SR.NO. CONTENTS PAGE NO.

1 ABSTRACT 2

2 INTRODUCTION 3-37

3 REVIEW OF LITERATURE 38

4 NEED OF THE STUDY 39-40

5 OBJECTIVE OF THE STUDY 41

6 SCOPE OF THE STUDY 42

7 HYPOTHESIS OF THE STUDY 43

8 RESEARCH METHODOLOGY OF THE STUDY 44-49

9 LIMITATIONS OF THE STUDY 50

10 REFERENCES 54

11 ANNEXURE 1.1- QUESTIONNAIRE 55

1
Abstract

This study was conducted to know about the recent developments in banking sector
which can help or break the economy. As a developing country, India has to
concentrate on its private and public banks for better development in terms of
economy.

There are various new technologies which can be helpful in the modern era, we can
also see how banks have emerged from just lending and depositing in a physical place
to artificial technology. While there a lot of advantages of all these new technologies,
these come with a lot of issues like privacy and unemployment

So it is the duty of the government to come up with measures like creating more jobs
in analysis and robotics fields and coming up with various aided courses.

The survey also shows how people still want the personal touch with their banks and
the traditional methods

This also covers the journey of banks in the early days to all the new and upcoming
trends in the banking industry.

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 INTRODUCTION TO BANKING
MEANING:
A bank is a financial institution that accepts deposits from the public and
creates credit.[1] Lending activities can be performed either directly or indirectly
through capital markets. Due to their importance in the financial stability of a country,
banks are highly regulated in most countries. Most nations have institutionalized a
system known as fractional reserve banking under which banks hold liquid assets
equal to only a portion of their current liabilities. In addition to other regulations
intended to ensure liquidity, banks are generally subject to minimum capital
requirements based on an international set of capital standards, known as the Basel
Accords.

Some people go to banks in search of a safe place to keep their money. Others are
seeking to borrow money to buy a house or a car, start a business, expand a farm, pay
for college, or do other things that require borrowing money.

Where do banks get the money to lend? They get it from people who open accounts
and maintaining it. Banks act as go-betweens for people who save and people who
want to borrow. If savers didn’t put their money in banks, the banks would have little
or no money to lend.

Your savings are combined with the savings of others to form a big pool of money,
and the bank uses that money to make loans. The money doesn’t belong to the bank’s
president, board of directors, or stockholders. It belongs to you and the other

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 depositors. That’s why bankers have a special obligation not to take big risks when
they make loans. WHAT IS THE MEANING OF BANKING?

Banking plays such a major role in channeling funds to borrowers with productive
investment opportunities, this financial activity is important in ensuring that the
financial system and the economy run smoothly and efficiently. As a result of
different kinds of banks in existence nowadays, it would be difficult, or at least
cumbersome, to formulate a definition of banking which connotes the diverse
activities of all kinds of banks. Some of the definitions can be formulated here:

The Meaning of Banking - 1: A person or company carrying on the business of

receiving moneys, and collecting drafts, for customers subject to the obligation of
honoring cheques drawn upon them from time to time by the customers to the extent
of the amounts available on the current accounts.

The Meaning of Banking - 2: Chamber's Twentieth Century Dictionary defines a bank

as an "institution for the keeping, lending and exchanging, etc of money.

The Meaning of Banking - 3: According to Crowther, "The banker's business is to

take the debts of other people to offer his own in exchange, and thereby create
money." A similar definition of the meaning of Banking has been given by Kent who
defines a bank as "an organization whose principal operations are concerned with the
accumulation of the temporarily idle money of the general public for the purpose of
advancing to others for expenditure."

The Meaning of Banking - 4: Sayets, on the other hand, gives a still more detailed
definition of a bank thus: Ordinary banking business consists of changing cash for
bank deposits and band deposits for cash; transferring bank deposits from one person
or corporation (one 'depositor') to another; giving bank deposit in exchange for bills of
exchange, government bonds, the secured or unsecured promises of businessmen to
repay, etc

WHO IS CUSTOMER OF A BANK?

According to RBI, a customer of a bank will be one of the following:

1. A person or entity that maintains an account and/or has a business relationship with
the bank.

2. One on whose behalf the account is maintained (i.e. the beneficial owner).

3. Beneficiaries of transactions conducted by professional intermediaries, such as Stock

Brokers, Chartered Accountants, Solicitors etc., as permitted under the law.

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4. Any person or entity connected with a financial transaction which can pose significant
reputational or other risks to the bank, say, a wire transfer or issue of a high value
demand draft as a single transaction.

A. Primary Functions of Banks ↓

The primary functions of a bank are also known as banking functions. They are the
main functions of a bank.

These primary functions of banks are explained below.

1. Accepting Deposits

The bank collects deposits from the public. These deposits can be of different types,
such as :-

a. Saving Deposits

b. Fixed Deposits

c. Current Deposits

d. Recurring Deposits

a. Saving Deposits

This type of deposits encourages saving habit among the public. The rate of interest is
low. At present it is about 4% p.a. Withdrawals of deposits are allowed subject to
certain restrictions. This account is suitable to salary and wage earners. This account
can be opened in single name or in joint names.

b. Fixed Deposits

Lump sum amount is deposited at one time for a specific period. Higher rate of
interest is paid, which varies with the period of deposit. Withdrawals are not allowed
before the expiry of the period. Those who have surplus funds go for fixed deposit.

c. Current Deposits

This type of account is operated by businessmen. Withdrawals are freely allowed. No

interest is paid. In fact, there are service charges. The account holders can get the
benefit of overdraft facility.

d. Recurring Deposits

This type of account is operated by salaried persons and petty traders. A certain sum
of money is periodically deposited into the bank. Withdrawals are permitted only after
the expiry of certain period. A higher rate of interest is paid.

2. Granting of Loans and Advances

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 The bank advances loans to the business community and other members of the public.
The rate charged is higher than what it pays on deposits. The difference in the interest
rates (lending rate and the deposit rate) is its profit.

The types of bank loans and advances are :-

a. Overdraft

b. Cash Credits

c. Loans

d.

e. Discounting of Bill of Exchange

a. Overdraft

This type of advances are given to current account holders. No separate account is
maintained. All entries are made in the current account. A certain amount is
sanctioned as overdraft which can be withdrawn within a certain period of time say
three months or so. Interest is charged on actual amount withdrawn. An overdraft
facility is granted against a collateral security. It is sanctioned to businessman and
firms.

b. Cash Credits

The client is allowed cash credit upto a specific limit fixed in advance. It can be given
to current account holders as well as to others who do not have an account with bank.
Separate cash credit account is maintained. Interest is charged on the amount
withdrawn in excess of limit. The cash credit is given against the security of tangible
assets and / or guarantees. The advance is given for a longer period and a larger
amount of loan is sanctioned than that of overdraft.

c. Loans

It is normally for short term say a period of one year or medium term say a period of
five years. Now-a-days, banks do lend money for long term. Repayment of money can
be in the form of installments spread over a period of time or in a lumpsum amount.
Interest is charged on the actual amount sanctioned, whether withdrawn or not. The
rate of interest may be slightly lower than what is charged on overdrafts and cash
credits. Loans are normally secured against tangible assets of the company.

d. Discounting of Bill of Exchange

The bank can advance money by discounting or by purchasing bills of exchange both
domestic and foreign bills. The bank pays the bill amount to the drawer or the
beneficiary of the bill by deducting usual discount charges. On maturity, the bill is
presented to the drawee or acceptor of the bill and the amount is collected.

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 B. Secondary Functions of Banks

The bank performs a number of secondary functions, also called as non-banking

functions.

These important secondary functions of banks are explained below.

1. Agency Functions

The bank acts as an agent of its customers. The bank performs a number of agency
functions which includes :-

a. Transfer of Funds

b. Collection of Cheques

c. Periodic Payments

d. Portfolio Management

e. Periodic Collections

f. Other Agency Functions

a. Transfer of Funds

The bank transfer funds from one branch to another or from one place to another.

b. Collection of Cheques

The bank collects the money of the cheques through clearing section of its customers.
The bank also collects money of the bills of exchange.

c. Periodic Payments

On standing instructions of the client, the bank makes periodic payments in respect of
electricity bills, rent, etc.

d. Portfolio Management

The banks also undertakes to purchase and sell the shares and debentures on behalf of
the clients and accordingly debits or credits the account. This facility is called
portfolio management.

e. Periodic Collections

The bank collects salary, pension, dividend and such other periodic collections on
behalf of the client.

f. Other Agency Functions

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 They act as trustees, executors, advisers and administrators on behalf of its clients.
They act as representatives of clients to deal with other banks and institutions.

2. General Utility Functions

The bank also performs general utility functions, such as :-

a. Issue of Drafts, Letter of Credits, etc.

b. Locker Facility

c. Underwriting of Shares

d. Dealing in Foreign Exchange

e. Project Reports

f. Social Welfare Programmes

g. Other Utility Functions

a. Issue of Drafts and Letter of Credits Banks issue drafts for transferring money
from one place to another. It also issues letter of credit, especially in case of, import
trade. It also issues travellers' cheques.

b. Locker Facility

The bank provides a locker facility for the safe custody of valuable documents, gold
ornaments and other valuables.

c. Underwriting of Shares

The bank underwrites shares and debentures through its merchant banking division.

d. Dealing in Foreign Exchange

The commercial banks are allowed by RBI to deal in foreign exchange.

e. Project Reports

The bank may also undertake to prepare project reports on behalf of its clients.

f. Social Welfare Programmes

It undertakes social welfare programmes, such as adult literacy programmes, public

welfare campaigns, etc.

g. Other Utility Functions

It acts as a referee to financial standing of customers. It collects creditworthiness

information about clients of its customers. It provides market information to its
customers, etc. It provides travellers' cheque facility.

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 HISTORY OF BANKING

The history of banking began with the first prototype banks which were the merchants
of the world, who made grain loans to farmers and traders who carried goods between
cities. This was around 2000 BC in Assyria, India and Sumerian. Later, in ancient
Greece and during the Roman Empire, lenders based in temples made loans, while
accepting deposits and performing the change of money. Archaeology from this
period in ancient China and India also shows evidence of money lending.

Many histories position the crucial historical development of a banking system to

medieval and Renaissance Italy and particularly the affluent cities of Florence, Venice
and Genoa. The Bardi and Peruzzi Families dominated banking in 14th century
Florence, establishing branches in many other parts of Europe.The most famous
Italian bank was the Medici bank, established by Giovanni Medici in 1397.The oldest
bank still in existence is Banca Monte dei Paschi di Siena, headquartered in Siena,
Italy, which has been operating continuously since 1472.

Development of banking spread from northern Italy throughout the Holy Roman
Empire, and in the 15th and 16th century to northern Europe. This was followed by a
number of important innovations that took place in Amsterdam during the Dutch
Republic in the 17th century, and in London since the 18th century. During the 20th
century, developments in telecommunications and computing caused major changes
to banks' operations and let banks dramatically increase in size and geographic spread.
The financial crisis of 2007–2008 caused many bank failures, including some of the
world's largest banks, and provoked much debate about bank regulation.

HISTORY OF BANKING IN INDIA

Ancient India

The Vedas (2000–1400 BCE) are the earliest Indian texts to mention the concept of
usury, with the word kusidin translated as "usurer". The Sutras (700–100 BCE) and
the Jatakas (600–400 BCE) also mention usury. Texts of this period also condemned
usury: Vasishtha forbade Brahmin and Kshatriya varnas from participating in usury.
By the 2nd century CE, usury became more acceptable, The Manusmriti considered
usury an acceptable means of acquiring wealth or leading a livelihood. It also
considered money lending above a certain rate and different ceiling rates for different
castes a grave sin.

The Jatakas, Dharmashastras and Kautilya also mention the existence of loan deeds,
called rnapatra, rnapanna, or rnalekhaya.

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Later during the Mauryan period (321–185 BCE), an instrument called adesha was in
use, which was an order on a banker directing him to pay the sum on the note to a
third person, which corresponds to the definition of a modern bill of exchange. The
considerable use of these instruments has been recorded . In large towns, merchants
also gave letters of credit to one another.

Colonial era

During the period of British rule merchants established the Union Bank of Calcutta in
1929,[16] first as a private joint stock association, then partnership. Its proprietors
were the owners of the earlier Commercial Bank and the Calcutta Bank, who by
mutual consent created Union Bank to replace these two banks. In 1840 it established
an agency at Singapore, and closed the one at Mirzapore that it had opened in the
previous year. Also in 1840 the Bank revealed that it had been the subject of a fraud
by the bank's accountant. Union Bank was incorporated in 1845 but failed in 1848,
having been insolvent for some time and having used new money from depositors to
pay its dividends.

The Allahabad Bank, established in 1865 and still functioning today, is the oldest
Joint Stock bank in India, it was not the first though. That honour belongs to the Bank
of Upper India, which was established in 1863 and survived until

1913, when it failed, with some of its assets and liabilities being transferred to the
Alliance Bank of Simla.

Foreign banks too started to appear, particularly in Calcutta, in the 1860s. Grindlays
Bank opened its first branch in Calcutta in 1864. The Comptoir d'Escompte de Paris
opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches
followed in Madras and Pondicherry, then a French possession. HSBC established
itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due
to the trade of the British Empire, and so became a banking centre.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established
in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank,
established in Lahore in 1894, which has survived to the present and is now one of the
largest banks in India.

Nationalisation in 1969 and 1980

Despite the provisions, control and regulations of the Reserve Bank of India, banks in
India except the State Bank of India (SBI), remain owned and operated by private
persons. By the 1960s, the Indian banking industry had become an important tool to
facilitate the development of the Indian economy. At the same time, it had emerged as
a large employer, and a debate had ensued about the nationalisation of the banking
industry. Indira Gandhi , the then Prime Minister of India, expressed the intention of

10
the Government of India in the annual conference of the All India Congress Meeting
in a paper entitled Stray thoughts on Bank Nationalization.

Thereafter, the Government of India issued the Banking Companies (Acquisition and
Transfer of Undertakings) Ordinance, 1969 and nationalised the 14 largest
commercial banks with effect from the midnight of 19 July 1969. These banks
contained 85 percent of bank deposits in the country.Within two weeks of the issue of
the ordinance, the Parliament passed the Banking Companies (Acquisition and
Transfer of Undertaking) Bill,and it received presidential approval on 9 August 1969.

The following banks were nationalised in 1969:

Allahabad Bank

Bank of Baroda

Bank of India

Bank of Maharashtra

Central Bank of India

Canara Bank

Dena Bank

Indian Bank

Indian Overseas Bank

Punjab National Bank

Syndicate Bank

UCO Bank

Union Bank

United Bank of India

A second round of nationalisations of six more commercial banks followed in 1980.

The stated reason for the nationalisation was to give the government more control of
credit delivery. With the second round of nationalisations, the Government of India
controlled around 91% of the banking business of India.

The following banks were nationalised in 1980:

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Punjab and Sind Bank

Vijaya Bank

Oriental Bank of India

Corporate Bank

Andhra Bank

New Bank of India

Later on, in the year 1993, the government merged New Bank of India with Punjab
National Bank. It was the only merger between nationalised banks and resulted in the
reduction of the number of nationalised banks from 20 to 19. Until the 1990s, the
nationalised banks grew at a pace of around 4%, closer to the average growth rate of
the Indian economy.

Liberalisation in the 1990s

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In the early 1990s, the then government embarked on a policy of liberalisation,

licensing a small number of private banks. These came to be known as New
Generation tech-savvy banks, and included Global Trust Bank (the first of such new
generation banks to be set up), which later amalgamated with Oriental Bank of
Commerce, IndusInd Bank, UTI Bank (since renamed Axis Bank), ICICI Bank and
HDFC Bank. This move, along with the rapid growth in the economy of India,
revitalised the banking sector in India, which has seen rapid growth with strong
contribution from all the three sectors of banks, namely, government banks, private
banks and foreign banks.

The next stage for the Indian banking has been set up, with proposed relaxation of
norms for foreign direct investment. All foreign investors in banks may be given
voting rights that could exceed the present cap of 10% at present. It has gone up to
74% with some restrictions.[

The new policy shook the Banking sector in India completely. Bankers, till this time,
were used to the 4–6–4 method (borrow at 4%; lend at 6%; go home at 4) of
functioning. The new wave ushered in a modern outlook and tech-savvy methods of
working for traditional banks. All this led to the retail boom in India. People
demanded more from their banks and received more.

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Objectives (Reasons) Behind Nationalisation of Banks in India

1. To reduce monopoly practices: Initially, a few leading industrial and "business

houses had close association with commercial banks. They exploited the bank
resources in such a way that the new business units cannot enter in any line of
business in competition with these business houses. Nationalisation of banks, thus,
prevents the spread of the monopoly enterprise.

2. Social control was not adequate: The 'social control' measures of the government
did not work well. Some banks did not follow the regulations given under social
control. Thus, the nationalisation was necessitated by the failure of social control.

3. To reduce misuse of savings of general public: Banks collect savings from the
gen-eral public. If it is in the hand of private sector, the national interests may be
neglected, besides, in Five-Year Plans, the government gives priority to some
specified sectors like agriculture, small-industries etc. Thus, nationalisation of banks
ensures the availability of resources to the plan-priority sectors.

4. Greater mobilisation of deposits: The public sector banks open branches in rural
areas where the private sector has failed. Because of such rapid branch expansion
there is possi-bility to mobilise rural savings

5. Advance loan to agriculture sector: If banks fail to assist the agriculture in many
ways, agriculture cannot prosper, that too, a country like India where more than 70%
of the population de-pends upon agriculture. Thus, for providing increased finance to
agriculture banks have to be nationalised.

6. Balanced Regional development: In a country, certain areas remained backward for

lack of financial resource and credit facilities. Private Banks neglected the backward
areas because of poor business potential and profit opportunities. Nationalisation
helps to pro-vide bank finance in such a way as to achieve balanced inter-regional
development and remove regional disparities.

7. Greater control by the Reserve Bank: In a developing country like India there is
need for exercising strict control over credit created by banks. If banks are under the
control of the Govt., it becomes easy for the Central Bank to bring about co-ordinated
credit control. This necessitated the nationalisation of banks.

8. Greater Stability of banking structure: Nationalised banks are sure to command

more confidence with the customers about the safety of their deposits. Besides this,
the planned development of nationalised banks will impart greater stability for the
banking structure.

EVOLUTION

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The Rangarajan Committee report in early 1980s was the first

step towards computerization of banks. Banks started exploring the

idea of 'Total Bank Automation (TBA)'. Although titled 'Total Bank

Automation,' TBA was in most cases confined to branch automation.

It was only in the early 1990s that banks started thinking about tying up disparate
branches together to facilitate information sharing. At the

same time, private banks entered the banking arena with radically

different strategies. Given the huge IT budgets at their disposal and

with almost no legacy IT equipment to worry about; private banks

hastened the adoption of technology. The philosophy for private banks

was very clear: to provide a whole new range of financial products

and services at minimal costs. And technology made this possible.

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

banks showed the way and others had no option but to follow the tech

infusion to retain and attract profitable customers."

The improved connectivity and falling costs offered by leased

lines and VSATs provided a booster to inter-branch automation.

Confirms Naresh Wadhwa, Vice President-West, Cisco Systems

(India), "With the improved services and lowered costs of service

providers such as Dot and VSNL, it became more feasible for banks

to network their branches. This gave banks an impetus to network all

the branches and set up centralized databases. With these

developments it became possible for operations such as MIS to be

truly automated and centralized." With centralized infrastructure and

numerous connectivity options, banks started exploring multiple

delivery channels like ATM, Net-banking, mobile banking, and Tele banking thus
driving down cost per transaction

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 PRESENT SITUATION OF BANKING SECTOR

. The Indian banking system consists of 27 public sector banks, 21 private sector
banks, 49 foreign banks, 56 regional rural banks, 1,562 urban cooperative banks and
94,384 rural cooperative banks, in addition to cooperative credit institutions.

As of Q1 FY19, total credit extended by commercial banks surged to Rs 86,976.2

billion (US$ 1,297.4 billion) and deposits grew to Rs 115,070.3 billion (US$ 1,716.4
billion).

Indian banks are increasingly focusing on adopting integrated approach to risk

management. Banks have already embraced the international banking supervision
accord of Basel II, and majority of the banks already meet capital requirements of
Basel III, which has a deadline of 31 March 2019.

Reserve Bank of India (RBI) has decided to set up Public Credit Registry (PCR) an
extensive database of credit information which is accessible to all stakeholders. The
Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 Bill has been passed
and is expected to strengthen the banking sector.

Credit off-take has been surging ahead over the past decade, aided by strong
economic growth, rising disposable incomes, increasing consumerism & easier access
to credit.

During FY07-18, credit off-take grew at a CAGR of 11%. As of Q1 FY19, total credit
extended surged to Rs 86,976 billion (US$ 1,297.4 billion).

Demand has grown for both corporate & retail loans; particularly the services, real
estate, consumer durables & agriculture allied sectors have led the growth in credit.

Total banking sector assets [including public and private sector banks] have increased
at a CAGR of 6% to US$ 2.2 trillion during FY13–18. FY13-18 saw growth in assets
of banks across sectors.

PROSPECTS

Favorable demographics and rising income levels. India ranks among the top six
economies with a GDP of US$ 2,597 in 2017 and economy is forecasted to grow at
7.3% in 2018. The sector will benefit from structural economic stability and continued
credibility of Monetary Policy.

Increase in working population & growing disposable incomes will raise demand for
banking & related services. Housing & personal finance are expected to remain key
demand drivers. Rural banking is expected to witness growth in the future.

Rising fee incomes improving the revenue mix of banks. High net interest margins,
along with low NPA levels, ensure healthy business fundamentals.

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Wide policy support in the form of private sector participation & liquidity infusion.
Healthy regulatory oversight & credible Monetary Policy by the Reserve Bank of
India (RBI) have lent strength & stability to the country’s banking sector.

As of August 2018, total number of ATMs in India increased to 213,004 and is further
expected to increase to 407,000 ATMs in 2021.

With entry of foreign banks, competition in the Indian banking sector has intensified.
Banks are increasingly looking at consolidation to derive greater benefits such as
enhanced synergy, cost take-outs from economies of scale, organizational efficiency
& diversification of risks.

TYPES OF BANKS

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Types of Banks: They are given below:

1. Commercial Banks:

These banks play the most important role in modern economic organisation. Their
business mainly consists of receiving deposits, giving loans and financing the trade of
a country. They provide short-term credit, i.e., lend money for short periods. This is
their special feature.

2. Exchange Banks:

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Exchange banks finance mostly the foreign trade of a country. Their main function is
to discount, accept and collect foreign bills of exchange. They also buy and sell
foreign currencies and help businessmen to convert their money into any foreign
money they need. Their share in the internal trade of a country is usually small. In
addition, they carry on ordinary banking business too.

3. Industrial Banks:

There are a few industrial banks in India. But in some other countries, notably
Germany and Japan, these banks perform the function of advancing loans to industrial
undertakings. Industries require capital for a long period for buying machinery and
equipment. Industrial banks provide this type of Mock capital. Industrial banks have a
large capital of their own. They also receive deposits for longer periods. They are thus
in a position to advance long-term loans.

In India, the Central Government set up an Industrial Finance Corporation of India

(IFC1) in 1948. Its activities have since then been greatly enlarged. Further the States
have also set up State Financial Corporations. The Central Government has also
established the Industrial Credit and Investment Corpor-ation of India (ICICI) and the
National Industrial Development Corporation for the financing and promotion of
industrial enterprises. In 1964 the Industrial Development Bank of India (1DBI) was
established as the apex or top term-lending institution. These new institutions fill
important gaps in our system of industrial finance.

4. Agricultural or Co-operative Banks:

The main business of agricultural banks is to provide funds to farmers. They are
worked on the co-operative principle. Long-term capital is provided by land mortgage
banks, nowadays called land-development banks, while short-term loans are given by
co-operative societies and co-operative banks. Long-term loans are needed by the
farmers for purchasing land or for permanent improvements on land, while short-
period loans help them in purchasing implements, fertilizers and seeds. Such banks
and societies are doing useful work in India.

5. Savings Banks:

These banks (perform the useful service of collecting small savings. Commercial
banks too run “savings departments” to mobilise the savings of men of small means.
The idea is to encourage thrift and discourage hoarding. Post Office Saving Banks in
India are doing this useful work.

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6. Central Banks:

Over and above the various types of banks mentioned above, there exists in almost all
countries today a Central Bank. It is usually controlled and quite often owned by the
government of the country.

7. Utility of Banks:

An efficient banking system is absolutely necessary for a country, if it is to progress

economically. The services that an efficient banking system can render a country are
indeed very valuable. Undeveloped banking system is not only an index of economic
backwardness of a country, it is also an important cause of it. The banking system can
be useful in the following ways, in addition to what has been mentioned in the
functions of banks.

(i) The banks create instruments of credit which are very convenient substitutes for
money. This means a great saving Actual movement of money is avoided and
expenses saved.

(ii) The banks increase the mobility of capital. They bring the borrowers and the
lenders together. They collect money from those who cannot use it, and give it to
those who can. Thus, they help the movement of funds from place to place, and from
person to person, in a very convenient and inexpensive manner.

(iii) They encourage the habit of habit by providing safe channels of investment. In
the absence of banking facilities, people would just squander their funds.

(iv) By encouraging savings, the banks bring about accumulation of large amount of
capital in the country from small individual savings. In this way, they make the
resources of the country more productive, and thus contribute to the general
prosperity and welfare, of the country.

SERVICES PROVIDED BY BANKS

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1. Advancing of Loans

Banks are profit-oriented business organizations.

So they have to advance a loan to the public and generate interest from them as profit.

After keeping certain cash reserves, banks provide short-term, medium-term and long-
term loans to needy borrowers.

2. Overdraft

Sometimes, the bank provides overdraft facilities to its customers through which they
are allowed to withdraw more than their deposits.

Interest is charged from the customers on the overdrawn amount.

3. Discounting of Bills of Exchange

This is another popular type of lending by modern banks.Through this method, a

holder of a bill of exchange can get it discounted by the bank, in a bill of exchange,
the debtor accepts the bill drawn upon him by the creditor (i.e., holder of the bill) and
agrees to pay the amount mentioned on maturity.

After making some marginal deductions (in the form of commission), the bank pays
the value of the bill to the holder.

When the bill of exchange matures, the bank gets its payment from the party, which
had accepted the bill.

4. Check/Cheque Payment

Banks provide cheque pads to the account holders. Account holders can draw cheque
upon the bank to pay money.

Banks pay for cheques of customers after formal verification and official procedures.

5. Collection and Payment Of Credit Instruments

In modern business, different types of credit instruments such as the bill of exchange,
promissory notes, cheques etc. are used.

Banks deal with such instruments. Modern banks collect and pay different types of
credit instruments as the representative of the customers.

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6. Foreign Currency Exchange

Banks deal with foreign currencies. As the requirement of customers, banks exchange
foreign currencies with local currencies, which is essential to settle down the dues in
the international trade.

7. Consultancy

Modern commercial banks are large organizations.They can expand their function to a
consultancy business. In this function, banks hire financial, legal and market experts
who provide advice to customers regarding investment, industry, trade, income, tax
etc.

8. Bank Guarantee

Customers are provided the facility of bank guarantee by modern commercial banks.

When customers have to deposit certain fund in governmental offices or courts for a
specific purpose, a bank can present itself as the guarantee for the customer, instead of
depositing fund by customers.

9. Remittance of Funds

Banks help their customers in transferring funds from one place to another through
cheques, drafts, etc.

10. Credit cards

A credit card is cards that allow their holders to make purchases of goods and services
in exchange for the credit card’s provider immediately paying for the goods or
service, and the cardholder promising to pay back the amount of the purchase to the
card provider over a period of time, and with interest.

11. ATMs Services

ATMs replace human bank tellers in performing giving banking functions such as
deposits, withdrawals, account inquiries. Key advantages of ATMs include:

24-hour availability

Elimination of labor cost

Convenience of location

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12. Debit cards

Debit cards are used to electronically withdraw funds directly from the cardholders’
accounts.

Most debit cards require a Personal Identification Number (PIN) to be used to verify
the transaction.

13. Home banking

Home banking is the process of completing the financial transaction from one’s own
home as opposed to utilizing a branch of a bank.

It includes actions such as making account inquiries, transferring money, paying bills,
applying for loans, directing deposits.

14. Online banking

Online banking is a service offered by banks that allows account holders to access
their account data via the internet. Online banking is also known as “Internet banking”
or “Web banking.”

Online banking through traditional banks enable customers to perform all routine
transactions, such as account transfers, balance inquiries, bill payments, and stop-
payment requests, and some even offer online loan and credit card applications.

Account information can be accessed anytime, day or night, and can be done from
anywhere.

15. Mobile Banking

Mobile banking (also known as M-Banking) is a term used for performing balance
checks, account transactions, payments, credit applications and other banking
transactions through a mobile device such as a mobile phone or Personal Digital
Assistant (PDA),

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16. Accepting Deposit

Accepting deposit from savers or account holders is the primary function of a bank.
Banks accept deposit from those who can save money but cannot utilize in profitable
sectors.

People prefer to deposit their savings in a bank because by doing so, they earn
interest.

17. Priority banking

Priority banking can include a number of various services, but some of the popular
ones include free checking, online bill pay, financial consultation, and information.

18. Private banking

Personalized financial and banking services that are traditionally offered to a bank’s
digital, high net worth individuals (HNWIs). For wealth management purposes,

HNWIs have accrued far more wealth than the average person, and therefore have the
means to access a larger variety of conventional and alternative investments.

Private Banks aim to match such individuals with the most appropriate options

The following points highlight the nine major problems faced by India’s
nationalized banks.

1. Losses in Rural Branches:

Most of the rural branches are running at a loss because of high overheads and
prevalence of the barter system in most parts of rural India

2. Large Over-Dues:

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The small branches of commercial banks are now faced with a new prob-lem—a large
amount of overdue advances to farm-ers. The decision of the former National Front
Gov-ernment to waive all loans to farmers up to the value of Rs. 10,000 crores has
added to the plight of such banks.

3. Non-Performing Assets:

The commercial banks at present do not have any machinery to ensure that their loans
and advances are, in fact, going into productive use in the larger public in-terest. Due
to a high proportion of non-performing assets or outstanding due to banks from
borrowers they are incurring huge losses. Most of them are also unable to maintain
capital adequacy ratio.

4. Advance to Priority Sector:

As far as ad-vances to the priority sectors are concerned, the progress has been slow.
This is partly attributable to the fact that the bank officials from top to bot-tom could
not accept nationalisation gracefully, viz., diversion of a certain portion of resources
to the top priority and hitherto neglected sectors. This is also attributable to the poor
and unsatis-factory loan recovery rates from the agricultural and small sectors.

5. Competition from Non-Banking Financial Institution:

As far as deposit mobilisation is con-cerned, commercial banks have been facing stiff
challenges from non-banking financial interme-diaries such as mutual funds, housing
finance cor-porations, leasing and investment companies. All these institutions
compete closely with commer-cial banks in attracting public deposits and offer higher
rates of interest than are paid by commer-cial banks.

6. Competition with Foreign Banks:

Foreign banks and the smaller private sector banks have registered higher increase in
deposits. One reason seems to be that non-nationalised banks offer bet-ters customer
service. This creates the impression that a diversion of deposits from the nationalised
banks to other banks has probably taken place.

7. Gap between Promise and Performance:

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One major weakness of the nationalised banking system in India is its failure to
sustain the desired credit pattern and fill in credit gaps in different sectors. Even
though there has been a reorientation of bank objectives, the bank staff has remained
virtually static and the bank procedures and prac-tices have continued to remain old
and outmoded.

The post-nationalisation period has seen a widen-ing gap between promise and
performance. The main reason seems to be the failure of the bank staff to appreciate
the new work philosophy and new social objectives.

As Asha Kant has com-mented:

“Area approach, agricultural development branches, village adoption plans, etc., will
be of little avail, if the grass-root level staff are not im-bued with the motive and the
vision of bringing about a silent revolution in the countryside”.

8. Bureaucratisation:

Another problem faced by the commercial banks is bureaucratisation of the banking

system. This is indeed the result of nationalisation. The smooth functioning of banks
has been hampered by red-tapism, long delays, lack of initiative and failure to take
quick deci-sions.

9. Political Pressures:

The smooth work-ing of nationalised banks has also been hampered by growing
political pressures from the Centre and the States. Nationalised banks often face lots
of difficulties due to various political pressures. Such pressures are created in the
selection of personnel and grant of loans to particular parties without considering their
credit worthiness.

WHAT HOLDS THE KEY FOR BANKS

PROSPERTIY? - INNOVATIONS IN BANKING

Innovation calls for vision and conviction. Innovation helps us

make the product/provide services highly suited for the targeted

application. Successful innovation is not about the ideas or

inventions; it's about the people. Innovation can be defined as the key

process by which products, processes and services are created, and by

which businesses generate jobs and wealth. Innovation isn't all about

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great ideas. Innovation is a chain that requires strength at every link to

succeed. The chain starts with idea generation, but then moves to

prioritizing and funding ideas, to converting those ideas to

products/services and finally to diffusing those products/services and

business practices across the institution/bank.

Innovation calls for certain discernment on the part of the

service delivery system of banks to design the services in such a way

that the customer is much delighted as to how the business process is

effectively carried out and how easily with least time and distress is

delivered to them.

In a situation of global economic crisis, institutions will need to

shake hands with a new generation of price optimization system,

customer relationship management platforms and Web-enabled tools

that expand relationships and grow wallet share. Customers who have

adapted to the mass customization of the Internet's long tail - and who

are used to getting personal recommendations from e-retailers can't

understand why an institution that has so much information about

them can't offer tailored products and services. Banks that change that

perception by using automated tools to fine-tune products will be

well-positioned. Today banks dive deeper than ever before to connect

with consumers. To this the government at the Centre (Indian central

government) through the RBI fine tunes the banking system by

reducing the CRR and lowering repo and reverse repo rates.

Looking for new frontiers in revenue growth, banks are

Discovering interesting opportunities in the way they satisfy their

customers What are the key factors that appeal to bank customers and

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entice them to do more business? As in most service industries,

overall responsiveness and behavioral attributes account for a 10-

percent margin in customer satisfaction.

When it comes to speed of service and the attitude of the people

Who deliver that service, banks should improve their personal touch.

Furthermore, advanced technologies provide bank managers and staff

valuable help because convoluted legacy systems hinder the promptdelivery of

banking services and the integration of customer

information. Notwithstanding a positive service attitude, ailing

technology systems could severely constrain the ability of bank

personnel to satisfy customer demands. Technology also plays a role

with other drivers of customer satisfaction, such as quality of service and product
innovation. In order to be effective in luring customers,

banks should invest in fundamental improvements in their people,

process and technology capabilities.

As waves of technological change continue to sweep across the banking industry and
innovative FinTech companies introduce new technologies, 2017 promises to
continue the trend of disruption we have seen in recent years. Clearly, what we think
of as the ‘traditional’ banking business is evolving, but what can we expect to see
emerging in this important sector over the next year?

The most widely recognised changes have been innovations in payment technology.
Industry leaders such as Apple and Google have recently introduced services which
take some aspects of consumer banking away from established institutions and put it
into the hands of the tech world. Similar trends are continuing in the lending space,
with small, disruptive firms such as SmartBiz and FundBox eating into the market
share of larger lenders. This trend will only continue, as FinTech startups snap at the
heels of large banks and leverage technology to provide services faster, more
efficiently and with a more personalised approach.

This does not mean big banks are sitting by and allowing their domains to be picked
off one-by-one. Increasingly, they are setting up labs to mimic the environment of a
small startup and to get cosy with the FinTech sector. We also expect to see larger

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banks pushing back and muscling in on technology areas which were previously the
preserve of startups. Large banks have figured out models to ‘collaborate’ with
FinTechs, thus expanding their services to existing clients as well as reaching out to
new customers. Some of this is also coming up via regulations like PSD2 in Europe.

Another ongoing development for 2017 is, of course, automation. We expect that the
forward march of automation and AI will encompass new processes that were
previously handled manually by human employees at their desks. 2017 will see the
greater prevalence of ‘robo-advisers’ – automated financial consultants able to give
tips on investment portfolios and advise bank customers. A number of large players
have already embraced robo-adviser automation to enable their customers to make
better investment decisions, including investment heavyweights BlackRock and
Vanguard. A report by ATKearney stated that fund managers which do not implement
robotic advisers potentially could lose up to $90bn annually to firms that have made
the leap to automation.

A less glamorous but equally important change which we expect to continue is the
digital transformation of core banking operations toward ‘agile architecture’. This
means that banks can more easily integrate new technology like the blockchain or
new payment technologies into their existing product offerings. With so many new,
smaller and agile players in the marketplace, the ability to quickly put new technology
to work is key. Time to market is an imperative for big banks, as the early adoption of
a new technology is often the differentiating factor for consumers when choosing who
to bank with.

Tied into upgrading legacy systems is the fact that threats to infrastructure integrity
will become more and more intense in the coming years, forcing banks to invest in
measures which protect their customers’ data. 2016 saw a series of high profile
outages which shook customer confidence, and undoubtedly increased concerns
among the banks about the security of their operations. Banks should not have to
experience the pain of an outage before realising the need to upgrade their legacy
systems. The fact that the Internet of Things continues to grow as a part of the
banking landscape also represents a great opportunity for banks, but it means that data
will be spread over far more devices.

A report by CCS Insight estimates that there are 10 million wearable devices in use in
the UK, which will triple to over 33 million devices in 2020. The potential usage for
these devices in banking is immense. Payments, online banking and authentication
technologies can all be built into wearables, and banks will need to quickly integrate

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them into their existing infrastructure. This is part of a growing trend toward a
cashless society that will put a far greater emphasis on streamlined transactions with
minimal bank interaction.

Finally, despite the move to digital, we are seeing a development in banking customer
service which seeks to bring the human element back to the client/bank relationship.
More banks are exploring video banking, which means that customers are able to have
a virtual meeting with their adviser online. This has the potential to overhaul existing
call centre models, and will hopefully enable customers to build stronger relationships
with their banks.

With so many changes happening in the industry, it is imperative for banks to keep
abreast of new developments. However, for many banks this may not necessarily
mean a look forward to what new technologies they hope to implement. It may
involve a look back at the systems and infrastructure that have served them well over
the course of many years.

Therefore, banks must ask themselves: ‘Does our existing IT infrastructure have the
ability to support the new innovations it takes to compete in tomorrow’s
marketplace?’

FUTURE CHALLENGES AND PROSPECTS ON

SERVICE DELIVERY AND INNOVATIONS

The future opportunity lies in the form of integration of the

Indian banking and financial system with the Government's eGovernance initiatives.
The electronic benefits in this regard would be

passed on to the beneficiaries directly thereby preventing the leakage

of the funds provided under various Government's schemes like epayments, etc. for
the upliftment of the people. The collective efforts

of the Government, banks, financial institutions and the IT firms to

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provide innovative solutions for an inclusive growth of the Indian

economy will certainly go a long way not only for the sustained

growth of the financial system but the Indian economy as a whole.

Customers are continuing to opt for and engage in experiences

that are designed to meet their needs. It's just that their needs and

priorities are changing significantly. Banks that understand and

quickly adapt to these changes can not only preserve but enhance

revenue in the short term. When a customer enters a bank branch,

checks into a hotel, enrolls with a health insurance provider, etc…

they have a set of constructs they've learned from past experiences

and that operate within a perceptual framework that enables gist

processing. Experiences designed based on this perceptual framework

and set of experiential constructs become inherently easy to navigate.

Many organizations have placed an increasing amount of

attention on the quality of the experience their customers have.

However, the first mistake most organizations make is focusing on

what the company does to deliver a customer experience rather than

taking a step-back and thinking first about how customers actually

have experiences. The second biggest mistake is the way most banks

listen to and react to customers' suggestions about what to do to

improve the experience.

Emotional touch on customers, change how they feel. This can

be brought through delivery of innovative solutions to people's

underlying, end-to-end problems. Finding these solutions requires

getting below-the-surface of existing touch points.

Benefits of the Future Banking Ecosystem

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For the banking organization, they will benefit from the new banking ecosystem by
having increased customer interactions and engagement. The engagement gets
stronger because the bank’s customers and credit union’s members enjoy the benefits
of a financial partner who can anticipate their needs, looks out for them and reward
them for their loyalty by recommending ideal solutions.

Consumers enjoy an improved experience that saves them time and money, with a
much more personalized relationship. They expand their relationship because no other
organization possesses the insights that their primary organization does. Merchants
and service providers also benefit from the bank’s customer insights through
improved offer targeting and increased sales volumes.

By acting as a digital value aggregator, the bank is rewarded with deeper

relationships, increased loyalty and improved profitability due to a higher volume of
lower-cost transactions and additional service fees.

Timing is of the essence – to move from doing occasional interactions to being

embedded into consumers’ digital lives with daily interactions. Banks need to develop
the digital partnerships with merchants, suppliers, small and medium size businesses,
telcos and other digital companies to deliver new products and enhanced engagement
for the consumer.

By collaborating with these partners as opposed to competing, the bank can be re-
positioned at the center of the customer’s daily life, becoming integral to both
financial and non-financial needs. The bank of the future has the opportunity to have
relationships with more segments of consumers at an efficient cost (including
underbanked, unbanked or unhappily-banked populations), using the number of
interactions with these customers to offset the lower income per transaction.

Image for The Creative Process Behind Redesigning a Branch Experience

The Creative Process Behind Redesigning a Branch Experience

Image for Connecting with the Community to Build a Better Future for Your Business

Connecting with the Community to Build a Better Future for Your Business

Building the Banking Organization of the Future

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When we view other industries, we can see experiences that are both distinctive and
engaging. These experiences usually provide high quality solutions, easily and
primarily using digital channels.

In the future banking ecosystem, there needs to be an integration of what is the best-
of-breed within banking, as well as the best that we can find in other industries. This
is what the consumer is judging the banking industry against – experiences at
Amazon, Google and her modern digital providers.

Here are some key components of this vision:

Simple, fast and secure engagement: The most used apps on most people’s phones are
those that are easiest to use, well-designed and can accomplish a task in the fastest
and most secure manner. Biometrics and strong UX design are table stakes in this
battle for the consumer.

Personalized view of finances: Rather than requiring the consumer to search for the
information they want, it will be either easy to find or proactively delivered without
asking. The ability to see a current real-time financial profile after each transaction
and to be able to build personalized budget scenarios is a foundational need.

Access to financial and non-financial data: If a banking organization wants to be at

the center of a consumer’s life, it must be able to share all of the insights it has
surrounding a consumer’s life. This goes far beyond financial insights, to include
eCommerce history, travel history, medical information, insurance and investment
data, warranties and legal documents, etc. Instead of being in multiple places, the
financial institution will provide a digital repository for everything in the consumer’s
life (a lockbox of life).

Advisor recommendations: Being the central repository of customer data comes with
the requirement that value is provided in return for this position in the consumer’s
life. Beyond simply providing basic financial services advisory capabilities, a banking
organization of the future will need to also provide purchase recommendations,
health and dietary recommendations, travel and hospitality advice, etc. Obviously not
provided under one roof, the importance of APIs and a strong ecosystem collaboration
will be key to the relationship.

Digital concierge: An outgrowth of being an advisor is being a life concierge. With

extensive insight into the way a customer conducts their life, it will be important for
the bank of the future to provide reminders that are based on historical trends. This
can range from arranging transportation to building a shopping list. It will include the

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morning ‘your upcoming day at a glance’ delivered most likely by voice having the
ability to answer questions in real time.

Digital beyond mobile: The marketplace is changing at hyper speed, with technology
and innovations coming faster than ever in the past. Developers need to move beyond
mobile, developing solutions that can be delivered across channels that may not exist
today (AR, VR, MS, etc.).

August 2019 Banner - CUNA Mutual

Each of these capabilities are available and accessible in some form today, albeit in
rudimentary form. Each one has the power to transform traditional banking into the
level of service only open banking, collaboration and machine learning can deliver.
The question is whether traditional banks will leverage data and partnerships in a
revolutionary manner.

To be a sustainable industry, traditional banking organizations cannot simply rely on

providing banking accounts and access to funds. Competitors are eating away at
significant parts of the banking value chain with the potential of limiting banks to
becoming nothing more than utilities.

The future of the banking industry will depend on its ability to leverage the power of
customer insight, advanced analytics and digital technology to provide services that
help today’s tech-savvy customers manage their finances and better manage their
daily lives.

If financial services embrace a broader vision of the banking ecosystem, however,

competitors (most likely bigtech organizations) will insert themselves into the buying
process. In doing so, they will gain the valuable consumer insight that has been the
domain of the banking industry, delivering what today’s (and tomorrow’s) consumer
will expect.

A new organizational paradigm: Agile, collaborative, and exposed

Many banks and capital markets firms, particularly the large, complex institutions,
have been simplifying their business and operating models over the last few years,
both for economic reasons and to reduce organizational complexity. There is an
increasing realization that they do not or cannot excel at every activity, and that it may
be easier and cheaper to outsource noncore activities.

In the new organizational paradigm, maintaining an organizational identity and

creating a cohesive culture and employee loyalty when most of the talent is not in-

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house will be an entirely new challenge. In our view, a more global “ex-force”
(external talent) will necessitate greater cultural sensitivity and the willingness to be
more flexible with work protocols.

Future of brands: Need for digital savvy and a sharper focus on customer experience
It wasn’t long ago that banking brands were on par with most other industries in terms
of consumer trust and brand value. The financial crisis changed that. Many banking
brands have yet to recover from the reputational damage experienced during the
crisis. Banks, even years post-crisis, remain one of the least trusted institutions. When
compared to other industries, banks have experienced the least growth in brand value
over the last 10 years. This is all the more disturbing given the importance and
relevance of the banking industry to the economy and society.

In this environment, conveying a consistent brand experience will become more

challenging. Marketers will be forced to be more creative in the design of service
experiences. While banks may have less control over how customers experience the
brand, they will, however, have access to more detailed and real-time information at
an individual customer level. These new data will vastly expand the ability to tailor
offerings and experiences.

The new world of payments: Blockchained, direct, and seamless

Trusted intermediaries have been fundamentally necessary to facilitating payment
transactions in modern times. As transactions became more complex, so did the
importance of intermediaries in the payments world. But more recently, blockchain
technologies are challenging this basic world order. Concurrently, the growth of
mobile payments and the push toward real-time payments are forcing traditional
players to reexamine their role in the payment ecosystem. The threat of
disintermediation in the payments industry is both real and imminent.

We can unequivocally say that the payment ecosystem will look vastly different as a
result of continuing technological advances in multiple domains. But in all likelihood,
blockchain innovations could be the most transformative, and we will likely see a
number of real-life applications of blockchain applied to payments, beyond digital
currencies, in the next five years.

Frictionless trading: Machine dominance and the search for relevance

The notion of “trading without traders” has been a market reality for at least a decade
now. Electronification of exchanges and algorithmic trading have already diminished
the role of the human trader in a number of asset classes, particularly in equities and
futures. Yet this accelerated automation has also exposed new risks that have become
a focal concern to the industry, “flash crashes” in stocks and treasuries being two
examples.

Artificial intelligence (AI) is expected to be the next big thing in the banking and
financial services sector; it has been touted as next great breakthrough that will
change the way we bank and conduct financial transactions.

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Why not, the vast amount of data, high volume transactions, and the quantitative
nature of the banking and finance industry makes it one of the sectors where artificial
intelligence will be better applied. It is believed that financial institutions can leverage
the power of AI to transform current processes and improve services delivery as well
as the use of financial products.

LIMITATIONS OF MODERNIZATION OF BANKING

Cons of AI in Banking Sector

Artificial intelligence is also expected to massively disrupt banks and traditional

financial services. Some of its disadvantages are listed below.

Highly Expensive

Production and maintenance of artificial intelligence demand huge costs since they
are very complex machines. AI also consists of advanced software programs which
require regular updates to meet the needs of the changing environment. In the case of
critical failures, the procedure to reinstate the system and recover lost codes may
require enormous time and cost.

Bad Calls

Though Artificial Intelligence can learn and improve, it still can’t make judgment
calls. Humans can take individual circumstances and judgment calls into account
when making decisions, something that AI might never be able to do. Replacing
adaptive human behavior with AI may cause irrational behavior within ecosystems of
humans and things.

Distribution of Power

There is a constant fear of AI superseding or taking over the humans. Artificial

intelligence can give a lot of power to the few individuals who are controlling it.
Hence, AI carries the risk and takes control away from humans while dehumanizing
actions in several ways.

Unemployment

Replacement of the workforce with machines can lead to wide-reaching

unemployment. Moreover, if the use of AI becomes rampant, people will be highly
dependent on the machines and lose their creative power. Unemployment is a socially
undesirable issue. Individuals with nothing to do can lead to the devastating use of

35
their minds. Be it banking or any other sector; Artificial intelligence can effectively
increase the unemployment rate.

Artificial Intelligence delivered to wrong hands can turn out to be a serious threat to
humankind. If individuals start thinking destructively, they can generate havoc with
these advanced machines.

The challenges introduced by the emergence of artificial intelligence revolve around

several things. However, AI is a right balance of skill and emotions which is
continually growing. Artificial intelligence provides banks, financial institutions, and
tech companies with significant competitive advantages. Nevertheless, it can
completely transform the financial sector and make it faster, but this will only be
possible if the financial industry can manage the security risk of systems based on AI.

Cons of Internet Banks

Banking with an online-bank also has its share of drawbacks and inconveniences.

No Personal Relationships

A traditional bank provides the opportunity to get to know the staff at your local
branch. That can be an advantage if and when you need additional financial services,
such as a loan, or have the need to make changes to your banking arrangements. A
bank manager usually has some discretion in changing the terms of your account if
your personal circumstances change, or in reversing a mandatory fee or service
charge.

Less Flexibility With Transactions

In-person contact with a banking staffer isn't only about getting to know you and your
finances. For some transactions and problems, it's invaluable to head to a bank
branch.

Take, for example, depositing funds, that most basic of banking transactions.
Depositing a check is possible with a direct bank by using its banking app to capture
an image of the check, both back and front. However, depositing cash is downright
cumbersome at many online banks. So, it's worth checking the bank’s policy if this is
something you plan to do frequently. International transactions may also be more
difficult, or even impossible, with some direct banks.

The Absence of Their Own ATMs

Since they lack their own banking machines, online banks rely on having customers
use one or more ATM networks such as those from AllPoint and Cirrus. While these
systems offer access to tens of thousands of machines across the country—even

36
 around the world—it's worth checking the available machines near where you live
and work.

Check, too, for any fees you may rack up for ATM use. While many direct banks
offer free access to network ATMs or will refund any monthly charges you incur,
there are sometimes limits on the number of free ATM transactions you can make in a
given month.

More Limited Services

Some direct banks may not offer all the comprehensive financial services, such as
insurance and brokerage accounts, that traditional banks offer. Traditional banks
sometimes offer special services to loyal customers, such as preferred rates and
investment advice at no extra charge.

In addition, routine services such as notarization and bank signature guarantee are not
available online. These services are required for many financial and legal transactions.

DISADVANTAGES OF CASHLESS BANKING

 Exposes your personal information to a possible data breach

 If hackers drain your bank account, you'll have no alternative source of money

 Technology problems can leave you with no access to your money

 The poor and those without bank accounts will have difficulty paying and receiving
payments

 Some may find it harder to control spending when they don't see physical cash
leaving their hands

 Banks may start charging fees to compensate for possible negative interest rates

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 3. REVIEW OF LITERATURE

 The future of the banking ecosystem will look much different than today and will
extend well beyond financial services. There is a unique opportunity to capitalize on
the insights banks hold and the innovation that they can build, buy or collaborate with
to become the center of a consumer’s everyday life - Jim Marous, Co-Publisher of
The Financial Brand
 Futurist, trends and innovation expert Jim Carroll recently stated: “Sadly, with all the
current focus on compliance, I’ve come to believe that there is a critical lack of future
planning on many other corporate boards around the world.” As such, banks will have
to shift their concentration to new technologies for the future.
 Today, ATM provides more than cash withdrawal. Apart from fixed deposits, cheque
book requests and balance enquiries, there are also enhanced banking services," says
Shivaji Chatterjee, vice-president, Hughes Communications India, which helps banks
create their ATM networks.
 The potential of mobile banking technology is yet to be fully exploited," says G
Padmanabhan, executive director, RBI.
 Currently, only 2% of the entire payments go through the electronic system in India,"
says Pralay Mondal, senior group president, Retail and Business Banking, Yes Bank.

 For the banking organization, they will benefit from the new banking ecosystem by
having increased customer interactions and engagement. The engagement gets
stronger because the bank’s customers and credit union’s members enjoy the benefits
of a financial partner who can anticipate their needs, looks out for them and reward
them for their loyalty by recommending ideal solutions.

 Consumers enjoy an improved experience that saves them time and money, with a
much more personalized relationship. They expand their relationship because no other
organization possesses the insights that their primary organization does. Merchants
and service providers also benefit from the bank’s customer insights through
improved offer targeting and increased sales volumes.

 About a decade ago, banking in India was one of the most cumbersome fields as far as
customer convenience was concerned involving long lines and lengthy procedures.
Since then, this sector has come a long way with automation, core banking, ATMs,
online banking services, eKYC, and much more serving today’s tech-savvy customer.
Since 2016, the sector has been hit by Artificial Intelligence, Machine Learning, and
virtual agents. Several banks in the country and abroad have adopted robotics in some
manner or the other to ease their processes, bring about workforce efficiency, and
ensure speedy delivery of services.m

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 3. NEED OF THE STUDY
The need of the study is to find out what the customers of different age groups think
about the future of banking sector and the consequences

The various developments include:

APP DEVELOPMENT: Technology-enabled handheld devices are the future of

banking. Slowly but surely, more and more consumers are opting for the convenience
that Mobile Banking provides, as opposed to traditional branch banking.

ARTIFICIAL INTELLIGENCE:

When applications of Artificial Intelligence are installed in banks, they help in

examining the data base effectively and make it easier for the banks to recommend,
forecast and execute tailored financial advice to customers. Through these
applications, it is possible to gain quick information on financial strategies, loan rates
and the future market progress.

CHATBOTS:

Bot is the short form of Robot, and so chatbot is an automated chat program that is
either run automatically or follows a pre-determined path. Chatbot is a way of using
Artificial Intelligence in the form of robotics in banking. This tool is very helpful in
the banking industry because people are so caught up in their daily jobs that it
becomes very difficult for them to be physically present at the bank. Most often it
happens that when people are free, the banks are closed or it is a weekend and during
late hours’ banks don’t work. Money can be required at anytime and at any place and
this is where chatbots come handy as they are available 24/7. Chatbots are a smart
way of providing efficient customer service. It helps customers know their transaction
details and also additional services that they are eligible to receive. Through the use of
chatbots, banks are able to understand each customer’s requirements and give them
the right offers or even reward them.

CUSTOMER RELATIONSHIP MANAGEMENT:

CRM solutions are no longer limited to just the retail or business verticals; rather,
they are now essential for any entity that offers goods or services. When it comes
down to it, business banks share an important challenge with their own customers:
Banking is now a customer-driven world. Banks that understand and serve the
individual needs of their customers best will succeed, while those who still use sticky
notes to keep track of accounts will lose market share and fade away. Adopting a
banking CRM is critical to serving your customers at every point in the sales funnel,
so don’t get left behind.

DIGITAL ONLY BANKS:

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 Digital-only banking is a growing wave of consumer-oriented banking institutions
focused on serving their clientele exclusively through online means. Imagine a bank
you never have to visit, lines you never have to wait in, and no hassles with onerous
paperwork and cumbersome cash.

In many cases, all it takes to open an account with a digital-only bank is an

application and few verification documents. Documents include simple items like
scans of ID cards and copies of bills whose account holder and address match the one
on the account

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 4. OBJECTIVES OF THE STUDY
The overall objective of the study was to learn about the customers views on the new
technologies.

Specifically, the study aimed at

 To determine that unemployment would be an issue

 To know if privacy would be at risk

 To determine, if digital only banks are a good idea

 To know if going cashless is good for the economy

 To find out what services should banks be concentrating on.

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 5. SCOPE OF THE STUDY

On the basis of the literature, the following future and modernization of banking were
discussed with existing banking customers of different age groups:

 Digital-only banks
 Unemployment caused by advanced technological reforms
 Issues related to privacy
 Security issues
 No personal relationship with customers
 Domination of Artificial Intelligence
 Reforms made by the RBI

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 6. HYPOTHESIS OF THE STUDY

HYPOTHESIS 1:

NULL HYPOTHESIS[H0]: There will be no unemployment issues due to

technological development

ALTERNATIVE HYPOTHESIS[H1]: There will be unemployment issues due to

technological development

HYPOTHESIS 2:

NULL HYPOTHESIS[H0]: Going cashless will not help in the development of the
country

ALTERNATIVE HYPOTHESIS[H1]: Going cashless will help in the

development of the country

HYPOTHESIS 3:

NULL HYPOTHESIS[H0]: Digital only banks are a good idea

ALTERNATIVE HYPOTHESIS[H1]: Digital banks are not a good idea

HYPOTHESIS 4:

NULL HYPOTHESIS[H0]: Privacy would not be at risk

ALTERNATIVE HYPOTHESIS[H1]: Privacy would be at risk

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 RESEARCH METHODOLOGY
SAMPLE DESIGN
1. PRIMARY DATA: The study was explanatory in nature. The sample size is
75. It was collected from bank customers of different age groups through
Google forms.
Data was collected through self structured questionnaire.
2. SECONDARY DATA: Books, internet websites, journals etc were used as a
source of secondary data.

RESEARCH TYPE:
Exploratory research using primary data.

RESEARCH METHOD:
Survey through Google forms

RESEARCH SAMPLE:
75 Customers of banking sector

TOOLS OF DATA ANALYSIS

Pie charts: this tool was used for analysis of data.

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 DATA ANALYSIS AND FINDINGS
According to the survey people are aware about the new developments in the banking
sector, it also shows that they are well aware about the issues that can occur due to
advancement in technology and how most of them feel that there can be a huge rise in
unemployment. The survey also shows that people want more development in the
customer relationship management rather than other new technology like artificial
intelligence and mobile applications. We also saw how going cashless can the
economy, the responses were mostly positive and how digital only banks are probably
not a good idea.

This shows people want banks to work on their existing services better and prevent
issues like unemployment.

Source: Google forms

Graph1.1 Gender

GENDER

FEMALE
MALE

Graph1.2 Age

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Graph1.3 preference of service by customers

As per the graph, the customers want banks to concentrate on building better CRM
and almost equally on application development and AI.

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Graph1.4 privacy issue

About 52% of the people believe there would be privacy issue due to the advancement
in technology and 36% are not quite sure about it.

Graph1.5 Unemployment issues.

UNEMPLOYMENT ISSUE

YES
NO
MAYBE

The biggest problem caused by technology is its replacing labour and man power and
about 64% agree with it.

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 Graph1.6 Going cashless.

going cashless: good for the economy?

yes
no
maybe

Most of them think it will be good for the economy and also the environment.

Graph1.7 Are digital-only banks a good idea?

This part of the survey is a close call people are torn between yes or no, because digital-only
banks have equal pros and cons.

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 TESTING OF HYPOTHESIS
1. The first null hypothesis was “There will be no unemployment issues due to
technological development”.

It is observed that majority of the respondents [64%] believe that unemployment

would be an issue. Thus null hypothesis is rejected. The alternative hypothesis:
“There will be unemployment issues due to technological development”, is accepted.

2. The second null hypothesis was “Going cashless will not help in the development of
the country”

According to the survey majority of the people believe that going cashless would help
in the development of the nation, thus null hypothesis is rejected and the alternative
hypothesis is accepted.

3. The third hypothesis was “Digital only banks are a good idea”

The study shows that people still think traditional banks are a better, so the null
hypothesis is rejected and the alternative, digital banks are ad good idea is accepted.

4. The fourth hypothesis was “Privacy would not be at risk”

It can be seen that people think privacy will be at a risk, thus the null hypothesis is
rejected and alternative hypothesis is accepted.

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 LIMITATIONS OF THE STUDY

Since the study is based on a survey with a sample size of 75 people with a pre
designed questionnaire from the basic limitations of the possibility of difference
between what is recorded and what is the truth.
 The study was done with a small sample size

 Since this survey is on future banking, the opinions of the people would
change from time to time.

 Sometimes people fill the form without reading it.

 Since some of the data is taken from secondary sources like the internet, the
information becomes second handed.

 Surveys are more time consuming

 People don’t have in-depth knowledge about the topic

 The study was objective based, so there are not many options to choose from.

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 CONCLUSION

In conclusion we can say that future of banking cannot be stable as there are changes
in the views of the customers, it also shows how employment can also be an issue and
how the markets play an important role.

There is also how people would react to the new technologies and how government
would put up with the issues caused by it.

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 SUGGESTIONS AND RECOMMENDATIONS

1. Serving a Segment of One

According to Accenture, “Many banks have initiatives aimed at targeting
demographic-based clusters such as young people, Millennials or older people, but
some banks are now targeting customers based on lifestyles, values, aspirations,
mindsets and underserved needs.” In 2019, many banking organizations will go
beyond personalization by segment, to develop individualized communication and
experiences for the segment of one. This is the ultimate level of innovative
personalization allowed through data, advanced analytics and digital technologies.

2. Expansion of Open Banking

More and more regulatory bodies globally are requiring banking organizations
to enable customers to share their data securely with third parties to power new
financial services and increase competition in the banking industry. By making
account and payment data available through secure application programming
interfaces (APIs), consumers have greater freedom and control in how they interact
with their financial service providers.

3. Commitment to Phygital Delivery

With the high cost of a traditional branch network and the increasing number
of transactions moving to digital channels, more and more traditional financial
services companies are introducing digital-only banking entities. Some banks are
launching digital-only banks to collect deposits, while other financial firms are using
digital platforms to provide lending, investing and specialty services. In each instance,
the focus is on innovative customer experiences and increased value to the consumer,
supported by customer data and advanced analytics that can personalize engagement

4. AI-Driven Predictive Banking

One of the most exciting innovation trends in 2019 will be the continued
movement to predictive banking. For the first time time, the banking industry can
consolidate all internal and external data, building predictive profiles of customers
and members in real time. With consumer data that is rich, accessible and financially
viable to deploy, financial institutions of all sizes can not only know their customers,
but also provide advice for the future

5. Payments Everywhere

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 As the infrastructure of payments continues to evolve, innovation will move
the payments industry from a series of specific products to part of everything
consumers do. Differentiation will be driven by data, technology and delivery,
changing the dynamics of how and where we pay and receive payments. Payment
innovation trends will occur in conjunction with the Internet of Things (IoT), point of
sale (POS), mobile wallets, cryptocurrencies, and the blockchain.

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 REFERENCES

BOOKS:
 The Future of Banking: In a Globalised World by Chris
Skinner
 The Future of Retail Banking by Joseph A DiVanna

WEBSITES:

 https://thefinancialbrand.com/77869/innovation-trends-
banking-ai-api-personalization-payments/
 https://www.fxempire.com/education/article/this-is-
what-you-need-to-know-about-digital-only-banking-
551762
 https://www.salesforce.com/solutions/industries/financia
l-services/resources/banking-crm/#
 https://www.investopedia.com/articles/pf/11/benefits-
and-drawbacks-of-internet-banks.asp
 https://www.enterpriseedges.com/artificial-intelligence-
banking-industry

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 QUESTIONNAIRE
1. What kind of services do you think banks need to concentrate in the future?
A] Customer relationship management
B] Artificial Intelligence
C] App Development
2. Do you think privacy would be an issue due to advancement in technology?
A] Yes
B] No
C] Maybe

3. Would unemployment be a big issue?

A] Yes
B] No
C] Maybe

4. Do you think going cashless would help in the development of the economy?
A] Yes
B] No
C] Maybe
5. Do you think digital-only banks are a good idea?
A] Yes
B] No
C] Maybe

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