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SUBMITTED SUBMITTED BY: MR . MS.SHRADDHA K. DAVE ROLL NO. AH 110 VIJAY
INDIAN INSTITUTE OF FINANCIAL MANAGEMENT
301/304,SIGMA-II,OPP. SUNRISE PARK, DRIVE-IN ROAD,AHMEDABAD-380052.
N O 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2| Page TOPIC ACKNOWLEDGEMENT EXECUTIVE SUMMARY INTRODUCTION BANKING STRUCTURE IN INDIA BANK BANKING CHANNELS E-BANKING NEED FOR E-BANKING GROWTH IN E-BANKG TYPES OF E-BANKING E-BANKING PRODUCTS E-BANKING SERVICES LIST OF BANKS OPERATING E-BANKING IN INDIA ADVANTAGES AND DIS ADVANTAGES OF E-BANKING ISSUES IN E-BANKING INTERNET PENETRATION IN INDIA RISKS RELATED TO E-BANKING RISK MANAGEMENT FOR E-BANKING RISK MANAGEMENT PRINCIPLES FOR E-BANKING IDBI BANK-INTRODUCTION PAGE NO 1 2 3 5 6 8 9 10 10 12 13 15 17 18 19 21 22 25 26 27
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NETWORK OF IDBI BANK IN INDIA INTERNET BAKING AT IDBI BANK SECURITY MEASURES TAKEN BY IDBI BANK PORTER’S FIVE FORCE MODEL FOR INDIAN BANKING INDUSTRY CONCLUSION BIBILOGRAPHY
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“Gratitude is not a thing of expression, it is more a matter of feeling”.
There is always a sense of gratitude which one express for others for their help and supervision in achieving the goals. I too express my deep gratitude to each and every one who has been helpful to me in completing the project report successfully. First, of all, I am highly thankful to Mr Vijay vora for allowing me to pursue my project report on “Exploratory report on e-banking” My special thanks to Mr.Gyanendra Chaudhari (Assistant Manager) who encouraged me, properly guided me in each and every possible way through out my project Report. I give my regards and sincere thanks to Mrs. Vaibhavi with in time. I am indebted to the Bank employees who supported me in handling my queries. I feel self-short of words to thanks my parents and friends who had directly or indirectly instrumental in the completion of the project. Last but not least I am grateful to all my family members & my friends for being my side always. Without their help and Motivation it would have been impossible to complete my project. who has
devoted his precious time in guiding me and helping me to complete it
SHRADD HA K.DAVE
“E-banking”- The execution of financial services via internet, reducing cost and increase in convenience for the customer to access the transaction. e- banking is an umbrella term for the process by which a customer may perform banking transactions electronically without visiting a brick-and-mortar institution. The following terms all refer to one form or another of electronic banking: personal computer (PC) banking, Internet banking, virtual banking, online banking, home banking, remote electronic banking, and phone banking. PC banking and Internet or online banking are the most frequently used designations. It should be noted, however, that the terms used to describe the various types of electronicbanking are often used interchangeably.
The ever increasing speed of internet enabled phones & personal assistant, made the transformation of banking application to mobile devices, this creative a new subset of electronic banking i.e. mobile banking. In 1999 & 2000 mobile banking as an established channels, is the most attractive in todays fast world
The internet is revolutionizing the way the financial industry conducts business online, has created new players who offer personalize services through the web portals. This increase to find new ways and increase customer loyalty to add the value to this product and services.
Banks also enables customers lifestyle needs by changing and increasing preference for speed and convenience are eroding the traditional affinity between customer and branch offices as a new technology disinter mediates traditional channels, delivering the value proposition hinges on owing or earning the customer interface and bringing the customer a complete solution which satisfies their needs. Smart card is a new trend which provides the opportunity to build an incremental revenue stream by providing an ideal platform for extended application and services. Banks are well positioned to play central role unit in future M-commerce market. Banks have strong relationships with corporate and business customers and a wide experience in providing them with corporate banking services. Bank provides a multimedia of small and large retailers with acquiring functionality in credit card transactions. Customers have trusted relationships with banks and a lower propensity to switch banking providers.
With the rapid globalization of the Indian economy, enterprises are facing with ever changing competitive environment. Enterprises are adopting strategies aimed at developing competitive advantage based on enhanced customer value in terms of product differentiation, quality, speed, service and costs. In the post liberalization era, with the deregulation of Indian economy, the financial service sector witnessing a complete metamorphosis and technology is playing a very significant role in this record. Over the last decade India has been one of the fastest adopters of information technology, particularly because of its capability to provide software solution to organizations around the world. This capability has provided a tremendous impetuous to the domestic banking industry in India to deploy the latest in technology, particularly in the Internet banking and e-commerce arenas. Banks are growing in size by mergers and acquisitions, which have been driven by communication and technology. Technology is playing a major role in increasing the efficiency, courtesy and speed of customer service. It is said to be the age of Ebanking. An Online Banking user is expected to perform at least one of the following transactions online:
1. Checking account balance and transaction history 2. Paying bills 3. Transferring funds between accounts 4. Requesting credit card advances
5. Ordering checks 6. Managing investments and stocks trading From a bank’s perspective, using the Internet is more efficient than using other distribution mediums because banks are looking for an increased customer base. Using multiple distribution channels increases effective market coverage by enabling different products to be targeted at different demographic segments. Also Banks cannot risk loosing customers to competitors within the aggressive competition in the banking industry around the world. Moreover Internet delivery offers customized service to suit the needs and the likes of each user. Mass customization happens effectively through Online Banking. It reduces cost and replaces time spent on routine errands with spending time on business errands. Online Banking means less staff members, smaller infrastructure demands, compared with other banking channels. From the customers’ perspective, Online Banking provides a convenient and effective way to manage finances that is easily accessible 24 hours a day, seven days a week. In addition information is up to date. Nevertheless Online Banking has disadvantages for banks like how to work the technology, set-up cost, legal issues, and lack of personal contact with customers. And for customers there are security and privacy issues. E-banking services are delivered to customers through the Internet and the web using Hypertext Markup Language (HTML). In order to use ebanking services, customers need Internet access and web browser software. Multimedia information in HTML format from online banks can be displayed in web browsers. The heart of the e-banking application is the computer system, which includes web servers, database management systems, and web application programs that can generate dynamic HTML pages. One of the main concerns of e-banking is security. Without great confidence in security, customers are unwilling to use a public network, such as the Internet, to view their financial information online and conduct financial transactions. Some of the security threats include invasion of individuals' privacy and theft of confidential information. Banks with ebanking service offer several methods to ensure a high level of security: (1) identification and authentication, (2) encryption, and (3) firewalls. First, the identification of an online bank takes the form of a known Uniform Resource Locator (URL) or Internet address, while a customer is generally identified by his or her login ID and password to ensure only authenticated customers can access their accounts. Second, messages
between customers and online banks are all encrypted so that a hacker cannot view the message even if the message is intercepted over the Internet. The particular encryption standard adopted by most browsers is called Secure Socket Layer (SSL). It is built in the web browser program and users do not have to take any extra steps to set up the program. Third, banks have built firewalls, which are software or hardware barriers between the corporate network and the external Internet, to protect the servers and bank databases from outside intruders. For example, Wells Fargo Bank connected to the Internet only after it had installed a firewall and made sure the firewall was sufficiently impenetrable.
BANKING STRUCTURE IN INDIA
A bank is a financial institution licensed by a government. Its primary activities include providing financial services to customers while enriching its investors. Many financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds.
Banks in india
Public Sector Banks There are total 27 public sector banks in India (As on 26-09-2009). Of these 19 are nationalised banks, 6(STATE BANK OF INDORE ALSO MEARGED RECENTLY) belong to SBI & associates group and 1 bank (IDBI Bank) is classified as other public sector bank.
Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab and Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank
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SBI & associates
State Bank of India (State Bank of Saurastra merged with SBI in the year 2007) State Bank of Hyderabad State Bank of Mysore State Bank of Indore State Bank of Patiala State Bank of Travancore State Bank of Bikaner and Jaipur
Other Public Sector Banks
IDBI Bank Ltd
Axis Bank bank of Rajasthan Catholic Syrian Bank City Union Bank Development Credit Bank Dhanalakshmi Bank Federal Bank HDFC Bank ICICI Bank IndusInd Bank ING Vysya Bank Jammu & Kashmir Bank Karnataka Bank Karur Vysya Bank Kotak Mahindra Bank Laxmi Vilas Bank Nainital Bank Ltd Ratnagar Bank SBI Commercial and International Bank South Indian Bank Ltd
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Tamil Nadu Mercantile Bank Yes Bank
Banks offer many different channels to access their banking and other services:
A branch, banking centre or financial centre is a retail location where a bank or financial institution offers a wide array of face-to-face service to its customers. ATM is a computerised telecommunications device that provides a financial institution's customers a method of financial transactions in a public space without the need for a human clerk or bank teller. Most banks now have more ATMs than branches, and ATMs are providing a wider range of services to a wider range of users. For example in Hong Kong, most ATMs enable anyone to deposit cash to any customer of the bank's account by feeding in the notes and entering the account number to be credited. Also, most ATMs enable card holders from other banks to get their account balance and withdraw cash, even if the card is issued by a foreign bank. Mail is part of the postal system which itself is a system wherein written documents typically enclosed in envelopes, and also small packages containing other matter, are delivered to destinations around the world. This can be used to deposit cheques and to send orders to the bank to pay money to third parties. Banks also normally use mail to deliver periodic account statements to customers. Telephone banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone.
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This normally includes bill payments for bills from major billers (e.g. for electricity).
Online banking is a term used for performing transactions, payments etc. over the Internet through a bank, credit union or building society's secure website. Mobile banking is a method of using one's mobile phone to conduct simple banking transactions by remotely linking into a banking network. Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a videoconference enabled bank branch.
Electronic banking, also known as electronic funds transfer (EFT),is simply the use of electronic means to transfer funds directly from one account to another, rather than by cheque or cash. 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. In internet banking system the bank has a centralized database that is webenabled. 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. The traditional branch model of bank is now giving place to an alternative delivery channels with ATM network. 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. The network which connects the various locations and gives connectivity to the central office within the organization is called intranet. These networks are limited to organizations for which they are set up. Meaning and features of E-Banking are as follows: 1. Banking is a combination of two, Electronic technology and Banking. 2. Electronic Banking is a process by which a customer performs banking Transactions electronically without visiting a brick-and-mortar institutions. 13 | P a g e
3. E-Banking denotes the provision of banking and related service throgh Extensive use of information technology without direct recourse to the bank by the customer. Information Bank Custo technology mer
NEED FOR E-BANKING
One has to approach the branch in person, to withdraw cash or deposit a cheque or request a statement of accounts. In true Internet banking, any inquiry or transaction is processed online without any reference to the branch (anywhere banking) at any time. Providing Internet banking is increasingly becoming a "need to have" than a "nice to have" service. The net banking, thus, now is more of a norm rather than an exception in many developed countries due to the fact that it is the cheapest way of providing banking services. Banks have traditionally been in the forefront of harnessing technology to improve their products, services and efficiency. They have, over a long time, been using electronic and telecommunication networks for delivering a wide range of value added products and services. The delivery channels include direct dial – up connections, private networks, public networks etc and the devices include telephone, Personal Computers including the Automated Teller Machines, etc. With the popularity of PCs, easy access to Internet and World Wide Web (WWW),
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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. India’s banking sector is growing at a fast pace. India has become one of the most preferred banking destinations in the world. The reasons are numerous: the economy is growing at a rate of 8%, Bank credit is growing at 30% per annum and there is an everexpanding middle class of between 250 and 300 million people (larger than the population of the US) in need of financial services. All this enables double-digit returns on most asset classes which is not so in a majority of other countries. Foreign banks in India achieving a return on assets (ROA) of 3%, their keen interest in expanding their businesses is understandable – even more so when compared with the mearly 1% average ROA for the Top 1000 banks in the world.
Growth in E Banking
Numerous factors — including competitive cost, customer service, and demographic considerations — are motivating banks to evaluate their technology and assess their electronic commerce and Internet banking strategies. Many researchers expect rapid growth in customers using online banking products and services. The challenge for national banks is to make sure the savings from Internet banking technology more than offset the costs and risks associated with conducting business in cyberspace. Marketing strategies will vary as national banks seek to expand their markets and employ lower cost delivery channels. Examiners will need to understand the strategies used and technologies employed on a bank-by-bank basis to assess the risk. Evaluating a bank’s data on the use of their Web sites, may help examiners determine the bank’s strategic objectives, how well the bank is meeting its Internet banking product plan, and whether the business is expected to be profitable. Some of the market factors that may drive a bank’s strategy include the following: Competition — Studies show that competitive pressure is the chief driving force behind increasing use of Internet banking technology, ranking ahead of cost reduction and revenue enhancement, in second and third place respectively. Banks see Internet banking as a way to keep existing customers and attract new ones to the bank. Cost Efficiencies — National banks can deliver banking services on the Internet at transaction costs far lower than traditional brick-and-mortar
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branches. The actual costs to execute a transaction will vary depending on the delivery channel used. For example, according to Booz, Allen & Hamilton, as of mid- 1999, the cost to deliver manual transactions at a branch was typically more than a dollar, ATM and call center transactions cost about 25 cents, and Internet transactions cost about a penny. These costs are expected to continue to decline. National banks have significant reasons to develop the technologies that will help them deliver banking products and services by the most costeffective channels. Many bankers believe that shifting only a small portion of the estimated 19-billion payments mailed annually in the U.S. to electronic delivery channels could save banks and other businesses substantial sums of money. However, national banks should use care in making product decisions. Management should include in their decision making the development and ongoing costs associated with a new product or service, including the technology, marketing, maintenance, and customer support functions. This will help management exercise due diligence, make more informed decisions, and measure the success of their business venture. Geographical Reach — Internet banking allows expanded customer contact through increased geographical reach and lower cost delivery channels. In fact some banks are doing business exclusively via the Internet — they do not have traditional banking offices and only reach their customers online. Other financial institutions are using the Internet as an alternative delivery channel to reach existing customers and attract new customers. Branding — Relationship building is a strategic priority for many national banks. Internet banking technology and products can provide a means for national banks to develop and maintain an ongoing relationship with their customers by offering easy access to a broad array of products and services. By capitalizing on brand identification and by providing a broad array of financial services, banks hope to build customer loyalty, crosssell, and enhance repeat business. Customer Demographics — Internet banking allows national banks to offer a wide array of options to their banking customers. Some customers will rely on traditional branches to conduct their banking business. For many, this is the most comfortable way for them to transact their banking business. Those customers place a premium on person-to-person contact. Other customers are early adopters of new technologies that arrive in the marketplace. These customers were the first to obtain PCs and the first to employ them in conducting their banking business. The demographics of banking customers will continue to change. The challenge to national banks is to understand their customer base and find the right mix of delivery channels to deliver products and services profitably to their various market segments.
TYPES OF E-BANKING OR INTERNET BANKING
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Understanding the various types of Internet banking will help examiners assess the risks involved. Currently, the following three basic kinds of Internet banking are being employed in the marketplace.
Informational- this is the basic level of Internet banking. Typically, the bank has marketing information about the bank’s products and services on a stand-alone server. The risk is relatively low, as informational systems typically have no path between the server and the bank’s internal network. This level of Internet banking can be provided by the banks or outsourced. While the risk to a bank is relatively low, the server or web site may be vulnerable to alteration. Appropriate controls therefore must be in place to prevent unauthorized alterations to the bank’s server or web site. Communicative- this type of Internet banking systems and the customer. The interaction between the bank’s system and the customer. The interaction may be limited to electronic mail, account enquiry, loan applications, or static file updates (name and address change). Because these servers may have a path to the bank’s internal networks, the risk is higher with this configuration than with informational systems. Appropriate controls need to be in the place to prevent, monitor, and alert management of any unauthorized attempt to access the bank’s internal networks and computer systems. Virus controls also become much more critical in this environment. Transactional- this level of Internet banking allows customers to execute transactions. Since a path typically exists between the server and the bank or outsourcer’s internal network, this is the highest risk architecture and must have the strongest controls. Customer transactions can include accessing accounts, paying bills, transferring funds etc
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Automated Teller Machine (ATM) These are cash dispensing machine, which are frequently seen at banks and other locations such as shopping centers and building societies. Their main purpose is to allow customer to draw cash at any time and to provide banking services where it would not have been viable to open another branch e.g. on university campus. An automated teller machine or automatic teller machine (ATM) is a computerized telecommunications device that provides a financial institution's customers a method of financial\ transactions in a public space without the need for a human clerk or bank teller. On most modern ATMs, the customer identifies him or herself by inserting a plastic ATM card with a magnetic stripe or a plastic smartcard with a chip that contains his or her card number and some security information, such as an expiration date or CVC (CVV). Security is provided by the customer entering a personal identification number (PIN). Using an ATM, customers can access their bank accounts in order to make cash withdrawals (or credit card cash advances) and check their account balances. Many ATMs also allow people to deposit cash or checks, transfer money between their bank accounts, pay bills, or purchase goods and services. ATMs are known by various casual terms including cash machine, hole-inthe-wall, cash point or Bancomat (in Europe and Russia). The occasionallyused ATM Machine is an example of RAS syndrome. Some of the advantages of ATM to customers are:• • • • • Ability to draw cash after normal banking hours Quicker than normal cashier service Complete security as only the card holder knows the PIN Does not just operate as a medium of obtaining cash. Customer can sometimes use the services of other bank ATM’s.
Telebanking or Phone Banking Telephone banking is relatively new Electronic Banking Product. However it is fastly becoming one of the most popular products. Customer can perform a number of transactions from the convenience of their own home or office; in fact from anywhere they have access to phone. Customers can do following:18 | P a g e
• • • • •
Check balances and statement information Transfer funds from one account to another Pay certain bills Order statements or cheque books Demand draft request
This facility is available with the help of Voice Response System (VRS). This system basically, accepts only TONE dialed input. Like the ATM customer has to follow particular process, initially account number and telephone PIN are fed for the process to start. Also the VRS system provides the users within additional facilities such as changing existing password with the new desired, information about new products, current interest rates etc.
Mobile Banking Mobile banking comes in as a part of the banks initiative to offer multiple channel banking providing convenience for its customer. A versatile multifunctional, free service that is accessible and viewable on the monitor of mobile phone. Mobile phones are playing great role in Indian banking- both directly and indirectly. They are being used both as banking and other channels.
Internet Banking The advent of the Internet and the popularity of personal computers presented both an opportunity and a challenge for the banking industry. For years, financial institutions have used powerful computer networks to automate million of daily transactions; today, often the only paper record is the customer’s receipt at the point of sale. Now that their customers are connected to the Internet via personal computers, banks envision similar advantages by adopting those same internal electronic processes to home use. Banks view online banking as a powerful “value added” tool to attract and retain new customers while helping to eliminate costly paper handling and teller interactions in an increasingly competitive banking environment. In India first one to move into this area was ICICI Bank. They started web based banking as early as august 1997.
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1. Bill payment service
Each bank has tie-ups with various utility companies, service providers and insurance companies, across the country. It facilitates the payment of electricity and telephone bills, mobile phone, credit card and insurance premium bills. To pay bills, a simple one-time registration for each biller is to be completed. Standing instructions can be set, online to pay recurring bills, automatically. One-time standing instruction will ensure that bill payments do not get delayed due to lack of time. Most interestingly, the bank does not charge customers for online bill payment. 2. Fund transfer Any amount can be transferred from one account to another of the same or any another bank. Customers can send money anywhere in India. Payee’s account number, his bank and the branch is needed to be mentioned after logging in the account. The transfer will take place in a day or so, whereas in a traditional method, it takes about three working days. ICICI Bank says that online bill payment service and fund transfer facility have been their most popular online services. 3. Credit card customers Credit card users have a lot in store. With Internet banking, customers can not only pay their credit card bills online but also get a loan on their cards. Not just this, they can also apply for an additional card, request a credit line increase and God forbid if you lose your credit card, you can report lost card online. 4. Railway pass This is something that would interest all the aam janta. Indian Railways has tied up with ICICI bank and you can now make your railway pass for local trains online. The pass will be delivered to you at your doorstep. But the facility is limited to Mumbai, Thane, Nasik, Surat and Pune. The bank would just charge Rs 10 + 12.24 percent of service tax.
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5. Investing through Internet banking Opening a fixed deposit account cannot get easier than this. An FD can be opened online through funds transfer. Online banking can also be a great friend for lazy investors. Now investors with interlinked demat account and bank account can easily trade in the stock market and the amount will be automatically debited from their respective bank accounts and the shares will be credited in their demat account. Moreover, some banks even give the facility to purchase mutual funds directly from the online banking system. So it removes the worry about filling those big forms for mutual funds, they will now be just a few clicks away. Nowadays, most leading banks offer both online banking and demat account. However if the customer have there demat account with independent share brokers, then need to sign a special form, which will link your two accounts. 6. Recharging your prepaid phone Now there is no need to rush to the vendor to recharge the prepaid phone, every time the talk time runs out. Just top-up the prepaid mobile cards by logging in to Internet banking. By just selecting the operator's name, entering the mobile number and the amount for recharge, the phone is again back in action within few minutes. 7. Shopping at your fingertips Leading banks have tie ups with various shopping websites. With a range of all kind of products, one can shop online and the payment is also made conveniently through the account. One can also buy railway and air tickets through Internet banking.
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List of some banks operating EBanking in India
Bank Name ABN AMRO Bank Abu Dhabi Commercial Bank Bank of India Citibank Corporation Bank Deutsche Bank Federal Bank Global Trust Bank HDFC Bank HSBC ICICI Bank IDBI Bank IndusInd Bank Punjab National Bank Sanchez Infosys (BankAway) i-flex/ Satyam Technology Vendor Infosys (Bank Away) Infosys (Bank Away) I-flex Service offering NetBanking ADCB NetLink BOIonline
Orbitech (now Polaris) Citibank Online I-flex CorpNet db direct FedNet ibank@gtb NetBanking Online@hsbc Infosys, ICICI Infotech Infinity Infosys (Bank Away) CR2 Infosys (Bank Away) i-net banking IndusNet Internet Banking Me Standard Chartered Online onlinesbi.com I connect
Standard Chartered Bank In-House State Bank of India UTI Bank Satyam/Broadvision Infosys (Bank Away)
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ADVANTAGES OF INTERNET BANKING
Convenience- Unlike your corner bank, online banking sites never close; they’re available 24 hours a day, seven days a week, and they’re only a mouse click away. Avalability- If you’re out of state or even out of the country when a money problem arises, you can log on instantly to your online bank and take care of business, 24\7. Transaction speed- Online bank sites generally execute and confirm transactions at or quicker than ATM processing speeds. Efficiency-You can access and manage all of your bank accounts, including IRA’s, CDs, even securities, from one secure site. Effectiveness- Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alert and portfolio managing program to help you manage all of your assets more effectively. Most are also compatible with money managing programs such as quicken and Microsoft money.
DISADVANTAGES OF INTERNET BANKING
Start-up may take time-In order to register for your bank’s online program, you will probably have to provide
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ID and sign a form at a bank branch. If you and your spouse wish to view and manage their assets together online, one of you may have to sign a durable power of attorney before the bank will display all of your holdings together. Learning curves- Banking sites can be difficult to navigate at first. Plan to invest some time and\or read the tutorials in order to become comfortable in your virtual lobby. Bank site changes- Even the largest banks periodically upgrade their online programs, adding new features in unfamiliar places. In some cases, you may have to reenter account information.
Issues in E Banking
Financial institutions, their card associations, and vendors are working to develop an Internet payment infrastructure to help make electronic commerce secure. Many in the banking industry expect significant growth in the use of the Internet for the purchase of goods and services and electronic data interchange. The banking industry also recognizes that the Internet must be secure to achieve a high level of confidence with both consumers and businesses. Sound management of banking products and services, especially those provided over the Internet, is fundamental to maintaining a high level of public confidence not only in the individual bank and its brand name but also in the banking system as a whole. Key components that will help maintain a high level of public confidence in an open network environment include: • Security • Authentication • Trust • Nonrepudiation • Privacy • Availability Security is an issue in Internet banking systems. The OCC expects national banks to provide a level of logical and physical security commensurate with the sensitivity of the information and the individual bank’s risk tolerance. Firewalls are frequently used on Internet banking systems as a security measure to protect internal systems and should be considered for any system connected to an outside network. Firewalls are a combination of hardware and software placed between two networks through which all
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traffic must pass, regardless of the direction of flow. They provide a gateway to guard against unauthorized individuals gaining access to the bank’s network. Authentication is another issue in a Internet banking system. Transactions on the Internet or any other telecommunication network must be secure to achieve a high level of public confidence. In cyberspace, as in the physical world, customers, banks, and merchants need assurances that they will receive the service as ordered or the merchandise as requested, and that they know the identity of the person they are dealing with. Trust is another issue in Internet banking systems. As noted in the previous discussion, public and private key cryptographic systems can be used to secure information and authenticate parties in transactions in cyberspace. A trusted third party is a necessary part of the process. That third party is the certificate authority. A certificate authority is a trusted third party that verifies identities in cyberspace. Some people think of the certificate authority functioning like an online notary. The basic concept is that a bank, or other third party, uses its good name to validate parties in transactions. This is similar to the historic role banks have played with letters of credit, where neither the buyer nor seller knew each other but both parties were known to the bank. Thus the bank uses its good name to facilitate the transaction, for a fee. Nonrepudiation is the undeniable proof of participation by both the sender and receiver in a transaction. It is the reason public key encryption was developed, i.e., to authenticate electronic messages and prevent denial or repudiation by the sender or receiver. Although technology has provided an answer to nonrepudiation, state laws are not uniform in the treatment of electronic authentication and digital signatures. The application of state laws to these activities is a new and emerging area of the law. Privacy is a consumer issue of increasing importance. National banks that recognize and respond to privacy issues in a proactive way make this a positive attribute for the bank and a benefit for its customers. Public concerns over the proper versus improper accumulation and use of personal information are likely to increase with the continued growth of electronic commerce and the Internet. Providers who are sensitive to these concerns have an advantage over those who do not.
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Availability is another component in maintaining a high level of public confidence in a network environment. All of the previous components are of little value if the network is not available and convenient to customers. Users of a network expect access to systems 24 hours per day, seven days a week. Among the considerations associated with system availability are capacity, performance monitoring, redundance, and business resumption. National banks and their vendors who provide Internet banking products and services need to make certain they have the capacity in terms of hardware and software to consistently deliver a high level of service. In addition, performance monitoring techniques will provide management with information such as the volume of traffic, the duration of transactions, and the amount of time customers must wait for service. Monitoring capacity, downtime, and performance on a regular basis will help management assure a high level of availability for their Internet banking system.
Internet Penetration in India
The main problem is that the penetration of technology in terms of Internet in India is very low. Its just 7.1% (as mentioned in Table 1) in India with just 81 million people hooking to the online facility.
A minor part of this segment knows and uses the Internet banking facility. Even in this small segment there is a resistance towards adopting the technology based services like banking on the Internet.
Table1. Internet Penetration in India
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Ye ar 199 8 199 9
Populatio n 1,094,870, 677 1,094,870, 677
Users 1,400,00 0 2,800,00 0 5,500,00 0 7,000,00 0 16,500,0 00 22,500,0 00 39,200,0 00 50,600,0 00 40,000,0 00 42,000,0 00 81,000,0 00
% penetratio n 0.10% 0.30% 0.50% 0.70% 1.60% 2.10% 3.60% 4.50% 3.60% 3.70% 7.10%
200 1,094,870, 0 677 200 1 200 2 200 3 200 4 200 5 200 6 200 7 200 8 1,094,870, 677 1,094,870, 677 1,094,870, 677 1,094,870, 677 1,112,225, 812 1,112,225, 812 1,129,667, 528 1,147,995, 898
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Risks in E banking
Continuing technological innovation and competition among existing banking organizations and new entrants have allowed for a much wider array of banking products and services to become accessible and delivered to retail and wholesale customers through an electronic distribution channel collectively referred to as ebanking. However, the rapid development of e-banking capabilities carries risks as well as benefits. Without a doubt, the technological growth has considerably affected the profile of Bank risks and financial institution formation more generally. Some of these risks are increased, while others on the contrary are possible to be decreased. In any case, 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 degree of exposing to risks, which are related to the electronic banking, depends mainly on the degree of adopting new alternative electronic means of distribution of services and products.
It is defined as the risk of loss as a consequence of the actions, the processes, the infrastructure, the technology or other factors that practise functional effect, including the false activities that include fraud. The Basle Committee of Banking Supervision defines as operational risk the risk of occurring damage, either from insufficient, inadequate internal processes and systems, or from human factor, or other external reasons. Operational risk differs from the traditional banking risks in that it does not come from the effort to achieve profit but it is an innate characteristic of banking activity. The operational risk is the risk of damage that is owed, in insufficient or unsuccessful processes (insufficiencies of systems and internal inspection), individuals (human faults, failures of administration) or systems (risk of damage or insufficiency of computer systems) or in exterior incidents (e.g. natural destruction, fires, legislative changes, lawful requirements, etc). The operational risks are directly related with the bad operation of information systems, the processes of reports and the applied internal rules of observing the management of potential risk.
Internet is a public network of computers which facilitates flow of data information and to which there is unrestricted access. Banks using this
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medium for financial transactions must, therefore, have proper technology and systems in place to build a secured environment for such transactions. 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. Identity of the person making a request for a service or a transaction as a customer is crucial to legal validity of a transaction and is a source of risk to a bank. A computer connected to Internet is identified by its IP (Internet Protocol) address. There are methods available to masquerade one computer as another, commonly known as ‘IP Spoofing’. Likewise user identity can be misrepresented. Hence, authentication control is an essential security step in any e-banking system.
System Architecture and Design
Appropriate system architecture and control is an important factor in managing various Kinds of operational and security risks. Banks face the risk of wrong choice of technology, improper system design and inadequate control processes. For example, if access to a system is based on only an IP address, any user can gain access by masquerading as a legitimate user by spoofing IP address of a genuine user. Numerous protocols are used for communication across Internet. Each protocol is designed for specific types of data transfer. A system allowing communication 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. Choice of appropriate technology is a potential risk banks face. Technology which is outdated, not scalable or not proven could land the bank in investment loss, a vulnerable system and inefficient service with attendant operational and security risks and also risk of loss of business.
Reputational risk is the risk 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. An institution’s decision to offer e-banking services, especially the more
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complex transactional services, significantly increases its level of reputation risk. Some of the ways in which e-banking can influence an institution’s reputation include: • Loss of trust due to unauthorized activity on customer accounts, • Disclosure or theft of confidential customer information to unauthorized parties (e.g., hackers), • Failure to deliver on marketing claims, • Failure to provide reliable service due to the frequency or duration of service disruptions, • Customer complaints about the difficulty in using e-banking services and the inability of the institution’s help desk to resolve problems, and • Confusion between services provided by the financial institution and • services provided by other businesses linked from the website.
Legal risk is the risk of non-compliance with legal or regulatory requirements. A big part of the legal framework is general and it is in effect for all the enterprises, in certain cases, however, a legislative framework that covers specific services exists. The individual regulations will be specific and they will be published by the regulating organizations that have legal competence for the particular sector. The legal risks are directly related to the electronic banking and they increased as its use is extended. They mainly stem from the uncertainty that exists in the legal – regulative framework concerning the electronic banking.
The systemic risk
It is the risk that a small incident will cause unexpected consequences in local, regional or international systems that are not connected immediately with the source of disturbance. The systemic risk is likely to influence a small or big number of companies of the same sector or to concern exclusively one single company. The rapid adoption of information technology from the banks and its negative aspects, are very much likely to increase the systemic risks. The systemic risk can be increased since many participants in the particular market can use the same or similar software or equipment for the confrontation of the same problems. Because of their widespread application, the risk management models may create risks in cases of likely weaknesses and deficiencies that arise in periods of extreme conditions in the market. The dependence on exterior collaborators or suppliers is possible to lead to the gathering of certain administrative system operations and as a result the burden of risks of ensuring the proper operation of the electronic system of financial services, becomes the
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responsibility of certain specialised suppliers or even only one from whom all the financial institutions will be depended.
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.
A financial institution’s board and management should understand the risks associated with e-banking services and evaluate the resulting risk management costs against the potential return on investment prior to offering e-banking services. 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.
The Risk Management Principles fall into three broad, and often overlapping, categories of issues that are grouped to provide clarity: Board and Management Oversight; Security Controls; and Legal and Reputational Risk Management.
Board and Management Oversight
Because the Board of Directors and senior management are responsible for developing the institution’s business strategy and establishing an effective management oversight over risks, they are expected to take an
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explicit, informed and documented strategic decision as to whether and how the bank is to provide ebanking services. The initial decision should include the specific accountabilities, policies and controls to address risks, including those arising in a cross-border context. Effective management oversight is expected to encompass the review and approval of the key aspects of the bank’s security control process, such as the development and maintenance of a security control infrastructure that properly safeguards e-banking systems and data from both internal and external threats. It also should include a comprehensive process for managing risks associated with increased complexity of and increasing reliance on outsourcing relationships and third-party dependencies to perform critical e-banking functions.
While the Board of Directors has the responsibility for ensuring that appropriate security control processes are in place for e-banking, the substance of these processes needs special management attention because of the enhanced security challenges posed by e-banking. This should include establishing appropriate authorisation privileges and authentication measures, logical and physical access controls, adequate infrastructure security to maintain appropriate boundaries and restrictions on both internal and external user activities and data integrity of transactions, records and information. In addition, the existence of clear audit trails for all e-banking transactions should be ensured and measures to preserve confidentiality of key e-banking information should be appropriate with the sensitivity of such information.
Legal and Reputational Risk Management
To protect banks against business, legal and reputation risk, e-banking services must be delivered on a consistent and timely basis in accordance with high customer expectations for constant and rapid availability and potentially high transaction demand. The bank must have the ability to deliver e-banking services to all endusers and be able to maintain such availability in all circumstances. Effective incident response mechanisms are also critical to minimise operational, legal and reputational risks arising from unexpected events, including internal and external attacks, that may affect the provision of e-banking systems and services. To meet customers’ expectations, banks should therefore have effective capacity, business continuity and contingency planning. Banks should also develop appropriate incident response plans, including communication strategies, that ensure business continuity, control reputation risk and limit liability associated with disruptions in their e-banking services.
Risk Management Principles for E Banking
Principle 1: The Board of Directors and senior management should establish effective management oversight over the risks associated with
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e-banking activities, including the establishment of specific accountability, policies and controls to manage these risks. Principle 2: The Board of Directors and senior management should review and approve the key aspects of the bank's security control process. Principle 3: The Board of Directors and senior management should establish a comprehensive and ongoing due diligence and oversight process for managing the bank's outsourcing relationships and other third-party dependencies supporting ebanking. Principle 4: Banks should take appropriate measures to authenticate18 the identity and authorisation of customers with whom it conducts business over the Internet. Principle 5: Banks should use transaction authentication methods that promote nonrepudiation and establish accountability for e-banking transactions. Principle 6: Banks should ensure that appropriate measures are in place to promote adequate segregation of duties within e-banking systems, databases and applications. Principle 7: Banks should ensure that proper authorisation controls and access privileges are in place for e-banking systems, databases and applications. Principle 8: Banks should ensure that appropriate measures are in place to protect the data integrity of e-banking transactions, records and information. Principle 9: Banks should ensure that clear audit trails exist for all ebanking transactions. Principle 10: Banks should take appropriate measures to preserve the confidentiality of key e-banking information. Measures taken to preserve confidentiality should be commensurate with the sensitivity of the information being transmitted and/or stored in databases. Principle 11: Banks should ensure that adequate information is provided on their websites to allow potential customers to make an informed conclusion about the bank's identity and regulatory status of the bank prior to entering into e-banking transactions. Principle 12: Banks should take appropriate measures to ensure adherence to customer privacy requirements applicable to the
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jurisdictions to which the bank is providing e-banking products and services. Principle 13: Banks should have effective capacity, business continuity and contingency planning processes to help ensure the availability of ebanking systems and services. Principle 14: Banks should develop appropriate incident response plans to manage, contain and minimise problems arising from unexpected events.
The Industrial Development Bank of India Limited commonly known by its acronym IDBI is one of India's leading public sector banks and 4th largest Bank in overall ratings. RBI categorised IDBI as an "other public sector bank". It was established in 1964 by an Act of Parliament to provide credit and other facilities for the development of the fledgling Indian industry. It is currently the tenth largest development bank in the world in terms of reach with 975 ATMs, 568 branches and 352 centers. Some of the institutions built by IDBI are the National Stock Exchange of India (NSE), the National Securities Depository Services Ltd (NSDL), the Stock Holding Corporation of India(SHCIL), and IDBI BANK, which today is owned by the Indian Government, though for a brief period it was a private scheduled bank.
Recent developments in IDBI BANK
To meet emerging challenges and to keep up with reforms in financial sector, IDBI has taken steps to reshape its role from a development finance institution to a commercial institution. With the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003, IDBI attained the status of a limited company viz. "Industrial Development Bank of India Limited" (IDBIL). Subsequently, the Reserve Bank of
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India (RBI) issued the requisite notification on September 30, 2004 incorporating IDBI as a 'scheduled bank' under the RBI Act, 1934. Consequently, IDBI, formally entered the portals of banking business as IDBIL from October 1, 2004. The commercial banking arm, IDBI BANK, was merged into IDBI. Although IDBI Bank is owned by the Government of India, there is a popular misconception that IDBI bank is a private entity. In March 2008, IDBI Bank entered into a joint venture with Federal Bank and Fortis Insurance International to form IDBI Fortis Life Insurance, of which IDBI Bank owns 48 percent. The company ended the year with over 300 Cr in premiums as on 31st March 2009.
Vision of IDBI bank “to be trusted partner in progress by leveraging quality human capital and setting global standards of excellence to build the most valued financial conglomerate.”
Network of IDBI BANK in INDIA
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Internet banking at IDBI BANK
In today's digital world, Internet banking assumes a special significance. Realising that the default access to banking information in the near future
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would be only through the Internet, IDBI Bank have made available globally benchmarked Internet Banking facility. With IDBI's Internet Banking, Bank travels with CUSTOMER around the world and he has online, real-time access to his accounts. Admittedly, such a service requires security of the highest nature and complete privacy protection.IDBI provide a completely secure environment, using 128-bit encryption SSL (Secure Sockets Layer), digitally certified by Verisign. 128-bit SSL guarantees world-class security for Internet and e-commerce applications. Mentioned below are the products and services that are available to you on Internet Banking: Account Information • • • • • • Account balance Account enquiry and status Transaction tracking and history Installments and funds flow details Statements Cheque statuts
Demat Account Information • Account Details displays the name, correspondence address, account numbers and bank account numbers associated with the account Holding Statements displays the list of demat scrip with ISIN code, scrip name, and balance Statement of Transaction lists the transactions for a period, with details of security and balances Billing statement details the charges for respective transactions
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Online Instructions and Requests • • • Cheque book Stop payment FD renewal
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Customer Service • • • Mail / Messages Alerts Customised features ○ Change of login and transaction passwords ○ Creation of nicknames for accounts ○ Date and amount format choices Online Payment Services Internet Banking offers online payment facility linked with merchant websites/e-shops serving as a payment gateway. The Bank offers this facility to any agency requiring online payment services such as Online Shopping Malls, Online Share Trading Agency, an AMC selling Online Mutual Funds or registering/subscribing for internet connection with ISP. Bill Payment and Presentment EBPP - Electronic Bill Presentment and Payment feature allows IDBI customers to pay for their bills online through their Internet Banking account. We provide both Bill Presentment and Payment service.
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Security measures taken by IDBI
Security is of prime importance for providing banking services over the Net. Internet Banking is built using state-of-the-art technologies that provide a high degree of security. The security infrastructure comprises of filtering routers, firewalls, intrusion detection systems (IDS), besides virus monitoring tools, etc. The security requirements adhere to RBI's recommendations for Internet Banking. The security has been implemented and audited by an international consulting firm, using internationally accepted standards and practices. Internet Banking uses 128-bit digital certificate from Verisign for encryption of the Secure Sockets Layer (SSL) session. SSL is the industry standard for encrypted communication and ensures that customer's interaction with the Bank over the Internet is secure.
Safe Internet Banking (Do’s & Dont’s)by IDBI bank
Please note the following points that will help you protect yourself while using Internet Banking: Never respond to emails that request personal information. At IDBI Bank Ltd., we would never ask for updation / activation of your personal details through an email. Nor would we ask for your password through any means, online or offline. If any of our bank personnel asks you for your password, do not disclose it and report him or her immediately to us. Keep your password top secret and change them often. Changing passwords often helps in protecting your account even if inadvertently you may have disclosed it to someone. Never use cyber cafes to access your online accounts. PCs at cyber cafes may be infested with viruses and Trojans that can capture and transmit your personal data to fraudsters. Beware of typing passwords on unknown PCs. If you do, ensure to change your password at the earliest using your own PC at your workplace or at home.
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Use the Virtual KeyPad. Please remember to always use the facility of the Virtual KeyPad, provided on the login page while logging on to your account from an unknown PC or from a cyber café. Keep your computer secure. Please ensure that anti-virus software is installed on your PC and regularly updated. It is also prudent to install a firewall on your PC to prevent any unauthorised control and access to data on your PC while surfing the internet. Check the website you are visiting is secure. Before submitting your bank details or other sensitive information the following checks will help ensure that the site uses encryption to protect your personal data: If the address bar is visible, the URL should start with ‘https://’ (‘s’ stands for secured) rather that the usual ‘http://’. Please note that the fact that website is using encryption doesn't necessarily mean that the same is legitimate. It only tells you that data is being sent in encrypted form. Following the above steps would help you transact over the net in the most secure environment. Following are some simple simple precautionary measures: • • • • Never let anyone know your PINs or passwords, do not write them down Do not use the same password for all your online accounts Avoid opening or replying to spam emails, even if purportedly sent by the Bank. In case of suspicion, report the matter immediately to us on our toll free 24 hour customer care numbers or email us at email@example.com. Look for the padlock symbol on the bottom bar of the browser to ensure that the site is running in secure mode. Disable the "Auto Complete" function on your browser to prevent your browser from remembering Passwords. Always logout to terminate your session, instead of closing the browser directly. Always type the address of the bank website in the address bar of your browser or access it from your stored list of favourites. Do not access the bank website through a link in an email or through another website. Using special characters like # $ @ etc. in your password is highly
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Share holding pattern of IDBI bank as on 30th September,2009.
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As on Sept 30, 2009 Market price per share (Rs) Market Capitalisation (Rs.crore) Earnings per share (Rs) (annualised) Book value per share (Rs) Price to Book Ratio P : E Ratio
@ -Sept 30, 2009
127.45 9,238 14.00 108.16 1.18 9.10
Porter’s FIVE-FORCE analysis for Indian banking industry
BARGAINING POWER OF SUPPLIERS -Low supplier bargaining power -Few alternatives available -Subject to RBI Like and Regulations Rules -Not concentrated -Forward integration -Nature of suppliers
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THREAT OF NEW ENTRANT -Low barriers to entry -Government policies are supportive -Globalization and liberalization policy
INDUSTRY RIVARLY Intense competition Many private, public,
THREAT OF SUBSTITUTES High threat from substitutes Like
Mutual funds,,Governm ent securities
BARGAINING POWER OF CUSTOMERS -High bargaining power -Low switching cost -Large no. of alternatives -Homogeneous service by banks
Key Points: Supply Liquidity is controlled by the Reserve Bank of India (RBI). Demand India is a growing economy and demand for credit is high though it could be cyclical. Barriers to entry Licensing requirement, investment in technology and branch network. Bargaining power of suppliers High during periods of tight liquidity. Trade unions in public sector banks can be anti reforms. Depositors may invest elsewhere if interest rates fall.
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Bargaining power of customers For good creditworthy borrowers bargaining power is high due to the availability of large number of banks Competition - High There are public sector banks, private sector and foreign banks along with non banking finance companies competing in similar business lines. RIVALRY AMONG THE INDUSTRY Rivalry in banking industry is very high. There are so many private, public, co-operative and non-financial institutions operating in the industry. They are fighting for same customers. Due to government liberalization and globalization policy, banking sector became open for everybody. So, newer and newer private and foreign firms are opening their branches in India. This has intensified the competition. The no. of factors have contributed to increase rivalry those are: 1. A large no. Of banks There are so many banks and non-financial institutions fighting for same pie, which has intensified competition. 2. High market growth rate India is seen as one of the biggest market place and growth rate in Indian banking industry is also very high. This has ignited the competition. 3. Low switching cost Customer switching cost is very low. They can easily switch from one bank to another bank and very little loyalty exists. 4. In differentiate services Almost every bank provides similar services. No differentiation exists. Every bank tries to copy each other services and technology, which increases the level of competition. 5. High exit barrier High exist barriers humiliate banks to earn profit and retain customers by providing world-class services. BARGAINING POWER OF SUPPLIERS Suppliers of banks are depositors. These are those people who have excess money and prefer regular income and safety. In banking industry Suppliers have low bargaining power. Following are the reasons for low bargaining power of suppliers. 1. Nature of suppliers
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Suppliers of banks are generally those people who prefer low risk and those who need regular income and safety as well. Bank is best place for them to deposit their surplus money. They believe that banks are very safe than other investment alternatives. So, they do not consider other alternatives very seriously, which lower their bargaining power. 1.Few alternatives Suppliers are risk averters and want regular income. So, they have few alternatives available with them to invest like Treasury bills, government bonds. So, few alternatives lower their bargaining power. 2.RBI Rules and Regulations Banks are subject to RBI rules and regulations. Banks have to behave in the way that RBI wants. So, RBI takes all decisions relating to interest rates. This reduces suppliers bargaining power. 3.Suppliers are not concentrated Banking industry’s suppliers are not concentrated. There are numerous suppliers with negligible portion to offer. So, this reduces their bargaining power. If they were concentrated then they can bargain with banks or can collectively invest in other no-risky projects. 5. Forward integration Forward integration is possible like mutual funds, but only few people now about this. Only educated people can forwardly integrate where as large no. Of suppliers are unaware about these alternatives. BARGAINING POWER OF CUSTOMERS Customers of the banks are those who take loans, advances and use services of banks. Customers have high bargaining power. Following are the reasons for high bargaining power of customers.
1. Large no. Of alternatives Customers have very large no. of alternatives. There are so many banks, which fight for same pie. There are many non-financial institutions like ICICI, HDFC, IFCI etc., which has also jumped into these business. There are foreign banks, private banks, cooperative banks and development
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banks together with the specialized financial companies that provide finance to customers. These all increase preferences for customers. 2.low switching cost Cost of switching from one bank to another is low. Banks are also providing zero balance account and other types of facilities. They are free to select any bank‘s service. Switching costs are becoming lower with Internet Banking gaining momentum and as a result consumers’ loyalties are harder to retain. 3. Undiffernciated service Banks provide merely similar services. There is no much difference in services provided by different banks. So, bargaining power of customers increases. They cannot be charged for differentiation. 4.Full information about the market Customers have full information about the market due to globalization and digitization consumers have become advance and sophisticated. They are aware with each market conditions. So, banks have to be more competitive and customer friendly to serve them.
THREAT OF NEW ENTRANTS
Barriers to an entry in banking industry no longer exist. So, lots of private and foreign banks are entering in the market. Competitors can come from any industry to “ disintermediate” banks. Product differentiation is very difficult for banks and exit is difficult. So, every bank strives to survive in highly competitive market. So, we see intense competition and mergers and acquisition. Government policies are supportive to start a new bank. There are less statutory requirements needed to start a new venture. Every bank tries to achieve economies of scale through use of technology and selecting and training manpower. THREAT OF SUBSTITUTES Competition from the non-banking financial sector is increasing rapidly. Sony and Software giants such as Microsoft are attempting to replace the banks as intermediaries. The threat of substitute products is very high. These new products include credit unions and investment houses. One feature of using an investment house is that the fees that the investment house charges are tax deductible, where as a bank it is considered a personal expense, which are not tax deductible. The rate of return with using investment houses is greater than a bank. There are other substitutes as well for banks like mutual funds, stocks (shares),
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government securities, debentures, gold, real estate etc. so, there is a high threat from substitute.
Indian banking sector is one of the highly competitive sectors where high growth rate and high degree of competition exist. Low entry barriers and high exit barriers ignites competition in this industry. Every bank strives to survive in the shadow of these barriers. There are so many substitutes available with customers and they have high bargaining power where as suppliers i.e. depositors have low power in their hands. 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 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
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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. The main advantage of implementing e-banking is an increase in customer satisfaction. This is because customers do not have to go to the branches in order to access their accounts, make withdrawals and deposits. They can also check it anytime of the day, a feature that physical branches do not offer thus creating a good relationship with the bank and the customer. E-banking is also advantageous not only for customer but also for the bank because it reduces costs in setting up a branch and the resources to process transactions. They can also service more people than ever before. All these benefits are the reasons why many banks are already investing in ebanking. The main disadvantage of e-banking is the security problems that surround it. It's a fact that making transactions online poses a much bigger risk compared to making transactions in a physical branch. This is due to the hacking problems and identity theft. Addition to these risks, technical difficulties could also arise. Sometimes the bank's website goes down, and if this happens it will be a hassle for the customer because he/she has to go to a branch or make phone calls- which is usually busy due to other customers also making a call. Another case that has happened was an unpredicted rise in customer that the servers of the bank were not able to cope with. A customer may also run into a bad service. Sometimes you might wait a while for your checks to clear and you certainly can't do anything about it if it is online.
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• • • • •
www.wikiepedia.com www.idbibank.com www.gogle.com ‘Electronic Banking and Payback System’ by mrs C.S.KAR www.imai.org
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