In the liberalization and financial reforms era, banks and financial services are about information and competitiveness. And we can see the change in mindset coming on at an inspiring pace. India’s largest PSU bank, State Bank of India, announced two major IT investments for a staggering Rs 700 crore in the past year and in addition the plan to install 1,400 ATMs in one go. More than anything else, it put to rest the doubts of many other banks smaller than SBI but with the same baggage of legacy. Competition from the neo-banks in the private sector that had the advantage of starting off on a clean slate and small scale have started threatening the PSU banks. The private banks are skimming off the creamy layer of corporate business and consumers’ banking habits are changing.

Indian banking product vendors like Infosys, TCS and iFlex have the experience of hawking their products in the global market. Until the past two or three years, these vendors found the Indian market to be a nightmare. The heads of PSU banks wouldn’t go in for their products because it had dreaded structural implications: centralizing the present four-tier structure in PSU banks. Even those that bought the "centralized core-banking solution" logic wouldn’t take the decision, deferring it to a time when their term got over.

All this is now changing.

Banks are actively looking at centralized core banking solutions. ATMs are being looked upon as the preferred way to expand retail presence. Multiple channels of banking are getting integrated. Banks are now looking at solutions that can provide a "one-view" of the customer across all service lines. Operationally, the banks are looking at advanced solutions to handle areas like cash and treasury management and putting risk management solutions in place. ATMs are getting shared through ATM networks. And technology infrastructure is getting secured through the setting up of disaster recovery centers. Taken together, these developments are nothing short of a revolution.

Even the open-source community has solutions for the banking industry. The familiar cost-advantage associated with such technologies can only help more banks adopt them and existing banks can save money. Asks Rajesh Jain, managing director, NetCore Solutions, "No bank would like to compromise on the technology architecture that it builds, but are there alternatives which can create a comparable technology base but at more affordable price points?" According to Jain, such solutions do exist and that too here and now. Considering that the Indian BFSI industry is one of the largest technology spenders, it needs to show the way in adopting alternative technologies. Jain adds: "But this is the one industry which has the clout to make a difference and create a ripple effect across the rest of India".

Changes in the regulatory regime and the move to participate in the global banking system are also spurring banks to look at technology-based solutions. The New Basel Capital Accord or Basel II seeks to contribute to the safety and soundness of the financial system of a country by implementing minimum capital requirements on credit, operational and market risk; executing new supervisory review processes; and improving market disclosure. Complying to the Basel II requirements is important for any Indian financial institution to participate in the global financial services industry.

The Reserve Bank of India (RBI) is making rapid progress towards setting-up the Real Time Gross Settlement (RTGS). The RTGS, when operational, would provide a new generation of high-value payments systems that would enable the core of the banking system across the country to make secure inter-bank payments across the country. The transactions will cover all the general transactions and central accounting of the RBI, including the bank’s general ledger. It is expected to enable about 205 Indian banks and financial institutions to interface directly. By underwriting all payments with collateral held at the RBI, the RTGS system will reduce "systemic risk" in the Indian banking system, thereby providing increased integrity and security for all inter-bank transactions.

Beyond banks, consider the Indian securities industry which is increasingly getting integrated with the global security industry.

Banks and financial institutions are battling different forms of risk. One of the primary building blocks for managing risk is straight-through-processing (STP). Studies have shown that the percentage of global trade failures resulting from unmatched trade data is of the order of around 15% of the total trades, which in monetary terms is upwards of billions of dollars. The STP technology framework seeks to provide these efficiencies by providing a seamless data flow both within the enterprise as well as across the market, without any manual intervention. According to Sajit Dayanandan, Financial Technologies India, "STP essentially treats the entire trade cycle as a single unit instead of a series of loosely related messages. The concept of STP is today further expanding into defining a full STP framework, which includes internal and external automation and also considers other interested parties apart from the basic settlement group of brokers, investment managers and custodians." STP will soon lead the way to a new evolving global securities Industry of tomorrow and radically change the markets.

One other critical area where a technology solution helps is in factoring which helps working capital financing. The global factoring business of $ 600 billion has been registering an impressive growth over the past 25 years. The importance of a specialised working capital financing variant, with the evolution of risk perceptions and management, is evident in the growth of the global factoring business.

Says Manoj Kunkalienkar, executive director and president, ICICI Infotech, "Today’s factoring software should be able to identify various risk elements of the business, categorise, differentiate and offer mature analysis to price risks competitively. For example, a particular transaction pertaining to a seller and a buyer based on the credit scoring of the buyer is plausible." He continues: "If the buyer does not practice the best of vendor policies in terms of actual payments towards his debts, the software should track these shortfalls dynamically and over a time horizon, and accordingly assist in internally downgrading the credit score and revisit the pricing accordingly." On the other hand, if another buyer is not so well rated but follows superior vendor policies, he should benefit accordingly. The point is factoring solutions have advanced with times and the only way to handle it efficiently is to use the appropriate software.

All this about handling increasing business efficiency, optimizing resources, and improving operational performance.

Customer-facing activities too are important. Solutions in the form of CRM have their place both in the transactional and analytic spheres. Here a unified customer view helps. Says, G N Nagaraj, vice-president-professional services, Onward Novell, "While the deployment of a unified view directly effects the bank’s bottom-line by virtue of facilitating the growth of a healthy portfolio, the right technology choice will help the bank sustain and increase it’s growth in the times to come when market conditions force the banks to collaborate with other banking and non-banking organizations." With banks and financial services companies coupling and decoupling with each other, the unified customer view will help both the bank and the customer.

Easwar S Nair