Merchant Banking and

Financial Services - MBFS

Mod -1
 Banking and Finance - Overview
Financial
Services

Commercial Investment Advisory

Insurance
Bank Services Services

• Private banking • Asset • Insurance • Stock brokers

Management Brokerage (private client
• Investment Banks
services) and
• Hedge Fund • Insurance
• Bank cards discount brokers
Managers Underwriting
• Credit card
• Custody services • Reinsurance
machine services
and networks
 Financial Sector - Regulators

Regulators

Insurance Regulatory
Reserve Bank of Securities Exchange
and Development
India Board of India
Authority
(RBI) (SEBI)
(IRDA)

Capital Markets/ Insurance

Banks
Mutual Funds Companies
 Banking in India

Legal frame work

of
Banks

Banking Regulation Reserve Bank of India

Act,1949 Act,1934
 Banking in India

- Banking in India is governed by BR Act,1949

and RBI Act,1934
- Banking in India is controlled/monitored by RBI
and Govt of India
- The controls for different banks are different
based on whether the bank/s is/are
a) statutory corporation
b) a banking company
c) a cooperative society
 Banking
 Modern banking in India is said to be developed during
the British era. In the first half of the 19th century, the
British East India Company established three banks –
 the Bank of Bengal in 1809
 the Bank of Bombay in 1840
 the Bank of Madras in 1843.
 But in the course of time these three banks were
amalgamated to a new bank called Imperial Bank and
later it was taken over by the State Bank of India in
1955.
 Allahabad Bank was the first fully Indian owned bank.
 The Reserve Bank of India was established in 1935
followed by other banks like Punjab National Bank,
Bank of India, Canara Bank and Indian Bank.

In 1969, 14 major banks were nationalized and in

1980, 6 major private sector banks were taken over by
the government. Today, commercial banking system in
India is divided into following categories.
 Banking Regulation Act of India, 1949
defines Banking as "accepting, for the
purpose of lending or investment of
deposits of money from the public,
repayable on demand or otherwise and
withdrawable by cheques, draft, order or
otherwise."
 Chronology of Salient steps by the Government after
Independence
to Regulate Banking Institutions in the Country

 1949 : Enactment of Banking Regulation Act.

 1955(Phase I) : Nationalisation of State Bank of
India
 1959(Phase II) : Nationalisation of SBI subsidiaries
 1961 : Insurance cover extended to deposits
 1969(Phase III) : Nationalisation of 14 major banks
 1971 : Creation of credit guarantee corporation
 1975 : Creation of regional rural banks
 1980(Phase IV) : Nationalisation of seven banks
with deposits over 200 crores.
Composition of the Banking System as
at the Beginning of New Millennium
 At present the number of nationalised banks
are 20. Several Foreign banks were allowed to
operate as per the guidelines of RBI. At
present the banking system can be classified
in following categories:
 Types of
Banks
 PUBLIC SECTOR BANKS
 Reserve Bank of India
 State Bank of India and its 7 associate
Banks
 Nationalized Banks (20 in number)
 Regional Rural Banks sponsored by
Public sector Banks
PRIVATE SECTOR BANKS
Old Generation Private Banks
New Generation Private Banks
Foreign Banks in India
Scheduled Co-operative Banks
Non Scheduled Banks
CO-OPERATIVE SECTOR BANKS

 State Co-operative Banks

 Central Co-operative Banks
 Primary agriculture Credit Societies
 Land Development Banks
 Urban Co-operative Banks
 State Land Development Banks
 DEVELOPMENT BANKS
 Industrial Finance Corporation of India (IFCI)
 Industrial Development bank of India (IDBI)
 Industrial Credit & Investment corporation of
India (ICICI)
 Industrial Investment Bank of India (IIBI)
 Small Industries Development Bank of India
(SIDBI)
 National Bank for Agriculture & Rural
Development (NABARD)
 Export-Import Bank of India EXIM
The law governing Banking Activities in India is called
"Negotiable Instruments Act 1881". The banking
activities can be classified as :

Accepting Deposits from public/others (Deposits)

Lending money to public (Loans)
Transferring money from one place to another
(Remittances)
Acting as trustees
Acting as intermediaries
Keeping valuables in safe custody
Collection Business
Government business
The listing is available in 125 sub
categories like
 Project Report Consultants,
 Accountants & Account Consultants,
 Technical Consultants,
 Valuers & Valuation Consultants,
 Project Report Consultants,
 Financing Managers/ Consultants,
 Property Search Report & Legal
Consultants /Advocates,
 Management Consultants,
 Banking Advocates,
 Chartered Accountants,
 Business & Financial Consultants,
 Wealth Management Consultants,
 Tax Consultants,
 Export Import Consultants,
 Marketing Consultants,
 Financial Consultants,
 Investment Consultants,
 Security Services,
 Cash Shifting Services,
 Computer Maintenance Services,
 Courier Services,
 Tour Operators, Website Maintenance Services, Ad Agencies,
Web Promotion & SEO Services, Computers Hardwares,
Networking Equipments, CCTV Suppliers/ Mfgrs, ATM Machine
Suppliers/ Mfgrs, Fire Extinguishers Suppliers/ Mfgrs, Fire Alarm
Suppliers/ Mfgrs, Cash Transaction Solutions, Biometric & Ultra
Modern Eqpts Suppliers/ Mfgrs, Security Devices Suppliers/
Mfgrs, Networking Solutions, Banking Operation Software’s,
Financial Educational Institutions, Banking Stationary Suppliers,
Banking Books Shops ,Space Available for Bank Branch, Space
Available for ATM, Flat Available For banking officials residential
accommodation etc.
 Introduction Types of
Banks Services
 Banking in India is so convenient and hassle
free that one (individual, groups or whatever
the case may be) can easily process
transactions as and when required. The most
common services offered by banks in India are
as follow:
 Bank accounts: It is the most common
service of the banking sector. An individual
can open a bank account which can be either
savings, current or term deposits.
 Loans: You can approach all banks for different kinds
of loans. It can be a home loan, car loan, personal
loan, loan against shares and educational loans.
 Money Transfer: Bnaks can transfer money from one
corner of the globe to the other by issuing demand
drafts, money orders or cheques.
 Credit and debit cards: Most banks offer credit cards
to their customers which can be used to purchase
products and services,or borrow money.
 Lockers: Most banks have safe deposit lockers which
can be used by the customers for storing valuables,
like important documents or jewellery.
 Types of Accounts
 DEMAT Account
 NRE a/c Non-Resident External
 NRO a/C Non Resident Ordinary
 FCNR a/c Foreign Currency Non-Resident
 SB a/c Savings bank account
 CC a/c Cash credit account
 CA a/c Current account
 Salary Account
 Recurring deposit account
 OD a/c Overdue account
 Fixed deposit account
 Proprietorship account
 Partnership account
 Firm account
 Company account
 Types of Accounts

 The simplest one is the Non Resident

Ordinary (NRO) account, which is your
savings account re designated, once you
have informed the bank about your
changed residential status.
 The balance in the NRO account cannot
be repatriated outside India.
 Types of Accounts

 Ifyou want the funds in your account to

be freely repatriable, an NRE (Non-
Resident External) account would be
ideal. This account is maintained in
rupees and any debit or credit of foreign
exchange will be converted into rupees.
 Banks also allow NRIs to invest in
deposits through FCNR(B) (Foreign
Currency Non-Resident (Banks)
accounts.
 These are term deposits and can be
maintained in some currencies such as
the dollar, pound sterling and yen. The
funds in this account can also be
repatriated.
 Types of Accounts
 Non-Resident Ordinary (NRO) Accounts

 An existing rupee account, opened prior to

one's departure from India will be designated
as NRO A/C, or one can also open NRO A/C
by fresh remittance from abroad or by transfer
of funds from own NRE/FCNR (B) Accounts.
 All legitimate dues arising in India can be
credited to this account. Proceeds of
remittances received from abroad in any
permitted currency can be credited to this
account. -cont..
 Debits for all local payments in rupees
are freely permitted.
 Interest earn on NRO balances is
subject to deduction of Income Tax at
source.
 Remittance upto USD 10,00.000.00
(USD One Million) per Financial Year
permitted out of balances held in NRO
accounts, subject to deduction of Income
Tax and other RBI guidelines.
Non-Resident External (NRE)
Rupee Account
 Account is opened with initial deposit of remittance
from place of stay abroad.
 NRE accounts can be opened in any of the bank's
deposits schemes.
 Funds are fully repatriable
 No Income Tax is applicable on interest earned.
 Balance is exempt from Wealth Tax.
 Debits for local payments are freely permissible.
 Gifts, out of balance in NRE accounts, to close
relatives in India are free of gift tax.
 Foreign Currency(Non-Resident)
Accounts( Banks) Schemes(FCNR-B).
 Account is opened with initial deposit by
remittance from place of stay abroad.
 Funds earn competitive interest rates
 Funds are fully repatriable, whenever desired.
 No Income Tax is payable on interest earned
by individuals
 Accounts can be opened under term deposits
scheme only.
 Accounts can be opened in six currencies viz.Stg.
Pounds, US dollars,Euro, Japanese, Yen,Australian
Dollars and in Canadian Dollars.
 Exchange risk on funds kept under the scheme is
borne by the bank.
 Interest on deposits is payable in currencies in which
the account is maintained.
 Inter Changeability of funds between NRE& FCNR(B)
accounts is permitted.
 Gifts to close relatives in India out of balance in
FCNR(B) accounts are free from gift tax.
 Bank Accounts for Non Resident Indians
Returning to India

 Resident Foreign Currency (RFC) Accounts Scheme.

 Scheme is available for NRIs returning to India, who have been
resident outside India for a continuous period of not less than one
year and who became resident in India on or after 18-4-1992.
 Accounts can be opened with remittance from outside India out of
the NRI's eligible assets aboard or transfer of funds from his
NRE/FCNR(B) accounts without penal provisions of premature
withdrawal.
 Accounts can be opened in any foreign currency and in any
scheme i.e Saving/current/Time Deposits.
 Exchange risk is borne by the Bank.
 The Deposit earns higher interest than what is earned abroad.
 Funds are repatriable outside India for bonafide needs of the
depositors and their close relatives.
 Reserve Bank of India
 Reserve Bank of India was established in
 1935, after the enactment of the Reserve
 Bank of India Act 1934 (RBI Act).
 Banking Regulation Act,1949 (BR Act)gave
wide powers to RBI as regards to
establishment of new banks/mergers and
amalgamation of banks,opening of new
branches,etc
 BR Act,1949 gave RBI powers to
regulate,superivse and develop the banking
system in India
 Reserve Bank of India

CENTRAL BANK
RBI

REGULATOR SUPERVISOR FACILITATOR

 RESERVE BANK OF INDIA
 SUPERVISORY & REGLATORY
 Issuance of currency notes
 Banker’s Banker
 Lender of the last resort
 Credit Control & Monetary Policy
 Exchange Control & FOREX
Management
 Funds Transfer
 CREDIT CONTROL

 QUANTITATIVE CREDIT CONTROL

 QUALITATIVE CEDIT CONTROL’
 CRR & SLR
 BANK RATE
 OPEN MARKET OPERATIONS
 Functions of Banks

 Commercial Banks-Core Banking

Functions
- Acceptance of deposits from public
- Lending funds to public/corporates
- Investing funds in various opportunities
- Collecting cheques/drafts and other
Negotiable Instruments
- Remitting funds
 Functions of Banks
 Commercial Banks – Para Banking Services
 Providing safe deposit lockers
 Acceptance of safe custody items
 Acceptance of standing instructions
 Offering internet banking facilities
 Issuance of credit and other cards
including ATM cards
 Offering various products like Mutual
funds,insurance products, merchant banking
services
 Acting as executors and trustees
Commercial Banks Deposit Products

CURRENT

CERTIFICATE SAVINGS

DEPOSITS

FLEXI FIXED

RECURRING
BANKER-CUSTOMER RELATIONSHIP

 DEBTOR-CREDITOR
 CREDITOR-DEBTOR
 AGENT-PRINCIPAL
 LESSOR-LESSEE
 BAILEE-BAILOR
CHEQUES
BEARER

ORDER

CROSSED

OPEN
NEGOTIABLE INSTRUMENTS
Paying Banker:

Payment in
Due
Course

Apparent Without
In good faith
Tenor Negligence
 Six Cs

 Character
 Capital
 Capacity
 Collateral
 Condition
 Compliance
Interest rate related
Bank’s responsibility
 Explain these in writing; give examples
 How is interest calculated?
 Fixed interest - what is the reset clause?
 Floating rate - what is the benchmark used?
 Clearly state terms/conditions in loan document
Customer’s responsibility
 Read before you sign!
 Do not ignore your doubts - Get them clarified
 Never sign blank documents
 If DSAs have contacted you, check with the
bank
Penal Interest

Bank’s responsibility
 Explain clearly
 when penal interest will be levied
 Concept of service charges when penal interest
is levied
Customer’s responsibility
 Remember
 Defaults/delayed payments, cheque returns etc.
attract penal interest and service charges
 Funds need to be set aside for repayment of loan
on due dates
 Seek bank’s advice, if in difficulty
Service Charges
Bank’s responsibility
 Display service charges
 Extend concessional rates to special category
persons
 Have a cap on all charges, incl. interest rates &
penal charges
 Inform customers of changes; offer option to
discontinue facility
Customer’s responsibility
 Read all the material sent to you by the bank
 Remember
 banks have freedom to set interest rates/service
charges
 you have option to choose the bank which offers best
rate
 Compare rates - make informed choice
Loan Documents; Return of Securities
Bank’s responsibility
 Give customer a complete set of loan agreements
and enclosures at time of sanction /disbursement
 Return the securities as soon as the loan is repaid

Customer’s responsibility
 Get a complete set of loan documents from banker
 Read the MITC- Most Important Terms and
Conditions
 Get securities back, as soon as loan is repaid
Recovery of Bank Dues
Bank’s responsibility
 Place list of recovery agents on web site
 Train & sensitize recovery agents
 Ensure recovery agents follow code of conduct
 Record all conversations with customers

Customer’s responsibility
 Remember :
 All loans have to be repaid
 Not to borrow beyond your repaying capability
 Conversation you have with the recovery agent is
recorded
 Seek assistance of your bank if in problem
Insurance linked products
Bank’s responsibility
 Avoid offering ‘bundled’ products
 Explain and get explicit written consent
 Ensure Insurance policy is obtained &
active

Customer’s responsibility
 Understand components of your loan
product
 If insurance is part of it, ensure policy is in
force
Credit cards

Bank’s responsibility
 Do not issue unsolicited cards - if activated &
charged, pay prescribed compensation without
demur.
 Do not issue unsolicited products on cards
 If DSAs are sourcing credit card, ensure card
holder has signed & understands his responsibility
 Delivery of Cards & PINs only to person
concerned
 Stop lost cards immediately on report of loss
 Consider insurance on lost cards
 Send statements on time; use e-statements, SMS
alerts etc to keep the card holder informed of
payments, due dates etc
Credit Cards

Customer’s responsibility
 Keep your credit card safely
 Be present when card is used by merchant
estab.
 Do not use public computers for internet
purchase through credit cards
 Keep credit card number & help line detail
handy
 Report immediately loss of card
 Opt for card statements by email or / and SMS
 If you do not want a card, cut it and send it
back to the credit card issuing authority
ATMs

Bank’s responsibility
 Ensure ATMs are in working mode at all times
 Have CCTV in all ATMs
 Check audit trails periodically
 Check cash handling processes and
procedures
 Check for quality of notes stacked in the ATMs

Customers’ responsibility
 Keep ATM cards safely
 Do not keep the PIN with the Card
 Inform discrepancy immediately, if possible
with the witness of the security guard
Cheque Drop Facility

Bank’s responsibility
 Remember - Cheque drop facility is only an
alternate mode of cheque collection
 Box should bear legend indicating that it is an
alternate mode and that customers can get
acknowledgement if required
 Install automatic cheque acknowledging
machines which give receipt on dropping the
cheque
Customer’s responsibility
 Insist & obtain acknowledgment for cheques if
you want them
TDS
Bank’s responsibility
 Apprise account holders, specially senior
citizens -need to submit 15G/15H forms, if tax
is not to be deducted
 TDS certificate is to be issued immediately to
the account holder in person or by post
Customer’s responsibility
 Remember:
 TDS is bank’s statutory obligation
 If you are not an income tax assess; give 15G/15H
form to the bank
 If you failed to keep your bank informed & TDS has
been deducted, than claim refund from Tax
authorities and not the bank
Cheque Collection

Bank’s responsibility
 Display bank’s cheque collection policy
 Adhere to the displayed policy
 Levy charges as per RBI stipulations
 Compensate customer without waiting for
request for any delay
Customer’s responsibility
 Read the cheque collection policy
 Insist & obtain admissible compensation for
delay
Some quotes for banks to
ponder!
“Customer service is not a department, it's an
attitude!”

“Customers don’t expect you

to be perfect. They do expect
you to fix things when they go
wrong”

“If we don’t take care of our

customers, someone else will!”
Workshop on
The Future of
Banking
organized by

HMA & ISB

(October 30, 2004)

Vepa Kamesam
Former Deputy Governor, RBI
Currently Chairman,
 Technology and Banking
The Quintessence Nature of Banking harmonizes
closely with Technology –

Tasks Common to
Both

Information
Banking Storage Technology
Processing
Transmission
 Innovative Risk
Management
Complex Credit
Calculations

g y
Global Operations olo
n
ch
Te
nd
Pervasive Branch a
Network
n g
ki
a n
B
Mass Transaction
& Items Processing
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:
BANK’S BUSINESS

LOANS & MISC. SERVICES

Core MIS & ATMs
RAISING DEPOSITS

Banking (CBS) Intranet POS Terminals

and Cash
dispenser
Electronic
Banking Card
Corporate Management
Network
Any Branch Document
Banking Management

Risk Resource
CRM
Management Management

BANK’S BUSINESS
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 Efficient
Process Utility to Support
& utilisation,
enabling customer Skills
Flexibility mgmt
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
 POS Terminal and Cash Dispenser

POS Terminal
Connected to
Cash dispenser
 ATM
Electronic
Banking

Branch
Banking
Branch 3
Branch 2

Branch 1
Head Office
Branch 4

Branch n Branch 5

Branch 6
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 •Efficient utilisation
•Integrating •Customer utility
business & •Technology
technology goals Technology Management
•Solution features For •Support functions
•Vendor selection Sustained •Maintenance
•Business process Differentiati •Back-ups and
re-engineering on Disaster Recovery
•Change •Scalability &
management flexibility
•Learning &
evolution
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
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 be covered in detail by Speaker Dr. T.V. Gopalakrishnan

 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 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
 IT and Payment and
Settlement Systems Continuous
Linked
Central Settlement
Secured Counter
Netting party
Systems
Payment
Real Versus
Time Payment
Electronic Gross
Dealing Settlement
Platforms
Delivery
Versus
Demateria Payments
-lisation
Of
Securities
 NFS/IBPG
CFMS
NEFT

PKI-based RTGS
Security

RBI
INITIATIVES PDO-NDS & SSS
SFMS
IN PAYMENT
&
SETTLEMENT Compliance with
SYSTEMS BIS Core Principles
INFINET
Clearing
IDRBT 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

 CHANDIGARH
INFIN ET  Lea sed Line Network
JAMMU

LUCKNOW
JAIPUR DELHI

KANPUR

CALCUTTA
BHOPAL
AHMEDABAD

GUWAHATI

MUMBAI
PATNA
GOA NAGPUR
BHUBANESHWAR
PUNE
BANGALORE
HYDERABAD
RBI
KOCHI
CHENNAI
IDRBT
HYDERABAD
4 X 2 Mbps 2 Mbps
THIRUVANANTHAPURAM
2 X 2 Mbps
CUG links
2 Mbps with 64 Kbps
ISDN Backup
 Financial Networks
SWIFT Reuters NSE Gateways and Integration
Network Network Networkwith
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

G2 G2 G2 INFINET
G1 G3 G1 G3 G1 G3
Inter Banks/FIs Network

G4
Shared ATMs Network

G4 G4 G5

Clearing Operations
G5 G5 G6 Network

Internet
G7
 Structured Financial Messaging System
Central
Server at
IDRBT
Bank-1 Bank-2 Bank-n
Gateway Gateway Gateway
………..………… ………..…………
….….. ….….……..

… … …….… … … …….… … …
… …

Branch-1
Branch-2
Branch-n Branch-1
Branch-2
Branch-n Branch-1
Branch-2
Branch-n
 PKI Hierarchy
CCA

IDRBT CA
IDRBT CA
Repository

RA RA RA

Subscriber Subscriber Subscriber Subscriber

Subscriber Subscriber
 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

Leased Line
ISDN ISDN
Leased Line

ISDN

CashNet

IP Address:202.138.123.68 BANCS & Cashtree

Subnet Mask: 255.255.255.254 MITR Location: Mumbai
Location: Chennai
Location: Mumbai Primary Link

Backup Link
 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
 Real Time
Gross
CFMS Settlement

Settlement
Intra Day Accounts
Liquidity
SSS
StripIFTP
& Store RBI Payments and
Processes Actg. Entry
Interface

INFINET NSS

Participant’s Participant’s Participant’s

Interface Interface Interface
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
 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
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
 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 Enterprise Knowledge

Management System Management System

Desk Top Analytical Capability

Offsite Supervisory Integrated Forex Human Resource

Systems Management System Information System

Desk Top Transactional Capability

Integrated Accounting Integrated Government Currency Operations

System Accounting System System

Securities Settlement Integrated Establishment

System 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 Technology

Human Resource Business Process

Empowerment Re-engineering

Planning for
Disasters
 The pre-requisites for
Technology
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).
 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

How to Ensure Security??-A Framework
IDRBT’s Solutions for Security
Risk Management (SRM)

Risk
Assessment

Gap
IS Audit Analysis
SRM
for
Awareness by Banks Policy &
Procedures
Training
Development

INFINET
PKI Implementation
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
The future will be not
be more of the same…
 
… we need to be
ready..
 Technology Initiatives

• Need for Technology

• Offers high levels of Security

• Reduced Transaction Cost

• Prevents loss or destruction of data

• Reduces rigidity

• Increases Efficiency
Branchless Banking
• Secure

• Scalable

• Reliable

• Flexible

• Interoperable

• Robust & Upgradeable

• Cost Effective
Branchless Banking

• Service provided at their doorstep/ village

• Availability of Basic Banking Services throughout the day

• Hassle free for the villagers as there are no challans/vouchers

• Familiarity in dealing with their own person

• Reduces the cost of transaction

• Ability to handle large volumes with less staff

• Reduces the pressure on the counters at rural branches

Branchless Banking

Types of Technology Used

 Card Based Device
 Support for Fingerprint Authentication
 Redundant Power Sources for continuous operation
 Mobile and easy to carry
 Voice Guidance in Local Language
 Support for multiple communication Channels
 Device should store minimal data
 Ability to support multiple products and services
 Receipt printing
 Scalable
Products & Services Offered
 Cash Deposits
 Cash Withdrawals
 Balance Enquiry
 Mini Statement
 Transfer of Funds between Own Account
 Loan Repayments
 Loan Withdrawals in Running Accounts (GCC)
 Self Help Group Accounts (SB and Loan Accounts)
 Recurring Deposits
 Milk Payments
 National Rural Employment Guarantee Payouts
 Social Security Pension Payments
Products & Services in the offing

Products Under Development

 Person to Person (P2P) Remittance Facilities using mobile

 JanaShree Bima Yojana Premia Collection

 Utility Bill Payments

 Pre-paid Mobile Recharge

 Remittance from One Card to another Card

Branchless Banking
Risk Mitigation
 Two Factor Authentication (Presence of Card & Fingerprint)
 Per Day Transaction Limit
 Customer Per Day Limit for Withdrawals and Receipts
 Number of Transactions
 Business Correspondent Per Day Limit
 Total Transactions by the Business Correspondent for a Day
 Interval between Two Day Ends
 Branches also provided a Terminal to transact
 Customer Receipt using an Impact Printer
 Web Access to monitor the Card Balances and BC Balances
 Forces On-line transactions when there is a balance mismatch
Branchless Banking
Risk Mitigation – Contd..

 A Banner provided at BC location

 A poster containing the instructions provided at BC Locations

 Branches provided with a similar terminal to handle emergencies

 Cash Box provided to the BC for safe keeping of cash

 Imprest Cash provided to the BC for handling payments

 BC insured for the Cash at BC location

Branchless Banking

• Nature of Transaction
– Offline
– Online when it is a foreign Card or
when there is a balance mismatch
• Customer Deliverables
– Printed Receipt using an Impact Printer
– Print out in local language would be provided

• Providing GPS for greater comfort

Branchless Banking

• Data Storage Policies

– Account Information only with the Bank
– Transaction Data only routed by the
Technology Service Provider
– Periodic Reconciliation process to tally
the balances
Branchless Banking

• Minimum Standards for identifying and engaging a BC

• Methodology and Standards for Data Storage on Cards

• Finger print Storage and Retrieval Standards

• Risk Mitigation Criteria

• Card Numbering Standards

Branchless Banking
• Technology Framework should define

– Policy Framework (Card Issuance, BC, Service Delivery)

– Legal and Statutory Framework

– Security Framework

– Transaction Processing Framework

– Should facilitate Convergence

Business Initiatives

• Financial Inclusion should not be a regulatory

directive but a viable business proposition
• Facilitates to extend the outreach
• Reduces the cost of delivery
• Effective credit delivery system
• Ability to offer new products and services
• Linkage to an economic activity or income generation
activity
• Easier Implementation at fractional cost of the branch
 Schematic Representation of Transaction Flow
Core Banking Centre

Internet TANDEM
TANDEM
Core Server

BASE24

GSM/GPRS
WAN

PSTN Web Server

Firewall

Business Correspondent Core Branch Database Server

Branchless Banking – State-wise Distribution

Sl Name of the State Villages Branches

01 Karnataka 160 99
02 Andhra Pradesh 61 07
03 Tamil Nadu 29 15
04 Goa 02 02
Total 252 123