1.

Introduction to Banking
1.1 INTRODUCTION
Modern commercial banking, in its present form, is of recent origin.
Though bank is considered to be an ancient institution just like
money. Its evolution can be traced in the functions of money
lender, the goldsmiths and the merchants.
A bank has been often described as an institution engaged in
accepting of deposits and granting loans. It can also be described
as an institution which borrows idle resources, makes funds
available to. It does not refer only to a place of tending and
depositing money, but looks after the financial problems of its
consumers.
This era is the age of specialization with the changing situation in
the world economy, banking functions have broadened. Financial
institutions which are shaped by the general economic structures of
the country concerned vary from one country to another. Hence, a
rigid classification of banks is bound to the unrealistic.

1.2 ORIGIN AND DEVELOPMENT OF BANKING

There seem so be no uniformity amongst the economist about the
origin of the word Bank. It has been believed that the word Bank
has been derived from the German word Bank which means joint
stock of firm or from the Italian word Banco which means a heap
or mound.
In India the ancient Hindu scriptures refers to the money - lending
activities in vedic period. They performed most of those functions
which banks perform in modern times. During Ramayana and
Mahabharata eras also banking had become a full-fledged business
activity. In other words the development of commercial banking in
ancient times was closely associated with the business of money
changing.
In simple words, bank refers to an institution that deals in money.
This institution accepts deposits from the people and gives loans to
those who are in need. Besides dealing in money, bank these days
perform various other functions, such as credit creation, agency job
and general service. Bank, therefore is such an institution which
accepts deposits from the people, gives loans, creates credit and
undertakes agency work.

1.3 MEANING AND DEFINITION OF BANKING

Meaning of Banking
You know people earn money to meet their day to day expenses on
food, clothing, education of children, having etc. They also need
money to meet future expenses on marriage, higher education of
children housing building and social functions. These are heavy
expenses, which can be met if some money is saved out of the
present income. With this practice, savings were available for use
whenever needed, but it also involved the risk of loss by theft,
robbery and other accidents.
Thus, people were in need of a place where money could be saved
safely and would be available when required. Banks are such places
where people can deposit their savings with the assurance that
they will be able to with draw money from the deposits whenever
required.
Bank is a lawful organization which accepts deposits that can be
withdrawn on demand. It also tends money to individuals and
business houses that need it.
Definitions of Bank
1. Indian Banking Companies Act - Banking Company is one
which transacts the business of banking which means the accepting
for the purpose of lending or investment of deposits money from
the public repayable on demand or otherwise and withdraw able by
cheque, draft, order or otherwise.
2. Dictionary Meaning of the Word Bank -The oxford
dictionary defines a bank as an establishment for custody of
money received from or on behalf of its customers. Its essential
duty is to pay their drafts on it. Its profits arises from the use of the
money left employed by them.

3. The Websters Dictionary Defines a bank as an institution

which trades in money, establishment for the deposit, custody and
issue of money, as also for making loans and discounts and
facilitating the transmission of remittances from one place to
another.
4. According to Prof. Kinley, A bank is an establishment which
makes to individuals such advances of money as may be required
and safely made, and to which individuals entrust money when it
required by them for use.
The above definitions of bank reveal that bank is an Business
institution which deal in money and use of money. Thus a proper
and scientific definition of the bank should include various functions
performed by a bank in a proper manner. We can say that any
person, institution, company or enterprise can be a bank.

1.4 TYPES OF BANKS

There are various types of banks which operate in our country to
meet the financial requirements of different categories of people
engaged in agriculture, business, profession etc. on the basis of
functions, the banking institution may be divided into following
types:

1. Central Bank
A central bank functions as the apex controlling institution in the
banking and financial system of the country.

It functions as the controller of credit, bankers bank and also

enjoys the monopoly of issuing currency on behalf of the
government. A central bank is usually control and quite often
owned, by the government of a country. The Reserve Bank of India
(RBI) is such a bank within an India.2. Commercial Banks
Commercial Banks are banking institutions that accept deposits and
grant short-term loans and advances to their customers. In addition
to giving short-term loans, commercial banks also give mediumterm and long-term loan to business enterprises. Now-a-days some
of the commercial banks are also providing housing loan on a longterm basis to individuals. There are also many other functions of
commercial banks, which are discussed later in this lesson.

Types of Commercial banks:

Commercial banks are of three types i.e., Public sector banks,
Private sector banks and Foreign banks.
(i) Public Sector Banks: These are banks where majority stake is
held by the Government of India or Reserve Bank of India.
Examples of public sector banks are: State Bank of India,
Corporation Bank, Bank of Baroda and Dena Bank, etc.
(ii) Private Sectors Banks: In case of private sector banks
majority of share capital of the bank is held by private individuals.
These banks are registered as companies with limited liability. For
example: The Jammu and Kashmir Bank Ltd., Bank of Rajasthan

Ltd., Development Credit Bank Ltd, Lord Krishna Bank Ltd., Bharat
Overseas Bank Ltd., Global Trust Bank, Vysya Bank, etc.
(iii) Foreign Banks: These banks are registered and have their
headquarters in a foreign country but operate their branches in our
country. Some of the foreign banks operating in our country are
Hong Kong and Shanghai Banking Corporation (HSBC), Citibank,
American Express Bank, Standard & Chartered Bank, Grindlays
Bank, etc. The number of foreign banks operating in our country
has increased since the financial sector reforms of 1991.
3. Development Banks
It is considered as a hybrid institution which combines in itself the
functions of a finance corporation and a development corporation.
They also act as a catalytic agent in promoting balanced and viable
development by assuming promotional role of discovering project
ideas, undertaking feasibility studies and also provide technical,
financial and managerial assistance for the implementation of
project.
In India Industrial Development Bank on India (IDBI) is the unique
example of development bank. It has been designated as the
principal institution of the country for co-ordinating the working of
the institutions engaged in financing, promoting or development of
industry.
4. Co-operative Banks
The main business of co-operative banks is to provide finance to
agriculture. They aim at developing a system of credit. Agriculture
finance is a special field. The co-operative banks play a useful role
in providing cheap exit facilities to the farmers.
There are three types of co-operative banks operating in our
country. They are primary credit societies, central co-operative

banks and state co-operative banks. These banks are organized at

three levels, village or town level, district level and state level.
Types of Co-operative Banks
(i) Primary Credit Societies: These are formed at the village or
town level with borrower and non-borrower members residing in
one locality. The operations of each society are restricted to a small
area so that the members know each other and are able to watch
over the activities of all members to prevent frauds.
(ii) Central Co-operative Banks: These banks operate at the
district level having some of the primary credit societies belonging
to the same district as their members. These banks provide loans to
their members (i.e., primary credit societies) and function as a link
between the primary credit societies and state co-operative banks.
(iii) State Co-operative Banks: These are the apex (highest level)
co-operative banks in all the states of the country. They mobilise
funds and help in its proper channelization among various sectors.
The money reaches the individual borrowers from the state cooperative banks through the central co-operative banks and the
primary credit societies.
At the base of the pyramid there are primary agricultural societies
at the village level. The long term exit is provided by the central
land development Bank established at the state level. Initially,
these banks used to advance loans on mortgage of land for the
purpose of securing repayment of loans.

5. Specialised Banks
These banks are established and controlled under the special act of
parliament. These banks have got the special status. One of the
major bank is National Bank for Agricultural and Rural

development (NABARD) established in 1982, as an apex institution

in the field of agricultural and other economic activities in rural
areas. In 1990 a special bank named small industries development
Bank of India (SIDBI) was established. It was the subsidiary of
Industrial development Bank of India. This bank was established for
providing loan facilities, discounting and rediscounting of bills,
direct assistance and leasing facility.
(i) Small Industries Development Bank of India (SIDBI): If
you want to establish a small-scale business unit or industry, loan
on easy terms can be available through SIDBI. It also finances
modernisation of small-scale industrial units, use of new technology
and market activities. The aim and focus of SIDBI is to promote,
finance and develop small-scale industries.
(ii) National Bank for Agricultural and Rural Development
(NABARD): It is a central or apex institution for financing
agricultural and rural sectors. If a person is engaged in agriculture
or other activities like handloom weaving, fishing, etc. NABARD can
provide credit, both short-term and long-term, through regional
rural banks. It provides financial assistance, especially, to cooperative credit, in the field of agriculture, small-scale industries,
cottage and village industries handicrafts and allied economic
activities in rural areas.
6. Indigenous Bankers
That unorganised unit which provides productive, unproductive,
long term, medium term and short term loan at the higher interest
rate are known as indigenous bankers. These banks can be found
everywhere in cities, towns, mandis and villages.
7. Rural Banking
A set of financial institution engaged in financing of rural sector is
termed as Rural Banking. The polices of financing of these banks

have been designed in such a way so that these institution can play
catalyst role in the process of rural development.
8. Saving Banks
These banks perform the useful services of collecting small savings
commercial banks also run saving bank to mobilise the savings of
men of small means. Different countries have different types of
savings bank viz. Mutual savings bank, Post office saving,
commercial saving banks etc.
9. Export - Import Bank
These banks have been established for the purpose of financing
foreign trade. They concentrate their working on medium and longterm financing. The Export-Import Bank of India (EXIM Bank) was
established on January 1, 1982 as a statutory corporation wholly
owned by the central government.

10. Foreign Exchange Banks

These banks finance mostly to the foreign trade of a country. Their
main function is to discount, accept and collect foreign bulls of
exchange. They also buy and self foreign currencies and help
businessmen to convert their money into any foreign currency they
need. Over a dozen foreign exchange banks branches are working
in India have their head offices in foreign countries.

1.5 FUNCTIONS OF BANKS

The functions of commercial banks are of two types.
(A) Primary functions; and
(B) Secondary functions.
(i) Primary functions
The primary functions of a commercial bank include:
a) Accepting deposits; and
b) Granting loans and advances.
a) Accepting deposits
The most important activity of a commercial bank is to mobilise
deposits from the public. People who have surplus income and
savings find it convenient to deposit the amounts with banks.
Depending upon the nature of deposits, funds deposited with bank
also earn interest. Thus, deposits with the bank grow along with the
interest earned. If the rate of interest is higher, public are
motivated to deposit more funds with the bank. There is also safety
of funds deposited with the bank.
b) Grant of loans and advances
The second important function of a commercial bank is to grant
loans and advances. Such loans and advances are given to
members of the public and to the business community at a higher
rate of interest than allowed by banks on various deposit accounts.
The rate of interest charged on loans and advances varies
according to the purpose and period of loan and also the mode of
repayment.
i) Loans

A loan is granted for a specific time period. Generally commercial

banks provide short-term loans. But term loans, i.e., loans for more
than a year may also be granted. The borrower may be given the
entire amount in lump sum or in instalments. Loans are generally
granted against the security of certain assets. A loan is normally
repaid in instalments. However, it may also be repaid in lump sum.

ii) Advances
An advance is a credit facility provided by the bank to its
customers. It differs from loan in the sense that loans may be
granted for longer period, but advances are normally granted for a
short period of time. Further the purpose of granting advances is to
meet the day-to-day requirements of business. The rate of interest
charged on advances varies from bank to bank.
Types of Advances
Banks grant short-term financial assistance by way of cash credit,
overdraft and bill discounting. Let us learn about these.
a) Cash Credit
Cash credit is an arrangement whereby the bank allows the
borrower to draw amount upto a specified limit. The amount is
credited to the account of the customer. The customer can
withdraw this amount as and when he requires. Interest is charged
on the amount actually withdrawn. Cash Credit is granted as per
terms and conditions agreed with the customers.
b) Overdraft
Overdraft is also a credit facility granted by bank. A customer who
has a current account with the bank is allowed to withdraw more

than the amount of credit balance in his account. It is a temporary

arrangement. Overdraft facility with a specified limit may be
allowed either on the security of assets, or on personal security, or
both.

c) Discounting of Bills
Banks provide short-term finance by discounting bills, that is,
making payment of the amount before the due date of the bills
after deducting a certain rate of discount. The party gets the funds
without waiting for the date of maturity of the bills. In case any bill
is dishonoured on the due date, the bank can recover the amount
from the customer.
ii) Secondary functions
In addition to the primary functions of accepting deposits and
lending money, banks perform a number of other functions, which
are called secondary functions. These are as follows.
a. Issuing letters of credit, travellers cheque, etc.
b. Undertaking safe custody of valuables, important document and
securities by providing safe deposit vaults or lockers.
c. Providing customers with facilities of foreign exchange dealings.
d. Transferring money from one account to another; and from one
branch to another branch of the bank through cheque, pay order,
demand draft.
e. Standing guarantee on behalf of its customers, for making
payment for purchase of goods, machinery, vehicles etc.
f. Collecting and supplying business information.
g. Providing reports on the credit worthiness of customers.

i. Providing consumer finance for individuals by way of loans on

easy terms for purchase of consumer durables like televisions,
refrigerators, etc.
j. Educational loans to students at reasonable rate of interest for
higher studies, especially for professional courses.

1.6 SCOPE OF BANKING ACTIVITIES

Banking activities are considered to be the life blood of the national
economy. Without banking services, trading and business activities
cannot be carried on smoothly. Banks are the distributors and
protectors of liquid capital which is of vital significance to a
developing country.
Efficient administration of the banking system helps in the
economic growth of the nation. Banking is useful to trade and
commerce.
Banking activities are useful to trade and industry in the following
ways.
a) Money deposited in a bank remains safe. Precious articles too
can be kept in the safe custody of banks in lockers.
b) Banks provide credit facilities to their customers. Customers with
bank accounts also enjoy better credit in the business world.
c) Banks encourage the habit of saving and thrift among people.
They mobilise savings and invest them in productive activities.
Thus, they help in increasing the rate of savings and investment in
the country.
d) Banks provide a convenient and safe means of transferring
money from one place to another and facilitate business dealings/
transactions.
e) Banks collect and realise bills, cheques, interest and dividend
warrants etc. on behalf of their customers.
f) Foreign trade is facilitated considerably with the help of banks
which receive and make payments, provide credit and deal in
foreign exchange. They protect importers from the risk of loss

on account of exchange rate fluctuations. They issue letter of credit

and provide information on the credit worthiness of importers. They
also act as referees of their customers.
g) Banks meet the financial needs of small-scale business units
which are located in economically backward areas.
h) Farmers and artisans in rural areas can also avail of bank credit
for financing their activities.
i) Commercial banks provide many other services to the general
public which include locker facility, issue of travellers cheques and
gift cheques, payment of insurance premium, etc.
Service activities of banks
Service activities of banks may be categorised as follows:
i) Agency services
ii) General services
Agency services
Banks undertake/various agency services for their customers.
These are outlined below.
a) Collection of cheques, drafts, and bills of exchange on behalf of
customers.
b) Collection of dividend and interest warrants of customers.
c) Collection of pension of government employees.
d) Purchase and sale of securities on the instructions of customers.
e) Executing standing orders for payment of rent, electricity bill,
insurance premium etc.
f) Acting as correspondent or representative of customers in dealing
with other banks.

g) Acting as trustee or executor when so nominated.

General Services
A commercial bank also performs the following services of general
utility to the public:
a) Issue of letters of credit, travellers cheques and circular notes.
b) Safe custody of valuables like gold, jewellery and important
documents in safe deposit vaults (lockers) available on hire.
c) Supply of trade information.
d) Acting as a referee as regards financial status of customers.
e) Acceptance of bills of exchange on behalf of customers.
f) Underwriting loans floated by government and public bodies

1.7 BANKING IN INDIA

St
ructure of the organised banking sector in India. Number of banks
are in brackets.
Pre Independence
Banking in India originated in the last decades of the 18th century.
The first banks were The General Bank of India which started in
1786, and the Bank of Hindustan, both of which are now defunct.

The oldest bank in existence in India is the State Bank of India,

which originated in the Bank of Calcutta in June 1806, which almost
immediately became the Bank of Bengal. This was one of the three
presidency banks, the other two being the Bank of Bombay and the
Bank of Madras, all three of which were established under charters
from the British East India Company. For many years the Presidency
banks acted as quasi-central banks, as did their successors. The
three banks merged in 1921 to form the Imperial Bank of India,
which, upon India's independence, became the State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839,
but it failed in 1848 as a consequence of the economic crisis of
1848-49. The Allahabad Bank, established in 1865 and still
functioning today, is the oldest Joint Stock bank in India.(Joint Stock
Bank: A company that issues stock and requires shareholders to be
held liable for the company's debt) It was not the first though. That
honour belongs to the Bank of Upper India, which was established
in 1863, and which survived until 1913, when it failed, with some of
its assets and liabilities being transferred to the Alliance Bank of
Simla.
When the American Civil War stopped the supply of cotton to
Lancashire from the Confederate States, promoters opened banks
to finance trading in Indian cotton. With large exposure to
speculative ventures, most of the banks opened in India during that
period failed.
The depositors lost money and lost interest in keeping deposits with
banks. Subsequently, banking in India remained the exclusive
domain of Europeans for next several decades until the beginning
of the 20th century.
Foreign banks too started to arrive, particularly in Calcutta, in the
1860s. The Comptoired Escompte de Paris opened a branch in
Calcutta in 1860, and another in Bombay in 1862; branches in

Madras and Puducherry, then a French colony, followed. HSBC

established itself in Bengal in 1869. Calcutta was the most active
trading port in India, mainly due to the trade of the British Empire,
and so became a banking centre.
The Bank of Bengal, which later merged with the Bank of Bombay
and the Bank of Madras to form the Imperial Bank of India in 1921.
The first entirely Indian joint stock bank was the Oudh Commercial
Bank, established in 1881 in Faizabad. It failed in 1958.
The next was the Punjab National Bank, established in Lahore in
1895, which has survived to the present and is now one of the
largest banks in India.
Around the turn of the 20th Century, the Indian economy was
passing through a relative period of stability. Around five decades
had elapsed since the Indian Mutiny, and the social, industrial and
other infrastructure had improved. Indians had established small
banks, most of which served particular ethnic and religious
communities.
The presidency banks dominated banking in India but there were
also some exchange banks and a number of Indian joint stock
banks. All these banks operated in different segments of the
economy. The exchange banks, mostly owned by Europeans,
concentrated on financing foreign trade. Indian joint stock banks
were generally under capitalized and lacked the experience and
maturity to compete with the presidency and exchange banks. This
segmentation let Lord Curzon to observe, "In respect of banking it
seems we are behind the times. We are like some old fashioned
sailing ship, divided by solid wooden bulkheads into separate and
cumbersome compartments."
The period between 1906 and 1911, saw the establishment of
banks inspired by the Swadeshi movement. The Swadeshi

movement inspired local businessmen and political figures to found

banks of and for the Indian community. A number of banks
established then have survived to the present such as Bank of
India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank
and Central Bank of India.
The fervour of Swadeshi movement lead to establishing of many
private banks in Dakshina Kannada and Udupi district which were
unified earlier and known by the name South Canara ( South
Kanara ) district. Four nationalised banks started in this district and
also a leading private sector bank. Hence undivided Dakshina
Kannada district is known as "Cradle of Indian Banking".

During the First World War (1914-1918) through the end of the
Second World War (1939-1945), and two years thereafter until the
independence of India were challenging for Indian banking. The
years of the First World War were turbulent, and it took its toll with
banks simply collapsing despite the Indian economy gaining
indirect boost due to war-related economic activities. At least 94
banks in India failed between 1913 and 1918
Post Independence
The partition of India in 1947 adversely impacted the economies of
Punjab and West Bengal, paralyzing banking activities for months.
India's independence marked the end of a regime of the Laissezfaire for the Indian banking. The Government of India initiated
measures to play an active role in the economic life of the nation,
and the Industrial Policy Resolution adopted by the government in
1948 envisaged a mixed economy. This resulted into greater
involvement of the state in different segments of the economy
including banking and finance. The major steps to regulate banking
included:

 In 1948, the Reserve Bank of India, India's central banking

authority, was nationalized, and it became an institution owned by
the Government of India.
In 1949, the Banking Regulation Act was enacted which
empowered the Reserve Bank of India (RBI) "to regulate, control,
and inspect the banks in India."
The Banking Regulation Act also provided that no new bank or
branch of an existing bank could be opened without a license from
the RBI, and no two banks could have common directors.
However, despite these provisions, control and regulations, banks
in India except the State Bank of India, continued to be owned and
operated by private persons. This changed with the nationalisation
of major banks in India on 19 July 1969

Indian Bank is an Indian state-owned financial

services company headquartered in Chennai, India. It has
19000 employees, 2100 branches and is one of the big
public sector banks of India. It has overseas branches
in Colombo, Jaffna, Sri Lanka, Singapore, and
229 correspondent banks in 69 countries. Since 1969
the Government of India has owned the bank, which
celebrated its centenary in 2007.

INDIAN BANK
Type
Traded as
Industry
Founded
Headquarter
Industry
Headquarter
s
Key people
Revenue
Net income

Public
BSE: 523465
NSE: INDIANB
Financial services
1907
Chennai, India
Financial services
Chennai, India
T.M.Bhasin (Chairman & MD)
IncreaseINR2119.88 billion (US$35
billion) (2012)
Increase INR135 billion (US$2.2
billion) (2012)

Total assets
Employees
Website

INR11218 billion (US$190 billion)

(2011)
18782
www.indianbank.in

2.1 EARLY FORMATION AND EXPANSION

In the last quarter of 1906, Madras (now Chennai) was hit
by the worst financial crisis the city was ever to suffer. Of
the three best-known British commercial names in 19th
century Madras, one crashed; a second had to be
resurrected by a distress sale; and the third had to be
bailed out by a benevolent benefactor. Arbuthnot & Co,
which failed, was considered the soundest of the three.
Parry's (now EID Parry), may have been the earliest of
them and Binny & Co.'s founders may have had the oldest
associations with Madras, but it was Arbuthnot,
established in 1810, that was the city's strongest
commercial organisation in the 19th Century. A key figure
in the bankruptcy case for Arbuthnot's was the Madras
lawyer, V. Krishnaswamy Iyer; he went on to organise a
group of Chettiars that founded Indian Bank. Annamalai
and Ramaswami Chettiar founded Indian Bank (IB) on 5
March 1907, and it commenced operations 15 August
1907 with its head office in Parry's Building, Parry Corner,
Madras.

2.2 POST INDEPENDENCE OF INDIA

After the war, in 1948, it reopened its branch in Colombo.
Indian Bank also reopened its branches in Burma,
Malayan and Singapore, the last in 1962. The Burmese
government nationalised all foreign banks, including
Indian Bank's branch, in 1963.
The 1960s saw IB expand domestically as it acquired
Rayalaseema Bank (est. 1939), Mannargudi Bank (est.
1932), Bank of Alagapuri, Salem Bank (est. 1925), and
Trichy United Bank. (Trichy United was the result of the
1965 merger of Woraiyur Commercial Bank, the
Palakkarai Bank and the Tennur Bank.) These were all
small banks with the result that all the acquisitions added
only about 38 branches to IB's network. Trichy United had
five branches and its acquisition in 1967 brought the
number of IB branches up to 210.
Then on 19 July 1969 the Government of India
nationalised 14 top banks, including Indian Bank. One
consequence of the nationalisation was that the
Malaysian branches of nationalised Indian banks were
forbidden to continue to operate as branches of the
parent. At the time, Indian Bank had three branches,
and Indian Overseas Bank, and United Commercial
Bank had eight between them. In 1973 the three
established United Asian Bank Berhad to amalgamate and
take over their Malaysian operations.

International expansion continued in 1978 with IB

becoming a technical adviser to PT Bank Rama in
Indonesia, the result of the merger of PT Bank Masyarakat
and PT Bank Ramayana. Two years later, IB, Bank of
Baroda, and Union Bank of India established IUB
International Finance, a licensed deposit taker in Hong
Kong. Each of the three banks took an equal share in the
joint venture.

2.3 POST NATIONALISATION

In 1969 the Government of India nationalised Indian Bank,
and thirteen other banks.
In 1990, Indian Bank rescued Bank of Tanjore (Bank of
Thanjavur; est. 1901), with its 157 branches, based
in Tamil Nadu.
A multi-crore scam was exposed in 1992, when then
chairman M. Gopalakrishnan lent 13 billion to small
corporates and exporters from the south, which the
borrowers never repaid.
Bank of Baroda bought out its partners in IUB
International Finance in Hong Kong in 1998. Apparently
this was a response to regulatory changes following Hong
Kong's reversion to Chinese control. IUB became Bank of
Baroda (Hong Kong), a restricted licence bank.

1. Ind Net banking- Customers can use the internet to do

their banking at the convenience of their home. Through
Website : https://www.indianbank.net.in.
2. Ind Mobile banking- Customers can use their mobile
phones to do their banking. SMS to 9444394443 from
your mobile.
3. Ind Phone banking- Customers can call for enquiries
anytime, anywhere through telephone. Call telephone toll
free 1800-425-3425.
4. e Payment of Indirect Taxes- Customers can pay taxes
like excise duty and service tax through internet. This
service is available both online and offline.
5. MCA Payment- Payments for MCA can be made online
through internet banking service.
6. Ind-Jet Remit (RTGS)- Transfer of funds to any account
in any bank branch enabled for RTGS in a fastest way. For
remittance of Rs.2 lakh and above
7. N E F T- Transfer of funds to any account in any bank
branch enabled for NEFT within the same day.
8. CMS Plus- A bundle of collection and payment Services
offered for clients.
9. Multicity Cheque Facility- Cheques can be issued to
beneficiaries all over India.

10. IB Swarna Mudra- IB-Swarna Mudra, It is

a scheme for selling gold coins.
11. Credit Cards-VISA cards available in three variants :
Gold, Classic and Bharat cards
12. ATM/Debit Cards-Our 24 hour Hi-powered, valueadded ATM cum Debit card , just the size of a visiting
card, is the passport to the facilities available with ATM
and for shopping at Merchant establishment. It brilliantly
complements customer's ambitions, offering more value,
more excitement, more service, more extras.
13. Arogya Raksha Group Health Insurance Policy -(By
arrangement with M/s. United India Insurance Co. Ltd)
14. e Payment of Direct Taxes-Customers can pay income
tax through internet
15. New IB Jeevan Vidya
16. Money Gram
17. Janashree Bhima Yojan (Launched in association with
LIC)
18. Universal Health Care (Launched in Association with
UIIC Ltd)
19. IB Griha Jeevan Group Insurance Scheme for Mortgage
Borrowers (launched in Association with LIC)

20. IB Home Suraksha-Group Insurance Scheme for

mortgage Borrowers (launched in Association with Kotak
Mahindra Old Mutual Life Insurance Ltd)
21. Xpress Money Inward Remittance Money Transfer
Service Scheme
22. IB Yatra Suraksha (launched in Association with UIICO
Ltd)
23. IB Vidyarthi Suraksha (launched in Association with
PNB-Metlife)
13. IB Jeevan Kalyan
14. IB Varishtha
15. IB Chhatra
16. Arogya Raksha

3.
- THE MODERN APPROACH OF BANKING
The IT revolution has had a great impact on the Indian
banking system. The use of computers has led to the
introduction of online banking in India. The use of
computers in the banking sector in India has increased
many fold after the economic liberalisation of 1991 as the
country's banking sector has been exposed to the world's
market. Indian banks were finding it difficult to compete
with the international banks in terms of customer service,
without the use of information technology.
The RBI set up a number of committees to define and coordinate banking technology. These have included:
In 1984 was formed the Committee on
Mechanisation in the Banking Industry (1984) whose
chairman was Dr. C Rangarajan, Deputy Governor,
Reserve Bank of India. The major recommendations
of this committee were introducing MICR technology
in all the banks in the metropolises in India. This
provided for the use of standardized cheque forms
and encoders.

 In 1988, the RBI set up the Committee on

Computerisation in Banks (1988) headed by Dr. C
Rangarajan. It emphasized that settlement operation
must be computerized in the clearing houses of RBI
in Bhubaneswar, Guwahati, Jaipur, Patna and Thiruva
n-anthapuram. It further stated that there should be
National Clearing of inter-city cheques at
Kolkata, Mumbai, Delhi, Chennai and MICR should be
made operational. It also focused on computerisation
of branches and increasing connectivity among
branches through computers. It also suggested
modalities for implementing on-line banking. The
committee submitted its reports in 1989 and
computerisation began from 1993 with the
settlement between IBA and bank employees'
associations.
In 1994, the Committee on Technology Issues
relating to Payment systems, Cheque
Clearing and Securities Settlement in the Banking
Industry (1994) was set up under Chairman W S
Saraf. It emphasized Electronic Funds Transfer (EFT)
system, with the BANKNET communications network
as its carrier. It also said that MICR clearing should
be set up in all branches of all those banks with
more than 100 branches.

 In 1995, the Committee for proposing Legislation on

Electronic Funds Transfer and other Electronic
Payments (1995) again emphasized EFT system.
The total number of automated teller machines (ATMs)
installed in India by various banks as of end June 2012 is
99,218. The new private sector banks in India have the
most ATMs, followed by off-site ATMs belonging to SBI
and its subsidiaries and then by nationalised banks and
foreign banks, while on-site is highest for the nationalised
banks of India.

EVOLUTION OF E-BANKING
The Rangarajan Committee report in early 1980s was the
first step towards computerization of banks. Banks started
exploring the idea of 'Total Bank Automation (TBA)'.
Although titled 'Total Bank Automation,' TBA was in most
cases confined to branch automation.
It was only in the early 1990s that banks started thinking
about tying up disparate branches together to facilitate
information sharing. At the same time, private banks
entered the banking arena with radically different
strategies. Given the huge IT budgets at their disposal
and with almost no legacy IT equipment to worry about;
private banks hastened the adoption of technology. The
philosophy for private banks was very clear: to provide a
whole new range of financial products and services at
minimal costs. And technology made this possible.

Says K.N.C. Nair, Head (IT), Federal Bank, The new

generation banks showed the way and others had no
option but to follow the tech infusion to retain and attract
profitable customers."
The improved connectivity and falling costs offered by
leased lines and VSATs provided a booster to inter-branch
automation. Confirms Naresh Wadhwa, Vice PresidentWest, Cisco Systems (India), "With the improved services
and lowered costs of service providers such as Dot and
VSNL, it became more feasible for banks to network their
branches. This gave banks an impetus to network all the
branches and set up centralized databases. With these
developments it became possible for operations such as
MIS to be truly automated and centralized." With
centralized infrastructure and numerous connectivity
options, banks started exploring multiple delivery
channels like ATM, Net-banking, mobile banking, and
Telebanking thus driving down cost per transaction.
In the early 1990s, the then Narsimha Rao government
embarked on a policy of liberalization, licensing a small
number of private banks. These came to be known as
New Generation tech-savvy banks, and included Global
Trust Bank (the first of such new generation banks to be
set up), which later amalgamated with Oriental Bank of
Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and
HDFC Bank. This move, along with the rapid growth in the
economy of India, revitalized the banking sector in India,

which has seen rapid growth with strong contribution from

all the three sectors of banks, namely, government banks,
private banks and foreign banks.
The next stage for the Indian banking has been set up
with the proposed relaxation in the norms for Foreign
Direct Investment, where all Foreign Investors in banks
may be given voting rights which could exceed the
present cap of 10%,at present it has gone up to 74% with
some restrictions.
The new policy shook the Banking sector in India
completely. Bankers, till this time, were used to the 4-6-4
method (Borrow at 4%;Lend at 6%;Go home at 4) of
functioning. The new wave ushered in a modern outlook
and tech-savvy methods of working for traditional banks.
All this led to the retail boom in India. People not just
demanded more from their banks but also received more.
Currently, banking in India is generally fairly mature in
terms of supply, product range and reach-even though
reach in rural India still remains a challenge for the
private sector and foreign banks. In terms of quality of
assets and capital adequacy, Indian banks are considered
to have clean, strong and transparent balance sheets
relative to other banks in comparable economies in its
region. The Reserve Bank of India is an autonomous body,
with minimal pressure from the government. The stated
policy of the Bank on the Indian Rupee is to manage

volatility but without any fixed exchange rate-and this has

mostly been true.
With the growth in the Indian economy expected to be
strong for quite some time-especially in its services
sector-the demand for banking services, especially retail
banking, mortgages and investment services are
expected to be strong. One may also expect M&As,
takeovers, and asset sales.
In March 2006, the Reserve Bank of India allowed
Warburg Pincus to increase its stake in Kotak Mahindra
Bank (a private sector bank) to 10%. This is the first time
an investor has been allowed to hold more than 5% in a
private sector bank since the RBI announced norms in
2005 that any stake exceeding 5% in the private sector
banks would need to be vetted by them.
In recent years critics have charged that the nongovernment owned banks are too aggressive in their loan
recovery efforts in connection with housing, vehicle and
personal loans. There are press reports that the banks'
loan recovery efforts have driven defaulting borrowers to
suicide.

NEW FINANCIAL PRODUCTS IN

BANKING
ONLINE BANKING
ATM

ELECTRONIC FUND TRANSFER

ELECTRONIC CLEARING SERVICE
CREDIT CARDS
MOBILE BANKING
DEBIT CARDS
ELECTRONIC COMMERCE
TELE BANKING

ONLINE BANKING
Online banking (or Internet banking) allows customers to
conduct financial transactions on a secure website
operated by their retail or virtual bank, credit union or
building society.
Features
Online banking solutions have many features and
capabilities in common, but traditionally also have some
that are application specific.
The common features fall broadly into several categories
Transactional (e.g., performing a financial transaction
such as an account to account transfer, paying a bill, wire
transfer... and applications... apply for a loan, new
account, etc.)
Electronic bill presentment and payment - EBPP
Funds transfer between a customer's own checking
and savings accounts, or to another customer's
account
Investment purchase or sale
Loan applications and transactions, such as
repayments
Non-transactional (e.g., online statements, check
links, cobrowsing, chat)
Bank statements
Financial Institution Administration - features allowing
the financial institution to manage the online experience
of their end users
ASP/Hosting Administration - features allowing the
hosting company to administer the solution across
financial institutions
Features commonly unique to business banking include

 Support of multiple users having varying levels of

authority
Transaction approval process
Wire transfer

Features commonly unique to Internet banking include

Personal financial management support, such as
importing data into personal accounting software. Some
online banking platforms support account aggregation to
allow the customers to monitor all of their accounts in one
place whether they are with their main bank or with other
institutions.

AUTOMATED TELLER MACHINE (ATM)

Smaller indoor ATMs dispense money inside convenience
stores and other busy areas, such as this off-premise
Wincor Nixdorf
mono-function ATM in Sweden.
An automated teller machine (ATM) is a computerized
telecommunications device that provides the customers
of a financial
institution with access to financial transactions in a public
space
without the need for a human clerk or bank teller. On
most modern
ATMs, the customer is identified by inserting a plastic ATM
card with
a magnetic stripe or a plastic smartcard with a chip, that
contains a
unique card number and some security information, such
as an
expiration date or CVC (CVV). Security is provided by the
customer
entering a personal identification number (PIN).
Using an ATM, customers can access their bank accounts
in
order to make cash withdrawals (or credit card cash
advances) and
check their account balances as well as purchasing
mobile cell phone

prepaid credit. ATMs are known by various other names

including
automated transaction machine, automated banking
machine, money
machine, bank machine, cash machine, hole-in-the-wall,
cashpoint,
Bancomat (in various countries in Europe and Russia),
Multibanco
(after a registered trade mark, in Portugal), and Any Time
Money (in
India).