Table of Contents
Social and economic justice is an important part of the constitution of India, which also requires safeguard consumer rights and protection. “There are number of legislation were passed by the Indian Parliament such as Drugs(Control)Act, 1950; Prevention of Food Adulteration Act, 1954; Essential Commodities Act, 1955; Essential Services Maintenance Act, 1968; Trade and Merchandise Marks Act, 1958; MRTP Act, 1969, etc.” Even then, these acts have failed to protect the rights of small customers. The processes under these acts are common and complicated, time-consuming and expensive. At the same time, there are so many facilities for these acts, but due to the complexity of processes and the length of time customers tend to ignore them.
Finally, in 1986, the Indian Parliament passed the Consumer Protection Act of 1986, as the name implies, to protect the rights of the customers and empower them with a mechanism for easy, fast and cheap redressal of complaints against powerful and established producers / traders / companies and service providers / agencies.
Consumer Protection Act
Under this Act, a three-tier structure for dealing with customer grievances has been established under the act.
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Complaints relating to any products or services may be preferred by the customer himself or any recognised consumer group to the platform referred to above where the customer is a member or where there are a number of customers with the same interest, one or more customers on behalf of or for the benefit of all customers of such interest. Complaints can also be favoured by the Central Government or the Government of the respective state(s).
As per section 2(1)(c), of the Act, following are the broad categories against which a consumer can lodge a complaint:
- Unfair or restrictive trade practises
- Defective or expired product
- Deficiency in the offered services
- Over-charging or hiking prices of products or services
Consumer Protection Law and it Applicability to Banking Sector
As described in the section 2(1)(d) of the Act, ‘Consumer” , includes a person who hires or makes use of any service for consideration. In banking transactions, therefore, a customer of a bank who has a bank account with a bank or an individual who purchases a bank draft, hires a locker or obtains a bank guarantee from a bank is both’ consumers’ and may wish to have a complaint under the Act for’ deficiency in operation’ on the part of the bank or for’ restrictive trading practice’ or’ unfair trading practice’ adopted by the bank.
Banking is a major driver of an economy’s development. It offers multiple services for businesses, the governments and the public, this ensures that the value of a stable financial network cannot be compromised. In the last couple of decades a technological boom has occurred in all industries, and banking is one of the fields that has been revolutionized by the advent of Internet and increased adoption of IT. Internet banking or e-banking means that any user with a personal computer or handheld phone can connect to the website of their bank for virtual banking functions. “E-banking has been defined in law lexicon as banking activities accessed by using a computer, employing modems and telephones.”
“In e-banking, ‘e’ stands for electronic and the banking has been defined as ‘an acceptance of money from the public, for purpose of lending or investment of money, which is withdraw able by cheque, draft or otherwise’ “.
In simple terms, e-banking provides conventional banking services through over the internet through virtual connections between the beneficiary and fiduciary agents. Online banking is nothing more than conventional financial services rendered by an electronic networking infrastructure, namely the Internet, from the viewpoint of financial products and services. Nevertheless, through this phase of initiation and adoption of virtual banking, it has posed concerns that go beyond what can be typically envisaged from a novel technique; and, has thus prompted regulators around the world to take care of this evolving system.
Some of the key features that were responsible for the wide adoption e-banking are:
- This eliminates the conventional geographical boundaries that was applied to consumers in various countries / legal jurisdictions. This raised the question of the authority of the law / supervision structure to which such online transactions would be subject to.
- It also introduced a new layer to the various forms of threats commonly associated with banking, heightened some of them and raised new obstacles to risk management and mitigation systems currently in place.
- It presents a competitive risk of market failure to those banks who do not respond in time to this new technology, as it is not only efficient, but cost-effective delivery mechanism as well for banking services.
- It is cost efficient and time saving to both lender and borrower.
- And, most importantly, it brings the option of transacting at any point of time, whether on holidays or non-operating hours of traditional banking system.
While e-banking has brought ease of banking, it has given rise to many issues and challenges, such as operating challenges, security risks and customer satisfaction and taxes. Many of these concerns are more sensitive than others, for example privacy and protection are the key aspects in e-banking industry, which is still an ongoing debate.
Given the presence of numerous international and national legislation on e-banking, there is already a void in the seamless operation of e-banking. Essentially, in terms of legislative authority and accountability where international transfers take place. From a regulatory point of view, the privacy protocol set down by banks for having access to internet banking must be accepted by competent authority well within the prescribed law.
E Banking is not a separate sector, but it is banking delivered through online or virtual medium. Banking is governed by RBI under the RBI Act subjected to the Electronic Documents Licensing, which is mentioned in the Information Technology Act 2000, as amended by the Information Technology Act 2008. There are various provisions of existing law which applies to traditional banking activities and also applies to e-banking. Nonetheless, this does not solve other issues, which is why it is important to implement tighter rules and regulations especially to fix the problems of e-banking.
“The legal framework of the Indian banking system is governed by a set of enactments, i.e. the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934 and the Foreign Exchange Management Act, 1999, the Proof Act, the Contract Act and so on.” The Information Technology Act 2000 sought to address a number of regulatory issues related to e-commerce. However, there is a gray area which has not been properly spelled out, nor has there been any viable modes of implementation suggested by the constitutional institutions.
ICICI Bank started online banking in 1996, followed by several other banks. However, even for the Internet as a whole, the period 1996 to 1998 marked the adoption era, while the usage only increased in 1999 due to lower ISP online charges, increased computer usage and a tech-friendly atmosphere. Nevertheless, public sector banks (PSUs) lagged in the race to adopt the e-banking practices. The State Bank of India took the lead among the state run PSUs.
Reserve Bank of India had set up an Internet Banking Working Group to explore various aspects of Internet Banking (e-Banking). The Group examined primarily the three main areas of I-banking, i.e. (i) technology and security issues, (ii) legal issues and (iii) regulatory and supervisory issues. RBI has acknowledged the Group’s and their suggestions to be applied in a staggered manner. The working group suggested the following:
- Banks would designate a network and database administrator with clearly specified responsibilities, as stated in the report of the committee. Banks will have a security policy that needs to be duly approved by the Board of Directors.
- There should be a separation of duties of between the Security Officer / Group dealing solely with the information systems security and Information Technology Division, which is actually implementing the computer systems. In addition, the Information Systems Auditor will be responsible for auditing the information systems.
- Banks should create novel logical access controls for application, systems, software data, utilities, telephone lines, libraries, etc. Logical access control methods can include but not limited to user IDs, strong passwords, encrypted smart cards or other biometric identification technologies.
- At the very least, banks can use the proxy server form of firewall so that there is no direct contact between the Internet and the banking system. This allows a high degree of control and in-depth tracking using sophisticated logging and auditing softwares.
- “For sensitive systems, an inspection firewall is recommended, which thoroughly inspects all information packets and compares past and current transactions. Which usually provide a safety warning in real time.”
- All functionalities and systems which use dial-up services via modem and run on the same LAN as that of application server should be isolated in order to prevent network intrusions, as this pose the risk of bypassing the proxy server.
- All device accesses, including messages sent or received, should be signed in. Security breaches (suspected or attempted) should be reported and follow-up action taken should be kept in mind when shaping future policies. Banks will have to develop softwares to keep track of systems and networks against breaches and attacks. Such techniques can be used on a daily basis to avoid security breaches. Banks will review their network infrastructure and security policies on a regular interval and refine them in the light of their own experiences and continuously changing technologies. They will need to train their security staff and end-users on a continuous basis.
- Periodic penetration checks of the system will be carried out by the information system auditor and the information security officer.
- Physical access requirements should be strictly implemented. Physical protection should protect all information systems and locations where they are located, both against internal and external threats.
- Banks will have adequate storage and data backup schedules. Backup data will be regularly checked to ensure recovery without loss of transactions within a timeline as set out in the Bank’s security policy. Business sustainability can be maintained by the creation of disaster recovery sites. Such facilities will also be regularly checked.
- All bank applications should have adequate record keeping facilities for legal purposes. It might be necessary to retain all messages received and sent both in encrypted and decrypted form.
- Security infrastructure should be thoroughly checked before standard operating systems and applications are used. Banks can update systems by downloading updates released by developers to fix bugs and vulnerabilities, and update to newer versions that have improved protection and power.
Internet banking is the driving force behind non-cash transactions to promote a seamless cash-free economy. There is no question that if a nation wants its trade and economy to prosper, it must ensure stability and protection of the Internet Banking.
India as a nation has striven to do this, and although performance is a satisfying one it lacks in comparison with the developed nation. The Indian e-banking market has yet to emerge as competitive and driven, there are many loopholes in the regulatory framework. There are many threats and challenges that arise.
As we bank across borders and barriers, the risk of privacy and security is the biggest challenge that concerns both the banker and the customer. With a far-reaching technology system, it is difficult to fix the accountability on any specific individual or entity.
The legal provisions on e-banking are abundant, but new issues arise every day with dynamic technological and upgrades in the way banking is delivered to the end consumers. And, thus demand the law enforcement agency to be vigilant, not only for strict implementation of rules but also to make and enforce new laws, when deemed necessary.
This report would like to recommend the following steps to address the existing problems of e-banking:
- The duty placed on banks to preserve confidentiality and privacy should be acknowledged by law and the state. This can also be followed by dissuasive judicial and legislative rules. The apex agency, that is, RBI, will carry out security audits.
- The internal auditor or legislative auditor will ensure protection against misappropriation and fraud at the micro level as well. The electronic audit trails must be protected.
- Automatic Teller Machines are also a means of e-banking, although they are not secured, banks can introduce security measures such as thumbprint to improve protection compared to existing four or six digit numeric PIN as the protection system.
Conclusion
Internet banking is the driving force behind non-cash transactions to promote a seamless cash-free economy. There is no question that if a nation wants its trade and economy to prosper, it must ensure stability and protection of the Internet Banking.
India as a nation has striven to do this, and although performance is a satisfying one it lacks in comparison with the developed nation. The Indian e-banking market has yet to emerge as competitive and driven, there are many loopholes in the regulatory framework. There are many threats and challenges that arise.
As we bank across borders and barriers, the risk of privacy and security is the biggest challenge that concerns both the banker and the customer. With a far-reaching technology system, it is difficult to fix the accountability on any specific individual or entity.
The legal provisions on e-banking are abundant, but new issues arise every day with dynamic technological and upgrades in the way banking is delivered to the end consumers. And, thus demand the law enforcement agency to be vigilant, not only for strict implementation of rules but also to make and enforce new laws, when deemed necessary.
