Core banking could free up over 10,000 CanBank staff

Canara Bank, which is in an advanced stage of deciding on a vendor consortium to implement its core banking software, could see over 10,000 staff freed up for marketing its products as a result of implementing the software, reliable sources said.

The bank has nearly 50,000 staff and "a very conservative estimate (of freeing up) would be 20 per cent and ultimately it is likely to be higher" the sources said.

With a shrinking gap between the cost of funds and the yields on investments, banks are under tremendous pressure to expand their volume businesses to maintain bottomline growth.

So retail lending, increasing fee based incomes through selling insurance and mutual fund products and turning around "chronic non-performing assets" had become that much more important.

As a result, staff freed up from doing routine work like processing demand drafts, which core banking would almost do away with, will be re-deployed to these areas. The banks will also develop more retail products, which these staff can sell, the sources said.

Canara Bank, one of the larger public sector banks in the country and a dominant player in South India, has been a prime candidate for a robust core banking software package.

The bank has short listed three "front end" vendors "" Bangalore based Wipro, and multinational firms Hewlett Packard (HP) and International Business Machines (IBM). The front end vendors would provide the hardware and partner with a core banking software provider.

Two of them, HP and Wipro have mentioned Infosys Technologies' Finacle as their core banking software in the bids and IBM has partnered with Mumbai based i-flex Systems with its Flexcube product.

Bank sources say, "typically, public sector firms always went for the lowest bid, but this time the management has decided to take a holistic view and quality of the product and the vendors' service will be equally important."

Bank officials said bids for the "Rs 200 crore plus" contract were opened on March 10. "A vendor is to be chosen by March 25 and by September 30, a pilot involving between 15 and 20 branches is to be rolled out.

By December 2006, some 1053 branches accounting for about 85 per cent of the bank's total business will be part of core banking. Some bank officials say the project cost could even be Rs 250 crore.

Globally, banks will spend some $155 billion (Rs 700,000 crore) in 2005 on IT, estimates analysts firm Tower Group. Financial services as a whole are estimated to spend some $365 billion on IT, the firm estimates, IT industry sources said here.

A whole host of other software packages are also being brought, either as modules from the same vendors or as independent packages.

These include software for asset liability management, risk management, anti money laundering, government operations and loan processing.

Rating agency CRISIL is one candidate for supplying the risk management software, sources said.

Canara Bank aims to implement the core banking solution to coincide with its centenary year that starts in July. Them implementation also includes a central data centre in Bangalore and a disaster recovery site in Mangalore.

Implementation of the core banking software will also mean Canara Bank can build a robust management information system, hasten the building of processes needed to comply with Basel II norms, and use the Internet as an additional channel to distribute its retail products. Last year the bank spent close to Rs 100 crore, maintaining its existing IT infrastructure.