Banking Heavily on IT

The BFSI sector has always been the leader in IT spending in the Indian
domestic scenario. According to Nasscom, while the sector spent around Rs 6,000
crore ($1.2 billion) in 2002-03, the figure would cross $2 billion in 2003-04.

The main demands for increasing IT usage came from growing CRM focus by banks
to deliver better customer satisfaction, use of knowledge management and
business intelligence to analyze customer profiles and behavior, besides the
expansion of ATM networks and Internet and mobile banking.

Even regulatory requirements were significantly responsible for creating the
need for more IT adoption.

RBI’s guidelines on the implementations of Real Time Gross Settlement (RTGS)
systems, SEBI’s introduction of Straight Through Processing (STP) for
financial messaging and legal recognition of electronic contract notes, Basel
Capital Accord or Basel II guidelines on risk management and the Money
Laundering Act, 2003 are some of the catalysts for growing IT usage.

A recent IMRB survey says 24% of BFSI firms in India list BI and KM as top
priority for the coming year. While RBI, ICICI Bank, HDFC Bank, IDBI Bank, LIC
and Standard Chartered Bank have already gone for BI implementation in 2003,
many more like Punjab National Bank and Bank of Baroda are slated to follow suit
this year.

In fact, Global Trust Bank is currently in the process of selecting and
implementing a Customer Contact Management (CCM) module to integrate its
delivery channels. This would enable it to provide a complete CRM platform–track
customer behavior, lead generations, call center management, focused response
according to customer profile.

Says V Chandrasekhar, chief technology officer, Bank of Baroda, "With
retail banking through multiple channels expected to become a norm for the
larger banks and insurance companies, BI would be absolutely crucial for them to
retain and acquire customers to survive."

The installed base of ATMs has also grown dramatically last year–from 7,500
to 11,000.

A number of other non-banking functionalities like utility payments and
routine transfers would be included under the purview of ATMs. Explains T K
Srivastava, assistant General Manager–Department of Information Technology,
Central Office, Union Bank of India, "The ATM machine would become a
self-service banking unit, replacing the teller in the bank."

RTGS, which is expected to bring India’s bond and money markets on par with
international practices, is to be operational by June 2004.

Once operational, RTGS would provide a new generation of high value payment
systems that would enable the core of the banking system across the country to
make secure payments across the country.

"This would enable around 205 Indian BFSI institutions to interface
directly," feels G M Shenoy, senior vice president–IT, National Stock
Exchange.

A host of banks like ABN Amro Bank, ING Vysya Bank, IndusInd Bank, State Bank
of India, ICICI Bank, HDFC Bank, Punjab National Bank, UTI Bank and Allahabad
Bank have already walked into the RTGS fold.

The Hyderabad-based Institute for Development and Research in Banking
Technology (IDRBT) is developing the structured financial messaging system (SFMS),
which is a web-enabled software for inter-bank messaging in RTGS.

The enterprise integration and straight through processing (EISTP) is an
emerging technology, an end-to-end automation of financial transaction
processing–from pre-trade through to post-settlement.

Explains T P Ganapathy, assistant Vice President–IT, Central Depository
Services (India), "The scope ranges from processing of the original
customer order through to post-settlement position management and
reconciliation."

Because of regulatory reasons, a few private banks and big PSUs like State
Bank of India would look at risk evaluation tools in 2004. Another heavy IT
usage area could be anti-money laundering systems, and with only 8 banks
currently having one in place, this could be the IT hotspot in 2004.

Finally, Business Process Management (BPM) which along with document
management are likely to be the technologies offering highest RoIs to banks in
2004-05.

However, CN Ram, the high-profile CIO of HDFC Bank voices a growing concern
in the BFSI sector. "Banks have been the first to automate their business,
but they have gone overboard in embracing technology. While we evangelized IT,
we have, along the way, also de-personalized customer services."

Notwithstanding Ram’s reservations, a reversal or withdrawal of technology
adoption is unlikely.