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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

Dipak Gupta

Kotak Mahindra Bank’s 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.

Unique Challenges

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 and infrastructure.

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 work seamlessly.

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 solution.

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.

Bare Essentials

From the technology perspective, a bank’s 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 CIO’s Role

The CIO today is much more of a business strategy person. He has to ensure that appropriate technology gets used.

The CIO’s 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.

Regulatory Compliance

The regulatory authority monitors the bank’s technology closely in all aspects as it defines the bank’s 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.

Interesting Offerings

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 today’s 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.

IT Budget Strategy
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

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