Digitalization of Documents in Banking: Regulations

April 21, 2020

Regulatory Environment for Digitalization of Documents in Banking

(Published in the Financial Express in December 2019)

Professor Shah Ahsan Habib[1]

‘Supportive policy and regulatory environment’ is the key precondition for digitization movements by banks.  Bangladesh government’s Digital Bangladesh by 2021 vision proposes for mainstreaming ICTs for greater welfare of the society. As the torch bearer of the banking industry, Bangladesh Bank has been very active in supporting and promoting banks to undertake digitalization measures by establishing related departments, enacting supportive policy circulars, and guidelines. In line with the macro goal of digital Bangladesh, Bangladesh Bank engaged in creating regulatory and supportive platform to facilitate digitalization in the banking industry. Especially, BB has brought notable improvements in digitizing the sectors’ reporting arrangement.   

Banks are required to submit various reports to the central bank as part of the regular activity. Some of the reports are paper-based while some others are paperless. Among them Integrated Supervision System (ISS) is a web-based monitoring tool which integrates the existing multifold supervision mechanism of Bangladesh Bank. Not only Central Bank but also scheduled banks can use it themselves for monitoring and supervision of their branch offices. The introduction of ISS helped the bank to ensure paperless, effective and risk based supervision.

As part of the regular account related activities, commercial banks send different statements such as monthly/half-yearly/yearly balance statement, credit card statement etc. to the clients. Earlier the printed statements were sent through post/courier. Now almost all the banks are sending these statements through e-mail which is a major achievement in terms digitalization of documents. However, as per BB circular, banks are supposed to send hardcopy statement to the clients.

Bangladesh Bank introduced automated CIB service which provides credit related information electronically to the bank for prospective and existing borrowers. With this improved and efficient system, bank can ensure more effective credit risk management. It is essential for the banks to submit a number of reports to the regulator as part of the banks regular credit related activities. Most of the reports are submitted either in online/softcopy format or in both hard copy and soft copy format.

BB has brought about major change in traditional reporting of trade services. From January 2013 BB has launched On-line reporting of all inward and outward remittance of ADs. ADs are required to report transaction in on-line which helps BB, HO of Banks, Customs, Bond Customs, NBR and different ministries to establish greater co-ordination in formulating policy and for day-to-day operation. ADs are, therefore, required to report all types of their foreign exchange transactions on daily basis through web portal. Also the Central Bank  has instructed all the banks to submit their exchange position through Rationalized Input Template (RIT) in web portal instead of emails. In order to monitor special FC account transactions of Bangladesh, online special foreign currency account monitoring system is used. AD branches of banks report day to day transactions to BB with this portal. The introduction of Dashboard and online integration between customs and BB has brought major changes. Now for sea, land port and airport, custom verifies the data in ASYCUDA given by the banks. No doubt, using technology and greater coordination are paying off to the regulators and market players in terms of saving resources and time. To bring ease in declaration procedure, BB has decided to introduce electronic option to submit EXP Form, with flexibility of necessary amendments by exporters through Bangladesh Bank online reporting portal for export of goods prior to customs formalities. Accordingly, ADs are supposed to accept EXP Form submitted electronically by their exporter-customers, information of which will subsequently be available in customs electronic system for onward formalities. The initiative is helpful to reduce the paper-based documents.

Bangladesh Bank contributed significantly in facilitating paperless payment. One important development in collection of cheques, handling transfer transactions, operations of clearing house is the introduction of Bangladesh Automated Cheque Processing Systems (BACPS), Bangladesh Electronic Fund Transfer Network (BEFTN), National Payment Switch Bangladesh (NPSB) and Real Time Gross Settlement (RTGS). The main objective of such initiative is to bring the whole country under single clearing umbrella for ensuring secured and cost-effective interbank transactions electronically. The process not only reduces the processing time but also reduces the processing related documents significantly.

Government and BB have specific directions regarding document use and their preservation by the banking industry. As per a circular issued by Ministry of Finance (MoF), banks are required to preserve various hardcopy documents for different time periods. Apart from this, BB has also issued separate circulars time to time regarding the preservation of the documents that are sometimes different from the instruction of MoF. For example, as per MoF circular, dated 15 May 1993, preservation periods for different trade services related documents ranges from 5 to 15 years. On the contrary, as per GFET issued by BB, ADs are to retain those forms for a period of 5 years. However, in respect of cases which are under investigation by Bangladesh Bank inspection team/other Government agencies, these are to be disposed of only after obtaining clearance from the inspection team/Government agency concerned.

Regarding technology infrastructure for digitalization of documents, there is no doubt that banking sector as a whole received notable improvement in terms of adopting modern technology. Especially, alongside multinational banks, some private commercial banks have installed updated technology infrastructure in their possession.   Today ‘IT Department’ is a very important department in any bank and banks are in a position to provide real-time online banking services to their customers. In Bangladesh, Core Banking Software has been playing the key role for running online banking business by all banks. It is helping banks to provide real-time online banking services to their customers through all branches. Customers touch points like ATM, POS terminal and internet banking have given 24/7 banking facilities without using any paper-based documents. Many banks have developed Interactive Voice Response (IVR), integrated with CBS and card system that enables customers to conduct banking by any phone system as well as consultation with contact center agents (phone banker). As a result, many document-based communications have been replaced by the services of the call center. Banks also use a large number of application software being developed by its own resources or external vendors such as Reconciliation System, Payroll System, Employees Tax Management System, Foreign Exchange Return Software, Cash Transaction Reporting System etc. A decade ago it was a dream to get optical fiber connectivity in Bangladesh, but, recent development of the optical-fiber network of the country have brought huge opportunities for banks to run online banking activities easily.

Use of Document Management System (DMS) by some banks has brought a revolution for capturing, archiving and sharing documents. Under this system, whenever a document enters into bank premises, it is captured into the system and linked with the application where it is required. Many banks have internal web portal having various features like circulars, messaging, news, instant notices, employee profiles, on-line leave processing, on-line requisition, MIS reports from CBS data and many more. This system has a revolutionary impact in implementing the paper-free communication inside the bank.

[1] Director Training of BIBM ([email protected]).

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