CORE BANKING SYSTEM

[Mr. M. GOVINDARAJAN]

In the earlier periods the basic functions of a bank including maintaining records of the customers, deposits, ledgers, customer information, loan accounts etc., were performed manually.

When the computer system was on the emerge, our country felt for the need for an efficient banking system which would pave way for economic development. Various applications have been developed on the development of information technology. The banks began to apply the information technology system and developed the automated each and every one.

However, it is not sufficient to meet the purpose. Therefore, the then Government, under the leadership of Dr. Manmohan Singh, formed a committee called the ‘Narasimham Committee’ to examine the functioning of banks in the computer era. During 1988 the Reserve Bank of India implemented the Core banking system. Core Banking System refers to the networking of different branches of the bank. By this the customers can opt for various facilities of banking from the different corners of the work. Core Banking System is working on centralized server. It can be used through internet. Same software is installed throughout the systems of the many branches of the banks and created a core banking network of the bank. 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.

The Reserve Bank of India made it compulsory that all commercial banks for the implementation of the Core Banking System. The transactions are processed electronically. The information of the customs is maintained in a centralized database that can be accessed by all the branches of the bank.

The banks adopted various process in the core banking system that enables the banks to store the data in proper format. These data can be easily accessed through an authentication system. Through this the customers and employees are allowed to make informed decisions. Besides these, the Core Banking System is helpful in generating and providing statutory reports to the regulators of the Government. This also provides the opportunity for customization.

The characteristics of the Core Banking System are-

• There is a common database in a central server located at a Data Center, which gives a consolidated view of the bank’s operations.
• Branches function as delivery channels providing services to its customers.
• Core Banking System is centralized Banking Application software that has several components which have been designed to meet the demands of the banking industry.
• Core Banking System is supported by advanced technology infrastructure and has high standards of business functionality.
• Core Banking Solution brings significant benefits such as a customer is a customer of the bank and not only of the branch.
• Core Banking System is modular in structure and is capable of being implemented in stages as per requirements of the bank
• A CBS software also enables integration of all third-party applications including in-house banking software to facilitate simple and complex business processes.

Core banking applications are often one of the largest single expenses for banks and legacy software is a major issue in terms of allocating resources. Spending on these systems is based on a combination of service-oriented architecture and supporting technologies.      

Some of the key features of core banking systems are-

• Opening new accounts in the bank;
• Processing and recording money deposits and cash withdrawal;
• Calculating loan interest;
• Processing various types of loans;
• Cheque clearance;
• Payment clearance;
• Managing customer information;
• Calculating and managing interest rate;
• Maintaining customer relationship;
• Assisting in developing new banking products;
• Banking analytics.

More than 12 banking products like mobile banking, internet banking, ATMs are available in Core Banking System.

The banks and financial institutions have benefited much by the adoption of core banking system. The customers are also equally enjoying the much benefits through this system. They are not required to wait for a long time. Manual work is almost coming to end in banks. Core Banking Systems becomes the integral part of the day-to-day functioning of bank and individuals and offering great support to them. It also increased the efficiency of the bank employees and productivity of the bank.

The Core Banking System offers a more economical way for the management information system by providing quick and easy access to the information and facilities that prompt the management to take correct and quick decisions. New programs are introduced in this score that gives more accurate and reduce the chances of human error. In short it can be said that the Core Banking System is more convenient, time efficient, cost efficient and makes monitoring the processes very easily by the banks.

The Core Banking System has come a long way. It is still evolving. It is expected better and improved features soon. With the introduction of technological developments such as blockchain, Artificial Intelligence and more it would be confident that the banking sector will undergo much developments and another revolution.  Blockchain technology, known for its inherent security features, is gaining recognition within the banking industry. It has a crucial role in enhancing the security of core banking systems. The blockchain's incorruptible ledger system ensures the integrity of transactions and diminishes the risk of fraud, making it a highly appealing solution for banks.

In our Country almost all public sector and private sector banks adopted the Core Banking System. Reserve Bank of India is aiming to 100% implementation of the Core Banking System.  Evolving banking regulations have always been a challenge for banks and their core banking systems. It is imperative to adhere to these guidelines in order to evade penalties and preserve the confidence of clients. Compliance challenges in the banking industry have become increasingly complex as technology evolves. Among the most pressing concerns are data privacy laws and cybersecurity requirements. Implementing the necessary safeguards to protect customer data is a top priority for banks.

Reference:

1. https://live.icai.org/bos/vcc/pdf/12032022_CA__Atul_Gupta_Chapter_5_Core_Banking_Systems_1647099220.pdf.
2. ttps://www.panamaxil.com/blog/the-future-of-banking-trends-2024-shaping-core-banking-systems.