Role of Information

Technology
in
Indian Banking Industry
 
Submitted
By
A.SUJATHA FLORENCE
Versatile Business School
Sl. No Topics

1. Definition and meaning of Bank

2. Types, Roles and Functions of Banks
3. What is Information Technology?
4. Why Technology in Banks?
5. How Information Technology Helps In Banking Sector?
6. Benefits, Advantages and Role of IT
7. Information Technology in Banking
8. Technology Products
9. Scope and Objectives of the study
10. Hypothesis
11. Employees perception
12. The future technology scenario
13. Training needs in Indian Banks
14. Conclusion
 Technology and Banking
The Quintessence Nature of Banking harmonizes
closely with Technology –

Tasks Common to
Both

Information Storage Technolog

Banking Processing y
Transmission
 Definition of BANKING
 
Banking Regulation Act of India, 1949 defines Banking as
"accepting, for the purpose of lending or investment of deposits of
money from the public, repayable on demand or otherwise and
withdraw able by cheques, draft, order or otherwise".

What is BANK?

A bank is a financial institution where an individual can deposit money.

Banks provide a system for easily transferring money from one person or
business to another. Using banks and the many services they offer saves an
incredible amount of time, and ensures that the funds of micro as well as
macroeconomic agents "pass hands" in a legal and structured manner.
There are also other types of financial institutions that operate just like
banks.
 TYPES OF BANKS

v Central Bank

v Commercial Banks

v Industrial Banks

v Agricultural Banks

v Foreign Exchange Banks

v Indigenous Banks

 ROLE OF BANKS

v Capital Formation

v Monetization

v Innovations

v Finance for Priority

v Provision for Medium and Long term Finance

v Cheap Money Policy

v Need for a Sound Banking System


 FUNCTIONS OF BANKS

v Accepting Deposits from public/others (Deposits)

v Lending money to public(Loans)

v Transferring money from one place to another (Remittances)

v Credit Creation

v Acting as trustees

v Keeping valuables in safe custody

v Investment Decisions and analysis

v Government business

v Other types of lending and transactions


  What is Information Technology ?
Information technology (IT), as defined by the
Information Technology Association as "the study, design,
development, implementation, support or management of
computer-based information systems, particularly software
applications and computer hardware." IT deals with the use of
electronic computers and computer software to convert,
store, protects, process, transmit, and securely retrieve
information.

W h y Te ch nolog y in Ba nk s?
To transform Financial Services Industry in the Net-Worked
world banks to be customer centric provide services/products across
a range of channels to be futuristic and have “TIME” value in all its
dealings with customers.
 How Information Technology Helps in Banking
Sector?

The net has helped in being able to transfer information immediately. As

well, has assisted many who are unable to get out in order to pay bills, bank
transfers and so on. Also the sharing of information from branch to branch is
not instant. It is also easier to find amount in account as well as what has
been paid for, such as automatic payments to insurance, or cable etc
 MANY BENEFITS OF TECHNOLOGY

v Increased operational efficiency, profitability & productivity

v Superior customer service

v Multi-channel, real-time transaction processing

v Better cross-selling ability

v Improved management and accountability

v Efficient NPA and risk management

v Minimal transaction costs

v Improved financial analyses capabilities


 ADVANTAGE OF IT
An effective IT Solution provide:

v Operational effectiveness, internal efficiency

v Collaborative tools to help create, cultivate, and disseminate

knowledge.

v Accessibility to data, information, and knowledge.

v The ability to easily search across and retrieve relevant

information

v A project management system based on complete project lifecycle

v A resource management system which improve linkages

v
 IDENTIFY THE IT ROLE
v IT e n h a n ce s t h e ca p a cit y t o r e vie w p r oje ct p r oce ssing a n d p or t f olio

p e r for m a n ce .

v IT m on it or s p e r f or m a n ce a g a in st M ille n n iu m D e v e lop m e n t Goa ls.

v IT f a cilit a t e t r a ck in g of a ct iv it ie s and in v e st m e n t s un d e r

d e ve lop m e n t Init ia t ive s.

v IT syst e m s p r ovid e t h e t ools t o r e p or t on p r oje ct p e r for m a n ce a t

e a ch st a g e

v IT su p p or t s im p r ove d p la n n in g , m a n a g e m e n t , a n d r e p or t in g on

r e sou r ce m a n a g e m e n t .

v IT su p p or t s d ocu m e n t a t ion on st u d y r e p or t s f or e v a lu a t ion a n d

r e cor d le sson s le a r n e d .

e-Loan System 13

e-Disbursements e-Documents e-Billing e-Payments

Integrated Loan Administration Platform

Loan Administration Database

Loan
Loan WEB, Loan
Client Connection Administration
Tracking System, System [LAS]
Loan Data
Loan Database
Warehouse

Other Loan
LAS WEB, LTS, Loan System
Systems Kiosk
Controller’s
Financial
Data Loan Database
Database
Warehouse
 INFORMATION TECHNOLOGY IN BANKING
 Information Technology has basically been used under two different
avenues in Banking. One is Communication and Connectivity and other
is Business Process Reengineering. Information technology enables sophisticated
product development, better market infrastructure, implementation of reliable
techniques for control of risks and helps the financial intermediaries to reach
geographically distant and diversified markets:


v Technology has opened up new markets, new products, new services and
efficient delivery channels for the banking industry. Online electronics
banking, mobile banking and internet banking are just a few examples.


v Information Technology has also provided banking industry with the

wherewithal to deal with the challenges the new economy poses. Information
technology has been the cornerstone of recent financial sector reforms
aimed at increasing the speed and reliability of financial operations and of
initiatives to strengthen the banking sector
 CONTINU…
v The IT revolution has set the stage for unprecedented increase in financial
activity across the globe. The progress of technology and the development
of world wide networks have significantly reduced the cost of global funds
transfer.


v It is information technology which enables banks in meeting such high

expectations of the customers who are more demanding and are also
more techno-savvy compared to their counterparts of the yester years.
They demand instant, anytime and anywhere banking facilities.


v Further, IT deployment has assumed such high levels that it is no longer

possible for banks to manage their IT implementations on a stand alone
basis with IT revolution, banks are increasingly interconnecting their
computer systems not only across branches in a city but also to other
geographic locations with high-speed network infrastructure, and setting up
local area and wide area networks and connecting them to the Internet. As
a result, information systems and networks are now exposed to a growing
number.
 CONTINU…
v IT has been providing solutions to banks to take care of their accounting and
back office requirements. This has, however, now given way to large scale
usage in services aimed at the customer of the banks. IT also facilitates
the introduction of new delivery channels--in the form of Automated Teller
Machines, Net Banking, Mobile Banking and the like.


v It also follows that the primary focus of in-house IT establishment of banks

should change from in-house application development, installation and
maintenance or networking and communication administration etc.


v The new focus will be on :

 a) Understanding thoroughly the business of banking in the new millennium.

 b) Create new and relevant paradigms for risk analysis and management,
technology change management, cost and performance evaluations of
security and audit models etc., needed to fulfill the overall institutional
business objectives and strategic goals.
 c) Formulating the parameters of performance and operations in light of the
overall institutional business objectives and strategic goals.
 d) Translating these parameters into well defined system requirements.

 e) Evaluating the efficacy of various technical solutions provided by the IT

industry to meet these system requirements.

 TECHNOLOGY PRODUCTS:
1) Net Banking
2) Credit Card Online

3) One View

4) Insta Alerts

5) Mobile Banking

6) NetSafe

7) e-Monies Electronic Fund Transfer

8) Online Payment of Excise & Service Tax

9) Phone Banking

10) Bill Payment

11) Shopping

12) Ticket Booking

13) Railway Ticket Booking through SMS

14) Prepaid Mobile Recharge

15) Smart Money Order

16) Card to Card Funds Transfer

17) Funds Transfer (eCheques)

18) Anywhere Banking

19) Internet Banking

20) Mobile Banking

21) Bank@Home (i) Express Delivery

22) Cash on Tap: (ii) Normal Delivery


 ATM
Electron
ic
Banking

Branch
Bankin
g Branch 3
Branch 2

Branch 1
Head
Office Branch 4

Branch n Branch 5

Branch 6
 SCOPE OF THE STUDY

The st udy confines t o t he exam ining t he Role of IT in t he St udy



Banks, part icularly:



v The Perception of Employees towards the Implementation of

Information Technology in the Banks.


v To assess the Customers' Satisfaction Level towards the Use of

Information Technology related Services in the Banks.

 OBJECTIVES OF THE STUDY

 The object ives of t he St udy are as follow s:



v To assess the Role of Information Technology in the Public Sector

Banks, Private Sector Banks and Foreign Banks.


v To Assess the Perception of the Bank Employees towards the

Implementation of Information Technology in the Banks.


v To Assess the Perception and Satisfaction of the Customers with the

banks.

 HYPOTHESIS

v Inform at ion Technology facilit at e wide and speedy services t o

banking sect ors.
v
v Private and Foreign banks use more Information Technology related
banking services then public sector banks.
v
v Reliable infra-structure of technology is the major constraint in
implementing Information Technology in banks.
v
v Impact of technology on efficient low cost data communications is same
across all banks.
v
v There is a strong association between competition pressure and
implementation of IT in banking sector.
v
v There is a strong association between more IT related services and
customer preferring a bank.
v
v Security concerns are the basic hindrance in using Technology related to
banking services
 EMPLOYEES PERCEPTION
 
v The st udy proved t hat t here is a posit ive relat ion bet ween
im plem ent at ion of IT and delivery of service. In ot her words,
Banks are m oving t ow ards im plem ent ing IT enabled services t o
deliver bet t er service, im prove com pet it ive posit ion and also
geographical reach.
v
v Over 65% of the foreign banks, 20% Private Banks and 9% Public Sector
Banks are all through with the implementation of IT enable services in
their banks. However, 45% of the Private Banks and 36% of the Public
Sector Banks are in the implementation stage of I.T.
v
v Almost 57% of the Respondents Strongly Agree that Competitive
Pressure is one of the Lead Factor Driving towards the implementation
of Technology. 45% of the Bank Respondents Strongly Agree that
Operational Efficiency and Business Process Reengineering are the
Factors that drives the Implementation of Technology in the Banks. 37%
of the Respondents remain neutral when asked if the drive towards
Implementation of Technology is due to Organizational Restructuring.
v
v On criteria "Impact of Technology is Reducing Physical Infrastructure Cost
of Bank"--The Impact of Technology on Reduced Physical Infrastructure
Cost of Bank is same across all the Banks

 Focus aspects of Commercial Banking now
are:
BANK ’ S BUSINESS

LOANS & MISC . SERVICES

Core ATMs
Banking MIS & Intranet
( CBS )
STISOPED GNISIAR

POS Terminals and Cash dispenser

Electronic
Banking Corporat Card
e Management
Network
Any Branch Banking Document
Management

Risk Resource
CRM Management Management

BANK ’ S BUSINESS
 The Future Technology Scenario

v All m ajor developm ent s in t he banking and financial sect or in India

in t he next five years will revolve around t hree m ain processes.
These t hree processes are in m ot ion and will be well on t he way t o
com plet ion wit hin t he next t hree years. They are:

a) Consolidat ion of exist ing nat ional clearing & set t lem ent
m echanism s along w it h t he universalisat ion of elect ronic paym ent s
syst em s.
b) Quant ificat ion and m anagem ent of risk sensit ivit y driven by Basel
II norm s.
c) Universal Financial Inclusion.

v
v Implicit in these processes is the need to cover a wide geographical area and
the need to speed-up the process of end to end transaction processing.

v It is one thing to engineer and implement a technique for making payments

electronically, and another to make it usable and accessible
(e.g. network technologies only make it possible to transmit information
securely- they do not address transmission of payments, nor do they do
anything to further the transaction once payments information has been
 Continu…
v As an ent ire solut ion, t he IT environm ent should also and will be
as flexible as possible, accept ing different paym ent m et hods
consist ent w it h t he m arket and business. Next , IT solut ions will
help t he bank collect inform at ion about t he cust om er.

v They should be integrated into the general business environment,

generating actions to be taken as a result of any of the following
transactions:
(a) Product delivery instructions
(b) Transaction settlement
(c) Account activity reports
(d) Confirmations
(e) Transaction status reports
(f) Information gathering
 Innovative Risk
Management
Complex Credit
Calculations

gy
Global Operations
o lo
h n
c
Te
nd
Pervasive Branch a
g
Network
kin
a n
B
Mass Transaction
& Items Processing
 Training needs in Indian Banks

v The need for a com prehensively t rained m anpower base t o

m anage, adm inist er and cont rol a count ry-wide IT enabled
banking and financial environm ent cannot be over-
em phasised. Any t echnology solut ion, in t he ult im at e analysis,
is only as good or as bad as t he people who use t he solut ion.

v There is, at present, a major gap in the banking industry between the
technology skill-set required to administer banking operations of the
next millennium and the managerial demands of this new environment
and the skilled manpower available. Not only is there an urgent need to
train a very large number of people across several levels and several
institutions, there is also the need to ensure a sort of continuity by
setting-up a dedicated IT cadre or group in all institutions.
 Continu…
v The educat ion and t raining needs can be addressed at t he following
levels:
LEVEL TARGET SOURCE
(1) General aw areness Cust om ers/Client base TV/print m edia
cam paign.
(2) Funct ional aw areness All bank/inst it ut ion em ployees Int ernal
A/V t raining capsules.
(3) Operat ional Module Operat ional personnel Int ernal hands-on
t raining & CBTs.
(4) Inst allat ion/im plem ent at ion Core im plem ent at ion personnel
Out -sourced t raining.

v Management Module. There is also need to realize that training is not a fire-
and-forget mechanism which ensures availability of skilled manpower at all
times. Training must be a rigorously scheduled, continuous process and
incorporate provisions for periodic updates and reviews.
 CONCLUSION
So what would a bank’ s in-house IT est ablishm ent be doing in t he


next decade or so? Prim arily, it w ould be :



v Creating vision statements for banking of the future; Establishing the

boundaries of the business of banking in the medium to long term.
v
v Analyzing and solving the implementation issues involved in translating the
industry’s long term goals and evolutionary objectives into feasible
organizational and managerial processes.
v
v Identifying products, services, opportunities and threats in banking of the
future; Creating the definitions of deliverable products and services
flowing from the business needs of future banking.
v
v Impact analysis of IT deployment vis-à-vis operational and managerial
processes and business products; Benchmarking and quality control of IT
solutions; Modeling of risk paradigms; IT Security and audit policies and
parameters.
 Continu…

v Disast er m anagem ent and cont ingency planning design and

im plem ent at ion t o ensure business cont inuit y; Modeling of
t echnology change m anagem ent paradigm s.

v System requirement studies of operational areas and specific business

problems where IT deployment is considered; Evaluate techniques for
assessment of life-cycles of applications and build cost of ownership
models.

v Helping IT industry to understand banking industry’s business

requirements; Be a certification authority for enabling a secure and
accepted, standards-based messaging solution for the Indian banking and
financial sector.