88

CHAPTER – III

I.T. BASED PRODUCTS AND SERVICES OFFERED IN SBI AND ICICI BANKS

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

of the selected Information Technology based products and services of SBI and

ICICI bank and the need for innovation in customer service in their retail

banking.

3.1. INTRODUCTION

The tremendous advances in technology and the aggressive infusion

of Information Technology had brought in a paradigm shift in banking

operations. With the development of information technology, the world has

become a global village and it has brought a revolution in the banking industry.

The banks appear to be on fast track for I.T. based products and services. Bank

customers are becoming very demanding and it is the extensive use of

technology that enables banks to satisfy adequately the requirement of

customers. Technology has become the fuel for rapid change. The Information

Technology facilitates the development of retail banking activities.

The retail banking refers to the dealing of commercial banks with

individual customers by offering products and services in the form of fixed,

current, savings account and mortgages, loans (personal, housing, vehicle and

educational) and also services like Debit card, Credit cards, ATM card and

depository services etc. In addition to the multiple products, it also emphasises

multiple channels of distribution like call centre, branch, internet, mobile /

SMS, Core banking services etc., through which products are delivered and

provide service to multiple consumer groups (customer, small business and

corporate).

89

The issue of retail banking is considered extremely vital and the

growth of retail banking is mainly attributable to the rapid advancement in

information technology. In India both the private and public sector banks too

experienced a surge in retail banking. Therefore, in this competitive and

globalized banking scenario, the customers are the priority for banking

companies and they are considered as assets that banking company should

preserve and continuously expand.

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

banking companies to satisfy their needs and requirements by providing wide

variety of products and services through the increasing power and precision of

information technology. Now a day’s banks are providing a variety of products

and services and adopting new techniques to satisfy their customers.

It is true that technology has provided a unique competitive

advantage to both public and private sector banks in India, since they have

taken a lead in offering technology based products and services to their

customers. Adopting the latest technology with constant upgradation is leading

to a huge investment of capital in technology and high cost of skilled and

trained man power. Therefore, to contain the phenomenon, a number of new

private banks and foreign banks with large volumes of business have started

out-sourcing some of their activities.

Learning operations and ATM maintenance are handed over to

outsourcing agencies, whereas marketing functions for deposit mobilization,

retail loans and credit card business are done through Direct Selling Agents

(DSAs), Routine back office jobs are either centralized or completely out-

sourced leading to branch staff taking up more marketing functions with a

customer centric approach at the branch level.

90

Based on the above facts, both State Bank of India in public

sector and ICICI bank in private sector understood the impact of the

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

their customers, which ultimately provides enormous benefits in their

operations. It helps to streamline and standardize the work flow to attend the

work in the required manner and provide complete security to office documents

and also helps in the following ways:

Increase the speed to process the cases due to reduction in

procedures and providing clear-cut responsibility to persons

involved.

Easy tracking of documents

Easy retrievability of documents

No loss or misplacement of documents

Optimal utilization of man power

Measure the performance ultimately

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

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

of the network and other services for users without any interruption. To provide

such uninterrupted services, banks have to concentrate on proper information

technology planning, preventive maintenance, availability of facility managers

and technological capability to manage the system. In order to ensure

continuous business, it is necessary to have trained and capable database

administration.

91

3.2. PRUDENT TECHNOLOGY INVESTMENT AND ITS

COMPETITIVE LEAD IN THE BANKING SECTOR

“Technology has changed the face of banking sector. It is

helping the banks to ease cost pressure, improve quality, and be

competitive. While the major objective of IT investment in

banks is to offer services to customers which bring convenience

and value, to get greater benefit, IT strategy should be aligned

with business plan. Prudent technology investment decision is

one which brings positive return on technology investment.

The major IT competitive edges in banks are improved

distribution, enhanced operational efficiency, better

management of risks and efficient payment system” 1.

Thus, technology facilitates the organization / business

to compete in the present modernized environment;

to cut cost pressures;

for better productivity and volume;

to enhance speed and ease in production; and

to improve quality.

Fig.3.1 Implementation of Technology

__________________ 1Anu Anna Thomas (2005) “Present Technology investment and its competitive lead in the banking sector” – Information Technology in Banks – ICFAI University Press, p.98.

Manual System

Batch processing

systems

Online systems

Real-time system

92

OBJECTIVES OF INFORMATION TECHNOLOGY INVESTMENT IN

BANKING

Offer services to customer, which will bring convenience and value

addition to customers.

Help the bank in retaining the existing customers and to further increase

customer base.

Improve operational efficiency, decrease operational costs and to

enhance the wealth of owners (stakeholders)

Use operational data for providing a Management Information System

and Decision support system.

Derive necessary inputs for Customer Relationship Management

operational data.

Provide necessary tools to launch new products and new business

initiatives.

Provide support for determining and managing risk in operations.

Meet regulatory / statutory requirements.

Secure information of Assets as Information is a vital resource for

Bank’s continued operations.

Augment Non-interest income, especially through technical products

such as ECS / E-Money / Money Transfer / Utility payments / Direct

Taxes / Cash Management Services etc.

Based on the above facts it is understood that Skills must be matched

by flexibility. Public and private sectors must join hands as partners in the

development of promotion of productivity, and innovation, on an increasingly

larger scale.

93

3.3. INNOVATION IN CUSTOMER SERVICE IN BANKS:

“Satisfied customers are the best guarantee for stability and

growth. Customers will be satisfied only when the banks

provide the customized and innovative products and services at

reasonable costs. This article focuses on the kind of services

provided by developed countries and the level of innovative

services provided by Indian banks. Many innovative services

are currently available from Indian banks like e-banking,

ATMs, anywhere banking etc. But there is a vast scope for

improvement”2.

Technology is rapidly transforming the banking industry – and

expanding its ability to reach the unbanked. Banking services are unique in the

sense that diverse customers have multifaceted needs and therefore,

benchmarking of banking services becomes a difficult task. No doubt, a

system of Citizen’s Charter has been introduced in various banks but this only

deals with the time limit within a service would be rendered to the customers.

Are Banks Serving the Common Man?

Banks have been changing their mindset and are offering their

services effectively and efficiently. Besides, RBI’s efforts, IBA is

also making efforts to improve the customer services. Banks have

been advised to review their existing policies and procedures with

regard to delivering of various services3.

___________________ 2Sharathkumar (2005), “Innovation in customer service in Banks” – Innovation in Banks, p.No.20 – ICFAI University Press.

3Government of India – (2005-2006) Economic survey, p.63.

94

Acquisition / Satisfaction

Fig.3.2 Acquisition / Satisfaction

Technology encourages innovative applications with product

manufacture design and control. Thus it means for a rapid change especially as

the banks take to the fast track, besides this development, technology of

telecommunication and electronic data processing have accelerated these

changes. So the new technology has altered the ways of banking business

through improving product selling, customer identification, customer

acquisition and customer satisfaction.

Recent Technology Innovation by Indian Banks

State Bank of India and seven of its associate banks got more than

2,500 of their branches connected under the second phase of the

$29 mn project assigned to Data craft.

State Bank of India launched a mobile ATM, using Reliance

CDMA technology, on a boat near Vypeen islands in the Kochi

Backwaters.

IT in banks provide

Customer identification

Cross selling / Up selling

Customer satisfaction and

Delight

Customer Acquisition

Customer Retention

95

ICICI bank deployed a mobile ATM using Reliance Fixed Wireless

Terminal (FWT) outside the Wankhede stadium during the India-Australia one-

day cricket match.4

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

banking service can reduce costs and often improve customer’s satisfaction.

This study elucidates the customers’ preference and satisfaction with

technology based products and services of SBI in public sector and ICICI in

private sector. However the customer satisfaction has been linked with the

Computerized services

Internet banking

Core banking

ATM services

Mobile and SMS services

____________________

4Ashok Singh (Jun 2010) “Data centre energy efficiency’ The Indian Banker, vo.5, p.2.

96

3.4 CLASSIFICATION OF PRODUCTS AND SERVICES OF

COMMERCIAL BANKS

Banking products can be dived into two types. Those are Traditional

and I.T. based products. Traditional products also know as mass banking

products.

Traditional products consist of Savings Deposits Account, Current

Account, Fixed Deposit Account Recurring Deposit Account, Overdraft

Account, Loan Account, PPF Account. All these components of traditional

product is operated through channels such as internet, phone services, ATM

and Core banking technology as a transformation from traditional banking

to technological banking.

The remaining Informational Technology based products and services

which customers extract through the same channels are as follows:

1. Term Deposits,

2. Special Term Deposits,

3. Tax Saving Scheme,

4. MODS (Multi Option Deposit Scheme),

5. Flexi Deposit Scheme,

6. Basic Banking – No Frills Account and

7. Premium Savings Account.

97

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

products structure has undergone a major change. As part of the economic

reforms, banking industry has been deregulated and made competitive. New

players have added to the competition. IT revolution has made it possible to

provide ease and flexibility in operations to customers. Rapid strides in

information technology have, in fact, redefined the role and structure of

banking in India. Further, due to exposure to global trends after Information

explosion led by Internet, customers - both Individuals and Corporates - are

now demanding better services with more products from their banks. Market

focus also shifted from mass banking products to class banking with

introduction of value added and customised products and these are named as

I.T. based products.

I.T. based products & services and their working mechanism :

E-Rail (Electronic rail booking): under this scheme, an individual can book

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

The payment amount will include ticket fare including reservation charges,

courier charges and bank service fee. Customer’s account will be debited to the

extent of the payment as soon as the payment option is selected by the

customer over the on-line. The ticket may be delivered or collected by the

customer from the reservation counter.

NEFT: It is another electronic payment system. The payment instructions

between the banks is processed and settled at fixed time during the day. There

is no limit for the transactions value. Both systems work on all days except on

Sundays and common National holidays across the states.

98

E-Pay

This system will let you pay your telephone, mobile, electricity,

insurance and credit card bills electronically over the on line bank website.

On-Line Trading Services

Through the internet banking a customer can enter into a world wide

online share trading and transaction of products world wide.

ATM Cum Debit Card

This is the card used by the customers to withdraw cash and make

purchases anytime as their wish.

ATM is a device that allows customers who have an ATM card to

perform routine banking transactions without interacting with a human teller.

ATMs are currently becoming popular in India since they enable the customers

to withdraw their money 24 hours a day, 7 days a week. They allow a customer

to withdraw cash up to a specified amount by operating the machine via a

magnetic card to a host computer. While new private sector banks and foreign

banks had more off-site ATMs, nationalized and old private sector banks had

more on-site ATMs. The percentage of off-site ATMs to total ATMs were the

highest in case of foreign banks followed by SBI groups, new private sector

banks, nationalized banks and old private sector banks.

99

The following are services provided through ATMs by the banks :

ATM credit card and Debit card acceptance

ATM card issue duration

Cash Withdrawal Duration

Balance Enquiry

Receipt Of Mini Statement

Maximum limit per withdrawal

ATM locations

Guidelines for card usage

Charges for card usage

Lost card request to make Hot card

Replacement of Lost / damaged ATM card

Validity of ATM card

Maintenance of secrecy of PIN

Providing Tips for taking precautions about safe keeping of card

Change of PIN as and when required.

Rural ATMs

Rural ATMs having the ability to handle used and soiled currency

notes. Sensors are used to detect and correct false dispensation. They provide

the depositor with secure antiphishing mechanism, secure chest with e-lock

activated only by remote-bank server. They have got smart-card based

identification, biometric authentication, encrypted secure communication over

the internet and real time online communication for ‘anywhere banking’.

100

Biometric ATMs for Rural India

ATMs with biometric devices are the latest solution in the ongoing

effort to offer banking services to the rural masses. To reach the rural masses,

and to boost micro financing initiatives, banks are deploying biometric ATMs.

Establishing the identity of a rural depositor through biometrics, it makes it

convenient for the illiterate to become part of the banking user community.

Biometrics establishes identification via face, voice, retina or iris.

The benefits are:

It provides strong authentication.

Can be used instead of a PIN

Fingerprint verification and voice guided animated screens with one

touch enabled transaction, eliminating complex navigating menace.

Hidden costs of ATM card management like card personalization,

delivery management, re-issuance, PIN generation, help desk, can be

avoided.

Ideal for Indian rural masses.

It is accurate.

Smart Card

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

difference is that, it carries a chip embedded on the reverse below the magnetic

strips. The purpose of the smart card is to replace the multiple number of cards

with one or two storable information.

101

Broking Services

This is the service provided to the investors to carryout broking

transactions with confidence. The retail broking network helps investors to

locate the branches to whom they should approach for their broking needs.

Vishwa Yatra Foreign Travel Card

A prepaid plastic card issued in association with visa international is

presently available in three different currencies namely US dollars, Euro and

GBP. It is a safer method of carrying funds in a safe, convenient and cost

effective way by customers who visit abroad. It takes away the hassles of

going around money changers and loosing valuable foreign currency by way of

high exchange margins. It also relieves the customers from the annual fees,

joining fees, credit limits, unusual transaction charges etc.

RBIEFT refers to Inter-bank electronic funds transfer facility of the Reserve

Bank of India (RBI – EFT) which is (technology) available in the branches to

clear the financial settlement between the branches and banks, within a real

time.

Yuva Card

This is the card exclusively designed for vibrant youth of India

between 18 and 30 years of age. It is also an international debit card on visa

platform.

102

Safe Deposit Locker Remittance

Online banking helps the customers to give standing instructions to

their bank, towards the remittance of rent for the safe deposit locker facility

availed.

Foreign Inward Remittance

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

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

mailed to the branch, where a customer has an account. Telegraphic or wire

transfers can be made through the branches of their bank abroad. Through the

Automated Clearing House (ACH) over the online, the money could be

credited in customer’s account even from USA within 4 days.

Demat Services

Demat service facilitates to maintain security balance, in electronic

form. This service ensures free of transferability of securities with speed

accuracy and security. It also provides service towards the conversion of

electronic balances to physical (share certificate) form. It facilitates faster and

direct credit or security balances in DP (Depository) account on allotment

through public issue of companies. Both buying and selling of securities will

take place through the Demat account.

Gift Cards

The advancement of bank introduces gift cheques, allowing the

beneficiary to use the money according to their wishes. These cheques are

accepted at the issuing bank branches only. But the gift card issued in

association with visa international gives the comfort of convenience and

acceptability. It is a prepaid plastic card supported by magnetic strip based

technology. It is a perfect substitute for gift vouchers. It is usable at all visa

enabled merchant establishments at POS (Point of Scale) by signature.

103

EZ-Pay Card

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

with visa international. It is an ideal product for making periodical payments,

where Payment of salaries to employees, who are required to work at different

locations. In that situation, cards can be loaded from a single point and the

funds are available to the employees immediately. The card holder can

withdraw his money from any ATM and balance enquiry can be made through

the ATM, at free of charge.

Multi City Cheques (MCC)

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

client and is payable at par, at all branches of the bank. MCC can be issued in

cheque operated accounts (SB and current) in addition to normal cheque books.

The MCC facility is to be used only for genuine transactions / bonafide

remittances. No cash payments will be made to this and parties at other

branches.

Mobile Phone Banking

This service is available on all phones in a Wireless Application

Protocol (WAP) over Unstructured Supplementary Service Data (USSD) and

over SMS. The following services are provided to the customers.

Balance enquiry / mini statement.

Funds transfer (within and outside bank)

Cheque book request

Demat enquiry service

Bill payments (utility bills, credit cards, insurance premium)

Mobile top-up

Mcommerce (Top up of Tata sky, Sun Direct, Dish TV connections, and

so on)

104

NRT Services

These customers are availed with transaction details and account

balance round the clock. NRI’s can open different types of accounts and avail

various loans as per the banking rules and regulations.

e-invest

Bank has introduced this supplementary process for applying in the

public issues. Bank will mark a lien on the deposit account of the e-investor to

the extent of the application money. Under this system customer funds will

continue earning interest during the application processing period. Once the

allotment is over, the lien will be removed and the shares allotted to the

customers will be transferred to the Demat account.

Travel Card

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

provides convenience and safety to the travelers who are in abroad. Some of

the features are, replacement card, SMS alerts for every transaction, online

access both to the customers and corporate. Card usable over the internet and

so on. Making the travel totally hassle-free.

Investment Services / Cash Management Services

The above service refers to the financial advice offered by banks to

their customers. This service is considered as high value and high specific

oriented. The advisor (bank) has to gather all information necessary and

provide all such information to their customers, who need the banker’s advice

to take a decision on their investment. It is necessary to note that the advisor

must provide a customised recommendation from the information collected.

105

Bank Travel Cards

The ICICI bank Travel Card has made travel abroad convenient and

safe. Available in US Dollars, Australian Dollars, Canadian Dollars, Swiss

Francs, Euros and Pound Sterling, the international traveler gets the widest of

the choices. Some of the powerful features are Replacement Card (part of kit),

SMS alerts for every transaction, online access both to customers and

corporate, card useable over the internet etc. making travel totally hassle-free5.

3.5. COMPUTERISED SERVICES (GENERAL):

Nowadays customers are viewed by the banks as financial partners

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

services to their customers both private and public sector banks introduced a

high level of computerization to insure efficient services. The high speed

computer mediated, communication networks set up helps to reduce to

communication cycle time. As a result, employees could attend to the

customer proposal and problems, while computer processes all the transactions

and displays the options and assists the employees to provide customized

solutions. The new technology has radically altered the traditional ways of

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

business with their banks. 5

___________________ 5www.orpci.org.in C July 15, 2010.

106

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

payment technology which allows customers to access banking services

electronically, to pay various bills towards, telephone charges, electricity, and

mobile. It refers to electronic services through the computers that are made

available to the customers for pass book entries, electronic clearing services.

There is no uniform standard for presentment and payment of bills under this

system, getting of paper and plastic and typing to replace it by electrons. By

using the electronic device the banks can extend the following retail services to

their customers. The improved availability of customer data will help to speed

transaction processing cycle and automate the more time consuming customer

interactions; including form completion and other cumbersome application

processes. Extending the banking services infrastructure into these e-financing

domains will also help to keep customers satisfied.

The following are the practices adopted to provide services through

computers with banks:

Computerized Services at Branch Level

I. The Payment System

Utility Bills Payments

Passbook entries

Electronic Cheque Clearances

FD receipts issue

ATM statement availability

Withdrawal of Cash

MICR clearing system

107

II. The Settlement System

Electronic Debit Clearing

Electronic Credit Clearing

Electronic Documents Management

RTGS (Real Time Gross Settlement)

Credit card Payments

Debit Card payments

Smart cards

Draft Issue(Purchase of Drafts)

III. Centralized funds management system

24 hrs banking service

Ac to AC transfer of funds

Branch to Branch transfer of Funds

Bank to Bank transfer of Funds

Preparation of vouchers

Electronic Funds Transfer

IV. Structured financial messaging solutions

Interactive voice response

Telephone banking system

Securing message for funds transfer

V. Internet system

To view accounts

Remote banking services

EDI (Electronic Data Information) Developments

email management

108

VI. Debit card management solution (manages the lifecycle of ATMs and

Debit cards)

To Get account statements

Biometric ATMs for Rural Banks

Network based fraud deduction system

The Settlement System

Electronic payment and settlement system

The most accepted forms of payment for settling transactions are

cheques. Through the system of clearing houses, the inter-bank cheques could

be cleared. The service of clearing house is a common phenomenon, which is

provided by RBI in metro cities and the similar service is provided by other

banks in smaller cities. The MICR / OCR (Magnetic Ink Character / Optic

Character Recognition) technology adoption leads to automate the clearing

process.

MICR / OCR Clearing System

The Automated clearing system consists of Magnetic ink and optic

ink character recognition technology MICR technology is used in clearing of

cheques in India. Under this system, the specific types of papers are processed

in a high speed machine and the cheques have two white bands at the top and at

the bottom. These bands carry the details of the cheque which are enclosed

with special magnetic ink. These banks should be free from any marking or

impressions as such. The cheques should not be folded in the middle and either

end should be free from any tabs.

109

Electronic Debit Clearing

It is a process through which, a user of the utility services like,

telephones, electricity, gas etc. can make the regular and periodic payments to

the service provider. In order to make the payments easy the service provider

obtains an authorization letter from the user and it will be submitted to the

banker as in the case of normal clearing. Later, the customers account will be

debited in the respective branches to the extent of the amount payable by the

customers.

Credit Clearing System

Credit clearing system is applicable where a company is required to

make payments to a large number of shareholder/ investors, periodical dividend

/ interest, which are generally of smaller amounts. In this case, the company

prepares a list of customers city-wise, bank wise and branch wise. The amount

is also handed over to the bankers along with the list. The list is distributed to

the various bankers along with the amount, which is credited to the

shareholders account by the individual bank / branches.

Real Time Gross Settlement (RTGS)

“RTGS influences speed, financial risk, reliability and costof

domestic and international transactions”6

RTGS system is defined as a gross settlement system in which both

processing and final settlement of funds transfer instructions can take place

continuously (i.e. in real time).

____________________

6R K Patkar – (2004) – Chartered Financial Analysit – January 2004 – ICFAI University Press (original source) - (p.141 Indian banking in the 21st Century – Amit Sing Sidodiya).

110

RTGS systems are typically electronic systems, using

telecommunications network, which transmit and process information in

realtime. As it is a gross settlement system, transfers are settled individually,

that is without netting debits against credits. It is a real –time settlement

system, the system affects final settlement continuously rather than periodically

at pre-defined times provided that the sending bank has sufficient covering

balances or credit. The RTGS was first operationalised on March 26, 2004. Its

use for the transfer of funds, especially for large values and for systematically

important purposes, has increased since then. The interbank paper-based

clearing was discontinued at all the RBI centres from June 2005. All inter-

bank transactions are now settled through RTGS. Apart from inter-bank funds

transfer, the RTGS system facilitates customer transactions. This facility is

available for a transaction value of Rs.2 lakhs and above.7

Structured Financial Messaging System (SFMS)

SFMS like SWIFT is an Electronic Data Interchange system for

banks. It allows exchange of structured messages prepared in conformity with

published standards.8

___________________________

7 Amit Singh Sidodhya (2006) – Indian Banking in the 21st Century – “Emerging Perception” – The ICFAI University Press. 8Swati Anand, Blywel.R.C & Kailash Sakiani – (Jun-2009) “Impact of technology upgradation and the functioning of banks – Journal of Banking Information

111

3.6. E-BANKING : GROWING POWERFUL

“Banking being highly information – intensive, it is only

logical to use IT as an effective enabler and facilitator for

meeting the requirement of banks and their customers. With

the changing lifestyle of customers, they need new products

and convenient delivery channels, which can be provided only

be enabling technology”9

The tremendous advances in technology and the aggressive infusion of IT had

brought in a paradigm shift in banking operations. For customers, it was the

realization of their ‘anywhere, anytime, anyway’ banking dream. For the

banks, technology has emerged as a strategic resource for achieving higher

efficiency, control of operations, productivity and profitability.

That most ‘brick-and-mortar’ banks are shifting from a ‘product-centric’ model

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

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

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

individual products.

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

facing constraints like heavy initial investment, inadequate infrastructure in

rural and semi-urban branches, excess manpower etc., in achieving total bank

automation. Also there is the issue of total business re-engineering, without

which the infusion of technology alone may not yield the required business

benefits to banks. Again, it may neither be required nor viable to cover the

large number of small and rural branches in total bank automation.

___________________ 9K.N.C. Nair – Professional Banker- 2003 – ICFAI University Press (Original source) – p.151 – IT in banks –Katuri Nageswara Rao, IT in Banks, – 2005 ICFAI University Press, Hyderabad.

112

The biggest hurdle in popularizing e-banking is the security

perception among the customers. This needs to be addressed by establishing

highly secure system of architecture for the Net-based services.

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

perform banking transactions electronically without visiting a brick –

and – mortar institution. There are different forms of e-banking, which

can be used interchangeably. They are named as PC banking (Personal

Computer Banking), Internet banking, Virtual banking, On-line banking,

Home banking, Remote electronic banking and Phone banking.

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

designations.

These different types of electronic banking are often used

interchangeably.

Banks are transforming their websites into full fledged finance portals

through which the banking companies have gained the opportunity to

offer personalized services to their customers on one-to-one basis by

means of which banks can build (or develop) long-term customer

relationship 10

E-banking utilized technology to allow bank customers and other

stakeholders to interact and transact with the bank through a variety of channels

such as internet, wireless devices, ATMs and physical branches technology and

the same are used for increased knowledge sharing within the bank and

between the bank and its vendors.

_________________________ 10Peter Spencer (2002) “E-Banking” – e-finance, Vol.1 pp.66-67 – ICFAI University

Press.

113

The latest wave in I.T. is internet banking. Internet is an

interconnection of computer communication networks spanning the entire

globe, crossing all geographical boundaries. Touching lifestyles in every

sphere the internet has redefined methods of communication, work, study,

education interaction, health, trade and commerce. The net is changing

everything from the way we conduct commerce, to the way we distribute

information. Being an interactive two-way medium, the net, through

innumerable websites, enables participation by individual, in B2B and B2C

commerce, visits to shopping malls, books-stores, entertainment sites and so

on.

To achieve customer satisfaction banks eliminated the constraint of

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

and reducing the distance from infinity to new zero. RBI has provided the

following guidelines for internet banking services:-

Only banks licensed under the banking regulation Act and having a

physical presence are permitted to offer internet banking services.

Internet banking should include Indian currency products only, with

regard to cross border transactions, wherein an Indian bank transactions

with a foreign resident and vice versa, existing restriction would

continue to apply, except where permitted by FERA.

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

already offers such services requires post facts approval 11

_____________________ 11 Jha. S.M. (2000) – Bank Marketing – 2000 Millenium Edn. – pp.14-23.

114

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

is e-enabled. All that the customer has to get is only the internet connectivity

after submitting an application form for registration to his branch. The

customer will shortly receive the user ID and password then he has to log on to

the web of the respective bank (either SBI or ICICI) and change his user name

and password and he can make banking a hassle free routine. This system has

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

service. The following services have been carried out through this system.

Today customers are demanding fast, accurate and reliable services.

They expect a reasonably high standard of services. So it is inevitable for the

banks to enable them to respond to the customers’ needs at all times and at

competitive prices. In the changed socio-economic condition the customers no

longer want to be restrained by the physical place, where their funds and

information are stored and wish the banking facility to come to their home

rather them in branches of banks.

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

competition within the banking industry. The costs of an internet banking

system are pretty much fixed, regardless of the size of the bank. With the

extensive use of computer and internet, banks have now started transactions.

The customer having an account in the bank can log onto the bank’s website

and access his bank account. He can make payments for bills; give instructions

for money transfers to fixed deposits and collection of bill etc. In addition to

the above, the following are the further services provided by internet banking

to their customers.

115

Consumers can use their computers and a telephone modem to dial in

from home or any site where they have access to a computer.

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

Transactions are executed and confirmed almost instantaneously.

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

view the accounts, get account statements, transfer funds, have quick

and continuous access to information availability and a large variety of

cash management instruments at internet sites by just making a few key

punches.

Time saving and convenient.

Availability of inquiry and transaction Services around the clock

World wide connectivity

Easy access to account data both recent and historical

Give instructions for third party transfers in the same branch

Having direct customer control of international movement of funds

without intermediator

Paying bills

Viewing and checking savings account balances

Paying mortgages

Purchasing financial instruments and certificate of deposits

Booking tickets (E- Ticketing)

E- Tax payments

EZ Trade

RTGS (Real time gross settlement)

E – Payment

E – Invest (IPO)

RBI EFT (Inter banking electronic fund transfer of the RBI)

116

Standing instructions could be provided by customers.

Credit card dues payments

Remittance to PPF account

Utility bills payments

Insurance premium payments

Payment of donations to religious organizations

Setting SMS alerts for transaction details

Mutual funds investments

De –mat account services

Submission of on – line request for the following.

Stop payment of cheque

Cheque book replenishment

Demand draft / Pay order.

Benefits to Organisations

Improve customer access.

Facilitate the offering of more services

Increase customer loyalty

Attract new customers

Increase customer satisfaction.

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

Reduction in cost, as the need for manpower is reduced.

Transparent and fast response.

117

Various Activities Under E-Banking and their execution

1. Pass book entry

As the pass book is the conclusive evidence of transactions between a

banker and customer, it needs utmost perfection. With the introduction of

electronic media, all the entries in the pass book are carried out by an

electronic printer. For this purpose, banks have changed the account numbers

of their customers and the size of pass book. Whenever, a customer transacts

with the banks, his pass book entries will be updated which enable the

customer to know his current balance as on date. Thus, the delay which was

very frequently occurring in manual operations earlier has been overcome. E-

banking has also eliminated any arithmetic mistakes and has ensured accuracy.

Most of the banks have an electronic printer connected to the computer which

prints the entries in the pass book.

2. Simultaneous Entry of Transactions

The foremost advantage of banking operations due to e-banking is

evident from the following – a single transaction of any customer is

simultaneously reflected / undertaken at different points. For example, when a

cheque is presented, the entry in the ledger, pass book, cash book, master

register and daily register is entered simultaneously. By this, the bank will be

in a position to know the current position of its customer. Even the bank

manager, sitting in his cabin, can know the current balance of any customer.

This helps in phone-banking also wherein the customers can dial a particular

number and through on-line computer, they can know their current balance

position. Current account holders are more benefited as there will be a number

of cheque deposits as well as withdrawals and up-dating of entries is done

accurately.

118

3. Home Banking

For the benefit of aged people and for persons living in far-off

distances from the branch, home banking is a big advantage. The customers is

given a code number which he can operate through his personal computer at

home and it will activate his account in the bank. He can give instructions for

transfer of money or for payment through his computer network, thus enabling

him to conduct his banking operations by staying at home.

4. MICR Cheques

The modern banks use MICR cheques, called Magnetic Ink

Characteristic Recognition. These cheques contain a white patch at the bottom

in which you have various numbers given, representing name of the bank,

branch and the cheque number. By decoding, the computer will be able to find

out the name and the branch of the bank. When banks send cheques for

clearance at the clearing house, various cheques are fed into the computer

which decodes the MICR cheques and prepares a statement of every bank that

has presented cheques for clearance. Thus, clearing activity is speeded up.

5. Zero System

Under this system, when all the banks and branches are connected by

a network, the transactions will take place in a much more speedy manner.

Instead of taking cheques for clearance, they may be cleared through the

network itself and the customers are given instantaneous credit for their other

bank cheques. This is possible only due to the network the banking industry

enjoys because of the electronic media.

119

6. Identification of Customer’s Signature

In certain countries, it is not merely the specimen signature which is

obtained but the index finger impression of the customer is also taken as part of

specimen signature. So, even if there are two identical signatures, the bankers

can match their index finger impressions to find out the genuineness of the

cheque and thus avoid forgery.

7. Transfer of funds through Electronic Clearance System (ECS)

Banks help customers by providing mail transfer and telegraphic

transfer by way of remittance. But these may lead to delay in receipt of funds

at the receiving end. But, in e-banking, we have electronic clearance system

which is called ECS. The customer has to provide a cancelled specimen

cheque to the bank along with his signature, which will be used by the bank for

remittance of various purposes, such as telephone charges, insurance premium

etc.

The customer has to simply provide the telephone bills or insurance

premium and the bank will undertake to remit the funds through the electronic

clearance system by debiting the account of the customer. Of late, companies

are sending their dividend, warrants and debenture warrants to lakhs of

shareholders through this system.

8. Interbank Transfer, Intercity Transfer and International Transfer

All these are carried out by a new modern system called SWIFT, i.e.

Society for the Worldwide Interbank Financial Telecommunication. Under

this system, funds can be transferred from any part of the world within 24

hours. The sender will give the code number of the institution through which

the funds will be remitted to the receiver. This process is kept highly

confidential. Hence there is safe remittance.

120

9. Demat Account

As the transactions in stock exchanges are carried out through on-line

basis, and the stock exchanges are insisting on dematting of shares, banks are

acting as depository agents and have opened a dematt account for their

customers. Under this system, the customer will hand over to the bank the

physical form of shares which is held by a shareholding corporation. The

customer is given a personal identification number through which his

transactions are carried out. His sale and purchase of shares are done by bank

through demat account. This prevents bogus and benami transactions and also

blank transfer of shares.

10. Debit and Credit Card

Most of the banks have provided for their customers debit card as

well as a credit card. In debit card, the customer is debited with his transaction

immediately and if there is a credit balance in his account, it will be adjusted

towards the debit entry. Otherwise, the bank will charge interest for

outstanding debit. In the case of credit cards, the transactions enjoy a

minimum credit of one month after which the customer has to pay, failing

which interest will be charged on the outstanding balance. All these

transactions are done through the electronic media and the banks prepare the

bill at the end of a month and send it to the customer. Thus, the credit card is

not only beneficial to the banker but also to the customer and the seller.

121

11. Foreign Exchange Transactions

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

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

foreign exchange rates will enable the banks to earn profits in Spot market,

forward market, future market, option and swap market transactions.

Credit Card Payments through ATM

LIC

Shopping bills

Offering of freedom points

Regarding redemption of points

3.7. CORE BANKING

“Some of the most common issues around core banking Implementations are organizational, not technical” 12

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

worked branches of bank is called “Core Banking”. Core banking is normally

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

small business customers. Many banks treat the retail customers as their core

banking customers, and have a separate line of business to manage small

business. Larger businesses are managed via the Corporate Banking division

of the institution. Core banking basically is depositing and lending of money.

Nowadays, most banks use core banking applications to support their

operations where CORE stands for “Centralized Online Real-time Exchange”.

This basically means that the entire bank’s branches access applications from

centralized data centres.

____________________ 12 Ramkumar.V. – A Chartered financial analyst – October 2005 – ICFAI University (original source) – (p.115 Indian banking in the 21st Century – Amit Sing Sidodiya)

122

Normal core banking functions will include deposit accounts, loans,

mortgages and payments. Banks make these services available across multiple

channels like ATMs, Internet banking, and branches.

Core banking solutions are banking applications on a platform

enabling a phased, strategic approach that lets people improve operations,

reduce costs, and prepare for growth. Implementing a modular, component –

based enterprise solution ensures strong integration with your existing

technologies. An overall Service – Oriented –Architecture (SOA) helps banks

reduce the risk that can result from multiple data entries and out-of-date

information, increase management approval, and avoid and potential disruption

to business caused by replacing entire systems.

Core banking solutions is a new jargon frequently used in banking

circles. The advancement in technology, especially internet and information

technology has led to new ways of doing business in banking. These

technologies have cut down time, working simultaneously on different issues

and increasing efficiency. The platform where communication technology and

information technology are merged to suit core needs of banking is known as

Core banking solutions. Here, computer software is developed to perform core

operation of banking like recording of transactions, passbook maintenance,

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

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

bank and then interconnected by means of communication lines like

telephones, satellite, internet, etc. It allows the user (customers) to operate

accounts from any branch if it has installed core banking solutions. This new

platform has changed the way banks are working.

123

3.8. MOBILE PHONE BANKING

The governor of the Reserve Bank of India strongly favoured the idea

of using mobile phones as instruments for bank account transactions. The

integration of existing technologies like smart card with mobile phones holds

exciting promises for the future. With drastic fall in cell phone tariff and

emergence of seamless connectivity between fixed and mobile lines, mobile

banking is set to emerge as one of the most cost-effective delivery channels in

the near future.

Mobile Banking or Banks on Wheels

According to the new government directive, every PSU is expected to

adopt a particular district for financial inclusion, which means that the

respective bank will have to ensure that all the residents of that area have a

bank account. The most efficient and cost-effective way to do this is by setting

up ATMs in mobile banking units, or, ‘Branch on-wheels’. The Bank –on-

wheel would carry a rural ATM from village to village. It will be deployed in

communities to eliminate the need for customers to travel long distances to

conduct their day-to-day banking.

Green Channel Counter Facility

State Bank of India has launched its 'Green Channel Counter' facility

on July 11, 2010, at select branches of the Bank spread across the country as an

innovative step towards paperless 'Green Banking' for deposit, withdrawal and

remittance transactions in connection with its 204th Birth Day. This facility

would give customers ease and comfort in transacting their business at

branches. The customers need not fill up any pay-in slips or draw cheques for

depositing or withdrawing money from their accounts, saving paper, and

124

thereby contributing to the concept of 'Green Banking'. This facility would be

a reducing process time, as duplication in writing/feeding account details and

transaction details by the customer as well as the person behind the counter, by

simply capturing these details by swiping the SBI Shopping cum ATM Card on

a device available at the Single Window (SW) Operator's counter. At the Green

Channel counter, there is a Point of Sale Machine (POS), on which the

customer swipes his card. He is then asked by the machine to select the type of

transaction, viz. (0) Cash Deposit, (1) Cash Withdrawal and (2) Funds

Transfer. Once the customer selects the type of transaction by entering the

option, the message ‘Enter the Amount’ is displayed. The customer is asked to

confirm the input amount followed by a message “Please Enter the PIN’. When

the PIN is entered by the customer, the transaction gets transferred to the

terminal of SWO who after entering the denomination of the cash to be paid /

received, pays / receives cash and the transaction gets completed. Three types

of transactions have been enabled through this facility viz. Cash Deposits, Cash

Withdrawals and Funds Transfer. The transaction amount has been fixed as Rs

40,000/-. This would be the most economical alternate channel for the Bank as

the device used to capture the customer transaction data is also inexpensive.

3.9. NEED FOR INNOVATIVE PERSONALIZED SERVICES:

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

high level of confidence in choosing products and service providers for

themselves. As a result of the recent crisis and the reduced trust in banks,

customers are now much more willing to purchase products and services from

various banks than they were in the past, and are consequently banking with

multiple providers. Managing different banking relationships and comparing

products and services between different providers is becoming easier for

customers through direct channels, Internet blogs, and forums, and social

networks. Consequently, customers have increased the number of their banking

125

relationships. At the same time, the use of self service and direct channels has

become a top priority for the majority of banking customers. This trend is

accompanied by the customers’ need for better and more personalized services.

In addition, customers have become more price-sensitive as indicated by the

change in customer reactions to pricing strategies for banking products and

services. As a result of this changing customer behaviour banks need to offer

innovative and more personalized services investing in the digital channels in

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

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

existing customers.

Conclusion: The tremendous advances in technology and the aggressive

infusion of Information Technology had brought in a paradigm shift in banking

operations. With the development of information technology, the world has

become a global village and it has brought a revolution in the banking industry.

The banks appear to be on fast track for I.T. based products and services. Bank

customers are becoming very demanding and it is the extensive use of

technology that enables banks to satisfy adequately the requirement of

customers. Technology has become the fuel for rapid change. I.T. is no longer

considered as mere transaction processing or confined to management

information system. The wind of liberalization, globalization, and privatization

has opened new vistas in the banking industry in the generation of an intensely

competitive environment. The post-liberalized banking industry in India has

been witnessing a discernible shift from the sellers’ to the buyers’ market.

Further the banking sector reforms and introduction of E-banking has made

very structural changes in service quality, managerial decisions, operational

performance, profitability and productivity of the banks. E-banking is one of

the emerging trends in the Indian banking and is playing a unique role in

strengthening the banking sector and improving service quality. It has enabled

126

the banks to handle the payments electronically and inter-bank settlement faster

and in large volumes. There is increase in customer satisfaction level, reduction

in cost of banking operations, increased productivity and as such there is a

tremendous scope for Indian banks to enlarge their E-banking services which

could enhance their competitiveness. Further, new technology has rapidly

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

accounts, get account statements, transfer funds, purchase drafts by just making

a few key punches. Availability of ATMs and plastic cards, EFT, electronic

clearing services, Internet banking, mobile banking and phone banking; to a

large extent avoid customers going to branch premises and has provided a

wider range of services to the customers.

Though the sample banks have been offering so many I.T. based

products and services towards improving customer services they need to

implement innovative personalized services to attract and retain the customers

and also the banks need to invest in the digital channels in order to attain

maximum level of satisfaction of the customers with respect to changing

behavior of the customer. Only by doing so they could gain a competitive edge

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

customers.