Dear Readers,
“Something is rotten in the state of Denmark”, goes an immortal line in Hamlet, an iconic Shakespeare play, uttered by one of the characters. Hamlet, the leading character, goes through a spell of madness when the ghost of his father, the King of Denmark, tells him to take revenge and
kill his uncle who had killed Hamlet’s father. The prince’s life is never the same after listening to his father’s ghost… While looking at the recent diktat of the Res
erve Bank of India, which stopped Kotak Mahindra Bank from onboarding new customers through its online channel… The question that comes to my mind is what is rotten in India's banking tech? Kotak Bank is not the only one, the RBI has already pressed heavy charges on three other large banks
— HDFC Bank, UCO Bank and Bank of Baroda. Here is my view.
What is going wrong?
Over the last few years, especially during the pandemic, banks gave a huge thrust on upgrading their technology as digital came to be the mainstay during lockdown. In fact, digital had picked up even before that, but during the pandemic banks realised that it was the only way ahead to
survive. From modernising their tech infrastructure to building cloud strategy, from creating glossy mobile apps to seamless UI and UX, adopting Big Data, AI and machine learning
to now focusing on Gen AI, banks have had their plates full. So much so that the rapid evolution of technology is hounding the banks. And they don't have an alternative but to embrace it. While onboarding customers through KYC and serving them multiple products, insurance, mutual funds and
loans is imperative, it requires a huge coordination between dozens of IT platforms and vendors. And more importantly, what is needed is infrastructure that can take the load
. Unfortunately, that's very costly and banks are not making enough investments there.
Today there is a need to completely reimagine core banking and basic monolithic infrastructure, which banks built more than two decades ago, but the majority of the banks are just focusing on
‘patching’ (A common tech term) rather than actually resolving the major issues.
The vision of any bank CEO today is to automate banking from front end to back end, onboard customers seamlessly in few minutes and offer them a bucket of products on mobile apps, without human intervention. Fine. But do we have a system ready? Half the banks still show a signboard
of ‘Server not working’ and many apps sometimes go under blackout.
The Kotak Mahindra Bank, which incurred the wrath of RBIs this week, faced a major issue on April 15 because of an app issue. HDFC Bank, UCO, BOB and Kotak Bank are not small banks. If RBI is finding irregularities in such banks’ systems then the problem is deep. There has to be a greater
connection between a branch and the whole IT system. In my observation banks are too much in a hurry to shift everything to IVR, chatbots and automate though they are still
not ready.
What is the Tech problem?
Recently deputy governor of RBI Swaminathan J said that banks are not spending enough on IT budgets. The top IT companies have also said that Indian banks are spending too less compared to global banks. Many banks have dozens of vendors for one line of business. Managing such a large pool of
vendors and their different platforms which often don’t talk with each other is like managing 30 different roads leading to 30 different directions. This is happening bec
ause of a lack of future based IT strategy and focus on short-term patching.
In the world of CXOs
In my discussion with a lot of experts I learnt three points. Generally, the CXOs, either the CTO who is looking at the technology and CIO who looks after the hardcore innovation, are working with banks on a contract for 3- 5 years. There are many issues here, first is they don't want to
resolve all the major problems, because their tenure is limited. Second, the management doesn't take them seriously and sometimes there are no approvals for spending. In fact,
I am told that in the PSU banks there is a need for outsiders, specifically to build innovation and technology, but the treatment of the outsiders by insiders could be another subject of my note. Third, many CXOs also have their favourite vendors and they generally look at only them. This
ultimately weakens the bank's infrastructure.
I strongly feel that the biggest challenge for the banks is managing vendors. Banks cannot build everything on their own and have to bring in vendors. In such cases, banks will have to first train their employees and ensure that the vendors are providing quality of service. On the other hand,
there is so much competition on the vendor side too.
What next?
The RBI pressing heavy charges on the big boys of the sector means the tech issues and their potential impact are huge. Is tech a ticking time bomb? How will banks manage their IT and more importantly vendors will define their rules hereafter. Nothing will be easy. Banks need transformational
CXOs and tech teams, which will see it through. Interestingly, the regulator has built a strong tech team, which could see this through their magnifying glass.
I strongly feel that banks should remain banks and should not try to become tech companies. It's a global phenomenon that the global CEOs began building a narration of ‘we are no more banks but tech companies’ or people want banking not banks. I think the major factor is global banks
spend huge money on tech infra, which Indian banks cannot do despite catering to a large number of customers. A vendor once told me that DBS Bank spends 3% on IT versus 1% by l
arge banks in India and less than 0.5% by NBFCs.
Well, We are holding our second annual event NBFC connect today at Chennai.
Click here for the details.
I am sharing with you the top five stories of the week, trust you will find them meaningful. Also, don't forget to
join our WhatsApp channel, if you haven’t joined yet.
1.
RBI bans Kotak Mahindra Bank from onboarding new customers through online, mobile banking channels
2.
Exclusive: PayU gets Payment Aggregator licence from RBI; company to onboard new merchants soon
3.
Exclusive:‘Not just a new name’, says Bandhan Life’s CEO sharing growth plans
4.
Explainer: How will RBI's action on Kotak Mahindra Bank affect the bank's customers?.
5.
IRDAI paves the way for tailored health products for specific age groups, med conditionsHappy Friday,
Happy Reading,
Amol Dethe
Editor
ETBFSI
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