BFSI: IT Still Banked on BFSI

Traditionally,

BFSI has always been the most significant contributor to the country's domestic

IT consumption-FY 2004-05 saw no change in the status quo. At Rs 10,543 cr, the

financial sector again proved to be the most lucrative vertical accounting for

nearly a quarter of the domestic industry. This is an almost 46% jump over last

year's IT spend by the BFSI players, at Rs 7,231 cr. While the first phase of automation

in this sector was almost complete even before 2004-05, what spurred the growth

this year were the twin trends of increasing IT infrastructure outsourcing as

well as banks joining the Real Time Gross Settlement (RTGS) network of the

Reserve Bank of India (RBI).

Speaking

strictly according to timeline, the phenomenon of IT infrastructure outsourcing

started in FY 2003-04 when Bank of India awarded a 10-year contract, valued at

$150 mn, to HP Services. Under the terms of the agreement, HP is implementing

and managing data warehousing and document imaging as well as providing

integrated channel management, including telebanking, Internet banking and

ATMs. Most importantly, it supervised the implementation and management of

Finacle core banking solution from Infosys across Bank of India's 750 branches

in India. Since signing the agreement in February 2004, the BoI-HP

collaboration has been so successful that it was selected as the winner for the

Outsourcing Center's 2005 Outsourcing Excellence Awards in the "Best First

Steps" category.

Not only was

the Bank of India deal HP's largest in Asia-Pacific, it also spurred other

banks to jump into the total outsourcing bandwagon. Bank of Baroda, again,

selected HP as its strategic IT partner. The bank, along with HP, has planned

and implemented an architecture that would include an integrated deployment of

more than 40 applications such as core banking, phone banking and Internet

banking as well as CRM, human resource management system (HRMS) and cheque

truncation systems.

It was not only

the PSU banks which were in the fray, even Yes Bank, a new age private bank,

outsourced its entire technology requirements for its offices and branches

across India to Wipro Infotech. Wipro's responsibilities include implementing

core infrastructure and hardware, branch rollouts, networking, managing the

datacenter and back-up support for disaster recovery. A unique

"pay-per-use" model will help Yes Bank stave off up to 30% in costs,

progressively over the next seven years. The arrangement ensures that Yes

Bank's initial technology investments are minimal, and its overall IT spends

are variable and predictable, in line with its planned growth. The arrangement

protects Yes Bank against all obsolescence and redundancies in technology and

insulates it from carrying forward any legacy systems.

The second

agreement mandates improved operational efficiencies in banking systems by

introducing international best practices. Wipro will implement these in Yes

Bank, and then jointly offer these to the international banking and financial

services sector.

It was not just

the entire IT infrastructure outsourcing that was the order of the day, HDFC

Bank, as did some other banks, became the first private-sector bank to

outsource its entire ATM management to NCR. With over 1,000 ATMs across 192

cities, HDFC Bank has the third-largest ATM network among private banks and the

fourth largest network in India. NCR provides HDFC Bank with a total suite of

services, including ATM monitoring and management, caretaker services, deposit-



processing services, consumables (ATM and non-ATM) as well as cash
replenishment.

If IT

outsourcing was the initial catalyst for BFSI IT spending this year, the real

meat was provided by a host of banks joining RBI's RTGS network throughout the

year. The RTGS system went 'live' on March 26, 2004 with the State Bank of

India, HDFC Bank, Standard Chartered Bank, and Saraswat Co-operative bank

joining it in round 1. Very soon ICICI Bank, IndusInd Bank, BNP Paribas, Bank

of Baroda, Bank of India, Canara Bank, Central Bank of India, Corporation Bank

and Union Bank of India followed suit. At present, around 4,934 bank branches

are under RTGS at 399 centers and daily transactions through RTGS route are

worth Rs 44,000 crore. Other banks to join the party throughout the year

included ABN-Amro Bank, Andhra Bank, Bank of Rajasthan and ING Vysya Bank.

HDFC Bank has

achieved complete Straight Thru Processing (STP) by integrating all 470

branches to the RTGS network. This move enables all HDFC Bank branches to

receive and credit client accounts online for all incoming RTGS credits. The

branches can also make outward remittance online for their client requests, as

long as the beneficiary is a member of the RTGS network. HDFC Bank reportedly

processed 15,000 transactions, valued at Rs 1,10,928 crore, through RTGS in May

alone.

Beyond RTGS and

outsourcing, the Indian banking sector also witnessed a host of significant IT

deployments.

Bank of India

(BoI) introduced an internet-enabled inward remittances facility called 'Star

e-remit'. The facility, operated through the 200-year old Bank of New York

(BNY), is aimed at facilitating remittances from NRIs based in the US. The

facility uses the 'automated clearing house' (ACH) direct debit program of US

banks with which BNY is registered.

Few banks like

the Oriental Bank of Commerce (OBC) and the ICICI Bank launched mobile recharge

facilities at their ATM network.

A lead was

taken by the Institute of Development & Research in Banking Technology

(IDRBT) in security solution, which is an eternal concern area with the BFSI

segment. The institute set up a fully functional technology demonstration lab

powered by Cisco at its campus in Hyderabad. Cisco set up this lab to train all

IDRBT, RBI and other public sector banking professionals on end-to-end security

and wireless solutions.

Cheque

Truncation was another hot IT area in the BFSI segment and is expected to

continue in the current year as well. Punjab National Bank (PNB) was among the

first banks to deploy the first image-based cheque clearing system in India.

This provided clearance of inter-city cheques within 48 hours after the cheque

is presented, at selected centers using cheque truncation, where there is image

based cheque clearing system. Earlier it took about 15-20 days for clearance of

outstation cheques. PNB was the first bank to launch the Intra Bank Inter City

Cheque truncation project by using NCR's ECPIX (Electronic Cheque Presentment

with Image Exchange) technology. After a successful pilot run the system was

introduced by connecting MICR Centres located at Lucknow, Nagpur, Jaipur,

Kanpur, Ludhiana, Chandigarh, Jalandhar, Agra, Allahabad and Varansi.

Vijaya Bank

entered into an agreement with ICRA to implement an enterprise wide integrated

risk management system. The project takes care of the entire requirements of

risk management in the bank. It includes implementing the Reserve Bank of India

guidelines on risk management and covers areas in credit risk management,

market risk management, asset liability management, operational risk

management, risk focused internal audit, Basel II framework, etc. The project

is also expected to develop a robust MIS with complete integration with the

core banking solution, to support effective implementation of a risk management

system in the bank.

This was

possible only after Vijaya Bank succeeded in networking 60 of its branches and

deploying core banking solutions across them. In fact, core banking deployment,

though lesser than previous years, still continued amongst Indian banks. Canara

Bank achieved cent-per-cent computerization, which included all the branches in

the rural and semi rural areas of the country. All the 2,476 branches, 57% of

which were rural, were fully computerized during the year. Even SBI's Frankfurt

branch replaced its existing solution with Flexcube during the year.

The BFSI

segment will continue to lead the domestic IT spend for the foreseeable future.

With banks getting on the IT bandwagon with a vengeance, DQ estimates that the

growth for IT players in the segment will be well above industry growth rates.

Source: Dataquest