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Subject: Management Information System in Banking Industry

Introduction:
1. Role of MIS:

1.1

The MIS program combines the fundamental intellectual content of both

Computer Science and Business Management Economics. 1.2 MIS is the application of information technology to support the major

functions and activities of either a private sector business or public sector institution. 1.3 These systems provide feedback on organisational activities and help to

support managerial decision making. 1.4 In the past, organizations recognized the importance of managing

resources such as labor, capital, and raw materials. Today, it is widely accepted that managing the information resource is very often equally important. MIS supports the process of collection, manipulation, storage, distribution and utilization of an organization's information resources. 1.5 The vast majority of information systems are developed for and used by

people in functional areas (e.g., manufacturing, human resources, accounting, finance and marketing). To develop information systems that address the needs of the organization, MIS professionals must possess a solid mix of business and technical knowledge. 1.6 They must understand organizational structures, objectives, operations

(including processes and the flows of data between processes) and the financial implications related to these factors.

1.7

MIS managers and professionals must stay up-to-date with evolving

information technologies and have a solid foundation of technical skills to select appropriate technologies and to implement computer-based information systems.

MIS helps: 1.1 1.2 1.3 to establish relevant and measurable objectives to monitor results and performances (reach ratios) to send alerts, in some cases daily, to managers at each level of the

organization, on all deviations between results and pre-established objectives and budgets.

What is "Management Information Systems (MIS)"? MIS bridges the gap between end-users and technical staffs (e.g. programmers) Consider the three key words (management, information, & systems) that have significant implications: Management: Managing resources that include people, machinery (technology and computers)money, and time, etc. You have to consider three managerial factors together in MIS: effectiveness, efficiency and profitability. Effectiveness: How well a firm is pursuing a goal or objective of its business; for instance, providing quality product/service can be a business goal that is usually stated in a firm's mission statement; Management by objective (MBO), etc.

Efficiency: Best use of resources, a synonym is productivity = output divided by input. Productivity is measured in general by a ratio of OUTPUT to INPUT. Here, output indicates revenue, market share, etc., while input indicates labor, raw materials, administrative costs, operations costs, and IT related costs. Profitability: The empirical studies in the IS literature have reported that on the contrary to the management's belief, there exists no significant difference in the profitability between before and after the new IS implementation. In other words,the new IS does not make significant profitability increase whatsoever. In general, the bottom line in any business is the profitability. If it does not enhance the profitability, then what is a point to go through all the trouble to develop/implement a new IS? Using IT is not the perfect solution for every business situation. Whenever a new IT or information systems (IS) are implemented, additional costs incur. They can be costs related to hardware,software, training, maintenance, etc. Therefore, the cost-benefit analysis should be conducted prior to a new systems implementation. Information 1.1 1.2 Relates to the computer; refers to knowledge. Data are a source for the information. If the data are processed in a meaningful way, they become "information." Here, IT can contribute. Information can be extracted easily through IT (e.g. computer) if data are properly processed.Therefore, the second word in M.I.S. indicates IT or computer. 1.3 Of course, information can be obtained by a primitive way such as anual sorting, etc. by a clerk. Using IT definitely outperform any other means in history, in terms of processing data.

Systems 1.1 1.2 1.3 1.4 If a nice system is made, it is self running which leads to reducing the people necessary to the business process. Systems Theory, Systems approach Systematically doing business Systems comes from systems theory that stresses the importance of systems approach to problem-solving and a structured way to control and adjust automatically. Computer programmers and software engineers/developers realized it was only way to reduce a possibility of encountering errors later in the systems development process. 1.5 When you construct a new/better system for the current business operations/decision-making process, you don't want to make a computer program based on the current business way. Instead, you develop a new model after serious analysis of the current system, so later can save resource in terms of time and money by avoiding a possible mistake/error. Therefore, business process reengineering (BPR) is unthinkable without a sound understanding of systems theory/concepts.

MIS is a field of science that studies on (1) How better we can manage technologies (2) How better we can design information systems, in order to enhance a firm's effectiveness, efficiency and profitability. 2.0 AN OVERVIEW OF INFORMATION SYSTEMS IN BANKING Although IS expenditure is regarded costly and risky financial institutions are one of the largest investors in IS (Robson, 1997). The past 25 years have witnessed vast reductions in the cost of information technology. Between 1995 and 2005, the computing power of the average PC increased tremendously,

while the price declined. The introduction of telecommunications into bank markets dates to 1846 when the telegraph reduced stock price differentials between New York and regional stock markets (Garbade and Silber, 1978). At the same time, a revolution in telecommunications reduced the cost of transmitting data by a high margin since 1990. Such cost reductions have made it less expensive to acquire, store, transmit, and transform data into information. They have also created enormous changes in the services of the financial institution. The characteristic provision of financial services in retail markets was to change with the commercial use of computer power. These advances in IT have resulted in dramatic productivity gains. One early example was the introduction of the automatic teller machine (ATM), which first appeared in the United States in 1968. The introduction of ATMs made the distribution of some banking services more efficient. IT has developed the competition between financial institutions. Many new banking innovative strategies emerged from a new or enhanced banking information systems, which include e-banking, smartcard system or enhancement of other payment card system. ATMs, for instance, has many application such as withdrawing funds, account inquiries, and transferring funds between accounts. All require face-to-face interaction between the customer and a bank teller. The banks costs for these transactions included wages of tellers and back-office personnel, the cost of maintaining the premises, and other related expenses. ATMs automated this process and, to the extent that they were simply substituting a machine for a bank teller, costs per transaction fell significantly. So, in this complex environment, how can information technology investments create value for the financial services organizations? According to Read et al (2001, page 97) At its simplest level, value is created by generating revenues from the delivery of products and services to customers that exceed the cost of the delivery process. In essence, the impact of information technology on value creation in any organization can happen either through increasing revenues at marginal cost, or through reducing costs at marginal changes in revenue, and thus enhancing operating profits.

An interesting finding of Morton (1991) supported by Hitt & Brynjolfsson (1996) and by Hayward et al (2002), is that benefits from IT do in fact exist, but are not captured by the organization. Several frameworks have been proposed to guide the choice among IS evaluation methodologies (Stone, 90). These frames include defining objectives and measures, considering qualitative effects from IS, and considering and integrating differing evaluative viewpoints (Hamilton and Chervany, 1981). Akoka (1981) uses the Gorry and Scott-Morton (1972) framework for MIS as a contingency model for choosing among evaluation methodologies. He proposed that structured operational control problems should be evaluated using cost-benefit analysis, while unstructured strategic planning problems should be evaluated using an ecdotal reports and managerial assessment of system value. Allen et al (2006) pointed out that efficiency is measured in three ways: performance ratio, economy of scale, and cost efficiency, and according to Pehlivan & Kirkpatrick (1990), functional (operational) efficiency in financial institutions is measured by the cost and profit margins. According to Gupta and Collins (1997), there are four popular efficiency measures used to assess IS return, which are as follows: - reduced operating expenses, - increased profitability, - increased fee income as percentage of total revenues, - Increased net-interest margin to average earning assets. In spite of the disagreement among researchers on the assumptions and evaluation factors of IS, the following factors represent the common factors to evaluate of financial information systems performance. (a) IT integrated in IS: information technology is important to understand the relationship between information technology investment and firm productivity. Mitra and Chaya (1996) found that IT investments reduce average production costs, and increase average overhead costs in firms. Alpar and Kim (1990) reported that investments in information technology decrease total costs in the banking industry. Harris and Katz (1991) found that higher information

technology spending is associated with lower growth in operating cost of insurance companies. Morison and Brendt (1990), found, from government data, that technology provides only marginal returns and concluded that there was over-investment in IT. (b) Software quality: Software quality can be utilized by meeting user needs, reusability of code and ease of expandability, and number of programming errors. Quality software products are essential in a highly competitive technology arena. ISO 9001 have been established by ISACA (information Systems Auditing & Control Association) organization as general guidelines for software quality. In measuring software quality specific characteristics of a system are typically addressed. These characteristics seem to focus on software engineering aspects of software development which ultimately affect customer satisfaction... (c) Investment in training: Arthur (1993) defines three types of quality costs: failure or fault cost, appraisal costs (cost of inspecting and testing software prior to the release of software) and prevention costs (cost of training, and continuous quality improvement). According to a survey conducted by (Gupta and Collins, 1997) banks are reluctant to invest in training; they reported that Florida banks showed less than $50 per thousand investments in information systems training in 5 years time, which is considered very low amount of investment. (d) Aligning corporate goals with technological investments: Companies should ensure that investment in technology is aligned with achieving strategic, tactical and operational goals. According to (Gupta and Collins, 1997), banks strongly agreed that information systems plays a valuable role in helping them achieve overall organizational goals. (e) Customer services: Common monitoring service measurements include: - The throughput - number of jobs completed in a given period. - Response time - the time requirement for completion of a job. - Reliability - the percentage of time the application is available. (f) Productivity: information systems managers and consultants consider evaluating and understanding information systems productivity a key

management issue. Many surveys were presented to assess and improve information systems productivity. Information systems productivity was ranked one of the most important issues among others ( Dickson et al., 1983) and (Brancheau and Wetherbe, 1987). (g) User satisfaction: The dominant Research focus on information systems evaluation over the passed two decades has been the development of survey instruments for the measurements of user satisfaction by proposing perceptual and quantitative measures of user satisfaction which is administered through retrospective survey instruments... Among the more popular instruments are those developed by Bailey and Pearson (1988), Ives ad Feeny (1990), Ivis and Olson (1983), and Baroudi (1983), and Davis (1989). (h) Cost-benefit analysis: Cost-Benefit analysis (information systems return) by reducing operating expenses and increased profitability. A variety of models have been proposed to quantify the cost and benefits of information systems (Alpar and Kim, 1989), and (Emery, 1982). Some expands the use of quantitative variables to include nonmonetary measures such as timesaving due to improved workflow (Kauffman and Krieblel, 1990). In Jordan, IS are taking greater role in bank operations and decision performance, and have the potential to change the business process. These roles and/or services are summarized in the bank model (relationship of bank IS to environmental elements) shown in figure (1).

3.0 MIS IN Bank: 3.1 High Potential Technologies:

Fig: Industrial Capacity Needed Vs. Potential to Expand Access

3.2 Bank related Incorporate all the relevant data from every part of your operation into a single management overview and then easily produce presentation quality reports Constant monitoring of your banking operations CorePlus offers dynamic, real-time statistical reporting facilities across all channels, account managers, clients, products and branches/profit centers. While the standard reporting facilities in CorePlus includes over 200 comprehensive reports, the open design of the systems relational SQL-compatible database allows you to use industry-standard enquiry and reporting tools. Compliance Reporting Probanx offers complete compliance reporting modules, readily available for various countries. Since CorePlus is a fully integrated banking system, our compliance reporting covers all banking operations and complies to Basle II regulations.

User-defined Reports CorePlus workstations include an easy-to-use Report Writer that enables users to compile specific data from any number of sources and view it on screen or print-out in various formats. Data can be sorted or grouped, and values summarised or averaged.

3.3 SBI Bank Assume SBI runs the following organisational units to provide financial services:

TOP MANAGEMENT

FINANCE AND PLANNING

MARKETIN G

SALES

ORGANISATIO N

EBANKING

BRANC HES

Fig:Operational Flow Chart Of The SBI Bank

SBI offers the following services both through branch and web to personal customers such as students, young professionals and to companies:

payment services cheque account Koice Golden Credit Card ATM Card Loan

You are in charge of designing the management information system for SBI now. The managers of the departments mentioned above have communicated their requirements to you (see department-service-matrix below). Subsequently, you are left to suggest further useful key figures and ratios to be presented by the MIS as the managers did not populate the table entirely. Feel free to further develop the given key figures. As you write down the MIS design you are to include some general statements on its structure, objects, and relations.

Fig: Activity wise Analytical Setup


Payment Service Cheque Account Koice Golden Credit Card (=KGCC) ATM Card Loan

Top Management

Number of transactions performed

Total number of active cheque accounts and market share on a monthly basis Product usage (what products and services do SBI customers use ?)

Total number of KGCC issued / Total number SBI customers

Total number of PC / Total number SBI customers

Current total amount of loans/ Total amount of low performing loans

Marketing

How can new customers be informed about SBI internet, newspaper ?

Which target group (customers) demands the KGCC ? Number of applications for KGCC

Which target group (customers) demands the PC ? Number of applications for PC

Which target group (customers) demands loans ? Average amount of loan.

Finance and Planning

Cost and revenue of transactions

(Average) Earnings per cheque account

Granted amount of credit per credit card Fees earned from the card business Number of active KGCC, number credit cards sold coupled with ATM cards

Average amount of transaction

Earnings from loans and the rate of poor performing and lost loans.

Sales (eBanking, Branches)

Number of transactions done through ebanking and through branches

Number of existing cheque accounts, number of new cheque accounts on a monthly basis Pref. channel for opening ch. accounts (branch, ebanking); number of failers

Number of transactions done via ATM cards

Number of applications received via e-banking; Time effort for consulting customers on loan matters

Organization

Number of transactions and number of transactions that produced problems and failures

Number of payment and verification requests / number of failers

Number of payments / number of failures

Total number of loans Identify loans > 100.000 for legal reporting

Now as you know about the information demand it is on you to elaborate the more detailed information/key figures the other departments may wish to obtain from the system you are about to design. In other words you have to create a kind of balance scorecard and make a rough draft which tools you would like to suggest to implement your information instruments.

3.4 Risk Management and Management Information Systems Instruction Your report can be based on the previous tasks and should include measurements and descriptions at the disposal of the SBI Finance & Planning managers from the department introduced above. By contrast to the previous task the value you would have to create for the managers this time is based on their requirements to introduce some key figures for them to evaluate their business risk. The Finance & Planning department was assigned to work on the SBI risk management. They have provided the following information for you. The Finance people are pretty much aware of risks and have clearly formulated the area of risks they have identified for SBI according to Koch, T.W.: Bank Management (Orlando: The Dryden Press, 1995): p. 106. 1) Credit risk 2) Liquidity risk 3) Interest Rate Risk 4) Operational Risk 5) Capital or Solvency Risk You can start out doing your web-research on how to measure the identified types of risks.

3.4.1 Credit Risk Def.: The risk that a counterparty to a financial transaction will fail to fulfil their obligation. Measurement / structure:

What has been the loss experience? Net loss to average total LN&LS Gross losses to average total LN&LS Recoveries to avg tot LN&LS Recoveries to prior period losses. Net losses by type of LN&LS What amount of losses do we expect? Non-current LN&LS to tot loans Total P/D LN&LS - incl nonaccural Non-curr restruc LN&LS / GR LN&LS Curr-Non-curr restruct / GR LN&LS Past due by loan type

3.4.2 Liquidity Risk Def.: The risk that an organisation may not have, or may not be able to raise, cash funds when needed. 3.4.3 Interest Rate Risk Def.: The potential for losses arising from changes in interest rates.

3.4.3 Operational Risk Def.: Operational risk arises from the potential that inadequate information systems, operational problems, breaches in internal controls, fraud, or unforeseen catastrophes will result in unexpected losses.

Measurement / structure: Typical ratios focus on: total assets per employee total personnel expense per employee noninterest expense ratio There is no meaningful way to estimate the likelihood of fraud or other contingencies from published data A banks operating risk is closely related to its operating policies and processes and whether is has adequate controls 3.4.4 Capital or Solvency Risk Def.: Capital risk refers to the probability of a banks insolvency or potential decrease in net asset values before economic worth is zero, and is closely related with financial leverage, which, in turn, refers to the use of debt and preferred stock paying fixed rates as a part of a firms capital structure that increases volatility in income because of the mandatory interest payments. 43f Measurement: The more risk taken, the greater is the amount of capital required. Appropriate risk measures include all the risk measures discussed earlier as well as ratios measuring the ratio of: tier 1 capital and total risk based capital to risk weighted assets, equity capital to total assets,dividend payout, and growth rate in tier 1 capital.

Objective 1 To maintain the accuracy in accounting records for gaining users reliability. 2 To determine the effectiveness of computer application for effective banking functioning.

3 To coordinates managerial activity at all the level for effective decision making.
4 To examine the depth use of application scenario in banking

system.
5 To suggest any modification,updation,deletion,insertion of useful

computer application process.

Scope:
Pune region is more suitable for the present study due to rapid industrial growth, irrigated ,cultivating agricultural area, huge IT hub and banking business on the large scale etc.

Branches of State Bank of India in India are grouped into 14 circles.

CIRCLE
Ahmedabad Bangalore Bengal Bhopal Bhubaneshwar Chandigarh Chennai Delhi Hyderabad Kerala Lucknow Mumbai North-East Patna

AREA OF OPERATION
Gujarat, Daman, Diu, Dadra & Nagar Haveli Karnataka West Bengal, Sikkim, Andaman & Nicobar Madhya Pradesh, Chattisgarh Orissa Chandigarh, Punjab, Himachal Pradesh, north Haryana, Jammu & Kashmir Tamil Nadu, Pondicherry Delhi, west U.P., Garhwal, south Haryana, Rajasthan Andhra Pradesh Kerala, Lakshadweep Uttar Pradesh, Kumaon Maharashtra, Goa Assam, Arunachal Pradesh, Meghalaya, Tripura, Nagaland, Mizoram, Manipur Bihar, Jharkhand

The area covered Junner,Ambegaon,Mulsi,Baramati and Pune city S. N.


1 2 3 4 Junner Ambegaon Mulsi Baramati

Taluka Number of Branches

Name Of The Branches


NARAYANGAON, MANCHAR, TALEGHAR(PUNE-BHIMASHANKAR ROAD), N D A KHADAKVASLA, PIRANGUT, DAUND, MIDC BARAMATI(CPC COMPLEX BHIGVAN ROAD), SRPF CAMP DAUND,

Pune

BEG KHADAKI, BHOSARI, BIBWEWADI, BUND GARDEN, CAC(SBI MAIN BRANCH BUILDING), CCPC(5TH FLOOR, PMT BUILDING), CHANDKHED, CHINCHWAD, COLLEGE OF ENGINEERING, COMMERCIAL BR. TILAK RD, DATTAWADI(214 NAVI PETH), DECCAN GYMKHANA(JANGLI MAHARAJ ROAD), DHANKAWDI(HOTEL ELLORA PALACE), EAST STREET, ERANDWANA(KARVE ROAD), GOLIBAR MAIDAN, HADAPSAR(S.N. 153/1A/1A/1), HDFC COMPLEX,CHINCHWAD(OLD MUMBAI PUNE ROAD), HINGNE KHURD, IAT GIRINAGAR, INDUSTRIAL FINANCE BRANCH PIMPRI(OPP KALASAGAR HOTEL), INDUSTRIAL FINANCE BRANCH PUNE('TARA CHEMBERS'), KALYANINAGAR, KATRAJ, KHADKI(ARJUN MARG), MARKET YAR(GULTEKDI), MIDC, HINJEWADI, N C L CAMPUS, NAGAR ROAD, NIBM ROAD, KONDWA, NIGDI, PAUD ROAD, PBB SENAPATI BAPAT MARG, PIMPRI, PIMPRI TOWN(NEAR TAPOVAN TEMPLE), PULGATE, PUNE CITY(1001, BUDHAWAR PETH), PUNE MAIN BRANCH(P O BOX 6,), R & DE, DIGHI, RASTA PETH(TIRUPATI COMPLEX), S.I.B PUNE(TARA CHAMBERS), SAHAKAR NAGAR(SARANG SOCIETY), SERVICE BRANCH PUNE(171 B GRACE), SPBB BUND GARDEN(GRACE, DHOLE PATIL RD), SPL PBB DECCAN GYMKHANA(KUMAR RENAISSANCE), SPL. P.B.B.BANER, TILAK ROAD, TREASURY BRANCH(COLLECTOR COMPOUND), UNIVERSITY ROAD, URALIKANCHAN, VIMANNAGAR, WARJE, ZONAL INSPECTION OFFICE, ZONAL OFFICE(GULMOHAR EAST STREET), BHOR CHAKAN, RAJGURUNAGAR(WADA ROAD), JEJURI, SASWAD, DEHU ROAD(NEAR RAILWAY STATION), I N S SHIVAJI LONAVLA, IND EST LONAVLA, KOREGAON BHIMA, KURKUMBH(CFC BLDG MIDC), LONAVLA(COOKREJA BUILDING), MEDHA, MHASWAD, SIRUR GHODNADI, TALEGAON DABHADE, VRDE (ARANGAON), AHMEDNAGAR, WADGAON, WAGHOLI,

6 7

Khed Purandar

Research Methodology:
Both primary and secondary data are to be taken into consideration for the study. Primary data is collected by conducting personnel interview with beneficially and bank officer. Secondary data being published by the bank in their annual reports, mgzines, news paper, internet, branch etc. for the said study.

Period of the study:


The present study is related to 1) 1999-2000

2) 3) 4) 5) 6) 7) 8) 9) 10) 11)

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 It is sufficient for the detailed analysis of the study.