FACULTY OF LAW
1ST LL.M – 2nd SEMESTER (BUSINESS LAW)
ACADEMIC 2024 – 2026
SPECIAL CONTRACTS INCLUDING
BANKING AND NEGOTIABLE
INSTRUMENT
TITLE: RECENT TRENDS OF BANKING SYSTEM IN INDIA
SUBMITTED BY: SUBMITTED TO:
K. KARTHICK 1ST LLM THIRU. A. RAMKUMAR, [Link]., ML.,
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RECENT TRENDS IN INDIAN BANKING
SECTOR
[Link] TABLE OF CONTENTS
1 INTRODUCTION
2 ABBREVIATIONS
3 FUNCTIONS OF BANKS
4 RECENT TRENDS IN BANKING SECTOR
5 ATM , EFTS , TELEBANKING , MOBILE BANKING
6 CREDIT CARD, INTERNET BANKING, NEFT, RTGS
7 SWIFT, SARFAESI ACT, E BANKING
8 API, EFT, POS
9 CHALLENGES
10 RELEVENT CASELAWS
11 CONCLUSION
12 REFFERENCES
2
LIST OF ABBREVIATIONS
[Link] ABBERIVIATIONS EXPANSION
1 RBI RESERVE BANK OF INDIA
2 ATM AUTOMATIC TELLER MACHINE
3 EFT ELECTRONIC FUND TRANSFER
4 NEFT NATIONAL ELECTRONIC FUND
TRANSFER
5 RTGS REAL TIME GROSS SETTLEMENT
SYSTEM
6 SWIFT SOCIETY FOR WORLDWIDE INTERBANK
FINANCIAL TELECOMMUNICATIONS
7 EDI ELECTRONIC DATA INTERCHANGE
8 API APPLICATION PROGRAMMING
INTERFACE
9 UPI UNIFIED PAYMENTS INTERFACE
10 POINT OF SALE
POS
11 ECS ELECTRONIC CLEARING SERVICE
12 QR CODE QUICK RESPONSE CODE PAYMENTS
13 BNPL BUY NOW PAY LATER
14 PSB PUBLIC SECTOR BANK
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INTRODUCTION
The Indian banking plays a big role in the development of the economy of India. It is
the backbone of any country’s economy, and its well functioning is essential for nation-
building. Banking is an important aspect of any country’s economy. And like any other
industry, it has its standards, sets of documents, and procedures. These ensure that banks
carry out transactions with ease and efficiency. The banking principles are based on the need
to have acentral figure that administers all the banking activities of a country. Banking refers
to the system of financial institutions, such as banks and credit unions, that provide various
financial services to individuals, businesses, and governments. Banking services mainly
include accepting deposits, lending money, facilitating transactions, and offering various
financial products like savings accounts, loans, and credit cards. Banking plays a crucial role
in the economy by facilitating the flow of money and enabling economic activities.
FUNCTIONS OF BANKS
Banks in India offer a wide range of banking services, such as savings and checking
accounts, loans (personal, business, and mortgages), credit cards, investment services, and
electronic banking options like online and mobile banking.
Some of the major functions of banks are mentioned below:
Accepting Deposits: Banks provide a safe place for individuals and businesses to
deposit their money, which can be withdrawn when needed.
Providing Loans: Banks lend money to individuals and businesses for various
purposes, such as home mortgages, business expansion, or personal loans.
Payments and Settlements: Banks enable transactions through various payment
methods, like checks, debit/credit cards, and electronic transfers.
Currency Exchange: Many banks offer foreign exchange services, allowing customers
to buy, sell, or exchange foreign currencies.
Safekeeping of Valuables: Some banks offer safe deposit boxes for customers to
securely store valuable items and documents.
Investment Services: Banks also provide investment products like mutual funds,
stocks, and bonds, helping customers grow their wealth.
Internet Banking Services: Banks offer online and mobile banking services, making it
convenient for customers to access their accounts, pay bills, and transfer funds.
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DEVELOPMENTS IN INDIAN BANKING SECTOR
Credit Card:
Credit Card is "post paid" or "pay later" card that draws from a credit line-money
made available by the card issuer (bank) and gives one a grace period to pay. If the
amount is not paid full by the end of the period, one is charged interest Debit Cards: Debit
Card is a "prepaid" or "pay now" card with some stored value. Debit Cards quickly debit
or subtract money from one's savings account, or if one were taking out cash. Every time
a person uses the card, the merchant who in turn can get the money transferred to his
account from the bank of the buyers, by debiting an exact amount of purchase from the
card. To get a debit card along with a Personal Identification Number (PIN).
Automatic Teller Machine:
The ATM's are used by banks for making the customers dealing easier. ATM card is a
device that allows customer who has an ATM card to perform routine banking transaction
at any time without interacting with human teller. It provides exchange services. This
service helps the customer to withdraw money even when the banks are closed.
This can be done by inserting the card in the ATM and entering the Personal
Identification Number and secret Password. It allows the customers ;
1. To transfer money to and from accounts.
2. To view account information.
3. To order cash.
4. To receive cash.
Electronic Funds Transfer (EFT):.
The system called electronic fund transfer (EFT) automatically transfers money from one
account to another. This system facilitates speedier transfer of funds electronically from
any branch to any other branch. In this system the sender and the receiver of funds may
be located in different cities and may even bank with different banks. Funds transfer
within the same city is also permitted. The scheme has been in operation since February
7, 1996, in India.
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Telebanking:
Telebanking refers to banking on phone services. A customer can access information
about his/her account through a telephone call and by giving the coded Personal
Identification Number (PIN) to the bank. Telebanking is extensively user friendly and
effective in nature.
Mobile Banking: A new revolution in the realm of e-banking is the emergence of mobile
banking. On-line banking is now moving to the mobile world, giving everybody with a
mobile phone access to real-time banking services, regardless of their location. It provides
a new way to pick up information and interact with the banks to carry out the relevant
banking business. The potential of mobile banking is limitless and is expected to be a big
success. Booking and paying for travel and even tickets is also expected to be a growth
area. This is a very flexible way of transacting banking business.
Internet Banking: Internet banking involves use of internet for delivery of banking
products and services. Banking is no longer confined to the branches where one has to
approach the branch in person, to withdraw cash or deposits a cheque or request a
statement of accounts. In internet banking, any inquiry or transaction is processed online
without any reference to the branch (anywhere banking) at any time.
Benefits of Internet Banking:
Reduce the transaction costs of offering several banking services and diminishes the
need for longer numbers of expensive brick and mortar branches and staff. Increase
convenience for customers, since they can conduct
1)Many banking transaction 24 hours a day.
2)Increase customer loyalty.
3) Improve customer access.
4)Attract new customers.
Easy online application for all accounts, including personal loans and mortgages
National Electronic Funds Transfer (NEFT):
National Electronic Funds Transfer (NEFT): According to Reserve Bank of India,
National Electronic Funds Transfer (NEFT) is a nation-wide payment system to facilitate
one-to-one funds transfer. Under NEFT, individuals, firms and corporates can
electronically transfer funds from any bank branch to any individual, firm or corporate
having an account with any other bank branch in the country participating in the Scheme.
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The funds under NEFT can be transferred by individuals, firms or corporates maintaining
accounts with a bank branch. Even individuals not having a bank account can deposit
cash at the NEFT-enabled branches with instructions to transfer funds using NEFT.
However, such cash remittances will be restricted to a maximum of Rs.50, 000/- per
transaction. Such walk-in-customers have to furnish full details including complete
address, telephone number, etc. NEFT, thus, also help in transfer of funds even without
having a bank account. This is a simple, secure, safe, fastest and cost effective way to
transfer funds especially for Retail remittances.
National Electronic Funds Transfer (NEFT) is a nation-wide system that facilitates
individuals, firms and corporate to electronically transfer funds from any bank branch to
any individual, firm or corporate having an account with any other bank branch in the
country. In order to issue the instruction, the transferor should know not only the
beneficiary's bank account number but also the IFSC (Indian Financial System Code) of
the concerned bank.
IFSC is an alpha-numeric code that uniquely identifies a bank-branch participating in
the NEFT system. This is a 11 digit code with the first 4 alpha characters representing the
bank, and the last6 numeric characters representing the branch. The 5th character is 0
(zero). IPSC is used by the NEFT system to route the messages to the destination banks /
branches.
Real Time Gross Settlement (RTGS):
RTGS transfers are instantaneous unlike National Electronic Funds Transfer (NEFT)
where the transfers are batched together and effected athourly intervals. RBI allows the
RTGS facility for transfers above Rs l lakhs. The RBI window isopen on weekdays from
9 am to 4.30 pm; on Saturdays from 9 am to 12.30 pm. Real time gross
settlement(RTGS):
Real time gross settlement is a fund transfer system. Settlement in “real time” means the
transactions happen almost immediately “gross settlement “means transaction is settled
one to one basis. This is mainly used for transaction which high in value and need to be
cleared immediately.
Real Time Gross Settlement system, introduced in India since March 2004, is a system
through which electronics instructions can be given by banks to transfer funds from their
account to the account of another bank. The RTGS system is maintained and operated by
the RBI and provides a means of efficient and faster funds transfer among banks
facilitating their financial operations.
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Society for Worldwide Interbank Financial Telecommunications (SWIFT):
SWIFT is solely a carrier of messages. It does not hold funds nor does it manage
accounts on behalf of customers, nor does it store financial information on an on-going
basis. As a data carrier, SWIFT transports messages between two financial institutions.
This activity involves the secure exchange of proprietary data while ensuring its
confidentiality and integrity. SWIFT, which has its headquarters in Belgium, has
developed an 8-alphabet Bank Identifier Code (BIC). The BIC helps identify the bank
SARFAESI Act
Banks utilize the Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (SARFAESI) as an effective tool for NPA recovery. It is
possible where non-performing assets are backed by securities charged to the Bank by
way of hypothecation or mortgage or assignment. Upon loan default, banks can seize the
securities (except agricultural land) without intervention of the court.
E-Banking
Many banks have modernized their services with the facilities of computer and
electronic equipments. The electronics revolution has made it possible to provide ease
and flexibility in banking operations to the benefit of the customer. The e-banking has
made the customer say good-bye to huge account registers and large paper bank accounts
The e-banks, which may call as easy bank offers the following services to its customers
• Credit Cards - Debit Cards
• ATM
• E-Cheques
• EFT (Electronic Funds Transfer)
• D-MAT Accounts
• Mobile Banking
• Telephone Banking
• Internet Banking
• EDI (Electronic Data Interchange)
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APPLICATIONS PROGRAMMING INTERFACE(API) :
An API (Application Programming Interface) is an interface that allows to
synchronize, link and connect the database of service with any application. Their
implementation in the banking system is basically the same: they link a bank’s
database (its customers’ information) with different applications or programs, thus
forming a network encouraging the promotion of services, payments, and products
appropriate to each person. Its benefits range from cost reduction, optimization of
services, reduction of time spent on transactions, increased revenue and facilitation in
all the needs of those who accept it.
Innovation Labs:
Many banks have adopted proactive strategy by establishing their own internal
innovation labs. Innovation labs operate with the primary objective of evaluating and
adopting emerging technologies and contribute to bank’s motive of digitalization.
Eg: AXIS Bank has set up its Innovation Lab named Thought Factory
UPI :
National Payments Corporation of India (NPCI) launched Unified Payments
Interface (UPI) in 2016 with21 member banks. UPI is a system that powers multiple
bank accounts into a single mobile application,merging several banking features and
seamless fund routing. UPI has been considered as the revolutionaryproduct in
payment system.
Example : BHIM app,Google Tez,Paytm,SBI Pay,BOB UPI,Axis Pay.
Digital Wallets :
Digital Wallets allow an individual to make electronic transactions using a
smartphone. Awareness and use of e-wallets increased post demonitisation in India. It
is indeed one step towards “less cash” economy.
Example : MRupee, ICICI Pockets, HDFC PayZapp, Citi MasterPass, YONO SBI.
Wearable Technology :
“To wear your bank on your wrist” is a reality today. Smart watch banking
helps the customers check their balance, get fraud alerts, carry out both financial and
information transactions and offers many more services, all on their wrist.
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In India, ICICI has launched an app named I Wear for all smart watches. ICICI is
among few global players allowing transactions using this app on both Apple and
Android platforms. As technology is redefining banking, wearable banking and
transactions via smart watches and smart glasses is gearing up as a key trend.
The 3 Big B’s :
The 3 Big B’s prominently trending today in Indian banking sector are Biometrics,
Blockchain and Big Data Analytics.
1) Biometrics :-
Biometrics technology makes use of biological data and behavioural characteristics
that differentiates one human being from another. Biometrics is secure and cost
effective method for authentication process of the customers of the bank. It eliminates
the burden of remembering passwords, PINs and card numbers.
2) Blockchain:-
A blockchain is a data structure that is used to create a digital ledger of transactions
and share it among a distributed network of computers. The underlying principle used
is cryptography, wherein each participant on the network is allowed to manipulate the
ledger in a secure way without the need for a central authority.
Present day applications in India
In October 2016, ICICI Bank carried out India’s first international trade transaction
and overseas remittances using blockchain technology. ICICI partnered with Dubai’s
largest bank Emirates NBD for this project. AXIS Bank and YES Bank too are
working on blockchain technology.
3)Big Data Analytics :-
Big Data are said to be extremely huge data set that has to be analysed, handled,
managed and validated through typical data management tools. Indian banks have
millions of customers. The data of the customers is stored in the database. Retrieving
the data in meaningful manner becomes a complex process as many times the data
collected is unorganized. Big Data Analytics helps in resolving this problem. To
achieve competitive edge in today ‟s modern banking era, banks in India are using
data analytics to attract new customers, retain them and make the entire process
consumer centric.
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Electronic fund transfer:
It is a system of transforming money from one bank account direct to another without
any paper money charging hands. Direct deposits are one of the most widely used EFT
program. It refers transfer of funds initiated through on electronic terminal, including credit
cards, ATM, and point of sale transactions. It used for both credit transfer and debit transfer.
Electronic fund transfer transactions are processed through the automated clearing house
network. The growing popularity of EFT for online bill payment in paying the way for
paperless universe where checks, stamps, envelops, and paper bills are obsolete. Through
EFT administrative costs should be reduced, increase efficiency, simplified bookkeeping and
greater security.
Point of sale (POS):
Point of Sale Terminal is a computer terminal that is linked online to the computerized
customer information files in a bank and magnetically encoded plastic transaction card that
identifies the customer to the computer. During a transaction, the customer's account is
debited and the retailer's account is credited by the computer for the amount of purchase.
Electronic Clearing Service (ECS) :
Electronic Clearing Service is retail payment systems that can be used to make bulk
payments/receipts of a similar nature especially where each individual payment is of
repetitive nature and of relatively smaller amount. This facility is meant for companies and
government departments to make/receive large volumes of payments rather than for funds
transfers by individuals.
CHALLENGES
Automation and AI may lead to unemployment
AI and automation are the major breakthroughs of today ‟s innovation era. Although
the benefits are promising, technology revolution poses a great threat to many of the jobs
which will be completely automated and opportunities for job seekers will shrink. Banking is
no exception to this fact.
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Voice Revolution will takeover online banking
As voice recognition and voice authentication mature, web traffic to banking sites and
mobile applications may drop by 50% in next few years. Customers will simply TALK to an
internet connected device and perform most common banking tasks within few seconds. Drop
in web traffic due to voice recognition systems could pose a serious threat to banking
industry. The customers who currently visit the websites for banking tasks, also go through
the marketing promotions on the site. The banks may lose the opportunity to cross sell current
customers with drop in web traffic.
Issues related to Biometrics
Operational issues – A minor could change the voice quality and may pose problems
in speech authentication. People who work in labour intensive jobs may have damaged
fingerprints. Even the senior citizens may have problem in fingerprint authentication.
Security issues
In its note on 'Digital Payments - Analysing the cyber landscape', KPMG mentioned,
cybersecurity is one of the most critical challenges faced by stakeholders of the digital
payment ecosystem. With more and more users preferring digital payments, the chances of
getting exposed to cybersecurity risks like online fraud, information theft, and malware or
virus attacks are also increasing. Lack of awareness and poor digital payment ecosystem are
some of the primary reasons that have led to increase in these attacks.
Digital literacy in rural areas
There has been considerable growth in the users of smartphone in rural India in last
few years. But not many are aware and confident about online banking through smartphones.
The primary usage of smartphone is restricted to entertainment and communication only. As
the urban tech savvy customers adopt the changing landscape of ICT innovation in banking,
Indian rural population yet needs to be educated about the concepts of AI, Biometrics,
Blockchain, Big Data etc.
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RELEVENT CASE LAWS :
1. RBI v. Peerless General Finance & Investment Co. Ltd. (1992)
Issue: Regulatory powers of the RBI over non-banking financial companies (NBFCs)
and financial institutions.
Details: This case primarily focused on the extent of the Reserve Bank of India’s
(RBI) power to regulate non-banking financial institutions (NBFCs), which became a
crucial part of the Indian financial system. The Supreme Court upheld the powers of
the RBI in regulating these institutions to prevent any adverse impact on the banking
system. With NBFCs growing rapidly in India, this case underscores the increasing
role of RBI in ensuring that all financial institutions, whether they are banks or
NBFCs, operate in a manner that maintains the stability and integrity of the financial
system.
Relevance to Recent Trends: This ruling emphasizes the evolving regulatory
framework in the banking sector, particularly as it adapts to the growing number of
NBFCs and fintech institutions operating in tandem with traditional banks.
2. Sahara India Real Estate Corporation Ltd. v. SEBI (2012)
Issue: The regulation of financial schemes and investments by non-banking entities,
and how they relate to the banking sector.
Details: The case revolved around the issue of collective investment schemes (CIS)
operated by Sahara India, which raised concerns regarding the non-regulation of such
schemes by the Securities and Exchange Board of India (SEBI). The Supreme Court
highlighted the necessity of proper regulation for all entities engaging in financial
activities to protect the public interest and ensure that no unregulated entities threaten
the financial stability of the market.
Relevance to Recent Trends: The case is highly relevant to the ongoing regulatory
efforts to tighten the governance of financial products in India, especially in light of
the growing role of fintech, online lending platforms, and other non-traditional
banking entities. This case strengthens the idea that the regulatory umbrella should
expand to cover the rapidly developing sectors within finance.
3. Union of India v. Ezeego(2017)
Issue: Payment gateway transactions, consumer rights, and banking liabilities.
Details: The Supreme Court considered the liability of banks in cases where online
payment gateways were involved in fraudulent transactions. The court emphasized
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that banks are responsible for ensuring the protection of customer funds and were
liable to compensate for losses caused by system failures or negligence.
Relevance to Recent Trends: With the explosive growth of digital and online
banking services, this case is significant in setting a precedent for the protection of
consumers engaging in digital transactions. It highlights the need for banks to adopt
more robust security systems to protect users, particularly in the growing fintech
space.
4. ICICI Bank Ltd. v. Shubham Shukla (2018)
Issue: Cybersecurity in banking, and the liability of banks in cases of fraudulent
transactions.
Details: This case involved the fraudulent use of an account holder's details to
conduct unauthorized transactions. The case highlighted the issue of banks'
responsibility in ensuring secure transactions and implementing proper safeguards to
protect consumers from cyber fraud. The Supreme Court ruled in favor of stricter
controls and oversight mechanisms on banks to protect customers against such
fraudulent activities.
Relevance to Recent Trends: The growing use of digital banking, mobile apps, and
online banking services has made cybersecurity a major concern. This case underlines
the increasing focus on cybersecurity in banking, as banks are now required to employ
advanced fraud detection mechanisms, encryption technologies, and customer
awareness campaigns.
5. M/s. R.K. Enterprises v. Union of India (2019)
Issue: Bank charges, transparency, and banking operations.
Details: The petitioner challenged the excessive charges levied by banks, arguing that
these were not transparent and violated consumer rights. The court examined the
banking practices related to service charges and interest rates, asserting that the banks
must adopt a fair and transparent system. It ruled that banks should provide clear
information regarding charges, fees, and interest rates to customers.
Relevance to Recent Trends: With the growing trend of digital banking, and the
increasing number of mobile banking applications and digital wallets, this case is
pertinent to the growing concern of consumers regarding transparency in financial
transactions. The court’s decision calls for clear guidelines and improved practices,
especially as banks and fintech firms move into more complex pricing models and fee
structures.
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6. State Bank of India v. M/s. M.C. Chockalingam (2020)
Issue: Priority of claims during liquidation and the rights of banks.
Details: This case focused on the priority of claims under banking laws during the
liquidation process. The Supreme Court ruled that secured creditors (like banks) have
priority in receiving payments from the liquidation process over unsecured creditors.
This decision reinforces the importance of secured transactions and the role of banks
in the liquidation process.
Relevance to Recent Trends: This case is particularly relevant in the context of
recent developments in insolvency and bankruptcy law. The Insolvency and
Bankruptcy Code (IBC), which came into effect in 2016, is critical in ensuring that
creditors (especially banks) are paid in a systematic manner. This case supports the
importance of secured creditors in the growing trend of corporate bankruptcies and
loan defaults.
7. K. Ravichandran v. ICICI Bank Ltd. (2020)
Issue: Fraudulent credit card transactions and the role of banks in preventing fraud.
Details: This case involved a complaint about fraudulent credit card transactions. The
customer contended that ICICI Bank failed to prevent or properly investigate the
fraudulent activity. The court ruled in favor of the customer, holding the bank
accountable for its failure to protect the customer’s interests.
Relevance to Recent Trends: As digital banking continues to expand, ensuring the
security of financial transactions has become more critical than ever. This case
reinforces the growing concern over fraud prevention measures in the banking sector,
especially with the rise of digital banking and online payment methods.
8. P. Mohanraj v. M/s. Federal Bank Ltd. (2021)
Issue: Loan default recovery and the enforcement of rights under SARFAESI Act.
Details: The petitioner challenged the actions taken by Federal Bank under the
SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest) Act to recover a loan. The case clarified the legal mechanisms
banks can use to enforce repayment under the Act, even in cases of loan default.
Relevance to Recent Trends: The SARFAESI Act is central to the banking sector’s
ability to enforce debt recovery in an efficient manner. As non-performing assets
(NPAs) have grown in recent years, this case highlights the role of SARFAESI in
enhancing the effectiveness of recovery mechanisms. It also ties into the increased use
of asset reconstruction companies and other recovery tools in the banking industry.
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9. HDFC Bank Ltd. v. K. Hariprasad (2021)
Issue: Consumer protection in banking services and the scope of consumer courts.
Details: The case revolved around a dispute concerning the services provided by
HDFC Bank to a customer who faced issues related to incorrect charges and the
bank's failure to resolve the matter satisfactorily. The Supreme Court ruled in favor of
ensuring that customers' grievances are addressed promptly, emphasizing the role of
consumer courts in resolving such issues.
Relevance to Recent Trends: As banks face an increasing volume of complaints
from customers, especially related to fees, digital transactions, and
miscommunication, this case reinforces the growing role of consumer protection laws
in the financial services sector. It stresses the need for customer-centric banking
practices as well as quick dispute resolution mechanisms in the digital age.
10. Bajaj Finance Limited v. State Bank of India (2022)
Issue: Dispute over loan terms and banking contracts.
Details: The case dealt with the validity of clauses in loan agreements and the legality
of interest rates charged by banks. Bajaj Finance contended that the terms were unfair
and violated banking norms, leading to a lengthy legal battle.
Relevance to Recent Trends: This case highlights the increasing scrutiny of banking
practices, particularly regarding loan agreements and the interest rates charged by
banks. It underscores the trend towards ensuring that banking contracts are fair,
transparent, and in compliance with consumer protection laws.
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CONCLUSION
An upgradation of technology banks are playing vital role in economic development.
Banking sector in India is resulting with increased growth in customers. By providing
innovative facilities of banks. The changes made by banks are mostly focused on financial
inclusion for expansion into rural areas and bringing stability by boosting credit growth
making banking services near to the customer directly and reducing customer valuable time.
The current trends in banking are building blocks of the “Cashless Economy”. Though there
are few challenges, technology will keep evolving and with collaborative efforts of Banks,
Government and end users, overcoming these challenges will certainly be possible. The
initiative of Government of India will very soon achieve its mission and rural India too would
be “digitally literate”.
Banks will have to develop strategy to bridge the gap of technology in rural banks and urban
banks. Today, Indian banking industries on the threshold of “next generation banking”. ICT
innovation clubbed with dream of “cashless economy” will certainly bring about
metamorphosis in the banking sector.
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