Core banking

Core banking is a general term used to describe the services

provided by a group of networked bank branches. Bank customers may
access their funds and other simple transactions from any of the member
branch offices.

Core Banking is normally defined as the business conducted by a

banking institution with its retail and small business customers. Many
banks treat the retail customers as their core banking customers, and have a
separate line of business to manage small businesses. Larger businesses are
managed via the Corporate Banking division of the institution. Core
banking basically is depositing and lending of money.

Normal core banking functions will include deposit accounts, loans,

mortgages and payments. Banks make these services available across
multiple channels like ATMs, Internet banking, and branches.

Core banking is all about knowing customers' needs. Provide them

with the right products at the right time through the right channels 24
hours a day, 7 days a week.
 Core Banking Solutions

Core Banking solutions are banking applications on a platform

enabling a phased, strategic approach that lets people improve operations,
reduce costs, and prepare for growth. Implementing a modular,
component-based enterprise solution ensures strong integration with your
existing technologies. The advancement in technology, especially internet
and information technology has led to new ways of doing business in
banking. These technologies have cut down time, working simultaneously
on different issues and increasing efficiency. The platform where
communication technology and information technology are merged to suit
core needs of banking is known as Core Banking Solutions.

Here computer software is developed to perform core operations of

banking like recording of transactions, passbook maintenance, interest
calculations on loans and deposits, customer records, balance of payments
and withdrawal are done. This software is installed at different branches of
bank and then interconnected by means of communication lines like
telephones, satellite, internet etc. It allows the user (customers) to operate
accounts from any branch if it has installed core banking solutions. This
new platform has changed the way banks are working.
  What is the need of Core Banking Solutions?

Overall Solution

State Bank of India Core Banking Project 2

The need for such a solution does not arise just because of one reason or the other
but it requires a combination of driving forces to come into existence.

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

banked environment.
 To meet the regulations and compliance requirements (example in order to
meet the Basel ll norms banks must enhance there IT infrastructure).
 To meet the demands of customers who are better informed, more
demanding and less loyal than ever.
 To enhance efficiency and effectiveness. Increasing customer satisfaction
and convenience Freeing up time for branch staff to focus on sales and
marketing Simplifying process for employees Enhancing bank’s
competitiveness in the market Improved process efficiency
 The Complete Picture

Internal
ALM + Risk Interfaces
MIS + DW + DM
Management

Core
+ Internet
Treasury Trade Banking
+
GL

IBR ATMs

Branch Network

State Bank of India Core Banking Project 3

DEBIT CARD:

Debit cards are also known as check cards. Debit cards look like credit
cards or ATM (automated teller machine) cards, but operate like cash or a
personal check. Debit cards are different from credit cards. While a credit
card is a way to "pay later," a debit card is a way to "pay now." When you
use a debit card, your money is quickly deducted from your checking or
savings account.
Debit cards are accepted at many locations, including grocery stores, retail
stores, gasoline stations, and restaurants. You can use your card
anywhere merchants display your card's brand name or logo. They offer an
alternative to carrying a checkbook or cash.

Undertaking a host of banking related services including financial

transactions from the convenience of customers chosen place anywhere
across the GLOBE and any time of date and night has now been made
possible by introducing on-line Telebanking services. By dialing the given
Telebanking number through a landline or a mobile from anywhere, the
customer can access his account and by following the user-friendly menu,
entire banking can be done through Interactive Voice Response (IVR)
system. With sufficient numbers of hunting lines made available, customer
call will hardly fail. The system is bi-lingual and has following facilities
offered

 Automatic balance voice out for the default account.

 Balance inquiry and transaction inquiry in all

 Inquiry of all term deposit account

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

 Cheque book request

 Stop payment which is on-line and instantaneous

 Transfer of funds with CBS which is automatic and instantaneous

 Utility Bill Payments

 Renewal of term deposit which is automatic and instantaneous

 Voice out of last five transactions.

Features of Core banking:

Customer Information File (CIF)

The CIF is the nucleus of the Core Banking System, where all information related to individuals
and legal entities is managed. bMASTER Enterprise Banking System makes a clear distinction
between individuals and companies. This distinction helps to better define the relationship
between an individual or a company (a customer or prospective customer) and the financial
Institution, to calculate Profitability, risk and to set the ground for CRM.

Customer Relationship Management (CRM)

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

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

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

This innovative functionality is achieved through the architectural design of the system which
supports business events (managerial financial events) that are later mapped into financial
accounting based on user defined business needs.

Financial accounting has an open architecture to import and map transactions from other
solutions (Stock Brokerage solutions, leasing etc) into bMASTER Enterprise Banking System
and present them from a single point of view as if they were recorded by the System.

Product / Services Design

The System has a very powerful product definition enviroment which allows fast time-to-market
launch. Product designer incorporates an on-line audit trail, keeping the product history, along
with the evolution of each product in time.

Access Control & Security

bMASTER Enterprise Banking System incorporates multiple security mechanisms, enabling the
definition of access control and rights management across the system for every role. Using this
powerful mechanism the bank can map its current security (and access rights) measures into the
system, and create custom authorization rules for a secure operational environment.
Deposits
bMASTER Enterprise Banking System supports an extensive range of deposits (saving accounts,
chequing accounts, time deposits, under notice, with overdraft capability) in any currency. All
deposit products are defined with the "Product Designer", allowing the Financial Institution to
design and offer deposit products based on its strategic and operational goals.

Loans
bMASTER Enterprise Banking System supports an extensive range of loan products (corporate,
consumer) as defined in the "Product Designer". In all cases loans are accompanied by collaterals
and are limited according to a set of structure limits.

Loans also incorporate an integrated Reports Wizard and Business Intelligence tool in order to
design custom reports and perform data analysis services.

Teller transaction support

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

 Financial and Managerial events posting

 Proof
 Cashier management (balance per currency, travelers' cheques etc)
 Issuing of slips for each event
 Journal
 Passbook
 Issuing and printing

Letters of Guarantee
bMASTER Enterprise Banking System issues and manages letters of guarantee.

SWIFT
bMASTER Enterprise Banking System incorporates an engine for constructing SWIFT messages
from the System that will later be transferred to SWIFT Alliance. It covers an extensive range of
all common messages needed, from the day-to-day operation of the Financial Institution.

Funds Transfer
bMASTER Enterprise Banking System incorporates electronic funds transfer which can support
transfers from any type of source to any type of destination at any possible combination.

Management Information System

bMASTER Enterprise Banking System offers an integrated Business Intelligence and reporting
solution, based on the tools and solutions of Microsoft SQL Server 2000 technology (Data
Warehouse, Data Marts, OLAP tools and Data Analysis Services), and on a robust business
model that covers all the information needs of a bank (from a decision support, operational,
auditing and risk perspective).
Statutory Reporting
bMASTER Enterprise Banking System covers a wide range of reporting (Central Bank
reporting). These reports can be integrated in the Management Information System.

Account Management
bMASTER Enterprise Banking System incorporates a robust account management, offering
extensive customer positions, product portfolio and business information on customer, his
portfolio of products, his relation with third parties (and their restrictions), allowing the bank to
have a complete customer view.

End of Period (End of day, month, year)

bMASTER Enterprise Banking System incorporates an innovative end-of-period mechanism
(which can run simultaneously during working hours, eliminating the need of batch processing at
the end of the day), which allows the bank to have a complete financial position at the end of the
day (per branch, business unit or the whole organization).

Term Contracts
Term Contracts manages time deposits, Treasury Bills, REPOS and loans, for issuing a new
contract (in any currency), changing the action to be taken upon maturity, closing the term
contract, or changing its interest rate.

On Line Authorization (OLA)

The access to the system's functionality is controlled throughout this innovative mechanism. It
controls the applications' business rules, during the executing of any task within the system. It
incorporates an innovative chat mechanism, which allows the real-time communication within
the branch or across the WAN (with an authorized role) for authorization.

Scoring
Although each bank has its own credit scoring methodology, this mechanism is designed to meet
any credit scoring methodology (score card) and minimize the bank's exposure (and credit risk
associated with the granted loan) by processing the application data, assigning weights to each
part of the application and finally indicating access if the loan will come default.

bMASTER Enterprise Banking System - Core Banking is the heart of the System which covers
the typical functionality of any Financial Institution needed to support its primary operations.
This functionality can be adopted according to the strategic needs and operational requirements
of the Financial Institution.

General Ledger
General Ledger Engine acts as a "bridge" between the Front-End and the Back-End of
bMASTER Enterprise Banking System.

It generates all general ledger entries from daily transactions carried out by the Front-End
(withdrawals, deposits, loans, time deposits etc) and from all banking applications, to create such
entries that enable various reports to update the general ledger.
Among the functions of General Ledger mechanism are closing of the day, revaluation of the
position accounts, mapping transactions, and generating a unique trans code and (YSN) Yearly
Sequencial Number for tax authorities.

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

Limits
bMASTER Enterprise Banking System offers an advanced limits management functionality, that
allows the bank to monitor and manage its exposure on multiple levels (group, organization,
individual, products currencies accounts etc). It offers an innovative graphical representation of
the limit exposure, in order to easily manage (and grasp) complex limit structures.

Collaterals
Along with the limit management module, the bank has an overview of its risk exposure with the
collateral module that supports any type of collaterals. It offers a Collateral registry and linking
of collaterals to accounts.

Interface with clearing systems

bMASTER Enterprise Banking System supports universally accepted messaging standards such
as ISO 8583 and XML. This allows the exchange of information with external systems (third
party systems) such as automated clearing house (ACH) systems, cheques clearing systems, etc.

Business Process Management

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

The solution has an integrated graphical processes designer, which enables business users
quickly and easily to model and modify processes without programming. This enables the
dynamic modification of business processes (even after they have been initialized), seeking
continuous process improvement, discovering of problem areas (bottlenecks in the model)
resulting in increased employee productivity. The solution also offers scripting capability, which
allows the interfacing with internal / external databases and solutions.

The end users of the process management solution, work with html forms (web browser), which
are designed by the business users (for each point of the process). This enables the dynamic
update of all client workstations, with new business models, without additional effort.

Arrears Management
CRM Collections (Arrears Management) is a modern arrears management solution, which
manages the coordination of efforts for collection of arrears from any type of products (loans and
credit cards, overdraft, excesses etc). The solution is based on a flexible business model for
arrears management, and can be applied either at the call center division (which manages the
collection of arrears) or at multiple locations covering specific market and area needs.
Loans origination
It is a complete loan application processing system, which manages the approval process of the
loan. It tracks the progress of application on every stage of the life cycle (which is custom
tailored for your organization) across different departments and different roles.

Advantages:

 The Power of Core

 The Freedom to offer anywhere Banking

 True 24x7 architecture

 Seamless channel handling

 Centralised Report Generation

 One Point interaction with external systems

 Ability to roll out products fast across the network

 Benefits of Core Banking Solution

 The success or failure of any project primarily depends upon how
much ROI it generated or how much savings were enabled due to the
exercise. This more often tends to be the yardstick for measuring the
success or failure of a project. We feel the benefits derived can be
basically classified into two broad areas viz. Economic benefits and
Performance or Subjective benefits.
 Economic Benefits
 The cost savings from a project of this magnitude are typically visible
over a period of a couple of years from implementation. The ROI
compounds as new lines of business and geographic areas move on
to the new platform. The return of investment typically slow in the first
few years till such time the real benefits of the system start accruing
to the bank. Research reports indicate that large core banking
replacement projects enter a positive NPV as late as the 5 th year.
Cost benefits in the long run may accrue to the bank due to all of the
performance benefits
 CBIT-IIITB Working Paper WP-2006-8 11
 mentioned above (as most of them have an indirect linkage to cost)
as well as from other areas such as:

 1. Lower transaction processing costs within the branch and through
other delivery channels


 2. Reduction in license fees towards other software, which gets
replaced by the core banking system. This can constitute as savings
for the bank almost immediately.


 3. Reduced maintenance costs in terms less complicated code to
maintain, easy for the bank to build its own customization, lesser time
required for testing etc.


 4. Reduced staffing as lesser number of system now need to be
managed


 5. Cheaper and faster hardware and Database – Hardware and
Database costs have dropped significantly in recent times that enable
the bank to leverage on this to deliver faster transaction processing
speed etc.

 Performance Benefits

 1. Flexibility: - Lack of flexibility more often tends to create an
impediment in building new functionality, eliciting data for newer
regulations like the BASEL 2, accessing better information on
customer so as to enable cross selling, addition of newer business
lines, offering new products in the existing business lines and so on.
New generation core systems provide flexibility – in terms of being
modular in nature and supporting an integration layer, which can be
used very effectively to hook on to third party applications.


 2. Customer Centric – New solutions tend to give a complete 360
degree view of the customer transactions – the objective being to try
 and give a complete perspective of the customer’s relationship with
the bank so as to enable cross selling opportunities. Some of the core
systems use data mining tools to cull out relevant data from customer
transactions and try to get a meaningful message out of this.


 3. Real Time Capabilities – Most transactions done in the newer core
banking solutions are on-line real time not only within the package but
across all delivery channels. This tends to create a lot of efficiency
within the system on one hand as well as reduced risk on the other.


 4. Straight Through Processing – This is a new concept, which
enables the system to process transactions end-to-end almost
without any human intervention. E.g. a successful implementation of
an STP functionality for an inward funds transfer (MT 103) message
itself could save the bank significant costs in terms of reduced
staffing requirement. A feature like this also ensures almost 24 X 7
processing of such transactions which only leads to better customer
service and good-will.


 5. Lesser Down-time, smaller or no EOD / EOM cycles.


 6. All of this eventually results in addition of new customers, retention
of existing customers and an over-all better customer service.

About SBI

State Bank of India is the largest and one of the oldest commercial bank in India, in
existence for more than 200 years. The bank provides a full range of corporate,
commercial and retail banking services in India. Indian central bank namely
Reserve Bank of India (RBI) is the major share holder of the bank with 59.7%
stake. The bank is capitalized to the extent of Rs.646bn with the public holding
(other than promoters) at 40.3%.
SBI has the largest branch and ATM network spread across every corner of India.
The bank has a branch network of over 14,000 branches (including subsidiaries).
Apart from Indian network it also has a network of 73 overseas offices in 30
countries in all time zones, correspondent relationship with 520 International banks
in 123 countries. In recent past, SBI has acquired banks in Mauritius, Kenya and
Indonesia. The bank had total staff strength of 198,774 as on 31st March, 2006. Of
this, 29.51% are officers, 45.19% clerical staff and the remaining 25.30% were
sub-staff. The bank is listed on the Bombay Stock Exchange, National Stock
Exchange, Kolkata Stock Exchange, Chennai Stock Exchange and Ahmadabad
Stock Exchange while its GDRs are listed on the London Stock Exchange. SBI
group accounts for around 25% of the total business of the banking industry while
it accounts for 35% of the total foreign exchange in India. With this type of strong
base, SBI has displayed a continued performance in the last few years in scaling up
its efficiency levels. Net Interest Income of the bank has witnessed a CAGR of
13.3% during the last five years. During the same period, net interest margin
(NIM) of the bank has gone up from as low as 2.9% in FY02 to 12.00% in FY07
and currently is at 13.04%.

In 1959, the SBI (Associate Bank) act was proposed and the following eight
State-associated banks were taken over by the SBI as its subsidiaries.

Name of the Headquarters Subsidiary Branches ATMs

Bank (City, state) with effect
from
State Bank of Hyderabad, 1st October 965 450
Hyderabad Andhra 1959
Pradesh
State Bank of Jaipur, 1st January 833 336
Bikaner & Rajasthan 1960
Jaipur

State Bank of Bhavnagar, 1st May 1960 452 190

Saurashtra Gujarat

State Bank of Patiala, Punjab 1st April 1960 766 353

Patiala

State Bank of Banglore, 1st March 654 247

Mysore Karnataka 1960

State Bank of Indore, 1st January 301 235

Indore Madhya 1968
pradesh
State Bank of Tiruvandrum, 1st January 706 331
Travancore Kerela 1960

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

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

KEY AREAS OF OPERATIONS:

The business operations of SBI can be broadly classified into the key income
generating areas such as National Banking, International Banking, Corporate
Banking, & Treasury operations.
COMPETITORS

Competitors and other players in the field:-

Top Performing Public Sector Banks
 About SBI
SBI is India’s largest commercial bank. It has a vast domestic network of 9,019 branches
(approximately 14 per cent of all bank branches) and commands one-fifth of deposits and loans of
all scheduled commercial banks in India. The SBI group includes a network of eight banking
subsidiaries and several non-banking subsidiaries, offering merchant banking services, fund
management, factoring services, primary dealership in government securities, credit cards and
insurance. SBI has branches or representative offices in 31 countries and has correspondent
relationship with 720 foreign banks

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

The State Bank of India (SBI), the country’s largest commercial bank, is expecting a 15% fall in
its transaction cost after it implements a core banking solution (CBS).

AK Purwar, chairman, SBI, on completion of the first phase of its core banking solution by Tata
Consultancy Services (TCS) said that the bank would bring 90% of its business on the core
banking platform by 2006 and the savings in terms of administrative cost would be passed on to
customers.

“We will be more competitive and provide effective competition to our competitors in the
premium banking,” said Mr Purwar. The bank plans to spend Rs 600-700 crore in infotech
systems in the current financial year.
“The bank hopes to cover 2,000 branches and 60% of business under core banking by end of
March 2005, up from over 260 branches live on the system today,” said Mr Purwar.

Commenting on a possible rationalisation of branches and reduction of manpower after the bank
adopts core banking solution, Mr Purwar said the bank would like to redeploy surplus manpower
in expanding its retail services like selling insurance, mutual fund products.

The implementation of core platform, valued at Rs 2,000 crore, is expected to cover 14,000
branches of SBI group by March 2006, he added. The bank has already spent over Rs 800 crore
for IT systems last year.

TCS managing director and chief executive officer S Ramadorai said that at any point of time
150-250 IT professionals were working on the SBI’s core banking project.

After completion of the project, the volume of daily transactions on core banking platform will
grow to 2.5 crore from current level of five lakh, Mr Ramadorai said.

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

Security Measues At SbI

Refer PPT