seminar code
06-08-2014, 03:13 PM
Impact of Universal Banking on the operation of banks”
[attachment=66664]
introduction
The banking scenario in India has been changing at fast pace from being just the borrowers and lenders traditionally, the focus has shifted to more differentiated and customized product/service provider from regulation to liberalization in the year 1991, from planned economy to market.
The Indian banking has come a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending). The stalwarts of India's financial community nodded their heads sagaciously when Prime Minister Manmohan Singh said in a speech: "If there is one aspect in which we can confidentially assert that India is ahead of China, it is in the robustness and soundness of our banking system." Indian banks have been rated higher than Chinese banks by international rating agency Standard & Poor's.
The competition heated up with the entry of private and foreign banks deregulation and globalization resulted in increased competition that refined the traditional way of doing business. They have realized the importance of a customer centric approach, brand building and IT enabled solutions. In the fierce battle for market share and mind share, the most potent weapon is a strong, well recognized and trusted brand name. Brands attract and convince people that they will get what is promised. Banking today has transformed into a technology intensive and customer friendly model with a focus on convenience. The companies have redoubled their efforts to woo the customers and establish themselves firmly in the market. It is no longer an option for a company to provide good customer service, it is expected.
HISTORY OF BANKING IN INDIA
Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India.Not long ago, an account holder had to wait for hours at the bank counters for
getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money has become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases.
BANKING STRUCTURE IN INDIA
In today’s dynamic world banks are inevitable for the development of a country. Banks play a pivotal role in enhancing each and every sector. They have helped bring a draw of development on the world’s horizon and developing country like India is no exception.
Banks fulfills the role of a financial intermediary. This means that it acts as a vehicle for moving finance from those who have surplus money to (however temporarily) those who have deficit. In everyday branch terms the banks channel funds from depositors whose accounts are in credit to borrowers who are in debit.
Without the intermediary of the banks both their depositors and their borrowers would have to contact each other directly. This can and does happen of course. This is what has lead to the very foundation of financial institution like banks.
Before few decades there existed some influential people who used to land money. But a substantially high rate of interest was charged which made borrowing of money out of the reach of the majority of the people so there arose a need for a financial intermediate.
The Bank have developed their roles to such an extent that a direct contact between the depositors and borrowers in now known as disintermediation.
Banking industry has always revolved around the traditional function of taking deposits, money transfer and making advances. Those three are closely related to each other, the objective being to lend money, which is the profitable activity of the three. Taking deposits generates funds for lending and money transfer services are necessary for the attention of deposits. The Bank have introduced progressively more sophisticated versions of these services and have diversified introduction in numerable areas of activity not directly relating to this traditional trinity
Supervisory Functions
In addition to its traditional central functions, the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and cooperative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction and liquidation. The RBI is authorized to carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalization of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realization of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation.
CHALLENGES IN BANKING SECTOR
After the nationalization of Banks, increasing adoption of technology, continuous mergers in the banking, modernizing backroom operation in the banks and competition pave the path of growth of Indian banking. By the mid-1990, the near monopoly of public sector banks faced the competition by the more customer-focused private sector entrants. This competition forced older and nationalized banks to revitalize their operations.
Year 1992 was the golden period of Indian Banking system due to the scam-tainted stock market. Large proportion of household saving moved into the banking system, which recorded an annual growth of 20 percent in deposit.
But along with the continuous growth and modernization, there are several challenges confronting the banking sector. The main challenges facing the banking sector is the deployment of funds in quality assets and the management of revenues and costs. The problem of NPA (non- performing assets), overall credit recovery system still exist. There is a continuous reforms and modernization is in process. A number of recommendations of two Narasimham committees have been implemented.
Foreign Banks are focusing on corporate and on the middle class consumer and providing them better service. Nationalized Banks are also attempting to get on the path of automation. Strong Banks will acquire the weaker banks. The member of foreign banks operating in India has increased significantly and their share of total assets has also increased. In the year 2001 estimated foreign bank account for 14.7 percent of the total net profit of commercial banking sector in India.
The Reserve Bank of India’s recently released report on Trend and Progress of Banking (2003-04) once again highlights the major issues in Indian banking in the light of increasing global competition. The financial sector reforms have to go hand in hand with the overall economic reform process.
To achieve this, a number of suggestions have been put forward from time to time. Since the banks have been exposed to competition at home and also at global level, Indian banks are taking steps under the overall regulatory and supervisory framework of
Universal banking in India
In India Development financial institutions (DFIs) and refinancing institutions (RFIs) were meeting specific sectoral needs and also providing long-term resources at concessional terms, while the commercial banks in general, by and large, confined themselves to the core banking functions of accepting deposits and providing working capital finance to industry, trade and agriculture. Consequent to the liberalisation and deregulation of financial sector, there has been blurring of distinction between the commercial banking and investment banking.
Reserve Bank of India constituted on December 8, 1997, a Working Group under the Chairmanship of Shri S.H. Khan to bring about greater clarity in the respective roles of banks and financial institutions for greater harmonisation of facilities and obligations . Also report of the Committee on Banking Sector Reforms or Narasimham Committee (NC) has major bearing on the issues considered by the Khan Working Group.
The issue of universal banking resurfaced in Year 2000, when ICICI gave a presentation to RBI to discuss the time frame and possible options for transforming itself into an universal bank. Reserve Bank of India also spelt out to Parliamentary Standing Committee on Finance, its proposed policy for universal banking, including a case-by-case approach towards allowing domestic financial institutions to become universal banks.
How to Operate DEMAT ACCOUNT?
One needs to open a Demat Account with any of the branches of the bank. After opening an account with any bank, by filling the demat request form one can handover the securities. The rest will be taken care by the bank and the customer will receive credit of shares as soon as it is confirmed by the Company/Register and Transfer Agent. There is no physical movement of share certification any more. Any buying or selling of shares is done via electronic transfers.
1) If the investor wants to sell his shares, he has to place an order with his broker and give a “Delivery Instruction” to his DP (Depository Participant). The DP will debit hi s account with the number of shares sold by him.
2) If one wants to buy shares, he has to inform his broker about his Depository Account Number so that the shares bought by him are credited in to his account.
3) Payment for the electronic shares bought or sold is to be made in the same way as in the case of physical securities.
IMPACT OF UNIVERSAL BANKING
Since the early 1990s, banking systems worldwide have been going through a
rapid transformation. Mergers, amalgamations and acquisitions have been undertaken on a large scale in order to gain size and to focus more sharply on competitive strengths. This consolidation has produced financial conglomerates that are expected to maximize economies of scale and scope by ‘bundling’ the production of financial services. The general trend has been towards downstream universal banking where banks have undertaken traditionally non-banking activities such as investment banking, insurance, mortgage financing, securitization, and particularly, insurance. Upstream linkages, where non-banks undertake banking business, are also on the increase. The global experience can be segregated into broadly three models. There is the Swedish or Hong Kong type model in which the banking corporate engages in in-house activities associated with banking. In Germany and the UK, certain types of activities are required to be carried out by separate subsidiaries. In the US type model, there is a holding company structure and separately capitalized subsidiaries.
In India, the first impulses for a more diversified financial intermediation were
witnessed in the 1980s and 1990s when banks were allowed to undertake leasing,
investment banking, mutual funds, factoring, hire-purchase activities through separate
subsidiaries. By the mid-1990s, all restrictions on project financing were removed and
banks were allowed to undertake several activities in-house. In the recent period, the
focus is on Development Financial Institutions (DFIs), which have been allowed to set up banking subsidiaries and to enter the insurance business along with banks. DFIs
AREA OF RESEARCH
The banking industry in India has undergone a sea of change ever since the economic form process was initiated. There is no doubt that the banking industry continues to play a cardinal role in spread heading the economic activity of the country. From an industry almost monopolized by the nationalized bank till the 90's it has now emerged as a conglomerate of nationalized, private and foreign banks setting new trends in the way banking is carried out. Banking Industry which is basically my concern industry around which my project has to be revolved is really a very complex industry. And to work for this was really a complex and
INTRODUCTION TO RESEARCH WORK
This report is an attempt to study the Impact of universal banking on the operations of banks. Ever since the financial sector reforms were introduced in early 90’s the banking sector saw the emergence of new generation private sector banks. These banks gained at most popularity as they have technology edge and better business models when compared to public sector banks and the most important thing is they are able to attract more volumes simply because they meet their customers requirements under one roof. If the newer players can do that then why can’t the bigger players like the Financial Institutions (FIs) try their hands on it? Here comes the concept of universal banking, its emergence, merits and related issues.
Business boom in universal banks, and entities like SBI, ICICI, HDFC and
Kotak Mahindra have all become one-stop departmental stores for
Mutual funds, loans, insurance and much else (see chart).
CONCLUSION
The banking scenario has changed drastically. The changes which have taken place in the last ten years are more than the changes took place in last fifty years because of the institutionalisation, liberalisation, globalisation and automation in the banking industry.
Universal banking is the fastest growing sector of the banking industry with the key success by attending directly the needs of the end customers is having glorious future in coming years.
universal banking sector as a whole is facing a lot of competition ever since financial sector reforms were started in the country. Walk-in business is a thing of past and banks are now on their toes to capture business. Banks therefore, are now competing for increasing their business.
There is a need for constant innovation in universal banking. This requires product development and differentiation, micro-planning, marketing, prudent pricing, customization, technological upgradation, home / electronic / mobile banking, effective risk management and asset liability management techniques.
However, the kind of technology used and the efficiency of operations would provide the much needed competitive edge for success in universal banking business. Furthermore, in all these customer interest is of chief importance. The banking sector in India is representing this and I do hope they would continue to succeed in this traded path.
[attachment=66664]
introduction
The banking scenario in India has been changing at fast pace from being just the borrowers and lenders traditionally, the focus has shifted to more differentiated and customized product/service provider from regulation to liberalization in the year 1991, from planned economy to market.
The Indian banking has come a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending). The stalwarts of India's financial community nodded their heads sagaciously when Prime Minister Manmohan Singh said in a speech: "If there is one aspect in which we can confidentially assert that India is ahead of China, it is in the robustness and soundness of our banking system." Indian banks have been rated higher than Chinese banks by international rating agency Standard & Poor's.
The competition heated up with the entry of private and foreign banks deregulation and globalization resulted in increased competition that refined the traditional way of doing business. They have realized the importance of a customer centric approach, brand building and IT enabled solutions. In the fierce battle for market share and mind share, the most potent weapon is a strong, well recognized and trusted brand name. Brands attract and convince people that they will get what is promised. Banking today has transformed into a technology intensive and customer friendly model with a focus on convenience. The companies have redoubled their efforts to woo the customers and establish themselves firmly in the market. It is no longer an option for a company to provide good customer service, it is expected.
HISTORY OF BANKING IN INDIA
Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India.Not long ago, an account holder had to wait for hours at the bank counters for
getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money has become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases.
BANKING STRUCTURE IN INDIA
In today’s dynamic world banks are inevitable for the development of a country. Banks play a pivotal role in enhancing each and every sector. They have helped bring a draw of development on the world’s horizon and developing country like India is no exception.
Banks fulfills the role of a financial intermediary. This means that it acts as a vehicle for moving finance from those who have surplus money to (however temporarily) those who have deficit. In everyday branch terms the banks channel funds from depositors whose accounts are in credit to borrowers who are in debit.
Without the intermediary of the banks both their depositors and their borrowers would have to contact each other directly. This can and does happen of course. This is what has lead to the very foundation of financial institution like banks.
Before few decades there existed some influential people who used to land money. But a substantially high rate of interest was charged which made borrowing of money out of the reach of the majority of the people so there arose a need for a financial intermediate.
The Bank have developed their roles to such an extent that a direct contact between the depositors and borrowers in now known as disintermediation.
Banking industry has always revolved around the traditional function of taking deposits, money transfer and making advances. Those three are closely related to each other, the objective being to lend money, which is the profitable activity of the three. Taking deposits generates funds for lending and money transfer services are necessary for the attention of deposits. The Bank have introduced progressively more sophisticated versions of these services and have diversified introduction in numerable areas of activity not directly relating to this traditional trinity
Supervisory Functions
In addition to its traditional central functions, the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and cooperative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction and liquidation. The RBI is authorized to carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalization of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realization of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation.
CHALLENGES IN BANKING SECTOR
After the nationalization of Banks, increasing adoption of technology, continuous mergers in the banking, modernizing backroom operation in the banks and competition pave the path of growth of Indian banking. By the mid-1990, the near monopoly of public sector banks faced the competition by the more customer-focused private sector entrants. This competition forced older and nationalized banks to revitalize their operations.
Year 1992 was the golden period of Indian Banking system due to the scam-tainted stock market. Large proportion of household saving moved into the banking system, which recorded an annual growth of 20 percent in deposit.
But along with the continuous growth and modernization, there are several challenges confronting the banking sector. The main challenges facing the banking sector is the deployment of funds in quality assets and the management of revenues and costs. The problem of NPA (non- performing assets), overall credit recovery system still exist. There is a continuous reforms and modernization is in process. A number of recommendations of two Narasimham committees have been implemented.
Foreign Banks are focusing on corporate and on the middle class consumer and providing them better service. Nationalized Banks are also attempting to get on the path of automation. Strong Banks will acquire the weaker banks. The member of foreign banks operating in India has increased significantly and their share of total assets has also increased. In the year 2001 estimated foreign bank account for 14.7 percent of the total net profit of commercial banking sector in India.
The Reserve Bank of India’s recently released report on Trend and Progress of Banking (2003-04) once again highlights the major issues in Indian banking in the light of increasing global competition. The financial sector reforms have to go hand in hand with the overall economic reform process.
To achieve this, a number of suggestions have been put forward from time to time. Since the banks have been exposed to competition at home and also at global level, Indian banks are taking steps under the overall regulatory and supervisory framework of
Universal banking in India
In India Development financial institutions (DFIs) and refinancing institutions (RFIs) were meeting specific sectoral needs and also providing long-term resources at concessional terms, while the commercial banks in general, by and large, confined themselves to the core banking functions of accepting deposits and providing working capital finance to industry, trade and agriculture. Consequent to the liberalisation and deregulation of financial sector, there has been blurring of distinction between the commercial banking and investment banking.
Reserve Bank of India constituted on December 8, 1997, a Working Group under the Chairmanship of Shri S.H. Khan to bring about greater clarity in the respective roles of banks and financial institutions for greater harmonisation of facilities and obligations . Also report of the Committee on Banking Sector Reforms or Narasimham Committee (NC) has major bearing on the issues considered by the Khan Working Group.
The issue of universal banking resurfaced in Year 2000, when ICICI gave a presentation to RBI to discuss the time frame and possible options for transforming itself into an universal bank. Reserve Bank of India also spelt out to Parliamentary Standing Committee on Finance, its proposed policy for universal banking, including a case-by-case approach towards allowing domestic financial institutions to become universal banks.
How to Operate DEMAT ACCOUNT?
One needs to open a Demat Account with any of the branches of the bank. After opening an account with any bank, by filling the demat request form one can handover the securities. The rest will be taken care by the bank and the customer will receive credit of shares as soon as it is confirmed by the Company/Register and Transfer Agent. There is no physical movement of share certification any more. Any buying or selling of shares is done via electronic transfers.
1) If the investor wants to sell his shares, he has to place an order with his broker and give a “Delivery Instruction” to his DP (Depository Participant). The DP will debit hi s account with the number of shares sold by him.
2) If one wants to buy shares, he has to inform his broker about his Depository Account Number so that the shares bought by him are credited in to his account.
3) Payment for the electronic shares bought or sold is to be made in the same way as in the case of physical securities.
IMPACT OF UNIVERSAL BANKING
Since the early 1990s, banking systems worldwide have been going through a
rapid transformation. Mergers, amalgamations and acquisitions have been undertaken on a large scale in order to gain size and to focus more sharply on competitive strengths. This consolidation has produced financial conglomerates that are expected to maximize economies of scale and scope by ‘bundling’ the production of financial services. The general trend has been towards downstream universal banking where banks have undertaken traditionally non-banking activities such as investment banking, insurance, mortgage financing, securitization, and particularly, insurance. Upstream linkages, where non-banks undertake banking business, are also on the increase. The global experience can be segregated into broadly three models. There is the Swedish or Hong Kong type model in which the banking corporate engages in in-house activities associated with banking. In Germany and the UK, certain types of activities are required to be carried out by separate subsidiaries. In the US type model, there is a holding company structure and separately capitalized subsidiaries.
In India, the first impulses for a more diversified financial intermediation were
witnessed in the 1980s and 1990s when banks were allowed to undertake leasing,
investment banking, mutual funds, factoring, hire-purchase activities through separate
subsidiaries. By the mid-1990s, all restrictions on project financing were removed and
banks were allowed to undertake several activities in-house. In the recent period, the
focus is on Development Financial Institutions (DFIs), which have been allowed to set up banking subsidiaries and to enter the insurance business along with banks. DFIs
AREA OF RESEARCH
The banking industry in India has undergone a sea of change ever since the economic form process was initiated. There is no doubt that the banking industry continues to play a cardinal role in spread heading the economic activity of the country. From an industry almost monopolized by the nationalized bank till the 90's it has now emerged as a conglomerate of nationalized, private and foreign banks setting new trends in the way banking is carried out. Banking Industry which is basically my concern industry around which my project has to be revolved is really a very complex industry. And to work for this was really a complex and
INTRODUCTION TO RESEARCH WORK
This report is an attempt to study the Impact of universal banking on the operations of banks. Ever since the financial sector reforms were introduced in early 90’s the banking sector saw the emergence of new generation private sector banks. These banks gained at most popularity as they have technology edge and better business models when compared to public sector banks and the most important thing is they are able to attract more volumes simply because they meet their customers requirements under one roof. If the newer players can do that then why can’t the bigger players like the Financial Institutions (FIs) try their hands on it? Here comes the concept of universal banking, its emergence, merits and related issues.
Business boom in universal banks, and entities like SBI, ICICI, HDFC and
Kotak Mahindra have all become one-stop departmental stores for
Mutual funds, loans, insurance and much else (see chart).
CONCLUSION
The banking scenario has changed drastically. The changes which have taken place in the last ten years are more than the changes took place in last fifty years because of the institutionalisation, liberalisation, globalisation and automation in the banking industry.
Universal banking is the fastest growing sector of the banking industry with the key success by attending directly the needs of the end customers is having glorious future in coming years.
universal banking sector as a whole is facing a lot of competition ever since financial sector reforms were started in the country. Walk-in business is a thing of past and banks are now on their toes to capture business. Banks therefore, are now competing for increasing their business.
There is a need for constant innovation in universal banking. This requires product development and differentiation, micro-planning, marketing, prudent pricing, customization, technological upgradation, home / electronic / mobile banking, effective risk management and asset liability management techniques.
However, the kind of technology used and the efficiency of operations would provide the much needed competitive edge for success in universal banking business. Furthermore, in all these customer interest is of chief importance. The banking sector in India is representing this and I do hope they would continue to succeed in this traded path.