Net Worked Banks

Reduced margins, intense competition, sweeping reforms, rapid technology

changes. That is the Indian banking sector for you. While the techno-savvy,

private domestic banks hog the limelight, the basic tenet of survival for our

ailing PSU banks is this: A robust communications infrastructure.

The Oxford English dictionary defines the bank as an entity which uses money

deposited by customers for investment, pays it out when required, makes loans at

interest, exchanges currency, etc. But what would you call an entity, which

apart from basic financial services, offers you mobility, financial advice, pays

your utility bills and lets you go on a shopping spree without walking into a

mall. Probably this is what makes it increasingly difficult to define what a

bank is these days.

Welcome to the brave new world of banking and financial services. Probably,

no other industry is going through such a turbulent albeit interesting phase of

re-invention — riding piggyback on technology. Banking today is not about

where the branch is but being where the customer is. Perhaps, to use the

cliché, this is the most discernible paradigm shift taking place in the Indian

banking sector.

And there are many terms to describe this radical change: universal banking,

next generation banking, etc. But whatever name you choose to call it, this all

means only one thing: deliver cost effective and better services to the customer

in the way he wants, where he wants it and how he wants it.

Banks in the country, especially in the public sector, have just woken up

from a deep slumber and are getting their act together to meet increased

customer expectations and fine-tuning their communication infrastructure. For

the traditional financial service providers, who are reeling under technology

shifts and a balance of power from intermediaries to consumers, the message is

loud and clear: connectivity is the name of the game.

Can of Worms

Our banking

system is faced with several difficult challenges–the high cost of doing

business, level of non-performing assets and a poor level of customer

satisfaction, to name a few.

On the other hand, there has been a phenomenal growth in the volume of

capital flow across the nation and integration of financial markets across the

globe as a fall out. Indian banks are no longer insulated from international

development and international capital movements. The same holds true in the case

of technology.

What came as a rude awakening to the Indian banks was the introduction of

electronic technology for transactions, settlement of accounts, bookkeeping and

all other related functions. This was where many behemoths in the public sector

were caught napping and whether they like it or not, all banking transactions

are on the way to being electronic. Those who can’t catch up with the times

are bound to be the losers.

In a way, the RBI set the ball rolling by spearheading technological change

as part of its reform process in the early 90s. The banking industry responded

to the clarion call by accelerating the pace of computerization among branches,

controlling offices and head offices. The thrust was on commercially important

centers, which account for sixty five percent of banking business in terms of

value. Probably that explains why a staggering eighty percent of PSU bank

branches in the country are still non-connected and non-networked.

New Dawn

The seeds of

technological change began with branch automation. Moving from automated

ledger-posting machines to partial branch automation and total branch

automation. Now it stands on the threshold of offering financial services

through multiple delivery channels, including the Internet–the most cost

effective of all. The development and use of communication networks are what has

really helped the banking industry to improve the quality of its services.

The Indian financial system, particularly the banking sector, is thronged by

public sector institutions and banks. Are they gearing up their communication

infrastructure to play a globally competitive role in the near future?

India’s public sector banks present a grim picture as of now. Burdened with

legacy systems and a wide network of branches spanning across the country, these

entities are finding the going increasingly tough when pitted against the new

breed of private domestic banks like ICICI and HDFC.

Consider this: State Bank of India, undoubtedly the largest bank in the

country, has around 10,000 branches all over the country and interconnecting all

these branches is a technical pipe dream.

What hampers the speed of modernization of technology among the PSU banks, is

the sheer size and magnitude of their operations. On the other hands, it was

smooth sailing for private sector banks like ICICI and HDFC, which came into

existence a few years ago and therefore are leapfrogging to the cutting edge of

technology. Technology and branding of services are likely to separate the wheat

from chaff.

But all is not lost for the PSU banks. Spearheaded by RBI, banks like the SBI

have already embarked upon ambitious projects to pick up the gauntlet. Take SBI

Connect for example. This public sector behemoth, which alone accounts for

around twenty two percent of banking transactions in the country, has chalked

out a blueprint with the help of its technology consultant KPMG, to be at the

forefront of technology.

The project, the biggest of its kind in the country, envisages to network

around 5,000-branches and streamline a totally integrated network. Every system

integrator worth its salt has pitched in to bag this project. Biggies like

Reliance Infocom and Tata Infotech have formed a consortium to pitch for this

large networking project. The bank, at present, has around 2,337 fully

computerized branches, and has made available tele-banking and inter-banking at

select outlets.

The number of operational ATMs stand at around 179, with plans to add around

800 more by the end of this fiscal year. Though SBI has unveiled a strategy to

become a tech-savvy bank with the target of "anywhere, anytime

banking", it is a tall order for the bank as the stumbling blocks are too

many.

Networking

For the system

integrators, there are opportunities galore in the banking and finance sector.

Being one of the biggest growth areas, banking network projects account for a

major chunk of revenue for integrators, which works out to around thirty percent

of the total network integration market.

Tata Infotech is currently implementing a WAN for the Union Bank of India,

connecting around 242-locations in the country. Datacraft, which has done major

projects for MNC banks in the country, was the SI, which implemented one of the

largest voice and data networks for ANZ Grindlays Bank, for its branches

throughout India.

One can easily guess the importance of the banking sector for the networking

industry when the product portfolio of major networking product companies

include integrated multi-protocol routers designed for branch banking and retail

office environments.

Software

The RBI committee

of technology upgradation in the banks had recommended an outsourcing model for

technology and services as a better option in the context of the rapidly

changing IT industry. And the marketplace is now inundated with banking software

solution providers of various hues and colors. It is interesting to note that

the banking software market forms a large pie and there is room for everyone.

Notable amongst this bunch are I-flex, Infosys, Ways India, Infra Soft and

Sanchez Capital Services. The product offerings vary from solutions for core

transaction process to branch automation products. Then, there are niche players

like Financial Software & Systems, which provide turnkey solutions for

ATM/POS switching and Global Telesystems which takes care of payment gateway

solutions.

Road Bumps Ahead

Originally, banks

had a proprietary network, with point to point leased line links or closed user

groups like the INFINET. But those were the good old days.

What a bank essentially does when it centralizes its database and opts for

diverse delivery channels, is putting all its eggs into one basket This raises

serious security concerns. This is truer when a bank offers it’s products and

services on the web. In Internet banking, the core technology being used now is

encryption, 128-bits to be precise.

Private sector banks like HDFC and ICICI have security policies on their web

sites, elaborately describing the security measures taken by the bank. All these

banks which offer Internet banking use a combination of filters, routers and

digital signatures using a technology called security socket layer (SSL).

Here, conspicuous by its absence is the deployment of Public Key

Infrastructure (PKI). Though banks like HDFC offer smart card based PKI security

to its 300-plus corporate customers, we are yet to see a large-scale deployment

of PKI in the country.

"It is a wrong notion that SSL is good enough to secure your network.

PKI is a must-have to ensure and protect your business, along with proper

intrusion detection and security management systems," says Hanif of HCL

Comnet.

However, there are other areas, which need urgent attention: Authentication

of payment systems, the legal framework for payment systems, lack of

standardization and intra-bank connectivity. This would be followed by the need

for robust management information systems, data warehousing and data mining at

individual bank levels. So far, computerization efforts in our banks have been

in the direction of accounting and related activities with little thrust on

management information systems and customer service.

Perhaps, customer relationship management is a foreign concept for these

behemoths, which are buckling under their own weight or size. The question on

everybody’s lips seems to be the public sector character and bureaucratic

mindset of the nationalized banks.

For years, these banks have been impregnable forts. One does not really want

to close the account he/she has had with a public sector banks for ages. There

is no denial of the fact that PSU banks enjoy a psychological advantage over its

technology-savvy counterparts.

But the million-dollar question is whether they would be able to cash in on

this good will and surge ahead or fall out of the race? Literally, the Indian

banking sector is at a crossroads. And it is a kind of Hobson’s choice. You

can either prosper or perish.