Trends in Banking

Topics: Bank, Online banking, Banking Pages: 13 (2172 words) Published: April 22, 2014
Banking in India:
evolution in technology

Thought Paper

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Origins of banking
The origins of banking can be traced to ancient
times, starting with rudimentary money lending
and bartering practices for agricultural and
other commodities. But it gained great
momentum only after the industrial revolution
which commenced in Europe in the 17th century,
when Europeans started establishing colonies
around the world and the need for credit for
trade was felt like never before.

until late into 20th century. But the arrival
of the Internet in the 1990s changed all that.
A plethora of possibilities emerged for
worldwide commerce, which naturally impacted
the functioning of banks as well. Even now,
technology evolution shapes the nature
and extent of global economic activity and
continues to fundamentally alter the global
banking landscape.

Ever since banks started operating, their essential
mode of operations remained much the same

The Indian banking scene
In India, banking as an institution originated in
the late 18th century and primarily catered to
the needs of the British. Post-independence,
the nationalization of major private sector banks
in 1969 – an important milestone in the Indian
banking system – made banking accessible to
the unbanked population in India.
The economic liberalization in the early 1990s
ushered in the era of privatization wherein
many new private banks – the ‘new generation

02

Thought Paper

tech-savvy banks’ – were launched. A few
foreign banks commenced their India operations
as well. All these banks were quick to leverage
emerging technology, were competitive in
wooing customers and winning them over by
providing professional services. This helped
infuse a sense of urgency in public sector banks
and older private sector banks to mend their
ways, which in turn completely revitalized
banking operations in India.

Impact of the IT revolution
The opening up of the Indian economy in
1991 almost corresponded with the worldwide
Internet revolution which doubly impacted
the Indian private and public sector banks that
were still stuck in old ways of functioning.
Once Indian IT services companies started
booming, it was just a matter of time before
Indian
banks
wholeheartedly
embraced
technology. This paved the way for business
process automation in banking, which enhanced
customer service, reduced manpower costs
and increased profitability. Apart from normal
banking products, Indian banks started selling
third party products such as mutual funds and
insurance to their clients as well. This single
window selling saved the customer’s time and
enabled the bank to enrich the relationship.
The Reserve Bank of India, India’s Central
Bank, not to be left behind, played its part

in
this
transformational
journey,
by
issuing regulations and recommendations on
banking mechanization and computerization.
Establishment of computerized inter-connectivity
across bank branches, introduction of MICRbased cheque clearing, modernization of payment services and settlements through
Electronic Clearing Services (ECS), Real Time Gross
Settlement System (RTGS), National Electronic
Funds Transfer (NEFT), were all significant
landmarks in the banking technology revolution.
Continuing advances in technology rise in
middle class income levels, and increase in
demand from a consumer-oriented financial
market, soon catapulted the Indian banking
sector to a customer centric, technology driven,
financial supermarket catering to the varied
needs of its customers.

Significant milestones
Over the years, there has been a noticeable
shift
from
traditional
to
channel-based
banking. Introduction of ATMs (Automated Teller
Machines) provided customers with “any
time” access to their money. The credit card by
enabling...
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