Technological changes in indian banking sector Intro The Indian banking sector has been evolving since the

year 1770 when the Bank of Hindustan was established in Calcutta and subsequently in its various avatars-when the General Bank of India, which came into existence in 1886 again in Calcutta; and then Bank of Calcutta (later Bank of Bengal - 1806 ), Bank of Bombay and Bank of Madras merging in 1921 to become the Imperial Bank of India which became the State Bank of India ( SBI) in 1955. The Indian banking system saw another phase of metamorphosis in 1969 when all the leading commercial banks were nationalised by the then prime minister and finance minister, Indira Gandhi. The third phase which actually started changing the face of the Indian banking was the post-1991 economic liberalisation which opened up the banking sector to increased competition and transformation offering better fare to customers.

Banks have changed in their operations and moved towards universal banking along with the increased usage of technology and technology-based services offering alternate channels such as smart cards, ATMs, usage of the internet, mobile and social banking. Banks have started deploying core banking, human resource management (HRM) and enterprise risk (ERP) management and process re-engineering etc to improve on their performance and productivity. Majority of banks are insisting on cashless and paperless payment modes. According to a KPMG study, a research analysts says, as of FY2012, non-cash payments constituted 91 per cent in value terms as compared to 88 per cent in FY in 2010 and 48 per cent in terms of value from 35 per cent in FY 2010. A bank analyst says the payments made through cheques in total non-cash transaction too has come down to 52 per cent from 83 per cent in volume terms, and to nine per cent from 85 per cent in value terms during between FY 2006 and FY 2012.
STATE OF BANKING IN THE POST-LIBERALIZATION PERIOD

At the time of liberalization, the Indian banking industry was operating in a highly regulated, regimented and protected region. Realizing that the banking sector would have to play a key role in the economic reforms process, the Narsimhan Committee had been formed to recommend reforms in the banking sector with the objective of granting autonomy and flexibility to the banking industry and improving its efficiency and profitability. The major important reform measures recommended by the Narsimhan Committee were: Reduction in Statutory Liquidity Ratio (SLR) Reduction in CRR Redefining the scope of Priority Sector Lending Freeing of Interest rates on Deposits and Advances to promote competition in the financial sector

 Capital Adequacy Norms Access to capital markets Prudential Accounting Norms Competition through permission to private sector banks

SBI CASE STUDY Background / intro :The State Bank of India is the oldest and largest bank in India, with more than $250 billion (USD) in assets. It is the second-largest bank in the world in number of branches; it opened its 10,000th branch in 2008. The bank has 84 international branches located in 32 countries and approximately 8,500 ATMs. Additionally, SBI has controlling or complete interest in a number of affiliate banks, resulting in the availability of banking services at more than 14,600 branches and nearly 10,000 ATMs. SBI traces its heritage to the 1806 formation of the Bank of Calcutta. The bank was renamed the Bank of Bengal in 1809 and operated as one of the three premier "presidency" banks (the presidency banks had the exclusive rights to manage and circulate currency and were provided capital to establish branch networks). In 1921, the government consolidated the three presidency banks into the Imperial Bank of India. The Imperial Bank of India continued until 1955, when India's central bank, the Reserve Bank of India, acquired the majority interest in the bank and changed its name to the State Bank of India (SBI).

In 1959, the Indian government passed the State Bank of India Act, resulting in the acquisition (majority shareholding) of eight state-affiliated banks and the creation of the State Bank of India Group (SBI Group). The SBI itself is now majority owned by the Indian government, which purchased the shares held by the Reserve Bank of India. Unlike private-sector banks, SBI has a dual role of earning a profit and expanding banking services to the population throughout India. Therefore, the bank built an extensive branch network in India that included many branches in low-income rural areas that were unprofitable to the bank. Nonetheless, the branches in these rural areas bought banking services to tens of millions of Indians who otherwise would have lacked access to financial services. This tradition of "banking inclusion" recently led India's Finance Minister P. Chidambaram to comment, "The State Bank of India is owned by the people of India." A lack of reliable communications and power (particularly in rural areas) hindered the implementation of computerization at Indian banks throughout the 1970s and 1980s. During this period, account information was typically maintained at the local branches with either semiautomated or manual ledger card processing. During the 1990s, the Indian economy began a period of rapid growth as the country's low labor costs, intellectual capital, and improving telecommunications technology allowed India to offer its commercial services on a global basis. This growth was also aided by the government's decision to allow the creation of private-sector banks (they had been nationalized in the 1960s). The private-sector banks, such as ICICI Bank and HDFC Bank, altered the banking landscape in India. They implemented modern centralized core banking systems and electronic delivery channels that allowed them to introduce new products and provide greater convenience to customers. As a result, the private-sector banks attracted middle- and upper-

class customers at the expense of the public-sector banks. Additionally, foreign banks such as Standard Chartered Bank and Citigroup used their advanced automation capabilities to gain market share in the corporate and high-net-worth markets.

State Bank of India Core Systems Modernization 1. Drivers for a New Core System
SBI had undertaken a massive computerization effort in the 1990s to automate all of its branches, implementing a highly customized version of Kindle Banking Systems' Bankmaster core banking system (now owned by Misys). However, because of the bank's historic use of local processing and the lack of reliable telecommunications in some areas, it deployed a distributed system with operations located at each branch. Although the computerization improved the efficiency and accuracy of the branches, the local implementation restricted customers' use to their local branches and inhibited the introduction of new banking products and centralization of operations functions. The local implementation prevented the bank from easily gaining a single view of corporate accounts, and management lacked readily available information needed for decision making and strategic planning. In 2002, bank management approved the KPMG-recommended strategy for a new IT environment that included the implementation of a new centralized core banking system. This effort would encompass the largest 3,300 branches of the bank that were located in city and suburban areas. The State Bank of India's objectives for its project to modernize core systems included:
The delivery of new product capabilities to all customers, including those in rural areas The unification of processes across the bank to realize operational efficiencies and improve customer service Provision of a single customer view of all accounts The ability to merge the affiliate banks into SBI Support for all SBI existing products Reduced customer wait times in branches Reversal of the customer attrition trend

2. Convergence of Mobile and Online Technologies Mobile banking started as a novelty, something only techies and first adopters felt comfortable using. But as smartphones have skyrocketed in popularity over the past few years, mobile banking adoption has increased along with it. "Mobile banking, when it first became a hot topic, was very much an offshoot of the online channel," says Jacob Jegher, senior analyst with Boston-based Celent. "Now mobile is maturing to the point where it is its own unique beast." While SBI are embracing the mobile channel -- and continuing to support the old standby of online banking -- they are not integrating the technologies used to build e-banking solutions, according to Jegher. But that will begin to change in 2012. "We'll see banks continue to develop solutions for these multiple channels but using a single set of technology to do so," he predicts. A cohesive set of technologies, Jegher adds, will make mobile app and online development easier for banks to manage

3. Cheque Truncation System (CTS)

Truncation is the process of stopping the movement of the physical cheque which is to be truncated at some point en-route to the drawee branch and an electronic image of the cheque would be sent to the drawee branch along with the relevant information like the MICR fields, date of presentation, presenting banks etc. Thus, the CTS reduces the probability of frauds, reconciliation problems, logistics problems and the cost of collection. The cheque truncation system was launched on a pilot basis in the National Capital Region of New Delhi on February 1, 2008, with the participation of 10 banks. The main advantage of the cheque truncation system is that it obviates the physical presentation of the cheque to the clearing house. Instead, the electronic image of the cheque would be required to be sent to the clearing house. This would provide a more costeffective mode of settlement than manual and MICR clearing, enabling realization of cheques on the same day. Amendments have already been made in the NI Act to give legal recognition to the electronic image of the truncated cheque, providing for a sound legal framework for the introduction of CTS. Currently the effort is on increasing the processing efficiency with respect to paper based transactions, and as far as possible, to reduce the burden on paper based clearing. Through the introduction of advanced electronic funds transfer mechanisms, the RBI has been successful in diverting a large portion of paper based transactions to the electronic route. 4. Electronic Clearing Service The Electronic Clearing Service (ECS) introduced by the RBI in 1995, is akin to the Automated Clearing House system that is operational in certain other countries like the US. ECS has two variants- ECS debit clearing and ECS credit clearing service. ECS credit clearing operates on the principle of single debit multiple credits and is used for transactions like payment of salary, dividend, pension, interest etc. ECS debit clearing service operates on the principle of single credit multiple debits and is used by utility service providers for collection of electricity bills, telephone bills and other charges and also by banks for collections of principal and interest repayments. Settlement under ECS is undertaken on T+1 basis. Any ECS user can undertake the transactions by registering themselves with an approved clearing house.

5. Electronic Funds Transfer Systems The launch of the electronic funds transfer mechanisms began with the Electronic Funds Transfer (EFT) System. The EFT System was operationalised in 1995 covering 15 centres where the Reserve Bank managed the clearing houses. Special EFT (SEFT) scheme, a variant of the EFT system, was introduced with effect from April 1, 2003, in order to increase the coverage of the scheme and to provide for quicker funds transfers. SEFT was made available across branches of banks that were computerised and connected via a network enabling transfer of electronic messages to the receiving branch in a straight through manner (STP processing). In the case of EFT, all branches of banks in the 15 locations were part of the scheme, whether they are networked or not. A new variant of the EFT called the National EFT (NEFT) was decided to implemented (November 2005) so as to broad base the facilities of EFT. This was a nation wide retail electronic funds transfer mechanism between the networked branches of banks. NEFT provided for integration with the Structured Financial Messaging Solution (SFMS) of the Indian Financial Network (INFINET). The NEFT uses SFMS for EFT message creation and transmission from the branch to the banks gateway and to the NEFT Centre, thereby considerably enhancing the security in the transfer of funds. While RTGS is a real time gross settlement funds transfer product, NEFT is a deferred net settlement funds transfer product. As the NEFT system stabilized over time, the number of settlements in NEFT was increased from the initial two to six. NEFT now provides six settlement cycles a day and enables funds transfer to the beneficiaries account on T+0 basis, bringing it closer to real time settlement. 6. RTGS The other payment and settlement systems deployed were mostly aimed at small value repetitive transactions, largely for the retail transactions. The introduction of RTGS in 2004 was instrumental in the development of infrastructure for Systemically Important Payment Systems (SIPS). The payment system in India largely followed a deferred net settlement regime, which meant that the net amount was settled between banks on a deferred basis. This posed significant settlement risks.RTGS was launched by RBI, which enabled a real time settlement on a gross basis. To ensure that RTGS system is used only for large value transactions and retail transactions take an alternate channel of electronic funds transfer, a minimum threshold of one lakh rupees was prescribed for customer transactions under RTGS on January 1, 2007

7. Automatic Teller Machines ATMs were introduced to the Indian banking industry in the early 1990s initiated by foreign banks. Most foreign banks and some private sector players suffered from a serious handicap at that time- lack of a strong branch network. ATM technology was used as a means to partially overcome this handicap by reaching out to the customers at a lower initial and transaction costs and offering hassle free services. Since then, innovations in ATM technology have come a long way and customer receptiveness has also increased manifold. Public sector banks have also now entered the race for expansion of ATM networks. Development of ATM networks is not only leveraged for lowering the transaction costs, but also as an effective marketing channel resource.

Table of services offered by SBI

Schemes
Sweep in Facility in Saving Account Demat Account Minor Account

Conditions applied or benefits offered

Available Available No condition is applicable over here.A minor can open an account independently Special benefits are provided to the account holders These banks offer the customers to invest in pure gold This facility is available over here

Women Account Investments Online Shopping

Internet Banking Time Norms

Very efficient Time nor ms f or pr oviding the services are less. The customers do not have to wait for a long time to get these services

Core Banking Facilities Interest Rates are deposits Interest Rate on loans and advances

All branches have this facility and are providing them efficiently. Rate of return is high on deposits with the banks Rate of interest levied on loans and advances is high. SBI offers more and better services than other banks to give the best to its customers

Benefits of New Technology

The new core system has resulted in benefits throughout the bank for both the customers and the employees of SBI. For example, the new core banking system has allowed the bank to redesign processes. It established 400 regional processing centers for all metro and urban branches that have assumed functions previously performed in the individual branches. The bank recently reported that business per employee increased by 250% over the last five years. The bank has achieved its goal of offering its full range of products and services to its rural branches. It delivers economic growth to the rural areas and offers financial inclusion for all of India's citizens. Implementation of the TCS BaNCS system has provided the bank with the ability to consolidate the affiliate banks into SBI. In fact, the bank recently completed the consolidation of State Bank of Saurashtra into SBI. The bank has reversed the trend of customer attrition and is now gaining new market share. Completion of the core conversion project has also allowed the bank to undertake several new initiatives to further improve service and support future growth.

Summary
The implementation of the Tata Consultancy Services (TCS) BaNCS system at the State Bank of India (SBI) represents the largest core systems project ever undertaken. The success of this project should encourage other large banks to begin projects to modernize their core systems. The use of a UNIX-based platform to process more than 100 million accounts daily demonstrates that tier 1 banks can use a mainframe alternative for their core processing. Although TowerGroup expects that the majority of these banks will continue to rely on the IBM mainframe for core processing, they can fully consider the benefits of utilizing a UNIX-based platform. SBI's achievement demonstrates that attention to critical factors is crucial in implementing new core systems. The bank's senior management commitment, business line involvement, project team staffing and empowerment, and extensive employee training were all key contributors to the success of the project. Management also recognized the need for a proven systems integrator that possessed in-depth expertise in both business and technology. Core systems modernization has allowed the State Bank of India to centralize computer processing and operations functions, offer new banking products to all the citizens of India, reverse a trend of customer attrition, and consolidate its affiliate banks. Additionally, the bank can now further expand its product offerings and improve customer service.

Reference

http://www.banktech.com/management-strategies/8-bank-technology-trends-that-willshape/232300804 http://www.banktech.com/management-strategies/8-bank-technology-trends-that-willshape/232300804 www.inflibnet.ac.in/ojs/index.php/MI/article/view/890/803 articles.timesofindia.indiatimes.com Collections Regional Rural Banks http://www.dnb.co.in/bfsisectorinindia/BankC6.asp search engine :- google