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BANKING MANAGEMENT
CASE STUDY 1
ICICI Centralizes Applications
ICICI centralizes applications for 'anywhere'
When anytime, anywhere banking came to our country,
ICICI Bank had to move away from the branch-centric model and make its services
available nationwide. The solution was to centralize its applications. by Minu
Sirsalewala
ICICI
Bank, India's second-largest bank with a network of about 540 branches and
offices and over 1,000 ATMs offers banking products and financial services to
corporate and retail customers through a variety of delivery channels. The
legacy systems at ICICI group (now called ICICI Bank) were stand-alone systems,
networked only for basic e-mail and none of the core applications were linked
to the network. Around 1998 the company realized that to improve its operations
and increase efficiency it needed to centralize its core banking applications.
Legacy systems
The
traditional systems at ICICI Bank were very centric to the branch. For example
a server at New Delhi was specific to the branch in that city; the ATMs were
standalone catering only to the city branch. The banking transactions were thus
limited to the respective branch offices as customer data was not available in
other branches. This made banking a limited service and very branch specific.
ICICI realized the importance of offering nationwide banking but this would be
possible only by having a centralized data repository.
The shift
The
basic network was set up for providing the e-mail facility, but none of the
applications were linked to the network. The network comprised of a mix of
servers running different applications at various branches of the bank. With
growing business and rapidly increasing accounts, the company found it
extremely difficult to administer and manage the system.
This
also resulted in duplication of backend services and procedures, as the systems
were not centralized for the core banking applications.
"There
was a lot of additional cost being incurred due to the duplication of the
backend procedures at the branch offices," said Manoj Kunkalienkar, Joint
President ICICI Infotech Services Limited.
The
centralization procedure started around late 1999. ICICI Infotech (a company
promoted by ICICI) made the first network design for the group in 1999—it was a
hub and spoke architecture. Utmost care was taken to design a network with a
strong backbone. According to Manoj, the key strength of a network is its
back-bone. The group's various centers are connected by 2 Mbps or 4 Mbps leased
lines.
Manoj said the design
considerations not only included high bandwidth availability but also the fact
that a single point of failure should not result in lines going down.
The group realized that it had to
enter into the retail space, have local regional presence, and provide
alternate channels to the customer. They needed a solution whereby they could
offer services across the country.
"Centralizing the operations
was not the solution, but centralization of data was. We had already
centralized some of the operations but we still had some branch applications
running independently which were not centralized and had ATMs which were
stand-alones. Two major criteria considered before designing were not only the
network, but also the infrastructure available in our country," said
Manoj.
In the past, the infrastructure
here was such that a company could not rely on leased lines completely. So
ICICI needed backups on ISDN and VSATs, along with the 64 Kbps leased lines.
"The leased lines were too expensive then, now the lines are better, more
stable and offer good connectivity. The cost has also come down by around 15
percent."
Manoj
opined that what was really important was to have a world class data center and
centralize everything in one place, as that's where the network can be used at
the maximum. To ensure 24x7 service access and connectivity to customers one
needs to have reliable backups and a robust network in place. From a business
perspective, the main reason to go in for a network was centralization of data,
provide all channels of communication and at the same time provide anytime,
anywhere banking. "The problem we faced with our legacy systems was that
they were stand-alone systems and the data from one branch was not available
with another branch."
These problems led us to the new design of the hub and spoke
architecture.
The big solution
What ICICI was looking for was a
robust network, which would enable it to offer services at the retail level
throughout the country. The in-house ICICI Infotech was the obvious choice for
consultation. The ICICI Infotech team designed the initial network topology in
1999. The team had put forward a series of designs, not radically different
from each other.
Eventually, a design with a mix
of VSATs, leased-lines, radio-links and ISDN was selected. A mixed design was
selected because of the disparate locations of the group across the country.
There were different technical problems in different locations and the next
best available solution had to be included.
"The basic topology has
withstood over the years. What we have today is still the basic architecture
with just new additions in terms of just more bandwidth," said Manoj.
The
advantage in a hub and spoke architecture is that multiple nodes (spokes) are
connected with a hub location through a ring of single-mode fiber. Each
hub-node connection can consist of single or multiple wavelengths (lambdas),
each carrying a full Gigabit Ethernet channel. Protection from fiber cuts in
the ring is achieved by connecting the hub and nodes through both directions of
the opticalring. Service provider Gigabit Ethernet metro
access rings are the main applications for this architecture. And another
advantage is that nodes can be added to the network more easily.
Methodology
The most important aspect to
setting up a network is to have a good relation between the technology
consultant (network integrator), the vendor and the client.
"The vendors in the market
are more or less capable of giving the same results, like the same amount of
redundancy or strength of the network," said Manoj. "What really
matters is the relation between the three. If there is harmony amongst the
three, then better results will be achieved."
The client plays the most
important role as he has very low time to market, and delivery is required at
the earliest.
"A
series of products are available in the market. As the time to market is so
short, we (ICICI Infotech) select the products available in the market and
integrate them. This takes care of 98 percent of the solution requirement and
then we build the other two to three percent around it and deliver the perfect
solution to the client," explained Manoj.
The Network
As we said before, the network
follows a hub and spoke architecture—a mix of VSATs, leased lines, ISDN and
radio links. It has around 800 leased lines, about 600 VSATs, approximately 800
ISDN lines and multiple 34 Mbps lines.
The
network supports the ICICI group offices, banks, branches, and over 1000 ATMs.
There is a primary site from where spokes go out to the regional branches and
the other offices. The secondary site has the disaster recovery system.
There are around eight hub
locations, which have 3, 4 or 8 Mbps lines as per the requirements for
connecting to the branch and regional offices.
High-end
Cisco routers and switches have been deployed for connectivity. The network is
monitored using HP OpenView and CiscoWorks. Over 30 portals are operating using
a highly secure state-of-the-art security architecture, which consist of
firewalls, intrusion detection systems, virus protection and various other
tools.
The main production site is at
Mahalaxmi, Mumbai (the primary site), and has been built to international
standards.
The
disaster recovery site (the secondary site) is located at ICICI towers in
Bandra-Kurla complex, Mumbai and is used for replication of data. A distance of
25-30 kms separates the two centers and they are linked with two 34 Mbps leased
lines. To ensure reliability and 24x7 availability, the leased lines pass
through separate exchanges.
Before
the data moves on to the leased lines, it passes through two CNT storage
directors that convert this data into WAN-related traffic before it is sent on
the leased line to the other data center. The high-speed leased lines make it
possible to synchronize data in real-time between the two centers.
Hardware
at both these sites varies from low-end NT servers to the high-end SUN E 10K
along with 12 terabytes of data storage at each end connected through a SAN.
The group's facilities management team manages over 9,500 desktops, 500 servers
and works around the clock. CA Unicenter is used for managing the helpdesk,
desktops and servers, asset management, software delivery and remote control.
Unix
is the preferred OS for most of the hardware while most of the databases use
Oracle with a few on Sybase and MS SQL. Over 200 databases are supported with
24x7 processing. The state-of-the-art technology architecture adopted by ICICI
Bank needed robust security, and this was designed by qualified experts from
its Systems Security Cell. This security design includes preparation,
implementation and maintenance of the Systems Security policies and procedures
across all systems, ensuring general user awareness about these policies and
enforcing the policies through systems audits. The security cell has developed
several tools, which are the first of its kind to address several
vulnerabilities on Unix, NT and MS-Exchange. The system security is audited by
KPMG.
Challenges
Once the network was up, ICICI
Infotech faced the challenge of ensuring smooth operation and minimum downtime.
Manoj agrees glitches cannot be avoided and while one has to try and prevent
these, one also has to think about the growth of the network, in line with
business expansion.
"No walk is very smooth.
Glitches are, and will always be there," said Manoj. "What was of
prime importance was to keep pace with the business and its expansions.
Technical problems are not difficult to handle—there is always a solution to
them but other problems like the existing infrastructure of the country, the
individual business needs are very taxing."
According to Manoj, the real
challenge came while designing and deploying the network, as the team had to
view business processes at a very micro level. They had to identify the exact
areas where the business needed to be expanded, and then find the best suitable
option to connect to those locations.
The ICICI VSAT network is large, with almost a
thousand nodes. Keeping it going turned out to be an even bigger challenge for
the group. The entire network is monitored from one center. Any error in the
network at any point is rectified in a short span of time and the system is up
and running with minimum downtime.
Another
challenge was to keep pace with business growth. "The only technological
challenges we face are in terms of the quality of the lines, as they are not
same all the time. Typically, the router and switch software is written
assuming a certain quality of the line. As a result, if the quality of the line
is not stable and fluctuates, the systems do not function efficiently. Ensuring
the required line quality is a major challenge. An obvious solution to this is
to interact and talk with the vendors and get it customized for an Indian
client's requirements," explained Manoj.
Manoj reiterates that it's important
for the vendor and the client to have a good rapport so that they do not just
provide the client with boxes but change the operating system (and other
relevant software) as and when needed.
The basic topology has not
changed. "Initially we had started with connecting seven locations. Today
all the centers and offices are connected making virtual banking a
reality," said a proud Manoj.
Benefits
With
the centralization of data all applications are controlled, modified and
administered from one location. The network has enabled the bank to shift from
traditional banking to virtual banking thus offering modern banking services to
its customers. All backend applications run from a centrally located data
center. This eliminates duplication of processes like backend operations,
training of staff, administration cost, and other system related costs at
branch levels. Clients can avail of anytime-anywhere banking on the Net and
make use of their ATM cards at any of the ATM centers across the country. Considerable
amount of cost has been saved as the backend operations of regional offices
have been eliminated. The data for all the customers is centralized and
processed from the centrally located data center. Information for any ICICI
client will be available at any of the ICICI branches.
What was the strategy adopted by
the ICICI Bank for Development of Banking ? How automation helps the Banking
Services?
Cost factor has become important
in banking services.
Give your comments. Lessons
learned from the above case study.
CASE STUDY 2
eAge Banking in Baharain
When a leading bank in
Bahrain went shopping for a comprehensive banking solution, it chose CMC's
TC/4.
Using
CMC's state-of-the-art total banking solution, a leading bank in Bahrain is
providing its customers the full range of e-age value-added banking services
via the internet, mobile phones and ATMs. TC/4 has given the bank a
technological edge over the competition and streamlined its operations across
all branches.
Client
A leading bank in Bahrain
providing retail and commercial banking services. It has several branches and
ATMs in Bahrain and operates an overseas branch in Abu Dhabi.
It offers its customers one-stop
banking services, including personal and corporate banking, foreign exchange
and money market instruments, and fixed yields to variable returns investment.
The brief
The
bank needed a robust system to deliver the latest value-added services to its
customers to replace its existing banking system/technology.
The broad requirements were:
Centralised banking
solution Interfaces to existing systems Disaster recovery solution
Internet banking
solution
The solution
CMC has successfully developed,
customised, and implemented application software for a number of Institutions
in the financial sector in India and abroad. These include banks, mutual funds,
stock exchanges, and insurance companies. By virtue of its impressive track
record and previous implementation at the Bahrain bank, CMC was the natural
choice for the enhancement of its existing system.
Product
TC/4©
is a highly secure, extensively parameterised, multi-currency, multi language
system that provides rich core banking functionality. The system has a fully
integrated and highly flexible multi-currency general ledger. The system can be
interfaced to a multitude of new-age delivery channels such as ATMs, remote
terminals, kiosks, internet banking, tele-banking, e-cheques and other delivery
and payment systems. The open framework provides immense scalability and allows
easy integration with external systems such as treasury, trade finance dealing,
asset liability management systems, etc.
TC/4 provided precisely what the
bank was looking for. It was customised to suit the bank's requirements and is
being implemented at the bank in Bahrain by the CMC team.
Strengths
Provides anywhere,
anytime banking 24 X 7
Interface possible at
central level for various delivery mechanisms (internet banking, tele-banking
and ATM's)
All branches,
although geographically spread out, yet connected to the central server.
Introduction of
products and services online, real-time, based on market requirements, enables
the bank to have a cutting edge over its competitors
Multi-lingual support
allows the user to have screens and reporting in any language. Manages
financial risks and identifies revenue opportunities
Gives the bank's
position at a glance
Strengthens bank's
market position through innovations using new delivery channels
Implementation of TC/4
CMC
has been one of the leading system integrators in India since a very long time.
It has perfected the methodology for smooth implementation of large-scale
financial systems. The implementation is being done in the following sequence :
Gap Analysis - involved the study of additional
functional requirements of the bank Customisation of TC/4 based on gap analysis
Development of interfaces to external system
Pre-shipment acceptance test by the bank Site acceptance test
Data
conversion and Migration Training to the bank staff Pilot branch roll out
Transition to new system
Benefits
Any time,
anywhere banking
Interface possible at central level for various
delivery mechanisms like internet banking, tele banking, ATM's etc.
On-line bank-wide MIS
Centralised control from the host site and
enforcement of procedures Ease of addition of new branches
Cost effective
disaster recovery setup
Easy introduction of new products/services at the
bank level Automated inter-branch reconciliation
Data warehousing
support
Requirement of
technical expertise only at the central site
Questions
What were the
requirements of bank ?
What is the
message from the above case study?
How customers
can attracted by improving services of the bank?
CASE STUDY 3
Financial Risk Management at Union Bank of Switzerland
One
of the largest investment managers in the world, UBS had four major segments.
UBS Wealth Management & Business Banking, UBS Global Asset Management, UBS
Warburg (Investment Banking) and UBS Paine Webber (wealth management for
private clients. UBS served institutional investors and high-net-worth
individuals by offering a range of products and services including mutual
funds, asset management, corporate finance, and estate planning. UBS also provided
securities underwriting services, mergers & acquisitions advice and traded
in fixed-income products, and foreign exchange. The company also provided
traditional banking services. To strengthen its asset management capabilities,
UBS had bought RT Capital Management (renamed Brinson Canada), the
institutional asset management business of RBC Financial Group, Canada. UBS
also had plans to expand its private banking services in Europe. UBS had more
than 69,000 employees operating in more than 50 countries. ....
Background Note
Businessmen
in Winterthur, Switzerland, formed the Bank of Winterthur in 1862 for trading,
financing railroads, and operating a warehouse. In 1912, the bank merged with
the Bank of Toggenburg (formed in 1863) to create Schweizerische
Bankgesellschaft -- Union Bank of Switzerland (UBS).
UBS
expanded in Switzerland, buying smaller banks and adding branches. Though it
was hit hard by the Depression, the bank benefited from Switzerland's
neutrality in WWII, collecting deposits from both Jews and Nazis. Expansion in
Switzerland continued after the war with the purchase of Eidgenossische Bank of
Zurich. In 1946, the bank opened an office in New York.
UBS
continued to grow by acquisitions in the 1950s. By 1962, it had 81 branches. In
1967 it opened a full-service office in London. During the 1970s, UBS
established several securities underwriting subsidiaries abroad. But the firm's
UK brokerage business was hit hard by the 1987 US stock market crash. Over the
next two years, losses continued, prompting an overhaul of the London
operations. Then the bank's US operations were badly affected by the collapse
of the junk bond market in 1990. Notwithstanding these setbacks, UBS set up
offices in Paris, Singapore, and Hong Kong and took over Chase Manhattan's (now
J.P. Morgan Chase) New York money management unit in 1991. The firm also
continued to expand within Switzerland, buying five more banks to boost market
share and strengthen its branch network. But these acquisitions left UBS with
overlapping operations and a bloated infrastructure when recession hit. Falling
real estate values left the bank with a heavy load of nonperforming loans.
In 1994, as profits plummeted,
stockholder Martin Ebner, tried to gain control of UBS. After failing in his
attempt to have president Robert Studer charged with criminal fraud, he almost
thwarted Studer's election to the chairmanship.
UBS launched a major
reorganization in 1994 by consolidating its consumer credit operations. The
next year it joined with Swiss Life/Rentenanstalt to offer insurance products
through its bank network.In 1996, after rejecting Credit Suisse's merger bid,
UBS began another major reorganization.
The bank reduced the number of domestic branches
and wrote off billions of francs in bad loans, leading to the bank's first loss
ever.
In
1998 UBS merged with Swiss Bank Corp in one of the most celebrated mergers in
banking history. The bank lost $1.6 billion after the Long-Term Capital
Management hedge fund went bankrupt in October 1998. This prompted chairman
Mathis Cabiallavetta to resign.
As
difficulties in integration of the pre-merger entities continued in 1999, UBS
retreated from riskier markets, selling some $2 billion in real estate, and its
25% stake in Swiss Life/Rentenanstalt. That year, UBS bought Bank of America's
European and Asian private banking operations and Allegis Realty Investors, a
US real estate investment management firm. In 2000, UBS reorganized yet again
and bought US broker Paine Webber (now UBS Paine Webber).
Questions
What do you understand by Financial Risk ?
How banks can tackle the risk in their business?
Is real estate
management a risky sector in banking?
What is the
message of the above case study?
CASE STUDY 4
END TO END RETAIL BANKING SOLUTIONS FOR A JAPANESE BANK
One of the top ten commercial banks in Japan with total asset base of
US$ 120 billion.
The key challenges facing the Bank were to:
Streamline existing
business processes and improve customer service to cater to surge in business
volumes.
Align business
operations and technology in tune with its new vision. The Bank had more than
40 disparate application packages that coexisted.
Some of them were
interconnected while some were standalone. In addition, there were around 20
interfaces to external systems or networks, on which the operations depended.
Achieve a reduction
in overall operations processing and technology costs over a period of time.
Leverage existing infrastructure with new
components that addressed the demanding market requirements and still enable
reduction in overall operational costs. By virtue of being fragmented, the
current corporate systems, although functional, are not very efficient. Also,
these were legacy systems on older generation technology, with in-house development
taking place over several decades and therefore difficult and expensive to
maintain.
Retain existing
customers Attract new customers
Reduce time-to-market
for new products
Strengthen management
information systems Improve operations and processes
Reduce costs, improve
bottom-line and stakeholder rewards
i-flex proposed FLEXCUBE to provide an integrated,
scaleable and open platform solution with multiple access points to:
Provide a
Multi-currency General Ledger and a flexible, scalable and integrated
end-to-end Banking platform to support new, strategic and complex Japanese
Retail Banking products.
Enable multiple new
delivery channels (Internet Banking, 7 X 24 ATM, Mobile Banking, Tele banking
and Call centers and Point of Sale Terminals), allowing the Bank to reach out
to new target segments and customers in the quality conscious and complex
Japanese market.
Provide Business
intelligence and analytics to equip the Bank to access information and analyze
customer profitability, product profitability and credit risk management.
Customer Centric Front-end
The entire front-end has been
made customer-centric. The retail customer, irrespective of transaction or
channel now has just one identifier, which enables access to all delivery
channels. The browser based front-shows the customer’s entire relationship with
the bank in a summary screen. This shows the customer’s total holdings at the
moment in the bank, including DDA, TDA, loans, mutual funds etc., at a level
consolidated by the above account types. This can be drilled down multiple
levels for a detailed view of the customer relationship.
Support for the entire spectrum of delivery channels
Complete support for all delivery channels
including branch, ATM, Telephone, Internet and Mobile Phone.
Complex Network Interfaces
Interfaces
with Zengin (interbank remittance network internal to Japan), RTGS systems,
Bank of Japan Net (BoJNet) for settlements, as well as a host of other networks
for Debit Cards and ATMs. Inter bank connectivity enables the customers to
transfer funds between accounts over a selection
of banks.
Real Time FX rates to enable FX trading
Real
time access to the customer for foreign exchange rates round-the-clock. This
system takes rate feed from standard market rate feed vendors
and creates the Retail Offer Rate
for the customer. This offer rate is the exchange rate that the customer gets
at the time of doing FX transactions from any channel. This rate is computed
real-time 24x7, using market feed, spread, positions, customer ratings and
other parameters. The customer can even leave orders to sell JPY when the
exchange rate crosses a pre-set threshold.
Business Intelligence and Decision support capabilities
Provide analytical tools to the
bank in the areas of Credit risk, Product and Customer profitability and
Financial Reporting. This is built into the data warehouse component of the
FLEXCUBE suite. This will take data from the systems, and apply pre-defined
analytical models to them to provide a DSS to the management.
i-flex acts as a one stop shop
for the Bank. The phased implementation solution not only addresses the
application implementation but also comprises value added services such as:
Business process
re-engineering strategy.
Deployment of
multi-skilled project teams parallely working to address the different
components.
Training and
consultancy to bring the users up the new technology learning curve.
Consultancy on data
migration, Japanese language etc.; and joint project teams that would undertake
the translation efforts.
Complete, one-stop solution for
immediate and long-term needs. Multiple delivery channels support.
National Language (Double byte) support.
Comprehensive Business intelligence, Analytics and management
information systems.
Modular architecture enables phased implementation in line with current
priorities with minimum operational dislocation.
Local support.
Platform independence.
Globally enriched products and best business practices.
According
to the Bank’s spokesperson: We chose FLEXCUBE because it offered us a rich set
of features and a very flexible platform to build new product capabilities for
our customers. It supports customer service through branches and remote
channels. As a partner, i-flex solutions has acquired depth of knowledge and
extensive experience in banking technology to help us customize FLEXCUBE for
the Japanese business environment and roll it out rapidly.
Questions
What was the plan of Japanese Bank for Customers
How customers were with the solution?
Was there any
cost impact?
Important
lessons from the above case study?
Need Answer Sheet of this Question paper, contact
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