Total Banking Automation Strategy of Indian Banking

Total Banking Automation Strategy of Indian Banking!

Indian banking industry is now in the midst of IT revolution paving the way for the introduction of new technology into banking operations. Increasing importance of total banking automation in Indian banking industry has been realised because of a combination of regulatory and competitive scenario.

Information Technology has been largely used basically under two different avenues in Banking. One area is communication and connectivity and the other in Business Process Reengineering.

Information Technology and its application in banking enables bankers towards sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks and helps the financial intermediaries also to reach geographically distant and diversified markets easily.

As a result of this, modern technology has largely changed the contours of three major functions usually performed by banks, i.e., access to liquidity, transformation of assets and monitoring of risks. Moreover, Information Technology and the communication networking systems have an important bearing on the efficiency of money, capital and foreign exchange markets.

In India, the Software packages for Banking Applications had its beginning in the middle of eighties, when Indian Banks made an attempt to computerize their branches in a limited scale.

During the early part of nineties, taking the advantage of plummeting hardware prices and advent of cheap and in expensive but high powered PCs and servers, Indian Banks took steps for what was called Total Branch Automation (TBA) packages.

The middle and late nineties virtually witnessed the tornado impact of financial reforms, deregulation, globalisation etc. along with rapid revolution in communication technologies and also evolution of the novel concept of ‘convergence’ of computer and communication technologies such as internet, mobile/cell phone etc. for better services and selections.

In recent years, the Reserve Bank of India has been taking necessary initiative for improving the efficiency of the financial system by ensuring the presence of a safe, secure and effective payment and settlement system.

While undertaking this process, the RBI has played an important role to promote functionality and modernization of the system on an ongoing basis, apart from performing its regulatory and oversight functions.

The existing payment system has been consolidated by revolving around strengthening computerised cheque clearing along with expanding the reach or access of electronic clearing services (ECS) and Electronic Funds Transfer (EFT).

Under this process, the various critical elements of this current development strategy include—the opening of new clearing houses, interconnection of clearing houses through Indian Financial Network (INFLINET) the development of a Real-Time Gross Settlement System (RTGS), a Centralised Fund Management System (CFMS), a Negotiated Dealing Management System (NDS) and the Structured Financial Management System (SFMS). Besides, another thrust area in this process is the integration of various payment products with the systems pursued by individual banks.

Milestones Achieved:

In the mean time, banks and other financial entities already entered into the world of information technology and also with Indian Financial Net (INFLINET). INFLINET is a wide area satellite based network (WAN) using VSAT (very small Aperture Terminals) technology which was jointly set up by the Reserve Bank of India and the Institute for Development and Research in Banking Technology (IDRBT) in June 1999.

Initially, INFLINET comprises only public sector banks but later on it was opened up for participation by other categories of members.In recent times, the first set of applications which could benefit greatly from the adoption and use of technological advances in the computer and communications area relate to the Payment Systems which usually form the lifeline of any banking operation and its activity.

The introduction of the process of reforms in payment and settlement systems has gained momentum with the implementation of various projects like Negotiated Dealing System (NDS), Centralised Funds Management System (CFMS) for introducing improved fund management practices by banks and Structured Financial Messaging Solution (SFMS) for availing secure message transfer.

Thus SFMS facilitated fund transfers and funds-related message transfer routed electronically across banks by using the medium of INFLINET. Besides, Negotiated Dealing System (NDS), introduced since February 2002 and Real Time Gross Settlement system. (RTGS), introduced since December 2003, are some other major developments in this direction.

Internet has been largely used in banking operations and has significantly influenced delivery channels of the banks. Internet has largely emerged as an important medium for delivery for banking product and services. Detailed guidelines issued by the RBI for Internet Banking has already prepared necessary ground for growth of Internet banking in India.

The Information Technology Act, 2000 has already given clear legal recognition to creation, transmission and retention of an electronic (or magnetic) data which has been used as a valid proof in a court of law except in those area of operations which are usually governed by the provisions of Negotiable Instrument, Act, 1881.

While commending the utility of new technology, the RBI in its Annual Monetary and Credit Policy, 2002-03 observed, “To reap the full benefits of such electronic message transfers, it is necessary that banks bestow sufficient attention on the computerisation and networking of the branches situated at commercially important centres on a time bound basis. Intra-city and Intra-bank networking would facilitate in addressing the ‘last mile’ problem which would in turn result in quick and efficient fund transfers across the country”.