ONLINE BANKING IN INDIA

(This final draft is submitted in partial fulfilment of course Law of Banking and Finance for
obtaining the degree B.B.A., LL.B. (Hons.) during the academic year 2021-2022.)

SUBMITTED BY:

AASTHA PRAKASH

B.B.A., LL.B. (Hons.)

ROLL NO: 2002

SEMESTER: 8th

SUBMITTED TO:

Mr. Abhishek Kumar

FACULTY OF LAW OF BANKING AND FINANCE

MARCH, 2022

CHANAKYA NATIONAL LAW UNIVERSITY, NYAYA NAGAR, MITHAPUR,

PATNA- 800001.
 DECLARATION
I the undersigned solemnly declare that the project report ONLINE BANKING IN INDIA is
based on my own work carried out during the course of our study under the supervision of Mr.
Abhishek Kumar.

I assert the statements made and conclusions drawn are an outcome of my research work. I
further certify that

I. The work contained in the project is original and has been done by under the general
supervision of my supervisor.
II. The work has not been submitted to any other institution for any
degree/diploma/certificate in this university or any other university in India or abroad.
III. I have followed the guidelines provided by the university in writing the project.
IV. Wherever I have used materials (data, theoretical analysis and text) from other sources,
we have given due credit to them in the text of the report and giving their details in the
reference/footnotes.

(Signature of the candidate)

NAME: AASTHA PRAKASH

ROLL NO: 2002

COURSE: B.B.A., LL.B.(HONS)

SEMESTER: 2021-22 (8th)

SESSION:2018-23

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 ACKNOWLEDGEMENT
I would like to thank my faculty Mr. Abhishek Kumar whose guidance helped me a lot with
structuring my project.

I owe the present accomplishment of my project to my friends, who helped me immensely with
materials throughout the project and without whom I couldn’t have completed it in the present
way.

I would also like to extend my gratitude to my parents and all those unseen hands that helped me
out at every stage of my project.

THANK YOU

NAME: AASTHA PRAKASH

ROLL NO: 2002

COURSE: B.B.A., LL.B.(HONS)

SEMESTER: 2021-22 (8th)

SESSION:2018-23

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 TABLE OF CONTENTS

Contents
DECLARATION ............................................................................................................................ 2

ACKNOWLEDGEMENT .............................................................................................................. 3

TABLE OF CONTENTS ................................................................................................................ 4

1. INTRODUCTION ................................................................................................................... 5

AIMS AND OBJECTIVES ........................................................................................................ 6

RESEARCH METHODOLOGY................................................................................................ 6

HYPOTHESIS ............................................................................................................................ 6

LIMITATION ............................................................................................................................. 7

MODE OF CITATION ............................................................................................................... 7

2. INTRODUCTION TO INTERNET BANKING ..................................................................... 8

Information Technology ............................................................................................................. 8

Technology In Banking............................................................................................................... 9

3. E-BANKING ......................................................................................................................... 11

Importance of e-banking ........................................................................................................... 12

4. E-BANKING IN INDIA ....................................................................................................... 14

5. CONCLUSION ..................................................................................................................... 18

RBI’S RECOMMENDATION ON E-BANKING .................................................................................... 18

BIBLIOGRAPHY ......................................................................................................................... 20

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 1. INTRODUCTION

The world of banking has assumed a new dimension at dawn of the 21st century with the advent
of tech banking, thereby lending the industry a stamp of universality.

In general, banking may be classified as retail and corporate banking. Retail banking, which is
designed to meet the requirement of individual customers and encourage their savings, includes
payment of utility bills, consumer loans, credit cards, checking account and the like corporate
banking, on the other hand, caters to the need of corporate customers like bills discounting, opening
letters of credit, managing cash, etc.

Metamorphic changes took place in the Indian financial system during the eighties and nineties
consequent upon deregulation and liberalization of economic policies of the government. India
began shaping up its economy and earmarked ambitious plan for economic growth.

Consequently, a sea change in money and capital markets took place. Application of marketing
concept in the banking sector was introduced to enhance the customer satisfaction the policy of
privatization of banking services aims at encouraging the competition in banking sector and
introduction of financial services.

Definition of banks:

An organization, usually a corporation, chartered by a state or federal government, which does

most or all of the following: receives demand deposits and time deposits, honors instruments drawn
on them, and pays interest on them; discounts notes, makes loans, and invests in securities; collects
checks, drafts, and notes; certifies depositor's checks; and issues drafts and cashier's checks.

A financial institution that is licensed to deal with money and its substitutes by accepting time and
demand deposits, making loans, and investing in securities. The bank generates profits from the
difference in the interest rates charged and paid.

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A Bank is defined as an institution which collects surplus funds from the public, safeguards them,
and makes them available to the true owner when required and also lends sums be their true owners
to those who are in need of funds and can provide security.

Banking Company in India has been defined in the Banking Companies act 1949, “One which
transacts the business of banking which means the accepting, for the purpose of lending or
investment of the deposits of money from the public, repayable on demand, or otherwise and
withdrawal be cheque, draft, order or otherwise.”

Functions of Banking

How is money created? Other than the currency and bills that are made in a national mint, the
money that our nation uses on a daily basis is actually created by commercial banks in the form of
deposits and other things.

A bank depends on the misfortune of its customers to create money. Someone must be in debt to
commercial banks in order for money and credit systems to work. When a borrower spends the
money he or she has been loaned, the recipient deposits it in another bank. That deposit represents
the creation of new money. A bank pays its bills by borrowing if people don't pay their taxes. The
interest that a bank charges customers on the loans it gives becomes that bank's profit. A customer's
assets and liabilities add up equally. When a bank makes unnecessary profit, it makes for a burden
on taxpayers.

AIMS AND OBJECTIVES

• The researcher tends to analyze the various aspects of online banking.
• The researcher aims to analyse the online banking aspect specifically in India.

RESEARCH METHODOLOGY
Doctrinal method of research has been relied upon to complete the project.

HYPOTHESIS
The researcher hypothesizes that there is surge in E-banking sector of India. E-banking is now a
key component of today’s digitalised world.

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LIMITATION
• There is a time limitation for the researcher to finish the research.

MODE OF CITATION
Blue book mode of citation has been used for the purpose of citation in his research.

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 2. INTRODUCTION TO INTERNET BANKING
Internet banking is a process that has evolved because of the development of technology over the
years. So before going into detail on the online we should have an overview of it birth.

INFORMATION TECHNOLOGY
Information technology (IT) is the acquisition, processing, storage and dissemination of vocal,
pictorial, textual and numerical information by a microelectronics – based combination of
computing and telecommunications. IT is a term that encompasses all forms of technology used to
create, store, exchange, and use information in its various forms (business data, voice
conversations, still images, motion pictures, multimedia presentations, and other forms, including
those not yet conceived). It's a convenient term for including both telephony and computer
technology in the same word. It is the technology that is driving what has often been called "the
information revolution."

IT is the area of managing technology and spans wide variety of areas that include but are not
limited to things such as processes, computer software, information systems, computer hardware,
programming languages, and data constructs. In short, anything that renders data, information or
perceived knowledge in any visual format whatsoever, via any multimedia distribution
mechanism, is considered part of the domain space known as Information Technology (IT). IT
provides businesses with four sets of core services to help execute the business strategy. These
four core services are broken into business process automation, providing information, connecting
with customers, and productivity tools.

IT professionals perform a variety of functions (IT Disciplines/Competencies) that ranges from

installing applications to designing complex computer networks and information databases. A few
of the duties that IT professionals perform may include data management, networking, engineering
computer hardware, database and software design, as well as management and administration of
entire systems. Information technology is starting to spread further than the conventional personal
computer and network technologies, and more into integrations of other technologies such as the
use of cell phones, televisions, automobiles, and more, which is increasing the demand for such
jobs.

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TECHNOLOGY IN BANKING
Many of the largest and most successful banks in the world emerged from the technical changes
that they are able to recognize at an early stage. India’s banking sector has a long way to go before
it can compete globally. Situation is especially maintained in the late introduction of ICT in India
banks. Our information technology is designed to compete with information technology in the
world, and when we are in the area very quickly, it can be difficult for us to benefit from
liberalization.

Bank, with the right technology to provide timely information to increase productivity and thus
see a competitive advantage. Compete in the economy, which has been opened, it is certainly the
Indian banks to comply with the latest technology and adapt to its surroundings. Except that the
banks need much improved use of technology to customer- friendly, efficient and competitive in
the current authorities and businesses, they also need the technology to newer products and newer
forms of service and the increasingly dynamic global environment to offer. Information technology
allows banks to build new systems, which bite the needs of many customers that cannot be
considered today.

Internet banking, for example, promises customers to conduct banking transactions in a direct
access to the core of the bank customer account works. Customers to verify all information, all so
far, all the checks, all credit card information.

In the future, the banks freed from the constraints of a delivery channel. They can create, package,
market and product niches, and because the tumbling price of the technology, they can do so cost-
effectively.

Technology gives banks the opportunity to be closer to customers, to a broader range of services
at lower costs, streamline the March belang systems so that all information in one place where it
can be used for the trends that can quickly lead into new products.

Electronic banking data can be gathered and analyzed. Interactivity allows the consumer to save
the settings, directing the development of truly new products.

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.

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In internet banking system the bank has a centralized database that is web-enabled. All the services
that the bank has permitted on the internet are displayed in menu. Any service can be selected and
further interaction is dictated by the nature of service. Once the branch offices of bank are
interconnected through terrestrial or satellite links, there would be no physical identity for any
branch. It would a borderless entity permitting anytime, anywhere and anyhow banking.

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 3. E-BANKING
Electronic banking has many names like e banking, virtual banking, online banking, or internet
banking. It is simply the use of electronic and telecommunications network for delivering various
banking products and services. Through e-banking, a customer can access his account and conduct
many transactions using his computer or mobile phone. In this article, we will look at the
importance and types of e-banking services.

Types of e banking

Banks offer various types of services through electronic banking platforms. These are of three
types:

Level 1 – This is the basic level of service that banks offer through their websites. Through this
service, the bank offers information about its products and services to customers. Further, some
banks may receive and reply to queries through e-mail too.

Level 2 – In this level, banks allow their customers to submit instructions or applications for
different services, check their account balance, etc. However, banks do not permit their customers
to do any fund-based transactions on their accounts.

Level 3 – In the third level, banks allow their customers to operate their accounts for funds transfer,
bill payments, and purchase and redeem securities, etc.

Most traditional banks offer e-banking services as an additional method of providing service.
Further, many new banks deliver banking services primarily through the internet or other
electronic delivery channels. Also, some banks are ‘internet only’ banks without any physical
branch anywhere in the country. Therefore, banking websites are of two types:

1. Informational Websites – These websites offer general information about the bank and its
products and services to customers.

2. Transactional Websites – These websites allow customers to conduct transactions on the bank’s
website. Further, these transactions can range from a simple retail account balance inquiry to a
large business-to-business funds transfer.

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IMPORTANCE OF E-BANKING
We will look at the importance of electronic banking for banks, individual customers, and
businesses separately.

Banks

• Lesser transaction costs – electronic transactions are the cheapest modes of transaction A
reduced margin for human error – since the information is relayed electronically, there is
no room for human error
• Lesser paperwork – digital records reduce paperwork and make the process easier to
handle. Also, it is environment-friendly.
• Reduced fixed costs – A lesser need for branches which translates into a lower fixed cost.
• More loyal customers – since e-banking services are customer-friendly, banks experience
higher loyalty from its customers.
Customers

• Convenience – a customer can access his account and transact from anywhere 24x7x365.
• Lower cost per transaction – since the customer does not have to visit the branch for every
transaction, it saves him both time and money.
• No geographical barriers – In traditional banking systems, geographical distances could
hamper certain banking transactions. However, with e-banking, geographical barriers are
reduced.
Businesses

Account reviews – Business owners and designated staff members can access the accounts quickly
using an online banking interface. This allows them to review the account activity and also ensure
the smooth functioning of the account.

Better productivity – Electronic banking improves productivity. It allows the automation of regular
monthly payments and a host of other features to enhance the productivity of the business.

Lower costs – Usually, costs in banking relationships are based on the resources utilized. If a
certain business requires more assistance with wire transfers, deposits, etc., then the bank charges
it higher fees. With online banking, these expenses are minimized.

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Lesser errors – Electronic banking helps reduce errors in regular banking transactions. Bad
handwriting, mistaken information, etc. can cause errors which can prove costly. Also, easy review
of the account activity enhances the accuracy of financial transactions.

Reduced fraud – Electronic banking provides a digital footprint for all employees who have the
right to modify banking activities. Therefore, the business has better visibility into its transactions
making it difficult for any fraudsters to play mischief. Learn the risks of E-banking here in detail.

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 4. E-BANKING IN INDIA
In India, since 1997, when the ICICI Bank first offered internet banking services, today, most new-
generation banks offer the same to their customers. In fact, all major banks provide e-banking
services to their customers.

Popular services under e-banking in India

➢ ATMs (Automated Teller Machines)

➢ Telephone Banking
➢ Electronic Clearing Cards
➢ Smart Cards
➢ EFT (Electronic Funds Transfer) System
➢ ECS (Electronic Clearing Services)
➢ Mobile Banking
➢ Internet Banking
➢ Telebanking
➢ Door-step Banking

Further, under Internet banking, the following services are available in India:

i. Bill payment – Every bank has a tie-up with different utility companies, service providers,
insurance companies, etc. across the country. The banks use these tie-ups to offer online
payment of bills (electricity, telephone, mobile phone, etc.). Also, most banks charge a
nominal one-time registration fee for this service. Further, the customer can create a
standing instruction to pay recurring bills automatically every month.
ii. Funds transfer – A customer can transfer funds from his account to another with the same
bank or even a different bank, anywhere in India. He needs to log in to his account, specify
the payee’s name, account number, his bank, and branch along with the transfer amount.
The transfer is effected within a day or so.
iii. Investing – Through electronic banking, a customer can open a fixed deposit with the bank
online through funds transfer. Further, if a customer has a demat account and a linked bank
account and trading account, he can buy or sell shares online too. Additionally, some banks

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 allow customers to purchase and redeem mutual fund units from their online platforms as
well.
iv. Shopping – With an e-banking service, a customer can purchase goods or services online
and also pay for them using his account. Shopping at his fingertips.

Risks of E-Banking

Electronic banking offers a lot of benefits to individual customers, businesses, and banks.
However, one should not ignore the risks associated with virtual banking either. In this article,
we will list the risks of e-banking and look at how RBI recommends mitigating these risks.

Here are the risks of e-banking in detail:

Operational Risk

Operation risk or transactional risk is the most common type of risk of e-banking. It includes:

• Incorrect transaction processing

• Compromises in the integrity of data, data privacy, and confidentiality
• Unauthorized access to the bank’s systems
• Non-enforceability of contracts, etc.
Apart from technological errors, human factors like negligence (customers or employees),
employee frauds, hackers, etc. are a potential source of operational risk of e-banking.

Security Risk

When we talk about banking transactions, security of the transaction is of paramount

importance. All customers want their transactions to be confidential. However, since all
information is online, there is always a chance that someone might retrieve the information
and misuse it. The security risk of e-banking also arises from hacking threats and unauthorized
access to the bank’s systems.

System Architecture and Design

In order to manage various operational and security risks of e-banking, it is important that the
bank has appropriate system architecture and controls in place. Banks always carry the risk of
choosing the wring system design or technology or have inadequate control processes. If the

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bank has an outdated system which is not upgradable, then it can turn into an investment loss
for the bank along with inefficient service. Banks need to keep updating their systems to keep
up with the rapidly changing technology to avoid any holes in its security system. Further, the
bank’s staff requires regular training to keep up with the new technologies too.

Reputational Risk

For any business, its reputation is of critical importance. When it comes to electronic banking,
if a bank fails to perform critical functions or not work according to the expectations of its
customers, then it faces a risk of loss of reputation. This eventually leads to a loss of funding
or customers. Some reasons for this risk are a system or product not functioning as expected,
significant deficiencies in the system, security breaches (external or internal), misinforming
customers about the processes and policies of using e-banking, certain communication issues
that hinder the customer from accessing his account, etc.

Legal Risk

Whenever there is a violation of laws, regulations, or prescribed practices, or when the legal
rights and obligations of any of the parties to a transaction are not established, then there is a
legal risk involved. E-Banking is relatively new to the industry and there is a lot of uncertainty
and ambiguity about certain laws and rules. This increases the legal risk.

Money Laundering Risk

All transactions through the e-banking channel are done remotely. Therefore, it is difficult for
banks to use traditional methods to detect and prevent criminal activities. While there are
certain money laundering rules in place, for electronic payments, their feasibility is
questionable. Therefore, banks carry the risk of money laundering.

Cross-border Risks

The core idea of electronic banking is to extend the geographical reach of both banks as well
as customers. This means that the expansion can go beyond national borders. This leads to
several cross-border risks:

• Legal and Regulatory risks – There is a possibility about uncertainties regarding the legal
requirements in certain countries and jurisdiction ambiguities of different national authorities.

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• Operational risk – If the bank uses a service provider located in a different country, then it is
difficult to monitor it causing operational risk.

• Credit risk – Cross-border transactions can increase credit risk. This is because it is difficult
to appraise an application for a loan from a customer in a different country.

Strategic Risk

➢ This risk is associated with issues pertaining to:

➢ The development of a business plan
➢ Having sufficient resources available to support the business plan
➢ In the case of outsourced activities, the credibility of the vendor
➢ For employees, any change in the work environment
➢ Level of technology used in comparison with the available technology, etc.

Other Risks

The other risks of e-banking are the same as those of traditional banking like credit risk,
liquidity risk, interest rate risk, market risk, etc. However, in e-banking, these risks are
magnified due to the use of electronic channels and the absence of geographical boundaries.

All the risks mentioned above can arise due to some flaws in design, insufficient technology,
negligent employees, and unauthorized system access (intentional or not). Therefore, it is
important that banks adopt the right technology and systems and have proper access control
for a secure transacting environment.

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 5. CONCLUSION
People in India are not aware of the full utility of online banking and the services that can be
availed of in online banking. Most of the Indian populations are salaries employees who do not
have that volume of transaction that can be used for online transaction.

People are not confident enough to whether to rely completely on online banking. There is
hesitancy in their minds with regards to preference. So they use both the techniques of banking i.e.
Online and Traditional. Because of the complexity and the unawareness in the people regarding
the online banking, there is less utilization of the online banking services provided by the

banks. People are not sure whether their account is completely secured in online banking. Security
concern is the main and the core reason why people do not tend to use online banking.

The banks further have to take necessary steps to educate the customers regarding the new
technology and other services offered by the banks. Banks may extend customer meeting time with
bank officials and also friendly approach is necessary. Definitely it will help to retain the existing
customers and to attract new customers. It will automatically improve the banking service and
development of banks in India and also in abroad. The research report is useful to know the
consumer awareness of Online Banking system and what types of risk involved in Online Banking
system.

RBI’S RECOMMENDATION ON E-BANKING1

The Reserve Bank of India (RBI) has published detailed guidelines to strengthen India's digital
payments architecture and improve security, control and compliance among banks, gateways,
wallets and other non-banking entities that are at the vanguard of helping New Delhi achieve its
goal of a 'less-cash' economy.

The new rules come at a time when India’s burgeoning payments ecosystem has seen increased
instances of outages, frauds and cyber breaches. The new rules set the framework for all regulated
entities to standardise their security operations to emulate best practices defined by Mint Road.

1
https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=414&Mode=0

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These rules are directly applicable for scheduled commercial banks, small finance banks, payment
banks and credit card-issuing NBFCs. The new set of norms also specifies the criteria under which
regulated entities can form partnerships and interact with third-party apps and ecosystem players
such as mobile applications, payment operators and gateways.

The Reserve Bank of India (RBI) has a working group which examines various issues of e-banking
and suggests different ways to solve them. Some of these recommendations are:

• Keeping security concerns in mind, all banks in India must follow a standard. Also, the
Indian Banks Association should design this standard.
• All banks must adopt adequate security measures to maintain the secrecy and
confidentiality of data. Further, they must use logical access control to implement it.
• In order to mitigate the money laundering risk, banks must develop an anti-money
laundering (ALM) technology for reporting and querying.
• Banks must have an internal grievance redressal system to adopt a fraud-free culture of
banking.
• All banks must have an explicit security plan along with documentation. Further, banks
must strictly ensure physical access control.
• Banks must adopt an extensive e-banking network so that the rural and remote areas of
the country can also benefit

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 BIBLIOGRAPHY

ARTICLES REFERRED

1. Prasad, K.V.N. and Ravinder, G. (2011), “Performance Evaluation of Banks: A

Comparative Study on SBI, PNB, ICICI and HDFC”, Advances in Management, Vol. 4(2)
September, pp. 43-53.

2. Gokilamani, N. and Natarajan, C. (2014). Service Performance in The Retail Banking of

The Commercial Banks in Coimbatore District: An Empirical Assessment, Research
Explorer, 3 (8), 27-31.

3. Sonal Thakur, “Consumer Perception: A study on E- Marketing”, International Journal of

Recent Research Aspects ISSN: 2349-7688, Vol. 2, Issue 2, June 2015, pp. 256-262.

WEBSITES REFERRED

1. www.cashlessindia.gov.in
2. www.inspirajournals.com
3. www.papertyari.com
4. www.rbi.org.in
5. www.toppr.com

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