For Indian banks, the Resrve Bank of India's (RBI) Automated Data Flow (ADF) initiative will help with regulatory reporting. We provide guidelines to ADF implementation and a roadmap for steps forward.
Indian Banking: Can ADF Compliance Ensure Accurate Regulatory Reporting?
• Cognizant 20-20 Insights
Indian Banking: Can ADF Compliance
Ensure Accurate Regulatory Reporting?
While the RBI’s ADF project is a step in the right direction, it is not
sufficient to meet the objective of automation of banks’ reports to
prevent misreporting of important data.
The Reserve Bank of India (RBI) launched the
Automated Data Flow (ADF) project to ensure
accurate regulatory reporting by banks in India.
However, there are some challenges that could
prevent the ADF project from achieving its
objective. Some of these challenges are: unavailability of RBI guidelines for some reports, the qualitative nature of a few reports, banks’ reluctance
to go in for core banking system (CBS) enhancement rather than just ADF enhancements, some
banks’ lack of effort to reengineer the existing
process, too many assumptions involved in the
automation process, etc.
Both banks and the RBI need to come up with
additional measures to support the ADF project to
meet the objective of automation. Some of these
measures could be: a stringent review and audit
process, implementation of robust corporate
governance within the banks, exhaustive documentation of process workflows after automation,
more investments in enhancements of core
banking systems, clear guidelines from RBI for
each regulatory report, flexibility from RBI in
terms of the timeframe for automation based on
the process and technology maturity profile of
individual banks, etc.
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Implementation of ADF and the measures
suggested above open up some opportunities for
technology and consulting firms to help banks.
These opportunities include helping banks set
up the change management process, consulting
around to-be processes using business process
modeling (BPM) tools, selling related or complementary software products and services, ADF
implementation for new banks, etc.
The ADF initiative is indeed a necessary but
not sufficient step to achieve the objective of
accurate regulatory reporting. The project needs
to be complemented by additional measures.
Banks in India submit a set of 222 regulatory
reports at varied frequency to the Reserve Bank
of India (RBI).1 These reports can broadly be
classified into 12 categories:
• Basic statistical returns.
• Department of Banking Supervision (DBS)
• Statutory returns analysis.
• Delinquency and collections.
• Financial statements analysis.
• Risk management.
• Foreign exchange and international operations.
In its paper of November 2010, RBI suggested
two approaches to the ADF project. The standard
approach was for banks with little or no infrastructure for automation of regulatory returns. Such
banks would adopt an end-to-end roadmap for the
automation of all four layers — data acquisition,
data integration and storage, data conversion and
data submission — required for report generation
and submission. The variation approach was for
banks with some automation already in place.
They would need to implement only some customization to the existing architecture.
These reports are prepared manually by various
operations teams in the banks, which increases the
potential for inaccuracies in the data reported. In
its approach paper on ADF dated November 2010,
RBI had asked all the banks in India to automate
the process of regulatory reporting.
The RBI envisaged implementation of ADF in
two phases: Phase 1 requires banks to ensure the
seamless flow of data from the core systems to
their MIS server. Phase 2 requires banks to begin
submitting data from this MIS server (CDR) to RBI
software using straight-through processing (STP)
to do away with manual intervention.
As a part of the ADF project, RBI asked banks to
build a central data repository (CDR) that would
act as a data warehouse for information flowing
in automatically from all the core systems of a
bank. This automation exercise is to ensure that
the information required for RBI reports flows
seamlessly from all core systems to a central data
warehouse and from this data warehouse into RBI
reports, thereby eliminating manual intervention.
The RBI has advised banks to undertake a selfassessment of the maturity profiles of their
technology and processes and place themselves
in one of six clusters (see Figure 2, next page). RBI
has suggested that banks classify by complexity
their 222 regulatory reports into five categories,
namely: simple, medium, complex — I, complex
— II and “others.” Depending upon the cluster
to which it belongs, the bank must decide the
Almost three years into the ADF exercise, most
banks are at an advanced stage of achieving ADF
compliance. This is a good time for the banks
and RBI to evaluate whether ADF compliance
will by itself solve the data quality issues around
Conceptual End-State Architecture for Banks to
Automate Data Submission2
RBI Data Storage
Data Conversion Data Submission
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& Storage Layer
Technology and Process Maturity Based Bank Clustering
timeframe for automation of a report (between
six months and 24 months).
Based on a preliminary study conducted by RBI on
eight banks, the maximum timelines for achieving
automation for different clusters of the banks
for each category of reports was estimated (see
Different banks have adopted different
approaches to achieve the end state. A few banks
have been able to automate some returns from
their existing infrastructure/systems available
while others are adopting a holistic approach and
looking for third-party solutions.
Banks such as Dhanlaxmi Bank, IndusInd Bank,
HDFC Bank, DCB and a few others have adopted
the Biz$core solution,3 developed by iCreate, as
the regulatory reporting tool. Some banks such as
IndusInd and Bank of Baroda are in the process of
implementing an enterprise-wide data warehouse
(EDW) that can support business intelligence
and analytics besides ADF requirements. Around
10 global banking and financial services institutions have chosen the Wolters Kluwer Financial
Services ADF solution to meet the regulatory
requirements.4 Product vendors such as Ramco
Systems5 and D2k Technologies6 have also come
up with product suites built especially for ADF
implementation. Our discussions with industry
experts in ADF indicate that some banks have
decided to enhance their core banking solutions
or build their own technology platforms to meet
the ADF requirements.
IT enablement of ADF has been following three
patterns: proprietary software, pre-built solutions
and custom-built solutions.7 Proprietary software
solutions are those that the banks are themselves
building. Pre-built solutions are third-party
product suites. Custom-built solutions require
banks to enhance the capabilities of their own CBS
to meet the regulatory reporting requirements.
Timelines for Achieving the End State of Automated Data Flow from Banks
Estimated maximum timelines (in months)
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Challenges in the Regulatory
Reporting Process and ADF Project
There are several gaps in the existing regulatory
reporting process that will not be addressed
by the ADF project. Some of these gaps are as
Unavailability of RBI Master
Out of the 222 mandated reports to be submitted
to RBI, there are quite a few reports for which
there are no direct or exhaustive RBI guidelines
to use as a source of reference. Some examples
are balance sheet analysis, quarterly operating
results, risk-based supervision, asset quality and
asset liability, off-balance-sheet exposures, etc.
In the absence of regulatory guidelines, interpretation of the reporting formats is left to the
discretion of the bank submitting the report.
Some of these reports are complex in nature and
present the financial health of the bank in areas of
asset liability management, risk management and
asset quality. This subjective reporting of critical
information can lead to overall under-reporting
or over-reporting of data that might impact the
macroeconomic decisions taken by RBI.
Qualitative Nature of Reports
Although banks have pushed for automation of
as many reports as possible, quite a few reports
are left out of the scope of ADF because of the
nature of information contained therein. Some
examples would be reporting of fraud, reporting
of demand and time deposits into various
time buckets based on behavioral modeling of
historical data, reporting of delinquencies, long
form audit report, etc. Data for such reports will
still have to be prepared manually outside the
core systems and then uploaded as a flat file to
the ADF product being used.
Banks’ Reluctance to Undertake CBS
Several banks have opted for the regulatory
reporting products of third-party vendors instead
of building an in-house reporting solution. This
approach will work only if the ADF products
available in the market act solely as a data
warehouse for reports generation, and the
necessary enhancements pertaining to regulatory
reporting are carried out in the CBS. One of the
reasons the RBI took up the ADF project at this
point in time is that most banks in India are at
an advanced stage of CBS and can leverage its
capability for reporting too. However, some banks
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in their effort to reduce cost and be ADF-compliant
at the earliest have gone for too many customizations to the ADF product instead of enhancing the
CBS. This approach does not comply completely
with the regulatory reporting automation using
CBS capabilities and functionalities.
Lack of Initiatives to Reengineer
Ideally, banks should use the automation process
as an opportunity to reengineer their existing
reporting processes and identify any loopholes
that lead to erroneous reporting. However, due
to the complexity of the processes involved and
the ADF-compliancy deadline, some banks have
adopted automation without any change in the
underlying as-is process. Hence, the accuracy of
the post-automation data remains questionable.
Too Many Assumptions
The ADF has many inherent assumptions,
including the following:
• Maintenance of clean data in source systems by
operations inefficiencies while doing
manual data entry in the source systems.
integration of the multiple source
systems and the CDR for data sharing.
• Successful execution of the extract transform
load (ETL) procedures at pre-defined frequencies.
• Technology checks at various points to monitor
data quality checks at various
stages of report preparation.
abiding by RBI guidelines in their
• Cross validation business rules across reports
built in to the ADF system to ensure data
• Timely report generation and transmission to
RBI in defined formats.8
The success of the ADF project is dependent upon
each individual function working seamlessly. A
glitch in any of the functions mentioned above
can lead to issues that might result in incorrect
data being reported to the regulator.
A recent example of this breach is the monetary
fine imposed by RBI on 22 banks in India that
included prominent banks such as Axis, HDFC,
ICICI, SBI, Bank of Baroda, Citibank, etc. These
banks were found to have violated know your
customer (KYC) and anti-money laundering (AML)
guidelines. It was observed that the banks did
not file cash transaction reports for some deals.
Certain gold transactions done via cash beyond
a prescribed limit were not reported. The source
of non-resident ordinary (NRO) accounts was not
ascertained in a few cases. KYC norms were not
followed for walk-in customers for sale of thirdparty products, etc.9
Such incidents would have led to incorrect
reporting to RBI as there are regulatory returns
that require information on cash transactions, NRO accounts and liberalized remittance
schemes. Clearly, the issue of incorrect reporting
of information will not be resolved by automation.
Additional Measures to Be Taken
Considering the above challenges inherent in the
regulatory reporting process and the ADF project,
the RBI and reporting banks need to take some
additional measures to ensure accurate information is submitted.
By Reserve Bank of India
RBI should issue clear and exhaustive guidelines
on all the regulatory reports to prevent any
subjective interpretation by the reporting banks.
A defined communication channel and process
should be established with the member banks to
address any queries related to reporting.
RBI should be more flexible in terms of the
timeframe for automation of regulatory filings
based on the technology and process maturity
profile of the member banks. The reporting
process in the existing scenario is complex and
most banks need time to smoothen this process.
RBI should tighten the screws on the auditing
process in banks and should impose strict
penalties for banks that fail to comply with it.
Opportunities for Technology and
Though the ADF project began almost three
years ago, there are a host of opportunities that
technology and consulting firms can still tap in
the near future. Some of these are as follows:
ADF Implementation for New Banks
Banks should set up robust internal corporate
governance specifically for the regulatory
reporting process. Internal audit processes should
be tightened to prevent fraudulent reporting
and to ensure regulatory guidelines are always
RBI had issued guidelines for new banking licenses
earlier this year, and around 26 companies had
applied.10 These include India Post, L&T Finance
Holdings, LIC Housing Finance, Shriram Capital,
etc. Winners of the banking licenses are expected
to be announced by the first quarter of 2014.11
Technology and consulting firms should initiate
discussions with the likely winners for their ADFrelated product and service offerings. Technology
firms can pitch for the implementation of ADF
product suites whereas consulting firms can offer
services such as business analysis, requirements
management and managing end-to-end ADF
Banks should not be completely dependent on
third-party vendors to handle maintenance for
ADF once the automation exercise is completed.
Instead, they should form an internal ADF maintenance team that will be competent and experienced enough to handle the dynamic nature
of the reporting requirements. There should be
complete documentation of process workflows
highlighting the roles and responsibilities of the
operations teams after the automation of the
There should be an increased effort to leverage
the CBS’s capabilities for handling enhancements
and customizations pertaining to regulatory
reporting. The automation exercise should be
used as an opportunity to examine the existing
process of reporting. Any deficiencies and gaps
should be rectified as a priority.
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Mid-size software companies view this as
an opportunity to cross-sell related banking
software products and services.12 Technology
firms can also look to cross-sell product suites
on business analytics, which can be used to
understand consumer banking trends; on asset
liability management, which can be used to
handle liquidity management in banks; and on
risk management, which can be used to meet the
Basel III regulatory guidelines.
Another area on which both technology
and consulting firms should focus is change
management. Every year, RBI comes out with
revised master circulars/guidelines for the
regulatory reports. Based on this, some customizations would be required in the ADF or
some enhancements would be required for the
CBS. Even RBI, in its approach paper on ADF,
has emphasized the need for a defined change
management process to manage and maintain
the automated data flow architecture. Firms that
have already established a relationship with banks
for the ADF engagement can expect a stream of
revenue from change management also.
Consulting Using BPM Tools
Most banks are currently at an advanced stage
of automation. After the automation phase, the
operations team will need a defined process
workflow to follow for data validation of the
generated report. Consulting firms can offer their
expertise in documenting to-be processes using
BPM tools for each of the 222 regulatory reports.
Regulatory reporting is a very useful tool for
RBI to understand the financial health of the
banking sector in India. Information presented
via regulatory reporting serves as a key input for
certain macroeconomics decisions taken by RBI. It
is therefore imperative that correct and accurate
information is reported by all the member banks.
The ADF project is a necessary step toward
achieving the end state of accurate regulatory
reporting. As highlighted in this paper, there are
several challenges underlying the regulatory
reporting process and the ADF project. Hence,
ADF compliance alone is not sufficient and
certain additional measures need to be taken by
the regulator as well as participating banks to
ensure that the objective of accurate regulatory
reporting is achieved.
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