Concept of a Bank: What is a bank?

A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank links together customers that have capital deficits and customers with capital surpluses. Functions Commercial banks perform many functions. They satisfy the financial needs of the sectors such as agriculture, industry, trade, communication, so they play very significant role in a process of economic social needs. The functions performed by banks, since recently, are becoming customer-centred and are widening their functions. Generally, the functions of commercial banks are divided into two categories: primary functions and the secondary functions. The following chart simplifies the functions of commercial banks. Commercial banks perform various primary functions, some of them are given below: Commercial banks accept various types of deposits from public especially from its clients, including saving account deposits, recurring account deposits, and fixed deposits. These deposits are payable after a certain time period Commercial banks provide loans and advances of various forms, including an overdraft facility, cash credit, bill discounting, money at call etc. They also give demand and demand and term loans to all types of clients against proper security. Credit creation is most significant function of commercial banks. While sanctioning a loan to a customer, they do not provide cash to the borrower. Instead, they open a deposit account from which the borrower can withdraw. In other words, while sanctioning a loan, they automatically create deposits, known as a credit creation from commercial banks.

Along with primary functions, commercial banks perform several secondary functions, including many agency functions or general utility functions. The secondary functions of commercial banks can be divided into agency functions and utility functions. The agency functions are the following: To collect and clear cheque, dividends and interest warrant. To make payments of rent, insurance premium, etc. To deal in foreign exchange transactions. To purchase and sell securities. To act as trustee, attorney, correspondent and executor. To accept tax proceeds and tax returns.

The utility functions are the following: To provide safety locker facility to customers. To provide money transfer facility. To issue traveller's cheque. To act as referees. To accept various bills for payment: phone bills, gas bills, water bills, etc. To provide merchant banking facility. To provide various cards: credit cards, debit cards, smart cards, etc.

Channels
Banks offer many different channels to access their banking and other services: Automated Teller Machines A branch is a retail location Call center Mail: most banks accept cheque deposits via mail and use mail to communicate to their customers, e.g. by sending out statements Mobile banking is a method of using one's mobile phone to conduct banking transactions Online banking is a term used for performing multiple transactions, payments etc. over the Internet Relationship Managers, mostly for private banking or business banking, often visiting customers at their homes or businesses Telephone banking is a service which allows its customers to conduct transactions over the telephone with automated attendant or when requested with telephone operator Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a video conference enabled bank branch clarification DSA is a Direct Selling Agent, who works for the bank based on a contract. Its main job is to increase the customer base for the bank.

Indian Banking Industry: The Indian banking system is characterized by a large number of banks with mixed ownership. The commercial banking segment comprises 27 public sector banks in which the Government has majority ownership, 40 private sector banks, and 33 foreign banks. Total bank assets constituted a little over 70 percent of GDP in 2003-04. Public sector banks had 75 percent of the assets of the banking system in 2003-04, while private and foreign banks held 25 percent. In 1991, by comparison, public sector banks share of the total assets of the banking system was a little over 90 percent. The Reserve Bank of India was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948. In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) to regulate, control, and inspect the banks in India. The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have Common directors. By the 1960s, the Indian banking industry had become an important tool to facilitate the speed of development of the Indian economy. The Government of India issued an ordinance and nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punja. A brief review of Reforms of Indian Banking of them is as follows:Reddy and Yuvaraja (2001) The adoption of international capital adequacy and accounting standards, deregulation of interest rates and entry of private and foreign banks underline that the speed of the financial sector reforms and sequencing of the reforms should take into account the realities of the Indian economy.. Rao (2002) concluded that the Indian banking system has transformed itself from banking to the international banking. Regulations are forcing the banks to adopt better operational strategies and upgrade their skills. The system requires a combination of new technologies, well-guarded risk and credit appraisal, treasury management, product diversification, internal

control, external regulation as well as skilled human resources to achieve the heights of the international excellence to play its role critically in meeting the global challenges. Reddy and Reddy (2003) are of the view that the new challenges faced by the banks are forcing to attempt all new things with the same old rigid structure and system. What required is more managerial and administrative freedom to the management with commensurate and result oriented accountabilities. SERVICES IN INDIAN BANKING SECTOR FOR THEIR CUSTOMERS-. Real Time Gross Settlement (RTGS)Real Time Gross Settlement system, introduced in India since March 2004, is as system through which electronics instructions can be given by banks to transfer funds from their account to the account of another bank Electronic Funds Transfer (EFT)Electronic Funds Transfer (EFT) is a system whereby anyone who wants to make payment to another person/company etc. can approach his bank and make cash payment or give instructions/authorization to transfer funds directly from his own account to the bank account of the receiver/beneficiary. Electronic Payment Services Nowadays we are hearing about e-governance, e-mail, ecommerce, e-tail etc. In the same manner, India, as harbinger to the introduction of e-cheque, the Negotiable Instruments Act has already been amended to include; Truncated cheque and E-cheque instruments Electronic Clearing Service (ECS)Electronic Clearing Service is a retail payment system that can be used to make bulk payments/receipts of a similar nature especially where each individual payment is of a repetitive nature and of relatively smaller amount. Automatic Teller Machine (ATM)It is a devise that allows customer who has an ATM card to perform routine banking transactions without interacting with a human teller. In addition to cash withdrawal, ATMs can be used for payment of utility bills, funds transfer between accounts, deposit of cheques and cash into accounts, balance enquiry etc. Tele Banking ServicesTele Banking facilitates the customer to do entire non-cash related banking on telephone. Under this devise Automatic Voice Recorder is used for simpler queries and transactions. For complicated queries and transactions, manned phone

terminals are used. Electronic Data Interchange (EDI) Electronic Data Interchange is the electronic exchange of business documents like purchase order, invoices, shipping notices, receiving advices etc. in a standard, computer processed, universally accepted format between trading partners. EDI can also be used to transmit financial information and payments in electronic form.

THE MAJOR EFFORTS AND ATTRACTIONS OF CONFORMIST INDIAN BANKING INDUSTRY (A) How can banks rebuild customer confidence Encourage customer self service: - Banks needs to improve the way they provide information and advice to interest and convince self-directed customers, including financial planning tools, ranges of product and pricing bundles. Personalized banking. Customers who report a more tailored experience are often most willing to provide their banks with more frequent updates. Better value and service. Customers are demanding more control of their relationships and will look around for the most attractive fees and rates for the level of service provided. (B)Banks are competing for the attention and loyalty of increasingly demanding customers. The proportion of customers planning to change banks has increased since 2011, with 50% of customers globally citing high fees and charges as the primary reason. But customers appear to want more than a better deal they want the flexibility to shape the relationship, contacting their bank whenever and however they choose. They may prefer online channels for simple transactions, but demand high-quality, personalized services for more complex transactions. Banking customers in more mature economies, such as the US and Latin America, tend to bank with one or two banks, primarily to ensure they receive the best products and services at the most attractive prices. Customers in emerging economies, such as China, India and Japan tend to bank with multiple providers mainly due to concerns over potential bank failures. (Note-Customers with one bank have fallen from 41% to

31%, while those with three or more have increased from 21% to 32% since 2011.) (C)How can banks offer more personalized services to customers? Make pricing and service promises transparent. Pricing is critical to customer satisfaction, but most customers have no idea how much they pay each year. Offer tiered levels of customer experience. Customers should have the option to buy into certain products and services, and the ability to earn upgrades through loyalty Move from multi-channel to omni-channel distribution. Banks need to look beyond multi-channel distribution towards an omni-channel approach, which uses customer data gathered from branches, website visits, social media and elsewhere. (Note-Worldwide, the proportion of customers planning to change banks has increased from 7% to 12% since 2011). (D)How can banks provide a better customer experience? Make low-cost digital channels customers preferred choice. Banks should encourage customers to use digital channels whenever possible by using price incentives. Prioritize investment on critical customer interactions. Banks should focus operational improvements on customers most valued interactions, optimizing the resulting impact on attrition, dormancy and loyalty. Use innovative technology to deliver the retail bank of the future. The use of technology is crucial to delivering a lower cost, more reliable, more flexible but still personal customer experience.INTERNET SERVICES- Banking in India Jadhav Anil (2004) described various channels of e-banking services such as ATM, Telephone banking (Tele-banking), Mobile banking, Internet banking and its features. The focus is also given on e-banking opportunities, challenges and security aspects while performing the banking transactions on the internet. Comparison of public, private, foreign and co-operative banks and barriers to the growth of e-banking in India are also discussed. . Researcher also describes the advantages of internet banking, The advantages of internet banking are: To save the time To increase customer loyalty. To attract new customers. Development of internet education

 To improve customer access. To reduce customer attrition.

The Financial Services is the backbone of service sector. This is important not only for the banking sector but for the Indian economy as a whole. This is so because banking is a catalyst and life of modern trade and commerce. It is an integral part of all the businesses and social activities. This rapid transformation of services in the banking system has led to the evolution of a highly competitive and complex market where there is a continuous refinement of services. Hence the increased role of banking in Indias economic development on the one hand and the changes in the business climate on the other has put increased pressure on them. These changes are compelling the banks to reorganize themselves in order to cope with the present conditions. With the current change in the functional orientation of banks, the purpose of banking is redefined. Now, the Financial Institutions are trying to provide all the services at the customers doorstep. The customer has become the focal point either to develop or maintain stability in the business. Every engagement with the customer is an opportunity to either develop or destroy a customers faith in the Bank. The expectations of the customers have also increased many

folds. Intense competition among the banks has redefined the concept of the entire banking system. The banks are looking for new ways not only to attract but also to retain the customers and gain competitive advantage over their competitors. The banks like other business organizations are deploying innovative sales techniques and advanced marketing tools to gain supremacy.The main driver of this change is changing customer needs and expectations. Customers in urban India no longer want to wait in long queues and spend hours in banking transactions. This change in customer attitude has gone hand in hand with the development of ATMs, phone and net banking along with availability of service right at the customer's doorstep. With the emergence of universal banking, banks aim to provide all banking product and service offering under one roof and their endeavor is to be customer centric. With the emergence of economic reforms in world in general and in India in particular, private banks have come up in a big way with prime emphasis on technical and customer focused issues.

Appendix Table IV.1 : Indian Banking Sector at a Glance (Amount in ` billion) Sr. No Items Amount Outstanding (as at end-March) Percentage variation

2012 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 2 2.1 2.2 2.3 2.4 3 3.1 3.2 3.3 3.4 3.5 4 4.1 4.2 4.3 4.4 4.5 4.6 5 5.1 5.2 5.3 5.4 5.5 6 6.1 Balance Sheet Operations Total Liabilities/assets Deposits Borrowings Loans and advances Investments Off-balance sheet exposure (as percentage of onbalance sheet liabilities) Total consolidated international claims Profitability Net profit Return on Asset (RoA) (Per cent) Return on Equity (RoE) (Per cent) Net Interest Margin (NIM) (Per cent) Capital Adequacy Capital to risk weighted asset ratio (CRAR) (under Basel I) Capital to risk weighted asset ratio (CRAR) (under Basel II) Tier I capital (as percentage of total capital) CRAR (tier I) (Basel I) (Per cent) CRAR (tier I) (Basel II) (Per cent) Asset Quality Gross NPAs Net NPAs Gross NPA ratio (Gross NPAs as percentage of gross advances) Net NPA ratio (Net NPAs as percentage of net advances) Provision Coverage Ratio (Per cent)** Slippage ratio (Per cent) Sectoral Deployment of Bank Credit Gross bank credit Agriculture Industry Services Personal loans Technological Development Total number of credit cards (in million) 83,209 64,535 8,438 50,736 22,339 175.4 2,809 817 1.08 14.60 2.9

2013 95,733 74,295 10,105 58,797 26,133 138.5 3,312 912 1.03 13.84 2.8

2011-12 15.8 14.9 24.9 18.1 16.1 14.0 16.1 -

2012-13 15.1 15.1 19.8 15.9 17.0 17.9 11.6 -

12.9 14.2 72.8 9.4 10.4 1,429 652 3.1 1.3 51.9 2.5 43,793 5,477 19,408 10,188 7,900

12.8 13.9 74.1 9.5 10.3 1,940 986 3.6 1.7 51.0 2.7 49,642 5,899 22,302 11,486 9,009

46.0 56.4 16.8 13.3 20.3 14.4 12.9

35.8 51.2 13.4 7.7 14.9 12.7 14.0

18

20

-2.2

10.5

6.2 6.3 7 7.1 7.2 7.3 8 8.1 8.2 8.3

Total number of debit cards (in million) Number of ATMs Customer Services* Total number of complaints received* Total number of complaints addressed* Percentage of complaints addressed Financial Inclusion Credit-deposit ratio (Per cent) Number of new bank branches opened Number of villages covered under Financial Inclusion Plan (FIP)

278 95,686 72,889 72,885 99.99 78.6 7,401 181,373

331 114,014 70,541 69,704 98.81 79.1 6,897 268,454

22.1 28.4 -4.9 1.2 56.4

19.0 19.2 -3.2 -4.4 48.0