LAW AND PRACTICE OF BANKING

Ramyashree.S.R
UNIT 5

RECENT DEVELOPMENTS IN BANKING

RECENT DEVELOPMENTS IN BANKING

E-banking is a blanket term used to indicate a process through which a customer is allowed to carry
out, personal or commercial banking transactions using electronic and telecommunication networks.
It is a product offered by banks that facilitates online banking, with the help of which the customer
can have access to the bank account in just one click
E-BANKING SERVICES
In simple words, e-banking refers to a banking arrangement, with which the customer canperform
various transactions over the internet, which is end-to-end encrypted, i.e, it is completely safe and
secure. E-banking promotes paperless/cashless transactions. It comes with several
rights,responsibilities, and fees as well. The range of services covered under E-banking are
1. Internet Banking: A banking facility provided to the customers through which thecustomers can
perform several monetary and non-monetary transactions, using the internet, through the bank's
website or application.
2. Mobile Banking: Almost all the banks have designed their mobile applications with which you can
perform transactions at your fingertips For this, four things are requiredsmartphone, internet, mobile
application, and mobile banking service enabled in your bank account
3. ATM: Automated Teller Machine, popularly known, as ATM is one of the most.common and initial
services, provided under e-banking it is not just a machine with which you can withdraw cash as and
when required, but it also allows you to check your account status. transfer fund, deposit fund,
changes mobile number, change Debut Card PIN, ie Personal Identification Number
4. Debit Card: Debit cards are used in our day-to-day life to perform number oftransactions. Debit
cards are linked to the customer's bank account and so the customer onlyneeds to swipe the card, to
make payment at Point of Sale (POS) outlets, online shopping,
5. Credit Card: Just like a debit card, a credit card is also a payment card that the banks issue to the
customers on their request, after checking their credit score and history. It enables the cardholder to
borrow funds up to the pre-approved limit and make payments. The limit is granted by the banks that
issue the card. The cardholder promises to repay the amount within a stipulated time, with some
charges, for the use of a credit card.
6. Electronic Fund Transfer (EFT): When money is transferred electronically from one bank to
another, it is called an electronic fund transfer. It covers direct debit, direct deposits, wire transfers,
NEFT, RTGS, IMPS, etc

BENEFITS OF E-BANKING
1. It enables digital payments, which encourages transparency

2. It allows 24/7 access to the bank account

3. It also sends notifications and alerts to be updated with the banking transactions and changes in the
rules
4. 4 It lowers transaction costs for the banks
5. It is convenient and easy for customers, as they are not required to visit the bank branch every time.

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DEBIT AND CREDIT CARDS

DEBIT CARD: A debit card is issued by a bank to their customers to access funds without having to
write a paper check or make a cash withdrawal A debit card is linked to one's checking account and
can be used anywhere.
Debit card is a plastic card that provides an alternative payment method to cash when making
purchases. It is called an electronic cheque, as the funds are withdrawn directly from either the bank
account or from the remaining balance on the card.

It is a plastic card used to obtain cash or initiate a transaction. It allows for direct withdrawal of funds
from a customers' bank account. Whenever customer (i.e. cardholder) uses the debit card, bank
account gets debited immediately.

It is a special plastic card connected with electromagnetic identification that one can use to pay for
things purchased directly from his bank account under this system. Cardholder's accounts are
immediately debited against purchase or services through computer network,. Thus the cardholder
must have adequate balance in his account.
The term "debit" means to accessing a deposit account typically a personal checking account.

ADVANTAGES OF DEBIT CARDS

1. Alternative to Cash: Debit card acts as an alternative mode of payment for executing various cash-
related financial transactions. It can be used for the purchases of goods and receipt of services. In its
pres ence, there is no need to carry a large amount of cash. Thus, it helps to avoid carrying huge
amount of cash while traveling and minimize risk of loss due to theft, damage, etc.

2. Immediate Transfer of Funds: Debit card ensures immediate transfer of funds in the merchant's or
dealer's bank account Such a transfer of funds takes place almost instantly at the moment of
purchases of goods and receipts of services. With its use, there is no need to visit bank's office
premise and do a manual transfer of cash in the merchant's or dealer's bank account.

3. Instant withdrawal of Cash: The debit card facilitates instant withdrawal of cash from any nearest
ATM. This helps its holder to avoid a personal visit to bank's office premise and wait in a long time-
consuming queue.

4. Easy to Manage: Debit card is very easy to carry, handle and manage while traveling to outstations
or over seas. Being small, thin, flat and having a negligible weight it easily fits in any pocket. It can
be handled very freely even with just two fingers. Managing it is also not a big problem.

5. Prepaid Card: Debit card acts as a type of prepaid card. It is so, since it already has a sufficient
amount of cash balance in its holder's bank account. It permits to carry on the value of the transaction
(i.e, purchases) to the extent of available balance in its holder's bank account.

6. Nominal Fee: Bank issuing a debit card charges an annual fee for the issuance and maintenance of
card. This fee charged is very nominal in nature. Generally, bank charges the fee on a per annum or
yearly basis. Such a fee gets automatically debited (deducted) from the debit-cardholder's bank
account.

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7. Cash Back: In cash back, cardholder gets a percentage of the total amount spent on purchases made
using his card. In other words, when a holder use his debit card to buy something then a percent age
of entire money he spent usually in a month is credited-back to his account once every following
month.

LIMITATIONS OF DEBIT CARDS

1. Limited transaction: Debit card facilitates limited transactions till positive balance. The debit card
holder can withdraw cash or purchase till his/her account shows positive balance.
2. Extra charge against extra transactions: Debit card holders facilitate limited number of
transactions per day and the excess transaction consist of extra charges.
3. Fine against transaction without having sufficient balance: The debit card holder should pay fine
in case of transaction is made without having sufficient balance. So, before transaction the card
holder should cheek the available balance.
4. Security: The security of debit card is based on the usage of PIN and its maintenance. The card
holder should not share the PIN with another person.
5. Possibility to use of debit card by other person: When the card holder is lost the debit card the
receiver can use it for shopping purposes. So, as soon as the card is lost, the card holder should
inform to banker to lock the card.
6. Less Protection: In many places, laws protect the consumer from fraud much less than with a credit
card. While the holder of a credit card is legally responsible for only a minimal amount of a
fraudulent transaction made with a credit card, which is often waived by the bank, the consumer may
be held liable for lakh of Rupees or even the entire value of fraudulent debit transactions.

CREDIT CARDS

Credit card is a plastic card issued by a financial institution that allows its user to borrow pre-
approved funds at the point of sale in order to complete a purchase. Credit cards charge interest and
are primarily used for short-term financing.

A credit card is a debt instrument for financial transactions instead of cash or a check or a debit card.
Depending on its owner's creditworthiness, a credit card may have a high spending limit or a lower
one When you use a credit card, the purchase amount is automatically added to your outstanding
balance
With most credit card companies, a customer has 30 days to pay before interest is charged on the
outstanding balance, though in some cases, interest starts accruing right away Responsible credit
card users can often earn points and rewards from card issuers, and positively using credit helps
build and maintain a strong credit score. Interest rates on credit cards can be notoriously high, they
are a chief way credit card
ADVANTAGES OF CREDIT CARDS

1. Proper evidence keeping: Credit card statements can help to track the expenses. Some cards even
provide year-end summaries that really help out at tax time.
2. Low-cost loans: Credit card holder can use revolving credit to save today (eg, at a one-day sale),
when available cash is a week away.
3. Convenience: Credit cards can save the time and trouble no searching for an ATM or keeping cash
on hand

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4. Instant cash: Cash advances are quick and convenient, putting cash in the hand when the card
holder needs it.
5. Bonus: From frequent flier miles to discounts on automobiles, there is a program out there for
everyone. Many credit card companies offer incentive programs based on the amount of purchases
make.
6. Build positive credit: Controlled use of a credit card can help to establish credit for the first time or
rebuild credit if you've had problems in the past as long as you stay within your means and pay the
bills on time.
7. Purchase protection: Most credit card companies will handle disputes for you. If a merchant won't
take back a defective product, check with your credit card company.
8. Balance surfing: Many credit card companies offer low introductory interest rates. These offers
allow you to move balances to lower-rate cards.

LIMITATIONS OF CREDIT CARDS

1. High rate of Interest: Cash withdraw through credit cards involve high rate of interest.
2. Paperwork: The credit card holders need to save the receipts and check them against the statement
each month. This is a good way to ensure that haven't been overcharged.
3. High-cost fees: The card holders' purchase will suddenly become much more expensive if he/she
carry a balance or miss a payment.
4. No free lunch: The high interest rates and annual fees associated with credit cards often outweigh
the benefits received. Savings offered by credit cards can often be obtained elsewhere.
5. Deepening your debt: Consumers are using credit more than ever before. If you charge freely, you
may quickly find yourself in over your head as your balance increases, so do your monthly minimum
payments.
6. Teaser rates: Low introductory rates may be an attractive option, but they last only for a limited
time. When the teaser rate expires, the interest rate charged on the balance can jump dramatically.

INTERNET BANKING
Online banking, also known as internet banking, web banking, or home banking, is an electronic
payment system that enables customers of a bank or other financial institution to conduct a range of
financial transactions through the financial institution's website.
Features
A bank customer can perform non-transactional tasks through online banking.including

· Viewing account balances

· Viewing recent transactions
· Downloading bank statements, for example in PDF format
· Viewing images of paid cheques Ordering cheque books
· Download periodic account statements
· Downloading applications for M-banking. E-banking, etc
Bank customers can transact banking tasks through online banking, including

· Funds transfers between the customer's linked accounts

· Paying third parties, including bill payments and third-party fund transfers
· Investment purchase or sale

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· Loan applications and transactions, such as repayments of enrollments
· Credit card applications
· Register utility billers and make bill payments Financial institution administration
Advantages of Internet Banking
Listed below are just some of the benefits of internet banking

· Easy to Operate; Online banking is very simple and easy to understand, maybe easierthan
conventional banking in many cases. The operation of an online account is rather simple andeasy to
use
· The convenience of Making; Payments Internet banking makes it quite convenient to carry out
transactional activities like transfer of funds. payment of bills, etc. which means no longer having to
wait in queues for bill payments or having to safely keep receipts of bills payments, which are also
perishable. All record of payments and bills is stored online on your account
· Round the Clock Availability; Another advantage about online banking is that it is available round
the clock throughout the year. You do not have to schedule a time when you can carry out banking
activities, regardless of weekend, or holiday
· Time Saving and Efficient; E-banking is not only fast but also highly efficient in letting you carry
out transactions within a few minutes.
· Account Activity Tracking; It allows you to track your account activity at all times
Disadvantages of Internet Banking

· May Be Complicated for Beginners to Understand; For those who are new to theworld of
banking, online banking may pose a slight challenge in terms of usage
· No Online Banking Without InternetAccess; To use online banking, one needs tohave stable
internet connectivity or access Without one, the facility of online banking is of nouse.
· Transaction Security; There have been instances where transaction details have been compromised.
However, it is uncommon but still can pose a major threat
· Securing Your Password; When it comes to internet banking, account passwords areof crucial
importance. For that reason, a user must never reveal their account password to anyone
ELECTRONIC FUNDS TRANSFER (EFT)
Electronic funds transfer (EFT) is the electronic transfer of money from one bank account to another,
either within a single financial institution or across multiple institutions, via computer-based systems,
without the direct intervention of bank staff
According to the United States Electronic Fund Transfer Act of 1978 it is "a funds transferinitiated
through an electronic terminal, telephone, computer (including on-line banking) or magnetic tape for
ordering, instructing, or authorizing a financial institution to debit or credit a consumer's account"
Advantages of Electronic Fund Transfer
1. It is easy and convenient.
2. It is fast and secure.
3. It is efficient and less expensive than paper cheque payments and collections.

Disadvantages of using the Electronic Fund Transfer

1. If the account holders enter the target account number incorrectly, there is no way to reverse the
transaction since the bank would process the transaction under the belief that the information is
provided is accurate.

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2. Once an amount is transferred, the bank cannot reverse a transaction.

TYPES OF EFT PAYMENTS

1. NEFT
National Electronic Funds Transfer or NEFT is the most popular online payment option to transfer
money. You can easily transfer money from one bank account to the other through this method.
Companies use it mostly for salary transfers
National Electronic Funds Transfer (NEFT) is an electronic funds transfer system maintained by the
Reserve Bank of India (RBI) Starting in November 2005, NEFT enables bank customers in India to
transfer funds between any two NEFT-enabled bank accounts on a one-to-one basis. It is done via
electronic messages.
Fund transfers through the NEFT system do not occur on a real-time basis. Previously, the NEFT
system settled fund transfers in hourly batches with 23 settlements. From 16 December 2019, there
would be 48 half-hourly batches every day regardless of a holiday or otherwise,
The funds transferred are settled on a deferred settlement basis. It means the money is transferred in
batches and settled in 3 business days There is generally no maximum limit for NEFT but this
depends on the bank as wellBanks charge a fee for NEFT when you are transferring money to
adifferent bank. The service fee isbased on the amount being transferredNEFTwas also made
available 24x7 from December 2019.
2. RTGS
RTGS or Real Time Gross Settlement is useful for transferring money from one bank to another in
real-time. This form of EFT is allowed only on transfers for a minimum amount of 2 lakhs. However,
there is no upper limit for the transaction amount These transactions are processed during the RTGS
business hours Usually, the amount is transferred to the recipient's account within 30-minutes. Both
the sender and receiver should hold accounts in RTGS enabled banks
Cost Factor- RTGS involves more cost in comparison to NEFT and it varies from bank to bank.
Though the fee depends upon the amount you are transferring, it usually does not cost more than 30
for transactions up to 5 lakhs.
3. ATM Transaction: All ATM transactions are powered by EFT systems. Therefore, every time you
use an ATM it involves electronic fund transfer. This includes using an ATM for withdrawing
money. transferring funds between your accounts, or depositing an amount to an account
4. Debit Credit Card Transactions: Similar to ATM transactions, all debit and credit card payments
are processed using the EFT system.
5. UPI Money Transfer: EFT also enables UPI Money Transfer. You can use apps on any smartphone
having a VPA (Virtual Payment Address) to complete your transaction. UPI Money Transfer
involves fewer steps in comparison to other modes of EFT UPI Money Transfer works round the
clock and all transactions are done on areal-time basisUPI Money Transfer does not involve any
charges, so neither the sender nor receiver have to pay for using the UPI platform
MAGNETIC INK CHARACTER RECOGNITION CODE (MICR)
Magnetic Ink Character Recognition code, known in short as MICR code, is a characterrecognition
technology used mainly by the banking industry to streamline the processing and clearance of

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cheques and other documents MICR encoding, called the MICR line, is at the bottom of cheques and
other vouchers and typically includes the document-type indicator, bank code, bank account number,
cheque number, cheque amount (and a control indicator.
The technology allows MICR readers to scan and read the information directly into a data collection
device. Unlike barcodes and similar technologies, MICR characters can be read easily by humans.
MICR encoded documents can be processed much faster and more accurately. MICR line is also
commonly referred to as the TOAD line.
The 9 digit of MICR code is divided into 3 parts : The first three digits of the MICR code represent
the city code. The middle three digits represent the bank code. The final three digits represent the
branch code.
Features

· It enhances security and minimizes the losses caused by a few criminal activities such as social
engineering, hacking, etc.
· It is a character recognition technology that banks mainly used by banks for simplifying and easing
out the processes and clearance of checks and other physical documents
· Magnetic Ink and Character Recognition uses special magnetic ink and characters
· Magnetic Ink and Character Recognition is completely secure, reliable, quick, and saves manual
effort as well
ADVANTAGES OF MICR

1. Ease of Readability and High Security: The use of iron oxide-based ink ensures MICR characters
are readable even if a document is obscured by miscellaneous marks or overprinted. MICR systems
provide a high level of security since MICR characters are required to follow a stringent format and
use precise iron oxide ink, which makes the documents difficult to forge.
2. Small Deciphering Error Rate: The error rate for reading MICR characters is small as compared to
other character recognition systems. MICR scanners precisely and accurately decipher the characters.

DISADVANTAGE OF MICR
1. Time Consuming Standards: The printing of MICR is demanding, setting precise but difficult-to-
achieve standards, which is a distinct disadvantage in terms of time consumption.
2. Expensive Equipment: MICR readers are expensive and capable of recognizing only MICR fonts
written in a specific format. MICR printers run on cartridges that cost far more than plain ink toner
cartridges.

ELECTRONIC CLEARING SERVICE (ECS)

The RBI for facilitating the bulk transfer of funds from one bank account to another bankaccount
launched ECS. Loan providers use this facility to debit loan EMIS on a fixed date fromthe bank
account of the borrower This is done with the help of a clearinghouse In India, ECS debit is mostly
handled by the NACH (National Automated Clearing House) which works under NPCI (National
Payments Corporation of India)
TYPES OF ECS
There are mainly two types of ECS, which are ECS credit and ECS debit.

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· ECS credit: When a bank makes credit to a bank account, like to pay salary, dividends, etc. it is
called ECS credit. A single account is debited at regular intervals to credit multiple accounts.
· ECS debit: When a single account is used to make payments like EMI, loans, premium, mutual
funds, etc
Based on the geographical location of branches, ECS schemes are classified into 3 categories:

· Local ECS;It is operated at 81 centers across India by the RBI

· Regional ECS; the RBI operates it at 9 centers across the country
· National ECS;It is a centralized version of ECS Credit being operated in Mumbai
PAYMENT BANKS
Payments banks is an Indian new model of banks conceptualized by the Reserve Bank of India (RBI)
without issuing credit. These banks can accept a restricted deposit, which is currently limited to
200,000 per customer and may be increased further. These banks cannot issue loans and credit cards.
Both current accounts and savings accounts can be operated by such banks Payments banks can issue
ATM cards or debit cards and provide online or mobile banking Bharti Airtel set up India's first
payments bank, Airtel Payments Bank

· Based on the recommendations of the NachiketMor Committee, Payments Bank was set up to
operate on a smaller scale with minimal credit risk
· The main objective is to advance financial inclusion by offering banking and fin services to the
unbanked and underbanked areas, helping the migrant labor force, low income households, small
entrepreneurs, etc
· They are registered under the Companies Act 2013 but are governed by a host oflegislation such as
Banking Regulation Act, 1949, RBI Act, 1934, Foreign ExchangeManagement Act, 1999, Payment
and Settlement Systems Act, 2007 and the like
· India currently has 6 Payment Banks namely, Airtel Payment Bank, India Post PaymenBank, Fino,
Paytm Payment Bank, NSDL Payment Bank, and ho Payment Bank
Features of Payment Banks

· They are differentiated and not universal banks

· These operate on a smaller scale
· It needs to have a minimum paid-up capital of 100,00,00,000.
· The minimum initial contribution of the promoter to the Payment Bank to the paid-up equity capital
shall at least be 40% for the first five years from the commencement of its business.
Activities That Can Be Performed by Payment Banks

· Payment banks can take deposits up to 2,00,000. It can accept demand deposits in the form of
savings and current accounts:
· The money received as deposits can be invested in secure government secunties only in the form of a
Statutory Liquidity Ratio (SLR). This must amount to 75% of the demand deposit balance The
remaining 25% is to be placed as time deposits with other scheduled commercial banks
· Payments banks will be permitted to make personal payments and receive cross-border remittances
on the current accounts.
· It can issue debit cards

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Small Finance Banks

The objective of Small Finance Banks in India is to provide financial inclusion to less privileged
sections of the economy, which ordinarily fails to gain access to financial institutions. Small Finance
banks cover small and micro business units, marginal and small farmers, and various entities in the
unorganized sector.
Examples of Small Finance Banks in India are – A U Small Finance Bank, Equitas Small Finance
Bank, Ujjivan Small Finance Bank, etc.
Small finance banks can be promoted by societies, trusts, corporate, individuals. Small finance banks
are established as per the Companies Act of 2013. They are regulated by the Banking Regulation Act
of 1949 and Reserve Bank of India Act, 1934.
RBI guidelines for SFBs :

· Minimum paid-up equity capital must be INR 100 crore.

· Every such small finance bank must carry the words “Small Finance Bank” in its name.
· SFBs must obtain prior approval of the RBI to carry out financial operations like the
distribution of mutual fund units, pension and insurance products, and so on.
· These banks must have 25% of its branches set up in unbanked parts of the country.
· Small Finance Banks must maintain a CRR (Cash Reserve Ratio) and SLR (Statutory
Liquidity Ratio)
· SFBs in India are required to extend 75% of its ANBC (Adjusted Net Bank Credit) to the
sectors that are eligible to be classified as priority sector lending by the RBI.
· At least 50% of its loan portfolio should constitute loans and advances of up to INR 25 lakh
· SFBs may transit to a universal bank, however, they need to fulfil the minimum paid up
capital/ net worth requirements as per the universal banks
· Such banks cannot act as a BC (Business Correspondent) for other banks. Although, they can
have their own BC network.
DIGITAL WALLETS
A digial wallet (or e-wallet) is a software-based system that securely stores users' payment
information and passwords for numerous payment methods and websites. By using a digital wallet,
users can complete purchases easily and quickly with near-field communications technology They
can also create stronger passwords without worrying about whether they will be able to remember
them later

· Digital wallets largely eliminate the need to carry a physical wallet by storing all of a consumer's
payment information securely and compactly
· These wallets can be used online or at stores for easy transactions
· e-wallets offer the ease to make swift payments online or at physical stores These wallets can be
used to book train/flight tickets, pay electricity bills, book gas cylinders, school fees, complete
mobile recharge transactions, and more
· These wallets are safe to use and can be used to complete minor to major transaction
· A smartphone, a payment application like Paytm, and a stable internet connection is required by one
to complete digital wallet transactions
Types of E-wallets

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There are different types of e-wallets that serve different purposes according to the nature of the
business and the end-users. The following are the types of e-wallet offered by issuers to their end-
users to perform particular tasks
1. Closed wallet; They are generally developed by companies selling products or servicesfor
theircustomers Users of a closed wallet can use the stored funds only with the issuer of the wallet
tocomplete the transaction Closed wallets do not allow one to perform payments outside’
2. Semi-closed wallet; A semi-closed wallet offers users the ease to make transactions at listed
merchants and locationsThe coverage area of semi-closed wallets are restricted
3. Open wallet; Users with open wallets are allowed to use them for all kinds of transactions Open
wallets offer the flexibility to transfer funds easily, service provider allows users to make
transactions from any place in the world; however, both the sender and the receiver must have their
respective accounts on the same application
4. Crypto wallet; Crypto wallets store public and private keys of the users The keys can be
cryptocurrencies certificates of ownership
5. IoT wallet; loT stands for Internet of Things. These are installed in watches, jackets, wristbands, or
other wallet enabled devices like smart car's computers, smart fridges, and moreloT based wallets
operate with e-money and virtual currencies
CRYPTOCURRENCY
A cryptocurrency, or crypto is a digital currency designed to work as a medium of exchange through
a computer network that is not reliant on any central authority, such as a government or bank, to
uphold or maintain it.Individual coin ownership records are stored in a digital ledger, which is a
computerized database using strong cryptography to secure transaction records, control the creation
of additional coins, and verify the transfer of coin ownership.

· Cryptocurrency does not exist in physical form (like paper money) and is typically not central bank
digital currency (CBDC).
· A cryptocurrency is a tradable digital asset or digital form of money, built on blockchain technology
that only exists online
· Cryptocurrencies use encryption to authenticate and protect transactions, hence their name
· There are currently over a thousand different cryptocurrencies in the world,
· A cryptocurrency is a digital or virtual currency that is secured by cryptography, whichmakes it
nearly impossible to counterfeit or double-spend
· Many cryptocurrencies aredecentralized networks based on blockchain technology-a distributed
ledger enforced by adisparate network of computers
TYPES OF CRYPTO CURRENCY
Bitcoin , Ether, Binance coin , Tether, Solana etc.,
ADVANTAGES

· In this system centralized intermediaries, such as banks and monetary institutions, are not necessary
to enforce trust and police transactions between two parties. Thus, a system with cryptocurrencies
eliminates the possibility of a single point of failure, such as a large bank, setting off a cascade of
crises around the world.
· Cryptocurrencies promise to make it easier to transfer funds directly between two parties, without the
need for a trusted third party like a bank or a credit card company
· Because they do not use third-party intermediaries, cryptocurrency transfers between two transacting
parties are faster as compared to standard money transfers

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· Cryptocurrencies such as Bitcoin serve as intermediate currencies to streamline money transfers
across borders.
· Crypto currencies investment can generate profits.
DISADVANTAGES

· Crypto currencies are meant to be decentralized, their wealth distributed between many parties on a
blockchain
· The almost hidden nature of cryptocurrency transactions makes them easy to be the focus of illegal
activities such as money laundering, tax-evasion and possibly even terror-financing
· Cryptocurrencies are not accepted everywhere and have limited value elsewhere.
· Payments are not irreversible
KNOW YOUR CUSTOMER (KYC)
Know your customer (KYC) is the process of a business, identifying and verifying the identity of its
clients. The term is also used to refer to the bank regulation that governs these activities
Know your customer policies are becoming much more important globally to prevent identity theft,
financial fraud, money laundering, and terrorist financing
The objective of KYC guidelines is to prevent banks from being used, intentionally or
unintentionally, by criminal elements for money laundering activities Related procedures also enable
banks to better understand their customers and their financial dealings This helps them manage their
risks prudently Banks usually frame their KYC policies incorporating the following four key
elements

· Customer Policy:
· Customer Identification Procedures.
· Monitoring of Transactions and
· Risk management
TELEPHONIC BANKING
Telephone banking is a service provided by a bank or other financial institution, that enables
customers to perform a range of financial transactions over the telephone, without the need to visit a
bank branch or automated teller machine. Telephone banking times are usually longer than branch
opening times, and some financial institutions offer the service on a 24-hour basis. Most financial
institutions have restrictions on which accounts may be accessed through telephone banking, as well
as a limit on the amount that can be transacted
The types of financial transactions which a customer may transact through telephonebanking include
obtaining account balances and a list of latest transactions, electronic bill payments, and funds
transfers between customers or another's accounts
MOBILE BANKING SERVICES:
Mobile Banking is a service provided by a bank or other financial services that allows its customers
to conduct a range of financial transaction using a mobile phone or tabletusually called as app,
provided by the financial institution for the purpose. Mobile banking is available on 24 hour basis.
Mobile banking services may include

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· Account information
· Mini-statements and checking of account history
· Alerts on account activity or passing of set thresholds
· Monitoring of term deposits
· Access to loan statements
· Access to card statements
· Mutual funds/equity statements Insurance policy management
E-PAYMENTS
Online Banking ePayments (OBeP) is a type of payments network, developed by the banking
industry in conjunction with technology providers. It is specifically designed to address the unique
requirements of payments made via the Internet
Key aspects of OBeP that distinguish it from other online payments systems are

· The consumer is authenticated in real-time by the consumer financial institution's online

banking infrastructure
· The availability of funds is validated in real-time by the consumer's financial institution
· The consumer's financial institution provides a guarantee of payment to the merchant
· Payment is made as a credit transfer (push payment) from the consumer's n
financialinstitution to the merchant, as opposed to a debit transfer (pull payment),
· Payment is made directly from the consumer's account rather than through a third-
partyaccount
BENEFITS:
For consumers

· The use of cash-like payment encourages responsible consumerism

· Does not require set-up or registration with a third-party payment's entity
· Presents a familiar interface to facilitate online payment Awareness of funds availability
For merchants

· Improved sales conversion/ reduced abandoned carts

· Real-time authorization of guaranteed ACH payment (good funds)
· Offering preferred payment methods may drive repeat transactions For financial institutions
· Recapture revenue being lost to alternative payment providers
· Encourages consumers to move to online banking, replacing more costly branch andtelephone
alternative
E-MONEY
Electronic money refers to money that exists in banking computer systems that may be used to
facilitate electronic transactions Although its value is backed by fiat currency and may therefore, be
exchanged into a physical, tangible form, electronic money is primarily used for electronic
transactions due to the sheer convenience of this methodology
To facilitate transactions from bank accounts, financial firms and banks sign deals with emoney
networking processors to give customers access to smart cards with which electronic transactions
will be possible.

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Basel norms
Basel is a city in Switzerland. It is the headquarters of the Bureau of International Settlement (BIS),
which fosters cooperation among central banks with a common goal of financial stability and
common standards of banking regulations.The Basel Committee on Banking Supervision is housed
in the BIS offices in Basel, Switzerland.
Basel norms, also known as Basel accords, are the international banking regulations issued by the
Basel Committee. The Basel Committee was established in 1974. This Committee set standards
regarding various banking supervisory matters. The main aim of these standards is to ensure the
coordination of banking regulations worldwide. Read ahead to know about the three Basel norms and
how they affect Indian economy.
Why Basel Norms?
Banks around the world lend to different types of borrowers having different creditworthiness. They
lend the deposits of the public and money raised from the market. This exposes the banks to a variety
of risks of default. As a result, banks have to keep a certain percentage of capital as security in case
of risk of non-recovery. The Basel Committee has created various norms to tackle this risk.
Basel Norms Types
The Basel Committee has issued the following sets of regulations.
Basel I: Basel I was introduced in 1988. India adopted Basel -I guidelines in 1999. This Basel norm
focused on credit risk. Credit risk arises when a borrower fails to repay a loan or meet contractual
obligations. This norm defined the capital and structure of risk weights for banks. The minimum
capital requirement was set as 8% of risk-weighted assets. Risk-weighted assets mean a bank's assets
are weighted according to risk.
Basel II: Basel II guidelines were issued in 2004. These norms were refined versions of Basel-I
norms.It comprises three pillars: Pillar 1 (Minimum Capital Requirement), Supervisory Review, and
Market Discipline.

· Banks should retain a minimum capital adequacy requirement of 8% of risk assets.

· Banks were advised to develop and use better risk management techniques.
· Banks must disclose their capital adequacy requirement and risk exposure to the central bank.
Basel III: Basel III guidelines were issued in 2010. These norms were introduced in response to the
financial crisis of 2008. A need was felt to strengthen the banking system across the globe. It was
also felt that the quantity and quality of capital under Basel II were considered insufficient.
The 3 main pillars or 3 main principles of Basel III are given below.
1. Minimum Capital Requirements
2. Leverage Ratio
3. Liquidity Requirements

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