Banking

Banking & Financial Services FM 323
Mrs.Prakruthi.N.Udupa, Asst.Prof. PESIT, Bangalore. Page 1

Module 1
Banking
Introduction
Banking industry shifting towards a very different phase. Banking, the world over, has
been changing at a spectacular pace. This change is due to multifarious factors like the
need to be efficient in functions, thirst for becoming finance superpowers than mere
banks, growing importance of private banking, the rise in high net worth individuals.
Growing integration of economies and the markets around the world have made global
banking a reality. In view of the above, certain areas are highlighted where the changes
can really be made and the same will help in the development of the banking industry in
total.
Paradigm shift is now applicable to banks.
Perimeter of regulation.
Procyclical practices.
Network of banks and financial institutions.
Objectives of financial regulations.

Meaning
An establishment authorized by a government to accept deposits, pay interest,
clear cheques, make loans, act as an intermediary in financial transactions and provide
other financial services to its customers.
Bank is an important organ of the modern trade and commerce. Banks in India
are regulated by the Banking Regulation Act 1949.
Under sec 5(b) of the said act banking means, the accepting, for the purpose of
lending or investment of deposits of money from the public repayable on demand.

In terms of Economics and Finance

An institution offering certain financial services such as the safe keeping of
money, conversion of domestic into and from foreign currencies , lending of money
at interest and acceptance of bills of exchange.
Sec 6 of the Banking Regulation Act 1949 specifies the forms of business in which
a banking co. may engage. The banks may engage themselves in the following-
Borrowing, raising, lending, discounting, dealing in bills of exchange.
Acting as agents
Negotiating & issuing the loans
Guaranteeing, underwriting, issuing of shares, debentures.



Why do we need different types of banks?

a. Focus of banks is different
b. Needs of customers are diverse & different
c. To cater to the complexities
d. To adhere to the changing regulations
e. To improvise the banking activities.

Types Of Banks

The industry can be divided into following sector based on the clients served and
products and services offered.
i. Retail banks
ii. Commercial banks
iii. Co-operative banks
iv. Investment banks
v. Specialized banks
vi. Central banks

i. Retail banks:

The relationship between the bankers and the customers is not the same
like before. The market has undergone a sea change. The customers have
become more demanding. The bankers have no choice except to alter their
product mix, delivery channels and corporate structure to serve their functional
role. The retail banks take the following routes to meet the demanding
customers.

a. Provides basic banking services to individual consumers.
b. Retail banks can also be termed as personal banking services.
c. Refers to the consumer oriented services offered by commercial banks.
d. Banks executes the transactions directly with the consumers than banks.

Retail Banking :
i. It offers Store Front Shopping.
ii. It is possible to purchase multiple banking products at one place in retail
banking.
iii. Services offered include savings and transactional accounts like checking
a/c and current a/c.



ii.CommercialBanks

It refers to a bank or a division of a bank that mostly deals with deposits
and loans from corporations or large business. The banks are established in accordance
with the provision of the Banking Regulation Act 1949.

Definition
According to Prof. Sayers A bank is an institution whose debts are widely
accepted in settlement of other people debts to each other.
Commercial banks may be a scheduled bank or non scheduled bank. Scheduled
banks are classified into 2 big category based on the ownership of the bank. They are
Public sector bank & Private sector bank.

Role of Commercial banks:

a. Processing of payments by way of telegraphic transfer, Electronic Funds Transfer
at Point of Sales (EFTPOS), internet banking.
b. Issuing money on term deposit.
c. Lending money by overdraft, installment loan.
d. Providing documentary and standby letter of credit.
e. Sales and distribution or brokerage with or without advice.
f. Cash management and treasury management.
g. Guarantees performance bonds, securities underwriting.

Functions of Commercial Banks :

Primary functions
Accepting the deposits
Making Advances
Credit Creation

Secondary functions
Clearance of cheques
Sale /purchase of shares Transfer of money
To work as trustee
To provide letter of credit
Services of commercial banks



Services of Commercial banks:

Trade development
Agriculture development
Industrial development
Capital formation
Development of foreign trade
Transfer of money
Development of transport
Savings in metallic reserve
Credit creation
Export promotion cells
Economic prosperity
Training centre
More production

Regional Banks:

RRBs are specialized rural financial institutions for catering to the credit requirements of
the rural sector. Sponsor banks have been advised by the RBI to support to their sponsored
RRBs in matters relating to efficient management, training the staff, computerization and
networking of their activities. Sponsor banks have been made accountable for the performance
of RRBs.

Hi-tech Banking :

Banking in 21
st
century is a convergence of computing, communication, information and
knowledge.
The technology has changed the banking industry from paper & branch banks to
digitized & networked banking services.

Modern Banking :

The applications of modern banking are three dimensional and are:-
The customers - Banks are aware of customer's need for new services.
The bank Changing regulations and competition in the market.
The employees Quick and accurate service.
Customer dimensional
Looking into the requirements of the customers already developed and
implemented solutions are :
Self inquiry facility



Remote banking
Anytime banking
Telebanking
Electronic banking ( Graphical user interface)

Bank as a dimension :
The banks can enjoy the following benefits of modern banking:
o Availability of a wide range of inquiry facilities
o Immediate replies to customer queries
o Automatic and prompt carrying out of standing instructions
o Generation of various MIS reports.
o Dimension of Employees

Identifying the requirements of the customers and the bank the dimensions of
the employees are listed as follows:
Accurate computing
Automatic printing of covering schedules
Avoidance of duplication of entries
Capacity of quick disposal of loan application.

CORE banking:

CORE Centralized Online Real Time Environment.
It means bank branches access applications from centralized datacenters.
Core banking is services provided by a group of networked bank branches.

Definition of CORE banking

It is defined as the business conducted by a banking institution with its retail and
small business customers.
Gartner defines CORE banking system as a back end system that processes daily
banking transactions and posts updates to accounts and other financial records.
The platform where communication technology and information technology are
merged to suit the core needs of banking.

Benefits of CORE banking :

o Customers may access their funds from any branch office.
o Possibility of simple transactions from any of the member branch offices.



o Capable to address the needs of corporate customers.

Core operations of CORE banking:
o Recording of transactions
o Pass book maintenance
o Interest calculations on loans and deposits
o Balance of payments and withdrawal.
o Its a 360 degree single source view into customer accounts.

CORE banking solutions:

Enterprise customer information
Consumer finance
Clari5
Wealth management
Customer analytics

Example for CORE banking

Financle is an integrated, on-line, enterprise banking system designed to provide
the e-platform, developed by M/S Infosys and being internationally and also by major
private and foreign banks operating in India.
Financle provides all the building blocks of business functionality, enabling users to
configure products and processes flexibility in order to adapt to a dynamic environment.
TCS deploys its core banking solutions for PZH bank a commercial bank.PZH is the first
city commercial bank in China to use TCS BaNCS solution.

Advantages of CORE banking:

CORE banking helps in building better relationship with the customer based on
the information captured and gives customized financial products.
The advantages of CORE banking can be felt by the customers as well the banks.

Advantages to Customers:

Transaction of business from any branch
Lower incidence of errors
Better funds management due to immediate availability of funds
Time management

Advantages to Banks:



Standardization of process
Better customer service lending to retention of customer
Availability of accurate data and better use of available infrastructure
Better MIS and reporting to external agencies such as Government, RBI
Increased business volume with better asset -liability management and risk
management.

E - Banking:

Is a method or electronic banking is a method used to allow people to make
transactions and manage their money without having to go to their bank.
It was first presented as an idea in 1970. Eventually becoming a practice for
some banks in 1985.

Electronic Funds Transfer System:

Is a technique where funds and messages are transferred through several
banking networks connecting computers of various banks. The messages are transferred
at the push of a button. The mail transfers and telegraphic transfers are affected within
a matter of seconds. Is the electronic exchange, transfer of money from one account to
other, either within a single financial institution or across multiple institutions.

Types of EFTs

Wire transfer
Direct deposit
Electronic bill payment

Wire Transfer types

Western Union
Check21 systems
USACH (bulk payments)
CHIPS (provide net settlement)
RTGS (gross settlement)
OFAC (office of foreign assets control)
SWIFT ( Society for worldwide interbank financial telecommunication)

Real Time Gross Settlement :



The continuous settlement of payments on an individual order basis without
meeting debits with credits across the books of a central bank.
Interbank settlement happens throughout the day, rather than just at the end of
the day. The RTGS system is primarily for large value transactions. The minimum
amount to be remitted through RTGS is Rs. 1 lakh. There is no upper ceiling for RTGS
transactions.

The RTGS service window for customers transactions is available from 9.00 hrs
to 15.00 hrs on week days and from 9.00 hrs to 12.00 noon on Saturdays. However the
timings between these hrs would vary depending on the customer timings the branches
have. For inter bank transactions, the service window is available from 9.00 hrs to 17.00
hrs on week days and from 9.00 hrs to 14.00 hrs on Saturdays.

Internet Banking:

Means utilizing banking services with internet as the medium of delivery.
In other words, besides the traditional modes of banking. Internet banking will be an
additional channel of delivery like ATM, tele banking or remote access.

Mobile Banking :

It refers to provision and availment of banking and financial services with the
help of mobile telecommunication devices. It helps in administering accounts and to access
customized information. In this the customer will be able to access his bank accounts while
on the move with the help of mobile phone.
This will facilitate instantaneous communication with the bank on time sensitive
issues such as sale and purchase of securities, stop payment notification and intimation of
loss of credit card etc. Though only limited features are available in mobile banking
compared to internet banking, it has its own advantages. With the reduction in cost of
owning and maintaining cell phones, the number of cell phone users has increased thereby
increasing the demand for mobile banking facility. It consists of three interrelated concepts:
Mobile accounting
Mobile brokerage
Mobile financial information services



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Banking & Financial Services FM 323

Mrs.Prakruthi.N.Udupa, Asst.Prof. PESIT, Bangalore. Page 1

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