BANKING

28 FACTS FOR YOU

NOVEMBER 2013
BY: B. RAMACHANDRAN
E-GENERATION OF BANKING IN INDIA
As the saying goes, change is the only certainty. And it is this change that would govern
the banking industry, which is graduating from branch banking to channel banking.
T
he transformation of In-
dian banks in the last
decade has been phenom-
enalfrom local branch
banking to global pres-
ence and anywhere anytime bank-
ing. Over the last decade, the size
of the banking industry has grown
by 7.5 times. It is a huge change
for banks to maintain and keep the
vast network operational. Technol-
ogy has brought about a complete
paradigm shift in the functioning of
banks and delivery of banking ser-
vices. The growth of the Internet,
mobiles and communication technol-
ogy has added a different dimension
to banking.
Banks are offering several value-
added services through their elec-
tronic channels such as tax collec-
tions, trading, bill payments, and
viewing demat accounts, etc. Certain
services, such as prepaid mobile re-
charge, have become extremely pop-
ular among customers.
Changing customer preferences,
mobile and Internet penetration,
rising popularity of credit and debit
cards, growth in disposable income
and spend, as well as new technology
initiatives have bolstered the pay-
ments landscape in our country. It
is evident that electronic payments
will become increasingly popular as
a delivery mechanism.
Evolution of e-banking
In India, e-banking is of recent
origin. The traditional model for
banking has been through branch
banking. However, banks have come
a long way from branch banking to
e-banking.
Banks in India currently of-
fers fully transactional websites
to their customers. The customers
can conduct a variety of transactions
through the Internet banking facili-
ty, which includes account summary,
details of historical banking transac-
tions, funds transfer, etc.
RBIs 2012-2015 vision is to
proactively encourage electronic pay-
ment systems for ushering in a less-
cash society in India and to ensure
payment and settlement systems in
the country are safe, efficient, inter-
operable, authorised, accessible, in-
clusive and compliant with interna-
tional standards. In the words of our
former President APJ Abdul Kalam,
A vision is not a project report or a
plan target. It is an articulation of
the desired and results in broader
terms.
Modes of e-banking
The avenues of banking that
have opened up and are becoming
popular include:
1. Automated teller machines
(ATMs)
2. Internet banking
3. Mobile banking
4. Electronic clearing services
5. Electronic clearing cards
6. Cards: debit/credit/prepaid/
virtual
BANKING
NOVEMBER 2013

FACTS FOR YOU 29

7. Member establishments
8. Door-step banking
9. Electronic fund transfer
Benefits of e-banking
Benefits of e-banking obviously
are convenience, 247 service, funds
management, reducing branch load,
cost saving, revenue generation, bet-
ter brand image, and so on.
Indian banking industry has made
substantial investments in technolo-
gy in the form of core banking system
(CBS) implementation, networking
all branches, and also on electronic
payment platforms like debit cards,
credit cards, ATM network, POS
network, real-time gross settlement
(RTGS), national electronic funds
transfer (NEFT), electronic clear-
ing services (ECS) for both debit and
credit, and cheque truncation system
(CTS). The industry is of course ben-
efitting from such investments.
Moodys Analytics (Feb. 2013)
opined that, migration to electronic
payments, debit and credit card us-
age contributed $983 billion to the
global economy between 2008 and
2012. It found that electronic pay-
ments contributed to a 0.8 per cent
increase in GDP in emerging mar-
kets and a 0.3 per cent increase in
GDP in developed markets.
One way to measure this positive
effect is that, a $983 billion increase
in GDP, cumulatively, is equivalent
to 1.9 million new jobs globally. Re-
port went on further to state that the
growth in the use of electronic pay-
ment products, such as credit and
debit cards, added $ 1.5 billion to the
GDP of India.
The prospects for electronic pay-
ments growth look bright as the
government is increasingly using
technology to aid financial inclusion
efforts and improve financial access.
Challenges in adoption
E-banking is facing the following
challenges in Indian banking indus-
try:
1. The most serious threat faced
by e-banking is that, it may pose
safety issues and may not be secure
all the time. There may also be loss
of data due to technical faults.
2. There is lack of proper infra-
structure for the installation of e-
delivery channels.
3. The acceptance of e-banking is
very less in an Indian market where
70 per cent population resides in ru-
ral areas.
4. Consolidation and deregula-
tion are creating opportunities and
challenges which were never seen
before. Banks are experiencing con-
solidation on a massive scale, driven
by technology and regulatory chang-
es in the market place, and the need
to maximise the value of the custom-
er offerings.
In addition, convergence of ser-
vice offerings continues throughout
the industry. As per US research
agency Gartners prediction in 2005,
India will see an unprecedented
change in the structure of the finan-
cial services sector.
5. Extensive use of modern tech-
nology and pressure for innovation
has necessitated drastic change in
the age-wage and competence pro-
file of human resources in the bank-
ing industry.
6. Cyber crimes are becoming
a reality and need to be addressed
through strong legal mechanisms.
Enterprises risk
management (ERM)
ERM is the process of managing
all of a corporations risks within in-
tegrated framework. The benefit of
ERM is that, a comprehensive pro-
gramme for managing risk allows
the business to achieve its ideal bal-
ance of risk and return.
It has gained impetus from regu-
lations, such as Basel II, Sarbanes-
Oxley Act (SOX), and Solvency. It
also has gained momentum from
adverse market events. Further, an
increasingly knowledgeable commu-
nity has benefitted from increasingly
sophisticated tools to manage risk.
The modern era can be called an
era of E-World where things are
done at the speed of thought, thus
the real change for banks would de-
pend on anticipating the demands of
the new age and providing sustain-
able solutions. The success of ERM
will depend upon the development of
a robust and flexible infrastructure.
Epilogue
The rapid advancement in elec-
tronic distribution channels has
produced tremendous changes in the
banking industry in recent times.
With an increasing rate of change in
technology, competition among play-
ers and consumer needs, the prolif-
eration of, and rapid advances in,
technology-based systems, especial-
ly, those related to the Internet, are
leading to fundamental changes in
how banks interact with customers.
E-banking has become the self-
service delivery channel that allows
banks to provide information and of-
fer services to their customers with
more convenience via the Web ser-
vices technology.
End note
While banks have succeeded in
leveraging available technology and
provide alternate avenues to custom-
ers for banking services, the chal-
lenge it faces today is optimising the
usage of these channels. The alter-
nate channels have greatly reduced
the transactions costs for the banks.
But banks can realise the full benefit
of the roll out of alternate channels
only if there is a perceptible increase
in the usage by customers.
The author retired as assistant regional
manager from Central Bank of India,
Madurai, Tamil Nadu