Leveraging IT for Corporate Banking Business Benchmarking

Leveraging IT for Corporate Banking Business Benchmarking

In the dynamic global scenario, it has become an undocumented mandate for the Public Sector Undertaking (PSU) banks in India to implement Information Technology (IT) infrastructure, in order to face the competition posed by private players. Indian public sector banks started their business with mere pens and papers. However, the business needs have driven them gradually towards IT implementation initiatives (Joshi, 1991). Over the years, the amount of investment by PSU banks in building up and maintaining IT infrastructure is mounting up (Exhibit I). The same phenomena came about with the oldest PSU bank of India.

Contrasting to private sector banks, the PSU bank in consideration plays a twofold responsibility of making yield and proffering banking services to the inhabitants all the way through the country. Consequently, the bank had put up an all-embracing branch association across the country that integrated numerous branches in not-so-lucrative areas. Dearth of unswerving network infrastructure slowed down the accomplishment of computerization of the bank until late 80’s. At this time, customer details were usually preserved with either semi-manual or manual ledger book procedure (Kozak, 2005). After 1990, when Indian economy took a rapid pace, and government announced the commencement of private sector banks, the business scenario started changing. Middle class and upper class consumer segments were fascinated towards the new entrants, and the PSU bank in consideration started to lose its business, as consumers were considering it as technological dawdler.......................

Industry Overview

Indian banking sector has observed a significant advancement in IT implementation in past few years. Banking transactions have turned out to be uncomplicated because of technological upgradation (Wu, Hsia & Heng, 2006). To play encouraging and explanatory functions, banks are providing with umpteen services, which are amalgamations of electronics and information technology, like Automatic Teller Machines (ATMs), plastic money (credit card, debit card and smart cards), mobile banking, net banking, etc. It depicts an increasing split and improved competitiveness at the comprehensive facade due to espousing IT culture..........

System Architecture

The server system of the bank was built on Uniplexed Information and Computer Systems (UNIX) environment. The programs were written in Common Business Oriented Language (COBOL) and Shell Script. The front end was built on JavaScript and Extensive Markup Language (XML). The database was built on Oracle 10G. There were three instances of the database (Exhibit VI). In the first instance, all the live transactions used to get stored. Daily after 6:30 PM, data from first instance of the database used to be duplicated to second instance.............

Prevailed Practices and Problems

Subsequent to the initial IT implementation, basic operations of the bank started to run smoothly. Ideally, first stage of the implementation was over. However, the troubles started to arise while moving towards further stages of implementation. As the number of branches started to rise, new complications started to show up one after another. As the prevailing practices of the bank were just replicated into the systems without any modification of the functional aspects, the existing IT infrastructure was not able to cope with rapid growth of business of the bank. Problems were majorly in the areas of financial reporting, mergers and acquisitions, audit trail, and risk management reporting. Here practices and problems in those areas are discussed.

• Financial reporting

There are several reports those are used by the bank for running their business smoothly, as well as for the internal and external audit purpose. The important reports are as follows:

• Weekly statement of affairs: This report contained the weekly position of assets and liabilities of the bank. This report used to come for all branches and the bank as a whole.
• Yearly statement of affairs: This report contained the yearly position of assets and liabilities of the bank. This report used to come for all branches and the bank as a whole.
• Balance sheet: This was the audited financial report containing asset and liability details of the bank.

• Account mapping

Generally, there are several different report heads for reflecting one particular amount of balance, as interpretations and requirements of various reports are different. For example, the operating expenditure amount of any branch must appear in its P&L statement, as well as in its performance report. Therefore, both the amounts should be same.

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Initial Implementation Plans and the Future

Faced with the critical situation, various solutions emerged out to encounter the problems. The solutions were very specific in nature. However, major problem with all the solutions were the short-term nature of them. The focus was to deal with those problems for specific time being. Concern of officials from both the parties was to get rid of the situation temporarily and then to formulate a long-term sustainable strategy to encounter those problems. The initial plans are discussed one by one.

• Financial reporting

All the balances those appeared in the reports were reconciling in nature. This was a major feature of the reporting architecture. Solution was to leverage out this advantage. Firstly, mismatched balances of the respective heads were calculated and the reconciling rectification entries of those balances were found out..........

• Mergers & acquisitions

After the reports of merger came out, there was a huge chaos in terms of the improper balances in new reports of the merged entity. The balance sheet was not matching; balances were missing from profit and loss statement, interest provisioning and capitalization was wrong in customer accounts, performance report started to show negative performance of branches of the bank that was merged...........

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The Future

The software quality control measures did not come up in a single day. Some of the measures were proactive in nature, and some of them were reactive. However, there is one thing in common for all of them – iterative processes formulated all of them. Spiral model was preferred over waterfall model, as business risk involved in the processes was very high. Detailed test cases, iterations were developed by systematic brainstorming sessions..........

Exhibits

Exhibit I: Expenditure Incurred on Computerization & Development of Networks (in INR crore)

Exhibit II: Major Pain Areas in Corporate Banking

Exhibit III: Profit & Loss Statement of the Bank (in INR crore)

Exhibit IV: Status of Branches of PSU Banks in Terms of Computerization

Exhibit V: Average Channel Cost per Transaction for Indian Banks

Exhibit VI: Database Architecture of the Bank

Exhibit VII: Quarter-end and Year-end Reporting Mechanism

Exhibit VIII: Account Mapping Architecture for the Financial Reports

Exhibit IX: Beta Factors related to Each Banking Domain

Exhibit X: Conflict Resolution Mechanism

Exhibit XI: Audit Trail Mechanism for Balance Sheet and P&L Statement

Exhibit XII: Risk Management Report Architecture

Exhibit XIII: Sample Risk Management Report for the Bank

Leveraging IT for Corporate Banking Business Benchmarking

Synopsis

During post liberalization period, an Indian public sector bank faced huge problem regarding standardization of the business processes, especially in corporate banking domain. The competition was posed not only by the private sector players, but also by other public sector players. The pain areas were mainly in the financial reporting domain of corporate banking. With the help of their strategic IT partner, they designed different modules for their different corporate banking business domain. Designing of those modules in turn resulted in better performance in those areas. Later on, those processes were considered as the  benchmark for any further developments in those fields. With graduation of time, the changes in technology standard had brought forth modifications in those modules, but the functional architecture remained as it was.

This case study focuses on the advantages of IT implementation in banking business. A paradigm shift is possible by leveraging the IT infrastructure. It is a learning experience for both the vendor and as well as the client, as both of them has to go through a series of brainstorming sessions to germinate new ideas for future. Once the new ideas are brought into practice, the business domains can get the best out of their investment in IT.

Expected Learning Outcomes

• • The management and leveraging of technology in the field of banking
• • How the banking operation is largely driven by IT
• • Operational issues related to back end operation of bank
• • The areas of improvement in the banking sector in terms of IT implementation
• • The future scope of improvement as the industry practice emerges

Case Positioning and Setting

This case study is suitable for the participants in the following areas:

• • Master’s in Information Systems
• • Master’s in Service Operation
• • Master’s in Bank Management
• • Training in Total Quality Management
• • Training in Software Quality Management
• • Training in Project Management in BFSI Domain
• • Training in Software Architecture Designing in BFSI Domain

Assignment Questions

• I. Was the TSA approach appropriate in the given architecture? Provide proper reason. If not, what could have been a more appropriate approach?
• II. Identify the major problem (not specifically related to IT) attached with audit trail mechanism and the measures to rectify the same.
• III. .....................