Cool Winds of Change

At the core of the revolution that is sweeping the banking and financial

services segment in India, is information technology. The usage of IT has

changed the traditional mode of business delivery and the focus is clearly on

retail customers. Traditional methods have been discarded and a more

customer-oriented approach is being adopted. Convenience banking has replaced

relationship banking. Among the changes IT has brought in are focus on

customers, branding, universal banking, technological advancements, mergers and

acquisitions, as well as a thrust on retail banking.

NBFCs



There are more than 40,000 NBFCs in India including a mix of large and small

companies in the unorganized sector. In the year 2000-01, the estimated IT

spending by the segment was Rs 2153 crore, estimated to grow at 19% in 2001-02

amounting to Rs 2570 crore. The economic slowdown in 2001-02 resulted in the

obstruction of the cash-flow along with the tightening of RBI norms on capital

funds of banks. Robust growth is expected in 2002-03 and the segment is likely

to spend 26% more than the previous year, amounting to Rs 3250 crore. A similar

trend would continue in 2003-04 with 22% growth estimated. In 2000-01, banking

accounted for nearly 60% of total IT spending. Spending was hardware centric

with nearly 69% being routed towards purchases of hardware components and 16% in

IT services. In the year 2001-02, public sector and co-operative banks are

estimated to spend nearly 45% of the total IT spending in this segment. Spending

on hardware and IT services is expected to grow by about 20%.

Spending on hardware



Nearly 40% of the hardware spending involves computing products. In 2000-01,

banks spent nearly 40% on computing products and 24% on networking products

clearly demonstrating the trends of branch automation and network expansion.

Spending on servers accounted for nearly 16% and printers for another 10%. In

the non-banking segment, nearly 42% of the spending came from computing

products. The spending on networking products amounted to Rs109 crore– 20% of

the hardware spending of non-banks. A regulation norm introduced by RBI to

computerize 70% of the bank business volumes was a major booster to hardware

growth. The guidelines provided by RBI were implemented by other categories of

financial companies in order to keep pace with the competition that would arise

from extensive computerization. Hardware spending in banks in 2001-02 was

estimated to grow at around 23% with computing and networking products being

major spending categories.

Spending on software



In the year 2000-2001, the spending on software was estimated to be around

Rs 230 crore. Branch automation software packages were sold in bulk. Standalone

branch automation packages, multi branch automation packages, core banking

function standalone packages and transaction processing packages showed good

sales. The focus on core banking solutions and total ERM solutions has given a

major boost to software spending. Spending on software in 2001-02 was estimated

to grow at around 17%, with 18% growth among banks and 15% in non-banks.

Software spending in the year 2002-03 is estimated at Rs 325 crore, with ‘application

solutions’ contributing nearly 65% of the software spending. Spending on

e-business applications will witness a dramatic growth in this year as several

banks and financial institutions would have implemented core solutions and would

be moving into the next level of IT adoption– e-business.

Spending on IT services



Spending on IT services accounted for Rs 355 crore in the year 2000-01.

Nearly 80% of this spending was incurred on ‘hardware and software management

services’. ‘Training and consulting’ accounted for about 12% and ‘outsourcing’

accounted for another 8%. Custom application development is a major component

where spending of nearly Rs 90 crore has been done. In 2003—04, ‘hardware

and software management services’ will continue to be the key drivers of

spending on IT services. However, spending on outsourcing services is expected

to grow strongly by nearly 27% (year on year). Activities like ‘network and

desktop outsourcing’, ‘businesses process outsourcing’ etc are expected to

catch up during this period.

By Utpal Ghosh



This is a contributed piece. The author is manager (demand-side research), IDC
India