APPLICATION OF INFORMATION TECHNOLOGY IN

BANKING INDUSTRY :CURRENT SCENARIO

Sony Hiremath
Research Scholar, Dept. of Management,
Karnataka State Women’s University, Vijayapur (India)

ABSTRACT
The financial industry is already caught up in an intense, inevitable process of transformation, and the driving
forces behind it—technological progress and the social changes it is bringing about—are equally intense and
inevitable.
We are currently witnessing the most disruptive technological revolution since the advent of the Industrial
Revolution two centuries ago. Today, we are having a fairly well developed banking system with different classes of
banks – public sector banks, foreign banks, private sector banks, regional rural banks and co-operative banks. The
Reserve Bank of India (RBI) is at the paramount of all the banks. The RBI’s most important goal is to maintain
monetary stability (moderate and stable inflation) in India. The RBI uses monetary policy to maintain price stability
and an adequate flow of credit. The rates used by RBI to achieve this are the bank rate, repo rate, reverse repo rate
and the cash reserve ratio. Reducing inflation has been one of the most important goals for some time.

Keywords: Information Technology(IT) , Banking, RBI, Changing structure of banking firm.

I. INTRODUCTION

Changes are afoot and the physical manifestation of these changes is apparent. At a macro level, the branch appears
to be in decline with most established brands reducing their footprint. Cash is no longer king, mobile payments are
increasing in popularity and no longer is the current account the only thing one uses to manage money. Banking is
becoming more democratized by technology and new services are changing the way we think about banking, our
money and the application and capability of technology. The majority of established banks already have the
platforms to deliver new services - the challenge is in the exploitation. The ability to join the product centric
thinking into a more customer centric and focused set of offerings will challenge traditional operating models. It
requires the skills of an IT department that takes a holistic approach to change.
Indian economic environment is witnessing path breaking reform measures. The financial sector, of which the
banking industry is the largest player, has also been undergoing a metamorphic change. Today the banking industry
is stronger and capable of withstanding the pressures of competition. While internationally accepted prudential
norms have been adopted, with higher disclosures and transparency.
The history of Indian banking can be divided into three main phases.
Phase I (1786- 1969) - Initial phase of banking in India when many small banks were set up

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Phase II (1969- 1991) - Nationalization, regularization and growth
Phase III (1991 onwards) - Liberalization and its aftermath
With the reforms in Phase III the Indian banking sector, as it stands today, is mature in supply, product range and
reach, with banks having clean, strong and transparent balance sheets. The major growth drivers are increase in
retail credit demand, proliferation of ATMs and debit-cards, decreasing NPAs due to Securitization, improved
macroeconomic conditions, diversification, interest rate spreads, and regulatory and policy changes (e.g.
amendments to the Banking Regulation Act).
Role of Information Technology (IT) and Customer Relationship Management (CRM) in Banking IT plays an
important role in the banking sector as it would not only ensure smooth passage of interrelated transactions over the
electric medium but will also facilitate complex financial product innovation and product development. The
application of IT and e-banking is becoming the order of the day with the banking system heading towards virtual
banking. Banks, who strongly rely on the merits of ‗relationship was banking‘ as a time tested way of targeting &
servicing clients, have readily embraced CRM, with sharp focus on customer centricity, facilitated by the
availability of superior technology. CRM, therefore, has become a new mantra in service management, both
relationship & information . Banks‘ overwhelming advantage is the information they have on their customer base
which is obtained through economies of scale, investment in information systems and expertise, and economies of
scope or synergies. By managing a customer‘s account, and through the bank‘s continuous monitoring of customers,
a bank necessarily acquires information that can be used in various ways. Information gained through one part of the
business operation can be used in others With each passing day, the internet is gaining importance as a commercial
and advertising space and as a place where people on opposite sides of the globe can work together as a team. The
web is also the driving force behind the fragmentation of production chains which facilitates the outsourcing of
services. In this field, services offered via cloud computing represent a major breakthrough in terms of universal
access to data storage and processing at very low cost, and will undoubtedly have far-reaching implications.

II. REVIEW OF LITERATURE

Heng Michael (2006) analyzed the impact of e-banking on brick and mortar banks through innovation model. The
researchers‘ analyzed 8 core capabilities to assist the banks migrated to e-banking environment. Their capabilities
fall into two groups relating to configuration of existing business model. They suggested that banks need to develop
uniquely innovative services and products on the one hand and innovative business model that changes the way
banks operate on the other. They concluded that eight core capabilities (technical dynamic capabilities and business
dynamic capabilities) provided a blue print for sustaining a bank‘s ability to exploit e-banking.
Siam (2006) evaluated the effects of electronic banking on the profitability of Jordanian banks. The study
investigated the reasons behind providing electronic banking services through internet, their impact on banking
services in general, and banks profitability in particular. The results of the study revealed that electronic banking
services had a negative impact on the profitability of banks in the short run because of increased capital costs

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involved in technical and electronic infrastructure, cost of training to employees and also the cost involved in
creation of environment where the banks can operate smoothly. However, these services had a positive impact in the
long run on the profitability of banks.
Kautish (2008) described the paradigm shift of banking sector from traditional banking to online banking. The
objective of the paper was to discuss the derivation of value added tool of online banking system which was used to
attract new customers and retain the existing ones. It helped the banks to acquire more business from existing
customers. People preferred to use online banking because of its availability, better performance, ubiquity, speed
and its effectiveness. Further, the author discussed two bank models integrated banking model where the banks
provide internet banking services as an extension to their basic services like ATM and phone banking. So, it is a
kind of hybrid approach and the other was stand alone internet banking model, where the banks totally rely on the
online channel. To improve the services through e-banking, banks should think from the customers.
Rajshekhara K. S. (2004) described the adoption of IT in banking has undergone several changes with the passage
of time. Today IT has become an inseparable segment of banking organization. The application of information
technology in the banking sector resulted in the development of different concepts of banking such as – E-banking,
Internet Banking, Online Banking, Telephone Banking, Automated teller machine, universal banking and
investment banking etc. Information technology has a lot of influence on banking transactions. It ensures quick
service with low transaction cost to the customers. The real success of IT in the banking sector depends upon the
customer‘s satisfaction. Therefore banks should organize and conduct customer awareness program in their service
area. Security is an important issue in the context of E-banking. The development of technology for the
identification of customers with different means of communication devices is a must for successful business and
also to reduce frauds in banking.
RBI has set up Department of Information Technology (DIT) which works for:
• Computerisation in RBI (Regional Offices and Central Office Departments)
• Design and development of projects for use of banks and financial institutions and
• Monitoring progress of technology in banks.
The objective of the study:
- To take an overall view of the banking industry,
• Application of IT in Banking
• The changing structure of the banking industry, the business operations of banks, and the structure of the banking
firm.
Banks around the world face formidable challenges: they are losing some of their past monopolies and comparative
advantages which have underpinned their dominant position in the financial system. In particular, as entry barriers
into banking services are eroded, banks are increasingly facing competition from a wider range of actual and
potential suppliers of banking services: the capital markets, money markets, non-banking financial institutions, and
also ‗non-financial banking institutions‘. In addition, the development of electronic banking has in some countries
enabled foreign banks to enter hitherto relatively closed domestic retail banking markets.

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Source: RBI Annual Report 2011-12 and 2012-13
Electronic based payment transactions have been increasing both in volume and values terms. Whereas share of
Paper based payments transactions are gradually decreasing both in terms of volume and value of transactions.
RTGS transactions have shown growth of 11.2 per cent in transaction value for the period 2011-2012 . Further the
transaction value has increased by 25.5 per cent for the period 2012-13 as compared with the previous period 2011-
2012. From both the charts, it may be concluded that share of RTGS transactions (in value terms) have increased
from 51 per cent in 2011-12 to 52 per cent in 2012-13. Share of paper based payment system has declined
significantly.

III. RECENT TRENDS IN BANKING

1) Electronic Payment Services – E Cheques

Now-a-days we are hearing about e-governance, e-mail, e-commerce, e-tail etc. In the same manner, a new
technology is being developed in US for introduction of e-cheque, which will eventually replace the conventional
paper cheque. India, as harbinger to the introduction of e-cheque, the Negotiable Instruments Act has already been
amended to include; Truncated cheque and E-cheque instruments.
2) Real Time Gross Settlement (RTGS)
Real Time Gross Settlement system, introduced in India since March 2004, is a system through which electronics
instructions can be given by banks to transfer funds from their account to the account of another bank. The RTGS
system is maintained and operated by the RBI and provides a means of efficient and faster funds transfer among
banks facilitating their financial operations. As the name suggests, funds transfer between banks takes place on a

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‗Real Time' basis. Therefore, money can reach the beneficiary instantaneously and the beneficiary's bank has the
responsibility to credit the beneficiary's account within two hours.
3) Electronic Funds Transfer (EFT)
Electronic Funds Transfer (EFT) is a system whereby anyone who wants to make payment to another
person/company etc. can approach his bank and make cash payment or give instructions/authorization to transfer
funds directly from his own account to the bank account of the receiver/beneficiary. Complete details such as the
receiver's name, bank account number, account type (savings or current account), bank name, city, branch name etc.
should be furnished to the bank at the time of requesting for such transfers so that the amount reaches the
beneficiaries' account correctly and faster. RBI is the service provider of EFT
4) Electronic Clearing Service (ECS)
Electronic Clearing Service is a retail payment system that can be used to make bulk payments/receipts of a similar
nature especially where each individual payment is of a repetitive nature and of relatively smaller amount. This
facility is meant for companies and government departments to make/receive large volumes of payments rather than
for funds transfers by individuals.
5) Automatic Teller Machine (ATM)
Automatic Teller Machine is the most popular devise in India, which enables the customers to withdraw their money
24 hours a day 7 days a week. It is a devise that allows customer who has an ATM card to perform routine banking
transactions without interacting with a human teller. In addition to cash withdrawal, ATMs can be used for payment
of utility bills, funds transfer between accounts, deposit of cheques and cash into accounts, balance enquiry etc.
6) Point of Sale Terminal
Point of Sale Terminal is a computer terminal that is linked online to the computerized customer information files in
a bank and magnetically encoded plastic transaction card that identifies the customer to the computer. During a
transaction, the customer's account is debited and the retailer's account is credited by the computer for the amount of
purchase.
7) Tele Banking
Tele Banking facilitates the customer to do entire non-cash related banking on telephone. Under this devise
Automatic Voice Recorder is used for simpler queries and transactions. For complicated queries and transactions,
manned phone terminals are used.
8) Electronic Data Interchange (EDI)
Electronic Data Interchange is the electronic exchange of business documents like purchase order, invoices,
shipping notices, receiving advices etc. in a standard, computer processed, universally accepted format between
trading partners. EDI can also be used to transmit financial information and payments in electronic form.
However, not only is the transformation of the industry inevitable, but it is also picking up speed with each passing
day. The primary reason is that the technological revolution is introducing daily new and different ways of doing
things, and increasing the potential for cutting costs, while the number of users who resort to non-traditional banking
methods continues to grow.

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IV. CONCLUSION

Changing people‘s habits and behaviour in every area of their lives: the workplace, recreational activities,
communication and even interpersonal relationships. Although all companies must deal with these changes in their
customers‘ lifestyles and in the production and distribution processes, nowhere are their effects more drastic than in
the service industry, where the information component carries much more weight .
Banks are at the epicentre of this change. Technological evolution and social changes have a deeper and more direct
effect on the financial industry than on most other sectors, for its basic raw materials are information and money.
And money, in turn, can dematerialise and transform into accounting entries—in other words, into data that can be
stored, processed and transmitted in real time and at costs so low that they are on the verge of disappearing
altogether.
Indian banking system will further grow in size and complexity while acting as an important agent of economic
growth and intermingling different segments of the financial sector. It automatically follows that the future of Indian
banking depends not only in internal dynamics unleashed by ongoing returns but also on global trends in the
financial sectors. Indian Banking Industry has shown considerable resilience during the return period. The second
generation returns will play a crucial role in further strengthening the system. The banking today is re-defined and
re-engineered with the use of Information Technology and it is sure that the future of banking will offer more
sophisticated services to the customers with the continuous product and process innovations. Thus, there is a
paradigm shift from the seller's market to buyer's market in the industry and finally it affected at the bankers level to
change their approach from "conventional banking to convenience banking" and "mass banking to class banking".
The shift has also increased the degree of accessibility of a common man to bank for his variety of needs and
requirements. Adoption of stringent prudential norms and higher capital standards, better risk management systems,
adoption of internationally accepted accounting practices and increased disclosures and transparency will ensure the
Indian Banking industry keeps pace with other developed banking systems.
In the days to come, banks are expected to play a very useful role in the economic development and the emerging
market will provide ample business opportunities to harness. Human Resources Management is assuming to be of
greater importance. As banking in India will become more and more knowledge supported, human capital will
emerge as the finest assets of the banking system. Ultimately banking is people and not just figures. To conclude it
all, the banking sector in India is progressing with the increased growth in customer base, due to the newly improved
and innovative facilities offered by banks. FDI has provided a great fillip to the whole of banking sector industry as
banks are now competing at a global level.

REFERENCES

1. B.P.Gupta, V.K.Vashistha, H.R.Swami, Banking and Finance, Ramesh Book Depot, Jaipur-New Delhi (2008).
2 .McKeown, M. (2008), The Truth About Innovation. London: Prentice Hall.

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3. Miles, I. (2000), ―Services Innovation: Coming of Age in the Knowledge-Based Economy‖, International
Journal of Innovation Management
4. Bank for International Settlements (1992), 62nd Annual Report 1991/92, Basle, June.
5. RBI bulletins

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