Impact of Information Technology on Indian Banking System

Abstract

With its latest developments and innovative tools, information technology has revolutionized every industry, whether in production or in service. Adoption of information technology provides for distinct benefits like improved efficiency in operations, significant reduction in costs and it acts as an enabler for the provision of superior quality customer service. In this context, this study seeks to examine the impact of information technology on the Indian banking system. The study engaged qualitative research technique of structured interviews through questionnaires to a target sample of people from Sikh community living in the UK collecting their perceptions on the role and impact of information technology in the Indian banking system. The objective of the study was extended to study the development of banking in rural India and the role of information technology in furthering such development. Based on the primary data collected through the interviews and on secondary data from the review of the relevant literature, the study reports that banking system in India has made good progress using the latest information technology after the financial reforms and liberalization measures resulting from globalization; but the development is mostly in urban banking. The study also finds that while rural India offers tremendous scope for the development of technology-based banking, factors like lack of initiative among the banks, lack of technological infrastructures and lack of awareness and knowledge among the villagers impede such development. The study makes few recommendations for the development of banking sector in India and for further research on the topic.

Introduction

“Information is an arrangement of people, data, process, and information technology that interact to collect, process, store and provide as output the information needed to support an organization,” (Whitten et al., 2004, p 12). This statement implies that information system is a vital arrangement of several factors like people, data, processes and technology aimed to gather, process and store information through the interaction of these factors so that the information can be retrieved easily when required. Information technology in the recent past has developed phenomenally providing the benefits of maintaining an improved information system in almost all spheres of activities. During the last two decades, there is enhanced utilization of information technology in several service industries. Especially the banking and financial services industry has been benefited greatly from the proliferation of information technological tools. There are several areas like Internet banking, automate teller machines (ATM), electronic clearing system, investments in different kinds of securities and information exchanges between different constituents of the industry and the regulatory authorities, where the efficiency of the banking system has improved greatly (Berger, 2003). The banks are in a position to deliver high quality service to their clients with minimum efforts leading to a higher level of customer satisfaction in the banking industry. With the rapid expansion of technology, there is increased adoption by the banking system of the latest developments. Mobile banking is an example of this proliferation. Even in the banking system, there are several areas like IT for administration, transaction processing, management information, business transformation and customer service where information technology has been of major assistance in improving efficiency. This study explores the role, functions and importance of information technology in the area of customer service based on the perspectives of the customers of different banks in the rural areas collected through a questionnaire survey.

Information Technology and Banking System in India

In India, people belonging only to upper class are able to have access to modern technology, while the lower and middle class people are still ignorant of the benefits of latest technology. On the other hand, in the UK and other developed countries, all the people have equal access to all the available technology and services. The objective of this study is to look into some fundamental aspects related to the role of information technology in Indian Banking system (Findlay, 2007). The research explores the impact of information technology on the banking system in general. The study also makes a comparison of the extent of use of IT in Banks in India, with that of other developed countries and explores the reasons for the lack of its use, if any. The central focus of the study is the overall impact of information technology on the banking sector. However, the scope of the study does not cover the differences between the banking practices of customers and the role of IT in Indian Cities and the rural areas. The study covers the impact of IT on the banking habits of the Indian Sikh community in UK having links with the community people in rural areas of Punjab state in India.

The rationale of this choice of community is simple. In the rural areas of India IT in banking has not been implemented in full due to the influence of many factors. Due to lack of technological support, the rural banking is still in the primitive stages with handwritten “passbooks” recording the customer transactions; there are not automated telling machines (ATMs); Internet banking cannot be practiced. Lack of training of the bank employees is another reason for the slow implementation of technology in the banking system. Banks in the rural areas are keen on promoting agricultural loans and are not enthusiastic about any other banking services to the smaller customers. Because of their inhibitions, the villagers do not feel like dealing with the banks and this result in slow growth of banks and banking in the rural areas. Consequently, volume of business generated does not substantiate the cost of implementing technology. There is the need to educate the rural population on the use of banking and the role of information technology in banking in the rural India. This situation is different in the advanced countries like UK, where people enjoy the benefits of easy availability of Internet connection that too at low prices. In addition, in these countries there is extensive use of bank debit and credit cards for purchases, whereas in India most of the shops are not providing the facility to pay with the banks’ cards. This is another reason for slow adoption of technology in the banking system. Human errors, which can take extensive time to trace back and rectify are common when the banking system does not make use of technology effectively. IT facility is the prime necessity of this region but until today, it is not operational (Kumar 2008).

Background of the Study

The term “information technology”, (IT) denotes a combination of computers and information processing using computers and other technological applications based on the use of computers. The term also covers the study of development of the designs, support and operation of the information systems using computers. Information technology includes the computers representing the hardware to convert, process, store and transfer data and the processing of information using software and its development. Although presently information technology has proliferated into many areas, the core purpose of IT is to gather and provide information to the users. The new frontiers information technology has extended to mobile technology, navigation systems in, automobiles and television programs through Internet (Khanna 2005).

Since its independence, India has been growing in the field of technology and has occupied a prominent place in the development of global information technology covering automobile engineering to nuclear science. However, the rural India is still in the nascent stage as far as information technology is concerned. There is no significant development in IT management or in introducing IT in different areas of banking services. Banks are following the old system of manually inputting data and servicing their clients. This system has not changed much and growth in IT implementation in rural banking seems to have now stagnated. There is an estimated 85% of the population still do not have access to any banking services, which is not ideal for a developing nation like India.

Indian banking initiated its process in the late 18^th century. The State bank of India a government run bank goes back to 1806 and was the largest bank in the country at the time. The Reserve Bank of India (RBI), which in 1935 took over the Imperial Bank of India, and downgraded its responsibility to commercial activities. In 1947, the government nationalized RBI and gave it, the complete authority over the monitoring of the banks and banking system in India (Radhakrishnan 2009).

Presently, there are 96 scheduled commercial banks, of which 31 are private banks having no government stakes. Twenty-seven banks belong to public sector and thirty-eight banks are of foreign origin. “It is surprising to know that they totally hold 53,000 branches and 17,000 ATMs and yet we need very low development in the rural areas of India” (Sharma 2008). One of the factors governing this lack of development in the rural banking systems is, one-fourth of Indian villages do not have electricity; and other non-conventional forms of alternate energy are less than 12 per cent (Sharma 2008).

“Rural area” is defined to include a locality having a population lower than 5000 people or a density lower than 400 persons per sq mile and at least 75% of the male engaged in agriculture. However, observing the slow phase of growth after Independence the government wanted to revamp the entire banking system in India and appointed the Narasimham Committee to suggest major reforms to Indian banking. The recommendations of the Committee implemented new reforms and revised accounting systems for the entire banking system in India (Kumar 2008).

The history of regional rural banks history dates back to 1975. The Narasimham Committee gave the foundation for the system with the local sense and a professional outlook. However, the years that followed showed that the path taken was not easy and the issues ranged from lack of growth and development to basic financial viability. Thereafter, the Indian government formed a number of committees to look into these issues and improve the performance of Regional Rural Banks (RRBs). RRBs performance meant a lot for the Narasimham Committee as they were the base of rural credit structure in the country and the goal was to bring a sense of financial freedom in the rural areas to give credit to the people who were economically weak and more so to the small or marginal farmers, labours and artisans (Sharma 2008).

In the early 1990, many new banks spurted during this time and competition began to look healthy with growing expectations. This led banks to bring in new Technology in terms of racing ahead of their competitors. “It took the Indian banks sometime before they were awakened by the vast rural potential” (OECD 2007). The banks introduced dedicated and groundbreaking schemes to go deep into rural penetration and cross selling, were the need of the hour. However, the core of the operations of Regional Rural Banking depended on successful implementation of information technology, which played an important role in carrying out day-to-day operations.

The RRB has been facing issues with development and it was economic infrastructural that blocked their paths frequently. There was initial lack of willingness on the part of the government in looking at the future of development in these rural areas and it put the Regional Rural Bank on the back foot compared to the introduction of other financial services providers. While other rural financial service providers like Scheduled Commercial Banks, private banks and RRB lacked efficiency in any of their operations and services. They had only manual accounting system and the Reserve Bank of India (RBI) had its hands full in trying to automate its overall operations. For example, RBI tried to implement “Advanced Ledger Posting Machine” (ALPM) (OECD 2007).

RBI felt that it was imperative to have the reporting in place, as there was a lack of visibility in the accounting and operations of the banking system. RBI was of the opinion that improving the reporting was critical in the future development of the banking system in India. However, it was not until the government opened the market to foreign and private banks, which brought along with them the latest technology – based services that propelled their Indian counter part to follow suit to retain their diminishing customers. Because of the fact that the information technology occupies an important position in the growth and development of banking system in India, especially in rural India, this study on the impact of information technology on Indian banking system becomes pertinent and significant.

Aims and objectives

Studying the impact of information technology on the Indian Banking system is the central aim of this research. In the process of achieving this aim, the study seeks to accomplish the following objectives.

1. To study the role, function and importance of information technology in the banking system in general
2. To study the different areas in the Indian banking system, especially in the rural areas where information technology is presently used with special emphasis on customer service
3. To explore and suggest ways of improving the rural banking system in India using information technology, in particular in the area of customer services

Research question

By reviewing, the relevant past literature and by using the research technique of a quantitative survey this study will find the answer for the following research questions.

1. What is the role and function of information technology in banking system in general?
2. What is the present state of information technology in providing customer service in the banking system in India especially in rural areas?
3. What are the possible areas where information technology can be of assistance in improving the banking system in India especially in rural areas in providing extended customer services?

Structure of the Dissertation

In order to make a cohesive presentation, this report is structured to have different chapters. Immediately following this introductory chapter, which laid down the aims and objectives, is chapter two presenting a review of the relevant literature on the topic of the impact of IT on Indian banking system. Chapter three provides a brief description of the research methodology and chapter four presents the findings of the research and an analysis of the findings. Concluding chapter five contains a summary of the objectives, process and findings of the research and this chapter makes few recommendations for the banking industry in Indian and for future research on the topic.

Literature Review

Introduction

There has been a major impact of technological advancement in general and information technology in particular on the way in which the banking system functions globally. Changes brought by information technology have been felt in both the external and internal environment of the banking sector. Information technology has brought changes externally in the offering of products and services by the banks and internally improving the operational system of the banks. IT has also improved the bank-client relationship tremendously. The following table illustrates the key technological innovations taken place in the retail banking and financial services sector since the early adoption stage until recently.

Table 1: Key Technological Innovations – a Historical Perspective

From the table it can be observed that a combination of changes in the external environment of retail banking services and advancement in the information technology has caused tremendous changes in the internal structure of commercial banks. Pugh (1973, p 28) was one of the early researchers on the role of IT on banking system. According to Pugh (1973), although the managers of banking organizations are not in a position to influence the technological innovations, their actions or lack of initiative to adopt technology is critical to the application of technological innovations to the banking system so that there is significant change in the competitive environment of banks.

The changes brought by IT in banking system have taken the form of changes in:

• The national payment system representing the distribution of currencies and coins between the central bank of the country and individuals through the commercial and other financial institutions and the payment of products and services by bank cards
• Service delivery covering lending, deposits and settlement of other banking transactions
• The gathering, storage and retrieval of accounting and customer information

The objective of the review is to retrieve information from relevant previous research on the role and impact of IT on the development of banking system in general. There is abundance of empirical studies that focused on the impact of IT in developed and developing countries. This review will summarize the findings of some of them for enhancing the knowledge on the subject of study.

For the purpose of this dissertation, banks include institutions, serving as financial intermediaries, who accept deposits on checking and other account (with or without explicit payment of interest) and who create assets, transferable by exchange like paper and electronic payment instruments, as defined by Klein (1971, p. 206), Baltensperger (1980, p. 1), Swank (1996, p. 193) and Radecki (1998, p. 4).

This review will focus on the review of the past literature on the role of IT in banking system. The objective of this review is to determine as to what extent IT has enabled the banks to provide improved customer service and improve on the internal operating systems based on the findings of previous research.

Relevant Research Findings

Information technology has been used in the banking services in the areas of communication and connectivity and in business process reengineering. There are distinct advantages resulting from the use of IT in banking like development of sophisticated products and services, improved market infrastructure, institution of reliable control mechanisms for efficient risk management and reach to different geographical locations by the financial intermediaries. Enhanced use of IT in the banking sector, thus, has provided for increased access to liquidity, efficient transformation of assets and close monitoring and mitigation of risks by the banks. The efficiency of the money market, capital market and foreign exchange market is dependent on the adoption of advanced information and communication networks. Internet being an integral part of IT has significantly improved the quality of serviced delivery by banks to the customers, with its emergence as an important medium of delivery for the products and services of the banking and other financial services sector. Because of the significant involvement of IT in the growth and development of banking system, the role of IT in banking system has been the central focus of many research studies. This section presents the summarized findings from earlier research conducted on the topic of the role of IT in banking.

Zheng and Zhong (2005) studied the factors that influenced the adoption of advanced IT in Chinese banking sector and reported “internet availability, awareness, attitude towards change, computer and internet access, cost, trust in ones bank, security concerns, ease of use and convenience” were some of the factors that affected the adoption of IT in the banking sector in China. Al-Hajri (2008) studied the implementation of IT in the setting of a developing country like Oman and compared the enablers and obstacles with the adoption of IT in the banking industry of Australia. His study revealed that the advantages emanating from adoption IT, organizational performance, banker-customer relationship and ease of use are the major factors that determine the adoption of particular technology by the banking industry in the setting of a developing economy like Oman.

Frishtak, (1992)studied the impact of IT on the growth and development of commercial banks in Brazil and reported the computerized transaction environment has helped the Brazilian banks largely for growing in a rapid pace. Frei & Harker, (1997), Radeck et al., (1997), O’Sullivan, (1998, 2000), Couch & Parker, (2000) and Azarchs, (2000) are some of the other researchers who have contributed to the literature through their findings on the role and impact of IT on banking sector operations.

The position with respect to the adoption of Internet banking as a branch of IT has also been the subject of focus by many studies. Adoption of Internet banking is mainly a function of the operations of the request for the use of given technology based on its utility, security aspects in using the technology, utility of the transaction to the customer and the organization, delivery of other services like ticket booking and funds transfer to other accounts (Singhal & Padmanabhan, 2008). Based on their study of the predictors of Internet banking, Tat et.al (2008) reported that trust was the strongest predictor to encourage the customers use advanced technology in banking followed by the ease of use. Mirza et al (2009) observed several demographic and attitudinal factors made a difference between users and non-users of technology in banking. While the majority of the respondents to their study were found to be convenient and willing to adopt latest technological improvements in the banking products and services, lack of technical knowledge and awareness to use technology deterred many of the respondents from using the technology in their banking operations. Security was another serious concern of the participants to make use of the technology. Yuttapong et al (2009) from a study of the factors influencing the adoption of Internet banking in Thailand reported that the complex nature of technological improvements have not deterred the customers to use Internet banking in Thailand.

Information Technology and Customer Relationship

Only with a proper integration of the human factors, latest technology and improved business process, it is possible to achieve a superior Customer Relationship Management (CRM) performance. Any organization can retain its customers for a long period through the provision of quality service enabled by a proper mix of human factors and technological innovations (Curry and Penman, 2004). IT is the backbone of CRM to collect customer-specific data, which can be used for the interaction at a personal level with the customer at a later stage (Bose, 2002). Mulligan and Gordon (2002) examined the influence of IT on the customer and service provider relationship in the financial services sector. The study reported that IT has enabled the creation of opportunities for the extension of relationship between the customer and service provider on a global basis. The advantages reported by the study include better switching costs to the customer, improved quality of customer service and display of technological leadership by the organizations in addition to extended geographical reach. Based on a study conducted on the impact of IT in consumer banking services Zhu, Wymer and Chen (2002) reported that:

“perceived IT-based services affect perceived overall service dimension including reliability, responsiveness, assurance, which affect customer satisfaction and perceived service quality. The key variable selected to describe IT-based services include ease of use, conservation of time, convenience, privacy, accuracy, multifunctional capabilities, and use of advance IT. In the dimensions, items pertaining to attributes associated with IT-based banking systems were included for examples IT based banking service delivery options include ATMs, online banking systems, internet banking systems, etc” (Wahab et al., 2008).

The findings of study are relevant as the study collected the opinions of the customers of banks and financial services institutions.

Based on the experience of one bank having a centralized data-centre, the other banks realized the cost-effectiveness and the benefit of having it customers accounts updated instantaneously regardless of the branch in which the account is maintained, as the database was fed into a single server. Handling customers in competitive market is one of the main issue bank faces in this present environment. If a particular bank is not able to maintain its service levels to the satisfaction of the customers, there is the likelihood that its customers drift to other banks. The necessity to maintain the service quality forced banks to implement CRM practices in their operations (Jagadish 2009). CRM applications, which are information technological innovations were mainly used as strategic management tools in the maintenance of customer satisfaction in other business areas, which have also proliferated into the banking sector because of the importance of bank-customer relationship for sustaining the business growth of banks.

CRM in the banking industry works with its tools in two major functions – operational and analytical. Its operational functions gather, store and provide customer’s information. Banks use this tool for their interaction with the customer, through the medium of telephonic, electronic (Email) or wireless communication. The other category of CRM tool is to enhance the ability to analyze data and to identify business potential. This tool helps in cross selling by the employees and up-sell when the customers call the banks with knowledge of their needs. This brought in technologies with huge data warehousing/mining. CRM works more like a delivery tool and with its warehousing database, it streamlines and tells the employee to move and focus once a customer calls in. However, this tool can only work in the urban areas and banks in rural India still functions based on manual systems installed earlier. Indian banks in rural India face challenges with its regulation and distribution and need more work forces in rural India due to the lack of technology (Audhya 2010).

Impact of IT on the Performance of Banks

Berger (2003) identified enhanced usage of IT in the banking industry in the form of Internet banking, electronic payments and clearing systems, investments in different types of securities and bonds and exchange of information within and outside the banks. In general, IT has been instrumental in bringing two positive impacts on the overall performance of the banks. First is the ‘cost advantage,’ which relates to the operational costs incurred by the banks. “For example, internet helps banks to conduct standardized, low value-added transactions (e.g. bill payments, balance inquiries, account transfer) through the online channel, while focusing their resources into specialized, high-value added transactions (e.g. small business lending, personal trust services, investment banking) through branches” (Ho & Mallick, 2006). Second is the ‘network effect’ where IT enables customers to carry out transactions within the same network from any geographical locations. Best example in the case is the ATMs, which facilitate customer transactions from anywhere, where they are available. This implies that there will be enhanced value of the ATM networks, where there are a number of ATMs available in different locations. The final network size of the bank, in which the number of ATMs is one of the factors, that determines the value of the bank’s network to the customer.

Banks have started using IT widely in their functioning starting the mid of 1990s. Globally banks have stared shifting their delivery channels using advance IT such as online banking services. During the last decade, there has been increased acceptance of online banking by the customers. Schneider (2001) observed that in general Europe has been the leader in making use of IT in providing banking services. There is one distinctive feature of banks in the US as compared to the banks in Europe, in that the banks in the US are not allowed to have a large branch net work extending to the whole of the country. This has been one of the important reasons for use of IT in banking for providing online banking and ATM services to the customers in the US and this has triggered competition among the banks in the increased use of IT in their operations.

There is abundance of studies on the use of IT by banks and the provision of online banking services. There are two fundamental reasons underlying the increased use of information technology by the banks and its diffusion. First is the enormous cost saving resulting to the banks by offering services online using technological innovations. It has been proved that online banking is the most inexpensive channel of providing service to the customers (Sathye, 1999; Robinson, 2000; Giglio, 2002). Secondly, banks are able to function with less number of branches reducing the branch networks and downsizing the number of staff. The initiative of adopting online banking through advanced IT has enabled banks to promote many self-service channels, which claimed the acceptance of the customers, who were of the opinion that branch banking took too much time (Karjaluoto, 2003). Therefore, time and cost savings and removal of location inconvenience have been the main reasons for the banks to adopt latest IT and provide online banking services to the customers.

Several studies indicate that banks that have adopted technology have been found to be profitable ones and were wealthier in the segment in which they were operating (Mols, 1998; Robinson, 2000; Sheshunoff, 2000). Based on this proposition no banking organization today can underestimate the role and importance of IT in their working and sustaining the growth and profitability. Luxman (1999) is of the opinion that in the near future IT has to play a large role in promoting banking services in the rural areas where many banks do not operate their branches or close down the existing branches. However, this view of Luxman (1999) on the importance of IT on the regionalization of the banks is not substantiated by other studies. Lack of facilities to operate the bank accounts from the convenience of the houses or workplace has generated perceived difficulties among the customers in meeting other financial obligations like settling the payments of services like electricity or insurance premiums.

Even though, IT has provided the convenience in addition to other advantages to both the customers and the banks, some of the private banks are apprehensive to the introduction of online banking using advanced IT. Some of the reasons for this state of affairs are: (i) there are no enough Internet facilities to enable the customers to use banking services offered using IT. Lack of awareness and knowledge to use the technology among the customers, especially in the rural areas is another major reason for the poor response from some of the banks to shy on the adoption of technology in their functioning. (ii) There is a complaint from nonusers of online banking that increased use of technology takes away the social dimension, which was the distinct advantage of providing personalized service, which the bank branches are able to offer, (iii) Security issues are a major consideration for the banks to have a rethinking about the use of advanced technology in service delivery. However, there have been significant changes in the attitude and outlook of the customers to accept the online banking increasingly.

Traditional banks have been instrumental in the increased use of IT in their banking services and these banks control a major share in the sector. The concept of online banking without brick and mortar networks is found to be more theoretical, as the online banks, which came into operation recently have not made a significant impact on the furtherance of the banking sector in the direction of online banking. Even pure online banks had to establish call centres to answer the queries of customers and they had to have physical presence for carrying out some of the services through branches established in different locations. Orr (2001) and Schneider (2001) observed that many of the online banks could not establish sufficient customer base and therefore, had to close down their operations. Sievewright (2002) was of the opinion several pure online banks in the United States would find their closure imminent, because of lack of growth in customer base.

Customer Acceptance

Most of the organizations, including those operating in the banking sector resort to the adoption of IT with the objectives of cutting the costs, improving the productivity of the staff and improving the quality of products and services (Lederer et al. 1998). The successful adoption of IT depends largely on the acceptance of the system by the users. When the users are indifferent to the information system proposed to be adopted by the organization, such system when installed will not bring the desired results to the organization (Succi and Walter, 1999). The increased acceptance of IT by the customers implies that they are agreeing to change their ways of operating and are desirous of learning to use the changed operating procedures. Any technological system that meets with the needs of the users can be taken to satisfy the customer and therefore, envisages the success of the system. On a similar analogy, usage of a new system implies the acceptance of the system. In order to assess the effectiveness of the system, the perceptions of the user are an important measure. Success of a technology does not depend on the technical quality but on the acceptance of the system by the users as being effective in meeting their needs. Therefore, it becomes important to assess the effectiveness of a system based on the acceptance of the system by the users. One of the most popular models in studying the acceptance of information system is the Technology Acceptance Model (TAM) (Gefen and Straub, 2000). This system takes into account the variables of perceived usefulness (PU) and perceived ease of use (PEOU). This system has been used effectively in finding the acceptance of new IT systems used by various banks. Different models have been developed which consider factors like perceived enjoyment of customers, content of online banking information, security and privacy and quality of service levels along with the perceived usefulness and perceived ease of usage (Al-Gahtani, 2001; Gefen and Straub, 2000).

Role of IT in the Banking System in India

In India, government party-owned public sector banks control majority of the business in the banking sector. Reserve Bank of India (RBI), the apex banking institution and the central bank controls and monitors the operations of these banks and the foreign owned banks operating in India. The banks follow the credit policies implemented by the government through the RBI. A sector wise distribution of bank credit as shown by the following table indicates that the growth in bank credit for agriculture has been lower than other sectors like industry, professional service, trade and finance.

Table 2: Sector wise Growth Rate of Bank Credit (Per Cent)

The lower percentage in growth implies that the banks have not expanded their operations to rural India to cater to the needs of the villages. Most of the higher growth credits are operational in the urban region (Radhakrishnan 2009). Government controlled State Bank of India has a major share in the banking market in India as shown by the following figure.

The State Bank of India, which is India’s largest bank had an increase of 30% and had loaned 1.21 trillion rupees, with an increased market share in the rural credit. This was possible for the State Bank of India (SBI) with its massive net work of more than 5000 branches situated in remote villages also. The initiative of SBI brought a significant change in the lending policies of other banks including foreign banks (Perera 2007). However, this move had an Impact of on the adoption of IT by the banks.

Looking at the history of Indian banks it’s was the Rangarajan Committee formed in the early 1980’s that triggered a banking revolution into IT. They proposed having all banks with automation called the Total Bank Automation (TBA). There was an impetus to increased use of IT because of the competitive offers from other private-owned banks and multinational banks. With their IT strategies and huge resources that funded their IT equipment, these banks posed a major threat the state controlled banks. The private banks speeded the use of technology and brought a sense of comfort to the Indian customers. In fact, the private banks have been instrumental in bringing a range of financial products and brought down the transaction costs using improved IT (Puri 2007).

However, the domestic banks were a bit slow in adopting the latest technology. With the advent of increased use of Internet, it became possible for banks to network their branches and they centralized information on their branches and customers in databases held at a central location. With the growth in infrastructure and connectivity the banks introduced multiple options in the banking sectors like providing ATM services, Net-banking, mobile banking.

In the days after independence banking technology was strictly on a standalone servers that were decentralized. It meant that every branch and banking applications had their own servers and they were not connected to a common server. This was difficult to monitor and had issues when customers wanted inter banking services. Besides the customers’ point of view, maintaining these standalone machines and server created large cost needing huge capital expenditure. The need for trained staff in each location, problems encountered in the operation of these standalone machines and arranging for their spares and frequent downtime due to inefficiencies of the machines were some of the other issues the banks have to face, which forced the banking system to adopt latest IT (Sooryamoorthy 2007).

Rural Banking in India

Regional Rural Bank (RRB) functions under the State bank of India (SBI). There are 30 Regional Rural Banks under its authority. They have been operating under limited districts and spread across 13 states throughout the country. They are located all over the country. There are also other state banks, which operate for the development of rural areas and some of them are in Haryana State Bank. Similar rural development banks are Cooperative Apex Bank, Syndicate Bank, Co-operative bank and Co-operative banks of Rural Credit (Kumar 2008).

Co-operative Banks

Co-operative banks play an important role in the development and have its history going back to 100 years. Evaluating with the role allocated to them and the expectations they are supposed to meet in terms of number of offices and deposits, is very encouraging for the rural areas. Even in the present day context, facing competition from multinational banks, they continue to contribute to the development significantly. These Banks get their legal status by registering themselves in the Co-operative Societies legislations of the states concerned. Besides the SBI, RBI also regulates these banks under the Banking Regulations Act 1949 (Radhakrishnan 2009). Co-operative Banks in India play an important role under these sectors personal finance, farming, cattle and milk. There are many agricultural credit societies, which started and they normally consist of 10 or more people of the same village and even the poorest can afford to be a shareholder as the fee is very nominal.

The sole purpose is to provide finance for shorter durations for harvesting and other farming activities. “There is an amazing number of Co-operative Banks throughout the country, the agricultural credit societies are spread across the country and there are 92,000 with 100 million members” (Sharma 2008). Their main objective was to encourage deposits from the rich farmers to facilitate loans to the needy. There is also the Central Co-operative Banks that operate at the district levels or in the towns and have individuals who provide finance and management. RRBs recognized their main explicit objective and that was connecting the gap that credit has in rural areas, Checking rural deposits outflow to urban areas , Reducing imbalances in regional areas and generate employment (Sharma 2008). There were officials who want to help, but could not do much because of their tough regulations and unending hierarchy. They could help in making the process simpler. The banks tried to including numerous schemes like Micro Financing and getting Self Help Groups (SHGs), Credit union and NGOs involved in the process.

One of the reason was most of the households could not even meet the basic requirements like proof of income and photograph. They could not lose their wages running behind the banks for several days for this purpose. There are number of formalities who could not afford to open a bank account. Bank staff is not always very helpful for it. Someone works as an intermediary and takes commission if one needs any help in banking. Among the loans that the rural banks offer are loans during or after droughts. There are also loans based on socio-cultural commitments, like marriages, festivals etc. The banks also provide general farming loans and productivity improvement loans (OECD 2007).

One reason that the woman folks are encouraged to take loans is because of the frequent migration of the men for agricultural work, which is seasonal and there is diversity in their income as well like sheep rearing, forest income, and handicrafts (Jagadish 2009). Their only assets are the livestock and their income are seasonal and moving of funds for these purpose are done often. These people do not utilise the banks in any form. They do not have any bank accounts and due to the lack of awareness they hesitate go to the bank. Banks look at this as wrong utilization of funds; but most of these areas are poverty-stricken and the poverty is on the rise because water is scarce and farming fails due to droughts (Jagadish 2009). At these times, banks are not willing to lend any money.

However, not all places in India face issues of these types. They say that the rural area is where the Indian banks are raking in the Rupees and have loans taken from them at record levels. This shows the country has growing need to its populous countryside.

Development of Technology-based Banking in India

The globalization and the consequent financial reforms initiated by the then government in the early 1990s provided a conducive operating environment for the banks to adopt latest IT in their operations. With the initiatives taken by the government controlled Public Sector Undertaking (PSU) banks in this direction, the banks are able to offer innovative technology-based services like “Anytime Anywhere Banking”, “Tele-banking” “Internet Banking” and “Web Banking” to meet the competition from private and foreign banks. The Rangarajan committee provided for a phased introduction of computerization and mechanization in the banking sector starting from 1988. The recommendations of the committee for automation in the banking system provided for the use of technology in the areas of funds transfer, BANKNET, ATMs, SWIFT and i banking. As a support to these initiatives, the government of India passed the Information Technology Act, 2000, providing the necessary legal recognition to electronic transactions and other e banking operations. With the rapid growth in the speed and technology connected with Internet, the banks are able to make use of several finance portals to enable the customers to access account information and do most of their banking operations except physical handling of cash from the comfort of their homes and office using online technology. “Core Banking Services” (CBS) introduced by many of the PSU banks help customers to operate their accounts from any branch of the bank. However, the rural branches of the banks are yet to remain connected because of lack of technical knowledge of the customers and lack of infrastructural facilities at the rural level.

Status of the Use of Technology be Indian Banking System

A number of publications have dealt with the importance of the use of information technology in banking in the Indian context. Study by Unnithan and Swaminathan (2001) on the drivers for change in the evolution of banking sector in India and Australia observed a weak infrastructure, low computer penetration, slower growth in developing security protocols and consumer reluctance in the rural areas of India as compared to Australia. However, in the present day context many of these areas have developed overwhelmingly to provide the banks adequate opportunities for enhanced use of IT in their operations. Rao and Prathima (2003) observed that the position of India in providing online banking services is far too low as compared to Western countries and the United States. The authors observed lack of sufficient number of users and insufficient infrastructure as the main reasons for this backwardness. On the contrary, Gupta (1999), Pegu (2000) and Dasgupta (2002) reported a fast development of i banking in India. According to a survey conducted by Malhotra and Singh (2006), as of the end of March 2005, only 48% of the commercial banks in India offer technology-based banking services to their customers. There is lack of recent studies to report on the current use of IT by the banks in India.

Summary

This review provided an in-depth background on the impact of information technology on the efficiency of the operations of the banks in general, role of IT in customer relationship and the resulting advantages to the banks. From the review ,it is seen that a combination of changes in the external environment of retail banking services and advancement in the information technology have contributed to the advancement in the service level of the commercial banks by bringing in changes in their internal structure. Literature review reveal that there are a number of changes brought by IT in banking system, especially in the area of the national payment system operating through the commercial and other financial institutions and the service delivery in respect of innovative products and services and covering lending, deposits and settlement of other banking transactions. Advanced IT systems enable banks in the gathering, storage and retrieval of accounting and customer information largely. The review also dealt with the position of information technology with respect to the banking system in India. The next chapter presents a brief description on the methodology adopted for completing this research.

Method

Introduction

The objective of this chapter is to describe the methodology adopted for meeting the aims and objectives of this study. “In the discussion of the selection of a problem Watkins (1994) suggests valuable criteria:

1. novelty of the problem,
2. investigator’s interest in the problem,
3. practical value of the research to the investigator,
4. worker’s special qualification,
5. availability of the data,
6. cost of investigation,
7. time required for the investigation,” (Reyes, 2004, p 2).

While considering all these aspects one of the most important issue in conducting the social research is to find a way of getting the focus on the different aspects like the problem statement, conceptualizing the theory and choosing the research design. “Focus provides the integration of seeming diversity of the elements of the process from the presentation of the problem to the scope of research, conceptual framework, related literature, instrumentation, appropriate statistical methods to be used as well as the design and methodology used,” (Reyes, 2004, p 3).

Denzin and Lincoln (1998) state the researcher is independent to engage any research approach, so long as the method engaged enables him to complete the research and achieve its objectives. However, it is essential that the researcher consider the nature of the research inquiry and the variables that have an impact on the research process. The researcher has to evaluate the appropriateness of the methodology as to its ability to find plausible answers to the research questions within the broad context of the nature and scope of the research issue. For the current research on impact of information technology on Indian banking system, considering the research issue under study, the research method of qualitative approach is adopted. This chapter presents a description of the research method and discusses the salience, merits and demerits of the method adopted. The justification of the research method also forms part of the chapter.

Research Process

The research process encompasses different elements involved in the research methodology, in which the process specifies the limits of the research. These boundaries take the form of the research philosophy and approach. The research strategy including the research techniques and data collection methods also are the components of the research process. Within the boundaries of the research process, the time spheres for completing the study are also included. The elements of research philosophy, research approach, research strategies, and data collection methods are discussed within this chapter under different sections. All the selected components under these heads are collectively known as the research design.

Research Philosophy

The epistemological approach describes the ways of acquiring the required knowledge for conducting the research. In general, these types of studies are conducted based on the information retrieved from the data collected for further analysis and creation of the required information. Basis of knowledge required for developing the thesis is the central focus of epistemological positivist (Remenyi et al., 1998). In addition, in the positivist research, the approach of deductive reasoning is used for finding out presently available universal rules, which could help making predictions about general schemes of human actions (Cavana et al., 2001). Orlikowski and Baroudi (1991) observe that about 97 percent of the American research studies make use of positivist approach. According to Ridley and Keen (1998), about 88% of Australian researches also engage positivist epistemology as their research philosophy Therefore, the current study can be considered to use one of the dominant research approaches being positivist epistemology, which is used globally.

Qualitative and Quantitative Research Approaches

Social scientists have recognized two major streams of research – qualitative and quantitative.

Quantitative Method

Quantitative research considers numeric values. Under this method, the study makes use of different statistical analytical methods and processes to achieve the research objectives. Quantitative method is based on empirical data collected for carrying out the research. There are different research tools including survey for collecting primary empirical data for the purposes of quantitative research. Burns & Grove (1993) state quantitative research is “a formal, objective, systematic process in which numerical data is utilized to obtain information about the research question.”

Qualitative Method

Being one of the principal methods in conducting researches in the realm of social science the qualitative method involves examining the viewpoints, outlooks and experiences of the individuals taking part in a research from the points of view of the informants. As against the quantitative research method, the qualitative research method does not make use of quantitative data and statistical analyses. Logical deductions to infer information concerning the human element forms the basis of qualitative method. A major criticism against qualitative method is that it always has a smaller sample size, in which ‘generalization’ becomes difficult. The qualitative method makes use of data collection and analysis methods, which do not involve collection of quantitative information (Lofland & Lofland, 1984). Qualitative research method has been identified to focus on “quality” instead of “quantity” of information. Some of the researchers are of the opinion that qualitative method uses a subjective methodology and makes the researcher to substitute himself as the major research instrument (Adler and Adler, 1987). There is abundance of past literature on the qualitative research methods. Qualitative research method is also referred to as a ‘naturalistic’ research (Bogdan and Biklen 1982; Lincoln and Guba 1985; Patton 1990; Eisner, 1991). Considering the suitability of the research approach and absence of numerical information to collect, the current study has engaged qualitative research method.

Research Approach

Deductive and inductive approaches are the usual research approaches that are used in social science researches. According to Saunders et al (2003), deductive technique requires the researcher to formulate different hypotheses and engage a research strategy to prove or disprove the hypotheses. Deductive approach starts with the formation of a general idea on the research issue. Based on the idea generated the researcher forms hypotheses, which can be tested using appropriate research techniques and tools to support the general idea generated. If the hypotheses are supported, it implies that the initial idea generated about the research issue is correct. A social research often uses the deductive approach rather than the inductive approach. The current study employs a deductive approach in line with the nature of the research inquiry, where the researcher has assumed lack of knowledge among the customers and lack of infrastructure has an impact on the adoption of information technology by the Indian rural banking system.

Data Collection and Analysis

Data Collection

According to Marshall and Rossman (1995), the qualitative research is based on collection of data from different sources and the data already collected forms the basis for reporting the findings of the study and making recommendations. Yin (1984) identified different sources like “archival records, direct observations, interviews, and observation of the participants,” which can be used in conducting qualitative research. Quantitative research uses tools like surveys for data collection. The data collection methods for the current research include structured interviews, information retrieval from archival records, and other documents for completing the research. The quality of data collected determines the validity and reliability of the research findings. Thus, “qualitative modes of data analysis provide ways of discerning, examining, comparing and contrasting, and interpreting meaningful patterns or themes. Meaningfulness is determined by the particular goals and objectives of the project at hand.” (Boojihawon, 2006)

There are only few tenets, which define the mission of data collection. It is customary that the research projects use standard procedures for collecting data and information, which is in alignment with the process chosen by the researcher for doing the research. The goals of both quantitative and qualitative research studies are to make the most of responses from the participants and to enhance the accuracy of the results to the maximum extent possible.

Powell & Renner (2003) explain that qualitative data consists of words, expression and observation as compare to quantitative data that consists of numbers. Analysis of qualitative data requires creativity, discipline and systematic approach. They further illustrate that there is no single way to analyze the qualitative data; however, the basic approach is to use content analysis. This study uses content analysis as one of the data analysis methods.

Questionnaire

Questionnaire enables the researcher to know the line of thought, convictions, perceptions, experiences and viewpoints of those being surveyed – a particular group of persons. Generally, the questionnaire is a brief compilation of a motley set of questions that have been prepared to satisfy the queries about issues relating to the research and its allied subject. The information related to the research is obtained from those respondents who belong to a sphere that is connected with the research issue.

Questionnaires form the instrument of choice and part of their research designs for many scholars and academics belonging to different disciplines (Creswell, 1994). Questionnaires are considered as the most fitting research tool to collect systematic and comparable information from a large population and so that the information collected can be analyzed economically (De Witte and van Muijen, 1999). Questionnaires have their advantages as well as disadvantages as regards it being a tool for collecting data. All respondents are provided with the same set of questions written in precisely the same way. Thus, questionnaires are capable of producing comparable data as compared to the information procured by means of a semi-structured interview. If the queries are structured properly and the circumstances under which they are responded to be controlled then the questionnaire can be standardized. However, there is one major disadvantage with the questionnaires is that it is hard to evaluate the respondent’s impetus, which impacts the validity of the responses received.

Samples

“It is incumbent on the researcher to clearly define the target population. There are no strict rules to follow, and the researcher must rely on logic and judgment. The population is defined in keeping with the objectives of the study. Sometimes, the entire population will be sufficiently small, and the researcher can include the entire population in the study” (StatPac, 1997).

When the research is related to a large mass, the researcher can carefully make a selection of participants, which will represent the entire people. The researcher should choose the samples in such a way that it represent the characteristics of the population from which the selection of samples took place. Samples may be selected using probability or non-probability sampling methods.

“In probability samples, each member of the population has a known probability of being selected. Probability methods include random sampling, systematic sampling, and stratified sampling. In nonprobability sampling, members are selected from the population in some nonrandom manner. These include convenience sampling, judgment sampling, quota sampling, and snowball sampling” (Walonick, 1993).

In non-probability sampling, samples are selected following some nonrandom ways of selection. In “probability sampling,” the researcher will be able to assess the extent to which the selected samples may differ from the population from which the samples were drawn. In non-probability sampling, however, there is no possibility of the sampling error be detected.

“Random sampling is the purest form of probability sampling. Each member of the population has an equal and known chance of being selected. When there are very large populations, it is often difficult or impossible to identify every member of the population, so the pool of available subjects becomes biased” (StatPac, 1997).

In the current study, the samples are selected using random sampling under probability sampling.The samples selected include administrators, marketing experts, scholars, managers, senior managers and the clients of different banks. Questionnaires were distributed to 143 respondents chosen randomly among these different strata of people, whom the researcher identified through his own acquaintance and that of his friends to conduct the structured interviews through the questionnaires.

Process of Data Collection

The primary data collection for the current research was undertaken through the distribution of a self-administered questionnaire to the selected samples for conducting the structured interviews. Questionnaire represents a document, which comprises of questions designed to retrieve information from the samples suitable for further analysis and reporting. The construction of the questionnaire involved drawing on the previous researches in the area of the impact of information technology on the banking system in general to discover different aspects that are applicable to the current study. Appendix I to this report shows the format of the questionnaire adopted for the structured interviews. There were 21 open-ended questions including some questions to draw the demographic information from the respondents. The questions were of simple language and construction considering the level of knowledge of the respondents. The researcher personally distributed the questionnaires and recorded the answer of the respondents. In some cases, the researcher asked some additional questions over telephone and by using Internet tools of Orkut.com and MSN messenger in the process of interviews to infer the perceptions of the respondents on the role and status of IT in the Indian banking system. Telephonic interview was resorted because of lack of time at the time of personal meetings of the researcher with the respondents. Because of the simple nature of the questions, the researcher decided not to use a pilot study. Since the responses are mostly of qualitative in nature, the researcher did not employ any statistical methods to analyze the responses. The researcher tabulated the responses (see Appendix II) and went on to prepare the research report based on the findings and analysis of the findings, which are presented in the next chapter.

Summary

This chapter achieved its objectives by providing a brief description on the methodology adopted by the research. The chapter also explained the process of data collection and analysis including the construction of the interview questionnaire and discussed the selection of the interviewees for conducting the research. The research philosophy and the entire research design was discussed in the chapter. The findings of the research through the interviewees are presented in the next chapter.

Results

Introduction

Information technology has the ability to result in tangible benefits to the banks in the form of cost savings and improved productivity, in addition to the provision of superior quality customer service. This study sought to evaluate the impact of the adoption of information technology in the banking system prevalent in India. As a part of the study, to lend support to the theoretical findings, the study engaged the research technique of structured interviews through a questionnaire. The questionnaire contained questions seeking the perceptions of the participants about the adoption of IT in the Indian banking industry. The researcher recorded the responses from 143 respondents to whom the questionnaires were distributed personally to collect the primary data for this study. This chapter presents the results of the interview, followed by a discussion the results in chapter five.

Results of the Interview – Answers to Questionnaire

For the purpose of cohesive presentation, this chapter presents a summary of the answers to the structured questions and the replies of the interviewees to other questions outside the questionnaire asked by the researcher in separate sections. The questionnaire was structured taking into account the various factors that have an influence on the rate of response of the respondents. Those interviewed were asked to list the reasons for the frequency of things happening and the severity of the implications of the adoption of IT for the Indian banking industry. This section presents a summary of the replies of the interviewees to the structured interview questions contained in the questionnaire. This section noted the details about the level of experience of the respondents in this industry and the kind of project they were connected presently and in the past.

Results from the applied questionnaire play a vital role in the study. Results as per age group describes that younger population is more inclined towards IT use in banking and are ready to use the benefits of it in the rural banking segment. The findings reveal that even though there is not much impact of Information Technology on Indian banking in rural section, it is true that the future looks bright for the IT usage in banking and it is the knowledge of basic IT information, which makes a large impact on the usage of IT in banking especially in the rural India.

Out of the total sample size of 143, 55% respondents (79) support positive impact. Maximum 26% consumers (37) of age group 26-35 because they represent the earning group who will have more dealings with the banks and most of persons are educated in this age group.

The following graph denotes on the context of Impact of Information Technology on Indian banking. In the graph:

• A: Extremely good
• B: Fairly good
• C: Good
• D: Average and growing
• E: Average and slow
• F: Bad
• G: Very bad
• H: No idea

Out of the total sample size of 143 respondents, only 16 % (23) of the customers are female and 39% (56) represented males. It is because in the Indian culture in rural areas males are earner, females manage their homes. The composition of the respondents reveals that 22% (31) of the supporters are farmers followed by students 13 % (18) because farmers buy their products online and they have income all around the year. The following graph represents the findings in this respect.

Results of the Interview – Answers to Questions outside the Structured Questionnaire

A question was put to one of the respondents on his experience in taking a loan from the bank, as a farmer for which the respondent replied which more or less resembled the following statement. “A loan from the bank is not easy; the banks have money the people who work for them are not willing to help. This will only change if computers are used and we can directly contact the high authorities” (Jagadish 2009). Thus, it is certain that one of the fundamental usefulness of IT is being lost through human capital ineffectiveness. Puri (2007) and Madon (2009) substantiate this position. However, in developed rural sectors like villages, computerization of the local banks has helped the villagers to access authorities directly to obtain loans for agricultural and other purposes.

However, one of the respondents who work for a bank expressed a great deal of resentment about the process of banking in India. The respondent echoed the feeling that “there is a gap in the way Indian banks deal with its defaulters and we are not ready or prepared to deal with these issues, because we do not have the resource to do so. We need more technology as wherever it has been used we can see positive results” (Jagadish 2009). Thus, as per Puri (2007) and Madon (2009) point out the Indian banking system is not making use of the IT with its full potential, as it is not able to formulate defaulters. When the system uses IT effectively, it would have been easier to compile the defaulter and the process would be much less time consuming.

Another issue, which is closely associated with the defaulters, is the non-performing assets (NPA) of the banks. On the lines of the observations of Puri (2007) and Madon (2009), another respondent conveyed his opinion during the interview. “We have a high number of (NPA) of non-performing assets and this is higher in the state run banks. We do not have a tracking system of serial defaulters of banks and this does not stop those defaulters taking loans from numerous banks without being caught. More use of modern technology would certainly help” (Jagadish 2009). The computerization of the operations of all their branches would help tracking these defaulters and the banks can be prudent while giving loans. The impact of information technology on Indian banking will be high, as it would solve these issues.

However, the researcher recorded a different note from another respondent who is a retiree. According to the respondent “there has been a significant change in the way banks have improved themselves and their services to their customers and it is the use of computers that is the reason,” (Jagadish 2009). The respondent observed that the banks move very fast in engaging IT in their services. Thus, it is clear that, even in its infancy, impact of Information Technology on Indian banking is far reaching.

The impact of IT on the operations of the bank was lauded by one of the respondents who were an employee at one of the urban banks. His view was supported Puri (2007) and Madon (2009), “from the perspective of our customers and from our point of view this centralization has been very effective. In the older days, the manual maintenance was tiresome and not everyone wanted to bank with us. They were thinking it was a waste of time and preferred keeping the money to them. But times have changed with the era of technology and it only getting better and better” (Jagadish 2009). The questions of how well a bank knows its customers and why did existing customers leave the bank compelled banks to have a system or tool in place to monitor these activities. “Now days most banks offer more of less the same services, it is there customer service is what will set them apart from each other and computers would make his difference,” (Jagadish 2009). Another respondent during the interview endorsed this view.

An employee from a multinational bank, who was one of the respondents remarked “it’s only the urban banks have these tools widely used, the rural areas have yet to implement it , these tool allows you to relate with your customers and one day all banks will centralized the (CRM”) customer relationship management” (Jagadish 2009). This shows that the even though the present condition of IT usefulness in Indian banking sector is favouring the urban sector but impact of Information Technology on Indian banking at the rural level is also catching up.

On the question of the benefits likely to arise from the IT development in the banking sector one of the respondents replied in the lines of Puri (2007) and Madon (2009) agreeing to, “If development is not focused on the rural sectors, then it’s likely not to benefit anyone. Any development programme must have the people living in the rural areas in mind and look at improving earnings.Computers are the way forward as it is already seen in the urban society“(Jagadish 2009). When asked, ‘Do you have anything in particular that you think is going to benefit the rural areas?’ the answer was “Most of the people appointed as representatives of the government. Don’t have any ideas what they need to do? Except the NGO’s who have a clear vision on the people’s needs. I would suggest better education system could help our children to have a better life in the future. Here the use of modern technology would certainly help“(Jagadish 2009). This answer is well aligned with the suggestions of Puri (2007) and Madon (2009).

Another respondent who works for a local NGO replied to one of the interview questions that the government should “introduce better education in rural area, the present system in not good enough. Focus should be given on modern technology and rural management. Have more rural banks open up and give the farmers enough credit. These suicides from farmers must stop, they need finance and it is the banks that drag them to their knees and forces the farmer to go to private moneylenders. They never get out of out of this trap. Thus, Information technology is only solution” (Jagadish 2009).

The reply for the question “Are there any particular improvements that can be done in these rural areas? was “the government or private sectors should focus on setting up more agro-based industries and could absorb any additional agricultural labour force; this would stop the people from migrations to other states or cities. In other countries the government helps is the development but here we have to fight for basic rights and we need to focus more on facilities on the agro processing industries, marketing their goods and getting a better deal for the farmers the middle men must be cut out , its killing the farmers profits. We need to upgrade our market centres to ‘international standard.’ Here the local governing head as the Gram Sabha/Gram Panchayats should need additional assistance from the government in improving infrastructure roadways, decentralized micro planning for better and modern quality of life. Computers are already having a great impact in this process of improvement but we need more of it” (Jagadish 2009). Thus, people prefer education and knowledge and under such conditions, impact of Information Technology on Indian banking would be high, as the mass is getting ready for the IT usage on a better and bigger scale. In that situation, banking would be highly influenced. Puri (2007) and Madon (2009) agrees to this approach.

The researcher asked in the interview with one of the respondents “Do you think farming is the only backward sectors that need assistance?” The answer was “No, it’s the over all sectors; there is more focus on the farming sector because it’s the only one that is the largest. However, we must facilitate funding to non-farm activities in the manufacturing and artisans. Banks with the computerized facilities would be helpful” (Jagadish 2009). Puri (2007) and Madon (2009) corroborated this view. For the question How does one monitor funds?, the answer was “Well, the government could have a disbarment policy and have the NGO’s and finally the biggest chunk to the rural banks, including International funding; this way the development pace would accelerate with the help of computer monitoring” (Jagadish 2009). Puri (2007) and Madon (2009) went in agreement with this viewpoint.

Next question in the interview with one of the respondents was on the role of women in the rural areas. The women have been discriminated even more and the ratio of male and females is alarming (874 per 1,000 males) this is because of the female foeticide and women are suppressed to have very little role in the economic activities (Jagadish 2009). Now, with more computer training the entire scenario is changing fast. One of the respondents to the interview who runs a small business seemed optimistic about the rural areas and its development.

The respondents were asked to elucidate on the kind of progress that they have been observing since a couple of decades. The respondents find remarkable development with the use of computers. North India does not have a coastline and the people here have to rely solely on its agriculture and industries to support its infrastructure like textiles, cement, auto Parts, IT, processed foods and farming. “We have the lowest hunger level in the country and the infrastructure is still one f the best compared to the other states , whether you’re talking about road, rail, air and river transport. If you look at our poverty lever it’s was 6.16% on 1999-2000 based on Government statistics” (Jagadish 2009). There seems to be tremendous future for the growth of IT in Indian banking system. India is becoming a favourite destination among foreign companies for manufacturing zones. However, a lot remains to be done in the rural sections, which needs time. Indian Banks should utilise more IT in the rural areas. With the rural retail growing at 7% per annum, shifting it food growth to fruits, vegetables and poultry product from growing grains a few years ago. The present market is expected to grow multiple times in 2015 driven by larger purchasing power of the Indian population and ever changing consumption pattern. With this, then comes a rising economy (Chapin 2008).

Summary

This chapter presented a summary of the results of the replies of the interviewees to the structured questions presented to the interviewees during the personal interaction of the researcher with the interviewees. The researcher chose to ask some additional questions to the selected interviewees to draw their perceptions on various aspects connected with the impact of IT system on banking sector operating in India. The researcher would have been able to collect the additional information only by putting through these questions to the chosen respondents. The replies to the additional questions helped the researcher achieving an important objective of evaluating the impact of IT on Indian banking system.

Discussion

The central focus of the study was the impact of technology on the banking sector in India. The selected population was the Sikh community residing in the UK. Interviews with the samples selected from this target population, primary data collected through the questionnaires and theories gathered from the literature review construct the fundamentals of this discussion. The questionnaires were distributed to 143 respondents personally by the researcher to record their answers to the questions. The researcher asked some additional questions to some of the respondents using telephone and Internet tools like Orkut.com and msn messenger to collect their viewpoints on the topic. The researcher collected secondary data through a review of the available literature for finding the answers to the research questions and for framing the questions for the structured interviews. Chapter four of this report presented the results of the interview.

Objective 1

The first objective was to study the role, function and importance of information technology in the banking system in general and meeting this objective has answered the research question on the role and function of information technology in banking system in general.

This discussion, constructed through these methods, reveals that technology in the banking sectors came in the middle of 1980’s, when banks were operating computers on a basic level. In the early 90’s computers were getting cheaper and technology was advancing in faster and smarter computers and servers were been introduced. The Indian banking system is in the centre of an IT uprising in the late 1990’s. The support from the government and new technology induction led to banks giving greater importance to IT.

The growth in the farming and industrial sector led to a more robust banking structure and introduced reengineering in their overall operations. The banks rely highly on the internet technology to support its communication and connectivity and to support its back end database more like Process Reengineering. Technology helped in creating a better infrastructure and curbed the risk involved with manual entries covering vast distances and centralizing all banks into a single point of operation.

The points of management having access to their database and make reports and changes in their policy were easier and information was readily available for taking meaningful decisions. They could have access to liquid accounts, moving of assets and looking at their risk factors. Information technology has helped them move large sums of money and entry in foreign exchange.

For three decades, rural banks have been in the financial scene and the regional rural banks could be seen as efficient banks in India. This is the joint venture by the Central Government. Although rural areas remain under-developed; but the potential is huge because of the large population living in these areas. In rural India the banking sector with impoverished IT can play a major role in shaping the lives of these people.

With the infrastructural developments in the form of roadways, electricity, communication and finance, there could be a huge market to tap. Unlike the urban market where bank are at each other’s throat in trying to win each other’s customers. Helping the rural population could increase their buying power and in turn, they will seek the services of the banks for their needs. There could be a reverse migration and rural areas will be the source of economic reforms (Auster 2006).

Information Technology is the facilitating factor in driving business today and especially in the banking sector from transactions and analytical processing to end user interface. Customer service has come a long way and is getting better. IT gives a hand in the CBS (core banking system) which revolutionized the face of Indian banks. The latest trend, which entered the market, is technology in the mobile banking, ATM (automated teller machine) and the locally shared services between banks (Berkovitch 2006).

Information Technology enabled banks to serve it customer ten times faster than a few years ago and brought down its operation cost to one third. The Indian banks now provide immediate transfer, access to multiple service providers dealing in communication. IT majors like International Business Machine Corporation (IBM), Microsoft, and Patni are some of the companies on the forefront in providing Technology that would run the banking industries of India. Projects like, multiple application smart cards have proved to perform well and have been included into the financial sectors and open its uses throughout the country (Kulkarni 2009).

Then there is the “Institute of Development and Research in Banking Technology“(IDRBT), which is into networks and have been providing an application called the (INFINET) “Indian financial network” and (SFMS) a Financial Messaging System. There is a great scope for information technology in the Indian banking system, where many areas are still in the birth stage. IT has a lot of work in hand and the Indian market is waiting for them (Chapin 2008).

There will never be a stop to the advancement of technology in the world of banking and business banking will have the biggest change. Creating deposits is what banks were in their traditional form and the surplus money was let out in the form of lending. Presently the banks offer wide range of other services to meet the financial needs of its customers in the form of business , personal , travel and celebrations loans to name a few. The services are to its entire customers who can prove their stability in repaying the loan.

Objective 2

The second objective was to study the different areas in the Indian banking system, especially in the rural areas where information technology is presently used with special emphasis on customer service and meeting this objective answered the research question on the present state of information technology in providing customer service in the banking system in India especially in rural areas.

Objective 3

The third objective was to explore and suggest ways of improving the rural banking system in India using information technology, in particular in the area of customer services and answer the research question on the possible areas where information technology can be of assistance in improving the banking system in India especially in rural areas in providing extended customer services.

The discussion below covers the objective 2 and 3 and the answers to the research question 2 and 3. The Reserve Bank of India is entrusted with the responsibility of developing banking and financial institutions and it was its trademark approach through the decades. RBI focused on reforms and productivity and realized it would be technology, which could act as the backbone in all their initiatives. The RBI instituted many committees and groups for studying the technology needs of the banking system as a whole. These groups were purposeful is planning and implementing use of technology on banks. The RBI stared many committees continuing its mission on introducing automation in the Indian banking system. Rangarajan committee -1 in early 1980s and Committee – 2 in late 1980s , then came the Saraf working group in early 1990s , Vasudevan working group in late 1990s and Barman working group in early 2000s (Perera 2007). These groups fully analyzed the role and importance of IT in the entire banking system. On researching the needs and wants from the banks, these committees recommended there finding to the RBI, who in turn issued guidelines. It was in 1980 that the use of technology on back end operations was initiated. Collection of management information system (MIS), accounting transactions was some of the operations being used in technology and in the cash transactions it was in the form of settlement and clearing, a new technology called MICR was been used a “Magnetic Ink Character Recognition” a technology used for the sole purpose to facilitate the processing of cheques (Puri 2007). The Negotiated dealing system (NDS) which is a platform for trading and RTGS (Real Time Gross Settlement system) is used for transferring real time funds from one bank to another. These are the latest developments in the banking services enabled with the help of information technology. Commercial banks in India are introducing newer technological systems in their efforts to serve the customers better and quicker. However, it is important that a cost benefit analysis is done on the utility of new technological systems before they are introduced for serving the customers. Another issue is the technical knowhow required on the part of the bank staff to make use of the improved systems. Banks have to spend time and efforts in training the staff to make them adapt the new systems.

In 1990 there was a complete change in the outlook of the banking system in India with the introduction of using technology as compulsory usage as a precondition for renewing or getting a new license. Secondly opening an institute solely dedicated to researching and developing technology in the banking field. This brought in technology-savvy banks and they would offer innovative products to its customers. Credit/Debit/Smart cards, Tele-Banking and Internet Banking, “Anytime and Anywhere banking,” and ATMs were some of the developments in the field of banking to provide efficient services to the customers. In the rural banking sector, the banks have introduced the “Kisan credit card” for the farmers (KCC SCHEME), which was launched in 1998. This card made it easier for farmers to procure their agricultural products, for which the agricultural loans were made available additionally.

There were several factors responsible for the growth in Indian banking including for the introduction of technology. It was financial sector reforms to meet the needs of globalization and the consequent liberalization, which resulted in changing face of Indian banking services. Before the liberalization, banks were involved in manual operations in respect of deposits and withdrawals and the service standards were far below standards. After liberalization and financial sector, reforms the banking sector has become more consumer oriented and IT gave the necessary impetus for the sector to grow into new dimensions. Information technology is creating a revolutionizing effect and rippling through all sectors including the capital market and after the introduction of Internet, it has brought its relationship of customers with banks closer. Internet has become an able and important support for banks to ensure quality service delivery. Customization has taken place in respect of a number of services, and retail banking is maturing after each passing year. One clear example lies in the housing loan sector, where IT has brought down the operation costs and the banks are able to pass the benefits to the customers. One of the most innovating banking products that technology has brought in is plastic money. With the new age of people spending more than they use to earlier carrying large sums of money, it was getting troublesome to carry large cash with them. Plastic money introduced in the form of credit/debit cards has become handy. Credit card is a system of payments after a plastic is introduced to the user who can use it multiple times as cash transactions. Then we have the debit card and can be use in ATM and purchase goods, the only difference is that it is on the user cash and is not credit given by the bank. The Indian banks over time and over the years have changed and evolved into international standards and are adopting innovative approach in creating value for their customers (Audhya 2010).

The study observes that there is a sea of differences between the UK banking sector and the Indian banking sector in terms of IT enabled practices. It is true that in today’s world, UK stands as the prime banking country and a comparison between the two would make Indian banking sector look primitive. Finance volume and speed of transactions are the fundamentals of the UK banking sector. Asset-Liability management and risk management are gaining more importance after globalization. The banks in UK now have their data updated on a real time basis and look at getting the WAN connected through all their branches as prime importance. This has helped further in the introduction of different payment modes like RTGS, Centralized Fund Management System (CFMS) and Negotiated Dealing System / Public Debt Office (NDS-PDO). Having interbank connectivity has become the necessity for many banks presently. It is important that every bank integrate its treasury function for better fund management and IT plays a major role in getting these services. Asset Liability Management (ALM) and risk management are on the priority list of all banks and these are one of the main concerns for IT plans of banks. The 21st century business empires had realized that IT is no longer a support function but become the main driving force to better operations in terms of cost cutting and customer service.IT will be the deciding factor in banking and financial sectors in making or breaking a company.

Banking is one of the arms of Indian economy. It raises the depositor’s incomes and the person who takes loan for their business. It is important that the states make investments that would see growth in the industrial and technological sectors. There must be focus on efficient use of resources, specialization of production and savings, which the banking sector would be able to monitor closely. Indian banking system could close the gap between financial institutions and unorganized private savers.

Banking should focus more on woman empowerment and have finance available to them, they constituent a large portion in India’s population and yet they are not been utilized to their fullest in the Indian economic picture (Jagadish 2009). There are signs of rural India going through structural transformation. There is the majority of the population who depend on the rural economy for their livelihood. Banking can play a huge role in this sectors by using latest technology can assist the people in daily life.

Conclusion

Conclusion

The objective of this study was to analyze the role, function and importance of information technology in the banking system in general and to explore the different areas in the Indian banking system, especially in the rural areas where information technology is presently used with special emphasis on customer service. The study also sought to explore and suggest ways of improving the rural banking system in India using information technology, in particular in the area of customer services. By engaging the research technique of qualitative structured interviews, the study attempted to answer the research questions on the role and function of information technology in banking system in general and on the present state of information technology in providing customer service in the banking system in India especially in rural areas. The study used the research technique of structured interviews to find the possible areas where information technology can be of assistance in improving the banking system in India especially in rural areas in providing extended customer services. This chapter presents some concluding remarks and few suggestions for further research on the subject.

The age of internet benefits have only been tapped in the urban areas and rural area have not even smelt its benefits and its only when banks that have their branches in rural area releasing its benefits can the common man, reap its benefits, where issues of money transfer can be tapped throughout the country. There is a huge resentment among customers in the rural areas is customer’s service and banks are facing costs on providing these services. The issue lies is trying to cut operations cost and having to deal with their competition. Here is where Technology could play its role and meeting the banks objectives.

The study finds that information technology has enabled banks in India to achieve their core objective and to expand their services towards their customers. It has enabled the banks to bring forth more value added products and services to the benefits of the customers. Some of the product like mobile banking is working well in the emerging market and most banks in India introduced mobile banking, which helps customer in getting updates like SMS services.

With information technology as the forefront of human development in shaping their lifestyle, it has become the important factor in the present day context, whether is about dissemination of information, processing, storage or retrieval, technology has no limitation. This study observes that rural banking in India remain underdeveloped, as far as the use of technology is concerned, mainly because of lack of initiatives by the banks, lack of infrastructure and lack of knowledge among the rural customers.

Recommendations

As a recommendation for the banking industry in India, this study suggests Indian Banks to focus more on technology in the direction of Wide Area Satellite Net Work WAN) and Very Small Aperture Terminals (VSAT), to push ahead of the foreign competitors. With the help of the initiatives of RBI and Institute for Development and Research in Banking Technology (IDRBT), the banks should be able to improve their overall performance and have a global reach. There is one more aspect where banks could benefit greatly and take the load of their manual operations, is introducing better payments system in the rural areas using Negotiated Dealing System (NDS) and the Centralized Funds Management System. However, introduction of these systems require sophisticated technological back up in the rural banks and hence the rural banks still have the system of medieval operation (Madon 2009).

The banking industry is growing at a faster pace. However, the rural arm of the Indian banking industry needs to keep pace with the latest trends and meet the needs of the rural masses. Banks must support the rural growth with latest information technology by spreading the awareness among the rural population the benefits of technological innovation and its role in banking to serve the customers better (D’Mello 2006).

The Indian banking sector must realize that they should focus on three areas to survive customer’s expectations it is this core value that will sustain them from losing their customers to competitors , the second is cost cutting to operate efficiently with minimum cost and finally handle their never ending competition. To do this they must look for new products and innovative service technology. This could only be provided my new technology. It is said that a process or a business can only be successful if it runs on an auto – pilot mode and that include over all operations. It can be done by having their total database and day-to-day operations through a centralized network, using new banking applications. This way banks can service their customers all times with less human resources and cut cost too.

As recommendation for further research, this study suggests a comparative study of banking practices of the banks in the UK and in India in certain operational areas from the purview of IT. An empirical study on the IT spending of different banks during a particular period and the Return on Investment (ROI) on such IT spending will throw light on the potential savings that the banks can make out of IT investments. Normally the ROI on IT spending in different countries should give an in-depth knowledge on the utilization of IT in the banking of those countries. A comparative study of the areas to which information technology has been extended in the banks in India and other Western countries including the services offered to the customers using the IT will enhance the knowledge base on the adoption of IT by the banking systems in the respective countries.

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Appendix I: Questionnaire

What is your Age?

• 18-25
• 26-35
• 35-59
• Above 60

Your Gender?

• Male
• Female

What is your occupation?

1. Administrative
2. ExecutiveManagerial
3. EmployeeClerical
4. StudentHousewife
5. Farmer

Income [per annum]:

• 25K – 100k
• 100k – 200k
• 200k– 500k
• Above 500k

How would you assess the overall Banking sector?

1. Very good
2. Good
3. Average
4. Not Good
5. Bad

How long you have to wait in the bank for completing a transaction?

1. Few minutes
2. One hour
3. More than one hour
4. More than four Hour
5. No time limit

Do you think the present IT could enhance the efficiency of the banks?

1. Surely
2. Maybe
3. Cannot say
4. Maybe not
5. No

Which banking system leaves more impact on you?

1. Would not make any difference
2. Cannot Say
3. IT and Manual effect
4. IT effect
5. Manual action oriented

Have you ever changed or tried a new bank with complete IT facility?

1. Yes
2. No

How often do you use bank with IT facility?

1. Hardly
2. Most of the times
3. Sometimes
4. Always

Do you find difference with Public bank and Private bank?

• Moderately Yes
• Moderately No
• Not much
• Hugely

Do you find the comparison to be justified and see public banks in low light?

1. Perfectly
2. Moderately
3. Maybe
4. No
5. Moderately no

What impact does IT in banking leaves on your mind?

1. No effect
2. Big brand company
3. High Quality product
4. Expensive product
5. Give good competition in the market

Are the IT enabled banks attractive to you?

• Yes
• No

Does the IT create any desire for using IT enable banks?

1. Never
2. Some times
3. Strong desire

Do you feel IT would improve Public banking?

1. No
2. Some times
3. Every day

Do you feel the present IT is greatly influencing the banking?

1. No
2. Often
3. Sometimes

Do you think IT would change the experience in public banking?

1. No idea
2. Some times
3. Often
4. Every time

Are the IT enabled branches good enough to catch your attention?

• Yes
• No

What is reason for preferring IT?

• Faster Communication
• Better service
• Error free
• On-spot information
• Above all

How do you assess the future of IT in banking?

1. Bright and fast
2. Slow but steady
3. Would take time
4. No future

Appendix II: Responses to the Questionnaires

*It is not only a place of worship however it is a community service. It always offers everyone free library, kitchen and visitor accommodation without any discrimination. I chosen it for face to face interview, every week here every type Indian community comes.(many visitors).