Chapter - I

Introduction to Banking Operations

Banking Services Operations 1

 Focus points

• Changing Nature of Banking Operations

• Importance of CRM in Banks
• Products and services offered to customers
• Role of technology in Banking operations
• Bookkeeping and Maintenance of accounts
• Necessity of Asset-liability management
• Regulatory framework for Compliance

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Changing Nature of Banking Operations

• Money economy existed in the ancient vedic times.

• Money lending for business purposes is found in the
Manu Smriti.
• Vaishyas emerged as a class of indigenous bankers and
‘hundi’ emerged as the earliest form of bill of exchange in
India.
• Banking operations gradually transcended from
individuals to groups and later on to companies.

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 History of Banking in India
The Hindustan Bank 1779
The General Bank of India 1786
The Bank of Calcutta 1806
East India Company Established the following three banks known as “Presidency
Banks”.
Bank of Bengal 1809
Bank of Bombay 1840
Bank of Madras 1843
Above three banks are amalgamated in 1920 and a new bank called, the Imperial
bank of India was established on 27th January, 1921.
Imperial Bank of India was taken over by the newly constituted State Bank of
India, which is governed by State Bank of India Act, 1955.
Reserve Bank of India (RBI) which acts as the Central bank was created in 1935,
which is governed by Reserve Bank of India Act, 1934.
 Structure of Banking in India

Commercial banks, Regional Rural

Three tier Indian Banking system. Banks and the cooperative and Special
purpose rural banks.
Financial Transactions, Loan
Core banking Operations Origination/Application Processing
and Trade Finance.
Public sector Banks, Private sectors
Classification of banks in the
banks, Co-operative sector banks and
Banking System
Development banks.

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 CRM in Banks
• Offering the right product to the right customer at the right
time through the right delivery channel is the basic concept
of CRM.

• Traditionally, banking was “personal” where the customer

knew the bank employee and vice versa.

• Newer technologies contribute to lack of personal touch and

a customer can be lured by big financial institutions.

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 CRM in Banks, Cntd…
• To Implement CRM, a bank needs to have an Apex Level
Marketing and Business Intelligence function at the corporate
level.

• Significant improvement in customer relationship can be

achieved when the technology provides the customer
information.

• Bank must know the value of the customers, when he/she

valued will reciprocate the relationship with loyalty.

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 CRM in Banks, Cntd…

Change in the Existing Business Models

Accomplished by

Dividing its Categorizing the Bank may also A bank adopt

customers in customers in decide to follow “Universal
various categories segments like a niche Banking”
like Retail, small personal finance, strategy.
and medium Business finance
enterprises and and corporate, etc.
corporates.

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CRM in Banks, Cntd….

Formulating Business Model

Two Major aspects a bank has to

consider

Business Model needs to be flexible

and adaptable

Should not lose focus of its perceived

future growth

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 Products and Services offered
• Product-needs and product-preferences of customers also
undergo changes.

• Business strategies have been shifting from ‘Product based’

to ‘Customer focused’ approach.

• Branches are the basic delivery channels of products and

services.

• Branches are required to focus on sales and services in

technology-enabled transformation.
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 Role of Technology
• Technologies like enterprise level core banking solutions
enabling to run any business strategy.

• Networking and internet-based technologies enabled banks

to handle large volumes of businesses, also helped to
demolish physical boundaries for delivering cross border
services.

• Continuous fall in the prices of hardware and networking will

enable the banks to reduce the cost of transactions and
overheads.

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 Bookkeeping in banks

Principle books of Accounts General Ledger, Profit and loss Ledger.

Subsidiary Books Personal Ledger, Bills registers.

Bills for Collection Register, Demand Draft
Register, Share Security Register, Jewellery
Subsidiary Registers Register, Safe Custody Register, Letters of Credit
Register, Safe Deposit Vault Register, Standing
Order Register and Letter of Guarantee Register.

A journal is maintained by each department of

Departmental Journals the bank to note the transfer entries passed by it.

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 Bookkeeping in banks, Cntd…

Cash Department Receiving Cashier’s Cash Book, Paying

Cashier’s Cash Book, Main Cash Book and
Cash Balance Book.
Quick payment In teller system, the teller keeps cash, ledger
system cards and the specimen signature cards for
Memoranda each customer.
Books Outward The onward clearing book is a clearing
Clearing “cheque received” book is for entering
cheques received from customers for clearing.
Inward Clearing Inward clearing relates to the cheques that
come into the bank. Cheques received are
checked against lists.

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 Bookkeeping in banks, Cntd…

Loans and Registers for shares and other securities,

Overdraft Summary books of securities, Godown registers,
department price register, Overdraft sanction register,
Drawing power book, Delivery order book and
storage books.
Deposits Account opening and closing register, Rate
Memoranda department register for fixed deposits, Due date diary and
Books Specimen signature book.
Establishment Salary and allied registers, Register of Fixed
Department assets, Stationery Register and Old records
register.
General Signature book of bank officer and Private
telegraphic code and cyphers.

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 Bookkeeping in banks, Cntd…

• Average balances in loans and advances.

• Deposits.
Statistical Books • Number of cheques paid.
• Number of cheques, bills and other items
collected.

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Asset-Liability Management (ALM)
• Indian Financial Sector reforms in the 1990s brought
unprecedented changes in the banking sector.

• Pressures arising on the profitability, liquidity and

sustainability of the bank cannot always be tackled on a
firefighting basis.

• To take a strategic perspective, banks should first of all

understand the risks that have to be taken in order to gain
the rewards that are set as the target.
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 Asset-Liability Management (ALM)
Cntd…
• ALM basically refers to the process by which an institution
manages its balance sheet in order to allow for alternative
interest rate and liquidity scenarios.

• ALM models enable institutions to measure and monitor risk,

and provide suitable strategies for their management.

• ALM includes not only a formalization of understanding the

risks, but also provides a way to quantify and manage these
risks.

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 Asset-Liability Management (ALM)
Cntd….
• RBI has developed an ALM framework based on GAP
Analysis and is intended to introduce the banks to the
process of ALM.

• Process of ALM is multifaceted and will vary from one bank

to another.

• Based on the RBI model, banks can segregate their assets

and liabilities into various maturity buckets.
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Regulatory Frame work for Compliance

• Banks play a key role in the financial system since they are
the major players in mobilizing savings and turning them
into investments.

• Banking system can survive and grow only under an

authority that can guide and monitor it; i.e. RBI.

• RBI as the banking regulator has to monitor and regulate

the risk taken by banks.
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Regulatory Frame work for Compliance,
Cntd…
Different departments of the RBI
• Department of Banking Operations and Development
• Department of Government and Bank Accounts
• Department of Banking Supervision
• Department of Currency Management
• Urban Banks Department
• Rural planning and credit Department

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 Banking in India today
• Rapid strides in information technology have, in fact,
redefined the role and structure of banking in India.

• Banks are coping up and adapting with time, to become

one-stop financial supermarkets.

• Market focus is shifting from mass banking products to

class banking with the introduction of value added as
customized products.

• SBI plans to open 100 new branches called Personal

Banking Branches.
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 End points
• Changing Nature of Banking Operations
• Importance of CRM in Banks
• Products and services offered to customers
• Role of technology in Banking operations
• Bookkeeping and Maintenance of accounts
• Necessity of Asset-liability management
• Regulatory framework for Compliance

Banking Services Operations 22