Role of Information Technology

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Role of Information Technology in Indian Banking Industry
  Submitted By A.SUJATHA FLORENCE Versatile Business School

Sl. No Topics 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Definition and meaning of Bank Types, Roles and Functions of Banks What is Information Technology? Why Technology in Banks? How Information Technology Helps In Banking Sector? Benefits, Advantages and Role of IT Information Technology in Banking Technology Products Scope and Objectives of the study Hypothesis Employees perception The future technology scenario Training needs in Indian Banks Conclusion

Technology and Banking
The Quintessence Nature of Banking harmonizes closely with Technology –
Tasks Common to Both Information Storage Processing Transmission Technolog y

Banking

 

Definition of BANKING

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 withdraw able by cheques, draft, order or otherwise".

What is BANK?
A bank is a financial institution where an individual can deposit money. Banks provide a system for easily transferring money from one person or business to another. Using banks and the many services they offer saves an incredible amount of time, and ensures that the funds of micro as well as macroeconomic agents "pass hands" in a legal and structured manner. There are also other types of financial institutions that operate just like banks.

TYPES OF BANKS
v Central Bank v Commercial Banks v Industrial Banks v Agricultural Banks v Foreign Exchange Banks v Indigenous Banks


ROLE OF BANKS
v Capital Formation v Monetization v Innovations v Finance for Priority v Provision for Medium and Long term Finance v Cheap Money Policy v Need for a Sound Banking System


FUNCTIONS OF BANKS
v Accepting Deposits from public/others (Deposits) v Lending money to public(Loans) v Transferring money from one place to another (Remittances) v Credit Creation v Acting as trustees v Keeping valuables in safe custody v Investment Decisions and analysis v Government business v Other types of lending and transactions



 

What is Information Technology ?

Information technology (IT), as defined by the Information Technology Association as "the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware." IT deals with the use of electronic computers and computer software to convert, store, protects, process, transmit, and securely retrieve information.

W h y Te ch nolog y in Ba nk s?
To transform Financial Services Industry in the Net-Worked world banks to be customer centric provide services/products across a range of channels to be futuristic and have “TIME” value in all its dealings with customers.

How Information Technology Helps in Banking Sector?

The net has helped in being able to transfer information immediately. As well, has assisted many who are unable to get out in order to pay bills, bank transfers and so on. Also the sharing of information from branch to branch is not instant. It is also easier to find amount in account as well as what has been paid for, such as automatic payments to insurance, or cable etc

MANY BENEFITS OF TECHNOLOGY
v Increased operational efficiency, profitability & productivity v Superior customer service v Multi-channel, real-time transaction processing v Better cross-selling ability v Improved management and accountability v Efficient NPA and risk management v Minimal transaction costs v Improved financial analyses capabilities


ADVANTAGE OF IT
An effective IT Solution provide:
v Operational effectiveness, internal efficiency v Collaborative tools to help create, cultivate, and disseminate knowledge. v Accessibility to data, information, and knowledge. v The ability to easily search across and retrieve relevant information v A project management system based on complete project lifecycle v A resource management system which improve linkages v

IDENTIFY THE IT ROLE
v IT e n h a n ce s t h e ca p a cit y t o r e vie w p r oje ct p r oce ssing a n d p or t f olio p e r for m a n ce . v IT m on it or s p e r f or m a n ce a g a in st M ille n n iu m D e v e lop m e n t Goa ls. v IT f a cilit a t e t r a ck in g of a ct iv it ie s and in v e st m e n t s un d e r

d e ve lop m e n t Init ia t ive s. v IT syst e m s p r ovid e t h e t ools t o r e p or t on p r oje ct p e r for m a n ce a t e a ch st a g e v IT su p p or t s im p r ove d p la n n in g , m a n a g e m e n t , a n d r e p or t in g on r e sou r ce m a n a g e m e n t . v IT su p p or t s d ocu m e n t a t ion on st u d y r e p or t s f or e v a lu a t ion a n d r e cor d le sson s le a r n e d .


e-Loan System
e-Disbursements e-Documents

13

e-Billing

e-Payments

Integrated Loan Administration Platform Loan Administration Database

Client Connection Loan Data Warehouse

Loan WEB, Loan Tracking System, Loan Database

Loan Administration System [LAS]

Other Systems Financial Database Controller’s Data Warehouse

Loan Kiosk

LAS WEB, LTS, Loan Database

Loan

System

INFORMATION TECHNOLOGY IN BANKING
Information Technology has basically been used under two different avenues in Banking. One is Communication and Connectivity and other is Business Process Reengineering. Information technology enables sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks and helps the financial intermediaries to reach geographically distant and diversified markets:
 

v Technology has opened up new markets, new products, new services and efficient delivery channels for the banking industry. Online electronics banking, mobile banking and internet banking are just a few examples.


v Information Technology has also provided banking industry with the wherewithal to deal with the challenges the new economy poses. Information technology has been the cornerstone of recent financial sector reforms aimed at increasing the speed and reliability of financial operations and of initiatives to strengthen the banking sector

CONTINU…
v The IT revolution has set the stage for unprecedented increase in financial activity across the globe. The progress of technology and the development of world wide networks have significantly reduced the cost of global funds transfer.


v It is information technology which enables banks in meeting such high expectations of the customers who are more demanding and are also more techno-savvy compared to their counterparts of the yester years. They demand instant, anytime and anywhere banking facilities.


v Further, IT deployment has assumed such high levels that it is no longer possible for banks to manage their IT implementations on a stand alone basis with IT revolution, banks are increasingly interconnecting their computer systems not only across branches in a city but also to other geographic locations with high-speed network infrastructure, and setting up local area and wide area networks and connecting them to the Internet. As a result, information systems and networks are now exposed to a growing number.

CONTINU…
v IT has been providing solutions to banks to take care of their accounting and back office requirements. This has, however, now given way to large scale usage in services aimed at the customer of the banks. IT also facilitates the introduction of new delivery channels--in the form of Automated Teller Machines, Net Banking, Mobile Banking and the like.


v It also follows that the primary focus of in-house IT establishment of banks should change from in-house application development, installation and maintenance or networking and communication administration etc.


v The new focus will be on :  a) Understanding thoroughly the business of banking in the new millennium.  b) Create new and relevant paradigms for risk analysis and management, technology change management, cost and performance evaluations of security and audit models etc., needed to fulfill the overall institutional business objectives and strategic goals.  c) Formulating the parameters of performance and operations in light of the overall institutional business objectives and strategic goals.  d) Translating these parameters into well defined system requirements.  e) Evaluating the efficacy of various technical solutions provided by the IT industry to meet these system requirements.


TECHNOLOGY PRODUCTS:
1) Net Banking 2) Credit Card Online 3) One View 4) Insta Alerts 5) Mobile Banking 6) NetSafe 7) e-Monies Electronic Fund Transfer 8) Online Payment of Excise & Service Tax 9) Phone Banking 10) Bill Payment 11) Shopping 12) Ticket Booking 13) Railway Ticket Booking through SMS 14) Prepaid Mobile Recharge 15) Smart Money Order 16) Card to Card Funds Transfer 17) Funds Transfer (eCheques) 18) Anywhere Banking 19) Internet Banking 20) Mobile Banking 21) Bank@Home (i) Express Delivery 22) Cash on Tap: (ii) Normal Delivery



ATM Electron ic Banking Branch Bankin g Branch
Head Office

Branch 2

3

Branch 1

Branch 4

Branch n Branch 6

Branch 5

SCOPE OF THE STUDY
The st udy confines t o t he exam ining t he Role of IT in t he St udy Banks, part icularly:
 

v The Perception of Employees towards the Implementation of Information Technology in the Banks.


v To assess the Customers' Satisfaction Level towards the Use of Information Technology related Services in the Banks.


OBJECTIVES OF THE STUDY
 

The object ives of t he St udy are as follow s:

v To assess the Role of Information Technology in the Public Sector Banks, Private Sector Banks and Foreign Banks.


v To Assess the Perception of the Bank Employees towards the Implementation of Information Technology in the Banks.


v To Assess the Perception and Satisfaction of the Customers with the banks.


HYPOTHESIS
v Inform at ion Technology facilit at e wide and speedy services t o banking sect ors. v v Private and Foreign banks use more Information Technology related banking services then public sector banks. v v Reliable infra-structure of technology is the major constraint in implementing Information Technology in banks. v v Impact of technology on efficient low cost data communications is same across all banks. v v There is a strong association between competition pressure and implementation of IT in banking sector. v v There is a strong association between more IT related services and customer preferring a bank. v v Security concerns are the basic hindrance in using Technology related to banking services

v The st udy proved t hat t here is a posit ive relat ion bet ween im plem ent at ion of IT and delivery of service. In ot her words, Banks are m oving t ow ards im plem ent ing IT enabled services t o deliver bet t er service, im prove com pet it ive posit ion and also geographical reach. v v Over 65% of the foreign banks, 20% Private Banks and 9% Public Sector Banks are all through with the implementation of IT enable services in their banks. However, 45% of the Private Banks and 36% of the Public Sector Banks are in the implementation stage of I.T. v v Almost 57% of the Respondents Strongly Agree that Competitive Pressure is one of the Lead Factor Driving towards the implementation of Technology. 45% of the Bank Respondents Strongly Agree that Operational Efficiency and Business Process Reengineering are the Factors that drives the Implementation of Technology in the Banks. 37% of the Respondents remain neutral when asked if the drive towards Implementation of Technology is due to Organizational Restructuring. v v On criteria "Impact of Technology is Reducing Physical Infrastructure Cost of Bank"--The Impact of Technology on Reduced Physical Infrastructure Cost of Bank is same across all the Banks


EMPLOYEES PERCEPTION  

Focus aspects of Commercial Banking now are:
BANK ’ S BUSINESS
MIS & Intranet

LOANS & MISC . SERVICES

STISOPED GNISIAR

Core Banking ( CBS ) Electronic Banking

ATMs

POS Terminals and Cash dispenser

Corporat e Network Any Branch Banking CRM Risk Management

Card Management Document Management Resource Management

BANK ’ S BUSINESS

The Future Technology Scenario
v All m ajor developm ent s in t he banking and financial sect or in India in t he next five years will revolve around t hree m ain processes. These t hree processes are in m ot ion and will be well on t he way t o com plet ion wit hin t he next t hree years. They are: a) Consolidat ion of exist ing nat ional clearing & set t lem ent m echanism s along w it h t he universalisat ion of elect ronic paym ent s syst em s. b) Quant ificat ion and m anagem ent of risk sensit ivit y driven by Basel II norm s. c) Universal Financial Inclusion.

v
v Implicit in these processes is the need to cover a wide geographical area and the need to speed-up the process of end to end transaction processing. v It is one thing to engineer and implement a technique for making payments electronically, and another to make it usable and accessible (e.g. network technologies only make it possible to transmit information securely- they do not address transmission of payments, nor do they do anything to further the transaction once payments information has been

Continu…
v As an ent ire solut ion, t he IT environm ent should also and will be as flexible as possible, accept ing different paym ent m et hods consist ent w it h t he m arket and business. Next , IT solut ions will help t he bank collect inform at ion about t he cust om er. v They should be integrated into the general business environment, generating actions to be taken as a result of any of the following transactions: (a) Product delivery instructions (b) Transaction settlement (c) Account activity reports (d) Confirmations (e) Transaction status reports (f) Information gathering

Innovative Risk Management Complex Credit Calculations

Global Operations

Pervasive Branch Network

kin an B

g

nd a

no ch Te

gy lo

Mass Transaction & Items Processing

Training needs in Indian Banks
v The need for a com prehensively t rained m anpower base t o m anage, adm inist er and cont rol a count ry-wide IT enabled banking and financial environm ent cannot be overem phasised. Any t echnology solut ion, in t he ult im at e analysis, is only as good or as bad as t he people who use t he solut ion. v There is, at present, a major gap in the banking industry between the technology skill-set required to administer banking operations of the next millennium and the managerial demands of this new environment and the skilled manpower available. Not only is there an urgent need to train a very large number of people across several levels and several institutions, there is also the need to ensure a sort of continuity by setting-up a dedicated IT cadre or group in all institutions.

Continu…
v The educat ion and t raining needs can be addressed at t he following levels: LEVEL TARGET SOURCE (1) General aw areness Cust om ers/Client base TV/print m edia cam paign. (2) Funct ional aw areness All bank/inst it ut ion em ployees Int ernal A/V t raining capsules. (3) Operat ional Module Operat ional personnel Int ernal hands-on t raining & CBTs. (4) Inst allat ion/im plem ent at ion Core im plem ent at ion personnel Out -sourced t raining. v Management Module. There is also need to realize that training is not a fireand-forget mechanism which ensures availability of skilled manpower at all times. Training must be a rigorously scheduled, continuous process and incorporate provisions for periodic updates and reviews.

CONCLUSION
So what would a bank’ s in-house IT est ablishm ent be doing in t he next decade or so? Prim arily, it w ould be :
 

v Creating vision statements for banking of the future; Establishing the boundaries of the business of banking in the medium to long term. v v Analyzing and solving the implementation issues involved in translating the industry’s long term goals and evolutionary objectives into feasible organizational and managerial processes. v v Identifying products, services, opportunities and threats in banking of the future; Creating the definitions of deliverable products and services flowing from the business needs of future banking. v v Impact analysis of IT deployment vis-à-vis operational and managerial processes and business products; Benchmarking and quality control of IT solutions; Modeling of risk paradigms; IT Security and audit policies and parameters.

Continu…
v Disast er m anagem ent and cont ingency planning design and im plem ent at ion t o ensure business cont inuit y; Modeling of t echnology change m anagem ent paradigm s. v System requirement studies of operational areas and specific business problems where IT deployment is considered; Evaluate techniques for assessment of life-cycles of applications and build cost of ownership models. v Helping IT industry to understand banking industry’s business requirements; Be a certification authority for enabling a secure and accepted, standards-based messaging solution for the Indian banking and financial sector.

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