emerging issues in indian banking sector

7/30/2019 Emerging issues in indian banking sector

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PROJECT REPORT ON

TABLE OF CONTENTS:-

INTRODUCTIONBANKING HISTORY AND ITS DEVELOPMENT IN INDIATYPES OF BANKSGROWTH AND DEVELPOMENT OF INDIAN BANKING SECTORINNOVATIVE BANKING SERVICESE-BANKING IN INDIA: Major ConcernsEMERGING ISSUES: M-BankingCHALLENGES AHEAD


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CONCLUSIONREFERENCES

INTRODUCTION

For the past three decades Indias banking system has several

outstanding achievements to its credit. The most striking is its extensive

reach. It is no longer confined to only metropolitans or cosmopolitans in

India. In fact, Indian banking system has reached even to the remote

corners of the country. This is one of the main reason of Indias growth

process. A well organized banking system is a pre-requisite for

economic growth of any country. Banks play an important role in the

functioning of organized money markets. They act as a conduit for

mobilizing funds and channelising them for productive purposes.

The traditional functions of banking are limited to accept deposits and to

give loans and advances. Today banking is known as innovativebanking. Information technology has given rise to new innovations in

the product designing and their delivery in the banking and finance

industries, customer services and customer satisfaction are their prime

work. Current banking sector has come up with a lot of initiatives that


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oriented to providing a better customer services with the help of new

technologies. Banking sector mirrors the larger economy its linkages to

all sectors make it proxy for what is happening in the economy as a

whole. Indian banking sector today has the same sense of excitementand opportunity that is evidence in the Indian Economy. The going

developments in the global markets offers so many opportunities to the

banking sector. In the competitive banking word improvement day by

day in customer services is the most useful tool for their better growth.

Bank offers so many changes to access their banking and other services.

Banks plays an important role in the economic development of

developing countries. Economic development involves investment invarious sectors of the economy. The banks collects savings for

investment in various projects. In normal banking the banks perform

agency services for their customers and helps economic development of

the country. The purchase and sales securities, shares, make payments,

receive subscription funds and collect utility bills for the Government

department. There for banks save time and energy of busy peoples. Bank

arranges foreign exchange for the business transactions with othercountries. Banking sector are not simply collecting funds but also serve

as a guide to the customer about the investment of their money.


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BANKING HISTORY AND ITS DEVELOPMENT

IN INDIA

The General Bank of India was set up in the year 1786. Next came Bank

of Hindustan and Bengal Bank. The East India Company established

Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras

(1843) as independent units and called it Presidency Banks. These three

banks were amalgamated in 1920 and Imperial Bank of India was

established which started as private shareholders banks, mostly

Europeans shareholders. the Government of India brought The Banking

Companies Act, 1949 which was later changed to Banking Regulation

Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). The

Reserve Bank of India was set up in the year 1935 with the share capital

of Rs 5 Crore which was entirely owned by the private share holders in

the beginning. The Reserve Bank of India is acting as central bank inIndia and it is different from the Central Bank of India.

During the period 1955, the Government of India nationalized Imperial

Bank of India with extensive banking facilities on a large scale specially

in rural and semi-urban areas. It formed State Bank of india to act as the


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principal agent of RBI and to handle banking transactions of the Union

and State Governments all over the country. In the process of

nationalization 14 major banks has been nationalized and six banks later

on nationalized.

The following are the steps taken by the Government of India toRegulate Banking Institutions in the Country:

I. 1949 : Enactment of Banking Regulation Act.

II. 1955 : Formation of State Bank of India.

III. 1959 : Formation of SBI subsidiaries.

IV. 1961 : Insurance cover extended to deposits.

V. 1969 : Nationalisation of 14 major banks.

VI. 1971 : Creation of credit guarantee corporation.

VII.1975 : Creation of regional rural banks.VIII1980 : Nationalisation of six banks with deposits over 200 crore.

The Reserve Bank of India acts a centralized body monitoring any

discrepancies and shortcoming in the system. Since the nationalization

of banks in 1969, the public sector banks or the nationalized banks have

acquired a place of prominence and has since then seen tremendous

progress. The need to become highly customer focused has forced the

slow-moving public sector banks to adopt a fast track approach.


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The unleashing of products and services through the net has galvanized

players at all levels of the banking and financial institutions market grid

to look anew at their existing portfolio offering. Conservative banking

practices allowed Indian banks to be insulated partially from the Asian

currency crisis. Indian banks are now quoting at higher valuation whencompared to banks in other Asian countries (viz. Hong Kong, Singapore,

Philippines etc.) that have major problems linked to huge Non

Performing Assets (NPAs) and payment defaults. Co-operative banks

are nimble footed in approach and armed with efficient branch networks

focus primarily on the high revenue niche retail segments.

The Indian banking has finally worked up to the competitive dynamics

of the new Indian market and is addressing the relevant issues to take

on the multifarious challenges of globalization. Banks that employ ITsolutions are perceived to be futuristic and proactive players capable of

meeting the multifarious requirements of the large customers base.

Private banks have been fast on the uptake and are reorienting their

strategies using the internet as a medium The Internet has emerged as

the new and challenging frontier of marketing with the conventional

physical world tenets being just as applicable like in any other marketing

medium. The Indian banking has come from a long way from being a

sleepy business institution to a highly proactive and dynamic entity. This

transformation has been largely brought about by the large dose of

liberalization and economic reforms that allowed banks to explore new

business opportunities rather than generating revenues from

conventional streams (i.e. borrowing and lending). The banking in India

is highly fragmented with 30 banking units contributing to almost

50% of deposits and 60% of advances. Indian nationalized banks (banks

owned by the government) continue to be the major lenders in the

economy due to their sheer size and penetrative networks which assures

them high deposit mobilization.


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TYPES OF BANKS:-

(a) Public Sector Banks in IndiaPublic Sector Banks are those banks in which Government of India has

major share holding. No doubt public sector banks came to occupy

dominant role in the banking structure. Before 1969, State Bank of India

(SBI) was the only public sector bank in India, since then the following

banks joined in the public sector banks list.

List of Public Sector Banks in India(1) Indian Bank

(2) Bank of India(3) Union Bank

(4) Syndicate Bank

(5) StateBank of Saurashtra

(6) State Bank of Travancore

(7) Bank of Maharashtra

(8) Vijaya Bank

(9) UCO Bank

(10) Indian Overseas Bank(11) Punjab National Bank

(12) Dena Bank

(13) State Bank of Hyderabad

(14) State Bank of Bikaner & Jaipur

(15) State Bank of India


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(16) State Bank of Mysore

(17) State Bank of Indore

(18) Corporation Bank

(19) Allahabad Bank

(20) Andhra Bank(21) Canara Bank

(22) Bank of Baroda

(23) Oriental Bank

(24) Punjab & Sind Bank

(25) Industrial Development Bank of India

(26) Industrial Credit and Investment Corporation of India

(27) Unit Trust of India Bank

(28) United Bank.

(b) Private Sector Banks:

Private Banks have played a major role in the development of Indian

banking industry.They have made banking more efficient and customer

friendly. In the process they have jolted public sector banks out of

complacency and forced them to become more competitive.

We have the following major private banks in India:

(1) Bank of Rajasthan

(2) Bharat Overseas Bank

(3) Catholic Syrian Bank

(4) Centurion Bank of Punjab

(5) Dhanalakshmi Bank

(6) Federal Bank

(7) HDFC Bank

(8) ICICI Bank

(9) IDBI Bank

(10) IndusInd Bank(11) ING Vysya Bank

(12) Jammu & Kashmir Bank

(13) Karnataka Bank

(14) Karur Vysya Bank

(15) Kotak Mahindra Bank


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(16) SBI Commercial and International Bank

(17) South Indian Bank

(18) United Western Bank

(19) UTI Bank

(20) YES Bank

(c) Regional Rural Banks:Regional rural banks in India penetrated every corner of the country and

extended a helping hand in the growth process of the country. Regional

rural banks initially started its business to promote agricultural sector

development. The State Bank of India has 30 Regional Rural Banks

spread over across 13 states in the country. There are other banks which

function for the development of the rural areas in India. These RegionalRural Banks plays a vital role in rural banking in the economy of the

country by providing the help and financing farmers, rural artisans,

agriculturists, entrepreneurs and so on. They are The Haryana

State Co-operative Apex Bank Ltd, The National Bank for Agriculture

and Rural Development, The Haryana State Co-operative Apex Bank

Ltd. commonly called as HARCOBANK, National Bank for Agriculture

and Rural Development (NABARD), United Bank of India and

Sindhanur Urban Southarda Co-operative Banks etc.,.Co-operative

Banks in India are registered under the Co-operative Societies Act. The

cooperative bank is also regulated by the RBI. They are governed by the

Banking Regulations Act 1949 and Banking Laws (Co-operative

Societies) Act, 1965. Cooperative banks in India finance rural sectors in

the areas such as farming, Cattle, Milk, personnel finance, consumer

finance and so on so forth. By virtue of specialised knowledge, training,

ability and professionalism these intermediaries easily mobilise the

funds in small denominations from the public at large and invest in

various types of investments by diversifying the risk involved in theinvestments to generate optimum returns on investments which can be

distributed by way of dividends or interest to the investors at large. A

well developed financial intermediary system promotes the sound

financial markets which causes the economical growth in the country.

Financial Intermediaries offer the following services namely Issue


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Management, Underwriting, Portfolio Management, Corporate

Advisory, Stock Broking, Capital Re-structuring, Merger and

Acquisitions and so on so forth.

e) Foreign Banks in IndiaThe presence of foreign banks in India has benefited the financial system

by enhancing competition, transfer of technology and specialized skills

resulting in higher efficiency and greater customer satisfaction. Foreign

banks are enabled large Indian companies to access foreign currency

resources from their overseas branches in times of foreign currency

constraint. New foreign banks are allowed to conduct business in India

after taking into consideration the financial soundness of the bank,

international and home country ranking, rating, international presenceand political relationship between two countries. Examples of foreign

banks-American Express bank Limited, Bank of Ceylon, BNP Paribas,

Caylon Bank, Citibank N.A., Chohung Bank, Bank of America NA,

Standard Chartered Bank etc.


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GROWTH AND DEVELPOMENT OF INDIAN

BANKING SECTOR

The last decade has seen many positive developments in the Indianbanking sector. The policy makers, which comprise the Reserve Bank of

India (RBI), Ministry of Finance and related government and financial

sector regulatory entities, have made several notable efforts to improve

regulation in the sector. The sector now compares favorably with

banking sectors in the region on metrics like growth, profitability and

non-performing assets (NPAs). A few banks have established an

outstanding track record of innovation, growth and value creation. This

is reflected in their market valuation. However, improved regulations,innovation, growth and value creation in the sector remain limited to a

small part of it. The cost of banking intermediation in India is higher and

bank penetration is farlower than in other markets. Indias banking

industry must strengthen itself significantly if it has to support the

modern and vibrant economy which India aspires to be. While the onus


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for this change lies mainly with bank managements, an enabling policy

and regulatory framework will also be critical to their success.

The failure to respond to changing market realities has stunted the

development of the financial sector in many developing countries. Aweak banking structure has been unable to fuel continued growth, which

has harmed the long-term health of their economies. In this white

paper, we emphasize the need to act both decisively and quickly to

build anenabling, rather than a limiting, banking sector in India.Indian banks have compared favorably on growth, asset quality and

profitability with other regional banks over the last few years. The

banking index has grown at a compounded annual rate of over 51 percent since April 2001 as compared to a 27 per cent growth in the market

index for the same period. Policy makers have made some notable

changes in policy and regulation to help strengthen the sector. These

changes include strengthening prudential norms, enhancing the

payments system and integrating regulations between commercial and

co-operative banks.

However, the cost of intermediation remains high and bank penetration

is limited to only a few customer segments and geographies. While bank

lending has been a significant driver of GDP growth and employment,

periodic instances ofthe failure of some weak banks have often

threatened the stability of the system. Structural weaknesses such as a

fragmented industry structure, restrictions on capital availability and

deployment, lack of institutional support infrastructure, restrictive labor

laws, weak corporate governance and ineffective regulations beyond

Scheduled Commercial Banks (SCBs), unless addressed, could seriously

weaken the health of the sector. Further, the inability of bankmanagements (with some notable exceptions) to improve capital

allocation, increase the productivity of their service platforms and

improve the performance ethic in their organisations could seriously

affect future performance.


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The latest report by S&P credit rating agency says that Indian banking

sector's growth will remain high. Despite intense competition and high

inflationary pressures, India's banking sector will continue to show high

growth owing to the country's strong economic expansion, credit ratingagency Standard & Poor's (S&P) said. "Growth in India's banking sector

will remain high, bolstered by sound economic growth prospects... We

expect credit growth of about 20 per cent in the next fiscal year. The

growth in banking would happen despite high domestic inflation and

intense competition in the sector. The ratings agency said that India's

banking sector had weathered the global financial slowdown on the back

of a robust economy, a stable retail deposit base and a prudent regulatory

environment. However, S&P said that the asset quality of the Indian

banking sector came under some pressure in the fiscal year ended March

31, 2010. "The gross non-performing loans (NPLs) for our portfolio of

rated Indian banks increased to 2.5 per cent as of March 31, 2010, from

2.2 per cent a year ago. This was in line with our expectations, however,

that the increase in NPLs was contained by the quick economic

recovery, modest leverage and low sectoral concentration in the banks'

loan books. Besides this, the banks had low exposure to sensitive

sectors. The NLPs were also reined in because of the one-time

dispensation by the Reserve Bank to restructure loans without

classifying them as NPLs (on meeting certain criteria)


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INNOVATIVE BANKING SERVICES

The Indian banks are changing towards modern banking system.

Modernization in banking is changing banking services, products and

operational methods of banking. Traditional banking system in depends

up on man force but modern banking is partially or totally machine andtechnology based banking. All these developments are lead to facilities

to customers delight as well as operational efficiency of banks and

reducing operational expenses of banking services.

Information technology (IT) revolution in the Indian economy has made

steady inroads into the banking institutions and has brought about a

significant change in many aspects in the form of computerization of

transactions and new delivery channels such as Internet Banking, PhoneBanking, ATMs, EFT, ECS and EDI etc. With migration of traditional

paper-based funds movements to quicker and more efficient electronic

mode, funds transfers have become easy and efficient to perform.

After computerisation of banking in India much more of banking

services rendered by banks in India these are as follows;

A. Wireless Banking, Online Banking or Internet Banking


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Wireless banking/ online banking is a delivery channel that can extend

the reach and enhance the convenience of Internet banking products and

services. Wireless banking occurs when customers access a financial

institution's network using cellular phones, pagers, and personal digital

assistants through telecommunication companies wireless networks. Ituses the Internet as the delivery channel by which to conduct banking

activity, e.g. transferring funds, paying bills, viewing checking and

savings account balances, paying mortgages, and purchasing financial

instruments and certificates of deposit. Online banking usually offers

such features as:

o import data in a personal

finance program such as Quicken or Microsoft Money

checking and

savings accounts, or to another customer's account

Electronically investment purchase or sale of securities by D-Mat

Account

ts account

aggregation to allow the customers to monitor all of their accounts in

one place whether they are with their main bank or with other

institutions.etc.

B. Core Banking or Centralized Banking

Core banking is a term used to describe a service provided by a group of

networked bank branches. Bank customers may access their funds from

any of the member branch offices. Core banking consists of a

networking process by which the servers of different branches of a bank

are joined to a common server and henceforth an account holder may

access, deposit, and withdraw money from his/her account from any of

the branches of the bank. In 21st United States, core banking hasbecome common place. Today 67.7 % of public sector bank branches

are all branches of private and foreign banks are under core banking

solution in India.

C. Electronic Authentication and Electronic Signature


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The banks are now using technology for the proper identification of

customers identity. In the era of technology based banking operation

verifying the identities of customers and authorizing e-banking activities

are integral parts of e-banking services. Since traditional paper-based

and in-person identity authentication methods reduce the speed andefficiency of electronic transactions, financial institutions have adopted

alternative authentication methods. The latest option digital (electronic)

signatures for generating and identification of customers signature is

best option within the electronic banking platform.

D. BANKNET

BANKNET is a internet based communication network backbone. It

provides speed of financial transaction. At present, seven centers viz.Mumbai, Delhi, Calcutta, Madras, Nagpur, Bangalore and Hyderabad.

Set up in 1991 by the RBI, this backbone is meant to facilitate transfer of

inter-bank (and inter-branch) messages within India by Public Sector

banks who are members of this network. More centres (like Pune,

Ahmedabad, Kanpur, Lucknow, Chandigarh, Kochi, Jaipur, Bhopal,

Patna, Bhubaneshwar, Thiruvananthapuram,

Guwahati, Panaji Jammu etc) are being brought on the network.

E. INFINET-Indian Financial Network

The 'INFINET' - Indian Financial Network is a satellite based wide area

network using VSAT (Very Small Aperture Terminal) technology set up

by the RBI in June 1999. The hub and the Network Management System

of the INFINET are located in the Institute for Development and

Research in Banking Technology, (IDRBT) Hyderabad. Among the

major applications identified for porting on the INFINET in the initial

phase are e-mail, Electronic Clearing Service - Credit and Debit,

Electronic Funds Transfer and transmission of Inter-city ChequeRealization advices. Later, other payment system related applications as

well as Management Information System (MIS) applications are

proposed to be operationalized.

F. Indian Banks and S.W.I.F.T


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All Indian public sector banks are part of the international financial

messages communication network, namely, Society for Worldwide

Inter-bank Financial Telecommunication (S.W.I.F.T). The S.W.I.F.T

provides reliable and expeditious telecommunication facilities for

exchange of financial message all over the world. The gateway is inMumbai and efforts are on to other cities through leased lines/public

data network.

G. Electronic Data Interchange (EDI)

EDI is a computer-to-computer transfer of details of commercial or

administrative transactions using an agreed protocol and standard data

structure. EDI standards have been developed in respect of specific

messages for transmission of business transactions which are electronicequivalents of commercial invoices, purchase orders, transport bookings

and payment instructions etc.

H. Telephone banking, Mobile Banking and SMS Banking

Telephone banking is specific provision of banking services over thetelephone. It allows customers to perform transactions over the

telephone. Most telephone banking use an interactive voice response

(IVR). Mobile Banking is the hottest area of development in the

banking sector and is expected to replace the credit/debit card system in

future. Most of banks are providing SMS alert facility to their customers.

Facility of SMS services SMS banking is becomes very much safe and

useful in recent days.

I. MICR Clearing

MICR (Magnetic Ink Character Recognition) is a character recognition

technology adopted mainly by the banking industry to facilitate the

processing of cheque. The process was demonstrated to the American

Bankers Association in July 1956, and it was almost universally


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employed by 1963. MICR characters are printed with a magnetic ink or

toner. Magnetic printing is used so that the characters can be reliably

read into a system, In India MICAR Introduced in 1987 in the four

Metros, the MICR Clearing is now in operation in 14 centers

(HYDERABAD, BANGLORE, AHMEDABAD, KANPUR, JAIPUR,NAGPUR, BARODA, PUNE, GAUHATI, TRIVANDRUM) and is

proposed to be extended to a total of 22 centers where volume of

clearing transactions is large.

J. Automated Clearing HouseThe Automated Clearing House (ACH) is an electronic banking network

operating system. ACH processes large volumes of both credit and debit

transactions which are originated in batches. Within the Rules andregulations governing the ACH network are established by the Reserve

Bank of India by the help of the State Bank of India.

K. Credit card and Debit Cards

A credit card system is a type of retail transaction settlement and credit

system, named after the small plastic card issued to users of the system.

In the case of credit cards, the issuer lends money to the consumer.

Credit cards are become very popular in India with the introduction of

foreign banks in the country. A debit card is a plastic card which

provides an alternative payment method to cash when making purchases.Debit cards are accepted at many locations, including grocery stores,

retail stores, gasoline stations, and restaurants. Its an alternative to

carrying a checkbook or cash. There are currently two ways that debit

card transactions are processed: online debit cards and offline debit

cards. Online debit cards require electronic authorization of every


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transaction and the debits are reflected in the users account

immediately. Offline debit cards have the logos of major credit cards

(e.g. Visa or MasterCard) or major debit cards (e.g. Maestro) and are

used at point of sale like a credit card. This type of debit card may be

subject to a daily limit, as well as a maximum limit equal to the amountcurrently deposited in the current/checking account from which it draws

funds.

L. RTGS (Real Time Gross Settlement System)Real Time Gross Settlement (RTGS) is a comprehensive secured on line

settlement solution, set up, operated and maintained by Reserve Bank of

India to enable funds settlement across banks in the country on real timebasis to minimize costs and maximize benefits, increase velocity of

funds-flow both inter- city and interbank, reduce credit risk, increase

transparency of payments and better liquidity management. RTGS is

managed by RBI. In India RTGS System has been implemented since

March 26, 2004.

M. Electronic Clearing Services (ECS)ECS Scheme operated by the RBI since 1996-97, it helps to make

payment from a single account at a bank branch to any number of

accounts maintained with the branches of the same or other banks. This

is the most useful mode of payment of dividend / interest/pension/refund

etc. The clearing and settlement activities are dispersed through 1,047

clearing houses managed by RBI, the State Bank of India and its

associates, public sector banks and other institutions.

N. Electronic Funds Transfer (EFT) & Special Electronic Funds

TransferEFT System hosted and operated by the RBI, permits transfer of funds,

unto Rs. 5 lakh from any account at any branch of any member bank in

any city to any other account at any branch of any member bank in any

other city. This system utilizes the Service Branches of the member

banks and the nodal offices of RBI. RBINET is the conduit for the flow


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of funds. The Reserve Bank of India acts as the service provider as well

as regulator. A special EFT (SEFT) was introduced in April 2003

covering about 3000 branches in 500 cities. This has facilitated same

day transfer of funds across accounts of constituents at all these

branches.

O. Automated Teller Machine (ATM)

The first bank to introduce the ATM concept in India was the HongKong and Shanghai Banking Corporation (HSBC) in the year 1987.

Now, almost every commercial bank gives ATM facilities to its

customers. SBI is following the concept of 'ATMs in Quantity. The

Corporation Bank has the second largest network of ATMs amongst the

Public Sector Banks in India. Todays all Public Sector Banks are taking

the installation of ATMs seriously for Indian market. They are either

setting up their own ATM centers or entering into tie-ups with other

banks. Since April 2009 access in any ATM machine is free of charge it

is the great opportunity to any ware banking in India.

P. Electronic Bill Payment

EBP can attract customers due to the faster and efficient bill payment

mechanism of the banking in India. Customers can access their financial

information more easily and create a more intimate relationship with the

customer and promote and deliver other online products and services.

Most of Indian banks are trying setups an EBP portal. ICICI has already

started a portal calledBillJunction.com. Banks are planning to use theNet for payment of utility bills. They are entering into tie-ups with

utilities like MTNL, AirTel, Orange, and BPL Mobile etc. Right now, a

customer who's received a bill in the physical form logs into the network

in order to make an online payment. In the future, these bills will be sent

to customers through the Net.


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E-banking in India: Major Concerns

1)In India, there is a risk of the emergence of a digitaldivide as thepoor are excluded from the use of the internet and so from the

financial system.

2)Even today, the operational environment for public, private andforeign banks in the Indian financial system is quite different. For

PSBs, the major problems are in the form of security risks,

network downtime, scarcity of trained personnel, expensive system

upgrades and recurring costs given the massive scale of their

current operations

.

3)Confidentiality, integrity and authentication are very importantfeatures of the banking sector and were very successfully managedthe world over in pre-internet times. Communication across an

open and thus insecure channel such as the internet might not be

the best base for bank-client relations as trust might partially be

lost.

4) E-banking has created many new challenges for bank managementand regulatory and supervisory authorities. They originate not just

from increased potential for cross border transactions but also fordomestic transactions based on technology applications which

raise many security related issues.

5) There are some serious implications of international e-banking. Itis a common argument that low transaction costs potentially make


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it much easier to conduct cross-border banking electronically. For

many banks, cross-border operations offer an opportunity to reap

economies of scale. But cross-border finance also needs a higher

degree of cross-border supervision. Such cooperation may need to

extend to similar supervisory rules and disclosure requirements(for efficiency and to avoid regulatory arbitrage) and some

harmonising of legal, accounting and taxation arrangements. The

real question here is whether India at the present juncture is

adequately prepared to face the consequences of cross border e-

banking

6) There is no commercial bank in India, which has exclusivelyspecialised in the small business segment. SMEs in India havegeneric problems like the inability to provide quality data, to

exhibit formal systems and practices and the lack of asset cover.

This has created unwillingness in banks to undertake large-scale

lending to SMEs.

EMERGING ISSUES: M-BANKING

New techniques brings with it some issues, if these issues are

resolved efficiently then that technology can prove boon for that area.

M-banking is not an exception. It has also bring with it some issues, like

awareness regarding M-banking, covering rural and semi-urban area

under M-banking, widening the scope of M-banking, transparency and

security. These issues must be tackled very carefully and wisely to

compete in the emerging global order.


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CHALLENGES AHEAD:-

(1)The ability to adopt global technology to local requirements:

An adequate level of infrastructure and human capacity building are

required before developing countries can adopt the global technology for

their local requirements. For example, the review of the migration plan

of Society for Worldwide Interbank Financial Telecommunications

(SWIFT) to the internet shows that to date full migration has not

occurred in many developing countries due to the lack of adequateinfrastructure, working capital, and required technical expertise. Broadly

accepted e-payment systems are another such example. Many corporates

and consumers in some developing countries either do not trust or do not

have access to the necessary infrastructure to be able to process e-

payments.

(2) The ability to strengthen public support for e-finance:

Historically, most e-finance initiatives in developing countries have been

the result of cooperative efforts between the private and public sectors.

For example, Singapores successful Trade Net system was a

government-sponsored project. If the public sector does not have the


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necessary means to implement the projects it is essential that cooperative

efforts between public and private sectors, along with the multilateral

agencies like the World Bank, be developed to facilitate public support

for e-finance related initiatives.

(3)The ability to create a necessary level of regulatory and

institutional frameworks:

The lack of regulatory frameworks, trust, security and privacy standards,

high trade barriers, customer and investor protections impede progress in

implementing e-banking initiatives on a larger scale in many developing

countries.

(4) The ability to mainstream small and medium scale enterprises

(SMEs) towards e-banking:

The availability of and access to quality data and banking information is

required for SMEs in developing countries to move towards e-banking.

Similarly, on-line credit information will enhance SMEs ability to

secure financing

5) Customer Satisfaction:

Today in sector customers are more value oriented in their services

because they have alternative choices in it. So that each and every bank

have to take care about fulfill of our customers satisfaction.

6) To provide several personnel services:

The preset times demanded that banks are to provide several services forwhich they have to expanse in service, social banking with financial

possibilities, selective up gradation, computerization and innovative

mechanization, better customer services, effective managerial culture,

internal supervision and control, adequate profitability, strong


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organization culture etc. Therefore banks must be able to provide

complete personal service to the customers who comes with

expectations.

7) Nonperforming assets (N.P.A):

Nonperforming assets are another challenge to the banking sector.

Vehicle loans and unsecured loans increases N.P.A. which terms 50% of

banks retail portfolio was also hit due to upward movement in interest

rates, restrictions on collection practices and soaring real estate prices so

that every bank have to take care about regular repayment of loans.

8) Competition:

The nationalize banks and commercial banks have the competition from

foreign and new private sector banks. Competition in banking sector

brings various challenges before the banks such as product positioning,

innovative ideas and channels, new market trends, cross sellings ad at

managerial and organizational part this system needs to be manage,

assets and contain risk. Banks are restricting their administrative folio by

converting manpower into machine power i.e. banks are decreasing

manual powers and getting maximum work done through machine

power. Skilled and specialized man power is to be utilized and result

oriented targeted staff will be appointed.

9) Managing Technology:

Developing or acquiring the right technology, deploying it optimally and

then leveraging it to the maximum extent is essential to achieve and

maintain high service and efficiency standards while remaining cost

effective and delivering sustainable return to shareholders. Early


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adopters of technology acquire significant competitive advances

Managing technology is therefore, a key challenge for the Indian

banking sector.

10) Other Challenges:

a) Coping with regulatory reforms

b) Development of skill of bank personnel

c) Customer awareness and satisfaction

d) Corporate governance

e) Changing needs of customers

f) Keeping space with technology up gradation

g) Lack of common technology standards for mobile banking

h) Sustaining healthy bottom lines and increasing shareholders value

i) Structural changes

j) Man power planning


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CONCLUSION

All these developments in Indian banking are says that, the Indian banks

are moving towards modern banking changing a face of traditional

banking of Indian economy. Indian banks also trying to Univerlisation of

banking products and services to one stop banking shop for customer

delight, but comparatively private and foreign banks existing in Indian

economy are having a higher level of modernization and those providingnumbers of modern services to their customers.

In India there is a major risk of the emergence of a digital divide as the

poor are excluded from the internet and so from the financial system.

Even today, the operational environment for public, private and foreign

banks in the Indian financial system is quite different. Though there has

been higher acceptance of technology by public sector banks, they are at

a different level in the computerisation spectrum as compared to private

and foreign banks. This has endangered their position in the immediate

period due to the lack of adequate systems for customer and investor

protection. PSBs are more susceptible to breaches of security and to

disruptions in the systems availability and hence to reputational risk. E-

banking in India has also created many new challenges for bank

management and regulatory authorities, which originate from increased

potential for cross border transactions and lack of adequate cross border

supervision. Given the importance of the SMEs in India, there is a

strongly felt need to mainstream this segment towards e-banking. Butcurrently there is no commercial bank in India that has exclusively

specialised in this segment and SMEs in India continue to have generic

problems like inadequate quality data, asset covers, etc. However, there

are ways to overcome these obstacles and exploit trends in e-banking to

derive the desired benefits. As regards the problem of a digital divide,


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there is a rich international experience from which India can learn many

lessons and include the poor within the net of e-banking. As regards the

PSB situation, they can rapidly change their work environment by

attracting young specialists in critical functional domains and by

creating a positive work culture that has all employees supportingorganisational goals. For the security issues involved in e-banking, risk

management principles recommended by the BIS should be

implemented by PSBs on an urgent basis. Their board of directors and

senior management should regularly review and approve key aspects of

the security control process. The top management should ensure that

their staff members have the relevant technological expertise to assess

potential changes in risks. For this, they should accord a high priority to

investment in staff training and technological infrastructure. As far aspossible, PSBs should avoid contracting out operations to service

providers, which makes them vulnerable to problems of these service

providers. In the process of adoption of new technology, a major role

has to be played by the internal banking experts who are not necessarily

the technocrats. As regards the problem of selection of appropriate

technology, PSBs in India can learn lessons not just from international

experience but also from the mistakes made by domestic private players

so as to avoid wastage. In the regulatory arena, in addition to aspects like

privacy and security, the regulator should also examine banks business

plan for e-banking more closely, especially if banks have outsourced

critical functions to a third party. To avoid the risks involved in cross-

border e-banking, India can make a gradual beginning, first by seeking

benefits in the export of remote processing services in which it has a

strong comparative advantage. In the case of SME-financing, it is

strongly felt that after acquiring the necessary technical capabilities,

PSBs are better situated to provide value propositions to SMEs given

their comparatively extensive branching networks, close relationshipwith business clients and a good knowledge of their needs, requirements

and cash positions.

Finally the banking sector will need to master a new business model by

building management and customer services. Banks should contribute


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intensive efforts to render better services to their customer, Nationalized

and commercial banks should overcome the challenges and to get

advantage of opportunities in changing banking scenario.

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emerging issues in indian banking sector

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