Banking Products and

Operations
Ravi for IBA

Session 1:
Banking Products and Operations
Retail Banking Introduction:
Evolution and growth
Multiple products (deposits, credit cards, insurance, investments and securities)
Multiple channels of distribution (call centre, branch, Internet, mobile banking,
wallet banking and kiosk)
Multiple customer groups (consumer, small business, and corporate)
Bank Insurance Model (Bankcassurance) and its impact on Retail banking
New Development in Retail banking Payment Banking and its Scope & its
limitations, Small Finance Banks (Licensing of banks under processing by RBI)
Wallet Banking (Payment system)

Banking - Importance
Banking is today an integral part of our
everyday life: at home, at school, at office,
at business, on travel everywhere we
counter some aspect of banking.
The significance of banking in our day to
day life is being felt increasingly.
How did the concept emerge?

Concept of Banking Evolution

Money has always played dominant role in life.
Forms of money have evolved from coin to paper currency notes
to credit cards.
Commercial transactions have increased in content and quantity
from simple banker to speculative international trading.
Need arose for a third party who will assist smooth banding of
transaction, mediate between the seller and buyer, hold custody
of money and goods, remit funds and also to collect proceeds.
As the number of such mediators grew there is need to control
and gave birth to the concept of banks and banking.

Banking Evolution in India

Banking in India in the modern sense originated in the
last decades of the 18th century.
Among the first banks were the Bank of Hindustan,
which was established in 1770 and liquidated in 182932; the General Bank of India, established 1786 but
failed in 1791.
The largest bank, and the oldest still in existence, is the
State Bank of India. It originated as the Bank of Calcutta
in June 1806. In 1809, it was renamed as the Bank of
Bengal.

Banking Evolution in India contd.

Bank of Bengal was one of the three banks funded by a
presidency government, the other two were the Bank of
Bombay and the Bank of Madras.
The three banks were merged in 1921 to form the
Imperial Bank of India, which upon India's
independence, became the State Bank of India in 1955.
Reserve Bank of India Act, 1934 (amended in
1936) is the legislative act under which the Reserve
Bank of India was formed and meant to provide a
framework for the supervision of banking firms in India.

Banking Post Independence

Important Miles Stones
RBI -Established in 1935 Nationalized in 1949 through the act
1948
Nationalization of banks - 1969: 14 largest commercial banks
& 6 more banks in 1980.
Liberalization in the 1990s -licensing a small number of private
banks (New Generation tech-savvy banks -(ICICI, HDFC, UTI
(AXIS), Oriental Bank of Commerce, Global Trust Bank)
Licensing of 11 New Payment Banks 2015 (August)
Licensing of 10 Small Finance Banks 2015 (September)

Multiple Products
Deposits accounts:
- Savings accounts, Salary Accounts, Business Current Accounts,
- Fixed Deposit accounts, Recurring deposit accounts

Loan / Lending related Products :

- Personal Loan, Home Loan, Loan against Properties, Loan against
Securities (Gold / Shares), Gold Loan, Educational Loan, Vehicle Loans,
Commercial Loans, Short term loans (working capital loan).

Cash Less Banking:

- Debit Cards, Credit Cards, Pre-Paid Cards, Gift Cards
- Cheques, Demand Draft
- Online transfer (NEFT / RTGS / IMPS etc)

Multiple Products
Other Services:
-

Wealth Management and Investment Services

Demat account *opening
NRI Banking services
Foreign Currency Services
Insurance Product Promotion (Cross Selling) Life & Non-Life
Insurance

Banking Sector (Customer groups)

Personal Banking
Small and Medium Sector Enterprises
Commercial banking
Global or International Banking
Rural & Agricultural Sector banking
Private banking (High Network individuals)

Banking Channels of Distribution

Channels are the vehicles through which customers can
interact with a bank. These channels may be used for
either sales or service interactions.
Branches (Major or Primary Channel)
Electronic ATMs, Internet Banking, Email, Mobile
banking/Wallet banking
Phone Banking (Call Centres)
Branch Less Banking (Banking at door step)
Direct Sales agents / Brokers / Agents / Sales Personnel

Channels of Banking

Cross Selling Insurance

(Bancassurance)
Cross selling of Insurance Products through subsidiaries
- Vehicle Insurance (Two Wheeler / Car Insurance / Tractor
/ Heavy Vehicle insurance ) along with Vehicle Loans
- Property Insurance / Life Insurance / Plant & Machinery
Insurance (while promotion of Home Loan / Term loan/
Working Capital Loans)
- Other Insurance Products Personal Accident / Medical
Insurance products

New Development in Retail Banking

Licensing of Payment Banks
Licensing of Small Finance Banks

Payment Banks - New

A bank licensed as a payments bank can only receive
deposits and provide remittances.
Cannot carry out lending activities.
Targeted at
Migrant labourers,
Low income households,
Small businesses, and other
Unorganised sector entities.

New Payment Banks - Licensed

1.Aditya Birla Nuvo
2.Airtel M Commerce Services
3.Cholamandalam Distribution Services
4.Department of Posts
5.FINO PayTech
6.National Securities Depository
7.Reliance Industries
8.Dilip Shanghvi, Sun Pharmaceuticals
9.Vijay Shekhar Sharma, Paytm
10.Tech Mahindra
11.Vodafone M-Pesa

Few Regulatory conditions for

Payment Bank
The bank should be fully networked from the beginning.
The bank can accept utility bills.
It cannot form subsidiaries to undertake non-banking
activities.
Initially, the deposits will be capped at 1,00,000 per
customer.
The bank cannot undertake lending activities.
25% of its branches must be in the unbanked rural area.
The bank must use the term "payments bank" in its to
differentiate it from other types of bank.

Few Regulatory conditions for

Payment Bank contd.
The "in-principle" license is valid for 18 months within
which the entities must fulfil the requirements.
They are not allowed to engage in banking activities
within the period.
The RBI will consider grant full licenses under Section
22 of the Banking Regulation Act, 1949, after it is
satisfied that the conditions have been fulfilled

What Payment Banks can and

cant do
They cant offer loans but can raise deposits of upto Rs. 1 lakh, and pay
interest on these balances just like a savings bank account does.
They can enable transfers and remittances through a mobile phone.
They can offer services such as automatic payments of bills, and
purchases in cashless, chequeless transactions through a phone.
They can issue debit cards and ATM cards usable on ATM networks of all
banks.

What Payment Banks can and

cant do
They can transfer money directly to bank accounts at nearly
no cost being a part of the gateway that connects banks.
They can provide forex cards to travellers, usable again as a
debit or ATM card all over India.
They can offer forex services at charges lower than banks.
They can also offer card acceptance mechanisms to third
parties such as the Apple Pay.

Are Payment Banks going to be

a game-changer?
The move is seen as a major step in pushing financial inclusion in the
country.
Its a step to redefine banking in India.
Target Indias migrant labourers, low-income households and small
businesses, offering savings accounts and remittance services with a
low transaction cost.
It hopes payments banks will enable poorer citizens who transact only
in cash to take their first step into formal banking.
It could be uneconomical for traditional banks to open branches in
every village
The mobile phones coverage is a promising low-cost platform for
quickly taking basic banking services to every rural citizen.

Are Payment Banks going to be

a game-changer? Contd.
The innovation is also expected to accelerate Indias journey into a
cashless economy.
Indias domestic remittance market is estimated to be about Rs. 800-900
billion and growing.
Payment banks can also play a crucial role in implementing the
governments direct benefit transfer scheme, where subsidies on
healthcare, education and gas are paid directly to beneficiaries accounts.
Payment technologies have proved hugely popular in other developing
countries
Eg: In Kenya, the most cited success story, Vodafones M-Pesa is used by
two in three of adults to store money, make purchases and transfer funds
to friends and relatives.

Small Finance Banks What are

they ?
Banks with a small finance provide basic banking service of
acceptance of deposits and lending
Objective is to provide financial inclusion sections of the
economy not being served by other banks, such as small
business units, small and marginal farmers, micro and small
industries and unorganised sector entities such as
small business units,
small and marginal farmers,
micro and small industries and
unorganised sector entities.

What Small Banks can do

Take small deposits and disburse loans
Distribute mutual funds, insurance products and other simple thirdparty financial products
Lend 75% of their total adjusted net bank credit to priority sector
Maximum loan size would be 10% of capital funds to single
borrower, 15% to a group
Minimum 50% of loans(total loan portfolio) should be up to 25 lakhs

What Small Banks cannot do

Can not Lend to big corporates and groups
Cannot open branches with prior RBI approval for first five years
Other financial activities of the promoter must not mingle with
the bank
It cannot set up subsidiaries to undertake non-banking financial
services activities
Cannot be a business correspondent of any bank

Small Finance Banks Licensed List

by RBI
Au Financiers (India) Ltd., Jaipur
Capital Local Area Bank Ltd., Jalandhar
Disha Microfin Private Ltd., Ahmedabad
Equitas Holdings P Limited, Chennai
ESAF Microfinance and Investments Private Ltd., Chennai
Janalakshmi Financial Services Private Limited, Bengaluru
RGVN (North East) Microfinance Limited, Guwahati
Suryoday Micro Finance Private Ltd., Navi Mumbai
Ujjivan Financial Services Private Ltd., Bengaluru
Utkarsh Micro Finance Private Ltd., Varanasi

Why payments, small banks will

revolutionise banking system?
Of the two sets of new, differentiated banks, payment
banks are probably going to do more in the initial
stages, since they can dramatically increase the reach
of banking by using mobile-based technology.
And the biggest players in this game are all well-funded
and credible. Among the initial licensees are the Aditya
Birla Group, Airtel, Vodafone, Reliance, India Post (the
countrys postal service), billionaire Dilip Shangvi
(owner of Sun Pharma, Indias largest pharma company)
and PayTM, the e-wallet company.

Why payments, small banks will

revolutionise banking system?
Contd.

Consider the numbers:

Airtel has 230 million customers, Vodafone 185 million
and Idea 162 million.
Thats over 577 million potential payment bank customers
between just three future payment banks.
India Post, with over 1.5 lakh post offices, many in semiurban and rural areas, can serve several hundred million
customers from its branches.
PayTM already has 25 million e-wallet customers, who are
all potential targets for its payment bank.

Mobile Banking - Wallet Banking

(new)
Select Banking Products through installation of Mobile
apps
Features :
Withdrawal of money at ATM with out debit cards
Transfer of Money to known contacts through mobile
using PIN
Request for money from known contacts
Bill payment for registered services
On the go services booking of rail / air / cinema tickets
Example : ICICI Pockets, SBI BUDDY, AXIX

SBI Mobile Wallet Banking - New

SBI Mobile Wallet- features

SBI BUDDY MOBIL WALLET

Banking

Mobile Wallet Banking ICICI Bank

pockets