NarasimhanCommittee I onBanking Sector Reforms 1991 -1998AfterNationalization of banks, the geographical coverage of our banking andfinancial institutions was increase. Despite impressive quantitativeachievement, the banks are suffered with low efficiency and productivity, badportfolios performance, and eroded profitability. At the end of 1990, severalpublic sector banks and financial institutions was incurring losses year afteryear, which creates a serious economic crises in country. Government was close to default and RBI is refused tonew credit. Foreign exchanges reserves reduced at such a point that countrycould barely finance three weeks worth of imports, which leads the Indian governmentto airlift the national gold reserves as a pledge to InternationalMonetary Fund (IMF) to loanmoney to meet its financial obligations. In the light of these requirements,two expert Committees were set up in 1990s under the chairmanship of M. Narasimham (anex-RBI governor) which are widely credited for spearheading the financialsector reform in India.
The first Narasimhan Committee (Committee on the Financial System – CFS) was appointed by Manmohan Singh asIndia’s Finance Minister on 14 August 1991, which is widely, came to be known asthe Narasimham Committee-I(1991).Problems identified by the Narasimham Committee-I(1991).1.Directed Investment Program:Statutory Liquidity Ratio (SLR) and Cash ReserveRatio (CRR) was as higher at 38.5 per cent and 15 per cent respectively2.Directed Credit Program: Sincenationalization the government has encouraged the lending to agriculture andsmall-scale industries by giving funds to them on very less interest rate.
Accordingto government, it was successful but in banks are suffered. It is known as thedirected credit program. According to Narasimham committee, credit on low rateof interest is alsothe reasons of poor profitability.3. Interest Rate Structure: The committee found that theinterest rate and rate of interest are decided by government of India and philosophygovernment to give loans on subsidized rates to some sectors. The committee foundthat there is no need to give loans on concessional rates, it made banks handicappedand growth of banks is impossible with this. 4.
Additional Suggestions: Committee also suggested interestrate is decided on on grounds of market forces. It further suggested minimizingthe slabs of interest.The mainrecommendations of the Committee were:1.Reduction in the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR):The committee recommended the reduce of Statutory Liquidity Ratio (SLR) from38.
5 per cent to 25 per cent and Cash Reserve Ratio (CRR) from 15 per cent to 3to 5 per cent. 2.Phasing out of directed credit program and redefinition of the priority sector.3.Adoption of minimum capital adequacy ratio of 8 per cent by March, 1996.(Capital adequacy ratios (“CAR”) are a measure of the amount of abank’s capital expressed as a percentage of its risk weighted creditexposures.
).CAR= Capital/Risk4.Establishment of uniform accounting in regard to income recognition, assetclassification and provisioning against bad debts and doubtful debts.5.Setting up of separate special tribunals to speed up the cases related torecovery of bad loans.
6.Introduction of Asset Reconstruction Funds (ARFs) which can undertake a portionof bad loans and advances at a discount.7.Branch licensing system is abolished. 8.
Adoption of the Liberalizing policy to allow foreign banks to open their officesin India.9.Allow Banks to recruit officers by their own way. 10.
Revised selection procedureof Chief Executives and Directors of Boards of public sector banks. 11.Adoption fast track of liberalization of money and capital market.12.Make a separate legislation body to supervise the legal framework for mutualfunds and making strict norms for such institutions, etc.(Source:www.rbi.
org.in)The Narasimham-II Committee (1998).The second Committeeon Banking Sector Reforms was appointed by P. Chidambaram as Finance Minister in December 1997. The Narasimham-II Committee is starts working in1998.
The Narasimham-II Committee was askedto “review the progress of banking sector reforms to date and a programme onfinancial sector reforms to strengthen India’s financial system and make itinternationally competitive”. It focused onissues like size of banks and capital adequacy ratio among other things. This committee wassubmitted its report to the government in April 1998 with followingrecommendations:1. Strengthening Banksin India: The committee considered the stronger bankingsystem in the context of the Current Account Convertibility ‘CAC’. It thoughtthat Indian banks must be capable of handling problems regarding domesticliquidity and exchange rate management in the light of CAC. Thus, itrecommended the merger of strong banks which will have ‘multiplier effect’ onthe industry.
2. Narrow Banking:A bank may be concentrating only on collection of funds through deposits andlending or investing of those funds within specific or certain chosen schemeslike investment only in government or risk free securities. This type of investmentis restricting the banking activities are referred to ‘Narrow Banking'(Natrajan & Parameswaran, 2012. IndianBanking). The committee recommended ‘Narrow Banking Concept’ where weakbanks will be allowed invest funds in short term and risk free assets.
3. Capital AdequacyRatio (CAR): To make strength the Indian banking sectorthe committee recommended that the government enhance the given capitaladequacy norms. Currently the capital adequacy ratio of Indian banks at 9percent.4.
Bank ownership:It suggests reviewing the functions of board, and allowed them to adopt new professionalcorporate strategy.5. Review of bankinglaws: The committee finds that there is urgent need of reviewingrules and laws by government like RBI Act, Banking Regulation Act, State Bankof India Act, Bank Nationalization Act, etc. This up gradation will bring themin line with the present needs of the banking sector in India.Apartfrom these major recommendations, the committee has also recommended fastercomputerization, technology up gradation, training of staff, depoliticizing ofbanks, professionalism in banking, reviewing bank recruitment, etc.(Source:https://www.rbi.
org.in/scripts/PublicationReportDetails.aspx?ID=251)1.2 Role of Technology in BankingBeforeLiberalization the Indian Banking sector is doing their business in a very slowmanner. In 1990, the revolution is came by privatization & liberalizationin banking sector. In this era foreign banks & private banks came inexistence by issuing Licenses from Reserve Bank of India. By do this Indianbanks are faced intense competition from these banks due to Introduction ofInformation technology in banking sector. Banks provide services of informationtechnology as mobile banking, internet banking, automated teller machine (ATM)etc.
A common definition for electronic banking comes from the Basel Committeeon Banking Supervision: “e-banking includes the provision of retail and smallvalue banking products and services through electronic channels as well aslarge vale electronic payments and other wholesale banking services deliveredelectronically” (BCBS, 1998).InformationTechnology is refers to storing, processing and transferring of informationwith the use of personal computers, telephones, mobile phones, fax machinesetc. Technology has changed the banking process from traditional banking. Itgives extra edged to the banking industry to enhance customer base as wellreach geographical distant and complex markets. It is a fastest and cheapestway for delivery of banking products and services. Customers can also getbenefits by get instant account statements, transfer funds, fixed deposits andpurchase drafts by just browsing bank’s website through their pc or mobileapp’s. (Dhadwal & Rajinderkapil, 2017).
1.2.1 Developmentin banking by ITTechnologyis emerged as a back bone of the banking industry. It helped in enhancement ofefficiency and transparency of banking system as well as changed the structureof banking system. Some of the changes came after introduction of moderntechnology in banking as follows:- (Source:Pankaj Goel & Shobhna)1.
Core bankingSolutions (CBS): Before introduction of InformationTechnology (IT) in the Banking. The customers were recognized by the customerof the branch of the bank. It means the detail of the customer is available inthe branch only and the services are providing to customer from his home Branchonly. If customer wants to avail banking services from some other branch, thenthe detail of the customer is transfer from home Branch to other Branchesmanually and it takes much time.AfterIntroduction of IT in Banking, Banking are changed from not only taking depositsand providing loans to an institution toprovides an catalogue of products & services under one roof. All theseactivities are performed by bank is called Core Banking. InCore banking Solution, Customers can avail facilities of bank at any nearestbank branch.
It is happen only because customers account detail is store inCentral server of the Bank and this detail of customer is available to all theBranches of bank. 2.Centralized branch automation (CBA):RBI taken step for Centralized branch automation, bank has using Centralizedbranch automation software in those branches were they are doing 80% of their businessof the bank. These branches are introduced single customer ID concept in whichall the accounts of the customer can be recovered.3.
Computerization: Computerization isintroduced in banking since 1993. By the introduction of computerization the revolutionis come in industry. It is necessary to cope-up from the overload of work asrequired for further growth. It can help in reduce corruption, increasedaccuracy, transparency, improve customer care and customer service capabilityand increase customer satisfaction. Computerization is increase the workingefficiency of banks as well as caters large number of customers from onebranch.
This is an earlier impossible to given instant service to customers. 4. Internet banking:”Internet banking” refers to systems that enable bank customers to accessaccounts and general information related to bank products and services througha personal computer (PC) or other electronic device (Chakraborty, 2015).
Internet Bankingalso called on-line banking is nothing more than traditional banking servicesdelivered through an electronic communication device viz. the internet. InternetBanking can facilitate customers to use their services by browsing bankswebsite from their person computer.
It allows customers of bank to operate theirbanks accounts, make transactions, make money transfers, bill payments andcarry on their business 24 hours, seven days a week access.(i) Basic Level services Websitesin which banks Provide information about the products & services providedto the customers.(ii)Non-Transactional Websitesin which customers can check account balances, transactions, ordering chequebooks and downloading statements.
(iii)Transactional Banking Websites inthis customer can transfer funds in their accounts as well as third partytransfer, investment, application of loans, application for credit cards,payment of bills (utility bills, mobile bills) and deposits. (Source: P. N. Varshney, 1986 Banking Law andPractice)5.Mobile banking: Mobile banking isrelatively a new form of electronic banking has become one of the customerfriendly facilities; it takes the bank to the customer’s cell phone. Mobilebanking is a convenient mode of using banking services and make financialtransactions with the help of Mobile apps or Mobile telecommunication devices24 hours a day, seven days a week access.
Use of Mobile banking in three ways SMS messaging; mobile web; or through apps. Mobileapps are software application which is provided by the bank. This applicationcan be downloaded directly from the bank website or from i-tunes store. Ithelps in instant excess of their account balance, check the latest transaction,fund transfers, bill payments etc. (Source: P. N. Varshney, 1986 Banking Lawand Practice)6.Automated teller machine (ATM): Bythe end of 1990, private and public sector banks in India came up with theirown Automated teller machine (ATM) net works under the initiative of the IndianBanks Association in Mumbai.
The Bank of India was the first nationalized bankto render ATM facilities to its customers in Mumbai. Automated teller machineis also known as automatic teller machine. It is a electronic outlet of bankwhich allows customers to complete transactions, particularly cash withdrawal,fund transfer in own account or others account, check account balances etc.without the help bank employee or bank teller 24/7.There are two primary typesof ATMs.(i)The basic machines which allow customers to withdrawal cash, fund transfer andcheck mini statement of their account.(ii)The more Complex and advanced Machines which accepts cash and update accountinstantly.
To use advanced features of the complex machine, the customer has toopen his account with bank which operates the machine.(Source:P. N.
Varshney, 1986 Banking Law and Practice)7.Magnetic ink character recognition (MICR)cheque processing: As the name suggest MICR is a Character Recognition andTechnology used in banking industry for speed up the processing and clearanceof cheques. RBI is given each bank branch its own unique MICR code which helpsto increase the pace of cheque clearing process. Magnetic inks bar codes areprinted on the bottom of every bank branch cheque leave.MICRis contained nine digit numeric codes where each three digits contained someimportant detail of bank. The first three digits represents the city code (bankbranch is located in which city).
Next three digit represents the bank code(name of the bank) and last three digits represents the bank branch code (toidentify the location of bank branch in city). (Source: www.rbi.org.in)8.Plastic money (Credit/Debit cards): PlasticMoney refers to the hard plastic cards we can use for make payments instead ofactual bank notes. Credit cards and debit cards are the two popular plasticcards issue by the banks or financial institutions.
(i) Credit card:Credit card refers to purchase in credit and pay later. It allows the cardholder to withdrawal cash, also permits to purchase goods and services up tothe set spending limit.(ii) Debit cards:Debit card is directly linked with the card holder’s bank account and permithim to spend up to the cash balance is available in the account. Debit card isassociated with the concept of “pay now” As the card used for purchase goodsand services immediately amount is deducted from the bank account associatedwith card. (Source: P. N. Varshney, 1986 Banking Law and Practice)Effective use CustomerRelationship Management (CRM) with IT.Ingeneral Customer Relationship Management (CRM) is the concept of businessstrategy built with the view point of providing improved customer service.
Customer relationship management practices relates with the communication andalso deals with organization has with its own clients, whether they are linkedwith product and service. Customer relationship management works for the highercustomer satisfaction as well as increasing business wealth. By knowing yourcustomers better will make you to serve them in a better way and keep themloyal. This is the main theme of customer relationship management. However, theunderstanding of the term customer relationship management is still incompleteand developing by the time has passed. Some authors said customer relationshipmanagement as a business strategy, as a philosophy, as a business process, as atechnological tool or as a policy framework.
As a business strategy CRM is acustomer focused strategy with the aim of increase customer satisfaction levelas well as customer loyalty by providing more effective and customized servicesto each customers. CRM as a business philosophy according to R. Lynette &K.
Simon (2001) “CRM is a relationship orientation, customer retention andsuperior customer value created through process management”. CRM as businessprocess according to R. K.
Srivastava, T.A. & L.
Fahey (1999) “defines as ahighly macro-level processes that subsumes large number of subprocesses, suchas identification of customers, creation of customer knowledge, build customerrelationship and shaping their perception”. CRM as a technology according to M.H. Hsieh (2009) “CRM is an enabling technology for organizations to fostercloser relationships with their customers”. As a policy CRM is a customerfocused system in which policies and strategies are framed to retain the existingcustomers, generated references and also focus on new customers by the aim ofincreasing the business income.Efficient DigitalEconomyThefast evolving global information infrastructure including informationtechnology and computer networks such as the Internet and telecommunicationssystems. This system has made universal development of electronic commerce at aglobal level. The closely universal connectivity worldwide has been offered byInternet.
It is an invaluable business tool with the banks has made thepersonal life of the customers not only easy but comfortable also. The timesaving is tremendous and the time value is measured in terms of money. Thesedevelopments have created a new type of economy, which is termed as ‘digitaleconomy’.
This fast developing economy is bringing with it rapidly changingtechnologies due to that there is increase in knowledge as well as also givenew forms of business and service delivery channels such as E-banking. E-bankis the electronic bank that provides the financial service for the individualclient by means of Internet (Dhadwal & Rajinderkapil, 2017).1.3 Risks of IT in Banking”Internetbanking, electronic banking and other modes of e-banking have been a blessingfor banking as far as speed, convenience and cost of delivery is concerned, butalongside it has brought many risks” (Solanki, 2012). By growing competition inthe banking sector Information technology plays important role in acquiring anadequate market share in industry for every bank. But side by side there isalso risk of data breach is immense. It is a challenge for the banks to securetheir customer data as well as given confidence to their customers to maximumuse of internet banking.
To save the data and information from theft by theintent of crime, frauds etc. Types of RisksBanks has toupgrade their system to save customers data by giving unique identificationnumber & protect the main server of bank by arranging firewall, which cansave the data of bank network from the users of other networks by set a deviceconfigured to permit and deny. (Source: Solanki,2012)1.
Fraud mobile apps: Due to the large number of mobile Apps,it is very difficult to give ranking fraud, is the key challenge in front ofthe mobile App market (Ranjitha, at al. (2016). Customers are assumed ifthe application is downloaded from application store is authenticated, But somefake applications are made exactly similar. Fraud apps are made to access yourfinancial information with the intention of crime.
Download app directly fromyour bank website for avoid these scams.2. Identity theft: The criminals are using the identity of others for financial gain.
Intoday’s environment, an individual is often need to disclose personalinformation, such as phone numbers, a signature name, address, banking and carddetail. If criminals able to access this information on the basis of thisinformation he or she commit fraud in the customer’s name. (RichardJ. Sullivan, 2008).3. Phishing:Hackers sending randomly emails to people with fake links trying to getsensitive information of those people who click on that link, such as username,passwords and credit card detail etc. The criminals do not have a specifictarget in mind, nor do they know exactly who will fall victim. They simply knowthe more emails they send out, the more people they may be able to fool.
(Source: The monthly security awareness newsletter for computer user, The SANSInstitute 2013).4. Reputation risk: Reputationrisk is the risk of negative image of bank due to negative public opinion. Bankreputation is negative by internet banking services due to giving limitedconnectivity or poor software. If customers are unhappy with the services ofthe bank, then there is rare chance, to forgive by customers.
This is not goodfor the growth of institution (Solanki, 2012).5. Card Skimming:ATM Skimming is a world-wide problem.
Card skimmer are a devices used bycriminals to capture card holder data from magnetic strip. Criminals areinstalled this device top inside the card reader in ATM’s. When consumerinserts his card into the card reader, skimmer captures the card informationbefore passing it into ATM’s card reader. Skimmer allows downloading personal data of everyone who used the ATM.
This sensitive Information of consumer is passed through this skimmer device.(Source: www.stpaul.gov/DocumentCenter/Government/Police)6. Transactions/Operationsrisk: Transaction operation risk is a high level of riskarises due to various internal and external factors. It can be exists withnegligence or without proper planning, implementation or proper evaluation.
Therisk incurred due to the delivery of each product and services in which thetransaction risk is affected by the structure of institution’s processingenvironment. The complexity by which the services offered and by which theprocesses and supporting technology. If bank is offering some scheme throughinternet banking but at the end bank unable to given such services thecustomers are face problems (Solanki, 2012).7. Safety of user id& passwords: Consumers are habit to use similar userid & password in all online accounts. If the email account is hacked, thenthe sensitive information is also leaked.
Hacker can steal your money by usingyour information. To avoid this scam frequently changed your usernames andpasswords.