Meeeeeeeeee Project Final

Enrollment no: 05250501712
Minor Project Report Personality Development & Communication Skills III (BBA-209) BBA III Semester
Need of Information Technology In Banking Sector
Internal Guide: Dr. Deepali Saluja Assistant Professor
Submitted By: Pooja Sabharwal Batch: 2012-15
Submitted To: Banarsidas Chandiwala Institute of Professional Studies, Dwarka, New Delhi (Affiliated to Guru Gobind Singh Indraprastha University)
DECLARATION
I hereby declare that this Minor Project Report titled N e e d o f I n f o r m a t i o n T e c h n o l o g y I n B a n k i n g S e c t o r submitted by me to Banarsidas Chandiwala Institute of Professional Studies, Dwarka is a bonafide work undertaken during the period from 20 th june to 12th august by me and has not been submitted to any other University or Institution for the award of any degree diploma / certificate or published any time before.
Name: Pooja Sabharwal Enroll. No.: 05250501712 Date: 12 / 08 / 2012
BONAFIDE CERTIFICATE
This is to certify that as per best of my belief the project entitled N e e d o f I n f o r m a t i o n T e c h n o l o g y I n B a n k i n g S e c t o r is the bonafide research work carried out by Pooja Sabharwal student of BBA, BCIPS, Dwarka, New Delhi, in partial fulfillment of the requirements for the Minor Project Report of the Degree of Bachelor of Business Administration. She has worked under my guidance.
Project Guide : Dr. Deepali Saluja
Date:
Counter signed by
Director: Dr. Satish Taneja
Date:
ACKNOWLEDGEMENT
I owe a sincere thanks to many people who helped and supported me during the making of this project. My deepest thanks to Assistant Professor Dr. Deepali Saluja the guide of the project for guiding a correcting various documents of mine with attention and care. She has taken pain to go through the project and make necessary corrections as and when needed.I express my thanks to the Director Dr. Satish Taneja, of Banarsidas Chandiwala Institute of Professional Studies, Dwarka for extending his support. I would also thank my institute and my faculty members without whom this project would have been a distant reality.
Pooja Sabharwal (05250501712)
INDEX
CHAPTER Chapter 1 1.1 Objective Of The Project Report 1.2 Scope Of The Study Chapter 2 2.1 About The Industry 2.2 Product/Services Offered 2.3 Geographical Area Chapter 3 3.1 Industry Developments 3.2 Recent trends and innovations 3.3 Government Regulations 3.4 Opportunities and threats 3.5 3.6 Growth Key Potential statistics and and Problems Facing Contribution to Indian Economy Chapter 4 4.1 Key Players in the Industry 4.2 Market Share Of each Player 4.3 Key challenges Compepitors Chapter 5 Findings and conclusions Bibliography Facing The
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Chapter 1: Purpose of the Study
1 . 1 O b j e c t i v e of t h e p r oj e c t :
1. To study the concept of Information Technology in Banking Sector. 2. To Study the importance Information Technology in Banking Sector. 3. To identify the use of Information Technology in Banking Sector. 4. To do the SWOT analysis of Information Technology in Banking Sector.
1.2 Scope of the study :

Now it is also called on line or home banking electronic banking was stared with the use of proprietary software. Following are the important advantages of electronic banking
1. Paper Work Reduced

The traditional procedure of banking is manual and paper based. Electronic banking is gradually replacing the paper transactions in the banks which has reduced the paper work.
2. Easy Transactions
Electronic banking has reduced the problems of the customers like writing cheques, filing taxes, and transforming of cash. Now in ATM facility there is no need of cheque book.
3. Security
Electronic banking provides the safe system of payment. Now transactions are made in the accounts through internet.
4. Saving Of Time
Electronic banking has saved the time and money of the customers and also the bank. Now burden of work on bank employees has been also reduced. were hired at higher wages, so operating cost was very high. Now by using electronic banking the number of employees has been reduced.
5. Reduction In Cost
In case of manual banking, large number of employees were hired at higher wages, so operating cost was very high. Now by using electronic banking the number of employees has been reduced.
6. Market Expanded
Due to electronic banking, national international market of various goods and services has been expanded. Now we can purchases and make payment in any place in the world.
7. Increase In Customers
As the banking industry is expanding due the modern facilities, it is attracting more and more customers. So number of customers are increasing day by day.
8. Branches Reduced
Now there is no need to open the branches on every place in the city because due to electronic banking facilities, there is no rush of customers in the banks. Because there is no need to visit the bank physically. So heavy cost of opening the new branches has been reduced and facilities are provided at low cost.
9. Checking Of Account
Every customer can check his balance of account sitting at home and makes the payments without traveling. It saves his time and expenses.
10. Utility Bills Payment

Bills, like telephone, gas, electricity and water can be easily paid to the concerned departments without going to the bank physically. Even he is sitting in any other country, he can make the payment.
11. Transferring Of Money

There is no need of writing the deposit slip cheques and drafts. By using the electronic banking money can be transferred easily.
12. Credit Cards

It is also very important facility for the customers that he can purchase the goods and ca make the payment by using the credit cards.
To day the customer demands the services of banks 24 hours where he lives even he is in the airplane. Now in this modern age the entire banking structure has been changed due to widespread internet technology. Now all the business like commerce, trade, import, export, purchase and sale of goods is relying upon electronic banking. By using the advance electronic technology the banking services are fast and economical. There is a saving time an saving of money in the use of E.banking. If any country wants to work in the world market, it will have to improve the banking services at international level because old traditional banking is not acceptable in the changing global economy. The online banking facility has been provided by the large number of commercial banks. On other hand credit card facility is also available in the various commercial banks. Now every bank wants to attract the customers and for this purpose the offers the latest facilities so i seems that no any bank will survive in the market if he fails to provide up date facilities.
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Chapter 2: Introduction
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2.1 About the Industry:

The banking system in India is significantly different from that of other Asian nations because of the countrys unique geographic, social, and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. There are high levels of illiteracy among a large percentage of its population but, at the same time, the country has a large reservoir of managerial and technologically advanced talents. Between about 30 and 35 percent of the population resides in metro and urban cities and the rest is spread in several semi-urban and rural centers. The countrys economic policy framework combines socialistic and capitalistic features with a heavy bias towards public sector investment. India has followed the path of growth-led exports rather than the exportled growth of other Asian economies, with emphasis on self-reliance through import substitution. These features are reflected in the structure, size, and diversity of the countrys banking and financial sector. The banking system has had to serve the goals of economic policies enunciated in successive fiveyear development plans, particularly concerning equitable income distribution, balanced regional economic growth, and the reduction and elimination of private sector monopolies in trade and industry. In order for the banking industry to serve as an instrument of state policy, it was subjected to various nationalization schemes in different phases (1955, 1969, and 1980). As a result, banking remained internationally isolated (few Indian banks had presence abroad in international financial centers) because of preoccupations with domestic priorities, especially massive branch expansion and attracting more people to the system. Moreover, the sector has been assigned the role of providing support to other economic sectors such as agriculture, small-scale industries, exports, and banking activities in the developed commercial centers (i.e., metro, urban, and a limited number of semi-urban centers). The banking systems international isolation was also due to strict branch licensing controls on foreign banks already operating in the country as well as entry restrictions facing new foreign banks. A criterion of reciprocity is required for any Indian bank to open an office abroad. These features have left the Indian banking sector with weaknesses and strengths. A big challenge facing Indian banks is how, under the current ownership structure, to attain operational efficiency suitable for modern financial intermediation. On the other hand, it has been relatively easy for the public sector banks to recapitalize, given the increases in nonperforming assets (NPAs), as their Governmentdominated ownership structure has reduced the conflicts of interest that private banks would face. Banks and financial institutions are the backbone of the economy of the country. Implementation of Information Technology and communication networking has brought revolution in the functioning of the banks and the financial institutions. For the sound implementation of Information Technology in banks and financial institutions, necessary legal support is a
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must. Legal issue relating to electronic transactions processing at banks is very much and there was a need to address them by amending some of the existing Acts and introduction to new act. Necessary legislative support is essential to protect the interests as much of the customers as of the banks in several areas relating to electronic banking and payment system. This is specially required to establish the credibility of Electronic Clearing System and Electronic Funds Transfer schemes based on the electronic massage transfer schemes based on the electronic massage transfer.
2 . 2 P r o d u ct s a n d S e r v i c e s O f f e r e d
Banks offer the following services to account holders at their specified branches multi-city / Payable at Par (PAP) cheque facility, anywhere banking facility, trade services, phone banking facility, internet banking facility, credit card, debit/ATM card, mobile banking and Real Time Gross Settlement (RTGS). Foreign banks are expanding the number of products on offer, their complexity such as derivatives, leverage financing. Doorstep banking facilities are being offered by some of these banks to cater to convenience lifestyle of its customers. Private banks are extending services including wealth management and equity trading apart from credit cards. In India e-banking is of recent origin. The traditional model for growth has been through branch banking. Only in the early 1990s has there been a start in the non-branch banking services. The new private sector banks and the foreign banks are handicapped by the lack of a strong branch network in comparison with the public sector banks. In the absence of such networks, the market place has been the emergence of a lot of innovative services by these players through direct distribution strategies of non-branch delivery. All these banks are using home banking as a key pull factor to remove customers away from the well entered public sector banks. Many banks have modernized their services with the facilities of computer and electronic equipments. The electronics revolution has made it possible to provide ease and flexibility in banking operations to the benefit of the customer. The e-banking has made the customer say good-bye to huge account registers and large paper bank accounts. The e-banks, which may call as easy bank offers the following services to its customers:
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Credit Cards/Debit Card/smart card ATM E-Cheques EFT (Electronic Funds Transfer) DE MAT Accounts Mobile Banking Telephone Banking Internet Banking EDI (Electronic Data Interchange)
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SMART CARDS
It is a standard plastic card, except that it contains a micro-processor and a storage unit. It can hold a lot of information about the card holder, including digital certificates. It can be used in all banking transactions. It can also be used as an Electronic Purse in to which monetary value has been loaded. Full range of cash management and foreign exchange services are available over the Net to corporate users through the use of smart cards. Smart Card sometimes called stored-value, have a specific amount of credit embedded electronically in the card. A credit card with a built in micro-processor and memory is used for identification or financial transaction. When inserted into a reader, it transfers data to and from a central computer. It is more secure than a magnetic stripe card and can be programmed to self-destruct if thewrong password is entered too many times. As a financial transaction card, it can be loaded with digital money and used like a travellers cheque, except that variable amounts of money can be spent until the balance is zero. These cards make the transaction fast, easy and convenient.
CREDIT CARD
Credit is a privilege and a convenience. Credit lets you charge a meal on a credit card, pay for an appliance on an instalment plan, and take out a loan to buy a house, or pay for schooling. Credit allows you to make a purchase without ready cash. A credit card enables you to buy things now and pay for them later. You get credit by promising to pay in the future for something you receive in the present. Credit usually costs something, and what is borrowed must be paid back. Credit can be defined as a small plastic card that allows its holder to buy goods and services on credit to pay at fixed intervals through the cards issuing agency. Carrying a lot of cash on you can be cumbersome, risky and sometimes, you run short of it, just when you most need it. Credit card is the smart
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solution to these problems. It is a convenient and safe alternative for cash. Besides, it says things about you. Most people associate a credit card with a prestige, which it most certainly bestows on you, but more importantly, it says that you have taken the onus of being responsible-to be extended credit! So During 1914, oil companies in the USA issued the first credit card to their customers to purchase gas, oil, accessories etc. at the gas stations. Thereafter, local department stores, airlines and railway companies also started issuing their own credit cards.
DEBIT CARD
A Debit cards are also known as check cards. Debit cards look like credit cards or ATM (automated teller machine) cards, but operate like cash or personal cheques. Debit cards are different from credit cards. While a credit card is a way to pay later, a debit card is a way to pay now. When you use a debit card, your money is quickly deducted from your checking or savings account. Debit cards are accepted at many locations, including grocery stores, retail stores, gasoline stations, and restaurants. You can use your card anywhere merchants display your cards brand name or logo. They offer an alternative to carrying a cheque book or cash.
AUTOMATED TELLER MACHINE (ATM)

ATM is a device; that allows customers who have an ATM card to perform routine banking transactions without interacting with a human teller.ATMs are currently becoming popular in India that enables the customer to withdraw their money 24 hours a day, 7 days in a week. The simplest ATM allows a customer to withdraw cash up to
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specified amount by operating the machine via a magnetic card to a host computer. Updating of operations can be either off-line or on-line. In addition to cash withdraws, ATMs can handle deposits and enquiries, arrange loans and insurance, arrange the buying and selling of stocks and customers on different savings and investment schemes. Terminals can be special task terminals such as cash deposit terminal or statement printer terminal or full function terminals which can perform all the tasks.
An ATM is operated through the customers magnetic card. A personal identification code allotted to a customer is magnetically needed by the ATM. When this identity is established, he is allowed to carry out the operations. Generally 3 tracks are used for transaction processing:
Track 1 for account code any bank code
Track 2 for credit card (shop centres)
Track 3 for debit cards purchaser/ATM card)
In the case of cash deposits, ATMs can issue a receipt to the customer acknowledgement receipt of the cash. Cash withdraws can be made only in specified denominations. An ATM could handle as many 5000 cash transactions without needing replenishment of notes or journal paper.
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E-CHEQUES SYSTEM
Electronic cheques are another form of Electronic tokens. They are designed to accommodate the many individuals and entities that might prefer to pay on credit or through some mechanism other than cash. Once registered, a buyer can then contact sellers of goods and services. To complete a transaction, the buyer sends a check to the seller for a certain amount of money. These checks may be sent using Email or other Transport methods. When deposited, the cheque authorises the transfer of account balances from the account against which the cheque was drawn to the account to which the cheque was deposited. This method has been deliberately designed to work in the manner conventional cheques work .
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ELECTRONIC FUNDS TRANSFER (EFT)
Electronic funds transfer (EFT) is the electronic exchange, transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems.
The term covers a number of different concepts:

Cardholder-initiated transactions, where a cardholder makes use of a payment card Direct deposit payroll payments for a business to its employees, possibly via a payroll service bureau Direct debit payments, sometimes called electronic checks, for which a business debits the consumer's bank accounts for payment for goods or services Electronic bill payment in online banking, which may be delivered by EFT or paper check Transactions
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involving stored value of electronic money, possibly in a private currency Wire transfer via an international banking network Electronic Benefit Transfer.
DEMAT ACCOUNT
The term "demat", in India, refers to a dematerialized account for individual Indian citizens to trade in listed stocks or debentures in electronic form rather than paper, as required for investors by the Securities and Exchange Board of India ( SEBI). In a demat account, shares and securities are held electronically instead of the investor taking physical possession of certificates. A demat account is opened by the investor
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while registering with an investment broker (or sub-broker). The demat account number is
quoted for all transactions to enable electronic settl ements of trades to take place.Access to the demat account requires an internetpassword and a transaction password. Transfers or purchases of securities can then be initiated. Purchases and sales of securities on the demat account are automatically made once transactions are confirmed and completed.
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MOBILE BANKING
Mobile banking (also known as M-Banking) is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant (PDA). Mobile banking and Mobile payments are often, incorrectly, used interchangeably. The two terms are differentiated by their service provider-toconsumer relationship; financial institution-to-consumer versus commercial institution-to-consumer for mobile banking and payments, respectively. Mobile Banking involves using mobile devices gain to access financial services. Mobile payments on the other hand may be defined as the use of mobile devices to pay for goods or services either at the point of purchase or remotely. The earliest mobile banking services were offered over SMS, a service known as SMS banking. With the introduction of the first primitive smart phones with WAP support enabling the use of the mobile web in 1999.
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2.3
Geographical
Area
(local,
reagional,
statewise,
national,
international)
The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949 can be broadly classified into two major categories, non-scheduled banks and scheduled banks. Scheduled banks comprise commercial banks and the co-operative banks. In terms of ownership, commercial banks can be further grouped into nationalized banks, the State Bank of India and its group banks, regional rural banks and private sector banks (the old/ new domestic and foreign). The first phase of financial reforms resulted in the nationalization of 14 major banks in 1969 and resulted in a shift from Class banking to Mass banking. This in turn resulted in a significant growth in the geographical coverage of banks. Every bank had to earmark a minimum percentage of their loan portfolio to sectors identified as priority sectors. The manufacturing sector also grew during the 1970s in protected environs and the banking sector was a critical source. The next wave of reforms saw the nationalization of 6 more commercial banks in 1980. After the second phase of financial sector reforms and liberalization of the sector in the early nineties, the Public Sector Banks (PSB) s found it extremely difficult to compete with the new private sector banks and the foreign banks. The new private sector banks first made their appearance after the guidelines permitting them were issued in January 1993. Eight new private sector banks are presently in operation. During the year 2000, the State Bank Of India (SBI) and its 7 associates accounted for a 25 percent share in deposits and 28.1 percent share in credit. The 20 nationalized banks accounted for 53.2 percent of the deposits and 47.5 percent of credit during the same period. The share of foreign banks (numbering 42), regional rural banks and other scheduled commercial banks accounted for 5.7 percent, 3.9 percent and 12.2 percent respectively in deposits and 8.41 percent, 3.14 percent and 12.85 percent respectively. The industry is currently in a transition phase. On the one hand, the PSBs, which are the mainstay of the Indian Banking system are in the process of shedding their flab in terms of excessive manpower, excessive non Performing Assets (Npas) and excessive
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governmental equity, while on the other hand the private sector banks are consolidating themselves through mergers and acquisition. PSBs, which currently account for more than 78 percent of total banking industry assets are saddled with NPAs (a mind-boggling Rs 830 billion in 2000), falling revenues from traditional sources, lack of modern technology and a massive workforce while the new private sector banks are forging ahead and rewriting the traditional banking business model by way of their sheer innovation and service. The PSBs are of course currently working out challenging strategies even as 20 percent of their massive employee strength has dwindled in the wake of the successful Voluntary Retirement Schemes (VRS) schemes. The private players however cannot match the PSBs great reach, great size and access to low cost deposits. Therefore one of the means for them to combat the PSBs has been through the merger and acquisition (M& A) route. Over the last two years, the industry has witnessed several such instances. For instance, Hdfc Banks merger with Times Bank Icici Banks acquisition of ITC Classic, Anagram Finance and Bank of Madura. Centurion Bank, Indusind Bank, Bank of Punjab, Vysya Bank are said to be on the lookout. The UTI bank- Global Trust Bank merger however opened a pandoras box and brought about the realization that all was not well in the functioning of many of the private sector banks. Private sector Banks have pioneered internet banking, phone banking, anywhere banking, mobile banking, debit cards, Automatic Teller Machines (ATMs) and combined various other services and integrated them into the mainstream banking arena, while the PSBs are still grappling with disgruntled employees in the aftermath of successful VRS schemes. Meanwhile the economic and corporate sector slowdown has led to an increasing number of banks focusing on the retail segment. Many of them are also entering the new vistas of Insurance. Banks with their phenomenal reach and a regular interface with the retail investor are the best placed to enter into the insurance sector. Banks in India have been allowed to provide fee-based insurance services without risk participation, invest in an insurance company for providing infrastructure and services support and set up of a separate joint-venture insurance company with risk participation. Aggregate Performance of the Banking Industry
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Aggregate deposits of scheduled commercial banks increased at a compounded annual average growth rate (Cagr) of 17.8 percent during 1969-99, while bank credit expanded at a Cagr of 16.3 percent per annum. Banks investments in government and other
approved securities recorded a Cagr of 18.8 percent per annum during the same period. In FY01 the economic slowdown resulted in a Gross Domestic Product (GDP) growth of only 6.0 percent as against the previous years 6.4 percent. The WPI Index (a measure of inflation) increased by 7.1 percent as against 3.3 percent in FY00. Similarly, money supply (M3) grew by around 16.2 percent as against 14.6 percent a year ago. The growth in aggregate deposits of the scheduled commercial banks at 15.4 percent in FY01 percent was lower than that of 19.3 percent in the previous year, while the growth in credit by SCBs slowed down to 15.6 percent in FY01 against 23 percent a year ago. The industrial slowdown also affected the earnings of listed banks. The net profits of 20 listed banks dropped by 34.43 percent in the quarter ended March 2001. Net profits grew by 40.75 percent in the first quarter of 2000-2001, but dropped to 4.56 percent in the fourth quarter of 2000-2001. . Consequently, banks have been forced to explore other avenues to shore up their capital base. While some are wooing foreign partners to add to the capital others are employing the M& A route. The two years, post the East Asian crises in 1997-98 saw a climb in the global interest rates. It was only in the later half of FY01 that the US Fed cut interest rates. India has however remained more or less insulated. The past 2 years in our country was characterized by a mounting intention of the Reserve Bank Of India (RBI) to steadily reduce interest rates resulting in a narrowing differential between global and domestic rates. After the first phase and second phase of financial reforms, in the 1980s commercial banks began to function in a highly regulated environment, with administered interest
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rate structure, quantitative restrictions on credit flows, high reserve requirements and reservation of a significant proportion of lendable resources for the priority. This was when the need to develop a sound commercial banking system was felt. This was worked
out mainly with the help of the recommendations of the Committee on the Financial System (Chairman: Shri M. Narasimham), 1991. The resultant financial sector reforms called for interest rate flexibility for banks, reduction in reserve requirements, and a number of structural measures. Interest rates have thus been steadily deregulated in the past few years with banks being free to fix their Prime Lending Rates(PLRs) and deposit rates for most banking products. Credit market reforms included introduction of new instruments of credit, changes in the credit delivery system and integration of functional roles of diverse players, such as, banks, financial institutions and non-banking financial companies (Nbfcs). Domestic Private Sector Banks were allowed to be set up, PSBs were allowed to access the markets to shore up their Cars.
Implications:
The allowing of PSBs to shed manpower and dilution of equity are moves that will lend greater autonomy to the industry. In order to lend more depth to the capital markets the RBI had in November 2000 also changed the capital market exposure norms from 5 percent of banks incremental deposits of the previous year to 5 percent of the banks total domestic credit in the previous year. But this move did not have the desired effect, as in, while most banks kept away almost completely from the capital markets. The move to increase Foreign Direct Investment FDI limits to 49 percent from 20 percent during the first quarter of this fiscal came as a welcome announcement to foreign players wanting to get a foot hold in the Indian Markets by investing in willing Indian partners who are starved of networth to meet CAR norms. Some of the not so good measures however like reducing the limit for tax deducted at source (TDS) on interest income from deposits to Rs 2,500 from the earlier level of Rs 10,000, in Budget 2001-02, had met with disapproval from the banking fraternity who feared that the move would prove counterproductive and lead to increased fragmentation of deposits, increased volumes
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and transaction costs. The limit was thankfully partially restored to Rs 5000 at the time of passing the Finance Bill in the Parliament. The rationalization of export credit norms in will bestow greater operational flexibility on
banks, and also reduce the borrowing costs for exporters. Thus this move could trigger exports growth in the future. Banks can also hope to earn increased revenue with the interest paid by RBI on CRR balances being increased from 4.0 percent to 6.0 percent. The stock market scam brought out the unholy nexus between the Cooperative banks and stockbrokers. In order to usher in greater prudence in their operations, the RBI has barred Urban Cooperative Banks from financing the stock market operations and is also in the process of setting up of a new apex supervisory body for them. Meanwhile the foreign banks have a bone to pick with the RBI. The interest rates are likely to remain stable this fiscal based on an expected downward trend in inflation rate, sluggish pace of non-oil imports and likelihood of declining global interest rates. The domestic banking industry is forecasted to witness a higher degree of mergers and acquisitions in the future. Banks are likely to opt for the universal banking approach with a stronger retail approach. Technology and superior customer service will continue to be the imperatives for success in this industry. Foreign banks are likely to succeed in their niche markets and be the innovators in terms of technology introduction in the domestic scenario. The outlook for the private sector banks indeed looks to be more promising vis--vis other banks. While their focused operations, lower but more productive employee force etc will stand them good, possible acquisitions of PSU banks will definitely give them the much needed scale of operations and access to lower cost of funds. These banks will continue to be the early technology adopters in the industry, thus increasing their efficiencies. Also, they have been amongst the first movers in the lucrative insurance segment. Already, banks such as Icici Bank and Hdfc Bank have forged alliances with Prudential Life and Standard Life respectively. This is one segment that is likely to witness a greater deal of action in the future. In the near term, the low interest rate scenario is likely to affect the spreads of majors. This is likely to result in a greater focus on better asset-liability management procedures.
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Consequently, only banks that strive hard to increase their share of fee-based revenues are likely to do better in the future.
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Chapter 3: Industry overview
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3.1 Industry Developments CURRENT STATUS AND DEVELOPMENT OF THE INDIAN BANKING SECTOR
The Indian economys liberalisation in the early 1990s has resulted in the conception of various private sector banks. This has sparked a boom in the countrys banking sector in the past two decades4. The revenue of Indian banks grew four-fold from US$ 11.8 billion to US$ 46.9 billion, whereas the profit after tax rose nearly nine-fold from US$ 1.4 billion to US$ 12 billion over 2001-105. This growth was driven primarily by two factors. First, the influx of Foreign Direct Investment (FDI) of up to 74 per cent with certain restrictions4. Second, the conservative policies of the Reserve Bank of India (RBI), which have shielded Indian banks from recession and global economic turmoil. Figure 1.1 and 1.2 compares the countrys Banking Index (Bankex) with the Sensex. The Bankex is an index tracking the performance of important banking sector stocks, and has grown at a compounded annual growth rate (CAGR) of approximately 20 per cent over 2003-126. The Figure below shows that the Bankex and the Sensex have had similar growth trends over the past decade.
3.2 Recent Trends and Innovations

Today, we are having a fairly well developed banking system with different classes of banks public sector banks, foreign banks, private sector banks both old and new generation, regional rural banks and co-operative banks with the Reserve Bank of India as the fountain Head of the system. In the banking field, there has been an unprecedented growth and diversification of banking industry has been so stupendous that it has no parallel in the annals of banking anywhere in the world. During the last 41 years since 1969, tremendous changes have taken place in the banking industry. The banks have shed their traditional functions and have been innovating, improving and coming out with new types of the services to cater to the emerging needs of their customers. Massive branch expansion in the rural and underdeveloped areas, mobilisation of savings and diversification of credit facilities to the either to neglected areas like small scale
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industrial sector, agricultural and other preferred areas like export sector etc. have resulted in the widening and deepening of the financial infrastructure and transferred the fundamental character of class banking into mass banking. There has been considerable innovation and diversification in the business of major commercial banks. Some of them have engaged in the areas of consumer credit, credit cards, merchant banking, leasing, mutual funds etc. A few banks have already set up subsidiaries for merchant banking, leasing and mutual funds and many more are in the process of doing so. Some banks have commenced factoring business. The major challenges faced by banks today are as to how to cope with competitive forces and strengthen their balance sheet. Today, banks are groaning with burden of NPAs. It is rightly felt that these contaminated debts, if not recovered, will eat into the very vitals of the banks. Another major anxiety before the banking industry is the high transaction cost of carrying Non Performing Assets in their books. The resolution of the NPA problem requires greater accountability on the part of the corporate, greater disclosure in the case of defaults, an efficient credit information sharing system and an appropriate legal framework pertaining to the banking system so that court procedures can be streamlined and actual recoveries made within an acceptable time frame. The banking industry cannot afford to sustain itself with such high levels of NPAs thus, lend, but lent for a purpose and with a purpose ought to be the slogan for salvation. The Indian banks are subject to tremendous pressures to perform as otherwise their very survival would be at stake. Information technology (IT) plays an important role in the banking sector as it would not only ensure smooth passage of interrelated transactions over the electric medium but will also facilitate complex financial product innovation and product development. The application of IT and e-banking is becoming the order of the day with the banking system heading towards virtual banking. As an extreme case of e-banking World Wide Banking (WWB) on the pattern of World Wide Web (WWW) can be visualised. That means all banks would be interlinked and individual bank identity, as far as the customer is concerned, does not exist. There is no need to have large number of physical bank branches, extension counters. There is no need of person-to-person physical interaction or dealings. Customers would be able to do all their banking operations sitting in their offices or homes and operating through internet. This would be the case of banking reaching the customers. Banking landscape is changing very fast. Many new players with different muscle powers will enter the market. The Reserve Bank in its bid to move towards the best international banking practices will further sharpen the prudential norms and strengthen its supervisor mechanism. There will be more transparency and disclosures.
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In the days to come, banks are expected to play a very useful role in the economic development and the emerging market will provide ample business opportunities to harness. Human Resources Management is assuming to be of greater importance. As banking in India will become more and more knowledge supported, human capital will emerge as the finest assets of the banking system. Ultimately banking is people and not just figures.
3.3 Government Regulation

The RBI stipulates prudential norms concerning income recognition, asset classification and provisioning, to be applicable to all banks in the country. It has made credible efforts over the past decade to bring the prudential norms at par with international standards to ensure the stability and strength of the financial sector as a whole. Prudential norms are modified by the RBI to encounter regular challenges faced with the banking industry, as they have a direct impact on the financials of the banks. As the turmoil in the global financial markets intensified the RBI made changes in the provisioning and asset classification norms, to help banks tide over the financial crisis. Banks were allowed to take advantage of regulatory forbearance in respect of classification of restructured accounts as standard accounts. Besides, provisioning requirements have been lowered for the same purpose. Various measures taken were aimed at helping the banks in maintaining healthier financial statements, and free up additional resources, to be used towards business growth. However, as the liquidity pressures eased and some banks experienced increase in NPAs, the RBI again tightened the prudential norms. In its second quarter review of monetary policy FY10, the RBI advised banks to augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions, and ensure that their total provisioning coverage ratio, including floating provisions, is not less than 70%.The provisioning requirement for advances to the commercial real estate sector classified as standard assets was also increased from 0.4% to 1.0%. Risk management and capital adequacy norms: While the Indian banks with international presence and foreign banks operating in India were required to follow the Basel 2 capital adequacy norms with effect from end March 2008, all other banks operating in accordance with Basel 1 migrated to the Basel 2 framework by end March 2009. They are presently required to follow the standardized approach for credit risk and the basic indicator approach for operational risk. As against the international norms of capital to risk weighted assets ratio (CRAR) of 8%, the CRAR for banks in India has been stipulated at 9% for banks both under Basel 1 and 2. However, in view of the global financial crisis, the RBI has temporarily mandated that this CRAR requirement be hiked to 12% by all banks. This raised benchmark has increased the pressure on banks in India, and could prove to be a restriction for their business growth.
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3.4 Opportunities and Threats
Opportunities :
Banking industry depends on the overall growth of economy. Other sectors like cement, steel and consumer durables are dependent on banking sector and move in tandem. Although the Indian economy has done relatively better in 2008-09 compared to other countries in the emerging markets peer group, the slowdown in fiscal 2009 was deeper than anticipated. Accordingly, the estimates of GDP growth have been lowered to between 6.50% and 7.00% in fiscal 2009, lower than the average growth rate of 8.50% of the previous four years. Over the last few years, India has become increasingly integrated with the global economy, both through trade and through exposure to financial markets. The loss of export markets has consequently hit domestic demand quite hard, particularly as many export segments are also employment intensive. The performance of the Banks in 2008-09 should be viewed in the backdrop of the global financial crisis that had its beginnings in the US sub-prime sector and broader financial markets but spread throughout the world, turning into a full-blown global economic crisis. Unlike developed economies, the slowdown in India has not been led by the financial sector but affected by mainly the following :
(a) The sharp slowdown in global import demand resulted in an export slowdown, (b) A contraction in the availability of global finance, particularly export finance, and an increase in the costs of foreign currency funds (c) Slowdown in investment plans of many corporate in anticipation of a demand slowdown.
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Some Major areas of Banking are:

RETAIL BANKING CORPORATE BANKING CORPORATE CREDIT TREASURY CAPITAL MARKETS LENDING TO MICRO, SMALL AND MEDIUM ENTERPRISES, AGRICULTURE AND MICRO FINANCE INTERNATIONAL BANKING
The market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards, consumer finance and wealth management on the retail side, and in fee-based income and investment banking on the wholesale banking side. These require new skills in sales & marketing, credit and operations.
With increased interest in India, competition from foreign banks will only intensify. Given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks. New private banks could reach the next level of their growth in the Indian banking sector by continuing to innovate and develop differentiated business models to profitably serve segments like the rural/low income and affluent/HNI segments; actively adopting acquisitions as a means to grow and reaching the next level of performance in their service platforms. Attracting, developing and
33
retaining more leadership capacity. Foreign banks committed to making a play in India will need to adopt alternative approaches to win the race for the customer and build a value-creating customer franchise in advance of regulations potentially opening up post 2009. At the same time, they should stay in the game for potential acquisition opportunities as and when they appear in the near term. Maintaining a fundamentally long-term value-creation mindset. Reach in rural India for the private sector and foreign banks. With the growth in the Indian economy expected to be strong for quite some timeespecially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. Reserve Bank of India (RBI) has approved a proposal from the government to amend the Banking Regulation Act to permit banks to trade in commodities and commodity derivatives. Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI has allowed them to raise perpetual bonds and other hybrid capital securities to shore Yogendra Sisodia up their capital. If the new instruments find takers, it would help PSU banks, left with little headroom for raising equity.
Threats :
Threat of stability of the system: failure of some weak banks has often threatened the stability of the system. Rise in inflation figures which would lead to increase in interest rates. Increase in the number of foreign players would pose a threat to the PSB as well as the private players. BUDGET 2008 2009 PROPOSAL IIFCL (Indian Infrastructure Financial Corporation Limited) to refinance 60% of bank loans to critical sectors. Debt Waiver and Debt Relief scheme to allow farmers to repay 75% of their loans extended by six months thus higher NPA.
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Banks and Insurance companies to remain under government ownership.
MAJOR PRIVATE PLAYERS

ICICI Bank HDFC Bank Kotak Mahindra Yes Bank Federal Bank IndusInd Bank JK Bank ING Vysya Bank Karur Vysya
3.5 Growth Potential and Problems Facing

The Indian banking sector has seen unprecedented growth along with remarkable improvement in its quality of assets and efficiency since economic liberalization began in the early 1990s. From providing plain vanilla banking services, banks have gradually transformed themselves into universal banks. ATMs, Internet banking, mobile banking and social banking have made "anytime anywhere banking" the norm now. In 2011/12, non-cash payments comprised 91 per cent of total transactions in terms of value and 48 per cent in terms of volume. Within noncash payments, too, the share of payments through cheques has come down from 85 per cent to nine per cent in value, and 83 per cent to 52 per cent in volume between 2005/06 and 2011/12. NON-CASH PAYMENTS COMPRISED 91 PER CENT OF VALUE AND 48 PER CENT OF VOLUME OF TOTAL TRANSACTIONS Banks have taken other measures to improve their functioning, too. As a result, there were 20 Indian banks in the UK-based Brand Finance's annual international ranking of top 500 in 2010, as compared to only six in 2007, according to a report in a leading
35
financial daily. The growth is not restricted to the metropolitan or urban areas. Financial inclusion has been at the forefront of regulators and policy makers in India, a country where approximately half of the population still does not have access to banking services. There have been occasions when banks have acted beyond their role of finance providers. For example, a financial daily reported that Aryavart Gramin Bank, a regional rural bank sponsored by Bank of India, tied up with Tata BP Solar to finance "Solar Home Lighting System" for village homes in Uttar Pradesh. It extended finance of around Rs 10,000 with Rs 3,000 as margin money to be contributed by the beneficiary. The equated monthly installment towards the repayment of the loan amount was less than the amount the villagers had to spend on kerosene requirements per month. The bank's initiative resulted in 20,000 houses getting solar power. It also meant an annual saving of about 192 tanker loads of kerosene.
3.6 Key Statistics and contribution to indian economy

In India , as in many developing countries , the commercial banking sector has been the dominant element in the countrys financial system . The sector has performed the key functions of providing liquidity and payment services to the real sector and has accounted for the Bulk of the financial intermediation process . Besides institutionalizing savings , the banking sector hascontributed to the process of economic development by serving as a major source of credit tohouseholds , government , business and to weaker sectors of the economy like village and smallscale industries and agriculture. Over the years, over 3040% of gross household savings , havebeen in the form of bank deposits and around 60% of the assets of all financial institutionsaccounted for by commercial banks.An important landmark in the development of banking sector in recent years has been theinitiation if reforms following the recommendations of the first Narasimham Committee onFinancial System. In reviewing the strengths and weaknesses of these banks , the Committeesuggested several measures to transform the Indian banking sector from a highly regulated to amore market oriented system and to enable it to compete effectively in an increasingly globalisedenvironment . Many of the recommendations of the Committee especially those pertaining toInterest rate , an institution of prudential regulation and transparent accounting norms were in line with banking policy reforms implemented by a host of developing countries since 1970s .
36
Restructuring of the banking system :

The committee recommended 4-tier structure of thebanking system consisting of : (a) : Three of Four Large (international) banks . (b) : Eight to tennational banks with a network of branches throughout the country . (c) : Local works withoperations confined to a specific region. (d) : Rural Banks with operations confined to rural areasand business confined to agricultural and allied activities .
Enhancement of Capital Base of Bank :

The committee recommended that the banks shouldbe allowed to raise fresh capital from the public . Mutual Funds , profitable public sector unitsand employees can also subscribe to these issues .
Deregulation of Interest Rates :

The committee recommended deregulation of interest rate onloan so that they reflect the actual market conditions . The interest rate on governmentborrowings may also be gradually deregulated to bring it in line with market rates . Howeverinterest rate on bank deposits may continue to be regulated .The first step was taken in October 1994 , when rates were deregulated for advances more than 2lakh . In April 1998, under new regulations interest on credit limits up to Rs 25,000 was prescribed at 12% and for credit limit between Rs 25,000 and Rs 2 lakh , the rate was not toexceed 13.5% per annum.
37
Chapter 4 : Competitor Analysis
38
4.1 Key Players in the Industry

The banking in India started with the establishment of the General Bank of India in 1786. Later the Bank of Hindustan was also established. However, both the banks are not in functional state currently. It's the State Bank of India, which is currently the oldest bank in India in existence, established in 1806. ICICI Bank is Indias second largest bank after the public sector State Bank of India, with total assets of Rs.3,44,658 crore ($79 billion) as on March 31, 2007. The bank has a network of more than 950 branches and 3,300 ATMs in India and a presence in 17 countries. The bank offers several financial products, which include fixed deposits, insurance, mutual funds, and retail loans such as those for homes and cars. HDFC Standard Life Insurance was the first among private sector companies to get a licence to start operations after the industry was opened up. In the last seven years, the company has hired more than 10,000 employees and around 85,000 financial planners or agents. Aviva Life Insurance is a 74:26 joint venture between Dabur and Aviva of the UK. The company has 5,500 direct employees and around 30,000 financial planers. Reliance Capital, controlled by Anil Ambani, offers complete financial solutions including insurance, mutual funds and securities broking. Its brand, Reliance Money, is emerging as one of the largest retail brokers in the country with a daily turnover of around Rs. 600 crore. The company is building is footprint across the country. Indiabulls has emerged as a strong player in the stock broking and investment services segment. It has 414 branches in 127 cities of India. UTI Mutual Fund, Prudential ICICI and Franklin Templeton are among the leading mutual funds in the country that run asset management companies to invest in stocks and other securities.
39
STATE BANK OF INDIA

No. of offices No. of employees Business per employee (in ` lakh) Profit per employee (in ` lakh) Capital and Reserves & surplus Deposits Investments Advances Interest income Other income Interest expended Operating expenses Cost of Funds (CoF) Return on advances adjusted to CoF Wages as % to total expenses Return on Assets CRAR Net NPA ratio 11447 205896 556.00 4.74 57948 742073 275954 542503 63788 12691 42915 15649 5.85 3.83 16.64 1.04 14.25 1.76
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HDFC BANK
41
AXIS BANK
No. of offices No. of employees Business per employee (in ` lakh) Profit per employee (in ` lakh) Capital and Reserves & surplus Deposits Investments Advances Interest income Other income Interest expended Operating expenses Cost of Funds (CoF) Return on advances adjusted to CoF Wages as % to total expenses Return on Assets CRAR 786 20624 1060.00 10.02 10215 117374 46330 81557 10835 2897 7149 2858 5.88 4.69 9.97 1.44 13.69
42
Bank Of India
43
Punjab National Bank

44
Bank Of Baroda
45
ICICI Bank
46
Union Bank Of India

47
Citibank
48
Canara Bank
49
Chapter 5 Conclusion
50
Conclusion :
Indian public sector banks that hold around 75 % of market share do have taken initiative in the field of IT. They are moving towards the centralized database and decentralize decisions making process. They posses enviable quality manpower. Awareness and appreciation of IT are very much there. What is needed is a big push the way it was given in the post nationalization period for expansionary activities. IT and India have become synonymous. Whether India becomes a destination for outsourcing or it becomes a development centre is matter of debate. As far as banking industry in India is concerned it can be said that although the Indian banks may not be as technologically advanced as their counterparts in the developed world, they are following the majority of international trends on the IT front. The strength of Indian banking lie in withering storms and rising up to the expectations from all the quarters-catching up with all the global trends is a matter of time.
1.) Technology has opened up new markets, new products, new services and efficient delivery channels for the banking industry. Online electronics banking, mobile banking and internet banking are just a few examples. 2). Information Technology has also provided banking industry with the wherewithal to deal with the challenges the new economy poses. Information technology has been the cornerstone of recent financial sector reforms aimed at increasing the speed and reliability of financial operations and of initiatives to strengthen the banking sector. 3). The IT revolution has set the stage for unprecedented increase in financial activity across the globe. The progress of technology and the development of world wide networks have significantly reduced the cost of global funds transfer. 4). It is information technology which enables banks in meeting such high expectations of the customers who are more demanding and are also more techno-savvy compared to their counterparts of the yester years. They demand instant, anytime and anywhere
51
banking facilities. 5). IT has been providing solutions to banks to take care of their accounting and back office requirements. This has, however, now given way to large scale usage in services aimed at the customer of the banks. IT also facilitates the introduction of new delivery channels--in the form of Automated Teller Machines, Net Banking, Mobile Banking and the like. Further, IT deployment has assumed such high levels that it is no longer possible for banks to manage their IT implementations on a stand alone basis with IT revolution, banks are increasingly interconnecting their computer systems not only across branches in a city but also to other geographic locations with high-speed network infrastructure, and setting up local area and wide area networks and connecting them to the Internet. As a result, information systems and networks are now exposed to a growing number.
From enabling banking services to driving transformation in the Industry. Information Technology course do promise to change the pace of banking to the next few years. Mobile bank and internet banking are going to make indoor in the banking sector in the near future. Even though IT systems are complex and sophisticated but they are energy guzzlers. Hence, the future for banking sector is going to make rapid straights in near future.
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Bibliography:
1.
http://articles.economictimes.indiatimes.com/2006-05-
29/news/27429316_1_fee-based-income-banking-facility-mobilebanking accessed on 21-6-2013 at 1.20 pm.
2. http://www.researchandmarkets.com/reports/4020/indian_banking_in dustry accessed on 24-6-2013 at 10:50 pm.
3. http://reports.dionglobal.in/ChoiceAdmin/KnowledgeCenter/KC16 0220124.pdf accessed on 24-6-2013 at 10:50 pm 4. http://www.ibef.org/download/Banking-Sector-04jan.pdf accessed on
25-6-2013 at 10:50 pm
5. http://www.mbaknol.com/business-finance/recent-trends-in-indianbanking-sector/ accessed on 26-6-2013 at 10:50 pm 6. http://www.cscjournals.org/csc/manuscript/Journals/IJBRM/volume 3/Issue1/IJBRM-64.pdf accessed on 27-6-2013 at 10:50 pm 7. http://business.mapsofindia.com/india-company/top-10-bankingcompanies.html accessed on 28-6-2013 at 10:50 pm 8. http://www.hindustantimes.com/businessnews/BusinessBankingInsurance/Key-players-in-banking-ampfinancial-services/Article1-238121.aspx accessed on 3-7-2013 at 10:50
pm
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Enrollment no: 05250501712

Need of Information Technology In Banking Sector

Internal Guide: Dr. Deepali Saluja Assistant Professor

Submitted By: Pooja Sabharwal Batch: 2012-15

Name: Pooja Sabharwal Enroll. No.: 05250501712 Date: 12 / 08 / 2012

Project Guide : Dr. Deepali Saluja

Director: Dr. Satish Taneja

Pooja Sabharwal (05250501712)

PAGE NO. 6-9

Chapter 1: Purpose of the Study

1.2 Scope of the study :

1. Paper Work Reduced

10. Utility Bills Payment

11. Transferring Of Money

12. Credit Cards

2.1 About the Industry:

AUTOMATED TELLER MACHINE (ATM)

Track 1 for account code any bank code

Track 2 for credit card (shop centres)

Track 3 for debit cards purchaser/ATM card)

ELECTRONIC FUNDS TRANSFER (EFT)

The term covers a number of different concepts:

Chapter 3: Industry overview

3.2 Recent Trends and Innovations

3.3 Government Regulation

3.4 Opportunities and Threats

Some Major areas of Banking are:

Banks and Insurance companies to remain under government ownership.

MAJOR PRIVATE PLAYERS

3.5 Growth Potential and Problems Facing

3.6 Key Statistics and contribution to indian economy

Restructuring of the banking system :

Enhancement of Capital Base of Bank :

Deregulation of Interest Rates :

Chapter 4 : Competitor Analysis

4.1 Key Players in the Industry

STATE BANK OF INDIA

Punjab National Bank

Union Bank Of India

29/news/27429316_1_fee-based-income-banking-facility-mobilebanking accessed on 21-6-2013 at 1.20 pm.

2. http://www.researchandmarkets.com/reports/4020/indian_banking_in dustry accessed on 24-6-2013 at 10:50 pm.

3. http://reports.dionglobal.in/ChoiceAdmin/KnowledgeCenter/KC16 0220124.pdf accessed on 24-6-2013 at 10:50 pm 4. http://www.ibef.org/download/Banking-Sector-04jan.pdf accessed on

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