Recent trends: e-banking, ATMs, internet and mobile banking, smart and credit cards, and their legal aspects
Banking Law · Unit V · Topic 21 of 21 · 6 min read
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1. Automation and new technology
From the 1980s, on the Rangarajan Committee's recommendations, banks moved from ledgers to computers; by the 2000s almost all branches were on core banking solutions, in which every branch works on one central database, so that a customer banks with the bank, not with a branch. The legal consequences:
- bank records kept electronically are “bankers' books” and are proved by printouts certified under ss.2(8) and 2A of the Bankers' Books Evidence Act, 1891;
- a cheque includes the electronic image of a truncated cheque and a cheque in electronic form (s.6 of the Negotiable Instruments Act, as amended in 2002), so cheques are cleared by image under the Cheque Truncation System; s.89(2) treats a difference between image and cheque as a material alteration;
- electronic records and signatures have legal recognition under ss.4 and 5 of the Information Technology Act, 2000, and contracts formed electronically are valid (s.10A).
2. Automated teller machines
ATMs dispense cash, show balances and take deposits round the clock, using a card and a PIN. Interoperable networks let a customer use any bank's ATM. Legal points:
- the relationship is contractual, on the card's terms and conditions, subject to RBI directions;
- failed transactions (account debited but cash not dispensed) must be reversed within the time the RBI fixes, failing which the bank pays the customer fixed compensation for each day of delay, under the RBI's harmonised turn-around-time framework of 2019;
- skimming and card cloning are offences under ss.66 and 66C of the IT Act (identity theft) and cheating under the Bharatiya Nyaya Sanhita, 2023.
3. Internet banking, mobile banking and electronic payments
- Internet banking: balance enquiry, fund transfer, bill payment, deposits and loans online. Under s.11 of the IT Act an electronic record is attributed to the originator if it was sent by him, by a person authorised by him, or by a system programmed by him; whether a fraudulent instruction authenticated by password and one-time password binds the customer is decided under the RBI liability framework in section 6 below.
- Mobile banking: banking by app, USSD or SMS. The RBI's directions require additional factor authentication, transaction limits and alerts.
- Electronic funds transfer: NEFT and RTGS (run by the RBI), IMPS and UPI (run by the National Payments Corporation of India), card networks and prepaid wallets. All are payment systems under the Payment and Settlement Systems Act, 2007: no one may operate a payment system without RBI authorisation (s.4); the RBI sets standards and issues directions (ss.10, 17, 18); settlement is final and irrevocable (s.23); and dishonour of an electronic funds transfer for insufficient funds, such as a returned ECS or NACH mandate, is an offence modelled on s.138 of the NI Act (s.25).
- Digital lending through apps is governed by RBI directions that require loans to be disbursed and repaid directly between the borrower's and the lender's accounts and forbid access to a borrower's contacts and media.
4. Smart cards, debit cards and credit cards
A smart card carries a microchip that stores data and can process transactions; bank cards in India must now be chip-and-PIN, which is much harder to clone than the magnetic strip. A debit card draws directly on the customer's account; a prepaid card on a preloaded value.
A credit card gives the holder a revolving line of credit: the issuing bank pays the merchant through the card network and recovers from the holder, who may pay in full within the interest-free period or roll over the balance at interest. Three contracts are involved: card holder and issuer, issuer (through the acquiring bank) and merchant, and the network rules. Legal points:
- RBI directions on credit and debit cards forbid unsolicited cards and unsolicited limit increases, require a key fact statement disclosing interest and charges, require closure on request within a fixed time, and regulate recovery agents;
- the card holder is a consumer of a banking service, and excessive or undisclosed charges are a deficiency in service or an unfair trade practice under the Consumer Protection Act, 2019;
- card fraud and misuse of card data are offences under ss.66C and 66D of the IT Act;
- the holder's liability for unauthorised use is limited by the RBI framework below.
5. Expert systems
An expert system is software that applies the knowledge of specialists through rules or learning from data. Banks use such systems for credit scoring and loan appraisal, fraud and anti-money-laundering monitoring, chat assistants and investment advice. The legal questions are new: liability for an automated wrong decision, explaining a refusal of credit to the applicant, bias, and the processing of personal data, which now requires a lawful basis and safeguards under the Digital Personal Data Protection Act, 2023. Credit information used in scoring is governed by the Credit Information Companies (Regulation) Act, 2005.
6. Who bears the loss: the customer liability framework
The RBI's 2017 directions on limiting customer liability in unauthorised electronic banking transactions answer the most common legal question:
- zero liability where the fraud results from the bank's contributory fraud, negligence or deficiency, whether or not the customer reports it, or from a third-party breach where neither bank nor customer is at fault and the customer reports within three working days;
- limited liability, capped by account type, where the customer reports a third-party breach within four to seven working days;
- full liability until reporting where the loss is due to the customer's negligence, such as sharing his PIN or OTP;
- the bank must credit the amount (shadow reversal) within ten working days of notification, and the burden of proving customer liability is on the bank.
Beyond this, s.43A of the IT Act makes a body corporate that fails to maintain reasonable security practices for sensitive personal data liable to pay compensation, s.72A punishes disclosure of personal information in breach of contract, and complaints go to the RBI Ombudsman or the Consumer Commissions (see the Unit III note on consumer protection).
7. Digital currency
The RBI Act was amended in 2022 so that bank notes may be issued in digital form (s.22A excludes the provisions on denominations and form for such notes); the RBI's e-rupee is legal tender like a paper note. Private virtual currencies are not legal tender. The RBI's 2018 ban on banks dealing with crypto businesses was set aside as disproportionate in Internet and Mobile Association of India v. Reserve Bank of India, 2020 INSC 264, (2020) 10 SCC 274, though the Court upheld the RBI's power to regulate such activity.
How this is examined
“Explain various e-banking services” (January 2026), “Explain the various trends of e-banking services” (June 2025); short notes on “Mobile banking system” (January 2026), “Credit cards” (June 2025), “Internet banking” and “ATM” (August 2024). For the essay, take each service in turn with its legal aspect, then end on the liability framework and data protection. For a short note on credit cards, describe the three-party structure, the RBI rules, and liability for misuse.
Now try the real questions: Banking Law past question papers.