A Bird's Eye View of the evolution of electronic banking in India and its future.

1. E Banking
An Overview
-Chinmay Sangoram

2. Banking in India
Started in the year 1786 with “ The General Bank of India ” being the
first.
Reserve Bank of India came in 1935. Became the central banking
authority in 1965.
Banking Companies Act passed in 1949.
Formation of State Bank of India in 1955.
Nationalization of 14 major banks in 1969. Seven more in 1980.
Opening up of economy, implementations of recommendations of the
Narsimham committee.

4. What is E Banking?
Internet banking (or E-banking) means any user with a
personal computer and a browser can get connected to his
bank’s website to perform any of the virtual banking
functions.
The term quot;electronic bankingquot; or quot;e-bankingquot; covers both
computer and telephone banking.
In other words it is said that it is updated 'on-line, real
time'. The system is updated immediately after every
transaction automatically.

5. Why E banking?
Differentiation of products from the others.
A combination of regulatory and competitive reasons
Stress on branchless banking.
Increasing volumes of banking transactions.
Providing customers with cost effective services

6. E Banking in India
Opening up of economy in 1991 marked the entry of foreign
banks. They brought new technology with them.
Banking products became more and more competitive. Need
for differentiation of products and services was felt.
The ICICI Bank kicked off online banking in 1996. Currently
78% of its customer base is registered for online banking.
1996 to 1998 marked the adoption phase, while usage
increased only in 1999, owing to lower ISP online charges,
increased PC penetration and a tech-friendly atmosphere.

7. Guidelines
The Internet Banking policy has been approved by the Bank's
Board.
The policy fits into the bank's overall Information Technology and
Information Security policy and ensures confidentiality of records
and security systems.
The policy takes into account operational risk.
The policy clearly lays down the procedure to be followed in respect
of quot;Know Your Customerquot; requirements, and
The policy broadly meets the parameters laid down in the earlier
circular.

8. Facts and figures
Internet population currently is 38.5 million and expected to
grow to 100 million by 2007-08.
At present 4.6 million of these use internet banking. This
figure is estimated to grow to 16 million by the end of 07-08.
Only 59 per cent of adult population have access to a bank
account. This implies 41 per cent of adult population is
“unbanked”.

10. E Banking products and services
Offered in a two tier structure
A basic tier of Internet banking products includes
customer account inquiry, funds transfer and electronic
bill payment.
A second or premium tier includes basic services plus
one or more additional services like brokerage, cash
management, credit applications, credit and debit cards,
customer correspondence, demat holdings, financial
advice, foreign exchange trading, insurance, online
trading, opening accounts, requests and intimations, tax
services, e-shopping, standing instructions, investments,
asset management services etc.

11. Levels of services offered in E Banking
Information Only System
Electronic Information Transfer System
Fully Electronic Transactional System

12. Tools of Electronic Banking
Automated Teller Machine
Credit Cards/Debit Cards
Smart Card

13. Services/Transactions
Answering routine queries
Bill payment service
Electronic Fund transfer(ETF)
Electronic Clearing System(ECS)
Credit card customers
Railway Pass
Investing through internet banking
Recharging your prepaid phone
Shopping

14. Advantages to banks
Very low setup cost.
Capability to cater to a very large customer base.
Saves a lot of operational costs. Adds to the
baseline.
Banks san offer a lot of personalized services to
their customers.
Reduction of burden on branch banking.

16. Advantages Disadvantages
Check account balances and track Need an account with an Internet
recent account activity Service Provider (ISP)
Transfer money between accounts Security concerns, like ‘hackers’
accessing your bank accounts
Authorize electronic bill payments Original setup for bill paying time is
time-consuming but will ultimately be
a time-saver
Issue stop payment requests Switching banks can be more
cumbersome online than in person
Apply for auto, mortgage, home equity, Must have basic computer skills and
student, or personal loans Internet knowledge
Receive investment product and Must be comfortable using a
service information computer

17. Advantages to customers
It is convenient.
It isn't bound by operational timings.
There are no geographical barriers.
Services can be offered at a miniscule cost.
Check your transactions at any time of the day, and as many
times as you want to.
Getting quarterly statements from the bank, transferring funds
to outstation, and other such activities can be done free of
charge through online banking.

18. Some more numbers….
At ICICI Bank in the year 2000, 94% of the transactions
happened at the branches, just 2% over the net. In fiscal
2006, transactions at the branch were down to 22 per
cent of the total while Net banking transactions rose to 18
per cent.
At HDFC Bank, branch transactions that accounted for 43
per cent of all transactions in fiscal 2001 came down to
23 per cent in fiscal 2006. In the same period, internet
transactions rose from about 3 per cent to 16 per cent.
About 40 per cent of the transactions on the net take
place during non-banking hours - i.e. between 6 p.m. and
8.a.m.

19. Pre cautions to be taken
Customers should never share personal information like
PIN numbers, passwords etc with anyone, including
employees of the bank.
Documents that contain confidential information should be
safeguarded.
PIN or password mailers should not be stored, the PIN
and/or passwords should be changed immediately and
memorised before destroying the mailers.

20. Continued….
Customers are advised not to provide sensitive account-
related information over unsecured e-mails or over the
phone.
Take simple precautions like changing the ATM PIN and
online login and transaction passwords on a regular
basis.
Ensure that the logged in session is properly signed
out.

21. Critical issues
The present system of authentication does not
address the security aspect in full
Data Protection and the need for a legal and regulatory
framework- another major issue.
There is a dual requirement to protect customers' privacy
and protection against fraud.
Stringent regulatory and operational security
measures.

22. The road ahead
Reduction in branch banking.
Gradual evolution of Virtual banking
People will want to process more transactions on the
Internet.
Geography will not be an inhibitor any more.
The future of banking would be in terms of integration.