FM-IV - Module IV Innovation in banking-converted.pptx

Banking innovation

1. Module-IV Banking Innovations Dr. Yogesh Dhoke (SBJITMR)

2. Non Performing Asset means a loan or an account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI. NON-PERFORMING ASSET Dr. Yogesh Dhoke (SBJITMR)

3. INTRODUCTION Earlier assets were declared as NPA after completion of the period for the payment of total amount of loan and 30 days grace. In present scenario assets are declared as NPA if none of the installment is paid till 180 days i.e. six months in respect of a term loan. Dr. Yogesh Dhoke (SBJITMR)

4. C O NTINUE... The account remains 'out of order' for a period of more than 90 days, in respect of an overdraft/ cash Credit(OD/CC) The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted With effect form March 31, 2004 a non-performing asset (NPA) shell be a loan or an advance where:- I n teres t a n d /or i nstall m ent of principal remai n o v erdue fo r a period of more than 90 days in respect of a Term Loan Dr. Yogesh Dhoke (SBJITMR)

5. IN SIMPLE WAY 1. Businessmen take loans from banks & use in business operation 2. Banks earn interest on these loans after business operate 3. Companies would have to repay loan with interest in timely installment weather profit or loss m o n t hs i t wil l be for co n sider e d as NPA banks. NPA 4. If companies not repay it on time by intentionally or due to loss, after 3 Dr. Yogesh Dhoke (SBJITMR)

6. CATEGORIES OF NPA Standard Assets: Arrears of interest and the principal amount of loan does not exceed 90 days at the end of financial year. Substandard Assets: Which has remained NPA for a period less than or equal to 12 months. Doubtful Assets: Which has remained in the sub-standard category for a period of more than 12 months D1 i.e. up to 1 year : 20% provision is made by the bank D2 i.e. up to 2 year : 30% provision is made by the bank D3 i.e. up to 3 year : 100% provision is made by the bank Loss Assets: Where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. Dr. Yogesh Dhoke (SBJITMR)

7. REASON BEHIND RISE IN NPA Lack of proper pre-enquiry by the bank for sanctioning a loan to a customer Non pe rfor m a n ce of the busi ness or t he pur p ose fo r w h ic h the customer has taken the loan Willful defaulter Loans sanctioned for agriculture purposes Change in govt. policies leads to NPA Dr. Yogesh Dhoke (SBJITMR)

8. EFFECTS OF NPA ON BANKS & FI Restriction on flow of cash done by bank Drain of profit Bad effect on goodwill Bad effect on equity value Dr. Yogesh Dhoke (SBJITMR)

9. FACTORS IMPACTING RISE IN NPA Lack of demand / economic recession or slowdown Change in Govt. policies Wilful defaults by customers External Factors: Ineffective legal framework & weak recovery tribunals Dr. Yogesh Dhoke (SBJITMR)

10. C O NTINUE... Internal Factors: Defective Lending process Inappropriate / non –use of technology like MIS , Computerization Improper SWOT analysis Inadequate credit appraisal system Managerial deficiencies Absence of regular industrial visits & monitoring Dr. Yogesh Dhoke (SBJITMR)

11. NPA MANAGEMENT STRATEGIES Indian Banks are pursuing variety of strategies to control NPAs, which can be studied under two broad categories as under: Preventive Management Curative Management Dr. Yogesh Dhoke (SBJITMR)

12. C O NTINUE... Preventive Management: It is rightly said that prevention is better than cure. Developing ‘Know Your Client’ profile (KYC) Monitoring Early Warning Signals Installin g P ro p e r C redi t A s ses s me n t and Ris k M a n age m e nt Mechanism Timeliness & Adequsey of Response Generating Watch-list/Special Mention Category Dr. Yogesh Dhoke (SBJITMR)

13. C O NTINUE... Curative Management: Re-Phasement of loans Pursuing Corporate Debt Restructuring (CDR) Encouraging rehabilitation of potentially viable units Encouraging acquisition of sick units by healthy units E n terin g comp r o m is e sc he mes wit h borrow e r s / E n ter i n g one time settlement Using Lok Adalats for compromise settlement for smaller loans in “doubtful” and “loss” category. Dr. Yogesh Dhoke (SBJITMR)

14. C O NTINUE... Curative Management Continue... Strengthening Using Securitization & SARFAESI Act Using Asset Reconstruction Company (ARC) Approaching Debt Recovery Tribunals (DRTs) Recovery Action against Large NPAs Ci r cul a t ion of I n f orm a tio n of D e fau l ters - Database of Defaulters Dr. Yogesh Dhoke (SBJITMR)

15. EFFECTIVENESS OF NPA MANAGEMENT IN INDIAN BANKS While on the whole NPAs have shown declining trend during last decade, many analysts suspect that some banks might have fraudulently and in nexus with auditors have concealed some bad assets and NPAs in the name of reformation. NPAs position remains worrisome in government banks mainly due to alleged widespread corruption, ill-motivated decisions on lending taken by some corrupt officials , due to inaction of such corrupt officials and alleged political interferences. Dr. Yogesh Dhoke (SBJITMR)

16. C O NTINUE... Implementation of SARFAESI Act 2002 , setting up of credit information bureaus, internal improvements such as upgrade of technology infrastructure, tightening of the appraisal and monitoring processes, and strengthening of the risk management platform have contributed to the improvement. Even with an assumption of a 20% delinquency in restructured loans, along with the current forecasts for a rise in gross NPAs, the overall asset quality of public sector banks would stabilize within two years. It would also stay superior to the current status of European banks. BCG expects that by 2025 the Indian banking sector will be the third largest in the world in terms of assets, behind China and the US. Dr. Yogesh Dhoke (SBJITMR)

17. IMPROVEMENT MEASURES There is need to strengthen sharing of credit information. Sharing of credit information must occur in both ways between lending institutions & CICs. There is need to strengthen Unique Customer Identification (UCI) across the banking system. The Reserve Bank of India is planning to introduce a comprehensive dynamic provisioning NPA framework for banks in India with dynamic and countercyclical elements. Dr. Yogesh Dhoke (SBJITMR)

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19. Dr. Yogesh Dhoke (SBJITMR)

20. BANKING INNOVATION Stands for making something new in banking operations by using electronic devices & internet. To strengthen the operations by putting the services faster, easy, cheaper and accurate. These are rightly called as “Electronic Banking” Dr. Yogesh Dhoke (SBJITMR)

21. ADVANTAGES OF BANKING INNOVATION Faster & convenient transactions No longer required to wait in long queues Opening of a/c simple & easy Larger customer coverage Promoting banking services & products internationally Increase customer satisfaction Abolishing the use of paper in transactions Fund transfer become faster &convenient Dr. Yogesh Dhoke (SBJITMR)

22. DISADVANTAGE / LIMITATION Lack of customer knowledge & skill on computers & browsing Security risk Increased no. of fraudulent bank website Fake emails Use of Trojan horse programmes to capture user ID & passwords 1. 2. 3. Viruses & worms Dr. Yogesh Dhoke (SBJITMR)

23. On- Demand Insurance New Insurance Policies Insurance Through App Surveillance Through Drone AI & Health Insurance NEW INNOVATION IN INSURANCE Dr. Yogesh Dhoke (SBJITMR)

24. ELECTRONIC BANKING SERVICES Internet Banking Mobile Banking Debit Cards Automated Teller machine(ATM) Banking Electronic Fund Transfer Mail Transfer / Mail Order Magnetic Ink Character Reader (MICR) Technology Dr. Yogesh Dhoke (SBJITMR)

25. “The performance of banking activities via the internet. online banking also known as ‘internet banking’ or ‘web banking’. INTERNET BANKING Dr. Yogesh Dhoke (SBJITMR)

26. ADVANTAGES & NEEDS convenience banking for customers 24/7*365 low cost, unlimited access customer –banker relationship wider reach to public competitive edge an effective marketing tool for promotion Dr. Yogesh Dhoke (SBJITMR)

27. Is a system that allows customers of a financial institution to conduct a no. Of financial transactions through a mobile device such as mobile phone or personal digital assistant. MOBILE BANKING Dr. Yogesh Dhoke (SBJITMR)

28. SERVICES OFFERED Mini statements &checking of a/c history Alerts on a/c activity or passing of thresholds Access to loan statement Insurance policy management Pension plan management Blocking of cards Balance checking in the a/c Mobile recharging Dr. Yogesh Dhoke (SBJITMR)

29. ADVANTAGES & LIMITATIONS Mobile connectivity User friendly Cost effective Reduce s t h e ris k of fr a ud Improves customer services S mart m o bil e user s - less t han 20 % . M o b il e b a n k i n g n o t possi b le in basic model. So, they have to depend on SMS. One mobile banking a/c for one customer(says RBI) Dr. Yogesh Dhoke (SBJITMR)

30. An electronic card issued by a bank which allows bank clients, access to their a/c to withdraw cash or pay for goods and services DEBIT CARDS Dr. Yogesh Dhoke (SBJITMR)

31. TYPES OF DEBIT CARDS ONLINE DEBT CARDS OFFLINE DEBIT CARDS ELECTRONIC PURSE CARDS PREPAID DEBIT CADRDS Dr. Yogesh Dhoke (SBJITMR)

32. ADVANTAGES 24 hours access to cash per day50,000 upto 2L View a/c balances & mini statements Transfer funds between a/c’s Refill your prepaid mobile Request a cheque book & a/c statement Dr. Yogesh Dhoke (SBJITMR)

33. ATM banking is a banking operation through a machine at a bank branch or other location which enables a customer to perform basic banking activities (checking balance, withdrawing or transferring funds) even when the bank is closed. ATM BANKING Dr. Yogesh Dhoke (SBJITMR)

34. BENE F I T S Benefits to customers Benefits to banks Benefits to others Dr. Yogesh Dhoke (SBJITMR)

35. ELECTRONIC FUND TRANSFER (EFT) “Moving funds between different account in the same or different bank ,through the use of wire transfer, automatic teller machines, or computers but without the use of paper documents.” For ex. When you use your debit cards to make a purchase at a store or online the transaction is processed using an EFT system. The transaction is very similar to an ATM withdrawal ,with near instantaneous payment to the merchant and deduction from your checking account. Direct deposit is another form of an electronic funds transfer .In this case ,funds from your employer’s bank account are transferred electronically to your bank account ,with no need for paper based payment systems. Dr. Yogesh Dhoke (SBJITMR)

36. MAIL TRANSFER / MAIL ORDER This is the mode used when you wish to transfer money from your account in Center 'A' to either your own account in Center 'B' or to somebody else's account. In this mode of transfer, you are required to fill in an application form similar to the one for DD, sign a charge slip or give a cheque for the amount to be transferred plus exchange and collect a receipt. The Bank will, on its own, send an order to its branch at center 'B' to deposit the said amount in the account number designated by you. This is, however, a dying product and many banks like State Bank of India have since withdrawn this. Dr. Yogesh Dhoke (SBJITMR)

37. SEND Transfer Online Banking RECEIVE notice in your email inbox Bank Release Money DEPOSIT money In online banking E-mail money transfer EXPLAINATION Dr. Yogesh Dhoke (SBJITMR)

38. MAGNETIC INK CHARACTER READER It’s a character recognition technology used primarily by the banking industry to facilitate the processing and clearance of cheques and other documents . The MICR encoding called the MICR line is located at the bottom of the cheque or other voucher. The technology allows MICR reader to scan and read the information directly into a data collection device. Unlike barcodes or similar technologies ,MICR characters can be easily read by humans. Dr. Yogesh Dhoke (SBJITMR)

39. Can quickly identify the banks that issued them. It also eliminates the need to manually verify or validate the checks. Even if the MICR is covered with signature or cancellation marks, still it can be read. Before MICR system was used ,it took weeks for banks to clear cheques, but now this technology rapidly process high volume of cheques per day IMPORTANCE OF MICR Dr. Yogesh Dhoke (SBJITMR)

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41. NPA Current Legislation & it’s Management Related Issue Debt Recovery Tribunal SARFESI Act Asset Reconstruction Company Economic Survey Bad Banks 2017 Dr. Yogesh Dhoke (SBJITMR)

42. BANKING SECTOR INNOVATION COMMITIES REFORMS NARSHIMAN COMMITEE NARSHIMAN COMMITTEE-2 NACHIKET MORE COMMITEE Dr. Yogesh Dhoke (SBJITMR)

43. Any Questions ??????????????? Dr. Yogesh Dhoke (SBJITMR)