Banking system

JES COLLEGE OF COMMARCE AND

SCIENCE
PROJECT ON
“MODERNISATION IN BANKING SYSTEM
IN INDIA “

SUBMITTED BY
FIRDOUS SHAIKH
T.Y. BAF
JES COLLEGE

SUBMITTED TO
UNIVERSITY OF MUMBAI ACEDEMIC
YEAR 2023- 2024
 ACKNOWLEDGEMENT

We are glad to have such a great opportunity

to present our project on the topic of
Modernization in Banking System in India
which has given us immense knowledge. We
are grateful to Prof Dr Prashant H Shelar
for all his guidance and assistance
"NO ENDEAVOURACHIEVE SUCCESS WITHOUT
THE ADVICE AND CO-0PERATION OF THE
OTHERS"
 INDEX

SR NO Topic

1. HISTORY
2. POST INDEPENDENCE
3. NATIONALISATION
4. LIBERALISATION
5. EVOLUTION
6. INTRODUCTION
7. BANKING TECHNOLOGIES
•ONLINE BANKING ATM ELECTRONIC FUND
TRANSFER
• ELECTRONIC CLEARING SERVICE CREDIT CARDS
REAL TIME GROSS SETTLEMENT
• CORE BANKING MOBILE BANKING VERY SMALL
APERTURE TERMINAL LASER(DEBIT CARD)
ELECTRONIC COMMERCE TELE BANKING
8. CHALLENGES AHEAD
9. CASE STUDY
10. CONCLUSION
11. WEBLIOGRAPHY
SUMMARY

• In the organizational context, innovation may be linked to

performance and growth through improvements in
efficiency, productivity, quality, competitive positioning,
market share, etc. AI organizations can inno vate, including
for example hospitals, universities, and local governments.
Over the last three decades the role of banking in the
process of financial intermediation has been undergoing a
profound transformation, owing to changes in the global
financial system. It is now clear that a thriving and vibrant
banking system requires a well developed financial
structure with multiple intermediaries operating in markets
with different risk profiles. Taking the banking industry to
the heights of international excellence will require a
combination of new technologies, better processes of credit
and risk appraisal, treasury management, product
diversification, internal control and external regulations and
not the least, human resources. Fortunately., we have a
comparative advantage in almost all these areas. Our
professionals are at the forefront of technological change
and financial developments all over the world. It is time to
harness these resources for development of Indian banking
in the new century.
HISTORY

• The first banks were probably the religious temples of

the ancient world, and were probably established in
the third millennium B.C. Banks probably predated
the invention of money. Deposits initially consisted of
grain and later other goods including cattle,
agricultural implements, and eventually precious
metals such as gold, in the form of cash-to-carry
compressed plates. Temples and palaces were the
safest places to store gold as they were constantly
attended and well built. As sacred places, temples
presented an extra deterrent to would-be thieves.
There are extant records of loans from the 18th
century BC in Babylon that were made by temple
priests/monks to merchants. Download
BANKING IN INDIA

• RESERVE BANK OF INDIA Central Banking in India

1)Commercial bank
2)Cooperatives
• Structure of the organized banking sector in India.
Number of banks are in brackets. Banking in India
originated in the last decades of the I8th century. The
first banks were The General Bank of India which
started in 1786, and the Bank of Hindustan, both of
which are now defunct. The oldest bank in existence
in India is the State Bank of India, which originated in
the Bank of Calcutta in June 1806, which almost
immediately became the Bankof Bengal. This was one
of the three presidency banks, the other two being
the Bank of Bombay.
and the Bank of Madras, all three of which were
established under charters from the British East India
Company. For many years the Presidency banks acted
as quasi-central banks, as did their successors. The
three banks merged in 1921 to form the Imperial
Bank of India, which, upon India's independence,
became the State Bank of India. Indian merchants in
Calcutta established the Union Bank in 1839, but it
failed in 1848 as a consequence of the economic
crisis of I848-49’
The Allahabad Bank, established in 1865 and still
functioning today, is the oldest Joint Stock bank in
India.(Joint Stock Bank: A company that issues stock
and requires shareholders to be held liable for the
company's debt) It was not the first though. That
honor belongs to the Bank of Upper India, which was
established in 1863, and which survived until 1913.
when it failed, with some of its assets and liabilities
being transferred to the Alliance Bank of Shimla .
When the American Civil War stopped the supply of
cotton to Lancashire from the Confederate States,
promoters opened banks to finance trading in Indian
cotton. With large exposure to speculative ventures,
most of the banks opened in India during that period
failed. The depositors lost money and lost interest in
keeping deposits with banks. Subsequently , banking
in India remained the exclusive domain of Europcans
for next several decades until the beginning of the
20th century.
BANKING SYSTEM

• Foreign banks too started to arrive. particularly in Caleutta, in the

1860s. The Comptoire d’ Escompte de Paris opencd a branch in
Calcutta in I860, and another in Bombay in 1862: branches in
Madras and Puducherry, then French colony, followed. HSBC
established itself in Bengal in 1869. Calcutta was the most active
trading port in India, mainly due to the trade of the British Empire,
and so became a banking center. The Bank of Bengal, which later
merged with the Bank of Bombay and the Bank of Madas to form
the Imperial Bank of India in 1921. The first entirely Indian joint
stock bank was the Oudh Commercial Bank, established in 1881 in
Faizabad. It failed in 1958. The next was the Punjab National Bank,
established in Lahorcin 1895, which has survived to the present and
is now one of the largest banks in India. Around the turn of the
20th Century, the Indian economy was passing through a relative
period of stability. Around five decades had clasped since the Indian
Mutiny, and the social, industrial and other infrastructure had
improved. Indians had established small banks, most of which
served particular ethnic and religious communities. The presidency
banks dominated banking in India but there were also some
exchange banks and a number of Indian joint
stock banks. All these banks operated in different
segments of the economy. The exchange banks,
mostly owned by Europcans, concentrated on
financing foreign trade. Indian joint stock banks were
generally under capitalized and lacked the experience
and maturity to compete with the presidency and
exchange banks.
This segmentation let Lord Curzon to observe, "/n
respect of banking it seems we are behind the times.
We are like some old fashioned sailing ship. divided by
solid wooden bulkheads into separate and
cumbersome compartments, " The period between
1906 and 1911, saw the establishment of banks
inspired by the Swadeshi movement. The Swadeshi
movement inspired local businessmen and political
figures to found banks of and for the Indian
community. A number of banks established then have
survived to the present such as Bank of India.
Comoration Bank, Indian Bank, Bank of Baroda.
Canara Bank and Central Bank of India. The fervour of
Swadeshi movement lcad to establishing of many
privae banks in Dakshina Kannada and Udupi district
which were unified carlier and known by the name
South Canara ( South Kanara ) district. Four
nationalised banks started in this district and also a
leading private sector bank. Hence undivided
Dakshina Kannada district is known as "Cradle of
Indian Banking".
During the First World War (1914-1918)

During the First World War (1914-1918)

through the end of the Second Word
War (1939-1945), and two years the r
crafter until the independence of India
were challenging for Indian banking.
The Years of the First World War were
turbulent, and it took its toll with banks
simply collapsing despite the Indian
economy gaining indirect boost due to
war-related economic activities. At least
94 banks in India failed between 1913
and 1918
 POST
INDEPENDENCE

The partition of India in 1947 adversely impacted

the economies of Punjab and West Bengal.
paralyzing banking activities for months. India’s
independence marked the end of a regime of the
Laissec Z faire for the Indian banking. The
Government of India initiated measures to play an
active role in the economic life of the nation, and
the Industrial Policy Resolution adopted by the
government in 1948 envisaged a mixed economy.
This resulted into greater involvement of the state
in different segments of the economy including
banking and finance. The major steps to regulate
banking included: In 1948, the Reserve Bank of
India, India's central banking authority, was
nationalized, and it became an institution owned
by the Government of India. In 1949, the Banking
Regulation At was enacted which empowered the
Reserve Bank of India (RBI) "to regulate, control,
and inspect the banks in India." The Banking
Regulation Act also provided that no new bank or
branch of an existing bank could be opencd
without a license from the RBI, and no two banks
could have common directors. However, despite
these provisions, control and regulations, banks in
India except the State Bank of India, continued to
be owned and operated by private persons. This
changed with the nationalization of major banks
in India on 19 July 1969.
 NATIONALIZATION

The RBI was nationalized on January 1, 1949 in terms

of the Reserve Bank of India (Transfer to Public
Ownership) Act, 1948 By the 1960s, the Indian
banking industry had become an important tool to
facilitate the development of the lndian economy. At
the same time, it had emerged as a large employer,
and a debate had ensued about the possibility to
nationalize the banking industry. Indira Gandhi, the-
then Prime Minister of lndia expressed the intention
of the GOl in the annual conference of the All India
Congress Meeting in a paper entitled "Stray thoughts
on Bank Nationalizations," The paper was received
with positive enthusiasm. Thereafter, her move was
Swift and sudden. and the GOI issued an ordinance
and nationalised the 14 largest commercial banks
with effect from the midnight of July 19,
1969.Jayaprakash Narayan, a national leader of India,
described the step as a "masterstroke of political
sagacity. " Within two wecks of the issue of the
ordinance, the Parlianent passed the Banking
Companies (Acquisition and Transfer of Undertaking)
Bill, and it received the presidential approval on 9
August 1969. A second dose of nationalization of 6
more commercial banks followed in 1980. The stated
reason for the nationalization was to give the
government more control of credit delivery. With the
second dose
 LIBERALISATION

• In the early 1990s, the then Narsimba Rao government

embarked on a policy of liberalization, licensing a small
number of private banks. These came to be known as New
Generation tech-savvy banks, and included Global Trust
Bank (the fist of such new generation banks to be set up),
which later amalgamated with Oriental Bank of Commerce,
Axis Bank( cartier as UII Bank), ICICL Bank and HDEC Bank.
• This move, along with the rapid growth in the economy of
India, revitalized the banking sector in India, which has seen
rapid growth with strong contribution from all the three
sectors of banks, namely, government banks, private banks
and foreign banks.
• The next stage for the Indian banking has been set up with
the proposed relaxation in the norms for Foreign Direct
Investment, where all Foreign Investors in banks may be
given voting rights which could exceed the present cap of
10%,at present it has gone up to 74% with some
restrictions. The new policy shook the Banking sector in
India completely. Bankers, till this time, were used to the 4-
6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of
functioning. The new wave ushered in a modern outlook
and tech-savvy methods of working for traditional banks. All
this led to the retail boom in India. People not just
demanded more from their banks but also received more.
Currently (2007), banking in India is generally fairly
mature in terms of supply. product range and reach-
even though reach in rural India still remains a
challenge for the private sector and foreign banks. In
terms of quality of assets and capital adequacy, Indian
banks are considered to have clean, strong and
transparent balance shects relative to other banks in
conparable cconomies in its region.
The Reserve Bank of India is an autonomous body.
with minimal pressure from the government. The
stated policy of the Bank on the Indian Rupee is to
manage volatility but without any fixed exchange rate-
and this has mostly been true.
With the growth in the Indian economy expected to
be strong for quite some time-especially in its services
sector-the demand for banking services, especially
retail banking, mortgages and investment services are
expected to be strong. One may also expect M&As,
takeovers, and asset sales. In March 2006, the
Reserve Bank of India allowed Warburg Pincus to
increase its stake in Kotak Mahindra Bank (a private
sector bank) to 10%.
This is the first time an investor has been allowed to
hold more than 5% in a private sector bank since the
RBI announced norms in 2005 that any stake
excceding 5% in the private sector banks would need
to be vetted by them.
In recent years critics have charged that the non-
government owned banks are too aggressive in their
loan recovery efforts in connection with housing, vehicle
and personal loans. There are press reports that the
banks' loan recovery efforts have driven defaulting
borrowers to suicide.
 EVOLUTION

The Rangarajan Committee report in early l1980s was

the first step towards computerization of banks. Banks
started exploring the idea of Total Bank Automation
(TBA). Although titled "Total Bank Automation, TBA was
in most cases confined to branch automation. It was
only in the early 1990s that banks started thinking
about tying up disparate branches together to facilitate
information sharing. At the same time, private banks
entered the banking arena with radically different
strategies. Given the huge IT budgets at their disposal
and with almost no legacy IT equipment to worry
about; private banks hastened the adoption of
technology. The philosophy for private banks was very
clear: to provide a whole new range of financial
products and services at minimal costs. And technology
made this possible. Says K.N.C. Nair, Head (|T), Federal
Bank, The new generation banks showed the way and
others had no option but to follow the tech infusion to
retain and attract profitable customers." The improved
connectivity and falling costs offered by leased lines and
VSATs provided a booster to inter-branch automation.
Confirms Naresh Wadhwa, Vice President-West, Cisco
Systems (India). "With the improved services and
lowered costs of service providers such as Dot and
VSNL, it became more feasible for banks to network
their branches. This gave banks an impetus to network
all the branches and Sd up centralized databases. With
these
developments it became possible for
operations such as MIS to be truly automated
and centralized.
" With centralized infrastructure and
numerous connectivity options, banks started
exploring multiple delivery channels like ATM,
Net-banking. mobile banking, and Tele.
banking thus driving down cost per
transaction.
 INTRODUCTION

In the organizational context, innovation may be linked

to performance and growth through improvements in
efficiency, productivity. quality. competitive
positioning. market share, etc. All organizations can
innovate, including for example hospitals, universities,
and local governments. While innovation typically ads
value, innovation may also have a negative or
destructive effect as new developments clear away or
change old organizational forms and practices.
Organizations that do not innovate effectively may be
destroyed by those that do. Hence innovation typically
involves risk. A key challenge in innovation is
maintaining a balance between process and product
innovations where process innovations tend to involve
a business model which may develop shareholder
satisfaction through improved efficiencies while
product innovations develop customer support
however at the risk of costly R&D that can erode
shareholder return. In summary, innovation can be
described as the result of some amount of time and
effort into researching (R) an idea, plus some larger
amount of time and effort into developing (D) this
idea, plus some very large amount of time and effort
into commercializing (C) this idea into a market place
with customers.
 ONLINE BANKIING

• Online banking (or Internet banking) allows

customers to conduct financial transactions on a
secure website operated by their retail or virtual
bank. credit union or building society. Features
Online banking solutions have many features and
capabilities in common, but traditionally also have
some that are application specific. The common
features fall broadly into several categories
• Transactional (e.g., performing a financial
transaction such as an account to account transfer,
paying a bill, wire transfer... and applications...
apply for a loan, new account, etc.)
• Electronic bill presentment and payment- EBPP
• eFunds transfer between a customer's own
checking and savings accounts. or to another
customer's account
• Investment purchase or sale o Loan applications
and transactions, such as repayments
• Non-transactional (c.g., online statements, check
links, browsing, chat)
 Bank statements

Financial Institution Administration - features allowing the

financial institution to manage the online experience of
their end users
□ ASP Hosting Administration- features allowing the hosting
company to administer the solution across financial
institutions
Features commonly unique to business banking included
• Support of multiple users having varying levels of
authorized
• Transaction approval process
• Wire transfer Features commonly unique to Internet
banking include
• Personal financial management support, such as
importing data into personal accounting software. Some
online banking platforms support account aggregation to
allow the customers to monitor all of their accounts in
one place whether they are with their main bank or with
other institutions.
• Security token devices Protection through single password
authentication, as is the case in most secure Internet
shopping sites, is not considered secure enough for
personal online banking applications in some countries.
Basically there exist two different security methods for
online banking.
he PlNTAN system where the PIN represents a password,
used for the login and TANs representing once-time
passwords to authenticate transactions. TANS can be
distributed in different ways, the most popular one is to
send a list of TANs to the online banking user by postal
letter.
The most secure way of using TANs is to generate them
by need using a security token. These token generated
TANs depend on the time and a unique secret, stored in
the security token (this is called two-factor Authentication
or 2FA). Usually online banking with PIN/TAN is done via a
web browser using SSL secured connections, so that there
is no additional encryption necded.
Signature based online banking where all transactions
are signed and encrypted digitally. The Keys for the
signature generation and encryption can be stored on
smartcards or any memory medium, depending on the
concrete implementation.
 AUTOMATED TELLER
MACHINE ATM)

Smaller indoor ATMs dispense money inside convenience.

stores and other busy areas, such as this off-premise Wincor
Nixdorf mono-function ATM in Sweden. An automated teller
machine (ATM) is a computerized telecommunications device
that provides the customers of a financial institution with
access to financial transactions in a public space without the
need for a human clerk or bank teller. On most modern ATMs,
the customer is identified by inserting a plastic ATM card with
a magnetic stripe or a plastic smartcard with a chip. that
contains a unique 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 as well as
purchasing mobile cell phone prepaid credit. ATMs are known
by various other names including automated transaction
machine, automated banking machine, money machine, bank
machine, cash machine, hole-in-the-wall, cashpoint,
Bancomat (in various countries in Europe and Russia).
Multibanca (after a registered trade mark, in Portugal), and
Any Time Money (in India).
 Financial networks

An ATM in the Netherlands. The logos of a number of

interbank networks this ATM is connected to are shown.
Most ATMs are connected to interbank networks,
enabling people to withdraw and deposit money from
machines not belonging to the bank where they have
their account or in the country where their accounts are
held (enabling cash withdrawals in local currency). Some
examples of interbank networks include PUI SE. PLUS.
CiIs, Interact and LINK. ATMs rely on authorization of a
financial transaction by the card issuer or other
authorizing institution via the communications network.
This is often performed through an ISO 8583 messaging
system. Many banks charge ATM usage fees. In some
cases, these fees are charged solely to users who are not
customers of the bank where the ATM is installed; in
other cases, they apply to all users. Where machines
make a charge some people will not use them, but go to
a system without fees. In order to allow a more diverse
range of devices to attach to their networks, some
interbank networks have passed rules expanding the
definition of an ATM to be a terminal that cither has the
vault within its footprint or utilizes the vault or cash
drawer within the
merchant establishment, which allows for the use of a
scrip cash dispenser. ATMs typically connect directly to
their ATM Controller via either a dial-up modem over a
telephonic line or directly via a leased line. Leased lines
are preferable to POTS lines because they require less
time to establish a connection Leased lines may be
comparatively expensive to operate versus a POTS line,
meaning less-trafficked machines will usually rely on a
dial-up modem.
That dilemma may be solved as high-speed Internet
VPN connections become more ubiquitous. Common
lower-level layer communication protocols used by
ATMs to communicate back to the bank include SNA
over SDLC. IC500 over Async, X.25, and ICPIP over
Ethernet. In addition to methods employed for
transaction security and secrecy, all communications
traffic between the ATM and the Transaction Processor
may also be encrypted via methods such as
 CREDITS CARDS

A e credit card is part of a system of payments named

after the small plastic card issued to users of the
system. It is a card entitling its holder to buy goods and
services based on the holder's promise to pay for these
goods and services. The issuer of the card grants a line
of credit to the consumer (or the user) from which the
user can borrow money for payment to a merchant or
as a cash advance to the user .A credit card is different
from a chare card, where a charge card requires the
balance to be paid in full each month. In contrast, credit
cards allow the consumers to 'revolve' their balance, at
the cost of having interest charged. Most credit cards
are issued by local banks or credit unions, and are the
shape and size specified by the SOEC 7810 standard as
ID-1. Credit cards are issued after an account has been
approved by the credit provider, after which
cardholders can use it to make purchases at merchants
accepting that card. When a purchase is made, the
credit card user agrees to pay the card issuer. The
cardholder indicates consent to pay by signing a receipt
with a record of the card details and indicating the
amount to be paid or by entering personal
identification number (PIN). Also, many merchants now
accept verbal authorizations via telephone and
electronic authorization using the Internet, known as
a'Card Cardholder Not Present' (CNP) transaction.
Electronic verification systems allow merchants to verify
that the card is valid and the credit card customer has
sufficient credit to cover the purchase in a few seconds,
allowing the verification to happen at time of purchase.
The verification is performed using a credit card payment
terminal or Point of Sale (POS) system with a
communications link to the merchant's acquiring bank.
Data from the card is obtained from a magnetic stripe
or chip on the card; the latter system is in the United
Kingdom and Ireland commonly known as Chip and PIN,
but is more technically an EMV card. These will typically
involve the cardholder providing additional information,
such as the security code printed on the back of the card,
or the address of the cardholder each month, the credit
card user is sent a statement indicating the purchases
undertaken with the card, any outstanding fees, and the
total amount owed. After receiving the statement, the
cardholder may dispute any charges that he or she thinks
are incorrect (see Fair Credit Billing Act for details of the
US regulations). Otherwise, the cardholder must pay a
defined minimum proportion of the bill by a duct date, or
may choose to pay a higher amount up to the entire
amount owed. The credit issuer charges interest on the
amount owed if the balance is not paid in full (typically at
a much higher rate than most other forms of debt). Some
financial institutions can arrange for automatic payments
to be deducted from the user's bank accounts, thus
avoiding late payment altogether as long as the
cardholder has sufficient funds.
 Features

As well as convenient, accessible credit, credit

cards offer consumers an easy way to track
expenses, which is necessary for both monitoring
personal expenditures and the tracking of work-
related expenses for laxation and reimbursement
purposes. Credit cards are accepted worldwide,
and are available with a large variety of credit
limits, repayment arrangement, and other perks
(such as rewards schemes in which points earned
by purchasing goods with the card can be
redeemed for further goods and services or credit
card cashback) Some countries, such as the
United States., the United Kingdom, and Erance,
limit the amount for which a consumer can be
held liable due to fraudulent transactions as a
result of a consumer's credit card being lost or
stolen .A smart card, combining credit card and
debit card properties. The 3 by 5 mm security chip
embedded in the card is shown enlarged in the
inset. The contact pads on the card enable
electronic access to the chip.
 DEBIT CARDS

Debit cards are essentially "pay-now" instruments

linked to a checking account whereby transactions
can happen either instantaneously using online
(PIN based) methods or in the near future with
offline (signature based) methods. Consumers
typically have the choice of using online or offline
methods, and their selection often hinges on the
respective benefits. Online debit allows the
cardholder also to withdraw cash at the point-of-
sale, and offline provides float. According to ATM &
Debit News (2007), there were approximately 26.5
billion debit transactions in the U.S. during 2006.
This is up from 6.5 billion transactions in 1999 – a
four-fold increase.
 ELECTRONICEUND
TRANSFER

Electron funds transfer or EFT refers to the computer-based

systems used to perform financial transactions
electronically. The term is used for a number of different
concepts: D Cardholder-initiated transactions, where a
cardholder makes use of a payment card O Direct deposit
payroll payments for a business to its employees, possibly
via a pay all services company O Direct debit payments
from customer to business, where the transaction is
initiated by the business with customer permission O
Electronic bill payment in online banking. which may be
delivered by EFT or paper check O Transactions involving
stored value of electronic money. possibly in a private
currency O Wire transfer via an international banking
network (generally carries a higher fee) O Electronic Benefit
Transfer
Transaction types

• A member of transition types may be performed, including the

following: O Sale: where the cardholder pays for goods or service
O Refund. where a merchant refunds an earlier payment made by
a cardholder O Withdrawal: the cardholder withdraws funds from
their account, e.g. from an ATM. The term Cash Advance may also
be used, typically when the funds arc advanced by a merchant
rather than at an ATM D Deposit: where a cardholder deposits
funds to their own account (typically at an ATM) O Cashback:
where a cardholder withdraws funds from their own account at
the same time as making a purchase enter-account transfer:
transiting funds between linked accounts belonging to the same
cardholder D Payment: transferring funds to a third party account
D Enquiry: a transaction without financial impact, for instance
balance inquiry, available funds enquiry. linked accounts enquiry,
or request for a statement of recant transactions on the
Account
DE top-p : where a cardholder can use a device
(typically POS or ATM) to add funds (top-up) their pre-pay
mobile phone
O Mini-statement : where a cardholder uses a device
(typically an ATM) to obtain details of rccent transactions
on their account
Administrate: this covers a variety of non-financial
transactions including PIN change
ELECTRONIC CLEARING SERYICE
(ECS)

• A clearing house is a financial services company that provides

clearing and settlement services for financial transactions,
usually on a futures exchange, and often acts as central
counterparty (the payor actually pays the clearing house, which
then pays the pace). A clearing house may also offer novation,
the substitution of a new contract or debt for an old, or other
credit enhancement services to its members. The term is also
used for banks like Suffolk Bank that acted as a restraint on the
over-issuance of private bank notes Clearing on options
exchanges The optians Clearing Corporation is an example of a
clearing house that functions for the purpose of clearing equity
options and bond derivatives, in order to ensure the proper
implementation of these instruments. Clearing on futures
exchanges LCH. Clacket (Formally known as The London
Clearing House), for example. provides clearing and settlement
services for the International Petroleum Exchange, London,
which is affiliated with the Lntercantincgtal Exchange, Atlanta,
ciboria. The London Clearing House also acts the clearing house
for Euromissile and the London Metal Exchange
REAL TIME GROSS
SETTLEMENT RYGD

Real tlme gross settlement systems (RTGS) are a funds

transfer mechanism where transfer of moncy takes place
from one bank to another on a "real time" and on "gross"
basis. Settlement in "real timc" mcans payment transaction is
not subjcctcd to any waiting period. IThe transactions are
settlcd as soon as they are processed. "Gross settlement"
means the transaction is settled on onc to one basis without
bunching with any other transaction. Once processed,
payments are fnal and irrevocable.
This "electroni payment system is normally maintained or
controlled by the Central Bank of a country. There is no
physical exchange of money: the Central Bank makes
adjustments in the clectronic accounts of Bank A and Bank B,
reducing the amount in Bank A's account by S1000 and
increasing the amount of Bank B's account by the same.
The RTGS system is suited for low-volume, high-value
transactions. It lowers settlement risk. besides giving an
accurate picture of an institution's account at any point of
time. Such systems are an alternative to systems of settling
transactios at the end of the day, also known as the net
settlement system such as BACS. In the net settlement
system, all the inter-institution transactions during the day
are accumulated. At the end of the day, the accounts of the
institutions
are adjusted. Extending the cxample above, say
another person deposits a check drawn on Bank B
in Bank A for S500. At the end of the day, Bank A
will have to "electronically" pay Bank B only S500
(SL000- $S00)The inplementation of RTGS systems
by Cntral Banks throughout the world is driven by
the goal to minimize risk in high-valuc electronic
payment scttlement systems.
In an RTGS system, transactions are settled across
accounts
held at a Central Bank on a continuous gross
basis. Settlement is immediate, final and
irevocable. Credit risks due to settlement lags ae
clmina ted. RTGS docs not rcquire Core Banking to
be implemented across participating banks. Any
RTGS would employ two sets of qucues: one for
testing funds availability, and the other for
processing debit/credit requcsts reccived from the
Integratcd Aecounting System. All transactions
would be queued and submitted for funds
availability testing on a FIFO + Priority basis.
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 CORE BANKING

Core banking is a general term used to describe the

services provided by a group of networked bank
branches. Bank customers may access their funds and
other simple transactions from any of the member branch
offices.

Core Banking is normally defined as the business

conducted by a banking institution with its retail and
small business customers. Many banks treat the retail
customers as their core banking customers, and have a
separate line of business to manage small businesses.
Larger businesses are managed via the Corporate Banking
division of the institution. Core banking basically is
depositing and lending of money. Normal core banking
functions will include deposit accounts, loans, mortgages
and payments. Banks make these services available across
multiple channels like ATMs, Internet banking, and
branches.

Core Banking Solutions is new jargon frequently used in

banking circles. The advancement in technology,
especially internet and information technology has led to
new ways of doing business in banking. These
technologies have cut down time, working simultancously
on different issues and increasing efficiency. The platform
where communication technology and information
technology are merged to suit core needs of banking is
known as Core Banking Solutions. Here computer
software is developed to perform
core operations of banking like recording of transactions,
passbook maintenance, interest calculations on louns and
deposits, customer records, balance of payments and
withdrawal are done. This software is installed at different
branches of bank and then interconnccted by means of
communication lines like cl<phoncs, satellits., intemet cte. It
allows the user (customers) to operate accounts from any
branch if it has installcd core banking solutions. This new
platform has changed the way banks are working.
Core banking is all about knowing customers' necds. Provide
them with the right products at the right time through the
right chunnels 24 hours a day, 7 days a week using technology
aspeets like Internet, Mobile ATM. While muny Banks run
core banning in-house. the re are some which use outsourced
service providers as well There are several Systems interators
like IBM which implement these Core banking packages at
Banks.
 MOBILE- BANKING
• MOBILE-BANKING
• "Mobile Banking refers to provision and availment of banking and financial servies with the
help of mobile telecommunication devices, The scope of offered services may include
facilities to conduct bank and stock market transactions, to administer accounts
• and to access customised information."
• According to this model Mobile Banking can be said to consist of threc inter-relatcd
concepts;
• Mobile Accounting
• OMobile Brokerau
• O Mobilc Financial Information Services
• Most scrvices in the categorics designated dcomtins and Brakerae are transaction-bascd.
The non-transaction-based services of an informational nature are however essential for
condueting transactions- for instance, balance inquiries might be needed before committing
a money remittance. The accounting and brokerage services arc there fore offred invariably
in combination with information services. Information services, on the other hand, may be
offered as an independent module,
MOBILE BANKING
SERVICES
Mobile banking can offer such
service as following:

• Account Informatlon
• 1. Mini-statements and
checking of account
history
• 2. Alets on account
activity or passing of set
thresholds 9. Status on cheque, stop payment on
• 3. Monitoring of term cheque
deposits • 10. Ordering check books
• 11. Balance checking in the account
• 4. Access to loan • 12. Recent transactions
statements • 13. Due date of paynent (functionality
• 5. Acoess to card for stop. change and deleting of
payment.
statements • 14. PIN provision, Change of PIN and
• 6. Mutual funds/equity reminder over the Internct
statements • 15. Blocking of (lost, stolen) cards

• 7. Insunce policy
managment
• 8, Pension plan
management
 PAYMENTS, DEPOSITS,
WITHDRAWAL AND
TRANSFER

Payments, Deposits, Withdrawals, and Transfers

1. Domcstic and international fund transfers
2. Micro-payment handling
3. Mobile recharging
4. Commercial payment processing
5. Bill payment processing
6. Poer to pxcr payments
7, Withdra wal at baunking agcnt
8. Deposit at banking agent
Especially for clients in remote locations, it will be
important to help them deposit and withdraw
funds at banking agents, i.e., retail and postal
outlets that turn cash into clectronic funds and
vice versa. The fcasibility of such banking agents
depends on local regulation which enables retail
outlets to take deposits or not.
A specific sequence of SMS messages will enable
the system to verify if the clicnt has sutticicnt
funds in his or her wallet and