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ASSIGNMENT ON BANK LEGISLATION

Topic:- Internet Banking

Submitted To Mrs. Kuldeep Kaur Lecturer in commerce

Submitted By Nisha Goyal M.Com 2nd year [3rd sem.] Roll No. 2530 Session 2010 11

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INTERNET BANKING RISKS INTRODUCTION

If you are like most people, you have heard a lot about online banking but probably haven't tried it yourself. For many consumers electronic banking means 24 hour access to cash through an Automated Teller Machine (ATM) or Direct deposit of pay cheques into checking or savings accounts. But electronic banking now involves many different type of transactions. Electronic Banking also known as Electronic Fund Transfer (EFT), uses computer and Electronic technology as a substitute for cheques and other paper transactions. Many financial institutions use ATM or debit cards and Personal identifications numbers (PINs) for this purpose. Some use other forms of Debit cards such as those that require at the most, your signature or a scan. The Federal Electronic Fund Transfer Act (EFT Act) covers some electronic computer transactions. Internet/online Banking isn't out to change your money habits. Instead, it uses today's computer technology to give you the option of by passing the time-consuming paper-based aspects of traditional banking in order to manage your fitness more quickly and efficiently. MEANING E banking is a concept which enables everyone to conduct business with a bank from the comfort of home or office e banking means application of electronic technology towards transfer of funds through

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an electronic terminal, computer of magnetic tape to conduct various transactions like cash receipts payments, transfer of funds etc. It is also known as banking on net. E banking or internet banking does not involve any physical exchange of money, but its all done electronically form one account to another, using the internet. Internet banking services mean that any enquiry or transaction should be processed on line without any reference to the branch i.e. any where anytime banking.

INTERNET BANKING RISKS 1. Credit Risk:- Credit risk is the risk to earnings or capital arising from an obligator's failure to meet the terms of any contract with the banker otherwise to perform as agreed. Credit risk is found m all activities where success depends on counter party, issuer, or borrower performance. It arises any time bank funds are extended, committed or invested or otherwise exposed through actual or banks balance sheet. 2. Interest Rate Risk;- Internet rate risk is the risk to earnings or capital arising from movements in interest rates. Interest rate risk arises from different b/w the timing of rate changes and timing of cash flows. Internet banking can attract deposits, loans and other relationships from a large pool of possible customers than other forms of marketing. Greater access to customers who primarily seek the best rate or term reinforces the need for managers to maintain appropriate asset/liability management systems, including the ability to react quickly to changing market conditions. 3. Liquidity Risk:- Liquidity risk is the to earnings or capital arising from a bank's inability to meet its obligations when they come due, without incurring unacceptable losses. Liquidity risk arises from the failure to

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recognize or address changes in market conditions affecting the ability of the bank to liquidate assets quickly and with minimum loss in value. Asset/liability and loan portfolio management systems should be appropriate for products offered through internet banking. Increased monitoring of liquidity and changes in deposits and loans may be warranted depending on the volume and nature of internet account activities. 4. Price Risk:- Price risk is the risk to earnings or capital arising from changes in the value of traded portfolio of financial instruments. The risk arises from market making, dealing and position taking in interest rate, foreign exchange, equity and commodities markets. Banks may have exposed to price risk if they create or expand deposit brokering, loan sales, or securitization programs as a result of Internet banking activities. Appropriate management systems should be maintained to monitor, measures, and manage price risk if assets are activity traded. 5. Foreign Exchange Risk:- Foreign Exchange risk is present when a loan or portfolio of loans is dominated in a foreign currency or is funded by borrowings in another currency. In some cases, banks will enter into multi-currency credit commitments that permit borrowers to select the currency they prefer to use in each rollover period. Foreign exchange risk can be intensified by political, social or economic development. Appropriate systems should be developed if bank engage in these activities. 6. Reputation Risk:- Reputation risk is the current and prospective impact on earnings and capital arising from negative public opinion. This affects the institution's ability to establish new relationships or services. This risk may expose institution to litigation, financial loss, or a decline in its customer base. A bank's reputation can suffer if it foils to deliver on marketing claims or to provide accurate, timely services. National Banks

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need to a sure that their business continuity plans include the internet banking business. Regular testing or business continuity plan, communications strategies with the press and public, will help the bank ensure it can respond effectively and promptly to any adverse customer of media reactions. IMPORTCE/BENEFITS/AD VANTAGES OF E-BANKING I. 1. 2. 3. 4. Benefits to Customers Anytime Banking. E-banking provides 24 hours, 7 days a week services to customers. All financial information can be obtained anytime. Anywhere Banking. Customers can avail any banking service while sitting at his home or office or any remote place too. Quick Service. Customers can get information regarding of the bank online without physical, appearance in the bank. Saving in Time. With the help of e-banking, there is no need to customer to visit bank personally. There is no need to stand in queue for hours to complete financial transactions. 5. Customer Satisfaction. E-banking provides greater customer satisfaction. Transactions can be performed without risk as there is no need to carry cash. II 1. 2. 3. Benefits to Banks Minimise cost. E-banking is helpful to banks by minimising the cost of various transactions by way of ATM's, Telephone banking etc. Global Coverage. E-banking provides global network coverage of bank's services i.e. through the concept of'Anywhere banlpagT5 Central Data Base. Central data base has h'elpfcalbranches of banks to reduce the work load.

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4.

Customer-Bank Relationship. E-bankfng helps in attracting and retaining the customer by property handling their grievances. E-baking creates a congenial/environment in providing banking services.

5.

Reduces paper work. E-banking helps in reducing endless paper work. The use of bank statements, spread sheets, bulky books of accounts, ledger's has been minimized.

6. 7. 8.

Minimise Frauds. Through E-banking frauds and misappropriations can be reduced as inter branch reconciliation is possible through internet. High Productivity. E-banking increases the productivity of banks through reduction in paper work and transactions cost. Advertising Tool. Through the medium of on line baking various products/schemes of banks could be advertised easily.

III 1. 2. 3.

Benefits to Government Global Market. With the help of E-banking products of our country will get global market. Cash less Banking. E-banking provides the facility of cashless banking which helps in minimizing risk of carrying cash. Transparency. E-banking provides transparency in transactions which removes various doubts.

IV 1. 2. 3.

Benefits to Merchants Traders Minimise Risk. It helps merchants bankers also as there is no risk of handling cash. Instant Settlement. E-banking helps in immediate settlement of accounts between the traders. Promotions of business enterprises. With the helps of E-banking business enterprises will be promoted because of increased purchasing

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power of credit holder and the comfort with which products ca^oe purchased. LIMITATION OF E-BANKING The magic trading which is supposedly possible through the mechanism of e-banking is a long way to materialize. First of all, its has not spread its wing on the Indian soil. In fact, there are lot of practical limitations for the e-banking to gain momentum. 1. Banking System Not Ready. Banking system is not prepared to facilitate the working of global banking. Since banks occupy a pivotal role in the mechanism of international banking, it is important that they must be in a position to facilitate the electronic and paperless banking at the global level. 2. 3. Laws of Land Not Ready. For proper development of e-banking, proper laws are need to be developed for secure working of e-banking. Infrastructure Not Ready. Although, Reserve Bank of India is committed in providing excellence in banking services by way of adopting e-banking or e-commerce facilities but adequate steps have not yet been taken to create, maintain and strengthen the infrastructure like international communication facilities. Inject the facilities are use just sufficient to carry international business through paper based system. 4. Security Issue. Security issue in case of e-banking transaction is a major problem. Various sites are/not properly looked at to ensure whether customers money is safe in cyber world or not. 5. 6. Costly. The infrastructural cost of providing e-banking facility is very high. Low level of Awareness. Another great obstacle is lack of awareness. Internet banking is not commonly used as yet.

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7.

Hesitation on the part of Customers. Many people usually assume that e-banking system is more expensive than traditional banking. They still prefer going to bank and undertake financial transactions following its popularity even today.

8.

Lack of Initiative. The banking sector in India is not coming up with business models and products in the field of online services, risks management opportunities. etc. to address the potential e-commerce

9.

Insignificant Role of Govt. Role of both RBI and Govt, is insignificant in development of e-banking. Indian banks are not equal in position to their western counter parts. DIFFERENCE BETWEEN TRADITIONAL V/S E-BANKING PRACTICES BASIS 1. Global Coverage TRADITIONAL Traditional provides coverage 2.^4arketing Tool Traditional marketing tool. 3. Prompt Services Traditional E-BANKING PRACTICES Practice E-Banking Practices limited involves global coverage while sitting at home/office. Practice E-Banking provides the products/schemes online easily. practices E-Banking same lot of

does not provide proper facility of marketing of

involves process which line as there as no need 4. Reduction requires more time. to stand in long queues. of Traditional banking With the system of practices does not Reconciliation of intertransactions, provide complete check branch

Errors/Frauds

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on banking transactions. frauds and errors could be reduced.

5. Paper Work

Bank executives have to Cost and time could be perform lot of paper reduced or everything is work which increases to both time and cost. be through some interval and no need of

huge paper work. 6. Risk of carrying cash In case of traditional E-Banking provides business a person has to banking without carrying carry cash at each point cash as plastic money of time. (ATM's, Credit cards are available.) CONCLUSION It has emerged as a strategic resource for banks. Usage of technology by the banks is due to the challenge of competition, rising consumer expectation and shrinking merging of banks which leads to reduction in cost and enhancement of productivity, efficiency and customer convenience. Indian banking industry has formed suitable grounds to apply suitable technological innovation because banking activities are easily digitalized and automated. The banking environment all over the world is undergoing a great transformation.

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BIBLIOGRAPHY

Pawan Kumar, Indian banking Today Impact of Reforms. The Icfai Journal of Professional Banker www.google.com www.msn.com E-BUSINESS E-BUSINESS (Dr. Maninder Singh Sarkaria) Sharma Publications (Kalyani Publishers)