Introduction To Banking Operations

introduction to banking operations

1. Presentation on – “Introduction to Banking Operations” Presented By – Shete Shubham M.com ( Banking & Finance), MBA ( International Finance & Banking)

2. Sr No Content 1 The Changing Nature Of Banking Operation 2 Importance Of Customer Relationship Management 3 Different Types Of Products And Services Offered To Customer 4 Role Of Technology In Banking Operation 5 Need For Asset-Liability Management 6 Introduction To Electronic Banking 7 E- Banking In India 8 E- Commerce 9 Risk In E- Banking 10 RTGS And Clearing House 11 Internet Banking Strategies 12 Conclusion 13 References

3. Introduction - Banking operation make sure our processes and transaction are executed correctly, which minimising risk and maximising quality of service. Some of the range of service that a bank can offer to its customer particularly The banking operation involves the practices and procedures that a bank uses to ensure that customer’s transactions are completed accurately and appropriately. Changing Nature of Banking Operations Savings and investment accounts Lending facilities Money transmission and Payment services Share dealing and investment advice  

4. Savings and investment accounts One function of the bank is to attract the depositors of funds. The bank pay the interest on the majority of fund deposited with them, and this deposited business is actually profitable for bank because they can on lend the money deposited to other customer at higher rate of interest. If the bank does not sufficient money to deposit to fund its lending it may have to borrow in money market. If the bank has surplus deposit then these fund can be placed on the money market at a rate of interest Lending facilities Bank “borrow” funds from depositors which are then advanced to other customers. The margin between the rate of return of interest paid by the bank and rate charged to borrower is profit for bank. Therefore that lending is important part of banking business .

5. Money transmission and Payment services Money transmission is the transfer of money one party to another, normally from the receiver of goods and services to the supplier of goods and services. Simplest form of money transmission is the physical transfer of cash from one party to another party. A payment services for accepting electronic payment by a variety of payment methods. Bank are preformed the payment function in banking operation. Following is numbers of method of Money transmission and Payment services Standing orders Direct deposit Banker’s draft Credit card Debit card Telephone banking Internet banking

6. Share dealing and investment advice Bank are provided a range of services and advice relating to investment in product not offered by them. The buying and selling of shares, government stocks and unit trust, local authority loans, can all be arranged through branches. Bank may also offer investment advice and manage portfolio of investor through specialist department.

7. Customer Relationship Management (CRM) - Customer relationship management (CRM) is the combination of practices, strategies and technologies that companies use to manage and analyse customer interactions and data throughout the  customer lifecycle , with the goal of improving customer service relationships and assisting in customer retention and driving sales growth. CRM systems compile customer data across different channels, or points of contact between the customer and the company, which could include the company's website, telephone, live chat, direct mail, marketing materials and  social media . CRM systems can also give  customer-facing  staff detailed information on customers' personal information, purchase history, buying preferences and concerns.

8. Importance Of CRM – A CRM system consists of a historical view and analysis of all the acquired or to be acquired customers. CRM contains each and every bit of details of a customer, hence it is very easy for track a customer In CRM system, customers are grouped according to different aspects according to the type of business A CRM system is not only used to deal with the existing customers but is also useful in acquiring new customers. The strongest aspect of Customer Relationship Management is that it is very cost-effective. All the details in CRM system is kept centralized which is available anytime on fingertips. Efficiently dealing with all the customers and providing them what they actually need increases the customer satisfaction.

9. Different Types And Services Offered To A Customers – The different products in a bank can be broadly classified into: Retail Banking. Trade Finance. Treasury Operations. Retail Banking and Trade finance operations are conducted at the branch level while the wholesale banking operations, which cover treasury operations, are at the head office or a designated branch. Retail Banking: Deposits Loans , Cash Credit and Overdraft Negotiating for Loans and advances Remittances Book-Keeping (maintaining all accounting records) Receiving all kinds of bonds valuable for safe keeping

10. Trade Finance: Issuing and confirming of  letter of credit . Drawing, accepting,  discounting , buying, selling, collecting of  bills of exchange ,  promissory notes ,  drafts ,  bill of lading  and other securities. Treasury Operations: Buying and selling of bullion,  Foreign exchange . Acquiring, holding,  underwriting  and dealing in  shares ,  debentures , etc. Purchasing and selling of  bonds  and securities on behalf of constituents.

11. Common Banking Products Available - Credit Card:  Debit Cards:  Automated Teller Machine:  Electronic Funds Transfer (EFT): Telebanking:  Mobile Banking:  Internet Banking:  Demat : .

12. The Role Of Technology In Banking Operations – The banking sector has embraced the use of technology to serve its client’s faster and also to do more with less. Emerging technologies have changed the banking industry from paper and branch based banks to ”digitized and networked banking services. E-banking : This enables the bank to deliver its services easily to its high end customers. To make the system user friendly to all clients, banks have used a Graphical User Interface  (GUI)  , with this software , customers can access their bank details on their own computers, make money transfers from one account to another, print  bank statements and  inquire about their financial transactions.

13. NRI Banking Services : This technology has been embraced in countries like India, USA, UAE, just to mention but a few.  Since many people go abroad to work, they have a need of supporting their families. So technology has made it simple for them to send money to their loved ones easily . RURAL Banking :  Unlike in the past when banking was centralized in urban areas, now day’s technology has made it simple to set up banking facilities in rural areas.  For example : In Africa, they have introduced Mobile money banking facilities. In this case a user in a rural area will have an account with a  mobile company  which is opened for free. They can then deposit money on that account via a near by mobile money operating centre. This money can be withdrawn at any time any were in that area and they can also receive or send money using the same system.

14. Plastic money:   Credit cards or smart cards like ‘ ’ VISA ELECTRON ’’  have made the banking industry more flexible than before. With a credit card , a customer can borrow a specific amount of money from the bank to purchase any thing and the bank bills them later. In this case, they don’t have to go through the hassle of borrowing small money. Then with ‘’Smart Cards’’ like visa electron , a customer can pay for any thing using that card and that money is deducted from their bank accounts automatically, they can also use the same card to deposit  or withdraw money from their accounts using an ATM machine.

15. Asset Liability Management – Asset/liability management is the process of managing the use of assets and  cash flows  to reduce the firm’s  risk of loss  from not paying a liability on time. Well-managed assets and liabilities increase business profits. The asset/liability management process is typically applied to bank loan portfolios and  pension plans . It also involves the  economic value of equity . sheet. Need Of Asset Liability Management – ALM basically refers to the process by which an institution manages its balance sheet in order to allow for alternative interest rate and liquidity scenarios .

16. ALM models enable institutions to measure and monitor risk, and provide suitable strategies for their management. ALM includes not only a formalization of understanding the risks, but also provides a way to quantify and manage these risks. RBI has developed an ALM framework based on GAP Analysis and is intended to introduce the banks to the process of ALM. Process of ALM is multifaceted and will vary from one bank to another. Based on the RBI model, banks can segregate their assets and liabilities into various maturity buckets.

17. Electronic banking – Electronic banking is a form of banking in which funds are transferred through an exchange of electronic signals rather than through an exchange of cash, checks, or other types of paper documents. Transfers of funds occur between financial institutions such as banks and credit unions. They also occur between financial institutions and commercial institutions such as stores. Whenever someone withdraws cash from an  automated teller machine  (ATM) or pays for groceries using a  debit card  (which draws the amount owed to the store from a savings or checking account), the funds are transferred via electronic banking.

18. Electronic Banking: Market Assessment – The Electronic Banking Market  size is expected to reach $29,976 million in 2023 from $7,305 million in 2016, growing at a CAGR of 22.6% from 2017 to 2023 . Electronic banking includes all kinds of online/internet transactions done for various purposes. It is the incorporation of new technologies, to deliver enhanced customer services. Customer convenience, higher interest rates, and technologically advanced interface majorly drive the market. High security risk of customer’s data hinders the market growth. Growth in smartphone usage, increase in internet penetration among consumers, and increasing technology and growth of developing economies in Asia-Pacific region are some of the key factors, which are fuelling the market growth.

19. E-Commerce - E-commerce (electronic commerce) is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the internet. These business transactions occur either as business-to-business ( B2B ), business-to-consumer ( B2C ), consumer-to-consumer or consumer-to-business. The terms e-commerce and e-business are often used interchangeably. The term e-tail is also sometimes used in reference to the  transactional processes  for online shopping . Types Of E- Commerce - Business-to-business (B2B)  E-commerce refers to the electronic exchange of products, services or information between businesses rather than between businesses and consumers. 

20. Business-to-consumer (B2C)   It is the retail part of e-commerce on the internet. It is when businesses sell products, services or information directly to consumers . Consumer-to-consumer (C2C)   It is a type of e-commerce in which consumers trade products, services and information with each other online . Consumer-to-business (C2B)  It is a type of e-commerce in which consumers make their products and services available online for companies to bid on and purchase. Business-to-administration (B2A) It   refers to transactions conducted online between companies and public administration or government bodies

21. E-banking in India In India, since 1997, when the ICICI Bank first offered internet banking services, today, most new-generation banks offer the same to their customers. In fact, all major banks provide e-banking services to their customers. Popular services under e-banking in India ATMs ( Automated Teller Machines ) Telephone Banking Electronic Clearing Cards Smart Cards EFT ( Electronic Funds Transfer ) System ECS ( Electronic Clearing Services ) Mobile Banking Internet Banking Telebanking Door-step Banking

22. Further, under Internet banking, the following services are available in India : Bill payment  – Every bank has a tie-up with different utility companies, service providers,  insurance  companies, etc. across the country. The banks use these tie-ups to offer online payment of bills (electricity, telephone, mobile phone, etc.). Funds transfer   – A customer can transfer funds from his account to another with the same bank or even a different bank, anywhere in India. He needs to log in to his account, specify the payee’s name, account number, his bank, and branch along with the transfer amount.

23. Investing  – Through electronic banking, a customer can open a fixed deposit with the bank online through funds transfer. Shopping  – With an e-banking service, a customer can purchase goods or services online and also pay for them using his account. Shopping at his fingertips.

24. Internet Banking Strategies – E-banking strategy has become an alternative if modern financial institution. E-banking strategy that considers factor such a customer demand, competition, expertise, implementation expense, maintenance costs, and capital support has become competitive edge of modern successful financial institution. Some institution may choose not to provide e-banking services or to limit e-banking services to an informational website. Understanding e-banking important for several stakeholder, not least of which is management of banking related organisations, since it help derive benefit for it.

25. The internet as a channel for service delivery is different from other channel such as branch networks, telephone banking or Automated teller machines. Therefore, it brings up unique type of challenges and requires innovation solution. Bank have already implemented or are planning to implement e-banking strategy because of the numerous potential benefits associated with it. Internet banking has evolved into a “one step service and information unit” that promises great benefit to both bank and consumers. E-banking achieve the 24 hour availability strategy with lower error rate and quick financial services .

26. Risks of E-Banking Operational Risk - Operation risk or transactional risk is the most common type of risk of e-banking. It includes: Incorrect transaction processing Compromises in the integrity of data, data privacy, and confidentiality Unauthorized access to the bank’s systems Non-enforceability of contracts, etc. Security Risk When we talk about banking transactions, security of the transaction is of paramount importance. All customers want their transactions to be confidential. However, since all information is online, there is always a chance that someone might retrieve the information and misuse it.

27. Reputational Risk For any business, its reputation is of critical importance. When it comes to electronic banking, if a bank fails to perform critical functions or not work according to the expectations of its customers, then it faces a risk of loss of reputation. This eventually leads to a loss of funding or customers. Legal Risk Whenever there is a violation of laws, regulations, or prescribed practices, or when the legal rights and obligations of any of the parties to a transaction are not established, then there is a legal risk involved. Money Laundering Risk All transactions through the e-banking channel are done remotely. Therefore, it is difficult for banks to use traditional methods to detect and prevent criminal activities.

28. Cross-border Risks The core idea of electronic banking is to extend the geographical reach of both banks as well as customers. This means that the expansion can go beyond national borders. This leads to several cross-border risks . Strategic Risk This risk is associated with issues pertaining to: The development of a business plan In the case of outsourced activities, the credibility of the vendor For employees, any change in the work environment Level of technology used in comparison with the available technology, etc.

29. Other Risks The other risks of e-banking are the same as those of traditional banking like credit risk, liquidity risk, interest rate risk, market risk, etc. However, in e-banking, these risks are magnified due to the use of electronic channels and the absence of geographical boundaries.

30. Payment and settlement systems in India  - Payment and settlement systems in India  are  payment  and  settlement  systems in India for financial transactions. They are covered by the Payment and Settlement Systems Act, 2007 (PSS Act), legislated in December 2007 and regulated by the  Reserve Bank of India  and the Board for Regulation and Supervision of Payment and Settlement Systems. Electronic Clearing Service (ECS Credit) Known as "Credit-push" facility or one-to-many facility this method is used mainly for large-value or bulk payments where the receiver's account is credited with the payment from the institution making the payment. Such payments are made on a timely-basis like a year, half a year, etc.

31. Electronic Clearing Services (ECS Debit) - Known as many-to-one or "debit-pull" facility this method is used mainly for small value payments from consumers/ individuals to big organizations or companies. It eliminates the need for paper and instead makes the payment through banks/corporates or government departments. It facilitates individual payments like telephone bills, electricity bills, online and card payments and insurance payments .

32. RTGS – Real-time gross settlement The acronym 'RTGS' stands for real time gross settlement. The  Reserve Bank of India  (India's Central Bank) maintains this payment network.  Real Time Gross Settlement  is a funds transfer mechanism where transfer of money takes place from one bank to another on a 'real time' and on 'gross' basis. This is the fastest possible money transfer system through the banking channel. Settlement in 'real time' means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. 'Gross settlement' means the transaction is settled on one to one basis without bunching with any other transaction.

33. National Electronic Funds Transfer (NEFT ) - National Electronic Fund Transfer (NEFT) system is a nationwide system that facilitates individuals, firms and corporates to electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country. It is done via electronic message. Unified Payments Interface (UPI) UPI is an instant real-time  payment system  developed by India facilitating inter-bank transactions. The interface is regulated by the  Reserve Bank of India  and works by instantly transferring funds between two bank accounts on a  mobile platform

34. Conclusion – Now a days, the nature of banking operation is modern one. The scope of banking business is very wide. Technology plays a very essential role in banking operation. E-Banking is the electronic banking which gives a faster services to customers and saves the time. E-Commerce is electronic commerce which includes the online trading. A customer of a bank can transfer an amount from one bank to other through RTGS and NEFT system

35. References - Modern banking of India- O.P.Agarwal -Himalaya publication- 2 nd edition. Banking theory, Law And Practice- E.Gordon & Natrarajan - Himalaya publishing house