Banking In New Millenium

BANKING IN NEW MILLENIUM (CORE BANKING SOLUTIONS)

Submitted By:Priya Shewakramani Apurva Jogdeo

(T.Y.B.Com in Banking & Insurance)

INDEX Sr.

TOPICS

No 1

EXECUTIVE SUMMARY

2

OBJECTIVES

3

CORE BANKING SOLUTIONS

4

DEFINITION

5

HOW A CORE BANKING SOLUTION WORKS

6

BENEFITS

7

NEED FOR CORE BANKING

8

MULTIPLE ACCESS CHANNELS

9

BUSINESS PROCESS RE-ENGINEERING

10

CORE BANKING MODULES

11

CASE STUDY

12

PROBLEMS FACED IN CBS

13

BIBLIOGRAPHY

Executive summary The banking business has evolved. Where once banks were preoccupied with commodity cash transactions, today they’ve become dynamic,

multi-channel

organizations

constantly

challenged

by

unpredictable, highly competitive markets and pressures to improve profitability. But their legacy mainframe core banking systems were designed 20–30 years ago and lack the inherent flexibility needed to meet today’s challenges; they’re costly to maintain, increasingly incompatible with new business requirements, and do not provide a foundation for future growth. To compete and succeed in today’s business environment, banks need to become more agile so that they can better understand market dynamics and anticipate customer needs; design, introduce, or modify products and services; implement a new value delivery system, even if that means reshaping the information infrastructure; and identify resources (people and goods) internally or externally. That’s why today’s financial services institutions are looking increasingly to the latest open systems technology, and beginning to move applications off mainframes to openstandards–based servers with architected solutions, because they are more flexible and significantly less costly. This presentation will give a fair idea about how core banking solutions actually work & also its importance to the banks.

OBJECTIVES

o

To practically study the concept.

o To analyse the scope of core banking solutions

o

To gain practical knowledge relating to core banking solutions

o

To understand complete operation of core banking solutions’

o To draw a conclusion based on the analysis & experiences o To know about future prospects of core banking solutions

CORE BANKING SOLUTION Core Banking Solutions is new jargon frequently used in banking circles. The advancement in technology especially internet and information technology has led to new way of doing business in banking. The technologies have cut down time, working simultaneously on different issues and increased efficiency. The platform where communication technology and information technology are merged to suit core needs of banking is known as Core Banking Solutions. Here computer software is developed to perform core operations of banking like recording of transactions, passbook maintenance, interest calculations on loans and deposits, customer records, balance of payments and withdrawal This software is installed at different branches of bank and then interconnected by means of communication lines like telephones, satellite, internet etc. It allows the user (customers) to operate accounts from any branch if it has installed core banking solutions. This new platform has changed the way banks are working. Now many advanced features like regulatory requirements and other specialized services like share (stock) trading are being provided. Core banking solutions are very helpful to SME industries. Core Banking is a generic term, which denotes inter-branch transaction capability through. Basic Architecture has been designed to achieve Centralized Processing with IT applications & data residing at Central Data Centre (CDC) to which branches & administrative offices will be connected. Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simple transactions from any of the member branch offices. Core Banking Solution (CBS) is networking of branches, which enables Customers to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account. The customer is no more the customer of a Branch. He becomes the Bank’s Customer. Thus CBS is a step towards enhancing customer convenience through Anywhere and Anytime Banking. “Core Banking” refers to the activities a bank generally undertakes. “Core Banking Process for a bank” is thus a generic term for the complete administration of transactions for the bank through a central database. In an

ideal core banking scenario, all products, processes, channels and customer relationship management tools are integrated and administered via a central database of the bank with branches and channels as delivery points. This enables cross selling, data integration for various purposes such as cross selling, CRM, Regulatory Reporting and internal MIS all at considerably lower cost. Having capability to administer all its transactions via core banking, a bank may select which activities to transact via core banking and which not. Regulators may also define the scope of administration of core banking in their jurisdiction. Core banking is about knowing customers' needs and providing them with the right products at the right time through the right channels 24 hours a day, 7 days a week. The rapid advancement in Information and Communication Technology (ICT) has had a profound impact on the banking industry and the wider financial sector over the last two decades and it has now become a tool that facilitates banks’ organizational structures, business strategies, customer services and other related functions. The recent “IT revolution” has exerted far-reaching impacts on economies, in general, and the financial services industry, in particular. Within the financial services industry, the banking sector was one of the first to embrace rapid globalization and benefit significantly from IT development. The technological revolution in banking started in the 1950s, with the installation of the first automated bookkeeping machines at banks. This was well before the other industries became IT savvy. Automation in banking became widespread over the next few decades as bankers quickly realized that much of their labor-intensive information-handling processes could be automated with the use of computers. The first Automated Teller Machine (ATM) is reported to have been introduced in the USA in 1968, and it was only a cash dispenser. The advent of ATMs helped both to improve customer convenience and reduce costs, as before ATMs, withdrawing funds, accounts inquiries and transferring funds between accounts required face-to-face interaction between bank staff and customers.

DEFINITION:

Core Banking is normally defined as the business conducted by a banking institution with its retail and small business customers. Many banks treat the retail customers as their core banking customers, and have a separate line of business to manage small businesses. Larger businesses are managed via the Corporate Banking division of the institution. Core banking basically is depositing and lending of money. Normal core banking functions will include deposit accounts, loans, mortgages and payments. Banks make these services

available across multiple channels like ATMs, Internet banking, and branches. Core Banking is a general term used to describe the services provided by a group of networked bank branches. Bank Customers may access their funds and other simple transactions from any of the member branch offices.

How a Core Banking Solution Works

A core banking solution, often referred to as a CBS, typically has a GL subsystem at its core with plug-in satellite modules catering to the various divisions of the bank. The satellite modules, referred to as "modules," cater to the business functionalities of the various lines of business of the bank. Typical CBS modules include but are not limited to:

Non-financial modules: •

Customer definition and accounts

•

Customer limits definition, lines of credit, a central bank reporting structure

•

Messaging and advice

•

End-of-day processing modules, etc.

Financial modules: •

Loans, deposits, money markets

•

Letters of credits and bills

•

Treasury

•

Liquidity management

•

Local payments and cross-border payments

•

Nostro reconciliations

•

Interest and charge definitions, etc.

Each silo or line of business employs one or more of these modules to run its business. The modules are used to create contracts with customers at the branch level for various products. For example, a short-term, fixed-rate loan contract for the account of a large corporate customer has multiple components associated with it, such as the contract-principal component, tax

component, interest component, product-preference component, charge component, etc. Transactions are generated at the component level during various events of the contract life cycle, such as contract initiation, booking, accrual, liquidation, rollover, advice generation, contract cancellation, etc. Such dollar (or any other currency) transactions hit the accounting and GL subsystem at the core. Thus, the core GL and accounting system ties the various silos together. As we have seen, the CBS and its modules are used by the lines of business to manage customer contracts and their life cycles as well as most income classified as non-fee income.

ALM + Ris k Man agemen t

Treasury

Inte rnal I nterfaces

Core +

In ternet Ban king

AT Ms

IBR Bran ch Network

Benefits

MIS + DW + DM

Core banking solution can support a financial institution by:

• Facilitates 24 X 7 Banking • Anywhere Banking • Integration with strategic sectors • Business Process Re-engineering (BPR) enabler • Reducing operating costs significantly • Increase in operational efficiencies & productivity • Helping a bank comply quickly with changing regulatory requirements • Driving product innovation • Ensuring rapid customer acquisition • Enhancing customer relationship management • Scalability to support rapid growth and M&A initiatives • Offline functionality. • Reduce dependency • Speedy remittances across the country • One stop shop for all banking needs • Empowerment through improved service quality

Need For Core Banking Changing economy and increased regulatory requirements have put increased pressure on banks and their core banking systems. However, according to the 2008 Core Banking Systems Survey from Cap Gemini, almost all of the top retail banks globally are still using legacy systems dating from the 1960s and 1970s in domestic markets; despite the growth of packaged banking solutions in international operations over the last three decades. To sustain growth under recent banking pressures and continued regulatory requirements, it is essential for banks to have the right core banking systems in place. While a large bulk of package sales are still within Tier 3 and 4 banks, signs of larger, more strategic decisions are emerging with select Tier 1 and 2 banks that require sophisticated transaction processing software capable of handling large transaction volumes and giving banks the ability to gain 'a single view of the customer' in terms of their product usage. The survey provides recent trends, in-depth insights into the vendors and package solutions market and offers a guide for selecting and implementing a package solution in a structured, controlled and manageable way. Beyond the financial drivers, IT globalization, increasing compliance and industry consolidation, are some of the other key motivators for core banking system replacement. As a result, the primary drivers for system replacement are shifting from cost reduction to growth. For example, regulations like SEPA (Single Euro Payments Area) have accelerated the payments industry transformation.

MULTIPLE ACCESS CHANNELS

BUSINESS PROCESS RE-ENGINEERING (A TOOL TO FURTHER BANKS STRATEGIC GOALS)

INTRODUCTION: Organizational development is a continuous process. But the pace of change has increased manifold. In a volatile global world , organizations enhance competitive advantage through business process re-engineering (BPR) by radically redesigning selected processes. BPR implies transformed processes that together form a component of a larger system aimed at enabling organizations to empower themselves with contemporary technologies, business solutions and innovations. BPR, which is a multi-dimensional tool, utilizes several methods to examine processes from a holistic perspective, transcending the narrow borders of specific functions. “The fundamental reconsideration and radical redesign of organizational processes, in order to achieve drastic improvement of current performance in cost, service and speed” Value creation for the customer is the leading factor for BPR and information technology often plays an important enabling role. Business processes encompass a wide spectrum of activities—procurement, order fulfillment, product development, customer service and sales.

The multiplier effects of BPR provide an impetus to the industry through impressive success across companies. Such examples of a definitive solution

are merely illustrative and, by no means exhaustive and, hence, could easily be multiplied. But the basis BPR drivers— the four C’s (customer, competition, cost and change) --- remain incontrovertible.

Disaster recovery site Disaster recovery is the process of regaining assess to the data, hardware & software necessary to resume critical business operations after a natural or human induced disaster. A disaster recovery center is back up facility used in case of disaster. Disaster recovery in Information technology is the ability of an infrastructure to restart operations after a disaster. Disaster recovery is used both in the context of data loss prevention and data recovery. Disaster recovery planning is the technological aspect of business continuity planning. This is mean to include the plans and preparations to minimize loss and ensure continuity of the critical business functions of an organizations in the event of disaster.

Events

that

necessitate

disaster

recovery site There are many different risks that can negatively impact the normal operations of organizations. A risk assessment should be performed to determined what constitutes a disaster and which risks a specific company is most susceptible to, including: • Natural disaster • Fire • Power failure • Terrorist attack • Organized or deliberate disruptions • Theft • System or equipment failure • Human error • Computer viruses • Legal issues • Worker strikes • Testing

Security features to be maintained by banks •

• • •

•

• • • • • • •

Only the employees of the bank who are authorized to access the core banking system are allowed to log in to the system Separate log in ids are provided to identify the persons operating on the systems Automatic disabling of logins after the expiry date. The expiry date can be modified by the administrator. Password is encrypted. The system allows changing the password for individuals through their own log INS. They need not approach system administrator for password changing. The system administrator need not have the knowledge of the modification of the individual password except at the time of installation/log in creation There are four access levels: a)Clerical level b)Officer level c)Manager level d)System administrator level Manipulation of database is restricted to the applications software. The manipulation of the database through from server or using any other software is not possible. Any entries made or modified can be easily traced by the audit trail report Passing limit based on the access levels Disk mirroring is enabled as a safety measures Restriction of transaction after day end and before day begin Based on the severity of the transaction the authorization level differs from one to maximum five officers.

CORE BANKING MODULES Product management. Customer management. Deposit processing. Loan processing. Card Issuing. Transaction processing and clearing.

CASE STUDY OF SBI SUMMARY IN BRIEF WHEN CORE BANKING GET STARTED • 1960s - SBI first to introduce mainframes in banking in India • 1970s – Started Data Processing Centers with IBM 1401 Punch Card collating machines • 1980s – Local Head Office Computer Centers set up using mini computers. Branch computerization commenced in late 1980s • 1992 – Bank master implementation undertaken. Over 3,700 branches, handling 83% business, completed by 2003 • 2003 – Universal Computerization Plan launched. All branches completed by January, 2004. CBS implementation launched in parall • All branches of the Group fully Computerized by January 2004

Transition Phase- II • Technology Plans (KPMG- 2000/01) • New Technology Initiatives • Infrastructure Creation • Planning for Implementation

Transition Phase III •

Core Banking Solution

•

Trade Finance

• Alternate delivery channels (ATM, Internet Banking) • Treasury & Asset Liability Management • Core Banking for Foreign Offices • Payment Systems •

Information Secure

State bank of India mainly uses software provided by TATA CONSULTANCY SERVICES Tata Consultancy Services (TCS) and the State Bank of India (SBI) have announced a joint venture. Through this collaboration, the two institutions intend to provide advanced technology solutions and domain consulting for the banking and financial services sector.

The joint venture will have an authorized capital of Rs40 crore and will be known as C-Edge Technologies Ltd upon incorporation. With equal participation on the board of directors, the JV will have equity participation from TCS and SBI in the ratio of 51:49 respectively.

Problems faced in using CBS  Lack of knowledge  Low grasping power of the staff  Connectivity problems  Load shedding  Staff is not Computer Savvy

BIBLIOGRAPHY:The information mentioned in the above project has been collected from various sites which are as follows:www.statebankofindia.com www.Ask.com Google Search engine.