MOUNT CARMEL COLLEGE

INTEGRETED TEACHER EDUCATION PROGRAMME

BA.B.Ed (HEP) 3rdSEMESTER
2020-2021
SUBJECT: ECONOMICS
TOPIC: HOW HAS E- BANKING AND ATM REVOLUTIONISED THE
BANKING SYSTEM OF INDIA?
SUBMITTED TO: VANDHANARAMACHANDRAN
DEPARTMENT OF EDUCATION
SUBMITTED BY:
DEENA SHARMILA
REG NO: MA19ED311
SUBMISSION DATE: 5-5-2020

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CONTENT

Introduction………………………………………………………………………2
Features of E-Banking………………………………………………………..2
E-Banking in India………………………………………………………………2
Advantages of E-Banking……………………………………………………3
Growth of ATM in India………………………………………………………4
Analysis and conclusion………………………………………………………7

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Introduction
Banking in India has been through a long journey. It has seen a number of changes due to
technology and innovation. Arrival of card, introduction of Electronic Clearing Service (ECS)
introduction of Electronic Funds Transfer and concept of online banking and mobile banking are
the various novelties which tookplace in banking sector. Banking system always has an
important role to play in every country’s economy.

It is vital for any nation as it provides for the needs of credit for all the sections of the society.
India is not only the world’s largest independent democracy but it is also an emerging economic
giant. The growth potential of India is based on its strong banking institution. The infusion of
information technology in banking sector has completely revolutionized how the banking sector
operated. In order to survive in the new globalized world, banks had to opt for this new change.

The role of banking has now changed from a mere financial intermediary to service provider of
variousfinancial services under one roof acting like a financial supermarket. With extreme
competitionamong the banks, entire banking system is undergoing a change. Today, modern
banking not onlylooks for new ways to attract but also to retain the customers and gain
competitive advantage overtheir competitors.

Features of E-Banking
 24x 7 banking hour service
 No geographical barrier
 Easy Electronic Fund transfer facility.
 Better efficiency in Customer relationship management.
 Making the Payments of bills like electricity, telephone bills, and mobile recharge.
 It can view of balance of accounts and statements.
 E-banking can bring doorstep services.
 Order mini statements.
 Mobile banking.
 SMS banking services

E-banking in India
In India the traditional method of banking was through branch banking. It was in 1991, that
with economic reforms, the banking industry also witnessed the new wave of banking methods.
It was Saraf Committee which was constituted by RBI in 1994 that recommended the use of
Electronic Fund Transfer System (EFT), introduction of electronic clearing services and extension
of Magnetic Ink Character Recognition (MICR) beyond metropolitan cities and branches.

It was ICICI bank which became the pioneer of e-banking in India .It was the first bank to
introduce online banking services in 1996. Its initiatives were followed by Citibank, IndusInd

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Bank and HDFC Bankwho provided internet banking services in 1999.Various initiatives have
been taken by both the government and the Reserve Bank from time to time to smooth the
expansion of e-banking in India.

Advantages of e-banking
E-banking has numerous advantages attached to its usage. E-banking provides a platform for
anytime, anywhere banking. The customers can log on to their account using websites or cards
anytime and from anywhere without being concerned about the bank timings or bothering
about the long bank queues. In today’s time banking transactions are not bounded by any
geographical region or time period.

Transactions can be easily executed with a click of mouse which is the biggest advantage of
online banking. That, is, why physical banks are slowly and slowly being replaced by ‘brick and
click institutions’ and ‘virtual banks’. Moreover, it money and time of the customers as they no
longer need to travel all the way to bank for every banking transaction.

This new form of banking is considered economical for banking institutions also as lot of money
in form operational cost on physical infrastructure and human resources is saved. Customers
benefit in form of better and advanced facilities being made available. If online errors or queries
are responded speedily and in efficient manner, it helps the banks in maintaining their customer base.

Hence, it also provides banking institutions with an added advantage over their competitors.
With the widespread penetration of internet, almost all the banks provide online services. So
today, e-banking is not just a marketing tool it’s a necessity, which all banks need to have.

Growth of ATM in India

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An Automated Teller Machine (ATM) is one of the most crucial self-service channels for the
retail banking sector that connects banks or financial institutions with customers. The 1st ATM
was installed in 1967 by Barclays Bank in London.

In India, the ATM concept was introduced by the Hongkong and Shanghai Banking Corporation
(HSBC) in 1987. This was followed by few domestic banks. However, the usage remained limited
during initial years owing to low acceptability among the masses and high installation cost for
banks. The numbers grew at a mere 1,521 ATMs up to 1999. Although, it picked up thereafter
and crossed the 10,000 mark by 2003 and 20,000 by 2006. In the last decade it has grown by
~24% annually from ~25,000 (2007) to ~2, 22, 000 units (2017).

The deployment of new ATMs has continued to grow in the range of 20-40% each year up till
2014-15. However, mobile banking gained popularity with impetus from banks and the
government, this reduced the ATM growth to as low as 5% in 2016-17.

India has the lowest number of ATMs per million adults despite a significant increase in the
number of ATMs up to 2014-15 among BRICS (Brazil, Russia, India, China and South Africa)
nations. According to an RBI (Reserve Bank of India) report, Russia tops the list with 169 ATMs
per million adults and is followed by Brazil, China and South Africa, while India lags way behind
with only 21 ATMs per million adults (as of 2016).

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However, the Indian ATM industry has come a long way and has significantly evolved in the past
two decades. It was initially driven by private banks, realizing that accessibility could improve
among customers 24X7 without opening of numerous brick and mortar branches. It was
deemed cheaper to set up an ATM than to open a new branch and incur several costs, including
staff expenses. Hence, given the cost benefits, state-owned banks soon followed the league.
Thereafter, innovation kicked in as India’s largest public-sector bank, the State Bank of India
(SBI) launched a floating ATM in a ferry (in 2004). Further, it catered to the other extreme by
setting up an ATM in Leh, primarily for the armed forces.

The ATM started off as a cash dispenser but evolved as multifunctional machine with the
passage of time. In order to serve customer needs without their physical presence in banks,
ATMs now help users with enhanced services such as cash or cheque, bank account balance,
loan provisions, bill payments and numerous additional services. Hence, these machines have
progressed from cash dispensing machines to cash recycling machines (CRM).

The ATM penetration is still very low in rural India despite a substantial growth in the ATM
industry (accounting for only 17% of the 2,22,000 ATMs in India as of December 2017). While
ATMs are progressing into the next era in urban and metro cities in India, rural India is yet to be
fully covered by the basic version of ATMs; cash dispensing machines. There are only 35,000
ATMs in rural India, a full-fledged accessibility of ATMs in these remote areas is still a far-
fetched dream. The public sector banks such as SBI have around 20% of its ATMs in rural India,
while private banks have a mere 8% ATMs. However, over the last few years, the government
together with the RBI has introduced several policies which encouraged banks to cover rural
and remote unbanked areas in the nation. All public-sector banks are mandated to open Basic
Saving Bank Deposit (BSBD) accounts with no minimum balance requirement and provide ATM
cards. Further, each account opener is provided with RuPay (introduced by the government)
card. Thus, as a result of these initiatives, the deployment of ATMs in rural India has increased

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by ~44% from 12,000 (2012-13) to 35,000 (2016-17). While ATM services in India were evolving
into the new era in urban areas and expanding their reach in rural regions, the entire Indian
banking system trembled when demonetisation of high-value currency was announced by the
PM Narendra Modi in November 2016. It made people short of cash for a couple of months as
ATMs across the country completely dried up. In these tiring times, the Indian population was
forced to switch to digital payments wherein internet banking and online payments such as
Paytm instantly became the primary source of transactions.

The drying up of ATMs due to a sudden demonetisation diverted individuals to other means of
transactions. The ATM transactions grew merely by 3% in the month of December 2016, while
transactions from alternative sources such as mWallet grew by more than 50%. Although the
usage of ATMs picked when the currency circulation was back to normal. However, compared
to the pre-demonetisation phase, this is still low. The number of transactions from ATMs
reduced by 6% from 802 million (October 2016) to 741 million (January 2018).

Nonetheless, this slowdown does not imply a downhill trajectory for ATMs in the country.
Instead, ATMs are here to stay in the Indian banking system as cash still rules the nation. This
was reflected in increase in the value of cash withdrawals from ATMs at 23% (FY 2017-18), in
spite of a decline in the number of transactions.

Furthermore, its the transition from cash dispensing machines to cash recycling machines that
provides a further surety to ATMs/CRMs and this will pick up in the future. CRMs enable
customers to deposit as well as withdraw cash. It can also identify fake or invalid currency notes
and accepts valid currency notes. This holistic cash management by a machine results in
operational as well as cost efficiency. In addition, this can be deployed in areas with a lesser
number of branches and will provide accessible banking services to the general public in these
areas.

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Analysis and conclusion
Although new generation internet, digital, mobile banking and payment system has changed
the way businesses are run. However, cash is still preferred in India for transactions. Therefore,
ATMs/CRMs will continue to grow in India and all these channels; ATMs/CRMs, bank branches,
mobile and internet banking and digital payment services are expected to complement each
other in the near future.

E-Banking is a non-reversible phenomenon which will gain more momentum in thecoming

years. With digitalization of Indian economy and move to turn India into cashless society, e-
banking is going to be strengthened. Many banks in India including the State bank of India,
HDFC, and ICICI etc. are levying charges on cash transactions above a certain limit.

Though this is mainly being done to curb cash withdrawals as many banks are still twirling over
cash crunch caused due to demonetization in 2016. But this step is surely going to boost online
banking and virtual transactions in India. As can be seen from data given above, be it ATMs
deployment or issuance of debit card or credit card, they all witnessed an upward increase
indicating their growth in recent years. The young generation has already adapted to this
change and perceive this changing banking system more as a convenience mode than a
challenge.