Free PDF

ESSENTIALS OF BANK
COMPUTERIZATION
For JAIIB Exam- Unit 1
Calculation of Interest and Annuities

Siva Rama Prasad Sir Notes

EX-GM, SBI PO
36+ Years of Experience

www.Oliveboard.in
Essential of Bank Computerization JAIIB Free eBook

Index
Introduction
Need for Computerisation
Stand-Alone Computer System
Multi-user System
Multi-user System
Uninterruptible power supply (UPS)
Core Banking Solution
Features of Core Banking Solution:
Essentials of Bank Computerization
Components of Computer
Data Communication
Networking Topology
FAQ's
Essential of Bank Computerization JAIIB Free eBook

Essentials of Bank Computerization

JAIIB eBook
For Paper-1 of the JAIIB Examination, we have provided material on Essentials of Bank Computerization
(Unit-1), BANKING TECHNOLOGY (Module C).

The Bank Computerization Concept was practically stated in 1980-81, and more exactly got traction in
1983-84, following the formation of a committee in 1983 under the supervision of the then-Deputy
Governor of the RBI, Dr C. Rangarajan. This Committee was formed to investigate the potential and
phases of bank computerization and to develop guidelines for the process. The committee's report,
submitted in 1984, was known as the First Rangarajan Committee Report on Bank Mechanization.
Another committee, known as the first Rangarajan Committee Report on bank mechanization, was
formed in 1988.

Need for Computerization

The four major goals of banking computerization are to enhance

• Decision-making
• Housekeeping
• Customer Service
• Productivity and profitability

Stand-Alone Computer System

The initial step of computerization at a bank is usually using a stand-alone computer system. A single-
user computer system is a compact computer used by just one person at a time, as the name indicates.

Multi-user System
Multi-user systems are computers that several people may use simultaneously, as their names suggest.
This category includes minicomputers, mainframe computers, microcomputers, and the more powerful
Supercomputers.

Network
In computer terms, networking refers to linking computers and peripheral devices so that they may
communicate with one another. These networked computers might be at various locations or in the same
building. Local Area Network (LAN), Metropolitan Area Network (MAN), and Wide Area Network (WAN)
are examples (WAN).
Essential of Bank Computerization JAIIB Free eBook

• Computers and computer equipment are connected through a local area network (LAN) within
the same building.
• Computers are connected between two buildings using a Metropolitan Area Network (MAN).
• Computers linked to the internet may access data worldwide through a wide area network
(WAN).

LAN
A Local Area Network (LAN) collects computers and peripheral devices connected to a small area, such
as a classroom, laboratory, house, or business building. It's a popular network for sharing files, printers,
games, and other software resources. Connecting PCs and a printer in someone's home or workplace is
the most basic LAN network. LAN will be utilized as one form of communication medium in general. It's a
network with fewer than 5000 linked devices spread across many buildings.

Characteristics of LAN:
A LAN network has the following key characteristics:
• Because it is a private network, it is never regulated by a third party.
• When compared to other WAN technologies, LAN runs at a faster rate.
• Token rings and ethernet are two examples of media access control technologies.

Advantages of LAN:
Here are some advantages of utilizing LAN:
• Local area networks can share computer resources such as hard drives, DVD-ROMs, and
printers. This lowers the cost of hardware purchases greatly.
• Instead of acquiring licensed software for each client in the network, you may utilize the same
software across the network.
• All network users' data can be saved on the server computer's single hard disc.
• Data and messages may be readily transferred across networked computers.
• It will be simple to handle data in a single location, making data more secure.
• A Local Area Network (LAN) allows all LAN users to share a single internet connection.
Essential of Bank Computerization JAIIB Free eBook

Disadvantages of LAN:
The following are the major disadvantages of LAN:
• LANs will save money because of pooled computer resources, but the initial cost of setting up
a LAN is fairly significant.
• Because the LAN administrator has access to every LAN user's data file, it does not provide
enough privacy.
• Unauthorized users can access an organization’s essential data if the LAN administrator fails
to safeguard the centralized data repository.
• Because there are concerns with software setup and hardware failures, continual LAN
administration is required.

Network Device
In a LAN, several network devices are utilized. The most common network devices are:
• Bridges
• Firewalls
• Gateways
• Hubs
• Modems
• NICs (Network Interface Cards)
• Routers
• Switches
• WAPs etc.

WAN (Wide Area Network)

Another major computer network that spans a broad geographical region is the WAN (Wide Area
Network). A WAN network system might be a LAN link that uses telephone lines and radio waves to
connect to other LANs, and it is usually restricted to a single company or group.

Characteristics of WAN:
• The software files will be exchanged among all users, ensuring that everyone has access to
the most recent versions.
• WAN allows any firm to create a worldwide integrated network.

Advantages of WAN:
The following are the advantages and disadvantages of utilizing WAN:
• The Wide Area Network (WAN) allows you to cover a broader geographical area. As a result,
corporate offices located at greater distances may interact effortlessly.
• Mobile phones, laptops, tablets, desktops, gaming consoles, and other gadgets are included.
• Client devices have built-in radio transmitters and receivers for WLAN networking.
Essential of Bank Computerization JAIIB Free eBook

• Disadvantage of WAN:
• The initial investment setup cost is significant.
• The WAN network is tough to maintain. Expert technicians and network administrators are
required.
• Because of the vast reach and usage of many technologies, there are more faults and
difficulties.
• Because numerous wired and wireless technologies are involved, it takes longer to resolve
difficulties.
• When compared to other forms of networks, it provides less security.

Uninterruptible power supply (UPS)

When a computer's primary power source fails, an uninterruptible power supply (UPS) keeps it going for
at least a short period. Power surges are also protected by UPS equipment.

When the gadget detects a lack of power from the primary source, the UPS's battery "kicks in." If an end-
user is working on a computer and the UPS alerts them to a power outage, they will have enough time to
save whatever data they are working on and depart before the battery runs out. Any data in your
computer's random-access memory (RAM) gets wiped when the power goes out. When power
fluctuations occur, a UPS intercepts the surge and prevents the computer from being damaged.

Core Banking Solution

Core Banking solutions are critical to a bank's day-to-day operations. It is an important aspect of banking
technology that tries to provide its clients and customers with the finest services. Core banking solutions
are back-end and front-end procedures for account management.
"Centralized Online Real-time Exchange" is what Core stands for. As the name implies, it is a centralized
system or network developed by a bank and its branches. Customers may access, manage, and conduct
basic transactions of any branch of the bank in which they have an account. As a result, core banking
software enables institutions to establish a consolidated data center.
Essential of Bank Computerization JAIIB Free eBook

Features of Core Banking Solution:

1. Boarding of Customers.
2. Keeping track of deposits and withdrawals.
3. Interest in transaction management Calculation and administration.
4. Processing of payments (cash, checks/checks, mandates, NEFT, RTGS, and so forth).
5. Activities related to customer relationship management (CRM).
6. Developing innovative financial services.
7. Disbursement and administration of loans
8. Management of accounts
9. Establishing minimum balances, interest rates, and withdrawal limits, among other things.

Core banking solutions offer the following advantages to the bank:

The CBS procedure is beneficial to both clients and banks in the following ways:
• Allows the bank to construct a dependable centralized data store.
• Data warehousing and data mining solutions for corporate intelligence are made easier.
• Online ATMs, telebanking, internet banking, any branch banking, kiosk banking, cash
management services, and other integrated customer-centric services are simple to deploy.
• Enables management information, decision support, and executive information systems to be
centralized.
• MIS, ALM, risk management, and other functions that use the common data pool are efficient
and effective.
• Centralized data allows for centralized management and control.
• Using a single version to standardize branch automation software. Software modifications are
adopted quickly since they are only made at the central location.
• Facilitates BPR to simplify current procedures.
• Data backup, MIS production, and other tasks are relieved.
• Infrastructure is required at the central site, the backup location, and the branches.
• At branch sites, servers are not required.
• Attracts a greater initial investment Cost of implementation for additional branches and
delivery routes is comparatively less.
• Future extensions can utilize the core infrastructure.
• Implementation of SFMS, RTGS, CFMS and other systems is free.
• Customer expectations are better met, and the sector is consolidating.
• Multiple entry errors have been eliminated.
• It's simple to launch new financial products and manage adjustments to current ones.
• Back office information and self-service activities are seamlessly combined.

An essential requirement of CBS:

Essential of Bank Computerization JAIIB Free eBook

• Creation of Primary Data center: It houses the online transaction's core server. All customer-
centric delivery channel services connected with CBS employ a central database. It is staffed
24 hours a day, seven days a week to provide customer assistance.
• Disaster recovery site (DRS): It is done to minimize interruptions in CBS branch business
operations due to a central system or network failure, to ensure continuous operation of CBS
branches and online delivery channels, and to serve as a backup for providing a stable and
continuous processing environment.
• Business process re-engineering: To assist the bank in rearranging existing business
processes to line with the benefits given by the new technology platform, and to assist the
bank in utilizing the technology platform's best business practices to provide more efficient
services.
• Software: It will include functional branch modules, as well as a delivery channel, needs such
as ATMs, telebanking, and Internet banking, as well as an interface to link with NDS, RTGS,
and other systems.
• Networking: Leased WAN lines will be utilized as the primary communication route, with an
ISDN link serving as a backup.

Essentials of Bank Computerization

When the first committee on computerization was formed in the early 1980s, the procedure of
computerization in Indian banks began. In 1984, the Rangarajan Committee issued its
recommendations. The second report of the Rangarajan Committee, published in 1989, accelerated the
computerization process. Improved customer service, better housekeeping, faster decision-making, and
enhanced revenues and productivity are all possible outcomes of computerization.

Computer

A computer is an electrical device that turns unstructured data into useful information. Data can be
stored, retrieved, and turned into output after being input into a computer in this manner. Computers may
be utilized in virtually every area of banking, including:
• Management of funds
• Management of investments
• Management of foreign exchange
• Management of human resources
• Information management system
• Making decisions and forming policies

Components of Computer
Two main components make up the computers:
Essential of Bank Computerization JAIIB Free eBook

• Hardware (physical parts that could be touched or seen) and

• Software (operational instructions).

Hardware
The hardware includes:
• The CPU chip, memory chip, ROM, RAM, input-output controller, expansion slots, and
various logic circuits are all found on the motherboard.
• Keyboard, pointing devices such as a mouse, touchpad, joysticks, touch-sensitive screens,
pen-based systems, optical scanners, and voice recognition systems are examples of input
devices.
• Printers, monitors, and other output devices
• RAM, ROM, Magnetic disc, floppy, CD, DVD, and pen drive are examples of storage devices.

Software
• A set of instructions that teaches a computer what to do or how to complete a task is known
as software. The term "software" refers to both application software and operating systems.
• Application software, such as a game, a word processor, or a music player, is software that
performs a specified task.
• Windows XP, Windows 10, Linux, Windows 7, Ubuntu, Windows 8, Unix, Dos, and Mac OS
are operating systems that enable applications to execute and control the display and
keyword. It serves as a link between the user and the hardware.

Database Management
A database is a structured collection of data stored and retrieved digitally. A database management
system (DBMS) is a computer programme that captures and analyses data through interacting with end-
users, other programmers, and the database itself. DBM aids in data reading, mistake correction, record
updating, data sorting and extraction from various files, sharing, and storage, among other things.
Essential of Bank Computerization JAIIB Free eBook

Data Warehouse
A data warehouse is a reporting and data analysis system regarded as a basic component of business
intelligence in computing. The data in the warehouse is transferred from operational systems (such as
clerical entries) and changed and redesigned according to top management's business analytics
requirements.

Data mining is a process for extracting strategic data from a data warehouse, and it is the technique of
detecting patterns and relationships in massive databases automatically. Banks can employ data
warehouses and data mining for various purposes, including loan risk assessment, portfolio risk
assessment, demographic data about customers to focus on different categories, overall risk analysis,
and so on.

Data Communication
Data communication is the process of transferring data from one location to another utilizing computing
and communication technology. A computer linked to the internet through a WIFI connection, which
employs a wireless means to send and receive data, is a popular example of data communications. The
following are the basic elements of data communications:
1. Message – data to transmit
2. Sender
3. Medium (Wired or Wireless)
4. Encoder and decoder
Essential of Bank Computerization JAIIB Free eBook

Networking Topology
The topology describes how the devices are linked together. Centralized and dispersed control are the
primary types of local area network design utilized in information transfer. The following topologies can
be used for networking:
• The master node in a star network is the center node, and all nodes are connected to the
master through distinct links.
• Ring topology: devices are connected in a closed-loop, and data is transferred in a series
from one node to the next.
• All devices are linked to a single continuous cable in a bus topology.
• Combining two or more of the topologies above is known as a hybrid topology.

FAQ's
1. What do you understand by WAN?
A WAN network system might be a LAN link that uses telephone lines and radio waves to connect to
other LANs. It is usually restricted to a single company or group.

2. What are the components of a computer?

Two main components make up the computers:
• Hardware (physical parts that could be touched or seen) and
• Software (operational instructions).
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