Abstract which leads to its efficient and


Banking has changed over the years and
evolved with the needs of the Indian economy. Banks are going through a period
of change with smaller ones embracing core transformation as a way of improving
their operational flexibility and how they engage with their customers. With
the vast majority of banks still working on outdated legacy systems, the need
for IT transformation is more critical than ever.  Nowadays, the use of Information Technology
(IT) is must for the survival & growth of any organization and same
applicable to banking industry also. By using IT, banks can minimize the
operation cost also banks can offer products & services to customers at
competitive rates. These banks being most techno-savvy, were in position to
offer technology based services such as ATM, Internet Banking, Mobile Banking,
Tele Banking etc. from day one. Amongst all the ICT initiatives of these banks,
CBS implementation was the most important, as it formed foundation on which all
the e-delivery services were built.  Core
Banking (CB) is networking of branches, which enables Customers to operate
their accounts, and avail banking services from any branch of the Bank on CB
network, regardless of where he maintains his account. The customer is no more
the customer of a Branch. He becomes the Bank’s Customer. Thus CB is a step
towards enhancing customer convenience through Anywhere and Anytime Banking. This
research paper focuses on identifying the impact of core banking system on operational
performance of banks which leads to its efficient and effective operation in
day today activity.

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Key words: Banks,
Information technology, ICT, Core banking, Tele Banking, Internet Banking



The globalization process in the economy has given
reason for the banking sector to rethink its existing strategies. The
penetration of computers and growth in Internet usage is making the customers
crave for more and more services and more convenience. Previously a bank’s core
operations such as keeping a ledger of various transactions, maintaining
customer information, interest calculation of loans and deposits, adjustments
to accounts on withdrawal and deposits of funds etc. were done manually. With
the advent of ICT (Information Communication Technology), efforts were done to
automate various banking processes using software applications so as to make
them simple, efficient, effortless and cost effective. Thus, the platform where
ICT is used to perform the core operations of a bank is known as Core Banking
System. It is the heart of a modern financial service organization and is all
about providing the banking customers with the right products at the right
time through the right channels 24 hours a day, 7 days a week through a
multi-location, multi branch network. 

Thus, Core Banking System has radically
changed the way in which banks function. The greatest advantage of having a
Core Banking System is that new features and functionalities can be easily
added to the system that customers will have a whole lot of services that they
can use. Electronic funds transfer between banks, online trading in the
stock markets etc. are examples of this. Core banking solutions (CBS) help automate front-end and back-end
processes of banks to achieve centralized and smooth processing. These
applications offer a single view of the customer and facilitate automation
across delivery channels. The concept of CBS has helped banks become one-stop
shops for all the financial needs of retail and corporate customers by offering
multiple services under one roof. With CBS implementation, customers can now
access their accounts from any branch of their bank, irrespective of which
branch the account was opened at.

Objectives of the study

To study
the concept of CBS.

To study
the influence of CBS on operational performance of banks.

To study
the challenges faced by the banking industry due to CBS implementation

Research methodology

Both primary and secondary data have been used for
fulfilling the objectives of the study. The study relies on secondary
data which has been collected through research journals, magazines, reports and
websites of the respective banks and other related websites.

The concept “Core Banking

Core Banking System or
Core Banking Solution is a term that we hear very often these days. CORE is an
acronym for “Centralized Online Real-time Exchange”. It is a
centralized system established by a bank which allows its customers to conduct
their business irrespective of the bank’s branch. Core Banking
(CB) is networking of bank branches,
which allows customers to manage their accounts, and use various banking
facilities (Internet Banking, Mobile Banking or ATM facilities) from any
part of the world. In simple term, there is no need to visit your own branch to
do banking transactions. You can do it from any location, any time. You can
enjoy banking services from any branch of the bank which is on CBS network
regardless of branch you have opened your account.

For the bank which implements CBS,
the customer becomes the bank’s customer instead of customer of particular
branch. Execution of Core banking system across all branches helps to
speed up most of the common transactions of bank and customer. In Core banking,
all branches access banking applications from centralized server which is
hosted in secured datacenter. Banking software/application performs basic
operations like maintaining transactions, balance of withdrawal & payment,
interest calculations on deposits & loans etc. These banking
applications are deployed on centralized server & can be accessed using
internet from any location. Banking software and network technology allow a
bank to centralize its record keeping and allow access from any location.

Core banking became possible
with the advent of computer and telecommunication technology that allowed
information to be shared between bank branches quickly and efficiently. Before
the 1970s it used to take at least a day for a transaction to reflect in the
real account because each branch had their local servers, and the data from the
server in each branch was sent in a batch to the servers in the data center
only at the end of the day (EOD). Over the following 30 years most banks moved
to core banking applications to support their operations creating a centralized
online real-time environment. This meant that all the bank’s branches could
access applications from centralized data centers. Deposits made were reflected
immediately on the bank’s servers, and the customer could withdraw the
deposited money from any of the bank’s branches. Software is installed at
different branches of bank and then interconnected by means of computer
networks based on telephones, satellite and the Internet. Many banks implement
custom applications for core banking. Others implement or customize commercial
independent software vendor packages. While many banks run core banking
in-house, there are some which use outsourced service providers as well.
Systems integrators like Cognizant, Edge Verve Systems Limited, Capgemini,
Accenture, IBM and Tata Consultancy Services implement these core banking
packages at banks.

Core banking and Operational

In the highly competitive
banking industry, the widespread use of Information Technology has allowed
banks to enhance their performance in almost all areas of their activities.
Core banking solutions (CBS) are the heart of all systems running in a bank and
form the Core of the bank’s IT platform, being the central processing unit of a
bank. The change of CBS has a multidimensional profound action on all segments
of banking, influencing newly banking experience with improved performance and
chance for gaining competitive advantage through increased operational
efficiency, market share, customer satisfaction and profitability. The
banking sector can be generally considered as industry where IT has
demonstrated profound strategic impact.

major factor driving the adoption of Core banking solution is the cost and the
customer demand which is influencing banks to switch to newer technologies. The
rising need of managing customer accounts in a way so that customer can visit
any branch and gain information about bank is helping banking organizations to
implement core banking solutions for centralized management. Moreover, banks
are looking for cost effective solutions that can help them in reducing
replacement costs. Core banking solutions offers benefit to both bank as well
as to customers by way of:

increases employee efficiency and reduces human error and fraud.

operations which address customer demands and industry consolidation.

due to multiple entries eradicated.

ability to introduce new financial products and manage changes in existing

merging of back office data and self-service operations.

reduces the operational and maintenance costs of the bank as you need not have
more branches.

entire range of banking products including savings, deposit accounts etc are
available from any location

in submission of various reports to the Government & Regulatory boards like

in opening accounts, processing cash, servicing loans, calculating interest,
implementing change in policies like changing interest rates etc.

management of documentation & records – having centralized databases
results in quick gathering of data & MIS reports.

in branch manpower.

adoption has given bank employees the opportunity to strengthen their
relationships with customers.

meet the dynamically changing market & customer needs.

expand presence in rural & remote areas.

improve & simplify banking processes so that bank staff can focus on sales
& marketing stuff.

speed in working resulting in more business opportunities

information available for decision support.

through multiple channels, including mobile banking and web.

timely and actionable information about customer relations.

view between bank and customers.

payment processing through Internet banking, mobile banking.

anywhere banking through ATMs.

branches access applications from central servers/datacenter, so deposits made
in any branch reflects immediately and customer can withdraw money from
any other branch throughout the world.

is very helpful to people living in rural areas. The farmers can receive
e-payments towards subsidy etc. in his account directly. Transfer of funds from
the cities to the villages and vice versa will be done easily.

of banking services 24 X 7.

services at the bank counters for routine transactions like cash deposits,
withdrawal, passbooks,  statement of accounts, demand drafts etc.

Challenges faced due to the
implementation of CBS

The key challenge
restraining the market for Core banking solutions is to synchronize core
banking solution with global industry requirements. This is the key challenge
because banking capabilities and business environment is not same in all
geographies. Moreover, some region that are already developed and adopted newer
technologies are taking help of these technologies and other region with less
developments do not implement modern technologies due to which synchronization
of core banking solution is not possible. Excessive reliance on technology is
another major challenge faced by CBS. Any failure in computer systems can cause
entire network to go down. If data is not protected properly and if proper care
is not taken, hackers can gain access to the sensitive data.  Report duplication and clutter overload are
other undesirable consequences of maintaining multiple core systems. Moreover,
the need to consolidate information from multiple systems adds to the cost of
report generation. Interfacing and integration are the other big challenges.
When there are multiple core systems, any new system or peripheral device has
to be tested across them all before it can be launched. This slows down the
bank’s time to market and speed of innovation and seriously impacts its


study was conducted to know about the impact of core banking solution of
banking industry towards its operational performance. The concept of Core
Banking Solution has made a significant effect on bank and customers. The newly
introduced core banking system helps to save time and money of bank. Employees
enjoy the new system but some problems are there. Core banking increase the
performance level of employees. For the bank which implements CBS, the customer
becomes the bank’s customer instead of customer of particular branch. Execution
of Core banking system helps to speed up most of the common transactions of
bank and customer. And also all branches access banking applications from
centralized server which is hosted in secured datacenter. It speed up the basic
operations like maintaining transactions, balance of withdrawal & payment,
interest  calculations on deposits & loans etc.

implementation of core banking is
complex, expensive and risk burden exercise.
Benefits of CB take years to
kick in, in these difficult times, banks prefer to invest in projects, which
deliver immediate business results. Interfacing and
integration are the other big challenges of core banking. Thus the core banking systems has brought about a
remarkable blast in the functioning program of the normal human being.
Core Banking system is the addition total of all the information technology
components that allow a bank to administer its hub business actions in a
centralized form. The core banking activities embraces round the clock
processing of all the products, services and information of a bank. Under CBS,
a bank must also be in a position to offer the basic banking services to its
customers on a 24/7/365 model. Thus CBS is a step towards pleasing to the eye
of the customer expediency from beginning to end anywhere and anytime banking.