BANKING TODAY- REDEFINED AND RE-ENGINEERED INDIAN BANKING - THE CHANGING LANDSCAPE

AGENDA FOR THE SESSION o To Sensitize the Participants to the Latest Changes in Banking Industry o What is the Response to the Current Trends from Bankers and Customers?

INDUSTRY PROFILE  Public Sector banks  Private Indian Banks New Generation Banks  Private Foreign Banks –  Cooperative Banks  Non Banking Financial Institutions

Banking Sector Reforms – Post-Liberalization …  1 st Narasimham Committee Report on Financial Sector Reform – 1991  Introduction of Capital Adequacy Norms and Prudential Norms  Deregulation of Interest Rates, Prudential Norms for Maximum NPA – 1993  Introduction of Banking Ombudsman Scheme – 1994

Banking Sector Reforms – Post-Liberalization  Concept of Local Area Banks Introduced – 1995  1 st Shared Payment Network System & conditional autonomy to PSU’s – 1996  2nd Narasimham Committee Report of Banking Sector Reforms – 1997  Guidelines on Risk Management – 1998

RECENT TRENDS IN BANKS  Entry of New Generation Banks  Change in the Process, Methods & Techniques  New Products and Services  Collaboration between Banking & Insurance Companies.  Improvement in Service Quality  Increasing focus on Retail Banking  Shift Towards Branchless Banking

RECENT TRENDS IN BANKS  Change in Customer Expectations  Outsourcing of Resources [Human&Non- human]  Steady Reduction in Interest Rates  Increasing Non- Interest and Fee Based Income  Corporate governance and Business Transformation  Mergers, Acquisitions and Consolidations

CHANGING PERCEPTION OF CUSTOMER  Servicing the Customer – 1950’s to 1960’s  Satisfying the Customer ’s to 1980’s  Pleasing the Customer ’s to 1990’s  Delighting the Customer -1990’-2000  Retaining the Customer – 2000 and beyond

WHAT CHANGES ?  Electronic Fund Transfer (EFT)EFT  Electronic Clearing System (ECS)  Automated Teller Machines (ATM)  Shared Payment Network System (SPNS)  Credit Cards/ Debit Cards  Point of Sale Terminal  Tele-banking  Mobile Banking  Net Banking  Electronic Data Interchange  Corporate Banking Terminals

WHERE ARE WE GOING?  Anywhere Anytime Anyplace Banking  Timeless and Placeless Banking  Banking at Convenience  Good by to Traditional Instruments ( Cheques &DD ) & Invitation to new Instruments  Disappearance of Conventional Risk and Arrival of New Risks  Leading to currency-less monetary system  Dismantling of Physical Structure

WHAT IS THE TRIGGER?  Hyper Competition  Shrinking Margins  Need to Reduce Cost  Take Advantage of Technology  Changing Customer Expectations  Simplify the Procedure and Process  Reduce Traditional Risk  Offer Better / Improved Service  Some Constraints [Policy/Resources/Physical/Structure]

Author for Change – Players in the Banking Business Eco-System  Shareholders  Management  Depositors  Borrowers  Employees  Government  Regulatory Authorities – RBI  Competitors

PHASE OF TECH BANKING  PSB  PIB  PFB  CB NBFI SBI, SBT ETC. ICICI,IDBI,HDFC,UTI BANK ETC.. CITI BANK,SC BANK, ETC.. SCB,UCB,DCBs/SCBs INDUSTRY

SOME EARLY ADOPTERS BANK ____________ CHANNEL HSBC Bank HDFC Bank UTI Bank CITI BANK ICICI Bank ATM (No.) ATM Share(%) 4050NA8045 Other Channel[%] ( mobile, phone, net) 3515NA15 Branch Banking[%] 2535 NA 540

STRATEGIES OF BANKS  Citibank: Parallel Banking  HSBC: Leveraging branches to grow C’  ICICI B: Reducing importance of branch  HDFC B: Conservative migration  UTI B: ATM’s as a force multiplier

Issues and Challenges  What will happen to the traditional rural credit institutions like, Cooperative Banks, RRB’s and Low performing Public Sector Banks?  What are all the options for the Public Sector Banks?

Issues and Challenges  Can the machines establish a strong connecting link with customers?  Is the Convenience Banking good for all segment and all seasons?  Is it not challenges the conventional wisdoms (keeping close contact with the customers)?

Issues and Challenges  Does IT confer Competitive advantage or is it just the cost of staying in business?  How do we dispose the existing human resource?  What are the new security issues?  Is this changes a customer demanded/bank wanted? Are the customers happy and comfortable with the shift?

THANK YOU

Electronic Fund Transfer  Transfer of funds between banks located in different cities in place of DD/MT/Telegraphic transfer.

Electronic Clearing System  Facilitates inter-bank settlements - both Debit & Credit clearances through INFINET.  CC: Companies who have to make bulk payments to a large number of beneficiaries prepare the credit instructions on the magnetic media and submit the same to RBI for payment.  DC: Payment to utility companies by banks on behalf of the customers.

Tele-banking  Using automatic voice recorder it facilitates both cash & non-cash transactions for the bank and customers.

Automated Teller Machines  Device used for withdrawal of money, depositing of money and balance enquiry and verification for 24 hours of a day.

Shared Payment Network System  Facilitates Use of ATM cards across participating banks at ATM centers using Master/Visa Cards. In case of using other banks ATM – one may have to pay service charges.

Credit Cards/ Debit Cards  CREDIT CARD: It is a card that empowers the Customer to spend up to the fixed value of money limit fixed - A prepaid card.  DEBIT CARD: It is a post paid card and money is transferred after the spending.

Corporate Banking Terminals  Facilitates the Corporate customers to log on into the banks data base and have access to their account for balance verification etc. with defined powers.

Point of Sale Terminal  Computer terminal that is linked online to computerised customer information files that facilitates purchase from retail shops as it credits the retailer account online.

Electronic Data Interchange  Transmit financial information and payments in electronic form.- reduces transmitting cost and risk.

Corporate Institution Corporate Institution’s Bank Clearing House Destination Bank ECS - How it works Destination Bank Branches of destination banks Investors

11 How ECS Works - Process flow User Institution Beneficiaries’ A/Cs Destination banks’ service branches Destination branches Clearing House Sponsor Bank Data on Day-1 Reports on Day-2 Reports on Day-3 Credit on Day-4 Encrypted Data on Day-1

ECS - Processing of Uncredited Payment Instructions contd... User Institution Destination banks’ service branches Destination branches Clearing House Sponsor Bank Encrypted Output Data on Post Settlement Day-2 Return Data submitted on Post Settlement Day-1 Return Advice on Post Settlement Day-1 Encrypted Output Data on Post Settlement Day-2

How to Participate in ECS - Registration Procedure Corporate Institution Sponsor Bank Clearing House Agreement  Collect a copy of the ECS brochure and ECS Procedural Guidelines  Identify your Sponsor Bank ( a member of the Clearing House)  Submit an Application - Form annexed to the ECS brochure/Guidelines  Obtain the Unique User Registration number from Sponsor Bank

Good Bye Paper Warrants and...

32 Switch over to ECS - The best way to Pay