State-owned commercial banks seek to develop core banking solution software

State-owned commercial banks have made a proposal to the finance ministry for developing their own Core Banking Solution (CBS) software to save foreign currency as well as ensure safer banking operations.

To this end, the ministry decided to form a technical committee headed by Sonali Bank's Director Dr Mohammad Kaykobad to locally develop a software. 

The decision came at a recent finance ministry meeting attended by the senior executives of the state-owned commercial banks. At the meeting, participants proposed that the banks form a subsidiary company to develop the software.

The state-owned banks are thinking of utilising locally developed core banking solution software only now, but private banks launched the initiative as early as in 2000.

A research conducted by the Bangladesh Institute of Bank Management (BIBM) revealed that four to five private banks have begun using their own CBS software from 2005, but the number of such institutional users increased to 19 in 2016.

Moreover, data from the central bank indicates that among 59 banks operating across the country, 30 banks (all private institutions) are currently using local CBS software.

The CBS is a networking of branches, which enables customers to operate their accounts, and avail banking services from any branch of a bank on the CBS network, regardless of where the customer maintains his or her account.

All CBS branches are interconnected with each other. Therefore, customers of CBS branches can avail various banking facilities from any other CBS branch located anywhere in the country.

At the meeting, Agrani Bank's Managing Director Mohammad Shams-ul Islam proposed that the banks form a subsidiary company under the public-private partnership with a competent IT firm, and the banks will hold at least 51% share of that subsidiary.

He proposed in the meeting to name the software as Bangabandhu CBS Software.

Mohammad Shams-ul Islam told The Business Standard, "If we can locally develop CBS software, it will allow us to bolster the security for all financial transactions.

"Moreover, such a software will be cheaper, and its customisation and maintenance options will be easier. Sometimes it becomes very difficult to get quick support from foreign software vendors, which we observed amid the ongoing Covid-19 pandemic."

"If we can locally develop CBS software, it would allow us to bolster the security for all financial transactions" – Mohammad Shams-ul Islam, Managing Director, Agrani Bank

Providing more details, Shams-ul Islam said, "Presently, some banks are spending more than Tk500 crore to purchase CBS software and even more to pay for the maintenance. The expenses are tied directly to the services a vendor provides to a bank.

"So, a bank would be able to save a significant amount of foreign currency by using locally developed and maintained software. Even our proposed subsidiary firm can become a profitable company, as it can earn revenue by providing its services to others entities."

Md Rafiqul Alam, managing director of BASIC Bank, said, "Presently, the state-owned banks purchase CBS software, eKYC (Electronic Know Your Customer) and mobile applications from different vendors.

"The expenses are going up because the banks are purchasing different software from different vendors. This issue also makes it difficult for the services to remain compatible with each other."

Md Asadul Islam, senior secretary to the Financial Institutions Division of the finance ministry, presided over the meeting, while Additional Secretary Arijit Chowdhury also attended the meeting among many others.

Bangladesh Bank's Executive Director Debdulal Roy said, "Before introducing a new core banking software to the state-owned commercial banks, a deadline must be set for discontinuing existing software.

"If the banks fail to implement the software within the cut-off date, the issue will disrupt the transition process."

Dr Mohammad Kaykobad, who is a retired professor of the Bangladesh University of Engineering and Technology (Buet), said, "The cost for locally developing a CBS software will be lower than the annual maintenance expenses of foreign software.

"I propose including Prof Muhammed Zafar Iqbal of Shahjalal University of Science and Technology in the technical committee for the software's development."