BFSI: IT Still Banked on BFSI

Traditionally, BFSI has always been the most significant contributor to the
country's domestic IT consumption-FY 2004-05 saw no change in the status
quo. At Rs 10,543 cr, the financial sector again proved to be the most lucrative
vertical accounting for nearly a quarter of the domestic industry. This is an
almost 46% jump over last year's IT spend by the BFSI players, at Rs 7,231 cr.
While the first phase of automation in this sector was almost complete even
before 2004-05, what spurred the growth this year were the twin trends of
increasing IT infrastructure outsourcing as well as banks joining the Real Time
Gross Settlement (RTGS) network of the Reserve Bank of India (RBI).

Speaking strictly according to timeline, the phenomenon of IT infrastructure
outsourcing started in FY 2003-04 when Bank of India awarded a 10-year contract,
valued at $150 mn, to HP Services. Under the terms of the agreement, HP is
implementing and managing data warehousing and document imaging as well as
providing integrated channel management, including telebanking, Internet banking
and ATMs. Most importantly, it supervised the implementation and management of
Finacle core banking solution from Infosys across Bank of India's 750 branches
in India. Since signing the agreement in February 2004, the BoI-HP collaboration
has been so successful that it was selected as the winner for the Outsourcing
Center's 2005 Outsourcing Excellence Awards in the "Best First
Steps" category.

Not only was the Bank of India deal HP's largest in Asia-Pacific, it also
spurred other banks to jump into the total outsourcing bandwagon. Bank of
Baroda, again, selected HP as its strategic IT partner. The bank, along with HP,
has planned and implemented an architecture that would include an integrated
deployment of more than 40 applications such as core banking, phone banking and
Internet banking as well as CRM, human resource management system (HRMS) and
cheque truncation systems.

It was not only the PSU banks which were in the fray, even Yes Bank, a new
age private bank, outsourced its entire technology requirements for its offices
and branches across India to Wipro Infotech. Wipro's responsibilities include
implementing core infrastructure and hardware, branch rollouts, networking,
managing the datacenter and back-up support for disaster recovery. A unique
"pay-per-use" model will help Yes Bank stave off up to 30% in costs,
progressively over the next seven years. The arrangement ensures that Yes Bank's
initial technology investments are minimal, and its overall IT spends are
variable and predictable, in line with its planned growth. The arrangement
protects Yes Bank against all obsolescence and redundancies in technology and
insulates it from carrying forward any legacy systems.

The second agreement mandates improved operational efficiencies in banking
systems by introducing international best practices. Wipro will implement these
in Yes Bank, and then jointly offer these to the international banking and
financial services sector.

IT infrastructure outsourcing and joining RTGS networks were the new trends that spurred the 46% jump

It was not just the entire IT infrastructure outsourcing that was the order
of the day, HDFC Bank, as did some other banks, became the first private-sector
bank to outsource its entire ATM management to NCR. With over 1,000 ATMs across
192 cities, HDFC Bank has the third-largest ATM network among private banks and
the fourth largest network in India. NCR provides HDFC Bank with a total suite
of services, including ATM monitoring and management, caretaker services,
deposit-

processing services, consumables (ATM and non-ATM) as well as cash
replenishment.

If IT outsourcing was the initial catalyst for BFSI IT spending this year,
the real meat was provided by a host of banks joining RBI's RTGS network
throughout the year. The RTGS system went 'live' on March 26, 2004 with the
State Bank of India, HDFC Bank, Standard Chartered Bank, and Saraswat
Co-operative bank joining it in round 1. Very soon ICICI Bank, IndusInd Bank,
BNP Paribas, Bank of Baroda, Bank of India, Canara Bank, Central Bank of India,
Corporation Bank and Union Bank of India followed suit. At present, around 4,934
bank branches are under RTGS at 399 centers and daily transactions through RTGS
route are worth Rs 44,000 crore. Other banks to join the party throughout the
year included ABN-Amro Bank, Andhra Bank, Bank of Rajasthan and ING Vysya Bank.

HDFC Bank has achieved complete Straight Thru Processing (STP) by integrating
all 470 branches to the RTGS network. This move enables all HDFC Bank branches
to receive and credit client accounts online for all incoming RTGS credits. The
branches can also make outward remittance online for their client requests, as
long as the beneficiary is a member of the RTGS network. HDFC Bank reportedly
processed 15,000 transactions, valued at Rs 1,10,928 crore, through RTGS in May
alone.

Beyond RTGS and outsourcing, the Indian banking sector also witnessed a host
of significant IT deployments.

Bank of India (BoI) introduced an internet-enabled inward remittances
facility called 'Star e-remit'. The facility, operated through the 200-year
old Bank of New York (BNY), is aimed at facilitating remittances from NRIs based
in the US. The facility uses the 'automated clearing house' (ACH) direct
debit program of US banks with which BNY is registered.

Few banks like the Oriental Bank of Commerce (OBC) and the
ICICI Bank launched mobile recharge facilities at their ATM network.

A lead was taken by the Institute of Development &
Research in Banking Technology (IDRBT) in security solution, which is an eternal
concern area with the BFSI segment. The institute set up a fully functional
technology demonstration lab powered by Cisco at its campus in Hyderabad. Cisco
set up this lab to train all IDRBT, RBI and other public sector banking
professionals on end-to-end security and wireless solutions.

Cheque Truncation was another hot IT area in the BFSI segment
and is expected to continue in the current year as well. Punjab National Bank (PNB)
was among the first banks to deploy the first image-based cheque clearing system
in India. This provided clearance of inter-city cheques within 48 hours after
the cheque is presented, at selected centers using cheque truncation, where
there is image based cheque clearing system. Earlier it took about 15-20 days
for clearance of outstation cheques. PNB was the first bank to launch the Intra
Bank Inter City Cheque truncation project by using NCR's ECPIX (Electronic
Cheque Presentment with Image Exchange) technology. After a successful pilot run
the system was introduced by connecting MICR Centres located at Lucknow, Nagpur,
Jaipur, Kanpur, Ludhiana, Chandigarh, Jalandhar, Agra, Allahabad and Varansi.

Vijaya Bank entered into an agreement with ICRA to implement
an enterprise wide integrated risk management system. The project takes care of
the entire requirements of risk management in the bank. It includes implementing
the Reserve Bank of India guidelines on risk management and covers areas in
credit risk management, market risk management, asset liability management,
operational risk management, risk focused internal audit, Basel II framework,
etc. The project is also expected to develop a robust MIS with complete
integration with the core banking solution, to support effective implementation
of a risk management system in the bank.

This was possible only after Vijaya Bank succeeded in
networking 60 of its branches and deploying core banking solutions across them.
In fact, core banking deployment, though lesser than previous years, still
continued amongst Indian banks. Canara Bank achieved cent-per-cent
computerization, which included all the branches in the rural and semi rural
areas of the country. All the 2,476 branches, 57% of which were rural, were
fully computerized during the year. Even SBI's Frankfurt branch replaced its
existing solution with Flexcube during the year.

The BFSI segment will continue to lead the domestic IT spend
for the foreseeable future. With banks getting on the IT bandwagon with a
vengeance, DQ estimates that the growth for IT players in the segment will be
well above industry growth rates.

Rajneesh De