T.Y.

BANKING & INSURANCE CORE BANKING SOLUTION

SYNOPSIS

CORE BANKING SOLUTIONS is the topic discussed by way of this project. It is

observed that Core Banking Solutions are the backbone of products and services
that banks offers. They are also considered as the banking applications on a
platform enabling a phased, strategic approach that lets people improve operations,
reduce costs, and prepare for growth. Core banking solutions is a new jargon
frequently used in banking circle. Through is project we will also come across
many new challenges that core banking has faced during its commence. The most
important thing about Indian banking system, and how it acknowledged core
banking solutions for their ease working circumstances. We may also know the
Indian banks applying policies of core banking. Such other informations are
explained ahead.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

PROLOGUE

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. 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 system was initiated by recommendation of Dr. C. Rangrajan

Committee. They were plan of computerization for banking industry for the five
year’s period 1990-94 and also to consider other allied issues. Core banking system
helps customer also. Because of core banking system per transaction cost decrease
so customer gets more benefits so they have to pay less charges and banking
business get maximum business. Customers are technology savvy & they have
accepted core banking system whole heartily due to many benefits.

Now a days, new generation customer wants new products and new services so the
bankers have to provide new products and new services and must be innovative.
That is why there is a saying in banking sector that only innovative bankers have
survival.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

In this context, efforts should be made to design and implement a program aimed
at strengthening the operational and financial performance of a group of viable
banks. The CBS should evaluate each bank’s financial performance of such bank’s,
standing ready to intervene when necessary to ensure that they follow safe and
sound banking practices. For banks not meeting these criteria, the CBS should
actively seek resolution of the banks. Either they should be merged with other,
more viable banks or the CBS should withdraw their license and begin bankruptcy
proceedings.

An important supportive element of this effort should be restriction of the licensing

of new local banks. Limiting the entry of new banks will help to establish
“franchise” value for existing banks. In addition, this would limit the ability of
current shareholders to strip-performing assets from existing, insolvent banks and
transfer them into newly established banks, as was the practice in 1999.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

MEANING : BANKS

Bank is an organisation, which attracts deposits from public and makes loans and
advances on the basis of these deposits to public. Thus, banks are the institutions
dealing in money. With the growth and development of various economies the
functions of banks have distended in modern time. The activities of banls are
increasing day by day.

FEATURES OF BANKS

1. Agency : Banks act as an agent on behalf of customers and perform various

functions like accepting deposits and advancing loans. Along with these
major function some other functions such as credit card, tele-banking,
internet banking, cheque clearing, bills collection also provided by bank as
an agent.
2. Credit formation : Creation of credit is an important and exclusive feature
of banking. Every deposit which banks get can create credit. By credit
creation banks can generate funds for additional lending. In this regards
banks have to follows restrictions laid down by RBI from time to time.
3. Banks deals in money : Banks deals in money by way of deposits which
banks accepts in various forms such as fixed deposits, saving, current and
recurring deposits. These deposits are lend by banks in different forms such
as loans, cash credit, bill discounting, overdraft etc.
4. Commercial in nature : Banks deal in money to earn profit. Banks accepts
deposits to create credit and lend such funds to needy so as to earn interest.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

TYPES OF BANKS

1. Central Bank
2. Development Banks
3. Specialised Banks
4. Commercial Banks ( Public Sector, Private Sector, Foreign Banks )
5. Co-operative Banks ( Primary Credit Societies, Central Co-operative Banks,
State Co-operative Banks )

Traditionally a banks offered the following services to a customer:

 Safe deposit boxes facilities.

 Manage trust accounts for individuals and endowment funds
 Clear checks and drafts for other financial institution
 Provide loans and overdraft facilities for consumers
 Underwrite securities
 Perform other banks related services as permitted by federal and state
banking regulation.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

MEANING : CORE BANKING

“The business conduct by a banking institution with its retail and small business
customers is known Core Banking.” 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.

Nowadays, most banks use core banking applications to support their operations
where CORE stands for "Centralized Online Real-time Exchange". This basically
means that all the bank's branches access applications from centralized datacenters.
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.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.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

CORE BANKING SOLUTIONS

The Core Banking activities where previously performed manually, but not the
scenario has changed completely. The plafrom where communication technology
and information technology are merged to suit core needs of banking is known as
Core Banking Solutions. Core Banking solutions are banking applications on a
platform enabling a phased, strategic approach that lets people improve operations,
reduce costs, and prepare for growth. Implementing a modular, component-based
enterprise solution ensures strong integration with your existing technologies. An
overall service-oriented-architecture (SOA) helps banks reduce the risk that can
result from multiple data entries and out-of-date information, increase management
approval, and avoid the potential disruption to business caused by replacing entire
systems. Core Banking Solutions is new jargon frequently used in banking circles.
The advancement in technology, especially internet and information technology
has led to new ways of doing business in banking. These technologies have cut
down time, working simultaneously on different issues and increasing efficiency.
The platform where communication technology and information technology are
merged to suit core needs of banking is known as Core Banking Solutions. 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 Solutions has proved to be backbone banking products and
services. With technology becoming a value differentiator, a wrong system
selection may cost tremendous opportunity losses.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

EMERGENCE OF CBS

Competition and deregulation have forced banks to adopt technology in a big way.
Most banks have already covered a large number of their branches under Core
Banking Solution (CBS) and the rest are in the process of doing so. The CBS
allows banks to offer features such as "anywhere banking", "Multi-City Cheques",
and Real-Time Gross Settlement (RTGS); so much so that such products have
almost become commoditized. The power of branding is yet to be fully realized,
especially since marketing in public sector banks is way off the mark when
compared to the private sector/foreign counterparts. Lately, we have seen banks
taking efforts to build a specific brand image. For example, Bank of Baroda has
built an image relying on a cricketer as a brand ambassador. Corporation Bank too
has been proactive in developing a brand image that is larger than its actual size.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

COMPONENTS OF CBS

There are 6 components that form part of the Core Banking system. These are the
essential building blocks for the entire bank / institution.

(1) General Ledger:

The absolute Core is the General Ledger of the bank accordingly, the
absolute core of the banking system is the General Ledger system, every single
financial activity that happens at any location within entire bank has to be reflected
in the G.L. system that generates the financial statements for the entire bank which
provides any entity to monitor the financial health of the bank.

Throughout the world, almost all banks have all their financial activity
reflected in G.L. every night and next morning the G.L. system provides the bank
with enterprise wide balance sheet and trial balance report In short for those who
have successfully implemented Core Banking Systems, the concerned entities in
the bank know the financial condition of the bank at the beginning of each business
day. If one is looking at the financial statements of the whole bank the G.L. System
must provide that. If one is in regional office, the G.L. System must provide the
financial statements for the region. If one is the branch the G.L. System must
provide the financial statements at the branch. In a Core Banking System, this is
achieved by deploying a centralized G.L. System which provides for thousands of
sub legers with. Level's start with individual branch G.L. rolled up to regional G.L.
with further rollup of all regional G.L's to bank G.L. financial transactions from
various sources throughout the bank update these subsidiary ledgers and the G.L.
system then performs rollups to report at branch, region, zone, country wise head
office and any other level that is required by the bank / financial institution.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

(2) Customer Information System:

The next major ingredient of a Core Banking system is the Customer

Information System or CIS. Accordingly in the CIS, a customer is identified by
uniquely by his or her CIS number and all information related to that customer
(name, address, phones, employment, credit history, relatives, family members,
and demographic data) is stored along with this unique number. All this is stored in
a centralized CIS system allowing the customer to visit any branch to do business
with the bank.

In addition, CIS stores Customer to account relationships. A single unique

customer could have a current account a joint saving account with his wife a time
deposit, a car loan and a house loan. The CIS links all these five account to this
single unique customer I.D. whenever the customer visits any branch of the bank,
all that he does is give his name (and / or address or phone or CIS number) and the
CIS system shows the branch staff the information about this customer as well as
all the accounts linked to this customer and the latest balance in each of these
account.

(3) Deposit System:

The third major component is the deposit system. The ability to process
various types of deposits is a must. These include current, savings, time deposit
and hundreds of variations in each of these. e.g. Simple current accounts, current
accounts with overdraft, cash credit accounts, variable rate overdrafts, simple
savings, multi-currency savings, time deposits, CDS, variable rate time deposit,
recurring deposits, multi-currency, time deposits, and so on. This is required to

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

handle the liability side of the bank / financial institution's business. This all is
achieved by having deposits system that are heavily deposit system that are heavily
parameterized i.e. by simply setting a parameter "Fixed Rate" or "Variable Rate"
the deposit account will be processed by the deposit system using the appropriate
rate from the applicable rates.

Around the world banks do not open a new deposit account for a customer
directly in the deposit system. When the customer wants to open a new deposit
account, the branch staff to go the CIS screen verifies the customer details and
opens the account. This way, the existing CIS data of the customer remains infect.

(4) Loan System:

The fourth major ingredient is the loan system. This system handles the asset
side of this business. In most banks / financial institutions around the world loans
are separated by those to retail customer and those to commercial customers
processing requirement of loans to corporate customers is different form retail
customers and hence there are loan systems that cater to retail customers and those
that cater to commercial or corporate customers. The loan process in a bank
involves multiple stems. The loan appraisal and sanction step, the disbursement
and monitoring step, the non-performance tracking step the recovery step and the
closure. Owing to the fact that a multitude of entities and processes are involved in
the appraisal and sanction step, most banks around the world separate the appraisal
and sanction step and implement a system called a loan organization system. The
other remaining steps of the loan process are handling by the loan system.

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With authorized access, any staff working in any branch around the country
should be able to retrieve the customer loan information on his terminal and help
the customer do a financial transaction. These financial transactions are
automatically sent to the bank / financial institution's General Ledger and they
update the appropriate credits and debits in the subsidiary ledgers in the General
Ledger.

(5) Management Information System (MIS):

Once the core deposit and loan business transaction for all customers of the bank
are captured and appropriate General Ledger accounts are updated, various users of
the Core Banking System throughout the bank need to know what is happening
within the entire financial institution. As a result, the fifth major ingredient is the
management information system. This enables everybody in the bank to obtain the
relevant information from the system in order to carry out their business
effectively. MIS is simple terms takes information from the General Ledger, CIS
Deposit, Loan Systems and present them to the bank / financial institution. The
staff all employees including management. Around the world, typical examples of
information that bank staff (each with access rights) retrieves include.

1. Branch transaction activity for today.

2. Loan activity for a single customer or a group of customer.
3. Branch General Ledger report printed at the branch.
4. N P A report for the entire bank for all transactions as of yesterday.

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6. Delivery Channels:

All the 5 major ingredients of a Core Banking system can be operated by a bank
staff from any location in the country simple by using their terminal at their
workplace. Around the world as banks started focusing on customer relationship
management, they realized that customers interact with the entire bank for banking
transactions in many ways. Customer can go to the branch, go to an ATM, call on
the phone, and log on to the Internet to do their banking transactions. They can use
one or more of these delivery channels (Called customer touch paints) to conduct
segment and decide on further investment design specific products and services to
promote such delivery channels.

The Core Banking Systems are production factories creating products and services
and tracking them and the delivery channels are distributors and retailers who
ensure these products and services are available to the customers whenever they
are in the country. Hence, the add-on systems for Core Banking System include;

i. Branch Automation System

ii. ATM Switch and connected ATM
iii. Call centre system
iv. Internet Banking System

Any transaction done by the customers in any of the above systems goes and
updates the Core Banking System like deposit or loan at that in turn updates the
Bank's G.L. in the Core.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

COMPONENTS NOT INCLUDE IN CBS

Typically these system are confined to a specific business department within

the bank. They are not Core because they do not affect all areas and entities of the
bank.

1. Trade finance
2. Treasure
3. Credit Card
4. Mutual Funds
5. Stocks, Bonds
6. External System
7. Payment Gateways
8. SWIFT
9. Shared ATM network
10.World Wide credit card networks, maestro, electron, etc.
11.World Wide ATM networks plus, cirrus etc and possibly other system
that the bank may want to deploy in specific department.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

IMPACT OF CBS

The Core Banking Systems have to satisfy the requirements of all the
entities that form part of the eco-system of the Bank.

[1] Bank Employee: Head office, regional offices, branches etc: Using Core
banking System. With appropriate authority employee as given above can help
customers do their financial transaction.

[2] Bank management: Executives / managers at respective locations, head office,

regional offices, branches etc. can obtain the financial position from Core Banking
Systems related the respective sphere of banking operations and thus help pinpoint
potential problems so as to avoid crises.

[3] Bank Customers:  Can operate any of their accounts from any branch or
preferred delivery channel and have access to his funds any time 24 hours a day.

[4] Bank Auditors :  Ones accounts audited, they operate the same year on year
thus enabling auditors to focus more on systems and procedures at delivery
channels like branches, call center etc.

[5] Bank regulators: Core Banking Systems produce the required reports for
regulatory bodies like the central bank, financial statement, asset and liability
reports, NPA reports, large currency transaction reports etc. are all produced by
either the deposits, or the loan or a combination of deposit, loan and G.L. System.

[6] Bank Share Holders:  C.B. providing the desired return to shareholders from
banking operations Trends overtime on such data informs S.H. about how the
banks is doing and help take timely action to accelerate or improve performance.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

SERVICES TO CUSTOMERS

All CBS branches are inter-connected with each other. Therefore, Customers of
CBS branches can avail various banking facilities from any other CBS branch
located any where in the world. These services are:

 To make enquiries about the balance; debit or credit entries in the account.

 To obtain cash payment out of his account by tendering a cheque.

 To deposit a cheque for credit into his account.

 To deposit cash into the account.

 To deposit cheques / cash into account of some other person who has
account in a CBS branch.

 To get statement of account.

 To transfer funds from his account to some other account – his own or of
third party, provided both accounts are in CBS branches.

 To obtain Demand Drafts or Banker’s Cheques from any branch on CBS –

amount shall be online debited to his account.

 Customers can continue to use ATMs and other Delivery Channels, which
are also interfaced with CBS platform. Similarly, facilities like Bill
Payment, I-Bob, M-bob etc. shall also continue to be available. Bank is in
the process of launching Internet-banking facility shortly.

All these aim to provide convenient, efficient, and high quality banking experience
to the customers, comparable to world class standards.

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BENEFITS TO CUSTOMERS

A CBS branch is like a Sales & Service Delivery Center. Back office
processes/activities are handled through technology at some other site, called Data
Center. Branch, therefore, has more time for serving customers. This improves the
quality and efficiency of the services rendered and the customer is directly
benefited by way of satisfying and happy banking experience.

Since a CBS branch is essentially designed to focus on customer-interface and

customer service, the special lay-out and ambience of the branch is made to
provide a convenient and delightful banking experience. The Customer Service
Representatives / Executives at the branch are specially trained to understand,
facilitate and deliver banking services efficiently and effectively.
We wish our customers happy banking.

The reason for calling it Core Banking System, after deployment, is the hart or the
Core of the Bank / financial institution. All entities that form part of the eco-system
of the bank / financial institution interact with. The entities are;

1. Bank employees head office, regional offices, branches etc…

2. Bank Management: executives / managers at respective locations head
office, regional offices branches etc…
3. Bank customers: Personal banking, corporate banking international banking
etc.
4. Bank Auditors, internal and external auditors who need to verify systems
and procedures.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

5. Bank Regulators: mandatory reporting to central bank and other financial

bodies.
6. Bank share holders: providing the desired return to shareholders from
banking operations.

For a bank / financial institutions the Core Banking system must address the
Core Business of deposits and loans and the same time, address the work place
needs of all above entitles at their respective locations.

TRANSFORMATION IN CBS

Core banking replacement has, for long, been considered a strict no-no by banks.
Established comfort level with existing technologies and processes, relatively
comfortable margins that provided the luxury of overlooking operational
inefficiencies, and finally, the fear of the unknown, have all ensured that banks
steered clear of this subject. But the current competitive environment with
increasingly demanding customers is forcing banks to take a reality check on their
technology environment and ensure that their IT strategy is aligned to their
business objectives. And core banking replacement is often the only solution to
their problems. However, replacement of core banking solutions—be it for large or
small banks, global or regional—is akin to a heart transplant. This can be one of
the greatest challenge for any institution, which can either result in the bank
leapfrogging to a high degree of differentiation and an enriched customer value
proposition, or it can create considerable risks for the bank if the transition is not
managed properly.

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CHALLENGES IN CBS

Banks need to focus on key factors, which make the core banking
transformation a successful experience. Broadly speaking, the key challenges in
core banking transformation are:
1. Vendor capabilities and credentials.
2. Dependence on legacy/vendor applications and impact on envisioned technology
Architecture.
3. Bank’s business goals and alignment to leverage the new technology.
1. Vendor capabilities and credentials :
Transforming a bank’s core systems is a strategic decision that has far-
reaching implications on the bank’s future business strategies and success.
Financial strength and business continuity are the most important attributes for
evaluating any vendor. Apart from financial viability, the vendor’s commitment
to the financial solutions business is crucial. Banks must gauge the vendor’s
ability and intent to commit finance, resourcing and infrastructure to
continuously enrich their solution offering to meet contemporary banking
requirements.
Continuing with legacy technology and outdated banking practices and
processes will sound the death-knell for most solution providers and, in turn,
severely impact the client bank’s capability to survive and flourish in an
increasingly dynamic business environment.

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2. Dependence on legacy/vendor applications and impact on envisioned

technology architecture :
Often, the biggest impediment to a smooth implementation is the migration
path from the old to the new. This is further compounded in case of migration
from a legacy third party application as compared to that from a manual or
proprietary solution. This is because of the dependence on the legacy solution
provider to enable proper migration of data. The process also exposes the
interfaces deployed and requires changing workflows and procedures to best
leverage the new solution’s capabilities.

3. Bank’s business goals and alignment to leverage the new technology :

This is probably the single most important factor that will determine
the success of the implementation and the extent to which the bank leverages
the new technology to achieve its stated imperative.

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RISK OF CBS

 All eggs are in a single basket and hence the effect of centralized failure will
be colossal resulting in reputation risk for the bank.

 The dependence on vendors and service providers increases

 Data Integrity and data security have to be ensured all the time as the
centralized location will be the target of all evil eyes.

 To be able to provide a reasonable level of comfort in this aspect, the

security program of the banks will have to be dynamic and alive to the
imponderables.

 Acceptance by the staff and changing their mind set to accept technology
and a role shift will be a very big challenge for managements.

As the benefits outweigh the risks and as other major private sector banks started
off from this platform coupled with competitive pressures and heightened customer
expectations are forcing all banks today to adopt CBS technology in a big way.

Today, 21 public sector banks have embarked on the use of such systems and the
number of CBS-enabled branches exceeds 14,000 as against 14 bankswith about
5000 CBS-branches a year ago.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

CORE BANKING SYSTEM – SELECTION PROCESS

Before looking at available core banking systems, let us look at the

requirements for such as a system in the Indian Banking Industry today.

The scenario in the industry today is

 New Private Sector Banks (NPSB) emerging as Financial Super Market by

introduction of online banking and extended product and service offerings,
state of art branch and ATM network.
 Both Public and Old Private sector banks face intense competition and
struggling for customer retention.
 They have legacy problems of outdated corporate MIS, outnumbered staff,
outstretched branch spread, outstanding dues, outclass products and out-of-
line customer service.
 What was considered as advantage for these banks not long ago – branch
network – is proving to be disadvantage for agility and modernization now?
 Many of the smaller banks with branch network less than 300 have become
target foe acquisition but the NPSB who want to expand their branch
network to meet the social obligations as well as mobilize low cost deposits.
In this backdrop, there is urgency on the part of the PSBs and OPSBs to
embrace technology quickly not only to thwart competition but also to stall
(Their) acquisition itself. Having accepted this, these banks will have to
adopt the following steps to acquire an online core banking solutions and
deploy it effectively.

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1. Analysis:

Analyze the competition, present and emerging, and clearly define the
business requirements to take on the competitions. Decide the sector
focus and customer acquisition strategy, which will be one of the key
parameters for the selection of core banking solutions. (Business
Requirements)

2. 80:20 Rule

Draw a perspective plan to bring online the Key Performance Branches

(KPBs) which contributes to 50% - 80% of banks business. (Network
Requirements)

3. Network plan:

Draw an optimistic plan to include the remaining branches in the network

over a specified time-horizon. (Deferred Network requirements for total
online banking system)

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4. Basic solution:

Develop the laundry list of requirements for selection of a suitable core

banking solution that will have to meet the basic business functionality
and network requirements.

5. Back-office MIS:

In head office of banks, the operations are focused on administration and

supervision as well as policymaking. But, data and information from the
branches will have to flow in time to make these operations effective and
efficient. Obviously, core banking solutions, installed centrally and
administered distributed fashion, will have these function supported.

6. Flexibility:

In addition the solution should be flexible to meet emerging new

requirements such as multi-currency, Internet banking, integrated
Treasury management, integrated Fore management, CRM, anywhere
banking etc. These services will become no longer the exclusive domain
of a selected few banks.

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7. Government Banking:

Banks in India also handle accounts and transactions on behalf of Central

Governments Departments, State Governments Departments, and Public
Sector Undertakings providing utility services. Very few core banking
solutions have flexibility to address these requirements as these are India
specific and most products in the market are positioned as global
solutions. Though transactions volume may be less in this type of
business, Strategic value and fee income is more. Float fund available is
considerable and hence, banks consider this as one of the key
requirements while selecting the core banking solution

8. E-channels:

The solution should be capable of supporting all the requirements for net
worked branches such as support to multiple delivery channels ATM,
swipe card, Credit card, Debit card, Telephone banking, POS
transactions, Customer Relation Management, etc.

9. Response Time:

It should be an industrial strength product capable of handling present

and future transaction volumes in networked environment with
acceptable response time.

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10.Document Management:

The solution should support integration with report and document

management solutions, which will have to be external. This will reduce
the load on the system during OLTP time.

11.Data warehousing solutions:

The solution should support integration with data warehousing solutions

for enabling the top management to take well – analyzed and executive
decisions.

12.Archival and Purging solutions:

The emerging problems that are being faced by banks that have
implemented core-banking solutions a few years ago are problems of
archival, retrieval and purging. The law of the country as such many
banks tend to keep years of online transactions in the production system
making it slow and inefficient causing hardware growth limitations.

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13.Ease of use:

Desktop computing has become so advanced now, the user is very

familiar with windows, browser etc., and using desktop applications with
ease.

14.Extendibility:

Whatever may the claim of the software vendors above their products
meeting the full business requirements, country specific, bank specific
changes to the software cannot be avoided. It is here that the banks will
have to be careful in selecting the solutions. It will be prudent to select
software which provides robust tools to extend the basic functionality
rather expecting the vendors to do this. The danger in asking the vendor
to do is that the project will derail, acceptance will get delayed and the
cost will go up. Even if all these are addressed and controlled, affecting
more changes as the time goes by cannot still be ruled out.

15.Plug-on Space Modules:

The software should support plug and play features with published APIs
for major functionality such as HRMP, Fixed Assets, ALM, etc.,

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16.Central Bank Reporting:

Ideally the software should have a plug-on module with country specific
requirements which are standards such as Central Bank Reporting, VAT
etc.

17.Parameter Driven:

Major solutions are fully parameter driven. What is to be looked at is

when such change in parameter is affected what is the impact to past as
well as future transactions and accounts and schemes. Seldom is this
aspect locked at by the banks at the time of selections.

18.Version Control and Migration:

This is a key aspect to be considered for selection. The length of time the
software has to be in production at various sites, the number of
migrations, the vendor/customer has affected without loss of business
time and the number of version supported at any given time and also key
for decision making. The richness in functionality and robustness and
response time commitments are achieved not by overnight or mere
evaluation process but by verifying that the software has been running in

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a grueling production environment. Obviously changes would have been

affected to the software based on filed requirements and troubleshooting
and hence several versions should have been there if the vendor claims it
to be industrial strength.

19.Scalability:

A Centralized solution implementations will take anywhere between 6-9

months to complete the pilot phase and then will move on to roll over
phase. Scalability issues will crop up once the bank takes up the roll over
to cover more branches. There is multilevel scalability. Application
scalability basically addresses adding more users and enabling more
application features as and when more branches are added to the network.

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CORE BANKING SYSTEM – PRODUCTS AND VENDORS

If Indian banks have to define RFP for selection of the suitable core banking
solution based on various parameters for selection discussed above, not many
products and vendors will qualify. Nevertheless, a quick scan of product catalogues
of leading core banking system vendors throw the following name for
considerations:

Product Vendor Name Lending Bank Largest Transaction

Name Customers Volume/ Branches
 ICICI Bank  Millions of
 UTI Bank transactions
 IDBI Bank  Several
Finacle Infosys  ABN Amro Bank hundreds of
6.x Technology  Punjab National branches
Bank  Thousands of
 Tamilnadu ATMS
Mercantile Bank
 Karnataka Bank

 Syndicate Bank  Lakhs of

Flexcube I-Flex  Bharat Overseas transactions
Solutions Ltd. Bank  Hundreds of
 Karur Vysya Bank branches
 HDFC Bank  Thousands of
ATMS

ATMS
Sanchez IBM  Vysya Bank More than 100

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

Branches
Equations ACT Kindle  IndusInd Bank More than 100
 Centurion Bank Branches
FNS TCS  SBI Under
Implementation
TC/4 TCS/CMC  United Western Under
Bank Implementation
Newton ICICI Info  Laxmi Vilas Bank Under
Tech Implementation
Quartz TCS  City Union Bank Under
Implementation

IMPLEMENTATION METHODOLOGY

It has never been an easy task to implement any enterprise level IT system,
and the process only gets more complex in a live banking environment, requiring a
very high degree of care and precision, only akin to an open-heart surgery. Several
banks in the region are now more conscious than ever of the benefits of a core
banking—IT infrastructure, thanks to increasing customer demands and
unrelenting marketing efforts of vendors. However, the challenges of
implementation do get understated, and are discovered only when banks go
through the process. Historically, more than 20% of IT budgets are wasted through
mismanaged projects wasting $500 bn worldwide.

Some of the most common issues around core banking implementations are
organizational, and not technical. Ironically, these issues have the simplest
solutions that would have appeared as common sense otherwise—yet do not get
implemented in most instances. Based on several such projects that we have

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managed across banks in the region, this article is an attempt to list five effective
yet simple project management techniques that help address these issues.

Build maximum ‘Business Ownership’

Should the number of technical people in a core banking project team exceed those
of ‘business personnel,’ chances are that the project is moving in the direction of a
disaster. The core banking system project is all about implementing a well-
established software that is available off-the-shelf, and not about building a system
from scratch. More effort needs to be made on getting the system to work for the
bank, using business parameters built in the system, rather than writing codes all
around it. The challenge is, how?

The broad steps of a typical core banking project involve a detailed system study,
core user training, customization, parameter set-up, User Acceptance Test (UAT)
for planning and execution, data migration, end-user training, business simulation,
and final go-live. One careful look will reveal the criticality of the first step
—‘system study or product walkthrough’ that explores each business activity of
the bank vis-à-vis the nuances of the system that are being implemented.
Maximum business participation in this activity with a view to ‘adapting the
system’ to current and future requirements is indispensable for a successful process
thereafter. The key here is in balancing fitment to time, effort and money. Banks
realized much later, that every additional customization causes a drain on
resources, delay in delivery and calls for additional effort, which sometimes is not
worth it.

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Unfortunately, demands for business participation are more often met with
resources considered ‘dispensable’ in each function. It is critical that core banking
projects are directly overseen by top management personnel, and senior members
of business functions—who are capable of well representing and deciding on
behalf of their departments—participate on a full-time basis. The perspective is
completely different when a core banking project is seen as a ‘business initiative’
rather than as an IT function.

CORE BANKING SYSTEM IN INDIA

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Due to the inherent competitive advantages of core banking, almost all

categories of banks in India have either already invested or are in the process of
investing in core banking solution (CBS). The new private sector bank and foreign
banks along with some old private sector banks have had the advantages of
adopting core banking early on. Public sector banks are also catching up fast. The
number of core banking branches is rapidly increasing. The total number of
branches under core banking in India increased from 11% as on march 2005 to
30% as on March 2006. Encouraged by the experience of banks who have
implemented core banking in a big way, even co-operative banks are now showing
keen interest for implementing core banking. Although networking costs have
become affordable with the introduction of new telecommunication technologies
and the presence of multiple service providers in the market, there is still the
challenge of connecting far flung rural branches where no service provider is
presently able to provide economical, secure and technically feasible connectivity.

Beyond core banking:

Core Banking has brought in a paradigm shift in the way we have been doing
banking operations. It is a great leap forward in the technological transformation
process of the banks. What lies ahead will depend on the evaluation of technology
and integration of core banking with it. Based on the new and emerging
technologies we will try to have a peek at the near future in the following
paragraph:

 Disaster recovery and business continuity:

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The banker within me will not allow me to go over to the new possibilities and
initiatives without securing the present. The centralized character of core
banking and its dependence on the wide area network spanning thousands of
locations has thrown open a big risk. Banking systems are financially critical
systems and there is no margin for downtime. All banking operations will come
to a standstill and there will be serious financial and other ramification. Even a
temporary disruption of some hours can throw the operations out of gear. This
has the potential of throwing a bank out of business as well. Therefore, with the
implementation of core banking, there is a simultaneous need to address this
risk by putting in place adequate disaster recovery and business continuity
plans. A disaster situation should be met with a coordinated response in an
effective and timely manner. Business continuity, on the other hand, requires
advance preparations necessary to identify the impact of potential business
interruption; formulate recovery strategies; develop business continuity plans,
and administer a training, exercise and exercise and maintenance process. The
objective of business continuity plans is to ensure continuity of operations
despite inadequacy or failure of disaster recovery plan, IT systems or
infrastructure. With the advent of core banking, banks will have to put in place
robust disaster recovery plan and business continuity plan in order to manage
the risk arising out of the architecture of core banking system.

FINACLE CORE BANKING SOLUTION

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

Finacle core banking solution is a comprehensive, integrated yet modular business

solution that effectively addresses the strategic and day-to-day challenges faced by
banks. It is highly parameterizable providing that much-needed flexibility to
innovate and adapt to a dynamic environment. The solution has an integrated CRM
module enabling banks to offer a rich and differentiated value proposition to
customers. The layered Service Oriented Architecture (SOA), STP capabilities,
Web-enabled technology and 24X7 operations ensure multi-channel, multi-country
and multi-currency implementations. The functionality-rich modules in the
solution provide banks with a varied palette of features to continuously innovate on
their product and service offerings. From the services innovation perspective,
Finacle offers a comprehensive and unified customer repository with capabilities to
educate and empower customers. With Finacle core banking solution, banks
can meet the challenges of managing change, competition, compliance and
customer demands effectively.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

KEY MODULE OF FCBS

There are different key modules of Finacle Core Banking Solutions. This are as
follows:

1. Enterprise Customer Information

2. Wealth Management
3. Consumer Banking
4. Corporate Banking
5. Islamic Banking
6. Infrastructure
7. Accounting Backbone

1.Enterprise Customer Information

Finacle provides a comprehensive solution to leverage customer information

and create differentiated customer experience through the Enterprise Customer
Information File (CIF). It empowers banks to manage the various life-cycle stages
in their relationship with the customer. Comprehensive segmentation information,
including demographics, psychographics, financials and product preferences, is
captured and presented through a unified view. This view presents information on
products and services availed within the core banking solution and across multiple
back-end systems. Inquiry, creation and maintenance of the CIF are enabled
through flexible and user-definable templates while supporting
compliance KYC and AML mandates.

2. Wealth Management

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

Finacle core banking solution enables banks to offer a wide range of wealth
management products to cater to its affluent and high net worth customer base. The
wealth management module supports rule-based definition. It also supports
configuration of features, structure, commission, redemptions, relationship pricing,
customer communication and a wide range of related properties and entities for
structured products, distribution of insurance products and distribution of mutual
funds. The module is tightly integrated with the core banking and CRM solutions,
ensuring unique customer definition, unified customer portfolio view and seamless
transaction processing.

3.Consumer Banking

Finacle core banking solution empowers banks to define simple and

comprehensive products through its flexible product definition capability.
Parameterization of product features is enabled for reuse of components, resulting
in faster rollout of new products. Each product can be associated with a wide range
of properties to help banks create innovative products. In addition to the standard
product offerings, consumer banking products that can be configured include
multi-currency accounts, structured deposits, top up deposits, master term deposits,
top up loans, revolving loans, loans with flexible repayment schedules, offset
products, mortgages and securitization.

4. Corporate Banking

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

Finacle core banking solution presents a powerful range of offerings

for corporate banking - from simple products such as overdrafts and cash
term loans to complex ones such as securitization an syndication. The
commercial lending module is rich in functionalities such as multi –
currency disbursements and repayments, flexible and varied interest rate set
up committee fees , crystallization, amortization and debt consolidation. The
centralized limits and collateral function is multi-currency and hierarchy
enabled thus empowering banks to support collateral based lending and
online exposure monitoring.

5. Islamic Banking

To cater to the increasing global demand for Shariah compliant

banking products and services, a dedicated module complying with AAOIFI
standards and Shariah principles, supports Islamic banking in Finacle. This
module supports products across investment and financing such as
Mudarabah, Murabaha, Ijarah, Tawarruq, Musharaka and Istisna. The
module also supports Hijri calendar along with parameterizable product
features that address, among other things, pool management, profit sharing
logic and Zakat.

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

6. Infrastructure

Finacle core banking solution empowers users with a wide range of

utilities to enhance operational efficiency and facilitate ease of use. These
include:
• 24 X 7 capabilities to operate round-the clock through branches and
channels even during batch job execution and day-end operations
• Integrated, secure and scalable reporting infrastructure to meet
various reporting needs.
• Ease of integration with industry standard-based framework to
integrate with existing and external systems.
• Single Sign-on (SSO) for uniform and common authentication
• Sophisticated security management at application, database and user
levels with inbuilt checks and role-based access.
• Support for multiple calendars such as Gregorian, Hijri and Buddha
• Batch Job Scheduler (BJS) to automate invocation, execution and
monitoring of batch jobs at defined schedules.
• Finacle Scripting Studio to extend the solution beyond parameters,
to include bank definable business rules and logic for behavior and
outcome of business events.

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7. Accounting Backbone

Finacle core banking solution has an inbuilt integrated financial and

accounting management system that caters to multicurrency and hierarchical
bank structures comprising multiple branches and profit centers. The
integrated General Ledger supports real-time online updating of transactions
generated, providing the bank with the facility to accurately generate its
financial position at any point of time. The transaction manager provides the
facility to auto generate batch and online transactions while processing large
transaction volumes, complete with validations and defined checks.

BUSINESS BENEFITS OF FCBS

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

Differentiated Product Spread

Finacle core banking solution offers an unlimited palette of features for

banks to design and deploy products for varying market segments. The product
bundling capabilities of the solution offer a wide range of possibilities for banks to
create products with innovative features. The facilities provided for differential
pricing, channel rules and customization through Finacle Studio – the scripting
engine, empower banks to continuously innovate and extend their suite of
products, across segments.

Agile Operations

The Service Oriented Architecture (SOA) enables the IT team at the bank to
effect changes without touching the base code, ensuring lesser vendor dependency
and faster adaptability to changing business conditions.

Robust Cross-sell Framework

The CIF and CRM capabilities in Finacle offer a unified view of the
customer across the entire solution and across multiple back-end applications,
enabling the bank to view the customer from a completely informed angle. This
empowers banks to effectively manage customer relationships and aggressively
explore cross-sell opportunities.
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Increased Operational Efficiencies and Productivity

Finacle core banking solution supports business event automation and

process orchestration, thus eliminating manual tasks and reducing process time.
The elimination of error and data redundancies also results in increased branch
productivity. Straight Through Processing (STP) abilities enhance reduction in
turnaround and processing time, increasing output and enabling speedy completion
of tasks.

AN ARTICLE ON FCBS

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

Punjab National Bank (PNB) reaches 1000 branches on Finacle core banking
solution
Punjab National Bank has gone live with 1000 branches on Finacle universal
banking solution. Started with a pilot of 7 branches, the bank has rolled out 1000
branches in a record time, making it one of the largest public sector banks to
implement centralized banking solution. Punjab National Bank implemented
Finacle to compete more effectively in a deregulated environment enabling the
bank to consolidate disparate systems, gain a centralized view of operations, ensure
data consistency and lower its maintenance costs.
CONSUMER’S VIEW:
“Finacle enabled us to dispense with multiple applications and move to a single
platform, accessible by all employees. By implementing an integrated, centralized
and online core banking solution, PNB expects (that) the annual (cost) reduction
would be more than the expenditure to offset the initial investment on Centralized
Banking Solution (CBS). The bank expects to recover its investment in about two
years time period after CBS implementation”.

NEWS ON CBS

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

wing is the newspaper article on core banking solution from

“THE ECONOMIC TIMES”

OBSERVATION
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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

Through this project it is well understood that Core Banking Solution is a simple
and instant process in a banking sector. It not only a mode of relaxation to
customers but also for the bankers. Core Banking Solutions is new jargon
frequently used in banking circles. The advancement in technology, especially
internet and information technology has led to new ways of doing business in
banking. Here, it is implicated that Core Banking Solution also has a further step
ahead of Finacle Core Banking Solution. This has also proved as fast procedure in
many Indian banks. One of such bank discussed here is Punjab National Bank.
Through this bank it is seen that 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.

In conclusion It would be worth to say that Faster introduction of customer centric

products from the central location ensuring uniformity in implementation.

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LIMITATION

It was a very excellent Opportunity to prepare a project on

CORE BANKING SOLUTION. There where many good experiences while
prepare this project. But there were some hindrance too in the preparation. There
is vast information on core banking solution but due to limitation of span it is not
much disclosed. Not only limitation of duration but also limitation of required
pages by University of Mumbai the topic is not much explained. Hope fully, the
content described through this project is at the best of searched facts.

BIBLOGRAPHY
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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

Books referred:

 Indian Banking Managing Transformation Technology (ICFAI)

BY: Dr. N. Nagarajan

 Information System for Banks

Magazines referred:

 The journal of Indian Institution of Banking and Finance

April – June 2007

 The Analyst by ICFAI

October 2005

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T.Y. BANKING & INSURANCE CORE BANKING SOLUTION

Web Site:

 www.iibf.org.in
 www.rbi.org.in
 www.Wikipedia.org/wiki/core_banking
 www.iupindia.org/

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