1. Core Banking
&
Electronic Clearance and Settlement
System

2. • Gartner defines a core banking system as a back-end system that processes
daily banking transactions, and posts updates to accounts and other
financial records.
• A few decades ago it used to take at least a day for a transaction to reflect
in the account because each branch had their local servers, and the data
from the server in each branch was sent in a batch to the servers in the data
centre only at the end of the day (EoD)
• Nowadays, most banks use core banking applications to support their
operations where CORE stands for "centralized online real-time
environment". This basically means that all the bank's branches access
applications from centralized data centres. This means that the deposits
made are reflected immediately on the bank's servers and the customer can
withdraw the deposited money from any of the bank's branches throughout
the world. These applications now also have the capability to address the
needs of corporate customers, providing a comprehensive banking solution.
Core Banking

3. • In simple way, it is doing all banking operations of branches
and head office by connecting to a central computer kept at
data centre
• With technology advancement particularly in “Tele
Communication” and “Wireless Communication” it became
possible to send data from one computer to another computer.
• Taking advantage of this it was thought fit to connect branch
computers to a single computer at data centre and have all
transactions of all branches recorded live at one place. This
concept is “CORE BANKING”

4. 1. Decision Making
• All the transactions of the bank directly impact the General
Ledger and Profit and Loss Account. This provides a real time
total picture about the financial position and situation of the
bank.
• This helps for timely effective decision making for financial
management, a very critical and dynamic function in today‟s
banking.

5. 2. Centralized Product Control & Monitoring
• Centralization helps in better product analysis, monitoring and
rollout.
• Aspects like interest rate modifications, product modification
and interest application can be done centrally from one place for
all the branches.
• Bank can quickly respond to market scenario and customer
needs. This gives competitive edge to the bank.

6. 3. Introduction of Technology Based
Services
• Service channels such as ATM, either on-site or off-site, can be
started.
• Cheque Deposit Machines (CDM) can be installed. Such
machine in WAN connectivity can allow any customer to
deposit the cheque for collection at any branch.
• Cheque book printing machine can be installed at central
location to give personalized cheque books. Such machine in
WAN connectivity can receive command from any branch.

7. 4. Centralized Customer Account
Management
• Any customer becomes the customer of the bank rather than of
a branch.
• With unique ID / Account Number the accounts of the
customers can be viewed centrally by the bank. As
such, customer profile, details of products and services availed
by him and customer behaviour about business of the bank can
be well understood.
• Such customer view gives the bank opportunity to decide
directions for business development and marketing strategies.

8. 5. Centralized Reporting
• Presence of centralized data constantly live up-dated at any
time ensures comprehensive report / statement generation.
• This tremendously helps in decision making as well as
submission to various authorities.
• Operational efficiency of the bank gets increased due to quick
report generation for bank as a whole.

9. 6. Centralized System Administration
• Centralized system / I. T. administration enhances system
security and user management.
• In TBA mode man-power for I. T. administration is required at
each branch. But in core banking it is required only at one
place. Thus reduction in man-power need and cost.
• Due to single point resource available I. T. manpower is
utilized properly.

10. Advantages to Head Office
1. Consolidation of MIS / statements / reporting at one place
reducing duplication of tasks at branches and it is of real time.
2. Supervision of branches on risk perceptions possible as on
going process.
3. Frequent audits and timely control measures can be initiated.
4. Quick informal decisions on real time MIS.
5. Faster and practically real time reconciliation of accounts.

11. 6. Centralized marking and movement monitoring of NPA
accounts.
7. Centralized follow-up and co-ordination of overdue and NPA
accounts.
8. For statutory reporting and compliance no need to wait for
branch compliance
9. Better ALM, especially for short term assets and liabilities
possible.

12. 10. Product-wise, customer-wise, customer profile based analysis
and decision making possible.
11. Analysis of data on any aspect of banking business and
control issues gives scope for keeping the bank professionally
healthy.
12. Clearing function is centralized reducing man power
requirement at each branch for the purpose.
13. Audit on operational aspects of the accounts can be done at a
single location as entire data is available at one place.

13. 14. User access to the computer system in the bank can be
restricted to his/her needs and authority only that achieves
safety.
15. Printing of several matters such as follow-up
notices, statement of accounts etc. can be done centrally on
“line printer” that reduces the printing time, printer and man-
power need at each branch. Such printer can be activated by
any branch on WAN command.
16. Account opening and scanning of signatures can be done at
central location.

14. 17. By installing mailing solution on the intra net of the
bank, written communication in the form of letters, between
H. O. and branches and vice versa, can be eliminated.
18. Mailing solution can set parameters for decision timing and if
not decided in time the mail can be escalated to next higher
authority. This enhances the decision making procedure and
delay at any level gets known to higher authority.

15. Advantages to Credit Department
1. Reduced credit processing time for existing loan accounts as
the Credit Department gets information handy.
2. For processing of new loan accounts the information on
product is available that facilitates proper decision.
3. Real time credit tracking by setting alerts about
delays, deviations, penalties etc.
4. Corrective measures in credit portfolio can be quickly taken
due to credit portfolio analysis.

16. Advantages to Accounts Department
1. Centralized real time General Ledger and Profit and Loss
Account almost eliminates accounting work.
2. Greatly reduces paper work, inward communication needs
and work of tallying.
3. Deadlines of statutory compliance and submissions are met
in time.
4. Balance sheet of the bank available at any day, any hour, any
moment.
5. Accounts Department can concentrate on policy, compliance
and reporting issues.

17. Advantages to I. T. Department
1. I. T. Department becomes the focused entity and back-bone of
the operations of the bank.
2. Central data management and application reduces logistical
problems and reaction time for system changes and/or
troubleshooting.
3. Parameter settings, interest application and such other works
being done at one place avoid chances of otherwise repetitive
mistakes at different branches and then load on I. T. Dept. for
rectification work.

18. Advantages to Customers
1. Customer can operate his account from any of the branch of
the bank.
2. More service channels can be made available to the customer.
3. Customer gets immediate credit if the transaction is between
the branches of the bank.
4. Even extension counters can provide all services to the
customer

19. Advantages to Customers
• Customer gets full attention and service satisfaction at the
branches as the branches are freed from all back office
functions, clearing functions and almost all accounting
functions.
• Customer can get SMS alerts on his mobile or e-mail alerts
through net for transaction taking place in his account. This
gives him comfort and security.

20. Components
• Software
• Hardware
• Data Centre / Disaster
Recovery Centre
• Connectivity devices
• Connectivity service
providers
• Security equipments
• Uninterrupted power supply
arrangements
• Anti-virus / Fire-walls

21. Threats and Risks of Core Banking
• Total dependency on technology
• Any failure on technical ground can halt the working with
uncertainty about restoring normalcy
• Stoppage of work has adverse effect on bank‟s image and
reputation
• Technical person/s leaving the bank poses serious problem
• If not mitigated by generating profit out of benefits of core
banking the recurring costs are heavy

22. Core banking Software's
Package Provider
CoreSofttSuVikas VSoft Corporation
TEMENOS T24 Temenos Group
Systematics Fidelity National Information Services Systematics,
Inc/Alltel)
Signature (software) Fiserv
SFB / SCB UNISYS
SAB / SAMIC SAB
Profile (software) (formerly Sanchez Profile) Fidelity National Information Services (FIS)
ICBA Infopro Sdn Bhd
BankFusion Universal Banking Misys
CSB Natech
Misys Equation Misys
Misys Midas Plus Misys
Finacle Infosys
CFT-Bank Center of Financial Technologies (CFT)
Alnova Financial Solutions Accenture / Alnova
TCS BaNCS Tata Consultancy Services (TCS)
Bankway Fidelity National Information Services (FIS)
Corebank Fidelity National Information Services (FIS)
SAP Banking Services SAPAG
FLEXCUBE Oracle Financial Services Software
DIGIBANK Oracle Financial Services Software
Hogan Computer Sciences Corporation
Insite Banking System Automated Systems, Inc.

23. Electronic Clearance and Settlement
System
• The electronic settlement system came about largely as a result
of Clearance and Settlement Systems in the World's Securities Markets, a
major report in 1989.
• This report made nine recommendations with a view to achieving more
efficient settlement.
• In an electronic settlement system, electronic settlement takes place
between participants. If a non-participant wishes to settle its interests, it
must do so through a participant acting as a custodian. The interests of
participants are recorded by credit entries in securities accounts maintained
in their names by the operator of the system.
• It permits both quick and efficient settlement by removing the need for
paperwork, and the simultaneous delivery of securities with the payment of
a corresponding cash sum in the agreed upon currency

24. Clearing Systems
1. End of Day Net Settlement Systems (NSS)
2. Real Time Gross Settlement Systems (RTGS)
3. Intra Day Net Settlement (Hybrid) Systems
4. Continuous Linked Settlement

25. End of Day Net Settlement Systems (NSS)
• Traditional Approach
• Amounts are netted and one amount is paid or received across
settlement accounts with CB at end of day/period
• Creates intra-day exposures
• Finality at end of „period‟
• Risk – position built up with a member during the day will not
be settled
• So – Collateral, Guarantees, Bilateral debit/credit caps

26. • Helps preserve participants liquidity
• Usually used for low value payments and paper based
instruments
• Lower cost
• Examples:
UK cheque clearing, BACS, ACH in USA

27. Cheque and Credit Clearing Company process

28. Real Time Gross Settlement Systems (RTGS)
• Each payment settles singly and bilaterally across accounts at
the settlement bank, usually the Central Bank e.g. Bank of
England
• Eliminates settlement risk
• Designed to eliminate Herstatt risk
• Payments should arrive with value, availability and finality
• Used for high value/urgent payments

29. • More expensive than NSS
• Examples:
UK CHAPS, Fedwire in the USA, CHATS in Hong Kong

30. Intra Day Net Settlement (Hybrid) Systems
• Intra-day settlement at pre-defined periods
• Intra-day finality
• Most located in Europe and handle clearing of euro payments
• Examples
CHIPS (USA)
CLS

31. Some Domestic Payment Methods
1. Paper-based
a. Cash
b. Cheques
c. Bank transfers
d. Bills of exchange
e. Promissory notes
f. Banker‟s drafts

32. 2. Electronic
a. Funds transfer
I. Urgent wires
II. Standard EFT
b. Standing order
c. Direct debit
d. Electronic bills of exchange
e. Plastic (credit, charge, cheque guarantee, cash
dispenser, debit)
f. Financial EDI

33. Electronic Clearing
MAKER (DRAWER) DATE CHEQUE
NUMBER
AMOUNT
CURRENCY
AUTHORIZED
SIGNATURE OF
MAKER’S AGENT
DRAWEE
BANK
PAYEE
DRAWER
ACCOUNT
NUMBER
DRAWEE BANK
NUMBER
The paper cheque is just
a carrier of information.
Electronic transmission is
better.
We dematerialize the cheque
(remove the paper).
0 6 1 3 0 0 1 8 1 8 4 3 1 0 1 4 3 7 0 0 0 0 0 0 0 0 0 1 0 0 0 0 U S D 0 6 5 2 0 0 3 5 6 4 2 5 0 2 0 0 1 0 1 3
0 DRAWER
ACCOUNT
NUMBER
DRAWEE
BANK
NUMBER
CHEQUE
NUMBER
AMOUNT CURRENCY PAYEE
BANK
NUMBER
PAYEE
ACCOUNT
NUMBER
DATE
Only the information is sent to the clearing house

34. Thank You.