BANKING IN NEW MILLENIUM

(CORE BANKING SOLUTIONS)

Submitted
By:-
Priya
Shewakramani
Apurva
Jogdeo
 (T.Y.B.Com in
Banking & Insurance)

INDEX

Sr. TOPICS
No
1 EXECUTIVE SUMMARY

2 OBJECTIVES

3 CORE BANKING SOLUTIONS

4 DEFINITION

5 HOW A CORE BANKING SOLUTION WORKS

6 BENEFITS

7 NEED FOR CORE BANKING

8 MULTIPLE ACCESS CHANNELS

9 BUSINESS PROCESS RE-ENGINEERING

10 CORE BANKING MODULES

11 CASE STUDY

12 PROBLEMS FACED IN CBS

13 BIBLIOGRAPHY
 Executive summary

The banking business has evolved. Where once banks were

preoccupied with commodity cash transactions, today they’ve become
dynamic, multi-channel organizations constantly challenged by
unpredictable, highly competitive markets and pressures to improve
profitability. But their legacy mainframe core banking systems were
designed 20–30 years ago and lack the inherent flexibility needed to meet
today’s challenges; they’re costly to maintain, increasingly incompatible
with new business requirements, and do not provide a foundation for future
growth. To compete and succeed in today’s business environment, banks
need to become more agile so that they can better understand market
dynamics and anticipate customer needs; design, introduce, or modify
products and services; implement a new value delivery system, even if that
means reshaping the information infrastructure; and identify resources
(people and goods) internally or externally. That’s why today’s financial
services institutions are looking increasingly to the latest open systems
technology, and beginning to move applications off mainframes to open-
standards–based servers with architected solutions, because they are more
flexible and significantly less costly. This presentation will give a fair idea
about how core banking solutions actually work & also its importance to the
banks.
 OBJECTIVES

o To practically study the concept.

o To analyse the scope of core banking solutions

o To gain practical knowledge relating to core

banking solutions

o To understand complete operation of core

banking solutions’

o To draw a conclusion based on the analysis &

experiences

o To know about future prospects of core banking

solutions
 CORE BANKING SOLUTION

Core Banking Solutions is new jargon frequently used in banking

circles. The advancement in technology especially internet and information
technology has led to new way of doing business in banking.

The technologies have cut down time, working simultaneously on different

issues and increased efficiency. The platform where communication
technology and information technology are merged to suit core needs of
banking is known as Core Banking Solutions. Here computer software is
developed to perform core operations of banking like
recording of transactions,
passbook maintenance,
interest calculations on loans and deposits,
customer records,
balance of payments and withdrawal

This software is installed at different branches of bank and then

interconnected by means of communication lines like telephones, satellite,
internet etc. It allows the user (customers) to operate accounts from any
branch if it has installed core banking solutions. This new platform has
changed the way banks are working. Now many advanced features like
regulatory requirements and other specialized services like share (stock)
trading are being provided. Core banking solutions are very helpful to SME
industries.

Core Banking is a generic term, which denotes inter-branch transaction

capability through. Basic Architecture has been designed to achieve
Centralized Processing with IT applications & data residing at Central Data
Centre (CDC) to which branches & administrative offices will be connected.
Core banking is a general term used to describe the services provided by a
group of networked bank branches. Bank customers may access their funds
and other simple transactions from any of the member branch offices.

Core Banking Solution (CBS) is networking of branches, which enables

Customers to operate their accounts, and avail banking services from any
branch of the Bank on CBS network, regardless of where he maintains his
account. The customer is no more the customer of a Branch. He becomes the
Bank’s Customer. Thus CBS is a step towards enhancing customer
convenience through Anywhere and Anytime Banking.

“Core Banking” refers to the activities a bank generally undertakes. “Core

Banking Process for a bank” is thus a generic term for the complete
administration of transactions for the bank through a central database. In an
ideal core banking scenario, all products, processes, channels and customer
relationship management tools are integrated and administered via a central
database of the bank with branches and channels as delivery points.

This enables cross selling, data integration for various purposes such as cross
selling, CRM, Regulatory Reporting and internal MIS all at considerably
lower cost. Having capability to administer all its transactions via core
banking, a bank may select which activities to transact via core banking and
which not. Regulators may also define the scope of administration of core
banking in their jurisdiction.

Core banking is about knowing customers' needs and providing them with
the right products at the right time through the right channels 24 hours a day,
7 days a week.

The rapid advancement in Information and Communication Technology

(ICT) has had a profound impact on the banking industry and the wider
financial sector over the last two decades and it has now become a tool that
facilitates banks’ organizational structures, business strategies, customer
services and other related functions. The recent “IT revolution” has exerted
far-reaching impacts on economies, in general, and the financial services
industry, in particular.

Within the financial services industry, the banking sector was one of the first
to embrace rapid globalization and benefit significantly from IT
development.

The technological revolution in banking started in the 1950s, with the

installation of the first automated bookkeeping machines at banks. This was
well before the other industries became IT savvy. Automation in banking
became widespread over the next few decades as bankers quickly realized
that much of their labor-intensive information-handling processes could be
automated with the use of computers. The first Automated Teller Machine
(ATM) is reported to have been introduced in the USA in 1968, and it was
only a cash dispenser. The advent of ATMs helped both to improve customer
convenience and reduce costs, as before ATMs, withdrawing funds, accounts
inquiries and transferring funds between accounts required face-to-face
interaction between bank staff and customers.
DEFINITION:

Core Banking is normally defined as the business conducted by a banking

institution with its retail and small business customers. Many banks treat the
retail customers as their core banking customers, and have a separate line of
business to manage small businesses. Larger businesses are managed via the
Corporate Banking division of the institution. Core banking basically is
depositing and lending of money. Normal core banking functions will include
deposit accounts, loans, mortgages and payments. Banks make these services

available across multiple channels like ATMs, Internet banking, and

branches.

Core Banking is a general term used to describe the services provided by a

group of networked bank branches. Bank Customers may access their funds
and other simple transactions from any of the member branch offices.

How a Core Banking Solution Works

 A core banking solution, often referred to as a CBS, typically has a GL
subsystem at its core with plug-in satellite modules catering to the various
divisions of the bank. The satellite modules, referred to as "modules," cater
to the business functionalities of the various lines of business of the bank.
Typical CBS modules include but are not limited to:

Non-financial modules:

• Customer definition and accounts

• Customer limits definition, lines of credit, a central bank reporting
structure
• Messaging and advice
• End-of-day processing modules, etc.

Financial modules:

• Loans, deposits, money markets

• Letters of credits and bills
• Treasury
• Liquidity management
• Local payments and cross-border payments
• Nostro reconciliations
• Interest and charge definitions, etc.

Each silo or line of business employs one or more of these modules to run
its business. The modules are used to create contracts with customers at the
branch level for various products. For example, a short-term, fixed-rate loan
contract for the account of a large corporate customer has multiple
components associated with it, such as the contract-principal component, tax
component, interest component, product-preference component, charge
component, etc.

Transactions are generated at the component level during various events of

the contract life cycle, such as contract initiation, booking, accrual,
liquidation, rollover, advice generation, contract cancellation, etc. Such
dollar (or any other currency) transactions hit the accounting and GL
subsystem at the core. Thus, the core GL and accounting system ties the
various silos together.

As we have seen, the CBS and its modules are used by the lines of business
to manage customer contracts and their life cycles as well as most income
classified as non-fee income.
 Inte rnal
ALM + Ris k I nterfaces
MIS + DW + DM
Man agemen t

In ternet
Treasury Core Ban king
+

AT Ms
IBR

Bran ch Network

Benefits
Core banking solution can support a financial institution by:

• Facilitates 24 X 7 Banking
• Anywhere Banking
• Integration with strategic sectors
• Business Process Re-engineering (BPR) enabler
• Reducing operating costs significantly
• Increase in operational efficiencies & productivity
• Helping a bank comply quickly with changing regulatory
requirements
• Driving product innovation
• Ensuring rapid customer acquisition
• Enhancing customer relationship management
• Scalability to support rapid growth and M&A initiatives
• Offline functionality.
• Reduce dependency
• Speedy remittances across the country
• One stop shop for all banking needs
• Empowerment through improved service quality
Need For Core Banking

Changing economy and increased regulatory requirements have put

increased pressure on banks and their core banking systems. However,
according to the 2008 Core Banking Systems Survey from Cap Gemini,
almost all of the top retail banks globally are still using legacy systems
dating from the 1960s and 1970s in domestic markets; despite the growth of
packaged banking solutions in international operations over the last three
decades. To sustain growth under recent banking pressures and continued
regulatory requirements, it is essential for banks to have the right core
banking systems in place. While a large bulk of package sales are still within
Tier 3 and 4 banks, signs of larger, more strategic decisions are emerging
with select Tier 1 and 2 banks that require sophisticated transaction
processing software capable of handling large transaction volumes and
giving banks the ability to gain 'a single view of the customer' in terms of
their product usage.
The survey provides recent trends, in-depth insights into the vendors and
package solutions market and offers a guide for selecting and implementing
a package solution in a structured, controlled and manageable way.

Beyond the financial drivers, IT globalization, increasing compliance and

industry consolidation, are some of the other key motivators for core banking
system replacement. As a result, the primary drivers for system replacement
are shifting from cost reduction to growth. For example, regulations like
SEPA (Single Euro Payments Area) have accelerated the payments industry
transformation.
MULTIPLE ACCESS CHANNELS
BUSINESS PROCESS RE-ENGINEERING
(A TOOL TO FURTHER BANKS STRATEGIC GOALS)

INTRODUCTION:
Organizational development is a continuous process. But the pace of change
has increased manifold. In a volatile global world , organizations enhance
competitive advantage through business process re-engineering (BPR) by
radically redesigning selected processes. BPR implies transformed processes
that together form a component of a larger system aimed at enabling
organizations to empower themselves with contemporary technologies,
business solutions and innovations.

BPR, which is a multi-dimensional tool, utilizes several methods to examine

processes from a holistic perspective, transcending the narrow borders of
specific functions.

“The fundamental reconsideration and radical redesign of organizational

processes, in order to achieve drastic improvement of current performance in
cost, service and speed”

Value creation for the customer is the leading factor for BPR and information
technology often plays an important enabling role. Business processes
encompass a wide spectrum of activities—procurement, order fulfillment,
product development, customer service and sales.

The multiplier effects of BPR provide an impetus to the industry through

impressive success across companies. Such examples of a definitive solution
are merely illustrative and, by no means exhaustive and, hence, could easily
be multiplied. But the basis BPR drivers— the four C’s (customer,
competition, cost and change) --- remain incontrovertible.

Disaster recovery site

Disaster recovery is the process of regaining assess to the data, hardware &
software necessary to resume critical business operations after a natural or
human induced disaster.

A disaster recovery center is back up facility used in case of disaster.

Disaster recovery in Information technology is the ability of an infrastructure
to restart operations after a disaster. Disaster recovery is used both in the
context of data loss prevention and data recovery.

Disaster recovery planning is the technological aspect of business continuity

planning. This is mean to include the plans and preparations to minimize loss
and ensure continuity of the critical business functions of an organizations in
the event of disaster.
Events that necessitate disaster
recovery site

There are many different risks that can negatively impact the normal
operations of organizations. A risk assessment should be performed to
determined what constitutes a disaster and which risks a specific company is
most susceptible to, including:

• Natural disaster
• Fire
• Power failure
• Terrorist attack
• Organized or deliberate disruptions
• Theft
• System or equipment failure
• Human error
• Computer viruses
• Legal issues
• Worker strikes
• Testing
Security features to be maintained by
banks

• Only the employees of the bank who are authorized to access the core
banking system are allowed to log in to the system
• Separate log in ids are provided to identify the persons operating on
the systems
• Automatic disabling of logins after the expiry date. The expiry date
can be modified by the administrator.
• Password is encrypted.
• The system allows changing the password for individuals through
their own log INS. They need not approach system administrator for
password changing. The system administrator need not have the
knowledge of the modification of the individual password except at
the time of installation/log in creation
• There are four access levels: a)Clerical level b)Officer level
c)Manager level d)System administrator level
• Manipulation of database is restricted to the applications software. The
manipulation of the database through from server or using any other
software is not possible.
• Any entries made or modified can be easily traced by the audit trail
report
• Passing limit based on the access levels
• Disk mirroring is enabled as a safety measures
• Restriction of transaction after day end and before day begin
• Based on the severity of the transaction the authorization level differs
from one to maximum five officers.
 CORE BANKING MODULES

Product management.

Customer management.

Deposit processing.

Loan processing.

Card Issuing.

Transaction processing and clearing.

 CASE STUDY OF SBI

SUMMARY IN BRIEF

WHEN CORE BANKING GET STARTED

• 1960s - SBI first to introduce mainframes in banking in India

• 1970s – Started Data Processing Centers with IBM 1401 Punch

Card collating machines

• 1980s – Local Head Office Computer Centers set up using mini

computers. Branch computerization commenced in late 1980s

• 1992 – Bank master implementation undertaken. Over 3,700

branches, handling 83% business, completed by 2003

• 2003 – Universal Computerization Plan launched. All branches

completed by January, 2004. CBS implementation launched in
parall

• All branches of the Group fully Computerized by January 2004

 Transition Phase- II
• Technology Plans (KPMG- 2000/01)

• New Technology Initiatives

• Infrastructure Creation

• Planning for Implementation

Transition Phase III

• Core Banking Solution

• Trade Finance

• Alternate delivery channels (ATM, Internet Banking)

• Treasury & Asset Liability Management

• Core Banking for Foreign Offices

• Payment Systems

• Information Secure
 State bank of India mainly uses software
provided by
TATA CONSULTANCY SERVICES

Tata Consultancy Services (TCS) and the State Bank of India (SBI) have
announced a joint venture. Through this collaboration, the two institutions
intend to provide advanced technology solutions and domain consulting for
the banking and financial services sector.

The joint venture will have an authorized capital of Rs40 crore and will be
known as C-Edge Technologies Ltd upon incorporation. With equal
participation on the board of directors, the JV will have equity participation
from TCS and SBI in the ratio of 51:49 respectively.
Problems faced in using CBS
 Lack of knowledge

 Low grasping power of the staff

 Connectivity problems

 Load shedding

 Staff is not Computer Savvy

BIBLIOGRAPHY:-

The information mentioned in the above project has

been collected from various sites which are as follows:-

www.statebankofindia.com
www.Ask.com
Google Search engine.