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Best Practices in ICT Application in Cooperative Banks

H. S. Singh
Chief General Manager,
NABARD, DFIBT/DIT, Head Office, Mumbai

Background
Information and Communication Technology (ICT) is the sum of infrastructure and components
that enable modern computing. ICT facilitates interaction of people and organizations in a
digital world. ICT innovation in Indian banking sector has laid down a strong foundation of
modern banking services and led to a paradigm shift in the offerings made to the consumers.
The expectations of tech savvy customers have increased manifold in the last few years. They
move around with little hard cash in their pockets; depending on digital banking modes like
net banking, mobile banking, e-wallets, debit and credit cards instead.

Indian Banking sector is undergoing a huge transformation to offer better and enhanced
services to its customers. Continuous innovation in ICT in the banking domain has made
Virtual Banking a reality in India. Establishment of India Stack is facilitating the banks to
explore various technological avenues in the banking arena like Biometrics, Artificial
Intelligence, Robotics, Data Analytics, etc. Digital wallets have already paved the way for
cashless transactions. As the nation welcomes innovations in ICT, banks need to equip
themselves with the required infrastructure. The banks also need to prepare a blueprint to
overcome the challenges posed by emerging ICT trends in banking.

Ramping up the Digital Agenda

Rural Cooperative Banks (RCBs) have a major presence in rural areas. Efforts have been made
to bring them at par with Regional Rural Banks (RRBs) and Commercial Banks (CBs) so that
they can offer the same level of flexibility in financial transactions in rural areas as one gets in
the cities. NABARD seeks to enable the blurring of the financial divide between urban and rural
areas. Minimizing this divide needs introduction of these products and also educating the user
about them, which is a major task. The best performing banks have adopted a two pronged
approach of
(i) Creating a financial ecosystem to provide various financial products with suitable
infrastructure.
(ii) Educating customers on benefits/security concerns and encourage switchover to such
products.

Furthermore, GoI plans to provide all government subsidies/incentives/subventions through

Direct Benefit Transfer (DBT) mode. CBS-enabled RCBs are becoming part of DBT since many
of the beneficiaries of social sector schemes are their customers. This will enable Government-
sponsored benefits to flow directly into the accounts of beneficiaries and give them access
through their Aadhaar Number. Not being part of DBT may mean a bank losing its clients to
other banks.

GoI, in the Union Budget this year, had announced a “DigiDhan Mission” to promote digital
payments and create awareness. This mission seeks to set up a strong digital payments
ecosystem in collaboration with all stakeholders. The objective is to achieve 25 billion digital
transactions during 2017-18. Hence, RCBs have to onboard to digital banking in a big way if
they seek to participate in GoI’s digital initiatives and increase their outreach while retaining
their customer base.

In this context, NABARD has been continuously guiding and facilitating the RCBs to enable
them equip themselves with latest ICT solutions on par with other banks. The RCBs have
reached a basic level of technology adoption of late and are getting ready to unleash the digital

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banking services to the rural masses at large. We will be showcasing the ICT scenario in RCBs
and appropriate digital path for them in this paper; with a few examples worthy of emulation
carried out by proactive RCBs which may lead others in this regard.

CBS – Foundation of Digital Banking

Digital banking would not have been possible without the introduction of Core Banking
Solution (CBS) technology in the Indian banking system. In 2011, NABARD took the initiative
to act as advisor and facilitator in CBS implementation in RCBs. This involved helping in
aggregation of demand across RCBs, identifying IT vendors for CBS implementation, placing of
governance mechanism for monitoring and follow-up of the project. The implementation of
cloud-based CBS in 201 RCBs (14 StCBs & 187 DCCBs) with 6953 branches was successfully
completed in 16 states and 03 union territories. The banks have either joined the initiative or
they have on-boarded on CBS independently. In case of the latter, Satara and Kanara DCCBs
have done a commendable job of CBS implementation in their banks. Whether banks did it
under NABARD initiated project or on their own, in either case the connectivity within the bank
was established and so was the bedrock for future technologies. As on 30 November 2017, 376
out of 393 licensed RCBs were on CBS. The remaining are newly licensed RCBs who are
working towards CBS implementation.

The CBS project of NABARD has helped the banks in an unprecedented manner. E.g. CBS
helped Chamoli DCCB (See Box 4) to recover the branch records quickly from the CBS when
the branch was washed away by floods. The manual system would have taken lots of time to
reconstruct the records and to start the business quickly.

The importance of automation of banking processes led to the need for PACS to be
computerized since they are a pivotal institution for providing rural credit to persons of small
means—small farmers, marginal farmers and rural artisans. For the purpose of
computerization, the framework for a standardized CAS & MIS had been designed by
NABARD.GoI, in Union Budget 2017-18, announced computerization and integration of 63,000
viable PACS with CBS of DCCBs to ensure smooth credit flow to farmers in the rural areas with
NABARD as implementation agency for the project. It is envisaged that this will help PACS by
way of operational efficiency, profitability, offering wider and more flexible product portfolio,
issuance of RuPay Kisan Cards to their members, improve customer service, effective
management control and monitoring through better MIS, accounting process of PACS
conforming to Indian Accounting Standards, compliance with all regulatory requirements.

Participants in National Payments Infrastructure

Reserve Bank of India (RBI) had introduced various products (like ECS, EFT, NEFT and RTGS)
in order to reduce the settlement cycle and enhance the efficiency of electronic payment system.
Once the CBS process stabilized in bank, the customers could access services like anywhere
anytime banking and transfer/receive funds through electronic mode by using RTGS/NEFT
facilities, etc. The establishment of these components of the national payments infrastructure
facilitated efficient and faster delivery of transfer payments and remittances like pensions in
addition to quicker settlement of commercial transactions.

The progressive RCBs onboarded to RTGS/NEFT through the sub-membership route via either
their own StCB or any other bank that were part of RTGS/NEFT network. As on 30 November
2017, 376 out of 393 licensed RCBs were on RTGS/NEFT. The remaining RCBs may adopt
these best practices of the successful DCCBs in providing better services to the customers.
They may take necessary steps to become part of the national payment network, without which
they will not be able to participate in services like DBT.

Expansion of Payments Acceptance Infrastructure

The use of ATMs gained currency once banks became part of National Financial Switch (NFS).
In the case of ATM transaction, the process usually occurs as shown below:

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ATM Bank's Switch CBS of Bank

However, it was found that microATMs had greater acceptability in rural areas due to assisted
mode of transaction. The process in case of microATM transaction is as follows:

mATM at Bank's CBS of

FI Server
PACS switch Bank

However, having a separate FI server would have meant additional costs for RCBs. With the
support of Technology Service Providers, a new architecture was adopted by the banks to
reduce this cost. Banks were able to pave the way for microATMs of RCBs to be recognized as
ATMs by NPCI; thus dispensing with the need for separate FI server. microATMs at PACS have
provided the much required acceptance infrastructure at grassroots level and help the PACS to
have alternate line of income too. An example worth emulating in this respect is Burdwan
DCCB, West Bengal providing digital banking services through their PACS as Deposit
Mobilisation Agents (DMAs) to the remote villages (see Box 3).

The usage of debit card at the merchant outlet is the way forward for achieving the goal of less-
cash society. Hence in addition to ATMs and microATMs, there was a need for deployment of
Point of Sale (PoS)/mobile PoS (mPoS) terminals. The progressive banks should complete PoS
Issuer Certification process with NPCI which will enable their customers to use their RuPay
card at any merchant PoS terminal. Banks depending on their technology strength and service
outreach, can decide on obtaining PoS Acquirer Certification as well. Such adoption of
technology not only provides bank with efficient systems but also new channels of business
like merchant acquiring business.

NABARD is providing support for purchase of microATMs. Furthermore, support is also being
extended for deployment of PoS/mPoS terminals in one lakh villages in Tier 5 and Tier 6
centres, subject to a cap of two PoS/mPoS devices per village.

Increased Usage of Card Payments

Cooperative Banks had started adopting card technology since 2012. The main customer base
of the Cooperatives being the farmer, it was logical for them to provide RuPay Kisan Card (RKC)
for their agriculture loan. Initially there was a reluctance for the banks in view of the high cost
of the card plastics, but it was supported by NABARD under FIF. Banks have now adopted this
product for benefit of their business. PM’s announcement on 31 December 2016, for 100%
coverage of KCC Accounts with RuPay Kisan Cards in RRBs and RCBs has bolstered the drive.
As of now the RCBs have issued 1.56 crore RKCs which constitute 72% of the total farmers
with them. Other RCBs are also expected to complete 100% issuance of RKCs by March 2018.
The success story of Anantapur DCCB in bringing RKCs to better use by the farmers is a case
for emulation (See Box 5).

Banks have to be on card technology (i.e. be part of NFS) for participating in PMJDY and also
to face the competition by offering 24*7 banking, lesser cash handling and ease of doing
banking transactions. In addition, this would also enable RCBs to take one step forward
towards issuing RuPay Kisan Card. Adoption of card technology opens up new vistas for
transaction for the customers and provides more business opportunities for the banks.

Though RCBs are providing card related services, they are yet to setup call centres. Be it
financial literacy, customer awareness or security related aspects, call centres are needed to
enhance the efficiency of operations.

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Adoption of New Payments Platforms

Aadhaar has formed the basis of many disruptions in banking system. Instead of remembering
various passwords to use various financial services, the person’s Aadhaar biometrics can be
used to gain access. After its launch in 2010, Aadhaar went on to become the world’s largest
exercise in digitizing the population of a country. It is used in DBT. The subsidy is directly
transferred to an Aadhaar-linked bank account through the Aadhaar Payment Bridge System
(APBS). Aadhaar is also the base for Aadhaar Enabled Payments System (AEPS) which is a
bank-led model that allows online interoperable financial inclusion transaction at MicroATM
through BC of any bank using Aadhaar authentication. Aadhaar has simplified Know Your
Customer (KYC) authentication in the form of the paperless and consent-based eKYC.

The rapid growth of mobile users and wider network coverage has made mobile banking
channel an important platform for extending banking services. Banks require the possession of
a mobile banking license in order to provide this service to their customers. RCBs need to join
mobile banking platform but not all are able to meet the eligibility criteria. Those that do, may
have some hesitancy to join mobile banking platform due to lack of optimal technical
infrastructure and, more importantly, adequate trained manpower.

However, funds transfer are not dependent on mobile banking apps alone. Instant Money
Transfer (IMT) was an innovative system that allowed domestic remittance of money to anybody
with a mobile phone. Immediate Payment Service (IMPS) allows users to initiate a funds
transfer using Mobile number and Mobile Money Identifier (MMID), Account Number and IFSC
Code or Aadhaar Number. eWallets, such as Paytm, have gained currency over the past few
years for making instant online payments.

Efficient Content Management

RCBs can consider proper segmentation of their client base in order to offer tailor-made
services. The bundling of financial product or services may be created as per the needs of
clients. This will ensure a better customer experience and increase their business.

The era of walk-in business is long gone. Banks are offering their products and services
through omni-channel mode. Some of RCBs are offering their services through assisted mode
by way of microATMs. However, RCBs may explore innovative channels to reach their rural
client base. Tie-ups with insurance companies, tractor companies, etc. may be considered for
cross-selling and upselling to their clients.

Educating the Customer

With the plethora of digital financial services available, the need for financial literacy has
become paramount. It assumes greater importance once people are financially included
because every attempt at Financial Inclusion brings in new consumers who are less informed
and more vulnerable. This was the case with PMJDY, wherein a large number of people were
brought under the banking fold and needed Financial Literacy support. Financial Literacy is a
continuous process and given its importance among already included people, banks can
continue their efforts, even in its other project areas like watershed and tribal development.

The focus of Financial Literacy programmes has to shift to more tech-driven means of
dissemination. The mode of learning can be through audio clips, SMS, kiosks, etc. The banks
need to tailor their Financial Literacy content and mode of transmission to fit the differing
needs of broad segments like financially excluded, newly included under PMJDY, financially
literate but not financially capable and schoolchildren.

Financial Literacy Centres (FLCs) set up by banks offer credit counselling to their customers so
that financially sound decisions could be taken. Some of these FLCs have been set up with
grant support from NABARD. FLCs were envisaged as bank-neutral entities to deliver
unintimidating Financial Literacy. Credit advocacy and counselling were their other roles,
unlike other media of communication, which only gave information. At present, RCBs have

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established 1029 FLCs which are conducting Going Digital programmes for general public as
well as target specific groups like Farmers, SMEs, Women, school students and Ex-servicemen.

Demo vans can be used to create awareness continuously for longer periods among rural
population on the latest developments in banking technology and allow the rural customers a
level of comfort of using the technology while learning new modes of banking technology. These
vans fitted with ATM, MicroATMs, Aadhar Payment devices, etc., can be supported by NABARD.
The successful model of Wayanad DCCB is an example worthy of emulation. (See Box 1)

Empowering the Employee

CBS implementation has freed the bank’s staff from the drudgery of repetitive processes. It
offers new opportunities for better customer service management which is crucial for retaining
and improving their customer base. CBS enables the bank’s staff in making better and faster
decisions based on the analytics that it processes. However, RCBs will have to concentrate on
periodic capacity building of their staff to ensure building up of their business. The ICT enabled
employees find more time to serve more customers in a better way providing the digital banking
services to their customers.

Accelerating Innovations
FinTech or Financial Technology offers financial services by making use of modern technology.
FinTech companies compete with the banking sector today to provide financial services to the
customers. Large number of FinTech Startups have emerged in India and the nation is moving
towards establishing itself as a global FinTech hub. In such a scenario it is pertinent that the
RCB as per the local needs partner with such FinTech to provide localised products and
services in their area of operations.

Reliable and continuous power supply

To successfully provide CBS add-on digital banking services 24X7 to rural customers, reliable
and continuous power supply is a prerequisite. The available power infrastructure at present
is inadequate to provide the required quality and assured power to the RCBs at remote rural
locations. The use of solar energy, which meets the requirement in an eco-friendly and viable
manner is worth emulation. The harnessing of the solar energy for this purpose by
Narsinghpur DCCB in Madhya Pradesh is an example in this regard. (See Box 2)

Mitigating Emerging Risks

The diverse digital financial services offered through various channels requires for all banks to
have dynamic Information Technology and Cybersecurity policies that can safeguard the
interests of the banks and its customers. IS Audit has to be periodically conducted to
determine whether the protection of corporate assets and data integrity is ensured and is in
alignment with the bank’s overall goals. The banks’ customers and staff need to be sensitized
to the threat of cyberattacks as well.

As netizens adopt digital way of life, security and remembering multiple passwords for
authentication is becoming a herculean task. Biometrics overcomes these problems. Voice
pattern, fingerprints, iris scans, facial geometry are replacing passwords to establish user’s
identity and simplify the login process while banking online or via a mobile device. Biometrics
technology makes use of biological data and behavioural characteristics that differentiates one
human being from another. Biometrics is secure and cost effective method for authentication
process of the customers of the bank. It eliminates the burden of remembering passwords, PINs
and card numbers.

The technology can be a boon for rural population. AEPS and APB have provided the platform
for the banks to capitalise on this. Aadhaar Authentication, now made mandatory for the all
types of accounts, can change the way we do the banking. Biometrics authentication is difficult
to mimic but easy to use. It offers convenience to customers, operational efficiency to the banks
and secures the transactions. The CBS project of NABARD is an example in this regard which

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could rope in 50% of RCBs to the industry’s leading vendors under Application Service Provider
(ASP) model who are better equipped to handle cyberattacks, a model worth emulating for other
RCBs.

Conclusion
In the years to come the rural society would be better equipped to handle its day-to-day
business transactions. But this necessitates building a bridge of opportunities, solutions and
awareness that links them to the formal banking infrastructure. In this context, RCBs are the
best placed as drivers of change due to their rural outreach, both as a facilitator and
implementer. Thus, it becomes imperative for them to equip themselves with necessary
technical knowhow and deploy devices so that they may cater to all the banking needs of their
customers.

ICT solutions are considered part of the operations vertical in the banks. They provide the
necessary automations and build operational efficiencies. They are integral to the MIS of the
bank. In the changing environment the Bank has to weave in their IT strategy into their
business strategy to build their Digital Strategy. Say, the Mobile number of the customers can
be used for other purposes instead of mere transaction reporting or for OTP. A Digital Strategy
can consider the availability of the mobile numbers and use it to create a new interaction
platform with the customers.

With most of the RCBs in Short Term Cooperative Credit Structure (STCCS) on CBS platform,
they are now geared for adopting the latest banking technology in order to provide such
services in a seamless manner. In the coming years the Banks have to utilise the basic
platform provided by CBS and build bouquet of services for the customers through platforms
like AEPS, BHIM, Ecommerce, Mobile banking etc. In addition, the technology migration may
also be utilised for improving efficiency and operations of the Bank.

On a final note, Rural Cooperative Banks are to be commended for their efforts to implement
CBS and on-board to post-CBS technologies. However, it must be kept in mind that technology
is changing at a rapid pace and new tech-savvy competitors are ever ready to disrupt the rural
banking landscape and take their place. If RCBs are to stay relevant in this digital age, they
need to adopt technologies that will aid their customers in their banking needs while ensuring
timely adherence to regulatory and cybersecurity concerns.

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Box Items for Success Stories

1. Mobile Van Intervention by Wayanad DCCB
The project “Demonstration of Banking Technology through Mobile Van” was implemented by
Wayanad DCCB under the assistance of NABARD through Financial Inclusion Fund. Majority
of the population in Wayanad are into agriculture with 17% of the population being tribal. The
main objective was to bring financial literacy awareness and banking technology among the
rural masses. The bank had set up a professionally designed mobile demo van which included
fittings like centralized AC, high security system, wall mounted ATM, LED TV screen, locker,
solar power back up systems, banking service centre, etc. The van was attractively designed
with a very modern look. The customers can operate and withdraw money without entering
the vehicle through the wall mounted ATM which is connected to National Financial Switch
through remote connectivity system. The van also has a POS machine which helps in creating
awareness about the usage of ATM cards in the POS machines. The information with respect
to usage of ATM is displayed on the van. At the back side of the vehicle there is a banking
service centre, where a team of bank officials provide banking literacy, counselling of distressed
farmers and conduct campaigns for loan collections, account opening and educate about the
social security schemes. The various banking products and services are displayed in the LED
screen that is fitted on the side of the van. The van has an inbuilt solar energy power backup
which is mounted at the top of the van and provides uninterrupted power supply to run the
equipment that are fitted in the van. During the rains the power supply is being provided by a
3 KV power generator.

The van visits the area of operations and works primarily as a literacy tool by demonstrating
usage of ATM and POS machine to cover larger geographical area thus benefitting both the
bank and the customers. The Mobile demo van has thus become an important tool for
popularizing digital transactions in Wayanad.

2. Use of Alternative Sources of Energy - Narsinghpur DCCB

One of the prerequisites of upscaling the banks to the CBS platform was ensuring unhindered
and reliable supply of power for day-to-day banking operations. Given the physical spread of
the branches of these banks, especially in areas with irregular/ scanty power supply, it was a
big challenge for these banks to ensure the same. The standard model which was adopted in
the project was procurement of power generation set and UPS for each of the branches. While
launching the project in various States, NABARD had advised an alternate model for
uninterrupted power supply by using solar power generation.

Narsinghpur DCCB of Madhya Pradesh, with a total business of more than Rs.323 crore, took
the initiative of using solar panels. The bank used a model in which solar power is the primary
source of power. When there is inadequate generation of power from the solar panels the
system draws power from the power-grid which is routed through the batteries. In other words,
solar power is the default model (primary source) and power from the grid is the back-up
support (secondary source). For a typical three-user branch, the bank procured a 2 KV solar
power set. At the time of implementation, the cost of such set was Rs.3.90 lakh and there was
a 30% subsidy available from the Ministry of New & Renewable Energy. The payback period for
the investment is estimated to be 7-8 years. The technology is environment-friendly unlike
diesel generators that pollute the environment. In a power-starved situation, use of solar power
has great potential. The bank has shown how this can be done in an economical way while
reaping benefits for a long period of time.

3. Burdwan DCCB - Payment Acceptance Infrastructure through PACS

The Burdwan Central Cooperative Bank Ltd. embarked on the journey for creating acceptance
infrastructure by integrating the PACS with the existing CBS System of The Burdwan CCB Ltd.
The Bank has its own Data Centre (DC) for managing all their 38 branches through the
network managed by the Bank. The Bank has signed agreements with 200 PACS to be linked
to its CBS system through microATMs. The project envisages installation of 40 on-site ATMs,

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distribution of 1 lakh EMV based RuPay cards through PACS network and setting up of 10
FLCs.
The Burdwan Central Cooperative Bank Ltd. has 29 PACS microATMs made live on-us and all
transactions are successfully routed through their CBS on real-time basis. Similarly, 12 ATMs
have been installed. Besides, 32321 savings accounts have been opened so far and 13924 EMV
Chip based RuPay Kisan Debit Cards have been handed over to the customers. Lastly, all 10
FLCs have been set-up and made operational.

4. Chamoli DCCB in Uttarakhand

Due to heavy torrential rains and landslides, some of the villages of Uttarakhand were washed
away in the floods during 2015. One of the branches of Chamoli DCCB in Uttarakhand was
also washed away in the flood waters. Incidentally, the bank had already migrated to CBS
platform and was using the cloud based model of NABARD initiated CBS project. The bank
was on Core Banking Solutions and had the data in the data centre of Wipro. Data Centre is a
place where data of the bank’s branches is stored centrally so that queries can be solved at a
single point by ASP vendor and the banks could retrieve their data in case of emergencies and
unforeseen circumstances. Though the bank could not retrieve physical documents, there was
no major data loss for the branch. The branch could start their banking operations once
everything including power was restored as the data was lying safe in the data centre. Things
would have been different had the branch been functioning in the manual system and the
branch would have suffered badly due to loss of data.

5. RuPay KCC in Anantapur DCCB

Anantapur District Central Cooperative has been in the forefront both in issuance and
activation of RuPay KCCs. Nearly all the eligible farmers have been given RuPay Kisan Card.
The success of implementation of RUPAY KCC in Anantapur District lies in securing support of
Board of Management of DCCB, active involvement of CEO, branches of DCCB, field level
functionaries i.e. Management and Employees of PACS, in focused activation of RuPay KCCs.

The bank opened farmer accounts with AADHAR mandate to the tune of 1.2 lakh accounts;
and follow up thereon with PACS functionaries to arrange for providing ATM cards to the
farmer members. Formal and Informal meetings / camps/ FLAP/ dFLAP were conducted at
various branches, PACS and villages to drive home the need for stepping up digital
transactions in the light of Demonetization and the goal of Cashless society. The DCCB
adopted the strategy of no cash disbursement of Crop Insurance Compensation convincing the
member farmers that if they use RuPay KCC cards, they can draw available amounts through
any ATM/ Micro ATM / Business Correspondents/ Ecom transactions etc. The DCCB used
daily SMS for conveying the top branches/PACS disbursing crop insurance claims through
RuPay KCCs, to build competition among Branches and PACS and recognized the efforts of the
top performers. The Bank Staff have experienced reduction in work load in disbursement of
Crop Insurance claim, etc. and also improved the operational efficiency. There has been an
increase in trust and confidence levels on PACS as they can draw amounts through any ATM
24X7 including on holidays. The business of the Bank has improved.

*****