Modern Aspects of Banking

@NLS
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What is Banking?

The Origin of Banking is in Money Lending

Money Lending is Self Financed by the money

lender
Banking is Financed from a part of the
community

Economic concept is Channelising the Community

savings into productive activities

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Legal Definition

Definition of Banking flows from Section 5 of

Banking Regulation Act 1949

5 (10)(b) "banking" means the accepting, for the

purpose of lending or investment, of deposits of
money from the public, repayable on demand or
otherwise, and withdrawable by cheque, draft, order or
otherwise.

Cheque related service is part of this definition

The word draft used in this definition is ambiguous but can be
related to third party remittances on the instructions of the
customer
Loans and Cash Credit also comes under this basic definition

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Ancillary Services

Traditionally bankers have been associated

with

Remittance services

DDs,MTs,TTS,
Travellers cheques, Gift Cheques etc
Bills collection/discounting, Hundis
collection/discounting
Letters of Credit and Letters of Guarantee

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Banking has changed

The philosophy of Banking has changed

From being an institutional mechanism to

channelize public saving into productive
economic needs
To Managing Financial Risk for profits
From priority advances to consumer finances

Emphasis has shifted from funded business

to non funded Services
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Banking has changed

What Mahatma Gandhi said

A customer is the most important visitor on our premises.
He is not dependent on us. We are dependent on him.
He is not an interruption in our work. He is the purpose of it.
He is not an outsider in our business. He is part of it.
We are not doing him a favor by serving him. He is doing us
a favor by giving us an opportunity to do
..Mohandas Karamchand Gandhi
Todays bankers are not customer oriented. They are
EPS and Market Capitalization oriented.

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Transformation (Technology
Related)

With the development of Computing as a

technology

HOs of Banks deployed computing for Account

Reconciliation

Administrative offices deployed word processing in the

form of electronic computers
Branch level and transaction level use of computers
first came in the form of

Inter branch accounting and Salary management

Automatic Ledger posting machines (ALPM)

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Transformation of Banking..2

ALPM addressed small computing requirements at counter

level in a SB/CA level

Could post a debit/credit, calculate the balance and print out

statements

More a customized electronic typewriter

Desktop Computers and Branch level network

Clearing house computerization through MICR cheques
Now the CBS system

Had a microprocessor and memory capabilities

Anywhere, anytime Banking with ATMs, Internet Banking, Mobile

Banking etc

Truncated Cheques/Cheques in E Form?

Digital Wallets, Mobile Wallets, Airtel Money?

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What is E Banking?

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Concept of E Banking

We understand that Internet Banking and

Mobile Banking is part of E Banking.

May be Core Banking and ATM Banking also are

easily recognizable as parts of E Banking
But

What is the legal definition?

Is there a legal definition?
Should there be a legal definition?

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What distinguishes E Banking?

Traditional Banking used Paper as the means of

Recording of transactions
Exchange of material instructions between the Banker and
Customer
Account opening was a contract under Indian Contract Act
using paper based offer and acceptance documents

Interaction with the customer was face to face

With the ledger clerk initiating a transaction

branch manager who authenticates a transaction
the cashier who dispenses cash

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E Banking uses an electronic document or an electronic device for

either record keeping or for interaction

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What distinguishes E Banking

It encompasses

Records in electronic form

Account opening is still a paper based contract

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Internet Banking details are often only in electronic form

Hardware both at the Bank and the Customer end

Hardware in an intermediary place such as the ATM
Network that connects the customer with the back end
system
All applications that run at the Bank , Customer end
and at the Intermediary level in ATMs
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Legal Definition?

There is no separate definition.

The derived definition

E Banking means

accepting, for the purpose of lending or investment, of

deposits of money from the public, repayable on
demand or otherwise, and withdrawable by cheque,
draft, order or otherwise using electronic documents in
the process

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Banking with the use of electronic documents. Or

Use of electronic documents implies use of electronic

devices

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Is Electronic Document defined?

Sec 2(t) of ITA 2008

"Electronic Record" means data, record or data generated,

image or sound stored, received or sent in an electronic form
or micro film or computer generated micro fiche;

"Data" means
a representation of information, knowledge, facts, concepts or instructions
which are being prepared or have been prepared in a formalised manner,
and is intended to be processed, is being processed or has been
processed in a computer system or computer network, and
may be in any form (including computer printouts magnetic or optical
storage media, punched cards, punched tapes) or stored internally in the
memory of the computer;

"Electronic Form" with reference to information means

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any information generated, sent, received or stored in media, magnetic,

optical, computer memory, micro film, computer generated micro fiche or
similar device;

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What is Electronic Data?

The essential feature of Data in electronic

form is that

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Data is stored and read in Binary language.

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Legal Definition of E Banking

E Banking means

accepting,

of deposits of money

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on demand or otherwise, and

withdrawable

from the public,

repayable

for the purpose of lending or investment,

by cheque, draft, order or otherwise

using electronic documents binary expressions in the process

of recording transactions and exchanging material instructions
between the Banker and the Customer
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Origin of E Banking

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1982: Working group on the feasibility of introducing

MICR/OCR technology for cheque processing (Chairman Dr
Y.B.Damle)
1984: Committee on Mechanization in the Banking Industry
(Chairman: Dr C.Rangarajan)
1987: Committee on Communication Netwok for Banks and
SWIFT implementation (Chairman TNA Iyer)
1988: Committee on Computerization in Banks ( Chairman Dr C
Rangarajan)
1994: Committee on Technology Issues relating to Payment
System etc 9Chairman W.S.Saraf)
1995: Committee on legislation on Electronic Fund Transfer
and other Electronic payments (Chairperson: Smt K.S.Shere)
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Growth of E Banking

Digitization of Banking operations

Branch Level

ALPM
Branch level Server Client System
Core Banking System

Customer Interaction

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Inter Bank reconciliation

Backend processing of Cheques
Clearing of Cheques
Intra Bank/Inter Bank file transfer systems (BANKNET/INFINET)
Inter Bank information exchange system (SWIFT)
Interconnectivity of ATMs (Shared Payment Network Systems)

ATMs
Internet
Mobiles
Credit/Debit Cards

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Advent of Internet banking

Originated in 1997-ICICI bank

Now extended as a service by most banks

Viewing of Account transactions
Funds transfer within the bank (NEFT)
Fund transfer outside the banks (RTGS)
Bill payments

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Virtual Banking scenario

Anywhere, Anytime Banking

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E Banking and Virtual Banking

Physical Existence

Virtual Banking Involves a Bank which may not have a physical

existence
E Banking is a mode of transaction with a physical Bank

Currency

Virtual Bank may use Virtual Currency and not use physical
currency at all (eg: Linden Dollars, Game points, E bid
coupons)
E Banking Is a mirror of physical banking and hence
represents physical currency whose records are kept in
electronic form

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In India only Physical Society Banks can offer Internet Banking

All other bank like transactions need to be classified as E Commerce
and not E Banking.
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Card Banking

Credit Cards

Identity for request for credit

Debit Cards

Identity for request for payment out of account

Prepaid stored value cards

Is a bank branch in itself with the functions of a ledger clerk and passing officer
combined.

Short life
customized
self created

ATM Cards

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Cashier is outside the domain

Virtual Cards

Conforms to BR Act definition of or otherwise (used in withdrawal means)

Access control for identification

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Card Banking

Storage of Information

Magnetic Stripe or Chip

Elementary identity particulars or more

It is a data storage device or Media as per ITA 2008

The card swiping device reads the data and transmits
the data.

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It is a Computer as per ITA 2008

RFID tagged/Near field communication contact

less cards
EMV standard with Microprocessor Chip
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Social Media/E Mail Banking

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Facebook/Twitter
Send a message to the facebook page
Send a message to a Twitter account
Send payment to an e-mail address
Receiving Bank issues a payment authorization
with a Pin acceptable at an ATM
Customer ID is linked to the social media account/E Mail
account
Transmission of instruction is through the Internet
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App based banking

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Bank specific App

Linked to a Bank
Multi bank App (Wallet)
Is a Bank in itself.
Apps that enable peripheral interaction with the core
banking system
Apps that are capable of carrying out full fledged
transactions of money transfers in and out.

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Pockets-ICICI Bank

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Split & Share that allows customers to split and track

expenses and share them with friends on Facebook.
It also allows one to send reminder on pending
payments.
The app also allows one to make a payment to
friend, recharge prepaid mobile, book movie tickets.
One does not need to know bank account details of
their friends to make a transfer, users can create a
coupon which can be redeemed by their friends.
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Hashtag banking-Kotak (Jifi)

Jifi customers can receive account updates on

Twitter as a Direct Message (DM) by simply tweeting
to @KotakJifi with predefined hashtags.
The banks dedicated Twitter handle @kotaksync
will send out these messages
Jifi is a zero interest current account with no
minimum balance conditions,

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initial payment of just Rs. 5,000/-.

All balances over Rs. 25,000/- automatically move into term
deposits
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Technological Overview

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Electronic Documents held in a data base

server
Transaction applications are hosted in an
application server
Access is through an authentication gateway
or Firewall

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E Banking architecture

Database

Authentication
Domain Server/
Application server

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Bank Employees
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