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RBI unveils Net banking norms

BS Banking Bureau

The Reserve Bank of India has directed banks to ensure protection for consumers in Internet banking by insuring them against risks of hacking.

The central bank on Wednesday released the Internet banking norms, following the recommendations of a working group on Internet banking. The group was set up to examine different aspects of Internet banking (I-banking). The report focusses on three major areas of I-banking-technology and security issues, legal issues and regulatory and supervisory issues.

The RBI said banks' liability to the customers on account of unauthorised transfer of funds through hacking and denial of service on account of technological failure must be assessed and banks should insure themselves against such risks. Currently, the rights and liabilities of customers in net banking are determined by bilateral agreements between the banks and the customers.

RBI also made it clear that even though request for opening an account can be accepted over Internet, the account should be opened only after the proper introduction and physical verification of the customer.

It has ruled out the presence of virtual banks, incorporated outside the country and having no physical presence in the country, in Internet banking for the time being. Only those banks, which are licensed and supervised in India will be permitted to offer Internet banking service.

The central bank might allow the virtual banks to offer Internet banking in India at a later stage, said a source.

It has allowed banks to employ ethical hackers to check the efficiency of the Internet banking. This is in conformity with the global norms where banks, financial institutions and insurance companies employ hackers to hack into the system to check its effectiveness.

The RBI has asked the banks which have launched Internet banking to report to it on any security violations (suspected or attempted). The central bank, at its discretion, may decide to commission special audit and inspection of such banks. Banks have been directed to acquire tools for the monitoring systems and the networks against intrusions and attacks.

HDFC Bank, ICICI Bank and Citibank have already launched Internet banking in India while State Bank of India is in the process of kicking off net banking soon.

HDFC Bank has shown a sharp increase in the hits per month from 3.6 million in October 2000 to 8 million in February 2001. ICICI Bank, which has over 70,000 Internet banking customers, is adding around 50,000 Internet banking customers every month.

RBI has asked banks to set up a proper infrastructure and schedule for backing-up data. The back-up data should be periodically tested to ensure recovery without loss of transactions in a time-frame as given out in the bank's security policy, it has said. The banks have also been directed to set up disaster recovery sites. The security policy of the banks should be approved by the board of directors, RBI has said.

At the operating level, the central bank has asked the banks to use the proxy server type of firewall to separate Net banking from the banks' system for brick and mortar banking.

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