SUBJECT
: BANKING MANAGEMENT
CASE STUDY 1 (20
Marks)
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 optical
ring. 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.
1. What was the strategy adopted
by the ICICI Bank for Development of Banking ? How automation helps the Banking
Services?
2. Cost factor has become
important in banking services. Give your comments. Lessons learned from the
above case study.
CASE STUDY 2 (20
Marks)
Age 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
1.
What
were the requirements of bank ?
2.
What is
the message from the above case study?
CASE STUDY 3 (20 Marks)
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 $2 billion in real
estate, and its 25% stake in Swiss Life/Rentenanstalt. That year, UBS bought
Bank of America's European and Asian private banking operations and Allegis
Realty Investors, a US real estate investment management firm. In 2000, UBS
reorganized yet again and bought US broker Paine Webber (now UBS Paine Webber).
Questions
1.
What do
you understand by Financial Risk ?
2.
How banks can tackle the risk in their business?
3.
Is real estate management a risky sector in banking?
4.
What is the message of the above case study?
CASE STUDY 4 (20 Marks)
END TO END RETAIL BANKING SOLUTIONS FOR A JAPANESE BANK
One of the top ten commercial banks in Japan with total asset base
of US$ 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. Interbank 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
parallel 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, an i-flex solution 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
1. What was the plan of Japanese
Bank for Customers?
2.
How
customers were with the solution?
3.
Was
there any cost impact?
4.
Important
lessons from the above case study?
Banking
Management
Q1. Import Export
Business is enjoying various facilities. Give in brief information about it.
Q2. Human
Resources with technical support has changed the Banking scenario. Give your
comments.
Q3. What is the
role of Reserve Bank of India in exchange control? Write with special reference
to Import – Export.
Q4. Customer
expectations are very high in Banking Industry. Give your comments.
Q5. Pricing
strategy is controlled by external factors as well as RBI. Please define it.
Q6.
Mr. A can earn a return of 16% by investing in equity shares on his own. Now he
is considering a recently announced Q6. equity based mutual fund scheme in
which initial expenses are 5.5 percent and annual recurring expenses are 1.5 percent.
How much should the mutual fund earn to provide Mr. A a return of 16%
Q7. What do you
know about Exim Bank? How it is encouraging importexport trade?
Q8. Development
of human resources is the challenge before banking industry. Express your views
with special reference to India.
BANKING MANAGEMENT
Q.1) The exchange
rate and forward rate of rupee against US dollar on 3rd November,
2008 is given below:
(20
marks)
Spot rate 1 US dollar Rs 45.36
One month forward 3.72%
Three months forward 3.27%
Six months forward 2.76%
Twelve months forward 2.26%
Calculate the forward rate,
forward premium rate and swap rate from the given data.
Q.2) In May beginning
you decide that shares in X Ltd. will rise over the next month or so. The
current price is Rs 100 and you hope that the shares will be at Rs. 150 by the
end of July. Give your comments if the Option is traded and if the option is
not traded. Make assumptions.
(20
marks)
Q.3) (15 marks)
A) The unit price
of TSS scheme of a mutual fund is Rs 10. The public offer price (POP) of the
unit is Rs 10.204 and the redemption price is Rs 9.80.
Calculate
i) Front-end load
and
ii) Back-end load.
B) Mr. A can earn a
return of 16% by investing in equity shares on his own. Now he is considering a
recently announced equity based mutual fund scheme in which initial expenses
are 5.5 percent and annual recurring expenses are 1.5 percent. How much should
the mutual fund earn to provide Mr. A a return of 16% (5 Marks)
Q.4) The closing price
of the stock of Veryfine Ltd. at the stock exchange for 20 successive days was
as follows: (20
Marks)
Day 1 2 3 4 5 6 7 8
9 10
Closing Price(Rs.) 25
26 25 24 26 26 28 26 25 27
Day 11 12 13 14 15
16 17 18 19 20
Closing
Price(Rs.) 27 25 26 28
26 26 24 25 26 25
You are required to calculate a 7
day moving average of stock price of the company and comment on its short-term
trend.
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