Core banking

P. R. Kulkarni, Managing Director,
Fluent Consultants Pvt. Ltd., Pune 1
CORE BANKING
Presentation by
P. R. KULKARNI
Managing 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 Banking
Centralized 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 bank
This helps for timely effective decision
making for financial management, a very
critical and dynamic function in today’s
banking.

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 scenario
and customer needs. This gives competitive
edge to the bank.

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.

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 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.

Centralized 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.

Centralized 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 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 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 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 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 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 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 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 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

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. …..

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 guarantee
of correctness.
Data cleaning cost, if any.
Implementation period.
Contd. ….

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.

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

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
MTNL
BSNL
Private service providers on wireless method

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

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

Core Banking
Human 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 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
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 bank’s
image and reputation
Technical person/s leaving the bank poses serious
problem
If not mitigated by generating profit out of benefits of
core banking the recurring costs are heavy

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
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

Costing for Core Banking
Recurring Costs – Rentals / AMCs
1. Hardware – AMC / updating
2. Operating System – AMC / updating
3. Software – AMC / updating
4. Database – AMC / updating
5. Antivirus – AMC / updating
6. Mailing Solution – AMC / updating
7. Printers / Cheque Deposit Machines/ATMs – AMC
8. Generator, UPS, Batteries – AMC
9. Lease Lines – AMC / Rentals
10. 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 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 should
be recovered. Lesser period is advantage.

RBI views on computerization in
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 of
banks.
3. Guiding principles for creation of infrastructural
needs for computerization
4. What help RBI can extend
5. How much help and in what way RBI extend help

RBI views on computerization in
Co-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 and
4. 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
Deposits
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
Co-operative Banks in Pune District
Deposits
Rs. In Crore
No. 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

THANKS
Presentation by
P. R. Kulkarni
Managing Director
Fluent Consultants Pvt. Ltd., Pune

Core banking

Recomendados

Recomendados

Mais conteúdo relacionado

Mais procurados

Mais procurados (20)

Destaque

Destaque (17)

Semelhante a Core banking

Semelhante a Core banking (20)

Core banking