Indian banking inches its way from bricks to clicks

In just decades, India has transformed itself from a tech-phobic country to become Asia's technology powerhouse. Its telecommunications sector is poised for huge growth--and all hopes are on telco extraordinaire Sam Pitroda to lead the way.

The taller the trees, the harder they fall.

That old adage doesn't quite apply to the standing timber of Indian government monopolies. Rather, they get gnawed up steadily from the inside by termites like corruption, bureaucracy and muddled policy, until all that's left one day is hollow deadwood.

Take television, for example. When the skies opened up in the early nineties Doordarshan, the government broadcaster, led the field with a 30-year operational advantage on home ground. Add to that nationwide infrastructure & laws on its side. Even until six years ago, it had 90 cents out of every dollar of broadcast advertising revenue. Optimistic estimates projected that it would take decades for the private channels to catch up. In less than six years, however, Sony, Zee and a host of regional players have caught up both in revenues and reach. Hardly anyone in cable -satellite homes watches Doordarshan anymore.

Or take automobiles. The part-government-part-private sector monopoly Maruti-Suzuki ruled the four-wheeled department for more than a decade. It was a good, viable car and a shining example of joint enterprise. Then the laws were liberalized. While the government wasted valuable time arguing over power sharing with its partner Suzuki, other manufacturers ate into its market share. Today Maruti-Suzuki's market worth is half what it was two years ago.

The next Titanic to hit the iceberg could be from India's nationalized banks. When the going gets tough

The banking sector in India was nationalized in the late sixties, with the "safety & soundness " aspect of the banking institutions in mind, and also to direct credit towards development purposes. Bankers often led the push for development, establishing branches in the remote hinterland. The idealist "babuji"--the bank clerk cycling to the remote village--symbolized a break from the stranglehold of evil money-lenders. He represented reliability, security and development.

Over the two decades that followed, many spectacular achievements notwithstanding, the image of the banker became one of a pudgy, middle-aged man representing a stodgy institution with 1.3 million employees. He presided over a pile of non-performing assets, was largely indifferent to customers and has been caught napping around some humiliating frauds.

Today, the non-performing assets of Indian banks stand at a whopping US$12 billion. And it isn't the small rural farmer but fat corporates in nexus with the powers that be, which account for a substantial chunk of this.

Against this background, banking sector reforms were initiated in India in 1992. The structure of administered interest rates was dismantled, banks were allowed to raise funds from the public and the entry of foreign banks was liberalized.

Foreign banks arrived, inducting information technology and communications networking into their operations--which changed the operating environment of banks in India drastically. Like most industries in liberalization, the banking sector is getting unbundled. Technology has already enabled some banks to introduce innovative products to their customers in the form of ATM facilities, tele-banking, home-banking, "anytime & anywhere" banking--a collection of more than 150 specific products or market services.

These are hard times for the nationalized banks--increased competition, rebellious and underemployed employees, frauds and defaults. Critics say that not all answers lie with information technology. True. But they do lie in a mindset that is willing to see and use information technology for what it is worth. Let the tough get going ...

Over the years there have been many committees advising on automation. The recent Vasudevan Committee report on technology upgrading in the banking sector (1999) has come up with detailed suggestions in the area of inter-bank & intra-bank applications and suitable recommendations for the legal framework for electronic banking.

The report admits that the "status of automation in the banks in the country is not uniform". Banks have spent sizeable amounts in the past decade to automate manual tasks "but, fundamentally, the same jobs are being done". Some banks may not be able to start afresh and the Vasudevan Committee has come up with the idea of a "hi-tech bank within the bank", totally distinct and different from the other branches which now perform the routine business without that much intensity of computerization.''

But the "thinking out of the box" has come from the Central Vigilance Commission (CVC). It has ordered a 70 per cent computerization of all bank business before January 2001. That would mean the computerization of more than 45,000 branches of the 25 nationalized banks, against less than 10,000 at present.

"As this issue is directly related to improving the vigilance administration in the banks, this will not be an issue to be negotiated by the bank managements with the unions. This principle will be applicable mutatis mutandis to all concerned with the computerization of the clearing houses," says the Chief Vigilance Commissioner. This move might take the wind out of the sails of rebellious unions and corrupt management.

In seminars, lectures and tours across the country, the respected commissioner has sounded the clarion call. The CVC has been raising the heat on two levels. One is urging the government to construct cyber laws, which has had some success. The other concerns the technology of encryption for data security. Most of the firewall products sold by vendors of network security incorporate very rudimentary levels of filtering. Moreover, US law states that no encryption software products can be exported from that country if they are too strong to be broken by the US National Security Agency.

Giving the valedictory address of BancIT '99 in Bangalore, the CVC said: "Only insecure software can be exported. The only way to guard against import of such software is to have our own software". The Defence Research Development Organization, for which network security and traffic security are core competencies, is developing software tools to provide security for traffic passing through bank networks.

The CVC is doing a good job of tying it all together. He lobbies for change, pushes the right buttons, and ties it up with quotes from philosophy. He might yet manage to take the horse to the water... But will the horse sip?

The successful proponents of IT strategy have been India's top private sector banks, ICICI and HDFC. These post-liberalization banks have taken to technology like fish to water. Their steadily expanding product profile encompasses everything from foreign exchange advisory, to managing dividend payments for corporate clients, to online stock trading for their customers. While one notes with satisfaction the way they have stormed into the preserves of foreign banks, the true revolution will happen only in the transformation of the public sector.

Though public sector banks number only 27 of more than 100 banks in India, they account for more than 80 percent of loans and deposits in the country.

But there is light at the end of the tunnel. Last year, a public sector bank, was rated as the best by a top business magazine for the first time in eight years since the ratings began.. Two other public banks figured in the top ten list. The winner, Corporation Bank earned a sizeable amount of its revenue from Collection and Payments Services (Caps) for its corporate clients. In dealings between corporate clients and their dealers, it has been able to reduce the clearance period of outstation payments from the usual month to two days. This has been largely possible due to its large number of Totally Computerized Banks (TCBs). Predictably, the TCBs account for 100 percent of the Caps business. Corporation Bank can also take credit for producing a large amount of software in-house.

The job before the banks is clear. They must diversify from traditional lending roles to fee-based services, attract and retain customers, optimize their networks, cut down on bureaucracy and sharpen their response time.

The fuel for much of this will come from IT, the great enabler. But the Herculean task is to translate this into a vision for the banks' 1.3 million employees. The Indian banker has delivered in the past. It is time he reinvented himself for a new