This is about Banking Law and Operation (b.com 2nd sem last chapter i.e BANKING INNOVATIONS)

1. Presentation From ,
Madhu sudan.S
1st B.com ‘A’sec
S.V.R.F.G.C
Chandapura
SUB :-
Banking law and operation
TOPIC ;-
BANKING INNOVATIONS

3. New technology in banking
E-services
Debit and Credit card
Internet banking
ATM
Electronic fund transfer
MICR
RTGC
DEMAT

5. E commerce essentially is the paperless
exchange of business information through network
based technologies. Its nothing but transaction
routed through internet.
Today's banking business is virtual banking.
It denotes the provision of banking and other
related services through the extensive use of IT,
without direct source to the bank by customer.
The principle types of virtual banking services
ATM’s, EFT, smart card, phone banking, home
banking, internet banking, store value cards.

6. TRADITIONAL V/S E-
BANKINGIn traditional banking, the customer has to visit the
branch of the bank to perform basic banking operations
via account enquiry, funds transfer, cash withdrawals
etc. it is the brick and mortar structure of a bank is one
of the essential banking function.
On other hand E-Banking enables the customers
to perform the basic banking transactions by sitting at
their office or at home. By using PC and laptops or from
mobiles. The customer can access the banking websites
for viewing their account details and perform the
transactions on account as per their requirements

7. E-BANKING TRANSACTIONS
1.A/c enquiries
2.Fund transfer
a. Payment of electricity, water, Telephone bill
etc,,,
b. Online payments for transaction actually
performed through NET
c. Request for passbook, cheque, Draft etc,,,,
d. Request for statement of A/c by bank that
lists
Deposits, withdrawals, interest earned, etc,,,,
up to the date

8. Electronic Delivery Channels
1. ATM’s
2. Smart cards
3. Tele banking
4. Internet banking
ATM(AUTOMATED TELLER MACHINE)
ATM is a computerized telecommunication
device that provides bank’s customer a secure method of
performing financial transaction in a public place without
the need of any one
An ATM is also known as Automated Banking machine in
Canada, Cash Machine in UK and cash point in New
Zealand

9. Structure of ATM

10. An Armenian named Luther George Simjian was forced to move to USA
in the year 1920, under the account of Armenian Genocide. He owned
to his credit the invention of a portrait camera and then rolled out the
formulated idea of ATM, the Automated Teller Machine.
Confident of his invention, he persuaded Citibank to run his product on
a six month trial basis. Soon enough, he was disappointed with the
performance and the lack of users and concluded that ATM was a
wasteful addition to personal banking. And lack of demand for the ATM
finally forced him to take a back seat. Clear enough; the time was not
right for this concept to have been accepted generously. Simjian clearly
lost out on the success and fame and the same was passed on to two
other gentlemen, John Shepherd-Barron and Don Wetzel.
Historical development of ATM

11. Today, ATMs hold a strong foothold in the world, offering everyone a better
access to their money, be it in any corner of the world. Let’s put figures to
assumptions, there are about 1.8 million ATMs in use around the world with
ATMs on cruise and navy ships, airports, newsagents and petrol stations.
ATMs too have been categorized as on and off premise ATMs. On Premise
ATMs are capable to connect the users to the bank with multi-function
capabilities. Off premise, ATM machines on the other hand are the "white
label ATMs" and are limited to cash dispense, no balance enquiries, no
statement print-out.
The developments have not stopped; the contactless technology is on its
rise. Shepherd-Barron continued to take inimitable and lively interest in
technology well even in his old age and had foreseen a future where plastic
cards too would be numbered. For his excellent and unforgettable
contributions to financial technologies, he was also offered the OBE in the
year 2005. And in the year 2010, he took his last breath and left behind his
legacy of technological advancements which would refuses to end. Many
more inventions are in process and many will be successful too. The time is
just right to bring in the glorious inventions rolling in.

12. TYPES OF ATM’s
1.Mono-function devices
2.multi-function devices
TYPES OF INSTALLATIONS OF
ATM’s
1. On premises- These are mostly located near to the banks
of their own branches
2. Off premises- These are mainly located at near to the
shopping malls, educational institutions, restaurants etc,,,,

13. RECENT TRENDS IN ATM’s
1.Paying routine bills, fees and taxes
2.Updating pass book
3.Ticket purchase
4.Donations to charities
5.Purchasing postal stamp
6.Games and promotional features

14. SMART CARDS
A smart card is a device that includes an embedded integrated circuit
chip (ICC) that can be either a secure microcontroller or equivalent
intelligence with internal memory or a memory chip alone.
The card connects to a reader with direct physical contact or with a
remote contactless radio frequency interface.
TELE BANKING
Telephone banking is a service provided by a bank or other financial institution,
that enables customers to perform financial transactions over the telephone,
without the need to visit a bank branch or automated teller machine. Telephone
banking times can be longer than branch opening times, and some financial
institutions offer the service on a 24-hour basis. From the bank's point of view,
telephone banking reduces the cost of handling transactions by reducing the
need for customers to visit a bank branch for non-cash withdrawal and deposit
transactions.

15. 1. Balance inquiry in respect of all the accounts of the
customer. Details of last 5 transactions of the
account.
2. Cheque Status Inquiry. Request for Account
statement through Fax, email or post. Stop
Payment Instructions
3. Loan details of the customer.
4. Bank product information. Funds Transfer
Facility.(Will be available in next phase)
5. Reporting of ATM/Debit/Credit card lost.(Will be
available in next phase)Facility to change
password.
6. Demat Account details.
7. Facility to talk to Phone banker/Relationship
Manager/Call Centre
TELE BANKING SERVICES

16. ISSUE OF DEMAND DRAFT
A demand draft is a negotiable instrument similar to a bill of
exchange. A bank issues a demand draft to a client (drawer),
directing another bank (drawee) or one of its own branches
to pay a certain sum to the specified party (payee).
A telecustomer who wants to avail the facility is
required to give in writing in advance thee names of parties
in whose favour he may want a draft and the branch on
which the draft is to be drawn.

17. FUND TRANSFER
National Electronic Funds Transfer (NEFT) NEFT is electronic funds transfer
system, which facilitates transfer of funds to other bank accounts in over
63000 bank branches across the country. This is a simple, secure, safe,
fastest and cost effective way to transfer funds especially for Retail
remittances.
INTERNET BANKING
An electronic payment system that enables customers of a financial
institution to conduct financial transactions on a website operated by
the institution, such as a retail bank, virtual bank, credit union or
building society. Online banking is also referred as Internet
banking, e-banking,

18. INTERNET BANKS's PRODUCTS
1.Information Kiosks- It providing information regarding various products
and services that are available in the bank to his customers is apart from
general information
2.Basic Internet banking- In this type, customers are allowed to open a
new A/c, to check their A/c balance and to pay telephone bills, electricity
bill etc,,,.
3.E-commerce banking- The customers are enabled to operate these
type of A/c through electric media for transfer of money, payment of bills,
purchase and sale of Securities. The banking information is passed
through web server to the bank Internet banking Services through the
WWW interface to comply with customers requisites.
The inter net banking server receives the customer's request
and passes it to the banking server where the customer database are
stored.
with the fall in cellphone tariff and emergence of seamless
connectivity B/w fixed and mobile lines, telebanking or mobile baning is
set to emerge as one cost-effective delivery channel in the near future.

19. ELECTRONIC REMITTANCE
Now a days all the banks are having computerized their banking
operation. Besides all the banks in the world are interlinked with each other through
internet. This mechanization has facilitated the easy and fast remittance of money
not only with in country but also out side the country.
All over the world banks are interlinked with each other through internet.
with a satellite maintained by SWIFT(Society for Worldwide Inter-bank Financial
Telecommunication).
FOREIGN INWARD REMITTANCE PAYMENT SCHEMES(FIRPS)
It is the new scheme is mainly intended for facilitating easy trnsfer of money
from foreign countries. It is mainly meant for foreign inward remittace.
In general, itt is means of an order to its branch or correspondence in
India to pay certain sum of money stated to the person named in the
document.This remittance is in foreign country.

20. REAL-TIME GROSS SETTLEMENT(RTGS)
It is a new system of payment in the banking environment has been
introduced from 2004 onwards. this system is called RTGC. It is an
upgrade technollogy and would coexist with the present electronic clearing
and funds transffer services untill RTGC is fully implemented.
Working of RTGC
When a payment message is moved through th clearing house, the
paying bank A/c with the RBI immediately debited and simultaneously
the receiving banks A/c is credited throught net. This system provides
an opportunity to collect funds aster from payer and Hence it reduces
the receiver's working capital cycle. Without realtime facility the RTGC
system cannot be implemented.

21. Superiority Over cheque system
1.Speedy collections
2.Irrevocable Payments
3.No settlement risks
4.Easy Liquitidity Management
5.Reduction in Processing Cost
6.No Risk of Fraud, Loss etc..
7.Better Inventory management

22. E-BANKING TRANSACTIONS
Any type of transactions can be handled throght E-
banking.the following are some of the basic functions:
1.Payment of electricity water, telephone bills etc,,
2.online payment for transactions actually performed
through Internet.
3.Request for issuance of cheque book, draft etc,
4.Request for statement of A/c's
5.Access to latest schemes
6.Access to rates of interest and other service charges.

23. TRUNCATED CHEQUE AND ELECTROMIC CHEQUE
To facilitate E-banking, trancated cheque and electronic cheque have been very
recently introduced.
Sec. 6 of N.I Act contains the definition of a cheque. This Sec has been recently
amanded to include trunceted and clectronic cheques within the definition of
cheque.
N.I Act Amendment
The amanded Sec. 6 of N.T Act “a cheque is a Bill of Exchange Drawn on a
sdpecified banker and not expressed to be payable otherwise than on demand and
it includes electronic image of a turncated cheques and cheque in electronic form.”
Turncated Cheque
It is the conversion of a physical cheque into a substitute electronic form for
transmission to the paying bank. Cheque truncation eliminates cumbersome
physical presentation of the cheque and saves time and processing costs.

24. Essential features of truncated cheque
1. It is nothing but an electronic image of a physical paper cheque.
2. It is only clearing House or the bank involved can turncate a cheque
3. Any holder or drawer cannot truncate the cheque
4. This electronic image of the truncated cheque will substitute the
physical cheque immediately from the time of truncation
5. It can be done only for the purpose of clearing to reduce the time
taken for collection.
6. The clearing house or bank only cm truncate the cheque

25. Electronic cheque
A form of payment made via the internet that is designed to perform the same
function as a conventional paper check. Because the check is in an electronic
format, it can be processed in fewer steps and has more security features than a
standard paper check. Security features provided by electronic checks include
authentication, public key cryptography, digital signatures and encryption, among
others.
1. Time-tracking tools
2. Paper and electronic form support
3. Flexibility
4. Audit trail documentation
5. Built in process for employee requests
Essential features of E-Cheque

26. Mechanism of E-cheque
1. The drawer prepares the E-cheque in his computer with the help of
specialized software
2. He enters all the particulars like name of the bank, date, payee, amount,
signature etc., and fill them up
3. He signs the same with his digital signature
4. It is then forwarded to the payee through e-mail or internet
5. The payee upon receiving the E-mail, opens the E-cheque with a
specialized software
6. Then, the payee forwards the E- cheque along with the deposit slip to his
bank through E-mail the paying banker has to verify the signature of the
drawer and the payee and then forwards it to the drawer’s bank i.e., the
paying banker

27. Advantages of E-cheque
1. Offer more convience
2. Any time cheque
3. Less expensive
4. Avoids loss in Transit, Bad delivery etc,
5. More protection
6. Avoids delay in payments
7. Facilitates E-banking

28. MOBILE BANKING
The another new banking innovation product introduced is ‘Mchq’.
‘Mchq’ is nothing but a mobile-to-mobile payment option. It means that any one
can use his cellphone like a wallet. This concept is taken from Japan and Asian
countries.
Modus operandi of ‘Mchq’
All vital personal information that are normally stored in the magnatic
strip on the back of a credit card are now loaded on to the SMI card in a
secure formate. The existing SIM card on a mobile has to replaced with
one that has 128 bit which offer a higher degree of safety.
while shopping, one has to give his pone number to his merchant, who
would then send on a special mobile phone an SMS to the server of the
mobile service provider. The customer does shopping will in turn get an
SMS asking to conform payment.

29. ADVANTAGES
1. Paying through the mobile is quicker and more convenient than via internet.
2. This electronic payment facilitates small purchases
3. Generally credit cards are not much importance
Launching of ‘Mchq’ in India
In India, the ICICI bank has come forward to offer of ‘Mchq’ facility to its customer
in collaborate with Airtel and this facility is offered to ICICI card holders and also
the customer of Airtel. Initially , this facility is available in Delhi, Mumbai, national
capital regions. The transation limit of rs.5000/- or 10 transactions only

30. Mondus Operandi
This service allows a customer in one bank to remit funds to an A/c holder in
another bank by using a mobile phone as a service of delivery channel. This
service can be utilized either to receive money or pay money for which the
following procedure is followed,,,,,,,,,
To Receive Money
1. Register his mobile no with his bank to link to his bank
2. Get his Mobile Money identifier (MMID) from his bank
3. Share his mobile no and MMID with the remitter
4. Check the confirmation SMS for credit to his A/c from remitter
To Pay Money
1. Register himself for mobile banking with his bank
2. Get his MMID and Mobile Banking Personnel Identification Number (MPIN)
from his bank
3. Download the mobile banking application
4. Using SMS services
5. Check the conformation SMS for debit to his A/c and credit to Beneficiary
A/c

31. Advantages
1.Round the clock banking 24*7
2.Convenience banking
3.Low cost banking
4.Profitable banking
5.Quality banking
6.Speed banking
7.Service banking

32. Constrains or Disadvantages
1.More Start up cost, implementation cost
2.Training and Maintenance
3.Lack of personnel skill
4.More Security
5.Legal issues
6.Restricted clientele and Technical problem
7.Restricted Services
8.Destruction of pricing mechanism

33. Security Measures
1)Authenticity control
2)Accuracy control
3)Completativeness controls
4)Privacy control
5)Audit trail control
6)Firewall controls

34. CREDIT CARD
Credit card are innovated ones in the line of financial srevices offered by
commercial bank. The idea of credit card was first developed by a Bavarian
farmer, franz Nesbitum. This concept has adopted in USA by non banking
companies. The credit B/s got momentum in sixties and a number of banks
entered the field in a big way.
credit card culture is old in Western countries. In India, it is relatevely a
new concept that is fast catching on. The present trend indicates coming year will
witness a burgeoning growth of credit card which will lead to a cashless society.
What is a Credit card
A credit card is a card which eanbles a card holder to purchase goods, travel and
dine in a hotel without making immediate payment. It is a connivance of extended
credit without formality. Thus, credit card is a passport to safety, connivance,
prestige and credit.

35. Who can be a credit card holder
1. A person who earns a salary of Rs. 60000/- p.a is eligible for a card
2. A reference from a banker and the employer of the applicant is insisted
upon
Types of credit card
1. Credit card
2. Charge store
3. In-store card
New types of credit card
1. Corporate credit card
2. Business card
3. Smart card
4. ATM card
5. Virtual card

36. Parties to a credit card
1. Issuer- the banker or other card issuing organization
2. Card holder – individual
3. Member establishment – shops and service organization enlisted by
credit issuer who accept credit card
4. Member affiliated – these are tie-up arrangement
Specimen of credit card

37. Facilities offered to credit card holders
Making purchase / availing of services @ any of the member
establishment
Cash withdrawals at any of branches of the issuer or member affiliate
of the issuer to meet emergent requirements
Add on facilities for family members
 free credit period ranging from 15 to 45 days
ATM facility at selected centers
Wide range of insurance facilities are available which includes
personal accident insurance, cover of accidental death , baggage
insurance, purchase protection, against risk of fire, risk, strike, theft etc
during transportation and concessional premium rate for personal
accidents insurance and midi claim.

38. Benefits of credit card
To holder
1. credit card are simple to carry and easy to operate.
2. The holder is relive form carrying of cash or cheque.
3. A card is convent method of payment of goods and services.
4. Overdraft facility is given to credit card holder.
5. The purchasing power of the credit card holder increase to the extent of credit
limit given in the card.
6. credit card provides a certain degree of prestige to the holder.
Issuer
1. It decreases uses of the number of cheques.
2. Where the card is issued to non-A/c holder, it helps to get new customer.
3. Credit card offers high profit of the bank.
Member
Establishment1. No bad debt arises in credit cad transaction
2. The speedy selltlment of bills by bank
3. The acceptance of card in lieu of cash reduces security risk.
4. They are able to offer credit facility to their customer without setting up
their own credit arrangement.

39. Demerits of credit card
1. Card holder
 A high rate of interest is charged
 The card holder are burned with service charge, annual fee, membership fee,
etc.,
 credit card tempts the holder foe more purchases beyond their income and
repaying capacity.
2.Issuer
Unless the number of card holder and the volume and the volume of B/s is
high, the credit card B/s will not be a profitable one.
The average utilization in India is only 20-30 %
It establish the major problems for the issuer.
3.Member establishment
The commission payable to the banks are heavy.
Some banks makes delay in payment of amount.
It affect the cash flow of the Member establishment

40. DEBIT CARDS
Debit card is a plastic card issued by the banker to his customer used to
withdraw money from ATM’s purchasing of goods in shopping malls.
The developed countries like USA have moved a further step. It is an electronic
product has become more and more popular in these countries.
It requires the customer to open an account in the bank.
DIFFERENCES BETWEEN CREDIT AND DEBITCARDS
1. It is a pay later product
2. The holder can avail credit for 30 to 40
days only in case of credit card
3. No sophisticated telecommunication
system is required.
4. Maintaining a required amount is not
essential.
5. High possibility of risk of frauds.
1. It is a pay now product.
2. The customer has to maintain a
minimum amount in his account.
3. The program requires installation of
sophisticated communication
networks.
4. Maintaining a required amount is
essential.
5. The risk is minimized through PIN
code
Credit Card Debit Card

41. DEMAT ACCOUNT
A DEMAT account is one where shares and securities of an investor can be held
electronically instead of keeping them under physical possession. Clearing house of
recognized stock exchanges, non-financial companies with minimum net worth,
brokers and banks including foreign banks or eligible to open DEMAT accounts for
their customers. A DEMAT account can be open by a depositary participants(DP).
Before going to deep into the details of DEMAT account, it is essential that one
should know the depositary process.
DEPOSITARY PROCESS
1. THE DEPOSITARY
2. THE DEPOSITARY PARTICIPANTS
3. THE BENEFICIAL OWNERS
4. THE ISSUER

42. BANKER AS DEPOSITARY PARTICIPANTS
Banker acts as a DEPOSITARY PARTICIPANTS for his customers by serving as
intermediary between the investors and depositors.
1. Banks have specialized staff to deal with all types of shares and securities .
2. Banks have wider professional experience and a separate division specializing in
merchant banking activities.
3. Bank have larger number of branches spread throughout the country.
4. Generally, banks provides quick processing and accessibility to their customer.
5. Some banks allows their customer to open a DEMAT account in any branch
according to their option.
6. Some banks provides online access to the DEMAT account to check their present
status of their holding.
7. Banks offer faster service since debits and credits to the DEMAT account will take
only 2 to 3 days at the maximum.
8. Most of the banks keep savings account of their investors to which debits can be
made for charges, purchases etc, by getting an authorization slip.
Just like pass book entries, whenever purchases and sales take place, debit
and credit entries made in the DEMAT account immediately.

43. ADVANTAGES OF DEMAT

44. 1) Investors will be able to change portfolio more frequently
2) The cost of transfer is less as the share transfer are exempt from stamp duty.
3) Faster payment takes place in case of sale of shares.
4) A single demat account can accommodate investments in both equity and debt
instruments.
5) The problem of ‘odd lost’ shares will not arise since even one share can be
brought and sold.
6) Demat account can be operated at any time from anywhere.
7) The companies will be able to know the particulars of beneficial owners and
their holdings periodically.
8) At the time of declaration of dividends, bonus etc there will not be any rush for
transfer related activities for the companies.
9) The foreign investors will start participating in the market resulting in a more
buoyant capital market.
10) The existence of depository will result in increase in the volume of trade both by
number and value.
11) It will attract more number of Indian middle income group within the ambit of
capital market players either through direct involvement or through mutual funds.

45. DRAWBACKS OF DEMAT
1) Initially, the formalities to the complied with for opening and operation a Demat
account are too many .
2) Trading in physical securities can be controlled easily as against trading in
Dematerialized securities which may become uncontrollable at times.
3) Again, a close watch has to be exercised over the trading in dematerialized
securities so that it may be as a detriment to investors.
4) Banks and others DPs who opened Demat accounts have to be conversant
with multiple regulatory frameworks.
5) Keeping idle Demat account is a cause of great concern for bankers.
CHARGES FOR DEMAT
1) Account opening fee
2) Annual maintenance fee.
3) Custodian fee.
4) Transaction fee.

46. DEMAT ACCOUNT v/s BANK
ACCOUNT1) Nature of Product :-
A DEMAT account mainly deals with securities where as a bank account mainly
deals with funds.
2) Opening of an account :-
A demat account can be opened with any depository participant, including a
bank whereas a bank account can be opened only with a bank.
3) Purpose:-
The purpose of opening a demat account is for safe keeping of securities
whereas
it is safekeeping of money in case of a bank account .
4) Interest:-
A demat account does not earn any interest where as interest income is the
main motivation for opening a bank account.
5) Minimum Balance:-
A demat account does not insists upon any minimum balance. But minimum
balance is mandatory in a bank account.
6) PAN number :
It is a mandatory to give PAN number to open a Demat account. But it is
optional in the case of a bank account except in some special cases.

47. MICR CHEQUE
The Magnetic Ink Character Recognition (MICR) is basically a system which is
used in banking operation world wide particularly for cheques. Due to a
tremendous increase in the volume of cheques, it becomes very difficult to
cheque each and every cheque to establish genuineness. To make this work
easy, the MICR system has been used in banking operations.
MICR TECHNIQUE
Under this system, a cheque is pre coded with a band of codes and that is
witten on ot can be read by machines very easily. The cheque can be read
directly by MICR, without the necessity of Transcribing the data on punched
cards of paper tapes.
Generally, the requisites information is printed on the cheque in the form of
codes with a special type of Ink. This ink is made of magnetic material. So, when
the cheque is inserted into the machine, the information printed is magetized
and it is read by the machine instantly. Thus, MICR technology is very useful in
establishing the genuineness of a cheque and thereby it avoids frauds

48. FEATURES OF MICR CHEQUES
1). Size:-
Under MICR system, the size of a cheque becomes an important
element. Different size have been prescribed for different accounts, so
that cheque pertaining to one account may be easily distinguished from
another.

49. First field
(6 digits)
Second field
(9 digits)
For No. of
the cheque
Third field
( 6 digits)
Fourth field
(2 digits)
Next 3
bank
code
First 3 for
cities
Last 3 bank
code
For account
number
For
transaction
number
For amount
Brand code
Fifth field
(13 digits)
Examples of codes

50. City codes Transaction code
codes
Mumbai 400
New Delhi 100
Chennai 600 Kolkata 100
Savings A/c 10
Current A/c 11
Banker’s cheque 12
Cash credit 3
Dividend warrant 14
Traveler's cheque 15
Demand Draft
For currents accounts, cash credit A/c’s etc.,

51. Specimen of MICR cheque
2.Quality of paper : the MICR system requires the us of good quality
paper for cheques. The machine would not be able to read the information
of a cheque on a poor quality paper. Hence, the working group on the use
of MICR cheque has suggested that the weight of the paper should be 95
grams per sq.meter width.
3. MICR Code : Generally, a MICR cheques contains a band of codes
having a width of “5/8” at the bottom of it. This band code can be divided
into 5 fields as started below.

52. Drawbacks of MICR
1. This technology is very costly. Since a special type of paper is required for
MICR cheque, so it is costlier.
2. This facility is limited for cities only, so only limited customers can make use of
it.
3. It should not be fold and nothing should be written on the band of codes except
signature and rubber stamp should enter the code band
4. The IT revolution has made it possible to introduced E-cheque and turncated
cheque. So MICR cheque not gained more popularity.
Advantages
1. Since MICR cheques are read by machines, the chances of error are
minimized
2. The transfer of funds between two banks can take palce very easily and at
greater speed.
3. The main advantage is that the clearing work is made for esier.
4. The burden of manual work gets r educed and t the same time accyracy is
maintained