Core banking is the central system of a bank. It holds every customer's account and records every rupee that is credited or debited. It is often called the core banking system, or CBS.
Every night, the core banking system runs the bank's daily calculations. It adds interest to savings accounts. It deducts EMIs from loan accounts. It updates the balance in every account. Most Indian banks buy their core banking system from a small number of software companies, instead of building their own.
Other systems are connected to the core banking system, and they make digital banking possible. A digital banking platform runs the bank's mobile app and website. A payment hub connects the core banking system to UPI, cards, NEFT and RTGS. A card issuing platform creates debit and credit cards and sets their limits. Banking APIs let fintech companies connect to UPI, bill payments and the account aggregator without building each connection themselves.
Imagine you pay your daughter's hostel fee of ₹18,000 to her college in Mysuru by NEFT, from your bank's app. The digital banking platform receives your instruction and passes it to the core banking system. The core debits ₹18,000 from your account. The payment hub then sends the money over NEFT to the college's bank. So three of these systems take part in one fee payment.
Replacing a core banking system is one of the hardest tasks in banking. The old system may have run for twenty or thirty years. While it is being replaced, the bank cannot stop working, not even for a day.