INDIAN PUBLIC SECTOR BANKS IN THE HI-CH ENVIRONMENT A CASE STUDY OF STATE BANK GROUP. --Dr KASTOORI SRINIVAS

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1 INDIAN PUBLIC SECTOR BANKS IN THE HI-CH ENVIRONMENT A CASE STUDY OF STATE BANK GROUP --Dr KASTOORI SRINIVAS ABSTRACT The financial system of our country consists of organized and unorganized sector. The organized sector represents the structure nationalized banks, co-operative banks, and development banks; this includes the private sector also. The Reserve Bank of India controls this sector. Commercial Banks play a dominant role in the process of financial intermediation which credit and monetary policies are transmitted to the economy, with the privatization, liberalization and globalization processes have been introduced in our country in the early 90 s the banking sector has undergone a drastic changes. India moved from a closed financial system to free financial system. These changes tried to improve the efficiency of the banking sector. New norms were suggested to tackle the internal deficiencies as well as external environment of the banking sector. But these changes are creating some challenges. The present study discuss few challenges in the High-Tech Environment are being faced by PSBs in India. STATEMENT OF THE PROBLEM Banking is the lifeline of an economy. They are the catalytic agent and in the driver s seat of the financial system. The importance of commercial banks in the process of economic development has been stressed from time to time by the economic thinkers and progressive bankers in the country. In PSBs, Commercial banks play a very important role in our economy; in fact, it is difficult to imagine how our economic system could function efficiently without 1

2 many of their services. They are the heart of our financial structure, since they have the ability, in cooperation with the Reserve Bank of India, to add to the money supply of the nation and thus create additional purchasing power. Bank s lending, investing and related activities facilitate the economic processes of production, distribution and consumption. Previously banks served the public with traditional banking products such as Saving Bank, current account, term deposits, cash credits and term-loans etc. Recently banks are extended their services in order to occupy more market share, entry of new players has boosted the competition, and the technological advancement of information technology has entered in the banking sector. Web Banking E Banking E Commerce E Business etc. have become the buzzwords of the day and the banks are trying to cope with the competition by offering innovative and attractively packaged technology based services to their customers. The current phase of the banking cycle appears to be driven by the downturn in economic activity rather than financial distress. Significantly, the largest financial institutions are among those affected by credit concerns. Worldwide financial systems have undergone structural changes. The global factors driving these changes have been advancements in technology and computing external financial liberalization and organizational changes in corporate world. Globalization and banking operations and expansion of financial activities as a result of technology advancements, in an increasingly market-driven environment have redefined the business models and changed the way the banks used to do the banking business. The International Banking scene has undergone drastic changes, with the introduction of computer and telecommunication technology, which have led to geographical and financial 2

3 integration of international financial market in recent years. Banks are coming out with more and more features to add value to retail banking products and services. Few value-added services being offered by banks are: Free collection of specified member of outstation instruments per month. Instant credit of outstation cheques. Concession in commission / exchange for issuance of pay orders of demand drafts. Issuance of free cheque books. Concession in commission / demand drafts. Issuance of free ATM Cards. Waiver of credit card issuance fees. Issuance of free Add-on cards to members of the Card holder s family. Execution of standing instructions of customer. Free investment advisory services. Payment of utility bills like Electricity, Telephone and Water Bills on due dates. Payment of monthly / quarterly education fees of children. Payment of insurance premium on due dates. Demoting of shares, debentures and bonds. Selling of insurance products. Housing finance etc. 3

4 Indian Banking system has undergone a drastic change in the Information Technology. There has been a significant change in the structure composition management objectives and the mode of working of the banking institutions over the last one decade or so. In a developing economy commercial banks play a vital role in contributing towards the economic growth through mobilization of deposits and allocation of credit for productive purposes. Learning aside their contribution to the economic growth, it is needless to say that banking has become an essential part of our day to day life. They draw the community savings into the organized sector which are them allocated among the different economic activities according to the priorities laid down by the authorities i.e. RBI & Government of India. PSB's IN THE NEW MILLENNIUM(INFORMATION TECHNOLOGY) Banks are changing, their business is changing, their ownership pattern is changing and the way they are managed is changing. Loan-Loss provisioning norms have become mandatory. Compliance with capital adequacy ratios will drive them deeper into the equity and debt markets and non-compliance for any reason, will severely threaten their ability to tae on new business. Share holders will constantly clamour for higher dividend payouts and issue of bonus shares. A new banking environment has emerged, compelling banks to stay lean, mean and hungry. In this new environment, technology, data bases and provision of value added services and not in cement and concrete branches, following a mindless 10 a.m. to 2 p.m. routine. On-line banking thus represents the new paradigm in banking and by embracing it willingly and confidently, public sector banks have increased their efficiency, upgraded quality of service and improved productivity. This paradigm should strategically develop over the year. 4

5 Modern banking in India was started by private entrepreneurs. They attracted deposits from public by paying some interest on the deposits. More than the earnings, the attraction for the common people to put their money in banks was safe-custody. Thus, the bankers started their business with other people s money. As the depositors do not draw their entire deposit money at the same time, ban could use this money to lend to individuals and business forms on which they could collect higher rates of interest. Thus, the banking business, which was expressed as your money with our brain flourished well. As days passed on, the gained more and more good will and public confidence and were able to attract larger amounts of deposits from common man. The Banking sector in India adopted the use of computers only in the early 1980 s. Due to the computerization in the banking industry, the banking is taking a different shape as far as the customer service is concerned. Customers are getting somewhat better service now from the computerized branches. But with the advent of internet and its usage in the banking service, the customer services have become just the simplest possible or rather it is now home banking. It is more or less become a paper less banking too. The private banks in India are the foremost in offering these services. The Internet banking in now quite popular in western counters. But there is a need to assess this technology trend in the Indian context since it needs a lot of expenditure in providing the infrastructure, if has to be looked form the mindset of an Indian Customer in accepting this service and his capacity of using these. Thus Internet banking has brought the bank to the home of the customers and the banking hall is the banks in future can be dispensed with Internet banking is the most Convenient Banking in real terms. Computerization would have the effect that calculations formerly done manually by clerks and officers would now be done by computers in a more quickly and efficient manner. The introduction of prudential accounting norms, 5

6 provisioning and greater transparency in the books of accounts make them more accountable for performance especially in the context of banks going public almost one third of the staff time has been spent on retrieval, collection and compilation of data required for various statements. Growth of the Internet and wireless communication technologies, advances in telecommunications are have dramatically changed the structure and nature of financial services. However, Internet Banking is only in a rudimentary stage in India. Even then, with the purpose of promoting safety and soundness for E-Banking activities and as a precautionary measure. Reserve Bank of India has issued guidelines to banks on Internet banking covering. The risks associated with Internet banking. The technology and security standards for Internet banking. Legal issues relating to this new type of activity and The regularity and supervisory concerns of Reserve Bank of India. In the India Scenario, this concept is very new and will take some time to change the mind-set of Indian consumers to accept it. Such situation is going to come even if consumers are only lukewarm to the idea, the business will want to push on-line banking / bill paying because to the huge potential pay off that comes from eliminating paper-based banking / trading / credit cards billing. STATE BANK GROUP The State Bank of India was set up in July, 1955, under the SBI Act, 1955 when in took over the assets and liabilities of the former Imperial Bank of India. The Imperial Bank, which was the biggest commercial Bank in the country, being a non-indian Institution was not sympathetic to Indian business interest. The basic objective of the nationalization of the S.B.I. was to establish a Government 6

7 owned banking institutions which could actively participate in the development programmes of the country especially in the rural and semi urban areas. The S.B.I. Acts as the agent of the Reserve Banks at places in India where it has a branch and where the Reserve Bank has no branch besides performing the normal commercial banking functions the S.B.I. actively participates in the development programmes by extending credit facilities to the Small-Scale Industries, self-employed technical persons, remittance facilities, loan to cooperative Banks, assistance to land development banks, village adoption scheme, agricultural development branches, integrated rural development etc. with increased competition and new business opportunity, it is imperative for the Bank to introduce and absorb technology extensively and at a rapid speed, not only to remain customer friendly, efficient and competitive for existing services and business but also, and perhaps more importantly, to be able to manage newer forms of business and services in an increasingly dynamic and global environment. The bank s effort to improve efficiency and customer service through use of technology is reflected in the rapid pace of its branch computerization. Branch computerization has facilitated the launch of innovative and customer-friendly products like cash management product, multioption deposits, tele-banking services and remote login facility for corporate customers. ONLINE SB GROUP SERVICES The State Bank of India is the largest Commercial Bank in India in terms of profits, assets, deposits, branches and employees. A network of eight Indian Banking subsidiaries of the Bank, comprising seven Associate Banks and S.B.I. Commercial and International Bank Ltd., are engaged in the business of Commercial Banking in the country. Branches of the seven associates are located in various regions of the country. Bank also provided financial services though its Non-Banking subsidiaries, and primary dealing in government 7

8 securities. The bank is also engaged in international banking principally for its Indian customers. The international banking group services the needs of the Banks domestic corporate and the other customers in financing import and export transactions. The continuing deregulation of India s financial services sector has resulted in increased competition for the Bank. In order to maximize shareholder value in this increasingly competitive environment, the bank aims to profitable while consolidating its position as India s leading bank, and capitalize on opportunities presented by deregulation and other changes in the financial services sector to further enhance profitability through Develop and market new product and services through online banking system. At present various banking services are available under E-Banking services in India as under : E-Banking Services i) ATM (Automated Teller Machines) ii) iii) iv) Any where Banking Debit Cards / Credit Cards / Smart Cards Internet Banking v) ECS (Electronic Cleaning Systems) vi) vii) EFT (Electronic Funds Transfer) Electronic Data Inter Change viii) INFINET (Indian Financial Network) ix) On-Line Banking x) SPNS (Shared Payment Network System) xi) Tele Banking 8

9 xii) Universal Banking xiii) 24 Hours Banking xiv) Corporate Banking Terminals NEED FOR THE PRESENT STUDY Indian Banking system would grow not only size but also in complexity, with the increasing levels of globalization, liberalization, privatization and new reforms of the Indian Banking Sector, competition will intensity further. Commercial Banks in India need to handle these problems and challenges successfully to keep growing and strengthen then the Indian Banking Sector as well as Indian Economy. The financial strength of individual banks, which are major participants in the financial system, is the first line of defence against financial risks. Banks always maintain good operating standards, risk management system and a sound capital structure, in a better position to absorb the future financial shocks. Efficient delivery of information pertaining to customer needs and preferences will hold the key to success of banking players. Few of the challenges of banking sector are as follows : CHALLENGES OF BANKING SECTOR 1. Globalization and Privatization 2. New Technology 3. Innovation of banking products 4. Customer Relation 5. Competition in Retail Banking 6. Mergers in Banking 9

10 7. Political and Administrative Interference 8. BASEL II Norms : etc. For the long time banks has been restricting to limited products but the globalization, liberalization and opening up of economy has made it necessary for the banks to innovate its product / services and launch new products / services to cater to the growing and changing needs of customers. The product / services offerings is the most crucial element in marketing of banking services. In the present banking system, new challenges, the use of computer and communication technology will assume a critical role. Banks customers are becoming very demanding and it is the extensive use of technology that will enable banks to satisfy adequately the requirements of customers. The use of technology would also improve availability of information for management decisions and for monitoring operations. It must be realized that informational gaps are a source of credit risk. Technology must be used to strengthen internal control, improve the accuracy of records management, and facilitate provision of new products and services. Whether it be the area of customer service, or better risk management, or introduction of new products or transfer of funds, technology can help banks to achieve their goals. Thus the four major objectives of computerization in banking are : Improvement in customer service, better house-keeping, faster decision making and increase in productivity, profitability and service in the context of Hi-Tech environment. This calls for an intelligent use of technology for which training is essential. Employees need to be equipped with new expertise and techniques in order to operate successfully in the new more demanding environment. The competitiveness of the Indian Banking Industry and its future success depends critically on how reliable and efficient their services are Indian Banks are faced with a quantum jump in information processing and the challenges perceived for the banking system are speedily increasing every day. In such a situation 10

11 modern banks are becoming more Skills intensive and are adapting to changes in the technological front. To say that banks in future cannot survive without the support of Information Technology is merely stating the obvious. The environment in which banks are operating in India and to the compulsion that work to make computerization in banks an imperative. The development and use of communication networks have also helped the banking industry to gain in terms of improved bank services. Given the infrastructure and level of computerization in the industry it is clear that banks in future are going to be modern with inter connectivity s facilitated by emerging technologies. The Information Technology Industry should gear itself to meet the requirements of the banking and financial sector with a spirit of cooperation and partnership in making the banking industry scale the heights of international excellence. The present study is an attempt to evaluate the Information Technology in banking sector with special reference to select Indian Commercial Banks especially, State Bank of India. OBJECTIVES OF THE STUDY The main purpose of this study is to understand the working environment in Banking Sector and to investigate the relationship between new opportunities and challenges facing by Indian Banks in the context of High-Tech Environment, and also, this study examine the trends, progress, growth of Information Technology in the new era. To achieve the main purpose and to give direction to the study the following objectives are set forth. i) To understand the working environment of Indian Public Sector Banks. ii) To study the need nature and extent of growth of Information Technology in banking sector. 11

12 iii) iv) To investigate the relationship between new opportunities and challenges facing by Indian Banking Sector in the context of High-Tech Environment. To analyze the performance of public sector banks on important parameters in adopting various Hi-Tech systems. v) To examine the challenges faced by State Bank Group in terms of improving their efficiency, productivity, profitability and products / services. vi) To suggest measures for the development of Information Technology to improve the better banking services in the competitive Global Environment. METHODOLOGY OF THE STUDY Primary Data is to be collected from the S.B.I. and its subsidiaries for studying the impact, need, and extent of growth of Information Technology and is to be design through questionnaire in two parts. First Part contains 20 questions, which gives an idea about the customers opinions with regard to speediness of various transactions and products offered, under Information Technology. Second Part gives the customer general assessment about the quality of services working Environment of Indian PSBs and growth of Information Technology in banking sector. 12

13 DATA BASE: Both primary and secondary data is to be collected on various items for the study: The Secondary Data is to be collected from various books, periodicals and reports of different agencies like Reserve Bank of India, various Staff Training Colleges, Institute of Development Research in Banking Technology (IDRBT) and monthly bulletins etc. Some other reports published by individual banks and other agencies which is to be used for its study. TOOLS OF DATA ANALYSIS: The data to be collected from primary and secondary sources is to be analyze with the help of some statistical tools like co-relation, average, percentages, compound growth rates etc. LIMITATIONS OF THE STUDY The present study is limited to only State Bank of India in Hyderabad District of Andhra Pradesh. The performance of S.B. Group is to be studied in terms of Growth & Impact of Information Technology, Challenging services in Banking Sector. The other aspects like NCBs Management problems, training strategies, new opportunities and challenges by Indian Banking Sector in the Hi-tech Environment. 13

14 REFERENCES 1) Rangarajan C. Banking in the High-Tech, Environment State Bank of Hyderabad, Planning News Letter, March, 2000, Vol. No. 95, PP ) Raj Kapila : on going developments in Banking and Financial Sector A.F. Book News Vol. IX, No. 5, February, 2001, PP ) SAHOO, B. : Banking Technology Vision, IBA Bulletins June, 1999, Vol. XXI, No. 6, PP ) Yogeshwar Kumar : Electronic Banking I.B.A. Bulletin, March, 2000, Vol. XX, No. 5, PP ) Palsokar : Electronic Banking I.B.A. Bulletin, March, 2000, Vol. X, No. 2, PP ) Mittal S.R. : Banking Technology the Journal of the Indian Institute of Bankers, Vol. 3, October November, 2000, PP ) Hemvathi Sekar : Computerization of Indian Banking Industry, Vol. No. 45, PP ) Ganesh : Applications in Banking, I.B.A. Bulletin, February, 2000, Vol. XI, No. 4, PP ) Jagat Singh Bisht and KK. Raghu Shetty : S.B.I. Products and Services, Vol. 12, Page 1 of 111 compiled source in Annual Report of S.B.I. 10) B.B Pawar : The Problem of estimating deposit potential, S.B.I. Monthly Review, Vol. IX, No. 8, August, ) H.N. Agarwal : Social Obligations of Public Sector Commercial Banks, IPE Journal, Vol. IV, No. 1, January March, ) Performance of Public Sector Banks in India, The Indian Banker Journal, Page 34 42, July, ) Report of the Committee on Customer Service in Banks appointed by R.B.I., December, 1991 under the Chairmanship of Shri M.N. Goiporia, Chairman, S.B.I. 14) R.B.I. Report on Trend & Progress of Banking in India. I.B.A. Bulletin, January Vol. XXVI, No.1, Special issue of a Monthly Journal published by the Indian Bank Association. 14