Technology â The Core Service Differentiator for The ... - IDRBT

Technology – The Core 

Service Differentiator 

for 

The Cochin Roundtable on 

Technology for Banks 

Vepa Kamesam 

Former Deputy Governor, RBI 

Chairman, IDRBT/BRBNML

Technology and Banking 

The Quintessence Nature of Banking harmonizes 

closely with Technology – 

Banking 

Tasks Common to 

Both 

Information 

Storage 

Processing 

Transmission 

Technology 

INSTITUTE FOR DEVELOPMENT AND 

RESEARCH IN BANKING TECHNOLOGY 

October 9, 2004 

Vepa Kamesam, Chairman IDRBT

Innovative Risk 

Management 

Complex Credit 

Calculations 

Pervasive Branch 

Network 

Mass Transaction 

& Items Processing 

Global Operations 

Banking and Technology 





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 





Focus aspects of Commercial Banking 

now are: 

Core 

Banking (CBS) 

Electronic 

Banking 

Any Branch 

Banking 

CRM 

MIS & 

Intranet 

Corporate 

Network 

Risk 

Management 

ATMs 

Card 

Management 

Document 

Management 

Resource 

Management 





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 





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. 





Technology Differentiation Fades Gradually…. 





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… 





For Long-Term Differentiation 

Elements of Technology as a 

Differentiator 

Scalability 

& 

Flexibility 

Efficient 

utilisation, 

mgmt 

Process 

enabling 

Utility to 

customer 

Support 

Skills 





The Human Interface 

Technology means changes in skills and culture… 


change 

Processes 

change 

Skills 

required 

change 

People & 

culture 

change 

This means extensive changes for the employees… 

The Implication – 

• Train existing people 

• Get new people 





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 





Elements in People Issues 

Choosing the suitable people for the task 

Career 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 





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 





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?” 





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 


For Sustained 

Differentiation 

•Efficient utilisation 

•Customer utility 

•Technology 

Management 

•Support functions 

•Maintenance 

•Back-ups and 

Disaster Recovery 

•Scalability & 

flexibility 

•Learning & 

evolution 





Technology and Central 

Banks 

Technology has has 

Affected every every 

Core Core 

Central Central 

Banking 

Function 

Why Central 

Banks are 

interested? 

The The potential 


offers offers 

to to improve 

internal 

processes 





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 





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 



Technology and Banking 

THE RBI RESPONSE 

Supervision 

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.) 





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 





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 





Technology & Monetary 

The Opportunities – 

Systems 

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 





Continuous 

Linked 

Settlement 

Central 

Counter 

party 

Secured 

Netting 

Systems 

Payment 

Versus 

Payment 

IT and Payment and 

Settlement Systems 

Delivery 

Versus 

Payments 

Electronic 

Dealing 

Platforms 

Real 

Time 

Gross 

Settlement 

Demateria 

-lisation 

Of 

Securities 



October 9, 2004 Vepa Kamesam, Chairman IDRBT

NEFT 

NFS/IBPG 

CFMS 

PKI-based 

Security 

SFMS 

INFINE 

T 

IDRBT 



RBI 

INITIATIVES 

IN PAYMENT 

& 

SETTLEMENT 

SYSTEMS 


RTGS 

PDO-NDS & SSS 

Compliance with 

BIS Core Principles 

Clearing 

Corporation 

of India 


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 





JAMMU 

CHANDIGARH 

IN FIN ET Le a se d Line Ne tw o rk 

JAIPUR 

DELHI 

LUCKNOW 

KANPUR 

BHOPAL 

CALCUTTA 

AHMEDABAD 

GUWAHATI 

MUMBAI 

PATNA 

GOA 

NAGPUR 

PUNE 

BANGALORE 

BHUBANESHWAR 

HYDERABAD 

RBI 

KOCHI 

CHENNAI 


HYDERABAD 

THIRUVANANTHAPURAM 

4 X 2 Mbps 

2 X 2 Mbps 

2 Mbps with 

ISDN Backup 

2 Mbps 

64 Kbps 

CUG links 





Financial Networks 

SWIFT 

Network 

Reuters 

Network 

NSE Gateways and Integration with 

Network 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 

G1 G1 G2 G2 G3 G3 

Corporate Network 

G1 G2 G3 

G1 G2 G3 

G1 G2 G3 

G4 

INFINET 

Inter Banks/FIs Network 

G4 G4 G5 

G5 G5 G6 

Shared ATMs Network 

Clearing Operations 

Network 

G7 

Internet 





Structured Financial Messaging 

System 

Central Server at 


Bank-1 Gateway Bank-2 Gateway Bank-n Gateway 

………..…………….….. 

………..…………….….…….. 

… … …….…… … … …….…… 

… … 

Branch-1 

Branch-2 Branch-n Branch-1 Branch-2 Branch-n Branch-1 Branch-2 Branch-n 

October 9, 2004 Vepa Kamesam, Chairman IDRBT 


RESEARCH IN BANKING TECHNOLOGY

PKI Hierarchy 

CCA 

IDRBT CA 

Repository 

IDRBT CA 

RA 

RA 

RA 

Subscriber 

Subscriber Subscriber Subscriber 

Subscriber 

Subscriber 





IDRBT CA Physical 

Infrastructure 

Tier 4 

Iron gate with Biometric 

Access 

Key 

Ceremony 

Room 

Operational Room 

Iron gate with Biometric 

Access 

Strong 

Room 

Media proof CA 

Private Key 

Storage 

Tier 5 

Biometric Access 

Administratio 

n Room 

Access through Swipe 

Card 

Network 

UPS 

Access through Swipe Card 

Tier 3 

Tier 2 




Tier 1 


NFS CONNECTIVITY with Existing Consortiums & Individual Banks 

ISDN 

National Financial Switch & 

E- Payment Gateway 

ISDN 

Leased Line 

Leased Line 

Bank 1 

Bank 2 

ISDN 

INFINET 

Leased Line 

Broad Band VSAT 

Bank N 

ISDN 

Leased Line 

Leased Line 

ISDN 

ISDN 

CashNet 

IP Address:202.138.123.68 

Subnet Mask: 255.255.255.254 

Location: Mumbai 

MITR 

Location: Chennai 

BANCS & Cashtree 

Location: Mumbai 

Primary Link 




Backup Link 




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 





CFMS 

Real Time 

Gross 

Settlement 

Intra Day 

Liquidity 

SSS 

Settlement 

Accounts 

Strip & Store 

IFTP 

Processes 

RBI Payments and 

Actg. Entry 

Interface 

INFINET 

NSS 

Participant’s 

Interface 




Interface 



Interface 


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 





Centralised Funds Management 

System 

Gateway for the 

participating banks 

DAD-1 

Bank 1 

DAD-2 

Bank 2 

CFMS 

Server 

Bank 3 

DAD-16 

DAD-17 




Balance checks & 

funds transfer 

messages 

Bank n 


Centralised Funds Management System – 

Countrywide Spread 





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 





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 





The Clearing Corporation 

of India 

Promoted by large banks & 

financial institutions 

Central Counterparty to 

trades in 

• Government Securities 

• Forex markets 

Secure netting system 





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 





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 





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 





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 





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 





Technology Vision of the RBI 

Desk Top Decision Making Capability 

Centralised Database 

Management System 

Enterprise Knowledge 


Offsite Supervisory 

Systems 

Desk Top Analytical Capability 

Integrated Forex 


Human Resource 

Information System 

Desk Top Transactional Capability 

Integrated Accounting 

System 

Integrated Government 

Accounting System 

Currency Operations 

System 

Securities Settlement 

System 

Integrated Establishment 

System 





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 


Pre-requisites for 


Human Resource 

Empowerment 

Business Process 

Re-engineering 

engineering 

Planning for 

Disasters 





The pre-requisites for 


Planning for disasters 

• Increased operational risk 

• Business Continuity Planning 

Business Process Re-engineering 

Human Resource Empowerment 





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? 





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). 





Success is a journey not a destination. 

- Arthur Ashe 





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 






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 






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

Technology â The Core Service Differentiator for The ... - IDRBT

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