Exploratory PROJECT report

ON
e-banking

SUBMITTED TO:
SUBMITTED BY:

MR . VIJAY VORA
MS.SHRADDHA K. DAVE

ROLL NO. AH 110

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 INDIAN INSTITUTE OF FINANCIAL
MANAGEMENT
301/304,SIGMA-II,OPP. SUNRISE PARK,
DRIVE-IN ROAD,AHMEDABAD-380052.

INDEX
N TOPIC PAGE
O NO
1 ACKNOWLEDGEMENT 1

2 EXECUTIVE SUMMARY 2

3 INTRODUCTION 3

4 BANKING STRUCTURE IN INDIA 5

5 BANK 6

6 BANKING CHANNELS 8

7 E-BANKING 9

8 NEED FOR E-BANKING 10

9 GROWTH IN E-BANKG 10

10 TYPES OF E-BANKING 12

11 E-BANKING PRODUCTS 13

12 E-BANKING SERVICES 15

13 LIST OF BANKS OPERATING E-BANKING IN INDIA 17

14 ADVANTAGES AND DIS ADVANTAGES OF E-BANKING 18

15 ISSUES IN E-BANKING 19

16 INTERNET PENETRATION IN INDIA 21

17 RISKS RELATED TO E-BANKING 22

18 RISK MANAGEMENT FOR E-BANKING 25

19 RISK MANAGEMENT PRINCIPLES FOR E-BANKING 26

20 IDBI BANK-INTRODUCTION 27

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21 NETWORK OF IDBI BANK IN INDIA 28

22 INTERNET BAKING AT IDBI BANK 29

23 SECURITY MEASURES TAKEN BY IDBI BANK 31

24 PORTER’S FIVE FORCE MODEL FOR INDIAN BANKING INDUSTRY 34

25 CONCLUSION 38

26 BIBILOGRAPHY 40

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 ACKNOWLEDGEMENT
“Gratitude is not a thing of expression,

it is more a matter of feeling”.

There is always a sense of gratitude which one express for

others for their help and supervision in achieving the goals. I too express
my deep gratitude to each and every one who has been helpful to me in
completing the project report successfully.

First, of all, I am highly thankful to Mr Vijay vora for allowing me

to pursue my project report on “Exploratory report on e-banking”

My special thanks to Mr.Gyanendra Chaudhari (Assistant Manager)

who encouraged me, properly guided me in each and every possible way
through out my project Report.

I give my regards and sincere thanks to Mrs. Vaibhavi who has

devoted his precious time in guiding me and helping me to complete it
with in time.

I am indebted to the Bank employees who supported me in handling

my queries. I feel self-short of words to thanks my parents and friends
who had directly or indirectly instrumental in the completion of the
project.

Last but not least I am grateful to all my family members &

my friends for being my side always. Without their help and
Motivation it would have been impossible to complete my project.

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 SHRADD
HA K.DAVE

Executive summary

“E-banking”- The execution of financial services via internet,

reducing cost and increase in convenience for the customer to access the
transaction. e- banking is an umbrella term for the process by which a
customer may perform banking transactions electronically without visiting
a brick-and-mortar institution. The following terms all refer to one form or
another of electronic banking: personal computer (PC) banking, Internet
banking, virtual banking, online banking, home banking, remote electronic
banking, and phone banking. PC banking and Internet or online banking
are the most frequently used designations. It should be noted, however,
that the terms used to describe the various types of electronicbanking are
often used interchangeably.

The ever increasing speed of internet enabled phones & personal

assistant, made the transformation of banking application to mobile
devices, this creative a new subset of electronic banking i.e. mobile
banking. In 1999 & 2000 mobile banking as an established channels, is
the most attractive in todays fast world

The internet is revolutionizing the way the financial industry

conducts business online, has created new players who offer personalize
services through the web portals. This increase to find new ways and
increase customer loyalty to add the value to this product and services.

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 Banks also enables customers lifestyle needs by changing and
increasing preference for speed and convenience are eroding the
traditional affinity between customer and branch offices as a new
technology disinter mediates traditional channels, delivering the value
proposition hinges on owing or earning the customer interface and
bringing the customer a complete solution which satisfies their needs.
Smart card is a new trend which provides the opportunity to build an
incremental revenue stream by providing an ideal platform for extended
application and services. Banks are well positioned to play central role
unit in future M-commerce market. Banks have strong relationships with
corporate and business customers and a wide experience in providing
them with corporate banking services. Bank provides a multimedia of
small and large retailers with acquiring functionality in credit card
transactions. Customers have trusted relationships with banks and a lower
propensity to switch banking providers.

INTRODUCTION
With the rapid globalization of the Indian economy, enterprises are facing
with ever changing competitive environment. Enterprises are adopting
strategies aimed at developing competitive advantage based on
enhanced customer value in terms of product differentiation, quality,
speed, service and costs. In the post liberalization era, with the
deregulation of Indian economy, the financial service sector witnessing a
complete metamorphosis and technology is playing a very significant role
in this record. Over the last decade India has been one of the fastest
adopters of information technology, particularly because of its capability
to provide software solution to organizations around the world. This
capability has provided a tremendous impetuous to the domestic banking
industry in India to deploy the latest in technology, particularly in the
Internet banking and e-commerce arenas. Banks are growing in size by
mergers and acquisitions, which have been driven by communication and
technology. Technology is playing a major role in increasing the efficiency,
courtesy and speed of customer service. It is said to be the age of E-
banking. An Online Banking user is expected to perform at least one of
the following transactions online:

1. Checking account balance and transaction history

2. Paying bills
3. Transferring funds between accounts
4. Requesting credit card advances

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5. Ordering checks
6. Managing investments and stocks trading

From a bank’s perspective, using the Internet is more efficient than using
other distribution mediums because banks are looking for an increased
customer base. Using multiple distribution channels increases effective
market coverage by enabling different products to be targeted at different
demographic segments. Also Banks cannot risk loosing customers to
competitors within the aggressive competition in the banking industry
around the world. Moreover Internet delivery offers customized service to
suit the needs and the likes of each user. Mass customization happens
effectively through Online Banking. It reduces cost and replaces time
spent on routine errands with spending time on business errands. Online
Banking means less staff members, smaller infrastructure demands,
compared with other banking channels. From the customers’ perspective,
Online Banking provides a convenient and effective way to manage
finances that is easily accessible 24 hours a day, seven days a week. In
addition information is up to date. Nevertheless Online Banking has
disadvantages for banks like how to work the technology, set-up cost,
legal issues, and lack of personal contact with customers. And for
customers there are security and privacy issues.

E-banking services are delivered to customers through the Internet and

the web using Hypertext Markup Language (HTML). In order to use e-
banking services, customers need Internet access and web browser
software. Multimedia information in HTML format from online banks can
be displayed in web browsers. The heart of the e-banking application is
the computer system, which includes web servers, database management
systems, and web application programs that can generate dynamic HTML
pages.
One of the main concerns of e-banking is security. Without great
confidence in security, customers are unwilling to use a public network,
such as the Internet, to view their financial information online and conduct
financial transactions. Some of the security threats include invasion of
individuals' privacy and theft of confidential information. Banks with e-
banking service offer several methods to ensure a high level of security:
(1) identification and authentication, (2) encryption, and (3) firewalls.
First, the identification of an online bank takes the form of a known
Uniform Resource Locator (URL) or Internet address, while a customer is
generally identified by his or her login ID and password to ensure only
authenticated customers can access their accounts. Second, messages

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between customers and online banks are all encrypted so that a hacker
cannot view the message even if the message is intercepted over the
Internet. The particular encryption standard adopted by most browsers is
called Secure Socket Layer (SSL). It is built in the web browser program
and users do not have to take any extra steps to set up the program.
Third, banks have built firewalls, which are software or hardware barriers
between the corporate network and the external Internet, to protect the
servers and bank databases from outside intruders. For example, Wells
Fargo Bank connected to the Internet only after it had installed a firewall
and made sure the firewall was sufficiently impenetrable.

BANKING STRUCTURE IN
INDIA

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Banks
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A bank is a financial institution licensed by a government. Its primary
activities include providing financial services to customers while enriching
its investors. Many financial activities were allowed over time. For
example banks are important players in financial markets and offer
financial services such as investment funds.

Banks in india
Public Sector Banks
There are total 27 public sector banks in India (As on 26-09-2009). Of
these 19 are nationalised banks, 6(STATE BANK OF INDORE ALSO
MEARGED RECENTLY) belong to SBI & associates group and 1 bank (IDBI
Bank) is classified as other public sector bank.

Nationalised Banks
 Allahabad Bank
 Andhra Bank
 Bank of Baroda
 Bank of India
 Bank of Maharashtra
 Canara Bank
 Central Bank of India
 Corporation Bank
 Dena Bank
 Indian Bank
 Indian Overseas Bank
 Oriental Bank of Commerce
 Punjab and Sind Bank
 Punjab National Bank
 Syndicate Bank
 UCO Bank
 Union Bank of India
 United Bank of India
 Vijaya Bank

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SBI & associates
 State Bank of India (State Bank of Saurastra merged with SBI in the
year 2007)
 State Bank of Hyderabad
 State Bank of Mysore
 State Bank of Indore
 State Bank of Patiala
 State Bank of Travancore
 State Bank of Bikaner and Jaipur

Other Public Sector Banks

 IDBI Bank Ltd

Private Banks
 Axis Bank
 bank of Rajasthan
 Catholic Syrian Bank
 City Union Bank
 Development Credit Bank
 Dhanalakshmi Bank
 Federal Bank
 HDFC Bank
 ICICI Bank
 IndusInd Bank
 ING Vysya Bank
 Jammu & Kashmir Bank
 Karnataka Bank
 Karur Vysya Bank
 Kotak Mahindra Bank
 Laxmi Vilas Bank
 Nainital Bank Ltd
 Ratnagar Bank
 SBI Commercial and International Bank
 South Indian Bank Ltd

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 Tamil Nadu Mercantile Bank
 Yes Bank

Banking channels

Banks offer many different channels to access their banking and other
services:

 A branch, banking centre or financial centre is a retail location where

a bank or financial institution offers a wide array of face-to-face service
to its customers.
 ATM is a computerised telecommunications device that provides a
financial institution's customers a method of financial transactions in a
public space without the need for a human clerk or bank teller. Most
banks now have more ATMs than branches, and ATMs are providing a
wider range of services to a wider range of users. For example in Hong
Kong, most ATMs enable anyone to deposit cash to any customer of
the bank's account by feeding in the notes and entering the account
number to be credited. Also, most ATMs enable card holders from other
banks to get their account balance and withdraw cash, even if the card
is issued by a foreign bank.
 Mail is part of the postal system which itself is a system wherein
written documents typically enclosed in envelopes, and also small
packages containing other matter, are delivered to destinations around
the world. This can be used to deposit cheques and to send orders to
the bank to pay money to third parties. Banks also normally use mail to
deliver periodic account statements to customers.
 Telephone banking is a service provided by a financial institution
which allows its customers to perform transactions over the telephone.

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 This normally includes bill payments for bills from major billers (e.g. for
electricity).
 Online banking is a term used for performing transactions, payments
etc. over the Internet through a bank, credit union or building society's
secure website.
 Mobile banking is a method of using one's mobile phone to conduct
simple banking transactions by remotely linking into a banking
network.
 Video banking is a term used for performing banking transactions or
professional banking consultations via a remote video and audio
connection. Video banking can be performed via purpose built banking
transaction machines (similar to an Automated teller machine), or via
a videoconference enabled bank branch.

E-BANKING
Electronic banking, also known as electronic funds transfer (EFT),is simply the
use of electronic means to transfer funds directly from one account to another,
rather than by cheque or cash.
E-banking means any user with a personal computer and a browser can get
connected to his bank -s website to perform any of the virtual banking functions.
In internet banking system the bank has a centralized database that is web-
enabled. All the services that the bank has permitted on the internet are
displayed in menu. Any service can be selected and further interaction is
dictated by the nature of service. The traditional branch model of bank is now
giving place to an alternative delivery channels with ATM network. Once the
branch offices of bank are interconnected through terrestrial or satellite links,
there would be no physical identity for any branch. It would a borderless entity
permitting anytime, anywhere and anyhow banking.
The network which connects the various locations and gives connectivity to the
central office within the organization is called intranet. These networks are
limited to organizations for which they are set up.

Meaning and features of E-Banking are as follows:

1. Banking is a combination of two, Electronic technology and Banking.

2. Electronic Banking is a process by which a customer performs banking

Transactions electronically without visiting a brick-and-mortar institutions.

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 3. E-Banking denotes the provision of banking and related service throgh
Extensive use of information technology without direct recourse to the bank
by the customer.

Information
Bank
Custo
technology
mer

NEED FOR E-BANKING

One has to approach the branch in person, to withdraw cash or deposit a
cheque or request a statement of accounts. In true Internet banking, any
inquiry or transaction is processed online without any reference to the
branch (anywhere banking) at any time. Providing Internet banking is
increasingly becoming a "need to have" than a "nice to have" service. The
net banking, thus, now is more of a norm rather than an exception in
many developed countries due to the fact that it is the cheapest way of
providing banking services.
Banks have traditionally been in the forefront of harnessing technology to
improve their products, services and efficiency. They have, over a long
time, been using electronic and telecommunication networks for
delivering a wide range of value added products and services. The
delivery channels include direct dial – up connections, private networks,
public networks etc and the devices include telephone, Personal
Computers including the Automated Teller Machines, etc. With the
popularity of PCs, easy access to Internet and World Wide Web (WWW),

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Internet is increasingly used by banks as a channel for receiving
instructions and delivering their products and services to their customers.
This form of banking is generally referred to as Internet Banking, although
the range of products and services offered by different banks vary widely
both in their content and sophistication.

India’s banking sector is growing at a fast pace. India has become one of
the most
preferred banking destinations in the world. The reasons are numerous:
the economy is growing at a rate of 8%, Bank credit is growing at 30% per
annum and there is an everexpanding middle class of between 250 and
300 million people (larger than the population of the US) in need of
financial services. All this enables double-digit returns on most asset
classes which is not so in a majority of other countries. Foreign banks in
India achieving a return on assets (ROA) of 3%, their keen interest in
expanding their businesses is understandable – even more so when
compared with the mearly 1% average ROA for the Top 1000 banks in the
world.
Growth in E Banking
Numerous factors — including competitive cost, customer service, and
demographic considerations — are motivating banks to evaluate their
technology and assess their electronic commerce and Internet banking
strategies. Many researchers expect rapid growth in customers using
online banking products and services. The challenge for national banks is
to make sure the savings from Internet banking technology more than
offset the costs and risks associated with conducting business in
cyberspace. Marketing strategies will vary as national banks seek to
expand their markets and employ lower cost delivery channels. Examiners
will need to understand the strategies used and technologies employed on
a bank-by-bank basis to assess the risk. Evaluating a bank’s data on the
use of their Web sites, may help examiners determine the bank’s strategic
objectives, how well the bank is

meeting its Internet banking product plan, and whether the business is
expected to be profitable.
Some of the market factors that may drive a bank’s strategy include the
following:

Competition — Studies show that competitive pressure is the chief

driving force behind increasing use of Internet banking technology,
ranking ahead of cost reduction and revenue enhancement, in second and
third place respectively. Banks see Internet banking as a way to keep
existing customers and attract new ones to the bank.
Cost Efficiencies — National banks can deliver banking services on the
Internet at transaction costs far lower than traditional brick-and-mortar

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branches. The actual costs to execute a transaction will vary depending
on the delivery channel used. For example, according to Booz, Allen &
Hamilton, as of mid- 1999, the cost to deliver manual transactions at a
branch was typically more than a dollar, ATM and call center transactions
cost about 25 cents, and Internet transactions cost about a penny. These
costs are expected to continue to decline.
National banks have significant reasons to develop the technologies that
will help them deliver banking products and services by the most cost-
effective channels. Many bankers believe that shifting only a small portion
of the estimated 19-billion payments mailed annually in the U.S. to
electronic delivery channels could save banks and other businesses
substantial sums of money. However, national banks should use care in
making product decisions. Management should include in their decision
making the development and ongoing costs associated with a new
product or service, including the technology, marketing, maintenance,
and customer support functions. This will help management exercise due
diligence, make more informed decisions, and measure the success of
their business venture.
Geographical Reach — Internet banking allows expanded customer
contact through increased geographical reach and lower cost delivery
channels. In fact some banks are doing business exclusively via the
Internet — they do not have traditional banking offices and only reach
their customers online. Other financial institutions are using the Internet
as an alternative delivery channel to reach existing customers and attract
new customers.
Branding — Relationship building is a strategic priority for many national
banks. Internet banking technology and products can provide a means for
national banks to develop and maintain an ongoing relationship with their
customers by offering easy access to a broad array of products and
services. By capitalizing on brand identification and by providing a broad
array of financial services, banks hope to build customer loyalty, cross-
sell, and enhance repeat business.
Customer Demographics — Internet banking allows national banks to
offer a wide array of options to their banking customers. Some customers
will rely on traditional branches to conduct their banking business. For
many, this is the most comfortable way for them to transact their banking
business. Those customers place a premium on person-to-person contact.
Other customers are early adopters of new technologies that arrive in the
marketplace. These customers were the first to obtain PCs and the first to
employ them in
conducting their banking business. The demographics of banking
customers will continue to change. The challenge to national banks is to
understand their customer base and find the right mix of delivery
channels to deliver products and services profitably to their various
market segments.
TYPES OF E-BANKING OR INTERNET BANKING

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Understanding the various types of Internet banking will help examiners
assess the risks involved. Currently, the following three basic kinds of
Internet banking are being employed in the marketplace.

• Informational- this is the basic level of Internet banking. Typically,

the bank has marketing information about the bank’s products and
services on a stand-alone server. The risk is relatively low, as
informational systems typically have no path between the server
and the bank’s internal network. This level of Internet banking can
be provided by the banks or outsourced. While the risk to a bank is
relatively low, the server or web site may be vulnerable to
alteration. Appropriate controls therefore must be in place to
prevent unauthorized alterations to the bank’s server or web site.

• Communicative- this type of Internet banking systems and the

customer. The interaction between the bank’s system and the
customer. The interaction may be limited to electronic mail, account
enquiry, loan applications, or static file updates (name and address
change). Because these servers may have a path to the bank’s
internal networks, the risk is higher with this configuration than with
informational systems. Appropriate controls need to be in the place
to prevent, monitor, and alert management of any unauthorized
attempt to access the bank’s internal networks and computer
systems. Virus controls also become much more critical in this
environment.

• Transactional- this level of Internet banking allows customers to

execute transactions. Since a path typically exists between the
server and the bank or outsourcer’s internal network, this is the
highest risk architecture and must have the strongest controls.
Customer transactions can include accessing accounts, paying bills,
transferring funds etc

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E-banking products
Automated Teller Machine (ATM)

These are cash dispensing machine, which are frequently seen at banks
and other locations such as shopping centers and building societies. Their
main purpose is to allow customer to draw cash at any time and to
provide banking services where it would not have been viable to open
another branch e.g. on university campus.

An automated teller machine or automatic teller machine (ATM) is

a computerized telecommunications device that provides a financial
institution's customers a method of financial\ transactions in a public
space without the need for a human clerk or bank teller. On most modern
ATMs, the customer identifies him or herself by inserting a plastic ATM
card with a magnetic stripe or a plastic smartcard with a chip that
contains his or her card number and some security information, such as
an expiration date or CVC (CVV). Security is provided by the customer
entering a personal identification number (PIN).
Using an ATM, customers can access their bank accounts in order to make
cash withdrawals (or credit card cash advances) and check their account
balances. Many ATMs also allow people to deposit cash or checks, transfer
money between their bank accounts, pay bills, or purchase goods and
services.
ATMs are known by various casual terms including cash machine, hole-in-
the-wall, cash point or Bancomat (in Europe and Russia). The occasionally-
used ATM Machine is an example of RAS syndrome.
Some of the advantages of ATM to customers are:-

• Ability to draw cash after normal banking hours

• Quicker than normal cashier service
• Complete security as only the card holder knows the PIN
• Does not just operate as a medium of obtaining cash.
• Customer can sometimes use the services of other bank
ATM’s.

Telebanking or Phone Banking

Telephone banking is relatively new Electronic Banking Product. However

it is fastly becoming one of the most popular products. Customer can
perform a number of transactions from the convenience of their own
home or office; in fact from anywhere they have access to phone.
Customers can do following:-

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 • Check balances and statement information
• Transfer funds from one account to another
• Pay certain bills
• Order statements or cheque books
• Demand draft request

This facility is available with the help of Voice Response

System (VRS). This system basically, accepts only TONE dialed input. Like
the ATM customer has to follow particular process, initially account
number and telephone PIN are fed for the process to start. Also the VRS
system provides the users within additional facilities such as changing
existing password with the new desired, information about new products,
current interest rates etc.

Mobile Banking

Mobile banking comes in as a part of the banks initiative to offer multiple

channel banking providing convenience for its customer. A versatile
multifunctional, free service that is accessible and viewable on the
monitor of mobile phone. Mobile phones are playing great role in Indian
banking- both directly and indirectly. They are being used both as banking
and other channels.

Internet Banking

The advent of the Internet and the popularity of personal computers

presented both an opportunity and a challenge for the banking industry.
For years, financial institutions have used powerful computer networks to
automate million of daily transactions; today, often the only paper record
is the customer’s receipt at the point of sale. Now that their customers are
connected to the Internet via personal computers, banks envision similar
advantages by adopting those same internal electronic processes to home
use.

Banks view online banking as a powerful “value added” tool to attract and
retain new customers while helping to eliminate costly paper handling and
teller interactions in an increasingly competitive banking environment. In
India first one to move into this area was ICICI Bank. They started web
based banking as early as august 1997.

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E-banking services
1. Bill payment service
Each bank has tie-ups with various utility companies, service providers
and insurance companies, across the country. It facilitates the payment of
electricity and telephone bills, mobile phone, credit card and insurance
premium bills.
To pay bills, a simple one-time registration for each biller is to be
completed. Standing instructions can be set, online to pay recurring bills,
automatically. One-time standing instruction will ensure that bill payments
do not get delayed due to lack of time. Most interestingly, the bank does
not charge customers for online bill payment.
2. Fund transfer
Any amount can be transferred from one account to another of the same
or any another bank. Customers can send money anywhere in India.
Payee’s account number, his bank and the branch is needed to be
mentioned after logging in the account. The transfer will take place in a
day or so, whereas in a traditional method, it takes about three working
days. ICICI Bank says that online bill payment service and fund transfer
facility have been their most popular online services.
3. Credit card customers
Credit card users have a lot in store. With Internet banking, customers can
not only pay their credit card bills online but also get a loan on their cards.
Not just this, they can also apply for an additional card, request a credit
line increase and God forbid if you lose your credit card, you can report
lost card online.
4. Railway pass
This is something that would interest all the aam janta. Indian Railways
has tied up with ICICI bank and you can now make your railway pass for
local trains online. The pass will be delivered to you at your doorstep. But
the facility is limited to Mumbai, Thane, Nasik, Surat and Pune. The bank
would just charge Rs 10 + 12.24 percent of service tax.

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5. Investing through Internet banking
Opening a fixed deposit account cannot get easier than this. An FD can
be opened online through funds transfer. Online banking can also be a
great friend for lazy investors.
Now investors with interlinked demat account and bank account can
easily trade in the stock market and the amount will be automatically
debited from their respective bank accounts and the shares will be
credited in their demat account.
Moreover, some banks even give the facility to purchase mutual funds
directly from the online banking system.
So it removes the worry about filling those big forms for mutual funds,
they will now be just a few clicks away. Nowadays, most leading banks
offer both online banking and demat account. However if the customer
have there demat account with independent share brokers, then need to
sign a special form, which will link your two accounts.
6. Recharging your prepaid phone
Now there is no need to rush to the vendor to recharge the prepaid
phone, every time the talk time runs out. Just top-up the prepaid mobile
cards by logging in to Internet banking. By just selecting the operator's
name, entering the mobile number and the amount for recharge, the
phone is again back in action within few minutes.
7. Shopping at your fingertips
Leading banks have tie ups with various shopping websites. With a range
of all kind of products, one can shop online and the payment is also made
conveniently through the account. One can also buy railway and air
tickets through Internet banking.

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List of some banks operating E-
Banking in India
Bank Name Technology Vendor Service offering

ABN AMRO Bank Infosys (Bank Away) NetBanking

Abu Dhabi Commercial

Bank Infosys (Bank Away) ADCB NetLink

Bank of India I-flex BOIonline

Citibank Orbitech (now Polaris) Citibank Online

Corporation Bank I-flex CorpNet

Deutsche Bank db direct

Federal Bank Sanchez FedNet

Global Trust Bank Infosys (BankAway) ibank@gtb

HDFC Bank i-flex/ Satyam NetBanking

HSBC Online@hsbc

ICICI Bank Infosys, ICICI Infotech Infinity

IDBI Bank Infosys (Bank Away) i-net banking

IndusInd Bank CR2 IndusNet

Punjab National Bank Infosys (Bank Away) Internet Banking

Me Standard Chartered
Standard Chartered Bank In-House Online

State Bank of India Satyam/Broadvision onlinesbi.com

UTI Bank Infosys (Bank Away) I connect

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ADVANTAGES OF INTERNET
BANKING

• Convenience- Unlike your corner bank, online banking

sites never close; they’re available 24 hours a day, seven
days a week, and they’re only a mouse click away.
• Avalability- If you’re out of state or even out of the
country when a money problem arises, you can log on
instantly to your online bank and take care of business,
24\7.
• Transaction speed- Online bank sites generally execute
and confirm transactions at or quicker than ATM
processing speeds.
• Efficiency-You can access and manage all of your bank
accounts, including IRA’s, CDs, even securities, from one
secure site.
• Effectiveness- Many online banking sites now offer
sophisticated tools, including account aggregation, stock
quotes, rate alert and portfolio managing program to help
you manage all of your assets more effectively. Most are
also compatible with money managing programs such as
quicken and Microsoft money.

DISADVANTAGES OF INTERNET
BANKING
• Start-up may take time-In order to register for your
bank’s online program, you will probably have to provide

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 ID and sign a form at a bank branch. If you and your
spouse wish to view and manage their assets together
online, one of you may have to sign a durable power of
attorney before the bank will display all of your holdings
together.
• Learning curves- Banking sites can be difficult to
navigate at first. Plan to invest some time and\or read the
tutorials in order to become comfortable in your virtual
lobby.
• Bank site changes- Even the largest banks periodically
upgrade their online programs, adding new features in
unfamiliar places. In some cases, you may have to re-
enter account information.

Issues in E Banking
Financial institutions, their card associations, and vendors are working to
develop an Internet payment infrastructure to help make electronic
commerce secure. Many in the banking industry expect significant growth
in the use of the Internet for the purchase of goods and services and
electronic data interchange. The banking industry also recognizes that the
Internet must be secure to achieve a high level of confidence with both
consumers and businesses.
Sound management of banking products and services, especially those
provided over the Internet, is fundamental to maintaining a high level of
public confidence not only in the individual bank and its brand name but
also in the banking system as a whole. Key components that will help
maintain a high level of public confidence in an open network
environment include:
• Security
• Authentication
• Trust
• Nonrepudiation
• Privacy
• Availability

Security is an issue in Internet banking systems. The OCC expects

national banks to provide a level of logical and physical security
commensurate with the sensitivity of the information and the individual
bank’s risk tolerance.
Firewalls are frequently used on Internet banking systems as a security
measure to protect internal systems and should be considered for any
system connected to an outside network. Firewalls are a combination of
hardware and software placed between two networks through which all

25 | P a g e
traffic must pass, regardless of the direction of flow. They provide a
gateway to guard against unauthorized individuals gaining access to the
bank’s network.

Authentication is another issue in a Internet banking system.

Transactions on the Internet or any other telecommunication network
must be secure to achieve a high level of public confidence. In
cyberspace, as in the physical world, customers, banks, and merchants
need assurances that they will receive the service as ordered or the
merchandise as requested, and that they know the identity of the person
they are dealing with.

Trust is another issue in Internet banking systems. As noted in the

previous discussion, public and private key cryptographic systems can be
used to secure information and authenticate parties in transactions in
cyberspace. A trusted third party is a necessary part of the process. That
third party is the certificate authority.
A certificate authority is a trusted third party that verifies identities in
cyberspace. Some people think of the certificate authority functioning like
an online notary. The basic concept is that a bank, or other third party,
uses its good name to validate parties in transactions. This is similar to
the historic role banks have played with letters of credit, where neither
the buyer nor seller knew each other but both parties were known to the
bank. Thus the bank uses its good name to facilitate the transaction, for a
fee.

Nonrepudiation is the undeniable proof of participation by both the

sender and receiver in a transaction. It is the reason public key encryption
was developed, i.e., to authenticate electronic messages and prevent
denial or repudiation by the sender or receiver.
Although technology has provided an answer to nonrepudiation, state
laws are
not uniform in the treatment of electronic authentication and digital
signatures.
The application of state laws to these activities is a new and emerging
area of
the law.

Privacy is a consumer issue of increasing importance. National banks

that recognize and respond to privacy issues in a proactive way make this
a positive attribute for the bank and a benefit for its customers. Public
concerns over the proper versus improper accumulation and use of
personal information are likely to increase with the continued growth of
electronic commerce and the Internet. Providers who are sensitive to
these concerns have an advantage over those who do not.

26 | P a g e
Availability is another component in maintaining a high level of public
confidence in a network environment. All of the previous components are
of little value if the network is not available and convenient to customers.
Users of a network expect access to systems 24 hours per day, seven
days a week.
Among the considerations associated with system availability are
capacity, performance monitoring, redundance, and business resumption.
National banks and their vendors who provide Internet banking products
and services need to make certain they have the capacity in terms of
hardware and software to consistently deliver a high level of service.
In addition, performance monitoring techniques will provide management
with information such as the volume of traffic, the duration of
transactions, and the amount of time customers must wait for service.
Monitoring capacity, downtime, and performance on a regular basis will
help management assure a high level of availability for their Internet
banking system.

Internet Penetration in India

The main problem is that the penetration of technology in terms of Internet in
India is very low. Its just 7.1% (as mentioned in Table 1) in India with just 81
million people hooking to the online facility.

A minor part of this segment knows and uses the Internet banking facility.
Even in this small segment there is a resistance towards adopting the
technology based services like banking on the Internet.

Table1. Internet Penetration in India

27 | P a g e
 %
Ye Populatio
Users penetratio
ar n
n
199 1,094,870, 1,400,00
0.10%
8 677 0
199 1,094,870, 2,800,00
0.30%
9 677 0
200 1,094,870, 5,500,00
0.50%
0 677 0
200 1,094,870, 7,000,00
0.70%
1 677 0
200 1,094,870, 16,500,0
1.60%
2 677 00
200 1,094,870, 22,500,0
2.10%
3 677 00
200 1,094,870, 39,200,0
3.60%
4 677 00
200 1,112,225, 50,600,0
4.50%
5 812 00
200 1,112,225, 40,000,0
3.60%
6 812 00
200 1,129,667, 42,000,0
3.70%
7 528 00
200 1,147,995, 81,000,0
7.10%
8 898 00
Source:
http://www.internetworldstats.com

28 | P a g e
Risks in E banking
Continuing technological innovation and competition among existing
banking organizations and new entrants have allowed for a much wider
array of banking products and services to become accessible and
delivered to retail and wholesale customers through an electronic
distribution channel collectively referred to as ebanking.
However, the rapid development of e-banking capabilities carries risks as
well as benefits.
Without a doubt, the technological growth has considerably affected the
profile of Bank risks and financial institution formation more generally.
Some of these risks are increased, while others on the contrary are
possible to be decreased. In any case, the growth of electronic banking
has created a new basis with regard to the degree of exposure to the risk
and therefore consequently the need of not only a differentiated
regulating frame, but also
mechanisms of monitoring to be formed, which has already begun to be
shaped in the fields of Basle Committee of Banking Supervision. The
degree of exposing to risks, which are related to the electronic banking,
depends mainly on the degree of adopting new alternative electronic
means of distribution of services and products.

Transactional/Operational risk
It is defined as the risk of loss as a consequence of the actions, the
processes, the infrastructure, the technology or other factors that practise
functional effect, including the false activities that include fraud. The
Basle Committee of Banking Supervision defines as operational risk the
risk of occurring damage, either from insufficient, inadequate internal
processes and systems, or from human factor, or other external reasons.
Operational
risk differs from the traditional banking risks in that it does not come from
the effort to achieve profit but it is an innate characteristic of banking
activity. The operational risk is the risk of damage that is owed, in
insufficient or unsuccessful processes (insufficiencies of systems and
internal inspection), individuals (human faults, failures of administration)
or systems (risk of damage or insufficiency of computer systems) or in
exterior incidents
(e.g. natural destruction, fires, legislative changes, lawful requirements,
etc). The operational risks are directly related with the bad operation of
information systems, the processes of reports and the applied internal
rules of observing the management of potential risk.

SECURITY RISK
Internet is a public network of computers which facilitates flow of data
information and to which there is unrestricted access. Banks using this

29 | P a g e
medium for financial transactions must, therefore, have proper technology
and systems in place to build a secured environment for such
transactions. Security risk arises on account of unauthorized access to a
bank’s critical
information stores like accounting system, risk management system,
portfolio management system, etc. A breach of security could result in
direct financial loss to the bank. For example, hackers operating via the
Internet could access, retrieve and use confidential customer information
and also can implant virus. This may result in loss of data, theft of or
tampering with customer information, disabling of a significant portion of
bank’s internal computer system thus denying service, cost of repairing
these etc.
Identity of the person making a request for a service or a transaction as a
customer is crucial to legal validity of a transaction and is a source of risk
to a bank. A computer connected to Internet is identified by its IP (Internet
Protocol) address. There are methods available to masquerade one
computer as another, commonly known as ‘IP Spoofing’. Likewise user
identity can be misrepresented. Hence, authentication control is an
essential security step in any e-banking system.

System Architecture and Design

Appropriate system architecture and control is an important factor in
managing various Kinds of operational and security risks. Banks face the
risk of wrong choice of technology, improper system design and
inadequate control processes. For example, if access to a system is based
on only an IP address, any user can gain access by masquerading as a
legitimate user by spoofing IP address of a genuine user. Numerous
protocols are used for
communication across Internet. Each protocol is designed for specific
types of data transfer. A system allowing communication with all
protocols, say HTTP (Hyper Text Transfer Protocol), FTP (File Transfer
Protocol), telnet etc. is more prone to attack than one designed to permit
say, only HTTP. Choice of appropriate technology is a potential risk banks
face. Technology which is outdated, not scalable or not proven could land
the bank in
investment loss, a vulnerable system and inefficient service with
attendant operational and security risks and also risk of loss of business.

Reputational risk
Reputational risk is the risk of getting significant negative public opinion,
which may result in a critical loss of funding or customers. Such risks arise
from actions which cause major loss of the public confidence in the banks'
ability to perform critical functions or impair bank-customer relationship.
An institution’s decision to offer e-banking services, especially the more

30 | P a g e
complex transactional services, significantly increases its level of
reputation
risk. Some of the ways in which e-banking can influence an institution’s
reputation include:
• Loss of trust due to unauthorized activity on customer accounts,
• Disclosure or theft of confidential customer information to
unauthorized parties (e.g., hackers),
• Failure to deliver on marketing claims,
• Failure to provide reliable service due to the frequency or duration
of service disruptions,
• Customer complaints about the difficulty in using e-banking services
and the inability of the institution’s help desk to resolve problems,
and
• Confusion between services provided by the financial institution and
• services provided by other businesses linked from the website.

Legal risk
Legal risk is the risk of non-compliance with legal or regulatory
requirements. A big part of the legal framework is general and it is in
effect for all the enterprises, in certain cases, however, a legislative
framework that covers specific services exists. The individual regulations
will be specific and they will be published by the regulating organizations
that have legal competence for the particular sector. The legal risks are
directly related to the electronic banking and they increased as its use is
extended. They mainly stem from the uncertainty that exists in the legal –
regulative framework concerning the electronic banking.

The systemic risk

It is the risk that a small incident will cause unexpected consequences in
local, regional or international systems that are not connected
immediately with the source of disturbance. The systemic risk is likely to
influence a small or big number of companies of the same sector or to
concern exclusively one single company. The rapid adoption of
information technology from the banks and its negative aspects, are very
much likely to increase the
systemic risks.
The systemic risk can be increased since many participants in the
particular market can use the same or similar software or equipment for
the confrontation of the same problems. Because of their widespread
application, the risk management models may create risks in cases of
likely weaknesses and deficiencies that arise in periods of extreme
conditions in the market. The dependence on exterior collaborators or
suppliers is possible to lead to the gathering of certain administrative
system operations and as a result the burden of risks of ensuring the
proper operation of the electronic system of financial services, becomes
the

31 | P a g e
responsibility of certain specialised suppliers or even only one from whom
all
the financial institutions will be depended.

Money Laundering
Money laundering is the practice of engaging in financial transactions in
order to conceal the identity, source, and/or destination of money, and is
a main operation of the underground economy Money laundering is called
what it is because that perfectly describes what takes place - illegal, or
dirty, money is put through a cycle of transactions, or washed, so that it
comes out the other end as legal, or clean, money. In other words, the
source of illegally obtained funds is obscured through a succession of
transfers and deals in order that those same funds can eventually be
made to appear as legitimate income.

Strategic Risk
A financial institution’s board and management should understand the
risks associated with e-banking services and evaluate the resulting risk
management costs against the potential return on investment prior to
offering e-banking services. Poor e-banking planning and investment
decisions can increase a financial institution’s strategic risk. Early
adopters of new e-banking services can establish themselves as
innovators who anticipate the needs of their customers, but may do so by
incurring higher costs and increased complexity in their operations.
Conversely, late adopters may be able to avoid the higher expense and
added
complexity, but do so at the risk of not meeting customer demand for
additional products and services.

Risk management
The Risk Management Principles fall into three broad, and often
overlapping, categories of issues that are grouped to provide clarity:
Board and Management Oversight; Security Controls; and Legal and
Reputational Risk Management.

Board and Management Oversight

Because the Board of Directors and senior management are responsible
for developing the institution’s business strategy and establishing an
effective management oversight over risks, they are expected to take an

32 | P a g e
explicit, informed and documented strategic decision as to whether and
how the bank is to provide ebanking services. The initial decision should
include the specific accountabilities, policies and controls to address risks,
including those arising in a cross-border context. Effective management
oversight is expected to encompass the review and approval of the key
aspects of the bank’s security control process, such as the development
and maintenance of a security control infrastructure that properly
safeguards e-banking systems and data from both internal and external
threats. It also should include a comprehensive process for managing
risks associated with increased complexity of and increasing reliance on
outsourcing relationships and third-party dependencies to perform critical
e-banking functions.

Security Controls
While the Board of Directors has the responsibility for ensuring that
appropriate security control processes are in place for e-banking, the
substance of these processes needs special management attention
because of the enhanced security challenges posed by e-banking. This
should include establishing appropriate authorisation privileges and
authentication measures, logical and physical access controls, adequate
infrastructure security to maintain appropriate boundaries and restrictions
on both internal and external user activities and data integrity of
transactions, records and information. In addition, the existence of clear
audit trails for all e-banking transactions should be ensured and measures
to preserve confidentiality of key e-banking information should be
appropriate with the sensitivity of such information.

Legal and Reputational Risk Management

To protect banks against business, legal and reputation risk, e-banking
services must be delivered on a consistent and timely basis in accordance
with high customer expectations for constant and rapid availability and
potentially high transaction demand. The bank must have the ability to
deliver e-banking services to all endusers and be able to maintain such
availability in all circumstances. Effective incident response mechanisms
are also critical to minimise operational, legal and reputational risks
arising from unexpected events, including internal and external attacks,
that may affect the provision of e-banking systems and services. To meet
customers’ expectations, banks should therefore have effective capacity,
business continuity and contingency planning. Banks should also develop
appropriate incident response plans, including communication strategies,
that ensure business continuity, control reputation risk and limit liability
associated with disruptions in their e-banking services.
Risk Management Principles for E Banking
Principle 1: The Board of Directors and senior management should
establish effective management oversight over the risks associated with

33 | P a g e
e-banking activities, including the establishment of specific accountability,
policies and controls to manage these risks.

Principle 2: The Board of Directors and senior management should

review and approve the key aspects of the bank's security control
process.

Principle 3: The Board of Directors and senior management should

establish a comprehensive and ongoing due diligence and oversight
process for managing the bank's outsourcing relationships and other
third-party dependencies supporting ebanking.

Principle 4: Banks should take appropriate measures to authenticate18

the identity and authorisation of customers with whom it conducts
business over the Internet.

Principle 5: Banks should use transaction authentication methods that

promote nonrepudiation and establish accountability for e-banking
transactions.

Principle 6: Banks should ensure that appropriate measures are in place

to promote adequate segregation of duties within e-banking systems,
databases and applications.

Principle 7: Banks should ensure that proper authorisation controls and

access privileges are in place for e-banking systems, databases and
applications.

Principle 8: Banks should ensure that appropriate measures are in place

to protect the data integrity of e-banking transactions, records and
information.

Principle 9: Banks should ensure that clear audit trails exist for all e-
banking transactions.

Principle 10: Banks should take appropriate measures to preserve the

confidentiality of key e-banking information. Measures taken to preserve
confidentiality should be commensurate with the sensitivity of the
information being transmitted and/or stored in databases.

Principle 11: Banks should ensure that adequate information is provided

on their websites to allow potential customers to make an informed
conclusion about the bank's identity and regulatory status of the bank
prior to entering into e-banking transactions.

Principle 12: Banks should take appropriate measures to ensure

adherence to customer privacy requirements applicable to the

34 | P a g e
jurisdictions to which the bank is providing e-banking products and
services.

Principle 13: Banks should have effective capacity, business continuity

and contingency planning processes to help ensure the availability of e-
banking systems and services.

Principle 14: Banks should develop appropriate incident response plans

to manage,
contain and minimise problems arising from unexpected events.

Introduction
The Industrial Development Bank of India Limited commonly known
by its acronym IDBI is one of India's leading public sector banks and 4th
largest Bank in overall ratings. RBI categorised IDBI as an "other public
sector bank". It was established in 1964 by an Act of Parliament to provide
credit and other facilities for the development of the fledgling Indian
industry. It is currently the tenth largest development bank in the world in
terms of reach with 975 ATMs, 568 branches and 352 centers. Some of
the institutions built by IDBI are the National Stock Exchange of
India (NSE), the National Securities Depository Services Ltd (NSDL),
the Stock Holding Corporation of India(SHCIL), and IDBI BANK, which today
is owned by the Indian Government, though for a brief period it was a
private scheduled bank.
Recent developments in IDBI BANK
To meet emerging challenges and to keep up with reforms in financial
sector, IDBI has taken steps to reshape its role from a development
finance institution to a commercial institution. With the Industrial
Development Bank (Transfer of Undertaking and Repeal) Act, 2003, IDBI
attained the status of a limited company viz. "Industrial Development
Bank of India Limited" (IDBIL). Subsequently, the Reserve Bank of

35 | P a g e
India (RBI) issued the requisite notification on September 30, 2004
incorporating IDBI as a 'scheduled bank' under the RBI Act, 1934.
Consequently, IDBI, formally entered the portals of banking business as
IDBIL from October 1, 2004.

The commercial banking arm, IDBI BANK, was merged into IDBI. Although
IDBI Bank is owned by the Government of India, there is a popular
misconception that IDBI bank is a private entity.

In March 2008, IDBI Bank entered into a joint venture with Federal Bank
and Fortis Insurance International to form IDBI Fortis Life Insurance, of
which IDBI Bank owns 48 percent. The company ended the year with over
300 Cr in premiums as on 31st March 2009.
Vision of IDBI bank
“to be trusted partner in progress by leveraging quality
human capital and setting global standards of
excellence to build the most valued financial
conglomerate.”

Network of IDBI BANK in INDIA

36 | P a g e
Internet banking at IDBI BANK
In today's digital world, Internet banking assumes a special significance.
Realising that the default access to banking information in the near future

37 | P a g e
would be only through the Internet, IDBI Bank have made available
globally benchmarked Internet Banking facility.
With IDBI's Internet Banking, Bank travels with CUSTOMER around the
world and he has online, real-time access to his accounts.
Admittedly, such a service requires security of the highest nature and
complete privacy protection.IDBI provide a completely secure
environment, using 128-bit encryption SSL (Secure Sockets Layer),
digitally certified by Verisign. 128-bit SSL guarantees world-class security
for Internet and e-commerce applications.
Mentioned below are the products and services that are available to you
on Internet Banking:
Account Information

• Account balance
• Account enquiry and status
• Transaction tracking and history
• Installments and funds flow details
• Statements
• Cheque statuts

Demat Account Information

• Account Details displays the name, correspondence address,

account numbers and bank account numbers associated with the
account
• Holding Statements displays the list of demat scrip with ISIN code,
scrip name, and balance
• Statement of Transaction lists the transactions for a period, with
details of security and balances
• Billing statement details the charges for respective transactions

Online Instructions and Requests

• Cheque book
• Stop payment
• FD renewal

38 | P a g e
Customer Service

• Mail / Messages
• Alerts

• Customised features
○ Change of login and transaction passwords
○ Creation of nicknames for accounts
○ Date and amount format choices

Online Payment Services

Internet Banking offers online payment facility linked with merchant

websites/e-shops serving as a payment gateway. The Bank offers this
facility to any agency requiring online payment services such as Online
Shopping Malls, Online Share Trading Agency, an AMC selling Online
Mutual Funds or registering/subscribing for internet connection with ISP.

Bill Payment and Presentment

EBPP - Electronic Bill Presentment and Payment feature allows IDBI

customers to pay for their bills online through their Internet Banking
account. We provide both Bill Presentment and Payment service.

39 | P a g e
Security measures taken by IDBI
Security is of prime importance for providing banking services over the
Net. Internet Banking is built using state-of-the-art technologies that
provide a high degree of security. The security infrastructure comprises of
filtering routers, firewalls, intrusion detection systems (IDS), besides virus
monitoring tools, etc. The security requirements adhere to RBI's
recommendations for Internet Banking. The security has been
implemented and audited by an international consulting firm, using
internationally accepted standards and practices.
Internet Banking uses 128-bit digital certificate from Verisign for
encryption of the Secure Sockets Layer (SSL) session. SSL is the industry
standard for encrypted communication and ensures that customer's
interaction with the Bank over the Internet is secure.

Safe Internet Banking (Do’s &

Dont’s)by IDBI bank
Please note the following points that will help you protect yourself while
using Internet Banking:

Never respond to emails that request personal information.

At IDBI Bank Ltd., we would never ask for updation / activation of your
personal details
through an email. Nor would we ask for your password through any
means, online or offline. If any of our bank personnel asks you for your
password, do not disclose it and report him or her immediately to us.

Keep your password top secret and change them often.

Changing passwords often helps in protecting your account even if
inadvertently you may have disclosed it to someone.

Never use cyber cafes to access your online accounts.

PCs at cyber cafes may be infested with viruses and Trojans that can
capture and transmit your personal data to fraudsters. Beware of typing
passwords on unknown PCs. If you do, ensure to change your password at
the earliest using your own PC at your workplace or at home.

40 | P a g e
Use the Virtual KeyPad.
Please remember to always use the facility of the Virtual KeyPad, provided
on the login page while logging on to your account from an unknown PC or
from a cyber café.

Keep your computer secure.

Please ensure that anti-virus software is installed on your PC and regularly
updated. It is also prudent to install a firewall on your PC to prevent any
unauthorised control and access to data on your PC while surfing the
internet.

Check the website you are visiting is secure.

Before submitting your bank details or other sensitive information the
following checks will help ensure that the site uses encryption to protect
your personal data: If the address bar is visible, the URL should start with
‘https://’ (‘s’ stands for secured) rather that the usual ‘http://’. Please note
that the fact that website is using encryption doesn't necessarily mean
that the same is legitimate. It only tells you that data is being sent in
encrypted form.

Following the above steps would help you transact over the net in the
most secure environment. Following are some simple simple
precautionary measures:
• Never let anyone know your PINs or passwords, do not write them
down
• Do not use the same password for all your online accounts
• Avoid opening or replying to spam emails, even if purportedly sent
by the Bank.
• In case of suspicion, report the matter immediately to us on our toll
free 24 hour customer care numbers or email us at
icare@idbibank.com.
• Look for the padlock symbol on the bottom bar of the browser to
ensure that the site is running in secure mode.
• Disable the "Auto Complete" function on your browser to prevent
your browser from remembering Passwords.
• Always logout to terminate your session, instead of closing the
browser directly.
• Always type the address of the bank website in the address bar of
your browser or access it from your stored list of favourites. Do not
access the bank website through a link in an email or through
another website.
• Using special characters like # $ @ etc. in your password is highly

41 | P a g e
 recommended.

Share holding pattern of IDBI bank as on 30th

September,2009.

Conclusion

42 | P a g e
 As on Sept 30, 2009
Market price per share (Rs) 127.45
Market Capitalisation (Rs.crore) 9,238
Earnings per share (Rs) (annualised) 14.00
Book value per share (Rs) 108.16
Price to Book Ratio 1.18
P : E Ratio 9.10
@ -Sept 30, 2009

Porter’s FIVE-FORCE analysis for

Indian banking industry

BARGAINING POWER OF SUPPLIERS

-Low supplier bargaining power

-Few alternatives available

-Subject to RBI Like

Rules and Regulations
-Not concentrated
43 | P a g e
-Forward integration

-Nature of suppliers
 Like

THREAT OF NEW THREAT OF

ENTRANT SUBSTITUTES
-Low barriers to High threat from
entry INDUSTRY substitutes
RIVARLY
-Government Like
Intense
policies are competition Mutual
supportive funds,,Governm
Many private,
-Globalization and public, ent securities
liberalization
policy
BARGAINING POWER OF
CUSTOMERS
-High bargaining power

-Low switching cost

-Large no. of alternatives

-Homogeneous service by
banks

Key Points:
Supply
Liquidity is controlled by the Reserve Bank of India (RBI).
Demand
India is a growing economy and demand for credit is high though it could
be cyclical.
Barriers to entry
Licensing requirement, investment in technology and branch network.
Bargaining power of suppliers
High during periods of tight liquidity. Trade unions in public sector banks
can be anti reforms. Depositors may invest elsewhere if interest rates fall.

44 | P a g e
Bargaining power of customers
For good creditworthy borrowers bargaining power is high due to the
availability of large number of banks
Competition - High
There are public sector banks, private sector and foreign banks along
with non banking finance companies competing in similar business lines.

 RIVALRY AMONG THE INDUSTRY

Rivalry in banking industry is very high. There are so many private, public,
co-operative and non-financial institutions operating in the industry. They
are fighting for same customers. Due to government liberalization and
globalization policy, banking sector became open for everybody. So,
newer and newer private and foreign firms are opening their branches in
India. This has intensified the competition. The no. of factors have
contributed to increase rivalry those are:

1. A large no. Of banks

There are so many banks and non-financial institutions fighting for same
pie, which has intensified competition.

2. High market growth rate

India is seen as one of the biggest market place and growth rate in Indian
banking industry is also very high. This has ignited the competition.
3. Low switching cost
Customer switching cost is very low. They can easily switch from one bank
to another bank and very little loyalty exists.
4. In differentiate services
Almost every bank provides similar services. No differentiation exists.
Every bank tries to copy each other services and technology, which
increases the level of competition.
5. High exit barrier

High exist barriers humiliate banks to earn profit and retain customers by
providing world-class services.

 BARGAINING POWER OF SUPPLIERS

Suppliers of banks are depositors. These are those people who have
excess money and prefer regular income and safety. In banking industry
Suppliers have low bargaining power. Following are the reasons for low
bargaining power of suppliers.

1. Nature of suppliers

45 | P a g e
Suppliers of banks are generally those people who prefer low risk and
those who need regular income and safety as well. Bank is best place for
them to deposit their surplus money. They believe that banks are very
safe than other investment alternatives. So, they do not consider other
alternatives very seriously, which lower their bargaining power.

1.Few alternatives

Suppliers are risk averters and want regular income. So, they have few
alternatives available with them to invest like Treasury bills, government
bonds. So, few alternatives lower their bargaining power.

2.RBI Rules and Regulations

Banks are subject to RBI rules and regulations. Banks have to behave in
the way that RBI wants. So, RBI takes all decisions relating to interest
rates. This reduces suppliers bargaining power.

3.Suppliers are not concentrated

Banking industry’s suppliers are not concentrated. There are numerous

suppliers with negligible portion to offer. So, this reduces their bargaining
power. If they were concentrated then they can bargain with banks or can
collectively invest in other no-risky projects.

5. Forward integration

Forward integration is possible like mutual funds, but only few people now
about this. Only educated people can forwardly integrate where as large
no. Of suppliers are unaware about these alternatives.

 BARGAINING POWER OF CUSTOMERS

Customers of the banks are those who take loans, advances and use
services of banks. Customers have high bargaining power. Following are
the reasons for high bargaining power of customers.

1. Large no. Of alternatives

Customers have very large no. of alternatives. There are so many banks,
which fight for same pie. There are many non-financial institutions like
ICICI, HDFC, IFCI etc., which has also jumped into these business. There
are foreign banks, private banks, cooperative banks and development

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banks together with the specialized financial companies that provide
finance to customers. These all increase preferences for customers.

2.low switching cost

Cost of switching from one bank to another is low. Banks are also
providing zero balance account and other types of facilities. They are free
to select any bank‘s service. Switching costs are becoming lower with
Internet Banking gaining momentum and as a result consumers’ loyalties
are harder to retain.

3. Undiffernciated service

Banks provide merely similar services. There is no much difference in

services provided by different banks. So, bargaining power of customers
increases. They cannot be charged for differentiation.

4.Full information about the market

Customers have full information about the market due to globalization

and digitization consumers have become advance and sophisticated. They
are aware with each market conditions. So, banks have to be more
competitive and customer friendly to serve them.

 THREAT OF NEW ENTRANTS

Barriers to an entry in banking industry no longer exist. So, lots of private

and foreign banks are entering in the market. Competitors can come from
any industry to “ disintermediate” banks. Product differentiation is very
difficult for banks and exit is difficult. So, every bank strives to survive in
highly competitive market. So, we see intense competition and mergers
and acquisition.
Government policies are supportive to start a new bank. There are less
statutory requirements needed to start a new venture. Every bank tries to
achieve economies of scale through use of technology and selecting and
training manpower.

 THREAT OF SUBSTITUTES
Competition from the non-banking financial sector is increasing rapidly.
Sony and Software giants such as Microsoft are attempting to replace the
banks as intermediaries. The threat of substitute products is very high.
These new products include credit unions and investment houses. One
feature of using an investment house is that the fees that the investment
house charges are tax deductible, where as a bank it is considered a
personal expense, which are not tax deductible. The rate of return with
using investment houses is greater than a bank. There are other
substitutes as well for banks like mutual funds, stocks (shares),

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government securities, debentures, gold, real estate etc. so, there is a
high threat from substitute.

CONCLUSION
Indian banking sector is one of the highly competitive sectors where high
growth rate and high degree of competition exist. Low entry barriers and
high exit barriers ignites competition in this industry. Every bank strives to
survive in the shadow of these barriers. There are so many substitutes
available with customers and they have high bargaining power where as
suppliers i.e. depositors have low power in their hands.

Technology innovation and fierce competition among existing banks have

enable a wide array of banking products and services, being made
available to retail and wholesale customer through an electronic
distribution channel, collectively referred to as e-banking. The integration
of e-banking application with legacy system implies an integrated risk
management approach for all banking activities of a banking institution.
Latest recommendations of Basle Committee recognize that each bank’s
risk profile is different and requires a tailored risk mitigation approach
appropriate for the scale of e-banking operations, the materiality of the
risks present and the willingness and ability of the institution to manage
their risks. This implies that a “one size fits all” approach to e-banking risk
management issues may not be appropriate.

Banks have traditionally been in the forefront of harnessing technology to

improve product and efficiency. Technology is altering the relationships
between banks and its internal and external customers. Technology has
also eroded the entry barriers faced by many industries. With one time
investment, technology has brought about superior products and channel
management with a special focus on customer relationship. The
incremental costs incurred for expansion and diversification are also more
beneficial.

The major driving force behind the rapid spread of e-banking is its
acceptance as an extremely cost effective delivery channel. But on the
flipside, it is associated with risks such as reputation risk, security risk,
cross-border risk and strategic risk, which are unique to e-banking. Banks
need to have an effective disaster recovery plan along with
comprehensive risk management tool is significant not only to the bank
but also to the banking system as a whole. All these issues underscore the
importance of sound supervisory policies and high level of international
co-operation among the bank regulators. The Basle Committee on banking
Supervision has taken the lead in this area through the creation of its
Electronic Banking Group – a group comprising 17 central banks and bank

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supervisory agencies in the late 1999. The main focus of this group has
been to develop sound risk management practices.

Internet has created plenty of opportunities for players in the banking

sector. While the new entrants have the advantage of latest technology,
the good-will of the established banks gives them a special opportunity to
lead the online world. By merely putting existing service online won’t help
the banks in holding their customer close. Instead, banks must learn to
capitalize their customer’s different online financial-services relationships.
The article “Will Banks Control Online Banking?” focuses on how banks
have to reinvent their role to remain as their customers’ preferred bank.

The main advantage of implementing e-banking is an increase in

customer satisfaction. This is because customers do not have to go to the
branches in order to access their accounts, make withdrawals and
deposits. They can also check it anytime of the day, a feature that
physical branches do not offer thus creating a good relationship with the
bank and the customer.

E-banking is also advantageous not only for customer but also for the
bank because
it reduces costs in setting up a branch and the resources to process
transactions. They can also service more people than ever before. All
these benefits are the reasons why many banks are already investing in e-
banking.

The main disadvantage of e-banking is the security problems that

surround it. It's a fact that making transactions online poses a much
bigger risk compared to making
transactions in a physical branch. This is due to the hacking problems and
identity theft. Addition to these risks, technical difficulties could also arise.

Sometimes the bank's website goes down, and if this happens it will be a
hassle for the customer because he/she has to go to a branch or make
phone calls- which is usually busy due to other customers also making a
call. Another case that has happened was an unpredicted rise in customer
that the servers of the bank were not able to cope with. A customer may
also run into a bad service. Sometimes you might wait a while for your
checks to clear and you certainly can't do anything about it if it is online.

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BIBILOGRAPHY
• www.wikiepedia.com
• www.idbibank.com
• www.gogle.com
• ‘Electronic Banking and Payback System’ by mrs
C.S.KAR
• www.imai.org

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