BANKING HISTORY BANKING IN INDIA MAJOR PLAYERS HDFC BANK CORE BANKING ADVANTAGES OF CORE BANKING BRANCH NETWORK BOARD OF DIRECTORS MISSON STRATEGY PRODUCT & SERVICES CAPITAL STRUCTURE ACHEIVEMENTS CUSTOMER RELATIONSHIP MANAGEMENT

DIFFERENCE BETWEEN CORE BANKING AND RETAIL BANKING

SWOT ANALYSIS

BANKING

A bank is a financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money.

Banks are important players in financial markets and offer financial services such as investment funds.

In some countries such as GERMANY, banks are the primary owners of industrial corporations .

While in other countries such as the UNITED STATES banks are prohibited from owning non-financial companies.

Core BankingCore 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.Nowadays, most banks use core banking applications to support their operations where CORE stands for "Centralized Online Real-time Exchange". This basically means that all the bank's branches access applications from centralized datacenters. This means that the deposits made are reflected immediately on the bank's servers and the customer can withdraw the deposited money from any of the bank's branches throughout the world. These applications now also have the capability to address the needs of corporate customers, providing a comprehensive banking solution. A few decades ago it used to take at least a day for a transaction to reflect in the account because each branch had their local servers, and the data from the server in each branch was sent in a batch to the servers in the datacenter only at the end of the day .Normal core banking functions will include deposit accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATM’s, Internet banking, and branches.

Future of banking and technology

According to C.N. Ram, the future is integration as people will have less time for banking. People will want to process more transactions on the Internet. There will be more activity in terms of applications and services on the mobile. Geography will not be an inhibitor any more as everything is executable on the Net.

"Integration is the next real big thing. As a customer you will want a one-stop shop that will take care of all your needs. For instance people will want to buy their mutual funds, redeem their mutual fund, buy insurance policies, renew policies, buy cinema tickets, railway tickets, and numerous similar transactions through the bank. The ATM will still serve as a cash dispensing medium, but the Internet and mobile will be very active," says C.N. Ram.

Cost of infrastructure is coming down considerably. Service providers are providing alternative routes to customers and prices are coming down, as there is healthy competition in the market. Bulk purchases will result in affordable prices.

HISTORY OF BANKING

The first banks were probably the religious temples of the ancient world.

It was probably established sometime during the third millennium B.C. Banks probably predated the invention of money.

There are extant records of loans from the 18th century BC in Babylon that were made by temple priests or monks to merchants.

BANKING IN INDIA

Banking in India originated in the last decades of the 18th century.

The first banks were THE GENERAL BANK OF INDIA, which started in 1786, and BANK OF HINDUSTAN, both of which are now defunct.

The oldest bank in existence in India is the STATE BANK OF INDIA, which originated in the BANK OF CALCUTTA in June 1806.

The first fully Indian owned bank was the ALLAHABAD BANK, established in 1865.

What can be done using HDFC net banking in IndiaThe following can be done through HDFC net banking using the Internet from any place or location by the click of a mouse.Account related queries•Check current / savings account balance •See online bank account statement •Inquire about cheque status •Request for an account statement •Request for a Cheque Book, which will be delivered at your registered address through courier •Inquire about  fixed deposit •Inquire about  TDS details •View  demat account  transactions and details •Update profile online •View HDFC bank Credit card bills •View Mutual funds portfolio if you have one Online transactions•Stop a Cheque payment •Pay your Bills online for registered billers •Ask for a Demand Draft  to be delivered to you or beneficiary •Transfer funds between your HDFC bank accounts •Transfer funds to any third party bank account having NIFT •Request for a new Fixed Deposit  online •Shop Online •Pay HDFC Bank Credit Card Dues •Buy and sell Mutual Funds online

Major players in IndiaState Bank of India

HDFC Bank

ICICI Bank

HSBC Bank

IDBI Bank

Citi Bank

Axis Bank

Punjab national Bank

ING Vysya Bank

Union Bank of India

Core banking replacement has for quite some time been considered fraught with high risks. The costs are potentially bordering on the prohibitive and many still believe that their present in-house systems are satisfactorily serving the purpose. But the wind is changing direction and fast. There is a rising acknowledgement of the fact that banks, irrespective of size and geography, face the dual challenge of cutting costs and increasing their internal efficiencies. This is done with the ultimate aim of improving margins which are clearly under strain. Though it is easy to select a vendor for implementing a solution, the challenging part is carrying the project through to a successful implementation. Current requirement is for an experienced vendor with impeccable implementation credentials who has in the past managed all such challenges well. Banks thus need to take a holistic view while considering the replacement of their core banking platform.

It is important that banks take a holistic view while considering the replacement of their core banking platform. While the benefits of implementing packaged solutions built on modern technology are all too obvious, one cannot deny that such an exercise is fraught with risks. The risks can be mitigated and managed - a good starting point would be for the bank to recognise the different risks and consider strategies to mitigate them.

Risks need to be mitigated and managed and following this line of thought, this paper delves into the risks that banks should take cognizance of before embarking on what is clearly going to be the single biggest technology initiative within the bank.

Risk involved in Core Banking

HDFC BankHDFC Bank was incorporated in 1994 by Housing Development Finance Corporation Limited (HDFC)

It was among the first companies to receive an 'in principle' approval from the Reserve Bank of India to set up a bank in the private sector.

It started operations as a scheduled commercial bank in January 1995 under the RBI's liberalization policies.

Times Bank Limited was merged with HDFC Bank Ltd., in 2000.

In 2008 HDFC Bank acquired Centurion bank of Punjab taking its total branches to more than 1,000.

The amalgamated bank emerged with a base of about Rs. 1,22,000 crore and net advances of about Rs.89,000 crore. The balance sheet size of the combined entity is more than Rs. 1,63,000 crore

NETWORK 1725 branches 4724 ATM’s .

More than 780 cities All branches are OLRT connected .

500 locations for telephone banking

MISSION

World Class Indian Bank

Benchmarking against international standards.

Best practices in terms of product offerings, technology, service levels, risk management and audit & compliance.

To create a strong customer base

Limited Professional Manpower to be utilized more effectively Customer can have anywhere, more convenient and easier banking ATM, Internet Banking, Mobile Banking, Payment Gateways, Referral Business More Strong and economical way for MIS Reduction in Branch Manpower by 15-20% Additional Manpower available for Marketing, Recovery and Personalized

banking Instant Information availability for decision support Quick and Accurate Implementation of Policies Improved Recovery Process causing reduction on recovery costs, NPA Provisions Innovative, redefined or improved processes (e.g. Inter Branch Reconciliation)

causing reduction in Manpower at Head Office Reduction in Software maintenance at Branch and Head Office

Centralized Printing and Backup resulting in reduction in capital and revenue expenditure on printing and backup devices and media at branches

Electronic Transactions with Other Financial Institutions Increased Speed in working resulting in more business opportunities and

reduction in penalties, legal expenses etc

ADVATAGES OF CORE BANKING

As opposed to HDFC’s previous service providers, IBM offered the bank a new value proposition in the form of POWER5, an eServer. The bank runs its Corporate Core Banking Platform and Cash Management Platform on this server. Its corporate banking business runs on Flexcube and the retail banking business on Finware. Both Flexcube and Finware are core banking solutions from i-Flex Solutions Ltd.

Based on the bank's hub & spoke architecture for the network, the branches are distributed under different regions and each major location has a regional hub. The branches falling under a location connect to the hub at the main region. These hubs then connect to the central site (data center) using a combination of 2 Mbps and 64 Kbps pipes, depending on the total volume of the transactions that pass through.

C.N. Ram, Head-Information Technology, HDFC Bank says, "Each branch is connected to their regional hub, as to connect every branch directly to the data center involves huge costs. This kind of architecture helps save cost."

A highlight of HDFC Bank's network is the presence of two or more hubs in one location. "To balance the load and reduce the dependency on a single line, the bank has two hub locations within a region to share the load. The branches are split between the two hubs, so that one hub failure does not incapacitate all the branches in that region," explained C.N. Ram.

Product & servicesTravelers Cheques

credit card

home loan

personal loan

Foreign Currency Cash

Foreign Currency Demand Drafts

Cheque Deposits

Remittances

Trade Services

Mutual funds &Insurance

Product

Travellers Cheques: Travellers Cheques are a safe and easy way to protect your money when you travel. You can encash them only when you need to, and only against your signature, unlike cash which can be stolen and misused by anybody, immediately.

Credit Card: Credit Card can be used for all your requirements, be it shopping, eating out, holidaying, fuelling up your vehicle, railway ticket reservations - just about any financial requirement, planned .

Home loan : Home loans for individual to purchase or construct houses.

personal Loans: The procedure of personal loan is simple, documentation is minimal and approval is quick.

Foreign Currency Cash: Foreign Currency Cash is a convenient way of meeting personal expenses along your journey, paying for taxis / internal travel, food expenses etc.

Foreign Currency Demand Drafts: Demand Drafts are issued in seven currencies like United States Dollars (USD), Great Britain Pounds (GBP), EURO, Japanese Yen (JPY), Australian Dollars (AUD), Canadian dollars (CAD) and New Zealand Dollars (NZD).

Foreign Currency Cheque Deposits : Wecan directly deposit our foreign currency cheques in to our saving or current account.

Remittances: HDFC Bank offers the remittance facilities by which we can send and receive money to anyone. They are categorized depending on location and the urgency with which we want the money transferred.

SERVICES

Trade Service: HDFC Bank have people with high level of expertise and experience in trade services to provide services to suit specific requirements and structure solutions for business needs.

HDFC Bank have 500 branches for trade services.

Mutual funds : Mutual funds are funds that pool the money of several investors to invest in equity or debt markets.

Insurance :HDFC Bank offers a world of choice in insurance. Like children future plans, retirements plans, standard life, etc.

Core Banking Solutions

Core banking solutions are banking applications on a platform enabling a phased, strategic approach that is intended to allow banks to improve operations, reduce costs, and be prepared for growth. Implementing a modular, component-based enterprise solution facilitates integration with a bank's existing technologies. An overall service-oriented-architecture (SOA) helps banks reduce the risk that can result from manual data entry and out-of-date information, increases management information and review, and avoids the potential disruption to business caused by replacing entire systems.

Core Banking Solutions is new jargon frequently used in banking circles. 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. 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.

Gartner defines a core banking system as a back-end system that processes daily banking transactions, and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit-processing capabilities, with interfaces to general ledger systems and reporting tools. Strategic spending on these systems is based on a combination of service-oriented architecture and supporting technologies that create extensible, agile architectures

A step ahead

In the coming years HDFC Bank plans to deploy connections, with built-in redundancy in the network. For example, Madras could be connected to Bangalore and Kolkata, with all three of them being connected to Chandivili. Therefore, if the Kolkata-Chandivili link fails, then Kolkata will use the Madras link to connect to the Chandivili data center.The bank is also considering alternate connectivity solutions as VSATs are relatively more expensive, and in remote areas it is difficult to set up the required infrastructure.The bank has tested CDMA and GSM solutions—specially for ATMs as they consume very small bandwidths.The bank's servers have also undergone phases of development inline with the bank's expansion plans.ServersThe bank started with applications on SCO-Unix boxes from Compaq almost eight years back. The software then used was MicroBanker from i-flex Solutions (then called CITIL). The set-up supported about 10 branches initially."With an expansion in the number of branches the bank felt the need to consider Unix/RISC boxes rather than an Intel/SCO Unix platform, and selected the Sun platform. Since then the bank has been running applications on a Sun platform," said C.N. Ram.With the growth in transaction volumes, number of branches and the number of users the hardware platform has also been upgraded. Till recent times the database was operating on a direct attached storage (DAS), and from 1st April 2003 the bank switched to storage attached network (SAN).The bank's earliest server was a Sun Ultra 170; over time it moved to Sun Ultra 3500, 4500, and then Sun E10 K. Now the applications run on Sun's Star Fire 15K ServER.

CAPITAL STRUCTUREAuthorized share capital of the Bank is Rs. 550 crore.

Paid up capital of the bank is Rs. 459.6 crore.

The HDFC Group holds 23.63% of bank s equity.

Around 27 % of equity is with Foreign Institutional Investors (FII’s).

Roughly 17% of equity is held by ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue)

AchievementsHDFC Bank merged with TIMES BANK in2000.

HDFC Bank wins the Asian Banker Best Retail Bank in

India Award2008 for outstanding performance.

HDFC Bank chosen as one of Asia Pacific s best 50 companies by Forbes magazine.

Best Bank in the Private Sector2008.'

HDFC Bank ties up with Qatar National Bank.

HDFC Bank merged with CENTURION BANK OF PUNJAB in2007.

Mega loan mahotsavHDFC Bank , held a Mega Loan Mahotsavain many parts of India .

It’s a 3-dayMahotsava, which is amongst the largest of such events ever held in India a variety of loans such as tractor loans, agricultural loans, auto loans and 2 wheeler loans, commercial vehicle loans.

kisan Gold Cards were given to rural customers.

HDFC Bank kick-started the Mega LoanMahotsava under the bank's New Rural campaign in July 2010 at Pimpalgaon near Nasik in Maharashtra.

The Bank is holding a total of 150 Gramin Loan Mahotsavas, small and big, across the country. The states include Gujarat, Maharashtra, Rajasthan, Andhra Pradesh, Karnataka, Tamil Nadu, and various other states

At the LoanMahotsava in Bhimavaram, vehicle keys, cheques and cards were handed over to customers by Mr. Kaizad Bharucha, Country Head, Credit and Market Risk.

Accounts of Religious institution

There are more than 50 religious institutes which open there account in HDFC bank recently some of the famous temples are ,

Shree siddhivinayak ganpati

Dargah khwaja sahib ,ajmer

Laxmi narayan mandir delhi

Mata vaishno devi mandir

Jagannath temple

Shirdi sai baba

Golden temple

Amarnath temple

CRM at HDFCIn HDFC, the CRM is integrated with core banking solutions and offers end to end functionality to effectively address the needs of the complete cycle of marketing, sales and service of banking products.

Key Modules:

-Enterprise customer information file

-Sales

-Loan origination

-Service

-Call centre

-Marketing

Banking applicationsThe bank uses separate software for corporate and retail banking as there was no single package that met both their business requirements.On the corporate side HDFC Bank started with MicroBanker and then moved to Flexcube in 2002. They use Flexcube UBS, which operates on a Compaq Alpha box-GS160. This database was also on DAS and was moved to SAN over last year (December 2002). The bank uses SAN solutions from Hitachi Data Systems. On the retail side the bank uses Finware from i-flex solutions.The bank did not face any serious migration issues as they use upgraded products or new products usually from the same vendors. The vendors have programs that enable the migration or upgrades. "When HDFC Bank had acquired Times Bank in 2000 all the Times Bank customers were shifted from their package (called Kapiti) to HDFC Bank's Finware and MicroBanker. We had the vendors develop the software required to migrate the data from Kapiti to Finware so that the task for the operating departments was greatly reduced and the conversion was done in a short space of three months with minimum disruption to customer service," said C.N. Ram. StorageThe bank currently deploys SAN but feels they will need to consider NAS sometime in the future. According to C. N. Ram the bank's storage requirement is growing at a rate of four to five percent every month. With an increase in data volume, the capacity of the hardware also needs to be updated. This calls for huge investments as all areas like backup, disaster recovery and others need to be addressed. The bank has to store data for seven years as per the RBI guidelines, and as it is not necessary to store the data on-line—the bank uses tapes for off-line storage. The bank anticipates storage costs to come down, and bulk purchases would be economical.

Difference between core banking and retail banking?Often retail banking is referred to as "non commercial banking" this would be your common checking accounts and consumer loans. Where as "core banking" is often the very solid business accounts and commercial loans. It is referred to, as 'core' because it is a core or central to the banks business. Few banks survive from just retail banking services, they need those core business accounts that are perhaps more stable than retail business. The exact term usage may also be based on the part of the country you live in as is often the case with our language.

A core banking is a centralized system and every data has been kept at the server side. So, 1- a costumer can open an account and use it in every branch, 2-whenever the connection between a branch and the core is dismissed, that branch is out of work till the connection be repaired. In a retail banking, every branch has its own portion of accounts and the changes will be synchronized with the center at a certain time (e.g. at the end of that day). So, 1-a costumer can work on his/her account just as the origin branch that he/she registered, 2-in case of disconnecting, that branch still can provide services to its own accounts.

SWOT analysisStrengths

Support of various promoters

Knowledge of Indian Market

Right strategy for right product

High degree of customer satisfaction

Dedicated work force aiming at making long-term career in field Weaknesses

customer service staff needs training

sectoral growth is constrained by low employment levels and competition for staff Some gaps in range for certain sectors

Opportunities Growing Indian banking sector.

People are becoming more service oriented

In the global market.

profit margins will be good

Threats From various competitors

-Foreign banks -govt. banks

Future market trends.

Lack of infrastructure in rural areas could constrain investment

DONE BY….AKASH SHAH BINOY MEHTASIDDHANT NAGLEKHUSHAL TODIKARAN SHAHMEHERVAAN KOHLI