Module IV:

Recent Developments in Banking

Recent Trends in Banking Innovations and Technology

The banking sector is undergoing a digital transformation, with
increasing focus on automation, customer experience, and cost-
efficiency. The following are key recent trends:
1. Digital-Only Banking / Neo-Banks
 Fully digital banks operate without physical branches.
 Examples: RazorpayX, Fi, Jupiter in India; N26, Revolut
internationally.
 Services: Digital onboarding, mobile banking, real-time payments,
AI-driven services.
2. Artificial Intelligence (AI) & Machine Learning
 AI chatbots handle customer queries (e.g., HDFC Eva, SBI’s SIA).
 AI is used for:
o Credit scoring
o Fraud detection
o Customer sentiment analysis
o Personalized product recommendations
3. Blockchain and Distributed Ledger Technology (DLT)
 Used for secure, transparent, and immutable transactions.
 Applications:
o Cross-border remittances
o Smart contracts
o Trade finance
 Example: JP Morgan’s JPM Coin, RippleNet
4. Open Banking and API Banking
 Banks expose their APIs to third-party fintechs under regulatory
supervision.
 Helps in creating integrated services (like UPI in India).
 Leads to better financial inclusion and competition.
5. Robotic Process Automation (RPA)
  Automates repetitive tasks like KYC verification, loan processing,
and compliance reporting.
 Increases speed and reduces errors.
6. Cybersecurity Enhancements
 Due to increasing digital threats, banks are investing in:
o Biometric authentication
o Multi-factor authentication (MFA)
o Behavioral biometrics
o Fraud detection systems
7. Mobile & Internet Banking
 Integration of UPI, QR codes, biometric logins.
 Banks are launching mobile-first experiences with apps for all
services (loan, credit card, investment).
Banking Technology – Key Software Systems
Banks depend heavily on core banking solutions (CBS) to run daily
operations. Here are some prominent software systems:
1. Finacle by Infosys
 Developer: Infosys
 Used by: ICICI, Canara Bank, and many global banks
 Core Features:
o Core banking
o Digital banking
o Wealth management
o Lending solutions
o Blockchain-based trade finance
🔹 Advantages:
 High scalability
 Real-time processing
 Open API architecture
 Integration with mobile and digital channels
2. Finlite
 A lightweight core banking solution for small banks,
cooperative banks, and NBFCs.
  Features:
o Customer onboarding
o Loan management
o Deposits and withdrawals
o MIS reporting
🔹 Ideal for:
 Rural banks
 Microfinance institutions
 Credit cooperatives
3. Sanchez (Profile Banking System)
 Originally from Sanchez Computer Associates, now part of
Fiserv.
 Highly customizable core banking system.
 Features:
o Modular design for retail and corporate banking
o Supports multiple currencies and languages
o Customer-centric data model
🔹 Strength: Popular with mid-to-large financial institutions globally due to
flexibility and scalability.
Transaction Banking
Transaction Banking refers to banking services that support day-
to-day financial operations of businesses. It includes:

Core Components:
1. Cash Management
 Enables businesses to manage liquidity across multiple accounts.
 Tools: Cash pooling, real-time dashboards, automatic reconciliation.
2. Trade Finance
 Facilitates international trade via:
o Letter of credit (LC)
o Bills of exchange
o Bank guarantees
3. Treasury Services
  Helps in managing investment of surplus funds, FX risk, and hedging
strategies.
4. Payments and Collections
 Enables bulk payments, payrolls, supplier payments, and
receivables management.
 Digital platforms now integrate NEFT, RTGS, IMPS, and SWIFT
channels.
Key Innovations in Transaction Banking:
 Real-time cross-border payments via blockchain (e.g., Ripple).
 Virtual Accounts: Used to streamline account structures and
improve reconciliation.
 API-based Platforms: Businesses integrate directly with banks for
real-time fund movements.

Marketing of Banking and Other Financial Products

Definition
Marketing of financial products refers to the promotion, distribution,
and selling of banking and other financial services by banks to existing
and potential customers.
This includes both:
 Bank's own products (loans, accounts, cards)
 Third-party financial products (insurance, mutual funds, NPS,
etc.)
Types of Products Marketed
a) Banking Products (Own)
 Savings & Current Accounts
 Fixed/Recurring Deposits
 Loans (Home, Personal, Car)
 Debit & Credit Cards
 Mobile & Internet Banking
 Forex & Remittances
b) Financial Products (Third-Party)
 Insurance (Life, Health, General)
  Mutual Funds
 Pension Schemes (e.g., NPS)
 Wealth Management Services
 Demat and Trading Accounts
 Gold ETFs, Bonds, ULIPs
Objectives of Marketing Financial Products
 Acquire new customers
 Retain and cross-sell to existing customers
 Earn fee-based (non-interest) income
 Build long-term customer relationships
 Differentiate brand in competitive markets
Marketing Strategies
Strategy Description
Selling complementary products (e.g., loan +
Cross-Selling
insurance)
Bundling Combining multiple services as a package
Relationship Personalized service through dedicated
Marketing managers
Use of websites, apps, SEO, social media,
Digital Marketing
influencers
Telemarketing Outbound calls and SMS alerts
Customer
Financial literacy campaigns and webinars
Education
Marketing Channels Used
 Branches and Bank Staff
 ATMs and Kiosks
 Mobile & Internet Banking
 Relationship Managers (RMs)
 Call Centers
 Social Media (Instagram, Facebook, LinkedIn)
 Email & SMS Marketing
 Fintech partnerships
Key Concepts
a) Bancassurance
Banks act as corporate agents for insurance companies to sell insurance
products and earn commissions.
b) Mutual Fund Distribution
Banks distribute MFs of various AMCs and facilitate investments through:
 SIPs (Systematic Investment Plans)
 Lump-sum investments
Digital Marketing in Banking
Modern banks use digital tools to:
 Offer real-time product suggestions
 Display personalized offers on apps/web
 Use AI chatbots for product info (e.g., HDFC’s EVA)
 Run social media ad campaigns
Regulatory Bodies
Regulat
Product
or
Banking RBI
Insurance IRDAI
Mutual
SEBI
Funds
Pension
PFRDA
(NPS)
Compliance includes:
 KYC norms
 Risk profiling
 Disclosure of third-party affiliations
Benefits
To Banks:
 Higher revenue through commissions
 Diversified income streams
 Stronger customer relationships
To Customers:
 One-stop financial solutions
  Better convenience & accessibility
 Informed financial decisions
Real-world Examples
Bank Financial Product Partner
SBI Life Insurance, SBI Mutual
SBI
Fund
HDFC
HDFC Life, HDFC Mutual Fund
Bank
ICICI Bank ICICI Prudential, ICICI MF
Axis Bank Max Life, Bajaj Allianz, Axis MF
Financial Inclusion in India
Meaning of Financial Inclusion
Financial Inclusion refers to the process of ensuring access to
appropriate financial products and services (savings, credit,
insurance, remittance, etc.) to all individuals and businesses,
especially low-income groups, at an affordable cost in a fair and
transparent manner.
Key Components of Financial Inclusion
a) Business Correspondents (BCs)
 Bank-appointed agents who offer banking services in remote/rural
areas.
 Services: account opening, deposits/withdrawals, Aadhaar linking,
DBT handling.
 Benefits: Reduce cost of branch expansion, improve last-mile
delivery.
b) Self Help Groups (SHGs)
 Informal groups of 10–20 women/men who save regularly and lend
internally.
 Linked to banks via the SHG-Bank Linkage Programme (SHG-
BLP).
 Empower rural women, promote micro-entrepreneurship and
savings.
c) Microfinance
 Provision of small loans (microcredit) to low-income individuals.
 Delivered by Microfinance Institutions (MFIs), NGOs,
cooperatives.
  Targets women, rural households, SHGs.
 Enables self-employment and income generation.
Digital Financial Inclusion
Digital Financial Inclusion means using technology and digital
platforms to provide access to financial services to the underserved.
Key Tools:
 Mobile banking & UPI
 Digital wallets (e.g., Paytm, PhonePe)
 Aadhaar-enabled Payment Systems (AEPS)
 RuPay Debit Cards
 Digital KYC and e-sign
Direct Benefit Transfer (DBT)
 A system where government subsidies and welfare payments are
directly credited to the beneficiary’s bank account.
 Reduces leakages, corruption, and delays.
 Implemented in:
o MNREGA wages
o LPG subsidies
o Fertilizer subsidies
o Scholarships, pensions
Aadhaar Card Seeding
 Seeding = Linking Aadhaar with bank accounts
 Facilitates:
o Direct Benefit Transfers
o KYC verification
o Biometric authentication
o AEPS transactions
 Reduces fraud and duplication in government subsidy schemes.
Nachiket Mor Committee Recommendations (2013)
Constituted by the RBI to propose measures for comprehensive financial
services access.
Key Recommendations:
Area Recommendation
Access to formal financial services within 15
Universal Access
minutes’ walking distance
Universal Electronic Every citizen above 18 years should have a bank
Bank Account (UEBA) account
Introduce specialized banks for low-income
Payment Banks
individuals (led to Paytm, Airtel Payments Bank)
Mobile & Aadhaar Use mobile phones and Aadhaar to increase
Integration outreach
Include literacy in school curriculum and use
Financial Literacy
local language content
Government Schemes Promoting Financial Inclusion
Scheme Objective
Pradhan Mantri Jan Dhan Universal access to banking services with
Yojana (PMJDY) zero balance accounts
PM Jeevan Jyoti Bima
Low-cost life insurance
Yojana (PMJJBY)
PM Suraksha Bima Yojana
Accidental insurance
(PMSBY)
Atal Pension Yojana (APY) Retirement benefits for informal sector
Microcredit to small entrepreneurs under
Mudra Loans
MUDRA scheme
Benefits of Financial Inclusion
For Individuals For Economy
Access to savings & Increased financial
credit literacy
Security for cash
Broader tax base
holdings
Better targeting of
Direct benefits from govt
subsidies
Risk protection via Reduction in informal
insurance lending
Challenges in India
 Low financial literacy
 Lack of trust in formal banking
  Poor internet/connectivity in rural areas
 Inadequate grievance redressal
 Cybersecurity risks
Recent Developments
 UPI 2.0 and UPI Lite for small-value transactions
 Digital Public Infrastructure (DPI) under India Stack (Aadhaar,
UPI, DigiLocker)
 Launch of 75 Digital Banking Units (DBUs)
 Account Aggregator Framework for data-driven credit
 Jan Samarth Portal – Single digital portal for credit-linked
government schemes
KYC – Know Your Customer
Definition:
KYC refers to the process of verifying the identity of a customer
when opening and operating an account with a bank or financial
institution.
Objectives:
 Prevent identity theft and financial fraud
 Comply with anti-money laundering laws
 Ensure legitimate transactions
Key KYC Components:
Component Details
PAN, Aadhaar, Passport, Driving
Customer Identification
License
Customer Due Diligence Verifying identity, address, nature of
(CDD) business
Track transactions for unusual
Ongoing Monitoring
patterns
Risk Categorization Low, medium, high-risk customers
Types of KYC:
 Regular KYC – Physical documents + in-person verification
 e-KYC – Aadhaar-based digital verification
 Video KYC – RBI-approved method of remote identity verification
AML – Anti-Money Laundering
Definition:
AML refers to laws, regulations, and procedures intended to prevent
criminals from disguising illegally obtained funds as legitimate income.
Money Laundering Process (3 Stages):
Stage Description
Placeme
Injecting illicit money into the financial system
nt
Layering Complex transactions to obscure origin
Integrati Reintroducing laundered money into the economy as
on legitimate
CFT – Combating Financing of Terrorism
Definition:
CFT is the set of measures taken to identify, prevent, and punish the
funding of terrorist activities.
Key Aspects:
 Monitor and freeze accounts linked to terrorist individuals/entities
 Report suspicious and large cash transactions
 Use global watchlists (UN, FATF) for reference
 Coordinate with national intelligence and law enforcement
PMLA 2002 – Prevention of Money Laundering Act
Purpose:
To prevent and control money laundering, and to confiscate
property derived from laundered money.
Key Definitions:
 Money laundering: Process of converting proceeds of crime into
legitimate assets
 Proceeds of crime: Property derived from scheduled offences (like
fraud, drug trafficking, etc.)
Banks’ Obligations under PMLA 2002
Banks and financial institutions have statutory obligations under the
PMLA to help prevent financial crimes.
1. KYC Compliance
Mandatory for all account holders and financial transactions.
2. Reporting Requirements
To Financial Intelligence Unit – India (FIU-IND):
Report Type Details
STR (Suspicious Transaction
Unusual or abnormal transactions
Report)
CTR (Cash Transaction Cash transactions > ₹10 lakh
Report) (single/multiple, monthly)
NTR (Non-Profit Org.
If suspect NPO is used for illegal funding
Transaction Report)
CBWTR (Cross-border Wire
Foreign remittances > ₹5 lakh
Transfer Report)
3. Record Maintenance
 Maintain all transaction records for at least 5 years
 Maintain account and customer KYC details for 5 years after
closure
4. Screening Customers
 Use watchlists like UN Sanctions List, FATF list, SEBI/RBI alerts
 Avoid onboarding listed or banned individuals
5. Appointing Principal Officer
 Every bank must appoint a Principal Officer to coordinate with FIU
and ensure compliance.
Recent Developments
 Aadhaar + PAN made mandatory for KYC
 Video KYC permitted for full KYC
 RBI strengthened norms for beneficial ownership (especially for
corporates)
 Risk-Based Approach (RBA) required: Enhanced Due Diligence for
high-risk clients
 Use of AI/ML in transaction monitoring by banks
 Module V:

Insurance

What is Insurance?
Insurance is a contract (policy) between an individual/entity (insured)
and an insurance company (insurer), where the insurer promises to
compensate for a specified financial loss in exchange for periodic
payments called premiums.

Purpose of Insurance:

 Risk transfer

 Financial protection

 Encouragement of savings and investment

 Economic stability

Elements of Insurance Risk

Element Explanation

Uncertainty of Loss The event must be uncertain and unforeseen

The insured must suffer financial loss if the

Insurable Interest
event occurs

Definable & Measurable The loss should be quantifiable in financial

Loss terms

Large Number of Similar

Helps in risk pooling and statistical prediction
Exposure Units

Accidental and The event should not be intentional or expected

Element Explanation

Unintentional

Should not result in widespread simultaneous

Non-catastrophic
losses (like war or pandemics)

Premiums should be reasonably priced relative

Affordable Premium
to the risk

Principles of Insurance

These are the legal and ethical foundations of an insurance contract:

Principle Description

1. Utmost Good Faith Both insurer and insured must disclose all
(Uberrima Fides) material facts truthfully

The insured must have a legal/financial

2. Insurable Interest
interest in the subject of insurance

The insured should be restored to their original

3. Indemnity
financial position after loss

If multiple policies cover the same risk, the

4. Contribution
claim is shared among them

After paying the claim, the insurer gets the

5. Subrogation
right to recover from third parties

The most direct and effective cause of the loss

6. Proximate Cause
is considered for settlement

The insured must take reasonable steps to

7. Loss Minimization
reduce the extent of loss/damage

Example to Illustrate Principles:

If someone insures a house against fire:

  They must disclose any prior fire hazards (Utmost Good Faith)

 They must own or legally rent the house (Insurable Interest)

 They’ll be paid only the actual loss, not more (Indemnity)

 If two insurers are involved, they share the cost (Contribution)

 After payment, insurer may sue the faulty electrician (Subrogation)

 If fire was caused by lightning, not arson (Proximate Cause)

 The owner must call the fire brigade promptly (Loss Minimization)

Types of Insurance

Insurance is broadly classified into two categories:

A. Life Insurance

This covers the life of an individual. In the event of death or maturity,

the policy pays a sum assured to the nominee or policyholder.

Major Life Insurance Products:

Product Description

Pure risk cover; pays sum assured if the insured dies

Term Insurance
during the policy term.

Whole Life Coverage for entire life; sum assured paid upon
Insurance death.

Endowment Combines life cover + savings; payout on maturity or

Policy death.

Money-Back Periodic returns during the policy term + lump sum on

Policy maturity.

Pension/Annuity
Offers regular income post-retirement.
Plans

Children's Plans For child’s education and future needs.

 Product Description

B. General Insurance

It covers non-life risks such as health, vehicle, property, and liability.

Major General Insurance Products:

Type Coverage Includes

Health Insurance Hospitalization, surgeries, OPD, maternity.

Vehicle damage and third-party liability

Motor Insurance
(compulsory).

Home/Property
Covers fire, theft, and natural calamities.
Insurance

Trip cancellations, lost baggage, medical

Travel Insurance
emergencies.

Marine Insurance Loss/damage during shipping or transit.

Fire Insurance Damage due to fire and related hazards.

Unit Linked Insurance Plan (ULIP)

What is ULIP?

A hybrid product that combines:

 Life insurance coverage, and

  Investment in market-linked instruments (equity, debt, or hybrid
funds)

Features:

 Premium is divided into insurance + investment

 Returns depend on market performance

 Policyholder can choose fund options

 Offers tax benefits under Section 80C & 10(10D)

Reinsurance

Definition:

Reinsurance is insurance for insurance companies, where a part of the

risk is transferred to another insurer (reinsurer) to reduce liability.

Objectives:

 Spread risk

 Stabilize profitability

 Increase underwriting capacity

 Protection against catastrophic losses

Types:

Type Explanation

Facultative Individual contracts are negotiated per

Reinsurance policy.

Pre-agreed coverage for a portfolio of

Treaty Reinsurance
policies.
Bancassurance

Concept:

It is the distribution of insurance products through banks, allowing

customers to access banking and insurance under one roof.

Models:

Model Description

Bank acts as agent, sells products on behalf of

Corporate Agency
the insurer.

Referral Model Bank only refers customers; no selling involved.

Joint Venture Bank and insurance company form a new entity.

Distribution Bank becomes a distributor of insurance

Agreement products.

Functional Aspects:

 Banks earn fee-based income

 Cross-selling to existing customers

 Requires training of staff

 Integration of IT systems

Critical Issues:

Issue Explanation

Regulatory
IRDAI and RBI coordination needed
Challenges

Risk of Mis-selling Bank staff may push unsuitable products

Customer
Complaints regarding service and claim settlement
Grievances

Product Need for educating customers

 Issue Explanation

Complexity

Operational Technology and process alignment between bank

Integration and insurer

Role of IRDA (Insurance Regulatory and Development Authority

of India)

The IRDAI is the statutory and autonomous body established

under the IRDA Act, 1999 to regulate, promote, and ensure
orderly growth of the insurance industry in India.

Functions & Roles of IRDAI:

Area Role/Function

Issues licenses to life, general, and reinsurance

Regulation&
companies, and insurance intermediaries
Licensing
(agents, brokers, etc.)

Ensures policyholder interests are protected

Consumer
through grievance redressal and transparency
Protection
norms

Premium Regulates premium rates to ensure fairness

Pricing Control and affordability

Product Reviews and approves new insurance products

Approval before launch

Monitoring Ensures that insurance companies maintain

Solvency solvency margins (financial health)

Market Promotes growth of insurance penetration and

Development financial inclusion

Supervision& Conducts regular audits, inspections, and

Area Role/Function

Audits enforces compliance with regulations

Training& Sets qualifications and training guidelines for

Education insurance agents and professionals

Promotes digitization, e-policy issuance, and

Digital Reforms
online claim tracking systems

Basics of Insurance Claim Procedure

An insurance claim is a formal request by a policyholder to the insurer

for compensation against a covered loss or policy benefit.

Steps in the Insurance Claim Process:

A. Life Insurance Claim:

1. Claim Intimation:

o Notify the insurance company (online/branch) about the death

or maturity

o Provide policy number, date of death, nominee details

2. Document Submission:

o Death Certificate

o Policy document

o ID proof of nominee

o Bank details

o Medical or hospital reports (if applicable)

3. Claim Evaluation:

o Insurer verifies authenticity, policy status, and cause of death

4. Settlement:
 o Claim settled within 30 days of receiving documents (as per
IRDAI)

o If investigation is needed, then within 120 days

B. Health/General Insurance Claim:

Two types:

 Cashless Claim (at network hospitals)

 Reimbursement Claim (at non-network hospitals)

Steps:

1. Claim Intimation:

o Notify insurer or Third-Party Administrator (TPA)

o Provide policy number, patient details, hospital info

2. Pre-authorization (for cashless):

o Hospital sends treatment estimate to insurer for approval

3. Hospitalization & Treatment:

o Treatment is carried out; bills are sent directly to insurer

(cashless)

4. Document Submission (Reimbursement):

o Bills, discharge summary, prescriptions, test reports, etc.

5. Claim Settlement:

o Payment made to hospital (cashless) or policyholder

(reimbursement)

Common Documents Required:

 Original policy document

 Claim form (duly filled)

 FIR (in case of accidental death)

 Hospital discharge summary

 Doctor’s certificate

 Medical bills and prescriptions

 Identity and address proof of the nominee/claimant