Towards maximum value
Kotak Mahindra Bank wants to be known as the bank that provides
maximum value to its customers. Dipak Gupta, Executive Director intends
to achieve this goal with the help of IT
Kotak Mahindra Banks business objectives include running
the business successfully and becoming a successful bank at national level.
However, its main objective is to be known as a special bank that provides maximum
value to its customers.
Even at conception, the bank faced a unique situation. It was a leading financial
services company which suddenly converted into a bank. The requirements of a
bank were significantly different from its earlier identity.
First of all, it was not a new project, but an existing entity. The organisation
was entering a competitive market, so from day one it needed everything that
a state-of-the-art bank required and provided in terms of products, services
In the meanwhile, other private banks had been around for a while. They had
the luxury of introducing services like ATM, core banking, phone banking and
net banking gradually and in a phased manner. However, Kotak bank had to have
everything ready and set to offer on day one itself.
The IT Side of Change
The organisation wanted to offer complete, practical, financial solutions. This
included retail finance, stock broking, mutual funds and life insurance, along
with investment and core banking.
There was no single vendor who supplied everything in a single package. Separate
packages were required for core banking, treasury and ATM switch and 25 different
subsystems in addition to ensuring that the bank ran properly. The organisation
was called upon to choose each solution and integrate and customise them to
The biggest challenge was to get the large investment that was needed, ensure
that everything was in place, ran properly from day one, gave desired result
and happened within the predefined time. Everything was planned meticulously
and in great detail for nine months, to ensure that it worked.
Start Small and Scale Up
The first step was research. A market survey was conducted to find the best
solutions available, how fast the vendors could offer them and how fast they
could be deployed. Cost, economics and scalability are crucial in selecting
A bank may start with a small base, but has to offer all services. This way
it can grow fast. The bank must be able to scale up efficiently in a short period
using the latest technology. You cannot wait for costs to come down or add technology
which is old because obsolescence is a key issue.
From the technology perspective, a banks IT infrastructure can be divided
into five parts. The first is applications in terms of core banking, treasury
system, loan management system, operating ledger and so on.
The second is the application environment. This includes the database, backend,
and operating systems. The third part is the hardware, which is intricately
tied to the application.
The fourth is where you want to house all these things. If you want a data centre,
only then should you outsource or plan for one. This includes details like how
to provide DR, its location, type and other criteria.
As banking needs high availability, every system is replicated twice. If you
offer DR, then the base system and the high availability system are both replicated
at the DR site.
The last decision is the network. Usually branches are all over India and 25
percent of them have to be in semi-urban towns and rural areas. The issue here
is about how to achieve connectivity at that place. Do you choose leased lines,
VPN or wireless? It is imperative that each branch is constantly connected.
The CIOs Role
The CIO today is much more of a business strategy person. He has to ensure that
appropriate technology gets used.
The CIOs role in a bank is 90 percent business and 10 percent technology.
His focus has to be on the business and its future. He has to think of making
the business grow, both from economics point of view and for having an edge
in the market place using the technology.
Banking is an age-old business. As a customer how you differentiate between
banks? They all allow you to make a deposit, withdraw money or take a loan.
The bank has to be different to attract customers. This is possible through
technology. It helps the bank to offer different value-added products and services.
The regulatory authority monitors the banks technology closely in all
aspects as it defines the banks ability to service a large customer base.
Regulations are reasonably stringent to ensure that the bank has the right system,
security, DR and BC in place.
The first stage of Basel II compliance is required from April 1, 2006. Various
banks are at different stages of it and a lot is happening with regard to market
risk. Basel II is good for banks from a long-term risk management perspective.
Also, the market is becoming more open whether it is the domestic market, rupee
market, interest rate market, foreign currency market, world market, commodity
market or the stock market. It is necessary for the bank to manage and monitor
its risk across all these markets. Basel II lays down specific norms as to how
to manage these risks.
The bank decided against setting
up its own ATMs. It allowed customers to go to a local bank's ATM to withdraw
cash and picked up the tab for the transaction. A sharing arrangement
was worked out with UTI Bank to provide Kotak Mahindra's customers access
to hundreds of ATMs across the city
Kotak had to come up with interesting and innovative offerings to compete with
other banks and enhance its distinct image. The first was the ATM-sharing concept.
The bank decided against setting up its own ATMs. It allowed customers to go
to a local bank's ATM to withdraw cash and picked up the tab for the transaction.
A sharing arrangement was worked out with UTI Bank to provide Kotak Mahindra's
customers access to hundreds of ATMs across the city. This entailed a small
additional cost but it was insignificant compared to the investment required
had the bank set up hundreds of ATMs.
The other innovative service was investment advice to the
customer. In a traditional banking system a person gets different customer account
numbers for a saving account, fixed deposit, investment account or any other
facility. The end result is that it becomes unwieldy to manage them.
Kotak Mahindra built its technology around a single customer number no matter
how many accounts he had. This ensured that he got all information about his
money from all types of accounts at a single point. This integrated customer
view is possible only because of technology even though the applications like
core banking, investment, mutual funds, demat are all on different systems.
Mobile Banking on the Anvil
The fastest moving technology for todays customer is not the Internet.
It is the mobile as limited consumers have access to net banking. However, at
least a 100 times more people have mobile phones. In future, competitive edge
will be based on a combination of technology, trust, comfort, products and pricing.
|The IT budget is based on a revenue and investment
approach. Each category is further sub-divided. First of all, the routine
expenditure for an organisation is decided.
For instance, it could be PC maintenance or hardware
upgrades of various IT initiatives. These get taken care of because the
organisation will suffer if it does not spend on them.
The investments are divided into 'must have', 'like
to have' and 'may have'. 'Must have' can be things like storage upgrades
since the bank's customer base may triple by the end of the year. 'Like
to have' can be those having problems with VPN in semi-urban areas and
hence wish to change to a wireless network. It is something which the
organisation can do without but looks at as an investment. 'May have'
can be anything.
As told to Kumar Dawada