Core banking system
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This document provides information about the evolution of core banking systems from earlier total branch automation systems. It describes how core banking allows for real-time sharing of customer information and processing of transactions across branches through centralized data centers and networking. The core banking system provides many benefits like centralized accounting, product monitoring, introduction of new technology-based services, and improved customer service by allowing customers access to their accounts from any branch.
Core banking system
- 2. Total Branch Automation Total Branch Automation was in existence before Core Banking System was implemented. TBA itself was deemed a technology development compared to its predecessor Advanced Ledger Printing Machines (ALPMS). In the Total Branch Automation system each branch was performing the branch operations in totality at the respective branch. As each branch was self reliant in as much as all the information regarding the branch operations was available at the server located at the branch. The final output was transmitted to the head office . The data was transmitted either on a CD or a Floppy. The information on this media was processed at the Central Office for consolidation of accounts and preparation of reports.
- 3. History This scheme in 1988 was brought under the chairmanship of Dr. C Rangarajan. In 1994-96, many private banks started offering anytime and anywhere banking facilities to their clients. The TRAI with mission generated and nurture the growth of telecommunication, LAN (Local Area Network) was replaced by WAN (Wide Area Network). Syndicate bank was the first among the public sectors banks to implement Core Banking solution, way back in 2001.
- 4. Core Banking – Basic Concept With technology advancement particularly in “Tele Communication” and “Wireless Communication” it became possible to send data from one computer to another computer. Taking advantage of this it was thought fit to connect branch computers to a single computer at data centre and have all transactions of all branches recorded live at one place. This concept is “CORE BANKING”
- 5. Core Banking – Business Change As the single computer at data centre get live data from branches position of the bank as a whole is available at one place at each moment. This system of operations then brought total change in traditional banking operations. Many repetitive functions at branches were taken at central place. This is called “business re-engineering” in terms of shifting to core banking. This change brought many advantages to bank and its customers and also changed customer service dimensions.
- 6. BASIC COMPONENTS Banking Application Software Hardware Components Network Infrastructure Centralized Data Processing
- 7. APPLICATION AREAS Balance of payments and withdrawal are done. Mobile banking Internet banking ATM’s Recording of transactions Passbook maintenance Interest calculations on loans and deposits Customer records
- 9. TECHNICAL TERMS Data Centre (DC) – The place where the central server / servers are housed. Disaster Recovery Site (DRS) – An alternate data Centre which will act as a backup resource and ensure business continuity in case of a DC failure. Data Mirroring – Storage devices attached to Servers located in DC and DRS are updated on a real time basis, so that data integrity as well as availability are ensured even in case of a hardware failure. Bank’s real time data is stored in multiple devices and locations. Backup – Data stored in the fixed storage devices are copied on to removable storage devices / tapes and preserved for any future contingency. These backups are stored in some off-site location to avoid the damages on account of a disaster like earth quake, fire, flood etc. Leased Lines – These are the primary data links used for CBS networking. These are analog links on fixed yearly rentals and there are no additional usage charges.
- 10. ISDN Lines – These are the secondary data links put to use in case of a Leased line failure. These are integrated services digital network lines which can carry various forms of information packets (data, voice and images and video) as digital signals (given by BSNL/MTNL). Modem – This is networking equipment used to modulate and demodulate the data signals. Computers work on digital data signals where as the leased lines can carry only the analog signals. Modems modulate (convert the digital signals to analog signals) at the transmitting end and then demodulate (Convert the analog signals to digital signals) at the receiving end. Router – Router is another network device that connects different LANs and facilitates intelligent data transfer. Router also functions as an intelligent switching device between various connectivity channels, viz., leased line, ISDN, PSTN etc. When the primary link (LL) is down, it automatically dials the ISDN and re-establishes the network connectivity.
- 11. Switch – In a branch there can be more than one computer and these computers are networked to form a local area network (LAN) using a device called switch. Regional Cluster Centre (RCC) - Instead of taking separate links between individual branches and the data Centre, branches in a geographical region are first connected to a location in that region and this location is then connected to the data Centre using links of higher band width. This location is termed as a regional cluster Centre.
- 12. NEED OF CBS To meet the intense competition and changing market dynamics in an over banked environment. To meet the demands of customers who are better informed, more demanding and less loyal than ever. To enhance efficiency and effectiveness. Increasing customer satisfaction and convenience Freeing up time for branch staff to focus on sales and marketing Simplifying process for employees Enhancing bank’s competitiveness in the market
- 13. Advantages of Core Banking Centralized Accounting All the transactions of the bank directly impact the General Ledger and Profit and Loss Account. This provides a real time total picture about the financial position and situation of the bank. This helps for timely effective decision making for financial management, a very critical and dynamic function in today’s banking.
- 14. Advantages of Core Banking Centralized Product Control & Monitoring Centralization helps in better product analysis, monitoring and rollout. Aspects like interest rate modifications, product modification and interest application can be done centrally from one place for all the branches. Bank can quickly respond to market scenario and customer needs. This gives competitive edge to the bank.
- 15. Advantages of Core Banking Introduction of Technology Based Services Service channels such as ATM, either on-site or offsite, can be started. Cheque Deposit Machines (CDM) can be installed. Such machine in WAN connectivity can allow any customer to deposit the cheque for collection at any branch. Cheque book printing machine can be installed at central location to give personalized cheque books. Such machine in WAN connectivity can receive command from any branch.
- 16. Advantages of Core Banking Centralized Customer Account Management Any customer becomes the customer of the bank rather than of a branch. With unique ID / Account Number the accounts of the customers can be viewed centrally by the bank. As such, customer profile, details of products and services availed by him and customer behavior about business of the bank can be well understood. Such customer view gives the bank opportunity to decide directions for business development and marketing strategies.
- 17. Advantages of Core Banking Centralized Reporting Presence of centralized data constantly live up-dated at any time ensures comprehensive report / statement generation. This tremendously helps in decision making as well as submission to various authorities. Operational efficiency of the bank gets increased due to quick report generation for bank as a whole.
- 18. Advantages of Core Banking To Customers Customer can operate his account from any of the branch of the bank. More service channels can be made available to the customer. Customer gets immediate credit if the transaction is between the branches of the bank. Customer can enjoy the Online and real time banking facilities through ATMs Customer gets full attention and service satisfaction at the branches as the branches are freed from all back office functions, clearing functions and almost all accounting functions. Customer can get SMS alerts on his mobile or e-mail alerts through net for transaction taking place in his account. This gives him comfort and security.
- 19. Advantages of Core Banking To Branch functionality With reduced work at the branches they can focus on development of business, customer service and attendance and meaningful liaison with customer for getting new business. Since customer needs are known with proper analysis, they can be well attended even before their demands that boosts the image of bank as customer savvy. This increases business and thereby profit.
- 20. BENEFITS TO BANKS Replace old technology seamlessly with a state-of-the-art n-tier application. Replace multiple disparate and older generation systems with a single integrated multi-product processing application across various countries. Create a virtual banking operation from ground-up and offer a host of banking products. Enable multiple new delivery channels (Internet Banking, 7 X 24 ATM, Mobile Banking, Tele-banking and Point of Sale Terminals) allowing the bank to reach out to new customers and segments.
- 21. Clearing function is centralized reducing man power requirement at each branch for the purpose. Audit on operational aspects of the accounts can be done at a single location as entire data is available at one place. Account opening and scanning of signatures can be done at central location User access to the computer system in the bank can be restricted to his/her needs and authority only that achieves safety.
- 22. Security Equipments Restricted entry to I. T. Dept., Data Centre and Disaster Recovery Centre Temperature control with hooters Fire alarms Fire extinguishers Rodent control Water leakage / seepage detection
- 23. Uninterrupted Power Supply For core banking continuous power supply at Data Centre (DC) and Disaster Recovery Centre (DR) is essential. Generator set, UPS and batteries of high capacity are required with redundant capacity needed. Failure of any system should be thought over as alternate.
- 24. Anti Virus and Fire Walls Strong and constantly up-dated antivirus is required to protect virus threats coming through external devices use on computers such as pen-drive, CD etc. The servers need to be protected by fire wall to prevent virus entry If bank is allowing net-banking the firewall needed is very strong
- 25. Threats and Risks of Core Banking Total dependency on technology Any failure on technical ground can halt the working with uncertainty about restoring normalcy Stoppage of work has adverse effect on bank’s image and reputation Technical persons leaving the bank poses serious problem If not mitigated by generating profit out of benefits of core banking the recurring costs are heavy
- 26. Costing for Core Banking Software Hardware – servers, nodes, back-up devices, cabling Networking – switches, routers, line procurement Antivirus Security instruments – fire prevention, entry Air conditioning Civil alterations – for data centre Power supply – generator, UPS, Batteries Printers / Cheque Deposit Machines/ATMs Lease Lines
- 27. Return on Investment Bank should take a stock of the situation about the cost of benefits bank is gaining and income generation due to core banking and then evaluate the expenditure incurred for core banking Such exercise will give idea about return on investment and in how many years the investment will be recovered Normally within three years the investment should be recovered. Lesser period is advantage.
- 28. Hard Facts to face Unit banks will not require core banking. Small banks take software from local vendors who either disappears or he is not able to make subsequent changes / updating. Small banks do not have I. T. trained staff. In present supervisory environment the authorities expect highest level of computerization and its use in banks. Expectations of customers and of controlling authorities are to adopt core banking by the banks.
- 29. Cost sharing / minimizing Two or more banks can come together to negotiate for cost of software, hardware and all such cost items. Bargaining power makes the effect. Data Centre sharing by two or more banks can be considered. Data Centre can be taken on rental basis from bank that has already installed the same. Only Disaster Recovery Centre can be shared or taken on rental. Association can act in several ways as central agency for banks and may consider of having a data centre and DR Centre for giving on hire to banks