Alternative Deliverychannels

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This chapter presents history and development of alternative banking channels. This chapter begins with general information of the Indian banking industry, concept of alternative banking and characteristics of alternative banking. There are some reviews were have taken from the developed countries to address the history of alternative banking. This chapter also presents origins and developments of alternative banking channels in India. There are some statistical data also presented which shows developmental aspects of the alternative banking services in India and developed nations. At the end of the topic we have discussed about Bank Ombudsman Scheme, Complaints registered against banks, Information Technology Act, 2000 and its provisions related to banking and recommendations of Electronic Banking Group (EBG) of BASEL committee. 4.1 Concept Alternative Banking and types of channels Modern service provision to customers, such as banking or retailing, is now supported by a myriad of interactive technologies, such as the internet, mobile applications, or interactive kiosks, leading to the emergence of multichannel or multiinterface service systems (Patrcio et al, 2009). Technological innovations in banking provide many efficient alternative delivery channels to customers (Frei et al, 1998). The advance of communication and computer technology have made it possible that one can do most banking transactions from a any location even without stepping into a physical financial structure (Burns, 2002) through alternative banking channels. Alternative banking, as the name suggest, is the newer method of carrying on banking operations, is the newer method of carrying on banking operations. It includes all non-traditional means of banking (World Retail Banking Report-2008, pp-40; Shrotryiya, 2007; Ogilvie, 2008; Rakesh Mohan, 2002; Niels et al , 1999; Chris et al , 2005; Sathye, 1999) such as ATM, internet banking, bank automation, core banking, credit cards, debit cards, mobile banking, EFT etc. According to IBM Global Services alternative banking is set of alternative delivery channels1. Alternative distribution channels are not only important to reducing costs and improving competitiveness, but also ability to retain the existing customer case as well as to attract new customers (Kimball and Gregor, 1995). Daniel, (1999) mentioned that there are six different alternative delivery chandelles of banking i.e. PC banking, internet banking, managed network2, TV banking3, Telephone banking and Mobile phone banking. Association of Banks in
1 2
https://www-935.ibm.com/services/in/igs/pdf/g510-3829-optimizing-retail-banking-channels.pdf (Sept, 24, 2010) Managed network - A bank makes use of an online service provided by another party. 3 TV Banking- Account information is delivered via satellite or cable to the TV screens of customers.
Chapter IV - Envisages the History of Alternative Banking Kumbhar V. M.
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Palestine (2009) defined as it is conducting financial transactions electronically, without physically interacting with the bank (i.e. using visa card, visa electron, internet banking, other). However TV banking facilities are not available in India till date. Alternative banking is alternative options for process banking transactions other than traditional means. It is also known as e-banking, electronic banking, online banking, virtual banking, direct banking and high tech-banking. According to Howcroft (1993) alternative distribution channels provides convenient alternatives to branch banking. In the traditional banking system customers need to visit branch to make transaction and getting information about banking services, account information etc. But in the alternative banking there is no need to visit physical branch most of banking transactions are possible through alternative channels (Kumbhar 2009). It is also known as quasi-banking, alternative remittance systems, and parallel banking. According to Devlin, et al (2003) Direct banking is the generic term that has been adopted to encompass telephone and Internet banking, as well as interactive television and most recently m-banking (banking using a mobile platform such as a hand phone or personal digital assistant). There is substantial evidence to suggest that e-banking is being embraced by financial institutions in developed and emerging markets. There are two different strategies has been adopted by banks for e-banking: First, an existing bank with physical offices can establish a web site and offer alternative banking to its customer as an additional delivery channel. A second alternative is to establish an Internet-only bank or additional e-channels or virtual bank, almost without physical offices (Miranda et al, 2006). Recently in Indian followings alternative banking channels are available (See Table No. 4.1 ) IT-based service channel may significantly lower costs of serving customers. The analysts forecast that 40% of adult UK consumers will be lured in by the conveniences of online banking bringing the number to 22 million users by 2012. Internet banking allows customers to perform many banking functions anytime and anywhere, while ATMs provide some services not possible by internet banking, such as withdrawing money around the clock (Banker et al 2009). The advent of Internet, electronic commerce, communication technology and users response to this technology has opened opportunity for many businesses including the financial institution (Wang and Wang 2006).
Chapter IV - Envisages the History of Alternative Banking
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4.1.1 Features of alternative banking According to Kaleem Ahmad (2008) Electronic banking minimizes the cost of transactions, saves time, minimizes inconvenience, provides up-to-date information, increases operational efficiency, reduces HR requirements, facilitates quick responses, improves service quality and minimizes the risk of carrying cash. As per Report of European Central Bank (1999) technology has reduced the cost of operation and ways of the banking truncation. After reviewing the literature related to alternative banking, e-commerce, mobile commerce and ICT based financial services we have identified followings characteristics of alternative banking services are:
Table No. 4.1: Traditional Service 1 Brick-Mortar services 2 Branch Banking Alternative Banking Channels Alternative Medium Services available Means Automated PC and LAN Instant deposit and withdraw Branches money, getting statement, DD, calculation of interest etc. Core Banking PC and Internet Instant deposit and withdraw money, getting statement, cheque clearance and depositing, stop payment etc. Note counting Electronic device Instant notes and bundle of note Machines counting MICR cheque MICR technology Instant clearing of cheques EFT Internet and Core Instant Fund Transfer from to any Banking Solution branch under CBS (CBS) ATM, Debit ATM Withdraw money, Balance Card Inquiry, Account statement, Mobile recharge, Make donation, Card to card transfer, Utility bill payments ATM or Debit Point of Sale Mobile recharge, Purchasing, Card Terminals (POS) Utility bill payments and Withdraw money etc. E-Money Internet Banking (PC Banking) Mobile Banking Credit Card PC and Internet Purchasing and Payments of utility bill payments Balance inquiry, account statement, stop payment order, EFT, purchasing, utility bill payment etc. Balance inquiry, account statement, stop payment order, EFT, purchasing, utility bill payment etc.
3 4 5
Manual Note Counting Formal Cheque DD/MT/TT
On counter Cash Withdraw
On counter Cash Withdraw Letter of Credit Branch Banking
8 9
10
Branch Banking
Mobile phone, SMS, WAP4, 3G5
Source: Miranda et al, 2006 (edited by author)

4
The Wireless Application Protocol (WAP) is an open, global specification that empowers mobile users with wireless devices to easily access and interact with information and services instantly. Most use of WAP involves accessing the mobile web from a mobile phone or from a PDA. 5 3G is the next generation of mobile communications systems. It enhances the services such as multimedia, high speed mobile broadband, internet access with the ability to view video footage on your mobile handset. With a 3G phone and access to the 3G network you can make video calls, watch live TV, access the high speed internet, receive emails and download music tracks.
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Technology dependency Alternative banking services are highly depends on technology and high-tech communication system (Srotriya, 2007, Verner, et. al. 1989). For the pursuing the e-banking services banks are using Information and communication technology (Internet, mobile phone, telephone, other electronic devises) But e-banking services are totally technology based services.
Round the clock service- Alternative banking portal are provides 24 hours banking services. Customers can enjoy round the clock banking service through the selfservice banking modes. They have freedom from tense about official time of bank.
Multi channel banking Modern technology based banking provides many alternatives to transact banking business through the different channels e.g. ATM, core banking, Mobile banking, Internet banking, Phone banking, POS terminals, Credit and Debit cards etc.
Lack of Face2Face contact- in the e-banking transaction there is lacking face to face contact of customer and services provider (Jayawardhena & Foley, 2000; Durkin and O'donnell, 2005). Customers can use the banking services via virtual means of e-banking i.e. internet banking, mobile banking, ATM, credit card etc. While Lack of face-to-face contact is biggest obstacle to modern banking because right customer has been identified by ID and password than face to face identification.
Risk factors: Despite of certain benefits of alternative banking channels there are some certain risks e.g. Performance risk6, Strategic risk, financial risk7, Compliance and legal risk8, Reputational Risk9, Operational (Operational) Risk10 there has been fear of inadequate security is one of the electronic banking channels (Ezeoha, 2005; Schilder 2001; Sokolov Dmitri). There may be. So, it is clear that alterative banking channels is lacking actually the assurance provided in traditional banking (Lee et al., 2009). The Electronic Data storage and interchange system also consist Data Risk. Unauthorized access to the bank clients private information causes first of all operational risk, but indirectly also legal as well as reputational risk (BIS, 2009).
6 7
Performance risk is born from the malfunctions of online banking Financial risk contains losses money due to wrong authentication process and online frauds. It is the constant and terrible fear of transactions errors causing a potential monetary loss suffered by customers who perform online transactions. 8 Compliance and legal issues arise out of the rapid growth in usage of e-banking and the differences between electronic and paper-based processes. 9 Reputational risk the risk arising from negative perception on the part of customers, counterparties, shareholders, investors or regulators that can adversely affect a banks ability to maintain existing, or establish new, business relationships and continued access to sources of funding (e.g. through the interbank or securitisation markets). 10 Transaction/Operations risk arises from fraud, processing errors, system disruptions, or other unanticipated events resulting in the institutions inability to deliver products or services.
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Customer education on security risks and precautions can play an important role for consumer protection and for limiting reputational risk. Inseparability: e-banking services cant be separate from e-service channels and even there is also inseparability in production and consumption of the e-banking services. These services are being produced at the same time that the customer is receiving it. Homogeneity: Formal services have a heterogeneity concerns the potential for high variability in the performance of services is special characteristics of the services it make difficult to establish standard. However alternative banking services are homogenous of one specific bank due to same types of channel and service specifications, while their actual performance may be differ by place and speed of internet connectivity. Cost effectiveness - Technology based banking services provide cost effectiveness to customers and bank both. Banks can deliver banking services through alternative channels at transaction costs far lower than traditional ways. It has been proved that online banking channels are cheaper delivery channel than traditional banking (Adesina, 2010).
Geographical reach: Alternative banking allows expanded customer contact through increased geographical reach and lower cost of delivery channels. Yibin (2003) argued that it provides borderless banking services throughout the world where the internet connectivity is available.
Virtual banking Alternative banking channels have reduced branch networks and downsized the number of service staff. E-banking offer freedom from place constraint, and reduced stress of queuing in banking hall. Which has paved the way to self-service channels as quite many customers felt that branch banking took too much time and effort. Virtual banking offering any ware banking facilities. According to Singhal and Padhmanabhan (2008), User of ICT based banking
expect Convenience, Flexibility, Easy to use and user friendliness, Reliability, Fulfillment, Real time access, Cost effectiveness, Alternative Options, Security & Privacy, Speed & Continuity, Anytime and anywhere banking facilities. There is some risk factors include in e-banking like data loss, fraud, lack of adequate information, password theft etc. Kaleem Ahmad (2008). Hence customers expect security and trust in e-banking services.
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4.2 History of alternative banking in India Information Technology (IT) has helped in increasing the speed and efficiency of banking operations by facilitating the emergence of innovative products and new delivery channels. The role of the Reserve Bank as the driver of technology initiatives in the banking sector assumes greater importance given the challenges posed by rapid advancements in technology. The Resave Bank of Indian has played important role in implementation of information. In order to this intension the RBI constituted several committees from time to time with different objectives, headed by experts in different fields or academicians, some of them during eighties and nineties. The Reserve Bank of India has appointed various committees to implement ICT in Indian banking (Table 4.2).
Table No. 4.2 : Committees Related to Use of IT in Indian Banking Industry Year Name of the Committee Chairman 1979 Committee on Consumer Services in Banks R.K. Talwar 1982 Working Group to consider feasibility of introducing MICR/OCR Dr.Y.B.Damle Technology for Cheque Processing 1984 Committee on Mechanisation in the Banking Industry Dr. C. Rangarajan 1987 Committees on Communication Network for Banks and SWIFT Shri T. N. A. Iyer implementation 1988 Committee on Computerisation in Bank Dr. C. Rangarajan 1990 Committee on Customer Service in the Banks. M. N. Goiporia 1993 Ghosh Committee on Frauds and malpractices in Banks Shri A. Ghosh 1994 Committee on Technology Issues relating to Payments System, Cheque Shri W.S.Saraf Clearing and Securities Settlement in the Banking Industry 1995 Committee for proposing Legislation on Electronic Funds Transfer and Smt.K.S.Shere other Electronic Payments 1991 Narshimhan Committee (I and II) Shree. R. 1998 The Committee on Banking Sector Reforms Narshimhan 1996 1998 2000 2001 2001 2001 2002 2002 2003 2004 Committee on Technology Up gradation In The Banking Sector A. Vasudevan S. H. Khan Working Group S. H. Khan Committee for Suggesting a Framework for Electronic Benefit Transfer R.B. Barman Working Group on Internet Banking S. R. Mittal Advisory Group on Payment and Settlement System M.G. Bhide Expert Committee on Legal Aspects of Bank Frauds N. L. Mitra Working Group on Electronic Money Mr.Zarir J. Cama Committee on Payment Systems Dr R H Patil Working Group on Cheque Truncation and E-cheques Dr R B Barman, Expert Group on Internet Deployment of Central Database Management A. Vaidyanathan, System 2005 Working Group On Regulatory Mechanism For Cards R. Gandhi 2007 The Working Group On Preparing Guidelines For Access to Payment R.Gandhi Systems 2008 The Working Group On Technology Upgradation Of Regional Rural Shri G. Srinivasan Banks 2008 Working Group on IT support for Urban Cooperative Banks R.Gandhi 2009 The Working Group To Review The Business Correspondent Model P.Vijaya Bhaskar Sources: The Reserve Bank of India (http://www.rbi.org.in/scripts/PublicationsView.aspx?id=162)
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History of the bank automation traced with use of computer technology in India. The government of India has established the Electronics Corporation of India Ltd. in 1967 with the objective of research & development in the fields of Electronic Communication, Control, instrumentation, automation and Information Technology. The Computer Maintenance Corporation of India Ltd. was established in 1976 to look after maintenance operations of Main Frame Computers installed in several organizations in India. Entry of technology in the Indian banking industry can be traced back to the Raganarajan Committee report, way back in the second half of the 1970s. In 1979, the RBI has appointed the Talwar Committee on Consumer Services in Banks and it recommended that, computerisation of some functions is required to avoid delays in customer service in Indian banks. While automation process has not tack off stage till 1993, because bank employees unions are not agree with bank automation process they have fever about job losses. However, in 1993, the Employees' Unions of Banks signed an agreement with Bank Managements under the auspices of Indian Banks' Association (IBA) after job assurance given by management. This agreement was a major breakthrough in the introduction of computerized applications and development of communication networks in Banks. In the first phase the Indian banks started computerizing the front-end operations through Advanced Ledger Posting Machines (ALPMs). Some banks concentrated on the back office automation and some are frontend operations. In the second phase banks started total branch automation with frontend and back-end operation within same branch. In the third phase, during the nineties the banking sector witnessed various foreign and new private sector banks are entre in the Indian banking industry with the latest technology. 4.2.1 Bank computerization in India As per the recommendations of the various committees and working groups the RBI tied to enhance technology in Indian commercial banks. The first blue print for computerization of banks in India was drown in 1983-84 as phased plan for mechanization of banking industry (1985-89)11. Although, the Reserve Bank of India (RBI) installed its first computer in 1968, and a larger one in 1979. But the United Commercial (UCO) Bank, the Standard Chartered Bank, Lloyds' Bank, Grindlays, and others had installed accounting and other machines before 1966 12. But in large scale
11
Dr. Firdos T. Shroff, (2007) Modern Banking Technology, Northern Book Centre, New Delhi, ISBN- 81-7211222-X 12 Bank Flag, Journal of the All India Bank Employees Association, Bombay, March, 1981.
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computerisation of Indian public sector banks has been undertaken by the Phased plan of computerisation in 1985 which was constituted by Dr. C. Rangrajan Committee. Now most public sector banks are computerised fully or partially. In the first phase of computerisation spanning the five years ending 1989, banks in India had installed 4776 ALPMs at the branch level, 233 mini computers at the Regional/Controlling office levels and trained over 2000 programmers/systems personnel and over 12000 Data Entry Terminal Operators13. According to the RBI Annual Report of 2008-09, there are 100 per cent computerisation has been done in SBI group and 97.60 per cent in other Nationalized Banks (Table / Graph No. 4.3).
Table / Graph No. 4.3: Bank Computerization in Indian Commercial Banks
Source: - www.rbi.org.in
4.2.2 Core banking or centralized banking Core banking is a term used to describe a service provided by a group of networked bank branches. Bank customers may access their funds from any of the member branch offices. Core banking consists of a networking process by which the servers of different branches of a bank are joined to a common server and henceforth an account holder may access, deposit, and withdraw money from his/her account from any of the branches of the bank. In 21st United States, core banking has become common place. HSBC is the first bank to opt for Core Banking Solution way back in 199914. Today around 67.7 % of public sector bank branches are all branches of private and foreign banks are under core banking solution in India. 4.2.3 Currency counting machine A currency-counting machine is a machine that counts money--either stacks of banknotes or loose collections of coins. Counters may be purely mechanical or use electronic components. The machines typically provide a total count of all money, or
13 14
http://kannanpersonal.com/inbank2/e-banking/rbi-role.html BancMate CBS Case Study (http://www.hclinsys.in/HPSCB-_Bancmate_CBS_Case_Study.pdf)

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count off specific batch sizes for wrapping and storage. The first automatic bill counting machines (or banknote counting machines) were introduced in the 1920s in the United States and were produced by the Federal Bill Counter Company of Washington, D.C.(USA). These machines were designed to increase efficiency in tellers in the Federal Reserve Bank and reduce human error (Sunny, 2009). In 1962, newer technology developed for banknote counting machines were introduced by Tokyo Calculating Machine Works of Shinagawa, Tokyo, Japan. With its exponential increase in speed and accuracy, it quickly replaced older models and began to dominate the market (Bravo Seo, 2009). There are two types of counters one is note counter from bundle and another is loose note counter machine. In the banking industry coin sorter and coin counter machines also used to faster counting and sorting of coins. Coin sorter is a device which sorts a random collection of coins into separate bins for various denominations. Coin sorters are typically specific to the currency of certain countries due to different currencies often issuing similarly sized coins of different value. 4.3 ATM and POS terminals The history of ATM is confusing due to the many claims about its invention and very short literature and their evidences. The history of ATM can be traced back to the 1960s, when the first ATM machine was invented by John Shepherd-Barron he was managing director of De La Rue Instruments. That machine used by Barclays Bank (Barclays Bank in Enfield Town in North London, United Kingdom) in 27 June 1967 (Wikipedia E-encyclopaedia). Forth more, in 1965, Mr. Goodfellow designed a system which accepted a machine readable encrypted card, to which he added a numerical keypad, its called automatic cash dispenser machine. These Machines were marketed by Chubb LTD and installed nationwide in the UK during the late 60s and early 70s. According to Cornelis Robat (USA) the concept of the ATM first began in 1968, a working prototype came about in 1969 and Docutel was issued a patent in 1973. The first working ATM was installed in a New York based Chemical Bank. The machine was called a "Credit Card Automatic Currency Dispenser". Some eveidances cleiam that Westminister Bank installed first automated teller machine (ATM) at Victoria, London Branch in 1967. While, According to Banknet organization (India) the first Automated Teller Machine (ATM) was introduced in the year 1967 by Barclays Bank in Enfield Town in North London. In 1969 first use of ATM magstripe cards in Docutel installs its Docuteller machine at New York's Chemical Bank. Chemical Bank's ad
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campaign announces: "On Sept. 2, our bank will open at 9:00 and never close again!" ATM also popular in Germany 84% of all Germans are using ATMs. The first bank to introduce the ATM concept in India was the Hong Kong and Shanghai Banking Corporation (HSBC) in the year 1987. As a Indian bank, Bank of India was first bank to introduced ATM in Bombay in 1988 followed by Vijaya Bank at Delhi in 1989 and then after almost of commercial banks have started their ATM facilities. AS on March 2009 there are 24,645 on-site and 19,006 off-site ATMs installed in India (total 43,651) (see Table No 4.4). Today, some Urban Cooperative Banks (UCBs) and District Central Cooperative Banks (DCCBs) also providing ATM service in India. However, SBI is following the concept of 'ATMs in Quantity SBI group has installed highest ATMs in India. The Corporation Bank has the second largest network of ATMs amongst the Public Sector Banks in India. Todays all Public Sector Banks are taking the installation of ATMs seriously for Indian market. They are either setting up their own ATM centers or entering into tie-ups with other banks. Since April 2009 access in any ATM machine is free of charge it is the great opportunity to any ware banking in India.
Table 4.4:ATM Centres Established by Commercial Banks In India
Type of Bank 2006 On-site ATMs 2007 2008 2009 2006 Off-site ATMs 2007 2008 2009 2006 Total ATMS 2007 2008 2009 All Scheduled Banks 12,134 14,796 18,486 24,645 11,019 12,292 16,303 19,006 23,153 27,088 34,789 43,651 Public Sector 20,727 10,289 12,902 17379 6,021 6,040 8,886 9898 12,608 16,329 21,788 27277 Nationalized Banks 4,812 6,634 8,320 9,861 2,353 3,254 5,035 5,177 7,165 9,888 13,355 15,038 SBI Group 1,775 3,655 4,582 7,146 3,668 2,786 3,851 4,193 5,443 6,441 8,433 11,339 New Private Sector 2,255 3,154 3,879 5,166 3,857 5,038 5,988 7,480 6,112 8,192 9,867 12,646 Old Private 1,054 1,104 1,436 1,830 493 503 664 844 1,547 1,607 2,100 2,674 Foreign 232 249 269 270 648 711 765 784 880 960 1,034 1,054
Source: RBI Annual Reports, 2005-06 to 2008-09
The number of ATMs under National Financial Switch (NFS)15 Network now stands at 61,702 and the number is growing at a rate of around 1000 ATMs a month.
15
The National Financial Switch (NFS) is payment settlement system managed by Euronet India Pvt. Ltd. It was conceived and run by IDRBT since August 27, 2004, the NPCI is the settlement agency for this network; it is a shared-ATM network, which inter-connects banks ATM switches.
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National Payments Corporation of India which provides the central infrastructure and routing service through the NFS can easily handle 300 million transactions a month.
Table No. 4.5 : Name of the Switch 1 MITR Est. Year 2003 ATM network and Name of the Bank Participated Name of the Banks Participated in the Network Connected ATMs 3151
CashTree
NFS
BANCS
SBI Group
Punjab National Bank, Oriental Bank of Commerce, Indian Bank, Karur Vysya Bank, IndusInd Bank and UCO Bank Bank of India, Union Bank of India, Syndicate 2004 Bank, United Bank of India, Dena Bank, Indian Bank, Bank of Rajasthan, Bank of Maharashtra, Indian Overseas Bank, Karnataka Bank, YES Bank, Dhanalakshmi Bank and Lakshmi Vilas Bank. Allahabad Bank, Andhra Bank, Axis Bank, Bank of 2004 Bahrain & Kuwait, Bank of Baroda, Bank of India, Bank of Maharashtra, Barclays Bank, Canara Bank, Catholic Syrian Bank, Central Bank of India, City Union Bank, Corporation Bank, Cosmos Cooperative Bank, Dena Bank, Development Credit Bank, Dhanalakshmi Bank, Federal Bank, HDFC Bank, ICICI Bank , IDBI Bank, Indian Bank, Indian Overseas Bank, IndusInd Bank, Jammu and Kashmir Bank Karnataka Bank, Karur Vysya Bank, Kotak Mahindra Bank, Lakshmi Vilas Bank, Oriental Bank of Commerce, Punjab and Sind Bank, Punjab National Bank, Ratnakar Bank, Shamrao Vithal Cooperative Bank , South Indian Bank, Standard Chartered Bank, State Bank of India, Syndicate Bank, Tamilnad Mercantile Bank, UCO Bank, Union Bank of India, United Bank of India, Vijaya Bank, Yes Bank Limited Axis Bank, IDBI Bank, Bank of India, Bank of 2004. Bahrain & Kuwait, Saraswat Cooperative Bank, SVC Bank, Cosmos Cooperative Bank, Greater Mumbai Cooperative Bank, Abhyudaya Cooperative Bank, Air Employees Cooperative Bank, Thane Janata Sahakari Bank, Ernakulam District Cooperative Bank, Dombivili Nagari Shakari Bank and Punjab & Maharashtra Cooperative Bank. Other banks including Jana Kalyan Sahakari Bank, Nutan Nagarik Sahakari Bank, Bapuji Cooperative Bank, Subramanyeswara Cooperative Bank, Nagpur Sahakari Cooperative Bank, Visweshwar Sahakari Bank and Zoroastrian Cooperative Bank State Bank of India State Bank of Bikaner & NA Jaipur State Bank of Hyderabad State Bank of Mysore State Bank of Patiala State Bank of Travancore***
6400
61702
6500
***Note- State Bank of Saurashtra was merger on 13 August 2008,

Sources: 1) National Payments Corporation of India (NPCI) 2) http://www.bankingfrontiers.com/2009/july/July%20Page%2022,23.pdf (5,Oct. 2010)
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MITR is a Multi lateral ATM Network Sharing arrangement of 6 member Banks in India. It came into existence on 8 October 2003. CashTree is an interbank network in India that has been in operation since March 2004. Bank of India is the settlement bank for this network, which started with just 6 public sector banks but later expanded to admit private sector banks. BANCS is another TAM network run by Bank of India since 2004. Swadhan it most fevered network of this network. Other than these network there are some bilateral ATM network also working in Indian banking industry i.e. SBI groups ATM network and SVC Cache 24 Insta ATM sharing Arrangement of the Shamrao Vithal Co-operative Bank Ltd. SWADHAN also one of the ATM network of the public sector banks in India (Uppal and Jatana, 2007 pp. 103). The Indian Banks
Association has introduced SWADHAN as shared payment network.
4.3.2 POS terminals in India A Point of Sale (POS) terminal is an integrated PC-based device, with a monitor (CRT), POS keyboard, POS printer, Customer Display, Magnetic Swipe Reader and an electronic cash drawer all rolled into one16. More generally, the POS terminal refers to the hardware and software used for checkouts kept at the merchant's store. POS terminals are predominantly used for sale and purchase transactions. According to the Information provided by National Payment Corporation of India (NPCI) In India there are 4, 87,024. POS terminals established in merchant establishments at the end of August 2009 was17. Currently, most people use their debit cards to withdraw money from ATMs. Only 2-3% of PSU bank customers and 14-19% customers of private and foreign banks use their debit cards to make payments. Therefore, to encourage ccustomers for used of POS the Reserve Bank of India (RBI) has allowed cash withdrawal from point of sale (POS) terminals across the country since 200918. According to the bankers this will also encourage the use of debit cards at PoS-enabled merchant establishments in India. 4.4 Electronic money or plastic money The history of money is one of its progressive dematerialization from metal money to e-money. Recently paper money system has been replaced by e-money. According to the Report on electronic Money published by the European Central Bank (1998) Electronic Money is an electronic store of monetary value on a technical
16 17
Abhijit Roy, Commercial banking In India: A Beginners Module, National Stock exchange http://www.moneylife.in/article/8/2252.html 18 The Economic Times, 23 Jul, 2009, RBI allows cash withdrawals of up to Rs 1,000 a day at stores
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device that may be widely used for making payments to undertaking other than the issuer without necessarily involving bank accounts in the transaction, but acting as a prepaid bearer instrument (Desai, 2007 pp12-13) it is also known as Plastic Money, Cybercash, eCash and Digcash (Digital cash). Plastic card also known as plastic currency involving electronic device in their functioning is gaining popularly as a convenient mode of payment (Uppal and Jatana, 2007 pp. 112) As per the history of the electronic money the most popular type of the e-money is debit card, since their launch in 1987 debit cards have established themselves as the most popular card payment with consumers. Initially developed as a convenient and cost-effective alternative to point-of-sale cheques, debit cards are increasingly being used as a substitute for cash. A debit card is a plastic card which provides an alternative payment method to cash when making purchases. Debit cards are accepted at many locations, including grocery stores, retail stores, gasoline stations, and restaurants. Its an alternative to carrying a cheque book or cash. There are currently two ways that debit card transactions are processed: online debit cards and offline debit cards. Online debit cards require electronic authorization of every transaction and the debits are reflected in the users account immediately. 4.4.1 Credit cards Use of credit card is many countries of the world are quite old. But it has become popular in Indian past one decade only. The origins of the bank credit card have been traced to Johnc Biggins a customer credit specialist at the Flatbush National Bank of Brooklyn, New York. In 1946, Biggins launched as credit plan called Charge it. The programme featured a form of script that was accepted by local merchants for small purchases. After the sale was completed the merchant deposited the scrip in the bank account and the bank billed the customer for the total scrip issued (Auriemma, 1999 pp 4-5). In the 1951 the first modern was introduced in America in 1950 when a businessman Frank Menomara invited some of friends in hotel and suddenly at the time of payment he discovered that he forgot bring the purse. Then he decided to develop a fool proof system to avoid such conditions in future. The first of these was the Diners Club Card, initially accepted by 14 restaurants in New York City. American Express, then a leading issuer of travelers cheques, launched a more widely accepted T&E card in 1958. Unlike some retail chains, Diners Club and American Express expected the consumer to pay his charge balance in full at the end of each month.
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Franklin National Bank in New York in 1951, began issuing their own universal credit cards combining widespread acceptance with the opportunity to defer repayment beyond the end of the month, then Bank of America, launched its BankAmericard in 1958 (Latzer, 2005). A credit card system is a type of retail transaction settlement and credit system, named after the small plastic card issued to users of the system. In the case of credit cards, the issuer lends money to the consumer. Credit cards are the most frequently used electronic payment instrument in the United States. These cards combine a payment instrument with a credit arrangement. There were 20.5 billion credit card transactions processed during 2000, valued at USD 1.5 trillion. Bank credit cards are generally issued by a bank under a license from a national organisation, such as Visa and MasterCard19, and typically involve a revolving credit agreement. There are Four major service providers who are providing technical services to banks to provide credit and debit card facilities worldwide i.e. Visa, MasterCard. American Express, and Discover. According to American Bankers Associations (ABA) Report there are 576.4 million credit cards and 507 million debit cards circulated in USA as end of year 2009 (See Table No.4.6)
Table No. 4.6: Visa credit Visa debit MasterCard credit MasterCard debit American Express credit Discover credit Total Cards in Circulation in U.S.A (Through year-end 2009) 270.1 million 382 million 203 million 125 million 48.9 million 54.4 million 11 percent 18 percent 22 percent 1 percent 9 percent 6 percent
Source: American Bankers Associations (ABA) Survey Report, 2009
4.4.2 Debit cards A debit card is a plastic bank card used at an ATM or a point-of-sale (POS) terminal that enables a consumer to have funds directly debited from customers bank account. Some financial service providers (such as check cashers and currency exchanges) may market a so-called debit card that is not tied to a deposit account but instead functions as a stored-value card (Anguelov et al , 2004). The debit cards most
19
To enhance geographical area for credit card holder Bank America Introduced network based card system in 1976 as VISA card. Consequently 16 banks in Buffalo (New York) form their network called Interbank Card Association, now is Master Card International. By the early 1980 the VISA and MasterCard system had expanded throughout the world.
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commonly used in the UK are Visa Debit, issued under the Visa card scheme, and Maestro Cards, previously known as Switch cards, have been rebranded Maestro to make them part of a worldwide scheme. There are two types of debit cards: Online and off-line debit card. Online debit card require the card to be present with the cardholder entering a PIN to complete the sale while offline debit card transactions may or may not be authorized against the cardholder. However, now most of banks are providing online debit cards. Use of card based payment system was introduced during 1960s in India. While as a branch of Diners Club Card in August 1980 credit card facility was provided by Central Bank of India as Master Card. Then Andhra Bank has issued a credit card in 1981 with linkage VISA and Japan Credit Bureau International (JCBI). In India card fashion increasing day by day due to its convenience and utility. Many banks have providing customised credit and debit cards to increase their business in India. Most of banks are using VISA, MasterCard technology to provide cars services.
Table No 4.7: Card Payments (POS Transactions) (Number in Lakh and Amount in ` crore)
Credit Card
No. of OutNumber Volume Amount standing Cards 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 173.27 231.23 275.47 246.99 182.83 1,001.79** 1,294.72** 1,560.86 1,695.36 2,282.03 2,595.61 2341.91 17,662.72 25,686.36 33,886.47 41,361.31 57,984.73 65,355.80 62,881.83
Debit Cards*
of Volume Amount Out- standing Cards** 497.63 749.76 1,024.37 1,374.31 1,819.72 377.57 415.32 456.86 601.77 883.06 1,276.54 1,701.70 4,873.67 5,361.04 5,897.14 8,171.63 12,521.22 18,547.14 26,418.11
Year
*: Debit Cards figures for 2003-04 and 2004-05 are estimated based on 2005-06 figures. **: Cards issued by banks (excluding those withdrawn/blocked).
Source: - RBI, Statistical Tables Relating to Banks in India 2002 to 2009
However the card base as well as the usage has picked up during the last five years drastically. In the year 2003 to 2010 credit card based transaction are increased from ` 17,662.72 crore to ` 62,881.83crore and debit card based transactions are increased from ` 4,873.67 crore to ` 18,547.14 crore. See the Table No 4.7 and Graph No. 4.4. Because of increased use and transaction trough credit cards in India. The RBI has issued new guidelines to issue credit cards in India as per notification date 1st July 2009 to insure credit card fraud and customer protection.
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Graph No. 4.4: Card Payments (POS Transactions) (Number in Lakh and Amount in ` crore)
4.5 Evolution of payment systems in India Payment systems are the means by which funds are transferred between a payer and a beneficiary. It has importance for the functioning and integration of financial markets. It influences the speed, financial risk, reliability and cost of domestic and international transactions. The evolution of modern payment systems was characterized by computerization of clearing operations. The other significant milestones in the development of the payment systems were magnetic image character recognition (MICR) based mechanised cheque processing technology in Mumbai (1986), Chennai, New Delhi (in 1987) and Calcutta (1989). To reduce the pressures on the cheque clearing and settlement process, and to improve customer service (especially for high volume, low value clearing,) the central bank introduced an electronic clearing service (ECS) credit scheme and the ECS debit scheme to facilitate payment of charges to utility services. The modernization of the payment system in line with the global standards was implemented as a part of the reforms of the financial system. It includes followings transactions: The Inter-bank Clearing System; The Securities Clearing and Settlement System;
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The MICR Clearing System; The Government Securities and Foreign Exchange Clearing Systems; The Real Time Gross Settlement System. (The High Value Clearing System) -RTGS; Retail Card Based Clearing System
An efficient and stable payment system is the backbone of any economy. Recognizing the importance of payment systems in the financial system, the Reserve Bank of India has taken a number of steps to strengthen the institutional framework for the payment and settlement systems in the country. The emergence of e-commerce has created new financial requirements that in many cases cannot be effectively fulfilled by the traditional payment systems. The efforts of the Reserve Bank have been to ensure full compliance to the core principles of BIS. The improvement in payment systems in India has facilitated the integration of financial markets. For recognizing these needs the RBI has implemented bank computerisation project in India and providing ICT based networking facilities to the banks and financial institutions in India. Since 1991 the RBI has started BANKNET it is network for banking institutes other than Banknet The 'INFINET' - Indian Financial Network is a satellite based wide area network using VSAT (Very Small Aperture Terminal) technology set up in June 1999. The Centralised Funds Management System (CFMS) facilitates centralised balance viewing of and funds transfer between own accounts of a member bank maintained with the Bank at different locations. In Indian banking system ATM also providing better alternative to traditional payment system it can be used for payment of utility bills, funds transfer between accounts, deposit of cheques and cash into accounts, balance enquiry and several other banking transactions. Apart from these facilities RBI has enhancing the payment system by introducing MICR technology, ECS, EFT, NEFT, Card Based Clearing and RTGS etc. According to the changing payment and settlement system in India the government of India has introduced The Payment and Settlement Bill. The Payments and Settlements Bill, 2006 was introduced in the Lok Sabha on July 25, 2006. The Bill seeks to designate the Reserve Bank as the authority to regulate payment and settlement systems. The RBI has introduced Payment Systems in India Vision 2005-08. It is implemented to enhance payment system in India, the four broad tenets of the mission relate to the Safety, Security, Soundness and Efficiency. It is called the Triple-S + E principle in short, each of the principles support to customer
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satisfaction and enhancement of payment system. In the Vision document 2009-2012 two more principles are added as accessibility and authorization in payment system. In order to relieve the central bank from the ownership of the retail payment systems it envisaged that the creation of a separate legal entity entrusted with at the national level to be entrusted with the Indian retail clearing function. The advantage of setting up of the national entity on these lines for running all retail payment system activities will be that this entity will have uniformity in the structure, operations and procedures20. 4.5.1 BANKNET BANKNET is an internet based communication network backbone. It provides speed of financial transaction. At present, seven centers viz. Mumbai, Delhi, Calcutta, Madras, Nagpur, Bangalore and Hyderabad. It is set up in 1991 by the RBI, this backbone is meant to facilitate transfer of inter-bank (and inter-branch) messages within India by Public Sector banks who are members of this network. This project has been implemented in two stages e.g. BANKNET-I and BANKNET-II, now more centres like Pune, Ahmedabad, Kanpur, Lucknow, Chandigarh, Kochi, Jaipur, Bhopal, Patna, Bhubaneshwar, Thiruvananthapuram, Guwahati, Panaji Jammu etc are being brought on the network. 4.5.2 INFINET-Indian Financial Network The 'INFINET' - Indian Financial Network is a satellite based wide area network using VSAT (Very Small Aperture Terminal) technology set up by the RBI in June 1999. The hub and the Network Management System of the INFINET are located in the Institute for Development and Research in Banking Technology, (IDRBT) Hyderabad. Among the major applications identified for porting on the INFINET in the initial phase are e-mail, Electronic Clearing Service - Credit and Debit, Electronic Funds Transfer and transmission of Inter-city Cheque Realization advices. Later, other payment system related applications as well as Management Information System (MIS) applications are proposed to be operationalized. 4.5.3 SWIFT Society for Worldwide Inter-Bank Financial Telecommunication (SWIFT), Brussels is a co-operative society for interbank financial networking, is established in May 1973 with 239 participating banks from 15 countries (Uppal and Jatana, 2007 pp
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Sahana Rajaram, Aparna Vachharajani, Payal Ghose, Suresh Sahu (2008), Payment System in India, CCIL, pp 290-312
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89-90). Actually it started functioning in 1977, and Albert, Prince of Belgium and now King, sends the first message. The initial group of members has grown to 518 commercial banks in 22 countries. SWIFTs regional office is located in Mumbai (India). India is 74th country joined SWIFT network in 2nd December 1991. The Reserve Bank of India, 27 public sector banks and 8 foreign banks are initially taken membership of SWIFT now 92 banks are member of SWIFT. SWIFT has transferred Indian user to SWIFTnet (IP based solution for messaging) since July 2004, it is a new service of the SWIFT. Now more than 9,000 banking organisations, securities institutions and corporate customers in 209 countries trust us every day to exchange millions of standardised financial messages. Swift facilitate the members to transfer messages relating to financial transaction, debit-credit exchange, and foreign exchange. SWIFT enables its customers to automate and standardise financial transactions, thereby lowering costs, reducing operational risk and eliminating inefficiencies from their operations. This service is available 24 hours to participating member. 4.5.4 Electronic Funds Transfer (EFT) Reserve Bank of India has introduced the Reserve Bank of India Electronic Funds Transfer System in 1997 which may be referred to as 'RBI EFT System as per recommendations of the Share Committee (Committee for proposing Legislation on Electronic Funds Transfer and other Electronic Payments, 1995). It is operated by the RBI and permits transfer of funds, unto ` 5 lakhs from any account at any branch of any member bank in any city to any other account at any branch of any member bank in any other city. This system utilizes the Service Branches of the member banks and the nodal offices of RBI and RBINET is the conduit for the flow of funds. The Reserve Bank of India acts as the service provider as well as regulator of EFT. The National Electronic Fund Transfer (NEFT) was introduced in 2003 covering about 3000 branches in 500 cities; now (Sept, 2010) 77 banks are participated in EFT. Since its inception the coverage of NEFT has increased about 69000 branches as on June 2010 (Axis Bank- 1003, Bank of Baroda 3098, Corporation Bank- 1139, HDFC Bank Ltd1741, IDBI Bank- 772 and State Bank of India- 13051branches connected NEFT) it is called Special Electronic Fund Transfer SEFT also. This has facilitated same day transfer of funds across accounts of constituents at all these branches. Overall EFT and NEFT based clearing grow from ` 17,124.81 crore to ` 2,51,956.38 Crore in 2003-04 to 2008-09 (Table No. 4.8).
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Table No. 4.8 : Electronic Funds Transfer EFT/NEFT Volume (In Lakh) Amount ( ` Crore) 8.19 17,124.81 2003-04 25.49 54,601.38 2004-05 30.67 61,288.22 2005-06 47.76 77,446.31 2006-07 133.15 1,40,326.48 2007-08 321.61 2,51,956.38 2008-09 663.38 4,09,507.47 2009-10 236.47 1,65,826.59 Jun 2010 Source: - RBI Annual Reports 2002 to 2009
4.5.5 Real Time Gross Settlement System (RTGS) RTGS stands for Real Time Gross Settlement. RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a real time and on gross basis. The RTGS system is primarily for large value transactions system established as per recommendations of the Dr. R. H. Patil committee Committee on Payment System (2002). The minimum amount to be remitted through RTGS is ` 1 lakh. There is no upper ceiling for RTGS transactions. RTGS System has been implemented from March 26, 2004 placing India at par with the best practices in the world in terms of payment system. It is system for large value clearing operated by RBI. This system ensures settlement of payments with no credit risk involved. It is therefore, essentially a system for settlement of large value and time critical payments. The system facilitates Inter-bank as well a customer payments. Inter-bank clearing is used by banks mainly for four types of transactions i.e. call money transactions, Rupee payment of foreign currency transactions, Bank to Bank transfers for funding upcountry requirements and Inward remittances. Inter-bank clearing was introduced in Chennai in April 1989, followed by Mumbai, Calcutta and New Delhi. In India all bank branches are not RTGS enabled because only core banking (CBS) enabled bank branches can extend this facility. During the year 200910, a total of 11,172 bank branches were added in the RTGS system, thereby increasing the number of RTGS enabled bank branches to 66,178. In year 2004-05 to 2008-09 transactions related customers remittances have raised from ` 2,49,662 crore to ` 2,00,04,107 crore. In 2003-04 to 2008-09 amount of inter-bank remittances raised Rs. 1,965 crore to ` 1,22,75,773 crore, and total amount of transaction has been raised from ` 1,965 crore to ` 6,11,39,912 crore. It shows that increasing popularity of RTGS in Indian banking system. See Table No.4.9
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Table No. 4.9 : Large Value Clearing and Settlement Systems

(Number in Lakh and Amount in ` crore)
1 Number Amount
Number
Year / Period Customer Remittance Real Time Gross Settlement System Inter-Bank Remittance* Inter-bank Clearing Settlement** Total Inter-bank
2004-05 0.68 2,49,662.00 3.92 38,16,522.00 3.92 38,16,522.00
2006-07 24.82 71,67,807.91 13.94 1,13,13,346.69 0.04

61,38,025.39
2008-09 112.34 2,00,04,107.80 21.32 1,22,75,773.49 0.19

2,88,60,031.15
2 3
Amount
Number
Amount 2+3 Number Amount
13.98 1,74,51,372.08
21.5 4,11,35,804.65
* : Inter-Bank Clearing Settlement pertains to the MNSB batches. MNSB settlement in RTGS started from 12 August, 2006. ** : The MNSB Settlement relates to the settlement of NECS, ECS, EFT, NEFT, REPO, Outright, FOREX, CBLO and Cheque Clearing at Mumbai.
Source: - 1) Statistical Tables Relating to Banks in India 2002 to 2009 2) http://rbi.org.in/scripts/bs_viewbulletin.aspx/scripts/BS_ViewBulletin_Test.aspx?Id=11458
Other than electronic clearing service the RBI has implemented Cheque Truncation System to faster cheque clearing services. In the cheque truncation process the physical cheque will be converted in electronic image and image of cheque would be sent to the drawee branch along with the relevant information like the MICR fields, date of presentation, presenting banks to its clearance. This process works through the INFINET with proper authentication. The required time frame of cheque clearing via cheque truncation is T+0 (same day) for Local Clearing and T + 1 (within one day) for inter-city clearing. 4.5.6 Electronic Clearing Service (ECS) To solve critical problem of hug clearing transaction in April 1968 the clearing banks set up the Inter-Bank Computer Bureau, latter to become a separate company known as Bankers Automated Clearing Service-BACS. Now, there is MICR, ECS debit and Credit clearing services and National Electronic Clearing services are now available to bankers and customers both as clearing mechanisms. ECS Scheme operated by the RBI since 1996-97, A new variant of ECS styled National Electronic Clearing Service (NECS) was introduced in September 2008. ECS (Credit) facilitates the bulk payments whereby the account of the institution remitting the payment is debited and the payments remitted to beneficiaries' accounts. In India it is mostly known as pay unit system provided by banks to employers. This facility is now available at 86 major centres in the country. ECS (Debit) facilitates is the collection of payments by utility companies. In this system the
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account of the customers of the utility company, in different banks are debited and the amounts are transferred to the account of the company. ECS (Debit) is automated method of payment which provides an option to pay monthly/quarterly/halfyearly/yearly interest/dividend/salary/pension utility bills like telephone, electricity, loan installments, insurance premium etc directly through customers bank account. The RBI report shows that there is significant growth in the ECS transaction in India since its inception. At the end of year march 2010 there are 34550 branches participated in ECS clearing services and their amount of ECS based credit is increased from ` 10, 228 crore to ` 1,17,612.60 crore in 2002-03 to 2009-10 and ECS based Debit transaction has been increased from ` 2,253 crore to ` 69,523.87 crore in 2002-03 to 2009-10 (Table No. 4.10).
Table No. 4.10: ECS Clearings In India (Volume in Lakhs Amount in ` Core)
2003-04 ECS (Credit) ECS (Debit) Vol. Amt. Vol. Amt. 203 10,228.00 79 2,253.58 2004-05 400.51 20,179.81 153 2,921.24 2005-06 442.16 32,324.35 359.58 12,986.50 2006-07 690.19 83,273.09 752.02 25,440.79 2007-08 783.65 7,82,222.30 1,271.20 48,937.20 2008-09 883.94 97,486.58 1600.55 66,975.89 2009-10 981.33 1,17,612.60 1492.81 69,523.87
Source: - RBI Annual Reports 2002 to 2009
4.5.7 MICR cheque clearing service MICR (Magnetic Ink Character Recognition) is the technology to reading and identification of paper documents by electronic machines. MICR is a character recognition technology used primarily by the banking industry to facilitate the processing of cheques. According to available information MICR technology was first demonstrated to the American Bankers Association in July 1956, and by 1963 it was almost universally employed in the U.S. (Mandell, Lewis 1977) On September 12, 1961, U.S. Patent Number 3,000,000 was awarded for the invention of MICR. MICR cheques are processed by the MICR Scanner, it the electronic devise for scanning MICR cheques and recording to city, name of bank, name of branch and other details of cheque. The MICR scanning machine can scan the MICR cheque and read their data and convert in digital form and send that information to service computer of the bank to further clearing operation. It make easy clearing and sorting of thousands of cheques. In order to changing technology RBI has taken one more step in the cheque clearing system in 80s it is known as inception of Magnetic Ink Character Recognition (MICR) technology for cheque clearing. This technology was installed in Mumbai (1986) followed by Chennai, New Delhi, (1987) and Calcutta (1989), The MICR Clearing is now in operation in 64 centers including RBIs 16 MICR clearing centres in
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Hyderabad, Banglore, Ahmedabad, Kanpur, Jaipur, Nagpur, Baroda, Pune, Gauhati, Trivandrum etc. Now most of banks are issuing the MICR cheques to their customers. MICR cheque is paper instrument but it has MICR coding. The codes are arranged on cheque by order city, name of bank and name of the branch as given in the following figure.
Figure 4.1: MICR Cheque
First set of number is cheque number, second set of numbers related to city, bank and branch name it helps a bank to recognize the bank and branch that issued the cheque, city of the bank where bank office located. The third set of six digit numbers represents customers account number. In the case of Government Cheques issued by RBI alone, the account number is of seven digits and set of number consisting two digit is transaction code, in case of government cheque it have three digits. Transaction code shows type and mode of transaction given.
Table No. 4.11 : RBI 14 14 16 16 (15) 16 (15) 16 (16) 16 (16) 16 (16) 16 (16) SBI 649 672 672 684 (9) 684 (10) 659 (12) 667 (17) 703 (18) 728(19) Number of Clearing Houses Managed by Asso. of SBI Nationalised Banks 316 7 332 7 332 7 327 (2) 18 (13) 327 (2) 18 (13) 324 (3) 31 (21) 333 (4) 29 (22) 335 (4) 40 (22) 312(4) 46(25)
2001 2002 2003 2004 2005 2006 2007 2008 2009
Others 1(0)
Total 986 1025 1027 1045 (39) 1045 (40) 1030 (52) 1045 (59) 1094 (60) 1103(64)
Note : Figures in bracket indicate MICR Cheque processing Centres Source: Department of Payment and Settlement Systems, RBI
Table no 4.11 indicates that there are 64 MICR clearing centers are operated in India in 15 divisions in India. MICR technology transformed cheque processing systems by enabling the introduction of automated clearing houses. Out of 64 MICR clearing houses 16 houses managed by RBI, 19 managed by SBI, 04 managed by SBI
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associated banks and 25 has managed by other nationalised banks in India. Other than MICR clearing houses there are 1103 clearing houses are working in India.
Table no. 4.12 : MICR and Non-MICR Cheque Clearing (Numbers in Lakh & Amount in ` Crore) Year Total MICR Centres Non-MICR Centres Number Amount Number Amount Number Amount 9,015.0 1,25,75,254.0 5,377.0 1,09,47,391.0 3,638.0 16,27,863.0 2001-02 10,139.0 1,34,24,313.0 5,980.0 1,09,78,762.0 4,159.0 24,45,551.0 2002-03 10,228.0 1,15,95,960.0 6,241.0 91,78,751.0 3,987.0 24,17,209.0 2003-04 11,668.5 1,04,58,894.9 9,414.6 93,56,252.2 2,253.9 11,02,642.7 2004-05 12,867.6 1,13,29,133.5 10,318.4 94,74,370.8 2,549.2 18,54,762.8 2005-06 13,672.8 1,20,42,425.7 11,441.0 1,04,35,436.1 2,231.8 16,06,989.5 2006-07 14,605.6 1,33,96,065.9 12,229.6 1,15,28,690.2 2,376.0 18,67,375.7 2007-08 13,973.9 1,24,69,134.9 11,638.2 1,04,08,242.0 2,335.7 20,60,892.9 2008-09 2009-10 (P) 13,802.7 1,04,09,941.5 11,497.1 85,31,516.9 2305.7 18,78,424.7 Source: - Statistical Tables Relating to Banks in India 2002 to 2009
The system is well stabilized in India with the overall reject rates of around 1% while international reject rates are around 2%. Cheque clearing accounts for over 95% of the retail payment and more than 70% of cheque clearing is based on MICR technology (Nair,2007).According to the available data volume of MICR based clearing has been growing rate of 13.83 percent and value is increased 0.33 percent in 2001-02 to 2009-10. Amount of MICR based clearing rose from ` 1, 04, 09,941 crore to ` 1,25,75,254 crore in same period. See Table No 4.12. 4.5.8 Speed clearing Speed clearing refers to collection of outstation cheques through the local clearing. It facilitates collection of cheques drawn on outstation core-banking-enabled branches of banks, if branch have a net-worked branch locally. The concept of Speed Clearing combines the advantages of MICR clearing with that of CBS. The local cheques are processed on T+121 working day basis and customers get the benefit of withdrawal of funds on a T+1 or 2 basis. For the speed clearing service presenting branches are currently permitted to levy charges at a rate not exceeding ` 150 per cheque of above ` 1 lakh presented through Speed Clearing. While there are no clearing charges are payable for cheques of value up to ` 1 lakh. At present only MICR Cheques (no non-MICR, High Value cheques) having transaction codes 10, and 11 and 13 which are drawn on CBS-enabled bank branches are eligible for being presented in Speed Clearing. Government cheques and Demand Drafts are not eligible for collection under Speed Clearing.
21
'T' denotes transaction day viz.

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4.5.9 Cheque Truncation System (CTS) in India According to recommendations of Working Group on Cheque Truncation under the Chairmanship of R.B. Barman (2003), The Cheque Truncation System (CTS) was implemented in the National Capital Region in February 2008. Cheque Truncation System (CTS) will be rolled out at Chennai.22 However, In most of the developed countries cheque truncation system is in place since long. Countries like Denmark, Belgium has adopted this system since more than 2 decades. Singapore has adopted this system from the year 2002 (Ranjan Nayak, 2006). The present system of MICR cheque clearing system requires the cheques to be physically moved from place to place for their presentation. It is required as per the Negotiable Instruments Act, 1881 under which the physical instrument had to be presented to the drawee branch for payment. Now the law was amended during the year 2002 according to IT Act, 2000 to paving the way for the presentment of electronic images instead of the physical instrument.
Figure 4.2: Cheque Truncation Process
In this process electronic image of minimum standard prescribed by RBI (grey scale 100 DPI 8 bit (256 level) in JFIF format with JPEG compression, and front and back bi-tonal (black and white), 200 DPI TIFF image) of the cheque with corresponding data contained in MICR line has used to cheque presentation. As on Feb., 2010 the RBI has issued more specific norms for scanning and imaging cheques for truncation as "CTS-2010 Standard". This system beneficial because it provides:
22
Speeds in collection of cheques Enhances customer service (T+1), Reduces the scope for clearing related frauds, Minimizes cost of collection of cheques, Reduces reconciliation problems, Eliminates logistics problems etc.
http://www.banknetindia.com/banking/chqtruncation.htm
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4.6 Internet banking Till 1993 internet was dose not used commercial purpose but after 1993 internet has used as tool of commerce and trade. Internet banking began in 1993 the office of the Thrift Supervision Chartered Security First Network Bank (SFNB) in Atlanta (Georgia) and it opened for business in October 1995. In 1998 it was acquired by the Royal Bank Financial Group, Canada (Desai, 2007 pp 2-3). Internet banking not limited to the USA many banks in the developed and developing countries are using this technology. In India, ICICI Bank Ltd. was started internet banking service in 1997 as brand name Infinity followed by HDFC Bank Ltd in Sept 1999 (Uppal and Jatana, 2007 pp. 132). However, of late many public sector banks and scheduled commercial banks have taken a led in this area. Internet or web based banking is network of banks and financial institutes as well other sealers. It provides electronic payments and settlement services to customers. It implies the most pragmatic use of information technology as medium of universal communication. It has brought unprecedented changes in banking industry. There are high increase indicates in internet users in India. According to market research organization like Internet and Mobile Association of India (IAMAI) and Internet World.com at present 81,000,000 peoples are using internet in India.
Table No.4.13 : Internet Users in India (Numbers of Population) Year Population Internet Users % Pen. Usage Source 2003 1,094,870,677 22,500,000 2.1 % ITU 2004 1,094,870,677 39,200,000 3.6 % C.I. Almanac 2005 1,112,225,812 50,600,000 4.5 % IAMAI 2006 1,112,225,812 40,000,000 3.6 % IWS 2007 1,129,667,528 42,000,000 3.7 % ITU 2009 1,156,897,766 81,000,000 7.0 % IAMAI Source:-http://www.internetworldstats.com/stats.htm
The above data shows that there are 7.0 percent Indians are using internet as a source of information and communication also. There are also 5,280,000 broadband Internet connections as of June 2009 as per report of Telecommunication Regulatory Authority of India (TRAI). According to report published by the Internet and Mobile Association of India (IAMAI) and IMRB International 12 percent of internet users are using internet as mean of banking i.e. internet banking. 4.7 Mobile banking Mobile banking is simply application of mobile (Cell) phone dives as mean of banking via Wireless Application Protocol (WAP) technology and short message service (SMS) facilities. Mobile financial services is a term applied to a range of
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financial activities conducted using mobile devices, such as cellular phones or personal digital assistants (Cheney, 2008). According to Ogawara, Jason and Pete (2002) the concept of mobile payment originates in Finland. Sonera, a telecommunication company in Finland, released a mobile payment system named Sonera Mobile Pay (SMP) in 1999. In Germany a cellular payment service named PayBox started in 2000 to online shopping. In 2001 like SMP service Pro-tect has released the Mobile Money System (MMS) in Japan. In USA over 1.6 million users in 2007, Bank of America, reported having 5,00,000 active users of its mobile banking service by years end. Mobile banking users are projected to reach almost 35 million by 2010. In order to demand of mobile divides to use in m-banking almost of cellular device developer companies alike Ericsson, Motorola, Nokia, LG, Siemens, Samsung, Sony etc. are developing their mobile handset according to m-banking requirements. Most recent handsets are enabled with CDMA, GSM, WAP, 3G, SMS, MMS, JAWA, GPRS, Bluetooth, Infrared, and windows also. Mobile banking has not widely accepted in India but there is significant growth found in recent years after spread of mobile network. Since 1995, there is found tremendous growth in mobile users in India. There are 233.62 millions of peoples are using cellular services in Indias various states and union territories. The average annual growth rate of subscriber base is 40.17 per cent in 2007. As per changing scenario, Indian banks offering mobile banking services to their retail and corporate customer. Now mobile banking is the hottest area of development in the Indian banking sector and is expected to replace the credit and debit card system in future. In past two years, mobile banking users have increased three times if we compare the use of either debit card or credit card. Till June 30, 2009, 32 banks had been granted permission to operate Mobile Banking in India, of which 7 belonged to the State Bank Group, 12 to nationalised banks and 13 to private / foreign banks23. The RBI has adopted Bank Led Model in which mobile phone banking is promoted through business correspondents of banks. 4.8 Bank Ombudsman (BO) scheme in India Indian banking institutions are following the social and customers oriented banking in India. However, some mistakes always found due to machine errors, inappropriate knowledge about technology, unskilled bank employees, negligence and delay etc. While this mistakes or problems lead to dissatisfaction of customer and
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Report on Trends and Progress of Banking in India 2008-09, RBI.

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customer retention process also. Hence, the RBI has started The Banking Ombudsman Scheme, in 1995 to provide for a system of redressal of grievances against banks. The Scheme sought to establish a system of expeditious and inexpensive resolution of customer complaints. It has conducting the complaints and solves the problem according the provisions in banking regulation act, 1949 and customers protection act1986. 4.8.1 Customers complaints registered against banks in India There is numbers of complaints passed to 69000 and their average growth rate of increased to 61.83 per cent in 2003 to 2009. It realised that, modernised banking services dose not succeeded to provide better and error free banking services in India. In India, most of customers registered their complaints regarding credit cards, charges without any information, remittances, failure to meet commitments and deposit related problems. Graph No. 4.5 sows that all complaints other than notes and coins related are related to alternative banking services. Because of wrong entres, calculation,
unexpected deduction etc. 6706 complaints are registered regarding deposits account in 2008-09, 5335 complaints relating to improper fund transfer, delay and losses, 7331 complaints related to loans principal deduction , interest calculation, fines, etc are registered. Now the government has started e-pension facilities through selected banks in India to provide quick pension distribution. But it also created problems to pension holders, in 2008-09 total 2916 complaints about pension account has been registered.
Graph 4.5: Service wise Complaints Registered in BO Offices
Source: Report of the Banking Ombudsman Scheme, 2008-09
According to K. Lakshmi24 from last two years complaints regarding ATM services also have been increased. As per the available data most of complaints
24
K. Lakshmi, Banking ombudsman registers an increase in customer complaints ,The Hindu, Tuesday, May 26, 2009
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registered regarding credit cards (17648) followed by failure to meet commitments (11824). There are 0.19 complaints per thousand customers relating to credit cards in India. One of the major cause found that after the global financial meltdown, credit card issuers banks have become aggressive in their collection process 25. Because of increased customer complaints against commercial banks in India, the RBI has made the amendments in BO scheme and the ombudsman to award a compensation of up to ` 1 lakh in case of complaints arising out of credit card operations of banks since February 2009. The amendments allowed the ombudsman to award a compensation of up to ` 1 lakh in case of complaints arising out of credit card operations of banks. 4.8.2 Bank group wise customers complaints The number of complaints against public sector banks, which meet some 70 per cent or more of Indias banking needs, was the highest at 33,141, up from 25,694 during 2007-08. There are 27 percent of complaints regarding nationalised banks (their market share near about 50 percent) and 29 percent regarding SBI group are registered. While average complaints per branch were lower than both private sector and foreign banks. In the same period 28 percent of complaints against private banks, and 13 percent of complaints against foreign banks are registered in India. However, 01 percent of complaints against Scheduled Primary Co-op. Banks and 02 percent of compliant against RRBs are registered till 2009. Graph No. 4.6 also indicates that rate of complaints are decreased from 45 percent to 22 percent of complaints against nationalised banks in India. While consideration of their shares in Indian banking industry it is realized that public sector banks are not providing error free banking services in India.
Graph No. 2.6: Bank Wise Complaints Registered in BO Offices
Source: Report of The Banking Ombudsman Scheme, 2008-09
Although as on 2008-09 there are high numbers of compliant (21,982) registered against private sector banks followed by SBI group (18167) in India. One of
25
Mahua Venkatesh, Complaints up on bank recovery, Hindustan Times, August 10, 2010
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the serious issue realised that the numbers of complaints against foreign banks reached to 11700 in 2008-09. In 2005-06, has 783 complaints registered against ICICI Bank followed by HDFC Bank with 374 complaints26. Among foreign banks, Citibank, Standard Chartered Bank and ABN Amro Bank leads than other foreign banks operated in India. Even the Finance Minister Mr. Pranab Mukharji also said that two private banks ICICI Bank and HDFC Bank had repeatedly violated the guidelines of the Reserve Bank of India (RBI)27. Among the individual banks, SBI tops with 18,167 complaints in the year 2008-09, followed by ICICI Bank (11,453), HDFC Bank (6,584), HSBC (2,838) and Citibank (2,563). As compared to branches public, private and foreign banks in India complaints against foreign banks are too high because market share of foreign banks in India is only 5 percent but 17 percent complaints are registered against them. 4.9 Code of banks commitment to customers (August 2009) To provides protection to you and explains how banks are expected to deal with you for your day-to-day operations BCSBI has issued Code of Banks Commitment to Customers in August 2009. This is a voluntary Code, which sets minimum standards of banking practices for banks to follow when bank are dealing with individual customers. It provides protection to customers and explains how banks are expected to deal with customers in day-to-day operations. Minimum Standards of Banking Practices is given below: 1. Ensuring that you are given clear information about our products and services, the terms and conditions and the interest rates/service charges, which apply to them 2. Display the information about Minimum balance requirement for accounts, Name and address of the Zonal/ Regional Manager, Name and contact details of the Banking Ombudsman under whose jurisdiction the branch falls, interest rates/service charges 3. Correcting mistakes promptly and cancelling any bank charges that we apply due to our mistake 4. Provide suitable alternative avenues to alleviate problems arising out of technological failures. 5. Keep customers personal information as private and confidential
26 27
Customers Complaints Higher for PSU Banks, The Times of India, Nov 15, 2006, Business Standard, New Delhi, 6 August, 2010
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6. To inform customers about changes in interest rates, charges, introduce a new charge, minimum balance in the account and any other relevant changes by notice at the branches, letters, e-mail, SMS, website and newspaper 7. All terms and conditions will be fair and will set out respective rights especially with regard to nomination facility and liabilities and obligations clearly and as far as possible in plain and simple language. 8. Tell about the clearing cycle for local instruments and the outstation instruments including details kind for customers information 9. Reimburse amounts wrongly debited in failed ATM transactions within a maximum period of 12 working days from the date of receipt of customers complaint. 10. Electronic 11. Compensate losses in case of any delay or failure in executing the mandate resulting in financial loss or additional cost due to mistake in Electronic Clearing Service (ECS)] as per the compensation policy of the bank. 12. Accept and obey stop payment instruction from customers immediately in respect of cheques issued and instruction related to block the ATM card, debit card, smart card. 13. Inform to customer by SMS / e-mail followed by a confirmation in writing If the limit on credit card is reduced or enhanced limit. 14. Provide credit card transaction details either via monthly by mail and e-mail 15. Inform to customers about security procedure adopted by us for user authentication and the legal risk, if any, associated with the mobile banking including available services and terms and conditions. 16. Inform strictly to customers visit our Internet banking site directly. Avoid accessing the site through a link from another site or an e-mail and verify the domain name displayed to avoid spoof websites. Ignore any e-mail asking for your password or PIN 4.10 Alternative banking system and information technology act, 2000 New communication systems and digital technology have made dramatic changes in the way we live and the means to transact our daily business. Business firms are increasingly using computers to create, transmit and store information in electronic form instead of traditional paper documents. This will crests some legal challenges for the service providers and regulators also. The challenges are not confined to any single
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one of the traditional legal categories but also various lows i.e. laws related to book evidences, authentication, criminal laws, theft, etc. New communication system and digital technology introduced major changes in the each part and aspect of society. A revolution is occurring in the way peoples are transacting business and customers are using computer and advanced digital means to their day-to day transaction. Although peoples are aware of advantages, they are reluctant to conduct business or conclude any transaction in the electronic from due to lack of appropriate legal framework. The banking is one of the most sensitive service industries and it depends mostly of ICT recently. Therefore, there is strict need of IT related Act. According Talwant Singh28 most banks are not better educates their customer to use of cyber banking services but it is very important so customers. doing this. According increased need of IT related act in 1988 the Electronic Commerce Act has been enacted in India but it is limited to commercial service. Hence, The Ministry of Commerce Government of India created the first draft of the legislation following these guidelines termed as "E Commerce Act 1998" and thereafter the Information Technology Bill introduced in 1999 in budget session of 2000 received mandate from both the houses of parliament. IT act provides legal recognition to electronic transaction and other means of electronic communication. It amends the Indian Pinal Code, The Indian Evidence Act, 1891 and RBI act, 1934. It has wider scope provisions of every IT related issues. While there are some provisions are related to the e-banking as follows; According to section 3 (1) of act nay subscriber may authenticate his electronic data affixing his digital signature though use of asymmetric cryptosystem and hash function, which transform the electronic record into another electronic record. IT act permitted retention of electronic documents and records as evidence It permits digital signature in financial and non-financial transactions, digital signature have considered as valid signature under section 2(1) (p).
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Addl. Distt. & Sessions Judge, Delhi

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Statutory remedy against unauthorised access to computer system or network including unauthorised copying of data. Section 78 of the Act conferred power to a police officer not below the rank of Deputy Superintendent of Police to investigate any offence committed under the Act.
To falcate electronic fund transfer amongst the financial institutions and banks.
4.10.1 Security procedure under IT Act, 2000 to subscribers/customers protection Information asset must remain confidential, secure and retaining its integrity in the business including banking industry. Even there is strong need of information security in banking industry than other businesses. Bothe internet and intranet29 as well as virtual private network (VPN)30 are open to virus attack, hacking31 etc. The IT act makes provisions of security procedure at users level to protect interests of authorised users, account holders or service providers. Private key and digital signature: Under the Rule 23, Digital signature certificate shall be issued only after approval of application with valid proofs (PAN Card, Voter ID Card, Passport etc.). Private Key is defined by section 2(1) (ze) which means the key of pier used to create a digital signature. A private or secret key is an encryption/decryption key known only to the party or parties that exchange secret messages. Duties of subscriber/customer: A subscriber is a customer or buyer of service who pays to become one of the members. According to Chapter VIII of the IT act, 2000 (section 40-42) The subscriber should generate his private key after getting initial key provided by service providers. According to section 42 it is the subscribers duty to prevent of the private key. By accepting certificate, the subscriber assumes a dusty to retain control of the subscribers private key, to
29
An intranet is a private computer network that uses Internet Protocol technologies to securely share any part of an organization's information or network operating system within that organization. An intranet uses network technologies as a tool to facilitate communication between people or workgroups to improve the data sharing capability and overall knowledge base of an organization's employees. 30 A virtual private network (VPN) is a network that uses a public telecommunication infrastructure and their technology such as the Internet, to provide remote offices or individual users with secure access to their organization's network. It aims to avoid an expensive system of owned or leased lines that can be used by only one organization. The goal of a VPN is to provide the organization with the same secure capabilities but at a much lower cost. 31 A hacker is a person who breaks into computers and computer networks, either for profit or motivated by the challenge. It is illegal access into another party's computer or Internet site carried out for malevolent or fraudulent purposes or to make unauthorised amendments or just for fun. There are numbers of application developed by hackers to hack accounts either bank account or other i.e. Security exploit, Vulnerability scanner, Password cracking, Packet sniffer, Spoofing attack, Rootkit, Social engineering, Trojan horse, Worm, Key loggers
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use a trustworthy system, and to take reasonable precautions to prevent its loss, discloser, modification or unauthorised use. Penalty for damage to computer, computer system, etc.: Section 43-47 deal with penalty for damages to computer, computer system, etc. If any person without permission of the owner or any other person who is incharge of a computer, computer system or computer network; downloads, copies or extracts any data, computer data base or information from such computer, damages or causes to be damaged any computer, computer system or computer network, provides any assistance to any person to facilitate access to a computer. He / She shall be liable to pay damages by way of compensation not exceeding one crore rupees to the person so affected. Cybercrime32: Cyber Crimes are a new class of crimes to India rapidly
expanding due to extensive use of internet (Talwant Singh). The sections 65-74 providing legal provisions relating to cyber crime and offences under IT Act. The offences under section 65 to 70 (65-Tempring with computer source documents, 66-Publishing of information which is obscene in electronic form, 67-Hacking with computer system, 68-Power of controller give derection,69Directions of controller to a subscriber to extend facilities to decrypt and 70protected system) are non- bailable and 71 to 74 (71- Mispresentation, 72Breach of confidentiality and privacy, 73-Publishing false Digital Signature Certificate (DSC) and 74-Publications fraudulent purposes) are Non-cognizable but bailable. Electronic Cheques (E-Cheque33) and Electronic Fund Transfer (EFT): Section 81 of the IT Act provides detailed provisions about e-cheques and EFT. The government of India has made amendments in the Negotiable Instruments Act 1981 consultation with RBI for allow e-cheques and EFT. Section 81-A made an attempt to facilitate the EFT by giving legal recognition to an electronic cheque functional equivalent of formal cheques. For the purpose of EFT and SEFT34 The amendment in the Reserve Bank of Indian Act-1934 in
32
Cyber crime definitions as Unauthorized access, Damage to computer data or programs, Computer sabotage, Unauthorized interception of communications and Computer espionage According United Natio ns Definition- It is any illegal behavior directed by means of electronic operations that targets the security of computer systems and the data processed by them.
33
E-cheque means a cheque which contains the exact mirror image of paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature and asymmetric crypto system. 34 SEFT-Special Electronic Fund Transfer
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section 58, in sub section (2) after clause (P) to allow interbank fund transfer either bank to customer, bank to bank including credit transfer, debit transfer, direct deposit and withdrawals, Point of sale Transfers, ATM transactions etc. Consumer dispute redressal: In the case of ATM card, debit card and credit card related frauds this act provides Redressal mechanism. While, Visa and Master Card provide full protected service. Visa is reported to have adopted a zero liability policy for debit cards and credit cards. Hence, there is need to redressal mechanism to solve problems related to cards. As per the provisions customer can approach district Forum of the consumer courts to claim complaint up to ` 20 lakh, to State commission up to 1 crore and to National Commission for above 1 crore. ATM frauds: In India it is found that the criminals taps phone-line connected with ATM via warless devise or wire line devise. They attack a wireless microphone to the line and records the signals when customer is using the ATM service. After he leaves the machine, the criminal plays back signals, tripping the machine to realise cash. For these cases the IT Act 2000 made provision under section 67 as cyber crime. Spy software to find password and ID: In the electronic interactions and transaction ID and passwords are very important for authentication and identification. While spy softwares are utilized to find out passwords and other information from computers via network or internet. In the internet banking and mobile banking services ID and Password also very important. The criminals can find it through spy software. Hence, the IT Act made provisions against unauthorised access and password theft. There are some amendments has been made in eth IT Act 2000, in the 2008 Section 2(ha) added to define Communication Device which will include mobile phones, ATM, PDAs etc, Section 2(j) Computer Systems and Communication Devices, Wire Wireless added. 4.10.2 Some loopholes of IT Act 2000 This act provides wider legal provisions against cyber theft, cyber crime. Although, there are some loopholes in the IT Act as mentioned below: 1. Spamming and junk e-mails: Spam and junk e-mails are unsolicited commercial e-mails. It might be sent as an unwanted advertisement via e-mail or in bulk to a large number of addressees. Some time these e-mails contains
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massages as ; you have owner of award of lottery or prizes of $ 400,00000, 5000,0000 please send your Name, Bank Name, Account Number etc. When customer provides this information sender of the e-mail can hack bank account. Although there is no any provision for such e-mails. 2. Credit card fraud: There is no any provision for the credit card fraud in the IT Act 2000. In the present scenario it is very important to protect interests of credit card holders. According to the Bank Ombudsman report 2009 there are most of complaint are registered relating to credit card offences in India. Cloning or duplication of credit cards is the new type of crime which will keep the copes and banking officials on their toes. Some small electronic gadgets also available that can copy details of credit cards at the time of swiping credit card at the time of payments. Some time anyone send you massage through SMS as Thank You for making purchase of a Rs. 35,000/- on your credit card followed by certain clarification. When you call back that number they ask you details about your credit cards for (so called) authentication and finally this person tell you that it is our mistake dont worry we do not proceed this transaction. But actually problem starts thereafter, because they have obtained all details in the authentication. There are numbers of types of credit card frauds takes place recent days. Hence, there is need of special provisions for credit card frauds in the IT act. 3. Offence committed outside of India: As banking business concern, financial transaction can be made outside of the India. Frequent person can hack customers account from outside of India and transfer money unauthorised way. In such case there is problem of Jurisdiction issue. While section 75 of the IT act has been made provisions related to jurisdiction but it covers computer, computer system or network located in India not outside of India. The IT Act Amendments in 2008 made some provision for it but that provisions are not sufficient. 4. Anonymous digital cash: Digital cash allow to customers buy online but some of the peoples using this facility to transfer their black money to other account digitally. In such cases IT act is very short to solve these problems. 4.11 Basels (BIS) view to alternative banking system The Basel Committee constituted Electronic Banking Group (EBG) under the chairmanship of Mr John Hawke to suggest risk control principals in the electronic
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banking. The Basel Committee on Banking Supervision has mentioned that a new ebanking channel provides wider range of banking services in the Report on Risk Management Principles for Electronic Banking (1997). However, the rapid development of e-banking capabilities carries risks as well as benefits. Therefore the committee has developed Risk Management Principles for Electronic Banking given below: Principle 1: The Board of Directors and senior management should establish effective management oversight over the risks associated with e-banking activities, including the establishment of specific accountability, policies and controls to manage these risks. Principle 2: The Board of Directors and senior management should review and approve the key aspects of the bank's security control process. Principle 3: The Board of Directors and senior management should establish a comprehensive and ongoing due diligence and oversight process for managing the bank's outsourcing relationships and other third-party dependencies supporting e-banking. Principle 4: Banks should take appropriate measures to authenticate the identity and authorisation of customers with whom it conducts business over the Internet Principle 5: Banks should use transaction authentication methods that promote non-repudiation and establish accountability for e-banking transactions. Principle 6: Banks should ensure that appropriate measures are in place to promote adequate segregation of duties within e-banking systems, databases and applications. Principle 7: Banks should ensure that proper authorisation controls and access privileges are in place for e-banking systems, databases and applications. Principle 8: Banks should ensure that appropriate measures are in place to protect the data integrity of e-banking transactions, records and information. Principle 9: Banks should ensure that clear audit trails exist for all e-banking transactions. Principle 10: Banks should take appropriate measures to preserve the confidentiality of key e-banking information. Measures taken to preserve confidentiality should be commensurate with the sensitivity of the information being transmitted and/or stored in databases.
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Principle 11: Banks should ensure that adequate information is provided on their websites to allow potential customers to make an informed conclusion about the bank's identity and regulatory status of the bank prior to entering into e-banking transactions.
Principle 12: Banks should take appropriate measures to ensure adherence to customer privacy requirements applicable to the jurisdictions to which the bank is providing e-banking products and services.
Principle 13: Banks should have effective capacity, business continuity and contingency planning processes to help ensure the availability of e-banking systems and services.
Principle 14: Banks should develop appropriate incident response plans to manage, contain and minimise problems arising from unexpected events, including internal and external attacks that may hamper the provision of ebanking systems and services.
Summary Alternative banking services are not new for developed nation. However, it is new for Indian peoples. Most of alternative banking channels are available in 1985 to 1990 and some advanced delivery channels like internet banking , mobile banking are available from 1997. Today in India, most of alternative banking channels are ready to survive customers. All statistical data relating to EFT, ECS (debit and Credit) clearing, MICR clearings, use of internet and mobile services, POS terminals, numbers of ATM and hits on ATM shows that alternative banking channels become popular in India. While some of channels are limited to urban areas only. Basically technology based banking channels are availed to provide better service quality in banking. However, data published in report of BO scheme shows that numbers of complaints passed to 69000 and their average growth rate of increased to 61.83% in 2003 to 2009. In India, cyber fraud and frauds are also increased in ebanking service since last five years. Hence, IT Act, 2000 has been passed in 2000. This Act provides wide range of legal based to electronic services. Now, the RBI is following risk management principals of EBG of Basel to minimize risk in modern banking service and issued guideline about it to all scheduled banks in India.
Kumbhar V. M.

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55

Chapter IV - Envisages the History of Alternative Banking

Manual Note Counting Formal Cheque DD/MT/TT

On counter Cash Withdraw

On counter Cash Withdraw Letter of Credit Branch Banking

Mobile phone, SMS, WAP4, 3G5

Source: Miranda et al, 2006 (edited by author)

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

http://kannanpersonal.com/inbank2/e-banking/rbi-role.html BancMate CBS Case Study (http://www.hclinsys.in/HPSCB-_Bancmate_CBS_Case_Study.pdf)

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

Source: RBI Annual Reports, 2005-06 to 2008-09

***Note- State Bank of Saurashtra was merger on 13 August 2008,

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

Source: American Bankers Associations (ABA) Survey Report, 2009

Source: - RBI, Statistical Tables Relating to Banks in India 2002 to 2009

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

Table No. 4.9 : Large Value Clearing and Settlement Systems

2004-05 0.68 2,49,662.00 3.92 38,16,522.00 3.92 38,16,522.00

2006-07 24.82 71,67,807.91 13.94 1,13,13,346.69 0.04

2008-09 112.34 2,00,04,107.80 21.32 1,22,75,773.49 0.19

Amount 2+3 Number Amount

Source: - 1) Statistical Tables Relating to Banks in India 2002 to 2009 2) http://rbi.org.in/scripts/bs_viewbulletin.aspx/scripts/BS_ViewBulletin_Test.aspx?Id=11458

Chapter IV - Envisages the History of Alternative Banking

Source: - RBI Annual Reports 2002 to 2009

2001 2002 2003 2004 2005 2006 2007 2008 2009

'T' denotes transaction day viz.

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

Report on Trends and Progress of Banking in India 2008-09, RBI.

Chapter IV - Envisages the History of Alternative Banking

Source: Report of the Banking Ombudsman Scheme, 2008-09

Source: Report of The Banking Ombudsman Scheme, 2008-09

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

Addl. Distt. & Sessions Judge, Delhi

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

Chapter IV - Envisages the History of Alternative Banking

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