Indian Banking Ecosystem To Undergo Revamp With RBI’s Mandate On UCB Automation

Author: Kamal Sharma, Business Development Head – Regulatory Practice, Profinch

As with every other sector and industry post COVID-19, the Indian banking system has also become increasingly hybrid. However, the banking system is one of the first sectors to have experienced consistent digitisation, even before the onslaught of social distancing and mandatory lockdowns. The banking and financial services industry in India has undergone a transformative phase over the last ten years, with lending and banking models witnessing sea changes and coming into their own in the information age.

The Technology Disruption

The Indian banking landscape has seen major changes, especially over the last two to three years. In fact, 2019 was the first year wherein Indian fintech companies surpassed global counterparts when it came to raising funds, attesting to the strength of the Indian banking demographic. United Payments Interface has, since then, become omnipresent, with even the smallest tea shops and snacks centres flaunting the ubiquitous QR code which allows Indians to make transactions and payments without carrying cumbersome wallets or debit cards.

Digital payments have risen steadily, and the banking system has transformed itself into a digitally mighty entity further supported by the rising presence of neobanks offering online-only services to new-age customers. While the industry was developing steadily, the pandemic turned into the ultimate catalyst for the hybrid movement, prompting people to forego physical visits and turn to their phones and laptops to access bank accounts and complete transactions.

With the Reserve Bank of India (RBI) increasingly widening the horizon of data capture from Indian banks, this blog focussed on RBI’s mandates for one of India’s growing Banking sectors – Urban Co-operative Banks.

Automation for UCBs

RBI recently implemented Centralized Information Management System (CIMS) to replace their existing Data Warehouse system. The objective of CIMS is to collect and process all returns from regulated entities and various Central Office Departments of RBI. RBI intends regulated entities to build a system to help their data flow automatically from their IT system to CIMS without any scope of manual intervention. After its thorough research on the automation/integration of a sample of banks, RBI announced CIMS in 2020. As of now, CIMS has reached its advanced stage. RBI has also released a web portal called Staging Area Data Portal (SADP) which is for the distribution of system-to-system software components of CIMS. Technically speaking, CIMS architecture is made of four layers; namely, Data Collection, Data Governance, Big Data repository and Centralized Integrated Analytics. The functionality would work by collecting data from multiple channels and by including a system-to-system automatic interface, file upload, API, web-screen and a few other components.  Top 14 Indian UCBs have been selected by DoS to implement data collection for the system-to-system channel for CIMS. These UCBs will be responsible for building a central data repository and all their returns will also be generated in XML/XBRL format as specified by the RBI.

With widespread digital transformation of banks, there is a need for stringent norms and regulatory oversight. Indian lenders, including Urban Cooperative Banks or UCBs, must initiate detailed regulatory reporting to ensure compliance with all statutes and this leads to the generation of a tremendous volume of data. Combing through the generated data and culling out insights becomes a tough task for the UCBs and their employees and this is one more avenue where technology offers a helping hand, furthering the digitisation drive. Software aimed at creating automated data flows and centralised information and management systems is coming to the aid of UCBs that are burdened by regulatory requirements. It is also wise for banks to use their Automated Data Flow/CIMS system to help their business reporting and other MIS requirements. It helps then convert its RBI investments into a business centre and not just turn into a cost centre. Banks can also utilize the additional value, like customer insights/spending patterns/demographic/gender/age base customer analysis, that will come from this architectural change.

The RBI is keen on digitising the banking sector and, accordingly, the central bank in August 2021 directed UCBs with assets worth 2000 crore rupees and above to implement system-based asset classification from June 30 onwards this year. Following the mandate, asset classification, including both upgrading and downgrading would be carried out by computerised systems, in a fully automated manner, mitigating possibilities of human error. The move is aimed at enhancing efficiency, transparency, and integrity of the process and is a definitive stride towards digitisation and technology adoption.

Requirements for Smooth Implementation

While regulations and mandates provide a roadmap, it is up to the UCBs and service providers to ensure that the mandate on automation is carried out successfully. The RBI has advised concerned UCBs to conduct pilot/parallel runs and evaluate the results for accuracy/integrity of the asset classification to ensure that implementation of the system proceeds smoothly. Further, the central bank has also stated that UCBs not meeting the criteria can also voluntarily implement the framework in their own interest. It is in this scenario that technology solutions and service providers come to the fore to enable UCBs in meeting regulatory demands and requirements.

For instance, fintech companies are now offering banks pre-built frameworks for automated data flows, ensuring faster download of latest templates configured using business rules and in-built calculations. Such systems facilitate data integration across sources and aid collaboration among valid users. Further, innovative solutions empower UCBs to respond to regulatory questions on calculation methodology and reporting values by offering drill downs, configurable business logic definition screens and the capability to upload supporting documents and re-generate old reports with previously submitted data. Audit trails for easy traceability is another service offered by such solutions.

With the amalgamation of automation and stringent regulatory mandates, UCBs, and the Indian banking ecosystem at large, are on their way to a more efficient, accurate, and transparent future – while offering customers the best of digitisation, convenience, and security.