Furture of Banking
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The Future of Banking
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology and Banking
The Quintessence Nature of Banking harmonizesclosely with Technology
Banking Technology
Information
Storage
Processing
Transmission
Tasks Common toBoth
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Pervasive Branch
Network
Global Operations
Complex Credit
Calculations
Innovative Risk
Management
Mass Transaction
& Items Processing
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Many Benefits of Technology
Increased operational efficiency, profitability &productivity
Superior customer service
Multi-channel, real-time transaction processing
Better cross-selling ability
Improved management and accountability
Efficient NPA and risk management
Minimal transaction costs
Improved financial analyses capabilities
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Focus aspects of Commercial Bankingnow are:
Core
Banking (CBS)
ATMs
CardManagement
Any Branch
BankingDocument
Management
Risk
Management
Resource
Management
MIS &
Intranet
CRM
Corporate
Network
Electronic
Banking
POS Terminalsand Cashdispenser
BANKS BUSINESS
BANKS BUSINESS
RAI
SINGD
EP
OSITS
LOANS&
MISC.SERVICES
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Financial Technology InfrastructureData Center to host servers for:
CBS ATM/Financial Switch
Internet Banking
DW/DM/CRM/MIS etc.
Back-office Application E-mail Servers, Internet Server,
Enterprise-wide Network & NetworkingEquipment
Security SystemsSystems at Branches/RO/ZO/CO Depts.
Supporting Systems
Disaster Recovery Site & Business Continuity
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
TechnologyA Differentiator
Technology is indeed a differentiator not only in
terms of competitive advantage, but also in
terms of administrative and back-endprocesses.
Butdue to rapid technology deployment in
Indian banking sector, the haves and have-nots gap is all set to narrow quickly.
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology Differentiation Fades Gradually.
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
How Long a Differentiator?
Then.can technology be enough of a differentiator?
Any new technology or technology-enabled process can act
as a differentiator or a competitive edge for some level of
time.
After that time, the technology still has to be adopted as a
necessity and as a cost of doing business
Thanks to shortening technology life cycles, it would be short
sighted to assume that technology would be a long termdifferentiator
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Elements of Technology as a
Differentiator
Scalability
&Flexibility
Efficient
utilisation,mgmt
Process
enabling
Utility to
customer
Support
Skills
For Long-Term Differentiation
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Issues with Customers
Not only employees, there are problems for
customers too when a new technology
arrives
The major challenges
Comfort levels
Security and trust issues
Convenience factor
Getting rid of myths
Migration from existing to new systems
Changing the habits
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
POS Terminal and Cash Dispenser
POS Terminal
Connected toCash dispenser
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Electronic
Banking
ATM
Head Office
BranchBanking
Branch 1
Branch 2Branch 3
Branch 4
Branch 5
Branch 6
Branch n
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology Acquisition
Inappropriate technology purchases can be the root of
all problems The Bank management has to:
Give thought to the utilization rate
Avoid knee-jerk reactions (they have done itI should
also do it)
Be impartial in technology decisions (I like that
technologyI want it)
Understand where the solution will fit AND where it wont!
Assess the strengths & weakness of solution
And seek answer to are we ready for it?
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
TechnologyFor SustainedDifferentiation
Goal definition
Integrating
business &
technology goals
Solution features
Vendor selection
Business process
re-engineering
Change
management
Efficient utilisation
Customer utility
Technology
Management
Support functions
Maintenance
Back-ups and
Disaster Recovery
Scalability &
flexibilityLearning &
evolution
Differentiation is attained not achieved just throughtechnology, it is gained in the way the technology is selected,implemented and utilised
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Regulation and Supervision
The ChallengeChallenge of Technology:
New markets, products, services, delivery channels
Opened up a market for risks derivatives
Challenge of financing tech firms & IT innovation
all have implications for the stability of banks and of theeconomy
The Opportunity
Regulators have new tools
Focus of all recent financial sector reformsEmergence of non-intrusive, focused supervision
with a view to prevent frauds and disturbances to
financial stability
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology and Banking
Supervision
THE RBI RESPONSE
Offsite Supervision & Monitoring
OSMOS
COSMOS (Non banking Financial Companies / DevelopmentFinancial Institutions)
UBD Soft
Credit Information Bureau (A joint venture between Housing
Development Finance Corporation Ltd., State Bank of India,
Trans Union International Inc. & Dun & Bradstreet
Information Services India Pvt. Ltd.)
Will be covered in detail by Speaker Dr. T.V. Gopalakrishnan
C M t d
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Currency Management and
TechnologyOpportunities Galore
Currency Management - a formidable task in Indiagiven
the geographical size, the volume and value of notes and coins in
circulation, preference for cash and currency handling practices
...but technology offers immense opportunities to improveperformance
RBIs The Clean Note Policy (1999)
Establishment of 2 state of the art currency presses
Technology driven anti counterfeit measures
48 fully automated Currency Verification & Processing Systems
21 Shredding and Briquetting Machines
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology & Monetary Systems
Technology has: Transformed the conduct of the payment and settlement
system
Set the stage for an unprecedented growth in financial
activity across the globe Rendered more vulnerable the domestic payment system
and financial stability to international shocks
making the conduct of monetary policy more
complex and prone to implementation and operationalrisks
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
The Opportunities
The proliferation of IT has also set the stage for
improving and managing risks in payment systems
Electronic Trading SystemsDVP/PVP
RTGS
Secured Netting SystemsThe growth of the Central Counterparty (CCP)
Continuous Linked Settlement
Technology & Monetary Systems
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
IT and Payment and
Settlement Systems
Delivery
Versus
Payments
Electronic
Dealing
Platforms
RealTime
Gross
Settlement
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBI
INITIATIVESIN PAYMENT
&
SETTLEMENT
SYSTEMSCompliance with
BIS Core Principles
RTGS
CFMSNEFT
PKI-based
Security
SFMS
Clearing
Corporation
of India
IDRBT
PDO-NDS & SSS
NFS/IBPG
INFINET
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBI Initiatives in Payment
and Settlement Systems (1)
The IDRBT
Network Externalities The Indian Financial Network (INFINET)
Messaging Solutions The Structured Financial Messaging System (SFMS)
Security
Public Key Infrastructure
IDRBT CA
National Financial Switch
Inter Bank Payment Gateway
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Gateways and Integration withOther Financial Network Services
G1 - SWIFT NetworkG2 - Reuters NetworkG3 - Stock Exchange NetworkG4 - Inter Banks/FIsG5 - Shared ATMsG6 - Clearing Operations NetworkG7 - Internet
Corporate Network
Inter Banks/FIs Network
SharedATMs Network
Clearing OperationsNetwork
SWIFT
Network
Reuters
Network
NSE
Network
G1 G1 G2 G2 G3 G3
G1G2
G3 G1G2
G3 G1G2
G3
G4
G4 G4 G5
G5 G5 G6
G7
Internet
Financial Networks
INFINET
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Structured Financial Messaging System
Branch-1
Bank-1 Gateway Bank-2 Gateway Bank-n Gateway
Branch-2 Branch-n Branch-1 Branch-2 Branch-n Branch-1 Branch-2 Branch-n
Central Server at
IDRBT
..... ......
..
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
PKI Hierarchy
CCA
IDRBT CA
RA
Subscriber
IDRBT CA
Repository
RA RA
Subscriber Subscriber Subscriber
Subscriber Subscriber
NFS CONNECTIVITY ith E i ti C ti & I di id l B k
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
IP Address:202.138.123.68
Subnet Mask: 255.255.255.254
Location: Mumbai
CashNet
NFS CONNECTIVITY with Existing Consortiums & Individual Banks
National Financial Switch &
E- Payment GatewayISDN
Primary Link
Backup Link
Broad Band VSAT
Bank 1
Bank N
ISDN
MITRLocation: Chennai
BANCS & CashtreeLocation: Mumbai
ISDNLeased Line
ISDN
ISDN
Leased Line
Bank 2
Leased LineLeased Line
ISDN
Leased LineINFINET
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBI Initiatives in Payment
and Settlement Systems (2)
A Real Time Gross Settlement System
Reduction of systemic risk in inter bankpayment systems
To be implemented by the year end
The Centralised Funds Settlement System
Facilitating effective liquidity management
The Negotiated Dealing System A modern electronic dealing platform for gilts
Enabling Straight Through Processing
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
CFMS
Settlement
Accounts
IFTPStrip & StoreProcesses
SSS
Intra DayLiquidity
RBI Payments and
Actg. Entry
Interface
INFINET NSS
Participants
Interface
Participants
Interface
Participants
Interface
Real Time
Gross
Settlement
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RTGS Scenario
90 banks have implemented it
3-4 more to implement in a fortnight
Customer transactions have already started Total volumes Transactions on average
Rs.20,000 crores per day settled continuously
from the time of opening of markets
Guarantee settlement fund
RBI I iti ti i P t
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBI Initiatives in Payment
and Settlement Systems (3)
The Securities Settlement System Providing centralized depository and
settlement services
Seamlessly integrated with the NDS andRTGS Systems
The Clearing Corporation of India
Secured netting services with central
counterparty arrangements G-Sec and Forex segments
Elimination of settlement risks with liquiditysaving elements
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Smart CardsThe Future
Multi-application Smart Card
Channel of the future
Pilot project started Pilot Project funded by MCIT, Govt. of
India
The project is in progress in partnershipwith IDRBT, IIT Bombay, and Banks inIndia
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBI and Customer Service(1)
Dissemination of informationThe RBI websiteMultiple Delivery Channels
Coin & Note Dispensing MachinesFor the general public
Interactive Voice Response SystemFor banks and financial institutionsWeb server
For government customersOn the anvil.
A secured web serverSFMS/email based communicationwith customers
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBI and Customer Service...(2)
Improvements in payment and settlementsystems
MICR ClearingEnabling faster clearing of cheques
Cheque Truncation & E-ChequesOn the drawing board
ECS/EFTEnabling T+2 settlement of our equitiesmarket
National EFTEnabling T+0 settlement of allcustomer funds transfer transactions
Technology Vision of the RBI
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology Vision of the RBI
Centralised DatabaseManagement System Enterprise KnowledgeManagement System
Integrated AccountingSystem Integrated GovernmentAccounting System Currency OperationsSystem
Desk Top Decision Making Capability
Desk Top Analytical Capability
Desk Top Transactional Capability
Securities Settlement
System
Integrated Establishment
System
Offsite Supervisory
Systems
Integrated Forex
Management System
Human Resource
Information System
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Issues in ImplementationLess than 10% of failures are due to technical snags most are due topoor management and implementation
Resistance to change
Overlooking processreengineering
Project managementDedicated project teams
Change management
Policies
People Skills & Training
Basic Infrastructure telecom,power
Security
Privacy & confidentiality
Legal and regulatory issues
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Pre-requisites for Technology
Planning forDisasters
Business Process
Re-engineering
Human Resource
Empowerment
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
The pre-requisites for
TechnologyPlanning for disasters
Increased operational risk
Business Continuity Planning
Business Process Re-engineering
Human Resource Empowerment
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Getting Personal with Personnel
People represent the most precious asset Large employee base largely untrained. Training
scope & methodology?
VRS to balance costs. Break even? Down sizing?
Bring in young blood
Campus recruitment Re-defining & designing jobs. Career paths?
Specialist Vs. Generalist
Attrition of trained employees to IT industry / other
banks. Competitive incentives? Re-location of personnel. Union issues?
Retrained personnel. Morale of employees?
Need for Training
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Need for Training
All these developments call for extensive, continuoustraining
Current and future technology implementations call for atleast 20% of officers specialise in IT
Hence need for specially skilled peoplea mix of:
System administrators
Application managers (knowledgeable about both banking andtechnology)
Technology managers (who form the core team of technologyprofessionals).
Security Risk Management
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Security Risk Management Security is aboutcementing the weak link
Strong security measures (physical & data security) plusdisaster recovery are essential
Authentication of e-banking customers and accountabilityfor e-banking transactions
Segregation of duties, proper authorization controls etc.
Physical security measures
- Graded access control, Iris & X-ray scanners, CCTV & detectionsystems, hotline and wireless links, fingerprint readers,concealed cameras, various sensors, bollards, boom barriers etc.
Disaster Management and Disaster Recovery sites
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
H t E S it ?? A F k
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
How to Ensure Security??-A Framework
l i f i i k
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
IDRBTs Solutions for Security RiskManagement (SRM)
Risk
Assessment
Gap
AnalysisIS Audit
Awareness by
Training
Policy &
Procedures
Development
Implementation
SRMfor
Banks
PKIINFINET
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology Related Issues
People Related IssuesReskilling
Monetary systems, Efficient
Telecommunication & Infrastructure to
Drive Banking on Real-time Basis
Risk Management & Physical Security
At a Glance.
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The future will be not be more ofthe same
we need to be ready..