1.

Introduction to Internet Banking

Meaning Internet Banking System is a system that has been developed in order to help cli ents with the daily day-to-day transactions. Internet banking systems means that clients can now do banking at the leisure of their homes. Also known as online banking, the system allows both transactional and non-trans actional features. Online banking or internet banking allows customers to conduct financial transac tions on a secure website operated by the retail or virtual bank. Introduction: There is a sea change in the media world. While most consumers see the newspaper s, the same magazines and listen to the same radio programs, behind this bland p ublic exterior there is a seething world of innovation, acquisition, global part nership and divorces, births and deaths all of it most readily interpreted as the inevitable result of the technological revolution that is in the process of mer ging telephones, computers, televisions in to a single all singing, all dancing magic kit that will, very possible, change all of our lives more than we can ima gine some day There are 2 ways you can respond to this 1 is to panic, which may mean simply cu rling up in a corner and wishing that it would all go away. The other is to embr ace the new religion with messianic fervor and go out to proclaim the millennium . I welcome you to the new emerging world of the Info-High-Way, destined to rede fine the world of communications: Drivers of Change The six primary drivers of Internet banking includes: Improve customer access Facilitate the offering of more services Increase customer loyalty Attract new customers Provide services offered by competitors Reduce customer attrition

2.

History of Internet Banking In the World

The term online banking was first started in 80s. The term online became popular in the late 80s and referred to the use of a terminal, keyboard and TV (or moni tor) to access the banking system using a phone line. Home banking can also refer to the use of a numeric keypad to send tones down a phone line with instructions to the bank. Online services started in New York in 1981 when four of the citys major banks (C itibank, Chase Manhattan, Chemical and Manufacturers Hanover) offered home banki ng services using the videotext system. Because of the commercial failure of vid eotext these banking services never became popular except in France where the us

e of videotext (Minitel) was subsidized by the telecom provider and the UK, wher e the Prestel system was used. The first home online banking services were set up by the Nottingham Building So ciety (NBS) located in UK in 1983. The system used was based on the UK s Prestel system and used a computer, such a s the BBC Micro, or keyboard (Tan data Td1400) connected to the telephone system and television set.

The system (known as Home link ) allowed on-line viewing of statements, bank tr ansfers and bill payments. In order to make bank transfers and bill payments, a written instruction giving details of the intended recipient had to be sent to t he NBS who set the details up on the Home link system. Typical recipients were gas, electricity and telephone companies and accounts wi th other banks. Details of payments to be made were input into the NBS system by the account holder via Prestel. A cheque was then sent by NBS to the payee and an advice giving details of the payment was sent to the account holder. BACS was later used to transfer the payment directly. Stanford Federal Credit Union was the first financial institution to offer onlin e internet banking services to all of its members in Oct, 1994. Later on it was adopted by worldwide banks.

3.

Internet baking in India Internet banking, both as a medium of delivery of banking services and as a stra tegic tool for business development, has gained wide acceptance internationally and is fast catching up in India with more and more banks entering this market. ICICI was the first bank in India to launch internet banking facility in the yea r 1997. A recent survey consisting of 46 banks, has revealed that at present, 11 banks i n India are providing Internet banking services at different levels, 22 banks pr opose to offer Internet banking in near future while the remaining 13 banks have no immediate plans to offer such facility. At present, the total Internet users in the country are estimated at 2.5 Crores. About 60% of internet users use internet banking directly or indirectly. Costs of banking service through the Internet form a fraction of costs through c onventional methods. Rough estimates assume teller cost at Re.1 per transaction, ATM transaction cost at 45 paise, phone banking at 35 paise, debit cards at 20 p aise and Internet banking at 10 paise per transaction. The cost-conscious banks in the country have therefore actively considered use o

f the Internet as a channel for providing services. Online Activities in India Transaction Cost per Distribution Channel for Banking in India 4. RBI GUIDELINES ON INTERNET BANKING

1. In June 2001 banks were advised to seek prior approval of Reserve Bank o f India before offering transactional services on the Internet. The position has since been reviewed and RBI has advised on 20th July 2005 that while the offeri ng of Internet Banking services will continue to be governed by the provisions o f the above circular, no prior approval of the Reserve Bank of India will be req uired by banks for offering Internet Banking services. 2. i. Banks should, however, ensure compliance with the following conditions: The Internet Banking policy has been approved by the Bank s Board.

ii. The policy fits into the banks overall Information Technology and Inform ation Security policy and ensures confidentiality of records and security system s. iii. The policy takes into account operational risk.

iv. The policy clearly lays down the procedure to be followed in respect of "Know Your Customer" requirements, and v. r. 5. The policy broadly meets the parameters laid down in the earlier circula

Internet Banking Risks

Internet banking creates new risk control challenges for national banks. From a supervisory perspective, risk is the potential that events, expected or unexpect ed, may have an adverse impact on the banks earnings or capital. There are generally nine categories of risks in internet banking, which are as f ollows:Credit Risk Interest rate Risk Liquidity Risk Price Risk Foreign exchange Risk Transaction compliance Risk Strategic Risk and Reputation Risk. Credit Risk

Credit risk is the risk to earnings or capital arising from an obligors failure t o meet the terms of any contract with the bank or otherwise to perform as agreed . Credit risk is found in all activities where success depends on counterparty, issuer, or borrower performance. It arises any time bank funds are extended, com mitted, invested, or otherwise exposed through actual or implied contractual agr eements, whether on or off the banks balance sheet. Internet banking provides the opportunity for banks to expand their geographic range. Customers can reach a g iven institution from literally anywhere in the world. In dealing with customers over the Internet, absent any personal contact, it is challenging for instituti ons to verify the bonafides of their customers, which is an important element in making sound credit decisions. Interest Rate Risk Interest rate risk is the risk to earnings or capital arising from movements in interest rates. The following are the types of interest rate risk. 1. Re-Pricing Risk: Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows. 2. Basis Risk: Interest rate risk arises from changing rate relationships a mong different yield curves affecting bank activities. 3. Yield Curve Risk: Interest rate risk arises from changing rate relations hips across the spectrum of maturities and 4. Options Risk: Interest rate risk arises from interest-related options em bedded in bank products. Liquidity Risk Liquidity risk is the risk to earnings or capital arising from a banks inability to meet its obligations when they come due, without incurring unacceptable losse s. Liquidity risk includes the inability to manage unplanned changes in funding sources. Liquidity risk also arises from the failure to recognize or address cha nges in market conditions affecting the ability of the bank to liquidate assets quickly and with minimal loss in value. Internet banking can increase deposit vo latility from customers who maintain accounts solely on the basis of rate or ter ms. Price Risk Price risk is the risk to earnings or capital arising from changes in the value of traded portfolios of financial instruments. This risk arises from market maki ng, dealing, and position taking in interest rate, foreign exchange, equity, and commodities markets. Banks may be exposed to price risk if they create or expan d deposit brokering, loan sales, or securitization programs as a result of Inter net banking activities. Appropriate management systems should be maintained to m onitor, measure, and manage price risk if assets are actively traded. Foreign Exchange Risk Foreign exchange risk is present when a loan or portfolio of loans is denominate d 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 borro wers to select the currency they prefer to use in each rollover period. Foreign exchange risk can be intensified by political, social, or economic developments. The consequences can be unfavorable if one of the currencies involved becomes s ubject to stringent exchange controls or is subject to wide exchange-rate fluctu ations. Transaction Risk Transaction risk is the current and prospective risk to earnings and capital ari sing from fraud, error, and the inability to deliver products or services, maint ain a competitive position, and manage information. Transaction risk is evident in each product and service offered and encompasses product Internet Banking dev elopment and delivery, transaction processing, systems development, computing sy

stems, complexity of products and services, and the internal control environment . A high level of transaction risk may exist with Internet banking products, par ticularly if those lines of business are not adequately planned, implemented, an d monitored. Banks that offer financial products and services through the Intern et must be able to meet their customers expectations. Customers who do business o ver the Internet are likely to have little tolerance for errors or omissions fro m financial institutions that do not have sophisticated internal controls to man age their Internet banking business. Compliance Risk Compliance risk is the risk to earnings or capital arising from violations of, o r nonconformance with, laws, rules, regulations, prescribed practices, or ethica l standards. Compliance risk also arises in situations where the laws or rules g overning certain bank products or activities of the banks clients may be ambiguou s or untested. Compliance risk exposes the institution to fines, civil money pen alties, payment of damages, and the voiding of contracts. Compliance risk can le ad to a diminished reputation, reduced franchise value, limited business opportu nities, reduced expansion potential, and lack of contract enforceability. Most Internet banking customers will continue to use other bank delivery channel s. Strategic Risk Strategic risk is the current and prospective impact on earnings or capital aris ing from adverse business decisions, improper implementation of decisions, or la ck of responsiveness to industry changes. This risk is a function of the compati bility of an organizations strategic goals, the business strategies developed to achieve those goals, the resources deployed against these goals, and the quality of implementation. Management must understand the risks associated with Interne t banking before they make a decision to develop a particular class of business. In some cases, banks may offer new products and services via the Internet. It i s important that management understand the risks involved in the decisions. Befo re introducing the Internet banking product, management should consider whether the product and technology are consistent with tangible business objectives in t he banks strategic plan. The bank also should consider whether adequate expertise and resources are available to identify, monitor, and control risk in the Inter net banking business.

Reputation Risk Reputation risk is the current and prospective impact on earnings and capital ar ising from negative public opinion. This affects the institutions ability to esta blish new relationships or services or continue servicing existing relationships . This risk may expose the institution to litigation, financial loss, or a decli ne in its customer base. Reputation risk exposure is present throughout the orga nization and includes the responsibility to exercise an abundance of caution in dealing with customers and the community. A banks reputation can be damaged by In ternet banking services that are poorly executed or otherwise alienate customers and the public. Well-designed marketing, including disclosures, is one way to e ducate potential customers and help limit reputation risk. A national bank shoul d not market the banks Internet banking system based on features or attributes th e system does not have. National banks should carefully consider how connections to third parties are presented on their Web sites. Hypertext links are often us ed to enable a customer to link to a third party. Such links may reflect an endo rsement of the third partys products or services in the eyes of the customer. It

should be clear to the customer when they have left the banks Web site so that th ere is no confusion about the provider of the specific products and services off ered or the security and privacy standards that apply. National banks need to be sure that their business continuity plans include the Internet banking business .

6.

Risk Management techniques undertaken by banks

Financial institutions should have a technology risk management process to enabl e them to identify, measure, monitor, and control their technology risk exposure . Risk management of new technologies has three essential elements: The planning process for the use of the technology. Implementation of the technology. The means to measure and monitor risk. The risk planning process The risk planning process is the responsibility of the board and senior manageme nt. They need to possess the knowledge and skills to manage the banks use of Inte rnet banking technology and technology-related risks. The board should review, a pprove, and monitor Internet banking technology-related projects that may have a significant impact on the banks risk profile. They should determine whether the technology and products are in line with the banks strategic goals and meet a nee d in their market. Senior management should have the skills to evaluate the tech nology employed and risks assumed. Periodic independent evaluations of the Inter net banking technology and products by auditors or consultants can help the boar d and senior management fulfill their responsibilities. Implementing the technology Implementing the technology is the responsibility of management. Management shou ld have the skills to effectively evaluate Internet banking technologies and pro ducts, select the right mix for the bank, and see that they are installed approp riately. If the bank does not have the expertise to fulfill this responsibility internally, it should consider contracting with a vendor who specializes in this type of business or engaging in an alliance with another provider with compleme ntary technologies or expertise. Measuring and monitoring risk Measuring and monitoring risk is the responsibility of management. Management sh ould have the skills to effectively identify, measure, monitor, and control risk s associated with Internet banking. The board should receive regular reports on the technologies employed, the risks assumed, and how those risks are managed. M onitoring system performance is a key success factor. As part of the design proc ess, a national bank should include effective quality assurance and audit proces ses in its Internet banking system. The bank should periodically review the syst ems to determine whether they are meeting the performance standards.

7.

Problems & Solution in Internet Banking

Financial institutions, their card associations, and vendors are working to deve lop an Internet payment infrastructure to help make electronic commerce secure. Many in the banking industry expect significant growth in the use of the Interne t for the purchase of goods and services and electronic data interchange. The ba nking industry also recognizes that the Internet must be secure to achieve a hig h level of confidence with both consumers and businesses. Sound management of banking products and services, especially those provided ove r the Internet, is fundamental to maintaining a high level of public confidence not only in the individual bank and its brand name but also in the banking syste m as a whole. Key components that will help maintain a high level of public confidence in an open network environment include: Security Authentication Privacy Availability

Security Threat: Security is an issue in Internet banking systems. Some national banks allow for direct dial-in access to their systems over a private network while others provi de network access through the Internet. Although the publicly accessible Interne t generally may be less secure, both types of connections are vulnerable to inte rception and alteration. For example, hardware or software sniffers can obtain pas swords, account numbers, credit card numbers, etc. without regard to the means o f access. Solution: National banks therefore must have a sound system of internal controls to protec t against security breaches for all forms of electronic access. Firewalls are frequently used on Internet banking systems as a security measure to protect internal systems and should be considered for any system connected to an outside network. Firewalls are a combination of hardware and software placed between two networks through which all traffic must pass, regardless of the dir ection of flow. They provide a gateway to guard against unauthorized individuals gaining access to the banks network.

Authentication Threat:

Authentication is another issue in Internet banking system. Transactions on the Internet or any other telecommunication network must be secure to achieve a high level of public confidence. In cyberspace, as in the physical world, customers, banks, and merchants need assurances that they will receive the service as orde red or the merchandise as requested, and that they know the identity of the pers on they are dealing with. Solution: Banks typically use symmetric (private key) encryption technology to secure mess ages and asymmetric (public/private key) cryptography to authenticate parties. A symmetric cryptography employs two keys a public key and a private key. These tw o keys are mathematically tied but one key cannot be deduced from the other. For example, to authenticate that a message coming from the sender, the sender encr ypts the message using their private key. Only the sender knows the private key. But, once sent, the message can be read only using the senders public key. Since the message can only be read using the senders public key, the receiver knows th e message came from the expected sender.

Privacy Privacy is a consumer issue of increasing importance. National banks that recogn ize and respond to privacy issues in a proactive way make this a positive attrib ute for the bank and a benefit for its customers. Public concerns over the prope r versus improper accumulation and use of personal information are likely to inc rease with the continued growth of electronic commerce and the Internet. Provide rs who are sensitive to these concerns have an advantage over those who do not. Availability Availability is another component in maintaining a high level of public confiden ce in a network environment. All of the previous components are of little value if the network is not available and convenient to customers. Users of a network expect access to systems 24 hours per day, seven days a week. Among the consider ations associated with system availability are capacity, performance monitoring, redundancy, and business resumption. National banks and their vendors who provi de Internet banking products and services need to make certain that they have th e capacity in terms of hardware and software to consistently deliver a high leve l of service.

8. Introduction of State Bank of India (SBI) Company profile State bank of India is the nations largest and oldest bank. Tracing its roots bac k some 200 years to the British East India Company (and initially established as the Bank of Calcutta in 1806), the bank operates more than 15,000 branches with in India, where it also owns majority stakes in six associate banks. State Bank of India (SBI) has more than 80 offices in nearly 35 other countries, including multiple locations in the US, Canada, and Nigeria. The bank has other units devo ted to capital markets, fund management, factoring and commercial services, cred it cards, and brokerage services. The Reserve Bank of India owns about 60% of St ate bank of India.

Some facts and figures:-

9. History of State bank of India State Bank of India (SBI) is that country s largest commercial bank. The governm ent-controlled bank--the Indian government maintains a stake of nearly 60 percen t in SBI through the central Reserve Bank of India--also operates the world s la rgest branch network, with more than 13,500 branch offices throughout India, sta ffed by nearly 220,000 employees. SBI is also present worldwide, with seven inte rnational subsidiaries in the United States, Canada, Nepal, Bhutan, Nigeria, Mau ritius, and the United Kingdom, and more than 50 branch offices in 30 countries. Long an arm of the Indian government s infrastructure, agricultural, and indust rial development policies, SBI has been forced to revamp its operations since co mpetition was introduced into the country s commercial banking system. As part o f that effort, SBI has been rolling out its own network of automated teller mach ines, as well as developing anytime-anywhere banking services through Internet a nd other technologies. SBI also has taken advantage of the deregulation of the I ndian banking sector to enter the, assets management, and securities brokering s ectors. In addition, SBI has been working on reigning in its branch network, red ucing its payroll, and strengthening its loan portfolio. In 2003, SBI reported r evenue of $10.36 billion and total assets of $104.81 billion. The establishment of the British colonial government in India brought with it ca lls for the formation of a Western-style banking system, if only to serve the ne eds and interests of the British imperial government and of the European trading houses doing business there. The creation of a national banking system began at the beginning of the 19th century. The first component of what was later to become the State Bank of India was crea ted in 1806, in Calcutta. Called the Bank of Calcutta, it was also the country s first joint stock company. Originally established to serve the city s interests , the bank was granted a charter to serve all of Bengal in 1809, becoming the Ba

nk of Bengal. The introduction of Western-style banking instituted deposit savin gs accounts and investment services. The Bank of Bengal also received the right to issue its own notes, which became legal currency within the Bengali region. T his right enabled the bank to establish a solid financial foundation, building a n interest-free capital base. The spread of colonial influence also extended the scope of government and comme rcial financial influence. Toward the middle of the century, the imperial govern ment created two more regional banks. The Bank of Bombay was created in 1840, an d was soon joined by the Bank of Madras in 1843. Together with the Bank of Benga l, they became known as the "presidency" banks. All three banks were operated as joint stock companies, with the imperial govern ment holding a one-fifth share of each bank. The remaining shares were sold to p rivate subscribers and, typically, were claimed by the Western European trading firms. These firms were represented on each bank s board of directors, which was presided over by a nominee from the government. While the banks performed typic al banking functions, for the Western firms and population and members of Indian society, their main role was to act as a lever for raising loan capital, as wel l as help stabilize government securities. The charters backing the establishment of the presidency banks granted them the right to establish branch offices. Into the second half of the century, however, the banks remained single-office concerns. It was only after the passage of the Paper Currency Act in 1861 that the banks began their first expansion effort. T hat legislation had taken away the presidency banks authority to issue currency , instead placing the issuing of paper currency under direct control of the Brit ish government in India, starting in 1862. Yet that same legislation included two key features that stimulated the growth o f a national banking network. On the one hand, the presidency banks were given t he responsibility for the new currency s management and circulation. On the othe r, the government agreed to transfer treasury capital backing the currency to th e banks--and especially to their branch offices. This latter feature encouraged the three banks to begin building the country s first banking network. The three banks then launched an expansion effort, establishing a system of branch office s, agencies, and sub-agencies throughout the most populated regions of the India n coast, and into the inland areas as well. By the end of the 1870s, the three p residency banks operated nearly 50 branches among them. The rapid growth of the presidency banks came to an abrupt halt in 1876, when a new piece of legislation, the Presidency Banks Act, placed all three banks under a common charter--and a common set of restrictions. As part of the legislation, the British imperial government gave up its ownership stakes in the banks, alth ough they continued to provide a number of services to the government, and retai ned some of the government s treasury capital. The majority of that, however, wa s transferred to the three newly created Reserve Treasuries, located in Calcutta , Bombay, and Madras. The Reserve Treasuries continued to lend capital to the pr esidency banks, but on a more restrictive basis. The minimum balance now guarant eed under the Presidency Banks Act was applicable only to the banks central off ices. With branch offices no longer guaranteed a minimum balance backed by gover nment funds, the banks ended development of their networks. Only the Bank of Mad ras continued to grow for some time, supplied as it was by the influx of capital from development of trade among the region s port cities. The loss of the government-backed balances was soon compensated by India s rapid economic development at the end of the 19th century. The building of a national railroad network launched the country into a new era, seeing the rise of cash-c rop farming, a mining industry, and widespread industrial development. The three presidency banks took active roles in financing this development. The banks als o extended their range of services and operations, although for the time being w as excluded from the foreign exchange market. By the beginning of the 20th century, India s banking industry boasted a host of new arrivals, and particularly foreign banks authorized to exchange currency. T he growth of the banking sector, and the development of indigenous banks, in tur n created a need for a larger "bankers bank." At the same time, the Indian gove

rnment had outgrown its colonial background and now required a more centralized banking institution. These factors led to the decision to merge the three presid ency banks into a new, single and centralized banking institution, the Imperial Bank of India. Created in 1921, the Imperial Bank of India appeared to inaugurate a new era in India s history--culminating in its declaration of independence from the British Empire. The Imperial Bank took on the role of central bank for the Indian gover nment, while acting as a bankers bank for the growing Indian banking sector. At the same time, the Imperial Bank, which, despite its role in the government fin ancial structure remained independent of the government, carried on its own comm ercial banking operations. In 1926, a government commission recommended the creation of a true central bank . While some proposed converting the Imperial Bank into a central banking organi zation for the country, the commission rejected this idea and instead recommende d that the Imperial Bank be transformed into a purely commercial banking institu tion. The government took up the commission s recommendations, drafting a new bi ll in 1927. Passage of the new legislation did not occur until 1935, however, wi th the creation of the Reserve Bank of India. That bank took over all central ba nking functions. The Imperial Bank then converted to full commercial status, which accordingly al lowed it to enter a number of banking areas, such as currency exchange and trust ee and estate management, from which it had previously been restricted. Despite the loss of its role as a government banking office, the Imperial Bank continued to provide banking services to the Reserve Bank, particularly in areas where th e Reserve Bank had not yet established offices. At the same time, the Imperial B ank retained its position as a bankers bank. By then, India had achieved its independence from Britain. In 1951, the new gove rnment launched its first Five Year Plan, targeting in particular the developmen t of the country s rural areas. The lack of a banking infrastructure in these re gions led the government to develop a state-owned banking entity to fill the gap . As part of that process, the Imperial Bank was nationalized and then integrate d with other existing government-owned banking components. The result was the cr eation of the State Bank of India, or SBI, in 1955. The new state-owned bank now controlled more than one-fourth of India s total ba nking industry. That position was expanded at the end of the decade, when new le gislation was passed providing for the takeover by the State Bank of eight regio nally based, government-controlled banks. As such the Banks of Bikaner, Jaipur, Indore, Mysore, Patiala, Hyderabad, Saurashtra, and Travancore became subsidiari es of the State Bank. Following the 1963 merger of the Bikaner and Jaipur banks, their seven remaining subsidiaries were converted into associate banks. In the early 1960s, the State Bank s network already contained nearly 500 branch es and sub-offices, as well as the three original head offices inherited from th e presidency bank era. Yet the State Bank now began an era of expansion, acting as a motor for India s industrial and agricultural development that was to trans form it into one of the world s largest financial networks. Indeed, by the early 1990s, the State Bank counted nearly 15,000 branches and offices throughout Ind ia, giving it the world s single largest branch network. SBI played an extremely important role in developing India s rural regions, prov iding the financing needed to modernize the country s agricultural industry and develop new irrigation methods and cattle breeding techniques, and backing the c reation of dairy farming, as well as pork and poultry industries. The bank also provided backing for the development of the country s infrastructure, particular ly on a local level, where it provided credit coverage and development assistanc e to villages. The nationalization of the banking sector itself, an event that o ccurred in 1969 under the government led by Indira Gandhi, gave SBI new prominen ce as the country s leading bank. Even as it played a primary role in the Indian government s industrial and agric ultural development policies, SBI continued to develop its commercial banking op erations. In 1972, for example, the bank began offering merchant banking service s. By the mid-1980s, the bank s merchant banking operations had grown sufficient

ly to support the creation of a dedicated subsidiary, SBI Capital Markets, in 19 86. The following year, the company launched another subsidiary, SBI Home Financ e, in collaboration with the Housing Development Finance Corporation. Then in th e early 1990s, SBI added subsidiaries SBI Factors and Commercial Services, and t hen launched institutional investor services. SBI was allowed to dominate the Indian banking sector for more than two decades. In the early 1990s, the Indian government kicked off a series of reforms aimed at deregulating the banking and financial industries. SBI was now forced to brac e itself for the arrival of a new wave of competitors eager to enter the fast-gr owing Indian economy s commercial banking sector. Yet years as a government-run institution had left SBI bloated--the civil-servant status of its employees had encouraged its payroll to swell to more than 230,000. The bureaucratic nature of the bank s management left little room for personal initiative, nor incentive f or controlling costs. In 1994, the bank hired consulting group McKinsey & Co. to help it restructure i ts operations. McKinsey then led SBI through a massive restructuring effort that lasted through much of the decade and into the beginning of the next, an effort that helped SBI develop a new corporate culture focused more on profitability t han on social and political policy. SBI also stepped up its international trade operations, such as foreign exchange trading, as well as corporate finance, expo rt credit, and international banking. SBI had long been present overseas, operating some 50 offices in 34 countries, i ncluding full-fledged subsidiaries in the United Kingdom, the United States, and elsewhere. In 1995 the bank set up a new subsidiary, SBI Commercial and Interna tional Bank Ltd., to back its corporate and international banking services. The bank also extended its international network into new markets such as Russia, Ch ina, and South Africa. Back home, in the meantime, SBI began addressing the technology gap that existed between it and its foreign-backed competitors. Into the 1990s, SBI had yet to e stablish an automated teller network; indeed, it had not even automated its info rmation systems. SBI responded by launching an ambitious technology drive, rolli ng out its own ATM network, then teaming up with GE Capital to issue its own cre dit card. In the early 2000s, the bank began cross-linking its banking network w ith its ATM network and Internet and telephone access, rolling out "anytime, any where" banking access. By 2002, the bank had succeeded in networking its 3,000 m ost profitable branches. The implementation of new technology helped the bank achieve strong profit gains into the early years of the new century. SBI also adopted new human resources a nd retirement policies, helping trim its payroll by some 20,000, almost entirely through voluntary retirement in a country where joblessness remained a decided problem. By the beginning of 2004, SBI appeared to be well on its way to meeting the chal lenges offered by the deregulated Indian banking sector. In a twist, the bank ha d become an aggressor into new territories, launching its own line of banc assur ance products, and also initiating securities brokering services. In the meantim e, SBI continued its technology rollout, boosting the number of networked branch es to more than 4,000 at the end of 2003. SBI promised to remain a central figur e in the Indian banking sector as it entered its third century.

10. Milestones achieved by SBI 1806: The Bank of Calcutta is established as the first Western-type bank. 1809: The bank receives a charter from the imperial government and changes its n ame to Bank of Bengal. 1840: A sister bank, Bank of Bombay, is formed. 1843: Another sister bank is formed: Bank of Madras, which, together with Bank o f Bengal and Bank of Bombay become known as the presidency banks, which had the right to issue currency in their regions. 1861: The Presidency Banks Act takes away currency issuing privileges but offers incentives to begin rapid expansion, and the three banks open nearly 50 branche s among them by the mid-1870s. 1876: The creation of Central Treasuries ends the expansion phase of the preside ncy banks. 1921: The presidency banks are merged to form a single entity, Imperial Bank of India.

1969: The Indian government establishes a monopoly over the banking sector. 1972: SBI begins offering merchant banking services. 1986: SBI Capital Markets is created. 1995: SBI Commercial and International Bank Ltd. are launched as part of SBI s s tepped-up international banking operations. 1998: SBI launches credit cards in partnership with GE Capital. 2002: SBI networks 3,000 branches in a massive technology implementation. 2004: A networking effort reaches 4,000 branches. 2010: Became the fifth most visited financial website in India.

11. Internet Banking in SBI How SBI was in 90s In early 1990s more than 7000 branches were using traditional manual procedures. These manual procedures were inherited from the Imperial Bank.

1955: The nationalization of Imperial Bank of India results in the formation of the State Bank of India, which then becomes a primary factor behind the country s industrial, agricultural, and rural development.

Traditional procedures were evolved over decades Very few changes were brought in those procedures as per the need of time. In that time, mainframe or mini computers were used for MIS, Reconciliation & Fu nd Settlement Process, or we can say that for backhand operations purpose. Changes brought by Information Technology in SBI:In the next decade internet facility was provided for individuals. All SBI branches were connected and ATMS were launch. 2001 - KMPG appointed consultant for preparing IT Plan for the Bank. Later on Core banking proposed by the IT consultancy company. 2002 All branches computerized but on decentralized systems, there the initiativ e of core banking took place. 2008- more than 6500 branches (95% of business) on Core Banking Solution (CBS). Internet Banking facility for Corporate customers was also launched in early 200 8. More Interfaces developed with e-Commerce & other sites through alternate channe ls like ATM & Online Banking. All Foreign Offices were brought on Centralized Solution. Large network is playing the role of backbone for connectivity across the countr y. Multiple Service Providers are providing the links BSNL, MTNL, Reliance, Tata & reliance which are making the system errorless and provide high speed. Multiple Technologies to support the networking infrastructure Leased lines, Dia l-up, CDMA & VSAT

CBS - Core Banking System Components of SBI

12. Services provided by SBI internet banking Online SBI (www.onlinesbi.com) State Bank of India is Indias largest bank with a branch network of over 11000 br anches and 6 associate banks located even in the remotest parts of India. State Bank of India (SBI) offers a wide range of banking products and services to corp orate and retail customers. OnlineSBI is the Internet banking portal for State Bank of India. The portal pro vides anywhere, anytime, online access to accounts for State Banks Retail and Cor porate customers. The application is developed using the latest cutting edge tec hnology and tools. The infrastructure supports unified, secure access to banking

services for accounts in over 11,000 branches across India. Retail Banking:The Retail banking application is an integration of several functional areas, an d enables customers to: Issue Demand Drafts online Transfer funds to own and third party accounts Credit beneficiary accounts using the VISA Money Transfer, RTGS/NEFT feature Generate account statements Setup Standing Instructions Configure profile settings Use eTax for online tax payment Use ePay for automatic bill payments Interface with merchants for railway and airline reservations Corporate Banking:The OnlineSBI corporate banking application provides features to administer and manage corporate accounts online. The corporate module provides roles such as Re gulator, Admin, Uploader, Transaction Maker, Authorizer, and Auditor. These role s have access to the following functions: Manage users, define rights and transaction rules on corporate accounts Access accounts in several branches with a single sign-on mechanism Upload files to make bulk transactions to third parties, supplier, vendor and ta x collection authorities. Use online transactional features such as fund transfer to own accounts, third p arty payments, and draft issues Make bill payments over the Internet. Authorize, modify, reschedule and cancel transactions, based on rights assigned to the user Generate account statement Enquire on transaction details or current balance

Value added services: Tax payments to central and state governments through site to site integration. Supply Chain Finance( e-VFS- Electronic Vendor Finance Scheme) Direct Debit Facility E Collection Facilities Core Banking Transactions Internet Bank transactions for incoming RTGS/NEFT Transactions Internet banking transactions for SBI and associate banks Debit facility where suppliers can directly debit their customers account through internet banking. Other online services: E-Ticketing SBI E-Tax Bill Payment RTGS/NEFT E-Payment Fund Transfer Third Party Transfer Demand Draft Cheque Book Request

1)

Account Opening Request Account Statement Transaction Enquiry Donation E-TICKETING :-

You can book your railway, air and bus tickets online through OnlineSBI. To book your train ticket, just log on to irctc.co.in and create an ID there at if you do not have one. Submit your travel plan and book the ticket(s)-either i-ticket (where the delivery of tickets will be made at your address) or E-tickets (wherein after successful payment transactions, an e-ticket is generat ed which can be printed any time. For an e-ticket, the details of photo identity card will be required to be filled in). And select State Bank of India in the payment options. You will be redirected to Internet Banking site of SBI (www.onlinesbi.com). After submitting the respecti ve ID and password, you can select your account. After a successful debit, Railw ays will generate the ticket. E-ticket can be printed by you whereas i-ticket wi ll be dispatched by IRCTC at the given address. Service charges @ Rs.10/- per tr ansaction shall be levied in addition to the cost of the ticket. Cancellation of E-ticket can be done by logging on to IRCTC s site; refund amount will be credi ted to your account directly within 2-3 days. For cancellation of i-ticket, you shall be required to submit your ticket at a computerized counter of Railways an d on cancellation; the amount shall be credited back to your account. To book other forms of tickets the procedure is same. The customer is only needs to go to the respective website and follow the necessary instruction. 2) SBI E-TAX:-

You can pay your taxes online through SBI E-Tax. This facility enables you to pa y TDS, Income tax, Indirect tax, Corporation tax, Wealth tax, Estate Duty and Fr inge Benefits tax. Click the e-Tax link in the home page. You are displayed with a page with two links one is for Direct Tax and the other is for Indirect Tax. Click the Direct Tax link. You will be redirected to the NSDL site where you can select an online challan based on the tax you wish to pay. Provide the PAN, nam e and address, assessment year, nature of payment and bank name. On selecting th e bank name as SBI and submitting the form, you will be redirected to the Intern et Banking site. After submitting the respective ID and password, you can select your account for making payment of taxes. After payment is successful you can p rint the E-Receipt for the payment. The E-receipt can be printed at a later date also and the same can be retrieved from by navigating to Enquiries > Find Trans actions > Status Enquiries > Click on the respective transaction to print the ta x receipt. The procedure is same for indirect tax, in case of indirect tax you are redirect ed to the website of CBEC (Central Board of Excise and Customs).

3)

Bill Payment :-

It is a simple and convenient service for viewing and paying your bills online. No more late payments No more queues No more hassles of depositing cheques

Using the bill payment the user can view and Pay various bills online, directly from your SBI account. The user can pay telephone, electricity, insurance, credi t cards and other bills from the comfort of your house or office, 24 hours a day , 365 days a year. Simply logon to (http://www.onlinesbi.com) with his credentia ls and register the biller to which you want to pay, with all the bill details. Once the bill is uploaded by the biller, the user can make payment online within just few steps. The user can also set up Auto Pay instructions with an upper limit to ensure tha t your bills are paid automatically whenever they are due. The upper limit ensur es that only bills within the specified limit are paid automatically, thereby pr oviding the customer with complete control over all these bill payments. The e-PAY service is available in various cities across the country and you can now make payments to several billers in your region.

4) RTGS/NEFT :You can transfer money from your State Bank account to accounts in other banks u sing the RTGS/NEFT service. The RTGS (Real Time Gross Settlement) system facilitates transfer of funds from accounts in one bank to another on a "Real Time" and on "Gross Settlement" basis . This system is the fastest possible interbank money transfer facility availabl e through secure banking channels in India. RTGS transaction requests will be se nt to RBI immediately during working hours post working hours requests are regis tered and sent to RBI on next working day. The user can also schedule a transact ion for a future date. The customer can transfer an amount of Rs.1 lac and above minimum using RTGS (Real Time Gross Settlement) system. NEFT stands for National Electronic Funds Transfer. NEFT facilitates transfer of funds to the credit account with the other participating bank. RBI acts as the service provider and transfers the credit to the other bank s account. NEFT transactions are settled in batches based on the following timings 1. 6 settlements on weekdays - at 09:00, 11:00, 12:00, 13:00, 15:00 and 17: 00 hrs. 2. 3 settlements on Saturdays - at 09:00, 11:00 and 12:00 hrs. Please note that all the above timings are based on Indian Standard Time (IST) o nly. 5) E-Payment :-

The customer can pay his insurance premium, mobile phone bills and also you can purchase mutual fund units by coming from the billers website and selecting state bank of India in the payment option in order to avail this facility. LIC PREMIUM: For paying premium of LIC policy the customer can logon to www.lici ndia.com and register his policy details. When the premium is due State Bank of India should be selected in the make payment option. SBI Mutual FUND: The customer can invest in the SBI Mutual Fund schemes online. He should logon to www.sbimf.com and select the scheme in which he want to make investment in the payment option select State Bank of India. CCAVENUES: Now the customer can enjoy shopping at the CCAvenue Shopping Mall and purchase from a wide variety of products and services through CCAvenue Certifie d Vendors. He can make payments for your purchases using your Internet enabled S BI accounts.

6) Fund Transfer :The Funds Transfer facility enables the user to transfer funds within his accoun ts in the same branch or other branches. The user can transfer aggregating Rs.1 lakh per day to own accounts in the same branch and other branches. To make a fu nds transfer, the user should be an active Internet Banking user with transactio n rights. Funds transfer to PPF account is restricted to the same branch. The user has to just log on to retail section of the Internet Banking site with his credentials and select the Funds Transfer link under Payments/Transfers tab. The user can see all his online debit and credit accounts. Select the debit acc ount from which the user wish to transfer funds and the credit account into whic h the amount is to be credited. Enter the amount and remarks. The remarks will b e displayed in his accounts statement for this transaction. The user will be dis played the last five funds transfer operations on his accounts. On confirming th e transaction, the user will be displayed a confirmation page with the details o f the transaction and the option to submit or cancel the funds transfer request. A reference number will be generated for his record.

7) Third Party Transfer :The user can transfer funds to his trusted third parties by adding them as third party accounts. The beneficiary account should be any branch SBI. Transfer is i nstant. The user can do any number of Transactions in a day for amount aggregati ng Rs.1lakh. To transfer funds to third party having account in SBI, the user need to add and approve a third party, the user need to register his mobile number in personal details link under profile section. The user will receive a One Time SMS passwor d on his mobile phone to approve a third party. If the user do not have a mobile number, third party approval will be handled by his branch. Only after approval of third party, the user will be able to transfer funds to the third party. The user can set limits for third party transactions made from his accounts or even set limits for individual third parties. 8) Demand Draft :The Internet Banking application enables the user to register demand drafts requ ests online. The user can get a demand draft from any of his Accounts (Savings B ank, Current Account, Cash Credit or Overdraft). The user can set limits for dem and drafts issued from his accounts or use the bank specified limit for demand d rafts. The user can opt to collect the draft in person at his branch, quoting a referen ce to the transaction. A printed advice can also be obtained from the site for h is record. 9) Cheque Book Request :The user can request for a cheque book online. Cheque book can be requested for any of his Savings, Current, Cash Credit, and Over Draft accounts. The user can opt for cheque books with 25, 50 or 100 cheque leaves. The user can either colle ct it from branch or request his branch to send it by post or courier. The user can opt to get the cheque book delivered at his registered address or the user c

an provide an alternate address. Cheque books will be dispatched within 3 workin g days from the date of request to the requested destination by the user. The user can just log on to retail section of the Internet Banking site with his credentials and select the Cheque Book link under Requests tab. The user can vi ew all his transaction accounts. Select the account for which the user require a cheque book; enter the number of cheque leaves required and the mode of deliver y. Then, submit the same. 10) Account Opening Request:OnlineSBI enables the user to open a new account online. The user can apply for a new account only in branches where he already has an account. He should have a n INB-enabled account with transaction right in the branch. Funds in an existing account are used to open the new account. He can open Savings, Current, Term De posit and Recurring Deposit accounts of Residents, NRO and NRE types. He has to enter retail section of the Internet Banking site with his using his I D and select the New Account link under Requests tab. He can see all types of ac counts. Select the account and account type he wishes to open and submit the sam e. Then, he needs to select the branch and enter the initial amount to open the account. He can select any of his accounts for debiting the initial amount. Then , submit the transaction. His new account opening request will be processed by t he branch. 11) Account Statement :The Internet Banking application can generate an online, downloadable account st atement for any of the users accounts for any date range and for any account mapp ed to his username. The statement includes the transaction details, opening, clo sing and accumulated balance in the account. The user can generate the online account statement for any date range or for any month and year. The account statement can be viewed online, printed or download ed as an Excel or PDF file. He also has the option to select the number of recor ds displayed in each page of the statement. The options are 25, 50, 75, 100 and all. 12) Transaction Enquiry :OnlineSBI provides features to enquire status of online transactions. The user c an view and verify transaction details and the current status of transactions. T he users VISA transactions can also be viewed separately. He has to just log on to retail section of the Internet Banking site with his credentials and select t he Status Enquiry link under the Enquiries tab. The user will be displayed all o nline transactions he had performed. 13) Demat Account Statement :OnlineSBI enables the user to view Demat account statement and maintain such acc ounts. The bank acts as your depository participant. In the third party site, yo u can mark a lien on your Demat accounts and use the funds to trade on stock usi ng funds in your SBI savings account. The user can view Demat account details, and generate the following statements: statement of holding, statement of transactions, statement of billing. 14) Donation:The user can make donation to religious and charitable institution by using Inte rnet Banking of SBI. He has to just log on to http://www.onlinesbi.com/ with his credentials and go to Payment and transfer and click on make donation link. Aft er selecting the debit account, the user has to select the religious/charitable institution to which he wants to offer donation. After successful payment he can print an E-receipt for the donation made.

13. SWOC Analysis of SBI Internet Banking Strengths:Greater reach to customers Quicker time to market Ability to introduce new products and services quickly and successfully Ability to understand its customers needs Customers are given access to information easily across any location Greater customer loyalty Easy online application for all accounts, including personal loans and mortgage 24 hours account access Quality customer service with personal attention Weaknesses:Lack of awareness among the existing customers regarding internet banking Obsolesce of technology take place very soon specially in terms of security on i nternet. Procedure for applying for id and password for using services related to interne t banking takes time. Lack of knowledge is found regarding internet banking in employees of SBI Implementation of newer technology is little bit complicated Employees needs training to obtain knowledge regarding I-banking Opportunities:Approximately 95% of customers are not using internet banking. Core competency can be achieved in terms of banking if focus is made on awarenes s of internet banking Can become 1st virtual bank of India. Concentration of various services should be made using internet banking Challenges:Maintaining Business Edge over competitors in the context of sameness in IT infr astructure Multiple vendor support is necessary for working of highly complex technology Maintaining secured IT infrastructure for business operations Alternative must be there in case of failure of system

14. Recommendations and Suggestions Training and awareness among employees:It is recommended that State Bank of India should conduct various training progr ammes for the employees, so that they will get aware with the terms of internet banking. After such programmes they can create awareness amongst the consumers. Exchange of information on threats and vulnerabilities at appropriate forums:There should be an open end discussion on the threats and vulnerabilities coming across the functioning of internet banking work by the employees in the various official forums and meets. Build an optimal operating model by understanding which activities to retain col laborate and outsource:There should be clear sight of operations which needs to outsource to other comp anies, this will lead to ease in work for employees. Bank should Create and sustain customer, investor and regulator confidence by ad

opting international accounting standards :Adopting international standards adds some more star to the glory of any company , SBI should impose such standards when it comes to internet banking or virtual banking, this will enhance the goodwill of SBI among regulator, customers and in vertors. Bank should anticipate and get prepared for regulatory changes:Laws regarding IT or cyber laws get change as per the need. SBI should anticipat e such kind of changes and get loaded with various plans and actions. Focus on identifying core competence:SBI possess some unique characteristics or positive points in it and with the he lp of them it can become a leader in market. Bank should identify such points an d concentrate to flourish them more. This can be done with the help of internet banking, as internet banking of SBI is getting largely accepted by customers. Increasing usage of mobile phones is going to revolutionize the banking culture in near future:Mobile banking is also getting popular in the segment of internet banking thus t his can add some more steps to progress for SBI. Bank is into the mobile banking but it is providing limited features. More stress should be given on security concern on internet:There are some people who are into unethical practices of hacking of accounts of customers. This is nothing but the breach in the security of the SBI on interne t. There should be some measures in order to prevent such practices. IT structur e should be unbreakable.

15. Conclusion Studying the project I came to know that Internet banking is clearly the way for ward for the State Bank of India. It provides comfort to customers at the same t ime it provides cost cutting to SBI by eliminating physical documentation. Inter net banking saves time of bank as well as those of customers. Study states that internet banking provides greater reach to customers. Feedback can be obtained easily as internet is virtual in nature. Customer loyal ty can be gain. Personal attention can be given by bank to customer also quality service can be served. Bank should know that No system is perfect, however a system of such a type will need to be very secure. This is a system which holds account details and custom ers wealth. If such a system was not trusted and not reliable, then SBI would fa ce serious laws and would lose business. After studying the SWOC analysis, I came to know various strengths of SBI such a s quality customer service, greater reach, customer loyalty, easy access to info rmation, 24 hours access, easy online applications etc. SBI should put efforts t o multiply the number of strengths. In terms of weakness I come to know some of the major weaknesses they are lack of awareness of internet banking among the cu stomers, obsolesce of technology related to security, complicated procedures of availing internet banking facilities, lack of knowledge among the employees of S BI. SBI should concentrate on the weaknesses and reduce them to zero. In the third segment of SWOC analysis of internet banking I dealt with opportuni ties like 95 % market of internet market is untapped, SBIs path to become first v irtual bank. By encasing such opportunities bank can become the leader in bankin g sector of India. In the last segment I come to know about various challenges w hich are in front of SBI, like sameness in IT infrastructure within various bank s, need of various vendor supports for complex technology, maintaining secured I T infrastructure, alternative mechanism in case of failure of present security s ystem. The company can take the advantage of the reputation it has created in the marke t for itself and become more competitive The recommendations and suggestions given, if adopted will improve the position of the company substantially and optimal profitability coupled with better servi

ce and satisfactions for investors may be achieved.

Bibliography Books : SBI Training guide for internet banking Websites: www.statebankofindia.com www.onlinesbi.com www.wikipedia.com www.google.com