BFSI

Driven by IT

Banks and other financial institutions have been early adopters of IT. This is a mature vertical in terms of technology adoption. Servers, enterprise applications and desktops will be the top three technology areas that they will invest in this year. By Mohd Shariff PA

In a customer-centric world, the BFSI vertical has deployed the most advanced technologies in IT. In the process the banking industry has provided more touch points than ever existed. Needless to say the entire business model of this vertical now runs on IT. Today it has resulted in efficient and enhanced customer services. Mobile, Internet, ATM and retail banking with more kinds of loans than a customer can think of are all delivered courtesy of IT deployments. Organisations in this segment have underscored the importance of IT in their annual budget allocations; over 10 percent of the total expenditure at banks and insurance companies goes into IT deployments. Having said that, their investments in IT continues to swell as they spread their operations and replace older technologies with newer ones.

Banking has hogged the limelight, not only in terms of the wide scale of IT deployment but also in terms of handing out large contracts to vendors. V Nanjunda Murthy, Chief Manager - Data Processing, SBI, Bangalore says “IT deployments will continue to be crucial for the banking sector, particularly when the sector is looking for rapid growth. Banking players are now trying to figure out how we can manage the complex IT infrastructure that we have created and simplify it. Therefore technologies such as server and storage consolidation and virtualisation are of paramount importance for us. Overall, SBI has outlined plans to spend a huge amount on IT-enabling and connecting 30 percent of its branches countrywide.” Recently TCS bagged a huge Rs 200 crores order from the State Bank of India Group (including smaller state-owned banks).

According to survey, BFSI companies with an annual turnover of 300 crores and above are looking to make greater investments in IT. The report summarises that ERP, desktops and servers will be the top three technologies for BFSI and that companies in this sector are looking to adopt these technologies in a more effective way to optimise their business processes. P V Narasimha Rao, AGM, Corporation Bank, Bangalore says, “As we cannot think of riding a vehicle without diesel and petrol, now we cannot think of running a banking operation without advanced technologies. I must say that IT deployments have become a necessity of this technology age without which it would be very difficult to take an appropriate decision.”

According to the survey, servers emerged right on top of the top three technologies as the most significant IT deployment in the last year. About 22 percent of the 36 respondents said that servers were the most crucial component of their technology investment as it forms the basic building block of any IT infrastructure. Around 14 percent of the respondents put ERP as their next most significant IT deployment followed by desktops with 11 percent.

The outstanding performance of this industry segment is attributed to simple factors as most of the biggies in this sector have computerised their business and their network visibility has become the backbone for all transactions. A little loss of information will now result in huge transaction losses that translate into money, besides a loss of brand image. Because of this, it also becomes easier for vendors to pitch solutions such as CRM, storage, security and banking tools to the BFSI segment. Analysts say that banks and insurers look for ways to improve efficiencies, and IT provides the perfect tool.

Rao continues, “Private banks have been aggressively pushing their new products and services, and this has seen them eating up large slices of the market share of their public sector counterparts. PSU banks, which control about 65 percent of the banking industry today, are becoming increasingly aware of this aggressive assault on their territory.” In anticipation, and to ward off competition from private banks, PSU banks have finally got down to some serious IT planning. At the moment though; these initiatives are confined to the metropolises and larger towns. However, because private banks are free from certain bottlenecks, they have been able to scale up their network even in ‘B’ class cities.

x86-Windows combo is a hit

On server side it is Windows x86 that dominates the server market in this segment. According to survey, 75 percent of the BFSI respondents are using Windows-based x86 servers. Most banks have standardised their workload environment of x86 servers because of the better price to performance ratio. Murthy of SBI explains “We are using x86 servers in 50 of our Data Processing Centres that cater to about 10,000 branches country-wide. Totally there are about 50,000 x86 servers that are running various applications. All our new branches are running on x86 servers.” In addition to better price-performance, Murthy claims, “The domain skills on x86 servers are also more readily available than on Unix systems.”

Most banks in the past year have invested in x86 servers because of the total branch automation, computerisation of all braches and to roll out a Core Banking Solution (CBS). HDFC Bank, UTI Bank, Bank of India, Bank of Baroda, all are using x86 servers from different server vendors.

On the Unix front a good 50 percent of the BFSI respondents are using these servers for running their business critical applications such as CBS, retail banking and governance and compliance/risk management. About 56 percent preferred Linux. However if you look at future investments, we see that 50 percent are willing to invest on Windows x86 and 42 percent on Linux. Unix has seen a slip in terms of future investment with only 19 percent planning to buy more Unix boxes. This factor can be attributed to the fact that most backend application deployments are already done and all the new modules to the CBS are now happening on x86 servers. Murthy of SBI says, “When it comes to high reliability and scalability for our core application we trust only Unix systems. We are running a HP Superdome server under a Unix/Oracle environment with 64 CPUs to run our CBS, B@NCS-24. There is another HP-Superdome used for the DR application site.” The original benchmark by SBI measured more than 1,500 transactions per second (five million transactions per hour).

HDFC is running its core banking application, Flexcube Finware on a pSeries p5 570 server running AIX. Lakshmi Vilas Bank is running a core banking application from ICICI Infotech on a HP-UX Unix server. YES Bank runs its Core Banking on a p5 550 on AIX and its Cash Management and Treasury application on clusters of p5 520s on AIX.

According to the survey, Linux will continue to lead the market for quite some time. For example UTI Bank’s entire call centre runs on Linux servers that handle over 7,000 calls per day. 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 a 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.

After an extensive evaluation, the banks realised that Red Hat Enterprise Linux, with its transparent framework, was the right fit as it delivered the necessary performance, security, flexibility and scalability that were critical for the success of the project. S.K Misra, general manager, Indian Overseas Bank Ltd, Mumbai says, “By running CRM infrastructure on an open, standards based platform like Red Hat Enterprise Linux, BPOs can achieve significant TCO reduction along with high performance and security. Many believe that Linux has traditionally been popular at the edge of the network. Today it is moving towards the database and application tiers. The low cost of acquisition and investment protection on hardware are strong reasons for enterprises to run their core applications on Linux. If hardware and software costs are critical factors, Linux on x86 offers attractive price points, particularly when compared to the RISC-Unix system configurations.

Enterprise apps are business tools

According to the survey we can see that 55 percent of 22 respondents have already deployed ERP. Even other enterprise applications such as CRM and BI and SFA have substantial adoption. About 45 percent of 22 respondents are using CRM, and 32 percent are using BI for strategic reasons.

If we look at the future deployment planning we can see that 47 percent of 36 respondents in the BFSI segment want to invest in CRM application and 33 percent in BI and 33 percent in ERP. So CRM and BI would be the next technology spending areas for BFSI. Additionally 33 percent are planning to spend on databases, 28 percent on messaging and 19 percent on middleware applications. ABN AMRO is using a SAP solution to manage client account information for global cash management operations. Deposit management, financial customer information management and reporting functionality from the SAP system help ABN AMRO centralise the management of account portfolios for its multinational clients as well. This provides a single view of global account structures and enable, for example, global management of credit limits. ABN AMRO is further standardising its cash management operations with SAP to a single account management platform.

SBI uses mySAP ERP to automate and seamlessly integrate its human capital management (HCM) processes across the State Bank Group an activity that is part of the bank’s efforts to transform its operations and prepare for future growth. The enterprise resource planning (ERP) application from SAP will serve State Bank Group’s global strength of more than 370,000 employees and retirees, making it one of the largest HCM implementations in the banking industry globally. Murthy says, “We will leverage the opportunities created by this transition to unleash the potential of the employees and help the bank integrate, streamline and transform employee processes and to consolidate our leadership position in the marketplace and remain competitive.”

Bank of Baroda is implemented a Core Banking Solution that cover various applications such as Enterprise-wide General Ledger, Risk Management, Anti-Money Laundering, Cheque Truncation, Credit Cards, Mutual Funds, On-line Trading, Data Warehousing, Customer Relationship Management, RTGS, Global Treasury, Securitisation, Human Resources Management System, Employee Pay Roll. It has been rolled out in 1,048 branches across the country. The bank has tied-up with HP for a complete business transformation.

According to Anand Sharma, Assistant GM-CSD, Bharath Overseas Bank, among Indian BFSIs, there is a general awareness of the theory and concept of BI. “However, there is no clear-cut vision or purpose for BI in this sector or any other sector in India. This might be due to the lack of knowledge of BI tools as well as confusion created by overly publicised failures of BI initiatives, which, in my opinion, were never truly BI initiatives. The BI market, in the US in particular, is a mature market. BFSI organisations in the US have demonstrated significant top line and bottom line benefits,’’ he says.

UTI Bank implemented Oracle 11i E-business Suite for its CRM needs. An IVR extracts customer data, which is populated on the call centre agent’s desktop. With a browser-based view of customer records, the agent can process customer queries faster, resulting in higher throughput.

Indian enterprises are expected to demand intelligent solutions as they face greater competition from domestic and global companies. Data warehousing and data mining tools that drive the market today are expected to give way to sophisticated solutions such as business performance management and churn management in the next two to three years.

On the desktop

As far as desktops are concerned, the industry has shown healthy signs of growth. At present 94 percent of 36 respondents in the BFSI sector are using PCs. According to the survey an equal numbers of players are using notebooks in their companies and only 28 percent are using Thin Clients. Most sectors are planning to continue investing on desktops and PCs continue to have an upper hand in terms of upcoming investments. Moreover, 67 percent of the respondents in the BFSI segment are planning to invest in PCs. Almost the same number are planning to spend on notebooks too. Thin Clients maintain the same low volume of investment of 28 percent. Sharma says, “Desktops are productivity tools for any business. All our data entry, banking transactions, daily customer transactions at the branch level are done using desktop PCs. Top management and decision makers including our sales and marketing people are using notebook PCs. Account information such as High Net Worth accounts, branch targets and revenue utilisation data are available on notebook PCs for the decision makers. It helps them in taking spot decisions.”

Murthy explains, “Desktops and notebook PCs add to the productivity of banks. We cannot do any transactions without PCs. Most IT infrastructures spending decisions are taken at the corporate level based on lowest bid on tenders floated by the SBI. Most of the data up to the branch level are available to the senior manager on a notebook PC. They are better equipped to handles daily operations.”

YES Bank has installed IBM (now Lenovo) ThinkPads and desktops in all their offices.

IT is significant

There are reasons why IT deployment is so significant for the BFSI sector. IT investments are becoming more strategic in nature and are accompanied by organisational and process changes. According to the survey, deployment was part of corporate strategy for 53 percent of the BFSI respondents. If we look at the other reasons that survey projects that 44 percent of the respondents are of the opinion that a deployment is happening since it involved major organisational or process changes within their organisation. About 39 percent says that the complexity of the implementation as it involved a lot of process changes within the organisation made it important. Interesting thing is about 44 percent say that the extent of the implementation was across geographic regions and 33 percent say that it helped them to come in level to the industry standards. For 42 percent of the respondents it was significant because a very high financial investment was made.

Among the 36 survey respondents from the BFSI sector only one in six had IT projects in the range of Rs 100 crores and above. The bulk of the respondents had made an investment in the range of Rs 1 to 20 crores for their most significant deployment last year. Private banks in particular are investing more on IT deployments. Mohd Zubair Khan, assistant branch manager, Jamia Co-Operative Bank Ltd, New Delhi says, “Private banks have had the advantages of working in a fully automated work environment right from their inception, and this has taken them to the point where they are on par with foreign players in terms of technology implementation and usage. Private sector banks can change quickly with changing market trends and demands—they do not have to deal with a cumbersome legacy infrastructure, unconnected branches or having to transform the pool of manpower resource—all problems that plague public sector banks.”

Increased competition and the introduction of high-end services by IT enabled banks are compelling those moving at a slower rate to carry on. They cannot afford to pull back the process of computerisation that was kicked off earlier. Also when banks initiate some service it cannot suddenly be discontinued. Most banks started investing on CRM, data warehousing and mining. Others were seen actively integrating systems and networking their branches. According to survey the march continues.

IT is an enabler

Johnson, EDP In-charge, Venkataraman & Co, Chennai says, “All modern organisations, especially those in the services industry, need technology as a fundamental pillar. No organisation in any segment of the industry enjoys a position that is free from competitive pressure. In such a milieu, organisations must adopt a dynamic approach particularly with respect to customer satisfaction and service.” Cutting edge technology enabled businesses are increasingly becoming commoditised as rivals are adopting the same technology. Thus a culture of operational excellence and continuous innovation supported by IT is required. S Raghunath Reddy, Asst VP (IT), UTI Assets Management, Mumbai says, “Banks need upgradation and customisation as each bank is unique, has different business goals and a different business mix”.

The cost of the most significant IT deployment had a share of between 10 and 50 percent of the total IT budget in most cases. Most BFSI organisations are looking for rapid growth and no one wants to be left behind. Particularly everyone has extra concerns over their business to meet targets by beating their competitors. In this race many have spent an excess amount on IT deployment, the survey shows that many BFSI organisations have exceeded their spending on IT deployment. Citing the reasons for overshooting their budgets, about 71 percent of the respondents said that prices of various products/services had increased. 65 percent were of the opinion that they opted for a better technology or product, which turned out to be more expensive. Sometimes a project exceeded the timeline and underestimation of budget also caused excess spending on the deployment.

Adil Shaikh, IT Manager, ABN Amro, Mumbai says, “Our technology and product platforms are state-of-the-art to deliver solutions that take into account the present and future needs of our customers. It is our constant endeavour to provide solutions to improve customer confidence, offer convenience and provide a reliable and user-friendly experience. To achieve the targeted goal we need to have advanced technology, we don’t make any compromise on that front.” Private banks are continued their fest of expansion in India and they are extending their product range by having a strong technology backup. Most BFSI organisations update their technology base from time to time. In other words whenever they feel that they need to go for new technology, we have seen the trend that BFSI never compromise on that. In this way, upfront technology consumption in the BFSI sector will continue to grow.