Banks of all sizes and in all regions have been quick to start initiatives in cheque truncation systems, particularly with the immense business benefits they stand to gain.
In the course of our conversations with bankers covering the entire spectrum of size, technology usage and locations, we found that all are serious about their cheque truncation systems. A vision is in place, so is the implementation strategy, and with an acute understanding of challenges they are bound to face going ahead, all of the banks are well on their way to set up effective cheque truncation systems.
Among bankers, there is a universal consensus on the benefits to be derived by putting a CTS system in place chief among these being a drastic reduction in clearing time, across the country. At the moment, most banks generally take a minimum of two working days to process a cheque. Outstation cheques take even longer.
With a CTS system in place, bankers expect to cut down the process to within a few hours. Samrat Dasgupta of CitiBank adds to this, “Key benefits of a cheque truncation system will include the ability to centralise clearing operations and thus get benefits of scale. In addition to this, the ability to automate signature verification to a certain extent and flexibility of displaying cheque images on the Internet or even sending soft copies to customers will prove helpful in terms of reducing the large number of queries banks otherwise get.”
Even the customer stands to benefit from the cost savings that are bound to accrue in the long. RBI policies state that any cost benefits that a bank gains as a result of implementing systems recommended by the RBI needs to be necessarily passed on to the customer. M Nagarajan of UTI Bank points out that all the benefits of cheque truncation is sure to be passed on to customers, the final result being faster customer service. CTS is also likely to open up new business avenues for banks. Pravir Vohra of ICICI Bank says that along with a lower turnaround time for cheque processing and automation of the entire process, banks will now be able to develop and market new products to customers based on the cheque images.
Most small banks however are reluctant to opt for a CTS system thanks to the huge costs involved in setting up the requisite infrastructure and the additional investments required into hardware and software. But though the cost savings may not be evident, in the long-term the banking industry stands to save from the full implementation of cheque truncation annually up to $5 billion.
These factors will make sharing of knowledge about financial issues among banks, between banks and their clients, and among the general population faster. This help in the efficient working of banks. Current state of CTS Apart from the banks that are currently part of the Pilot Project in the National Capital Region of Delhi, and a few others who have initiated the CTS process independently, many other banks are in various stages of implementation of the CTS solution.
As an initial activity, all banks were asked by the Reserve Bank of India to initiate a tender process and identify vendors. Most banks are almost nearing the completion of the tender process, with the next process being implementation and testing. According to Rama Menon of IBA, none of the banks are facing any resistance to change due to the new system. “There is no resistance to change at the technology level. Many banks, especially new ones who are technology savvy, and those who already had NCR systems have begun to send truncated copies of cheques internally,” she says. A few instances: In the case of Bank of India, it is in the final stage of finalization of vendors for the CTS solution while ABN Amro bank will be finalizing its vendor by June 2006.
Among foreign banks, Standard Chartered is expected to finalise its vendors soon while most others, expect Citibank and ABN Amro have already finalized a vendor. During the last six months, RBI has arranged meetings with bankers on CTS implementation. The main emphasis of these meetings was on the interface between the core banking system and the clearinghouse. One banker avers, “There are so many vendors in the market offering similar technologies. We are in talks with most of them and have already seen their presentation. We are well prepared both on the hardware side and the software side. So far we have not come across any hurdles. But we are in the development stage. What we have done is, we have conducted an analysis of all the processes suitable for our requirements. Each bank has its own way of doing things. We achieved interconnectivity with our branches long ago. If RBI introduces CTS in other locations after the pilot project is successful, we are prepared for that. We will be in a position to migrate in other locations.”
Optimizing Infrastructure
The current investments in infrastructure will require marginal enhancements, and not a complete overhaul. Regular updates will be a necessity, particularly to keep pace with data transfer rates and security developments. M. Nagarajan of UTI Bank advises, “Instead of storing inbound instrument banks have to store outbound instruments. Electronic storage and retrieval system will be required, which can be a centralised repository for the bank with adequate DRS provisions.
In banking systems we will be having only numeric data. The image is to be kept separately with proper tag for retrieval on necessity. The network can be put to optimum use by using lean timings for image transfers. The images being in electronic form has to be backed up properly for onsite and off site storage as per banks policies and also replicated at its business continuity centre. ICICI Bank’s Vohra says that if issues like security and commitment to service within the set time frame are taken care of, sharing infrastructure by the various banks involved in the electronic transfer of cheques will not remain a challenge any more. Vohra also says that CTS as of now being centre-specific, any investment in this area would not be available for other centres. “Only in the area of image storing, the storage and networking infrastructure could be used at a central location,” he says.
What this means is that the additional investments in infrastructure will depend on what usage the current infrastructure has been put to. That would decide whether the CTS solution can be integrated into the current infrastructure or will require additional investments. Another banker had this to say about the issue, “We do not share infrastructure. It may happen with small banks. Some of the co-operative banks already have tie ups with bigger banks. It is a win-win situation. The banks that have invested will be utilizing their resources fully.
The small banks without making any serious investment can avail of the benefits of a CTS system by leveraging the infrastructure of the bigger banks.” Bankers feel that, ideally, infrastructure investments should lead to reduction in the cost of operations and processing of payments, while improving the robustness of the system. Any system should also be able to accommodate current, planned and additional workloads through the business cycles. Also, apart from fueling business growth by managing costs through better utilization of IT assets, bankers expect the system to improve the alignment of operational platform spent and business value obtained.
The option of choosing one set of hardware infrastructure over another would be governed by their flexibility to cost-effectively accommodate ever-expanding data. A particular segmentation of criticality of infrastructure based on the impact on business should help bankers choose between technology options.
Major Impact is the level where the system retrieves data immediately with minimal data damage or loss; Moderate Impact is the level where the system experiences a temporary failure and Minor Impact is the level where the system experiences disruptions that may cause short delays and some work impediment. Among the challenges that one would face while choosing between a centralized CTS solution versus a hybrid or decentralized one, is the location of image storage. One banker says, “Infrastructure setup and maintenance at service branch like servers, backup etc, as against maintaining at the data centre of the bank, would be another challenge.” Another banker says that high bandwidth networking, workflow management solutions, hardware equipment and employee skill upgradation are all very important for introduction of CTS. “Every bank will pay serious attention in these areas,” he says.
Most of the larger banks do have the necessary infrastructure in place. Some of the larger banks have already commenced digitization of in-house cheques for speeding up the process internally. Additional requirement might be required to acquire the necessary software. In addition to this, banks might also have to consider upgrading their current communication systems and broadband capabilities. However, most of the larger banks are already way ahead in this area. The smaller banks can outsource their requirements to the larger one. This will prove to be a win-win situation for both parties as the former can thus do away with the need to invest huge sums while the latter can optimize its infrastructure.
Bankers do not expect too many challenges. The actual scenario will be know only post completion of the pilot project being driven by the RBI in the National Capital Region. But considering the benefits gained by the more developed countries post implementation Indian banks only stand to gain from CTS implementation in the long run.
In the course of our conversations with bankers covering the entire spectrum of size, technology usage and locations, we found that all are serious about their cheque truncation systems. A vision is in place, so is the implementation strategy, and with an acute understanding of challenges they are bound to face going ahead, all of the banks are well on their way to set up effective cheque truncation systems.
Among bankers, there is a universal consensus on the benefits to be derived by putting a CTS system in place chief among these being a drastic reduction in clearing time, across the country. At the moment, most banks generally take a minimum of two working days to process a cheque. Outstation cheques take even longer.
With a CTS system in place, bankers expect to cut down the process to within a few hours. Samrat Dasgupta of CitiBank adds to this, “Key benefits of a cheque truncation system will include the ability to centralise clearing operations and thus get benefits of scale. In addition to this, the ability to automate signature verification to a certain extent and flexibility of displaying cheque images on the Internet or even sending soft copies to customers will prove helpful in terms of reducing the large number of queries banks otherwise get.”
Even the customer stands to benefit from the cost savings that are bound to accrue in the long. RBI policies state that any cost benefits that a bank gains as a result of implementing systems recommended by the RBI needs to be necessarily passed on to the customer. M Nagarajan of UTI Bank points out that all the benefits of cheque truncation is sure to be passed on to customers, the final result being faster customer service. CTS is also likely to open up new business avenues for banks. Pravir Vohra of ICICI Bank says that along with a lower turnaround time for cheque processing and automation of the entire process, banks will now be able to develop and market new products to customers based on the cheque images.
Most small banks however are reluctant to opt for a CTS system thanks to the huge costs involved in setting up the requisite infrastructure and the additional investments required into hardware and software. But though the cost savings may not be evident, in the long-term the banking industry stands to save from the full implementation of cheque truncation annually up to $5 billion.
These factors will make sharing of knowledge about financial issues among banks, between banks and their clients, and among the general population faster. This help in the efficient working of banks. Current state of CTS Apart from the banks that are currently part of the Pilot Project in the National Capital Region of Delhi, and a few others who have initiated the CTS process independently, many other banks are in various stages of implementation of the CTS solution.
As an initial activity, all banks were asked by the Reserve Bank of India to initiate a tender process and identify vendors. Most banks are almost nearing the completion of the tender process, with the next process being implementation and testing. According to Rama Menon of IBA, none of the banks are facing any resistance to change due to the new system. “There is no resistance to change at the technology level. Many banks, especially new ones who are technology savvy, and those who already had NCR systems have begun to send truncated copies of cheques internally,” she says. A few instances: In the case of Bank of India, it is in the final stage of finalization of vendors for the CTS solution while ABN Amro bank will be finalizing its vendor by June 2006.
Among foreign banks, Standard Chartered is expected to finalise its vendors soon while most others, expect Citibank and ABN Amro have already finalized a vendor. During the last six months, RBI has arranged meetings with bankers on CTS implementation. The main emphasis of these meetings was on the interface between the core banking system and the clearinghouse. One banker avers, “There are so many vendors in the market offering similar technologies. We are in talks with most of them and have already seen their presentation. We are well prepared both on the hardware side and the software side. So far we have not come across any hurdles. But we are in the development stage. What we have done is, we have conducted an analysis of all the processes suitable for our requirements. Each bank has its own way of doing things. We achieved interconnectivity with our branches long ago. If RBI introduces CTS in other locations after the pilot project is successful, we are prepared for that. We will be in a position to migrate in other locations.”
Optimizing Infrastructure
The current investments in infrastructure will require marginal enhancements, and not a complete overhaul. Regular updates will be a necessity, particularly to keep pace with data transfer rates and security developments. M. Nagarajan of UTI Bank advises, “Instead of storing inbound instrument banks have to store outbound instruments. Electronic storage and retrieval system will be required, which can be a centralised repository for the bank with adequate DRS provisions.
In banking systems we will be having only numeric data. The image is to be kept separately with proper tag for retrieval on necessity. The network can be put to optimum use by using lean timings for image transfers. The images being in electronic form has to be backed up properly for onsite and off site storage as per banks policies and also replicated at its business continuity centre. ICICI Bank’s Vohra says that if issues like security and commitment to service within the set time frame are taken care of, sharing infrastructure by the various banks involved in the electronic transfer of cheques will not remain a challenge any more. Vohra also says that CTS as of now being centre-specific, any investment in this area would not be available for other centres. “Only in the area of image storing, the storage and networking infrastructure could be used at a central location,” he says.
What this means is that the additional investments in infrastructure will depend on what usage the current infrastructure has been put to. That would decide whether the CTS solution can be integrated into the current infrastructure or will require additional investments. Another banker had this to say about the issue, “We do not share infrastructure. It may happen with small banks. Some of the co-operative banks already have tie ups with bigger banks. It is a win-win situation. The banks that have invested will be utilizing their resources fully.
The small banks without making any serious investment can avail of the benefits of a CTS system by leveraging the infrastructure of the bigger banks.” Bankers feel that, ideally, infrastructure investments should lead to reduction in the cost of operations and processing of payments, while improving the robustness of the system. Any system should also be able to accommodate current, planned and additional workloads through the business cycles. Also, apart from fueling business growth by managing costs through better utilization of IT assets, bankers expect the system to improve the alignment of operational platform spent and business value obtained.
The option of choosing one set of hardware infrastructure over another would be governed by their flexibility to cost-effectively accommodate ever-expanding data. A particular segmentation of criticality of infrastructure based on the impact on business should help bankers choose between technology options.
Major Impact is the level where the system retrieves data immediately with minimal data damage or loss; Moderate Impact is the level where the system experiences a temporary failure and Minor Impact is the level where the system experiences disruptions that may cause short delays and some work impediment. Among the challenges that one would face while choosing between a centralized CTS solution versus a hybrid or decentralized one, is the location of image storage. One banker says, “Infrastructure setup and maintenance at service branch like servers, backup etc, as against maintaining at the data centre of the bank, would be another challenge.” Another banker says that high bandwidth networking, workflow management solutions, hardware equipment and employee skill upgradation are all very important for introduction of CTS. “Every bank will pay serious attention in these areas,” he says.
Most of the larger banks do have the necessary infrastructure in place. Some of the larger banks have already commenced digitization of in-house cheques for speeding up the process internally. Additional requirement might be required to acquire the necessary software. In addition to this, banks might also have to consider upgrading their current communication systems and broadband capabilities. However, most of the larger banks are already way ahead in this area. The smaller banks can outsource their requirements to the larger one. This will prove to be a win-win situation for both parties as the former can thus do away with the need to invest huge sums while the latter can optimize its infrastructure.
Bankers do not expect too many challenges. The actual scenario will be know only post completion of the pilot project being driven by the RBI in the National Capital Region. But considering the benefits gained by the more developed countries post implementation Indian banks only stand to gain from CTS implementation in the long run.
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