INDEX

SR.NO. 1 2 3 PARTICULARS Summary Meaning of Banks The Present Banking Banking Global Scenario 4 5 6 7 8 Structure Of Present Banking Scenario Basic Principles Of Banking Functions Of Banks Emerging Trends In Modern Banking Important Banking 9 10 The Challenges Facing Banks Today To Face The Challenges Bank Should Banks Commitments To Features Of Modern Day Scenario And
PAGE NO.

Work Hard On Following Parameters 11 Modern Customers And Customers Rights And Duties 12 The Technology Implications Of Bank Modernization 13 Advantage and Disadvantages of

technology in banking sector 14 15 E-Banking And Benefit or E-banking Implications For Financial Modernization

16 17

Conclusion Recommendations
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SUMMARY

The Indian banks are changing towards modern banking system. Modernization in banking is changing banking services, products and operational methods of banking. Traditional banking system in depends up on man force but modern banking is partially or totally machine and technology based banking. All these developments are lead to facilities to customers delight as well as operational efficiency of banks and reducing operational expenses of banking services. technology (IT) revolution in the Indian economy has made steady inroads into the banking institutions and has brought about a significant change in many aspects in the form of computerization of transactions and new delivery channels such as Internet Banking, Phone Banking, ATMs, EFT, ECS and EDI etc. With migration of traditional paper-based funds movements to quicker and more efficient electronic mode, funds transfers have become easy and efficient to perform. Now-a-days banking is known as innovative banking. Developments in Information technology have. given a rise to innovations in the product & service designing and their supply in the banking sector and finance industries, customer services and satisfaction are their centre point of all the efforts. One of the most important areas of banking where Information Technology have a positive influence so on substitutes for traditional funds movement services. With the advent of online banking, electronic funds transfer and other similar products & services for funds transfer within quick time which was impossible a few years age.

MEANING OF BANKS
A bank is a financial institution that serves as a financial intermediary. The term bank may refer to one of several related types of entities. A central bank circulates money on behalf of a go9vernment and acts as its monetary authority by implementing monetary policy, which regulates the money supply. A commercial bank accepts deposits and pools those funds to provide credit ,either directly by lending , or indirectly by investing through the capital markets. Within the global financial markets, these institutions connect market participants with capital deficits (borrowers) to market participants with capital surpluses (investors and lenders ) by

transferring funds from those parties who have surplus funds to invest (financial assets) to those parties who borrow funds to real assets. A savings bank (known as a building society in the United invest in

Kingdom) is similar to a savings and loan association (S&L).They can either be stockholder owned or mutually owned, in which case they are permitted to only borrow from members of the financial cooperative. The asset structure of savings banks and savings and loan association is similar, with residential mortgage loans providing the principal assets of the institutions portfolio.

Because of the important role depository institutions play in the financial system, the banking industry is generally regulated with government restrictions on financial activities by banks varied over time and by

location. Current global bank capital requirements are referred to as Basel II. In some countries, such as Germany, banks have historically owned
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major stakes in industrial companies, while in other countries, such as the United States, banks have traditionally been prohibited from owning non-financial companies. In Japan, banks are usually the nexus of a crossshare holding entity known as the Keiretsu. In Iceland, banks followed international standards of regulation prior to the recent global financial crisis that began in 2007. A Banks main source of income is interest paid o n loans. A bank pays out at a lower interest rate on deposits and receives a higher interest rate on loans. The difference between these rates represents the banks net income, cash Management services, Mortgage loan closing costs and points. Bank is a lawful organization , which accepts deposits that can be withdrawn on demand. It also lends money to individuals and business houses that need it. Bank also render many other useful services -like collection of bills, payment of foreign bills , safe-keeping of jewellery and other valuable items , certifying the credit worthiness of business, and so on.

Banks can be explained as : Banks are organized institution. Banking activities include acceptance of deposits as well as lending of money. Banks meet the needs of people in general and the business community in particular. Banks accept tangible and personal security against loans. The process of recovery of loans is flexible.

THE PRESENT BANKING SCENARIO

As Narasimham committee report (1991) pointed out that the major policy trust was to improve the operational and allocate efficiency of the financial system. Liberalization process that was initiated in India in 1991 posed some challenges for the bankers to act more efficiently. The government set their agenda for action and directed the flow of credit Bankers were enjoying the speed and they were not bothered about their efficiency and leading effectiveness. Indian Banking system has made a remarkable progress since independence. It has seen a number of phases till now. A number of innovations were made in the field of social banking like flow of bank credit into the priority sector, poverty alleviation programmers , rural development program and self-employment of educated unemployed youth

STRUCTURE OF PRESENT BANKING SCENARIO

 PUBLIC SECTOR BANK

1)State Bank Group And Nationalized Banks: This group has the largest number of branches in metros and rural areas throughout the country. The group contributes about 75% of the total deposits and about 70% of total advances of all commercial banks in India. after 1994, most of these banks have made public issues of their shares, divesting government shareholdings.

2)Regional Rural Banks : These are also scheduled banks, but unlike commercial banks , are small localized banks operating in rural areas limited to specified districts. such bank focused development of the rural population. Each RRB operates in one to five allotted districts

3) Private Sector Bank : These are incorporated in India and their shares/ownership is held by business houses and individuals. RBI has also permitted setting up of Local Area Banks for the development of backward and less developed districts. Such banks have minimum capital of Rs 5 crore and their area of operation is spread over 3 districts.

4) Foreign Banks :-This are the banks incorporated abroad but granted license by Reserve Bank Of India to conduct banking business in India through their Indian branches.

 CO-OPERATIVE BANKS:1) Urban Cooperative Bank : Urban cooperative banks meet financial needs of small size trade and commerce activities operating in urban areas. Basically there are legal structural and size wise differences between the commercial banks and co operative banks.
2) Primary Agricultural Credit Society (PACS ):- are associations of borrowers and non-borrowers who are the residents of non-locality. Working funds of these societies comprise Own fund , Deposits from members and non-members , Loans from district, central co operative banks

3)District Central Co Operative Banks :- It is a federation of primary

agricultural credit societies located in a specific area. i.e. district these organizations are linking points between primary co-op. agricultural credit societies and state co op. banks. District central coop. banks undertake banking related activities. They also grant credit to customers on the basis of first class gilt securities, gold etc.

4) Stated Co-Operative Bank: - SCB occupies a key position in the cooperative credit structure. The RBI reaches to the cultivators through the states cooperative banks. Resource of such state level co operative banks comprises share capital, reserve fund, various type of deposits, loans and overdrafts and surplus funds of district central co-op banks affiliated to the respective banks. These banks lend to affiliated district central co-op banks.

 DEVELOPMENT BANKS:1) Industrial Finance Corporation Of India Ltd.(IFCI):- set up in

1948 for providing medium and long term credit and become public limited. Company from 1st July 1993. There are three types of services are provided by IFCI. 2) Industrial Development Bank Of India(IDBI):- it provides finance in the form of loans, equity participation and guarantees and refinance to banks, bills re-discounting, lines of credit to unstitutions. Under financial services, it provides service of merchant banking , forex services and debenture trusteeship. 3) Small Industries Development Bank Of India (SIDBI):-It was established in April, 1990 the business domain of SIDBI consists of SSI units, which contribute significantly the national economy in terms of production, employment and exports. 4) National Bank For Agricultural &Rural Development :- It is and apex institution concerned with the policy, planning and operations in the field of agriculture and other rural economic activities. The major functions of NABARD are provision of refinance to scheduled commercial banks, state co-operative banks, land development banks and district central co-operative banks. 5) Export-Import Bank Of India (EXIM Bank):It take over the

operations of international finance wing of the IDBI and to provide financial assistance to exporters and importers and to function as the principal financial institution for coordination the working of other institutions engaged in financing of exports and import of goods and services. The EXIM banks provides refinance facilities to the scheduled commercial banks and financial institution against their export-import financing activities.
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BANKING GLOBAL SCENARIO

The globalization means Integrating the economy of a country with the world economy .With the growing integration of economies and the markets around the world, global banking has arrived and is here to stay. Globalization will get further fillip with the opening up of financial services Banks in India need to be focused and disciplined. They need a longterm plan ,to know what they want to achieve , consider the strategic benefits (of going global) assess the risks ,and challenges. identify the competencies and

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BASIC PRINCIPLES OF BANKING

Principle Of Intermediation :Banks are called financial intermediaries

because the act as the link between the savers of money and users of money. Banks invest or lend funds of depositors who themselves are unable to lend their funds, due to risk and other factors involved in direct lending. Principle Of Liquidity:Banks are required to return the money

collected form depositors as and when demanded, they cannot invest all deposit monies in lending or investment. This feature of re playability on demand is unique for bank deposits. It is for the purpose that a bank must keep a certain portion of its deposits liabilities in liquid from so as to be able to repay the same on demand or maturity date to the depositors. This principle is reinforced by the regulatory requirements of the reserve bank of India that every bank has to maintain deposits with the RBI as cash reserve ratio , which currently stands at 6% of the banks demand and time liabilities and statutory liquidity ratio, wherein, every bank securities. However, these ratios are subject to change by RBI from time to time. Principle Of Profitability:Solvency connotes long term financial

soundness of a bank, achieved by adherence to prudent policies in lending, retention of some part of profits for business growth, implementation of professional management systems and following the mandatory rules and procedures in day-to-day operations. Principle Of Trust:The trust that customers existing and potential

repose in a bank is its hallmark as it connotes dependability in the opinion of its customers.

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FUNCTIONS OF BANKS
The functions of the bank can be classified into Traditional Functions Modern functions

Traditional Functions :money from its customers

1)accepting deposits a bank accepts

2)

lending another traditional function is lending money to

business by way of loans and advances of various kinds.

3) Funds remittance banks have branch network spread in various cities/ regions/states in the country of their incorporation/operations. Some bank have branches and correspondent banks overseas, as well. Banks remit customers funds from one place to another in the same country or overseas through their branches and correspondent banks by mail/telegraphic/electronic funds transfer or by issuing bank drafts.

4) Miscellaneous services in addition to the above, banks also render other services, which are useful to businesses and members of the society. deposit These services lockers, safe include custody issue of of credit/debit cards, safe of

and guarantees , collection

outstation cheques/bills/hundies ; furnishing opinion reports on their customers, acting as agents for government business, correspondents trusteeship and executors business.

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Modern Functions The modern commercial banking function mainly comprises of activities such as cross-border banking, merchant banking, credit cards, factoring, leasing, and insurance and other financial services undertaken by the banks Cross-border banking is classified as follows 1) Cross-border fund-raising services External commercial borrowing Global depository receipts , American depository receipts , Indian depository receipt Non-resident external , foreign currency Non-resident account Syndication of foreign currency loans 2)Cross-border banking service Import financing/leasing Export financing/forfeiting /leasing

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EMERGING TRENDS IN MODERN BANKING

1) Universal Banking:It refers to the provision of a wide range of financial services by an organization, under one roof e.g. commercial banking, merchant banking, mutual funds and insurance. The main advantage of

universal banking lies in the ability of banks to cross sell their products to a vast clientele of customers and thereby earn both fee based and a non-fee based income. The customer is equally

benefited as it saves for him a lot of time and travel and help him in getting speedy delivery of the products at one place. 2) Electronic Banking:In the wake of recent developments in information and

communication technologies, majority of banking operations have been computerized. Electronic banking provides a bouquet of new channels like internet banking, telephone banking, ATM banking, mobile banking which are different from the traditional brick and mortar branch banking. These have made possible anywhere and anytime banking and contributed to speed, accuracy and

confidentiality of customer transactions while enhancing customers convenience. Funds transfer, cheques clearing and collection of bills of exchange are also done electronically with accuracy, speed and safety. 3) Globalization of Banking This has come about as a result of the policy of liberalization and opening up of banking and other sectors pursued after 1991 in

India. Foreign banks that wish to set-up their office/branches in India have been granted licenses by RBI on liberal and on reciprocal basis.
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IMPORTANT FEATURES OF MODERN DAY BANKING

1) Centralized Systems :Centralized banking means inter connection of all bank branches with central server, so that customers can do anywhere banking. It offers integrated products and services to customers

round the clock and a customer can do transaction from any branch in same city or another city. Nowadays most banks use core banking applications to support their operations where CORE stands for centralized online real-time exchange. This facilitated funds transfer between different branches of the same bank.

2) Electronic Payments System:Automated Teller Machines : ATM are primarily used for

performing some of the banking function such as withdrawal of cash or deposit of cash/cheque etc., by using an ATM card. Each customer is provided with an ATM card with a unique Personal Identification Number(PIN)

National

Electronic Fund Transfer (NEFT) System :- EFT

Facilitates quick movement of funds through electronic media. Reserve Bank of India has introduced a system called The Reserve Bank of India National Electronic Funds Transfer System which may be referred to as NEFT system. It include a set of procedural guidelines for the

participating banks and institutions with the required computer system and communication network through which funds transfer operation takes place between different bank up to a specified amount..

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Real-Time Gross Settlement (RTGS) system :- RTGS is an electronic payment environment where payment instructions processed on a continuous of real-time basis and settled on a Gross or Individual basis. This is similar to NEFT but used for higher value transaction.

3)Tele Banking/ Phone Banking:Telephone banking is a service provided by a financial institution, which allows its customers to perform transactions over the telephone. Telephone banking representative are usually trained to do what was traditionally available only at the branch loan application, investment purchases and redemptions, cheque book orders, debit card replacements, change of address etc.

4) Mobile Phone Banking :With this facility , customer on his mobile screens cash check his bank balance, or order a demand draft, stop cheque payment, request for a cheque book, look at the current interest rates, or even the last three to five transactions round the clock.

5) Mobile Banking :This is different from mobile phone banking. It is a mobile banking set up, working under the control of a branch but moving to various areas to provide banking facilities to customers who may be located far from the branch. Due to its lower cost structure, it can become an important tool for financial inclusion.

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6) Internet Banking :With the popularity of PCs and easy access to internet and World Wide Web , Banks increasingly use internet as a channel for receiving instructions and delivering their products and services to their customers.

7) ICT Driven banking and Customer service:Various new services which are being offered to customers on account of the use of information and communication technology result in time saving and convenience to customers. Some of the new services are fee based. Availing or use of these services requires the customer to be conversant with various security aspects failing which they may be put to loss. Banks should clearly intimate beforehand the precautions and costs involved. Security aspects must be well explained to customers such that they do not incur losses on account of lack of knowledge.

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THE CHALLENGES FACING BANKS TODAY

1) Generating Revenues And Profit In Difficult Conditions The most fundamental challenge, as always, is to generate strong revenues and healthy profits. This is no easy task in the difficult economic conditions that prevail in certain parts of the world, especially in Europe where the sovereign debt crisis continues and where banks still face high credit risks.

2) Domestic And Foreign Expansion Generating good revenues and profits in uncertain times is only part of the story. Most banks have ambitious expansion strategies for domestic and foreign markets, which they hope will bear fruit once economic conditions get better. . Emerging markets present the best opportunities . not just the populous, relatively sophisticated BRIC countries of Brazil, Russia, India and China, but also the smaller CIVETS nations of Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa 3) Improving Risk, Capital And Liquidity Management bankers will have to keep a close eye on how they manage risk, capital and liquidity. Law-makers and regulators have been piling on the pressure in this respect, but sound risk management, capital adequacy, and liquidity management depend on sound internal policies and procedures as much as on any externally imposed requirements, and bank leaders realize this.

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4) Being competitive The need to become and remain more competitive is a serious challenge. The banking market is saturated with providers, products and services . particularly in the retail, small business, corporate and wealth management sectors, but investment bankers are up against stiff competition too. Financial services has always been a competitive business, but banks are finding it even harder today to differentiate themselves from existing providers and the steady trickle of new entrants. 5) Developing New Products And Delivery Channels Even though customers regard quality of service as the most important aspect of their banking experience, they also value relevant, competitively priced and innovative products, and effective delivery channels. plastic cards, telephone banking, online banking and now mobile banking, many customers still regard the branch as an important channel . 6) Political Interference And The Burden Of Financial Regulation There is no doubt that banks are facing the biggest regulatory onslaught of all times, as governments and regulators try to curb what they see as excesses and defects in banks and in the financial system as a whole. Bankers around the world understand the need for regulatory reform, but are concerned about overkill. Christian Clausen, Chief Executive of the Swedish bank Nordea, and President of the European Banking Federation (EBF), in an interview in The Banker said that one of his priorities at the EBF is to ensure that the new wave of regulation on capital, liquidity, funding and so on strikes a balance between avoiding another banking crisis and not over-regulating to the extent that it hurts customers and the economy.

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7) Interest Rate Risk :Interest rate risk can be defined as exposure of banks net interest income to adverse movements in interest rates. A banks balance sheet consists mainly of rupee assets and liabilities. Any movement in domestic interest rate is main source of interest rate risk. Over the last few years the treasury departments of banks have been responsible for a substantial part of profits made by banks. Between July 1997 and Oct 2003, as interest rates fell, the yield on 10-year government bonds (a barometer for domestic interest rates) fell, from 13 per cent to 4.9 per cent. with yields falling the banks made huge profits on their bonks portfolios. Now as yields go up (with the rise in inflation, bond yields go up and bond prices fall as the debt market starts factoring a possible interest rate hike), the banks will have to set aside funds to mark to market their investment. This will make it difficult to show huge profits from treasury operations. This concern becomes much stronger because a substantial percentage of bank deposits remain invested in government bonds. Banking in the recent years had been reduced to a trading operation in government securities. Recent months have shown a rise in the bond yields has led to the profit from treasury operations falling. The latest quarterly reports of banks clearly show several banks making losses on their treasury operations. If the rise in yields continues the banks might end up posting huge losses on their trading books.

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8) Competition In Retail Banking :The entry of new generation private sector banks has changed the entire scenario. Earlier the household savings went into banks and the banks then lent out money to corporate. Now they need to sell banking. The retail segment, which was earlier ignored, is now the most important of the lot, with the banks jumping over one another to give out loans. The consumer has never been so lucky with so many banks offering so many products to choose from. with supply far exceeding demand it has been a race to the bottom, with the banks undercutting on another. A lot of foreign banks have already burnt their fingers in the retail game and have now decided to get out of a few retail segments completely. The nimble footed new generation private sector banks have taken a lead on this front and the public sector banks are trying to play catch up. The PSBs have been losing business to the private sector banks in this segment. PSBs need to figure out the means to generate profitable business from this segment in the days to come.

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TO FACE THE CHALLENGES BANK SHOULD WORK HARD ON FOLLOWING PARAMETERS

1) The trend of high business growth shall be kept up 2) Branch network shall be expanded 3) New product and services shall be introduced and vigorously marketed to achieve higher growth in business and income 4) The Bank shall initiate steps to effect cash recoveries and make efforts to double the amount of NPAs closed 5) The Bank shall draw up a programme for enhancing the skills of specialized IT personnel through appropriate training in reputed external institutions so as to improve the competence of the Bank in generating requisite IT solutions in tune with the fast changing technology. 6) Top executives of the bank shall visit the branches ,specially the rural and semi-urban branches at least for one day in a month to interact with and motivate the branch personnel and get feedback from the customers.

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MODERN BANKS COMMITMENTS TO CUSTOMERS AND CUSTOMERS RIGHTS AND DUTIES

Banks will act courteously, fairly and reasonably in all our dealings with customers. Banks will ensure that their documents and procedures are clear and not misleading and that customers are given clear information about our products and services. When an account or service is chosen customers will be given clear information about how it works, the terms and conditions and the interest rates which apply to it. Banks will help customer by sending regular statements (where appropriate) and they will keep customer informed about changes to the interest rates, charges or terms and conditions. Banks will deal quickly and sympathetically with things that go wrong by correcting mistakes quickly ,handling complaints quickly and reversing any bank charges applied in error. Banks will treat all personal information of customers as private and confidential , and operate secure and reliable banking and payment systems. Banks will publish and adopt a Citizens charter, have copies available and make sure that their staff is trained to put it into practice.

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TECHNOLOGY IN MODERN BANKING:-

With the help of innovative information technology , banks are able to reduce transaction cost and handle a large number of transaction in no time. Now banks can provide customized products easily and customers could access their customers, banks are embracing Customer Relationship Management (CRM) facilitated by the availability of conductive

technology. Innovation is technology is also helping banks to cross sell the products of insurance and securities firms , which are swelling their feebased income in the total income. Innovative technology not only brings benefits, but risks too. Major impediments and risks associated with the implementation of innovative technology are ;

Increased capacity due to a new technology could result capacity in the financial institution Another problem banks face with implementation of

excess

latest

technology is integration of existing system with the new one. Banks could face cost overrun or cost control problems. Innovative technology has brought new risks like daylight overdraft risk

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THE TECHNOLOGY IMPLICATIONS OF BANK MODERNIZATION

We have described the main challenges facing banks today. We have discussed how and why, in order to meet those challenges, banks have to modernize their business strategies and operating models. We will now explore the technology implications of that modernization imperative, in particular how banks must review their software and IT architecture, and update it where necessary, so that it can be an enabler of the modernization program.

1) Attracting And Engaging Customers Being truly customer centric . putting customers at the centre of everything banks do, and improving the customer experience .A key business strategy to develop, as was reviewing the fundamental purpose of banking, and improving delivery channels. And also what operating model changes were needed to ensure that those customer strategies would be effective for example, reviewing operational processes, enhancing customer service and adopting a multiple distribution channel approach. 2) Core Banking At the heart of customer relationships is core banking software, which manages customer accounts and financial transactions. Core retail banking software holds basic customer data . name, address, age maintains links between accounts and customers, ideally providing a single view of the customer provides routine maintenance activities, such as opening and closing accounts, processing deposits and withdrawals, calculating interest, processing direct debits, and making and receiving payments, and runs the bank. General ledger
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showing, among other things, the cost of staff and premises, income and customers balances. The legacy systems that most banks use are typically account-centric, with customers. These decades-old legacy core systems are inflexible, and each time a bank wants to launch a new product, they must hard-code the system, which can take 12 months or more.

3) Customer Relationship Management When CRM applications were first introduced in the 1990s, many failed to live up to expectations. Software developers and banks have since collaborated closely to iron out the problems, to make today. offerings much more relevant, reliable and useful. If a bank customer management software does not offer the features and benefits listed below, it is time to renew it. Manage relationships across all channels and, ideally, all business units for example, branches, contact centers and online, and across retail banking, wealth management, SME and other units. Increase sales of products and services to existing customers through cross-selling and upselling. Assist in customer acquisition Maximize customer profitability. Retain customers Be easily integrated with other applications and databases. 4) Managing risk Managing risk enterprise-wide, adjusting risk appetites, finding new and affordable sources of capital and liquidity, concentrating on business lines or products that are less regulated, and more closely aligning risk management with the finance function .And also what changes to operating policies and procedures were needed to execute these risk management strategies. in other words, banks have to improve their GRC (governance, risk management and
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regulatory compliance) models, and that requires better data management and analysis to enable informed and rapid decision-making. Banks might even consider moving business operations to countries which have lighter-touch regulation. So what software is available to help banks manage risk more effectively? There is a wide range, for example: Risk management software, for managing all areas of risk (especially credit, market, operational, liquidity, business and reputation risk) 5) Customer Service Contact centre and branch staff can do a more efficient job if they use the latest customer service software, as it will make them an integral part of the bank. total sales, marketing and service delivery strategy. It will help them to handle service, support and sales seamlessly across all communications channels, thereby improving service delivery while lowering costs. The latest contact centre software should include the following features 360-degree view of the customer relationship to enable more relevant and targeted sales offers and improved customer experiences. Computer telephony integration (CTI) to identify customers before conversations begin and provide instant customer record screens to agents

6) Regulatory Compliance :Compliance software provides enhanced visibility for compliance, risk, legal, internal audit, finance, business line managers and others so they can monitor the organizations adherence to all applicable laws, regulations, standards and internal rules, relating not just to risk but all banking activities. Such software should also be integrated within a wider GRC framework.

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Examples of current and proposed regulations that such software can help manage include:

7) Transforming Business Operations :Transforming and standardizing business processes is, of course, central to any operating model modernization project. All manual processes that remain should be reviewed and automated if possible; and all automated processes should be reviewed and standardized. Straight-through processing should be the objective where achievable. There are three broad categories of software that can help banks transform their operations Core banking, for managing customer accounts and their financial transactions. Customer service, for making it possible for to provide a seamless service. Revenue management and billing, for improving the billing of corporate and retail customers and avoiding revenue leakage.

8) Service-Oriented Architecture (SOA) :Integrated applications and centralized processing are essential for modern, efficient banking. To achieve these technological and operational goals, SOA is essential. SOA will interoperate with all parts of the IT architecture to integrate all business applications, moving them on to a common service bus and a common workflow engine .Integrating and standardizing all applications in a short space of time, Centralizing and improving process efficiency ,Reducing costs ,Increasing scalability ,Improving visibility.

9) Database machines :Banks store massive amounts of data, much of which needs to be accessed quickly, especially for processing online transactions. Database machines computer systems specially designed for database access, and which are much faster than mainframes
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BENEFITS OF TECHNOLOGY IN MODERN BANKING SECTOR

Competition Studies show that c o mp e t i t i v e pressure is th e chief

d r i v i n g f o r c e b e h i n d increasing use of Internet banking technology, ranking ahead of cost reduction and revenue enhancement, in second and third place respectively. Banks see Internet banking as a way to keep existing customers and attract new ones to the bank.

Cost Efficiencies National banks can deliver banking services on the Internet at transaction c o s t s f a r l o we r t h a n t r a d i t i o n a l b r i c k - a n d - mo r t a r b r a n c h e s . Th e a c t u a l c o s t s t o e x e c u t e a transaction will vary depending on the delivery channel used. For example, according to Booz ,Allen & Hamilton, as of mid- 1999, the cost to deliver manual transactions at a branch was typically more than a dollar, ATM and call center transactions cost about 25 cents, and Internet transactions cost about a penny. These costs are expected to continue to decline. National banks have significant reasons to develop the technologies that will help them deliver banking products and services by the most cost-effective channels. Many bankers believe that shifting only a small portion of the estimated 19billion payments mailed annually in the U.S. to electronic delivery channels could save banks and other businesses substantial sums of money. However, national banks should use care in making product decisions. Management should include in their decision making the
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development and ongoing costs associated with a new product or service, including t h e t e c hn o l o g y, ma r k e t i n g , ma i n t e n a n c e , a n d c u s t o me r s u p p o r t f u n c t i o ns . Th i s wi l l h e l p management exercise due diligence, make more informed decisions, and measure the success of their business venture.

Geographical Reach Internet banking allows expanded customer contact through increased geographical reach and lower cost delivery channels. In fact some banks are doing business exclusively via the Internet they do not have traditional banking offices and only reach their customers online. Other financial institutions are using the Internet as an alternative delivery channel to reach existing customers and attract new customers.

Branding Relationship building is a strategic priority for many national banks. Internet b a n k i n g t e c h n o l o gy a n d p r o d u c t s c a n p r o v i d e a me a n s f o r n a t i on a l b a n k s t o d e v e l o p a n d maintain an ongoing relationship with their customers by offering easy access to a broad array of products and services. Internet Banking 4 Comptrollers Handbook By capitalizing on brand identification and by providing a broad array of financial services, banks hope to build customer loyalty, cross-sell, and enhance repeat business.

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Customer Demographics Internet banking allows national banks to offer a wide array of options to their banking customers. Some customers will rely on traditional branches to conduct their banking business. For many, this is the most comfortable way for them to transact their b a n k i n g b us i n e s s . Th o s e c u s t o me r s place a p r e mi u m on person -to-person contact.

O t h e r customers are early adopters of new technologies that arrive in the marketplace. These customers were the first to obtain PCs and the first to employ them in conducting their banking business. The demographics of banking customers will continue to change. The challenge to national banks is to understand their customer base and find the right mix of delivery channels to deliver products and services profitably to their various market segments.

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NEGATIVE EFFECTS OF TECHNOLOGY IN BANKING,

While banking

ICT

provides it also

so

many

advantages

to

the

industry,

poses

security

challenges to

b a n k s a n d t h e i r c u s t o me r s . Ev e n t h o u g h I n t e r n e t b a n k i n g p r o v i d e s e a s e a n d c o n v e n i e n c e , i t i s mo s t v u l n e r a bl e t o h a c k e r s a n d c yb e r c r i mi n a l s . On l i n e f r a u d i s s t i l l b i g business around the world. Even though surveillance cameras, guards, alarms, security screens, dye packs, and law enforcement efforts have reduced the chances of a criminal stealing cash from a bank branch, criminals can still penetrate the formidable edifice like the banking industry through other means. Using Internet banking and high tech credit card fraud, it is now possible to steal large amounts of money anonymously from financial institutions from the comfort of your own home, and it is happening all over the world .F u r t h e r , i d e n t i t y t h e f t , a l s o k n o wn a s p h i s h i n g , i s o n e o f t h e f a s t e s t g r o wi n g e p i d e mi c s i n electronic fraud in the world. Identity theft occurs when fraudsters gain access to personal d e t a i l s o f u n s u s p e c t i n g v i c t i ms t h r o u g h v a r i o u s e l e c t r o n i c a n d n o n - e l e c t r o n i c me a n s . Th i s information is then used to open accounts (usually credit card), or initialize loans and mobile phone accounts or anything else involving a line of credit. Account theft, which is commonly mistaken for identity theft, occurs when existing credit or debit cards or financial records are used to steal from existing accounts. Although account theft is a more common occurrence than identity theft, financial losses caused by identity

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theft are on average greater and usually require a longer period of time to resolve. Spam scams involve fraudsters sending spam e-mails informing customers of some seemingly legitimate reason to login to their accounts. A link is provided in the e-mail to take the user to a login screen at their bank site; however the link that is provided actually takes the user to a ghost site, where the fraudster can record the login details. This information is then used to pay bills and or transfer balances for the fraudsters financial reward.

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E-Banking
E-banking made its debut in UK and USA 1920s. It becomes prominently popular during 1960, through electronic funds transfer and credit cards. The concept of web-based baking came into existence in Europe and USA in the beginning of 1980. 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:

EDI (Credit Cards/Debit Cards ATM E-Cheques EFT (Electronic Funds Transfer) Mobile Banking Telephone Banking Internet Banking Electronic Data Interchange
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BENEFITS OF E-BANKING:
To The Customer:

Anywhere Banking no matter wherever the customer is in the world. Balance enquiry, request for services, issuing instructions etc., from anywhere in the world is possible. Anytime Banking Managing funds in real time and most importantly, 24 hours a day, 7days a week.

Convenience acts as a tremendous psychological benefit all the time. Brings down Cost of Banking to the customer over a period a period of time.

Cash withdrawal from any branch / ATM On-line purchase of goods and services including online payment for the same

To The Bank:

Innovative, scheme, addresses competition and present the bank as technology driven in the banking sector market

Reduces customer visits to the branch and thereby human intervention Inter-branch reconciliation is immediate thereby reducing chances of fraud and misappropriation

On-line banking is an effective medium of promotion of various schemes of the bank, a marketing tool indeed.

Integrated customer data paves way for individualized and customized services.

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IMPLICATIONS FOR FINANCIAL MODERNIZATION

If the roots of banking are in loan making and liquidity provision, how will financial innovations and financial integration shape banking future? Regarding financial innovations, the most noticeable trend in the loan making process is the movement towards securitization and fee-based activities. Securitization :means packaging bank loans into securities for resale, which permits banks to move those loans off their balance sheets. According to theory, good securitization candidates are less information-intensive assets, such as mortgages and credit card receivables, but not the more information-intensive assets, which include most business loans. Thus, this self-selection of loans for securitization leaves the bank's balance sheet with a high concentration of information-intensive loans. This may make the bank less flexible in dealing with liquidity shocks.) Because the fragile capital structure calls for banks to invest in relatively low-risk assets that can be liquidated to meet depositors' withdrawal demand, this implies that there is a limit to how extensively securitized assets can be shifted outside of the banking system. Fee-Based Activities:where banks do not make loans but provide credit lines, credit enhancements, or credit guarantees. Banks can provide these fee-based services because of their credibility, which stems from their commitment to low-risk assets as dictated by their fragile capital structure. Although banks can leverage their reputation capital, they can do so only up to a limit. To stay credible, banks need a core of low-risk assets on their books that are funded by demand deposits, and the scale of these core activities must be proportional to the overall organization.
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Regarding financial integration, the driver seems to be linking activities in which banks can share expertise and operating systems, as well as the potential for providing one-stop-shopping for financial services to individual customers. Consider first securities underwriting. Both securities underwriting and loan making involve pricing financial assets. In loan making, a bank underwrites a loan and then funds it by putting it on its book. In securities underwriting, a bank underwrites a security but quickly turns around and resells it to the public. Thus, banks already have the know-how and infrastructure to engage in securities activities and would seem likely to realize a degree of scope economies by engaging in these activities.

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EXPECTATIONS FROM BANK EMPLOYEES IN MODERN BANKING

In present scenario it is challenging for bank staff to meet growing demands of customers. The bank personnel have to imbibe marketing orientation to satisfy their clients in order to retain existing accountholders and to create new accountholders. Only when this ethos is internalized , a bank will be in a position to achieve its corporate goal, hold on it and increase market share and build an image of customer caring bank. For flourishing in present time, bank personnel have to train and retain themselves constantly to develop skills, which would enable them to work smartly.

They have to keep learning to remain a part of the dynamic world. Banking personnel should develop specialization in banking profession with regard to banking and finance , management , in particular

organization Management and Human Resource Management and project Appraisal . Therefore they have to keep pace with emerging requirements to Indian Banking. In order to make bank functioning more smooth and systematic, RBI has provided some guidelines to all operating banks to know their customers and cash transactions. Its broad gist is as under

The RBI has directed banks to apply the Know Your Customer procedure during account opening; this would be part of the apex banks guidelines relating to identification of depositors. To know your customer will be applicable to all new account with immediate effect.
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 The objective is to put in place systems and

procedures to help

control financial frauds, banks have been informed. Where documents such as passport or driving license are not available, verification of the new customers credentials by existing account holders or their introduction by a person known to the bank may suffice The board of directors of banks should have in place adequate policies to monitor transactions of a suspicious nature in accounts, and have systems of conducting due diligence and reporting such transactions. An independent evaluation of the controls for identifying high value transactions should be carried out on a regular basis by the internal audit function in the banks. It has been emphasized that all operating and management staff must fully understand the need for strict adherence to know your customer norms. Hence ,all institutions must have ongoing training programmes so that their staffs are adequately trained.

The Role Of The Bank Manager

The mangers are the navigators who are taking their team to accomplish customer satisfaction. Bank manager has to devote their energy and that of his staff towards a better understanding of his customers financial circumstances and needs. Bank manager needs to be more creative and need to develop customer friendly productive environment. Bank manager should have more positive approach to the selling of services that the more passive role traditionally associated with the manage
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CONCLUSION
Modernizing operations includes reviewing all processes and IT systems and software, simplifying organizational structures, enhancing customer service, increasing the speed and effectiveness of product manufacture, and improving governance, risk management and regulatory compliance Integrated applications and centralized processing are essential for modern, efficient banking. Modern banks provide security and convenience for managing your money and sometimes allow you to make money by earning interest. Convenience and fees are two of the most important things to consider when choosing a bank Writing and depositing checks are perhaps the most fundamental ways to move money in and out of a checking account, but advancements in technology have added ATM and debit card transaction and ACH transfers to the mix.

Debit cards provide easy access to the cash in your account but can cause you to rack up fees if youre not careful. While debit cards encourage more responsible spending than credit cards, they do not offer the same protection or perks to consumers. if you have more money than you need to manage your day-to-day expenses, banks offer a variety of options for saving, including money
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market accounts, CDs, high-interest online savings accounts and basic savings accounts.

To protect your money from electronic theft, identity theft, and other forms of fraud, its important to implement basic precautions such as shedding account statements, having complex passwords and only doing online banking through secure internet connections.

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RECOMMENDATIONS
In this white paper I started by outlining the challenges that face banks today. They range from the need to generate strong revenues and healthy profits and to expand into emerging markets, though to becoming more customer centric and dealing with the growing regulatory burden. I went on to say that, in order to meet these challenges, banks need to modernize their business strategies and operating models. If they do not modernize, they are likely to fail fail to give customers what they want, fail to generate adequate profits, and fail to deliver shareholder value. Then I explored the technology implications of all of the above in particular the important role that software and IT architecture plays in any bank modernization program.

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BIBLIOGRAPHY

BANKING IN NEW MILLENNIUM (Issues , challenges and strategies) CUSTOMER STANDARDS MODERN BANKING OF INDIA

SERVICE

AND

BANKING

CODES

AND

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