Why Automated Data Flow (ADF) Goes Beyond Reporting for Banks In India

Updated On : September 2019

The Indian banking industry has been constantly transforming with different channels of services evolving, new products and payment methods being launched and greater focus towards financial inclusion with consolidation among banks. There is a need for banks to manage their assets and liabilities better and align their business strategy with their corporate vision and objectives.

The Reserve Bank of India (RBI), as a policy maker, constantly seeks to bring reforms to ensure that banks conduct businesses fairly, transparently and responsibly and are accountable to customers and stakeholders. Within banks too, it is necessary to have a robust regulatory and compliance strategy and process to adhere to policies.

In late 2010, the RBI introduced a path breaking initiative with the Automated Data Flow (ADF) compliance which mandated an automated reporting system for banks. ADF requires a straight-through reporting process (STP) without any manual handling and needs all business operations data to be made transparent in an automated manner to RBI. The ADF guidelines expect banks to ensure that the process of handling information is flexible and mature.

With the diversity of the subject areas, the involvement required from IT teams and the aggressive deadline given by RBI, banks looked at buying products from vendors, while some banks opted for in house development along with a few engaged services vendors. While all banks have not yet been able to achieve complete ADF compliance, a significant amount of time and money has been invested to achieve 100% data flow automation.

The RBI considered ADF as the facilitator for accurate real-time insights into the Indian financial services sector. This was also a strategic move on the part of the RBI to bring in a technology-driven data collection approach, which will enable better BI and analytics developed based on the same data.

The RBI approach paper on ADF implementation states the RBI seeks to ultimately achieve a state of complete automation for submission of reports by the banks from their core banking system solutions without any manual interventions. To reach this goal, RBI has segregated the return submission process into four logical processes.

• Data Acquisition – This requires interacting with and extracting data from various banking source systems and performing relevant data quality checks.
• Data Integration and Storage – This needs to have a comprehensive data model that would enable the capture and storage of all relevant data elements.
• Data Conversion – This needs to facilitate necessary data conversions and unification to create and submit the final report.
• Data Submission – This has features to schedule report submission, review by relevant stakeholders and publishing in RBI mandated XBRL format

Benefits of ADF compliance

• The mandate with ADF by RBI has automatically created opportunities all across the IT sector for hardware, software and services vendors. The overall market is huge and growing all levels of IT vendors are working towards helping banks comply with the mandatory regulations.
• Software vendors like Nelito Systems, who are also in the line of business for digital banking solutions have enhanced their software capability with the help of Robotics Process Automation (RPA) for regulatory reporting. Other vendors are building solutions with the available software and helping banks to comply with ADF needs. Banks, on the other hand, are creating technology platforms, and a custom-built framework to meet ADF expectations.
• For banks, ADF compliance improves stakeholder confidence by being transparent with bank's performances and also helping banks to prepare for stress testing, back-testing value at risk, and stochastic.
• Banks that brought in a solution exactly as per RBI's recommendations saw the benefits in saving man hours which were earlier used for tracking deadlines, extracting data from multiple source systems, calculating, etc. Banks could submit precise and timely data, as well as improve their Decision Support Systems and MIS.
• Creating a CDR was beneficial as besides being used for business reporting, it was also used for non-regulatory reporting. With the data available in CDR, the new ADF model reduces the end-to-end cycle.
• With the introduction of ADF compliance, banks began to take data quality seriously and started making efforts to enhance it through process and technology initiatives. A well-defined process also means standardized quality and validation of data before being submitted to the RBI.

Finally, ADF implementation is designed to make the process of reporting easier and quicker. With minimal manual intervention, the reports would be in line with banks' financial statements ensuring consistency and comparability.

With a lot of banks investing considerably in ADF and also employing niche ADF experts to add value and accelerate efficiency, the Indian banking sector is almost ADF compliant and poised to scale new heights.