Core Banking

&
Electronic Clearance and Settlement
System

Core Banking
Gartner defines a core banking system as a back-end system that processes daily
banking transactions, and posts updates to accounts and other financial records.
A few decades ago it used to take at least a day for a transaction to reflect in the
account because each branch had their local servers, and the data from the server in
each branch was sent in a batch to the servers in the data centre only at the end of the
day (EoD)
Nowadays, most banks use core banking applications to support their operations
where CORE stands for "centralized online real-time environment". This basically
means that all the bank's branches access applications from centralized data centres.
This means that the deposits made are reflected immediately on the bank's servers
and the customer can withdraw the deposited money from any of the bank's branches
throughout the world. These applications now also have the capability to address the
needs of corporate customers, providing a comprehensive banking solution.

 In simple way, it is doing all banking operations of branches

and head office by connecting to a central computer kept at
data centre
With technology advancement particularly in Tele
Communication and Wireless Communication it became
possible to send data from one computer to another computer.
Taking advantage of this it was thought fit to connect branch
computers to a single computer at data centre and have all
transactions of all branches recorded live at one place. This
concept is CORE BANKING

1. Decision Making
. All the transactions of the bank directly impact the General
Ledger and Profit and Loss Account. This provides a real time
total picture about the financial position and situation of the
bank.
. This helps for timely effective decision making for financial
management, a very critical and dynamic function in todays
banking.

2. Centralized Product Control & Monitoring

. Centralization helps in better product analysis, monitoring and
rollout.
. Aspects like interest rate modifications, product modification
and interest application can be done centrally from one place for
all the branches.
. Bank can quickly respond to market scenario and customer
needs. This gives competitive edge to the bank.

3. Introduction of Technology Based

Services
. Service channels such as ATM, either on-site or off-site, can
be started.
. Cheque Deposit Machines (CDM) can be installed. Such
machine in WAN connectivity can allow any customer to
deposit the cheque for collection at any branch.
. Cheque book printing machine can be installed at central
location to give personalized cheque books. Such machine in
WAN connectivity can receive command from any branch.

4. Centralized Customer Account

Management
. Any customer becomes the customer of the bank rather than of
a branch.
. With unique ID / Account Number the accounts of the
customers can be viewed centrally by the bank. As such,
customer profile, details of products and services availed by
him and customer behaviour about business of the bank can be
well understood.
. Such customer view gives the bank opportunity to decide
directions for business development and marketing strategies.

5. Centralized Reporting
. Presence of centralized data constantly live up-dated at any
time ensures comprehensive report / statement generation.
. This tremendously helps in decision making as well as
submission to various authorities.
. Operational efficiency of the bank gets increased due to quick
report generation for bank as a whole.

6. Centralized System Administration

. Centralized system / I. T. administration enhances system
security and user management.
. In TBA mode man-power for I. T. administration is required at
each branch. But in core banking it is required only at one
place. Thus reduction in man-power need and cost.
. Due to single point resource available I. T. manpower is
utilized properly.

Advantages to Head Office

1. Consolidation of MIS / statements / reporting at one place
reducing duplication of tasks at branches and it is of real
time.
2. Supervision of branches on risk perceptions possible as on
going process.
3. Frequent audits and timely control measures can be initiated.
4. Quick informal decisions on real time MIS.
5. Faster and practically real time reconciliation of accounts.

6. Centralized marking and movement monitoring of NPA

accounts.
7. Centralized follow-up and co-ordination of overdue and NPA
accounts.
8. For statutory reporting and compliance no need to wait for
branch compliance
9. Better ALM, especially for short term assets and liabilities
possible.

10. Product-wise, customer-wise, customer profile based analysis

and decision making possible.
11. Analysis of data on any aspect of banking business and
control issues gives scope for keeping the bank professionally
healthy.
12. Clearing function is centralized reducing man power
requirement at each branch for the purpose.
13. Audit on operational aspects of the accounts can be done at a
single location as entire data is available at one place.

14. User access to the computer system in the bank can be

restricted to his/her needs and authority only that achieves
safety.
15. Printing of several matters such as follow-up notices,
statement of accounts etc. can be done centrally on line
printer that reduces the printing time, printer and man-power
need at each branch. Such printer can be activated by any
branch on WAN command.
16. Account opening and scanning of signatures can be done at
central location.

17. By installing mailing solution on the intra net of the bank,

written communication in the form of letters, between H. O.
and branches and vice versa, can be eliminated.
18. Mailing solution can set parameters for decision timing and if
not decided in time the mail can be escalated to next higher
authority. This enhances the decision making procedure and
delay at any level gets known to higher authority.

Advantages to Credit Department

1. Reduced credit processing time for existing loan accounts as
the Credit Department gets information handy.
2. For processing of new loan accounts the information on
product is available that facilitates proper decision.
3. Real time credit tracking by setting alerts about delays,
deviations, penalties etc.
4. Corrective measures in credit portfolio can be quickly taken
due to credit portfolio analysis.

Advantages to Accounts Department

1. Centralized real time General Ledger and Profit and Loss
Account almost eliminates accounting work.
2. Greatly reduces paper work, inward communication needs
and work of tallying.
3. Deadlines of statutory compliance and submissions are met
in time.
4. Balance sheet of the bank available at any day, any hour, any
moment.
5. Accounts Department can concentrate on policy, compliance
and reporting issues.

Advantages to I. T. Department
1. I. T. Department becomes the focused entity and back-bone of
the operations of the bank.
2. Central data management and application reduces logistical
problems and reaction time for system changes and/or
troubleshooting.
3. Parameter settings, interest application and such other works
being done at one place avoid chances of otherwise repetitive
mistakes at different branches and then load on I. T. Dept. for
rectification work.

Advantages to Customers
1. Customer can operate his account from any of the branch of
the bank.
2. More service channels can be made available to the customer.
3. Customer gets immediate credit if the transaction is between
the branches of the bank.
4. Even extension counters can provide all services to the
customer

Advantages to Customers
Customer gets full attention and service satisfaction at the
branches as the branches are freed from all back office
functions, clearing functions and almost all accounting
functions.
Customer can get SMS alerts on his mobile or e-mail alerts
through net for transaction taking place in his account. This
gives him comfort and security.

Components
Software
Hardware
Data Centre / Disaster
Recovery Centre
Connectivity devices

Connectivity service
providers
Security equipments
Uninterrupted power supply
arrangements
Anti-virus / Fire-walls

Threats and Risks of Core Banking

Total dependency on technology
Any failure on technical ground can halt the working with
uncertainty about restoring normalcy
Stoppage of work has adverse effect on banks image and
reputation
Technical person/s leaving the bank poses serious problem
If not mitigated by generating profit out of benefits of core
banking the recurring costs are heavy

Core banking Software's

Package
CoreSofttSuVikas
TEMENOS T24
Systematics

Provider

VSoft Corporation
Temenos Group
Fidelity National Information Services Systematics,
Inc/Alltel)
Signature (software)
Fiserv
SFB / SCB
UNISYS
SAB / SAMIC
SAB
Profile (software) (formerly Sanchez Profile) Fidelity National Information Services (FIS)
ICBA
Infopro Sdn Bhd
BankFusion Universal Banking
Misys
CSB
Natech
Misys Equation
Misys
Misys Midas Plus
Misys
Finacle
Infosys
CFT-Bank
Center of Financial Technologies (CFT)
Alnova Financial Solutions
Accenture / Alnova
TCS BaNCS
Tata Consultancy Services (TCS)
Bankway
Fidelity National Information Services (FIS)
Corebank
Fidelity National Information Services (FIS)
SAP Banking Services
SAP AG
FLEXCUBE
Oracle Financial Services Software
DIGIBANK
Oracle Financial Services Software
Hogan
Computer Sciences Corporation
Insite Banking System
Automated Systems, Inc.

Electronic Clearance and Settlement

System
The electronic settlement system came about largely as a result of Clearance and
Settlement Systems in the World's Securities Markets, a major report in 1989.
This report made nine recommendations with a view to achieving more efficient
settlement.
In an electronic settlement system, electronic settlement takes place between
participants. If a non-participant wishes to settle its interests, it must do so
through a participant acting as a custodian. The interests of participants are
recorded by credit entries in securities accounts maintained in their names by the
operator of the system.
It permits both quick and efficient settlement by removing the need for
paperwork, and the simultaneous delivery of securities with the payment of a
corresponding cash sum in the agreed upon currency

Clearing Systems
1. End of Day Net Settlement Systems (NSS)
2. Real Time Gross Settlement Systems (RTGS)
3. Intra Day Net Settlement (Hybrid) Systems
4. Continuous Linked Settlement

End of Day Net Settlement Systems (NSS)

Traditional Approach
Amounts are netted and one amount is paid or received across
settlement accounts with CB at end of day/period
Creates intra-day exposures
Finality at end of period
Risk position built up with a member during the day will not
be settled
So Collateral, Guarantees, Bilateral debit/credit caps

 Helps preserve participants liquidity

Usually used for low value payments and paper based
instruments
Lower cost
Examples:
UK cheque clearing, BACS, ACH in USA

Cheque and Credit Clearing Company process

Real Time Gross Settlement Systems (RTGS)

Each payment settles singly and bilaterally across accounts at
the settlement bank, usually the Central Bank e.g. Bank of
England
Eliminates settlement risk
Designed to eliminate Herstatt risk
Payments should arrive with value, availability and finality
Used for high value/urgent payments

 More expensive than NSS

Examples:
UK CHAPS, Fedwire in the USA, CHATS in Hong Kong

Intra Day Net Settlement (Hybrid) Systems

Intra-day settlement at pre-defined periods
Intra-day finality
Most located in Europe and handle clearing of euro payments
Examples
CHIPS (USA)
CLS

Some Domestic Payment Methods

1. Paper-based
a.
b.
c.
d.
e.
f.

Cash
Cheques
Bank transfers
Bills of exchange
Promissory notes
Bankers drafts

2. Electronic
a. Funds transfer
I. Urgent wires
II. Standard EFT

b.
c.
d.
e.

Standing order
Direct debit
Electronic bills of exchange
Plastic (credit, charge, cheque guarantee, cash dispenser,
debit)
f. Financial EDI

Electronic Clearing
MAKER (DRAWER)

DATE

PAYEE

The paper cheque is just

a carrier of information.

AMOUNT
CURRENCY

DRAWEE
BANK
DRAWEE BANK
NUMBER

CHEQUE
NUMBER

AUTHORIZED
SIGNATURE OF
MAKERS AGENT

DRAWER
ACCOUNT
NUMBER

Electronic transmission is
better.
We dematerialize the cheque
(remove the paper).

06130018184310143700000000010000USD065200356425020
0 1 0DRAWEE
130
DRAWER CHEQUE
PAYEE
AMOUNT
CURRENCY
PAYEE
DATE
BANK
NUMBER

ACCOUNT
NUMBER

NUMBER

BANK
NUMBER

ACCOUNT
NUMBER

Only the information is sent to the clearing house

Thank You.