Indie Technology 2012
Indie Technology 2012
Indie Technology 2012
a catalyst for
profitable growth
The Economic Times Banking
Technology Conclave 2012
kpmg.com/in
2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
chairperson.speak
Technological advancement has transformed the Banking industry into an anytime,
anywhere, fast, and customised service offering. Indeed, technology has now
become a key stone of financial services and it is difficult to imagine the world of
banking without IT support. Rapid adoption of technology by banks has facilitated
introduction of superior and innovative services stimulating faster growth of
the sector. Another major benefit of IT has been the lowering of service costs
encouraging introduction of more advanced offerings by Banks.
Currently in India, only around 59 percent of the adult population has access to
banking services indicating a large untapped opportunity. Financial inclusion, by
improving efficiency and productivity, enhances standards of living of the populace.
Provision of banking and financial services to the under-banked segments is
therefore critical for achievement of inclusive growth. Banks are expanding to under
banked markets. However, development and adoption of innovative and appropriate
IT aided solutions will determine their long term success.
Large investments in IT made by Banks have, no doubt, led to substantial
improvements in quality and, in fact, the very nature of the services offered, but
in the transition period, serious efforts to measure the actual return on these
investments may have taken a back seat. As knowledge partners for The Economic
Times Banking Technology Conclave 2012, KPMG in India has prepared a thorough
paper, which provides this critical insight. The paper, among other things, examines
if banks are getting a true return for their technology investments. It evaluates
ideas from various sectors, adoption of which can benefit the banks in many ways
and assesses the direction in which AML and related compliance initiatives are
headed. It also highlights the importance of HR tools in capturing and leveraging the
knowledge created over the decades. I take this opportunity to thank them for their
efforts.
SHIKHA SHARMA
Chairperson ET Banking Technology Conclave 2012,
Managing Director and CEO Axis Bank
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
foreword
Banking in India continues to grow backed by the expansion in the Indian economy,
demand for efficient financing and drive of the people of this country. The Tech
Revolution in Banking has been has been exciting but an exhilarating turn is on the
anvil.
The possibilities brought about by presence of technology across every banking
touch point, internal and external, present a host of opportunities to the early
adopters with an equally tough set of challenges. The increasing amount of
complexity around the adoption of each new technology solution sometimes needs
to be dealt with in a very different manner as compared to approaches followed in
the past.
Technology in banking while underscored by its importance as an enabler is fast
evolving to a catalyst in redefining the banking landscape. We see this evolution
coming about in manner where costs can be controlled and technology led
innovation is driving newer business models. While a number of areas are vying for
the attention of banking CXOs, in this whitepaper we have discussed four key areas
that we believe are significant challenge opportunity for banks.
AKEEL MASTER
KUNAL PANDE
Partner
IT Advisory
KPMG in India
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
technology.investment
does.it.require.strategic.shift?
01
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
07
downloading.ideas
from.other.sectors.to.banking
11
19
hr.tools
necessity.for.next.wave.
of.growth
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
technology.investment
does.it.require.strategic.shift?
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ROI (IT)
Net realizable benefits (cost savings + new revenue that results from a
project - total project costs)
Total costs (capital plus recurring)
Total costs
Payback Period
EVA (IT)
The assumptions underlying this model used for computation benefits and risks
associated with the project are key reasons for uncertainty in ROI analysis.
Awareness of these uncertainties and the impact of risks on ROI can significantly
improve the likelihood of successful investment decisions.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Other benefits include improved cash flow through quicker billing and cash collection, improvement in call efficiency ratio or
customer strike rate, logistical savings through improvement in dispatch planning and freight movement.
Benefit factors
Benefits from Centralization of
Banking Functions and reduction of
re-work due to STP are expected to
rise @ 15 percent and @ 5 percent
Y-O-Y respectively.
Benefits from all the other factors
such as Reduction in Banking
Personnel, Handling increasing
transaction volumes over the
project period without increase in
manpower, savings with respect
to new recruitment, Automated
Reconciliation and Other Benefits2
are expected to rise @ 10 percent
Y-O-Y.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Year
0
3.00
Implementation
8.50
3.25
Hardware (DC/DR)
2.70
RDBMS at DC & DR
1.10
0.95
Network Equipment
3.50
Communication Link
0.90
1.10
0.80
25.80
Variable Costs
Year 0
Year 1
Year 2
Year 3
Year 4
IT Staff
2.00
2.10
2.21
2.32
2.43
Non-IT Staff
1.50
1.35
1.22
1.09
0.98
1.20
1.32
1.45
1.52
1.60
3.00
Software License
3.00
3.00
3.00
3.00
Training
0.75
0.68
0.61
0.55
0.49
DC - DR Hosting
0.40
0.40
0.40
0.40
0.40
Internet Bandwidth
1.00
1.00
1.00
1.00
1.00
1.70
1.70
1.70
1.70
1.70
11.55
11.55
11.58
11.58
11.61
37.35
11.55
11.58
11.58
11.61
Benefit Factors
Year 0
Year 1
Year 2
Year 3
Year 4
12.00
13.80
15.87
18.25
5.00
5.50
6.05
6.66
1.00
1.10
1.21
1.33
1.50
1.58
1.65
1.74
0.70
0.77
0.85
0.93
Automated Reconciliation
5.50
6.05
6.66
7.32
Other Benefits
5.00
5.50
6.05
6.66
30.70
34.30
38.34
42.88
Year 4
Benefits
Year 0
Year 1
Year 2
Year 3
(37.35)
19.16
22.72
26.76
31.27
(37.35)
(18.20)
4.52
31.28
62.55
Year 0
Year 1
Year 2
Year 3
Year 4
Discounted Costs
37.35
10.50
9.57
8.70
7.93
27.91
28.34
28.80
29.29
(37.35)
17.41
18.77
20.10
21.36
(37.35)
(19.94)
(1.16)
18.94
40.30
Year 1
Year 2
Year 3
Year 4
58.33%
97.97%
128.64%
154.42%
Discounted Benefits
ROI measures
Cost of capital (Estimated)
10%
40.30
1.95
ATMs
POS
Branches
Internet
Telephone
Mobile
Banking
Social Media
Reporting4
Implemented
Investments In Progress
Financial Management4
The development of Mobile penetration and Social Media are making banks relook at their implemented systems to have
version capabilities.
We are seeing significant advancement being planned by some banks which are changing the benchmarks and moving these to the Investment
in Progress category.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Buck in IT infrastructure
Resiliency is among the most
common justifications for data center
investments for Indian banks. Outof-date, low-quality data centers are
often an unacceptable business risk. At
the margin, investments in improved
system designs and operations may
yield better returns than investments in
physical facilities.
Buck in e-commerce
Conclusion
The successful deployment of IT
creates value for the organization.
However, value is realized only if it
is planned and implemented in a
controlled manner. ROI is a good
measure, if used at the time of IT
acquisition; it can provide:
Cost justification and awareness
of cost of ownership, and
Benefit estimation and
accountability for benefit
fulfillment.
The measurement of IT is not a
one-time process but an ongoing
one. The control criteria may be
designed to measure all the related
IT processes, including acquisition,
implementation, stabilization and
upgrade/improvement of systems.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Headlines have been made since the advent of findings by US Senate on money
laundering. Two large multinational banks have been at the receiving end with the
probability of some other Banks joining the queue. To address money laundering
issue, guidelines on Anti Money Laundering (AML) by regulators world over have
been defined and refined. However, ambiguity and lack of clarity on enforcement
still exists and financial sector is continuously falling prey to it.
Money Laundering has been haunting financial institutions in the past and will
continue to do so. As legislation around AML evolves; organizations move from
looking at implementing AML as a mere compliance requirement to a holistic
business/operational risk management tool.
Is there any disconnect between Government, regulators and financial institutions
in understanding money laundering and developing effective AML guidelines,
programs and implementing a Risk-based approach in managing the two?
Regulators have become more active and are developing demanding robust
processes such as sharing of information, common Know Your Customer (KYC) and
consolidation of money laundering activities under Financial Action Task Force (FATF)
umbrella. The pressing priority of banks senior executives is now to come up with
an effective and practical approach to minimize the money laundering impact.
Before getting to the approach, let us put the problem in perspective. During late
nineties and early 2000, banks established increasing number of corresponding
relationships which included high risk foreign banks. For example, the US banks,
through these correspondent accounts, became estuary for tainted money flowing
into the American economy and as a result, facilitated illegitimate enterprises,
including drug trafficking and financial frauds. Some other notable cases which
attracted the attention of global community towards money laundering were at Bank
of New York, Bank of Credit and Commerce International, Barclays, Natwest, Royal
Bank of Scotland, ING and UBS.6
Post 9/11 attack, a stronger AML law was enacted as part of the Patriot Act of
2002, Over the next ten years, banks over the world having presence in US, directly
or indirectly, substantially strengthened their correspondent AML controls. This
included close monitoring of the cross border transactions, strict KYC checks,
reporting of the suspicious transactions to name a few.
With the advent of findings on the money laundering activities for multinational
banks such as HSBC and Standard Chartered Bank, the question has come up
of whether the banking community has done enough on AML in implementing
controls or has this been more a case of one-off lapses. It may be argued that one
of the Banks has a history of weak anti-money laundering controls, but how can one
ignore the same for other banks, substantial in size, sailing in the same direction.
With the release of findings and report by the US Senate Permanent Subcommittee
on Investigations, a seismic shift is on the way AML shall be regulated as well as
implemented.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
KPMG Global AML Survey Global Anti Money Laundering Survey 2011,
released by KPMG Global, Risk Consulting
SEBI {KYC (Know Your Client) Registration Agency (KRA)}, Regulations, 2011
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
To summarize
Banks should give serious thought
on addressing the above mentioned
challenges, both in terms of the
gaps in the information currently
maintained, as well as systems
used to consolidate relevant KYC
information with relevant controls.
Unfortunately, few banks and
their systems are able to use the
data collected at on-boarding for
monitoring purposes, at least at
the moment. As a result, KYC and
transaction monitoring arrangements
are likely to continue as separate and
distinct activities, undermining the
effectiveness of this key requirement
until a unified approach being put in
place.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
downloading.ideas
from.other.sectors.to.banking
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Volvo
CASE STUDY
10
The challenge
Volvo Corporation (VTC) having presence in 140 countries
was a late entrant in the Indian market, setting its operations
in 1998 hence missing the initial entry rush of MNCs in the
Indian market.
Regular Buses
Deluxe Buses
City Buses
All Buses
The approach
Volvo did not enter the bandwagon by providing low cost
products in India; indeed VTC slowly started paving the way
to create a new market segment from what was perceived
as a non-existing space. Volvo offered quality services both to
operators and consumers and waited for the market to evolve
Operations
Dispalyed Business model and Life cycle costs to justify Benifits of Volvo buses
Maintainance frequencies were substantially lower than existing buses
ensuring longer hauls
Created Volvo as a synonym to luxury travel with brands like Garuda, Shivneri
and Airavat
Customers
Ran demo drives services with Volvo buses to create awareness of the concept
of luxury travel in India
Ran advertisements on theaters and TV to create awareness and sell concept of
luxury bus travel
Provided luxury services, better comforts in intercity travel
Some of the possible areas where Banks can look for a next
wave of the banking innovations can be:
Family Banking: Giving privilege banking services to not
only the HNI customers and their specific accounts,
but also the complete family portfolio by calculating the
TRV (Total Relationship Value) of the family instead of
individuals.
Unified Social Media Strategy: With growing purchasing
power of the Generation Y, it is important to capture their
attention by catering to their customized changing needs,
operating hours and touch point preferences including
social media and increased focus on non-branch banking
model. For more details you may see KPMG in Indias
Though Leadership: Social media in Financial services.
Indian retail
CASE STUDY
Indian Retail Industry is one of the key high growth sectors accounting for about 22 percent of countrys GDP (Gross Domestic
Product) and accounting for 8 percent of the total employment of India with the cumulative FDI (Foreign Direct Investment) for
period Apr00 Jun11 of USD 69.26 million.
The below graph shows the estimated increase in the market size of Indian Retail Sector, which is expected to grow at a CAGR
(compounded annual growth rate) of about 7 percent, while the Organized Retail is expected to grow at staggering 25 percent.
Market share
Organized retail
21 Bn
USD
414
USD
Bn
2010
2020E
200 Bn
USD
650
USD
Unorganized retail
Bn
Source: FICCI
The challenge
This sector had been facing multiple challenges but is coming
up with new and unique solutions to respond to these issues11
like:
High Real Estate Costs: Organized retail being a footfall
dependent sector needs large space to set up their
operations and that to at prime locations in the city.
However, real estate largely being an unorganized sector,
these high reality rates are already eating up the profit
The approach
With the increasing competition and a challenging business
scenario the industry has came up with innovative approaches
for these issues:
High real estate cost However multiple retailer have
already started looking to integrate the two sectors of
Real Estate and Retail in their offering baskets with key
examples being Raheja Group (with Shoppers Stop, Inorbit
Mall, Hyper city), Future Group (with Real Estate Funds
and tie-ups with various developers), Reliance Fresh (with
Real Estate Funds and buying out multiple hypermarket
properties) etc.
The download
Can the Financial Services sector and specifically Banks look
in altering their business and operating models to respond
to the challenges raised by increasing costs of operations?
Banks can look for a next wave of the banking innovation.
Human resource crunch: Large number of retirements
are due in next few years with more than 1 Lakh
employees12 in Public Sector Banks (Executives, Officers
and Clerks) getting retired between 2010 15. This added
with the numbers in other banks (private, cooperative
etc.) would create a huge talent crunch across the banking
11 FICCI and case studies by KPMG analysis
Telecom
CASE STUDY
The challenge
While, the number of wireless phones in India has grown
close to five times over last 4 years, average revenue per user
is coming down alarmingly and has reduced by about 60% in
the same time and came down to an all time low of Rs. 117.67
for the period of Jan Mar11.
Source: Department of Telecommunications, COAI and KPMG Analysis
The approach
With the tightening of the budgets and increasing operations
cost, telecom companies were forced to consider and
evaluate innovative and new areas for increasing operational
efficiency and reduce the costs.
With this background three of the Indias biggest private
telecom operators came together to form a joint venture
in Indus Towers) formed with the partnership of Airtel (42
The download
Unified Banking Infrastructure: Public Sector Banks have
already started moving in the similar direction with their
recent integrated procurement strategy for the regional
operation, but can Private sector banks also move in the same
direction by outsourcing the non-core activities to specialized
companies and create economies of scale further reducing
the operating costs?
Possible options that can be looked at for unified and shared
non core banking operations like:
Common KYC
Shared ATM Infrastructure
Shared Procurement and maintenance of non-core
services
-- ATM Cards Procurement
-- Debit/ Credit/ Gift Card Embossing etc.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
hr.tools
necessity.for.next.wave.of.growth
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Banking sector in India has come a long way from tedious manual processing to
simplified and efficient technology driven processing. From following traditional
banking practices to adopting technology heavily, banks have changed the way
they work. However, even today, owing to intensive competition in Indian banking
industry, commercial banks are under substantial pressure to further change the
ways in which they do business. Explosive growth in technology has drastically
changed the way customers expect to interact with a bank.
As per various studies conducted and also mentioned by RBI Governor in speech
at IMI, Delhi, Indian banking industry is set for an exponential growth in the coming
years with its asset size poised to touch USD 28,500 billion by the turn of the 2025
from the asset size of USD 1,350 billion (2010). Thus it is fairly obvious to presume
that scope for such growth rates would inevitably bring in even more competition
for the Indian banks in future. This shall further be triggered by regulatory impulses
and increased openness of the Indian economy.13
Public sector banks which account for nearly three fourths of the one million
people working in Indian banks face the prospect of retirement of nearly 55 per
cent of their staff in the next decade. As also mentioned by Dr K. C. Chakrabarty,
Deputy Governor, Reserve Bank of India, if ever there was a time for right sizing the
organization, hiring the right talent, revamping the workforce and bringing about a
cultural transformation, the time is now.
One of the major challenges faced by banks today globally is in the management
of human resources, particularly the work force at upper and middle levels of
organization. Having exploited competencies of technology in revamping
multiple facets of business ranging from core banking and treasury to
managing risk, its time to utilize technology in nurturing the biggest asset of
any organization the people.
Some of the major challenges in the arena of Human Resource Management,
which the banks need to look at, are explained in the subsequent sections of this
document.
Unprecedented
increase in wage bill:
Wage bill has increased
by 155 percent in five
years
One-third of
Indians employees
want to change jobs
within two years
Aging
workforce
and retirements: 68
percent of employees
over 40 years of age in
PSU sector
India Inc.
faces talent
shortage:
Manpower
Microsoft Indias
HR director quits
because she feels
intellectually underchallenged
13 IBA-FICCI-BCG report titled Being five-star in productivity-Roadmap for excellence in Indian banking and has also been mentioned by RBI
Governor in his speech at International Management Institute, Delhi
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Source: Leading practices in Strategic Human Resources Management- a review for healthcare practitioners, KPMG publication
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
To summarize
Technology as an enabler should be used to bring in
efficiency in operations and functions of HR at each stage.
HR along with business should use technological tools to
measure success of various HR initiatives that they take
up to realize its true value. Specific key parameters can
be defined to measure the success of each HR initiative.
Dashboards and reports can then be developed and used
to provide a real time view of progress of such initiatives
to the business management and HR, across the defined
parameters. Similar practice is followed in ING where
business units and HR share a comprehensive dashboard,
supported by reports, to show progress on key metrics.
Advancements in technology can aid in fulfilling such goals.
Social media can also be used as an important tool in hiring
the right talent; social media websites like LinkedIn can be
used to find experienced professionals, while other social
media websites like Twitter and Facebook can be used to
run recruitment campaigns.
Computer based training techniques which have a better
reach, overcome geographical limitation and have reduced
training costs can be deployed to impart training anywhere
anytime. Data driven tools can be used to identify key talent
indicators which can then be used to identify budding
leaders at an early stage.
Mobile platform and recent drift towards smart phones can
be utilized to hear employee opinions, educate employees
and conduct discussions. Knowledge sharing portals can be
used to engage and record knowledge lying in silos and can
be conveniently accessed through mobile platforms.
Above all, core HR processes should be automated to
reduce operational costs and improve operational efficiency.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
acknowledgement
This document has been published on the occasion of The Economic Times
Banking Technology Conclave 2012.
We thank all the bankers who contributed towards the Technology as a
Catalyst for Profitable Growth for their valuable input. We would also like to
thank Times Grey Cell for all the support offered.
The KPMG team, who have contributed towards articles included in this
document comprises of Akhilesh Tuteja, Shashank Saini, Ehsan Momin,
Lipika Nandwani, Mohit Bansal, Ravi Sejpal, Shikha Chauhan, Abhishek Sen,
and Anuja Khetan.
Editorial team
Kunal Pande
Asim Parashar
Glyn Crasto
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
KPMG Contacts
Rajesh Jain
Partner and Head
Markets
T: +91 22 3090 2370
E: [email protected]
Suchitra Sengupta
Vice President
Akeel Master
Partner and Head
Financial Services
T: +91 22 3090 2486
E: [email protected]
Akhilesh Tuteja
Partner and Co-head
IT Advisory
T: +91 124 307 4800
E: [email protected]
Kunal Pande
Partner
IT Advisory
T: +91 22 3090 1959
E: [email protected]
www.kpmg.com/in
www.timesgreycell.com
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2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
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