Ashish e Banking

E – Banking: Changing
scenario and effects
Project
On
E-BANKING
(THE CHANGING SCENARIO AND EFFECTS)
Submitted To Submitted By
Prof. Ankita Gupta Gagandeep Singh
Lecturer in Management Uni.Roll No:80804317016
PIMT Class:MBA (Semester-IV)
Session 2008 -10
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DECLARATION
I, GAGANDEEP SINGH, student of Masters of Business Administration from Punjab

technical University, Jalandhar hereby declare that I have completed the project on the
topic “E-BANKING:THE CHANGING SCENARIO AND EFFECTS ”as part of
my course requirement.
I further declare that the information presented in this project is true and original to
the best of my knowledge.
Date: Name:Gagandep Singh
Place: Mandi Gobindgarh roll. No: 80804317016

Program: MBA
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CERTIFICATE FROM THE GUIDE
This is to certify that the project work titled “E-BANKING:THE CHANGING

SCENARIO AND EFFECTS” is a bonafide work of GAGANDEEP SINGH,
University Roll No- 80804317016 is carried out in partial fulfillment for the award of
M.B.A. From PUNJAB INSTITUTE OF MANAGEMENT AND TECNOLOGY
affiliated to PANJAB TECHNICAL UNIVERSITY under my guidance. This
project has not been submitted earlier for the award of any degree/diploma of any
other Institution/University.
PLACE: MANDI GOBINDGARH (PUNJAB)
NAME OF THE GUIDE: Prof. ANKITA GUPTA
DESIGNATION OF THE GUIDE : LECTURER IN MGT
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Acknowledgement
“Many talented people have contributed to the successful completion of this work and
I would like to extend a word of thanks and appreciation to all of them.”
First, I wish to express my gratitude to all mighty GOD and then Miss. ANKITA
GUPTA my faculty guide, Punjab institute of management and technology for
providing me the opportunity to complete my Project under his esteemed guidance. I
shall always remain indebted to her valuable guidance and keen interest at all stages
of this work. Working with him was a delightful and enriching experience.
I would also extend my acknowledgement to the library staff for their kind assistance.
Sincere thanks to my parents and friends who are a constant source of inspiration and
pillars of support.
Name & Sign: Gagandeep Singh
Roll. No: 80804317016
MBA
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CONTENTS
S. No. Chapter Name Page

No.
1 Introduction………………………………………………..7
2 Literature Review…………………………………………51
3 Problem Statement………………………………………..53
4 Methodology…………………………………………….....55
5 Analysis and conclusion………………………………..…56
6 Recommendation & Suggestions………………………....68
References
Annexure
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Objective of the project
As the title of the project suggests, the objective of the project is to find out the
satisfaction level of customers who go and use electronic banking.
The following are the sub objectives of the project:
• Understanding the attitude and behaviour of the bank clients towards the
changing scenario
• Find out there preference parameters for which they feel is important in e-
banking.
• Understanding the emerging trend and significance of e-banking
• Finding out ways and means to improve on the services provided by banks
electronically
• Understanding the future potential of electronic banking as illiteracy is
high in our country
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CHAPTER : 1
INTRODUCTION
EVOLUTION OF BANKING
Origin of the Word “Bank”
The word “bank” is originally derived from the German word “back” meaning a joint-
stock fund. This then Italianized into “banco”.
Early History of Banking
As early as 2000 B.C., the Babylonians developed a banking system. The public felt
secure in depositing money and valuables in temples, and the priests working as
financial agents.
Again the origin of modern banking traced its way back around the 14th century where
the money dealers who received money on deposit, and were lenders of money soon
became famous throughout Europe, as Bankers.
Development of Banking in India
The post-independent India has witnessed a vibrant evolution in industrial sector

which has made the country very noticeable in the global context. Growth in the
industry has resulted in growth in trade, which in turn has compelled the financial
sector to both broaden and deepen itself.
The earliest attempt in India in the direction of formulation of a definition was that of
the Hilton Young Commission, which in para 162 of its Report, put forward the
recommendation that “The term ‘bank’ or ‘banker’ should be interpreted as meaning
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every person, firm or company using in its description or every company accepting
deposits of money subject to withdrawal by cheque, draft or order.
Ever expanding sphere of banking activities
Bankers have nowadays, to deal with a large number of matters. They serve as
custodians of stocks and shares and other valuables. Imports into and exports out of a
country are financed by banks, and documents relating to the goods so imported and
exported, at one time or another, pass through the hands of bankers. Thus, they have
to deal not only with bill of exchange, but also with bill of lading, railway receipts,
warehouse warrants and receipts, marine insurance policies and various other
documents. As bankers, they advance money on securities, and issue letters of credit,
travelers’ cheques and circular notes to customers wishing to travel abroad, as also to
effect purchases and shipment of goods. They are often required to countersign
indemnities and guarantees given by their customers, and they undertake the
administration of estates.
ROLE AND SIGNIFICANCE:
If computerization has today become a byword in banking, its sustained growth is

wholly due to its role as an enabler in the smooth and efficient conduct of a whole
range of banking practices. Computers were originally destined for a minor role in
banks, primarily intended to facilitate accounting transactions. Subsequently, once its
superiority was firmly established, it grew in status as a tool for management
information and a host of other inventions. Although the accounting aspect is still
quite important and relevant, IT has a far greater role to play to day to day banking
operations, especially in decision making process. Further, facilities like ATM,
Anywhere Banking, Internet as well as Mobile Banking have been increasing their
presence. It has, to be conceded that ‘Information Technology’ is not the end in itself,
but is useful tool in the hands of the management to leverage business prospects in its
favor and enhance efficiency.
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Banks now have come under great pressure to reduce operational costs to safeguard
their bottom lines. With banking tuning more and more customer-centric with every
passing day, technology as an enabler has helped banks to launch a whole array of
customer-centric products such as ATMs, Debit Cards, 24 hour Anywhere Banking.
The nomenclature ‘Banking Accounts’ have also yielded to more sophisticated term
‘banking relationship’. Customer Relations Management is now a very potent and
potential concept. E-Banking also has a role to play in ensuring a fair return to
shareholders, by facilitating in ensuring greater profits to the banking sector. The
recent emerging trends in self-service channels, namely ATM,s, Call-centers, Internet
and mobile banking would increase the use of E-banking as this offer the twin benefit
i.e convenience to the customers and reduction and cost of operation to the banks. E-
banking can increase the easy access of internet facilities among the masses which
would rise the comfort level for transacting via the web. The popularity of internet
banking likely depends upon inculcating in customers about their security and
personal privacy of their money and assests.
Public Sector Banks vs. Private Banks: the technology divide
Surely, the attack from none other than union finance minister Palaniappan
Chidambaram, for lagging behind their private sector counterparts in mobilising
deposits and customers, had forced all the public sector banks (PSBs) to go in for a
deep soul-searching exercise. But beyond a point, PSBs point their fingers to their
owner, the Government of India for the situation they find themselves in. ''The bank's
wide product range, superior service delivery and expanding branch network have all
helped the bank sustain growth in deposits and loans,'' he explains. Technology - not
just in terms of having a fully automated back-end and accounting system, but in
terms of being able to leverage technology to provide the bank's customers superior
and innovative products and greater convenience, has made all the difference.
Multiple delivery channels like ATMs, phone banking, net banking, etc. in the last
couple of years, the use of technology for data warehousing and CRM solutions have
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also helped the bank strengthen its customer relationships and to increase cross-sell,
he adds. ''There is no doubt, therefore, that technology has been a key business enabler
in supporting the bank's customer acquisition efforts we are in an expansion mode,'' he
avers. A small private sector bank like IndusInd Bank has added close to four lakh
customers in one year under the retail segment. So, if PSBs are to compete effectively
as the finance minister wants, technology and operational freedom are two
imperatives.
SOME FOREIGN BANKS IN INDIA:
Abu Dhabi Commercial Bank Ltd

American Express Bank Ltd
Barclays Bank PLC
BNP
Citibank
DBS Bank Ltd
Deutsche Bank AG
HSBC Ltd.
Standard Chartered Bank
Global banking
In the 1970s, a number of smaller crashes tied to the policies put in place following
the depression, resulted in deregulation and privatization of government-owned
enterprises in the 1980s, indicating that governments of industrial countries around the
world found private-sector solutions to problems of economic growth and
development preferable to state-operated, semi-socialist programs. This spurred a
trend that was already prevalent in the business sector, large companies becoming
global and dealing with customers, suppliers, manufacturing, and information centres
all over the world.
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Global banking and capital market services proliferated during the 1980s and 1990s as
a result of a great increase in demand from companies, governments, and financial
institutions, but also because financial market conditions were buoyant and, on the
whole, bullish. Interest rates in the United States declined from about 15% for two-
year U.S. Treasury notes to about 5% during the 20-year period, and financial assets
grew then at a rate approximately twice the rate of the world economy. Such growth
rate would have been lower, in the last twenty years, were it not for the profound
effects of the internationalization of financial markets especially U.S. Foreign
investments, particularly from Japan, who not only provided the funds to corporations
in the U.S., but also helped finance the federal government; thus, transforming the
U.S. stock market by far into the largest in the world.
Nevertheless, in recent years, the dominance of U.S. financial markets has been
disappearing and there has been an increasing interest in foreign stocks. The
extraordinary growth of foreign financial markets results from both large increases in
the pool of savings in foreign countries, such as Japan, and, especially, the
deregulation of foreign financial markets, which has enabled them to expand their
activities. Thus, American corporations and banks have started seeking investment
opportunities abroad, prompting the development in the U.S. of mutual funds
specializing in trading in foreign stock markets.
Such growing internationalization and opportunity in financial services has entirely

changed the competitive landscape, as now many banks have demonstrated a
preference for the “universal banking” model so prevalent in Europe. Universal banks
are free to engage in all forms of financial services, make investments in client
companies, and function as much as possible as a “one-stop” supplier of both retail
and wholesale financial services.
Many such possible alignments could be accomplished only by large acquisitions, and
there were many of them. By the end of 2000, a year in which a record level of
financial services transactions with a market value of $10.5 trillion occurred, the top
ten banks commanded a market share of more than 80% and the top five, 55%. Of the
top ten banks ranked by market share, seven were large universal-type banks (three
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American and four European), and the remaining three were large U.S. investment
banks who between them accounted for a 33% market share.
This growth and opportunity also led to an unexpected outcome: entrance into the
market of other financial intermediaries: nonbanks. Large corporate players were
beginning to find their way into the financial service community, offering competition
to established banks. The main services offered included insurances, pension, mutual,
money market and hedge funds, loans and credits and securities. Indeed, by the end of
2001 the market capitalisation of the world’s 15 largest financial services providers
included four nonbanks.
In recent years, the process of financial innovation has advanced enormously

increasing the importance and profitability of nonbank finance. Such profitability
priorly restricted to the nonbanking industry, has prompted the Office of the
Comptroller of the Currency (OCC)to encourage banks to explore other financial
instruments, diversifying banks' business as well as improving banking economic
health. Hence, as the distinct financial instruments are being explored and adopted by
both the banking and nonbanking industries, the distinction between different
financial institutions is gradually vanishing.
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Part 1: - E-Banking
 1.1 Introduction of E-Banking

 1.2 Meaning of E-Banking
 1.3 Functions of E-Banking
 1.4 Types of E-Banking
 1.5 Advantages of E-Banking
 1.6 Limitations of E-Banking
1.1 Introduction of E-Banking: -
The acceleration in technology has produced an extraordinary effect upon our

economy in general has had a particularly profound impact in expanding the scope
and utility of financial products over the last ten years. Information technology has
made possible the creation, valuation, and exchange of complex financial products on
a global basis and even that just in recent years. Derivatives are obviously the most
evident of the many products that technology has inspired, but the substantial increase
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in our calculation has permitted a variety of other products and, most beneficially,
new ways to unbundled risk.
What is really quite extraordinary is that there is no sign that this process of
acceleration in financial technology is approaching an end. We are moving at an
exceptionally rapid pace, fueled not only by the enhanced mathematical applications
produced by our ever rising computing capabilities but also by our expanding
telecommunications capabilities and the associated substantial broadening of our
markets.
All the new financial products that have been created in recent years contribute
economic value by unbundling risks and reallocating them in a highly calibrated
manner. The rising share of finance in the business output of India and other countries
is a measure of the economic value added by the ability of these new instruments and
techniques to enhance the process of wealth creation. The reason of course, is that
information is critical to the evaluation of risk. The less that is known about the
current state of a market or a venture, the less the ability to project future outcomes
and, hence, the more those potential outcomes will be discontinued.
1.2 Meaning of E-Banking: -
E-bank is the electronic bank that provides the financial service for the individual
client by means of Internet.
1.3 Functions of E-Banking: -
At present, the personal e-bank system provides the following services: -
1. Inquiry about the information of account: -

The client inquires about the details of his own account information such as the card’s
/ account’s balance and the detailed historical records of the account and downloads
the report list.
2. Card accounts’ transfer: -
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The client can achieve the fund to another person’s Credit Card in the
same city.
3. Bank-securities accounts transfer: -

The client can achieve the fund transfer between his own bank savings
accounts of his own Credit Card account and his own capital account in the securities
company. Moreover, the client can inquire about the present balance at real time.
4. The transaction of foreign exchange: -

The client can trade the foreign exchange, cancel orders and inquire
about the information of the transaction of foreign exchange according to the
exchange rate given by our bank on net.
5. The B2C disbursement on net: -

The client can do the real-time transfer and get the feedback
information about payment from our bank when the client does shopping in the
appointed web-site.
6. Client service: -
The client can modify the login password, information of the Credit
Card and the client information in e-bank on net.
7. Account management: -
The client can modify his own limits of right and state of the registered
account in the personal e-bank, such as modifying his own login password, freezing or
deleting some cards and so on.
8. Reporting the loss if the account: -

The client can report the loss in the local area (not nationwide) when
the client’s Credit Card or passbook is missing or stolen.
1.4 Types of E-Banking: -
1. Deposits, withdrawals, inter-account transfer and payment of linked accounts

at an ATM;
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2. Buying and paying for goods and services using debit cards or smart cards
without having to carry cash or a cheques book;
3. Using a telephone to perform direct banking- make a balance enquiry, inter-
account transfers and pay linked accounts;
4. Using a computer to perform direct banking- make a balance enquiry, inter-
account transfers and pay linked
1.5 Advantages of E-Banking: -
1. Account Information: Real time balance information and summary of day’s

transaction.
2. Fund Transfer: Manage your Supply-Chain network, effectively by using our
online hand transfer mechanism. We can effect fund transfer on a real time
basis across the bank locations.
3. Request: Make a banking request online.
4. Account information: The complete database that the banks has about our
company is available to us at our terminal. It provides us:
 Current balance in our account on real-time basis.
 Day’s transactions in the account.
 Details of cash credit limit, drawing power, amount utilized, etc.
5. Downloading of account statements as an excel file or text file. The statements
can be integrated with your ERP systems for auto-reconciliation.
6. Fund Transfers: Manage our Supply-Chain network, effectively by using our
online fund transfer mechanism. We can effect fund transfer on a real time
basis across the bank locations. The product facilities.
(a) One-to-one fund transfer between two linked account.
(b) Bulk fund transfers; In bulk fund transfers, we upload a flat
file containing payment / collection information. Our systems
take care of processing the entire file and once the file is
processed file to our ERP for auto reconciliation.
7. The real life situation of user-wise limits and multilevel signatories can be
mapped in the net-based fund transfer module too. We can specify user-wise
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cap for fund transfer and the number of approvals needed for each fund
transfer. The fund transfer will not take place unless the required number of
signatories has approved it.
8. With a power of Attorney from our dealers, we can link the dealer’s accounts
to our account in order to have an online fund transfer, saving us time and
money involved with cheques collections systems. Alternatively, the dealer
can credit our account through this channel. Similarly, we could also effect
vendor and other payments online.
9. Customers can also submit the following requests online: Registration for
account statements by e-mail daily / weekly / fortnightly / monthly basis.
(1) Stop payment or cheques
(2) Cheque book replenishment
(3) Demand Draft / Pay-order
(4) Opening of fixed deposit account
(5) Opening of Letter of credit
10. The company does not have to spend anything extra to avail such facilities. All
it requires is an Internet connectivity. The product enables the company to pro-
actively manage its cash flows, ease reconciliation efforts as all the MIS is
available at the click of the mouse.
11. Customers can Integrate the System with his own ERP: The customer can
download the account statements either as a text file or as an excel file. The
bank can help him in integrating the account statements and bulk payments
files with his ERP system. The bank may charge a nominal fee depending
upon the nature of work involved.
12. Bill Payment through Electronic Banking: Internet has thus ushered the
concept of anytime and anywhere banking. To the individual the onerous task
of visiting several places to settle his service bills like telephone, water,
electricity, etc., can be overcome through the electronic Bill Pay service
provided by the bank. He can pay his regular monthly bills (telephone,
electricity, mobile phone, insurance, etc.) right from his desktop. No more
missed deadlines, no more loss of interest. He can schedule his bills in
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advance, and thus avoid missing the bill deadlines as well as earn extra interest
on his money.
13. The Electronic Shopping Mall: The customer can also make his shopping
payment through the Bank’s secure website-so that he can shop online without
any security worries, as the bank can provide online real time shopping mail
services through partner shopping sites.
14. Effecting Personal Investments through Electronic Banking: The bank’s
website can also allow the customer to invest in shares, mutual funds and other
financial products.
15. Investing in Mutual funds: Electronic banking also brings the customer the
same convenience while investing in Mutual funds- Hassle free and Paperless
Investing. He can invest in mutual funds without the hassles of filling
application forms or any other paperwork. He needs to provide no signatures
or proof of identify for investing. Once he places a request for investing in a
particular fund, there are no manual processes involved. His bank funds are
automatically debited or credited while simultaneously crediting or debiting
his unit holdings.
16. Initial Public Offers Online: The customer could also invest in initial public
offers online without going through the hassles of filling ANY application
form / paperwork. Get in-depth analyses of new initial public offers issues,
which are about to hit the market and analysis on these. Initial public offer
calendar, recent initial public offers listings, prospectus / offer documents, and
initial public offer analysis are few of the features, which help a customer to
keep on top of the initial public offers markets.
17. Other benefits: The e-banking provides some other benefits also.
They are:
(1) Convenience.
(2) Speed of concluding transactions.
(3) Safety-banking from own home.
(4) Economy- banking without visiting your bank.
(5) Cheaper service fees.
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(6) Seamless Integration with existing environment (IDM-Intelligent Data

Module).
(7) Highly Scaleable.
(8) Easy Customization.
(9) Lower Costs of both Installation and Maintenance.
(10) Platform Independence.

(11) Round-the-Clock and Cross-Border Availability.
(12) Remote Authorization.
1.6 Limitation of E-Banking: -
1. Safety situations around ATMs.

2. Abuse of bank cards by fraudsters at ATMs.
3. Danger of giving your card number when buying on-line.
The modern technology has influenced the financial sector to a large extent. It
increases the competitive efficiency of the firms and provides sophistication to the end
users. It makes everyone fittest to survive.
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Part 2: - Internet Banking
 2.1 Internet Banking

 2.2 Risk & Rewards
2.1 Internet Banking:-
a) Introduction: -
The delivery channels include direct dialup connections, private networks,

public networks, etc. with the popularity of computers, easy access to Internet and
World Wide Web (WWW), Internet is increasingly used by banks as a channel for
receiving instructions and delivering their products and services to their customers.
This form of banking is generally referred to as Internet Banking, although the range
of products and services offered by different banks vary widely both in their content
and sophistication.
b) Banking Services through Internet: -
i. The Basic Level Service is the banks’ web sites which disseminate
information on different products and services offered to customers and
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members of public in general. It may receive and reply to customer’s queries

through e-mail,
ii. In the next level are Simple Transactional Web sites which allows customers
to submit their instructions, applications for different services, queries in their
account balances, etc. but do not permit any fund-based transactions on their
accounts,
iii. The third level of Internet banking service are offered by Fully Transactional
Web sites which allow the customers to operate on their accounts for transfer
of funds, payment of different bills, subscribing to other products of the bank
and to transact purchase and sale of securities, etc. The above forms of
Internet banking service the customer or by new banks, who deliver banking
service primarily through Internet or other electronic delivery channels as the
value added services. Some of these banks are known as ‘Virtual’ banks or
‘Internet only’ banks and may not have physical presence in a country despite
offering different banking services.
c) The Indian Scenario: -
The entry of India banks into Net Banking
• Internet banking, both as a medium of delivery of banking services and as a

strategic tool for business development.
• At present, the total internet users in the country are estimated at 9 lakh.
However, this is expected to grow exponentially to 90 lakh by 2003. only
about 1 percent of Internet users did banking online in 1998. This is increased
to 16.7 percent in March 2000 (India Research, May 29, 2000, Kotak
Securities).
• Cost of banking service through the Internet from a fraction of costs through
conventional methods. Rough estimates assume teller cost at Re.1 per
transaction, ATM transaction cost at 45 paise, phone banking at 35 paise, debit
cards at 20 paise and Internet banking at 10 paise per transaction.
d) Product and Services Offered: -
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 Banks in India are at different stages of the web-enabled banking cycle.

Initially, a bank, which is not having a web site, allows its customer to
communicate with it through an e-mail address’ communication is limited to a
small number of branches and offices which have access to this e-mail count.
 With gradual adoption of Information Technology, the bank puts up a web site
that provides general information on deposits products, application forms for
downloading and e-mail option for enquiries and feedback.
 Vijaya Bank provides information on its website about its NRI and other
services. Customers are required to fill in applications on the Net and can later
receive loans or other products requested for at their local branch.
 A few banks provide the customer to enquire into his demat account
(security/shares) holding details, transaction details and status of instructions
given by him. These web sites still do not allow online transactions for their
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
printing statements of accounts, movement of funds between accounts within
the same bank, querying on status or requests, instructions for opening of
Letter of Credit and Bank Guarantees, etc.
 These services are being initiated by banks like ICICI Bank Ltd., Citibank,
Global Trust Bank Ltd., UTI Bank Ltd., Bank of Citibank Bank of Madura
Ltd., Federal Bank Ltd., etc.
 Some of the more aggressive players in this area such as ICICI Bank Ltd.,
HDFC Bank Ltd., UTI Bank Ltd., Citibank, Global Trust Bank Ltd., and Bank
of Punjab Ltd., offer the facility of receipt, review and payment of bills online.
 The ‘Infinity’ service of ICICI Bank Ltd. Also allows online real time
shopping all payments to be made by customers.
 HDFC Bank Ltd. Has made e-shopping online and real time with the launch of
its payment gateway.
 Banks providing internet banking services have been entering into agreements
with their customers setting out the terms and conditions of the services.
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 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.
e) The Future Scenario: -
o Compared to banks abroad, India 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 of users and the sufficient infrastructure in place.
o Various security options like line encryption, branch connection encryption,
firewalls, digital certificates, automatic sign-offs, random pop-ups and disaster
recovery sites are is 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.
o The communication bandwidth available today in India is also not enough to
meet the needs of high priority services like online banking and trading.
o 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.
o Users of Internet Banking Services are required to fill up the application froms
online and send a copy of the same by mail or fax to the bank.
o A contractual agreement is entered into by the customer with the bank for
using the Internet banking services.
o Domestic customers for whom other access points such as ATMs, telebanking,
personal contact, etc. are 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
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and time consuming to access their bank accounts maintained in India find net
banking very convenient and useful.
o Cyber crimes are, therefore, difficult to be identified and controlled.
o In order to promote Internet banking services, it is necessary that the proper
legal infrastructure is in place.
o The Department of Telecommunications (DoT) is moving fast to make
available additional bandwidth, with the result that internet access will become
much faster in the future.
o Reserve Bank of India has constituted a group to examine different issues
relating to i-banking and recommend technology, security legal standards and
operational standards keeping in view the international best practices. In the
following paragraphs a generic set of risks discussed as the basis for
formulating general risk control guidelines.
2.2 Risk & Rewards: -
a) Operational Risk: -
 Operational risk, also referred to as transactional risk is the most common

form of risk associated with i-banking.
 It takes the from of inaccurate processing of transactions, non-enforceability of
contracts, compromises in data integrity, data privacy and confidentiality,
unauthorized access / intrusion to bank’s systems and transaction, etc.
 Such risks can arise out of weaknesses in design, implementation and
monitoring of banks information system.
 Besides inadequacies in technology, human factors like negligence by
customers and employees, fraudulent activity of employees and crackers/
hackers, etc. can become potential source of operational risk.
b) Security Risk: -
 Security risk arises on account of unauthorized access to a bank’s critical

information stores like accounting system, risk management system, portfolio
management system, etc.
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 Other related risks are loss of reputation, infringing customers’ privacy and its
legal implications, etc.
 Attackers could be hackers, unscrupulous vendors, disgruntled employee or
even pure thrill seekers.
 In addition to external attacks banks are exposed to security risk from internal
sources e.g. employee fraud. Employee being familiar with different systems
and their weaknesses become potential security threats in a loosely controlled
environment. They can manage to acquire the authentication data in order to
access the customer accounts causing losses to the bank.
 Unless specifically protected, all data/ information transfer over the internet
can be monitored or read by unauthorized persons.
c) System architecture and design: -
 Banks face the risk of wrong choice of technology, improper system design
and inadequate control processes.
 Numerous protocols are used for communication across internet. Each
protocol is designed for specific types of data transfer.
 A system allowing communications with all protocols, say HTTP (Hyper Text
Transfer Protocol), FTP (File Transfer Protocol), telnet, etc. is more prone to
attack than one designed to permit say, only HTTP.
 Many banks rely on outside service providers to implement, operate and
maintain their e-banking system.
 Security related operational risk include access control, use of firewalls,
cryptographic techniques, public key encryption, digital signature, etc.
d) Reputational Risk: -
 Reputational risk is the risks of getting significant negative public opinion,

which may result in a critical loss of funding or customers. Such risks arise
from actions which cause major loss of the public confidence in the banks’
ability to perform critical functions or impair bank-customer relationship. It
may be due to banks’ own action or due to third party’s action.
25
 The main reasons for this risk may be system or product not working to the
expectations of the customers, significant security breach (both due to internal
and external attack), inadequate information to customers about product use
and problem resolution procedures, significant problems with communication
networks that impair customers’ access to their funds or account information
especially if, there are, no alternative means of account access.
e) Legal Risk: -
 Legal risk arises from violation of, or non-conformance with laws, rules,
regulations, or prescribed practices, or when the legal rights and obligations of
parties to a transaction are not well established.
 A customer, inadequately informed about his rights and obligations, may not
take proper precautions in using Internet banking products or services, leading
to disputed transactions, unwanted suits against the bank or other regulatory
sanctions.
f) Money Laundering Risk: -
o As internet banking transactions are conducted remotely banks may find it

difficult to apply traditional method for detecting and preventing undesirable
criminal activities. Application of money laundering rules may also be
inappropriate for some forms of electronic payments.
o To avoid this, banks need to design proper customer identification and
screening techniques, develop audit trails, conduct periodic compliance
reviews, frame policies in internet transactions.
g) Cross-Border Risks: -
 Internet banking is based on technology that, by its very nature, is designed to

extend the geographic reach of banks and customers. Such market expansion
can extend beyond national borders. This causes various risks.
26
 Such considerations may expose banks to legal risks associated with non-
compliance of different national laws and regulations, including consumer
protection laws, record keeping and reporting requirements, privacy rules and
money laundering laws.
 The foreign-based service provider or foreign participants in internet banking
are sources of country risk to the extent that foreign parties become unable to
fulfil their obligations due to economic, social or political factors.
h) Strategic Risk: -
 For reducing such risk, banks need to conduct proper survey, consult experts
from various fields, establish achievable goals and monitor performance.
 Also they need to analyze the availability and cost of additional resources,
provision of adequate supporting staff, proper training of staff and adequate
insurance coverage.
i) Other Risk: -
 Traditional banking risks such as credit risk, liquidity risk, interest rate risk
and market risk are also present in internet banking.
 These risks get intensified due to the very nature of internet banking on
account of use of electronic channels as well as absence of geographical limits.
 Credit risk: Is the risk that a counterparty will not settle an obligation for full
value, either when due or at any time thereafter. Banks may not be able to
properly evaluate the creditworthiness of the customer while extending credit
through remote banking procedures, which could enhance the credit risk.
 Another facility of internet banking is electronic money. It brings various
types of risks associated with it. If a bank purchases e-money from an issuer in
order to resell it to a customer, it exposes itself to credit risk in the event of the
issuer defaulting on its obligation to redeem electronic money.
 Liquidity risk: It is important for a bank engaged in electronic money transfer
activities that it ensures that funds are adequate to cover redemption and
settlement demands at any particular time. Failure to do so, besides exposing
the bank to liquidity risk, may even give rise to legal action and reputational
risk.
27
j) Risk of unfair competion: -
 Internet banking is going to intensify the competition among various banks.

The open nature of internet may induce a few banks to use unfair practices to
take advantage over rivals. Any leaks at network connection or operating
system, etc. may allow them to interfere in a rival bank’s system.
 Thus, one can find that along with the benefits internet banking carries various
risks for bank itself as well as banking system as a whole.
Part 3: - Internet Banking: Challenges for Banks & Regulators.
3.1 Internet Banking in the United States
3.2 The Basel Committee’s Electronic Banking Group
3.3 E-Finance Oversight
3.4 Security Controls
3.5 Legal & Reputational Risk Management
3.1 Internet Banking in the United States: -
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• An average industry estimates indicates the about 13 million US households

banked online by the end of 2000 – twice as many as in the pervious years.
• At the beginning of 2001, 37% of all US national banks, including nearly all of
the largest national banks, were offering full transactional capabilities online –
a near twofold increase in little over a year.
• Banks offering Internet-based transaction service – and there are more of them
each day – should be well positioned to compete in the financial markets of the
future.
New Risks: -
 Internet banking poses risks that are different from those that bank supervisors
customarily dealt with in assessing credit, market, or interest rate risk.
 First, banks must manage the unprecedented speed of technological change,

and assess how it relates to their technology investments and their ability to
provide consistently high-quality customer service.
 Second, bank are increasingly dependent on third parties to provide the
necessary information technology.
 Security is another area of significant risk. So far, relatively few financial
institutions have reported being victimized by online security violations.
3.2 The Basel Committee’s Electronic banking Group: -
o The Basel Committee on Banking Supervision has taken the lead in

this area through the creation of its Electronic Banking Group (EBG)
in late 1999 – a group whose members represent 17 Central banks and
bank supervisory agencies.
o The major focus of the EBG’s work has been to develop risk
management guidance for Internet banking that will guide bankers and
promote effective and consistent bank supervision around the world.
o The EBG has identified fourteen Risk Management Principles for
Electronic Banking to promote sound risk management of e-banking.
29
These principles are intended to help banking institutions expand their

existing oversight policies and processes to cover their e-banking
activities.
3.3 E-Finance Oversight: -
The EBG has dedicated considerable time and effort to communicating supervisory
expectations and guidance for home country supervisors to oversee cross-border
Internet banking activity conducted by their local institutions.
 In February of this year, the Financial Stability Forum’s Contact Group on E-

Finance held its first formal meeting. This group was formed to promote
enhanced information-sharing among the various international sector-based
working groups dealing with e-finance supervisory issues – e-banking, e-
trading, retail payments systems, e-commerce, and so on.
3.4 Security Controls: -
 Authentication of e-banking customers.

 Nonrepudiation and accountability for e-banking transaction of duties.
 Appropriate measures to ensure segregation of duties.
 Proper authorization controls within e-banking systems, databases and
applications.
 Data integrity of e-banking transactions, records and information.
 Establishment of clear audit trails for e-banking transactions.
 Confidentiality of key bank information.
3.5 Legal & Reputational Risk Management: -
 Appropriate disclosure for e-banking services.

 Privacy of customer information.
30
 Capacity, business continuity and contingency planning to ensure availability

of e-banking systems and services.
 Incident response planning. The complete EBG Report on Risk Management
Principles for Electronic Banking can be obtained at the Bank for International
Settlements’ web site at www.bis.org.
Part 4: - What do Computers do in Banks
The different uses of Information Technology: -

a) Single Window System
b) Any Time Banking
c) Automated Teller machine
d) Shared Payment Network System
e) Customer Service
f) Telebanking
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g) Home Banking
h) Electronic Fund Transfer
i) Plastic Cards as Media for Payment
1. Credit Card
2. Debit Card
3. Smart Card
4. ATM Card
j) Intra-bank and Inter-bank Applications
4.1 The different uses of Information Technology: -
a) Single Window System (SWS): -
The cashier or teller who accepts the cash, keys in the data from his terminal after
receipt of the amount.
o The amount is straight away posted to the system.

o If the customer wishes to update passbook the same is also updated through
the security form printer/pass book printer.
o If a customer wishes to obtain a draft, the clerk keys in the details of the
account to be debited and the particulars of the drafts to be issued on the
machine.
o The customer’s account is debited and security form printer prints out draft
and clerk can hand over the same to customer duly signed.
b) Any Time Banking: -
 This refers to banking service available 24 hours a day and 365 days a year.
 Such facility is made available to the customer through the Automated Teller
machine.
 Banking, being a service industry, is primarily driven by customers needs.
 Each customer is willing to pay a price for the services provided it is made
available to him when he wants and where he wants.
32
 In the present day of server competion, banking services are driven by

technology, which is more oriented towards providing better services to the
customer.
 The concept of banking hours has been changed from the fixed 4 hours to 24
hours.
 This has been made possible through use of ATMs. Even under the manual
service, the banks have stated to extend the service from the traditional 4 hours
to 5 hours and even up to 12 hours say from 8 AM to 8 PM.
 Some banks have introduced the practice of Sunday Banking or Holiday
Banking.
c) Automated Teller Machine (ATM): -
 ATM is a machine in the nature of a computer in general sense, but is

dedicated to do certain types of specific jobs only.
 The hardware and the proprietary i.e. the software used in one machine can not
be used in one machine.
d) Shared Payment Network System (SPNS): -
 The SPNS, named SWADHAN, has been sponsored by the Indian Bank’s
Association (IBA).
 It is a network of ATMs, points of sale terminals and Cash Dispensers with a
view to pool the resources of the banks and underlines the spirit of competition
through cooperation.
 It became operational in Mumbai on 1st February 1997 and in two years about
150 ATMs were owned and installed by 38 banks including foreign banks,
public and private sector Indian commercial banks as also cooperative banks.
 The biggest advantage of the network is that the ATM cards issued by
different banks can used at any member banks ATM.
 Banks can have as many ATM as they want and follow some standards set by
the SPNS committee.
33
 The heart of the network is the Switch and its main components are: Tandem
Mainframe Computer, BASE 24 Software, Motorola networking equipments
and the leased lines.
e) Customer Services: -
The following customer services are offered through the system:
i. Cash withdrawal (up to a specified limit)

ii. Cheque/Cash deposit (the receipt being only for the deposit of the envelope
containing cash but not for the amount therein)
iii. Enquiry about balances
iv. Printing of statement of accounts
v. Request for cheque book and standing instructions.
vi. Transfer of funds
vii. PIN change
f) Telebanking: -
 From the conventional banking, where the services were provided manually
across the table, it has come to a stage where the customer is not required to
visit the bank enquiry of balance in the account, sending a remittance, to get a
statement of account, etc.
 The concept has become so popular that in USA customers do not visit the
bank for 97% of their transactions and these are done from either customer’s
residence or office using a telephone or a home PC.
 In telebanking the customer is required to open the account with the bank
initially by visiting the bank.
 Telebanking services are, generally, provided by the bank over the telephone
on a special number.
34
 The number at the bank is connected to a terminal in the bank, which is either
handled manually or is automated by connecting the same to the computer
network.
 Where the system is automated, two types of technology are used.
g) Home Banking: -
• Under home banking the customer is served at his residence and there is no
need for the customer to visit the bank’s premises for a number of routine
transactions.
• If the customer needs some information the same can be got by contacting the
bank over the phone as described in the telebanking.
• If the customer wants to put through transaction and wishes to see his account
or to get a statement of his account, he may have to use a PC.
• This type of facility is available with a town, city or metropolitan area.
• Under such a situation the customer should have a:
 PC
 Modem
 Telephone line
 A compatible software for the home PC
• The home banking service can be broadly classified under two groups,
one without using the information technology and another using information
technology.
• When customer contacts the bank o the phone no specific technology is
involved and the service of telebanking are provided to him.
h) Electronic Fund Transfer (EFT): -
o In India the fund transfers are basically done through Mail Transfer, Draft or
Telegraphic Transfer.
35
o In case of Telegraphic Transfer (TT) again the Department of

Telecommunication was the sole provider of Telephone, Telex and Telegram
facilities.
o With the process of liberalization private operators have started providing
alternative voice communication channels through mobile phones and vast
communication as an alternative channels for data communication.
o It was normal for any TT to be credited to the beneficiary’s account after delay
of 2 to 4 days
o The different forms of EFT prevalent in the use are:
 EFT through Electronic Data Interchange
 BANKNET
 RBINET
 IDRBT VSAT Network
 EFT from Point of Sales
 Electronic Cash
 SWIFT- Global System for Funds Transfer
 Electronic Clearing Settlement
i) Plastic Cards as Media for Payment: -
There are four types of plastic cards being used ad media for making payments. These
are:
1. Credit Card
2. Debit Card
3. Smart Card
4. ATM Card
1. Credit Cards: -
36
The credit card enables the cardholders to:
 Purchase any item like clothes, jewellery, railway/air tickets, etc.

 Pay bills for dining in a restaurant or boarding and lodging in a hotel
 Avail of any service like car rental, etc.
2. Debit Card: -
A debit card is issued on payment of a specified amount by the issuing company like a
telephone company to a customer on cash payment or on debiting his account by a
bank.
Thus it is like an electronic purse, which can be read and debited by the required
amount.
It may be noted that while through a credit card, the customer first makes a purchase
or avails service and pays later on, but for getting the debit card, a customer has to
first pay the due amount and then make a purchase or avail the service. For this
reason, debit card are not as popular as credit cards.
3. Smart Cards: -
Smart Cards have a built-in microcomputer chip, which can be used for storing and
processing information. For example, a person can have a smart card from a bank with
the specified amount stored electronically on it. As he goes on making transactions
with the help of the card, the balance keeps on reducing electronically. When the
specified amount is utilized by the customer, he can approach the bank to get his card
validated for a further specified amount. Such cards are used for paying small
amounts like telephone calls, petrol bills, etc.
In India, a smart card, suiting Indian banking environment, is being developed and
tested at IIT, Mumbai, in collaboration with the RBI and SBI. The card is being used
as an experimental tool for promoting cashless society in and around the IIT Campus.
The latest smart card being developed will combine all the features of electronic
purses, credit cards and ATM cards.
4. ATM Cards: -
37
The card contains a PIN (Personal Identification Number) which is selected by the
customer or conveyed to the customer and enables him to withdraw cash up to the
transaction limit for the day. He can also deposit cash or cheque.
Function of ATM Card: -
 The customer has to enter the card into the machine slot. The machine first
reads for hot carding of the card number, i.e. it checks whether the card has
already been cancelled or placed on the rejection list.
 Rejection can be because of the reason like lost card or stolen card.
 The machine then reads the PIN and asks for the PIN from the customer.
 If the PIN matches, it present the main menu on the screen. The menu contains
options from which the withdrawal option is selected.
 The ATM then checks whether the amount is under the day limit magnetically
inscribed by the customer. Accordingly, the ATM dispenses cash. It then
releases the card and a printed statement comes out of the slot.
5. Intra-Bank & Inter-Bank applications: -
Computerization is now all pervasive in banks. Almost all the activities in a bank can
be performed more efficiently with the help of computers. Broadly, we can divide the
applications of computerization in banks in two types
A) Intra-Bank Applications: -
i. Funds transfer and payment message

ii. Banks owned ATM/Credit Card and other application on the corporate
network
iii. Inter-Branch Reconciliation
iv. Quick disposal of loan/investment proposal
v. Funds information from clearing centers to the fund management office for
optimal allocation of funds.
38
vi. Cash Management Product

vii. Treasury Management
viii. Any Branch Banking
ix. Asset Liability Management
x. E-mail
xi. Software distribution in the bank
xii. Organizational bulletin boards may contain the following:
a. Circulars
b. News letters, phone and address directories
c. Undesirable parties
d. Missing security items
e. Confidential circular on attempted frauds.
xiii. Human Resources Development and Personnel Administration
xiv. Auditing and Inspecting computerized branches using the network
xv. Organizational database may include
a. Statutory returns
b. Control returns
c. Standardized returns
xvi. Management Information Systems
a. Borrower’s profile
b. Branch profile
c. Employee analysis
d. Product/service profile
e. Business profile of branches.
xvii. Apart from providing efficient service to customers the financial network will
also fulfill the following objectives:
a. Timely information to top management
b. Helping in development of new products
c. Speedy communication among branches and with the controlling
offices.
B) Inter-Bank Applications: -
39
i. Electronic Funds Transfer

a. Retail EFT (Small value credit transfer) on net settlement basis.
b. Wholesale EFT (Large value credit transfer) on Real Time Gross
Settlement (RTGS) basis for time critical payments.
ii. Clearing and settlement systems for securities – Delivery vs. Payment (DVP).
The final delivery of securities will occur if and only if final payment occurs.
iii. Transferring balance from net settlement systems to RTGS Server at periodic
intervals. The net obligation could be from:
a. Local paper-based clearing
b. Inter-city paper-based clearing (including IT discounting facilities)
c. Bulk payments – ECS (Debit, Credit, RAPID) including intercity.
d. Shared ATM networks
e. Smart cards and other pre-paid/pre-authorized debit cards
iv. Exchange of defaulting borrowers list among RBI and banks
v. EDI services to the extent they pertain to payment cycle to EDI (Electronic
Data Interchange)
vi. Consolidation of current account balance from the existing DAD (Deposit
Accounts Department in RBI Offices) applications
synchronously/asynchronously to facilitate balance enquiry by banks on all
India/center-wise basis and if necessary to activate transfer of funds among
DADs at different centers.
vii. Reporting of government account transactions
viii. Reporting of BSR (Basic Statistical Returns) etc. to RBI
ix. Asset Liability Management
x. Intranet in RBI to enable banks to get circulars, press releases etc.
xi. Returns to be submitted by the banks to Departments of Banking Supervision
(DBS) for off-site supervision and monitoring.
40
Part 5:Credit Card Frauds
41
5.1 Credit Card Frauds
5.2 The Prevention of Frauds
5.3 How to Accept the Master Card
5.4 How to get reimbursed
5.1 Credit Card Frauds: -
Meaning: -
A credit card is a money transaction device without using cash or fiduciary

documents.
Defrauder: -
The defrauder has been slow to exploit the credit card, for making a fast buck. In
USA, he made 15 million dollars. through the cards, in 1981. in 1982 his earning
through the card, rose to 50 million dollars. in 1983, the fraudulent card brought over
100 million dollars to its creators. The fraudulent card industry is rising higher and
higher to dizzy height every year. Like other countries if the genuine credit card has
come in India, the fraudulent credit card cannot be far behind.
42
Aware of Credit Card: -
The credit card, as already seen, is a money transaction device. The institutions
issuing the credit card give the card holders authority to obtain money, goods, services
or any other thing of value, on credit. They guarantee payment of debit so raised.
These institutions are banks and other financial institutions, clubs and travel agencies
and departmental stores, etc. Credit Cards, Bob Cards, Master Cards, Visa Cards,
express Cards, Euro Cards have wide circulation. Some of them have wide
circulation. Some of them have world-wide circulation..
Advantages of Credit Cards: -
Following types of safety measures are being introduced increasingly in the credit
card manufacture. They can be adopted with advantages
1. Simultaneous printing on both sides of the cards,; creating some superimposed

graphics, patterns, digits or writings.
2. Multi-layered laminates incorporating lateen images which may distinguish
the genuine from the forged.
3. Intricate graphics and distinctive letter and digit designs.
4. Laser printing to engrave the letter and digits on the credit card.
5. Three dimensional insignia, logo of high artistic quality on the credit card.
6. Encoded information track in magnetic inks on magnetic stripe.
7. Cards inserted in the imprinter head, designed and manufactured to rigid
specification to permit limited tolerance to admit only genuine credit cards.
8. Secure Signature Panel.
9. 3- Dimensional hologram.
10. U.V. fluorescent images and designs.
11. Micro printing
12. Optically illusive figures, designs, etc.
13. heavy duty embossing logo.
Credit Card Frauds: -
43
Credit card frauds manifest themselves in a number of ways:
1. Genuine cards are manipulated.

2. Genuine cards are altered.
3. Counterfeit cards are created.
4. Fraudulent telemarketing is done with credit cards.
5. Genuine cards are obtained on fraudulent applications in the names/addresses
of other persons and used.
It is feared that with the expansion of E-Commerce, M-Commerce, and Internet
facilities being available on massive scale, the fraudulent fund freaking via credit
cards will increase tremendously. The shape it takes will be limited only by the
ingenuity of the future.
5.2 The Prevention of Frauds
Duplicate Card: -
The duplicate fraudulent credit cards are those where the defrauders have made
sincere efforts to duplicate the original cards through photo-mechanical processes.
They follow the footsteps of the original manufactures of the genuine credit cards to
produce as close a replica of the genuine card as possible, employing similar materials
and similar processes of printing and embossing, besides magnetic encodings.
White Plastic: -
The counterfeit credit cards known as ‘white plastics’ are imitations of credit cards in
general aspect.
Banker’s Role: -
The credit card industry is one of the fastest growing activities of the banking
industry. The artist has to be there (where the money is). The banks have to suffer
losses.
Cyber Laws: -
44
Information Technology Ministry be approached for stringent laws against credit card
crimes.
Altering Sales terminals: -
Internet E-Mail should be utilized on the pattern of Hot Box organized about a decade
ago, suitably modified to benefit from the advances the information technology has
made since them.
Internet Relays: -
Computers should be pressed into service via internet connection by suitably

upgrading the Television System Vertical blanking Intervals for notifying the
fraudulent cards in the market.
Monitoring Deposit: -
Monitoring system can help locate the unscrupulous merchants who use or allow the
use of ‘white plastics’ and fraudulent cards, knowing fully well their fraudulent nature
for making a fast back.
Risk Management: -
To meet the menace one of the top card companies has imitated risk management
service to identify these high risk centers where daily all the inter-change transactions
of the areas are scrutinized and the credit card number are checked against those
which have been declared fraudulent, stolen or lost.
Central credit Card Clearing House: -
There should be a joint list of credit card holders on central basis with their addresses
and other details, if any. New applicants to any bank for credit cards should be
checked: -
• If he is holding card from other issuers.

• If he has held a card at other times. If so, when? Why did he discontinue?
• If he has applied to more than one credit card issuers
• The new card holder’s business transactions should be watched for some time.
45
Loss of Credit cards in Transit: -
It must be prevented.
It is simple for either the customer to collect personally or the banker should deliver it
personally, or it should be sent by courier and confirmation obtained on telephone, in
addition to the paper receipt.
Fraud Consciousness: -
The problem of credit card frauds must be brought to the notice of users as well as of
the servers at sale terminals.
Proper training in the check up of the credit card in its various aspects has no
substitute and in view of the huge issues the same is indispensable.
Physical Evidence: -
Immediately on the discovery of fraud all the physical evidence available should at
once be taken into possession and the case reported to the police for investigation.
Check the Handwriting: -
Handwriting (in signatures) is available on sale drafts and on credit cards. The
comparison of hand-writing inter se and with that of the suspect and of genuine card
holders, can lead to the identity or non-identity of alleged writer.
How to accept: -
46
Master Card International guarantees payment of all Master Card Travelers Cheques
if the following procedures are followed: -
• Watch the customer signs each cheque in ink on the countersignature line.
• Compare this signature to the original signature. Ensure they look the same.
• If a cheque is already countersigned, or if you doubt the two signatures are the
same, ask the customer to sign the cheque again on the back for comparison.
Also, request identification such as a passport, driving license or similar
document, and write the details on the back of the cheque.
• If a cheque is presented by anyone other than the original purchaser, treat it the
same way you would a personal check from a third party. You should know
the customer and be able to contact the customer if there’s problem.
How to get Reimbursed: -
• Stamp or write your company name on the front of the cheque where it says,
“Issuer will pay to the order of…..” and also endorse at the back of the
cheque.
• Deposit cheques in your bank as cash items. US dollar Master Card Travelers
Cheques, regardless of location of issuer, are cleared and paid in the US.
• Do not send cheque directly to the issuing institution.
47
Part 6: - Banks Control in Online Banking
6.1 Will Banks Control Online Banking: -
6.2 Banking in the Cyberworld: -
6.1 Will Banks Control Online Banking: -
Internet Banking in India: -
Online banking is expected to explode in the ext few years. We will be entering the
age of non-physical exchange of cash aided by complete transparency leading to
perfectly competitive electronic market place and inevitably to customer supremacy.
Growth in online banking will be driven by the following reasons:
 Increasing access to low cost electronic services

 Emergence of open standards in the banking industry
 Improved customer awareness
 Entry of global majors in the market
 Integration of banking services with e-commerce and emergence of e-cash
 Convenient international transactions as Internet eliminates geographic
boundaries
48
 Shift from one-stop shopping to unbundled product purchases
Internet Banking – An Overview: -
Internet Banking sites can be segregated into four categories from Level I, which offer
just minimum functionalities such as access to one’s deposit account data, to Level IV
sites that offer sophisticated services. To be successful, an Internet bank must offer:
 High rates on deposits

 24 hour access
 Free checking and bill payment facilities with rebates on ATM surcharges
 Credit cards with low rates
 Simple and easy online applications for all accounts including personal loans
 Innovative products
 High quality customer service
Real Threats: -
A majority of leading online brokers are beginning to offer banking products

and services as part of their overall offers.
They are actively seeking to capture “excess” balances in existing checking and
saving accounts by offering better rates.
There are other threats to banks as well. Several leading system providers have
developed “bank-in-a-box” solution – unbranded, electronic, full-service,
virtual-bank system – that can be bought, branded, and offered to consumer by
any authorized company that wishes to provide banking service.
Online: -
49
An online service that merely mimics an offline one has a second problem as well; it
doesn’t give customers an adequate inducement to move a significant portion of their
banking online.
As a result, most customers tend to tend to treat online banking as no more than an
extra channel to check their balance and transaction histories, and they continue to do
the rest of their business at the ATM or the teller window.
A vicious offering increase the banks’ total costs. This makes the banks reluctant to
make further large investments in the online channel, which thus, does nothing to
move customers away from tellers and ATMs.
In fact, consumers didn’t stop using tellers to the extent that banks has hoped, but they
also used ATMs so frequently that the reduction in cost per use was more than offset
by the higher volume of transactions.
The study of information systems through broad band connection, satellite, a network
or through a view chat.
This online information systems provides information about all aspects, Information
providing on the demand of the subscriber.
This online information systems may be of study program, a graduation program or

sharing of data through internets, extranet and internet.
Sharing of Data: -
The data base store data and information extracted from selected operational and
external databases. The database has most needed information by a manager or any
end users. This database can be accessed by the ONLINE ANALYTICAL
POCESSING (OLAP) systems.
This network model can access a data element by several paths. In an organization
departmental records can be related to more than one employee record.
50
Thus in an organization data can be shared through internet, internet and extranet.
6.2 Banking in the Cyberworld: -
Internet Purchases without Payment Gateway: -
The dangers are three-fold
• Since a manual process requires human intervention, risk of information

leakage exists.
• No exchange of Digital ID, so no authentication of the merchant – risk of
bogus merchant.
• No exchange of Digital Certificate to authenticate card holder – risk of
repudiation of transaction by the card holder.
The benefits which the user would get by using the Internet payment gateway are
• Card details travel encrypted on the Net (if encryption facility available on the
gateway).
• On-line status of order, if the gateway has on-line authorization.
• Secure Merchant identification, so that fraudulent web sites posing as genuine
merchants get weeded out
CHAPTER 2 :
51
LITERATURE REVIEW
This study lies at the intersection of two issues. The first is the technology adoption
decision-making process. The second is the determinants of information technology
acceptance and utilization among users. This section presents a review of existing
literature on these two areas. Literature of five widely validated models/theories is
reviewed and linked to the adoption of Internet Banking,
Social Psychology
Information systems researchers have suggested intention models from social

psychology as a potential theoretical foundation for research on the determinants of
user behavior (Swanson, 1982). Fishbein and Ajzen's (1975) Theory of Reasoned
Action (TRA) is an especially widely validated intention model that has been proven
successful in predicting and explaining behavior across a wide variety of domains.
TRA is concerned with the determinants of consciously intended behaviors (Ajzen
and Fishbein, 1980; Fishbein and Ajzen, 1975) composed of attitudinal, social
influence, and intention variables to predict behavior. TRA hypothesizes that an
individual's Behavioral Intention (BI) to perform a behavior is jointly determined by
the individual's Attitude Toward performing the Behavior (ATB) and Subjective
Norm (SN), which is the overall perception of what relevant others think the
individual should or should not do. The TRA has been successfully applied to a large
number of situations to predict the performance of behavior and intentions (Prestholdt
et al., 1987; Fredricks and Dossett, 1983; Timko, 1987).
Despite the predictability of TRA being strong across studies, it becomes problematic
if the behavior under study is not under full volitional control. To deal with these
problems, Ajzen (1985, 1991) extended TRA by including another construct called
perceived behavioral control, which predicts both behavioral intention and behavior.
The extended model is called the Theory of Planned Behavior (TPB). TPB expands
the boundary conditions of TRA to more goal-directed actions. TPB has been
successfully applied to various situations in predicting the performance of behavior
52
and intentions (Mathieson, 1991; Young et al., 1991; Madden, Ellen, and Ajzen, 1992;
Man, 1998; Cheung, Chan, and Wong, 1999). Empirical results (Mathieson, 1991;
Taylor and Todd, 1995) show the appropriateness of using these two theories for
studying the determinants of IT usage behavior. Nevertheless, many have found that
TPB has a better predictive power of behavior than TRA (Madden, Ellen, and Ajzen,
1992; Man, 1998; Cheung, Chan, and Wong, 1999).
Information Technology Information
The Technology Acceptance Model (TAM), introduced by Davis (1989), is an

adaptation of TRA specifically for modeling user acceptance of information systems.
It attempts to provide an explanation of the determinants of computer acceptance that
is general, and is capable of explaining user behavior across a broad range of end-user
computing technologies and user populations. TAM posits that two particular
behavioral beliefs, Perceived Usefulness (PU) and Perceived Ease Of Use (PEOU),
are of primary relevance for computer acceptance behavior, and that the effect of
external variables on intention are mediated by these two key beliefs. IS researchers
have used TAM to examine the possible antecedents of PU and PEOU toward
microcomputer...
CHAPTER 3 :
53
PROBLEM STATEMENT
Internet poses a range of risks and threats. Some of them are:
Security risks that may arise due to unauthorized access to a bank's key information
like the accounting system, risk management system and portfolio management
system. A breach of security could result in direct financial loss to the bank. In
addition to external attacks, banks are exposed to security risk from internal sources
e.g. employee fraud. Employees can acquire the authentication data in order to access
customer accounts, causing losses to the bank.
Operational risks that may arise due to inaccurate processing of transactions.

nonenforceability of contracts, compromises in data integrity, data privacy and
confidentiality, unauthorized access/intrusion to bank's systems and transactions, etc.
These risks may arise due to weaknesses in design, implementation and monitoring of
banks' information system, inadequate technology, negligence by customers and
employees, fraudulent activity by employees and hackers.
Banks face the risk of the wrong choice of technology, improper system design and
inadequate control processes. Technology, which is outdated, not scalable or not
proven, may lead to the loss of bank's investment and risk its business. Many banks
rely on outside service providers to implement, operate and maintain their e banking
systems since they do not have the requisite expertise. However, it adds to the
operational risk.
Legal risk arises when violation of laws, rules and regulations or prescribed practices
takes place, or when the legal rights and obligations of parties to a transaction are not
well established. These risks may also arise due to uncertainty about the validity of
some agreements formed via electronic media and law regarding customer disclosures
and privacy protection.
E banking extends the geographic reach of banks and customers beyond national
borders which may lead to cross border risks. This risk involves legal and regulatory
risks, as there may be uncertainty about legal requirements in some countries and
54
jurisdiction ambiguities with respect to the responsibilities of different national

authorities. Such considerations may expose banks to legal risks associated with non
compliance of different national laws and regulations. Crossborder transaction also
involves credit risk, since it is difficult to appraise an application for a loan from a
customer in another country. Banks accepting foreign currencies in payment for
electronic money may be subjected to market risk because of movements in foreign
exchange rates.
Reputational risk is the risk of getting significant negative public opinion, which may
result in loss of funding or customers. The main reasons for this risk may be the
system or product not working to the expectations of the customers, system
deficiencies, security breaches, inadequate information to customers about product
use and problem resolution procedures, problems with communication networks that
impair customers' access to their funds or account information. This may cause the
customer to discontinue the use of product/service.
As e banking transactions are conducted remotely, banks may find it difficult to apply
traditional method for detecting and preventing undesirable criminal activities, which
may lead to money laundering risk. Application of money laundering rules may also
be inappropriate for some forms of electronic payments. This may result in legal
problems for non complying to 'knowing your customer' laws.
Banks, international organizations, governments and financial institutions have to

work together to manage all the risks mentioned above which requires a proper
regulatory framework to be put in place. It is critical that partnerships should continue
to enhance consumer trust towards e banking. Banks conducting business online have
to consider security and reliability as their first business priority for customer
retention.
CHAPTER 4 :
55
METHODOLOGY
Materials and Methods
Sources of Data
A Descriptive research design has been used to know the potential of E-Banking in
Banking and Financial Industry. In this study qualitative and quantitative technique
will be used. Data collection will be done both from primary research and secondary
research.
Primary Data Collection: A questionnaire will be prepared and personal

interaction done with Banking Personnel.
Secondary Data Collection: The secondary data collection will be done through
internet by logging into interviewed company’s website and other references books.
CHAPTER 5 :
ANALYSIS AND CONCLUSION
56
Q.1 AWARENESS OF E-BANKING FACILITY GIVEN BY BANKS :-
yes
no
AWARENESS AMONG PEOPLE
The awareness of e-banking is very much there with in every customer of the bank.
100
90
80
Q.2 USAGE OF THE FACILITY BY CUSTOMERS?
70
60
50 Series1
40
30
20
10 57
0
yes no
USAGE DONE BY CLIENTS
The usage of e-banking is almost there within every client .Either ATM OR credit
card something or other is always a service used by them.
Q.3 IS THE FACILITY BENEFICIAL :-
VERY STRONGLY
STRONGLY
FAIR
NOT REALLY
NOT AT ALL
58
BENEFITS OF FACILTY
The service of e-banking is preferred by most of customers. They are open towards
the new technology which saves the time and efforts
80
70
Q.4 Is the public secured about the E-banking facility given to them?
60
50
40 Series1
30
20
10 59
0
YES NO
SECURITY PERCEPTION AMONG PEOPLE
The public have mixed reviews about the security of e-banking. They still feel
insecure while using the facility. The cases in news make them hesitant towards the
security
Q.5 Rating of E-banking by various customers…
60
35
30
25
20
Series1
15
10
5
0
AL
-1
FE
ST
E
F
FE
R
SA
FE
SA
ET
SA
SA
UN
ES
NU
UN
M
ES
I
ET
I M
M
ET
SO
M
SO
RATINGS CUSTOMERS FEEL ABOUT ELECTRONIC
The facility and new trend has mixed views amongst the users. Few feel safe to use
while mixed reviews have also been witnessed by few. The technology needs more
upgradation so that good response is obtained from others
61
Q.6 CHARGES LEVIED BY BANK ON THE E-BANKING FACILITY
40
35
30
25
20 Series1
15
10
0
NIL 0-50 51-100 101-200 200+
BANK CHARGES
Nothing comes free to customers. The banks charge heavy annual fees for e-banking
which s above 200rs annually. Those who feel that nothing is being charged is highly
mistaken. Survey reveal that basic amount is always debited from their account for
use of cards n other facilty
62
Q.7 Usage of E –BANKING by any customer till now
ONCE
THRICE
MORE THAN 5 TIMES
MORE THAN 10 TIMES
VERY FREQUENTLY
USAGE OF FACILTY IS DONE
The concept of e-banking is widely spread among the customers. They are not
reluctant to use it. Most of them use it very often. The services used often are:
ATM,CREDIT CARD, INTERBANK FACILTY.
63
Q.8 Bank which is highly appreciated for its Electronic services:-
50
45
40
35
30
25 Series1
20 Series2
15
10
5
0
HDFC ICICI SBI RBS OTHER
BANK
BEST BANK FOR E-BANKING
The bank being highly appreciated is the HDFC BANK WHICH is largest pvt bank in
INDIA among the stocks. ALSO ICICI has spoiled its image itself gave boost to this
bank followed by the largest public sector bank ie SBI
64
Q.9 The demand which customer expects in a E-banking from any bank:-
50
45
40
35
30
25 Series1
20
15
10
5
0
ST
N
P
Y
IO
EX
IT
CO
UR
PT
LY
N
M
C
H
O
SE
SU
NT
I
CT
N
O
CO
SA
M
AN
E
M
TR
TI
REQUIREMENTS BY THE CUSTOMERS
The users expect that the security should be given priority followed by time
consumption that the facilty should be user friendly. This would help customers gain
positive feel towards the new system
65
Q.10 Is the relation b/w customer and bank spoiled because of E-banking
OBVIOUSLY
NOT
NO
Series2
BIT OF IT
Series1
IT DOES
VERY MUCH
0 10 20 30 40 50
RELATION BW BANK & CUSTOMER
E-Banking doesn’t spoil the relation which banks wants to maintain with their clients
because today cross selling is very important scenario as revenues come from these
sources a lot.
66
Conclusion: -
Technology innovation and fierce competition among existing banks have enable a
wide array of banking products and services, being made available to retail and
wholesale customer through an electronic distribution channel, collectively referred to
as e-banking. The integration of e-banking application with legacy system implies an
integrated risk management approach for all banking activities of a banking
institution. Latest recommendations of Basle Committee recognize that each bank’s
risk profile is different and requires a tailored risk mitigation approach appropriate for
the scale of e-banking operations, the materiality of the risks present and the
willingness and ability of the institution to manage their risks. This implies that a “one
size fits all” approach to e-banking risk management issues may not be appropriate.
Banks have traditionally been in the forefront of harnessing technology to improve

product and efficiency. Technology is altering the relationships between banks and its
internal and external customers. Technology has also eroded the entry barriers faced
by many industries. With one time investment, technology has brought about superior
products and channel management with a special focus on customer relationship. The
incremental costs incurred for expansion and diversification are also more beneficial.
The major driving force behind the rapid spread of e-banking is its acceptance as an
extremely cost effective delivery channel. But on the
flipside, it is associated with risks such as reputation risk, security risk, cross-border
risk and strategic risk, which are unique to e-banking. Banks need to have an effective
disaster recovery plan along with comprehensive risk management tool is significant
not only to the bank but also to the banking system as a whole. All these issues
67
underscore the importance of sound supervisory policies and high level of

international co-operation among the bank regulators. The Basle Committee on
banking Supervision has taken the lead in this area through the creation of its
Electronic Banking Group – a group comprising 17 central banks and bank
supervisory agencies in the late 1999. The main focus of this group has been to
develop sound risk management practices.
Internet has created plenty of opportunities for players in the banking sector. While
the new entrants have the advantage of latest technology, the good-will of the
established banks gives them a special opportunity to lead the online world. By
merely putting existing service online won’t help the banks in holding their customer
close. Instead, banks must learn to capitalize their customer’s different online
financial-services relationships. The article “Will Banks Control Online Banking?”
focuses on how banks have to reinvent their role to remain as their customers’
preferred bank.
Coming home, India is on threshold of a major banking revolution with the invasion
of net banking. With the concept of payment gateway coming in, banks are vying with
one another for the lion’s share in the market. Highlighting the benefits of payment
gateway over the open-loop payment mechanism, the article “Banking in the Cyber
worlds” gives a brief report of the tug of war between the two major Indian e-banking
players.
68
CHAPTER 6 :
RECOMMENDATIONS AND SUGGESTIONS
Recommendations: -
• Technological development has been nothing less than explosion. Banks have
been harnessing such technological innovations on one hand and adapting
themselves to such changes on the other hand.
• The most significant event has been development of semi-conductor
technology, which has resulted in spectacular expansion of automation.
• Processing, storage and transmission of information is very essence of banking
and financial services.
• The electronic technology has bought revolutionary changes in these areas.
The elimination of paper as medium for processing and storage of
transactions / information has been a great event. Large volume of information
can be processed, stored and retrieved very economically at terrific speed,
which is not possible manually.
• The space required for managing enormous volume of information has been
reduced dramatically.
• With the revolution in telecommunication technology, information can be
made accessible from remote distance at lightening speed. The final output of
information after manipulation and analysis can be printed by printer at high
speed directly from computers.
• Thus, the computer now has the ability to retrieve data or update files
instantaneously. Subsequently with the development in telecommunication,
Local Area Network (LAN)/Wide Area Network (WAN) have been
established.
69
Suggestions: -
 To prevent online banking from remaining an expensive additional channel

that does little to retain footloose customers, banks must act quickly.
 The first and most obvious step they should take is to see to it that the basic
problem fueling dissatisfaction have been addressed.
 After repairing this basic deficiency, banks must ensure that there services is
competitive.
 Obviously, it should include checking, savings and brokerage services, which
anchor customers to the institution.
 In addition, to meet the challenge of online brokerage and other new entrants,
banks would need to add “supermarkets” selling products such as mortgage,
mutual funds and insurance.
70
REFERENCES:
• O’ Brien James. A, Management Information System, Galgotia Publication

• Muedic & Ross, Management Information System
• Indian Banking, S. Natarahan and R. Parameswaran
• Banking – In the New Millennium, ICFAI University
• E-Banking. T.D.Malhotra
• www.google.com
• www.wikipedia.com
• Tandan’s Banking Law and Practice- Wadhwa publications
• www.iibf.org.in
• www.nseindia.com
71
Annexure
QUESTIONAIRRE
Dear Respondent
This questionnaire is meant for the purpose of research on the topic “E-
BANKING- THE CHANGING SCENARIO AND ITS EFFECT” for a continuous
evaluation as part of MBA program of P.I.M.T Mandi Gobindgarh, PB. It will be
assured that the data collected will not be misused.
Q.1 ARE YOU AWARE ABOUT INTERNET BANKING FACILITY GIVEN

BY YOUR BANK….?
YES NO BANK NAME:
Q.2 DO YOU USE THE FACILTY?
YES NO
Q.3 DO YOU THINK THE FACILITY IS REALLY HELPFUL?
VERY STRONGLY STRONGLY FAIR NOT REALLY NOT AT

ALL
Q.4 DO you feel is it secure to use E-BANKING?
72
YES NO
Q.5 RATE THE SECURITY OF YOUR BANK ON SCALE OF 1-5
1:UNSAFE 5:SAFEST
Q.6. HOW MUCH DOES YOUR BANK CHARGE ANNUAL

MAINTAINENCE CHARGES?
NILL 0-50 51-100 101-200 201 N MORE
Q.7 HOW MANY TIMES HAVE YOU USED THE E-BANKING FACILITY ?
ONCE
THRICE
MORE THAN 5 TIMES
MORE THAN 10 TIMES
VERY FREQUENTLY
Q.8 WHICH BANK PROVIDES THE BEST E- BANKING FACILITY ?
HDFC BANK ICICI BANK SBI RBS
ANY OTHER SPECIFY…….
Q.9 RATE ACCORDING TO YOUR PREFERENCE THE IMPORTANCE OF

THE FOLLOWING FACTORS IN E-BANKING?1-MOST PREFERED 4-
LEAST PREFERED…
73
SECURITY ISSUES
TRANSACTION COST
MONTHLY CHARGES
TIME CONSUMED
Q.10 DO YOU THINK E-BANKING SPOILS RELATIONSHIP BANKING AS

ONE-ONE INTERACTION S NOT THERE?
VERY MUCH IT DOES BIT OF IT NO OBVIOUSLY NOT
NAME:
AGE:
PHONE NUMBER:
74

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E – Banking: Changing

scenario and effects

Prof. Ankita Gupta Gagandeep Singh

Lecturer in Management Uni.Roll No:80804317016

PIMT Class:MBA (Semester-IV)

Session 2008 -10

I, GAGANDEEP SINGH, student of Masters of Business Administration from Punjab

Date: Name:Gagandep Singh

Place: Mandi Gobindgarh roll. No: 80804317016

CERTIFICATE FROM THE GUIDE

This is to certify that the project work titled “E-BANKING:THE CHANGING

PLACE: MANDI GOBINDGARH (PUNJAB)

NAME OF THE GUIDE: Prof. ANKITA GUPTA

DESIGNATION OF THE GUIDE : LECTURER IN MGT

Name & Sign: Gagandeep Singh

Roll. No: 80804317016

S. No. Chapter Name Page

5 Analysis and conclusion………………………………..…56

6 Recommendation & Suggestions………………………....68

Objective of the project

The following are the sub objectives of the project:

Origin of the Word “Bank”

Early History of Banking

Development of Banking in India

The post-independent India has witnessed a vibrant evolution in industrial sector

Ever expanding sphere of banking activities

ROLE AND SIGNIFICANCE:

If computerization has today become a byword in banking, its sustained growth is

Public Sector Banks vs. Private Banks: the technology divide

SOME FOREIGN BANKS IN INDIA:

Abu Dhabi Commercial Bank Ltd

Such growing internationalization and opportunity in financial services has entirely

In recent years, the process of financial innovation has advanced enormously

 1.1 Introduction of E-Banking

1.1 Introduction of E-Banking: -

The acceleration in technology has produced an extraordinary effect upon our

1.2 Meaning of E-Banking: -

1.3 Functions of E-Banking: -

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

1. Inquiry about the information of account: -

2. Card accounts’ transfer: -

3. Bank-securities accounts transfer: -

4. The transaction of foreign exchange: -

5. The B2C disbursement on net: -

8. Reporting the loss if the account: -

1.4 Types of E-Banking: -

1. Deposits, withdrawals, inter-account transfer and payment of linked accounts

1.5 Advantages of E-Banking: -

1. Account Information: Real time balance information and summary of day’s

(6) Seamless Integration with existing environment (IDM-Intelligent Data

(10) Platform Independence.

1.6 Limitation of E-Banking: -

1. Safety situations around ATMs.

Part 2: - Internet Banking

 2.1 Internet Banking

2.1 Internet Banking:-

The delivery channels include direct dialup connections, private networks,

b) Banking Services through Internet: -

members of public in general. It may receive and reply to customer’s queries

The entry of India banks into Net Banking

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

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