KPMG Banking on Technology-India BFSI

Banking on India

The Economic Times Banking Technology Conclave

3 September 2010, Mumbai

Technology -

Conclave 2010

KPMG has been associated with The Economic Times Banking Technology Conclave for

four years now as Knowledge Partner. Over this period we have seen many changes in

industry many of them arising due to changes in regulation and technology. The

fundamentals of banking may remain the same, but the manner in which we perceive

'value', from banking services has been changing almost every six months. This is due

to the pace at which technology is changing and the means and tools that technology

provides us with. Today, if a bank can assure its customer of a viable 24x7 interface, it

has a hope of retaining the customer for longer time.

This seminal event is structured to showcase thought leadership in banking technology,

with leaders from industry interacting with their peers from IT in order to discuss the

future of the business-IT interface. We have endeavored through our survey in the last

few years to bring out the trends and changes in the Banking Technology.

We are pleased to present the results of the “Current State to Future Growth” survey

on the occasion of The Economic Times Banking Technology Conclave 2010.

It provides insights into what constitutes a CEO's technology agenda in 2010. It will be

imperative for Banks to embark upon new technology solutions to optimize cost and

enhance value proposition.

With this survey, we are able to provide the current and possible future trends in the

banking technology. We are sure these insights will be thought provoking and useful

reading.

Abizer DiwanjiExecutive Director &

Head - Financial Services

KPMG in India

© 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.© 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.

Foreword

Today Information Technology (IT) not only facilitates automation of process and data

processing but also provides more value addition to the entire Banking Business.

Further, it is directly and visibly linked to 'value to customer'. In such a scenario should IT

be delivered and managed within the Bank or outsourced?

The key challenge is to proactively respond than be reactive to change. Banks are now

expecting outsourced service organizations to proactively sense business needs and

change rather than be told to change.

While the emergence of communication frameworks has been a boon to business but

integration of various structured and unstructured data will be the key for prompt and

personalized services. Banks are deploying sophisticated analytical systems to enable

personalized communication and services to customers. A Bank that communicates well

is able to sense and change faster.

Cloud computing is a technology being critically examined as a business enabler.

Technology service providers globally have firmed up cloud platforms that have opened

vistas for agile and cost effective solutions. It is pertinent for Indian Banks to consider

early adoption to the cloud.

As Bankers focus more on the core businesses, these being exciting times for

technocrats, they should decide business case formulation and deployment for future

technology. It would be fair to say that prepositions such as 'with' and 'on' are about to

give an entirely new meaning when used in conjunction with 'Banking' and 'Technology'.

KPMG has been interfacing with a large number of Banks in India and has been an

advisor to many of them. We are uniquely placed to provide insights into trends and

opportunities, for the Banking and Technology industry. This publication demonstrates

the importance and reliance that Banks place on technology and value delivered by

Banks through technology. We are confident that the views elicited during the current

edition of the Banking Technology Conclave, will be useful for the Banks in their journey

to integrate technology more seamlessly with business.

Kumar ParakalaExecutive Director &

Head - IT Advisory

KPMG in India and EMA

Conclave 2010

KPMG has been associated with The Economic Times Banking Technology Conclave for

four years now as Knowledge Partner. Over this period we have seen many changes in

industry many of them arising due to changes in regulation and technology. The

fundamentals of banking may remain the same, but the manner in which we perceive

'value', from banking services has been changing almost every six months. This is due

to the pace at which technology is changing and the means and tools that technology

provides us with. Today, if a bank can assure its customer of a viable 24x7 interface, it

has a hope of retaining the customer for longer time.

This seminal event is structured to showcase thought leadership in banking technology,

with leaders from industry interacting with their peers from IT in order to discuss the

future of the business-IT interface. We have endeavored through our survey in the last

few years to bring out the trends and changes in the Banking Technology.

We are pleased to present the results of the “Current State to Future Growth” survey

on the occasion of The Economic Times Banking Technology Conclave 2010.

It provides insights into what constitutes a CEO's technology agenda in 2010. It will be

imperative for Banks to embark upon new technology solutions to optimize cost and

enhance value proposition.

With this survey, we are able to provide the current and possible future trends in the

banking technology. We are sure these insights will be thought provoking and useful

reading.

Abizer DiwanjiExecutive Director &

Head - Financial Services

KPMG in India


Foreword

Today Information Technology (IT) not only facilitates automation of process and data

processing but also provides more value addition to the entire Banking Business.

Further, it is directly and visibly linked to 'value to customer'. In such a scenario should IT

be delivered and managed within the Bank or outsourced?

The key challenge is to proactively respond than be reactive to change. Banks are now

expecting outsourced service organizations to proactively sense business needs and

change rather than be told to change.

While the emergence of communication frameworks has been a boon to business but

integration of various structured and unstructured data will be the key for prompt and

personalized services. Banks are deploying sophisticated analytical systems to enable

personalized communication and services to customers. A Bank that communicates well

is able to sense and change faster.

Cloud computing is a technology being critically examined as a business enabler.

Technology service providers globally have firmed up cloud platforms that have opened

vistas for agile and cost effective solutions. It is pertinent for Indian Banks to consider

early adoption to the cloud.

As Bankers focus more on the core businesses, these being exciting times for

technocrats, they should decide business case formulation and deployment for future

technology. It would be fair to say that prepositions such as 'with' and 'on' are about to

give an entirely new meaning when used in conjunction with 'Banking' and 'Technology'.

KPMG has been interfacing with a large number of Banks in India and has been an

advisor to many of them. We are uniquely placed to provide insights into trends and

opportunities, for the Banking and Technology industry. This publication demonstrates

the importance and reliance that Banks place on technology and value delivered by

Banks through technology. We are confident that the views elicited during the current

edition of the Banking Technology Conclave, will be useful for the Banks in their journey

to integrate technology more seamlessly with business.

Kumar ParakalaExecutive Director &

Head - IT Advisory

KPMG in India and EMA

Table of

Contents

© 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.

Introduction

Profile of Banks

Strategic IT Initiatives

IT Performance Measurement and Process improvement

Measuring Return on Investment in IT

Risk Management

Conclusion


05

07

08

10

13

15

18

Table of

Contents


Introduction

Profile of Banks


IT Performance Measurement and Process improvement


Risk Management

Conclusion


05

07

08

10

13

15

18

The incessant push from Indian Banks to migrate onto enterprise transaction systems

augurs well for the banking industry. Over the past few years, we have seen core

banking system rollouts happening in thousands of branches across the country – with

Banks grappling with the challenges of implementation and rollout. However, these

challenges have been gradually overcome, with appropriate amounts of innovation in

process and technology showing the way. As next steps, Banks are embarking on

various initiatives measuring enterprise value, one view of the customer and channel

integration among other things.

Another focus area for Banks in India is use of Business Intelligence for regulatory

reporting, customer and corporate purposes. As in core banking, Banks are getting their

data aggregation layers in place to facilitate projection of data in the form of static and

dynamic reporting capability. This would be a logical extension of operational data

aggregation using core banking systems. Systems such as core banking and business

intelligence, if used synchronously, will add phenomenal enterprise value to business. In

addition focus on integrated payment channels that provide real/ near-real time services

by way of straight through processing (STP) and 24 x 7 operations will be key

differentiators in banking technology going forward.

The Economic Times Banking Technology Conclave 2010, in its fourth edition, is a coming

together of leaders in the banking industry to discuss opportunities and challenges

afforded by the current ecosystem. The 'Current State to Future Growth' survey

endeavors to showcase trends in banking technology applicable to Banks in India

belonging to the public, private and MNC segments.

The survey – Current State to Future Growth' has focused on current state and future

prospects on following four pertinent areas:

?Strategic IT Initiatives

?IT Performance and Process Improvement

?Measuring Return of Investment in IT

?Risk-Compliance and Reporting.

Not surprisingly, a lot of what we hear about globally in terms of technology and

process, is already well on the way to getting applied in India.

The results presented in this report are all statistically pertinent.

05BANKING ON TECHNOLOGY - INDIA


04 BANKING ON TECHNOLOGY - INDIA

Kunal PandeDirector - IT Advisory

KPMG in India

Introduction

The incessant push from Indian Banks to migrate onto enterprise transaction systems

augurs well for the banking industry. Over the past few years, we have seen core

banking system rollouts happening in thousands of branches across the country – with

Banks grappling with the challenges of implementation and rollout. However, these

challenges have been gradually overcome, with appropriate amounts of innovation in

process and technology showing the way. As next steps, Banks are embarking on

various initiatives measuring enterprise value, one view of the customer and channel

integration among other things.

Another focus area for Banks in India is use of Business Intelligence for regulatory

reporting, customer and corporate purposes. As in core banking, Banks are getting their

data aggregation layers in place to facilitate projection of data in the form of static and

dynamic reporting capability. This would be a logical extension of operational data

aggregation using core banking systems. Systems such as core banking and business

intelligence, if used synchronously, will add phenomenal enterprise value to business. In

addition focus on integrated payment channels that provide real/ near-real time services

by way of straight through processing (STP) and 24 x 7 operations will be key

differentiators in banking technology going forward.

The Economic Times Banking Technology Conclave 2010, in its fourth edition, is a coming

together of leaders in the banking industry to discuss opportunities and challenges

afforded by the current ecosystem. The 'Current State to Future Growth' survey

endeavors to showcase trends in banking technology applicable to Banks in India

belonging to the public, private and MNC segments.

The survey – Current State to Future Growth' has focused on current state and future

prospects on following four pertinent areas:

?Strategic IT Initiatives

?IT Performance and Process Improvement

?Measuring Return of Investment in IT

?Risk-Compliance and Reporting.

Not surprisingly, a lot of what we hear about globally in terms of technology and

process, is already well on the way to getting applied in India.

The results presented in this report are all statistically pertinent.





KPMG in India

Introduction


06

Survey

Banking on Technology - from

Current State to Future Growth‘ ’

The Banks have IT team ranging from less than 50 to more than

500 personnel, but majority have a team in the range of 100-500

personnel. Private Banks surveyed have medium to large internal

IT teams. A majority of the Public Banks surveyed have medium

sized internal IT teams in the range of up to 200 personnel.

Outsourcing is also gaining momentum in the Banking industry.

The deployment of outsourced IT personnel is relatively higher for

Private Banks. MNC Banks have also embraced the outsourcing

philosophy In India.

IT Team

Profile of Banks


This survey is based on focused discussions with Banks in India

spread almost evenly across the Public, Private and MNC bank

segments along with a detailed questionnaire. In order to put the

rest of the IT focused analysis in perspective, we have presented a

brief profiling of the Banks.

We have covered representative sample across the above

segments, including banks from less than 1,000 employees to

more than 10, 000 employees. Most of the Banks surveyed play

significant roles in the retail as well as corporate banking

environment in India.


Employee Strength

Business focus

IT team size

Source: Current State to Future Growth

Retail

Corporate

Investment Banking

18% 41%

41%

<1000

1001 - 5000

>5000

6%

27%

67%

1 - 50

51 - 100

101 - 200

201 - 500

500+

10%

17%

21%

21%

31%


06

Survey

Banking on Technology - from

Current State to Future Growth‘ ’

The Banks have IT team ranging from less than 50 to more than

500 personnel, but majority have a team in the range of 100-500

personnel. Private Banks surveyed have medium to large internal

IT teams. A majority of the Public Banks surveyed have medium

sized internal IT teams in the range of up to 200 personnel.

Outsourcing is also gaining momentum in the Banking industry.

The deployment of outsourced IT personnel is relatively higher for

Private Banks. MNC Banks have also embraced the outsourcing

philosophy In India.

IT Team

Profile of Banks


This survey is based on focused discussions with Banks in India

spread almost evenly across the Public, Private and MNC bank

segments along with a detailed questionnaire. In order to put the

rest of the IT focused analysis in perspective, we have presented a

brief profiling of the Banks.

We have covered representative sample across the above

segments, including banks from less than 1,000 employees to

more than 10, 000 employees. Most of the Banks surveyed play

significant roles in the retail as well as corporate banking

environment in India.


Employee Strength

Business focus

IT team size


Retail

Corporate

Investment Banking

18% 41%

41%

<1000

1001 - 5000

>5000

6%

27%

67%

1 - 50

51 - 100

101 - 200

201 - 500

500+

10%

17%

21%

21%

31%

Strategic IT initiatives have long term impact on the entire business and are

focused on enhancing Banks' value propositions. Therefore, these

initiatives are prioritized and accordingly planned for implementation.

Banks take a long-term view of such initiatives, allocate budgets

accordingly and monitor these IT projects very judiciously.

Most Banks are planning for IT initiatives that contribute significantly to strategic

positioning of services and cost reduction. Common trends were noticed across

segments with respect to prioritization of IT initiatives and implementation

timelines.

Priority of Strategic Initiatives in IT






'Alternate delivery channels' rank the highest on priority aspect. However, few

banks are planning to implement this initiative over the next one year. The focus

on risk management and application portfolio optimization come as a strong

second with some respondents already having an ERM solution in place and a

majority looking at completing implementation over the next one to two years.

Green IT, which till last year was a hotly debated topic from an RoI perspective, is

the third most important focus area, with a large majority of Banks who have not

already undertaken initiatives, planning to do so over the next two to three years.

Cloud computing is still a medium-low priority, with most Banks not having

planned for exploring this area in the foreseeable future. It had been estimated

that globally, emergence of new technologies such as back office virtualisation,

cloud computing and Service Oriented Architecture (SoA) will reduce absolute

spending on IT. However, it seems that these concepts have still not taken firm

hold in the Indian banking environment.

Initiative Priority Implementation Status

Strategic IT initiatives linkage to business

Key IT Solutions

Almost all the Banks surveyed mentioned that IT initiatives are business driven.

Significant decision factor that influence expenditure in IT is RoI expressed in

terms of revenue to be earned, cost saving, cross sell opportunities and customer

benefit.

Almost all the Banks surveyed have stated that it would be optimal to undertake

two to three strategic initiatives in IT annually.

As part of implementation of strategic IT initiatives, Banks are deploying IT

solutions to facilitate automation in transaction management, reporting and risk

management.

Most banks across segments have already implemented core banking systems

and general ledger automation systems. Initiatives such as internet based

transaction banking, self service kiosks, mobile banking are either underway or

are planned in near term.

Initiatives in the area of financial inclusion are already underway in Public and

Private Banks. However, MNC Banks have planned them in a two to three year

window.

While initiatives in the areas of Governance-Risk-Compliance (GRC) and Identity

and Access Management (IAM) solutions are already underway or implemented

in MNC and Private Banks, Public Banks have planned to implement them at

least after one year

Business Intelligence and analytics initiatives are planned in the near term by

Public Banks and in a two to three year window by Private Banks.

The deployment of new technologies is gaining momentum, which has the

potential to bring far reaching impact in the Banking industry as a whole.

We have some interesting facts to consider regarding management's focus on

measuring value of these IT solutions, as we head into the next section.

Implementation Status


Core Banking

CRM IAM BusinessIntelligence

GRC Self Service Kiosk

Internet Banking

Mobile Banking

Financial Inclusion

Public Banks H L L L M L H M H

Private Banks H H H M H H H H H

MNC Banks H H H H H H H H L

Implemented/in progress Immediate future Near future/not plannedLMH

LowMediumHigh


Key initiatives


Key initiatives

2 - 3 years<1 yearsDone 3 - 5 years Not Planned

App

licat

ion

Port

folio

O

ptim

izat

ion

Alte

rnat

e de

liver

y ch

anne

ls

Gre

en IT

Ente

rpris

e R

isk

Man

agem

ent

Out

sour

cing

Clou

d co

mpu

ting

Serv

ice

Orie

nted

A

rchi

tect

ure

100%

80%

60%

40%

20%

0%

Perc

enta

ge v

alue

s

App

licat

ion

Port

folio

O

ptim

izat

ion

Alte

rnat

e de

liver

y ch

anne

ls

Gre

en IT

Ente

rpris

e R

isk

Man

agem

ent

Out

sour

cing

Clou

d co

mpu

ting

Serv

ice

Orie

nted

A

rchi

tect

ure

100%

80%

60%

40%

20%

0%

Perc

enta

ge v

alue

s

Strategic IT initiatives have long term impact on the entire business and are

focused on enhancing Banks' value propositions. Therefore, these

initiatives are prioritized and accordingly planned for implementation.

Banks take a long-term view of such initiatives, allocate budgets

accordingly and monitor these IT projects very judiciously.

Most Banks are planning for IT initiatives that contribute significantly to strategic

positioning of services and cost reduction. Common trends were noticed across

segments with respect to prioritization of IT initiatives and implementation

timelines.

Priority of Strategic Initiatives in IT






'Alternate delivery channels' rank the highest on priority aspect. However, few

banks are planning to implement this initiative over the next one year. The focus

on risk management and application portfolio optimization come as a strong

second with some respondents already having an ERM solution in place and a

majority looking at completing implementation over the next one to two years.

Green IT, which till last year was a hotly debated topic from an RoI perspective, is

the third most important focus area, with a large majority of Banks who have not

already undertaken initiatives, planning to do so over the next two to three years.

Cloud computing is still a medium-low priority, with most Banks not having

planned for exploring this area in the foreseeable future. It had been estimated

that globally, emergence of new technologies such as back office virtualisation,

cloud computing and Service Oriented Architecture (SoA) will reduce absolute

spending on IT. However, it seems that these concepts have still not taken firm

hold in the Indian banking environment.

Initiative Priority Implementation Status

Strategic IT initiatives linkage to business

Key IT Solutions

Almost all the Banks surveyed mentioned that IT initiatives are business driven.

Significant decision factor that influence expenditure in IT is RoI expressed in

terms of revenue to be earned, cost saving, cross sell opportunities and customer

benefit.

Almost all the Banks surveyed have stated that it would be optimal to undertake

two to three strategic initiatives in IT annually.

As part of implementation of strategic IT initiatives, Banks are deploying IT

solutions to facilitate automation in transaction management, reporting and risk

management.

Most banks across segments have already implemented core banking systems

and general ledger automation systems. Initiatives such as internet based

transaction banking, self service kiosks, mobile banking are either underway or

are planned in near term.

Initiatives in the area of financial inclusion are already underway in Public and

Private Banks. However, MNC Banks have planned them in a two to three year

window.

While initiatives in the areas of Governance-Risk-Compliance (GRC) and Identity

and Access Management (IAM) solutions are already underway or implemented

in MNC and Private Banks, Public Banks have planned to implement them at

least after one year

Business Intelligence and analytics initiatives are planned in the near term by

Public Banks and in a two to three year window by Private Banks.

The deployment of new technologies is gaining momentum, which has the

potential to bring far reaching impact in the Banking industry as a whole.

We have some interesting facts to consider regarding management's focus on

measuring value of these IT solutions, as we head into the next section.

Implementation Status


Core Banking

CRM IAM BusinessIntelligence

GRC Self Service Kiosk

Internet Banking

Mobile Banking

Financial Inclusion

Public Banks H L L L M L H M H

Private Banks H H H M H H H H H

MNC Banks H H H H H H H H L

Implemented/in progress Immediate future Near future/not plannedLMH

LowMediumHigh


Key initiatives


Key initiatives

2 - 3 years<1 yearsDone 3 - 5 years Not Planned

App

licat

ion

Port

folio

O

ptim

izat

ion

Alte

rnat

e de

liver

y ch

anne

ls

Gre

en IT

Ente

rpris

e R

isk

Man

agem

ent

Out

sour

cing

Clou

d co

mpu

ting

Serv

ice

Orie

nted

A

rchi

tect

ure

100%

80%

60%

40%

20%

0%

Perc

enta

ge v

alue

s

App

licat

ion

Port

folio

O

ptim

izat

ion

Alte

rnat

e de

liver

y ch

anne

ls

Gre

en IT

Ente

rpris

e R

isk

Man

agem

ent

Out

sour

cing

Clou

d co

mpu

ting

Serv

ice

Orie

nted

A

rchi

tect

ure

100%

80%

60%

40%

20%

0%

Perc

enta

ge v

alue

s





IT Performance Measurement and Process Improvement

IT has been instrumental in maximizing business value. The areas where IT

has most effectively been able to contribute are:

?Treasury

?Retail

?Cards

?Wholesale (including merchant banking)

?Payment and Settlements

It is imperative for Banks to measure IT performance and improve IT

delivery processes.

It was heartening to see that across all segments of Banks, IT performance was

measured using metrics that were hitherto considered the domain of business,

such as customer acquisition, growth in deposits, decrease in number of

customer complaints regarding delivery channels, increased usage of alternate

channels and decrease in footfalls at brick-and-mortar branches. It is also

heartening to see an increased focus on formal tooling and project management

techniques, in order to measure and adhere to IT compliance norms.

A majority of the respondents have defined IT performance metrics, and have

been monitoring these quarterly and tracking the same over a period of at least a

year. However, only 40 percent have been measuring IT performance over the

past two years. This reflects the relative novelty of IT performance programs. We

expect to see heightened focus on such programs, resulting in increased

spending to support such initiatives. Costs may be incurred under the heads such

as tools for performance measurement, audits to assess compliance and

effectiveness of IT performance initiatives and people to manage these

programs.

Measuring the success of IT performance improvement programmes

IT Performance Improvement Programs

Periodicity of measurement of performance initiatives

100%

80%

60%

40%

20%

0%MNC Private Public

Annually/Semi-annually Quarterly

History of tracking productivity initiatives

Source: Current State to Future GrowthSource: Current State to Future Growth

100%

80%

60%

40%

20%


Less than 1 year More than 2 years


Adoption of IT Process improvement Models

Process Improvement Models

ISO 27001 seems to be the most actively adopted standard across the banking

sector. This speaks volumes about the overwhelming focus on information

security aspects in the sector, within the country. A large fraction of the private

sector banks, are actively adopting process improvement initiatives in line with

Six Sigma, which indicates a growing focus on enhancing operational efficiencies.

Although public sector banks have not adopted six sigma practices, these are

also considering initiatives in this area.

Public and private sectors are actively planning to adopt the standards such as BS

25999, to enhance their business continuity capabilities. However, MNC banks

do not seem to perceive significant value by adopting BS25999, given their

mature BCM capabilities.

Interesting insights emerge in the adoption of CMMi – DEV model. While MNC

banks have already adopted or have expressed keen interest to adopt the model,

Puclic sector banks have not indicated this as a focus area. This supports the

hypothesis that high degree of in-house developed systems are being used by

MNC Banks, whereas public sector banks prefer to deploy off-the-shelf packages

and do not often go along the route of in-house software development.

Planned Not PlannedIn ProcessImplemented

Six Sigma CMMI v1.2 ISO 27001 BS 25999

100%

80%

60%

40%

20%

Perc

enta

ge o

f Ban

ks

Perc

enta

ge o

f Ban

ks

Perc

enta

ge o

f Ban

ks





IT Performance Measurement and Process Improvement

IT has been instrumental in maximizing business value. The areas where IT

has most effectively been able to contribute are:

?Treasury

?Retail

?Cards

?Wholesale (including merchant banking)

?Payment and Settlements

It is imperative for Banks to measure IT performance and improve IT

delivery processes.

It was heartening to see that across all segments of Banks, IT performance was

measured using metrics that were hitherto considered the domain of business,

such as customer acquisition, growth in deposits, decrease in number of

customer complaints regarding delivery channels, increased usage of alternate

channels and decrease in footfalls at brick-and-mortar branches. It is also

heartening to see an increased focus on formal tooling and project management

techniques, in order to measure and adhere to IT compliance norms.

A majority of the respondents have defined IT performance metrics, and have

been monitoring these quarterly and tracking the same over a period of at least a

year. However, only 40 percent have been measuring IT performance over the

past two years. This reflects the relative novelty of IT performance programs. We

expect to see heightened focus on such programs, resulting in increased

spending to support such initiatives. Costs may be incurred under the heads such

as tools for performance measurement, audits to assess compliance and

effectiveness of IT performance initiatives and people to manage these

programs.

Measuring the success of IT performance improvement programmes

IT Performance Improvement Programs

Periodicity of measurement of performance initiatives

100%

80%

60%

40%

20%


Annually/Semi-annually Quarterly

History of tracking productivity initiatives

Source: Current State to Future GrowthSource: Current State to Future Growth

100%

80%

60%

40%

20%


Less than 1 year More than 2 years


Adoption of IT Process improvement Models

Process Improvement Models

ISO 27001 seems to be the most actively adopted standard across the banking

sector. This speaks volumes about the overwhelming focus on information

security aspects in the sector, within the country. A large fraction of the private

sector banks, are actively adopting process improvement initiatives in line with

Six Sigma, which indicates a growing focus on enhancing operational efficiencies.

Although public sector banks have not adopted six sigma practices, these are

also considering initiatives in this area.

Public and private sectors are actively planning to adopt the standards such as BS

25999, to enhance their business continuity capabilities. However, MNC banks

do not seem to perceive significant value by adopting BS25999, given their

mature BCM capabilities.

Interesting insights emerge in the adoption of CMMi – DEV model. While MNC

banks have already adopted or have expressed keen interest to adopt the model,

Puclic sector banks have not indicated this as a focus area. This supports the

hypothesis that high degree of in-house developed systems are being used by

MNC Banks, whereas public sector banks prefer to deploy off-the-shelf packages

and do not often go along the route of in-house software development.

Planned Not PlannedIn ProcessImplemented

Six Sigma CMMI v1.2 ISO 27001 BS 25999

100%

80%

60%

40%

20%

Perc

enta

ge o

f Ban

ks

Perc

enta

ge o

f Ban

ks

Perc

enta

ge o

f Ban

ks






Measuring Return on Investment (ROI) on any project is one of the ways of

justifying investment and reassuring stakeholders that the fundamental

assumptions/ conditions and goals made at the time of investment still hold

true.

Among the several strategic IT initiatives, the top three in terms of highest ROI

relate to IT application consolidation/ portfolio optimization, hardware

consolidation and outsourcing/ managed IT services.

While outsourcing/ managed IT services has been the area Banks have

traditionally seen a significant ROI, initiatives aimed at consolidation of

application (ie portfolio optimization) and Hardware are gaining ground.

Private Banks seem to have accrued maximum benefits from hardware

consolidation and Public Banks seems to have gathered maximum RoI from

application consolidation. MNC Banks have responded that RoI was attained from

outsourcing and management of IT services.

Across segments Banks spent substantial amount of money on IT.

IT spend patterns in Indian banks

IT Intitatives with highest RoI


Annual IT Spend as percent of Annual Revenue


Measuring IT Performance

IT projects monitoring retains its usual pre-

eminence within the area of IT performance

management.

‘Cost per employee' is a metric that is being

measured in most MNC banks and has been

actively been measured in Private and Public

Banks. This can only be possible if core

transaction systems have been well integrated

into business. Many Banks seem to have already

completed the journey of core systems rollout,

and as a result, are well placed to put in place this

next generation of performance metrics that are

extremely relevant to business.

As expected, across segments banks are

measureing IT costs as percentage of revenue,

with MNC banks ahead in the curve.

Only the Private Banks have put in place

mechanisms for real-time measurement of

metrics such as production defects, hardware

uptime, and network uptime.


Measuring IT Performance - MNC Banks

Project Delivery Metrics (time, budget, quality)

Cost per employee

Cost per transaction

Percentage expense of company revenue

100%

75%

50%

25%

Real timeOnce in monthOnce in 6 monthsNot Tracked

Measuring IT Performance - Private Banks


Cost per employee



100%

75%

50%

25%


Measuring IT Performance - Public Banks


Cost per employee



100%

75%

50%

25%


50%

40%

30%

20%

10%

Public Private MNC

<1 1 - 3 3 - 5 >5

100%

80%

60%

40%

20%

Public PrivateMNC

Outsourcing/ Managed IT services

Hardware consolidation

Application consolidation/ portfolio optimization

Perc

enta

ge o

f Ban

ksPe

rcen

tage

of B

anks

Perc

enta

ge o

f Ban

ksPe

rcen

tage

of B

anks

Perc

enta

ge o

f Ban

ks






Measuring Return on Investment (ROI) on any project is one of the ways of

justifying investment and reassuring stakeholders that the fundamental

assumptions/ conditions and goals made at the time of investment still hold

true.

Among the several strategic IT initiatives, the top three in terms of highest ROI

relate to IT application consolidation/ portfolio optimization, hardware

consolidation and outsourcing/ managed IT services.

While outsourcing/ managed IT services has been the area Banks have

traditionally seen a significant ROI, initiatives aimed at consolidation of

application (ie portfolio optimization) and Hardware are gaining ground.

Private Banks seem to have accrued maximum benefits from hardware

consolidation and Public Banks seems to have gathered maximum RoI from

application consolidation. MNC Banks have responded that RoI was attained from

outsourcing and management of IT services.

Across segments Banks spent substantial amount of money on IT.

IT spend patterns in Indian banks

IT Intitatives with highest RoI


Annual IT Spend as percent of Annual Revenue


Measuring IT Performance

IT projects monitoring retains its usual pre-

eminence within the area of IT performance

management.

‘Cost per employee' is a metric that is being

measured in most MNC banks and has been

actively been measured in Private and Public

Banks. This can only be possible if core

transaction systems have been well integrated

into business. Many Banks seem to have already

completed the journey of core systems rollout,

and as a result, are well placed to put in place this

next generation of performance metrics that are

extremely relevant to business.

As expected, across segments banks are

measureing IT costs as percentage of revenue,

with MNC banks ahead in the curve.

Only the Private Banks have put in place

mechanisms for real-time measurement of

metrics such as production defects, hardware

uptime, and network uptime.


Measuring IT Performance - MNC Banks


Cost per employee



100%

75%

50%

25%


Measuring IT Performance - Private Banks


Cost per employee



100%

75%

50%

25%


Measuring IT Performance - Public Banks


Cost per employee



100%

75%

50%

25%


50%

40%

30%

20%

10%

Public Private MNC

<1 1 - 3 3 - 5 >5

100%

80%

60%

40%

20%

Public PrivateMNC

Outsourcing/ Managed IT services

Hardware consolidation

Application consolidation/ portfolio optimization

Perc

enta

ge o

f Ban

ksPe

rcen

tage

of B

anks

Perc

enta

ge o

f Ban

ksPe

rcen

tage

of B

anks

Perc

enta

ge o

f Ban

ks



Does not exist Manual Automated

100%

80%

60%

40%

20%




Risk Management

During the past year, focus on reporting of risk and

compliance has increased significantly in line with global as

well as regional trends. Automated systems can help a

proactive risk management approach, while reducing

compliance costs.

Presently, near 50 percent of the respondents have manual

systems in place to monitor compliance norms. However,

considering regulatory requirements with respect to Basel II and

RBI initiatives for automation in 'Return' submission, Banks are

gearing up for further automation in Risk management and

Reporting.

Most Banks have taken up projects to align internal reporting with

regulatory reporting requirements, thus easing the duplication

effort. There are tremendous synergies in this area that Banks

could explore, especially given the increasing emphasis to move

towards automated reporting systems.

Banks have shown a fair interest in upgrading existing core

transaction systems to automate the reporting process. Private

Banks have taken the first steps to deploy and optimally utilize

core transaction systems for the automation, followed by some

public sector banks.

Banks are in the early stages of exploring specialized solutions

such as Datawarehousing to further automate reporting through

specialized analyses of transaction data. As expected, end user

driven customized reporting tools are widely used across Banks,

possibly owing to the ease of deployment and use associated

with such applications.

Extent of IT alignment for regulatory reporting purposes

Risk measurement and monitoring framework


As a percentage of total revenue, IT spends range between 2 and 5 percent. Of

total spend, around 30 percent spend in between 20 and 40 percent on capital

expenditure. While, around 40 percent of respondents spend between 60 and 80

percent on operational expenditure, another 40 percent spends between 20

percent and 40 percent on the same. Approximately 25 percent of the

respondents spend around 10 to 20 percent of total IT budgets on outsourcing

services. Approximately 17 percent of the respondents spend more than 40

percent of IT budgets on outsourcing.

In the MNC segment, a large percentage of the Banks spend up to 5 percent of

revenues on IT, this figure goes to between 1 and 3 percent for Public Banks and

sometimes above 5 percent for Private Banks. However, judging by quantum of

revenue, it may be said that Public Banks have been recently spending sizable

amounts on IT.

In the MNC Banks, between 20 and 40 percent of IT spend is on outsourcing

activities. This figure is in the 5 to 20 percent range for the Public Banks and

between 5 and 10 percent for the Private Banks.

Does this indicate that Private Banks have kept their core banking operations in-

house, to a greater extent that the Public and MNC Banks? This would also

appear to be the case, if the data presented in the previous sections with respect

to headcount of IT personnel is taken into account.

Outsourcing spend as percent of IT spend

Ratio of Capex vs. Opex


Public

Public

Private

Private

MNC

MNC

50%

40%

30%

20%

10%

40%

30%

20%

10%

<50% 51 - 100% >100%

10 - 20 >205 - 10<5

Perc

enta

ge o

f Ban

ks

Perc

enta

ge o

f Ban

ks

IT alignment of managing regulatory reporting


100%

80%

60%

40%

20%

0%

Aligning internal reporting with regulatory reporting requirements

Upgrading CBS and other systems to manage automated reporting

Implementing specific applications (Datawarehousing etc.) to facilitate automation

Implementing end - user driven customizable reporting tools

Deployed Partially DeployedNot deployed

Perc

enta

ge o

f Ban

ks

Perc

enta

ge o

f Ban

ks



Does not exist Manual Automated

100%

80%

60%

40%

20%




Risk Management

During the past year, focus on reporting of risk and

compliance has increased significantly in line with global as

well as regional trends. Automated systems can help a

proactive risk management approach, while reducing

compliance costs.

Presently, near 50 percent of the respondents have manual

systems in place to monitor compliance norms. However,

considering regulatory requirements with respect to Basel II and

RBI initiatives for automation in 'Return' submission, Banks are

gearing up for further automation in Risk management and

Reporting.

Most Banks have taken up projects to align internal reporting with

regulatory reporting requirements, thus easing the duplication

effort. There are tremendous synergies in this area that Banks

could explore, especially given the increasing emphasis to move

towards automated reporting systems.

Banks have shown a fair interest in upgrading existing core

transaction systems to automate the reporting process. Private

Banks have taken the first steps to deploy and optimally utilize

core transaction systems for the automation, followed by some

public sector banks.

Banks are in the early stages of exploring specialized solutions

such as Datawarehousing to further automate reporting through

specialized analyses of transaction data. As expected, end user

driven customized reporting tools are widely used across Banks,

possibly owing to the ease of deployment and use associated

with such applications.

Extent of IT alignment for regulatory reporting purposes

Risk measurement and monitoring framework


As a percentage of total revenue, IT spends range between 2 and 5 percent. Of

total spend, around 30 percent spend in between 20 and 40 percent on capital

expenditure. While, around 40 percent of respondents spend between 60 and 80

percent on operational expenditure, another 40 percent spends between 20

percent and 40 percent on the same. Approximately 25 percent of the

respondents spend around 10 to 20 percent of total IT budgets on outsourcing

services. Approximately 17 percent of the respondents spend more than 40

percent of IT budgets on outsourcing.

In the MNC segment, a large percentage of the Banks spend up to 5 percent of

revenues on IT, this figure goes to between 1 and 3 percent for Public Banks and

sometimes above 5 percent for Private Banks. However, judging by quantum of

revenue, it may be said that Public Banks have been recently spending sizable

amounts on IT.

In the MNC Banks, between 20 and 40 percent of IT spend is on outsourcing

activities. This figure is in the 5 to 20 percent range for the Public Banks and

between 5 and 10 percent for the Private Banks.

Does this indicate that Private Banks have kept their core banking operations in-

house, to a greater extent that the Public and MNC Banks? This would also

appear to be the case, if the data presented in the previous sections with respect

to headcount of IT personnel is taken into account.

Outsourcing spend as percent of IT spend

Ratio of Capex vs. Opex


Public

Public

Private

Private

MNC

MNC

50%

40%

30%

20%

10%

40%

30%

20%

10%

<50% 51 - 100% >100%

10 - 20 >205 - 10<5

Perc

enta

ge o

f Ban

ks

Perc

enta

ge o

f Ban

ks

IT alignment of managing regulatory reporting


100%

80%

60%

40%

20%

0%

Aligning internal reporting with regulatory reporting requirements

Upgrading CBS and other systems to manage automated reporting

Implementing specific applications (Datawarehousing etc.) to facilitate automation

Implementing end - user driven customizable reporting tools

Deployed Partially DeployedNot deployed

Perc

enta

ge o

f Ban

ks

Perc

enta

ge o

f Ban

ks





The IT (Amendment) Act 2008 mandates implementation of

stringent mechanisms to reasonably protect sensitive

information. The Act further provides enable remedial/ penal

provisions to address non-compliance. All Bank are required

to comply with the provisions of the IT Act.

Banks must align internal policies, procedures for protecting

sensitive information (eg customers’ personal information) and

deploy technology safeguards to prevent computer and cyber

crimes. In order to understand the readiness, with respect to the

tenets of the Act, it is recommended that the Bank undertakes a

detailed analysis with respect to the provision of IT Act.

It appears that a majority of the Banks are lagging in performing

such gap analysis. As a result, it may take them that much more

time to understand the implications of various aspects of the

amended IT Act.

Banks that have undertaken such gap analysis have required top

management directives to ensure business focus, and this has

happened over the period of a quarter or more. A larger number

of Public Banks seem to have performed this gap analysis than

Banks in the Private and MNC Banks.

Initiatives undertaken by Banks across sectors to align to the IT Act

Assessment of IT Act

Yes

No


MNC banks Public sector banks Private sector banks

Payment systems upgrade, dual

authorization of transactions on internet

channels.

Security audit of IT, Security Operations

Center deployment, multi-factor

authentication, synchronous replication of

data to optimize RPO, RTO.

Automation in reporting, identity and

access management, enterprise backup

solution, password vault, log monitoring,

data leakage prevention program.

It may be noted that public sector Banks seem to have focused a

lot of attention on getting multi-factor authentication in place,

while private sector Banks have invested in identity and access

management solutions in order to align to some of the tenets of

the IT (Amendment) Act 2008.

Some of the key areas of focus outlined in the IT

(Amendment) Act 2008 are data protection,

security procedures and practices, offensive

messages, data authentication, information

monitoring, validity of electronic contracts, audit of

digital documents, exemption of liability of

intermediary in certain cases.

MNC

Private

Public

31%69%

6% 6%

19%





The IT (Amendment) Act 2008 mandates implementation of

stringent mechanisms to reasonably protect sensitive

information. The Act further provides enable remedial/ penal

provisions to address non-compliance. All Bank are required

to comply with the provisions of the IT Act.

Banks must align internal policies, procedures for protecting

sensitive information (eg customers’ personal information) and

deploy technology safeguards to prevent computer and cyber

crimes. In order to understand the readiness, with respect to the

tenets of the Act, it is recommended that the Bank undertakes a

detailed analysis with respect to the provision of IT Act.

It appears that a majority of the Banks are lagging in performing

such gap analysis. As a result, it may take them that much more

time to understand the implications of various aspects of the

amended IT Act.

Banks that have undertaken such gap analysis have required top

management directives to ensure business focus, and this has

happened over the period of a quarter or more. A larger number

of Public Banks seem to have performed this gap analysis than

Banks in the Private and MNC Banks.

Initiatives undertaken by Banks across sectors to align to the IT Act

Assessment of IT Act

Yes

No


MNC banks Public sector banks Private sector banks

Payment systems upgrade, dual

authorization of transactions on internet

channels.

Security audit of IT, Security Operations

Center deployment, multi-factor

authentication, synchronous replication of

data to optimize RPO, RTO.

Automation in reporting, identity and

access management, enterprise backup

solution, password vault, log monitoring,

data leakage prevention program.

It may be noted that public sector Banks seem to have focused a

lot of attention on getting multi-factor authentication in place,

while private sector Banks have invested in identity and access

management solutions in order to align to some of the tenets of

the IT (Amendment) Act 2008.

Some of the key areas of focus outlined in the IT

(Amendment) Act 2008 are data protection,

security procedures and practices, offensive

messages, data authentication, information

monitoring, validity of electronic contracts, audit of

digital documents, exemption of liability of

intermediary in certain cases.

MNC

Private

Public

31%69%

6% 6%

19%

Conclusion


Our survey covered a representative sample of Banks across Public, Private

and MNC segments with a good mix in terms of size ranging from less than

500 employees to more than 10000. This also included participation from the

senior management of these banks providing rich content and valuable

insights. This uniquely positions the results of the survey to represent

emerging trends in Banking and Technology.

The key message of the survey results is that technology led innovation has

been a key factor in growth and value creation in the banking industry. While

Banks in India are treading the path of growth, there has been a heightened

regulatory and business led focus on risk management. Banks are deploying

technology for implementing differentiated strategy and risk management

frameworks (such as Basel II). Increasing IT investments in these areas will

also bring a proactive and transparent monitoring and compliance environment

within Banks.

We observed that emerging global trends to automate regulatory reporting is

also a point of focus in the Indian banking industry. This will not only be a great

help for the Regulator but also enhance customer confidence in Banks which is

the need of the hour after the global financial crisis.

With increasing focus on financial inclusion, Banks will have to take a leap

forward in order to service their obligations to the social sector. Systems and

frameworks will need to be made scalable in order for the Banks to seamlessly

align to any future requirements that may arise. Banks in general are

considering embarking upon various strategic IT initiatives such as Service

Oriented Architecture, Green IT and Cloud Computing. These initiatives are

expected to bring substantial business benefits across both top-line and

bottom-line. However these initiatives have varied degrees of prioritization in

terms of importance as well as implementation time lines. Prime concerns that

may not enable immediate off-take for these new initiatives, seem to be

around the ability to offer continual service and security.

These are interesting times for the Banking industry in terms of consolidating

customer confidence and using emerging technologies to provide value add

services in 24 X 7 model. We will see a new face of Banking and technology in

the times to come. We sincerely believe that these survey results will be

useful for the Banking fraternity to strategize their Banking and Technology

initiatives.




Conclusion


Our survey covered a representative sample of Banks across Public, Private

and MNC segments with a good mix in terms of size ranging from less than

500 employees to more than 10000. This also included participation from the

senior management of these banks providing rich content and valuable

insights. This uniquely positions the results of the survey to represent

emerging trends in Banking and Technology.

The key message of the survey results is that technology led innovation has

been a key factor in growth and value creation in the banking industry. While

Banks in India are treading the path of growth, there has been a heightened

regulatory and business led focus on risk management. Banks are deploying

technology for implementing differentiated strategy and risk management

frameworks (such as Basel II). Increasing IT investments in these areas will

also bring a proactive and transparent monitoring and compliance environment

within Banks.

We observed that emerging global trends to automate regulatory reporting is

also a point of focus in the Indian banking industry. This will not only be a great

help for the Regulator but also enhance customer confidence in Banks which is

the need of the hour after the global financial crisis.

With increasing focus on financial inclusion, Banks will have to take a leap

forward in order to service their obligations to the social sector. Systems and

frameworks will need to be made scalable in order for the Banks to seamlessly

align to any future requirements that may arise. Banks in general are

considering embarking upon various strategic IT initiatives such as Service

Oriented Architecture, Green IT and Cloud Computing. These initiatives are

expected to bring substantial business benefits across both top-line and

bottom-line. However these initiatives have varied degrees of prioritization in

terms of importance as well as implementation time lines. Prime concerns that

may not enable immediate off-take for these new initiatives, seem to be

around the ability to offer continual service and security.

These are interesting times for the Banking industry in terms of consolidating

customer confidence and using emerging technologies to provide value add

services in 24 X 7 model. We will see a new face of Banking and technology in

the times to come. We sincerely believe that these survey results will be

useful for the Banking fraternity to strategize their Banking and Technology

initiatives.




At KPMG in India we constantly strive to present thought leadership that is useful and

relevant to a wide variety of stakeholders. We invite your feedback on this document.

Please send your feedback to [email protected].

This survey document has been released on the occasion of The Economic Times

Banking Technology Conclave 2010.

We thank all the respondents of the “Current State to Future Growth” survey, for their

valuable inputs. We would like to thank Times Grey Cell, for all the support offered during

the completion of the survey.

The KPMG team, who has contributed towards the content presented in this

publication, comprises Kumar Parakala, Abizer Diwanji, Vikram Jaiswal, Abhijeet Patil and

Melvin Barboza.

A special note of thanks to the Design Cell, KPMG in India for bringing the report

together to its present layout and design.

The editorial team for 'Banking on Technology - India' comprises of Nitin Khanapurkar,

Kunal Pande, Vishnu Sri Pillai, Glyn Crasto and Sweta Nalwaya.


Acknowledgement

20


At KPMG in India we constantly strive to present thought leadership that is useful and

relevant to a wide variety of stakeholders. We invite your feedback on this document.

Please send your feedback to [email protected].

This survey document has been released on the occasion of The Economic Times

Banking Technology Conclave 2010.

We thank all the respondents of the “Current State to Future Growth” survey, for their

valuable inputs. We would like to thank Times Grey Cell, for all the support offered during

the completion of the survey.

The KPMG team, who has contributed towards the content presented in this

publication, comprises Kumar Parakala, Abizer Diwanji, Vikram Jaiswal, Abhijeet Patil and

Melvin Barboza.

A special note of thanks to the Design Cell, KPMG in India for bringing the report

together to its present layout and design.

The editorial team for 'Banking on Technology - India' comprises of Nitin Khanapurkar,

Kunal Pande, Vishnu Sri Pillai, Glyn Crasto and Sweta Nalwaya.


Acknowledgement

20


The information contained herein is of a general nature and is not intended to address the circumstances of any particular

individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that

such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one

should act on such information without appropriate professional advice after a thorough examination of the particular

situation.

© 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.

KPMG and the KPMG logo are registered

trademarks of KPMG International Cooperative

(“KPMG International”), a Swiss entity.

Printed in India

KPMG in India

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Fax: +91 33 44034199

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KPMG Contacts

Vikram Utamsingh Head - Markets

Tel: +91 22 3090 2320

e-Mail: [email protected]

Kumar ParakalaHead - IT Advisory

Tel: +91 80 3065 4600


Abizer DiwanjiHead - Financial Services

Tel: +91 22 3090 2380



Tel: +91 22 3090 1959


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