Core Banking Systems Overview
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Questions and Answers

Which feature of Core Banking Systems indicates that all transactions are recorded at once across all locations?

  • Daily closing
  • On-line real-time processing
  • Centralized Operations (correct)
  • Remote interaction with customers

What is a key benefit of online real-time processing in Core Banking Systems?

  • Immediate transaction postings (correct)
  • Lesser operational costs
  • Duplication of entries reduced
  • Increased manpower requirements

Which technology component of Core Banking Systems refers to the secure storage of data?

  • Data warehouse
  • Application environment
  • ATM Switch
  • Database environment (correct)

What is a distinguishing feature of transactions in Core Banking Systems?

<p>Authorization within the application (C)</p> Signup and view all the answers

Which module is essential for handling customer transactions remotely in Core Banking Systems?

<p>Mobile banking (C)</p> Signup and view all the answers

Which of the following is NOT a feature of Core Banking Systems?

<p>Static interest applications (A)</p> Signup and view all the answers

In terms of operational efficiency, what is an effect of using Core Banking Systems?

<p>Significant reduction in error rates (C)</p> Signup and view all the answers

What does the application environment in a Core Banking System primarily consist of?

<p>Application servers hosting core systems (A)</p> Signup and view all the answers

Which of the following components is NOT part of the CBS IT Environment?

<p>Data Backup Server (D)</p> Signup and view all the answers

Which core business process is related to managing financial services for individuals and businesses?

<p>Current and Savings Account (D)</p> Signup and view all the answers

Which subprocess of Information Security focuses on defining user access and privileges?

<p>User Security Administration (B)</p> Signup and view all the answers

What is necessary for the successful implementation of CBS?

<p>Strict adherence to predefined project milestones (D)</p> Signup and view all the answers

Which of these is a responsibility of the Maintenance phase of CBS?

<p>Fixing program bugs and implementing version changes (A)</p> Signup and view all the answers

Which of the following best describes Application Security?

<p>Implementing security during application configuration and transaction processes (C)</p> Signup and view all the answers

Which component is specifically responsible for handling online transactions in CBS?

<p>Internet Banking Application Server (C)</p> Signup and view all the answers

What is the purpose of an audit in the context of CBS?

<p>To verify that controls are functioning as intended (B)</p> Signup and view all the answers

What is one of the primary purposes of Core Banking Systems (CBS)?

<p>To enhance service delivery models (B)</p> Signup and view all the answers

What is a key factor contributing to the growth of banking services in India?

<p>Increased financial inclusion efforts (A)</p> Signup and view all the answers

Which of the following is NOT a type of deposit that commercial banks typically accept?

<p>Real estate investments (B)</p> Signup and view all the answers

What are advances in the context of commercial banks?

<p>A major source of lending (B)</p> Signup and view all the answers

Which of the following best describes the role of banks in addressing fraud risks?

<p>They implement multi-point authentication checks (A)</p> Signup and view all the answers

How does the geographical dispersion of branches affect banking services?

<p>It enhances the reach of banking services (D)</p> Signup and view all the answers

What is one of the primary responsibilities of banks regarding monetary items?

<p>To ensure physical security of large volumes of cash (B)</p> Signup and view all the answers

What is a common type of remittance operation provided by commercial banks?

<p>Transferring funds between branches (D)</p> Signup and view all the answers

Which remittance method involves the physical issuance of an instrument from one bank branch to another?

<p>Demand Drafts (B)</p> Signup and view all the answers

What is the minimum amount for a transaction using Real Time Gross Settlement (RTGS) in India?

<p>₹2 lakh (B)</p> Signup and view all the answers

Which of the following is an electronic form of inter-bank transfer available 24x7?

<p>Immediate Payment Service (A)</p> Signup and view all the answers

What distinguishes Mail Transfer (MT) from other forms of remittance?

<p>It is responsible for the transmission of the instrument. (C)</p> Signup and view all the answers

Which method allows for bulk transfers for payments such as salary or pensions?

<p>ECS (A)</p> Signup and view all the answers

What is a characteristic feature of Electronic Funds Transfer (EFT)?

<p>It allows for instantaneous transfer of funds. (A)</p> Signup and view all the answers

ECS Credit operates by debiting a single account to credit how many beneficiary accounts?

<p>A large number (B)</p> Signup and view all the answers

Which of the following statements is true regarding National Electronic Funds Transfer (NEFT)?

<p>It is a nationwide payment system for individual fund transfers. (C)</p> Signup and view all the answers

What is Compliance Risk associated with?

<p>Potential legal and financial penalties (C)</p> Signup and view all the answers

Which of the following is a common source of People Risk?

<p>Unauthorized access to sensitive areas (D)</p> Signup and view all the answers

What defines Credit Risk?

<p>The risk associated with a client's default on a loan (A)</p> Signup and view all the answers

What is the primary concern of Market Risk?

<p>Losses from trading activities due to market changes (C)</p> Signup and view all the answers

Which aspect describes Strategic Risk?

<p>Risk due to mergers, competition, and changing demands (B)</p> Signup and view all the answers

Which of the following is NOT a common IT Risk in CBS?

<p>Software compatibility issues (A)</p> Signup and view all the answers

What is an essential control for unauthorized Credit Line setup in banks?

<p>Limited access rights for credit limit authorization (C)</p> Signup and view all the answers

What could be a potential impact of People Risk on an organization?

<p>Degraded security of sensitive operations or processes (A)</p> Signup and view all the answers

Which function is not associated with the Reserve Bank of India (RBI)?

<p>Providing loans to individual clients (A)</p> Signup and view all the answers

What is the objective of money laundering?

<p>To conceal illegal income and make it appear legitimate (D)</p> Signup and view all the answers

Which stage of money laundering involves moving proceeds from the crime scene?

<p>Placement (B)</p> Signup and view all the answers

What is involved in the layering stage of money laundering?

<p>Separating proceeds through complex transactions (A)</p> Signup and view all the answers

What does the integration stage of money laundering aim to achieve?

<p>Convert illegal proceeds into legitimate income (C)</p> Signup and view all the answers

Which of the following is a reporting requirement under Section 12 of PMLA?

<p>Report suspicious activity regardless of transaction size (C)</p> Signup and view all the answers

Which statement is true regarding the calculation of interest and charges in the loan disbursal system?

<p>Interest and charges are automatically calculated based on defined parameters (B)</p> Signup and view all the answers

Which of the following is NOT a stage of money laundering?

<p>Falsification (A)</p> Signup and view all the answers

Flashcards

Demand Draft

A financial instrument issued by one bank branch, payable by another.

Mail Transfer (MT)

Remittance method where no instrument is given to the applicant; the bank handles the transfer.

Electronic Funds Transfer (EFT)

Electronic transfer of funds between locations.

Real-time Gross Settlement (RTGS)

High-value electronic funds transfer (minimum amount specified), processed instantly.

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National Electronic Funds Transfer (NEFT)

Nationwide electronic fund transfer system enabling inter-bank transfers.

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Immediate Payment Service (IMPS)

Instant inter-bank electronic transfers; accessible 24/7.

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Collections

Collecting payments on behalf of a customer.

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Clearing

Collecting instruments (like checks) on behalf of customers, either locally or outside the center.

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Core Banking Systems (CBS)

A system that helps banks meet global challenges, improve service delivery, and increase customer satisfaction by scaling operations and improving efficiency.

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Banking Services - Key Factors

Factors like IT, government reforms (financial inclusion), and internet penetration allow banks to reach remote areas and improve service delivery.

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Core Banking Functions

Acceptance of deposits and lending of money are the fundamental functions of any bank.

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Banking Security

Banks handle large amounts of cash and negotiable instruments, demanding high security measures to prevent fraud.

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Bank Deposits

Money placed by customers in various accounts like savings, current, term, recurring, and innovative schemes.

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Bank Advances

Loans provided by banks in various forms, including cash credit, overdrafts, and term loans.

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Bank Remittances

Transferring funds from one location to another, a key banking service.

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Bank Transaction Features

Large volumes of transactions, handling cash and negotiable instruments, operating across many locations, and facing increased fraud risk are features of modern banking.

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Core Banking System

A centralized system that manages all banking operations like accounts, transactions, and services across branches.

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On-line real-time processing

Transactions are processed immediately, data is updated instantly, and information is available in real-time.

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Centralized Operations

All banking data and transactions are stored and managed in one central database.

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Seamless Data Merging

Data from different areas like back office and customer services is combined smoothly for a complete picture.

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Productized Services

Banking services are standardized and packaged as products for easier management and delivery to customers.

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Database Environment

Centralized servers that store all banking data for secure access and management.

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Application Environment

Servers that host the different systems used for core banking operations, like software applications for bank management.

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CBS Modules

Different modules of the Core Banking System that handle specific banking activities (e.g., back office, ATM, internet banking).

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Loan Disbursal Restriction

The system prevents loan officers from approving loans they personally apply for, ensuring ethical practices and transparency.

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Automatic Interest Calculation

Interest and charges on loans are calculated automatically based on pre-defined rules and parameters, eliminating human error and ensuring accuracy.

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Money Laundering

A process where illegal money is disguised as legitimate income to hide its origin and make it appear clean.

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Placement (Money Laundering)

Moving illegal money from the crime scene to a less suspicious location or form.

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Layering (Money Laundering)

Making the money's trail difficult to follow by conducting multiple complex financial transactions.

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Integration (Money Laundering)

Blending illegal funds with legitimate business earnings to make it appear as regular income.

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RBI Functions

The Reserve Bank of India's responsibilities include regulating banks, setting monetary policies, issuing currency, and inspecting banks.

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PMLA Reporting Requirements

Entities must comply with specific reporting mandates under the Prevention of Money Laundering Act (PMLA) to help detect and prevent money laundering.

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Compliance Risk

The danger an organization faces due to failing to follow laws, regulations, internal policies, or best practices. This can lead to legal penalties, financial punishments, and significant losses.

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People Risk

The potential risk arising from human actions, such as untrained staff, data manipulation, unauthorized access to financial systems, or collusion between internal departments.

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Credit Risk

The possibility that a borrower won't repay a loan, either fully or on time. This includes the risk that an asset becomes unrecoverable.

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Market Risk

The danger of losses in a bank's trading activities due to fluctuations in market indicators like stock prices, interest rates, exchange rates, and commodity prices.

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Strategic Risk

The threat of financial decline because of changes in the business environment, such as new competitors, mergers, or shifts in customer demand.

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IT Risk in CBS

Potential problems related to technology in a Core Banking System, including data ownership, authorization, authentication, software interfaces, response time, user management, access control, incident handling, and change management.

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Unauthorized Credit Line Setup (CBS)

When a customer gets a credit limit without proper authorization or in violation of bank policies, potentially putting the bank at risk.

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Control for Unauthorized Credit Line in CBS

Restricting access rights to authorize credit limits in the bank's system to only authorized personnel.

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CBS Maintenance

Ensuring the Core Banking System (CBS) is kept functional by fixing bugs, implementing version changes, and addressing any technical issues that arise.

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CBS Updation

Keeping the CBS modules up-to-date based on changes in business processes, technological advancements, and regulatory requirements.

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CBS Audit

Regular internal and external reviews of the CBS to ensure its controls are working as intended and to identify potential risks and vulnerabilities.

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Application Server

A server within the CBS IT Environment that hosts the core banking software applications, enabling users to interact with the system.

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Database Server

A server that securely stores all the crucial data of the bank, including customer accounts, transactions, and financial records.

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ATM Channel Server

A server that acts as a bridge between the bank's core systems and Automated Teller Machines (ATMs), enabling ATM transactions.

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Internet Banking Channel Server

A server that enables communication between the bank's core systems and customers accessing online banking services.

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Core Business Processes

The fundamental activities that drive a bank's operations, such as managing accounts, issuing loans, providing credit cards, and facilitating online banking.

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Study Notes

Core Banking Systems

  • Banks provide various services, even in remote locations in India.
  • Key factors aiding service delivery include IT, government reforms, financial inclusion for Indians, and internet penetration growth.
  • Core Banking Systems (CBS) fulfill customer needs, meet global challenges, and enhance service delivery, scaling operations and improving customer satisfaction and overall efficiency.

Key Features of Banking Services

  • Core functions involve deposit acceptance and lending.
  • Managing large volumes of monetary items (cash, negotiable instruments) with secure physical handling is important.
  • Wide branch networks and departments (geographically dispersed) are crucial.
  • Protecting from fraud requires multi-point authentication and high information security.

Major Products and Services of Commercial Banks

  • Deposits: Various schemes (term, savings, current, recurring) and innovative products.
  • Advances: Lending in various forms, including cash credit, overdrafts, bill discounting, term loans, and loans like housing, education, or car loans.
  • Remittances: Transferring funds from one location to another, utilizing various methods.

Other Banking Services

  • Back operations: General ledger, management information systems, and reporting.
  • Retail banking: Front-office operations (debit cards, personal loans, mortgages).
  • High Net-worth Individuals (HNIs): Specialized services catering to high-value customers.
  • Risk management: Strategic, operational, and technological risk management based on policy.

Core Banking System (CBS) Characteristics

  • Centralised database (data centre), branches for delivery channels (consolidated view).
  • CBS is centralised banking application.
  • Incorporates advanced technology and high standards of functionality.
  • Modularity for bank-specific implementation in stages.
  • Integrates third-party applications for simple and complex business processes.

Key Features of Core Banking Systems

  • Online real-time processing (transactions posted immediately, all databases updated simultaneously).
  • Centralised operations (All transactions in one database/server).
  • Real-time merging of back office and self-service operations, reducing errors from data duplication.
  • Separate hierarchy for business and operations, productized service divisions, customer remote interaction, transaction balancing.
  • Highly dependent system-based controls, authorization within the application, staff access based on authorization.
  • Daily/half-yearly/annual closing.
  • Less operational cost due to less manpower utilization, automatic processing of standing instructions for centralized interest applications across account types.
  • Anywhere access for customers and vendors through multiple channels like mobile, web, etc.

Key Modules of CBS

  • Central server, back office, branch, data warehouse, ATM switch, mobile, internet, phone banking, and credit card systems are all interconnected.

Key Technology Components of CBS

  • Database servers storing central data.
  • Application servers for core banking systems.
  • Enterprise security architecture (proxy servers, firewalls, intrusion detection systems).
  • Corporate network and internet connectivity (high bandwidth).
  • Data centers/disaster recovery centres (redundancy, backup, disaster recovery plans).
  • Online transaction monitoring for fraud management (risk profile evaluation, monitoring).

Steps in Implementing CBS

  • Planning: Aligned with strategic and business objectives.
  • Approval: Board of directors' approval.
  • Selection: Choosing the appropriate CBS solution.
  • Design and development/procurement: Proper controls.
  • Testing: Comprehensive testing stages.
  • Implementation: Meeting pre-defined milestones.
  • Maintenance: Program bugs, versions implemented, etc.
  • Support: Ensuring CBS functionality.
  • Updation: Keeping CBS modules updated.
  • Audit: Internal and external audits for control verification.

Components of CBS IT Environment

  • Application server
  • Database server
  • ATM channel server
  • Internet banking channel server
  • Internet banking application server
  • Web server
  • Proxy server
  • Anti-virus software server

Core Business Processes in CBS

  • Current and savings accounts
  • Credit cards
  • Loans and trade finance
  • Mortgage and property loans
  • Internet banking
  • Treasury

Information Security Subprocesses

  • Information Security Policies, Procedures and Practices
  • User Security Administration

Risks and Controls in CASA Processes

  • Credit Line setup (unauthorized, not aligned with policy)
  • Credit line setups (unauthorised and not in line with bank's policy)
  • Customer Master definition in CBS
  • Accuracy of interest calculations in CBS
  • Unauthorized personnel approving transactions in CBS
  • Inaccurate reconciliations in CBS

Risks and Controls Associated with Loans and Advances

  • Unauthorized Credit Lines
  • Incorrect Loan Setup and Authorization
  • Inappropriate Customer Master Data Input
  • Inaccurate Interest/Charge Calculation
  • Unauthorized Disbursement Operations
  • Customer Rate/Commission Discrepancies in CBS
  • Non-compliance with Disbursement Certificate Issues
  • Inappropriate Loan Facilities/Granting Processes

Risks and Controls in Treasury Processes

  • Unauthorized securities setup in systems
  • Inaccurate trade processing
  • Unauthorized confirmations
  • Insufficient securities
  • Incomplete/inaccurate data flows between systems
  • Insufficient funds for settlements
  • Incorrect Nostro payments

Risks and Controls with Respect to Mortgages

  • Incorrect customer and loan details
  • Incorrect loan amounts disbursed
  • Inaccurate interest calculation
  • Unauthorized changes to loan/customer data

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Description

This quiz covers the fundamental concepts of Core Banking Systems, their role in providing banking services across remote locations in India, and the technology and reforms driving financial inclusion. It also highlights the key features and security measures essential for modern banking operations.

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