BFSI: Riding the IT Wave

by Sohini Bagchi    Jun 27, 2012

IT WaveThe BFSI industry in India is witnessing a phenomenal growth after a period of lull following the economic downturn. The emergence mobile banking, virtual debit cards, and other innovative offerings as well as rapid expansion of branches across geographies has made BFSI one of the most vibrant industries in India in recent times. The growing business needs are driving rapid adoption of IT in the Indian banking sector that currently contributes to 8 percent of the country’s GDP.

A new Zinnov study on ‘IT adoption in BFSI sector in India’ revealed that the IT spends in BFSI vertical is expected to reach $3.5 billion by FY 2014, growing at a CAGR of 13 percent. IT budgets as a percent of revenues for BFSI is estimated at 1.5%- 2%, with regulatory compliance being the key driver. In the recent past, changes in the regulatory guidelines and frameworks from RBI and SEBI aimed at enhancing security and transparency.

According to Anil Kuril, DGM-IT Union Bank of India, in the banking sector, technology is increasingly playing a big role in regulatory compliance. “With compliance pressures on banks likely to increase in the future, the need of the hour is to implement advanced technology solutions that are integrated and are capable of addressing the various compliance issues,” he says.

Currently, India’s domestic IT spends is pegged at $30.4 billion, out of which BFSI sector contributes to 11.1 percent share. The change in the transaction modes such as mobile and electronic transactions has been another important factor for Indian BFSI institutions to adopt IT solutions, followed by automation.

“We constantly invest in IT to automate our front end and back end processes in order to drive business growth. Banks are increasing looking for enhanced customer experience and offering innovative products and services to customers. Only by investing in newer technologies, we can keep pace with the growing competition and customer satisfaction,” says C.V.G Prasad, CIO at ING Vysya Bank Ltd.

A recent Gartner report noted that in the next one year, banks will considerably increase their spends in hardware, software, external IT services and telecommunications and that retail banking segment would show maximum traction thanks to the focus on internet banking and mobile banking.

“CIOs in the banking and financial sector in India will be strongly focused on mobility. They will emphasise on leveraging the high mobile penetration to bring banking services to a wider audience,” says Derry Finkeldey, Principal Research Analyst at Gartner. With the advent of internet and mobile banking, and other newer platforms, Finkeldey believes security is also a growing concern in this sector and banks should seriously consider its implementation.

Praveen Bhadada, Director- Market Expansion, Zinnov informs that the number of BFSI-specific IT deals in India has increased 600 percent cumulatively in the last 4 years. One third of those deals are focused on modern technologies. “The BFSI segment in India is demonstrating a definite inclination towards leveraging IT. In fact social, mobile and Cloud computing have emerged as essential for next-generation services in the vertical and we are seeing an increased traction for cloud and business intelligence (BI) solutions,” says he.

At the same time, Bhadada believes that the banking sector also faces some challenges in technology adoption such as lack of standardisation of process and change management in public sector banks, limited IT resources, lack of success stories for emerging technologies like cloud computing and increasing security threats with consumerisation of IT.

The gross margins for new IT implementation are as high as 25-40% for IT service providers. Bhadada says this dynamic scenario offers a lot of opportunity for technology vendors to explore the BFSI segment. They should have the flexibility and the agility to address this sector. “There is potential to upsell, upgrade, customise and take advantage of the limited internal expertise within these organisations,” he opines.

At present, while large banks are moving up the growth curve from core banking applications to mobility and electronic payment solutions and targeted business-focused solutions, the smaller entities are reported to increase investments in core banking solutions and showing much interest in cloud computing.

To deploy the right technology solutions, Prasad recommends that CIOs will have to look for IT vendors that are professionally managed, have the right domain expertise and also an excellent track record. By investing in the right technologies, he believes that the banking sector can make exponential progress in the next two to three years.