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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,
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INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology and Banking
The Quintessence Nature of Banking harmonizesclosely with Technology
Banking Technology
Information
Storage
Processing
Transmission
Tasks Common toBoth
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INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Pervasive Branch
Network
Global Operations
Complex CreditCalculations
Innovative RiskManagement
Banking
and
Techn
ology
Mass Transaction& Items Processing
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INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY 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
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INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Focus aspects of Commercial Bankingnow are:Core
Banking (CBS)
ATMs
CardManagement
Any Branch
BankingDocument
Management
Risk
Management
Resource
Management
MIS &
Intranet
CRM
Corporate
Network
Electronic
Banking
POS Terminalsand Cashdispenser
BANKS BUSINESS
BANKS BUSINESS
RAI
SIN
G
LOANS&
MISC.SERVICES
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INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
nanc a ec no ogyInfrastructureData Center to host servers for:
CBS ATM/Financial Switch Internet BankingDW/DM/CRM/MIS etc.
Back-office Application E-mail Servers, Internet Server,
Enterprise-wide Network & NetworkingEquipment
Security SystemsSystems at Branches/RO/ZO/CO Depts.
Supporting Systems
Disaster Recovery Site & Business
Continuity
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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-endprocesses.
Butdue to rapid technology deployment in
Indian banking sector, the haves and have-nots gap is all set to narrow quickly.
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INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology Differentiation Fades Gradually.
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH 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 termdifferentiator
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Elements of Technology as a
Differentiator
Scalability
&Flexibility
Efficient
utilisation,mgmt
Process
enabling
Utility to
customer
Support
Skills
For Long-Term Differentiation
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH 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
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
POS Terminal and Cash Dispenser
POS Terminal
Connected toCash dispenser
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Electronic
Banking
ATM
Head Office
BranchBanking
Branch 1
Branch 2Branch 3
Branch 4
Branch 5
Branch 6
Branch n
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 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?
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
TechnologyForSustained
Differentiation
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 notachieved just through technology, it
is gained in the way the technology isselected, implemented and utilised
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Regulation and Supervision
The ChallengeChallenge 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 theeconomy
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
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology and Banking
Supervision
THE RBI RESPONSE
Offsite Supervision & MonitoringOSMOS
COSMOS (Non banking Financial Companies /Development Financial Institutions)UBD SoftCredit Information Bureau (A joint venture betweenHousing Development Finance Corporation Ltd.,State Bank of India, Trans Union International Inc.& Dun & Bradstreet Information Services IndiaPvt. Ltd.)
Will be covered in detail by Speaker Dr. T.V. Gopalakrishnan
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Currency Management and
Technology Opportunities Galore
Currency Management - a formidable task in Indiagiven 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 improveperformance
RBIs The Clean Note Policy (1999)
Establishment of 2 state of the art currency pressesTechnology driven anti counterfeit measures
48 fully automated Currency Verification & Processing Systems
21 Shredding and Briquetting Machines
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH 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 morecomplex and prone to implementation and operationalrisks
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
The Opportunities
The proliferation of IT has also set the stage for
improving and managing risks in payment systems
Electronic Trading SystemsDVP/PVP
RTGS
Secured Netting SystemsThe growth of the Central Counterparty (CCP)
Continuous Linked Settlement
Technology & Monetary Systems
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
IT and Payment and
Settlement Systems
Demateria-lisation
Of
Securities
Delivery
Versus
Payments
Payment
VersusPayment
ContinuousLinked
Settlement
Electronic
Dealing
Platforms
RealTime
Gross
Settlement
Central
Counter
partySecured
Netting
Systems
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBIRBI
INITIATIVESINITIATIVESIN PAYMENTIN PAYMENT
&&
SETTLEMENTSETTLEMENT
SYSTEMSSYSTEMSCompliance with
BIS Core Principles
RTGS
CFMSNEFT
PKI-basedSecurity
SFMS
ClearingCorporationof India
IDRBT
PDO-NDS & SSS
NFS/IBPG
INFINET
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBI Initiatives in Payment
and Settlement Systems (1)
The IDRBTNetwork Externalities
The Indian Financial Network (INFINET)
Messaging SolutionsThe Structured Financial Messaging System (SFMS)
Security
Public Key Infrastructure
IDRBT CA
National Financial Switch
Inter Bank Payment Gateway
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
2 Mbps with
ISDN Backup
JAMMU
CHANDIGARH
DELHIJAIPUR
AHMEDABAD
MUMBAI
PUNEBANGALORE
THIRUVANANTHAPURAM
CHENNAIIDRBT
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
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Gateways and Integration withOther Financial NetworkServicesG1 - SWIFT NetworkG2 - Reute rs NetworkG3 - Stock Exchange NetworkG4 - In te r Banks/FI sG5 - Sha red ATMsG6 - Clearing Operations NetworkG7 - I nt er ne t
Corporate Network
Inter Banks/FIs Network
Shared ATMs Network
Clearing OperationsNetwork
SWIFTNetwork
ReutersNetwork
NSENetwork
G1 G1 G2 G2 G3 G3
G1 G2 G3 G1 G2 G3 G1 G2 G3G4
G4 G4 G5G5 G5 G6
G7Internet
Financial Networks
INFINET
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Structured Financial Messaging System
Branch-1
Bank-1
Gateway
Bank-2
Gateway
Bank-n
Gateway
Branch-2Branch-n Branch-1Branch-2Branch-n Branch-1Branch-2Branch-n
Central
Server atIDRBT
.....
......
.
.
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
PKI Hierarchy
CCA
IDRBT CA
RA
Subscriber
IDRBT CA
Repository
RA RA
Subscriber Subscriber Subscriber
Subscriber Subscriber
NFS CONNECTIVITY ith E i ti C ti & I di id l B k
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
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
ISDNLeased Line
ISDN
ISDN
Leased Line
Bank 2
Leased LineLeased Line
ISDN
Leased LineINFINET
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH 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
The Negotiated Dealing System A modern electronic dealing platform for gilts Enabling Straight Through Processing
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
CFMS
Settlement
Accounts
IFTPStrip & StoreProcesses
SSS
Intra DayLiquidity
RBI Payments and
Actg. Entry
Interface
INFINET NSS
Participants
Interface
Participants
Interface
Participants
Interface
Real Time
Gross
Settlement
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 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
RBI I iti ti i P t
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH 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
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH 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 partnershipwith IDRBT, IIT Bombay, and Banks inIndia
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBI and Customer Service(1)
Dissemination of informationThe RBI websiteMultiple Delivery Channels
Coin & Note Dispensing MachinesFor the general public
Interactive Voice Response SystemFor banks and financial institutionsWeb server
For government customersOn the anvil.
A secured web serverSFMS/email based communication withcustomers
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBI and Customer Service...(2)
Improvements in payment and settlementsystems
MICR ClearingEnabling faster clearing of cheques
Cheque Truncation & E-ChequesOn the drawing board
ECS/EFTEnabling T+2 settlement of our equitiesmarket
National EFTEnabling T+0 settlement of all customerfunds transfer transactions
Technolog Vision of the RBI
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology Vision of the RBI
Centralised DatabaseManagement System EnterpriseEnterprise KnowledgeManagement System
Integrated AccountingSystem Integrated GovernmentAccounting System Currency OperationsSystem
Desk Top Decision Making Capability
Desk Top Analytical Capability
Desk Top Transactional Capability
Securities Settlement
System
Integrated Establishment
System
Offsite Supervisory
Systems
Integrated Forex
Management System
Human Resource
Information System
Issues in Implementation
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Issues in ImplementationLess than 10% of failures are due toLess than 10% of failures are due to
technical snags most are due to poortechnical snags most are due to poor
management and implementationmanagement and implementation
Resistance to changeOverlooking processreengineeringProject managementDedicated project teamsChange managementPoliciesPeople Skil ls & TrainingBasic Infrastructure telecom, powerSecurityPrivacy & confidentialityLegal and regulatory issues
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Pre-requisites for Technology
Planning forPlanning forDisastersDisasters
Business ProcessBusiness Process
Re-engineeringRe-engineering
Human ResourceHuman Resource
EmpowermentEmpowerment
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
The pre-requisites for
TechnologyPlanning for disasters Increased operational risk
Business Continuity Planning
Business Process Re-engineering
Human Resource Empowerment
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH 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? Downsizing?
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
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Need for Training
All these developments call for extensive, continuoustraining
Current and future technology implementations call for atleast 20% of officers specialise in IT
Hence need for specially skilled people a mix of: System administrators
Application managers (knowledgeable about both banking andtechnology)
Technology managers (who form the core team of technologyprofessionals).
Security Risk Management
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Security Risk Management Security is aboutcementing the weak link
Strong security measures (physical & datasecurity) plus disaster recovery are essential
Authentication of e-banking customers andaccountability for e-banking transactions
Segregation of duties, proper authorizationcontrols etc.
Physical security measures
- Graded access control, Iris & X-ray scanners, CCTV &detection systems, hotline and wireless links, fingerprintreaders, concealed cameras, various sensors, bollards,boom barriers etc.
Disaster Management and Disaster Recoverysites
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
H t E S it ?? A F kH t E S it ?? A F k
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
How to Ensure Security??-A FrameworkHow to Ensure Security??-A Framework
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
IDRBTs Solutions for Security RiskDRBTs Solutions for Security RiskManagement (SRM)anagement (SRM)Risk
Assessment
Gap
AnalysisIS Audit
Awareness by
Training
Policy &
Procedures
Development
Implementation
SRMfor
Banks
PKIINFINET
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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
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.
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The future will be notbe more of the same we need to beready..