Information technology (IT) has immense untapped potential in banking, writes Bimal Jalan in one of the essays included in Emerging India: Economics, Politics and Reforms . Strengthening of IT in banks could improve the effectiveness of their asset-liability management, and building up a related database on a real-time basis would enhance the forecasting of liquidity greatly even at the branch level, which could contribute to enhancing the risk management capabilities of banks, he adds.

The chapter titled ‘Indian banking and finance,' drawing from Jalan's lecture at a conference in 2002, discusses some of the early technology developments in the payments and settlements systems envisaged along with ‘new payment products such as the computerised settlement of clearing transactions', ‘use of magnetic ink character recognition (MICR) technology for cheque clearing,' ‘computerisation of government accounts and currency chest transactions,' and ‘operationalisation of delivery versus payment (DvP) for government securities transactions.'

The approach to the modernisation of the payment and settlement system in India has been three-pronged, comprising consolidation, development, and integration, reports Jalan. The consolidation of the existing payment systems revolved around strengthening computerised cheque clearing, expanding the reach of the electronic clearing services and electronic funds transfer, he explains.

The critical elements in the development strategy, one learns, were the opening of new clearing houses, interconnection of clearing houses through the INFINET, optimising the deployment of resources by banks through real time gross settlement (RTGS) system, centralised funds management system (CFMS), the negotiated dealing system (NDS), and the structured financial messaging solution (SFMS). As for the integration of the various payment products with the systems of individual banks, the author emphasises the need for a high degree of standardisation within a bank and seamless interfaces across banks.

Jalan reminisces that the setting up of the apex-level National Payments Council in May 1999 and the operationalisation of the INFINET by the Institute for Development and Research in Banking Technology (IDRBT), Hyderabad, were important developments in the direction of providing a communication network for the exclusive use of banks and financial institutions.

In another chapter that should interest tech-professionals, with excerpts from the author's address at BancIT 2000, what is highlighted is the increasing share of services that are generally more conducive to IT inputs in terms of quality and costs than manufacturing.

For starters, he also lists the specific characteristics of money and finance that make it particularly amenable to reap the benefits from IT. Such as that, unlike most other goods and services, money and finance can actually be used, transferred, and delivered electronically, involving no physical movement or delivery to complete the transactions. “This explains why financial volumes, with the aid of electronics and computerisation have grown phenomenally in recent years. The total financial transactions in a day can exceed the entire GDP of an industrial economy.”

Again, with the facility of real time settlement and reconciliation (in contrast to several days to reconcile debits and credits in the earlier era), risks and uncertainties can be reduced, reminds the author. This, he reasons, reduces the cost of capital, and has tremendous advantages for increasing productivity and generating higher output at lower cost. “IT has also made it possible to devise complex financial products, such as derivatives, without adding to risk or uncertainty, which have expanded the scope for meeting various kinds of financial preferences, risk profiles and requirements of savers and investors…” On that, however, the author's views post economic crisis may be different.

A macro perspective, in a coherent narrative.

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