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Offered by different banks both in teir contents and sophistication.

Meaning of internet banking. E-Banking is electronic bank that provide the financial service to individual clients by means of internet.

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security and privacy standards. the review of the migration plan of Society for Worldwide Interbank Financial Telecommunications (SWIFT) to the internet shows that to date full migration has not occurred in many developing countries due to the lack of adequate infrastructure. (2) The ability to strengthen public support for e-finance: Historically. If the public sector does not have the necessary means to implement the projects it is essential that cooperative efforts between public and private sectors. United Nations Conference on Trade and Development (UNCTAD) report has identified four challenges that developing countries. working capital. For example. Many corporates and consumers in some developing countries either do not trust or do not have access to the necessary infrastructure to be able to process e-payments.Chalenges Based on ‘best practices’ in developed countries. . high trade barriers. be developed to facilitate public support for e-finance related initiatives (3) The ability to create a necessary level of regulatory and institutional frameworks: The lack of regulatory frameworks. on-line credit information will enhance SME’s ability to secure financing. along with the multilateral agencies like the World Bank. For example. customer and investor protections impede progress in implementing e-banking initiatives on a larger scale in many developing countries. Singapore’s successful TradeNet system was a government-sponsored project. and required technical expertise. Similarly. (4) The ability to mainstream small and medium scale enterprises (SMEs) towards e-banking: The availability of and access to quality data and banking information is required for SMEs in developing countries to move towards e-banking. Broadly accepted e-payment systems are another such example. trust. most e-finance initiatives in developing countries have been the result of cooperative efforts between the private and public sectors. are expected to overcome to achieve the advantages that ebanking initiatives can bring about [UNCTAD 2002]: (1) The ability to adopt global technology to local requirements: An adequate level of infrastructure and human capacity building are required before developing countries can adopt the global technology for their local requirements. in general.

Empirical evidence shows that richer countries possess higher concentrations of internet users (higher than income concentration) in comparison with poorer countries [Hawkins 2002]. secure online operations. A handful of foreign banks operating in India first offered ebanking services to their customers such as ATMs. For PSBs.E-banking in India: Major Concerns First. However. scarcity of trained personnel. hence. network downtime. even today. private and foreign banks in the Indian financial system is quite different. While. expensive system upgrades and recurring costs given the massive scale of their current operations. the operational environment for public.1 per cent of total population). were able to adopt easily modern banking practices with state-of-the-artoperations. old habits and political pressures. it is likely that wealthier people will rapidly migrate to e-banking platforms leaving the poor to bear the cost of the physical infrastructure of branches in the form of transaction fees or non-competitive interest rates on their deposits. Second. there are also issues of legacy. Furthermore. control and delegation were set up decades ago and adoption of technology in terms of ‘real time’ banking and its compatibility with all phases of banking is not yet adequately perceived. the major problems are in the form of security risks. computerised monthly statements. they have to handle volumes which are mind boggling. challenges before the public sector banks are plenty and of a different kind. there is a risk of the emergence of a ‘digital divide’ as the poor are excluded from the use of the internet and so from the financial system. etc. In India (where the poverty ratio is still adverse at 26. A research study by Errol D’Souza (2002) on the comparative . Systems of accounting. The new generation of private sector banks (who did have developmental obligations similar to their counterparts in the public sector) did not possess a legacy of manual practices and. the security risk involved in computerisation is directly related to the size of the network. in India.

both public and private banks in India have realised the importance of Public Key Infrastructure (PKI) solutions. integrity and authentication are very important features of the banking sector and were very successfully managed the world over in pre-internet times. etc. Though at different levels in the computerisation spectrum. But this endangers the position of public sector banks in the immediate period as breaches of security and disruptions in the system’s availability can damage a bank’s reputation. this is not due to the presence of a large rural and semi-urban concentration of bank branches amongst PSBs but rather due to technological upgradation in the private and foreign banks. Fourth. the turnover per employee in private and foreign banks doubled relative to the ratio for PSBs. But for public sector banks. nonrepudiation services. Private and foreign banks have changed the structure of their employment towards a higher skilled workforce by increasing the recruitment of officers and reducing clerical and subordinate staff. computerisation is the first agenda – a massive exercise given their very large branch networks and security is the second priority. For private banks. However. Also. the size of the initiative is going to vary significantly between public and private banks. Communication across an open and thus insecure channel such as the internet might not be the best base for bank-client relations as trust might partially be lost [Grethen 2001]. e-banking has created many new challenges for bank management and regulatory and supervisory authorities. Third. They originate not just from increased potential for crossborder transactions but also for domestic transactions based . The combination of higher technology and higher skills have posted a higher turnover for these banks as they have been able to provide better customer support and have managed their assets well. confidentiality. security considerations are an important valueadded and risk reduction utility for their online and real time transactions. integrity. The more a bank relies on electronic delivery channels. the greater the potential for reputational risks.performance of public and private sector banks in the decade of the 1990s shows that though the turnover/employee ratio rose in PSBs. PKI is expected to guarantee the required level of trust and to provide for the security needs of all e-communities in terms of confidentiality.

SMEs in India have generic problems like the inability to provide quality data.on technology applications which raise many security related issues [Hawkins 2002]. Traditional drawbacks like asymmetric and nontransparent data and low capital bases continue to characterise their balance sheets. and tailor the existing risk-management framework to the electronic banking setting. For many banks. Such cooperation may need to extend to similar supervisory rules and disclosure requirements (for efficiency and to avoid regulatory arbitrage) and some harmonising of legal. The Basel Committee on Banking Supervision’s Electronic Banking Group (EBG) (2001) has defined risk management principles for electronic banking. But cross-border finance also needs a higher degree of cross-border supervision. It is necessary to know whether the efforts undertaken by the RBI are sufficient to ensure a reasonable level of security. there is no commercial bank in India. cross-border operations offer an opportunity to reap economies of scale. accounting and taxation arrangements. They primarily focus on how to extend. Fifth. which has exclusively specialised in the small business segment. The real question here is whether India at the present juncture is adequately prepared to face the consequences of cross border e-banking? Sixth. There are many challenges involved in a web-based relationship model for SMEs within India given the current state of regulation [Sushant Kumar 2001]. there are some serious implications of international e-banking. This has created unwillingness in banks to undertake large-scale lending to SMEs. adapt. Legal and regulatory compliance has also been inadequate. It is a common argument that low transaction costs potentially make it much easier to conduct cross-border banking electronically. The problem is further compounded due to the preponderance of a large cash economy in this segment. . to exhibit formal systems and practices and the lack of asset cover.