FINANCE SPECIAL....CO-OPERATIVE BANKS

Banking On Technology

Imagine a quiet neighbourhood bank where everyone recognises you. Also, a bank you physically have to go to each time you want to carry out a transaction, or even check your account balance. If your idea of a co-operative bank is along similar lines, then it's clearly been a while since you went to one. Spurred on by the growth in the economy, most co-operative banks are growing-and modernising- rapidly, with some even setting up pan-India operations.
    Till about a decade ago, most banks were content with their limited clientele within their local community, whether urban or rural. Things started changing as their customers started travelling because of work, and to meet their banking needs in other locations, these banks started expanding. Banking still remained a cumbersome process, carried out manually, given the prohibitively high cost of technology adoption.
    That's gradually changed. Lingraju Sawkar, Director, Integrated Technology Services, Global Technology Services, IBM India/South Asia, says that technology has evolved in such a manner that it is no longer out of reach for the smallest of banks. "Technology has undergone a drastic shift over the last 15 years and this has benefitted the smaller banks." Coupled with the reduced cost of telecommunications, it's a lot more feasible for small banks to set up core banking applications. The smallest of IBM's clients is a co-operative bank with just four branches.
    The biggest deterrent for the co-operatives was the high cost per transaction. The applications were expensive, as was the cost of bandwidth and the telecommunications infrastructure needed to run these applications. Given that most of these banks are not highly capitalised, investment in core banking technology was just not an option. The other problem was finding somebody who was skilled enough to manage this for them at each individual branch.
    That's changed with the evolution of the 'infrastructure as a service' model. It is now possible for a bank to remotely store its data on the cloud and pay per terabyte of what they use. Similarly, IBM sets up remote servers, which they manage for the banks. "This hasn't happened overnight, but has been a gradual process," says Sawkar. The small business unit at IBM started offering automation solutions, followed by servers and then cloud-based applications. For the customer, the advantage is that it is a very functional, no- frills approach, which is predictable and reliable.
    Sriram Date, Chief Executive Officer, Thane Bharat Sahakari Bank says earlier this year, they faced a situation where they had to replace their existing data center hardware as well as needed to sign a relatively expensive maintenance contract. They eventually decided to replace it with a product from IBM, which not only offered them substantial savings on a comparative basis, but also didn't require them to set up additional servers and had a virtualisation option. "We currently have 18 branches and have approvals for 5 more and so we invested in the product keeping this expanded capacity in mind," says Date. The bank now also has the ability to connect with other bank ATMs. In addition to the cost effectiveness, Date finds the processing time for basic tasks, like calculating interest at the end of each month, has gone down substantially.
    Sawkar talks of the Jamnagar, Gujarat-based Nawanagar Coop. Bank, that wanted to expand their existing technology but were wary of making a huge investment without knowing the payback. "We proposed a model where we'd set up the infrastructure and applications in our data center and pipe it into the branches where they could continue to operate it in the same manner as they used to. There were concerns, but they eventually saw the merit in it," he says. A thunderstorm that brought about a power failure may or may not have played a role in making them realise the importance of having the data center at a location where it wouldn't be impacted by power outages.
    For the banks, changing regulatory requirements coupled with the growth in data meant that their homegrown systems would no longer suffice. Data management and security have been at the core of this transition. At the same time, the needs of the clients have started changing, with people, especially in the urban areas, often preferring to switch to banks which offered 'conveniences' like internet and mobile banking. Investing in IT systems was no longer optional, given the rapidly changing landscape and the need to become more agile. Updating their technology gives banks the benefits of an automated core banking platform that covers basic transactions as well as enables inter-bank transfers (which earlier had to be carried out physically using demand drafts) and gives consumers access to their accounts through other bank ATM networks. This helped them hold on to the customers who were moving out of the community and would have migrated to another bank. The staff at these banks too is seemingly happy about this change as it frees up valuable time that it spends on manually carrying out the simplest of tasks.
Another factor that's responsible for the widespread adoption of technology has been the change in how it is sold. Core banking applications were earlier available as a single fixed unit, which meant that the bank would end up paying for applications that it had no use for. This has now evolved into a plug-on module where banks can select the banking applications they want with the option to add applications, like treasury and forex, as required. "Technology has gone from being a fixed cost to a variable cost where banks can pay per branch/ per month," says Sawkar, which has made it accessible to a lot more banks.
For IBM, it has been a gradual journey automating banks over the past decade. It started with supplying basic technology, like desktops and servers, and gradually shifted focus to the cloud, mobile and disaster recovery solutions. A few months ago, it launched an Integrated Server Room, which enables it to set up a full-fledged data center using minimal space in a remote location. This is a self-contained unit and is likely to go down well with small business owners who want their data in physical proximity instead of remotely managed through the cloud.
    Tanaji K Rode, Electronic Data Processing Officer, Shivajirao Bhosale Sahakari Bank, which has 12 branches in the Pune region, says that the key concern for them when setting up their data center was the restricted availability of space which IBM managed to work with. "Co-operative banks in India today need access to enterprise class technology that supports computing demands in the most costeffective manner possible. We must differentiate ourselves through robust services in order to grow and compete," he says.
    Shamrao Vithal Co-op Bank is one of the largest and most technologically advanced in the country with plans to double its presence to 250 branches by 2014. The bank had been introducing various technology upgrades in a gradual manner, resulting in operational inefficiencies. IBM suggested a solution where all the servers and applications could be managed and monitored through a single console. This resulted in the server count going from 85 to 13 and a 15% reduction in power consumption.
    IBM and its vendors conduct road shows across the country, reaching out to the heads of these banks to educate them of the advantages of technology intervention in core banking areas. The delay in the adoption of technology has actually worked for these banks, which have benefitted from a vastly reduced cost per transaction. It has also been easier for them to move to a cloudbased model using infrastructure and technology as a service as there are no legacy issues with the technology and no heavy investments holding them back.
    Going ahead, Sawkar sees this sector becoming increasingly important, especially as the RBI cracks the whip on financial inclusion. Co-operative banks can be crucial in ensuring that people in every town have access to a bank account. For the banks in turn, the technology is enabling them to reach out to a far wider number of people with a competitive suite of services that puts them on an equal footing with the bigger public and private sector banks in the country.
Priyanka Sangani    CDET130524