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08 - Chapter 1 Preamble
08 - Chapter 1 Preamble
08 - Chapter 1 Preamble
1.1 Introduction
The need arose for a third party to assist for smooth bandwidth for
transaction which mediates between the seller and buyer. It helps to hold
custody of money and goods, remit funds and to collect proceeds.
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This leads to the requirement of an external entity which would facilitate
and smoothly handle the transaction between the two parties. (Customer and
vendor).The body which will ensure that the transaction is fairly done
between customer and vendor and everything is dealt in appropriate manner.
This mediator is known as Banker.
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1.2 History of Banking
In India, at the times of Vedic era and during the Maurya reign there
was a device namely ADESHA was being used for the purpose of the
coping with financial requirements and also used to maintain the details of
the loan and its transactions.
There was a particular order in which the currency was paid to the
needful which in terms of banking was termed as a transaction. Later it was
termed as bill of exchange which is understood today and is mostly used
worldwide.
The first banks which were established in India are The General Bank
of India (establishment year 1786) and Bank of Hindustan (establishment
year 1770).In spite of these even after independence, for longer period of
time the Presidency Bank operated as a quasi-central bank. It was continued
until the governing body Reserve Bank of India was formed year of 1935.
The banking sector of India is divided into the 4 types including public
sector undertakings along with the state bank. Later these were combined by
private commercial banks and foreign banks as well in the year of 1990s.
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The Banking domain of India is matured enough in the region of money
source, specially built product varieties along with richness. However, the
banking facilities are the major concern and challenge in the rural parts of
India.
Later by the end 1960s, the banking sector was grown to a good extent
and was one of the major factors to boost the Indian economy and
development of the country.
The banking sector came across one of the largest employer during this
period. These discussions and debates lead to the nationalization of the all
banks in the banking domain of India. Prime Minister of India, Indira Gandhi
also sent out a message saying that the nationalization of all banks in India
must be carried out.
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Later, there was a phase in which 6 or even more number of private
banks was nationalized. This indirectly lead the government to control and
monitor the transactions these banks. About 91 percentages of the
transactions all over India was mentored by Government of India. There were
merger of different which were performed which decreased the count of the
nationalized banks in India. The first merger example was between New Bank
of India along with PNB.
Few of the examples that can be listed are Global Trust Bank, OBC,
UTI Bank (renamed afterwards as Axis Bank limited), ICICI bank Limited
&HDFC bank limited. It also led to the immediate increase in the economy of
the country and refreshed the banking industry in the country. The banks from
the private sector, government sector and foreign sector helped a lot to
increase the financial system of India.
The policy had a significant impact on the banking industry in India. Till
now the Bank authorities followed the method 4-6-4 (i.e. Borrow @ 4%, Lend
@6%, Go home @4%) of operations and functions. This new methodology
and the operations of the banks were noticed in the modern age. This in turn
directed towards the progress of the merchandizing business in India. The
people got more benefits and the banks were also benefitted by business.
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1.3 Current Period
At present the overall banking institutes being a part of IInd Schedule of the
RBI Act, 1934 are termed as Scheduled Bank. This includes the scheduled
co-operative and commercial bank. The Scheduled Commercial Banking
institutes are further classified into five different categories with respect to the
operation and functioning of the bank. These banks are as mentioned:
Foreign Banks
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1.4 Implementation of Banking Technology:
After the liberalization took place in 1990 the Banking domain in India
is exposed to the global market and was in highlighted worldwide. It also
helped to lift the economy of India. It was a bit difficult for the Indian banks to
compete with the international banks in align with the services which were
given to the end customers and without using the information technology.
The RBI has come up with different policies and has set up a board to
deal and co-ordinate with the Information Technology people. In the year of
1984 government founded a commission on computerization of banking
sector.
In the year 1988 a commission was set up on automation in Banks which was
led by Dr. C. Rangarajan. Its primary objective was to automate the banking
transaction in almost all banks. They also thought of computerization of bank
branches and improve the network and connectivity by virtue of computer
networks and information technology. This will help each bank to carry out the
transaction in a smooth and safe way.
In the year 1994, a board was set up to handle all the technology
related issues in the banks. They mostly focused on the EFT (Electronic Fund
Transfer) system, with online net banking with the help of computer networks
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and communications. It also mentioned that MICR clearing must be included
in all banks.
In the year 1995, the board of authority which was emphasizing on the
EFT along with supplementary e-transactions agreed for the MICR policy.
This led to installation of EFT machines almost over all banks in India. The
Automated Teller Machine (ATM) which was first launched by HSBC in 1987
in Mumbai. All other banks installed ATMs for all their branches all over India.
The private sector banks are the one who have largest count of ATM
machines in India. As per current statistics India has more than 1 lakh ATMs.
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1.5 Overview of Banking Sector of the World:
International financial institutions (IFIs) is well renowned financial
institution which were formed by number of nations, and therefore it is
subjected to international act. Owners or stakeholders were normally
governments, even though other international commercial institutions and
different organizations rarely figured out as a stakeholders.
The supreme famous IFIs are creations of many countries, even though
some mutual financial institutions (created by 2 countries) are also existed
and were officially IFIs. The finest acknowledged IFIs were established later
than World War II to help in the modernization of European countries and
make available mechanisms for international support of administration with
the global financial system.
1 World Bank1
1
World Bank :- http://www.worldbank.org/
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IFAD:- http://www.ifad.org/
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7 Inter-American Development Bank Group (IDB, IADB)
World Bank has not to be mystified with the United Nations World Bank
Group, a member of the United Nations Economic and Social Council, and
relations of five international organizations that make leveraged loans to poor
countries.
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1.6 Ranking of Indian Banking sector in Globe:
Table 1.1 Ranking of Major financial institutions in World
Sr. Revenue
Company Industry Headquarters
No. (Billion $)
1 Japan Post Holdings Insurance 201.2 Japan
2 Berkshire Hathaway Insurance 162.5 United States
3 AXA Insurance 147.5 France
4 Allianz Insurance 140.3 Germany
5 ICBC Banking 134.8 China
Invest.
6 Fannie Mae 131.9 United States
Services
7 ING Insurance 130 Netherlands
8 BNP Paribas Banking 126.2 France
9 Generali Group Insurance 116.7 Italy
China Construction
10 Banking 113.1 China
Bank
11 Banco Santander Banking 108.8 Spain
CAPEC
12 Banking 108.2 Country data MR
MAURITANIA
13 Socit Gnrale Banking 107.8 France
14 HSBC Banking 104.9 United Kingdom
Agricultural Bank of
15 Banking 103 China
China
16 Bank of America Banking 100.1 United States
17 Bank of China Banking 98.1 China
18 Wells Fargo Banking 91.2 United States
19 Citigroup Banking 90.7 United States
20 Prudential Insurance 90.2 United Kingdom
62 State Bank of India Banking 35.1 India
Source: (wikipedia, 2014)
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1.7 Overview of Banking Sector in India
It is important ministry under Govt. of India and has concern itself with
taxation, financial legislation which also covers financial institutions, capital
markets, center and state finances, and the Union Budget.
RBI (Reserve Bank of India) came into existence during the British rule
on 1st April 1835 as per the requirements of the Act called Reserve Bank of
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India Act 1934. In banking industry of India, RBI (Reserve Bank of India) is
treated as uppermost body and called as central bank which controls the
Banking system in India.
After India achieved Independence on 15th August 1947, the RBI was
declared as the nationalized bank the share capital was divided and it
comprises of 100 shares shared across each whose ownership was with the
private shareholders previously. After the India's independence in 1947, the
RBI was nationalized bank in 1949. The RBI has a chief part for expansion in
every sector of the nation and to improve the banking facilities in India along
with the help of the government.
RBI has passed a second schedule ACT in 1934. Scheduled banks lie
under this category and follow the rules and regulations as per the second
schedule ACT of RBI. There are certain limits which are imposed and need to
be satisfied by these banks like having a paid up funds and treasure of at
least 0.5 Million abiding to the rules and regulations of the Reserve Bank of
India and its policies not damage the amount and the interest of the investors
and depositors(customers).
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1.7.5 Scheduled Commercial Banks (SCBs):
For example, SBI and its acquaintances are termed as different group
of SCBs, as these were administered as per SBI Subsidiary Bank Act which
came into existence in 1959. The public sector banks are contains all
nationalized banks of India, the State Bank of India along with acquaintances
cover almost 70% of the business all over the country. There was an inclusion
of IDBI limited in the nationalized banks category in the month of December in
2004.
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1.7.7 Public Sector Banks
The foreign banks are the one who have their base location outside
India and they have established their branches in the country. It is solely
responsible for the development of the banks and monitoring the overall
status of the banks and institutes and any of the financial bodies in India. It
also determines in combination with the government of India, the financial and
recognition policies and is also managed by RBI. The existence of the foreign
banks and institutions are present in the country either via the supplementary
resources or by setting up their branches in India.
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1.7.10 Regional Rural Banks
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1.8 E-Banking
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banking for daily consumers.
This was hurriedly taken up by various other banks like Wells Fargo,
Chase Manhattan etc. Currently, very often banks operated solely without the
Internet based applications and now most of the customers need not have
four-wall' thing for any reason.
At starting phase, creators had foreseen that this will be matter of time
which decides a fore web-based banking entirely swapped out the manual
method. On the other hand the realities has proven that this was an over
positive calculationlot of bank users were aligned to older method and
having inborn disbelief on the online banking process. Number of consumers
has chosen not to utilize multiple online banking facilities just because of
nasty experience of scams and in capacity of usage of web-based banking
applications.
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1.9 Overview of Internet Banking in India
RBI had formed a committee for online banking portals, which was
classified and separated total web-based banking services availed in India in
three sub groups. Classification was grounded on allowed permission access
stages. Detailed description as below
This assists to get the common info such as loan rate, location of
branch center, availed banking services and types were hosted on the
banking portal. Significantly prevailing services could be availed to copy
different process/applications form of used for day to day banking. E-mail has
been used as the major way of communication among the users and others.
Online banking portal is trying to settle down and is biz word as well.
Regular banking consumers are gradually increasing which are working
through web-based applications. Consumers are now able to perform task
related with not only information about balance or rates but also to carry out
various banking functions. Inappropriately, inadequacy of information about
online banking portal is a challenge.
Tele Banking
E-Cheque
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1.9.1.1 Automatic Teller Machine:
In simple word one can say that this is covering every banking
functions of routine banking life. Now a days one can use ATM card facility
anywhere in the world. When operated in the off-line mode most of services
are restricted to that specific machine allotted. This avails consumer holding
appropriate machine cards distributed by appropriate payment organization
may use any ATM associated with the card for performing the banking
operations and fulfill particular needs.
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The services offered by MasterCard and Visa included a variety of
cards for the preferences and usage by customers. These card services were
offered according to the information furnished by the customers to establish
their credibility and financial standing in the society. Flexibility in making
payments in a stipulated time frame, monthly instalments, with a minimum
payment due option given to the customers availing the credit card facility.
Along with the success of the usage of the credit cards, the introduction of
debit cards also came into existence. The major difference being that in the
credit card usage, the privilege was on the credit system whereas in the debit
card the amount would be directly debited from the bank account of the
customer. The condition being that the card holder needs to have sufficient
balance in his / her account so as to complete the transaction or else the
transaction would be declined by the merchant establishment. In both the
cases whether it is a credit card or a debit card, with the mandatory signature
of the card holder.
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normally a four digit / six digit code for the sole utilization of the card holder.
This code is used for all such transactions on the debit card. The amount that
has been debited from the bank consumers account is directly credited in
another account of the merchant establishment, who in return can offer
certain additional privileges to the customers for prompt payments. These are
used by such people who would like to spend from their savings and not
rather go on credit.
Some cards are nothing but having additional electronic chip along
with magnetic stripe for strengthening the security aspects of it and provide
some new feature to bank customers, known as Smart Cards. These kinds of
smart card permits multiple of times of data which also can be stored on
regular magnetic cards.
1.9.1.5 Tele-banking:
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specific phone number assigned by financial institution.
In the present era most of consumers are at ease with the words like e-
governance, e-commerce, e-tail etc. In the same manner, a new technology is
being developed e-cheque, which will eventually replace the conventional
paper cheque. Electronic cheque addresses the prerequisites of many of
companies, where as of now manual process with paper based cheque is
followed in order to make payment towards other dealers, customers and
management. Common transaction is carried out as where an bank account
user need to generate an automated file consist of various details of user to
whom payment need to be done such as banking institution name, account
number, payees name along with most important field of amount to be
remunerated. Electronic cheque is having every data in the encrypted format.
Also as like normal cheque these e-cheque accept the digital signature of
consumer. The digital signature is in form of calculated digits so that it will
validate-cheque for authorized bank account holder. There is a lot of futuristic
scope for e-cheque imbursement other than replacement of current manual
cheque process as like for internet based spending and payment etc
The consumer need not oblige to disclose bank account info to any
other entities for public sale.
Cheaper than the credit card usage and other related payment
formats.
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E-cheque process speedily than old-style paper cheque. This also
helps to defend account holders secrecy.
Disadvantages of e-cheque:
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