MBFS-Mod-1

Merchant Banking and Financial Services - MBFS

Mod -1

Banking and Finance - Overview

Financial Services

Commercial Bank

Investment Services

InsuranceAdvisory Services

• Asset Management

• Hedge Fund Managers

• Custody services

• Private banking

• Investment Banks

• Bank cards

• Credit card machine services and networks

• Insurance Brokerage

• Insurance Underwriting

• Reinsurance

• Stock brokers (private client services) and discount brokers

Financial Sector - Regulators

Regulators

Reserve Bank of India(RBI)

Securities ExchangeBoard of India

(SEBI)

Insurance Regulatoryand Development

Authority(IRDA)

BanksCapital Markets/

Mutual FundsInsurance Companies

Banking in India

Legal frame workof

Banks

Banking Regulation Act,1949

Reserve Bank of India

Act,1934

Banking in India

- Banking in India is governed by BR Act,1949 and RBI Act,1934

- Banking in India is controlled/monitored by RBI and Govt of India

- The controls for different banks are different

based on whether the bank/s is/are

a) statutory corporation

b) a banking company

c) a cooperative society

Banking

Modern banking in India is said to be developed during the British era. In the first half of the 19th century, the British East India Company established three banks –

the Bank of Bengal in 1809 the Bank of Bombay in 1840 the Bank of Madras in 1843. But in the course of time these three banks were

amalgamated to a new bank called Imperial Bank and later it was taken over by the State Bank of India in 1955.

Allahabad Bank was the first fully Indian owned bank. The Reserve Bank of India was established in 1935

followed by other banks like Punjab National Bank, Bank of India, Canara Bank and Indian Bank.

In 1969, 14 major banks were nationalized and in 1980, 6 major private sector banks were taken over by the government. Today, commercial banking system in India is divided into following categories.

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 withdrawable by cheques, draft, order or otherwise."

Chronology of Salient steps by the Government after Independence

to Regulate Banking Institutions in the Country

1949 : Enactment of Banking Regulation Act. 1955(Phase I) : Nationalisation of State Bank of

India 1959(Phase II) : Nationalisation of SBI subsidiaries 1961 : Insurance cover extended to deposits 1969(Phase III) : Nationalisation of 14 major banks 1971 : Creation of credit guarantee corporation 1975 : Creation of regional rural banks 1980(Phase IV) : Nationalisation of seven banks

with deposits over 200 crores.

Composition of the Banking System as at the Beginning of New Millennium

At present the number of nationalised banks are 20. Several Foreign banks were allowed to operate as per the guidelines of RBI. At present the banking system can be classified in following categories:

Types of Banks

PUBLIC SECTOR BANKSReserve Bank of India State Bank of India and its 7 associate

Banks Nationalized Banks (20 in number) Regional Rural Banks sponsored by

Public sector Banks

PRIVATE SECTOR BANKS

Old Generation Private Banks New Generation Private Banks Foreign Banks in India Scheduled Co-operative Banks Non Scheduled Banks

CO-OPERATIVE SECTOR BANKS

State Co-operative Banks Central Co-operative Banks Primary agriculture Credit Societies Land Development Banks Urban Co-operative Banks State Land Development Banks

DEVELOPMENT BANKS

Industrial Finance Corporation of India (IFCI) Industrial Development bank of India (IDBI) Industrial Credit & Investment corporation of

India (ICICI) Industrial Investment Bank of India (IIBI) Small Industries Development Bank of India

(SIDBI) National Bank for Agriculture & Rural

Development (NABARD) Export-Import Bank of India EXIM

The law governing Banking Activities in India is called "Negotiable Instruments Act 1881". The banking activities can be classified as :

Accepting Deposits from public/others (Deposits)Lending money to public (Loans) Transferring money from one place to another (Remittances) Acting as trustees Acting as intermediaries Keeping valuables in safe custody Collection Business Government business

The listing is available in 125 sub categories like

Project Report Consultants, Accountants & Account Consultants, Technical Consultants, Valuers & Valuation Consultants, Project Report Consultants, Financing Managers/ Consultants, Property Search Report & Legal

Consultants /Advocates,

Management Consultants, Banking Advocates, Chartered Accountants, Business & Financial Consultants, Wealth Management Consultants, Tax Consultants, Export Import Consultants, Marketing Consultants, Financial Consultants,

Investment Consultants, Security Services, Cash Shifting Services, Computer Maintenance Services, Courier Services, Tour Operators, Website Maintenance Services, Ad Agencies,

Web Promotion & SEO Services, Computers Hardwares, Networking Equipments, CCTV Suppliers/ Mfgrs, ATM Machine Suppliers/ Mfgrs, Fire Extinguishers Suppliers/ Mfgrs, Fire Alarm Suppliers/ Mfgrs, Cash Transaction Solutions, Biometric & Ultra Modern Eqpts Suppliers/ Mfgrs, Security Devices Suppliers/ Mfgrs, Networking Solutions, Banking Operation Software’s, Financial Educational Institutions, Banking Stationary Suppliers, Banking Books Shops ,Space Available for Bank Branch, Space Available for ATM, Flat Available For banking officials residential accommodation etc.

Introduction Types of Banks Services

Banking in India is so convenient and hassle free that one (individual, groups or whatever the case may be) can easily process transactions as and when required. The most common services offered by banks in India are as follow:

Bank accounts: It is the most common service of the banking sector. An individual can open a bank account which can be either savings, current or term deposits.

Loans: You can approach all banks for different kinds of loans. It can be a home loan, car loan, personal loan, loan against shares and educational loans.

Money Transfer: Bnaks can transfer money from one corner of the globe to the other by issuing demand drafts, money orders or cheques.

Credit and debit cards: Most banks offer credit cards to their customers which can be used to purchase products and services,or borrow money.

Lockers: Most banks have safe deposit lockers which can be used by the customers for storing valuables, like important documents or jewellery.

Types of Accounts

DEMAT Account NRE a/c Non-Resident External NRO a/C Non Resident Ordinary FCNR a/c Foreign Currency Non-Resident SB a/c Savings bank account CC a/c Cash credit account CA a/c Current account

Salary Account Recurring deposit account OD a/c Overdue account Fixed deposit account Proprietorship account Partnership account Firm account Company account

Types of Accounts

The simplest one is the Non Resident Ordinary (NRO) account, which is your savings account re designated, once you have informed the bank about your changed residential status.

The balance in the NRO account cannot be repatriated outside India.

Types of Accounts

If you want the funds in your account to be freely repatriable, an NRE (Non-Resident External) account would be ideal. This account is maintained in rupees and any debit or credit of foreign exchange will be converted into rupees.

Banks also allow NRIs to invest in deposits through FCNR(B) (Foreign Currency Non-Resident (Banks) accounts.

These are term deposits and can be maintained in some currencies such as the dollar, pound sterling and yen. The funds in this account can also be repatriated.

Types of Accounts

Non-Resident Ordinary (NRO) Accounts

An existing rupee account, opened prior to one's departure from India will be designated as NRO A/C, or one can also open NRO A/C by fresh remittance from abroad or by transfer of funds from own NRE/FCNR (B) Accounts.

All legitimate dues arising in India can be credited to this account. Proceeds of remittances received from abroad in any permitted currency can be credited to this account. -cont..

Debits for all local payments in rupees are freely permitted.

Interest earn on NRO balances is subject to deduction of Income Tax at source.

Remittance upto USD 10,00.000.00 (USD One Million) per Financial Year permitted out of balances held in NRO accounts, subject to deduction of Income Tax and other RBI guidelines.

Non-Resident External (NRE) Rupee Account

Account is opened with initial deposit of remittance from place of stay abroad.

NRE accounts can be opened in any of the bank's deposits schemes.

Funds are fully repatriable No Income Tax is applicable on interest earned. Balance is exempt from Wealth Tax. Debits for local payments are freely permissible. Gifts, out of balance in NRE accounts, to close

relatives in India are free of gift tax.

Foreign Currency(Non-Resident) Accounts( Banks) Schemes(FCNR-B).

Account is opened with initial deposit by remittance from place of stay abroad.

Funds earn competitive interest rates Funds are fully repatriable, whenever desired. No Income Tax is payable on interest earned

by individuals Accounts can be opened under term deposits

scheme only.

Accounts can be opened in six currencies viz.Stg. Pounds, US dollars,Euro, Japanese, Yen,Australian Dollars and in Canadian Dollars.

Exchange risk on funds kept under the scheme is borne by the bank.

Interest on deposits is payable in currencies in which the account is maintained.

Inter Changeability of funds between NRE& FCNR(B) accounts is permitted.

Gifts to close relatives in India out of balance in FCNR(B) accounts are free from gift tax.

Bank Accounts for Non Resident Indians Returning to India

Resident Foreign Currency (RFC) Accounts Scheme. Scheme is available for NRIs returning to India, who have been

resident outside India for a continuous period of not less than one year and who became resident in India on or after 18-4-1992.

Accounts can be opened with remittance from outside India out of the NRI's eligible assets aboard or transfer of funds from his NRE/FCNR(B) accounts without penal provisions of premature withdrawal.

Accounts can be opened in any foreign currency and in any scheme i.e Saving/current/Time Deposits.

Exchange risk is borne by the Bank. The Deposit earns higher interest than what is earned abroad. Funds are repatriable outside India for bonafide needs of the

depositors and their close relatives.

Reserve Bank of India

Reserve Bank of India was established in 1935, after the enactment of the Reserve Bank of India Act 1934 (RBI Act). Banking Regulation Act,1949 (BR Act)gave

wide powers to RBI as regards to establishment of new banks/mergers and amalgamation of banks,opening of new branches,etc

BR Act,1949 gave RBI powers to regulate,superivse and develop the banking system in India

Reserve Bank of India

CENTRAL BANKRBI

REGULATOR SUPERVISOR FACILITATOR

RESERVE BANK OF INDIA

SUPERVISORY & REGLATORYIssuance of currency notesBanker’s BankerLender of the last resortCredit Control & Monetary PolicyExchange Control & FOREX

ManagementFunds Transfer

CREDIT CONTROL

QUANTITATIVE CREDIT CONTROLQUALITATIVE CEDIT CONTROL’CRR & SLRBANK RATEOPEN MARKET OPERATIONS

Functions of Banks

Commercial Banks-Core Banking Functions

- Acceptance of deposits from public- Lending funds to public/corporates- Investing funds in various opportunities- Collecting cheques/drafts and other

Negotiable Instruments- Remitting funds

Functions of Banks

Commercial Banks – Para Banking Services Providing safe deposit lockers Acceptance of safe custody items Acceptance of standing instructions Offering internet banking facilities Issuance of credit and other cards including ATM cards Offering various products like Mutual

funds,insurance products, merchant banking services

Acting as executors and trustees

Commercial Banks Deposit Products

CERTIFICATE

FLEXI

RECURRING

FIXED

SAVINGS

CURRENT

DEPOSITS

BANKER-CUSTOMER RELATIONSHIP

DEBTOR-CREDITORCREDITOR-DEBTORAGENT-PRINCIPALLESSOR-LESSEEBAILEE-BAILOR

CHEQUES

OPEN

CROSSED

ORDER

BEARER

NEGOTIABLE INSTRUMENTSPaying Banker:

Payment inDue

Course

ApparentTenor

In good faithWithout

Negligence

Six Cs

CharacterCapitalCapacityCollateralConditionCompliance

Interest rate related

Bank’s responsibility Explain these in writing; give examples

How is interest calculated? Fixed interest - what is the reset clause? Floating rate - what is the benchmark used?

Clearly state terms/conditions in loan document

Customer’s responsibility Read before you sign! Do not ignore your doubts - Get them clarified Never sign blank documents If DSAs have contacted you, check with the

bank

Penal Interest

Bank’s responsibility Explain clearly

when penal interest will be levied Concept of service charges when penal interest

is levied

Customer’s responsibility Remember

Defaults/delayed payments, cheque returns etc. attract penal interest and service charges

Funds need to be set aside for repayment of loan on due dates

Seek bank’s advice, if in difficulty

Service Charges

Bank’s responsibility Display service charges Extend concessional rates to special category

persons Have a cap on all charges, incl. interest rates & penal

charges Inform customers of changes; offer option to

discontinue facility

Customer’s responsibility Read all the material sent to you by the bank Remember

banks have freedom to set interest rates/service charges you have option to choose the bank which offers best rate

Compare rates - make informed choice

Loan Documents; Return of Securities

Bank’s responsibility Give customer a complete set of loan agreements

and enclosures at time of sanction /disbursement Return the securities as soon as the loan is repaid

Customer’s responsibility Get a complete set of loan documents from banker Read the MITC- Most Important Terms and

Conditions Get securities back, as soon as loan is repaid

Recovery of Bank DuesBank’s responsibility Place list of recovery agents on web site Train & sensitize recovery agents Ensure recovery agents follow code of conduct Record all conversations with customers 

Customer’s responsibility Remember :

All loans have to be repaid Not to borrow beyond your repaying capability Conversation you have with the recovery agent is

recorded Seek assistance of your bank if in problem

Insurance linked products

Bank’s responsibilityAvoid offering ‘bundled’ productsExplain and get explicit written consent Ensure Insurance policy is obtained & active

Customer’s responsibilityUnderstand components of your loan product If insurance is part of it, ensure policy is in

force 

Credit cards

Bank’s responsibility Do not issue unsolicited cards - if activated &

charged, pay prescribed compensation without demur.

Do not issue unsolicited products on cards If DSAs are sourcing credit card, ensure card holder

has signed & understands his responsibility Delivery of Cards & PINs only to person concerned Stop lost cards immediately on report of loss Consider insurance on lost cards Send statements on time; use e-statements, SMS

alerts etc to keep the card holder informed of payments, due dates etc

Credit Cards

Customer’s responsibility Keep your credit card safely Be present when card is used by merchant estab. Do not use public computers for internet

purchase through credit cards Keep credit card number & help line detail handy Report immediately loss of card Opt for card statements by email or / and SMS If you do not want a card, cut it and send it back

to the credit card issuing authority 

ATMs

Bank’s responsibility Ensure ATMs are in working mode at all times Have CCTV in all ATMs Check audit trails periodically Check cash handling processes and

procedures Check for quality of notes stacked in the ATMs 

Customers’ responsibility Keep ATM cards safely Do not keep the PIN with the Card Inform discrepancy immediately, if possible with

the witness of the security guard

Cheque Drop Facility

Bank’s responsibility Remember - Cheque drop facility is only an

alternate mode of cheque collection Box should bear legend indicating that it is an

alternate mode and that customers can get acknowledgement if required

Install automatic cheque acknowledging machines which give receipt on dropping the cheque

Customer’s responsibility Insist & obtain acknowledgment for cheques if

you want them

TDS

Bank’s responsibility Apprise account holders, specially senior citizens -need

to submit 15G/15H forms, if tax is not to be deducted TDS certificate is to be issued immediately to the

account holder in person or by post 

Customer’s responsibility Remember:

TDS is bank’s statutory obligation If you are not an income tax assess; give 15G/15H form to

the bank If you failed to keep your bank informed & TDS has been

deducted, than claim refund from Tax authorities and not the bank

Cheque Collection

Bank’s responsibility Display bank’s cheque collection policy Adhere to the displayed policy Levy charges as per RBI stipulations Compensate customer without waiting for

request for any delay

Customer’s responsibility Read the cheque collection policy Insist & obtain admissible compensation for

delay

Some quotes for banks to ponder!

“Customer service is not a department, it's an attitude!”

“Customers don’t expect you to be perfect. They do expect you to fix things when they go wrong” “If we don’t take care of our customers, someone else will!”

Workshop on

The Future of Banking organized by HMA & ISB(October 30, 2004)

Vepa KamesamFormer Deputy Governor, RBICurrently Chairman, IDRBT/BRBNML

Technology and Banking

The Quintessence Nature of Banking harmonizes

closely with Technology –

Banking TechnologyInformation

StorageProcessing

Transmission

Tasks Common to Both

Pervasive BranchNetwork

Global Operations

Complex Credit Calculations

Innovative RiskManagement

Banking a

nd Tech

nology

Mass Transaction& Items Processing

Many Benefits of TechnologyIncreased operational efficiency, profitability &

productivitySuperior customer serviceMulti-channel, real-time transaction processing Better cross-selling abilityImproved management and accountabilityEfficient NPA and risk managementMinimal transaction costsImproved financial analyses capabilities

Focus aspects of Commercial Banking now are:

Core Banking (CBS)

ATMs

Card Management

Any Branch Banking

DocumentManagement

RiskManagement

ResourceManagement

MIS & Intranet

CRM

Corporate Network

Electronic Banking

POS Terminals and Cash dispenser

BANK’S BUSINESS

BANK’S BUSINESS

RA

ISIN

G

DE

PO

SIT

SL

OA

NS

& M

ISC

. SE

RV

ICE

S

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 EquipmentSecurity SystemsSystems at Branches/RO/ZO/CO Depts.Supporting Systems Disaster Recovery Site & Business Continuity

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….

But…due to rapid technology deployment in Indian banking sector, the “haves” and “have-nots” gap is all set to narrow quickly.

Technology Differentiation Fades Gradually….

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…

Elements of Technology as a Differentiator

Scalability &

Flexibility

Efficient utilisation,

mgmt

Process enabling

Utility to customer

SupportSkills

For Long-Term Differentiation

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

POS Terminal and Cash Dispenser

POS Terminal

Connected to Cash dispenser

Electronic Banking

ATM

Head Office

Branch Banking

Branch 1

Branch 2 Branch 3

Branch 4

Branch 5

Branch 6

Branch n

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 it…I 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

won’t! Assess the strengths & weakness of solution And seek answer to “are we ready for it?”

TechnologyFor

Sustained Differentiati

on

Goal definitionIntegrating business & technology goalsSolution featuresVendor selectionBusiness process re-engineeringChange management

Efficient utilisationCustomer utilityTechnology ManagementSupport functionsMaintenanceBack-ups and Disaster RecoveryScalability & flexibilityLearning & evolution

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

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 OpportunityRegulators 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

Technology and Banking Supervision

THE RBI RESPONSE

Offsite Supervision & MonitoringOSMOSCOSMOS (Non banking Financial Companies / Development Financial Institutions)

UBD SoftCredit 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 by Speaker Dr. T.V. Gopalakrishnan

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

RBI’s 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

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

The Opportunities – The proliferation of IT has also set the stage for

improving and managing risks in payment systemsElectronic Trading SystemsDVP/PVPRTGS Secured Netting SystemsThe growth of the Central Counterparty (CCP)Continuous Linked Settlement

Technology & Monetary Systems

IT and Payment and Settlement Systems

Demateria-lisation

Of Securities

DeliveryVersus

Payments

Payment Versus

Payment

ContinuousLinked

Settlement

ElectronicDealing

Platforms

RealTimeGross

Settlement

CentralCounter

partySecured NettingSystems

RBIRBIINITIATIVESINITIATIVESIN PAYMENTIN PAYMENT

&&SETTLEMENTSETTLEMENT

SYSTEMSSYSTEMSCompliance with

BIS Core Principles

RTGS

CFMSNEFT

PKI-based Security

SFMS

Clearing Corporationof India

IDRBT

PDO-NDS & SSS

NFS/IBPG

INFINET

RBI Initiatives in Payment and Settlement Systems (1)

The IDRBT Network Externalities

The 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

2 Mbps with ISDN Backup

JAMMU

CHANDIGARH

DELHIJAIPUR

AHMEDABAD

MUMBAI

PUNE BANGALORE

THIRUVANANTHAPURAM

CHENNAI IDRBT HYDERABAD

BHUBANESHWAR

CALCUTTA

PATNA

KANPUR

GUWAHATI

BHOPAL

INFINET Leased Line Network

NAGPUR

KOCHI

GOA

LUCKNOW

4 X 2 Mbps

2 X 2 Mbps

2 Mbps

64 Kbps

HYDERABAD RBI

CUG links

Gateways and Integration withOther Financial Network ServicesG1- SWIFT NetworkG2- Reuters NetworkG3- Stock Exchange NetworkG4- Inter Banks/FIsG5- Shared ATMsG6- Clearing Operations NetworkG7- Internet

Corporate Network

Inter Banks/FIs Network

Shared ATMs Network

Clearing Operations Network

SWIFTNetwork

ReutersNetwork

NSENetwork

G1 G1 G2 G2 G3 G3

G1G2

G3 G1G2

G3 G1G2

G3

G4

G4 G4 G5

G5 G5 G6

G7Internet

Financial Networks

INFINET

Structured Financial Messaging System

Branch-1

Bank-1 Gateway

Bank-2 Gateway

Bank-n Gateway

Branch-2Branch-nBranch-1Branch-2Branch-n Branch-1Branch-2Branch-n

Central Server at

IDRBT

………..…………….…..

………..…………….….……..

… … … … … ……….……

…….……

PKI Hierarchy

CCA

IDRBT CA

RA

Subscriber

IDRBT CA

Repository

RA RA

Subscriber Subscriber Subscriber

Subscriber Subscriber

IP Address:202.138.123.68

Subnet Mask: 255.255.255.254

Location: Mumbai

CashNet

NFS CONNECTIVITY with Existing Consortiums & Individual Banks

National Financial Switch & E- Payment Gateway

ISDN

Primary Link

Backup Link

Broad Band VSAT

Bank 1

Bank N

ISDN

MITRLocation: Chennai

BANCS & CashtreeLocation: Mumbai

ISDN Leased Line

ISDN

ISDN

Leased Line

Bank 2

Leased Line Leased Line

ISDN

Leased LineINFINET

RBI Initiatives in Payment and Settlement Systems (2)

A Real Time Gross Settlement System Reduction of systemic risk in inter bank

payment systemsTo be implemented by the year end

The Centralised Funds Settlement System Facilitating effective liquidity management

The Negotiated Dealing System A modern electronic dealing platform for gilts Enabling Straight Through Processing

CFMS

SettlementAccounts

IFTPStrip & StoreProcesses

SSS

Intra Day Liquidity

RBI Payments and Actg. Entry Interface

INFINET NSS

Participant’sInterface

Participant’sInterface

Participant’s Interface

Real Time Gross

Settlement

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

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

Smart Cards – The Future

Multi-application Smart CardChannel of the futurePilot project startedPilot Project funded by MCIT, Govt. of

IndiaThe project is in progress in partnership

with IDRBT, IIT Bombay, and Banks in India

RBI and Customer Service…(1)

Dissemination of informationThe RBI website

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

RBI and Customer Service...(2)

Improvements in payment and settlement systems

MICR ClearingEnabling faster clearing of cheques

Cheque Truncation & E-ChequesOn the drawing board

ECS/EFTEnabling T+2 settlement of our equities marketNational EFTEnabling T+0 settlement of all customer funds transfer transactions

Technology Vision of the RBI

Centralised DatabaseManagement System

EnterpriseEnterprise KnowledgeManagement System

Integrated Accounting System

Integrated GovernmentAccounting System

Currency OperationsSystem

Desk Top Decision Making Capability

Desk Top Analytical Capability

Desk Top Transactional Capability

Securities SettlementSystem

Integrated EstablishmentSystem

Offsite Supervisory Systems

Integrated Forex Management System

Human ResourceInformation System

Issues in Implementation““Less than 10% of failures are due to Less than 10% of failures are due to technical snags – most are due to poor technical snags – most are due to poor management and implementation”management and implementation”

Resistance to changeOverlooking process reengineeringProject managementDedicated project teamsChange managementPoliciesPeople Skills & TrainingBasic Infrastructure – telecom, powerSecurityPrivacy & confidentialityLegal and regulatory issues

Pre-requisites for Technology

Planning for Planning for

DisastersDisasters

Business Process Business Process

Re-engineeringRe-engineering

Human ResourceHuman Resource

EmpowermentEmpowerment

The pre-requisites for Technology

Planning for disasters Increased operational risk Business Continuity Planning

Business Process Re-engineering

Human Resource Empowerment

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?• Retrained personnel. Morale of employees?

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).

Security Risk Management• Security is about…cementing 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.

• Disaster Management and Disaster Recovery sites

How to Ensure Security??-A FrameworkHow to Ensure Security??-A Framework

IDRBT’s Solutions for Security IDRBT’s Solutions for Security Risk Management (SRM)Risk Management (SRM)

RiskAssessment

GapAnalysisIS Audit

Awareness byTraining

Policy &Procedures

Development

Implementation

SRMfor

Banks

PKI INFINET

Technology Related Issues

People Related Issues – Reskilling

Monetary systems, Efficient

Telecommunication & Infrastructure to

Drive Banking on Real-time Basis

Risk Management & Physical Security

At a Glance…….

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

Technology Initiatives

• Need for Technology

• Offers high levels of Security

• Reduced Transaction Cost

• Prevents loss or destruction of data

• Reduces rigidity

• Increases Efficiency

Branchless Banking

• Secure

• Scalable

• Reliable

• Flexible

• Interoperable

• Robust & Upgradeable

• Cost Effective

Branchless Banking

• Service provided at their doorstep/ village

• Availability of Basic Banking Services throughout the day

• Hassle free for the villagers as there are no challans/vouchers

• Familiarity in dealing with their own person

• Reduces the cost of transaction

• Ability to handle large volumes with less staff

• Reduces the pressure on the counters at rural branches

Branchless Banking

Types of Technology Used

Card Based Device Support for Fingerprint Authentication Redundant Power Sources for continuous operation Mobile and easy to carry Voice Guidance in Local Language Support for multiple communication Channels Device should store minimal data Ability to support multiple products and services Receipt printing Scalable

Products & Services Offered

Cash Deposits Cash Withdrawals Balance Enquiry Mini Statement Transfer of Funds between Own Account Loan Repayments Loan Withdrawals in Running Accounts (GCC) Self Help Group Accounts (SB and Loan Accounts) Recurring Deposits Milk Payments National Rural Employment Guarantee Payouts Social Security Pension Payments

Products & Services in the offing

Products Under Development

Person to Person (P2P) Remittance Facilities using mobile

JanaShree Bima Yojana Premia Collection

Utility Bill Payments

Pre-paid Mobile Recharge

Remittance from One Card to another Card

Branchless Banking

Risk Mitigation Two Factor Authentication (Presence of Card & Fingerprint) Per Day Transaction Limit Customer Per Day Limit for Withdrawals and Receipts Number of Transactions Business Correspondent Per Day Limit Total Transactions by the Business Correspondent for a Day Interval between Two Day Ends Branches also provided a Terminal to transact Customer Receipt using an Impact Printer Web Access to monitor the Card Balances and BC Balances Forces On-line transactions when there is a balance mismatch

Branchless Banking

Risk Mitigation – Contd..

A Banner provided at BC location

A poster containing the instructions provided at BC Locations

Branches provided with a similar terminal to handle emergencies

Cash Box provided to the BC for safe keeping of cash

Imprest Cash provided to the BC for handling payments

BC insured for the Cash at BC location

Branchless Banking

• Nature of Transaction – Offline– Online when it is a foreign Card or

when there is a balance mismatch• Customer Deliverables

– Printed Receipt using an Impact Printer– Print out in local language would be provided

• Providing GPS for greater comfort

Branchless Banking

• Data Storage Policies– Account Information only with the Bank– Transaction Data only routed by the

Technology Service Provider– Periodic Reconciliation process to tally

the balances

Branchless Banking

• Minimum Standards for identifying and engaging a BC

• Methodology and Standards for Data Storage on Cards

• Finger print Storage and Retrieval Standards

• Risk Mitigation Criteria

• Card Numbering Standards

Branchless Banking

• Technology Framework should define

– Policy Framework (Card Issuance, BC, Service Delivery)

– Legal and Statutory Framework

– Security Framework

– Transaction Processing Framework

– Should facilitate Convergence

Business Initiatives

• Financial Inclusion should not be a regulatory directive but a viable business proposition

• Facilitates to extend the outreach• Reduces the cost of delivery• Effective credit delivery system• Ability to offer new products and services• Linkage to an economic activity or income generation

activity• Easier Implementation at fractional cost of the branch

Internet TANDEMTANDEM

BASE24

Business Correspondent

Firewall

Core Branch

Core Banking Centre

Database Server

Core Server

Web ServerPSTN

GSM/GPRSWAN

Schematic Representation of Transaction Flow

Branchless Banking – State-wise Distribution

Sl Name of the State Villages Branches

01 Karnataka 160 99

02 Andhra Pradesh 61 07

03 Tamil Nadu 29 15

04 Goa 02 02

Total 252 123