ANYWHERE BANKING –THE BEGINNING (The origin of 'Core Banking' in India)

By now, most of us bankers and non-bankers have become familiar with the term ‘Anywhere Banking’, also known as ‘core banking’ or ‘centralised banking solutions’ (CBS). The terms have come to signify banking conveniences never before experienced in India during the days of manual banking operations. The all-encompassing change in banking practice has come as a boon to the banking community at large – the bankers as well as to those who make use of banks’ services. It has opened new opportunities, offered new products and services never envisaged before. It’s now a routine, everyday part of our life, taken almost for granted. Yet few, if anyone, know precisely how this transition took place, where it all began or how I got this dream opportunity no banker could have ever imagined. This is the story.

One can probably go so far as to say that ‘Anywhere Banking’ would not have been possible without the concurrent development in technology, especially the advent of V-Sat, during the early 1990s. Prior to the advent of V-Sat, the most efficient means of communication included larger and costlier satellite dish having larger but non-focussed footprints. It did not offer the technology or the convenience required for the purpose of small or medium volume commercial applications, nor was it suitable for focussed, high quality, point to point communication at a reasonable cost.

The other (and far worse) option was setting up WAN (wide area network) using leased or dial-up land lines. It was actually a non-solution.

Reserve Bank of India: The game-changer

In January 1993 the Reserve Bank of India (RBI) came out with its guidelines for issuing licences to new commercial banks in the private sector. The move shook up the moribund banking industry. Since independence, for the first time in more than forty years, a positive announcement of such significance was made.

Prior to that, the banking industry was plagued with frequent and continuous resistance by the various workers’ unions to the introduction of automation in the banking industry. The greatest fear of these unions was job losses and redundancy. So they resisted or severely restricted the introduction of computers in banks. The computers were consequently named as ALPMs (automated ledger posting machines) and ELPMs (electronic ledger posting machines). The capacity of each computer was forcibly restricted to a ridiculously low level at a certain number of accounts (say 5,000 per machine). Interconnectivity and networking were not allowed; and, additional allowances were demanded for the computer operators. Automation remained a bargaining tool and a bone of contention between the RBI, the bank management and the staff unions. Mechanisation and automation were completely stalled. Services suffered in consequence.

In opening up the banking sector to new players, the RBI came out with a strategically brilliant move. While announcing the new licensing policy, it insisted that technology must be the main plank, the core engine and the primary driving force for operations planned by all new applicants. The RBI, very wisely and with great foresight, banked on the possibility that competition from new, technology-driven banks would force the nationalised banking sector and their uncompromising, rigid trade unions to see logic, realise the futility of their policies, and motivate them to change their collective, obstructionist mind-set. The RBI was eventually proved right in their approach, and how! Today, we are all witness to the developments that swept the Indian banking industry subsequent to the opening up of the commercial banking sector.

A journey of discovery

A handful of licences (actually ‘in-principle approvals’) were initially issued by the RBI in 1993-94. In those approvals, the thrust on technology was made a primary condition. It must be remembered that not a single individual in India at that point in time had any experience in setting up commercial banks from scratch. Neither did anyone within the establishment of the RBI have any such experience. For the officials within the RBI, as well as those who had received in-principle approvals for setting up commercial banks in India, it was going to be a challenge as well as a great learning process.

A multitude of issues had to be addressed by all concerned. New issues surfaced almost every other day. It was a journey of discovery for the promoter of the new banks as well as the RBI. Very frequently, the representatives of the applicant banks and those from the RBI (DBOD) had to sit together (mostly, informally) to find a way or via media in their attempt to resolve knotty, unforeseen, unfamiliar issues, take a view on them and move forward. The officials of the RBI were wonderful beyond compare in their cooperation, communication, reasonableness, understanding and support. In my years of very close interaction with them during the period – when I practically took up residence at their Central Office building – and after, I can vouch for these facts without any reservation whatsoever.

The primary concern of the new banks was, of course, technology. One of the reasons for such concern was that once chosen, the technology platform could not be discarded or changed very easily. Apart from the cost factor, the complicated and lengthy implementation process, the quality of operations and future success would depend very heavily on the initial choice.

Thus, though the RBI stipulation had opened up immense possibilities as well as opportunities for the banking sector – as also the information technology sector – it had simultaneously presented a few problems too. One of them was that not a single software vendor in India had any banking application software available that was geared for the next generation of banking. The then existing market situation was a product of union action, restriction and activism, vehement resistance to all forms of automation, mechanisation or technology upgradation. Those who lived through those years may recall those trying times with total exasperation.

In consequence, the vendors in India offering application software during that period to the banking industry had restricted themselves to dedicated, low capacity software suitable only for stand-alone computers. Not a single vendor had anticipated the move by the RBI. None had any suitable application software ready or on the drawing board, because there was neither a market for it at the time nor was the possibility anticipated by anyone. No research, development or investment was, therefore, directed at being prepared for such eventuality, either. The industry was caught totally unprepared by this development.

Resolving the technology conundrum

When the RBI came out with its guidelines for licensing new banks, I was with 20th Century Finance Corporation Ltd., based at its Raheja Centre head office at Nariman Point in Mumbai (Bombay). The file containing only the RBI guidelines landed on my table in January 1993. The bank project was added to my existing assignments, which were already more than I could handle.

The events that followed – from a slim, cardboard file right up to the new bank starting operations on 25 January 1995 – is a very interesting tale. It’s a story about setting up a commercial bank from absolutely scratch – with none in India or abroad to look for assistance or guidance, because no one had done it before. We did a lot of things for the first time ever[1] – but that’s a story to be told another day.

At that juncture, a critical issue was identification of suitable application software that would meet our grand IT plans. ‘Grand’, because these plans were far ahead of their times, viz., the era of ALPMs and ELPMs. For me in particular the project was very exciting indeed. It is not every day that one gets the opportunity to give back to the industry everything that one acquired during one’s career as a banker, or put into practice one’s ideas and dreams for a better, more efficient banking system. Rarely, if ever, would an ordinary banker be asked to set up a commercial bank from the very inception, or be given a totally free hand to shape it in his own way, to his best judgment. Such trust was rare. Here was an opportunity to set up a bank from scratch, to create something totally different from what existed then; an opportunity to create something entirely new, to give shape to what one would have considered, at best, as wishful thinking. It was an opportunity to shape the future of the banking industry. A rare opportunity of such magnitude brooked no compromise while selecting the best necessary for a whole new bank.

The software was going to be the heart of the bank, sitting at its very core running the entire operation. On that point, there was no doubt. In selecting the software, one had to make sure that it would meet the requirement of the future at least for several years to come, as well as provide a platform for growth. As a banker I had experienced difficulties and bottlenecks in transaction management, in operations, in communication, in managing and collating information, in accounting, in reconciling thousands of outstanding entries, and in a host of other areas. The assignment, therefore, was a dream-come-true, a great opportunity for me to make sure that the new bank did not suffer from these constraints. Going one step further, I tried to ensure that the bank could offer much more than was offered ever before by the industry to its internal and external customers. As stated earlier, the selection of the right software platform, its scalability, capabilities and potentialities became the key.

It was mentioned towards the beginning of this article that connectivity was a critical issue. Core banking required an efficient, on-line, real time communication system. Efficient, commercially viable alternatives to land lines were not available in those days. V-Sat had just then begun to be discussed. We were not sure when exactly the technology was going to be made commercially available. However, the important thing was that V-Sat was on the horizon, and appeared to fit our requirements perfectly. Hence, we decided to make our plans on the assumption that V-Sat technology would be available sooner rather than later, hopefully by the time the bank was ready to start operation.

I had mentioned earlier that, like everyone else, the large IT houses too had been caught unprepared for the nature of the expectations created by the sudden opening up of the banking sector. The best they could offer was stand-alone application packages customised for ALPMs (automated ledger posting machines) and ELPMs (electronic ledger posting machines). In response to our new demands they offered to link-up and network the stand-alone machines to help achieve our goals. Unfortunately, the offer was far removed from our idea of a centralised solution. We were looking for a hub-and-spoke arrangement (along with at least one mirror site by way of disaster management) whereby the branches and smaller offices would be networked and connected to the core, reducing cost but improving operation.

There were other reasons for insisting on this approach. One of them was technology management and upgradation. In our opinion, it was far easier to manage and maintain a core application rather than go around to all the offices for each and every modification or change in the system. For a large network of branches spread all over a country like India, issues of time, cost and operational constraints would have made the approach inefficient, impractical and unviable.

Core banking: The concept

Another critical issue revolved around information management. As bankers, most of us knew to our cost the amount of time that had to be set aside on a daily basis for the compilation of statements, reports and statistical returns. At head office, it was the job of major departments to call for and collate data. At branches, it was a full-time job of a section devoted simply to generating reports and returns for the controlling offices. Most of the time, the same sets of figures had to be re-arranged and presented in different formats for different departments through a large number of reports. Add to that the sudden but frequent call for unstructured, ad-hoc reports and statements from the controlling offices, and one can imagine the chaos that was routine in the life of a banker.

Timely, accurate and complete information was essential for running a bank efficiently. Almost every department and function, including treasury and money market operations, credit, risk management, customer profiling, marketing, planning and development, foreign exchange, needed management information to function. Taking the right decision depended on having the right information immediately, as and when required, properly collated and arranged in a structured format, without waiting for a collating process involving weeks if not months.

Centralised solution gave us a wonderful opportunity to solve the problem at one go. This meant that every bit of information would be available live, on-line, real time, always up-to-date and accurate, literally at the tip of your fingers. The possibilities that this offered were too tempting to ignore. Linking up of stand-alone machines, as proposed by the vendors, did not meet that requirement. Hence, such a proposal had to be rejected outright.

Other benefits expected to be derived out of switching from the manual or partially mechanised to a fully automated, centralised environment included the following:

1. Doing way with inter-branch reconciliation, a huge problem till then.
2. Reduction in processing time; significant reduction in transaction cost.
3. Reduction in back-office work load, resulting in better allocation of manpower and resources, extension of business hours for customers.
4. Improvement in the system of remittances and fund transfers.
5. Improvement in cash management, in better management of collection accounts and fund management on behalf of large corporate houses – including such mega accounts like Indian Oil.
6. Implementation of CRM, exposure and risk management; not possible till then in a manual environment.
7. Enabling the customers to execute their transactions at any of the bank’s offices, irrespective of their geographical location. (The birth of ‘Anywhere Banking’.)
8. Setting up automatic teller machines (ATMs).

A core banking solution would also go to resolve certain operational problems. Setting up and managing branches were expected to be faster, easier and at a lower cost, we argued. Because, all that would be required to set up a new branch were suitable premises, furniture, and a few computers. Link the computers through a server to a V-SAT terminal placed on top of the building, and you were in business. The arrangement also helped to offer all products at all outlets, irrespective of their distance from the controlling office or the bank’s head office.

I was the only banker with the promoter group who was involved with this project. Fortunately, the promoters too bought into this dream and gave full support.

The software solution

The reality at the ground level was, unfortunately, quite different. As I had said earlier, the technology vendors did not have any product ready to meet our requirement. Large, reputed houses like Wipro and Infosys offered to take up development of solutions, promising to tailor them to our needs. The problem was that we did not have at our disposal the lead time required to the development of the required application (including the unavoidable time for removal of glitches, bugs, for field tests, parallel run followed by live run etc.) prior to cutover to live run. Neither did we have the resources for the purpose. There was no one to spare who could be assigned, full-time, at a stretch over quite a long time span, committed to product development on such a large scale. At the back of our mind, there was also the possibility (and the risk) that any delay in the availability, or the lack of, a fully developed solution could hold up the very launch of the bank itself.

Top brasses from leading software houses visited my 6’X6’ office on the 12th. floor of Raheja Centre. Intensive brain storming with the leading lights of the IT industry took place almost daily. For, they realised that this was a turning point in banking software technology development. An opportunity that could hardly be missed. Top brasses of the Indian IT industry honoured us by visits to my tiny office at Raheja Centre over this issue. Unfortunately, our yet-to-be born bank neither had the time, nor the resources to commit to any of these proposals or plans. What we required was a ready solution in quick time. Because, creating a whole new bank from nothing involved working on a huge number of other things unique or routine (including, say, the designing of forms and registers), while the search for the core, the software engine, was on.

In due course of time we found what we were looking for. It was tweaked to meet our requirements and implemented across branches. In due course, other frontline software houses completely abandoned their earlier configurations that mainly attempted the link-up of individual, stand-alone computers in favour of the centralised banking solution approach. They adopted the concept and the framework of ‘Anywhere Banking’ that Centurion Bank[2] had devised and created, and successfully developed their own branded products. Some of them are now industry standards, used widely in India and overseas.

Conclusion

From the layman’s point of view, the term ‘Anywhere Banking’ conveys only a small part of what we wanted to achieve through our innovations while setting up a new bank. But the name stuck. ‘Anywhere Banking’ now represents the basic concept created for the very first time through ‘core banking’ or ‘centralised banking solutions’.

Centurion Bank Limited opened its doors on schedule on 25th. January 1995, with a glittering launch party at Goa the previous evening (where its registered office was located). An aircraft was chartered to ferry the guests from Bombay to attend the party. Another launch party was held at the Taj Mahal Palace Hotel, Bombay on the eve of the launch day, especially for those who could not attend the launch party at Goa.

The term ‘core banking system (CBS) has gradually developed to now become a generic term for centralised banking solutions. The Indian banking sector has built on the initial platform and has moved beyond what was first envisaged. I feel privileged to have been associated with a unique project, a game-changing concept that forever altered the face of the Indian banking industry.

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[1] For starters, I was directly involved in raising the voting rights from the then existing 1% to 10%. There was no memorandum and articles of association for an Indian commercial bank in the private sector; I had to create it from zero base. New application software meant new accounting procedure. How do you design that for an entire bank, especially when you are also toying with the idea of automatic printers for drafts and pay orders even though the machines were yet to be mass produced? The accounting framework also had to take into account my plans for nil pipeline transactions and zero reconciliation. These were only the tip of a huge iceberg.

[2] The bank is no more. Initially, it transformed itself as the Centurion Bank of Punjab Limited. Later, HDFC Bank took it over completely, merged the bank with itself, and the bank’s name was erased for ever.