BANKING MANAGEMENT-What was the strategy adopted by the ICICI Bank for Development of Banking

What was the strategy adopted

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

What was the strategy adopted

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.

What was the strategy adopted

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.

What was the strategy adopted

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 24×7 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.”

What was the strategy adopted

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.

What was the strategy adopted

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 24×7 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 24×7 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.

What was the strategy adopted

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.

Questions

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 24×7, 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.

Existing customers also get access to Internet delivery channels.

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

aravind.banakar@gmail.com

ARAVIND – 09901366442 – 09902787224

 

 

 

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