1.1.1 Banks have conventionally been in the vanguard of harnessing technology to develop their products, services and competence. They have, over a long time, been using electronic and telecommunication networks for delivering a extensive variety of value added products and services. The delivery channels include direct dial – up connections, private networks, public networks etc and the devices include telephone, Personal Computers including the Automated Teller Machines, etc. With the popularity of PCs, easy access to Internet and World Wide Web (WWW), Internet is progressively more used by banks as a channel for receiving instructions and delivering their products and services to their clientele. This form of banking is generally referred to as Internet Banking, although the range of products and services offered by different banks vary broadly both in their content and superiority.
1.1.2 Broadly, the levels of banking services offered through Internet can be categorized into three types: (i) The Basic Level Service is the banks’ websites which disseminate information on different products and services offered to customers and members of public in general. It may receive and reply to customers’ queries through e-mail, (ii) In the next level are Simple Transactional Websites which allow customers to submit their instructions, applications for different services, queries on their account balances, etc, but do not permit any fund-based transactions on their accounts, (iii) The third level of Internet banking services are offered by Fully Transactional Websites which allow the customers to operate on their accounts for transfer of funds, payment of different bills, subscribing to other products of the bank and to manage purchase and sale of securities, etc. The above forms of Internet banking services are offered by traditional banks, as an additional method of serving the customer or by new banks, who deliver banking services primarily through Internet or other electronic delivery channels as the value added services. Some of these banks are known as ‘virtual’ banks or ‘Internet only’ banks and may not have any physical presence in a country despite offering different banking services. 1.1.3 The Central Bank may have its concern about the impact of Internet banking on its monetary and credit policies. As long as Internet is used only as a medium for delivery of banking services and facilitator of normal payment transactions, perhaps, it may not impact monetary policy. However, when it assumes a stage where private sector initiative produces electronic substitution of money like e-cheque, account based cards and digital coins, its likely impact on monetary system cannot be overlooked. Even countries where i-banking has been quite developed, its impact on monetary policy has not been significant. In India, such concern, for the present is not addressed as the Internet banking is still in its formative stage.
1.2 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: 1.2.1 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. 1.2.2 Electronic Information Transfer System: The system provides customer- specific information in the form of account balances, transaction...