Indian banking industry - Dissertation Example

?INTRODUCTION: IT has influenced changes in a number of industries. Banking industry is also one of the industries that have improved and being positively influenced by changes and advancement in the IT. IT has helped the banking industry to restructure and provide a lot more to the consumers than before. The introduction of merchandize banking, computer based banking, computer linked commutation banking, online banking, internet banking, ATMs, online shopping funds transfer, and a lot others have drastically improved the satisfaction level of consumers (Malhotra, & Singh, 2010b). Moreover, it has helped making transaction with the banks convenient (Kumbhar, 2011). This research study aims to analyze the evolution of IT in the banking industry of India. The banking industry of India has a long history and with better use of IT, the industry has been able to come up with different innovations and services that have helped consumers of Indian banking industry. The research study analyses the evolution and how the industry has improved and changed because of IT. BACKGROUND TO THE PROJECT: The banking industry of India has a long history. The introduction of the banking concept is attributed to the medieval Florence in the year 1937. Medici, a powerful and renowned merchant family, introduced networking system in shops through which people can easily deposit and withdraw their money from different cities. It provided the people with the facilitation of easy transfer of money while avoiding carrying large amount of cash while traveling. Initially banks in India were dealing only with the financing activities. The overall history of the Indian banking industry have seen the ears of Presidency banks, to Imperial Bank of India, and lastly to the State Bank of India. During different time periods the banking sector of India has been facing a volatile environment and because of this there have been shift from majority of private ownership to nationalism and now it is moving towards the greater liberalization. The government knows that there is an important role of private and foreign players in the banking industry as there is huge competition (Malhotra, & Singh, 2007). During the period of evolution the banking industry of India has witnessed immense development in terms of regulations, new and unique products and services offered which facilitate people and attract them towards itself, ownership structure and the technology deployed. Nowadays Indian banks are continuously focusing on the introduction of new services offered in order to meet their customer expectations. The challenges and opportunities being faced by the Indian banks in this regard, consists of rural market, management of risks, customer expectation, transparency, environmental concerns, social and ethical issues, global banking, growth in banking sector, human factor, customer and employee retentions. The biggest challenge is to reach the mass market of India. First of all, the banks have to focus and understand the customer and then have to design products and services according to their needs (Kumbhar, 2011). Nowadays, consumer demands mobile banking, internet banking and ATM services because consumer is very well aware of each and everything and their expectations and demands have increased as compare to previous years. For this reason, banking industry in India is going towards differentiation, product innovation and technology innovation. AIMS AND OBJECTIVES OF THE PROJECT: The following are the aims and objectives of the study To analyze the evolution of IT in the Banking industry of India To analyze how IT has influenced the banking industry of India BRIEF OVERVIEW OF THE LITERATURE REVIEW: Banking is one of the oldest professions of the world and has gone through various transitions with the passage of time and developments. One of the key developments in the recent years, that has changed Indian banking sector tremendously, is the evolution of IT sector in banking industry of India, due to which today banking has become an easy to do thing for a layman. Previously, it used to be considered as a task requiring lots of efforts, including efforts to taking time out of the busy schedule for going to a bank, waiting there, forming a queue, talking to managers or officers there and including lots of mathematics and calculations. But now things have changed, banking does not sound so hectic today. Thanks to IT revolution in baking industry which has made things easier, accessible and quick to use. It actually uses the medium of internet to have access to their customers due to which they can use banking services even from their homes or anywhere they are (Malhotra, & Singh, 2010b). As the world is moving more towards globalization, so is India, with extensive IT development in India, Indian banking industry is also highly affected by this factor, eventually making banking more accessible for a layman not only in India but also in other parts of the world. Because of IT evolution, Indian banks have now become global and can be accessed by any one sitting in any other part of the world. India, being world’s second largest populated country of the world, has highly dispersed population of Indians throughout the world. Indians are now living in almost every part of the world for many reasons and have their families settled in India and nearly all of them use banks extensively to transfer money to their homelands and for other business purposes. With such a huge customer base, it was highly beneficial decision for Indian Banking sector to get this evolution (Malhotra, & Singh, 2010a). Beside this fact, Indian is one of the largest growing economy, heavy amount of money is flooding in India and does have a huge attractive market due to which it is one of the most favorite business arena for plenty of foreign investors which actually makes Indian Banking industry as one of the industry that will get boost automatically because of these factors. Evolution of Technology in Indian Banking Following phases are used to describe the evolution of IT in Indian banking sector: 1960 Introduction of Mechanized banking 1970 Introduction of computer based banking industry 1980 Introduction of computer linked communication based banking industry It can be said that the development of It in banking started officially back in 1966, when IBA (Indian Bank Association) and exchange bank association settled a deal with unions to set the first wage system for the use of ICT or IBM accounting machines for inter-bank reconciliations. This was the beginning point from where it all started then with time it kept on developing since then, and in recent past ten years, a lot have been improved on this part. Today it can be seen that there are number of competitors in online banking and to access larger number of customers with various options to choose from. Now banks can not only be accessed through internet but also from telephones, cell phones network and SMS, ATMs (Auto Teller Machines) are another development that has now become a part of every other person’s life as people are now more comfortable in using cards for taking cash out rather than having cash in their wallets or pockets. Many banks are now using these services which got introduced as a blessing of IT evolution to market their banks and to use these features to position their banking services to be perceived different than that of other competitor’s banks. These services are now used to position banks. With many innovations in the past years, the banking industry has developed and improved. It has offered a lot more convenient way of doing things. not only for general consumers, but for corporations, big and small organizations, and even new entrepreneurs the bank has started offering a range of services that helped. The role of foreign banks that have been operating in India have also played a critical role in this regard as for a number of innovations and changes in the banking sector of India, these foreign banks are the ones that have adopted first and then the local banks have followed. Thus it has helped the overall banking industry to be more competitive and be innovative. IT has influenced the banking industry of India and most of the banks have now their own websites. Not only this, there has been an increasing trend of banks that are offering transactional websites for their banks so that consumers can make transactions easily. The following table presents the overall figures of the websites of the banks in India as well as the banks that are offering transactional websites (Singh, & Malhotra, 2004). Number Percentage of All Scheduled Commercial Banks (289) Banks with Web Sites 90 31.1 Banks with Transactional Sites 48 16.6 (Singh, & Malhotra, 2004) With the passage of time, it is expected that these numbers would further increase. Singh, & Malhotra (2004) have also presented the analysis of the increase in the transactions through website. Thus, it is highlighting the importance of development in technology over the years in the Indian banking industry.   Transactional Non-Internet Internet Banks Banks Average Size (assets in Rs crores) 23970.17 8336.788       Average Number of Offices per Bank 698 436 Average Number of Employees 12179 5645 Deposits 18252.74 7096.749   Transactional Internet banks as a Percentage of all commercial banks Number of Banks 51.6 Assets 75.4 Deposits 73.3 (Singh, & Malhotra, 2004) Rishi and Saxena (2006) have analyzed the changes in the banking industry of India. There have been a number of changes in the banking industry and the use of technology has played a critical role in this regard. According to their research the public sector banks have shown tremendous improvements as computerization has increased, numbers of branches that are fully computerized have increased, more ATMs have been installed, and the trend of debit card has increased drastically. (Rishi and Saxena, 2006) Research conducted by D&B (2009) as the involvement of computerization has increased in different branches. The following figure shows the trend of the banking industry of India as there have been a higher number of banks that are adopting computerized branches. (D&B, 2009) Indian Internet Banking Reserve Bank of India divided internet banking products into three broad categories. These categories are divided on the basis level of access granted. 1. Information only system 2. Electronic information transfer system 3. Fully electronic transactional system Information only system This feature provides general purpose information that customers might want to have access to, in order to know about banks. This can include information about bank’s location, interest rate that a bank charges, bank’s new offers, bank’s new features, interest rate and deposit rate calculations, their application forms. Where these forms can be downloaded and then can be filled and sent through using email. There is no direct interaction between customers and the bank. I9n this system particularly, identification of customer is not possible. Electronic information transfer system This feature allows customers to have access to specific amount of personal balance information. This can include statement of accounts, account balances, details of transactions. This type of information are provided with no significant chance of editing to be done to the information provided as they are in merely read only format. This is a kind of one way communication. In this system of information, identification of customer can be done through the use of passwords of personal internet banking account. Fully electronic transactional system This feature allows customers to do transactions through internet. It can include payment of bills, shopping through using credit or debit card numbers. This system allows two way transactions. Customer can send applications for transactions through using internet. However, a great amount of security is required to use this system as many frauds also take place because of this feature. This feature uses IT functions such as networking, computerization, and web servers, legal infra structure. Areas affected by IT evolution in Indian banking industry The areas that got influenced positively through introduction of IT evolution in Indian banking sector are: Fund Transfer Credit card customers Online shopping Increased Cell phone’s balance recharge Indian Railway industry Bill payments Fund Transfer: Internet banking has made it easy for customers to transfer money to their known ones, their loved ions or even to their business partners or employees, easily even being in different parts of the world just through the use of e banking services offered by banks. India being a huge country not just in terms of population but also in size, does hold a great positive attribute because of this feature. Credit Cards Customers: Credit card can be used not just to shop but also to get more loans through internet banking. Online Shopping: This is a new trend that has evolved during the past times and has become one of the growing concerns for marketers around the world that is internet shopping. The increased trend of shopping through internet is something that everyone is looking for. There are so many firms who are making their business models just on internet shopping with no true physical outlet. Increased Cell Phone’s Balance Recharge Cell phones bills are being paid through internet banking accounts. Even many cell phones are being used to pay bills and many internet banking is also being done through cell phones. Indian Railway Industry Indian railway Industry is one of the most profitable industries of India and is a kind of backbone of Indian economy. Daily, millions of people use this medium to travel. And now with IT revolution, Indian railway pass for local travelers can be purchased online. This has been made possible through the alliance between Indian railway and ICIC banks in India. Bill Payments: Payments of Bills through the use of internet and credit cards is another trend that has caused ease to many people especially to those who are busy enough that it becomes difficult for them to take time out to go to banks and pay their bills. Apart from these areas that have been affected through IT evolution in Indian banking system, there are many advantages that internet banking has brought to this sector, few of them are that there is increased and easy access and geographical boundaries now mean nothing to internet banking customers. Internet banking has been made possible with the evolution of IT sector in India, which has helped banks to form valuable relationships with customers. It also gives banks an edge as it is also cost effective, it does not need numbers of employees to handle and deal with customers but just a few IT professionals. At this stage, Indian banks are in the stage of development, as day by day more and more competitors are coming in and making the market more competitive. There are also certain challenges along with all the benefits that internet banking is facing especially in India, as the trend of internet and easy access is growing to banking, there are many people who misuse some private and confidential accounts related information for their personal gains and frauds and in the end as a result customer looses faith in internet banking. A trick to prevent this is to access to use these accounts only from personal computers rather than using a public comport or cyber computer. Another challenge is the up gradation of technology in banking system with time. This whole industry is highly characterized by the feature that is ‘change’, so these banks will have to keep with the pace of change in the industry to keep them competitive. Analyzing the influence of IT The overall value of electronic transaction has been showing an increasing trend in India. Not only this, there has been a decline in the value of paper transactions. The research conducted by RBI reveals the increasing transaction of retail electronic payments in terms of value as well as in the number of transaction. (Infosys, 2012) The following graphs represent the changes in share of transaction in the electronic transaction and traditional transaction in the banking industry of India. (Infosys, 2012) According to a research conducted by Banknet India, 95% of the people have liked the changes in the banking industry that have occurred because of IT. Moreover, ATMs has been found as one of the widely methods for transaction. It has been found that consumers generally go to ATM once a week. Not only ATMs, but other innovations that have occurred in the banking industry of India have been welcomed by the people. The trend of ATMs have been since 2005. D&B have identified the increasing number of ATMs that are installed in different parts of the country. The following figure shows the increasing number of ATMs installed from 2005 to 2009. (D&B, 2009) By the end of March 2010, there have been more than 28 thousand ATMs installed across the country. According to Kumar (2012), the number of ATMs has increased by 29% in 2012 from 2011, thus increasing the total number of ATMs to Kumar has also commented that ATMs have changed the lifestyle of the people. (Kumar, 2011) Another important change is of Electronic clearing services (ECS). The trend of ECS has been increasing not only in number of transactions, but in its value as well. The following figure shows the increasing trend of ECS in the banking industry of India from 2004 to 2009. (D&B, 2009) RTGS has been another important invention in the Indian banking industry that has been possible because of the development and advancement of technology in the banking industry. Similar trend has been identified as the number of transaction of RTGS as well as its volume has been increasing as shown in the figure below (D&B, 2009): (D&B, 2009) Overview of Data Collection: It is important for the researcher to come up with proper research methodology in order to make sure that the research is heading towards the right direction is being catered properly. The research methodology provides the researcher with a roadmap for the overall process of collecting and analyzing data in order to conduct the research (Sekaran, 2006).  For this research, the researcher aims to do primary and secondary research. From primary research methods such as questionnaire, the research would be able to analyze the current trends. From the secondary research the researcher would be able to analyze what others have said about the role of IT in the banking industry of India. Thus, by using a method of both the researcher would be able to compare the findings of this research with the findings other research studies conducted (Cavana, Delahaye, & Sekaran, 2001). Summary and Discussion of the Chapter: Changes in IT have influenced the banking industry of India as it has offered convenience to make transactions (Ghosh, & Das, 2003). Consumers have also welcomed the changes that have occurred over the period of time as the volume of transaction have increased over the years (Bhaumik, & Mukherjee, 2002). Globalization has also played its part in the development and advancement of technology in the banking industry (Deolalkar, 1998). One of the factors has been the introduction of foreign banks in different countries as this has increased the level of competition and with more competition the local banks have been forced to improve their technological level and enhance their services (Dwivedi, & Charyulu, 2011). There are many opportunities available for the banks in the Indian banking industry. Therefore it is important to carefully analyze the potential and then formulate strategies accordingly to make the most of the opportunities (Kamath, et al. 2003). However the most important factors that would lead to success of the banks is the customer satisfaction level (Malhotra, & Singh, 2010b). For this reason, Khare, Mishra, & Singh, (2012) have commented that the online and internet transaction need to be safe and secure to make sure that consumers are satisfied. References Bhaumik, S., & Mukherjee, P. (2002). The Indian banking industry: a commentary. Cavana, R. Y., Delahaye, B. L., & Sekaran, U. (2001). Applied business research. Qualitative and Quantitative Methods. D&B. (2009). BFSI Sector in India. Available from http://www.dnb.co.in/bfsisectorinindia/BankC6.asp [Accessed 12 April, 2013] Deolalkar, G. H. (1998). The Indian Banking Sector. Study commissioned by ADB for RETA, 5770. 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