technology in indian banking 2008

Commercial BankingCommercial BankingTechnology in Indian Banking Technology in Indian Banking

PGP I (2007-09)PGP I (2007-09)April, 2008April, 2008

Commercial Banking Technology in Indian Banking 2007

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Electronic Banking

ATMs

Head Office

Branch Banking

Branch 1

Branch 2Branch 3

Branch 4

Branch 5

Branch 6

Branch n


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Glossary in E-Banking Glossary in E-Banking • ALPM – Advanced Ledger Posting

Machine – Micro processor based electronic device used for maintenance of primary ledgers, working out products and interests at periodical intervals, preparation of account statements and listing of standing instructions to be executed in the accounts.


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Glossary-2Glossary-2• BANKNET – A communication software to

provide message and file transfer between branches of banks and across banks

• CRM –Customer Relationship Manage-ment is an information technology industry term for methodologies, strategies, software, and other web-based capabilities that help an enterprise organise and manage customer relationships.


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Glossary-3Glossary-3

• DBMS – Database Management System – A set of computer programs that controls the creation, maintenance, and utilisation of the databases of an organisation

• E-Commerce is conducting business communications and transactions viz computers over networks. It is the buying and selling of goods and services through digital communication


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Glossary-4Glossary-4• SWADHAN – India’s first Shared

Payment Network Service (SPNS) offering countrywide access to banking operations at more than 1,000 ATMs in and around 64 cities. It has 55 member banks in the network – which includes public, private and foreign banks.

• Touch Screen – recognises human touch. Users can point to the select something on the screen


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E-BANKING DEVELOPMENTSE-BANKING DEVELOPMENTS• ALPMs and Back Office Computerisation• NEED TO IMPROVE CUSTOMER SERVICE• RECONCILIATION / UNION PROBLEMS• ADVENT OF PC IN 1980s• COMPETITION AND REFORMS• INTRODUCTION OF COMPUTERISATION

– CLEARING HOUSES, ATMs, ELECTRONIC FUND TRANSFERS, BANKNET, SWIFT, ELECTRONIC MAIL, CREDIT CARDS, ONLINE BANKING, TELE-BANKING, ETC


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Committees on Committees on Computerisation in Computerisation in

Banks in India 1982-1995Banks in India 1982-1995

1. Working Group to consider feasibility of introducing MICR / OCR Technology for Cheque processing (1982)

• Convenor : Dr Y B Damle, Advisor, Management Services Department, RBI


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Committees on Committees on ComputerisationComputerisation

2. Committee on Mechanisation in the Banking Industry (1984)

Chairman : Dr C Rangarajan, Deputy Governor, Reserve Bank of India


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3. Committees on Communication Network for Banks and SWIFT implementation (1987)

Chairman : Shri TNA Iyer, Executive Director, RBI


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4. Committee on Computerisation in Banks (1988)

Chairman : Dr C Rangarajan, Deputy Governor, RBI


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5. Committee on Technology Issues relating to Payments System, Cheque Clearing and Securities System in the Banking Industry, (1994)

Chairman: Shri W S Saraf, Executive Director, Reserve Bank of India


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6. Committee on proposing Electronics Funds Transfer and Electronics Payments (1995)

Chairperson: Smt K S Shere, Principal Legal Adviser, Reserve Bank of India


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Bank Branches – 2006 (x- RRBs)Bank Branches – 2006 (x- RRBs)

Banks Rural S’Urban Urban Metro Total

19 Nat’d 12,990 7,103 6,990 6,929 34,012

8 SBGr 5,229 4,043 2,449 2,110 13,831

1 IDBI 2 17 66 88 173

19 OPBs 936 1,447 1,236 947 4,566

8 NPBs 97 322 674 857 1,950

29 FBs 0 1 37 221 259

TOTAL 19,254 12,933 11,452 11,152 54,791


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Indian Banking @ Cross Roads?Indian Banking @ Cross Roads? • Computerisation - Modernisation ?• Extended Hours (24x7)- Competition?• NPAs, Provisions & Strain on Profitability?• Prudential Norms - ALM - Risk Mgt ? • Mergers & Acquisitions - Universal Bkg?• Voluntary Retirement Scheme Effects ?• Downsizing - Outsourcing ?• Alliances - Bancassurance ?

• Automate or Else ......... Perish ??????


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Indian Banking-Now...Indian Banking-Now...• Transparency in Banking; Compliances• Narrow Banking• Relationship Banking• Retail / Personal / Private Banking• Hi-tech Banking• E Age-Banking• Mobile Banking / Phone Banking• Network Banking• Virtual Banking • Universal Banking• Online Banking / Internet Banking


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WHY TECHNOLOGY IN BANKS ?WHY TECHNOLOGY IN BANKS ?

• TO TRANSFORM FINANCIAL SERVICES INDUSTRY IN THE NET-WORKED WORLD– BANKS TO BE CUSTOMER CENTRIC – PROVIDE SERVICES / PRODUCTS

ACROSS A RANGE OF CHANNELS– TO BE FUTURISTIC AND HAVE “TIME”

VALUE IN ALL ITS DEALINGS WITH CUSTOMERS


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Many Benefits of TechnologyMany Benefits of Technology• Increased operational efficiency, profitability &

productivity• Superior Customer Service• Multi-channel, real-time transaction processing • Better Cross-Selling ability• Improved management / accountability• Efficient NPA and Risk Management• Minimal transaction costs• Improved financial analyses capabilities


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Pre-requisites for Technology

Planning for Planning for

DisastersDisasters

Business Process Business Process

Re-engineeringRe-engineering

Human ResourceHuman Resource

EmpowermentEmpowerment


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Focus aspects of Commercial Banking

Core Banking (CBS)

ATMs

Card Management

Any Branch Banking

DocumentManagement

RiskManagement

ResourceManagement

MIS & Intranet

CRM

Corporate Network

Electronic Banking

POS Terminals and Cash dispenser

BANK’S BUSINESS

BANK’S BUSINESS

RA

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PO

SIT

SL

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NS

& M

ISC

. SE

RV

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Benefits of Virtual BankingBenefits of Virtual Banking• To Banks

– Large satisfied customers and higher retention

– Scope to attract new customers– Improve quality and differential services– Greater opportunity to cross sell– Sharing network and Cost Saving– Increased volumes and profits– Reduce overall risk with proper MIS


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Benefits to CustomerBenefits to Customer• More convenience & flexi timings

• Better awareness of products & services

• Up-to-date information on accounts

• Low cost of accessing the accounts


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BANKS’ IT STRATEGYBANKS’ IT STRATEGY• INVESTMENT IN HARDWARE• ACQUIRING / DEVELOPING SOFTWARE• TRAINING OF STAFF AT DIFFERENT LEVELS• NETWORKING OF OFFICES – R-S-U-M?• SECURITY FOR TRANSACTIONS & INFO• GLOBAL REACH• ONLINE BANKING, OUTSOURCING


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Internet BankingInternet Banking• Issues of Confidentiality ?• Hacking and Fraud prone ??• Scope for failure of Technology ???• Resultant denial of Services ????


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INST. FOR DEV & RESEARCH IN INST. FOR DEV & RESEARCH IN BANKING TECHNOLOGY BANKING TECHNOLOGY

• TO PROVIDE TECH’ & OPERATING SUPPORT TO Bks / Financial Institutions

• SET UP BY RBI AT HYDERABAD - 1996• FUNDED BY RESERVE BANK OF INDIA• AN AUTONOMOUS CENTRE FOR DEV AND RESEARCH IN

BANKING TECHNOLOGY• “THINK-TANK” FOR PROMOTION OF TECH• RESEARCH & CONSULTANCY• www.idrbt.ac.in


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IDRBT, HYDERABADIDRBT, HYDERABAD• V-SAT BASED FIN’ NETWORK FOR BKs• DATA WARE-HOUSING & DATA MINING • PUBLISHING A JOURNAL ON IT IN BKG • WEB BASED TRAINING TO EXECUTIVES• INDIAN FINANCIAL NETWORK(INFINET)

– INTER BANK APPLICATIONS LIKE RTGS– DELIVERY Vs PAYMENT, GOVERNMENT

TRANSACTIONS– AUTOMATIC CLEARING HOUSE, ETC


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DEVELOPMENTSDEVELOPMENTS

• ALPMs• CLEARING HOUSE• CAR,CRR,SLR,PS,NPAs• CREDIT/DEBIT CARDS• NICNET,I-NET, RABMN• INFINET, RBINET• BANKNET, NDS, SFMS• MICR, ATMs, SWIFT• DEMAT, IT ACT-2000• INTERNET BANKING• ECS, EFT, SEFT, RTGS• CROSS SELLING

• ALM & RM, MIS• CRM, KYC, AML • Core Banking Solutions• KISAN /SME CARD• CREDIT INFO BUREAU• DISASTER

MANAGEMENT• Cheque Truncation• CYBER CRIMES –

HACKING, PHISHING, PHARMING, TROJAN, SKIMMING, ETC

• SMART CARDS


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Communication NetworksCommunication Networks• MICR (Magnetic Ink Character Recognition)

Clearing• BANKNET• INFINET• SWIFT• Electronic Data Interchange (EDI)• Electronic Funds Transfer (EFT) System• Electronic Clearing Services (ECS)• ATM network - SWADHAN (Shared Payment

Network System -SPNS)


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MICR CLEARINGMICR CLEARING• Magnetic Ink Character Recognition• Introduced in 1987 in the four metros• 1,047 Clearing Houses; 42 with MICR• SB/CA Cheque leaves standardised size

(8 X 3 2/3”) are pre-printed with the bank-branch code and account type in MICR strip, while the amount is read manually and fed into the system using the encoders for funds settlements

• Speeds up clearing work• BC/DW/TC/DD/PO/GC/IW/RW/SI...


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Automated Teller MachinesAutomated Teller Machines• ATMs or 24 hour Tellers – Electronic

Terminals - allow to bank at any time...• On-site (near branch) and Off-site ATM• ATMs facilitate withdrawal/deposit....• Customer provided with a PIN / Card• Introduced in India by Foreign Banks• SWADHAN / SPNS wef Feb 1, 1997• Introduced in Mumbai by IBA initiative

www.iba.org.in


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SBI’s Mobile ATM in KeralaSBI’s Mobile ATM in Kerala


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Bank ATMs – 2007 (x-RRBs)Bank ATMs – 2007 (x-RRBs)

Banks On-Site Off-Site Total

19 Nat’d 6,377 2,991 9,888

8 SB Group 3,655 2,786 6,441

1 IDBI Bk 257 263 520

18 Old PBs 1,104 503 1,607

8 New PBs 3,154 5,038 8,192

29 FBs 249 711 960

TOTAL-83 14,796 12,292 27,088


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ATMsATMs• On-site and Off-site Automated Teller

Machines -MOBILE, BIOMETRIC ATMs• Total installed ATM base – >21,000 • Average withdrawal per ATM

transaction - Rs 1,500 to Rs 3,000• Total cash movement through ATMs in

India is Rs 35,000 - 40,000 crores every year

• Medium for non-cash transactions such as printing of statements, credit card enquiry, cross selling, etc


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Cross SellingCross SellingThe strategy of pushing new

products to current customers based on their past purchases. Cross-selling is designed to widen the customer's reliance on the bank and decrease the likelihood of the customer switching to a competitor.


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Cross Selling Cross Selling ADVANTAGESADVANTAGES

• Customer servicing, marketing, communication costs - lessen

• Credit appraisal made easy• Increased loyalty – married to the

bank!• All-in-one financial super market –

consumer• Business/employee - increases


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BANKNETBANKNET• Set up in 1991 by RBI• Meant to facilitate transfer of inter-

bank/ inter-branch messages within India by Public Sector banks who are members of this network

• Wide connectivity - Major Centres like Mumbai, Delhi, Calcutta, Madras, Nagpur, Bangalore, Hyderabad, Pune, Ahmedabad, Kanpur, Lucknow, Chandigarh, Kochi, Jaipur, Bhopal, Patna, Bhubaneshwar, Thiruvanantha-puram, Guwahati, Panaji, Jammu, etc


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INFINETINFINET• Indian Financial Network • Set up by RBI in June 1999 • Satellite based WAN using VSAT (Very Small

Aperture Terminal) technology • The hub and Network Management System of

INFINET are located in the Institute for Development and Research in Banking Technology, Hyd

• Major applications: E-mail, Electronic Clearing Service - Credit and Debit, Electronic Funds Transfer

• http://www.idrbt.ac.in/index_fromsm.html?infinet1.html?infinet


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SWIFT www.swift.comSWIFT www.swift.com• Society for Worldwide Inter-bank Financial

Telecommunication• HQ La Hulpe, Brussels, Belgium • Provides reliable, fast tele-communication

facilities for exchange of financial messages all over the world between Banks and FIs

• As non-profit making co-operative society in 1973 by 239 banks in 15 countries

• Hubs in Brussels, New York and Netherlands• Rules in 1975; first message in 1977• >7,000 members in 200 countries now• Handles over 7 million messages every day• India – a member since 1991• 88 Indian banks are members as on date


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SWIFT contd...SWIFT contd...

• Any Bank / FI can become a member• Allots an address called Bank Identi-

fication Code (BIC) of 8 characters• Enables members to send secure and

reliable messages – authenticated...• Correspondent bank arrangements...• Advantages: 24 hours service, system

based – fraud-free – faster – accurate – confidential – funds/LCs/Guarantees


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Electronic Data Interchange Electronic Data Interchange • Facilitates transfer of banking transa-

ctions using agreed protocol and standard data structure b/w computers

• Norms developed in respect of specific messages for transmission of business transactions which are electronic equivalents of commercial invoices, purchase orders, transport bookings, payment instructions etc

• Appropriate message formats and standards for financial applications in EDI developed by Message Development Group-Finance (constituted by IBA)


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Electronic Funds Transfer (EFT)Electronic Funds Transfer (EFT)• Hosted and operated by the RBI• Permits fund transfer up to

Rs 5 lacs from any account at any branch of any member bank in any city to any other account at any branch of any member bank in any other city

• RBI acts as the service provider as well as regulator


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ECSECS• Electronic Clearing Scheme (ECS)

operated by the RBI since 1996-97• Utilises BANKNET and INFINET• Facilitates payment from a single

account at a bank branch to any number of accounts maintained with the branches of the same or other banks – Eg., Payment of dividends

• RBI has also launched ECS – Debit for payment to utility companies like Telephones, Electricity etc


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• Launched in 1997

• India's FIRST Shared Payment Network Service covers > 1000 ATMs in 64 cities

• 55 member banks in the network, which include nationalized, private and foreign banks

• Enables member banks to share their ATMs with other participating banks

• Objective - reduce the huge investment being made by the banks to deploy ATMs in different locations

SWADHANSWADHAN


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SERVICESSERVICES• Bill Payment through Electronic

Banking • Electronic Shopping Mall • Effecting Personal Investments

through Electronic Banking– Trading in shares – Investing in Mutual Funds– Trade In Derivatives– IPOs Online


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Real Time Gross SettlementReal Time Gross Settlement• Introduced in India in 2004 by RBI• Internationally accepted system to

minimise the settlement risks• Settlements occur simultaneously• >10,000 bank branches networked• Balances held with RBI by banks• 4 types of members – A, B, C & D• http://www.iba.org.in/FAQs-RTGS-NEFT-

ECS.doc


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Cheque Truncation SystemCheque Truncation System• IN USE IN MANY COUNTRIES ...• NI Act was amended appropriately• Settlement based on e-images/MICR• RBI Wg Gr submitted report in 2003 • Images to be preserved for 8 years• Pilot project in New Delhi in 2006• Reduces delays in collections...• Fraught with risks, legal issues...


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Customer Relationship Customer Relationship Management (CRM)Management (CRM)

• Not a product / service, but a strategy• Increasing competition among banks• Customer expectations and demands• Product development / Service Quality• Know Your Customer (KYC) guidelines• Knowledge Management in Banks• Call Centres, DSAs, Franchisees in Banks• Two Banking Ombudsman Schemes• Core Banking Solutions & CRM Packages

for Best Customer Service


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Customer Relationship Customer Relationship ManagementManagement

• Customer Analytics– Statistical Credit Score Card

• Demographic details• Transaction details• Historical loan default data

• Targeted Marketing Campaign– Carpet bombing avoided– Hit rate increases


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Core Banking Solutions Core Banking Solutions (CBS)(CBS)

• POOLING DATA AT CENTRAL SERVER• TRANSACTIONS OF DELIVERY CHANNELS

FROM DELIVERY POINTS (BRANCH/ATM) FEED ONLINE TO HOST – NO BACK OFFICE

• HOST DATABASE IS UP TO THE MINUTE• END OF DAY (EOD) AND START OF DAY (SOD)

TASKS PERFORMED AT BRANCHES WILL BE DONE BY ‘HOST’ SERVER

• ELIMINATES BR RECONCILIATION WORK• STAFF PRODUCTIVITY – BANK CUSTOMER!


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Smart Cards – The FutureSmart Cards – The Future• Multi-application Smart Card• Channel of the future• Pilot project started• Pilot Project funded by Govt. of India• Project is in progress in partnership

with IDRBT, IIT Mumbai and Banks• Visit www.scafi.in The Smart Card

Forum of India is a non-profit, multi-industry organization promoting the wide spread acceptance of multiple application smart card technology.


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Beware ofBeware of

• Hacking• Phishing• Pharming• Skimming• Trojan


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HackingHacking• Hacker: May mean simply a person with mastery of computers.

• TIMELINE • Early 1960s

Hackers begin breaking into mainframe computers.• 1983

The FBI busts six teen-age hackers from Milwaukee; one of the first arrests of hackers.

• 1984 First issue of 2600: The Hacker Quarterly in New York: prime source for hacking information

• 1985 “Phrack”, an electronic magazine about computer hacking, begins.

• 1987 AT&T computers hacked into by Herbert Zinn...............................................

• ......................................................................................................................• ......................................................................................................................• February 2000

In only three days some hackers brought down some of the biggest Web sites in the world that included Yahoo!, Amazon.com, Buy.com, eBay and CNN.com. They used"Denial of Service" attacks to overloaded the sites' servers by sending them an excessive number of data requests.


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PhishingPhishing

A method of identity theft carried out through the creation of a website that seems to represent a legitimate company.

The visitors to the site, thinking they are buying something from a real business, submit their personal information to the site.

The criminals then use the personal information for their own purposes, or sell the information to other criminal parties.


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www.antiphishing.comwww.antiphishing.com


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PharmingPharming


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SkimmingSkimmingAn electronic method of capturing a victim's

personal information used by identity thieves. The skimmer is a small device that scans a credit card and stores the information contained in the magnetic strip. Skimming can take place during a legitimate transaction at a business.

Skimming can occur easily in a restaurant because your card is taken away when the bill is being settled. If your server is a skimming identity thief, he or she will, before giving the card back to you, scan the credit card with a hand-held electronic device, which takes only seconds.

The electronically captured information is then used to by the thief or sold to other criminals


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TrojanTrojan• Trojan horse is a program that installs malicious software while

under the guise of doing something else. Though not limited in their payload, Trojan horses are more notorious for installing backdoor programs which allow unauthorized non permissible remote access to the victim's machine by unwanted parties - normally with malicious intentions.

• Unlike a computer virus, a Trojan horse does not propagate by inserting its code into other computer files. The term is derived from the classical myth of the Trojan Horse. Like the mythical Trojan Horse, the malicious code is hidden in a computer program or other computer file which may appear to be useful, interesting, or at the very least harmless to an unsuspecting user.

• When this computer program or file is executed by the unsuspecting user, the malicious code is also executed resulting in the set up or installation of the malicious Trojan horse program. (See Social engineering.)

• Often the term is shortened to simply Trojan.


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References:References:• Information Technology & Electronic Banking –

Indian Institute of Bankers, Mumbai, May 1998• Information Technology & E-Banking – ICFAI,

Hyderabad, October 2004• Retail Banking, Everything you need to know to work

in a Bank - Raghu Palat, IBD, Mumbai 2006• Banking on Technology, Indian Management – AIMA

Publication, August 2004• Building CRM – Customer Relationship Management

& KYC experience through Technology – BanCon, IBA Conference, 2004; Indian Banker Feb 2006

• Trend and Progress of Banking in India, RBI 2006• www.rbi.org.in; www.idrbt.ac.in; www.google.co.in;

www.swift.com; www.iba.org.in; www.antiphishing.com;


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And now... ...WIMAXAnd now... ...WIMAX• World-wide Interoperability Micro-

wave Accessibility...

technology in indian banking 2008

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