Financial Reforms and Banking Innovation

Trends in Banking

In recent years, the Indian economic environment has seen a lot of changes because of reforms and measures taken by the banks. The largest change is seen in the financial sector where the banking sector is the largest player to notice this change. So, the banking sector is strong enough to withstand any sort of pressure and competition. Thus, these trends in banking have been very visible in the last few years.

India, now, has a fairly stable banking sector with different classes of banks contributing to it. Thus, these include foreign banks, public banks, private sector banks, and others. Reserve Bank of India is head of all these banks.

Indian Banking Sector

Trends in Banking

Indian banking sector can be majorly divided into three sections.

Phase I – This is from 1786 to 1969 and it was the initial phase of the banking. So, in this phase, many small banks were set up.

Phase II – This phase can be considered from 1969 to 1991 where regularization, nationalization, and growth of banks comes into the picture.

Phase III – This phase is from 1991 onwards and it consists of liberalization and it’s after effects.

Trends in Banking

In recent years, there have been many changes in the banking industry. These trends in banking have made the whole process of banking very easy. These trends include the following:

RTGS – Real Time Gross Settlement

RTGS was introduced in India in March 2004. It is a system through which a bank receives instruction in the form of electronic for transferring the funds from one bank account to the other bank accounts.

As the name suggests, the transfer of funds between the accounts takes place in ‘real time’. The RTGS system is kept running and maintained by the RBI.

So, it is operated by the RBI who provides it the faster and efficient way to transfer the funds while facilitating the various financial operations.

Thus, the money send under this system is instantaneous and the beneficiary gets the money within two hours.

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This technology has been developed in the US which will replace the conventional paper cheques in India. Thus, to include this method of E-cheque and make it mandatory, a negotiable instruments act has been included in the amendment.

Electronic Clearing Service

ECS is an electronic system that is used to make the payments and receipts that are in bulk. The payments need to be similar in nature which can be smaller in amount and repetitive in nature.

Thus, this facility is specifically beneficial to government agencies and companies that make or receive large bulk payments.

EFT – Electoral Funds Transfer

This is a system to transfer the money from one’s bank account to other accounts.

So, in this system, the concerning party that wants to make the payment instructs the bank and make a cash payment or authorizes the bank to transfer the funds directly.

So, the sender should provide the bank with the complete details like the name of the receiver, account type, account number of the respective bank, city name, branch name, and other details to the bank.

Thus it will ensure that the amount reaches the beneficiaries account quickly and correctly.

ATM – Automatic Teller Machine

This is the most popular method in India to withdraw the money. The customers can enable this service to withdraw the money 24 by 7.

It allows the customers to perform all day to day bank activities without interacting with any humans. Furthermore, these facilities are also used for the payment of funds, utility bills, etc.

The other trends in the banking sector include a point of sale terminal, telebanking, and electronic data interchange.

Practice Questions Trends in the Banking Sector

Q. Which of the following system is used if the payment is to be done in bulk?

A. ECS                B. RTGS                  C. EFT                 D. ATM

Answer: A. ECS

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