Core Banking

Core Banking System Meaning:- Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simple transactions from any of the member branch offices. Core Banking system or CBS is one of the recent developments in the field of banking, and has proved to be very useful. It is a facility provided by banks in which a person, having an account in one branch, can operate his account, in another branch.

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This has become possible, because each account holder is given a specialised, computerised and unique account number. In simple terms, CBS is a type of banking, in which a person, who opens a bank account in a particular branch of a bank, will be a customer of the bank, rather than being a customer of a particular branch. Therefore, he can transact anywhere, at any time. Need:- Previously a bank’s core operations such as keeping a ledger of various transactions, maintaining customer information, interest calculation of loans and deposits, adjustments to accounts on withdrawal and deposits of funds etc. ere done manually. With the advent of ICT (Information & Communications Technology),under core banking), efforts were done to automate various banking processes using software applications so as to make them simple, efficient, effortless and cost effective. Thus, the core banking system, where ICT is used to perform the core operations of a bank, makes the bank to function in an effective and efficient manner. Software applications record transactions, maintain customer information, calculate interest on loans and deposits etc.

The data, instead of huge ledgers, are stored in backend databases in digital form. Now, the same software can be installed in various branches of a bank and can be interconnected through the internet or telephone lines to form a core banking network of the bank. The advantage, a customer can operate on his account from any branch of the bank and if the bank owns Internet Banking or ATM facilities, then the customer can operate on his account from virtually anywhere. Thus, Core Banking System has radically changed the way in which banks function.

The greatest advantage of having a Core Bank System is that new features and functionalities can be easily added to the system that customers will have a whole lot of services that they can use. Electronic funds transfer between banks, online trading in the stock markets etc. are examples of this, which were unheard of in banks pre Core Banking System era. A central bank The entity responsible for overseeing the monetary system for a nation (or group of nations). Central banks have a wide range of responsibilities, from overseeing monetary policy to implementing specific goals such as currency stability, low inflation and full employment.

Central banks also generally issue currency, function as the bank of the government, regulate the credit system, oversee commercial banks, manage exchange reserves and act as a lender of last resort. RBI is the central banking institution of India. The institution was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934. It plays an important part in the development strategy of the government and is a member bank of the Asian Clearing Union. Functions of a central bank:- • Implementing monetary policy

Central banks implement a country’s chosen monetary policy. Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. • Determining Interest rates Fundamentally, a central bank controls the interest rate since it is the growth rate of liabilities denominated in its own unit of account. NOK, USD, and EUR, are examples of such units. While central banks issue liabilities

Denominated in their own unit of account, commercial banks issue liabilities denominated in a central bank’s Unit of account. This, essentially, is what gives central banks leverage over interest rates. Central banks try to control inflation by moving a short term interest rate, typically the overnight interest rate in the interbank market. Expectations of future short term interest rates then determine long term interest rates. • Controlling the nation’s entire money supply Through open market operations, a central bank influences the money supply in an economy directly.

Each time it buys securities, exchanging money for the security, it raises the money supply. Conversely, selling of securities lowers the money supply. Buying of securities thus amounts to printing new money while lowering supply of the specific security. • The Government’s banker and the bankers’ bank (“lender of last resort”) It acts as a banker to both the state and the central government in India. It has the exclusive right to issue currency, notes in the country. All the commercial banks operating in India are mandatory to keep a cash reserve with RBI.

Further, they have to maintain their current accounts with it. As a banker’s bank, the Reserve Bank of India facilitates the clearing of cheques between commercial banks and helps in interbank transfer of funds. It also acts as “Lender of Last Resort” by providing emergency advances to banks. • Managing the country’s foreign exchange and gold reserves and the Government’s stock register The Reserve Bank of India has the responsibility to maintain the official rate of exchange. The Reserve Bank has to act as the custodian of India’s reserve of international currencies.

The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the country. And it acts as adviser to the Government on all monetary and banking matters. • Regulating and supervising the banking industry Central bank through its subsidiaries controls and monitors the banking sector. The regulatory body is in charge of verifying bank balance sheets and behaviour and policies toward consumers. Apart from refinancing, it also provides banks with services such as transfer of funds, bank notes and coins or foreign currency. • Price Fixing

As it sets the official interest rate price fixing is done and management of inflation and the country’s exchange rate – and ensuring that this rate takes effect via a variety of policy mechanism. Advantages:- Following are the advantages of Core Banking: •Limited Professional Manpower to be utilized more effectively •Customer can have anywhere, more convenient and easier banking •ATM, Internet Banking, Mobile Banking, Payment Gateways, Referral Business •More Strong and economical way for MIS •Reduction in Branch Manpower by 15-20% •Additional Manpower available for Marketing, Recovery and Personalized banking Instant Information availability for decision support •Quick and Accurate Implementation of Policies •Improved Recovery Process causing reduction on recovery costs, NPA Provisions •Innovative, redefined or improved processes (e. g. Inter Branch Reconciliation) causing reduction in Manpower at Head Office Reduction in Software maintenance at Branch and Head Office •Centralized Printing and backup resulting in reduction in capital and revenue expenditure on printing and backup devices and media at branches •Electronic Transactions with Other Financial Institutions Increased Speed in working resulting in more business opportunities and reduction in penalties, legal expenses etc. DISADVANTAGES 1. Excessive reliance on technology 2. Any failure in computer systems can cause entire network to go down. 3. If Data is not protected properly and if proper care is not taken, hackers can gain access to the sensitive data. Impact of core banking On employees: When they use this system it becomes easier for them to work and help the customers also. On customers: They can operate their account any time, and can also transfers funds intra bank.

On auditors: Ones accounts audited, they operate the same year on year thus enabling auditors to focus more on systems and procedures at delivery channels like branches, call centre etc. On regulators: Core Banking Systems produce the required reports for regulatory bodies like the central bank, NPA reports, large currency transaction reports etc. are all produced by either the deposits, or the loan or a combination of deposit, loan and G. L. System. On shareholders: It provides the desired return to shareholders from banking operations Trends overtime on such data informs. [pic]

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