MODULE 5 (RECENT TRENDS AND TECHNOLOGY IN BANKING) NOTES
🪧ONLINE BANKING
Internet banking allows a user to conduct financial transactions via the Internet. Internet banking is also known as online banking or web banking. Internet banking offers customers almost every service traditionally available through a local branch including deposits, transfers, and online bill payments. Virtually every banking institution has some form of online banking, available both on desktop versions and through mobile apps. With online banking, consumers aren't required to visit a bank branch to complete most of their basic banking transactions. They can do all of this at their own convenience, wherever they want i.e at home, at work, or on the way to our work.
In order to access the service, clients need to register for their bank's online banking service. In order to register, they need to create a password. Once that's done, they can use the service to do all their banking. Banking transactions offered online vary by the institution. Most banks generally offer basic services such as transfers and bill payments. Some banks also allow customers to open up new accounts and apply for credit cards through online banking portals.
Features of Internet Banking
The customer using this facility can conduct transactional and non-transactional tasks including:
1.The customer can view account statements.
2.It is 24 x 7 services.
3.The customer can check the history of the transactions for a given period by the concerned. bank.
4.Bank statements, various types of forms, applications can be downloaded.
5.The customer can transfer funds, pay any kind of bill, recharge mobiles, DTH connections, etc.
6.The customer can buy and sell on e-commerce platforms.
7.The customer can invest and conduct trade.
8.The customer can book, transport, travel packages, and medical packages.
MOBILE APPLICATION BANKING
Mobile banking is a service that allows a bank's customers to conduct financial transactions using a mobile device. Unlike the related internet banking it uses software, usually an app, provided by the bank. Mobile banking is usually available on a 24-hour basis
Mobile banking is a system that allows customers of a financial institution to conduct a number of financial transactions through a mobile device such as a mobile phone or personal digital assistant.
FEATURES & BENEFITS OF MOBILE BANKING
a) Simplicity:
The m-payment application must be user friendly with little or no learning curve to the customer. The customer must also be able to personalize the application to suit his or her convenience.
b) Universality:
M-payments service must provide for transactions between one customer to another customer (C2C), or from a business to a customer (B2C) or between businesses (B2B).
c) Security, Privacy and Trust:
A customer must be able to trust a mobile payment application provider that his or her credit or debit card information may not be misused.
d) Cost:
The m-payments should not be costlier than existing payment mechanisms to the extent possible. A m-payment solution should compete with other modes of payment in terms of cost and convenience.
e) Speed:
The speed at which m-payments are executed must be acceptable to customers and merchants.
f) Cross border payments:
To become widely accepted the m-payment application must be available globally, word-wide.
CORE BANKING
Core banking is the hub, or back-end connection, for multiple branches of the same bank that allows customers the freedom to access account transactions in a single safe entity. Core banking operations can include loan management, new accounts, deposits and withdrawals, among other financial services
Core Banking System (CBS) refers to a common IT solution wherein a central shared database supports the entire banking application. It allows the customers to use various banking facilities irrespective of the bank branch location. Eg Finacle, Flex cube, FinnOne
The characteristics of CBS are as follows:
1.There is a common database in a central server located at a Data Center, which gives a consolidated view of the bank's operations..
2.Branches function as delivery channels providing services to its customers.
3.CBS is centralized Banking Application software that has several components which have been designed to meet the demands of the banking industry.
4.CBS is supported by advanced technology infrastructure and has high standards of business functionality.
5.Core Banking Solution brings significant benefits such as a customer is a customer of the bank and not only of the branch.
6.CBS is modular in structure and is capable of being implemented in stages as per requirements of the bank.
7.A CBS software also enables integration of all third-party applications including in-house banking software to facilitate simple and complex business processes.
key features of Core Banking Systems.
1) On-line real-time processing.
2) Transactions are posted immediately.
3) All databases updated simultaneously.
4) Centralized Operations (All transactions are stored in one common database/server).
5) Real time seamless merging of data from the back office and self-service operations.
6) Significant reduction in the errors which occurred due to duplication of entries.
7) Separate hierarchy for business and operations.
8) Business and Services are productized.
9) Remote interaction with customers.
10) Reliance on transaction balancing.
11) Highly dependent system-based controls.
12) Authorizations occur within the application.
13) Increased access by staff at various levels based on authorization.
14) Daily, half yearly and annual closing.
15) Lesser operational cost due to less manpower usage.
16) Automatic processing of standing instructions.
17) Anytime, anywhere access to customers and vendors
18) Banking access through multiple channels like mobile, web etc.
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RTGS -- Real Time Gross Settlement
NEFT-- National Electronic Funds Transfer
IMPS -- Immediate Payment Service.
MCLR -- Marginal Cost of Funds based Lending Rate
IBC -- Insolvency and Bankruptcy Code
MSME --- Micro, Small, and Medium Enterprises
NPA --- Non-Performing Asset.
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RTGS
The acronym 'RTGS' stands for Real Time Gross Settlement, which can be explained as a system where there is continuous and real-time settlement of fund-transfers, individually on a transaction-by-transaction basis.
It is a new system of transferring funds from one bank/financial institution to another on immediate basis. Real-Time Gross Settlement (RTGS) is an online fund transfer mechanism provided by the RBL. RTGS facilitates fund transfer from one bank account to the other on real-time basis without any waiting time.
Benefits of RTGS
An RTGS electronic fund transfer facilitates fund transfer on real time basis. In case of a holiday, the amount gets credited on the next working day.
2.RTGS could also be done offline by submission of the remittance form at the bank branch of the remitter.
RTGS avoids the cost involved in other instruments of fund transfer such as demand draft.
A.Fund transfer through RTGS involves comparatively lower remittance charges. Inward remittances are free of cost, while banks can charge a fee not exceeding ₹30 for an outward remittance on transaction amount of Rs 2lac-5lac. For higher amounts, banks, could charge a fee of 55.
RTGS is a safe and secure fund transfer mechanism and avoids risk of loss associated with cheques and demand draft that are used for fund transfer.
National Electronic Funds Transfer (NEFT)
National Electronic Fund Transfer (NEFT) is a nation-wide payments system that allows the transfer of funds from one bank's account to another) With an increased focus on online banking, NEFT has become one of the most popular ways of transferring funds. Since it can electronically transfer funds from any bank branch to any individual, it has eliminated the need to visit a bank branch for transfer of funds.
DIFFERENCE BETWEEN RTGS AND NEFT
IMPS
Immediate Payment Service, which is the IMPS full form in banking, is a payment service for instant money transfers.
An IMPS (Immediate Payment Service) transfer is an instant, 24x7, electronic fund transfer service in India that allows users to send and receive money in real-time through mobile, internet, and ATM channels. Managed by the National Payments Corporation of India (NPCI), it is a safe, secure, and cost-effective way to make payments to individuals or merchants, with transactions processed in a fraction of a second.
Marginal cost of funds-based lending rate (MCLR))
The marginal cost of funds-based lending rate (MCLR) is an internal reference rate for banks fixed by the Reserve Bank of India (RBI) The RBI replaced the base rate system for determining interest rates. MCLR is an improved version of the base rate. RBI implemented MCLR on 1 April 2016 to determine rates of interests for loans. It helps banks to define the minimum interest rate on different types of loans. Banks cannot lend below the MCLR) or they will face strict regulatory action.
Insolvency and Bankruptcy Code, 2016( IBC )
The Insolvency and Bankruptcy Code, 2016 (IBC) is an Indian law which creates a consolidated framework that governs insolvency and bankruptcy proceedings for companies, partnership firms, and individuals.
Objectives of IBC
1.To consolidate and amend all existing insolvency laws in India.
2.To simplify and expedite the Insolvency and Bankruptcy Proceedings in India.
3.To protect the interest of creditors including stakeholders in a company.
4.To revive the company in a time-bound manner.
5.To promote entrepreneurship.
6.To get the necessary relief to the creditors and consequently increase the credit supply in the economy.
7.To work out a new and timely recovery procedure to be adopted by the banks, financial institutions or individuals.
MSME
MSME stands for Micro, Small, and Medium Enterprises, and it refers to the classification of businesses in India based on their investment in plant and machinery or equipment, as well as their annual turnover. This definition was revised in 2020 to reflect new criteria for categorizing businesses as micro, small, or medium, impacting their eligibility for various government schemes and support programs.
MSME Classification (as of 2020 revision):
Micro Enterprises:
Investment: Not exceeding ₹1 crore in plant, machinery, or equipment.
Turnover: Not exceeding ₹5 crore annually.
Small Enterprises:
Investment: Not exceeding ₹10 crore in plant, machinery, or equipment.
Turnover: Not exceeding ₹50 crore annually.
Medium Enterprises:
Investment: Not exceeding ₹50 crore in plant, machinery, or equipment.
Turnover: Not exceeding ₹250 crore annually.
TReDs
TReDS (Trade Receivables electronic Discounting System) is an RBI-regulated electronic platform in India that allows Micro, Small, and Medium Enterprises (MSMEs) to discount their bills online with corporate buyers and multiple financiers, helping them get early payments for their invoices without collateral. The platform facilitates the financing of MSME trade receivables through an auction mechanism, which improves cash flow for MSMEs while ensuring prompt payment realization from the buyers on the due date.
BASEL NORMS
Basel norms are a set of international banking regulations developed by the Basel Committee on Banking Supervision (BCBS) to promote financial stability by requiring banks to hold sufficient capital, manage risks, and adhere to supervisory guidelines.
Basel I (1988):
The first framework focused primarily on establishing minimum capital requirements to cover credit risk, setting a standard 8% capital adequacy ratio against risk-weighted assets.
Basel II (2004):
This version introduced a more risk-sensitive approach, dividing risks into three main categories: credit risk, operational risk, and market risk. It allowed banks to use internal risk assessments to determine capital needs.
Basel III (implemented starting 2013):
Developed in response to the 2008 financial crisis, Basel III introduced stricter capital requirements, robust liquidity standards, and a leverage ratio to improve bank resilience and reduce the likelihood of future crises.
NPA
Non Performing Assets (NPAs)NPA stands for Non-Performing Asset, which is a loan or advance from a bank or financial institution for which the borrower has failed to make payments of interest or principal for a period of more than 90 days.
NPA (Non-Performing Asset) monitoring involves continuously tracking loan accounts, identifying early warning signs of default, and implementing regular credit appraisal and quality checks to prevent loans from becoming non-performing.
Recovery methods for NPAs include negotiation and restructuring, using third-party recovery agents, and pursuing legal and regulatory channels such as the Insolvency and Bankruptcy Code (IBC) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) Act. Banks also utilize asset reconstruction companies and One-Time Settlements (OTS) to resolve stressed assets and recover funds.
DIGITAL BANKING
Digital banking is the use of online and mobile platforms to access and manage bank accounts and conduct financial transactions, such as transferring funds, paying bills, and checking balances, without visiting a physical branch.
FEATURES
1.Fund Transfers:
Transfer money between accounts or to others using services like NEFT, IMPS, and RTGS, often available 24/7.
2.24/7 Access:
Access banking services anytime, anywhere, on various devices including smartphones, tablets, and computers.
3.Efficiency:
Digital banking automates many processes, reducing the need for paper and manual work, which saves time and costs.
4.Account Management:
View real-time account balances, transaction history, and download bank statements at any time.
PAYMENT GATEWAYS
A payment gateway is a digital service and technology platform that securely processes online payments, acting as a secure bridge between a merchant's website or app and financial institutions like banks
Examples of common payment gateways include Stripe, PayPal, Square, Amazon Pay, Adyen, and Authorize.Net, which facilitate secure online payments by encrypting transaction data and communicating with banks to process funds between customers and merchants
SUPPLY CHAIN FINANCE
Technology-based solutions that aim to lower financing costs and improve business efficiency for buyers and sellers in a transaction.
Supply chain finance (or SCF) is a form of supplier finance in which suppliers can receive early payment on their invoices.
FEATURES
1.Early Payment & Liquidity:
Suppliers receive early payment for their invoices, improving their working capital and providing access to immediate funds.
2.Lower Financing Costs:
Financing rates are based on the buyer's strong credit rating, which is typically better than the supplier's, leading to more attractive and affordable funding options.
3.Predictable Cash Flow:
The ability to request early payment allows suppliers to better predict their cash flow and manage their finances with more certainty.
4.Risk Reduction:
Payment risk is transferred to the financier, benefiting both the supplier by providing liquidity and the buyer by mitigating risks associated with supply chain partners.
RETAIL LENDING
RETAIL LENDING
A Retail loan is generally provided to an individual by a certified financial institution, a commercial bank or a credit union to purchase property, vehicles or other assets such as essential electronics, etc.. One of the most common types of Retail loans is a Housing Loan.
Retail loans are provided to individuals with a decent credit score. Banks and financial institutions want to ensure timely repayment of such loans; hence having a good repayment history and credit score plays a very important role in availing a Retail loan Interest is to be paid monthly or annually as per the pre-determined terms and conditions Of the financial institution.
Types of Retail loans
1.Housing loans: Considering the fact that real estate is expensive, and it may take years for someone to save the amount of money required to purchase a house, a Housing Loan is the most commonly availed Retail loan in India.
2. Educational loans: This type of loan is provided by banks to students who want to avail education but cannot afford to pay for the same. Students can use the loan money to pay for foreign education, tuition fees, hostel expenses and other similar expenses.
3. Vehicle loans: For individuals looking to buy a new car or a two-wheeler, vehicle loans are provided by banks. You can choose to pay a part of the total purchase amount as down payment and the rest in instalments with interest. Interest amount may vary from bank to bank.
4.Personal loans: A personal loan can be availed for a variety of reasons such as travelling, marriage, medical expenses or any such situation that may need immediate financial assistance.
SALE OF THIRD PARTY PRODUCTS
Third party product refer to those products that are sold by a bank for some other institutions. The third party product distribution involves selling products that are not created from the bank.It is not come under the balance sheet of bank. These are not deposits or loans. The bank does not have to provide capital to earn income from selling these products..
The third party products is fee based income for the bank. It consists selling of Insurance products, Gold coins, Mobile recharge, Mutual funds, Government bonds, Demat account, Collection of taxes & utility billsand Advisory services
(SARFAESI) Act
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, was passed on December17,2002. The act provides enforcement of the security factor without recourse to civil suits. This act was passed with the aim of enabling banks and financial institutions to realise long-term assets, manage the problem of liquidity, reduce asset liability mismatches and improve recovery by taking possession of securities, sellingthem and reducing NPAs. The ordinance also allows banks and financial institutions to utilise the services of ARCs/SCs for speedy recovery ofdues from defaulters and to reduce their NPAs.
DBT
In DBT, benefits or subsidies are directly transferred to citizens living below the poverty line, ensuring subsidies are targeted to those in need. the government significantly transfers the cash benefits and subsidiaries to the Aadhaar-linked bank accounts of the beneficiaries. On 1st January 2013, the Government of India implemented the Direct Benefit Transfer scheme to transfer the subsidy amount directly to the beneficiaries’ accounts.
Direct Benefit Transfer or DBT is an attempt to change the mechanism of transferring subsidies launched by Government of India on 1 January 2013. This scheme or program aims to establish a Giro system
(A GIRO system is an automated, electronic payment system that allows money to be transferred directly between bank accounts)
to transfer subsidies directly to the people through their linked bank accounts.
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