I T IN CENTRAL BANKS : CHALLENGES & PERSPECTIVES

1. I T IN CENTRAL BANKS : CHALLENGES & PERSPECTIVES 4TH SEMINAR ON IT SOLUTIONS FOR CENTRAL BANKING S GANESH KUMAR, GENERAL MANAGER DEPT OF INFORMATION TECHNOLOGY RESERVE BANK OF INDIA, MUMBAI, INDIA

2. Scope of this presentation: A. GENESIS B. TECHNOLOGY IN BANKING C. ISSUES AND PERSPECTIVES

3. GENESIS

4. BANKING IN INDIA GENESIS • FEATURES OF THE BANKING SYSTEM • WIDE GEOGRAPHICAL COVERAGE – No.of States – 26, • Union Territory – 6, Districts – 575, Blocks - 3100 • 430 + BANKS • 80,000 + BRANCHES • LARGEST BANK HAS 8,000 + BRANCHES • VARIED BANKING STRUCTURES • NATIONWIDE BANKS • PRIVATE BANKS • REGIONAL BANKS • CO-OPERATIVE BANKS • FINANCIAL INSTITUTIONS • FINANCIAL INTERMEDIARIES • NON-BANKING FINANCIAL INSTITUTIONS • 1050+ clearing houses

5. BANKING IN INDIA • FEATURES OF THE BANKING SYSTEM • NATIONWIDE BANKING • PUBLIC SECTOR BANKS – state owned (27) • PRIVATE SECTOR BANKS – limited companies(32) • FOREIGN BANKS (43) • OTHER SCHEDULED BANKS (298) • NON-SCHEDULED BANKS (1) • SCHEDULED URBAN CO-OPERATIVE BANKS

6. BANKING IN INDIA • FEATURES OF THE BANKING SYSTEM • REGIONAL BANKING • CO-OPERATIVE BANKS • URBAN CO-OPERATIVE BANKS • STATE LEVEL APEX CO-OPERATIVE BANKS • REGIONAL RURAL BANKS (196) • DISTRICT LEVEL CO-OPERATIVE BANKS

7. BANKING IN INDIA • FEATURES OF THE BANKING SYSTEM • FINANCIAL INSTITUTIONS • TERM LENDING INSTITUTIONS • DEVELOPMENT INSTITUTIONS nabard, dhfi, nhb • REGULATORY INSTITUTIONS sebi, shci • STATE LEVEL FINANCIAL INSTITUTIONS

8. BANKING IN INDIA • FEATURES OF THE BANKING SYSTEM • NON-BANKING FINANCIAL INSTITUTIONS • NON-BANKING FINANCE COMPANIES • LEASING AND HOLDING COMPANIES • INFRASTRUCTURE DEVELOPMENT Cos

9. GENESIS RESERVE BANK OF INDIA • ESTABLISHED IN 1935 • MAJOR FUNCTIONS • MONETARY AUTHORITY • REGULATION & SUPERVISION OF THE FINANCIAL SUPERVISION • MANAGEMENT OF FOREIGN CURRENCY • CURRENCY ISSUE & MANAGEMENT • DEVELOPMENTAL ROLES • RELATED FUNCTIONS • BANKER TO GOVERNMENT • BANKER TO BANKS

10. GENESIS RESERVE BANK OF INDIA • OFFICES • CENTRAL OFFICE – MUMBAI • REGIONAL OFFICES – 22 • TRAINING ESTABLISHMENTS – 6 • OTHER INSTITUTIONS – 3 • NATIONAL INSTITUTE OF BANK MANAGEMENT • INDIRA GANDHI INSTITUTE FOR DEVELOPMENT RESEARCH • INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY • SUBSIDIARIES : NHB, DICGC; BRBNMPL

11. GENESIS • RESERVE BANK OF INDIA – DEPARTMENTS • MONETARY POLICY ORIENTED : 3 • REGULATION AND SUPERVISION : 5 • CURRENCY MANAGEMENT : 1 • SECRETARIAL SERVICES : 1 • MARKETS RELATED : 2 • FOREIGN EXCHANGE : 1 • GOVERNMENT AND BANKS : 1 • PAYMENT & SETTLEMENT : 1 • INFORMATION TECHNOLOGY : 1 • PUBLIC RELATIONS : 1 • INTERNAL SERVICES : 5

12. GENESIS PRESENT STATUS OF COMPUTERISATION • COMPUTERISATION STATUS • DIFFERENT HARDWARE PLATFORMS • VARIED OPERATING SYSTEMS • SOFTWARE DEVELOPED IN HOUSE / OUTSOURCED • DIFFERENT APPLICATION PROGRAM LANGUAGES • SOME ARE INTEGRATED SOLUTIONS BUT MOST ARE NOT TOTAL PROJECTS • IMPLEMENTATION OF CORE BANKING SYSTEMS

13. TECHNOLOGY IN BANKING

14. The Technology Revolution • The impact of technology on the real & financial world around the central banks • E-governance • Choice of Channels , Confidence and Convenience to the end-user • Efficiency • Facilitating growth of products and services

15. Banking and Technology Innovative Risk Management Complex Credit Calculations Global Operations Pervasive Branch Network Mass Transaction & Items Processing

16. IT FOR RBI RELATED FUNCTIONS • INITIAL STATISTICAL FUNCTIONS RELATED: 1960s • ACCOUNTING RELATED BACK END OPERATIONS • CRITICAL FUNCTIONS USING COMPUTERS • TREASURY OPERATIONS • HOUSEKEEPING FUNCTIONS • FRONT END COMPUTERISATION • TOTAL INTEGRATED COMPUTERISATION • BANKING DEPARTMENT COMPUTERISATION • PROCESSING OF VARIOUS FUNCTIONS • REGULATORY, CURRENCY RELATED, INTERNAL FUNCTIONS etc. • DATA REPOSITORY FOR BANKING : CDBMS • PUBLIC WEBSITE BASED INFORMATION TRANSFER

17. PIONEERING WORK OF RBI IT FOR GOVERNMENT FUNCTIONS • COMPUTERISATION OF GOVERNMENT BUSINESS HANDLING BRANCHES • CENTRALISED ACCOUNTING AT CAS, NAGPUR • NEGOTIATED DEALING SYSTEM FOR DEALING IN GOVERNMENT SECURITIES • SCREEN BASED TRADING • ORDER MATCHING • RETAIL INVESTOR FACILITATION • SECURED WEB SITE BASED DATA DISSEMINATION • OLTAS, EASIEST, EDI FOR CUSTOMS

18. PIONEERING WORK OF RBI IT FOR MARKET & PAYMENT SYSTEMS • MICR BASED CHEQUE CLEARING • COMMENCED AT RBI CENTRES • NOW AT ,MORE THAN 55 CENTRES • LOWEST REJECT RATE IN THE WORLD • CLEARING CORPORATION OF INDIA • GOVT SECURITIES SETTLEMENT • FOREX SETTLEMENT • C B L O • CENTRAL COUNTER PARTY • ELECTRONIC FUNDS MOVEMENT SYSTEMS • ECS, EFT, NEFT, RTGS, NFS… • CHEQUE TRUNCATION • REACH: > 5000 CITIES OF THE COUNTRY!

19. COMMUNICATION MODES – TODAY & FUTURE ELECTRONIC PAPER BASED MANUAL SYSTEMS VOICE – TELEPHONE CONFERENCES – PHYSICAL PRESENCE COMPUTERISED VIDEO-CONFERENCING

20. I T POLICY OF RESERVE BANK OF INDIA IMPLEMENTATION BASED ON USER REQUIREMENTS CUSTOMER SERVICE HOUSEKEEPING Vision: I T FOR OVERALL EFFICIENCY AND EXCELLENCE HOLISTIC APPROACH WORK FLOW ACCURACY INFO MANAGEMENT I S AUDIT STANDARDISATION HARDWARE OPERATING SYSTEM SYSTEM SOFTWARE APPLN SOFTWARE INCREASED PRODUCTIVITY SYSTEMIC EFFICIENCY SOFTWARE POLICY IN HOUSE DEVLPMT OR OUTSOURCING

21. Technology Vision of the RBI Desk Top Decision Making Capability Centralised Database Management System Enterprise Knowledge Management System Desk Top Analytical Capability Offsite Supervisory Systems Integrated Forex Management System Human Resource Information System Desk Top Transactional Capability Integrated Accounting System Integrated Government Accounting System Currency Operations System Securities Settlement System Integrated Establishment System

22. STRATEGIES – I T 1 : 1 COMPUTING CAPABILITY INTEGRATED APPLICATION SYSTEMS STANDARDISATION HARDWARE OPERATING SYSTEMS SOFTWARE I T FOR EFFICIENCY & EXCELLENCE SAFE SECURE EFFECTIVE COMMUNCTN NETWORKS C D B M S E K M S

23. INFORMATION TECHNOLOGY INITIATIVES STDSTN HARDWARE AT ALL OFFICE R A function R A FUNCTION FOR THE BANK S F M S STRUCTURED FINANCIAL MESSAGING SYSTEM APPLICATIONS SECURITY P K I ECS,EFT, CRRNCY CHST D I T E K M S BLUE PRINT READY BACKUP BACKUP AND DRS SITES; DATA BACKUP AT TWO SITES D R S DATA CTR CENTRALISED DATA PROCESSING CAPABILITY H R HUMAN RESOURCES FOR I T

24. RBI as a user of technology (4) • The Strategy…On line Decision Making Capability • The Centralized Database Management System • A data warehousing and data mining solution • The Enterprise Knowledge Management System • On an advanced stage on the drawing board

25. Planning for Disasters Business Process Re-engineering Human Resource Empowerment Pre-requisites for Technology

26. The pre-requisites for Technology • Planning for disasters • Increased operational risk • Business Continuity Planning • Data Centres • Business Process Re-engineering • Human Resource Empowerment

27. ROLE OF TECHNOLOGY IN NEW DELIVERY CHANNELS • MOBILE TECHNOLOGY • RADIO FREQUENCY BASED • FINANCIAL INCLUSION – CARDS • E-TRANSACTION FACILITATION • VIRTUAL BANKING • HYBRID TECHNOLGIES !

28. INFINET INDIAN FINANCIAL NETWORK A WIDE AREA NETWORK USING SATELLITE BASED ON VSAT TECHNOLOGY, AND TERRESTRIAL MODES OF COMMUNICATION

29. Indian Financial NETwork Establishment of the INFINET * Designed & Developed by the Institute for Development and Research in Banking Technology, Hyderabad * Objective : To provide an efficient, reliable communication network for the Financial sector * Goal : To link all RBI offices To interconnect banks/Financial Institutions To facilitate Electronic Movement of funds -- Retail, DNS and RTGS

30. JAMMU Integration of VSAT network with Terrestrial network at all Offices of the RESERVE BANK CHANDIGARH DELHI LUCKNOW JAIPUR KANPUR GUWAHATI PATNA BHOPAL AHMEDABAD NAGPUR KOLKATA BHUBANESHWAR MUMBAI HYDERABAD NMS at Hyderabad PUNE Back up NMS at Mumbai GOA 2/ mbps leased line 64/128 kbps leased line BANGALORE CHENNAI KOCHI INFINET (LEASED LINE CONNECTIVITY AND INTEGRATION WITH IDRBT VSAT NETWORK) THIRUVANANTHAPURAM

31. ISSUES AND PERSPECTIVES

32. Current Challenges • Systemic Risk reduction • Operational Risk reduction • Legal Risk reduction

33. R I S K S OPERATIONAL REPUTATIONAL SYSTEMIC LEGAL

34. RISK BASED ISSUES • OPERATIONAL RISK • INACCURATE PROCESSING, DATA INTEGRITY COMPROMISES, INTRUSION, NEGLIGENCE, FRAUDS BY EMPLOYEES, HACKING, etc. • SECURITY RISK • ON INTERNET BANKING SYSTEMS, • ON OTHER SYSTEMS OF THE BANK • MONEY LAUNDERING RISK • UNKNOWN FUNDS MOVEMENT PURPOSES

35. Risk Reduction Measures • Operational Risk Reduction • Security • PKI, Sound practices • Recovery & Continuity • DRS & BCP : RTO(2 hrs); RPO (zero data loss) • Audit • IS Audit • Coping with rapid technology changes • Research by IDRBT • Inter-operability • Generic Architecture • H/W, O/S, Netware & Middleware standardisation • Skills & Resources • Training at IDRBT BTC & OTHER INSTITUTES

36. Risk Reduction Measures • Legal Risk Reduction • Documentation • IT Act 2000 • Legal status for electronic transactions & records, digital signature • Amendment to Bankers Book of Evidence Act 1891 • Legal status for electronic books and records • PAYMENT & SETTLEMENT SYSTEMS BILL • Authenticity • Digital signature, PKI, Biometrics, Iris Recognition

37. SECURITY RELATED ISSUES • AUTHENTICITY • MULTIPLE POINTS OF DATA STORAGE • ACCESS TO DATA OVER NETWORKS • VALIDATION ROUTINES – pin, pword • NON – REPUDIATION • PRIVACY

38. COMPONENTS OF I T SECURITY: • PHYSICAL & LOGICAL ACCESS: • ACCESS CARD & BIOMETRICS • USER ID & PASSWORD • P K I & DIGITAL CERTIFICATES • DATA SECURITY: • ENCRYPTION • ACCESS RIGHTS • EG. RACF • APPLICATION LEVEL • EG. PKI & DIGITAL SIGNATURES

39. Technology - Observation Points • Procurement • Processes followed • Compliance to internal requirements • Compliance with Government Guidelines • Dependency on single vendor ? • Normalisation processes • Total Cost of Ownership issues • Does the solution meet the objectives set? • Are there any alternates possible?

40. Way Forward & Future Challenges • Technology based operations • Core Banking & Cluster Banking • STP(Straight Through Processing) • 24X7 operations • Outsourcing • Speedy access & delivery vis-à-vis personal touch

41. I T ARCHITECTURE IN RBI • UNIFORM ARCHITECTURE ACROSS OFFICES • STANDARDISATION OF APPLICATIONS • INTER-CONNECTIVITY ACROSS APPLICATIONS, OFFICES AND INTER-CONNECITIVITY TO INFINET • ADEQUATE SECURITY REQUIREMENTS • TO MIGRATE TOWARDS A CENTRALISED PROCESSING FACILITY WITH DECENTRALISED ACCESS • IMPETUS ON BUSINESS CONTINUITY

42. State of the Art Technology • Training • CBT, e-Learning • DRS & BCP • TIER IV DATA CENTRES • PRIMARY PRODUCTION • ON CITY BACKUP + TEST & DEPLOYMENT • OFF CITY BACKUP

43. Strategies • 1 : 1 PC • Generic Architecture • Robust Computing Platforms • Inter-operability • Centralised Processing and Decentralised Access • Integrated & Enterprise wide applications • PKI • Web-enablement

44. Communication - Policy • LAN • Structured Cabling • WAN • INFINET • VSAT, Leased Line, ISDN, Dial-up, Radio • Internet • Video Conferencing

45. Classification of IT Processing in the Bank • On Line Transaction Processing (OLTP) Systems used in Banking Departments such as DAD, PAD & PDO, CAS, ICCOMs • On Line Analytical Processing (OLAP) Systems used in Specialised Departments such as DBOD, DBS, UBD, DNBS • Decision Support System such CDBMS application

46. Existing OLTP Systems • Deposit Accounts Department (DAD)- RTGS/IAS • Public Accounts Department (PAD)- CPAD • Public Debt Office (PDO)- CPDO • Clearing House – MICR,ECS, EFT • Issue Department Application - ICCOMS • Department of External Investments and Operation (DEIO) – E-treasury • Central Accounts Section (CAS)- Government Accounts balances

47. Existing OLAP Systems • Department of Banking Operations and Development (DBOD) –CRR/SLR • Department of Banking Supervision (DBS) - OSMOS • Department of Non-Banking Supervision (DNBS) - COSMOS • Urban Banks Department (UBD) – OSS • Human Resource Development Department (HRDD) -HRMS • Department of Expenditure and Budgetary Control (DEBC) - IES

48. External Data Process Monitoring / Administration Extraction Transformation Validation Loading Reporting Banks End Users Reporting Floppies Hardcopy Ad-hoc query Mail Server Data entry/ OCR reader E-Mail OLAP DATA WAREHOUSE Data entry POWER Users OSMOS (Offsite Monitoring and Surveillance) SYSTEM System Architecture Statistical analysis Advanced analysis Modeling Data Miming Data export

49. Decision Support Systems(DSS) • CDBMS • Data Warehouse • Data Mining • Enterprise Knowledge Management System(EKMS) • Content Management • DMS • Intranet • Internet • Workflow

50. SUBJECT AREAS PLANNED IN DW