another example of the Credit Card industry's deceptive advertising targeting children
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Saturday, May 28, 2005

IT infrastructure bottleneck for Indian Bankers

All these great IT plans for Indian Bankers, and yet the law in India says that this is all illegal. Read the HACKING COMPLAINT on this website to learn why.

Banking on IT

Increased competition is driving Indian banks to invest in technologies for enhancing their delivery channels, says Sushma Naik

Indian banks were among the first to deploy IT and automate their operations to gain efficiencies, improve overall productivity and beef up customer support. The IT adoption wave, generated by MNC players in the banking arena, has touched PSU banks and financial institutions as well. Increased competition from IT-savvy foreign banks and specific computerisation guidelines laid down by the RBI have catalysed IT adoption by BFSI.

With extensive IT budgets, organisations in this segment continue to represent a huge revenue opportunity for India’s IT solution providers. Large banks are increasingly moving up the value chain by setting up new delivery channels. While ATMs are still the most popular delivery channel available for a bank, banks are innovating and using the all-present mobile phone to interact with their clientele. The survey highlights the fact that 50 percent of respondents in this sector plan to launch new products and services. Banks have realised that providing good customer service is key to retaining customers. 44 percent of respondents say that customer service and relationship management are their top IT priorities. On IT spend, this sector beats the likes of oil and telecom. For FY 2005-06, companies in this segment will spend Rs 40.40 crore, way beyond the average of Rs 13.07 crore for large businesses. Banks are investing extensively in infrastructure, as they know that without a good technology foundation, delivery channels will be compromised.

Banking at the core

According to most of the banks, the core banking application is the most crucial and critical. This is because every new service, be it an ATM, debit card or Internet banking, requires a core banking application at the backend. Additionally, banks have started diversifying their product and service portfolios by offering mutual funds, insurance products and cash management services. That said, some Indian banks believe that core banking vendors now have to look beyond providing a centralised solution, offering retail and corporate banking functionalities. Most core banking products lack cash management and treasury functionality.

Frameworks for operational risk activities such as anti-money laundering should be built into core banking solutions. According to Sanjay Sharma, Head, IT, IDBI Bank, “To differentiate between a genuine customer and a fraudster, the bank will not only need to know the complete customer behaviour but also the transaction details. These features need to be integrated into a core banking solution. This will help a bank identify exceptions (fraudsters). Currently, this is done offline and is a separate function in banks.” However, increased competition among vendors will result in a trend where core banking players will focus more on such features.

The insurance sector also needs integrated systems to handle the different products that it sells. Thomson Thomas, IT Manager at HDFC Standard Life Insurance says, “We are looking for a single-policy administration system that handles the entire range of individual and group products in the life insurance space.”

Knowing the importance of competing with large players, co-operative banks such as Saraswat are investing in core banking applications. Explains Urvashi Dharadhar, its General Manager for IT, “Core banking is important as it can help us get a centralised view of operations.” Dharadhar also says that a core banking foundation is essential for providing new services such as ATMs or mobile banking.

Connectivity—a sore area

Networking branches is a priority, and there is a need for robust connectivity. Currently, companies in this segment invest 14 percent of their IT budget on bandwidth and connectivity. Additionally, as banks start adopting new technologies, their bandwidth requirements are expected to shoot up. 77 percent of respondents in the banking sector predict an increase in their bandwidth requirements. A case in point is Indian Bank. The bank is planning to rise its bandwidth capacity from 64 Kbps to 2 Mbps as it intends to use video conferencing and VoIP applications. In India, banks such as Bank of Rajasthan (BoR) and State Bank of India use VoIP to slash their communications costs. As most average-sized Indian banks have hundreds of branches, the savings on telecommunication costs accruing from routing inter-branch calls via VoIP can be quite significant.

Take the example of BoR. Like other large banks, BoR was running up huge inter-branch and HO-to-branches telecommunication bills. As the bank already had a network in place, which connected its branches, it decided that the cost savings of routing calls on its network could be substantial. Accordingly, BoR selected D-Link’s products for setting up a VoIP network. Currently, the network connects over 200 branches and 12 regional offices. As the network is both voice and data-enabled, the cost of inter-branch calls has plummeted. The bank uses the same data pipe for both voice and data. Unlike any other technology where organisations have to wait before they can justify the return on investment (ROI), IP telephony provides instant results. As almost all the voice calls of about 200 branches are routed through the network, the ROI is phenomenal. For example, calls between branches in different regions typically used to cost thousands of rupees. As these are now being routed using IP telephony, the savings are significant; sources at the bank estimate that the bank will get its ROI within 8-12 months.

While the cost of bandwidth has been falling steadily, banks face challenges as they move into rural and semi-urban areas. For instance, Indian Bank is concentrating on expanding in rural and semi-urban areas. One of the biggest problems for it is finding good connectivity options. Additionally, finding the technical manpower to manage its hardware and software is a hurdle.

Availability of good connectivity across the country is an obstacle. Comments K Sai Kumar, Assistant General Manager, Indian Overseas Bank, “Even today, many of the telephone exchanges still run on generator sets which cannot operate and link with other networks.” Sai Kumar adds that as most banks are looking beyond saturated urban markets, they are moving into semi-urban and rural areas. While some banks are looking at alternative options such as VSATs, most are sceptical about investing in connectivity in regions that do not contribute significantly to their topline today.

IDBI Bank concurs that one of the major pain points for banks is connectivity in semi-urban areas. This is primarily because, apart from BSNL, there is no player who has the reach in remote areas. Apart from this lack of choice, in case of a failure, the entire network goes down.

Like banks, even players in the insurance domain are realising the importance of getting networked. Every branch office of insurers is networked with the HO. This helps the branches submit MIS reports. Data is collated from branch collection centres, and customer queries are addressed centrally. “A networked infrastructure helps answer queries even if the person does not have an account at a particular branch,” says Seema Sridhar, Deputy Secretary, IT, LIC.

Private insurance players such as HDFC Standard are also realising the importance of good infrastructure. Opines Thomas, “From an IT standpoint, the challenges faced are due to high business growth. Hence, there is a need to continuously upgrade servers and storage, monitor database growth, and build scalable applications. As we have a centralised set-up, bandwidth management is a key area.”

Mixed bag of servers

In terms of existing server infrastructure, Windows is the preferred platform. Unix and Linux are almost equal and second to Windows. Unix is the preferred platform for running core banking applications. Linux is gaining ground. In India, IDBI Bank, Central Bank of India, Kotak Bank and LIC are using Linux servers as part of their IT infrastructure. Apart from cost, assured support from vendors such as Oracle has helped tilt the scales to favour Linux. For example, LIC has chosen Linux for running its home-grown applications, as it allows the organisation to customise the OS.

The likes of IDBI Bank have been aggressive on the Linux front. Linux has been used widely in the IDBI set-up and the bank began experimenting with it in 1997. Like most organisations, it started with an e-mail management system. Sharma was impressed with the system as it scaled from 600 users to 2,000 users without requiring additional hardware. Thrilled with the results, the bank started looking for applications that could be run on Linux. An opportunity materialised and the bank deployed Oracle HRMS and Oracle Financials on Linux. IDBI’s hesitancy was overcome when Oracle certified the Linux platform backed by a promise to solve issues related both to its product and the underlying operating system. As Linux promised a minimum 30 percent savings in fixed costs compared to RISC-based platforms, the bank went ahead, and though its Oracle HRMS system scaled up, this was accomplished without additional capital expenditure on hardware. The system currently handles 2,000 users spread across 100 offices in 69 cities. Apart from this, the bank’s IVR phone-banking application runs on Linux.

Those CIOs who have experimented with Linux are impressed. “Linux support options, both structured from third-party vendors and unstructured through Web forums, are quite helpful today. Moreover, initiatives undertaken by vendors have removed many apprehensions,” opines Sharma. IDBI Bank is also experimenting with Linux-based security solutions such as firewalls. Linux desktops are next on the roadmap. But the decision to move to Linux on the desktop will happen only when there is adequate vendor support.

Oracle putting its weight behind Linux and announcing a unique support policy has helped the penguin gain ground in the Indian banking space. Companies that run Oracle products on top of Linux include Kotak Mahindra Bank, IDBI and the Central Bank of India. Additionally, Oracle’s partner, Zenith Infotech, has about 35 clients in the banking vertical who have deployed Zenith’s branch-automation product using Oracle on Linux.

IT and compliance

Banks have to follow regulations mandated by industry organisations such as the RBI. This has led to an increased focus on using IT to adhere to regulations. The survey reveals that spending on audits for regulatory compliance accounts for 7 percent of the overall expenditure on IT. This is expected to go up to 10 percent in fiscal 2005-06. Regulations such as Basel II have been made mandatory. Basel-II norms aim at enhancing business by better management of risk and intensive data analysis for risk measurement. Additionally, the RBI has issued guidelines to private and public-sector banks to prevent money laundering. ICICI Bank, SBI and IDBI Bank have installed anti-money laundering software to monitor suspicious transactions. It is illegal for banks to enter a transaction related to funds derived from criminal activities, or even to process or transfer such funds. The absence of a system to detect money laundering can hit banks as the government can fine them in case account holders are found laundering money.

Vendors such as i-flex Solutions and SAP are eyeing opportunities springing up from adherence to regulations. For example, SAP has entered the Basel II-compliance market with its Bank Analyser solution. It remains to be seen whether SAP will be able to take on players such as Infosys and i-flex Solutions in the banking segment. The SAP Basel II solution helps banks conduct credit risk assessment. Analysts believe that the bulk of IT investments in this sector would go towards adhering to regulations.

The natural corollary of Basel II adherence is bulked up storage requirements. This is primarily because Basel II regulations mandate that historical data needs to be stored. Currently, this is a challenge for banks as most of them have moved from paper to legacy systems to a core banking solution. Companies in the insurance sector are only marginally affected as they are only governed by local rules for insurance organisations and these do not contain such strictures.

Pooling data

For a customer-centric industry such as banking, it is not surprising that data warehousing and mining are increasingly being deployed. 63 percent of respondents have invested in data warehousing, data mining and business intelligence tools. CRM is also popular with 47 percent having invested in it. Indian Bank is implementing a CRM solution to help it roll out new products and services based on customer feedback.

Banks are also investing in setting up data warehouses for pooling in data from every possible delivery channel. HDFC Bank has invested in setting up a data warehouse for pooling information from every point of contact—be it ATM, branch or the call centre. This data warehouse acts as the fount of information for marketing, product management or finance. HDFC Bank has also selected a CRM analytic solution from Reveleus, an i-flex subsidiary. This solution helps the bank create a consolidated view of the customer across multiple touch-points. One view of the customer also means that it is possible for the bank to cross and up-sell products to existing customers. In addition to CRM, the bank has implemented an analytic solution for measuring the success of its delivery channels and usage patterns of the same. This helps the bank migrate customers to more cost-effective channels.

Similarly, insurance giant LIC has embarked on an ambitious initiative, whereby it is putting together a 60-terabyte data warehouse—said to be the largest data warehouse project in India. This data warehouse will cater to business volumes larger than 160 million insurance policies of 130 million policyholders. With more than 24.5 million policies sold every year, LIC is one of the largest life insurance companies in the world. The company is pinning its hopes on a data warehousing solution from Teradata that it is counting on to understand the usage profiles of customers and policies in order to customise offerings. Once the data warehousing initiative is centralised and linked, all customer interactions will be trackable. “Presently we have a customer identity number which allows us to track customer details. The data warehousing initiative will take customer relationships to a new level,” says Seema Sridhar.

CRM is expected to be hot in the insurance sector with private players driving adoption. Players such as ICICI Prudential Life Insurance and Aviva Life Insurance India have hugely benefited from this technology. While CRM has helped ICICI Prudential Life capture more than 5 lakh customers through event-based marketing, in the case of Aviva Life Insurance, it has helped the company expand to rural areas.

Outsourcing is a mature concept among the banking fraternity. While 21 percent of respondents began outsourcing more than five years ago, 36 percent have initiated the process 3-4 years back. Most banks believe in partial outsourcing. Only 21 percent of those who outsource have gone in for total outsourcing. Even Yes Bank, which has outsourced its IT infrastructure entirely, has reservations about the concept. While the bank has completely outsourced its IT requirements, it has retained the option of choosing technology and defining the roadmap. The biggest factor stopping CIOs from outsourcing everything is the dependence on a single vendor that this entails. Most CIOs like to have a choice of vendors for different aspects of outsourcing.

According to C N Ram, Head of IT at HDFC Bank, “For outsourcing, we have experimented with different vendors to keep our options open.” While the concept of IT outsourcing promises fewer headaches, choosing the right partner is critical, as is the domain knowledge of the vendor who has to keep track of regulatory changes. Ram adds, “Compliance is very important for a bank. It is vital that vendors have strong knowledge about these issues.”

While the ROI on outsourcing is difficult to quantify, most CIOs believe that the savings in manpower and training justify it. “Before deciding on outsourcing, we worked out an internal estimate. We found that we could derive 30 percent savings by going ahead with total outsourcing,” affirms H Srikrishnan, Executive Director of Yes Bank.

With increasing comfort levels vis-à-vis the concept of outsourcing, banks are farming out ATM management and bill payments. Banks such as HDFC, ICICI, Citibank, ABN Amro, SBI and Punjab National have outsourced their electronic bill payment requirements to specialist service providers such as BillDesk and BillJunction. Here, a single agreement with a bill management company gives a bank the opportunity to offer EBP services without having to invest in creating a technology infrastructure. ATM management outsourcing is a relatively recent trend. A large number of banks such as Centurion Bank, IDBI Bank, Citibank, Corporation Bank, UTI Bank and HDFC Bank have chosen to outsource their ATM management to specialist service providers.

As companies in the BFSI sector move towards enhancing their delivery channels with the goal of offering a better experience to the customer, expenditure on IT is going to be aimed at creating value rather than enhancing basic infrastructure.

— With inputs from Shivani Shinde

sushma@expresscomputeronline.com

Another Standard Chartered sucker scheme

Sarbajit Roy's infamous Hacking Complaint had disclosed to RBI that the Manhattan Credit Card was not a Standard Chartered Bank Credit Card at all and was developed to sucker people into another entrapment scheme. Here Virat Tyagi (the new SCB head of Credit Cards after Shyam Shrinivisan) fled to Malaysia confirms to PTI that Manhattan is indeed another animal altogether

Cash or Card...StanChart Bk launches 5% cashback offer 5/27/2005 6:42:24 PM IST

Standard Chartered Bank on Friday said that, it has introduced its fuel cash back offer on all its Standard Chartered Bank credit cards & Manhattan.

Commenting on the launch, Viraj Tyagi, Business Head, Credit Cards, Standard Chartered Bank said, "We want to make Standard Chartered the preferred card for all purchases among our 1.8 million card members. Our promotional 5% Cashback promotion stands unmatched and is valid for a period of 3 months starting May 20th till July 31st, 2005.Just filling the vehicle with Rs 1000 worth of fuel every week guarantees a save of Rs 650 over the promotion period."

The fuel cash back offer is applicable on all Standard Chartered Credit Cards and at all petrol pumps in the six top metro cities. With an offer that tops convenience, this is one incontestable value-add for Standard Chartered card holders.