Revolution In Indian Banking Industry Transforming Life Of Millions

Posted in Finance Articles, Total Reads: 6446 , Published on 25 July 2012

Banking in India is as old as its trade and commerce. It had developed good social organization. Manu, the great Hindu law –giver of ancient India had  dealt with law relating to deposits and money lending. The operations of the then bankers comprised of accepting deposits, advancing money against pledge of goods, securities as well as mortgages, granting personal loans, acting as bankers for King or the Government, as custodian for valuables and sometimes even managing currency of State.

The banks play an important role in the economic life of the country. At present, their importance can be understood by the fact that the failure of one big bank can shake the roots of the whole global economy, and can bring in major recession in the world. As in 2008, the collapse of Lehman Brothers, caused the recession worldwide. Its consequences are still not over.

In the pre-banking era, the people used to depend upon the money lenders to serve their needs of money and were often exploited by them. When the banks came into existence, it facilitated the exchange of money and trade and promoted the welfare of society. In traditional banking, much of the operations of the banking industry were manually operated. There was large amount of human intervention. Manual registers and pages using dot matrix printer were used for storing record. As it is said “To err is human”, so the system was prone to error. It was prone to manual errors.

As the systems were not unified, integration of data across the nation was also an issue. So the data collected at HO level was not consistent, which also affected their decision making ability. Earlier the customer was restricted to his branch. The customer had to face restrictions on operations of his account even with same bank but at different branch. So in a way customer was disabled. Different processes were followed at different branches of the same bank. It lacked standardization of procedures.

Even if the bank wanted to introduce a change in a particular process, then to implement it at a national level it was very difficult. With such banking technology data analysis or business intelligence was very limited. Neither the bank could gather right information nor was it able to make optimal use of existing data. This severely hampered the banking business as a whole. Going to bank was like an item of agenda for people. Even for deposit or withdrawal of money, a lot of customer’s time was spent.

Then came the Liberalization era in the early 1990s,the then Narasimha Rao government embarked on a policy of liberalisation and gave licences to a small number of private banks, which came to be known as New Generation tech-savvy banks. With IT revolution around the globe, it entered into banking domain as well. Banking is the lifeblood of any country’s financial system. With the traditional system in place, need of the hour was to infuse technology in banking.


Remember the days when people used to stand in long lines to withdraw money or when a cheque deposited took a week to get credited to your account. The banking industry has traveled a long way from there and all this has been possible due to use of information technology in banks. Information and communication technology has brought a transformational change in banking operations and payment systems in banks.

Banks have benefited a lot by this in terms of reduction in operational costs and efficiency improvement. But the primary beneficiaries of this have been the bank’s customers. Some of the transformations brought about by inclusion of IT and how it has benefited the bank’s customers are depicted below:-

Core Banking Solution (CBS) - A comprehensive, integrated-yet-modular core banking solution, can cater to bank’s needs and multiple business segments. With Core Banking Solution, banks can effectively meet challenges of reducing operational cost and establishing customer intimacy. It can enable bank to reduce the time to market for new products, thereby staying ahead in the competition, and­­­ fulfilling compliance mandates. Banks can also manage higher transaction volumes and increased customer expectations, with ease.

CBS integration completely revolutionized the way banks operate. It has automated all core banking operations such as recording of transactions, passbook maintenance, interest calculations on loans and deposits, customer records, balance of payments and withdrawal. Customers can deposit or withdraw money from any of the bank branch all over the country. This saves a lot of time and cost for both the bank and the customer.

Automated teller Machines - Earlier people had to visit branches to withdraw money or at the time of emergency at night or holidays, they had to rely on others for money.  But now with the huge network of ATMs there is no need for the customers to visit the bank branches and stand in long queues to withdraw or deposit money. They just have to visit any nearby ATM (of any bank), swipe their card and withdraw money within seconds.

Smart Cards - It is popularly known as plastic money. These pocket sized integrated circuit embedded cards have eliminated the need for paper money. People need not to carry loads of cash in their pocket, they can shop by swiping their card and the money automatically gets debited from their account.

Internet Banking - It has eliminated the need to visit bank branch to a great extent. Just sit in the comfort of your house and customers can perform any banking transaction they want to perform. Checking account statements, transferring money, paying bills etc everything has been made possible at a click of a mouse.

MICR and automated cheque clearing - Magnetic ink character recognition (MICR) allows computers to read the number printed on the cheque. This expedited cheque clearing process to a great extent and also eliminated human errors. Now with the introduction of automated cheque clearing and cheque truncation system (CTS) the need for physical cheques is completely eliminated. Cheques can be scanned and converted to electronic form. This saved the time required to transfer cheques from one city to other and reduced the cheque clearing time from 3 days to 1 day.

Mobile banking - This has further increased the ease for a bank’s customer. Now the customer does not require a pc or laptop to get in connection with his bank. He can perform all banking transactions via a mobile device kept in his pocket.

Banking the unbanked - Information technology is also playing a key role in financial inclusion. Financial institutions such as FINO make use of technology for acquiring customers in rural areas. Fino’s banking correspondents move with hand held devices in rural areas and enable transactions at customer doorstep. This proves to be a lot of ease for customer and also reduces cost of transaction for bank, a transaction that costs $1 at a bank branch costs only 40 cents using FINO’s banking correspondent model. Technology has also helped in improving the operational efficiencies in government facilities such as PDS, NREGA and RSBY.

RFID in Banks – The latest trend in the banking industry is the usage of RFID technology for the better customer relationship management. New tech savvy banks like YES bank, use this technology for its customers so that it can give  a personal touch to its customers when they enter its premises.

The RFID enabled chips in mobiles of customers help them to pay at shopping centres just by waving their mobiles in front of contactless readers. The money is directly debited from their accounts.

Bank2.0- With   growing number of foreign players, distribution of new banking licenses and the growing popularity of social networking sites like facebook and twitter, Bank2.0 seems to be the future of banking. Banks can start maintaining their own blogs, create financial forums, provide video tutorial and video calling and engage in community banking. Banks actually need to provide a platform for interaction among its customers. This will increase the operational efficiency of banks manifold, as customers can directly interact with bank officials or with other customers over the web. There will be no need for customers to visit bank branches. Bank’s cost for employing special advisory officers will also be reduced as customers  will act as advisers to one another and also to the bank. We can say, virtual banking is the future of banking industry.

The intervention of information technology in banks has transformed the life of human civilization, and has improved not just the operational efficiency of banks but has also made the life of a customer easier. The human civilization which was earlier dependent on money lenders for money and were severely exploited by them can now make the optimum usage of their money. We can conclude, the use of information technology in banks is contributing immensely in the welfare of society as a whole.

This article has been authored by Harsh Dingwani & Nitin Gupta from NMIMS.

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