Core Banking

5/21/2018 Core Banking

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P. R. Kulkarni, Managing Director,

Fluent Consultants Pvt. Ltd., Pune 1

CORE BANKINGPresentation by

P. R. KULKARNIManaging Director

Fluent Consultants Pvt. Ltd., Pune


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In simple way it is doing

all banking operations of Branches

and Head Office

by connecting to a

central computer kept atDATA CENTRE

WHAT IS CORE BANKING


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Working in TBA mode

In mere computerized functions each branch

has its own computer and branch functionsare 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 branchesis done at Head Office at a decided

periodicity.


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Core Banking - Basic concept

With technology advancement particularly in

Tele Communication and WirelessCommunication 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 alltransactions of all branches recorded live at

one place. This concept is CORE BANKING


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Core Banking - Business Change

As the single computer at data centre get live data

from branches position of the bank as a whole isavailable at one place at each moment.

This system of operations then brought total change

in traditional banking operations. Many repetitivefunctions at branches were taken at central place.

This is called business re-engineering in terms of

shifting to core banking. This change brought manyadvantages to bank and its customers and also

changed customer service dimensions.


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Advantages of Core Banking

Centralized Accounting All the transactions of the bank directly

impact the General Ledger and Profit andLoss 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 verycritical and dynamic function in todays

banking.


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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 scenarioand customer needs. This gives competitive

edge to the bank.


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Introduction 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.


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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 andservices availed by him and customer behavior

about business of the bank can be well understood.

Such customer view gives the bank opportunity todecide directions for business development and

marketing strategies.


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Centralized Reporting Presence of centralized data constantly live

up-dated at any time ensures comprehensivereport / 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 forbank as a whole.


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Centralized System Administration Centralized system / I. T. administration

enhances system security and usermanagement.

In TBA mode man-power for I. T.

administration is required at each branch. Butin core banking it is required only at oneplace. Thus reduction in man-power need

and cost. Due to single point resource available I. T.

manpower is utilized properly.


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Advantages to Head Office Consolidation of MIS / statements / reporting

at one place reducing duplication of tasks atbranches 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. ..


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Advantages to Head Office 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 noneed to wait for branch compliance

Contd. ..


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Advantages to Head Office 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 forkeeping the bank professionally healthy.

Contd. .


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Advantages to Head Office Clearing function is centralized reducing man

power requirement at each branch for thepurpose.

Audit on operational aspects of the accounts

can be done at a single location as entiredata is available at one place.

User access to the computer system in the

bank can be restricted to his/her needs andauthority only that achieves safety.

Contd. .


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Advantages to Head Office Printing of several matters such as follow-up

notices, statement of accounts etc. can bedone centrally on line printer that reduces

the printing time, printer and man-power need

at each branch. Such printer can be activatedby any branch on WAN command.

Account opening and scanning of signaturescan be done at central location.Contd. ..


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Advantages to Head Office By installing mailing solution on the intra net

of the bank, written communication in theform of letters, between H. O. and branchesand vice versa, can be eliminated.

Mailing solution can set parameters fordecision timing and if not decided in time themail can be escalated to next higher

authority. This enhances the decision makingprocedure and delay at any level gets knownto higher authority.


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Advantages to Credit Department Reduced credit processing time for existing

loan accounts as the Credit Department getsinformation handy.

For processing of new loan accounts the

information on product is available thatfacilitates 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.


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Advantages 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 submissionsare 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.


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Advantages 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 repetitivemistakes at different branches and then loadon I. T. Dept. for rectification work.


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Advantages 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 isbetween the branches of the bank.

Even extension counters can provide all services to

the customerContd. .


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Advantages to Customers Customer gets full attention and service

satisfaction at the branches as the branchesare 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 transactiontaking place in his account. This gives him

comfort and security.


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Advantages to Branch functionality With reduced work at the branches they can

focus on development of business, customerservice and attendance and meaningfulliaison 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 imageof bank as customer savvy.

This increases business and thereby profit.


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Components of Core Banking

Non-human Infrastructure Software

Hardware Data Centre / Disaster Recovery Centre

Connectivity devices Connectivity service providers

Security equipments

Uninterrupted power supply arrangements

Anti-virus / Fire-walls


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Banking Software Selection

Check 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. ..


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Check Points 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 guaranteeof correctness.

Data cleaning cost, if any. Implementation period.

Contd. .


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Check Points 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.

B ki S f S l i


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Check Points for optional modules ATM switch

Internet Tele Banking

Mobile banking Anti Money Laundering (ALM)

Income Tax issues and Returns

Salary

Cheque Deposit Machine


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Selection of Hardware

Whether branded or unbranded.

Warranty one year or three year. Scope of warranty.

Whether of exact need or spare capacity. Ifspare capacity considered is really required.

Cost.

Support.

AMC.

D C d Di R C


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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 wiringsand connectivity connections / devices.

C i i D i


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Connectivity Devices

Switch connecting the computer to router.

Router connecting switch to connectivitychannel.

Lease lines connectivity lines given by

BSNL / MTNL.

ISDN lines fall back lines taken from BSNL

/ MTNL. Wireless communication systems.


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C i i S i P id


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Connectivity Service Providers

MTNL

BSNL Private service providers on wireless method

S i E i


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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

U i t t d P S l


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Uninterrupted Power Supply

For core banking continuous power supply at

Data Centre (DC) and Disaster RecoveryCentre (DR) is essential.

Generator set, UPS and batteries of high

capacity are required with redundant capacityneeded.

Failure of any system should be thought overas alternate.

A i Vi d Fi W ll


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Anti Virus and Fire Walls

Strong and constantly up-dated antivirus is

required to protect virus threats comingthrough external devices use on computers

such as pen-drive, CD etc.

The servers need to be protected by fire wallto prevent virus entry

If bank is allowing net-banking the fire wallneeded is very strong

Core Banking


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Core Banking

Human Issues Change in mind-set for change in the way of

business and operation done now and aftercore banking.

Readiness by management, staff and

customers for any eventual temporarydiscontinuation of business activity due to

technical failure beyond control. Lack of skilled persons in I. T. Department.

Preparation for CBS


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Preparation for CBS

Data mapping

Data cleaning

Data standardization

Conversion to CBS software

Checking Filling additional fields

Staff mentality preparation, adoption-acceptance of

CBS Business continuity plan

Threats and Risks of Core Banking


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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 banks

image and reputation Technical person/s leaving the bank poses serious

problem

If not mitigated by generating profit out of benefits ofcore banking the recurring costs are heavy

Security Policies Required


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Security Policies Required

Database Security

Data Centre and Disaster Centre Security Back up Initiation and Security

Business Continuity

Data Retention

Network Security and Risk

Internet Security and Risk Audit Trails

Operating System Security and Risk

Costing for Core Banking


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Initial Costs 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 and DR

Power supply generator, UPS



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Recurring Costs Rentals / AMCs1. Hardware AMC / updating

2. Operating System AMC / updating

3. Software AMC / updating

4. Database AMC / updating

5.

Antivirus AMC / updating6. Mailing Solution AMC / updating

7. Printers / Cheque Deposit Machines/ATMs AMC

8. Generator, UPS, Batteries AMC9. Lease Lines AMC / Rentals

10. Back up and Security Devices AMC / updating

Return on Investment


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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 evaluatethe 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 shouldbe recovered. Lesser period is advantage.

RBI views on computerization in


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Co-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 computerization

2. General structure / model for banks / group ofbanks.

3. Guiding principles for creation of infrastructural

needs for computerization4. What help RBI can extend

5. How much help and in what way RBI extend help



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Co-operative BanksThe study group has expected, in report

submitted in August, 2008, following asminimum level of computerization in banks,

1. Computerized front-end i. e. customer

interface2. Automatic back-end accounting through

software

3. Computerized MIS, reporting and4. Automated regulatory reporting

Branch-wise classification of Co-operative


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p

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 10Branches 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


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p

Co-operative Banks in IndiaDeposits

Rs. 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


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p

Co-operative Banks in Pune DistrictDeposits

Rs. In Crore

No. of Banks

in Pune Dist.

Unit Banks % unit bank tototal 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


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d

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


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g

banking Number of branches criteria - 28 banks are

between 2 to 10 branches. 10 banks havingbranches 11 to 25. Thus these 38 banks canthink of core banking. Some out of this mightbe already on core.

Deposit criteria 16 banks have depositbetween 10 to 100 crore. 19 banks have

deposit between 100 to 500 crore. Thusthese 35 banks can think of core banking.Some out of this might be already on core.

Cost sharing / minimizing


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g / g

Two or more banks can come together to negotiatefor 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 bankthat has already installed the same.

Only Disaster Recovery Centre can be shared ortaken on rental.

Association can act in several ways as centralagency for banks and may consider of having a datacentre and DR Centre for giving on hire to banks


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THANKSPresentation by

P. R. Kulkarni

Managing DirectorFluent Consultants Pvt. Ltd., Pune

Documents

Core Banking