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.
The Global Way |
Global Tele-Systems Ltd has deployed and commissioned a payment gateway The infrastructure supports a number of application such as B2B The payment infrastructure, deployed for the first time in India, Branded as India Payment Exchange, this shared payment, settlement and This Framework provides an authentication path where a common or Global has also developed a unique product called secure pay terminal
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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.