Three evolutionary phases of virtual banking services, which represent theimpact that the particular application has achieved within the industry are:a) inception phase, where the technology behind the application is itsinfancy and a substantial amount of investment is required so as to make theapplication widely available commercially;
b) growth phase, where the application is increasingly available tocustomers and the technology behind the application is widely available;and
c) maturity phase, wherein the application is in widespread use andinstitutions not offering such applications are likely to be at acompetitive disadvantage.

Virtual banking has made some beggining in the Indian banking system. ATMshave been installed by almost all major banks in the major metros, theshared payment network system has already been installed in Mumbai and theelectronic fund transfer (EFT) mechanism has also been initiated. Theoperationalistion of the very small aperature terminals (VSAT) is expectedto provide a significant thrust to the development of INdian FInancialNETwork (INFINET), which will further facilitate connectivity within thefinancial sector.

Technology upgradation
Information technology and communications have virtually transformed thedomain of operations of banks and other financial institutions all over theworld and enable them to exploit economies of scale and scope through thelowering of transaction costs. Given the enormous volume of funds that arechanneled through the payments and settlements system, informationtechnology not only has manifold implications for the efficacy of themonetary policy, but it has also a crucial bearing on the stabilty of thefinancial system as a whole.

In India, it is only now that the world of information technologypreparedness has made significant inroads in the sphere of bankingoperations. Since the introduction of MICR cheques in the mid-eighties, theReserve Bank has proceeded to make significant improvements in thefunctioning of financial entities with respect to their application ofinformation technology. These include the introduction of EFT, inter-bankelectronic payment systems, a clearing bank for extension of delivery versuspayment mode in GoI-Secs, ATMs and SPNS.

The setting up of INFINET, jointly by the Reserve Bank, state-run banks andthe Institute for Development and Research in Banking Technology is expectedto facilitate connectivity with the financial sector.