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Innovation in Banking

Innovation means the introduction or application of something new – either new goods and services or new ways of reducing them. Innovation differs from invention in essential respect. An invention is the discovery of something new, whereas an innovation is the actual introduction or application of something new. Entrepreneurs and producers must innovate and adopt new methods and ideas to increase their productive capacity and improve working conditions, thereby raising productions and consequently the national income. Innovation is, therefore, an important factor responsible for a countries economic development.
Innovations in banking have become the order of the day and the concept of the bank a mere manager of liquidity belongs to the past. New services, both credit and non-credit one’s have been introduced and existing services developed by banks throughout the world as they meet increasing competition for business from within the banking industry and from without, fill-up in their range of services to steal a march over their competitors by endeavoring to satisfy the needs of their present and potential customers demanding more flexible, advantageously priced and comprehensive facilities. Apart from selective introduction of modern technology to speed up, banking operations require an increasing degree of sophistication, there will be changes in the composition of banking business reflecting the changes is occurring in trade and industry. The banks, the world over, are becoming financial supermarkets in which a wide variety of services can be purchased and often conduct business that do not always resemble banking.
Many significant changes are taking place in our country in response to changes in national and international economic environment. These changes have also affected the financial sector and are forcing it to move towards a deregulated and more competitive environment. A marked future of the financial system in the decade of 1980’s has been changes which have occurred in the institutional frame work and financial instruments. When viewed in historical context, such has been the pace of change which has occurred in the financial systems of developed countries and more particularly in the United Kingdom (UK) and United States of America (USA) in the last two decades and particularly in the recent years that it frequently referred to as constituting a “Revolution of Financial Services”. Whether this description is an appropriate one is a matter on which opinions differ, but nevertheless, observers of the financial system have identified a number of major interlocking trends which have changed and are changing the institutions characteristics of the financial system.
The process of disintermediation is part of the process of meeting the financial asset needs of the customers coming from the urban middle class. Many of the financial services offered by banks are oriented towards this class of customers. Diversification in this direction will be largely successful because here banks with their urban orientation in their home ground. Moreover, following the example of international banks, many Indian banks have tried to shift from traditional business to fee producing business as a step towards their efforts to innovate, adopt new market strategies and diversify.

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