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CORE BANKING SOLUTION

Levels of computerization vary significantly in the Indian Banking Industry. On the one hand

centrally computerized and fully networked new private banks and foreign banks and on the

other with little computerization in old private banks and PSBs are in two ends of the

spectrum. This situation will very soon change and the entire banking system in the country

will be technology driven. This is evident from the fact that almost all the banks have

implemented / are implementing the core banking solution and are also offering Internet

banking services. With the payment system in the country getting upgraded technologically,

the intermediaries namely the Banking system will have to absorb technology in a big way.

Further, competition in the industry, cutting edge technology based customer services and

products, growing customer needs, RBI guidelines, guidelines issued by CVC and also the

VRS offered by Banks are some of the factors that are driving all the players to computerize

the operations quickly and effectively to reduce the transaction cost and maximize profits.

Major efforts towards computerization in the banking industry started almost two decades

ago. The stages of computerization in the banking industry may be classified as below:
•

ALPM branches
•

Partially computerized branches

Fully computerized branches

Centrally Computerized and Fully Networked Banks

Banks offering Internet Banking,

ATM  banking
o

Off-shore data processing

Various Committees appointed by the Reserve Bank of India proactively encouraged

introducing technology to enhance customer service in the banking industry. Simultaneously

the Central Vigilance Commission also urged the banks

to improve transparency in their operations by computerizing all their operations / business.

These driving forces coupled with the need to bring down transaction costs and increase

profitability forced banks to embrace technology in a big way.

In the early 80s banks introduced Automated Ledger Posting Machines which was the

genesis for introducing automation in banks. During the mid 1980s, banks computerized their
operations on stand-alone computers for catering to the needs of the customers and at the

same time improve the efficiency in the functioning of the branch. Through introduction of

such a system, banks could render a particular service only at specified counters in the

branch. For example, transactions relating to savings bank account or term deposits can be

put through only at specific computers. Even though this marked the beginning of

automation, it did not meet the expectations of the demands of the customers. However the

branch functioning improved noticeably and the employees were exposed to the use of

computers. In order to improve the customer service further, banks adopted the concept of

‘single window’, which meant that the branches move over to a ‘client-server’ environment.

This led to networking with in the branch and the branches were classified as ‘Totally

Automated branch’ (TBA) or ‘Partially Automated Branch’ depending upon the extent of

computerization of the various business areas of a branch functioning. A major thrust to

networked computing came about with the entry of new private sector banks in the later part

of 1990s, which were mandated by the RBI to be totally computerized and networked banks

right from day one of their existence. These banks were able to offer anywhere / anytime

banking and also offered multiple delivery channels in the form of ATM, Internet banking,

Mobile banking etc thereby weaning away the clientele from the PSBs. Today, if banks want

to survive in their business they need to cater to the demands of the customers who dictate

to a great extent the service that banks are required to offer. Core Banking offers an ideal

platform to meet the challenges in the financial industry. It is heartening to note that all

banks, especially the PSBs, with their constraints and compulsions have been able to adapt

to core banking technology smoothly.

Core banking solution refers to a common IT solution wherein a central shared database

support the entire banking application. Business processes in all the branches of a bank

update a common database in a central server located at Data centre, which gives a

consolidated view of the bank’s operations. Branches function as delivery channels providing

services to the customers of the bank. Core Banking Solution is an integrated application

that supports real time, multi- banking and multi-channel strategies. The single biggest

achievement of implementing the Core Banking Solution is that each customer is truly the
customer of the Bank and not just the customer of the Branch, where his/her account is

maintained. He/she can go to a branch anywhere in the country and perform a transaction.

This is possible as the entire Customer Database is centrally located at the Central Data

Centre (CDC) and can be accessed throughout the network of branches.

As a result of implementing Core Banking, most of the facilities being offered by banks, are

available to Customers 24 hours a day, 7 days a week. The transactions are performed

using multiple channels such as ATMs, Internet Banking, Phone Banking and Mobile

Banking. Further, the transactions using these delivery channels are updated in the CDC in

real time.
Anywhere Banking
Customers can avail of banking services across the branch and Channel network
irrespective of location where their account is maintained.
Integration with strategic sectors
Core Banking integrates all strategic sectors of Banking such as Trade Finance,
Treasury, Asset-Liability Management and Corporate Balance Sheet. As a

result, the information related to these areas is centrally available for use or
reference.
Strengthening MIS, DSS and EIS

Core Banking Solution is more than just a transaction processing system. It provides

updated data for generating various reports for Management Information System (MIS), and

will facilitate Decision Support System (DSS) and Executive Information System (EIS). As

data is located on CDC, branches and administrative offices can concurrently avail updated

data when required.

Core Banking would enable implementation of BPR initiatives of a Bank and facilitate

centralized handling of various processes. Branches would do less and less back office work

and would be able to focus on marketing, customer relationship management and cross

selling.
Components of CBS:
Major components of a core banking solution are:

 Data centre

 Network connectivity
 CBS application software

 Hardware at branch and data centre

 Delivery channels

 Disaster recovery site

 A strong business continuity plan

end infrastructure in the form of robust access control, 100% fire-proof, Non-stop power

supply, AC, reliable connectivity and high speed internet facility etc. The generic architecture

is a three tiered architecture as shown below:

CBS runs on the WAN. The central server is located at the Data centre. Generally there is no

application running at the aggregation points. However, the aggregation points will be having

the network components. Branches have a branch server which acts as a gateway to the

branch. To this branch server various nodes of the branch are connected.