Core banking

P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 1

CORE BANKINGPresentation by

P. R. KULKARNIManaging Director

Fluent Consultants Pvt. Ltd., Pune


In simple way it is doing all banking operations of Branches

and Head Office by connecting to a

central computer kept at DATA CENTRE

WHAT IS CORE BANKING


Working in TBA mode

In mere computerized functions each branch has its own computer and branch functions are thus automated on that computer. This is called as “Total Branch Automation (TBA)”.Back up of each branch is kept at Head Office on tapes, CD etc.Consolidation of data from different branches is done at Head Office at a decided periodicity.


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”


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.


Advantages of Core BankingCentralized 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 bankThis helps for timely effective decision making for financial management, a very critical and dynamic function in today’s banking.


Advantages of Core BankingCentralized 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.


Advantages of Core BankingIntroduction of Technology Based Services

Service channels such as ATM, either on-site or off-site, 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.


Advantages of Core BankingCentralized 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.


Advantages of Core BankingCentralized 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.


Advantages of Core BankingCentralized System Administration

Centralized system / I. T. administration enhances system security and user management.In TBA mode man-power for I. T. administration is required at each branch. But in core banking it is required only at one place. Thus reduction in man-power need and cost.Due to single point resource available I. T. manpower is utilized properly.


Advantages of Core BankingAdvantages to Head Office

Consolidation of MIS / statements / reporting at one place reducing duplication of tasks at branches and it is of real time.Supervision of branches on risk perceptions possible as on going process.Frequent audits and timely control measures can be initiated.Quick informal decisions on real time MIS.

Contd. …..



Faster and practically real time reconciliation of accounts.Centralized marking and movement monitoring of NPA accounts.Centralized follow-up and co-ordination of overdue and NPA accounts.For statutory reporting and compliance no need to wait for branch compliance

Contd. …..



Better ALM, especially for short term assets and liabilities possible.Product-wise, customer-wise, customer profile based analysis and decision making possible.Analysis of data on any aspect of banking business and control issues gives scope for keeping the bank professionally healthy.

Contd. ….



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.User access to the computer system in the bank can be restricted to his/her needs and authority only that achieves safety.

Contd. ….



Printing of several matters such as follow-up notices, statement of accounts etc. can be done centrally on “line printer” that reduces the printing time, printer and man-power need at each branch. Such printer can be activated by any branch on WAN command.Account opening and scanning of signatures can be done at central location.

Contd. …..



By installing mailing solution on the intra net of the bank, written communication in the form of letters, between H. O. and branches and vice versa, can be eliminated.Mailing solution can set parameters for decision timing and if not decided in time the mail can be escalated to next higher authority. This enhances the decision making procedure and delay at any level gets known to higher authority.


Advantages of Core BankingAdvantages to Credit Department

Reduced credit processing time for existing loan accounts as the Credit Department gets information handy.For processing of new loan accounts the information on product is available that facilitates proper decision.Real time credit tracking by setting alerts about delays, deviations, penalties etc.Corrective measures in credit portfolio can be quickly taken due to credit portfolio analysis.


Advantages of Core BankingAdvantages to Accounts Department

Centralized real time General Ledger and Profit and Loss Account almost eliminates accounting work.Greatly reduces paper work, inward communication needs and work of tallying.Deadlines of statutory compliance and submissions are met in time.Balance sheet of the bank available at any day, any hour, any moment.Accounts Department can concentrate on policy, compliance and reporting issues.


Advantages of Core BankingAdvantages to I. T. Department

I. T. Department becomes the focused entity and back-bone of the operations of the bank.Central data management and application reduces logistical problems and reaction time for system changes and/or troubleshooting.Parameter settings, interest application and such other works being done at one place avoid chances of otherwise repetitive mistakes at different branches and then load on I. T. Dept. for rectification work.


Advantages of Core BankingAdvantages 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.Even extension counters can provide all services to the customer

Contd. ….


Advantages of Core BankingAdvantages to Customers

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.


Advantages of Core BankingAdvantages 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.


Components of Core BankingNon-human Infrastructure

SoftwareHardwareData Centre / Disaster Recovery CentreConnectivity devicesConnectivity service providersSecurity equipmentsUninterrupted power supply arrangementsAnti-virus / Fire-walls


Banking Software – SelectionCheck Points

Since when the vendor is in the field.Who are the promoters.Whether the software is really ABB (Any Branch Banking – i.e. Core Banking) or TBA (Total Branch Automation).Present installations in ABB as well as TBA.What are optional modules ready.Database (Oracle / DB2/any other)

Contd. …..



Operating system (WINDOWS / LINUX).Antivirus – integrated or bank choice.Cost – if it includes conversion cost also. Mere cost should not be selection aspect.Data conversion responsibility and guarantee of correctness.Data cleaning cost, if any.Implementation period.

Contd. ….



Warranty period.Annual Maintain ace Contract –commencement and charges.Support.Organization Certification – CMM level.If software audited? If yes, by whom and when.ISO certification. If yes, exactly on which area.


Banking Software – SelectionCheck Points – for optional modules

ATM switchInternetTele BankingMobile bankingAnti Money Laundering (ALM)Income Tax issues and ReturnsSalaryCheque Deposit Machine


Selection of Hardware

Whether branded or unbranded.Warranty – one year or three year.Scope of warranty.Whether of exact need or spare capacity. If spare capacity considered is really required.Cost.Support.AMC.


Data Centre and Disaster Recovery Centre

Selection of site.Basic civil construction.Consideration about water leakage, seepage, oozing etc.Consideration about sun heat, exposed walls, cooling load factors.Technical design including security devices.Accessibility for different electrical wirings and connectivity connections / devices.


Connectivity Devices

Switch – connecting the computer to router.Router – connecting switch to connectivity channel.Lease lines – connectivity lines given by BSNL / MTNL.ISDN lines – fall back lines taken from BSNL / MTNL.Wireless communication systems.


Connectivity Service Providers

MTNLBSNLPrivate service providers on wireless method


Security Equipments

Restricted entry to I. T. Dept., Data Centre and Disaster Recovery CentreTemperature control with hootersFire alarmsFire extinguishersRodent controlWater leakage / seepage detection


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.


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 entryIf bank is allowing net-banking the fire wall needed is very strong


Core BankingHuman Issues

Change in mind-set for change in the way of business and operation done now and after core banking.Readiness by management, staff and customers for any eventual temporary discontinuation of business activity due to technical failure beyond control.Lack of skilled persons in I. T. Department.


Preparation for CBS

Data mappingData cleaningData standardizationConversion to CBS softwareCheckingFilling additional fieldsStaff mentality preparation, adoption-acceptance of CBSBusiness continuity plan


Threats and Risks of Core Banking

Total dependency on technologyAny failure on technical ground can halt the working with uncertainty about restoring normalcyStoppage of work has adverse effect on bank’s image and reputationTechnical person/s leaving the bank poses serious problemIf not mitigated by generating profit out of benefits of core banking the recurring costs are heavy


Security Policies Required

Database SecurityData Centre and Disaster Centre SecurityBack up – Initiation and SecurityBusiness ContinuityData RetentionNetwork Security and RiskInternet Security and RiskAudit TrailsOperating System Security and Risk


Costing for Core BankingInitial Costs

SoftwareHardware – servers, nodes, back-up devices, cablingNetworking – switches, routers, line procurementAntivirusSecurity instruments – fire prevention, entryAir conditioningCivil alterations – for data centre and DRPower supply – generator, UPS


Costing for Core BankingRecurring Costs – Rentals / AMCs

1. Hardware – AMC / updating2. Operating System – AMC / updating3. Software – AMC / updating4. Database – AMC / updating5. Antivirus – AMC / updating6. Mailing Solution – AMC / updating7. Printers / Cheque Deposit Machines/ATMs – AMC8. Generator, UPS, Batteries – AMC9. Lease Lines – AMC / Rentals10. Back up and Security Devices – AMC / updating


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 bankingSuch exercise will give idea about return on investment and in how many years the investment will be recoveredNormally within three years the investment should be recovered. Lesser period is advantage.


RBI views on computerization inCo-operative Banks

RBI had appointed a study group, for study of computerization in co-operative banks, in December, 2007 under the Chairmanship of Shri. R. Gandhi, Regional Director, RBI, New Delhi. The points for reference were,

1. Quality, level and use of computerization2. General structure / model for banks / group of

banks.3. Guiding principles for creation of infrastructural

needs for computerization4. What help RBI can extend5. How much help and in what way RBI extend help


RBI views on computerization inCo-operative Banks

The study group has expected, in report submitted in August, 2008, following as minimum level of computerization in banks,

1. Computerized front-end i. e. customer interface

2. Automatic back-end accounting through software

3. Computerized MIS, reporting and4. Automated regulatory reporting


Branch-wise classification of Co-operative Banks in India and Pune District

No. of banks in

India

%To total

No. of banks in

Pune Dist.

%To total

Unit Banks 894 52 19 32

2 to 10 Branches

656 38 28 46

11 to 25 Branches

135 8 10 17

26 or more Branches

29 2 3 5

Total 1714 100 60 100


Deposit-wise classification of Co-operative Banks in India

DepositsRs. In Crore

No. of Banks in India

Unit Banks % to total bank in category

5 to 10 581 133 57

10 to 100 909 515 57

100 to 500 190 16 8

above 500 34 0 0

Total 1714 664 50


Deposit-wise classification of Co-operative Banks in Pune DistrictDeposits

Rs. In CroreNo. of Banks in Pune Dist.

Unit Banks % unit bank to total bank in

category

5 to 10 2 2 100

10 to 100 33 17 52

100 to 500 19 0 0

above 500 6 0 0

Total 60 19 32


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.


Pune District - target banks for core banking

Number of branches criteria - 28 banks are between 2 to 10 branches. 10 banks having branches 11 to 25. Thus these 38 banks can think of core banking. Some out of this might be already on core.Deposit criteria – 16 banks have deposit between 10 to 100 crore. 19 banks have deposit between 100 to 500 crore. Thus these 35 banks can think of core banking. Some out of this might be already on core.


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


THANKSPresentation by

P. R. Kulkarni

Managing DirectorFluent Consultants Pvt. Ltd., Pune

Core banking

Documents

Transcript of Core banking