"Banks will move from product profitability to customer profitability"

The Institute for Development & Research in Banking Technology (IDRBT) is

an autonomous centre under the Reserve Bank of India, engaged in research in

banking technology. Started in 1996, IDRBT has played a very important role in

assisting RBI as a technology research arm and think tank for formulating the

latters guidelines and policies regarding new technology enabled banking in

areas such as payment systems, mobile banking and interoperability. It also

helps commercial banks by training top and middle level managers for technology

banking that is becoming mainstream these days.

One of its biggest success stories has been creating and running the

National Financial Switch (NFS), an ATM switch for Indian banks that brought

down the cost of ATM transactions in India drastically.

B Sambamurthy is serving as the director of IDRBT since 2008. A career

banker, he has held positions such as the chairman and managing director of

Corporation Bank and executive director of Indian Bank. He talks to Dataquest on

where he thinks banking is leading to and the areas that IDRBT is working in.

Which are the areas where you think technology is having the biggest

impact on banks?



I think the the two areas where we will see the greatest impact of

technology in banks is payment systems and information security. The first is an

opportunity while the second is a challenge but both, I believe, will give

competitive advantage to a bank.

In payment, what are the changes that you envisage?



Intermediation has become very uncompetitive and margins are under pressure.

Increasingly, it is going to be more capital intensive. Better RoI and RoE would

be a challenge.

If you see, we are moving towards a real time settlement regime. So, the

concept of float will change. But the good thing is the velocity of money is

increasing. Typically, it is seen that it can contribute 50-60 basis points to

GDP.

What are you doing in this area?



We are doing three things. We are evangelizing real time settlements. We are
helping in educating. And we are engaged in researching on making payment

systems more cost-effective.

Which are the other areas that you are currently focusing on?



We have been working on mobile payments where RBI has issued its guidelines.

We are working on interoperability with the Mobile Payment Forum of India. We

are working to ensure that the whole system is secure.

We are working with the Central University of Hyderabad. There is a stream

called Banking Technology in their research studies where we work with them. We

also provide funding for some of their doctoral studies.

What about financial inclusion?



We are providing tech inputs to RBI on this. We are working on interoperable

standards in smart cards. There are three components: technology standards,

business models and business processes. We have trained more than 200 executives

in this area.

Now that almost all commercial banks have core banking, what is next?



I think the two areas that will get a lot of attention within IT are information
management and IT governance.

In information management, the focus would be on better customer value and

better risk management. IT governance too is becoming important with focus on

both performance and conformance. The components that we are focusing on are IT

organization structure, IT vendor management and information security.

What would differentiate banks?



All these changes to drive efficiency is fine. But you cannot ignore

customer empathy. I think that will be the major differentiator, as banks move

from product profitability to customer profitability.

Shyamanuja Das



shyamanujad@cybermedia.co.in