CHAPTER – III

MODERN BANKING SERVICES OF STATE BANK OF INDIA

3.1 Introduction

3.2 Profile of State Bank of India

3.3 Prudent Technology Investment and its Competitive

Lead in the Banking Sector

3.4 Objectives of Modern Technology Investment in State

Bank of India

3.5 Innovation in Customer Service In Banks

3.6 Classification of Banking Products and Services of

State Bank of India

3.7 Variety of Electronic Service Delivery Channels

3.8 Computerised Services (General)

3.9 E-Banking: Growing Powerful

3.10 Core-Banking

3.11 Need for Innovative Personalized Services

3.12 Summary

138
3.1 INTRODUCTION

In this chapter an attempt is made to study the conceptual framework of the

selected modern banking based products and services of State Bank of India in

Tirunelveli District and the need for innovation in customer services in their retail

banking.

The tremendous advances in technology and the aggressive infusion of modern

banking services have brought in a padaigm shift in banking operations. With the

development of modern banking, the world has become a global village and it has

brought a revolution in the banking industry. The banks appear to be on fast track for

modern banking based products and services. Bank customers are becoming very

demanding and it is the extensive use of technology that enables banks to satisfy

adequately the requirement of customers. Technology has become the fuel for rapid

change. The modern banking technology facilitates the development of retail banking

activities.

The retail banking refers to the dealing of commercial banks with individual

customers by offering products and services in the form of fixed, current savings account

and mortgages, loans (personal, housing, vehicle and educational) and also services like

Debit Card, Credit Card, ATM Card and depository services and the like. In addition to

the multiple products, it also emphasizes multiple channels of distribution like call centre,

internet, mobile/SMS, core-banking service and so on through which products are

99
delivered and services are provided to multiple consumer groups (customer, small

business and corporate).

The issue of retail banking is considered extremely vital and the growth of retail

banking is mainly attributable to the rapid advancement in information technology. In

India both the private and public sector banks too have experienced a surge in retail

banking. Therefore, in this competitive and globalized banking scenario, the customers

are the priority for banking companies and they are considered as assets that the banking

company should preserve and continuously expand.

As customers are of significant importance, it is essential for the banking

companies to satisfy their needs and requirements by providing a wide variety of

products and services through the increasing power and precision of modern technology.

Now-a-days banks are providing a variety of products and services and adopting new

techniques to satisfy their customers.

It is true that technology has provided a unique competitive advantage to both

public and private sector banks in India, since they have taken a lead in offering

technology based products and services to their customers. Adopting the latest

technology with constant upgradation is leading to a huge investment of capital in

technology and high cost of skilled and trained man power. Therefore, to contain the

phenomenon, a number of new private banks and foreign banks with large volumes of

business have started out-sourcing some of their activities.

100
 Learning operations and ATM maintenance are handed over to outsourcing

agencies, whereas marketing functions for deposit mobilization, retail loans and credit

card business are done through Direct Selling Agents (DSAs). Routine back office jobs

are either centralized or completely out-sourced leading to branch staff taking up more

marketing functions with a customer centric approach at the branch level.

Based on the above facts, the State Bank of India has understood the impact of the

introduction of electronic system for the delivery of products and services to their

customers, which ultimately provides enormous benefits in their operations. It helps to

streamline and standardize the workflow to attend the work in the required manner and

provide complete security to office documents and also helps in the following ways:

Increase the speed to process the cases due to reduction in procedures and

providing clear-cut responsibility to persons involved.

Easy tracking of documents.

Easy irretrievability of documents.

No loss or misplacement of documents.

Optional utilization of manpower.

Measure the performance ultimately.

Even though the above benefits are identified, the modern technology has its own

risks. In order to avoid such risks, there is a need to ensure the availability of the network

and other services for users without any interruption. To provide such uninterrupted

101
services, banks have to concentrate on proper modern technology planning, preventive

maintenance, availability of facility managers and technological capability to manage the

system. In order to ensure continuous business, it is necessary to have well-trained and

capable database administration.

3.2 PROFILE OF STATE BANK OF INDIA

State Bank of India (SBI) is a multinational banking and financial services

company based in India. It is a government-owned corporation with its headquarters

in Mumbai, Maharashtra. As of December 2013, it had assets of US$388 billion and

17,000 branches, including 190 foreign offices, making it the

largest banking and financial services company in India by assets.

State Bank of India is one of the Big Four banks of India, along with ICICI

Bank, Punjab National Bank and HDFC Bank.

The bank traces its ancestry to British India, through the Imperial Bank of India,

to the founding, in 1806, of the Bank of Calcutta, making it the oldest commercial bank

in the Indian Subcontinent. Bank of Madras merged into the other two "presidency

banks" in British India, Bank of Calcutta and Bank of Bombay, to form the Imperial

Bank of India, which in turn became the State Bank of India. Government of India owned

the Imperial Bank of India in 1955, with Reserve Bank of India (India's Central Bank)

taking a 60 per cent stake, and renamed it the State Bank of India. In 2008, the

government took over the stake held by the Reserve Bank of India.

102
3.2.1 History

The roots of the State Bank of India lie in the first decade of the 18th century,

when the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June

1806. The Bank of Bengal was one of the three Presidency banks, the other two being

the Bank of Bombay (incorporated on 15 April 1840) and the Bank of

Madras (incorporated on 1 July 1843). All three Presidency banks were incorporated as

joint stock companies and were the result of royal charters. These three banks received

the exclusive right to issue paper currency till 1861 when, with the Paper Currency Act,

the right was taken over by the Government of India.

3.2.2 Branches

The corporate center of SBI is located in Mumbai. In order to cater to different

functions, there are several other establishments in and outside Mumbai, apart from the

corporate center. The bank boasts of having as many as 14 local head offices and 57

Zonal Offices, located at major cities throughout India. It is recorded that SBI has about

10,000 branches, well networked to cater to its customers throughout India.

3.2.3 ATM Services

SBI provides easy access to money to its customers through more than 8500

ATMs in India. The Bank also facilitates the free transaction of money at the ATMs of

State Bank Group, which includes the ATMs of State Bank of India as well as the

Associate Banks. Customers may also transact money through SBI Commercial and

International Bank Ltd by using the State Bank ATM-cum-Debit (Cash Plus) card.

103
3.2.4 Growth of State Bank of India

The State Bank of India grew into a massive institution, separating its branches in

to every corner of India. The bank has a massive and unmatched distribution network of

domestic branches reaching every nook and cranny of the country and foreign offices

spreading over countries covering all time zones as well as a fast growing technology

base providing state of the art virtual banking channels. As a premier player in the

diversified financial services market, the banks enjoy the status of an universal bank

offering an array of financial products and services under a single umbrella leveraging its

unmatched strengths in terms of capital and asset base, massive infrastructure and a large

pool of talent and committed staff to world class standards of efficiency and

professionalism. The State Bank of India has the following seven Associate Banks (Abs)

with controlling interest ranging from 75 per cent to 100 per cent.

1. State Bank of Bikaner and Jaipur (SBBJ)

2. State Bank of Hyderabad (SBH)

3. State Bank of Indore (SBIr)

4. State Bank of Mysore (SBM)

5. State Bank of Patiala (SBP)

6. State Bank of Saurastra (SBS)

7. State Bank of Travancore (SBT)

Each associate bank individually and collectively grows in terms of employees,

deposit, business and profit.

104
3.2.5 Modern Banking Services Provided By State Bank of India

Apart from receiving deposits and granting loans and advances, the following are

some important modern banking services provided by State Bank of India to its

customers.

3.2.6 Personal Banking

State Bank of India offers a wide range of services in the personal banking

segment. State Bank of India products are designed with flexibility to suit the personal

requirements. They are State Bank of India housing loan, State Bank of India car loan,

State Bank of India personal loan, State Bank of India loan for pensioners, loan against

mortgage of property, loan against shares and debentures, rent plus scheme and medi plus

scheme.

3.2.7 Agricultural Development

State Bank of India caters to the needs of agriculturalists and landless agricultural

labourers. Specialised branches have been set up in different parts of the country

exclusively for the development of agriculture through credit deployment.

3.2.8 Non-Resident Indian Services

State Bank of India offers products and services needed for the non-resident

Indians living across the globe.

3.2.9 International Banking

International banking services of State Bank of India are delivered for the benefit

of its Indian customers. Non resident Indians and foreign entities make use of the services

like corporate lending loan syndications, merchant banking, handling letters of credit and

105
guarantees, short term financing, collection of clean and documenting credits and

remittances.

3.2.10 Corporate Banking

State Bank of India is a shop providing financial products / services to a wide

range of large, medium and small scale sectors both domestic and international.

3.2.11 Working Capital Financing

Assistance is extended both as fund based and non-fund based facilities to

corporates, partnership firms and proprietary concerns. Working capital finance is

extended to all segments of industries and service sector such as information technology.

3.2.12 Term Loans

Term loan is granted to support capital expenditure for setting up new ventures

and also for expansion, renovation etc.

3.2.13 Internet Banking

State Bank of India enables its retail banking customers to operate their accounts

across India, removing the restrictions imposed by geography and time. It is a platform

that enables the customers to carry out their banking activities from their desktop, aided

by the power and convenience of the internet.

3.2.14 ATM Services

State Bank of India offers the convenience of ATM services. This means that the

customer can transact at free of cost at the ATMs of State Bank group.

106
3.2.15 ATM Debit Card

State Bank ATM cum debit card provides the services to its customers. Since

there is no need to carry cash in pocket, there is no fear of overs pending.

3.2.16 Core Banking

This means the entire bank branches are networked and the customer is the

customer of bank rather than the branch. One can operate the account at any one branch

of the bank.

3.2.17 Indian Financial System Code

This is an identification code to each branch of the Bank in our country. It enables

the customers to remit the money easily to any branch of any kind in India through RTGS

(Real Time Gross Settlement) /NEFT (National Electronic Funds Transfer). It is a 11

digit code.

3.2.18 Multicity Cheques

These cheques enable the paying bank to debit the customers account

instantaneously. These cheques replace the Demand Drafts.

3.2.19 Bank Assurance

Bank assurance means bank selling general insurance products as it gives them

miscellaneous income using the existing resources.

3.2.20 Phone and Mobile Banking

Phone and mobile banking means normal banking transaction can be transacted

through telephone and mobile. Online banks are never closed, and 24 hours access to

one’s banking accounts is allowed.

107
3.2.21 Logo and Slogan

The logo of the State Bank of India is a blue circle with a small cut in the bottom

that depicts perfection and the small man, the common man - being the center of

the bank's business. The logo came from National Institute of Design (NID),

Ahmedabad and it was inspired by Kankaria Lake, Ahmedabad.

Slogans: "PURE BANKING, NOTHING ELSE", "WITH YOU - ALL THE

WAY", "A BANK OF THE COMMON MAN", "THE BANKER TO EVERY

INDIAN", "THE NATION BANKS ON US"

3.2.22 Major Competitors

Some of the major competitors for SBI in the banking sector are Axis

Bank, ICICI Bank, HDFC Bank, Punjab National Bank, Bank of Baroda, Indusind

Bank, Canara Bank and Bank of India. However in terms of average market share, SBI is

by far the largest player in the market.

3.2.23 Vision and Mission

3.2.23.1` Vision

My SBI.

My Customer first.

My SBI: First in customer satisfaction

3.2.23.2 Mission

We will be prompt, polite and proactive with our customers.

We will speak the language of young India.

We will create products and services that help our customers achieve their goals.

108
 We will go beyond the call of duty to make our customers feel valued.

We will be of service even in the remotest part of our country.

We will offer excellence in services to those abroad as much as we do to those in

India.

We will imbibe state of the art technology to drive excellence.

3.3 PRUDENT TECHNOLOGY INVESTMENT AND ITS COMPETITIVE LEAD

IN THE BANKING SECTOR
“Technology has changed the face of banking sector. It is helping the banks to

ease cost pressure, improve quality and be competitive. While the major objective of

Modern Technology investment in banks is to offer services to customers which bring

convenience and value, modern technology strategy should be aligned with business plan

to get greater benefit. Prudent technology investment decision is one which brings

positive return on technology investment. The major modern technology competitive

edges in banks are improved distribution, enhanced operational efficiency, better

management of risks and efficient payment system.”1

Thus, technology facilitates the organization/business

To compete in the present modernized environment,

To cut cost pressures,

For better productivity and volume,

1. Anu Anna Thomas, Present Technology Investment and its Competitive Lead in
the Banking Sector, - Information Technology Banks – ICFAI University Press,
2005, p.98.

109
 To enhance speed and ease in production and

To improve quality.

FIGURE 3.1
Implementation of Modern Technology

Manual Batch Processing Online Real-time

System Systems Systems Systems

3.4 OBJECTIVES OF MODERN TECHNOLOGY INVESTMENT IN STATE

BANK OF INDIA

! Offer services to customer, which will bring convenience and value addition to

customers.

! Help the banks in retaining the existing customers and to further increase

customer base.

! Improve operational efficiency, decrease operational costs and to enhance the

wealth of owners (stakeholders)

! Use operational data for providing a Management Information System and

Decision Support System.

! Derive necessary inputs for Customer Relationship Management operational data.

! Provide necessary tools to launch new products and new business initiatives.

! Provide support for determining and managing risk in operation.

! Meet regulatory/statutory requirements.

110
 ! Secure information of Assets as Information is a vital resource for Bank’s

continued operation.

! Augment Non-interest income, especially through technical products such as

ECS/E-money/Money Transfer/Utility payments/Direct Taxes/Cash Management

Services and so on.

3.5 INNOVATION IN CUSTOMER SERVICE IN BANKS

“Satisfied customers are the best guarantee for stability and growth. Customers

will be satisfied only when the banks provide the customized and innovative products and

services at reasonable costs. This article focuses on the kind of services provided by

developed countries and the level of innovative services provided by Indian banks. Many

innovative services are currently available from Indian banks like e-banking, ATMs,

anywhere bank and so on. But there is a vast scope for improvement”2

Technology is rapidly transforming the banking industry – and expanding its

ability to reach the unbanked. Banking services are unique in the sense that diverse

customers have multifaceted needs therefore, benchmarking of banking services becomes

a difficult task. No doubt, a system of Citizen’s charter has been introduced in various

banks but this only deals with the time limit within a service would be rendered to the

customers.

2. Sharathkumar, Innovation in Customer Service in Banks – Innovation in Banks,

ICFAI University Press, 2005, p.20.

111
Are Banks Serving the Common Man?

“Banks have been changing their mindset and are offering their services

effectively and efficiently. Besides RBI’s efforts, IBA is also making efforts to improve

the customer services. Banks have been advised to review their existing policies and

procedures with regard to delivering of various services.”3

FIGURE 3.2
Acquisition/Satisfaction

Customer Cross Selling/Up

Identification Selling

Modern
Technology Customer
Customer Satisfaction Acquisition
provide
and Delight

Customer Retention

Technology encourages innovative applications with product manufacture design

and control. Thus, it means a rapid change, especially as the banks take to the fast track,

besides this development, technology of telecommunication and electronic data

processing have accelerated these changes. So, the modern technology has altered the

ways of banking business through improving product selling, customer identification,

customer acquisition and customer satisfaction.

3. Government of India, Economic Survey 2005-06, p.63.

112
Recent Technology Innovation by State Bank of India

State Bank of India and seven of its associate banks got more than 2,500 of their

branches connected under the second phase of the $29mn project assigned to Data

craft.

State Bank of India launched a mobile ATM, using Reliance CDMA technology,

on a boat Vypeen islands in the Kochi Backwaters.

It has been established that increasing the role of technology in a banking service

can reduce costs and often improve customer satisfaction. This study elucidates the

customers’ preference and satisfaction with technology based products and services of

SBI. However, the customer satisfaction has been linked with the

Computerized Services

Internet Banking

Core Banking

ATM Services

Mobile and SMS Services.

3.6 CLASSIFICATION OF BANKING PRODUCTS AND SERVICES OF STATE

BANK OF INDIA
Banking products can be divided into two types. These are Traditional and

Modern Technology based products. Traditional products are also known as mass

banking products.

113
 Traditional products consist of Saving Deposits Account, Current Account, Fixed

Deposit Account, Recurring Deposit Account, Overdraft Account, Loan Account, PPF

Account. All these components of traditional product is operated through channels such

as internet, phone services, ATM and Core banking technology as a transformation from

traditional banking to technological banking.

The remaining Modern Technology based products and services which customers

extract through the same channels are as follows:

1. Term Deposits,

2. Special Term Deposits,

3. Tax Saving Scheme

4. MODS (Multi Option Deposit Scheme)

5. Flexi Deposit Scheme

6. Basic Banking – No Frills Account and

7. Premium Savings Account.

In view of several developments in the 1990s, the entire banking products

structure has undergone a major change. As part of the economic reforms, banking

industry has deregulated and made competitive. New players have also been added to the

competition. Modern technology revolution has made it possible to provide ease and

flexibility in operations to customers. Rapid strides in information technology have, in

fact, redefined the role and structure of banking in India. Further, due to exposure to

114
global trends after information explosion led by internet, customers – both individual and

corporates – are now demanding better services with more products from their banks.

Market focus has also shifted from mass banking products to class banking with

introduction of value added and customized products and these are named as modern

technology based products.

3.7 VARIETY OF ELECTRONIC SERVICE DELIVERY CHANNELS

3.7.1 Internet Banking

The advent of internet has great impact on the electronic banking. By using

internet, banking is not confined by time and geographical constraints and limitations.

Customers worldwide can have access to their accounts all the 24 hours of the day

throughout the week. Internet banking by using internet and web technologies enables

customers to finance their activities in a virtual environment to do this. The difference

between internet banking and home banking is that for achieving banking services via the

internet, there is no need to install proprietary software. Banking services can be operated

via an internet public network and the customer is linked to the bank account via the

internet.

Internet banking has also expanded with the development of web applications.

With increasing internet access to people who provide these services to be developed and

banks that are non-responsive to this issue will disappear from the market.

3.7.2 Home Banking

Another type of electronic banking services is home banking. In this type of

banking, banking is done through access to account information and banking services

115
through a personal computer using a modem and a phone line in addition to financial

software or banking.

3.7.3 Web Pages

Currently, many organizations invest in creating their own websites to deliver

marketing messages. The easiest form of internet banking in order to display information

about the products and services is via the network of World Wide Web. Today, all major

banks and financial institutions have web pages. These pages allow customers and banks

to interact and exchange information in order to provide a variety of services. Also the

web is used as a tool for examining and receiving suggestions from customers and the

development of communications and expansion services like e-mail.

3.7.4 Telephone Banking

One of the most common patterns of banking is telephone banking that it has long

been used. There are generally three types of telephone banking system. A type of it is,

automatically through a computer system. The other type, the telephone banking is based

on operator. In this case the customer is a person responsible for the responders and

guidance. Another type of telephone banking is based on Personal Computer that uses a

PC for contact system. Many services can be received through telephone banking such as

bills, demand note requests, transfer of funds between customer accounts in different

banks, the second payment, receipt of financial advice that typically are provided by

human operators system.

3.7.5 Television Banking

In this method, using satellite TV, customers can get account information on the

TV screen. The main point is that these services do not require the use of personal

116
computers and this encourages the development of market systems. People like TV. This

is an advantage for these services.

3.7.6 Mobile Banking

Mobile banking can be defined as a channel where customers can interact with the

bank via a mobile device. In fact the financial services sector of the wireless internet is

connected to a digital input wherever possible and internet banking has expanded the

concept to the mobile world. Mobile banking application is used in two ways with Sms

(Sms banking) and internet. The result is fast delivery of new services to the customers

by the banks.

3.7.7 ATM

An automated teller machine (ATM) is a computerized telecommunications

device that provides a financial institution's customers a secure method of performing

financial transactions in a public space without a human clerk or bank teller. ATM can be

interior (i. e., located in the branch premises) or exterior (located anywhere outside the

branch premises).

ATM machines is one of the first approaches of electronic banking that has

emerged in the early stages of development of banking. The machines are operated on 24

x 7 basis. The customers can use an ATM through a personal identification number

provided by the banks. Using cards and personal identification number, customers can

receive and transfer money between accounts and pay or to obtain information about your

account and billing application. Transactions conducted electronically as well, and are

recorded immediately.

117
 Banks need not obtain permission of the RBI for installation of ATMs at branches

and extension counters for which they hold licences issued by the Reserve Bank. They

can also install offsite ATMs without RBI approval. However, they should obtain a

license from the regional office of DBOD (Department of Banking Operations and

Development) of RBI, before operationalizing the ATM, so as to be in conformity with

section 23 of the Banking Regulation Act.

The penetration of ATMs across the country increased in 2012-13 with the total

number of ATMs crossing 1, 00,000, clocking a double digit growth during the year. This

growth was driven primarily by private sector banks, with their share in total ATMs

picking up rapidly by about 38 per cent. Also Over the years, the relative growth in

off-site ATMs has been much more than that of on-site ATMs. As a result, by 2012-13,

off-site ATMs accounted for more than half the total ATMs in the country as shown in

Table 3.1:

TABLE 3.1
ATMs of Scheduled Commercial Banks
On-site Total Number
Sl. No Bank Group Off-site ATMs
ATMs of ATMs
I Public Sector Banks 40,241 29,411 69,652
1.1 Nationalised Banks 20,658 14,701 35,359
1.2 SBI Group 18,708 13,883 32,591
II Private Sector Banks 15,236 27,865 43,101
2.1 Old Private Sector Banks 4,054 3,512 7,566
2.2 New Private Sector Banks 11,182 24,353 35,535
III Foreign Banks 283 978 1,261
IV All SCBs (I+II+III) 55,760 58,254 1,14,014
Source: Report on Trend and Progress of Banking 2012-13.

118
 It is inferred from Table 3.1, nearly one-third ATM’s are installed by SBI

groups.

3.7.8 Debit Card and Credit Card

A debit card is an electronic card issued by a bank which allows bank clients

access to their account to withdraw cash or pay for goods and services. This removes the

need for bank clients to go to the bank to withdraw cash from their account as they can

now just go to an ATM or pay electronically at merchant locations. This type of card, as a

form of payment, also removes the need for cheques as the debit card immediately

transfers money from the client's account to the business account.

A credit card is issued by a financial company giving the holder an option to

borrow funds, usually at point of sale. Credit cards charge interest and are primarily used

for short-term financing. Interest usually begins one month after a purchase is made and

borrowing limits are pre-set according to the individual's credit rating.

There has been a tremendous growth in issuance of debit and credit cards by

public and private sector banks. However Debit cards are a more popular mode of

electronic money than credit cards. So far, debit cards have been a more popular mode of

electronic money than credit cards in India as shown in Table 3.2. While public sector

banks have been frontrunners in issuing debit cards, new private sector banks continue to

lead in the number of credit cards issued (Table 3.2).

119
 TABLE 3.2
Credit and Debit Cards Issued by Scheduled Commercial Banks
(in millions)
Outstanding Number Outstanding Number
of Credit Cards of Debit Cards
Sl.No. Bank Group
2012 2013 2012 2013

I Public Sector Banks 3.1 3.5 214.6 260.6

1.1 Nationalised Banks 0.8 0.9 97.7 118.6

1.2 SBI Group 2.2 2.6 112.0 136.4

II Private Sector Banks 9.7 11.1 60.0 67.3

2.1 Old Private Sector Banks 0.04 0.04 13.9 15.4

2.2 New Private Sector Banks 9.6 11.1 46.0 51.9

III Foreign Banks 4.9 5.0 3.8 3.3

IV All SCBs (I+II+III) 17.7 19.5 278.4 331.2

Source: Report on Trend and Progress of Banking 2012-13.

Table 3.2 exhibits that more number of debit cards issued by SBI group but more

number of credit cards are issued by New Private Sector Banks.

3.7.9 NEFT

According to Reserve Bank of India, National Electronic Funds Transfer (NEFT)

is a nation-wide payment system to facilitate one-to-one funds transfer. Under NEFT,

individuals, firms and corporates can electronically transfer funds from any bank branch

to any individual, firm or corporate having an account with any other bank branch in the

country participating in the Scheme. The funds under NEFT can be transferred by

individuals, firms or corporates maintaining accounts with a bank branch. Even

individuals not having a bank account can deposit cash at the NEFT-enabled branches

120
with instructions to transfer funds using NEFT. However, such cash remittances will be

restricted to a maximum of Rs.50, 000/- per transaction. Such walk in-customers have to

furnish full details including complete address, telephone number, etc. NEFT, thus, also

helps in transfer of funds even without having a bank account. This is a simple, secure,

safe, fastest and cost effective way to transfer funds especially for Retail remittances.

3.7.10 RTGS

Real Time Gross Settlement system (RTGS), introduced in India since March

2004, is a system through which electronic instructions can be given by banks to transfer

funds from their account to the account of another bank. The RTGS system is maintained

and operated by the RBI and provides a means of efficient and faster funds transfer

among banks facilitating their financial operations. As the name suggests, funds transfer

between banks takes place on a 'Real Time' basis. Therefore, money can reach the

beneficiary instantaneously and the beneficiary's bank has the responsibility to credit the

beneficiary's account within two hours.

There has been sustained growth in both the volume and value of all types of

electronic transactions of SCBs in general and debit transactions in particular in recent

years, a trend that continued in 2012-13. Both RTGS (meant for large value payments

system, processing both customer and inter bank transactions of 2, 00,000 and above)

and NEFT (a retail system) have consistently posted double digit growth in terms of the

volume of transactions routed through these systems.

121
 TABLE 3.3
Volume and Value of Electronic Transactions by Scheduled
Commercial Banks (SCBs)
(Volume in million, Value in . billion)
Percentage Percentage
Volume Value
Type of of Change of Change
Transaction
2011-12 2012-13 2012-13 2011-12 2012-13 2012-13

ECS Credit 121.5 122.2 0.6 1,838 1,771 -3.6

ECS Debit 165 177 7.2 834 1,083 29.9

Credit Cards 320 397 23.9 966 1,230 27.3

Debit Cards 328 469 43.2 534 743 39.1

NEFT 226 394 74.3 17,904 29,022 62.1

RTGS 55 69 24.5 5,39,308 6,76,841 25.5

Source: Report on Trend and Progress of Banking 2012-13

It is inferred from Table 3.3 that volume and value of electronic transactions of

SCBs is increased from 2011-12 to 2012-13 for all types of electronic transactions.

3.8 BENEFITS OF E-BANKING

E-banking helps us in overcoming the drawbacks of manual system, as computers

are capable of storing, analyzing, consolidating, searching and presenting the data as per

the user requirements with a lot of speed and accuracy. Number of benefits accrues to the

various parties with the development of e-banking.

I.T. Based Banking Products and Services and their Working Mechanism

E-Rail(Electronic Rail Booking): Under this scheme, an individual can book their

railway ticket online. All internet banking customers can use this facility. The payment

amount will include ticket fare including reservation charges, courier charges and bank

122
service fee. Customer’s account will be debited to the extent of the payment as soon as

the payment option is selected by the customer over the on-line. The ticket may be

delivered or collected by the customer from the reservation counter.

Smart Card

It is also considered as that of any other credit card. The only difference is that, it

carries a chip embedded on the reverse below the magnetic strips. The purpose of the

smart card is to replace the multiple number of cards with one or two storable

information.

Safe Deposit Locker Remittance

Online banking helps the customers to give standing instructions to their bank

towards the remittance of rent for the safe deposit locker facility availed.

Foreign Inward Remittance

Funds can be transferred from anywhere. Drafts in Indian rupees can be

purchased from exchange companies or bank correspondents and it could be mailed to

the branch, where a customer has an account. Telegraphic or wire transfer can be made

through the branches of their bank aboard. Through the Automated Clearing House

(ACH) over the online, the money could be credited in customer’s account even from

USA within four days.

Demat Services

Demat service facilitates to maintain security balance in electronic form. This

service ensures free transferability of securities with speed, accuracy and security. It also

provides service towards the conversion of electronic balances physical (share certificate)

123
form. It facilitates faster and direct credit or security balances in DP (Depository)

account on allotment through public issue of companies. Both buying and selling of

securities will take place through the Demat account.

Gift Cards

The advancement of bank introduces gift cheques, allowing the beneficiary to use

the money according to their wishes. These cheques are accepted at the issuing bank

branches only. But the gift card issued in association with visa international gives the

comfort of convenience and acceptability. It is prepaid plastic card supported by

magnetic strip based technology. It is a perfect substitute for gift vouchers. It is usable at

all visa enabled merchant establishment at POS (Point of Scale) by signature.

EZ-Pay Card

It is a prepaid plastic card issued in Indian currency in association with visa

international. It is an ideal product for making periodical payments, where Payment of

salaries to employees, who are required to work at different locations. In that situation,

cards can be loaded from a single point and the funds are available to the employees

immediately. The card holder can withdraw his money from any ATM and balance

enquiry can be made through the ATM free of charge.

Multi City Cheques (MCC)

It is a cheque, that can be written by the customer in favour of his client and is

payable at par, at all branches of the bank. MCC can be issued in cheque operated

accounts (SB and Current) in addition to normal cheque books. The MCC facility is to

124
be used only for genuine transactions/bonafide remittances. No cash payments will be

made to this and parties at other branches.

NRI Services

These customers are provided with transaction details and account balance round

the clock. NRIs can open different types of account and avail various loans as per the

banking rules and regulations.

e-invest

Bank has introduced this supplementary process for applying in the public issues.

Bank will mark a lien on the deposit account of the e-investor to the extent of the

application money. Under this system customer funds will continue earning interest

during the application processing period. Once the allotment is over, the lien will be

removed and the shares allotted to the customers will be transferred to the Demat

account.

Foreign Exchange Transaction (FOREX)

Banks are able to take advantage of different rates in the foreign exchange

markets by the use of e-banking. Even a very minor change in the foreign exchange rates

will enable the banks to earn profits in spot market, forward market, future market, option

and swap market transactions.

Credit Card Payments through ATM

LIC

Shopping Bills

Offering of Freedom points

Regarding redemption of points

125
Travel Card

This card is powerful and a new concept for international travelers. It provides

convenience and safety to the travelers who are in aboard. Some of the features are,

replacement card, SMS alerts for every transaction, online access both to the customers

and corporate, card usable over the internet and so on. This facility makes the travel

totally hassle-free.

Investment Services/Cash Management Services

It is the financial advice service offered by banks to their customers. This service

is considered as high value and high specific oriented. The advisor (bank) has to gather

all information necessary and provide all such information to their customers, who need

the banker’s advice to take a decision on their investment. It is necessary to note that the

advisor must provide a customized recommendation from the information collected.

3.8 COMPUTERISED SERVICES (GENERAL)

Now-a-days customers are viewed by the banks as financial partners rather than

custodian of their customers’ money. In order to provide better services to their

customers both private and public sector banks have introduced a high level of

computerization to ensure efficient services. The high speed computer mediated

communication networks set up helps to reduce to communication cycle time. As a

result, employees could attend to the customer proposal and problems, while computer

processes all the transactions and displays the options and assists the employees to

provide customized solutions, the new technology has radically altered the traditional

126
ways of doing banking business. Increasingly, the customer in retail sector is doing

business with their banks.4

The payment system is effectively carried out through the use of E-payment

technology which allows customers to access banking services electronically, to pay

various bills towards telephone charges, electricity and mobile. It refers to electronic

services though the computers that are made available to the customers for pass book

entries, electronic clearing services. There is no uniform standard for presentment and

payment of bills under this system, getting of paper and plastic and typing to replace it by

electrons. By using the electronic device the banks can extend the following retail

services to their customers. The improved availability of customers data will help to

speed transaction processing cycle and automate the more time consuming customer

interactions, including form completion and other cumbersome procedure. Extending the

banking services infrastructure into these e-financing domains will also help to keep

customers satisfied.

3.8 E-BANKING: GROWING POWERFUL

Banking being highly information – intensive, it is only logical to sue Modern

Technology as an effective enabler and facilitator for meeting the requirement of banks

and their customers. With the changing lifestyle of customers, they need new products

and convenient delivery channels, which can be provided only by enabling technology”5

4. www.orpci.org.in July 12, 2010.

5. Nageswara Rao, Information Technology in Banks, IFCAI University, Press,
Hyderabad, 2005.

127
 The tremendous advances in technology and the aggressive infusion of modern

technology have brought in a paradigm shift in banking operations. For customers, it is

the realization of their ‘anywhere, anytime, anyway’ banking which has become a dream

fulfilled. For the banks, technology has emerged as a strategic resource for achieving

higher efficiency, control of operations, productivity and profitability.

It is evident that most ‘brick-and-mortar’ banks are shifting from a ‘product-

centric’ model to a ‘customer-centric’ model as they develop their new E-banking

capabilities. Banks are now realizing that Internet banking is most successful if they tailor

their websites to their customers’ needs rather than providing and promoting individual

products.

Traditional banks – both in public and private sectors – have been facing

constraints like heavy initial investment, inadequate infrastructure in rural and semi-

urban branches, excess manpower and so on in achieving total bank automation. Also

there is the issue of total business researcher-engineering, without which the infusion of

technology alone may not yield the required business benefits to banks. Again, it may

neither be required nor viable to cover the large number of small and rural branches in

total bank automation.

The biggest hurdle in popularizing e-banking is the security perception among the

customers. This needs to be addressed by establishing highly secure system of

architecture for the Net-based services.

The terms of e-banking refers to a process by which a customer may perform

banking transactions electronically without visiting a brick – and – mortar

128
 institution. There are different forms of e-banking, which can be used

interchangeably. They are named as PC banking (Personal Computer Banking),

Internet banking, Virtual banking, On-line banking, Home banking, Remote

electronic banking and Phone banking.

PC banking and internet or online banking are the most frequently used

designations.

These different types of electronic banking are often used interchangeably.

Banks are transforming their websites into full fledged finance portals through

which the banking companies have gained the opportunity to offer personalized

services to their customers on one-to-one basis by means of which banks can

build ( or develop) long-term customer relationship.6

E-banking utilized technology allows bank customers and their stakeholders to

interact and transact with the bank through a variety of channels such as internet, wireless

devices, ATMs and physical branches technology and the same are used for increased

knowledge sharing within the bank and between the bank and its vendors.

The latest wave in modern technology is internet banking. Internet is an

interconnection of computer communication networks spanning the entire globe, crossing

all geographical boundaries. Touching lifestyles in every sphere, the internet has

redefined methods of communication, work, study, education, interaction, health, trade

and commerce. The net is changing everything from the way we conduct commerce, to

6. Peter Spencer, E-banking - e-finance, IFCAI University, Press, Vol.1, 2002,

pp.66-67.

129
the way we distribute information. Being an interactive two-way medium, the net,

through innumerable websites, enables participation by individual in Business to

Business (B2B) and Business to Commerce (B2C) visits to shopping malls, books-stores,

entertainment sites and so on.

To achieve customer satisfaction, banks have eliminated the constraint of time

and distance by expanding the banking hours from eight to twenty four and reducing the

distance from infinity to new zero. RBI has provided the following guidelines for

internet banking services:

Only banks licensed under the Banking Regulation Act and having a physical

presence are permitted to offer banking services.

Internet banking should include Indian currency products only, with regard to

cross border transactions, wherein an Indian bank’s transactions with a foreign

resident and vice versa, existing restriction would continue to apply, except where

permitted by FERA.

Prior approval of RBI is required to offer internet banking. Banking that already

offers such services requires post-fact approval.7

The customer can become an e-customer of a bank, when the branch is e-enabled.

All that the customer has to get is only the internet connectivity after submitting an

application form for registration at his branch. The customer will shortly receive the user

ID and password and then he has to log on to the web of the respective bank (SBI) and

7. S.M. Jha, Bank Marketing, Millenium Edition, 2000, pp.14-23.

130
with the user name and password, he can make banking a hassle free routine. This system

has been characterized with simple, fast and convenient, any time, any-where service.

Today customers are demanding fast, accurate and reliable services. They expect

a reasonably high standard of services. So, it is inevitable for the banks to enable them to

respond to the customers’ needs at all times and at competitive prices. In the changed

socio-economic condition, the customers no longer want to be restrained by the physical

place, where their funds and information are stored and wish the banking facility to come

to their home rather than in branches of banks.

The internet has the power to effect a major increase in the level of competition

within the banking industry. The costs of an internet banking system are pretty much

fixed, regardless of the size of the bank. With the extensive use of computer and internet,

banks have now started transactions. The customer having an account in the bank can log

onto the bank’s website and access his bank account. Customers can make payments for

bills, give instructions for money transfers to fixed deposits and collection of bills and the

like. In addition to the above, the following are the additional services provided by

internet banking to their customers:

Customers can use their computers and a telephone modem to dial in from home

or any site where they have access to a computer.

The services are available seven days a week, 24 hours a day.

Transactions are executed and confirmed almost instantaneously.

Also, the range of transactions available is fairly broad. Consumers can view the

accounts, get account statements, transfer funds, have quick and continuous

131
 access to information availability and a large variety of cash management

instruments at internet sites by just making a few key punches.

Time Saving and Convenient

Availability of inquiry and transaction services around the clock

Worldwide connectivity

Easy access to amount to both recent and historical

Give instructions for third party transfers in the same branch.

Having direct customer control of international movement of funds without

intermediator.

Paying bills

Viewing and checking savings account balances.

Paying mortgages

Purchasing financial instruments and certificate of deposits

Booking tickets (E-Ticketing)

E-Tax payments

EZ Trade

RTGS (Real Time Gross Settlement)

E-Payment

E-Invest (IPO)

RBI EFT (Inter Banking Electronic Fund Transfer of the RBI)

Standing instructions could be provided by customers

Credit and dues payments

132
 Remittance to PPF account

Utility bills payments

Payment of donations to religious organizations

Setting SMS alerts for transaction details

Mutual Funds Investments

Demat account services

Submission of on-line request for the following:

Stop payment of cheque

Cheque book requisition

Demand Draft/Pay Order

Benefits to Organisations

Improve customer access.

Facilitate the offering of more services

Increase customer loyalty

Attract new customers

Increase customer satisfaction

Reduction in costs, as the need for physical branches in reduced.

Transparent and fast response.

3.10 CORE-BANKING

“Some of the most common issues around core-banking Implementations are

organizational, not technical.”8

8. Amit Sing Sidodiya, Indian Banking in the 21st Century, 2005, p.115.

133
 Core means “Basic” and hence the basic services provided by the internet

– enabled branches of bank is called “Core Banking”. Core banking is normally defined

as the business conducted by a banking institution with its retail and small business

customers. Many banks treat the retail customers as their core banking customers and

have a separate line of business to manage small business. Larger businesses are

managed via the Corporate Banking Division of the institution. Core banking basically is

depositing and lending of money.

Now-a-days, most banks use core banking applications to support their operations

where CORE stands for “Centralized Online Real-time Exchange”. This basically means

that the entire bank’s branches access applications from centralized data centres.

Normal core banking functions will include deposit accounts, loans, mortgages

and payments. Banks make these services available across multiple channels like ATMs,

Internet banking and branches.

Core banking solutions (CBS) are banking applications on a platform enabling a

phased, strategic approach that lets people improve operations, reduce costs, and prepare

for growth. Implementing a modular, component-based enterprise solution ensures

strong integration with your existing technologies. An overall Service-Oriented-

Architecture (SOA) helps banks reduce the risk that can result from multiple data entries

and out-of-date information, increase management approval, and avoid potential

disruption to business caused by replacing entire systems.

Core banking solutions is a new jargon frequently used in banking circles. The

advancement in technology, especially internet and information technology has led to

134
new ways of doing business in banking. These technologies have cut down time,

working simultaneously on different issues and increasing efficiency. The platform where

communication technology and information technology are merged to suit the core needs

of banking is known as Core banking solutions. Here, computer software is developed to

perform core operation of banking like recording of transactions, passbook maintenance,

interest calculations on loans and deposits, customer records, balance of payments and

withdrawal. This software is installed at different branches of the bank and

interconnected by means of communication line likes telephones, satellite, internet and

the like. It allows the user (customers) to operate accounts from any branch if it has

installed core banking solutions. This new platform has changed the way the banks are

working.

3.11 NEED FOR INNOVATIVE PERSONALIZED SERVICES

Bank customers are today more informed than ever before and have a high level

of confidence in choosing products and service providers for themselves. As a result of

the recent crisis and the reduced trust in banks, customers are now much more willing to

purchase products and services from various banks than they were in the past, and are

consequently banking with multiple providers. Managing different banking relationships

and comparing products and services between different providers is becoming easier for

customers through direct channels, internet blogs, and forums, and social networks.

Consequently, customers have increased the number of their banking relationships. At

the same time, the use of self service and direct channels has become a top priority for the

majority of banking customers. This trend is accompanied by the customers’ need for

135
better and more personalized services. In addition, customers have become more

price-sensitive as indicated by the change in customer reactions to pricing strategies for

banking products and services. As a result of this changing customer behaviour, banks

need to offer innovative and more personalized services investing in the digital channels

in order to attract and retain customers. Only by doing so, they can gain a competitive

edge in the fight for new customers and win back the trust of their existing customers.

3.12 SUMMARY

The tremendous advances in modern technology and the aggressive infusion of

information technology has brought in a paradigm shift in banking operations. With the

development of modern technology, the world has become a global village and it has

brought a revolution in the banking industry. The banks appear to be on fast track for

modern technology based products and services. Bank customers are becoming very

demanding and it is the extensive use of technology that enables banks to satisfy

adequately the requirement of customers. Modern Technology has become the fuel for

rapid change. Modern technology is no longer considered as mere transaction processing

or confined to management information system. The wind of liberalization,

privatization and globalization (LPG) has opened new vistas in the banking industry in

the generation of an intensely competitive environment. The post-liberalized banking

industry in India has been witnessing a discernible shift from the sellers’ to the buyers’

market. Further the banking sector reforms and introduction of e-banking has made

structural changes in service quality, managerial decisions, operational performance,

profitability and productivity of the banks. E-banking is one of the emerging trends in

136
the Indian banking and is playing a unique role in strengthening the banking sector and

improving service quality. It has enabled the banks to handle the payments electronically

and inter-bank settlement faster and in large volumes. There is increase in customer

satisfaction level, reduction in the cost of banking operations, increased productivity and

as such there is a tremendous scope for the Indian banks to enlarge their E-banking

services which could enhance their competitiveness. Further, new technology has rapidly

altered the traditional ways of doing banking business. Customers can view the

accounts, get account statements, transfer funds, purchase draft by just making a few key

punches. Availability of ATMs and plastic cards, EFT, electronic clearing services,

internet banking, mobile banking and phone banking, to a large extent avoid customers

going to branch premises and has provided a wider range of services to the customers.

Though the sample bank has been offering so many modern technology based

products and services towards improving customer services, they need to implement

innovative personalized services to attract and retain the customers and also the banks

need to invest in the digital channels in order to attain maximum level of satisfaction of

the customers with respect to changing behaviour of the customers. Only by doing so,

they could gain a competitive edge in the fight for new customers and win back the trust

of their existing customers.

137