Transcript the future of banking

Workshop on
The Future of Banking
organized by
HMA & ISB
(October 30, 2004)
Vepa Kamesam
Former Deputy Governor, RBI
Currently Chairman, IDRBT/BRBNML
Technology and Banking
The Quintessence Nature of Banking harmonizes
closely with Technology –
Tasks Common to
Both
Banking
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
Information
Storage
Processing
Transmission
October 30, 2004
Technology
Vepa Kamesam, Chairman IDRBT
Innovative Risk
Management
Complex Credit
Calculations
Global Operations
Pervasive Branch
Network
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)
Electronic
Banking
Any Branch
Banking
CRM
MIS &
Intranet
ATMs
POS Terminals
and Cash
dispenser
Card
Management
Corporate
Network
Document
Management
Risk
Management
Resource
Management
BANK’S BUSINESS
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
October 30, 2004
LOANS & MISC. SERVICES
RAISING DEPOSITS
BANK’S BUSINESS
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
Equipment
Security Systems
Systems 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 “havenots” 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
For Long-Term Differentiation
Elements of Technology as a
Differentiator
Scalability
&
Flexibility
Efficient
utilisation,
mgmt
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
Process
enabling
October 30, 2004
Utility to
customer
Support
Skills
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
ATM
Electronic
Banking
Branch
Banking
Branch 3
Branch 2
Branch 1
Head Office
Branch n
Branch 4
Branch 5
Branch 6
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
Differentiation is attained not achieved just through
technology, it is gained in the way the technology is selected,
implemented and utilised
Goal definition
Integrating
business &
technology goals
Solution features
Vendor selection
Business process
re-engineering
Change
management
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
Technology
For Sustained
Differentiation
October 30, 2004
Efficient utilisation
Customer utility
Technology
Management
Support functions
Maintenance
Back-ups and
Disaster Recovery
Scalability &
flexibility
Learning &
evolution
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 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
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
October 30, 2004
Vepa Kamesam, Chairman IDRBT
Technology and Banking
Supervision
THE RBI RESPONSE
Offsite Supervision & Monitoring
OSMOS
COSMOS (Non banking Financial Companies /
Development Financial Institutions)
UBD Soft
Credit 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
covered in AND
detail
INSTITUTE
FORbe
DEVELOPMENT
RESEARCH IN BANKING TECHNOLOGY
by Speaker Dr. T.V. Gopalakrishnan
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
Technology & Monetary Systems
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
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
October 30, 2004
Vepa Kamesam, Chairman IDRBT
IT and Payment and
Settlement Systems
Electronic
Dealing
Platforms
Real
Time
Gross
Settlement
Delivery
Versus
Payments
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
October 30, 2004
Vepa Kamesam, Chairman IDRBT
NFS/IBPG
NEFT
RTGS
PKI-based
Security
SFMS
INFINE
T
RBI
INITIATIVES
IN PAYMENT
&
SETTLEMENT
SYSTEMS
PDO-NDS & SSS
Compliance with
BIS Core Principles
Clearing
Corporation
of India
IDRBT
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
CFMS
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
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
October 30, 2004
Vepa Kamesam, Chairman IDRBT
Financial Networks
Reuters
Network
SWIFT
Network
NSE Gateways and Integration with
Network Other Financial Network Services
G1 G2 G3 G4 G5 G6 G7 -
G1
G1
G2
G2
G3
SWIFT Network
Reuters Network
Stock Exchange Network
Inter Banks/FIs
Shared ATMs
Clearing Operations Network
Internet
G3
Corporate Network
G1
G2
G3
G1
G2
G3
G1
G2
INFINET
G3
Inter Banks/FIs Network
G4
Shared ATMs Network
G5
G5
G4
G4
Clearing Operations
Network
G6
G5
Internet
G7
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
October 30, 2004
Vepa Kamesam, Chairman IDRBT
Structured Financial Messaging System
Central Server at
IDRBT
Bank-1 Gateway
Bank-2 Gateway
………..…………….….……..
………..…………….…..
…
…
…….……
Branch-1 Branch-2 Branch-n
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
Bank-n Gateway
…
…
…….……
Branch-1 Branch-2 Branch-n
October 30, 2004
…
…
Branch-1 Branch-2 Branch-n
Vepa Kamesam, Chairman IDRBT
PKI Hierarchy
CCA
IDRBT CA
IDRBT CA
Repository
RA
Subscriber
RA
Subscriber
Subscriber
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
October 30, 2004
RA
Subscriber
Subscriber
Subscriber
Vepa Kamesam, Chairman IDRBT
NFS CONNECTIVITY with Existing Consortiums & Individual Banks
National Financial Switch &
E- Payment Gateway
ISDN
ISDN
Leased Line
Leased Line
Bank 2
Bank 1
ISDN
INFINET
Leased Line
Bank N
Broad Band VSAT
Leased Line
ISDN
ISDN
Leased Line
ISDN
CashNet
IP Address:202.138.123.68
Subnet Mask: 255.255.255.254
Location: Mumbai
BANCS & Cashtree
MITR
Location: Chennai
Location: Mumbai
Primary Link
Backup Link
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 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
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
October 30, 2004
Vepa Kamesam, Chairman IDRBT
Real Time
Gross
Settlement
CFMS
Intra Day
Liquidity
SSS
Settlement
Accounts
StripIFTP
& Store
Processes
INFINET
Participant’s
Interface AND
INSTITUTE FOR DEVELOPMENT
RESEARCH IN BANKING TECHNOLOGY
Participant’s
Interface
October 30, 2004
RBI Payments and
Actg. Entry
Interface
NSS
Participant’s
Interface
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 information
The 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 Clearing
Enabling faster clearing of cheques
Cheque Truncation & E-Cheques
On the drawing board
ECS/EFT
Enabling T+2 settlement of our equities
market
National EFT
Enabling 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
Desk Top Decision Making Capability
Centralised Database
Management System
Enterprise Knowledge
Management System
Desk Top Analytical Capability
Offsite Supervisory
Systems
Integrated Forex
Management System
Human Resource
Information System
Desk Top Transactional Capability
Integrated Accounting
System
Integrated Government
Accounting System
Securities Settlement
System
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
Currency Operations
System
Integrated Establishment
System
October 30, 2004
Vepa Kamesam, Chairman IDRBT
Issues in Implementation
“Less than 10% of failures are due to technical snags – most are due to
poor management and implementation”
Resistance to change
Overlooking process
reengineering
Project management
Dedicated project teams
Change management
Policies
People Skills & Training
Basic Infrastructure – telecom,
power
Security
Privacy & confidentiality
Legal and regulatory issues
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
October 30, 2004
Vepa Kamesam, Chairman IDRBT
Pre-requisites for Technology
Human Resource
Business Process
Empowerment
Re-engineering
Planning for
Disasters
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 Framework
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
October 30, 2004
Vepa Kamesam, Chairman IDRBT
IDRBT’s Solutions for Security Risk
Management (SRM)
Risk
Assessment
IS Audit
Awareness by
Training
PKI
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
SRM
for
Banks
Implementation
October 30, 2004
Gap
Analysis
Policy &
Procedures
Development
INFINET
Vepa Kamesam, Chairman IDRBT
At a Glance…….
Technology Related Issues
People Related Issues – Reskilling
Monetary systems, Efficient
Telecommunication & Infrastructure to
Drive Banking on Real-time Basis
Risk Management & Physical Security
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
October 30, 2004
Vepa Kamesam, Chairman IDRBT
The future will be not be more of
the same…
… we need to be ready..
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
October 30, 2004
Vepa Kamesam, Chairman IDRBT