workshop on the future of banking organized by hma & isb (october 30, 2004) vepa kamesam former...
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Workshop on
The Future of Banking
organized by HMA & ISB(October 30, 2004)
Vepa KamesamFormer Deputy Governor, RBI
Currently Chairman, IDRBT/BRBNML
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology and Banking
The Quintessence Nature of Banking harmonizes
closely with Technology –
Banking TechnologyInformation
StorageProcessing
Transmission
Tasks Common to Both
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Pervasive BranchNetwork
Global Operations
Complex Credit Calculations
Innovative RiskManagement
Banking a
nd Tech
nology
Mass Transaction& Items Processing
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
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Focus aspects of Commercial Banking now are:
Core Banking (CBS)
ATMs
Card Management
Any Branch Banking
DocumentManagement
RiskManagement
ResourceManagement
MIS & Intranet
CRM
Corporate Network
Electronic Banking
POS Terminals and Cash dispenser
BANK’S BUSINESS
BANK’S BUSINESS
RA
ISIN
G
DE
PO
SIT
SL
OA
NS
& M
ISC
. SE
RV
ICE
S
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Financial Technology Infrastructure
Data Center to host servers for: CBS ATM/Financial Switch Internet Banking DW/DM/CRM/MIS etc. Back-office Application E-mail Servers, Internet Server,
Enterprise-wide Network & Networking EquipmentSecurity SystemsSystems at Branches/RO/ZO/CO Depts.Supporting Systems Disaster Recovery Site & Business Continuity
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-end processes….
But…due to rapid technology deployment in Indian banking sector, the “haves” and “have-nots” gap is all set to narrow quickly.
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology Differentiation Fades Gradually….
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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 term differentiator…
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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
SupportSkills
For Long-Term Differentiation
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
POS Terminal and Cash Dispenser
POS Terminal
Connected to Cash dispenser
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Electronic Banking
ATM
Head Office
Branch Banking
Branch 1
Branch 2 Branch 3
Branch 4
Branch 5
Branch 6
Branch n
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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 it…I 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 won’t!
– Assess the strengths & weakness of solution
– And seek answer to “are we ready for it?”
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
TechnologyFor
Sustained Differentiati
on
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 not achieved just through technology, it is gained in the way the technology is selected, implemented and utilised
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Regulation and Supervision – The Challenge
Challenge 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 the economy
The OpportunityRegulators 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
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology and Banking Supervision
THE RBI RESPONSE
Offsite Supervision & MonitoringOSMOSCOSMOS (Non banking Financial Companies / Development Financial Institutions)
UBD SoftCredit Information Bureau (A joint venture between Housing Development Finance Corporation Ltd., State Bank of India, Trans Union International Inc. & Dun & Bradstreet Information Services India Pvt. Ltd.)
Will be covered in detail by Speaker Dr. T.V. Gopalakrishnan
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Currency Management and Technology – Opportunities Galore
Currency Management - a formidable task in India given… 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 improve
performance
RBI’s The Clean Note Policy (1999)
Establishment of 2 state of the art currency presses
Technology driven anti counterfeit measures
48 fully automated Currency Verification & Processing Systems
21 Shredding and Briquetting Machines
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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 more
complex and prone to implementation and operational risks
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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 Systems– DVP/PVP– RTGS – Secured Netting Systems– The growth of the Central Counterparty (CCP)– Continuous Linked Settlement
Technology & Monetary Systems
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
IT and Payment and Settlement Systems
Demateria-lisation
Of Securities
DeliveryVersus
Payments
Payment Versus
Payment
ContinuousLinked
Settlement
ElectronicDealing
Platforms
RealTimeGross
Settlement
CentralCounter
partySecured NettingSystems
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBIRBIINITIATIVESINITIATIVESIN PAYMENTIN PAYMENT
&&SETTLEMENTSETTLEMENT
SYSTEMSSYSTEMSCompliance with
BIS Core Principles
RTGS
CFMSNEFT
PKI-based Security
SFMS
Clearing Corporationof India
IDRBT
PDO-NDS & SSS
NFS/IBPG
INFINET
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBI Initiatives in Payment and Settlement Systems (1)
The IDRBT Network Externalities
The Indian Financial Network (INFINET) Messaging Solutions
The Structured Financial Messaging System (SFMS) Security
Public Key Infrastructure IDRBT CA
National Financial Switch Inter Bank Payment Gateway
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
2 Mbps with ISDN Backup
JAMMU
CHANDIGARH
DELHIJAIPUR
AHMEDABAD
MUMBAI
PUNE BANGALORE
THIRUVANANTHAPURAM
CHENNAI IDRBT 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
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Gateways and Integration withOther Financial Network ServicesG1- SWIFT NetworkG2- Reuters NetworkG3- Stock Exchange NetworkG4- Inter Banks/FIsG5- Shared ATMsG6- Clearing Operations NetworkG7- Internet
Corporate Network
Inter Banks/FIs Network
Shared ATMs Network
Clearing Operations Network
SWIFTNetwork
ReutersNetwork
NSENetwork
G1 G1 G2 G2 G3 G3
G1G2
G3 G1G2
G3 G1G2
G3
G4
G4 G4 G5
G5 G5 G6
G7Internet
Financial Networks
INFINET
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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-nBranch-1Branch-2Branch-n Branch-1Branch-2Branch-n
Central Server at
IDRBT
………..…………….…..
………..…………….….……..
… … … … … ……….……
…….……
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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
ISDN Leased Line
ISDN
ISDN
Leased Line
Bank 2
Leased Line Leased Line
ISDN
Leased LineINFINET
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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 systemsTo 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
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
CFMS
SettlementAccounts
IFTPStrip & StoreProcesses
SSS
Intra Day Liquidity
RBI Payments and Actg. Entry Interface
INFINET NSS
Participant’sInterface
Participant’sInterface
Participant’s Interface
Real Time Gross
Settlement
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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 partnership
with IDRBT, IIT Bombay, and Banks in India
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBI and Customer Service…(1)
Dissemination of informationThe RBI website
Multiple Delivery Channels Coin & Note Dispensing Machines
For the general public Interactive Voice Response System
For banks and financial institutions Web server
For government customers On the anvil….
A secured web server SFMS/email based communication with customers
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
RBI and Customer Service...(2)
Improvements in payment and settlement systems
MICR ClearingEnabling faster clearing of cheques
Cheque Truncation & E-ChequesOn the drawing board
ECS/EFTEnabling T+2 settlement of our equities marketNational EFTEnabling T+0 settlement of all customer funds transfer transactions
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Technology Vision of the RBI
Centralised DatabaseManagement System
EnterpriseEnterprise KnowledgeManagement System
Integrated Accounting System
Integrated GovernmentAccounting System
Currency OperationsSystem
Desk Top Decision Making Capability
Desk Top Analytical Capability
Desk Top Transactional Capability
Securities SettlementSystem
Integrated EstablishmentSystem
Offsite Supervisory Systems
Integrated Forex Management System
Human ResourceInformation System
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Issues in Implementation““Less than 10% of failures are due to Less than 10% of failures are due to technical snags – most are due to poor technical snags – most are due to poor management and implementation”management and implementation”
Resistance to changeOverlooking process reengineeringProject managementDedicated project teamsChange managementPoliciesPeople Skills & TrainingBasic Infrastructure – telecom, powerSecurityPrivacy & confidentialityLegal and regulatory issues
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Pre-requisites for Technology
Planning for Planning for
DisastersDisasters
Business Process Business Process
Re-engineeringRe-engineering
Human ResourceHuman Resource
EmpowermentEmpowerment
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
The pre-requisites for Technology
Planning for disasters Increased operational risk Business Continuity Planning
Business Process Re-engineering
Human Resource Empowerment
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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? Down
sizing?• 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?
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Need for Training
• All these developments call for extensive, continuous training • Current and future technology implementations call for at
least 20% of officers specialise in IT• Hence need for specially skilled people – a mix of:
– System administrators– Application managers (knowledgeable about both banking and
technology) – Technology managers (who form the core team of technology
professionals).
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
Security Risk Management• Security is about…cementing the weak link
• Strong security measures (physical & data security) plus disaster recovery are essential
• Authentication of e-banking customers and accountability for e-banking transactions
• Segregation of duties, proper authorization controls etc.
• Physical security measures
- Graded access control, Iris & X-ray scanners, CCTV & detection systems, hotline and wireless links, fingerprint readers, concealed cameras, various sensors, bollards, boom barriers etc.
• Disaster Management and Disaster Recovery sites
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
How to Ensure Security??-A FrameworkHow to Ensure Security??-A Framework
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT
IDRBT’s Solutions for Security IDRBT’s Solutions for Security Risk Management (SRM)Risk Management (SRM)
RiskAssessment
GapAnalysisIS Audit
Awareness byTraining
Policy &Procedures
Development
Implementation
SRMfor
Banks
PKI INFINET
INSTITUTE FOR DEVELOPMENT AND
RESEARCH 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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