CORE BANKING SYSTEM (CBS)

I Abstract: Indian banks have embarked a large scale Core Banking Systems. The way forward would be to base in CBS and build the customer centric systems. It is now recognized that banks follow different patterns for account numbering which is the single dominant mode for customer identification. This paper proposes account numbering methods based on various approaches including branch code and unique identification number. In this paper we provide an assessment of the core banking solutions which the banks in the world over are increasingly implementing for computerizing their transactions. This paper also provides the main benefits accruing from the CBS and the emerging trends 2.Keywords: Bank : A place where the customers deposit money for safe keeping

Bank Employee: The employees of the bank who perform the banking operations Bank Customer: CBS User : The people who have an account in the bank Core Banking System

: The person who will be using the product CBS

3.INTRODUCTION: Strides in the field of technology have redefined the role and structure of an IT department in a bank. Rapid strides in the field of technology redefined the use of technology in banking. The fact that using better technology and systems, banks can garner more customers, retain existing ones and channel more of the customers business to its counters has forced business department to now look at IT has an effective marketing tool. On the operational side, the power of IT in reducing transaction cost, providing better customer service and offering an overall customer convenience has basically made this a win-win situation for both banks as well as clients. These have become the main drivers for getting IT the importance it has got in banks in recent times. Modern complex software systems such as commercial banks core system or core banking system can be built first from analyzing user requirements the n from deriving the software frame work and systems functions from the analysis results, and finally from completing the computer hardware and software systems to meet the user requirements 3.1 What is Core Banking System? Core banking systems are basically the heart of all systems running in a bank and it forms the core of the banks IT platform. Amongst of their functionalities it provides, the customer information management, central accounting and the transaction processing functions, which by far are the most fundamental process in a bank. With the advancement in technology and with passage of time, core systems now- a days tend to cover more and more functionality giving the bank an integrated solution for most of its operation in different business lines. Core banking systems reside either in the heart of the banks data center or in other words can also be termed as the heart of data- center itself.

3.2 References: 1. Abin Oomen Philip, M-tech Computer Science Specialization on Data Security, TocH institute of Science and technology, Kerala, India 2. Protecting online customers from Man-in-the-Browser and Man-in-the-Middle Attacks, Whitepaper by ARCOT 3. Online Banking Fraud Prevention , Whitepaper by ACI 4. How to increase the online banking users confidence by Mr.Gilbert 5. http://www.seminarprojects.com/search.php 6. www.delisys.com/files/WP_CoreBanking_LargeBanks_FINAL.pdf 7. en.wikipedia.org/wiki/Core_banking 8. www.onwindows.com/downloads/CoreBankingPartnerGuide.pdf 9. download.microsoft.com/.../A/.../Core_Banking_at_Microsoft.pdf 10. www.ibsintelligence.com/index.php?...corebankingsystems 11. www.researchandmarkets.com/.../roadmap_to_successful_core_banki. 12. www.infosys.com/finacle/solutions/.../corebankingsolution.pdf 13. www.cedar-consulting.com/pdf/core%20banking%20cedar%20view.... 14. www.sdsbanksys.com/pdf/core-banking.pdf 15. www.infosys.com/finacle/solutions/thought-papers/.../index.aspx 16. www.seminarprojects.com/Thread-core-banking-online-bankin 4.Literature Survey: Introduction : Information Technology (IT) is very powerful in todays world, and financial institutions are the backbone of the Indian economy. Indian Banking Industry today is in the midst of an IT revolution. Nearly, all the nationalised banks in India are going for information technology based solutions. The application of IT in Banks has reduced the scope of traditional or conventional banking with manual operations. Nowadays banks have moved from disbursed to a centralised environment, which shows the impact of IT on banks. Banks are using new tools and techniques to find out their customers need and offer them tailor made products and services. The impact of automation in banking sector is difficult to measure. The literature available to the researcher on the application of Information technology in Indian banks are classified according to the related topics as mentioned below: Technological development in banking sector 1. Application of IT in banking 2. IT framework for Indian banking 3. Technological developments in cooperative banks 4. Indian banking sector : challenges and opportunities 4.1 Waves in banking technology :

As per the Reports of RBI,the first wave in banking technology began with the use of Advanced Ledger Posting Machines (ALPM) in the 1980s. The RBI advised all the banks to go in for huge computerisation at the branch level. There were two options: automate the front office or the back office. Many banks opted for automating the front office in the first phase. Whereas banks like State Bank of India also concentrated on the back office automation at the branch leveThe Second wave of development was in Total Branch Automation (TBA) which came in late 1980s. This automated both the front-end and backend operations within the same branch. TBA comprised of total automation of a particular branch with its own database. In the third wave, the new private sector banks entered into the field of automation. These banks opted for different models of having a single centralized database instead of having multiple databases for all their branches. This was possible due to the availability of good network infrastructure. Earlier, banks were not confident of running the whole operation through a single data center. However, when a couple of private sector banks showed that it can be done efficiently, other banks began to show interest and they also began consolidating their databases into a single database. The banks followed up on this move by choosing suitable application software that would support centralised operations. The fourth wave started with the evolution of the ATM delivery channel. This was the first stage of empowerment of the customer for his own transactions. The second stage was the Suvidha experiment in Bangalore. This showed the power of technology and how the reach can be increased amazingly at a great pace. Seeing these, all the banks started revamping their retail delivery channels. Their core focus became increasing the number of customers they can service at a lower cost. The main channels for these were internet banking and mobile banking. After this, came the alliances for payment through various other gateways. The third important development happening now is the real-time gross settlement system of the RBI. Once this was in place, transactions between banks could 61be done through the settlement system, online, electronically thereby, ensuring faster collection. The process of computerisation had started from Back Office Application, after that Total Branch Automation and nowadays it is the period of implementation of Core Banking Solutions (CBS). A key trend in the last couple of years has been the focus on core banking systems. With the implementation of core banking systems across the banks, the usage level of IT for customer management has increased. Core banking systems have enabled banks to launch new products and services targeting specific customer segments after understanding their banking and investment requirements. ATM, internet banking and mobile banking have improved customer convenience by providing anywhere any time banking services. The utility bill presenting and payment has helped customers to pay their bills online at the click of a button. Electronic clearing system and electronic funds transfer have facilitated faster funds movement and settlement for the customers of different banks and different centers. The electronic data interchange and cash management service facilities have enabled better funds management for the customer. Very few banks offered customers the ability to access their accounts and perform at least simple money transactions using internet banking. Advancements in information technology have made it possible for the banks to use the internet as a delivery channel for banking services. Technological developments have introduced tremendous changes in the ability of financial and non financial firms to efficiently collect, store, use and sell information about their customers. 4.2 Applications of IT in the banking sector

IT in banking has undergone several changes with the passage of time. Today IT has become an inseparable segment of banking organization. The application of information technology in the banking sector resulted in the development of different concepts of banking such as E-banking, Internet Banking, Online Banking, Telephone Banking, Automated teller machine, universal banking and investment banking etc. Information technology has a lot of influence on banking transactions. It ensures quick service with low transaction cost to the customers. The real success of IT in the banking sector depends upon the customers satisfaction. Therefore banks should organize and conduct customer awareness program in their service area. Security is an important issue in the context of E-banking. The development of technology for the identification of customers with different means of communication devices is a must for successful business and also to reduce frauds in banking. In this paper the author has studied customer related aspects only. 4.3 Conclusion: Review of literature shows that different researchers and experts in the fields of banking have discussed various aspects of the bank computerisation like technology and Indian banking sector, channels of ebanking, technological revolution in banking sector, IT channels and customer service etc. It has been observed that none of the reviewed study addresses the issues such as technological developments (extent of computerisation) of co-operative banks, different aspects affecting the development of co-operative banks, problems and prospects of bank computerisation, responses of the employees and customers on bank computerisation, and different software solutions available for bank computerisation. Therefore, this study is an attempt to address these issues. 85 4.4 References 1) Dos Santos, B.L., Peffers, K.G. and Mauer, D.C. (1993) The Impact of Information Technology Investment Announcements on the Market Value of the Firm, Information Systems Research, Vol.4, p.123. 2) Brynjolfsson Erik (1993) The Productivity Paradox of Information Technology, Communication of ACM, Vol. 36(12),p.67-77. 3) Brynjolfsson, Erik, Hitt, Lorin (1996) Paradox lost? Firm-level Evidence on the Returns to Information Systems Spending, Management Science, April, Vol.42 4) Parsons, D., Gotlieb, C.C. and Denny, M. (1993) Productivity and Computers in Canadian Banking, Z. Griliches and J.Mairesse (Eds.), Productivity Issues in Services at the Micro Level, Kluwer, Boston. 5) Reserve Bank of India. (1984). Report of the Committee on Mechanisation in Banking Industry. 6) RBI (1989) Report of the committee on computerisation in banks (The Rangarajan committee) Mumbai: Reserve Bank of India 7) www.rbi.com 8) www.Banknetindia.com

9) RBI (1998) Report of the committee on Banking sector reforms (The Narasimhan committee) Mumbai : reserve bank of India 10) Balasubramanya S. IT wave breaks over banking, THE CITY, Aug Sept 2002 computerisation. 5.Related work: 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 5.1 Issues overcome in core banking system: The CBS would facilitate the bank customers to access their funds and other simple transactions. The new system would help overcome such problems such as the customers will also be able to transfer their money online through ATMs to any other branch of that particular bank SK SEGHAL, GM-IT, STATE BANK OF INDIA has said about CBS as 5.2 Challenges faced in core banking system: In 1991, when we started deploying distributed systems across the country, one of the first challenges that

we faced was that people were not comfortable with the keyboards. Secondly, computerization also resulted in some process changes, and what I would call change management. This was the biggest challenge. The work flow changes-the voucher movement in a manual system was also different from that of a computerized system. Application stabilization also has a time frame. It takes some time before any new application is stabilized in an institution. Because internal functions were a bit different across branches, some processes of customization had to be carried out in those applications. I would say it was a cultural change for the employees. Towards the end of 1999, people had started accepting computerization so much, that during the seven-month period in 2003, when we computerized 9,000 branches, the biggest facilitating factor was the very high degree of acceptance of the Bankmaster application by our staff. 5.3 Current status of core banking Presently, there are 4,750 branches which have migrated from Bankmaster to the core banking solution. In February and March, when our annual closing exercise begins, we generally stop migration and recommence it from April 15 onwards. Next year we hope that we will complete core banking in all our banks. We have around 9,500 branches in SBI. We also have seven subsidiary banks. All those banks, around 4,700 branches, have been put on core banking. We don't open any branches now without the core banking facility. Now we are in the process of converting all those branches computerized on the Bankmaster system to core banking. 5.4 Managing to overcome connectivity problems to roll out core banking The kind of infrastructure that is required for connectivity is not uniform throughout the country. I still have branches in remote locations of this country where infrastructure is very poor. I am forced to adopt the wireless route as no other mode of connectivity is available. Presently if I look at my connectivity, we are using landlines, leased lines and VSAT. Probably one of the largest deployments of VSAT in the country would be in SBI. A large number of my ATMs and my branches are working on VSAT as a standby arrangement. There are also the difficulties associated with badly regulated power supply.

6. High level architecture:

7.Requirements 7. 1Hardware Requirements: 1. PC with minimum of 20 GB hard disk 2. 512 MB RAM 7.2 Software Requirements: 1. Windows XP with Ms Office 2. Database: SQL/MS access 3. Application Language: Visual Basic 6.0 8. Software Engineering Model: The waterfall model is a sequential design process often used in software development process in which progress is seen as flowing steadily downwards through the phases of requirement analysis, design, construction, testing, production and maintenance. 1. Requirements analysis: This first step is also the most important, because it involves gathering information about what the customer needs and defining, in the clearest possible terms, the problem that the product is expected to solve. Analysis includes understanding the customer's business context and constraints, the functions the product must perform, the performance levels it must adhere to, and the external systems it must be compatible with. 2. Design: This step consists of "defining the hardware and software architecture, components, modules, interfaces, and data...to satisfy specified requirements" (Wikipedia). It involves defining the hardware and software architecture, specifying performance and security parameters, designing data storage containers and constraints, choosing the IDE and programming language, and indicating strategies to deal with issues such as exception handling, resource management and interface connectivity. 3. Implementation: This step consists of actually constructing the product as per the design specification(s) developed in the previous step. Typically, this step is performed by a development team consisting of programmers, interface designers and other specialists, using tools such as compilers, debuggers, interpreters and media editors. The output of this step is one or more product components, built according to a pre-defined coding standard and debugged, tested and integrated to satisfy the system architecture requirements. 4. Testing: In this stage, both individual components and the integrated whole are methodically verified to ensure that they are error-free and fully meet the requirements outlined in the first step. An independent quality assurance team defines "test cases" to evaluate whether the product fully or partially satisfies the requirements outlined in the first step. 5. Installation: This step occurs once the product has been tested and certified as fit for use, and involves preparing the system or product for installation and use at the customer site 6. Maintenance: This step occurs after installation, and involves making modifications to the system or an individual component to alter attributes or improve performance. These

modifications arise either due to change requests initiated by the customer, or defects uncovered during live use of the system.

9.Decomposition of modules: INDIAN BANK Module 1: Pondicherry Branch Module 2: Chennai Branch Module 3: Hyderabad Branch Module 1: Pondicherry Branch Sub module 1 : Manager Login Sub module 2 : Employee Login Sub module 1: Manager Login Task 1 : Add new account Task 2: Update account Task 3: Delete account Task 4: Core banking system

Sub module 2: Employee Login Task 1: Customer Details Task 2: Quit

INDIAN BANK

PONDICHERRY REGION

CHENNAI REGION

HYDERABAD REGION

CORE BANKING SYSTEM

PONDICHERRY MODULE:
PONDICHERRY BANK

EMPLOYEE

MANAGER

login

QUIT

CUSTOME R DETAILS

ADD NEW ACCOUNT

DELETE ACCCOUNT

UPDATE ACCOUNT

CORE BANKIN G

MANAGER LOGIN

CASH WITHDRAWL WL

CASH DEPOSIT

ADD NEW ACC OUN T

DE LE TE AC CO U NT

UP DAT E ACC OU NT

AMOUNT,AC COUNT NO

QUIT

AMOUNT ACCOUNT NO

QUIT

Core banking

LOGIN PAGE

ENTER DETAIL S

ACCOU NT NO

ACCOU NT NO
12345

If branch code=

23456

34567

Transaction from pondicherry branch

Transacti on from Chennai branch

Transacti on from hyderaba d branch

CHENNAI MODULE:
CHENNAI BANK

EMPLOYEE LOGIN

MANAGER LOGIN

QUIT

CUSTOME R DETAILS

ADD NEW ACCOUNT

DELETE ACCCOUNT

UPDATE ACCOUNT

CORE BANKIN G

MANAGER LOGIN

CASH WITHDRAWL WL

CASH DEPOSIT

ADD NEW ACC OUN T

DE LE TE AC CO U NT

UP DAT E ACC OU NT

AMOUNT,AC COUNT NO

QUIT

AMOUNT ACCOUNT NO

QUIT

Core banking

LOGIN PAGE
If branch code=

ENTER DETAIL S

ACCOU NT NO

ACCOU NT NO
Transaction from pondicherry branch Transacti on from Chennai branch Transacti on from hyderaba d branch

HYDERABAD MODULE:
HYDERABAD BANK

EMPLOYEE LOGIN

MANAGER LOGIN

QUIT

CUSTOME R DETAILS

ADD NEW ACCOUNT

DELETE ACCCOUNT

UPDATE ACCOUNT

CORE BANKING

MANAGER LOGIN

CASH WITHDRAWL WL

CASH DEPOSIT

ADD NEW ACC OUN T

DE LE TE AC CO U NT

UP DAT E ACC OU NT

AMOUNT,AC COUNT NO

QUIT

AMOUNT ACCOUNT NO

QUIT

Core banking If branch code=

LOGIN PAGE

ENTER DETAIL S

ACCOU NT NO

ACCOU NT NO
Transaction from pondicherry branch Transacti on from Chennai branch Transacti on from hyderaba d branch

Pseudo code: Start { Select your branch If select = Pondicherry branch Goto (Pondicherry login) Else if select = Chennai branch Goto(Chennai login) Else if select = Hyderabad branch Goto(Hyderabad login) End if Endif Endif } Pondicherry login() If select =employee login Goto(pemployee login) Elseif select = manager login Goto (pmanager login) Endif Endif pEmployeelogin() If click= customer details Then give the account no and it will display the details of the customer Elseif click = cash deposit Enter the account no and the cash to be deposited ElseIf click = cash withdrawl Enter the account no and cash to be withdrawn Elseif click = manager login Goto(pmanager login)

End if End if End if End if pManager login() If click = add new account Enter the details of the customer Elseif click = delete account Enter the account number and name to be deleted Elseif click = update account Enter the account no to be updated Elseif click =core banking Goto(core banking) Endif Endif Endif Endif Corebanking() If branch code = 23456 Connect to Chennai database Elseif branch code=34567 Connect to Hyderabad database Endif Endif Chennai login() If select =employee login Goto(cemployee login) Elseif select = manager login Goto (cmanager login)

Endif Endif cEmployeelogin() If click= customer details Then give the account no and it will display the details of the customer Elseif click = cash deposit Enter the account no and the cash to be deposited Elseif click = cash withdrawl Enter the account no and cash to be withdrawn Elseif click = manager login Goto(cmanager login) End if End if End if End if cManager login() If click = add new account Enter the details of the customer Elseif click = delete account Enter the account number and name to be deleted Elseif click = update account Enter the account no to be updated Elseif click =core banking Goto(core banking) Endif Endif Endif Endif Hyderabad login()

If select =employee login Goto(hemployee login) Elseif select = manager login Goto (hmanager login) Endif Endif hEmployeelogin() If click= customer details Then give the account no and it will display the details of the customer Elseif click = cash deposit Enter the account no and the cash to be deposited Elseif click = cash withdrawl Enter the account no and cash to be withdrawn Elseif click = manager login Goto(hmanager login) End if End if End if End if hManager login() If click = add new account Enter the details of the customer Elseif click = delete account Enter the account number and name to be deleted Elseif click = update account Enter the account no to be updated Elseif click =core banking Goto(core banking) Endif

Endif Endif Endif

Graph:

Benefits of Core Banking Solutions Indian Banking System: The future would require banks to have increased business agility and operational efficiency, which makes the implementation of Core Banking Systems (CBS) by banks increasingly important. Our respondents (Fig. 9) found effective control and monitoring by the top management, lower business operation costs and instant availability of accurate data to be some of the valuable by products of Core banking Solutions. However, our survey participants do not find any significant reduction in manual labour and errors from the implementation of Core Banking Solutions. Conclusion: Banks and financial institutions have to make a myriad of important decisions which will be imperative to their future survival. The financial services landscape has changed beyond all recognition, and banks need to change their modus operandi to regain the trust of their customers, their partners and their shareholders. Even if your organisation has emerged relatively unscathed from the recent turmoil, you will undoubtedly be looking into how you can reduce your costs, improve your customer service and increase your market share. Now is not a time for trying out new and exotic financial products and services. Its all about getting back to basics and delivering brilliantly. But, your business may have evolved to such an extent that even this is difficult to achieve. This is why you need to search for improvements in both your processes and your systems to position your organisation for survival and success. Technology by itself is not a panacea. But technology has evolved to such an extent that it can hold the key to achieving your goals if you are willing to accept the changes that you will need to make to get there. Banks get the most out their core banking systems, and their Management Consulting and Professional Services team