Innovations in the Banking Industry in India

Innovations in the Banking Industry in India

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Case Details:

Case Code : BREP005
Case Length : 14 Pages
Period : 1991-2004
Pub Date : 2004
Teaching Note :Not Available
Organization : -
Industry : Banking
Countries : India

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"With new opportunities unfolding themselves before us we should see India emerging as a global power in banking services in the next two decade."

- Cherian Varghese, Chairman and Managing Director of Corporation Bank in 2004.1

"We will see lot of consolidations in the banking sector. If we want to survive globally, then economies of scale will be an important factor,"

- S S Kohli, Chairman of Punjab National Bank in 2004.2

Breakthrough in Funds Transfer

In May 2004, the curtain was finally lifted on the much discussed Real Time Gross Settlement (RTGS) system, which many analysts considered, would revolutionize funds transfer in the Indian banking sector.

RTGS is an electronic funds transfer system designed to allow the real time settlement of inter bank payments in a fully secure environment.

It enables companies to transfer outstanding funds between banks in real time, thus allowing them to settle payments instantaneously and manage their working capital better. It is also expected to save significant amounts of money in interest payments on floating funds lying in banks.

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The first RTGS transaction took place when Standard Chartered Bank (SCB) executed a deal for Hindustan Lever Ltd (HLL)3 with State Bank of India (SBI) being the receiving bank. The amount transferred to SBI was Rs 100 million. Several commercial banks in India had been involved in the phased implementation of RTGS for several preceding months.

Some of the early adopters of RTGS were SCB, SBI, Housing Development Finance Corporation (HDFC) and Saraswat Bank. IndusInd Bank was also close to implementing the system.

Commenting on the implementation of RTGS, a senior official at the Reserve Bank of India (RBI) said, "We have achieved a very significant landmark in migrating high value funds transfer from paper-based system to electronic based payment system".4

RTGS was the latest in the line of payment delivery systems that have been implemented in the Indian banking sector since the 1990s.

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1] "Indian banks must become significant players abroad", Business Line, February 17, 2004.

2] "Indian banks to see lot of mergers", April 27, 2004,

3] A major producer of FMCG goods.

4] "RTGS puts India in world's premier club",, May 9, 2004.


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