Banking Channels.docx

Banking Sector in India

Index

Sr. No. Title

Page No.

1

Monetary Policy

3

2

Banking Sector

5

3

History of Banking Channels

8

4

Overview of Banking Services

14

5

Technology in Banking

19

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Monetary Policy Overview Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity. It refers to the policy of the central bank with regard to the use of monetary instruments under its control to achieve the goals specified in the Act. In India, RBI implements the monetary policy through open market operations, bank rate policy, reserve system, credit control policy, and moral persuasion and through many other instruments. Using any of these instruments will lead to changes in the interest rate, or the money supply in the economy. Monetary policy can be expansionary and contractionary in nature. Increasing money supply and reducing interest rates indicate an expansionary policy. The reverse of this is a contractionary monetary policy. For instance, liquidity is important for an economy to spur growth. To maintain liquidity, the RBI is dependent on the monetary policy. By purchasing bonds through open market operations, the RBI introduces money in the system and reduces the interest rate. Initially Monetary Policy was governed by an Agreement on Monetary Policy Framework between the Government and the Reserve Bank of India but in the year 2016 Reserve Bank of India Act was Amended and RBI was given full control of governing the monetary policy Goals and Objectives of Monetary Policy The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth Apart from this the monetary policy also aims at achieving:      

Price Stability / Control of Inflation Economic Growth Exchange Rate Growth Financial Market Stability High Employment Interest Stabilization

Monetary Policy Committee Members  

Urjit Patel- Governor of RBI M. K. Jain – Deputy Governor of RBI

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   

MichealPatra – Officer of RBI (Nominated by Central Board) ChetanGhate – Professor, India Statistical Institution (ISI) PamiDua – Director Delhi School of Economics Ravindra H Dholakia – Professor, Indian Institution of Management, Ahmedabad.

Instruments of Monetary policy are divided into 2 groups – Qualitative and Quantitative Let’s have a look at Qualitative instruments   

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Repo Rate- The (fixed) interest rate at which the Reserve Bank provides liquidity to banks against the collateral of government and other approved securities Reverse Repo Rate- The (fixed) interest rate at which the Reserve Bank absorbs liquidity from banks against the collateral of eligible government securities Marginal Standing Facility- A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest. Moral Suasion- means persuasion or request. RBI persuades Banks to refrain from giving loans. It’s a request and not mandatory for banks to follow Selective Credit Control- means RBI may put different controls for different sectors E.g. RBI may ease down its controls for agricultural sector if required.

Quantitative Measures  

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Open Market Operations- These include both, outright purchase and sale of government securities, for injection and absorption of durable liquidity, respectively. Bank Rate- t is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. his rate has been aligned to the MSF rate and, therefore, changes automatically as and when the MSF rate changes Cash Reserve Ratio- The average daily balance that a bank is required to maintain with the Reserve Bank as a share of such per cent of its Net demand and time liabilities (NDTL) that the Reserve Bank may notify from time to time in the Gazette of India. Statutory Liquid Ratio- he share of NDTL that a bank is required to maintain in safe and liquid assets, such as, unencumbered government securities, cash and gold. Changes in SLR often influence the availability of resources in the banking system for lending to the private sector. Marginal Cost of fund based Lending Rate- It refers to the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI. It is an internal benchmark or reference rate for the bank. The MCLR methodology for fixing interest rates for advances was introduced by the Reserve Bank of India with effect from April 1, 2016. This new methodology replaces the base rate system.

MCLR (Marginal Cost of Funds Based Lending Rate)

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Marginal Cost of Funds based Lending Rate (MCLR) is the minimum interest rate, below which a bank is not permitted to lend, barring a few exceptional cases as permitted by the Reserve Bank of India (RBI). MCLR, or Marginal Cost of Funds based Lending Rate, replaced the existing base rate system with a new measure for determining the lending rates for commercial banks. It was implemented by the RBI on 1 April 2016, to determine the rates of interests for advances. It is an internal rate of reference for banks, to determine the minimum rates of interests for loans. For this, they take into account the additional or incremental cost of arranging additional rupee for a prospective buyer. After implementation of MCLR, the interest rates will be determined according to MCLR as per the relative riskiness of different types of customers. Previously when the RBI reduced the repo rate, the banks took a long time to reflect it in the lending rates for the borrowers. Under the MCLR regime, banks are under an obligation to adjust their interest rates as soon as the repo rate changes. MCLR can be viewed as an improved version of plain vanilla base rate. It is a risk-based approach to determine the final lending rate for the borrowers. It takes into account unique factors which were previously not considered in base rate. Firstly, MCLR is calculated based on marginal cost of funds instead of the overall cost of funds. Such marginal costs take into account repo rate which did not form part of the base rate. While calculating MCLR, banks need to incorporate all other kinds of interest rates which they incur while mobilizing the funds. Previously, the tenure of the loan was not given importance in order to determine the rate of interest. In case of MCLR, the banks should include a tenor premium which means charging a higher rate of interest for loans which have a long-term horizon. Banks decide the actual lending rates on floating rate advances including the elements spread to the MCLR. Banks also have the liberty to make available all categories of advances on the fixed and the floating interest rates. Additionally, banks need to follow specific deadlines in order to disclose the MCLR or the internal benchmark as follows:     

One Month Overnight MCLR For three months One Year MCLR for a maturity as the bank deems fit.

Current Statistics (as updated on 13th Oct, 2018)     

Repo Rate – 6.50% Reverse Repo Rate – 6.25% Marginal Standing Facility (MSF) – 6.75% Bank Rate – 6.75% CRR – 4% 4

  

SLR – 19.5% Base Rate – 8.85% to 9.45% MCLR (Overnight) – 8.00% to 8.40%

Banking Sector Overview Banking is an industry that handles finances in a country including cash and credit. Banks are the institutional bodies that accept deposits and grant credit to the people and play a major role in maintaining the economic stature of a country. Given their importance in the economy, banks are kept under strict regulation in most of the countries. In India, the Reserve Bank of India (RBI) is the apex banking institution that regulates the monetary policy in the country. Classification of Banks in India As mentioned above, the apex banking body is the Reserve Bank of India (RBI). It is the central banking institution and the supreme monetary authority in the country. Formed in 1935 under the Reserve Bank of India Act, 1934, RBI plays a monumental role in designing the monetary policies. The main functions of RBI are to regulate the banks in the country and also provide important financial services like controlling inflation in the country and storing financial exchange reserves.

Scheduled Banks Schedules banks are those that are covered under the 2nd Schedule of the Reserve Bank of India Act, 1934. A bank that has a paid-up capital of Rs. 5 Lakh and above qualifies for the schedule bank category. These banks are eligible to take loans from RBI at bank rate.

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Commercial Banks Commercial Banks are regulated under the Banking Regulation Act, 1949 and their business model is designed to make profit. Their primary function is to accept deposits and grant loans to the general public, corporate, and government. Commercial banks can be divided into1- Public Sector Banks These are the nationalised banks and account for more than 75 per cent of the total banking business in the country. Majority of stakes in these banks are held by the government. In terms of volume, SBI is the largest public sector bank in India and after its merger with its 5 associate banks (as on 1st April 2017) it has got a position among the top 50 banks of the world. There are a total of 21 nationalised banks in the country namely below: 

State Bank of India

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Bank of India

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Allahabad Bank

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Bank of Maharashtra

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Canara Bank

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Indian Overseas Bank

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IDBI Bank

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Oriental Bank of Commerce

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Central Bank of India

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Corporation Bank

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Andhra Bank

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UCO Bank

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Bank of Baroda

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Union Bank of India

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United Bank of India

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Vijaya Bank

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Dena Bank

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Indian Bank

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Punjab & Sindh Bank

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Punjab National Bank

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Syndicate Bank

2- Private Sector Banks These include banks in which major stake or equity is held by private shareholders. All the banking rules and regulations laid down by the RBI will be applicable on private sector banks as well. Given below is the list of some of the private-sector banks in India-

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HDFC Bank

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ICICI Bank

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Axis Bank

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YES Bank

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IndusInd Bank

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Kotak Mahindra Bank

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DCB Bank

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Bandhan Bank

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IDFC Bank

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Catholic Syrian Bank

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Federal Bank

3- Foreign Banks A foreign bank is one that has its headquarters in a foreign country but operates in India as a private entity. These banks are under the obligation to follow the regulations of its home country as well as the country in which they are operating. Citi Bank, Standard Chartered Bank and HSBC are some leading foreign banks in India. 4- Regional Rural Banks These are also scheduled commercial banks but they are established with the main objective of providing credit to weaker sections of the society like agricultural labourers, marginal farmers and small enterprises. They usually operate at regional levels in different states of India and may have branches in selected urban areas as well. Other important functions carried out by RRBs include

Providing banking and financial services to rural and semi-urban areas

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Government operations like disbursement of wages of MGNREGA workers, distribution of pensions etc.

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Para-Banking facilities like debit cards, credit cards and locker facilities

5- Small Finance Banks This is a niche banking segment in the country and is aimed to provide financial inclusion to sections of the society that are not served by other banks. The main customers of small finance banks include micro industries, small and marginal farmers, unorganized sector entities and small business units. These are licensed under Section 22 of the Banking Regulation Act, 1949 and are governed by the provisions of RBI Act, 1934 and FEMA. Co-operative Banks Co-operative banks are registered under the Cooperative Societies Act, 1912 and they run by an elected managing committee. These work on no-profit no-loss basis and mainly serve entrepreneurs, small businesses, industries and self-employment in urban areas. In rural areas, they mainly finance agriculture-based activities like farming, livestock and hatcheries. Payments Bank 7

This is a relatively new model of bank in the Indian Banking industry. It was conceptualised by RBI and is allowed to accept a restricted deposit. The amount is currently limited to Rs. 1 Lakh per customer. They also offer services like ATM cards, debit cards, net-banking and mobile-banking.

History of Banking Channels Paper based payments Magnetic Ink Character Recognition In the early 1980s the Reserve Bank of India introduced many new modes for safe and effective payments across the country. One such important mode introduced was the unique system of MICR based cheque clearing system Apart from being a security bar code to protect your transaction; the MICR code is also an indispensable part for online money transfers. Every bank branch is given a unique MICR code and this helps the RBI to identify the bank branch and speed up the clearing process. The MICR code has nine digits in it with each three digits signifying some important information about the transaction and the bank. The first three digits in the MICR code represent the city code that is the city in which the bank branch is located. The next three digits stand for the bank code while the last three digits represent the bank branch code. High value clearing High value clearing was introduced by RBI in response to request made by corporate customers to the banks to reduce the interest cost for the debit balances in their cash credit accounts, by introducing an efficient clearing system to be settled on T+0 basis. Cheques worth Rs 1 lakh and above, drawn on designated branches, were permitted to be presented in high value clearing. This facility was available only in metro centres and was restricted to a small geographical region around clearing centres. The Reserve Bank of India (RBI) has increased the minimum value for high value clearing to Rs 5 lakh from May. This will be increased further to Rs 10 lakh by August and will be withdrawn completely by November 2009. The central bank has said that electronic alternatives, such as national electronic fund transfer (NEFT) and real time gross settlement (RTGS), have reduced the need for cheque-based clearing.

Speed Clearing Speed Clearing refers to collection of outstation cheques (a cheque drawn on non-local bank branch) through the local clearing. It facilitates collection of cheques drawn on outstation core-bankingenabled branches of banks, if they have a net-worked branch locally. The collection of outstation cheques, earlier required movement of cheques from the Presentation centre (city where the cheque is presented) to Drawee centre (city where the cheque is payable) which increases the realisation time for cheques. Speed Clearing aims to reduce the time taken for realisation of outstation cheques.

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Even though Speed clearing hastens the process of cheque collection as compared to outstation cheque collection, it pre-supposes the presence of the drawee bank branch in the clearing house location A person who had an outstation cheque with him/her use to deposit it with his/her bank branch. This bank branch is called the Presenting branch. The cheque, was sent for collection to the city where it was payable / drawn called Destination centre or Drawee centre. The branch providing the collection service is called the Collecting branch. On receipt of the cheque, the Collecting branch use to present the physical instrument in local clearing at the drawee bank branch location through its branch at the drawee bank branch location. Once the cheque was paid, the Collecting branch use to remit the proceeds to the Presenting branch. On receipt of realisation advice of the cheque from the Collecting branch, the customer’s account was credited. This, in short, is the process of Collection before the introduction of Speed Clearing. Cheque Truncation System Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point by the presenting bank en-route to the paying bank branch. In its place an electronic image of the cheque is transmitted to the paying branch through the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc. Cheque truncation thus obviates the need to move the physical instruments across bank branches, other than in exceptional circumstances for clearing purposes. This effectively eliminates the associated cost of movement of the physical cheques, reduces the time required for their collection and brings elegance to the entire activity of cheque processing. Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers, reduces the scope of loss of instruments in transit, lowers the cost of collection of cheques, and removes reconciliation-related and logistics-related problems, thus benefitting the system as a whole. With the other major products being offered in the form of RTGS and NEFT, the Reserve Bank has created the capability to enable inter-bank and customer payments online and in near-real time. However, cheques continue to be the prominent mode of payments in the country. Reserve Bank of India has therefore decided to focus on improving the efficiency of the cheque clearing cycle. Offering Cheque Truncation System (CTS) is a step in this direction. In addition to operational efficiency, CTS offers several benefits to banks and customers, including human resource rationalisation, cost effectiveness, business process re-engineering, better service, adoption of latest technology, etc. CTS, thus, has emerged as an important efficiency enhancement initiative undertaken by Reserve Bank in the Payments Systems arena. Electronic based payments Electronic Clearing Systems (ECS) ECS is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature. ECS is used by institutions for making bulk payment of amounts towards distribution of dividend, interest, salary, pension, etc., or for bulk collection of amounts towards telephone / electricity / water dues, cess / tax collections, loan instalment repayments, periodic investments in

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mutual funds, insurance premium etc. Essentially, ECS facilitates bulk transfer of monies from one bank account to many bank accounts or vice versa. ECS Credit is used by an institution for affording credit to a large number of beneficiaries (for instance, employees, investors etc.) having accounts with bank branches at various locations within the jurisdiction of a ECS Centre by raising a single debit to the bank account of the user institution. ECS Credit enables payment of amounts towards distribution of dividend, interest, salary, pension, etc., of the user institution. The User intending to effect payments through ECS Credit has to submit details of the beneficiaries (like name, bank / branch / account number of the beneficiary, MICR code of the destination bank branch, etc.), date on which credit is to be afforded to the beneficiaries, etc., in a specified format (called the input file) through its sponsor bank to one of the ECS Centres where it is registered as a User. The bank managing the ECS Centre then debits the account of the sponsor bank on the scheduled settlement day and credits the accounts of the destination banks, for onward credit to the accounts of the ultimate beneficiaries with the destination bank branches. ECS Debit is used by an institution for raising debits to a large number of accounts (for instance, consumers of utility services, borrowers, investors in mutual funds etc.) maintained with bank branches at various locations within the jurisdiction of a ECS Centre for single credit to the bank account of the user institution. ECS Debit is useful for payment of telephone / electricity / water bills, cess / tax collections, loan installment repayments, periodic investments in mutual funds, insurance premium etc., that are periodic or repetitive in nature and payable to the user institution by large number of customers etc. The ECS Debit User intending to collect receivables through ECS Debit has to submit details of the customers (like name, bank / branch / account number of the customer, MICR code of the destination bank branch, etc.), date on which the customer’s account is to be debited, etc., in a specified format (called the input file) through its sponsor bank to the ECS Centre. The bank managing the ECS Centre then passes on the debits to the destination banks for onward debit to the customer’s account with the destination bank branch and credits the sponsor bank's account for onward credit to the User institution. Destination bank branches will treat the electronic instructions received from the ECS Centre on par with the physical cheques.

National Electronic Fund Transfer National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating one-to-one funds transfer. Under this Scheme, individuals, firms and corporates can electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country participating in the Scheme. For being part of the NEFT funds transfer network, a bank branch has to be NEFT- enabled. Individuals, firms or corporates maintaining accounts with a bank branch can transfer funds using NEFT. Even such individuals who do not have a bank account (walk-in customers) can also deposit cash at the NEFT-enabled branches with instructions to transfer funds using NEFT. However, such cash remittances will be restricted to a maximum of Rs. 50,000/- per transaction. Such customers have to furnish full details including complete address, telephone number, etc. NEFT, thus, facilitates

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originators or remitters to initiate funds transfer transactions even without having a bank account. Individuals, firms or corporates maintaining accounts with a bank branch can receive funds through the NEFT system. It is, therefore, necessary for the beneficiary to have an account with the NEFT enabled destination bank branch in the country. There is no limit – either minimum or maximum – on the amount of funds that could be transferred using NEFT. However, maximum amount per transaction is limited to INR 50,000/- for cash-based remittances within India and also for remittances to Nepal under the Indo-Nepal Remittance Facility Scheme. Real time Gross Settlement (RTGS) The acronym 'RTGS' stands for Real Time Gross Settlement, which can be defined as the continuous (real-time) settlement of funds transfers individually on an order by order basis (without netting). 'Real Time' means the processing of instructions at the time they are received rather than at some later time; 'Gross Settlement' means the settlement of funds transfer instructions occurs individually (on an instruction by instruction basis). Considering that the funds settlement takes place in the books of the Reserve Bank of India, the payments are final and irrevocable. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. In DNS, the settlement takes place with all transactions received till the particular cut-off time. The minimum amount to be remitted through RTGS is INR 2 lakh. There is no upper ceiling for RTGS transactions. The RTGS service window for customer's transactions is available to banks from 9.00 hours to 16.30 hours on week days and from 9.00 hours to 14:00 hours on Saturdays for settlement at the RBI end. However, the timings that the banks follow may vary depending on the customer timings of the bank branches. Prepaid Payment Instruments Prepaid Payment Instruments (PPIs): PPIs are payment instruments that facilitate purchase of goods and services, including financial services, remittance facilities, etc., against the value stored on such instruments. PPIs that can be issued in the country are classified under three types viz. (i) Closed System PPIs, (ii) Semi-closed System PPIs, and (iii) Open System PPIs. Closed System PPIs: These PPIs are issued by an entity for facilitating the purchase of goods and services from that entity only and do not permit cash withdrawal. As these instruments cannot be used for payments or settlement for third party services, the issuance and operation of such instruments is not classified as payment systems requiring approval / authorisation by the RBI. Example: Amazon wallet, Cleartrip wallet Semi-closed System PPIs: These PPIs are used for purchase of goods and services, including financial services, remittance facilities, etc., at a group of clearly identified merchant locations / establishments which have a specific contract with the issuer (or contract through a payment aggregator / payment gateway) to accept the PPIs as payment instruments. These instruments do not permit cash withdrawal, irrespective of whether they are issued by banks or non-banks. Example: PayTM, Mobiwik 11

Open System PPIs: These PPIs are issued only by banks and are used at any merchant for purchase of goods and services, including financial services, remittance facilities, etc. Banks issuing such PPIs shall also facilitate cash withdrawal at ATMs / Point of Sale (PoS) / Business Correspondents (BCs). Example: Visa, Mastercard

Mobile banking Mobile phones, as a medium for extending banking services, have attained greater significance because of their ubiquitous nature. Banks which are licensed, supervised and having physical presence in India, are permitted to offer mobile banking services. Only banks who have implemented core banking solutions are permitted to provide mobile banking services. The services shall be restricted only to customers of banks and/or holders of debit/credit cards issued as per the extant Reserve Bank of India guidelines. Only Indian Rupee based domestic services shall be provided. Use of mobile banking services for cross border inward and outward transfers is strictly prohibited. Banks may also use the services of Business Correspondent appointed in compliance with RBI guidelines, for extending this facility to their customers. Automatic Teller Machines Automated Teller Machine is a computerized machine that provides the customers of banks the facility of accessing their account for dispensing cash and to carry out other financial & nonfinancial transactions without the need to actually visit their bank branch. ATMs set up, owned and operated by non-banks are called White Label ATMs. Non-bank ATM operators are authorized under Payment & Settlement Systems Act, 2007 by the Reserve Bank of India. In White Label ATM scenario, logo displayed on ATM machine and in ATM premises pertain to WLA Operator instead of a bank. However, for a customer, using WLA is just like using the ATM of other bank (bank other than card issuing bank). Acceptance of cash deposits at the WLAs is not permitted at present in WLA. The rationale of allowing non-bank entity to set up White Label ATMs has been to increase the geographical spread of ATM for increased / enhanced customer service. The debit cards, credit cards and open prepaid cards (that permit cash withdrawal) issued by banks can be used at ATMs/WLAs for various transactions.

Overview of Banking Services The services offered by bank can be broadly classified into four categories: 1. Payment Service: A payment service offers individuals services for accepting payments by a variety of payment methods including credit card, bank-based payments such as cheque, demand draft, transfer of funds etc. The Payment service is very important for the flow of money in the economy. Earlier the payment system was supported by cheques, demand drafts etc which has now been replaced by online money transfer with the evolution of technology

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2. Financial Intermediary: This function of the bank specifies accepting deposit and lending money to borrowers through loan. This is the oldest and core function of the bank. 3. Financial Services: Financial services include investment banking, foreign exchange business, line of credit services, wealth management and broking services. These services generate income for commercial banks in the form of commission. 4. Ancillary Services: Other services offered by the banks along with the necessary banking services. For example: safe deposits for gold, cheque pick up facility, door step banking etc. Services: 1. Mobile banking: Mobile banking is a service provided by a bank or other financial institution that allows its customers to conduct financial transactions using a mobile device such as a smartphone or tablet. 2. Internet Banking: it is an electronic payment system that enables customers of a bank to conduct financial transactions through the bank’s website. The difference between mobile banking and internet banking is that mobile banking is more app or sms based where as internet banking is done through the website of the bank. 3. Merchant Banking: Merchant banking comprises of non banking services rendered by banks to businesses. Some of the services include counseling about new projects relating to location, foreign collaboration, tax benefits etc. Help in procurement of statutory permissions, appraisal of working capital requirements, arrangement of foreign currency loans, advice about govt. regulations etc. State bank of India was the first bank in the country to start Merchant banking services. 4. Discounting Of bill of exchange: Bill of exchange is a negotiable instrument, which is accepted by the debtor, drawn upon him/her by the creditor and agrees to pay the amount mentioned on maturity. Discounting bill of exchange is another function of modern commercial bank. Under this, banks purchase bill of exchange from holder in discount after making some marginal deduction in the form of commission. The banks pay the deducted value to the holders when traders discount it to the bank.

5. Remittance: Remittance is a system, through which cash fund is transferred from one place to another. Banks provide the facilities of remittance to the customers and earn some service charge. Remittance means transfer of funds from one country to another. 6. Funds transfer service: Funds transfer means transfer of money from one account to another ideally within the bank. 7. Foreign Currency Exchange: Foreign exchange is the exchange of one currency for another or the conversion of one currency into another currency. Banks provide these services as well as per the need of the account holders. Banks deal with foreign currencies. As the 13

requirement of customers, banks exchange foreign currencies with local currencies, which is essential to settle down the dues in the international trade. 8. Bank Guarantee: Customers are provided the facility of bank guarantee by modern commercial banks. When customers have to deposit certain fund in governmental offices or courts for specific purpose, bank can present itself as the guarantee for the customer, instead of depositing fund by customers. 9. Letter of credit: A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. This means, if you do not perform your obligations, your bank pays. 10. Letter of undertaking: There is a widely accepted provision of bank guarantees known as a letter of undertaking (LOU) under which a bank can allow its customer to raise money from another Indian bank's foreign branch in the form of a short term credit. The LOU serves the purpose of a bank guarantee for a bank's customer for making payment to its offshore suppliers in the foreign currency. Difference between Bank guarantee, letter of credit and letter of undertaking: Letters of credit are used to reduce risks of not getting paid after the product has been delivered. Bank guarantees are used if the contractual obligations are not met by the other party. For example: A person A enters into a contract with person B to buy goods from B. A provides letter of credit to B. On the date of payment if A couldn’t pay for the goods then the bank is obliged to pay for the same. Whereas in case of Bank guarantee. Bank has to compensate B in case of nonpayment. But bank will also have to compensate for A if B is unable to deliver the goods promised Letter of undertaking is a form of bank guarantee under which a bank can allow its customer to raise money from another Indian bank's foreign branch in the form of a short term credit. The LOU serves the purpose of a bank guarantee for a bank's customer for making payment to its offshore suppliers in the foreign currency. 11. Bank Locker: Bank locker services the lockers are given to the public on hire. A person who hires a locker enters into a lease agreement with the bank. The customer is the lessee and bank is the lessor. In such a relationship the customer is responsible for his or her valuables kept in the locker. The bank is not held liable.

12. Leasing services: A Lease is a means of financing capital equipments. It is a contract between the Bank (Lessor) and the Customer (Lessee) for the hire of a specific asset, selected from a manufacturer / Supplier of lessee's choice and to suit the lessee's requirements. The lessee has possession of the asset and uses the same on payment of specified rentals and other usual 14

charges / fees, while the lessor retains ownership of the asset. All the risks (major or minor) and rewards of ownership are normally transferred to the lessee and the obligations are noncancellable. The lessee is to bear the costs of insurance, maintenance and other related costs and expenses for the leased equipment. 13. Travelers cheque: A traveler's cheque is a medium of exchange that can be used in place of hard currency. They can be denominated in one of a number of major world currencies and are preprinted, fixed-amount cheques designed to allow the person signing it to make an unconditional payment to someone else. They are generally used by people on vacation in foreign countries instead of cash, as many businesses accept traveler's cheques as currency 14. Custodial services: Custodial service is the service provided by a bank wherein the banks keep the valuables of their customers in their custody. Here the bank is the bailee. It is the banks responsibility to take care of the articles placed under their bailment. The bank will be held liable for loss or destruction of the valuables.

Technology in banking Online banking has enhanced customer satisfaction by providing anywhere anytime banking and benefitted banks through cost savings and increased penetration. In last few years, the Indian banking sector has realised the need of digital technologies and is rapidly moving to embrace digital banking. They are making considerable investment in creating digital infrastructure in order to offer various solutions like mobile banking, e-wallets and virtual cards, etc. 1. Digital only banks: A digital only bank provides banking facilities exclusively through digital platforms such as mobile, tablets etc. It offers basic services in simplified manner with the help of electronic documentation. It is paperless, branchless and signature-less banking offering 24*7 services to its customers. Digibank by DBS is an example of such bank in India. 2. Artificial Intelligence: Artificial Intelligence (AI) can provide quick and personalized services by dealing with each customer and focusing on their specific requirements. In India, only large banks are currently seeking to introduce AI in their services. Robotics is expected to automate processes which are repetitive, rule based and require less human judgement 3. Blockchain Technology: Blockchain is a technology which records all the digital transactions. It is a public ledger which maintains record in chronological order. Banks are seeking to use block chain technology (BCT) for operations such as money transfer, record keeping and other backend functions. --15