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Bank on IT

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DQI Bureau
New Update

In the liberalization and financial reforms era, banks and financial services

are about information and competitiveness. And we can see the change in mindset

coming on at an inspiring pace. India’s largest PSU bank, State Bank of India,

announced two major IT investments for a staggering Rs 700 crore in the past

year and in addition the plan to install 1,400 ATMs in one go. More than

anything else, it put to rest the doubts of many other banks smaller than SBI

but with the same baggage of legacy. Competition from the neo-banks in the

private sector that had the advantage of starting off on a clean slate and small

scale have started threatening the PSU banks. The private banks are skimming off

the creamy layer of corporate business and consumers’ banking habits are

changing.

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Indian banking product vendors like Infosys, TCS and iFlex have the

experience of hawking their products in the global market. Until the past two or

three years, these vendors found the Indian market to be a nightmare. The heads

of PSU banks wouldn’t go in for their products because it had dreaded

structural implications: centralizing the present four-tier structure in PSU

banks. Even those that bought the "centralized core-banking solution"

logic wouldn’t take the decision, deferring it to a time when their term got

over.

All this is now changing.

Banks are actively looking at centralized core banking solutions. ATMs are

being looked upon as the preferred way to expand retail presence. Multiple

channels of banking are getting integrated. Banks are now looking at solutions

that can provide a "one-view" of the customer across all service

lines. Operationally, the banks are looking at advanced solutions to handle

areas like cash and treasury management and putting risk management solutions in

place. ATMs are getting shared through ATM networks. And technology

infrastructure is getting secured through the setting up of disaster recovery

centers. Taken together, these developments are nothing short of a revolution.

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Even the open-source community has solutions for the banking industry. The

familiar cost-advantage associated with such technologies can only help more

banks adopt them and existing banks can save money. Asks Rajesh Jain, managing

director, NetCore Solutions, "No bank would like to compromise on the

technology architecture that it builds, but are there alternatives which can

create a comparable technology base but at more affordable price points?"

According to Jain, such solutions do exist and that too here and now.

Considering that the Indian BFSI industry is one of the largest technology

spenders, it needs to show the way in adopting alternative technologies. Jain

adds: "But this is the one industry which has the clout to make a

difference and create a ripple effect across the rest of India".

Changes in the regulatory regime and the move to participate in the global

banking system are also spurring banks to look at technology-based solutions.

The New Basel Capital Accord or Basel II seeks to contribute to the safety and

soundness of the financial system of a country by implementing minimum capital

requirements on credit, operational and market risk; executing new supervisory

review processes; and improving market disclosure. Complying to the Basel II

requirements is important for any Indian financial institution to participate in

the global financial services industry.

The Reserve Bank of India (RBI) is making rapid progress towards setting-up

the Real Time Gross Settlement (RTGS). The RTGS, when operational, would provide

a new generation of high-value payments systems that would enable the core of

the banking system across the country to make secure inter-bank payments across

the country. The transactions will cover all the general transactions and

central accounting of the RBI, including the bank’s general ledger. It is

expected to enable about 205 Indian banks and financial institutions to

interface directly. By underwriting all payments with collateral held at the

RBI, the RTGS system will reduce "systemic risk" in the Indian banking

system, thereby providing increased integrity and security for all inter-bank

transactions.

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Beyond banks, consider the Indian securities industry which is increasingly

getting integrated with the global security industry.

Banks and financial institutions are battling different forms of risk. One of

the primary building blocks for managing risk is straight-through-processing (STP).

Studies have shown that the percentage of global trade failures resulting from

unmatched trade data is of the order of around 15% of the total trades, which in

monetary terms is upwards of billions of dollars. The STP technology framework

seeks to provide these efficiencies by providing a seamless data flow both

within the enterprise as well as across the market, without any manual

intervention. According to Sajit Dayanandan, Financial Technologies India,

"STP essentially treats the entire trade cycle as a single unit instead of

a series of loosely related messages. The concept of STP is today further

expanding into defining a full STP framework, which includes internal and

external automation and also considers other interested parties apart from the

basic settlement group of brokers, investment managers and custodians." STP

will soon lead the way to a new evolving global securities Industry of tomorrow

and radically change the markets.

One other critical area where a technology solution helps is in factoring

which helps working capital financing. The global factoring business of $ 600

billion has been registering an impressive growth over the past 25 years. The

importance of a specialised working capital financing variant, with the

evolution of risk perceptions and management, is evident in the growth of the

global factoring business.

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Says Manoj Kunkalienkar, executive director and president, ICICI Infotech,

"Today’s factoring software should be able to identify various risk

elements of the business, categorise, differentiate and offer mature analysis to

price risks competitively. For example, a particular transaction pertaining to a

seller and a buyer based on the credit scoring of the buyer is plausible."

He continues: "If the buyer does not practice the best of vendor policies

in terms of actual payments towards his debts, the software should track these

shortfalls dynamically and over a time horizon, and accordingly assist in

internally downgrading the credit score and revisit the pricing

accordingly." On the other hand, if another buyer is not so well rated but

follows superior vendor policies, he should benefit accordingly. The point is

factoring solutions have advanced with times and the only way to handle it

efficiently is to use the appropriate software.

All this about handling increasing business efficiency, optimizing resources,

and improving operational performance.

Customer-facing activities too are important. Solutions in the form of CRM

have their place both in the transactional and analytic spheres. Here a unified

customer view helps. Says, G N Nagaraj, vice-president-professional services,

Onward Novell, "While the deployment of a unified view directly effects the

bank’s bottom-line by virtue of facilitating the growth of a healthy

portfolio, the right technology choice will help the bank sustain and increase

it’s growth in the times to come when market conditions force the banks to

collaborate with other banking and non-banking organizations." With banks

and financial services companies coupling and decoupling with each other, the

unified customer view will help both the bank and the customer.

Easwar S Nair

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