THE GROWTH DRIVERS: BFSI: Keeping the Flame Alive

In a year that could be easily termed as forget-table, one vertical shone

through–the banking, financial services and insurance sector. The slowdown

couldn’t dampen the enthusiasm with which the BFSI segment went about

implementing IT. First it was the tech-savvy and cash-rich MNC banks that kept

the flame alive–soon enough, PSU banks had begun to join in on the party,

developing IT infrastructure to face increased competition. The end result–IT

kept rolling along in a tough year, when most other sectors had put the clamps

on spending.

Can’t do without IT



The BFSI segment has easily been the strongest example of successful IT

deployment. And today, it has resulted in improved efficiency and enhanced

customer services–mobile banking and ATM facilities– that are giving banks a

competitive advantage. That IT is being given due weightage by BFSI players is

underscored in their annual budget allocation–over 10% of the total

expenditure at banks and insurance companies is going into IT implementation.

In totality, banks, insurance companies and stock exchanges make up the BFSI

segment, but it is banking which has hogged the limelight, not only in terms of

widescale deployment but also in terms of attaining large contracts from

vendors. Only recently, TCS bagged a mammoth Rs 200-crore order from the State

Bank of India Group (including smaller state-owned banks). Overall, SBI has

outlined plans to spend Rs 500 crore on IT-enabling and connecting 30% of its

branches countrywide.

The outstanding performance of this industry is attributed to a simple factor–as

most major banks had their businesses computerized, their network inevitably

became the backbone for all transactions. A minuscule loss of information could

now result in huge transaction losses that translated into money, besides losing

out on brand image. Because of this, it also became easier for vendors to pitch

solutions like CRM, storage, security and banking tools to bank CIOs. It was not

difficult for CIOs to convince the management, as such losses are easily

quantifiable. Fiscal 2001-02 was an underperforming period for most segments,

but banks and insurance companies looked for ways to improve efficiencies, and

IT provided the perfect tool. More and more branches got interconnected, and

businesses went online.

Private banks have been aggressively pushing their new products and services,

and this has seen them eating up large slices of the marketshare of their public

sector counterparts. PSU banks, which control about 65% of the banking industry

today, are becoming increasingly aware of this aggressive assault on their

territory. In anticipation, and to ward off private competition, PSU banks have

finally got down to some serious IT plans–at the moment though, these

initiatives are confined to the metropolises and larger towns. However, because

private banks are free from certain bottlenecks, they have been able to scale up

their network even in ‘B’ class cities.

As late entrants, private banks have had the advantages of working in fully

automated work environs right since inception, and this has taken them at par

with foreign players in terms of technology implementation and usage. Private

sector banks can change quickly with changing market trends and demands–they

don’t have to deal with cumbersome legacy infrastructure, unconnected branches

or having to transform the pool of manpower resource, a problem that plagues

public sector banks.

A clear reason that the slowdown had little or no impact on spend on IT by

banks was that due to increased competition and the introduction of high-end

services by IT-enabled banks, those moving slower could not afford to pull back

the process of computerization kicked off earlier, before the first signs were

felt. Also, since certain service offerings had been begun, they could not be

suddenly discontinued. Concerns about security, in addition to the guidelines

issued by the Reserve Bank of India, and globally recognized certification

forced banks to deploy solutions like anti-virus software, firewalls and

intrusion detection systems. Incidents like 9.11 in the United States increased

awareness about disaster management and business process continuity–top

players like Global Trust Bank, ICICI Bank and HDFC Bank went in for disaster

recovery solutions. Most banks started investing on CRM, data-warehousing and

data-mining applications. Others were seen actively integrating systems and

networking their branches. And the march continues...

Team DQ

What are the Big Boys Doing? Some case studies:>>>>>>>

State Bank of India



IT Investment: Rs 800 Crore. IT spend in 2001-02: Rs 100 Crore +

SBI is in the process of networking 1500 branches spread across 52 cities.

The bank aims to take 80% of its business online by 2004.

SBI has more than 1000 ATMs. It plans to introduce non-cash services like

utility payments and reservation of railway tickets and also devise a fully

automated system for inter-branch transactions. The system called STEPS (State

Bank Electronic Payment System) is aimed at providing ‘same day’

credits/debits for telegraphic transfers and collections.

Life Insurance Corporation



IT investments: Rs 300 crore in total, at around Rs 60 crore annually

This insurance major has come a long way from its days of mainframes and

tedious processing systems. Today it is connected to 2000 locations across the

country. With total assets valuing $ 48 billion and managing over 115 million

policies, Life Insurance Corporation (LIC) of India has one of the largest

number of customer records in the world with over a million transactions per

day.

LIC completed the setting up of local area networks (LANs) in all 2048

branches in a record of three years. This was the first major move towards

automation of services to customers, agents and employees. Standard computer

packages were developed and implemented for ordinary and pay savings scheme

policies. The entire application software has been developed in-house.

IDBI Bank



Total IT investment: Rs 75 Crore

IDBI Bank deployed Finacle, an e-age banking solution developed by Infosys.

The rollout across all branches was completed in five months. The bank also

implemented Kondor+, treasury front office software from Reuters and ITMS, and

treasury back office software from Synergy Login.

Investments in IT were made in order to create an efficient organizational

infrastructure so as to enable IDBI deliver their products seamlessly, create

convenient access channels and provide efficient services to retail and

corporate customers. Of the total investments of Rs 75 crore, large investment

has been made in back-end technologies to strengthen processes, systems and

controls.

Bank of Baroda



Total IT Investment planned : Rs 250 Crore ( from 2001-03)

The Bank of Baroda (BoB) has 58% of its branches (including all metro

branches) and 77% of its business computerized. BoB was the first PSU bank to

have state of the art integrated treasury and risk management tools in its

treasury branch. The bank has an intra-city connectivity of 290 branches and 24

VSATs nodes that connect to RBI’s INFINET network. BoB offers Internet based

service for utility bill payments at www.billdesk.com. It has engaged the

Gartner group for formulating and implementing its business and IT strategies.

PSU banks



Following their private and MNC counterparts closely, public sector and

co-operative banks alike like the Punjab National Bank (PNB), Bank of Punjab and

Cosmos implemented core-banking solutions. Another insurance major, New India

Assurance, automated over 600 branches in 2001-02, straight demand for over 600

Intel servers. The RBI directive for quick computerization by Indian banks and

increasing readiness of banks to oblige, saw the demand for servers swell up.

NCR concluded automated teller machine (ATM) and maintenance services deals,

a combined value of over $10 million, with two banking majors, the State Bank of

India (SBI) and ICICI. SBI and ICICI Bank are both expanding rapidly in the

financial self-services market. Each of these banks now have an installed base

of over 1,000 ATMs and have announced plans to double the figure by March 2003.

NCR has had long-standing relationships with both SBI and ICICI and is their

leading supplier of ATMs. In addition to setting up over 600 ATMs, NCR is also

providing maintenance support for these units

HCL Comnet is offering ATM inter-connectivity for SBI. Chennai-based

Financial Software and Systems has been appointed to provide SBI with a Base 24

switch. With the switch and ATM interconnectivity in place, the bank will

enhance its product portfolio by offering debit cards, smart cards, e-commerce

and Internet banking.

ICICI, HDFC, and UTI intend to bring together their ATMs under a single

network, and shared with SBI. All four banks’ connectivity is based on Base 24

switches.

The Indian market watchdog, Securities and Exchange Board of India (SEBI), in

association with the National Informatics Centre (NIC) has set up an electronic

data information filing and retrieval system, so as to enable the

filing of certain documents by listed companies on its website. This system is

being introduced in phases and will be applicable to 200 companies across all

sectors, including ICICI, BoB, HDFC and the State Bank of India.

Internet banking: Picking up steam



Internet banking in the retail segment is a recent phenomenon that is

generating keen interest among banks. Private and foreign banks have been prime

movers in the area while public sector banks are latching on to the bandwagon.

The total number of Internet banking registrations in India crossed 2 million,

an IDC estimate, while the number of active users are around a million. This

represents 15% of the total Internet user population, a clear indication that

the concept of Internet banking is catching on.

Triggers



24 x 7 availability, increase in customer convenience, retention and cost

reduction triggered the concept of online banking. The cost of an online

transaction is estimated to be nearly one eighth of that done through branch

banking.

Private and multinational banks are taking a lead on in Internet channel,

which is gaining in importance. Banks such as ICICI, HDFC, IDBI, Bank of Punjab

and MNC’s like HSBC, Citibank and ABN Amro are among those offering online

banking services. These include checking account details, ordering for cheques/drafts,

mobile banking and share trading. The real trigger that seems to be driving

online banking is the facility of making utility payments. However, the future

of banking will be one in which customers can address most of their needs

through self-directed means and the key differentiator will be how effective a

bank is in getting customers online and deriving measurable value from this

presence.

The challenge for banks would lie in expanding their subscriber base of

online consumers and enhance their service portfolio. How the banks fare in

designing, improving, marketing and rolling out services will greatly impact the

adoption trends.

While Internet banking in India is still in nascent stage, it can become a

significant channel for servicing customers. Countries like Singapore have

nearly 10% of their population banking online. Though India may have a very

small online banking population, the untapped market represents a huge

potential.

Outlook



It is clear, then, that IT deployment in the banking, financial services and

insurance segment is all set to grow. Public sector banks and financial

institutions have started connecting their locations and are devising more means

to bringing convenience to customers. From implementing customer relationship

management applications to managing and integrating of back-end processes

including ensuring network connectivity and quality of services, the gamut of

solutions range to this extent. So IT will be used for repositioning the bank in

an integrated financial services market. Ultimately the key differentiator would

be quality of services that companies offer, which would all be enabled by IT.