This document discusses electronic banking in India. It provides an overview of how liberalization and deregulation in the 1990s changed the Indian banking system and led to increased use of information technology. It defines electronic banking and describes some key technologies used, including automated teller machines, debit cards, credit cards, charge cards, and smart cards. The document discusses the needs and advantages of electronic banking, its impact on traditional banking services, risks involved like operational risk and security risk, and legal/compliance risk.

1. ASSIGNMENT-II
FUNDAMENTALS OF COMMERCIAL
BANKING
PGDM (2017-19)
TERM IV
SUBMITTED TO: PROF. KALYAN S. RAY
SUBMITTED BY: GROUP 2
Topic Name: ‘Electronic Banking in India’
Name of the student Registration no. Signature
Atish Pradhan PGDM/17-19/10
Bibhudatta Patra PGDM/17-19/11
Reshma Kumari Sharma PGDM/17-19/32
Sagarika Mallick PGDM/17-19/33
Sarita das PGDM/17-19/34

2. Liberalization and de-regulation process, which started in 1991-92 has made a drastic change
in the Indian banking system. From a totally regulated environment, we have gradually
moved into a market driven competitive system. In today’s era, one cannot think about the
success of any service industry including banking industry without information technology. It
has increased the contribution of banking industry in the economy. Financial transactions and
payments can now be processed quickly and easily in friction of seconds. Every second
development in Information Technology (IT) and its acceptability by the commercial banks
in India has enabled them to use IT extensively to offer their products and services to
customers apart from just back office processes. Banks with latest information technology
techniques are more successful in the cut throat competitive market in these days.
Latest Developments in Information Technology have also brought along a whole set of
challenges to deal with. Speedy changes in technology, complexities, high costs, security and
data privacy issues, new rules and regulations and lack of trained manpower are some
challenges faced by commercial banks in India. E-banking can simply be defined as using
Automated Teller Machines (ATMs) , telephones, internet and mobiles for doing day to day
simple and advance transaction without being physically present in the bank , to use the
services like making queries for account balance, making different type of payments like
bills, mobile recharge, money transfer, filing income tax return electronically. In simple
words, e banking is concerned with doing all these transactions from home or office without
visiting the branch; 24 hours, 7 days in a week by using ATM’s , telephones, internet and
mobiles etc for doing banking services. E-banking technology is gaining all-round adoption
in banking industry across developed and developing countries. The use of e banking
technologies that includes automated teller machines (ATM’s) telephone-banking, internet
banking and mobile banking i.e. branchless banking in the delivery of banking products and
services to their customers has become an essential aspect of modern banking system. Since
banking services are informational (Bradley and Stewart, 2002) and can easily be automated
and digitised (Porter and Miller, 1985), every bank these days is considering the adoption of
information technology equipment’s as a means to improve the performance, service quality
and efficiency in delivering the services. E-banking refers to the system that enables the
banks to offer their customers access to their accounts, transact business and obtain
information via electronic communication channels; these channels can be Automated Teller
Machines (ATM‟s), tele-banking, home-banking and internet banking. Banks have now been

3. able to provide single window system for quick delivery of services to their customers, where
one can deposit cheque, receive payment, deposit cash etc all at one place.
TECHNOLOGY USED IN E-BANKING
1. The Electronic Fund Transfer (EFT): This facility offers you to make payments to
account holders of other banks in an efficient and fast manner. As against the physical
clearing, where the cheques are cleared on presentment of the physical instrument at
the clearing house, in EFT the transactions are settled electronically. EFT also
provides you with an opportunity to move your collections to an electronic platform,
whereby you can instruct your Dealers to pay through EFT, thus reducing the time for
realization of funds. At present the electronic fund transfer facility is available in two
modes and you can avail either of the following modes to transfer your funds;
(a) National Electronic Fund Transfer (NEFT): This is the faster mode of fund transfer in
which the funds are credited to the beneficiary’s account on the same day. It is offered by
computerized branches of certain banks.
(b) EFT: This is the normal electronic fund transfer facility offered by the banks. It is similar
to NEFT in all respects with the exception of the transaction cycle time – an EFT transaction
takes a minimum of 3 working days to be credited to the beneficiary’s account whereas in
NEFT, the amount is credited on the same day of the transaction. The end to end transaction
can be done through our Corporate Electronic banking wherein the request can be submitted
online, either as a single transaction or through a file uploads. The key features that are
common to both EFT and NEFT are:
 EFT/NEFT clearing is conducted by Reserve Bank of India (RBI) and it takes place
thrice a day during Monday to Friday and twice on Saturdays.
 The payment instruction can be given through the Corporate Electronic banking.
Alternatively the instructions can also be sent to the designated branches.

4.  Presently offered at more than 125 locations, which covers all the major cities of the
country
2. Automated Teller Machines: The Automated Teller Machines are installed, now-a-
days, at every nook and corner in most of the towns & cities. These are meant for
balance enquiries, cash withdrawals and many other facilities depending upon the
policies of the bank. This requires a valid Customer Id and password to log in and is
therefore safe to be used. Despite of using ATM cards, Debit cards can also be used in
the ATMs.
3. Debit Cards: Debit Cards is another advanced technology of the electronic banking,
now-a-days. These cards are the multi-purpose cards and can be used in ATMs for
balance enquiry and cash withdrawal or can be used for easy shopping at various
counters. Debit Cards ensure the automatic deduction of amount from the account just
by scratching it on the machine. It makes it easier for the consumers to go for
shopping with and even carrying cash with them.
4. Credit Cards: Credit Cards, unlike debit cards, provide credit to the consumers. A
credit card system is a type of retail transaction settlement and credit system, named
after the small plastic card issued to users of the system. A credit card is different
from a debit card in that it does not remove money from the user's account after every
transaction. In the case of credit cards, the issuer lends money to the consumer (or the
user). It is also different from a charge card (though this name is sometimes used by
the public to describe credit cards), which requires the balance to be paid in full each
month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the
cost of having interest charged. Most credit cards are the same shape and size, as
specified by the ISO 7810 standard.
5. Charge Cards: A charge card is a means of obtaining a very short term (usually
around 1 month) loan for a purchase. It is similar to a credit card, except that the
contract with the card issuer requires that the cardholder must each month pay charges
made to it in full -- there is no "minimum payment" other than the full balance. Since
there is no loan, there is no official interest. A partial payment (or no payment) results
in a severe late fee (as much as 5% of the balance) and the possible restriction of
future transactions or even cancellation of the card.
6. Smart Cards: A card that is used for storing and retrieving personal information,
normally the size of a credit card and contains electronic memory and possibly an
embedded integrated circuit. The card can be used to do many tasks:

5.  Will verify the carrier of that card in order to access systems.
 Storing a patient's medical records
 Storing digital cash
 To use a smart card, either to pull information from it or add data to it, you need a
smart card reader, a small device into which you insert the smart card.
Need for E banking:-
Online banking can be faster and more convenient than visiting a bank branch in person or
conducting business over the phone. That's only become truer, as banks have added features
to online banking sites and mobile apps like digital check deposit. Some online-only accounts
also offer better interest rates and better terms than their brick-and-mortar equivalents.
Advantages of E- Banking
Convenience
Direct banks are open for business anywhere there is an internet connection. Other than
times when technical maintenance is being done, they are open 24 hours a day, 365 days a
year. If internet service is not available, customer service is normally provided around the
clock via telephone. Real-time account balances and information are available at the touch of
a few buttons. This makes banking faster, easier, more efficient and even more effective
because consumers are able to always stay on top of their account balances.
Updating and maintaining a direct account is also easier. It takes only minutes to change your
mailing address, order additional checks and check for current interest rates.
Better Rates
The lack of significant infrastructure and overhead costs allow direct banks to pay higher
interest rates on savings and charge lower mortgage and loan rates. Some offer high-yield
checking accounts, high-yield CDs and no-penalty CDs for early withdrawal. Some accounts
can be opened with no minimum deposits and carry no minimum balance or service fees.
Services
Direct banks typically have more robust online services that offer a comprehensive set of
features that may not be found on the websites of traditional banks. These include functional
budgeting and forecasting tools, financial planning capabilities, investment analysis tools,

6. loan calculators and equity trading platforms. They also offer free online bill paying, online
tax forms and tax preparation.
Mobility
Online banking now includes mobile capabilities. New applications are continually being
created to expand and improve this capability on smartphones and other mobile devices.
Transfers
Accounts can be automatically funded from a traditional bank account via electronic transfer.
Most direct banks offer unlimited transfers at no cost, including those destined for outside
financial institutions. They will also accept direct deposits and withdrawals that you
authorize, such as payroll deposits and automatic bill payment.
Ease of Use
Online accounts are easy to set up and require no more information than a traditional bank
account. Many offer the option of inputting your data online or downloading the forms and
mailing them in. If you run into a problem, you have the option of calling or emailing the
bank directly. One advantage of using online checks is that the payee's information is
retained, which eliminates having to re-enter information on subsequent checks to the same
payee.
Online banking is also environmentally friendly. Electronic transmissions require no paper,
reduce vehicle traffic and are virtually pollution-free. They also eliminate the need for
buildings and office equipment.
IMPACT ON TRADITIONAL SERVICES:-
E-banking transactions are much cheaper than branch or even phone transactions. This could
turn yesterday’s competitive advantage - a large branch network - into a comparative
disadvantage, allowing e-banks to undercut bricks-and-mortar banks. This is commonly
known as the “beached dinosaur” theory. E-banks are easy to set up, so lots of new entrants
will arrive. „Old-world‟ systems, cultures and structures will not encumber these new
entrants. Instead, they will be adaptable and responsive. E-banking gives consumers much
more choice. Consumers will be less inclined to remain loyal. Portal providers are likely to
attract the most significant share of banking profits. Indeed banks could become glorified
marriage brokers. They would simply bring two parties together e.g. buyer and seller, payer

7. and payee. The products will be provided by monolines, experts in their field. Traditional
banks may simply be left with payment and settlement business even this could be cast into
doubt. Traditional banks will find it difficult to evolve. Not only will they be unable to make
acquisitions for cash as opposed to being able to offer shares, they will be unable to obtain
additional capital from the stock market. This is in contrast to the situation for Internet firms
for whom it seems relatively easy to attract investment. E-banking is just banking offered via
a new delivery channel. It simply gives consumers another service (just as ATMs did).
Experience in Scandinavia (arguably the most advanced e-banking area in the world) appears
to confirm that the future is „clicks and mortar‟ banking. Customers want full service
banking via a number of delivery channels. The future is therefore „Martini Banking‟ (any
time, any place, anywhere, anyhow). Traditional banks are starting to fight back. The start-up
costs of an e-bank are high. Establishing a trusted brand is very costly as it requires
significant advertising expenditure in addition to the purchase of expensive technology (as
security and privacy are key to gaining customer approval). E-banks have already found that
retail banking only becomes profitable once a large critical mass is achieved. Consequently
many e-banks are limiting themselves to providing a tailored service to the better off. E-
Banking transaction needs some interface to communicate with banking customer. All the
electronic transaction performs through some interfaces. The electronic devices which
perform interact with customers and communicate with other banking system is called
electronic banking delivery channels.
RISK INVOLVED:-
The growth of electronic banking has created a new basis with regard to the degree of
Exposure to the risk and therefore consequently the need of not only a differentiated
regulating frame, but also mechanisms of monitoring to be formed, which has already begun
to be shaped in the
Fields of Basle Committee of Banking Supervision. The business risk is the risk of not being
able to achieve the business targets due to inappropriate strategies, inadequate resources or
changes in the economic or competitive environment. It has to do with the ability the credit
institution has in order to achieve the operational objectives by exploiting the available
opportunities in the market. The big changes on the banking sector and the adoption of fast
paced evolving technology also change the traditional strategic risks. A bank that will rush
into the adoption of new technologies so that it is rendered pioneer is risking losing its
investment as information systems lose their value in very short time interval. Moreover,

8. there is the risk of extensive investment in particular products or services, which will not
become acceptable by the end users. On the other hand, if it maintains a more conservative
attitude there is the risk of becoming last, in an environment where the competition is moving
fast and strengthens its place in the market. Internet banking may soon convert from a
complementary to the main provider of financial services and products. Consequently, a
possible failure of a bank entering this sector, can have various consequences on its future
position in the market, especially when the competition of the banks, which are clearly
connected with the I-banking and do not have any physical substance (virtual banks), is
already given.
THE RISKS IN E-BANKING ARE AS FOLLOWS;
1. OPERATIONAL RISK:-
Operations risk arises from fraud, processing errors, system disruptions, or other
unanticipated events resulting in the institution’s inability to deliver products or services.
This risk exists in each product and service offered. The level of transaction risk is affected
by the structure of the institution’s processing environment, including the types of services
offered and the complexity of the processes and supporting technology. In most instances, e
banking activities will increase the complexity of the institution’s activities and the quantity
of its operations risk, especially if the institution is offering innovative services that have not
been standardized. Since customers expect e-banking services to be available 24 hours a day,
7 days a week, financial institutions should ensure their e-banking infrastructures contain
sufficient capacity and redundancy to ensure reliable service availability.
2. 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. A
breach of security could result in direct financial loss to the bank. For example, hackers
operating via the Internet could access, retrieve and use confidential customer information
and also can implant virus. This may result in loss of data, theft of or tampering with
customer information, disabling of a significant portion of bank’s internal computer system
thus denying service, cost of repairing these etc. Other related risks are loss of reputation,
infringing customers‟ privacy and its legal implications. Thus, access control is of paramount
importance. Controlling access to banks‟ system has become more complex in the Internet

9. environment which is a public domain and attempts at unauthorized access could emanate
from any source and from anywhere in the world with or without criminal intent. Attackers
could be hackers, unscrupulous vendors, disgruntled employees or even pure thrill seekers. In
addition to external attacks banks are exposed to security risk from internal sources e.g.
employee fraud. Employees 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.
3. LEGAL /COMPLIANCE RISK
Legal risk is the risk of non-compliance with legal or regulatory requirements. The legal risks
are directly related to the electronic banking and they are increased as its use is extended.
They mainly stem from the uncertainty that exists in the legal – regulative framework
concerning the electronic banking. In most countries an explicit regulating framework does
not exist and this is owed to the little experience regarding the sector of electronic banking.
The problem becomes even bigger when a bank offers its electronic services to other
countries as well, since a unified legal frame in international level does not exist. Each
country puts its own rules into effect and it is difficult for a bank to constantly adapt its
services and to be acquainted with all the laws that are in effect in every country.
4. MONEY LAUNDERING RISK
Money laundering is the practice of engaging in financial transactions in order to conceal the
identity, source, and/or destination of money, and is a main operation of the underground
economy. Money laundering is called what it is because that perfectly describes what takes
place - illegal, or dirty, money is put through a cycle of transactions, or washed, so that it
comes out the other end as legal, or clean, money. In other words, the source of illegally
obtained funds is obscured through a succession of transfers and deals in order that those
same funds can eventually be made to appear as legitimate income. Every financial institution
is charged with the responsibility of developing policies and procedures to combat money
laundering, which includes the duty to be aware of trends and adaptations in the methods by
which money laundering is carried out. The most difficult aspect of this responsibility is a
financial organization’s ability to anticipate new criminal behavior and to proactively
implement protocols before the criminal behavior occurs. As Internet banking transactions
are conducted remotely banks may find it difficult to apply traditional method for detecting

10. and preventing undesirable criminal activities. Application of money laundering rules may
also be inappropriate for some forms of electronic payments. Thus banks expose themselves
to the money laundering risk. This may result in legal sanctions for non-compliance with
“know your customer” laws.
5. STRATEGIC RISK
On strategic risk E-banking is relatively new and, as a result, there can be a lack of
understanding among senior management about its potential and implications. People with
technological, but not banking, skills can end up driving the initiatives. E-initiatives can
spring up in an incoherent and piecemeal manner in firms. They can be expensive and can
fail to recoup their cost. Furthermore, they are often positioned as loss leaders (to capture
market share), but may not attract the types of customers that banks want or expect and may
have unexpected implications on existing business lines. Banks should respond to these risks
by having a clear strategy driven from the top and should ensure that this strategy takes
account of the effects of e-banking, wherever relevant. Such a strategy should be clearly
disseminated across the business, and supported by a clear business plan with an effective
means of monitoring performance against it. Poor e-banking planning and investment
decisions can increase a financial institution’s strategic risk. Early adopters of new e-banking
services can establish themselves as innovators who anticipate the needs of their customers,
but may do so by incurring higher costs and increased complexity in their operations.
Conversely, late adopters may be able to avoid the higher expense and added complexity, but
do so at the risk of not meeting customer demand for additional products and services.
SECURITY ISSUES:-
It is evident that e-banking is here to stay. However, the advent of high technology has also
brought with it new operational risk in the form of securities risks. The safety of the banks,
the integrity of the country’s payment and settlement system, and the trust that customer
impose in the safety of the system are all intertwined to ultimately contribute to financial
stability. The challenge for the future will be to identify and address risks to banking safety
and security without hampering technological innovations in banking.
Internet-banking has evolved into a mass market product—an essential services whose
quality can affect the customers’ loyalty to and satisfaction with their bank. And not
surprisingly, it is internet-banking that is posing the gravest risk to banks’ viability and

11. sustenance. Hackers and fraudsters have realized the immense potential of internet-banking to
give them ill-gotten monetary gains.
Therefore, as new technologies evolve to make banking faster and more convenient for
customers, the concerns about e-payment security have increased. The ‘conventional’ risks of
unauthorized access, identity theft or network attacks have been exacerbated by
‘contemporary’ threats-phishing and pharming, spear phishing, carding and skimming, crime
ware and spyware, money laundering, mules, scams, spams, Nigerian advance fee fraud.
The most prevalent types of internet frauds are discussed as follows:
1. Identity thefts:
In the virtual world, a person’s identity is defined by the user name, passwords or account
names. Identity theft is the misuse of personal data or documents in order to impersonate
another individual to carry out illegal or fraudulent activities, e.g., to abuse the victim’s
banking facilities or other assets. Especially affected are popular transaction types, such as
card transaction at ATMs, online banking transaction or the use of credit card numbers for
internet payments.
2. Carding/Skimming:
Carding sites can be found on the internet, where fraudsters buy and sell access to bank
accounts, stolen card numbers, dumps from magnetic strips and even personal profiles.
Skimming constitutes the unnoticed duplication of electronic data from a payment card. A
copying device is front of the original card slot of an ATM, which transcribe the information
from the magnetic stripe on a card inserted by a customer. Sometimes these devices could be
a camera or a fake touch pad to duplicate the keystrokes used for password entry.
The vital information obtained by these methods enables fraudsters to easily duplicate cards
and withdraw money from the accounts in question. Instances of skimming can also occur at
cash registers.
3. Phishing:
Phishing is a signifying fraudulent capture and recording of customers’ security details, to be
used later for committing fraud. It originates from the analogy that internet fraudsters are
using emails lures to ‘fish’ for passwords and financial data from myriads of internet users.

12. Phishing can take on several forms such as the following:
 Email phishing signifies creation of email messages and web pages that exactly
resemble existing sites in order to deceive users to part with financial, personal or
password data to fraudsters.
 Pharming is the use of malware/spyware to redirect internet users from genuine web
sites to fraudulent ones. It carries out modifications in the name resolution system,
such that when a user opens the web site of his bank, it actually takes the user to the
fraudulent web site.
 Spear phishing is a highly targeted phishing attack that focuses on a whole group-such
as employees of a certain firm, government agency or organization. The message
would appear as though it is generated by the employer, asking for updating of
passwords or any other personal information. Spear phishing could, therefore, gain
access and wreak havoc on an entire company’s computer system.
 Phlash phishing uses macromedia flash to build an entire web site. The use of flash is
intended to make it more difficult to determine whether or not the page is malicious,
and could also bypass antiphishing toolbars.
 Vishing (voice phishing ) may begin with an email or telephone call. The email warns
that the user’s bank account has been cyber attacked and, therefore the user has to call
a certain telephone number, which will ask for the account number and other details.
The phone call version purports to be even more authentic. The caller already knows
the user’s credit card number and asks for the valuable 3-digit code at the back of the
card. Such calls can be set up quickly and automatically by voice over internet
protocols (VOIP).
 Man in middle attacks (phishing in sessions) is a rapidly growing threat to online
banking security. Fake web site are set up to closely replicate the bank’s authentic
web sites. The bank customer receives an email purportedly from the bank, asking the
customer to click on a link provided on the bank ‘web site’. Once this is done, the
customer is automatically taken to the fake bank web site. In another approach, the
customer’s internet connection is already tampered with: hence when the customer
tries to visit the genuine bank web site, he invariably gets connected to the fake web
site.
 Man in the browser attacks have reached an even higher level of sophistication. In
cases, rather than intercepting communication between the customer’s computer and

13. the bank web site, the malicious software installed on the customer’s computer
intercepts communication between the customer and his web browser.
Phishing activities as well as anti phishing measures have reached such levels of
frenzied activity, that an anti phishing working group (APWG) has been formed as a
global pan industrial and law enforcement association, focussed on eliminating the
fraud and identity theft that result from phishing, pharming and email spoofing of all
types.
4. Mules:
Mules are individuals recruited over the internet with the sole purpose of being
intermediaries for illegally acquired funds. these funds could have been acquired through
methods such as phishing and other types of scams. The name mule is suggestive of the
transport method that smugglers are believed to have adopted for moving their illegally
acquired goods.
Mules earn sizeable sums of money-deducting 5% to 10% of the transferred amount as
fee for their services. The money is transferred through anonymous transfer services, such
as western union or e-gold.
Contrary to popular belief, mules are not innocent people tricked into illegal business.
They are typically mercenary volunteers with scant respect for the law- and for this very
reason, they are turning ‘professionals.’