of cheque, encash, not presented, slip payments etc. This facility is available with the help of voice response system. The tele banking services provide many facilities and its advantages are as follows: Advantages of Tele Banking Services are as under: a) Voice response system b) Password for security and protection c) Information about account balance, clear balance and total balance d) Speaking out the last five transactions with the bank e) Information about various schemes of the bank f) Information about the latest interest rate ) Gold Banking In the year 2001, Gold banking has been introduced. Gold deposit scheme was introduced by SBI, the first nationalized bank to introduce it. The state bank of India is setting up a separate subsidiary unit exclusively for gold banking. The volatility in the financial markets, import of gold is emerging as one of the lucrative businesses for banks, as gold prices are increasing day by day. As this is profitable business many new banks are tring to enter into gold banking. There are over and above 14 banks and four governement nominated agencies appointed to import gold. The new generation private banks like Yes bank and Kotak Mahindra Bank are new entrants to gold banking. The foreign banks named Commerz bank and UBS are active in suppling gold to the domestic market. Bankers are expecting to open their (foreign banks) offices in India. 7 70

31 Fig.3: Gold banking It seems that bank credit to non banking finance companies (NBFCs) to be increasing by leaps and bounds. Banks are tapping and crediting in a big way to grow business in NBFCs operating segments such as gold loans, commercial vehicles and housing. 8 Demat Account services provided in the banks: The term demats account means dematrlised account for individual Indian citizens. This account is used to trade in listed stocks or debentures, required for investors by the securities exchange board of India (SEBI). Shares and securities are held electronically instead of investor taking physical possession of certificates in demat account. Demat account allows you to buy, sell and transact shares without the endless paperwork and delays. This account is also safe, secure and convenient. Demat refers to dematerised account. Just customers have to open an account with a bank if they want to save their money, make chque payments etc. Customers need to open a demat account if they want to buy or sell their stocks. So it is just like a bank account where actual money is replaced by shares. It is essential to approach to DPs (they are like bank branches) to open your demat account. 71

32 Suppose customers portfolio has 200 Satyam, 150 IBM and 100 TCS shares. All these shares will show in your demat account. Hence it is not necessary to have a separate physical possession or certificate to describe this property. They are all held electronically in your account. As customers buy and sell the shares they are adjusted in their account. It works just like the bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions. Presently all the shares are settled in dematerised form in demat account. Customers can store upto certain limit of the shares in the demat account; these are as per the rules and regulations of the SEBI. More in the cases nobody wants physical shares any more. So demat account is a must for trading and investing. Due to this transactions of shares from demat account reduce very small amount as brokerage charges. Advantages of Demat account: 1) The demat account reduces brokerage charges 2) It makes pledging/hypothecation of shares easier 3) It enables quick ownership of securities on settlement resulting in increased liquidity. 4) It avoids confusion in the ownership title of securities and provides easy receipt of public issue allotments. 5) It also help customers to avoid bad deliveries caused by signature mismatch, postal delays and loss of certificates in transit 6) Further it eliminates risk associated with forgery, counterfeiting and loss due to fire, theft or mutilation 7) Demat account holders can also avoid stamp duty 8) It avoid filling up transfer deeds and obtain quick receipt of such benefits as stock splits and bonuses ) Social Banking The term social banking is referred to the policy adopted by banks to assist priority sectors and uplift the weaker sections of the country. 72

33 Banks have been gone through the survey and inspections about the economic and social priorities sectors and after trust they should provide large credit flow towards them. Special assistance within the priority sectors to the economically and socially disadvantaged groups on concession rate of interest without insisting on the security norms. The sectors being covered under the priority sector are agriculture, small scale and cottage industries, road and water transport operators, retail trade and small business,professionals and self employed persons, education, housing and consumption loans. Other important aim of social banking is to eliminate regional disparities in the spread of banking facilities ) Off Shore Banking To improve the banking business, banks should try to attract business from non resident and business in foreign currency denominated assets and liabilities is an off shore banking. It consists of financial activities to meet the special need of international undertakings and investors freed from domestic monetary and fiscal restrictions and regulations. Off shore banking operations mainly involve non resident multinational producers of goods and services and financiers outside the domestic banking system. An offshore bank is a bank located outside the country of residence of the depositors, typically in low tax jurisdiction that provide financial and legal advantages which are as under: 1) Provide greater privacy 2) Low or no taxation on the services provided 3) Provide easy access to the deposits 4) Protection against local politics As like advantages, this banking has some disadvantages also which are as under: 1) Accounts of offshore banks are less financial secure 2) In the past offshore banking has been associated with organized, money laundering and underground economy 3) Jurisdictions of offshore banking are often remote, hence it is costly to visit and physical access and access to information can be difficult. 73

34 4) Usually offshore private banking accessible to those who have higher income. 5) These accounts are much more exaggerated than reality ) PIO card Scheme In the year 1999 the PIO card scheme was launched and it has the validity of 20 years subject to the validity of the passport of an applicant. The government of India has modified the PIO card scheme on August 2002 and validity has been reduced to 15 years subject to the validity of the passport. Fig.4: PIO/OCI A PIO (person of Indian origin) provides several benefits to the card holders. A PIO card allows visa free travel. The Government of India provides a comprehensive scheme called PIO card scheme which is for persons of Indian origin. This card can be valid for 15 years from the date of issue. In the banks transactions which are related to PIO can be mentioned and all the records related to banking transactions are kept separately. Hence we can see the various reports generated through computerized system ) Reciprocal Line Facility In reciprocal line facility accordingly, lending, borrowing in call notice money market including transactions under reciprocal line facility from Feb. 7, 2004 should not exceed the prudential limits specified. The RBI exempting 74

35 rupee resources drawn under reciprocal line facility from the prudential limits specified for call notice money transactions for a period of one year. Foreign banks could borrow from Indian banks under reciprocal line facility to meet their daily rupee fund requirement apart from the inter bank market. A foreign bank in India enters into a standing agreement with an Indian bank having branches abroad to draw specified amount of rupee resources from the latter in India against the equivalent amount of foreign currency sanctioned to the Indian bank by the former abroad, under reciprocal line facility. It is clarified that rupee resources drawn under rupee resources drawn under reciprocal line facility by foreign bank in India is initially exempted for one year from the prudential limits specified for call/notice money transactions. The position will be reviewed after one year. This is in context, in order to provide greater flexibility in liquidity management by banks. It is possible to maintain all the transactions related to the this facility on the computers ) Postal orders A postal order is used for sending money through mail. Postal orders are not legal tenders but it is type of promissory note similar to cheque. In 1792, a Brittan private company started money order during world war I and II. The postal order is a direct descendent of money order The postal department issues the postal orders and are delivered to bank for collection. Orders like the money orders or postal orders are not negotiable instruments. The postal orders may be crossed generally or specially and in such cases the same will be paid in accordance with the crossing. The banker is protected for collecting postal order for his customers. Few drawbacks of postal orders are as under: a) Limited acceptance in brokerage and insurance industry because of money laundering. b) Processing of postal orders consume a time There are many alternatives to postal orders because of new technology like Visa, Master card, ATM, Net banking etc. 75

36 ) Euro Euro is the official currency of European country. It is used daily by 327 million European and 175 million people worldwide. Euro is the second largest reserve currency after US dollar. Any amount of Euro can be transferred country to country. It is also used for payment clearing and electronic fund transfer. The European system of central banks viz, European central bank is issues and administer the Euro. There are 11 national central banks alone authorize the insurance of Euro notes. Euro is transacted in the form of electronic currency but Euro notes and coins are in circulation since the beginning of It would replace entirely the national currencies of the eleven Euro countries since July The resources mobilization by Indian corporate through Euro issues by way of foreign currency convertible bonds, Global Depository receipts and American Depository receipts registered a significant increase. Currently 1 Euro = U.S. dollars Fig.5 Euro sign 76