The ICFAI University, Dehradun

ICFAI Law School

Assignment for Banking and Insurance Law

(LL-442)

E-Banking

Submitted To
Dr. Susanta K. Shadangi
Associate Professor
ICFAI Law School

Submitted By
Rudresh Kumar Srivastava
B.A.LL.B. (Hons.)
16FLICDDN02047
 Online Operations has provided a major thrust to Banking Operations

The enhanced role of the banking sector in the Indian economy, the increasing levels of
deregulation and globalization in the Indian banking industry have placed numerous demands on
the banks. It is no longer adequate for banks to provide only traditional banking services. To
meet the varied financial needs, banks have to offer a wider and flexible range of financial
products tailored for all types of customers. For the discerning present-day customers the banks
have not only to provide a bouquet of financial services, but also do this in a most efficient
manner in terms of cost, time and convenience.

Technological innovations witnessed by the corporate sector during the nineties have introduced
new business paradigms, wherein information technology is increasingly playing a significant
role in improving the banking services. As a result sweeping changes have taken place both in
the financial services being offered as well as in the manner in which customers are accessing
them. For example, more and more banking services are now being accessed remotely rather
than through branch banking. In fact, technology has not only assumed the role of a facilitator,
but it is also a source of competitive advantage for banks.

Demographic changes which have resulted in higher levels of education, breaking up of joint
families, more women opting for paid employment, and the resultant changes in lifestyles, have
all helped to fuel demand for different types of banking products and services.

Banking business has now shifted to an online environment. For the customer, Internet banking
has translated into convenience and numerous choices. For banks it has become a cost-effective
means for global expansion through innovative product delivery. Electronic services allow a
bank’s customers and other stakeholders to interact and transact with the bank seamlessly
through a variety of channels such as the internet, wireless devices, ATMs, online banking,
phone banking and telebanking. Other services offered under E-banking include electronic funds
transfer, electronic clearing service, and electronic payment media including the credit card,
debit card and smart card. Online banking helps consumers to overcome the limitations of place
and time as they can bank anywhere, anytime as these services are available 24 hours, 365 days a
year without any physical limitations of space like a specific bank branch, city or region. They
also bypass the paper based aspect of traditional banking.
As compared to other countries, e-banking growth and development is at a nascent stage in India,
yet the changing profile of customers and the resultant competition from establishment of new
private sector banks and foreign banks has provided a fillip to its growth. As a result, India has
emerged as one of the fastest growing markets in the world.

Introducing online banking operations has provided a major thrust to banking operations. This is
majorly because of the fact that a person could now do his banking transactions any time 24x7,
as compared to earlier, when banking was limited to certain hours of certain days only. Taking
the whole platform online provided mobility to a customer to access his account and transact
whenever he feels like, because the need can arise any time of any day. Secondly, taking such
operations online have also provided all transactions with a accountability as well. Earlier, when
there were all transactions happening manually, there was a lot of room for human error to creep
in. Now, when the whole operation has been taken online, the machine won’t make any mistake
which a human can easily do. Hence safety is another aspect which is easily available through
online operations. Thirdly, with the growth of ecommerce in India, every industry is moving a
certain segment of their business operations in the said field. Ecommerce is a heavily mobile
industry in India, considering the fact that a person can use the said shopping website/app any
time of the day. To be ready on part of payment and on part of accepting the payment, it is the
banks who have to be responsible for the handling of funds throughout. This is only possible
through e-banking and taking the whole banking system online. Hence, it won’t wrong to
preclude that e-banking has provided a major thrust to banking operations in India.
 Various E-Banking Services offered by a Bank

Banks nowadays have completely overhauled their traditional banking operations, and are trying
to move completely towards e-banking. E-Banking refers to the use of technology which allows
customers to perform banking transactions electronically without visiting a brick and mortar
institution. On-line means direct linking of an operation or equipment it a computer system, so
that any stimulus provided by that operation or equipment is immediately accepted by the
computer system.

Banking business has now shifted to an online environment. For the customer, Internet banking
has translated into convenience and numerous choices. For banks it has become a cost-effective
means for global expansion through innovative product delivery. Electronic services allow a
bank’s customers and other stakeholders to interact and transact with the bank seamlessly
through a variety of channels such as the internet, wireless devices, ATMs, online banking,
phone banking and telebanking. Other services offered under E-banking include electronic funds
transfer, electronic clearing service, and electronic payment media including the credit card,
debit card and smart card. Online banking helps consumers to overcome the limitations of place
and time as they can bank anywhere, anytime as these services are available 24 hours, 365 days a
year without any physical limitations of space like a specific bank branch, city or region. They
also bypass the paper based aspect of traditional banking.

As compared to other countries, e-banking growth and development is at a nascent stage in India,
yet the changing profile of customers and the resultant competition from establishment of new
private sector banks and foreign banks has provided a fillip to its growth. As a result, India has
emerged as one of the fastest growing markets in the world.

Internet Banking

Internet Banking is the ability to use one’s personal computer to communicate with one’s bank.
Internet Banking and on-line banking is an outgrowth of PC banking. PC banking enables
customers to execute bank transactions from their personal computer via a modem through a
financial software of the bank. Internet Banking has become a strategic necessity for most
commercial banks. It is being used as a distribution channel to build up customer contracts in a
systematic way in order to inform, counsel and sell products and services.
As observed earlier, customer behaviour has changed drastically due to technological
advancement and changes in lifestyles. The use of financial services is today characterized by
individuality, mobility, independence of time and place and flexibility. Internet is being viewed
as a new distribution channel to provide complex products at lower cost to more and more
potential customers who can consumer them at anytime from anywhere in the world.

Electronic Funds Transfer

For making inter-city payments customer usually make payments through demand drafts, mail
transfers and telegraphic transfers. In 1996, RBI devised an electronic funds transfer (EFT)
system to facilitate fast transfer of funds electronically. The funds can be transferred between
any two bank accounts even if the sender and the receiver are located in different cities or deal
with different banks. EFT has accelerated the movement of finds across the globe.

Telebanking

Any branch of a commercial bank which has computerized operations can offer telebanking
facility to its customer with the help of suitable software for this purpose. Telebanking or bank-
on-phone allows customers to interface with the bank via telephone. Digitalization of voice has
enabled the introduction of this technological marvel. The customer can dial a designated
number and perform a number of transactions from the convenience of their premises. Facilities
offered through telephone banking include request for balance enquiries, enquiries about
collections or specific credits/debits, transfer of funds, request for statement of opening, ordering
for demand drafts, stop payment requests as well as report of the loss of a debit, credit, or ATM
card. A password for security and protection is given by the banker to the customer.

Electronic Cheques

In the year 2002, an amendment was made under section 6 of the Negotiable Instruments Act, to
include an electronic cheque as a negotiable instrument. It is valid like a paper cheque. When a
cheque is issued in electronic form instead of its normal physical form by the use of digital
signature, it is called an electronic cheque. It contains an exact mirror image of the paper cheque
and is generated, written and signed in a secured system by ensuring the minimum safety
standards with the use of digital signature, with or without biometrics signatures and asymmetric
crypto system.

Credit Cards

Since the beginning of 1980s, the banks introduced a new facility for making payments, i.e.,
Credit cards. The use of credit card is essentially a method of postponing payment. When the
customer makes a purchase, the actual payment is made later when he issues a cheque for the
payment on his bank. These cards are made of plastic, hence they are referred to as plastic
money.

Debit Cards

Like the credit card, a debit card too is a payment mechanism which allows the holder to make
purchases without making any immediate cash payment. It appears that plastic money seems to
be the preferred mode of payment for more and more people. While the use of credit cards and
debit cards has increased manifold both in terms of value and volume of transactions yet the
growth in use of debit cards has been at a much faster rate than in case of credit cards.