Chapter 2

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2.1 IT usage by banks in India has come of age. The financial sector of the country has become more IT savvy and the Banking sector in particular is one of the largest users of IT and IT enabled services.

2.2 The Reserve Bank too has enhanced the usage of IT as a tool for better performance and overall systemic efficiency. Some of the major developments in this regard (following the distribution pattern indicated in the Vision Document of 2005) are detailed below:

2.2.1 IT for regulation and Supervision:

2.2.1.1 Enhancement of the features available under the Centralised Data Base Management System (CDBMS) - the Data Warehouse of the Reserve Bank, by providing for access to general users as well, and accessible through the Internet, called the CDBMSi

2.2.1.2 Facilitating banks in implementing systems which would provide for Anti-Money Laundering (AML)

2.2.1.3 Introduction of the On-Line Return Filing System, which as a sub-set of the CDBMS, will act as a one-stop shop for banks to submit all the regulatory returns. This system which has commenced in a small way is being expanded to cover all the returns furnished by commercial banks to the Reserve Bank

2.2.1.4 Commencement of a pilot’ Enterprise Wide Knowledge Management System (EKMS) which would provide organic linkages across various sets of information available across different functional units of the Reserve Bank which could be used for better analysis and obtaining a holistic picture across different segments of the markets

2.2.1.5 Implementation of off site surveillance systems across all the regulatory departments and covering almost all regulated entities

2.2.1.6 Large scale impetus for IT enabled Financial Inclusion with a pilot project commencing in the North East and Andhra Pradesh in the South have increased the scope and coverage of banking to reach hitherto unbanked centres

2.2.1.7 Implementation of an On-line Complaint Tracking System, to provide a facility for easy electronic access to the Banking Ombudsmen using web based access to provide for an online monitoring system for complaints received by the Banking Ombudsmen. The software, developed at the request of the Ministry of Finance, enables the office of the Banking Ombudsmen to track disposal of complaints; access is also available to the Rural Planning and Credit Department (RPCD) and the Ministry of Finance for monitoring the position on a real time basis

2.2.2 IT and IDRBT

2.2.2.1 The Institute for Development and Research in Banking Technology (IDRBT), Hyderabad has been providing network service facilities in the form of the Indian Financial Network (INFINET) apart from functioning as the Certification Authority (CA) under the Information Technology Act, 2000. These functions have been beneficial to member banks

2.2.2.2 The use of Structured Financial Messaging System (SFMS) which is akin to S.W.I.F.T. for exchange of financial messages across member banks has become the widely used inter-bank messaging system.

2.2.2.3 Common inter-bank applications such as the RTGS use SFMS (or SFMS like) message formats, which makes inter-operability and STP an easy task

2.2.2.4The inter-city terrestrial communication links have been upgraded to take care of increasing processing requirements

2.2.2.5 The IDRBT physically hosts the Secured Web Site of the Reserve Bank which enable users to have electronic access to the Reserve Bank’s offerings using the Internet

2.2.2.6 The move to use Multi Protocol Layer Switching (MPLS) technology for the INFINET so as to take advantage of lesser costs and widely available technologies has begun at IDRBT which would usher in more benefits to users

2.2.2.7 Preliminary work to hive off the network service related functions has commenced with IDRBT poised to concentrate mainly on research related activities

2.2.3 IT for the financial sector

2.2.3.1 In a manner similar to the banking sector, IT facilitation by the Reserve Bank for the financial sector as a whole has resulted in many improvements, the major among which are listed below:

2.2.3.1.1 As far as the markets are concerned, the Negotiated Dealing System (NDS) which has been in use for many years now, has been enhanced to provide for changing market and regulatory requirements.

2.2.3.1.2 There has been a migration from a Screen based trading system for Government Securities to an Order Matching System so as to result in better price discovery and more transparency in the market related transactions in Government securities.

2.2.3.1.3 The establishment of the Clearing Corporation of India Ltd., (CCIL) as a fully IT enabled entity providing fore electronic transaction processing as well as reporting has enabled the market to grow in depth and coverage as well. CCIL also functions as the central counter-party which reduces risks arising out of Securities Settlement Systems.

2.2.3.1.4 In order to have better governance and to segregate clearly the roles of an overseer and a system provider, hiving off of the major NDS systems to the CCIL has commenced with the first system - the NDS-OM (Order Matching) System being implemented by the CCIL; migration of other systems to the CCIL are at varied stages of implementation. Treasury Bill auctions are now conducted in the CCIL system.

2.2.3.1.5 As part of the facilities available under the RTGS, two main services stand out prominently for the use of the financial sector, viz.,:

2.2.3.1.5.1 Use of credit transfer based RTGS transactions by brokers, constituents etc. pertaining to the funds leg of secondary market transactions

2.2.3.1.5.2 Use of the Multi-Lateral Net Settlement Batch facility for effecting the settlements arrived at by various clearing systems (such as the Stock Exchanges), through the RTGS mode

2.2.3.1.6 Pilot projects entailing the use of Multi Application Smart cards have not only yielded satisfactory results; their usage for Financial Inclusion has opened up new vistas for their wide spread use across the country.

2.2.4 IT for Government related functions

2.2.4.1 IT based Government related accounting operations have received a substantial fillip and the following are the some of the landmarks achieved in this regard:

2.2.4.1.1 Computerisation of the branches of banks handling Government business - only 16 branches out of more than 6000 branches are yet to be computerized

2.2.4.1.2 The introduction of Secured Web site for enabling users of the Central and State Governments to access the RBI’s secured web site through the Internet and obtain details relating to the balance position in respect of their respective accounts, has helped a great deal in better monitoring of the funds position by Governments

2.2.4.1.3 IT has enabled the introduction of the ‘Online Tax Accounting System (OLTAS) and the Electronic Accounting System In Excise and Service Tax which has greatly facilitated the Government in quicker receipt and accounting of tax and duty payments, apart from enabling tax payers with easier, less cumbersome processes