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Aayush Jaiswal C-50 3/19/2011 Shilpi Grewal C-60 This reports deals with Introduction to State bank of India, challenges due to technology, Implementation of CoreBanking System, benefits to SBI, various architecture followed at SBI & talk with MR. ASHOK KUMAR SHARMA (Chief Manager SBI Stressed Assets Resolution Centre). STATE BANK OF INDIA Type Industry Founded Public (NSE: SBIN, BSE: 500112, LSE: SBID) Banking Financial services 1 July 1955

Headquarters Mumbai, Maharashtra, India Key people O. P. Bhatt (Chairman) Products Investment Banking, Consumer Banking, Commercial Banking, Retail Banking Private Banking, Asset Management, Pensions, Mortgages Credit Cards 85,962. 07 crore (2010) 9,166. 05 crore (2010) $323. 04 billion (2010) $18. 519 billion (2010) Government of India 200,299 (2010) Statebankofindia. com Revenue Profit Total assets Total equity Owner(s) Employees Website STATE BANK OF INDIA ORGANSATION REVIEW State bank of India is the nation’s largest and oldest bank.

Tracing its roots back some 200 years to the British East India Company (and initially established as the Bank of Calcutta in 1806), the bank operates more than 15,000 branches within India, where it also owns majority stakes in six associate banks. State Bank of India (SBI) has more than 80 offices in nearly 35 other countries, including multiple locations in the US, Canada, and Nigeria. The bank has other units devoted to capital markets, fund management, factoring and commercial services, credit cards, and brokerage services. The Reserve Bank of India owns about 60% of State bank of India.

SBI share in Deposits & Advances SBI share in Foreign Exchange SBI share in Government Transactions SBI 18% SBI 35% Other s 40% SBI 60% Other 82% Other 65% MISSION STATEMENT To retain the bank’s position as the premier Indian financial services provider. It also aims to be a group with world class standards and significant global business commitments to excellence in customer, shareholder and employee satisfaction so as to play a leading role in expanding and diversifying financial services while continuing emphasis on its development banking role.

VISION To be a premier Indian financial services group with global perspective, world class standard of the efficiency and professionalism and also its core institutional values, To retain its position in the country as a pioneer in developing countries, It also aims to maximize its shareholders value through high sustained earnings per share, To become an institution with a culture of mutual care and commitment. It also focuses on a pleasant working environment to have continuous learning opportunities. VALUES

Excellence in customer service Profit orientation Belonging and commitment to bank Fairness in all dealings and relations Risk taking and innovations Team playing Learning and renewal Integrity Transparency and discipline in policies and systems The State Bank of India is a govt. sector bank. The evolution of State Bank of India can be traced back to the first decade of the 19th century. It began with the establishment of the Bank of Calcutta in Calcutta, on 2 June 1806. The bank was redesigned as the Bank of Bengal, three years later, on 2 January 1809.

It was the first ever joint-stock bank of the British India, established under the sponsorship of the Government of Bengal. Subsequently, the Bank of Bombay (established on 15 April 1840) and the Bank of Madras (established on 1 July 1843) followed the Bank of Bengal. These three banks dominated the modern banking scenario in India, until when they were amalgamated to form the Imperial Bank of India, on 27 January 1921. In order to serve the economy as a whole and rural sector in particular, the All India Rural Credit Survey Committee recommended the formation of a state-partnered and state-sponsored bank.

Hence the committee proposed the takeover of the Imperial Bank of India, and integrating with it, the former stateowned or state-associate banks. Subsequently, an Act was passed in the Parliament of India in May 1955. As a result, the State Bank of India (SBI) was established on 1 July 1955. Later on, the State Bank of India (Subsidiary Banks) Act was passed in 1959. The State Bank of India emerged as a pace-setter, with its operations carried out by the 480 offices comprising branches, sub offices and three Local Head Offices, inherited from the Imperial Bank.

Instead of serving as mere repositories of the community’s savings and lending to creditworthy parties, the State Bank of India catered to the needs of the customers, by banking purposefully. STATE BANK OF INDIA CORE SYSTEMS MODERNIZATION DRIVERS FOR A NEW CORE SYSTEM SBI had undertaken a massive computerization effort in the 1990s to automate all of its branches, implementing a highly customized version of Kindle Banking Systems’ Bankmaster core banking system (now owned by Misys).

However, because of the bank’s historic use of local processing and the lack of reliable telecommunications in some areas, it deployed a distributed system with operations located at each branch. Although the computerization improved the efficiency and accuracy of the branches, the local implementation restricted customers’ use to their local branches and inhibited the introduction of new banking products and centralization of operations functions.

The local implementation prevented the bank from easily gaining a single view of corporate accounts, and management lacked readily Available information needed for decision making and strategic planning. The advantages in products and efficiency of the private-sector banks became increasing evident in the late 1990s as SBI (and India’s other public-sector banks) lost existing customers and could not attract the rapidly growing middle market in India. In fact, this technology-savvy market segment viewed the public-sector banks as technology laggards that could not meet their banking needs.

As a result, the Indian government sought to have the publicsector banks modernize their core banking systems. In response to the competitive threats and entreaties from the government, SBI engaged KPMG Peat Marwick (KPMG) in 2000 to develop a technology strategy and a modernization road map for the bank. In 2002, bank management approved the KPMGrecommended strategy for a new IT environment that included the implementation of a new centralized core banking system. This effort would encompass the largest 3,300 branches of the bank that were located in city and suburban areas.

The State Bank of India’s objectives for its project to modernize core systems included: ? The delivery of new product capabilities to all customers, including those in rural areas ? The unification of processes across the bank to realize operational efficiencies and improve customer service ? Provision of a single customer view of all accounts ? The ability to merge the affiliate banks into SBI ? Support for all SBI existing products ? Reduced customer wait times in branches ? Reversal of the customer attrition trend CHALLENGES FOR THE BANK The bank faced several extraordinary challenges in implementing a centralized core processing system.

These challenges included finding a new core system that could process approximately 75 million accounts daily — a number greater than any bank in the world was processing on a centralized basis. Moreover, the bank lacked experience in implementing centralized systems, and its large employee base took great pride in executing complex transactions on local in-branch systems. This practice led some people to doubt that the employees would effectively use the new system. Another challenge was meeting SBI’s unique product requirements that would require the bank to make extensive modifications to a new core banking system.

The products include gold deposits (by weight), savings accounts with overdraft privileges, and an extraordinary number of passbook savings accounts. VENDOR CONSORTIUM SELECTION Recognizing the need for large-scale centralized systems expertise, SBI sought proposals from a number of vendor consortiums that were headed by the leading systems integrators. From these proposals, the bank narrowed down the potential solutions to vendor consortiums led by IBM and TCS. The TCS group included Hewlett T Packard-based Financial Network Services (FNS) and China Systems (for trade finance).

Although SBI favored the real-time processing architecture of FNS’s BaNCs system over that of the IBM consortium’s memo post/batch update architecture, the bank had several concerns about the TCS consortium proposal. They included the small size and relatively weak financial strength of FNS (TCS would eventually purchase FNS in 2005) and the ability of the UNIX-based system to meet the scalability requirements of the bank. Therefore, it was agreed that TCS would be responsible for the required systems modifications and ongoing software maintenance for SBI.

Additionally, scalability tests were performed at HP’s lab in Germany to verify that the system was capable of meeting the bank’s scalability requirements. These tests demonstrated the capability of TCS BaNCs to support the processing requirements of 75 million accounts and 19 million daily transactions. TATA CONSULTANCY SERVICES AND TCS BANCS Tata Consultancy Services, headquartered in Mumbai, India, is one of the world’s largest technology companies with particular expertise in systems integration and business process outsourcing. The company has more than 130,000 employees located in 42 countries and achieved revenues of $5. billion in fiscal 2008. Although TCS has long been a leader in core systems integration services for banks, after it purchased FNS in 2005, the company also became a leading global provider of core banking software for large banks. The BaNCs system is based on service-oriented architecture (SOA) and is platform and database independent. In addition to SBI, TCS BaNCs clients include the Bank of China (installation in process), China Trust, Bank Negara Indonesia, India’s Bank Maharashtra , National Commercial Bank (Saudi Arabia), and Koram Bank (Korea).

TCS has also expanded its US footprint with the opening of its largest resource delivery center North America (near Cincinnati, Ohio) that can house 20,000 personnel. The company is seeking license and implement the BaNCs system in North America and recently completed a major plan effort to ensure that the BaNCs system meets US regulatory and compliance requirements. INITIAL SBI CORE SYSTEMS MODERNIZATION PROJECT The contract for the initial project was completed in May 2002; 3,300 branches were to be converted by mid-2007.

TCS immediately began a six-month gap analysis effort to determine the required software changes to the BaNCs system. The changes included installing required interfaces with more than 50 other systems as well as making enhancements to support the bank’s product requirements. These product requirements were separated by customer segment to allow the vendor and bank to begin conversions before all the needed modifications were implemented. They placed a priority on the needed changes that would allow branches with high-net-worth individuals and then corporate accounts to be converted as soon as possible.

Before the first conversion in August 2003, TCS and HP created the data processing environment for SBI. The primary data center was established on the outskirts of Mumbai and a backup center. After the second round of changes, the system and processes were functioning smoothly, and management believed the branch conversion could be accelerated. An assembly line approach was then employed in April 2006 to speed the branch conversion process: • Branch personnel were responsible for data scrubbing and cleaning of their customer information on the existing system. Branches were notified three months prior to their conversion date to begin “mock,” or test, conversions using a specially created test version of the BaNCs system. • Branches performed several test conversions to ensure the actual conversion went smoothly. As the new core banking system was rolled out across the SBI branches nationwide, a special process was introduced in the nightly batch window to add the new branches. The process increased batch processing time approximately 20 minutes and typically included adding branches in groups of 50.

This additional process, of course, was unnecessary upon completion of the rollout and has since been removed from the nightly batch window. TCS and local area branch managers oversaw the conversions, and the bank’s circle (regional) heads formally reported the status to the chairman’s office. By employing the assembly line approach for branch conversions, SBI was able to convert 1,200 branches in April and May 2006, completing the initial 3,300-branch conversion two months ahead of the original schedule.

The milestones for the initial core systems implementation project are included in the SBI and affiliate banks core systems modernization time line in Exhibit 2. Exhibit 2 Time Line of State Bank of India and Affiliate Banks’ Core Systems Modernization (2000– 09) Source: Tata Consultancy Services (TCS) STATE BANK OF INDIA FULL BRANCH CONVERSION The success of the initial 3,300-branch conversion for SBI demonstrated that: • TCS had the technical capabilities to support the bank’s IT initiative and scale of operations. • Bank personnel had the skills to adopt new processes and support the conversions. The Indian customer base would react to new technology by adopting new electronic services and demanding new, more sophisticated banking products. • An assembly line approach could be used effectively to support large-scale branch conversions. TCS and HP then conducted another scalability test in September 2006 to determine if the system could process SBI’s entire base of 100 million accounts (excluding the affiliate banks, which use a separate processing environment) with sustained peak online throughput of 1,500 transactions per second.

They conducted the test at HP Labs in Cupertino, California, using two 32-CPU HP 9000 Superdome application servers and two 32-processor Itanium Core HP Integrity servers for the database. The test achieved a sustained peak real-time transaction rate of more than 1,575 transactions per second, meeting the projected processing demands of SBI. Additionally, batch tests were run for both deposits and loan account processing. The month-end batch process for loans required 1 hour and 5 minutes, and deposit processing was completed in 2 hours and 27 minutes.

These benchmarks were audited by Ernst & Young, and the test results are highlighted in Exhibit 3. Exhibit 3 State Bank of India Scalability Test of TCS BaNCs System for Full Branch Conversion Source: Tata Consultancy Services (TCS) CRITICAL SUCCESS FACTORS Large-scale core systems implementations are typically the most costly and risky IT projects undertaken by banks. Failures of core systems projects are not uncommon at large banks and result in both financial impact and lost business opportunities.

Further, failed projects lead other banks to delay needed core systems replacements because they measure the risk of failure against the potential benefits of a new system. TowerGroup believes that several critical factors contributed to the success of the SBI core implementation effort: • Senior management commitment. The project was driven by the chairman of SBI, who met every month with the information technology (IT) and the business sector heads. The chairman monitored the overall status and ensured that sufficient resources were allocated to the project.

TCS senior managers were thoroughly committed to the project as well and periodically met with the SBI chairman to review the project status. • Staffing and empowerment of project team. The core banking team consisted of the bank’s managing director of IT acting as team head and 75 business and IT people selected by the bank. TCS also staffed the project with approximately 300 IT professionals trained on the BaNCs system. Importantly, the SBI business people were viewed not just as contributors to a key project but as future bank leaders. This team reported to the SBI chairman and was empowered with all decision-making authority. Ownership by business heads. The regional business line heads were responsible for the success of conversion of their respective branches and reported the status to the chairman. Thus, the business heads’ objectives were aligned with those of the project team. • Focus on training. SBI used its network of 58 training centers across India to train employees on the new system. TCS personnel first educated approximately 100 SBI professional trainers, who then trained 100,000 SBI employees at the centers; the remaining employees trained at their respective job sites.

NETWORK ARCHITECTURE Like any corporate network architecture the SBI network is also based on the principles of stability, security, scalability, performance and simplicity. As the following illustration makes clear, the Networked Banking pool is linked to the Stakeholders, Customers and prospects. This network Pool interfaces with the Shared Operation Centers which in turn interact with Operating Units. The Operating units in turn interact with the associate Banks, RBI and Treasury and Risk Management. All the common input after validation is then handled by the Corporate Office.

PHYSICAL ARCHITECTUR E DISTRIBUTED SYSTEMS COMPONENTS In general the Distributed Systems Components suffice for usual needs. But for The State Bank of India such a structure will have limited scalability. Usually the general structure is as shown in the following illustration. Illustration: Distributed Systems Architecture To overcome the shortcomings of the model mentioned above a new model based on the general one was designed which was later implemented. Thus came CBS or Core Banking System. CORE BANKING SYSTEM COMPONENTS ILLUSTRATION: CORE BANKING SYSTEM COMPONENTS

One significant aspect to the core banking architecture is that only the necessary permissions are granted to individual officers. This is done to prevent mishaps or though unlikely, deliberate hijack attempts from within the network. The isolation of the intranet from the Internet is also a similar step to increase the security of the network. Each of the branches are connected by the WAN which in this case is not through the Internet but an entirely new infrastructure altogether. This private secure network is used to relay between the nodes at the different branches.

The data flowing out of the branches is not immediately stored into the main servers but remain in a data pool. This data is then reviewed automatically by auditing software and if passed the data is stored in the main servers. Even then this data can be modified by the network administrators but it would require the security credentials of the Chief Officer, Information Security, State Bank of India. As a result the data security of such a network can be assured. ILLUSTRATION: DATA TRANSFER INTERFACE BETWEEN SECURE SERVER AND THE INTERNET SECURITY ARCHITECTUR E

Security is perhaps the most important aspect to the network architecture. In banking system secure transfer of data is not only desirable but indispensable. What would Core Banking be without proper security? It would have just become another failed and hacked network like millions of others, leading to the loss of billions of rupees and possibly the destruction of the Indian economy. To better protect the security a policy of crafted principle are used, which taken together are named as Information Systems Security. It is a pillared architecture as shown in the illustration below.

ORGANIZING STRUCTURE OF IT ENABLER INFORMATION SECURITY DEPARTMENT Assess risks Define Policies, and develop Standards and Procedures Provide training & awareness Deploy & manage security products Define security architecture for network, databases & applications: Secure Configuration Docs ENFORCER APPLICATION OWNERS /BUSINESS OWNERS/SYSTEM ADMINISTRATORS / IT PERSONNEL Implement technical and procedural controls Manage Network, servers & applications securely adhering to policies, standards & procedures 18 SBI Core Banking Report Incidents Act on Security Logs AUDITOR

INSPECTION & MANAGEMENT AUDIT DEPT. Auditing compliance against policies across applications and locations Vulnerability testing Penetration testing Application security testing Feedback to ISD on effectiveness of policies BENEFITS SOLUTION BENEFITS The new core system has resulted in benefits throughout the bank for both the customers and the employees of SBI. For example, the new core banking system has allowed the bank to redesign processes. It established 400 regional processing centers for all metro and urban branches that have assumed functions previously performed in the individual branches.

The bank recently reported that business per employee increased by 250% over the last five years. The bank has achieved its goal of offering its full range of products and services to its rural branches. It delivers economic growth to the rural areas and offers financial inclusion for all of India’s citizens. Implementation of the TCS BaNCs system has provided the bank with the ability to consolidate the affiliate banks into SBI. In fact, the bank recently completed the consolidation of State Bank of Saurashtra into SBI. The bank has reversed the trend of customer attrition and is now gaining new market share.

Completion of the core conversion project has also allowed the bank to undertake several new initiatives to further improve service and support future growth. These initiatives include the deployment of more than 3,000 rural sales staff, redesign of over 2,200 branches in the last fiscal year, opening of more than 1,000 new branches, establishment of a call center, and an active plan to migrate customers to electronic delivery channels. The improvement in productivity and growth of business for the SBI Group is reflected in Exhibit 4.

Reduced transaction time Enterprise significantly reduces a bank’s mean transaction time. The solution’s single transaction engine (capable of providing n-level parallel processing) and multiple integrated banking modules, banks can provide faster approval of loans, credit cards, balance limits, etc. It is certified and tested to support more than 150 banking transactions per second. When operating on servers running on powerful Intel ® XeonTM processors, the Enterprise solution maintains a significantly higher mean number of transactions per second. INCREASED DELIVERY CHANNELS

Deploying the multi-channel EEnterprise solution means that the bank can offer a number of its services through different, non-traditional delivery channels to the customer aside from its branches. These include Internet banking, ATMs and mobile banking, to name just a few. In-depth customer understanding with its holistic view of customer interface history with the bank, the Enterprise solution gives banks a better view of the customer’s banking needs, and allows them to offer personalized, user-friendly and intuitive service packages to its customers.

STANDARDIZED BUSINESS PROCESSES ACROSS THE SYSTEM The Enterprise solution is built around the modular Enterprise: step architecture with different modules in the solution following the same activity flow and a uniform method of transactions processing. As a result, business processes are standardized across the system, allowing for easy maintenance and upgrades. In-house technical personnel find the learning curve much shorter than with other solutions since it runs on the universally accepted Microsoft* server operating system. In addition, the solution is based on industry-recognized Intel rchitecture which is constructed for modular deployment. Hence, adding new modules and services is also far more intuitive and can be done quickly. OPEN TECHNOLOGY PLATFORM The Enterprise solution is built on an open technology platform that supports both Linux and Windows architectures. As a result, it is easily integrated with most legacy equipment and systems. Its industry-recognized Intel architecture and universal compatibility allows banks to effectively reuse their existing assets – whether software, hardware or systems. LOWEST PRICE PERFORMANCE RATIO

Intel ® Xeon™ servers featuring Intel Net Burst ® micro architecture and Hyper- Threading Technology, server platforms based on Intel Xeon processors provide excellent price performance ratio with faster response times, increased compute power and enhanced scalability. Built on industry standards and compliances The Enterprise solution is built on industry-recognized technologies such as Intel and Microsoft that are built with future applications and technological evolutions in mind. As a result, the solution ensures that the bank has a worldclass system that can easily be upgraded or merged with future technologies.

FURTHER IMPROVEMENT Like any network security is a key issue. The Information Security Officers need to guard the network from future threats. Besides the technical aspects, there are physical problems which are being overcome. Most of India is still not connected to Internet, not many use mobile banking either. Efforts are being made to help reach the facilities of advanced banking to the remotest areas of India through satellite connectivity or SMS Banking. Mobile Banking has only recently started and is sure to usher in a new age of Banking Infrastructure.

Since BaNCs is the largest implementation of Core Banking, the maintenance and upkeep of the network requires a lot of effort. Billions of transactions are handled every month and every day. The validation of the End of Day messages, backing up thousands of Terabytes of data and keeping them secure is a monumental task. As a result further automation without compromising the security is stability of the network is on the cards. Due to existing tender notice regulations of the Bank further details have been omitted. The future will see more Banking options to the customers through SMS and Mobile Banking as well as TV cable Banking.

Some of the features are already being implemented but will take time to grow and develop. CONCLUSION The implementation of the Tata Consultancy Services (TCS) BaNCs system at the State Bank of India (SBI) represents the largest core systems project ever undertaken. The success of this project should encourage other large banks to begin projects to modernize their core systems. The use of a UNIX-based platform to process more than 100 million accounts daily demonstrates that tier 1 banks can use a mainframe alternative for their core processing.

Although TowerGroup expects that the majority of these banks will continue to rely on the IBM mainframe for core processing, they can fully consider the benefits of utilizing a UNIX-based platform. SBI’s achievement demonstrates that attention to critical factors is crucial in implementing new core systems. The bank’s senior management commitment, business line involvement, project team staffing and empowerment, and extensive employee training were all key contributors to the success of the project. Management also recognized the need for a proven systems integrator that possessed in-depth expertise in both business and technology.

Core systems modernization has allowed the State Bank of India to centralize computer processing and operations functions, offer new banking products to all the citizens of India, reverse a trend of customer attrition, and consolidate its affiliate banks. Additionally, the bank can now further expand its product offerings and improve customer service. ROLE OF INFORMATION TECHNOLOGY IN STATE BANK OF INDIA We met Mr. Ashok Agnihotri ex branch manager state bank of India and currently holding the stress asset recovery cell of the same as chief manager, to discuss and get an insight into the use of management information system in the banks.

Mr. Agnihotri started by telling us about the management information system used in state bank of India which is developed by Tata consultancy services and an Australian company in a joint venture. However HSBC was among the very first banks to use online banking and shift over its database and day to day banking online, SBI have done it quite recently. Even though the computers have entered the banking sector in last two decades nearly all the banking these days is done on the computers. If any bank is not able to keep pace with the growing information technology it is similar to the third world country, survival for which is a challenge.

Now days all the core banking functions are done with the help of information technology. For example online fund transfers, customers can transfer their fund from one account to another instantly, in few clicks, that to with very low charges for same. Information technology has also made interest monitoring easy. These days Reserve Bank of India is following floating rate of interest, which means interest rate changes frequently and making changes in every account manually is really difficult and time consuming. But with the help of information technology all this is just a few clicks task.

It also helps banks in bulk account opening. Salary and pension account are examples of bulk accounts. The credit worthiness of an individual is easily identified, due to a direct link between different banks, which is possible only due to civil sites maintained by the government. These civil sites have information about all the credit taken on a property or individual. Most of the work is done by computers which as a result have decreased the back office work lowering man power involvement and more employees available for frontline customer services.

Banks has also employed Management Information System which works on central database (For SBI bank it is situated in Mumbai. ). Top level management can get varied information regarding the position of bank in instants. In SBI, information flow between different branches, regional office, state office and the central office (Mumbai). Information tech has helped people in a way that they no longer have to visit banks stand in queue. Now they can make payments, transfer money, pay bills, check account balance and print statements online. As a result people re the ‘customers of state bank of India’ rather than being the customer of a particular branch. ATM machines are also connected to banks server, resulting in automatic changes in the accounts statement without any manual interference. This results in lower overheads for banks. Due to online banking the banks can cater to large customer base. Management Information System as a result has made banking for a SBI customers more convenient and hassle free. Now banking transactions are more transparent, it has given bank speed, dependability, accuracy, strength in performing day to day banking functions and taking long term decisions.