INTRODUCTION

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INTRODUCTION

A feature of the banking industry across the globe has been that it is increasingly becoming

turbulent and competitive, characterized by an increasing trend towards internationalization,

mergers, takeovers and consolidation of the banking industry. Moreover a number of non-

banking companies are entering the banking industry by offering financial products and

services (e.g., Toyota’s credit card, GM’s auto financing, etc). This has given innumerable

options to customers in choosing banking services. As a response and aided by technological

developments, banks have attempted to build customer satisfaction through providing better

products and services and at the same time to reduce operating costs. Thus the banking

industry has been constantly innovating and with the advent of technological developments,

particularly in the area of telecommunications and information technology, one of the latest

innovation that took birth, and quite inevitably, has been the internet

With cyber cafés and kiosks springing up in different cities access to the Net is going to be

easy. Internet banking (also referred as e banking) is the latest in this series of technological

wonders in the recent past involving use of Internet for delivery of banking products &

services. Even the Morgan Stanley Dean Witter Internet research emphasized that Web is

more important for retail financial services than for many other industries.

Internet banking is changing the banking industry and is having the major effects on banking

relationships. Banking is now no longer confined to the branches were one has to approach

the branch in person, to withdraw cash or deposit a cheque or request a statement of accounts.

In true Internet banking, any inquiry or transaction is processed online without any reference

to the branch (anywhere banking) at any time. Providing Internet banking is increasingly

becoming a "need to have" than a "nice to have" service. The net banking, thus, now is more

of a norm rather than an exception in many developed countries due to the fact that it is the

cheapest way of providing banking services.

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BANKING INDUSTRY PROFILE

BANKING

The word "BANK" is derived from the 'Bancus' or 'Banque', which means a bench. In the

early days the European moneylenders and moneychangers used to sit on the benches and

exhibit coins of different countries in big heaps for the purpose of changing and lending

money,

:

Definition:

A Banking company is defined as a company, which transacts the business of banking in

India.

As per Banking Regulation Act 1949 Section 5(b)

"Banking means, accepting for the purpose of lending or investment, of deposits of money

from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, or

otherwise."

According to Sir John Paget

"No person or body, corporate or otherwise can be a banker who does not, (a) take deposits

accounts, (b) take current accounts, (c) issue and pay cheques, (d) collect cheques, crossed

and uncrossed, for his customers."

In simple words we can say that bank is a financial institution which deals in money

and credit by obtaining deposits from public and giving loans and credit to trade and

industrial respectively. "

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FUNCTIONS OF BANKS

1. Primary Functions

(a) Acceptance of deposits

(b) Making Loans and Advances

Loans

Overdrafts

Cash Credit

Discounting of Bills of Exchange

2. Secondary Functions

(a) Agency Functions

Collection of cheques and bills etc

Collection of interest and dividend

Making payment on behalf of customers .Purchase and sale of

securities.

Facility of transfer of funds

To act as trustee and executor

(b) Utility Functions

Safe custody of customers valuable articles and securities.

Underwriting facility

Issuing of Traveller's cheque and letter of credit

Facility of foreign exchange

Providing trade information

Providing information regarding credit worthiness of their customers.

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CLASSIFICATION ON BASIS OF OWNERSHIP

On the basis of ownership banks are of the following types:

1. PUBLIC SECTOR BANK

Public sector banks are those banks that are owned by the Government. The Govt. runs

these Banks. In India 14 banks were nationalized in 1969 & in 1980 another 6 banks were

also nationalized. Therefore in 1980 the number of nationalized bank 20. But at present

there are 9 banks are nationalized. All these banks are belonging to public sector

category. Welfare is their principle objective.

2. PRIVATE SECTOR BANKS

These banks are owned and run by the private sector. Various banks in the country such

as ICICI Bank, HDFC Bank etc. An individual has control over there banks in

preparation to the share of the banks held by him.

3. CO-OPERATIVE BANKS

Co-operative banks are those financial institutions. They provide short term & medium

term' loans to there members. Co-operative banks are in every state in India -Its branches

at district level are known as the central co-operative bank. The central co-operative bank

in turn has its branches both in the urban & rural areas. .Every state cooperative bank is

an apex bank, which provides credit facilities to the central co-operative bank. It

mobilized financial resources from richer section of urb3n population by accepting

deposit and creating the credit like commercial bank and borrowing from the money mkt.

It also gets funds from RBI.

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INTRODUCTION TO

INDIAN BANKING

SECTOR

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INTRODUCTION

Banking is the backbone of a modern economy. Health of banking industry is one of the

most important pre-conditions for sustained economic progress of any country. The world of

banking has assumed a new dimension at the dawn of the 21 st century with the advent of tech

banking, thereby lending the industry a stamp of universality. In general, banking may be

classified as retail and corporate banking. Retail banking, which is designed to meet the

requirements of individual customers and encourage their savings, includes payment of utility

bills, consumer loans, credit cards, checking account balances, ATMs, transferring funds

between accounts and the like. Corporate banking, on the other hand, caters to the needs of

corporate customers like bills discounting, opening letters of credit and managing cash.

The Indian banking scene has changed drastically with the private sector making inroads

in an area hitherto dominated by large public sector banks. Growing disinvestment is likely to

impact the banking industry as well. There is every possibility of privatization of public sector

banks, leading to greater operational autonomy.

The development of the Indian banking sector has been accompanied by the introduction

of new norms such as Income Recognition and Capital Adequacy, by the government. The latter

implies that banks can lend on the basis of their respective capital base. These norms have

caused banks to construct equity on their own, before going in for debt. Disintermediation is a

real threat for banks. Of late, banks are adopting the EVA (Economic Value Added) concept

wherein revenues are viewed in the context of the risk associated with them.

The New World order has ensured "Survival of the Fittest". New services are the order of

the day, in order to stay ahead in the rat race. Banks are now foraying into net banking,

securities, consumer finance, housing finance, treasury market, merchant banking and insurance.

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BANKING STRUCTURE

The Indian banking industry, which has Reserve Bank of India as its regulatory authority, is a

mix of the public sector, private sector, and foreign banks. The private sector banks are again

split into old banks and new banks.

SCHEDULED BANKS

Scheduled commercial banks are those that come under the purview of the Second

Schedule of Reserve Bank of India (RBI) Act, 1934. The banks that are included under this

schedule are those that satisfy the criteria laid down vide section 42 (60 of the Act). Some co-

operative banks come under the category of scheduled commercial banks though not all co-

operative banks.

PUBLIC SECTOR BANKS

Public sector banks are those in which the Government of India or the RBI is a majority

shareholder. These banks include the State Bank of India (SBI) and its subsidiaries, other

nationalized banks, and Regional Rural Banks (RRBs). Over 70% of the aggregate branches in

India are those of the public sector banks. Some of the leading banks in this segment include

Allahabad Bank, Canara Bank, Bank of Maharashtra, Central Bank of India, Indian Overseas

Bank, State Bank of India, State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of

Travancore, Bank of Baroda, Bank of India, Oriental Bank of Commerce, UCO Bank, Union

Bank of India, Dena Bank and Corporation Bank.

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PRIVATE SECTOR BANKS

Private Banks are essentially comprised of Four types: the old and the new. The old

private sector banks comprise those, which were operating before Banking Nationalization Act

was passed in 1969. On account of their small size, and regional operations, these banks were not

nationalized. These banks face intense rivalry from the new private banks and the foreign banks.

The banks that are included in this segment include: Bank of Madura Ltd. (now a part of

ALLAHABAD Bank), Bharat Overseas Bank Ltd., Bank of Rajasthan, Karnataka Bank Ltd.,

Lord Krishna Bank Ltd., The Catholic Syrian Bank Ltd., The Dhanalakshmi Bank Ltd., The

Federal Bank Ltd., The Jammu & Kashmir Bank Ltd., The Karur Vysya Bank Ltd., The Lakshmi

Vilas Bank Ltd., The Nedungadi Bank Ltd. and Vysya Bank. The new private sector banks were

established when the Banking Regulation Act was amended in 1993. Financial institutions

promoted several of these banks. After the initial licenses, the RBI has granted no more licenses.

These banks are gearing up to face the foreign banks by focusing on service and technology.

Currently, these banks are on an expansion spree, spreading into semi-urban areas and satellite

towns. The leading banks that are included in this segment include Bank of Punjab Ltd.,

Centurion Bank Ltd., Global Trust Bank Ltd., HDFC Bank Ltd., ALLAHABAD Banking

Corporation Ltd., IDBI Bank Ltd., IndusInd Bank Ltd. and Axis Bank Ltd.

FOREIGN BANKS

The operations of foreign banks, though similar to that of other commercial Indian banks,

are mainly confined to metropolitan areas. Foray of foreign banks depends on reciprocity,

economic and political bilateral relations. An inter-departmental committee has been set up to

endorse applications for entry and expansion. Foreign banks, in the wake of the liberalization

era, are looking to expand and diversify. Some of the leading foreign banks that operate in India

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are Citibank, Standard Chartered Grindlays Bank, Hong Kong Shanghai Banking Corporation,

Bank of America, Deutsche Bank, Development Bank of Singapore and Banque National De

Paris.

PUBLIC SECTOR BANKING – AT A DISADVANTAGE

Functioning of Public Sector Banks (PSBs), which are yet to achieve computerization

across the board, is at a relative disadvantage when compared to the private sector, which is

offering state-of-the-art facilities such as ATMs, doorstep banking, banking on phone, and net

banking. PSBs also suffer from huge costs of labor and low levels of automation. At this rate, it

may not be long before new channels devised by private banks effectively surpass the number of

branch NeFourrks offered by the PSBs.

This apart, the problems which have assumed enormous proportion today as far as Public

Sector banks are concerned are ballooning NPA levels, declining margins, poor credit off-take,

high overheads, and lack of good quality assets. Banks are sticking to reliable borrowers for fear

of bad debts. In fact, banks largely invest in government securities, which have zero risk. With

GOI being the single largest borrower, the yields on these securities determine the interest rates.

The government aims to decrease its shareholding in PSBs to 33%, however, at the same

time it also wants to retain the controlling stake. This, it is feared, is not going to solve the

problems which PSBs are coping with now.

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PRIVATE SECTOR BLOOMS

Corporate governance and self-regulation are the ground rules for the private sector.

Government interference is not preferred. While some private banks such as ALLAHABAD

Bank, Axis Bank and IDBI Bank have financial institutions Banking them, others are opting for

foreign partnerships for technology and monetary resources.

Private Banks have emerged relatively strong, with about 60% growth reported in net

profits in the year ended March 2000. With a net profit of Rs.120 crores (+46%), HDFC was the

clear leader. IDBI Bank, however took the cake by doubling its net profit, which reached

Rs.60.99 crores in March 2000.The jump in profits can mainly be attributed to non-traditional

sectors such as commission, exchange, brokerage, and profit on sale of investments.

RBI POLICIES

The RBI does not interfere in determining the prime lending rates for commercial banks.

The onus is on banks to do so. RBI regulates interest rates on savings accounts, export credit, and

credit for small and tiny sectors. The rates fixed by RBI are quite low at 7%, 5%, and 4%

respectively for Bank Rate, Repo Rate, and savings account rate. Fixing rates on bank credit is

the discretion of the banks. Though banks are allowed to offer variable interest rates on longer-

term deposit rates, they continue to offer fixed deposit rates.

Current account transaction norms eased

Norms on current account transactions were eased, in line with the Foreign Exchange

Management Act (FEMA). The Basic Travel Quota (BTQ) has been raised from US$3,000 to

US$5,000, without the need for central bank’s approval. Capital account restrictions related to

dealing in assets with residents and non-residents have also been relaxed.

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RBI to launch liquidity adjustment facility

The Reserve Bank of India (RBI) is launching its new liquidity adjustment facility (LAF),

effective June 5. The first phase would see the withdrawal of additional collateralised lending

facilities, and Tier-II refinance to banks. The 5% fixed rate Repo will also be withdrawn. The

facilities of collateralised lending and Tier-I refinance facilities will continue.

The Central government has granted approval to banks during the current financial year to make

a foray into forward trading in gold by including gold on the list of commodities eligible for

hedging under the Forward Contract (Regulation) Act, 1952.

MEASURES ADOPTED BY RBI

Measures to increase liquidity and decrease the cost of funds to banks

Bank rate cut by 1% from 8% to 7%

CRR cut by 0.5%, from 8% to 7.5%

Repo rate cut by 1%, from 6% to 5%

Savings deposit rate for scheduled commercial banks cut from 4.5% to 4.0%

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OBJECTIVES OF THE STUDY:-

The main objectives of the study are:

To study the awareness level of service class people regarding E-Banking.

To find out the frequency and the factors that influences the adoption of E-Banking

services.

To measure the satisfaction level of people.

To understand the problems encountered in by service class people while using E-

Banking services(ATM, Phone banking, etc)

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A landmark ". COM" ventures in India between ICICI BANK and SIFY for online distribution

of retail banking products and services.

In a major development in the Internet world, ICICI Bank, the banking subsidiary of ICICI Ltd.

(NYSE: IC and IC.D) and Satyam Infoway Ltd. (NASDAQ: SIFY) announced the setting up of a

new ".COM" company for on-line distribution of retail banking products and services on the

Internet. This landmark agreement marks the coming together of India's first Internet Banking

provider, ICICI Bank, and India's largest private ISP and mega-Portal, Satyam Infoway, to create

a unique partnership between a major Bank and a mega-Portal. The marriage between banking

and portals is expected to be a win-win potent combination, which is expected to result in

improved customer orientation, lower distribution cost, long-term customer relationships with

ease of banking wherever and whenever the customer wants it and enhanced profitability. The

range of retail banking products to be distributed through the portal would include savings

accounts, current accounts, fixed deposits, bill payments and other retail banking products that

ICICI Bank may offer through this on-line channel.

The surge in demand for e-commerce related services stems from the rapid growth in Internet

penetration in the country and a fundamental change in the business paradigm. The two

companies would therefore also explore several opportunities to complement each other's

strengths to capitalise on the opportunities in e-commerce. This would include providing a

platform for trade facilitation and payments over the Internet using innovative banking products

of ICICI Bank. SIFY has a buyer to seller ordering/selling website, SeekandSource.com, which

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is on-line except for the payments that are still physical. ICICI Bank has developed an Internet

based 'business to business' payment module for purchasers and sellers to effect payments online.

A synergistic offering of these two products would be made so that such customers/users can

complete the entire transaction and payments online.

The two companies would expect to co-operate wherever feasible to extend the reach and

channels for distribution of financial products from ICICI Bank and Internet products from

SIFY. ICICI Bank, as a part of its "Click and Brick" strategic focus would set up ATMs at the

Satyam Access Points and Cyber Cafes, thereby increasing its reach across the country. It would

also offer Satyam Internet terminals at its branches, enabling visitors to surf the Internet, thereby

attracting new customers to its branches.

The two companies shall examine further business opportunities, which would effectively

synergise the financial services strength of ICICI Bank and its Affiliates and the technological

expertise of Satyam Infoway and its Affiliates. ICICI Bank and Satyam Infoway through this

partnership will play a strategic role in providing revolutionary e-commerce solutions in India.

The memorandum of understanding was signed today between Mr. H.N Sinor, Managing

Director & CEO of ICICI Bank and Mr. R. Ramraj, Managing Director of Satyam Info way.

ICICI is a diversified financial services company offering a wide range of products and services

to corporate and retail customers in India. ICICI Bank, a subsidiary company has been the

pioneer of Internet banking in India. ICICI Bank has been gearing itself for the opportunities that

would be created from the e-Commerce revolution.

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Satyam Info way Ltd. is the leading integrated Internet and E-commerce Company operating in

India. SatyamOnline, the most comprehensive portal site of Indian origin is one of the key

offerings from SIFY in the business to consumer segment. Recently it entered into an agreement

to acquire IndiaWorld Communications Private Limited, which would result in the integration of

IndiaWorld's popular websites like samachar.com, khel.com and khoj.com with SIFY's portals.

The combined portal would be the largest India related Internet portal.

1. Key Business Objectives

Organizations are facing tremendous competition word-wide. There is pressure on the

organisations to improve their profitability and efficiency for their survival and growth. The

customer’s expectations about the product and services are increasing and they do not hesitate to

change their brand loyalty or the loyalty towards the organisations with whom they have been

dealing for a long time. The deregularisation, liberalization and globalisation process have given

freedom to the organisations in terms of selecting and producing the products and services,

selecting the market segment and targeting a customer group at the same time they have to meet

more rigid and regulatory requirements to satisfy the regulators that the deregulation or

liberalization does not work against the interest of the customers and the society. The

organisations also have to safeguard their resources to protect the interest of shareholders.

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The changing environment particularly that of competition, customer expectations and emerging

technology have influenced the banks word-wide. Thus, the key business objectives of a bank are

to manage increasing competition by improving their product and services, improving efficiency

and productivity by restructuring their systems and work procedures and improving employees

productivity, ensuring compliance with the regulatory requirements and safeguarding the assets.

All these issues can be addressed by implementation of the right type of technology for the right

purpose. The technology-based solutions have put the banks in a competitive advantage,

improved the efficiency of the operations and provided excellent customer service. The

technology has helped the organisations to take strategic decisions based on the on-line data

rather than based on the past experience and intuitive decisions. The computer assisted audit

techniques have helped the banks to ensure safeguarding of resources and to ensure that the

banks are operating efficiently and effectively. The extensive use of technology has also brought

down the transaction cost and the rental cost of the premises. Thus, the computerisation of banks

operations had tremendous impact on their future prospects. The central bank of any country

though operate in a monopoly situation but has to demonstrate as a role model its efficiency and

effectiveness to guide and supervise the whole banking system.

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2. Changes in IT Scenario:

The banks have undergone changes as far as the implementation of IT is concerned. They have

moved from manual systems to batch processing systems, batch processing systems to on-line

systems and now striving for real time systems. They have moved from centralized computing to

decentralized computing in which each business unit can now take care of its computing

requirement. The focus of use of computers has moved from back office to front office where

most of the computerized operations are providing customer interface in order to improve

customer service. Thus, the computerisation has refocused the predominance of its applications

from business orientation to customer orientation.

The computer operations which were mainly on stand alone environment about a decade back

have taken the advantage of data communication and networking technology to share the data

and computer resources and provide anywhere and anytime services. The online systems make

the data and information available to the decision maker at the press of a button. The MIS, which

was predominantly used for performance reporting, is now being extensively used for decision-

making. The IT supported tools like Decision Support Systems (DSS), Expert Systems, Data

Warehousing and Data Mining, etc play an important role in designing an Executive Information

System (EIS).

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3. IT Enablers

a. Developments in H/W Technology:

During last decade there has been tremendous improvements in hardware technology in

terms of storage capacity and processing speed. The processing speed is getting almost

doubled every year and there is no constraint in terms of storage space. Today’s

microprocessors have more speed, processing power and storage capacity than a five

years old mainframe. The networked environment and the client server architect have

provided almost an unlimited processing power to microprocessor- based systems. The

only limitation is the availability of bandwidth for wide area networks (WANs). The cost

of hardware has drastically come down to make it affordable to organisations and

individuals. The spread of Kiosks has facilitated the accessibility of computers and

Internet to common people. Invent of smart card technology has come out with many

uses in banking and payment systems. The individuals need not carry the cash. The

plastic cards with microchip can store the details of transactions and the balance amount

to serve as an electronic purse.

b. Developments in Software Technology:

More than the developments in the hardware technology there have been developments in

software technology. Newer and newer software systems are implemented to facilitate the

users. The software systems are becoming more and more user friendly and interactive to

provide on-line help and validation facilities. The Graphic User Interface (GUI)

environment facilitated the users to use the systems by clicking the appropriate icons to

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perform various common functions without bothering about the syntax of commands.

The software packages are now supporting multimedia i.e. text, audio, video and

graphics. The software systems have also been developed to support presentations,

desktop printing, 3D graphics, animations, etc. Software has also been developed to

support any human activities to improve the efficiency, productivity, housekeeping and

customer service. Special packages have been developed for facilitation the auditors. The

Computer Assisted Audit Tools/ Techniques (CAATs) have made the job of auditors easy

and more effective.

c. Developments in Communication Technology:

The synergy between computer and communication technology has really changed the

banking scenario. It has facilitated the banks to reach to the customers without their

physical presence. The technologies available for LAN, WAN, Intranet, Internet and

Groupware have improved the efficiency of the banks. Banks are able to provide better

and innovative services to customers using these technologies. The satellite based

communication systems provide high reliability and scalability. This technology is highly

suitable for remote locations. The fibre optic technology has also improved the reliability,

quality and speed of communication besides providing considerably higher bandwidth for

the data transfer.

4. Issues in Computer Technology

The major problem the IT users are facing today relates to fast obsolescence in Hardware

Technology. The obsolescence is fast because newer and newer software systems with more

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capabilities are developed which require higher processing speed and storage. The other concern

of the user of the technology particularly of the banks is the data security and the disaster

management as the data in the computerised systems represents financial transactions.

Inadequately secured systems may lead to frauds and other computer related crimes. To provide

uninterrupted services to its customers, the banks are also concerned with the proper

maintenance of hardware and software systems. The adequate and trained manpower is generally

not available at different business locations. It is also a very strategic issue for a bank whether to

develop and maintain the systems in-house or to outsource them. There are always some relative

advantages and disadvantages for outsourcing the systems depending upon the circumstances.

5. Issues in Communication Technology:

There are varieties of communication media available for networking and data communication.

The selection of suitable communication media in terms of its reliability, cost and durability is an

important decision. The selection of appropriate topology and the communication protocols are

also important considerations for the banks. Another major issue the banks are facing is to ensure

network security. The physical security is not considered adequate and effective in a networked

environment particularly in a wide area network. There is also shortage of communication

infrastructure in developing countries and the infrastructure is costly. There are not many choices

as the infrastructure is generally provided by the government agencies and there are always some

regulatory hassles. There is also shortage of bandwidth to support data, voice and image. The

reliability of the infrastructure is also one of the major issues when it is required to provide

services like banking anytime and anywhere.

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6. Impact on Staff:

There are number of issues related to the staff while implementing and using IT in banks. These

relate to availability of trained personnel to exploit the benefits of technology, continuous up

gradation of their skills, retention of trained manpower in the organisation and utilization of staff

rendered surplus due to implementation of technology.

7. The Future Trends:

Animation software, fusion of computer and communication technology, image processing and

video conferencing all will aid and present simulated environment for various business activities

including banking. Emergence of electronic commerce, electronic and Internet banking,

electronic payment systems and use of e-cash will bring our drastic changes in the banking

activities.

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“BANKING SYSTEM IN NEW MILLENIUM:”

INTRODUCTION: -

Economic growth and development of a country depends on the health of its financial sector that

includes banking sector. Banking sector provides a very vital input wiz. Finance to all other

commercial and scientific fields thus; it should be always one step ahead of all the other fields. In

addition it provides mobiliasation of savings. It also plays an important role in capital formation

of the country.

The 1991 new economic policy adopted by the government of India is based on the three features

LPG VIZ. Liberalization, Privatization, Globalization. It created a huge improvement in the

economy of our country. Thanks to our present Prime Minister and the then Finance

Minister, Dr. MANMOHAN SINGH who is rightly called as Father of Economic Reforms.

Broadly speaking reforms in the financial sector are aimed at making Indian banks conform to

the international prudential standards and also making the financial system more competitive.

The administrate structure of interest rates has been dismantled, with freedom given to banks to

fix the rates of interest on deposits on loans. New private sector banks have been licensed.

In the words of Mr. RANGARAJAN, earlier governor of the RBI, the year 1993-94 in a way

marks a turning point in the financial history of India, in the banking system. He always gave

much more importance to improve the technology. Computerization in many commercial banks

is an account of his president efforts, in this direction.

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Dr.BIMALJALAN, the former governor of the RBI was equally conscious of the need to

improve the banking sector financially and immediately. After assuming the office of the

governor, of the RBI, he has accorded priority towards the implementation of some important

recommendations of the Narasimham Committee Report.

In order to visualize the reforms, it is necessary to trace its development in a historical

prospective.

Future Of Banking Sector:

Public sector banks have enjoyed almost a monopoly situation till the Liberalization wave begin

in 1991. Recently, Union Bank of India and Bank of India have amalgamated with each other

and the other news is that subsidiaries are merging with SBI to form a single merged bank. This

will reduce the administrative expenses. The banks can share the common infrastructure,

management etc. it may even happen that one senior manager may look after two or more

branches in the city.

But in the present intensified process of liberalization and globalization a lot of challenges will

have to be meet by the banking sector for its survival and growth wiz.

1. Increase in competition with a growth of private banks the hitherto protected public

sector banks will have to shake off their lethargy to survive in the new liberalized

banking sector.

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Private sector banks are in a position to offer better customer service on account of being

hi-tech. From a sellers market, we have moved to a buyers market. It is a great challenge

to keep meeting the ever-growing requirements of non-aware, enlightened and

demanding customers. They have better alternative to meet the demands.

2. Innovative banking process of disinter mediation has begun in the Indian financial sector.

The user of finance, the corporate sector especially, is gradually depending less and less

on banks and financial institutions. They prefer to mobilize funds directly from the

market. This has an adverse effect on the banks income and profitability. Banks now have

to constantly lookout for the new ways of earning income

3. Non-performing assets (NPAs) is a one of the serious challenges of banking system is

facing. A high level of NPAs adversely affects the profitability of our banks. In future,

bank should adopt intensive techniques to reduce the NPAs.

4. Technological changes in a hi-tech IT era customers, expect quick and efficient service.

The paper-based payment system is gradually changing into electronic payment system.

With the growth of computer network in India, some banks have also introduces Internet

Banking, Customers, who are linked to computers, find it very convenient.

Opportunities:

Let us have a look, at the opportunities that a banking sector has in future.

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1. Growing banking business, a steady increase in personal income of people an incoming

of MNCs has increases the demand for bank loans to buy consumer durables. Demand for

housing loan has also increased.

2. Financial supper market banks have entered the area of financing and other services like

depository, underwriting, gilt trading and even brokering. Commercial banks are now

operating as a financial supper markets.

3. Insurance business-now insurance sector is open to the private sector as well. It is easer

for banks with a wide network to capture the widely speared-out market for insurance

business.

4. Cash-less system-growth of credit card business in India is another possibility for

commercial banks to exploit. It is possible to increase market share of credit card

business on account of the increase in middle and higher middle-class population.

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Constraints:

The constraints that need to be removed to make our banking sector progressive are:

1. To remove inflexibility like lack of users friendly front and environment for bank

officials;

2. Use of a very technical and proprietary back and software, which cannot be customized

easily.

3. Users in banks as we know are not IT professionals and though they are trained in various

aspects, it really makes impractical for them to covers themselves suddenly to new

upcoming systems.

Concluding Remarks:

We feel that first of all, innovation is required in banks to render better and efficient customer

services. Electronic banking enables new products and services to be geared for specific

customers. We have variety of customers today and the need of each customer is different and

varied. Looking to other economies like France and United States our banking system has also

adopted credit cards, debit cards, electronic checks, smart cards, e-cash or cyber cash, automated

teller machines, which are being extensively practiced in these countries.

Internet banking is in vogue nowadays. It is the one of the latest example of IT in banking sector.

We can perform all the banking operations, just on the click of a button by sitting at our homes.

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Finally, watchword is share information; money and resources (human, physical, and

technological) to improve our banking sector, for better tomorrow.

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“BANKING SCENE: INDIA”

‘Mid Term Appraisal of the 10 th Plan Targets’

The Mid Term Appraisal of The 10th Plan conducted by the National Development Council

(NDC) noted that in some areas of the economy is doing well and these gains need to be

consolidated, but there are also important weaknesses, which if not corrected could undermine

even the performance of the economy and problems of the economy are assumed as follows:

GDP growth has averaged 6.5% in the first three years, which is below the 10 th plan target of

8.1%. Positive factor include:

A) Improvement in private corporate sector investments,

B) Positive international perceptions on India

C) Tolerant inflation level

D) Comfortable external payment position with substantial inflow from abroad lending to

comfortable foreign exchange position.

Industrial sector also showed signs of improvement. The ultimate aim should be to

consolidate the gains in these developments and to overcome the weaknesses in the economy.

Key weaknesses are identified as follows:

29

1. Aggregate Growth

Though the plan fixed a target of 8.1%, it is difficulty to achieve the target and the

likely growth rate expected to below 7% during the plan period. An important reason

for the lower growth is that investment did not increase in line with available

investible resources.

2. Agricultural Growth:

Agriculture Growth is very poor over the last two decades. Agriculture Growth has

decelerated sharply from 3.2% to 1.9% between 1980-81 and 1995-96. There is a

need to revamp the entire strategy ad more action is called for to improve the

performance in agriculture sector.

3. Infrastructure Problems:

Inadequate infrastructures in both rural and urban areas are a major factor

constraining on India’s growth. The quality of infrastructure impacts on our ability to

compete globally and also to attract Foreign Direct Investment.

30

4. International Development:

Owing to high oil prices, our import outgo is quite high. Since we have ample foreign

exchange reserves at the moment, the impacts of the oil prices are not passed on to

the users. But if the oil prices remain high, its impact need to be passed on to the

consumer, which will lead to inflation or fiscal deficit in the country. Another cause

of concern is that the downturn in the world economy, which will affect our export

growth considerably. It s estimated that every 1 percentage point reduction in our

export growth rate will reduce the growth rate of GDP by 0.2% points.

5. Social Developments:

Our social indicators are not only lower then the levels in East Asian countries, but

they are lower even in comparison with the levels achieved by these countries twenty-

five years ago. The social indicators are also show wide disparity in the gender gaps,

large rural and urban differences and wide variation across states.

6. Employment:

This is another area of grave concern. Studies based on data collected from organized

and unorganized sectors state that while employment may be increasing in the

unorganized sector in response to growth, there is actually a contraction in

31

employment in the organized sector, which is the preferred sector for employment by

new entrants to the labour force.

7. Inequality and Poverty:

Though the poverty has declined the decline was less then targeted. The moderate

improvement in education ad health indicators implies that access to more productive

employment remains limited, especially in backward regions and amongst

disadvantaged groups.

8. Balance Regional Development:

Regional imbalance in the development of different states presents a picture, which

requires a focused attention. Some states were able to reap the benefits of the

economic reforms, but some others were not able to do so. Even district

backwardness in a well performing state also presents a grim picture.

9. Resources in the Public Sector:

The availability of resources in the public sector to meet targeted levels of plan

expenditure is an area, which deserves attention. Neither the center nor the state have

been able to mobelize the resources needed to keep outlays in line with 10th plan

projections and this has led to significant under funding in many sectors. The

32

consolidated public debt of the Center and States taken together is about 80% of the

GDP, which is among the highest in emerging market economies.

The scope and time for correcting these deficiencies during the 10 th plan period is

very limited. The Mid Term Appraisal suggests various corrective measures could be

considered for formulating the 11th Five Year Plan targets and policies.

10. Declaration of Dividend:

The RBI has decided to grant general permission to banks to declare dividends,

provided they comply with the following conditions:

Eligibility Criteria

1. Only those banks, which comply with the following minimum prudential requirements,

would be eligible to declare dividends without the Reserve Banks prior approval:

a) Capital to risk-weighted assets ratio (CRAR) of at least 9% for preceding

two completed years and the accounting year for which it proposes to

declare dividends

b) Net Non-performing Assets (NPAs) of less then 7%.

33

In case any bank does not meet the above CRAR norm, but is having a

CRAR of at least 9% for the accounting year for which it proposes to

declare dividend. It would be eligible to declare dividend provided, its net

NPA ratio is less then 5%.

2. The bank should comply with the provisions of section 15 and 17 of the Banking Regulations

Act, 1949.

3. The bank should comply with the Reserve Bank’s prevailing regulations/guidelines,

including creating adequate provisions for impairment of assets and staff retirement benefits,

transfer of profits to statutory reserves, etc.

4. The proposed dividend should be payable out of the current year’s profit.

5. The Reserve Bank of India should not have placed any explicit restrictions on the bank for

declaration of dividends.

Regarding the quantum of dividend, the RBI made the following stipulations.

Banks, which fulfill the eligibility criteria, may declare and pay dividends, provided-

34

a) The divined payout ratio does not exceed 40 per cent. (Divined pay out ratio should be

calculated as a percentage of “dividend payable in a year” (excluding dividend tax) to

“net profit during the year”.

b) In case the profit for relevant period includes any extraordinary profits/income, the

payout ratio should be computed after excluding such extraordinary items for reckoning

compliance with the prudential pay out ratio.

c) The financial statements pertaining to the financial year to which the dividend is

declared, should be free of any qualification by the statuary auditors, which have an

adverse bearing on the profit during that year. In case of any qualification to that effect,

the net profit should be suitably adjusted while computing the dividend pay out ratio.

The reserve bank will not entertain any application for a higher dividend payout ratio than

the one for which the banks qualify.

Door-Step Banking:

The reserve bank has advised all scheduled commercial banks to formulate a scheme for

providing services at the premises of a customer within the framework section 23 of the banking

regulation Act, 1949.

35

According, the banks have to formulate the scheme with the approval of their respective bank

boards and send the same for RBI approval. In the instruments, etc., from the premises of central

and state governments departments.

India’s Trade Deficit:

India’s exports recorded an increase of 19.5 percent during the first quarter of the current fiscal.

Imports on the other hand recorded a shaper growth of 38 per cent during the same period. As a

result, the deficit doubled to $ 11.4 billon in the first quarter of 2005-06 compared to $ 5.9

billion in April June 2004-05.

36

“PERFORMANCE HIGHLIGHTS OF PUBLIC SECTOR BANKS IN 2004-05”

In this note we analyse the performance of public sector banks (except Punjab and sind bank) on

important parameters such as total assets, Deposits, Investments, Advance, Non-performing

Assets (Gross and net), Interest Income, other Income, Total Income, Interest Expenditure,

Operating Expenditure, Total Expenditure, Operating profit, provisions and Contingencies and

Net profit and important ratios like credit-Deposit ratio, Investment-Deposit Ratio, spared to

Total Assets, Operating expenses to Total Expenses, Return on Assets, Capital Adequacy Ratio,

NPA ratio and productivity ratios. Significant features of the operations of banks on each of the

above-mentioned parameters are given below:

Total Assets –

As on 31st March 2005, total assets of the public sector banks increased to Rs.17 58,207 crores

from Rs. 14,71,428 crores of the previous financial years recording a growth of 19.5% during

2005 as against 14.4% of the previous year. Higher growth in total assets is due largely to

inclusion of total assets of IDBI Ltd. In 2005.Excluding IDBI Ltd., the growth in total assets was

marginally lower at 14.0 per cent during 2004-05. 10 banks recorded higher growth than the

group average. Oriental bank of commerce tops list with a growth of 31.9 per cent, closely

followed by the Allahabad bank (30.1per cent) and state bank of Indore (29.5 per cent). Bank of

Maharashtra recorded lowest growth in assets with 2.1 per cent during 2004-05.

37

Deposits-

Total deposits mobilized by the public sector banks increased from Rs. 12,26,838 crores as on

31st march, 2004 to Rs. 14,21,672 crores as on 31st march, 2005. Deposits showed a subdued

growth during 2004-05. Total Deposits recorded a growth of 15.9 per cent during 2004-05,which

is higher than 13.7 per cent of the previous year. Excluding IDBI Ltd., the total growth was only

14.6 per cent during 2004-05. 15 banks recorded higher growth than the group average. Oriental

bank of commerce recorded the highest growth of 34.1 per cent, closely followed by state bank

of indore with 32.5 per cent during 2004-05.SBI and Associate as a group recorded a growth of

16.8 per cent as compared to nationalized banks group with a growth of 13.5 per cent during

2004-05.

Investments –

Banks investments showed a lower growth of 8.5 per cent during 2004-05 as against the growth

of 14.7 per cent during 2003-04. In absolute terms, the total investments increased from 6,25,678

crores as at march 31st 2004 to Rs. 6,78,637 crores as on 31st march, 2005.Excluding IDBI Ltd.,

the growth in investment was only 4.5 per cent during 2004-05. Seven banks recorded a higher

growth than the group average. Allahabad bank recorded the highest growth in investments with

22.1 per cent, closely followed by Punjab National Bank with 20.3 per cent during 2004-05.

Nationalized Banks as a group showed a growth of 4.0 per cent during 2004-05, which is much

lower than the previous year’s growth of 17.3 per cent during 2003-04. SBI group as a whole

recorded a growth of 5.2 per cent during 2004-05 as against 10.9 per cent recorded in the

previous year.

38

Advances –

The years 2004-05 witnessed higher credit off take by the commercial banks. This was reflected

in the total disbursement made by the PSBs during 2004-05. Total advances of the banks jumped

up from Rs.6, 32,740 crores as on 31st march, 2004 to Rs.8, 48,340 crores as on 31st march 2005

showing an impressive growth of 34.1 per cent as against the previous years growth of 15.2 per

cent. Excluding the IDBI Bank Ltd., the growth was 26.9 per cent during 2004-05. Eight bank

recorded higher growth than the group average. United Bank of India showed the maximum

growth in advances with 43.02 per cent closely followed by State bank of Indore with 41.1 per

cent and state bank of Bikaner & Jaipur with 39.7 per cent during 2004-05. Nationalized banks

as a group recorded a growth of 25.7 per cent during 2004-05 as against the previous year growth

of 14.5 per cent. As for SBI group the growth was 29.1 per cent during 2004-05 as against 16.6

per cent recorded in the previous year.

Non-performing Assets (NPA) –

During 2004-05, both gross and net-performing assets showed decline in absolute terms as a

percentage of advance Inspite of the reduction in the total provisions towards non-performing

assets as a compared to the previous year. President recovery set up coupled with close

monitoring of the assets could be sighted as a reasons for reduction in non-performing assets.

Gross NPA of the public sector banks decreased from Rs.51, 537 crores as on 31 st march 2004 to

Rs.47, 596 crores as on 31st march, 2005 shoeing a declined growth of (-) 7.6 per cent. Net NPA

declined from Rs. 18,860 crores as on 31st march, 2004 to Rs. 16,983 crores as on 31st march,

2005 recording a declined growth of (-) 10.0 per cent. Six banks namely Bank OF India, Bank of

Maharashtra, and Oriental bank of commerce, Vijay a bank, state bank of indore and state bank

39

of patiala recorded higher growth in gross NPA during 2004-05 as compared to previous year. In

case of net NPA nine banks are recorded higher growth in net NPA than the previous year. SBI

Group recorded higher net NPA than the previous year.

Income –

Total income of the public sector bank recorded a growth of 3.8 per cent during 2004-05 as

compared to 7.2 per cent of previous year. Excluding IDBI Limited. The growth was only 1.4 per

cent during 2004-05.Growth in income in PSBs was due largely to higher contribution from

interest income than the fee based income. Non-interest income, which was showing a higher

growth during a last three years, has recorded a declined growth during 2004-05. This could be

due to lower treasury earnings during 2004-05. Interest income of the banks increased from Rs.

1,09,572 crores during 2003-04 to Rs. 1,19,098 crores during 2004-05. Recording a growth of

8.7 per cent as against 2.10 per cent during 2003-04. On the other hand, the other income of the

banks recorded a declined growth of (-) 15.5 per cent during 2004-05 as against the previous

years growth of 32.3 per cent. Interest, the share of fee income in the total income declined to

16.6 per cent during 2004-05 as against 20.4 per cent of the previous year. Ten banks recorded a

higher growth in income then the group average. Allhabad banks tops the list with a growth of

11.9 per cent, closely followed by state bank of Mysore with 11.2 per cent during 2004-05.

Expenditure: -

Total expenditure of the banks increased from Rs. 98,127 crores during 2003-04 to Rs. 1,04,038

crores during 2004-05 showing a growth of 6.0 per cent as against previous year’s lower growth

of (-) 0.6 per cent. Excluding IDBI Ltd., the growth in total expenditure was 3.0 per cent during

40

2004-05.Intrest expenditure recorded a higher growth of 3.5 per cent during 2004-05 as against

the previous years growth of (-) 5.9 per cent. Operating expenditure, on the other hand, recorded

a lower growth of 11.1 per cent during 2004-05 as compared to 11.9 per cent during 2003-04.

Nationalized banks and SBI Group recorded lower growth in operation expenditure during 2004-

05. 14 banks recorded higher growth in total expenditure then the group expenditure in 2004-05.

Allahabad bank, Indian bank, State bank of Saurashtra were the only three banks, which

recorded a decline in operating expenses then the previous year.

Profit- the total operating profit if the PSBs declined from Rs. 39,536 crores during 2003-04 to

Rs. 38,799 crores during 2004-05, recording a decline growth of (-) 1.9 per cent during 2004-05

as against 33.1 per cent of the previous year. Though the total provisions made by the banks

increased from Rs. 22,928 crores during 2003-04 to Rs.23, 241 crores during 2004-05, the

growth was only marginal at 1.4 per cent during 2004-05 as against 31.6 per cent during 2004-

05. Majority of the banks have made lower provisions during 2004-05 as compared to previous

year. Net profit of the banks also declined from Rs. 16, 546 crores during 2003-04 to Rs. 15,558

crores during 2004-05 recording a declined growth of (-) 6.0 per cent of the previous year.

Excluding IDBI Ltd., the decline is even sharper at (-) 7.8 per cent during 2004-05. Ten banks

recorded higher growth in net profit than the previous year.

Capital Adequacy Ratio –

All PSBs had achieved the stipulated CRAR of 9 per cent as on 31st march, 2005. United bank of

India topped the list with a CRAR of 18.2 per cent closely followed by Corporation bank with a

CRAR of 16.2 per cent. 10 banks recorded higher CRAR during 2004-05, than the previous year.

41

Return on Assets –

Net profit as a percentage to total assets declined marginally from 1.1 per cent during 2003-04 to

0.9 per cent during 2004-05. 14 banks have higher ROA than the group average, of which 10

banks have ROA of more than 1 per cent. Andhra bank topped the group with an ROA of 1.59

per cent, followed by oriental bank of commerce with 1.41 per cent.

Credit-Deposit Ratio –

Credit-Deposit Ratio (C/D) Ratio of public sector banks showed considerable improvement

during 2004-05. This is largely due to higher deployment of credit and lower resource

mobilization during 2004-05. C/D ratio of the banks improved from 51.6 per cent during 2003-

04 to 59.7 per cent during 2004-o5. Excluding IDBI Ltd., the ratio was 57.1 per cent during

2004-05. IDBI Ltd. Tops the list with a C/D ratio of 300.7 per cent followed by bank of India

with 71.1 per cent and corporation bank with 68.1 per cent. The lowest ratio of 44.9 per cent was

recorded by central bank of India.

Investment-Deposit Ratio –

As a noted before, the investments of banks were lower during 2004-05 as compared to the

previous year. This is reflected in the investment-deposit. (I/D) ratio also during 2004-05. The

I/D ratio of the banks declined from 51.0 per cent during 2003-04 to 47.7 per cent during 2004-

05. IDBI Ltd. With a ratio of 165.9 per cent tops the grouped followed by UCO bank and united

bank of India with 56.8 per cent and Indian bank with 51.5 per cent during 2004-05. Bank of

India recorded the lowest ratio with 35.8 per cent during 2004-05.

42

Interest Spread –

Interest spread or net interest income as a percentage of total assets declined marginally from 3.0

per cent during 2003-04 to 2.9 per cent during the financial year 2004-05. In the case of

nationalized banks, interest spread declined from 3.1 during 2003-04 to 3 per cent during 2004-

05. On the other hand, for SBI group, the interest spread ratio moved up from 2.8 per cent during

2003-04 to 3.1 per cent during 2004-05. 16 banks have the interest spread ratio of more than 3

per cent during 2004-05.

Non-Performing Assets –

As mentioned before, both the gross and net non-performing assets showed declined in absolute

terms ad as percentage of net advance during 2004-05. For majority of the banks, this ratio is less

than 3 per cent. Dena bank has the highest ratio with 5.2 per cent during 2004-05.

Operating Expenses –

Ratio of operating expenses to total expenses increased to 34.6 per cent during 2004-05 from

33.0 per cent of the previous financial year. 4 banks have a ratio of more then 40 per cent during

2004-05. Majority of the banks recorded a higher ratio than the previous year.

Business per Employee –

Business per employee of most of the banks was higher than that of the previous year. Highest

per employee business was recorded by IDBI Ltd. With Rs. 13.5 crores. Lowest business ratio

43

was shown by Central Bank of India with 2.1 crores during 2004-05. Majority of the banks

recorded a business ratio of Rs.3.0 crores to Rs. 4.0 crores during 2004-05.

Profit per Employee –

Majority of the banks recorded a lower profit per employee ratio than the previous year. Highest

ratio was recorded by the IDBI Ltd. With Rs. 6.85 lacs during 2004-05. This ratio for majority of

the banks ranged from Rs. 1.5 lacs to Rs. 3.0 lacs during 2004-05.

Conclusion –

Compared to 2003-04, the performance of the Public Sector Banks was not impressive during

2004-05. Resource mobilization and investments were lower during 2004-05 as compared to

2003-04. Disbursement of credit was impressive during this year. Total income and total

expenditure of these banks were higher than the financial year 2003-04. Since growth in

expenditure were higher than the growth in income, the banks recorded deceleration in operating

and net profit during 2004-05. a significant achievement for the banks was reduction in the gross

and net non-performing assets of the bans in absolute term and also as percentage of net

advances during 2004-05. Banks were able to maintain spread at the same level as that of the

previous year. Slight deceleration in the Capital Adequacy Ratio and Return on Assets were also

observed during 2004-05. Productivity ratio showed improvement than the previous year.

However, profitability ratio was lower than the previous year.

44

E-BANKING

45

WHAT IS E-BANKING?

Electronic banking is one of the truly widespread avatars of E-commerce the world over.

Various authors define E-Banking differently but the most definition depicting the meaning and

features of E-Banking are as follows:

1. Banking is a combination of two, Electronic technology and Banking.

2. Electronic Banking is a process by which a customer performs banking

Transactions electronically without visiting a brick-and-mortar institutions.

3. E-Banking denotes the provision of banking and related service through

Extensive use of information technology without direct recourse to the bank by

the customer.

46

Bank

Information technology

Customer

NEED FOR E-BANKING

One has to approach the branch in person, to withdraw cash or deposit a cheque or request a

statement of accounts. In true Internet banking, any inquiry or transaction is processed online

without any reference to the branch (anywhere banking) at any time. Providing Internet banking

is increasingly becoming a "need to have" than a "nice to have" service. The net banking, thus,

now is more of a norm rather than an exception in many developed countries due to the fact that

it is the cheapest way of providing banking services.

Banks have traditionally been in the forefront of harnessing technology to improve their

products, services and efficiency. They have, over a long time, been using electronic and

telecommunication networks for delivering a wide range of value added products and services.

The delivery channels include direct dial – up connections, private networks, public networks etc

and the devices include telephone, Personal Computers including the Automated Teller

Machines, etc. With the popularity of PCs, easy access to Internet and World Wide Web

(WWW), Internet is increasingly used by banks as a channel for receiving instructions and

delivering their products and services to their customers. This form of banking is generally

referred to as Internet Banking, although the range of products and services offered by different

banks vary widely both in their content and sophistication.

47

Traditional banking

Gunpowder

Personalized services, time consuming, limited access

Virtual or E-banking

Nuclear charged

Real time transactions, integrated platform, all time

access

EVOLUTION OF E-BANKING

The story of technology in banking started with the use of punched card machines like

Accounting Machines or Ledger Posting Machines. The use of technology, at that time, was

limited to keeping books of the bank. It further developed with the birth of online real time

system and vast improvement in telecommunications during late 1970’s and 1980’s.it resulted in

a revolution in the field of banking with “convenience banking” as a buzzword. Through

Convenience banking, the bank is carried to the doorstep of the customer.

The 1990’s saw the birth of distributed computing technologies and Relational Data Base

Management System. The banking industry was simply waiting for these technologies. Now with

distribution technologies, one could configure dedicated machines called front-end machines for

customer service and risk control while communication in the batch mode without hampering the

response time on the front-end machine.

Intense competition has forced banks to rethink the way they operated their business. They had

to reinvent and improve their products and services to make them more beneficial and cost

effective. Technology in the form of E-banking has made it possible to find alternate banking

practices at lower costs.

More and more people are using electronic banking products and services because large section

of the banks future customer base will be made up of computer literate customer, the banks must

be able to offer these customer products and services that allow them to do their banking by

electronic means. If they fail to do this will, simply, not survive. New products and services are

emerging that are set to change the way we look at money and the monetary system.

48

E-Banking transaction

mechanism

49

E-BANKING PRODUCTS

Automated Teller Machine (ATM )

These are cash dispensing machine, which are frequently seen at banks and other locations such

as shopping centers and building societies. Their main purpose is to allow customer to draw cash

at any time and to provide banking services where it would not have been viable to open another

branch e.g. on university campus.

An automated teller machine or automatic teller machine (ATM) is a computerized

telecommunications device that provides a financial institution's customers a method of

financial\ transactions in a public space without the need for a human clerk or bank teller. On

most modern ATMs, the customer identifies him or herself by inserting a plastic ATM card with

a magnetic stripe or a plastic smartcard with a chip that contains his or her card number and

some security information, such as an expiration date or CVC (CVV). Security is provided by

the customer entering a personal identification number (PIN).

Using an ATM, customers can access their bank accounts in order to make cash withdrawals (or

credit card cash advances) and check their account balances. Many ATMs also allow people to

deposit cash or checks, transfer money between their bank accounts, pay bills, or purchase goods

and services.

ATMs are known by various casual terms including cash machine, hole-in-the-wall, cash point

or Bancomat (in Europe and Russia). The occasionally-used ATM Machine is an example of

RAS syndrome.

Some of the advantages of ATM to customers are:-

Ability to draw cash after normal banking hours

Quicker than normal cashier service

Complete security as only the card holder knows the PIN

Does not just operate as a medium of obtaining cash.

Customer can sometimes use the services of other bank ATM’s.

50

Telebanking or Phone Banking

Telephone banking is relatively new Electronic Banking Product. However it is fastly becoming

one of the most popular products. Customer can perform a number of transactions from the

convenience of their own home or office; in fact from anywhere they have access to phone.

Customers can do following:-

Check balances and statement information

Transfer funds from one account to another

Pay certain bills

Order statements or cheque books

Demand draft request

This facility is available with the help of Voice Response System (VRS). This

system basically, accepts only TONE dialed input. Like the ATM customer has to follow

particular process, initially account number and telephone PIN are fed for the process to start.

Also the VRS system provides the users within additional facilities such as changing existing

password with the new desired, information about new products, current interest rates etc.

Mobile Banking

Mobile banking comes in as a part of the banks initiative to offer multiple channel banking

providing convenience for its customer. A versatile multifunctional, free service that is

accessible and viewable on the monitor of mobile phone. Mobile phones are playing great role in

Indian banking- both directly and indirectly. They are being used both as banking and other

channels.

Internet Banking

The advent of the Internet and the popularity of personal computers presented both an

opportunity and a challenge for the banking industry. For years, financial institutions have used

powerful computer networks to automate million of daily transactions; today, often the only

paper record is the customer’s receipt at the point of sale. Now that their customers are

connected to the Internet via personal computers, banks envision similar advantages by adopting

those same internal electronic processes to home use.

51

Banks view online banking as a powerful “value added” tool to attract and retain new customers

while helping to eliminate costly paper handling and teller interactions in an increasingly

competitive banking environment. In India first one to move into this area was ICICI Bank. They

started web based banking as early as august 1997.

52

TYPES OF INTERNET BANKING OR E-BANKINGUnderstanding the various types of Internet banking will help examiners assess the risks

involved. Currently, the following three basic kinds of Internet banking are being employed in

the marketplace.

Informational- this is the basic level of Internet banking. Typically, the bank has

marketing information about the bank’s products and services on a stand-alone server.

The risk is relatively low, as informational systems typically have no path between the

server and the bank’s internal network. This level of Internet banking can be provided by

the banks or outsourced. While the risk to a bank is relatively low, the server or web site

may be vulnerable to alteration. Appropriate controls therefore must be in place to

prevent unauthorized alterations to the bank’s server or web site.

Communicative- this type of Internet banking systems and the customer. The interaction

between the bank’s system and the customer. The interaction may be limited to electronic

mail, account enquiry, loan applications, or static file updates (name and address change).

Because these servers may have a path to the bank’s internal networks, the risk is higher

with this configuration than with informational systems. Appropriate controls need to be

in the place to prevent, monitor, and alert management of any unauthorized attempt to

access the bank’s internal networks and computer systems. Virus controls also become

much more critical in this environment.

Transactional- this level of Internet banking allows customers to execute transactions.

Since a path typically exists between the server and the bank or outsourcer’s internal

network, this is the highest risk architecture and must have the strongest controls.

Customer transactions can include accessing accounts, paying bills, transferring funds

etc.

53

ADVANTAGES OF INTERNET BANKING

Convenience- Unlike your corner bank, online banking sites never close; they’re

available 24 hours a day, seven days a week, and they’re only a mouse click away.

Ubiquity- If you’re out of state or even out of the country when a money problem

arises, you can log on instantly to your online bank and take care of business, 24\7.

Transaction speed- Online bank sites generally execute and confirm transactions at or

quicker than ATM processing speeds.

Efficiency-You can access and manage all of your bank accounts, including IRA’s, CDs,

even securities, from one secure site.

Effectiveness- Many online banking sites now offer sophisticated tools, including

account aggregation, stock quotes, rate alert and portfolio managing program to help you

manage all of your assets more effectively. Most are also compatible with money

managing programs such as quicken and Microsoft money.

54

DISADVANTAGES OF INTERNET BANKING

Start-up may take time-In order to register for your bank’s online program, you will

probably have to provide ID and sign a form at a bank branch. If you and your spouse

wish to view and manage their assets together online, one of you may have to sign a

durable power of attorney before the bank will display all of your holdings together.

Learning curves- Banking sites can be difficult to navigate at first. Plan to invest some

time and\or read the tutorials in order to become comfortable in your virtual lobby.

Bank site changes- Even the largest banks periodically upgrade their online programs,

adding new features in unfamiliar places. In some cases, you may have to re-enter

account information.

55

E- BANKING SERVICES:1. Bill payment service

Each bank has tie-ups with various utility companies, service providers and insurance

companies, across the country. It facilitates the payment of electricity and telephone bills, mobile

phone, credit card and insurance premium bills.

To pay bills, a simple one-time registration for each biller is to be completed. Standing

instructions can be set, online to pay recurring bills, automatically. One-time standing instruction

will ensure that bill payments do not get delayed due to lack of time. Most interestingly, the bank

does not charge customers for online bill payment.

2. Fund transfer

Any amount can be transferred from one account to another of the same or any another bank.

Customers can send money anywhere in India. Payee’s account number, his bank and the branch

is needed to be mentioned after logging in the account. The transfer will take place in a day or

so, whereas in a traditional method, it takes about three working days. ICICI Bank says that

online bill payment service and fund transfer facility have been their most popular online

services.

3. Credit card customers

Credit card users have a lot in store. With Internet banking, customers can not only pay their

credit card bills online but also get a loan on their cards. Not just this, they can also apply for an

additional card, request a credit line increase and God forbid if you lose your credit card, you can

report lost card online.

4. Railway pass

This is something that would interest all the aam janta. Indian Railways has tied up with ICICI

bank and you can now make your railway pass for local trains online. The pass will be delivered

to you at your doorstep. But the facility is limited to Mumbai, Thane, Nasik, Surat and Pune. The

bank would just charge Rs 10 + 12.24 percent of service tax.

56

5. Investing through Internet banking

Opening a fixed deposit account cannot get easier than this. An FD can be opened online

through funds transfer. Online banking can also be a great friend for lazy investors.

Now investors with interlinked demat account and bank account can easily trade in the stock

market and the amount will be automatically debited from their respective bank accounts and the

shares will be credited in their demat account.

Moreover, some banks even give the facility to purchase mutual funds directly from the online

banking system.

So it removes the worry about filling those big forms for mutual funds, they will now be just a

few clicks away. Nowadays, most leading banks offer both online banking and demat account.

However if the customer have there demat account with independent share brokers, then need to

sign a special form, which will link your two accounts.

6. Recharging your prepaid phone

Now there is no need to rush to the vendor to recharge the prepaid phone, every time the talk

time runs out. Just top-up the prepaid mobile cards by logging in to Internet banking. By just

selecting the operator's name, entering the mobile number and the amount for recharge, the

phone is again back in action within few minutes.

7. Shopping at your fingertips

Leading banks have tie ups with various shopping websites. With a range of all kind of products,

one can shop online and the payment is also made conveniently through the account. One can

also buy railway and air tickets through Internet banking.

57

List of some banks operating E-Banking in India

Bank Name Technology Vendor Service offering

ABN AMRO Bank Infosys (Bank Away) NetBanking

Abu Dhabi Commercial Bank Infosys (Bank Away) ADCB NetLink

Bank of India I-flex BOIonline

Citibank Orbitech (now Polaris) Citibank Online

Corporation Bank I-flex CorpNet

Deutsche Bank   db direct

Federal Bank Sanchez FedNet

Global Trust Bank Infosys (BankAway) ibank@gtb

HDFC Bank i-flex/ Satyam NetBanking

HSBC   Online@hsbc

ICICI Bank Infosys, ICICI Infotech Infinity

IDBI Bank Infosys (Bank Away) i-net banking

IndusInd Bank CR2 IndusNet

Punjab National Bank Infosys (Bank Away) Internet Banking 

Standard Chartered Bank In-House Me Standard Chartered Online

State Bank of India Satyam/Broadvision onlinesbi.com

UTI Bank Infosys (Bank Away) I connect

58

INTERNET BANKING VERSUS TRADITIONAL BANKING

In spite of so many facilities that Internet banking offers us, we still seem to trust our traditional

method of banking and is reluctant to use online banking. But here are few cases where Internet

banking will turn out to be a better option in terms of saving your money.

'Stop payment' done through Internet banking will not cost any extra fees but when done through

the branch, the bank may charge you Rs 50 per cheque plus the service tax.

Through Internet banking, you can check your transactions at any time of the day, and as many

times as you want to.

On the other hand, in a traditional method, you get quarterly statements from the bank and if you

request for a statement at your required time, it may turn out to be an expensive affair. The

branch may charge you Rs 25 per page, which includes only 30 transactions. Moreover, the bank

branch would take eight days to deliver it at your doorstep.

If the fund transfer has to be made outstation, where the bank does not have a branch, the bank

would demand outstation charges. Whereas with the help of online banking, it will be absolutely

free for you.

As per the Internet and Mobile Association of India's report on online banking 2006, "There are

many advantages of online banking. It is convenient, it isn't bound by operational timings, there

are no geographical barriers and the services can be offered at a miniscule cost."

59

IMPACT OF E-BANKING ON TRADITIONAL SERVICES

One of the issues currently being addressed is the impact of e-banking on traditional banking

players. After all, if there are risks inherent in going into e-banking there are other risks in not

doing so. It is too early to have a firm view on this yet. Even to practitioners the future of e-

banking and its implications are unclear. It might be convenient nevertheless to outline briefly

two views that are prevalent in the market.The view that the Internet is a revolution that will

sweep away the old order holds much sway. Arguments in favor are as follows:

E-banking transactions are much cheaper than branch or even phone transactions. This could turn

yesterday’s competitive advantage - a large branch network - into a comparative disadvantage,

allowing e-banks to undercut bricks-and-mortar banks. This is commonly known as the "beached

dinosaur" theory.

E-banks are easy to set up so lots of new entrants will arrive. ‘Old-world’ systems, cultures and

structures will not encumber these new entrants. Instead, they will be adaptable and responsive.

E-banking gives consumers much more choice. Consumers will be less inclined to remain loyal.

E-banking will lead to an erosion of the ‘endowment effect’ currently enjoyed by the major UK

banks. Deposits will go elsewhere with the consequence that these banks will have to fight to

regain and retain their customer base. This will increase their cost of funds, possibly making

their business less viable. Lost revenue may even result in these banks taking more risks to

breach the gap.

Portal providers are likely to attract the most significant share of banking profits. Indeed banks

could become glorified marriage brokers. They would simply bring two parties together – eg

buyer and seller, payer and payee.

The products will be provided by monolines, experts in their field. Traditional banks may simply

be left with payment and settlement business – even this could be cast into doubt.

Traditional banks will find it difficult to evolve. Not only will they be unable to make

acquisitions for cash as opposed to being able to offer shares, they will be unable to obtain

60

additional capital from the stock market. This is in contrast to the situation for Internet firms for

whom it seems relatively easy to attract investment.

There is of course another view which sees e-banking more as an evolution than a revolution.

E-banking is just banking offered via a new delivery channel. It simply gives consumers another

service (just as ATMs did).

Like ATMs, e-banking will impact on the nature of branches but will not remove their value.

Experience in Scandinavia (arguably the most advanced e-banking area in the world) appears to

confirm that the future is ‘clicks and mortar’ banking. Customers want full service banking via a

number of delivery channels. The future is therefore ‘Martini Banking’ (any time, any place,

anywhere, anyhow).

Traditional banks are starting to fight back. The start-up costs of an e-bank are high. Establishing

a trusted brand is very costly as it requires significant advertising expenditure in addition to the

purchase of expensive technology (as security and privacy are key to gaining customer

approval).

E-banks have already found that retail banking only becomes profitable once a large critical mass

is achieved. Consequently many e-banks are limiting themselves to providing a tailored service

to the better off.

Nobody really knows which of these versions will triumph. This is something that the market

will determine. However, supervisors will need to pay close attention to the impact of e-banks on

the traditional banks, for example by surveillance of:

strategy

customer levels

earnings and costs

advertising spending

margins

funding costs

Merger opportunities and threats, both in the UK and abroad.

61

THE INDIAN SCENARIO

Drivers of change

Advantages previously held by large financial institutions have shrunk considerably. The Internet

has leveled the playing field and afforded open access to customers in the global marketplace.

Internet banking is a cost-effective delivery channel for financial institutions. Consumers are

embracing the many benefits of Internet banking. Access to one's accounts at anytime and from

any location via the World Wide Web is a convenience unknown a short time ago. Thus, a bank's

Internet presence transforms from 'brouchreware' status to 'Internet banking' status once the bank

goes through a technology integration effort to enable the customer to access information about

his or her specific account relationship. The six primary drivers of Internet banking includes, in

order of primacy are:

Improve customer access

Facilitate the offering of more services

Increase customer loyalty

Attract new customers

Provide services offered by competitors

Reduce customer attrition

INDIAN BANKS ON WEB

The banking industry in India is facing unprecedented competition from non-traditional banking

institutions, which now offer banking and financial services over the Internet. The deregulation

of the banking industry coupled with the emergence of new technologies, are enabling new

competitors to enter the financial services market quickly and efficiently.

Indian banks are going for the retail banking in a big way. However, much is still to be achieved.

This study that was conducted by students of IIML shows some interesting facts:

62

Throughout the country, the Internet Banking is in the nascent stage of development

(more than 50 banks are offering varied kind of Internet banking services).

In general, these Internet sites offer only the most basic services. 55% are so called 'entry

level' sites, offering little more than company information and basic marketing materials.

Only 8% offer 'advanced transactions' such as online funds transfer, transactions & cash

management services.

Foreign & Private banks are much advanced in terms of the number of sites & their level

of development.

EMERGING CHALLENGES

Information technology analyst firm, the Meta Group, recently reported "financial institutions

who don't offer home banking by the year 2000 will become marginalized." By the year of 2002,

a large sophisticated and highly competitive Internet Banking Market will develop which will be

driven by

Demand side pressure due to increasing access to low cost electronic services.

Emergence of open standards for banking functionality.

Growing customer awareness and need of transparency.

Global players in the fray

Close integration of bank services with web based E-commerce or even disintermediation

of services through direct electronic payments (E- Cash).

More convenient international transactions due to the fact that the Internet along with

general deregulation trends eliminates geographic boundaries.

Move from one stop shopping to 'Banking Portfolio' i.e. unbundled product purchases.

Certainly some existing brick and mortar banks will go out of business. But that's because they

fail to respond to the challenge of the Internet. The Internet and its underlying technologies will

63

change and transform not just banking, but also all aspects of finance and commerce. It

represents much more than a new distribution opportunity. It will enable nimble players to

leverage their brick and mortar presence to improve customer satisfaction and gain share. It will

force lethargic players who are struck with legacy cost basis, out of business-since they are

unable to bring to play in the new context.

64

E-BANKING WORLD WIDE

Since its inception, Internet banking has experienced strong and sustained growth. World

Bank report on leapfrogging in e-finance pointed out that the three countries with impressive

progress in information technology in this sense are Estonia, Republic of Korea and Brazil.

Creation of the world’s leading electronic banking systems has been done at a remarkably low

cost compared to other world-class internet banks .

In the European Union, 60 million people, representing 18 per cent of the adult population, use

online banking In France, the number of online banking accounts is recording an annual growth

rate of 75 per cent. However, Estonia is a country that has become a leader in Internet banking

(which now reaches 18 per cent of the population), not only among Eastern European countries

but in world rankings, through a combination of easyto- use software, free-of-charge transactions

and behavior changes resulting from the influence of the Nordic countries’ IT culture on Estonia.

A sector in which Latin America is seems to be performing better than in other industries is

online retail banking. Growth in this area has been driven by traditional banks, which have used

the online channel to generate customer loyalty and improve their operating margins. Two

Brazilian banks, Bradesco and Banco do Brasil, have thus achieved more than 4 million online

customers each. Mexico is another leader of Internet banking in Latin America. It adopted

legislation providing for the development of both E-Commerce and e-finance. In Mexico, the

number of online bank users more than tripled from 700,000 in 2000 to 2.4 million in 2001, and

it could reach 4.5 million in 2005 (E-Marketer 2002b). One reason for the success of Latin

American banks’ online ventures seems to be the attention they have paid to providing retail

customers with multiple ways to access their accounts (Internet, telephone, wireless). However,

given that the share of the total population that actually has a bank account is relatively small,

the expansion of Latin American online banking may be facing a bottleneck.

Compared with overall Internet usage estimated at 4.4 million in Australia, the major banks

together have attracted only 1.2 million to online banking.

The Internet is a global phenomenon and so is e-finance. Its deployment is not limited to

developed countries, and indeed some developing countries – such as India and the Republic of

65

Korea – are experiencing particularly strong growth in E-Banking. In Asia one of the most

impressive records has been achieved by the Republic of Korea. The Republic of Korea is

leading in online brokerage and in mobile banking. In South-East Asia Internet banking is also

developing rapidly in Thailand, Malaysia, and Singapore and to a lesser extent, in the

Philippines.

In Bangladesh there is a large gap between the computerization of foreign banks and that of local

commercial banks and as regards the state of their intra- and inter-branch online networks.

However, 75 per cent of local banks are planning to introduce E-Banking, which implies very

dynamic improvements.

Apart from North and South Africa the Sub Saharan Africa is the region that is seriously lagging

behind in Internet banking, although it is giving to the rest of the world the good example of

microfinance developments.

66

RESEARCH

METHODOLOGY

67

RESEARCH METHODOLOGY

Research is defined as human activity based on intellectual application in the investigation of

matter. The primary purpose for applied research is discovering, interpreting, and the

development of methods and systems for the advancement of human knowledge on a wide

variety of scientific matters of our world and the universe.

The term research is also used to describe an entire collection of information about a particular

subject.

Methodology is the method followed while conducting the study on a particular project.

Through this methodology a systematic study is conducted on the basis of which the basis of a

report is produced.

It is a written game plan for conducting Research. Research methodology has many dimensions.

It includes not only the research methods but also considers the logic behind the methods used in

the context of the study and explains why only a particular method or technique has been used. It

also helps to understand the assumptions underlying various techniques and by which they can

decide that certain techniques will be applicable to certain problems and other will not. Therefore

in order to solve a research problem, it is necessary to design a research methodology for the

problem as the some may differ from problem to problem.

Nature

The methodology adopted to achieve the project objective involved exploratory research &

descriptive research method. The information required for fulfilling the objective of study was

collected from various primary and secondary sources.

68

Type of research

This study is EXPLORATORY and DESCRIPTIVE in nature. It helps in breaking vague

problem into smaller and precise problem and emphasizes on discovering of new ideas and

insights. Exploratory research was conducted during the initial stage of the research process

which helped to refine the problem into researchable one. It has progressively narrowed the

scope of research topic.

Research design

Research design constitutes the blue print for the collection, measurement and analysis of data.

The present study seeks to identify the extent of preferences of E-Banking over traditional

banking among service class. The research design is exploratory in nature. The research has been

conducted on service class people within yamunanagar. For the selection of the sample,

convenient sampling method was adopted and an attempt has been made to include all the age

groups and gender within the service class.

Sources of data:

Following are the methods of sources of data:

Secondary data:

Articles on E-Banking taken from journals, magazines published from time to time.

Through internet.

Primary data:

Questionnaire was used to collect primary data from respondents. The questionnaire was

structured type and contained questions relating to different dimensions of e-banking preferences

among service class such as level of usage, factors influencing the usage of e-banking services,

benefits accruing to the users of e-banking services, problems encountered. An attempt was also

made to elicit reasons for its non-usage. The questions included in the questionnaire were open-

ended, dichotomous and offering multiple choices.

69

Sampling technique: The sampling technique used for judgment is CONVENIENCE AND

JUDGEMENT SAMPLING.

Sampling unit: It defines the target population that will be sampled i.e. it answers who is to be

surveyed. In this study, the sampling unit is the people of yamunanagar.

Sampling size: It indicates the numbers of people to be surveyed. Though large samples give

more reliable results than small samples but due to constraint of time and money, the sample size

was restricted to 100 respondents. The respondents belong to different income group and

profession.

Method of data collection: The survey method is used to collect the data. Various places of

Yamunanagar visited for the purpose of collection of data.

Research instrument:

The instrument used for gathering data was questionnaire. To get further insight in to the

research problem, interview regarding their buying practices too was made. This was done to

crosscheck the authenticity of the data provided. To supplement the primary data and to facilitate

the process of drawing inference, secondary data was collected from published sources like

magazines, journals, newspapers etc.

Tools and techniques of analysis:

The data so collected will be analyzed through the application of statistical techniques, such as

bar graphs and pie charts.

70

LITERATURE

REVIEW

71

Literature Review

Product and Technology group, ICICI Bank, in its paper “Corporate banking using

technology in transactions” it was inferred that Information Technology has

revolutionized the services and mode of services offered by the banks to their corporate

clients. The emergence of E-Banking has enabled the banks to offer real-time

transactions and integrate all customers’ related functions. Indian Banks are utilizing the

new technology to provide better technology and convenient access to its customers and

India is thus poised to for a huge growth in the world of electronic banking.

Chandana R, Unnithan, Paula M.C., Swatman in their research paper titled “E-

Banking Adaptions and Dot.Com viability: A comparison of Australian and Indian

experiences in the Banking sector” a comparative study of Australian and Indian

experiences in eBusiness was done, which seeks to identify the effectiveness of dot.coms

as indicators of eBusiness uptake and success on a sector-by-sector basis was undertaken.

It was concluded that the banking industry is now a very mature one and banks are being

forced to change rapidly as a result of open-market forces such as the threat of

competition, customer demand, and technological innovations such as the growth of the

Internet. E-Banking is a successful strategic weapon for banks to remain profitable in a

volatile, and competitive market place of today in both Indian and Australian Economies

despite the differences of IT usage.

G. Kannabiran and P.C. Narayan discuss in their article the experiences of a private-

sector bank in deploying Internet banking and eCommerce in India. Strategic alignment

of business and IT strategies, planning and implementation of e-banking initiatives, and

management of benefits have been captured, along with key contributions to

development.

Huggins points to the fact that traditional boundaries in banking are disappearing. Using

eBusiness methods, major retailers and telecom providers are starting to offer financial

services to their clients. Extending the value chain and offering versatile services seems

to be the key to retaining competitiveness in the sector. Attitudes are also shifting from

72

direct transactions to savings and investments, as the baby boomers reach their fortis and

fifties, and prepare for retirement.

Mario Martinez Guerreroin his paper titled “Profiling the adoption of Online banking

Services in the European Union” offers an empirical investigation on the adoption of

online banking services among European citizen. The use of e-banking services is

explained on the basis of socio-demographic and Internet –specific behavioral indicators.

The performed analyses provide support for the influence of country, age, profession and

several Internet behaviors on the use of E-banking.

The Indian Internet Banking Journey In 2001, a Reserve Bank of India survey

revealed that of 46 major banks operating in India, around 50% were either offering

Internet banking services at various levels or planned to in the near future. According to a

research report,( India Research, Kotak Securities, May 2000.) while in 2001, India's

Internet user base was an estimated 9 lakh; it was expected to reach 90 lakh by 2003.

Also, while only 1% of these Internet users utilized the Internet banking services in 1998,

the Internet banking user base increased to 16.7% by mid- 2000.

73

DATA

ANALYSIS

AND

INTERPRETATION

74

DATA ANALYSIS AND INTERPRETATION

Table 1.

Awareness of people regarding e-banking service provided by the bank while opening an

account

No. of Respondents Percentage

Fully aware 37 37%

Had an idea 46 46%

No idea 17 17%

Total 100 100%

Figure 1.

Awareness about e-banking services

37%

46%

17%

100%

Fully aware

Had an ideaNo idea

Total

Interepretation

As seen from Table 1, overall percentage of service class people having complete knowledge

about e-banking services provided by the bank while opening an account in it is 37%, those

having some idea about it is 46% and the percentage of people having no awareness of e-banking

services provided by the bank is 17%. It can reasonably, be concluded that nearly 85% of the

population is having awareness about e-banking services

75

Table 2.

Sources from which the respondents get the knowledge about the e-banking services

No. of Respondents Percentage

Personal Visit 15 15%

Executive from Bank 21 21%

Advertisements 34 34%

Friends /Relatives 26 26%

Others 2 2%

Figure 2

Interpretation

Table 2, indicates the percentage distribution of awareness avenues, the major are in favour of

advertisements, which score 34% among different avenues such as personal visit, executives of

the banks, advertisements and friend/relatives. While the least score is for personal visit and that

of other sources.

76

Sources of awareness about e-banking

15%

21%

34%

26%

2%

Personal VisitExecutive from BankAdvertisements Friends /Relatives Others

Table 3.

Awareness of E-Banking services

No. of Respondents Percentage

ATM 88 26.03%

Debit Card 60 17.75%

Credit Card 50 14.79%

Phone Banking 40 11.83%

Mobile Banking 50 14.79%

Internet Banking 50 14.79%

Total 338 100%

Figure 3

Relative awareness about different e-banking services

0.00%10.00%20.00%30.00%

ATM

Deb

itC

ard

Cre

dit

Car

d

Pho

neB

anki

ng

Mob

ileB

anki

ng

Inte

rnet

Ban

king

Series1

Interpretation

E-banking constitutes services provided in terms of ATMs, Debit Card, Credit Card, Phone

Banking, Mobile Banking, Internet Banking etc, of which the first six have been covered.

Amongst these ATM scores the largest used service status (26.03%) as indicated by table 3

figures. Close on the heels is Debit card (17.75%), Credit card (14.79%), while phone banking

lags behind by scoring the least ie.,11.83%.

77

Table 4

Users of E-banking services

No. of Respondents Percentage

Users 74 74%

Non Users 26 26%

Total 100 100%

Figure 4

Usage of e-banking

74%

26%

Users

Non Users

Interpretation

Table 4 shows that among those aware (which account for 83 in number) about 74 persons use

e-banking services, which is 74% of total population studied.

78

Table 5.

Representation of frequency of usage

Day

Wise

% Week

-wise

% Fort

ni-

ghtly

% Mon-

thly

% Infreq-

uently

%

ATM 4 36.36 31 55.3

6

13 37.14 11 25.58 9 13.85

Debit

Card

2 18.18 11 19.6

4

7 20 10 23.26 8 12.31

Credit

Card

1 9.09 5 8.93 6 17.14 6 13.95 18 27.69

Phone

Banking

0 0 2 3.57 3 8.57 7 16.28 13 20

Mobile

Banking

0 0 4 7.14 4 11.43 2 4.65 9 13.85

Internet

Banking

4 36.36 3 5.36 2 5.71 7 16.28 8 12.31

11 100 56 100 35 100 43 100 65 100

Figure 5

Frequency of usage of different e-banking services

0

10

20

30

40

50

60

70

Wise thly

Day Week-wise Fortni-ghtly Mon- Infreq-uently

Internet Banking

Mobile Banking

Phone Banking

Credit Card

Debit Card

ATM

79

Interpretation

To find out the level of usage amongst the service class, percentage has been calculated from the

total completely filled in questionnaires and the incomplete questionnaires were discarded.

The frequency of usage of ATM is highest which is evident from table 5, followed by debit

card..

Table 6.

Factors influencing the level of usage

StronglyMore than

averageAverage

Less than

average

Not

at allTotal

All time availability 56 8 11 1 3 79

Ease of use 32 22 7 2 1 64

Nearness 21 18 14 5 0 58

Security 12 10 13 4 1 40

Direct access 32 12 7 2 0 53

Friends/ Relatives 3 8 14 7 8 40

Status symbol 7 11 14 7 10 49

80

Figure6

Factors influencing level of usage

0102030405060708090

Not at all

Less thanaverageAverage

More thanaverageStrongly

Interpretation

A study of the factors, table 6, influencing the usage was made by listing out various factors

such as all time availability, ease of use, nearness etc., and from which it came to fore that

amongst the various factors all time availability is ranked as the major motivating factor,

followed by ease of use, direct access, nearness, security in decreasing order of importance.

Quite interestingly friends and relatives, status symbol scored the least motivating factors.

Table 7

Various benefits accruing from E-Banking services to its users

No. of Respondents Percentage

Time Saving 70 42.42%

Inexpensive 21 12.72%

Easy Processing 40 24.24%

81

Easy Fund Transfer 26 15.75%

Others 8 4.85%

Figure 7

Benefits of e-banking

TIME SAVING

INEXPENSIVE

EASY PROCESSING

EASY FUNDTRANSFEREMERGENCY SKINSAVINGOTHERS

Interpretation

When asked to list various benefits accruing from the usage of e-banking, time saving received

highest percentage score at 42.42% among different benefits such as time saving (42.42%),

inexpensive (12.72%), easy processing (24.24%), easy fund transfer(15.75%).

Quite interestingly, easy processing feature scored more than the inexpensiveness of the e-

banking services. The other benefits accruing to the people include ready availability of funds,

removal of middlemen and no rude customer relation executives.

Table 8

Problems identified by the users of E-Banking service

Factors No. of Respondents Percentage

a Time consuming 59 14.82%

b Insecurity 45 11.31%

c ATM out of order 62 15.58%

dAmount debited but

not withdrawn39 9.80%

82

eProblem of change

in mobile number42 10.555

f Password forgotten 54 14.57%

g Card misplaced 50 12.56%

h Card misuse 47 11.81%

Figure 8

Problems identified by the users of E-Banking services

010203040506070

Timeconsuming

Insecurity ATM out oforder

Amountdebited but

notwithdrawn

Problem ofchange in

mobilenumber

Passwordforgotten

Cardmisplaced

Cardmisuse

No. of Respondents

Interpretation

Most of the users face the problem of ATM out of order (15.58%), followed by time consuming

(14.82%), password forgotten (14.57%) and then otherproblems as card misplaced, card misuse,

insecurity, etc

Table 9

Reasons for not using E-Banking services as rated by the non users

FactorsHighly

important

More

than

average

Average

Less

than

average

Least

importantTotal

Weights 5 4 3 2 1

A No 19 8 22 6 22 77

83

need( Satisfied

with

traditional

banking)

B It seems like a

botheration7 0 9 16 30 62

C Insecurity 17 11 21 7 13 69

D No access to

internet/mobile9 5 13 10 16 53

E

Lack of

operational

knowledge

12 7 12 12 15 58

F Hidden costs 21 5 14 8 16 64

Figure 9

Reasons for not using E-Banking services

0102030405060708090

Wei

ghts

No

need

(S

atis

fied

with

tradi

tiona

lba

nkin

g)

It se

ems

like

abo

ther

atio

n

Inse

curit

y

No

acce

ss to

inte

rnet

/mob

ile

Lack

of

oper

atio

nal

know

ledg

e

Hid

den

cost

s

Highly important More than average Average Less than average Least important

Interpretation

From the non users, an attempt was made to elicit the reasons for its non usage. As indicated by

table 12, satisfaction with traditional banking was considered as prime de-motivating factor,

followed closely by the fear of insecurity, then ‘hidden cost’ factor, which suggested their

resistance to change, which to some extent can be countered by aggressive advertisement and

utilizing other modes of awareness dissemination as well.

84

FINDINGS

85

FINDINGS OF THE STUDY

The overall percentage of servicemen having complete knowledge about e-banking

services provided by the bank while opening an account in it is 37%, those having some

idea about it is 46% and the percentage of people have no awareness of e-banking

services provided by the bank is 17%. It can reasonably, be concluded that nearly 85% of

the population is having awareness about e-banking services.

The percentage distribution of awareness avenues, the major skewness is in favour of

advertisements, which score 34% among different avenues such as personal visit,

executives of the banks, advertisements and friend/relatives. While the least score is for

personal visit.

Among those aware (which account for 83 in number) about 74 persons use e-banking

services, which is 74% of total population studied.

E-banking constitutes services provided in terms of ATMs, Debit Card, Credit Card,

Phone Banking, Mobile Banking, Internet Banking etc, of which the first six have been

covered. Amongst these ATM scores the largest used service status (26.03%) Close on

the heels is Debit card (17.75%), Credit card (14.79%), while phone banking lags behind

by scoring the least ie.,11.83 .

To find out the level of usage amongst the service class, percentage has been calculated

from the total completely filled in questionnaires and the incomplete questionnaires were

discarded. The frequency of usage of ATM is highest followed by debit card..

A study of the factors, influencing the usage was made by listing out various factors such

as all time availability, ease of use, nearness etc., and amongst the various factors all

time availability is ranked as the major motivating factor, followed by ease of use, direct

access, nearness in decreasing order of importance. Quite interestingly friends and

relatives, status symbol scored the least motivating factors.

When asked to list various benefits accruing from the usage of e-banking, time saving

received highest percentage score at 42.42% among different benefits such as time saving

(42.42%), inexpensive (12.72%), easy processing (24.24%), easy fund

transfer(15.75%).Quite interestingly, easy processing feature scored more than the

inexpensiveness of the e-banking services. The other benefits accruing to the people

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include ready availability of funds, removal of middlemen and no rude customer relation

executives.

Among the users, various problems that are encountered while using e-banking services.

Card misuse and its misplace are major reasons that create hurdles in its usage, while

time consumption, accounting mistakes such as amount debited but not withdrawn and

change of mobile number seem to be the least bothering problems.

From the non users, an attempt was made to elicit the reasons for its non usage..

Satisfaction with traditional banking was considered as prime de-motivating factor,

followed closely by the fear of insecurity, then ‘hidden cost’ factor, which suggested

their resistance to change, which to some extent can be countered by aggressive

advertisement and utilizing other modes of awareness dissemination as well.

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SWOT ANALYSIS

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SWOT ANALYSIS

STRENGTHS :

It has an extensive distribution network comprising of 535 branches in 312 cities & one

international office in Dubai this provides a competitive edge over the competitors.

The Bank has a strong retail depository base & has more than million customers.

Bank has strong brand equity.

ISO 9001 certification for its depository & custody operations & for its backend

processing of retail operations & direct banking operation.

The bank is a market leader in cash settlement service for the major stock exchanges in

its country.

HDFC Bank is one of the largest private sector banks working in India.

It has a highly automated environment in terms of information technology &

communication system.

Infrastructure is one of the best in the country.

It has many innovative products like kids Advantage scheme, NRI services.

WEAKNESSES :

Account opening and delivery of cheque book take more time. Lack of availability of

different credit products like CC Limit, Bill discounting facilities.

Complicated terms and conditions of products, which is not easily understandable by the

layman.

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OPPORTUNITIES :

Branch expansion

Door step services

Greater liberalization is foreign ownership via FDI in Indian Pvt. Sector banks.

Infrastructure movements & better systems for trading & settlement in the Govt.

securities & foreign exchange markets.

THREATS :

The bank has started facing competition from players like SBI, PNB in the finance

market itself. This may reduce the profit margins in the future.

Some Pvt. Banks have 7 days banking.

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LIMITATIONS

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LIMITATIONS OF THE STUDY

Every research is conducted under some constraints and this research is not an exception.

Limitations of this study are as follows:-

1. There were several time constraints.

2. The study is limited to areas of yamunanagar only.

3. The sample size of only 100 was taken from the large population for the purpose of

study, so there can be difference between results of sample from total population.

4. The study is related to service class people only.

5. People were reluctant to go in to details because of their busy schedules.

6. Merely asking questions and recording answers may not always elicit the actual

information sought.

7. Due to continuous change in environment, what is relevant today may be irrelevant

tomorrow.

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CONCLUSION

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CONCLUSION

The usage of E-banking is all set to increase among the service class. The service class at the

moment is not using the services thoroughly due to various hurdling factors like insecurity and

fear of hidden costs etc. So banks should come forward with measures to reduce the

apprehensions of their customers through awareness campaigns and more meaningful

advertisements to make E-banking popular among all the age and income groups. Further, with

increasing consumer demands, banks have to constantly think of innovative customized services

to remain competitive. E-Banking is an innovative tool that is fast becoming a necessity. It is a

successful strategic weapon for banks to remain profitable in a volatile and competitive

marketplace of today.

In future, the availability of technology to ensure safety and privacy of e-transactions and the

RBI guidelines on various aspects of internet banking will definitely help in rapid growth of

internet banking in India.

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SUGGESTIONS

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SUGGESTIONS

Internet banking would drive us into an age of creative destruction due to non-physical

exchange, complete transparency giving rise to perfectly electronic market place and customer

supremacy. The question to be asked right now is "What the Indian Banks should do" Whatever

is the strategy chosen and options adopted, certain key parameters would determine the bank's

success on web:

For long-term success, a bank may follow:

Adopting a webs mindset

Catching on the first mover's advantage

Recognizing the core competencies

Ability to deal multiplicity with simplicity

Senior Management initiative to transform the organization from inward to

outward looking

Aligning roles and value propositions with the customer segments

Redesigning optimal channel portfolio

Acquiring new capabilities through strategic alliances.

The above can be implemented in four steps:

Familiarizing the customer to new environment by demo version of software on bank's

web site. This should contain tour through the features which are to be included. It will

enable users to give suggestions for improvements, which can be incorporated in later

versions wherever feasible.

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Second phase provides services such as account information and balances, statement of

account, transaction tracking, mailbox, check book issue, stop payment, financial and

customized information.

The third phase may include additional services such as fund transfers, DD issue,

standing instructions, opening fixed deposits, intimation of loss of ATM cards.

The last step should include advanced corporate banking services like third party

payments, utility bill payments, establishment of L/Cs, Cash Management Services etc.

Enhanced plan for the customers in future can include requests for demand drafts and pay

orders and many more to bring in the ultimate in banking convenience.

Also if proper training should be given to customer by the bank employs to open an account

will be beneficial secondly the website should be made friendlier from where the first time

customers can directly make and access there accounts.

We can see the time is changing and we he passage of time people are accepting technology

there is still a lot of perceptual blocking which hampers the growth it’s the normal tendency

of a human not to have changes work on the old track, that’s also one of the reason for the

slow acceptance of internet banking accounts.

Give proper training to customers for using i-banking

Create a trust in mind of customers towards security of there accounts

Provide a platform from where the customers can access different accounts at single

time without extra charge.

Make there sites more users friendly.

Customers should be motivated to use I banking facilities more.

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BIBLIOGRAPHY

BOOKS

Malhotra, T. D., “ Electronic Banking and Information Technology in Banks” Sultan

Chand and Sons, New Delhi,2008.

S.S Kaptan & N.S. Choubey. “Indian Banking in Electronic Era”

Internet Banking in India-Part I- Dr A. K. Mishra

WEBSITES

www.banknetindia.com

www.bharatbook.com

www.hdfcbank.com

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Annexure

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QUESTIONAIRE

Dear Respondent, We are conducting a research study of “E-banking Preferences among people in Yamunanagar”. We will appreciate your cooperation in this regard by filling up the questionnaire carefully. All the information provided by you will be kept confidential.

1. In which banks do you have your account?a. State Bank of India b. HDFC Bankc. Punjab National Bank d. ICICI Banke. State Bank of Patiala f. Canara Bank g.

Bank of India h. Oriental Bank of Commerce i. Any other, Please Specify

i. ---------------------ii. ---------------------iii. ---------------------

2. While opening up the account, were you aware of E-banking services provided by your bank?

a. Fully aware b. Had an idea c. No

3. If answer to question no.2 is c, how did you get to know about E-banking services of your bank?

a. Personal visitb. Executive from the bankc. Advertisementsd. Friends/ Relatives

4. If answer to question no.2 is a or b, which of the following E-banking services are you aware of?

e. ATMf. Debit Cardg. Credit Cardh. Phone bankingi. Mobile bankingj. Internet banking

5. Do you use E-banking services? a. Yes b. No

(If No, answer question no. 10 directly).

6. If answer to question no.5 is yes, how frequently do you use each of the following services?

100

Factors Once in a day

Once in a week

Once in a fortnight

Once in a month Infrequently

a ATMb Debit Cardc Credit Cardd Phone Bankinge Mobile Bankingf Internet Banking

7. Which of the following factors influence you the most to use E-banking services?

Factors Strongly More than average average Less than

Average Not at all

a All time availabilityb Ease of usec Nearnessd Security e Direct accessf Friends/ Relativesg Status symbol

8. Which of the following benefits accrue to you, while using E-banking services?a. Time saving b. Inexpensivec. Easy processing d. d. Easy fund transfere. Any other, please specify__________________________________________9. Rate the problems identified while using E-banking services?

Factors Highly considered Major Average Minor Ignorable

a Time consumingb Insecurityc ATM out of orderd Amount debited but not

withdrawne Problem of change in mobile

numberf Password forgotteng Card misplacedh Misuse of card

10. Kindly rate the following reasons enlisted for not using the E-banking services?

Factors Highly important

More than average Average Less than

averageLeast

importanta No need( Satisfied with

traditional banking)b It seems like a botherationc Insecurityd No access to internet/mobilee Lack of operational

knowledgef Hidden costs

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Any other, please specify__________________________________________11. To what extent are you satisfied with your Banks’ E-banking services?

b. Highly Satisfied ___________

c. Satisfied _________

d. Neutral ___________

e. Dissatisfied ___________

f. Highly dissatisfied ___________

12. What other services you would like to have through E-banking?____________________________________________________________

____________________________________________________________

Respondent’s Profile

Name : ________________ Income level per month

Age : ________________ Less than Rs. 10,000

Gender (M/F) : ________________ Rs.10,000 to Rs.20,000

Profession : ________________ Rs.20,000 to Rs.30,000

Organisation : ________________ More than Rs.30,000

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