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Report Submitted to the Fulfillment of the Master of Business Administration [2006-2008]




I declare that the project titled Role of IT In Banking Sector is an original project done by me and no part of the project is taken from any other project or materials submitted earlier to any other college.

Sanjeev Kumar

With a profound sense of gratitude, I record my indebtedness to Ms. Geetika Garg, Faculty, HIMT, Greater Noida for providing me the support to undergo this project. The nurturing and blossoming of this present work was mainly due to her valuable guidance, astute judgment, constructive criticism and an eye for perfection. But for his overwhelming interest, the present work would not have seen the light of days. And last but not the least; I am thankful to all the helpful people who were not even aware of the contribution they made towards the completion of this project.



Topics Covered
!. 2. 3. Certificate Acknowledgement Table of Content

4. 5. 6. 7. 8. 9.

Executive Summary Banking Industry in India Banking and Technology Research Methodology Internet Banking Indian Banks on the web The major players (ICICI, HDFC and CITIBANK)

10. Future of e-banking in India 11. Conclusion 12. Bibliography

Internet banking in India: Future Potential and Challenges

Indian banking industry , today is in the midst of an IT revolution. A combination of regulatory and competitive reasons have led to increasing importance of total banking automation in the Indian Banking Industry. Still to date, out of the over 50,000 branches of Public Sector Banks, only 3,668 branches have been fully computerized, while a further 6,961 branches have been partially computerized. This provides a huge market for players in IT Industry. The expansion of bank branches to far flung areas resulted in an explosion of sorts in volumes of transactions and posed a severe strain on all resources. More particularly, the inter-branch reconciliation became one area that defied manual handling. It was in this background that the first steps towards

mechanization were taken in late 50s/early sixties in the Calcutta office of the SBI for the reconciliation of inter-branch

transactions. The pace of branch expansion was so fast that by early sixties this equipment was also considered inadequate and the Bank went in for the first computer The whole system of reporting and reconciliation of transactions was revamped and modernized. Other larger nationalized Banks also followed suit.

Internet banking in India: Future Potential and Challenges

Interestingly, at that time, no immediate need was felt for automation of Branch and customer related activities or for that matter head office/corporate office operations. With increasing volumes of transactions, manual handling of these led to dwindling customer service and increasing

complaints. However, mechanization of any kind was opposed by the Unions and resulted in slowing down of computerization drive in Indian Banks. The need for information technology is felt most in routine technology and repetitive commercial chores which modern man is finding increasingly difficult to handle all by himself. To understand this difficulty all you have to do is walk into a public sector bank anywhere in this country. It takes close to half and hour to fill out a demand draft, another half hour to withdraw cash and sometimes, more than twenty days to get an up-country cheque credited to your account. Add to this the irritation you get from harassed bank clerks and when you walk away they feel they are actually doing you a favor by keeping your money with them. Look at it from another angle. You are a bank employee burdened with monotonous, uninspiring work. All you do is post entries to a ledger, count out soiled, half-torn currency notes and monitoring interest accruals on loans given out to a thousand customers.

Internet banking in India: Future Potential and Challenges

If banks opts for a high level of computerisation, even if it were to be achieved in a phased manner, they would not only be able to service customers better but would also reap bigger profits. Imagine what would happen when business doubles, workload increases manifold and bank employees are left grappling with archaic adding machines and calculators. Foreign remittances would get clogged in the pipeline, queues would lengthen at tellers' counters, passbooks would take weeks to update and senior citizens would be waiting for their pensions as clerks manually prepare pension scrolls to be submitted to the treasury. It's real ironic situation. Here on the one hand we claim to be a nation of computer experts providing state-of-the-art solutions of Fortune 500 companies. On the other, our own companies, which can well afford computerisation, look askance when an IT proposal falls on the chairman's desk. If unions are the stumbling block, their leaders ought to be educated. Lack of awareness, lack of will to accept change and to some extent lack of money is coming in the way of those companies that are in the business of handling the nation's money. These are surmountable problems. The sooner we address these issues the better it is for all of us.

Internet banking in India: Future Potential and Challenges


Banking Industry in India has always revolved around the traditional function of deposits and credit. Their role had been defined as to assist the overall economic growth with majority of share being controlled by the Government of India in most of the banks. But with the process of liberalization, and the

technological revolution the banking industry has also undergone tremendous change in the last 5 years. The market, which was largely controlled by the public sector banks, has now been facing stiff competition not only from foreign players but also from the new generation private sector banks. The rules of the game have been changing with the RBI introducing new norms to make banks more accountable and to adopt the practices followed worldwide. Most of the banks have now been trying to function on the concept of a Universal Bank. Apart from the traditional functions of a commercial bank, they are taking steps to build themselves into a one stop financial centre wherein all the financial products would be available. Banks have started catering to the retail segment to improve their deposit portfolio. In order to have a maximum share in this segment, most of the banks have been introducing new products. The delivery channels have also been shifted from branches to ATMs, phone banking, net banking etc.

Internet banking in India: Future Potential and Challenges

Technology has become an important medium of not only attracting new customers but also in retaining them. The new generation private sector banks have made a strong presence in the most lucrative business areas in the country because of technology upgradation. While, their operating expenses have been falling as compared to the PSU banks, their efficiency ratios (employees productivity and profitability ratios) have also improved significantly.
Key Industry Statistics of Scheduled Commercial Banks
(Rs bn)

Mar-26' 2002 Total deposits demand time Total bank credit food non-food Investments govt. sec other approved sec Cash in hand Balance with RBI Cash-Deposit ratio 7140 1174 5966 3688 168 3520 2545 2232 313 43 635 9.50%

Mar-24' 2003 8132 1273 6859 4358 256 4102 3088 2784 304 53 574 7.70%

Sept-22' 2003 8729 1266 7463 4667 320 4347 3332 3023 309 53 631 7.80%

Internet banking in India: Future Potential and Challenges

Investment-Deposit ratio Credit-Deposit ratio

Source RBI WSS

35.70% 51.70%

38% 53.60%

38.20% 53.50%

Banks traditionally involved in working capital financing have started offering consumer loans and housing loans. Some of the banks have started offering travel loans as well. Retail financing is the other area where the banks have started to concentrate. The loan formalities too have been relaxed to a great extent and sanctioning time has been speeded up. Mergers and Acquisitions have also started playing their role in the banking industry where lots of players are trying to consolidate their position. The recent merger of ICICI Bank with Bank of Madura and the announcement of the merger of Global Trust Bank with UTI Bank are important steps in this direction. In recent times, most of the new private sector banks have shown interest in inducting a foreign partner in their operations. Most of the banks are also planning to enter the insurance business and are in the process of identifying their strategic partners. Since most of the banks already have an extensive distribution network, this new business should result in

substantial revenues. But with most of the top league players planning to enter this business, the more efficient and pro active players would be able to take a lead. Structure Of Indian Banking Industry

Internet banking in India: Future Potential and Challenges

The Indian Banking Industry can be broadly classified into:

Public Sector Banks

The Indian Banking industry is largely dominated by the public sector banks. These banks till the early 90s were involved in the traditional banking business of deposits and credit lending. They performed a supportive role in the overall growth of the economy. While most of these banks used to focus on the growth of balance sheet, profitability was not a significant factor in the competition. In most of the banks, the government has a holding of 100% whereas in the few banks, the stake has fallen because of a public issue in the post liberalization period. The government is proposing to bring out a bill wherein its share in all these banks would stand reduced to 33% from the current levels. The public sector banks have a strong distribution network all over the country. But the strength of the earlier periods has now become a concern for these banks. As compared to the techequipped distribution network of the new private sector banks and the foreign banks, these banks have found it difficult to upgrade them on the technology front. These banks are also facing the problem of surplus manpower. Most of these banks are now coming out with a VRS to bring down their number of employees and improve the efficiency ratios. The public sector banks still control a major share in the banking operations of the country. Their inefficiencies have been exposed only when the market was throw open for competition and new

Internet banking in India: Future Potential and Challenges

players started eating up their share. But given their size and the strong network, most of these banks can change their

perception. The recent thrust on reduction of government stake, VRS, NPA settlement schemes etc have been some of the steps in this direction. Since the growth of the economy is largely dependent on the performance of these banks, even with the growth of new private and foreign players, these banks will have an important role to play.

Internet banking in India: Future Potential and Challenges

Private Sector Banks

The Banking Regulation Act was amended in 1993 permitting the entry of new private sector banks. With emphasis on service and technology, it is for the first time that Indian banks are challenging the foreign banks. These banks are making heavy use of technology to give good service on par with foreign banks but to a much wider audience e.g. branch size has been reduced considerably by using technology and having less manpower. In addition the ATM etc helps drawing large customers to one branch. The new private banks are on an expansion phase and are now moving into semi-urban areas and satellite towns to fulfill their branch expansion norms. Their technological edge and product innovation has seen them gaining market share from the slower, less efficient older banks. The new private banks have been consistently gaining market share from the public sector banks. The major beneficiary of this has been corporate clients who are most sought after now. The private sector banks have been able to make significant inroads in the retail market of the public sector banks. During the year, the two leading banks in this sector had set a new trend in the Indian banking sector. HDFC Bank, as a part of its expansion plans had taken over Times Bank. ICICI Bank became the first bank in the country to list its shares on NYSE.

Internet banking in India: Future Potential and Challenges

Foreign Banks

Foreign banks have been doing the normal banking business in the country. During the period of nationalization, the entry of new foreign banks and expansion by existing foreign banks were prohibited. Even, when the norms were relaxed later on, RBI was very slow in granting any further approvals to these banks. But most of these banks have concentrated on the metropolitan cities of the country and have been able to do reasonably well. These banks have used the latest technology to compensate for the limited number of branches they have. In the post liberalization period, a number of new players have entered and the existing players have consolidated their position in the market. In the last couple of years, some of the foreign banks have entered the retail segment and introduced a number of new products in the market. This has intensified the competition in the banking sector and has made most of the old players rethink their strategy.

Internet banking in India: Future Potential and Challenges


There is no denying the fact that in the past two decades information technology has been the most rapidly changing industry in the world. But more than the rate of change, what is remarkable is the way IT has changed the paradigms of business in other industries. One industry that has really felt the impact of IT has been the banking sector. The banking scenario has been changing at fast pace. Banks, traditionally just borrowers and lenders, have started providing complete corporate and retail financial services to its customers. Banks have been introducing new products to maintain their share in this highly competitive market where things have been changing quite rapidly. Technology drive has benefited the customers in terms of faster, improved, convenient banking services and variety of financial products to suit their requirements. ATMs, phone banking, net banking, anytime and anywhere banking are the services, which banks has started offering following the changing trend in the sector. In plastic money segment, customers have also got a new option of debit cards against the earlier popular credit cards. Earlier customers had to conduct their banking transactions within the restricted time frame of banking hours. Now banking hours have been extended. ATMs, phone banking and net banking had enabled the customers to transact as per their

Internet banking in India: Future Potential and Challenges

convenience. Customers can now withdraw money at any time and from any branch across the country. They can ascertain their account transactions, order statement of account, and give special instructions using the tele-banking or online banking service. Infact, couple of banks in the country has started a new facility wherein a customer can open an account with a very low balance and avail all the latest tech facilities offered by the bank. But the moment, the customer would visit a branch, he would charged be a penalty which symbolizes the increasing practice of the banks to discourage the customers from using branch transactions. The main reason for this move could be lower operating costs for these banks while operating from these new channels. Customers can apply for credit online and even the processing of loan application is done online. In a tight competitive environment where banks are making a thrust towards technology to provide superior services to its customers, customers stand to gain the most. The Customer is now in an enviable position where he can demand superior services at competitive prices. Those banks, which have been able to realize the importance of technology in the day to day operations, have witnessed a sharp increase in their overall perception while the others have probably lost the first mover advantage.

Internet banking in India: Future Potential and Challenges

The first mass-oriented infotech deployment in the banks happened in 1998, with Citibanks pilot project "Suvidha" in Bangalore. The project focussed more on the ATMs and less on the brick-and-mortar branches. Within two years, it broke even and has now been launched in Delhi and the NCR. The banks customers have access to over 149 ATMs in the region including Citibanks own ATMs and other ATMs in the Cirrus networkan international banking network. Apart from the banks Web site providing information about all the ATM locations, Citibank has put up a 247 call center to address all customer needs from a single location. Another example is ICICI Bank. In Delhi alone, its on- and offsite ATMs number about 139 while the brick-and-mortar branches number about 30. It also has a call center to handle any banking queries in Delhi. From Traditional Banking Traditionally the relationship between the bank and its customers has been on a one-to-one level via the branch network. This was put into operation with clearing and decision-making

responsibilities concentrated at the individual branch level. The head office had responsibility for the overall clearing network, the size of the branch network and the training of staff in the branch network. The bank monitored the organizations

performance and set the decision-making parameters, but the

Internet banking in India: Future Potential and Challenges

information available to both branch staff and their customers was limited to one geographical location.

to Relationship Banking The modern bank cannot rely on its branch network alone. Customers are now demanding new, more convenient, delivery systems. And services such as Internet banking have a dual role to the customer. They provide traditional banking services, but additionally offer much greater access to information on their account status and on the banks many other services. To do this banks have to create information layers, which can be accessed both by the bank staff as well as by the customers themselves. Today banking in India has become an unpopular industry, much blamed for problems of its own making. The use of interactive electronic links via the Internet could go a long way in providing the customers with greater level of information about both their own financial situation and about the services offered by the bank.

Internet banking in India: Future Potential and Challenges


Telephone, Branch, Electronic Banking, etc. Shared Information

Clearing Systems

Head Office Risk Monitoring

The New Relationship Oriented Bank

Current Scenario
Of the existing 55,837 bank branches in the country, 21,309 were partially computerised and 5,910 fully computerised, according to a Nasscom study on the status of computerisation in the Indian banking industry. Twenty-five per cent of banks in India are computerised and Nasscom aims to achieve 90 per cent computerisation in the industry by year 2006, said Mr. Dewang Mehta, at

`IT@bank.com 2000', a seminar organised by Nasscom and Indian Banks' Association, on July 25, 2000. There are 1,00,145 computers installed in banks, with 40,000 alone installed in the last one year.

Internet banking in India: Future Potential and Challenges

The study showed installed ATMs at 1320, online terminals at corporate customer sites at 2,202, credit cards at 10,56,200 and debit cards at 1,20,210. However, looking at the current status of banks, we do not seem to have achieved either the improvement of service nor are we setting up an environment of complete computerisation. With the various kinds of computerisation, we have observed the

customer to note: 1. running. 2. Absolute chaos when the system is down temporarily when no service is offered even if the system is not needed to dispense the customer (mere acceptance of a cheque is also refused even when the entry is possible to be done later). 3. Delay in receiving periodic statements. 4. Wrong balance being carried forward either at year-end or at the time of switch-over to computers. The use of computers to merely service the depositor customer does not constitute Bank branch computerisation. Noticeable in their absence is the department of advances and Inter-branch transactions. Advances -- Earning department ignored Increase in service time even when the system is

Internet banking in India: Future Potential and Challenges

Bills are one of the products of the advances department and most of the systems have ignored the important point that this is the profit-earning department of the Bank. Bills purchase and discount whether local or foreign is the mode encouraged by the RBI from time to time since the transaction financed is specifically identified. The calculations of each transaction are complex especially when the Bill is paid after due date. Taking care of this would ensure correctness of calculation of an important source. Inter-branch transactions Issuance of any of the remittance instruments like Bank draft, Telex transfers etc. is one of the major sources of creation of inter-Branch transactions. Reconciliation of these is one of the banes of the industry and few have managed to bring it into a manageable size. Inter-branch reconciliation is easily possible even with the lowest level of computerisation. All the Bank has to do is obtain on a magnetic media say a floppy such inter-branch transactions and let the central computer list out the variances for the branches to respond.

Internet banking in India: Future Potential and Challenges

An idealistic view Graphically speaking, we would like the system to achieve basically:
Counter computerisatio n Efficient counter Daily branch efficient Branch and inter branch Total Computerisatio n

computerisatio computerisatio computerisatio n n Priority 3 Back office load taken n Priority 4 Inter-branch transactions

Priority 1

Priority 2

Priority 5 Statistical information extracted by the system

Faster Service Controls to existing customers integrated into the system

care of by the reported by system system

Look at your Bank branch and you will see how far from total computerisation is the branch. It is sad to note that even the first stage is achieved by only a few. 1. All counter departments like savings, current, cash credit and cash all linked. The voucher flow to be redesigned and not to merely replicate the manual system. 2. Back-office also linked to daily transactions demanding only the minimum of input at the end of the day. 3. Advances department with special modules to take care of each of the products of the Bank taking into the unique control and audit requirements of each. 4. Advances department to have special link to documentational requirements and their follow-up to ensure the documents are

Internet banking in India: Future Potential and Challenges




5. A proposal evaluation system to offer quicker answer to prospective borrowers. 6. Inter branch transactions linked to reduce reconciliation to not more than a week. 7. Remittance of inter branch funds to take seconds instead of days.

The idealist view just discussed is in reality very achievable today provided the management has the will and the guidance to do so. Merely replacing the calculator by a computer does not mean computerisation. Unless we see a stark change in the quality of Banking computerisation, we will have to consider their computers to merely be used as typewriters with heavy under exploitation of computers and thus the entire Banking workforce. In addition, the next Banking fraud is likely to be based on weak computerisation and armed with such knowledge of prevention, it will be a real pity if that occurs. We can see some bold steps by a few Banks but these steps require to be much more firm and advanced to achieve a leapfrog. As a first measure, the National Association of Software and Services Companies (Nasscom) has announced the formation of a National E-banking Committee, consisting of representatives from the Ministries of Information Technology and Finance, the

Internet banking in India: Future Potential and Challenges

Reserve Bank of India and public, private and foreign banks and select information technology companies. The committee will address matters ranging from telecom infrastructure for banks to technology for detection and

prevention of frauds. Whether the objective is achieved or not is to be seen.

Internet banking in India: Future Potential and Challenges

What is E-banking? In simple terms it does not involve any physical exchange of money, but its all done electronically, from one account to another, using the Internet. Already, infotech in banking is become a strategic necessity for banks, rather than being a key differentiator. Indeed, in its early stages, the ATM was a source of strategic differentiation for Citibank and other early adopters. Today, the ATM technology doesnt differentiate a bankconsumers expect it as a basic service offering. ATMs have migrated from being a differentiator to a strategic necessity. The Internet banking is changing the banking industry and is having the major effects on banking relationships. Even the Morgan Stanley Dean Witter Internet research emphasised that Web is more important for retail financial services than for many other industries. Internet banking involves use of Internet for delivery of banking products & services. It falls into four main categories, from Level 1 - minimum functionality sites that offer only access to deposit account data - to Level 4 sites - enabling integrated sales of additional products and access to other financial services- such as investment and insurance. In other words a successful Internet banking solution offers:

Internet banking in India: Future Potential and Challenges

Checking with no monthly fee, free bill payment and rebates on ATM surcharges

Easy online applications for all accounts, including personal loans and mortgages

24 hour account access. Quality customer service with personal attention.

The concept of electronic banking or E-banking is more prevalent in the technologically developed parts of the world such as Europe and the US. The number of online banks in Western Europe has mushroomed. As per Bluesky International

Marketing, a US based research agency, the number is quoted at 1,845 in mid 1999. The scene is similar in the US where a

recent Dataquest survey forecasts that the number of US households banking online will reach 34.2 million by 2006. As the world takes rapid strides in the world of banking the question is where does India stand in the global scheme of things?

There is no denying the fact that information technology has been the most rapidly changing industry in India, and the marriage of technology and banking has to occur for India to

keep pace with changes in the global scenario. Looking back, the Narasimham Committee deserves mention in that it was

Internet banking in India: Future Potential and Challenges

instrumental in forcing Indian banks to become competitive. Private sector banks forced the public sector banks to embrace technology and improve their level of customer service. Next, the Khan Committee was highly important in that it recommended the setting up of universal banks. Preference was given to financial institutions, which could provide a whole range of corporate financial solutions under one roof. But most

importantly, the Verma Committee recommended the need for greater use of IT even in the weak Public sector banks. Actually, the nationalization of banks back in the 80s is proving to be a major obstacle in bringing about the required technological changes.

Today, technology savvy private banks are making the most out of opportunities thrown up by the Internet leaving behind their slow moving public sector counterparts in valuations as well as growth. Now, when one considers the fact that public sector banks dominate the banking landscape in India, one realizes that a lot has to be done and done quickly for India to catch up on Ebanking. Presently there are 33 private banks and 43 foreign banks but the 27 public sector banks mop up the bulk of the business. They account for over 84% of the total deposits and over 82% of the total banking advances in India. In the words of Mr. Bandi Ram Prasad, Chief Economist, Indian Banks

Associations, If Indian banking system has to undergo a

Internet banking in India: Future Potential and Challenges

transformation, then the public sector banks must be in the forefront of the change.

The boom in the IT sector has been persisting for quite a number of years. The previous year however, will be remembered as the year of the dot. From the acquisition of Indiaworld by Satyam to the recent crowning of Wipros Azim Premji as the second richest person in the world to the mushrooming of dotcoms in every sphere of business, the message is clear. The Internet is here to stay and stay for good. Most of the services offered on the net have been received quite well by the customers and there is no reason to believe that the same wont be the case with banking services. And if one takes into account the fact that the major problem E-Commerce is facing today is that of security in online transactions, the concept of e-money, whereby

customers seamlessly interact with the organization seems more and more lucrative. This offers banks a huge opportunity. A recent example of Rediff tying up with ICICI bank to offer such services can be cited.

As per Mr. K V Kamath, MD and CEO ICICI Ltd., Technology today, particularly via the internet, is creating a platformindependent, low cost communication infrastructure permeating all sectors of the economy and providing an affordable medium to conduct business. The cost per transaction through the

Internet banking in India: Future Potential and Challenges

Internet is 27 times less than through ATMs, 54 times less than that of a telephone transaction and 107 times less than that of a physical branch transaction. Even though PC penetrations are still low in India, this provides tremendous opportunities to Indian banks. Again the financial services business will be among the industries most profoundly affected by the Internet, since the distribution of financial products does not entail any physical exchange of goods. Today, the customer is the master. He has a lot of choices to select from and if one has to retain ones customers one will have to ensure that that the customers get a much better deal from their banks. In order to survive, all banks and financial services would probably have to quickly and seriously reevaluate their delivery strategy, if they have to survive in the market space. The Internet is slowly converting retail banking into a commodity where the days of loyalty to bricks and mortar banking are obsolete. Coming back to our public sector banks, let us look at a few problems they face in this regard. Regulatory problems form the upper crust here. While public sector banks can open and relocate in urban and metropolitan areas, closure of branches requires prior RBI permission. These banks are unable to compete effectively with the new private sector banks with respect to restructuring and better delivery systems. It is highly likely that public sector banks will get

Internet banking in India: Future Potential and Challenges

segregated into urban branches where Internet banking is a must and residual rural branches where it is not. Moreover the new private sector banks are providing complete solutions to corporates at lower costs and better services and weaning away corporate clients. The future paradigm of banking in India will stress on mergers and ability to spread costs by leveraging on technology.

Some Positive Steps

Banks as well as other financial entities in India have only recently entered the world of information technology and computer networking. Besides, the technology up gradation, an efficient payment system is needed to improve the effectiveness of monetary policy. One can highlight three distinct areas where the application of IT has been quite substantial. This gives us an idea regarding the preparedness level of India with regard to Ebanking. Firstly, with regards to the payments and settlement systems, since the introduction of MICR cheques in the mid-eighties, the RBI has proceeded to make significant improvements in the functioning of financial entities with respect to their application of information technology. These include, introduction of Electronic Funds Transfer (EFT), introduction of inter-bank electronic

Internet banking in India: Future Potential and Challenges

payment system, introduction of Automated Teller Machines (ATM) by almost all major banks and the putting in place of a Shared Payments Network System (SPNS). The RBI has also operationalised the Very Small Aperture Terminal ( VSAT)

network to provide reliable communication backbone to the financial sector. The setting up of the INdian FInancial NETwork (INFINET), based on satellite communication using VSAT technology, is expected to facilitate connectivity within the financial sector.

Against the backdrop of preparedness towards technology upgradation, the RBI has made a proactive effort to move towards a Real Time Gross Settlement ( RTGS) system. Gross Settlement systems have the advantage of significantly reducing risks, as transactions are settled on a bilateral basis in real time frame.

The INFINET deserves mention yet again as it serves as the communication backbone. It needs to be augmented by addition to the presently licensed transponder capacity as well as by other communication modes.

Changes in recruitment procedures and training and managerial responsibility at different levels of the staff structure are

Internet banking in India: Future Potential and Challenges

envisaged. This is augmented by the fact that in the present placements in major B-schools, banks like Citibank, ICICI, and HDFC etc have shown a distinct shift towards IT savvy people. This projects a very optimistic picture regarding the future of Ebanking in our country.

Finally, it needs to be stated that the on-going process of reforms cannot be successful without a supporting and

complementary legal framework which can provide for both strong internal governance in the financial system as well as external discipline by market forces. A Reserve Bank of India (RBI) committee in July, 2001 came out with the road map for electronic banking in India and has sought promulgation of a legislation on electronic funds transfer (EFT) system. Banks have been advised to outsource software technology since it was a better option in the context of rapid changes in the information technology industry. It felt computerisation of government departments should be synchronised with the computerisation of bank branches dealing with government transactions. Essential Management Information System (MIS) founded on data warehousing and data mining at individual bank level, has been stressed.

Internet banking in India: Future Potential and Challenges

A suggestion has been made that banks choose the branches and areas of operation where they have already introduced a certain degree of automation and computerisation and review the systems and procedures in these branches/areas to adapt them to the technology that is newly introduced. It has suggested that larger banks should explore the

possibilities of giving exposure to their technical staff on the latest developments that are taking place around the world in the area of it and allied areas by deputing technical officers to the banks and other specialised institutions abroad.

Drivers of change Advantages previously held by large financial institutions have shrunk considerably. The Internet has leveled the playing field and afforded open Internet access to is customers a in the global delivery




channel for financial institutions. Consumers are embracing the many benefits of Internet banking. Access to one's accounts at anytime and from any location via the World Wide Web is a convenience unknown a short time ago. Thus, a bank's Internet presence transforms from 'brouchreware' status to 'Internet banking' status once the bank goes through a technology integration effort to enable the customer to access information about his or her specific account relationship.

Internet banking in India: Future Potential and Challenges

The six primary drivers of Internet banking includes, in order of primacy are:

Improve customer access Facilitate the offering of more services Increase customer loyalty Attract new customers Provide services offered by competitors Reduce customer attrition

Emerging challenges Information technology analyst firm, the Meta Group, recently reported that "financial institutions who don't offer home banking by the year 2002 will become marginalized." By the year of 2005, a large sophisticated and highly competitive Internet Banking Market will develop which will be driven by

Demand side pressure due to increasing access to low cost electronic services.

Emergence of open standards for banking functionality. Growing customer awareness and need of transparency.

Internet banking in India: Future Potential and Challenges

Close integration of bank services with web based Ecommerce or even disintermediation of services through direct electronic payments (E- Cash).

More convenient international transactions due to the fact that the Internet along with general deregulation trends, eliminate geographic boundaries.

Move from one stop shopping to 'Banking Portfolio' i.e. unbundled product purchases.

Certainly some existing brick and mortar banks will go out of business. But that's because they fail to respond to the challenge of the Internet. The Internet and it's underlying technologies will change and transform not just banking, but all aspects of finance and commerce. It represents much more than a new distribution opportunity. It will enable the alert players to leverage their brick and mortar presence to improve customer satisfaction and gain share, and will force the lethargic players out of business-since they are unable to bring to play in the new context. While banks are enthusiastic about introducing e- banking, many customers are less impressed. Once the novelty of the

transactions on the Internet wears off, it is not sure whether the bulk of consumers really want to do their banking on telephone or their computer screen. Customers worry about the leakage of their financial information through electronic transmission of their instructions to the bank. And despite the promise of having access to an account from anywhere in the world or trading a

Internet banking in India: Future Potential and Challenges

stock seconds after opening the market, what happens if the call drops in the middle of the transactions or the message gets mutilated in the course of transmission? Most customers need to know that they have a bank branch to feel secure about where their money is. In particular, there are elderly people and senior citizens who prefer to visit the branch personally for their transactions and for whom it is as much a social activity as an errand. True, banks cannot be expected to open branches or keep them open for social reasons only, but given the state of technology and the extent of computerisation, it will be at least a generation before branch banking can be substantially replaced. Furthermore, many believe that the rush of banks into e-banking is a sort of gimmick, a marketing ploy to prove how progressive they are in terms of technology. But what banks in India really require to win confidence of consumers is customer-orientation and responsiveness of their staff. While e- banking may be useful and welcome to large corporate customers, their number is limited. The others are not exactly screaming for it yet. More than anything else, banks need to strive for adequate

reorientation of attitudes of their staff, coupled with reasonable computerisation of their operations, to obviate delays.

Nevertheless, some banks, particularly those with international operations, feel they would rather be too early than too late.

Internet banking in India: Future Potential and Challenges

It is believed that everything will be determined by content and context, and where execution will be key. From a customer and service provider perspective, this is where the world is moving-it is going to be real-time, on-line experience. If existing banks don't want to disappear, it is this challenge of Integration that they need to embrace in order to win and survive. The more things change, the less they change. The strategic and

executional battles of the future are going to be fought for Channel Integration. What does Channel Integration means? It means that an institution presents an identical face to the customer-be it in the branch, on the web, at an ATM or for that matter, through a sales representative or a broker. An identical face, an identical message. Or better still, messages that reinforce each other. If a sales representative tries to sell you a housing loan, you get e-mail a day later reminding you about the loan. That's called Integrated Sales, which results in incremental economic activity and improved efficiencies of communications. The beauty of this approach is that one channel does not displace another. They feed on each other to create incremental value for the customer, as well as the institution. The

incremental value comes from two distinct sources. Firstly, you reduce inefficiencies. You don't send people junk mail because you know that they are not likely to buy a particular product or service today. That results in net saving for the economy.

Internet banking in India: Future Potential and Challenges

Secondly, you persuade people at the right time (the right time from the customer's perspective, not from the service provider's perspective) to opt for a tailor made offering. This too increases value. Actually, this has to do with the Internet itself, and more to with the underlying technologies of the Internet which allow incremental efficiency, and empowers the customer to make more enlightened and timely choices. Lastly the product range is another issue which becomes important. It will take a technological revolution to make available advanced banking products on the net and given the rate at which the technology is developing we can expect this to happen in near future. Main concerns in Internet banking In a survey conducted by the Online Banking Association, member institutions rated security as the most important issue of online banking. There is a dual requirement to protect customers' privacy and protect against fraud.









legitimate Internet users are allowed to access the system.

Encryption techniques used by the bank (including the sophisticated public key encryption) would ensure that privacy of data flowing between the browser and the Infinity system is protected.

Internet banking in India: Future Potential and Challenges

Digital certification procedures provide the assurance that the data you receive is from the Infinity system.

A new study by the Pew Research Foundation in Washington in June reported that 84 per cent of Internet users are concerned about and are not comfortable with the current state of privacy and security on Internet. The concern about privacy becomes all the more relevant and significant when it comes to banking online, where any breach in security and privacy can have a devastating effect on the individual consumers. Yet even as the people express anxiety about privacy and security on-line, the matter is further complicated by the consumers' unfamiliarity with the basic mechanics of Internet working and data flow. This being so, rushing into the on-line banking without adequate preparations and awareness and legal back-up, may rather prove catastrophic. The position becomes all the more complicated when most consumers venturing on-line would be doing so for the first time. As lot of people who are not technically sophisticated may be going for on-line banking; it is all the more necessary to provide consumer education beforehand so that they can make

appropriate choices and intelligent decisions. Apart from the need to evolve and build tools to streamline security and privacy on-line and improve detection of virus in time, there is also the need for universalise laws on computer and cyber crimes.

Internet banking in India: Future Potential and Challenges

Decision making and Strategising In this technology-based banking world, its the CIO who is fast becoming the key to a banks success or failure. With increasing needs to gear up to the fast-changing technology, the onus to implement the right banking solutions lies on the CIO. With the apparent huge potential of the market, the industry has seen many players offering their financial solutions to the banking sector. Its imperative for the CIO to decide upon the best technology. Industry analysts say that the most important parameter in evaluating the technology remains the flexibility of the solution along with the scalability. With the growing popularity of Internet banking, CIOs evaluation of the solutions becomes all the more crucial for the future of the bank. Web sites which offer static information and primarily replicate existing business processes, will not be give a bank the cutting edge. It becomes the CIOs job to ensure that such sites allow the bank to take useful advantage of the Net. Parameters for the right banking solution:

Flexibility Does the solution have the capability to adapt quickly to changing market requirements? Can new products and services be introduced quickly with the technology.

Reliability and availability

Internet banking in India: Future Potential and Challenges

With customers demanding any time access, does the system operate reliably and round the clock.

Scalability and stability Can the solution handle growth in volumes with acceptable response times and reasonable hardware costs.

Internet banking in India: Future Potential and Challenges

Interoperability and compatibility Can the system integrate with the other applications of the bank. Also can the solution integrate with other platforms, as may be the need due to the convergence of the financial market

Delivery channels Does the technology allow the bank to seamlessly add new delivery channels like mobile banking.

Speed of deployment The technology needs to be implemented before it

becomes obsolete.


Internet banking would drive us into an age of complete transparency giving rise to perfectly electronic market place and customer supremacy. The question to be asked is "What the Indian Banks should do". The strategy can be implemented in four steps:
Familiarising the customer to new environment by demo

version of software on bank's web site. It will enable users to give suggestions for improvements, which can be

incorporated in later versions wherever feasible.

Internet banking in India: Future Potential and Challenges

Second phase provides services such as account information

and balances, statement of account, transaction tracking, mail box, check book issue, stop payment, financial and

customised information.
The third phase may include additional services such as fund

transfers, DD issue, standing instructions, opening fixed deposits, intimation of loss of ATM cards.
The last step should include advanced corporate banking

services like third party payments, utility bill payments, establishment of L/Cs etc.

Internet banking in India: Future Potential and Challenges


``INTERNET banking is not an urgent need in India. People go in for it for the novelty factor.'' People like to know that their bank is technologically advanced Customers even log in at odd times of the day -- not to make transactions, but just to check if the network is up. - Mr. P. C. Narayan, The Executive Vice-President, Global Trust Bank.









competition from non-traditional banking institutions, which now offer banking and financial services over the Internet. The deregulation of the banking industry coupled with the emergence of new technologies, are enabling new competitors to enter the financial services market quickly and efficiently. While the world has seen corporate banking as the first choice for Net bankers, India seems to be reversing the trend and most initial developments seem to be in the retail banking area. Currently, Internet banking in India is in the form of 'online versions' of traditional banks. ICICI and HDFC for example, are working at migrating their existing customer base online.

Internet banking in India: Future Potential and Challenges

A study which was conducted by students of IIML shows some interesting facts:

Throughout the country, the Internet Banking is in the nascent stage of development (only 50 banks are offering varied kind of Internet banking services).

In general, these Internet sites offer only the most basic services. 55% are so called 'entry level' sites, offering little more than company information and basic marketing materials. Only 8% offer 'advanced transactions' such as online funds transfer, transactions & cash management services.

Foreign & Private banks are much advanced in terms of the number of sites & their level of development.

ICICI was the first bank to initiate the Internet banking revolution in India as early as 1997 under the brand name 'Infinity'. This was soon followed by HDFC, IndusInd Bank, Global Trust Bank, Federal Bank . Large public sector banks like SBI and UTI, initially slow to adopt online banking, have jumped into the fray with Bank of Baroda too planning to invest around Rs 250 crore for its online banking operations. Surprisingly, Indian private sector banks have outnumbered foreign banks like Standard Chartered Grindlays in the Internet banking arena with Citibank, the only foreign bank offering

Internet banking in India: Future Potential and Challenges

retail Net banking. Deutsche Bank has launched db-direct Internet, a browser-based electronic banking system for a range of corporate banking products, in place of its earlier PC-based system, where customers had to dial up to access their network. HSBC and Centurion Bank are also all set to kick off Net banking this year but only for employees. Worldwide, Internet banking has witnessed a healthy growth from 2.5 million users less than four years ago, to seven million users. In India, given the low PC penetration in the country, HDFC bank alone claims to have more than 140,000 customers since they launched 'Net Banking' in September 2003.

Major commercial banks in India appear to going e-banking, not only because it carries mass appeal and vests the enabled bank with special prestige as a progressive and technology-led institution but also because it ultimately leads to lower operation cost. The appeal to customers is also easy to understand. When a customer uses an electronic device -- a personal computer or a laptop -- to check his account or transfer funds, it is much more convenient and cost-effective to him than visiting a bank branch. Banks are enthusiastic because they expect that e-banking would, by eliminating the costs associated with opening of new branches and hiring large complement of staff, enable them to improve their bottomline and face domestic and global

Internet banking in India: Future Potential and Challenges

competition more effectively. Banks in India did not go hi-tech fast enough and are understandably hawkish on e-banking. Scope of e-banking Apart from being able to conduct normal business -- transfer funds, carrying out standing instructions, check out the status of an account, through his computer or a laptop -- on-line banking can enable customers pay bills, buy and sell stocks, make purchases and consult investment advisers. Using on-line

banking, customers can click on a link to thousands of merchants to buy everything from flowers to rail or air tickets. Cost of purchases can be debited directly from the customers' bank accounts, which would be far cheaper for the sellers than processing transactions -- cash or credit. After realising the potential of Internet-banking and the window of opportunities thrown open by e-commerce, the banks can miss the opportunity at their own risk and cannot afford to commit the same mistake as they did in the late start of computerisation. Already, leading foreign banks are going the whole hog for on-line banking and the banks feel that they should not miss the bus this time. Notwithstanding that the number of customers jumping on to the bandwagon of electronic banking may not be large, there is no doubt that e-banking is a matter of time only. Other customers will warm to the concept over time as PCs, laptops and telephone-based web devices become popular and easier and

Internet banking in India: Future Potential and Challenges

cheaper to use. As ATMs and credit cards are no longer viewed with suspicion, consumers will be won over, over time, by the convenience, affordability and portability of electronic banking devices. Nevertheless, there are valid reservations about the new technology. And these need to be taken care of before ebanking really catches up. First is the concern about privacy and safety of their accounts. Despite numerous steps taken in this direction and the availability of various software to meet these concerns, the instances of hacking and computer virus are not wanting. Recently, Videsh Sanchar Nigam Ltd. that had its ADR listing on the New York Stock Exchange, had its Web site penetrated. Hackers claiming to be people supporting the Kashmir cause inserted what they called `defacements' in the Web site of the country's premier telecommunications services company. As a result, the company was forced to temporarily take the Web site offline to make investigations. The incident happened not only on a crucial day when the company was in the limelight; it also came at a time when the Government was on the threshold of giving the green signal to digital signature certification. This recognition, which will allow for true online financial transaction, is already being viewed with suspicion for reasons of security.

Internet banking in India: Future Potential and Challenges

This highlights why consumers are generally inclined to repose more faith in branch-managed banking transactions than in Internet banking. True, each customer would have a password or personal identification number for all Internet services for accessing his account on the Web as well as a printed list of onetime codes for using with each transaction. This has been designed to prevent electronic snoops and hackers from

intercepting the data in transition and defraud the consumers. But this does not seem enough to instill confidence in customers, as tricksters are known to have often outsmarted the technology developers. The above challenge is particularly daunting for a country such as India, which has consciously and aggressively jumped on to the IT bandwagon for economic development. Even after the IT Bill has become operational, it may be desirable not to rush headlong into e-banking. It would be desirable to hasten slowly, with adequate emphasis on consumer education and awareness and appropriate regulatory and monitoring mechanism, to safeguard customers' interests. At the same time, it must be remembered that with the explosive growth of the Internet, we will unfortunately

increasingly see the dark side of technology and though there will always be some risk in using a computer, such distortions cannot and should not be permitted to cause a serious roadblock in the march on the Information Superhighway.

Internet banking in India: Future Potential and Challenges

Advantages Traditionally, rural areas have been exclusively served by banks with large branch networks. This monopoly has been challenged with the advent of e-banking, since it enables low-cost access to rural areas. Physical infrastructure is no longer needed by the branches. E-banking will improve customerisation and offer business potential that did not exist before. E-banking is the lowest cost distribution channel currently available to the banking sector. The relative cost per

transaction through e-banking will be only 12 per cent of the cost that has to be incurred through the branch networking, he added. Another advantage of e-banking is that the service is available 24 hours a day, seven days a week , apart from offering simpler transaction processing and better customer interactivity. E-banking will lead to a customer-centric approach and information-yielding maximized. interactions with customers will be

Internet banking in India: Future Potential and Challenges

"Banks are using technology as an enabler to provide innovative products, multiple delivery channels and have efficient service


-CN Ram, Head, IT, HDFC Bank

Internet banking in India: Future Potential and Challenges

Public sector: Lagging behind With the liberalization of the banking sector, private banks realized that the adage "customer is the king" could be their ticket to success. The customerlong forgotten by the public sector bankscould be attracted and retained through good customer service. But without a countrywide presence like the public sector banks, private sector banks could only compete through innovative means. This came in the form of technology and private banks resorted to leverage it to dish out a complete banking menu to their customers. Why has the private sector been taking the initiative while the public sector keeps on watching its depleting market share. The public sector, which controls about 65% of the banking industry, is certainly aware of the implications. At the core of the problem is the model on which the public sector banks are basedthe service model. As nationalized banks, they have certain social obligations, which require them to provide services throughout the country and it will take them time to mature to a different model. Moreover, branches spread across the entire country and a lack of national bandwidth have become a big constraint for the IT endeavors of public sector banks. Nevertheless, they are on the technology route, though there is less visibility about that. On the other hand, private banks have no such bottlenecks and from

Internet banking in India: Future Potential and Challenges

the beginning can plan their network in a fully computerized environment even in B-class cities and hence are more visible. Then there is the issue of the legacy systems. Since the public sector banks are still in the process of automating their processes, they need to run the manual processes for some time. Most of the IT initiative so far has meant automating the traditional paperwork to online process. Contrary to this, as late entrants in the banking sector, private banks had the benefit of working in a fully automated work environment right since their inception, and could compete with the foreign players in terms of technology. The private sector banks have the major advantage of being able to effect changes quickly, and not have to deal with a huge infrastructure, branch network, and manpower resource pool that they need to transform. As a consequence, they have also optimized the use of human resources. To compound their woes, public sector banks also have the everlooming issue of unions. Automation was always resisted in these banks by the unions since they perceived it as a threat to jobs. In round one, the winners have been the private players. However, with 6065% of the banking still in control of the public sector banks, they too have an important role to play and the sooner they start incorporating technology into their overall business plan, the faster they can recover, some if not all of their lost market share. Banks have a key role to play in the emerging e-commerce market. A big opportunity lies in positioning as a co-

Internet banking in India: Future Potential and Challenges

developer in the e-commerce space. Though private banks have taken a clear lead in this area, public sector banks too can grab some of the untapped opportunities by moving in quickly. Comments Girish Vaidya, senior VP and head, banking, Infosys, While private banks are deploying technology to cannibalize the public sector market share, the game has just started. Proper technology usage by public banks can still put them back in the same league with the private ones. But for this they immediately need to explore and exploit the technology to the fullest. They also need to look at international trends of Internet-only units supported with call centers and huge networks of ATMs. Timely measures in these direction will put them back in the same league as the private or foreign banks. The ongoing automation in public sector banks is fine, but they also need to deploy the state-of-the-art banking solutions and services quickly. At the end of the day, the quality of banking services will win long-term customer loyalty. Of course, the technology will continue to play the enabler.

Internet banking in India: Future Potential and Challenges

ICICI Bank is a commercial banking outfit set up by the ICICI Group. The Bank was registered a banking company on January 5, 1994 and received its banking licence from the Reserve Bank of India on May 17, 1994. ICICI Bank's Infinity was the first Internet banking service in the country, and a prelude to banking in the next millennium. It is an online link to ones ICICI Bank accounts through the Internet. ICICI Bank uses "Bankaway" from Infosys which is being used by 5 out of 8 banks going for net banking. Out of ICICIs six lakh customers three years ago, only one-sixth were net-savvy. Today, out of 1.5 million, three lakh have access to the net and half of them conduct all or most of their transactions over Internet. Infinity provides you convenient facilities like :

Details of transactions and balance information about your accounts as at the end of the last business day.

Retrieval of transaction details based on your need cheque number, transaction amount, date & so on.

Internet banking in India: Future Potential and Challenges

Download of all your account information in QIF or text format

Despatch Mail and Instructions to ICICI Bank Transfer of funds between your own ICICI Bank accounts across the country.

Infinity is free for individual Account Holders. For Corporates, the rates will be decided on a case to case basis. In the subsequent phases, more value added features will be included like request for Demand Drafts and Pay Orders, Fixed Deposits etc. Infinity can be used from any country in the world. However, operations in the accounts with ICICI Bank and the Infinity service are subject to the relevant laws of India and not any other country. ICICI Bank seems to believe in catching customers young. Not surprising that ICICI Bank has launched its banking product "Bank@campus" in many campuses, including the Indian

Institutes of Technology across the country. ICICI Bank has another product called "kid-e-bank" for kids. Security User id and password is your KEY to the Bank. To protect against any unauthorised access to your accounts, your login is automatically disabled after 5 consecutive login failures.

Internet banking in India: Future Potential and Challenges

ICICI-Bank takes utmost care to keep your account protected. A multi-layered security architecture comprising of firewalls, filtering routers, encryption and digitial certification will provide you the confidence that your account information is protected from unauthorised access.

Internet banking in India: Future Potential and Challenges



A/c Type name

IdAccount NickName

Currency Account Balance


Fixed Deposit 10/1653

Retirement fund



New Delhi

Installment Loan


Auto loan INR

214231.00 Mumbai

Current Mumbai


Joint checking





Laxman's Savings



New Delhi

Internet banking in India: Future Potential and Challenges

Savings Mumbai


Daily Cheques



Select an account and click on QuickView to get a view of the last 8 transactions Query to view statements and details of transactions Schedule to view details of Fixed Deposits and Loans Details to get further information about the account.


Now you can transfer funds to any person having an account with us.

Transfer funds to your own accounts

Just choose the Debit & Credit account listed and enter the amount to be transferred

Transfer funds to any ICICI Bank account across India

Choose your account as Debit account ;Give credit party's account number, branch and full name.

Internet banking in India: Future Potential and Challenges


Select from the list of services below

Cheque Book Request Stop Payment Instruction Intimate loss of ATM Card

Many more to be introduced ...




Payments of only exact bill amount, before due date will be accepted. In case of under/over payment,MTNL is likely to reject the payment.

Internet banking in India: Future Potential and Challenges

It takes two working days for transfer of funds to MTNL. Please take this into account while making payments. e.g. Payments made by (schedule date)12-Aug-1999 will reach MTNL on 14-Aug-1999 only.

e.g. Kindly note that payments which are scheduled for 12-Aug-2003 have to be initiated before 12 Noon(IST) on that date

CA Number

Bill Number

Bill Date (dd-mm-yyyy)

Telephone Number

Payment Amount

Debit Date


Debit Account

Please ensure that all the details have been entered correctly. Otherwise, payment is likely to be rejected by MTNL. All payments are subject to terms and conditions

Internet banking in India: Future Potential and Challenges



Internet banking in India: Future Potential and Challenges

HDFC Bank introduced Netbanking, a convenient way to access ones bank account from around the world, through the Internet in September 2003. It gives the following services :

Account balance inquiry Account statement inquiry Cheque status inquiry Stop payment request Demand draft / Banker's cheque request Funds transfer Cheque book request Fixed deposit inquiry New fixed deposit request TDS inquiry

Internet banking in India: Future Potential and Challenges

They also have special discounted rates for Stop Cheque Payment instructions and Demand Draft / Banker Cheque requests made over NetBanking.

HDFC Bank has adopted a very aggressive strategy for bringing in new technology and has already invested around Rs. 50-100 Cr. on the system within a couple of years of adopting it. Additionally it does not have any focus group as such but wants to spread its services to all kinds of cosumers.

Internet banking in India: Future Potential and Challenges


Internet banking in India: Future Potential and Challenges

Screen 1

Welcome Sunil Krishnan,

Thank you for banking with us. Your registration / last visit was on 12 Dec2004

Please click below to proceed.

Consumer Banking Depository Services

Internet banking in India: Future Potential and Challenges

Internet banking in India: Future Potential and Challenges

Account Holder : Sunil Krishnan Your Accounts Account No : 201108000121

Please choose your account from the list below and select your transaction from the menu on the top right.

Account Number Branch Name

201108000121 Sandoz, Mumbai

201108000133 Sandoz, Mumbai

Internet banking in India: Future Potential and Challenges

Screen 3

Account Holder : Sunil Krishnan

Account No : 201108000121 Account Statement Inquiry

For another transaction, please select from the options in the menu on the top right.

Closing BalanceRs. 22035.98 (in INR)



Chq/Ref Number

Value Date

Debit Amount Credit Amount Closing Balance

Internet banking in India: Future Potential and Challenges

Jul 14 2003

Service Charge for Banker's Cheque Issue


Jul 14 2003



Jul 14 2003

Banker's Cheque Issue


Jul 14 2003



Jun 26 2003 Cheque Deposit


Jun 28 2003



Jun 19 2003 ATM Cash


Jun 19 2003




Internet banking in India: Future Potential and Challenges

Screen 4

Account Holder : Sunil Krishnan Funds Transfer Account No : 201108000121

Please select the accounts and fill in the required information.

From Account Number

To Account Number

Transfer Amount

Internet banking in India: Future Potential and Challenges

CitiDirect Internet Banking is the ability to do all your credit card and banking transactions on-line, through Internet. It offers you banking at your finger tips with the Citibank Security using state-of-the-art 128 bit encryption. The internet now allows you to conduct your banking business from your desktop wherever in the world you may be. With a special H-PIN assigned to you, you can experience world-class banking with a few clicks. According to reports, 33% of Citibanks banking customers in India have shifted to Net-banking. All the functions that are available in phone banking can be easily done through CitiDirect also. You can:

Check your Account balances. Find out about Interest rates. Do an Account to Account transfer. Ask for the latest Account Statement. Request for a Cheque book / Deposit slip. Make a Demand draft request. Seek information about any product or service or event.

Internet banking in India: Future Potential and Challenges

Pay your bills for utilities like MTNL, Electricity etc Subscribe to a Mutual Fund

and many more functions at the click of a button.

Internet banking in India: Future Potential and Challenges

Security features: Citibank Internet Banking uses state-of-the-art encryption

technology and is absolutely secure. When you open an account with Citibank, you are assigned a HPIN or HOME-BANKING PERSONAL IDENTIFICATION

NUMBER which is your unique internet password, known only to you and nobody else. Once you enter this in the CitiDirect Site, you are enabled to transact on the net.

Transactions on CitiDirect are absolutely secure, starting right from mailing your HPIN to actually using it on CitiDirect. When the HPIN is mailed to you, the

communication does not carry your card number, so even if it was intercepted, the interceptor would have just a sequence of letters and numbers


key times

is more


secure than the 40-bit message !!! What this means its practically impossible to break in to your account.

Any new functionality / Service that is introduced on CitiDirect undergoes a Ethical hacking test, what this

Internet banking in India: Future Potential and Challenges

means is that we try and break into our own creation using latest tools and only when it passes this most stringent of tests, is a Service introduced for you.

Lockout after 6 consecutive unsuccessful attempts.

Internet banking in India: Future Potential and Challenges


Internet banking in India: Future Potential and Challenges

CitiDirect Login Screen

Sign-In To enter CitiDirect, please choose from the pull-down menu and click on Enter.


Select New User if this is your first time using CitiDirect from this computer, and you will be using this computer regularly to sign-in.

Select Guest if this computer is not where you will regularly use CitiDirect.

Internet banking in India: Future Potential and Challenges

If you are a New User, select 'New User' from the Name drop box. This would lead you to a screen where you would need to supply your CitiCard number (ATM Card Number) or your Citibank / Diners Credit Card number, your preferred Nick-Name or Short Name to identify yourself and your HPIN (Internet Banking PIN).

If you will use the very same computer for CitiDirect banking every time, create a User Name using this option. However, if you are always on the move, it is safe to use the 'Guest' mode of login. In this mode, you will be expected to supply your Citicard number / Credit Card Number each time you log in.

The third mode is that of a Regular User. Just select your User Name from the Name drop box.

CitiDirect Creating a New User

Give yourself a name by which CitiDirect will identify you. Remember, when choosing a name, use nomore than 10 characters (with no spaces). Name:

Citicard Number:

Internet Banking PIN (HPIN): Sign In

Internet banking in India: Future Potential and Challenges

Normal Track (Full Graphics) Fast Track (Minimal Graphics)

You will also notice that there are two display tracks to suit your convenience.

Choose the 'Normal Track (Full Graphics)' to view the regular CitiDirect screens. The 'Fast Track (Minimal Graphics)' option lets you view the CitiDirect screens without heavy graphics, therefore reducing your download time significantly. If you are a new CitiDirect user, choose the 'Normal Track' till you are reasonably well-acquainted with the product. Later, you may graduate to the 'Fast Track' option.

Credit Cards

Credit Line Increase

Second Card Request

Report Lost/Stolen Card

Add on Card Request

Swap your Credit Card

Redeem Reward Points

Internet banking in India: Future Potential and Challenges


A/C Opening Forms

Cheque Book Request

Deposit Slip Request

Stop Payment Request

Interest Credit Query


Query Logging & Resln


Choose APIN & TPIN

Internet banking in India: Future Potential and Challenges


Address Change

PDC Stmt

Prepayment Simulation

ERA Upload Status

Interest Rates

NR Interest Rates

Forex Rates

Mutual Fund NAV Query

Product Features

Internet banking in India: Future Potential and Challenges

Contact Citiphones

Rupee Checking Account

Branch Banking Account

Suvidha Account

Download MF A/C opening form


Multi Deposit Booking

Money Multiplier Booking


Internet banking in India: Future Potential and Challenges

Mutual Funds

Stocks & Shares


NR Deposit Booking

NR Deposit Booking Simulation

Account Balance

Quick Glance Statement

Download Statement

Internet banking in India: Future Potential and Challenges

ACCOUNT INFORMATION - Your Loan Account Statement

Statement of Account for Auto Loan Number L55A011329618

From Date 01-02-2000 To Date 14-02-2000

Customer Name Prem Anand Loan Amount * 42000.00

Disbursal Date 09-08-1999 Installment Amount * 1513.00

Tenor (Months)

Internet banking in India: Future Potential and Challenges

36 Remaining Tenor (Months) 20

Interest Rate (%) 12 Number of Installments due 36

* All amounts in Indian Rupees

[Indian Rupees]

Installment Due 23000.00

Penal Interest 0.00

Other Charges 500.00

Internet banking in India: Future Potential and Challenges

Principal Outstanding 38196.24

Internet banking in India: Future Potential and Challenges

A Comparison

As can be seen, in case of HDFCs NetBanking there is not much on offer in terms of transactional business except being able to order for cheque books and statements, transfer funds between accounts of the same person and open a fixed deposit account. In contrast, ICICI Bank with its net banking service called Infinity goes a step forward by allowing the account holder to transfer funds into another persons account within the bank. Also one can intimate about the loss of an ATM Card over the net when using Infinity. Moreover, corporate can issue of letters of credit and make enquirys regarding bills sent for collection via this service. A special feature on Infinity is the facility for nicknaming all accounts to avoid remembering lengthy account numbers.

In terms of safety, HDFC Bank allows one to have three login attempts after which a new password is given while ICICI Bank will disable the password after five login attempts.

Considering the fact that these services are offered without charging a fee, the effort is commendable.

Internet banking in India: Future Potential and Challenges

All the three have free demonstrations on their respective websites which are self-explanatory and can guide a first time user on how to use the facility.

Looking at the following comparative charts, we can see that the Indian private banks like ICICI and HDFC are no less than their foreign counterparts, infact are better than them since they understand the Indian consumer and market better.

ICICI Bank HDFC Bank Citibank Internet banking in India: Future Potential and Challenges

Net banking demo




Account balance inquiry




Account statement inquiry




Cheque status inquiry




Stop payment request




DD / bankers cheque request




Funds transfer




Cheque book request




FD inquiry




New FD requests




TDS inquiry




Internet banking in India: Future Potential and Challenges

Comparison based on services offered

Banks ICICI E shopping Fabmart, Rediff, Sifymall, Magiccart, Malamall, Indiainfoline, Indbazaar, Renew VSNL connection Fabmart.com, Sifymall, Noshutters.com, Mahadiscounts.com, HDFC Xpressionmall.com, Shoppershyderabad.com Renew VSNL Internet connection Citibank Fabmart, Rediff, Sifymall, Mahadiscounts Apart from these, the other banks do not have much to offer on this front. IndusInd for example has no fund transfer facility and SBI and UTI also do not have facilities for purchasing online.

Bill pay
Banks Bill Pay MTNL, BEST, BPL Mobile, Orange, BSES, Birla AT&T, Airtel, Essar, ICICI Bangalore Telecom, Usha Martin Telekom, Spice Telecom, Skycell, RPG cellular, Escotel, Tata Cellular, Tala Teleservices MTNL, Airtel, BPL Mobile, BSES, Orange, MSEB, RPG Cellular, HDFC Skycell, Essar, Comman-Usha Martin, Spice Telecom, Tata Cellular, Escotel, Fascel, Birla AT&T, BSNL (6 cities) Citibank Bangalore Telecom, Bangalore Water Supply, Spice Telecom, JT mobiles, Hotline Paging, Maxpage (via credit card and bank account)

Internet banking in India: Future Potential and Challenges

Almost all banks except GTB and IndusInd have this facility of payment of utility bills. Federal Bank and UTI are restricted to only BSNL payments, Federal Bank limiting this service in Ernakulam only.

Account Tracking and Banking features

Banks Account Features ICICI Access Current, Savings account, stop payment request, chequebook request, intimate loss of ATM card, Access Current, savings, FD accounts, Balance and statement HDFC inquiry, Cheque status enquiry, Stop payment request, Bankers cheque request, chequebook & statement request, Demand Draft Request, FD enquiry, New FD request, TDS enquiry, direct debit Access savings,multi deposit, NRI, mutual funds, loan accounts, Citiban account Balance and statement inquiry, chequebook request, k Demand Draft Request, EMI loan on Credit Card, pay credit card expenses, New FD request, All banks are providing the major functions for managing the accounts and other banking services.

Internet banking in India: Future Potential and Challenges


Can one imagine life without paper cash?

Money has always been part of human emotions. And although it is difficult to imagine that all those years of savings at the bank is now just a whole bunch of bits and bytes, it is a distinct possibility.

In concluding one may state that Indian banking in the next millennium is likely to be driven by mergers, universal banking and Internet technology. While mergers will confer economies of scale, universal banking will dismantle the barriers between the traditional dichotomies of financial services. While one realizes the fact that the Internet is likely to convert banking into a commodity one has to take into account that thirty years of solitude has steeped Indian Banks into a morass of inefficiency, slothfulness and complacency. If Indian banks refuse to visualize this trend they may well be consigned to history. However, if they react proactively Indian Banks stand to gain a lot from the opportunities that E-banking offers.

Internet banking in India: Future Potential and Challenges

There is no doubt that potential for net banking in India is immense considering the rising penetration levels of the World Wide Web in Indian homes and offices. When one takes a look at what is available worldwide, one sees that net banking is more of a norm rather than an exception in many developed countries. The services offered enables one to check credit card

transactions, paying bills, transferring funds between accounts in two different banks and scheduling future payments and

transfers. The gradual increase in net banking is logical as the need to minimize costs catches attention.

A North American Internet Banking Survey done by management consultancy Booz Allen & Hamilton in 1996 revealed that the cheapest way of banking is Internet banking. The survey estimated that a brick and mortar network of a bank would cost US$1.07 per transaction while it is only US$0.01 for internet banking. The same survey said that by 2000, 16 million US households would be banking through the net.

Though there is no denying that the Internet has emerged as a promising new medium for the financial sector, the issue of security still remains to be tackled. However, banks are already taking initiatives to address this issue. According to industry

Internet banking in India: Future Potential and Challenges

analysts, though security will remain an important concern for financial institutions, it wont come in the way of widespread implementation of online banking, which will continue to be driven by competitive pressures and market requirements.

In India, however, there may arise problems with nationalized banks, which have in the past opposed computerization.

However, the fact remains that given a choice, customers would like to bank via the net and the next decade could well see virtual banking becoming a reality.


Banking : The Network is the bank, by Yogesh Sharma, Dataquest, January 31, 2003

The Potential Of e-banking, Business Today, December 21,


Race will end in survival of the fittest , Express, November 29, 2002.

The Financial








Bhatnagar (former Chief General Manager, State Bank of India) , Business Line, Tuesday, October 10, 2002.

Could encryption bottleneck be causing e--bank failures?, by Will Garside, Computer Weekly, Sept 7, 2003, Reed Elsevier Business Publishing Ltd.

The Times of India, 26 July, 2000.

The future is in e-banking by Mr. K.V. Kamath (Managing

Director, ICICI), April 14, 2003, Business Line.

RBI road map for e-banking, The Indian Express, July


Vision for the Banking System , by Mr R Narasimhan (Deputy Managing Director (Systems & Technology and Personal Banking), State Bank of India)

Internet Banking in India, by Dr A. K. Mishra (Professor & Chairman of Finance Group at IIM Lucknow).

http://www.indiainfoline.com http://www.thebharat.com http://www.icicibank.com http://www.hdfcbank.com http://www.citibank.com

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