 "Indian lenders need $1 bn to upgrade core bank systems: BCG report")
Indian lenders will have to invest one billion dollars in five to 10 years to upgrade their legacy core banking systems, according to Vipin V, managing director and partner at Boston Consulting Group (BCG).
Indian financial institutions have historically allocated a lower share of their revenues on information technology (IT) compared to global peers. Global banks typically invest 7-9 per cent of their revenue on IT and Indian ones up to 5 per cent, said Vipin, citing BCG's report 'Cloud-based Core Transformations'.
Indian banks typically use their IT budgets for front-end engagement systems and not core. This has resulted in legacy backend infrastructure that is inadequately equipped to support volume of transactions and quick product launches.
About 80 per cent of the IT budget is spent on "run the rank" (RTB) compared to "change the bank" (CTB) with a focus on keeping the lights on. “There is a need to increase spending on CTB initiatives, preferably with a ratio of 60 / 40 vs RTB”. Furthermore, even within CTB initiatives, focus is much more on "low-hanging fruits such as enhancing customer experiences and offering omni-channel services".
The global consultancy firm said banks' legacy core systems have various problems. First, they entail high costs for running and maintenance. The systems were set up in the 1990s and used "monolithic architectures", helping to unburden themselves from the inefficiencies of mainframe architectures meant for managing large banks with branch networks. However, this resulted in tightly coupled systems, built on a single tech stack, and unsuitable for horizontal scaling.
Second, there is lack of scalability and resilience for increasingly high workloads. The added burden of handling real-time transactions and advanced technologies is increasing the downtime of banks. The Reserve Bank of India's ombudsman recorded more than 40,000 mobile and internet banking complaints in FY23 and FY22.
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Third, core systems lack flexibility and agility in launching new products. It is difficult to integrate with legacy systems as they use old API interfaces which are not supported by new age applications and need much more effort to run and maintain, said BCG.