IMPACT OF E-BANKING ON

TRADITIONAL BANKING:
ISSUES AND CHALLENGES

Submitted by
SANJANA ROY
Masters of Law
from
Symbiosis Law School, Noida
 ACKNOWLEDGEMENT

I am thankful to a number of people who have contributed to the completion of

this research paper.

I have immense pleasure to acknowledge the gratitude towards my Supervisor

Assistant Prof. for her invaluable guidance and academic support, I would like
to foreword my sincere thanks to her for supporting me and guiding me
whenever required for my research paper.

The core of my paper deals with how the involvement of Internet Banking or
the E-banking have made an impact on the Traditional Banking which is an old
followed method through-out the world, which is still practised.

I am also thankful to my parents who have supported me throughout my studies.

Sanjana Roy
Table of Contents
Acknowledgement
List of Abbreviations
List of Exhibits

1. Introduction
1.1 Research objective and key questions
1.2 Statement of Problem
1.3 Structure
1.4 Research Methodology
1.5 Literature Review
1.6 Hypothesis

2. Introduction to Internet Banking

2.1 Definition of E-banking
2.2 History of E-banking
2.3 Features of the E-banking
2.4 E-banking: Distribution Channel

3. Traditional Banking
3.1 Meaning
3.2 Historical Background
3.3 Evolution of Branch Banking
3.4 Features of the Branch Banking

4. Impact of E-banking on Traditional Banking

4.1 E-banking as a radical innovation
4.2 E-banking or Traditional Banking
4.3 Empirical Contributions on The Adoption of Innovations in The Banking Sector
4.4 Measuring Service Quality in Banking Sector
 4.4.1 Electronic Banking and Service Quality
4.4.2 Rising of Digitalized Banking Sector in India
4.5 Impact of Internet Banking on Traditional Banking
4.6 Number of E-banking Users in India

5. Cybercrime and its impact on E-banking Sector

5.1 What is Cyber-crime?
5.2 Cyber-Crimes Related with Banking Sectors
5.3 Cyber-crime in India
5.4 Phishing- A Serious Crime
5.4.1 What is Phishing?
5.4.2 Features of Phishing
5.4.3 Comparative Study of Phishing Activities in Different Countries
5.5 Scenario in India
5.6 Safeguarding the Internet Banking Sector

6. Judicial Initiative Towards Online Banking and Traditional Banking

6.1 Guidelines Issued by the Reserve Bank of India
6.2 Case study
6.2.1 ATM Fraud Case
6.2.2 Phishing Case

7. Comparative Study Of E-Banking and Traditional Banking with

Special Reference to RBI In Safe Banking Practises
7.1 Distinction between E-banking and Traditional Banking
7.2 Challenges faced by E-banking
7.3 Prospects of Internet Banking
7.4 Role of Government in Safe Banking Practise
7.5 Role of RBI in E-banking

8. Conclusion and Suggestion

References
Data Analysis
List of Exhibits
Exhibit 1: Digital Revolution in Indian Banking Sector
Exhibit 2: Pie chart representing Banking Preference
Exhibit 3: Graph Depicting Motives of Cyber-crime
Exhibit 4: Graph representing number of internet users during the period from 2014-19
Exhibit 5: Graph Representing Factors Promoting Use of New Techniques
Exhibit 6: Graph Representing Factors Promotes the Use of Branch Banking System
Exhibit 7: Pie Chart Representing the Rate of Involvement of Risk Factors
Exhibit 8: Pie Chart Representing Kinds of Risks Involved in Online Banking
Exhibit 9: Graph Representing Factors Influencing Use of Online Banking
Exhibit 10: Pie Chart Representing Rate of Usage of E-banking
Exhibit 11: Graph Representing Banking Sector Preference
Exhibit 12: Pie Chart Representing Contribution of New- Technology Towards the Success
of Banking Sector
List of Tables
Table 1: Representing Sections of IT Act in respect to E-banking
Table 2: Representing Number of Internet User Increasing in India
Table 3: Representing Data Promoting Use of New Techniques
Table 4: Representing Data Promotes the Use of Branch Banking System
Table 5: Representing Data of the Rate of Involvement of Risk Factors
Table 6: Representing Data of the Kinds of Risks Involved in Online Banking
Table 7: Representing Data on the factors Influencing Use of Online Banking
Table 8: Representing Data of Rate of Usage of E-banking
Table 9: Representing Data of Banking Sector Preference
Table 10: Representing Data of Contribution of New- Technology Towards the Success of
Banking Sector

List of Cases
Case 1: Manwani’s Case (ATM Fraud)
Case 2: Umashankar Sivasubramanian Vs ICICI Bank
List of Abbreviations

ATM Automated Teller Machine

BBC British Broadcasting Corporation
BFSI Banking, Financial Service and Insurance
BHIM Bharat Interface for Money
BCG Boston Consulting Group
CBI Central Bureau of Investigation
CBS Core Banking System
CTS Cheque truncation System
EFT Electronic Fund Transfer
ECS Electronic Clearing Service
FBI Federal Bureau of Investigation
FEMA Foreign Exchange Management Act
FTP File Transfer Protocol
IT Information Technology
IBA Indian Banks Association
IBG Inter Bank GIRO Procedure
ICT Information and Communication Technology
IMPS Immediate Payment System
ISP Internet Service Provider
KYC Know Your Customer
LPG Liberalization, Privation and globalization
MICR Magnetic Ink Character Recognition
NPCI National Payment Corporation of India
NEFT National Electronic Fund Transfer
OECD Organization for Economic Co-operation and Development
OTP One Time Password
POS Point of Sale
PSU Public Sector Undertaking
RBI Reserve Bank of India
RTGS Real Time Gross Settlement System
SMS Short message Service
UPI United Payment System
WOS Wholly Owned Subsidiary
 CHAPTER 1
INTRODUCTION
Bank plays an important role in structuring the economic condition of a nation
and is also regarded as a backbone to the financial system. They act as an agent
in channelizing fund from surplus units to deficit units to the fully utilization of
the funds. A well-structured banking system has the positive externalities which
increased the efficiency of economic transaction. Therefore, the banking
institution plays an important role in the nation. And as banking facility is a
necessity to every human being, to make it easier and accessible for every
human being the facility has been provided through net which we state as “E-
banking or Internet Banking”.
As internet is a powerful technology in today’s nation, it also holds the
potentiality to change banks and the banking industry. A study states that “the
internet will destroy old models of how bank services are delivered”-
(DeYoung, 2001a). The internet banking has spread its availability to affect the
mixture of financial services produced by banks. The assessment of this new
technology shall depend on the assessment of the profitability of the delivery of
certain internet banking facility.
Internet banking is a strategy which has helped in gaining higher efficiency, and
it has also controlled the lessening of cost by supplanting paper based and
labour work with automated process which leads to high productivity and profit.
Moreover, the research states that the internet banking does not have
independent effect on banking profit, but also the traditional banking system
which helps up to certain point. Although these findings may vary in future with
the further development in the technology and the widespread of the internet
banking facility1.
In a research in India, it was found that there are too many products and services
that have been made accessible over the internet and making a good channel of
distribution for the bank. Therefore, by this channel of distribution the banks
expect a profit by spending strongly to address revenue, cost and
competitiveness. There are various services that are available over internet and
in order to access such services people at times requires internet banking
facility, in fact those services are channelized with the internet banking facility
to provide an ease to all the customer, and this channel provides the bank to
attain a profit. The main aim of this research is to understand and investigate the
various effects of online banking that are being taken up by the banks in India.
1
Thus, the main aim is to understand the difference between the internet banking
and traditional banking in terms of working, profitability, cost efficiency, asset
quality. Further, the study not only deals with positive effects of internet
banking but also there are negative effects of the internet banking which have
been a big impact on the customers of the bank. On one hand internet banking
have a deeper impact on making profit in the nation and on the other side due to
technological mis-handling certain crimes also takes place which effect the
banking facility.
1.1 Research Objective and Key Questions
The objective of this dissertation is to study the effect of internet banking on the
world old banking system as how the involvement of internet banking has
brought in changes in the working of traditional banking system, how the
technology is developing day by day in order to modernize people in the society
to make their life easy and hassle free. The study also deals what lead to the
introduction of the internet banking among the customers and what impact it has
brought in the life of various people who have access to the internet banking
and what are their view points in respect of the old traditional banking and new
internet banking facility. This study also includes the various types of
challenges that are faced by the banking industry in today’s world.
Research Questions
1. What is the effect of e-banking facility on the old banking facility?
2. What are the problems or risk that is faced by the customers due to the
use of internet banking, if any risk involved?
3. What are the challenges that are faced by the banking industry due to
impact of internet banking among the customers?
4. What are the advantages and disadvantages of the internet banking?
Whether the modern technology has taken an advantageous position or it
has destroyed the old traditional working of the banking industry.

1.2 Statement of Problem

The banking sector is being altered by the e-banking services, which have
significant effects on the banking associations. the banking service nowadays is
not only limited to branches where the customer has to be present in the bank
physically to carry on with his banking services such as withdraw of money,
deposit of money, transfer of money, collect the account statement, cheque
deposit, etc, but the transaction that is carried out in e-banking is also
dependable on internet service through which the internet banking service can
be availed, where the customer is not required to visit the branch of the bank
personally to avail the banking service. The only necessity of e-banking is the
availability of a computer or mobile phone and the internet service and one can
easily access the internet banking service anywhere and at any time.
Implementing e-banking is increasingly enhancing a "need to have" than a "nice
to have" service. Thus, the e-banking service is more of a criterion than that of
an oddity in many of the developed countries as this is considered to be one of
the most economical methods of availing the banking service. Therefore, this
research paper will deal with the advantages, disadvantages of e-banking, the
issues, and challenges that are faced by the e-banking services and also the
impact that it has created on the branch banking or traditional banking system.
1.3 Structure
This research paper consists of seven chapters and the eighth chapter is
conclusion. The first chapter serves the introductory summary of the subject.
chapter two starts with the introduction to the internet banking and its history,
further providing the features of the internet banking. the third chapter starts
with an overview of Traditional banking, providing the historical background
and then the Evolution of the branch banking in India. the fourth chapter throws
light on the impact that online banking has created over the age-old branch
banking system in India. the fifth chapter brings out the facts related to cyber-
crime that is a big loophole in the internet sector and is a serious problem to the
whole internet banking sector it is followed by chapter six which lays down the
legal protection and the judicial initiatives that have been taken up to protect the
internet banking sectors. the seventh chapter provides the measures that have
been taken up by the RBI to protect the banking practices and finally, the eighth
chapter provides the conclusion and the suggestion.

1.4 Research Methodology

Data Collection
The present study is based on both empirical and doctrinal in nature. The
research study consists of primary data. The primary data is collected with the
help of questionnaires from a sample of respondents (23 customers). The
questionnaire sought the reviews of the customers in respect to the Electronic
banking facilities over Branch Banking and the risk involved.
Research Methodology:
 a) Primary Data:
This data is collected first hand from the respondents who uses both online and
traditional banking facility. Structured questionnaire is prepared in Google
Form and it is filled up by 23 customers using the banking facility.
b) Secondary Data:
This data is collected by use of various form of sources. These sources are:
 RBI reports
 Journals based on online banking and traditional banking
 Website of RBI
 Articles relating to banking system
In the present study the sample is collected from the customers who uses both
the banking services i.e. the online banking and the traditional branch banking
system.
1.5 Literature Review
1. Claessens et al (2001) the electronic finance openings are presented to the
developing world “E-finance can allow countries to establish a financial
system without first building a fully functioning financial infrastructure.
Because e-finance is much cheaper, since it lowers processing costs for
providers and search and switching costs for consumers, providers can
market financial services involving smaller transactions to lower-income
borrowers, even in remote areas. To further this, government’s main role
will be to enhance the enabling environment”.
2. Corrocher (2002) studied the “determinants of the choice of Internet
technology for the provision of banking services in the Italian context and
also studied the relationship between the understand if these two systems
of financial services delivery”.
3. Allen et al (2002) defined “E-finance as the provision of financial
services and markets using electronic communication and computation”.
Back in history during 1970s, the electronic communication was used.
The telegraph was the means of delivering banking service. Moreover, for
instalments let it be expansive or little done viably and productively over
the electronic communication instruments. Boundaries between diverse
monetary educate have been expelled, due to electronic implies for
 exchanges the administrations and the item are presently advertised with
more productivity and quality.
4. K. Eswar (2003) stated that with the change in the market, the customer
needs and requirements change and thus, the strategy placed is required to
be mitigated. “Positioning is not a one-time effort. It is a constant
pursuit”.
5. Singhal and Padhmanbhan (2008) in the new era of banking sector, the
new term that is used is e-banking.
6. Guillen and Tschoegi (2008), in order to meet the new financial product
in the competitive market the traditional banks has accepted the new
innovation in their working system.
7. Maiyaki and Mokhtas (2010) explained in the research done by them that
“there is no relationship between population statistics and the choice of
banks. It was also found that statistically there is an important
relationship between age and choice of banks”.
8. Ameme B, & Wireko J. (2016) in his research states that technology is
playing a significant role in today’s world and specially in the banking
sector it holds a relationship between the bank and the customer
satisfaction. it was also declared that the customer satisfaction is not
simply putting up innovative products and services but also plans up
something better than this. it was also stated by them that, the banks to
lead the market must include the innovation method in all the
perspectives. There is also an important relation between technological
innovation and cost. with the increase in innovation the cost also
increases.
1.6 Hypothesis
H0: Internet banking has taken over a positive side in the financial sector, which
has reduced the use of traditional banking.
H1: Internet banking is flourishing in the market, but certain problems persist
i.e. the population living in the urban area is prone to internet banking but half
of the population which resides in the village are not aware of the internet
service due to lack of online banking literacy.
H2: As the internet services are gaining an important position in the market,
along with it is increasing the number of cybercrimes in the internet banking
service.
H3: The Government and the banking sectors shall take up certain strict
measures to curb the problems faced due to cybercrimes. The e-banking service
shall be protected well.

CHAPTER 2
INTRODUCTION TO INTERNET BANKING
This chapter gives an overview of the electronic banking, the features of the
electronic banking and gives a historical background of the internet banking and
how it is distributed among the customers.
2.1 Meaning of E-banking
E-banking which also known as Internet Banking or Web Banking, is a process
of paying the payment through electronic system that allow the customers of the
bank to access their banking facility or banking transaction through the banking
institution’s website. Therefore, internet banking is the facility or process by
which the customer of the bank does not have to visit the banking institution but
can avail the facility through internet. Though the internet banking facility was
established in1980’s but it took time to revolutionize with the time.

E-COMMERCE
(conducting business through electronic
networks)

E-FINANCE E-MONEY
(Providing financial (stored value of
services through prepaid payment
electronic channels) mechanism)

E-BANKING OTHER FINANCIAL

(providing banking SERVICES AND
products and services PRODUCTS
through electronic (insurance, online
delivery channels) brokering, etc.)

1) Internet Banking
2) Telephone Banking
3) Other electronics
delivery channels
Before, discussing the core content of the E-banking, it is better to understand
the concepts of E-banking. To understand the concept of the E-banking the
fundamental topics need to be discussed.
E-banking is the facility which can be availed by the customer at free of cost
and therefore, customers prefer the comfort or ease of the internet banking and
moreover, it is even efficient for the banking institution when their customers
can operate their own transactions by themselves instead of visiting the branch.
According to Kaleem & Ahmed: “the primary advantage of e-banking is the
reduction in inconvenience, transaction cost and time taken in performing an
operation, whereas, major concerns are chances of government access and fraud
and lack of information security”- 2008. Thus, the banking industry have
initiated to adopt more technological balanced advancements which shall lead to
further enhancement of its efficiency2.
2.2 History of Internet Banking
The process of delivering banking facility to the customers over internet service
i.e. Internet banking was first started in the year 1980s. In the late 80s, the
facility of online was familiarized and it was mentioned to a banking institution
of using certain accessorise through the phone line, and the other term used for
the same was Home Banking. The e-banking facility was first started in the year
1981 in New York along with home banking services by the means of videotext
system by Citi Bank, Chase Manhattan Bank. But the home banking system
failed and due to the failure of videotext system except in France and UK.
The first home online banking service was provided by the Bank of Scotland in
19833. The BBC keyboard was used in order to provide the online banking
service and this system was called Home link and this service helped the
customer to view their banking details online, and also provided various
banking facility.
It was Stanford Federal Credit Union, the first banking institution to provide the
facility of online banking to all its member in October 1994.
In recent time, there are certain banks which functions as only internet bank,
such banks do not have physical branch. These banks provide better rate of
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interests and other internet banking facilities as compared to other banking
institutions.

2.3 Features of Internet Banking

The various features of the E-banking facility are as follows:
 Easy payment of bills online
 Customers can review their bank statement without visiting the branch
 Customers can avail various banking facility over internet
 The payment for any product can be made through online
 Mini statement can be ordered by the customers
 Customers can transfer fund through online
 The customer can connect to the bank through internet
 The relationship between the bank and the customer management is made
efficient
 Mobile banking
 Can avail SMS banking service
In order to avail the facility of internet banking, a computer and internet is a
necessity for every customer, without which it will be impossible to facilitate
the banking services. It is the computer and internet which helps the customer to
connect with the bank and avail the services provided by the banks such as
payment of bills, checking the bank statements, contacting the branch, check
account balances, not only connect to bank but also can pay for purchasing
products etc. the technology has developed day by day with the modernization
of the society. The technology is developing certain facilities which are helping
people to access the banking facility with an ease and that also by not visiting
the branch. People are more prone to digital services, and they prefer services
which shall help them instantly with the help of a click, and that is only possible
if the banking facility is provided well over internet. The e-banking service has
therefore increased the volume of business transaction through the means of e-
banking and e-commerce. Customers depend more on such facility as they
consider it to be relying as there is trust relationship connection between the
customer and the banking institutions.
2.4 Internet Banking: Distribution Channels
In today’s world, the internet has progressed tremendously as a main source of
service provider for various financial sectors. Earlier, it was not possible for the
customers to work at a fast speed in respect to their banking transaction as they
are able to perform now. The online banking provides the facility to their
customer to work directly from their home in matters related to banking matters
without visiting the banking institutions.
The banking institution at the starting point were very furious and anxious about
the internet banking facility to the customers, but with the year round the line4,
the banks converted their websites from “informational sites to dynamic
transaction-oriented websites” that can be used anywhere at any time.
Modes of Distribution:
The internet banking technology was acquired by the various banking
institutions at a very fast pace, that it revolutionized completely by the year
1991. The various new kind of distribution channel those are provided by the
banking services are as summarised below:
 Online Banking-
This is also known as electronic banking or Web banking. This banking facility
and service is easily provided by the banking institutions through internet which
is easy to access only if there is internet and availability of computer.
 Mobile Banking-
This is known as mobile banking or tele-banking, with the increase in time the
number of mobile phone users has also increased. Therefore, people now a days
prefer more-handy device and the mobile-banking service is the more ease way
in today’s world.
 Plastic Money-
The ATM cards, debit cards, credit cards etc are referred to as plastic money.
These are provided by the banking institution to the customers and by using
ATM, customers are free to make the use of plastic money by withdrawing the
money, payment for any services etc.

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 CHAPTER 3
TRADITIONAL BANKING
This chapter throws light on the Traditional Banking system, it gives an
overview of what is traditional banking, its features, historical background of
the traditional banking and also gives an overview of how traditional banking
evolved.
3.1 What is the definition?
The term ‘Traditional Banking’ is referred to as the banking system that has
been followed since past. The Traditional banking system is the banking system
where the financial institution provides the financial services to the customer by
accepting deposits from the public and creates demand deposit. The traditional
banking is none other than banking facilities that are provided by the banking
sectors to their customers. The traditional banking is an institution that is
devoted to the administration of the deposit that is made by its customers. This
banking facility or service is running from a long period and is still continuing,
the banking institution has different branches where the customers can visit in
order to deposit or withdraw their money. The system of customers visiting the
bank’s branch and deposit their money and withdraw their money and to avail
various other banking system has been a long-followed process and it is still
into practise in recent times but many people prefer to do it over internet.
3.2 Historical Background
The idea of the banking service begun first in Babylon and Old Sangvi, were the
traders used to grant loans of grains as collateral within a barter system. 5The
lenders of ancient Greece and those of Roman Empire included two important
techniques: 1) they used to accept deposits and 2) they changed the money.
6
The present status of banking can be tracked down to the medieval and early
Renaissance period and to further rich cities. In 14 th century the banking was
dominated by the Bardi and Peruzzi families and the branches was established
by the Florence in various parts of Europe. In 1397, the famous Italian bank was
set up by the Giovanni di Bicci de’ Medici. The goldsmith of London used to
store the gold in their private vaults, and they used charge a fee for that service,
and based on this the goldsmith used to issue a receipts stating the quality and

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cryptocurrencies/, visited on 8the April, 2020
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quantity of metal deposited, and only the actual owner could take back the metal
from the goldsmith.
Therefore, the goldsmith started the process of granting loan out on behalf of
the depositors and used to pay interest to the depositors. Therefore, from this
period the idea of granting loans started and the goldsmiths of the London
forebear the banking by creating new money-based credit. The issue of bank
notes was permanently issued by the Bank of England in 1695.
3.3 Evolution of Branch Banking System
In India there was always a concept of initial banking which existed for
centuries and is still into existence till date. These bankers differed from those
of moneylenders as the bankers were more maintained. These bankers also took
in deposits and eased payment using the hundi system. The moneylenders used
to lend nominal amount of money from their capital at a limited operation, these
moneylenders were the people who lend money on their own will. Whereas, the
banks that had branches established helped with the flow of capital from one
region to another. They had main offices established at one place and their
agent used to travel form one region to another where the trade and commerce
flourished and set up their branches there.
Mr. W.E. Preston, member of Royal Commission on Indian Currency and
Finance (1926) said7:
“….it may be accepted that a system of banking that was eminently suited to
India’s then requirements was in force in that country many centuries before
the science of banking became an accomplished fact in England”.
The main story began in the year 1839 when the branches were allowed to open
by the Presidency Banks. And this opening of branches was only allowed and
applied to Bank of Bengal, and the main problem or issue with the branches
then was absence of business case for branches. The main idea to establish such
branch at that time was to facilitate business to the British and wealthy
merchants. At the beginning they were allowed to lend for 6 months which was
further extended to one year. It became unprofitable for the during the 19 th
century to branch up due to the setup of trading centres around the Presidency
towns, and thus the connectivity became poor.
With the start of mid-20th century, the commuting system and conveyance
system developed, which helped in the growth of banking and finance because
it is due to this reason people began to travel and access information and
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April, 2020
therefore, it leads to the rise of economy. Thus, leading to establishment of
more offices and branches.
As the main centre of the Bombay, Calcutta and Madras acted as the breeder to
the banks, so the branches were placed there. But due to certain circumstances
only the Bank of Bengal and Bombay did not have confidence upon the
branches and thus, 70-80% of the profits came from the head office to these
banks.
The bank of Madras was a small economy as compared to other two economy
and thus it relied on the branches, and this bank was provided with 70-80%of
the profits by the branches. As Madras was a coastal area, therefore, they
flourished more with their trading and commerce background and this leads to
the banks to reach the other trading towns other than just Madras. It was seen
that the other two banks in order to maintained the etiquette but for the Bank of
Madras it turned out to be a mandatory issue to establish branches.
Unfortunately, these branches of all three Presidency Banks have no more
existence in part of India. For Bengal bank it was Rangoon, Karachi for
Bombay based and Colombo for Madras based bank8.
After this the Imperial Bank was established with a view point or aim to
establish 100 new branches within 5 years in the year 1921. And thus, after this
the banking business turned around with a push back by the government that
was to Nationalize the Banking Industry in the year 1969 and the branch
banking went completely in different direction.
3.3 Features of the Traditional Banking
The features of Branch Banking are as follows:
 The Banking Institution needs to maintain high amount of capital in order
to maintain branch banking
 A central head office controls the working of branch banking
 Customers have to visit the branch in order to make deposit and withdraw
their money from the bank.
 The branches of the banks are located at various region through 9the
world

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  The number of branches of a bank depends on the capacity and principles
of the bank
CHAPTER 4
IMPACT OF E-BANKING ON TRADITIONAL BANKING IN
INDIA
This chapter provides the effect that the electronic banking has created on the
branch banking system. This chapter deals with the concept of the new
innovation of the banking sector that is the e-banking concept and how it has
changed the service quality provided by the branch banking system. The
innovation has changed the basic idea and concept of the customer who are
more prone towards the branch banking system.
4.1 E-banking as a radical innovation
The service provided by the internet banking is nothing but a set of fiscal
services, that are provided by the help of technological solutions and it is
structured on the basis of internet service. The E-banking service helps people
to access to their bank account by sitting at their home, or from anywhere and at
any time as long as they can avail the facility of having a computer or mobile
and internet connection along with it. The relation between the customer and the
banking institution is also well maintained through the internet banking, as there
is a scope of having a direct relation with the bank manager, which is not
possible for the customers visiting the bank physically. Following this
viewpoint, the OECD (2000) guideline states that, the new ICT (Information
and Communication Technology) affect the relationship between the producer
and consumer, in this case the contact becomes less important, due to the reason
that the service can be well provided through internet10.
Moreover, the concept of internet banking is an advancement towards the
society which has helped the customers to adopt the various view of the Internet
banking and the services related to it. Since, the new technological innovation
has strengthened the relation between the customers and the bankers and along
with this it has also created new product and the development of innovative
combination of the existing products.
As per the customer, the internet service provides more information in respect
of various financial service and also allow to compare between the existing
service that are offered by the banks. On the other hand, the banking institution

10
https://www.researchgate.net/publication/4847385_Does_Internet_banking_substitute_traditional_banking
_evidence, visited on 11th April, 2020
get different information on the requirements of their different customers, and
based on which the they develop their customised service. The internet service
also acts as an instrument to understand and to keep a track on their
competitor’s activity.
The model of the evolution of the banking activity obstruct us to consider the
different form as incident, but collectively not excluding the technological and
business structure for the requirement of financial service. At the first stage, the
development of e-banking was considered as the replacement of the existing
model of the traditional banking system, with the addition of new features for
the better performance of technology. Furthermore, it is considered that both the
models cannot be exist in the same background. Besides, each model could be
more strengthened by the banking institutions, if both the models was
considered to place in the same field. It is very obvious that, the online banking
system alone is not capable of providing the same range of service as provided
by the traditional banking system. However, it is also considered that the new
technology-based service provides the possibility of development of new
services.
Thus, the facts that are stated above have an effect on the identification of the
factors which led to the adoption of internet banking facility. It is further argued
that the use of internet facility lowers down the cost effectiveness and due to
which the customers are entitled to get more benefits. Thus, this leads to the
study of the relation between the e-banking and traditional banking and to
determine which banking is good to be followed.
4.2 E-banking or Traditional Banking?
The controversy that arises in the mind of the customers of a bank is that
whether they should make their deposit by visiting the branches physically or
deposit it through internet (i.e. by the use of online banking). In today’s world
both the facilities of banking i.e. e-banking and branch banking have significant
value and the e-banking facility has much more importance. The funds are
better protected by both the system as the conventional banks and the online
banking are considered to be secured at Deposit Insurance Agencies 11.
Moreover, every system has got a pros and cons of its own.
If the benefits of the Traditional banking system are measured compared to E-
banking. Then this are the following benefits of practising Traditional Banking:
 The speed of accessing the fund is the main benefit.

Sonia Sharma, www.allresearchjournal.com/archives/2016/vol2issue7/PartE/2-6-146-742.pdf, visited on 11th

11

April, 2020, at 1.05p.m.

  When required the customers can interact directly with the bank manager
or the any account representative.
 There is more security because the customers can get hard copy of the
document for the deposit made by them which also signed by the bank
staff.
The E-banking provides the service to the customers of the bank i.e. to submit,
transfer fund, check the bank statement etc but by the means of the website that
is provided by the bank in over the internet, the customer does not have to visit
the branch. Therefore, to compare the pros of the E-banking system with the
Traditional Banking. These are the following advantages of the E-banking
system:
 The customer can avail the service any time and from everywhere, only
the thing required is internet and a computer or mobile.
 The customers are not required to wait in a queue.
 The payment of bills, fund transfer, checking of the bank statement etc
everything is possible.
 Transportation cost is reduced, as the customer do not have to travel to
the branch for the banking purpose.
 The customer does not require to worry about any fraud, because any
kind of unauthenticated activity related to the customer’s account is
notified to the customer by means of SMS or email.
4.3 Empirical Contributions on The Adoption of Innovations in The
Banking Sector
The idea of developing the e-banking facility came up after the introduction of
the ATM in the banking industry. The functioning of ATM is considered to be
one of the great innovation of ICT-based service and many researchers was
attracted to this innovation. As this innovation was considered to be a great
idea, this lead to the collection of more data for a empirical analysis to study the
concept of adopting such innovation and with the study they also enquired for
any other new technology that can be taken up for the betterment of the banking
system. The researchers from various parts of the world investigated on the
matter of adoption of new technology of banking system. Hannan and Mc
Dowell (1984) analysed the reason that encouraged the adoption od ATM
service in the US financial sector. There is a positive impact on the adoption of
the ATM facility in US due to the firm size and market concentration.
Concentration allows rapid growth in the innovation of new technologies and
produce vigorous efficient benefits. And if we see in respect to the firm size
then, the big firms or the large firms have a practical attitude as compared with
the small industry because the new technological innovation shall profit the big
firms as those firms shall have big motive which shall be accomplished with
new technological developments than the small firms. Thus, if we see through
out the world many researchers have inquired on the innovation of the ATM
facility which was the first technological innovation, and it came out that the
larger firm has positive review in respect to this innovation as this has always
helped the bigger firm in attaining their goals.
4.4 Measuring Service Quality in Banking Sector
The customer is considered to be the focal point of any trade and business
specially in financial service. Therefore, measuring the service quality of a
financial institution is considered to be other way round as compared to the
service sector provided by the manufacturing sector. The banking service is a
very diversified12 service in nature as the banking sector service is not as same
as that of hotel and hospital service. The service in this industry are impalpable
in nature and this could not be compared with any such
4.4.1 Electronic Banking and Service Quality
The continuous change in the technology is due to the essential change that are
required to change as per the needs of the customer, and if we see the customers
are the biggest part of the banking industry. As the electronic banking is more
widespread service among the customer, so it is changing as per the scenario of
technological environment.
E-banking is considered to be the system which has improved over the
traditional banking system because it has lowered the cost of transaction
processing, improved the payment condition, all kind of monetary services and
has developed the relationship between the banker and customer. As the
customer satisfaction is more important in all industry, therefore the banking
industry also have the expectation which is provided by the organization. E-
banking has being playing a critical role in providing satisfaction to the
customer because the internet banking bridges the gap between the expected
and received service quality. So, in order to bridge the gap the banks have to
facilitate the access of e-banking among the customer by verifying the accuracy
of the e-banking transactions.
There are certain reasons due to which the customer satisfaction has improved.
These reasons are as follows:
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  Availability of banking facility for 24 hours a day, and for 7 days a week
 Online fund transfer can be done anytime and anywhere from one ban to
bank or within the same bank.
 Customer interaction with the bank has been improved due to e-banking.
 No requirement of direct control with the bank, because the service can
be granted anytime and from anywhere.
 Withdraw and deposit of fund can be done directly from home and
offices.
 No long queue, no more waiting time in the branch.
 The customer can do business directly form their home through
technological development.
4.4.2 Rising of Digitalized Banking Sector in India
The requirement of computerization of the banking sectors were inherited in the
year 1980 in order to provide better customer 13 service and to maintain book
keeping records. The Reserve Bank of India took the initiative to set up some
committees in order to define and coordinate banking technology which are as
follows:
 In the year 1984 the first committee of Mechanization for the banking
industry was set up along with that the MICR (Magnetic Ink Character
Recognition) technology was established for the purpose of Standardized
Cheques and encoders.
 In the year 1988 the second committee on computerization in banks was
formed with the view point to computerize the branches for increasing the
connectivity among the branches.
 Followed by the third committee that was formed in the year 1994 with
the idea to solve the issues regarding payment system, cheques clearing
and securities settlement. The EFT was adopted under this committee.
 In 1995, the EFT and other electronic payments was guided under
legislation.
Thereafter, the NPCI launched United Payment Interface (UPI) and Bharat
Interface for Money (BHIM) for a better payment system followed by the
possibility of fund transfer between accounts in different banks based on virtual
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Impact of E-Banking on Financial Performance of ... - aarf.asiaaarf.asia › download › current › Dec ›
new=48IJMCNov17-5728, visited on April 13th, 2020 at 12.57 p.m.
address. Following are the other technological developments in Indian Banking
system those took place successfully:
 MICR
 ATM
 CBS
 RTGS
 ECS
 CTS
 Debit/ Credit Cards
 POS
 Prepaid Cards
 IMPS

Exhibit 1 Digital Revolution in Indian Banking Sector

4.5 Impact of Internet banking on Traditional Banking
The LPG14 was introduced in the year 1991, and from there the economy
transferred in the positive sense. With this introduction in the banking sector,
the industry has obtained an expedient growth and also has undergone an
extraordinary renovation. The entrance of the private sector and foreign banks
has brought a tough level competition among the sectors. In order to hold up the
hypothesis of this paper, following factors are considered to prove the fact that
the internet banking has affected the traditional banking system:
 Ease and Comfort
Internet banking provides comfort to the customer by facilitating them systems
so that they can access it from anywhere or anytime without visiting the branch
personally. The customer just has to login through the bank’s website and can
enjoy the banking facility by accessing through the website. The websites
should be easily accessible with simple language, so that the customer who is
using shall be able to understand the language and it becomes easy for him to
complete the banking transactions.
 Facilitates Any Time Any Where Banking
The banking institution has limited time period to work but the websites are
accessible for 24 hours for the customer, they can access it anytime and from
anywhere. This facility by the internet banking system has affected the
traditional banking system. A customer do not need to interrupt between his
work and visit the branch personally to complete his banking transactions, he
can do the same by accessing internet service.
 Faster and Better Service
The internet banking facility is available for 24/7 but the branch banking or
traditional banking facility is available for 5 to 6 days a week. In matters of
national holiday, or bank holiday, there arises no problem for the customer. The
customers can access the banking facility from their home through the banking
website. The customer can easily transfer fund or pay his electricity bills etc.

 Helping Customers to Manage Accounts

14
InderpalSingh,www.academia.edu/19302439/Internet_banking_and_its_impact_on_traditional_banking_ser
vices, visited on 13th April,2020, at 11.55p.m.
Internet banking provides the customer to manage their bank account easily.
This facility is provided by the bank 24/7 to their customers. The banking
websites are secured and safe to be used by the customers to access their
banking transaction with a few clicks.
 Regular Updated Information
The customer remains in a dilemma after their transaction is completed in the
bank, whether their banking transactions are completed or not until and unless
they get a confirmation. But in internet banking the customer gets immediate
update after the transaction is completed via SMS alert from the web page. The
customer if they avail the bank physically, their banking transaction take time to
be updated, therefore this leads to the confusion in the mind of the customer.
 User friendly or Customization
The internet banking plays a role in developing the banking sector and this
concept of the banking industry helps in gaining high growth in the rate of bank
customers. Another reason in increased popularity of internet banking is the
user-friendly services that has been provided by the banking industry to its
customer. The websites are designed with multi language facility which helps
them the customer to avail as per their requirements and also that there are
biometrics and voice mail system available for the peoples in rural areas.
 Low Cost Structure
The cost involved in the online banking system is low collated to traditional
banking system. As the customers do not have to visit the branch physically
because they can access the banking facility from anywhere and at any time.
There is an establishment of positive impact on the part of the bank’s operation
as the transaction rate has increased due to customers availing internet banking.
4.6 Number of E-banking users in India
 Preference

E-banking Traditional

Exhibit 2 Pie chart representing Banking Preference

The digital drive in India has led to the increase of internet banking user in
India, and it is expected to double with the increase in time as compared to the
present million active users. In a report drafted by Facebook and The Boston
Consulting Group (BCG) states that: “Financial Service in 2020 “India could
not be more ready for a digital revolution in financial services – with
government interventions on one hand and growing consumer awareness on the
other. Wide scale adoption of digital has the potential of reducing cost of
acquisition and cost of servicing to 1/10th. This can substantially improve
customer level profitability and can add to retail profit pool by $3 – 3.5 billion
by 202015”. Said Amit Kumar, Partner and Managing Director, The BCG.
India is in the middle era of the digital drive revolution, as per the study the
results as stated in Exhibit 2 that 87% people are more prone to Internet
Banking and 13% people are used to traditional banking system. Thus, it is clear
from the study that maximum people are used to the internet banking facility as
compared to the traditional banking as they consider the internet banking to be
more easily accessible.

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 CHAPTER 5
CYBERCRIME AND ITS IMPACT ON E-BANKING
This chapter throws light on the main issue that is the cyber-crime and what
impact it has on the internet banking sector. The cybercrime is the main issue
that has paralyzed the technological background in the economy and has
affected the internet banking service. Thus, this chapter defines what is cyber-
crime, what effect it has created on the Indian banking system. This chapter also
deals with the various types of cyber-crimes such as Phishing, cyber hacking
etc.
5.1 What is Cyber-crime?
The term Cyber-crime has not been defined in any statutes. The term “cyber” is
considered to be colloquialisms anything related to computers, information
technology, internet and virtual reality. Thus, it is clear that the term cyber-
crime means something that is not formal or some crime or transgressions
relating to computers, information technology.
Cyber-crime is considered to be the dark side of the digital world. It is
considered to be curse to the world in this period of growing technology where
the criminals take advantage of the computer to commit such crime. In order to
fight back such crime, India is being protected under the guidance of
Information Technology Act, 200016 which was amended in 2008, and the
amended provision plays a very strong and powerful role in order to curb such
crimes.

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Nikhil Gupta, Cyber-crime and ITAct,2000,
“mja.gov.in/Site/Upload/GR/Cyber_Crimes_and_Information_Technology_Act_2000_An_Overview”, visited
on 15th April, 2020, at 3.05p.m.
Cyber-crimes are computer crimes in which the criminal uses the information
technology to access information or data illegally, with the idea of vandalizing
the computer data. With the rapid growth of digitalization in India, the crime
relating to computer is also increasing day by day. There are both pros and cons
of the use of internet service and thus therefore, internet has become a source of
banking also i.e. the bank has provided the service of internet banking to their
customer. The internet banking service has been recorded as the service which
is open to risk as the privacy data of the customers can be destroyed or damaged
by the criminals leading to cyber-crime. There are various types of violation of
privacy that takes place in banking sector, such as phishing, identity theft etc.
thus, these are the types of cons named as Cyber-Crime. Computers in today’s
world are used for purpose which are not supported by the law or legislation
such as e-mail espionage, credit card fraud, spams, and so on, which are the
method in which the privacy of a customer is invaded by the criminals with
criminal intention. Phishing is considered to be the most dangerous fraud in
banking sector, this is considered to be the criminal activity using social
engineering techniques. Phishing is considered to be the criminal activity which
is attempted fraudulently in order to acquire the information, such as usernames,
passwords and credit cards details, by bluffing a trustworthy entity in an
electronic communication.
5.2 Cyber-Crimes in Respect to Banking Sector
Banking institutions are considered to be best hub for the criminals to hack
accounts. As the commissioner of Mumbai, Roy states that- “Hacking a website
or writing a programmed that will spread virus on computer will not earn
money. By hacking websites of a bank or stealing a credit card pin, a street-
smart program can, besides enfettering himself, cause a lot of dangerous to
banks and their customers alike”. So, the various types of crimes are discussed
below:
 Hacking: The attempt to bypass the security mechanism maintained by a
person by some fraudster is known as the act of Hacking. Many criminal
hacks the banking site or customer’s account. The term is not defined in
IT Act, 2000, but under Section 43(a) read with section 66 of Information
Technology (Amendment) Act, 2008 and under Section 379 & 406 of
Indian Penal Code, 1860, a hacker can be punished. Before the
amendment took place in The IT Act, 2008, the hacking was punished
under section 66 of the IT Act with imprisonment up to 3years or fine
which may extend up to 2 lakhs rupees or both and after the amendment
of 2008 the punishment was extended to 5lakhs rupees if the person is
 found guilty and this offence is considered as cognizable offence and
also a bailable offence.
 Credit Card Fraud: The credit card fraud is an act where the customer
when uses the card, the offender makes a mala fide intention to use the
cards detail and password by means of hacking for making misuse of the
payment. The hacker may have the intention to misuse the credential of
the card owner in illegal manner when the electronic transactions are not
secured.

5.3 Cyber-crime in India

As cyber-crime is not defined in the statutes or in any book, so it can described
or defined in simple term as the act that is committed over electronic system or
computer system with a criminal intention. This act is considered to be illegal in
the eyes of law which is committed with the help of a computer system and
internet. The growth of the technology has made everybody to be dependent on
internet because it is used in every step of the life, with the growth of the
information technology the cyber-crime act also increases with the time 17, and
this act has taken a big place in India. The act of cyber-crime is considered to be
a serious offence which is creating a threat to the nation’s economic growth
because most of the cases are related to financial institution. The main feature of
cyber-crime is that, the criminal and the victim does not come face-to-face.
The case of cyber-crime is increasing with the increase in the number of
computer and cell-phones with the available internet connection. The mobile
phones are mainly being used these days to avail the web-based services and
these is the best way for the culprits to commit the crime. The main motive
behind committing the crime is money profit which has been intending through
out including political motives, extortion etc.

17
Varsha, An Analysis on Cyber-Crime in India,http://www.legalserviceindia.com/legal/article-797-an-analysis-
on-cyber-crime-in-india.html,visited, 16th April,2020
 cases
Inciting hate crimes Against Country
15

Purcase/Sale of Illegal drugs 75

Political Motives 90

Prank 120

Motives of Blackmailing 170

Causing Disrupt 280

Personal Revenge 285

Illegal gain 495

Greed 1736
0 200 400 600 800 1000 1200 1400 1600 1800 2000

cases

Figure 3 Cyber-crime Motive

The cyber-crime cases are increasing and which is being reflected in the
newspaper on the daily basis. Phishing is the most serious crime that is taking
place all over the nation as is affecting most of the people. This crime involves
earning of huge amount of money by the fraudsters by misleading the victim by
acting as a bank manager or bank officials, and they ask for credentials which
are considered to be sensitive such as bank account number, OTP, or any
personal information which one is not supposed to share with any person. These
is possible only when the person provides his personal information to the
offender. In the year 2017, a report released by NCRB shows the statistics of
increased case in cyber-crime- “The data comes in the backdrop of India
aspiring to become a trillion-dollar digital economy. Interestingly, cybercrimes
accounted for less than a percentage (0.43%) or 21,796 cases of a total of
50,07,044 cognizable crimes in 2017”.
5.4 Phishing- A Serious Cyber-Crime
5.4.1 What is Phishing?
“Phishing, also known as brand spoofing is a process employing the immense
capabilities of the internet to socially engineer people by imitating legitimate
forms and methods into imparting their confidential information for purposes of
identity theft. Phishing is a particularly invidious attack on the internet
community because it almost always involves two separate acts of fraud. The
phisher first steals the identity of the business it is impersonating and then
acquires the personal information of the unwitting customers who fall for the
impersonation. This has led commentators to refer to phishing as a twofold
scam and a cybercrime double play”18.
Therefore, phishing is a type of cyber-crime or a social-engineering technique
that is being used to deceive the users. In this act the criminal act as an bank
manager or bank officials, who gives a call to the victim asking for the personal
credentials such as bank account number or credit card or debit card details and
then asks for a one time password that is generated by the offender which helps
them to obtain all kind of personal information about the victim and then the
offenders withdraw the money from the account of the victim. Thus, such case
is a considered to be a serious offence committed with the help of digitalization
or internet and computer. The phishing activity is considered to be an act which
is increasing by 45% because this act is committed with absence of mindfulness
of the offender.
5.4.2 Features of Phishing
The Phishing crime have some features which make it easy for the offenders to
commit the crime easily. These are the following features of phishing:
1. Too good to be true: The offer that is provided by the offenders is
considered to be very tempting so that it can easily attract the attention of
peoples.
2. Sense of Urgency: The matter is designed in such a manner it seems that
there is a serious urgency in the matter, and this offer should be availed
within a time period which may be specified as within few minutes or
few hour. These offers are not provided by any reliable organization and
therefore, this offers should not be availed by any person.
3. Attachments: Such emails contain attachments which may contain some
spam and those attachments should not be opened by the users in order to
prevent such crimes to take place.
4. Unusual Sender: If any email which-h is considered to be received from
any unusual email address and if it seems to be suspicious, then one
should not open such email.
5.4.3 Comparative Study of Phishing Activity in Different Countries

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http://www.supremecourtcases.com/index2.php?option=com_content&itemid=5&do_pdf=1&id=19497 ,
visited on 16th April, 2020. At 7.32 p.m.
Phishing is an act where the internet fraudsters collect the personal information
from internet users. This information is collected by means of some attractive
mail from an institution with which one might have any business or might not
have any business. In many cases the emails or the offers are designed in such a
manner that the mail has been sent from a legitimate organization, with the
complete information about the company and these emails provoke the user to
accept such offers.
Phishing is nothing but a fraud in the internet or technological system to trick
individuals to give away their money. The fraudster tricks with the customer in
such a manner that they become bound to share their personal information such
as passwords, account details or any such details which can be availed to
withdraw money by the fraudster. The mail those are sent contains some link
which the customer is asked to click in order to proceed further, the customer
consider the email to be sent by a legal enterprise and thus, they proceed as per
the details and by such activities of the customer it becomes easy for the
fraudster to continue with their work and withdraw the money by misusing the
details of the customer19.
 United States of America
USA have the HIPAA which regulates various types of health and insurance
related records, maintenance and privacy related matters. The Sarbanes-Oxley
Act (SOX) is signed in to law in 2020 which made it compulsory number of
changes to enhance corporate responsibility to increase financial disclosures and
corporate and accounting fraud. Moreover, there are a various law in the US
both at the federal level and at different states level like the Cable
Communications Policy Act, Children’s Internet Protection Act and Children’s
Online privacy Protection Act etc.
 United Kingdom
In the UK, the Data Protection Act and the Privacy and Electronic
Communications Regulations etc. are all regulatory legislations which are
existing in the area of technological security and cyber-crime prevention,
moreover cyber-crime law was passed in the year August 2011.
5.5 Scenario in India
India is a country where the ATM base is far less as compared with other
developed countries, so the ATM related frauds are less in number. But with the
increase in the number of ATM base in the country, the ATM fraud could also
increase in the country. Therefore, it is the duty of the bank to create awareness
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among their customer so that they do not face such frauds or become victim of
such frauds. The IBA (Indian Banks Association) can take up the initiative to
spread such awareness.
The banks must get implemented with the anti-phishing policy and programmes
as those are implemented by HSBC in Hongkong. The banks should install the
anti-phishing security software which are being marketed by Symantec and
McAfee (formerly known as Intel Security and Network Associations prior to
that).
The banks are not the sole entity which faces the ATM fraud alone. This is a big
threat which is to be dealt in a co-operative way on part of the bank, customers
and the law enforcement machinery. The effect of ATM fraud is not only the
loss of money of the customer but it also erodes the confidence of the
customer’s from using the ATM. This leads to lessen down the use of ATM for
monetary transaction. Therefore, it is the duty of the banking institution to
provide better security to the customers so that they can make use of the ATM
for monetary transactions without losing the confidence. Thus, the banks should
take up necessary precautions and insurance method in order to give protection
to their customers in case of any default, specially, in areas which are more
prone to such fraud. The most dangerous fraud is Phishing which is a virus to
the technological development in the near future and no such security is still
invented to prevent this fraud.

5.6 Safeguarding the Internet Banking Sector

As the cyber-crime is increasing day by day, so the banking institution in order
to provide protection should organize a special security team with specialized
digital leaders. As per PWC’s year’s global economic crime survey of 2016:
“too many organisations are leaving first response to their IT teams without
adequate intervention or support from senior management and other key
players”20.
The specialized security team should be clubbed up with the competent
professionals should be employed to take an energetic stand to curb the cyber-
crime in the banking sector. The institution which are included in the BFSI
sector are required to go through rigorous and attentive cyber-crime risk
assessments to precisely assess, identify and improve their present security
condition by observing the institution’s policies from the attacker’s view point
20
http://data.conferenceworld.in/IFUNA18DEC16/P13-20. Visited on 18th April,2020 at 2.26 p.m.
and provide security as required. Beside involvement of special trained team it
is also necessary to plan out things, because it is a long-term planning and thus,
the cyber awareness need to be invoked at a fundamental level in educational
institutions with specialized security courses at graduate level to provide instant
training on the latest attack methodologies and mitigation techniques using
concepts like virtual cyber labs.
On National Level, there is an urgency of building capability of inspecting
critical infrastructure in critical industry sectors before the malicious act of
cyber-crime or the intruders deploys the effort and also the cooperation from the
Indian government is bound to strengthen the condition.

CHAPTER 6
JUDICIAL INITIATIVE TOWARDS ONLINE AND
TRADITIONAL BANKING IN INDIA

The business of E-banking is a business which is related to the using of internet

channels. The banking activity is guided by the RBI under the RBI Act and the
licensing law in respect to electronic document is guided under the Information
Technology Act, 2000. As amended by IT Act, 2008. The Traditional banking
and the e-banking both are guided under the various legal provisions. But the
problem sustains and thus, the rules and regulation need to be more rigid in
order to curb the problems of E-banking.
The traditional form of banking is guided under the legal framework of a set of
enactments i.e. The Banking Regulation Act, 1949, The Reserve Bank of India
Act, 1934 and Foreign Exchange Management Act, 1999 (FEMA). The e-
commerce regulatory matters are directed by The Information Technology Act,
2000.
The e-banking facility was embarked by the ICICI bank and many other banks
in the year 1996. But the phase of 1996-1998 was a period of acquiring of the
internet facility, while it increased in the year 1999, considering the fact of
lower ISP online charges, and increase in the use of computer and a
technological friendly atmosphere. Moreover, the PSUs fell behind in adopting
the internet banking service, it was The State Bank of India which took the
initiative and started the e-banking service among the PSUs.
 Banking Regulation Act, 1949
The Act came into force on March 16, 1949 and was named as Banking
Companies Act, 1949. It was renamed after it was amended as Banking
(Acquisition and Transfer of Undertaking) Act, 1969 and the original Act was
extended to the cooperative banks from 1966 and is called as B.R. Act, 1949.
The main objective of the Act is to provide safeguard to the customer’s deposit,
interests to the deposit in order to develop the banking sectors on a protection
lines and to attain the monetary and credit system to the larger interest.
The amendment in the original Act was brought in regards to the acquisition of
shares. The RBI would give its consent only if the RBI is convinced that the
shares are acquired in interest of the public or interest of the banking and
financial system in India. The applicant is the person who is considered to be
suitable to hold shares or has the right to hold shares.
The power to issue, accept or reject application for license to carry on banking
business lies with RBI. The “Depositor Educational and Awareness Fund” shall
be established by RBI. The salient features of the Banking laws (Amendment)
Act, 2012 are as follows:
1. Regulatory power to supplant board of banks:
The RBI has the power to remove the director or any other officer of a bank if
any of them is found to not function in favour of the interest of the shareholders.
RBI has the power to supplant the board of directors of a bank up to 12 months
if it is found that they are not functioning accordingly. If the board does not
function, then the RBI has the power to appoint an administrator during the
period.
 2. Inspect associate enterprises:
The RBI is empowered by the Act to investigate and ask for any information of
business of any “associate enterprise” of a bank. This shall provide legal
framework to set up Bank Holding Companies and cover the way for issue of
new bank licenses. The Associate enterprise is an enterprise which holds a
subsidiary venture with the banking institution and the same controls the board
of directors of the bank.
The RBI may not have the authority to collect and information and investigate
from ‘associate company’ incorporated outside India.
3. Increase in Voting Right:
No shareholder (except the Central Government) shall exercise voting right in
excess of one percent of the total voting rights in the Public Sector Banks
(PSB).
Moreover, the preference shareholder restrains on the voting rights up to one
percent of total voting rights of all the shareholders. The voting rights of the
shareholder are raised from one percent to ten percent. No shareholders can
hold a voting right in excess of ten percent in private sector banks.
 Provisions of Information Technology Act, 2000
RBI constituted the S.R.Mittal Working group on October 17 th, 2000 to
recommend the regulation for Internet Banking Culminated in “Internet
Banking Guidelines 2001” through an circular generated by RBI dated June 14,
2011, after the Information Technology Act, 2000 was enacted. This dictated
that those institution wills to offer e-banking facility must hold licensed for the
same. The guidelines primarily hold:
1. Technology and security standards
2. Legal issues
3. Regulatory and supervisory issues.
RBI circulated another notice in 2005 with reference to the abovementioned
guidelines. No prior consent of RBI will be considered for offering the internet
banking service, since the matte is reviewed and all the banks willing to avail
the service is to be governed under the aforesaid proposition. The other
proposition in the aforesaid circular are as follows:
a) The internet banking policy is approved by the bank’s board.
b) The operational risk is taken into account by the policy.
 c) The policy states down clearly the procedure to be known as KYC (Know
Your Customer)
d) The afore mentioned circular contains the parameters which meets the
policy.
Section 3(2) of the Information Technology Act, 2000 states a “particular
technology (viz, the asymmetric crypto system and hash function) as a means of
authenticating electronic record”. This has brought up with a dilemma whether
the law would recognize the existing process used by the banks as a reasonable
method of authentication. Section 4 of the ITA, 2000 further states where any
law provides information or any such other matter that shall be provided in
writing or printed form, then “notwithstanding anything contained in such law,
such requirement shall be deemed to have been satisfied if such information or
matter is:
(a) rendered or made available in an electronic form; and
(b) accessible so as to be usable for a subsequent reference”
Section 72 of the ITA, 2000 provides for the punishment or penalty that one
should get if any there is any breach of privacy and confidentiality. Section 79
excludes the accountability of the network provider for data travelling through
their network subject to some conditions.
Afterwards, there were certain material amendments21 that were brought in the
Information Technology Act on 2008. Some of the amendments are as follows:
1. Identity Theft: Under Section 63 C, the Identity Theft is stated as the
fraud act that is caused by means of electronic signature, password or any
other unique identification feature of a person is punishable.
2. Spamming and Phishing: Specifically, there is no section that defines
both the term, but Section 66A provides that the act of spamming and
phishing is offensive, as it is committed with criminal intention through
communication service and shall be punished for a term which shall not
extend up to 3 years or with fine.
In January 2011, G Gopalkrishna Working Group (GGWG) on internet banking
Security released a report notifying on it the changes on April 29, 2011
consisting of the present regulatory guidelines as an extension of IBG 2001.
Beside this, the Damodaran Committee (August 2011) on Customer Service and

21
Aastha Bhardwaj, IT Act:2000, Impacts and Amendment, https://www.ijeecse.com/T118.pdf, visited on
20the April, 2020, at 10.58 p.m.
Banking Ombudsman conference in September ,2011 has given more functional
and operational guidelines for the internet banking regulation.
Table 1 Showing Offences and Punishment under IT Act, 2008 with regard to
crime against Electronic Banking
SECTION PARTICULARS OF THE SECTION PUNISHMENT
Section 43 “If a person without the permission He shall be held liable
of the owner or anyone in charge of a to pay damages by way
computer system or network, secures of compensation to the
access to such computer, downloads, victim.
copies or extracts data stored therein,
introduces viruses or contaminants
into the system, damages and/or
disrupts the computer system, denies
access to a person authorised to
access the
computer, tampers with the computer
system, destroys, deletes or alters
information in a computer system”.
Section Receiving resources from stolen Imprisonment up to 3
66B computer years, fine up to Rs 1
lakhs.
Section Identity Theft Imprisonment up to 3
66C years, fine up to Rs 1
lakh.
Section Cheating by Impersonation Imprisonment up to 3
66D years, fine up to Rs 1
lakhs.
Section Privacy Violation Imprisonment up to 3
66E years, fine up to Rs 2
lakhs.
Section 85 Criminal Liability of top bank Minimum imprisonment
management for various computer up to 3 years, maximum
related offences imprisonment for life.

 Provisions under Negotiable Instruments Act, 1881

The Negotiable Instruments (Amendment) Act, 2002 introduced the idea of
Truncate Cheques and Cheques in E-form. The Act sought to amend certain
sections in order to incorporate internet banking. For example, a new section
was substituted for Section 6 Cheque- “A cheque is a bill of exchange drawn on
a specified banker and not expressed to be payable otherwise than on demand
and it includes the electronic image of a truncated cheque and a cheque in the
electronic form. Explanation I- For the purposes of this section, the expressions-
(a) "a cheque in the electronic form means a cheque which contains the exact
mirror image of a paper cheque, and is generated, written and signed in a secure
system ensuring the minimum safety standards with the use of digital signature
(with or without biometrics signature) and asymmetric crypto system”;
(b) "a truncated cheque" means “a cheque which is truncated during the course
of a clearing cycle, either by the clearing house or by the bank whether paying
or receiving payment, immediately on generation of an electronic image for
transmission, substituting the further physical movement of the cheque in
writing. Explanation II.- For the purposes of this section, the expression"
clearing house" means the clearing house managed by the Reserve Bank of
India or a clearing house recognised as such by the Reserve Bank of India.”
 Indian Penal Code, 1860
Section 172 of IPC, 1860 requires that the document that is needed to be
submitted before the Court of Justice should be in form electronic record. The
major change in IPC, 1860 was to Section 464 of the Act which states that- “A
person is said to make a false document or false electronic record, if, first, who
dishonestly or fraudulently makes, signs, seals or executes a document or part of
a document, or makes or transmits any electronic record or part any electronic
record, or affixes any digital signature on any electronic record, or makes any
mark denoting the execution of a document or the authenticity of the digital
signature,118 with the intention of causing it to be believed that such document
or part of a document was made, signed, sealed or executed by or by the
authority of a person by whom or by whose authority he knows that it was not
made, signed, sealed or executed, or at a time at which he knows that it was not
made, signed, sealed or executed; or affixed with, or
Secondly- Who, without lawful authority, dishonestly or fraudulently, by
cancellation or otherwise, alters a document or an electronic record in any
material part thereof, after it has been made or executed or affixed with digital
signature either by himself or by any other person, whether such person be
living or dead at the time of such alteration;
Thirdly- Who dishonestly or fraudulently causes any person to sign, seal,
execute or alter a document or an electronic record or to affix his digital
signature on any electronic record knowing that such person by reason of
unsoundness of mind or intoxication cannot, or that by reason of deception
practiced upon him, he does not know the contents of the document or
electronic record or the nature of the alteration. Then section 469, for the words
"intending that the document forged" the words "intending that the document or
electronic record forged" was substituted”.
Section 474, for the portion beginning with the words "Whoever has in his
possession any document" and ending with the words "if the document is one of
the description mentioned in section 466 of this Code", the following words
were substituted, "Whoever has in this possession any document or electronic
record, knowing the same to be forged and intending that the same shall
fraudulently or dishonestly be used as a genuine, shall, if the document or
electronic record is one of the description mentioned in section 466 of this
Code”.
The fraud has been classified by RBI based on the provisions of the IPC. A)
Misappropriation (section 403 IPC) and criminal breach of trust (Section 405
IPC); B) “Fraudulent encashment
through forged instruments, manipulation of books of account or through
fictitious accounts and conversion of property (Sections 477A, 378 and 120 A);
C) Unauthorized credit facilities extended for reward or for illegal gratification;
D) Negligence and cash shortages; E) Cheating (Section 415 IPC) and forgery
(Section 463 IPC); F) Forgery of electronic records (Section 465 IPC); G)
Bogus websites, cyber frauds, phishing (Section 420 of IPC) H) Irregularities in
foreign exchange transactions.”

 Miscellaneous Provisions:
Section 11 of the Prevention of Money Laundering Bill, 1999 imposes a
liability on every Banking Company, Financial Institution to maintain a record
of different kind of transaction that is taking place within a month, the value of
which is to be mentioned by the Central Government. These details are to be
recorded or maintained by the banking institution for a period of 5 years even if
the transaction between the bank and the client has ceased. This would apply to
banks those are providing the internet services, as this would guard against any
misuse of the e-banking services which would lead to money laundering.
Moreover, the banking companies are required to preserve the particular
ledgers, registers and such documents for a period of 5 to 8 years.
The Banker’s Books Evidence Act, 1981 in Section 4 states that all the entry of
the certified copy shall be mentioned in the ledger or any such book. The
Banking Companies (Period of Preservation of Records) Rules, 1985 as
communicated by the Central Government requires that all the banking
companies to maintain the ledgers, documents of such nature for a period of 5 to
8 years.
6.1 GUIDELINES PROVIDED BY THE RESERVE BANK OF INDIA
A Working Group on Internet Banking has been set up by the Reserve Bank of
India in order to scrutinize different aspects of E-banking. The main focus of the
group are based on three major areas:
a) Technology and security issues.
b) Legal issues
c) Regulatory and Supervisory Issues.
The recommendation of the Working Group has been accepted by RBI and is to
be applied in a phased manner22. The recommendation by the group are as
follows23:
1. The banks should delegate a network and database administrator with a
properly defined roles as mentioned in the Group’s report. A security
policy should be approved by the Board of Director.
2. The duty of the Security Officer should be segregated from the group that
is particularly dealing with information system and information
technology division which implements the computer system.
3. The banks should introduce logical access control techniques.
4. The banks should make use of the proxy server type firewall so the direct
connection between the internet and the banks’ system does not exist.
This provides high level of control and auditing tools when required.

22
https://www.rbi.org.in/SCRIPTs/PublicationReportDetails.aspx?UrlPage=&ID=243, visited on 22nd April, 2020,
at 12.42 p.m.
23
Janhvi Pandya, Contemporary Legal Issues in Indian E-banking System,272-1-1337-1-10-
20190716%20(1).pdf, visited on 22nd April, 2020 at 8.49p.m.
 5. An assessing firewall is recommended for sensitive systems which shall
assess all packets of information, and the present and past transactions are
compared. These shall generally include a real time security alert.
6. The recommendation of all futile services such as FTP (File Transfer
Protocol) on the application server should be disabled.
7. All kind of access to the computer including messages received should be
logged. While framing the policy in future so that all kinds of violations
towards security should be followed up by action in future. There should
be certain tools to track any kind of breach and such tools should be used
on a regular basis so that the breach can be avoided.
8. The periodic penetration test of the systems should be taken by the
information security officers and the information system auditor.
9. The banking institution should have the facility to back up the data and
those data should be tested periodically to ensure recovery without loss of
transaction within the time framed as given in the bank’s security policy.
10.The banking institutions should have the facility to store all the messages
for legal uses if required. The institutions should keep the records of all
the messages sent and received in both encrypted and decrypted form.
6.2 CASE STUDY
6.2.1 India’s First ATM Card Fraud
The Chennai Police have caught hold a universal troop or gang which
committed digital wrongdoing, with the capture of Deepak Prem Manwani (22),
who was arrested in the act while breaking into an ATM in Chennai. The
Chennai Police got hold of an element and came to learn that the man whom
they arrested was on the needed rundown of the considerable FBI of the US.
The police came to know that at the time of detainment, the person has with him
Rs 7.5 lakh desisted from two ATMs in T Nagar and Abiramipuram in the city.
Before that, he has left with Rs 50,000 from an ATM in Mumbai24.
While the police were in investigation with the Manwani’s case, they came to
know that a digital wrongdoing including scores of people throughout the
world.
Manwani was a MBA dropout and was employed in as a official in Chennai
based firm. His wrongdoing started in a web café, while browsing through the

24
Harshita, Cyber Crime in Banking Sector, oaji.net/articles/2019/1330-1548742941., visited on 22 nd April,2020
net he was offered by a sire to help him in breaking into the ATMs. The
contacts, based in Europe was ready to pay him charge card number of various
contacts of couple of American banks for $5 per codes. That sites offered the
attractive codes of those cards, however charged $200 per code. The
administrator of the site has planned an interesting plan to get the individual ID
number (Stick) of the card clients. The organization has huge number of
supporters. The fake location advertised the visitors to return $11.75 per head
which, the location sponsors expressed, has been accumulated in overabundance
unintentionally from them. Trusting that it was an bona fide offer the telecom
organization being referred to, many lakh supporters marked on to the location
to induce back that negligible consumption, however in the prepare isolated
with their PINs.
In the meantime, Manwani also figured out the process to create 30 plastic cards
that contained important information to empower him to break into ATMs.
He was ambitious to the point that he had the capacity to offer some pair of such
cards to his contacts in Mumbai. The police are watchful for those individuals
as well.
The charged Visa client and banks in the US protested on this, based on which
the FEI began an investigation in respect to the undertaking and furthermore
alarmed the CBI in New Delhi, that such a pack has been built up in India and
has been working with such criminal intention.
Manwani has since been created protection and has been granted bail 25 after
cross examination by the CBI. In any case, the city police believe usually the
begin of the wrap up of a critical advanced wrongdoing.
6.2.2 Phishing Case in India
Umashankar Sivasubramanian Vs ICICI Bank
The petitioner is a non- resident Indian and is employed as a Process Engineer,
in Abu Dhabi and is currently residing in Abu Dhabi. The petitioner maintains a
savings bank account (NRE) with ICICI Bank26. The bank has activated an
internet banking facility for the account. Every month the ICICI bank NRI
Services Team would send a statement of the account to the petitioner of this
case from an email id, the URL of which is [email protected]. At
the end of August 2007, the balance in the petitioner’s account was Rs.
6,20,846/- and on 4th September the ICICI Bank credited an interest component
of Rs 25,200/- which then increased the petitioner’s credit balance to Rs.
25
https://indiaforensic.com/atmfraud., visited on 22nd April,2020
26
https://www.naavi.org/cl_editorial_10/umashankar_judgement. Visited on 22nd April, 2020
6,46,046/-. The entire incident begins when the customer had received a
security update from [email protected] for updation and assuming it
to be a routine mail from the ICICI Bank that had sent similar mails earlier, the
customer had complied with the request consequent to which he was shocked to
find that his account had been debited to the extent already mentioned.
According to the petitioner, he had received call from the ICICI Bank, Mumbai
when a representative form the bank had requested for confirmation whether
money transfer from the petitioner’s account had been made to Uday
Enterprises, Mumbai through internet banking on 6th and 7th September, 2007.
The petitioner denied any such transfer and therefore the petitioner 27 was
instructed by the branch to file a complaint within 24 hours to Customer Care,
ICICI Bank, Mumbai which was done by the petitioner. Following this the
petitioner faxed and emailed a complaint to the ICICI Bank Tuticorin and the
NRI services centre, Mumbai. Following this an email was received from the
Customer Service Quality department of the International Banking Division of
the ICICI Bank that the matter was being investigated and that within a month’s
time they would revert with a resolution. The petitioner then receives a mail on
October 20, 2007 from one Mr. Shankar representing the respondent bank on
the immediate results of the investigation. This mail from the bank was sent by
a personal email id on a Gmail account and not on the official ICICI email id.
The details of the investigation as reported in the mail indicating it to be a case
of a) Actual Infinity Phishing Fraud b) that the petitioner’s account has been
debited to the tune of Rs. 6,46,000/- and the funds was transferred to ICICI A/c
which belonged to Uday Enterprises c) that Uday Enterprises was a current
account and a partnership account with ICICI Mumbai and the account was in
debit balance since April 2007 d) that an amount of Rs. 4,46,000/- was
withdrawn by Self Cheque across the counter from the Uday Enterprises
account f) the further report indicates that the address of Uday enterprises was
invited and the door was locked and the residents there indicated that Uday
Enterprises has shifted two years earlier. The further verification reveals that the
firm is proprietorship firm and is owned by Md. Zulfiqar Kahn, apart from the
documents submitted for proof to the bank and the firm had been in existence at
the same address until two years ago. The investigation report comments that
the immediate case to be a phishing case, the blame of negligence lies with the
customer and that the customer would need to fie the FIR. The petitioner in
respect filed a complaint before the Superintendent of Police in Tuticorin
detailing all about the event and request the police to initiate action against the
bank and retrieve the money. The petition was transferred to Cyber Crime
Police Station, Chennai. On 6th February, 2008 the petitioner lodged a fresh
27
Apar Gupta, Indian law Blog, https://iltb.net/burn-after-reading-cd405c48ab86, visited on 22nd April. 2020
complaint with Cyber Crime Cell, CCB at Chennai. Finally, the petitioner has
concluded that ICICI bank is primarily responsible for the loss and that Uday
Enterprise may be a benami of the bank or any of it staff. He has alleged that
due diligence has not been made by the bank in the entire case and in the case of
the firm particularly when the account had been in overdraft and suddenly have
to been in high transaction. The failure of the bank to file a criminal complaint
on the matter in Mumbai even after the fraud has come to light, failure to retain
a record of the CCTV clippings, failure to adhere to the KYC norms, failure to
part with IP address immediately after the incident that had led to the fraudulent
transfer and lack of maintenance of record of the same in violation of RBI
instructions, failure to use digital signatures in official communication, lack of
adequate controls by the bank to ensure information security, that Sections 11,
66, 43, 85 of the IT Act have to be considered in dealing with the petition made
by the petitioner under Section 43 and 46 of the IT Act of 2000.
The Adjudicating Officer finally passed an order that the respondent bank I held
liable to pay the petitioner an amount of Rs 12 lakhs.

CHAPTER 7
COMPARATIVE STUDY OF E-BANKING AND
TRADITIONAL BANKING WITH SPECIAL REFERENCE TO
RBI IN SAFE BANKING PRACTISES
Internet is a very important part of e-banking. The advantage of internet is that
is useful in every field of as usage of electronic medium, including banking has
also adopted the measure of internet service. Earlier, there was only traditional
banking available through branch banking system in India. Only with the
economy reforms in the year 1991, the banking institution took up the idea of
new banking methods28.
It was in the year 1994, RBI constituted the Saraf Committee, which
recommended the use of Electronic Fund Transfer System (EFT), electronic
clearing services was introduced and extension of Magnetic Ink Character
(MICR). The settler of E-banking in India was ICICI bank, it was the first bank
to introduce the facility of internet banking service in 1996. Further, this was
followed by certain private banks such as Citibank, IndusInd Bank, HDFC
Bank. In order to smoothen the internet banking facility, various initiative was
taken up by both the government and the RBI. The Information Technology Act
was legalised and enacted in order to protect the transaction would take place
through internet banking system.
7.1 Distinction Between E-banking and Traditional Banking
Parameters Traditional Banking E-banking
Presence There exists a bank There is no physical presence as
physically where customers the internet services are
have to visit provided online
Time It consumes a lot of time, as There is no consumption of
the customer have to make a time, as the internet banking
visit in the bank physically service can be availed by any
and then stand in que to avail person any where and at any
the banking services time with the access of computer
and internet service.
Accessibilit The customers have to avail The online banking is accessible
y the bank only during the 24/7.
working hours in order to
access the banking service
Security There is no e-security risk Security risk is involved as it is
involved in traditional a tempting service provided to
banking the customer
Finance Customer travelling has no Customers travelling abroad
Control time to control of their have the control over their
finances finances.

28
Aswathy Rajan, A Critical Study on Concept of E Banking and Various Challenges of IT in India with Special
Reference to RBI‟S Role in Safe Banking Practices, acadpubl.eu/hub/2018-119-17/2/135. Visited on 23 rd April,
2020
 Expensive The customers have to spend They do not have to visit the
their money in order to visit branches, certain charges such
the branches as teller transactions during
payment of any bill are not
deducted. it also saves money on
postal charges.
Cost Many operational and fixed Elimination of such costs as the
cost are incurred physical presence of the bank is
not there.
Customer The banking staff or the The customers get to get in
Services clerical staff can attend only touch with manager, as they do
few customers. not have to attend the branch
and stand in que to meet them

7.2 Challenges faced by E-banking

1. The ability to adopt global technology to local requirements:
The substructure and human capacity building in a developing country should
be ample in order to embrace the global technology for their local requirements.
For example, the internet resource exposes that till date the full migration has
not taken place due to scarcity of proper infrastructure, as the migration plan of
Society for Worldwide Interbank Financial Telecommunications (SWIFT)29.
The e-banking service or the online payment service is one of such instance
which is still not accepted in various developing countries, as many people does
not have faith or have trust issues in using the e-banking system or they do not
have access to proper infrastructure in order to avail the internet banking
services that are available.
2. The ability to support e-finance with public support:
Earlier, in developing countries all the e-finance initiative was taken up by the
collaboration and understanding between the private and public sectors. If there
is no necessity for the public sector to implement the plans, then it becomes the
act of collaboration between the public and private sector with joint project with
the multilateral agencies like World Bank, to provide developed facilities to
support public for e-finance relation initiatives.
3. Features necessary to maintain e-banking:

Janie Low, Internet Banking-Benefits And Challenges in an Emerging Economy

29

www.academia.edu/13233924/INTERNET_BANKINGBENEFITS_AND_CHALLENGES_IN_AN_EMERGI
NG_ECONOMY, visited on April, 28th,2020 at 11.13 a.m.
During the branch banking system or the period when internet was not a source
avail the banking service, the privacy, confidentiality, and authentication was
well maintained by the banking institution. As these were considered to be the
most necessary qualities to be maintained. But after the internet service are
made available and as the customers access the internet banking service, there
rises a problem of maintaining the privacy, confidentiality and the basic
necessity, because, the internet becomes an open field where the bank-customer
problem and information are shared. [Grethen,2001]
4. New Challenges:
The e-banking service has brought new challenges for the bank regulatory and
supervising authority. “They originate not just from increased potential for cross
border transactions but also for domestic transactions based on technology
applications which raise many security related issues”- Hawkins,2002. The risk
management principles for e-banking has been defined by the Basel Committee
on Banking’s Supervision’s Electronic Banking Group (EBG) in 2001. It is a
necessity to know whether the attempt taken by the RBI are enough to cure the
problem in respect to e-banking.
5. Implications of International E-banking:
It is a standard argument that low transaction costs potentially make it much
easier to conduct cross-border banking electronically. for several banks, cross-
border operations offer a chance to reap economies of scale. But cross-border
finance also needs a better degree of cross-border supervision. Such cooperation
might have to increase to similar supervisory rules and disclosure requirements
(for efficiency and to avoid regulatory arbitrage) and a few harmonising of
legal, accounting and taxation arrangements.
6. Lack of Rules and Regulations in SMEs
No commercial bank has solely expertized in the small business sector in India.
It has been a hereditary problem for the SMEs in India of not providing the
quality data, to express formal systems and practises and the shortage of asset
cover. Legislative rules and regulations abidance have also been insufficient.
Earlier unbalanced and non transparent data continued to characterized the
balance sheet. Thus, there are various types of internet-based problems persists
in the model of the SMEs within India.
7. New challenges of e-banking
The other side of the internet provided service is that the online banking is not
only vulnerable to, but may also increase the risk factor involved in it- specially,
the legal problem, problem in operating services etc. those services that are
included in branch banking system. Moreover, many new challenges have come
up due to the use of e-banking service. In order to curb such challenges or to
face such challenges, many national regulators have already taken up the
measure in order to reform their regulations to attain their main objectives
which shall ensure the safety and soundness of the national banking system,
which promotes marketing regimen, and the rights of the customers are also
protected in order to gain the trust of the public of the banks.
8. New Service:
In order to provide new process, new transactions, and new service providers,
legal permission will be required. For example, the ‘legal signature’ shall be
made legitimate by giving it a legal status as that of hand signature, definition
such as ‘bank and the concept of national border’ should also be given legal
recognition by giving a thought about it.
7.3 Prospects of Internet Banking
Considering the various challenges of online banking as mentioned above, also
there are various prospects of e-banking that can’t be ignored 30 at the same time
which are considered for the betterment of online banking in Indian context.
Those are as follows:
a) Surge in number of users of internet and knowledge about computer:
In order t implement the internet service the internet user should have proper
knowledge of the internet service and also that they should be well related to the
online banking services. Thus, it can be considered that the increase of number
of internet users in India, and this shall be a great success and it should be made
use of at an extent by influencing more internet users to get prone to e-banking.
2010 2011 2012 2015 2016
Internet 90,421,849 122,970,441 155,575,944 213,339,32 243,198,922
Users 4
New 29,486,779 32,548,593 32,605,503 57,763,380 29,859,598
Users
Average 36,452,770
Years*
Growth 0 36% 72% 136% 160%

30
Monisha Banerjee, Electronic Banking in India, https://www.ijert.org/research/electronic-banking-in-india-
innovations-challenges-and-opportunities-IJERTCONV5IS11011, visited on 28th April, 2020, at 11 a.m.
Table 2 Data Represented the Number of increased in Internet users depicted by
IAMAI31 (The Internet and Mobile Association of India): Source from Internet
Live Status

Number of internet users in India from 2014 to 2019

459
411.3
365.1
321.8
277.4

226.3

2014 2015 2016 2017 2018 2019

Series 1

Figure 4 Graph representing number of internet users during the period from
2014-19
b) Rural Markets Untouched:
The untainted market of India which deals with banking sector have extended
up to 70% of the total population of India, which is regarded as a great chance
for the development of the online banking in India. The banking services are
easily available in the urban areas, but the big villages have a handful amounts
of banks available there. Thus, the online banking services must spread its
geographical reach in all the villages, the reason of doing so is maximum
number of Indian populations survive their living and stays in the village.
c) Initiatives taken up by Government Agencies for financial education:
E-banking and inclusive growth is profoundly influenced by monetary
education. “Usage of e-banking and traditional banking among customers id
determined by their education”- Severson L. J and Kaestner R, 2008. The
education for the purpose of educating people with the knowledge of banking
service provided by the internet and also motivating them to take up the internet
banking service, is the initiative that has been taken up various banking
organization such as RBI, SEBI, IRDA and other Government organisation. The

31
https://www.iamai.in/AboutUs, visited on 28th April, 2020 at 11.20p.m.
education is also imparted in the school so that the students are also made aware
of the use of internet banking.
d) Competitive Gains to Bank:
The other prospects in the terms of the competitive gains which is appreciated
by the banks by acquiring internet banking. The internet banking service have
helped the banking institution in reducing the costs to the banks, and also have
improved the effectiveness of customer relations and extended the geographical
reach of the bank- (D’Silva B, D’Silva S. and Bhuptai R S, 2010) etc. Thus, the
internet banking has provided a great effectiveness to the banking institution in
dealing with the banking service which is due to the competitive gain.
e) Opportunities for Customers:
In terms of usage of internet banking service by the customers have increased in
India. The progress that took place in the banking sector for the usage of
internet banking service have greatly affected the “Widespread Banking
Consumers”. The customers can avail the banking service from anywhere and at
any time such as payment of bill using the e-banking service. The use of
credit/debit card have increased at greater rate. Thus, the e-banking have
become a 24/7*365 days available throughout for their customers.
7.4 Role of Government in Safe Banking Practises
In order to protect the e-banking practises the government has taken up certain
safety measures in India, certain laws have been enacted in order to give
protection. Those are as follows:
1. Information Technology Act, 2000
2. Legal Recognition to electronic transactions
3. RBI issued various guidelines to safe bank practises especially on
internet.

7.5 Role of RBI in E-banking

The E-banking service has seen an unbelievable growth in India’s banking
sector, especially after the demonetization in November, 2016. The spark in the
e-banking transactions has been has gone hand in hand with the increase in the
number of unauthorized transactions.
The Banks had to compensate in case of any fault in the transaction or in case of
fraudulent transaction, this was issued by the past regulations issued by the
Reserve Bank of India.
In order to maintain their customer relation-policy the banks were to
compensate the customer in case of any third-party fault. Therefore, the
customers were compensated by the banks as it was stipulated in the regulation
laid down by the RBI.
The RBI Circular bounds the bank to make stricter policy in order to maintain
the e-banking service safety. Some of the safety measures includes:
 A vigorous and strong detection of fraud and prevention mechanism of
the fraud.
 A system should be there which shall assess the risk from unauthorised
transactions.
 Reduce the risk and ensure protection.
 Customer should be made aware.
New Guidelines for Customers Against any Online Fraud
The concept of ‘Zero liability’ and ‘Limited liability’ has been introduced by
the RBI for the customers who are prone to use internet banking system. This
initiative would protect the customers from the loss, by allowing them to report
within three days if any unauthorised electronic transaction takes place, the
customer’s account shall be credited with the amount within a period of ten
days. The RBI’s circular not protect the online transaction but also the
transactions taking place in stores using electronic method of payments. The
final guidelines made by RBI to make safe online transactions are:
1. There will be ‘zero liability’ in case of the customer faces third party
breach or the negligence is caused by the bank. If the customer complains
about the fraudulent transaction within 3days to the bank, then there shall
be no liability that will arise on part of the customer.
2. In case the negligence was on part of the customer like sharing private
details with an unknown person, then the customer’s entire loss shall be
conveyed by him, until the fraud is reported to the bank.
3. The bank is liable to compensate the amount within ten days from which
the report of the transaction has been made by the customer in the bank.
 4. If the customer reports the fraud within four to seven working days, then
the customer shall be liable to get maximum of Rs 5000 to Rs 25,000 on
the basis of the type of the account.
5. The bank shall be liable to pay the amount as per the bank’s policy if the
customer reports on seventh day after the fraud has taken place.
6. The transactions not only included online transaction but also mobile
banking as well as ATM and point-of-sales transactions.
7. There should be a proper and direct link that should be designed by the
bank and provided in the banking website, so that the customers can fill
up the complaint form without any complications.
8. The banking institution are bound by the RBI’s mandate that the
customers should be registered for SMS and email alert.

CHAPTER 8
CONCLUSION AND SUGGESTION
The e-banking is an innovative service in the banking sector. It is considered to
be innovative because it has changed the potential of the technology,
organization and market in respect to which bank it is operated. The extensive
increase in the benefit of the service which is offered to the customers i.e. the
“end users”, at the same time, it is picking up long-term proficiency in terms of
economies of scale and scope. The banks are to understand the actual worth of
the innovation, which is not a replacement of the structure that is already
existing. However, it constitutes a means of expanding its adaptability and, at
the same time, a way of extending and redoing the range of administrations
given on the market.
The final results from the empirical study of the paper, it is considered that the
internet banking has created a negative effect on the traditional or branch
banking system. As it is found from the study that many customers who are
using both traditional banking are not much satisfied with the service of the
branch banking system. This system is more time consuming as compared to the
online banking system. The internet banking service has been successfully
adopted by the public and private sector banks. Most of the population of India
residing in the urban area have adopted the e-banking facility as compared to
the population residing in the rural area due to lack of banking service
education. The e-banking system has brought up various innovative
technologies that are considered to be helpful for the customers to use, as this is
time-saving for the customers.
Till date, the concept of internet banking has been operated by the banking
institution with its willingness to become ambitious on the market concerning
the entry of the new competitor and innovative institutions than by the
development of the particular need from the market side. Earlier the banking
institution having saving banks, that were traditionally accepted concerning to
fulfil the requirements of the customers, might recommend that a certain
intrigued from the customers towards these applications is developing. Soon,
the banking institution will become more energetic in taking up the plan of
online banking, along with it the institutional structure shall be refurbished to
control the potential of innovative technologies to increase the competition.
Moreover, the progress of e-banking will influence the relationship between the
technologies and scheme of the market of financial organization and market
requirements, and it is sensible to argue that banks would need to develop an
impulse structure for the customers to incite the distribution of new services.
Thus, the study clearly states that e-banking is considered to be the service
which has been taken up the banking institution to provide an easy method or
process to customers as this is an outstanding support in technology. the ATM,
credit/debit card, NEFT, etc. have absolutely changed the Indian banking sector.
but still, now there are various risks involved with the growth of innovative
technology such as security risk, identity theft, low literacy on internet banking
among the staff. The Indian Government along with the public bank and other
financial institutions are attempting to layout an e-banking sector which will be
safer and secure for the customers to use. The possibilities for the advancement
in the e-banking sector also are available in India. Compared to the overseas
banks, there is an extended way to move by the online service rendered by the
domestic banks. The Indian banking sector can reach a great number of the
population if there is a better way to spread the use of e-banking among the
population, which is only possible with supportive and effective infrastructure.
SUGGESTIONS
Following suggestions are proposed to strengthen the online banking services of
the banks towards its customers:
1. The rural people should be provided with proper knowledge to make
them aware about the advantages of the online banking services that are
made accessible by the banks.
2. The online payment through internet banking should be made more easier
to the customers.
3. The banking institution should build up a special team to educate the
customers who have trust issues in availing the electronic banking
system, so that they can get well versed with the e-banking services
provided by the banking sectors.
4. The customers hold an idea of obtaining wrong information from the
online banking services. Therefore, this conception of the customers
should be removed by the banks in order to encourage them to avail the
internet banking services.
5. The banking institutions should give incentives to the customers who use
the service very frequently in form of reward points.
6. As there is increase in number of cyber frauds related to online banking
service, the banking sectors along with the Government should take
necessary steps to strengthen cyber frauds taking place by taking
necessary legal measures.
7. It is also noticed that there is no specific legal prevention to curb the
cyber-attack. Thus, there should be strict legal provisions guarding the
cyber-attacks.
8. The banks should design new services with more development in the
technology which shall attract the customers attention.
9. The banks should encourage the customer to adapt themselves to the new
technological services that are being adopted by the banks, like the
customer should be asked to get their passbooks printed by themselves
from the passbook kiosk machines, same the customers should be asked
to deposit and withdraw money from the ATM machines.
10.The banking institutions while serving their customers over internet
services should keep a watch on the privacy and confidentiality to the
customer’s information, so that it is not misused by any fraudster.
11.The ATM should be more secured and checked periodically, so that
customers can withdraw money without any hesitation.

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 DATA ANALYSIS
My project work is based on Empirical Research and I have made a
questionnaire based on my study, based on which I have received responses of
23 people. The response is presented in graphical analysis

1. Factors promoting use of New Techniques in banking

FACTORS NO. OF PEOPLE
Reduced Time of Transaction 19
Ease of Use 17
Cost Effective 8
Technology Saving 7
Table 3 Personal Data of the factors promoting e-banking

Factors
Reduced Time of Transaction 82.60%

Ease of Use 73.90%

Cost Effective 34.80%

Technology Saving 30.40%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00%

FACTORS

Figure 5: Factors Promoting Use of New Techniques

The table and figure 5 represent the factors that promotes the use of e-banking
among the customers. As per the research the study states that as per the
research, the study states that 82.60% of customers are prone to use of the e-
banking service because of the time factor as it consumes less time compared to
the branch banking system, 73. 90% of customers are prone to use of the e-
banking service as it is a user-friendly technique, 34.80% of the customer uses
the e-banking service due to cost-effectiveness as the customer can use the e-
banking service from anywhere and at any time whereas the customer has to
visit the branch to avail the banking service the and 30.40% of the customer is
prone to the e-banking for technology saving.
 2. Factors promotes the use of Branch Banking System
FACTORS NO. OF PEOPLE
Network Failures 3
No Fear of Fraud 15
Big Transactions can be Handled Easily 10
Table 4: Personal data representing the factors promoting branch banking

FACTORS

Ease in Handling of Bigger Transaction 43.50%

No Fear of Fraud 65.20%

Network Failures 13.00%

0% 10% 20% 30% 40% 50% 60% 70%

Factors
Fig
ure 6: Factors Promotes the Use of Branch Banking System

Figure 6 and the table clearly depicts the factor which promotes the customer to
use the branch banking or the traditional banking service. The study states that
few customers are there who still choose to stick to the age old banking system
that is the branch banking system because of the security purpose. 65.20% of
the customer prefer to use the branch banking system because they consider that
there is no fear of fraud involved in the branch bankig system, which persist in
the e-banking as the banking service is held over the internet, 43.50% considers
that the tarditional banking is much easy to handle as there is no inclusion of
internet service or technological service is not required, simple pen and paper is
enough to access the branch banking system and 13% of the customer states that
there is no network failures in case of branch banking or traditional banking as
not network access comes in point to avail the banking service. it is just that the
customer have to visit the branch of the bank to avail the banking services and
they don’t have to fear if there persist any problem in the internet or not.
 3. Involvement of Risk Factor
EXPRESSION NO. OF PERSON
YES 18
NO 5
Table 5: Personal data representing the expression of risk factor involved in e-
banking

Risk Invoved

20% Yes
No

80%

Figure 7 : Risk Involved

Figure 7 provides us the details of the study stating that the number of persons
considers the fact that there is involvement of risk factor in using the e-banking
services. The report states 80% of them is agrees with the matter there is
involvement of risk factors in using the online banking service. There is certain
risk according to them such as the risk of personal data being mis-handled as the
information is being shared over the internet, there are even risk of mis-
guidance or problem related to the money deposit. And 20% of the study states
that there is no risk involved in using the internet banking system.
 4. Kind of Risk Involved in Online Banking
RISKS INVOLVED NO. OF PEOPLE
Identity Theft 2
Money Laundering 2
Security Risk 18
Legal Risk 0
Table 6: Personal data representing the risks involved in online banking

Risk

9%
9% Identity Theft
Money Laundering
Security Risk
Legal Risk

83%

Figure 8: Risks Involved in Online Banking

Figure 8 and the table represent the data which depicts different types of risks
that is involved in the e-banking. There are different types of risks involved in
the internet banking service such as Money laundering, Identity theft, Security
risk, Phishing etc. These are the serious risks that bothers customers from using
the internet banking service. According, to the customers review 82% of the risk
are security risk for which the customers feel insecure as they have to share
their personal information over internet to the banking institution which may be
mis-handled by the bank’s staff, 9% of the risk is due to Identity theft as per the
customers review and other 9 % is due to the risks involved due to Money
laundering which is a serious issue in the financial sector and another main
issue is Phishing in the banking sector which has handicapped the banking
sectors at a greater extent.
5. Purpose Influencing Use of Online Banking
 PURPOSE NO. OF PEOPLE
Online Shopping 15
Education Sector 6
Transfer of Money 20
UPI 10
Paytm 7
Gpay 8
BharatPe 2
Table 7: Personal data representing the purpose influencing e-banking

Factors
BharatPe 8.70%

Gpay 39.10%

Paytm 30.40%

UPI 43.50%

Transfer of Money 91.30%

Education Sector 26.10%

Online Shopping 65.20%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%

Factors

Figure 9 : Factors Influencing Use of Online Banking

Figure 9 and the table represents the factors that have encouraged the customers
to avail the internet banking service. In today’s world people are very much
prone to various banking application as they help the customers to avail the
banking services through those applications easily like payment of bill, transfer
of money, buying things online and paying for those online. Thus, as per the
data 91.30% of the customer uses the internet banking service to transfer fund to
other people, 65.20% of the customer are to online shopping, as this is easily
availed service for people in todays world, 26.10% of the customer uses e-
banking to make payment to colleges and schools for the education purpose or
to avail any kind of online classes and maximum people uses a protected
gateway to make such payments through various applications such as Paytm,
Gpay, Bharatpe etc.

6. Usage of E-banking
EXPRESSION NO. OF PEOPLE
Yes 20
No 3
Table 8: Personal data representing the expression of usage of e-banking
applications

Usage

13%
Yes
No

87%

Figure 10 : Usage of E-banking Applications

Figure 10 denotes the percentage of the customer who uses the electronic
applications. It states that 87% of the customer uses the internet banking
services as per the study and 13% of the customer do not uses the internet
banking services as they are used to the branch banking services.
 7. Preference of Banking Service
BANKING SERVICE NO. OF PEOPLE
ATM 13
Mobile Banking 13
Internet Banking 15
Branch Banking 5
Table 9: Personal data representing banking services preferred

Preference
Branch Banking 21.70%

Internet Banking 69.60%

Mobile Banking 52.20%

ATM 56.50%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00%

Preference
Fig
ure 11 Banking Sector Preference
This figure denotes the customers preferences towards the banking sector. The
figure clearly depicts that 69.60% of the customers uses the internet banking or
the online banking facility to avail the banking services provided by the banking
sectors. 56.50% of the customer are prone to use ATM services, 52.20% of the
customer prefer to use the mobile banking services which also related to internet
banking services and 21.70% of the customer uses the branch banking services.
Thus, this proves the point most of the customer is more used to the internet
services provided by the banking sector as a handful of the customer uses the
traditional or branch banking facility as they may either have trust issues with
the e-banking services or they are not well versed with the e-banking services.
This is somewhere holds a bigger problem in the society as many people are not
well educated with the new innovative technology.

8. Contribution of New Technology Towards Banking Sector

 CONTRIBUTION NO. OF PEOPLE
Very high 9
High 11
Average 3
Low 0
NIL 0
Table 10: Personal data representing the contribution of new-technology to the
success of banks

Contribution

13% Very High

High
39% Average
Low
NIL

48%

Figure 12 : Contribution of New Technology Towards Banking Sector

Figure 12 clearly states that whether the new contribution have brought any risk
factor to the banking sector. The figure depicts that 48% of the customer states
that there is High risk factor involved in the usage of the internet banking, 39%
of the customer states that there is high risk factor involved and 13% of the
customer agrees that the risk factor is average. Thus, this clearly indicates that
there is risk factor in using the internet banking service but they also consider
that it is feasible for them to use the e-banking service with growth in the new
technology and e-banking service being a new trend to people in the society.

OVERALL OUTCOME OF THE DATA ANALYSIS

After analysing the data that is collected from various people it is clear that
there is a huge impact of E-banking on the life of the customers. The main
impact is that people are becoming more digitalized with the use of the
electronic banking service and very few people are still stuck with the
traditional or branch banking system as they consider that is the most reliable
and trustworthy way of continuing the banking service where the risk factor
stands very low compared to the internet banking. This is true to some extent
that there is risk involved in the e-banking services but there is also a way to
overcome it. To every field, if there is a pros there also includes cons and with
time it has been overcome. The banking sectors along with the government are
taking up matters that would help to curb the issues of internet banking. The
main risks like Phishing, Money laundering and such other risks are the real
threat to such an innovative technology which has gained a successful place in
today's society, but the laws are being made more strong which is helping in
gaining the trust of the customers so that they can use the service without any
doubt. Another factor that the government should also look upon is that e-
banking service should be made available to every person by making them
educate about the service. Thus, this is clear from the study that despite certain
risks involved in the usage of e-banking service customers are more prone to
use the internet banking system because according to them this service is easier
to access as compared to the branch banking service and that it an innovative
technology which will help the society to grow economically and digitalize the
society well.