by August 3, 2004 0 comments

IT applications have been playing a major role in the BFSI (Banking, Financial Services and Insurance) sector for long but the real watershed came after the emergence of operations such as Net banking and online trading. In banking, for instance, in place of tellers you have ATMs and electronic banking allows you to pay bills and transfer money online from one account to another. 

Moreover, the solutions are going to play unprecedented roles with upcoming nexus between sectors such as bancassurance. This is true for online share trading houses as well, which operate on real-time basis and require Internet security that cannot be breached.

All applications in BFSI have to be implemented keeping the core business processes in mind. The banking sector, for instance, forays into retail banking, corporate banking and treasury management. Solutions for retail banking take care of managing assets (loan origination, disbursement, collections and collateral management), liabilities (account opening and maintenance, deposits management and clearing), loans and advances, fixed deposits, etc. Corporate banking involves investment banking, trade finances, guarantees, etc. Other processes include sales, CRM, regulatory and risk and cash-management services. Out of these, most processes relating to account setup and transactions can be automated, and commercial solutions are available for most. Solutions are perhaps not readily available for out of the box automation of risk and regulatory functions. 

In insurance there are some companies that use completely homegrown solutions. The country’s largest insurance company, LIC, has built its entire insurance solution in house using the COBOL compiler from MicroFocus and installed it on Linux. This has been deployed across its 2,048 branches across the country. Max New York Life, on the other hand, is using a lot of commercial products. It uses the software from SolCorp called Ingenium, which is a browser-based policy administration and wealth-management package for the financial sector. The solution has complete policy lifecycle administration capabilities and can help insurance companies quickly introduce new products, especially unit-linked insurance plans. Max is also using business-process management tools from NewGen Software, which are working in conjunction with Ingenium. These tools include myMoney cash management system, myAgent distribution management system and myFlow imaging and workflow solution. The system helps Max manage their working capital better and creates a comprehensive database for extracting consistent and accurate information for management decisions. It’s also managing the company’s sales channels by providing flexible performance and compensation mechanisms.

BFSI solutions can be both commercial as well as home grown, and the choice depends upon a number of factors. According to ICICI, homegrown solutions are ideal where cost saving and absolute customization is needed. These may not be cost-effective by nature, but by the fact that they would be developed where they will be used will provide a substantial cost advantage. Such solutions obviously outscore commercial products because of more customization facility available.

Homegrown options also allow experimentation and, at times, spot solutions can be developed rapidly resulting in small quick wins. For larger requirements, of course, home growing a solution would take much longer than going with a commercial product. The product option also gives scalability and reduces lifetime TCO (Total Cost Of Ownership) of the product.

It’s not necessary to have your own in-house software development team for home- grown solutions. The need for an in-house software development arises when break even is achieved, that is when the scale requirement of homegrown solutions exceeds a limit whereby the (fixed and variable) cost of running an in-house team falls below the linearly growing cost of outsourcing. Therefore, by simple math we can clearly identify the in-house versus outsource decision point. Also, external teams score when requirements are specific and known or specific domain knowledge is required.

In most cases, banks prefer a mix of commercial (for most operations) and homegrown solutions (when and where required). IDBI bank for instance, uses Infosys FINACLE for retail and corporate banking, Reuter Systems Kondor+ for treasury management, and Cash Tech’s Cash-In for cash management. It handles its accounts payable and fixed assets using a solution from Oracle Financials, and Oracle’s HRMS for HR management. The bank also uses many custom-built solutions for locker management, lead tracker and also has an intranet for the employees. There are banks that go only for homegrown solutions such as Deutsche Bank 

The challenges for automating the core business processes in this segment include high costs, especially for the commercial products, which are mostly marketed by overseas corporations leading to the dollar-rupees value conflict. The challenges of customization also exist in the Indian scenario in addition to strict adherence to regulatory frameworks relating to both IT and banking domains. There are no international standards that exist for major business processes. 

The BFSI sector is under legal surveillance from regulatory bodies as well. The banking sector has to comply by guidelines from RBI for customer information and transactional security, as well as all IT implementations, particularly for Net banking. IRDA sets guidelines for the insurance sector and SEBI rules the financial sector. The Ministry of IT governs transmission and security of the data over networks. 

By Sudarshana Mishra

Expert Speak Sanjay Sharma CTO, IDBI Bank

“Five years hence, banks would be a piece of software running somewhere on
the network” 

From the IT perspective, we classify the banking industry into three

  • Banks where all the processes are automated
  • Banks that are in process of implementing core banking software and
    setting up their networking infrastructure
  • Banks that are in the process of identifying the core solutions


In each category, the extent of IT usage and process automation varies. Most
of the automation happens in the core banking systems, while support functions
form a very small portion of the overall operations. IDBI falls in the first
category, and has automated all processes including HR functions. For instance,
to improve the TAT (Turn Around Time) for account opening, IDBI introduced
welcome kits, using which a customer could get all deliverables, such as cheque
books, debit card and channel pins, in one kit. The bank also introduced
products such as mobile recharge through SMS and ATMs, ATM locator on MMS
mobiles, Web-enabled ATMs, gift cards and travel cards. 

Today, IT has dramatically changed how banks operate. They have moved from
distributed to a centralized environment, have introduced multiple channels for
banking such as Internet, ATM, Mobile, IVR and call centers. It has affected all
core banking functions, back office and even support functions such as audit,
risk, operations, HR or business areas such as corporate, retail and treasury.
Critics might say that the benefits of IT implementations are being over hyped,
but that’s not really true. In fact IT has enabled the banking industry to not
only come out with new products and services but also enhanced the TAT by
bringing efficiencies in the backend processes. IT can help in many ways such as
with process automation thereby bringing down the over all operating expenses.
Products can be innovative and you can also scale up volumes with incremental
operating expenses.

But that doesn’t mean that IT implementation has reached the saturation.
Banks need to focus more on developing comprehensive and integrated solutions
for risk management, especially from the perspective of operation risk,
anti-money laundering and security threats arising out of multiple channels.
Another area where banks need to focus on is infrastructure management and to
the ever growing demands and expectations from business. As banks have gone into
multiple business functions such as government business, cash management, retail
assets, cards and mutual funds and, channels such as ATM, POS (Point of Sale),
Internet banking and mobile, multiple system and service providers have come
into picture. So, consolidation needs to happen for seamless flow of information
across products and channels. Therefore, while dealing with IT systems, it
becomes important to look into a vendor’s domain expertise and long-term
commitment to products and services offered. 

Probably five years hence, banks would be a piece of software running
somewhere on the network and would be just a few clicks away from customers!

Expert Speak KS BAJWA GENERAL MANAGER IT, Punjab National Bank

“The image of a good bank today has become synonymous with a very tech-savvy one” 

The banking industry worldwide has been on the forefront of IT adoption. In fact, the image of a good bank today has become synonymous with a very tech-savvy one. IT implementation has affected almost all areas of the banking industry, namely products and services for customers, delivery channels like ATMs, branches, call centers, Internet banking, management information systems, customer correspondence, correspondence with other banks and entities and back-office functions. And like with other verticals, IT implementation in banks is also a continuing process.

Take our own case for example. IT systems are used for all front-office and back-office functions. In our branch offices numbering more than 4,200, specific banking applications are used. In administrative offices such as the head office, zonal offices and regional offices and, for general correspondence with customers we use generic packages such as office suites and e-mail. And we have already started the implementation of human-resource management systems, which will integrate the various modules such as payroll, staff inventory, training and career planning.

A key trend in the last couple of years has been the focus on core banking systems. With the implementation of core banking systems across banks, the usage level of IT for customer management has increased. However, in the future, more focus is needed in respect of supplier management, and for more interaction with corporate entities for e-commerce initiatives.

Core banking systems have enabled banks to launch new products and services targeting specific customer segments, after understanding their banking and investment requirements. This has also enabled centralized monitoring and management of critical banking business parameters, remote audit of branches and better control over systems and procedures adopted across the branches. 

In parallel, real-time gross settlement systems have facilitated better liquidity management for the banking industry.
It is not to the banks alone where IT has delivered results. If anything, the advantages that our customers have derived out of the same investments have been far higher. ATMs, Internet banking and mobile banking have improved customer convenience by providing anywhere anytime banking services. 

Utility bill presentment and payment has helped customers pay their bills online at the click of a button. ECS (Electronic Clearing Services) and electronic funds transfers have facilitated faster funds movement and settlement across customers of different banks and different centers. And EDI (Electronic Data Interchange) and cash-management service facilities have enabled better funds management for the customer.

Does that mean that there are no concerns at all? Far from it! Remember I said in the beginning that IT implementation is a continuous process. Much still remains to be done. Older, standalone branch automation systems are not scalable. There is a need to migrate from those to newer systems. Training of manpower for using the new systems is a challenge. 

The existing arrangement with the unions/associations for redeployment of staff is one of the drawbacks of the proper utilization of staff after IT implementation. Integration of systems and providing interfaces among different applications for enabling straight through processing is also a task at hand. 

What else? Cost escalations, time overruns and scalability are concerns. So is vendor management. The scope of work of each entity must be properly defined with the inputs and deliverables. There should be proper timeframes for each activity that needs to be mutually agreed upon. Service-level agreements need to be entered into to take care of the requirements. With these in place, concerns in dealing with the IT vendors and consultants can be adequately addressed.

What about the future? As customers get exposed to the increased conveniences and benefits derived out of IT, they are becoming more demanding and require more convenience in banking. Ensuring availability and continuity of services 365X 24X7 is going to be a continuing challenge. Reducing transaction costs and ensuring security of customer information are also challenges on the customer side. Internally, ensuring proper deployment of resources, better knowledge management, data warehousing and data mining, effective management information and monitoring systems and optimizing returns are some of the challenges faced by the industry. 

From a macro perspective, it is expected that there will be consolidation in the industry through mergers and acquisitions and there will be four to five dominant players. This will call for major integration of systems. 

Core banking systems with centralized data will be predominantly used. Real time gross settlement systems will be the predominant mode of settlement and cheque truncation and e-cheques will be fully implemented. Banks will have to share various delivery channels and other utilities.

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