Churning Money Faster, And Better

banking.jpg (59063 bytes)Next to
manufacturing, the banking and finance segment is the second largest spender on IT. In the
year 1997-98, the segment spending crossed Rs 1,300 crore. It was difficult to assess the
exact spending by the FI segment alone. The investments made by the banking sector can be
broadly characterized by a continuation of IT automation plans by large public sector
banks, implementation of connectivity and leading-edge technology solutions by the newer
private sector banks, continuing branch automation and branch connectivity by the older
private banks, and refinements in service using IT by the cooperative banking sector.

Banking Sector

It appears to have been a ‘go slow year’ for the public
sector banks as far as total branch automation is concerned. Two years ago, the large
public sector banks were racing to improve their Total Branch Automation (TBA) coverage
and it was used as one index of the level of IT usage. But this year the total picture
reveals that the tempo has slowed down with many of them not marking progress in this

State Bank of India (SBI) continues to be the bank with
largest totally automated branches numbering around 600. Some of the notable branch
automation cases this year are the 150-odd TBA additions by Bank of India and 100-odd by
Central Bank of India (CBI).

On the infrastructure and branch front, investments were made
by augmenting the computing systems, implementing bank-wide integrated solutions, and
enhancing connectivity. Some of the large spenders are SBI (approximately Rs 12 crore),
Canara Bank (Rs 7 crore), Vijaya Bank (Rs 4 crore), CBI (Rs 4 crore), and Corporation Bank
(Rs 4 crore). One of the reasons for the TBA slowdown is the continuing debate on whether
to go in for a centralized set-up or a decentralized one. Consensus is emerging on using a
mixed approach like clustered configuration in a semi-centralized set-up. Most of the
banking solution vendors are coming up with ‘smart’ solutions to this problem. While both
camps have got their supporters, most of the large public sector banks are somewhat
cautious about any basic architectural shift since it could entail significant investments
for which funds may be difficult to come by.

Regarding investments, the World Bank has allocated an
IT/Automation fund for Indian banks. Nearly seven to eight large and successful Indian
banks like Dena Bank, Bank of India, and Bank of Baroda amongst others have been nominated
to be recipients of this grant. Each of these banks would receive over Rs 100 crore form
the World Bank to be solely used for the purpose of deploying IT and other
automation-related exercises.

bank.jpg (21691 bytes)The newer
private sector banks like HDFC Bank, UTI Bank, TimesBank, and others definitely have
better IT infrastructure compared to their volume of operations. However, officials in
this sector opine that their IT resources are not being optimally used when they compare
themselves with the foreign banks. A lot of energy gets consumed in IT planning,
implementation issues, and IT manpower issues in the former case while foreign banks plans
are generally ‘imported’, implementation is strictly according to the plan and only
operational aspects need to be taken care of. Even for this, the foreign banks are able to
attract and retain good technical talent which is not the case with private banks.

In the cooperative banking sector, the focus was on partial
and total branch automation as well as on delivering personalized services in the local
areas. In terms of addition to automated branches, this category recorded significant
growth during the year. Its primary competitors are the public sector banks in the retail
area and one of their strategies was to give the customer a good banking experience.

Toward this, they invested heavily in renovation of offices,
rendering value-added service schemes, and moving to card culture by putting up cash
dispensers and ATMs.

Finance Sector

The broad direction in IT usage points toward a continuation
of refinements in key application areas like loan appraisal systems, policy management,
decision-support systems, and funds management. Technologies like groupware are now being
used by almost everyone because of the collaborative nature of work in financial
institutions and credit rating agencies.

While insurance companies like LIC, GIC, and Oriental
Insurance invested in connectivity and policy management during the year, UTI invested in
production systems. NSE’s major investments were in setting up disaster recovery systems,
datawarehousing, market surveillance and settlement systems.

Application Focus

From an applications point of view, apart from the
operational automation areas like general ledger, inter-branch reconciliation, and
bank-wide MIS, the main IT-centric applications that are gaining maturity are cash
management and treasury management. These crucial banking functions are now actively being
addressed using technology.

Though Y2K problem is often being talked about in the context
of global banking and finance community, we too are no less at risk. Not many public
sector banks have realized the potentiality of the problem and they are yet to take any
serious measure in this regard. There are, however, large banks like SBI and some
lesser-known banks like Punjab & Sind Bank who have taken steps to ensure
Y2K-compliance. SBI is rectifying its Cobol code. Bank of India is planning to duplicate
all calculations involving post-2000 transactions on Y2K-compliant systems.

Retail banking using network applications like Electronic
Funds Transfer (EFT) and any branch banking caught the attention of many public and
private sector banks. To facilitate these applications, a shared payment network
system-Swadhan-was set up last year. Swadhan is a large network of ATMs spread over Mumbai
and connected to a central host. The banks which will be there on the network would issue
cards to customers for transacting on this network. Presently, there are 37 banks whose
ATMs are connected onto the network, of which nearly 24 banks with 81 ATMs are live. The
total card base is over 16,500 cards with a per month growth rate of around 1,500
additional cards. The total transaction volume is presently low at around less than one
transaction per month per cardholder. The target for this year is to get over 140 ATMs
live on the network.

Networks For Banks

The objective behind forming Swadhan is to provide 24×7
electronic banking service to the customer anywhere in Mumbai through the EFT system to be
shared by the member banks. There are plans to extend the network-first of its kind in
India, to other cities as well as to connect it to international payment networks like
Visa and MasterCard. The solution is based on Tandem/Base24, an EFT solution with 70
percent marketshare worldwide. India Switch Company, a joint venture promoted by HMA Data
Systems, Tandem Computers, Applied Communications Inc. (US), and Financial Software and
Systems Pvt. Ltd, is the service provider for this network. The services offered under the
network include cash withdrawal, balance inquiry, cash/check deposit, funds transfer,
requests for check book, standing instructions, and accounts statement.

The other network coming up is IDRBT (Institute for
Development and Research in Banking Technology) Network. Its central hub located in
Hyderabad handles data switching, network monitoring, and supporting multiple user groups.
As a VSAT network, it supports TDM/TDMA and hybrid network structures. The applications of
the IDRBT network would be: data traffic between banks and FIs, isolated traffic in
virtual bank groups, fax traffic, voice traffic between banks in mesh network, and
videoconferencing at select sites.

Emerging Areas

If there are some banks which are still grappling with
base-level automation issues, there are also others which are seeking increasing
refinements in IT usage. While traditional focus has been on the operational and
functional aspects, current focus is on product innovation, risk management, and service
delivery excellence using IT.

Some of the solution areas are customer relationship
management, risk management, messaging, and trading. Risk management consists of asset and
liability management, profitability analysis, and modeling and pricing. The key benefit
sought is better return on assets. Customer relationship management involves
micro-marketing, campaign management, and profitability analysis which collectively seek
to improve customer intelligence. The key benefit sought is increased service sales per
customer. Messaging involves enhancing customer collaboration using knowledge sharing,
information dissemination, and better service delivery channels. The key benefit sought is
to strengthen customer relationships.

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