Impotance of IT in Banking

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A PROJECT REPORT ON

IMPORTANCE OF IT IN BANKING

A Project report submitted to Department of Business Management, UCC&BM, OU campus,

In partial fulfillment

Of the requirement for the award of

MMASTER OFASTER OF BBUSINESSUSINESS AADMINISTRATIONDMINISTRATION

Submitted by:

SHAKEER SHAIK

MBA- Technology Management

H. No: 100409675011

Under the guidance of

Dr. SHAILAJA GAJJALA

Professor, DBM, Osmania University

DEPARTMENT OF BUSINESS MANAGEMENT

OSMANIA UNIVERSITY CAMPUS

HYDERABAD 500 007

2010 2011

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DECLARATION

I hereby declare that this Project Report titled IMPORTANCE OF

Information Technology IN BANKING submitted by me to the Department

of Business Management, O.U., Hyderabad, is a bonafide work undertaken by

me and it is not submitted to any other University or Institution for the award of

any degree diploma / certificate or published any time before.

Date:

Place: Hyderabad SHAKEER SHAIK

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CERTIFICATION

This is to certify that the Project Report title IMPORTANCE OF

Information Technology IN BANKING submitted in partial fulfilment for

the award of MBA Programme of Department of Business Management, O.U.

Hyderabad, was carried out by Shakeer Shaik under my guidance.

Dr. SHAILAJA GAJJALA

Professor Signature of the Guide

DBM, Osmania University.

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ABSTRACT

With the rapid globalization of the Indian economy, enterprises are facing with ever changing

competitive environment. Enterprises are adopting strategies aimed at developing competitive

advantage based on enhanced customer value in terms of product differentiation, quality,

speed, service and costs. In the post liberalization era, with the deregulation of Indian

economy, the financial service sector witnessing a complete metamorphosis and technology is

playing a very significant role in this record. Over the last decade India has been one of the

fastest adopters of information technology, particularly because of its capability to provide

software solution to organizations around the world. This capability has provided a

tremendous impetuous to the domestic banking industry in India to deploy the latest in

technology, particularly in the Internet banking and e-commerce arenas. Banks are growing insize by mergers and acquisitions, which have been driven by communication and technology.

Technology is playing a major role in increasing the efficiency, courtesy and speed of

customer service. It is said to be the age of Ebanking. An Online Banking user is expected to

perform at least one of the following transactions online:

1. Checking account balance and transaction history

2. Paying bills

3. Transferring funds between accounts

4. Requesting credit card advances

5. Ordering checks

6. Managing investments and stocks trading

From a banks perspective, using the Internet is more efficient than using other distribution

mediums because banks are looking for an increased customer base. Using multiple

distribution channels increases effective market coverage by enabling different products to be

targeted at different demographic segments. Moreover Internet delivery offers customized

service to suit the needs and the likes of each user. Mass customization happens effectively

through Online Banking. It reduces cost and replaces time spent on routine errands with

spending time on business errands. Online Banking means less staff members, smaller

infrastructure demands, compared with other banking channels. From the customers

perspective, Online Banking provides a convenient and effective way to manage finances that

is easily accessible 24 hours a day, seven days a week.

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ACKNOWLEDGEMENT

I would like to acknowledge my sincere gratitude to Prof. Dr.SHAILAJA GAJJALA, Dept. Of Business Management, Osmania

University, for her excellent guidance and supervision in the completion of this

project successfully.

I wish to thank our Principal Prof.V.VENKATESHWARLU, UCCBM,

Osmania University for enabling me to do this project.

I am deeply indebted to my Parents whove always believed in me

and encouraged me in my endeavours.

Shakeer ShaikH. No. 100409675011

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Table of Contents

Sr. No Topic Pg. Nos.

1 Introduction 7 10

2 Overview of Credit Analysis 11 14

3 Lending Process 15 19

4 Financial Statement Analysis I 20 24

5 Financial Statement Analysis II 25 30

6 Non Financial Analysis 31 32

7 Credit Models 33 49

8 Conclusion 50-51

9 Bibliography 52

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INTRODUCTION

INTRODUCTION

A feature of the banking industry across the globe has been that it is increasingly

becoming turbulent and competitive, characterized by an increasing trend towards

internationalization, mergers, takeovers and consolidation of the banking industry. Moreover

a number of non-banking companies are entering the banking industry by offering financial

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products and services (e.g., Toyotas credit card, GMs auto financing, etc). This has given

innumerable options to customers in choosing banking services. As a response and aided by

technological developments, banks have attempted to build customer satisfaction through

providing better products and services and at the same time to reduce operating costs. Thus

the banking industry has been constantly innovating and with the advent of technological

developments, particularly in the area of telecommunications and information technology,

one of the latest innovation that took birth, and quite inevitably, has been the internet.

With cyber cafs and kiosks springing up in different cities access to the Net is going

to be easy. Internet banking (also referred as e banking) is the latest in this series of

technological wonders in the recent past involving use of Internet for delivery of banking

products & services. Even the Morgan Stanley Dean Witter Internet research emphasized that

Web is more important for retail financial services than for many other industries.

Internet banking is changing the banking industry and is having the major effects on

banking relationships. Banking is now no longer confined to the branches were one has to

approach the branch in person, to withdraw cash or deposit a cheque or request a statement of

accounts. In true Internet banking, any inquiry or transaction is processed online without any

reference to the branch (anywhere banking) at any time. Providing Internet banking is

increasingly becoming a "need to have" than a "nice to have" service. The net banking, thus,

now is more of a norm rather than an exception in many developed countries due to the fact

that it is the cheapest way of providing banking services.

BANKING INDUSTRY PROFILE

BANKING

The word "BANK" is derived from the 'Bancus' or 'Banque', which means a bench. In the

early days the European moneylenders and moneychangers used to sit on the benches and

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exhibit coins of different countries in big heaps for the purpose of changing and lending

money.

Definition:

A Banking company is defined as a company, which transacts the business of banking in

India.

As per Banking Regulation Act 1949 Section 5(b)

"Banking means, accepting for the purpose of lending or investment, of deposits of money

from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, or

otherwise."

According to Sir John Paget

"No person or body, corporate or otherwise can be a banker who does not, (a) take deposits

accounts, (b) take current accounts, (c) issue and pay cheques, (d) collect cheques, crossed

and uncrossed, for his customers."

In simple words we can say that bank is a financial institution which deals in money

and credit by obtaining deposits from public and giving loans and credit to trade and

industrial respectively. "

FUNCTIONS OF BANKS

1. Primary Functions

(a) Acceptance of deposits

(b) Making Loans and Advances

Loans

Overdrafts

Cash Credit

Discounting of Bills of Exchange

2. Secondary Functions

(a) Agency Functions

Collection of cheques and bills etc

Collection of interest and dividend

Making payment on behalf of customers .Purchase and sale of securities.

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Facility of transfer of funds

To act as trustee and executor

(b) Utility Functions

Safe custody of customers valuable articles and securities.

Underwriting facility

Issuing of Traveller's cheque and letter of credit

Facility of foreign exchange

Providing trade information

Providing information regarding credit worthiness of their customers.

CLASSIFICATION ON BASIS OF OWNERSHIP

On the basis of ownership banks are of the following types:

1. PUBLIC SECTOR BANK

Public sector banks are those banks that are owned by the Government. The Govt. runs these

Banks. In India 14 banks were nationalized in 1969 & in 1980 another 6 banks were also

nationalized. Therefore in 1980 the number of nationalized bank is 20. But at present thereare 9 banks are nationalized. All these banks are belonging to public sector category. Welfare

is their principle objective.

2. PRIVATE SECTOR BANKS

These banks are owned and run by the private sector. Various banks in the country such as

ICICI Bank, HDFC Bank etc. are private sector banks An individual has control over there

banks in preparation to the share of the banks held by him.

3. CO-OPERATIVE BANKS

Co-operative banks are those financial institutions which provide short term & medium term'

loans to there members. Co-operative banks are in every state in India -Its branches at district

level are known as the central co-operative bank. The central co-operative bank in turn has its

branches both in the urban & rural areas. Every state cooperative bank is an apex bank, which

provides credit facilities to the central co-operative bank. It gets funds from RBI.

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INTRODUCTION TO HDFC BANK

HDFC COMPANY PROFILE

HDFC BANK LTD

Type Private

Founded 1994Headquarters HDFC Bank Ltd.,

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Mumbai, India

Industry Banking

Insurance

Capital Markets and allied industries

Products Loans, Credit Cards, Savings,

Investment vehicles, Insurance etc.

Website www.hdfcbank.com

HDFC Bank (NYSE: HDB), one amongst the firsts of the new generation, tech-savvy

commercial banks of India, was incorporated in August 1994, after the Reserve Bank of India

allowed setting up of Banks in the private sector. The Bank was promoted by the Housing

Development Finance Corporation Limited, a premier housing finance company (set up in

1977) of India.

History:

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to

receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the

private sector, as part of the RBI's liberalisation of the Indian Banking Industry in 1994. The

bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its

registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled

Commercial Bank in January 1995.

Branch network:

Currently HDFC Bank has 1416 branches, 3382 ATMs, in 550 cities in India, and all

branches of the bank are linked on an online real-time basis. The bank offers many innovative

products & services to individuals, corporates, trusts, governments, partnerships, financial

institutions, mutual funds, insurance companies. It is a path breaker in the Indian banking

sector. In 2007 HDFC Bank acquired Centurion Bank of Punjab taking its total branches to

more than 1,000. Though, the official license was given to Centurion Bank of Punjab

branches, to continue working as HDFC Bank branches, on May 23, 2008.

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BUSINESS FOCUS

HDFC Bank's mission is to be a World-Class Indian Bank. The Bank's aim is to build sound

customer franchises across distinct businesses so as to be the preferred provider of banking

services in the segments that the bank operates in and to achieve healthy growth in

profitability, consistent with the bank's risk appetite. The bank is committed to maintain the

highest level of ethical standards, professional integrity and regulatory compliance. HDFC

Bank's business philosophy is based on four core values:

Operational Excellence,

Customer Focus,

Product Leadership and

People.

BUSINESS PROFILE

HDFC Bank caters to a wide range of banking services covering both commercial and

investment banking on the wholesale side and transactional/branch banking on the retail side.

The bank has three key business areas:

(a) Wholesale Banking Services

The Bank's target market is primarily large, blue chip manufacturing companies in the Indian

corporate sector and to a lesser extent, emerging midsized corporates. For these corporate, the

Bank provides a wide range of commercial and transactional banking services, including

working capital finance, trade services, transactional services, cash management, etc. The

bank is also a leading provider of structured solutions that combine cash' management

services with vendor and distributor finance for facilitating superior supply chain

management for its corporate customers.

(b) Retail Banking Services

The objective of the Retail Bank is to provide its target market customers a full range of

financial products and banking services, giving the customer a one stop window for all

his/her banking requirements. The products are backed by worldclass service and delivered to

the customers through the growing branch network, as well as through alternative delivery

channels like ATMs, Phone Banking, Net Banking and Mobile Banking.

The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank

Plus and the Investment Advisory Services programs have been designed keeping in mind

needs of customers who seek distinct financial solutions, information and advice on various

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investment avenues. The Bank also has a wide array of retail loan products including Auto

Loans, Loans against marketable securities, Personal Loans and Loans for Two-wheelers. Its

also a leading provider of Depository Services to retail customers, offering customers the

facility to hold their investments in electronic form.

HDFC Bank was the first bank in India to launch an International Debit Card in

association with VISA (VISA Electron) and issues the MasterCard Maestro debit card as

well. The debit card allows the user to directly debit his account at the point of purchase at a

merchant establishment, in India and overseas. The Bank launched its credit card in

association with VISA in November 2001. The Bank is also one of the leading players in the

"merchant acquiring" business with over 25,000 Point-of-sale (POS) terminals for debit /

credit cards acceptance at merchant establishments. The Bank is well positioned as a leader in

various net-based B2C opportunities including a wide range of Internet banking services for

Fixed Deposits, Loans, Bill Payments., etc.

(c) Treasury Operations

Within this business, the bank has three main product areas-Foreign Exchange and

Derivatives, Local Currency Money Market & Debt Securities, and Equities With the

liberalization of the financial markets in India, corporate need more sophisticated risk

management information, advice and product structures, These and fine pricing on various

treasury products are provided through the bank's Treasury team. To comply with statutory

reserve requirements, the bank is required to hold 25% of its deposits in government

securities. The Treasury business is responsible for managing the returns and market risk on

this investment portfolio.

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E-BANKING

Electronic banking is one of the truly widespread avatars of E-commerce the world over.

Various authors define E-Banking differently but the most definition depicting the meaning

and features of E-Banking are as follows:

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1. Banking is a combination of two, Electronic technology and Banking.

2. Electronic Banking is a process by which a customer performs banking transactions

electronically without visiting a brick-and-mortar institutions.

3. E-Banking denotes the provision of banking and related service through extensive use of

information technology without direct recourse to the bank by the customer.

NEED FOR E-BANKING

One has to approach the branch in person, to withdraw cash or deposit a cheque or request a

statement of accounts. In true Internet banking, any inquiry or transaction is processed online

without any reference to the branch (anywhere banking) at any time.

Providing Internet banking is increasingly becoming a "need to have" than a "nice to have"

service. The net banking, thus, now is more of a norm rather than an exception in many

developed countries due to the fact that it is the cheapest way of providing banking services.

Banks have traditionally been in the forefront of harnessing technology to improve their

products, services and efficiency. They have, over a long time, been using electronic and

telecommunication networks for delivering a wide range of value added products and

services. The delivery channels include direct dial up connections, private networks, public

networks etc and the devices include telephone, Personal Computers including the Automated

Teller Machines, etc. With the popularity of PCs, easy access to Internet and World Wide

Web (WWW), Internet is increasingly used by banks as a channel for receiving instructions

and delivering their products and services to their customers. This form of banking is

generally referred to as Internet Banking, although the range of products and services offered

by different banks vary widely both in their content and sophistication.

EVOLUTION OF E-BANKING

The story of technology in banking started with the use of punched card machines like

Accounting Machines or Ledger Posting Machines. The use of technology, at that time, was

limited to keeping books of the bank. It further developed with the birth of online real time

system and vast improvement in telecommunications during late 1970s and 1980s.it resulted

in a revolution in the field of banking with convenience banking as a buzzword. Through

Convenience banking, the bank is carried to the doorstep of the customer.

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The 1990s saw the birth of distributed computing technologies and Relational Data Base

Management System. The banking industry was simply waiting for these technologies. Now

with distribution technologies, one could configure dedicated machines called front-end

machines for customer service and risk control while communication in the batch mode

without hampering the response time on the front-end machine.

Intense competition has forced banks to rethink the way they operated their business.

They had to reinvent and improve their products and services to make them more beneficial

and cost effective. Technology in the form of E-banking has made it possible to find alternate

banking practices at lower costs.More and more people are using electronic banking products

and services because large section of the banks future customer base will be made up of

computer literate customer, the banks must be able to offer these customer products and

services that allow them to do their banking by electronic means. If they fail to do this will,

simply, not survive. New products and services are emerging that are set to change the way

we look at money and the monetary system.

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E-BANKING TRANSACTION

MECHANISM

E-BANKING PRODUCTS

Automated Teller Machine (ATM )

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These are cash dispensing machine, which are frequently seen at banks and other locations

such as shopping centers and building societies. Their main purpose is to allow customer to

draw cash at any time and to provide banking services where it would not have been viable to

open another branch e.g. on university campus.

An automated teller machine or automatic teller machine (ATM) is a computerized

telecommunications device that provides a financial institution's customers a method of

financial\ transactions in a public space without the need for a human clerk or bank teller. On

most modern ATMs, the customer identifies him or herself by inserting a plastic ATM card

with a magnetic stripe or a plastic smartcard with a chip that contains his or her card number

and some security information, such as an expiration date or CVC (CVV). Security is

provided by the customer entering a personal identification number (PIN).

Using an ATM, customers can access their bank accounts in order to make cash withdrawals

(or credit card cash advances) and check their account balances. Many ATMs also allow

people to deposit cash or checks, transfer money between their bank accounts, pay bills, or

purchase goods and services.

ATMs are known by various casual terms including cash machine, hole-in-the-wall, cash

point or Bancomat (in Europe and Russia). The occasionally-used ATM Machine is an

example of RAS syndrome.

Some of the advantages of ATM to customers are:-

Ability to draw cash after normal banking hours

Quicker than normal cashier service

Complete security as only the card holder knows the PIN

Does not just operate as a medium of obtaining cash.

Customer can sometimes use the services of other bank ATMs.

Telebanking or Phone Banking

Telephone banking is relatively new Electronic Banking Product. However it is fastly

becoming one of the most popular products. Customer can perform a number of transactions

from the convenience of their own home or office; in fact from anywhere they have access to

phone.

Customers can do following:-

Check balances and statement information

Transfer funds from one account to another

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Pay certain bills

Order statements or cheque books

Demand draft request

This facility is available with the help of Voice Response System (VRS). This system

basically, accepts only TONE dialed input. Like the ATM customer has to follow particular

process, initially account number and telephone PIN are fed for the process to start. Also the

VRS system provides the users within additional facilities such as changing existing

password with the new desired, information about new products, current interest rates etc.

Mobile Banking

Mobile banking comes in as a part of the banks initiative to offer multiple channelbanking providing convenience for its customer. A versatile multifunctional, free service that

is accessible and viewable on the monitor of mobile phone. Mobile phones are playing great

role in Indian banking- both directly and indirectly. They are being used both as banking and

other channels.

Internet Banking

The advent of the Internet and the popularity of personal computers presented both an

opportunity and a challenge for the banking industry. For years, financial institutions have

used powerful computer networks to automate million of daily transactions; today, often the

only paper record is the customers receipt at the point of sale. Now that their customers are

connected to the Internet via personal computers, banks envision similar advantages by

adopting those same internal electronic processes to home use.

Banks view online banking as a powerful value added tool to attract and retain new

customers while helping to eliminate costly paper handling and teller interactions in an

increasingly competitive banking environment. In India first one to move into this area was

ICICI Bank. They started web based banking as early as august 1997.

TYPES OF INTERNET BANKING OR E-BANKING:

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Understanding the various types of Internet banking will help examiners assess the

risks involved. Currently, the following three basic kinds of Internet banking are being

employed in the marketplace.

Informational- this is the basic level of Internet banking. Typically, the bank has marketing

information about the banks products and services on a stand-alone server. The risk is

relatively low, as informational systems typically have no path between the server and the

banks internal network. This level of Internet banking can be provided by the banks or

outsourced. While the risk to a bank is relatively low, the server or web site may be

vulnerable to alteration. Appropriate controls therefore must be in place to prevent

unauthorized alterations to the banks server or web site.

Communicative- this type of Internet banking systems and the customer. The interaction

between the banks system and the customer. The interaction may be limited to electronic

mail, account enquiry, loan applications, or static file updates (name and address change).

Because these servers may have a path to the banks internal networks, the risk is higher with

this configuration than with informational systems. Appropriate controls need to be in the

place to prevent, monitor, and alert management of any unauthorized attempt to access the

banks internal networks and computer systems. Virus controls also become much more

critical in this environment.

Transactional- this level of Internet banking allows customers to execute transactions.

Since a path typically exists between the server and the bank or outsourcers internal network,

this is the highest risk architecture and must have the strongest controls. Customer

transactions can include accessing accounts, paying bills, transferring funds etc.

ADVANTAGES OF INTERNET BANKING

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Convenience- Unlike your corner bank, online banking sites never close; theyre available

24 hours a day, seven days a week, and theyre only a mouse click away.

Ubiquity- If youre out of state or even out of the country when a money problem arises,

you can log on instantly to your online bank and take care of business, 24\7.

Transaction speed- Online bank sites generally execute and confirm transactions at or

quicker than ATM processing speeds.

Efficiency-You can access and manage all of your bank accounts, including IRAs, CDs,

even securities, from one secure site.

Effectiveness- Many online banking sites now offer sophisticated tools, including account

aggregation, stock quotes, rate alert and portfolio managing program to help you manage all

of your assets more effectively. Most are also compatible with money managing programs

such as quicken and Microsoft money.

DISADVANTAGES OF INTERNET BANKING

Start-up may take time-In order to register for your banks online program, you will

probably have to provide ID and sign a form at a bank branch. If you and your spouse wish to

view and manage their assets together online, one of you may have to sign a durable power of

attorney before the bank will display all of your holdings together.

Learning curves- Banking sites can be difficult to navigate at first. Plan to invest some time

and\or read the tutorials in order to become comfortable in your virtual lobby.

Bank site changes- Even the largest banks periodically upgrade their online programs,

adding new features in unfamiliar places. In some cases, you may have to re-enter account

information.

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E- BANKING SERVICES

1. Bill payment service

Each bank has tie-ups with various utility companies, service providers and insurance

companies, across the country. It facilitates the payment of electricity and telephone bills,

mobile phone, credit card and insurance premium bills.

To pay bills, a simple one-time registration for each biller is to be completed. Standing

instructions can be set, online to pay recurring bills, automatically. One-time standing

instruction will ensure that bill payments do not get delayed due to lack of time. Most

interestingly, the bank does not charge customers for online bill payment.

2. Fund transfer

Any amount can be transferred from one account to another of the same or any another bank.

Customers can send money anywhere in India. Payees account number, his bank and the

branch is needed to be mentioned after logging in the account. The transfer will take place in

a day or so, whereas in a traditional method, it takes about three working days. ICICI Bank

says that online bill payment service and fund transfer facility have been their most popular

online services.

3. Credit card customers

Credit card users have a lot in store. With Internet banking, customers can not only pay their

credit card bills online but also get a loan on their cards. Not just this, they can also apply for

an additional card, request a credit line increase and God forbid if you lose your credit card,

you can report lost card online.

4. Railway pass

This is something that would interest all the aam janta. Indian Railways has tied up with

ICICI bank and you can now make your railway pass for local trains online. The pass will be

delivered to you at your doorstep. But the facility is limited to Mumbai, Thane, Nasik, Surat

and Pune. The bank would just charge Rs 10 + 12.24 percent of service tax.

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5. Investing through Internet banking

Opening a fixed deposit account cannot get easier than this. An FD can be opened online

through funds transfer. Online banking can also be a great friend for lazy investors.

Now investors with interlinked demat account and bank account can easily trade in the stock

market and the amount will be automatically debited from their respective bank accounts and

the shares will be credited in their demat account. Moreover, some banks even give the

facility to purchase mutual funds directly from the online banking system. So it removes the

worry about filling those big forms for mutual funds, they will now be just a few clicks away.

Nowadays, most leading banks offer both online banking and demat account. However if the

customer have there demat account with independent share brokers, then need to sign a

special form, which will link your two accounts.

6. Recharging your prepaid phone

Now there is no need to rush to the vendor to recharge the prepaid phone, every time the talk

time runs out. Just top-up the prepaid mobile cards by logging in to Internet banking. By just

selecting the operator's name, entering the mobile number and the amount for recharge, the

phone is again back in action within few minutes.

7. Shopping at your fingertips

Leading banks have tie ups with various shopping websites. With a range of all kind of

products, one can shop online and the payment is also made conveniently through the

account. One can also buy railway and air tickets through Internet banking.

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List of some banks operating E-Banking in India

IMPACT OF E-BANKING ON TRADITIONAL SERVICES

One of the issues currently being addressed is the impact of e-banking on traditional banking

players. After all, if there are risks inherent in going into e-banking there are other risks in not

doing so. It is too early to have a firm view on this yet. Even to practitioners the future of e-

banking and its implications are unclear. It might be convenient nevertheless to outline briefly

two views that are prevalent in the market. The view that the Internet is a revolution that will

sweep away the old order holds much sway. Arguments in favor are as follows:

E-banking transactions are much cheaper than branch or even phone transactions. This

could turn yesterdays competitive advantage - a large branch network - into a comparative

disadvantage, allowing e-banks to undercut bricks-and-mortar banks. This is commonly

known as the "beached dinosaur" theory.

E-banks are easy to set up so lots of new entrants will arrive. Old-world systems,

cultures and structures will not encumber these new entrants. Instead, they will be adaptable

and responsive. E-banking gives consumers much more choice. Consumers will be less

inclined to remain loyal.

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E-banking will lead to an erosion of the endowment effect currently enjoyed by the

major UK banks. Deposits will go elsewhere with the consequence that these banks will have

to fight to regain and retain their customer base. This will increase their cost of funds,

possibly making their business less viable. Lost revenue may even result in these banks

taking more risks to breach the gap.

Portal providers are likely to attract the most significant share of banking profits.

Indeed banks could become glorified marriage brokers. They would simply bring two parties

together eg buyer and seller, payer and payee.

The products will be provided by monolines, experts in their field. Traditional banks

may simply be left with payment and settlement business even this could be cast into doubt.

Traditional banks will find it difficult to evolve. Not only will they be unable to make

acquisitions for cash as opposed to being able to offer shares, they will be unable to obtain

additional capital from the stock market. This is in contrast to the situation for Internet firms

for whom it seems relatively easy to attract investment.

There is of course another view which sees e-banking more as an evolution than a

revolution. E-banking is just banking offered via a new delivery channel. It simply gives

consumers another service (just as ATMs did). Like ATMs, e-banking will impact on the

nature of branches but will not remove their value.

Experience in Scandinavia (arguably the most advanced e-banking area in the world)

appears to confirm that the future is clicks and mortar banking. Customers want full service

banking via a number of delivery channels. The future is therefore Martini Banking (any

time, any place, anywhere, anyhow). Traditional banks are starting to fight back. The start-up

costs of an e-bank are high. Establishing a trusted brand is very costly as it requires

significant advertising expenditure in addition to the purchase of expensive technology (as

security and privacy are key to gaining customer approval).

E-banks have already found that retail banking only becomes profitable once a large

critical mass is achieved. Consequently many e-banks are limiting themselves to providing a

tailored service to the better off. Nobody really knows which of these versions will triumph.

This is something that the market will determine.

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However, supervisors will need to pay close attention to the impact of e-banks on the

raditional banks, for example by surveillance of:

strategy

customer levels earnings and costs

advertising spending

margins

funding costs

Merger opportunities and threats, both in the UK and abroad.

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THE INDIAN SCENARIO

Drivers of change

Advantages previously held by large financial institutions have shrunk considerably. TheInternet has leveled the playing field and afforded open access to customers in the global

marketplace. Internet banking is a cost-effective delivery channel for financial institutions.

Consumers are embracing the many benefits of Internet banking. Access to one's accounts at

anytime and from any location via the World Wide Web is a convenience unknown a short

time ago. Thus, a bank's Internet presence transforms from 'brouchreware' status to 'Internet

banking' status once the bank goes through a technology integration effort to enable the

customer to access information about his or her specific account relationship. The six primary

drivers of Internet banking includes, in order of primacy are:

Improve customer access

Facilitate the offering of more services

Increase customer loyalty

Attract new customers

Provide services offered by competitors

Reduce customer attrition

INDIAN BANKS ON WEB

The banking industry in India is facing unprecedented competition from non-traditional

banking institutions, which now offer banking and financial services over the Internet.

The deregulation of the banking industry coupled with the emergence of new technologies,

are enabling new competitors to enter the financial services market quickly and efficiently.

Indian banks are going for the retail banking in a big way. However, much is still to be

achieved.

This study that shows some interesting facts:

Throughout the country, the Internet Banking is in the nascent stage of development

(more than 50 banks are offering varied kind of Internet banking services).

In general, these Internet sites offer only the most basic services. 55% are so called

'entry level' sites, offering little more than company information and basic marketing

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materials. Only 8% offer 'advanced transactions' such as online funds transfer,

transactions & cash management services.

Foreign & Private banks are much advanced in terms of the number of sites & their

level of development.

EMERGING CHALLENGES

Information technology analyst firm, the Meta Group, recently reported "financial institutions

who don't offer home banking by the year 2000 will become marginalized."

By the year of 2002, a large sophisticated and highly competitive Internet Banking Market

will develop which will be driven by : Demand side pressure due to increasing access to low cost electronic services.

Emergence of open standards for banking functionality.

Growing customer awareness and need of transparency.

Global players in the fray

Close integration of bank services with web based E-commerce or even

disintermediation of services through direct electronic payments (E- Cash).

More convenient international transactions due to the fact that the Internet along with

general deregulation trends eliminates geographic boundaries.

Move from one stop shopping to 'Banking Portfolio' i.e. unbundled product purchases.

Certainly some existing brick and mortar banks will go out of business. But that's because

they fail to respond to the challenge of the Internet. The Internet and its underlying

technologies will change and transform not just banking, but also all aspects of finance and

commerce. It represents much more than a new distribution opportunity.It will enable nimble players to leverage their brick and mortar presence to improve customer

satisfaction and gain share. It will force lethargic players who are struck with legacy cost

basis, out of business-since they are unable to bring to play in the new context.

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LITERATURE REVIEW

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Product and Technology group, ICICI Bank, in its paper Corporate banking using

technology in transactions it was inferred that Information Technology has

revolutionized the services and mode of services offered by the banks to their

corporate clients. The emergence of E-Banking has enabled the banks to offer real-

time transactions and integrate all customers related functions. Indian Banks are

utilizing the new technology to provide better technology and convenient access to its

customers and India is thus poised to for a huge growth in the world of electronic

banking.

Chandana R, Unnithan, Paula M.C., Swatman in their research paper titled

EBanking Adaptions and Dot.Com viability: A comparison of Australian and Indian

experiences in the Banking sector a comparative study of Australian and Indian

experiences in eBusiness was done, which seeks to identify the effectiveness of

dot.coms as indicators of eBusiness uptake and success on a sector-by-sector basis

was undertaken. It was concluded that the banking industry is now a very mature one

and banks are being forced to change rapidly as a result of openmarket forces such as

the threat of competition, customer demand, and technological innovations such as the

growth of the Internet. E-Banking is a successful strategic weapon for banks to remain

profitable in a volatile, and competitive market place of today in both Indian and

Australian Economies despite the differences of IT usage.

G. Kannabiran and P.C. Narayan discuss in their article the experiences of a

private-sector bank in deploying Internet banking and eCommerce in India. Strategic

alignment of business and IT strategies, planning and implementation of e-banking

initiatives, and management of benefits have been captured, along with key

contributions to development.

Huggins points to the fact that traditional boundaries in banking are disappearing.

Using eBusiness methods, major retailers and telecom providers are starting to offer

financial services to their clients. Extending the value chain and offering versatile

services seems to be the key to retaining competitiveness in the sector. Attitudes are

also shifting from direct transactions to savings and investments, as the baby boomers

reach their fortis and fifties, and prepare for retirement.

Mario Martinez Guerreroin his paper titled Profiling the adoption of Online

banking Services in the European Union offers an empirical investigation on the

adoption of online banking services among European citizen. The use of ebanking

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services is explained on the basis of socio-demographic and Internet specific

behavioral indicators. The performed analyses provide support for the influence of

country, age, profession and several Internet behaviors on the use of E-banking.

The Indian Internet Banking Journey In 2001, a Reserve Bank of India survey

revealed that of 46 major banks operating in India, around 50% were either offering

Internet banking services at various levels or planned to in the near future. According

to a research report,( India Research, Kotak Securities, May 2000.) while in 2001,

India's Internet user base was an estimated 9 lakh; it was expected to reach 90 lakh by

2003. Also, while only 1% of these Internet users utilized the Internet banking

services in 1998, the Internet banking user base increased to 16.7% by mid- 2000.

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OBJECTIVE OF STUDY

OBJECTIVES OF THE STUDY:-

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The main objectives of the study are:

To study the awareness level of service class people regarding E-

Banking.

To find out the frequency and the factors that influences the adoption of

E- Banking services.

To measure the satisfaction level of people.

To understand the problems encountered in by service class people while

using E-Banking services(ATM, Phone banking, etc)

Type of research

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This study is EXPLORATORY and DESCRIPTIVE in nature. It helps in

breaking vague problem into smaller and precise problem and emphasizes on

discovering of new ideas and insights. Exploratory research was conducted

during the initial stage of the research process which helped to refine the

problem into researchable one. It has progressively narrowed the scope of

research topic.

Research design

Research design constitutes the blue print for the collection, measurement and

analysis of data. The present study seeks to identify the extent of preferences of

E-Banking over traditional banking among service class. The research design is

exploratory in nature.

For the selection of the sample, convenient sampling method was adopted and

an attempt has been made to include all the age groups and gender within the

service class.

Sources of data:

Following are the methods of sources of data:

Secondary data:

Articles on E-Banking taken from journals, magazines published from

time to time.

Through internet.

Primary data:

Questionnaire was used to collect primary data from respondents. The

questionnaire was structured type and contained questions relating to different

dimensions of ebanking preferences among service class such as level of usage,

factors influencing the usage of e-banking services, benefits accruing to the

users of e-banking services, problems encountered. An attempt was also made

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to elicit reasons for its non-usage. The questions included in the questionnaire

were open-ended, dichotomous and offering multiple choices.

Research instrument:

The instrument used for gathering data was questionnaire. To get further insight

in to the research problem, interview regarding their buying practices too was

made. This was done to crosscheck the authenticity of the data provided. To

supplement the primary data and to facilitate the process of drawing inference,

secondary data was collected from published sources like magazines, journals,

newspapers etc.

Tools and techniques of analysis:

The data so collected will be analyzed through the application of statistical

techniques, such as bar graphs and pie charts.

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DATA ANALYSIS AND

INTERPRETATION

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DATA ANALYSIS AND INTERPRETATION

Table 1.

Awareness of people regarding e-banking service provided by the bank while openingan account.

Interpretation

As seen from Table 1, overall percentage of service class people having

complete knowledge about e-banking services provided by the bank while

opening an account in it is 37%, those having some idea about it is 46% and the

percentage of people having no awareness of e-banking services provided by the

bank is 17%. It can reasonably, be concluded that nearly 85% of the population

are having awareness about e-banking services.

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Table 2.

Sources from which the respondents get the knowledge about the e-banking

services

Interpretation

Table 2, indicates the percentage distribution of awareness avenues, the major are in favour of

advertisements, which score 34% among different avenues such as personal visit, executives

of the banks, advertisements and friend/relatives. While the least score is for personal visit

and the other sources.

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Table 3.Awareness of E-Banking services

Interpretation

E-banking constitutes services provided in terms of ATMs, Debit Card, Credit

Card, Phone Banking, Mobile Banking, Internet Banking etc, of which the first

six have been covered. Amongst these ATM scores the largest used service

status (26.03%) as indicated by table 3 figures. Close on the heels is Debit card

(17.75%), Credit card (14.79%), while phone banking lags behind by scoring

the least ie.,11.83%.

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Table 4

Users of E-banking services

Interpretation

Table 4 shows that among those aware (which account for 83 in number) about

74 persons use e-banking services, which is 74% of total population studied.

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Table 5.

Representation of frequency of usage

Interpretation

To find out the level of usage amongst the service class, percentage has been

calculated from the total completely filled in questionnaires and the incomplete

questionnaires were discarded. The frequency of usage of ATM is highest which

is evident from table 5, followed by debit card.

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Table 6

Factors influencing the level of usage

Interpretation

A study of the factors, table 6, influencing the usage was made by listing out various

factors such as all time availability, ease of use, nearness etc., and from which it came to

fore that amongst the various factors all time availability is ranked as the major motivating

factor, followed by ease of use, direct access, nearness, security in decreasing order of

importance. Quite interestingly friends and relatives, status symbol scored the least

motivating factors.

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Table 7

Various benefits accruing from E-Banking services to its users

Interpretation

When asked to list various benefits accruing from the usage of e-banking, time saving

received highest percentage score at 42.42% among different benefits such as time saving

(42.42%), inexpensive (12.72%), easy processing (24.24%), easy fund transfer(15.75%).

Quite interestingly, easy processing feature scored more than the inexpensiveness of the e-banking services. The other benefits accruing to the people include ready availability of

funds, removal of middlemen and no rude customer relation executives.

Table 8

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Problems identified by the users of E-Banking service

Interpretation

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Most of the users face the problem of ATM out of order (15.58%), followed by time

consuming (14.82%), password forgotten (14.57%) and then otherproblems as card

misplaced, card misuse, insecurity, etc

FINDINGS

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FINDINGS OF THE STUDY

The overall percentage of servicemen having complete knowledge about ebanking

services provided by the bank while opening an account in it is 37%, those having some

idea about it is 46% and the percentage of people have no awareness of e-banking services

provided by the bank is 17%. It can reasonably, be concluded that nearly 85% of the

population is having awareness about ebanking services.

The percentage distribution of awareness avenues, the major skewness is in favour of

advertisements, which score 34% among different avenues such as personal visit,

executives of the banks, advertisements and friend/relatives. While the least score is for

personal visit..

Among those aware (which account for 83 in number) about 74 persons use ebanking

services, which is 74% of total population studied.

E-banking constitutes services provided in terms of ATMs, Debit Card, Credit Card,

Phone Banking, Mobile Banking, Internet Banking etc, of which the first six have been

covered. Amongst these ATM scores the largest used service status (26.03%) Close on the

heels is Debit card (17.75%), Credit card (14.79%), while phone banking lags behind by

scoring the least ie.,11.83 .

To find out the level of usage amongst the service class, percentage has been

calculated from the total completely filled in questionnaires and the incomplete

questionnaires were discarded. The frequency of usage of ATM is highest followed by

debit card.

A study of the factors, influencing the usage was made by listing out various factors

such as all time availability, ease of use, nearness etc., and amongst the various factors all

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time availability is ranked as the major motivating factor, followed by ease of use, direct

access, nearness in decreasing order of importance. Quite interestingly friends and

relatives, status symbol scored the least motivating factors.

When asked to list various benefits accruing from the usage of e-banking, time saving

received highest percentage score at 42.42% among different benefits such as time saving

(42.42%), inexpensive (12.72%), easy processing (24.24%), easy fund

transfer(15.75%).Quite interestingly, easy processing feature scored more than the

inexpensiveness of the e-banking services. The other benefits accruing to the people

include ready availability of funds, removal of middlemen and no rude customer relation

executives.

Among the users, various problems that are encountered while using e-banking

services. Card misuse and its misplace are major reasons that create hurdles in its usage,

while time consumption, accounting mistakes such as amount debited but not withdrawn

and change of mobile number seem to be the least bothering problems.

From the non users, an attempt was made to elicit the reasons for its non usage.

Satisfaction with traditional banking was considered as prime de-motivating factor,

followed closely by the fear of insecurity, then hidden cost factor, which suggested their

resistance to change, which to some extent can be countered by aggressive advertisement

and utilizing other modes of awareness dissemination as well.

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LIMITATIONS OF THE STUDY

Every research is conducted under some constraints and this research is not an exception.

Limitations of this study are as follows:-

1. There were several time constraints.

2. The study is limited to small area only.

3. The sample size of only 100 was taken from the large population for the purpose of

study, so there can be difference between results of sample from total population.

4. The study is related to service class people only.

5. People were reluctant to go in to details because of their busy schedules.

6. Merely asking questions and recording answers may not always elicit the actual

information sought.

7. Due to continuous change in environment, what is relevant today may be irrelevant

tomorrow.

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CONCLUSION

The usage of E-banking is all set to increase among the service class. The service

class at the moment is not using the services thoroughly due to various hurdling factors

like insecurity and fear of hidden costs etc. So banks should come forward with measures

to reduce the apprehensions of their customers through awareness campaigns and more

meaningful advertisements to make E-banking popular among all the age and income

groups. Further, with increasing consumer demands, banks have to constantly think of

innovative customized services to remain competitive. E-Banking is an innovative tool

that is fast becoming a necessity. It is a successful strategic weapon for banks to remain

profitable in a volatile and competitive marketplace of today.

In future, the availability of technology to ensure safety and privacy of e-transactions

and the RBI guidelines on various aspects of internet banking will definitely help in rapid

growth of internet banking in India.

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SUGGESTIONS

Internet banking would drive us into an age of creative destruction due to non-

physical exchange, complete transparency giving rise to perfectly electronic market place

and customer supremacy. The question to be asked right now is "What the Indian Banksshould do" Whatever is the strategy chosen and options adopted, certain key parameters

would determine the bank's success on web:

For long-term success, a bank may follow:

Adopting a webs mindset

Catching on the first mover's advantage

Recognizing the core competencies

Ability to deal multiplicity with simplicity

Senior Management initiative to transform the organization from inward to

outward looking

Aligning roles and value propositions with the customer segments

Redesigning optimal channel portfolio

Acquiring new capabilities through strategic alliances.

The above can be implemented in four steps:

Familiarizing the customer to new environment by demo version of software on

bank's web site. This should contain tour through the features which are to be

included. It will enable users to give suggestions for improvements, which can be

incorporated in later versions wherever feasible.

Second phase provides services such as account information and balances,

statement of account, transaction tracking, mailbox, check book issue, stop

payment, financial and customized information.

The third phase may include additional services such as fund transfers, DD issue,

standing instructions, opening fixed deposits, intimation of loss of ATM cards.

The last step should include advanced corporate banking services like third party

payments, utility bill payments, establishment of L/Cs, Cash Management Services

etc. Enhanced plan for the customers in future can include requests for demand

drafts and pay orders and many more to bring in the ultimate in banking

convenience.

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Also if proper training should be given to customer by the bank employs to open an

account will be beneficial secondly the website should be made friendlier from where the first

time customers can directly make and access there accounts.

We can see the time is changing and we he passage of time people are accepting

technology there is still a lot of perceptual blocking which hampers the growth its the normal

tendency of a human not to have changes work on the old track, thats also one of the reason

for the slow acceptance of internet banking accounts.

Give proper training to customers for using i-banking

Create a trust in mind of customers towards security of there accounts

Provide a platform from where the customers can access different accounts

at single time without extra charge.

Make there sites more users friendly.

Customers should be motivated to use I banking facilities more.

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BIBLIOGRAPHY

BOOKS

Malhotra, T. D., Electronic Banking and Information Technology in BanksSultan Chand and Sons, New Delhi,2008.

S.S Kaptan & N.S. Choubey. Indian Banking in Electronic Era

Internet Banking in India-Part I- Dr A. K. Mishra

WEBSITES

www.banknetindia.com

www.bharatbook.com

www.hdfcbank.com

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