Recent Trends and Development of E-Banking: Indian Perspective

Introduction

The development and the increasing progress experienced in the Information & Communication Technology coupled with the expansion of the global economy paved the way for the transformation of the Indian banking system’s role from traditional trade financing to mobilizing and channeling financial resources more effectively in almost all facets of life. Intense competitive environment, changing business environments, globalization and the advancement of ICT are the important factors that have forced Banking and Financial services to change. Customers are also demanding greater convenience and accessibility as reflected in longer branch opening hours and an increase in the choice of delivery mechanism. Therefore, with the passing of the traditional banking sector to electronic banking, new strategies have become necessary in order to attract new and retain existing customers. Banks are the main stimulus of the economic progress to play a vital role in spearheading the economic development of the nation.

Banking through electronic channels has gained increasing popularity in recent years. This system, popularly known as ‘e-banking’, provides alternatives for faster delivery of banking services i.e. offering, supplying and delivering banking products and services to a wide range of customers at their office or home through various electronic delivery channels via electronic devices. It is a generic term encompassing internet banking, telephone banking, mobile banking etc. It provides lot of benefits which add value to customers’ satisfaction and to reach out consumers through many routes in terms of better quality of service offerings such as ATMs, telephone, internet and wireless channels which are now available to the consumers to perform their banking transactions in addition to the traditional branch banking and at the same time enables the banks gain more advantage over other competitors.

 

Literature Review

A review of existing literature reveals the impact, challenges, trends and development made by e-banking in the Indian banking sector.

Aggarwal (2003), in his paper ‘E banking for comprehensive E-Democracy: An Indian Discernment’, looked for such avenues and evaluated that e-banking could play significant role in E-democracy for successful online bill payment, online brokerage, online account management and anywhere banking and finally, concluded that e- banking services provide one stop service and informational unit that provides great benefits to banks, customers, employers and government.

Raghavan (2006), opined in his article ‘Perception of Indian banks in 2020’, that at present over 85% of the finished payment transactions are electronic and traditional way of doing banking at the branch level has relatively little importance to electronic banking users. Many banks including PSU banks would have online ATMs, phone banking, virtual banking, e-banking, Internet banking, etc. by 2020.

Mohan (2006), in his article titled ‘Information Technology on Indian banking’, remarked that Indian banking is at the threshold of a paradigm shift and a significant development has been achieved by banks in offering a variety of new and innovative e-banking services to customers today, which was not thought of before. However, public sector banks have not been able to harness the benefits of computerization.

Uppal and Chawla (2009), in their study titled ‘E-Delivery channel-based banking services: An empirical study’, found that the customers of public sector, private sector and foreign banks in Ludhiana district of Punjab are interested in e-banking services, but at the same time are facing problems like inadequate knowledge, poor network, lack of infrastructure, unsuitable location, misuse of ATM cards and difficulty to open an account.

Shukla and Shukla (2011), stated in his article “E-banking: Problems and Prospects”, that E-banking offers a higher level of convenience for managing one’s finances even from one’s bedroom. However, it continues to present challenges to the financial security and personal privacy. Customers are advised not to share personal information like PIN, passwords etc with anyone, including employees of the bank, change ATM PIN and online login and transaction passwords on a regular basis and ensure that the logged in session is properly signed out.

 

Objective of the study

1. i) To make theoretical analysis on e-banking and to look at the progress of computerization and automation in Indian banking sector
2. ii) To analyse the trends and development made by the Indian banking industry in adoption of e-banking technology and services.

iii) To highlights the benefits and challenges associated with e-banking in Indian context.

1. iv) Finally, to make some recommendations for future development of e-banking.

 

Research Methodology – The study is based on descriptive analysis and various secondary information sources and includes different literatures reviews, case studies, published sources of data collected from various research papers, journals and magazines like Journal of Electronic Commerce Research, The Journal of Internet Banking and Commerce, e-service Journal, various issues of RBI and  also includes websites of banks.

 

Traditional Banking Vs Virtual Banking

Traditional banking involves physical branches that are located around the most populated areas to serve their clients and allow people to complete their transactions and services in person. Whereas, virtual banking or non-branch bank does not involve any physical action that means going to a bank building, standing in a line and face to face communication. It involves the provision of fully automated banking services (such as ATMs, internet banking etc.) for customers which provides faster access, easier, convenient and secure online shopping and also makes available round the clock irrespective of the customer’s location.

What is e-banking?

Daniel (1999) defines electronic banking ‘as the delivery of bank’s information and services by banks to customers via different delivery platforms that can be used with different terminal devices such as a personal computer and a mobile phone with browser or desktop software, telephone or digital television’. It includes RTGS, NEFT, ECS, Credit cards/Debit cards and Smart cards, CTS, ATM kiosks and Mobile banking.

Table –I showing the progress of computerization and automation in Indian banking sector

Stages	Objectives  and Technology applied	Developments
Pre-Nationalized Stage Private control of banks (before 1969)	Higher profitability and Manual work	NA
Post-Nationalized Stage Control of Govt. (1969 – 90)	Social Banking and Limited Computerization	1984-88 •Installation of ALPMs. •Banks started using personal computers with hard disk. • MICR cheques were introduced at four metro centers. 1990• Experimentation of total branch computerization covering all aspects of bank’s transactions at the branch level.
Economic Reforms Stage Entrants of foreign and Social Banking to IT based Banks (1991 – 2000)	Higher profitability, cut throat competition and E-banks	1991 • India joined SWIFT. 1997 • Shared payment network system has been set up. 1999 • A pilot project for smart cards conducted jointly by RBI, IIT (Mumbai) and IDRBT, Hyderabad. 2000 • IT Act, 2000 was passed.
Present Stage Implementation of various committees report (2000 – till date)	New products and Services and Maximum use of IT- Mobile, ATMs	2003 • Special EFT system was introduced. 2004 • RTGS system was introduced. 2005 • 11% of branches of PSBs have been brought under CBS and NEFT system was introduced. 2007 • The payment and settlement system act, 2007 was enacted. 2008 • The operative guidelines on mobile banking transactions were issued. • CTS were implemented in national capital region. 2009 • Cash withdrawal from ATMs of the banks was made free of cost.
Source – Compiled by Author

 

Indian Perspective – Presently, country’s banking industry has been consistently working towards the development of technological changes and its usage in the banking operations for the improvement of their efficiency. With the application of new and improved technologies, Indian banks expected to reduce costs, time and give full customer satisfaction. Core banking applications has changed the face of banking by offering value added services. As a result, there is a significant transformation in every sphere of the Indian banks, especially in governance, nature of business, style of functioning, delivery mechanism and also the changes occurred in the financial markets, institutions and products.

Table I1-showing number of banks in India

Important Indicators	As on 31st March
	2006	2007	2008	2009	2010	2011	2012
SBI Group	8	8	8	7	7	6	6
State-owned banks	20	20	20	20	20	20	20
Private sector banks	28	25	23	22	22	21	21
Foreign banks	29	29	28	31	32	34	34
Regional rural banks	133	96	91	86	82	82	82
Non-scheduled commercial banks	4	4	4	4	4	4	4
Scheduled commercial banks	218	179	171	166	165	165	169
Source: Statistical table relating to Banks in India/RBI.(2011-2012)

It is important to note that presently almost 98% of the branches of public sector banks are fully computerized and within which almost 90% of branches are on CBS platform. Growth rate in case of fully computerized branches and branches under CBS has increased whereas in case of partially computerized branches it has declined.

Table III showing the computerization in Public Sector banks (%)

Categories	Year
	2005	2006	2007	2008	2009	2010
a) Branches under core banking solutions	11	28.9	44.4	67.0	79.4	90.0
b) Branches already fully computerized           (other than branches under core banking solution	60	48.6	41.2	26.6	15.6	7.8
Fully computerized branches (a+b)	71	77.5	85.6	93.7	95.0	97.8
Partially computerized branches	29	22.5	14.4	6.3	5.0	2.2
Source: Statistical table relating to Banks in India/RBI.(2009-10)

 

Technological Development of E-banking in India – Up gradation of technology, innovation and modernization are the key factors of having excellence in banking sector. Technological innovation not only enables a broader reach for consumer banking and financial services, but also enhances its capacity for continued and inclusive growth.  The different ways on which internet is trying to revolutionize the delivery of the financial services and products are given below –

1. a) Automated Teller Machine (ATM) – It is an electronic machine operated by a customer himself to deposit or to withdraw cash from bank. ATMs reduce the work pressure on bank’s staff and avoid queues in bank premises and help a lot to travellers as they need not have to carry large amount of cash with them as well as can withdraw cash from any city or state, across the country and even from outside the country. The growth of volume of ATMs indicates that customer most prefer ATMs for transactions because they do not want to go to branches for their day to day banking transaction as shown below in Table-IV.

Table IV showing the growth of bank group-wise ATMs of scheduled commercial banks

Bank Group	Year (As at end-March)
	2010 – 2011			2011- 2012			2012 – 2013
	On- site ATMs	Off- site ATMs	Total No. of ATMs	On- site ATMs	Off- site ATMs	Total No. of ATMs	On- site ATMs	Off-site ATMs	Total No. of ATMs
I. Public sector banks	29,795	19,692	49,487	34,012	24,181	58,193	40,241	29,411	69,652
1.1Nationalised banks*	15,691	9,145	24,836	18,277	12,773	31,050	20,658	14,701	35,359
1.2 SBI Group	14,104	10,547	24,651	15,735	11,408	27,143	18,708	13,883	32,591
II. Private sector banks	10,648	13,003	23,651	13,249	22,830	36,079	15,236	27,865	43,101
2.1Old private sector banks	26,411	1,485	4,126	3,342	2,429	5,771	4,054	3,512	7,566
2.2New private sector banks	8,007	11,518	19,525	9,907	20,401	30,308	11,182	24,353	35,535
III. Foreign banks	286	1,081	1,367	284	1,130	1,414	283	978	1,261
All SCBs (I+II+III)	40,729	33,776	74,505	47,545	48,141	95,686	55,760	58,254	1,14,014
Source: Report on Trends and Progress of Banking in India, RBI, Mumbai, (2011, 2012, 2013). Note: *Include IDBI Bank Ltd. (10-11) *Excluding IDBI Bank Ltd. (11-12), *Excluding IDBI Bank Ltd. (12-13).

 

1. b) Debit card and Credit card- It is a card which designate to customer to withdraw own money from the bank in any time that is to say, used for cash withdrawal from ATM, funds transfer, paying bills, accessing detail account information, changing PIN etc.

Credit card is a post paid card and the holder of the card is empowered to spend money wherever and whenever he wants with his credit card within the limits fixed by his bank

Table V showing the bank group-wise outstanding number of debit cards and credit cards issued by SCBs

Bank Group	Year (As at end-March)
	Outstanding No. of Debit Card (in million)			Outstanding No. of Credit Card (in million)
	2011	2012	2013	2011	2012	2013
I. Public sector bank	170	214.6	260.6	3.08	3.1	3.5
1.1Nationalised banks*	80	103	118.6	0.78	0.84	0.9
1.2 SBI Group	90	112	136.4	2.3	2.22	2.6
II. Private sector banks	53	60	67.3	9.32	9.7	11.1
2.1Old private sector banks	12	13.9	15.4	0.04	0.04	0.04
2.2New private sector banks	41	46	51.9	9.28	9.63	11.1
III. Foreign banks	3.9	3.8	3.3	5.64	4.92	5.0
All SCBs (I+II+III)	228	278.4	331.2	18.04	17.65	19.5
Source: Report on Trends and Progress of Banking in India, RBI, Mumbai, (2011, 2012, 2013).     Note: Figures may not add up to the total due to rounding off. *Excluding IDBI Bank Ltd. (12-13)

Table V showing Bank Group-wise outstanding number of debit cards and credit cards issued by scheduled commercial banks as at end March 2011, 2012 and 2013. In 2010-11, Public sector banks have highest number of debit cards issued by the industry has increased from170 million in 2010-2011 to 260.60 million in 2012-2013. Nationalized Banks (118.6 million) and SBI group (136.4 million) have high percent of cards issued as compared to Private sector banks (67.3 million) in 2012-2013. The share of new private sector banks is higher as compared to old private sector banks. Foreign banks have (3.3 millions) in 2012-2013 of debit cards issued. The Table V also shows outstanding number of credit cards issued by scheduled commercial banks as at end March 2013. The number of credit cards issued has increased from 3.08 million in 2010-2011 to 3.5 in 2012-11. In 2012-2013 the total cards issued in case of private sector banks is highest (11.1) in comparison to 2010-2012 (9.32).The share of public sector banks is just 17.07%  and that of foreign banks is 31.26%. Foreign banks have (19.5millions) in 2012-2013 of credit cards issued.

1. c) Electronic Clearing System (ECS) – It is an electronic mode of retail payment system which facilitates transfer of bulk payments from a single account at a bank branch to any number of accounts maintained with the branches of the same or other banks. ECS (Credit) or Credit Push facility and ECS (Debit) or Debit Pull facility are the two types of ECS service.
2. d) Electronic Fund Transfer (EFT) – It is electronic transfer or exchange of money from one to another account which takes place across multiple financial institutions through computer systems to help banks offering money transfer service to their customers from any e) National Electronic fund Transfer (NEFT) – It is a nation-wide payment system facilitating one-to-one funds transfer that is to say, individuals, firms and corporate can electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country participating under this system. For being part of the NEFT funds transfer network, a bank branch has to be NEFT- enabled.
3. f) Real Time Gross Settlement (RTGS) – It is a funds transfer mechanism where transfer of money takes place from one bank to another on a real time settlement (payment transaction is not subjected to any waiting period) and on gross basis of settlement (transaction is settled on one to one basis without bunching with any other transaction). This is the fastest possible money transfer system through the banking channel.

Table VI showing the volume and value of electronic transactions by scheduled commercial banks

Type of transaction	Volume (in millions)			Value (in billions)
	Year			Year
	2010 -11	2011 -12	2012-13	2010 -11	2011 -12	2012-13
ECS Credit	117	121.5	122.2	1,817	1,838	1,771
ECS Debit	157	165	177	736	834	1,083
Credit Cards	265	320	397	755	966	1,230
Debit Cards	237	328	469	387	534	743
NEFT	132	226	394	9,321	17,904	29,022
RTGS	49	55	69	4,84,872	5,39,308	6,76,841
Source: Report on Trends and Progress of Banking in India, RBI, Mumbai, (2011, 2012, 2013).  Note: % change could be slightly different as absolute numbers have been rounded off to million or billion.

 

Why there is a need of E-Banking?

• With the help of e-banking, the customer can operate his account remotely from his office or home.
• It lends an added advantage towards payment of utility bills and also eliminates the need to stand in long queues for the purpose of bill payment.
• Sharp growth in credit card/debit card usage can be majorly attributed to e-banking. A customer can shop globally without any need for carrying paper currency with him.
• By the help of e-banking facilities, banks are now available 24×7 and are just a mouse click away.
• The rise of e-banking has made the banks more competitive and resulted in opening of better prospects and avenues for banking operations.

E-Banking services

Table VII showing the different categories with types of e-banking services

Categories	Types of services
Internet Banking Services	Balance enquiry and statement and request of Cheque book
	Online transfer of funds
	Card to card fund transfer and Bills payment
	Pre paid mobile recharge and top-up recharge
	Buy and sell Mutual Fund and Demat holdings
	Renewal/ premature closure of FD/ RD,  Loan Details and Interest rate updates
	Change Password
	Online shopping, Ticket Booking and Online tax payments
Mobile Banking Services	Making Payment and details of credit card balance
	Purchase and Redemption of Mutual Fund units
ATM’s Services	24 hours access to cash and transfer of funds between accounts
	View account balances and mini statement
	Pin change option
Source: Compiled by the author

 

Challenges  

• Communication across an open and thus insecure channel such as the internet might not be the best base for bank-client relations as trust might partially be lost.
• The most serious threat faced by e-banking is that there may be loss of data due to technical faults as it is not safe and secure every time.
• Lack of preparedness both on part of banks and customers in the adoption of new technological changes.
• Lack of proper infrastructure for the installation of e-delivery channels.
• The ability to adopt global technology to local requirements and to strengthen public support for e-finance.
• It has created many new challenges for bank management and regulatory and supervisory authorities.

 

Recommendations – In order to increase and achieve the level of mutual trust between banks, websites and customers, the following strategies should be applied by banks.

• Banks should ensure that online banking is safe and secure for financial transaction as like traditional banking.
• Banks should organize seminar and conference to educate the customer regarding the healthy usage of e-banking as well as security and privacy of their accounts.
• Employees of banks should be given special technical training for the use of e-banking so that they can further encourage customers to use the same.
• Banks must emphasize on the convenience and cost saving policy that online banking can provide to people such as avoiding long queue and reduction in transaction cost by use of e-banking.
• Government should make the required investments for building the infrastructure.

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Conclusion – The financial sector reforms have brought about significant improvements in the financial strength and the competitiveness of the Indian banking system. The e-banking revolution has fundamentally changed the business of banking by scaling borders and bringing about new opportunities. Therefore, Indian banks need to optionally leverage technology to increase penetration, improve their productivity and efficiency, deliver cost-effective products and services, provide faster, efficient and convenient customer service and thereby, contribute to the overall growth and development of the country. However, hounded by negative issues like identity theft and phishing attacks, banks must be concerned about the attitudes of customers with regard to acceptance of online banking. In years to come, e-banking will not only be acceptable mode of banking but will be preferred mode of banking because of the computerization process adopted by banking sector with a vision to reach Indian banking to every citizen.

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About the Author

Mr. Pema Lama
Assistant Professor
Department of Commerce
University of Calcutta

Ms. Suranjana Saha
Assistant Teacher of Commerce
Shamnagar Balika Vidyalaya
Shyamnagar, 24 Pgns (N)

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References:

• Agarwal, N., Agarwal, R., Sharma, P. and Sherry, A. M. (2003), ‘E banking for comprehensive E-Democracy: An Indian Discernment’, Journal of Internet Banking and Commerce, Vol. 8, No. 1, June, 03.
• Mohan, K. (2006), ‘Information Technology on Indian banking’, SCMS Journal of Indian Management, July-Sept issue, pp. 18-24.
• Raghavan, R.S. (2006), ‘Perception of Indian banks in 2020’, The Chartered Accountant, October issue, pp. 600-606.
• Reserve Bank of India (2010-11), Report on trend and progress of banking in India.
• (2011-12), Report on trend and progress of banking in India.
•  (2012-13), Report on trend and progress of banking in India.
• (2009-10), Statistical table relating to banks in India.
• (2011-12), Statistical table relating to banks in India.
• Shukla, R. and Shukla, P. (2011). ‘E-banking: Problems and Prospects’, International Journal of Management & Business Studies, Vol. 1, No. 1, pp.23-25.
• Uppal, R.K. and Chawla, R. (2009), ‘E-Delivery channel-based banking services: An empirical study’. The Indian Journal of Management Research, Vol. VIII, No. 7. pp. 7-33.

Websites:

• http://www.www.rbi.org.in
• http://www.business standard.com