2. BANKING SYSTEM
The banks accept deposits for making loans to the
borrowers as also facilitates payments as part of
the country’s payment and settlement systems.
The ‘traditional’ banking is a process of financial
intermediation wherein the bank acts as an
intermediary between the savers and the
borrowers.
The banks have now become a virtual marketplace offering among others, various
non-banking financial products and services to the customers.
Banks offers these products and services to their own customers only after
conducting due diligence on the customer in terms of KYC/AML framework.
5. BANKING SYSTEM
The Indian banking system is built on the following
fundamental principles:
Principle of intermediation
Principle of liquidity
Principle of profitability
Principle of solvency
Principle of trust
Principle of intermediation
Principle of liquidity
Principle of profitability
Principle of solvency
Principle of trust
Principle of intermediation
Principle of liquidity
Principle of profitability
Principle of solvency
Principle of trust
6. HISTORICAL BACKGROUND OF
BANKING INDUSTRY
•Banking industry is the back bone of any economy. Step by
step development of banking sector is as under:
•Bank of Hindustan was set up in 1870; it was the earliest
Indian Bank.
•Three presidency banks - Bank of Calcutta, Bank of Bombay
and Bank of Madras were set up under Presidency Bank's act
1876, laying foundation for modern banking in India.
•In 1921, all presidency banks were amalgamated to form the Imperial Bank of India.
•Reserve Bank of India (RBI) was constituted as an apex body under RBI Act passed in 1934.
•Banking Regulations Act was passed in 1949. This regulation brought RBI under government control. RBI got
wide ranging powers for supervision and control of banks.
•In 1955, RBI acquired control of the Imperial Bank of India, which was renamed as State Bank of India. In
1959, SBI took over control of eight private banks floated in the erstwhile princely states, making them as its
100% subsidiaries.
•In 1960, RBI was empowered to force compulsory merger of weak banks with the strong ones. As a result, the
total number of banks reduced from 566 in 1951 to 85 in 1969.
•In 1961, the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of RBI, for providing
insurance on deposits and guaranteeing of credit facilities.
•In 1975, Regional Rural Banks established to provide sufficient banking and credit facility for agriculture and
other rural sectors.
•In July 1969, government nationalized 14 banks having deposits of . 50 crores and above.₹
•In 1980, government nationalized 6 more banks with deposits of more than .200 crores.₹
•The amendment of Banking Regulation Act in 1993 saw the entry of new private sector banks.
7. STRUCTURE OF INDIAN BANKS
In order to understand the challenges and opportunities of
Indian Banking Industry, we need to understand the
structure of Indian Banking Industry, provided below:
Reserve Bank of IndiaReserve Bank of India
BanksBanks Financial InstitutionsFinancial Institutions
Scheduled
Commercial Banks
Scheduled
Commercial Banks
Co-Operative
Credit
Institutions
Co-Operative
Credit
Institutions
All India
Financial
Institutions
All India
Financial
Institutions
State level
Institutions
State level
Institutions
Other
Institutions
Other
Institutions
Public Sector
Banks
Public Sector
Banks
Private
Sector Banks
Private
Sector Banks
Foreign
Banks
Foreign
Banks
Regional
Rural
Banks
Regional
Rural
Banks
Urban
Cooperative
Banks
Urban
Cooperative
Banks
Rural Cooperative
Credit Institutions
Rural Cooperative
Credit Institutions
8. Computerization in Banks
Computerization of banks in India was a roller coaster
path for the planners.
The word computer was not acceptable to the
employees of the bank in early 70s and all efforts to
introduce automation process were met with stiff
resistance.
Nationalization of banks in 1969 followed by rapid
expansion of banking activities resulted several fold
increase in the number of branches and business.
Mechanization was seen as the best solution to improve customer
service and to prevent high incidence of frauds.
The committee formed under the stewardship of Dr.Rangarajan in
1984, proposed a model for mechanization of bank branches and
controlling offices.
The committee suggested measures for introduction of computers in
banks in a phased manner.
The second Rangarajan Committee‘s recommendation in 1989, paved
way for greater usage of computers in the banks.
The signing of agreement by the employees’ unions with the
management in 1993 brought major breakthrough in computerization
of banks in India.
9. INFORMATION TECHNOLOGY IN BANKS
Initially, all banking activities like maintaining ledgers, and registers,
interest calculation, preparation of statements, etc. were done
manually.
As the volume of business grew, a need was felt for improving
customer services through mechanisation of transactions.
Initially banks introduced Advanced Ledger Posting Machine (ALPM).
With the advent of the Personal Computer (PC) in 1980, Reserve Bank
of India (RBI) set up various working group and committees during the
period 1982 to 1995 for Computerisation of banks in India.
During the past few years, information technology has made rapid
inroads into our lives. It has created unmatched convenience and value
for users across various industries.
Days of definite banking hours are no more in vogue. Banking services
are now available 24x7 through ATM networks, mobile banking, and
Internet Banking. Banks are able to provide superior customer service,
solve reconciliation problems, and increase their operational efficiency,
profitability, and productivity.
Bill Gates once said, "For 21st century, banking is essential not banks".
10. During the earlier years, use of
Technology in banking operations
arose more as a necessity to
manage house-keeping and to
strengthen internal control systems
– Prime movers being Regulatory
Agencies such as RBI, CVC…..
INFORMATION TECHNOLOGY IN BANKS
11. Over the years, Banks themselves have
embarked upon major technology driven
programs, in the face of competition and
being driven by need to service customers
more effectively and efficiently.
Especially with the arrival of new
generation private sector banks, technology
has become an integral part of Banks’
business strategy and a tool for creating
value and customer satisfaction, resulting
in redefining of Banking and rediscovering
of Customer.
INFORMATION TECHNOLOGY IN BANKS
13. EVOLUTION OF TECHNOLOGY
• Initially man was just like any other animal
– But he had something unique - The ability to think !!!
• He invented tools to make his life easy
– That day man discovered TECHNOLOGY
• Perhaps wheel was the most wonderful
invention he ever made
– It revolutionized his life and thought
• Wheel gave him the ability to travel fast, faster
– it has made him the fastest animal on earth
14. With wheels came accidents
But just because wheels
caused accidents could he
abandon vehicles and return to
walking?
Technology & Safety
15. Technology & Safety
• He found ways to make his
travel safe, safer
– Safer vehicles, better roads
– Traffic rules and regulations
– Traffic signals, traffic police
• Thus technology became his
best friend forever
16. Banking
• Initially it was all done in paper
– Manually calculating interests for
each of the 1000+ accounts
– Handling huge dusty ledgers
– And many more
We still remember those days
17. Banks & Technology
• No more manual interest calculation
• No more dusty huge ledgers
• Better services to customers
– ATM
– Anywhere banking
– Internet banking
– Credit cards
– Phone Banking
– ECS/RTGS/SFMS
Did these services made man’s life easier ?
19. During the past few years
Information Technology
has made
rapid inroads
into
our lives
in a way
we could ever imagine.
20. SBS-ISD – HEAD OFFICE - BHAVNAGAR
Mom, When is my Happy Download Day?
21. SBS-ISD – HEAD OFFICE - BHAVNAGAR
How many times have I told you!
You were not downloaded. You were born………….
22. Like instant coffee, instant soup
and
instant breakfast,
we are currently developing an insatiable
appetite for instant information made
possible by Information Technology.
Information Technology has completely
changed the way, we lead our lives.
23. Historical Perspective….
• Computerization of branches of banks began
in the late eighties with the introduction of
ledger posting machines (LPMs), advanced
ledger posting machines (ALPMs), followed
by Stand alone computer systems (LANs)
which metamorphosed into network based
systems (WANs), with the latest
development being the installation of Core
Banking solutions
25. Meaning of CBS
• CBS facilitates running of all transactions of a
bank through a centralized system.
• It is basically the heart of all systems running in
a bank and forms the core of the bank's
technology platform.”
• The basis of core banking system is the
establishment of a centralized system and
networking of all the branches with it.
26. Meaning of CBS
• This enables customers to operate
their accounts, and avail banking
services from any branch of the bank
on CBS network, regardless of where
the account is maintained.
• The term ‘CORE’ is explained as
"Centralized Online Real-time
Environment". Data Center (DC), a
centralized system enables access to
all applications across all branches of
the bank.
• CBS is a step towards enhancing
customer satisfaction. Amongst other
functionalities, core banking solution
provides transaction-processing,
central accounting, and customer
information management.
28. FUNCTIONAL ADVANTAGE OF CBS
The day-end and the day-begin activities need not be carried out at the branch
level as they are carried out at the data centre.
Since CBS takes care of changes in the interest rates both for deposit and advance
products, branches need not administer individually.
The risk management system for prevention of anti-money laundering and
identification of suspicious transactions can be carried out centrally by plugging in
suitable software to the core banking solution.
Certain banks were able to introduce centralized back office system for account
opening, issuance of cheque book etc. This will ensure Know Your Customer (KYC)
norms uniformly implemented across the bank.
The CBS also facilitates processing of retail loans like housing loans, car loans, and
small and medium enterprise loans at centralized offices within a city or region.
With the branch staff freed from the regular and repetitive jobs, the productivity of
the employees has increased and activities like marketing, and cross selling of new
products have gained momentum.
Branches are able to extend business hours to benefit the customers.
29. FUNCTIONAL ADVANTAGE OF CBS
Other delivery channels like ATM, internet banking
can be plugged into the system without much
difficulty.
It can support centralized accounting system, and
thus the balance sheet of the bank as a whole can be
generated from the central server.
CBS can introduce standardization of software, and
uniform parameterization across the enterprise.
Even though the initial cost of establishment is very
high, in the long run it proves to be cost effective.
It can be scaled up to meet the enhanced business
volume at any point of time.
It facilitates Business Process Re-engineering (BPR).
It can facilitate easy compliance of regulatory
issues.
The decision support systems and executive
information system can be enabled easily.
CBS is the best customer centric solution to meet all banking
requirements of customers.
30. The core banking is capable of integrating all
delivery channels and support systems such as:
Internet banking
Mobile banking
24x7x365 banking
Anywhere –anytime banking
Decision support systems
Management information systems
Asset liability management system
Risk management system
31. Datacenter
Network Administrators
CBS - Core Banking System Components
Core-Banking
Application
OS, Database
Internet-Banking
ATM
Desktops,
Branch
Servers
WAN,
Internet
WAN,
Internet
Branches
Application Developers
System AdministratorsBranch User/Admins
32. Features of Core Banking
• Minimum data is stored at the branch
• A branch user can access the entire bank
• Downtime at the data center means downtime for the
bank
• A user of CB can access from any point
• Need for Strong & Efficient Backbone
• Efficiency of Central Production Servers
• Support Functions – Help/Service Desk
• Audit includes Information Security at CDC, across the
Network, branches, DRS and Accounting controls
33. Data Centre (DC)
• The DC functions as a central data hub of the bank for both its domestic
and international operations.
• The establishment of data centre should take into account the following
vital issues:
• Location far away from the earth quake zone
• High end infrastructure
• Physical security and robust access control systems
• Fire-proof
• Non-stop power supply, through UPS and generators
• Fully air conditioned
• Reliable connectivity
• High speed internet facility
• Data centre is connected to the branches through dedicated leased
lines as per the network design of the bank.
• The main function of the data centre is to maintain databases and
serves for the core banking and other applications integrated with each
other.
34. DATA CENTRE MANAGEMENT
The Data centre management includes supervision and control of the
following:
Centralized support for CBS and other applications using helpdesk
facilities
Maintenance of data centre infrastructure such as servers, network-
equipment, databases, operating systems, applications
Support infrastructure such as UPS, diesel generators
Physical and IT security related activities
Maintenance and updation of branch specific applications
Improved quality of service and productivity
Connectivity to all branches through Voice Over Internet Protocol (VOIP)
phones a cost saving communication system
Faster performance and trouble shooting
Monitoring of network speed
Near DR site is created for better recovery point objective
In addition to the basic core banking servers, the data centre also
maintains servers for other IT applications like anti money laundering ,
financial inclusion, cash management system, internet banking , mobile
banking , human resource management system, ATM switch etc.
35. NETWORKING OF BRANCHES
The life line of core banking is the connectivity between the
central servers at the data centre and the branches through
networking cabling.
The connectivity architecture could be different for different
institutions depending upon the technology adopted and the
connectivity service chosen.
A typical scenario will have data centre connected to
branches, offices and other retail connects through
dedicated network implemented over leased lines.
Wherever dedicated lines are not available such as remote
rural branches the connectivity are established through
satellite terminals.
The backup for these lines would be alternate leased lines through government
telecom services such as Integrated Service Digital Network (ISDN).
Data centre is connected to the branches through dedicated lines and at times
through a net aggregation point.
The Net Aggregation Point (NAP) is the local hub in a city which is connected to the
data centre at one end and to all branches in the city at other end. It acts like a
junction box.
A branch server acts as a gateway between data centre and various nodes of the
branch.
Normally, banks have a generic WAN design as depicted above.
36. Technology – A great Enabler
• Large volume and variety of business,
accuracy and timeliness.
• Large number of Products, Delivery
Channels and Customer-centric Processes.
• CRM – For cross selling and meeting the
customer life cycle needs.
• Redefining of Customer Convenience.
• Decision support System, Supervisory
Monitoring and Control.
37. Conclusions
Core banking systems have
eliminated physical boundaries for
banking
Vulnerability of Core banking
systems exist without physical
boundaries
A comprehensive information
security and audit program would
strengthen CBS and minimize risk
Continuous auditing is necessary
