We have been witnessing since about the early Eighties the phenomenon of widespread use of computers and communication technology in the industrial, as well as emerging market economies. This has resulted in faster funds movement across nations and borders. Globalisation of economies and financial liberalisation within the economies have opened new opportunities of growth for techno-savvy institutions, while for the others these have resulted in shrinkage of revenues. The use of IT in the banking industry in our country has however been somewhat limited and has, as a result, restricted our presence in international operations. Even in critical spheres such as those involving funds transfer, and MIS based decision making, there has been little evidence of proactive movement towards wholesale computerisation upnto the middle of the Nineties

Howver Indian Banks have come to start this process after a decade or so. It is only with the growing recognition of the need for having in place financial reforms, has the interest in IT application in the banking sector in India increased. But though the process started late, computerising the vast net work of branches of several banks is planned and being executed methodically and the benefit is expected to be fully perceived by the year 2010.

The RBI Report on Banking published on 15.11.2001 starts with the opening narration-

"In recent years, the banking industry has been undergoing rapid changes, reflecting a number of underlying developments. The most significant has been advances in communication and information technology, which have accelerated and broadened the dissemination of financial information while lowering the costs of many financial activities. A second key impetus for change has been the increasing competition among a broad range of domestic and foreign institutions in providing banking and related financial services. Third, financial activity has become larger relative to overall economic activity in most economies. This has meant that any disruption of the financial markets or financial infrastructure has broader economic ramifications than might have been the case previously".

The report gives a brief summary of the progress made in the usage of information technology and networking of different branches and different banks. The contents of the report are reproduced in this First Page dealing with advent of e-banking in India. Detailed information about each area or field of in the usage of IT is discussed in subsequent pages. (please refer the column to the left for a subject-wise Table of Contents on "Computerisation").

The text of the report dealing with Technology in Banking is reproduced as under-

As part of restructuring of the banking sector, special emphasis has been accorded to improvements in payment and settlement systems. Prominent among the measures initiated in these areas include introduction of Electronic Funds Transfer (EFT), Real Time Gross Settlement System (RTGS), Centralised Funds Management System (CFMS), the NDS and the Structured Financial Messaging Solution (SFMS). The SFMS would be the backbone for all message-based communication over the Indian Financial Network (INFINET)

The EFT scheme enables transfer of funds within and across cities and between branches of a bank and across banks. The scheme, which is operated by the Reserve Bank is available for funds transfer across thirteen major cities in the country, as on September 30, 2001. The facility is being extended to two more centres. The scheme was originally intended for small value transactions. However, with effect from October 1, 2001, even large value transactions (as high as Rs. 2 crore) have also been permitted.

The work on operationalisation of RTGS system continued during the year. The major project components completed during the year included the finalisation of the design for RTGS system, issue of the tender for the development of the software, evaluation of the technical components of the bids received, site visits and evaluation of the commercial proposals. The implementation of RTGS is targeted to be accomplished within 12 to 15 months of award of the contract for software development and implementation.

The CFMS would enable the funds and treasury managers of commercial banks to obtain the consolidated account-wise, centre-wise position of their balances with all the 17 Deposit Accounts Departments (DAD) of the Reserve Bank. The system has been tested prior to installation and phase-wise implementation commenced from November 2001. The CFMS would enable better funds management by constituent current account holders of the Reserve Bank

At the base of all inter-bank message transfers using the INFINET is the SFMS. SFMS would serve as a safe, secure communication carrier built with templates for transmission of intra and inter-bank messages in fixed message formats, which would facilitate "Straight Through Processing". SFMS comprises the central server in the form of a hub located at the Institute for Development and Research in Banking Technology (IDRBT), Hyderabad and individual bank gateways to which the branches of the banks would be connected with a provision for banks to have multiple bank level gateways. The SFMS would provide for all inter-bank transactions to be stored and switched at the central hub, while intra-bank messages will be switched and stored by the bank gateway. Adequate security in the form of smart card authentication apart from the Public Key Infrastructure (PKI) would be an integral part of the SFMS. All these would result in the security levels matching those of international standards.

Following the recent developments in the banking sector, a Working Group on 'Improvements in Monitoring of Clearing Systems' was constituted by the Reserve Bank to examine the major issues pertaining to management and operation of the Clearing Houses and make necessary recommendations. The Group submitted the Report in May 2001. The recommendations of the Group were discussed with a select group of bankers and regulators. Based on these discussions, a roadmap has been drawn for implementation of these recommendations which fall under the following major areas of control / monitoring viz.

1. monitoring presentations by banks;

2. monitoring returns by banks;

3. accounting of the clearing settlements;

4. formation of an Internal Group at each Regional Office of the Reserve Bank to review the trends reported by the clearing house and plan follow up action as deemed necessary;

5. formation of a central monitoring cell to monitor the trends on a national basis and provide warning signals wherever necessary; and

6. implementation of MIS to serve as early warning signals for better surveillance over the activities of the clearing member banks.

The recommendations which could be implemented immediately are being taken up with the four major metropolitan clearing houses managed by the Reserve Bank. Action on implementing these at the clearing houses managed by State Bank of India / other banks would also be taken up concurrently.

A process of capturing the images of the instruments as they are being processed was introduced during the year at the four metropolitan National Clearing Cells managed by the Reserve Bank. Imaging facilitates in quicker balancing during the cheque-processing cycle and also in reducing clearing reconciliation differences.

Emphasis on widespread usage of Electronic Clearing Service (ECS) is being prescribed by the Reserve Bank to encourage non-paper based funds movement. The prime thrust areas forming part of this vital activity include the extension of ECS to more centres, inclusion of more customers under the ambit of the scheme and provision of a centralised facility for affording payments.

The INFINET has been operational for almost two years. Started as a closed user group communication network for the banking sector in India, the members of this network are the public sector banks. During the year 2000-01, the membership was opened up for other banks and financial institutions that need to communicate with one another.

The progress in implementation of the directive of the Central Vigilance Commission (CVC) on the need to computerise 70 per cent of the banking business by public sector banks before January 1, 2001 revealed that as on December 31, 2000, 13 banks had achieved the desired level. Figures as at end of March 2001, indicated that 23 banks have achieved the target, while two banks have computerisation levels ranging between 60 per cent and 70 per cent and two others were at a level below 60 per cent.

Latest statistics as at 30.09.2001 can be viewed from the page provided.

Magnetic Ink Character Recognition (MICR) based cheque-clearing accounts for about 65 per cent of the value of cheques processed in the country. In addition, Magnetic Media Based Clearing Systems account for about 10 per cent of the remaining value while claim-based processes cover the rest of clearing. It may be pertinent to note that growth in cheque volumes has decelerated to 10 per cent in 2000-01 from 12 per cent during the previous year. This is reflective of general trends the world over, indicating the migration towards electronic funds transfer mechanisms.