Internet Banking Laws in India

Internet Banking Laws in India: Key Regulations & Guidelines

This article on ‘Internet Banking Laws in India: Key Regulations and Guidelines’ was written by an intern at Legal Upanishad.


Net banking, or Internet banking, helps a customer do financial transactions through the Internet. It provides almost all kinds of services to a customer who has an account at a bank. For instance, transfers, payment of bills, recharges, deposits, etc all these services can be accessed sitting at home through a click on a mobile phone. The customer can also track those transactions on a real-time basis in a secure mode. This article will discuss the laws that regulate Internet banking in our country. Laws protect the customers’ interests and give them the confidence to engage in such internet activities. Moreover, this article will analyse whether there is a need for better laws as compared to the present legal framework.

Internet Banking: Meaning and Concept

The meaning of Internet banking is that the services of banks are provided via the Internet. It includes all sorts of financial transactions. The customer can control and manage the bank electronically and there is no need to go to the branch of their bank for every single work. It is also known as web banking, e-banking, or “online banking. Most people prefer this as it is an easy, accessible, and convenient way of transacting.

The main feature of Internet banking is its accessibility; a customer can easily manage their bank accounts. For instance, being able to check their account details online without actually going to the bank also allows them to update their deposit, loan, etc. Also, it allows the customer to transfer funds through an online platform, which is an easy and quick way. Moreover, a person can pay all sorts of bills and other expenses directly through their mobile phones. Additionally, it provides security to customers through pins, biometrics, passwords, and many other ways.

How does Internet banking work?

It’s an online platform provided by the bank. Here, a customer has to register his account in order to use net banking by filling out an application form provided by the bank. Moreover, the bank also provides user authentication. There are a number of services provided by the bank that a person can avail of.

Laws Regulating Net Banking

There are various laws and regulations made to protect and secure the customer’s financial transactions and sensitive information.

  1. The Information Technology Act[1], 2000 is the main legislation for electronic transactions in India. It includes web or net banking. There are penalties for unauthorized transactions by cyber criminals. It also gives recognition to any electronic document, signature, record, etc.
  • Section 43 of the IT Act lays down penalties and compensation for any sort of damage to computer software. It also includes unauthorised access to computers and the net banking system.
  • Section 43A of the IT Act deals with sensitive data in cases where a  corporate body deals with the sensitive data of customers and fails to manage such sensitive data, which results in losses to customers. Because of such negligence, the corporate body will be held liable under this section.
  • Section 66 of the IT Act deals with offences like hacking, identity theft, viruses, and malware in computer software or systems.
  • Sections 66C and 66D of the IT Act deal with identity theft and impersonation. The cybercriminal dishonestly uses passwords, signatures, or any other things of customers in order to fraud or deceive.
  • Section 72A of the IT Act deals with breaches of legal or lawful contracts. The offender who discloses information that contains sensitive information without the consent of such a person shall be punished under this section.
  1. Reserve Bank of India Guidelines: These guidelines include customer protection measures and high-security standards for those banks that offer net banking services to their customers.
  2. The Payment and Settlement System Act, 2007 provides the legal framework for the supervision and regulation of the payment system in our country. This includes net banking transactions and any electronic fund transfers.
  3. Banking Regulation Act, 1949: This act empowers the RBI to supervise other banks’ operations in our country. Some provisions talk about the confidentiality of customer information, their protection, and other such practices related to net banking.
  4. The Consumer Protection Act, 2019 deals with protecting consumers’ rights while they use net banking. It resolves complaints related to banking services, provides remedies, and provides fair treatment.
  5. Securities and Exchange Board of India Regulations: It issues guidelines related to trading and investment. It sets the standards for better online trading platforms that are provided by any financial institution.
  6. The Indian Penal Code[2], the Criminal Procedure Code[3], and the Indian Evidence Act have provisions related to cybercrimes that are related to web banking. For instance, Section 419 of the IPC deals with cheating by personation, when a person impersonates someone else and cheats. Section 420 deals with cheating and dishonestly inducing delivery of property by making false promises, and sections 463 and 471 deal with forgery and forged documents as genuine, respectively.
    • Section 154 of the CrPC is related to the first information report if a person finds that an offence has been committed against him that is related to net banking. He can approach a nearby police station. Hence, criminal proceedings will begin. And Section 156 of the CrPC empowers the police to investigate cognizable offences on the basis of a complaint.

    These are the primary laws that regulate net banking in our country to safeguard and protect customers. The Reserve Bank of India periodically provides guidelines related to risks and security. 

    Suggestions and Conclusion

    Every bank has its own distinct characteristics. Different banks offer various services to their customers. Without a question, Internet banking is convenient and accessible to everyone. However, there are certain risks involved. As a result, we must take reasonable efforts to protect sensitive or financial information. One of the most common concerns in Internet banking is identity theft. In this case, the thief steals a customer’s personal information, impersonates that customer, and gains access to the bank. As a result, fraudulent transactions occur.

    Phishing is another prevalent practise in which a criminal appears to be a member of a reputable institution. In addition, the customer is duped into providing critical information over the phone. Personal information might be leaked in the form of viruses and malware that infect the customer’s mobile device. The data can be stolen in a variety of ways.

    To avoid similar instances, the author recommends keeping software up to date, using strong passwords, being vigilant about phone calls and emails, installing anti-virus software, notifying the bank immediately when such incidents occur, and taking precautions.

    List of references:

    [1] The Information Technology Act of 2000

    [2] Indian Penal Code 1860

    [3] Criminal Procedure Code 1974