E-Banking: Impact of Information Technology in

India by Vijay Kumbhar
E-Banking: Impact of Information Technology in India Mr. Vijay Kumbhar [Assit. Professor in Economics,
Abasaheb Marathe College, Rajapur Dist- Ratnagiri (Maharashtra)]

Introduction With the advancement of information technology and to derive the inherent advantages of its
implementation, there was a long felt need to give recognition to the electronic mean as an alternative to
paper based banking practice in India. The evolution of banking technology has been mainly driven by
changes in distribution channels as automated teller-machine (ATM), phone-banking, tele-banking, pc-
banking and most recently internet banking etc. In the traditional banking system a person had to go to a
bank branch to deposit or withdraw money and get a bank statement book manually updated by a teller
over the counter. With the introduction of computer networks, a networked printing machine started
replacing the manual update of statements. Then automated teller machines (ATMs) were introduced to
facilitate withdrawals, deposits and even transfers accommodating mobility in much wider geographical
areas. Phone banking was a revolutionary concept in banking since it made banking accessible from
anywhere as long as phones were available. With the successful diffusion of mobile phones, phone
banking is moving into a next phase of development. However, one of the most substantial changes in
banking technology is the recent introduction of internet banking.

1.0 Definition of E-Banking E-banking is defined as the automated delivery of new and traditional banking
products and services directly to customers through electronic, interactive communication channels. E-
banking includes the systems that enable financial institution customers, individuals or businesses, to
access accounts, transact business, or obtain information on financial products and services through a
public or private network, including the Internet. Customers access e-banking services using an intelligent
electronic device, such as a personal computer (PC), personal digital assistant (PDA), automated teller
machine (ATM), kiosk, or Touch Tone telephone. While the risks and controls are similar for the various
e-banking access channels, this booklet focuses specifically on Internet-based services due to the
Internet’s widely accessible public network.

1.2 Origin of E-banking In India The Indian banking system has undergone significant technological
transformation since the 1980s.The Rangarajan Committee report in 1980s was the first step towards
computerization of banks. Banks started exploring the idea of 'Total Bank Automation (TBA)'. Although
titled 'Total Bank Automation,' TBA was in most cases confined to branch automation. It was only in the
early 1990s that banks started thinking about tying-up disparate branches together to facilitate information
sharing. At the same time, private banks entered the banking arena with radically different strategies. The
private banks provided huge budgets to the adoption of technology to provide a whole new range of
financial products and services at minimal costs.

1.3 E-Banking in India Most of Indian commercial banks are providing non-conventional and innovative
banking services. Product innovation is tied to internet banking; increasing competition amongst the
leading banks also promotes product and service differentiation. For example, despite the Internet
Banking System developed in 1990 by the reserve bank of India with the help of department of
telecommunication of India. Moreover, Indian banks offer innovative technology based banking products
and service to their customers. Information technology revolution affect on traditional banking practice in
following manner in India.

1.3.01 Computerization of Banks in India Computerization is general trend in all sector, banks also trying
to Computerization, as per recommendation of Rangarajan Committee (II), the progress in
implementation of the directive of the Central Vigilance Commission (CVC) on the need to computerize 70
per cent of the banking business by public sector banks before January 1, 2006, 13 banks had achieved
the desired level. Figures as at end of March 2008 indicated that 23 banks have achieved the target,
while two banks have computerisations levels ranging between 70 per cent and 79 per cent and two
others were at a level below 65per cent and 29 percent banks having a core banking solution. At present
there are 67.7% of branches are under Core Banking Solutions, 94.6% are fully computerized and 6.4%
are partially computerized branches of public sector banks in India. Other than public sector banks, all
private and foreign banks are mostly computerized recently.

1.3.02 Wireless Banking, Online Banking or Internet Banking Wireless banking/ online banking is a
delivery channel that can extend the reach and enhance the convenience of Internet banking products
and services. Wireless banking occurs when customers access a financial institution's network using
cellular phones, pagers, and personal digital assistants through telecommunication companies’ wireless
networks. It uses the Internet as the delivery channel by which to conduct banking activity, e.g.
transferring funds, paying bills, viewing checking and savings account balances, paying mortgages, and
purchasing financial instruments and certificates of deposit. Online banking usually offers such features
as: •Bank statements, with the possibility to import data in a personal finance program such as Quicken or
Microsoft Money •Electronic bill payment •Electronic funds transfer between a customer's own checking
and savings accounts, or to another customer's account •Electronically investment purchase or sale of
securities by D-Mat Account •Loan applications and transactions, such as repayments account
aggregation to allow the customers to monitor all of their accounts in one place whether they are with their
main bank or with other institutions.etc.

1.3.03 Core Banking or Centralized Banking Core banking is a term used to describe a service provided
by a group of networked bank branches. Bank customers may access their funds from any of the member
branch offices. Core banking consists of a networking process by which the servers of different branches
of a bank are joined to a common server and henceforth an account holder may access, deposit, and
withdraw money from his/her account from any of the branches of the bank. In 21st United States, core
banking has become common place. Today 67.7 % of public sector bank branches are all branches of
private and foreign banks are under core banking solution in India.

1.3.04 Electronic Authentication and Electronic Signature Banks are now using technology for the proper
identification of customers’ identity. In the era of technology based banking operation verifying the
identities of customers and authorizing e-banking activities are integral parts of e-banking services. Since
traditional paper-based and in-person identity authentication methods reduce the speed and efficiency of
electronic transactions, financial institutions have adopted alternative authentication methods. The latest
option digital (electronic) signatures for generating and identification of customers signature is best option
within the electronic banking platform.

1.3.05 BANKNET BANKNET is a internet based communication network backbone. It provides speed of
financial transaction. At present, seven centers viz. Mumbai, Delhi, Calcutta, Madras, Nagpur, Bangalore
and Hyderabad. Set up in 1991 by the RBI, this backbone is meant to facilitate transfer of inter-bank (and
inter-branch) messages within India by Public Sector banks who are members of this network. More
centres (like Pune, Ahmedabad, Kanpur, Lucknow, Chandigarh, Kochi, Jaipur, Bhopal, Patna,
Bhubaneshwar, Thiruvananthapuram, Guwahati, Panaji Jammu etc) are being brought on the network.

1.3.06 INFINET-Indian Financial Network The 'INFINET' Indian Financial Network is a satellite based
wide area network using VSAT (Very Small Aperture Terminal) technology set up by the RBI in June
1999. The hub and the Network Management System of the INFINET are located in the Institute for
Development and Research in Banking Technology, (IDRBT) Hyderabad. Among the major applications
identified for porting on the INFINET in the initial phase are e-mail, Electronic Clearing Service - Credit
and Debit, Electronic Funds Transfer and transmission of Inter-city Cheque Realization advices. Later,
other payment system related applications as well as Management Information System (MIS) applications
are proposed to be operationalized.

1.3.07 Indian Banks and S.W.I.F.T All Indian public sector banks are part of the international financial
messages communication network, namely, Society for Worldwide Inter-bank Financial
Telecommunication (S.W.I.F.T). The S.W.I.F.T provides reliable and expeditious telecommunication
facilities for exchange of financial message all over the world. The gateway is in Mumbai and efforts are
on to other cities through leased lines/public data network.

1.3.08 Electronic Data Interchange (EDI) EDI is a computer-to-computer transfer of details of commercial
or administrative transactions using an agreed protocol and standard data structure. EDI standards have
been developed in respect of specific messages for transmission of business transactions which are
electronic equivalents of commercial invoices, purchase orders, transport bookings and payment
instructions etc.

1.3.09 Telephone banking, Mobile Banking and SMS Banking Telephone banking is specific provision of
banking services over the telephone. It allows customers to perform transactions over the telephone.
Most telephone banking use an interactive voice response (IVR). Mobile Banking is the hottest area of
development in the banking sector and is expected to replace the credit/debit card system in future. Most
of banks are providing SMS alert facility to their customers. Facility of SMS services SMS banking is
becomes very much safe and useful in recent days.

1.3.10 MICR Clearing MICR (Magnetic Ink Character Recognition) is a character recognition technology
adopted mainly by the banking industry to facilitate the processing of cheque. The process was
demonstrated to the American Bankers Association in July 1956, and it was almost universally employed
by 1963. MICR characters are printed with a magnetic ink or toner. Magnetic printing is used so that the
characters can be reliably read into a system, In India MICAR Introduced in 1987 in the four Metros, the
MICR Clearing is now in operation in 14 centers (HYDERABAD, BANGLORE, AHMEDABAD, KANPUR,
JAIPUR, NAGPUR, BARODA, PUNE, GAUHATI, TRIVANDRUM) and is proposed to be extended to a
total of 22 centers where volume of clearing transactions is large.

1.3.11 Automated Clearing House The Automated Clearing House (ACH) is an electronic banking
network operating system. ACH processes large volumes of both credit and debit transactions which are
originated in batches. Within the Rules and regulations governing the ACH network are established by the
Reserve Bank of India by the help of the State Bank of India.

1.3.12 Credit card and Debit Cards A credit card system is a type of retail transaction settlement and
credit system, named after the small plastic card issued to users of the system. In the case of credit
cards, the issuer lends money to the consumer. Credit cards are become very popular in India with the
introduction of foreign banks in the country. A debit card is a plastic card which provides an alternative
payment method to cash when making purchases. Debit cards are accepted at many locations, including
grocery stores, retail stores, gasoline stations, and restaurants. It’s an alternative to carrying a checkbook
or cash. There are currently two ways that debit card transactions are processed: online debit cards and
offline debit cards. Online debit cards require electronic authorization of every transaction and the debits
are reflected in the user’s account immediately. Offline debit cards have the logos of major credit cards
(e.g. Visa or MasterCard) or major debit cards (e.g. Maestro) and are used at point of sale like a credit
card. This type of debit card may be subject to a daily limit, as well as a maximum limit equal to the
amount currently deposited in the current/checking account from which it draws funds.

1.3.13 RTGS (Real Time Gross Settlement System) Real Time Gross Settlement (RTGS) is a
comprehensive secured on line settlement solution, set up, operated and maintained by Reserve Bank of
India to enable funds settlement across banks in the country on real time basis to minimize costs and
maximize benefits, increase velocity of funds-flow both inter- city and interbank, reduce credit risk,
increase transparency of payments and better liquidity management. RTGS is managed by RBI. In India
RTGS System has been implemented since March 26, 2004.

1.3.14 Electronic Clearing Services (ECS) ECS Scheme operated by the RBI since 1996-97, it helps to
make payment from a single account at a bank branch to any number of accounts maintained with the
branches of the same or other banks. This is the most useful mode of payment of dividend / interest/
pension/refund etc. The clearing and settlement activities are dispersed through 1,047 clearing houses
managed by RBI, the State Bank of India and its associates, public sector banks and other institutions.

1.3.15 Electronic Funds Transfer (EFT) & Special Electronic Funds Transfer EFT System hosted and
operated by the RBI, permits transfer of funds, unto Rs. 5 lacs from any account at any branch of any
member bank in any city to any other account at any branch of any member bank in any other city. This
system utilizes the Service Branches of the member banks and the nodal offices of RBI. RBINET is the
conduit for the flow of funds. The Reserve Bank of India acts as the service provider as well as regulator.
A special EFT (SEFT) was introduced in April 2003 covering about 3000 branches in 500 cities. This has
facilitated same day transfer of funds across accounts of constituents at all these branches.

1.3.16 Automated Teller Machine (ATM) The first bank to introduce the ATM concept in India was the
Hong Kong and Shanghai Banking Corporation (HSBC) in the year 1987. Now, almost every commercial
bank gives ATM facilities to its customers. SBI is following the concept of 'ATMs in Quantity’. The
Corporation Bank has the second largest network of ATMs amongst the Public Sector Banks in India.
Today’s all Public Sector Banks are taking the installation of ATMs seriously for Indian market. They are
either setting up their own ATM centers or entering into tie-ups with other banks. Since April 2009 access
in any ATM machine is free of charge it is the great opportunity to any ware banking in India.

1.3.17 Electronic Bill Payment EBP can attract customers due to the faster and efficient bill payment
mechanism of the banking in India. Customers can access their financial information more easily and
create a more intimate relationship with the customer and promote and deliver other online products and
services. Most of Indian banks are trying setups an EBP portal. ICICI has already started a portal called
BillJunction.com. Banks are planning to use the Net for payment of utility bills. They are entering into tie-
ups with utilities like MTNL, AirTel, Orange, and BPL Mobile etc. Right now, a customer who's received a
bill in the physical form logs into the network in order to make an online payment. In the future, these bills
will be sent to customers through the Net.

Conclusion All these developments in Indian banking are shows that, the Indian banks are marching
towards modern banking and changing their traditional look. It is grate change of banking industry
because of information technology development. They are trying to installation of information technology
for banking business and they trying to provide technology based banking products and services to their
customers. Indian banks also trying to Univerlisation of banking products and services to one stop
banking shop for customer delight, but comparatively private and foreign banks existing in Indian
economy are having a higher level of modernization and those providing numbers of modern services to
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publishing House, New Delhi. 5)N.Vinaykam (1993); A peep In To The Private sector Banks, kanishka
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7)S.S.Hugar (1993), Trends And challeges To Indian Banking, Deep & Deep publications, New Delhi.
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2010 13)Professional BANKER – July 2007.

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