E-BANKING IN INDIA

ECONOMIC SCENARIO

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The Indian Banks are the backbone of Indian financial sector and Indian
economy. Now a day in Indian economic scenario, the Indian financial system
is in a process of rapid transformation. Banking today has changed into a
customer friendly and technology intensive model with a spotlight on
expediency or convenience. At the same time banks have been getting benefit
from an on the entire superb economic growth for 10 years, implementation of
setting up of credit information bureaus, internal improvements such as
endorsement of technology infrastructure. In sequence to uphold the business
growth among extremely competitive market and Indian economy, banks are
likely to increase in the overseas market.

Internet banking, both as a medium of delivery of banking services and as a

strategic tool for business development, has gained broad acceptance
internationally and is a fast catching up in India with more and more banks
entering the fray. India can be said to be on the doorstep of a major banking
revolution with net banking having already been unveiled. A recent
questionnaire of someone, to which 46 banks responded, has exposed that at
present, 11 banks in India are providing Internet banking services at different
levels, and 22banks propose to offer Internet banking in near future while the
remaining 13 banks have no instant plans to offer such facility.

"Use of the Internet for banking has seen a enormous rise in the 2010-11
survey, taking the overall number of bank consumers who use the Net to close
7% of the total bank account holders a seven-fold jump since 2007 even as for
the first time in the past 13 years, branch banking has come down by a
complete 15 percentage points throughout the same period," Renny Thomas
head of its retail banking services McKinsey & Company India partner and
said. She was talking to reporters after releasing a McKinsey India personal
financial services survey 2011 here today. Online users of banking
transactions percentage was just about 1% in the agency's 2007 survey,
Thomas added.

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The survey is the result of one-on-ones with just about 20,000 Asians
covering the mass, mass-affluent and the prosperous consumers across 13
markets, of which the largest survey pool was from India at 5,000 because of
the sheer diversity of this market, Thomas said.

The survey was based on the number of times in a week respondents visited
bank branches or used Internet for carrying out transactions.

In 2007, the number of times Indian respondents visited bank branch for doing
transactions was 0.58 while the same in 2011 was 0.49, showing a fall of 15
percentage points.

Branch usage has dropped by 27% on an average across Asia between 2007
and 2011, while usage of the Internet and mobile banking have increased by
28% and 83%, respectively, says the survey, which was also conducted across
the Asia-Pacific region.

According the survey of digital banking, "India leads growth in Asia in mobile
and Internet usage for banking. While there was a 15% decline in branch
usage here, the growth in usage of the Internet and mobile banking has almost
tripled."

"For the first time since we started this survey in 1998, we see a marked shift
away from using branches as a main channel for interaction in many markets.
This is a fundamental shift in consumer behaviour, and has significant
implications for banks. The scale of branch network is a less decisive factor
for capturing customers now," Thomas pointed out.

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The survey also highlights a number of changes in consumer mindset when it
comes to accessing financial services after the global financial crisis.

The worst casualty is loyalty as there is a full 40 percentage point drop in

loyalty since 2007, though 95% are seemingly satisfied with their main banks,
says associate partner Jatin Pant.

The average number of banking relationships across the country rose 19%
from 1.4 in 2007 to 1.7 in 2011, while the average percentage of people
willing to shop around rose 15, marking a greater willingness of consumers to
vote with their feet and engage with a broader variety of financial institutions,
the McKinsey survey said.

"While the consumers say they want to consolidate their banking

relationships, they continue to shop around because banks are not delivering
the products and services, such as frontline services, that can lock them in," it
said.

When it comes to financial planning too, there is a marked progress with the
percentage of consumers using financial planners soaring from 14% in 2007
to 43% in 2011, while the percentage of consumers willing to take risks on
capital growth rose by 20% to 44%, up from 24%. At the same time, the
survey says, dissatisfaction too rose with their financial planners.

"On an average, only 51% are satisfied with their financial planners in 2011,
as compared to 73% in 2007," said Thomas.

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Costs of banking service through the Internet form a fraction of costs through
conventional methods. Rough estimates suppose that teller cost at Re.1 per
transaction, and ATM transaction cost at 45 paise, and the phone banking at
35 paise, and debit cards at 20 paise and but the Internet banking at 10 paise
per transaction. The cost-conscious banks in the country have therefore
actively measured use of the Internet as a channel for providing services.
Fully computerized banks, with superior management of their customer base
are in a stronger position to cross-sell their products through this channel.

Banks in India are at different stages of the web-enabled banking cycle. At

first, if abank, which has not a web site, allows its customer to communicate
with it through an e-mail address; its communication is limited to a little
number of branches and offices which have access to this e-mail account. In
India As yet, numerous scheduled commercial banks are still in the first stage
of Internet banking in operations.

With gradual adoption of Information Technology, the bank puts up web-site

that provides common information on the banks, its location, services
available e.g. loan and deposits products, application forms for downloading
and e-mail option for enquiries and feedback. It is mainly a marketing or
advertising tool. For example, Vijaya Bank provides information on its web-
site about its NRI and other services. Customers arerequired to fill in
applications on the Net and can receive later of loans or other products
requested for at their local branch. A few banks provide the customer to
enquire into his D-mataccount (securities/shares) holding details, transaction
details and status of instructions given by him. Stillthese web sites do not
allow online transactions fortheir customers.

Some of the banks permit customers to interact with them and transact
electronically with them. Such services include request for opening of
accounts, requisition for cheque books, stop payment of cheques, viewing and
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printing statements of accounts, movement of funds between accounts within
the same bank, querying on status of requests, instructions for opening of
Letters of Credit and Bank Guarantees etc. These services are being initiated
by banks like ICICI Bank Ltd., HDFC Bank Ltd. Citibank, Global Trust Bank
Ltd., UTI Bank Ltd., Bank of Madura Ltd., Federal Bank Ltd. etc.Recent
entrants in Internet banking are Allahabad Bank (for its corporate customers
through its ‘All net’ service) and Bank of Punjab Ltd. State Bank of India has
announced that it will be providing such services soon. Certain banks like
ICICI BankLtd have gone a step further within the transactional stage of
Internet banking by allowing transfer of funds by an account holder to any
other account holder of thebank.

Some of the more aggressive players in this area such as ICICI Bank Ltd.,
HDFCBank Ltd., UTI Bank Ltd., Citibank, Global Trust Bank Ltd. and Bank
of Punjab Ltd.offer the facility of receipt, review and payment of bills on-line.
These banks have tiedup with a number of utility companies. The ‘Infinity’
service of ICICI Bank Ltd. Alsoallows online real time shopping mall
payments to be made by customers. HDFC Bank Ltd has made e-shopping
online and real time with the launch of its payment gateway.

It has tied up with a number of portals to offer business-to-consumer (B2C)

ecommerce transactions. The first online real time e-commerce credit card
transaction inthe country was carried out on the Easy3shoppe.com shopping
mall, enabled by HDFCBank Ltd. on a VISA card.

Banks like ICICI Bank Ltd., HDFC Bank Ltd. etc. are thus looking to position
themselves as one stop financial shops. These banks have tied up with
computer training companies, computer manufacturers, Internet Services
Providers and portals for expanding their Net banking services, and widening
their customer base. ICICIBank Ltd. has set up a web based joint venture for
on-line distribution of its retail banking products and services on the Internet,
in collaboration with Satyam Info way, aprivate ISP through a portal named as
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icicisify.com. The customer base ofwww.satyamonline.com portal is also
available to the bank. Setting up of Internetkiosks and permeation through the
cable television route to widen customer base areother priority areas in the
agendas of the more aggressive players. Centurion Bank Ltd. has taken up
equity stake in the teauction.com portal, which aims to bring together buyers,
sellers, registered brokers, suppliers and associations in the tea market and
substitute their physical presence at the auctions announced.

Banks providing Internet banking services have been entering into agreements
with their customers setting out the terms and conditions of the services. The
terms and conditions include information on the access through user-id and
secret password, minimum balance and charges, authority to the bank for
carrying out transactions performed through the service, liability of the user
and the bank, disclosure of personal information for statistical analysis and
credit scoring also, non-transferability of the facility, notices and termination,
etc.

The race for market supremacy is compelling banks in India to adopt the latest
technology on the Internet in a bid to capture new markets and customers.
HDFCBank Ltd. with its ‘Freedom- the e-Age Saving Account’ Service,
Citibank with ‘Suvidha’ and ICICI Bank Ltd. with its ‘Mobile Commerce’
service have tied up withcellphone operators to offer Mobile Banking to their
customers. Global Trust BankLtdhas also announced that it has tied up with
cellular operators to launch mobile banking services. Under Mobile Banking
services, customers can scan their accounts to seek balance and payments
status or instruct banks to issue cheques, pay bills or deliver statements of
accounts. It is estimated that by 2003, cellular phones will have become the
premier Internet access device, outselling personal computers. Mobile banking
will further minimise the need to visit a bank branch.

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THE FUTURE SCENARIO

Compared to banks abroad, Indian banks offering online services still have a
long way to go. For online banking to reach a critical mass, there has to be
sufficient number ofusers and the sufficient infrastructure in place. The
‘Infinity’ product of ICICI Bank Ltd. gets only about 30,000 hits per month,
with around 3,000 transactions taking place on the Net per month through this
service. Though various security options like line encryption, branch
connection encryption, firewalls, digital certificates, automatic signoffs,
random pop-ups and disaster recovery sites are in place or are being looked at,
there is as yet no Certification Authority in India offering Public Key
Infrastructure which is absolutely necessary for online banking. The customer
can only be assured of a secured conduit for its online activities if an authority
certifying digital signatures is in place. The communication bandwidth
available today in India is also not enough to meet the needs of high priority
services like online banking and trading. Banks offering online facilities need
to have an effective disaster recovery plan along with comprehensive risk
management measures. Banks offering online facilities also need to calculate
their downtime losses, because even a few minutes of downtime in a week
could mean substantial losses. Some banks even today do not have
uninterrupted power supply unit or systems to take care of prolonged power
breakdown. Proper encryption of data and effective use of passwords are also
matters that leave a lot to be desired. Systems and processes have to be put in
place to ensure that errors do not take place.

Users of Internet Banking Services are required to fill up the application forms
online and send a copy of the same by mail or fax to the bank. A contractual
agreement is entered into by the customer with the bank for using the Internet
banking services. In this way, personal data in the applications forms is being
held by the bank providing the service. The contract details are often one-
sided, with the bank having the absolute discretion to amend or supplement
any of the terms at any time. For these reasons domestic customers for whom
other access points such as ATMs, telebanking, personal contact, etc. are
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available, are often hesitant to use the Internet banking services offered by
Indian banks. Internet Banking, as an additional delivery channel, may,
therefore, be attractive / appealing as a value added service to domestic
customers.

Non-resident Indians for whom it is expensive and time consuming to access

their bank accounts maintained in India find net banking very convenient and
useful.

The Internet is in the public domain whereby geographical boundaries are

eliminated. Cyber crimes are therefore difficult to be identified and controlled.
In order to promote Internet banking services, it is necessary that the proper
legal infrastructure is in place. Government has introduced the Information
Technology Bill, which has already been notified in October 2000. Section 72
of the Information Technology Act, 2000 casts an obligation of confidentiality
against disclosure of any electronic record, register, correspondence and
information, except for certain purposes and violation of this provision is a
criminal offence. Notification for appointment of Authorities to certify digital
signatures, ensuring confidentiality of data, is likely to be issued in the coming
months. Comprehensive enactments like the Electronic Funds Transfer Act in
U.K. and data protection rules and regulations in the developed countries are
in place abroad to prevent unauthorized access to data, malafide or otherwise,
and to protect theIndividual’s rights of privacy. The legal issues are, however,
being debated in our country and it is expected that some headway will be
made in this respect in the near future.

Apart of the above drawbacks, certain developments taking place at present,

and expected to take place in the near future, would create a conducive
environment for online banking to flourish. For example, Internet usage is
expected to grow with cheaper bandwidth cost. The Department of
Telecommunications (DoT) is moving fast to make available additional
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bandwidth, with the result that Internet access will become much faster in the
future. This is expected to give a fillip to Internet banking in India.

The proposed setting up of a Credit Information Bureau for collecting and

sharing credit information on borrowers of lending institutions online would
give a fillip to electronic banking. The deadline set by the Chief Vigilance
Commissioner for computerisation of not less than 70 percent of the bank's
business by end of January2001 has also given a greater thrust to development
of banking technology. There commendations of the Vasudevan Committee
on Technological Up gradation of Banks in India have also been circulated to
banks for implementation. In thisbackground, banks are moving in for
technological upgradation on largescale.Internet banking is expected to get a
boost from such developments.

Reserve Bank of India has taken the initiative for facilitating real time funds
transferthrough the Real Time Gross Settlement (RTGS) System. Under the
RTGS system, transmission, processing and settlements of the instructions
will be done on a continuous basis. Gross settlement in a real time mode
eliminates credit and liquidity risks. Any member of the system will be able to
access it through only one specified gateway in order to ensure rigorous
access control measures at the user level. The system will have various levels
of security, viz., Access security, 128 bit cryptography, firewall, certification
etc. Following a reference made this year, in the Monetary andCredit Policy
statement of the Governor, banks have been advised to develop domestic
generic model in their computerization plans to ensure seamless integration.
Theabovementioned efforts would enable online banking to become more
secure andefficient.

With the process of dematerialisation of shares having gained considerable

ground in recent years, banks have assumed the role of depository
participants. In addition to customers’ deposit accounts, they also maintain D-
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mat accounts of their clients. Online trading in equities is being allowed by
SEBI. This is another area which banks are keen to get into. HDFC Bank Ltd,
has tied up with about 25 equity brokerages for enabling third party transfer of
funds and securities through its business-to-business (B2B) portal, ‘e-Net’. D-
mat account holders with the bank can receive securities directly from the
brokers’ accounts. The bank has extended its web interface to the software
vendors of National Stock Exchange through a tie-up with NSE.IT – the
infotecharm of the exchange. The bank functions as the payment bank for
enabling funds transfer from its customers’ account to brokers’ accounts. The
bank is also setting up a net broking arm, HDFC Securities, for enabling
trading in stocks through the web. The focus on capital market operations
through the web is based on the bank’s strategy on tapping customers
interested in trading in equities through the Internet. Internet banking thus
promises to become a popular delivery channel not only for retail banking
products but also for online securities trading.

An upcoming payment gateway is being developed by ICICI and Global Tele

System, which will enable customers to transfer funds to banks which are part
of the project. Transfer of funds can be made through credit/debit/ smart cards
and cheques, with the central payment switch enabling the transactions. Banks
are showing interest in this new concept, which will facilitate inter-bank funds
transfers and other e-commerce transactions, thus highlighting the role of
banks in e-commerce as intermediaries between buyers and sellers in the
whole payment process.

WAP (Wireless Application Protocol) telephony is the merger of mobile

telephony withthe Internet. It offers two-way connectivity, unlike Mobile
Banking where the customer communicates to a mailbox answering machine.
Users may surf their accounts, download items and transact a wider range of
options through the cell phonescreen. WAP may provide the infrastructure for
P2P (person to person) or P2M (person to merchant) payments. It would be
ideal for transactions that do not need any cash backup, such as online
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investments. Use of this cutting edge technology could well determine which
bank obtains the largest market share in electronic banking. IDBIBank Ltd.
has recently launched its WAP- based mobile phone banking services
(offering facilities such as banking enquiry, cheque book request, statements
request,details of the bank’s products etc).

At present, there are only 2.6 phone connections per 100 Indians, against the
worldaverage of 15 connections per 100. The bandwidth capacity available in
the country isonly 3.2 gigabits per second, which is around 60% of current
demand. Demand for bandwidth is growing by 350% a year in India. With the
help of the latest technology, Indian networks will be able to handle 40
gigabits of Net traffic per second (as compared to 10 gigabits per second in
Malaysia). Companies like Reliance, BhartiTelecom and the Tata Group are
investing billions of rupees to build fibre optic linesand telecom infrastructure
for data, voice and Internet telephony. The onlinepopulation has increased
from just 500,000 in 1998 to 5 million in 2000. By 2015, theonline population
is expected to reach 70 million. IT services is 9014crores,industry in India
growing at a rate of 55% per annum. Keeping in view all the above
developments, Internet banking is likely to grow at a rapid pace and most
banks will enter into this area soon. Rapid strides are already being made in
banking technology in India and Internet banking is a manifestation of this.
Every day sees new tie-ups, innovations and strategies being announced by
banks. State Bank of India has recentlyannounced its intention to form an IT
subsidiary. A sea change in banking services ison the cards. It would,
however, be essential to have in place a proper regulatory, supervisory and
legal framework, particularly as regards security of transactions over the Net,
for regulators and customers alike to be comfortable with this form of
banking.

Now a day the Indian banking sector has undergone significant transformation
from local branch banking to anytime-anywhere banking. Over the past
couple of years it is happening because we have adopted the technology, there
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has been registered vast growth in the number of transactions done through
mobile devices also. As per RBI, 49 banks were there with a customer they
were offering mobile banking services base of about 13 mn as at the end of
March 2012. Around 25.6 mn mobile banking transactions were transacted
during FY12 valued at Rs. 18.2 bn, it was recorded that a growth of 198%
year over year and 174% year over year respectively. This quick growth is
driven by the accessibility of 3G/4G network, increasing several smart phones
and a number of telecom companies are offering economical data usage
packages.

For supportingthecashless transactions, mainly for little value transactions, the

RBI has to raise the cap on mobile banking without end-to-end encryption
from Rs. 1,000 to Rs. 5,000. But for the next time, that transaction limitation
of Rs. 50,000 per customer per day was removed, by permitting banks to fix
the transaction limits based on their own risk perception.

According to K V Kamath (formerMD and CEO, ICICI Bank): he has said

something related with bank that is it always says that the banking sector
shows the actual conditions of the larger economy – its linkages to all sectors
has made bank a proxy for what is happening in the economy as a whole.
Really, the Indian banking sector has today the same sense of thrill and
opportunity that we all can see in the Indian economy. Some changes those
had happened have taught us many lessonsin fundamental structural in current
years. This is a combination of development which is coming from the
technical developments and from a marketplace which is liberalized, without
any intermediation, hazing of traditional roles and its limits, prominence on
shareholder value creation which has directed to a transformation in the right
direction of the banking sector.

According to him the developments which are continuing in Indian industry

and government and the combination of India with the global markets are also
offering countless opportunities for the banking sector. The high-quality
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banking services are also seeking by Companies and governments and they
are trying to increase and improve their own operating efficiency. Companies
are seeking to offer improved customer service and making the most of
shareholder which returns and cause of it governments have to seek to get
better the quality of public services. The opportunity which is the
internationalization of India offers banks to service cross-border which
requires of Indian companies and India-linked requires of multinationals.

The increasing Indian Diaspora, with its strong home country connections,
which looks for an exclusive combination of Indian civilization and global
standards that offers anexpensiveposition opportunity for Indian banks.Today
the Indian customer is the biggest opportunity for the Indian banking system.
In the levels of income and cultural shifts in the terms of life style are the
demographic shifts those are changing the profile of the Indian consumer and
their ambition. It is and will be a key driver growth of economy which is
going forward. At a younger age the Indian customers are now seeking to
complete their lifestyle ambitions with thebest combination of equity and debt
to finance use with the best creation of asset. For competitive, complicated
retail banking services it is leading to a growing demand. For a large range of
products and services The consumers always represent a market, they needs a
credit to finance their house; and if they purchasea car,an auto loan for his car;
a credit card for ongoing purchases; they need a bank account also; if they
plan for any higher education or to invest their money for their child, a long-
term investment plan isalso there for that; and there is also a pension plan for
their retirement; a life insurance policy is also for them, there are endless
possibilities. And, these customers don’t live just in top ten cities in India.
They are presently yet inventive, stable yet also flexible, and responsive to
change. The Indian banking sectors are trying continually to face some
structural challenges.

He also told that we have a fairly large number of banks, some of which are
the best in size and scale of operations. On the regulatory front, association
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with global developments, they have to focus in an area which is in banking
supervision,for both banks and regulators. According to the new international
capital norms which require a high level of complexity in risk management,
technology and information system both would pose a challenge for a lot of
participants in the Indian banking sector. In the Indian economy the profound
and frequently painful process are there of restructuring and Indian industry
also has resulted in asset value issues for the banking sector; while significant
progress is being made in this area, a big deal of work in the directions of
resolution of these legacy issues still needs to be done. The Indian banking
sector is therefore at a thrilling point in its evolution. There are lots of
opportunities for banks to take entry in to new businesses and new markets, to
expand new ways of working, to improve their work efficiency, and to
distribute their higher levels of consumer service. The process of vary and
restructuring of services that must be undergone to capitalize on these
opportunities poses a challenge for numerous banks.

Going ahead, this banking sector will be the witness of increased competition
between public sector banks and private sector banks and possibly also from
foreign banks that may search for to increase their presence in the Indian
market; they get the opportunities which have given by the Indian market
offers. The winners in this sector will be only those who can understand the
problems and who will fulfil all the need of the customers, and will get high
levels of customer retention, leveraging technology, knowledge, and human
resources to give quality products and services and manage risks and returns,
thus by thatdelivering value to all stakeholders.

3.1 ELECTRONIC BANKING IN INDIA

The Reserve Bank of India constituted a working group on Internet Banking.

The group divided the internet banking products in India into 3 types based on
the levels of access granted. They are:

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I) INFORMATION ONLY SYSTEM:

General purpose information like interest rates, branch location, bank

products and their features, loan and deposit calculations are provided in
the banks website. There exist facilities for downloading various types of
application forms. The communication is normally done through e-mail.
There is no interaction between the customer and bank's application
system. No identification of the customer is done. In this system, there is
no possibility of any unauthorized person getting into production systems
of the bank through internet.

II) ELECTRONIC INFORMATION TRANSFER SYSTEM:

The system provides customer-specific information in the form of

account balances, transaction details, and statement of accounts. The
information is still largely of the 'read only' format. Identification and
authentication of the customer is through password. The information is
fetched from the bank's application system either in batch mode or off-
line. The application systems cannot directly access through the internet.

III) FULLY ELECTRONIC TRANSACTIONAL SYSTEM:

This system allows bi-directional capabilities. Transactions can be

submitted by the customer for online update. This system requires high
degree of security and control. In this environment, web server and
application systems are linked over secure infrastructure. It
comprises technology covering computerization, networking and
security, inter-bank payment gateway and legal infrastructure. (ATM)
Auto ATM is designed to perform the most important function of bank. It
is operated by plastic card with its special features. The plastic card is
replacing cheque, personal attendance of the customer, banking hours
restrictions and paper based verification. There are debit cards. ATMs
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used as spring board for Electronic Fund Transfer. ATM itself can
provide information about customers account and also receive
instructions from customers - ATM cardholders. An ATM is an
Electronic Fund Transfer terminal capable of handling cash deposits,
transfer between accounts, balance enquiries, cash withdrawals and pay
bills. It may be on-line or 0ff-line. The on-line ATN enables the customer
to avail banking facilities from anywhere. In off-line the facilities are
confined to that particular ATM assigned. Any customer possessing
ATM card issued by the Shared Payment Network System can go to any
ATM payment network and perform his transaction linked to Shared
Payment Networks and perform his transactions.

 Credit Cards/Debit Cards:

The Credit Card holder is empowered to spend wherever and

whenever he wants with his Credit Card within the limits fixed by
his bank. Credit Card is a post paid card. Debit Card, on the other
hand, is a prepaid card with some stored value. Every time a person
uses this card, the Internet Banking house gets money transferred to
its account from the bank of the buyer. The buyers account is debited
with the exact amount of purchases. An individual has to open an
account with the issuing bank which gives debit card with a Personal
Identification Number (PIN). When he makes a purchase, he enters
his PIN on shops PIN pad. When the card is slurped through the
electronic terminal, it dials the acquiring bank system - either Master
Card or VISA that validates the PIN and finds out from the issuing
bank whether to accept or decline the transactions. The customer can
never overspend because the system rejects any transaction
which exceeds the balance in his account. The bank never faces a
default because the amount spent is debited immediately from the
customer’s account.

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 Smart Card:

Banks are adding chips to their current magnetic stripe cards to

enhance security and offer new service, called Smart Cards. Smart
Cards allow thousands of times of information storable on magnetic
stripe cards. In addition, these cards are highly secure, more reliable
and perform multiple functions. They hold a large amount of
personal information, from medical and health history to personal
banking and personal preferences.

You can avail the following services through E-Banking. Bill

payment service, you can facilitate payment of electricity and
telephone bills, mobile phone, credit card and insurance premium
bills as each bank has tie-ups with various utility companies, service
providers and insurance companies, across the country. To pay your
bills, all you need to do is complete a simple one-time registration
for each biller. You can also set up standing instructions online to
pay your recurring bills, automatically.

You can transfer any amount from one account to another of the
same or any another bank. Customers can send money anywhere in
India. Once you login to your account, you need to mention the
payees’ account number, his bank and the branch. The transfer will
take place in a day or so, whereas in a traditional method, it takes
about three working days. ICICI Bank says that online bill payment
service and fund transfer facility have been their most popular online
services.

 Credit card customers

With Internet banking, customers can not only pay their credit card
bills online but also get a loan on their cards. If you lose your credit
card, you can report lost card online.

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 Railway pass

This is something that would interest all the aamjanta. Indian

Railways has tied up with ICICI bank and you can now make your
railway pass for local trains online. The pass will be delivered to you
at your doorstep. But the facility is limited to Mumbai, Thane,
Nashik, Surat and Pune. Investing through Internet banking you can
now open an FD online through funds transfer. Now investors with
interlinked D-mataccount and bank account can easily trade in the
stock market and the amount will be automatically debited from their
respective bank accounts and the shares will be credited in their D-
mat account. Moreover, some banks even give you the facility to
purchase mutual funds directly from the online.

 Banking system

Nowadays, most leading banks offer both online banking and D-mat
account. However if you have your D-mat account with independent
share brokers, then you need to sign a special form, which will link
your two accounts.

Now just top-up your prepaid mobile cards by logging in to Internet

banking. By just selecting your operator's name, entering your
mobile number and the amount for recharge, your phone is again
back in action within few minutes.

 Shopping

With a range of all kind of products, you can shop online and the
payment is also made conveniently through your account. You can
also buy railway and air tickets through Internet banking.

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3.1.1 NEED FOR ELECTRONIC OR INTERNET-BANKING

In traditional banking one has to approach the branch physically, to deposit a

cheque or withdraw cash or request a statement of accounts. But now in
Internet banking, we can do any inquiry or transaction online there is no need
to go any branch without any reference to the branch it is anywhere banking at
any time. To get Internet banking is gradually more becoming a "need to
have" than a "nice to have" service. The net banking, therefore, now is more
of a norm rather than an exception in several developed countries because of
the reality that it is the cheapest means of providing banking services. Banks
have traditionally been in the front position of harnessing technology to
recover their products, services and their work efficiency. They have, over a
long time, been using electronic and telecommunication networks for
delivering a broad range of value added products and services. The delivery
channels include direct dial up connections, public networks, private networks
etc and the devices include telephone, PCs including the ATM etc. With the
attractiveness of Personal Computers, we can access (WWW) World Wide
Web or internet easily, banks are using Internetmore and morelike a channel
for receiving instructions and delivering their products and services to their
consumers. This form of banking is usually referred to as Internet Banking,
though different banks offered different range of products and services both in
their content and sophistication.

There are some more points which shows need of electronic banking

The boost in investment in banking sector has forced to switch on to

automation of existing processes.Cost sharing between customers and
products and its analysis forced banks to gofor IT or e-banking. Costs in
banking are shared across products and even across customers.An investment
that might have a positive impact on one customer base or productmay have
the desired impact on the overall cost base.

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Banking services may be a class of services for which demand and supply
created additional demand. Banks have recognized that they need to offer the
conveniences of newer technology to retain their existing customers.

The mix effect of technology in banking reflect the fact that technology can
replace simple repetitive functions such as the basic calculations and
internally oriented back office support functions that were automated initially.
Many steps has been taken by the Reserve Bank of India (RBI) to provide
better service to customers through some schemes like National Electronic
Funds Transfer and providing ATM usage under a universal umbrella, V
Leeladhar, Deputy Governor, Reserve Bank of India, said. He said India has a
chance to jump from cash to electronic payment mode, thereby, bypassing
cheques, Leeladhar noted.

Under the financial inclusion project appointment of individuals as banking

correspondents has been permitted bythe Reserve Bank and also did several
changes in the Banking Ombudsman Scheme for speedier redressal of
grievances. RBI also said to all banks to take fully use of technology to
provide better customer service.

3.1.2 ADVANTAGE OF E-BANKING

In a time where it seems like you can do just about anything on the internet, it
seems only right to be able to get your banking needs done online. Let’s look
at the advantages of online banking versus going to a physical bank branch.

 Convenience:

E-banking or online banking is just different from traditional banking,

because in traditional banking people have a limited time period to use
any service but in online banking people can use all the services 24
hours in a day, it provides all time facilities, people can do it only by a
mouse click. And there is no need to stand in queue now online

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 banking customer can take advantage of all the services by their own
electronic devises like PC or mobile and etc. All people want
flexibility and Internet banking is trying to provide or offer them.

 Ubiquity:

If any customer of online banking is out of state or even out of the

country and if any money problem arises there, so that customer can
log on instantly to his/her online bank and take care of business, 24\7.

 Transaction speed:

In online banking its sites speeds generally execute and also confirm
transactions quicker than any ATM processing speeds.

 Efficiency:

Any customer of online banking can access and manage all of his/her
bank accounts, including IRA’s, CDs, even securities, from only one
secure site.

 Effectiveness:

To help their customers and manage all of their assets more effectively
now many online banking sites are offering sophisticated tools,
including account aggregation, stock quotes, rate alert and also
portfolio managing program. Most are also compatible with the money
managing programs for example quicken and Microsoft money.

 Cheaper alternative:

Because now a day competitions are increasing day by day, so it may

be the cost factor that is driving banks to offer a cheaper alternative
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 facility. We can see that the Internet is still a very cheap alternative to
opening a physical branch, and most of the push seems to be coming
from the supply side. The costs of a banking service through the
Internet form a fraction of costs through conventional methods.

 From snob value to necessity:

Some years ago, it was the thought of mostly people that if any
customer is opening any new account and wanted the online banking
facility, so it was only to “feel good “and even after having this facility
only some people used it. But now people believe that the facility of
online banking is not now “nice to have “it’s totally changed in to
“need to have” facility. Today’s everyone is very busy so they always
need to do banking with an organisation that could offer all good
services on the Internet.

 More Competition:

Internet banking became an option for approximately every bank in the

nation. After the inspection of e-banking lots of competitions have
arisen suddenly. Start-up banks took note and lots of sprouted up as
Internet-only banks, eliminating some of the costs that traditional
banks have. Internet banking came with lower operating costs; if any
bank is Internet-based bank so it is able to pass those savings on to
their customers in the form of higher interest rates, leading to
increased competition for traditional banks.

 Reduced Costs:

In Internet banking people can do their work without any paper work
so it reduces costs for banks, and also all transactions can be done
without any paper work, that is beneficial for banks and customer also.

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 24-Hour Availability:

Now cause of Internet banking people can do any time banking it is

day or night no matter, it is available for 24 hours. Cause of 24 hours
availability many banks has increased their customers satisfaction in
many ways. As now there is no need to do wait for the bank to open or
to do any type of business now they can also solve any problem that
arises at any time and can do their any type of work with the help of e-
banking facility.

 Customer Support:

As internet came in the world of banking sector,ithelped banks to

manage customer by supporting and creating online FAQ databases
with online chat support.

 Increased Training Needs:

Cause of internet the need of training has been increased, as customers

often come into the bank and ask some tellers questions related with
online banking issues. At that time the specialists can be reached by
phone to solve the quire of customers, it is essential for all employees
to have some knowledge about technical aspects.

 Convenience Factors:

Before some time when online banking was not common, customers
had to call the bank and navigate through an automated and sometimes
it was really boring system to check balances or transfer funds like
that, but now people can access their account and can also access all of
those functions with the help of some clicks of the mouse.

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 Financial Management:

Now online banking allows their consumers to easily view their

account online and they can also view some upcoming transactions so
that they can better predict their cash flow and can also sign up for
additional services much more easily or by the help of this they can
also cancel current services if they think so.

 Accessibility:

If people are travelling in any foreign country, they may have some
difficulty in accessing their bank over the phone. As long as they have
Internet banking, however, they can easily access their bank account
from there.

 Online Safety:

If, any person apply for online banking he get a password. If he

thought that his password is not strong enough, so he can change his
online account password.

 Verification:

Some fake banks websites through fake emails can also trick you into
navigate on that, and that steals your password and also your user
name as you enter them. So it is necessary if you enter in any bank
websites to access your account to verify carefully those sites.

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3.1.3 DISADVANTAGES OF INTERNET BANKING

However the current trend of exclusively using the online mode to make all
kinds of transactions has a few drawbacks which may prove costly in the long
run unless secured against from the beginning.
 Complex Transactions:

There are many complex transactions which cannot be sorted out

unless there is a face to face discussion with the manager that is not
possible through internet banking. Solving particular issues and
complaints requires physical visit to the bank and cannot be achieved
through the internet. Online communication is neither clear nor pin
pointed to help resolve many complex service issues. Certain services
such as the notarization and bank signature guarantee cannot be
accomplished online.

 Start-up may take time:

Some times because of the internet server problem and data speed
issue it may be possible that start up may take time to get login to
internet banking.

 Legal Issues:

If your partner and you wish to view and maintain your assets together
online, one of you may have to sign a durable power of attorney before
the bank then that bank will display all of your holdings together.

 Learning curves:

In banking sites people can feel difficulty to find the way at first. They
have to give some time and have to invest some more time in order to
become comfortable in their virtual lobby.

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  Bank site changes:

Some time many banks upgrade their online programmes or services to

provide their customer more facilities and more services, but it can be
a cause of some problems, if they add some new features so some time
people get confuse to access their online banking system and they have
to enter their account information again and again.

 Security Concern:

We all know that e-banking heavily encrypted, through the developing

technology, but it is very hard to find out the ‘hackers’ who may
access any customer’s online banks accounts.

 Technical Breakdowns:

As some times all technologies go down, like that sometimes websites

of online banking also go down. If this happens when you want to
close your local bank or credit card accounts, you will get definitely
tired.

3.2 IMPACT OF ELECTRONIC BANKING IN PRIVATE

AND PUBLIC BANK

Before knowing what is the impact of e-banking researcher is trying to tell

you about our Indian banking system, that from where the public sector bank
and private sector came:

From this figure we can easily understand that, Indian banking sector has been
divided in two types of banks, Scheduled banks and Non Scheduled banks,
now Scheduled banks have been divided in two types of banks, Scheduled
Commercial banks and Schedule co-operative banks, and Scheduled

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Commercial banks have been divided in to four types of banks, Public sector
banks, Private sector banks, Foreign banks and Regional rural banks, and
Public sector banks have been divided in to Nationalized banks and State bank
of India & its associate banks, and Privet sector banks have been divided in
old privet sector banks and new private sector banks now the ICICI bank is
under the old privet banks.

STRUCTURE OF INDIAN BANKING SYSTEM

Banking System

Scheduled Non Scheduled

Banks Banks

Scheduled Scheduled Co-

Commercial Banks Operative Banks

Public Private Foreign Regional Rural

Sector Bank Sector Bank Bank Bank

Nationalized SBI and Its Old Private New Private

SectorBank SectorBank
Bank Associates

Scheduled UrbanCo- Scheduled SateCo-

Operative Banks Operative Banks

Figure 3.2 Structure of Indian Banking systems

Source- RBI Report on Trend and Progress of Banking in India 2000

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Now we all have known that under which sectors the SBI and ICICI bank
came from. Many developments have been done by RBIin both private and
public sector banks to facilities to customers delight as well as operational
efficiency of banks andreducing operational expenses of banking services.
Some of the developments are asfollows.Like Computerization Banking – The
reserve bank of India installed its first computer in 1968. Computer, being a
number cruncher, brings tremendous speed in handling of transactions helps
in decreasing operational costs, checking various types of frauds, saving of
time, etc. There are many facilities, which may be offered by banks after
computerisation4 i.e. Internet banking, any time banking, ATM, Tele-bank,
Mobile banking, etc. The main types of the bank computer applications – back
office application, total branch automation, core banking solutions. After the
turn of back office application and total branch automation the next term is
core banking applications. Core Banking Applications provide anywhere any
time24x7 nonstop services, which are not possible with traditional localized
branch automation systems.

3.2.1 E-BANKING SERVICES THROUGH WEBSITES OF THE

BANKS

The website technology has totally transformed the banking business. The
success of Internet banking depends upon the well designed website of a bank.
It needs to be informative and functional. So, the basic aim of a website is to
make the electronic banking services more functional, desirable, and
accessible and consumer friendly. Internet banking can be provided by the
banks in two ways. Firstly, an existing bank with its physical offices can
establish a website and offer the internet banking services as an additional
delivery channel. Secondly, the facility of e-banking can be provided solely
through the internet without having any physical office. The following
diagram highlights that accessibility, speed, navigability and content are the
important factors which make a website effective in its use.

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 WEBSITE QUALITY ASSESSMENT MODEL

ACCESSIBILITY

SPEED SITE

QUALITY

NAVIGABILITY

CONTENT

Figer 3.2.1 Website Quality Assessment Model

Source: Mirando and Cortes (2006)

It is evident from the above diagram, if the website is easily accessible by its
users, it can increase its quality. The speed of a website enables its users to
make their transactions within a reasonable time. The linking of the website
with another page is called navigability. Each page of the website should be
self-sufficient and provide link to the main contents. Poor web design will
result into loss of users. Further, content means that website must have that
required potential which satisfies the need of the customers.

The website of a bank carries various features like product information,

services provided, information on location, contacts of the bank, history of the
bank, security issues, information regarding operation of different services,
and details of various transactions. On the basis of these features, a website
can be classified into two categories:
a) Informational websites
b) Transactional websites
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 a. Informational Websites:

Informational websites provide the general information about the bank

and its products. On such websites, customers can access all kinds of
information but they cannot transact.

b. Transactional Websites:

These websites enable the customers to conduct any transaction

through the website of the bank. The website provides a wide range of
services to the customers. These services are classified into wholesale
banking, retail e-banking services, personalbanking, etc. Some retail
and wholesale e-banking services are commonly offered by all the
financial institutions on their websites. The banks offer retail services
like account management, bill payment, new account opening,
investment/ brokerage services, loan application and approval, account
aggregation, etc. Wholesale services include cash management, small
business loan applications, business to business payments, employee
benefit pension administration, etc. However, the services provided
through transactionalwebsites are more risky than informational
websites. The reason being that transfer of money is involved in it. So,
the following measures are effective to curtail such a risk:

 Security control for safeguarding customer information.

 Liability for unauthorized transactions.
 Losses from fraud, if the institution fails to verify the identity.
 Security from violation of rules and regulations.

The present study is based upon two considerations; firstly, only those banks
which are providing services through transactional websites have been
selected for the study; and secondly, the extent to which these services are

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being provided by the banks. The purpose of this chapter is to fill significant
gaps related to electronic banking in India.

For the fulfilment of gap, a survey was conducted on the websites of banks to
determine the number of electronic banking services provided by the banks.
To study the extent ofe-banking services, an attempt has been made to
conduct ranking of electronic banks, sothat an approach can be developed to
assess which of the banks are providing qualitative services to the customers.

3.3 IMPACT OF E-BANKING IN PRIVATE AND PUBLIC

SECTOR BANKS

Figer 3.3 The Role of Technology in Banking

Source: R P Singh, “The Role of Technology in Banking” Some thoughts on

the HOW! NucleusSoftware,2007.

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Private sector banks and foreign banks have tended to concentrate their efforts
more on the top 23 centers which house the cream of the country’s urban
customers. These banks have taken the house the cream of the country’s urban
customers. These banks have taken the lead in technology adoption and have
succeeded in building up a substantial base of technology savvy, high-end
customer Making and observation about the adoption of technology by the
bank, P.C.Narayan, vice-president (IT and retail banking) of Global Trust
Bank Ltd, says.“The rate of the adoption of IT by foreign and private sector
banks is in country has been significant over the Internet phenomenon
worldwide. A number of banks in the public sector have also accelerated the
pace of IT deployment largely because of the competitive pressure brought
upon them by private sector banks and foreign banks’’.Though in the
beginning the employees resisted computerization (especially in nationalized
banks), the management finally succeeded in convincing its employees about
the benefit and need for adoption of technology. Says P.Seshadri Rao, a
financial consultant has based in Hyderabad, “The basic reason for getting the
nod for computerization was the competition from privatebanks. Once the
gates were opened to the private sector to operate banks, they started with a
bang, thereby forcing nationalized banks to reconsider their way of doing
business. A SBI official in Delhi echoes the same sentiments: “Needless to
say, competition from foreign banks was one of the motivation factors for us
toswitch to computers. But housekeeping scored over everything else.
Maintaining books and regular task like computing interests at the end of the
calendar year yeas tedious. The quantum of database was so huge that
computerization was the only way out. “Banks would have certainly started
downing their shutters had banking software not taken over the reins.”

In sharp contrast, most of the private banks like GTB, HDFC, and
ICICIstarted their operations with the use of technology. And with these
newbanks wooing the customers by offering what was till then an unknown
phenomenon-customer service-the nationalized banks were forced to take
remedial steps. “The compulsion for private banks to adopt a very high level
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of IT was driven by their desire to contain their operating cost at the lowest
levels and at the same time be able to offer a wide variety of product and
services in quickset possible time.” observes Narayan.Commenting on the
reasons for public sector banks being laggards in the adoption of technology,
State Bank of Mysore managing director Sitarama Murty says: “The private
banks started with a clean slate. They hired technology savvy people. On the
other hand, public sector banks didn’t havethoseadvantages. We need to
follow the public sector bank’s rules and regulation while hiring people. We
can’t appoint computer professional in the top management directly.”
Computerization of the branches, especially in semi-urban and rural areas, is
still a far cry for public sector banks. “This calls for huge investments and
retraining of staff. I think these factors are inhibiting most of the banks totake
technology to rural areas. But since IT is becoming an integral and inevitable
part of the banking system, rural banks’ computerization should also happen
very soon,” comment a senior official with Andhra Bank. Explains P.K.
Seshadrinathan, CTO of SSI Technology: “The key obstacles to introduction
of IT are non-integration or non-networking of branches, and a lack of
corporate network. Computerization has been introduced but each branch acts
as an island. And, of course, cultural/social issues continue to pose problem.
Overcoming these obstacles, therefore, would be the biggest challenge by
itself”. However, the nationalized banks have taken to computerization in
right earnest.

Today most of them have their own in-house IT department which not only
takes care of deployment and implementation issues but is also into
developing specific and customized application for the bank. From SBI
toICICI bank, everyone is expanding its IT division and making huge
investment to develop the division as a profit centre by itself. According toan
SBI official, “It makes more sense to have our own division whichunderstand
our needs and comes out with a solution. It is not just cost-effective but also
useful for a bank to have a separate division that takes care of IT in
totality.”Faced with deregulation, privatization and globalization, the Indian
banks are slowly looking at various options to stay ahead in the rat race. This
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has resulted in the following recent trends: Phonebanking this means carrying
out of banking transaction through the telephone. A customer can call up the
banks help line or phone baking number to conduct transaction like transfer of
funds, making payments, checking ofaccount balance, ordering cheques, etc,.
This also eliminates the customer of the need to visit the bank’s branch.ATM
(Automatic Teller Machine) an ATM is basically a machine that can deliver
cash to customers on demand after authentication. An ATM does the basic
function of a bank’s branch, i.e., delivering money on demand. Hence setting
of branches is not required thereby significantly lowering infrastructure costs.
These machines also hold the keys to future operational efficiency.

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