Internet banking (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. 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. SWIFT is a live example of intranet application. Internet banking in India

The Reserve Bank of India constituted a working group on Internet Banking. The group divided the internet banking products in India into 3 types based on the levels of access granted. They are: i) Information Only System: General purpose information like interest rates, branch location, bank products and their features, loan and deposit calculations are provided in the banks website. There exist facilities for downloading various types of application forms. The communication is normally done through e-mail. There is no interaction between the customer and bank's application system. No identification of the customer is done. In this system, there is no possibility of any unauthorized person getting into production systems of the bank through internet. ii) Electronic Information Transfer System: The system provides customer- specific information in the form of account balances, transaction details, and statement of accounts. The information is still largely of the 'read only' format. Identification and authentication of the customer is through password. The information is fetched from the bank's application system either in batch mode or off-line. The application systems cannot directly access through the internet.

iii) Fully Electronic Transactional System: This system allows bi-directional capabilities. Transactions can be submitted by the customer for online update. This system requires high degree of security and control. In this environment, web server and application systems are linked over secure infrastructure. It comprises technology covering computerization, networking and security, inter-bank payment gateway and legal infrastructure.

Automated Teller Machine (ATM): ATM is designed to perform the most important function of bank. It is operated by plastic card with its special features. The plastic card is replacing cheque, personal attendance of the customer, banking hours restrictions and paper based verification. There are debit cards. ATMs used as spring board for Electronic Fund Transfer. ATM itself can provide information about customers account and also receive instructions from customers - ATM cardholders. An ATM is an Electronic Fund Transfer terminal capable of handling cash deposits, transfer between accounts, balance enquiries, cash withdrawals and pay bills. It may be on-line or 0ff-line. The on-line ATN enables the customer to avail banking facilities from anywhere. In off-line the facilities are confined to that particular ATM assigned. Any customer possessing ATM card issued by the Shared Payment Network System can go to any ATM linked to Shared Payment Networks and perform his transactions.

Credit Cards/Debit Cards: The Credit Card holder is empowered to spend wherever and whenever he wants with his Credit Card within the limits fixed by his bank. Credit Card is a post paid card. Debit Card, on the other hand, is a prepaid card with some stored value. Every time a person uses this card, the Internet Banking house gets money transferred to its account from the bank of the buyer. The buyers account is debited with the exact amount of purchases. An individual has to open an account with the issuing bank which gives debit card with a Personal Identification Number (PIN). When he makes a purchase, he enters his PIN on shops PIN pad. When the card is slurped through the electronic terminal, it dials the acquiring bank system - either Master Card or VISA that validates the PIN and finds out from the issuing bank whether to accept or decline the transactions. The customer can never overspend because the system rejects any transaction which exceeds the balance in his account. The bank never faces a default because the amount spent is debited immediately from the customers account. Smart Card: Banks are adding chips to their current magnetic stripe cards to enhance security and offer new service, called Smart Cards. Smart Cards allow thousands of times of information storable on magnetic stripe cards. In addition, these cards are highly secure, more reliable and perform multiple functions. They hold a large amount of personal information, from medical and health history to personal banking and personal preferences.

The following services availed through E-Banking.

Bill payment service You can facilitate payment of electricity and telephone bills, mobile phone, credit card and insurance premium bills as each bank has tie-ups with various utility companies, service providers and insurance companies, across the country. To pay your bills, all you need to do is complete a simple one-time registration for each biller. You can also set up standing instructions online to pay your recurring bills, automatically. Generally, the bank does not charge customers for online bill payment. Fund transfer You can transfer any amount from one account to another of the same or any another bank. Customers can send money anywhere in India. Once you login to your account, you need to mention the payees's account number, his bank and the branch. 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. Credit card customers With Internet banking, customers can not only pay their credit card bills online but also get a loan on their cards. If you lose your credit card, you can report lost card online. 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, Nashik, Surat and Pune. Investing through Internet banking You can now open an FD online through funds transfer.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 you the facility to purchase mutual funds directly from the online banking system. Nowadays, most leading banks offer both online banking and demat account. However if you have your demat account with independent share brokers, then you need to sign a special form, which will link your two accounts. Recharging your prepaid phone Now just top-up your prepaid mobile cards by logging in to Internet banking. By just selecting your operator's name, entering your mobile number and the amount for recharge, your phone is again back in action within few minutes. Shopping With a range of all kind of products, you can shop online and the payment is also made conveniently through your account. You can also buy railway and air tickets through Internet banking. Security Precautions Customers should never share personal information like PIN numbers, passwords etc with anyone, including employees of the bank. It is important that documents that contain confidential information are safeguarded. PIN or password mailers should not be stored, the

PIN and/or passwords should be changed immediately and memorised before destroying the mailers. Customers are advised not to provide sensitive account-related information over unsecured emails or over the phone. Take simple precautions like changing the ATM PIN and online login and transaction passwords on a regular basis. Also ensure that the logged in session is properly signed out

E-banking: Challenges and Opportunities E-banking has the potential to transform the banking business as it significantly lowers transaction and delivery costs. This paper discusses some of the problems developing countries, which have a low penetration of information and telecommunication technology, face in realising the advantages of e-banking initiatives. Major concerns such as the digital divide between the rich and poor, the different operational environments for public and private sector banks, problems of security and authentication, management and regulation; and inadequate financing of small and medium scale enterprises (SMEs) are highlighted. There are not many inventions that have changed the business of banking as quickly as the ebanking revolution. World over banks are reorienting their business strategies towards new opportunities offered by e-banking. E banking has enabled banks to scale borders, change strategic behaviour and thus bring about new possibilities. E-banking has moved real banking behaviour closer to neoclassical economic theories of market functioning. Due to the absolute transparency of the market, clients (both business as well as retail) can compare the services of various banks more easily. For instance, on the internet, competitors are only one click away. If clients are not happy with the products, prices or services offered by a particular bank, they are able to change their banking partner much more easily than in the physical or real bank-client relationship. From the banks point of view, use of the internet has significantly reduced the physical costs of banking operations. Around the world, electronic banking services, whether delivered online or through other mechanisms, have spread quickly in recent years. It must be noted that the impact of e-banking is not limited to industrial and advanced emerging economies. Even in countries with underdeveloped banking systems, E-banking has offered many new business opportunities. Challenges in E-banking for Developing Countries Based on best practices in developed countries, United Nations Conference on Trade and Development (UNCTAD) report has identified four challenges that developing countries, in general, are expected to overcome to achieve the advantages that ebanking initiatives can bring about [UNCTAD 2002]: (1) The ability to adopt global technology to local requirements: An adequate level of infrastructure and human capacity building are required before developing countries can adopt

the global technology for their local requirements. For example, the review of the migration plan of Society for Worldwide Interbank Financial Telecommunications (SWIFT) to the internet shows that to date full migration has not occurred in many developing countries due to the lack of adequate infrastructure, working capital, and required technical expertise. Broadly accepted e-payment systems are another such example. Many corporates and consumers in some developing countries either do not trust or do not have access to the necessary infrastructure to be able to process e-payments. (2) The ability to strengthen public support for e-finance: Historically, most e-finance initiatives in developing countries have been the result of cooperative efforts between the private and public sectors. For example, Singapores successful Trade Net system was a government-sponsored project. If the public sector does not have the necessary means to implement the projects it is essential that cooperative efforts between public and private sectors, along with the multilateral agencies like the World Bank, be developed to facilitate public support for e-finance related initiatives. (3) The ability to create a necessary level of regulatory and institutional frameworks: The lack of regulatory frameworks, trust, security and privacy standards, high trade barriers, customer and investor protections impede progress in implementing e-banking initiatives on a larger scale in many developing countries. (4) The ability to mainstream small and medium scale enterprises (SMEs) towards e-banking: The availability of and access to quality data and banking information is required for SMEs in developing countries to move towards e-banking. Similarly, on-line credit information will enhance SMEs ability to secure financing.

E-banking in India: Major Concerns First, in India, there is a risk of the emergence of a digital divide as the poor are excluded from the use of the internet and so from the financial system. Empirical evidence shows that richer countries possess higher concentrations of internet users (higher than income concentration) in comparison with poorer countries In India (where the poverty ratio is still adverse at 26.1 per cent of total population), it is likely that wealthier people will rapidly migrate to e-banking platforms leaving the poor to bear the cost of the physical infrastructure of branches in the form of transaction fees or non-competitive interest rates on their deposits. Second, even today, the operational environment for public, private and foreign banks in the Indian financial system is quite different. A handful of foreign banks operating in India first offered e banking services to their customers such as ATMs, computerized monthly statements, secure online operations, etc. The new generation of private sector banks (who did have developmental obligations similar to their counterparts in the public sector) did not possess a legacy of manual practices and, hence, were able to adopt easily modern banking practices with state-of-the-art operations. However, challenges before the public sector banks are plenty and of a different kind. While,

they have to handle volumes which are mind boggling, there are also issues of legacy, old habits and political pressures. Systems of accounting, control and delegation were set up decades ago and adoption of technology in terms of real time banking and its compatibility with all phases of banking is not yet adequately perceived. Furthermore, the security risk involved in computerisation is directly related to the size of the network. For PSBs, the major problems are in the form of security risks, network downtime, scarcity of trained personnel, expensive system upgrades and recurring costs given the massive scale of their current operations. Private and foreign banks have changed the structure of their employment towards a higher skilled workforce by increasing the recruitment of officers and reducing clerical and subordinate staff. The combination of higher technology and higher skills have posted a higher turnover for these banks as they have been able to provide better customer support and have managed their assets well. Third, confidentiality, integrity and authentication are very important features of the banking sector and were very successfully managed the world over in pre-internet times. Communication across an open and thus insecure channel such as the internet might not be the best base for bank-client relations as trust might partially be lost. Though at different levels in the computerisation spectrum, both public and private banks in India have realised the importance of Public Key Infrastructure (PKI) solutions. PKI is expected to guarantee the required level of trust and to provide for the security needs of all e communities in terms of confidentiality, integrity, nonrepudiation services, etc. However, the size of the initiative is going to vary significantly between public and private banks. For private banks, security considerations are an important value added and risk reduction utility for their online and real time transactions. But for public sector banks, computerisation is the first agenda a massive exercise given their very large branch networks and security is the second priority. But this endangers the position of public sector banks in the immediate period as breaches of security and disruptions in the systems availability can damage a banks reputation. The more a bank relies on electronic delivery channels, the greater the potential for reputational risks. Fourth, e-banking has created many new challenges for bank management and regulatory and supervisory authorities. They originate not just from increased potential for crossborder transactions but also for domestic transactions based on technology applications which raise many security related issues The Basel Committee on Banking Supervisions Electronic Banking Group has defined risk management principles for electronic banking. They primarily focus on how to extend, adapt, and tailor the existing risk-management framework to the electronic banking setting. It is necessary to know whether the efforts undertaken by the RBI are sufficient to ensure a reasonable level of security. Fifth, there are some serious implications of international e-banking. It is a common argument that low transaction costs potentially make it much easier to conduct cross-border banking electronically. For many banks, cross-border operations offer an opportunity to reap economies of scale. But cross-border finance also needs a higher degree of cross-border supervision. Such cooperation may need to extend to similar supervisory rules and disclosure requirements (for efficiency and to avoid regulatory arbitrage) and some harmonising of legal, accounting and taxation arrangements. The real question here is whether India at the present juncture is adequately prepared to face the consequences of cross border e-banking?

Sixth, there is no commercial bank in India, which has exclusively specialised in the small business segment. SMEs in India have generic problems like the inability to provide quality data, to exhibit formal systems and practices and the lack of asset cover. This has created unwillingness in banks to undertake large-scale lending to SMEs. Legal and regulatory compliance has also been inadequate. Traditional drawbacks like asymmetric and nontransparent data and low capital bases continue to characterize their balance sheets. The problem is further compounded due to the preponderance of a large cash economy in this segment. There are many challenges involved in a web-based relationship model for SMEs within India given the current state of regulation.

Conclusion The e-banking revolution has fundamentally changed the business of banking by scaling borders and bringing about new opportunities. In India also, it has strongly impacted the strategic business considerations for banks (including the PSBs) by significantly cutting down costs of delivery and transactions. It must be noted, however, that while e-banking provides many benefits to customers and banks, it also aggravates traditional banking risks. Compared to developed countries, developing countries face many impediments that affect the successful implementation of e-banking initiatives. In this paper, we have identified some such impediments in the Indian context and have suggested ways to overcome them in order to move forward with the wave of e-banking successfully. In India there is a major risk of the emergence of a digital divide as the poor are excluded from the internet and so from the financial system. Even today, the operational environment for public, private and foreign banks in the Indian financial system is quite different. Though there has been higher acceptance of technology by public sector banks, they are at a different level in the computerisation spectrum as compared to private and foreign banks. This has endangered their position in the immediate period due to the lack of adequate systems for customer and investor protection. PSBs are more susceptible to breaches of security and to disruptions in the systems availability and hence to reputational risk. E-banking in India has also created many new challenges for bank management and regulatory authorities, which originate from increased potential for cross border transactions and lack of adequate cross border supervision. Given the importance of the SMEs in India, there is a strongly felt need to mainstream this segment towards e-banking. But currently there is no commercial bank in India that has exclusively specialised in this segment and SMEs in India continue to have generic problems like inadequate quality data, asset covers, etc.

However, there are ways to overcome these obstacles and exploit trends in e-banking to derive the desired benefits. As regards the problem of a digital divide, there is a rich international experience from which India can learn many lessons and include the poor within the net of e-banking. As regards the PSB situation, they can rapidly change their work environment by attracting young specialists in critical functional domains and by creating a positive work culture that has all employees supporting organisational goals. For the security issues involved in e-banking, risk management principles recommended by the BIS should be implemented by PSBs on an urgent basis. Their board of directors and senior management should regularly review and approve key aspects of the security control process. The top management should ensure that their staff members have the relevant technological expertise to assess potential changes in risks. For this, they should accord a high priority to investment in staff training and technological infrastructure. As far as possible, PSBs should avoid contracting out operations to service providers, which makes them vulnerable to problems of these service providers. In the process of adoption of new technology, a major role has to be played by the internal banking experts who are not necessarily the technocrats. As regards the problem of selection of appropriate technology, PSBs in India can learn lessons not just from international experience but also from the mistakes made by domestic private players so as to avoid wastage. In the regulatory arena, in addition to aspects like privacy and security, the regulator should also examine banks business plan for e-banking more closely, especially if banks have outsourced critical functions to a third party. To avoid the risks involved in cross-border e-banking, India can make a gradual beginning, first by seeking benefits in the export of remote processing services in which it has a strong comparative advantage. In the case of SME-financing, it is strongly felt that after acquiring the necessary technical capabilities, PSBs are better situated to provide value propositions to SMEs given their comparatively extensive branching networks, close relationship with business clients and a good knowledge of their needs, requirements and cash positions. This actually offers them another growth channel unmatched by most private players. Address for correspondence: chief.economist@bankofbaroda.com [The views expressed in this article are the authors personal views and do not necessarily reflect the views of the organisation to which she belongs.] References Basel Committee on Banking Supervision (2001): Risk Management

Principles for Electronic Banking, paper 82, May, (www.bis.org). Claessens, S, T Glaessner and Klingebiel (2000): E-finance in Emerging Markets: Is Leapfrogging Possible?, World Bank Financial Sector Discussion Paper, No 4, June. Dsouza, Errol (2002): How Well Have Public Sector Banks Done? A Note, Economic and Political Weekly, Vol XXXVII, No 9, pp 867-70. Economist (2003): Banking on the Technology Cycle, The Economists Technology Quarterly, September 6, pp 12-16. Grethen, H (2001): The E-banking Revolution, Speech delivered at the Luxembourg International Trade Fairs, October 24. Hawkins, J (2002): E-finance and Development: Policy Issues, Bank for International Settlements, March, (www.bis.org). Kohli, S S (2003): Indian Banking Sector: Challenges and Opportunities, Vikalpa, Vol 28, No 3, July-September, pp 85-89. Mathew Joseph and Rupa Nitsure (2002): WTO and Indian Banking Sector: The Road Ahead, Economic and Political Weekly, June 15, pp 2315-22. Nsouli, S M and A Schaechter (2002): Challenges of the E-banking Revolution, Finance and Development, International Monetary Fund, September, Volume 39, Number 3. Sushant Kumar (2001): E-finance in a Developing Country Like India, ICICI Bank. Turner, P (2001): E-finance and Financial Stability in R Litan, P Masson and M Pomerleano (eds), Open Doors: Foreign Participation in Financial Systems in Developing Countries, Brookings Institution, pp 389-410. United Nations Conference on Trade and Development (UNCTAD) (2002): E-commerce and Development Report, (http://r0.unctad.org/ecommerce/ docs/).