Contents

Assignment Question: ..............................................................................................2

Introduction ...........................................................................................................2
Computerization of Banks In India ...................................................................2
Computerization of Bank Branches ....................................................................3
Present position of computerization in banks in India: ....................................5
Computerisation ................................................................................................6
Automatic Teller Machines...............................................................................6
Growth of ATM Networks in the country .......................................................7
Internet Banking ................................................................................................7
Phone Banking and Mobile Banking ...............................................................8
Impact of computerization on the profitability of ICICI and HDFC Bank 9
Current Statistics : ICICI Bank ......................................................................9
Impact on Profitability: ICICI Bank ...............................................................9
Key Financial Statistics showing the impact of computerization : ICICI
Bank .....................................................................................................................10
Current Statistics: HDFC Bank ........................................................................11
Impact on Profitability: HDFC Bank ...............................................................11
Key Financial Statement : HDFC Bank ...........................................................12
Conclusion ...........................................................................................................14
Bibliography ........................................................................................................15

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 Assignment Question:
Q) Impact of computerization on the profitability of Banking Industry. A
comparative study of HDFC and ICICI bank.
Introduction
Information technology is one of the most important facilitators for the transformation of
the Indian banking industry in terms of its transactions processing as well as for various
other internal systems and processes. The various technological platforms used by banks
for the conduct of their day to day operations, their manner of reporting and the way in
which interbank transactions and clearing is affected has evolved substantially over the
years.

The technological evolution of the Indian banking industry has been largely directed by
the various committees set up by the RBI and the government of India to review the
implementation of technological change. No major breakthrough in technology
implementation was achieved by the industry till the early 80s, though some working
groups and committees made stray references to the need for mechanization of some
banking processes. This was largely due to the stiff resistance by the very strong bank
employees unions. The early 1980s were instrumental in the introduction of
mechanisation and computerisation in Indian banks. This was the period when banks as
well as the RBI went very slow on mechanisation, carefully avoiding the use of
‘computers’ to avoid resistance from employee unions. However, this was the critical
period acting as the icebreaker, which led to the slow and steady move towards large
scale technology adoption.

Computerization of Banks In India

E-commerce and e-banking are the buzz words in the global commercial activities today.
E-banking or Electronic banking refers to conducting banking activities with the help of
information technology (IT) and computers.

Computerization of banking functions in India was resisted by labour unions for fear of
loss of job opportunities. Secondly, computerization needs IT savvy personnel which
require intensive technical training. Thirdly, computerization needs heavy capital outlay
for purchase of machines.

Fourthly, to have effective computerization of banks a large num-ber of bank branches

situated in rural areas need to be connected. Telecommunication facil-ity at rural areas is

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slow to reach. For the reasons mentioned above, computerization made a slow entry in
Indian banks.

A. Rangarajan Committee

In the early 1980s, a high level committee was formed under the chairmanship of Dr.
Rangarajan, the then Governor of Reserve Bank of India to suggest measures for phased
introduction of computers and mechanization of banking activities in India.

However, the focus of computerization at that time was on customer service in banks.
Accordingly dur-ing 1985 - 89 two models of branch automation were developed for
implementation in banks.

They were (a) front office mechanization, and (b) back office automation. In the front
office mechanization front desk operations were computerized leaving back office
activities carried under manual system.

In the back office automation, back office operations like maintenance of General
Led-ger accounts, etc., were computerized while front office work was done manually.

Under both the systems, customers were given regular and timely statement of ac-counts
without any errors. Having achieved the basic objective of introducing elements of
automation in banks, the second committee constituted in 1988 under the chairmanship
of same Dr. Rangarajan drew up a detailed plan for computerization of banks in India.

Accordingly automation, i.e., use of machines like computers, use of IT, etc., were
extended to other areas of banking activities like funds transfer, Automated Teller
Machines (ATM ), transmission of messages through electronic mail system, etc.

Computerization of Bank Branches

The reforms in the 1990s, which led to expansion, consolidation and liberalization of
the banking and financial sector in India, brought in many changes and challenges.
A number of private and foreign players entered the Indian market with superior
technologies that helped them service their customers efficiently through multiple
channels such as ATMs and online banking.
Indian banks on the other hand have been using IT more out of compulsion and
primarily for transaction processing. They now need to adopt IT to reposition banks into
the integrated financial services market.

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The need for providing improved customer service, reducing transaction costs and
increasing productivity, shall be the main drivers for banking sector to adopt IT. These
considerations are particularly important for public sector banks in India, who are
facing immense competition from private and foreign banks.
IT can help them move from the present scenario where they are working as isolated
islands to providing a centralized banking experience. There is a need today for IT and
the financial community to come together and develop customized IT solution to make
the Indian Banking sector globally competitive.
IT adoption in the banking sector will provide real time availability of transaction pro-
cessing through multiple channels. It would enhance a bank's ability to cross sell
products, ensure better management and security and safety of funds and increase
efficiency through integration of systems across various locations.
It would also ensure efficient management of Non Performing Assets (NPAs), minimize
transaction costs, enhance ability to conduct in-depth financial analysis and gather
business intelligence. Enhanced use of IT would also encourage the use of Internet to
provide access for online bill payments, funds transfers and e- statements in addition to
encouraging wireless mobile banking and e-commerce.
With growing competition faced by foreign banks and financial institutions, the public
sector banks in co-operation with the Indian IT industry would need to equip
themselves for the next phase of introducing the benefits of IT to their customers by
providing a centralized banking solution.
Opportunity for Indian banking sector in branch computerization
1. IT Networking
2. System Integration and Management
3. Customer Relationship Management (CRM) Applications
4. Back Office processing and Call Centres
5. Data warehousing/ Data mining
6. Mobile and e-banking.

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Present position of computerization in banks in India:

Based on the suggestions made by Rangarajan Committee, banks started initiating

measures to computerize their various operations. Public Sector Banks (PSU banks)
started identifying important / large branches for full branch computerization.

Banks which had fully computerized some of their branches started inter-connecting
their computerized branches using leased telephoned lines or through satellite system.
This enabled banks to have a better centralized control over branches besides ensuring
comprehensive service to their customers.

In the third stage, banks started providing for sizeable funds for computerization of their
operations. It was necessitated due to financial sector reforms initiated in the early 90s
through Narasimham Committee recommendations.

Further globalisation and liberalisation measures introduced during 1990s allowed

setting up of new private sector banks and free entry of foreign banks into India. This
brought in a different and new operating environment to banks.

The deregulation of interest rate regime, phased reduction in Cash Reserve Ratio /
Statutory Liquidity Ratio, introduction of universal banking system, permission to start
new banks in the private sector, etc., by Reserve Bank of India encouraged competition
among banks.

These measures had pushed the Indian banks to go for state-of-art IT and services and
products like " anywhere banking ", " tele- banking" etc. Simultaneously the importance
of effective Management Information System (MIS) for control of operations,
maintenance of data base, good customer relationship was felt.

Accordingly banks presently cover performance monitoring, decision making, control

of branches, administrative matters, submission of statutory returns to RBI, inter branch
transactions, reconciliation of outstanding entries in various accounts, funds transfer,
credit related information, investment management, treasury operations through money
market, fore market, securities market, employees personal data and scores of other
operations with the use of IT and computers. Today, we may say that 80 per cent of
banking operations in cities are computerized. The process is fast picking up even at
rural branch level. Today, the number of computers in use with banks in India had
crossed 1, 00,000. The total number of ATMs is more than 2000.

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 Computerisation
The process of computerisation marked the beginning of all technological initiatives in
the banking industry. Computerisation of bank branches had started with installation of
simple computers to automate the functioning of branches, especially at high traffic
branches. Thereafter, Total Branch Automation was in use, which did not involve bank
level branch networking, and did not mean much to the customer.

Computerisation in PSBs (%)

Networking of branches are now undertaken to ensure better customer service. Core
Banking Solutions (CBS) is the networking of the branches of a bank, so as to enable the
customers to operate their accounts from any bank branch, regardless of which branch he
opened the account with. The networking of branches under CBS enables centralized
data management and aids in the implementation of internet and mobile banking.
Besides, CBS helps in bringing the complete operations of banks under a single
technological platform.

Automatic Teller Machines

ATMs were introduced to the Indian banking industry in the early 1990s initiated by
foreign banks. Most foreign banks and some private sector players suffered from a
serious handicap at that time- lack of a strong branch network. ATM technology was
used as a means to partially overcome this handicap by reaching out to the customers at

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a lower initial and transaction costs and offering hassle free services. Since then,
innovations in ATM technology have come a long way and customer receptiveness has
also increased manifold. Public sector banks have also now entered the race for
expansion of ATM networks. Development of ATM networks is not only leveraged for
lowering the transaction costs, but also as an effective marketing channel resource.

Growth of ATM Networks in the country

Internet Banking
Internet banking in India began taking roots only from the early 2000s. Internet banking
services are offered in three levels. The first level is of a bank’s informational website,

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wherein only queries are handled; the second level includes Simple Transactional
Websites, which enables customers to give instructions, online applications and balance
enquiries. Under Simple Transactional Websites, no fund based transactions are allowed
to be conducted. Internet banking in India has reached level three, offering Fully
Transactional Websites, which allow for fund transfers and various value added services.

Internet banking poses high operational, security and legal risks. This has restrained the
development of internet banking in India. The guidelines governing internet banking
operations in India covers a number of technological, security related and legal issues to
be addressed in relation to internet banking. According to the earlier guidelines, all
internet banking services had to be denominated in local currency, but now, even foreign
exchange services, for the permitted underlying transactions, can be offered through
internet banking.

Internet banking can be offered only by banks licensed and supervised in India, having a
physical presence in India. Overseas branches of Indian banks are allowed to undertake
internet banking only after satisfying the host supervisor in addition to the home
supervisor.

Phone Banking and Mobile Banking

Phone and mobile banking are a fairly recent phenomenon for the Indian banking
industry. There exist operative guidelines and restrictions on the type and quantum of
transactions that can be undertaken via this route.

Phone banking channels function through an Interactive Voice Response System

(IVRS) or telebanking executives of the banks. The transactions are limited to balance
enquiries, transaction enquiries, stop payment instructions on cheques and funds
transfers of small amounts (per transaction limit of Rs 2500, overall cap of Rs 5000 per
day per customer).

According to the draft guidelines on mobile banking, only banks which are licensed and
supervised in India and have a physical presence in India re allowed to offer mobile
banking services. Besides, only rupee based services can be offered. Mobile banking
services are to be restricted to bank account and credit card account holders which are
KYC and AMC compliant.

With the rapidly growing mobile penetration in the country, mobile banking has the
potential to become a mass banking channel, with very minimum investment required by

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the banks. However, more security issues need to be addressed before banking can be
conducted more freely via this channel.

Impact of computerization on the profitability of ICICI and HDFC Bank

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial
institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank
was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity
offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's
acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and
secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002.
ICICI was formed in 1955 at the initiative of the World Bank, the Government of India
and representatives of Indian industry. The principal objective was to create a
development financial institution for providing medium-term and long-term project
financing to Indian businesses.

Current Statistics : ICICI Bank

ICICI Bank is India's largest private sector bank with total assets of Rs. 6,461.29 billion
(US$ 103 billion) at March 31, 2015 and profit after tax Rs. 111.75 billion (US$ 1,788
million) for the year ended March 31, 2015. ICICI Bank currently has a network of
4,050 Branches and 13,082 ATM's across India.

Impact on Profitability: ICICI Bank

The use of IT communication technologies has paved the way for new innovation for
the ICICI bank, and at the same time computerization of the branches has helped in
increasing the profitability of the bank by increasing the customer base , by providing
new and innovative alternative ways of reaching to the customers. Computerization has
helped ICICI bank in providing speedy services to the customers. The emergence of e-
technologies in ICICI bank has helped ICICI bank in providing alternative modes of
payments and also in redressing customers complaints and thus has helped in increasing
the profitability of the business.

The acceleration in technology has produced an extraordinary effect upon the

performance of ICICI bank and in general it has had a particularly profound impact in
expanding the scope and utility of financial products over the last ten years.

Information technology has made possible the creation, valuation, and exchange of
complex financial products on a global basis and even that just in recent years.

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 Key Financial Statistics showing the impact of computerization : ICICI Bank

Income and Expenditure

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 Current Statistics: HDFC Bank
The Housing Development Finance Corporation Limited (HDFC) was amongst the first
to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a
bank in the private sector, as part of RBI's liberalisation of the Indian Banking Industry
in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank
Limited', with its registered office in Mumbai, India. HDFC Bank commenced
operations as a Scheduled Commercial Bank in January 1995.

HDFC Bank has an extensive network of 4,014 HDFC Bank branches all over India, in
addition to 11,766 ATMs.

Impact on Profitability: HDFC Bank

HDFC Bank operates in a highly automated environment in terms of information
technology and communication systems. All the bank’s branches have online
connectivity, which enables the bank to offer speedy funds transfer facilities to its
customers. Multi-branch access is also provided to retail customers through the branch
network and Automated Teller Machines (ATMs).

The Bank has made substantial efforts and investments in acquiring the best technology
available internationally, to build the infrastructure for a world class bank. In terms of
core banking software, the Corporate Banking business is supported by Flexcube, while
the Retail Banking business by Finware, both from i-flex Solutions Ltd. The systems are
open, scaleable and web-enabled.

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The Bank has prioritised its engagement in technology and the internet as one of its key
goals and has already made significant progress in web-enabling its core businesses. In
each of its businesses, the Bank has succeeded in leveraging its market position,
expertise and technology to create a competitive advantage and build market share.

IT has become such an essential ingredient of one's way of life in today's world that it is
difficult to imagine a world without IT. And no other sector has benefited to such a large
extent as the financial sector, with the Banking sector in particular, from the inroads
made by IT. The Banking sector is no exception to this changing scenario which is
sweeping across the world Technology has given birth to a new era in banking.

Technology has moved from being just a business enabler to being a business driver. In
HDFC Bank be it customer service, reducing operational costs, achieving profitability,
developing risk management systems, we turn to technology for providing necessary
solution. In HDFC Bank Technological upgradation is clearly identified as one of the
most successful strategy in Customer Acquisition and Retention followed by Expansion
of ATM Network, Advertisements and additional sales force.

Key Financial Statement : HDFC Bank

Income and Expenditure

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ATM and POS Growth

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 Conclusion

The Indian banking sector has been evolving with increased emphasis on competition
and enthused technology-based services towards universal banking. With
computerization Banks have implemented core banking solutions, enterprise risk
management and business process re-engineering and reached social banking which has
enrooted the performance, productivity and efficiency and profitability of the Indian
banking sector.

There has been noticeable improvement in the financial performance of banks and
financial institutions by incorporating IT into their functionality. Banks such as HDFC
and ICICI has greatly improved its profitability by incorporating information technology
into their operations. In HDFC and ICICI Bank 90 percent computerization has been
achieved, interesting fact is that this process is fast picking up even at rural branch
level. The emergence of e-technologies in ICICI bank and HDFC Bank has helped
these banks in providing alternative modes of payments and also in redressing customers
complaints and thus has helped in increasing the profitability of the business.

The acceleration in technology in HDFC and ICICI Bank has produced an extraordinary
effect upon the financial performance and profitability of these banks and in general it
has had a particularly profound impact in expanding the scope and utility of financial
products over the last ten years.

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 BIBLIOGRAPHY

I am very thankful to all my friends and our teachers who have guided me a lot
and helped me in completing this assignment .The data and information which I
have used as reference in completing my assignment have been taken from the
following sources as stated below -:

REFERENCES

1) www.hdfcbank.com

2) www.icicibank.com

3) www.rbi.org.in

4) www.dnb.co.in

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