Charting Success for New Banks in India : Perspectives And Strategies
By Gaurav H-Oracle on Dec 12, 2013
Earlier this year RBI opened doors for a new set of private banks into the Rs. 73 trillion worth banking sector in India through "The Banking Laws Amendment Act 2012" and received as many as 26 applications for bank licenses.
Unlike last time in 2001, when RBI had not fixed any limit on the number of new licenses it would issue, the current prudential norms and eligibility criteria set by the body will ensure that only selected applications see the light of the day. In a few months from now RBI will be announcing the names of those companies who have qualified for new banking licenses.
The entry of these new banks, no doubt, will disrupt the Indian financial system, albeit in a positive way. Experts believe the entry of these new participants will serve as a catalyst for the banking industry to rise to the next level in terms of operational efficiency, corporate governance and providing a wider geographical coverage. They also believe that innovative use of technology is going to serve as a big differentiator as these banks develop their business models.
At an Oracle hosted executive seminar in November 2013, leaders and practitioners from the banking fraternity and Oracle shared their experiences, views and recommendations with new banking aspirants. Topics discussed included the following
- Building a new bank – globally successful business models
- Cost effectively managing Financial Inclusion
- Preparing and addressing the regulations as a bank
- The blueprint for a responsive, secure, scalable and yet flexible banking operation
Quoted below are some of the initial views that are developing around what new entrants need to charter their success in the Indian Banking sector.
At the seminar, Mr. V S Radhakrishnan, Managing Director and CEO, Janalakshmi Financial Services highlighted the role of technology in helping the new aspirants build their business models. He said “We don’t have a choice but to accept technology. I think technology is the only way we will be able to access customers at the last mile. We need controls, last mile technology connectivity to provide multiple products to customers and technology to be able to scale. Using technology innovatively is going to be the challenge for new bank aspirants.”
The opening keynote was delivered by Mr. M V Nair, Chairman, Credit Information Bureau of India Limited, Former Chairman and Managing Director, Union Bank of India who led one of the first large public sector bank core banking implementations in India, whereby more than 2000 branches were computerised. He said, “It will be important for new bank aspirants to create a differentiator for themselves and I believe this will be determined by the way they embrace technology. Understanding the need of the customer or analysing the data or offering a product at the right time will make a big difference and technology has a role to play there.”
In fact the RBI guidelines mandate that all new proposed banks would need to operate on a corebanking platform right from the start and they would need to deploy modern infrastructural facilities for varied services in treasury, trade finance, retail or corporate banking, wealth management among others.
Not only this, the guidelines stipulate the need for banks to be able to analyse transactional data for financial modelling and risk management under the Basel framework and transaction monitoring and reporting under the Prevention of Money Laundering Act.
In accordance to the above, the new banks need to seek extremely high level of productivity as regulations get tougher, competitive landscape changes faster than ever and customers seek heightened levels of service. Agility will be key for new banks to become successful.
Added Mr. M V Nair, “Banks and financial institutions are not just users of technology. They have driven (and continue to drive) innovations in technology. Banks have changed in their operations and moved towards universal banking along with the increased usage of technology and technology-based services offering alternate channels such as smart cards, ATMs, usage of the internet, mobile and social banking. Banks have started deploying core banking, human resource management (HRM) and enterprise risk management (ERP) and process re-engineering etc. to improve on their performance and productivity. Majority of banks are insisting on cashless and paperless payment modes. To see further growth in the banking sector regulators and policy makers have been emphasising on financial inclusion to cover all sections of the society. Half of India's population does not bank. Now, this mammoth task is not possible without effective and efficient use of technology.”
In order to cope up with the volume of transactions that transpire in banking today core banking systems are deemed a necessity and no longer a luxury for banks. In fact the reality is that technology is helping deliver financial services with greater efficiency and affordable costs, without compromising on security, safety and reliability.
Here are some examples of how some banks have leveraged technology from oracle to role out products in their domestic markets quickly.
Please do share with me your thoughts on this topic as well.
Venky Srinivasan is the Vice President for JAPAC Sales for the FSGBU at Oracle Corporation. He can be reached at venky.srinivasan AT oracle.com