KIRTI UM8803 AKSHITA UM8103 NISHA UM8109 SHIVANI UM8808

In the recent past, banking industry in India has undergone a major change due to deregulation, liberalization, globalization, financial sophistication, technological developments in the products and services. Banks and FIs are free to choose their segment, product/services and customers. Similarly, customers are also free to choose from a variety of products /services from alternative sources. This has led to increased competition and demand for banks to be highly innovative and well technology equipped.

Developments in communication systems, coupled with blurring of differences between banks and non-banks and globalization has aggravated the competitive environment. Technology became a key differentiator for the new private sector banks which helped these to have a better edge over the public sector banks. To cope with rising volumes of customer base and reduce transaction costs and processing time. High cost of physical handling and storage of paper instruments.

Demand side pressure due to increasing access to low cost electronic services. Growing customer awareness and need of transparency. Close integration of banks with web based e-commerce.

In the early 80s, a committee was formed under the chairmanship of Dr. C. Rangarajan, to draw up a phased plan for computerization and mechanization of the banking industry over 5 yr time frame of 1985-89. The focus was on effective customer service and two models of branch automation were developed. After that a detailed plan for computerization of banks to other areas like funds transfer, email, BANKNET,ATMs, Internet Banking etc came up.

E-Banking/Electronic Banking is an umbrella term for the process by which a customer may perform banking transactions electronically without visiting a brick-mortar institution.

The following terms all refer to one form or another of ebanking:Personal computer banking Internet banking virtual banking online banking remote electronic banking and phone banking

Local Administration Internal Programs Transactions Banker Oriented plans

Global Self-Service Outsourcing Business Information Individualized employee/ customer plans It is knowledge based and mostly scientific.

It is more like an art.

Complete Centralized Solution(CCS):An ideal branch network model wherein the bank provides web server and the requisite software that is connected to the main server. Once the required software and hardware are set in, the customer can access the webserver for their banking operations using any standard browser at any location.

Cluster Approach :Under this model, computerized branches of each city are connected with Regional Processor located at each such city, which are then connected through reliable media to a centralized High end server, these regional processors are called clusters. Most of the branches are computerized in an integrated way through Network/ Unit server.

High Tech Bank Within Bank:Under this model, complete computerization of all branches is avoided. Within each bank, two different types of banks would function concurrently viz, High Tech Bank providing E-Banking facilities through selected branches and Traditional Bank offering traditional services. This approach helps the banks to play a balanced role to offer services to ever demanding customers of major cities & simultaneously cater personalized services to the mass customers .

ATMs : It is a terminal of the banks computer that can be operated by the customer himself any time to deposit, withdraw cash and to know the balance in his account. Smart Cards: Embedded in the smart card is a microchip, which will store the monetary value. When a transaction is made using the card, the monetary value gets debited and the balance comes down automatically. Home Banking: Offering a two-way communication system to any subscriber. 2/3rd of European banks are implementing this.

Tele-Banking: A customer can do entire noncash related banking over the phone anywhere anytime. Automatic voice recorders(AVR) or ID numbers are used for rendering telebanking services.
Internet Banking

Core Banking: Here banks have a centralized database. There is only one server called HUB. Easy accessibility of data can be possible because of centralized database, which helps management information system to take quick and accurate decisions. Electronic Clearing Service: RBI introduced this service in selected metros in the country under which transfer of funds from one center to another could be done quickly. ECS is essentially a more effective method of handling bulk payment transactions and inward remittances like pension, salary etc.

Round the clock banking Convenient Speed banking Low Cost Profitable Quality

Start-up cost Training & maintenance Lack of skilled personnel Security Legal Issues Restricted Business

Authentication of E- banking customers

Need
Authentication of transaction by the customer is a key risk area from an operational perspective. So for that customers can perform only if: if they are valid account holders have unique customer ID unique randomly generated password

3 areas of requirements while choosing the customer authentication system

1.Legislation an application that is not compliant with legal regulations cannot be used.

2. Internal regulations and guidelines- applications need to be in compliance with internal bank regulations and guidelines. 3. Customer perception authentication within internet applications is very crucial as it can cause or dispel doubts Eg. Safety of personal data or data protection

Control measures:
valid customer ID and unique password Passwords are generated using an internationally validated algorithms.

Instructions regarding address change, account closure, nomination, etc. is excepted through e-banking.
There are Limits on monetary transactions that are allowed on ebanking.

Secure connections: When consumers are accessing the online information, their connection is automatically converted into a secure internet communication session. Data encryption: When consumers access their account information or any other sensitive data , an encryption system is automatically activated to protect the transmission of information from unauthorized sources

Risks associated
Technology risks integrity Security availability
Traditional risks strategic risk operational risk business risk credit risk liquidity and pricing risks legal risk reputational risk

Availability
Availability refers to the delivery of information to end-users, counter-parties. Effective when information is consistently delivered on a timely basis in support of business and decision-making processes.

Security
Security refers to safety afforded in

information assets and the information processing environments. Prevents unauthorized access, modification, destruction or disclosure during creation, processing, maintenance, storage, or transmission.

Strategic Risk
The cheapness and global reach of the internet opens up the threat of increased competition from new entrants who will no longer need a branch network to operate effectively in any given market. In the meantime, existing players are faced with the problem of what they do with the branch networks they have built up over the years. While the internet does indeed lower the barriers to entry, its anonymity and the vast range of choices also increase the importance of brand name

Operational Risk
Operational risk arises from fraud, processing errors, system disruptions, hacking, or other unanticipated events resulting in the institutions inability to deliver products or services.
The key to controlling transaction risk lies in adapting effective polices, procedures, and controls to meet the new risk exposures introduced by e-banking.

Credit Risk
Generally, a financial institutions credit risk is not increased by the mere fact that a loan is originated through an e-banking channel. However, management should consider additional precautions when originating and approving loans electronically like Verifying the customers identity, Valuing collateral etc.

Liquidity And Pricing Risks

Adverse information about a bank whether true or not can be easily spread over the internet through bulletin boards and news groups.
This could cause depositors to withdraw their funds in mass at any time of day ,any day of week.

Legal Risk
Legal risk is how any losses from security breaches should be apportioned between banks and their customers. Customers should be responsible for any security breach or system problem that is due to negligence on their part, But if the damage is occurred for system breakdown, negligence of bank employees, attack by hacker or any other parties; the bank must be liable to cover the damage.

Reputational Risk
An institutions decision to offer e-banking services, significantly increases its level of reputation risk. Some of the ways in which e-banking can influence an institutions reputation include: Loss of trust due to unauthorized activity on customer accounts, Disclosure or theft of confidential customer information to unauthorized parties Failure to provide reliable service Customer complaints about the difficulty in using ebanking services

Need: As it is revealed that a bank may face different levels of risks arising from e-banking as opposed to traditional banking, so banks need to manage the risks associated.

Risk management principles

The Risk Management Principles fall into three broad categories:
Board and Management Oversight; Security Controls; and Legal and Reputational Risk Management.

1. Board and Management Oversight : The Board of Directors

and senior management should-

1. establish effective management oversight over the risks associated with e-banking activities. 2. review and approve the key aspects of the bank's security control process. 3. establish a comprehensive and ongoing due diligence and oversight process for managing the bank's outsourcing relationships and other third-party dependencies supporting e-banking.

2.

Security Controls: Banks should-

1. Use transaction authentication methods and establish accountability for e-banking transactions. 2. Ensure that appropriate measures are in place to promote adequate segregation of duties within e-banking systems, databases and applications. 3. Ensure that proper authorization controls are in place for ebanking systems, databases and applications. 4. Ensure that appropriate measures are in place to protect the data integrity of e-banking transactions, records and information. 5. Take appropriate measures to preserve the confidentiality of key e-banking information.

3. Legal and Reputational Risk Management : Banks should-

1. Ensure that adequate information is provided on their websites. 2. Take appropriate measures to ensure adherence to customer privacy . 3. Effective capacity, business continuity and contingency planning processes to help ensure the availability of ebanking systems and services. 4. Develop appropriate incident response plans to manage, contain and minimize problems arising from unexpected events, including internal and external attacks, that may hamper the provision of e-banking systems and services.

Distribution of insurance products through a banks distribution channels. According to IRDA, bancassurance refers to banks acting as corporate agents for insurers to distribute insurance products

Life Insurance Marketing and Research Associations insurance dictionary defines

bancassurance as the provision of life insurance services by banking and building societies.

In the year 2002 the banks of India were permitted to do insurance business for the first time. It is regulated by both RBI and IRDA as it is combination of bank and insurance. It is a Win-Win Strategy Example: SBI Life Insurance Company Ltd has tie up with SBI.

Separate Sales Force Minimum integration between the staff of the partners and merely utilize the customer database for insurance product prospecting. Hand in Glove Sales force of the insurer utilizing the resources of the bank (customer base, brand infrastructure , bank staff expertise). Bank staff sells simply package product, but act as introducers & in the case of more complex products the insurers financial planner undertake the constructive selling process and final lead closure. High interaction between the bank and insurers staff.

Fully Integrated Insurance sales process is wholly owned by the bank staff while the insurer acts only as a product and service provider. Exploitation of banks strength and does not utilize the skills of the insurer.

Revenue diversification Satisfaction of more financial needs under the same roof Customer retention-Increase in customer loyalty More profitable resource utilization Enriched work environment Establish sales oriented culture

Revenue and channel diversification Quality customer access Quicker geographical reach creation of brand equity Increase in volume and profit Improved brand equity

Enhanced convenience One stop shopping for all financial services Innovative and better product ranges More credible solution

STRENGTH: Vast untapped market Huge pool of skilled professionals

WEAKNESS: Lack of networking among bank branches Saving Ability of Middle Class

OPPORTUNITY: Data mining :Banks have a huge customer database which has to be properly leveraged. Target segments should be identified and tapped. Wide distribution networks of banks THREATS: Human Resource Challenges Non-response from the target groups can also pose a challenge.