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Recent Technological Developments In Indian Banking:

1 Recent Technological Developments In Indian Banking

The Technology Revolution:

2 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

Slide 3:

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

Technology and Central Banks:

4 Technology and Central Banks Why Central Banks are interested? Technology has Affected every Core Central Banking Function The potential Technology offers to improve internal processes

Core Central Banking Functions:

5 Core Central Banking Functions Banking Supervision Financial & Monetary Stability Currency Management

Technology and Central Banks:

6 Technology and Central Banks So why are central banks interested? The widespread adoption of technology by the banking industry The impact of technology on every single core central banking function Supervision and Regulation Currency Management Monetary & Financial Stability The potential technology offers to central banks for rendering more effective its internal processes and functions

Technology and Banking:

7 Technology and Banking The Quintessence Nature of Banking harmonizes closely with Technology - Mass transaction & items processing Pervasive branch network Global Operations Complex credit calculations Innovative Risk Management

Technology and Banking Supervision:

8 Technology and Banking Supervision THE RBI RESPONSE Offsite Supervision & Monitoring OSMOS COSMOS (Non banking Financial Companies / Development Financial Institutions) UBD Soft Credit Information Bureau (A joint venture between Housing Development Finance Corporation Ltd., State Bank of India, Trans Union International Inc. & Dun & Bradstreet Information Services India Pvt. Ltd.

Regulation and Supervision – The Challenge:

9 Regulation and Supervision – The Challenge Technology has … opened up new markets, products, services, delivery channels opened up a market for “risks” – derivatives thrown up the challenge of financing tech firms & IT innovation …and not without implications for the stability of banks and of the economy

Regulation and Supervision – The Response:

10 Regulation and Supervision – The Response Technology has also… provided regulators with the wherewithal to meet the challenge been the cornerstone of all recent financial sector reforms enabled the emergence of non-intrusive, focused supervision …with a view to prevent frauds and disturbances to financial stability

Regulation and Supervision – RBI Initiatives:

11 Regulation and Supervision – RBI Initiatives Off Site Monitoring and Supervision System For commercial banks For non banking financial institutions For urban co-operative banks The Credit Information Bureau

Currency Management and Technology – Opportunities Galore :

12 Currency Management and Technology – Opportunities Galore Currency Management is a formidable task in India given… the geographical size of the country the volume and value of notes and coins in circulation the marked preference for cash currency handling practices ...but technology offers immense opportunities to improve performance

Currency Management – RBI Initiatives:

13 Currency Management – RBI Initiatives The Clean Note Policy (1999) Establishment of 2 state of the art currency presses Technology driven anti counterfeit measures 48 fully automated Currency Verification and Processing Systems 21 Shredding and Briquetting Machines

Monetary Policy – The Challenge (1):

14 Monetary Policy – The Challenge (1) The proliferation of IT has… redefined the toolkit of economic indicators used in implementing monetary policy rendered more complex, the task of compiling statistical information rendered difficult the task of capturing the impact of IT on price levels raised issues in respect of the possible proliferation of digital money

Monetary Policy – The Challenge (2):

15 Monetary Policy – The Challenge (2) 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 more complex and prone to implementation and operational risks

Monetary Policy – The Opportunity:

16 Monetary Policy – The Opportunity The proliferation of IT has also set the stage for improving and managing risks in payment systems Electronic Trading Systems DVP/PVP RTGS Secured Netting Systems The growth of the Central Counterparty (CCP) Continuous Linked Settlement

IT and Payment and Settlement Systems:

17 IT and Payment and Settlement Systems Demateria-lisation Of Securities Delivery Versus Payments Payment Versus Payment Continuous Linked Settlement Electronic Dealing Platforms Real Time Gross Settlement Central Counter party Secured Netting Systems

Slide 18:

18 RBI INITIATIVES IN PAYMENT & SETTLEMENT SYSTEMS Compliance with BIS Core Principles Clearing Corporation of India RTGS CFMS PKI based Security SFMS INFINET IDRBT PDO-NDS & SSS

RBI Initiatives in Payment and Settlement Systems (1):

19 RBI Initiatives in Payment and Settlement Systems (1) The IDRBT Network Externalities The Indian Financial Network (INFINET) Messaging Solutions The Structured Financial Messaging System (SFMS) Security Public Key Infrastructure

Slide 20:

20 JAMMU CHANDIGARH DELHI JAIPUR AHMEDABAD MUMBAI PUNE BANGALORE THIRUVANANTHAPURAM CHENNAI HYDERABAD BHUBANESHWAR CALCUTTA PATNA KANPUR GUWAHATI BHOPAL Back up NMS at Mumbai NMS at Hyderabad Integration of VSAT network with Terrestrial network at all Offices of the RBI DESIGN OF TERRESTRIAL NETWORK AND INTEGRATION WITH VSAT NETWORK 2 mbps leased line 64 kbps leased line VSAT Network NAGPUR KOCHI GOA LUCKNOW INFINET - Present Demand Note paid for all the links

Slide 21:

21 JAMMU CHANDIGARH DELHI JAIPUR AHMEDABAD MUMBAI PUNE BANGALORE THIRUVANANTHAPURAM CHENNAI HYDERABAD BHUBANESHWAR CALCUTTA PATNA KANPUR GUWAHATI BHOPAL Back up NMS at Mumbai NMS at Hyderabad Integration of VSAT network with Terrestrial network at all Offices of the RBI DESIGN OF TERRESTRIAL NETWORK AND INTEGRATION WITH VSAT NETWORK 4 mbps leased line 2 mbps leased line VSAT Network NAGPUR KOCHI GOA LUCKNOW INFINET - Proposed Demand Note paid for all the links 8 mpbs leased line

Structured Financial Messaging System:

22 Structured Financial Messaging System Bank-1 Gateway Bank-2 Gateway Bank-n Gateway Branch-1 Branch-2 Branch-n Branch-1 Branch-2 Branch-n Branch-1 Branch-2 Branch-n Central Server at IDRBT ………..…………….….. ………..…………….….…….. … … … … … … …….…… …….……

RBI Initiatives in Payment and Settlement Systems (2):

23 RBI Initiatives in Payment and Settlement Systems (2) 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

Centralised Funds Management System:

24 Centralised Funds Management System DAD-1 DAD-2 DAD-16 DAD-17 CFMS Server Gateway for the participating banks Bank 2 Bank 3 Bank n Bank 1 Balance checks & funds transfer messages

Centralised Funds Management System – Countrywide Spread :

25 Centralised Funds Management System – Countrywide Spread

Slide 26:

26 CFMS Settlement Accounts IFTP Strip & Store Processes IAS SSS Intra Day Liquidity RBI Payments and Actg. Entry Interface INFINET NSS Participant’s Interface Participant’s Interface Participant’s Interface Real Time Gross Settlement

Negotiated Dealing System & the Securities Settlement System:

27 Negotiated Dealing System & the Securities Settlement System Electronic dealing platform in government securities and money market instruments- Primary and Secondary markets Quicker Price Discovery Straight Through Processing- Settlement of transactions Delivery versus Payments Efficient Servicing Centralised Depository and Debt Servicing Wide Area Based Dealing System

RBI Initiatives in Payment and Settlement Systems (3):

28 RBI Initiatives in Payment and Settlement Systems (3) 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

The Clearing Corporation of India:

29 The Clearing Corporation of India Promoted by large banks & financial institutions Central Counterparty to trades in Government Securities Forex markets Secure netting system

Technology Vision of the RBI:

30 Technology Vision of the RBI Centralised Database Management System Enterprise Knowledge Management System Integrated Accounting System Integrated Government Accounting System Currency Operations System 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

RBI Initiatives in Payment and Settlement Systems (4):

31 RBI Initiatives in Payment and Settlement Systems (4) The final goal… Establishment of a secure, efficient, modern payment and settlement system in the country Ensuring full compliance with the Core Principles for Systemically Important Payment Systems of the Bank for International Settlements

Summary of Issues: RBI as a user of technology (1):

32 Summary of Issues: RBI as a user of technology (1) The Technology Mission in RBI To enable better and faster transactions, analysis and decisions To provide State of the art, online transactional, analytical and decision making capabilities at the desktop of each official in a secured environment

RBI as a user of technology (2):

33 RBI as a user of technology (2) The Strategy… On line Transactional Capability An integrated solution for each functional area Integrated Accounting Solution RBI as “Banker to banks” Integrated Government Accounting Solution RBI as “Banker to government” Securities Settlement System For the management of public debt Computerised Currency Operations and Management Solution Integrated Establishment Solution

RBI as a user of technology (3):

34 RBI as a user of technology (3) The Strategy…On line Analytical Capability The Integrated Foreign Exchange Management Solution The Human Resource Information System Integrated Monetary Policy Solution

RBI as a user of technology (4):

35 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

RBI as a user of technology (5):

36 RBI as a user of technology (5) Harnessing technology for more effective dissemination of information The RBI website www.rbi.org.in A Store House of information for customers and for the general public

RBI as a user of technology (6):

37 RBI as a user of technology (6) Customer Service Multiple Delivery Channels Coin & Note Dispensing Machines For the general public Interactive Voice Response System For banks and financial institutions Web server For government customers On the anvil… A secured web server SFMS/email based communication with customers

Customer Service…(1):

38 Customer Service…(1) Dissemination of information The RBI website Multiple Delivery Channels Coin & Note Dispensing Machines For the general public Interactive Voice Response System For banks and financial institutions Web server For government customers On the anvil…. A secured web server SFMS/email based communication with customers

Customer Service...(2):

39 Customer Service...(2) Improvements in payment and settlement systems MICR Clearing Enabling faster clearing of cheques Cheque Truncation & E-Cheques On the drawing board ECS/EFT Enabling T+2 settlement of our equities market National EFT Enabling T+0 settlement of all customer funds transfer transactions

Electronic Payment Methods - Value:

40 Electronic Payment Methods - Value

RBI as a user of technology (7):

41 RBI as a user of technology (7) Customer Service Improvements in payment and settlement systems MICR Clearing Enabling faster clearing of cheques Cheque Truncation & E-Cheques On the drawing board ECS/EFT Enabling T+2 settlement of our equities market National EFT Enabling T+0 settlement of all customer funds transfer transactions

Slide 42:

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

The pre-requisites for Technology :

43 The pre-requisites for Technology Planning for disasters Increased operational risk Business Continuity Planning Business Process Re-engineering Human Resource Empowerment

Thank You:

44 Thank You

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