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    What is the needof Core Banking Solutions?

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    State Bank of India Core Banking Project 2

    Overall Solution

    The need for such a solution does not arise just because of one reason or the other

    but it requires a combination of driving forces to come into existence.

    y To meet the intense competition and changing market dynamics in an over

    banked environment.

    y To meet the regulations and compliance requirements (example in order to

    meet the Basel ll norms banks must enhance there IT infrastructure).

    y To meet the demands of customers who are better informed, more

    demanding and less loyal than ever.

    y To enhance efficiency and effectiveness. Increasing customer satisfaction

    and convenience Freeing up time for branch staff to focus on sales and

    marketing Simplifying process for employees Enhancing banks

    competitiveness in the market Improved process efficiency

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    State Bank of India Core Banking Project 3

    Treasury

    Internet

    Banking

    ATMs

    MIS + DW + DM

    Internal

    InterfacesALM + RiskManagement

    IBR

    Branch Network

    Core+

    Trade

    +GL

    The Complete Picture

    DEBIT CARD:

    Debit cards are also known as check cards. Debit cards look like credit

    cards or ATM (automated teller machine) cards, but operate like cash or a

    personal check. Debit cards are different from credit cards. While a credit

    card is a way to "pay later," a debit card is a way to "pay now." When you

    use a debit card, your money is quickly deducted from your checking or

    savings account.

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    Debit cards are accepted at many locations, including grocery stores, retail

    stores, gasoline stations, and restaurants. You can use your card

    anywhere merchants display your card's brand name or logo. They offer an

    alternative to carrying a checkbook or cash.

    Undertaking a host of banking related services including financial

    transactions from the convenience of customers chosen place anywhere

    across the GLOBE and any time of date and night has now been made

    possible by introducing on-line Telebanking services. By dialing the given

    Telebanking number through a landline or a mobile from anywhere, the

    customer can access his account and by following the user-friendly menu,

    entire banking can be done through Interactive Voice Response (IVR)

    system. With sufficient numbers of hunting lines made available, customer

    call will hardly fail. The system is bi-lingual and has following facilities

    offered

    y Automatic balance voice out for the default account.

    y Balance inquiry and transaction inquiry in all

    y Inquiry of all term deposit account

    y Statement of account by Fax, e-mail or ordinary mail.

    y Cheque book request

    y Stop payment which is on-line and instantaneous

    y Transfer of funds with CBS which is automatic and instantaneous

    y Utility Bill Payments

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    y Renewal of term deposit which is automatic and instantaneous

    y Voice out of last five transactions.

    Features of Core banking:

    Customer Information File (CIF)

    The CIF is the nucleus of the Core Banking System, where all information related to individualsand legal entities is managed. bMASTER Enterprise Banking System makes a clear distinction

    between individuals and companies. This distinction helps to better define the relationshipbetween an individual or a company (a customer or prospective customer) and the financial

    Institution, to calculate Profitability, risk and to set the ground for CRM.

    Customer Relationship Management (CRM)

    The Customer Relationship Management (CRM) is a set of tools and services that the Systemoffers in order to implement customer-centric business strategies.

    This will drive redesigning of functional activities in order to identify, win, keep, and develop

    profitable customer base.

    Financial Accounting

    The System offers integrated financial accounting compliant with any accounting standards(including IAS, GAAP etc).

    This innovative functionality is achieved through the architectural design of the system which

    supports business events (managerial financial events) that are later mapped into financialaccounting based on user defined business needs.

    Financial accounting has an open architecture to import and map transactions from other

    solutions (Stock Brokerage solutions, leasing etc) into bMASTER Enterprise Banking Systemand present them from a single point of view as if they were recorded by the System.

    Product / Services DesignThe System has a very powerful product definition enviroment which allows fast time-to-market

    launch. Product designer incorporates an on-line audit trail, keeping the product history, alongwith the evolution of each product in time.

    Access Control & Security

    bMASTER Enterprise Banking System incorporates multiple security mechanisms, enabling thedefinition of access control and rights management across the system for every role. Using this

    powerful mechanism the bank can map its current security (and access rights) measures into thesystem, and create custom authorization rules for a secure operational environment.

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    DepositsbMASTER Enterprise Banking System supports an extensive range of deposits (saving accounts,

    chequing accounts, time deposits, under notice, with overdraft capability) in any currency. Alldeposit products are defined with the "Product Designer", allowing the Financial Institution to

    design and offer deposit products based on its strategic and operational goals.

    LoansbMASTER Enterprise Banking System supports an extensive range of loan products (corporate,

    consumer) as defined in the "Product Designer". In all cases loans are accompanied by collateralsand are limited according to a set of structure limits.

    Loans also incorporate an integrated Reports Wizard and Business Intelligence tool in order to

    design custom reports and perform data analysis services.

    Teller transaction support

    bMASTER Enterprise Banking System has a teller interface which supports the following

    processes:

    y Financial and Managerial events posting

    y Proofy Cashier management (balance per currency, travelers' cheques etc)

    y Issuing of slips for each eventy Journal

    y Passbooky Issuing and printing

    Letters of Guarantee

    bMASTER Enterprise Banking System issues and manages letters of guarantee.

    SWIFT

    bMASTER Enterprise Banking System incorporates an engine for constructing SWIFT messagesfrom the System that will later be transferred to SWIFT Alliance. It covers an extensive range of

    all common messages needed, from the day-to-day operation of the Financial Institution.

    Funds TransferbMASTER Enterprise Banking System incorporates electronic funds transfer which can support

    transfers from any type of source to any type of destination at any possible combination.

    Management Information SystembMASTER Enterprise Banking System offers an integrated Business Intelligence and reporting

    solution, based on the tools and solutions of Microsoft SQL Server 2000 technology (DataWarehouse, Data Marts, OLAP tools and Data Analysis Services), and on a robust business

    model that covers all the information needs of a bank (from a decision support, operational,auditing and risk perspective).

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    Statutory ReportingbMASTER Enterprise Banking System covers a wide range of reporting (Central Bank

    reporting). These reports can be integrated in the Management Information System.

    Account Management

    bMASTER Enterprise Banking System incorporates a robust account management, offeringextensive customer positions, product portfolio and business information on customer, hisportfolio of products, his relation with third parties (and their restrictions), allowing the bank to

    have a complete customer view.

    End of Period (End of day, month, year)bMASTER Enterprise Banking System incorporates an innovative end-of-period mechanism

    (which can run simultaneously during working hours, eliminating the need of batch processing atthe end of the day), which allows the bank to have a complete financial position at the end of the

    day (per branch, business unit or the whole organization).

    Term ContractsTerm Contracts manages time deposits, Treasury Bills, REPOS and loans, for issuing a newcontract (in any currency), changing the action to be taken upon maturity, closing the term

    contract, or changing its interest rate.

    On Line Authorization (OLA)The access to the system's functionality is controlled throughout this innovative mechanism. It

    controls the applications' business rules, during the executing of any task within the system. Itincorporates an innovative chat mechanism, which allows the real-time communication within

    the branch or across the WAN (with an authorized role) for authorization.

    ScoringAlthough each bank has its own credit scoring methodology, this mechanism is designed to meet

    any credit scoring methodology (score card) and minimize the bank's exposure (and credit riskassociated with the granted loan) by processing the application data, assigning weights to each

    part of the application and finally indicating access if the loan will come default.

    bMASTER Enterprise Banking System - Core Banking is the heart of the System which covers

    the typical functionality of any Financial Institution needed to support its primary operations.This functionality can be adopted according to the strategic needs and operational requirements

    of the Financial Institution.

    General LedgerGeneral Ledger Engine acts as a "bridge" between the Front-End and the Back-End of

    bMASTER Enterprise Banking System.

    It generates all general ledger entries from daily transactions carried out by the Front-End(withdrawals, deposits, loans, time deposits etc) and from all banking applications, to create suchentries that enable various reports to update the general ledger.

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    Among the functions of General Ledger mechanism are closing of the day, revaluation of theposition accounts, mapping transactions, and generating a unique trans code and (YSN) Yearly

    Sequencial Number for tax authorities.

    Cheques Management

    It handles the whole life-cycle of cheques, from cheque ordering to cheque printing, in acentralized or decentralized model.

    LimitsbMASTER Enterprise Banking System offers an advanced limits management functionality, that

    allows the bank to monitor and manage its exposure on multiple levels (group, organization,individual, products currencies accounts etc). It offers an innovative graphical representation of

    the limit exposure, in order to easily manage (and grasp) complex limit structures.

    Collaterals

    Along with the limit management module, the bank has an overview of its risk exposure with the

    collateral module that supports any type of collaterals. It offers a Collateral registry and linkingof collaterals to accounts.

    Interface with clearing systemsbMASTER Enterprise Banking System supports universally accepted messaging standards such

    as ISO 8583 and XML. This allows the exchange of information with external systems (thirdparty systems) such as automated clearing house (ACH) systems, cheques clearing systems, etc.

    Business Process Management

    It enables business users to create, monitor and modify process definitions (which interact withsystems and people, from inside or outside of the organization), and the automatic execution of

    those processes.

    The solution has an integrated graphical processes designer, which enables business users

    quickly and easily to model and modify processes without programming. This enables thedynamic modification of business processes (even after they have been initialized), seeking

    continuous process improvement, discovering of problem areas (bottlenecks in the model)resulting in increased employee productivity. The solution also offers scripting capability, which

    allows the interfacing with internal / external databases and solutions.

    The end users of the process management solution, work with html forms (web browser), whichare designed by the business users (for each point of the process). This enables the dynamic

    update of all client workstations, with new business models, without additional effort.

    Arrears ManagementCRM Collections (Arrears Management) is a modern arrears management solution, which

    manages the coordination of efforts for collection of arrears from any type of products (loans andcredit cards, overdraft, excesses etc). The solution is based on a flexible business model forarrears management, and can be applied either at the call center division (which manages the

    collection of arrears) or at multiple locations covering specific market and area needs.

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    Loans originationIt is a complete loan application processing system, which manages the approval process of the

    loan. It tracks the progress of application on every stage of the life cycle (which is customtailored for your organization) across different departments and different roles.

    Advantages:

    The Power of Core

    The Freedom to offer anywhere Banking

    True 24x7 architecture

    Seamless channel handling

    Centralised Report Generation

    One Point interaction with external systems

    Ability to roll out products fast across the network

    Benefits of Core Banking Solution The success or failure of any project primarily depends upon how

    much ROI it generated or how much savings were enabled due to theexercise. This more often tends to be the yardstick for measuring thesuccess or failure of a project. We feel the benefits derived can bebasically classified into two broad areas viz. Economic benefits andPerformance or Subjective benefits.

    Economic Benefits

    The cost savings from a project of this magnitude are typically visibleover a period of a couple of years from implementation. The ROIcompounds as new lines of business and geographic areas move onto the new platform. The return of investment typically slow in the firstfew years till such time the real benefits of the system start accruingto the bank. Research reports indicate that large core banking

    replacement projects enter a positive NPV as late as the 5th

    year.Cost benefits in the long run may accrue to the bank due to all of theperformance benefits

    CBIT-IIITB Working Paper WP-2006-8 11

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    mentioned above (as most of them have an indirect linkage to cost)as well as from other areas such as:

    1. Lower transaction processing costs within the branch and through

    other delivery channels 2. Reduction in license fees towards other software, which gets

    replaced by the core banking system. This can constitute as savingsfor the bank almost immediately.

    3. Reduced maintenance costs in terms less complicated code to

    maintain, easy for the bank to build its own customization, lesser time

    required for testing etc. 4. Reduced staffing as lesser number of system now need to be

    managed 5. Cheaper and faster hardware and Database Hardware and

    Database costs have dropped significantly in recent times that enablethe bank to leverage on this to deliver faster transaction processingspeed etc.

    Performance Benefits 1. Flexibility: - Lack of flexibility more often tends to create an

    impediment in building new functionality, eliciting data for newerregulations like the BASEL 2, accessing better information oncustomer so as to enable cross selling, addition of newer businesslines, offering new products in the existing business lines and so on.

    New generation core systems provide flexibility in terms of beingmodular in nature and supporting an integration layer, which can beused very effectively to hook on to third party applications.

    2. Customer Centric New solutions tend to give a complete 360

    degree view of the customer transactions the objective being to try

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    and give a complete perspective of the customers relationship withthe bank so as to enable cross selling opportunities. Some of the coresystems use data mining tools to cull out relevant data from customertransactions and try to get a meaningful message out of this.

    3. Real Time Capabilities Most transactions done in the newer core

    banking solutions are on-line real time not only within the package butacross all delivery channels. This tends to create a lot of efficiencywithin the system on one hand as well as reduced risk on the other.

    4. Straight Through Processing This is a new concept, which

    enables the system to process transactions end-to-end almost

    without any human intervention. E.g. a successful implementation ofan STP functionality for an inward funds transfer (MT 103) messageitself could save the bank significant costs in terms of reducedstaffing requirement. A feature like this also ensures almost 24 X 7processing of such transactions which only leads to better customerservice and good-will.

    5. Lesser Down-time, smaller or no EOD / EOM cycles. 6. All of this eventually results in addition of new customers, retention

    of existing customers and an over-all better customer service.

    $ERXW6%,

    State Bank of India is the largest and one of the oldest commercial bank in India, in

    existence for more than 200 years. The bank provides a full range of corporate,

    commercial and retail banking services in India. Indian central bank namely

    Reserve Bank of India (RBI) is the major share holder of the bank with 59.7%

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    stake. The bank is capitalized to the extent of Rs.646bn with the public holding

    (other than promoters) at 40.3%.

    SBI has the largest branch and ATM network spread across every corner of India.

    The bank has a branch network of over 14,000 branches (including subsidiaries).

    Apart from Indian network it also has a network of 73 overseas offices in 30

    countries in all time zones, correspondent relationship with 520 International banks

    in 123 countries. In recent past, SBI has acquired banks in Mauritius, Kenya and

    Indonesia. The bank had total staff strength of 198,774 as on 31st March, 2006. Of

    this, 29.51% are officers, 45.19% clerical staff and the remaining 25.30% were

    sub-staff. The bank is listed on the Bombay Stock Exchange, National Stock

    Exchange, Kolkata Stock Exchange, Chennai Stock Exchange and Ahmadabad

    Stock Exchange while its GDRs are listed on the London Stock Exchange. SBI

    group accounts for around 25% of the total business of the banking industry while

    it accounts for 35% of the total foreign exchange in India. With this type of strong

    base, SBI has displayed a continued performance in the last few years in scaling up

    its efficiency levels. Net Interest Income of the bank has witnessed a CAGR of

    13.3% during the last five years. During the same period, net interest margin

    (NIM) of the bank has gone up from as low as 2.9% in FY02 to 12.00% in FY07

    and currently is at 13.04%.

    In 1959, the SBI (Associate Bank) act was proposed and the following eight

    State-associated banks were taken over by the SBI as its subsidiaries.

    Name of the

    Bank

    Headquarters

    (City, state)

    Subsidiary

    with effect

    Branches ATMs

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    from

    State Bank of

    Hyderabad

    Hyderabad,

    Andhra

    Pradesh

    1st October

    1959

    965 450

    State Bank of

    Bikaner &

    Jaipur

    Jaipur,

    Rajasthan

    1st January

    1960

    833 336

    State Bank of

    Saurashtra

    Bhavnagar,

    Gujarat

    1st May 1960 452 190

    State Bank of

    Patiala

    Patiala, Punjab 1st April 1960 766 353

    State Bank ofMysore

    Banglore,Karnataka

    1st March1960

    654 247

    State Bank of

    Indore

    Indore,

    Madhya

    pradesh

    1st January

    1968

    301 235

    State Bank of

    Travancore

    Tiruvandrum,

    Kerela

    1st January

    1960

    706 331

    The SBI Group under statutory obligations was required to open new offices in

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    Rural and semi-urban areas and modern banking was taken to these

    unbanked remote areas.

    KEY AREAS OF OPERATIONS:

    The business operations of SBI can be broadly classified into the key income

    generating areas such as National Banking, International Banking, Corporate

    Banking, & Treasury operations.

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    COMPETITORS

    Competitors and other players in the field:-

    Top Performing Public Sector Banks

    About SBI

    SBI is Indias largest commercial bank. It has a vast domestic network of 9,019 branches

    (approximately 14 per cent of all bank branches) and commands one-fifth of deposits and loans of

    all scheduled commercial banks in India. The SBI group includes a network of eight banking

    subsidiaries and several non-banking subsidiaries, offering merchant banking services, fund

    management, factoring services, primary dealership in government securities, credit cards and

    insurance. SBI has branches or representative offices in 31 countries and has correspondent

    relationship with 720 foreign banks

    Refer th notes of case study-core banking of SBI.

    The State Bank of India (SBI), the countrys largest commercial bank, is expecting a 15% fall in

    its transaction cost after it implements a core banking solution (CBS).

    AK Purwar, chairman, SBI, on completion of the first phase of its core banking solution by Tata

    Consultancy Services (TCS) said that the bank would bring 90% of its business on the core

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    banking platform by 2006 and the savings in terms of administrative cost would be passed on tocustomers.

    We will be more competitive and provide effective competition to our competitors in the

    premium banking, said Mr Purwar. The bank plans to spend Rs 600-700 crore in infotech

    systems in the current financial year.

    The bank hopes to cover 2,000 branches and 60% of business under core banking by end of

    March 2005, up from over 260 branches live on the system today, said Mr Purwar.

    Commenting on a possible rationalisation of branches and reduction of manpower after the bank

    adopts core banking solution, Mr Purwar said the bank would like to redeploy surplus manpowerin expanding its retail services like selling insurance, mutual fund products.

    The implementation of core platform, valued at Rs 2,000 crore, is expected to cover 14,000

    branches of SBI group by March 2006, he added. The bank has already spent over Rs 800 crore

    for IT systems last year.

    TCS managing director and chief executive officer S Ramadorai said that at any point of time

    150-250 IT professionals were working on the SBIs core banking project.

    After completion of the project, the volume of daily transactions on core banking platform will

    grow to 2.5 crore from current level of five lakh, Mr Ramadorai said.

    With core banking solutions, the bank will be able to improve management of funds and non-performing assets (NPAs) and reduce the time required for inter-branch reconciliation, TCS

    director (SBI projects) K Ramanujam said.

    Security Measues At SbI

    Refer PPT