2010 Information Systems for Managers Financial & Accounting Information Systems Banking & Financial Services This report gives an insight into the Finance & Accounting Information Systems used in the sector of Banking & Financial Services. With respect to the same, the report also gives an idea into the systems in general, as also with respect to the State Bank of India. Finally, it ends with giving the conclusion regarding the use of these information systems. Ishan Parekh MBA (tech. – Manufacturing Roll No. # 315 11/8/2010 Table of Contents INTRODUCTION TO INFORMATION SYSTEMS FOR MANAGERS INTRODUCTION TO FINANCE & ACCOUNTING (F & A) INFORMATION SYSTEMS STATE BANK OF INDIA – BACKGROUND SBI – HISTORY OF IT FINANCE & ACCOUNTING INFORMATION SYSTEMS – MODULES CORE BANKING TRADE FINANCE CAPITAL MARKETS & TREASURY COLLATERAL FOREX GENERAL LEDGER ACCOUNTING BENEFITS CONCLUSION – SBI CONCLUSION – FINANCE & ACCOUNTING INFORMATION SYSTEMS APPENDIX INDEX REFERENCES 3 4 4 5 5 6 7 7 8 8 8 9 10 15 16 Page 2 Introduction to Information Systems for Managers Information Systems for Managers (ISMs) are interactive systems, which combine the human and machine interfaces, supporting in making decisions for users within and outside the traditional organisational boundaries. Daily operational activities plus various decisions such as current and future tactical ones with respect to the organisation’s overall strategic direction are supported by these ystems. These information systems comprise of different functional and constitutional perspective; depending upon their classification based upon either their functions or the business group they intend to serve. (Laudon & Laudon, 2008) Introduction to Finance & Accounting (F & A) Information Systems F & A information systems are helpful by combining the practice and study of accounting with information systems with respect to their design, implementation and monitoring.
Traditional accounting methods are combined with modern IT resources together in such systems, which help users to successfully manage their organisations by providing the necessary financial information. As explained by Henson, Walter; in his article, regarding, Accounting Information Systems, various business functions ranging from the main accounting transaction processing systems to the more advanced financial management planning and its processing systems; are all covered under F & A Information Systems.
The process of financial reporting starts in an organisation at its operational levels, where the Transaction Processing Systems (TPS) record various important events in business which may include production, purchasing, and selling activities. These records by the TPS are later classified and summarised for the purpose of decision making (internal) and secondly, for external financial reporting. Advanced analysis for various purposes such as tracking of performance and improvements in resource allocation can be provided by such F & A Information Systems.
They are also used to help managers to allow and assist them in various activities including planning, monitoring and maintaining proper control for a variety of activities. As a result, access to statistical analysis and various advanced reporting is allowed to managerial-level employees. Alternatively, these systems gather information, and help in developing various possible scenarios and then, choose an optimal answer among the alternative scenarios. (Henson, 2009) Page 3 State Bank of India – Background The State Bank of India (SBI) is the largest and oldest bank in India.
Its total assets account to more than $250 billion USD Figure 1 – Assets of SBI in US$. SBI’s network of branches is the third-largest all over the world Figure 2 – No. of Branches of SBI. Moreover, it is located internationally in 32 countries with 84 international branches and around 8,500 ATMs. SBI also owns either a controlling or a complete interest in a number of banks which are its affiliates. This results in banking services being available at over more than 14,600 branches and over 10,000 ATMs Figure 3 – No. of ATMs of SBI + Associate Banks. Wikipedia LLC) The formation of the Bank of Calcutta in 1806 can be traced as the starting point of SBI. The bank was later, in 1809, renamed as the Bank of Bengal and it operated as one of the “presidency” banks of India. The three presidency banks were later consolidated by the government, in 1921, as the Imperial Bank of India. In 1995, then the Reserve Bank of India, acquired majority interest in the bank and renamed it to the State Bank of India. The Indian Government, then, purchased the shares from the Reserve Bank of India, making it the owner of SBI. Hunt) SBI – History of IT In 1991, the bank undertook a computerization initiative it called total branch automation using Kindle (now Misys) Bankmaster to be deployed in the largest branches. SBI computerized all its branches by January 2004. The bank used a stand-alone IBM mainframe for interbranch reconcilation and used weekly reporting with central reconcilation in a very manual system. KPMG Peat Marwick (KPMG), was asked later by SBI to design a technological change and develop a strategy and a path for the modernization of the bank, in 2000.
This was later approved, in 2002, by the bank management. For the implementation of a core banking system which to be a new centralized one, the bank was looking at three different possibilities Figure 4 – Possibilities of Various Architectures for SBI. The bank evaluated the solutions based upon five criteria: architecture, software process engineering, scalability, field proof points, and functionality. In the end, due to its low price offering, the deal was won by TCS, HP and FNS. Page (Narter) (Hunt) 4
The current architecture of the central server of the IT system used in SBI, with respect to its server is given in Figure 5 – Architecture of SBI (2008). Finance & Accounting Information Systems – Modules The Finance & Accounting Information System used in SBI is composed of various modules. These different modules are different sections dealing with particular areas of accounting. The various modules used in SBI include core banking, trade finance, treasury, forex transactions and balance sheet compiling.
Different softwares are used for these various modules. TCS (FNS) [email protected] 2000 is used for the main purpose of Core Banking. TradeFinance uses a software called Eximbills Enterprises by China Systems Corporation. Condor, which is a geographical information system, was previously used for the purposes of Treasury Enforcement and Communication System. However, just recently, SBI has shifted to MX-3, by Murex SAS as the information system to support its module relating to Treasury. FinnOne is a software used for financial management.
FinnOne-GL is used as a solution for General Ledger Accounting. Core Banking Customer acquisition and retention are the main things on which banking, a scale business, survives on. As a result, needs of different geographies, customer segments and service levels; must be satisfied efficiently and effectively by the banking solutions. TCS (FNS) [email protected] is used in SBI as its Core Banking solution. It is a solution that integrates all aspects of core banking operations spread across languages, currencies and entities.
Introduction of new products and managing efficient changes in existing products can also be done via the solution. This solution supports a wide range of products, including but not limited to accounts (savings, current, overdraft and term deposits) alongwith a variety of products comprising of lending which include loans ( both personal and corporate) and mortgages. A host of complementary features of transactional services are also provided. These services include cards, drafts, foreign exchange, remittances, banker’s cheques and trade finance.
Multiple ranges, as different as a branch or a call canter or mobile banking/web, can all access these capabilities. Complete timely information about customer relationships, which can be used in decision making, is provided to the bankers throughout the organisation in real-time by the solution’s integration of all three (front, middle and back) – office processes. The solution also helps in providing to the customer, a view of the bank in a single comprehensive format. Page 5 (TCS [email protected] – Core Banking)
The TCS (FNS) [email protected] solution is built on the message-oriented architecture. The software also incorporates effortlessly with other solutions for various other modules for Trade Finance, Treasury, Forex, Finance Management under a Service Oriented Architecture (SOA) framework. The advantage of being built on a SOA architecture is that it will provide a suite of services that can be used within multiple separate systems from several business domains. It also provides a way for consumers of services, such as web-based applications, to be aware of available SOA-based services.
A layer interaction in a SOA-based architecture is shown in Figure 6 – Schematic of Service Oriented Architecture (SOA). (Wikipedia LLC) Trade Finance Trade Finance business covers all aspects of the portfolio, from the customer front end, through transaction processing to integration with other systems. Eximbills Enterprise, the software developed by China Systems Corporations is used for this particular module. An institutions overall exposure and its productivity & profitability is analysed through this system.
Processes occuring through the transaction’s life cycle; such as data verification and transactional status control; are available with a view of reducing the risk of processing errors with a view to also increase accuracy and productivity. This is done, as the software system, can automatically calculate liabilities, commissionns and foreign exchange equivalents. Its another important feature includes keeping a record a trade finance transaction through different stages of fee-generation. Being compliant with the various rules which govern International Trade is another important feature of it.
The standard functionality of Eximbills can be divided into a few broad cateogaries. The first cateogary of calculation involves calculation of margin fees, entries, foreign exchanges equivalents and liabilities. Another important cateogary can be said to be that of production of various documents such as letters, telexes, and other messages; and further reporting it to the management and customers. Another can be said to be that of other miscellaneous activities which include follow-up processing, inquiries into transaction status, generation of various reports based on certain criteria (pre-defined) and automatic settlement of fees.
Eximbills Enterprise is based is the J2EE technology. Being based on the Java technology, helps it to run on variety of hardware platforms; since it can be accessed using a technology which browser-based. Eximbills is also flexible and supports a variety of thirdparty RDBMS such Oracle, DB2 and Informix. (Eximbills Enterprise, 2005) Page 6 Capital Markets & Treasury Collateral This module consists of two major sub-modules, viz. Capital Markets and Treasury Collateral. It includes various functions such as OTC derivatives, Repos, Securities lending and Exchange traded futures and options.
A detailed collateral register is also recorded using all types of collaterals including cash, securities and other collateral types depending on the business. (Collateral Management, 2009) The unique functional coverage of MX-3 is given in Figure 7 – Various Functional Layers of MX-3. MX-3 is basically based on the technology of integrated platforms. Its architecture (distributed n-tier) is based on a particular type of a fault-tolerant infrastructure. Specific applications can be built by using a generic business components’ layer.
Alternatively, access can also be provided through various clients, rich in efficiency, or in a languageindependent way based on APIs based on XMLs. The capabilities of these clients can be expanded using the strict Dot Three Extension Framework by integrating proprietary knowledge. (A World Class Architecture, 2009) The high level architecture diagram of MX-3 is shown in Figure 8 – Architecture of MX3. Forex Foreign Exchange (Forex) is another module of finance & accounting information systems. SBI uses Mercury-FX, a browser based solution, provided by Credence Analytics.
Mercury-FX behaves like an online branch. It deals with work-flow management solutions. These solutions are available for currency as well as derivatives operations in addition with their information which includes rate broadcast, requests, negotiations and deal confirmation all in real-time. (Overview – Credence Analytics) Process efficiency of the banks can be improved using the product. It is also adaptable & compatible to help keep in pace with growth seen in the business. This solution is also capable of handling all forex products including TCS, DDS, Forwards, Bills, etc. (Mercury – FX)
Page 7 General Ledger Accounting In a F & A Information System, the General Ledger (GL) acts as “facilitation”. It generally uses a Object Management Group (OMG) technology, in which specialized functions are designed by programs. Extraction of data from the GL can be done via different core processes and functions which are specifically constructed and programmed. Some of these core processes include Profile, Retrieval, Integrity Programs, Account Lifecycle and Bookkeeping of a GL. For the purposes of General Ledger Accounting, SBI uses a solution from Nucleus Software called FinnOne-GL.
FinnOne General Ledger (GL) is a financial accounting package that helps in recording, classifying, analysing and summarizing financial data effectively. Accounts maintenance is helped by keeping an eye on the various financial transactions carried out by the company. This in turn, helps in monitoring the company’s financial health alongwith the profitability of different departments of the company. (Nucleus Software) Benefits The new IT systems have resulted in benefits 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 centres for all metro and urban branches that have assumed functions previously performed in the individual branches. The bank recently reports that business per employee increased by 250% over a period of five years from 2002-07, which is also shown in Figure 9 – Benefits over the years for SBI. (Hunt) Conclusion – SBI Moving to a centralised IT core system was a competitive requirement for SBI. As they saw from their nationalised brethren, those who did not do so would lose share to the privately held and foreign banks.
SBI’s achievements demonstrates that attention to critical factors is crucial in implementing new core IT systems. Managers also recognised the need for a proven systems integrator that possessed in-depth expertise in both business and technology. (Narter) Page 8 Core systems modernization has allowed the SBI to centralize computer processing and operation functions, offer new banking products to all, 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. Hunt) Conclusion – Finance & Accounting Information Systems Within a modern organisation, the type of audit trails that are present and the way the implementation of internal controls takes place, is completely changed due to the advent of F & A Information Systems. Since, traditional forensic evidence, like documents and papers, are absent; it becomes imperative to involve accounting professionals in such systems’ design. In order to see that these information systems remain in compliance with the business functions that are intended.
It is also necessary this review of the information systems be done in accordance with a periodic schedule due to the adherence to the high quality standards. (Heson, 2009) Page 9 Appendix Figure 1 – Assets of SBI in US$ Figure 2 – No. of Branches of SBI Page 10 Figure 3 – No. of ATMs of SBI + Associate Banks Figure 4 – Possibilities of Various Architectures for SBI Page 11 Figure 5 – Architecture of SBI (2008) Figure 6 – Schematic of Service Oriented Architecture (SOA) Page 12 Figure 7 – Various Functional Layers of MX-3 Page Figure 8 – Architecture of MX-3 13 Figure 9 – Benefits over the years for SBI Page 14 Index A Appendix 9 B
Benefits 8 C Capital Markets & Treasury Collateral Conclusion – Finance & Accounting Information Systems Conclusion – SBI Core Banking 6 9 8 5 F Finance & Accounting Information Systems – Modules Forex 5 7 G General Ledger Accounting 7 I Introduction to Finance & Accounting (F & A) Information Systems Introduction to Information Systems for Managers 3 3 R References 9 S SBI – History of IT State Bank of India – Background 4 4 T Page 15 Trade Finance 6 References Eximbills Enterprise. (2005). Retrieved from China Systems Corporation: http://www. chinasystems. com/solutions/eximbills_enter/default. asp A World Class Architecture. (2009).
Retrieved from Murex: http://www. murex. com/architecture. php Collateral Management. (2009). Retrieved from Murex: http://www. murex. com/mxcollateralmanager. php Heson, W. (2009, September). Accounting Information Systems. Retrieved from http://earticles. info/e/a/title/ACCOUNTING-INFORMATION-SYSTEMS/ Hunt, R. (n. d. ). Case Study: State Bank of India. Retrieved from TCS – Case Studies: http://www. tcs. com/sitecollectiondocuments/case%20studies/bancs_case_sbi. pdf Laudon, K. , & Laudon, J. (n. d. ). Management Information Systems (9th ed. ). Pearson Publishers. Mercury – FX. (n. d. ). Retrieved from Credence Analytics: http://www. redenceanalytics. com/html/mercury-fx. htm Narter, B. (n. d. ). Tipping The Scale : Using Unix at One of the Largest Banks on Earth. Retrieved from TCS – Case Studies: http://www. tcs. com/SiteCollectionDocuments/Case%20Studies/BaNCS_Case-Study_SBICelent_120210. pdf Nucleus Software. (n. d. ). FinnOne – Power of Retail Banking. Retrieved from Nucleus Software: http://www. nucleussoftware. com/images/FinnoneGLBrochure. pdf Overview – Credence Analytics. (n. d. ). Retrieved from Credence Analytics: http://www. credenceanalytics. com/html/products. htm TCS [email protected] – Core Banking. (n. d. ). Retrieved from TCS – Case Studies: