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Banking industry has progressed greatly and still growing exponentially covering entire range of transactions and products under widespread umbrella. When all such activities are carried out by a bank, it is known as Core banking.
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Other main reasons apart from financial drivers, for opting for core banking system are Globalization, booming IT industry and consolidation of industries. Today banking sector is feeling limited of their present systems due to consolidation of industries and continuous increasing demand from customers as well as data management pressure. Therefore most of the banks are focussing on growth rather than cost reduction.
Benefits and Prospects of ERP for Banking Industry
Banking Sector has huge potential for applications of ERP due to its vast data oriented nature. ERP offers extensive integration among various modules. It integrates information, users and various processes for better productivity.
It helps in decision making which includes decision for strategic, tactical and operational planning and uses various technologies which help in saving time, reducing cost, and effective communication.
It provides solution for various things which include cash accounting, payment processing, security of cash and cash management. ERP systems also help in analysing financial condition of an enterprise, account management and preparation of financial reports and statements.
All the back office systems and financial system can be integrated using ERP systems. Helps in effective cash flow by simplifying processing of outgoing and incoming payments.
It also offers facility for sharing various processes of banks with customers, vendors and partners. Reporting, planning and analysis of bank assets are combined in one process, and everything is available on single platform.
Provides tools which monitor every transaction in real time and other important range of services.
An ERP system is also responsible for strengthening the logistical capability which includes handling of non-banking goods and services and handling of bank notes.
MEETING TODAY’S CHALLENGES
Banking sector is facing tougher competition and demands rapid change. Moreover regulatory and legal requirements want information to be accurate and most important of all, it should be timely. Transparency is also a common requirement. Successful banks are more flexible and effective in this aspect. They have boosted the profitability of their banks and controlled their costs even in such environment. In order to achieve the goals banks should evaluate an IT investment so that they can provide fast return and also reduce the heavy operating costs.
At present banks have following needs:
IT structures should be flexible and allow speedy adjustments in the business procedures.
Efficient business procedures and IT structures that are comparatively less complex
Employees should be in a position to access tools, solutions and personalized data at any time and from anywhere
Core technology should not be harmed while integrating new processes and functions. Integration should be easy and simple.
In order to meet all the demands and increase the transparency level, ERP should increase the efficiency and moreover it should improve the Integrations between the existing technology and various business processes. ERP solutions should also provide a secure access and definitely it should be readily available to all the people from organizations and also to the partner, customer and the vendor.
Open source software
CASE STUDY-IDBI BANK
IDBI Bank was established in 1964 by the Government of India. IDBI became commercial bank in 2004 with a network of more than 700 branches and approximately 1200 ATM’s
IDBI AND CORE BANKING
After the drastic change in top management in January 2001, the bank felt a need to improve the technology platform so that bank can transform itself in order to fulfil the challenges in the future. Inadequate network forced IDBI to adopt a technology platform which enabled IDBI to communicate with its customers with the help of many delivery channels. Scalability & Complete integrated solution was the need of the hour. IDBI initially used centrally system from Kindle but it was proving to be inefficient to meet new objectives, so it was changed.
Pre-requisite of IDBI- Agility of the Business and Time to market
IDBI required a system that would provide bank the flexibility apart from quick and easy solution to launch various products easily. They required the solution that gave them a time to market and which can provide faster core banking solution. Key driver for the bank was to achieve business agility which was technology driven.
Choosing a Vendor-Solution Overview (Deployment Architecture- Appendix fig 2)
Finacle by Infosys was finally deployed after a detailed evolution of different solutions. It was deployed for corporate and retail banking, e-business and consumer operations.
Another important point in IDBI’s successful implementation was the time taken for implementation. It was done across entire bank in a record time of five and half months.
This gave IDBI critical time to market advantage which they badly needed and moreover they were in a position to roll out products at a much faster rate than before. Like for e.g. “Welcome Kit” was introduced-concept consisting of the deliverables that customers generally expect on day 1 which includes cheque book and phone banking and e-banking details. This reduced the time taken to open an account which initially took at least 6-7 days.
Advantages of Finacle (Functional Architecture- Appendix fig. 3)
Main differentiator was latest technology. Various types including straight through processing, 24*7 banking, E-Xtensibility tool kit were deployed by Finacle. With the help of Finacle which proved to be a right choice IDBI brought down their End of Day processing time by more than 79%.
After Implementation of Finacle
Capabilty of handling 3 lakhs transactions in a day from 8 lakhs customer accounts
IDBI became 3rd largest pvt.bank in terms of distribution of branch networks.
Retail banking sector of IDBI has grown to many folds after deployment of Finacle. It also helped in rolling out of new products and services quickly. New products include the debit cards, gift cards and family accounts.
Finacle offers customers a unified view of their relationship with bank which helps in achieving customer satisfaction.
Helped in process centralisation.
Challenges faced by the Vendor
To cope up with the dynamic and ever-changing business processes and consumer needs
To be in-line with the regulatory guidelines
To assist the banking service with regular up gradation.
Integration with Legacy Systems
Integration of ERP Modules of different vendors or versions and E-Business Applications.
IDBI decided for restructuring in 2008 for various business units which were customer focussed. Restructuring was done to streamline the business processes and improve the quality of customer service. Robust system was required so that all the managers can easily monitor earnings from each branch and also from each of its products which will help in increasing the profitability of the firm and also to maintain the growth.
Problems before ERP
IDBI was not in a condition to evaluate profitability of each segment of business at different level like customer and branch level.
It was important for IDBI’s future growth to assess the performance of their business units & products which was not possible.
IDBI Bank goes with Oracle Apps
Implementation Process was basically carried out in 2 phases:-
Performance Management System was deployed in 2008 which included modules of Oracle like
Financial Services & Profitability Analytics
All these systems helped the bank to better analyse the performance of individual business unit and take necessary action if in case it was not achieving the desired profits.
Oracle Consulting was engaged in 2009 to deploy
Oracle Risk Manager
Oracle Hyperion Planning
Integrated Approach Delivers Greater Control
Oracle Transfer Pricing
NII contribution can be measured from assets & liabilities with the help of oracle transfer pricing. It also allowed the staff to dissect NII contributions & assets and liabilities.
Oracle Profitability Manager
For allocation of costs which is related to banks line of business and other branches, Oracle profitability manager was used.
Since the data is coming from the single source, Earning reports which used to take two to three days, can now be produced within one or two hours.
Oracle Financial Services and Oracle Profitability Analytics (Appendix figure 4)
Information regarding profitability was delivered over internet using Oracle Financial Services Profitability Analytics. Now staff was in a position to analyse different trends, variances and the rankings across lines of business and products.
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With the help of the system there was a better access to important information which allowed Senior managers and other decision makers to accurately measure the performance of their portfolios and also their responsibility areas on a continuous basis
It helped in improving decision making quality which eventually increased the overall profits of the bank
Capability to Evaluate Performance of Employees
Performance assessments can also be done on individual members of staff by the Oracle solution. Moreover it can be done at the group level also which enables IDBI to develop an appropriate reward system. It also helps in evaluating the contributions which are made at different levels.
Automated Liquidity and Rate Risk Measurements
Oracle Risk Manager
To assess the liquidity and interest rate risks which are calculated on day to day basis, IDBI Bank used Oracle Risk Manager. It helped IDBI to select the best place to allocate their funds. It also helped various analysts and other bank managers to measure the effect of interest and also the impact on NII or economic value.
Advance analysis of assets and liabilities
Helped in generating key info such as the avg.cost and financial return across various products, which ultimately helped in making better decisions.
With the help of Oracle Risk Manager, IDBI became the 1st PSU bank which generated reports on asset liability management on daily basis.
Streamlined Budgeting and Planning
Oracle Hyperion Planning (Appendix- Figure 6,7,8)
To create budgets and for rolling forecasts Oracle Hyperion Planning was used, which were basically linked to the profit and loss models and with the balance sheet as well. Sales targets can be fixed for individual branch and for individual product. Managers can then measure branch performances after analysing variances across every area.
To assess all areas, there was a common language
Business targets were set with the help of same metrics which was used to measure performance and budget can be planned accordingly.
Resources were better allocated in line with their objectives since managers were in a position to easily determine what exactly is happening at particular branch.
Functionality provided by Oracle’s solution and Oracle’s previous experience in applying ERP in other top banks.
Solutions offered by Oracle’s different modules were appropriate from their business point of view
Expertise of the implementation team of Oracle, previous experience, Flexibility of the Oracle system, Cost allocation principles of the bank convinced IDBI that based on their knowledge and skills they should engage Oracle again.
Major Achievements of Oracle
Due to dedicated resources and efficient coordination among the implementation team of Oracle, the aggressive project deadlines were met and implementation was successfully completed.
Past Experience also helped Oracle team in implementation due to which testing, integration and data extraction went well.
Over the years, implementation of ERP has helped banking sector in a huge way. Integration of data has helped banks to analyze financial condition, account management and also helped in preparation of financial reports and statements. It has also provided solution for many things including cash management, cash security, cash accounting and payment processing.
The need of the hour is to perform core banking activities and increase the quality of customer service by integrating its various components and avoid data redundancy.
Industries look for ERP solution that can provide a common technology platform with capabilities of analyzing business data. They expect to meet the global business requirements, with simultaneously adhering to the country specific necessities.
Thus there is a significant improvement in IDBI after new solutions and restructuring. The bank can now handle almost 3lakhs transactions. It also helped IDBI to launch various new products and services. Rate of customer satisfaction also increased. There was a remarkable change in the revenue and the overall profit of the organization.
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