SWIFT stands for SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL TELECOMMUNICATIONS. It is a cooperative society under Belgian law and is owned and controlled by its member-shareholders. SWIFT is based in Brussels (Belgium). It is a reliable, safe, instantaneous and economical means of communication amongst member banks.

What is the mission of SWIFT?

SWIFT is a worldwide community of financial institutions whose purpose is to be the leader in communications solutions with lowest risk and highest resilience. It provides low-cost competitive financial processing and communications services of the highest security and reliability. It contributes significantly to the commercial success of its members through greater automation based on its leading expertise in message processing and financial standards setting.

When did the inception of SWIFT take place?

SWIFT was formed in 1973. At the time of inception, there were 239 members from Europe and America. Presently Swift has almost 7600 members and participants in 200 countries. Daily messages regularly exceed 9 million and the average transit time is less than 20 seconds.

What was the rationale behind formation of SWIFT?

SWIFT was formed in response to the communications problems faced by the international banking community. The system provides a standard technique for fund transfer among the member banks.

How does the system work?

The financial institutions can do business with one another using computerised systems over an international data network. The member banks are provided with a Swift Interface Device (SDI) which enables them to format messages according to SWIFT rules or to accept messages in SWIFT format from another computer system. Thus it handles the communication between the computer and the network. Each member bank is given a Bank Identification Code (BIC). Normally there are 8 to 11 characters. The first 4 digits represent Bank, followed by 2 digits
Country and 2 digits Region. The last 3 digits represent branch.

How are the messages transmitted and received?

Messages are sent in test key which can be decoded. Message is sent in encrypted form which is decrypted at the receiving end. Charges are levied not based on distance but based on the block of characters.In India the SWIFT Regional Processor (RGP) is located at World Trade Centre, Mumbai.

What is meant by encryption & decryption?

Encryption means translation of data into a secret code. It is the most effective way to achieve data security. To read an encrypted file,you must have access to a secret key or password that enables you to decrypt it. Unencrypted data is called “plain text” and encrypted data is referred to as “cipher text”.

Some corporates prefer to offer ESPS (Employees Stock Purchase Scheme) which provides immediate gratification to employees vis-à-vis ESOP which has longer vesting period. ESOP schemes have an inbuilt uncertainty due to fluctuating stock market prices. The option may turn out to be worthless incase of downtrend in stock markets. T

he opponents of ESOP scheme thus feel that outright allotment of shares (under ESPS) is a superior tool vis-àvis ESOP. The success of any share benefit scheme (ESOP or ESPS) depends

upon management objective, leveraging employee expectation and, above all, stock market dynamics, which are unpredictable

Most of the ESOPs are Call Option granted by a Company to its employees. The employee will not exercise his option so long as exercise price exceeds the market price and hence the option may ultimately lapse or be forfeited. These types of options whose exercise price are higher than market price are also referred as underwater option. During the dot com bubble, stock options issued by some leading blue chip companies were rendered underwater due to adverse market conditions. SEBI guidelines authorise companies to vary the terms and conditions, including re-pricing of options, if they become underwater.

With the mergers and acquisitions going to be the fashion of the years to come, CBS application software is getting ready to take care of real time banking transactions which are of multi-bank, multi-currency, multicountry and multi-lingual characteristics.

Instead of the present user /card based password authentication, biometric authentication is going to be in vogue. Thus the day is not far away, when one of you just stand in front of an ATM here in India, the biometric camera attached to the ATM recognises your retina, the ATM screen salutes you with the menu options, you select the option “funds transfer”, then enter the 22 digit (let us add 3 digits each for the country code and bank code!) bank account number of your younger sister studying in US and then followed by the transaction amount.

The ATM now asks for your confirmation, commits the transaction and generates a receipt for you, where the transaction will show the time stamp as “Sunday, 09.30 Hrs, 10th July 2010”, where as, the credit to your sister’s account will bear a time stamp as “Saturday, 22.30 Hrs, 9th July 2010”.

And this is what we call Core, Online, Realtime, Electronic banking system.

It is an Act called “ FOREIGN EXCHANGE MANAGEMENT ACT-1999.” The Act came into force from 1st day of June, 2000. It extends to the whole of India. The objective of the Act is to facilitate foreign trade and promote orderly development and maintenance of FOREX MARKET. This enactment replaced the then prevailed (FERA) “Foreign Exchange Regulation Act - 1973”.

Capital account transactions refer to transactions which alters assets and liabilities. Thus transactions meant for investment in immovable properties, investment in securities, external commercial borrowings, etc. are of capital in nature.

Current account transactions mean the transactions other than capital account transactions. Payments on account of personal expenses, business expenses, gifts, donations, interest, commission, foreign travel, educational and medical expenses, etc. come under current account transactions.

Nostro A/c is an Indian bank’s foreign currency a/c with another Bank outside India.
Vostro A/c means a foreign bank’s or exchange company’s Rupee a/c with a Bank in India.

Repatriation into India means bringing foreign currency into India and converting into local currency (Rupee).

Repatriation outside India means converting rupee into foreign currency and remitting out of India.

This currency conversion is done at the market determined TT buying rate or TT selling rate. Or in other words, TT buying rate is the rate at which remittances received in foreign currency to India is converted into Rupee and TT selling rate is the rate at which Rupee is converted into foreign currency for remittances send outside India.

A. NRE Accounts:

These accounts are maintained in Indian rupees. Accounts can be in the form of Current, Savings, Term Deposit and Recurring Deposit. Joint accounts are permitted with NRIs. Account can be opened by direct remittance from abroad, transfer from existing NRE, FCNR(B) accounts or with foreign currency note, travellers cheque tendered personally by NRIs during their visit to India.

Residents in India can be authorised to operate the account for local payments. Balance is exempt from wealth tax and interest earned is exempt from Income Tax. Loans can be availed against security of NRE Term Deposit and as per the recent RBI guidelines, the maximum loan amount is stipulated as Rs. 20 lacs. Since these accounts are kept in Indian rupees, customer is exposed to a probable loss in case rupee gets weaker. The rates of interest offered on NRE accounts are relatively higher when compared with that offered on FCNR accounts.

B. FCNR Accounts:

In India, FCNR (Foreign currency non resident) deposit is accepted in US dollar, Canadian Dollar, Australian Dollar, Japanese Yen, British Pound and EURO for various maturities insulated against exchange rate fluctuations. In India, RBI has permitted banks to maintain foreign currency accounts in the above 6 currencies and hence, thesecurrencies are often referred as designated currencies. Balance and interest is repatriable.

Joint accounts are permitted with NRIs. Rupee or Foreign Currency loan can be availed against deposits. When compared to NRE accounts, there is a probable loss in case rupee gets stronger. These accounts are only of fixed deposit type and the minimum deposit period is 1 Year. Banks also provide forward contract facility to the customer, so that he will also get the benefit of prevailing forward premium. As in the case of NRE accounts, the balance is exempt from wealth tax and interest earned is exempt from Income Tax.

C. NRO Accounts:

Accounts maintained in Indian Rupees for routing bona fide local remittance like rent, income from land etc. Joint accounts are permitted with NRIs or Residents. Interest earned in the account is subject to Indian Income Tax. Account can be maintained in the form of Current, Savings and Term Deposits and repatriation is restricted.

D. RFC Accounts:

A person of Indian Origin who returns to India for permanent settlement after a stay of minimum period of one year abroad is eligible to open RFC account. Assets acquired or held at the time of return are eligible for credit to RFC account.

For Example: Funds in bank account outside India, Income such as dividend, interest, and profit earned on assets abroad, sale proceeds of eligible assets, pension and other monitory benefit received from outside India arising out of employment taken up abroad, foreign currency notes, travellers cheques brought to India at the time of return and balances in NRE & FCNR accounts.

The balance can be repatriated or credited to NRE or FCNR(B) accounts, if the account holder becomes an NRI subsequently. Balance in the accounts can be used for bona-fide expenses like travelling expenses for going abroad, children’s education abroad etc.

The customer information of the bank is stored in the central server and the individual customer records will have to be selected for effecting afinancial or non-financial transaction or inquiry. In order to identify thespecific customer accounts, branch code and product code are generally prefixed to the account number.

Thus under CBS, in a 16 digit account numbering pattern, a savings bank account bearing its ID number as 4377 in a manual or TBA environment is identified as 0001-012-000004377.

Here the first 4 digits represent the branch code, next 3 digits represent the product/service code (SB A/c) and the remaining 9 digits represent the account number. This is the reason for an increase in the number of digits of the customer account number, when the branch migrates into CBS.

This numbering pattern identifies the SB Account 4377 of branch A from that of branch B.

Although there are a lot of arguments which are pro CBS, there are alsosome risks in having a CBS. The main risks are on account of networkand server failures, which have to be clearly addressed while formulatinga business continuity plan (BCP). Since the entire data is available at thedata centre, a branch will get typically alienated and its operations getaffected. The whole banking operations get paralysed on account of a server failure or due to a network failure at the data centre.

The disasters and attrition of key IT personnel are next in the list. The CBS application software, although supposed to be highly parameterised, modular, scalable and flexible, often demands for a work-around or a business process reengineering (BPR).

Integration issues with third party solutions pop up while rolling out new products and services. The customisation part is another headache and banks later on realise that they have been customised to a corner! Ensuring the prompt and expert IT support from the 3 dimensions, viz., software, hardware and network and delivering the new products and services as per the business plan of the bank – these are the inevitable challenges in having a CBS model. To shoulder these risks and responsibilities, the bank should invariably have a well paid, dedicated

and loyal IT team in its rolls rather than an outsourced model and here comes the importance of an effective chief information officer.

As mentioned in the previous posts , the customer is no longer the customer of a bank branch but that of the bank itself. With this status change, he can bank with the bank as a whole rather than with his specific branch. Any where and any time banking facilities are the ultimate customer benefitson account of CBS implementation.

Customer can enjoy the

1. Online and real time banking facilities through ATMs
2. Point of sale terminals (POS) Internet
3. Mobile phones and Kiosks
4. Quick realisation of instruments lodged for collection
5. on-line and easy fund transfer (intra-bank as well asinter-bank) etc

these are other benefits to the customers, as CBS eliminates the physical transit of transfer/realisation advices using the postal system. Customers can issue multi city cheques to their clients rather than depend on demand drafts for the out station and third party payments to a large extent. With CBS put in place, bank personnel get more time for customer care and this is surely going to be a step towards customer delight.

Following are the major benefits derived by the banks:

• Replace old technology seamlessly with a state-of-the-art n-tierapplication.
• Replace multiple disparate and older generation systems with asingle integrated multi-product processing application across variouscountries.
• Streamline operations by integrating the enterprise, to existing inhouseapplications and to offer a single customer view.
• Create a virtual banking operation from ground-up and offer a hostof banking products.
• Enable multiple new delivery channels (Internet Banking, 7 X 24 ATM, Mobile Banking, Tele-banking and Point of Sale Terminals) allowing the bank to reach out to new customers and segments.
• Move to centralized processing and handle much higher volumes without a proportionate increase in resources or infrastructure costs.
• Use business intelligence tools to analyze customer needs and create new products and offerings.
• Build and retain customer relationships based on the strength of customer service capability.
• Enable and modify product offerings quickly and efficiently based on customer’s market needs.
• Reduce costs, improve bottom-line and stakeholder rewards.
• Quick and easy introduction of new products and services

Fiserv (ICBS), Misys (MidasPlus), Temenos (T24) etc. are the major International Core Banking Solution (application software) providers. Infosys (Finacle), I-flex (Flexcube) and TCS (FNS-BANCS) are the major players in the Indian market and Infrasoft (Omni Enterprise), Lasersoft

(Panacea) are surely going to be the other alternatives available to the Indian banks.

Infosys Technologies Ltd. Finacle is the universal banking solution from Infosys. The solution addresses the core banking, e-banking, treasury, wealth management, CRM, and cash management requirements of retail, corporate and universal banks worldwide. South Indian Bank, Punjab National Bank, ICICI Bank etc. are the major clients.

I-flex solutions Ltd. since late 2005 it is owned by Oracle (previously was controlled by Citigroup) and specializes in providing state-of-the-art information technology solutions to the Banking and Financial Services industry. FLEXCUBE is their CBS solution which is an end-to-end product suite for retail, consumer, corporate, investment and internet banking, asset management, and investor servicing. HDFC Bank, Syndicate Bank etc. are the major clients.

TCS FNS (Financial Network Services Limited) is an Australian developer and supplier of banking application software, operating in world markets. The company is owned by TCS since Q4 2005 and consistently has ranked in the top 20 full banking system suppliers. BANCS is their CBS application software which runs on multiple operating systems, is platform and database-independent; operates in a multi-lingual and multi-currency capacity and provides the features and functions necessary to automate a bank’s entire operations. State Bank of India is the major client.

The major objectives of bank automation are better customer service, flawless book keeping and prompt decision-making that leads to improved productivity and profitability. The concept of bank automation started in the year 1981, but it was during the period 1984-1987 banks in India started the branch level automation, making use of the then available MSDOS based stand alone computers. This initiative was taken by the banks on the basis of “First Rangarajan Committee report” on bank computerisation submitted in the year 1984. ALPMs (Advanced Ledger Posting Machines) were the fashion in those days. However, the pace of bank automation was very slow in the banks primarily owing to the lack of trade union consensus on bank automation.

Another committee was constituted in 1988 under the chairmanship of Dr. C Rangarajan, the then Deputy Governor of RBI to slate down a perspective plan on automation of banks for a five year period. This paved way to the implementation of multi-user Total Branch Automation packages running on a LAN (Local Area Network), either on a Netware or a UNIX operating system. With the implementation of TBA, banks started to offer the facilities of exclusive Customer Terminal, Single window transaction, on-line and off-site ATMs, Tele-Banking etc.

But with the advent of new generation private sector banks in India during 1994-1996, the real era of bank marketing started and these banks started to offer any where and any time banking facilities to its customers. This was possible for them mainly owing to the fact that they opted for the implementation of a WAN (Wide Area Network) based centralised banking solution rather than a LAN based branch banking solution to network their limited number of branch outlets.

The old generation banks in India hesitated to follow this banking fashion on account of its large network of branches on one hand and the then prevailing exorbitant IT cost on the other hand. But with the globalisation and liberalisation of Indian market and with the enactment of TRAI (with a mission to create and nurture conditions for growth of telecommunications in the country in a manner and at a pace which will enable India to play a leading role in emerging global information society) during the late nineties, there happened a drastic reduction in IT cost.

Improved telecommunication facilities and reduction in hardware as well as networking cost changed the mind set of the banks in India to try the CBS option. This also equipped them with the required technology leverage to compete in the Indian market by offering the similar technology products and services, as those offered by their new generation competitors.

• Data Centre (DC) – The place where the central server / servers are housed.
• Disaster Recovery Site (DRS) – An alternate data centre which will act as abackup resource and ensure business continuity in case of a DC failure.
• Data Mirroring – Storage devices attached to Servers located in DC and DRS are updated on a real time basis, so that data integrity as well as availability are ensured even in case of a hardware failure. Bank’s real time data is stored in multiple devices and locations.
• Backup – Data stored in the fixed storage devices are copied on to removable storage devices / tapes and preserved for any future contingency. These backups are stored in some off-site location to avoid the damages on account of a disaster like earth quake, fire, flood etc.
• Leased Lines – These are the primary data links used for CBS networking. These are analog links on fixed yearly rentals and there are no additional usage charges.
• ISDN Lines – These are the secondary data links put to use in case of a Leased line failure. These are integrated services digital network lines which can carry various forms of information packets (data, voice and images and video) as digital signals.
• Modem – This is networking equipment used to modulate and demodulate the data signals. Computers work on digital data signals where as the leased lines can carry only the analog signals. Modems modulate (convert the digital signals to analog signals) at the transmitting end and then demodulate (Convert the analog signals to digital signals) at the receiving end.
• Switch – In a branch there can be more than one computer and these computers are networked to form a local area network (LAN) using a device called switch.
• Router – Router is another network device that connects different LANs and facilitates intelligent data transfer. Router also functions as an intelligent switching device between various connectivity channels, viz., leased line, ISDN, PSTN etc. When the primary link (LL) is down, it automatically dials the ISDN and re-establishes the network connectivity.
• Regional Cluster Centre (RCC) - Instead of taking separate links between individual branches and the data centre, branches in a geographical region are first connected to a location in that region and this location is then connected to the data centre using links of higher band width. This location is termed as a regional cluster centre. Some banks also house their regional data servers in RCC, so that in case of a total network failure between RCC and DC, branches in that region can continue to operate and also provide Any Branch Banking (ABB) facilities within the cluster

The main features of CBS include:

• Customer information files with all the non-dynamic information about the customer, business entity or group and relationships.
• All bank liability accounts : savings, fixed deposits, current accounts etc.
• All bank asset accounts: loans, mortgages and credit facilities.
• Bank General Ledger, Bank Financials and Audit trails.
• Payment systems & Real Time Gross Settlement.
• Card systems, Electronic Funds Transfer at the Point of Sale,Automated Teller Machines, and other electronic payments and transaction handling systems.
• Reporting and compliance with regulatory requirements.
• MIS for

1. Asset Liability Management (ALM)
2. Anti Money Laundering(AML)
3. Cash Management System (CMS)
4. Asset Monitoring (Non Performing Assets and Other Credit Information)
5. Basel II (for quantifying the operational risk associated with business products, services and volumes) etc.

Core Banking system is the sum total of all the information technology components that enable a bank to manage its core business activities in a centralised model. The core banking activities include 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 enhancing customer convenience through anywhere and anytime banking.

The major CBS Components

The major IT components of CBS include a banking application software, various hardware components and a network infrastructure that facilitate a distributed front end banking operations and a centralised data processing at the back end.

CBS is a banking solution (not a branch banking solution) and hence it is implemented at a central location to which various offices and service outlets of the bank are connected. The customer is no more the customer of a bank’s branch but that of the bank itself. The software components used in CBS must take care of almost all the core banking activities of the bank.

AS-6 - Depreciation Accounting.
AS-7 - Accounting for construction contracts.
AS-8 - Accounting for research & development.
AS-10 - Accounting for fixed deposit
AS-11 - Accounting for the effects of changes in FOREX rates.
AS-12 - Accounting for Govt.Grants.
AS-13 - Accounting for investments.
AS-14 - Accounting for amalgamation.
AS-16 - Borrowing costs.
AS-19 - Lease
AS-20 - Earning per share.
AS-21 - Consolidated financial statements.
AS-24 - Discontinuing operations.
AS-26 - Intangible assets.

AS-1: This statement deals with the disclosure of significant accounting policies followed in the preparation and presentation of financial statements. The purpose is to promote better understanding of financial statements. Such disclosure facilitates a more meaningful comparison between financial statements of different enterprises.

Some of the areas are:

1. Methods of depreciation & amortisation
2. Valuation of inventories.
3. Conversion of foreign currency items
4. Treatment of goodwill
5. Treatment of retirement benefits
6. Valuation of fixed assets.
7. Treatment of contingent liabilities.
8. Recognition of profit on long - term contracts.
9. Valuation of investments.

AS-2: The objective of this standard is to determine the value at which inventories are carried in the financial statements until the related revenues are recognised.

Inventories are assets in the form of raw materials, stock in process or finished goods. Net realisable value is the estimated selling price less the estimated costs to make the sale.


AS-3: The title of this standard is Cash Flow Statements. The objective is to provide information on the cash flows of an enterprise to the users of the financial statements. Cash flows are inflows and outflows of cash and cash equivalents.

Cash comprises cash on hand and demand deposits. Cash equivalents are short term highly liquid investments that are readily convertible to cash.

AS-4: This is the statement on contingencies and events occuring after the balance sheet date. A contingency is a situation, the gain or loss of which will be determined only on the occurrence or non-occurrence of one or more uncertain future events.

AS-5: It deals with
1) Net profit or loss for the period
2) Prior period items and extra ordinary items.
3) Changes in Accounting policies.

The objective of this standard is to prescribe the classification and disclosure of certain items in the P&L account to ensure uniformity. The standard warrants disclosure of certain extra ordinary and prior period items in the Notes on Accounts to the balance sheet of banks.

AS-5 also specifies regarding treatment and disclosure of changes in accounting policies.

AS-9: This is concerned with the recognition of revenue in the P&L account. Revenue is the gross inflow of cash and other considerations arising from the ordinary activities of an enterprise. This standard requires that the recognition of revenue in P&L account should be proportionate with the degree of completionof services under a contract. It means that if any item of income is not considered to be material, it may be recognised only when received.

AS-15: This standard deals with accounting for retirement benefits in the financial statements of employers. As per the standard, the retirement benefits in the form of PF and other schemes, payable by the employer for a year should be charged to the P&L account for the year. In the case of gratuity and other defined benefit schemes, the accouting treatment depends on the type of arrangement made by the employer. In short the standard requires accounting for all the
liabilities, arising out of retirement,on an acturial basis.

AS-17: The standard establishes principles for reporting the financial information about the different types of products and services and the different geographical areas of operation. It is often called as “segment reporting”. The disclosures required are either primary or secondary. As per the standard, banks have to report their business segment as primary reporting format. The business segments are treasury operations, other banking operations and residual operations. The secondary segment includes domestic and international geographic segments.

AS-18: This standard sets out the disclosure of the names, relationships and transactions between the enterprise and its related parties. Related parties for a bank are its parent /subsidiary/associate/key managenment personnel (KMP) and relatives of KMP. Public Sector banks need not disclose their transactions with subsidiaries as well as RRBs (Regional Rural Banks) sponsored by them. But they have to disclose their transactions with other related parties.

AS-22: This standard deals with accounting for taxes on income. The standard requires that tax expenses for the period, both current and deferred, should be included in the determination of net profit or loss for the period. Current tax is the amount of income tax determined to be payable in respect of taxable income for the period.Current tax is measured as the amount expected to be paid using the applicable tax rates. Deferred tax is the tax effect arising out of time differences.

Time differences are the differences between taxable income and accounting income for a period that originate in one period and are eligible for reversals in subsequent periods.

AS-23: This standard prescribes procedures for recognising investments in associates. An associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture of the investor. The objective of this standard is to ensure that the recognition is based not merely on the proportion of investment but the intention to acquire exercising power.

AS-25: The standard prescribes the minimum content of an interim financial report. Interim financial report is a report containing either a complete set of financial statements or a set of condensed financial statements for an interim period. During the first year of operations of an enterprise, its reporting period may be shorter than a financial year.In such a case, that shorter period is not considered as an interim period.

AS-27: It deals with financial reporting of interests in joint ventures. A joint venture is a contractual agreement whereby two or more parties undertake an economic activity so as to obtain benefits from it. The objective of this standard is to report a venture’s share on each of the assets, liabilities, income and expenses as separate line items in the financial statements.

AS-28: The objective of this standard is to prescribe the procedures that an enterprise applies to ensure that its assets are carried at no more than their recoverable amount. Recoverable amount is the higher of an asset’s net selling price and its value in use.

AS-29: It deals with provisions, contingent liabilities and contingent assets. Provision means a liability of uncertain timing and amount. Contingent Asset or liability means a possible asset or obligation that arises from past events whose existence depends on the occurrence or non- occurrence of some uncertain future events.