'The IT department functions as an independent unit'

Ian Ball, partner for Asia Pacific Financial Services Sector, IBM Business
Consulting Services, was in the capital to address a conference on 'e-Transformation:
Opportunities in Government, Public Institutions and Finance,' organized by
the World Bank. The conference brought together the World Bank's clients and
top IT industry players, to focus on the latest trends in financial technology
and the e-Government initiatives. Ian Ball, an industry veteran of 19 years,
talks to Bhaswati Chakravorty of Dataquest about how the right technology
strategy could help state-owned banks take on both Indian private banks and
foreign banks.

What are the technology imperatives for state-owned banks today?

Technology is a critical component in the business of banking today. With
the help of the right IT strategy, banks and financial institutions can leapfrog
to the future and take on competition from foreign banks and Indian private
banks. The banking sector in India is undergoing major reforms. India, in its
commitment to the World Trade Organization, will permit foreign banks to
establish presence up to 12 branches a year by way of setting up a WOS, or
convert the existing branches into one.

The dynamics business of the entire sector could change drastically once the
foreign banks come into the scene. Indian state-owned banks need to realize the
impending threat and work towards creating the right strategy to combat this.

The immediate requirement is to align the IT strategy with the business
objectives of the banks. This is possible if the IT department and the
management come together and work as a cohesive unit. This, unfortunately, is
not the present situation. In most of the state-owned banks, the IT department
functions as an independent unit, only concerned with setting up the IT
infrastructure. There is little effort to deploy the right business applications
that would support the business objectives of the institution. This mindset
needs to change.

What role is technology likely to play in enterprise risk management,
particularly, in respect of the Basel II norms that banking institutions need to
comply with?

Enterprise risk management is a very important issue and technology plays a
vital role in implementing the enterprise risk management system effectively.
Using the right strategy and IT underpinnings, a bank now has the capacity to
quantify not only credit and market risk but also operational risk across the
entire enterprise. Technology enables linking more granular data and analyses
required under Basel II to key financial data, leveraging it into an integrated
ERM approach.

Most banks have separate departments and systems for calculating their
exposure to the three major types of risk: credit (customers defaulting on
payments); market (losses to market factors such as exchange rate shifts,
interest rate shifts); and operational (losses due to natural or man-made
accidents or disasters). This means they are unable to gain an overall picture
of risk exposure. Gaining an enterprise-wide view of risk has increasingly
become important for banks as the New Basel Capital Accord introduces more
stringent requirements for risk measurement and management, particularly in the
area of credit risks. Also, since the different types of risk affect each other,
banks need an enterprise-wide view of risk in order to make sound business
decisions.

Unfortunately, in Asia as compared to the US, Basel II is still a compliance
issue. What American banks have managed successfully is to convert Basel II into
a profitable proposition through appropriate identification of risk and optimum
capital allocation to take on the risk.

How can IBM help Indian state-owned banks create the right technology
roadmap that will meet the required business objectives?

The banking scenario in India is heading for an evolutionary change, driven
by the changing socio-economic dynamics of India and globalization. In order to
survive, sustain, leverage and grow, banks need to relook at the portfolio,
operational excellence and target market segment. The convergence and
integration of business, processes and technology is the need of the hour.

We combine IT with industry expertise to solve business problems for banks.
IBM's 'On Demand' program breaks down the entire business in several
components and prioritizes components that require immediate attention. IBM's
services are provided around these components.