CDE – Bharathidasan University, B.Com.

(BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

Unit-5

5.1 COMPUTERIZED BANKING SYSTEM

E-banking

A. Meaning of e-banking

E-bank is the electronic bank that provides the financial service for the individual client
by means of Internet.

E-banking is a product designed for the purposes of online banking that enables you to
have easy and safe access to your bank account.

E-banking is a safe, fast, easy and efficient electronic service that enables you access to
bank account and to carry out online banking services, 24 hours a day, and 7 days a week.

With this service you save your time by carrying out banking transactions at any place
and at any time, from your home or office, all you need is internet access. E-banking enables the
following:

Accurate statement of all means available in your bank account

 Statement of current account, credits, overdrafts and your deposits

 Execution of national and international transfers in various currencies
 Execution of all types of utility bill payments (electricity, water supply, telephone bills,
etc...)
 Carrying out customs payments
 Electronic confirmation for all transactions executed by E-banking
 Management of your credit cards

B. Functions of e-bank

At present, the personal e-bank system provides the following services:

1. Inquiry about the information of account:

 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

The client inquires about the details of his own account information such as the
card's/account's balance and the detailed historical records of the account and download the
report list.

2. Card accounts' transfer:

The client can achieve the fund transfer between his own cards and transfer the fund to
another person's Credit Card in the same city.

3. Bank-securities accounts transfer:

The client can achieve the fund transfer between his own bank savings accounts or his
own Credit Card account and his own capital account in the securities company. Moreover, the
client can inquire about the present balance at real time.

4. The transaction of foreign exchange:

The client can trade the foreign exchange, cancel orders and inquire about the
information of the transaction of foreign exchange according to the exchange rate given by our
bank on net.

5. The B2C disbursement on net:

The client can do the real-time transfer and get the feedback information about payment
from our bank when the client does shopping in the appointed web-site.

6. Client service:

The client can modify the login password, information of the Credit Card and the client
information in e-bank on net.

7. Account management:

The client can modify his own limits of right and state of the registered account in the
personal e-bank, such as modifying his own login password, freezing or deleting some cards and
so on.
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

8. Reporting the loss of the account:

The client can report the loss in the local area (not nationwide) when the client's Credit
Card or passbook is missing or stolen.

C. Types of e-banking

1. Deposits, withdrawals, inter-account transfers and payment of linked accounts at an

ATM;

2. Buying and paying for goods and services using debit cards or smart cards without
having to carry cash or a cheque book;

3. Using a telephone to perform direct banking - make a balance enquiry, inter-ac- count
transfers and pay linked accounts;

4. Using a computer to perform direct banking - make a balance enquiry, inter-account

transfers and pay linked accounts.

D. Advantages of e-banking

The following are the important benefits of e-banking:

1. Account Information:

Real time balance information and summary of day's transaction.

2. Fund Transfers:

Manage your Supply-Chain network, effectively by using our online fund transfer
mechanism. We can affect fund transfer on a real time basis across the bank locations.

3. Request:

Make a banking request online.

4. Account Information:
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

The complete database that the bank has about our company is available to us at our
terminal. It provides us:

(i) Current balance in our account on real-time basis.

(ii) Day's transactions in the account.

(iii) Details of cash credit limit, drawing power, amount utilized, etc.

5. Downloading of account statements as an excel or text files:

The statements can be integrated with your ERP system for auto-reconciliation.

6. Fund Transfers:

Manage our Supply-Chain network, effectively by using our online fund transfer
mechanism. We can affect fund transfer on a real time basis across the bank locations. The
product facilitates:

(a) One-to-one fund transfer between two linked accounts.

(b) Bulk fund transfers: In bulk fund transfers, we upload a flat file containing pay-
ment/collection information. Our systems take care of processing the entire file and once the file
is processed we can integrate the processed file to our ERP for auto reconciliation.

7. The real life situation of user-wise limits and multilevel signatories can be mapped in the net-
based fund transfer module too. We can specify user-wise cap for funds transfer and the number
of approvals needed for each fund transfer. The fund transfer will not take place unless the
required number of signatories has approved it.

8. With a Power of Attorney from our dealers, we can link the dealer's accounts to our account in
order to have an online fund transfer, saving us time and money involved with cheque collection
systems. Alternatively, the dealer can credit our account through this channel. Similarly, we
could also affect vendor and other payments online.
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

9. Customers can also submit the following requests online: Registration for account statements
by e-mails either daily/weekly/fortnightly/monthly basis.

(i) Stop payment of cheque

(ii) Cheque book replenishment

(iii) Demand Draft/Pay-order

(iv) Opening of fixed deposit account

(v) Opening of Letter of credit

10. The company does not have to spend anything extra to avail such facilities. All it
requires is Internet connectivity. The product enables the company to pro-actively manage its
cash flows, ease reconciliation efforts as all the MIS is available at the click of the mouse.

11. Customer can Integrate the System with his Own ERP: The customer can download the
account statements either as a text file or as an excel file. The bank can help him in integrating
the account statements and bulk payment files with his ERP system. The Bank may charge a
nominal fee depending upon the nature of work involved.

12. Bill Payment through Electronic Banking: Internet has thus ushered the concept of anytime
and anywhere banking. To the individual the onerous task of visiting several places to settle his
service bills like telephone, water, electricity, etc., can be overcome through the electronic Bill
Pay service provided by the bank.

He can pay his regular monthly bills (telephone, electricity, mobile phone, insurance, etc.) right
from his desktop. No more missed deadlines, no more loss of interest. He can schedule his bills
in advance, and thus avoid missing the bill deadlines as well as earn extra interest on his money.

13. The Electronic Shopping Mall: The customer can also make his shopping payment through
the Bank's secure website-so that he can shop online without any security worries, as the bank
can provide online real time shopping mail services through partner shopping sites.
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

14. Effecting Personal Investments through Electronic Banking: The bank's website can also
allow the customer to invest in shares, mutual funds and other financial products.

15. Trading in shares:

(i) Cash Trading:

This is a delivery based trading system, which is generally done with the intention of
taking delivery of shares or monies.

(ii) Margin Trading:

Customer can also do an intra-settlement trading normally up to 4 times his available

funds, wherein he can take long buy/ short sell positions in stocks with the intention of squaring
off the position within the same settlement cycle.

(iii) Spot Trading:

When looking at an immediate liquidity option, 'Cash on Spot' may work the best for
him. On selling shares through "cash on spot", money is credited to his bank a/c the same
evening and not on the exchange payout date. This money can then be withdrawn from any of
the Bank's ATMs.

(iv) The customer can also trade directly at the recognised stock exchanges of the country
through his bank.

16. Investing in Mutual funds:

Electronic banking also brings the customer the same convenience while investing in
Mutual funds - Hassle free and Paperless Investing. He can invest in mutual funds without the
hassles of filling application forms or any other paperwork. He needs to provide no signatures or
proof of identity for investing. Once he places a request for investing in a particular fund, there
are no manual processes involved. His bank funds are automatically debited or credited while
simultaneously crediting or debiting his unit holdings.

17. Trade in Derivatives:

 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

Trading in derivatives includes the following:

(i) Futures:

Through electronic banking the customer can also trade in index and stock futures on the
approved stock exchange. In futures trading, he takes buy/sell positions in index or stock(s)
contracts having a longer contract period of up to 3 months.

(ii) Options:

An option is a contract, which gives the buyer the right to buy or sell shares at a specific
price, on or before a specific date. For this, the buyer has to pay to the seller some money, which
is called premium. There is no obligation on the buyer to-complete the transaction if the price is
not favorable to him.

To take the buy/sell position on index/ stock options, he has to place certain percentage of
order value as margin. With options trading, he can leverage on his trading limit by taking
buy/sell positions much more than what he could have taken in cash segment.

18. Initial Public Offers Online:

The customer could also invest in initial public offers online without going through the
hassles of filling ANY application form/ paperwork. Get in-depth analyses of new initial public
offer issues, which are about to hit the market and analysis on these. Initial public offer calendar,
recent initial public offer listings, prospectus/offer documents, and initial public offer analysis
are few of the features, which help a customer to keep on top of the initial public offers markets.

'There can be no end to the variety of services that can be provided through the electronic
channel by banks and financial institutions. Every Institution is trying constantly to innovate and
offer new products to woo the customer.

The benefit to the customer on account of the Internet is that he is able to know at a time
the types of facilities being provided by different Institutions and he is able to make the best
choice suited for his needs.
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

The benefit to the employee is equally amazing. From being earlier a dumb worker filling
up forms and copy from books, he is now a regular service provider and one who directly cares
for the customer.

Earlier he was dealing with particular process, but today he handles customer's demands,
which are functions for the bank/financial institution.

In turn the knowledge resources required of him has grown and he is able to secure the
same through better training and other organizational development programmes like
organising work groups and functional teams, where persons with different skills and
qualifications pool their knowledge and carry out high-tech services and operations.

19. Other benefits:

The e-banking provides some other benefits also. They are:

(i) Convenience.

(ii) Speed of concluding transactions.

(iii) Safety - banking from own home.

(iv) Economy - banking without visiting your bank.

(v) Cheaper service fees.

(vi) Seamless Integration with existing environment (IDM - Intelligent Data Module).

(vii) Highly Saleable.

(viii) Easy Customization.

(ix) Lower Costs of both Installation and Maintenance.

(x) Platform Independence.

(xi) Round-the-Clock and Cross-Border Availability.

 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

(xii) Remote Authorization.

E. Limitations of e-banking

1. Safety situations around ATMs.

2. Abuse of bank cards by fraudsters at ATMs.

3. Danger of giving your card number when buying on-line.

The modern technology has influenced the financial sector to a large extent. It increases the
competitive efficiency of the firms and provides sophistication to the end users. It makes
everyone fittest to survive.

Computerization of Bank Branches

The reforms in the 1990s, which led to expansion, consolidation and liberalization of the
banking and financial sector in India, brought in many changes and challenges.

A number of private and foreign players entered the Indian market with superior
technologies that helped them service their customers efficiently through multiple channels such
as ATMs and online banking.

Indian banks on the other hand have been using IT more out of compulsion and primarily
for transaction processing. They now need to adopt IT to reposition banks into the integrated
financial services market.

The need for providing improved customer service, reducing transaction costs and
increasing productivity, shall be the main drivers for banking sector to adopt IT. These con-
siderations are particularly important for public sector banks in India, who are facing immense
competition from private and foreign banks.

IT can help them move from the present scenario where they are working as isolated
islands to providing a centralized banking experience. There is a need today for IT and the
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

financial community to come together and develop customized IT solution to make the Indian
Banking sector globally competitive.

IT adoption in the banking sector will provide real time availability of transaction pro-
cessing through multiple channels. It would enhance a bank's ability to cross sell products,
ensure better management and security and safety of funds and increase efficiency through
integration of systems across various locations.

It would also ensure efficient management of Non Performing Assets (NPAs), minimize
transaction costs, enhance ability to conduct in-depth financial analysis and gather business
intelligence. Enhanced use of IT would also encourage the use of Internet to provide access for
online bill payments, funds transfers and e- statements in addition to encouraging wireless
mobile banking and e-commerce.

With growing competition faced by foreign banks and financial institutions, the public
sector banks in co-operation with the Indian IT industry would need to equip themselves for the
next phase of introducing the benefits of IT to their customers by providing a centralized banking
solution.

Opportunity for Indian banking sector in branchcomputerization

1. IT Networking

2. System Integration and Management

3. Customer Relationship Management (CRM) Applications

4. Back Office processing and Call Centres

5. Data warehousing/ Data mining

6. Mobile and e-banking.

5.2 COMPUTERIZATION OF BANKS IN INDIA

 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

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

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

Fourthly, to have effective computerization of banks a large number of bank branches

situated in rural areas need to be connected. Telecommunication facility at rural areas is slow to
reach. For the reasons mentioned above, computerization made a slow entry in Indian banks.

A. Rangarajan Committee

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

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

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

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

Under both the systems, customers were given regular and timely statement of accounts
without any errors. Having achieved the basic objective of introducing elements of automation in
banks, the second committee constituted in 1988 under the chairmanship of same Dr. Rangarajan
drew up a detailed plan for computerization of banks in India.
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

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

B. Present position of computerization in banks in India:

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

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

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

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

Further globalisation and liberalisation measures introduced during 1990s allowed setting
up of new private sector banks and free entry of foreign banks into India. This brought in a
different and new operating environment to banks.

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

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

Accordingly banks presently cover performance monitoring, decision making, control of

branches, administrative matters, submission of statutory returns to RBI, inter branch
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

transactions, reconciliation of outstanding entries in various accounts, funds transfer, credit

related information, investment management, treasury operations through money market, fore
market, securities market, employees personal data and scores of other operations with the use of
IT and computers.

Yet the level of computerization may differ from banks to banks. Today, we may say that
80 per cent of banking operations in cities are computerized. The process is fast picking up even
at rural branch level.

Today, the number of computers in use with banks in India had crossed 1, 00,000. The
total number of ATMs is more than 2000.

5.3 BANKER-CUSTOMER RELATIONSHIP

The relationship between banker and customer is mainly that of a debtor and creditor.
However, they also share other relationships.
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

1. Debtor and creditor

When a customer opens an account with a bank and if the account has a credit balance,
then the relationship is that of debtor (banker / bank) and creditor (customer).

In case of savings / fixed deposit / current account (with credit balance), the banker is the
debtor, and the customer is the creditor. This is because the banker owes money to the customer.
The customer has the right to demand back his money whenever he wants it from the banker, and
the banker must repay the balance to the customer.

2. Relationship of Pledger and Pledgee

The relationship between customer and banker can be that of Pledger and Pledgee. This
happens when customer pledges (promises) certain assets or security with the bank in order to
get a loan. In this case, the customer becomes the Pledger, and the bank becomes the Pledgee.
Under this agreement, the assets or security will remain with the bank until a customer repays the
loan.

3. Relationship of Licensor and Licensee

The relationship between banker and customer can be that of a Licensor and Licensee.
This happens when the banker gives a sale deposit locker to the customer. So, the banker will
become the Licensor, and the customer will become the Licensee.

4. Relationship of Bailor and Baile

The relationship between banker and customer can be that of Bailor and Bailee.

Bailment is a contract for delivering goods by one party to another to be held in trust for a
specific period and returned when the purpose is ended.

Bailor is the party that delivers property to another.

Bailee is the party to whom the property is delivered.

 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

So, when a customer gives a sealed box to the bank for safe keeping, the customer
became the bailor, and the bank became the bailee.

5. Relationship of Hypothecator and Hypothecatee

The relationship between customer and banker can be that of Hypothecator and
Hypotheatee. This happens when the customer hypothecates (pledges) certain movable or non-
movable property or assets with the banker in order to get a loan. In this case, the customer
became the Hypothecator, and the Banker became the Hypothecatee.

6. Relationship of Trustee and Beneficiary

A trustee holds property for the beneficiary, and the profit earned from this property
belongs to the beneficiary. If the customer deposits securities or valuables with the banker for
safe custody, banker becomes a trustee of his customer. The customer is the beneficiary so the
ownership remains with the customer.

7. Relationship of Agent and Principal

The banker acts as an agent of the customer (principal) by providing the following
agency services:

Buying and selling securities on his behalf,

Collection of cheques, dividends, bills or promissory notes on his behalf, and

Acting as a trustee, attorney, executor, correspondent or representative of a customer.

Banker as an agent performs many other functions such as payment of insurance

premium, electricity and gas bills, handling tax problems, etc.

8. Relationship of Advisor and Client

 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

When a customer invests in securities, the banker acts as an advisor. The advice can be
given officially or unofficially. While giving advice the banker has to take maximum care and
caution. Here, the banker is an Advisor, and the customer is a Client.

9. Other Relationships

Other miscellaneous banker-customer relationships are as follows:

Obligation to honour cheques : As long as there is sufficient balance in the account of the
customer, the banker must honour all his cheques. The cheques must be complete and in proper
order. They must be presented within six months from the date of issue. However, the banker can
refuse to honour the cheques only in certain cases.

Secrecy of customer's account : When a customer opens an account in a bank, the banker
must not give information about the customer's account to others.

Banker's right to claim incidental charges : A banker has a right to charge a commission,
interest or other charges for the various services given by him to the customer. For e.g. an
overdraft facility.

Law of limitation on bank deposits : Under the law of limitation, generally, a customer
gives up the right to recover the amount due at a banker if he has not operated his account since
last 10 years.

5,4 THE APPLICATION OF COMPUTERS IN THE BANKING SECTOR

Computers in the banking sector have enhanced customer service and productivity
regarding account management, while streamlining back-office activities. The biggest impact is
in the area of competition. Small banking institutions can access the same technology as large
banking institutions and, therefore, can compete with them more effectively for business.

Account Management

In banking, activities start with banks automating customer accounts, which allows
personnel to create, update and maintain customer records. Banking hardware and software have
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

enhanced the accuracy of accounts that tellers and other banking personnel process. Banking
software performs customer transactions through a centralized data record system. Account
management is the genesis and backbone of all banking information systems.

Hardware Technology

In the 1960s, bank hardware consisted of a mainframe and a punch card machine. Punch
cards contained customer account information and were read into the main system by a punch
card machine. Midrange and client/server hardware configurations, which are no larger than a
minitower system, can run an entire bank in addition to receiving transactions from affiliated
bank branches. These new hardware technologies can process more transactions than legacy
banking hardware systems. Hardware technologies have enabled advances into wireless banking
and telecommunications banking.

Electronic Transactions

Those who hadn’t yet reached adulthood by the end of the last century may not remember
the days of check writing. Businesses often had to wait for a check to “clear,” which meant
approval by the payer’s financial institution, to access the funds they deposited. The use of
computers in the bank have sped up that entire process, with instant check authorizations. Checks
have also mostly become an afterthought, thanks to debit cards that take funds automatically
from a person’s account. Mobile payments will take that even further, letting customers pay with
a mobile device or wearable, eventually taking plastic out of the equation.

ATMs

As much as experts claim we’re heading toward a cashless society, it remains the most
used payment method in the U.S., according to PYMNTS.com. With all of the other
conveniences, getting cash from your bank account still requires a trip to an automatic teller
machine, known as an ATM. Since the first ATM was installed in 1969, the technology has
evolved, making it easier for customers to deposit money, as well as withdraw. Although human
tellers are still necessary, banks are aiming to have them focus on higher-level activities as ATM
technology handles most basic transactions.
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

Online Banking

Furthering the do-it-yourself banking model is online banking, which allows customers to
pay bills, view account balances, transfer funds from one account to another, pay friends and
much more. Financial institutions have also given consumers control over their own security by
adding features like the ability to freeze a missing credit card to avoid further charges. Over time,
these controls will only increase as technologies like biometrics and facial recognition keep
accounts safe.

5.5 USE OF COMPUTERS IN BANKS

Any neighborhood bank offers a variety of services, including access to your personal
and business account information, advice on investments, funds withdrawals from either a live or
automated teller, and funds transfers completed over the Internet. Computers support all of these
functions and services, and it takes different types of computers to make it all happen seamlessly.

Mainframe Computers

While many companies have downsized their computers, your bank's workhorse is still
the mainframe. Often called "big iron," the mainframe is the backbone of any bank's operations
because it performs all the following, simultaneously:

Houses all customer account data

Performs complex analysis of constantly changing financial markets

Keeps track of all the bank's product offerings and their associated interest rates and
earnings

Communicates with other mainframes at branch locations around the world

That's a lot to ask a computer to do, but a mainframe is designed to multitask, routinely
performing more than one million transactions every second.
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

ATMs

The automated teller machine, which was introduced in the 1970s, liberated the typical
bank customer from that last-minute race to get to the bank before it closed. (Remember this was
before the Internet when you checked your account balance either in person with a teller or by
phone, both of which required the bank to be open.) Using an ATM, customers were finally able
to check account balances, withdraw cash and eventually deposit cash and checks, make
transfers between accounts and make loan payments. The individual computer units inside each
ATM are linked to the bank's mainframe, where all the data are stored and coordinated, and by
interbank ATM networks, which is why you can only withdraw your bank's daily cash limit at
one ATM; you'll be denied if you move to any other ATM and try to do it again.

Teller Terminals

Servicing the varied national and international needs of today's bank customers requires a
teller able to communicate as much with the outside world as with the mainframe. All of this
communication happens from the individual teller terminal. Teller computer terminals provide
access to business and personal overseas accounts and process wire transfers and bill payments
to the bank's proprietary credit cards and any other bills, such as your electric bill, that the bank
offers to facilitate at its location.

Digital Scanners

Whether the scanner is stand-alone or attached to a larger computer, digital imaging has
come to play a role in modern banking. The attacks of 9/11 in 2001 resulted in an unprecedented
closing of American airspace. As a result, paper checks between federal reserve locations for
processing were delayed. Congress ensured that would never happen again by making digital
scans of checks as legally viable as paper checks. Now banks and their customers use check
scans routinely for deposits and transfers, making the digital imaging function a major player in
today's computerized banking.
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

Biometric Devices

American Express and BBVA are two U.S. financial institutions that jumped first into
biometric identification of customers. Press your thumb to the digital device and the tiny
computer inside verifies your identity using your unique fingerprint. With increasing availability
of this technology, these print readers will soon be standard computer technology for banks
internationally.

5.6 BANK PASSBOOK, BANK RECONCILLIATION

The Bank Book Software registers the entries of the bank like deposits and issues of the
cheques, There is no need to enter manual entries as it suffice the manual entries and gives the
varied reports.

The Bank Pass Book Software is automatic in the sense no need to enter the name again
i.e masters created once will not have to be entered again. All the Bank data is stored and can be
retreived by any time as per the requirements of the user. The Bank Book Software gives the
reports of how many cheques issued and deposited day wise, week wise, month wise and even
yearly wise. Even it shows the reports party wise, amount wise and even period wise.

In the Bank Accounting Software one has to create the masters of the bank, cheque
masters, deposits slips masters and also the masters of the parties to whom the cheque to issued
and vis s vis with the deposits slips too also.It shows the bank balance in the form of Bank Pass
book so one can know the balance of its particular banks.

5.7 BANK'S DEBITS, CREDITS AND BALANCE SHEET

When you hear your banker say, "I'll credit your checking account," it means the
transaction will increase your checking account balance. Conversely, if your bank debits your
account (e.g., takes a monthly service charge from your account) your checking account balance
decreases.

If you are new to the study of debits and credits in accounting, this may seem puzzling.
After all, you learned that debiting the Cash account in the general ledger increases its balance,
yet your bank says it is crediting your checking account to increase its balance. Similarly, you
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

learned that crediting the Cash account in the general ledger reduces its balance, yet your bank
says it is debiting your checking account to reduce its balance.

Although the above may seem contradictory, we will illustrate below that a bank's
treatment of debits and credits is indeed consistent with the basic accounting principles you
learned. Let's look at three transactions and consider the resultant journal entries from both the
bank's perspective and the company's perspective.

Transaction 1

Let's say that your company, Debris Disposal, receives $100 of currency from a customer
as a down payment for a future site cleanup service. When the money is received your company
makes the following entry:

(Debris Disposal's journal entry)

Because it has received cash, Debris Disposal increases its Cash account with a debit of
$100. The rules of double entry accounting require Debris Disposal to also enter a credit of $100
into another of its general ledger accounts. Since the company has not yet earned the $100, it
cannot credit a revenue account. Instead, the liability account Unearned Revenues is credited
because Debris Disposal has a liability to do the work or to return the $100. (An alternate title for
the Unearned Revenues account is Customer Deposits.)

Now let's say you take that $100 to Trustworthy Bank and deposit it into Debris
Disposal's checking account. Trustworthy Bank debits the bank's general ledger Cash account for
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

$100, thereby increasing the bank's assets. The rules of double entry accounting require the bank
to also enter a credit of $100 into another of bank's general ledger accounts. Because the bank
has not earned the $100, it cannot credit a revenue account. Instead, the bank credits its liability
account Deposits to reflect the bank's obligation/liability to return the $100 to Debris Disposal on
demand. In general journal format the bank's entry is:

As the entry shows, the bank's assets increase by the debit of $100 and the bank's
liabilities increase by the credit of $100. The bank's detailed records show that Debris Disposal's
checking account is the specific liability that increased.

Transaction 2

Let's say Trustworthy Bank receives a $1,000 wire transfer on your company's behalf
from a person who owes money to Debris Disposal. Two things happen at the bank: (1) The bank
receives $1,000, and (2) the bank records its obligation to give the money to Debris Disposal on
demand. These two facts are entered into the bank's general ledger as follows:

(Trustworthy Bank's journal entry)

The debit increases the bank's assets by $1,000 and the credit increases the bank's
liabilities by $1,000. The bank's detailed records show that Debris Disposal's checking account is
the specific liability that increased.
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

At the same time the $1,000 wire transfer is received at the bank, Debris Disposal makes
the following entry into its general ledger:

(Debris Disposal's journal entry)

As a result of collecting $1,000 from one of its customers, Debris Disposal's Cash
balance increases and its Accounts Receivable balance decreases.

Transaction #3

Many banks charge a monthly fee on checking accounts. If Trustworthy Bank decreases
Debris Disposal's checking account balance by $13.00 to pay for the bank's monthly service
charge, this might be itemized on Debris Disposal's bank statement as a "debit memo." The entry
in the bank's records will show the bank's liability being reduced (because the bank owes Debris
Disposal $13 less). It also shows that the bank earned revenues of $13 by servicing the checking
account.

(Trustworthy Bank's general ledger)

On your company's records, the entry will look like this:

 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

(Debris Disposal's general ledger)

Debris Disposal's cash is reduced with a credit of $13 and expenses are increased with a
debit of $13. (If the amount of the bank's service charges is not significant a company may debit
the charge to Miscellaneous Expense.)

Bank's Balance Sheet

Accounts such as Cash, Investment Securities, and Loans Receivable are reported as
assets on the bank's balance sheet. Deposits are reported as liabilities and include the balances in
its customers' checking and savings accounts as well as certificates of deposit. In effect, your
bank statement is just one of thousands of subsidiary records that account for millions of dollars
in Deposits that a bank owes to its customers.

5.8 PROFIT & LOSS ACCOUNT AND BALANCE SHEET USING TALLY

 Open Tally program.

 Select your Company. In our case, we shall select M/s XYZ Limited.
 Select ‘Display’ under gateway of tally.
 Select ‘Profit & Loss Account’. After you select ‘Profit & Loss Account’ then the
screen shall appear as under:-
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Note: In above Profit and Loss Account, Trading Account and Profit & Loss Account
are not shown separately. To see gross profit and net profit separately, you have to do
following job:-

You can see an icon on gateway of tally i.e. ‘Configuration’. Select the same or pres F-
12. After you select ‘configuration’, you will see the following screen:-

Now, Select the commands as follow:-

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Show Vertical Profit & Loss If you want to see P&L in vertical form then write
Account ‘yes’. In our case we want to see only in horizontal
form. So you select ‘No’. You can see the profit and
loss account in vertical form also after selecting ‘Yes’
under this column.

Show Percentage Select ’No’.

Show with Gross Profit Select ‘Yes’ because we want to see trading account
separately.

Appearance of Name Select ‘Names only’

Scale Factor for Values Select ‘Default’

Now your screen shall appear as under:-

 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

After you press enter on last command then format of your profit and loss account will
change in to parts i.e. it will show trading account and profit & loss account in two parts. Now,
you can see gross profit and net profit separately. This screen will appear as under:-

If you see the Profit & Loss Account in above format, you will find that all the ledger
accounts are shown in groups. For example – direct expenses, indirect expenses etc. Now’ you
want to see the profit and loss account in more detailed manner then you just select ‘Detailed’ on
screen. Now, your screen shall appear as under:-
 CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS

5.9 BALANCE SHEET IN TALLY 9.0

CDE – Bharathidasan University, B.Com. (BM), Allied Paper-II, COMPUTER APPLICATION TO BANKS