RBI to expand wide area network

RBI to expand wide area network
ENS Economic Bureau

Mumbai, Mar 15: The Reserve Bank of India (RBI) is expanding its wide area network, INFINET, to cover 5000 bank branches across the country. The network, inaugurated a few months back, is currently being tested and is available at 400 branches of public sector banks, RBI chief general manager (IT) S R Mittal said on Wednesday.

Addressing a Confederation of Indian Industry seminar on `Banking on the Net', Mittal said banks and financial institutions had taken a decision to adopt SWIFT-like message formats for putting all their funds based applications on the internet.

"This initiative would not only help standardisation in banks but would as well help cross border Straight Through Processing so as to ultimately integrate our financial system with other cross border financial systems," he said, adding that work was on to formalise formats for transmission across the network and have a messaging backbone.

On the other RBI intiatives for e-banking, he said the Real Time Gross Settlement System (RTGS), being set up by the central bank, would provide funds transfer for large values across banks on a real time basis. The RBI had also computerised clearing houses in the country, while electronic funds transfer had been implemented in 4580 bank branches in the four metros.

Mittal said the introduction of the IT Bill in parliament was a positive step and would give a fillip to electronic based transactions. However, a series of acts may need amendments to make electronic message and funds flow legally valid.

Dresdner Kleinwort Benson direcotr and head of the financial institution group, Lord Waldegrave said the internet was the ideal distribution medium for information intensive and highly commoditised products. It provided traditional banks with significant growth opportunities and potential cost efficiencies, but at the same time, lowered entry barriers and exposed them to new competitive pressures.

Highlighting the potential and strategic benefits of e-banking for India, H Srikrishnan, HDFC Bank country head (operations), said it meant lower operating costs, better inventory control, improved delivery of goods and services, better cash flow and improved business information management. The strategic benefits were improved product differentiation, increased customer responsiveness and ability to target new opportunities.

Srikrishnan said customers would demand more payment options besides credit cards, like smart cards, electronic cheques and online debit to multiple bank accounts, in the future. He said HDFC had undertaken e-business intiatives like net banking and setting up payment gateways for B to C and credit card transactions.

Citibank vice-president Sanjay Sarkar said technology would make the market largely location insensitive and force banks to adopt more open systems. He said banks would become manufacturers of open banking products and no longer own the entire banking chain. "More mega banks as optimal size increases ... small and community banks will intermediate," he said about the bank of the future.

He said in the short run technology would be used to reduce costs and increase revenue and in the long run, to re-engineer products and business chain. Contrary to popular perception, he said the cost of digital transactions would increase. State Bank of India deputy managing director, Y Radhakrishnan, said the wired economy was viewed as the single biggest destroyer of profits margins by the traditional economy.