INTERNATIONAL JOURNAL FOR LEGAL RESEARCH & ANALYSIS (ISSN 2582 - 6433) - VOLUME 2 ISSUE 3 (September 2021)
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INTERNATIONAL
JOURNAL FOR LEGAL
RESEARCH & ANALYSIS
(ISSN 2582 – 6433)
VOLUME 2 ISSUE 3
(September 2021)
Email –
editor@ijlra.com
Website – www.ijlra.com
5656565656565
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Volume 2 Issue 3| September 2021 ISSN: 2582-6433
DISCLAIMER
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Volume 2 Issue 3| September 2021 ISSN: 2582-6433
EDITORIAL TEAM
EDITORS
Ms. Ezhiloviya S.P.
Nalsar Passout
Ms. Priya Singh
West Bengal National University of Juridical Science
Mr. Ritesh Kumar
Nalsar Passout
Mrs. Pooja Kothari
Practicing Advocate
Dr. Shweta Dhand
Assistant Professor
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ABOUT US
INTERNATIONAL JOURNAL FOR LEGAL RESEARCH & ANLAYSIS
ISSN
2582-6433 is an Online Journal is Quarterly, Peer Review, Academic
Journal, Published online, that seeks to provide an interactive platform for
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Comments, Research Papers, Essay in the field of Law & Multidisciplinary
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contemporary issues of law. We are eager to become a highly cited academic
publication, through quality contributions from students, academics,
professionals from the industry, the bar and the bench. INTERNATIONAL
JOURNAL FOR LEGAL RESEARCH & ANALYSIS ISSN
2582-6433 welcomes contributions from all legal branches, as long as the
work is original, unpublished and is in consonance with the submission
guidelines.
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Volume 2 Issue 3 | September 2021 ISSN: 2582-6433
TOPIC: A CRITICAL ANALYSIS ON ELECTRONIC BANKING
AND IT’S LEGAL ASPECTS IN INDIA
By : S.Tharani
ABSTRACT:
Financial sector plays a significant part in the growth of an economy. In today’s epoch of
information and technology an economy cannot achieve the target of sustainable development
by following traditional banking method. Now, it has become obligatory for developing country
like India to increase computerization in banking industry. Indian banking system can go
cashless with the aid of Internet banking. Internet banking is also known as e-banking or online
banking or virtual banking. Indian banking industry, today is observing an IT revolution. The
revolutionary online banking is being accepted by the customers with growing awareness and
education. The online banking frauds in India have increased tremendously. The Reserve bank
of India has issued some guidelines at the latest in this regard though it is not sufficient to make
the banks follow robust and required cyber security procedures. The present paper discusses
about history of e-banking, varied forms of e-banking followed in India and advantages of e-
banking. The paper highlights the challenges and issues faced by customers of e-banking
addressing the cyber issues, legal framework that is prevalent in India to protect the customer
against the menace of it. The researcher has attempted to provide remedial measures to the
challenges faced by customers of e-banking. The researcher has done a doctrinal study. Finally,
the researcher could like to conclude by saying that, “Law has extended its hands to help RBI in
regulating the e-banking and safeguard the customers of e-banking. Law has to be further
amended to take away all the menace to boost up e-banking in India.”
KEY WORDS: E-Banking – Services offered - Challenges – Legal framework – Security.
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INTRODUCTION:
“India has seen a dream of Digital India. From latest science to latest technology, everything
should be available at the tip of one's finger.”
-Narendra Modi
There is a saying that Rome was not built in a day, so is banking system of the World.
Monetary policy of any country is directly related to economic development of the where banks
play major role. Indian banking industry, today, is in the midst of an IT (Information
Technology)1 revolution. The competition among the banks has led to the increasing total
banking automation in the Indian banking industry. In India, it was ICICI bank which initiated
E-banking as early as 1997 under the brand name Infinity. The convenience of e-banking has
attracted the public at large all over the world. Banking services has reached rural people of
India and has its working wing globalized. Thus is the complicatory story of e-banking where
there are advantages of numerous facilities offered due to digitalization, there is also plenty
obligation to be meted out by the banks. E-banking has brought banking 24 hours and 7 days,
where there is no need for the customer to visit banks personally. The concept of e-banking has
been simultaneously evolving with the development of the World Wide Web programmers
working databases came up with the idea of online banking transactions sometime during the
1980s in Europe. They called this home banking. In 1983, the Nottingham building society
commonly abbreviated and referred to as the Non Banking Service launched the first internet
banking service in United Kingdom. The first online banking service in United States was
introduced in 1994. There are advantages and disadvantages of introduction of Technology in
banking system. The work of the law starts where there are disadvantages to the public in
general and individual in particular. Reserve Bank of India outlined the mission to ensure that
payment and settlement systems are safe, efficient, interoperable, authorized, accessible,
inclusive and compliant with international standards. The Vision is to proactively encourage e-
payment system for ushering in a less cash society in India. There are certain challenges the
banking is facing which are due to obligations imposed by law on the one hand and the
invention of new technology and its adoption at the other. This necessitates introduction of new
guidelines by the RBI.
1
Information technology (IT) is the use of computers to store, retrieve, transmit, and manipulate data, or
information, often in the context of a business or other enterprise.
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The popular services covered under E-banking include:- Automated Teller Machines (ATM),
Credit Cards, Debit Cards, Smart Cards, Electronic Funds Transfer (EFT) System, Mobile
Banking, Internet Banking, Door Step Banking, Telephone banking and Electronic Clearing
Services.
E-banking is a generic term for delivery of banking services and products through electronic
channels, such as the telephone, the internet, the cell phone, etc. The concept and scope of E-
banking is still evolving. It facilitates an effective payment and accounting system thereby,
enhancing the speed of delivery of banking services considerably. Several initiatives taken by
the government of India, as well as the Reserve Bank of India (RBI), have facilitated the
development of E-banking in India. The government of India enacted the IT Act, 2000, which
provides legal recognition to electronic transactions and other means of electronic commerce.
The RBI has been preparing to upgrade itself as a regulator and supervisor of the
technologically dominated financial system. It issued guidelines on risks and control in
computer and telecommunication system to all banks, advising them to evaluate the risks
inherent in the systems and put in place adequate control mechanisms to address these risks.
The existing regulatory framework over banks has also been extended to E-banking. It covers
various issues that fall within the framework of technology, security standards, and legal and
regulatory issues. While E-banking has improved efficiency and convenience, it has also posed
several challenges to the regulators and supervisors.
A successful E - banking offers Checking with no monthly fee, free bill payment and rebates on
ATM, surcharges Credit cards with low rates, Easy online applications for all accounts,
including personal loans and mortgages 24 hour account access, Quality customer service with
personal attention and advantages previously held by large financial institutions have shrunk
considerably.
The Internet has levelled the playing field and afforded open access to customers in the global
marketplace. Internet banking is a cost-effective 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 'brochure' 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.
OBJECTIVES:
1. To discuss in detail the history and varied forms of e-banking in India.
2. To highlight the various advantages of e-banking to customers.
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3. To analyse the guidelines provided by the Reserve Bank of India to follow robust and
required cyber security procedures.
4. To study the present legal framework to safeguard the interest of customers.
5. To suggest few effective remedial measures to boost-up the e-banking in India.
HYPOTHESIS:
Ho: There is significant legislation to protect the challenges prevalent in E-banking in India.
Ha: There is no significant legislation to protect the challenges prevalent in E-banking in India.
RESEARCH METHODOLOGY: The present research paper, “A Critical Analysis on
Electronic Banking and it’s Legal Aspects in India” is based on both primary and secondary
data collected from different sources. The primary data was collected from religious text and
first-hand books. So far as secondary sources are concerned, they were accumulated from
number of research papers of reputed journals, articles published in various blocks, judgements
delivered by Hon’ble Supreme Court and High Courts, books and newspapers. The research
method used in the present study for exploration of data which amassed from different sources
is descriptive/Ex post facto research method.
MEANING AND DEFINITION OF E-BANKING:
E-banking is being used in India for some time now in the form of digital data in computers,
credit and debit cards, Automated Teller Machines, Mobile Banking, net banking and internet
banking. Internet or 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. E-banking has
been defined in law lexicon as banking activities accessed by using a computer, employing
modems and telephones.
In e-banking, ‘e’ stands for electronic and the banking has been defined as ‘an acceptance of
money from the public, for purpose of lending or investment of money, which is withdraw able
by cheque, draft or otherwise’ and banking by using electronic devices is e-banking.
According to Daniel “Internet banking or E-banking is the term that signifies and encompasses
the entire sphere of technology initiatives that have taken place in the banking industry. E-
banking is a generic term making use of electronic channels through telephone, mobile phones,
internet etc. for delivery of banking services products. Internet banking as the delivery of bank's
information and services by banks to customers via different delivery platforms that can be used
with different terminal devices such as a personal computer and a mobile phone with browser or
desktop software, telephone or digital television”.
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Internet banking is defined as “A form of banking where funds are transferred through an
exchange of electronic signals between financial institutions, rather than an exchange of cash,
checks, or other negotiable instruments”. 2
HISTORY:
The e-banking business model started back in the 1980’s, and it evolved through three main
phases that can be summarized as follows 3:
The Eighties: The early beginning: Modern e-banking first appeared in New York in the early
1980’s, where it was offered by major banks in that city, such as Citibank and Chase
Manhattan. The United Kingdom banks started to adopt the concept in 1983 where the Bank of
Scotland was the first to introduce it. Back then it required a computer terminal, a monitor, and
a telephone line. It was also offered through a numeric keypad on a telephone enabling sending
messages to the bank. The early services were very basic ones such as viewing your bank
statements and paying your bills online. It was not a full transaction banking service; however,
it paved the way for the more comprehensive and sophisticated e-banking services that we see
today.
The Nineties: Modern Internet Banking: In the 1990’s, the use of internet evolved when
more people owned computers and were connected to the dial-up home internet. The first bank
to offer the most comprehensive e- Banking services was the Stanford Federal Credit Union
bank in 1994. This technological evolution and the spread of home internet usage meant
customers enjoyed 24/7 e- Banking services. On the other hand, many customers during the
1990’s didn’t trust the concept enough to make serious and substantial monetary transactions
and did not think the internet banking is safe enough.
The 2000’s: The growth and acceptance: The first bank to reach three million online banking
customers was the Bank of America in 2001. Throughout the 2000’s on-line banking started to
grow and become more acceptable by customers. It covered most of the banking services range.
“On-line only” banking firms offered better interest rates and features to their clients taking
advantage of the cost savings achieved by the “Digital Firm” business model.
TRADITIONAL BANKING VERSUS INTERNET BANKING:
1. Presence :
TB - Banks exist physically for serving the customers and can have face to face contact.
IB – Banks do not have physical presence, services are provided online.
2
Barron’s Dictionary (2006).
3
http://wiki.answers.com/Q/What_is_e-banking, visited on 05.06.2021 at 6:30pm.
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2. Time:
TB - It consumes a lot of time as customers have to visit banks to carry out bank transactions
like checking bank balances, transferring money from one account to another.
IB - It does not consume time as customers do not have to visit banks to check bank balances or
to transfer money from one account to another. Customers can access their account readily from
anywhere with a computer and internet access.4
3. Accessibility:
TB - People have to visit banks only during the working hours.
IB - Internet banking is available at any time and it provides 24 hours access.
4. Security:
TB - Traditional banking does not encounter e-security threats.
IB - Online banking is the tempting target for hackers. Security is one of the problems faced by
customers in accessing accounts through internet.
5. Finance control:
TB - Customer who often travel abroad cannot pay close attention to control of their finances.
IB - Customers who often travel abroad can have greater control over their finances.
6. Expensive:
TB - Customers have to spend money for visiting banks.
IB - Customers do not have to spend money for visiting banks. They can avoid bank charges
that may be charged for certain teller transactions or when they pay bills electronically —
directly from their account to the merchant. It helps to save money on postal charges.
7. Cost:
TB - The cost incurred by traditional banks includes a lot of operating and fixed costs.
IB - Such costs are eliminated as the banks do not have physical presence.
8. Customer Service:
TB - The employees and clerical staff of the bank can attend only few customers at a time.
IB - The customers do not have to stand in queues to carry out certain bank transactions.5
ACCENTS OF E-BANKING:
The following are considered as the main features of e-banking6:
1. In E-banking, banking functions are carried by using internet facility.
4
Sonia Sharma, A detail comparative study on e- banking VS traditional banking, International Journal of Applied
Research 2016; 2(7): 302-307, 2016.
5
https://www.coursehero.com/file/17873897/Traditional-Banking-vs-E/, visited on 09.06.2021 at 19.00.
6
Dr. Suresh.V.Nadagoudar, M.P.Chandrika, LAW RELATING TO E-BANKING IN INDIA – AN OUTREACH
CHALLENGE, International Journal of Current Research Vol. 5, Issue, 11, pp. 3508-3512, November, 2013.
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2. It removes the traditional geographical barriers as it could reach customers at different
counters/jurisdictions and helps in the international trade and commerce.
3. E-banking facilitates banking transactions at all time and even on government declared
holidays and Sundays, which is every much useful for the customers to transfer their
money to someone in need of it immediately when needed.
4. It provides numerous ancillary delivery channels which are more expedient and cost
effectual to both customer and the banker.
5. It is based on science and technology i.e. use of electronic devices which saves time and
energy of banker and customer.
6. Its special features lie in ensuring security of the transaction, customer’s privacy and
transparency of transaction.
VARIOUS INNOVATIONS TO E-BANKING IN INDIA:
1. Automated/Automatic Teller Machines (ATM): It is an electronic computerized
telecommunications device that allows customers to complete financial transaction like cash
withdrawals or cash deposit by using their ATM cards and report of the account's balance can
also be received without the aid of any bank branch. It is simple to use self service solution.
2. Tele Banking: This service facilitates the bank’s customer to perform a range of
financial transactions over the telephone, without visiting any bank branch or ATM. The timing
of Telephone banking is much longer than branch timing, and in some of the financial
institutions offer 24-hour service for their customers. The various types of financial transactions
which customers may transact through their telephone banking are:- obtaining account
balances, list of latest transactions, Electronic bill payments and Funds transfers between a
customers or even in another's accounts7.
3. Smart Card: A smart card is also known chip card, or integrated circuit card (ICC) it is
a pocket sized plastic card that has embedded in form of computer chip. The microprocessor is
under a contact pad on one side of the card. The microprocessor on the smart card is there for
security. The microprocessor enforces access to the data on the card. They are capable of
transactions like cash withdrawal, deposit and balance inquire etc.
4. Debit Card: Debit cards are also known as a bank card or check cards. Debit cards is a
plastic payment card that can be used instead of cash when making purchases but operate like
cash or a personal check. But still Debit cards are different from credit cards as credit card is a
7
Jatinder Kaur, Electronic Banking in India: Innovations, Challenges and Opportunities, International Journal of
Engineering Research & Technology (IJERT), ISSN: 2278-0181, Published by, www.ijert.org, NCIETM, 2017.
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Volume 2 Issue 3 | September 2021 ISSN: 2582-6433
way to "pay later," but debit card is a way to "pay now." By use of debit card the money comes
directly from the user's bank account when a transaction is being performed.
5. E-Cheque: An E-Cheque is one of latest innovation done in field of e-banking; it is a
new payment method that facilitates those customers who do not posses credit or debit card as a
backup payment method. In e- cheque method payment is make directly from customer's’ bank
account. A customer can only send an e-Cheque if their bank account is the only payment
method attached to your bank account.
6. Direct Deposit: It refers to deposit of money by a payer directly into a payee's bank
account. It is mostly used in the payment of salaries and wages and other type bill payment
directly in other’s accounts. Most commonly made by means of electronic funds transfers
effected using online, mobile, and telephone banking systems but can also be effected by the
physical deposit of money into the payee's bank account.
7. Electronic Bill Payment: This allows a customer of a financial institution or bank to
transfer money through financial transaction or credit card account to the creditor or vendor
such as a public utility, department store or an individual to be credited against a specific
account. These payments are done electronically in the form of direct deposit through a national
payment system, operated by the banks or in conjunction with the government.
8. Electronic Check Conversion: Electronic check conversion is a process in which
check is used as a source of information, information like check number, account number, and
the number that identifies your financial institution. The information is then used to make a
one-time electronic payment from customer account--an electronic fund transfer.
9. Cash Value Stored: A stored-value card means refer to payments card which have a
monetary value stored on the card itself, not in an external account maintained by a financial
institution. Stored-value cards differ from debit cards as in credit cards the credit limit is set by
the issuer but it is not in cash value stored as in this money is on deposit with the issuer. 8
10. National Electronic Fund Transfer (NEFT): It is a nation-wide payment system
facilitating one-to-one funds transfer. Under this Scheme, individuals, firms and corporate can
electronically transfer funds from any bank branch to any individual, firm or corporate having an
account with any other bank branch in the country participating in the Scheme. However, such cash
remittances will be restricted to a maximum of Rs.50,000/- per transaction.
11. Real Time Gross Settlement (RTGS): It is a continuous settlement of funds transfers
individually on an order by order basis. 'Real Time' means the processing of instructions at the time
they are received rather at some later time; 'Gross Settlement' means settlement of funds transfer
8
Ibid.
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instructions occurs individually. The payments are considered final and irrevocable7. The minimum
amount to be remitted through RTGS is 2 lakh. There is no upper ceiling for RTGS.
12. Electronic Clearing System (ECS): ECS is an alternative method for effecting payment
transactions in respect of the utility-bill-payments such as telephone bills, electricity bills, insurance
premium, card payments and loan repayments, etc., which obviate the need for issuing and
handling paper instruments and thereby facilitate improved customer service by banks / companies /
corporations / government departments, etc., collecting / receiving the payments.
13. Immediate Payment Service (IMPS): IMPS offers an instant, 24X7, interbank electronic
fund transfer service through mobile phones. IMPS is an emphatic tool to transfer money instantly
within banks across India through mobile, internet and ATM which is not only safe but also
economical both in financial and non-financial perspectives 9.
PROSPECTS OF E-BANKING:
Despite of various problems that are prevailing in context with e-banking in India, the following
opportunities are motivating the marketers for implementing e-banking:
1. Untapped Rural Markets: Contributing to 70% of the total population in India is a
largely untapped market for banking sector. In all urban areas banking services entered but only
few big villages have the banks entered. So that the banks must reach in remaining all villages
because majority of Indian still living in rural areas.
2. Multiple Channels: Banks offer so many channels to access their banking and other
services such as ATM, Local branches, mobile banking etc. to increase the banking business.
3. Worthy Customer Service: Worthy customer services are the best brand ambassador
for any bank for growing its business. Every engagement with customer is an opportunity to
develop a customer faith in the bank. While increasing competition customer services has
become the backbone for judging the performance of banks.
4. Time Saver: This is the greatest advantage to our generation as we are not able to spend
a lot of time for anything. Time management is one of the greatest challenges in our busy lives.
e- Banking enables us to carry on banking transactions within minutes, not disturbing our
routine.
5. Internet Banking: Online finance will pickup and there will be increasing convergence
in terms of product offerings banking services, share trading, insurance, loans, based on the data
warehousing and data mining technologies. Anytime anywhere banking will become common
and will have to upscale, such up scaling could include banks launching separate internet
banking services apart from traditional banking services.
9
Supra 6.
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6. Retail Lending: Recently banks have adopted customer segmentation which has helped
in customizing their product folios well. Thus retail lending has become a focus area
particularly in respect of financing of consumer durables, housing, automobiles etc. It has
helped in risks dispersal and in enhancing the earnings of banks with better recovery rates 10.
7. Indian Customers: The growing Indian banking sector with its strong home country
linkages, seek a unique combination of Indian ethnicity and global standards that offers a
valuable nice opportunities for Indian banks. Demographic shifts in terms of income level and
cultural shifts in terms of life style aspirations are changing the profile of the Indian customer.
This is and will be a key driver of economic growth going forward.
8. Increasing Internet Users & Computer Literacy: People should have knowledge
about internet technology so that they can easily adopt the internet banking services. The fast
increasing internet users in India can be a very big opportunity and banking industry should
encash this opportunity to attract more internet users to adopt internet banking services. 11
9. Initiatives taken by government agencies for financial literacy: Financial literacy
and education play a crucial role in financial inclusion, and inclusive growth. A study reported
that there is significant impact of financial literacy on use of internet banking, If customers are
not financially educated they will simply avoid using new online services and not change their
traditional way of banking, thus banks will not be able to convert users into their new online
banking strategies. Various government institutions like RBI, SEBI, IRDA and various other
market players have taken a number of initiatives on financial education.
10. Competitive Advantage: The benefit of adopting e-banking provides a competitive
advantage to the banks over other players. The implementation of e-banking is beneficial for
bank in many ways as it reduces cost to banks , improves customer relation , increases the
geographical reach of the bank , etc. The benefits of e- banking have become opportunities for
the banks to manage their banking business in a better way.
CHALLENGES OR DISADVANTAGES OF E-BANKING:
The challenges associated to e-banking exist in Indian scenario are discussed below:
1. Security Risk: Security issues and other related aspect has become one of the key
concerns for Banking sector. Large percentage of customers resists adopting e-banking facilities
10
http://www.letslearnfinance.com/advantages-and-disadvantages-of-internet-banking.html., accessed on
08.06.2021 at 6:00pm.
11
Ibid.
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considering safety and security concerns. It is a primary challenge for banks to convince the
consumers, if convinced may further lift up the online banking usage 12.
2. Privacy/ Confidentiality risk: Risk of revelation of not to be disclosed or confidential
information & alarm of identity theft is one of the major reasons that restrain the consumers
while opting for electronic banking services. This is being believed by large no. of consumers,
that by adopting internet banking services, their identity and personal information may be
steeled by hackers.
3. Trust Issue: Trust is the major obstacle to e-banking for most of the customers.
Traditional banking is often used by customers because of lack of conviction in e-banking
transactions. They have a mindset that there is a risk in e-banking transaction leading to
different frauds and scams. While using online banking services by the consumers, there always
remains a doubt or question in their minds regarding the successful completion of that
transaction till the time a confirmation message is received.
4. Customer Understanding and Awareness: Knowledge or understanding regarding e-
banking among consumers about is still at junior side in Indian context. Banks are not able to
advertise entire information about the use, benefits and facility of online banking. Less
awareness of new technologies and their benefits is among one of the most ranked barrier in the
development of e-banking13.
5. Less Internet diffusion in India: The online banking channel has progressed over the
years. E-Banking use in India has raised from 1% in 2006 to 7% in 2011 while in North
America in the year 2011, 60 percent of the times essential transactions in banks were executed
through online channels. So, it can be declared that understanding and availability of internet is
still a one of the critical confronts that exists in Indian context. Thus, the penetration of internet
customer and knowledge related to internet are the major Challenges.
6. Poor Infrastructure: E-Banking has been restrained to expand itself to semi urban and
rural areas due to poor Infrastructural facilities in terms of indecent set up, electric connection,
poor satellite, internet and broadband connectivity14.
7. Operating Conditions: India is a country of multiple cultures and multiple languages,
but this makes operating methodology for online banking a bit difficult as displaying
Instructions or Guidelines in Different languages is a cumbersome task. However, technology
has found out a solution to this, but, Illiterate people are still not covered under this solution and
12
https://toughnickel.com/personal-finance/advantages-and-disadvantages-of-internet-banking-2, accessed on
09.06.2021 at 6:50pm.
13
http://www.finweb.com/banking-credit/online-banking-advantages-and-disadvantages.html#axzz4nC6KPQkL,
accessed on 09.06.2021 @ 7:25pm.
14
Supra 12.
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Volume 2 Issue 3 | September 2021 ISSN: 2582-6433
also ATMs can’t guarantee identical operating levels from all people resulting in high wear &
tear.
8. Technological Illiteracy: In case of Mobile Banking, the technical rules and regulations
are not understandable by many of the mobile users in lower class and resultantly, they find
them difficult to operate. Consumers generally purchase Handsets in consideration to their
budget and those Handsets sometimes offer the features which are unsupportive as far as
Mobile Banking is concerned and this becomes a limitation in the execution of e-banking.
9. Training the Employees: Training imparted to bank employees is an easier task in case
of private sector banks, as they have young dynamic computer literate employees, while in case
of public sector banks, training the employees is a complex task as present staff is
comparatively lesser computer literate. In spite of this fact, they have been able to do
influentially well after functioning on it for over a decade now15.
10. Customer Education: E-banking facilities were being made accessible to customers
from early days in case of private banks. However, in case of old public sector banks, it is quite
difficult to persuade their customers regarding the utility of this program. Imparting Education
among customers formally with respect to e-banking is a difficult task. Considering this, banks
opted for providing monetary inducements like a Free Debit card, Free Net Banking facilities,
providing constant and timely information to customers regarding Monthly Statement of their
accounts on E- Mail, etc., to switch customers to these rising services of banking.
11. Restricted Business: Another challenge for e-banking is that all the banking
transactions cannot be executed online or through other electronic mediums; for few services
like deposits and withdrawals, one has to approach Banks physically. Although, it has been
observed that some of the banks have automated their method and their customers (front end)
but still numerous follow traditional process (back end). This in a way confines the customers
due to limited awareness and technical hurdles.
12. Competition: The nationalized banks and commercial banks have the competition from
foreign and new private sector banks. Competition in banking sector brings various challenges
before the banks such as product positioning, innovative ideas and channels, new market trends,
cross selling ad at managerial and organizational part this system needs to be manage, assets
and contain risk. Banks are restricting their administrative folio by converting manpower into
machine power16.
13. Complex Transactions: There are many complex transactions which cannot be sorted
out unless there is a face to face discussion with the manager that is not possible through
15
Supra 13.
16
https://budgeting.thenest.com/advantages-ebanking-24063.html, accessed on 09.06.2021 @ 08:55pm.
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internet banking. Solving specific issues and complaints requires physical visit to the bank and
cannot be achieved through the internet. Online communication is neither clear nor pin pointed
to help resolve many complex service issues. Certain services such as the notarization and bank
signature guarantee cannot be accomplished online.
14. Regulation and Legalities Internet banking makes it possible for banks and their
customers to do business from anywhere in the world. This greatly increases the bank's
potential client base. Nevertheless, according to Andrea Schechter of All Business, the global
approach to banking that internet banking permit makes it extremely difficult for regulatory
authorities to enforce finance laws. Regulations differ from nation to nation and banks are not
always proficient in the financial laws for every nation in which they have business.
CYBER CRIMES RELATED TO E-BANKING WITH PROVISIONS OF
INFORMATION TECHNOLOGY ACT, 2000:
The frauds in e-banking sector are covered under the types of cyber-deception. Cyber-deception
is further defined as an immoral activity which includes theft, credit card fraud, and intellectual
property violations. Mostly frauds are committed because of two goals, one, to gain access to
the user’s account and steal his personal information and transfer funds from one account to
another. Second is to undermine the image of the bank and block the bank server because so
that the customer is unable to access his account.
1. Credit Card Fraud: Many online credit card fraud are made when a customer use their
credit card or debit card for any online payment, a person who had a criminal intention use such
cards detail and password by hacking and make misuse of it for online purchase for which the
customers card used or hacked is injured for such kind of attract or action of a fraud made by
and evil. The hacker can misuse the credit card by impersonating the credit card owner when
electronic transactions are not secured.
In Xxx vs State Bank Of India & 2 Ors17, that there was a instance of ATM fraud. The court
held that some security protocols to preventing ATM frauds. In Manager Axis Bank ltd v. Sai
Sandeep Bhosale18, the court held that there is burden of proof lays down on bank in case if it
is any fraud was occurred on the customers of the bank.
2. Phishing or Identity Theft: Phishing is a scam where Internet fraudsters request
personal or private information from users online. In many cases, the message or email has been
made to look exactly like a legitimate organization’s email would appear complete with
company logos, motto, and other convincing information.
17
Xxx vs State Bank Of India & 2 Ors , AIR 2013.
18
Manager Axis Bank Ltd vs Sai Sandeep Bhosle AIR 2017
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In this case19, the petitioner used to receive monthly bank account statement under the email ID
of the bank, one day received a mail asking for his personal details, which he provided, after
which his account was debited with Rs. 5 lakhs. Upon complaint, the bank said that it was a
phishing mail against which he approached the adjudicating officer. In this case, the bank was
held liable according to Section 43 and Section 85 of the IT Act, 2000.
3. Viruses on Computer: A virus is a program that infects an executable file and after
infecting it causes the file to function in an unusual way. It propagates making the executable
file may make new copies of the virus. On the other hand there are programs that can copy
themselves, called worms which do not alter or delete any file, but only multiply it and send the
copy to other computers from the victim’s computer.
4. Hacking: Hacking is a crime, which means an unauthorized access made by a person to
cracking the systems or an attempt to bypass the security mechanisms, by hacking the banking
sites or accounts of the customers. The Hacking is not defined in the amended IT Act, 2000.
But under Section 43(a) read with section 66 of IT (Amendment) Act, 2008 and under Section
379 & 406 of IPC, 1860, a hacker can be punished.
In Harimohan Shivhare @ Rinku v. The State Of Madhya Pradesh 20, in this case two Bank
accounts of Mahakali Foods Private Limited were hacked through net Banking. Total amount of
Rs. 1,91,00,000/- were transferred in the account of different persons in the different accounts.
Looking to the aforesaid facts of the case and the nature of the case, without expressing any
opinion on the merits of the case, the application is allowed.
In Ostern Pvt. Ltd. & Anr v. State of West Bengal & Ors21, Calcutta High Court dealt with
cyber hacking on banking sector. Where the petitioner mail accounts being hacked by
substantial sums are stolen by supplying the details of bank accounts. It was controlled by the
fraudsters through the system was hacked. Such a situation there was no alert message to the
customers. The court punishes the offenders and additionally held that the main mistake was
relied upon the bank officials.
5. Keystroke logging: It is one kind of method by which fraudsters record actual
keystrokes and mouse clicks. They are “Trojan” software programs that mainly target
computer’s operating system and are “installed” via virus. It is dangerous because fraudster
captures user ID and password, account number, and anything else that has been typed.
6. Spyware: Spyware is the number one way that online banking credentials are stolen and
used for fraudulent activities. It works by capturing the information either on the computer
19
Umashankar Sivasubramanian v. ICICI Bank
20
Harimohan Shivhare @ Rinku @ .. vs The State Of Madhya Pradesh , AIR(2016)
21
Ostern Pvt.Ltd. & Anr vs State Of West Bengal & Ors, AIR 2014.
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while it is transmitted between the computer and websites. Often times, it is installed through
fake “pop up” ads asking to download software.
PROVISIONS OF INDIAN PENAL CODE, 1860 RELATING TO E-BANKING:
The main provisions relating to dealing with the E-Banking Frauds in India are as follows:
Misappropriation (Section 403 IPC) and criminal break of trust (Section 405, 406 IPC);
Deceitful encashment through manufactured instruments, control of books of record or
imaginary records, and transformation of property (Sections 477A, 378 and 120 A);
Cheating (Section 415 IPC) and imitation (Section 463 IPC);
Phony of electronic records (Section 465 IPC);
Sham sites, digital fakes, phishing (Section 420 of IPC)
Punishment for theft (sec 379)
Punishment for extortion (Sec 383)
Punishment for cheating (Sec 417)
Using a genuine a forged document or electronic record (sec 471).
RBI GUILDELINES REGARDING E-BANKING:
RBI created the Mittal Working Group to propose Internet Banking Regulation Culminated by
the “Internet Banking Guidelines 2001” through RBI circular of 14 June 2001, following the
information technology law 2000 notification of 17 October 2000. The terms and conditions
require licenses to be issued for those who wish to offer e-banking services. The primary focus
of the guidelines is on Quality in infrastructure and health, Legal matters and Questions
of enforcement and supervision.
In 2005 RBI released an additional circular, referring to the guidelines stated above. Since then,
the position has been evaluated and banks have been advised to proceed to regulate
contemporary legal issues in the Indian e-banking system The following are the other guidelines
listed in the aforementioned circular:
1. The Bank’s Board endorsed the Internet Banking Policy.
2. This Policy suits the entire IT and IT security policies of the banks and ensures that
documents and security systems remain confidential.
3. Operational risk is included in the strategy.
4. The policy sets out explicitly the protocol for “Know Your Customer” criteria and
5. The strategy usually fulfils our circular criteria.
Electronic banking transactions have undergone an unprecedented growth spurt in India,
especially after the Government's demonetization announcement in November 2016. It has been
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reported that there has been a year on year growth of 200%, 165% and 45% in mobile banking,
debit cards and credit cards transaction amounts respectively. This spike in e-banking
transactions has been accompanied by an increase in the number of unauthorized or fraudulent
transactions.
RBI circular to control risk due to internet banking:
The Reserve Bank of India has issued New Circular to Internet Banking. It is the statutory duty
on every bank that they should develop a clear Customer Acceptance Policy laying down
explicit criteria for acceptance of customers. The Customer Acceptance Policy must ensure that
explicit guidelines are in place on the following aspects of customer relationship in the bank.22
1. No account should be opened in anonymous or fictitious/benami name 23.
2. Parameters of risk perception are clearly defined in terms of the nature of business
activity, location of customer and his clients, mode of payments, volume of turnover, social and
financial status to enable categorization of customers into low, medium and high risk 24.
3. Banks should keep monitoring the account transactions of customers and the extent of
monitoring will depend on all complex, unusually large transactions and all unusual patterns.
Banks should set key indicators for such accounts, taking note of the background of the
customer, such as the country of origin, sources of funds, the type of transactions involved and
other risk factors. If bank identifies for any suspicious transactions then should file Suspicious
Transaction Reports (STRs) to Financial Intelligence Unit-India (FIU-IND). Banks should do
periodical review of risk categorization of accounts at a periodicity of not less than once in six
months.
4. The banks have to monitor the accounts of Multi-Level Marketing Company’s accounts
which lure public money on a promise of high returns. Once deposits from public stop the chain
breaks and the cheques are dishonoured. If banks find large number of cheques are issued
bearing similar dates/amounts. The banks should intimate the matter to the RBI and the FIU-
IND.
5. Banks’ internal audit and compliance functions have an important role in evaluating and
ensuring adherence to the KYC policies and procedures. Concurrent/ Internal Auditors should
specifically check and verify the application of KYC procedures at the branches and comment
on the lapses observed in this regard. The compliance should be put up before the Audit
Committee of the Board on quarterly intervals.
22
RBI Vide Circular DBOD. AML. BC. No. 11/14.01.001/2012-13.
23
Government of India Notification dated June 16, 2010 Rule 9, sub-rule (1C).
24
Banks may choose any suitable nomenclature viz. level I, level II and level III.
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6. Banks should pay special attention to any money laundering threats that may arise
from new or developing technologies including internet banking that might favor anonymity,
and take measures, if needed, to prevent their use in money laundering schemes. Banks are
required to ensure full compliance with all KYC/AML/CFT guidelines issued from time to
time, in respect of add-on/ supplementary cardholders also. It is also desirable that agents are
also subjected to KYC measures.
7. Wire transfer is an instantaneous and most preferred route for transfer of funds across
the Globe. Here arises a need for preventing terrorists and other criminals from having
unfettered access to wire transfers which can be achieved if basic information on transfers is
immediately available to Financial Intelligence Unit - India (FIU-IND) to assist them in
detecting, investigating, prosecuting terrorists or other criminals and tracing their assets.
8. The banks are required to maintain records of transaction. And whenever a suspicion
arises inform it to Financial Intelligence Unit India. 25 There is an obligation on the banking
companies to preserve and report customer account information to Financial Intelligence Unit
India and the banks should take all steps to ensure the compliance.26
9. Banks are required to maintain and preserve all necessary information in respect of
transactions referred to and permit reconstruction of individual transaction, including the
following information:
1. The nature of the transactions;
2. The amount of the transaction and the currency in which it was denominated;
3. The date on which the transaction was conducted;
4. The parties to the transaction;
5. Report all suspicion transactions to RBI.
The RBI has instructed all banks to adopt the circular in spirit and words. And if they are unable
to adopt send a ‘nil’ report.
RBI’S New Guidelines for Customers Against any Online Fraud
The Reserve Bank of India has come out with the concept of 'zero liability' and 'limited liability'
making Electronic payments safer for bank customers. With the new initiative, customers will
not suffer any loss if unauthorized electronic banking transactions are reported within three
days and the amount will be credited to the concerned within 10 days. The final guidelines
sought to make online transaction safe
25
Government of India, Vide notification dated July, 2005 under Prevention of Money Laundering Act, 2002.
26
Section 12 of Prevention of Money Laundering Act, 2002, http/www.banknetindia.com/banking/ibkg.httml
retrieved on 21/02/2021
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a) A customer will have zero liability in case of third party breach or negligence on the part of
the bank. The customer will also not be liable if unauthorised transaction is reported to the
bank within three working days.
b) In cases loss due to negligence of the customer, like sharing one's password, the customer
will bear the entire loss until he reports unauthorized transaction to the bank.
c) The bank has to credit the amount involved in unauthorized electronic transaction to the
customer's account within 10 working days from the date of reporting by the customer.
d) If the fraudulent transaction is reported within four to seven working days, a customer's
maximum liability will be from Rs. 5,000/- to Rs. 25,000/- depending on type of account.
e) If fraud is reported within 7 working days, the customer's liability will be according to the
bank's policy.
f) The transactions include e-banking, mobile banking, ATM and point-of-sales transaction.
g) The banks have to provide a direct link on their website's for filing the complaints.
h) The RBI has directed the banks to ask their customers to compulsorily register for SMS and
email alerts. Such alerts must have a Reply option for customer response so that they can
easily notify banks in case of fraudulent transactions.
MISCELLANEOUS PROVISIONS ON E-BANKING IN INDIA:
Section 40A(3) of the Income Tax Act, 1961 recognizes only payments through a
crossed cheque or crossed bank draft, where such payment exceeds Rs. 20000/-, for the purpose
of deductible expenses. Since the primary intention of the above provision, which is to prevent
tax evasion by ensuring transfer of funds through identified accounts, is also satisfied in case of
electronic transfer of funds between accounts, such transfers should also be recognized under
the above provision. The Income Tax Act should be amended suitably.
The Consumer Protection Act, 1986 defines the rights of consumers in India and is
applicable to banking services as well. Currently, the rights and liabilities of customers availing
of Internet banking services are being determined by bilateral agreements between the banks
and customers. It is open to debate whether any bilateral agreement defining customers rights
and liabilities, which are adverse to consumers than what is enjoyed by them in the traditional
banking scenario will be legally tenable. The banking practice and rights enjoyed by customers
in traditional banking, it appears the banks providing I-banking may not absolve themselves
from liability to the customers on account of unauthorized transfer through hacking. Similar
position may obtain in case of denial of service.
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The banks providing Internet banking service, at present are only accepting the request
for opening of accounts. The accounts are opened only after proper physical introduction and
verification. Considering the legal position prevalent, particularly of Section 131 of the
Negotiable Instruments Act, 1881 and different case laws, the Group holds the view that there is
an obligation on the banks not only to establish the identity but also to make enquiries about
integrity and reputation of the prospective customer.
Section 4 of the Bankers’ Books Evidence Act, 1891, gives that a confirmed duplicate
of any passage in a broker’s book will in every single lawful continuing be gotten as an at first
sight proof of the presence of such a passage.
The Banking Companies (Period of Preservation of Records) Rules, 1985 proclaimed by
the Central Government requires banking organizations to look after records, records, books,
and different reports for a time of 5 to 8 years.
OBLIGATION OF BANKS TO E-BANKING:
There are certain obligations which the banker is supposed to fulfill. They are
1. Banks have to maintain secrecy of customers account27. This obligation dates back to
1924 where in a case popularly known as Tournier case28, in which it was held that banker
should not disclose customers financial position and the nature and the details of his account to
anybody, since it may effect his reputation, credit worthiness and business. Now with the
advent of new technology, this obligation has become a difficult task for there are hackers who
can operate others account. Bankers are not in a position to trace them.
2. Banks are also under obligation (public duty), to produce documents to the court
whenever called for29. In earlier days this was easy as the documents where either in printed or
in written form and readily available with the banks. Banks keep these information’s in
electronic form as it is easier and cheaper to store and retrieve and also ensures speedier
communication/transmission. Now in the eyes of law written records means electronic records
which can be produced before the court like it was produced previously 30. Banks have to
carefully handle electronic documents or else they will be accountable to law.
3. Obligation to verity forgery of signatures31. Banks have to verify the signature of the
customer before paying their cheques. This obligation is on the paying banker. The law is very
strict; and in case of forgery the banker is liable. Introduction of new technology has helped
27
Section 13 of Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970.
28
Tournier v. National Provincial & Union Bank of England, (1924), K.B., 461.
29
Section 4 of Bankers Books Evidence Act, 1891.
30
R.N.Chaudhary, Banking Laws, 1st ed., Central Law Publications, 2009.
31
Section 89 of the Negotiable Instruments Act, 1881.
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banker in storage and retrieval of signature of customers. In case of electronic fund transfer,
digital signatures are used which are in the form of code. Banker has to maintain records of the
digital signature and also educate the customer in this regard.
4. The other obligation on the banker is to provide proper service to the customer.
Otherwise the bank is answerable. Not providing proper service attracts Consumer Law which
amounts to deficiency in providing service. It has been held in Vimal Chandra Grover v. Bank
of India32, that banking is a business transaction of a bank and customers of a bank are
consumers within the meaning of Section 2(1) (d) (ii) of the Act. This obligation extends to
electronic banking also.
MEASURES TO BE TAKEN FOR SAFER E-BANKING
Internet banking allows us to transact in a fast and convenient way. Unlike traditional banking
to make us wait in an unending queue, internet banking functions are just a few clicks away.
However, this facility needs safety and secured way of transacting as the risk of phishing is
high. The following are some of the measures to ensure secure banking:
1. Password - We need to change our passwords at regular intervals in order to keep our
accounts safe. One of the best practices is to have a password as a combination of upper case
and lower case letters, numbers and special characters.
2. Usage of public computers - Logging in to bank account from cyber cafes or libraries is
not recommended by banking experts. Chances of passwords being traced in such places. One
should make sure to clear the cache, browsing history and files from the computer.
3. Confidentiality - No bank will ask for any confidential information via phone or email.
Beware of apparent phone call from the bank or an email requesting such details.
4. Regular check is must - Check your account after making any transaction online. Verify
whether the right amount has been deducted from your account. If you see any discrepancies in
the amount, inform the bank immediately.
5. Anti-virus software - In order to protect your computer from new viruses, ensure that
you always use licenced anti-virus software. Pirated versions of anti-virus software may be
available for free, but they may fail to protect your computer from new viruses. Always keep
your anti-virus updated, so that your confidential information is always protected.
6. Disconnect the internet connection when not in use - Most broadband users do not
disconnect the internet connection on their computer when not using it. Malicious hackers can
access your computer via an internet and steal your confidential banking information.
32
A.I.R. 2000 SC 2181.
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SUGGESTIONS:
1. Banks are under obligation to maintain secrecy of customers account. The RBI new circular
has given guidelines to minimize risk of hacking. However, it is the duty on the banker to adopt
technology to discharge his duty in a more effective manner. Reserve Bank of India should also
ensure that the banks are using new technology. The RBI should appoint technicians and ask
them to report the same under security policy.
2. The auditor appointed to inform as the misappropriation of funds even at the minutest level.
Electronic banking has enhanced the risk of misappropriation of funds by the bankers as it goes
undetected.
3. The Automatic Teller Machine fails frequently and causes inconvenience to the customer.
RBI in its next circular has to mention the number of times banks are not penalized for such
failures. After a particular limit the banks should pay penalty which alerts them to keep check
on the working of the machine.
4. Speedier and cheaper justice is the hallmark of the Consumer Protection Act. And as
discussed above the Act is application to banking service also. The scope of the Act should be
extended specifically to electronic banking also in cases of frequent failure of ATM machines,
non compliance of security which results in hacking, and exuberant charges levied by bank for
fund transfer, etc. Though this are covered under RBI circular, they should be brought within
the purview of the legislation, which will be convenient to customers.
CONCLUSION:
In India E-Banking is a non-reversible wonder which will acquire more momentum in the
coming years. With digitalization of Indian economy and move to transform India into cashless
society, e-banking is going to be strengthened. Numerous banks in India including the State
bank of India, HDFC, and ICICI etc. are exacting charges on money transactions above a
certain limit. Though this is mainly being done to curb cash withdrawals as many banks are still
twirling over cash crunch caused due to demonetization in 2016. But this step is surely going to
boost online banking and virtual transactions in India. The young generation has already
adapted to this change and perceive this changing banking system more as a convenience mode
than a challenge.
The five primary drivers of e-banking includes, in order of primacy are:
1. Improve customer access
2. Facilitate the offering of more services
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