Core Banking Report

7/29/2019 Core Banking Report

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Project Report

On

Need & Effectiveness of Core Banking Solution

Submitted in the partial fulfillment of

Master of Business Administration

(2004-2006)

Submitted To: Submitted By

Project Guide Saurabh Bakliwal

Mr. Santosh Tagore MBA 2004-2006

Faculty, IMS IMS, DAVV Indore

Indore

Institute of Management Studies

Devi Ahilya Vishwa Vidyalaya, Indore


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CERTIFICATE

I certify that Mr. Saurabh Bakliwal, a student of MBA (2004-2006)FT of Institute of

Management Studies, DAVV Indore, has carried out a research project entitled Need &

Effectiveness of Core banking solution with special reference to State Bank of Indore, inpursuance to the requirement of the MBA (2nd Sem) curriculum.

I am satisfied with the work done by him. I wish him luck for all his future endeavors.

Project Guide:

Mr. Santosh Tagore

Faculty, IMS

DAVV, Indore

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DECLARATION

I have tried my level best in making this research project useful, pragmatic & successful. I

have tried to provide the accurate information to the best of my knowledge. The data collectedis primary, authentic & analyzed by me.

I have got the questionnaires filled by branch managers of different branches in Indore and

their respective employees & clients. All other information has also been gathered fromreliable sources.

I hereby declare that project entitled Need & Effectiveness of Core Banking solution isauthentic I have put in my efforts meticulously to make this project to come up to the

expectations and pragmatically viable.

(Saurabh Bakliwal)

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ACKNOWLEDGEMENT

This project is not one persons solitary effort. Its successful completion is the result of many

different people to whom I owe a debt beyond repayment. Unfortunately, I can not

acknowledge my indebtedness to all these people, so I must necessarily limit my thanks tothose who have helped me directly in making my project work an incredibly pleasant task and

giving to final shape.

It is my duty as well as privilege to express my deep sense of gratitude to all those who have

been associated with me in this research project.

First of all, I express my deep gratitude towards Mr. Santosh Tagore, my project guide whoinitiated this study and also helped me by giving his valuable comments at every stage of my

work.

I m also deeply indebted to Dr. (Mrs.) Sangeeta Jain, Coordinator MBA (Full Time) atIMS, Director Dr. Rajeev Gupta at IMS for the providing the required facilities for my

project.

I offer my sincere thanks to all the branch managers of various branches of State bank of

Indore situated in Indore & their respective employees & clients for their co-operation &

providing valuable information by filling questionnaires.

Last but not least, I m also thankful to my father Mr. Dilip Jain, my uncle Mr. Narendra Jain

and rest of the family for providing me crucial feedback that influenced the development ofthis project. I m also thankful to my friends and all my classmates for their constructive

criticism and constant encouragement and friendly co-operation.

(Saurabh Bakliwal)

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PREFACE

Banking scenario has changed rapidly since 1990s. The decade of 90s has witnessed a sea

change in the way banking is done in India. Technology has made tremendous impact inbanking. Anywhere banking and Anytime banking have become a reality. The financial

sector now operates in a more competitive environment than before and intermediates

relatively large volume of international financial flows. In the wake of greater financial

deregulation and global financial integration, the biggest challenge before the regulators is ofavoiding instability in the financial system.

Technology has thrown new challenges in the banking sector and new issues have started

cropping up which is going to pose certain problems in the near future. The new entrants in

the banking are with computer background. However, over a period of time they would

acquire banking experience. Whereas the middle and senior level people have rich bankingexperience but their computer literacy is at a low level. Therefore, they feel the handicap in

this regard since technology has become an indispensable tool in banking.

Foreign banks and the new private sector banks have embraced technology right from the

inception of their operations and therefore, they have adapted themselves to the changes in the

technology easily. Whereas the Public Sector Banks (PSBs) and the old private sector banks(barring a very few of them) have not been able to keep pace with these developments. In this

regard, one can cite historical, political and other factors like work culture and working

relations (which are mainly governed by bipartite settlements between the managements and

the staff members) as the main constraints. Added to these woes, the PSBs were also saddledwith some non-viable and loss making branches, thanks to the social banking concept thrust

upon them by the regulatory authorities in 1960s.But, now PSBs are also trying to compete

with private sector bank in terms of technology and Core banking solution is one of the

example of it.

My project is concerned with the motive of probing into the effectiveness level of corebanking solution with respect to its users i.e. branch managers/ systems managers, employees

& clients. This study is mainly concerned with measuring the need & effectiveness of Core

banking solution confined to State Bank of Indore, Indore division. In the proceedings, I hadformed an experience survey form that I got filled by various branch managers, employees &

clients of State Bank of Indore along with their personal interviews.

The research traces need & effectiveness of Core banking solution from the perspective ofbranch managers/ system managers, employees & clients. Along with these, I have thrown

light upon future aspect of banking scenario in India with respect to technology.

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CONTENTS

Chapter-1

1.1. Executive Summary

Chapter -2 Impact of technology on Banking-Literature review

2.1 The banking industry, history & technological changes2.2 Impact of IT Act 2000 on banking sector

Chapter-3 Core banking solution

3.1 Core banking solution

Chapter-4 Objective

4.1 Rationale of Study

4.2 Objective of Study4.3 Type of Research

Chapter-5 Project Methodology

5.1 Sample Design & Sample Size

5.2 Methods of Data collection5.3 Analysis

5.4 Findings

5.5 Managerial Implications & Recommendation5.6 Conclusion

Chapter-66.1 Bibliography

Chapter-7 Annexure

7.1 Questionnaires7.2 Raw score data sheet

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CHAPTER -1

7

1.1 Executive Summary


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EXECUTIVE SUMMARY

Banking was never been such a pleasure, but today information technology & its impact have

made banking a pleasure activity. In the present kaleidoscopic economic scenario l bankinghas seen sea change especially in Global as well as Indian context. It may be true that conceptof universal banking rushed through not because of inherent strength of the model but perhaps

may be of the sheer pressure of globalization & competition. But the fact remains is that

Indians are getting world-class services & products. Core banking solution is one of the

medium through which all these world-class facilities are being provided.

Its the core banking solution, which has made possible the concept of Anywhere banking

and Anytime banking with the help of ATMs, having centralized database. Now, acustomer is no more a customer of a particular branch, in fact he/she has become customer of

that banking organization and can do transaction from any branch of the bank all over the

India.

Core banking solution is the need of the hour. In this global village, where geographical

distances are ever shrinking with the advent of newer technologies and communication, Corebanking is essential. Core banking provides the ease of performing transactions, where we go.

In order to compete in this cutthroat competition, its essential for any banking organization to

integrate all its products and services and make a formidable combination for its customers.

Currently, most of the banking organizations are facing lot of problems in implementing Core

banking solution due to resistance to change, sophisticated technology etc. but they all are like

toothache problem and should be over in some time. Afterwards, we can expect a smoothjourney towards the new era of banking through Core banking solution.

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CHAPTER -2

Impact of Technology on Banking

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2.1 Banking industry, history & technological changes

2.2 Impact of IT Act 2000 on Indian Banking


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IMPACT OF TECHNOLOGY ON BANKING

The banking industry, history and technological changes

Historical overview

Indian banking got its start in 1870, with the Bank of Hindustan. Modern banking began with

the establishment of three presidency banks under The Presidency Banks Act, 1876 - the Bank

of Calcutta, the Bank of Bombay and the Bank of Madras, which were subsequentlyamalgamated to form the Imperial Bank of India. Bank of Calcutta, the Bank of Bombay and

the Bank of Madras, which were subsequently amalgamated to form the Imperial Bank of

India.

The Imperial Bank carried out some of the functions of a central bank before the formationThe Reserve of the Reserve Bank of India under Bank of India (RBI) Act of 1934. The RBI

was constituted as India's apex bank without major government ownership. The BankingRelations Act of 1949 brought the RBI under government control, vesting it with wide-

ranging powers of supervision and control of Indian banks.

In 1955, the RBI acquired control of the Imperial Bank of India. It was renamed the State

Bank of India (SBI); The SBI then converted eight private banks floated in the erstwhile

princely states into 100% subsidiaries. Subsequently, the RBI forced weak banks to mergewith the strong ones reducing the numbers from 566 in 1951 to 85 in 1969; In 1980, the

government acquired six more banks with deposits of more than Rs. 2 billion. The avowed

purpose was to turn these banks into catalysts for economic growth. Rural markets forindustrial goods could not be developed so long as moneylenders, charging usurious rates ofinterest, were the main source of rural credit. Moreover, the 'green revolution' depended on

farmers finding substantial sources of credit to pay for fertilizers and hybrid seeds.

Since the mid-1970s, there has been a spectacular growth in the spatial distribution of bank

branches and in the size of their deposits and advances. According to experts in banking this

transformation has no parallel anywhere in the world (Anantharam Iyer, 1991). Afternationalization, there was also a change in recruitment policy. For the first time, the doors of

the banks were opened to everyone, irrespective of family status, caste, community, religion

or gender. Recruitment was placed on a more systematic basis, with merit assessed by aptitudetests conducted by an external agency in a relatively impartial manner (Deekshit, 1991).

As the size of the banking sector increased, the industry became difficult to manage.

Computer technology offered a possible solution. In India, a small number of industrialhouses and a few educational, research and development institutions started using computers

in the early 1960s. During the late 1960s and 1970s, service-oriented industries such as

airlines, railways and insurance companies introduced computers to 'improve theirfunctioning' and 'to provide better customer service' (Anantharam Iyer, 1991). Banks in India

did not, however, introduce computers on a large scale because of the fear that these would

result in retrenchment and unemployment (Goodman, 1991). For a long time Indian banks

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faced very little competition and operated in a protected economy. Thus no long-term policy

or perspective for the banking sector was formulated: it was simply treated as part of the

public sector. This is now changing. Well-computerized foreign banks are beginning tocompete seriously with the nationalized banks. They aim at a profitable and wealthy part of

the market and, in contrast to the nationalized banks, do not recognize any social

responsibilities to small account holders or to a rural and semi-urban clientele.

Technological changes, legislation and bargaining

In India, the main agents affecting the introduction of new technology have been the unions,

management and the workforce. The government has played a very indirect role in the

process. In the early days of the massive introduction of computer technology into industry

and services, union policies on new technology were basically defensive. They focused almostentirely on the immediate consequences of technological change on the workforce, especially

the aspect of possible job losses.

However, these attitudes and the strategies of unions vis--vis computerization have begun to

change, especially since the 1980s. Management in many places has been able to convinceworkers and unions that competition is becoming increasingly harsh, and computerization isnot only inevitable for the health and survival of the unit but also beneficial to employees,

because it may improve the competitiveness of the enterprise, enhance job security and

improve employment conditions. Many unions that have consistently opposed

computerization have had to face their members who are keen on technological changes. Asone EDP employee who is also a unionist put it, 'As a unionist I would oppose

computerization, as an employee I would welcome it. That is my dilemma.'

Consequently, unions today are increasingly seeking to influence the process of technological

changes so that new technology can be introduced in such a way as to benefit workers and

minimize its adverse consequences. The last decade has seen several 'technology agreements'or 'computerization agreements', along with routine collective bargaining agreements, which

contain clauses related to technology. Despite these agreements, most managers in India,

including those in the public sector, have consistently regarded all aspects of technologicalchanges as matters falling within the area of managerial prerogative. When consultation with

unions has occurred, these have been far from fair since unions have lacked the requisite

know-how and information.

The Reserve Bank of India (RBI) installed its first computer in 1968, and a larger one in 1979.

But the United Commercial (UCO) Bank, the Standard Chartered Bank, Lloyds' Bank, Grind

lays, and others had installed accounting and other machines before 1966. Operations such aspayrolls had been computerized fairly early on. Some head offices began to use computers by

the beginning of the 1980s. In September 1983. Two of the major banking unions - the AllIndia Bank Employees Association (AIBEA) and the National Confederation of BankingEmployees (NCBE) signed an agreement with the Indian Banks Association (IBA),

representing 58 bank managements. The unions wished to maintain surveillance of the process

and to protect job prospects in the banking sector, but the final settlement was self-

contradictory. On the one hand there were restrictions on computerization, with numericallimits on the numbers of mainframe computers, and even on the number of accounting

machines that might be used in rural branches, but there was also a loop-hole which allowed

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the banks to use 'such number of mini-computers as are warranted by their needs and

exigencies'.

The 1983 agreement provided an opening for individual banks to make their own

computerization agreements, and many foreign banks immediately took advantage of this

'openness' to negotiate agreements giving them a free hand to introduce new technology,despite the careful restrictive approach of the AIBEA and NCBE.

In March 1987 the AIBEA and NCBE signed a new settlement with the IBA. The settlementwas similar in its approach and concerns to the 1983 agreement. Although it allowed for an

extension of new technology in both the operations computerized and the equipment used, the

concern was largely still with ways of restricting and controlling the use of computers to

protect existing staff and preserve the prospects for future staff. The agreements also providedsome additional allowances and protection for pregnant women. Taking advantage of the

'openness' clause in the 1983 and 1987 agreements, some of the AIBEA's own affiliates

agreed to the installation of automatic teller machines and fax machines, which were beyondthe purview of the industry level accord.2 There are signs that the AIBEA has been forced to

reverse its earlier relatively liberal stance on computerization because of the campaignspearheaded in recent years by its arch rival, the Bank Employees' Federation of India (BEFI),which has been seeking recognition from the IBA.

However it would be misleading to look at the unions alone in explaining the slow rate of

technological innovation. A highly placed bank executive commented that the management ofthe banks lack perspective, because of the protection they had enjoyed, and were not really

serious about computerization (Goodman, 1991). There is also uncertainty among bank

managers about the implications of computerization in terms of the hierarchy and their ownpositions. Employees of many Indian banks, including the State Bank of India and Bank of

Baroda, said that management 'just dumped these machines here. They are hardly used, and

some don't work.' A comprehensive policy seems completely absent. In contrast, themultinational banks have computerized almost totally, with the unions unable to have any say.

Impact of computerization on the workforce

Some of the general issues that have concerned unions and employees, especially women, in

the wake of the introduction of new technology in the banking and finance sectors have been:

Prospects of job losses and declining employment levels.

Increase in workloads.

Pressure for flexibility.

Changes in job contents.

Increased insecurity in the workplace, and loss of union power.

Increase in the proportion of 'non-bargainable' staff (i.e. those without an

automatic right to unionize) as compared to the 'bargainable' staff.

Changes in grading and pay.

Changes in information and control.

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Changes in the autonomy of employees.

Job losses

There have not been visible losses of employment in either the banking or insurance

industries, due to the massive expansion and diversification in the two industries and to the

high proportion of nationalized enterprises, in which workers are generally protected againstjob losses. Some of the foreign banks have undergone massive expansion in terms of the

number of their branches and their areas of operation. In fact, in January 1992, 12 foreignbanks sought permission to open 44 more branches in various major cities of India (Economic

Times, 1992). There has however been a reduction in the rate of recruitment in the

nationalized banks. According to a recent study covering three banks and two insurance

companies, the growth of new jobs has dwindled. As the use of new technology expands,labour savings are likely to increase further in some operations (Chopra, 1991). The three

developments that are likely to displace workers, and women in particular are voice

recognition, optical character recognition and artificial intelligence (Rajan, 1990). Anemployee at the Hong Kong bank observed that the entire category of typists had already been

abolished.

It is possible to discern a tendency to reduce the proportion of 'bargainable' staff in both

nationalized and foreign banks. The Banque Nationale de Paris reduced its bargainable staff

from 200 employees in 1979 to just 135 in 1992, by not recruiting staff at the lowest levels

and by asking about 35 employees to accept the so-called Voluntary Retirement Scheme(VRS) because computerization was expected to reduce the need for their labour.

Increase in workloads

New technology could lessen the repetitive and heavy nature of certain operations. However,

most employees in the insurance and banking industry, especially in the foreign banks, have

experienced serious strain and heavy workloads. According to an employee working in thecash department of the Citibank,

Before computerization we used to do 30-40 cash entries per day; now we

have to do more than 100. There is a greater pressure of work more work andmore responsibility. The speed has increased enormously

According to experienced unionists in ANZ Grind lays Bank, computerization, coupled with

non-recruitment and non-replacement of retired staff, has led to a tremendous increase in

workloads, 'after 20 years of employment, people are bound to be completely fagged out.Then the management will term them "unsuitable", "old" or "unfit"'. The personnel officer of

Grind lays, who disagrees with the union on everything else, admitted, 'since the emphasis is

entirely on productivity and efficiency, there has been intensification of work. Employees'efficiency levels have gone up ten-fold'. Personnel officers at the Life Insurance Corporation

(LIC) confirmed this picture.

Pressure for flexibility

Over the last decade and a half, management has consistently sought to have flexible manning

levels. They have argued that they need operational flexibility in order to respond quickly tochanges in the market, to introduce technological innovations, and to deal with fluctuations in

the flow of work. This, they say, can be achieved by employing a core of secure, permanent,

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multiskilled, full-time employees and a 'periphery' of marginal, generally single-skilled

workers who may be employed part-time or temporarily, and directly or indirectly, in a

variety of 'new' ways (Huws et al., 1989)

Computer technology demands functionally flexible multi skilled workers rather than

specialists. The strategy of increasing flexibility in the employment system frequently targetswomen workers, who occupy the lower rungs of the job hierarchy. They are often forced to

change workstations or leave the firm. Professionals and specialists, a majority of whom are

men, benefit from the strategy.

Changes in job content

Changes in work methods caused by the introduction of computerization affect the content ofwork as well as the skills needed by employees. The direction of changes is, however, not

uniform. Two divergent tendencies can be observed. In routine transactions, certain skills of a

mechanical nature, which nevertheless require a measure of mental effort and concentration,are no longer required or are needed less. The skills replacing them are equally mechanical but

call for less mental effort. The level of skills required for the performance of routinetransactions therefore actually falls, although the degree of attention and concentrationrequired will be just as high or even higher. In contrast, in the area of customer services,

computerization offers potential for an increase in both the necessary range and level of skills,

for example, searching for, extracting and assimilating relevant information in response to a

request. The realization of the potential is, however, contingent on the relevant organizationaldecisions being taken by management (Ozaki et al., 1992)

The impact of new technology on work content and the skills required of workers alsodepends on how rigidly jobs are defined and demarcated and on the skill levels of the existing

workforce. Various studies seem to show that, in places where the tasks of workers have

already been defined broadly and flexibly, with much overlapping, the reorganization of workafter the introduction of new technology has been comparatively smooth and workers'

resistance relatively minor. In places where the skill level of workers is high, technological

change tends to strengthen the tendency towards the integration of planning and productiontasks. Where skill levels are low there seems to be a trend towards polarization of skills.

Computerization is also creating skills that are largely transferable from one enterprise to

another, such as the skills of computer programmers (Ozaki et al., 1992).

Product innovations have generally led to an increase in the importance of formal skills. The

informal skills, learned on the job, which characterized women's work, are not seen as

important. The professional and technical jobs increase in number and importance, and formaltheoretical knowledge is becoming more important for employees in the banking sector

(Tremblay, 1991). In India as elsewhere, categories such as junior clerks and tellers arebecoming less important in the overall workforce as Automated Teller Machines (ATMs)multiply (Rajan, 1990).

An employee working at the bill discounting department in Citibank, Bombay, says:

Earlier, when a bill was brought to us, we made manual entries. The customer

would present the bill. We had to scrutinize it, and then send it to the liability

department for their approval. In the liability department, each client had one

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big card that showed her status. After approval, it was sent back to us for

processing. That is:

Calculate the interest using a interest machine

Make debit/credit cards ticket.

Balance the amount

Finally, send the tickets to journal keeper, who would balance all the amounts

Each department had a journal keeper. Now, we still have to scrutinize a bill. Then we key it

into the programme - the bill programme. The computer shows the credit limit automatically.The ticket is then given to the officer, who takes it to the Credit Approval Committee.

According to the personnel manager of the LIC, work had not been enriched or tasks enlarged,

because jobs were set and functions well defined. 'Computerization has made the jobs easierrather than interesting.' The personnel officer at the ANZ Grind lays Bank, in contrast, was

adamant that employees' skills had increased ten-fold, but he was actually referring to theirproductivity or efficiency. He agreed however that many jobs have been 'realigned'. Forexample, in bill discounting, work that was previously done by a team is now done

individually by workers with their own machines. An employee at Grindlays comments,

'Earlier, there was greater interaction between employees. Teamwork was good work. Welearnt more about the work. Now there is no time to look around, help or seek help from

colleagues. You just sit there and bang at the keyboard'. The management of Grindlays argues

that employees used to spend most of their time with books (e.g. tabulations) and now spend

more time with customers. The unionists at Grindlays dismissed this claim, 'There have beenno changes. Work has become more monotonous. The brain is getting more dull.'

Many employees expressed mixed feelings about computerization. While it relieved somework pressures and strains of particular types, it has made work dull. It increased efficiency,

but decreased the feeling of teamwork and sharing. Work might be less arduous, but it also

becomes less varied. Computerization is supposed to increase customer interaction, but manyemployees experienced a reduction, and all complained of an increased work tempo.

Increased insecurity and loss of union power

Deskilling contributes to a feeling of powerlessness vis--vis the employer. This feeling was

expressed more definitely by employees working in foreign banks than by those employed

either in the nationalized banks or the nationalized LIC, Four women employees in theBanque Nationale de Paris said that the closure of some branches and their awareness that

they had not been given computer training at a time when nearly all the banking operationshad been computerized had made them 'very scared.' All four were later made redundant.

At ANZ Grindlays, insecurity was said to have increased, with early retirements and no

recruitment for the last four to five years, 'that itself creates insecurity. If there is a reduction,then it creates panic.'

Citibank employees reported feeling, on the one hand, that their workload was generally too

heavy, and, on the other hand, that any temporary reductions made them fear that work hadbeen contracted out. They said that contract workers had been employed for specific tasks,

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without informing the employees or the union. This has become possible because of

computerization.

The feeling of insecurity has also increased because unions have been considerably weakened.

The women who were forced to take the VRS (Voluntary Retirement Scheme) by the Banque

Nationale de Paris say:

Here is virtually no union in the BNP. The union officials were bendingbackwards to sell the VRS to us. We didn't want to resign. We wanted to fight it

out. But how can you do that without the firm backing of the union?

Even when a union is strong, women may not be protected against discrimination.

Increase in the proportion of 'non-bargainable' staff

Control over the workforce provides the basis for controlling production processes, outputlevels, and scheduling. Over the years, this control has been loosened as unions have come to

play a role in areas such as work intensity, output levels, health and safety, which were and

still are considered to be 'management prerogatives'. One of the strategies available to wrestcontrol back is to weaken unions, both numerically and in terms of the functions, which the

unionized workforce performs. This is one reason behind the dramatic and continuous

increase in the non-bargainable category of workers, as compared to unionized workers. This

actualization process has occurred in the banking and insurance industry as well as inmanufacturing.

The number of workers in the bargainable categories is being reduced, for instance by usingcontract couriers in place of employing messengers. In 1973, 18.7 per cent of all workers in

the banking industry were officers. By 1987 this had grown to 26.7 per cent. Over the same

period, the percentage of clerical workers fell slightly, from 55.9 per cent to 52.4 per cent, and

the percentage of workers in more subordinate positions fell quite significantly from 25.4 percent to 20.9 per cent (Borkar, 1991).

In almost every industry in India, computer programmers are in the non-bargainable category.

Computer programmers are usually in a position to anticipate changes and may use their

knowledge to keep other workers and unions informed. Most new recruitment is done in the

'officer' category, though often these new employees do the same work as the bargainableemployees. In industries where the union has refused to cooperate with computerization, the

management recruits 'officers' to do the work of data entry operators etc. The unionists are

increasingly feeling that they have to bargain with the management about the content of workin the bargainable and non-bargainable categories, and be vigilant about any infringement.

Changes in grading and pay

There seems to have been no attempt to redefine a new grade structure in the banking and

insurance industry after computerization was introduced. In the Banque Nationale de Paris a

'promotion agreement' was signed in 1987, under which all the clerical staff were promotedwithin three years to the status of Special Assistants, a supervisory category with an extra

wage allowance. Everybody, including the lower grade staff, received the allowance, and

there was a substantial increase in basic pay too. But there was no attempt at evolving a newgrade structure, nor any training to equip employees to deal with the new type of work. All

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employees, including the women, have gained financially but there has not been any change in

their job definition or real status.

All the banks have some allowance for EDP staff or computer operators. In the LIC the

allowance was Rs 100. In the Hong Kong Bank only the most senior employees in the

department got the allowance, although almost all the employees have to work on theterminals. The Union Bank of India employees who work on the computers get an allowance

of Rs 350 per month. The Hong Kong Bank employees get an allowance of Rs 400. In the

words of one computer operator in the Bank of Baroda, 'EDP staffs are definitely gradedhighly in the Bank'.

Changes in information and control

Traditional craft workers often knew far more about their jobs than managers or supervisors,

which gave them a lot of freedom as to how the work was done. But computers have

enormously increased management's ability to collect and analyze information - about productperformance, market trends, customers, sales, finance, and of course about employees. The

tendency has been for management to learn more about how work is done, and to specifymore tightly how jobs should be done - both in terms of method and speed.

Every minute of your time is being recorded. How many words did you key in?

How much time was required for posting debits and credits, for bill

discounting? However, we cannot access information that is not in ourjurisdiction. If one tries it, it is invalid; but the fact that you tried will be

recorded in the computer. If one looks at it dispassionately, one would have an

eerie feeling.

Employees felt that they were being watched and intimidated, increasing the sense of

insecurity. Unions have not claimed a right to have access to information relevant for

negotiating. Employees in ANZ Grindlays bank found such a demand difficult to evenimagine. 'Management has total control over all information. Profits, costs etc. are under

secret code. They have all the information about us though.'

Changes in health and safety conditions

The introduction of new technology has also created a range of new hazards for the workers.The development of new materials, processes and substances, without adequate information

being made available about their impact, may be creating problems, which will not be

perceived for many years. Increases in the scale and pace of production have contributedtowards stress, especially where there is also inadequate support or training or an unfair

distribution of workloads.

Some specific health and safety problems have been shown to arise from the introduction of

computer-based equipment. Visual Display Units (VDUs) have been known to cause a

number of health problems, especially if operated continuously for a long time. 'Video blues',

eye problems, musculoskeletal problems, painful conditions such as tenosynovitis, varicoseveins, ulcers, nausea, headaches, and skin diseases as well as reproductive problems such as

miscarriages, stillbirths, birth defects, infertility, menstrual problems and low sperm counts

have been very extensively documented (Labour Research Department, 1985). However, noneof the bank employees had been given any health training. Most employees complained of

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eyestrain, headaches, or a heavy feeling in the head, but they worked at the terminal from 9.30

a.m. to 4.30 p.m. with only breaks for lunch and tea i0n between. Three women in Citibank

had had miscarriages, though none of them had any personal or familial history ofmiscarriages. Of the forty women interviewed only one had heard that working on the

computers continuously could cause health problems. None of the training sessions had

mentioned this problem. Though information on the health and safety aspects of working withcomputers is widely available, employees were ignorant of health hazards. This indicates their

lack of access to information relevant to women, the unwillingness of management to share it,

and the indifference of the union to issues of health and safety. This is a serious issue,especially because the number of women working on computers is increasing rapidly.

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Impact of IT Act 2000 on Indian Banking

Indian Banking: Withstanding the Challenges

After a decade of reforms, the Indian banking sector is slowly getting stronger. Regulationsare forcing the banks to adopt better operational strategies and upgrade their skills. The

system has witness the integration of the financial markets. Externally, the happenings in the

international markets have their implications on the markets and the players. All these aremaking the operational environment more volatile and hence challenging for the Indian

banks. Thus the need of a strong IT acts for Indian banks was required, so that the new way of

banking can be safe, secure and adaptive. Indian banks have nevertheless, withstood all these

challenges and are becoming more adaptive to the changing environment with new bankingreforms like IT Act 2000, Bankers book evidence act and Reserve Bank of India Act etc.

With the onset of 2001, the Indian financial sector has entered its 10th year of reforms. During

this decade, the reforms have touched upon almost every segment of the financial sector.Nevertheless, it is the banking sector, which experienced major reforms. A retrospect of the

events clearly indicates that the Indian banking sector has come far away from the days of

nationalization. Increase in the number of banks due to the entry of new private and foreign

banks, increase in the transparency of the banks balance sheets through the introduction ofprudential norms and increase in the role of the market forces due to the deregulated interest

rates have all significantly affected the operational environment of the Indian banking sector.

Also with the introduction of electronic method of operations Indian banks got a new threat. It

was required to have a proper method of working with clear guidelines for it. IT Act 2000,Bankers book Act provided the necessary guidelines for such situation and is helping the

banking sector to grow stronger and stronger.

The Narasimham Committee had laid the foundation for the reformation of the Indian banking

sector. Constituted in 1991, the Committee submitted two reports, in 1992 and 1998, which

laid significant thrust on enhancing the efficiency and viability of the banking sector but itwas the IT Act of 2000 which boosted the concept of E-banking, E-commerce with the

support to the secure banking system thru electronic media.

As the international standards became prevalent, banks had to unlearn their traditional

operational methods and adopt new way of banking.

Different level of Computerization: Public and Private Banks

The Indian banking sector faces significant challenges. Public banks are struggling tocomputerize, while private banks are eager to adopt security mechanisms.

The private banks that have a clear-cut agenda in place to tackle the emerging challenges in

this sector drive the online banking business in India. Meanwhile, public sector banks viewthe basic computerization of operations as an daunting task. The security risk involved is

directly related to the size of the network.

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In India, the computerization of banking operations and the maintenance of manual methods

each has their pros and cons. While computerization can lead to efficiency through automated

transactions across branches, reduced cost of operations and workload management, it alsohas its pitfalls in the form of security risks, network downtime, scarcity of trained personnel,

expensive system upgrades and recurring costs.

The advantages to manual banking include no network security risks, the high availability of

personnel, and confirmed transactions through physical verification and re-confirmation. But

it also carries a legacy of drawbacks, including operating inefficiencies, a massive paper trailand the slow update of transactions.

In spite of their different positions on the computerization spectrum, both public and private

banks understand the concept of the Public Key Infrastructure. It is only the size of theinitiative in both these categories that will vary. While private banks look at security as a

value added, risk reduction utility for their online and real-time transactions; The public sector

banks look at computerization as their first agenda, a massive exercise in itself consideringtheir huge branch networks, and security as something that will happen as they get

computerized.

Automation in Banking sector

Public sector banks realize that computerized banking is the way to go and are moving

frantically pace in this direction, but it will take time. An interesting factor here is that 100banking centers in India, with high levels of Internet connectivity, control 70% of the assets

and liabilities of the entire financial system. This region thus becomes a priority zone for the

public banks to computerize as well as work security measures into their operations.

Private banks came into existence knowing that they would have to use technology, as a

cutting edge tool to deliver services in those areas that public sector banks couldn't. Such

areas include customer service and real-time banking and related products. Adding value tothe banking experience by using technology is a thing easier said than done. There are very

few online trading sites that are successful. There are only prototype payment gateways anddigital signatures don't exist in the banking system.

The inclination towards developing a state of the art network in the financial system in general

and the banking system in particular is evident in recent legislation.

The Information Technology Bill 2000 has been passed in parliament and has come into

effect. The Office of the Controller of Certifying Authorities (CCA) has been constituted andMr. K.N. Gupta has been appointed as the first Controller. The CCA will be issuing the

license needed to operate as a Certification Authority, and the first set of licenses will be

issued sometime in January after a stringent evaluation of the applicants' technical,infrastructural and financial strengths.

In spite of their different positions on the computerization spectrum, both public and private

banks understand the concept of the Public Key Infrastructure.

The IT Bill is aimed at bringing in structure, legal validity and authenticity for transacting

online". Its passage can be perceived as an indication of the government's inclination towardspromoting e-commerce and e-governance while ensuring accountability.

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Credit Information Bureau

Unlike other developed or developing countries, data on individuals or corporates is notavailable in the Indian market. With over a billion Indians, this data structuring exercise is

indeed a massive task. It is noteworthy that efforts are afoot in this area too. The CreditInformation Bureau (CIB) is being established under the mandate of the Reserve Bank of

India. The State Bank of India and HDFC BANK are supervising it with technical support

from Dun & Bradstreet India and TransUnion. While Dun & Bradstreet will provide

assistance for retail accounts, TransUnion will provide technical support for maintainingdatabases of corporate accounts. The bureau will have access to the largest database of

borrower accounts with the SBI group having close to 30% of the banking sector advances

and HDFC having the largest database of long term retail borrowers.

The CIB will collect commercial credit related data and create, package, market, sell and

distribute credit reports to banks, financial institutions and businesses, which agree tocontribute the relevant data on a regular and continuous basis.

Acceptance of emerging technologies in India like PKI is driven by two main factors, one

being the brand value of the solution provider. How strong is the reference value of thesolution and is it a globally accepted product? Second, is the pricing correct," he asks? "In this

case the cost of the solution will most probably have to be discounted by the service provider

who is keen on identifying his customer and building a relationship. As the usage increasesthe end user will realize the value of the product and be willing to pay a higher price for it".

The need for a globally accepted product places the Identrus framework in a prime position to

succeed in the Indian embryonic banking security market.

The Indian market place also has a unique vendor factor in play. The local partner of the

technology provider is a key factor in the decision making process of the buyer. Deliverycapabilities, corporate relationships, business networks and the option of getting a one-stop

shop for end-to-end solutions are also factors that influence the buying procedure.

As awareness grows and user comfort increases, it would not be surprising to find uptake ofPKI growing exponentially. India with its skilled computer professionals is perfectly

positioned to set the global benchmark in terms of innovation and product benchmarks in the

PKI world.

Pushing through reform

The Narasimhan Committee Report of 1992 initiated reforms for the banking sector to align

them with internationally accepted banking practices. The amendment of Banking Regulation

Act in 1993 saw the entry of new private sector banks through a licensing system. The state

funded financial development institution called the Industrial Credit and InvestmentCorporation of India (ICICI), the Housing Development Finance Corporation, the database of

long-term retail borrowers. Hinduja group and some prominent non-banking financial

institutions were among the successful licensees.

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These new private sector banks that entered the field in 1994 started with a clean balance

sheet. They used technology as the means of improving efficiency and reach. In the last few

years the private sector banks have come a long way though they have not achieved thepotential in terms of deposit growth. The top private sector banks (PSBs) -- ICICI Bank,

HDFC Bank, Global Trust Bank, UTI Bank, and Centurion Bank -- are present in almost

every major city and metro in the country.

IT and private sector banks

The private banks were in a position to leverage IT applications in their daily operations

adopting new technology for the delivery of various financial products. While HDFC is keen

on setting up its own virtual marketplace, ICICI is concentrating on venture capital

investments and keeping financial intermediation under its direct domain.

IT and public sector banks

The top management in state-owned banks has hit a wall in their own pursuit of the same

goals. The lack of trained manpower, hostile trade unions and the general enormity of the task

are all major obstacles. For example, in 1998 the State Bank of India with more than 5,000branches started work on a plan to build an IT network -- including the integration of an

electronic payment gateway managed by a private service provider -- connecting all its

branches. Unfortunately, progress has not been up to the expectation.

Net Banking

Net banking will make an impact in India even though the overall level of Internet access isvery low. The top 100 centers out of around 36000, which account for about 70% of assets

and 60% of liabilities, have high penetration levels. Recent research indicates that Internet

connections and users are growing exponentially with 11 million connections and around 23

million users by 2003. The market for PKI applications will hopefully experience a similargrowth curve. The need for a globally accepted product places Identrus' framework in a prime

position to succeed in the Indian embryonic banking security market.

IT Act Contributions: Banking sector E-commerce

The three best contributions of the IT Bill to the E-commerce movement in India are asfollows: -

1. The legal recognition of electronic records. The IT Bill has laid down for the first timein the legislative history of India that where any law provides that information or any

other matter shall be in writing or in the typewritten or printed form, then,

notwithstanding anything contained in such law, such requirement shall be deemed tohave been satisfied if such information or matter is - rendered or made available in an

electronic form; and accessible so as to be usable for a subsequent reference. This is

likely to give a huge boost to e-commerce in India because it solves the practical

problems, which were arising prior to the existence of the IT Bill on the law book.

2. The IT Bill further states that unless otherwise agreed, an acceptance of contract may

be expressed by electronic means of communication and the same shall have legalvalidity and enforceability. The said Bill purports to facilitate electronic intercourse in

trade and commerce, eliminate barriers and obstacles coming in the way of electronic

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commerce resulting from the uncertainties relating to writing and signature

requirements over the Internet. The Bill also aims to fulfill its objectives of promoting

the developing of the legal and business infrastructure necessary to implementelectronic commerce.

3. Thirdly, the said law grants legal recognition to digital signatures. This is further likelyto give an impetus to the rapid development of e-commerce.

Banking a part of Service Sector

Services the 'tertiary sector'of the economy covers a wide gamut of activities like trading,banking & finance, infotainment, real estate, transportation, security, management & technical

consultancy among several others. The contribution from services sector today stands over 40

per cent of the total GDP in India. The sector currently employs close to 20 million people inIndia. For all the aforesaid areas IT plays the prime role in information processing, storage &

access with a view to providing improved services to the consumers.

Financial Services

Financial services have been the major users of IT and communication technologies. IT

expenditure by US banks has recorded a compounded annual growth rate of 8.4 per cent. TheManagement Information System (MIS), distributed computing devices, open systems, high-

speed data networks (LAN, NIAN, WAN, ISDN etc.), RDBMS have been important

development milestones in IT with major impact on financial services.

Use of multimedia for storage of text, graphics, video, sound etc. has immensely benefited the

information storage system. All these technologies are used extensively by the banking and

financial services sector.

Automated Teller Machines (ATM)

ATMs though operational in the country for quite some time, are expected to make a big

headway in India. It has been estimated that there are around 400,000 ATMs worldwide. The

latest generation networked ATMs allow the user to perform upto 150 kinds of transactionsranging from simple cast withdrawals & deposits, to fund transfer to trading in stocks to

buying mutual funds to something mundane like payment of electricity bills, booking air-

tickets and making hotel reservations, although many of above services are not yet availablein India.

In 1999-2000 as many as 40 percent of ATM cardholders used it for cash withdrawal, while in2000-01 the figure rose to 80 percent, which shows the kind of confidence and awareness

increasing in India.

ATMs are synonymous with credit cards - 578 million credit cards issued worldwide andIndia is poised to become one of the world's largest credit card users by 2010.

'Virtual' Bank

Multimedia technology would be quite effective in bringing the banking services to the

doorstep of its customers. The Customer Activated Terminal (CAT) or Kiosk is an interactive

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multimedia display unit, housed in a small enclosure, typically consisting of a computer

workstation, monitor, videodisk player and a card reader. It allows the customers to browse

through information and use the available banking services at their own speed. Some banksare thinking of establishing 'virtual' branches where a customer can walk through the door,

explore services by touching parts of the screen and at any time call up a member of the bank

staff by video conferencing. While the banks do not need to invest heavily in real estate forsetting up such a branch, the customer gets the benefit of 'one-stop banking' at a convenient

location.

Phone banking

Many of Indian banks (ICICI etc) have started giving this facility of doing the banking from

any phone. Your transaction is safe and secure, as you need to tell a specified code that isknown only to the authentication server.

Home Banking

Apart from phone banking, Smart phones with screen built-in modems and programmable

microprocessors let the customer access a variety of financial services from home. Another isNet Banking in which Subscriber can access various financial /Banking services thru the

Internet.

Electronic Funds Transfer at Point of Sale (EFTPOS)

While travelers cheques meant 'pay-now-buy-laterand credit cards had 'buy-now-pay-later

advantages, EFTPOS or debit cards signify 'buy-now-pay-now' but without cash transaction.The user presents his ATM card when he buys goods and the EFTPOS system immediately

debits his bank account.

Smart Cards

The 'processor' type Smart Cards with in-built integrated circuits (ICs) or microchips offer awide range of transactional opportunities even from remote areas. The Smart Cards are

extensively being used for employee 'clocking in', withdrawing cash from ATM, using pay

phones, payment of various bills etc.

Electronic Data Interchange (EDI)

EDI typically denotes paperless financial transactions across the locations. EDI is fastbecoming the norm for inter-company transactions and also for procurement of bought-out

items from the suppliers. The companies can now operate their bank accounts through

corporate banking terminals in their own offices, which are linked to the bank computers.Companies can thus carry out transactions like transferring funds, managing its cash flow,

opening Letters of Credit etc. without any paper work.

India thru VSNL has already established Trade- Net (EDI) to facilitate electronic submissionof trade documents by traders to various Govt. agencies and the response of these agencies to

the sender. It has reduced document-processing time from one day to 15-30 minutes. BHEL is

using the same for getting orders, filling tenders etc thru this EDI facility.

Image Processing

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As financial services including capital markets and banking are highly document intensive,

image-processing technology can have a far-reaching impact for such applications for its 'less

paper'handling characteristics.

In banks, image technology could be used for automatic identification or character recognition

to read text and diagram wherein the cheques or documents can be scanned.

Expert Systems

The financial services sector is increasingly using decision support systems (DSS) or expert

systems for functions such as credit risk appraisal, forecasting loan delinquencies, investment

decisions etc. One of the most promising developments in this field is the use of 'neural

network' approach to build an expert system, which lets the software literally learn fromexample and experience. Several banks today are using neural network programs to detect

credit card fraud. Some leading international investment banks to track stock price patterns

and predict their movements are also using it. Although such credit rating are not verycommon in India but for individual customers sooner it will also come up.

Information Technology & Financial Services: Key Issues

While the technological possibilities of IT may be unlimited, their applications and adoption

in India need a conscious approach towards Business Process Reengineering of existing

practices and procedures to take the fullest advantage of IT. Continuous training & skill upgradation of human resources assume critical importance towards absorption of new

technologies.

The elimination of manual records, the introduction of electronic fund transfer, ATMs etc.

raise the important issue of security and integrity of data. This includes issues relating to

confidentiality of information, preventing data corruption and prevention of fraud.

Appropriate technologies for encryption of data for secured transaction, regular & multiplebackups, extensive use of passwords and other forms of authorization are been adopted. As in

case of EFT, a cheque is not required to be presented physically for making payment as perthe current practice. Also the legal liabilities of banks and customers in case of loss of ATM

cards, ATM frauds etc. are not quite understood in the present system. The adoption of new

technologies would warrant a thorough review of the system towards changed legal

stipulations.

For paperless and electronic financial transactions in India, a host of legal aspects need to be

looked into. These legal aspects are taken care in the new IT Act 2000.

The services sector covers a vast range of occupations involving comparatively little capital

investment leading to gainful employment and has a very good potential for export revenues.The sector calls for continued induction and infusion of knowledge-based technologies with

cutting edge applications of information technology. With the highly skilled manpower and

excellent entrepreneurship qualities, India can truly emerge as a 'global player' in the services

sector, once a proper frame work start working in fashioned way, and IT Act 2000 will showthe way for growth of all service sectors including the banking.

The table below provides a glimpse of the technologies of future related to banking sector andtheir likely time- frame of introduction in India.

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IT Applications in Financial/Banking Sector: FUTURE SCENARIO

SNo.

Future Services

Likely Time frame of

Introduction /

completion

in India (in Years)

1 Networked ATMs for banking & other transactions 0 to 5

2 Smart phones for home banking operations 2 to 10

Virtual branches of bank operating from Customer

Activated Terminal (CAT) or a Kiosk2 to 10

4 Debit Cards for EFTPOS 5 to 10

5Smart Cards with built-in microchips for paperless cash,

pay phones etc.0 to 5

6Electronic Data interchange (EDI) for paperless banking

transactions0 to 5

7Image processing technologies for optical scanning andstorage of digitized images/papers

0 to 10

8

Expert Systems and Neural Networks for credit risk

appraisal, monitoring/prediction of stock price

movement, detection of credit card fraud

5 to 10

9 Business Process Reengineering, training & skillsdevelopment for absorption of new technologies

5 to 15

10Information Security for confidentiality, prevention of

data corruption and fraudulent practices0 to 10

11Legal aspects for paperless & electronic financialtransactions

0 to 5

12

Bar coding to emerge as an important device for

payment processing, accounting & inventory

management

0 to 5

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Is IT Act sufficient for Growth of banking sector?

Everybody familiar with the cyber world talks about e-commerce and the recently enactedInformation and Technology (IT) Act recognized one of the revolutionary features of cyber

world - the digital signature.

Thinking IT Act, digital signatures etc as full proof and safe. Even some say it to be

instrumental in bringing major reforms in Banking sector like it has done for IT sector. But

most of the experts feels IT Act to be insufficient in many ways. Experts feel the act has nothave enough teeth to safeguard e banking from frauds and complexities. With most of the

sites been hacked and content changed, IT Act should have given more powers to deal with

complexities of virtual world.

Although IT Act was only needed to give legal validity to e-commerce and inclusion of every

sensitive aspect into the single framework would unnecessarily make the act complex, it hasexcluded negotiable instrument as defined under the Negotiable Instrument Act from the

applicability of the Act.

This is a classic example what changes banking sector is seeing and adapting. With still thescope of improvement in IT act this sector can grow even stronger.

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CHAPTER -3

Core banking Solution

28

3.1 Core banking solution


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CORE BANKING SOLUTION

What is Core Banking?

Core Banking is a generic term, which denotes inter-branch transaction capability through acentral database. Inter-branch transaction facility is available through out Internet Banking

Solution. With the introduction of Core Banking, the facility of inter-branch transactions will

cover a wide range of business (as decided by the Bank from time to time), through any of theCore Banking branches.

Need for introducing Core Banking

The new wave in retail banking is an enterprise-wide, customer-centric approach wherebranch banking; call centers and e banking converge to provide a "best of breed" approach tocustomers. The objective is to deliver banking services on demand across any channel without

impacting a customer's experience of the process. This new wave is attributable primarily to

advances in new technology such as J2EE and customer analytics.

As a bank, implementing a core banking solution is not just about replacing the old core

system with a new one, but also about affecting business transformation in building and

selling products and services that are customer-centric. Ultimately, the philosophy behind anytechnology initiative is to drive easier consumer access and greater convenience, while

enhancing customer service levels

Through the power of technology available through Core Banking, the new

generation banks and foreign banks are able to target niche markets and provide valueadded services with speed and efficiency. It has, therefore, become imperative that

Nationalized Bank also inducts this technology, to effectively leverage it for business

and maintain out supremacy in the market place.

The Business Process Re-engineering (BPR) initiatives of the Bank, which are being

implemented, need Core Banking as pre-requisite.

Customers of the Bank, who are currently associated with a particular Branch, willbecome customers of the entire Bank Group and derive benefits. Similarly, the

organization, powered by information available through the central database, will bepositioned to conduct its business in a far more efficient manner.

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Central aspects of the Core Banking Project?

All data would be at central host. Having a centralized database would be the biggest

advantage offered by Core Banking. There would be minimal data for front-end validations at Branch.

Data flow from/to the CDC would be through connecting model.

All system-related activities would be done at host level

EOD would be done at the Host place only.

It offers Offline functionalities too.

What does Core banking allows us to do?

Centralized Processing: State Bank group has computerized all the branches with

Bank Master under the Universal Computerization Project. However, this is branchlevel computerization. Core banking on the contrary, has a centralized database, and

all processing of transactions are carried out in this database, residing at the CentralData Center (CDC). Certain features (such as screens, signatures of customers,

transactions for the current day, end of day balances of previous day) are also made

available at the Branch, for smooth and speedy conduct of operations

24*7 Banking/Anywhere banking: Core banking will make available 24 *7 banking

and Anywhere banking to the customers, and all other channels like ATM, InternetBanking etc. will be fully integrated with branches

Integration with delivery channels ATMs, Internet, Mobile Banking.

Strengthening MIS/DSS/EIS: As all data will be in a centralized database and

branches as well as administrative offices can be connected through Core banking,better management Information System (MIS)/Decision Support System (DSS)/

Executive Information System (EIS) will be possible. This connectivity will also

facilitate timely and informed decision-making.

Many of the back office functions currently performed by branches can be

conveniently handled at a central location (or locations) after introduction of Core

banking, enabling branches to focus on efficient product delivery, marketing and

cross selling.

Integration with strategic areas like Trade Finance, Treasure, ALM, Corporate BalanceSheet.

Change in Business processes value addition to the organization and customers.

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What is the need for integration of various IT Products for a Bank?

To exploit the Group synergy

To meet the rising customer expectations

To overcome the pressure of competition

To meet the regulatory requirements which are growing stringent day by day

To improve efficiency in operations

To reduce transactions costs.

For efficient and timely settlement and management of funds

For providing timely and accurate MIS to Top management thereby facilitatingimproved decision making

Risk management

What are the process changes that would take place due to the implementation of Core

banking solution?

Core banking is not just Computerization; it aims at changing the way we do business.

There would be changes in workflow at branches.

Core banking frees branches from Back office work.

The entity of Branches would undergo a big change Branches would emerge as

delivery points- marketing outfits.

The implementation of Core banking enables BPR (Business Process Restructuring)initiatives of Bank.

Loans- Sanction, Tracking and Debt Collection would become more efficient.

NPA - online tracking, write-off, probability of default

Maintenance of many registers in system- nomination, stop payment/loan related.

Changes in reporting: Core banking would enable control related exception reporting,

unlike wholesale reporting as in vogue now.

Accounting/ reporting related changes SCs, Inward clearing, and FD.

There would be reduced Reconciliation overhead.

Rationalization of service charges.

Core banking aims at a paperless/register-less office

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Shared operations Center (SOC) are being proposed to take care of Back office

functions

Maker-Checker integrated with powers.

Branch Calendar

Fees & Charges

Reports Generation & Distribution Voucher verification Reports

Clearing Centralized Handling

Cash/Currency chest computerization

Computerized maintenance of Security Forms (VPIS Valuable Paper Inventory

System)

Self service facilities.

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CHAPTER -3

OBJECTIVE

33

3.1 Rationale of study

3.2 Objective of study

3.3 Type of Research


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OBJECTIVE

Rationale of the Study

To study the effectiveness of Core banking solution and its impact on its users i.e. branch

managers, system managers, employees and most important clients.

Research objectives

Primary objective

Effectiveness of Core banking solution

Impact of Core banking solution on its users

Secondary objectives

Impact of technology on Indian banking

To check the awareness level of Core banking solution among clients, employees

To study the effect of ever changing technology on humans.

Research Type

Exploratory research

It is also known as formulative research. The main purpose of such studies is that offormulating a problem for more precise investigation or of developing the working hypothesis

from an operational point of view. The major emphasis on such type of studies is on the

discovery of ideas and insight with the help of various methods viz, the survey of concerningliterature, experience survey, analysis of insight stimulating.

Limitation of the Project

Study to be conducted at branches situated in Indore district only.

Time duration of project is 2 months.

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CHAPTER -5

Research Methodology

35

5.1 Sample Design & Sample Size

5.2 Methods of data collection

5.3 Analysis

5.4 Findings5.5 Managerial Implications & Recommendations

5.6 Conclusion


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RESEARCH METHODOLOGY

Sample Design & Sample Size

The sample design being chosen for this project is Judgment Sampling. Judgment Sampling is

that sampling is that sampling in which elements from the population are purposively

selected. Thats why; Judgment sampling is also called Purposive Sampling

My project was focusing on the persons who are the users of Core banking solution.

Therefore, the sample designs I have chosen consist of Branch Managers, employees andclient of State Bank of Indore only.

The sample size of research project for various experiential survey forms are as follows:

Branch Managers: 20

Employees: 50

Clients: 50

Total: 120

Methods of Data Collection

All the data collected for my research project is Primary Data.

Primary data is collected by the way of getting questionnaires or survey forms filled &

through personal interviews from the selected sample size.

Analytical Techniques

Percentage Analysis

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DATA ANALYSIS

Core banking solution on Manager Friendliness parameter

Very unfriendly

10%

Not friendly

20%

Neutral

45%

Friendly

25%

Very friendly

0%

Very unfriendly

Not friendly

Neutral

Friendly

Very friendly

Results:

Every 2nd Manager finds Core banking solution similar to previous software on User

friendliness parameter. Every 4th Manager finds Core banking solution comparatively friendly

Every 5th Manager finds Core banking solution comparatively In-Friendly

Every 10th Manager finds Core banking solution comparatively Very In-Friendly

No Manager finds Core banking solution Very Friendly

Conclusion:

Most of the manager rated Core banking solution Neutral on User-Friendliness parameter.

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Core banking on User Friendliness parameter By Employees

Very unfriendly

9%

Not friendly

22%

Neutral

30%

Friendly

39%Very unfriendly

Not friendly

Neutral

Friendly

Results:

Every 2nd Employee finds Core banking solution User friendly.

Every 3rd Employee finds Core banking solution comparatively similar on User-Friendliness parameter.

Every 5th Employee finds Core banking solution comparatively In-Friendly

Every 10th

Manager finds Core banking solution comparatively Very Unfriendly

Conclusion:

Most of the employees rated Core banking solution Friendly on User-Friendliness

parameter.

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Core banking on Efficiency parameter By Managers

Very Less10%

Less

25%

Neutral

35%

Efficient

25%

Very efficient5%

Very Less

Less

Neutral

Efficient

Very efficient

Results:

Every 3rd manager finds Core banking solution similar to previous software on

efficiency parameter.

Every 4th manager finds Core banking solution comparatively efficient Every 4th manager finds Core banking solution comparatively In-efficient

Every 20th

manager finds Core banking solution comparatively Very efficient Every 10th manager finds Core banking solution comparatively Very In-efficient.

Conclusion:

Most of the manager rated Core banking solution Neutral on Efficiency parameter

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Core banking solution on Routine banking operations

Very In-efficient

5%

In-efficient

20%

Neutral

15%Efficient

45%

Very Efficient

15%

Very In-efficient

In-efficient

Neutral

Efficient

Very Efficient

Results:

Every 2nd manager finds Core banking solution efficient on routine banking operations

Every 5th manager finds Core banking solution comparatively in-efficient on routine

banking operations

Every 6th manager finds Core banking solution comparatively Very efficient on

routines banking operations.

Every 7th manager finds Core banking solution comparatively similar on routine

banking operations Every 20th manager finds Core banking solution comparatively Very In-efficient on

routine banking operations.

Conclusion:

Most of the manager rated Core banking solution Efficient on performing routine bankingoperations.

Core banking efficiency on reducing workload on branches

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Very In-efficient

5%

In-efficient

40%

Neutral

30%

Efficient

20%

Very Efficient

5%

Very In-efficient

In-efficient

Neutral

Efficient

Very Efficient

Results:

Every 2nd manager thinks that Core banking solution is In efficient in reducingworkload on branches.

Every 3rd manager thinks that Core banking solution is comparatively similar in terms

of reducing workload on branches.

Every 5th manager thinks that Core banking solution is efficient in reducing workload

on branches

Every 20th manager thinks that Core banking solution is very efficient in reducingworkload on branches

Every 20th manager finds Core banking solution is Very In-efficient in reducing

workload on branches

Conclusion:

Most of the manager rated Core banking solution In-efficient in terms of reducing

workload on branches.

Core banking solution on reducing workload parameter By employees

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Very Inefficient

20%

Inefficient

24%Neutral

36%

Efficient

18%

Very efficient

2%

Very Inefficient

Inefficient

Neutral

Efficient

Very efficient

Results:

Every 3rd employee thinks that Core banking solution is similar to previous system on

reducing workload.

Every 4th employee thinks that Core banking solution is Inefficient in reducing his or

her workload. Every 5th employee thinks that Core banking solution is Very Inefficient in reducing

his or her workload.

Every 6th employee thinks that Core banking solution is Efficient in reducing his or herworkload.

Every 50th employee thinks that Core banking solution is Very efficient in reducing his

or her workload.

Conclusion:

Most of the employee rates Core banking solution similar to previous system on comparing its

ability to reduce their workload

Core banking solution on Increased efficiency of Employee- By Managers

42


43/62

Very In-efficient

15%

In-efficient

35%

Neutral

40%

Efficient

10%

Very Efficient

0%

Very In-efficient

In-efficient

Neutral

Efficient

Very Efficient

Results:

Every 2nd manager finds that Core banking solution is comparatively similar onemployee efficiency.

Every 3rd manager finds that Core banking solution is In efficient, when it comes to

increasing efficiency of employees.

Every 6th manager finds that Core banking solution is Very Inefficient, when it comesto increasing efficiency of employees.

Every 10th

manager finds that Core banking solution is Efficient, when it comes toincreasing efficiency of employees.

No manager finds Core banking solution Very efficient for increasing efficiency of

employees.

Conclusion:

Most of the manager rated Core banking solution similar to previous software, when it comesto increasing the efficiency of employees.

Core banking solutions ability in Increasing Employee work efficiency

43


44/62

Not at all

8%

Not helpful

20%

Neutral

16%

Helpful

44%

Very Helpful

12%

Not at all

Not helpful

Neutral

Helpful

Very Helpful

Results:

Every 2nd employee finds Core banking solution helpful in increasing his or her work

efficiency.

Every 5th employee finds Core banking solution not helpful in increasing his or herwork efficiency.

Every 6th employee finds Core banking solution neutral in increasing his or her work

efficiency

Every 8th employee finds Core banking solution Very helpful in increasing his or her

work efficiency

Every 12th employee finds Core banking solution Very Unhelpful in increasing his or

her work efficiency

Conclusion:

Most of the employee finds Core banking solution Helpful in increasing their work

efficiency.

Core banking solution on Fraud Management parameter

44


45/62

Very In-efficient

5%

In-efficient

10%

Neutral

25%

Efficient

45%

Very Efficient

15%

Very In-efficient

In-efficient

Neutral

Efficient

Very Efficient

Results:

Every 2nd manager rates Core banking solution Efficient in Fraud Management. Every 4th manager rates Core banking solution similar to previous system in Fraud

Management.

Every 6th manager rates Core banking solution Very Efficient in Fraud Management

Every 10th manager rates Core banking solution Inefficient in Fraud Management.

Every 20th manager rates Core banking solution Very Inefficient in Fraud Management

Conclusion:

Most of the managers rated Core banking solution Efficient in Fraud Management.

Core banking solution on Auditing procedure simplification

45


46/62

Yes

65%

No35%

Yes

No

Results:

65% Managers thinks that Auditing of branches would be easier with Core banking solution,

where rest 35% managers thinks that there would be no changes in auditing procedure withcore banking solution.

Brand Image Enhancement due to Core banking solution

46


47/62

Enhancement

70%

No

Enhancement30%

Enhancement

No Enhancement

Results:

70% Managers thinks that introduction of Core banking solution should results into

enhancement of brand image, which should eventually result into enticing customers. On theother side, 30% managers think that there would no enhancement in brand image of the

organization due to introduction of Core banking solution.

Core banking solution on Customer service

47


48/62

Very

Inefficiently

22%

Inefficiently

28%

Neutral

42%

Efficiently

8%

Very Efficiently

0%

Very Inefficiently

Inefficiently

Neutral

Efficiently

Very Efficiently

Results:

42% employees find Core banking solution is comparatively similar to previoussystem in terms of customer service.

28% employees find Core banking solution comparatively Inefficient in Customer

service

22% employees find Core banking solution comparatively Very Inefficient in

Customer service.

8% employees find Core banking solution is Efficient in Customer service.

No employee finds Core banking solution Very efficient in Customer service.

Conclusion:

Most of the managers rated Core banking solution Efficient in Fraud Management.

Core banking requirement

48


49/62

Core banking requirement

No, it was'nt

required

52%

Yes, it was

essential

48%

Yes, it was necessary

No, it was'nt required

Most of the employees felt that Core banking solution was need of an hour.

49


50/62

Core banking awarness - Customers

Yes

72%

No

28%

Yes

No

Most of the customers were aware of the Core Banking solution concept.

Customer enticement towards Core banking solution

Yes, it entices

82%

No enticement

18%

Yes, it entices

No enticement

Most of the customers were enticed/attracted towards Core Banking solution

Findings

50


51/62

Benefits

The concept of Anywhere Banking has been appreciated by all categories of core

banking users viz branch managers, employees and clients.

Clients found the concept of Internet banking i.e. online balance checking, online

chequebook order system very enticing.

Client is no more a customer of particular branch and can do transaction more any

branch in India, which is very lucrative.

8 Hour banking

Quick service

Clearing system may totally be removed now

Centralized banking

ATM facility all over India

Auditing of branches would be comparatively easy.

Less burden on branches.

Enhancement brand image of the bank, which would eventually help the entire bank tokeep up with stiff competition from private sector banks

Problems

51


52/62

Users of Core banking solution found it very slow in processing. According to them, ittakes comparatively lot of time in processing transaction as compare to previous

system

Transaction completion/ updating process is very lengthy, involves lots of steps tocomplete a transaction, which eventually makes time consuming.

Link fails very frequently and takes lot of time to re-connect. In the meantime, it haultsthe complete banking operations.

Single side entry is allowed in Core banking solution, which employees and branchmanagers thinks that it can be very dangerous for branches and prone to fraud.

Reduced customer satisfaction level

Transaction completion request is denied quite frequently without any reasonwhatsoever.

All the required reports are not available.

Rejection of transaction/entry can be done only by supervisory staff, which creates lotsof hassles and takes lot of time

It doesnt show account no with name of the party and its balance, which doesntbrings confidence to employees to perform transaction for them. So employees have

ensure every time before making transaction for that particular client/party.

Payment order/Demand draft making process is too lengthy and erroneous.

It doesnt suite psyche of Indians

Employees as well as Branch Managers/System Managers thinks that Core banking

has been enforced from Top Level Management but it wasnt the demand from the

client side.

Core banking solution has resulted in extra expenditure, as new charges has levied

now such as statement charges etc.

52


53/62

Future impact of Core banking?

Changes in workflow

Vouchers in Branches would reduce.

There would be fewer reports to check

Daybooks would be generated Checker-wise- movement of vouchers in branchwould reduce.

There would be reduced dependency on branch for data

Controllers would have Online/Real-time information on branches.

Better Monitoring & Control control returns/ irregularity statements

ABC Analysis of customers segmentation possible.

MIS for branches generated at Host W

Documents

Core Banking Report