CERTIFICATE

This is to certify that Mini - Project report entitled “A STUDY ON

IMPLEMENTATION PROCESS OF CORE BANKINGSYSTEM IN

BANKING SECTOR” submitted by D.KIRUBAKARAN(AC10MBF028) is

the Bonafide work of the Mini - Project done by him during the academic year

2010-2012, under my guidance and supervision in partial fulfilment for the

award of DEGREE OF MASTER OF BUSINESS ADMINISTRATION.

Place : Hosur

Date :

Faculty Guide Director

Department of Management studies

Submitted for the Mini - Project Viva-Voce examination held on ----------------

Internal Examiner External Examiner

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DECLARATION

I hereby declare that this Mini - Project report on entitled “A STUDY

ON IMPLEMENTATION PROCESS OF CORE BANKINGSYSTEM IN

BANKING SECTOR” submitted to Department Of Management Studies,

ADHIYAMAAN COLLEGE OF ENGINEERING, HOSUR in partial

fulfillment of the requirement for the award OF THE DEGREE OF MASTER

OF BUSINESS ADMINISTRATION is a original work done by me during

the period of my study at the college under the supervision and guidance of

“Mr.R.VINODKANNA”, Lecturer, Department Of Management Studies,

Adhiyamaan College of Engineering, Hosur.

(D.KIRUBAKARAN)

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ACKNOWLEDGEMENT

It is with great that I acknowledge the guidance and assistance received from many, in completing my main project and preparing this report.

I would like to express my sincere gratitude and heartfelt thanks to our PRINCIPAL DR.G.RANGANATH who has given me chance to do my post graduation in this college.

I would like to express my sincere gratitude to our HEAD OF THE DEPARTMENT DR. V.NAVANEETHA KUMAR for his guidance and support.

I extend my sincere thanks to my internal guide Mr.R.VINODKANNA for his guidance in every step of this project.

Above all I am obliged to god and thank all people who have assisted me in the successful completion of this project.

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I. INTRODUCTION

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. 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. Normal core banking functions will include deposit accounts, loans,

mortgages and payments. Banks make these services available across multiple channels like

ATM’s, Internet banking and branches. Core banking is all about knowing customers' needs.

Provide them with the right products at the right time through the right channels 24 hours a

day, 7 days a week using technology aspects like Internet, Mobile ATM.

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. In a nutshell a

core banking system is a centralized self contained system that shall have the benefits of

performing multiple transaction activities coupled with scalability and performance

sturdiness to name a few benefits. Thus, Core Banking System has radically changed the way

in which banks function. The greatest advantage of having a Core Banking System is that

new features and functionalities can be easily added to the system that customers will have a

whole lot of services that they can use. Electronic funds transfer between banks, online

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trading in the stock markets etc. are examples of this, which were unheard of in banks pre

Core Banking System era.

OBJECTIVES

To understand the purpose of CORE BANKING SYSTEM.

To identify the challenges in implementing CORE BANKING SYSTEM and

suggestion way’s to over come

To find the level of integration in CORE BANKING SYSTEM.

SCOPE OF THE STUDY

The scope of this project is to see the 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. And by using the service-oriented-architecture

(SOA) will check whether the banks can 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.

LIMITATION

Limitation of the study is the data obtained through online resources and

books.

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HISTORY OF CORE BANKING SYSTEM

The major objectives of bank automation are better customer service, flawless book

keeping and prompt decision-making that leads to improved productivity and profitability.

The concept of bank automation started in the year 1981, but it was during the period 1984-

1987 banks in India started the branch level automation, making use of the then available

MSDOS based stand alone computers. This initiative was taken by the banks on the basis of

“First Rangarajan Committee report” on bank computerization submitted in the year 1984.

ALPMs (Advance Ledger Posting Machines) were the fashion in those days. However, the

pace of bank automation was very slow in the banks primarily owing to the lack of trade

union consensus on bank automation.

Another committee was in 1988 under the chairmanship of Dr. C. Rangrajan, the then

Deputy Governor of RBI to slate down a perspective plan on automation of banks for a five

year period. This paved way to the implementation of multi-user Total Branch Automation

packages running on a LAN (Local Area Network, either on a Network or a UNIX operating

system. With the implementation of TBA, banks started to offer the facilities of exclusive

Customer Terminal, Single window transaction, on-line and off-site ATMs, Tele-Banking

etc.But with the advent of new generation private sector banks in India during 1994-1996, the

real era of bank marketing started and these banks started to offer anywhere and anytime

banking facilities to its customers. This was possible for them mainly owing to the fact that

they opted for the implementation of a WAN (Wide Area Network) based centralized

banking solution rather than a LAN based branch solution to network their limited number of

branch banking solution to network their limited number of branch outlets.

The old generation banks in India hesitated to follow this banking fashion on account

of its large network of branches on one hand and the then prevailing exorbitant IT cost on the

other hand. But with the globalization and liberalization of Indian market and with the

enactment of TRAI (with a mission to create and nurture conditions for growth of

telecommunications in the country in a manner and at a pace which will enable India to play

a leading role in emerging global information society) during the late nineties, there happened

a drastic reduction in IT cost. Improved telecommunication facilities and reduction in

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hardware as well as networking cost changed the mindset of the banks in India to try the CBS

option. This also equipped them with the required technology products and services, as those

offered by their new generation competitors.

II. REVIEW OF LITERATURE

AUTHOR NAME: S.ARUNAJATESAN

TITLE: SECURITY IN CORE BANKING SYSTEM

YEAR: 2007

This is a good book on computerisation in banks and timely to meet the need of the

hour. Though late, all the public sector banks are now in a hurry to introduce full

computerisation and implement core banking solution (CBS).

The banks in general did not take adequate steps to help the staff to accept and appreciate the

logical need for such a radical and sudden change. Although teething troubles have subsided

in most of the banks, there are still pinpricks, and more importantly unknown dangers and

pitfalls waiting to happen due to a perfunctory understanding of the system by the operating

staff and incomplete or inadequate appreciation of the ground reality by the technical staff. It

is in this context this concise book written in a simple style will be useful. Although the

subject matter is technical in nature the authors have carefully avoided jargons. There is

clarity in presentation and cogency in arrangement of the subject matter. While the book

deals with the CBS programme architecture, planning and application of programme modules

and functions, the focus is on security aspects and the auditor’s role in checking and

evaluating the efficacy and the integrity of the system and data. The authors have dealt with

ATM and Net Banking elaborately from the angle of customer convenience and bank

security. But these facilities give scope to the customers to enter into the bank system and

open the accounts and operate, which was not possible in the manual system and hence there

is need for protection against security risk. A passive dependence on the strength of firewall,

router, switch and hardening will not be sufficient.

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III. 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.

(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,

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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 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

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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. 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.

Branch transaction activity for today.

Loan activity for a single customer or a group of customer.

Branch General Ledger report printed at the branch.

N P A report for the entire bank for all transactions as of yesterday.

(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

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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,

theadd-onsystemsforCoreBankingSysteminclude;

Branch Automation System

ATM Switch and connected ATM

Call centre system

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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IV. IMPLEMENTATION LIFE CYCLE

Product Vendor (PV) Selection:

A typical implementation is preceded by a vendor selection exercise involving

soliciting of RFI (Request For Information) and RFP (Request For Information). The RFP

shall assign specific benchmarks, entry criteria, response parameters, bidding pre-requisites

etc. Based on RFP responses, the bank may conduct multiple screenings to finally zeroise on

the product vendor. As a precursor to the selection announcement some banks may ask the

CBS vendor to conduct Product Walk Through (PWT) and Proof Of Concept (POC) with a

full scale demo. The RFP response also details commercials info, costing, implementation

timelines proposed, methodology details etc.

System Integrator (SI) Selection:

Some banks especially the large ones opt for a system integrator who shall take the

ownership of implementation, liaise with the vendor, ensure timelines are complied, conduct

functional acceptance checks / testing on behalf of the bank before migration or go-live etc.

As SI teams bring specialized cutting edge skills to the table, the implementation related risks

are managed to some extent for the bank.

System Familiarization and Business Requirement (BR) Analysis:

The bank furnished the BR to the PV under advice to SI. The vendor commences

familiarization exercise of the new system to the business users. Concurrently requirements

are discussed, deliberated and analyzed pursuant to the next step of GAP Analysis.

GAP Analysis:

Based on the BR, the PV prepares the list of GAPs – functional, technical and preparation

of Prioritization GAPs List (PGL). As part of PGL evaluation the GAPs are segregated as

Statutory and hence will be developed.

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Must have GAPs that the bank feels as compulsory for development as it has critical

impact on their business.

Other GAPs which shall be taken up for evaluation at a later date based on availability

of time and bandwidth.

Technical Architecture Design:

Normally the SI in joint consultation with PV prepare the technical design and

incorporate the same into the bank’s IT architecture.

System Development:

Conformance to Requirements: - The SI confirms to the bank once the development is

completed that the build is ready to be installed into test.

Integration and Functional Testing:

Integration testing is done to check if all the different components developed

independently work in unison as per required / expected functionality in the integration

phase. After integration testing is completed a final functional testing (or acceptance testing)

is performed to certify that the system developed confirms to the agreed requirements.

Data Migration:

One of the most critical part of the implementation relates to data migration from

legacy disparate systems to the new centralized one. The migration tool has to be customized

by the PV to the data features / parameters and specifications of the source systems, test

migration is done to validate for accuracy, precision and completeness followed by full scale

migration.

 There are two approaches to data migration.

Big Bang Migration Approach: Under this approach the entire bank data (branches,

overseas operations, support functions, back offices etc) are migrated in one instance /

lot to the destination CBS system. This approach is risky and involves managing too

many issues in a single tranche. Hence most banks desist from adopting this approach.

Phased Migration Approach: Under the phased approach the migration is

undertaken in a phased manner. A select list of bank’s businesses are taken and

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migrated initially. Based on the success of migration and quantum of problems /

issues encountered, other branches and departments of the bank are taken up.

Post Live Support Mechanism:

Post live support is agreed between the bank and the vendor. Some implementations

involve post live support being undertaken by the system integrator. As and when issues are

encountered change requests are taken up with the vendor for redressal.

V. CORE BANKING SYSTEM - SELECTION PROCESS

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. 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)

3. 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.

4. 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.

5. Flexibility:

In addition the solution should be flexible to meet emerging new requirements such as

multi-currency, Internet banking, integrated Treasury management, integrated Fore

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management, CRM, anywhere banking etc. These services will become no longer the

exclusive domain of a selected few banks.

6. 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.

7. 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.

8. Response Time:

It should be an industrial strength product capable of handling present and future

transaction volumes in networked environment with acceptable response time.

9. 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.

10. Data warehousing solutions:

The solution should support integration with data warehousing solutions for enabling the

top management to take well – analyzed and executive decisions.

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VI. 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 Billion 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 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

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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.

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.

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VII. CHALLENGES TO THE CORE BANKING SYSTEM

Today banking industry has achieved more scope on the technology front than ever

before. Earlier banks were just business enabler; IT is now a business driver for the banking

sector. With the help of IT banks have been able to implement Core Banking Solutions

(CBS). CBS is an automation of banks across multiple delivery channels. Under CBS banks

are able to achieve a centralized processing mechanism and in turn provide an ‘anytime

anywhere’ service to their customers. However, core banking applications have a set of

challenges as well.

With an increasing competition and changing market dynamics, banks have been forced

upon to keep updated themselves for newer obstacles every now and then. Besides this fresh

regulations and compliance requirements, industry consolidation, delivering cost effective

products and services, maintaining secure data platforms, meeting ever increasing customer

demands and other strategic issues, all these factors have made banking far more complex

than it used to be in the past. Therefore to handle the increasing transaction volumes and do

away with issues hanging around the current systems, banks require the right CBS in place.

Banking industry is getting globalize therefore banks need flexible, customer centric

core banking environment which should be equipped with multi-currency and multi-lingual

features. For instance, Canara Bank recently implemented CBS at as many as 1000 branches,

which is one of the largest implementations in the banking industry and has included

agricultural loans, loan processing, foreign exchange and service branch functionality. This

step has helped the bank to move in line with the changingmarketscenario.

Currently, out of the total IT spending taken on by banks, about 75 per cent go toward

maintenance of existing systems and certain that the business of the bank goes through

smoothly. Therefore, a major amount of expenditure involved in upgrading core banking

architecture is something many banks may not be able to afford at present. To gain a

periphery over their competitors and attend to customer demands effectively, banks are

required to take balanced steps by replacing old systems with new platforms, without giving

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up on existing core banking modules which may still cater to changing needs. Although

considerable progress in CBS implementation by banks has taken place but there is much

more ground left to be covered.

KEY CHALLENGES:

Lack of IT Resources with Banks:

Usually, the core banking solution vendors claim to offer lower

overheads, advanced technology, lower maintenance costs etc. After all, such claims win the

clients and especially their finance people, as they see IT as a big cost center instead of a

strategic asset. Vendors are also aware of the fact that the banks will calculate a minimum of

five years total cost of ownership (TCO) before they make any decision about a vendor and

its solution. If the system requires a large number of IT resources, it will reflect negatively in

the TCO spreadsheet. They thus would not recommend the banks to hire the adequate sized

IT team. Even if they are forthright about it, the banks may not take the suggestion that

seriously, and try to bargain this number. Also, banks are not that big on IT and the trends in

software, such as Agile Methodology and other object oriented frameworks. They thus

cannot, or find it hard to appreciate the roles of user experience, documentation, quality

control and quality assurance engineers. Ironic, isn’t it? During negotiations with the

application vendors, the same bank managers vouch to create their own IT team to manage

the solution during and after implementation. They ask the vendors to train their teams on the

technology and features so that the bank could reduce dependence on the external vendor.

Yet they do not hire enough people.

Lack of Experienced Project Managers:

A bank changes its core banking system once in decades.

Same goe s for any other IT solution that a bank purchses, such as credits, risk management,

middleware and the likes. Also, such projects are so large that it is difficult to find project

managers from the market with experience of similar sized projects. The project manager is

expected to provide insight, skill, communication and foresight to steer the project in the right

direction. While a project manager can bring skill and communication, if he/she is not from

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the banking arena, the foresight, risk management and insight will be missing. A newly

inducted project manager will also face issues in taking control of the things because he/she

is a new entrant.

Missing Comprehensive Training Programs:

This problem hits the implementers and the banks, both,

and equally hard. The way banks and implementers lose their IT manpower, there is almost

always a dire need of hiring people “yesterday.” New bugs are being pointed out, un-used or

un-tested features are brought to operations, requirements are evolving, and new faces are

being introduced in the team as older ones are leaving or have left already. Continuous

trainings of fresh employees must take high priority in such cases. We have seen that this

doesn’t happen. Batches are trained, no doubt, but not in the way they should be. Application

vendors and implementers are too stretched to move their consultants from clients to training

labs. With banks pressing hard upon delivery and expanding their feature-set at the same

time, and the implementing engineers/consultants taking other opportunities, the

implementation managers do not do what they must: training, training and more training.

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.

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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 banks with about 5000 CBS-branches a

year ago.

VIII. TECHNOLOGY IMPLEMENTATION IN BANKS

Technology implementation in the banking sector has come a long and hard way

from the time when certain banks gave their staff Rs 200 as hardship allowance to encourage

them to use computers. New private sector banks like ICICI Bank and HDFC Bank were the

early adopters; banks like Yes Bank have the advantage of starting off with new technology

from the beginning. There also have been banks like Canara Bank, Syndicate Bank that have

successfully implemented technology solutions.

Speed is of essence

In the case of technology adoption, banks, especially public sector banks, have to

realize that speed is of the essence. They need to take the right decisions and that too in an

efficient and effective manner to get the highest returns on technology investments. Delaying

matters by adhering to time-consuming processes has a downside—technology-savvy clients

move over to the new private sector or other tech oriented banks.

Change management

One of the elements banks tend to overlook in implementing core banking

system is that it is a human resource issue rather than a plain technology issue. Merely

making cosmetic changes in how people are deployed during the course of implementation

will just create chaos and be detrimental in the long run. Banks need to take a holistic view

to map and improve the basic processes through which they run their businesses including

how productively they use their human resources. Technology is an enabler but each bank

must constantly develop and refine their own strategy.

Future trends

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Going ahead, risk management—such as the need to implement Basel II norms—

and data warehousing are areas where technology implementation will be concentrated. But

none of this would have been possible with out core banking and a centralized database.

There is the impending opening up of the banking sector to enhanced foreign competition.

Already, many foreign banks have started creating a base here and are waiting eagerly for an

opening.

IX. CORE BANKING SYSTEM ARCHITECTURE

In the CBS set-up, all the servers are hosted at a central place called the data centre. Data

centre can also be outsourced. The data centre should have high end infrastructure in the form

of robust access control, 100% fire-proof, Non-stop power supply, AC, reliable connectivity

and high speed internet facility etc. The generic architecture is a three tiered architecture as

shown below: CBS runs on the WAN. The central server is located at the Data centre.

Generally there is no application running at the aggregation points. However, the aggregation

points will be having the network components. Branches have a branch server which acts as a

gateway to the branch. To this branch server various nodes of the branch are connected.

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Web server

Database serverDB

ApplicationServer(APS)

• Accessed by branches • Provides front end screens and forms to users

• Contains Application• Business logic running• Processes requests from servers• Accesses the DB server

• Hosts RDBMS (Oracle / SQL etc)• Processes requests from APS• Data Stored in external storage

SYSTEM ARCHITECTURE

CONNECTIVITY ARCHITECTURE

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DATA CENTRE

Leased Line / MPLS – VPN* etc

Aggregation Point Aggregation PointAggregation PointBranch Branch Branch BranchBranchBranch

(MPLS – VPN = Multi-protocol label Switching – Virtual Private Network)

X. 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

Name

Vendor Name Lending Bank Customers Largest Transaction

Volume/ Branches

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Finacle 6.x Infosys

Technology

ICICI Bank

UTI Bank

IDBI Bank

ABN Amro Bank

Punjab National Bank

Tamilnadu

Mercantile Bank

Karnataka Bank

Millions of

transactions

Several

hundreds of

branches

Thousands of

ATMS

Flexcube I-Flex Solutions

Ltd.

Syndicate Bank

Bharat Overseas

Bank

Karur Vysya Bank

HDFC Bank

Lakhs of

transactions

Hundreds of

branches

Thousands of

ATMS

Sanchez IBM Vysya Bank More than 100

Branches

Equations ACT Kindle IndusInd Bank

Centurion Bank

More than 100

Branches

FNS TCS SBI Under Implementation

TC/4 TCS/CMC United Western Bank Under Implementation

Newton ICICI Info Tech Laxmi Vilas Bank Under Implementation

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Quartz TCS City Union Bank Under Implementation

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.

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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.

OTHER 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

andeffectively. We wish our customers happy banking.

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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.

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.

XI. BENEFITS OF CBS

1)Business Benefits

Differentiated Product Spread

Core banking solutions offers an unlimited palette of features for banks to design and deploy

products for varying market segments. The product bundling capabilities of the solutions

offers a wide range of possibilities for banks to create products with innovative features. The

facilities provided for differential pricing, channel rules and customization empower banks to

continuously innovate and extend their suite of products, across segments.

Agile Operations

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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 core banking solutions offer a unified view of the customer

across the entire solutions 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.

Increased Operational Efficiencies and Productivity

Core banking solutions supports business events 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.

2) Operational Benefits

A flexible, industry standard application from which your organisation can grow

Multi banking and multi currency

System and product administration and product development performed completely by

bank business personnel

Shorten time to market products

Supports product differentiation

Supports cross-selling

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Increases customer satisfaction and loyalty.

3) Technical Benefits

24 hours a day, 7 days a week availability

Real-time multi-channel access

Distributed solution, i.e. n-tier architecture and co-operative processing

Consistent and logically structured data model reflecting the information requirements of

the banking business

Integrated solution, i.e. data sharing and no duplication of information

Parameter controlled.

NEED OF CORE BANKING SYSTEM

1) Integrate new services:

A large banking operation might want to improve and provide access to

consistent and comprehensive customer information. Their front-line staff can then provide

better customer service and correctly identify opportunities to offer new products to existing

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customers. A new customer information service that is fully integrated with existing legacy

systems is clearly preferable to replacing the entire core banking system at one time.

2) Implement new systems:

Another bank might want to market a new type of mortgage offering that the

existing core banking system cannot support. In this case, it's critical to implement a new and

highly flexible lending system that is fully integrated with existing enterprise services, such

as customer information, payments, and credit-limit monitoring. With the new system, the

bank can integrate processes, provide consistent customer information, and avoid duplicating

efforts, such as redundant data entry and writing extra code.

3) Deploy an integrated core banking system:

Yet another bank might want to fundamentally change the flexibility of its core

banking capabilities. They would still need to maintain integration with well-established

distribution channels that are based on a multi-channel architecture. For this bank, a new,

comprehensive, modern, and open-core banking system may be the answer. Such a system

could provide easy integration that is assured through compliance with industry standards.

XII. SELECTION FOR EFFECTIVE CORE BANKING SYTEM

Core Banking System is the backbone of products and services that Bank offers. With

technology becoming a value differentiator, a wrong system selection may cost tremendous

opportunity losses. How does one select the best fit for a bank in most effective manner?

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How does one ensure that the selection process is made objective, transparent and focused?

Expert advices following 9 steps for effective selection of core banking system

1) Define business needs –and have them owned:

It is critical for banks to comprehend their business requirements –both present &

future, be it customer demand on products and services, or compliance requirement for

business operations. Requirements could be classified as ‘data’ requirements or ‘processing’

requirements (e.g. interest accrual). Defining all the requirements in detail is the foundation

of a good selection process. It is also important to have this done by the business users, to

ensure that this is ‘owned’ by the business team.

2) Prioritize requirements – first thing first:

Not all requirements are equally important; some are more critical and nee to be prioritized

Domain level- some business domains are more critical than others.

Unit level- within the business area, some requirements assume higher critical than

others.

It is important to classify requirements by their priority, this also ensures that the final

ranking of vendors is on the basis of a Banks defined criticality rating, not purely on overall

conformance of vendors.

3) Determine sourcing model –what suits the best?

IT infrastructure involves selection of multiple ancillary applications and also other

investments in hardware, networking and third party software. There are two sourcing

models:

Prime vendor model: Identify a one-stop-shop vendor, for turn key assignment.

Best of Breed model: Determine applications/ IT components that best suit individual

requirements

4) Define Evaluation Criteria – upfront:

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Transparency of evaluation process depends on defining the criteria upfront. When these

criteria are not defined and frozen, there is every chance of being carried away by certain

good features of system or on the contrary, a few limitations overshadowing other features.

5) Manage RFP process – be objective, transparent and focused:

This can be a really tough balancing act, between the degree of detail one needs to get into

for clarifying vendor queries, and the time window available for issuing of RPF, and receipt

of there responses. The key factor here would be to ensure that information is provided to all

vendors, thereby enabling that the process is objective and transparent.

6) Evaluate solutions –for ‘what you want’:

Banks get to review demonstrations once a decade whereas vendor makes them for living.

Evaluating solutions for “what you want” and not what the vendors would like to showcase is

the key to success. It is impractical for anyone to remember marathon of demonstrations. The

scoring of vendor should be immediate and consistent.

7) Reference feedback – whom to ask, and what?

Reference feedback is critical to make qualitative judgment on vendors’ track record of

implementation & support. The important factor is on deciding “whom” to get this feedback

from. It has to be another bank that is similar to yours in terms of size, operations and

services. The critical element is in determining ‘what to ask”.

8) Define contractual terms – in detail:

Care need to be taken to ensure that all that is required to be committed by the vendor-in

terms of resources, timeframe, costs, dependencies, etc. are clearly articulated. The success of

implementation is directly proportional to the clarity and detail of the vendor agreement.

XIII. CBS INTEGRATION PROCESS

Core banking process integration for software, websites, devices and systems used by banks,

regulators and customers is becoming an increasingly hot area of market inquiry. As banks

recover from the rapid contraction and consolidation that occurred during the international

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financial crisis they now turn to business process improvement. insurance and other financial

services sector companies and its use there provides insight into how this may likely sort out

for a growing number of banks and other financial services companies. The Integration Suite

facilitates business process orchestration between core banking systems and/or the four main

pillars of bank IT functionality:

Channel Interaction Processing

Customer communications and transactions have converged. Customer-self service and

notification services are expected across an ever widening array of devices and technologies

which means banks need a flexible approach to integration. Banking IT systems that need to

be integrated must include the channel interaction processing capabilities that span financial

position & advice, inform & Educate functions, campaigns, offers, new accounts, sales,

customer service, B2B payments, corporate banking, cash and counter, and general banking

processing. Mobile device integration, CRM systems and self-service websites must all

integrate seamlessly and securely to core systems to deliver this functionality. It is

particularly well-suited to handle these system-to-system and system-to-web type integration

scenarios enabling multi-channel communications for banks and banking customers.

Enterprise Integration Services

Enterprise integration services refers to the processes that take place between different banks,

financial gateways, business partners and regulators. For this reason banks will often have

integration requirements related to partner gateways, inter-institutional transactions, inter-

institutional processes, information exchanges, and other types of information gateways.

Regulatory integration often follows along similar routes with the exception of the

transactional exchanges themselves. Enterprise Integration Services are often the most

interesting aspects of banking integration technology because they involve a strange mixture

of standards like SWIFT and obscure proprietary technologies that require custom

integration. For this reason a mixture of standard components and technology-level adapters

such as those in the Integration Suite are well-suited to overcoming these challenges.

Core Business Processing

Most banks are locked into their core banking systems as they represent not only a substantial

investment but they are a reflection of the principal functions that a bank performs. These

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systems are therefore the object of much protection as well as the source of needed

information. In other words, when it comes to integration with core banking systems, you

have to do it, but you have to do it right. Integration begins with basic G/L and ERP

integration. Core banking functions often have specialized systems or suites for product

management, risk management, debt management, corporate banking, and retail banking.

Tie-ins and feeders for campaign management, customer analytics and management

information and reporting may also be required. Banks and financial services companies

running JD Edwards, PeopleSoft, Oracle, SAP, Infor or other systems note that the utility of

integration extends beyond ERP to facilitate needed custom integration and process

orchestration with core transaction systems.

XIV. FUTURE EXPECTATION OF CBS

Next generation core banking solutions face high expectations from user communities.

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1) Realizing one bank, one architecture

In a few years ahead banks will most likely consist of a wide range of back-end applications

supporting core banking. Thus internally the applications will deliver separate products and

services but should converge so the customer can seamlessly hop from one application to

another without feeling the difference. One bank one architecture concept is seen as a

potential benefit of technology convergence and standardization. Open standards and

integration middleware will most likely dominate future core banking systems terrain giving

way to the intelligent information networks that will transform banking business into a truly

customer-centric operation. The overall solution could embrace IP Telephony, customer care,

wireless, IP ATM's and kiosks, IP video surveillance and content delivery network.

Design and architecture of the systems should facilitate rapid response to change which is

often going to be driven by frequent redesign of business processes. A focus will be placed

on enabling data integration for various purposes such as cross selling, customer relationship

management, regulatory reporting and internal management information system at lower cost.

The remaining challenge resides with how an organization can actually identify and separate

the common aspects of banking capability from its variations. This is a particularly difficult

mindset to adopt especially when businesses are focused on differentiation and often reject

the idea of commonality in their own context.

2) Enabling multi-tasking

Next generation CB systems will also be expected to perform several functions which most

current ones are falling short. These shortcomings include allowing product innovation,

bundling, flexible pricing, integration of third party products and real time transaction

processing. They should be able to provide a comprehensive database for all business

segments that support customer centricity and a functionality that allows smooth IT

integration of new product launches in order to accelerate the time to market new offerings.

3) Open Source-driven

After the legacy and the ERP era, the Open Source era appears to advance at a steady pace.

Ideally banks want to develop software by leveraging commoditized capability i.e. find Open

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Source components easily at no or low prices, and once integrated these components can

represent a majority of bank core system software. The effect will be low technology costs

for banks that could be translated into low fees for high quality products and services. One of

the challenges is in the evangelical view that Open Source can replace all software offerings.

In niche vertical banking markets, Open Source has no representation or meaning, and will

only play a more significant role in the foreseeable future in horizontals.

XV. FINDINGS

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In Banks, every additional customization causes a drain on resources, delay in

delivery and calls for additional effort.

A major amount of expenditure involved in upgrading core banking architecture in

many banks are not able to afford at present

Banks are required to take balanced steps by replacing old systems with new

platforms, without giving up on existing core banking modules which may cater to the

changing needs.

Vendors train their teams on the technology and features so that the bank could reduce

dependence on the external vendor. This shows there is lack of resources in the bank.

Data Integrity and data security have to be ensured all the time as the centralized

location will be the target of all evil eyes.

More effort needs to be done by the banks for getting the system to work, using

business parameters built in the system, rather than writing codes all around it.

The core banking system is a implementation of a well-established software that is available off-the-shelf..

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SUGGESTION

Customization process in core banking implementation is done carefully in order to

avoid the delay in delivery and non-availability of resources.

Upgradation of software is the key to keep pace with the changes in the current

scenario where banks should be taken care.

Banks are transforming from the legacy system to new technological platform with

the existing core banking modules also compete with the changing needs.

Due to lack of resources in the bank, training should be improved gradually

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XVI. CONCLUSION

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 various sources.

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XVII. REFERENCE

www.esds.co.in/ corebanking

www.en.wikipedia.org/wiki/ Corebanking

www.sdsbanksys.com/products/ core - banking .cfm

www.searchcio.techtarget.in/definition/ core - banking - system

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