Technology In Indian Banking 2008

Commercial Banking Technology in Indian Banking PGP I (2007-09) April, 2008

Electronic Banking ATMs Head Office Branch Banking Branch 1 Branch 2 Branch 3 Branch 4 Branch 5 Branch 6 Branch n

Glossary in E-Banking
ALPM – Advanced Ledger Posting Machine – Micro processor based electronic device used for maintenance of primary ledgers, working out products and interests at periodical intervals, preparation of account statements and listing of standing instructions to be executed in the accounts.

Glossary-2
BANKNET – A communication software to provide message and file transfer between branches of banks and across banks
CRM – Customer Relationship Manage-ment is an information technology industry term for methodologies, strategies, software, and other web-based capabilities that help an enterprise organise and manage customer relationships.

Glossary-3
DBMS – Database Management System – A set of computer programs that controls the creation, maintenance, and utilisation of the databases of an organisation
E-Commerce is conducting business communications and transactions viz computers over networks. It is the buying and selling of goods and services through digital communication

Glossary-4
SWADHAN – India’s first Shared Payment Network Service (SPNS) offering countrywide access to banking operations at more than 1,000 ATMs in and around 64 cities. It has 55 member banks in the network – which includes public, private and foreign banks.
Touch Screen – recognises human touch. Users can point to the select something on the screen

E-BANKING DEVELOPMENTS
ALPMs and Back Office Computerisation
NEED TO IMPROVE CUSTOMER SERVICE
RECONCILIATION / UNION PROBLEMS
ADVENT OF PC IN 1980s
COMPETITION AND REFORMS
INTRODUCTION OF COMPUTERISATION
CLEARING HOUSES, ATMs, ELECTRONIC FUND TRANSFERS, BANKNET, SWIFT, ELECTRONIC MAIL, CREDIT CARDS, ONLINE BANKING, TELE-BANKING, ETC

Committees on Computerisation in Banks in India 1982-1995
1. Working Group to consider feasibility of introducing MICR / OCR Technology for Cheque processing (1982)
Convenor : Dr Y B Damle, Advisor, Management Services Department, RBI

Committees on Computerisation
2. Committee on Mechanisation in the Banking Industry (1984)
Chairman : Dr C Rangarajan, Deputy Governor, Reserve Bank of India

3. Committees on Communication Network for Banks and SWIFT implementation (1987)
Chairman : Shri TNA Iyer, Executive Director, RBI

4. Committee on Computerisation in Banks (1988)
Chairman : Dr C Rangarajan, Deputy Governor, RBI

5. Committee on Technology Issues relating to Payments System, Cheque Clearing and Securities System in the Banking Industry, (1994)
Chairman: Shri W S Saraf, Executive Director, Reserve Bank of India

6. Committee on proposing Electronics Funds Transfer and Electronics Payments (1995)
Chairperson: Smt K S Shere, Principal Legal Adviser, Reserve Bank of India

Bank Branches – 2006 (x- RRBs) 54,791 11,152 11,452 12,933 19,254 TOTAL 259 221 37 1 0 29 FBs 1,950 857 674 322 97 8 NPBs 4,566 947 1,236 1,447 936 19 OPBs 173 88 66 17 2 1 IDBI 13,831 2,110 2,449 4,043 5,229 8 SBGr 34,012 6,929 6,990 7,103 12,990 19 Nat’d Total Metro Urban S’Urban Rural Banks

Indian Banking @ Cross Roads?
Computerisation - Modernisation ?
Extended Hours (24x7)- Competition?
NPAs, Provisions & Strain on Profitability?
Prudential Norms - ALM - Risk Mgt ?
Mergers & Acquisitions - Universal Bkg?
Voluntary Retirement Scheme Effects ?
Downsizing - Outsourcing ?
Alliances - Bancassurance ?
Automate or Else ......... Perish ??????

Indian Banking-Now...
Transparency in Banking; Compliances
Narrow Banking
Relationship Banking
Retail / Personal / Private Banking
Hi-tech Banking
E Age-Banking
Mobile Banking / Phone Banking
Network Banking
Virtual Banking
Universal Banking
Online Banking / Internet Banking

WHY TECHNOLOGY IN BANKS ?
TO TRANSFORM FINANCIAL SERVICES INDUSTRY IN THE NET-WORKED WORLD
BANKS TO BE CUSTOMER CENTRIC
PROVIDE SERVICES / PRODUCTS ACROSS A RANGE OF CHANNELS
TO BE FUTURISTIC AND HAVE “TIME” VALUE IN ALL ITS DEALINGS WITH CUSTOMERS

Many Benefits of Technology
Increased operational efficiency, profitability & productivity
Superior Customer Service
Multi-channel, real-time transaction processing
Better Cross-Selling ability
Improved management / accountability
Efficient NPA and Risk Management
Minimal transaction costs
Improved financial analyses capabilities

Pre-requisites for Technology Planning for Disasters Business Process Re-engineering Human Resource Empowerment

Focus aspects of Commercial Banking Core Banking (CBS) ATMs Card Management Any Branch Banking Document Management Risk Management Resource Management MIS & Intranet CRM Corporate Network Electronic Banking POS Terminals and Cash dispenser BANK’S BUSINESS BANK’S BUSINESS RAISING DEPOSITS LOANS & MISC. SERVICES

Benefits of Virtual Banking
To Banks
Large satisfied customers and higher retention
Scope to attract new customers
Improve quality and differential services
Greater opportunity to cross sell
Sharing network and Cost Saving
Increased volumes and profits
Reduce overall risk with proper MIS

Benefits to Customer
More convenience & flexi timings
Better awareness of products & services
Up-to-date information on accounts
Low cost of accessing the accounts

BANKS’ IT STRATEGY
INVESTMENT IN HARDWARE
ACQUIRING / DEVELOPING SOFTWARE
TRAINING OF STAFF AT DIFFERENT LEVELS
NETWORKING OF OFFICES – R-S-U-M?
SECURITY FOR TRANSACTIONS & INFO
GLOBAL REACH
ONLINE BANKING, OUTSOURCING

Internet Banking
Issues of Confidentiality ?
Hacking and Fraud prone ??
Scope for failure of Technology ???
Resultant denial of Services ????

INST. FOR DEV & RESEARCH IN BANKING TECHNOLOGY
TO PROVIDE TECH’ & OPERATING SUPPORT TO Bks / Financial Institutions
SET UP BY RBI AT HYDERABAD - 1996
FUNDED BY RESERVE BANK OF INDIA
AN AUTONOMOUS CENTRE FOR DEV AND RESEARCH IN BANKING TECHNOLOGY
“ THINK-TANK” FOR PROMOTION OF TECH
RESEARCH & CONSULTANCY
www.idrbt.ac.in

IDRBT, HYDERABAD
V-SAT BASED FIN’ NETWORK FOR BKs
DATA WARE-HOUSING & DATA MINING
PUBLISHING A JOURNAL ON IT IN BKG
WEB BASED TRAINING TO EXECUTIVES
INDIAN FINANCIAL NETWORK(INFINET)
INTER BANK APPLICATIONS LIKE RTGS
DELIVERY Vs PAYMENT, GOVERNMENT TRANSACTIONS
AUTOMATIC CLEARING HOUSE, ETC

DEVELOPMENTS
ALPMs
CLEARING HOUSE
CAR,CRR,SLR,PS,NPAs
CREDIT/DEBIT CARDS
NICNET,I-NET, RABMN
INFINET, RBINET
BANKNET, NDS, SFMS
MICR, ATMs, SWIFT
DEMAT, IT ACT-2000
INTERNET BANKING
ECS, EFT, SEFT, RTGS
CROSS SELLING
ALM & RM, MIS
CRM, KYC, AML
Core Banking Solutions
KISAN /SME CARD
CREDIT INFO BUREAU
DISASTER MANAGEMENT
Cheque Truncation
CYBER CRIMES – HACKING, PHISHING, PHARMING, TROJAN, SKIMMING, ETC
SMART CARDS

Communication Networks
MICR (Magnetic Ink Character Recognition) Clearing
BANKNET
INFINET
SWIFT
Electronic Data Interchange (EDI)
Electronic Funds Transfer (EFT) System
Electronic Clearing Services (ECS)
ATM network - SWADHAN (Shared Payment Network System -SPNS)

MICR CLEARING
Magnetic Ink Character Recognition
Introduced in 1987 in the four metros
1,047 Clearing Houses; 42 with MICR
SB/CA Cheque leaves standardised size (8 X 3 2/3”) are pre-printed with the bank-branch code and account type in MICR strip, while the amount is read manually and fed into the system using the encoders for funds settlements
Speeds up clearing work
BC/DW/TC/DD/PO/GC/IW/RW/SI...

Automated Teller Machines
ATMs or 24 hour Tellers – Electronic Terminals - allow to bank at any time...
On-site (near branch) and Off-site ATM
ATMs facilitate withdrawal/deposit....
Customer provided with a PIN / Card
Introduced in India by Foreign Banks
SWADHAN / SPNS wef Feb 1, 1997
Introduced in Mumbai by IBA initiative www.iba.org.in

SBI’s Mobile ATM in Kerala

Bank ATMs – 2007 (x-RRBs) TOTAL-83 29 FBs 8 New PBs 18 Old PBs 1 IDBI Bk 8 SB Group 19 Nat’d Banks 27,088 12,292 14,796 960 711 249 8,192 5,038 3,154 1,607 503 1,104 520 263 257 6,441 2,786 3,655 9,888 2,991 6,377 Total Off-Site On-Site

ATMs
On-site and Off-site Automated Teller Machines -MOBILE, BIOMETRIC ATMs
Total installed ATM base – >21,000
Average withdrawal per ATM transaction - Rs 1,500 to Rs 3,000
Total cash movement through ATMs in India is Rs 35,000 - 40,000 crores every year
Medium for non-cash transactions such as printing of statements, credit card enquiry, cross selling, etc

Cross Selling
The strategy of pushing new products to current customers based on their past purchases. Cross-selling is designed to widen the customer's reliance on the bank and decrease the likelihood of the customer switching to a competitor.

Cross Selling ADVANTAGES
Customer servicing, marketing, communication costs - lessen
Credit appraisal made easy
Increased loyalty – married to the bank!
All-in-one financial super market – consumer
Business/employee - increases

BANKNET
Set up in 1991 by RBI
Meant to facilitate transfer of inter-bank/ inter-branch messages within India by Public Sector banks who are members of this network
Wide connectivity - Major Centres like Mumbai, Delhi, Calcutta, Madras, Nagpur, Bangalore, Hyderabad, Pune, Ahmedabad, Kanpur, Lucknow, Chandigarh, Kochi, Jaipur, Bhopal, Patna, Bhubaneshwar, Thiruvanantha-puram, Guwahati, Panaji, Jammu, etc

INFINET
Indian Financial Network
Set up by RBI in June 1999
Satellite based WAN using VSAT (Very Small Aperture Terminal) technology
The hub and Network Management System of INFINET are located in the Institute for Development and Research in Banking Technology, Hyd
Major applications: E-mail, Electronic Clearing Service - Credit and Debit, Electronic Funds Transfer
http://www.idrbt.ac.in/index_fromsm.html?infinet1.html?infinet

SWIFT www.swift.com
Society for Worldwide Inter-bank Financial Telecommunication
HQ La Hulpe, Brussels, Belgium
Provides reliable, fast tele-communication facilities for exchange of financial messages all over the world between Banks and FIs
As non-profit making co-operative society in 1973 by 239 banks in 15 countries
Hubs in Brussels, New York and Netherlands
Rules in 1975; first message in 1977
>7,000 members in 200 countries now
Handles over 7 million messages every day
India – a member since 1991
88 Indian banks are members as on date

SWIFT contd...
Any Bank / FI can become a member
Allots an address called Bank Identi-fication Code (BIC) of 8 characters
Enables members to send secure and reliable messages – authenticated...
Correspondent bank arrangements...
Advantages: 24 hours service, system based – fraud-free – faster – accurate – confidential – funds/LCs/Guarantees

Electronic Data Interchange
Facilitates transfer of banking transa-ctions using agreed protocol and standard data structure b/w computers
Norms developed in respect of specific messages for transmission of business transactions which are electronic equivalents of commercial invoices, purchase orders, transport bookings, payment instructions etc
Appropriate message formats and standards for financial applications in EDI developed by Message Development Group-Finance (constituted by IBA)

Electronic Funds Transfer (EFT)
Hosted and operated by the RBI
Permits fund transfer up to Rs 5 lacs from any account at any branch of any member bank in any city to any other account at any branch of any member bank in any other city
RBI acts as the service provider as well as regulator

ECS
Electronic Clearing Scheme (ECS) operated by the RBI since 1996-97
Utilises BANKNET and INFINET
Facilitates payment from a single account at a bank branch to any number of accounts maintained with the branches of the same or other banks – Eg., Payment of dividends
RBI has also launched ECS – Debit for payment to utility companies like Telephones, Electricity etc

Launched in 1997
India's FIRST Shared Payment Network Service covers > 1000 ATMs in 64 cities
55 member banks in the network, which include nationalized, private and foreign banks
Enables member banks to share their ATMs with other participating banks
Objective - reduce the huge investment being made by the banks to deploy ATMs in different locations
SWADHAN

SERVICES
Bill Payment through Electronic Banking
Electronic Shopping Mall
Effecting Personal Investments through Electronic Banking
Trading in shares
Investing in Mutual Funds
Trade In Derivatives
IPOs Online

Real Time Gross Settlement
Introduced in India in 2004 by RBI
Internationally accepted system to minimise the settlement risks
Settlements occur simultaneously
>10,000 bank branches networked
Balances held with RBI by banks
4 types of members – A, B, C & D
http://www.iba.org.in/FAQs-RTGS-NEFT-ECS.doc

Cheque Truncation System
IN USE IN MANY COUNTRIES ...
NI Act was amended appropriately
Settlement based on e-images/MICR
RBI Wg Gr submitted report in 2003
Images to be preserved for 8 years
Pilot project in New Delhi in 2006
Reduces delays in collections...
Fraught with risks, legal issues...

Customer Relationship Management (CRM)
Not a product / service, but a strategy
Increasing competition among banks
Customer expectations and demands
Product development / Service Quality
Know Your Customer (KYC) guidelines
Knowledge Management in Banks
Call Centres, DSAs, Franchisees in Banks
Two Banking Ombudsman Schemes
Core Banking Solutions & CRM Packages for Best Customer Service

Customer Relationship Management
Customer Analytics
Statistical Credit Score Card
Demographic details
Transaction details
Historical loan default data
Targeted Marketing Campaign
Carpet bombing avoided
Hit rate increases

Core Banking Solutions (CBS)
POOLING DATA AT CENTRAL SERVER
TRANSACTIONS OF DELIVERY CHANNELS FROM DELIVERY POINTS (BRANCH/ATM) FEED ONLINE TO HOST – NO BACK OFFICE
HOST DATABASE IS UP TO THE MINUTE
END OF DAY (EOD) AND START OF DAY (SOD) TASKS PERFORMED AT BRANCHES WILL BE DONE BY ‘HOST’ SERVER
ELIMINATES BR RECONCILIATION WORK
STAFF PRODUCTIVITY – BANK CUSTOMER!

Smart Cards – The Future
Multi-application Smart Card
Channel of the future
Pilot project started
Pilot Project funded by Govt. of India
Project is in progress in partnership with IDRBT, IIT Mumbai and Banks
Visit www.scafi.in The Smart Card Forum of India is a non-profit, multi-industry organization promoting the wide spread acceptance of multiple application smart card technology.

Beware of
Hacking
Phishing
Pharming
Skimming
Trojan

Hacking
Hacker : May mean simply a person with mastery of computers .
TIMELINE
Early 1960s Hackers begin breaking into mainframe computers.
1983 The FBI busts six teen-age hackers from Milwaukee; one of the first arrests of hackers.
1984 First issue of 2600: The Hacker Quarterly in New York : prime source for hacking information
1985 “Phrack”, an electronic magazine about computer hacking, begins.
1987 AT&T computers hacked into by Herbert Zinn...............................................
......................................................................................................................
......................................................................................................................
February 2000
In only three days some hackers brought down some of the biggest Web sites in the world that included Yahoo!, Amazon.com, Buy.com, eBay and CNN.com. They used"Denial of Service" attacks to overloaded the sites' servers by sending them an excessive number of data requests.

Phishing
A method of identity theft carried out through the creation of a website that seems to represent a legitimate company.
The visitors to the site, thinking they are buying something from a real business, submit their personal information to the site.
The criminals then use the personal information for their own purposes, or sell the information to other criminal parties.

www.antiphishing.com

Pharming

Skimming
An electronic method of capturing a victim's personal information used by identity thieves. The skimmer is a small device that scans a credit card and stores the information contained in the magnetic strip. Skimming can take place during a legitimate transaction at a business .
Skimming can occur easily in a restaurant because your card is taken away when the bill is being settled. If your server is a skimming identity thief, he or she will, before giving the card back to you, scan the credit card with a hand-held electronic device, which takes only seconds.
The electronically captured information is then used to by the thief or sold to other criminals

Trojan
Trojan horse is a program that installs malicious software while under the guise of doing something else. Though not limited in their payload, Trojan horses are more notorious for installing backdoor programs which allow unauthorized non permissible remote access to the victim's machine by unwanted parties - normally with malicious intentions.
Unlike a computer virus , a Trojan horse does not propagate by inserting its code into other computer files. The term is derived from the classical myth of the Trojan Horse . Like the mythical Trojan Horse, the malicious code is hidden in a computer program or other computer file which may appear to be useful, interesting, or at the very least harmless to an unsuspecting user.
When this computer program or file is executed by the unsuspecting user, the malicious code is also executed resulting in the set up or installation of the malicious Trojan horse program. (See Social engineering .)
Often the term is shortened to simply Trojan .

References:
Information Technology & Electronic Banking – Indian Institute of Bankers, Mumbai, May 1998
Information Technology & E-Banking – ICFAI, Hyderabad, October 2004
Retail Banking, Everything you need to know to work in a Bank - Raghu Palat, IBD, Mumbai 2006
Banking on Technology, Indian Management – AIMA Publication, August 2004
Building CRM – Customer Relationship Management & KYC experience through Technology – BanCon, IBA Conference, 2004; Indian Banker Feb 2006
Trend and Progress of Banking in India, RBI 2006
www.rbi.org.in ; www.idrbt.ac.in ; www.google.co.in ; www.swift.com ; www.iba.org.in ; www.antiphishing.com ;

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Technology In Indian Banking 2008

by Chowdari Prasad on Oct 12, 2009

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