the future of banking ppt

8/3/2019 The Future of Banking PPT

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Workshop on

The Future of Banking organized by

HMA & ISB(October 30, 2004)

Vepa Kamesam

Former Deputy Governor, RBI

Currently Chairman,


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INSTITUTE FOR DEVELOPMENT AND

RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT

Technology and Banking

The Quintessence Nature of Banking harmonizesclosely with Technology

Banking Technology

Information

Storage

Processing

Transmission

Tasks Common toBoth


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Pervasive Branch

Network

Global Operations

Complex CreditCalculations

Innovative RiskManagement

Banking

and

Techn

ology

Mass Transaction& Items Processing


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Many Benefits of Technology

Increased operational efficiency, profitability &productivity

Superior customer service

Multi-channel, real-time transaction processing

Better cross-selling ability

Improved management and accountability

Efficient NPA and risk management

Minimal transaction costs

Improved financial analyses capabilities


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Focus aspects of Commercial Bankingnow are:Core

Banking (CBS)

ATMs

CardManagement

Any Branch

BankingDocument

Management

Risk

Management

Resource

Management

MIS &

Intranet

CRM

Corporate

Network

Electronic

Banking

POS Terminalsand Cashdispenser

BANKS BUSINESS

BANKS BUSINESS

RAI

SIN

G

LOANS&

MISC.SERVICES


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nanc a ec no ogyInfrastructureData Center to host servers for:

CBS ATM/Financial Switch Internet BankingDW/DM/CRM/MIS etc.

Back-office Application E-mail Servers, Internet Server,

Enterprise-wide Network & NetworkingEquipment

Security SystemsSystems at Branches/RO/ZO/CO Depts.

Supporting Systems

Disaster Recovery Site & Business

Continuity


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Technology A Differentiator

Technology is indeed a differentiator not only in

terms of competitive advantage, but also in

terms of administrative and back-endprocesses.

Butdue to rapid technology deployment in

Indian banking sector, the haves and have-nots gap is all set to narrow quickly.


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Technology Differentiation Fades Gradually.


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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT

How Long a Differentiator?

Then.can technology be enough of a differentiator? Any new technology or technology-enabled process can act

as a differentiator or a competitive edge for some level of

time.

After that time, the technology still has to be adopted as a

necessity and as a cost of doing business

Thanks to shortening technology life cycles, it would be short

sighted to assume that technology would be a long termdifferentiator


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Elements of Technology as a

Differentiator

Scalability

&Flexibility

Efficient

utilisation,mgmt

Process

enabling

Utility to

customer

Support

Skills

For Long-Term Differentiation


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Issues with Customers

Not only employees, there are problems for

customers too when a new technology

arrives

The major challenges

Comfort levels

Security and trust issues

Convenience factor

Getting rid of myths

Migration from existing to new systems

Changing the habits


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POS Terminal and Cash Dispenser

POS Terminal

Connected toCash dispenser


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Electronic

Banking

ATM

Head Office

BranchBanking

Branch 1

Branch 2Branch 3

Branch 4

Branch 5

Branch 6

Branch n


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Technology Acquisition

Inappropriate technology purchases can be the root of all

problems The Bank management has to:

Give thought to the utilization rate

Avoid knee-jerk reactions (they have done itI should also

do it)

Be impartial in technology decisions (I like that technology

I want it)

Understand where the solution will fit AND where it wont!

Assess the strengths & weakness of solution

And seek answer to are we ready for it?


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TechnologyForSustained

Differentiation

Goal definitionIntegrating

business &

technology goalsSolution featuresVendor selectionBusiness process

re-engineeringChange

management

Efficient utilisationCustomer utilityTechnology

ManagementSupport functionsMaintenanceBack-ups and

Disaster RecoveryScalability &

flexibilityLearning &

evolution

Differentiation is attained notachieved just through technology, it

is gained in the way the technology isselected, implemented and utilised


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Regulation and Supervision

The ChallengeChallenge of Technology:

New markets, products, services, delivery channels

Opened up a market for risks derivatives

Challenge of financing tech firms & IT innovation

all have implications for the stability of banks and of theeconomy

The Opportunity

Regulators have new tools

Focus of all recent financial sector reforms

Emergence of non-intrusive, focused supervision

with a view to prevent frauds and disturbances to

financial stability


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Technology and Banking

Supervision

THE RBI RESPONSE

Offsite Supervision & MonitoringOSMOS

COSMOS (Non banking Financial Companies /Development Financial Institutions)UBD SoftCredit Information Bureau (A joint venture betweenHousing Development Finance Corporation Ltd.,State Bank of India, Trans Union International Inc.& Dun & Bradstreet Information Services IndiaPvt. Ltd.)

Will be covered in detail by Speaker Dr. T.V. Gopalakrishnan


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Currency Management and

Technology Opportunities Galore

Currency Management - a formidable task in Indiagiven the geographical size, the volume and value of notes and coins in

circulation, preference for cash and currency handling practices

...but technology offers immense opportunities to improveperformance

RBIs The Clean Note Policy (1999)

Establishment of 2 state of the art currency pressesTechnology driven anti counterfeit measures

48 fully automated Currency Verification & Processing Systems

21 Shredding and Briquetting Machines


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Technology & Monetary Systems

Technology has: Transformed the conduct of the payment and settlement

system

Set the stage for an unprecedented growth in financial

activity across the globe Rendered more vulnerable the domestic payment system

and financial stability to international shocks

making the conduct of monetary policy morecomplex and prone to implementation and operationalrisks


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The Opportunities

The proliferation of IT has also set the stage for

improving and managing risks in payment systems

Electronic Trading SystemsDVP/PVP

RTGS

Secured Netting SystemsThe growth of the Central Counterparty (CCP)

Continuous Linked Settlement

Technology & Monetary Systems


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IT and Payment and

Settlement Systems

Demateria-lisation

Of

Securities

Delivery

Versus

Payments

Payment

VersusPayment

ContinuousLinked

Settlement

Electronic

Dealing

Platforms

RealTime

Gross

Settlement

Central

Counter

partySecured

Netting

Systems


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RBIRBI

INITIATIVESINITIATIVESIN PAYMENTIN PAYMENT

&&

SETTLEMENTSETTLEMENT

SYSTEMSSYSTEMSCompliance with

BIS Core Principles

RTGS

CFMSNEFT

PKI-basedSecurity

SFMS

ClearingCorporationof India

IDRBT

PDO-NDS & SSS

NFS/IBPG

INFINET


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RBI Initiatives in Payment

and Settlement Systems (1)

The IDRBTNetwork Externalities

The Indian Financial Network (INFINET)

Messaging SolutionsThe Structured Financial Messaging System (SFMS)

Security

Public Key Infrastructure

IDRBT CA

National Financial Switch

Inter Bank Payment Gateway


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2 Mbps with

ISDN Backup

JAMMU

CHANDIGARH

DELHIJAIPUR

AHMEDABAD

MUMBAI

PUNEBANGALORE

THIRUVANANTHAPURAM

CHENNAIIDRBT

HYDERABAD

BHUBANESHWAR

CALCUTTA

PATNA

KANPUR

GUWAHATI

BHOPAL

INFINET Leased Line Network

NAGPUR

KOCHI

GOA

LUCKNOW

4 X 2 Mbps

2 X 2 Mbps

2 Mbps

64 Kbps

HYDERABAD

RBI

CUG links


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Gateways and Integration withOther Financial NetworkServicesG1 - SWIFT NetworkG2 - Reute rs NetworkG3 - Stock Exchange NetworkG4 - In te r Banks/FI sG5 - Sha red ATMsG6 - Clearing Operations NetworkG7 - I nt er ne t

Corporate Network

Inter Banks/FIs Network

Shared ATMs Network

Clearing OperationsNetwork

SWIFTNetwork

ReutersNetwork

NSENetwork

G1 G1 G2 G2 G3 G3

G1 G2 G3 G1 G2 G3 G1 G2 G3G4

G4 G4 G5G5 G5 G6

G7Internet

Financial Networks

INFINET


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Structured Financial Messaging System

Branch-1

Bank-1

Gateway

Bank-2

Gateway

Bank-n

Gateway

Branch-2Branch-n Branch-1Branch-2Branch-n Branch-1Branch-2Branch-n

Central

Server atIDRBT

.....

......

.

.


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PKI Hierarchy

CCA

IDRBT CA

RA

Subscriber

IDRBT CA

Repository

RA RA

Subscriber Subscriber Subscriber

Subscriber Subscriber

NFS CONNECTIVITY ith E i ti C ti & I di id l B k


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IP Address:202.138.123.68

Subnet Mask: 255.255.255.254

Location: Mumbai

CashNet

NFS CONNECTIVITY with Existing Consortiums & Individual Banks

National Financial Switch &E- Payment Gateway

ISDN

Primary Link

Backup Link

Broad Band VSAT

Bank 1

Bank N

ISDN

MITRLocation: Chennai

BANCS & CashtreeLocation: Mumbai

ISDNLeased Line

ISDN

ISDN

Leased Line

Bank 2

Leased LineLeased Line

ISDN

Leased LineINFINET


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A Real Time Gross Settlement System Reduction of systemic risk in inter bank

payment systems

To be implemented by the year end

The Centralised Funds Settlement System Facilitating effective liquidity management

The Negotiated Dealing System A modern electronic dealing platform for gilts Enabling Straight Through Processing


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CFMS

Settlement

Accounts

IFTPStrip & StoreProcesses

SSS

Intra DayLiquidity

RBI Payments and

Actg. Entry

Interface

INFINET NSS

Participants

Interface

Participants

Interface

Participants

Interface

Real Time

Gross

Settlement


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RTGS Scenario

90 banks have implemented it

3-4 more to implement in a fortnight

Customer transactions have already started

Total volumes Transactions on average

Rs.20,000 crores per day settled continuously

from the time of opening of markets

Guarantee settlement fund

RBI I iti ti i P t


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The Securities Settlement System Providing centralized depository and

settlement services Seamlessly integrated with the NDS and

RTGS Systems

The Clearing Corporation of India Secured netting services with central

counterparty arrangements G-Sec and Forex segments Elimination of settlement risks with liquidity

saving elements


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Smart Cards The Future

Multi-application Smart Card

Channel of the future

Pilot project started Pilot Project funded by MCIT, Govt. of

India

The project is in progress in partnershipwith IDRBT, IIT Bombay, and Banks inIndia


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RBI and Customer Service(1)

Dissemination of informationThe RBI websiteMultiple Delivery Channels

Coin & Note Dispensing MachinesFor the general public

Interactive Voice Response SystemFor banks and financial institutionsWeb server

For government customersOn the anvil.

A secured web serverSFMS/email based communication withcustomers


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RBI and Customer Service...(2)

Improvements in payment and settlementsystems

MICR ClearingEnabling faster clearing of cheques

Cheque Truncation & E-ChequesOn the drawing board

ECS/EFTEnabling T+2 settlement of our equitiesmarket

National EFTEnabling T+0 settlement of all customerfunds transfer transactions

Technolog Vision of the RBI


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Technology Vision of the RBI

Centralised DatabaseManagement System EnterpriseEnterprise KnowledgeManagement System

Integrated AccountingSystem Integrated GovernmentAccounting System Currency OperationsSystem

Desk Top Decision Making Capability

Desk Top Analytical Capability

Desk Top Transactional Capability

Securities Settlement

System

Integrated Establishment

System

Offsite Supervisory

Systems

Integrated Forex

Management System

Human Resource

Information System

Issues in Implementation


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Issues in ImplementationLess than 10% of failures are due toLess than 10% of failures are due to

technical snags most are due to poortechnical snags most are due to poor

management and implementationmanagement and implementation

Resistance to changeOverlooking processreengineeringProject managementDedicated project teamsChange managementPoliciesPeople Skil ls & TrainingBasic Infrastructure telecom, powerSecurityPrivacy & confidentialityLegal and regulatory issues


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Pre-requisites for Technology

Planning forPlanning forDisastersDisasters

Business ProcessBusiness Process

Re-engineeringRe-engineering

Human ResourceHuman Resource

EmpowermentEmpowerment


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The pre-requisites for

TechnologyPlanning for disasters Increased operational risk

Business Continuity Planning

Business Process Re-engineering

Human Resource Empowerment


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Getting Personal with Personnel

People represent the most precious asset

Large employee base largely untrained.Training scope & methodology?

VRS to balance costs. Break even? Downsizing?

Bring in young blood Campus recruitment

Re-defining & designing jobs. Career paths?

Specialist Vs. Generalist

Attrition of trained employees to IT industry /other banks. Competitive incentives?

Re-location of personnel. Union issues?

Retrained personnel. Morale of employees?

Need for Training


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Need for Training

All these developments call for extensive, continuoustraining

Current and future technology implementations call for atleast 20% of officers specialise in IT

Hence need for specially skilled people a mix of: System administrators

Application managers (knowledgeable about both banking andtechnology)

Technology managers (who form the core team of technologyprofessionals).

Security Risk Management


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Security Risk Management Security is aboutcementing the weak link

Strong security measures (physical & datasecurity) plus disaster recovery are essential

Authentication of e-banking customers andaccountability for e-banking transactions

Segregation of duties, proper authorizationcontrols etc.

Physical security measures

- Graded access control, Iris & X-ray scanners, CCTV &detection systems, hotline and wireless links, fingerprintreaders, concealed cameras, various sensors, bollards,boom barriers etc.

Disaster Management and Disaster Recoverysites


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H t E S it ?? A F kH t E S it ?? A F k


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How to Ensure Security??-A FrameworkHow to Ensure Security??-A Framework


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IDRBTs Solutions for Security RiskDRBTs Solutions for Security RiskManagement (SRM)anagement (SRM)Risk

Assessment

Gap

AnalysisIS Audit

Awareness by

Training

Policy &

Procedures

Development

Implementation

SRMfor

Banks

PKIINFINET


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Technology Related Issues

People Related Issues Reskilling

Monetary systems, Efficient

Telecommunication & Infrastructure to

Drive Banking on Real-time Basis

Risk Management & Physical Security

At a Glance.


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The future will be notbe more of the same we need to beready..

the future of banking ppt

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