Iibs session 1
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The document discusses the banking system and the evolution of banking and technology in India. It provides historical background on the development of banking from the Bank of Hindustan in 1870 to the nationalization acts of 1969 and 1980. It describes the structure of the Indian banking system and the key principles of intermediation, liquidity, profitability, solvency, and trust. It also summarizes the increasing role of technology in banks from early mechanization to current digital services and core banking solutions that allow customers to bank anywhere.
Iibs session 1
- 1. INTERNATIONAL INSTITUTE OF BUSINESS STUDIES By: C.S.NAGARAJA RAO LESSION 1
- 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.
- 4. BANKING SYSTEM Banking business, like any other business, has to be profitable in order to sustain the required growth.
- 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
- 12. IT REVOLUTION •e-REVOLUTION •e- BUSINESS •e- GOVERNANCE •e- SECURITY ------
- 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 ?
- 18. Yes….But…… “Technology can help fulfil a visionary dream, but often its use is closer to a sobering nightmare!”
- 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.
- 27. 27 Pervasive Branch Network Global Operations Complex Credit Calculations Innovative Risk Management Banking and Technology Mass Transaction & Items Processing NEED FOR CBS
- 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
- 38. THANK YOU