Unit 3: Emerging trends in banking
Banking Services Management notes · PTU syllabus (BCOP 521-18)
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Unit summary
Technology has transformed banking from branches and ledgers to apps and instant payments. This unit covers e-banking, mobile banking, NEFT and RTGS, core banking, wholesale vs retail banking, universal and narrow banking, offshore banking, asset classification, RBI's internet banking guidelines and the cheque truncation system.
After this unit you can
- Explain e-banking, mobile banking and core banking
- Distinguish NEFT, RTGS, IMPS and UPI
- Explain wholesale, retail, universal, narrow and offshore banking
- Explain asset classification, RBI internet banking guidelines and CTS
PTU syllabus topics
- E-banking
- mobile banking
- RTGS and NEFT
- core banking
- wholesale vs. retail banking
- universal and narrow banking
- offshore banking
- asset classification
- RBI internet banking guidelines
- cheque truncation system
NEFT
In half-hourly batches
Everyday transfers
RTGS
Real time, one by one
High-value transfers
UPI
Instant, 24x7
Mobile and small payments
Topic 1
E-banking, mobile banking and core banking
E-banking is the delivery of banking services through electronic channels — internet, mobile, ATMs, POS, phone banking.
Internet banking
Account access, transfers, bill payments, FD opening
Mobile banking
Bank apps, USSD (*99#)
ATMs and cash recyclers
Cash withdrawal and deposit
Point of sale (POS)
Card payments at merchants
Phone banking
IVR and call centres
UPI and wallets
Instant mobile payments
| Advantages | Challenges |
|---|---|
| 24 × 7 convenience | Cyber fraud, phishing |
| Lower transaction costs | Digital literacy gaps |
| Faster transactions | Network and system downtime |
| Wider reach and inclusion | Data privacy |
- Core Banking Solution (CBS): centralised database where all branches are connected — "anywhere, anytime banking"; a customer of one branch can transact at any branch (CBS = Centralised Online Real-time Exchange).
Topic 2
NEFT, RTGS, IMPS and UPI
| System | Settlement | Limit | Availability |
|---|---|---|---|
| NEFT | Half-hourly batches | No minimum or maximum | 24 × 7 × 365 (since Dec 2019) |
| RTGS | Real-time, gross (one by one) | Minimum ₹2 lakh | 24 × 7 × 365 (since Dec 2020) |
| IMPS | Instant | Up to ₹5 lakh | 24 × 7 (NPCI) |
| UPI | Instant, via VPA/QR | Generally ₹1 lakh (higher for specified categories) | 24 × 7 (NPCI) |
- RTGS and NEFT are owned and operated by RBI; IMPS and UPI by NPCI.
- No charges on NEFT/RTGS for savings account customers through online channels (RBI, 2019).
Exam tip
UPI processes well over 15 billion transactions a month — a world-leading real-time payments system; a good example for "emerging trends".
Topic 3
Wholesale, retail, universal, narrow and offshore banking
Customers
Large corporates, institutions, governments
Individuals, households, small businesses
Ticket size
Large
Small, many transactions
Products
Term loans, working capital, treasury, trade finance, syndication
Savings accounts, home loans, cards, personal loans
Risk
Concentration risk
Diversified
Margins
Thinner
Higher
- Universal banking: a single entity offers commercial banking, investment banking, insurance, mutual funds and other financial services (recommended by the R.H. Khan Committee, 1997; ICICI became a universal bank in 2002).
- Narrow banking: banks invest deposits only in safe, liquid assets (government securities) — suggested for weak banks to protect depositors.
- Offshore banking: banking services to non-residents in a foreign currency outside the home country's regulations; in India — Offshore Banking Units (OBUs) in SEZs and GIFT City IFSC.
Topic 4
Asset classification
| Category | Definition |
|---|---|
| Standard asset | Performing; no default beyond 90 days |
| Special Mention Accounts (SMA-0, 1, 2) | Overdue 1–30, 31–60, 61–90 days — early warning |
| Sub-standard | NPA for up to 12 months |
| Doubtful | Sub-standard for 12 months (D1 up to 1 year, D2 1–3 years, D3 above 3 years) |
| Loss asset | Identified as uncollectible by the bank, auditors or RBI |
- Upgradation: an NPA becomes standard only when all arrears are paid.
Topic 5
RBI internet banking guidelines and cheque truncation
RBI guidelines on internet banking (2001, updated through IT and cyber security directions)
- Only banks licensed and supervised in India with a physical presence may offer internet banking to residents; services in rupees only (foreign currency through authorised dealers).
- Technology and security: a security policy; two-factor authentication (OTP) for transactions; encryption (SSL/TLS); firewalls; logs; periodic security audits; a designated Chief Information Security Officer.
- Legal issues: customer consent, privacy and secrecy, IT Act 2000 compliance, digital signatures.
- Regulatory and supervisory: reports to RBI; Cyber Security Framework (2016); Digital Payment Security Controls (2021); customer liability rules — zero liability if fraud is reported within 3 working days and is due to the bank's negligence or third-party breach.
Cheque Truncation System (CTS)
- Physical movement of cheques is stopped (truncated) at the presenting bank; an electronic image with MICR data is sent to the drawee bank through the clearing house.
- Implemented nationwide (CTS-2010 standard cheques); clearing moved to continuous clearing (same-day settlement) in 2025.
- Benefits: faster clearing (T+0/T+1), lower cost, no loss of cheques in transit, better security; Positive Pay System for cheques of ₹50,000 and above.
Key terms
- Core banking
- Centralised system linking all branches in real time
- RTGS
- Real-time gross settlement of high-value funds transfers
- Universal banking
- One entity providing banking, insurance and investment services
- Offshore banking unit
- Bank branch in an SEZ/IFSC dealing in foreign currency with non-residents
- Cheque truncation
- Clearing cheques using electronic images instead of physical movement
Quick revision
- E-banking channels: internet, mobile, ATM, POS, UPI.
- NEFT (batches), RTGS (₹2 lakh+, real time), IMPS and UPI (NPCI).
- Wholesale vs retail; universal (Khan Committee), narrow, offshore (OBUs, GIFT City).
- Assets: standard, SMA, sub-standard, doubtful, loss.
- RBI e-banking rules: 2FA, security, zero liability; CTS with image-based clearing.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.What is core banking?
- Q2.Distinguish NEFT and RTGS.
- Q3.What is universal banking?
- Q4.What is narrow banking?
- Q5.What are SMA accounts?
- Q6.What is the cheque truncation system?
Long-answer questions
- Q1.Explain e-banking and its advantages and challenges.
- Q2.Explain the electronic funds transfer systems in India.
- Q3.Distinguish wholesale and retail banking and explain universal, narrow and offshore banking.
- Q4.Explain RBI's internet banking guidelines and the cheque truncation system.
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