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Commercial Banking

Commercial Banking. Technology in Indian Banking PGP I (2007-09) April, 2008. ATMs. Electronic Banking. Branch Banking. Branch 3. Branch 2. Branch 1. Head Office. Branch 4. Branch 5. Branch n. Branch 6. Glossary in E-Banking.

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Commercial Banking

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  1. Commercial Banking Technology in Indian Banking PGP I (2007-09) April, 2008

  2. ATMs Electronic Banking Branch Banking Branch 3 Branch 2 Branch 1 Head Office Branch 4 Branch 5 Branch n Branch 6 Technology in Indian Banking 2007

  3. 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. Technology in Indian Banking 2007

  4. Glossary-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. Technology in Indian Banking 2007

  5. Glossary-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 Technology in Indian Banking 2007

  6. Glossary-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 Technology in Indian Banking 2007

  7. E-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 Technology in Indian Banking 2007

  8. Committees on Computerisation in Banks 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 Technology in Indian Banking 2007

  9. Committees on Computerisation 2. Committee on Mechanisation in the Banking Industry (1984) Chairman : Dr C Rangarajan, Deputy Governor, Reserve Bank of India Technology in Indian Banking 2007

  10. Committees on Computerisation 3. Committees on Communication Network for Banks and SWIFT implementation (1987) Chairman : Shri TNA Iyer, Executive Director, RBI Technology in Indian Banking 2007

  11. Committees on Computerisation 4. Committee on Computerisation in Banks (1988) Chairman : Dr C Rangarajan, Deputy Governor, RBI Technology in Indian Banking 2007

  12. Committees on Computerisation 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 Technology in Indian Banking 2007

  13. Committees on Computerisation 6. Committee on proposing Electronics Funds Transfer and Electronics Payments (1995) Chairperson: Smt K S Shere, Principal Legal Adviser, Reserve Bank of India Technology in Indian Banking 2007

  14. Bank Branches – 2006 (x- RRBs) Technology in Indian Banking 2007

  15. 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 ?????? Technology in Indian Banking 2007

  16. 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 Technology in Indian Banking 2007

  17. 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 Technology in Indian Banking 2007

  18. Many 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 Technology in Indian Banking 2007

  19. Planning for Disasters Business Process Re-engineering Human Resource Empowerment Pre-requisites for Technology Technology in Indian Banking 2007

  20. Focus aspects of Commercial Banking BANK’S BUSINESS LOANS & MISC. SERVICES Core Banking (CBS) MIS & Intranet ATMs RAISING DEPOSITS POS Terminals and Cash dispenser Electronic Banking Corporate Network Card Management Any Branch Banking Document Management CRM Risk Management Resource Management BANK’S BUSINESS Technology in Indian Banking 2007

  21. Benefits 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 Technology in Indian Banking 2007

  22. Benefits to Customer • More convenience & flexi timings • Better awareness of products & services • Up-to-date information on accounts • Low cost of accessing the accounts Technology in Indian Banking 2007

  23. BANKS’ 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 Technology in Indian Banking 2007

  24. Internet Banking • Issues of Confidentiality ? • Hacking and Fraud prone ?? • Scope for failure of Technology ??? • Resultant denial of Services ???? Technology in Indian Banking 2007

  25. INST. FOR DEV & RESEARCH IN 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 Technology in Indian Banking 2007

  26. IDRBT, 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 Technology in Indian Banking 2007

  27. 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 DEVELOPMENTS Technology in Indian Banking 2007

  28. Technology in Indian Banking 2007

  29. Technology in Indian Banking 2007

  30. Communication 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) Technology in Indian Banking 2007

  31. MICR 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... Technology in Indian Banking 2007

  32. Automated 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 Technology in Indian Banking 2007

  33. SBI’s Mobile ATM in Kerala Technology in Indian Banking 2007

  34. Bank ATMs – 2007 (x-RRBs) Technology in Indian Banking 2007

  35. ATMs • 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 Technology in Indian Banking 2007

  36. Cross Selling The 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. Technology in Indian Banking 2007

  37. Cross Selling ADVANTAGES • 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 Technology in Indian Banking 2007

  38. BANKNET • 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 Technology in Indian Banking 2007

  39. INFINET • 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 Technology in Indian Banking 2007

  40. SWIFT 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 Technology in Indian Banking 2007

  41. 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 Technology in Indian Banking 2007

  42. 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) Technology in Indian Banking 2007

  43. 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 Technology in Indian Banking 2007

  44. ECS • 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 Technology in Indian Banking 2007

  45. SWADHAN • 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 Technology in Indian Banking 2007

  46. SERVICES • 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 Technology in Indian Banking 2007

  47. Real 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 Technology in Indian Banking 2007

  48. Cheque 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... Technology in Indian Banking 2007

  49. Customer Relationship 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 Technology in Indian Banking 2007

  50. Customer Relationship Management • Customer Analytics • Statistical Credit Score Card • Demographic details • Transaction details • Historical loan default data • Targeted Marketing Campaign • Carpet bombing avoided • Hit rate increases Technology in Indian Banking 2007

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