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Workshop on

The Future of Banking


organized by

HMA & ISB


(October 30, 2004)

Vepa Kamesam Former Deputy Governor, RBI Currently Chairman,

Technology and Banking


The Quintessence Nature of Banking harmonizes closely with Technology
Tasks Common to Both Information Storage Processing Transmission

Banking

Technology

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

Innovative Risk Management Complex Credit Calculations

Global Operations

Pervasive Branch Network Mass Transaction & Items Processing


INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

g in nk Ba

nd a

gy o ol hn ec T

October 30, 2004

Vepa Kamesam, Chairman IDRBT

Many Benefits of Technology


Increased operational efficiency, profitability & productivity Superior customer service Multi-channel, real-time transaction processing Better cross-selling ability Improved management and accountability Efficient NPA and risk management Minimal transaction costs Improved financial analyses capabilities
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

Focus aspects of Commercial Banking now are:


BANKS BUSINESS LOANS & MISC. SERVICES
Core Banking (CBS) Electronic Banking Any Branch Banking MIS & Intranet ATMs
POS Terminals and Cash dispenser

Corporate Network

Card Management Document Management Resource Management

GN SI AR I

CRM

Risk Management

BANKS BUSINESS
October 30, 2004

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

Vepa Kamesam, Chairman IDRBT

Financial Technology Infrastructure


Data Center to host servers for: CBS ATM/Financial Switch Internet Banking DW/DM/CRM/MIS etc. Back-office Application E-mail Servers, Internet Server, Enterprise-wide Network & Networking Equipment Security Systems Systems at Branches/RO/ZO/CO Depts. Supporting Systems Disaster Recovery Site & Business Continuity INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

Technology A Differentiator
Technology is indeed a differentiator not only in terms of competitive advantage, but also in terms of administrative and back-end processes. Butdue to rapid technology deployment in Indian banking sector, the haves and havenots gap is all set to narrow quickly.
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

Technology Differentiation Fades Gradually.

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

How Long a Differentiator?


Then.can technology be enough of a differentiator? Any new technology or technology-enabled process can act as a differentiator or a competitive edge for some level of time. After that time, the technology still has to be adopted as a necessity and as a cost of doing business Thanks to shortening technology life cycles, it would be short sighted to assume that technology would be a long term differentiator
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

For Long-Term Differentiation


Elements of Technology as a Differentiator

Scalability & Flexibility

Efficient utilisation, mgmt

Process enabling

Utility to customer

Support Skills

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

Issues with Customers


Not only employees, there are problems for customers too when a new technology arrives The major challenges
Comfort levels Security and trust issues Convenience factor Getting rid of myths Migration from existing to new systems Changing the habits

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

POS Terminal and Cash Dispenser

POS Terminal Connected to Cash dispenser


INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

ATM Electronic Banking Branch Banking


Branch 2 Branch 3

Branch 1

Head Office

Branch 4

Branch n Branch 6 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Branch 5

Vepa Kamesam, Chairman IDRBT

Technology Acquisition
Inappropriate technology purchases can be the root of all problems The Bank management has to:
Give thought to the utilization rate Avoid knee-jerk reactions (they have done itI should also do it) Be impartial in technology decisions (I like that technology I want it) Understand where the solution will fit AND where it wont! Assess the strengths & weakness of solution And seek answer to are we ready for it?
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

Goal definition Integrating business & technology goals Solution features Vendor selection Business process re-engineering Change management

Differentiation is attained not achieved just through technology, it is gained in the way the technology is selected, implemented and utilised

Technology For Sustained Differentiati on

Efficient utilisation Customer utility Technology Management Support functions Maintenance Back-ups and Disaster Recovery Scalability & flexibility Learning & evolution

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

Regulation and Supervision The Challenge


Challenge of Technology:
New markets, products, services, delivery channels Opened up a market for risks derivatives Challenge of financing tech firms & IT innovation all have implications for the stability of banks and of the economy

The Opportunity
Regulators have new tools Focus of all recent financial sector reforms Emergence of non-intrusive, focused supervision with a view to prevent frauds and disturbances to financial stability
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

Technology and Banking Supervision


THE RBI RESPONSE Offsite Supervision & Monitoring OSMOS COSMOS (Non banking Financial Companies / Development Financial Institutions) UBD Soft Credit Information Bureau (A joint venture between Housing Development Finance Corporation Ltd., State Bank of India, Trans Union International Inc. & Dun & Bradstreet Information Services India Pvt. Ltd.)
Will be covered in detail INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY by Speaker Dr. T.V. Gopalakrishnan October 30, 2004 Vepa Kamesam, Chairman IDRBT

Currency Management and Technology Opportunities Galore


Currency Management - a formidable task in India given

the geographical size, the volume and value of notes and coins in circulation, preference for cash and currency handling practices ...but technology offers immense opportunities to improve performance

RBIs The Clean Note Policy (1999)


Establishment of 2 state of the art currency presses Technology driven anti counterfeit measures 48 fully automated Currency Verification & Processing Systems 21 Shredding and Briquetting Machines
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

Technology & Monetary Systems


Technology has: Transformed the conduct of the payment and settlement system Set the stage for an unprecedented growth in financial activity across the globe Rendered more vulnerable the domestic payment system and financial stability to international shocks making the conduct of monetary policy more complex and prone to implementation and operational risks
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

Technology & Monetary Systems


The Opportunities The proliferation of IT has also set the stage for improving and managing risks in payment systems Electronic Trading Systems DVP/PVP RTGS Secured Netting Systems The growth of the Central Counterparty (CCP) Continuous Linked Settlement
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

IT and Payment and Settlement Systems


Secured Netting Systems
Real Time Gross Settlement

Central Counter party

Continuous Linked Settlement

Electronic Dealing Platforms Delivery Versus Payments

Payment Versus Payment

Dematerialisation Of Securities

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

NFS/IBPG NEFT PKI-based Security

CFMS

RTGS

SFMS

INFINET IDRBT
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

RBI INITIATIVES IN PAYMENT & SETTLEMENT SYSTEMS

PDO-NDS & SSS

Compliance with BIS Core Principles Clearing Corporation of India

October 30, 2004

Vepa Kamesam, Chairman IDRBT

RBI Initiatives in Payment and Settlement Systems (1)


The IDRBT
Network Externalities

Indian Financial Network (INFINET) Messaging Solutions The Structured Financial Messaging System (SFMS) Security Public Key Infrastructure IDRBT CA National Financial Switch Inter Bank Payment Gateway
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

The

Vepa Kamesam, Chairman IDRBT

CHANDIGARH JAMMU JAIPUR DELHI

INFINET L ed Line Network eas


LUCKNOW

KANPUR CALCUTTA

BHOPAL AHMEDABAD

GUWAHATI MUMBAI PATNA GOA PUNE NAGPUR BHUBANESHWAR BANGALORE HYDERABAD RBI KOCHI CHENNAI 4 X 2 Mbps 2 X 2 Mbps 2 Mbps with ISDN Backup 64 Kbps IDRBT HYDERABAD 2 Mbps CUG links

THIRUVANANTHAPURAM

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

Financial Networks
SWIFT Network Reuters Network NSE Gateways and Integration with Financial Network Network Other
Services
G1 G2 G3 G4 G5 G6 G7 SWIFT Network Re uters Ne twork Stoc k Exchange N etwork Inter Banks/FIs Share d ATMs C lea ring Ope rations Network Internet

G1

G1

G2

G2

G3

G3
Corporate Network

G1

G2

G3

G1

G2

G3

G1

G2

G3 G4

INFINET
Inter Banks /FIs Network

Shared ATMs Network

G4 G5 G5

G4 G6

G5
Clearing Operations Network Internet

G7

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

Structured Financial Messaging System

Central Server at IDRBT


Bank-1 Gateway
.. ...

Bank-2 Gateway
.. .. ..

Bank-n Gateway

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

Branch-1 Branch-2 ranch-n Branch-1 B Branch-2 ranch-n Branch-1 B Branch-2 Branch-n October 30, 2004 Vepa Kamesam, Chairman IDRBT

PKI Hierarchy
CCA
IDRBT CA Repository

IDRBT CA

RA

RA

RA

Subscriber

Subscriber Subscriber

Subscriber Subscriber

Subscriber

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

NFS CONNECTIVITY with Existing Consortiums & Individual Banks


ISDN National Financial Switch & E- Payment Gateway ISDN

Leased Line Bank 1

Leased Line Bank 2 ISDN

INFINET

Leased Line

Broad Band VSAT ISDN Leased Line ISDN Leased Line ISDN

Bank N

CashNet
IP Address:202.138.123.68 Subnet Mask: 255.255.255.254 Location: Mumbai

Location: Chennai

MITR

BANCS & Cashtree


Location: Mumbai Primary Link Backup Link

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

RBI Initiatives in Payment and Settlement Systems (2)


A Real Time Gross Settlement System
Reduction of systemic risk in inter bank payment systems To be implemented by the year end

The Centralised Funds Settlement System

Facilitating effective liquidity management A modern electronic dealing platform for gilts Enabling Straight Through Processing
October 30, 2004

The Negotiated Dealing System


INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

Vepa Kamesam, Chairman IDRBT

CFMS

Real Time Gross Settlement

Intra Day Liquidity SSS

Settlement Accounts IFTP Strip & Store Processes


INFINET

RBI Payments and Actg. Entry Interface

NSS
Participants Interface

Participants Interface INSTITUTE FOR DEVELOPMENT AND


RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Participants Interface

Vepa Kamesam, Chairman IDRBT

RTGS Scenario
90 banks have implemented it 3-4 more to implement in a fortnight Customer transactions have already started Total volumes Transactions on average Rs.20,000 crores per day settled continuously from the time of opening of markets Guarantee settlement fund
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

RBI Initiatives in Payment and Settlement Systems (3)


The Securities Settlement System

Providing centralized depository and settlement services Seamlessly integrated with the NDS and RTGS Systems

The Clearing Corporation of India


Secured netting services with central counterparty arrangements G-Sec and Forex segments Elimination of settlement risks with liquidity saving elements

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

Smart Cards The Future


Multi-application Smart Card Channel of the future Pilot project started Pilot Project funded by MCIT, Govt. of India The project is in progress in partnership with IDRBT, IIT Bombay, and Banks in India
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

RBI and Customer Service(1)


Dissemination of information Multiple Delivery Channels Coin & Note Dispensing Machines For the general public Interactive Voice Response System For banks and financial institutions Web server For government customers On the anvil. A secured web server SFMS/email based communication with customers
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

The RBI website

October 30, 2004

Vepa Kamesam, Chairman IDRBT

RBI and Customer Service...(2)


Improvements in payment and settlement systems MICR Clearing Enabling faster clearing of cheques Cheque Truncation & E-Cheques On the drawing board ECS/EFT Enabling T+2 settlement of our equities market National EFT Enabling T+0 settlement of all customer funds transfer transactions
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

Technology Vision of the RBI


Desk Top Decision Making Capability Centralised Database Management System Enterprise Knowledge Management System

Desk Top Analytical Capability Offsite Supervisory Systems Integrated Forex Management System Human Resource Information System

Desk Top Transactional Capability Integrated Accounting System Integrated Government Accounting System Currency Operations System

Securities Settlement System


INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

Integrated Establishment System


Vepa Kamesam, Chairman IDRBT

October 30, 2004

Less than 10% of failures are due to technical snags most are due to poor management and implementation

Issues in Implementation

Resistance to change Overlooking process reengineering Project management Dedicated project teams Change management Policies People Skills & Training Basic Infrastructure telecom, power Security Privacy & confidentiality Legal and regulatory issues
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

Pre-requisites for Technology


Human Resource Business Process Empowerment Re-engineering

Planning for Disasters


INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

The pre-requisites for Technology


Planning for disasters

Increased operational risk Business Continuity Planning

Business Process Re-engineering Human Resource Empowerment


INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

Getting Personal with Personnel


People represent the most precious asset Large employee base largely untrained. Training scope & methodology? VRS to balance costs. Break even? Down sizing? Bring in young blood Campus recruitment Re-defining & designing jobs. Career paths? Specialist Vs. Generalist Attrition of trained employees to IT industry / other banks. Competitive incentives? Re-location of personnel. Union issues?
October 30, 2004

Retrained personnel. Morale of employees?


INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

Vepa Kamesam, Chairman IDRBT

Need for Training

All these developments call for extensive, continuous training Current and future technology implementations call for at least 20% of officers specialise in IT Hence need for specially skilled people a mix of:
System administrators Application managers (knowledgeable about both banking and technology) Technology managers (who form the core team of technology professionals).
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

Security Risk Management


Security is aboutcementing the weak link Strong security measures (physical & data security) plus disaster recovery are essential Authentication of e-banking customers and accountability for e-banking transactions Segregation of duties, proper authorization controls etc. Physical security measures
- Graded access control, Iris & X-ray scanners, CCTV & detection systems, hotline and wireless links, fingerprint readers, concealed cameras, various sensors, bollards, boom barriers etc.
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

Disaster Management and Disaster Recovery October 30, 2004 Vepa Kamesam, Chairman IDRBT sites

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

How to Ensure Security??-A Framework

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT

IDRBTs Solutions for Security Risk Management (SRM)


Risk Assessment IS Audit Gap Analysis Policy & Procedures Development INFINET

Awareness by Training

SRM for Banks

PKI
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

Implementation
October 30, 2004

Vepa Kamesam, Chairman IDRBT

At a Glance.
Technology Related Issues People Related Issues Reskilling Monetary systems, Efficient Telecommunication & Infrastructure to Drive Banking on Real-time Basis Risk Management & Physical Security
INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 30, 2004

Vepa Kamesam, Chairman IDRBT

The future will be not be more of the same we need to be ready..

INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY

October 30, 2004

Vepa Kamesam, Chairman IDRBT