Technology in Indian Banking 2008

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

Committees on
Computerisation
3. Committees on Communication
Network for Banks and SWIFT
implementation (1987)
Chairman : Shri TNA Iyer, Executive

Director, RBI

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

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
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)
Banks Rural S’Urban Urban Metro Total
19 Nat’d 12,990 7,103 6,990 6,929 34,012
8 SBGr 5,229 4,043 2,449 2,110 13,831
1 IDBI 2 17 66 88 173
19 OPBs 936 1,447 1,236 947 4,566
8 NPBs 97 322 674 857 1,950
29 FBs 0 1 37 221 259
TOTAL 19,254 12,933 11,452 11,152 54,791

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...
• 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 ?
• 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
• 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

Pre-requisites for Technology
Human Resource Business Process

Empowerment Re-engineering
Planning for
Disasters

Focus aspects of Commercial
Banking
BANK’S BUSINESS
LOANS & MISC. SERVICES

Core MIS & ATMs
RAISING DEPOSITS
Banking (CBS) Intranet POS Terminals

and Cash
dispenser
Electronic
Banking Card
Corporate Management
Network
Any Branch Document
Banking Management
Risk Resource
CRM
Management Management
BANK’S BUSINESS
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
• More convenience & flexi timings
• Better awareness of products & services
• Up-to-date information on accounts
• Low cost of accessing the accounts

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
• Issues of Confidentiality ?
• Hacking and Fraud prone ??
• Scope for failure of Technology ???
• Resultant denial of Services ????

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
• 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
• ALPMs • ALM & RM, MIS
• CLEARING HOUSE • CRM, KYC, AML
• CAR,CRR,SLR,PS,NPAs • Core Banking Solutions
• CREDIT/DEBIT CARDS • KISAN /SME CARD
• NICNET,I-NET, RABMN • CREDIT INFO BUREAU
• INFINET, RBINET • DISASTER
• BANKNET, NDS, SFMS MANAGEMENT
• MICR, ATMs, SWIFT • Cheque Truncation
• DEMAT, IT ACT-2000 • CYBER CRIMES –
• INTERNET BANKING HACKING, PHISHING,
PHARMING, TROJAN,
• ECS, EFT, SEFT, RTGS SKIMMING, ETC
• CROSS SELLING • SMART CARDS

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
• 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
• 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

Bank ATMs – 2007 (x-RRBs)
Banks On-Site Off-Site Total
19 Nat’d 6,377 2,991 9,888
8 SB Group 3,655 2,786 6,441
1 IDBI Bk 257 263 520
18 Old PBs 1,104 503 1,607
8 New PBs 3,154 5,038 8,192
29 FBs 249 711 960
TOTAL-83 14,796 12,292 27,088

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
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
• 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
• 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
• 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?infi

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...
• 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
• 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)
• 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
• 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
• 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
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
• 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-E

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)
• 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
• 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)
• 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
• 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
• Hacking
• Phishing
• Pharming
• Skimming
• Trojan

Hacking
• Hacker: May mean simply a person with mastery of computers.
• TIMELINE
• Early 1960s
Hackers 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
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

Pharming

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
• 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:
• 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
• World-wide Interoperability Micro-
wave Accessibility...

Technology in Indian Banking 2008

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Commercial Banking

Technology in Indian Banking

Commercial Banking Technology in Indian Banking 2007 3

• CRM –Customer Relationship Manage-

Commercial Banking Technology in Indian Banking 2007 4

Commercial Banking Technology in Indian Banking 2007 5

• Convenor : Dr Y B Damle, Advisor,

Commercial Banking Technology in Indian Banking 2007 9

Chairman : Shri TNA Iyer, Executive

Commercial Banking Technology in Indian Banking 2007 10

Commercial Banking Technology in Indian Banking 2007 11

Chairman: Shri W S Saraf, Executive

Chairperson: Smt K S Shere, Principal

Commercial Banking Technology in Indian Banking 2007 13

Commercial Banking Technology in Indian Banking 2007 14

Commercial Banking Technology in Indian Banking 2007 17

Commercial Banking Technology in Indian Banking 2007 18

Human Resource Business Process

Commercial Banking Technology in Indian Banking 2007 19

LOANS & MISC. SERVICES

Banking (CBS) Intranet POS Terminals

Commercial Banking Technology in Indian Banking 2007 21

• Better awareness of products & services

• Up-to-date information on accounts

• Low cost of accessing the accounts

Commercial Banking Technology in Indian Banking 2007 22

Commercial Banking Technology in Indian Banking 2007 23

Commercial Banking Technology in Indian Banking 2007 24

Commercial Banking Technology in Indian Banking 2007 27

Commercial Banking Technology in Indian Banking 2007 30

Commercial Banking Technology in Indian Banking 2007 31

Commercial Banking Technology in Indian Banking 2007 33

Commercial Banking Technology in Indian Banking 2007 34

Commercial Banking Technology in Indian Banking 2007 36

Commercial Banking Technology in Indian Banking 2007 38

Commercial Banking Technology in Indian Banking 2007 39

Commercial Banking Technology in Indian Banking 2007 43

Commercial Banking Technology in Indian Banking 2007 44

Commercial Banking Technology in Indian Banking 2007 46

Commercial Banking Technology in Indian Banking 2007 47

Commercial Banking Technology in Indian Banking 2007 48

Commercial Banking Technology in Indian Banking 2007 49

• Targeted Marketing Campaign

Commercial Banking Technology in Indian Banking 2007 53

Commercial Banking Technology in Indian Banking 2007 54

Commercial Banking Technology in Indian Banking 2007 56

Commercial Banking Technology in Indian Banking 2007 57

Skimming can occur easily in a restaurant because

• Unlike a computer virus, a Trojan horse does not propagate by

• Often the term is shortened to simply Trojan.

Commercial Banking Technology in Indian Banking 2007 61

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