CORE BANKING

Concept of Core Banking

Core Banking is a general term used to describe the services provided by a group of networked bank branches. Bank Customers may access their funds and other simple transactions from any of the member branch offices at real time.
Core Banking can be defined as the business conducted. by a banking institution with its retail and small business customers. Many banks treat the retail customers as their core banking customers, and have a separate line of business to manage small businesses. Larger businesses are managed via the Corporate Banking division of the Institution. Core banking basically is depositing and lending of money.
Gartner defines a core banking system as a back-end system that processes daily banking transactions, and posts updates to accounts and other financial records. In simple terms it is doing all banking operations of Branches and Head Office by connecting to a central computer kept at data centre.
Normal core banking functions will include deposit accounts. loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, Internet banking, and branches.

The regular core banking functions are:

• Deposit money in accounts.
• Offering loans or mortgages.
• Making Payments.

The customers of core banking can access these services through various modes like internet banking and ATMs and also from any branch of that bank.
Today the majority of banks use core banking applications to support their operations. CORE stands for “Centralized Online Real-time Exchange”. (This basically means that the entire bank’s branches access applications from centralized data centers. When deposits are made then it is reflected immediately on the bank’s servers and the customer can withdraw the deposited money from any of the bank’s branches throughout the world. These applications now also have the capability to address the needs of corporate customers, providing a comprehensive banking solution.
Core banking solutions is new jargon frequently used in banking circles. The advancement in technology, especially Internet and information technology has led to new ways of doing business in banking. These technologies have cut down time, working simultaneously on different issues and increasing efficiency. The platform where communication technology and information technology are merged to suit core needs of banking is known as core banking solutions. Here, computer software is developed to perform core operations of banking like recording of transactions, passbook maintenance, interest calculations on loans and deposits, customer records, balance of payments and withdrawal. This software is installed at different branches of bank and then interconnected by means of communication lines like telephones, satellite, internet etc. It allows the user (customers) to operate accounts from any branch if it has installed core banking solutions. This new platform has changed the way banks are working.
Core banking systems typically include deposit, loan and credit-processing capabilities, with interfaces to general ledger systems and reporting tools. A core banking system will often offer a basic customer database function, often referred to as a Customer Information File or CIF. A core banking system will maintain linkages between accounts and customers. It will often provide other routine maintenance activities. Such essential activities as opening and closing accounts, calculating interest (both due to the customer and due from the customer), processing customers standing orders. providing account statements and interfacing to outside systems for making and receiving payments are all considered to be part of the core business of banking and therefore the legitimate functions of a core banking system.

Core Banking Components

• Interest calculations.
• Processing of cash deposits and withdrawals..
• Processing of incoming and outgoing remittances. cheques, etc.
• Customer management.
• Customer account management.
• Definition of the bank’s products (product management) including such things as minimum balances, interest rates, number of withdrawals, etc.
• Interest rate definition.
• Customer’s standing instructions.
• Maintaining records of all financial transactions.

Advantages of Core Banking

• It has the ability to offer developed operations to the customers.
• Total costs can be reduced.
• Decreased risk of multiple data entry and outdated information.
• The possible disturbance to business because of replacing whole system is prevented.

Limitations of Core Banking

• It is mainly depending on technology.
• Any failure on technical ground can halt the working with uncertainty about restoring normalcy.
• Stoppage of work has adverse effect on bank’s image and reputation.
• If technical persons are leaving the bank, then it may pose serious problem.
• The recurring costs are heavy.