introduction to banking operations

Banking Services Operations 1

Introduction to Banking Operations

Chapter - I


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


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.

History of Banking in India

The Hindustan Bank 1779The General Bank of India 1786The Bank of Calcutta 1806East India Company Established the following three banks known as “Presidency Banks”.

Bank of Bengal 1809 Bank of Bombay 1840 Bank of Madras 1843Above 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

Three tier Indian Banking system.Commercial banks, Regional Rural Banks and the cooperative and Special purpose rural banks.

Core banking OperationsFinancial Transactions, Loan Origination/Application Processing and Trade Finance.

Classification of banks in the Banking System

Public sector Banks, Private sectors banks, Co-operative sector banks and Development banks.


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.


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.


CRM in Banks, Cntd…

Change in the Existing Business Models

Dividing its customers in various categories like Retail, small and medium enterprises and corporates.

Accomplished by

Categorizing the customers in segments like personal finance, Business finance and corporate, etc.

Bank may also decide to follow a niche strategy.

A bank adopt “Universal Banking”


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


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.


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.


Bookkeeping in banks

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

Subsidiary Books Personal Ledger, Bills registers.

Subsidiary Registers

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

Departmental JournalsA journal is maintained by each department of the bank to note the transfer entries passed by it.


Memoranda Books

Cash Department Receiving Cashier’s Cash Book, Paying Cashier’s Cash Book, Main Cash Book and Cash Balance Book.

Quick payment system

In teller system, the teller keeps cash, ledger cards and the specimen signature cards for each customer.

Outward Clearing

The onward clearing book is a 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.

Bookkeeping in banks, Cntd…


Memoranda Books

Loans and Overdraft department

Registers for shares and other securities, Summary books of securities, Godown registers, price register, Overdraft sanction register, Drawing power book, Delivery order book and storage books.

Deposits department

Account opening and closing register, Rate register for fixed deposits, Due date diary and Specimen signature book.

Establishment Department

Salary and allied registers, Register of Fixed assets, Stationery Register and Old records register.

General Signature book of bank officer and Private telegraphic code and cyphers.



Statistical Books

• Average balances in loans and advances.• Deposits.• Number of cheques paid.• Number of cheques, bills and other items

collected.



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.


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.


• 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.

Asset-Liability Management (ALM) Cntd….


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.


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


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.


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