Professional Documents
Culture Documents
FACILITATION
TECHNOLOGIES PVT.LTD
TOPIC:
TECHNOLOGICAL ADVANCEMENT IN
BANKING SECTORS OF PAKISTAN BY
NIFT
PRESENTED BY:
DEDICATED TO
Our teacher whose teaching and enlightenment inspired and
enabled us to write this report.
&
SPECIAL THANKS
NIFT Pvt. Ltd and its highly professional team of top
management for their guidance and support
Dr. A. R. Zaki
Chairman
Karachi University Business School
We were very obliged & honored of his taking
responsibility of our presence at NIFT Pvt. Ltd
And entrusting us the reputation and prestige of Karachi
University Business School
ACKNOWLEDGEMENT
Our sincerest appreciation must be extended to
MR. SABOOR who has given her comments,
corrections and guided us at every step in
preparing this report
AND
CONTENTS
1. NIFT
..
CEOs
message
.
Board of
Directors
.
Introduction
Mission &
Vision
.
Corporate
Structure
.
NIFTs
Management
....
Partners
.
Certification
Authority
.
Image System
Marketing
..
Product &
Services
.
Nift-eTrust
.
1. Pakistans Banking
Sector
.
2. Payment & Settlement
Systems
.
Overview
ACH
service
.
US Dollar Instruments Collection and Settlement
System....................................................
Standardization of Government Payment
Instruments
Real Time Gross
Settlement
.
PRISM
..
NIFTS role in the implementation of RTGS at
SBP..
Remittance
Processing
.
Enterprise Content Management Services (ECMS)
..
SWIFT
Key Initiatives by
SBP
1.
e-Banking in
Pakistan
.
Overview
Electronic Banking
System
Benefits of banking
KIOSKS
..
ATM
network
.
Real Time Online Banking (RTOB)
1.
Sector
Overview
..
Globus Banking & Currency
Solutions..
Oracle
ERP
Data
Warehouse
.
Web
.
UNIX server
hosting
.
Windows infrastructure &
applications
Infrastructure
...
1.
2.
Peer Country
Comparisons
.
3.
References
..
NATIONAL INSTITUTE
OF FACILITATION
TECHNOLOGIES
PVT.LTD
CEOS MESSAGE
Welcome, and thank you for your interest in NIFT
We are proud to be catalyst in the modernization of Payment Systems in
Pakistan. This process started with the implementation of first Automated
Clearing House (ACH) in Karachi in 1996. We have traveled a long way since
then. We have now established ACH centers in 20 major cities from where
ACH services are being extended to over 185 towns and cities. We have
introduced new concepts exploiting latest technologies for electronic clearing
bringing faster credits for the benefit of banking industry.
We have set up first Certificate Authority / Public Key Infrastructure to facilitate e-Commerce,
e-banking, e-government and e-business in Pakistan. We are facilitating Federal Board of
Revenue and Securities & Exchange Commission of Pakistan for e-filing of tax and other returns
by tax payers and corporate respectively. Large corporations, insurance companies, Karachi
and Lahore stock exchanges and banks are exploiting our Public Key Infrastructure to
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authenticate and secure their electronic communication and transactions. NIFT has carried out
Network Penetration testing for number of important and sensitive institutions in Pakistan.
Our Enterprise Content Management Services (ECMS) are being exploited by banks large
corporations as well. We have to our credit completion of one of the largest image archiving
project where we processed over 65 million images which enabled NADRA to set up the citizen
data base in the country.
The largest oil refinery, two large cellular companies and largest insurance company of
Pakistan are using our ECMS facilitation for the image archiving and document management
systems. Numbers of banks are using ECMS services for production of statement of Accounts,
Credit Card invoicing, etc.
We are helping major utility companies (with an aggregate of over 13 million payments per
month) in improving their cash flows by providing them utility payment processing services.
We have been able to achieve all this in short span of 14 years because of the trust reposed in us
by the financial industry, large corporate and Government of Pakistan.
Our products and services bring immediate and direct benefit in terms of streamlining systems,
saving costs and improving cash flows at our customer base. We focus not only on providing
benefits to our customers but also to our customers customers. Our experience in business
process re-engineering and our products and services have helped our customers in introducing
new and exciting products which bring direct benefit to their customers. We have been adding
new projects every year in our portfolio of services to extend our reach to our customers and
their customers for mutual benefit. At NIFT, it is an ongoing effort to help modernize the systems
to bring efficiency and continued cost effectiveness in our customers operations.
This concept is our defining and guiding principle. In everything we do, in every manner we
operate and every service we offer, our objective is to provide immediate benefit to our
customers and their customers.
This is how we have earned the trust of every one of the 40 banks and over 5571 bank
branches in 184 cities, major utility companies, cellular companies, insurance companies and
government organizations in Pakistan. You have my assurance that we will continue to work
hard to maintain your trust by employing exceptional business solutions and services with ethics
of highest standards.
We offer relationships you can rely upon to insure your operational success both today and into
the future.
Best regards
M.M. Khan
CEO
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BOARD OF DIRECTORS
The current Board of Directors comprises of:
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BANKING SECTOR
Mr. Bahauddin Khan
PRIVATE SECTOR
Mr. Wamiq A. Zuberi
Mr. Arshad A. Zuberi
Mr. Asif A. Zuberi
Mr. Anwar Samad
Mr. Arshad Nawab
Mr. Khurram Shaikh
Mr. Fahd Shaikh
Mr. M.M. Khan (Chief Executive)
INTRODUCTION
NIFT - National Institutional Facilitation Technologies (Pvt.) Ltd. was
incorporated in September 1995 as joint venture between a consortium of six banks and
entrepreneurs from the private sector. All commercial banks and all of their branches in major
cities avail NIFTs services. As of May 2009, 40 commercial banks and their 5571
branches in 185 major cities, 20 data centers utilize NIFTs services.
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NIFT has setup elaborate data centers geared to provide automated services for document
processing particularly in the payment arena. Modern image based facilities have been
established at Karachi, Lahore, Islamabad, Peshawar, Rawalpindi, Hyderabad, Multan,
Faisalabad, Quetta, D.I.Khan, Sialkot, Gujranwala, Sukkur, Bahawalpur, Muzaffarabad,
Jhelum, Abottabad, Mirpur, Sahiwal and Sargodha. The services include cheques clearing,
reconciliation, return (unpaid) cheques processing, same day clearing (express 2 hrs. clearing
service), intercity clearing and inter branch & inter-bank settlement. Services are provided at
individual branch level to over 5571 branches in 184 major cities and smaller cities.
NIFT has set up a grid of automated clearing which provides efficient and cost effective intercity
clearing involving 20 major and over 164 satellite cities in Pakistan. NIFT has facilitated setting
up of citizen data base by National Database and Registration Authority (NADRA) by image
archiving of 65 million census forms. NIFT has progressed the ACH facilities by providing web
based facilities. The clearing results are now accessible by banks and branches through the
NIFT's web portal.
In addition to providing services to the financial industry, NIFT is a trusted service provider to
major utility companies for utility payment services. Both gas distribution companies of Pakistan
(SSGC and SNGPL), Telecommunication Company (PTCL), Cellular companies (Mobilink and
Telenor) exploit NIFT's Services). NIFT also provides exclusive item processing services to
large corporations which includes oil refinery, insurance companies and other businesses.
ISM - NIFT has incorporated a wholly owned subsidiary Image
Systems Marketing (Pvt.) Ltd., to offer Enterprise Content
Management Services. ECMS comprises of image archiving/retrieval
and document management services, bulk printing of variable and fixed
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data (in color and black), insertion services and web publishing of enterprise data. It has been a
unique experience to bring six large banks and private sector on one platform to help modernize
payment systems in Pakistan.
MISSION
We will draw our potential from the respect we have earned as Trusted Third Party
Processor and become a distinctive organization known for innovative use of
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technology to continually improve products and services for the benefit of our
customers and their customers and keep them abreast with times to compete in the
global society.
VISION
We focus on our customers as active component in our growth process. We
continue to offer services that expand their access to excellent and affordable
technologies. Our qualified and experienced workforce must work closely with our
customers to continually enhance their confidence and trust in us.
CORPORATE STRUCTURE
NIFT - National Institutional Facilitation Technologies (Pvt.) Limited was incorporated in
September 1995 as a joint venture between consortium of six major banks and private
entrepreneurs. Six equity holder banks are:
15
NIFTs Board comprises of 14 directors; 7 from banks and 7 from the private sector. The Board
elects the Chairman from the nominees of shareholder banks while the CEO is a nominee of the
private sector and is approved by the Board. All Scheduled banks operating in Pakistan are
members of NIFT's clearing system and the State Bank of Pakistan monitors the clearinghouse
operations.
NIFT is a licensed clearing house of Pakistan.
NIFT`S MANAGEMENT
NIFT has established state of the art data centers in twenty major cities of Pakistan from where
services are being provided to 40 banks, 5571 bank branches, two larger utility companies, and
public key infrastructure in more than 184 cities of Pakistan. The organizational structure and
managerial staff at NIFT comprises of a talented team of experienced professionals with vast
experience in IT, Banking and Finance.
Partnership with the best: VeriSign, Inc. NIFT has signed up as a Global Affiliate
with VeriSign, Inc. - The leading provider of digital trust services that enable everyone,
everywhere to engage in commerce and communications with confidence. VeriSign's digital trust
services create a trusted environment through three core offeringsname, security and
transaction servicespowered by a global infrastructure that manages more than 5 billion
network connections and transactions a day. NIFT is licensed by VeriSign as a selected provider
of digital trust services in Pakistan. As an Affiliate, NIFT is a member of the VeriSign Trust
Network platform the infrastructure of technology and practices that support the global
interoperability and usage of digital trust services. Users can be sure that services based on the
VeriSign Trust Network platform offer the highest levels of security, reliability and support.
NIFT has established a data center conforming to X9.79 and ISO17799 Standards to offer digital
certificate services in Pakistan. This processing center is located at AWT Plaza, I.I. Chundrigar
Road, and Karachi and has ISO 27001:2005 certifications.
VeriSign Trust Network platform Services
Processing Center: NIFT has setup a processing center with round-the-clock operations to
guarantee near zero downtime. Part of VeriSign Trust Network platform based on global
standards and specifications, the processing center has the capacity to provide certificate services
to thousands of enterprises and millions of end users.
Service Center: Service Center allows NIFT to mirror VeriSign's offerings: individual
digital certificates, SSL Certificates, and enterprise PKI solutions and provide support leveraging
the processing center. Following services are provided under the NIFT-e-TRUST SM service
division:
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As the very name, Image systems marketing, suggests we specialize in imaging solutions. Here
too, our most identifiable expertise is related to: high volume / multipurpose image capture and
image archival / retrieval systems.
ISM has pioneered in the establishment of imaging applications in Pakistan. We have executed a
very large project for NADRA (National Authority responsible for managing citizens data)
involving imaging of 65 million forms for the National Database. This specialized activity
involved extraction of five snippets of varying resolution (3
colors and 2 gray) from each form. ISM completed this job in
nine months and provided clean image archives in ORACLE
database format.
ISM is actively involved in transforming paper based archives
into electronic archives for organizations like Mobilink, Telenor
and Adamjee Insurance Company. Over 30 million documents
have been electronically archived in the past 18 months.
ISM has set up Enterprise Content Management Services which includes image archiving and
document management, color and black printing of large volumes of fixed and variable data,
inline perforation, mechanized insertion and web publishing. For this purpose high speed color
printers from Kodak and insertion system from Bowe Systec have been installed.
SCANNING EQUIPMENT ISM offers high speed Simplex and Duplex scanners with
speeds varying from 2000 to 8000 documents per hour.
CUSTOMER CARE SUPPORT ISM provides customer care support for all imaging
products and related hardware on 24x7 basis throughout Pakistan. ISM provides internal
maintenance to NIFT on hardware including all brands for MICR Reader / Sorter
equipment.
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Reseller Agreementsi) ISM has signed Reseller Agreement with Wausau Financial Systems (WFS) for marketing of
their products in South Asia Gulf and Middle East.
ii) ISM has signed Reseller Agreement with Panini Corporation of Italy for marketing of their
MyVisionX scanners in Pakistan.
iii) ISM is reseller for SCAMAX M06, SCAMAX H04, SCAMAX M03 high speed scanners.
NIFT-e-TRUST
NIFT e-Trust is another initiative towards the modernization of payment systems in Pakistan.
Ensuring security and safety of commerce and communications, addressing issues such as
authentication, confidentiality or privacy, non-repudiation, and data integrity over the internet is
its key objective. In line with its vision, it has established the first Certificate Authority (CA) in
Pakistan, paving the way for Pakistani organizations to safely and securely operate online
businesses under a Global Trust hierarchy. NIFT e-Trust is a global affiliate of VeriSign, Inc.,
and licensed in Pakistan as a select provider of digital trust services that enable everyone,
everywhere, to engage in commerce and communication with confidence.
identify members of an authenticated user group. This ensures that only authorized employees or
customers are able to access the valuable information contained in intranet or extranet.
Online purchases have become more convenient on a global basis. However, potential consumers
need secure and legitimate means of transactions. A Server Certificate can deliver end-to-end
transaction security on communications. It protects communications over the web through the
industry-standard Secure Sockets Layer (SSL) technology. Each certificate comes with the
unique seal of authenticity, Secure Site Seal.
Enterprises are relying on cost cutting, timesaving extranets and intranets for exchanging
information with customers, partners, and employees through applications such as supply-chain
management, and online banking and trading. An efficient and cost-effective solution is the use
of Digital Certificates. Based on public key encryption, digital certificates serve as unique online
credentials, authenticating the identity of each device or device user and identifying privileges
and attributes for authorized access to private online information.
Virtual Private Networks (VPNs) allow a company to extend their local network to connect
branch offices, remote users, business partners and customers via the Internet. As with all other
types of networks, VPNs are also vulnerable to attack by hackers and cyber-criminals. IPSec
(Internet Protocol Security), an industry standard, enables these networks to be secured through
encryption, providing confidentiality and integrity. Trusted IPSec is a managed digital
certification service that takes core PKI solutions and integrates them into VPNs such as
intranets and extranets, based on the IPSec industry standards.
Pakistans Banking
Sector
21
transaction banking that can offer unique and new financial solutions and lead the way for the
rest of the banking industry to provide to customers an integrated solution that caters for
emerging consumer and industry requirements.
the lending and mortgage markets, and development of credit risk transfer instruments
which involve structuring and trading of credit derivatives and asset backed securities
that allows risk inherent in a loan to be repackaged into two or three tradable components
to offer optimal allocation of risks this is particularly relevant in the context of
developing financial markets where the risk profiles of banks are still dominated by credit
risk predominantly of the issuance of loans even though there are moves towards
corporate bonds or transactions in over-the-counter markets, which involve the risk of a
counter party defaulting.
Adoption and adaptation of technological advancements in communication and
information technology that has seen the explosion of financial innovation with service
providers now offering multiple and diverse solutions that enhance efficiency and reach
of products across boundaries and across national jurisdictions.
Need to globally integrate financial systems and encourage end-to-end straight through
processing capabilities and development of payment, clearing and settlement systems to
overcome time zone and currency constraints.
With globalization of markets & businesses, there is greater need for global transaction
solutions for effective cash management, trade finance, trust & securities services, and
continuous linked settlement.
Finally, there are now mounting regulatory pressures to seeking greater IT solutions to
tracking money laundering as well as adopting the new risk management framework
including Basle II.
in technology and improve their payment and settlement system infrastructure, internal controls
and move to e-banking.
Pakistans banking sector reforms, which were initiated in the early 1990s, have transformed the
sector into an efficient, sound and strong banking system. The most recent comprehensive
assessment carried out jointly by the World Bank and the IMF in 2004 came to the following
conclusion:
For reaching reforms have resulted in a more efficient and competitive financial system
in particular, the predominantly state-owned banking system has been transformed into
one that is predominantly under the control of the private sector. The legislative
framework and the State Bank of Pakistans supervisory capacity have been improved
substantially. As a result, the financial sector is sounder and exhibits an increased
resilience to shocks.
The major changes that have occurred in the banking sector during the last decade or so can be
summarized as follows:
(a)
80 percent of the banking assets are held by the private sector banks and the
privatization of nationalized commercial banks have brought about a culture of
professionalism and service orientation in place of bureaucracy and apathy.
(b)
The banks that were losing money due to inefficiencies, waste and limited product
range have become highly profitable business. These profits are, however, being used
to strengthen the capital base of the banks rather than paying out to the shareholders.
The minimum capital requirements have been raised from Rs. 500 million to Rs. 6
billion over an extended period in a phased manner. The consolidation of the banking
sector into fewer but stronger banks will lead to better management of risk.
(c)
The banks that were burdened with the non-performing and defaulted loans have
cleared up their balance sheets in an open transparent, across-the-board manner.
Contrary to the popular myth the main beneficiaries of the write-offs of the old
outstanding and unrecoverable loans have been from almost 25 percent to 6.7 percent
by Dec. 2005. Small individual borrowers the ratio of non-performing loans of the
Commercial Banks to total advances has declined.
(d)
The quality of new assets has improved as stringent measures are taken to appraise
new loans, and assure the underlying securities. Online Credit Information Bureau
reports provide updated information to the banks about the credit history and track
record of the borrowers. Loan approvals on political considerations have become
24
pass. Non-performing loans account for less than 3 percent of all new loans
disbursed since 1997.
(e)
The human resources base of the banks has been substantially upgraded by the
adoption of the principles of merit and performance throughout the industry.
Recruitment is done through a highly competitive process and promotions and
compensation are linked to training, skills and high performance. The banks now
routinely employ MBAs, M.Coms, Chartered Accountants, IT graduates, economists
and other highly educated persons rather than Clerical and Non Clerical Workers. The
banking industry has become the preferred choice of profession among the young
graduates.
(f)
Banking Technology that was almost non-existent in Pakistan until a few years ago is
revolutionizing the customer services and access on-line banking, Internet banking,
ATMs, mobile phone banking and other modes of delivery have made it possible to
provide convenience to the customers while reducing the transaction costs to the
banks. Credit Cards, Debit Cards, Smart Cards etc. are a thriving and expanding
business in Pakistan. Once the RTGS is put in place the payment system in Pakistan.
Would enter a new phase of modernization.
(g)
Competition among the banks has forced them to move away from the traditional
limited product range of credit to the government and the public sector enterprises,
trade financing, big name corporate loans, and credit to multinationals to an everexpanding menu of products and services. The borrower base of the banks has
expanded four fold in the last six years as the banks have diversified into agriculture,
SMEs, Consumers financing, mortgages, etc. The middle class that could not afford
to buy cars or apartments as they did not have the financial strength for cash
purchases are the biggest beneficiaries of these new products and services.
(h)
Along with strong regulation, supervision and enforcement capacity of the State Bank
of Pakistan a number of measures have been taken to put best corporate governance
practices in the banking system. Fit and proper criteria have been prescribed for the
Chief Executives, members of the Boards of Directors, and top management
positions. Accounting and audit standards have been brought to the International
Accounting Standards (IAS) and the International Audit Codes. External audit firms
are rated according to their performance and track record and those falling short of
the acceptable standards are debarred from auditing the banks. These practices were
put in place in Pakistan long before the scandals of Enercon, World Call and Pramalat
had shaken the corporate world.
(i)
The foreign exchange market that was highly regulated through a system of direct
exchange controls over suppliers and users of foreign exchange has been liberalized
and all purchases and sales take place through an active and vibrant inter-bank
exchange market. All restrictions have been removed with full current account
convertibility and partial capital account convertibility. Foreign investors can now
bring in and take back their capital, remit profits, dividends and fees without any prior
removal and directly through their banks. Similarly, foreign portfolio investors can
also enter and exit the market at their own discretion.
25
The main lesson learnt from the last decade suggests that financial sector functions effectively
and efficiently only if the macroeconomics situation is favorable and stable. The need to
maintain macroeconomic stability will thus remain paramount in the years to come.
The agenda for further reforms in the financial sector is still quite formidable and the challenges
to spread the benefits of financial liberalization among the middle and low-income households
and small and medium farms and enterprises are still enormous.
There are several areas of dissatisfaction with the banking sector that need to be addressed. The
most serious complaint against the banking system in Pakistan today is that the depositors are not
getting adequate return on their bank deposits. The difference between the monthly weighted
average rates of lending and deposits is taken as an indicator of the spreads earned by the banks.
It is true that these spreads have widened in the recent months land this phenomenon has caused
resentment among those whose only source of income is their returns from bank deposits. But it
is important to examine the facts and their form judgments
The monthly comparisons are meaningless because PLS deposit rates are changed every six
months, while the lending rates are continuously adjusting because they are automatically linked
to T-bills or KIBOR rates.
During the last eight months the weighted average deposit rate has risen from 1.6 percent in July
Feb, 2005 to 3.9 percent in July Feb, 2006. This trend reflects that the return on the new
deposits mobilized is much higher than what the average rate indicates. The old deposits are
earning much lower rate because they were lodged at the time when the overall structure of
interest rates had come down significantly. This lag is adjustment between the deposits and
lending rates is due to the costs incurred by the depositor in shifting deposits from one bank to
the other.
The additional deposits mobilized in the last twelve months amounted to Rs. 382 billion i.e. a
growth rate of 16.8 percent. This growth rate took place despite deceleration in the volume of
Resident Foreign deposit accounts. So if the deposit rates were unattractive then this high growth
rate in deposits mobilized by the banks appears to be puzzling. The reason for this high growth is
that the fresh deposits were fetching an average return of 6.2 percent in March 2006 compared to
3.5 percent in July 2005 rise of 270 basis points in nine months. In the coming months the
average rate is likely to move further upwards bringing them to positive real interest rates.
Why have the profits of the banks risen so sharply in the last few years? There are several
reasons that need to be understood:
First, the drag of non-performing loans has been eased considerably reducing the need for setting
aside the provisions for loan losses. As these provisions were made at the expense of the profits
the banks are now reaping the benefits of building up substantial provisions and taking the hit on
their profits in the past.
26
Second, the corporate income tax rate on banks profits has gradually come down from 58
percent to 38 percent saving on their tax deductions. These savings not only get translated in to
higher profits but also act as incentives for better performance because the tax rate no longer acts
as a penalty.
Third, the diversification of the banks assets into new and so far underserved segments such as
agriculture, mortgage, and auto, SMEs, Consumer and Credit Cards have raised their net interest
margins. As competition has become quite tough in the corporate segment the margins on
corporate loans have been squeezed considerably. But the spreads earned in these new segments
are quite attractive. Thus a large part of the profits originate from lending to these underserved
segments of the population. This is a Win- Win situation as small farmers, small businesses and
middle class consumers, who had so far been denied access to bank credit, are able to get
financing the banks are able to earn higher spreads.
Fourth, there has been a shift in the maturing profile of both the banks deposits and banks
loans. Half of the total deposits are now placed for short term duration earning negligible rates of
return compared to the past where the distribution of deposits were concentrated in medium to
long duration earning much higher returns.
On the assets side, more of the bank loans are being disbursed for fixed investment purposes.
These have long maturity structure and pay higher interest rates in double digits.
This shift in the composition of deposits and advances has helped earn the banks a higher spread
boosting their profitability.
As the majority of the banks are operating in the private sector they will remain guided by the
bottom line considerations i.e. the profits. Consolidation and market competition will act as a
deterrent on abnormal profits but it is the responsibility of the regulator to ensure that these
profits are not made by taking excessive risk with the depositors money or by banks indulging
in collusive practices. The regulator has to ensure that the access to credit is further broadened
and small farming households, small and medium businesses and middle classes are able to meet
their legitimate credit needs. At the same time the regulator has to take stringent action against
those banks found guilty of anti-competitive or collusive practices.
Another popular indictment against the banking sector is that they are financing speculative
activities such as stock market trading, real estate, commodities, auto etc. The facts do not
support this indictment. Direct and indirect exposure by banks in stock market equities has been
limited to 20 percent of their capital i.e. the maximum amount all the banks can collectively
provide for this activity is only 40 billion. The outstanding stock of bank advances in March,
2006 stood at Rs. 2063 billion. Thus the bank credit allocated for stock market equity trading is
less than 2 percent of the total advances of the banking system. If we further assume that some
amounts are diverted from consumer loans or corporate loans also the exposure of the banks may
double to as much as 4 percent but the securities and collaterals against the diverted loans May
not necessarily be the scripts themselves.
27
Real estate financing by banks is restricted to mortgage loans only and the banks cannot finance
the purchase of plots. Mortgage loans can be disbursed in installments after physical verification
of the various phases of construction. The total disbursements of loans for mortgage amounted to
Rs. 11.4 billion in FY 05.
Commodity financing and its prevailing rates are not attractive for the borrowers as there has
been net retirement of commodity loans in the first nine months of the current fiscal year.
The regulatory environment for the banks to indulge in lending for speculative purposes is not
very propitious. The State Bank of Pakistan supervisors is not only vigilant in their on-site
inspection but they monitor the banks on a continuous basis and can detect irregularities and
violations fairly quickly. The more deterrent effect of strong oversight by the supervisors is
enough to discourage such activities. The penalties imposed by the supervisors on recalcitrant
banks are quite severe.
Payment and
Settlement Systems
28
introduced a Real Time Gross Settlement System (RTGS) that would enable banks to settle their
large value payments in real time using a computerized network.
While the SBP oversees the payment system, BSC handles operational areas of the system and
support SBP in maintaining an efficient and reliable payment and settlement system through a
wide network of its sixteen field offices across the country. Field offices of BSC assist SBP in
managing clearing services, providing exchange settlement accounts to the financial institutions,
implementation of RTGS, and issuance of banknotes, coins etc. All of these activities aimed at
promoting and maintaining a sound and efficient payment and settlement system.
30
31
The NIFT clearing system is now supported by a Public Key Infrastructure (PKI), which is a
secured web, based reporting service. This facility, which was primarily created to support
countrywide multilateral netting, has a number of business advantages for the user. This system
is active for all bank branches serviced by NIFT. In addition, NIFT is also offering the value
added services through Internet access of scanned copy of the payment instruments and clearing
details as an additional facility to member banks.
As manual processing of Cheque has been discontinued in above mentioned cities, same are
processed through automated clearing houses run by NIFT, instruments are required to be
standardized and made Machine Readable by using Magnetic Ink Character Recognition Code
Line (MICR) as per practice adopted by the developed countries. In this perspective, BSC
initiated the project relating to standardization of financial instruments a few years back and due
to its extensive efforts, all the payment instruments issued by the BSC field offices, commercial
banks and other financial institutions have since been standardized and made machine readable.
Meanwhile, the government departments are being actively pursued and coordinated for
standardizing their payment instruments as well.
Nationwide Clearing Grid (NIFT)
Source; www.nift.com.pk
Presently the NIFT is processing six clearing cycles namely; Normal, Intercity and Same Day
clearing cycles and their respective returns. The remaining three cycles pertaining to clearing
returns that are currently settled directly are expected to be settled soon through the RTGS
system. In this connection, BSC field offices have assumed the responsibility that all the
participating banks and members including themselves will adhere to the timeline fixed to send
the cheques to NIFT for clearing and that any additional Cheque will not be sent after
32
finalization of composite net. NIFT has also started to provide RTGS specific settlement
messages to the RTGS project office. For this purpose, special business window as per the
following schedule has been introduced to settle first three main clearing cycles with the agreed
aspect that there will be two countrywide netting procedures:
Same-day high-value clearing and intercity will also be netted out further so that the
position provided will be inward less return.
Main Clearing inward nets for the main clearing and returns will not be merged because of
the fact that the time gap between inward presentation (9.00 am) and returns processing (early to
late afternoon) are quite significant.
Same-day High-value clearing time gap between inward net (12.00 am) and returns net
(around 1.30 pm) for same day is too small and separate inward / returns netting for same day
may actually cause delays.
Inter-city clearing This is a product with comparatively very low transaction amounts and
the actual clearing dates may have to be synchronized through partial electronic processing.
The number of instruments cleared through automated clearinghouses operated by NIFT during
the last three years (Table 3.2) clearly indicates a significant increase in the volume of
instruments cleared through the system. The total number of instruments cleared during 2007-08
stood at 74,264,349 as compared to 66,347,664 instruments in 2006-07 showing an increase of
11.9 percent. The volume of instrument cleared during 2007-08 registered a substantial increase
of 26.4 percent when compared to 58,747,655 instruments cleared in 2005-06.
33
34
Functional Highlights
Image based facilities have been established at Karachi, Lahore, Islamabad, Peshawar,
Rawalpindi, Hyderabad, Multan and Faisalabad, for automated Cheque clearing. Accounts
Department of the BSC has close coordination with key players of the payment system in respect
of clearing and settlement activities in retail payment system such as NIFT, NBP, and field
offices of the BSC. The BSC Karachi Office is working with NIFT to settle all the clearing.
In the absence of a settlement system for US$ denominated instruments, the clearing process was
to be routed through New York, which used to take a long time in settlement. Further, the cost of
the transfer was quite high for the account holders who wished to make US$ transactions
between accounts maintained in Pakistan. To facilitate customers in this regard and achieve
customer satisfaction through effective banking services, The SBP has introduced a Local US
Dollar Instruments Collection and Settlement System in Pakistan in March 2004 with the help
of wide network of BSC field offices throughout the country The objectives of the system are:
Quick Settlement.
Cost Effectiveness.
To facilitate, the Market Settlement system.
All financial instruments (cheques, drafts etc) denominated in US Dollar drawn on bank
branches in eleven big cities of Pakistan are acceptable for this settlement system. Branches in
Karachi, Lahore, Islamabad, Rawalpindi, Faisalabad, Multan, Sialkot, Peshawar, Quetta, Mirpur
and Hyderabad can participate in the Local US Dollar Instruments Collection and Settlement
System. Accordingly, it is mandatory for banks operating in Pakistan of which Head Office or
branch offices are located in Karachi:
NIFT has been associated with the BSC as facilitator of inter-bank and intra-bank clearing and
settlement services to all banks and branches in 11 major cities of the country. NIFT is also
providing clearing services for US $ instruments. This service is provided only for instruments
issued and deposited in US dollar accounts maintained with commercial banks in Pakistan.
Introduction of Local US Dollar Clearing has brought about a profound efficiency in the dollar
clearing system. By avoiding routing through New York, the new settlement system will
facilitate the foreign currency account holders in terms of processing time and cost. The new
system has reduced the clearing time of US Dollar cheques from three weeks to only four days
and has reduced the cost to the account holders.
Processing Cycle
37
At any point in time when the net debit (inward & outward) cannot be paid out of a banks US
Dollar clearing account (due to insufficient balance) held with the SBP BSC, Karachi, and the
State Bank reserves the right to adopt a suitable alternate, primarily, taking the shape of payment
through an appropriate overnight SWAP from the Pak Rupees clearing account balance of the
bank with the SBP to the extent of such shortfall in the US Dollar account.
The BSC has been facing problems in processing government payment instruments. Keeping in
view the processing problems and future trends, it has become imperative to standardize the
Government Payment Instruments. To resolve this issue, BSC has initiated the job of
Standardization of Government Payment Instruments in line with the commercial market. The
methodology of standardization of financial instruments encompassing the area of finalization of
colors, shades, and standard sizes of different Government Instruments with the proposed SBP
MICR Code Line was invariably discussed with PSPC, NIFT, PIFRA and other stakeholders.
Based on their suggestions/ proposals, it has been decided that:
39
Quality of payment and settlement system is the litmus test of the efficiency of financial
infrastructure of an economy. Thus one of the functions of central bank is to oversee that the
countrys payment system is safe, efficient and risk free. Well-designed and managed payment
system helps to maintain financial stability and reduce the cost, time and uncertainty of
settlement and facilitates efficient use of financial resources. In this connection, the SBP has
focused on implementation of Real Time Gross Settlement System (RTGS). For effective
management of the system the SBP maintains close liaison with the BSC. While performing
banking functions on behalf of the SBP, the BSC implements SBP policies designed to improve
efficiency
and
smooth
functioning of the payment and
settlement system through wide
network of its field offices.
Real-Time Gross Settlement
(RTGS) is a concept designed to
achieve sound risk management
in the settlement of inter-bank
payments. In RTGS system,
transactions are settled across
accounts held at the central bank
on a continuous gross basis
where settlement is immediate,
final and irrevocable. The RTGS
system in Pakistan has been
named as Pakistan Real-time
Inter-bank
Settlement
Mechanism (PRISM). Using this
system, the banks maintaining
their accounts with SBP-BSC
field offices would be able to
operate their accounts in real
time from their own premises
via
computerized
network
between
SBP
and
the
participating banks. This system
will enable the banks to settle with finality their large value transactions affecting their accounts
at BSC field offices (e.g. inter-bank lending/ borrowing) immediately, provided sufficient
balance is available in their accounts. At times, banks may face temporary shortage of funds in
their accounts during the day. This shortage would be catered for in the system through the
availability of intra-day repurchase agreements, a form of collateralized lending). Alternatively, the
transaction can also be queued in the system until the required liquidity becomes available. The system
will offer a powerful mechanism for limiting settlement and systemic risks in the inter-bank settlement
process, because they can effect final settlement of individual funds transfers on a continuous basis during
the processing day. It will also contribute to the reduction of settlement risk in securities and foreign
exchange transactions by providing a basis for Delivery Versus Payment (DVP) or Payment Versus
Payment (PVP) mechanisms
PRISM
(RTGS in Pakistan) Features & Implementation
40
The RTGS System, named as Pakistan Real Time Inter Bank Settlement Mechanism (PRISM),
will automate the current end of day inter-bank settlement systems for large value payments at
SBP and BSC. At present, counter parties face risks like credit risk, liquidity risk and settlement
risk due to time lag in the end of the day settlement. The gross settlement (transaction by
transaction settlement) in real time will minimize these risks. The first and second phases of the
PRISM via settlement of inter-bank clean transactions and settlement of NIFTs retail clearing
were started with effect from 1st July and 14th July 2008 respectively. The officers of BSC field
offices particularly of Karachi office have played a proactive role in timely implementation of
the system; trouble shooting, removing teething problems and coordinating amongst the
participants. The system has features that would benefit the market participants by enabling them
to effectively utilize their liquidity and reduce payment related risk. Some broad features of the
system are as under:
The PRISM plans to automate the inter-bank funds transfer and facilitate the settlement
of government securities transactions in primary and secondary markets,
Payee banks and their customers receive funds with certainty without exposing
themselves to any risk in real time.
PRISM will also bring more efficiency in inter city and intra city clearing between banks
as the NIFT will be doing clearing on multilateral basis and these clearing results will be
settled on Real Time Basis in PRISM.
Following implementation of RTGS, RTGS Service Bureaus will be established at the
BSC offices.
Standard messaging format could be used, by using the SWIFT message format.
Around forty (40) commercial banks and DFIs would be the initial direct participant
members of PRISM. Some other account holders with SBP-BSC would be the indirect
members of the RTGS system.
Intra-day Liquidity Facility (ILF) would be offered to banks collateralized against
government securities so that the payments may be cleared immediately.
The system also has queue management features and mechanisms for Grid Lock
resolution.
The system will also hold government securities portfolios and will enable securities
trade matching for DVP and intra-day liquidity management
The security component of the system will provide Public Key Infrastructure (PKI) and
transactional and link encryptions for data security.
Centralized multilateral netting of retail clearing was a mandatory pre-launch requirement
for smooth functioning of the PRISM system. Previously the countrywide retail clearing
operations were done in the sixteen field offices of BSC across the country. Now with the
help of NIFT, SBP has started countrywide multilateral netting and centralized settlement
of cheques.
Impact of PRISM
Banks will be able to receive/ pay funds on real-time basis, trade government securities
on DVP basis whereby securities will be transferred to buyers account only against the
simultaneous payment of funds to the seller of securities, thus eliminating the settlement
risk.
41
Banks will be able to monitor their payments in real-time and change their payment
priority (if queued) giving them more control over their funds.
Centralized multilateral net settlement in the system will enable banks to efficiently use
their liquidity, which previously they had to maintain in different current accounts with
the BSC field offices for retail clearing.
Corporate customers of the banks will also be able to use the system for their time critical
payments.
RTGS implementation provides the capability of connecting with various other regional/
international payment systems for foreign exchange, government bonds, and private
equity settlements.
RTGS system will also provide enhanced capability to SBP to monitor the inter bank
transactions and to conduct OMO thus affecting the monetary policy.
BSC has played a significant role in the progress of RTGS since start of the system. The BSC
coordinated with RTGS Project Management Team and facilitated its feedback on Current
Accounts and Other Deposit Accounts of stakeholders, which are being maintained in DAD at its
field offices. All clearing settlements are done in the books of DAD, Government Receipts and
Payments are being settled in PAD.
The State Bank of Pakistan has implemented RTGS as one of key elements of change that will
impact the clearing system is the centralized netting methodology. NIFT has prepared for this
change. While the current approach involves decentralized netting at all cities; the new approach,
as planned by the Payment Systems Department of the State Bank of Pakistan, envisages netting
on countrywide basis. Currently NIFTS systems create separate nets by city and submit the
same to State Bank of Pakistan in each city and the relevant net position is debited / credited to
banks current accounts in that city. The new system require NIFT to collect nets from all
automated centers and provide a consolidated net to the State Bank of Pakistan for entry into the
RTGS system, hence, the countrywide net position will subsequently be debited / credited to
banks current accounts in Karachi. (It may be relevant to mention that this will not effect other
operations in the local current accounts of banks in any city).
NETTING DETAILS:
There will be two aspects of the countrywide netting procedure:
As per the basic concept nets from all cities will be consolidated by product (Main
Clearing, Same-day High-value clearing and Inter-city Clearing).
Same-day high-value clearing and intercity will also be netted out further so that the
position provided will be inward less return.
As is obvious the inward nets for the main clearing and return will not be merged because of the
high risk or exposure involving very large values and also due to the fact that the time gap
between inward presentation and returns processing is quite significant. The entire consolidation
process is manage by NIFT; data from all NIFT centers is sent to NIFT, Karachi employing
secure communication, consolidated by NIFT in Karachi and pass on to the State Bank of
Pakistan. These changes are transparent to the branches and they continue to receive reports and
instruments in the existing format, there is absolutely no change in the clearing procedure. A
slight change is necessitate in the time cycle of Inter-city Clearing: previously the accounting
process of Inter-city clearing was spread over two days (debit in paying city on day one and
credit at lodging / originating city on day two). This is streamline to provide consolidated nets.
The debit coincides with electronic intimation to lodging city on same day. Banks also benefit by
advance electronic intimation. (The returned cheques, if any, will be provided on the next day)
43
Main branches and treasury units at banks are involve in some additional reconciliation efforts in
order to exercise control over the consolidation process. NIFT endeavor to assist banks in the
reconciliation process by providing detailed statements. Furthermore, they optionally provide
advance information of banks position to treasury departments by employing PKI security. All
banks need PKI security and NIFT is equipped to offer this facilitation.
44
REMITTANCE PROCESSING
The existing facilities for payment of utility bills, payment of taxes and various other payments
pertaining to government and service agencies, is an area, which suffers from a number of
inherent drawbacks and creates problems for the general public. These issues merit immediate
addressing on a national scale. NIFT provides solutions to support cash collection, payment by
cheque, establishment of payment kiosks and payment through internet and payment through
direct debit to customers account.
They have already automated
utility payment system of five
large utility companies in the
country at Karachi, Lahore,
Islamabad and Gujranwala
servicing over ten million utility
consumers. We have created
facilities for processing cash
payments made at branches of
banks and post offices; remittance
of consolidated funds in the
utilitys main bank account within
24 hours of payment by consumer
with total reconciliation and
updating consumer record at
utilitys data base for production
of correct bills. All the stubs are
processed on OCR technology
with high speed document
processing and remittance
processing systems.
We are now actively planning to
establish an internet facility for
supporting bill payment through
internet. Besides supporting credit cards this facility would involve payment from consumer's
bank accounts, this direct debit will be implemented through NIFT's clearing services.
In the year 2008, NIFT strengthened its services with the establishment of Enterprise Content
Management Services (ECMS) in Karachi, with a new 300 million purpose built faculty. ECMS
are built on new ideas & solutions that grow with the increasing demands of the ever changing
business environment. With state-of-the-art devices ,it offer the quality & professionalism that
provides our customers with a superior experience. No matter what the nature & size of the
industry, gaining control of all documents is critical to every organization. Ever-expanding
government regulations require effective & auditable control systems for all documents &
communications - both paper & electronic. Competitive pressure require that organizations
become more efficient and thrive, this can be achieved by controlling information effectively ; be
it on paper or electronic.
NIFT has offered ISM to set up Enterprise Content Management System. ECMS comprises of
expertise related to high volume multipurpose image capture, image archival & retrieval systems,
as well as, document management services, bulk printing of variable & fixed data (in color &
black), mechanized insertion services, inline perforation & web publishing of enterprise data.
Banks are using ECMS for production of statement of accounts, credit card invoicing, MICR
reading & sorting etc. For this purpose high speed color printers from Kodak & insertion system
from Bowe Systec have been installed.
ECM SERVICES
Transactional printing services & Direct mail:
We offer transactional Printing Services as well as Transpromo Printing ( Transactional printing
combined with Promotional Marketing), & are ideally equipped to handle any Translational
printing, mailing & fulfillment project - from large-scale, multi-client, daily mailings to smaller
or even one-off projects. Our cost-effective & efficient service guarantees that files which reach
for mailing to the target client can be produced & posted on the same day.
Latest Technology:
NIFT has invested heavily in the latest up-to-the-minute technology. This includes the Kodak VT
3000 with several other equipments which simultaneously prints & finishes. This is coupled with
the latest Bowe Eduro inserting & folding technology that allows the direct mail fold & inserts
over 12,000 units per hour.
focus on the needs of their clients, adding real value to their operations. Their clients demands
the highest levels of service & sensitivity as they handle significant volumes of documents for
government agencies & the financial sector. They guarantee absolute confidentiality.
24-hour, high Volume Operation:
Their high volume, 24-hour operation allows them to process millions of documents per day.
They offer a rapid work turnaround time, whilst ensuring very high standards of data quality
throughout. The checking, verification & validation processes mean they can guarantee accuracy
for all those data capture processes.This digital information can then be returned to clients in any
specified format such as CSV, PDF, TIFF or TXT files, using any chosen media such as CDROM, DVD, e-mail & DAT tape. Files can also be made available securely through the web.
Customized, Bundled Service:
Our core services of document scanning, data capture (also known as data processing, data
keying or data entry), mailing & fulfillment are available as either a standalone service or as part
of a customized, bundled service, where different services can be mixed & matched, as required.
required technology. The technology would cost KSE nothing, but each listed company, which
would opt for the facility would have to pay $77 per annum to NIFT.
SWIFT
In 1973, central banks of 10 industrialized countries established a secure communication system,
i.e. the Society for worldwide Inter-bank Financial Telecommunication (SWIFT) in Belgium to
facilitate cross border transactions by financial institutions. The system operates a secure
worldwide financial messaging network. As of June 2008, SWIFT connects over 8,000 financial
institutions spread across 208 countries. The number of messages exchanged by this system is
more than 15 million on a given day.
Historically, domestic banks in Pakistan used the Telex System to execute cross border
transactions. The first Pakistani bank joined SWIFT in 1998, followed by SBP in the year 2000.
SWIFT is one of the most secured channels to execute cross border transaction and used by the
financial institutions around the world. SWIFT is also used for executing high value local
currency transactions such as RTGS. It will also be the primary communication channel for
RTGS transactions in Pakistan. In order to ensure banks readiness, SBP is closely coordinating
with commercial banks to upgrade their systems to handle RTGS transactions. Swift hardware
and software are being upgraded to provide interfaces with RTGS and GLOBUS as well as
setting up of DR/Back up site for business continuity is in progress. At present, all banks in
Pakistan use SWIFT facilities for their cross border transactions. SWIFT is also used for large
value transactions and is the primary communication channel for cross border transactions in
Pakistan. The implementation of PRISM not only provides a low cost interface for SWIFT
connectivity to Pakistani banks, but also helps in minimizing risks in executing large value cross
border transactions.
on date and the number and value of ATM transactions, both paper based and electronic,
are being collected on a quarterly basis and uploaded on the website.
3. In order to facilitate e-Commerce in Pakistan, the Electronic Transactions Ordinance was
promulgated in 2002. This ordinance provides the legal coverage to electronic
transactions against paper-based transactions. The Public-Key Infrastructure (PKI) is the
combination of software encryption technologies and services that enables enterprises to
protect the security of their communications and business transactions on the Internet.
4. Further automation of Cheque clearing, through implementation of Image Based Cheque
Truncation model in Pakistan is being planned. This will help to reduce the risk of fraud
in paper-based systems.
5. Increase in membership of banks in RTGS is gradually increasing the coverage.
49
e-Banking in Pakistan
e-Banking in Pakistan
Overview
A declining share of paper-based transactions in the total number of transactions is an indication
of the increasing number of electronic transactions over the same period. This view is supported
by the data on the quarterly volume of transactions which indicates that the number of electronic
transactions has increased from 11.5 million in Q1CY05 to 33.9 million by Q2CY08: an increase
of almost 3 times in just three and half years. Disaggregated data on electronic transactions
reveals that all modes of electronic transactions have seen a significant rise in recent years;
however the increase in ATM related transactions has outpaced the growth in the other modes.
Specifically, ATM related transactions constitute over 50.0 percent of total electronic
transactions.
Challenges
Response
E-banking in Pakistan continued to grow remarkably during FY05. Cumulative data for the
period under review showed that the commercial banks have installed 166* new ATMs during
FY05 bringing the total number of ATMs to 842*. The number of transactions on ATMs were
increased to 21.15* million during FY05 as compared to 18.98 million in the corresponding
period last year. During current fiscal year the value of ATM transactions increased to Rs.109.92
billion* as against Rs.89.42 billion in FY04. Similarly commercial banks have added 401 new
branches into online network during FY05 bringing the total online branch network to 2,582*.
The growing trend indicates the confidence of consumers on electronic banking. In order to meet
the growing demand of fresh bank notes for ATM network, the BSC has advised Chief Managers
of all field offices to make a separate allocation of fresh currency notes specifically for the
ATMs network.
A sharp increase in electronic transactions in recent years has been accompanied with an ongoing
improvement in the e-banking infrastructure, and an increase in customer awareness. Trends in
e-banking activities are briefly reviewed in the following discussion.
During FY07, SBP continued its focus on promoting electronic banking system in the country.
SBP has encouraged the commercial banks to expand their e-banking infrastructure.
Consequently the number of ATM machines has increased significantly, apart from other
channels of e banking, during the period under review. The facilities being provided by the
commercial banks through their ATMs have also increased during FY07. These mainly included
the expansion of card systems, Point of Sale (POS) system used by merchants and facility of
accepting payment of utility bills via ATMs etc.
The trend of linking bank branches to an online network is on the rise. During H1-CY05, 422
more bank branches have been linked to an online network, increasing the total to 2,897 online
branches, out of 7,019 branches. Banks have also installed 242 new ATMs across the country
during this period, bringing the total number of ATMs to 1,028. It is important to note that both
ATM switch providers serve all ATM cards. With this interconnectivity between the two ATM
switch providers, the number of ATMs available for ATM cardholders has effectively increased.
This encourages the increased usage of debit, credit and ATM cards, which are reflected in the
rapidly growing number of cardholders, which increased from 1.8 million at end-CY04 to 4.17
million by end-June CY05. During FY07, the on-line branches of the commercial banks and the
ATM network both have shown a consistent growth. The current year has witnessed an addition
51
of 1,164 new on-line branches bringing the total number of such branches to 4,719 as compared
to 3,555 branches at the end of FY06. Similarly, during FY07 the commercial banks have added
681 new ATMs in their network, bringing the total ATMs to 2,293 as compared to 1,612 ATMs
at the end of FY06.
Another important development is the interchangeability of different cards, i.e. a credit card can
be used as an ATM card or an ATM card can be used interchangeably as a debit card. New ones
are now replacing the old cards, which served only one purpose, in order to accommodate all
such transactions. Moreover, the introduction of chip-based smart cards is a sign of advancement
in e-based transactions.
FOR CUSTOMERS
24 x 7 customer self-service
52
I-Serve (SBT) can automate the entire cheque deposit process. It accepts the cheque,
endorses the cheque and serially stacks it in a specially designed box. The customer is
then presented with a printed acknowledgement of the cheque. The image of the cheque
is also available on that acknowledgment receipt. An Intelligent back office software
enables the bank to apply various sort methods for speedy reconciliation.
Teller Enquiries
All routine teller transactions such as balance enquiry, detailed/mini account statement,
fund transfer, cheque-book request or stop cheque requests available at customer's
convenience.
Internet banking
i-Serve (SBT) enables customers to carry out transactions through e-banking such as
account details, fund transfer, etc.
Help desk agents can be reached via video conferencing to answer service related queries.
Marketing Tool
I-Serve (SBT) fully automates the three steps: product information, product research and
transaction providing opportunities to up sell and cross sell products.
Revenue Generation
Additional revenues by offering bill payment and e-top up services for utilities and cell
phone companies.
ATM Network
Introduction of Automated Teller Machines (ATMs) during the late
1990s in Pakistan emerged as the most progressive development in e
banking. Due to the advancement in information technology, ATMs
offer round the clock retail banking facilities including cash
withdrawals, bill payments, mobile phone top-ups, Cheque book
requests, mini account statements etc.
Since inception, ATM services have recorded tremendous growth in
terms of both the number and value of transactions. As of end June
53
CY08, the number of ATMs has reached 3,121 compared to only 206 as of end December CY00.
As all ATMs are linked through a centralized ATM Switch network, this helps customers in
accessing their accounts through any ATM in the country. These facilities have led to a
tremendous growth in ATM transactions which increased to 19.0 million during H1CY08
compared to only 8.6 million during the corresponding period 3 three years ago: an increase of
2.2 times in just three years. The average size of ATM transactions, which is limited by the cap
on single day withdrawals imposed by banks, suggests that this mode of e-banking is primarily
used for low value transactions including cash withdrawals, payment of utility bills etc.
54
56
57
Information Technology
Developments In Pakistans
Banking Sector
58
Payment Order, Bank Draft and Government Draft are now carried out through Globus. This has
minimized the risk of duplicate Drafts, as Globus will not allow printing the duplicate draft. Risk
of human errors in writing these drafts has also been addressed. The Long Term Export Oriented
scheme issued by SBP to provide subsidized loans was also automated on Globus and system
was rolled out successfully to BSC offices. Implementation of Globus in BSC Head office is in
progress that will consolidate all BSC offices functions eliminating the laborious work of
compiling the data of all BSC offices at Head office currently being done manually.
The Globus team has developed a number of reports for Finance Department resulting in reliable
and accurate MIS through Globus. In addition to large rollouts and functionalities, various new
reports and customization were done during the year 2007-08 to keep enhancing the utility of
Globus System for users of the system throughout the country.
Oracle ERP
Enterprise Resources Planning (ERP) of ISTD has also completed several tasks during the year
starting with rollout of Oracle Cash Management in 15 BSC offices; this system was
implemented in SBP, BSC HOK and BSC Karachi office last year to automate the process of
reconciliation of Inter-company Accounts. The much sought after Capital Budgeting system was
implemented for Finance Department, this year reliving them from the mental stress and saving
their precious time performing unerringly. Another important milestone was achieved through
implementation of transaction calendar in ERP to prevent backdated entries, which ensured and
enhanced integrity of the financial systems. ERP team also installed and tested the latest R12 of
Oracle for research and development purposes. The system at SBP will be upgraded to R12 in
due course. A big challenge for ERP team of ISTD was the not so efficient performance of
Medical Services System. ERP team in association with infrastructure teams improved the
system to the required level.
The Oracle roll out has been successfully completed in all the offices of SBP (BSC)-Bank. The
following is a brief introduction of various ERP Modules introduced at SBP:
General Ledger (GL) Module: It records, classifies, consolidates and reports all the
entries posted in to the books of accounts
Accounts Payable (AP) Module: It records all the due payments to vendors, suppliers
and employees
Fixed Assets (FA) Module: It gives updates to management for additions, transfers,
retirements and other unrecorded changes to ensure that asset inventory remains accurate
at any point in time.
Purchase Order (PO) Module: It automates the procurement activities of the bank.
Inventory Module: It automates the management of Asset inventory of the bank
Human Resource Management System (HRMS): It consists of Recruitment, Employee
Information Management, Leave Administration, Compensation and Benefits, Work
Structure and Performance Evaluation Report that cover the entire recruitment cycle,
position and career management, succession planning, leaves, benefits plans and head
counts budgeting
Performance Management System (PMS): It fully automates the traditional performance
appraisal paradigm of the Bank to ensure easy administration and control of the
performance management.
Oracle Self Service Human Resources (SSHR): It enables employees to update their
records, leaves, trainings, personal and other relevant information.
60
Training Administration Module: This module has automated the training management
processes and hence provides comprehensive planning and management control over
training related matters.
In addition to above-mentioned modules, the State Bank of Pakistan has also automated the
entire Payroll function of the institution. The Payroll modules, which have been implemented
and are functional include:
Monthly Salary: This module has automated all the processes related to monthly salary
preparation for the bank employees.
Advances Module: This module has automated the staff loans and personal loans granted
to employees.
Funds Module: This module has automated the provident fund, insurance and benevolent
fund areas
Pension Module: This module has automated the retirement benefits offered to Bank
employees.
Given below is status summary of ERP implementation
In addition, Online Branch Management System for BPRD that automates the whole licensing
Processes for branch opening, Litigation Cases Information System for General Counsel Office
that automates tracking of cases including, hearings, follow ups, and details, Asset Tagging and
Capitalization system, for Asset Management, Enforcement Support System for OSED,
Complaint Management System for BPRD and Agriculture Credit Department, for online data
61
Data Warehouse
Apart from its development routine, Data Warehouse team completed development of new
reporting system for Payment Systems Department, which generates a quarterly report. A Price
Trends Upgrade for Research Cluster and Implementation of RCOA Annexure A-05 (Deposit
Distribution by Deposit-Holders) upgrade for Statistics & DW were also completed this year.
The Data Warehouse team developed the server application of International Transaction
Reporting System for Statistics & Data Warehouse Department whereas its client application
was also upgraded. For Agricultural Credit Department, an Agricultural Credit Reporting system
has been implemented. This system generates monthly, half yearly and yearly reports. MFSMSBP sectoral balance sheet was also upgraded.
The information supply chain in State Bank of Pakistan is more or less a closed loop as
mentioned:
The State Bank of Pakistan acquires a snapshot of the financial sector by gathering huge data
from both inside and outside sources, such as different departments of SBP, SBP-BSC (Bank)
and NIBAF, local and foreign banks (operating within the country), Development Finance
Institutions (DFIs),
Exchange Companies, Government Agencies (e.g. Central Board Revenue, Federal Bureau of
Statistics Economic Affairs Division - Ministry of Finance, etc.) and other organizations such as
airlines, freight forwarders, etc. The snapshot of the economy is then built from the information
supplied by these disparate sources. The acquired information is captured by SBP at
departmental level utilizing desktop software such as excel and word processor, which are
62
usually not meant to analyze data. To better manage this information supply chain, a Data
Warehouse was envisioned as a part of Technology Up gradation Project (TUP).
A data warehouse is designed to support ad hoc data analysis, inquiry and reporting by end users
on a real time basis. The data warehouses are supposed to provide storage, functionality and
responsiveness to queries. In addition, they are set to improve the data access performance of
databases. At State Bank of Pakistan; the data warehouse has been organized into ten subject
areas:
DW Subject Areas Supporting Core SBP Functions
Banking and Money (BAM)
Agricultural Credit (AC)
Balance of Payments and Exchange Rates (BOP)
DW Subject Areas Supporting Auxiliary SBP Functions
Price Trends (PT)
External Debt (ED)
Domestic Debt (DD)
Capital Markets (CPM)
Socio-Economics (SE)
Public Finance (PF)
Economic Growth, Savings and Investment (EGSI)
The focus of Data Warehouse team for the FY 2006-07 is to complete the remaining work and
speed up the user sign-off process for completion, while ensuring that all the legacy systems and
legacy processes have been replaced so as to add maximum value to the return on investment in
SBP Data Warehouse.
Web
While SBP website continued to serve as a source of information for public, SBP web team
remained on toes to upgrade SBP website. To streamline the SBP website update operations, web
team successfully completed phase 2 of the website dynamic update system. This system will
speed up the content update process and serve the website visitors with latest contents in
minimum possible time. Following the tradition of introducing modern concepts for SBP
website, Google custom search engine has been successfully incorporated in SBP website. The
new search facility is expected to substantially enhance and speed up the accessibility of
information available on the SBP website. To further facilitate visitors of SBP website and
Electronic Notice Board (ENB), real time updates facility i.e. RSS News Feed engine has been
introduced at the SBP website & ENB.
Moreover, web team in association with HRD, has developed a section at ENB for listing of
HRD circulars and circular letters. For convenience of its users, the references are also placed
adjacent to the circulars/letters. In addition to this a web based TNA survey was developed for
SBP and BSC to facilitate the TDD to analyze and fulfill the training requirements of SBP and
BSC officers.
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In order to avoid disruption and ensure the continuity of the core banking, allied and e-CIB
applications, the State Bank of Pakistan maintains two data centers each one is located in the
Main Building (sixth floor) and other in the Annexe Building (Ground Floor), which have
Hewlett Packard -UNIX based entry level, mid-range servers and two HP A-Class and four
titanium base servers for e-CIB application.
Infrastructure
On the data communication side, ISTD completed the SWIFT hardware upgrade and Application
Migration projects. To strengthen the uninterrupted electrical supply to entire IT setup UPS
cluster and alternate power backbone project Phase-I has been completed in which one cluster at
Ground Floor has been established and now is in operations. The 2nd UPS cluster at 6th floor is
currently under way. Similar setup for both Data Centers will be built in Phase-III of this project
next year. Intranet Bandwidths between 5 SBP BSC offices to Main Data center have been
doubled to eradicate the slowness of access speed. Network Operation Center project that will
provide a central Management and Monitoring platform for the entire IT setup is in finalization
of procurement stage. Similarly Private VSAT based network project for all countrywide SBP
offices is also in the final stage of procurement. Several LAN requirements coming from
different SBP departments and BSC offices have also been fulfilled. Video Conferencing setup
has also been completed in LRC. Countrywide LAN & WAN connectivity operations for
Globus, ERP and Intranet based email and related services, e-CIB, Data Acquisition Gateway
setup for submission of periodic reports by the Banks and financial institutions through
Reporting Chart Accounts, Corporate Internet connectivity and RTGS implementation are also
supported by a dedicated team of Infrastructure & Telecom Division of ISTD.
Keeping in view the importance of information security, Windows Administration team carried
out upgrade of Antivirus system. This new End Point Protection system will provide additional
security features on top of virus protection functionality. Windows team redesigned the SBP
Internet Proxy Server infrastructure to provide better performance and availability to the Internet
users in SBP. Another significant achievement was the pilot project for Proof of Concept of
Outlook Access on Windows Mobile devices. In this regard ISTD is now technically ready to
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meet any business needs for accessing SBP official emails on mobile devices. Upgrade to
System Center Configuration Manager is another major milestone achieved during this year.
This has improved the reliability and monitoring of Windows Software updates on all computers
of SBP and SBP BSC in addition to hardware and software inventory of those systems.
Similarly, many Security enhancements and Audit compliance were implemented i.e. Email
Disclaimer for outgoing emails, Logon Warning Notice, Hiding Username when user is
prompted to logon and Password protected screen saver.
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Impact of advancement on
Risk Profile
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the risk of information overload, as customers at times do not fully comprehend the terms of
reference of the facilities they subscribe for.
Operational Risk
e-banking generally tends to increase the complexity of banking activities, especially if banks
offer creative and innovative products as opposed to the more traditional services. One of the key
operational risks is related to the outsourcing of business functions for cost reduction due to lack
of inhouse expertise. This outsourcing may potentially lead to the partial loss of banks control
over that function. Similarly, e-banking brings more challenges to the forecast of business
volumes.
Security Risk
It is generally believed that e-banking increases the security risks as banks system are exposed
to a more risky operating environment. The major types of security risks include: breaches with
criminal intent; breaches by casual hackers; and loopholes in system design. All these breaches
can have serious financial and legal implications.
Strategic Risk
Lack of a clear understanding of risks associated with e-banking activities among senior
management may entail a strategic risk. Being relatively new, with a higher startup cost, with
different implications for early and late starters, e-banking activities can increase the institutions
strategic risks.
Reputational Risk
The decision to offer e-banking services can potentially increase reputational risk, as issues such
as the failure to deliver promised services, difficulty in using ebanking services, frequency of
service disruptions, theft of confidential customer information; fraud etc. can affect the
confidence of customers. Moreover, rapid flow of information also entails reputational risk,
especially if it serves to propagate an adverse development.
Conclusion
With the successful implementation of these technological advancements, SBP is now working
in cooperation with all payment service providers and financial institutions to develop and
promote standardization of relevant procedures, while also engaging in educational and
awareness programs so that customers are better informed of the availability of new payment
instruments and services. Some of these efforts have already been implemented with the
introduction of detailed guidelines by
SBP for:
Cardholders
Standardization of ATM Operations
Operational guidelines for ATMs.
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also introduced chip-based cards. The State Bank has also published the proposed e-money Act
in 2005 in order to frame a relevant legal structure.
Indonesia:
Indonesia does not have any card-based products at the moment; however there has been some
development in the area of card-based prepaid products. An Indonesian bank in cooperation
introduced e-wallet in October 2001 with Visa International. This is a prepaid and multi-purpose
product, which can be used at any merchant outlet both within and outside the country.
Moreover, at present there are about seven banks providing Internet banking services with
informational and transactional services. Bank Indonesia monitors the development of electronic
means of payment, and has the authority to determine the usage of payment instruments.
Malaysia:
The banking industrys MEPS Cash (e-money scheme) was initially launched on a commercial
pilot basis in September 1999 in Kuala Lumpur, which can be used for retail purchases of goods
and services and is re-loadable at most of the participating banks ATMs. A payment consortium
owned by 12 domestic operates the MEPS Cash scheme banking institutions. The MEPS is a
payment multipurpose card (PMPC), which contains three applications, namely ATM, debit ePOS and MEPS Cash. At present, more than 9,000 terminals are able to accept MEPS Cash
transactions. In addition to MEPS Cash, a non-bank operator has introduced a limited purpose emoney scheme, the Touch n Go card, mainly for payments at highway toll plazas. Networkbased e-money schemes are still in the early stages of development. Internet payments are
mainly driven through the banking channel. The Central Bank of Malaysia has taken the
approach of allowing banking institutions to provide transactional Internet banking facilities in
phases. Effective from January 1, 2002, all banking institutions, including locally incorporated
foreign banks, and were allowed to provide a transactional Internet banking service. The Central
Bank of Malaysia issued the Guidelines on Internet Banking in June 2000, outlining several
minimum requirements, such as security arrangements, the involvement of banks senior
management in internet banking, and clear terms and conditions of service. There were 1.3
million (5.4 percent of the total population of Malaysia) individual internet banking subscribers
by the second quarter of 2003. In response to the growth in e-commerce, the
Central Bank of Malaysia is working with MEPS to develop a national multi-bank payment
infrastructure known as the Financial Process Exchange (FPX) to facilitate online payments for
e-commerce transactions. The legal framework for regulating the issue of card-based e-money or
multipurpose stored value cards is contained in the Payment Systems Act 2003 (PSA)
Philippines:
The Central Bank of Philippines defines e banking as a system, which enables bank customers to
have access to banking products and services through a personal computer (using direct modem
dial-in, internet access, or both) or a mobile/non-mobile phone. E-money products are intended
to be used as a general, multipurpose means of payment. Some banks have started to introduce
card-based e-money products that are aimed at facilitating retail payments and tapping the
enormous commercial potential of the Internet. Presently, there are five stored value cash cards
in the market, issued by Four Philippine banks. Non-banking institutions issue two multipurpose
cash cards. Stored value cards compete directly with notes and coins for making retail payments
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and can, therefore, reduce currency in circulation. Although at present there is no specific law for
e-money, the E-commerce Law serves as the basic legal framework for the recognition and use
of electronic commercial and non-commercial transactions. Subsequently, the existing
regulations were refined in order to fast track the procedure for processing electronic banking
applications. While there are regulations governing the delivery of electronic banking services,
there is at present no specific regulation governing the issuance of electronic money. It may be
necessary to revisit the provisions of existing laws to determine whether they adequately address
major issues regarding the treatment of e-money and supervision of the issuers of e-money. The
real-time gross settlement
Philippine Payment System (PhilPaSS) was fully implemented on December 5, 2003 and covers
Mega link (Network) transactions.
Sri Lanka:
In 1998, one of the leading domestic banks launched the SMARTCASH scheme (electronic
purse) to enable cardholders to make payments at retail outlets where card readers had been
installed. This scheme experienced a setback due to various reasons, and arrangements are now
being made to reactivate it. Currently there is no network-/software based schemes. Eight banks
have implemented Internet and phone/mobile banking schemes, while one bank has introduced
phone banking without Internet banking. These schemes provide a range of banking services
such as transfer of funds, settling of utility and credit card bills, account balance enquiries,
Cheque books requests, and availability of financial information through phone /mobile/ telebanking facilities. At the end of September 2003, banks provided phone and Internet banking
services to 0.5 million customers. There is no specific law governing electronic transactions.
Contract law covers transactions in e-money/internet/mobile banking schemes until the proposed
Payment Act and Electronic Transaction Act are passed by parliament.
India:
The Reserve Bank of India (RBI) has partnered a multi-application smart card project under the
aegis of the Ministry of Communications and Information Technology to run another pilot
project on the use of multi-application smart cards in the country. The RBI to issue prepaid
multipurpose cards has given three banks. A few banks allow withdrawal of cash from ATMs
using the prepaid card. Currently, there are no network- or software-based e-money schemes in
existence. Some banks in India have started providing services via the Internet. Guidelines on
Internet banking have been issued to banks, which they are required to observe when providing
internet-based banking services to their customers. The Internet channel is also being used for
various banking and other services including railway reservations, retail purchases, etc where the
instruction is given electronically and, based on the instructions, the account of the customer is
debited and credit passed on to the service/goods provider. Banks are in the process of
integrating the Internet banking services being offered into the RBI Electronic Funds Transfer
(RBI-EFT) system, facilitating transfers of funds across accounts with other banks. The
Negotiable Instruments Act has been amended to provide recognition of e-cheques. At present
four banks in India are issuing smart cards. As a result of the promulgation of the Information
Technology Act (2000) and subsequent amendments, electronic modes of payment now receive
explicit recognition. Amendments to the Negotiable Instruments Act were passed in November
2002, giving legal recognition to Cheque truncation and e-cheques. PKI is the most favored
technology.
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References
(1) www.nift.com.pk
(2) www.niftetrust.com
(3) www.sbp.org.pk
(4) www.bis.org
(5) Banking System Review (BSR)
(6) Annual Performance Review, SBP, 2007-2008
(7) Pakistan: Financial Sector Assessment 2008, SBP
(8) Key issues in Pakistans economy (Dr. Ishrat Hussains speeches)
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(9) Survey of developments in electronic money & internet payments, conducted by CPSS,
BIS
(10) NiFT news, first issue
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