Outsourcing, the new mantra for banking

Banks in India have shown continued growth. The

Q2 results have shown better than expected results in most of the cases. The key

technology areas that the banks have been focusing on are branch networking,

treasury management systems, intra-day liquidity management systems, core

banking solution and secure fund transfer products.

With increased growth comes increased competition

and competition demands better customer satisfaction. To maintain the same

performance records, banks need to focus on their core competencies.

Outsourcing by Indian Banks is not a very recent

phenomenon. It started in a very basic level in the form of Annual Maintenance

contracts some 10 years back. To outsourcing is seeing increased push with banks

focusing on their core areas of operation and competition heating up.

Foreign Banks and Private banks are just, as was

in the case of technology usage, in the forefront of outsourcing revolution that

is slowly but surely entrenching its way into the banking sector. Outsourcing of

the IT services by the banking sector stood at a mere 8 per cent in 2001 but

according to IDC this is likely to see a jump to a CAGR of 24 percent during the

2001-06 period.

The Public Sector Banks are still a bit wary of

outsourcing their functions. But steps have been taken by banks like the Bank of

India, State bank of India and the Bank of Baroda.

The types of activities that have been outsourced

at present by Indian banks are:

• Maintenance of Hardware and Software deployed
• Hosting services
• Application Support
• Facilities Management such as website and ATM
  
  maintenance
• Disaster recovery solution
• Data center management and operation

All leading private banks have outsourced a part

of their IT services and some MNC banks have also outsourced a part of their

Business Processes. At present most of the outsourcing that takes place are

low-end staff related and non-core banking operations. Experts estimate that the

Indian market would be ready for outsourcing core banking operations only in

another 4-5 years.

All major IT Banking solution providers are

eyeing a part of the outsourcing pie. The major companies involved in this are

Wipro, Infosys, TCS, HCL, Datacraft, Indian Switch Company, NCR and a host of

other small and medium level players.

Though there are some apprehensions on

outsourcing, specially among the Private Sector Banks, increased competition and

the need of PSUs to catch up with the private players is only likely to drive

outsourcing further.

As confidence in outsourcing starts building up,

the banking industry is likely to move from Facilities Management to IS

Outsourcing. Banks are also likely to move from just outsourcing IT services to

Business Process Outsourcing.

Processes like e-banking, e-commerce, IS

outsourcing and the outsourcing of the set-up and maintenance of ATM operations

are the major areas likely to be exploited in the near future. There is a

likelihood of RBI relaxing the norm that banks need to own their ATMs. If this

happens, third— party outsourcing of ATM operations is likely to be the in

thing.