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Technology – The Core Service Differentiator for The Cochin Roundtable on Technology for Banks Vepa Kamesam Former Deputy Governor, RBI Chairman, IDRBT/BRBNML.

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Presentation on theme: "Technology – The Core Service Differentiator for The Cochin Roundtable on Technology for Banks Vepa Kamesam Former Deputy Governor, RBI Chairman, IDRBT/BRBNML."— Presentation transcript:

1 Technology – The Core Service Differentiator for The Cochin Roundtable on Technology for Banks Vepa Kamesam Former Deputy Governor, RBI Chairman, IDRBT/BRBNML

2 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Technology and Banking The Quintessence Nature of Banking harmonizes closely with Technology – Banking Technology Information Storage Processing Transmission Tasks Common to Both

3 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Pervasive Branch Network Global Operations Complex Credit Calculations Innovative Risk Management Banking and Technology Mass Transaction & Items Processing

4 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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

5 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Core Banking (CBS) ATMs Card Management Any Branch Banking Document Management Risk Management Resource Management MIS & Intranet CRM Corporate Network Electronic Banking Focus aspects of Commercial Banking now are :

6 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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 Servers, Internet Server, Enterprise-wide Network & Networking Equipment Security Systems Systems at Branches/RO/ZO/CO Depts. Supporting Systems Disaster Recovery Site & Business Continuity

7 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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.

8 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Technology Differentiation Fades Gradually….

9 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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…

10 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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

11 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT The Human Interface Technology means changes in skills and culture… This means extensive changes for the employees… The Implication – Train existing people Get new people Technology change Processes change Skills required change People & culture change

12 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT But Change is not easy… Organisational structure and culture not dynamic Extensive job redesign & redeployment is tough….as bank machinery is slow Staff has 2 critical jobs to learn– How to operate new technology How to undertake the new tasks This is not easy, as average employee age is nearly 45

13 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Elements in People Issues Choosing the suitable people for the task C areer emergence instead of career planning Recognising and rewarding the achievers Managers taking on the role of trainers Encouraging new ideas and concepts Adopting a multi-disciplinary, multi-functional approach Shift from individual to business unit Balancing – creativity & routine, change Inculcating business discipline Understanding the need and extent of continuous education Getting rid of myths

14 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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

15 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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 wont! Assess the strengths & weakness of solution And seek answer to are we ready for it?

16 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Technology For Sustained Differentiation Goal definition Integrating business & technology goals Solution features Vendor selection Business process re-engineering Change management Efficient utilisation Customer utility Technology Management Support functions Maintenance Back-ups and Disaster Recovery Scalability & flexibility Learning & evolution Differentiation is attained not achieved just through technology, it is gained in the way the technology is selected, implemented and utilised

17 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Technology and Central Banks Why Central Banks are interested? Technology has Affected every Core Central Banking Function Technology has Affected every Core Central Banking Function The potential Technology offers to improve internal processes The potential Technology offers to improve internal processes

18 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Why Central Banks are Interested? The widespread adoption of technology by the banking industry The impact of technology on every single core central banking function Supervision and Regulation Currency Management Monetary & Financial Stability The potential technology offers to central banks for rendering more effective its internal processes and functions

19 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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 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

20 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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.)

21 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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 RBIs 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

22 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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

23 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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

24 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT IT and Payment and Settlement Systems Demateria -lisation Of Securities Delivery Versus Payments Payment Versus Payment Continuous Linked Settlement Electronic Dealing Platforms Real Time Gross Settlement Central Counter party Secured Netting Systems

25 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT RBIINITIATIVES IN PAYMENT &SETTLEMENTSYSTEMS Compliance with BIS Core Principles RTGS CFMS NEFT PKI-based Security SFMS Clearing Corporation of India IDRBT PDO-NDS & SSS NFS/IBPG INFINE T

26 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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

27 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT

28 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Gateways and Integration with Other Financial Network Services G1-SWIFT Network G2-Reuters Network G3-Stock Exchange Network G4-Inter Banks/FIs G5-Shared ATMs G6-Clearing Operations Network G7-Internet Corporate Network Inter Banks /FIs Network Shared ATMs Network Clearing Operations Network SWIFT Network Reuters Network NSE Network G1 G2 G3 G1 G2 G3 G1 G2 G3 G1 G2 G3 G4 G5 G6 G7 Internet Financial Networks INFINET

29 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Structured Financial Messaging System Branch-1 Bank-1 Gateway Bank-2 Gateway Bank-n Gateway Branch-2 Branch-n Branch-1Branch-2 Branch-n Branch-1Branch-2 Branch-n Central Server at IDRBT ………..…………….….. ………..…………….….…….. …………………….……

30 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT PKI Hierarchy CCA IDRBT CA RA Subscriber IDRBT CA Repository RA Subscriber

31 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT IDRBT CA Physical Infrastructure Iron gate with Biometric Access Access through Swipe Card Network Strong Room Key Ceremony Room Operational Room Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 UPS Administratio n Room Media proof CA Private Key Storage Biometric Access Access through Swipe Card Iron gate with BiometricAccess

32 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT IP Address: Subnet Mask: 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 MITR Location: Chennai BANCS & Cashtree Location: Mumbai ISDN Leased Line ISDN Leased Line Bank 2 Leased Line ISDN Leased Line INFINET

33 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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

34 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT CFMS Settlement Accounts IFTP Strip & Store Processes SSS Intra Day Liquidity RBI Payments and Actg. Entry Interface INFINET NSS Participants Interface Participants Interface Participants Interface Real Time Gross Settlement

35 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT RTGS Scenario 87 banks have implemented it 6 more to implement in a fortnight Customer transactions have already started Total volumes – Transactions on average Rs.20,000 crores per day

36 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Centralised Funds Management System DAD-1 DAD-2 DAD-16 DAD-17 CFMS Server Gateway for the participating banks Bank 2 Bank 3 Bank n Bank 1 Balance checks & funds transfer messages

37 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Centralised Funds Management System – Countrywide Spread

38 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Negotiated Dealing System & the Securities Settlement System Electronic dealing platform in government securities and money market instruments- Primary and Secondary markets Quicker Price Discovery Straight Through Processing- Settlement of transactions Delivery versus Payments Efficient Servicing Centralised Depository and Debt Servicing Wide Area Based Dealing System

39 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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

40 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT The Clearing Corporation of India Promoted by large banks & financial institutions Central Counterparty to trades in Government Securities Forex markets Secure netting system

41 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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

42 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Goal of Payment and Settlement Systems Establishment of a secure, efficient, modern payment and settlement system in the country Ensuring full compliance with the Core Principles for Systemically Important Payment Systems of the Bank for International Settlements

43 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT RBI itself uses Technology for differentiation An integrated solution for each functional area Online analytical capabilities – The Integrated Foreign Exchange Management Solution, The Human Resource Information System, Integrated Monetary Policy Solution Online Decision Making – The Centralized Database Management System, The Enterprise Knowledge Management System Customer Service – RBI website, coin & note dispensing machines for public, Interactive voice response for banks & FIs, ECS/EFT, cheque truncation This is apart from technologies used for central banking functions

44 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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/ based communication with customers

45 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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

46 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Technology Vision of the RBI Centralised Database Management System Enterprise Enterprise Knowledge Management System Integrated Accounting System Integrated Government Accounting System Currency Operations System 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

47 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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 implementationLess 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

48 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Pre-requisites for Technology Planning for Disasters Business Process Re-engineering Human Resource Empowerment

49 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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

50 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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 ?

51 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 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).

52 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Success is a journey not a destination. - Arthur Ashe

53 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Monetary Policy – The Challenge (1) The proliferation of IT has… redefined the toolkit of economic indicators used in implementing monetary policy rendered more complex, the task of compiling statistical information rendered difficult the task of capturing the impact of IT on price levels raised issues in respect of the possible proliferation of digital money

54 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Monetary Policy – The Challenge (2) 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

55 INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY October 9, 2004 Vepa Kamesam, Chairman IDRBT Monetary Policy – The Opportunity 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


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