What Rahul Dravid is to the Indian cricket team, the BFSI sector has been to the Indian IT industry for the last few years: steady and reliable (a healthy 22% growth in FY '06 following the heady growth of 46% the previous fiscal), consistent (accounting for 23% of the domestic IT market after contributing 25% and 24% the previous two years) and the mainstay (at Rs 12,862 crore, it spent nearly double the next vertical, telecom). It was mostly the banks and insurance companies amongst Indian enterprises that rode high on the IT maturity curve; in many of them, IT adoption was in fairly mature stages. No wonder then that these banks, along with a few of the telecom service providers, comprised the heaviest IT spenders among Indian organizations.

Total Outsourcing Emerging as the Norm
For the last few years, total IT outsourcing had been the most prominent trend that marked the IT maturity of the BFSI sector. The Bank of India and Bank of Baroda contracts with HP, ones that pioneered this trend, entered their third and second years respectively during 2005-06. While the hardware deployment and networking part as well as application rollouts were more or less complete, this year saw more of the consulting phenomenon coming into the forefront of these engagements. Bank of Baroda looked at adopting a change management approach, whereby HP consulted with them to create a model branch.

New total outsourcing deals were also signed during the year. HDFC Bank inked a ten-year Rs 360 crore contract with Wipro Infotech for IT outsourcing that involved provisioning of IT infrastructure for branches, infrastructure management for data center, networking, end user support and level 1 application support. UCO Bank also selected HP to manage its IT infrastructure. Under the five-year contract, HP would implement and manage the core banking solution (from Infosys) across 1,000 branches of UCO Bank. The areas in which HP would provide its services include customer support services in implementing and supporting an adaptive IT infrastructure, consulting and integration services in implementing the entire application stack and full spectrum of outsourcing services.

SBI Dominates the Show
India's largest bank State Bank of India (SBI), also topped the chart in IT spending in the BFSI sector. The year saw Datacraft complete the third phase of SBI group's marathon networking project. All its associate banks and the entire Kerala and Bangalore circles were fully networked in the fiscal; with 10,000 networked branches, SBI now has the country's largest network for one single corporate entity.

The other big news from the SBI front was the formation of its JV with TCS to set up a new company C-Edge Technologies with an authorized capital of Rs 40 crore. C-Edge is playing a key role in deploying the FNS core banking solution in the role of a preferred SI and leverage the experience both organizations have gained in the core-banking roll-out in the State Bank group. 

BFSI Gets the Linux Tinge
BFSI emerged as a powerful Linux votary during the year: it, in fact, accounted for nearly 30% of the overall Rs 144 crore Linux market. The UTI Bank call center that handled over 7,000 calls per day was running on Linux. Canara Bank and Central Bank deployed Linux in over 2,000 branches while Allahabad Bank did so in 800 branches. On the insurance side, Life Insurance of India (LIC) planned Linux deployment across 30,000 desktops, New India Assurance scaled up to 23,000 and so did Bajaj Allianz. Indiabulls too was running its Internet trading platform on Oracle 9i on Linux.

This Indiabulls trading platform handled 40-45% of its overall revenue transactions-nearly 10,000 customers were online at any point of time and transactions were in the range of Rs 1,000 crore running on Linux. Indiabulls' online share trading infrastructure generated close to 150,000 database queries per minute. The IDBI Bank was using Oracle HR management and financial accounting systems, which were running on Linux.

Embracing Domestic BPO
Domestic BPO was another emerging area that witnessed increasing interest amongst BFSI organizations. On this front, SBI outsourced its customer support operations to MphasiS for about Rs 250 crore. Under the deal, MphasiS provides predominantly voice-based inbound services for the bank from its Noida center. India's #2 bank, ICICI was running two large call centers in Mumbai and Hyderabad set up at Rs 20 crore and Rs 50 crore respectively. While the Mumbai center had 700 seats, Hyderabad had 1200. HDFC Bank, one of the first banks in the country to launch call centers, serviced 80% of its customers through 13 centers located across the country during 2005-06.

The Syndicate Bank became the first public sector bank to enter the BPO segment when the Reserve Bank of India cleared its proposal to float a new subsidiary for undertaking BPO activities, with an authorized capital of Rs 10 crore and subscribed capital of Rs 1 crore. Eventually, this entity would also cater to the back office needs of other banks, mutual funds and RRBs. Bank of India also started a business process re-engineering (BPR) exercise, encompassing centralization of operations not requiring customer interface as well as restructuring of the organization in view of changing business requirements. Even on the insurance front, there were increasing BPO movements. Birla Sun Life Insurance, an Aditya Birla group company, started outsourcing some processes to its sister concern Transworks.

Tracking Growth

The AML and Basel II Conundrum
While a study by Juniper Research predicted that the bullish economies of India and China will fuel a five-fold increase in annual mobile retail (m-retail) transactions for the rest of Asia-Pacific by 2008, banking experts were concerned about anti-money laundering (AML) issues associated with m-commerce. The chief concern was about the ability of banks in India to deal with the AML issues in mobile transactions. AML solutions were deployed in FY '06 at the back-end operations in the BFS sector and it was apparently difficult to detect suspicious behavior at the front end.

The AML solution for banks needed to shift focus into dynamic risk profiling and move into risk assessment matrix. The current know-your-client norms were static and specified only basic data such as residential address, locality and educational background, among others. The risk profile of each customer needed to change based on current account activities. This included suspicious financial transactions or sudden fund transfers in accounts that would not otherwise see such activities. With both SEBI and RBI pushing forth the idea of AML compliance, the business of AML software is poised to hit a new high in FY '07. Modern AML tools need to change from conventional know-your-client (KYC) methodology to risk assessment matrix and track customers' current transaction patterns as opposed to his account activities of the past.

Other than AML, Basel II compliance was the other crucial issue debated in the Indian banking sector during FY '06. As the deadline to start implementing Basel II inched closer, Indian banks needed to get their act together and step up their efforts to become Basel II ready. Commercial banks must see to it that they have tools and provisions in place that ensure comprehensive data collection and analysis, which is the foremost criteria for Basel II compliance. Basel II accord emphasises on regulation and risk management and banks that can manage risks effectively will not only maintain a rock-solid financial structure but also gain an edge over the competition.

The ATM Story
Last, but not the least, ATM deployment continued to remain another heavy duty IT investment area for banks during 2005-06. HSBC joined CASHNET, a shared ATM network, taking the total number of ATMs in the network to over 6,040. HSBC has 169 ATMs. The other banks that were part of CASHNET were Citibank, Centurion Bank of Punjab, Corporation Bank, Development Credit Bank, Deutsche Bank, Dena Bank, Dhanalakshmi Bank, IDBI Bank, ING Vysya Bank, HDFC Bank and UTI Bank. CASHNET was being managed by Euronet.

Bank of India also entered into a bilateral agreement with State Bank of India for sharing each other's network of ATMs. BoI is also part of the Cash Tree and Bancs network which together accounted for access to 7,000 ATMs. With this tie-up, BoI clients had access to a total of 12,500 ATMs. The new arrangement added another 5,500 ATMs of the SBI network. Reserve Bank of India also permitted well-managed scheduled and non-scheduled Urban Co-operative Banks (UCBs) to set up select off-site/on-site ATMs. It was decided to dispense with the requirement of prior RBI approval for network connectivity and/or sharing of the ATMs installed by UCBs.

Rajneesh De
rajneeshd@cybermedia.co.in

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