IT firms cut rates to grab business from banks

Information Technology (IT) vendors have dropped hardware and software solutions rates by 30-40 per cent to grab a share of the over Rs 4,000-crore business lined up by the public sector banks for the next two years.

This year, 10 of the 27 public sector banks are in various stages of rolling out their core banking solutions (CBS). They have either tied up or are planning to tie up with software and hardware vendors by March 2006.

According to IT heads at banks, competition has driven down prices in the last six-eight months. They said despite the fall in prices it was safe to assume that each bank would spend between Rs 150 crore and Rs 250 crore in the next two years on CBS and computerisation.

Big IT players like TCS, CMC, HP, Wipro and IBM are using their implementation experience to win over the remaining banks. TCS recently formed a joint venture with SBI to offer solutions to banks.

Besides BASEL II, banks are upgrading their systems for RTGS. They also need the IT systems to be in place to comply with the data management requirement under the "Know Your Customer" and those under the Anti-Money Laundering law which wants banks to track the source and flow of funds.

While the PSBs are largely driven by the need to modernise and meet regulatory requirements, the private banks are investing in upgrading their customer relationship management infrastructure to bundle multiple services to customers. The rush towards big-ticket IT spend is largely driven by regulatory and compliance requirements. Gathering necessary data under BASEL II norms for credit risk and operational risk has become a priority for Indian banks. To collect the data, a bank needs to be networked and have some kind of CBS in place by 2007-08. Intense competition to offer services like anywhere banking is also forcing the banks to invest in technology.

The immediate target for these banks is to cover the top 250-300 branches, which account for 50-70 per cent of their business. The United Bank of India, which is in final stages of choosing a consultant, is targeting 300 branches by March 2008 that form 65 per cent of the bank's business.

The cost of this is estimated at about Rs 200 crore.

The other 16 PSBs (IOB has developed an in-house solution) including the State Bank of India have picked up pace on this front only this year. At the start of 2005-06, no public sector bank had implemented CBS in even half of its branches.

State Bank Group had just 13.2 per cent of its branches under CBS. Andhra Bank came the closest with 46.8 per cent of its branches under CBS. SBI Bank has now covered over 5,000 of its branches.

OBC, which has implemented CBS in 500 branches, plans to complete 800 branches by end March 06 and aims to cover 1200 branches by March 2007. "We expect to spend over Rs 200 crore in the next two years on CBS, disaster recovery systems and payment software interface for RTGS," a senior executive of the bank said.

The story is the same for most other banks. PNB has already put about 450 branches under CBS in the current financial year, to take the network under CBS to 1,450 and aims to cover 2,000 branches by March 2006.