JAIIB PPB Unit 31 - Essentials of Bank Computerisation

The concept of Bank Computerisation practically started after 1980-81 and more precisely gained pace in the year 1983-84, after setting up a committee in the year 1983 under the chairmanship of the then Deputy Governor of RBI, Dr. C. Rangarajan.

Need for Computerisation

The four major objectives of computerisation in banking are to improve:
(a) customer service
(b) housekeeping
(c) decision-making
(d) productivity and profitability.

Stand-alone Computer System

The stand-alone computer system is used by only one person at a time.
Stand-alone systems are best suited for the decision-making process, which involves processing and analysis of data.
Today's stand-alone systems are also capable of handling multimedia, high-quality graphics, fax messages, etc.

Multi-user Systems

The multi-user systems are computers on which several people can work at the same time.
Mini computers, Main Frame Computers, Micro-computers and the more powerful Super Computers all fall under this category.

Multi-user Computer Networking

In such a system computers are based on the centralised processing concept.
All information is kept and processed at the main central machines and various terminals are attached to the main computer.
The main computer can store a huge amount of information and possesses high-processing speeds enabling a large number of users to be connected to the main central computer.
Each user has his/her own terminal.
Most of the banking systems are developed using the centralized computing concept.

The advantages of using a centralised data processing system :

(a) availability of corporate level information at one location is possible
(b) cost of acquiring hardware, software and other infrastructure is more profitable than acquiring the same for individual departments
(c) due to the high volume of data processing the computing resources can be fully utilised
(d) technical manpower can also be efficiently managed at a central level
(e) costly resources like leased telephone lines, satellite links, etc., can be shared among the various departments Branch-level Computerisation

Computerisation at the branch level can be used to:

(a) Provide better and speedy customer service
(b) Improve housekeeping services
(c) Analyse the branch-level data for decision making
(d) Generation of various reports.

Total Branch Automation

This is a real time online banking.
Whenever a transaction is entered through a terminal, the transaction is recorded, verified and authenticated and all corresponding updates are reflected instantly.
Various outputs such as ledger extracts, passbooks, vouchers, statements of accounts of customers, etc., are generated online.
It is possible to provide the 'single window' transactions concept. That means a customer can approach any counter for completing all his or her transactions.
Off-site ATMs are also linked to the branch system to enable the customer to bank anytime/anywhere.
Software and hardware requirements depend upon the size of the branch.

Computerisation at Regional/Circle/Zonal Office

RO/ZO acts in between branches and the head office.
The most common tasks performed by the regional office/zonal office are:

(a) branch profile
(b) inter-branch reconciliation
(c) credit monitoring
(d) personnel data management, etc.

Computerisation at Head Office Level

The head office of a bank is responsible for bank level planning, and control functions, policy decisions. The head office activities are divided into different functional areas like:

(a) operations
(b) planning
(c) personnel
(d) international business
(e) services, etc.

The computerisation at various functional areas may include application areas:

(a) personnel management and administrative support
(b) funds management
(c) investment portfolio management
(d) branch profiles
(e) credit information system, etc.

Local Area Network (LAN)

The computer network that links computers and peripherals within a localised area say, within a building is known as LAN.
Generally, LAN will not extend beyond 150 metres. However, it can be up to a maximum spread of 1 km and the number of devices supported may also vary from 2 to as many as 1000.
In LANs, each independent system is known as a node and when such nodes are interconnected, it is known as a LAN.
Usually, there will be one central node (Server) providing and controlling all the services of the network.
The client nodes route their requests to the server and obtain the necessary services.

Topology (Layout)

The way in which the devices are interconnected is known as topology

Bus Topology

All devices on the network are connected to a single continuous cable.
Transmission from any station travels the length of the bus in both directions and is received  by all other stations.
The main advantage of bus topology is that it is quite easy to set up.
Further, if one station on the LAN fails, it will not affect the rest of the network
Data transmission is possible in one direction only
The breakdown of any one station on the ring can disable the entire LAN.

Star Topology

In a star topology, the central node is often the master.
Each of the other nodes is joined to the master by separate links.
It cannot handle large traffic as every transaction has to pass through the central node.
However, if one node fails, it will not affect the network.

Protocols

The protocols are the rules for communication between similar modules of processes, usually in different nodes.
Protocols define message formats and the rules for message exchange.
It controls priority and sequence of transmission, errors in transmission, and the process of beginning and concluding conversion.

The network protocols depend on the adapters. Some of the commonly used types of adapters
are Ethernet and Token-Ring

A multiplexer is used to receive signals from several communication lines and pass on to one communication line and vice versa.

Network Operating System:

The function of the networking software is to set up some computers as hosts, or servers, and some computers as clients to those hosts.

The servers manage the printer sharing, file sharing and communications link sharing to their clients.

The advantages of using LANs in banks are that:

(a) The expensive resources such as computer hardware and software can be shared by several users. This brings down the overall cost of computerisation.
(b) The information stored on the host computer is available to all users of the system. Therefore, there is no necessity of duplication of databases.
(c) Since all the terminals are intelligent terminals, the processing load is shared between the
various machines and there is no overloading on any single machine.

There are also a few shortcomings of a LAN, such as:

(a) Complicated software has to be installed for data management.
(b) Security risks are higher, since each user access the host computer independently.
(c) Maintenance cost of such a system is high, since it has to be done frequently.

Wide Area Network (WAN)

Wide Area Networks (WAN) are defined as a large-scale computer network spread over a span of sizeable geographic area, normally utilising the telecommunication network.

In the banking sector, the WANs are generally used to interconnect branches with the regional offices, and regional/zonal offices to head office, etc.

UNINTERRUPTED POWER SYSTEM (UPS)

Uninterrupted power system provides clean and reliable AC power to the computer systems protecting them from power blackouts, brownouts, swells, sags, surges, and interface.

In case of a power failure, the UPS attached with the file server automatically takes over the power supply to the file server or to the main computer to eliminate the chance of data loss.

CORE BANKING

In core banking, there is a central database for the bank and transactions are done centrally, online. It offers integrated products and services to customers round the clock.

Business Components

(a) To have retail customer banking modules
(b) Deposits, loans, bills, remittances, locker, clearing, etc.
(c) Trade finance/forex modules
(d) Government business modules
(e) To have corporate finance and service branch modules
(f) To have enhanced MIS modules
(g) To have modules for business intelligence
(h) To integrate with the existing ATMs, tele-banking, debit card, kiosks and other delivery Channels
(i) To have any branch banking, Internet banking and call centre
(j) To interface with existing corporate systems like treasury, IBR, centralised accounting system, HRMS, ALM, credit appraisal and management, credit monitoring and NPA management, etc.
(k) To interface with systems like NDS, SFMS, RTGS, CFMS, etc.

Benefits

(a) Enables the establishment of a reliable centralised data repository for the bank
(b) Facilitates data warehousing and data mining technologies for business intelligence
(c) Easy implementation of integrated customer centric services like online ATMs, telebanking, internet banking, any branch banking, kiosk banking, cash management services, etc.
(d) Enables centralised management information, decision support and executive information systems
(e) Efficient and effective MIS, ALM, risk management, etc., using the central data pool
(f) Enables centralised management and control with centralised data
(g) Standardisation of the branch automation software using a single version. Quick adoption of software changes as changes are done only at the central site
(h) Facilitates business process re-engineering (BPR) to streamline the existing processes
(i) Relieves branches of jobs like data backup, MIS generation, etc.
(j) Requires infrastructure at the central location, backup location and at branches
(k) Servers are not mandatory at branch locations
(1) Attracts higher investment in the beginning
(m) Cost of implementation for further branches and delivery channels relatively cheaper
(n) Core infrastructure can be used for future expansions
(0) No extra cost for implementation of SFMS, RTGS, CFMS, etc.