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


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


Glossary in E-Banking :Commercial Banking 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.


Glossary-2 :Commercial Banking 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.


Glossary-3 :Commercial Banking 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


Glossary-4 :Commercial Banking 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


E-BANKING DEVELOPMENTS :Commercial Banking 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


Committees on Computerisation in Banks in India 1982-1995 :Commercial Banking 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


Committees on Computerisation :Commercial Banking 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


Committees on Computerisation :Commercial Banking 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


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


Committees on Computerisation :Commercial Banking 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


Committees on Computerisation :Commercial Banking 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


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


Indian Banking @ Cross Roads? :Commercial Banking 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 ??????


Indian Banking-Now... :Commercial Banking 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


WHY TECHNOLOGY IN BANKS ? :Commercial 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


Many Benefits of Technology :Commercial Banking 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


Slide 19:Commercial Banking Technology in Indian Banking 2007 19 Pre-requisites for Technology


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


Benefits of Virtual Banking :Commercial Banking 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


Benefits to Customer :Commercial Banking 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


BANKS’ IT STRATEGY :Commercial Banking 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


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


INST. FOR DEV & RESEARCH IN BANKING TECHNOLOGY :Commercial Banking 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


IDRBT, HYDERABAD :Commercial Banking 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


DEVELOPMENTS :Commercial Banking Technology in Indian Banking 2007 27 DEVELOPMENTS 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


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Communication Networks :Commercial Banking 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)


MICR CLEARING :Commercial Banking 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...


Automated Teller Machines :Commercial Banking 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


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


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


ATMs :Commercial Banking 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


Cross Selling :Commercial Banking 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.


Cross Selling ADVANTAGES :Commercial Banking 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


BANKNET :Commercial Banking 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


INFINET :Commercial Banking 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


SWIFT www.swift.com :Commercial Banking 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


SWIFT contd... :Commercial Banking 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


Electronic Data Interchange :Commercial Banking 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)


Electronic Funds Transfer (EFT) :Commercial Banking 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


ECS :Commercial Banking 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


SWADHAN :Commercial Banking Technology in Indian Banking 2007 45 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 SWADHAN


SERVICES :Commercial Banking 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


Real Time Gross Settlement :Commercial Banking 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


Cheque Truncation System :Commercial Banking 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...


Customer Relationship Management (CRM) :Commercial Banking 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


Customer Relationship Management :Commercial Banking 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


Core Banking Solutions (CBS) :Commercial Banking Technology in Indian Banking 2007 51 Core Banking Solutions (CBS) POOLING DATA AT CENTRAL SERVER TRANSACTIONS OF DELIVERY CHANNELS FROM DELIVERY POINTS (BRANCH/ATM) FEED ONLINE TO HOST – NO BACK OFFICE HOST DATABASE IS UP TO THE MINUTE END OF DAY (EOD) AND START OF DAY (SOD) TASKS PERFORMED AT BRANCHES WILL BE DONE BY ‘HOST’ SERVER ELIMINATES BR RECONCILIATION WORK STAFF PRODUCTIVITY – BANK CUSTOMER!


Smart Cards – The Future :Commercial Banking Technology in Indian Banking 2007 52 Smart Cards – The Future Multi-application Smart Card Channel of the future Pilot project started Pilot Project funded by Govt. of India Project is in progress in partnership with IDRBT, IIT Mumbai and Banks Visit www.scafi.in The Smart Card Forum of India is a non-profit, multi-industry organization promoting the wide spread acceptance of multiple application smart card technology.


Beware of :Commercial Banking Technology in Indian Banking 2007 53 Beware of Hacking Phishing Pharming Skimming Trojan


Hacking :Commercial Banking Technology in Indian Banking 2007 54 Hacking Hacker: May mean simply a person with mastery of computers. TIMELINE Early 1960sHackers begin breaking into mainframe computers. 1983             The FBI busts six teen-age hackers from Milwaukee; one of the first arrests of hackers. 1984            First issue of 2600: The Hacker Quarterly in New York: prime source for hacking information 1985            “Phrack”, an electronic magazine about computer hacking, begins. 1987 AT&T computers hacked into by Herbert Zinn............................................... ...................................................................................................................... ...................................................................................................................... February 2000  In only three days some hackers brought down some of the biggest Web sites in the world that included Yahoo!, Amazon.com, Buy.com, eBay and CNN.com. They used"Denial of Service" attacks to overloaded the sites' servers by sending them an excessive number of data requests.


Phishing :Commercial Banking Technology in Indian Banking 2007 55 Phishing A method of identity theft carried out through the creation of a website that seems to represent a legitimate company. The visitors to the site, thinking they are buying something from a real business, submit their personal information to the site. The criminals then use the personal information for their own purposes, or sell the information to other criminal parties.


www.antiphishing.com :Commercial Banking Technology in Indian Banking 2007 56 www.antiphishing.com


Pharming :Commercial Banking Technology in Indian Banking 2007 57 Pharming


Skimming :Commercial Banking Technology in Indian Banking 2007 58 Skimming An electronic method of capturing a victim's personal information used by identity thieves. The skimmer is a small device that scans a credit card and stores the information contained in the magnetic strip. Skimming can take place during a legitimate transaction at a business. Skimming can occur easily in a restaurant because your card is taken away when the bill is being settled. If your server is a skimming identity thief, he or she will, before giving the card back to you, scan the credit card with a hand-held electronic device, which takes only seconds. The electronically captured information is then used to by the thief or sold to other criminals


Trojan :Commercial Banking Technology in Indian Banking 2007 59 Trojan Trojan horse is a program that installs malicious software while under the guise of doing something else. Though not limited in their payload, Trojan horses are more notorious for installing backdoor programs which allow unauthorized non permissible remote access to the victim's machine by unwanted parties - normally with malicious intentions. Unlike a computer virus, a Trojan horse does not propagate by inserting its code into other computer files. The term is derived from the classical myth of the Trojan Horse. Like the mythical Trojan Horse, the malicious code is hidden in a computer program or other computer file which may appear to be useful, interesting, or at the very least harmless to an unsuspecting user. When this computer program or file is executed by the unsuspecting user, the malicious code is also executed resulting in the set up or installation of the malicious Trojan horse program. (See Social engineering.) Often the term is shortened to simply Trojan.


References: :Commercial Banking Technology in Indian Banking 2007 60 References: Information Technology & Electronic Banking – Indian Institute of Bankers, Mumbai, May 1998 Information Technology & E-Banking – ICFAI, Hyderabad, October 2004 Retail Banking, Everything you need to know to work in a Bank - Raghu Palat, IBD, Mumbai 2006 Banking on Technology, Indian Management – AIMA Publication, August 2004 Building CRM – Customer Relationship Management & KYC experience through Technology – BanCon, IBA Conference, 2004; Indian Banker Feb 2006 Trend and Progress of Banking in India, RBI 2006 www.rbi.org.in; www.idrbt.ac.in; www.google.co.in; www.swift.com; www.iba.org.in; www.antiphishing.com;


And now... ...WIMAX :Commercial Banking Technology in Indian Banking 2007 61 And now... ...WIMAX World-wide Interoperability Micro-wave Accessibility...