Most banks aim to deploy IT for cost reduction: KPMG

The search for the next big business need that may be fulfiled through IT is what drives technocrats in the banking sector today. While, capital and operational expenditure in IT by a majority of the banks hovered around 1-3 per cent of their annual revenues, technology is now being considered for deriving strategic advantage for effective business growth and cost reduction projects within the bank.

The findings were part of the ‘IT Current Status Survey’ conducted by KPMG to help identify key technology trends in Indian banks.

The information is based on data from the top management and technology leaders of top 15 banks in India. The survey tries to probe key trends in technology that enables banking processes. Feedback on factors like cost, proposed technology initiatives and technology strategy, have been collated.

“Appropriate investment in technology is today considered key. This has various ramifications — ensuring profitability, enhancing value to the end customer and addressing overall societal development,” said Kumar Parakala, head-IT Advisory, KPMG in India. “Over the past year, we have noticed that various banking institutions have been introspecting on the efficacy of their systems implementation through programmes like constitution of reviews of core banking systems, conducting IT security efficacy studies, evaluation of value-added systems like enterprise content management and business intelligence suites,” Kumar added.

Application consolidation and process/workflow automation along with virtualisation were the top cost reduction initiatives with 40 per cent of the respondents having a project lined up over the next one year to address these areas. Around 50 per cent of the banks surveyed considered e-commerce, mobile banking and financial inclusion initiatives as key areas for strategic growth.

Flexibility of adapting technology to business process is the front-running challenge for IT in banks. Driving utilisation of applications and channels through better adoption of technology is the second challenge with the reduction of maintenance costs for IT coming in third. However, close to 60 per cent banks feel that the top technology challenges are in keeping up with changes to regulatory guidelines and implementing Basel II. It was noticed that important channels for customer outreach like ATM and card service management have been outsourced, showcasing the increasing levels of comfort with respect to technology outsourcing.

“The widespread use of IT in banking necessitates the deployment of appropriate systems and associated risk management practices. It is often said technology brings flexibility, but is inflexible in itself. Therefore it is all the more important that critical business issues with respect to cost reduction, capital and liquidity management, risk management and changing regulatory landscape appropriately reflect in the evolution of the organisation’s technology landscape. Managing this falls within the purview of the IT strategy and governance framework of most banks today,” said Abizer Diwanji, head- Financial Services Sector, KPMG in India.