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CBS Implementation PDF
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Impact of Core Banking System implementation on Business performance
and Profitability of selected Urban Cooperative Banks in Pune City
Banking has changed over the years and evolved with the needs of the Indian
economy. This transformation was primarily due to deregulation and globalization
policies of Government of India in 1991, which led to the entry of multi-national
and private sector banks. These banks being most techno-savvy, were in position to
offer technology based services such as ATM, Internet Banking, Mobile Banking,
Tele Banking etc. from day one. Amongst all the ICT initiatives of these banks,
CBS implementation was the most important, as it formed foundation on which all
the e-delivery services were built.
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It is therefore important to study whether the huge investments made by the banks
are justifiable and are in position to yield desired results in terms of improving
overall business performance and also whether they can survive today without
CBS?
Hypotheses
The research work was based on following hypotheses
1. CBS implementation enhances performance of banks through efficient
banking operations
2. CBS implementation enables banks in enhancing financial growth and
Profitability
3. CBS implementation enables banks to introduce technology based direct
banking channels
Methodology
Sample design
Present study pertains to only those UCBs which have implemented CBS. As the
desired population for the study was rare and to recruit for the study, purposive
sampling was used. Out of 60 UCBs in Pune during the year 2008, there were 5
UCBs which had ventured into CBS implementation. All these banks have been
chosen as sample for this study, applying convenience sampling technique.
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As the present study is of pre-post type, it was necessary to select those banks
which had implemented CBS at least 3 to 4 years on or before the year 2008.
Further, the literature reviewed revealed that projects such as CBS yields monetary
results only in the third year or latter, from the year of implementation.
It was for these reasons that all the 5 banks have been selected which fulfill the
requirement of the study. Therefore, though the sample size is small and study is
confined to Pune, it is expected to represent Urban Cooperative Banking sector of
Maharashtra and that of India. Moreover, since the sample group of bank is
homogeneous, it certainly represents universe i.e. all the UCBs which have
implemented CBS in India.
Sources of Data
Both primary and secondary data have been used for fulfilling the objectives of the
study. Structured questionnaire was designed to collect data pertaining to status of
CBS implementation, customer friendly, technology based services introduced by
the banks, complementary software being used, cost of investment for the CBS
project etc.
Primary data
Data pertaining to basic information about the bank, year of establishment, year in
which CBS was introduced, process followed for implementation, cost involved,
availability of specialized manpower etc. were collected through a structured
questionnaire. Data related to customer friendly, technology based services
introduced after implementation of CBS were also collected with the help of same
questionnaire along with data pertaining to complementary software modules
introduced by the bank based on the CBS platform and details pertaining to
investment made by the banks in introduction of the same. To enable collecting the
data which can supplement the data being collected in written format and to gather
experiences of the bank in implementation of CBS, issues faced etc. separate
questionnaire were designed to interview Board of Directors, Project Manager, IT
manager and two employees from three branches of each bank.
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Secondary data
Financial data to find out improvement in business performance and profitability
were collected through secondary source. Annual reports of all the 5 banks were
collected for a period of 4 years prior to CBS implementation and 4 years / up to
current year post CBS implementation year. A period of 4 years from year in
which CBS got implemented was selected because the literature reviewed revealed
that projects such as CBS yields monetary results only in the third year or latter,
from the year of implementation.
Data available in various publications by RBI such as Trend and Progress report,
various committee reports etc also have been used wherever found appropriate.
Further, the relevant information were collected from libraries of Vaikunth Mehta
National Institute of Cooperative Management (VAMNICOM), Pune, College of
Agriculture Banking (CAB), RBI, Pune, Jaykar Library, Pune, National Institute of
Bank Management (NIBM), Pune Pune District UCBs Association, Internet, etc.
A paired two-sample student's t-test has also been used to determine whether a
sample's means are distinct to test the research hypothesis. This t-test is used, as it
does not assume that the variances of both populations are equal and when there is
a natural pairing of observations in the samples, such as when a sample group is
tested twice - before and after an experiment (Core Banking implementation).
With all these statistical tools the researcher has made sincere efforts to establish
the relationship between variables and inferences drawn.
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provided to them either due to unavailability of the same or on account of
confidentiality.
Despite of these limitations and even though the present study is pertaining to only
five UCBs in Pune, findings derived through critical analysis are expected to be
useful in designing appropriate policies for other UCBs from Pune, Maharashtra
and the entire country.
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service to customers visiting branches and concentrate on business
development.
iii. Sample banks should immediately plan implementation of various
complementary software such as Risk management, Assets and Liability
Management, Anti Money Laundering, Customer Relationship
Management, Business Intelligence, Trade Finance, Treasury, Workflow
management etc. True benefits of CBS will accrue to the bank through
implementation of such software.
iv. In order to make process of sanctioning loan proposal more efficient,
sample banks may implement Loan documentation and Loan appraisal
software. Such software no doubt shall help in removing duplication of
work and bring in accountability at various levels of management involved
in sanctioning of loans.
v. CBS is expected to reduce work load of employees. Time saved due to
automation is expected to increase business of the bank. Banks also need to
utilize such time for effective marketing of services and products offered by
the bank. Banks also need to introduce additional para-banking activities to
enhance their non-interest income.
vi. Sample banks need to take-up exercise to understand information required
by front office employees in order to take quick decisions for improving
customer service. Banks need to introduce business application such as
Customer relationship management software to take care of such
requirements.
vii. Sample banks require to maintain comprehensive record relating to volume
of transactions generated through electronic delivery channels and business
generated through such channels in order to closely monitor business
generated through these channels and to bring in further improvements in
services offered. Format for maintaining such record is suggested
through this research work (Annexure I)
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Recommendations for the regulatory agency
i. RBI had set deadline for introduction of CBS for Scheduled Commercial
Banks and even for Regional Rural Banks. On the similar lines RBI should
set a deadline for adoption of CBS by UCBs.
ii. National Bank for Agriculture and Rural Development (NABARD) has
been asked by Ministry of Finance, GOI to provide financial assistance to
about 400 small urban cooperative banks (UCBs) under Financial Inclusion
Technology Fund (FITF) to create infrastructure for core banking solutions
(CBS). Banks, which could not introduce CBS due to scarcity of funds,
must grab this opportunity to introduce CBS as quickly as possible.
iii. As most of the small UCBs do not have technical know-how and
specialized manpower to look after technology, RBI should provide a set of
comprehensive guidelines prescribing procedure to adopt CBS.
iv. Institutions of national repute such as IDRBT, VAMNICOM, CAB,
NABCONS, NIBM, BIRD, IIBF etc. can be appointed as agencies to
provide technical support. RBI may decide charges for providing such
support and direct all the cooperative banks to avail benefit of such
arrangement.
Generic details such as how CBS helped banks in improving their business,
customer services, customer retention and management information system are
available in form of article, case studies. However, there is a dearth of literature
enlisting and highlighting performance improvements achieved by banks based on
Scientific methods / Research work.
Present research has sincerely attempted to address these gaps and contributed to
existing knowledge base.
Based on the empirical analysis, the study provides important details such as
investments made by the sample banks, procedure followed by them for CBS
implementation, issues faced by them and benefits as perceived by their employees
at branch level. Study has also enlisted technology based services introduced by
the respective banks, especially after introduction of CBS.
Based on these details, sample banks shall be able to introspect themselves with
respect to their performance as compared to peers with respect to various banking
products and service offerings. Details presented through this research work are
expected to help them formulate strategies to further improve their performance by
offering innovative banking products and services.
Attempt has been made through the present study to compare performance of each
of the sample bank prior to and post CBS implementation period. Further, it has
attempted to cross compare performance of sample banks with respect to
productivity, efficiency and profitability in pre and post CBS implementation
period amongst the sample banks.
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The analysis done in this research work is expected to provide insights to
management of sample banks with regard to fruitfulness of their decision to
introduce CBS in their respective organization and whether their banks were in
position to outperform competitors due to CBS implementation.
Based on suggestions made through this research work, regulatory agency can
issue directives to UCBs which are yet to introduce CBS, about future course of
action required by them and need to introduce technology based delivery channels.
Procedure suggested through this research work should help UCBs to implement
CBS more systematically.
Conclusion
The broad objectives of the study have been achieved by the researcher.
The hypotheses formulated for the research have been tested and statistically
validated. The broad conclusions drawn based on the study undertaken are as
follows
i. All the sample banks are fully CBS compliant and have completed over
three operating cycles successfully under CBS environment.
ii. Sample banks except that of one bank have done reasonably well in
systematic implementation of CBS.
iii. Banks did not come across any major issue while implementing CBS.
iv. Sample banks preferred to customize various software features to suit to
their existing procedures rather than accepting standard procedures
available in application software. The banks should have taken-up business
process re-engineering exercise to accept some of the efficient procedures
already available in the application software.
v. Performance of the sample banks in terms of productivity, operational
efficiency shows significant improvement in post-CBS period as compared
to pre-CBS period. Profitability has also improved but not as significant as
productivity parameters. This performance improvement is clearly due to
introduction of CBS.
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vi. There is further scope for improvement in performance of the sample
banks.
vii. All the selected banks have not yet implemented other technology based
solutions such as intranet, work flow management and risk management
software such as ALM, AML, Treasury, Trade Finance etc. which can help
banks in improving their performance to a large extent.
viii. With respect to multi channel servicing, sample banks need to aggressively
move forward to remain competitive.
ix. Banks are still relying upon in-house developed information security
procedures. In order to provide confidence to customers, banks must adapt
internationally accepted information security standard such as ISO 27001
and have their BCP/DR policy in place.
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