November 29, 2012

MA0036 [Financial Systems and Commercial Banking] Set1 Q5

Q5. What do you understand by core banking? Which banks in India offer core banking solutions. 

Ans:

Core Banking is normally defined as the business conducted by a banking institution with its retail and small business customers. Many banks treat the retail customers as their core banking customers, and have a separate line of business to manage small businesses. Larger businesses are managed via the corporate banking division of the institution. Core banking basically is depositing and lending of money.

Nowadays, most banks use core banking applications to support their operations where CORE stands for "centralized online real-time exchange". This basically means that the entire bank's branches access applications from centralized datacenters. This means that the deposits made are reflected immediately on the bank's servers and the customer can withdraw the deposited money from any of the bank's branches throughout the world. These applications now also have the capability to address the needs of corporate customers, providing a comprehensive banking solution.

A few decades ago it used to take at least a day for a transaction to reflect in the account because each branch had their local servers, and the data from the server in each branch was sent in a batch to the servers in the data center only at the end of the day (EoD).

Normal core banking functions will include deposit accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, Internet banking, and branches.

Core banking solutions

Core banking solutions are banking applications on a platform enabling a phased, strategic approach that is intended to allow banks to improve operations, reduce costs, and be prepared for growth. Implementing a modular, component-based enterprise solution facilitates integration with a bank's existing technologies. An overall service-oriented-architecture (SOA) helps banks reduce the risk that can result from manual data entry and out-of-date information, increases management information and review, and avoids the potential disruption to business caused by replacing entire systems.
Core banking solutions is new jargon frequently used in banking circles. The advancement in technology, especially Internet and information technology has led to new ways of doing business in banking. These technologies have cut down time, working simultaneously on different issues and increasing efficiency.

The platform where communication technology and information technology are merged to suit core needs of banking is known as core banking solutions. Here, computer software is developed to perform core operations of banking like recording of transactions, passbook maintenance, and interest calculations on loans and deposits, customer records, balance of payments and withdrawal. This software is installed at different branches of bank and then interconnected by means of communication lines like telephones, satellite, internet etc. It allows the user (customers) to operate accounts from any branch if it has installed core banking solutions. This new platform has changed the way banks are working.

Gartner defines a core banking system as a back-end system that processes daily banking transactions, and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit-processing capabilities, with interfaces to general ledger systems and reporting tools. Strategic spending on these systems is based on a combination of service-oriented architecture and supporting technologies that create extensible, agile architectures.

Core Banking Solutions (CBS) or Centralized Banking Solutions is the process which is completed in a centralized environment i.e. under which the information relating to the customer’s account (i.e. financial dealings, profession, income, family members etc.) is stored in the Central Server of the bank (that is available to all the networked branches) instead of the branch server. Depending upon the size and needs of a bank, it could be for the all the operations or for limited operations. This task is carried through advance software by making use of the services provided by specialized agencies. 
Due to its benefits, a no. of banks in India in recent years have taken steps to implement the CBS with a view to build relationship with the customer based on the information captured and offering to the customer, the customized financial products according to their need. 

Advantages: The CBS process is advantageous both to the customers and the banks in the following manner: 

Customer
• Transaction of business from any branch, ATM that offers him anytime anywhere banking facility. 
• Lower incidence of errors. Hence accuracy in transactions. 
• Better funds management due to immediate availability of funds. 

Banks
• Standardization of process within the bank. 
• Better customer service leading to retention of customer and increased customer traffic. 
• Availability of accurate data & Better use of available infrastructure 
• Better MIS and reporting to external agencies such as Govt., RBI etc. 
• Increased business volume with better asset liability management and risk management

Banks in India offering core banking solutions are:

Allahabad Bank 
Andhra Bank 
Bank of Baroda 
Bank of India 
Bank of Maharashtra 
Canara Bank 
Central Bank of India 
Corporation Bank 
Dena Bank 
Indian Bank
Indian Overseas Bank 
Oriental Bank of Commerce 
Punjab and Sind Bank 
Punjab National Bank 
Syndicate Bank 
UCO Bank 
Union Bank of India 
Vijaya Bank 
State Bank of India 
State Bank of Bikaner and Jaipur 
State Bank of Hyderabad 
State Bank of Indore 
State Bank of Mysore 
State Bank of Patiala 
State Bank of Saurashtra 
State Bank of Travancore
HDFC Bank Ltd
ICICI Bank Ltd.
IndusInd Bank Ltd.
Kotak Mahindra Bank Ltd. 
Axis Bank 
Yes Bank Ltd
ABN-AMRO Bank N.V
Abu Dhabi Commercial Bank Ltd 
American Express Bank Ltd. 
Barclays Bank PLC 
Citibank 
DBS Bank Ltd 
Deutsche Bank AG 
HSBC Ltd 
Standard Chartered Bank 

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